Exhibit 99.2
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:
Net earnings $ 9,084 $ 15,786 $ 22,467 $ 20,988
Items not
affecting cash:
Stock-based
compensation
expense 564 514 1,086 1,008
Depreciation and
amortization 2,799 2,908 5,442 5,937
Other expenses,
net 6,794 8,645 7,627 11,355
Future income tax
expense (recovery) 2,748 (7,428) 3,967 (7,443)
Other 428 274 969 528
Changes in non-cash
working capital (445) 3,266 (13,972) (13,044)
---------------------------------------------------
Cash provided by
operating activities 21,972 23,965 27,586 19,329
---------------------------------------------------
Investing activities:
Advances of long-term
receivables (15,683) (13,203) (17,944) (34,016)
Receipt of long-term
receivables 2,159 18,928 10,069 19,276
Investments in hotel
partnerships and
corporations - (2,265) 1,797 (9,445)
Disposal of hotel
partnerships and
corporations 707 7,326 707 12,672
Purchase of fixed
assets (4,251) (4,453) (9,857) (8,060)
Investments in
trademarks, trade
names and management
contracts (10,672) (342) (14,624) (473)
Other assets (4,121) (6,809) (5,602) (6,860)
---------------------------------------------------
Cash used in investing
activities (31,861) (818) (35,454) (26,906)
---------------------------------------------------
Financing activities:
Long-term obligations,
including current
portion (577) (1,630) (2,545) (1,498)
Issuance of shares 953 1,219 5,359 6,836
Dividends paid - - (1,657) (1,558)
---------------------------------------------------
Cash provided by
(used in) financing
activities 376 (411) 1,157 3,780
---------------------------------------------------
Increase (decrease)
in cash and cash
equivalents (9,513) 22,736 (6,711) (3,797)
Increase (decrease)
in cash and cash
equivalents due to
unrealized foreign
exchange gain (loss) 1,070 (2,264) 1,344 (3,944)
Cash and cash
equivalents,
beginning of period 245,254 198,164 242,178 226,377
---------------------------------------------------
Cash and cash
equivalents, end of
period $ 236,811 $ 218,636 $ 236,811 $ 218,636
---------------------------------------------------
---------------------------------------------------
Supplementary
information:
Interest received $ 4,489 $ 3,010 $ 9,148 $ 7,677
Interest paid (142) (162) (2,738) (3,162)
Income taxes paid (1,227) (2,349) (3,001) (5,455)
See accompanying notes to consolidated financial statements.
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Six months ended
(Unaudited) June 30,
(In thousands of US dollars) 2006 2005
-------------------------------------------------------------------------
Retained earnings, beginning of period $ 160,741 $ 192,129
Net earnings 22,467 20,988
Dividends declared (1,708) (1,537)
-------------------------
Retained earnings, end of period $ 181,500 $ 211,580
-------------------------
-------------------------
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 for annual financial statements
and should be read in conjunction with our most recently prepared annual
consolidated financial statements for the year ended December 31, 2005.
<<
1. Significant accounting policies:
The significant accounting policies used in preparing these interim
consolidated financial statements are consistent with those used in
preparing our annual consolidated financial statements for the year
ended December 31, 2005, except as disclosed below:
(a) Non-monetary transactions:
In June 2005, The Canadian Institute of Chartered Accountants
("CICA") issued Section 3831, "Non-Monetary Transactions",
which introduces new requirements for non-monetary transactions
initiated on or after January 1, 2006. The amended requirements
will result in non-monetary transactions being measured at fair
values unless certain criteria are met, in which case, the
transaction is measured at carrying value. The implementation
of Section 3831, on a prospective basis for transactions
initiated on or after January 1, 2006, did not have any impact
on our consolidated financial statements for the three months
and six months ended June 30, 2006.
(b) Financial instruments:
In January 2005, the CICA issued Section 1530 "Comprehensive
Income", Section 3855 "Financial Instruments - Recognition and
Measurement", and Section 3865 "Hedges". These standards are
effective for fiscal years beginning on or after October 1,
2006. 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:
In February 2006, we contributed our equity interest in a property
under our management in exchange for a management contract
enhancement of approximately the same fair value. No gain or loss was
recorded in connection with this transaction.
3. Shareholders' equity:
As at June 30, 2006, we have 3,725,698 outstanding Variable Multiple
Voting Shares ("VMVS"), 33,068,378 outstanding Limited Voting Shares
("LVS"), and 4,351,623 outstanding stock options (weighted average
exercise price of C$59.63 ($53.13)).
(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
June 30,
2006 2005
---------------------------------------------------------------------
Net earnings Shares Net earnings Shares
---------------------------------------------------------------------
Basic earnings
per share
amounts $ 9,084 36,766,608 $ 15,786 36,624,440
Effect of assumed
dilutive
conversions:
Stock option
plan - 639,162 - 1,325,607
---------------------------------------------------
Diluted earnings
per share
amounts $ 9,084 37,405,770 $ 15,786 37,950,047
---------------------------------------------------
---------------------------------------------------
Six months ended
June 30,
2006 2005
---------------------------------------------------------------------
Net earnings Shares Net earnings Shares
---------------------------------------------------------------------
Basic earnings
per share
amounts $ 22,467 36,726,193 $ 20,988 36,616,645
Effect of assumed
dilutive
conversions:
Stock option
plan - 616,117 - 1,454,426
---------------------------------------------------
Diluted earnings
per share
amounts $ 22,467 37,342,310 $ 20,988 38,071,071
---------------------------------------------------
---------------------------------------------------
The diluted earnings per share calculation excluded the effect
of the assumed conversions of 1,504,496 and 1,532,496 stock
options to LVS, under our stock option plan, during the three
months and six months ended June 30, 2006, respectively (2005 -
693,056 and 59,000 stock options, respectively), 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 notes.
(b) Stock-based compensation:
We use the fair value-based method to account for all employee
stock options granted or modified on or after January 1, 2003.
Accordingly, options granted prior to that date continue to be
accounted for using the settlement method.
Stock options to acquire 41,650 LVS were granted in the six
months ended June 30, 2006 at a weighted average exercise price
of C$62.61 ($53.65). The fair value of stock options granted in
the six months ended June 30, 2006 was estimated using the
Black-Scholes options pricing model with the following
assumptions: risk-free interest rates ranging from 4.09% to
4.17%; semi-annual dividend per LVS of C$0.055; volatility
factor of the expected market price of our LVS of 27%; and
expected lives of the options ranging between four and seven
years, depending on the level of the employee who was granted
stock options. For the options granted in the six months ended
June 30, 2006, the weighted average fair value of the options
at the grant dates was C$21.49 ($18.41). For purposes of stock
option expense and pro forma disclosures, the estimated fair
value of the options is amortized to compensation expense over
the options' vesting period. There were no stock options
granted in the three months ended June 30, 2006 and the six
months ended June 30, 2005.
Pro forma disclosure is required to show the effect of the
application of the fair value-based method to employee stock
options granted during 2002, which were not accounted for using
the fair value-based method. For the three months and six
months ended June 30, 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 Six months ended
June 30, June 30,
2006 2005 2006 2005
---------------------------------------------------------------------
Stock-based
compensation
expense $ (564) $ (514) $ (1,086) $ (1,008)
---------------------------------------------------
---------------------------------------------------
Net earnings,
as reported $ 9,084 $ 15,786 $ 22,467 $ 20,988
Increase in
stock-based
compensation
expense that would
have been recorded
if all stock
options granted
during 2002 had
been expensed (659) (681) (1,304) (1,372)
---------------------------------------------------
Pro forma net
earnings $ 8,425 $ 15,105 $ 21,163 $ 19,616
---------------------------------------------------
---------------------------------------------------
Earnings per share:
Basic, as
reported $ 0.25 $ 0.43 $ 0.61 $ 0.57
Basic, pro forma 0.23 0.41 0.58 0.54
Diluted, as
reported 0.24 0.42 0.60 0.55
Diluted, pro
forma 0.23 0.40 0.57 0.52
4. Other expenses, net:
Three months ended Six months ended
June 30, June 30,
2006 2005 2006 2005
---------------------------------------------------------------------
Foreign exchange
loss $ (7,391) $ (3,289) $ (7,919) $ (3,682)
Asset recovery
(provisions) and
write downs 597 (170) 292 (2,101)
Loss on
disposition of
assets - (5,186) - (5,572)
---------------------------------------------------
$ (6,794) $ (8,645) $ (7,627) $ (11,355)
---------------------------------------------------
---------------------------------------------------
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.
As at June 30, 2006, we have foreign exchange forward contracts in
place to sell forward $39,688 of US dollars to receive Canadian
dollars at a weighted average forward exchange rate of 1.124 Canadian
dollars to a US dollar maturing over the period to December 2007.
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 $1,512 and $1,444 foreign
exchange gain being recorded in the three months and six months ended
June 30, 2006, respectively. We did not sell forward US dollars
during the six months ended June 30, 2005.
Subsequent to June 30, 2006, we have sold forward an additional
$6,514 of US dollars to receive Canadian dollars at a weighted
average forward exchange rate of 1.121 Canadian dollars to a US
dollar maturing over the period to January 2008.
5. Income taxes:
During the three months ended June 30, 2006, we recorded an
additional valuation allowance of $1,746, related to not recognizing
a tax benefit on certain foreign exchange losses, due to the
uncertainty associated with the utilization of these losses. This
increased our income tax expense for the three months and six months
ended June 30, 2006 by this amount.
In connection with the disposition of The Pierre in June 2005, we
recorded an income tax benefit of approximately $9,200 for the three
months and six months ended June 30, 2005.
6. Pension expense:
The pension expense for the three months and six months ended
June 30, 2006 was $882 and $1,826, respectively (2005 - $596 and
$1,217, respectively).
7. Guarantees and other commitments:
We have provided certain guarantees and have other similar
commitments typically made in connection with properties under our
management. These contractual obligations and other commitments are
more fully described in the consolidated financial statements for the
year ended December 31, 2005. Since December 31, 2005, we have
decreased our guarantees by approximately $1,300.
8. Segmented information:
Our strategy is to focus on hotel management rather than hotel
ownership. Four Seasons Hotel Vancouver is our only remaining hotel
whose results we 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 for the three months and six months ended June 30, 2006.
Corporate expenses for the three months and six months ended June 30,
2005 that previously were included in our Ownership Operations
segment have been reclassified to the Management Operations segment
and included in general and administrative expenses in the
consolidated statements of operations.
Three months ended
June 30, 2006
-----------------------------------
Management Ownership
Operations Operations Total
---------------------------------------------------------------------
Revenues:
Hotel management fees $ 33,046 $ - $ 33,046
Other fees 4,411 - 4,411
-----------------------------------
37,457 - 37,457
Hotel ownership revenues - 10,481 10,481
Reimbursed costs 19,880 - 19,880
-----------------------------------
57,337 10,481 67,818
-----------------------------------
Expenses:
General and administrative
expenses (14,661) - (14,661)
Hotel ownership cost of sales
and expenses - (9,557) (9,557)
Reimbursed costs (19,880) - (19,880)
-----------------------------------
(34,541) (9,557) (44,098)
-----------------------------------
Operating earnings before
other items $ 22,796 $ 924 $ 23,720
-----------------------------------
-----------------------------------
Three months ended
June 30, 2005
-----------------------------------
Management Ownership
Operations Operations Total
---------------------------------------------------------------------
Revenues:
Hotel management fees $ 28,382 $ - $ 28,382
Other fees 2,840 - 2,840
-----------------------------------
31,222 - 31,222
Hotel ownership revenues - 27,704 27,704
Reimbursed costs 15,613 - 15,613
-----------------------------------
46,835 27,704 74,539
-----------------------------------
Expenses:
General and administrative
expenses (13,150) - (13,150)
Hotel ownership cost of sales
and expenses - (25,685) (25,685)
Reimbursed costs (15,613) - (15,613)
-----------------------------------
(28,763) (25,685) (54,448)
-----------------------------------
Operating earnings before
other items $ 18,072 $ 2,019 $ 20,091
-----------------------------------
-----------------------------------
Six months ended
June 30, 2006
-----------------------------------
Management Ownership
Operations Operations Total
---------------------------------------------------------------------
Revenues:
Hotel management fees $ 63,430 $ - $ 63,430
Other fees 9,737 - 9,737
-----------------------------------
73,167 - 73,167
Hotel ownership revenues - 15,960 15,960
Reimbursed costs 36,315 - 36,315
-----------------------------------
109,482 15,960 125,442
-----------------------------------
Expenses:
General and administrative
expenses (28,901) - (28,901)
Hotel ownership cost of sales
and expenses - (16,050) (16,050)
Reimbursed costs (36,315) - (36,315)
-----------------------------------
(65,216) (16,050) (81,266)
-----------------------------------
Operating earnings (loss) before
other items $ 44,266 $ (90) $ 44,176
-----------------------------------
-----------------------------------
Six months ended
June 30, 2005
-----------------------------------
Management Ownership
Operations Operations Total
---------------------------------------------------------------------
Revenues:
Hotel management fees $ 53,071 $ - $ 53,071
Other fees 6,520 - 6,520
-----------------------------------
59,591 - 59,591
Hotel ownership revenues - 48,221 48,221
Reimbursed costs 29,824 - 29,824
-----------------------------------
89,415 48,221 137,636
-----------------------------------
Expenses:
General and administrative
expenses (25,870) - (25,870)
Hotel ownership cost of sales
and expenses - (49,772) (49,772)
Reimbursed costs (29,824) - (29,824)
-----------------------------------
(55,694) (49,772) (105,466)
-----------------------------------
Operating earnings (loss)
before other items $ 33,721 $ (1,551) $ 32,170
-----------------------------------
-----------------------------------
