EXHIBIT 99.2
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 $ 191,743
=====================================================================
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.
1
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.
2
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.
3
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.
4
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.
5
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
6
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)).
7
(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.
8
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.
9
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.
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
10
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.
11