Exhibit 99.3
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
www.fourseasons.com/investor, and on SEDAR at www.sedar.com.
<<
--------------------------------------------------
(1) RevPAR is defined as average room revenue per available room. It is
a non-GAAP financial measure and does not have any standardized
meaning prescribed by GAAP and is therefore unlikely to be comparable
to similar measures presented by other issuers. We use RevPAR
because it is a commonly used indicator of market performance for
hotels and resorts and represents the combination of the average
daily room rate and the average occupancy rate achieved during the
period. RevPAR does not include food and beverage or other ancillary
revenues generated by a hotel or resort. RevPAR is the most commonly
used measure in the lodging industry to measure the period-over-
period performance of comparable properties. Our calculation of
RevPAR may be different than the calculation used by other lodging
companies.
(2) The term "Core Hotels" means hotels and resorts under management for
the full year of both 2006 and 2005. However, if a "Core Hotel" has
undergone or is undergoing an extensive renovation program in one of
those years that materially affects the operation of the property in
that year, it ceases to be included as a "Core Hotel" in either year.
Changes from the 2005/2004 Core Hotels are the additions of Four
Seasons Resort Scottsdale at Troon North, Four Seasons Resort
Whistler, Four Seasons Resort Costa Rica at Peninsula Papagayo, Four
Seasons Hotel Gresham Palace Budapest, Four Seasons Resort Provence
at Terre Blanche and Four Seasons Hotel Cairo at Nile Plaza, and the
deletion of The Regent Kuala Lumpur.
(3) Gross operating profit is defined as gross operating revenues less
operating expenses.
(4) Gross operating margin represents gross operating profit as a
percentage of gross operating revenue.
(5) Reimbursed costs include the reimbursement of all out-of-pocket
costs, including sales and marketing and advertising charges.
(6) Operating earnings before other items is equal to net earnings plus
(i) income tax expense less (ii) income tax recovery plus (iii)
interest expense less (iv) interest income plus (v) other expenses,
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 www.fourseasons.com and on SEDAR at www.sedar.com.) Those risks and
uncertainties include adverse factors generally encountered in the lodging
industry; the risks associated with world events, including war, terrorism,
international conflicts, natural disasters, extreme weather conditions and
infectious diseases; general economic conditions, fluctuations in relative
exchange rates of various currencies, supply and demand changes for hotel
rooms and residential properties, competitive conditions in the lodging
industry, the risks associated with our ability to maintain and renew
management agreements and expand the portfolio of properties that we manage,
relationships with clients and property owners and the availability of capital
to finance growth. Many of these risks and uncertainties can affect our actual
results and could cause our actual results to differ materially from those
expressed or implied in any forward-looking statement made by us or on our
behalf. All forward-looking statements in this news release are qualified by
these cautionary statements. These statements are made as of the date of this
document and, except as required by applicable law, we undertake no obligation
to publicly update or revise any forward-looking statement, whether as a
result of new information, future events or otherwise. Additionally, we
undertake no obligation to comment on analyses, expectations or statements
made by third parties in respect of Four Seasons, its financial or operating
results or its securities or any of the properties that we manage or in which
we may have an interest.
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
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 www.fourseasons.com.
