In TO488 sent today at 7:30e an error occurred in the Looking Ahead
section. The First paragraph should have read "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%." instead of "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 17% to 20%." TORONTO, Aug. 10
/PRNewswire-FirstCall/ -- Four Seasons Hotels Inc. (TSX Symbol
"FSH"; NYSE Symbol "FS") today reported its results for the second
quarter and six months ended June 30, 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 Second Quarter and Six Months Ended June 30, 2006 For the
second quarter and six months ended June 30, 2006, as compared to
the same periods in 2005: Hotel and Resort Operating Results: - For
the second quarter, RevPAR(1) increased at our worldwide Core
Hotels(2) by 12.1% and at our US Core Hotels by 11.7%. For the six
months ended June 30, 2006, RevPAR increased at our worldwide Core
Hotels by 11.9% and at our US Core Hotels by 12.2%. - For the
second quarter, gross operating margins(3) increased at our
worldwide Core Hotels by 150 basis points to 33.9%. At our US Core
Hotels gross operating margins increased by 170 basis points to
32.5%. For the six months ended June 30, 2006, gross operating
margins increased at our worldwide Core Hotels by 200 basis points
to 33.2%. At our US Core Hotels gross operating margins increased
by 190 basis points to 31.4%. - For the second quarter, revenues
under management increased 10.8% to $750.7 million from $677.7
million. For the six months ended June 30, 2006, revenues under
management increased 12.8% to $1.44 billion from $1.28 billion. We
had approximately 17,500 rooms under management in the six months
ended June 30, 2006, as compared to approximately 16,600 rooms in
the same period in 2005. "Demand for luxury travel continues to be
very healthy while supply growth in most markets has been minimal,
creating a very favourable dynamic in the luxury segment of the
lodging industry," said Isadore Sharp, Chairman and Chief Executive
Officer. "We believe we are in a strong competitive position in
luxury lodging and should benefit from this favourable dynamic,
both at existing hotels and resorts and at the new Four Seasons
properties we are adding to our portfolio." Company Operating
Results: - 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 16.4% in the second quarter of
2006. For the six months ended June 30, 2006, hotel management fees
increased 19.5%. - Base fees increased 13.6% in the second quarter
and 12.9% for the six months ended June 30, 2006, generally in line
with RevPAR improvements for the respective periods. - As a result
of improved profitability and the addition of new properties under
our management, incentive fees increased 22.2% for the second
quarter and 34.3% for the six months ended June 30, 2006. - Other
fees improved 55.3% for the second quarter and 49.3% for the six
months ended June 30, 2006, primarily as a result of an increase in
branded residential royalty fees. 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, and these fluctuations
may be significant. - Operating earnings before other items(4)
increased 18.1% to $23.7 million during the second quarter and
37.3% to $44.2 million during the six months ended June 30, 2006. -
For the second quarter, net earnings were $9.1 million ($0.25 basic
earnings per share and $0.24 diluted earnings per share), compared
to net earnings of $15.8 million ($0.43 basic earnings per share
and $0.42 diluted earnings per share) for the second quarter of
2005. - For the six months ended June 30, 2006, net earnings were
$22.5 million ($0.61 basic earnings per share and $0.60 diluted
earnings per share), as compared to net earnings of $21.0 million
for the same period in 2005 ($0.57 basic earnings per share and
$0.55 diluted earnings per share). Adjusted Net Earnings and
Adjusted Earnings per Share(x): - In the second quarter of 2006,
other expenses of $6.8 million primarily related to foreign
exchange losses. In the second quarter of 2005, other expenses of
$8.6 million primarily related to losses on the disposition of
assets and foreign exchange losses. Adjusting for other expenses,
net of applicable income taxes, adjusted net earnings were as
follows:
-------------------------------------------------------------------------
(in millions of dollars except per share amounts) Second quarter
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Net earnings $ 9.1 $ 15.8
-------------------------------------------------------------------------
Adjustments - Other expenses, net 6.8 8.6
-------------------------------------------------------------------------
Tax effect related to foregoing adjustments 1.2 (10.6)(xx)
-------------------------------------------------------------------------
Adjusted net earnings $ 17.1 $ 13.8
-------------------------------------------------------------------------
-------------------------- Adjusted basic earnings per share $ 0.47
$ 0.38
-------------------------------------------------------------------------
-------------------------- Adjusted diluted earnings per share $
0.46 $ 0.36
-------------------------------------------------------------------------
-------------------------- - In the six months ended June 30, 2006,
other expenses of $7.6 million primarily related to foreign
exchange losses. In the six months ended June 30, 2005, other
expenses of $11.4 million primarily related to losses on the
disposition of assets and foreign exchange losses. Adjusting for
other expenses, net of applicable income taxes, adjusted net
earnings for the six month periods were as follows:
-------------------------------------------------------------------------
(in millions of dollars except per share Six months ended amounts)
June 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Net earnings $ 22.5 $ 21.0
-------------------------------------------------------------------------
Adjustments - Other expenses, net 7.6 11.4
-------------------------------------------------------------------------
Tax effect related to foregoing adjustments 1.1 (11.2)(xx)
-------------------------------------------------------------------------
Adjusted net earnings $ 31.2 $ 21.2
-------------------------------------------------------------------------
-------------------------- Adjusted basic earnings per share $ 0.85
$ 0.58
-------------------------------------------------------------------------
-------------------------- Adjusted diluted earnings per share $
0.84 $ 0.56
-------------------------------------------------------------------------
-------------------------- (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 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. "Our
financial results reflect the improved operating performance at the
hotels and resorts under our management and our continued focus on
improving profitability at the corporate level. We are pleased to
have delivered a solid improvement in our operating earnings," said
John Davison, Chief Financial Officer. We are undertaking a series
of portfolio refinements aimed at improving our financial position
and strengthening the quality of our management portfolio through
strategic divestitures and significant enhancements to established
properties and new unit additions. Expanding the Portfolio - New
Four Seasons Projects Recent additions to our announced pipeline of
properties include new projects in Koh Samui, Thailand; St.
Petersburg, Russia; Hangzhou, People's Republic of China and a
second property in Doha, Qatar. Since the beginning of the year, we
have announced new projects in nine locations, the four above and
Barbados, Macau, Seychelles, Shanghai and Taipei bringing to 32,
the number of announced properties under construction or advanced
stage of development. "We continue to work with strong development
partners around the globe. The pace of activity related to the
development of new Four Seasons properties is very healthy and, as
a result, we remain confident in our ability to meet our long term
unit growth objectives," said Kathleen Taylor, President Worldwide
Business Operations. Refining the Portfolio As previously
disclosed, we are in negotiations with the owner of The
Ritz-Carlton Chicago. The negotiations relate 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). We currently anticipate these
arrangements would 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. We also anticipate these arrangements would
entitle us to payments in connection with both a termination of our
management of the property and the owner's sale of the property.
Based upon the potential arrangements we are currently discussing,
we may be required to recognize an accounting charge of
approximately $2.5 million in connection with the termination of
the management contract prior to the sale of the property by the
owner. We may subsequently record a further gain following a future
sale of the property. The amount and timing of any charge and gain
will depend upon the timing and terms of the finalization of the
arrangement, the potential date of termination of our management
and the ultimate date and sale price of any disposition of the
property. For the six months ended June 30, 2006, we have earned
approximately $1.0 million of hotel management fees from The
Ritz-Carlton Chicago.
-------------------------------------------------- (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 less (ii) income tax recovery plus (iii)
interest expense less (iv) interest income plus (v) other expenses,
net plus (vi) 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. SECOND QUARTER
AND SIX MONTHS ENDED JUNE 30, 2006 MANAGEMENT'S DISCUSSION AND
ANALYSIS This Management's Discussion and Analysis ("MD&A") for
the second quarter and six months ended June 30, 2006 is provided
as of August 10, 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 August 10, 2006, and the MD&A for the quarter ended March
31, 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. Endnotes can be found at the
end of this document. Operational and Financial Review and Analysis
Hotel and Resort Operating Results For the second quarter of 2006,
RevPAR(1) of our worldwide Core Hotels(2) increased 12.1%, as
compared to the second quarter of 2005, reflecting improvements in
each of the regions in which we manage hotels and resorts. This
increase in RevPAR was attributable to an 11.1% improvement in
achieved room rates and a 60 basis point increase in overall
occupancy. For the six months ended June 30, 2006, RevPAR of our
worldwide Core Hotels increased 11.9%, 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 9.2% improvement in achieved room rates and a 170
basis point increase in overall occupancy. Gross operating revenues
of our worldwide Core Hotels increased 9.3% for the second quarter
of 2006 and 9.4% for the six months ended June 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 14.6% and 150 basis point
increase in gross operating profits(3) and gross operating
margins(4), respectively, for the second quarter of 2006, as
compared to the same period in 2005, and a 16.5% and 200 basis
point increase in gross operating profits and gross operating
margins, respectively, for the six months ended June 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 to us. In the second quarter of 2006, it
contributed 49.4% of revenues under management, followed by Europe
(17.7%), Other Americas/Caribbean (14.7%), Asia/Pacific (12.2%) and
the Middle East (6.0%). For the six months ended June 30, 2006, the
United States contributed 49.9% of revenues under management,
followed by Other Americas/Caribbean (16.2%), Europe (15.5%),
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 periods in 2006, as compared to 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
-------------------------------------------------------------------------
Second quarter 305 11.7% 9.1% 15.0% 32.5% 170
-------------------------------------------------------------------------
Six months ended June 30 303 12.2% 10.3% 17.4% 31.4% 190
-------------------------------------------------------------------------
The increase in RevPAR in the second quarter was primarily
attributable to an 11.9% increase in achieved room rates in the
region, with the average occupancy levels virtually unchanged.
During the second quarter of 2006, all of the Core Hotels in this
region experienced RevPAR improvements. Properties under management
in Austin, Boston, Kona, Los Angeles and Maui had strong RevPAR
improvements, relative to the average for the region for the second
quarter. The increase in RevPAR in the six months ended June 30,
2006 was attributable to a 10.2% increase in achieved room rates
and a 140 basis point improvement in occupancy levels in the
region. Properties under management in Atlanta, Austin, Boston,
Houston, Maui and New York had strong RevPAR improvements relative
to the average for the region for the six-month period. The
improvement in gross operating profits and gross operating margins
in the region in the second quarter and six months ended June 30,
2006 was primarily the result of the improvement in gross operating
revenues.
-------------------------------------------------------------------------
Other Americas/Caribbean Region
-------------------------------------------------------------------------
Results for periods in 2006, as compared to 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
-------------------------------------------------------------------------
Second quarter 246 18.0% 11.6% 15.9% 28.8% 110
-------------------------------------------------------------------------
Six months ended June 30 275 15.3% 12.9% 18.2% 33.1% 150
-------------------------------------------------------------------------
During the second quarter and six months ended June 30, 2006,
nearly all of the properties under management in this region
experienced RevPAR improvements. The second quarter RevPAR
improvement was primarily the result of a 17.2% increase in
achieved room rates, since the average occupancy levels was
virtually unchanged. On a local currency basis, RevPAR improved
15.8% with achieved room rates improving 15.0%. The improvement for
the six months ended June 30, 2006 was the result of an 11.8%
increase in achieved room rates and 200 basis point improvement in
occupancy levels. On a local currency basis, RevPAR improved 13.6%,
reflecting a 10.2% increase in achieved room rates on a local
currency basis. In both the second quarter and six months ended
June 30, 2006, properties under management in Buenos Aires,
Carmelo, Costa Rica, Punta Mita, Vancouver, and Whistler had
particularly strong RevPAR improvements, relative to the average
for the region. The improvements in gross operating profits and
gross operating margin in both the second quarter and the six
months ended June 30, 2006 were primarily due to a strong operating
environment in several properties in the region, offset by lower
occupancy at our Caribbean resorts primarily due to travel concerns
related to weather.
-------------------------------------------------------------------------
Europe Region
-------------------------------------------------------------------------
Results for periods in 2006, as compared to 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
-------------------------------------------------------------------------
Second quarter 439 13.9% 7.0% 9.2% 36.9% 80
-------------------------------------------------------------------------
Six months ended June 30 375 15.3% 4.9% 12.5% 32.0% 220
-------------------------------------------------------------------------
Nearly all of the properties under management in the region had
RevPAR improvements during the second quarter and six months ended
June 30, 2006 reflecting both strong occupancy increases and rate
improvements. During the second quarter, on a local currency basis,
RevPAR increased 14.8%, reflecting a 7.8% increase in achieved room
rates in local currency, versus 7.0% on a US dollar basis. For the
six months ended June 30, 2006, on a local currency basis, RevPAR
increased 19.8%, reflecting a 9.1% increase in achieved room rates
in local currency, versus 5.1% on US dollar basis. Relative to the
average of the other properties in the region, during the second
quarter 2006, properties under management in Budapest, Lisbon and
the Four Seasons Hotel London had strong RevPAR improvements.
During the six months ended June 30, 2006, Lisbon had a strong
RevPAR improvement relative to the average for the region. The
improvements in gross operating profits and gross operating margins
for the regions were offset by the impact on the profitability
performance in particular at the Four Seasons Hotel Dublin, which
is undergoing a conversion of 62 hotel rooms into residential
units. Excluding the change in gross operating margins at that
hotel, gross operating margins for the region would have improved
200 basis points in the second quarter and 350 basis points in the
six months ended June 30, 2006.
-------------------------------------------------------------------------
Middle East Region
-------------------------------------------------------------------------
Results for periods in 2006, as compared to 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
-------------------------------------------------------------------------
Second quarter 168 20.1% 23.4% 31.0% 49.5% 280
-------------------------------------------------------------------------
Six months ended June 30 175 17.1% 18.9% 25.5% 50.8% 270
-------------------------------------------------------------------------
During both the second quarter and six months ended June 30, 2006,
all of the properties under management in the Middle East region
had RevPAR improvements, with the exception of Sharm El Sheikh,
where RevPAR was essentially unchanged for the second quarter and
declined 7.1% for the six months ended June 30, 2006, as business
was adversely affected by the continuing impact of terrorist
bombings. In the second quarter of 2006, the increase in RevPAR for
the region was driven by an 11.7% increase in achieved room rates
(10.6% on a local currency basis) and a 490 basis point improvement
in occupancy levels. In the six months ended June 30, 2006, the
increase in RevPAR for the region was driven by a 13.2% increase in
achieved room rates (11.7% on a local currency basis) and a 230
basis point improvement in occupancy levels. During both the second
quarter and six months ended June 30, 2006, Four Seasons Hotel
Cairo Nile Plaza and Four Seasons Hotel Riyadh had particularly
strong RevPAR improvements, as compared to the average for the
region. The improvement in gross operating profits and gross
operating margins was the result of strong revenue growth, offset
somewhat by the results in Sharm El Sheikh. It is not possible to
determine the medium and long-term impact, if any, of the events in
Lebanon and Israel on our business in the Middle East; however,
there has not been any measurable impact to date. Certain hotels
under management in the Middle East region have had a modest
improvement in demand, as some travel has shifted within the
region.
-------------------------------------------------------------------------
Asia/Pacific Region
-------------------------------------------------------------------------
Results for periods in 2006, as compared to 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
-------------------------------------------------------------------------
Second quarter 129 4.0% 4.7% 10.1% 34.2% 170
-------------------------------------------------------------------------
Six months ended June 30 130 3.3% 2.9% 9.6% 33.4% 200
-------------------------------------------------------------------------
During both the second quarter and six months ended June 30, 2006,
RevPAR changes in the Asia/Pacific region were mixed. During the
second quarter, the RevPAR improvement was driven by a 6.9%
improvement in achieved room rates (6.3% improvement on a local
currency basis), offset by a 170 basis point reduction in occupancy
levels, primarily as the result of reduced demand in Bali, which is
continuing to gradually recover from the lingering impact of
terrorist bombings in September 2005. During the six months ended
June 30, 2006, the RevPAR improvement was driven by a 4.5%
improvement in achieved room rates (5.7% improvement on a local
currency basis) with overall occupancy levels essentially
unchanged. During both the second quarter and six months ended June
30, 2006, properties under management in Chiang Mai, Shanghai and
Singapore experienced strong RevPAR improvements relative to the
region average, while the resorts in Bali, for the reason noted,
experienced a RevPAR decline of approximately 20%. The improvement
in gross operating profits and gross operating margins for the
region was offset primarily by the decline in profitability levels
at the resorts in Bali, as those properties recover from the impact
of the bombings. Excluding the resorts in Bali, gross operating
margins for Core Hotels in the region would have increased 240
basis points in the second quarter and 290 basis points for the six
months ended June 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 currently
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 second quarter and six months ended June 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
-------------------------------------------------------------------------
Dollar Percentage (in millions of dollars) Second quarter Change
Change
-------------------------------------------------------------------------
2006 over 2006 over 2006 2005 2005 2005
-------------------------------------------------------------------------
Hotel management fees Base $ 21.7 $ 19.1 $ 2.6 13.6% Incentive 11.4
9.3 2.1 22.2%
-------------------------------------------------------------------------
Subtotal 33.1 28.4 4.7 16.4%
-------------------------------------------------------------------------
Other fees 4.4 2.8 1.6 55.3%
-------------------------------------------------------------------------
Subtotal 37.5 31.2 6.3 20.0%
-------------------------------------------------------------------------
Hotel ownership revenues 10.4 27.7(x) (17.3) (62.2)%
-------------------------------------------------------------------------
Reimbursed costs(5) 19.9 15.6 4.3 27.3%
-------------------------------------------------------------------------
Total revenues $ 67.8 $ 74.5 $ (6.7) (9.0)%
-------------------------------------------------------------------------
--------------------------------------------------- (x) Included in
2005 were the 100% consolidated results of The Pierre.
-------------------------------------------------------------------------
Six months ended Dollar Percentage (in millions of dollars) June
30, Change Change
-------------------------------------------------------------------------
2006 over 2006 over 2006 2005 2005 2005
-------------------------------------------------------------------------
Hotel management fees Base $ 41.4 $ 36.7 $ 4.7 12.9% Incentive 22.0
16.4 5.6 34.3%
-------------------------------------------------------------------------
Subtotal 63.4 53.1 10.3 19.5%
-------------------------------------------------------------------------
Other fees 9.7 6.5 3.2 49.3%
-------------------------------------------------------------------------
Subtotal 73.1 59.6 13.5 22.8%
-------------------------------------------------------------------------
Hotel ownership revenues 16.0 48.2(x) (32.2) (66.9)%
-------------------------------------------------------------------------
Reimbursed costs 36.3 29.8 6.5 21.8%
-------------------------------------------------------------------------
Total revenues $ 125.4 $ 137.6 $ (12.2) (8.9)%
-------------------------------------------------------------------------
--------------------------------------------------- (x) Included in
2005 were the 100% consolidated results of The Pierre. 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, please see our MD&A for the year ended December 31, 2005.
For the second quarter of 2006, base fees increased $2.6 million,
as compared to the second quarter of 2005. Of the $2.6 million
increase in base fees, base fees from Core Hotels contributed $1.8
million or 69.0% of the increase. The increase in base fees from
Core Hotels in the second quarter of 2006 represented a 10.3%
increase over the base fees generated from Core Hotels in the
second quarter of 2005. Properties that opened in 2005 and 2006
contributed base fees of $1.5 million in the second quarter of
2006, as compared to $0.3 million in the same period in 2005. The
increase in base fees in the quarter was moderated by a $0.5
million reduction in base fees from properties no longer under
management. For the six months ended June 30, 2006, base fees
increased $4.7 million, as compared to the same period in 2005. Of
the $4.7 million increase in base fees, base fees from Core Hotels
contributed $3.2 million or 67.7% of the increase. The increase in
base fees from Core Hotels in the six months ended June 30, 2006
represented a 9.5% 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 $2.9 million in the six months
ended June 30, 2006, as compared to $0.3 million in the same period
in 2005. The increase in base fees in the six months ended June 30,
2006, was moderated by a $1.0 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, please see our MD&A for the year
ended December 31, 2005. For the second quarter of 2006, incentive
fees increased $2.1 million, as compared to the same period in
2005. During the second quarter of 2006, the overall improvement in
incentive fees was reduced by lower incentive fees from our resort
in Nevis as a result of reduced travel to that market due to
weather concerns and from our resort in the Maldives which remained
closed during the second quarter of 2006 for renovation and repair
of damage from the tsunami in late 2004. Although the Maldives
resort was also closed during the second quarter of 2005 we
received fees during that period from payments, in respect of
business interruption insurance. The incentive fees earned from
properties that opened in 2005 and 2006 represented $0.9 million of
the increase. The remainder of the increase of $1.2 million came
from improvements in incentive fees from our Core Hotels. Incentive
fees were earned from 43 of the 70 hotels and resorts under
management for the second quarter of 2006, as compared to 41 of the
65 hotels and resorts under management in the same period in 2005.
For the six months ended June 30, 2006, incentive fees increased
$5.6 million, as compared to the same period in 2005. The incentive
fees earned from properties that opened in 2005 and 2006
represented $2.1 million of the increase. Incentive fees were
earned from 44 of the 70 hotels and resorts under management for
the six months ended June 30, 2006, as compared to 41 of the 65
hotels and resorts under management in the same period in 2005. As
discussed above the overall improvement in our incentive fees for
the six months ended June 30, 2006 was reduced due to lower
incentive fees from Nevis and Maldives. 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 second quarter of 2006, other fees
increased 55.3%, or $1.6 million, to $4.4 million as compared to
the same period in 2005. For the six months ended June 30, 2006,
other fees increased 49.3% or $3.2 million, to $9.7 million, as
compared to the same period in 2005. The increase in other fees for
the second quarter and six months ended June 30, 2006, as compared
to the same periods 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,
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 second quarter and six months ended June 30,
2005, we also had a 100% leasehold interest in The Pierre and
consolidated the results of that property 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 now expect that we will continue to operate the
Vancouver hotel under the existing lease agreement, until its
expiry in 2019. We have seven units of residential inventory at two
resorts, which we acquired with the intent to resell 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. During the second quarter of 2006, we sold
inventory for gross proceeds of $1.5 million at effectively our
cost to purchase. The $1.5 million of revenue associated with the
sales is included in Hotel Ownership Revenues for both the second
quarter and six months ended June 30, 2006, and the cost of the
sales of $1.5 million is included in Hotel Ownership Cost of Sales
and Expenses. There were no sales in 2005. In the second quarter
and six months ended June 30, 2006, the decline in hotel ownership
revenues was primarily related to our owning and consolidating 100%
of The Pierre during the second quarter of 2005 and our not owning
and not consolidating it during 2006. Hotel ownership revenues for
the second quarter and six months ended June 30, 2006 primarily
relate to the Four Seasons Hotel Vancouver. Revenue at that
property increased by 28.5% relative to the second quarter of 2005,
primarily as the result of a 20.8% improvement in RevPAR and 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 29.9% relative to
the six months ended June 30, 2005, primarily as the result of a
19.3% improvement in RevPAR and the decline in the US dollar
relative to the Canadian dollar. Reimbursed Costs Reimbursed costs,
which primarily represents 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 our
management. For the second quarter, reimbursed costs increased $4.3
million or 27.3%, as compared to the corresponding period in 2005.
For the six months ended June 30, 2006, reimbursed costs increased
$6.5 million or 21.8%, as compared to the corresponding period in
2005. The increase in both the second quarter and six months ended
June 30, 2006 was due primarily to a larger portfolio of properties
and higher revenues under management, 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 in Canadian
dollars. For the second quarter of 2006, general and administrative
expenses increased $0.1 million (approximately 0.8%) on a Canadian
dollar basis to C$16.5 million from C$16.4 million in the same
period in 2005. As reported in US dollars, general and
administrative expenses increased 11.5% to $14.7 million from $13.2
million in the second quarter of 2005. Approximately $1.4 million
or 93% of the reported $1.5 million increase in general and
administrative expenses is attributable to the US dollar having
declined relative to the Canadian dollar (average Canadian/US
foreign exchange rate: second quarter 2006 - 1.125; 2005 - 1.244).
As noted, 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, to predict the cost of our Canadian dollar
expenditures in US dollars. During the quarter, we settled $31.0
million of forward contracts and realized approximately $1.0
million gain on those settlements ($0.9 million gain for the six
months ended June 30, 2006), which offset the majority of the
increase in general and administrative expenses. The 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. Other expenses, net included a gain of $1.5
million related to these contracts in the three months ended June
30, 2006. For the six months ended June 30, 2006, on a Canadian
dollar basis, general and administrative expenses increased C$1.0
million (approximately 3.0%) to C$32.9 million from C$31.9 million,
as compared to the same period in 2005. As reported in US dollars,
for the six months ended June 30, 2006, general and administrative
expenses increased 11.7% to $28.9 million from $25.9 million in the
same period in 2005. Approximately $2.2 million or 74% of the
reported increase in general and administrative expenses is
attributable to the US dollar decline, relative to the Canadian
dollar, in the six month over six month period. The average
Canadian/US foreign exchange rate for the six months ended June 30,
2006 and 2005 are 1.139 and 1.235, 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 62.8% to $9.6 million
in the second quarter of 2006, from $25.7 million in the second
quarter of 2005, primarily as a result of the operations of The
Pierre being consolidated in the second quarter of 2005 and not
being consolidated in the second quarter of 2006. For the six
months ended June 30, 2006, hotel ownership cost of sales and
expenses declined 67.8% to $16.1 million from $49.8 million in the
same period in 2005 for the same reason noted above. As noted
above, $1.5 million of costs relating to the sale of residential
units is included in Hotel Ownership Cost of Sales and Expenses in
both the second quarter and the six months ended June 30, 2006.
Costs of sales and expenses at Four Seasons Hotel Vancouver
increased 11.7% in the second quarter of 2006 and 9.7 % in the six
months ended June 30, 2006, both as compared to the same periods in
2005, primarily as a result of higher labour costs related to the
improvement in occupancy and 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, as a result of The
Pierre no longer being consolidated, our earnings from hotel
ownership operations declined from $2.0 million in the second
quarter of 2005 to $0.9 million in the second quarter of 2006. For
the six months ended June 30, 2006, our loss from hotel ownership
operations was $0.1 million, as compared to a loss of $1.6 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 18.1% to $23.7 million in the
second quarter of 2006, as compared to $20.1 million in the same
period in 2005. For the six months ended June 30, 2006, operating
earnings before other items increased 37.3% to $44.2 million, as
compared to $32.2 million in the same period in 2005. Profit Margin
Our profit margin on our management business, calculated including
reimbursed revenues and costs of $19.9 million in the second
quarter of 2006 ($15.6 million in 2005), was 39.8% (38.6% in 2005).
Excluding reimbursed revenues and costs, our profit margin on our
management business was as follows:
-------------------------------------------------------------------------
(in millions of dollars) Second quarter
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Hotel management fees $ 33.1 $ 28.4
-------------------------------------------------------------------------
Other fees 4.4 2.8
-------------------------------------------------------------------------
Subtotal - management fee revenues (excluding reimbursed costs)
37.5 31.2
-------------------------------------------------------------------------
General and administrative expenses (including corporate expenses
as discussed above) (14.7) (13.2)
-------------------------------------------------------------------------
Total - management operations earnings before other items
(excluding reimbursed costs) $ 22.8 $ 18.0
-------------------------------------------------------------------------
-------------------------- Profit margin(x) 60.9% 57.9%
-------------------------------------------------------------------------
(x) This is a non-GAAP financial measure, calculated as management
operations earnings before other items (excluding reimbursed costs)
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, calculated including reimbursed revenues
and costs of $36.3 million for the six months ended June 30, 2006
($29.8 million in 2005) was 40.4% (37.7% in 2005). Excluding
reimbursed revenues and costs, our profit margin on our management
business was as follows:
-------------------------------------------------------------------------
Six months ended (in millions of dollars) June 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Hotel management fees $ 63.4 $ 53.1
-------------------------------------------------------------------------
Other fees 9.7 6.5
-------------------------------------------------------------------------
Subtotal - management fee revenues (excluding reimbursed costs)
73.1 59.6
-------------------------------------------------------------------------
General and administrative expenses (including corporate expenses
as discussed above) (28.9) (25.9)
-------------------------------------------------------------------------
Total - management operations earnings before other items
(excluding reimbursed costs) $ 44.2 $ 33.7
-------------------------------------------------------------------------
-------------------------- Profit margin(x) 60.5% 56.6%
-------------------------------------------------------------------------
(x) This is a non-GAAP financial measure, calculated as management
operations earnings before other items (excluding reimbursed costs)
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. Other Expenses, Net
For the second quarter of 2006, other expenses, net was $6.8
million, as compared to $8.6 million for the same period in 2005.
-------------------------------------------------------------------------
(in millions of dollars) Second quarter
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Foreign exchange loss $ 7.4 $ 3.3
-------------------------------------------------------------------------
Loss on disposition of assets - 5.2
-------------------------------------------------------------------------
Asset provision (recovery) and write downs (0.6) 0.1
-------------------------------------------------------------------------
Other expenses, net $ 6.8 $ 8.6
-------------------------------------------------------------------------
-------------------------- For the six months ended June 30, 2006,
other expenses, net was $7.6 million, as compared to $11.4 million
for the same period in 2005.
-------------------------------------------------------------------------
Six months ended (in millions of dollars) June 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Foreign exchange loss $ 7.9 $ 3.7
-------------------------------------------------------------------------
Loss on disposition of assets - 5.6
-------------------------------------------------------------------------
Asset provision (recovery) and write downs (0.3) 2.1
-------------------------------------------------------------------------
Other expenses, net $ 7.6 $ 11.4
-------------------------------------------------------------------------
-------------------------- Foreign Exchange Other expenses, net for
the second quarter of 2006 included a foreign exchange loss of $7.4
million, as compared to a loss of $3.3 million for the same period
in 2005. For the six months ended June 30, 2006, other expenses,
net included a foreign exchange loss of $7.9 million, as compared
to a loss of $3.7 million for the same period in 2005. The foreign
exchange 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. The foreign
exchange loss on the translation of balance sheet items was reduced
from what it would otherwise have been by a gain on the
"marked-to-market" adjustment and settlement of the forward
contracts described below. As at June 30, 2006, we had contracts in
place to sell forward $39.7 million of US dollars and received
Canadian dollars at a weighted average exchange rate of 1.124
Canadian dollars to a US dollar at various maturities extending to
December 2007. Subsequent to June 30, 2006, we have extended the
program to sell forward an additional $6.5 million of US dollars
for conversion to Canadian dollars with maturities extending to
January 2008, at a weighted average exchange rate of 1.121 Canadian
dollars to a US dollar. Although these forward contracts were put
into place to enable us to predict the US dollar cost of our
Canadian dollar general and administrative expenses and Canadian
dollar capital funding requirements, for accounting purposes they
are "marked-to-market", with the corresponding gains or losses
included in foreign exchange. The marked-to-market gain on these
contracts for the second quarter and six months ended June 30, 2006
was $0.5 million. In addition, we realized a $1.0 million gain on
the settlement of forward contracts during the second quarter ($0.9
million for the six months ended June 30, 2006). This program to
sell forward US dollars was not in place during the six months
ended June 30, 2005, and as such no amounts were realized in the
second quarter or six months ended June 30, 2005. 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 unhedged 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
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 $5.0 million. We also recorded a tax benefit in
connection with the sale of $9.2 million, which is discussed
further under "Income Tax Expense" below. Including the tax
benefit, we realized a net gain of $4.2 million on the disposition
of The Pierre. Interest Income and Interest Expense The $1.9
million increase in interest income for the second quarter and the
$2.5 million increase in interest income for the six months ended
June 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 $1.5 million increase in interest
expense for the second quarter and the $2.1 million increase in
interest expense for the six months ended June 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. The effective interest rate on our
convertible senior notes in the second quarter of 2006 was
approximately 5.9%, which represents $3.3 million of interest
expense for that period. For the six months ended June 30, 2006,
the effective interest rate on our convertible senior notes was
5.7%, which represents $6.3 million of interest expense. Income Tax
Expense Income tax expense during the second quarter of 2006 was
$6.6 million (effective tax rate of 42.2%), as compared to income
tax recovery of $6.0 million for the same period in 2005. For the
six months ended June 30, 2006, our income tax expense was $11.0
million (effective tax rate of 32.8%), as compared to income tax
recovery of $4.1 million for the same period in 2005. During the
second quarter of 2006, we did not record approximately $1.7
million 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 second quarter of 2006 were
$9.1 million ($0.25 basic earnings per share and $0.24 diluted
earnings per share), as compared to net earnings of $15.8 million
($0.43 basic earnings per share and $0.42 diluted earnings per
share) for the same period in 2005. For the six months ended June
30, 2006, net earnings were $22.5 million ($0.61 basic earnings per
share and $0.60 diluted earnings per share), as compared to net
earnings of $21.0 million ($0.57 basic earnings per share and $0.55
diluted earnings per share) for the same period in 2005. Adjusted
Net Earnings and Adjusted Earnings per Share In the second quarter
of 2006, other expenses of $6.8 million primarily related to
foreign exchange losses. In the second quarter of 2005, other
expenses of $8.6 million primarily related to losses on the
disposition of assets and foreign exchange losses. Adjusting for
other expenses, net of applicable income taxes, adjusted net
earnings were as follows:
-------------------------------------------------------------------------
(in millions of dollars except per share amounts) Second quarter
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Net earnings $ 9.1 $ 15.8
-------------------------------------------------------------------------
Adjustments - Other expense, net 6.8 8.6
-------------------------------------------------------------------------
Tax effect related to foregoing adjustments 1.2 (10.6)(x)
-------------------------------------------------------------------------
Adjusted net earnings $ 17.1 $ 13.8
-------------------------------------------------------------------------
-------------------------- Adjusted basic earnings per share $ 0.47
$ 0.38
-------------------------------------------------------------------------
-------------------------- Adjusted diluted earnings per share $
0.46 $ 0.36
-------------------------------------------------------------------------
-------------------------- In the six months ended June 30, 2006,
other expenses of $7.6 million primarily related to foreign
exchange losses. During the six months ended June 30, 2005, other
expenses of $11.4 million primarily related to losses on the
disposition of assets and foreign exchange losses.
-------------------------------------------------------------------------
Six months ended (in millions of dollars except per share amounts)
June 30,
-------------------------------------------------------------------------
2006 2005
-------------------------------------------------------------------------
Net earnings $ 22.5 $ 21.0
-------------------------------------------------------------------------
Adjustments - Other expense 7.6 11.4
-------------------------------------------------------------------------
Tax effect related to foregoing adjustments 1.1 (11.2)(x)
-------------------------------------------------------------------------
Adjusted net earnings $ 31.2 $ 21.2
-------------------------------------------------------------------------
-------------------------- Adjusted basic earnings per share $ 0.85
$ 0.58
-------------------------------------------------------------------------
-------------------------- Adjusted diluted earnings per share $
0.84 $ 0.56
-------------------------------------------------------------------------
-------------------------- (x) In connection with the disposition
of The Pierre in the second quarter of 2005, we recorded a tax
benefit of approximately $9.2 million. 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 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. Eight Quarter Summary
-------------------------------------------------------------------------
(in millions of dollars except per share amounts) Second Quarter
First Quarter
-------------------------------------------------------------------------
2006 2005 2006 2005
-------------------------------------------------------------------------
Total revenues $ 67.8 $ 74.5 $ 57.6 $ 63.1
-------------------------------------------------------------------------
Operating earnings before other items $ 23.7 $ 20.1 $ 20.5 $ 12.1
-------------------------------------------------------------------------
Net earnings (loss) $ 9.1 $ 15.8 $ 13.4 $ 5.2
-------------------------------------------------------------------------
Basic earnings (loss) per share(7) $ 0.25 $ 0.43 $ 0.36 $ 0.14
-------------------------------------------------------------------------
Diluted earnings (loss) per share $ 0.24 $ 0.42 $ 0.36 $ 0.14
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average Canadian/US dollar foreign exchange rate used for specified
quarter 1.12509 1.24401 1.15421 1.22652
-------------------------------------------------------------------------
(in millions of dollars except per share amounts) Fourth Quarter
Third Quarter
-------------------------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------------------------
Total revenues $ 58.5 $ 69.5 $ 52.2 $ 63.3
-------------------------------------------------------------------------
Operating earnings before other items $ 12.3 $ 14.7 $ 11.7 $ 14.9
-------------------------------------------------------------------------
Net earnings (loss) $ (37.8) $ 12.8 $ (11.4) $ (8.5)
-------------------------------------------------------------------------
Basic earnings (loss) per share(7) $ (1.03) $ 0.35 $ (0.31) $
(0.24)
-------------------------------------------------------------------------
Diluted earnings (loss) per share $ (1.03) $ 0.34 $ (0.31) $ (0.24)
-------------------------------------------------------------------------
-------------------------------------------------------------------------
Average Canadian/US dollar foreign exchange rate used for specified
quarter 1.17478 1.22033 1.20687 1.30758
-------------------------------------------------------------------------
Liquidity and Capital Resources As at June 30, 2006, our cash and
cash equivalents were $236.8 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 for the facility. As at June 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, 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 $13.2
million as a result of funding $9.7 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. Guarantees and Commitments As discussed in the
MD&A for the year ended December 31, 2005, we have guarantees
and other commitments, including certain lease commitments. Since
December 31, 2005, we have decreased our guarantees by
approximately $1.3 million. Cash Flows Cash from Operations We
generated $22.0 million of cash from operations during the second
quarter of 2006, as compared to $24.0 million for the same period
in 2005. The decrease in cash from operations of $2.0 million in
the second quarter of 2006, as compared to the same period in 2005,
resulted primarily from changes of $3.7 million in non-cash working
capital, offset by higher earnings generated from our management
business and hotel ownership. We generated $27.6 million of cash
from operations during the six months ended June 30, 2006, as
compared to $19.3 million for the same period in 2005. For the six
months ended June 30, 2006, the increase in cash from operations of
$8.3 million, as compared to the same period in 2005, resulted
primarily from higher earnings generated from our management
business and hotel ownership, a $1.9 million increase in net
interest received, and a $2.5 million reduction in income taxes
paid. 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 second quarter of 2006, we advanced $15.7
million, in the aggregate, as long-term receivables to properties
under our management, as compared to $13.2 million in the same
period in 2005. Also in the second quarter of 2006, we were repaid
$2.2 million, in the aggregate, of our long-term receivables, as
compared to $18.9 million in the same period in 2005. In the six
months ended June 30, 2006, we advanced $17.9 million, in the
aggregate, as long-term receivables to properties under our
management, as compared to $34.0 million in the same period in
2005. Also in the six months ended June 30, 2006, we were repaid
$10.1 million, in the aggregate, of our long-term receivables, as
compared to $19.3 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. We did not
make any investments in hotel partnerships and corporations in the
second quarter of 2006. In the second quarter of 2005, we invested
$2.3 million in these assets and received $7.3 million relating to
the disposition of two of our equity interests. In the six months
ended June 30, 2006, we invested $0.5 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 $9.4 million in the six months
ended June 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 second
quarters of 2006 and 2005, we funded an aggregate of $10.7 million
and $0.3 million, respectively, primarily related to our
investments in management contracts. In the six months ended June
30, 2006 and 2005, we funded an aggregate of $14.6 million and $0.5
million, respectively, primarily related to our investments in
management contracts. Fixed Assets Our capital expenditures were
$4.3 million for the second quarter in 2006, as compared to $4.5
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 second quarters of
2006 and 2005, capital expenditures related to this expansion were
$4.3 million and $3.2 million, respectively. In the six months
ended June 30, 2006, our capital expenditures were $9.9 million, as
compared to $8.1 million for the same period in 2005. In the six
months ended June 30, 2006 and 2005, capital expenditures related
to our Toronto corporate office expansion were $9.7 million and
$5.8 million, respectively. Financing Activities In the six months
ended June 30, 2006, we issued $5.4 million in Limited Voting
Shares ("LVS") related to the exercise of stock options and paid
$1.7 million in dividends. In the six months ended June 30, 2005,
we issued $6.8 million in LVS related to the exercise of stock
options and paid $1.6 million in dividends. Outstanding Share Data
-------------------------------------------------------------------------
Outstanding as at Designation August 10, 2006
-------------------------------------------------------------------------
Variable Multiple Voting Shares(1) 3,725,698
-------------------------------------------------------------------------
Limited Voting Shares 33,068,498
-------------------------------------------------------------------------
Options to acquire Limited Voting Shares(2):
-------------------------------------------------------------------------
Outstanding 4,344,703
-------------------------------------------------------------------------
Exercisable 3,559,339
-------------------------------------------------------------------------
Convertible Senior Notes issued June 2004 and due 2024(3) $250.1
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 Operating Environment Assuming the travel trends that
we experienced in 2005 and the second quarter of 2006 continue, and
based on current demand reflected in our reservation activity, we
have increased our expected RevPAR improvements for worldwide Core
Hotels in the third quarter of 2006 and the full year 2006 to be 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 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 in the range of 15% to 20%. The Ritz-Carlton Chicago
As previously disclosed, we are in negotiations with the owner of
The Ritz-Carlton Chicago. The negotiations relate 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). We currently anticipate these
arrangements would 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. We also anticipate these arrangements would
entitle us to payments in connection with both a termination of our
management of the property and the owner's sale of the property.
Based upon the potential arrangements we are currently discussing,
we may be required to recognize an accounting charge of
approximately $2.5 million in connection with the termination of
the management contract prior to the sale of the property by the
owner. We may subsequently record a further gain following a future
sale of the property. The amount and timing of any charge and gain
will depend upon the timing and terms of the finalization of the
arrangement, the potential date of termination of our management
and the ultimate date and sale price of any disposition of the
property. For the six months ended June 30, 2006, we have earned
approximately $1.0 million of hotel management fees from The
Ritz-Carlton Chicago. Changes in Accounting Policies During the six
months ended June 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
http://www.fourseasons.com/investor, and on SEDAR at
http://www.sedar.com/.
-------------------------------------------------- (1) RevPAR is
defined as average room revenue per available room. It is a
non-GAAP financial measure and does not have any standardized
meaning prescribed by GAAP and is therefore unlikely to be
comparable to similar measures presented by other issuers. We use
RevPAR because it is a commonly used indicator of market
performance for hotels and resorts and represents the combination
of the average daily room rate and the average occupancy rate
achieved during the period. RevPAR does not include food and
beverage or other ancillary revenues generated by a hotel or
resort. RevPAR is the most commonly used measure in the lodging
industry to measure the period-over- period performance of
comparable properties. Our calculation of RevPAR may be different
than the calculation used by other lodging companies. (2) The term
"Core Hotels" means hotels and resorts under management for the
full year of both 2006 and 2005. However, if a "Core Hotel" has
undergone or is undergoing an extensive renovation program in one
of those years that materially affects the operation of the
property in that year, it ceases to be included as a "Core Hotel"
in either year. Changes from the 2005/2004 Core Hotels are the
additions of Four Seasons Resort Scottsdale at Troon North, Four
Seasons Resort Whistler, Four Seasons Resort Costa Rica at
Peninsula Papagayo, Four Seasons Hotel Gresham Palace Budapest,
Four Seasons Resort Provence at Terre Blanche and Four Seasons
Hotel Cairo at Nile Plaza, and the deletion of The Regent Kuala
Lumpur. (3) Gross operating profit is defined as gross operating
revenues less operating expenses. (4) Gross operating margin
represents gross operating profit as a percentage of gross
operating revenue. (5) Reimbursed costs include the reimbursement
of all out-of-pocket costs, including sales and marketing and
advertising charges. (6) Operating earnings before other items is
equal to net earnings plus (i) income tax expense less (ii) income
tax recovery plus (iii) interest expense less (iv) interest income
plus (v) other expenses, net plus (vi) 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. 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. This news release contains
"forward-looking statements" within the meaning of applicable
securities laws, including RevPAR, profit margin and earning
trends; statements concerning the number of lodging properties
expected to be added in this and future years; expected investment
spending; and similar statements concerning anticipated future
events, results, circumstances, performance or expectations that
are not historical facts. Various factors and assumptions were
applied or taken into consideration in arriving at these
statements, which do not take into account the effect that
non-recurring or other special items announced after the statements
are made may have on our business. These statements are not
guarantees of future performance and, accordingly, you are
cautioned not to place undue reliance on these statements. These
statements are subject to numerous risks and uncertainties,
including those described in our annual information form and
management's discussion and analysis for the year ended December
31, 2005 and in this document. (See discussion under "Operating
Risks" beginning on page 17 of our Annual Information Form and page
45 of our Management's Discussion and Analysis for the year ended
December 31, 2005, which are available on our website at
http://www.fourseasons.com/ and on SEDAR at http://www.sedar.com/.)
Those risks and uncertainties include adverse factors generally
encountered in the lodging industry; the risks associated with
world events, including war, terrorism, international conflicts,
natural disasters, extreme weather conditions and infectious
diseases; general economic conditions, fluctuations in relative
exchange rates of various currencies, supply and demand changes for
hotel rooms and residential properties, competitive conditions in
the lodging industry, the risks associated with our ability to
maintain and renew management agreements and expand the portfolio
of properties that we manage, relationships with clients and
property owners and the availability of capital to finance growth.
Many of these risks and uncertainties can affect our actual results
and could cause our actual results to differ materially from those
expressed or implied in any forward-looking statement made by us or
on our behalf. All forward-looking statements in this news release
are qualified by these cautionary statements. These statements are
made as of the date of this document and, except as required by
applicable law, we undertake no obligation to publicly update or
revise any forward-looking statement, whether as a result of new
information, future events or otherwise. Additionally, we undertake
no obligation to comment on analyses, expectations or statements
made by third parties in respect of Four Seasons, its financial or
operating results or its securities or any of the properties that
we manage or in which we may have an interest. We will hold a
conference call today at 11 a.m. (Eastern Daylight Time) to discuss
the second 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 21298231. A live web cast of the
call will also be available by visiting
http://www.fourseasons.com/investor. This web cast will be archived
for one month following the call. 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 70 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 http://www.fourseasons.com/.
FOUR SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited) (In thousands of Three months ended Six months ended US
dollars except June 30, June 30, per share amounts) 2006 2005 2006
2005
-------------------------------------------------------------------------
Revenues: Hotel management fees $ 33,046 $ 28,382 $ 63,430 $ 53,071
Other fees 4,411 2,840 9,737 6,520 Hotel ownership revenues 10,481
27,704 15,960 48,221 Reimbursed costs 19,880 15,613 36,315 29,824
--------------------------------------------------- 67,818 74,539
125,442 137,636 ---------------------------------------------------
Expenses: General and administrative expenses (14,661) (13,150)
(28,901) (25,870) Hotel ownership cost of sales and expenses
(9,557) (25,685) (16,050) (49,772) Reimbursed costs (19,880)
(15,613) (36,315) (29,824)
--------------------------------------------------- (44,098)
(54,448) (81,266) (105,466)
--------------------------------------------------- Operating
earnings before other items 23,720 20,091 44,176 32,170
Depreciation and amortization (2,799) (2,908) (5,442) (5,937) Other
expenses, net (note 4) (6,794) (8,645) (7,627) (11,355) Interest
income 5,638 3,740 10,099 7,616 Interest expense (4,048) (2,530)
(7,758) (5,635) ---------------------------------------------------
Earnings before income taxes 15,717 9,748 33,448 16,859
--------------------------------------------------- Income tax
recovery (expense) (note 5): Current (3,885) (1,390) (7,014)
(3,314) Future (2,748) 7,428 (3,967) 7,443
--------------------------------------------------- (6,633) 6,038
(10,981) 4,129 ---------------------------------------------------
Net earnings $ 9,084 $ 15,786 $ 22,467 $ 20,988
---------------------------------------------------
--------------------------------------------------- Basic earnings
per share (note 3(a)) $ 0.25 $ 0.43 $ 0.61 $ 0.57
---------------------------------------------------
--------------------------------------------------- Diluted
earnings per share (note 3(a)) $ 0.24 $ 0.42 $ 0.60 $ 0.55
---------------------------------------------------
--------------------------------------------------- See
accompanying notes to consolidated financial statements. FOUR
SEASONS HOTELS INC. CONSOLIDATED BALANCE SHEETS As at As at
(Unaudited) June 30, December 31, (In thousands of US dollars) 2006
2005
-------------------------------------------------------------------------
ASSETS Current assets: Cash and cash equivalents $ 236,811 $
242,178 Receivables 72,438 69,690 Inventory 3,289 7,326 Prepaid
expenses 3,731 2,950 ------------------------- 316,269 322,144
Long-term receivables 196,716 175,374 Investments in hotel
partnerships and corporations (note 2) 85,932 99,928 Fixed assets
74,923 64,850 Investment in management contracts (note 2) 193,387
164,932 Investment in trademarks and trade names 4,334 4,210 Future
income tax assets 10,992 14,439 Other assets 51,111 34,324
------------------------- $ 933,664 $ 880,201
------------------------- ------------------------- LIABILITIES AND
SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and
accrued liabilities $ 53,808 $ 54,797 Long-term obligations due
within one year 3,192 4,853 ------------------------- 57,000 59,650
Long-term obligations 286,335 273,825 Shareholders' equity (note
3): Capital stock 255,832 250,430 Convertible notes 36,920 36,920
Contributed surplus 12,173 10,861 Retained earnings 181,500 160,741
Equity adjustment from foreign currency translation 103,904 87,774
------------------------- 590,329 546,726 -------------------------
$ 933,664 $ 880,201 -------------------------
------------------------- See accompanying notes to consolidated
financial statements. FOUR SEASONS HOTELS INC. CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited) Three months ended Six months
ended (In thousands of June 30, June 30, US dollars) 2006 2005 2006
2005
-------------------------------------------------------------------------
Operating activities: DATASOURCE: Four Seasons Hotels and Resorts
CONTACT: John Davison, Chief Financial Officer, (416) 441-6714;
Barbara Henderson, Vice President, Corporate Finance, (416)
441-4329
Copyright