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