EXHIBIT 99.1
[GRAPHIC OMITTED]
FOUR SEASONS NEWS
HOTELS AND RESORTS
NOVEMBER 10, 2005 CONTACT: JOHN DAVISON
CHIEF FINANCIAL OFFICER
(416) 441-6714
BARBARA HENDERSON
VICE PRESIDENT,
CORPORATE FINANCE
(416) 441-4329
FOUR SEASONS HOTELS INC.
REPORTS THIRD QUARTER 2005 RESULTS
TORONTO, CANADA -- FOUR SEASONS HOTELS INC. (TSX SYMBOL "FSH.SV"; NYSE SYMBOL
"FS") today reported its results for the three months ended September 30, 2005.
Effective the first quarter of 2005, we adopted US dollars as our reporting
currency. All amounts disclosed in this news release (including amounts for
prior periods) are in US dollars unless otherwise noted.
FOR ADDITIONAL DETAILS RELATED TO THE QUARTER, PLEASE REFER TO OUR MANAGEMENT'S
DISCUSSION AND ANALYSIS, WHICH IS POSTED ON OUR WEBSITE AT
WWW.FOURSEASONS.COM/INVESTOR AND IS AVAILABLE AS PART OF OUR PUBLIC FILINGS AT
WWW.SEDAR.COM.
SUMMARY OF THE THIRD QUARTER OF 2005
For the three months ended September 30, 2005, in each case compared to the same
period in 2004:
HOTEL OPERATING RESULTS:
- -- RevPAR(1) of worldwide Core Hotels(2) increased 13.2%, with RevPAR of US
Core Hotels increasing 16%.
- -- Gross operating margins(3) at worldwide Core Hotels increased 290 basis
points to 29.7%, and increased at US Core Hotels 410 basis points to 27.9%.
- -- Revenues under management increased 13.1% in the quarter to $603.8 million.
1
"The results for the third quarter reflect the continued strong demand for
luxury travel and for Four Seasons hotels and resorts worldwide. The hotels and
resorts under our management continue to deliver very strong operating results.
This success is translating into improved management fees from properties under
management and exciting new projects for our pipeline," said Isadore Sharp,
Chairman and Chief Executive Officer. "The fundamentals of our business are
strong, even though this quarter's results do not have the benefit of the
foreign exchange forward contracts and certain residential fees included in the
third quarter of 2004. With ten new properties opened and the addition of 16 new
hotels under development since the beginning of 2004, combined with the
maintenance of a strong balance sheet, we believe we are very well positioned
for continued long-term growth."
COMPANY RESULTS:
- -- Management operations revenues increased 2.6%, or $1.1 million, to $43.0
million in the third quarter of 2005, as compared to $41.9 million for the
same period in 2004. Hotel management fee revenues, which includes base and
incentive fees, increased 21.3% in the quarter, as compared to the same
period in 2004. Base management fees increased 17.6% and incentive fees
increased 37.4%, reflecting better operating results at hotels under
management, as well as the addition of new properties.
- -- Loss from ownership operations and corporate expenses(4) improved by
$1.2 million, due primarily to the disposition of our leasehold interest in
The Pierre effective June 30, 2005.
- -- Earnings before other operating items declined 19.3%, due primarily to the
impact of lower residential royalty fees, foreign exchange forward
contracts(5) included in fee revenues in 2004 and higher general and
administrative costs in the quarter. General and administrative costs were
higher primarily due to the strengthening Canadian dollar relative to our
US dollar reporting currency and an accrual related to a new long-term
incentive plan. Excluding the impact of the foreign exchange forward
contracts of $2.6 million in the third quarter of 2004, earnings before
other operating items were 2.5% lower in the third quarter of 2005 than in
2004.
- -- In the quarter, we recorded a foreign exchange loss of $10.3 million
related to our US net monetary asset position. Combined with other net
foreign exchange losses, we recorded an overall foreign exchange loss of
$16.2 million in the third quarter of 2005, compared to a foreign exchange
loss of $3.4 million recorded in the third quarter of 2004.
- -- We have entered into an arrangement for a new Four Seasons property in
Kuala Lumpur. We anticipate reaching an agreement with the owner of The
Regent hotel in that city to transition out of our current management of
that hotel. As a result, we wrote off the unamortized portion of the 1992
Regent acquisition purchase price previously allocated to The Regent Kuala
Lumpur management contract in the amount of $4.6 million.
2
- -- Overall, we recorded a loss of $11.4 million ($0.31 basic and diluted loss
per share) in the third quarter of 2005, compared to a loss of $8.5 million
($0.24 basic and diluted loss per share) in the third quarter of 2004.
- -- Adjusting for other expense, net, earnings were:
THREE MONTHS ENDED
(UNAUDITED) SEPTEMBER 30,
(IN THOUSANDS OF US DOLLARS) 2005 2004
----------------------------------------------------------------------------
NET LOSS $ (11,441) $ (8,522)
OTHER EXPENSE, NET* 21,064 18,089
TAX EFFECT OF ADJUSTMENTS (1,517) (525)
-------------------------------
ADJUSTED NET EARNINGS $ 8,106 $ 9,042
===============================
ADJUSTED BASIC EARNINGS PER SHARE $ 0.22 $ 0.25
===============================
ADJUSTED DILUTED EARNINGS PER SHARE $ 0.22 $ 0.24
===============================
* Other expense, net for the three months ended September 30, 2005
included a foreign exchange loss of $16.2 million and $4.9 million
relating primarily to the write-down of The Regent Kuala Lumpur
management contract. For the three months ended September 30, 2004,
other expense, net included a foreign exchange loss of $3.4 million, a
loss incurred on the redemption of convertible notes of $11.2 million
and an impairment charge of $3.5 million relating to the disposition of
two hotel investments and the settlement of a loan receivable.
Adjusted net earnings is not defined by Canadian generally accepted accounting
principles (GAAP) and should not be considered as an alternative to net
earnings, cash flow from operating activities or any other measure of
performance prescribed by GAAP. Our adjusted net earnings may also not be
comparable to adjusted net earnings used by other companies, which may be
calculated differently. Given the volatility of foreign exchange rates and the
amounts periodically recorded as gains or losses on the disposition of
investments, repayment of long-term receivables and impairment charges on
investments or long-term receivables, we consider adjusted net earnings to be a
meaningful indicator of our base business and as a result, we have chosen to
provide this information to investors.
EXPANDING AND REFINING THE PORTFOLIO:
- -- In the third quarter, we opened Four Seasons Hotel Hong Kong, which
represents our return to one of the world's great cultural and business
centers. We also reopened the newly renovated Manele Bay Hotel in Lana'i as
a Four Seasons resort.
- -- We have recently added projects in Mauritius, Kuala Lumpur, Bahrain and New
Orleans to our announced pipeline of new Four Seasons hotels and resorts.
3
"Our development pipeline remains both strong and diverse," said Kathleen
Taylor, President Worldwide Business Operations. "The announced projects in our
pipeline represent an incremental increase of almost 30% on the existing base of
rooms under our management. The quality of these new projects is consistent with
the Four Seasons industry leading product standards, and we continue to field
new inquiries for exciting projects around the world."
SUBSEQUENT TO QUARTER END:
- -- We sold our minority equity interests in three properties for an aggregate
of $13.6 million, an amount that approximates book value.
- -- We received repayment of $19.5 million of long-term receivables and accrued
interest.
- -- We opened the 103 room Four Seasons Hotel des Bergues Geneva after an
extensive ten-month renovation.
- -- A record six Four Seasons properties received top honours in the Conde Nast
Traveler's Readers' Choice Awards.
John Davison, Chief Financial Officer said, "Our strong operating results,
continued growth and expansion and our repatriation of capital all represent
good progress toward our long-term goals. We are pleased with the state of our
business and we believe the outlook is strong, even though we have recently
experienced some strong headwinds, particularly foreign exchange."
EXPANDING AND REFINING THE PORTFOLIO
Over the past years, we have focused on refining our portfolio of hotels and
resorts with a view to strengthening the quality of our management portfolio and
improving our long term financial performance. These refinements include
strategic divestitures of properties, significant enhancements to established
properties, and the opening of new Four Seasons properties. These openings
increased the number of properties and rooms under management to 67 and
approximately 17,000, respectively. Most recently:
- -- Four Seasons Hotel Hong Kong is the most important new luxury property to
open in that city in many years. It sets a new quality standard in an
exciting time in Hong Kong's history and will strengthen the Four Seasons
brand in China and throughout the Asia/Pacific region.
- -- The newly renovated Manele Bay Hotel in Lana'i, Hawaii has been re-branded
and opened as a Four Seasons resort. Hawaii is one of the most popular
resort destinations for our guests and the hotel has already won awards in
many categories.
- -- Projects in Mauritius, Bahrain, Kuala Lumpur and New Orleans were added to
our announced pipeline of new Four Seasons hotels and resorts under
development,
4
bringing the total number of rooms currently under construction or in
advanced stages of development to approximately 5,000.
- -- We recently completed a $40 million enhancement of Four Seasons Hotel
Washington, D.C. The property has just been awarded the prestigious Mobil
Five-Star award and is the only five-star hotel to be added to the coveted
lodging category in North America.
- -- We have entered into an agreement to manage a new 140 room Four Seasons
hotel in Kuala Lumpur and we anticipate reaching an agreement with the
owner of the existing Kuala Lumpur hotel to transition out of managing that
Regent property.
- -- As described in our second quarter release, the owner of Four Seasons Hotel
Newport Beach, The Irvine Company, decided to independently manage their
hotel. Four Seasons agreed to cease managing that hotel on October 31, 2005
for a monetary payment.
- -- At the same time, Four Seasons continues to expand its presence in
California with the introduction of new hotels in Silicon Valley and
Westlake Village near Los Angeles, expected in 2006.
- -- At the end of the second quarter, we completed the disposition of our
interest in The Pierre, which was a significant milestone toward our
long-term strategic objective of reducing exposure to real estate.
HOTEL AND RESORT OPERATING RESULTS
- -----------------------------------------------------------------------------------------------
Results for three months ended September 30, 2005,
as compared to three months ended September 30, 2004
- -----------------------------------------------------------------------------------------------
RevPAR Gross Gross Gross Operating
Operating Operating Margin
Revenue Profit
- -----------------------------------------------------------------------------------------------
US$ Percentage Percentage Percentage Margin Basis Point
REGION Change Change Change Improvement
- -----------------------------------------------------------------------------------------------
WORLDWIDE CORE HOTELS $226 13.2% 12.0% 24.2% 29.7% 290
- -----------------------------------------------------------------------------------------------
US CORE HOTELS $274 16.0% 15.2% 35.2% 27.9% 410
- -----------------------------------------------------------------------------------------------
OTHER AMERICAS/ $183 15.4% 15.1% 33.8% 18.2% 260
CARIBBEAN CORE HOTELS
- -----------------------------------------------------------------------------------------------
EUROPE CORE HOTELS $381 8.9% 6.9% 8.4% 37.6% 50
- -----------------------------------------------------------------------------------------------
MIDDLE EAST CORE HOTELS $128 7.2% 10.7% 14.0% 39.7% 120
- -----------------------------------------------------------------------------------------------
ASIA/PACIFIC CORE HOTELS $119 8.5% 5.4% 16.2% 33.1% 310
- -----------------------------------------------------------------------------------------------
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Underlying these operating results:
o The third quarter operating results at the properties under our management
reflect continued strong luxury travel demand. Our customer mix consists of
business travelers, groups (including corporate and incentive) and leisure
travelers. Although the third quarter is not seasonally the strongest
quarter, demand in each of these categories of customers improved in 2005.
o RevPAR improvements for US Core Hotels were mainly as a result of an 8.1%
increase in achieved room rates in the region. Exceptions were Four Seasons
Hotel Houston, which continues to experience pressure on rates due to
increased supply in that market, and Four Seasons Hotel Philadelphia, which
is currently undergoing a rooms renovation. Properties under management in
New York, Miami, Jackson Hole and Austin, as well as all of the properties
under management in California, realized particularly strong improvements
in RevPAR, relative to the average for the US region.
o Other Americas/Caribbean Core Hotels experienced increases in RevPAR as a
result of improved demand and an 8.7% increase in achieved room rates.
Properties under management in Buenos Aires and Punta Mita experienced
strong RevPAR improvements relative to the average for the region.
o RevPAR in the Europe Core Hotels reflects strong operating results at the
hotels under management in Istanbul, Dublin, Paris and Prague relative to
the other hotels in the region. The Lisbon hotel continued to experience
RevPAR and gross operating profit declines in the quarter due to additional
supply in that market. In addition, the hotels under management in London
had lower RevPAR results due to a decrease in demand following the
terrorist activities in that market in July, although this decrease in
demand was partially offset by increases in achieved room rates.
o The Middle East Core Hotels' RevPAR improvement was driven primarily by a
10.1% increase in achieved room rates. Demand in Sharm el Sheikh was lower
following the terrorist activities in that market during the quarter, but
has since rebounded, although not to the level of business prior to the
terrorist activities.
o Nearly all of the Asia/Pacific Core Hotels had RevPAR improvements, which
were primarily driven by a 4.3% increase in achieved room rates. The main
exception was Four Seasons Hotel Bangkok, which is currently undergoing a
rooms renovation.
6
COMPANY OPERATING RESULTS
MANAGEMENT OPERATIONS
MANAGEMENT OPERATIONS REVENUES ($000'S)
-----------------------------------------------
THREE MONTHS
ENDED SEPTEMBER 30, DOLLAR PERCENTAGE
2005 2004 CHANGE CHANGE
-----------------------------------------------
Hotel management fees
Base $18,085 $15,382 $2,703 17.6%
Incentive 4,817 3,505 1,312 37.4%
-----------------------------------------------
Subtotal 22,902 18,887 4,015 21.3%
Other fees(6) 3,470 6,439 (2,969) (46.1%)
Foreign exchange
forward contracts -- 2,625 (2,625) (100.0%)
Reimbursed costs(7) 16,617 13,943 2,674 19.2%
-----------------------------------------------
Management operations revenues $42,989 $41,894 $1,095 2.6%
===============================================
Management operations revenues increased 2.6% to $43.0 million. Base management
fees, which are typically earned as a percentage of the gross revenues of our
properties under management, increased 17.6% or $2.7 million to $18.1 million.
This increase was attributable to new properties added to the portfolio and to
increases in fees at existing properties that were generally in line with
increases in RevPAR. While base management fees increased in all regions in
which we operate, the largest contributor to the improvement was the US region.
Incentive management fees are typically earned based on the profitability of the
properties under management, but may vary depending on the specific terms of the
relevant management agreement. These fees increased 37.4% or $1.3 million to
$4.8 million. The increase in incentive management fees was attributable both to
fees on new properties and to increasing fees on existing properties. Five of
the ten new properties opened since the beginning of 2004 contributed fees in
the third quarter and accounted for approximately 50% of the overall increase.
The balance of the increase was primarily attributable to strong improvements in
the US region, which more than offset moderate declines in these fees from
Europe and Asia/Pacific. During the quarter, 37 of the hotels and resorts under
management accrued incentive fees, as compared to 33 during the same period last
year.
Other fees, which include royalty and management fees from our residential
business, fees we earn during the development of our properties and other
miscellaneous fees, declined 46.1% to $3.5 million. The largest component of
this comparative decline was attributable to certain residential royalty fees
booked in the third quarter of 2004, which were primarily attributable to
7
projects in Whistler, San Francisco and Exuma. The timing of sales of
residential real estate can make quarter over quarter comparisons difficult.
In 2002, we entered into a series of foreign exchange forward contracts to
minimize the impact of the fluctuation of the US/Canadian dollar exchange rate
on our US dollar management fees. Those contracts expired at the end of 2004.
The value of those contracts recorded as part of fee revenues was $2.6 million
in the third quarter last year, and nil in the third quarter this year.
Reimbursed costs increased $2.7 million. The increase was attributable to higher
revenues under management and a growing portfolio of properties.
General and administrative expenses (excluding reimbursed costs) increased $2.6
million to $10.4 million over the amounts in the second quarter of 2004. The
increase in general and administrative expenses is attributable to the
implementation of a long-term incentive plan, increased staffing and foreign
exchange. Including reimbursed costs, general and administrative expenses
increased 24.1% to $27.1 million in the third quarter of 2005, as compared to
$21.8 million for the same period in 2004.
As a result of lower other fees and higher general and administrative costs as
described above, our management operations earnings before other operating items
(excluding the impact of foreign exchange forward contracts) for the third
quarter of 2005 declined 8.8% to $15.9 million, as compared to $17.5 million in
the third quarter of 2004. Our management operations profit margin(8) (excluding
reimbursed costs and the impact of foreign exchange forward contracts) declined
to 60.4% in the third quarter of 2005, as compared to 69.0% in the third quarter
of 2004. Our management operations earnings before other operating items
(including the impact of foreign exchange forward contracts) for the three
months ended September 30, 2005 were $15.9 million, as compared to $20.1 million
for the same period in 2004. Our management operations profit margin (including
reimbursed costs and the impact of foreign exchange forward contracts) was 37.0%
in the third quarter of 2005, as compared to 48.0% in the third quarter of 2004.
OWNERSHIP OPERATIONS AND CORPORATE EXPENSES
Operating results from ownership operations and corporate expenses improved $1.2
million to a loss of $3.6 million, as compared to a loss of $4.8 million in the
third quarter of 2004. This improvement was primarily as a result of our
disposition of our interest in The Pierre at the end of June 2005. The loss in
2004 related to The Pierre was $3.0 million. This improvement was reduced by an
increase in corporate general and administrative expenses attributable to
ownership operations and corporate expenses, which increase was primarily
related to foreign exchange and a retirement allowance.
8
OTHER EXPENSE, NET
Other expense, net increased $3.0 million to $21.1 million.
Other expense for the third quarter of 2005 included a $16.2 million foreign
exchange loss, which arose primarily as a result of a loss on the translation of
our US dollar and our pound sterling net monetary assets into Canadian dollars.
Our US dollar net asset position at September 30, 2005 was approximately $215
million, and our pounds sterling position was approximately (pound)26 million.
During the third quarter, the Canadian dollar relative to the US dollar
strengthened from an exchange rate of 1.23 to 1.17 and relative to pounds
sterling strengthened from 2.25 to 2.08. Further fluctuations in rates of
exchange between currencies will result in future foreign exchange gains or
losses.
When the Regent hotel chain was acquired in 1992, a portion of the purchase
price of that acquisition was allocated to the management contracts that we
assumed, which included 12 Regent branded properties and Four Seasons properties
in New York, Bali and Milan. As a result of our agreement to manage a new Four
Seasons property in Kuala Lumpur, and in anticipation of reaching an agreement
with the owner of The Regent hotel in that city to transition out of our
management of that hotel, we wrote off our investment in The Regent Kuala Lumpur
management contract of $4.6 million during the quarter, representing the
unamortized portion of the amount allocated to the management contract for that
property in 1992.
INCOME TAX EXPENSE
For the three months ended September 30, 2005, we had an income tax expense of
$0.7 million, as compared to income tax expense of $2.5 million for the same
period in 2004. The variation from our expected 24% tax rate is the result of
certain items included in other expense, net, not being tax effected (including
a portion of our foreign exchange losses).
NET LOSS AND LOSS PER SHARE
For the reasons outlined above, net loss for the quarter ended September 30,
2005 was $11.4 million ($0.31 basic and diluted loss per share), as compared to
net loss of $8.5 million ($0.24 basic and diluted loss per share) for the
quarter ended September 30, 2004.
OTHER
RETIREMENT BENEFIT PLAN
As disclosed in our second quarter of 2005 Management's Discussion and Analysis,
subject to the approval of our Board, we anticipate replacing the "defined
benefit" retirement plan for the majority of the plan participants with a
fully-funded plan based on a "defined contribution" format later this year. Our
upfront cash funding requirements relating to this new arrangement, assuming
exchange rates remain at current levels, is expected to remain within the $35
million to $40 million range reported in the second quarter. If a new plan is
implemented this year on the basis of the structure currently proposed, we have
estimated that the transition would result in a one-time after tax accounting
charge in the range of $22 million to $26 million. We do not
9
expect that the proposed change in plans will have a significant impact on our
ongoing annual pension cost. The new plan should, however, increase the
certainty and predictability of the costs and nature of the retirement benefits.
Assuming the defined contribution plan is implemented in the fourth quarter of
2005, we expect incentive management fees for 2005 would be reduced by
approximately $1 million.
LOOKING AHEAD
Assuming the travel trends that we experienced in the first nine months of 2005
continue, and based on current demand reflected in our reservation activity, we
expect RevPAR for worldwide Core Hotels in the fourth quarter of 2005 and the
full year 2005 to increase by approximately 5% and approximately 11%,
respectively, as compared to the corresponding periods in 2004. Our RevPAR
statistics are for Core Hotels and are expressed on a US dollar basis. As a
result of the US dollar being relatively stronger in particular to the Euro and
pound sterling to date in the fourth quarter of 2005, our RevPAR expectations
for the Core Hotels in Europe may be exceeded on a local currency basis. The
fourth quarter outlook also reflects a flat RevPAR in Asia/Pacific, primarily as
a result of a significant decline in demand in Bali following the recent
terrorist activities in that market. If current trends continue, we expect gross
operating margins of our worldwide Core Hotels to increase approximately 200
basis points for the full year, reflecting modest gross operating margin
improvement in the fourth quarter as a result of the factors noted above. Based
on these RevPAR and gross operating margin assumptions, and assuming no
significant change to the US/Canadian dollar exchange rates, we expect earnings
from operations before other operating items to be in the range of $55 million
to $60 million for the full year of 2005.
- -----------------------
1. RevPAR is defined as average room revenue per available room. It is a
non-GAAP measure. 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 2005 and 2004. 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 2004/2003
Core Hotels are the additions of Four Seasons Resort Jackson Hole, Four
Seasons Hotel Miami, Four Seasons Resort Great Exuma at Emerald Bay, Four
Seasons Hotel Prague, Four Seasons Hotel Riyadh and Four Seasons Hotel
Jakarta, and the deletions of Four Seasons Resort Maldives at Kuda Huraa
(due to its temporary closure caused by the tsunami) and The Pierre in New
York (due to its disposition on June 30, 2005).
3. Gross operating margin represents gross operating profit as a percentage of
gross operating revenue.
4. Included in ownership operations and corporate expenses are the
consolidated revenues and expenses from our 100% leasehold interests in
Four Seasons Hotel Vancouver, The Pierre in New York (until the lease
disposition on June 30, 2005), and Four Seasons Hotel Berlin (until the
lease termination on September 26, 2004), distributions from other
ownership interests in properties that Four Seasons manages. Also included
are corporate overhead expenses.
10
5. Effective January 1, 2004, we ceased designating our US dollar foreign
exchange forward contracts as hedges of our US dollar fee revenues. These
contracts were entered into during 2002, and all of these contracts matured
during 2004. The foreign exchange gains on these contracts of $11.2
million, which were deferred prior to January 1, 2004, were recognized in
2004 as an increase of fee revenues over the course of the year.
6. Other fees include royalty and management fees from our residential
business, fees we earn during the development of our hotels and other
miscellaneous fees.
7. Reimbursed costs includes the reimbursement of all out-of-pocket costs,
including sales and marketing and advertising fees.
8. The management operations profit margin represents management operations
earnings before other operating items, as a percentage of management
operations revenue.
* * *
The financial statements are prepared in accordance with Canadian generally
accepted accounting principles.
* * *
We will hold a conference call today at 11 a.m. (Eastern Standard Time) to
discuss the third quarter financial results. The details are:
To access the call dial: 1 (800) 377-5794 (U.S.A. and Canada)
1 (416) 641-6700 (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 21264891.
A live web cast will also be available by visiting
http://www.fourseasons.com/investor. This web cast will be archived for one
month following the call.
* * *
11
This news release contains "forward-looking statements" within the meaning of
applicable securities laws, including RevPAR, profit margin and earnings 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. These statements are not guarantees
of future performance and are subject to numerous risks and uncertainties,
including those described in our annual information form, our Management's
Discussion and Analysis for this quarter and in this news release. 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, supply and demand changes for
hotel rooms and residential properties, competitive conditions in the lodging
industry, relationships with clients and property owners, currency fluctuations
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 news release 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.
12
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
(UNAUDITED) SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS OF US DOLLARS EXCEPT PER SHARE AMOUNTS) 2005 2004 2005 2004
- ---------------------------------------------------------------------------------------------------------
CONSOLIDATED REVENUES (note 4) $ 52,204 $ 63,259 $ 189,840 $ 91,743
===================================================
MANAGEMENT OPERATIONS
REVENUES:
Fee revenues (note 4(a)) $ 26,372 $ 27,951 $ 87,640 $ 83,860
Reimbursed costs 16,617 13,943 47,219 39,892
--------------------------------------------------
42,989 41,894 134,859 123,752
--------------------------------------------------
EXPENSES:
General and administrative expenses (10,445) (7,856) (29,638) (24,536)
Reimbursed costs (16,617) (13,943) (47,219) (39,892)
--------------------------------------------------
(27,062) (21,799) (76,857) (64,428)
--------------------------------------------------
15,927 20,095 58,002 59,324
--------------------------------------------------
OWNERSHIP OPERATIONS
AND CORPORATE EXPENSES
REVENUES 9,749 22,383 57,838 70,821
DISTRIBUTIONS FROM HOTEL INVESTMENTS -- -- 132 293
EXPENSES:
Cost of sales and expenses (8,253) (23,451) (57,247) (73,535)
Corporate expenses (4,588) (2,772) (10,494) (7,978)
Fees to Management Operations (534) (1,018) (2,989) (3,123)
-------------------------------------------------
(3,626) (4,858) (12,760) (13,522)
-------------------------------------------------
EARNINGS BEFORE OTHER OPERATING ITEMS 12,301 15,237 45,242 45,802
DEPRECIATION AND AMORTIZATION (2,575) (3,102) (8,512) (8,517)
OTHER EXPENSE, NET (notes 4(a) and 5) (21,064) (18,089) (32,419) (17,026)
-------------------------------------------------
EARNINGS (LOSS) FROM OPERATIONS (11,338) (5,954) 4,311 20,259
INTEREST INCOME (EXPENSE), NET 616 (102) 1,826 1,259
-------------------------------------------------
EARNINGS (LOSS) BEFORE INCOME TAXES (10,722) (6,056) 6,137 21,518
-------------------------------------------------
INCOME TAX RECOVERY (EXPENSE):
Current 2,925 364 (389) (4,966)
Future (note 5(b)) (3,644) (2,830) 3,799 (3,611)
-------------------------------------------------
(719) (2,466) 3,410 (8,577)
-------------------------------------------------
NET EARNINGS (LOSS) $ (11,441) $ (8,522) $ 9,547 $ 12,941
==================================================
BASIC EARNINGS (LOSS) PER SHARE (note 3(a)) $ (0.31) $ (0.24) $ 0.26 $ 0.36
==================================================
DILUTED EARNINGS (LOSS) PER SHARE (note 3(a)) $ (0.31) $ (0.24) $ 0.25 $ 0.35
==================================================
See accompanying notes to consolidated financial statements.
13
FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
AS AT As at
(UNAUDITED) SEPTEMBER 30, December 31,
(IN THOUSANDS OF US DOLLARS) 2005 2004
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 221,472 $ 226,377
Receivables 82,742 81,541
Inventory 708 1,439
Prepaid expenses 3,083 2,981
--------------------------
308,005 312,338
LONG-TERM RECEIVABLES 195,805 179,060
INVESTMENTS IN HOTEL PARTNERSHIPS AND CORPORATIONS 124,601 131,338
FIXED ASSETS 59,716 59,939
INVESTMENT IN MANAGEMENT CONTRACTS 168,408 181,273
INVESTMENT IN TRADEMARKS AND TRADE NAMES 4,317 4,424
FUTURE INCOME TAX ASSETS 7,953 3,711
OTHER ASSETS 35,657 30,064
--------------------------
$ 904,462 $ 902,147
==========================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 39,528 $ 60,415
Long-term obligations due within one year 3,592 3,766
--------------------------
43,120 64,181
LONG-TERM OBLIGATIONS (note 2) 275,005 253,066
SHAREHOLDERS' EQUITY (note 3):
Capital stock 250,372 248,980
Convertible notes 36,920 36,920
Contributed surplus 9,930 8,088
Retained earnings 200,139 192,129
Equity adjustment from foreign currency translation 88,976 98,783
--------------------------
586,337 584,900
--------------------------
SUBSEQUENT EVENTS (note 9)
$ 904,462 $ 902,147
==========================
See accompanying notes to consolidated financial statements.
14
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH PROVIDED BY OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED
(UNAUDITED) SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS OF US DOLLARS) 2005 2004 2005 2004
- ----------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN) OPERATIONS:
MANAGEMENT OPERATIONS
EARNINGS BEFORE OTHER OPERATING ITEMS $ 15,927 $ 20,095 $ 58,002 $ 59,324
ITEMS NOT REQUIRING AN OUTLAY OF FUNDS 1,173 474 2,262 1,218
----------------------------------------------
WORKING CAPITAL PROVIDED BY
MANAGEMENT OPERATIONS 17,100 20,569 60,264 60,542
----------------------------------------------
OWNERSHIP OPERATIONS
AND CORPORATE EXPENSES
LOSS BEFORE OTHER OPERATING ITEMS (3,626) (4,858) (12,760) (13,522)
ITEMS NOT REQUIRING AN OUTLAY OF FUNDS 296 275 872 652
----------------------------------------------
WORKING CAPITAL USED FOR
OWNERSHIP OPERATIONS AND CORPORATE EXPENSES (3,330) (4,583) (11,888) (12,870)
----------------------------------------------
13,770 15,986 48,376 47,672
INTEREST RECEIVED, NET 1,018 1,987 5,533 6,167
INTEREST PAID ON REDEMPTION OF
CONVERTIBLE NOTES -- (25,840) -- (25,840)
CURRENT INCOME TAX PAID (1,442) (827) (6,897) (2,086)
CHANGE IN NON-CASH WORKING CAPITAL 3,733 (3,888) (10,475) (13,094)
OTHER (24) (219) (153) (757)
----------------------------------------------
CASH PROVIDED BY (USED IN) OPERATIONS $ 17,055 $ (12,801) $ 36,384 $ 12,062
==============================================
See accompanying notes to consolidated financial statements.
15
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED NINE MONTHS ENDED
(UNAUDITED) SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS OF US DOLLARS) 2005 2004 2005 2004
- -------------------------------------------------------------------------------------------------
CASH PROVIDED BY (USED IN):
OPERATIONS: $ 17,055 $ (12,801) $ 36,384 $ 12,062
------------------------------------------------
FINANCING:
Issuance of convertible notes -- -- -- 241,332
Redemption of convertible notes -- (189,670) -- (189,670)
Other long-term obligations including
current portion 278 (28) (1,220) (12)
Issuance of shares 156 5,032 6,992 13,551
Dividends paid (1,584) (1,420) (3,142) (2,811)
------------------------------------------------
CASH PROVIDED BY (USED IN) FINANCING (1,150) (186,086) 2,630 62,390
------------------------------------------------
CAPITAL INVESTMENTS:
Decrease in restricted cash -- 55,204 -- --
Long-term receivables (4,507) 7,317 (19,247) (7,383)
Hotel investments (1,368) (6,181) (10,813) (34,627)
Disposal of hotel investments (note 5(b)) -- 35,977 12,672 35,977
Purchase of fixed assets (4,761) (2,252) (12,821) (4,169)
Investments in trademarks and trade
names and management contracts (202) (1,019) (675) (9,738)
Other assets (1,042) (1,130) (7,902) (2,865)
------------------------------------------------
CASH PROVIDED BY (USED IN) CAPITAL INVESTMENTS (11,880) 87,916 (38,786) (22,805)
------------------------------------------------
INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 4,025 (110,971) 228 51,647
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS DUE TO UNREALIZED FOREIGN
EXCHANGE GAIN (LOSS) (1,189) 2,638 (5,133) 543
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 218,636 292,622 226,377 132,099
------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 221,472 $ 184,289 $ 221,472 $ 184,289
================================================
See accompanying notes to consolidated financial statements.
16
FOUR SEASONS HOTELS INC.
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
NINE MONTHS ENDED
(UNAUDITED) SEPTEMBER 30,
(IN THOUSANDS OF US DOLLARS) 2005 2004
- --------------------------------------------------------------------------
RETAINED EARNINGS, BEGINNING OF PERIOD $ 192,129 $ 169,364
NET EARNINGS 9,547 12,941
DIVIDENDS DECLARED (1,537) (1,367)
-------------------------
RETAINED EARNINGS, END OF PERIOD $ 200,139 $ 180,938
=========================
See accompanying notes to consolidated financial statements.
17
FOUR SEASONS HOTELS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(IN THOUSANDS OF US DOLLARS EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
In these interim consolidated financial statements, the words "we", "us", "our",
and other similar words are references to Four Seasons Hotels Inc. and its
consolidated subsidiaries. These interim consolidated financial statements do
not include all disclosures required by Canadian generally accepted accounting
principles ("GAAP") for annual financial statements and should be read in
conjunction with our most recently prepared annual consolidated financial
statements for the year ended December 31, 2004.
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, 2004, except
as disclosed below:
(a) CHANGE IN REPORTING CURRENCY:
We have historically prepared our consolidated financial statements in
Canadian dollars. Effective for the three months ended March 31, 2005, we
have adopted US dollars as our reporting currency. With the majority of our
management fee revenues in US dollars, reporting in US dollars is expected
to reduce the volatility on reported results relating to the impact of
fluctuations in the rate of exchange between the US and Canadian dollar
relating to these revenues and, as a result, we believe it will provide our
financial statement users with more meaningful information. We have not
changed the functional currency of Four Seasons Hotels Inc., which remains
Canadian dollars, or the functional currencies of any of its subsidiaries.
The consolidated financial statements in Canadian dollars have been
translated to US dollars using the foreign exchange rates applicable at
each balance sheet date for assets and liabilities, and the weighted
average exchange rates of the corresponding quarters for the consolidated
statements of operations, consolidated statements of cash provided by
operations and consolidated statements of cash flows. Equity transactions
have been translated to US dollars at the historical exchange rates with
opening equity accounts on January 1, 2003 translated at the exchange rate
on that date. Any resulting exchange gain or loss was charged or credited
to "Equity adjustment from foreign currency translation" included as a
separate component of shareholders' equity.
(b) VARIABLE INTEREST ENTITIES:
The Canadian Institute of Chartered Accountants ("CICA") issued Accounting
Guideline No. 15, "Consolidation of Variable Interest Entities" ("AcG-15"),
which establishes criteria to identify variable interest entities ("VIE")
and the primary beneficiary of such entities. Entities that qualify as VIEs
must be consolidated by their primary beneficiary. Effective January 1,
2005, we adopted AcG-15 and have concluded that we do not have to
consolidate any interest under AcG-15.
(c) INVESTMENTS IN HOTEL PARTNERSHIPS AND CORPORATIONS:
In conjunction with the issuance of Section 3475, "Disposal of Long-Lived
Assets and Discontinued Operations", the CICA eliminated the exception from
consolidation for a temporary controlled subsidiary. Beginning January 1,
2005, we were required to either equity account or consolidate our
temporary investments in which we have over a 20% equity interest. In March
2005, we sold the majority of our equity interest in Four Seasons Residence
Club Scottsdale at Troon North, and in April 2005, we sold the majority of
our equity interest in Four Seasons Hotel Shanghai (note 5(b)). As a result
of the sales, our equity interests in each property were reduced to less
than 20%. The change in accounting for these temporary investments did
18
not have a material impact on our consolidated financial statements for the
three months and nine months ended September 30, 2005.
(d) DILUTED EARNINGS PER SHARE:
In June 2005, the Emerging Issues Committee of the CICA issued Abstract
EIC-155, "The Effect of Contingently Convertible Instruments on Diluted
Earnings per Share", which requires the application of the "if-converted
method" to account for the potential dilution relating to the conversion of
contingently convertible instruments, such as our convertible senior notes.
EIC-155 will be effective for periods beginning on or after October 1,
2005. If we had adopted EIC-155 for the three months and nine months ended
September 30, 2005, there would have been no additional dilution for either
period.
(e) NON-MONETARY TRANSACTIONS:
In June 2005, the CICA issued Section 3831, "Non-Monetary Transactions",
which introduces new requirements for non-monetary transactions entered
into 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. We are currently evaluating the impact on our 2006 consolidated
financial statements.
2. LONG-TERM OBLIGATIONS:
(a) BANK CREDIT FACILITY:
We have a committed bank credit facility of $125,000, which expires in
September 2007. As at September 30, 2005, no amounts were borrowed under
this credit facility. However, approximately $1,600 of letters of credit
were issued under this credit facility as at September 30, 2005. No amounts
have been drawn under these letters of credit.
(b) CURRENCY AND INTEREST RATE SWAP:
In April 2005, we entered into a currency and interest rate swap agreement
to July 30, 2009, pursuant to which we have agreed to receive interest at a
fixed rate of 5.33% per annum on an initial notional amount of $215,842 and
pay interest at a floating rate of six-month Canadian Bankers Acceptance in
arrears plus 1.1% per annum on an initial notional amount of C$269.2
million. On July 30, 2009, we will pay C$311.8 million and receive $250,000
under the swap. We have designated the swap as a fair value hedge of our
convertible senior notes, which were issued in 2004.
3. SHAREHOLDERS' EQUITY:
As at September 30, 2005, we have 3,725,698 outstanding Variable Multiple Voting
Shares ("VMVS"), 32,913,488 outstanding Limited Voting Shares ("LVS"), and
4,540,843 outstanding stock options (weighted average exercise price of C$59.33
($50.59)).
19
(a) EARNINGS (LOSS) PER SHARE:
A reconciliation of the net earnings (loss) and weighted average number of
VMVS and LVS used to calculate basic and diluted earnings (loss) per share
is as follows:
THREE MONTHS ENDED
SEPTEMBER 30,
2005 2004
- ------------------------------------------------------------------------------------------------------------
NET LOSS SHARES NET LOSS SHARES
- ------------------------------------------------------------------------------------------------------------
Basic and diluted loss per share amounts $ (11,441) 36,638,577 $ (8,522) 35,709,555
============================================================================================================
NINE MONTHS ENDED
SEPTEMBER 30,
2005 2004
- ------------------------------------------------------------------------------------------------------------
NET EARNINGS SHARES NET EARNINGS SHARES
Basic earnings per share amounts $ 9,547 36,624,036 $ 12,941 35,494,738
Effect of assumed dilutive conversions:
Stock option plan -- 1,314,393 -- 1,510,044
- ------------------------------------------------------------------------------------------------------------
Diluted earnings per share amounts $ 9,547 37,938,429 $ 12,941 37,004,782
============================================================================================================
The diluted earnings (loss) per share calculation excluded the effect of
the assumed conversions of 4,540,843 and 693,056 stock options to LVS,
under our stock option plan, during the three months and nine months ended
September 30, 2005, respectively (2004 - 5,331,957 and 1,015,916 stock
options, respectively), as the inclusion of these options would have
resulted in an anti-dilutive effect. As we incurred a net loss for the
three months ended September 30, 2005 and 2004, all outstanding stock
options were excluded from the calculation of diluted loss per share for
these periods. In addition, the dilution relating to the conversion of our
convertible notes (issued in 1999 and subsequently redeemed in September
2004) to 3,463,155 LVS, by application of the "if-converted method", has
been excluded from the calculation for 2004 as the inclusion of this
conversion resulted in an anti-dilutive effect for the three months and
nine months ended September 30, 2004. There was no dilution relating to the
convertible senior notes issued in 2004, as the contingent conversion price
was not reached during the periods.
(b) STOCK-BASED COMPENSATION:
We use the fair value-based method to account for all employee stock
options granted on or after January 1, 2003. Accordingly, options granted
prior to that date continue to be accounted for using the settlement
method.
There were no stock options granted in the three months ended September 30,
2005 and 2004, and in the nine months ended September 30, 2005. The fair
value of stock options granted in the nine months ended September 30, 2004
was estimated using the Black-Scholes option pricing model with the
following assumptions: risk-free interest rates ranging from 2.96% to
4.39%; semi-annual dividend per LVS of C$0.055; volatility factor of the
expected market price of our LVS of 28% to 30%; and expected lives of the
options ranging between four and seven years, depending on the level of the
employee who was granted stock options. For the options granted in the nine
months ended September 30, 2004, the weighted average fair value of the
options at the grant dates was C$25.35 ($19.09). For purposes of stock
option expense and pro forma disclosures, the estimated fair value of the
options are amortized to compensation expense over the options' vesting
period.
20
Pro forma disclosure is required to show the effect of the application of
the fair value-based method to employee stock options granted on or after
January 1, 2002 and not accounted for using the fair value-based method.
For the three months and nine months ended September 30, 2005 and 2004, if
we had applied the fair value-based method to options granted from January
1, 2002 to December 31, 2002, our net earnings (loss) and basic and diluted
earnings (loss) per share would have been adjusted to the pro forma amounts
indicated below:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2005 2004
- -----------------------------------------------------------------------------------------------------
Stock option expense included
in compensation expense $ (486) $ (455) $ (1,494) $ (1,132)
====================================================
Net earnings (loss), as reported $ (11,441) $ (8,522) $ 9,547 $ 12,941
Additional expense that would have been
recorded if all outstanding stock options
granted during 2002 had been expensed (717) (648) (2,089) (1,928)
---------------------------------------------------
Pro forma net earnings (loss) $ (12,158) $ (9,170) $ 7,458 $ 11,013
---------------------------------------------------
Earnings (loss) per share:
Basic, as reported $ (0.31) $ (0.24) $ 0.26 $ 0.36
Basic, pro forma (0.33) (0.26) 0.20 0.31
Diluted, as reported (0.31) (0.24) 0.25 0.35
Diluted, pro forma (0.33) (0.26) 0.20 0.30
---------------------------------------------------
4. CONSOLIDATED REVENUES:
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2005 2004 2005 2004
- ------------------------------------------------------------------------------------------------
Revenues from Management Operations (a) $ 42,989 $ 41,894 $ 134,859 $ 123,752
Revenues from Ownership Operations 9,749 22,383 57,838 70,821
Distributions from hotel investments -- -- 132 293
Fees from Ownership Operations to
Management Operations (534) (1,018) (2,989) (3,123)
--------------------------------------------------
$ 52,204 $ 63,259 $ 189,840 $ 191,743
===================================================
(a) Effective January 1, 2004, we ceased designating our US dollar foreign
exchange forward contracts as hedges of our US dollar fee revenues. These
contracts were entered into during 2002, and all of these contracts matured
during 2004. The foreign exchange gains on these contracts of $11,201,
which were deferred prior to January 1, 2004, were recognized in 2004 as an
increase of fee revenues over the course of the year. During the three
months and nine months ended September 30, 2004, we recognized $2,625 and
$8,143, respectively, of the deferred gain in fee revenues. In addition,
effective January 1, 2004, the US dollar foreign exchange forward contracts
were marked-to-market on a monthly basis with the resulting changes in fair
values being recorded as a foreign exchange gain or loss and was included
in other expense, net. This resulted in a $1,014 foreign exchange gain and
a $106 foreign exchange loss, respectively, for the three months and nine
months ended September 30, 2004. We did not hedge any of our US dollar fee
revenues during the three months and nine months ended September 30, 2005.
21
5. OTHER EXPENSE, NET:
(a) FOREIGN EXCHANGE LOSS:
During the three months and nine months ended September 30, 2005, we
recorded a net foreign exchange loss of $16,172 and $19,854, respectively
(2004 - $3,419 and $2,091, respectively) related 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 foreign exchange gains and losses incurred by our designated
foreign self-sustaining subsidiaries.
(b) OTHER:
When the Regent hotel chain was acquired in 1992, a portion of the purchase
price of that acquisition was allocated to the management contracts that we
assumed, which included 12 Regent branded properties and Four Seasons
properties in New York, Bali and Milan. As a result of our agreement to
manage a new Four Seasons property in Kuala Lumpur, and in anticipation of
reaching an agreement with the owner of The Regent hotel in that city to
transition out of our management of that hotel, we wrote off our investment
in The Regent Kuala Lumpur management contract of $4,617 in the three
months ended September 30, 2005, representing the unamortized portion of
the amount allocated to the management contract for that property in 1992.
On June 30, 2005, we finalized the assignment of our leases and the sale of
the related assets in The Pierre for net proceeds of $4,520. The net book
value of our assets in The Pierre was approximately $7,800 and, after
deducting disposition costs, we recorded a loss on sale of $5,284 during
the nine months ended September 30, 2005. As a result of the sale, we also
recorded a tax benefit of approximately $9,200, which is included in future
income tax recovery.
As part of the sale of The Pierre, in accordance with statutory provisions,
the purchaser agreed to assume a portion of our contribution history with a
multi-employer pension fund for the unionized hotel employees (the "NYC
Pension"). This permitted us to withdraw from the NYC Pension without
incurring a withdrawal liability estimated at $10,700.
If the purchaser withdraws as a result of the lease cancellation by the
landlord in certain circumstances in 2008 or 2011, we have agreed to
indemnify the purchaser for that portion of the withdrawal liability
relating to their assumption of our contribution history. The amount of any
potential future liability resulting from this indemnity is not
determinable at this time as it would be based upon future events related
to the NYC Pension.
If the purchaser withdraws from the NYC Pension prior to 2011 in any
circumstances other than those described above and does not pay its
withdrawal liability, we remain secondarily liable for our withdrawal
liability up to an amount of $10,700. We have been indemnified by the
purchaser for any such liability.
We believe that the likelihood of our being required to make a payment is
remote, and have not recorded any amount as at June 30, 2005 in respect of
a potential NYC Pension withdrawal liability.
In March 2005, we sold the majority of our equity interest in Four Seasons
Residence Club Scottsdale at Troon North for gross proceeds of $5,346,
which approximated book value. As a result of the sale, our equity interest
in the residence club was reduced to approximately 14%. In April 2005, we
sold approximately 53% of our equity interest in Four Seasons Hotel
Shanghai for gross proceeds of $9,500 (cash of $4,241 and a loan receivable
of $5,259), which approximated book value, and reduced our interest in the
hotel to approximately 10%. As a result of the sale, we revalued this US
dollar investment at March 31, 2005 at current exchange rates and recorded
a loss of $1,930, which was included in other expense, net, during the
three months ended March 31, 2005.
22
Included in other expense, net for the three months and nine months ended
September 30, 2004 is the loss on the redemption of the debt component of
our convertible notes (issued in 1999) of $11,174. The redemption of these
convertible notes are more fully described in our consolidated financial
statements for the year ended December 31, 2004.
In addition, during the three months ended September 30, 2004, we sold the
majority of our investment in Four Seasons Hotel Amman and all of our
investment in Four Seasons Resort Whistler for proceeds of approximately
$36,000 and settled our loan receivable from Sedona, resulting in a total
net loss of $3,391.
6. PENSION BENEFIT EXPENSE:
The pension benefit expense, after allocation to managed properties, for the
three months and nine months ended September 30, 2005 was $1,134 and $2,351,
respectively (2004 - $571 and $1,705, 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 totalling a maximum of
$44,600. These contractual obligations and other commitments are more fully
described in our consolidated financial statements for the year ended December
31, 2004. Since December 31, 2004, we have reduced two of our bank guarantees,
reduced two of our other commitments, and extended one new bank guarantee and
two other commitments to two properties under our management, resulting in a net
decrease in guarantees and other commitments of $1,000. In addition, we expect
to fund approximately $28,000 over the next 15 months in connection with an
expansion of our corporate office which is currently underway.
In addition to the guarantees and other commitments described above, we also
have a commitment related to the sale of The Pierre (note 5(b)).
8. SEASONALITY:
Our hotels and resorts are generally affected by normally recurring seasonal
patterns, and demand is usually lower in the period from December through March
than during the remainder of the year for most of our urban properties. However,
December through March is typically a period of relatively strong demand at our
resorts.
As a result, our management operations are generally affected by seasonal
patterns, both in terms of revenues and operating results. Urban hotels
generally experience lower revenues and operating results in the first quarter.
This negative impact on management revenues from those properties is offset to
some degree by increased travel to our resorts in the period.
9. SUBSEQUENT EVENTS:
In August 2005, we finalized an agreement with the owner of Four Seasons Hotel
Newport Beach pursuant to which, effective October 31, 2005, the owner began to
manage this property as an independent hotel. At the time of transition, we
received a payment in an amount that exceeded the net book value of our
investment in the management contract.
In October 2005, we sold our minority equity interests in three properties for
aggregate gross proceeds of $13,591, which approximated our book value. In
addition, we also received repayment of $19,530 of long-term receivables and
accrued interest.
23
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1)
THREE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) 2005 2004 VARIANCE
- --------------------------------------------------------------------------------
WORLDWIDE
No. of Properties 52 52 --
No. of Rooms 13,802 13,802 --
Occupancy(2) 71.1% 67.8% 3.3pts.
ADR(3) - in US dollars $332 $311 7.0%
RevPAR(4) - in US dollars $226 $200 13.2%
Gross operating margin(5) 29.7% 26.8% 2.9pts.
UNITED STATES
No. of Properties 20 20 --
No. of Rooms 6,274 6,274 --
Occupancy(2) 74.9% 69.9% 5.0ptS
ADR(3) - in US dollars $361 $334 8.1%
RevPAR(4) - in US dollars $274 $236 16.0%
Gross operating margin(5) 27.9% 23.8% 4.1pts.
OTHER AMERICAS/CARIBBEAN
No. of Properties 8 8 --
No. of Rooms 1,724 1,724 --
Occupancy(2) 69.1% 65.7% 3.4pts.
ADR(3) - in US dollars $273 $251 8.7%
RevPAR(4) - in US dollars $183 $158 15.4%
Gross operating margin(5) 18.2% 15.6% 2.6pts.
EUROPE
No. of Properties 8 8 --
No. of Rooms 1,492 1,492 --
Occupancy(2) 68.2% 65.1% 3.1pts.
ADR(3) - in US dollars $535 $507 5.5%
RevPAR(4) - in US dollars $381 $350 8.9%
Gross operating margin(5) 37.6% 37.1% 0.5pts.
MIDDLE EAST
No. of Properties 4 4 --
No. of Rooms 847 847 --
Occupancy(2) 66.4% 68.0% (1.6)pts.
ADR(3) - in US dollars $196 $178 10.1%
RevPAR(4) - in US dollars $128 $120 7.2%
Gross operating margin(5) 39.7% 38.5% 1.2pts.
ASIA/PACIFIC
No. of Properties 12 12 --
No. of Rooms 3,465 3,465 --
Occupancy(2) 67.6% 65.9% 1.7pts.
ADR(3) - in US dollars $234 $225 4.3%
RevPAR(4) - in US dollars $119 $110 8.5%
GROSS OPERATING MARGIN(5) 33.1% 30.0% 3.1pts.
- ------------------------------------------
1. The term "Core Hotels" means hotels and resorts under management for the
full year of both 2005 and 2004. 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 2004/2003
Core Hotels are the additions of Four Seasons Resort Jackson Hole, Four
Seasons Hotel Miami, Four Seasons Resort Great Exuma at Emerald Bay, Four
Seasons Hotel Prague, Four Seasons Hotel Riyadh and Four Seasons Hotel
Jakarta, and the deletions of Four Seasons Resort Maldives at Kuda Huraa
(due to its temporary closure caused by the tsunami) and The Pierre in New
York (due to its disposition on June 30, 2005).
2 Occupancy percentage is defined as the total number of rooms occupied
divided by the total number of rooms available.
3 ADR is defined as average daily room rate calculated as straight average
for each region.
4 RevPAR is defined as average room revenue per available room. It is a
non-GAAP measure. We use RevPAR because it is a commonly used indicator of
market performance for hotels and resorts and represents the combination of
the average daily room rate and the average occupancy rate achieved during
the period. RevPAR does not include food and beverage or other ancillary
revenues generated by a hotel or resort. RevPAR is the most commonly used
measure in the lodging industry to measure the period-over-period
performance of comparable properties. Our calculation of RevPAR may be
different than the calculation used by other lodging companies.
5 Gross operating margin represents gross operating profit as a percentage of
gross operating revenue.
24
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1)
NINE MONTHS ENDED
SEPTEMBER 30,
(UNAUDITED) 2005 2004 VARIANCE
- --------------------------------------------------------------------------------
WORLDWIDE
No. of Properties 52 52 --
No. of Rooms 13,802 13,802 --
Occupancy(2) 69.9% 66.0% 3.9pts.
ADR(3) - in US dollars $346 $323 7.1%
RevPAR(4) - in US dollars $227 $201 13.2%
Gross operating margin(5) 30.9% 28.4% 2.5pts.
UNITED STATES
No. of Properties 20 20 --
No. of Rooms 6,274 6,274 --
Occupancy(2) 74.2% 69.5% 4.7pts.
ADR(3) - in US dollars $365 $341 6.8%
RevPAR(4) - in US dollars $269 $236 14.0%
Gross operating margin(5) 28.7% 25.7% 3.0pts.
OTHER AMERICAS/CARIBBEAN
No. of Properties 8 8 --
No. of Rooms 1,724 1,724 --
Occupancy(2) 69.2% 64.5% 4.7pts.
ADR(3) - in US dollars $341 $314 8.4%
RevPAR(4) - in US dollars $225 $192 17.6%
Gross operating margin(5) 29.4% 25.8% 3.6pts.
EUROPE
No. of Properties 8 8 --
No. of Rooms 1,492 1,492 --
Occupancy(2) 64.2% 64.4% (0.2)pts.
ADR(3) - in US dollars $535 $504 6.0%
RevPAR(4) - in US dollars $359 $337 6.4%
Gross operating margin(5) 35.2% 36.0% (0.8)pts.
MIDDLE EAST
No. of Properties 4 4 --
No. of Rooms 847 847 --
Occupancy(2) 69.7% 66.4% 3.3pts.
ADR(3) - in US dollars $212 $184 15.4%
RevPAR(4) - in US dollars $146 $121 20.3%
Gross operating margin(5) 45.3% 39.0% 6.3pts.
ASIA/PACIFIC
No. of Properties 12 12 --
No. of Rooms 3,465 3,465 --
Occupancy(2) 64.9% 61.2% 3.7pts.
ADR(3) - in US dollars $236 $224 5.7%
RevPAR(4) - in US dollars $116 $102 13.4%
GROSS OPERATING MARGIN(5) 31.8% 29.3% 2.5pts.
- ------------------------------------------
1 The term "Core Hotels" means hotels and resorts under management for the
full year of both 2005 and 2004. 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 2004/2003
Core Hotels are the additions of Four Seasons Resort Jackson Hole, Four
Seasons Hotel Miami, Four Seasons Resort Great Exuma at Emerald Bay, Four
Seasons Hotel Prague, Four Seasons Hotel Riyadh and Four Seasons Hotel
Jakarta, and the deletions of Four Seasons Resort Maldives at Kuda Huraa
(due to its temporary closure caused by the tsunami) and The Pierre in New
York (due to its disposition on June 30, 2005).
2 Occupancy percentage is defined as the total number of rooms occupied
divided by the total number of rooms available.
3 ADR is defined as average daily room rate calculated as straight average
for each region.
4 RevPAR is defined as average room revenue per available room. It is a
non-GAAP measure. We use RevPAR because it is a commonly used indicator of
market performance for hotels and resorts and represents the combination of
the average daily room rate and the average occupancy rate achieved during
the period. RevPAR does not include food and beverage or other ancillary
revenues generated by a hotel or resort. RevPAR is the most commonly used
measure in the lodging industry to measure the period-over-period
performance of comparable properties. Our calculation of RevPAR may be
different than the calculation used by other lodging companies.
5 Gross operating margin represents gross operating profit as a percentage of
gross operating revenue.
25
FOUR SEASONS HOTELS INC.
SUMMARY OF HOTEL OPERATING DATA - ALL MANAGED HOTELS
AS AT
SEPTEMBER 30,
(UNAUDITED) 2005 2004 VARIANCE
- --------------------------------------------------------------------------------
WORLDWIDE
No. of Properties 67(1) 63 4
No. of Rooms 17,268(1) 16,378 890
UNITED STATES
No. of Properties 24 24 --
No. of Rooms 7,144 7,109 35
OTHER AMERICAS/CARIBBEAN
No. of Properties 10 10 --
No. of Rooms 2,162 2,162 --
EUROPE
No. of Properties 11 10 1
No. of Rooms 1,919 1,786 133
MIDDLE EAST
No. of Properties 6 5 1
No. of Rooms 1,444 1,212 232
ASIA/PACIFIC
No. of Properties 16 14 2
No. of Rooms 4,599 4,109 490
- ----------------------------------------------
1. Since September 30, 2005, we ceased management of Four Seasons Hotel
Newport Beach, which had 295 rooms and we commenced management of Four
Seasons Hotel des Bergues Geneva, which has 103 rooms. These changes are
not reflected in this table.
FOUR SEASONS HOTELS INC.
REVENUES UNDER MANAGEMENT - ALL MANAGED HOTELS
THREE MONTHS ENDED NINE MONTHS ENDED
(UNAUDITED) SEPTEMBER 30, SEPTEMBER 30,
(IN THOUSANDS OF US DOLLARS) 2005 2004 2005 2004
- --------------------------------------------------------------------------------
REVENUES UNDER MANAGEMENT(1) $ 603,838 $ 534,038 $ 1,883,084 $ 1,636,095
================================================
- ----------------------------
1 Revenues under management consist of rooms, food and beverage, telephone
and other revenues of all the hotels and resorts which we manage.
Approximately 62% of the fee revenues (excluding reimbursed costs) we
earned were calculated as a percentage of the total revenues under
management of all hotels and resorts.
26
FOUR SEASONS HOTELS INC.
SCHEDULED OPENING OF PROPERTIES UNDER CONSTRUCTION OR
IN ADVANCED STAGES OF DEVELOPMENT
HOTEL/RESORT/RESIDENCE CLUB AND LOCATION(1),(2) APPROXIMATE
NUMBER OF ROOMS
SCHEDULED 2005/2006 OPENINGS
Four Seasons Hotel Damascus, Syria 305
Four Seasons Resort Lana'i at Koele, HI, USA(3) 100
Four Seasons Resort Maldives at Landaa Giraavaru, Maldives 100
Four Seasons Hotel Mumbai, India* 235
Four Seasons Residence Club Punta Mita, Mexico 35
Four Seasons Hotel Silicon Valley at East Palo Alto, CA, USA 200
Four Seasons Hotel Westlake Village, California, USA 270
BEYOND 2006
Four Seasons Hotel Alexandria, Egypt* 125
Four Seasons Hotel Bahrain, Bahrain 250
Four Seasons Hotel Baltimore, MD, USA* 200
Four Seasons Hotel Beijing, People's Republic of China 325
Four Seasons Hotel Beirut, Lebanon 235
Four Seasons Resort Bora Bora, French Polynesia 105
Four Seasons Hotel Dubai, UAE* 300
Four Seasons Hotel Florence, Italy 120
Four Seasons Hotel Istanbul at the Bosphorus, Turkey 170
Four Seasons Hotel Kuala Lumpur, Malaysia* 140
Four Seasons Hotel Kuwait City, Kuwait 225
Four Seasons Hotel Marrakech, Morocco* 140
Four Seasons Resort Mauritius, Republic of Mauritius* 90
Four Seasons Hotel Moscow, Russia* 210
Four Seasons Hotel Moscow Kamenny Island, Russia* 80
Four Seasons Hotel New Orleans, LA, USA* 240
Four Seasons Resort Puerto Rico, Puerto Rico* 250
Four Seasons Hotel Seattle, WA, USA* 150
Four Seasons Hotel Toronto, Ontario, Canada* 265
Four Seasons Resort Vail, CO, USA* 120
* Expected to include a residential component.
- ------------------------------------
1 Information concerning hotels, resorts and Residence Clubs under
construction or under development is based upon agreements and letters of
intent and may be subject to change prior to the completion of the project.
The dates of scheduled openings have been estimated by management based
upon information provided by the various developers at the time of this
report. There can be no assurance that the date of scheduled opening will
be achieved or that these projects will be completed. In particular, in the
case where a property is scheduled to open near the end of a year, there is
a greater possibility that the year of opening could be changed. The
process and risks associated with the management of new properties are
dealt with in greater detail in our 2004 Annual Report.
2 We have made an investment in Orlando, in which we expect to include a Four
Seasons Residence Club and/or a Four Seasons branded residential component.
The financing for this project has not yet been completed and therefore a
scheduled opening date cannot be established at this time.
3 The Lodge at Koele is currently managed by Four Seasons and is expected to
be rebranded as Four Seasons Resort Lana'i at Koele in 2006.