| TORONTO, Nov. 9, 2006 - Four Seasons Hotels Inc. (TSX Symbol
"FSH"; NYSE Symbol "FS") today reported its results for the third quarter
and nine months ended September 30, 2006.
All amounts disclosed in this news release are in US dollars unless
otherwise noted. The consolidated financial statements are prepared in
accordance with Canadian generally accepted accounting principles. Endnotes
can be found at the end of this news release.
Highlights of the Third Quarter and Nine Months ended September 30,
2006
For the third quarter and nine months ended September 30, 2006, as compared
to the same periods in 2005:
Hotel and Resort Operating Results:
- For the third quarter, RevPAR(1) increased
at our worldwide Core
Hotels(2) by 9.7% and at
our US Core Hotels by 8.3%. For the nine
months ended September 30,
2006, RevPAR increased at our worldwide
Core Hotels by 11.2% and
at our US Core Hotels by 10.9%.
- For the third quarter, gross operating
margins(3) increased at our
worldwide Core Hotels by
120 basis points to 30.4% and our US Core
Hotels gross operating margins
increased by 140 basis points to
28.5%. For the nine months
ended September 30, 2006, gross operating
margins increased at our
worldwide Core Hotels by 180 basis points to
32.3% and our US Core Hotels
gross operating margins also increased
by 180 basis points to 30.5%.
- For the third quarter, revenues under
management increased 15.8% to
$699.2 million from $603.8
million. For the nine months ended
September 30, 2006, revenues
under management increased 13.8% to
$2.1 billion from $1.9 billion.
We had approximately 17,500 rooms
under management in the
nine months ended September 30, 2006, as
compared to approximately
17,200 rooms in the same period in 2005. We
had approximately 14,300
rooms under management in our Core Hotels
for the third quarter and
nine months ended September 30, 2006 and
2005.
"Four Seasons offers an experience that is truly one of a kind, because
employees in the Company share a very specific focus: to meet the needs,
expectations, even the dreams of one type of consumer - the luxury traveler,"
said Isadore Sharp, Chairman and Chief Executive Officer. "The trust our
guest places in us to provide exceptional experiences is reflected in the
strong operational and financial results we are announcing this quarter.
We remain committed to further solidifying our distinct competitive position
in the industry."
Company Operating Results:
- As a result of improved results at
properties under our management
and, to a lesser extent,
an increase in the number of rooms under
management, hotel management
fees increased 20.7% in the third
quarter of 2006. For the
nine months ended September 30, 2006, hotel
management fees increased
19.9%.
- Base fees increased 12.1% to $20.0
million in the third quarter and
12.6% to $61.4 million for
the nine months ended September 30, 2006,
principally as a result
of RevPAR improvements at our Core Hotels and
the contribution from recently
opened properties under management.
- As a result of improved profitability
and the addition of new
properties under our management,
incentive fees increased 52.9% to
$7.2 million for the third
quarter and 38.5% to $29.3 million for the
nine months ended September
30, 2006.
- Other fees were essentially unchanged
for the third quarter, but
improved 33.2% to $13.3
million for the nine months ended
September 30, 2006, primarily
as a result of an increase in branded
residential royalty fees,
which will vary from period to period based
on the volume of sales closing
in those periods, and these
fluctuations may be significant.
- Operating earnings before other items(4)
increased 41.9% to
$16.6 million for the third
quarter and 38.5% to $60.8 million for
the nine months ended September
30, 2006.
- For the third quarter, net earnings
were $10.9 million ($0.30 basic
earnings per share and $0.29
diluted earnings per share), compared to
a net loss of $11.4 million
($0.31 basic and diluted loss per share)
for the third quarter of
2005. In the third quarter of 2005, net loss
included foreign exchange
losses and asset provisions and write downs
totaling approximately $21.1
million.
- For the nine months ended September
30, 2006, net earnings were
$33.4 million ($0.91 basic
earnings per share and $0.89 diluted
earnings per share), as
compared to net earnings of $9.5 million for
the same period in 2005
($0.26 basic earnings per share and $0.25
diluted earnings per share).
Adjusted Net Earnings and Adjusted Earnings per Share(x):
- In the third quarter of 2006, other
income, net of $0.6 million
related primarily to foreign
exchange gains, which were offset
partially by asset provisions
and write downs. In the third quarter
of 2005, other expenses,
net of $21.1 million related primarily to
foreign exchange losses
and asset provisions and write downs.
Adjusting for other income
(expenses), net and the applicable income
taxes, adjusted net earnings
were as follows:
-------------------------------------------------------------------------
(in millions of dollars except per
share amounts) Third quarter
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Net earnings (loss)
$ 10.9 $ (11.4)
-------------------------------------------------------------------------
Adjustments - Other (income) expenses,
net
(0.6) 21.1
-------------------------------------------------------------------------
Tax effect related to foregoing adjustments
0.6 (1.6)
-------------------------------------------------------------------------
Adjusted net earnings
$ 10.9 $ 8.1
-------------------------------------------------------------------------
------------------------
Adjusted basic earnings per share
$ 0.30 $ 0.22
-------------------------------------------------------------------------
------------------------
Adjusted diluted earnings per share
$ 0.29 $ 0.22
-------------------------------------------------------------------------
------------------------
- In the nine months ended
September 30, 2006, other expenses, net of
$7.0 million
related primarily to foreign exchange losses. In the
nine months
ended September 30, 2005, other expenses, net of
$32.4 million
related primarily to foreign exchange losses, losses on
the disposition
of assets, and asset provisions and write downs.
Adjusting for
other expenses, net and the applicable income taxes,
adjusted net
earnings were as follows:
-------------------------------------------------------------------------
Nine months ended
(in millions of dollars except per
share amounts) September 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Net earnings
$ 33.4 $ 9.5
-------------------------------------------------------------------------
Adjustments - Other expenses, net
7.0 32.4
-------------------------------------------------------------------------
Tax effect related to foregoing adjustments
1.8 (12.6)(xx)
-------------------------------------------------------------------------
Adjusted net earnings
$ 42.2 $ 29.3
-------------------------------------------------------------------------
------------------------
Adjusted basic earnings per share
$ 1.15 $ 0.80
-------------------------------------------------------------------------
------------------------
Adjusted diluted earnings per share
$ 1.13 $ 0.77
-------------------------------------------------------------------------
------------------------
(x) Adjusted net earnings
is a non-GAAP financial measure and does not
have any standardized meaning prescribed by GAAP. It is, therefore,
unlikely to be comparable to similar measures presented by other
issuers and should not be considered as an alternative to net
earnings, cash flow from operating activities or any other measure
of performance prescribed by Canadian GAAP. Our adjusted net
earnings may also not be comparable to adjusted net earnings used
by other lodging companies, which may be calculated differently.
We consider adjusted net earnings to be a meaningful indicator of
our operations, and management uses 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.
(xx) In connection with the disposition
of The Pierre in the second
quarter of 2005, we recorded a tax benefit of approximately
$9.2 million in the nine months ended September 30, 2005.
"The financial results reflect both the strong operating environment
and our continued efforts to control costs," said John Davison, Chief Financial
Officer. "We are very pleased to see these efforts translate into strong
earnings growth."
Expanding the Portfolio - New Four Seasons Projects
Our announced pipeline of new Four Seasons properties include thirty-
three projects around the world, including nine in the Americas, five in
Europe, nine in the Middle East/Africa and ten in Asia/Pacific. Since the
beginning of the year, we have added eleven new projects to this list,
including Barbados; Cham Island, Vietnam; a second property in Doha, Qatar;
Hangzhou, People's Republic of China; Koh Samui, Thailand; Kuwait City,
Kuwait; Macau, Special Administrative Region of the People's Republic of
China; Seychelles; Shanghai, People's Republic of China; St. Petersburg,
Russia and Taipei, Taiwan.
"We believe our development pipeline is the most robust in the luxury
sector," said Kathleen Taylor, President Worldwide Business Operations.
"Our owners and development partners continue to present us with opportunities
for extraordinary projects around the globe, which speaks to the strength
of the Four Seasons brand worldwide."
MANAGEMENT'S DISCUSSION AND ANALYSIS
THIRD QUARTER AND NINE MONTHS ENDED SEPTEMBER 30, 2006
This Management's Discussion and Analysis ("MD&A") for the third
quarter and nine months ended September 30, 2006 is provided as of November
9, 2006. It should be read in conjunction with the interim unaudited consolidated
financial statements for those periods, the audited consolidated financial
statements for the year ended December 31, 2005 and the MD&A for that
year, including the discussion of risks and uncertainties associated with
forward- looking statements. Except as disclosed in this MD&A, as of
November 9, 2006, and the MD&A for the quarter ended March 31, 2006
and six months ended June 30, 2006, there has been no material change in
the information disclosed in the MD&A for the year ended December 31,
2005. A summary of total revenues, net earnings or loss in total and on
a per share basis for the past eight quarters can be found under "Eight
Quarter Summary".
All amounts disclosed in this MD&A are in US dollars unless otherwise
noted. The consolidated financial statements are prepared in accordance
with Canadian generally accepted accounting principles. Endnotes can be
found at the end of this document.
Operational and Financial Review and Analysis
Hotel and Resort Operating Results
For the third quarter of 2006, RevPAR(1) at our worldwide Core Hotels(2)
increased 9.7%, as compared to the third quarter of 2005, reflecting improvements
in each of the regions in which we manage hotels and resorts. This increase
in RevPAR was attributable to a 12.0% improvement in achieved room rates,
offset by a 150 basis point decline in overall occupancy. For the nine
months ended September 30, 2006, RevPAR of our worldwide Core Hotels increased
11.2%, as compared to the same period in 2005, reflecting improvements
in each of the regions in which we manage hotels and resorts. This increase
in RevPAR was attributable to a 10.2% improvement in achieved room rates
and a 60 basis point increase in overall occupancy over the same period
in 2005.
Gross operating revenues of our worldwide Core Hotels increased 8.9%
for the third quarter of 2006 and 9.2% for the nine months ended September
30, 2006, as compared to the same periods in 2005. The improvements in
revenue, combined with continued cost management efforts at the properties
under our management, resulted in a 13.4% and 120 basis point increase
in gross operating profits(3) and gross operating margins(4), respectively,
for the third quarter of 2006, as compared to the same period in 2005,
and a 15.5% and 180 basis point increase in gross operating profits and
gross operating margins, respectively, for the nine months ended September
30, 2006, as compared to the same period in 2005.
With respect to our Core Hotels, the United States represented the most
significant geographic area. In the third quarter of 2006, properties in
the United States contributed 49.8% of revenues under management, followed
by Europe (19.3%), Asia/Pacific (12.7%), Other Americas/Caribbean (12.1%)
and the Middle East (6.1%). For the nine months ended September 30, 2006,
properties in the United States contributed 49.9% of revenues under management,
followed by Europe (16.7%), Other Americas/Caribbean (14.9%), Asia/Pacific
(12.4%) and the Middle East (6.1%). The following tables highlight the
results of operations for our Core Hotels in each of these regions.
United States Region
-------------------------------------------------------------------------
Results
for periods in 2006, as compared to the same periods in 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating Gross
Revenue Profit
Operating
RevPAR (GOR)
(GOP) Margin
-------------------------------------------------------------------------
Basis
Point
$ Percentage Percentage Percentage
Improve-
Increase Increase Increase
Margin ment
-------------------------------------------------------------------------
Third
quarter
292 8.3%
8.2% 13.9%
28.5% 140
-------------------------------------------------------------------------
Nine months
ended Sept-
ember 30
299 10.9%
9.6% 16.3%
30.5% 180
-------------------------------------------------------------------------
The increase in RevPAR in the third quarter in the region
was primarily attributable to a 9.3% increase in achieved
room rates in the region, with the average occupancy levels
essentially unchanged. During the third quarter of 2006,
the majority of the Core Hotels in this region experienced
RevPAR improvements. Four Seasons properties under
management in Austin, Chicago, Kona, New York and
Philadelphia and the Beverly Wilshire had strong RevPAR
improvements, relative to the average for the region for the
third quarter primarily as a result of an increase in
achieved room rates. Excluding the impact of the resort in
Maui, which is undergoing an extensive renovation program,
the increase in RevPAR in the third quarter in this region
would have been 9.2%. The increase in RevPAR in the nine
months ended September 30, 2006 was primarily attributable
to a 9.9% increase in achieved room rates as occupancy
levels were essentially unchanged in the region. Properties
under management in Atlanta, Austin, Boston, Houston, Kona,
Maui, New York and Scottsdale had strong RevPAR improvements
relative to the average for the region for the nine-month
period primarily as a result of an increase in achieved room
rates. The improvement in gross operating profits and gross
operating margins in the region in the third quarter and
nine months ended September 30, 2006 was primarily the
result of the improvement in gross operating revenues.
Excluding the results of the Maui property in the third
quarter, the gross operating margin would have increased 170
basis points in this region.
-------------------------------------------------------------------------
Other Americas/Caribbean Region
-------------------------------------------------------------------------
Results
for periods in 2006, as compared to the same periods in 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating Gross
Revenue Profit
Operating
RevPAR (GOR)
(GOP) Margin
-------------------------------------------------------------------------
Basis
Point
$ Percentage Percentage Percentage
Improve-
Increase Increase Increase
Margin ment
-------------------------------------------------------------------------
Third
quarter
188 3.4%
3.7% (15.1)% 14.1%
(310)
-------------------------------------------------------------------------
Nine months
ended Sept-
ember 30
246 12.0% 10.3%
12.4% 28.1%
50
-------------------------------------------------------------------------
For the third quarter of 2006, the RevPAR results for the
properties under management in this region were mixed.
Demand declined at certain of the resort properties in the
region primarily due to travel concerns related to weather.
In addition, demand was reduced in Mexico City, whose market
experienced a period of political unrest following its
elections. The third quarter RevPAR improvement was entirely
attributable to a 10.9% increase in achieved room rates, as
average occupancy levels declined 450 basis points. On a
local currency basis, RevPAR was essentially unchanged in
the quarter although achieved room rates improved 7.9%. The
RevPAR increase for the nine months ended September 30, 2006
was the result of a 12.3% increase in achieved room rates as
occupancy levels were essentially unchanged. On a local
currency basis, RevPAR improved 10.0% in the nine-month
period, reflecting a 10.3% increase in achieved room rates
on a local currency basis. In the nine months ended
September 30, 2006, properties under management in Buenos
Aires, Carmelo, Costa Rica and Punta Mita had particularly
strong RevPAR improvements, relative to the average for the
region primarily as a result of an increase in achieved room
rates. The decline in gross operating profits and gross
operating margin in the third quarter of 2006 was due
primarily to reduced revenues in certain properties,
particularly at the Caribbean resorts, that have a
relatively high fixed cost base. Excluding the properties
under management in Exuma, Nevis and Mexico City, gross
operating margins would have been flat in the third quarter
of 2006. For the nine months ended September 30, 2006, gross
operating profits and gross operating margins increased only
modestly relative to the RevPAR improvement in the region
primarily as a result of the reasons noted for the third
quarter. Excluding the properties under management in Exuma,
Nevis and Mexico City, gross operating margins would have
increased 460 basis points in the nine months ended
September 30, 2006.
-------------------------------------------------------------------------
Europe Region
-------------------------------------------------------------------------
Results
for periods in 2006, as compared to the same periods in 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating Gross
Revenue Profit
Operating
RevPAR (GOR)
(GOP) Margin
-------------------------------------------------------------------------
Basis
Point
$ Percentage Percentage Percentage
Improve-
Increase Increase Increase
Margin ment
-------------------------------------------------------------------------
Third
quarter
458 19.6% 13.7%
19.3% 38.1%
180
-------------------------------------------------------------------------
Nine months
ended Sept-
ember 30
404 17.1%
8.0% 15.2%
34.3% 220
-------------------------------------------------------------------------
All of the properties under management in the region had
RevPAR improvements during the third quarter and nine months
ended September 30, 2006, reflecting modest occupancy
increases and strong rate improvements. During the third
quarter of 2006, on a local currency basis, RevPAR increased
14.7%, reflecting a 10.8% increase in achieved room rates in
local currency, versus a 15.5% increase in achieved room
rates on a US dollar basis. For the nine months ended
September 30, 2006, on a local currency basis, RevPAR
increased 18.0%, reflecting a 9.7% increase in achieved room
rates on a local currency basis, versus an 8.9% increase in
achieved room rates on a US dollar basis. Properties under
management in Lisbon and Terre Blanche and the Four Seasons
Hotel London had strong RevPAR improvements, relative to the
average of the other properties in the region, during the
third quarter and nine months ended September 30, 2006. The
improvements in gross operating profits and gross operating
margins for the region were offset in part by the impact on
the profitability performance at the Four Seasons Hotel
Dublin, which is undergoing a conversion of 62 hotel rooms
into residential units.
-------------------------------------------------------------------------
Middle East Region
-------------------------------------------------------------------------
Results
for periods in 2006, as compared to the same periods in 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating Gross
Revenue Profit
Operating
RevPAR (GOR)
(GOP) Margin
-------------------------------------------------------------------------
Basis
Point
$ Percentage Percentage Percentage
Improve-
Increase Increase Increase
Margin ment
-------------------------------------------------------------------------
Third
quarter
174 26.3% 25.4%
41.7% 49.5%
570
-------------------------------------------------------------------------
Nine months
ended Sept-
ember 30
175 20.0% 20.9%
30.3% 50.4%
360
-------------------------------------------------------------------------
During both the third quarter and nine months ended
September 30, 2006, all of the properties under management
in the Middle East region had RevPAR improvements, with the
exception of Four Seasons Resort Sharm El Sheikh. In Sharm
El Sheikh, RevPAR was essentially unchanged for the third
quarter, but declined 5.5% for the nine months ended
September 30, 2006 as a result of lower occupancy levels, as
business was adversely affected by the continuing impact of
terrorist bombings. In the third quarter of 2006, the
increase in RevPAR for the region was driven by a 25.2%
increase in achieved room rates (23.9% on a local currency
basis) and a 60 basis point improvement in occupancy levels.
In the nine months ended September 30, 2006, the increase in
RevPAR for the region was driven by a 17.0% increase in
achieved room rates (15.5% on a local currency basis) and a
170 basis point improvement in occupancy levels. During both
the third quarter and nine months ended September 30, 2006,
Four Seasons Hotel Cairo Nile Plaza had particularly strong
RevPAR improvements, as compared to the average for the
region. The very strong improvements in gross operating
profits and gross operating margins were the result of
strong revenue growth, offset somewhat by the results in
Sharm El Sheikh.
Asia/Pacific Region
-------------------------------------------------------------------------
Results
for periods in 2006, as compared to the same periods in 2005
-------------------------------------------------------------------------
Gross Gross
Operating Operating Gross
Revenue Profit
Operating
RevPAR (GOR)
(GOP) Margin
-------------------------------------------------------------------------
Basis
Point
$ Percentage Percentage Percentage
Improve-
Increase Increase Increase
Margin ment
-------------------------------------------------------------------------
Third
quarter
129 1.0%
3.4% 2.2%
32.4% (40)
-------------------------------------------------------------------------
Nine months
ended Sept-
ember 30
130 2.5%
3.0% 7.1%
33.1% 120
-------------------------------------------------------------------------
During both the third quarter and nine months ended
September 30, 2006, RevPAR changes in the Asia/Pacific
region were mixed. During the third quarter of 2006,
achieved room rates increased 7.7% (5.0% increase on a local
currency basis), and occupancy decreased 400 basis points
primarily as the result of reduced demand at our two
properties in Bali, where the market is continuing a gradual
recovery from the impact of terrorist bombings. During the
nine months ended September 30, 2006, the RevPAR improvement
was driven by a 5.5% improvement in achieved room rates
(5.4% improvement on a local currency basis), with overall
occupancy levels essentially unchanged. During both the
third quarter and nine months ended September 30, 2006,
properties under management in Singapore and Sydney
experienced strong RevPAR improvements relative to the
region average, while the resorts in Bali, for the reason
noted, experienced a RevPAR decline. The decline in gross
operating margins for the region in the third quarter was
due in large part to reduced profitability at the property
under management in Bangkok, which completed extensive
renovations in the third quarter and the significant decline
in occupancy at the resorts in Bali. Excluding these three
properties, gross operating margins for the region would
have increased 280 basis points for the third quarter, and
310 basis points for the nine months ended September 30,
2006.
-------------------------------------------------------------------------
Company Operating Results
Our strategy is to focus on hotel management rather than hotel ownership.
Four Seasons Hotel Vancouver is our only remaining hotel whose results
we consolidate. As a result, commencing January 1, 2006, corporate expenses
are reflected in our results as general and administrative expenses in
the consolidated statements of operations. Corporate expenses for the third
quarter and nine months ended September 30, 2005 that previously were included
in our Ownership Operations segment have been included in general and administrative
expenses in the consolidated statements of operations.
Revenues
-------------------------------------------------------------------------
(in millions
Dollar Percentage
of dollars)
Third quarter Change
Change
-------------------------------------------------------------------------
2006 over 2006 over
2006 2005
2005 2005
-------------------------------------------------------------------------
Hotel management fees
Base
$ 20.0 $ 17.8
$ 2.2
12.1%
Incentive
7.2 4.7
2.5 52.9%
-------------------------------------------------------------------------
Subtotal
27.2 22.5
4.7 20.7%
-------------------------------------------------------------------------
Other fees
3.6 3.5
0.1 2.8%
-------------------------------------------------------------------------
Subtotal
30.8 26.0
4.8 18.3%
-------------------------------------------------------------------------
Hotel ownership revenues
8.8 9.7
(0.9) (9.9)%
-------------------------------------------------------------------------
Reimbursed costs(5)
18.6 16.5
2.1 13.5%
-------------------------------------------------------------------------
Total revenues
$ 58.2 $ 52.2
$ 6.0
11.5%
-------------------------------------------------------------------------
--------------------------------------------------
-------------------------------------------------------------------------
(in millions
Nine months ended Dollar
Percentage
of dollars)
September 30, Change
Change
-------------------------------------------------------------------------
2006 over 2006 over
2006 2005
2005 2005
-------------------------------------------------------------------------
Hotel management fees
Base
$ 61.4 $ 54.5
$ 6.9
12.6%
Incentive
29.3 21.1
8.2 38.5%
-------------------------------------------------------------------------
Subtotal
90.7 75.6
15.1 19.9%
-------------------------------------------------------------------------
Other fees
13.3 10.0
3.3 33.2%
-------------------------------------------------------------------------
Subtotal
104.0 85.6
18.4 21.4%
-------------------------------------------------------------------------
Hotel ownership revenues
24.7 58.0
(33.3) (57.3)%
-------------------------------------------------------------------------
Reimbursed costs
55.0 46.3
8.7 18.8%
-------------------------------------------------------------------------
Total revenues
$ 183.7 $ 189.9 $
(6.2) (3.3)%
-------------------------------------------------------------------------
--------------------------------------------------
Hotel Management Fees
Base Fees
Base fees are dependent on total revenues of all managed hotels and
resorts, which consist of rooms, food and beverage and other revenues.
For more information regarding base fees, see our MD&A for the year
ended December 31, 2005.
For the third quarter of 2006, base fees increased $2.2 million to $20.0
million, as compared to the third quarter of 2005. Of the $2.2 million
increase in base fees, base fees from Core Hotels contributed $1.3 million
or 58.2% of the increase. The increase in base fees from Core Hotels in
the third quarter of 2006 represented a 7.8% increase over the base fees
generated from Core Hotels in the third quarter of 2005. Properties that
opened in 2005 and 2006 contributed base fees of $1.6 million in the third
quarter of 2006, as compared to $0.4 million in the same period in 2005.
The increase in base fees in the third quarter of 2006 was moderated by
a $0.6 million reduction in base fees from properties no longer under management.
For the nine months ended September 30, 2006, base fees increased $6.9
million to $61.4 million, as compared to the same period in 2005. Of the
$6.9 million increase in base fees, base fees from Core Hotels contributed
$4.5 million or 64.7% of the increase. The increase in base fees from Core
Hotels in the nine months ended September 30, 2006 represented a 9.0% increase
over the base fees generated from Core Hotels in the same period of 2005.
Properties that opened in 2005 and 2006 contributed base fees of $4.5 million
in the nine months ended September 30, 2006, as compared to $0.6 million
in the same period in 2005. The increase in base fees in the nine months
ended September 30, 2006, was moderated by a $1.6 million reduction in
base fees from properties no longer under management.
Incentive Fees
Our incentive fees are typically earned based on the profitability of
each property that we manage, but may vary depending on the specific terms
of the relevant management agreement. For more information regarding incentive
fees, see our MD&A for the year ended December 31, 2005.
For the third quarter of 2006, incentive fees increased $2.5 million
to $7.2 million, as compared to the same period in 2005. The incentive
fees earned from properties that opened in 2005 and 2006 represented $1.1
million of the increase. The remaining $1.4 million of the increase came
from improvements in incentive fees from our Core Hotels. Incentive fees
were earned from 40 of the 70 hotels and resorts under management for the
third quarter of 2006, as compared to 37 of the 65 hotels and resorts under
management in the same period in 2005. During the third quarter ended September
30, 2006, the overall improvement in incentive fees was moderated by a
$1.5 million reversal in our incentive fees which was accrued earlier in
the year from certain of our resorts (see discussion below related to the
accrual of incentive fees).
Typically, the incentive fees we receive from the properties under our
management are reconciled on an annual basis to the actual full year operating
results at a particular property. On a quarterly basis, we recognize incentive
fees that would be calculated under the incentive fee formula as if the
particular management contract was terminated at the relevant reporting
date. If a property's profitability decreases in a subsequent quarter (due
mainly to seasonal differences), the incentive fee accrued in a previous
quarter may be reduced or eliminated. The overall improvement in incentive
fees in the third quarter of 2006 was reduced by the reversal of approximately
$1.5 million ($1.1 million in the third quarter of 2005) of incentive fees
accrued earlier this year, primarily related to resorts under management.
For the nine months ended September 30, 2006, incentive fees increased
$8.2 million to $29.3 million, as compared to the same period in 2005.
The incentive fees earned from properties that opened in 2005 and 2006
represented $3.3 million of the increase. The remaining $4.9 million of
the increase came from improvements in incentive fees from our Core Hotels.
Incentive fees were earned from 45 of the 70 hotels and resorts under management
for the nine months ended September 30, 2006, as compared to 42 of the
65 hotels and resorts under management in the same period in 2005. The
overall improvement in our incentive fees for the nine months ended September
30, 2006 was moderated by lower incentive fees in Nevis and in our resort
in Maldives, which remained closed until September 2006 for renovation
and repair of damage from the tsunami in late 2004. Although the Maldives
resort was closed during the first nine months of 2005, we received fees
during that period from payments in respect of business interruption insurance.
Other Fees
Other fees include royalty and management fees from our residential
business, fees we earn during the development of our hotels and resorts,
capital procurement fees and other miscellaneous fees. For more information
on other fees, please see our MD&A for the year ended December 31,
2005.
For the third quarter of 2006, other fees increased 2.8%, or $0.1 million,
to $3.6 million, as compared to the third quarter of 2005. For the nine
months ended September 30, 2006, other fees increased 33.2% or $3.3 million,
to $13.3 million, as compared to the same period in 2005. The increase
in other fees for the nine months ended September 30, 2006, as compared
to the same period in 2005, was primarily attributable to royalty fees
related to the sale of branded residences in Miami. Royalty fees earned
on the sale of branded residences will vary from period to period based
on the volume of sales closing in those periods. These fluctuations may
be significant.
Hotel Ownership Revenues
We have a 100% leasehold interest in the Four Seasons Hotel Vancouver
and, as a result, we consolidate the results of that hotel. During the
first six months of 2005, we also had a 100% leasehold interest in The
Pierre and consolidated the results of that property until June 30, 2005
as well. We assigned the lease of The Pierre to a third party at the end
of June 2005 and, as a result, we ceased to consolidate that property at
that time. Our investment strategy is not to hold any majority interests
in properties. However, Four Seasons Hotel Vancouver is a long-term leasehold
interest that was established at an earlier stage in our development. We
currently expect that we will continue to operate the Vancouver hotel under
the existing lease agreement, until its expiry on January 31, 2020.
In the nine months ended September 30, 2006, the decline in hotel ownership
revenues was primarily related to our owning and consolidating 100% of
The Pierre until June 30, 2005 and our not owning and not consolidating
it during 2006. Hotel ownership revenues for the third quarter and nine
months ended September 30, 2006 primarily relates to the Four Seasons Hotel
Vancouver. Revenue at that property increased by 8.9% relative to the third
quarter of 2005, primarily as the result of the decline in the US dollar
relative to the Canadian dollar, as Canadian dollar revenues were translated
into US dollars. Revenue at that property increased by 21.1% relative to
the nine months ended September 30, 2005, primarily as the result of an
11.0% improvement in RevPAR and the decline in the US dollar relative to
the Canadian dollar.
We have seven units of residential inventory at two resorts, which we
acquired with the intent to resell at our book value cost during the next
several years as a combination of fractional and whole home ownership residences.
We do not intend for this to be an ongoing business activity and expect
that over time the costs related to the sales process to be approximately
equal to the proceeds from the sale of these units. During the nine months
ended September 30, 2006, we sold inventory for gross proceeds of $1.5
million (nil proceeds in the third quarter of 2006). The revenue associated
with the sales is included in Hotel Ownership Revenues for both the third
quarter and nine months ended September 30, 2006, and the cost of the sales
is included in Hotel Ownership Cost of Sales and Expenses. There were no
sales in 2005.
Reimbursed Costs
Reimbursed costs, which primarily represent sales, marketing, advertising
and central reservation expenses for which hotels and resorts under management
reimburse us, are generally incurred on a cost-recovery basis to us and
are a function of the revenues under management. For the third quarter
of 2006, reimbursed costs increased $2.1 million or 13.5%, as compared
to the corresponding period in 2005. For the nine months ended September
30, 2006, reimbursed costs increased $8.7 million or 18.8%, as compared
to the corresponding period in 2005. The increase in both the third quarter
and nine months ended September 30, 2006 was due primarily to an increase
in the number of properties in the portfolio and increased costs related
to increased activity due to volume, as compared to the same periods in
2005.
Expenses
General and Administrative Expenses
As discussed previously, general and administrative expenses include
amounts that were previously classified as corporate expenses. The majority
of our general and administrative expenses are incurred in Canadian dollars.
For the third quarter of 2006, general and administrative expenses decreased
C$1.9 million (approximately 9.8%) on a Canadian dollar basis to C$17.0
million from C$18.9 million in the same period in 2005. During the third
quarter of 2005, we accrued a retirement allowance of approximately C$1.1
million, as compared to nil for the same period in 2006. As reported in
US dollars, general and administrative expenses decreased 2.9% to $15.2
million, from $15.6 million in the third quarter of 2005. Adjusting for
the effect of the US dollar having declined relative to the Canadian dollar
(average Canadian/US foreign exchange rate: third quarter 2006 - 1.121;
2005 - 1.207), general and administrative expenses would have declined
$1.5 million instead of $0.4 million.
As noted, the majority of our general and administrative expenses are
incurred in Canadian dollars, while the majority of hotel management fee
revenues and cash balances are in US dollars. We also incur Canadian dollar
capital funding requirements, which are primarily attributable to our corporate
office expansion. Accordingly, in December 2005, we began selling forward
US dollars for conversion to Canadian dollars, to help fix the cost of
our Canadian dollar expenditures in US dollars. The foreign exchange gains
and losses arising from both the forward contracts settled and the forward
contracts outstanding as at September 30, 2006 are included in Other Income
(Expense), Net and is discussed below.
For the nine months ended September 30, 2006, on a Canadian dollar basis,
general and administrative expenses decreased C$0.9 million (approximately
1.7%) to C$49.9 million from C$50.8 million, in the same period in 2005.
As reported in US dollars, for the nine months ended September 30, 2006,
general and administrative expenses increased 6.2% (or $2.6 million) to
$44.1 million from $41.5 million in the same period in 2005. Approximately
$3.3 million or 129.1% of the reported increase in general and administrative
expenses is attributable to the US dollar decline, relative to the Canadian
dollar, in the nine-month over nine-month period. The average Canadian/US
foreign exchange rate for the nine months ended September 30, 2006 and
2005 are 1.133 and 1.225, respectively.
Hotel Ownership Cost of Sales and Expenses
As discussed above, we consolidate 100% of the operations of Four Seasons
Hotel Vancouver and, until June 30, 2005, we also consolidated the operations
of The Pierre. Hotel ownership cost of sales and expenses declined 7.8%
to $7.8 million in the third quarter of 2006, from $8.4 million in the
third quarter of 2005. For the nine months ended September 30, 2006, hotel
ownership cost of sales and expenses declined 59.1% to $23.8 million from
$58.2 million in the same period in 2005, primarily as a result of the
operations of The Pierre being consolidated, until June 30, 2005 and not
being consolidated in the same period of 2006. As noted above, costs relating
to the sale of residential units are included in Hotel Ownership Cost of
Sales and Expenses. For the third quarter and nine months ended September
30, 2006, costs relating to the sale of the residential units were $0.5
million and $2.0 million, respectively.
Costs of sales and expenses at Four Seasons Hotel Vancouver increased
11.5% in the third quarter of 2006 and 10.3% in the nine months ended September
30, 2006, both as compared to the same periods in 2005, primarily as a
result of the decline in the US dollar relative to the Canadian dollar,
as the Canadian dollar costs are translated into US dollars for reporting
purposes.
Overall, our earnings from hotel ownership operations declined from
$1.3 million in the third quarter of 2005 to $1.0 million in the third
quarter of 2006. For the nine months ended September 30, 2006, our earnings
from hotel ownership operations was $0.9 million, as compared to a loss
of $0.2 million for the comparable period in 2005.
Operating Earnings Before Other Items(6)
As a result of the items described above, operating earnings before
other items increased 41.9% to $16.6 million in the third quarter of 2006,
as compared to $11.7 million in the same period in 2005. For the nine months
ended September 30, 2006, operating earnings before other items increased
38.5% to $60.8 million, as compared to $43.9 million in the same period
in 2005.
Profit Margin
Our profit margin on our management business in the third quarter of
2006, calculated including reimbursed revenues and costs of $18.6 million
($16.5 million in 2005), was 31.5% (24.4% in 2005). Excluding reimbursed
revenues and costs, our profit margin on our management business was as
follows:
-------------------------------------------------------------------------
(in millions of dollars)
Third quarter
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Hotel management fees
$ 27.2 $ 22.5
-------------------------------------------------------------------------
Other fees
3.6 3.5
-------------------------------------------------------------------------
Subtotal - management
fee revenues
(excluding reimbursed
costs)
30.8 26.0
-------------------------------------------------------------------------
General and administrative expenses
(including corporate expenses
as discussed above) (15.2)
(15.6)
-------------------------------------------------------------------------
Total - management operations
earnings before
other items
$ 15.6 $ 10.4
-------------------------------------------------------------------------
------------------------
Profit margin (excluding
reimbursed costs)(x) 50.7%
39.9%
-------------------------------------------------------------------------
(x) This is a non-GAAP financial measure,
calculated as management
operations
earnings before other items divided by management fee
revenues (excluding
reimbursed costs), and does not have any
standardized
meaning prescribed by GAAP. It is, therefore, unlikely
to be comparable
to similar measures presented by other issuers. We
consider this
measure to be a useful indicator of our operating
performance,
and management uses it as a measure to assess our
operating
performance.
Our profit margin on our management business for the
nine months ended September 30, 2006, calculated including reimbursed revenues
and costs of $55.0 million ($46.3 million in 2005), was 37.7% (33.4% in
2005). Excluding reimbursed revenues and costs, our profit margin on our
management business was as follows:
-------------------------------------------------------------------------
Nine months ended
(in millions of dollars)
September 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Hotel management fees
$ 90.7 $ 75.6
-------------------------------------------------------------------------
Other fees
13.3 10.0
-------------------------------------------------------------------------
Subtotal - management
fee revenues
(excluding reimbursed
costs)
104.0 85.6
-------------------------------------------------------------------------
General and administrative expenses
(including corporate expenses
as discussed above) (44.1)
(41.5)
-------------------------------------------------------------------------
Total - management operations
earnings
before other items
$ 59.9 $ 44.1
-------------------------------------------------------------------------
------------------------
Profit margin (excluding
reimbursed costs)(x) 57.6%
51.5%
-------------------------------------------------------------------------
(x) This is a non-GAAP financial measure,
calculated as management
operations
earnings before other items divided by management fee
revenues (excluding
reimbursed costs), and does not have any
standardized
meaning prescribed by GAAP. It is, therefore, unlikely
to be comparable
to similar measures presented by other issuers. We
consider this
measure to be a useful indicator of our operating
performance,
and management uses it as a measure to assess our
operating
performance.
Depreciation and Amortization
For the third quarter and nine months ended September 30, 2006, depreciation
and amortization was $4.4 million and $9.9 million, respectively, as compared
to $2.6 million and $8.5 million during the same periods in 2005. The increase
in depreciation and amortization in the third quarter of 2006, as compared
to the same period in 2005, is primarily attributable to a $1.7 million
increase in the amortization of our investment in The Ritz- Carlton Chicago
management contract.
We have reached an agreement with the owner of The Ritz-Carlton Chicago.
The agreement relates to the possible sale of that property by the owner
to a third party, and the potential cessation of our management of that
property, as well as the significant refurbishment of Four Seasons Hotel
Chicago (which is owned by an affiliated owner). These arrangements provide
the owner of The Ritz-Carlton Chicago with the option to terminate our
management prior to a sale of the property, and the obligation to terminate
our management upon a sale of the property. Under this arrangement we are
entitled to payments in connection with both a termination of our management
of the property and the owner's sale of the property. Although there is
no certainty as to the date of our termination of management, there is
a possibility it could occur in the near term and, accordingly, we are
amortizing the $3.4 million difference between the expected value of the
payment to be made on termination of our management and the book value
of our investment in this management contract, over the last half of 2006.
We may subsequently record a gain following a future sale of the property,
depending on the payments we actually receive.
Other Income (Expenses), Net
For the third quarter of 2006, other income, net was $0.6 million, as
compared to other expense, net of $21.1 million for the same period in
2005.
-------------------------------------------------------------------------
(in millions of dollars)
Third quarter
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Foreign exchange gain (loss)
$1.3 ($16.2)
-------------------------------------------------------------------------
Loss on disposition of assets
0.0 (0.3)
-------------------------------------------------------------------------
Asset provision and write downs
(0.7) (4.6)
-------------------------------------------------------------------------
Other income (expenses),
net
$0.6 ($21.1)
------------------------
-------------------------------------------------------------------------
For the nine months ended September 30, 2006, other expenses,
net was $7.0 million, as compared to $32.4 million for the same period
in 2005.
-------------------------------------------------------------------------
Nine months ended
(in millions of dollars)
September 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Foreign exchange loss
($6.6) ($19.9)
-------------------------------------------------------------------------
Loss on disposition of assets
0.0 (5.8)
-------------------------------------------------------------------------
Asset provision and write downs
(0.4) (6.7)
-------------------------------------------------------------------------
Other expenses, net
($7.0) ($32.4)
------------------------
-------------------------------------------------------------------------
Foreign Exchange
Other income (expenses), net for the third quarter of 2006 included
a foreign exchange gain of $1.3 million, as compared to a loss of $16.2
million for the same period in 2005. For the nine months ended September
30, 2006, other income (expenses), net included a foreign exchange loss
of $6.6 million, as compared to a loss of $19.9 million for the same period
in 2005.
The foreign exchange gains and losses in 2006 and 2005 related primarily
to the foreign currency translation gains and losses on unhedged net monetary
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. The foreign exchange loss on the translation of balance sheet
items was reduced from what it would otherwise have been for the nine-month
period by a gain on the marked-to-market adjustment and settlement of the
forward contracts described below.
As discussed above, we have entered into a program to sell forward US
dollars into Canadian dollars to help us to predict the US dollar cost
of our Canadian dollar general and administrative expenses and Canadian
dollar capital funding requirements. All our forward contracts are being
marked-to- market with the resulting changes in fair values being recorded
as a foreign exchange gain or loss. Other income (expenses), net included
a foreign exchange loss of $0.2 million in the third quarter of 2006 and
a foreign exchange gain of $1.3 million for the nine months ended September
30, 2006 related to the forward contracts. This program to sell forward
US dollars was not in place during the nine months ended September 30,
2005, and, as such, no amounts were realized in the third quarter or nine
months ended September 30, 2005.
Included in foreign exchange loss for the third quarter of 2006 is a
$0.1 million loss realized on the settlement of $13.6 million of forward
contracts during the third quarter ($1.1 million gain realized on the settlement
of $71.3 million of forward contracts during the nine months ended September
30, 2006). As at September 30, 2006, we had forward contracts in place
to sell forward $44.2 million of US dollars and received Canadian dollars
at a weighted average exchange rate of 1.114 Canadian dollars to a US dollar
at various maturities extending to March 2008. On these outstanding forward
contracts, the marked-to-market loss for the third quarter of 2006 was
$0.1 million, and the marked-to-market gain for the nine months ended September
30, 2006 was $0.2 million. These amounts are included in the $0.2 million
foreign exchange loss for the third quarter of 2006 and $1.3 million foreign
exchange gain for the nine months ended September 30, 2006, noted above.
Subsequent to September 30, 2006, we have extended the program to sell
forward an additional $3.5 million of US dollars for conversion to Canadian
dollars with maturities extending to April 2008, at a weighted average
exchange rate of 1.129 Canadian dollars to a US dollar.
While this program of selling forward US dollars allows us to better
predict the cost in US dollars of the majority of our Canadian dollar general
and administrative expenses and capital requirements, it will not eliminate
the impact of foreign currency fluctuations related to our management fees
in currencies other than US dollars. It will also not eliminate foreign
currency gains and losses related to un-hedged net monetary assets and
liability positions. As such, our consolidated results will continue to
include gains and losses related to foreign currency fluctuations. The
impact of foreign currency gains and losses has been material in the past
and could continue to be material in the future.
Disposition of Assets
Included in the nine months ended September 30, 2005, are amounts related
to an assignment of our interest in The Pierre. On June 30, 2005, we finalized
the assignment of our lease and the sale of the related assets in The Pierre
for net proceeds of $4.5 million. The net book value of our assets in The
Pierre was $7.8 million and, after deducting disposition costs, we recorded
a loss on sale of $5.3 million. We also recorded a tax benefit in connection
with the sale of $9.2 million, which is noted below under "Income Tax Expense".
Including the tax benefit, we realized a net gain of $3.9 million on the
disposition of The Pierre.
Interest Income and Interest Expense
The $1.8 million increase in interest income for the third quarter of
2006 and the $4.3 million increase in interest income for the nine months
ended September 30, 2006, in both cases as compared to the same periods
in 2005, were primarily attributable to higher deposits and higher deposit
interest rates.
The $0.8 million increase in interest expense for the third quarter
of 2006 and the $3.0 million increase in interest expense for the nine
months ended September 30, 2006, in both cases as compared to the same
periods in 2005, were primarily attributable to the increase in interest
expense accrued relating to the currency and interest rate swap agreement
we entered into in the second quarter of 2005 related to our convertible
senior notes. These arrangements are more fully described in the MD&A
for the year ended December 31, 2005. In the third quarter of 2006, the
effective interest rate on our convertible senior notes was approximately
4.9%, which represents interest expense of $2.8 million ($2.0 million in
2005). For the nine months ended September 30, 2006, the effective interest
rate on our convertible senior notes was 5.4%, which represents interest
expense of $9.1 million ($6.3 million in 2005).
Income Tax Expense
Income tax expense during the third quarter of 2006 was $4.1 million
(effective tax rate of 27.2%), as compared to $0.7 million for the same
period in 2005. For the nine months ended September 30, 2006, our income
tax expense was $15.1 million (effective tax rate of 31.1%), as compared
to income tax recovery of $3.4 million for the same period in 2005. The
increase in the effective tax rate relates to certain amounts, particularly
foreign exchange gains and losses not being tax effected. During the quarter
and nine months ended September 30, 2006, we did not record approximately
$0.2 million and $1.9 million, respectively, of a tax benefit related to
the foreign exchange losses, due to the uncertainty associated with the
utilization of those losses.
In connection with the disposition of The Pierre in the second quarter
of 2005, we recorded a tax benefit of approximately $9.2 million.
Net Earnings and Earnings per Share
For the reasons outlined above, net earnings for the third quarter of
2006 were $10.9 million ($0.30 basic earnings per share and $0.29 diluted
earnings per share), as compared to a net loss of $11.4 million ($0.31
basic and diluted loss per share) for the same period in 2005.
For the nine months ended September 30, 2006, net earnings were $33.4
million ($0.91 basic earnings per share and $0.89 diluted earnings per
share), as compared to net earnings of $9.5 million ($0.26 basic earnings
per share and $0.25 diluted earnings per share) for the same period in
2005.
Adjusted Net Earnings and Adjusted Earnings per Share(x)
In the third quarter of 2006, other income, net of $0.6 million related
primarily to foreign exchange gains, which were offset partially by asset
provisions and write downs. In the third quarter of 2005, other expenses,
net of $21.1 million related primarily to foreign exchange losses and asset
provisions and write downs.
Adjusting for other income (expenses), net and the applicable income
taxes, adjusted net earnings were as follows:
-------------------------------------------------------------------------
(in millions of dollars except per
share amounts) Third quarter
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Net earnings (loss)
$ 10.9 $ (11.4)
-------------------------------------------------------------------------
Adjustments - Other (income) expenses,
net
(0.6) 21.1
-------------------------------------------------------------------------
Tax effect related to foregoing adjustments
0.6 (1.6)
-------------------------------------------------------------------------
Adjusted net earnings
$ 10.9 $ 8.1
-------------------------------------------------------------------------
------------------------
Adjusted basic earnings per share
$ 0.30 $ 0.22
-------------------------------------------------------------------------
------------------------
Adjusted diluted earnings per share
$ 0.29 $ 0.22
------------------------
-------------------------------------------------------------------------
In the nine months ended September 30, 2006, other expenses,
net of $7.0 million related primarily to foreign exchange losses. In the
nine months ended September 30, 2005, other expenses, net of $32.4 million
related primarily to foreign exchange losses, losses on the disposition
of assets, and asset provisions and write downs.
Adjusting for other expenses, net and the applicable
income taxes, adjusted net earnings were as follows:
-------------------------------------------------------------------------
(in millions of dollars except per
share amounts) Nine months ended
September 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Net earnings
$ 33.4 $ 9.5
-------------------------------------------------------------------------
Adjustments - Other expenses, net
7.0 32.4
-------------------------------------------------------------------------
Tax effect related to foregoing adjustments
1.8 (12.6)(xx)
-------------------------------------------------------------------------
Adjusted net earnings
$ 42.2 $ 29.3
-------------------------------------------------------------------------
------------------------
Adjusted basic earnings per share
$ 1.15 $ 0.80
-------------------------------------------------------------------------
------------------------
Adjusted diluted earnings per share
$ 1.13 $ 0.77
------------------------
-------------------------------------------------------------------------
(x) Adjusted net earnings is
a non-GAAP financial measure and does not
have
any standardized meaning prescribed by GAAP. It is, therefore,
unlikely
to be comparable to similar measures presented by other
issuers
and should not be considered as an alternative to net
earnings,
cash flow from operating activities or any other measure
of performance
prescribed by Canadian GAAP. Our adjusted net
earnings
may also not be comparable to adjusted net earnings used by
other
lodging companies, which may be calculated differently. We
consider
adjusted net earnings to be a meaningful indicator of our
operations,
and management uses 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.
(xx) In connection with the disposition
of The Pierre in the second
quarter
of 2005, we recorded a tax benefit of approximately
$9.2
million in the nine months ended September 30, 2005.
Eight-Quarter Summary
-------------------------------------------------------------------------
(in millions of dollars
except per share amounts)
Third quarter Second quarter
-------------------------------------------------------------------------
2006 2005 2006
2005
-------------------------------------------------------------------------
Total revenues
$ 58.2 $ 52.2 $ 67.8
$ 74.5
-------------------------------------------------------------------------
Operating earnings before
other items
$ 16.6 $ 11.7 $ 23.7
$ 20.1
-------------------------------------------------------------------------
Net earnings (loss)
$ 10.9 $ (11.4) $ 9.1 $
15.8
-------------------------------------------------------------------------
Basic earnings (loss)
per share(7)
$ 0.30 $ (0.31) $ 0.25 $
0.43
-------------------------------------------------------------------------
Diluted earnings (loss)
per share
$ 0.29 $ (0.31) $ 0.24 $
0.42
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average Canadian/US dollar
foreign exchange rate used
for specified quarter
1.12087 1.20687 1.12509 1.24401
-------------------------------------------------------------------------
-------------------------------------------------------------------------
(in millions of dollars
except per share amounts)
First Quarter Fourth Quarter
-------------------------------------------------------------------------
2006 2005 2005
2004
-------------------------------------------------------------------------
Total revenues
$ 57.6 $ 63.1 $ 58.5
$ 69.5
-------------------------------------------------------------------------
Operating earnings before
other items
$ 20.5 $ 12.1 $ 12.3
$ 14.7
-------------------------------------------------------------------------
Net earnings (loss)
$ 13.4 $ 5.2 $ (37.8) $
12.8
-------------------------------------------------------------------------
Basic earnings (loss)
per share(7)
$ 0.36 $ 0.14 $ (1.03) $
0.35
-------------------------------------------------------------------------
Diluted earnings (loss)
per share
$ 0.36 $ 0.14 $ (1.03) $
0.34
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average Canadian/US dollar
foreign exchange rate used
for specified quarter
1.15421 1.22652 1.17478 1.22033
-------------------------------------------------------------------------
Liquidity and Capital Resources
As at September 30, 2006, our cash and cash equivalents were $254.2
million, as compared to $242.2 million as at December 31, 2005. Our investments
in cash and cash equivalents are highly liquid, with maturities of less
than 90 days. These investments include bank deposits, guaranteed investment
certificates and money market funds held with major financial institutions.
We have a committed bank credit facility of $125.0 million, which expires
September 2007. Borrowings under this credit facility bear interest at
LIBOR plus a spread ranging between 0.875% and 2.25% in respect of LIBOR-based
borrowings (prime rate plus a spread ranging between nil and 1.25% in respect
of prime rate borrowings), depending upon certain criteria specified in
the credit agreement for the facility. As at September 30, 2006, no amounts
were borrowed under the credit facility. However, approximately $1.6 million
of letters of credit were issued under the facility. No amounts have been
drawn under these letters of credit. We believe that, absent unusual opportunities
or circumstances, this bank credit facility, when combined with cash on
hand and internally generated cash flow, should be more than adequate to
allow us to finance our normal operating needs and anticipated investment
commitments related to our current growth objectives.
Contractual Obligations
Our contractual obligations are more fully described in the MD&A
for the year ended December 31, 2005. Since December 31, 2005, our contractual
obligations have declined by $19.2 million as a result of funding $15.7
million related to expansion of our Toronto corporate office and a $3.5
million instalment payment related to our naming rights for the Four Seasons
Centre for the Performing Arts, which was made during the second quarter
of 2006.
Guarantees and Commitments
As discussed in the MD&A for the year ended December 31, 2005, we
have guarantees and other similar commitments, including certain lease
commitments. Since December 31, 2005, our guarantees and commitments have
decreased by approximately $1.3 million to approximately $33.4 million.
Cash Flows
Cash from Operations
We generated $29.9 million of cash from operations during the third
quarter of 2006, as compared to $17.0 million for the same period in 2005.
The increase in cash from operations of $12.9 million in the third quarter
of 2006, as compared to the same period in 2005, resulted primarily from
changes of $13.7 million in non-cash working capital.
We generated $57.5 million of cash from operations during the nine months
ended September 30, 2006, as compared to $36.4 million for the same period
in 2005. For the nine months ended September 30, 2006, the increase in
cash from operations of $21.1 million, as compared to the same period in
2005, resulted primarily from higher earnings generated from our management
business and hotel ownership and changes of $12.8 million in non-cash working
capital.
Investing Activities
As part of expanding our portfolio of properties under management, we
make investments in the form of long-term receivables, minority equity
investments and investments in management contracts. In making these investments,
we assess the expected overall returns to Four Seasons, including the value
created through our long-term management agreements.
Long-Term Receivables
In the third quarter of 2006, we advanced $3.8 million, in the aggregate,
as long-term receivables to properties under our management, as compared
to $4.6 million in the same period in 2005. Also in the third quarter of
2006, we were repaid $4.4 million, in the aggregate, of our long-term receivables,
as compared to $0.1 million in the same period in 2005.
In the nine months ended September 30, 2006, we advanced $21.8 million,
in the aggregate, as long-term receivables to properties under our management,
as compared to $38.6 million in the same period in 2005. Also in the nine
months ended September 30, 2006, we were repaid $14.4 million, in the aggregate,
of our long-term receivables, as compared to $19.4 million in the same
period in 2005.
Investments in Hotel Partnerships and Corporations
In April 2006, we sold our equity interest in one of the properties
under our management for net proceeds of $1.0 million (cash of $0.7 million
and a promissory note of $0.3 million), which approximated book value.
In the third quarter of 2006, we invested $2.5 million to fund capital
requirements in these assets, as compared to $1.4 million in the same period
of 2005.
In the nine months ended September 30, 2006, we invested $3.0 million
to fund capital requirements in these assets and were repaid $2.3 million
relating to our equity interest in a property under our management. We
also contributed our equity interest in a property under our management
in exchange for a management contract enhancement of approximately the
same fair value. No gain or loss was recorded in connection with this transaction.
We invested $10.8 million in the nine months ended September 30, 2005,
in equity interests and received $12.7 million relating to the sale of
three of our equity interests.
Investment in Trademarks, Trade Names and Management Contracts
In the third quarters of 2006 and 2005, we funded an aggregate of $2.2
million and $0.2 million, respectively, primarily related to our investments
in management contracts.
In the nine months ended September 30, 2006 and 2005, we funded an aggregate
of $16.9 million and $0.7 million, respectively, primarily related to our
investments in management contracts.
Fixed Assets
Our capital expenditures were $6.3 million for the third quarter in
2006, as compared to $4.8 million for the same period in 2005. In 2004,
we commenced construction on our Toronto corporate office expansion, which
is scheduled to be substantially completed during 2006. In the third quarters
of 2006 and 2005, capital expenditures related to this expansion were $6.0
million and $4.4 million, respectively.
In the nine months ended September 30, 2006, our capital expenditures
were $16.1 million, as compared to $12.8 million for the same period in
2005. In the nine months ended September 30, 2006 and 2005, capital expenditures
related to our Toronto corporate office expansion were $15.7 million and
$10.2 million, respectively.
Financing Activities
In the nine months ended September 30, 2006, we issued $5.6 million
in Limited Voting Shares ("LVS") related to the exercise of stock options
and paid $3.4 million in dividends.
In the nine months ended September 30, 2005, we received $7.0 million
from the issuance of LVS related to the exercise of stock options and paid
$3.1 million in dividends.
Outstanding Share Data
-------------------------------------------------------------------------
Designation
Outstanding as at November 8, 2006
-------------------------------------------------------------------------
Variable Multiple Voting Shares(1)
3,725,698
-------------------------------------------------------------------------
Limited Voting Shares
33,380,482
-------------------------------------------------------------------------
Options to acquire Limited Voting
Shares(2):
-------------------------------------------------------------------------
Outstanding
3,945,375
-------------------------------------------------------------------------
Exercisable
3,285,235
-------------------------------------------------------------------------
Convertible Senior Notes issued June
2004
and due 2024(3)
$251.3 million(4)
-------------------------------------------------------------------------
(1) Convertible into Limited Voting
Shares at any time at the option of
the holder
on a one-for-one basis.
(2) As disclosed in note 11(a) to
our annual consolidated financial
statements
for the year ended December 31, 2005, pursuant to an
agreement
approved by the shareholders in 1989, Four Seasons has
agreed to
make a payment to Mr. Isadore Sharp on an arm's length sale
of control
of Four Seasons Hotels Inc. that is calculated by
reference
to the consideration received per Limited Voting Share in
the transaction
and the total number of Variable Multiple Voting
Shares and
Limited Voting Shares outstanding at the time of sale.
(3) The terms of the convertible senior
notes are more fully described in
our MD&A
for the year ended December 31, 2005.
(4) This amount is equal to the issue
price of the convertible senior
notes issued
in June 2004 and due 2024 plus accrued interest
calculated
at 1.875% per annum.
Subsequent Event
On November 6, 2006, we announced that our Board of Directors had received
a proposal to pursue a transaction through which Four Seasons Hotels Inc.
("FSHI") would be taken private for $82.00 cash per Limited Voting Shares.
The Board of Directors has established a special committee of independent
directors that will consider the proposed transaction and make recommendations
to the Board. Although there is no certainty that the transaction contemplated
by the proposal, or any other transaction, will be completed or the terms
and conditions of any such transaction, some of our arrangements and agreements
may be impacted by certain terms in those arrangements and agreements,
including the following:
1) Convertible Senior Notes:
Our convertible senior notes issued in 2004 are convertible
into Limited
Voting Shares (although at our option, we may make
a cash payment in lieu
of all or some of those Limited Voting Shares) in
certain circumstances,
including upon the occurrence of a "fundamental
change", as defined in
the indenture pursuant to which the notes were issued.
The proposal, if
completed, would result in a fundamental change
occurring, in which case
a holder of notes would be able to surrender notes
for conversion and
would be entitled to receive on conversion:
(a) If notes are surrendered for conversion in connection
with the
fundamental change within
the time period prescribed in the
indenture, the number of
our Limited Voting Shares into which the
notes would be convertible
(currently 13.9581 Limited Voting Shares
per $1,000 principal amount
of notes), plus a make whole premium, as
defined in the indenture
(estimated to be in the range of $87.00 to
$98.00 per $1,000 principal
amount of notes based on the proposed
price of $82.00 per Limited
Voting Share pursuant to the proposal and
assuming that, if the proposal
is implemented, the effective date
would be between January
1, 2007 and July 30, 2007), and an amount
equal to any accrued but
unpaid interest to, but not including, the
conversion date; or
(b) If notes are surrendered for conversion after
the time period
prescribed in the indenture
and after the fundamental change, the
consideration that the holder
would have received if the holder had
held the number of Limited
Voting Shares into which the converted
notes were convertible immediately
before the fundamental change
($1,144.56 per $1,000 principal
amount of notes, based on the $82.00
per Limited Voting Share
in the transaction that has been proposed).
In this circumstance, no
make whole premium would be payable.
The proposed transaction would constitute a "change in control", as
defined in the indenture, and as a result we would be required to make
an offer to repurchase the notes at a purchase price equal to the principal
amount of the notes plus a make whole premium (as described above), and
an amount equal to any accrued and unpaid interest to, but not including,
the date of repurchase.
We have the right to satisfy the obligations in respect of conversion
in the circumstances described in (a) above, and in respect of a repurchase
of notes as described above, with Limited Voting Shares (or other "applicable
stock", as defined in the indenture, in the case of repurchase of notes)
or at our option cash or a combination of Limited Voting Shares and cash.
Further information regarding the terms of our convertible notes is
set out in the indenture pursuant to which the notes were issued.
2) Long-Term Incentive Arrangement:
Pursuant to an agreement approved by the shareholders
of FSHI at a
special meeting in 1989, FSHI and its principal
operating subsidiary,
Four Seasons Hotels Limited, have agreed to make
a cash payment to Mr.
Isadore Sharp, the Chief Executive Officer of FSHI,
on an arms-length
sale of control of FSHI. If the proposed transaction
is completed, Mr.
Sharp would be entitled to realize proceeds related
to the incentive
arrangement estimated to be approximately $288 million
(based on a
proposed price of $82.00 per Limited Voting Share
pursuant to the
proposal and assuming that at the time of the completion
of the proposed
transaction approximately 41.1 million Limited Voting
Shares and Variable
Multiple Voting Shares, which includes Limited Voting
Shares that may be
issued upon the exercise of previously granted stock
options, were
outstanding).
3) Other Arrangements and Agreements:
Certain other arrangements and agreements are subject
to "change of
control" provisions. These include the following:
(a) Under the terms of our current $125 million bank
credit facility, a
change of control triggers
a default under the bank credit facility,
and if not waived, would
require the repayment of all amounts
outstanding under this credit
facility and would also result in the
termination of this credit
facility. As at September 30, 2006, no
amounts were borrowed under
this credit facility, but approximately
$1.6 million of letters
of credit were issued under this credit
facility.
(b) Pursuant to a cross default provision, a default
under the bank
credit facility in turn
would cause a default under our currency and
interest rate swap agreement.
In such circumstances, the
counterparty to the swap
agreement may demand that the swap be
terminated. As at
September 30, 2006, the net amount that would be
required to be paid by FSHI
to the counterparty on termination was
approximately $34.9 million
(of which approximately $29.1 million is
included in long-term obligations).
We are continuing to evaluate the potential impact, if any, of the proposed
transaction on our other agreements and arrangements.
Looking Ahead
Operating Environment
Assuming the travel trends that we have experienced to date in 2006
continue, and based on current demand reflected in our reservation activity,
we expect RevPAR for worldwide Core Hotels in the fourth quarter of 2006
and the full year 2006 to increase in the range of 10% to 12%, as compared
to the corresponding periods in 2005. If these anticipated trends continue
and we meet our expectations for cost management, we expect gross operating
margins of our worldwide Core Hotels to increase in the range of 190 to
210 basis points for the full year of 2006, as compared to the full year
of 2005. Accordingly, based on the current hotel operating outlook, we
expect hotel management fee revenue to grow for the full year 2006 in the
range of 15% to 20%.
Changes in Accounting Policies
During the nine months ended September 30, 2006, we adopted The Canadian
Institute of Chartered Accountants' ("CICA") new accounting standard on
non- monetary transactions, as discussed in note 1 to the interim consolidated
financial statements. This standard was to be implemented for non-monetary
transactions initiated on or after January 1, 2006. The adoption of this
standard did not have a material impact on our consolidated financial statements.
Additional Information
----------------------
Additional information about us (including our most recent annual information
form, annual MD&A and our audited financial statements for the year
ended December 31, 2005) is available on our website at www.fourseasons.com/investor,
and on SEDAR at www.sedar.com.
-------------------------------
(1) RevPAR is defined as average room
revenue per available room. It is a
non-GAAP financial
measure and does not have any standardized meaning
prescribed
by GAAP and is therefore unlikely to be comparable to
similar measures
presented by other issuers. We use RevPAR because it
is a commonly
used indicator of market performance for hotels and
resorts and
represents the combination of the average daily room rate
and the average
occupancy rate achieved during the period. RevPAR
does not include
food and beverage or other ancillary revenues
generated
by a hotel or resort. RevPAR is the most commonly used
measure in
the lodging industry to measure the period-over-period
performance
of comparable properties. Our calculation of RevPAR may
be different
than the calculation used by other lodging companies.
(2) The term "Core Hotels" means hotels
and resorts under management for
the full year
of both 2006 and 2005. However, if a "Core Hotel" has
undergone
or is undergoing an extensive renovation program in one of
those years
that materially affects the operation of the property in
that year,
it ceases to be included as a "Core Hotel" in either year.
Changes from
the 2005/2004 Core Hotels are the additions of Four
Seasons Resort
Scottsdale at Troon North, Four Seasons Resort
Whistler,
Four Seasons Resort Costa Rica at Peninsula Papagayo, Four
Seasons Hotel
Gresham Palace Budapest, Four Seasons Resort Provence
at Terre Blanche
and Four Seasons Hotel Cairo at Nile Plaza, and the
deletion of
The Regent Kuala Lumpur.
(3) Gross operating profit is defined
as gross operating revenues less
operating
expenses.
(4) Gross operating margin represents
gross operating profit as a
percentage
of gross operating revenue.
(5) Reimbursed costs include the reimbursement
of all out-of-pocket
costs, including
sales and marketing and advertising charges.
(6) Operating earnings before other
items is equal to net earnings plus
(i) income
tax expense less (ii) income tax recovery plus
(iii) interest
expense less (iv) interest income plus (v) other
expenses less
(vi) other income plus (vii) depreciation and
amortization.
Operating earnings before other items is a non-GAAP
financial
measure and does not have any standardized meaning
prescribed
by GAAP and is therefore unlikely to be comparable to
similar measures
presented by other issuers. We consider
operating
earnings before other items to be a meaningful indicator of
operations
and use it as a measure to assess our operating
performance.
It is included because we believe it can be useful in
measuring
our ability to service debt, fund capital expenditures and
expand our
business. Operating earnings before other items is also
used by investors,
analysts and our lenders as a measure of our
financial
performance.
(7) Quarterly and year-to-year computations
of per share amounts are made
independently.
The sum of per share amounts for the quarters may not
agree with
per share amounts for the year.
EARNINGS/ FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three months ended Nine months ended
(In thousands of US dollars
September 30,
September 30,
except per share amounts)
2006 2005
2006 2005
-------------------------------------------------------------------------
Revenues:
Hotel management fees
$ 27,193 $ 22,531 $ 90,623
$ 75,602
Other fees
3,568 3,471
13,305 9,991
Hotel ownership revenues
8,781 9,749
24,741 57,970
Reimbursed costs
18,675 16,453
54,990 46,277
-----------------------------------------------
58,217 52,204 183,659
189,840
-----------------------------------------------
Expenses:
General and
administrative expenses
(15,166) (15,625) (44,067)
(41,495)
Hotel ownership cost of
sales and expenses
(7,764) (8,417) (23,814)
(58,189)
Reimbursed costs
(18,675) (16,453) (54,990)
(46,277)
-----------------------------------------------
(41,605) (40,495) (122,871) (145,961)
-----------------------------------------------
Operating earnings before
other items
16,612 11,709
60,788 43,879
Depreciation and
amortization
(4,433) (2,575) (9,875)
(8,512)
Other income (expenses),
net (note 4)
632 (21,064) (6,995)
(32,419)
Interest income
5,823 3,974
15,922 11,590
Interest expense
(3,601) (2,766) (11,359)
(8,401)
-----------------------------------------------
Earnings (loss) before
income taxes
15,033 (10,722) 48,481
6,137
-----------------------------------------------
Income tax recovery
(expense) (note 5):
Current
(3,155) 2,925 (10,169)
(389)
Future
(937) (3,644) (4,904)
3,799
-----------------------------------------------
(4,092) (719) (15,073)
3,410
-----------------------------------------------
Net earnings (loss)
$ 10,941 $ (11,441) $ 33,408
$ 9,547
-----------------------------------------------
-----------------------------------------------
Basic earnings (loss)
per share (note 3(a))
$ 0.30 $ (0.31) $
0.91 $ 0.26
-----------------------------------------------
-----------------------------------------------
Diluted earnings (loss)
per share (note 3(a))
$ 0.29 $ (0.31) $
0.89 $ 0.25
-----------------------------------------------
-----------------------------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
As at As at
(Unaudited)
September 30, December 31,
(In thousands of US dollars)
2006 2005
-------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents
$ 254,242 $ 242,178
Receivables
66,118 69,690
Inventory
3,476 7,326
Prepaid expenses
3,067 2,950
--------------------------
326,903 322,144
Long-term receivables
201,702 175,374
Investments in hotel partnerships
and
corporations (note 2)
89,012 99,928
Fixed assets
80,551 64,850
Investment in management contracts
(note 2) 192,297
164,932
Investment in trademarks and trade
names
4,344 4,210
Future income tax assets
10,104 14,439
Other assets
51,432 34,324
--------------------------
$ 956,345 $ 880,201
--------------------------
--------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued
liabilities $ 57,450
$ 54,797
Long-term obligations
due within one year
1,881 4,853
--------------------------
59,331 59,650
Long-term obligations
290,039 273,825
Shareholders' equity (note 3):
Capital stock
256,115 250,430
Convertible notes
36,920 36,920
Contributed surplus
13,104 10,861
Retained earnings
192,441 160,741
Equity adjustment from
foreign currency
translation
108,395 87,774
--------------------------
606,975 546,726
--------------------------
$ 956,345 $ 880,201
--------------------------
--------------------------
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three months ended Nine months ended
(Unaudited)
September 30,
September 30,
(In thousands of US dollars)
2006 2005
2006 2005
-------------------------------------------------------------------------
Operating activities:
Net earnings (loss)
$ 10,941 $ (11,441) $ 33,408
$ 9,547
Items not affecting
cash:
Stock-based
compensation
expense 556
486 1,642
1,494
Depreciation
and
amortization
4,433 2,575
9,875 8,512
Other (income)
expenses,
net
(632) 21,064
6,995 32,419
Future income
tax
(recovery)
expense 937
3,644 4,904
(3,799)
Other
220 959
1,189 1,487
Changes in non-cash
working capital
13,490 (232)
(482) (13,276)
-----------------------------------------------
Cash provided by
operating activities
29,945 17,055
57,531 36,384
-----------------------------------------------
Investing activities:
Advances of long-term
receivables
(3,837) (4,633) (21,781)
(38,649)
Receipt of long-term
receivables
4,367 126
14,436 19,402
Investments in hotel
partnerships and
corporations
(2,497) (1,368)
(700) (10,813)
Disposal of hotel
partnerships and
corporations
- -
707 12,672
Purchase of fixed assets
(6,291) (4,761) (16,148)
(12,821)
Investments in
trademarks, trade
names
and management contracts
(2,227) (202) (16,851)
(675)
Other assets
(924) (1,042) (6,526)
(7,902)
-----------------------------------------------
Cash used in investing
activities
(11,409) (11,880) (46,863)
(38,786)
-----------------------------------------------
Financing activities:
Long-term obligations,
including current
portion
(231) 278
(2,776) (1,220)
Issuance of shares
277 156
5,636 6,992
Dividends paid
(1,721) (1,584) (3,378)
(3,142)
-----------------------------------------------
Cash provided by (used in)
financing activities
(1,675) (1,150) (518)
2,630
-----------------------------------------------
Increase in cash and cash
equivalents
16,861 4,025
10,150 228
Increase (decrease) in
cash and cash equivalents
due to unrealized foreign
exchange gain (loss)
570 (1,189) 1,914
(5,133)
Cash and cash equivalents,
beginning of period
236,811 218,636 242,178
226,377
-----------------------------------------------
Cash and cash equivalents,
end of period
$ 254,242 $ 221,472 $ 254,242 $
221,472
-----------------------------------------------
-----------------------------------------------
Supplementary information:
Interest received
$ 3,977 $ 2,772 $
13,125 $ 10,449
Interest paid
(3,333) (1,754) (6,071)
(4,916)
Income taxes received
(paid)
876 (1,442) (2,125)
(6,897)
See accompanying notes to consolidated
financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED
EARNINGS
Nine months ended
(Unaudited)
September 30,
(In thousands of US dollars)
2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of period
$ 160,741 $ 192,129
Net earnings
33,408 9,547
Dividends declared
(1,708) (1,537)
-------------------------
Retained earnings, end of period
$ 192,441 $ 200,139
-------------------------
-------------------------
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.("FSHI") and its consolidated
subsidiaries. These interim
consolidated financial statements
do not include all disclosures required
by Canadian generally accepted accounting
principles for annual financial
statements and should be read in conjunction
with our most recently
prepared annual consolidated financial
statements for the year ended
December 31, 2005.
1. Significant accounting policies:
The significant
accounting policies used in preparing these interim
consolidated
financial statements are consistent with those used in
preparing
our annual consolidated financial statements for the year
ended December
31, 2005, except as disclosed below:
(a) Non-monetary
transactions:
In June 2005, The Canadian Institute of Chartered Accountants
("CICA") issued Section 3831, "Non-Monetary Transactions", which
introduces new requirements for non-monetary transactions
initiated on or after January 1, 2006. The amended requirements
will result in non-monetary transactions being measured at fair
values unless certain criteria are met, in which case, the
transaction is measured at carrying value. The implementation of
Section 3831, on a prospective basis for transactions initiated
on or after January 1, 2006, did not have any impact on our
consolidated financial statements for the three months and nine
months ended September 30, 2006.
(b) Financial
instruments:
In January 2005, the CICA issued Section 1530 "Comprehensive
Income", Section 3855 "Financial Instruments - Recognition and
Measurement", and Section 3865 "Hedges". These standards are
effective for fiscal years beginning on or after October 1, 2006.
We have not yet determined the impact of implementation of these
standards on our consolidated financial statements.
(c) Comparative
figures:
Certain 2005 comparative figures have been reclassified to
conform with the financial statement presentation adopted for
2006.
2. Hotel investment transaction:
In February
2006, we contributed our equity interest in a property
under our
management in exchange for a management contract
enhancement
of approximately the same fair value. No gain or loss was
recorded in
connection with this transaction.
3. Shareholders' equity:
As at September
30, 2006, we have 3,725,698 outstanding Variable
Multiple Voting
Shares ("VMVS"), 33,078,418 outstanding Limited
Voting Shares
("LVS"), and 4,289,343 outstanding stock options
(weighted
average exercise price of C$59.82 ($53.55)).
(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
September 30,
2006
2005
-----------------------------------------------------------------------
Net earnings Shares Net loss
Shares
-----------------------------------------------------------------------
Basic earnings (loss)
per share amounts
$ 10,941 36,799,139 $ (11,441) 36,638,577
Effect of assumed
dilutive conversions:
Stock option
plan -
640,485
- -
------------------------------------------------
Diluted earnings (loss)
per share amounts
$ 10,941 37,439,624 $ (11,441) 36,638,577
------------------------------------------------
------------------------------------------------
Nine months ended
September 30,
2006
2005
-----------------------------------------------------------------------
Net earnings Shares Net earnings
Shares
-----------------------------------------------------------------------
Basic earnings per
share amounts
$ 33,408 36,750,775 $ 9,547
36,624,036
Effect of assumed
dilutive conversions:
Stock option
plan -
633,746
- 1,314,393
------------------------------------------------
Diluted earnings per
share amounts
$ 33,408 37,384,521 $ 9,547
37,938,429
------------------------------------------------
------------------------------------------------
The diluted
earnings (loss) per share calculation excluded the effect
of the assumed
conversions of 1,461,976 stock options to LVS, under
our stock
option plan, during the three months and nine months ended
September
30, 2006 (2005 - 4,540,843 and 693,056 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 ended
September 30, 2005, all outstanding stock options were
excluded from
the calculation of diluted loss per share for this
period. There
was no dilution in 2006 and 2005 relating to our
convertible
notes.
(b) Stock-based compensation:
We use the
fair value-based method to account for all employee stock
options granted
or modified on or after January 1, 2003. Accordingly,
options granted
prior to that date continue to be accounted for using
the settlement
method.
Stock options
to acquire 41,650 LVS were granted in the nine months
ended September
30, 2006 at a weighted average exercise price of
C$62.61 ($53.65).
The fair value of stock options granted in the nine
months ended
September 30, 2006 was estimated using the Black-Scholes
options pricing
model with the following assumptions: risk-free
interest rates
ranging from 4.09% to 4.17%; semi-annual dividend per
LVS of C$0.055;
volatility factor of the expected market price of our
LVS of 27%;
and expected lives of the options ranging between four
and seven
years, depending on the level of the employee who was
granted stock
options. For the options granted in the nine months
ended September
30, 2006, the weighted average fair value of the
options at
the grant dates was C$21.49 ($18.41). For purposes of
stock option
expense and pro forma disclosures, the estimated fair
value of the
options is amortized to compensation expense over the
options' vesting
period. There were no stock options granted in the
three months
ended September 30, 2006 and the nine months ended
September
30, 2005.
Pro forma disclosure
is required to show the effect of the
application
of the fair value-based method to employee stock options
granted during
2002, which were not accounted for using the fair
value-based
method. For the three months and nine months ended
September
30, 2006 and 2005, 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 Nine months ended
September 30, September
30,
2006 2005
2006 2005
-------------------------------------------------------------------------
Stock-based compensation
expense
$ (556) $ (486) $ (1,642) $
(1,494)
-------------------------------------------
-------------------------------------------
Net earnings (loss),
as reported
$ 10,941 $ (11,441) $ 33,408 $ 9,547
Increase in stock-based
compensation expense that
would have been recorded if
all stock options granted
during 2002 had been expensed
(650) (717) (1,954)
(2,089)
-------------------------------------------
Pro forma net earnings (loss) $
10,291 $ (12,158) $ 31,454 $ 7,458
-------------------------------------------
-------------------------------------------
Earnings (loss) per share:
Basic, as reported
$ 0.30 $ (0.31) $
0.91 $ 0.26
Basic, pro forma
0.28 (0.33)
0.86 0.20
Diluted, as reported
0.29 (0.31)
0.89 0.25
Diluted, pro forma
0.28 (0.33)
0.84 0.20
4. Other income (expenses), net:
Three months ended Nine months ended
September 30, September
30,
2006 2005
2006 2005
-------------------------------------------------------------------------
Foreign exchange gain (loss)
$ 1,286 $ (16,172) $ (6,633) $ (19,854)
Asset provisions and
write downs
(654) (4,624) (362)
(6,725)
Loss on disposition of assets
- (268)
- (5,840)
-------------------------------------------
$ 632 $ (21,064) $ (6,995) $ (32,419)
-------------------------------------------
-------------------------------------------
The foreign
exchange gain (loss) in 2006 and 2005 related primarily
to the foreign
currency translation gains and losses on unhedged net
monetary asset
and liability positions, primarily in US dollars,
euros, pounds
sterling and Australian dollars, and local currency
foreign exchange
gains and losses on net monetary assets incurred by
our designated
foreign self-sustaining subsidiaries.
As at September
30, 2006, we have foreign exchange forward contracts
in place to
sell forward $44,211 of US dollars to receive Canadian
dollars at
a weighted average forward exchange rate of 1.114 Canadian
dollars to
a US dollar maturing over the period to March 2008. All
our foreign
exchange forward 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 $176
foreign exchange
loss and $1,268 foreign exchange gain being recorded
in the three
months and nine months ended September 30, 2006,
respectively.
We did not sell forward US dollars during the nine
months ended
September 30, 2005.
Subsequent
to September 30, 2006, we have sold forward an additional
$3,543 of
US dollars to receive Canadian dollars at a weighted
average forward
exchange rate of 1.129 Canadian dollars to a US
dollar maturing
over the period to April 2008.
5. Income taxes:
During the
three months and nine months ended September 30, 2006, we
recorded an
additional valuation allowance of $211 and $1,957
respectively,
related to not recognizing a tax benefit on certain
foreign exchange
losses, due to the uncertainty associated with the
utilization
of these losses. This increased our income tax expense
for the three
months and nine months ended September 30, 2006 by this
amount.
In connection
with the disposition of The Pierre in June 2005, we
recorded an
income tax benefit of approximately $9,200 for the nine
months ended
September 30, 2005.
6. Pension expense:
The pension
expense for the three months and nine months ended
September
30, 2006 was $855 and $2,681, respectively (2005 - $1,134
and $2,351,
respectively).
7. Guarantees and commitments:
We have provided
certain guarantees and have other similar
commitments
typically made in connection with properties under our
management.
These contractual obligations and other commitments are
more fully
described in the consolidated financial statements for the
year ended
December 31, 2005. Since December 31, 2005, we have
decreased
our guarantees and commitments by approximately $1,300.
8. Segmented information:
Our strategy
is to focus on hotel management rather than hotel
ownership.
Four Seasons Hotel Vancouver is our only remaining hotel
whose results
we consolidate. As a result, commencing January 1,
2006, corporate
expenses are reflected in our results as general and
administrative
expenses in the consolidated statements of operations
for the three
months and nine months ended September 30, 2006.
Corporate
expenses for the three months and nine months ended
September
30, 2005 that previously were included in our Ownership
Operations
segment have been reclassified to the Management
Operations
segment and included in general and administrative
expenses in
the consolidated statements of operations.
Three months ended
September 30, 2006
-----------------------------------
Management Ownership
Operations Operations Total
-------------------------------------------------------------------------
Revenues:
Hotel management fees
$ 27,193 $
- $ 27,193
Other fees
3,568 -
3,568
-----------------------------------
30,761 -
30,761
Hotel ownership revenues
- 8,781
8,781
Reimbursed costs
18,675 -
18,675
-----------------------------------
49,436 8,781
58,217
-----------------------------------
Expenses:
General and administrative
expenses (15,166)
- (15,166)
Hotel ownership cost of
sales and
expenses
- (7,764) (7,764)
Reimbursed costs
(18,675) -
(18,675)
-----------------------------------
(33,841) (7,764) (41,605)
-----------------------------------
Operating earnings before other items
$ 15,595 $ 1,017 $
16,612
-----------------------------------
-----------------------------------
Three months ended
September 30, 2005
-----------------------------------
Management Ownership
Operations Operations Total
-------------------------------------------------------------------------
Revenues:
Hotel management fees
$ 22,531 $ -
$ 22,531
Other fees
3,471 -
3,471
-----------------------------------
26,002 -
26,002
Hotel ownership revenues
- 9,749
9,749
Reimbursed costs
16,453 -
16,453
-----------------------------------
42,455 9,749
52,204
-----------------------------------
Expenses:
General and administrative
expenses (15,625)
- (15,625)
Hotel ownership cost of
sales and
expenses
- (8,417) (8,417)
Reimbursed costs
(16,453) -
(16,453)
-----------------------------------
(32,078) (8,417) (40,495)
-----------------------------------
Operating earnings before other items
$ 10,377 $ 1,332 $
11,709
-----------------------------------
-----------------------------------
Nine months ended
September 30, 2006
-----------------------------------
Management Ownership
Operations Operations Total
-------------------------------------------------------------------------
Revenues:
Hotel management fees
$ 90,623 $
- $ 90,623
Other fees
13,305 -
13,305
-----------------------------------
103,928 -
103,928
Hotel ownership revenues
- 24,741 24,741
Reimbursed costs
54,990 -
54,990
-----------------------------------
158,918 24,741 183,659
-----------------------------------
Expenses:
General and administrative
expenses (44,067)
- (44,067)
Hotel ownership cost of
sales and
expenses
- (23,814) (23,814)
Reimbursed costs
(54,990) -
(54,990)
-----------------------------------
(99,057) (23,814) (122,871)
-----------------------------------
Operating earnings before other items
$ 59,861 $ 927 $
60,788
-----------------------------------
-----------------------------------
Nine months ended
September 30, 2005
-----------------------------------
Management Ownership
Operations Operations Total
-------------------------------------------------------------------------
Revenues:
Hotel management fees
$ 75,602 $ -
$ 75,602
Other fees
9,991 -
9,991
-----------------------------------
85,593 -
85,593
Hotel ownership revenues
- 57,970 57,970
Reimbursed costs
46,277 -
46,277
-----------------------------------
131,870 57,970 189,840
-----------------------------------
Expenses:
General and administrative
expenses (41,495)
- (41,495)
Hotel ownership cost of
sales and
expenses
- (58,189) (58,189)
Reimbursed costs
(46,277) -
(46,277)
-----------------------------------
(87,772) (58,189) (145,961)
-----------------------------------
Operating earnings (loss) before
other items
$ 44,098 $ (219) $ 43,879
-----------------------------------
-----------------------------------
9. Subsequent event:
On November
6, 2006, we announced that our Board of Directors had
received a
proposal to pursue a transaction through which FSHI would
be taken private
for $82.00 cash per LVS. The Board of Directors has
established
a special committee of independent directors that will
consider the
proposed transaction and make recommendations to the
Board. Although
there is no certainty that the transaction
contemplated
by the proposal, or any other transaction, will be
completed
or the terms and conditions of any such transaction, some
of our arrangements
and agreements may be impacted by certain terms
in those arrangements
and agreements, including the following:
(a) Convertible senior
notes:
Our convertible senior notes issued in 2004 are convertible into
LVS (although at our option, we may make a cash payment in lieu of
all or some of those LVS) in certain circumstances, including upon
the occurrence of a "fundamental change", as defined in the
indenture pursuant to which the notes were issued. The proposal,
if completed, would result in a fundamental change occurring, in
which case a holder of notes would be able to surrender notes for
conversion and would be entitled to receive on conversion:
(i) If notes are surrendered for conversion in connection with the
fundamental change within the time period prescribed in the
indenture, the number of our LVS into which the notes would be
convertible (currently 13.9581 LVS per each one thousand US
dollar principal amount of notes), plus a make whole premium,
as defined in the indenture (estimated to be in the range of
$87.00 to $98.00 per each one thousand US dollar principal
amount of notes based on the proposed price of $82.00 per LVS
pursuant to the proposal and assuming that, if the proposal is
implemented, the effective date would be between January 1,
2007 and July 31, 2007), and an amount equal to any accrued
but unpaid interest to, but not including, the conversion
date; or
(ii) If notes are surrendered for conversion after the time period
prescribed in the indenture and after the fundamental change,
the consideration that the holder would have received if the
holder had held the number of LVS into which the converted
notes were convertible immediately before the fundamental
change ($1,144.56 per each one thousand US dollar principal
amount of notes, based on the $82.00 per LVS in the
transaction that has been proposed). In this circumstance, no
make whole premium would be payable.
The proposed transaction would constitute a "change in
control", as defined in the indenture, and as a result we
would be required to make an offer to repurchase the notes at
a purchase price equal to the principal amount of the notes
plus a make whole premium (as described above), and an amount
equal to any accrued and unpaid interest to, but not
including, the date of repurchase.
We have the right to satisfy the obligations in respect of
conversion in the circumstances described in (i) above, and in
respect of a repurchase of notes as described above, with LVS
(or other "applicable stock", as defined in the indenture, in
the case of repurchase of notes) or at our option cash or a
combination of LVS and cash.
Further information regarding the terms of our convertible
notes is set out in the indenture pursuant to which the notes
were issued.
(b) Long-term incentive
arrangement:
Pursuant to an agreement approved by the shareholders of FSHI at a
special meeting in 1989, FSHI and its principal operating
subsidiary, Four Seasons Hotels Limited, have agreed to make a
cash payment to Mr. Isadore Sharp, the Chief Executive Officer of
FSHI, on an arms-length sale of control of FSHI. If the proposed
transaction is completed, Mr. Sharp would be entitled to realize
proceeds related to the incentive arrangement estimated to be
approximately $288,000 (based on a proposed price of $82.00 per
LVS pursuant to the proposal and assuming that at the time of the
completion of the proposed transaction approximately 41.1 million
LVS and VMVS and which includes LVS that may be issued upon the
exercise of previously granted stock options, were outstanding).
(c) Other arrangements
and agreements:
Certain other arrangements and agreements are subject to "change
of control" provisions. These include the following:
(i) Under the terms of our current $125,000 bank credit facility,
a change of control triggers a default under the bank credit
facility, and if not waived, would require the repayment of
all amounts outstanding under this credit facility and would
also result in the termination of this credit facility. As at
September 30, 2006, no amounts were borrowed under this credit
facility, but approximately $1,600 of letters of credit were
issued under this credit facility.
(ii) Pursuant to a cross default provision, a default under the
bank credit facility in turn causes a default under our
currency and interest rate swap agreement. In such
circumstances, the counterparty to the swap agreement may
demand that the swap be terminated. As at September 30, 2006,
the net amount that would be required to be paid by FSHI to
the counterparty on termination was approximately $34,900 (of
which approximately $29,100 is included in long-term
obligations).
We are continuing to evaluate the potential
impact, if any, of the
proposed transaction on our other
agreements and arrangements.
FOUR SEASONS
HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE
HOTELS(1)
Three months ended
September 30,
(Unaudited)
2006 2005 Variance
-------------------------------------------------------------------------
Worldwide
# of Properties
56 56
-
# of Rooms
14,290 14,290
-
Occupancy(2)
68.6% 70.1% (1.5)pts.
ADR(3)
$366.88 $327.51
12.0%
RevPAR(4)
$251.62 $229.44
9.7%
Gross operating margin(5)
30.4% 29.2%
1.2pts.
United States
# of Properties
20 20
-
# of Rooms
6,195 6,195
-
Occupancy(2)
73.4% 74.1%
(0.7)pts.
ADR(3)
$398.26 $364.32
9.3%
RevPAR(4)
$292.23 $269.92
8.3%
Gross operating margin(5)
28.5% 27.1%
1.4pts.
Other Americas/Caribbean
# of Properties
10 10
-
# of Rooms
2,165 2,165
-
Occupancy(2)
62.0% 66.5%
(4.5)pts.
ADR(3)
$303.77 $273.92
10.9%
RevPAR(4)
$188.38 $182.23
3.4%
Gross operating margin(5)
14.1% 17.2%
(3.1)pts.
Europe
# of Properties
10 10
-
# of Rooms
1,720 1,720
-
Occupancy(2)
71.3% 68.9%
2.4pts.
ADR(3)
$642.32 $555.96
15.5%
RevPAR(4)
$458.03 $382.94
19.6%
Gross operating margin(5)
38.1% 36.3%
1.8pts.
Middle East
# of Properties
5 5
-
# of Rooms
1,215 1,215
-
Occupancy(2)
69.6% 69.0%
0.6pts.
ADR(3)
$249.41 $199.22
25.2%
RevPAR(4)
$173.65 $137.47
26.3%
Gross operating margin(5)
49.5% 43.8%
5.7pts.
Asia/Pacific
# of Properties
11 11
-
# of Rooms
2,995 2,995
-
Occupancy(2)
61.4% 65.4%
(4.0)pts.
ADR(3)
$210.24 $195.28
7.7%
RevPAR(4)
$129.09 $127.75
1.0%
Gross operating margin(5)
32.4% 32.8%
(0.4)pts.
-------------------------------------------------------------------------
(1) The term "Core Hotels" means hotels
and resorts under management for
the full year
of both 2006 and 2005. However, if a "Core Hotel" has
undergone
or is undergoing an extensive renovation program in one of
those years
that materially affects the operation of the property in
that year,
it ceases to be included as a "Core Hotel" in either year.
Changes from
the 2005/2004 Core Hotels are the additions of Four
Seasons Resort
Scottsdale at Troon North, Four Seasons Resort
Whistler,
Four Seasons Resort Costa Rica at Peninsula Papagayo, Four
Seasons Hotel
Gresham Palace Budapest, Four Seasons Resort Provence
at Terre Blanche
and Four Seasons Hotel Cairo at Nile Plaza, and the
deletion of
The Regent Kuala Lumpur. All room numbers in this table
are approximate.
(2) Occupancy percentage is defined
as the total number of rooms occupied
divided by
the total number of rooms available.
(3) ADR is defined as average daily
room rate per room occupied,
calculated
as the weighted average for each region. In 2004 and 2005,
ADR was calculated
as a straight average for each region.
(4) RevPAR is defined as average room
revenue per available room. It is a
non-GAAP financial
measure and does not have any standardized meaning
prescribed
by GAAP and is therefore unlikely to be comparable to
similar measures
presented by other issuers. We use RevPAR because it
is a commonly
used indicator of market performance for hotels and
resorts and
represents the combination of the average daily room rate
and the average
occupancy rate achieved during the period. RevPAR
does not include
food and beverage or other ancillary revenues
generated
by a hotel or resort. RevPAR is the most commonly used
measure in
the lodging industry to measure the period-over-period
performance
of comparable properties. Our calculation of RevPAR may
be different
than the calculation used by other lodging companies.
(5) Gross operating margin represents
gross operating profit as a
percentage
of gross operating revenue.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE
HOTELS(1)
Nine months ended
September 30,
(Unaudited)
2006 2005 Variance
-------------------------------------------------------------------------
Worldwide
# of Properties
56 56
-
# of Rooms
14,290 14,290
-
Occupancy(2)
69.6% 69.0%
0.6pts.
ADR(3)
$368.54 $334.54
10.2%
RevPAR(4)
$256.63 $230.88
11.2%
Gross operating margin(5)
32.3% 30.5%
1.8pts.
United States
# of Properties
20 20
-
# of Rooms
6,195 6,195
-
Occupancy(2)
74.8% 74.1%
0.7pts.
ADR(3)
$400.44 $364.43
9.9%
RevPAR(4)
$299.46 $270.13
10.9%
Gross operating margin(5)
30.5% 28.7%
1.8pts.
Other Americas/Caribbean
# of Properties
10 10
-
# of Rooms
2,165 2,165
-
Occupancy(2)
65.6% 65.8% (0.2)pts.
ADR(3)
$374.42 $333.52
12.3%
RevPAR(4)
$245.59 $219.32
12.0%
Gross operating margin(5)
28.1% 27.6%
0.5pts.
Europe
# of Properties
10 10
-
# of Rooms
1,720 1,720
-
Occupancy(2)
67.9% 63.1%
4.8pts.
ADR(3)
$595.27 $546.49
8.9%
RevPAR(4)
$403.89 $344.82
17.1%
Gross operating margin(5)
34.3% 32.1%
2.2pts.
Middle East
# of Properties
5 5
-
# of Rooms
1,215 1,215
-
Occupancy(2)
70.2% 68.5%
1.7pts.
ADR(3)
$248.59 $212.38
17.0%
RevPAR(4)
$174.52 $145.40
20.0%
Gross operating margin(5)
50.4% 46.8%
3.6pts.
Asia/Pacific
# of Properties
11 11
-
# of Rooms
2,995 2,995
-
Occupancy(2)
62.7% 64.5% (1.8)pts.
ADR(3)
$206.97 $196.15
5.5%
RevPAR(4)
$129.80 $126.61
2.5%
Gross operating margin(5)
33.1% 31.9%
1.2pts.
-------------------------------------------------------------------------
(1) The term "Core Hotels" means hotels
and resorts under management for
the full year
of both 2006 and 2005. However, if a "Core Hotel" has
undergone
or is undergoing an extensive renovation program in one
of those years
that materially affects the operation of the property
in that year,
it ceases to be included as a "Core Hotel" in either
year. Changes
from the 2005/2004 Core Hotels are the additions of
Four Seasons
Resort Scottsdale at Troon North, Four Seasons Resort
Whistler,
Four Seasons Resort Costa Rica at Peninsula Papagayo, Four
Seasons Hotel
Gresham Palace Budapest, Four Seasons Resort Provence
at Terre Blanche
and Four Seasons Hotel Cairo at Nile Plaza, and the
deletion of
The Regent Kuala Lumpur. All room numbers in this table
are approximate.
(2) Occupancy percentage is defined
as the total number of rooms occupied
divided by
the total number of rooms available.
(3) ADR is defined as average daily
room rate per room occupied,
calculated
as the weighted average for each region. In 2004 and 2005,
ADR was calculated
as a straight average for each region.
(4) RevPAR is defined as average room
revenue per available room. It is a
non-GAAP financial
measure and does not have any standardized meaning
prescribed
by GAAP and is therefore unlikely to be comparable to
similar measures
presented by other issuers. We use RevPAR because it
is a commonly
used indicator of market performance for hotels and
resorts and
represents the combination of the average daily room rate
and the average
occupancy rate achieved during the period. RevPAR
does not include
food and beverage or other ancillary revenues
generated
by a hotel or resort. RevPAR is the most commonly used
measure in
the lodging industry to measure the period-over- period
performance
of comparable properties. Our calculation of RevPAR may
be different
than the calculation used by other lodging companies.
(5) Gross operating margin represents
gross operating profit as a
percentage
of gross operating revenue.
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - ALL
MANAGED HOTELS(1)
As at September 30,
(Unaudited)
2006 2005 Variance
-------------------------------------------------------------------------
Worldwide(2)
# of Properties
70 67
3
# of Rooms
17,515 17,195
320
United States
# of Properties
24 24
-
# of Rooms
7,045 7,140
(95)
Other Americas/Caribbean
# of Properties
10 10
-
# of Rooms
2,165 2,165
-
Europe
# of Properties
12 11
1
# of Rooms
1,960 1,855
105
Middle East
# of Properties
7 6
1
# of Rooms
1,740 1,445
295
Asia/Pacific(2)
# of Properties
17 16
1
# of Rooms
4,605 4,590
15
-------------------------------------------------------------------------
(1) All room numbers in this table
are approximate.
(2) Since September 30, 2006, we commenced
management of Four Seasons
Resort Maldives
at Landaa Giraavaru, which has 100 rooms. The
property is
not reflected in this table.
FOUR SEASONS HOTELS INC.
REVENUES UNDER MANAGEMENT - ALL MANAGED
HOTELS
Three months ended Nine months ended
(Unaudited)
September 30, September
30,
(In thousands of US dollars)
2006 2005
2006 2005
-------------------------------------------------------------------------
Revenues under
management(3)
$699,157 $603,838 $2,142,183 $1,883,084
--------------------------------------------
--------------------------------------------
-------------------------------------------------------------------------
(3) Revenues under management consist
of rooms, food and beverage,
telephone
and other revenues of all the hotels and resorts that we
manage. Approximately
59% of the fee revenues (excluding reimbursed
costs) we
earned represented 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
Approximate
Hotel/Resort/Residence Club and Location(1)
(2) Number of Rooms
Scheduled 2006/2007 openings
----------------------------
Four Seasons Hotel Alexandria, Egypt
125
Four Seasons Hotel Florence, Italy
120
Four Seasons Hotel Istanbul at the
Bosphorus, Turkey
170
Four Seasons Resort Koh Samui, Thailand(x)
60
Four Seasons Resort Lana'i at Koele,
Hawaii, USA(3)
100
Four Seasons Hotel Mumbai, India(x)
230
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)
120
Four Seasons Hotel Beijing, People's
Republic of China
325
Four Seasons Hotel Beirut, Lebanon
235
Four Seasons Resort Bora Bora, French
Polynesia
105
Four Seasons Resort Cham Island, Vietnam
100
Four Seasons Hotel Doha at the Pearl,
Qatar(x)
250
Four Seasons Hotel Dubai, United Arab
Emirates(x)
375
Four Seasons Hotel Hangzhou, People's
Republic of China(x)
100
Four Seasons Hotel Kuala Lumpur, Malaysia(x)
140
Four Seasons Hotel Kuwait, Kuwait
300
Four Seasons Hotel Macau, Special
Administrative
Region of the People's Republic
of China(x)
370
Four Seasons Hotel Marrakech, Morocco(x)
140
Four Seasons Resort Mauritius, Republic
of Mauritius(x)
120
Four Seasons Hotel Moscow, Russia(x)
185
Four Seasons Hotel Moscow Kamenny
Island, Russia(x)
80
Four Seasons Hotel New Orleans, Louisiana,
USA(x)
240
Four Seasons Resort Puerto Rico, Puerto
Rico(x)
250
Four Seasons Hotel Seattle, Washington,
USA(x)
150
Four Seasons Resort Seychelles, Seychelles(x)
65
Four Seasons Hotel Shanghai at Pudong,
People's
Republic of China(x)
190
Four Seasons Hotel St. Petersburg,
Russia
200
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 residential projects under
construction
or under development is based upon agreements and
letters of
intent and may be subject to change prior to the
completion
of the project. The dates of scheduled openings have been
estimated
by management based upon information provided by the
various developers.
There can be no assurance that the date of
scheduled
opening will be achieved or that these projects will be
completed.
In particular, in the case where a property is scheduled
to open near
the end of a year, there is a greater possibility that
the year of
opening could be changed. The process and risks
associated
with the management of new properties are dealt with in
greater detail
in our 2005 Annual Report.
(2) We have made an investment in
Orlando, in which we expect to include
a Four Seasons
Residence Club and/or a Four Seasons branded
residential
component. The financing for this project has not yet
been completed
and therefore a scheduled opening date cannot be
established
at this time.
(3) The Lodge at Koele is currently
managed by Four Seasons and is
expected to
be rebranded as Four Seasons Resort Lana'i at Koele in
2006 when
the necessary renovations are completed.
|
------------------------------------
(1) RevPAR is defined as average room
revenue per available room. It is a
non-GAAP financial
measure and does not have any standardized meaning
prescribed
by GAAP. It is, therefore, unlikely to be comparable to
similar measures
presented by other issuers. We use RevPAR because it
is a commonly
used indicator of market performance for hotels and
resorts and
represents the combination of the average daily room rate
and the average
occupancy rate achieved during the period. RevPAR
does not include
food and beverage or other ancillary revenues
generated
by a hotel or resort. RevPAR is the most commonly used
measure in
the lodging industry to measure the period-over-period
performance
of comparable properties. Our calculation of RevPAR may
be different
than the calculation used by other lodging companies.
(2) The term "Core Hotels" means hotels
and resorts under management for
the full year
of both 2006 and 2005. However, if a "Core Hotel" has
undergone
or is undergoing an extensive renovation program in one of
those years
that materially affects the operation of the property in
that year,
it ceases to be included as a "Core Hotel" in either year.
Changes from
the 2005/2004 Core Hotels are the additions of Four
Seasons Resort
Scottsdale at Troon North, Four Seasons Resort
Whistler,
Four Seasons Resort Costa Rica at Peninsula Papagayo, Four
Seasons Hotel
Gresham Palace Budapest, Four Seasons Resort Provence
at Terre Blanche
and Four Seasons Hotel Cairo at Nile Plaza, and the
deletion of
The Regent Kuala Lumpur.
(3) Gross operating margin represents
gross operating profit as a
percentage
of gross operating revenue.
(4) Operating earnings before other
items is equal to net earnings plus
(i) income
tax expense less (ii) income tax recovery plus (iii)
interest expense
less (iv) interest income plus (v) other expenses
less (vi)
other income plus (vii) depreciation and amortization.
Operating
earnings before other items is a non-GAAP financial measure
and does not
have any standardized meaning prescribed by GAAP. It is,
therefore,
unlikely to be comparable to similar measures presented by
other issuers.
We consider operating earnings before other items to
be a meaningful
indicator of operations and use it as a measure to
assess our
operating performance. It is included because we believe
it can be
useful in measuring our ability to service debt, fund
capital expenditures
and expand our business. Operating earnings
before other
items is also used by investors, analysts and our
lenders as
a measure of our financial performance.
Four Seasons is dedicated to perfecting the travel experience
through continuous innovation and the highest standards of hospitality.
From elegant surroundings of the finest quality, to caring, highly personalised
24-hour service, Four Seasons embodies a true home away from home for those
who know and appreciate the best. The deeply instilled Four Seasons culture
is personified in its employees - people who share a single focus and are
inspired to offer great service. Founded in 1960, Four Seasons has followed
a targeted course of expansion, opening hotels in major city centres and
desirable resort destinations around the world. Currently with 71 hotels
in 31 countries, and more than 25 properties under development, Four Seasons
will continue to lead the hospitality industry with innovative enhancements,
making business travel easier and leisure travel more rewarding. For more
information on Four Seasons, visit www.fourseasons.com.
This document contains "forward-looking statements" within
the meaning of applicable securities laws, including RevPAR, profit margin
and earning trends; statements concerning the number of lodging properties
expected to be added in this and future years; expected investment spending;
and similar statements concerning anticipated future events, results, circumstances,
performance or expectations that are not historical facts. Various factors
and assumptions were applied or taken into consideration in arriving at
these statements, which do not take into account the effect that non-recurring
or other special items announced after the statements are made may have
on our business. These statements are not guarantees of future performance
and, accordingly, you are cautioned not to place undue reliance on these
statements. These statements are subject to numerous risks and uncertainties,
including those described in our annual information form and management's
discussion and analysis for the year ended December 31, 2005 and in this
document. (See discussion under "Operating Risks" beginning on page 17
of our Annual Information Form and page 45 of our Management's Discussion
and Analysis for the year ended December 31, 2005, which are available
on our website at www.fourseasons.com and on SEDAR at www.sedar.com.) Those
risks and uncertainties include adverse factors generally encountered in
the lodging industry; the risks associated with world events, including
war, terrorism, international conflicts, natural disasters, extreme weather
conditions and infectious diseases; general economic conditions, fluctuations
in relative exchange rates of various currencies, supply and demand changes
for hotel rooms and residential properties, competitive conditions in the
lodging industry, the risks associated with our ability to maintain and
renew management agreements and expand the portfolio of properties that
we manage, relationships with clients and property owners and the availability
of capital to finance growth. Many of these risks and uncertainties can
affect our actual results and could cause our actual results to differ
materially from those expressed or implied in any forward-looking statement
made by us or on our behalf. All forward-looking statements in this news
release are qualified by these cautionary statements. These statements
are made as of the date of this document and, except as required by applicable
law, we undertake no obligation to publicly update or revise any forward-looking
statement, whether as a result of new information, future events or otherwise.
Additionally, we undertake no obligation to comment on analyses, expectations
or statements made by third parties in respect of Four Seasons, its financial
or operating results or its securities or any of the properties that we
manage or in which we may have an interest |
