TORONTO, May 5 /PRNewswire-FirstCall/ -- Four Seasons Hotels Inc.
(TSX Symbol "FSH"; NYSE Symbol "FS") today reported its results for
the first quarter ended March 31, 2006. All amounts disclosed in
this news release are in US dollars unless otherwise noted.
Endnotes can be found at the end of this news release. Highlights
of the First Quarter of 2006 For the three months ended March 31,
2006, as compared to the same period in 2005: Hotel and Resort
Operating Results: - RevPAR(1) at our worldwide Core Hotels(2)
increased 11.7%. RevPAR at our US Core Hotels increased 12.6%. -
Gross operating margins(3) at our worldwide Core Hotels increased
250 basis points to 32.4%. At our US Core Hotels, gross operating
margins increased 210 basis points to 30.2%. - Revenues under
management increased 15.1% to $692.3 million. We had approximately
17,500 rooms under management in the first quarter of 2006, as
compared to approximately 16,500 rooms in the first quarter of
2005. "We are very pleased with our operating results in the first
quarter, which reflect continued strong travel demand, particularly
for luxury travel experiences. We are also pleased with the strong
profitability improvements at the hotels and resorts we manage,"
commented Isadore Sharp, Chairman and Chief Executive Officer.
"Recently opened properties in Hong Kong, Geneva, Palo Alto and a
new tented camp in the Golden Triangle, Thailand are garnering
immediate critical acclaim and a strong positive customer response,
which further enhances the Four Seasons brand." Company Operating
Results: - Overall, we recorded net earnings of $13.4 million
($0.36 basic and diluted earnings per share), compared to net
earnings of $5.2 million ($0.14 basic and diluted earnings per
share). - As a result of improved results at properties under our
management and an increase in the number of rooms under management,
hotel management fees increased 23.1%. - Base fees increased 12.1%,
generally in line with RevPAR improvements for the quarter. - As a
result of improved profitability and the addition of new properties
under our management, incentive fees increased 50.3%. Incentive
fees from resorts under our management had the most significant
year over year increase. - Other fees improved 44.7%, primarily as
a result of an increase in branded residential royalty fees. -
Operating earnings before other items(4) increased $8.4 million to
$20.5 million. "We are pleased with the growth in our management
fees. Our financial results are tracking with the operational
improvements at the properties we manage," said John Davison, Chief
Financial Officer. "Our base fees increased generally in line with
the overall RevPAR performance of properties under our management,
which was ahead of our expectations. We are also pleased with the
progress we have made on certain corporate initiatives related to
cost control and foreign exchange management." Expanding and
Refining the Portfolio: - Negotiations continue with the owner of
the Ritz-Carlton Chicago concerning the sale of that property and
the potential cessation of our management on acceptable terms. -
Since the beginning of the year, we have announced new projects in
the following five locations: Barbados, Macau, Seychelles, Shanghai
and Taipei. "We are delighted with the strength of our development
pipeline, which continues to grow in depth and breadth," said
Kathleen Taylor, President Worldwide Business Operations. "Each of
these new locations will be exciting additions to our portfolio and
will help support the future growth of the Company."
------------------------------- (1) RevPAR is defined as average
room revenue per available room. It is a non-GAAP financial measure
and does not have any standardized meaning prescribed by GAAP and
is, therefore, unlikely to be comparable to similar measures
presented by other issuers. We use RevPAR because it is a commonly
used indicator of market performance for hotels and resorts and
represents the combination of the average daily room rate and the
average occupancy rate achieved during the period. RevPAR does not
include food and beverage or other ancillary revenues generated by
a hotel or resort. RevPAR is the most commonly used measure in the
lodging industry to measure the period-over-period performance of
comparable properties. Our calculation of RevPAR may be different
than the calculation used by other lodging companies. (2) The term
"Core Hotels" means hotels and resorts under management for the
full year of both 2006 and 2005. However, if a "Core Hotel" has
undergone or is undergoing an extensive renovation program in one
of those years that materially affects the operation of the
property in that year, it ceases to be included as a "Core Hotel"
in either year. Changes from the 2005/2004 Core Hotels are the
additions of Four Seasons Resort Scottsdale at Troon North, Four
Seasons Resort Whistler, Four Seasons Resort Costa Rica at
Peninsula Papagayo, Four Seasons Hotel Gresham Palace Budapest,
Four Seasons Resort Provence at Terre Blanche and Four Seasons
Hotel Cairo at Nile Plaza, and the deletion of The Regent Kuala
Lumpur. (3) Gross operating margin represents gross operating
profit as a percentage of gross operating revenue. (4) Operating
earnings before other items is equal to net earnings plus (i)
income tax expense plus (ii) interest expense less (iii) interest
income plus (iv) other expenses, net plus (v) depreciation and
amortization. Operating earnings before other items is a non-GAAP
financial measure and does not have any standardized meaning
prescribed by GAAP and is therefore unlikely to be comparable to
similar measures presented by other issuers. We consider operating
earnings before other items to be a meaningful indicator of
operations and use it as a measure to assess our operating
performance. It is included because we believe it can be useful in
measuring our ability to service debt, fund capital expenditures
and expand our business. Operating earnings before other items is
also used by investors, analysts and our lenders as a measure of
our financial performance. FIRST QUARTER OF 2006 MANAGEMENT'S
DISCUSSION AND ANALYSIS This Management's Discussion and Analysis
("MD&A") for the three months ended March 31, 2006 is provided
as of May 5, 2006. It should be read in conjunction with the
interim unaudited consolidated financial statements for that
period, the audited consolidated financial statements for the year
ended December 31, 2005 and the MD&A for that year, including
the discussion of risks and uncertainties associated with
forward-looking statements. Except as disclosed in this MD&A,
as of May 5, 2006, there has been no material change in the
information disclosed in the MD&A for the year ended December
31, 2005. A summary of total revenues, net income or loss in total
and on a per share basis for the past eight quarters can be found
under "Eight Quarter Summary". All amounts disclosed in this
MD&A are in US dollars unless otherwise noted. Endnotes can be
found at the end of this document. Operational and Financial Review
and Analysis Hotel and Resort Operating Results Consistent with
industry practices, we track RevPAR(1) on a US dollar basis, and
all numbers noted below reflect that practice unless otherwise
noted. For the first quarter of 2006, RevPAR of our worldwide Core
Hotels(2) increased 11.7%, as compared to the first quarter of
2005, reflecting improvements in each of the regions in which we
manage hotels and resorts. This increase in RevPAR was attributable
to a 7.2% improvement in achieved room rates and a 270 basis point
increase in overall occupancy. Gross operating revenues of our
worldwide Core Hotels increased 9.4% in the first quarter of 2006,
as compared to the first quarter of 2005. The improvements in
revenue, combined with continued cost management efforts at the
properties under our management, resulted in a 18.6% and 250 basis
point increase in gross operating profits(3) and gross operating
margins(4), respectively. With respect to our Core Hotels, the
United States represents the most significant geographic area to
us, contributing 50.5% of revenues under management for the first
quarter of 2006, followed by Other Americas/Caribbean (17.9%),
Europe (13.2%), Asia/Pacific (12.3%) and the Middle East (6.1%).
The following tables highlight the results of operations for our
Core Hotels in each of these regions. United States Region
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Results for First Quarter 2006, as compared to First Quarter 2005
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Gross Gross Operating Operating Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point $ Increase Increase
Increase Margin Improvement
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First Quarter 301 12.6% 11.6% 20.2% 30.2% 210
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The increase in RevPAR was attributable to an 8.3% increase in
achieved room rates in the region and a 290 basis point improvement
in occupancy. Virtually all of the hotels and resorts in this
region experienced RevPAR improvements. In particular, properties
under management in Atlanta, Houston, New York, San Francisco and
Maui had very strong RevPAR improvements relative to the average
for the U.S. region. As a result of improvements in RevPAR, gross
operating profits and gross operating margins increased 20.2% and
210 basis points, respectively.
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Other Americas/Caribbean Region
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Results for First Quarter 2006, as compared to First Quarter 2005
-------------------------------------------------------------------------
Gross Gross Operating Operating Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point $ Increase Increase
Increase Margin Improvement
-------------------------------------------------------------------------
First Quarter 303 13.1% 14.0% 19.8% 36.9% 170
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The majority of the properties under management in this region
experienced RevPAR improvements as the result of an increase in
achieved room rates and occupancy. Properties under management in
Buenos Aires, Costa Rica, and Whistler had particularly strong
RevPAR improvements relative to the average for the region. RevPAR
at properties under management in Exuma and Nevis declined slightly
mostly due to the unusually warm weather on the US Eastern
Seaboard, which had a negative impact on travel to these resorts.
On a local currency basis, RevPAR improved 11.8%. As a result of
improvements in RevPAR, gross operating profits and gross operating
margins increased 19.8% and 170 basis points, respectively.
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Europe Region
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Results for First Quarter 2006, as compared to First Quarter 2005
-------------------------------------------------------------------------
Gross Gross Operating Operating Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point $ Increase Increase
Increase Margin Improvement
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First Quarter 307 15.6% 2.1% 20.3% 25.0% 370
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RevPAR changes in the European Core Hotels were mixed. RevPAR
increases at the properties under management in Dublin, Lisbon,
London, Milan and Paris was the result of increases in achieved
room rates. However certain other properties under management in
the European region (in particular in Prague and Terre Blanche)
experienced RevPAR declines due in part to a decline in achieved
room rates. On a local currency basis, RevPAR increased 25.5%,
reflecting an 11.0% increase in achieved room rates in local
currency, versus 2.2% in US dollars. Gross operating profits
increased 20.3% (31.1% on a local currency basis), and gross
operating margins improved 370 basis points due to improvements in
overall occupancy and achieved room rates.
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Middle East Region
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Results for First Quarter 2006, as compared to First Quarter 2005
-------------------------------------------------------------------------
Gross Gross Operating Operating Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point $ Increase Increase
Increase Margin Improvement
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First Quarter 182 14.4% 14.6% 20.5% 52.1% 260
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With the exception of Sharm el Sheikh, where business was adversely
affected by the lingering effect of the July 2005 bombings in that
area, all of the properties under management in the Middle East
region had RevPAR improvements. The increase in RevPAR was driven
almost entirely by a 14.9% increase in achieved room rates. Four
Seasons Hotel Cairo Nile Plaza and Four Seasons Hotel Riyadh had
particularly strong RevPAR improvements, as compared to the average
for the region. On a local currency basis, RevPAR improved 12.4%.
Gross operating profits increased 20.5% (18.4% on a local currency
basis). Gross operating margins increased 260 basis points as a
result of the improvement in achieved room rate.
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Asia/Pacific Region
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Results for First Quarter 2006, as compared to First Quarter 2005
-------------------------------------------------------------------------
Gross Gross Operating Operating Revenue Profit Gross Operating
RevPAR (GOR) (GOP) Margin
--------------------------------------------------------------
Percentage Percentage Percentage Basis Point $ Increase Increase
Increase Margin Improvement
-------------------------------------------------------------------------
First Quarter 132 3.0% 0.7% 8.6% 32.6% 240
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RevPAR increased 3.0% (6.1% on a local currency basis). RevPAR
changes in the Asia/Pacific region were mixed. Properties under
management in Bangkok and Singapore experienced strong RevPAR
improvements. However, other properties in the region experienced
flat RevPAR or a decline in RevPAR. In particular, the resorts in
Bali experienced lower demand during the first quarter of 2006.
Gross operating profits improved 8.6% (11.5% on a local currency
basis) and gross operating margins increased 240 basis points,
mainly as the result of improved operating results at properties
under management in Bangkok and Singapore.
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Company Operating Results Our strategy has been to focus on hotel
management rather than hotel ownership. Over the past few years, we
have reduced our ownership interests such that Four Seasons Hotel
Vancouver is our only remaining hotel whose results we currently
consolidate. As a result, commencing January 1, 2006, corporate
expenses have been included in general and administrative
expensesin the consolidated statements of operations for the three
months ended March 31, 2006. Corporate expenses for the three
months ended March 31, 2005 that previously were included in our
Ownership Operations segment, have been reclassified to the
Management Operations segment and included in general and
administrative expenses in the consolidated statements of
operations. Attached are supplementary schedules including prior
quarters in 2004 and 2005 reflecting this reclassification.
Revenues
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(in millions Three months ended Dollar Change Percentage of
dollars) March 31, Change
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2006 2005 2006 over 2005 2006 over 2005
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Hotel management fees Base $19.7 $17.6 $2.1 12.1% Incentive 10.7
7.1 3.6 50.3%
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Subtotal 30.4 24.7 5.7 23.1%
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Other fees 5.3 3.7 1.6 44.7%
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Subtotal 35.7 28.4 7.3 25.9%
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Hotel ownership revenues 5.5 20.5(x) (15.0) (73.3%)
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Reimbursed costs(5) 16.4 14.2 2.2 15.6%
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Total revenues $57.6 $63.1(x) ($5.5) (8.7%)
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(x) Included in 2005 were the 100% consolidated results of The
Pierre. Hotel Management Fees Base Fees Base fees increased $2.1
million (from $17.6 million to $19.7 million) for the quarter ended
March 31, 2006, as compared to the quarter ended March 31, 2005. Of
the $2.1 million increase in base fees, base fees from Core Hotels
contributed $1.4 million or 66.2% of the increase. The increase in
base fees from Core Hotels in the three months ended March 31, 2006
represented a 8.7% increase over the base fees generated from Core
Hotels in the first quarter of 2005. Properties that opened in 2005
and 2006 contributed base fees of $1.4 million in the first quarter
of 2006, as compared to nil in the same period in 2005. The
increase in base fees in the quarter was moderated slightly by a
$0.4 million reduction in base fees from properties no longer under
management. Incentive Fees For the quarter ended March 31, 2006,
incentive fees increased $3.6 million, as compared to the same
period in 2005. The incentive fees earned from properties that
opened in 2005 and 2006 represented $1.3 million of the increase.
Incentive fees were earned from 38 of the 70 hotels and resorts
under management for the first quarter of 2006, as compared to 36
of the 65 hotels and resorts under management in the same period in
2005. The strong increase in incentive fees was primarily due to
strong operating results at many of the resorts under management.
Typically, the incentive fees we receive from the properties under
our management are reconciled on an annual basis to the actual full
year operating results at a particular property. On a quarterly
basis, we recognize incentive fees that would be calculated under
the incentive fee formula as if the particular management contract
was terminated at the relevant reporting date. If a property's
profitability decreases in a subsequent quarter (due mainly to
seasonal differences), the incentive fee accrued in a previous
quarter may be reduced or eliminated. Based on our current outlook
and historical patterns, we expect that a portion of the incentive
fees accrued during the first quarter of 2006, primarily related to
resorts under management, may be reversed in subsequent quarters.
Other Fees Other fees include royalty and management fees from our
residential business, fees we earn during the development of our
hotels and resorts, capital procurement fees and other
miscellaneous fees. For the three months ended March 31, 2006,
other fees increased 44.7% or $1.6 million, to $5.3 million as
compared to the same period in 2005. The increase in other fees for
the first quarter of 2006, as compared to the same period in 2005,
was attributable to royalty fees related to the sale of branded
residences in Miami and San Francisco. Royalty fees earned on the
sale of branded residences will vary period to period based on the
volume of sales closing in those periods, and these fluctuations
may be significant. Hotel Ownership Revenues We have a 100%
leasehold interest in the Four Seasons Hotel Vancouver and, as a
result, we consolidate the results of that hotel. During the first
half of 2005, we also had a 100% leasehold interest in The Pierre
and consolidated the results of that property. We assigned the
lease of The Pierre to a third party at the end of June 2005 and,
as a result, we ceased to consolidate that property at that time.
Our investment strategy is not to hold any majority interests in
properties. However, Four Seasons Hotel Vancouver is a long-term
leasehold interest that was established at an earlier stage in our
development. We continue to review our options for the Four Seasons
Hotel Vancouver to determine what, if any, alternatives may be
available to modify or restructure our operation of, or investment
in, this hotel. There can be no assurance that acceptable
alternative arrangements will be found with respect to this hotel
or as to the terms of any such alternative arrangements. In the
first quarter of 2006, the decline in hotel ownership revenue was
primarily related to our owning and consolidating 100% of The
Pierre during the first quarter of 2005 and our not owning and not
consolidating it during the first quarter of 2006. Hotel ownership
revenue for the first quarter of 2006 relates to the Four Seasons
Hotel Vancouver only. Revenue at that property increased modestly
relative to the first quarter of 2005, primarily as the result of a
720 basis point improvement in occupancy. Reimbursed Costs
Reimbursed costs, which primarily represents sales, marketing,
advertising and central reservation expenses, are generally
incurred on a cost-recovery basis to us and are a function of the
revenues under our management. For the three months ended March 31,
2006, reimbursed costs increased $2.2 million or 15.6%, as compared
to the corresponding period in 2005. The increase was due in part
to a larger portfolio of properties, as compared to the same period
in 2005. Expenses General and Administrative Expenses As discussed
above, general and administrative expenses include amounts that
were previously classified as corporate expenses. General and
administrative expenses increased 11.9% to $14.2 million from $12.7
million in the first quarter of 2006, as compared to the same
period in 2005. The majority of our general and administrative
expenses are in Canadian dollars and, accordingly, a portion of the
increase for the first quarter of 2006, as compared to the same
period in 2005, was attributable to the US dollar having declined
relative to the Canadian dollar (average Canadian/US foreign
exchange rate: first quarter 2006 - $1.15421; 2005 - $1.22652). For
the first quarter of 2006, general and administrative expenses
increased 5.4% on a Canadian dollar basis as compared to the same
period in 2005. Hotel Ownership Cost of Sales and Expenses As
discussed above, we consolidate 100% of the operations of Four
Seasons Hotel Vancouver, and until June 30, 2005 we also
consolidated the operations of The Pierre. Hotel ownership cost of
sales and expenses declined 73.0% to $6.5 million in the first
quarter of 2006, from $24.1 million during the first quarter of
2005 primarily as a result of the operations of The Pierre being
consolidated during the first quarter of 2005 and not being
consolidated during the first quarter of 2006. Costs of sales and
expenses at Four Seasons Hotel Vancouver increased 7.4% in the
first quarter of 2006, as compared to the same period in 2005,
primarily as a result of higher labour costs related to the
improvement in occupancy. Overall, our net loss from hotel
ownership declined from $3.6 million in the first quarter of 2005
to $1.0 million in the first quarter of 2006. Operating Earnings
Before Other Items(6) As a result of the items described above,
operating earnings before other items were $20.5 million in the
first quarter of 2006 as compared to $12.1 million in the same
period in 2005. Excluding hotel ownership revenues, hotel ownership
cost of sales and expenses and reimbursed costs, our profit margin
on our management business was as follows:
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Three months ended (in millions of dollars) March 31,
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2006 2005
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Hotel management fees $30.4 $24.7
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Other fees 5.3 3.7
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Subtotal 35.7 28.4
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General and administrative expenses (including corporate expenses
as discussed above) (14.2) (12.7)
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Total $21.5 $15.7
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Profit margin 60.1% 55.2%
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Other Expenses, Net For the first quarter of 2006, other expenses,
net was $0.8 million, as compared to $2.7 million for the same
period in 2005.
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Three months ended (in millions of dollars) March 31,
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2006 2005
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Foreign exchange loss $0.5 $0.4
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Loss on disposition of assets - 0.4
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Asset provision and write downs 0.3 1.9
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Other expenses, net $0.8 $2.7
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Foreign Exchange Other expenses for the first quarter of 2006
included a foreign exchange loss of $0.5 million, as compared to a
loss of $0.4 million for the same period in 2005. The majority of
our general and administrative expenses are incurred in Canadian
dollars, while the majority of fee revenues and cash balances are
in US dollars. We also incur Canadian dollar capital funding
requirements, which are primarily attributable to our corporate
office expansion. Accordingly, in December 2005 we began selling
forward US dollars for conversion to Canadian dollars. As at March
31, 2006, we had contracts in place to sell forward $24.6 million
at a weighted average exchange rate of 1.156 at various maturities
extending to June 2006. Subsequent to March 31, 2006, we have
extended the program to sell forward an additional $28.8 million
with maturities extending to October 2007, at a weighted average
rate of 1.137. Although these forward contracts relate to our
general and administrative expenses and capital funding
requirements, for accounting purposes they are "marked-to-market",
with the corresponding gains or losses included in "Other Expenses,
Net". The mark-to-market loss on these contracts for the three
months ended March 31, 2006 was $0.1 million. While this program of
selling forward US dollars allows us to predict the cost in US
dollars of the majority of our Canadian dollar general and
administrative expenses and capital requirements, it will not
eliminate the impact of foreign currency fluctuations related to
our management fees in currencies other than US dollars. It will
also not eliminate foreign currency gains and losses related to
un-hedged net monetary assets and liability positions. As such, our
consolidated results will continue to include gains and losses
related to foreign currency fluctuations. The impact of foreign
currency gains and losses has been material in the past and could
continue to be material in the future. Interest Income and Interest
Expense The $0.6 million increase in interest income for the
quarter ended March 31, 2006, as compared to the same period in
2005, was primarily attributable to higher deposit interest rates.
The $0.6 million increase in interest expense was primarily
attributable to the interest expense accrued relating to the
currency and interest rate swap agreement we entered into in the
second quarter of 2005 related to the convertible senior notes.
These arrangements are more fully described in the MD&A for the
year ended December 31, 2005. The effective interest rate on the
convertible senior notes in the first quarter of 2006 was
approximately 5.5%, which represents $3.0 million of interest
expense for that period. Income Tax Expense Our income tax expense
during the first quarter of 2006 was $4.3 million (effective tax
rate of 24.5%), as compared to income tax expense of $1.9 million
(effective tax rate of 26.8%), for the same period in 2005. Net
Earnings and Earnings per Share For the reasons outlined above, net
earnings for the quarter ended March 31, 2006 were $13.4 million
($0.36 basic and diluted earnings per share), as compared to net
earnings of $5.2 million ($0.14 basic and diluted earnings per
share) for the quarter ended March 31, 2005. Adjusted Net Earnings
and Adjusted Earnings per Share In the first quarter of 2005, we
recorded $2.7 million of other expenses related to losses on the
disposition of minority investments and a foreign exchange loss, as
compared to $0.8 million in other expenses in the first quarter of
2006. Adjusting for these items, adjusted net earnings are as
follows:
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Three months ended (in millions of dollars) March 31,
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2006 2005
-------------------------------------------------------------------------
Net earnings $13.4 $5.2
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Other expense 0.8 2.7
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Tax effect of adjustments (0.1) (0.5)
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Adjusted net earnings $14.1 $7.4
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Adjusted basic earnings per share $0.38 $0.20
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Adjusted diluted earnings per share $0.38 $0.19
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Adjusted net earnings is a non-GAAP financial measure and does not
have any standardized meaning prescribed by GAAP and is, therefore,
unlikely to be comparable to similar measures presented by other
issuers and should not be considered as an alternative to net
earnings, cash flow from operating activities or any other measure
of performance prescribed by Canadian GAAP. Our adjusted net
earnings may also not be comparable to adjusted net earnings used
by other companies, which may be calculated differently. We
consider adjusted net earnings to be a meaningful indicator of our
operations, and we use it as a measure to assess our operating
performance. Adjusted net earnings is also used by investors,
analysts, and our lenders as a measure of our financial
performance. As a result, we have chosen to provide this
information. Eight Quarter Summary
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(in millions of dollars except per share amounts) First Quarter
Fourth Quarter Third Quarter Second Quarter
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2006 2005 2005 2004 2005 2004 2005 2004
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Total revenues $57.6 $63.1 $58.5 $69.5 $52.2 $63.3 $74.5 $71.4
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Operating earnings before other items $20.5 $12.1 $12.3 $14.7 $11.7
$14.9 $20.1 $20.5
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Net earnings (loss) $13.4 $5.2 $(37.8) $12.8 $(11.4) $(8.5) $15.8
$12.8
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Basic earnings (loss) per share(8) $0.36 $0.14 $(1.03) $0.35
$(0.31) $(0.24) $0.43 $0.36
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Diluted earnings (loss) per share(7) $0.36 $0.14 $(1.03) $0.34
$(0.31) $(0.24) $0.42 $0.34
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Average Canadian/US foreign exchange rate used for specified
quarter 1.15421 1.22652 1.17478 1.22033 1.20687 1.30758 1.24401
1.35860
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Liquidity and Capital Resources As at March 31, 2006, our cash and
cash equivalents were $245.3 million, as compared to $242.2 million
as at December 31, 2005. Our investments in cash and cash
equivalents are highly liquid, with original maturities of less
than 90 days. These investments include bank deposits, guaranteed
investment certificates and money market funds held with major
financial institutions. We have a committed bank credit facility of
$125.0 million, which expires September 2007. Borrowings under this
credit facility bear interest at LIBOR plus a spread ranging
between 0.875% and 2.25% in respect of LIBOR-based borrowings
(prime rate plus a spread ranging between nil and 1.25% in respect
of prime rate borrowings), depending upon certain criteria
specified in the credit agreement. As at March 31, 2006, no amounts
were borrowed under the credit facility. However, approximately
$1.6 million of letters of credit were issued under the facility.
No amounts have been drawn under these letters of credit. We
believe that, absent of unusual opportunities, this bank credit
facility, when combined with cash on hand and internally generated
cash flow, should be more than adequate to allow us to finance our
normal operating needs and anticipated investment commitments
related to our current growth objectives. As discussed in the
MD&A for the year ended December 31, 2005, we have contractual
obligations, guarantees and other commitments, including certain
lease commitments. There has been no material change to these
commitments through the first quarter of 2006. Cash Flows Cash from
Operations The increase in cash from operations of $10.3 million in
the first quarter of 2006, as compared to the same period in 2005,
resulted primarily from higher earnings generated from our
management business and lower losses incurred by hotel ownership,
changes of $2.8 million in non-cash working capital, and a $1.3
million reduction in income taxes paid. Investing Activities
Long-Term Receivables In the first quarter of 2006, we advanced
$2.3 million, in the aggregate, as long-term receivables to
properties under our management. Also in the first quarter of 2006,
we were repaid $7.9 million, in the aggregate, of our long- term
receivables, including repayments related to properties under our
management in Washington and Shanghai. In the first quarter of
2005, we advanced $20.8 million, in the aggregate, as long-term
receivables to properties under our management and were repaid $0.3
million of our long-term receivables. Investments in Hotel
Partnerships and Corporations To fund capital requirements in
properties in which we have an interest (primarily properties under
construction or development), we invested $0.5 million in the first
quarter of 2006. In the first quarter of 2006, we were also repaid
$2.3 million relating to our equity interest in a property under
our management. During the first quarter of 2006, we contributed
our equity interest in a property under our management in exchange
for a management contract enhancement of approximately the same
fair value. No gain or loss was recorded in connection with this
transition. In the first quarter of 2005, we invested $7.2 million
in properties in which we have an interest and were repaid $5.3
million relating to one of our equity interests. Investment in
Management Contracts In the first quarters of 2006 and 2005, we
funded an aggregate of $4.0 million and $0.1 million, respectively,
related to our investments in management contracts. Fixed Assets
Our capital expenditures were $5.6 million for the quarter ended
March 31, 2006, as compared to $3.6 million for the same period in
2005. In 2004, we commenced construction on our Toronto corporate
office expansion, which is scheduled to be completed during 2006.
In the first quarters of 2006 and 2005, capital expenditures
related to this expansion were $5.4 million and $2.6 million,
respectively. Outstanding Share Data
-------------------------------------------------------------------------
Designation Outstanding as at May 4, 2006
-------------------------------------------------------------------------
Variable Multiple Voting Shares(1) 3,725,698
-------------------------------------------------------------------------
Limited Voting Shares 33,030,478
-------------------------------------------------------------------------
Options to acquire Limited Voting Shares(2):
-------------------------------------------------------------------------
Outstanding 4,393,243
-------------------------------------------------------------------------
Exercisable 3,416,929
-------------------------------------------------------------------------
Convertible Senior Notes issued June 2004 and due 2024(3) $251.4
million(4)
-------------------------------------------------------------------------
(1) Convertible into Limited Voting Shares at any time at the
option of the holder on a one-for-one basis. (2) As disclosed in
note 11(a) to our annual consolidated financial statements for the
year ended December 31, 2005, pursuant to an agreement approved by
the shareholders in 1989, Four Seasons has agreed to make a payment
to Mr. Isadore Sharp on an arm's length sale of control of Four
Seasons Hotels Inc. that is calculated by reference to the
consideration received per Limited Voting Share in the transaction
and the total number of Variable Multiple Voting Shares and Limited
Voting Shares outstanding at the time of sale. (3) The terms of the
convertible senior notes are more fully described in our MD&A
for the year ended December 31, 2005. (4) This amount is equal to
the issue price of the convertible senior notes issued in June 2004
and due 2024 plus accrued interest calculated at 1.875% per annum.
Looking Ahead If the travel trends that we experienced in 2005 and
the first quarter of 2006 continue, and based on current demand
reflected in our reservation activity, we expect RevPAR for
worldwide Core Hotels in the second quarter of 2006 and the full
year 2006 to increase in the range of 9% to 11%, as compared to the
corresponding periods in 2005. We expect that this improvement will
result from occupancy and rate improvements in all geographic
regions. If these anticipated trends continue and we meet our
expectations for cost management, we expect gross operating margins
of our worldwide Core Hotels to increase in the range of 200 to 225
basis points for the full year of 2006, as compared to the full
year of 2005. Accordingly, based on the current hotel operating
outlook, we expect hotel management fee revenue to grow for the
full year 2006 to be approximately 15%. Changes in Accounting
Policies During the three months ended March 31, 2006, we adopted
The Canadian Institute of Chartered Accountants' ("CICA") new
accounting standard on non- monetary transactions, as discussed in
note 1 to the interim consolidated financial statements. This
standard was to be implemented for non-monetary transactions
initiated on or after January 1, 2006. The adoption of this
standard did not have a material impact on our consolidated
financial statements. Additional Information ----------------------
Additional information about us (including our most recent annual
information form, annual MD&A and our audited financial
statements for the year ended December 31, 2005) is available on
our website at http://www.fourseasons.com/investor, and on SEDAR at
http://www.sedar.com/. ------------------------------------- (1)
RevPAR is defined as average room revenue per available room. It is
a non-GAAP financial measure and does not have any standardized
meaning prescribed by GAAP and is therefore unlikely to be
comparable to similar measures presented by other issuers. We use
RevPAR because it is a commonly used indicator of market
performance for hotels and resorts and represents the combination
of the average daily room rate and the average occupancy rate
achieved during the period. RevPAR does not include food and
beverage or other ancillary revenues generated by a hotel or
resort. RevPAR is the most commonly used measure in the lodging
industry to measure the period-over-period performance of
comparable properties. Our calculation of RevPAR may be different
than the calculation used by other lodging companies. (2) The term
"Core Hotels" means hotels and resorts under management for the
full year of both 2006 and 2005. However, if a "Core Hotel" has
undergone or is undergoing an extensive renovation program in one
of those years that materially affects the operation of the
property in that year, it ceases to be included as a "Core Hotel"
in either year. Changes from the 2005/2004 Core Hotels are the
additions of Four Seasons Resort Scottsdale at Troon North, Four
Seasons Resort Whistler, Four Seasons Resort Costa Rica at
Peninsula Papagayo, Four Seasons Hotel Gresham Palace Budapest,
Four Seasons Resort Provence at Terre Blanche and Four Seasons
Hotel Cairo at Nile Plaza, and the deletion of The Regent Kuala
Lumpur. (3) Gross operating profit is defined as gross operating
revenues less operating expenses. (4) Gross operating margin
represents gross operating profit as a percentage of gross
operating revenue. (5) Reimbursed costs include the reimbursement
of all out-of-pocket costs, including sales and marketing and
advertising charges. (6) Operating earnings before other items is
equal to net earnings plus (i) income tax expense plus (ii)
interest expense less (iii) interest income plus (iv) other
expenses, net plus (v) depreciation and amortization. It is a
non-GAAP financial measure and does not have any standardized
meaning prescribed by GAAP and is therefore unlikely to be
comparable to similar measures presented by other issuers. We
consider operating earnings before other items to be a meaningful
indicator of operations and use it as a measure to assess our
operating performance. It is included because we believe it can be
useful in measuring our ability to service debt, fund capital
expenditures and expand our business. Operating earnings before
other items is also used by investors, analysts and our lenders as
a measure of our financial performance. (7) Quarterly and
year-to-year computations of per share amounts are made
independently. The sum of per share amounts for the quarters may
not agree with per share amounts for the year. (x) (x) (x) All
dollar amounts referred to in this news release are US dollars
unless otherwise noted. The financial statements are prepared in
accordance with Canadian generally accepted accounting principles.
(x) (x) (x) This news release contains "forward-looking statements"
within the meaning of applicable securities laws, including RevPAR,
profit margin and earning trends; statements concerning the number
of lodging properties expected to be added in this and future
years; expected investment spending; and similar statements
concerning anticipated future events, results, circumstances,
performance or expectations that are not historical facts. Various
factors and assumptions were applied or taken into consideration in
arriving at these statements, which do not take into account the
effect that non-recurring or other special items announced after
the statements are made may have on our business. These statements
are not guarantees of future performance and, accordingly, you are
cautioned not to place undue reliance on these statements. These
statements are subject to numerous risks and uncertainties,
including those described in our annual information form and
management's discussion and analysis for the year ended December
31, 2005 and in this document. (See discussion under "Operating
Risks" beginning on page 17 of our Annual Information Form and page
45 of our Management's Discussion and Analysis for the year ended
December 31, 2005, which are available on our website at
http://www.fourseasons.com/ and on SEDAR at http://www.sedar.com/.)
Those risks and uncertainties include adverse factors generally
encountered in the lodging industry; the risks associated with
world events, including war, terrorism, international conflicts,
natural disasters, extreme weather conditions and infectious
diseases; general economic conditions, fluctuations in relative
exchange rates of various currencies, supply and demand changes for
hotel rooms and residential properties, competitive conditions in
the lodging industry, the risks associated with our ability to
maintain and renew management agreements and expand the portfolio
of properties that we manage, relationships with clients and
property owners and the availability of capital to finance growth.
Many of these risks and uncertainties can affect our actual results
and could cause our actual results to differ materially from those
expressed or implied in any forward-looking statement made by us or
on our behalf. All forward looking statements in this news release
are qualified by these cautionary statements. These statements are
made as of the date of this document and, except as required by
applicable law, we undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Additionally, we undertake
no obligation to comment on analyses, expectations or statements
made by third parties in respect of Four Seasons, its financial or
operating results or its securities or any of the properties that
we manage or in which we may have an interest. (x) (x) (x) We will
hold a conference call today at 11 a.m. (Eastern Daylight Time) to
discuss the first quarter financial results. The details are: To
access the call dial: 1 (800) 428-5596 (U.S.A. and Canada) 1 (416)
620-2419 (outside U.S.A. and Canada) To access a replay of the
call, which will be available for one week after the call, dial: 1
(800) 558-5253, Reservation Number 21289532. A live web cast of the
call will also be available by visiting
http://www.fourseasons.com/investor. This web cast will be archived
for one month following the call. Dedicated to continuous
innovation and the highest standards of hospitality, Four Seasons
invented luxury for the modern traveller. From elegant surroundings
of the finest quality, to caring, highly personalised 24-hour
service, Four Seasons embodies a true home away from home for those
who know and appreciate the best. The deeply instilled Four Seasons
culture is personified in its employees - people who share a single
focus and are inspired to offer great service. Founded in 1960,
Four Seasons has followed a targeted course of expansion, opening
hotels in major city centers and desirable resort destinations
around the world. Currently with 70 hotels in 31 countries, and
more than 25 properties under development, Four Seasons will
continue to lead luxury hospitality with innovative enhancements,
making business travel easier and leisure travel more rewarding.
For more information on Four Seasons, visit
http://www.fourseasons.com/. SCHEDULE A(1) ------------- FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands of 2005 US dollars except
------------------------------------------------------ per share
First Second Third Fourth amounts) Quarter(2) Quarter(2) Quarter(2)
Quarter(2) Total(2)
-------------------------------------------------------------------------
Revenues: Hotel management fees $ 24,689 $ 28,382 $ 22,531 $ 25,239
$ 100,841 Other fees 3,680 2,840 3,471 4,057 14,048 Hotel ownership
revenues 20,517 27,704 9,749 7,505 65,475 Reimbursed costs 14,211
15,613 16,453 21,697 67,974
------------------------------------------------------ 63,097
74,539 52,204 58,498 248,338
------------------------------------------------------ Expenses:
General and administrative expenses (12,720) (13,150) (15,625)
(16,653) (58,148) Hotel ownership cost of sales and expenses
(24,087) (25,685) (8,417) (7,897) (66,086) Reimbursed costs
(14,211) (15,613) (16,453) (21,697) (67,974)
------------------------------------------------------ (51,018)
(54,448) (40,495) (46,247) (192,208)
------------------------------------------------------ Operating
earnings before other items 12,079 20,091 11,709 12,251 56,130
Depreciation and amortization (3,029) (2,908) (2,575) (2,675)
(11,187) Other expenses, net (2,710) (8,645) (21,064) (56,789)
(89,208) Interest income 3,876 3,740 3,974 5,156 16,746 Interest
expense (3,105) (2,530) (2,766) (3,144) (11,545)
------------------------------------------------------ Earnings
(loss) before income taxes 7,111 9,748 (10,722) (45,201) (39,064)
------------------------------------------------------ Income tax
recovery (expense): Current (1,924) (1,390) 2,925 (1,523) (1,912)
Future 15 7,428 (3,644) 8,954 12,753
------------------------------------------------------ (1,909)
6,038 (719) 7,431 10,841
------------------------------------------------------ Net earnings
(loss) $ 5,202 $ 15,786 $ (11,441) $ (37,770) $ (28,223)
------------------------------------------------------
------------------------------------------------------ Basic
earnings (loss) per share $ 0.14 $ 0.43 $ (0.31) $ (1.03) $ (0.77)
------------------------------------------------------
------------------------------------------------------ Diluted
earnings (loss) per share $ 0.14 $ 0.42 $ (0.31) $ (1.03) $ (0.77)
------------------------------------------------------
------------------------------------------------------
-------------------------------- (1) These consolidated financial
statement schedules should be read in conjunction with our
consolidated financial statements for that period. (2) Our strategy
has been to focus on hotel management rather than hotel ownership.
Over the past few years, we have reduced our ownership interests
such that Four Seasons Hotel Vancouver is our only remaining hotel
whose results we currently consolidate. As a result, commencing
January 1, 2006, we have changed the presentation of our
consolidated statements of operations and no longer segregate our
Ownership Operations segment from our Management Operations
segment. Corporate expenses that were previously included in our
Ownership Operations segment have been reclassified and included in
general and administrative expenses. The presentation of our 2005
consolidated statements of operations have been changed to conform
with the financial statement presentation adopted for 2006.
SCHEDULE B(1) ------------- FOUR SEASONS HOTELS INC. CONSOLIDATED
STATEMENTS OF OPERATIONS (Unaudited) (In thousands of 2004 US
dollars except
------------------------------------------------------ per share
First Second Third Fourth amounts) Quarter(2) Quarter(2) Quarter(2)
Quarter(2) Total(2)
-------------------------------------------------------------------------
Revenues: Hotel management fees $ 20,140 $ 22,939 $ 18,278 $ 22,026
$ 83,383 Other fees 1,967 4,084 6,438 2,093 14,582 Foreign exchange
forward contracts 2,720 2,798 2,625 3,058 11,201 Hotel ownership
revenues 20,332 28,399 22,383 26,615 97,729 Reimbursed costs 11,962
13,143 13,535 15,732 54,372
------------------------------------------------------ 57,121
71,363 63,259 69,524 261,267
------------------------------------------------------ Expenses:
General and administrative expenses (11,184) (11,416) (10,981)
(14,018) (47,599) Hotel ownership cost of sales and expenses
(24,628) (26,299) (23,859) (25,116) (99,902) Reimbursed costs
(11,962) (13,143) (13,535) (15,732) (54,372)
------------------------------------------------------ (47,774)
(50,858) (48,375) (54,866) (201,873)
------------------------------------------------------ Operating
earnings before other items 9,347 20,505 14,884 14,658 59,394
Depreciation and amortization (2,751) (2,664) (3,102) (3,262)
(11,779) Other income (expenses), net 3,279 (2,216) (18,089) 5,120
(11,906) Interest income 3,106 2,836 3,706 3,375 13,023 Interest
expense (1,873) (1,995) (3,455) (3,138) (10,461)
------------------------------------------------------ Earnings
(loss) before income taxes 11,108 16,466 (6,056) 16,753 38,271
------------------------------------------------------ Income tax
recovery (expense): Current (2,116) (3,214) 364 (4,099) (9,065)
Future (288) (493) (2,830) 103 (3,508)
------------------------------------------------------ (2,404)
(3,707) (2,466) (3,996) (12,573)
------------------------------------------------------ Net earnings
(loss) $ 8,704 $ 12,759 $ (8,522) $ 12,757 $ 25,698
------------------------------------------------------
------------------------------------------------------ Basic
earnings (loss) per share $ 0.25 $ 0.36 $ (0.24) $ 0.35 $ 0.72
------------------------------------------------------
------------------------------------------------------ Diluted
earnings (loss) per share $ 0.24 $ 0.34 $ (0.24) $ 0.34 $ 0.69
------------------------------------------------------
------------------------------------------------------
-------------------------------- (1) These consolidated financial
statement schedules should be read in conjunction with our
consolidated financial statements for that period. (2) Our strategy
has been to focus on hotel management rather than hotel ownership.
Over the past few years, we have reduced our ownership interests
such that Four Seasons Hotel Vancouver is our only remaining hotel
whose results we currently consolidate. As a result, commencing
January 1, 2006, we have changed the presentation of our
consolidated statements of operations and no longer segregate our
Ownership Operations segment from our Management Operations
segment. Corporate expenses that were previously included in our
Ownership Operations segment have been reclassified and included in
general and administrative expenses. The presentation of our 2004
consolidated statements of operations have been changed to conform
with the financial statement presentation adopted for 2006. FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF OPERATIONS Three
months ended (Unaudited) March 31, (In thousands of US dollars
except per share amounts) 2006 2005
-------------------------------------------------------------------------
Revenues: Hotel management fees $ 30,384 $ 24,689 Other fees 5,326
3,680 Hotel ownership revenues 5,479 20,517 Reimbursed costs 16,435
14,211 ----------------------- 57,624 63,097
----------------------- Expenses: General and administrative
expenses (14,240) (12,720) Hotel ownership cost of sales and
expenses (6,493) (24,087) Reimbursed costs (16,435) (14,211)
----------------------- (37,168) (51,018) -----------------------
Operating earnings before other items 20,456 12,079 Depreciation
and amortization (2,643) (3,029) Other expenses, net (note 4) (833)
(2,710) Interest income 4,461 3,876 Interest expense (3,710)
(3,105) ----------------------- Earnings before income taxes 17,731
7,111 ----------------------- Income tax recovery (expense):
Current (3,129) (1,924) Future (1,219) 15 -----------------------
(4,348) (1,909) ----------------------- Net earnings $ 13,383 $
5,202 ----------------------- ----------------------- Basic
earnings per share (note 3(a)) $ 0.36 $ 0.14
----------------------- ----------------------- Diluted earnings
per share (note 3(a)) $ 0.36 $ 0.14 -----------------------
----------------------- See accompanying notes to consolidated
financial statements. FOUR SEASONS HOTELS INC. CONSOLIDATED BALANCE
SHEETS As at As at March 31, December 31, (In thousands of US
dollars) 2006 2005
-------------------------------------------------------------------------
(Unaudited) ASSETS Current assets: Cash and cash equivalents $
245,254 $ 242,178 Receivables 70,048 69,690 Inventory 7,602 7,326
Prepaid expenses 5,440 2,950 ----------------------- 328,344
322,144 Long-term receivables 177,032 175,374 Investments in hotel
partnerships and corporations (note 2) 83,990 99,928 Fixed assets
69,354 64,850 Investment in management contracts (note 2) 181,358
164,932 Investment in trademarks and trade names 4,225 4,210 Future
income tax assets 13,220 14,439 Other assets 34,890 34,324
----------------------- $ 892,413 $ 880,201 -----------------------
----------------------- LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities: Accounts payable and accrued liabilities $
47,097 $ 54,797 Long-term obligations due within one year 3,324
4,853 ----------------------- 50,421 59,650 Long-term obligations
275,308 273,825 Shareholders' equity (note 3): Capital stock
254,884 250,430 Convertible notes 36,920 36,920 Contributed surplus
11,339 10,861 Retained earnings 174,124 160,741 Equity adjustment
from foreign currency translation 89,417 87,774
----------------------- 566,684 546,726 ----------------------- $
892,413 $ 880,201 ----------------------- -----------------------
See accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS Three
months ended (Unaudited) March 31, (In thousands of US dollars)
2006 2005
-------------------------------------------------------------------------
Operating activities: Net earnings $ 13,383 $ 5,202 Items not
affecting cash: Stock-based compensation expense 522 494
Depreciation and amortization 2,643 3,029 Other expenses, net 833
2,710 Future income tax expense (recovery) 1,219 (15) Other 541 254
Changes in non-cash working capital (13,527) (16,310)
----------------------- Cash provided by (used in) operating
activities 5,614 (4,636) ----------------------- Investing
activities: Advances of long-term receivables (2,261) (20,813)
Receipt of long-term receivables 7,910 348 Investments in hotel
partnerships and corporations 1,797 (7,180) Disposal of hotel
partnerships and corporations - 5,346 Purchase of fixed assets
(5,606) (3,607) Investments in trademarks, trade names and
management contracts (3,952) (131) Other assets (1,481) (51)
----------------------- Cash used in investing activities (3,593)
(26,088) ----------------------- Financing activities: Long-term
obligations including current portion (1,968) 132 Issuance of
shares 4,406 5,617 Dividends paid (1,657) (1,558)
----------------------- Cash provided by financing activities 781
4,191 ----------------------- Increase (decrease) in cash and cash
equivalents 2,802 (26,533) Increase (decrease) in cash and cash
equivalents due to unrealized foreign exchange gain (loss) 274
(1,680) Cash and cash equivalents, beginning of period 242,178
226,377 ----------------------- Cash and cash equivalents, end of
period $ 245,254 $ 198,164 -----------------------
----------------------- Supplementary information: Interest
received $ 4,659 $ 4,667 Interest paid (2,596) (3,000) Income taxes
paid (1,774) (3,106) See accompanying notes to consolidated
financial statements. FOUR SEASONS HOTELS INC. CONSOLIDATED
STATEMENTS OF RETAINED EARNINGS Three months ended (Unaudited)
March 31, (In thousands of US dollars) 2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 160,741 $ 192,129 Net
earnings 13,383 5,202 ----------------------- Retained earnings,
end of period $ 174,124 $ 197,331 -----------------------
----------------------- See accompanying notes to consolidated
financial statements. FOUR SEASONS HOTELS INC. NOTES TO THE
CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands of US
dollars except per share amounts)
-------------------------------------------------------------------------
In these interim consolidated financial statements, the words "we",
"us", "our", and other similar words are references to Four Seasons
Hotels Inc. and its consolidated subsidiaries. These interim
consolidated financial statements do not include all disclosures
required by Canadian generally accepted accounting principles
("GAAP") for annual financial statements and should be read in
conjunction with our most recently prepared annual consolidated
financial statements for the year ended December 31, 2005. 1.
Significant accounting policies: The significant accounting
policies used in preparing these interim consolidated financial
statements are consistent with those used in preparing our annual
consolidated financial statements for the year ended December 31,
2005, except as disclosed below: (a) Non-monetary transactions: In
June 2005, The Canadian Institute of Chartered Accountants ("CICA")
issued Section 3831, "Non-Monetary Transactions", which introduces
new requirements for non-monetary transactions initiated on or
after January 1, 2006. The amended requirements will result in
non-monetary transactions being measured at fair values unless
certain criteria are met, in which case, the transaction is
measured at carrying value. The implementation of Section 3831, on
a prospective basis for transactions initiated on or after January
1, 2006, did not have an impact on our consolidated financial
statements for the three months ended March 31, 2006. (b) Financial
instruments: In January 2005, the CICA issued Section 1530
"Comprehensive Income", Section 3855 "Financial Instruments -
Recognition and Measurement", and Section 3865 "Hedges". These
standards are effective for fiscal years beginning on or after
October 1, 2006. The impact of adoption of these standards is not
yet determinable, as it will be dependent on our unsettled
positions, hedging strategies, and market volatility at the time of
transition. (c) Comparative figures: Certain 2005 comparative
figures have been reclassified to conform with the financial
statement presentation adopted for 2006. 2. Hotel investment
transaction: During the three months ended March 31, 2006, we
contributed our equity interest in a property under our management
in exchange for a management contract enhancement of approximately
the same fair value. No gain or loss was recorded in connection
with this transaction. 3. Shareholders' equity: As at March 31,
2006, we have 3,725,698 outstanding Variable Multiple Voting Shares
("VMVS"), 33,029,478 outstanding Limited Voting Shares ("LVS"), and
4,394,243 outstanding stock options (weighted average exercise
price of C$59.65 ($51.11)). (a) Earnings per share: A
reconciliation of the net earnings and weighted average number of
VMVS and LVS used to calculate basic and diluted earnings per share
is as follows: Three months ended March 31, 2006 2005
-------------------------------------------------------------------------
Net Net earnings Shares earnings Shares
-------------------------------------------------------------------------
Basic earnings per share amounts $ 13,383 36,685,329 $ 5,202
36,608,763 Effect of assumed dilutive conversions: Stock option
plan - 583,483 - 1,535,543
-------------------------------------------------------------------------
Diluted earnings per share amounts $ 13,383 37,268,812 $ 5,202
38,144,306
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The diluted earnings per share calculation excluded the effect of
the assumed conversions of 1,535,776 stock options to LVS, under
our stock option plan, during the three months ended March 31, 2006
(2005 - 9,000 stock options), as the inclusion of these options
would have resulted in an anti-dilutive effect. There was no
dilution in 2006 and 2005 relating to our convertible senior notes.
(b) Stock-based compensation: We use the fair value-based method to
account for all employee stock options granted or modified on or
after January 1, 2003. Accordingly, options granted prior to that
date continue to be accounted for using the settlement method.
There were 41,650 stock options granted in the three months ended
March 31, 2006 at a weighted average exercise price of C$62.61
($53.65). The fair value of stock options granted in the three
months ended March 31, 2006 was estimated using the Black-Scholes
option pricing model with the following assumptions: risk-free
interest rates ranging from 4.09% to 4.17%; semi-annual dividend
per LVS of C$0.055; volatility factor of the expected market price
of our LVS of 27%; and expected lives of the options ranging
between four and seven years, depending on the level of the
employee who was granted stock options. For the options granted in
the three months ended March 31, 2006, the weighted average fair
value of the options at the grant dates was C$21.49 ($18.41). For
purposes of stock option expense and pro forma disclosures, the
estimated fair value of the options is amortized to compensation
expense over the options' vesting period. There were no stock
options granted in the three months ended March 31, 2005. Pro forma
disclosure is required to show the effect of the application of the
fair value-based method to employee stock options granted during
2002, which were not accounted for using the fair value-based
method. For the three months ended March 31, 2006 and 2005, if we
had applied the fair value-based method to options granted during
2002, our net earnings and basic and diluted earnings per share
would have been adjusted to the pro forma amounts indicated below:
Three months ended March 31, 2006 2005
-----------------------------------------------------------------
Stock-based compensation expense $ (522) $ (494)
---------------------- ---------------------- Net earnings, as
reported $ 13,383 $ 5,202 Increase in stock-based compensation
expense that would have been recorded if all outstanding stock
options granted during 2002 had been expensed (646) (691)
---------------------- Pro forma net earnings $ 12,737 $ 4,511
---------------------- Earnings per share: Basic, as reported $
0.36 $ 0.14 Basic, pro forma 0.35 0.12 Diluted, as reported 0.36
0.14 Diluted, pro forma 0.34 0.12 ---------------------- 4. Other
expenses, net: Three months ended March 31, 2006 2005
---------------------------------------------------------------------
Foreign exchange loss $ (528) $ (393) Asset provisions and write
downs (305) (1,931) Loss on disposition of assets - (386)
---------------------- $ (833) $ (2,710) ----------------------
---------------------- The net foreign exchange loss in 2006 and
2005 related primarily to the foreign currency translation gains
and losses on unhedged net asset and liability positions, primarily
in US dollars, euros, pounds sterling and Australian dollars, and
local currency foreign exchange gains and losses on net monetary
assets incurred by our designated foreign self-sustaining
subsidiaries. As at March 31, 2006, we have foreign exchange
forward contracts in place to sell forward $24,579 of US dollars to
receive Canadian dollars at a weighted average forward exchange
rate of 1.156 maturing over the period to June 2006. These
contracts are being marked-to- market on a monthly basis with the
resulting changes in fair values being recorded as a foreign
exchange gain or loss. This resulted in a $67 foreign exchange loss
being recorded in the three months ended March 31, 2006. Subsequent
to March 31, 2006, we have sold forward an additional $28,784 of US
dollars to receive Canadian dollars at a weighted average forward
exchange rate of 1.137 maturing over the period to October 2007. 5.
Pension benefit expense: The pension benefit expense for the three
months ended March 31, 2006 was $944 (2005 - $621). 6. Segmented
information: Our strategy has been to focus on hotel management
rather than hotel ownership. Over the past few years, we have
reduced our ownership interests such that Four Seasons Hotel
Vancouver is our only remaining hotel whose results we currently
consolidate. As a result, commencing January 1, 2006, corporate
expenses have been included in general and administrative expenses
in the consolidated statements of operations for the three months
ended March 31, 2006. Corporate expenses for the three months ended
March 31, 2005 that previously were included in our Ownership
Operations segment have been reclassified to the Management
Operations segment and included in general and administrative
expenses in the consolidated statements of operations. Three Months
Ended March 31, 2006 ----------------------------------- Management
Ownership Operations Operations Total
---------------------------------------------------------------------
Revenues: Hotel management fees $ 30,384 $ - $ 30,384 Other fees
5,326 - 5,326 ----------------------------------- 35,710 - 35,710
Hotel ownership revenues - 5,479 5,479 Reimbursed costs 16,435 -
16,435 ----------------------------------- 52,145 5,479 57,624
----------------------------------- Expenses: General and
administrative expenses (14,240) - (14,240) Hotel ownership cost of
sales and expenses - (6,493) (6,493) Reimbursed costs (16,435) -
(16,435) ----------------------------------- (30,675) (6,493)
(37,168) ----------------------------------- Operating earnings
(loss) before other items $ 21,470 $ (1,014) $ 20,456
-----------------------------------
----------------------------------- Three Months Ended March 31,
2005 ----------------------------------- Management Ownership
Operations Operations Total
---------------------------------------------------------------------
Revenues: Hotel management fees $ 24,689 $ - $ 24,689 Other fees
3,680 - 3,680 ----------------------------------- 28,369 - 28,369
Hotel ownership revenues - 20,517 20,517 Reimbursed costs 14,211 -
14,211 ----------------------------------- 42,580 20,517 63,097
----------------------------------- Expenses: General and
administrative expenses (12,720) - (12,720) Hotel ownership cost of
sales and expenses - (24,087) (24,087) Reimbursed costs (14,211) -
(14,211) ----------------------------------- (26,931) (24,087)
(51,018) ----------------------------------- Operating earnings
(loss) before other items $ 15,649 $ (3,570) $ 12,079
-----------------------------------
----------------------------------- FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1) Three months ended
March 31, (Unaudited) 2006 2005 Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 56 56 - No. of Rooms 14,290 14,290 -
Occupancy(2) 69.2% 66.5% 2.7pts. ADR(3) $368.99 $344.12 7.2%
RevPAR(4) $255.48 $228.70 11.7% Gross operating margin(5) 32.4%
29.9% 2.5pts. United States No. of Properties 20 20 - No. of Rooms
6,195 6,195 - Occupancy(2) 74.6% 71.7% 2.9pts. ADR(3) $403.65
$372.81 8.3% RevPAR(4) $300.97 $267.25 12.6% Gross operating
margin(5) 30.2% 28.1% 2.1pts. Other Americas/Caribbean No. of
Properties 10 10 - No. of Rooms 2,165 2,165 - Occupancy(2) 66.9%
63.3% 3.6pts. ADR(3) $453.44 $424.08 6.9% RevPAR(4) $303.41 $268.35
13.1% Gross operating margin(5) 36.9% 35.2% 1.7pts. Europe No. of
Properties 10 10 - No. of Rooms 1,720 1,720 - Occupancy(2) 58.7%
51.9% 6.8pts. ADR(3) $522.22 $510.95 2.2% RevPAR(4) $306.52 $265.23
15.6% Gross operating margin(5) 25.0% 21.3% 3.7 pts. Middle East
No. of Properties 5 5 - No. of Rooms 1,215 1,215 - Occupancy(2)
70.5% 70.8% (0.3)pts. ADR(3) $258.34 $224.81 14.9% RevPAR(4)
$182.13 $159.25 14.4% Gross operating margin(5) 52.1% 49.5% 2.6pts.
Asia/Pacific No. of Properties 11 11 - No. of Rooms 2,995 2,995 -
Occupancy(2) 65.0% 64.7% 0.3pts. ADR(3) $202.83 $197.70 2.6%
RevPAR(4) $131.90 $128.00 3.0% Gross operating margin(5) 32.6%
30.2% 2.4pts.
----------------------------------------------------------- 1 The
term "Core Hotels" means hotels and resorts under management for
the full year of both 2006 and 2005. However, if a "Core Hotel" has
undergone or is undergoing an extensive renovation program in one
of those years that materially affects the operation of the
property in that year, it ceases to be included as a "Core Hotel"
in either year. Changes from the 2005/2004 Core Hotels are the
additions of Four Seasons Resort Scottsdale at Troon North, Four
Seasons Resort Whistler, Four Seasons Resort Costa Rica at
Peninsula Papagayo, Four Seasons Hotel Gresham Palace Budapest,
Four Seasons Resort Provence at Terre Blanche and Four Seasons
Hotel Cairo at Nile Plaza, and the deletion of The Regent Kuala
Lumpur. All room numbers in this table are approximate. 2 Occupancy
percentage is defined as the total number of rooms occupied divided
by the total number of rooms available. 3 ADR is defined as average
daily room rate per room occupied, calculated as the weighted
average for each region. In 2004 and 2005, ADR was calculated as
straight average for each region. 4 RevPAR is defined as average
room revenue per available room. It is a non-GAAP financial measure
and does not have any standardized meaning prescribed by GAAP and
is therefore unlikely to be comparable to similar measures
presented by other issuers. We use RevPAR because it is a commonly
used indicator of market performance for hotels and resorts and
represents the combination of the average daily room rate and the
average occupancy rate achieved during the period. RevPAR does not
include food and beverage or other ancillary revenues generated by
a hotel or resort. RevPAR is the most commonly used measure in the
lodging industry to measure the period-over-period performance of
comparable properties. Our calculation of RevPAR may be different
than the calculation used by other lodging companies. 5 Gross
operating margin represents gross operating profit as a percentage
of gross operating revenue. FOUR SEASONS HOTELS INC. SUMMARY OF
HOTEL OPERATING DATA - ALL MANAGED HOTELS As at March 31,
(Unaudited) 2006 2005 Variance
-------------------------------------------------------------------------
Worldwide No. of Properties 70 65 5 No. of Rooms 17,515 16,530 985
United States No. of Properties 24 24 - No. of Rooms 7,045 7,105
(60) Other Americas/Caribbean No. of Properties 10 10 - No. of
Rooms 2,165 2,165 - Europe No. of Properties 12 11 1 No. of Rooms
1,960 1,855 105 Middle East No. of Properties 7 5 2 No. of Rooms
1,740 1,215 525 Asia/Pacific No. of Properties 17 15 2 No. of Rooms
4,605 4,190 415 ---------------------------------------------- FOUR
SEASONS HOTELS INC. REVENUES UNDER MANAGEMENT - ALL MANAGED HOTELS
Three months ended (Unaudited) March 31, (In thousands of US
dollars) 2006 2005
-------------------------------------------------------------------------
Revenues under management(1) $ 692,342 $ 601,563
----------------------- -----------------------
----------------------------- 1 Revenues under management consist
of rooms, food and beverage, telephone and other revenues of all
the hotels and resorts which we manage. Approximately 59% of the
fee revenues (excluding reimbursed costs) we earned were calculated
as a percentage of the total revenues under management of all
hotels and resorts. FOUR SEASONS HOTELS INC. SCHEDULED OPENING OF
PROPERTIES UNDER CONSTRUCTION OR IN ADVANCED STAGES OF DEVELOPMENT
Hotel/Resort/Residence Club and Location(1,2) Approximate Number of
Rooms Scheduled 2006/2007 openings ----------------------------
Four Seasons Hotel Alexandria, Egypt(x) 125 Four Seasons Hotel
Beirut, Lebanon 235 Four Seasons Hotel Florence, Italy 120 Four
Seasons Hotel Istanbul at the Bosphorus, Turkey 170 Four Seasons
Resort Lana'i at Koele, Hawaii, USA(3) 100 Four Seasons Resort
Maldives at Landaa Giraavaru, Maldives 100 Four Seasons Hotel
Mumbai, India(x) 235 Four Seasons Hotel Westlake Village,
California, USA 270 Beyond 2007 ----------- Four Seasons Hotel
Bahrain, Bahrain 250 Four Seasons Hotel Baltimore, Maryland, USA(x)
200 Four Seasons Resort Barbados, Barbados(x) 120 Four Seasons
Hotel Beijing, People's Republic of China 325 Four Seasons Resort
Bora Bora, French Polynesia 105 Four Seasons Hotel Dubai, United
Arab Emirates(x) 375 Four Seasons Hotel Kuala Lumpur, Malaysia(x)
140 Four Seasons Hotel Macau, Special Administrative Region of the
People's Republic of China(x) 400 Four Seasons Hotel Marrakech,
Morocco(x) 140 Four Seasons Resort Mauritius, Republic of
Mauritius(x) 120 Four Seasons Hotel Moscow, Russia(x) 195 Four
Seasons Hotel Moscow Kamenny Island, Russia(x) 80 Four Seasons
Hotel New Orleans, Louisiana, USA(x) 240 Four Seasons Resort Puerto
Rico, Puerto Rico(x) 250 Four Seasons Hotel Seattle, Washington,
USA(x) 150 Four Seasons Resort Seychelles, Seychelles(x) 55 Four
Seasons Hotel Shanghai at Pudong, People's Republic of China(x) 230
Four Seasons Hotel Taipei, Taiwan(x) 275 Four Seasons Hotel
Toronto, Ontario, Canada(x) 265 Four Seasons Resort Vail, Colorado,
USA(x) 120 (x) Expected to include a residential component.
------------------------------------------ 1 Information concerning
hotels, resorts and Residence Clubs under construction or under
development is based upon agreements and letters of intent and may
be subject to change prior to the completion of the project. The
dates of scheduled openings have been estimated by management based
upon information provided by the various developers. There can be
no assurance that the date of scheduled opening will be achieved or
that these projects will be completed. In particular, in the case
where a property is scheduled to open near the end of a year, there
is a greater possibility that the year of opening could be changed.
The process and risks associated with the management of new
properties are dealt with in greater detail in our 2005 Annual
Report. 2 We have made an investment in Orlando, in which we expect
to include a Four Seasons Residence Club and/or a Four Seasons
branded residential component. The financing for this project has
not yet been completed and therefore a scheduled opening date
cannot be established at this time. 3 The Lodge at Koele is
currently managed by Four Seasons and is expected to be rebranded
as Four Seasons Resort Lana'i at Koele in 2006 when the necessary
renovations are completed. DATASOURCE: Four Seasons Hotels and
Resorts CONTACT: John Davison, Chief Financial Officer, (416)
441-6714; Barbara Henderson, Vice President, Corporate Finance,
(416) 441-4329
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