| TORONTO, March 9, 2006 - Four Seasons Hotels Inc. (TSX Symbol "FSH.SV";
NYSE Symbol "FS") today reported its results for the three months and full
year ended December 31, 2005.
Effective the first quarter of 2005, we adopted US dollars as our reporting
currency. All amounts disclosed in this news release (including amounts
for prior periods) are in US dollars unless otherwise noted.
"This is an excellent time for the lodging industry. All elements of
travel demand are strong, especially demand for experiences of the highest
quality. We are very pleased with Four Seasons position in the industry
and remain focused on preserving and extending our leadership position,"
said Isadore Sharp, Chairman and Chief Executive Officer. "We acknowledge
the impact that some of the recent refinements in our portfolio will have
on our near-term earnings growth, but we believe the changes we are making,
combined with the strength of the Four Seasons brand and our solid development
pipeline, will lead to improved long-term results."
Highlights of the Fourth Quarter and Full Year of 2005(x)
For the three months ended December 31, 2005, and for the full year
ended December 31, 2005, in each case compared to the same period in 2004:
Hotel and Resort Operating Results:
- For the three months ended December 31, 2005,
RevPAR(1) of worldwide
Core Hotels(2) increased 7.4%.
For the full year ended December 31,
2005, RevPAR of worldwide Core
Hotels increased 11.4%.
- For the three months ended December 31, 2005,
RevPAR of US Core Hotels
increased 11.5%. For the full
year ended December 31, 2005, RevPAR of
US Core Hotels increased 13.3%.
- Excluding the impact of hurricanes on our
resort in Palm Beach and of
terrorism in Bali, where applicable,
RevPAR of worldwide Core Hotels
increased 8.8% and 11.7% for the
three months and full year ended
December 31, 2005, and RevPAR
of US Core Hotels increased 13.0% and
13.7% for the same respective
periods.
- For the three months ended December 31, 2005,
gross operating
margins(3) at worldwide Core Hotels
increased 140 basis points to
29.9%. For the full year ended
December 31, 2005, gross operating
margins at worldwide Core Hotels
increased 220 basis points to 30.8%.
- For the three months ended December 31, 2005,
revenues under
management increased 11.9% to
$676.7 million. For the full year ended
December 31, 2005, revenues under
management increased 14.2% to
$2.6 billion.
Company Operating Results:
- For the three months ended December 31, 2005,
base fees and incentive
fees increased 8.3% and 21.0%
respectively. For the full year ended
December 31, 2005, base fees and
incentive fees increased 14.8% and
35.4% respectively. These improvements
are the result of better
operating results at hotels and
resorts under management and fees
generated from our newer properties.
- For the three months ended December 31, 2005,
the loss from Ownership
Operations (which includes corporate
expenses)(4) increased by
$2.2 million to $5.3 million,
largely due to the disposition of our
leasehold interest in The Pierre
which was effective June 30, 2005.
In addition, corporate expenses
for the three month period increased
$1.0 million due to foreign exchange
and a retirement allowance.
For the full year ended December
31, 2005, the loss from Ownership
Operations increased by $1.4 million
to $18.0 million, due primarily
to an increase in corporate expenses
related to foreign exchange and
a retirement allowance, offset
in part by the disposition of our
leasehold interest in The Pierre
effective June 30, 2005.
- For the three months ended December 31, 2005,
earnings before other
operating items declined 15.7%,
due primarily to the absence of
$3.1 million of foreign exchange
forward contracts which were included
in fee revenues in 2004, the disposition
of The Pierre described
above, and higher general and
administrative costs. The higher general
and administrative costs relate
primarily to foreign exchange and a
reorganization expense. For the
full year ended December 31, 2005,
earnings before other operating
items declined 4.8% due primarily to
the absence of $11.2 million of
foreign exchange forward contracts
which were included in fee revenues
in 2004 and higher general and
administrative costs for the same
reasons as noted for the quarter.
- Overall, we recorded a net loss of $37.8
million ($1.03 basic and
diluted loss per share) in the
fourth quarter of 2005, compared to
net earnings of $12.8 million
($0.35 basic earnings per share and
$0.34 diluted earnings per share)
in the fourth quarter of 2004. We
recorded a net loss of $28.2 million
($0.77 basic and diluted loss
per share) for the full year ended
December 31, 2005, compared to
net earnings of $25.7 million
($0.72 basic earnings per share and
$0.69 diluted earnings per share)
for the same period in 2004.
Included in net earnings for the
quarter and year ended December 31,
2005 is a one-time loss related
to the transition of our defined
benefit retirement plan to a defined
contribution plan, foreign
exchange losses related to the
translation of certain balance sheet
items and a write-down of certain
investments.
(x) Footnotes can be found after
"Forward Looking Statements".
Adjusting for certain items, adjusted net earnings are detailed below.
The details associated with each of the adjustments included below are
described below under "Other Income/Expense, Net".
-------------------------------------------------------------------------
Unaudited
(in millions of dollars,
Three months ended Years ended
except per share amounts)
December 31, December 31,
-------------------------------------------------------------------------
2005 2004 2005
2004
-------------------------------------------------------------------------
Net earnings (loss)
$(37.8) $12.8 $(28.2) $25.7
-------------------------------------------------------------------------
Other (income) expense, net:
(see discussion below)
-------------------------------------------------------------------------
Retirement benefit plan
35.5 -
35.5 -
-------------------------------------------------------------------------
Asset provisions and write-downs
25.3 -
31.8 -
-------------------------------------------------------------------------
Foreign exchange(gain)loss
4.8 (5.3) 24.6
(3.2)
-------------------------------------------------------------------------
(Gain)loss on disposition of assets
(9.0) 0.2 (3.2)
3.7
-------------------------------------------------------------------------
Other
0.2 -
0.5 0.2
-------------------------------------------------------------------------
Loss on redemption of Liquid Yield
Option Notes ("LYONs")
- -
- 11.2
-------------------------------------------------------------------------
Other (income) expense, net
56.8 (5.1) 89.2
11.9
-------------------------------------------------------------------------
Tax effect of adjustments
(12.0) 1.0 (24.6)
0.1
-------------------------------------------------------------------------
Adjusted net earnings
$7.0 $8.7 $36.4
$37.7
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Adjusted basic earnings per share
$0.19 $0.24 $0.99
$1.06
-------------------------------------------------------------------------
Adjusted diluted earnings per share
$0.19 $0.23 $0.96
$1.01
--------------------------------------------------------------------------
Adjusted net earnings is a non-GAAP measure, is not defined by Canadian
GAAP 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.
Expanding the Portfolio:
- Since the end of the third quarter of 2005,
we have opened new
Four Seasons hotels in Geneva,
Damascus and Silicon Valley at
East Palo Alto and added a Four
Seasons Tented Camp in The Golden
Triangle, in Thailand.
- Recently announced projects include Barbados
and Macau, and our second
hotel in each of Shanghai and
Taipei.
"The addition of new Four Seasons properties has been, and will continue
to be, a key component of our growth program," said Kathleen Taylor, President
Worldwide Business Operations. "We continue to see a strong pipeline of
new opportunities for Four Seasons and are working actively with our various
capital partners to bring new projects to locations around the world."
Hotel and Resort Operating Results
The following tables highlight our results of operations for our Core
Hotels in each of the regions in which we operate.
United States Region
-------------------------------------------------------------------------
Results for periods in 2005, as compared to periods in 2004
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Gross
RevPAR Revenue(GOR) Profit(GOP)
Operating Margin
-----------------------------------------------------------------
Percentage Percentage Percentage
Basis Point
$ Change Change
Change Margin Improvement
-------------------------------------------------------------------------
Fourth
Quarter 276
11.5% 9.4%
16.9% 28.2%
180
-------------------------------------------------------------------------
Full
Year 273
13.3% 11.6%
22.5% 28.7%
260
-------------------------------------------------------------------------
In the fourth quarter of 2005, RevPAR increased 11.5%, which was
primarily attributable to a 7.3% increase in achieved room rates
in the region. Exceptions were Four Seasons Resort Palm Beach,
which was affected by hurricanes in the area, and Four Seasons
Hotel Philadelphia and The Regent Beverly Wilshire, both of which
were undergoing renovations during the quarter. Properties under
management in San Francisco, New York, Houston, Los Angeles,
Maui, Atlanta, and Boston had particularly strong improvements in
RevPAR, relative to the average for the U.S. region. As a result
of improvements in RevPAR, gross operating profits and gross
operating margins increased 16.9% and 180 basis points,
respectively, during the fourth quarter of 2005.
For
the full year 2005, all of the properties under management in
the region realized RevPAR improvements with the exception of
Four Seasons Hotel Houston, which, despite a strong fourth
quarter, continued to experience pressure on rates due to supply
of hotel rooms in that market. The increases in RevPAR for 2005
were attributable to a 7.3% increase in achieved room rates and a
360 basis point improvement in occupancy. Properties under
management in New York, Jackson Hole, Miami, San Francisco,
Aviara, Austin, and Los Angeles realized particularly strong
improvements in RevPAR, relative to the average for the region.
In addition, for the full year 2005, gross operating profits and
gross operating margins improved 22.5% and 260 basis points,
respectively, as compared to 2004, which was primarily
attributable to an 11.6% increase in gross operating revenues.
-------------------------------------------------------------------------
Other Americas/Caribbean Region
-------------------------------------------------------------------------
Results for periods in 2005, as compared to periods in 2004
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Gross
RevPAR Revenue(GOR) Profit(GOP)
Operating Margin
-----------------------------------------------------------------
Percentage Percentage Percentage
Basis Point
$ Change Change
Change Margin Improvement
-------------------------------------------------------------------------
Fourth
Quarter 206
8.7% 10.3%
19.7% 24.4%
190
-------------------------------------------------------------------------
Full
Year 217
13.8% 15.1%
29.9% 28.2%
320
-------------------------------------------------------------------------
In the fourth quarter of 2005, all of the properties under
management in the region experienced increases in RevPAR with the
exception of Four Seasons Resort Great Exuma at Emerald Bay,
which had weaker occupancy due to the threat of hurricanes in the
area. On a local currency basis, RevPAR improved 6.0% in the
fourth quarter of 2005. Properties under management in
Buenos Aires, Punta Mita, and Vancouver had particularly strong
improvements relative to the average for the region. As a result
of improvements in RevPAR, gross operating profits and gross
operating margins increased 19.7% and 190 basis points,
respectively, in the fourth quarter of 2005 as compared to the
same period in 2004.
For
the full year 2005, the 13.8% (10.5% on a local currency
basis) improvement in RevPAR was attributable to a 6.9% increase
in achieved room rates and a 390 basis point improvement in
occupancy. For the full year 2005, all of the properties under
management in the region experienced improvements in RevPAR,
leading to increases in gross operating profits and gross
operating margins of 29.9% and 320 basis points, respectively.
Properties under management in Buenos Aires and Exuma had
particularly strong improvements in RevPAR and gross operating
profits, as compared to the averages for the region.
-------------------------------------------------------------------------
Europe Region
-------------------------------------------------------------------------
Results for periods in 2005, as compared to periods in 2004
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Gross
RevPAR Revenue(GOR) Profit(GOP)
Operating Margin
-----------------------------------------------------------------
Percentage Percentage Percentage
Basis Point
$ Change Change
Change Margin Improvement
-------------------------------------------------------------------------
Fourth
Quarter 329
(0.9)% (1.1)%
4.3% 32.9%
170
-------------------------------------------------------------------------
Full
Year 351
4.5% 4.7%
4.5% 34.6%
(10)
-------------------------------------------------------------------------
RevPAR in the European Core Hotels remained relatively flat in
the fourth quarter of 2005, as compared to the fourth quarter of
2004. On a local currency basis, however, RevPAR increased 6.0%,
reflecting improved operating results at the hotels under
management in Istanbul, Dublin, and London relative to the other
hotels in the region. Also during the fourth quarter of 2005,
gross operating profits increased 4.3% (10.8% on a local currency
basis), and gross operating margins improved 170 basis points, as
compared to the same period in 2004, due to improvements in
overall occupancy and achieved room rates on a local currency
basis.
For
the full year ended December 31, 2005, RevPAR increased 4.5%
(4.4% on a local currency basis) primarily due to a 4.1%
improvement in achieved room rates. All of the hotels in the
region had improved operating results, with the exception of the
hotels under management in Lisbon and Canary Wharf, which
continue to experience lower group and corporate demand. While
there was a 4.5% increase in gross operating profits, gross
operating margins remained relatively flat for the full year of
2005, as compared to 2004, mainly as a result of the lower
operating results at Four Seasons Hotel Lisbon.
-------------------------------------------------------------------------
Middle East Region
-------------------------------------------------------------------------
Results for periods in 2005, as compared to periods in 2004
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Gross
RevPAR Revenue(GOR) Profit(GOP)
Operating Margin
-----------------------------------------------------------------
Percentage Percentage Percentage
Basis Point
$ Change Change
Change Margin Improvement
-------------------------------------------------------------------------
Fourth
Quarter 132
15.9% 19.8%
16.9% 33.7%
(90)
-------------------------------------------------------------------------
Full
Year 142
19.3% 24.8%
39.8% 42.4%
450
-------------------------------------------------------------------------
In the Middle East region, nearly all of the properties under
management had improvements in RevPAR in the fourth quarter of
2005, which was driven primarily by a 12.7% increase in achieved
room rates, as compared to the same period in 2004. Four Seasons
Hotel Riyadh and Four Seasons Hotel Cairo at First Residence had
particularly strong improvements in RevPAR, as compared to the
average for the region. On a local currency basis, RevPAR
improved 11.0% in the fourth quarter of 2005, as compared to the
same period in 2004. With the exception of Four Seasons Resort
Sharm El Sheikh, whose business was affected by bombings in the
area, all of the hotels experienced RevPAR improvements. Gross
operating profits increased 16.9% during the fourth quarter of
2005, as compared to the same period in 2004. However, gross
operating margins declined slightly (90 basis points), as
compared to the same period in 2004.
For
the full year of 2005, the 19.3% improvement in RevPAR was
attributable to a 14.5% increase in achieved room rates and a
270 basis point improvement in occupancy. On a local currency
basis, RevPAR improved 15.1% for the full year of 2005. Also for
the full year of 2005, gross operating profits and gross
operating margins improved 39.8% and 450 basis points,
respectively, from 2004, as all of the properties under
management in the region had stronger operating results. The only
exception was Four Seasons Hotel Cairo at First Residence, which,
despite a strong fourth quarter, experienced a slight reduction
in occupancy and achieved room rates during the first three
quarters of 2005 due to additional supply in the city.
-------------------------------------------------------------------------
Asia/Pacific Region
-------------------------------------------------------------------------
Results for periods in 2005, as compared to periods in 2004
-------------------------------------------------------------------------
Gross Gross
Operating Operating
Gross
RevPAR Revenue(GOR) Profit(GOP)
Operating Margin
-----------------------------------------------------------------
Percentage Percentage Percentage
Basis Point
$ Change Change
Change Margin Improvement
-------------------------------------------------------------------------
Fourth
Quarter 122
0.1% (1.0)%
2.2% 36.0%
110
-------------------------------------------------------------------------
Full
Year 118
9.5% 6.5%
13.5% 33.0%
210
-------------------------------------------------------------------------
In the Asia/Pacific region, RevPAR remained relatively flat in
the fourth quarter of 2005, as compared to the same period in
2004. On a local currency basis, RevPAR improved 3.0% for the
fourth quarter of 2005. Achieved room rates improved 2.1% (6.3%
on a local currency basis). However, this was offset by a
110 basis point decrease in occupancy. In particular, the resorts
in Bali experienced lower demand during the fourth quarter of
2005 (due to the bombings that occurred in that market in
October 2005). Also during the fourth quarter of 2005, gross
operating profits and margins improved 2.2% and 110 basis points,
respectively, mainly as the result of improved operating results
at properties under management in Jakarta, Singapore, Shanghai,
and Chiang Mai.
For
the full year 2005, RevPAR improved 9.5% on a US dollar and
local currency basis, as compared to 2004. This improvement was
attributable to a 4.5% increase in achieved room rates and a
260 basis point improvement in occupancy. Virtually all of the
properties under management in the region experienced increases
in RevPAR with the exception of Four Seasons Hotel Bangkok, which
had lower occupancy levels due to a rooms renovation during the
year, and Four Seasons Resort Bali at Jimbaran Bay, which was
affected by bombings in that market in 2005. Gross operating
profits and gross operating margins improved 13.5% and 210 basis
points, respectively, mainly due to improved operating results at
the properties under management in Jakarta, Singapore, Shanghai,
and Chiang Mai.
-------------------------------------------------------------------------
Company Operating Results
Management Operations
Management Operations Revenues
-------------------------------------------------------------------------
Three months ended Dollar
Percentage
(in millions of dollars)
December 31, Change
Change
-------------------------------------------------------------------------
2005 2005
2005 2004
over 2004 over 2004
-------------------------------------------------------------------------
Hotel management fees
Base
$19.5 $17.9
$1.6 8.3%
Incentive
6.0 5.0
1.0 21.0%
-------------------------------------------------------------------------
Subtotal
25.5 22.9
2.6 11.1%
-------------------------------------------------------------------------
Other fees(5)
4.1 2.1
2.0 89.7%
-------------------------------------------------------------------------
Subtotal
29.6 25.0
4.6 17.8%
-------------------------------------------------------------------------
Foreign exchange forward
contracts(6)
- 3.1
(3.1) (100.0)%
-------------------------------------------------------------------------
Reimbursed costs(7)
21.8 16.2
5.6 35.0%
-------------------------------------------------------------------------
Management operations
revenues
$51.4 $44.3
$7.1 15.9%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended Dollar
Percentage
(in millions of dollars)
December 31, Change
Change
-------------------------------------------------------------------------
2005 2005
2005 2004
over 2004 over 2004
-------------------------------------------------------------------------
Hotel management fees
Base
$75.6 $65.9
$9.7 14.8%
Incentive
27.5 20.3
7.2 35.4%
-------------------------------------------------------------------------
Subtotal
103.1 86.2
16.9 19.6%
-------------------------------------------------------------------------
Other fees
14.1 14.6
(0.5) (3.6)%
-------------------------------------------------------------------------
Subtotal
117.2 100.8
16.4 16.3%
-------------------------------------------------------------------------
Foreign exchange forward
contracts
- 11.2
(11.2) (100.0)%
-------------------------------------------------------------------------
Reimbursed costs
69.1 56.1
13.0 23.2%
-------------------------------------------------------------------------
Management operations
revenues
$186.3 $168.1
$18.2 10.8%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The increases in management operations revenues for the fourth quarter
and full year of 2005 were the result of the improvements in revenues and
gross operating profits at the worldwide Core Hotels, resulting primarily
from RevPAR and other revenue increases, as well as fees generated by newer
properties and increases in reimbursed costs.
Base Fees
Base fees increased $1.6 million (from $17.9 million to $19.5 million)
for the quarter ended December 31, 2005, as compared to the quarter ended
December 31, 2004. Of the $1.6 million increase in base fees, base fees
from Core Hotels contributed $1.0 million or 66.2% of the increase. The
increase in base fees from Core Hotels in the three months ended December
31, 2005 represented a 7.2% increase over the fees generated from Core
Hotels in the fourth quarter of 2004. Properties that opened in 2004 and
2005 contributed base fees of $1.9 million and $0.7 million in 2005 and
2004, respectively. The $1.6 million increase in base fees in the quarter
was lower than it would have otherwise been as the result of a $0.9 million
reduction in base fees from properties no longer under management and differences
in foreign exchange on fees denominated in other than the US dollar.
Base fees increased $9.7 million (from $65.9 million to $75.6 million)
for the year ended December 31, 2005 as compared to 2004. Of this increase,
base fees from Core Hotels contributed $6.6 million or 68.4% of the increase.
The increase in base fees from Core Hotels in 2005 represented a 12.8%
increase over the base fees generated from Core Hotels in 2004. Properties
that opened in 2004 and 2005 contributed base fees of $5.4 million and
$1.6 million in 2005 and 2004, respectively. The $9.7 million increase
in base fees in 2005 was lower than it would have otherwise been as a result
of a $0.9 million reduction in base fees from properties no longer under
management.
Incentive Fees
For the three months ended December 31, 2005, incentive fees increased
$1.0 million, as compared to the same period in 2004. Due to a one-time
charge at the properties under our management related to the transition
of the retirement benefit plan to a defined contribution format in the
fourth quarter of 2005, incentive fees were reduced by $1.0 million. The
incentive fees earned from properties that opened in 2004 and 2005 represented
$1.3 million of the increase. Incentive fees were earned from 37 of the
68 hotels and resorts under management for the fourth quarter 2005, as
compared to 32 of the 63 hotels and resorts under management in 2004.
For the full year 2005, incentive fees increased $7.2 million, as compared
to 2004. Incentive fees contributed 26.6% of the total hotel management
fee revenues for the full year 2005, as compared to 23.5% for the full
year 2004. The increase was attributable to improvements in the US, Middle
East, and Other Americas/Caribbean regions, which more than offset moderate
declines in incentive fees from the Europe and Asia/Pacific regions. The
incentive fees earned from properties that opened in 2004 and 2005 represented
$3.2 million of the increase in incentive fees. In 2005, incentive fees
were earned from 45 of our management agreements (including The Pierre
in New York and Four Seasons Hotel Newport Beach, which are no longer managed
by us), as compared to 35 of our management agreements in 2004.
Other Fees
For the three months ended December 31, 2005, other fees, (which include
royalty and management fees from our residential business, fees we earn
during the development of our hotels and resorts, and other miscellaneous
fees), increased 89.7% or $2.0 million, to $4.1 million. The increase in
other fees for the fourth quarter of 2005, as compared to the same period
in 2004, was mainly attributable to royalty fees related to the sale of
residences, as well as an increase in design and procurement fees. For
the full year ended December 31, 2005, other fees declined 3.6% or $0.5
million, to $14.1 million, as compared to 2004. The decline was attributable
to a $2.0 million decline in residential royalty fees due to fewer residential
sales closing, and a $1.3 million decline in other miscellaneous fees,
offset by a $2.8 million increase in design and procurement fees.
Foreign Exchange Forward Contracts
We reported our financial results in Canadian dollars up to December
31, 2004 and, as a result, we were subject to foreign exchange gains and
losses on conversion of our US dollar fee revenues to Canadian dollars.
To reduce this currency exposure, we typically hedged a portion of these
fees through foreign exchange forward contracts. Effective January 1, 2004,
we ceased designating our US dollar foreign exchange forward contracts
as hedges of our US dollar fee revenues. All of the outstanding foreign
exchange forward contracts at that date were entered into in 2002 and had
maturity dates in 2004. For the fourth quarter and full year of 2004, there
was a deferred foreign exchange gain of $3.1 million and $11.2 million,
respectively, on these foreign exchange forward contracts, which was recognized
in 2004 as an increase in fee revenues. We had no such gain for the corresponding
periods in 2005, as there were no foreign exchange forward contracts in
place in 2005 that related to the hedge of fee revenues.
Management Operations Expenses
-------------------------------------------------------------------------
Three months ended Dollar
Percentage
(in millions of dollars)
December 31, Change
Change
-------------------------------------------------------------------------
2005 2005
2005 2004
over 2004 over 2004
-------------------------------------------------------------------------
General and
administrative expenses
11.6 10.0
1.6 16.0%
-------------------------------------------------------------------------
Reimbursed costs
21.8 16.2
5.6 35.0%
-------------------------------------------------------------------------
Management operations
expenses
33.4 26.2
7.2 27.8%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended Dollar
Percentage
(in millions of dollars)
December 31, Change
Change
-------------------------------------------------------------------------
2005 2005
2005 2004
over 2004 over 2004
-------------------------------------------------------------------------
General and
administrative expenses
41.2 34.5
6.7 19.4%
-------------------------------------------------------------------------
Reimbursed costs
69.1 56.1
13.0 23.2%
-------------------------------------------------------------------------
Management operations
expenses
110.3 90.6
19.7 21.7%
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The majority of our general and administrative expenses are in Canadian
dollars and, accordingly, a portion of the increase for the fourth quarter
and full year of 2005, as compared to 2004, was attributable to the US
dollar having declined relative to the Canadian dollar. For the fourth
quarter and full year of 2005, general and administrative expenses (excluding
reimbursed costs) increased 11.7% and 11.5%, respectively, on a Canadian
dollar basis, as compared to the same period in 2004. On a Canadian dollar
basis, the increase in these costs related primarily to an increase in
the number of employees at our corporate offices to handle the significant
unit growth in our portfolio and to the cost of living increases for corporate
employees that were implemented at the beginning of 2005. In addition,
in the fourth quarter of 2005, the increase in general and administrative
expenses was attributable in part to reorganization costs.
Management Operations Earnings
As a result of the items described above, management operations earnings
and management operations profit margin were the following:
-------------------------------------------------------------------------
Three months ended Years ended
(in millions of dollars)
December 31, December 31,
-------------------------------------------------------------------------
2005 2004 2005
2004
-------------------------------------------------------------------------
Management fee revenues (excluding
reimbursed costs and the impact of
foreign exchange forward contracts)
$29.6 $25.0 $117.2 $100.8
-------------------------------------------------------------------------
Management operations earnings before
other operating items (excluding
reimbursed costs and the impact
of foreign exchange forward
contracts)(8)
$18.0 $15.0 $76.0
$66.3
-------------------------------------------------------------------------
Management operations profit margin
(excluding reimbursed costs and
the impact of foreign exchange
forward contracts)(9)
60.8% 60.2% 64.8%
65.8%
-------------------------------------------------------------------------
Management operations revenues
$51.4 $44.3 $186.3 $168.1
-------------------------------------------------------------------------
Management operations earnings
before other operating items
$18.0 $18.1 $76.0
$77.5
-------------------------------------------------------------------------
Management operations profit
margin(10)
35.0% 41.0% 40.8%
46.1%
-------------------------------------------------------------------------
Ownership Operations (which includes Corporate Expenses)
In the fourth quarter of 2005, operating losses from ownership operations
before other operating items were $5.3 million, as compared to $3.1 million
in the fourth quarter of 2004. The increase was primarily attributable
to The Pierre (which contributed operating earnings of $1.4 million in
the fourth quarter of 2004 and no earnings in the fourth quarter of 2005
as a result of its disposition), and increased corporate expenses relating
to foreign exchange and a retirement allowance. Operating losses from ownership
operations before other operating items for the full year 2005 increased
$1.4 million to a loss of $18.0 million, as compared to a loss of $16.6
million in 2004. The increased loss for the year was primarily attributable
to increased corporate expenses relating to foreign exchange and a retirement
allowance, partially offset by a decrease in operating losses of $2.0 million
at The Pierre, which was disposed of on June 30, 2005, and a decrease in
operating losses at Four Seasons Hotel Vancouver of $0.3 million.
Ownership Operations
The Pierre
In June 2005, we disposed of our interest in The Pierre, and ceased
managing the property on June 30, 2005. This transaction reduced the ownership
operations loss for the year ended December 31, 2005 by $2.0 million, as
compared to the same period in 2004. During the fourth quarter of 2004,
operating earnings at The Pierre were $1.4 million. For the full year 2005,
management fees from The Pierre were $1.2 million, as compared to $2.0
million in 2004.
Four Seasons Hotel Vancouver
During the fourth quarter of 2005, RevPAR at Four Seasons Hotel Vancouver
increased 9.6%, on a Canadian dollar basis, as compared to the same period
in 2004, primarily as a result of an 8.2% increase in achieved room rates.
Operating results at the hotel improved approximately $0.4 million to a
loss of $0.4 million in the fourth quarter of 2005, as compared to the
same period last year.
RevPAR at Four Seasons Hotel Vancouver increased 4.0%, on a Canadian
dollar basis, for the full year ended December 31, 2005, as compared to
2004, as a result of occupancy improvements. Consequently, the operating
results after management fees at that hotel improved $0.3 million to a
loss of $0.5 million in 2005, as compared to 2004.
Corporate Expenses
For the three months and full year ended December 31, 2005, our corporate
expenses increased $1.0 million and $3.5 million to $4.6 million and $15.1
million, respectively, as compared to $3.6 million and $11.6 million for
the same periods in 2004. The majority of these costs are in Canadian dollars
and, accordingly, some of the increase was attributable to the US dollar
having declined relative to the Canadian dollar since 2004. The remainder
of the increase for the full year and fourth quarter of 2005 was primarily
attributable to a retirement allowance.
Other Income/Expense, Net
For the fourth quarter of 2005, other expense, net was $56.8 million,
as compared to other income, net of $5.1 million for the same period in
2004. For the full year 2005, other expense, net was $89.2 million, as
compared to $11.9 million in 2004.
Retirement Benefit Plan
During the fourth quarter of 2005, we transitioned the majority of our
senior executives and hotel and resort general managers from an unfunded
defined benefit retirement plan to a fully funded defined contribution
retirement plan. We made the change in the retirement plan to improve the
certainty and predictability related to the cost of the retirement benefits.
We do not expect that the change will have a significant impact on our
ongoing annual pension cost.
The transition to this defined contribution format resulted in a funding
requirement of $42.2 million, of which $36.0 million was funded in 2005,
and a one-time pre-tax loss of $35.5 million. In addition, as a result
of the costs incurred by our hotels and resorts for the transition of general
manager participants, our incentive fees for 2005 were reduced by approximately
$1.0 million since the funding by the hotel owners was typically deducted
in calculating the amounts upon which our incentive fees are determined.
Asset Provisions and Write-Downs
From time to time, we make investments in hotels and resorts under our
management in the form of equity, loans and investments in management contracts
in order to obtain long-term management agreements in respect of these
projects. In making these investments, we assess the expected overall economic
returns to Four Seasons, including the value created through our long-term
management agreements. However, for financial reporting purposes each discreet
investment or component of an investment must be valued only in relation
to the cash flow that the particular investment or component of an investment
generates to Four Seasons, without regard to the ongoing value of the management
agreement.
For three months ended December 31, 2005, other expense, net, includes
an expense of $25.3 million relating to the provision for and the write-down
of certain assets, including a provision for loss of $8.8 million on long-term
receivables, a write-down of $15.9 million on investments in hotel partnerships
and corporations and a write-down of $0.6 million related to investment
in management contracts.
For the year ended December 31, 2005, other expense, net, includes
an expense of $31.8 million relating to the provision for and the write-down
of certain assets, including a provision for loss of $8.8 million on long-term
receivables, a write-down of $17.9 million on investments in hotel partnerships
and corporations and a write-down of $5.1 million on investment in management
contracts.
Foreign Exchange
Other expense for the fourth quarter of 2005 included a foreign exchange
loss of $4.8 million, as compared to a gain of $5.3 million for the same
period in 2004. Other expense for the full year ended December 31, 2005
included a foreign exchange loss of $24.6 million, as compared to a gain
of $3.2 million in 2004.
Foreign exchange gains and losses arose primarily from the translation
to Canadian dollars (using current exchange rates at the end of each quarter)
of our foreign currency-denominated net monetary assets, which are not
included in our designated foreign self-sustaining subsidiaries. They also
reflected local currency foreign exchange gains and losses on net monetary
assets incurred by our designated foreign self-sustaining subsidiaries.
Net monetary assets is the difference between our foreign currency-denominated
monetary assets and our foreign currency-denominated monetary liabilities
in each currency, and consist primarily of cash and cash equivalents, accounts
receivable, long-term receivables and short-term and long-term liabilities,
as determined under Canadian generally accepted accounting principles ("GAAP").
As a result of a currency swap relating to our convertible senior notes,
our US net monetary dollar asset position increased significantly during
the second quarter of 2005. This, combined with the strengthening of the
Canadian dollar relative to the US dollar and the British pound sterling,
resulted in the foreign exchange loss during the full year and fourth quarter
of 2005.
Gains and Losses on Disposition of Assets
Other expense, net for the three months ended December 31, 2005 also
includes a net gain of $9.0 million, related to the disposition of certain
investments in hotel partnerships and corporations and the exit from certain
management contracts.
Other expense, net for the year ended December 31, 2005 also includes
a net gain of $3.2 million, which related to the disposition of The Pierre
and certain investments in hotel partnerships and corporations and the
exit from certain management contracts.
Included in other expense, net during the year ended December 31, 2004,
was a net loss of $3.7 million related to the sale of certain investments
and the settlement of a long-term receivable.
Redemption of the LYONs
Included in other expense, net for the year ended December 31, 2004
is the loss on the redemption of the debt component of our LYONs (issued
in 1999) of $11.2 million.
Looking Ahead
Our business objectives for 2006 continue to focus on those aspects
of our business that we believe provide the greatest potential for maximizing
long-term shareholder value.
New Openings
In addition to Four Seasons Hotel Silicon Valley at East Palo Alto and
Four Seasons Tented Camp Golden Triangle, Thailand, which both opened in
January 2006, we expect to open nine new hotels and resorts over the course
of 2006 and 2007, and re-open Four Seasons Resort Maldives at Kuda Huraa.
The average term of the management contracts for these properties is 58
years, and these management contracts are expected to provide us with significant
additional long-term fee income. During 2006, we expect to fund in the
range of $50.0 million to $75.0 million in connection with obtaining new
or enhancing existing management agreements.
Service
During 2006, we intend to maintain our focus on value to our guests
by continuing to deliver our exceptional quality of service, while at the
same time controlling costs. We also intend to focus on enhancing our premium
service quality and rate premiums at each of the 11 Four Seasons hotels
and resorts that opened over the past 24 months and the new Four Seasons
projects that are expected to open in 2006.
We expect that the strong economic environment should translate into
continued strength in travel demand, particularly business travel. We also
expect that leisure travel demand will remain strong. On a full-year basis,
we expect our average daily room rates for 2006 to exceed the rates achieved
in 2005.
RevPAR and Margin Improvements
If the travel trends that we experienced in 2005 continue and exchange
rates remain at current levels, we expect RevPAR, on a US dollar basis,
for worldwide Core Hotels for the full year 2006 to increase in the range
of 8% to 10%, as compared to 2005. We expect that this improvement will
result from occupancy and pricing improvements. If current trends continue,
we expect the full-year gross operating margins of our worldwide Core Hotels
to increase more than 150 basis points in 2006.
Management Operations
As a result of the portfolio refinements, including our ceasing management
of The Pierre and Four Seasons Hotel Newport Beach in 2005 and, our ceasing
management of The Regent Kuala Lumpur later this year and renovation plans
at certain hotels, including Four Seasons Resort Maui, we expect full year
hotel management fee revenues to grow in line with our full year RevPAR
growth expectations for 2006. Assuming no significant changes to the US
to Canadian dollar exchange rate, we expect our operating costs (which
include the amounts included in general and administrative expenses in
Management Operations together with corporate expenses included in Ownership
Operations) should increase in the range of 6% to 8% for the full year
2006 as compared to full year 2005.
"As previously noted, we view 2006 as a transition year. The moderate
growth in management fee revenue expected in 2006 reflects the loss of
ongoing fee revenue from The Pierre, Newport Beach and Kuala Lumpur," said
John Davison, Chief Financial Officer. "As we look beyond 2006, we expect
all elements of our growth program to make a solid contribution to earnings,
including strong fee improvements from existing hotels (in particular those
completing renovation programs), increased fees from recently opened hotels
as they stabilize and the continued addition of exciting new Four Seasons
properties around the world."
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of
Three months ended Years
ended
US dollars except
December 31,
December 31,
per share amounts)
2005 2004
2005 2004
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Consolidated revenues
(note 4)
$ 58,498 $ 69,524 $ 248,338
$ 261,267
----------------------------------------------
----------------------------------------------
MANAGEMENT OPERATIONS
Revenues:
Fee revenues (note 4(a))
$ 29,559 $ 28,154 $ 117,199
$ 112,014
Reimbursed costs
21,832 16,170
69,051 56,062
----------------------------------------------
51,391 44,324 186,250
168,076
----------------------------------------------
Expenses:
General and
administrative expenses
(11,583) (9,986) (41,221)
(34,522)
Reimbursed costs
(21,832) (16,170) (69,051)
(56,062)
----------------------------------------------
(33,415) (26,156) (110,272)
(90,584)
----------------------------------------------
17,976 18,168
75,978 77,492
----------------------------------------------
OWNERSHIP OPERATIONS
AND CORPORATE EXPENSES
Revenues
7,505 26,615
65,343 97,436
Distributions from
hotel investments
- -
132 293
Expenses:
Cost of sales and expenses
(7,762) (24,678) (65,009)
(98,212)
Corporate expenses
(4,634) (3,642) (15,128)
(11,621)
Fees to Management
Operations
(398) (1,415) (3,387)
(4,538)
----------------------------------------------
(5,289) (3,120) (18,049)
(16,642)
----------------------------------------------
Earnings before other
operating items
12,687 15,048
57,929 60,850
Depreciation and
amortization
(2,675) (3,262) (11,187)
(11,779)
Other income (expense),
net (note 5)
(56,789) 5,120 (89,208)
(11,906)
----------------------------------------------
Earnings (loss) from
operations
(46,777) 16,906 (42,466)
37,165
Interest income
(expense), net
1,576 (153)
3,402 1,106
----------------------------------------------
Earnings (loss) before
income taxes
(45,201) 16,753 (39,064)
38,271
----------------------------------------------
Income tax recovery
(expense):
Current
(1,523) (4,099) (1,912)
(9,065)
Future
8,954 103
12,753 (3,508)
----------------------------------------------
7,431 (3,996) 10,841
(12,573)
----------------------------------------------
Net earnings (loss)
$ (37,770) $ 12,757 $ (28,223) $ 25,698
----------------------------------------------
----------------------------------------------
Basic earnings (loss)
per share (note 3(a))
$ (1.03) $ 0.35 $
(0.77) $ 0.72
----------------------------------------------
----------------------------------------------
Diluted earnings (loss)
per share (notes 1(d)
and 3(a))
$ (1.03) $ 0.34 $
(0.77) $ 0.69
----------------------------------------------
----------------------------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
December 31, December 31,
(In thousands of US dollars)
2005 2004
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents
$ 242,178 $ 226,377
Receivables
69,690 81,541
Inventory
7,326 1,439
Prepaid expenses
2,950 2,981
------------------------
322,144 312,338
Long-term receivables
175,374 179,060
Investments in hotel partnerships
and corporations
99,928 131,338
Fixed assets
64,850 59,939
Investment in management contracts
164,932 181,273
Investment in trademarks and trade
names
4,210 4,424
Future income tax assets
14,439 3,711
Other assets
34,324 30,064
------------------------
$ 880,201 $ 902,147
------------------------
------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 54,797
$ 60,415
Long-term obligations
due within one year
4,853 3,766
------------------------
59,650 64,181
Long-term obligations (note 2)
273,825 253,066
Shareholders' equity (note 3):
Capital stock
250,430 248,980
Convertible notes
36,920 36,920
Contributed surplus
10,861 8,088
Retained earnings
160,741 192,129
Equity adjustment from
foreign currency
translation
87,774 98,783
------------------------
546,726 584,900
------------------------
$ 880,201 $ 902,147
------------------------
------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH PROVIDED
BY OPERATIONS
Three months ended Years
ended
(In thousands
December 31,
December 31,
of US dollars)
2005 2004
2005 2004
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash provided by
(used in) operations:
MANAGEMENT OPERATIONS
Earnings before other
operating items
$ 17,976 $ 18,168 $ 75,978
$ 77,492
Items not requiring
an outlay of funds
1,449 483
3,711 1,701
----------------------------------------------
Working capital
provided by
Management Operations
19,425 18,651
79,689 79,193
----------------------------------------------
OWNERSHIP OPERATIONS
AND CORPORATE EXPENSES
Loss before other
operating items
(5,289) (3,120) (18,049)
(16,642)
Items not requiring
an outlay of funds
632 291
1,504 943
----------------------------------------------
Working capital used for
Ownership Operations and
Corporate Expenses
(4,657) (2,829) (16,545)
(15,699)
----------------------------------------------
14,768 15,822
63,144 63,494
Interest received, net
7,987 1,411
13,520 7,578
Interest paid on
redemption of
convertible notes
- -
- (25,840)
Proceeds received on
termination of
interest rate swap
- 9,000
- 9,000
Amount paid relating to
retirement benefit plan
transition (note 5(a))
(36,029) -
(36,029) -
Current income tax
received (paid)
521 2,632
(6,376) 546
Change in non-cash
working capital
3,167 3,792
(7,308) (9,302)
Other
(321) (325)
(474) (1,082)
----------------------------------------------
Cash provided by
(used in) operations
$ (9,907) $ 32,332 $ 26,477
$ 44,394
----------------------------------------------
----------------------------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Years
ended
(In thousands
December 31,
December 31,
of US dollars)
2005 2004
2005 2004
-------------------------------------------------------------------------
(Unaudited) (Unaudited)
Cash provided by
(used in):
Operations:
$ (9,907) $ 32,332 $ 26,477
$ 44,394
----------------------------------------------
Financing:
Issuance of
convertible notes
- -
- 241,332
Redemption of
convertible notes
- -
- (189,670)
Other long-term
obligations including
current portion
1,259 (71)
39 (83)
Issuance of shares
54 20,319
7,046 33,870
Dividends paid
- -
(3,142) (2,811)
----------------------------------------------
Cash provided by financing
1,313 20,248
3,943 82,638
----------------------------------------------
Capital investments:
Long-term receivables
8,943 (8,882) (10,304)
(16,265)
Investments in hotel
partnerships and
corporations
2,081 (1,508) (8,732)
(36,135)
Disposal of hotel
partnerships and
corporations
11,935 2,418
24,607 38,395
Purchase of fixed assets
(5,885) (2,414) (18,706)
(6,583)
Investments in trademarks
and trade names
and
management contracts
11,148 (2,397) 10,473
(12,135)
Other assets
288 (5,641) (7,614)
(8,506)
----------------------------------------------
Cash provided by (used in)
capital investments
28,510 (18,424) (10,276)
(41,229)
----------------------------------------------
Increase in cash and
cash equivalents
19,916 34,156
20,144 85,803
Increase (decrease) in
cash and cash equivalents
due to unrealized foreign
exchange gain (loss)
790 7,932
(4,343) 8,475
Cash and cash equivalents,
beginning of period
221,472 184,289 226,377
132,099
----------------------------------------------
Cash and cash equivalents,
end of period
$ 242,178 $ 226,377 $ 242,178 $ 226,377
----------------------------------------------
----------------------------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED
EARNINGS
Years ended
December 31,
(In thousands of US dollars)
2005 2004
-------------------------------------------------------------------------
Retained earnings, beginning of period
$ 192,129 $ 169,364
Net earnings (loss)
(28,223) 25,698
Dividends declared
(3,165) (2,933)
----------------------
Retained earnings, end of period
$ 160,741 $ 192,129
----------------------
----------------------
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, 2004.
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, 2004, except as disclosed
below:
(a) Change in reporting currency:
We have historically
prepared our consolidated financial statements
in Canadian
dollars ("C$"). Effective January 1, 2005, we have
adopted US
dollars as our reporting currency. With the majority of
our management
fee revenues in US dollars, reporting in US dollars is
expected to
reduce the volatility on reported results relating to the
impact of
fluctuations in the rate of exchange between the US and
Canadian dollar
relating to these revenues and, as a result, we
believe it
will provide our financial statement users with more
meaningful
information. We have not changed the functional currency
of Four Seasons
Hotels Inc., which remains Canadian dollars, or the
functional
currencies of any of its subsidiaries.
The 2005 and
2004 consolidated financial statements in Canadian
dollars have
been translated to US dollars using the foreign exchange
rates applicable
at each balance sheet date for assets and
liabilities,
and the weighted average exchange rates of the
corresponding
quarters for the consolidated statements of operations,
consolidated
statements of cash provided by operations and
consolidated
statements of cash flows. Equity transactions have been
translated
to US dollars at the historical exchange rates with
opening equity
accounts on January 1, 2003 translated at the exchange
rate on that
date. Any resulting exchange gain or loss was charged or
credited to
"Equity adjustment from foreign currency translation"
included as
a separate component of shareholders' equity.
(b) Variable interest entities:
The Canadian
Institute of Chartered Accountants ("CICA") issued
Accounting
Guideline No. 15, "Consolidation of Variable Interest
Entities"
("AcG-15"), which establishes criteria to identify variable
interest entities
("VIE") and the primary beneficiary of such
entities.
Entities that qualify as VIEs must be consolidated by their
primary beneficiary.
The implementation of AcG-15, effective
January 1,
2005, did not require us to consolidate any additional
interests.
(c) Investments in hotel partnerships
and corporations:
In conjunction
with the issuance of Section 3475, "Disposal of Long-
Lived Assets
and Discontinued Operations", the CICA eliminated the
exception
from consolidation for a temporary controlled subsidiary
effective
for fiscal years beginning on or after October 1, 2004.
Accordingly,
effective January 1, 2005, we account for our temporary
investments,
which are not controlled but over which we have
significant
influence, by the equity method, and consolidate our
temporary
investments which are controlled. The change in accounting
for these
temporary investments did not have a material impact on our
consolidated
financial statements for the three months and year ended
December 31,
2005.
(d) Diluted earnings (loss) per share:
In June 2005,
the Emerging Issues Committee of the CICA issued
Abstract EIC-155,
"The Effect of Contingently Convertible Instruments
on Diluted
Earnings per Share", which requires the application of the
"if-converted
method" to account for the potential dilution relating
to the conversion
of contingently convertible instruments, such as
our convertible
senior notes. EIC-155 was effective for interim and
annual reporting
periods beginning on or after October 1, 2005, and
is required
to be applied retroactively, with restatement of prior
period diluted
earnings (loss) per share. The implementation of EIC-
155 in 2005
did not have an impact on diluted earnings (loss) per
share in 2005
and 2004, as the effect of the assumed conversion of
our convertible
senior notes to 3,489,525 Limited Voting Shares, by
application
of the "if-converted method", has been excluded from the
calculations
as the inclusion of this conversion resulted in an anti-
dilutive effect
for the three months and years ended
December 31,
2005 and 2004.
(e) Non-monetary transactions:
In June 2005,
the CICA issued Section 3831, "Non-Monetary
Transactions",
which introduces new requirements for non-monetary
transactions
entered into 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. As this standard is to be
implemented
for non-monetary transactions entered into on or after
January 1,
2006, the impact of adoption of this standard will depend
upon future
non-monetary transactions.
2. Long-term obligations:
(a) Bank credit facility:
We have a committed
bank credit facility of $125,000, which expires
in September
2007. As at December 31, 2005, no amounts were borrowed
under this
credit facility. However, approximately $1,600 of letters
of credit
were issued under this credit facility as at
December 31,
2005. No amounts have been drawn under these letters of
credit.
(b) Currency and interest rate swap:
In April 2005,
we entered into a currency and interest rate swap
agreement
to July 30, 2009, pursuant to which we have agreed to
receive interest
at a fixed rate of 5.33% per annum on an initial
notional amount
of $215,842 and pay interest at a floating rate of
six-month
Canadian Bankers Acceptance in arrears plus 1.1% per annum
on an initial
notional amount of C$269.2 million. On July 30, 2009,
we will pay
C$311.8 million and receive $250,000 under the swap. We
have designated
the swap as a fair value hedge of our convertible
senior notes,
which were issued in 2004.
3. Shareholders' equity:
As at December 31, 2005, we have 3,725,698
outstanding Variable Multiple
Voting Shares ("VMVS"), 32,915,328
outstanding Limited Voting Shares
("LVS"), and 4,485,463 outstanding
stock options (weighted average
exercise price of C$59.25 ($50.81)).
(a) Earnings (loss) per share:
A reconciliation
of the net earnings (loss) and weighted average
number of
VMVS and LVS used to calculate basic and diluted earnings
(loss) per
share is as follows:
Three months ended
December 31,
2005
2004
-------------------------------------------------------------------------
Net loss Shares Net earnings
Shares
-------------------------------------------------------------------------
Basic earnings (loss)
per share amounts
$ (37,770) 36,640,579 $ 12,757
36,104,399
Effect of assumed
dilutive conversions:
Stock option plan
- -
- 1,686,109
-------------------------------------------------------------------------
Diluted earnings (loss)
per share amounts
$ (37,770) 36,640,759 $ 12,757
37,790,508
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Years ended
December 31,
2005
2004
-------------------------------------------------------------------------
Net loss Shares Net earnings
Shares
-------------------------------------------------------------------------
Basic earnings (loss)
per share amounts
$ (28,223) 36,628,206 $ 25,698
35,647,986
Effect of assumed
dilutive conversions:
Stock option plan
- -
- 1,666,230
-------------------------------------------------------------------------
Diluted earnings (loss)
per share amounts
$ (28,223) 36,628,206 $ 25,698
37,314,216
-------------------------------------------------------------------------
-------------------------------------------------------------------------
The diluted
earnings (loss) per share calculation excluded the effect
of the assumed
conversions of 4,485,463 stock options to LVS, under
our stock
option plan, during the three months and year ended
December 31,
2005 (2004 - 59,000 and 847,876 stock options,
respectively),
as the inclusion of these options would have resulted
in an anti-dilutive
effect. As we incurred a net loss for the three
months and
year ended December 31, 2005, all outstanding stock
options were
excluded from the calculation of diluted loss per share
for these
periods. There was no dilution in 2005 and 2004 relating
to the convertible
senior notes issued in 2004 (note 1(d)). In
addition,
the dilution relating to the conversion of our convertible
notes (issued
in 1999 and subsequently redeemed in September 2004) to
3,463,155
LVS, by application of the "if-converted method", has been
excluded from
the calculation for 2004 as the inclusion of this
conversion
resulted in an anti-dilutive effect.
(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
no stock options granted in the three months ended
December 31,
2005 and 2004, and in the year ended December 31, 2005.
The fair value
of stock options granted in the year ended December
31, 2004 was
estimated using the Black-Scholes option pricing model
with the following
assumptions: risk-free interest rates ranging from
2.96% to 4.39%;
semi-annual dividend per LVS of C$0.055; volatility
factor of
the expected market price of our LVS of 28% to 30%; 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 year ended December 31, 2004, the
weighted average
fair value of the options at the grant dates was
C$25.32 ($19.46).
For purposes of stock option expense and pro forma
disclosures,
the estimated fair value of the options are amortized to
compensation
expense over the options' vesting period.
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 and years ended
December 31,
2005 and 2004, if we had applied the fair value-based
method to
options granted during 2002, our net earnings (loss) and
basic and
diluted earnings (loss) per share would have been adjusted
to the pro
forma amounts indicated below:
Three months ended Years ended
December 31, December
31,
2005 2004
2005 2004
-------------------------------------------------------------------------
Stock option expense included
in compensation expense
$ (839) $ (501) $ (2,333) $
(1,633)
-------------------------------------------
-------------------------------------------
Net earnings (loss), as
reported
$ (37,770) $ 12,757 $ (28,223) $ 25,698
Decrease (increase) in
interest expense that would
have been recorded if all
outstanding stock options
granted during 2002 had been
expensed
463 (694) (1,626)
(2,622)
-------------------------------------------
Pro forma net earnings
(loss)
$ (37,307) $ 12,063 $ (29,849) $ 23,076
-------------------------------------------
Earnings (loss) per share:
Basic, as reported
$ (1.03) $ 0.35 $ (0.77)
$ 0.72
Basic, pro forma
(1.02) 0.33
(0.81) 0.65
Diluted, as reported
(1.03) 0.34
(0.77) 0.69
Diluted, pro forma
(1.02) 0.32
(0.81) 0.62
-------------------------------------------
4. Consolidated revenues:
Three months ended Years ended
December 31, December
31,
2005 2004
2005 2004
-------------------------------------------------------------------------
Revenues from Management
Operations(a)
$ 51,391 $ 44,324 $ 186,250 $ 168,076
Revenues from Ownership
Operations
7,505 26,615 65,343
97,436
Distributions from hotel
investments
- -
132 293
Fees from Ownership Operations
to Management Operations
(398) (1,415) (3,387)
(4,538)
-------------------------------------------
$ 58,498 $ 69,524 $ 248,338 $ 261,267
-------------------------------------------
-------------------------------------------
(a) Effective January 1, 2004, we ceased
designating our US dollar
foreign exchange
forward contracts as hedges of our US dollar fee
revenues.
These contracts were entered into during 2002, and all of
these contracts
matured during 2004. The foreign exchange gains on
these contracts
of $11,201, which were deferred prior to
January 1,
2004, were recognized in 2004 as an increase of fee
revenues over
the course of the year. During the three months and
year ended
December 31, 2004, we recognized $3,058 and $11,201,
respectively,
of the deferred gain in fee revenues. In addition,
effective
January 1, 2004, the US dollar foreign exchange forward
contracts
were marked-to-market on a monthly basis with the resulting
changes in
fair values being recorded as a foreign exchange gain or
loss and was
included in other expense, net. This resulted in a
$603 and a
$497 foreign exchange gain, respectively, for the three
months and
year ended December 31, 2004. We did not hedge any of our
US dollar
fee revenues during the three months and year ended
December 31,
2005.
5. Other income (expense), net:
Three months ended Years ended
December 31, December
31,
2005 2004
2005 2004
-------------------------------------------------------------------------
Loss on retirement benefit
plan transition(a)
$ (35,467) $ - $ (35,467) $
-
Asset provisions and write
downs(b)
(25,231) -
(31,787) -
Foreign exchange gain
(loss)(c)
(4,778) 5,264 (24,632)
3,173
Loss on redemption of
convertible notes(d)
- -
- (11,174)
Gain (loss) on disposition
of assets(b)
9,014 (130)
3,175 (3,672)
Legal and enforcement costs
(327) (14)
(497) (233)
-------------------------------------------
$ (56,789) $ 5,120 $ (89,208) $ (11,906)
-------------------------------------------
-------------------------------------------
(a) During the fourth quarter of 2005,
we transitioned the majority of
our senior
executives and hotel and resort general managers from an
unfunded defined
benefit retirement plan to a fully funded retirement
plan based
on a defined contribution format. The change in the
retirement
plan was made to improve the certainty and predictability
related to
the cost of the retirement benefits.
The transition
to this defined contribution retirement plan resulted
in a cash
funding by us in 2005 of $36,029 and a pre-tax accounting
charge of
$35,467. During the year ended December 31, 2005, we
incurred a
pension expense of $2,001 related to the defined benefit
retirement
plan and $2,243 related to the defined contribution
retirement
plan.
We continue
to maintain the unfunded multi-employer, non-
contributory,
defined benefit retirement plan on behalf of four
active executives
and 14 retired executives and general managers, as
well as the
owner of two of our managed properties. As at
December 31,
2005, we have an accrued defined benefit liability of
$25,843 in
respect of this plan, which is included in "Long-term
obligations."
This accrued defined benefit liability excludes the
defined benefit
obligation of the owner of the two managed properties
for their
current general managers.
(b) Asset provisions and write downs
for the three months and year ended
December 31,
2005 includes a provision for loss of $8,829 on long-
term receivables,
a write down of $15,923 and $17,853, respectively,
on investments
in hotel partnerships and corporations and a write
down of $479
and $5,105, respectively, on investment in management
contracts.
Gain (loss)
on disposition of assets for the three months and year
ended December
31, 2005 includes a net gain of $9,892 and $9,337,
respectively,
(2004 - net loss of $130 and $3,672, respectively) on
the dispositions
of investments in hotel partnerships and
corporations,
the settlement of long-term receivables and the exit
from certain
management contracts, and a loss of $878 and $6,162,
respectively,
on the assignment of leases and the sale of related
assets of
The Pierre (note 6).
(c) The net foreign exchange loss in
2005 and the net foreign exchange
gain in 2004
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.
In December
2005, we entered into 24 US dollar foreign exchange
forward contracts
to convert $21,189 of US dollars to Canadian
dollars at
an average exchange rate of 1.16 over the period ending
June 2006.
We entered into these contracts to protect ourselves in
the event
of a strengthening Canadian currency as it relates to
expenditures
incurred by us for our management operations and
corporate
expenses, which are denominated primarily in Canadian
dollars. 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 $127 foreign
exchange loss
being recorded in 2005.
Effective,
January 1, 2004, we ceased designating our US dollar
foreign exchange
forward contracts as hedges of our 2004 US dollar
revenue and,
as a result, these contracts were marked-to-market on a
monthly basis
with the resulting changes in fair values being
recorded as
a foreign exchange gain or loss (note 4 (a)).
(d) The loss on the redemption of the
debt component of our convertible
notes (issued
in 1999) of $11,174 are more fully described in our
consolidated
financial statements for the year ended
December 31,
2004.
6. Guarantees and commitments:
As at December
31, 2005, we had provided certain guarantees in
connection
with properties under our management. These include
guarantees
in respect of four projects totalling a maximum of
approximately
$18,500, as well as a guarantee of $300 for relocation
costs for
certain employees. We have lease guarantees in respect of
Four Seasons
Hotel London, as well as a lease guarantee in respect of
Four Seasons
Hotel Prague (these guarantees are more fully described
in our consolidated
financial statements for the year ended
December 31,
2004). To the extent we are called upon to honour any
one of these
guarantees, we generally have either the right to be
repaid from
hotel operations and/or have various forms or security or
recourse to
the owner of the property.
We also have
four other commitments totalling approximately $16,000
to four properties
under our management. In addition, during 2005, we
assigned our
leases and sold the related assets of The Pierre. As
part of the
sale of The Pierre, in accordance with statutory
provisions,
the purchaser agreed to assume a portion of our
contribution
history with a multi-employer pension fund for the
unionized
hotel employees (the "NYC Pension"). This permitted us to
withdraw from
the NYC pension without incurring a withdrawal
liability
estimated at $10,700. In certain limited circumstances, as
a part of
our agreement, we may be required to pay a portion of the
purchaser's
withdrawal liability, if any. We believe that the
likelihood
of our being required to make a payment is remote, and
have not recorded
any amount as at December 31, 2005 in respect of a
potential
NYC Pension withdrawal liability.
During 2006,
we expect to fund $1,700 relating to one of these
commitments.
Our assessment of our potential liability for such
matters could
change as a result of, among other things, the
associated
risks and uncertainties.
7. Seasonality:
Our hotels
and resorts are generally affected by normally recurring
seasonal patterns
and, for most of the properties, demand is
typically
lower in December through March than during the remainder
of the year.
Management
operations are seasonal in nature, as fee revenues are
affected by
the seasonality of hotel and resort revenues and
operating
results. Urban hotels generally experience lower revenues
and operating
results in the first quarter, which has a negative
impact on
management revenues. However, this negative impact on
management
revenues generally is offset, to some degree, by increased
travel to
resorts in that quarter and may be offset to a greater
extent as
the portfolio of resort properties that we manage
increases.
However, seasonality can be affected by specific local
events that
can cause and from time to time have caused,
unanticipated
disruptions to the operations of certain of the
properties
we manage.
Our ownership
operations are also affected by seasonal fluctuations,
with lower
revenue, operating profit and cash flow in the first
quarter; ownership
properties typically incur an operating loss in
the first
quarter of each year. Typically, the third quarter has been
the strongest
quarter for the Four Seasons Hotel Vancouver.
FOUR
SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA -
CORE HOTELS(1)
Three months ended
December 31,
(Unaudited)
2005 2004 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties
51 51
-
No. of Rooms
13,450 13,450
-
Occupancy(2)
66.9% 66.4% 0.5pts.
ADR(3)
- in US dollars
$355 $340
4.4%
RevPAR(4) - in US dollars
$224 $208
7.4%
Gross operating margin(5)
29.9% 28.5% 1.4pts.
United States
No. of Properties
19 19
-
No. of Rooms
5,985 5,985
-
Occupancy(2)
69.7% 69.1% 0.6pts.
ADR(3)
- in US dollars
$388 $361
7.3%
RevPAR(4) - in US dollars
$276 $247
11.5%
Gross operating margin(5)
28.2% 26.4% 1.8pts.
Other Americas/Caribbean
No. of Properties
8 8
-
No. of Rooms
1,725 1,725
-
Occupancy(2)
63.6% 61.6% 2.0pts.
ADR(3)
- in US dollars
$369 $347
6.4%
RevPAR(4) - in US dollars
$206 $190
8.7%
Gross operating margin(5)
24.4% 22.5% 1.9pts.
Europe
No. of Properties
8 8
-
No. of Rooms
1,425 1,425
-
Occupancy(2)
62.3% 60.9% 1.4pts.
ADR(3)
- in US dollars
$504 $513 (1.8)%
RevPAR(4) - in US dollars
$329 $332 (0.9)%
Gross operating margin(5)
32.9% 31.2% 1.7pts.
Middle East
No. of Properties
4 4
-
No. of Rooms
850 850
-
Occupancy(2)
64.0% 63.4% 0.6pts.
ADR(3)
- in US dollars
$206 $183
12.7%
RevPAR(4) - in US dollars
$132 $114
15.9%
Gross operating margin(5)
33.7% 34.6% (0.9)pts.
Asia/Pacific
No. of Properties
12 12
-
No. of Rooms
3,465 3,465
-
Occupancy(2)
66.3% 67.4% (1.1)pts.
ADR(3)
- in US dollars
$243 $238
2.1%
RevPAR(4) - in US dollars
$122 $122
0.1%
Gross operating margin(5)
36.0% 34.9% 1.1pts.
--------------------------------------------------
(1) The term "Core Hotels" means hotels
and resorts under management for
the full year
of both 2005 and 2004. 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 2004/2003 Core Hotels are the additions of Four
Seasons Resort
Jackson Hole, Four Seasons Hotel Miami, Four Seasons
Resort Great
Exuma at Emerald Bay, Four Seasons Hotel Prague, Four
Seasons Hotel
Riyadh and Four Seasons Hotel Jakarta, and the
deletions
of Four Seasons Resort Maldives at Kuda Huraa (due to its
temporary
closure caused by the tsunami), The Pierre in New York (due
to its disposition
on June 30, 2005) and Four Seasons Hotel Newport
Beach (due
to the owner's decision to manage that property
independently).
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.
(4) RevPAR is defined as average room
revenue per available room. It is a
non-GAAP measure.
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 -
CORE HOTELS(1)
Years ended
December 31,
(Unaudited)
2005 2004 Variance
-------------------------------------------------------------------------
Worldwide
No. of Properties
51 51
-
No. of Rooms
13,450 13,450
-
Occupancy(2)
69.0% 66.1% 2.9pts.
ADR(3)
- in US dollars
$349 $328
6.3%
RevPAR(4) - in US dollars
$226 $203
11.4%
Gross operating margin(5)
30.8% 28.6% 2.2pts.
United States
No. of Properties
19 19
-
No. of Rooms
5,985 5,985
-
Occupancy(2)
73.0% 69.4% 3.6pts.
ADR(3)
- in US dollars
$374 $349
7.3%
RevPAR(4) - in US dollars
$273 $241
13.3%
Gross operating margin(5)
28.7% 26.1% 2.6pts.
Other Americas/Caribbean
No. of Properties
8 8
-
No. of Rooms
1,725 1,725
-
Occupancy(2)
67.7% 63.8% 3.9pts.
ADR(3)
- in US dollars
$345 $323
6.9%
RevPAR(4) - in US dollars
$217 $191
13.8%
Gross operating margin(5)
28.2% 25.0% 3.2pts.
Europe
No. of Properties
8 8
-
No. of Rooms
1,425 1,425
-
Occupancy(2)
63.7% 63.5% 0.2pts.
ADR(3)
- in US dollars
$527 $507
4.1%
RevPAR(4) - in US dollars
$351 $336
4.5%
Gross operating margin(5)
34.6% 34.7% (0.1)pts.
Middle East
No. of Properties
4 4
-
No. of Rooms
850 850
-
Occupancy(2)
68.3% 65.6% 2.7pts.
ADR(3)
- in US dollars
$210 $184
14.5%
RevPAR(4) - in US dollars
$142 $119
19.3%
Gross operating margin(5)
42.4% 37.9% 4.5pts.
Asia/Pacific
No. of Properties
12 12
-
No. of Rooms
3,465 3,465
-
Occupancy(2)
65.3% 62.7% 2.6pts.
ADR(3)
- in US dollars
$238 $228
4.5%
RevPAR(4) - in US dollars
$118 $107
9.5%
Gross operating margin(5)
33.0% 30.9% 2.1pts.
--------------------------------------------------
(1) The term "Core Hotels" means hotels
and resorts under management for
the full year
of both 2005 and 2004. 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 2004/2003 Core Hotels are the additions of Four
Seasons Resort
Jackson Hole, Four Seasons Hotel Miami, Four Seasons
Resort Great
Exuma at Emerald Bay, Four Seasons Hotel Prague, Four
Seasons Hotel
Riyadh and Four Seasons Hotel Jakarta, and the
deletions
of Four Seasons Resort Maldives at Kuda Huraa (due to its
temporary
closure caused by the tsunami), The Pierre in New York (due
to its disposition
on June 30, 2005) and Four Seasons Hotel Newport
Beach (due
to the owner's decision to manage that property
independently).
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.
(4) RevPAR is defined as average room
revenue per available room. It is a
non-GAAP measure.
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
December 31,
(Unaudited)
2005 2004 Variance
-------------------------------------------------------------------------
Worldwide (1)
No. of Properties
68 63
5
No. of Rooms
17,300 16,375
925
United States
No. of Properties
23 24
(1)
No. of Rooms
6,845 7,110
(265)
Other Americas/Caribbean
No. of Properties
10 10
-
No. of Rooms
2,165 2,160
5
Europe
No. of Properties
12 10
2
No. of Rooms
1,960 1,785
175
Middle East
No. of Properties
7 5
2
No. of Rooms
1,740 1,210
530
Asia/Pacific
No. of Properties
16 14
2
No. of Rooms
4,590 4,110
480
---------------------------------------------------
(1) Since December 31, 2005, we commenced
management of Four Seasons
Tented Camp,
Golden Triangle, Thailand and Four Seasons Hotel Silicon
Valley at
East Palo Alto, which have 15 and 200 rooms, respectively.
All room numbers
in this table are approximate.
FOUR SEASONS HOTELS INC.
REVENUES UNDER MANAGEMENT - ALL MANAGED
HOTELS
(Unaudited)
Three months ended
Years ended
(In thousands of
December 31,
December 31,
US dollars)
2005 2004
2005 2004
-------------------------------------------------------------------------
Revenues under
management(1)
$ 676,662 $ 604,791 $ 2,559,746
$ 2,240,887
---------------------------------------------------
---------------------------------------------------
-----------------------------
(1) Revenues under management consist
of rooms, food and beverage,
telephone
and other revenues of all the hotels and resorts which we
manage. Approximately
63% 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 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 Hotel Macau, Special
Administrative Region of
the People's Republic of China(x)
400
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
270
Four Seasons Hotel Baltimore, Maryland,
USA(x)
200
Four Seasons Resort Barbados, Barbados(x)
117
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 Marrakech, Morocco(x)
140
Four Seasons Resort Mauritius, Republic
of Mauritius(x)
120
Four Seasons Hotel Moscow, Russia(x)
215
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 Hotel Shanghai at Pudong,
People's Republic of
China(x)
190
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
at the time of this report. 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 2004 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.
Forward Looking Statements
This press 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 management's
discussion and analysis and our annual information form. 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 press release are qualified by
these cautionary statements. These statements are made as of the date of
this press release 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.
The information contained in this news release is a summary
of information provided in our Management's Discussion and Analysis for
the period. This news release and the Management's Discussion and Analysis
should be read in conjunction with our financial statements for the period
that, together with our Management's Discussion and Analysis is posted
on our website at www.fourseasons.com/investor and is available as part
of our filings at www.sedar.com.
--------------------
1. RevPAR is defined as average
room revenue per available room. It is a
non-GAAP measure.
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 2005 and 2004. 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 2004/2003 Core Hotels are the additions of Four
Seasons Resort
Jackson Hole, Four Seasons Hotel Miami, Four Seasons
Resort Great
Exuma at Emerald Bay, Four Seasons Hotel Prague, Four
Seasons Hotel
Riyadh and Four Seasons Hotel Jakarta, and the
deletions
of Four Seasons Resort Maldives at Kuda Huraa (due to its
temporary
closure caused by the tsunami), The Pierre in New York
(due to its
disposition on June 30, 2005) and Four Seasons Hotel
Newport Beach
(due to the owner's decision to manage that property
independently).
3. Gross operating margin represents
gross operating profit as a
percentage
of gross operating revenue.
4. Included in ownership operations
and corporate expenses are the
consolidated
revenues and expenses from our 100% leasehold interests
in Four Seasons
Hotel Vancouver, The Pierre in New York (until the
lease disposition
on June 30, 2005), and Four Seasons Hotel Berlin
(until the
lease termination on September 26, 2004), distributions
from other
ownership interests in properties that Four Seasons
manages and
corporate overhead expenses related, in part, to these
ownership
interests.
5. Other fees include royalty
and management fees from our residential
business,
fees we earn during the development of our hotels and other
miscellaneous
fees.
6. Prior to January 1, 2004,
we designated our US dollar foreign
exchange forward
contracts as hedges of our US dollar fee revenues.
In 2003, we
recorded foreign exchange gains of $5.7 million on these
designated
foreign exchange forward contracts as an increase in fee
revenues.
Effective January 1, 2004, we ceased designating our
US dollar
foreign exchange forward contracts as hedges of our
US dollar
fee revenues. All of the outstanding foreign exchange
forward contracts
at that date were entered into in 2002 and had
maturity dates
in 2004. At January 1, 2004, there was a deferred
foreign exchange
gain of $11.2 million on these foreign exchange
forward contracts
which was recognized in 2004 as an increase in fee
revenues over
the course of 2004. Foreign exchange gains on foreign
exchange forward
contracts were recorded as increases in management
operations
fee revenues in the quarters of 2004 and 2003 as follows:
---------------------------------------------------------------------
(In millions
First Second
Third Fourth
of US
dollars) Quarter
Quarter Quarter
Quarter
---------------------------------------------------------------------
2004
$2.7 $2.8
$2.6 $3.1
---------------------------------------------------------------------
2003
$0.5 $1.5
$1.4 $2.3
---------------------------------------------------------------------
7. Reimbursed costs includes
the reimbursement of all out-of-pocket
costs, including
sales and marketing and advertising fees.
8. This is a non-GAAP measure
and is calculated as management fee
revenues (excluding
reimbursed costs and the impact of foreign
exchange forward
contracts) less management general and
administrative
expenses.
9. This is a non-GAAP measure
and is calculated as management fee
revenues (excluding
reimbursed costs and the impact of foreign
exchange forward
contracts) divided by management operations earnings
before other
operating items (excluding reimbursed costs and the
impact of
foreign exchange forward contracts).
10. The management operations profit
margin represents management
operations
earnings before other operating items, as a percentage of
management
operations revenue.
+ + +
The financial statements are prepared
in accordance with Canadian
generally accepted accounting principles.
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