FS Four Seasons Hotel

9. The management operations profit margin represents management operations earnings before other operating items, as a percent of management operations revenue. 10. Included in ownership and corporate operations are the consolidated revenues and expenses from our 100% leasehold interests in The Pierre in New York, Four Seasons Hotel Vancouver and Four Seasons Hotel Berlin (until the Berlin lease termination on September 26, 2004), distributions from other ownership interests in properties that Four Seasons manages and corporate overhead expenses related, in part, to these ownership interests. 11. Depreciation and management fees related to The Pierre for the quarters of 2004 and first and second quarters of 2005. --------------------------------------------------------------------- Management Fees, including (In millions of US dollars) Depreciation reimbursed costs --------------------------------------------------------------------- First Quarter 2004 $0.4 $0.5 --------------------------------------------------------------------- Second Quarter 2004 $0.5 $0.9 --------------------------------------------------------------------- Third Quarter 2004 $0.4 $0.5 --------------------------------------------------------------------- Fourth Quarter 2004 $0.5 $1.1 --------------------------------------------------------------------- Full Year 2004 $1.8 $3.0 --------------------------------------------------------------------- First Quarter 2005 $0.5 $0.7 --------------------------------------------------------------------- Second Quarter 2005 $0.4 $1.1 --------------------------------------------------------------------- (+)(+)(+) All dollar amounts referred to in this news release are US dollars unless otherwise noted. The financial statements are prepared in accordance with Canadian generally accepted accounting principles. (+)(+)(+) This news release contains "forward-looking statements" within the meaning of applicable securities laws, including RevPAR, profit margin and 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 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. (+)(+)(+) We will hold a conference call today at 11 a.m. (Eastern Daylight Time) to discuss the second quarter financial results. The details are: To access the call dial: 1 (800) 289-6406 (U.S.A. and Canada) 1 (416) 641-6654 (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 21251495. 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. (+)(+)(+) Dedicated to continuous innovation and the highest standards of hospitality, Four Seasons invented luxury for the modern traveller. From elegant surroundings of the finest quality, to caring, highly personalised 24-hour service, Four Seasons embodies a true home away from home for those who know and appreciate the best. The deeply instilled Four Seasons culture is personified in its employees - people who share a single focus and are inspired to offer great service. Founded in 1960, Four Seasons has followed a targeted course of expansion, opening hotels in major city centers and desirable resort destinations around the world. Currently with 65 hotels in 29 countries, and more than 20 properties under development, Four Seasons will continue to lead luxury hospitality with innovative enhancements, making business travel easier and leisure travel more rewarding. For more information on Four Seasons, visit http://www.fourseasons.com/. FOUR SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In thousands of Three months ended Six months ended US dollars except June 30, June 30, per share amounts) 2005 2004 2005 2004 ------------------------------------------------------------------------- Consolidated revenues (note 4) $ 74,539 $ 71,363 $ 137,636 $ 128,484 --------------------------------------------------- --------------------------------------------------- MANAGEMENT OPERATIONS Revenues: Fee revenues (note 4(a)) $ 32,241 $ 30,582 $ 61,268 $ 55,909 Reimbursed costs 16,058 13,630 30,602 25,949 --------------------------------------------------- 48,299 44,212 91,870 81,858 --------------------------------------------------- Expenses: General and administrative expenses (9,459) (8,442) (19,193) (16,680) Reimbursed costs (16,058) (13,630) (30,602) (25,949) --------------------------------------------------- (25,517) (22,072) (49,795) (42,629) --------------------------------------------------- 22,782 22,140 42,075 39,229 --------------------------------------------------- OWNERSHIP AND CORPORATE OPERATIONS Revenues 27,572 28,106 48,089 48,438 Distributions from hotel investments 132 293 132 293 Expenses: Cost of sales and expenses (28,549) (28,436) (54,900) (55,290) Fees to Management Operations (1,464) (1,248) (2,455) (2,105) --------------------------------------------------- (2,309) (1,285) (9,134) (8,664) --------------------------------------------------- Earnings before other operating items 20,473 20,855 32,941 30,565 Depreciation and amortization (2,908) (2,664) (5,937) (5,415) Other income (expense), net (notes 4(a) and 5) (8,645) (2,216) (11,355) 1,063 --------------------------------------------------- Earnings from operations 8,920 15,975 15,649 26,213 Interest income, net 828 490 1,210 1,361 --------------------------------------------------- Earnings before income taxes 9,748 16,465 16,859 27,574 --------------------------------------------------- Income tax recovery (expense): Current (1,390) (3,214) (3,314) (5,330) Future (note 5) 7,428 (493) 7,443 (781) --------------------------------------------------- 6,038 (3,707) 4,129 (6,111) --------------------------------------------------- Net earnings $ 15,786 $ 12,758 $ 20,988 $ 21,463 --------------------------------------------------- --------------------------------------------------- Basic earnings per share (note 3(a)) $ 0.43 $ 0.36 $ 0.57 $ 0.61 --------------------------------------------------- --------------------------------------------------- Diluted earnings per share (note 3(a)) $ 0.42 $ 0.34 $ 0.55 $ 0.58 --------------------------------------------------- --------------------------------------------------- See accompanying notes to consolidated financial statements. FOUR SEASONS HOTELS INC. CONSOLIDATED BALANCE SHEETS As at As at (Unaudited) June 30, December 31, (In thousands of US dollars) 2005 2004 ------------------------------------------------------------------------- ASSETS Current assets: Cash and cash equivalents $ 218,636 $ 226,377 Receivables 83,660 81,541 Inventory 1,028 1,439 Prepaid expenses 3,935 2,981 ------------------------- 307,259 312,338 Long-term receivables 192,964 179,060 Investments in hotel partnerships and corporations 120,074 131,338 Fixed assets 53,658 59,939 Investment in management contracts 171,652 181,273 Investment in trademarks and trade names 4,241 4,424 Future income tax assets 11,136 3,711 Other assets 34,378 30,064 ------------------------- $ 895,362 $ 902,147 ------------------------- ------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable and accrued liabilities $ 48,544 $ 60,415 Long-term obligations due within one year 3,513 3,766 ------------------------- 52,057 64,181 Long-term obligations (note 2) 257,593 253,066 Shareholders' equity (note 3): Capital stock 250,216 248,980 Convertible notes 36,920 36,920 Contributed surplus 9,095 8,088 Retained earnings 211,580 192,129 Equity adjustment from foreign currency translation 77,901 98,783 ------------------------- 585,712 584,900 ------------------------- Subsequent event (note 9) $ 895,362 $ 902,147 ------------------------- ------------------------- See accompanying notes to consolidated financial statements. FOUR SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF CASH PROVIDED BY OPERATIONS (Unaudited) Three months ended Six months ended (In thousands of June 30, June 30, US dollars) 2005 2004 2005 2004 ------------------------------------------------------------------------- Cash provided by (used in) operations: MANAGEMENT OPERATIONS Earnings before other operating items $ 22,782 $ 22,140 $ 42,075 $ 39,229 Items not requiring an outlay of funds 504 354 1,089 744 --------------------------------------------------- Working capital provided by Management Operations 23,286 22,494 43,164 39,973 --------------------------------------------------- OWNERSHIP AND CORPORATE OPERATIONS Loss before other operating items (2,309) (1,285) (9,134) (8,664) Items not requiring an outlay of funds 300 212 576 377 --------------------------------------------------- Working capital used in Ownership and Corporate Operations (2,009) (1,073) (8,558) (8,287) --------------------------------------------------- 21,277 21,421 34,606 31,686 Interest received, net 2,848 1,349 4,515 4,180 Current income tax paid (2,349) (1,095) (5,455) (1,259) Change in non-cash working capital 2,205 (444) (14,208) (9,206) Other (16) (91) (129) (538) --------------------------------------------------- Cash provided by operations $ 23,965 $ 21,140 $ 19,329 $ 24,863 --------------------------------------------------- --------------------------------------------------- See accompanying notes to consolidated financial statements. FOUR SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Three months ended Six months ended (In thousands of June 30, June 30, US dollars) 2005 2004 2005 2004 ------------------------------------------------------------------------- Cash provided by (used in): Operations: $ 23,965 $ 21,140 $ 19,329 $ 24,863 --------------------------------------------------- Financing: Issuance of convertible notes - 241,332 - 241,332 Other long-term obligations including current portion (1,630) (72) (1,498) 16 Issuance of shares 1,219 5,459 6,836 8,519 Dividends paid - - (1,558) (1,391) --------------------------------------------------- Cash provided by (used in) financing (411) 246,719 3,780 248,476 --------------------------------------------------- Capital investments: Increase in restricted cash - (55,204) - (55,204) Long-term receivables 5,725 (15,365) (14,740) (14,700) Hotel investments (2,265) (27,476) (9,445) (28,446) Disposal of hotel investments (note 5) 7,326 - 12,672 - Purchase of fixed assets (4,453) 1,391 (8,060) (1,917) Investments in trademarks and trade names and management contracts (342) (8,441) (473) (8,719) Other assets (6,809) (893) (6,860) (1,735) --------------------------------------------------- Cash used in capital investments (818) (105,988) (26,906) (110,721) --------------------------------------------------- Increase (decrease) in net cash and cash equivalents 22,736 161,871 (3,797) 162,618 Decrease in net cash and cash equivalents due to unrealized foreign exchange loss (2,264) (2,228) (3,944) (2,095) Cash and cash equivalents, beginning of period 198,164 132,979 226,377 132,099 --------------------------------------------------- Net cash and cash equivalents, end of period $ 218,636 $ 292,622 $ 218,636 $ 292,622 --------------------------------------------------- --------------------------------------------------- Supplemental disclosure of net cash and cash equivalents: Cash and cash equivalents $ 218,636 $ 348,575 $ 218,636 $ 348,575 Less restricted cash - (55,953) - (55,953) --------------------------------------------------- Net cash and cash equivalents $ 218,636 $ 292,622 $ 218,636 $ 292,622 --------------------------------------------------- --------------------------------------------------- See accompanying notes to consolidated financial statements. FOUR SEASONS HOTELS INC. CONSOLIDATED STATEMENTS OF RETAINED EARNINGS Six months ended (Unaudited) June 30, (In thousands of US dollars) 2005 2004 ------------------------------------------------------------------------- Retained earnings, beginning of period $ 192,129 $ 169,364 Net earnings 20,988 21,463 Dividends declared (1,537) (1,367) ------------------------- Retained earnings, end of period $ 211,580 $ 189,460 ------------------------- ------------------------- See accompanying notes to consolidated financial statements. FOUR SEASONS HOTELS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (In thousands of US dollars except per share amounts) ------------------------------------------------------------------------- In these interim consolidated financial statements, the words "we", "us", "our", and other similar words are references to Four Seasons Hotels Inc. and its consolidated subsidiaries. These interim consolidated financial statements do not include all disclosures required by Canadian generally accepted accounting principles ("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 should 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). 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 not have a material impact on our consolidated financial statements for the three months and six months ended June 30, 2005. 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 June 30, 2005, no amounts were borrowed under this credit facility. However, approximately $4,000 of letters of credit were issued under this credit facility as at June 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 June 30, 2005, we have 3,725,698 outstanding Variable Multiple Voting Shares ("VMVS"), 32,909,488 outstanding Limited Voting Shares ("LVS"), and 4,544,843 outstanding stock options (weighted average exercise price of C$59.32 ($48.13)). (a) Earnings per share: A reconciliation of the net earnings and weighted average number of VMVS and LVS used to calculate basic and diluted earnings per share is as follows: Three months ended June 30, 2005 2004 --------------------------------------------------------------------- Net Net earnings Shares earnings Shares --------------------------------------------------------------------- Basic earnings per share amounts $ 15,786 36,624,440 $ 12,758 35,484,874 Effect of assumed dilutive conversions: Stock option plan - 1,325,607 - 1,494,286 Convertible notes (issued in 1999 and redeemed in September 2004) - - 989 3,463,155 --------------------------------------------------------------------- Diluted earnings per share amounts $ 15,786 37,950,047 $ 13,747 40,442,315 --------------------------------------------------------------------- --------------------------------------------------------------------- Six months ended June 30, 2005 2004 --------------------------------------------------------------------- Net Net earnings Shares earnings Shares --------------------------------------------------------------------- Basic earnings per share amounts $ 20,988 36,616,645 $ 21,463 35,386,149 Effect of assumed dilutive conversions: Stock option plan - 1,454,426 - 1,467,988 Convertible notes (issued in 1999 and redeemed in September 2004) - - 1,978 3,463,155 --------------------------------------------------------------------- Diluted earnings per share amounts $ 20,988 38,071,071 $ 23,441 40,317,292 --------------------------------------------------------------------- --------------------------------------------------------------------- The diluted earnings per share calculation excluded the effect of the assumed conversions of 693,056 and 59,000 stock options to LVS, under our stock option plan, during the three months and six months ended June 30, 2005, respectively (2004 - 858,196 and 1,015,916 stock options, respectively), as the inclusion of these conversions would have resulted in an anti-dilutive effect. There was no dilution relating to the convertible senior notes issued in 2004, as the contingent conversion price was not reached during the period. 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 six months ended June 30, 2005, there would have been no additional dilution for either period. (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 and six months ended June 30, 2005. The fair value of stock options granted in the three months and six months ended June 30, 2004 was estimated using the Black-Scholes option pricing model with the following assumptions: risk-free interest rates ranging from 3.86% to 4.39% and 2.96% to 4.39%, respectively; semi-annual dividend per LVS of C$0.055 for both periods; volatility factor of the expected market price of our LVS of 28% and 28% to 30%, respectively; 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 three months and six months ended June 30, 2004, the weighted average fair value of the options at the grant dates was C$24.85 and C$25.35, respectively ($18.29 and $18.94, respectively). 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. 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 six months ended June 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 and basic and diluted earnings per share would have been adjusted to the pro forma amounts indicated below: Three months ended Six months ended June 30, June 30, 2005 2004 2005 2004 --------------------------------------------------------------------- Stock option expense included in compensation expense $ (515) $ (364) $ (1,008) $ (677) ------------------------------------------- ------------------------------------------- Net earnings, as reported $ 15,786 $ 12,758 $ 20,988 $ 21,463 Additional expense that would have been recorded if all outstanding stock options granted during 2002 had been expensed (681) (628) (1,372) (1,280) ------------------------------------------- Pro forma net earnings $ 15,105 $ 12,130 $ 19,616 $ 20,183 ------------------------------------------- Earnings per share: Basic, as reported $ 0.43 $ 0.36 $ 0.57 $ 0.61 Basic, pro forma 0.41 0.34 0.54 0.57 Diluted, as reported 0.42 0.34 0.55 0.58 Diluted, pro forma 0.40 0.32 0.52 0.55 ------------------------------------------- 4. Consolidated revenues: Three months ended Six months ended June 30, June 30, 2005 2004 2005 2004 --------------------------------------------------------------------- Revenues from Management Operations(a) $ 48,299 $ 44,212 $ 91,870 $ 81,858 Revenues from Ownership and Corporate Operations 27,572 28,106 48,089 48,438 Distributions from hotel investments 132 293 132 293 Fees from Ownership and Corporate Operations to Management Operations (1,464) (1,248) (2,455) (2,105) ------------------------------------------- $ 74,539 $ 71,363 $137,636 $128,484 ------------------------------------------- ------------------------------------------- (a) Effective January 1, 2004, we ceased designating our US dollar 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 six months ended June 30, 2004, we recognized $2,798 and $5,518, respectively, of the deferred gain in fee revenues. We did not hedge any of our US dollar fee revenues during the three months and six months ended June 30, 2005. In addition, effective January 1, 2004, the US dollar 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 income (expense), net. This resulted in a $692 and $1,120 foreign exchange loss, respectively, for the three months and six months ended June 30, 2004. 5. Other income (expense), net: Included in other income (expense), net for the three months and six months ended June 30, 2005 is a net foreign exchange loss of $3,289 and $3,682, respectively (2004 - net foreign exchange loss of $2,185 and net foreign exchange gain of $1,328, 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. 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 $5,023. 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 the 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 income (expense), net, during the three months ended March 31, 2005. 6. Pension benefit expense: The pension benefit expense, after allocation to managed properties, for the three months and six months ended June 30, 2005 was $596 and $1,217, respectively (2004 - $559 and $1,134, 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 $47,000. These contractual obligations and other commitments are more fully described in the 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 increase in guarantees and other commitments of $1,900. In addition, we expect to fund approximately $21,000 over the next 18 months in connection with an expansion of our corporate office which is currently underway. 8. Seasonality: Our hotels and resorts are 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 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. Our ownership operations are particularly affected by seasonal fluctuations, with lower revenue, higher operating losses and lower cash flow in the first quarter, as compared to the other quarters. With the disposition of our leasehold interest in The Pierre at the end of the second quarter of 2005 (note 5), we have substantially reduced the exposure to seasonality in our ownership operations. 9. Subsequent event: 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 will begin to manage this property as an independent hotel. At the time of transition, we will receive a payment in an amount that will exceed the net book value of our investment in the management contract. FOUR SEASONS HOTELS INC. SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1) Three months ended June 30, (Unaudited) 2005 2004 Variance ------------------------------------------------------------------------- Worldwide No. of Properties 52 52 -- No. of Rooms 13,802 13,802 -- Occupancy(2) 71.4% 67.5% 3.9pts. ADR(3) - in US dollars $339 $320 5.8% RevPAR(4) - in US dollars $232 $206 12.8% Gross operating margin(5) 33.1% 30.4% 2.7pts. United States No. of Properties 20 20 -- No. of Rooms 6,274 6,274 -- Occupancy(2) 76.3% 71.0% 5.3pts. ADR(3) - in US dollars $350 $331 5.7% RevPAR(4) - in US dollars $271 $239 13.6% Gross operating margin(5) 30.7% 27.8% 2.9pts. Other Americas/Caribbean No. of Properties 8 8 -- No. of Rooms 1,724 1,724 -- Occupancy(2) 73.4% 67.4% 6.0pts. ADR(3) - in US dollars $313 $300 4.4% RevPAR(4) - in US dollars $225 $191 17.6% Gross operating margin(5) 31.1% 26.0% 5.1pts. Europe No. of Properties 8 8 -- No. of Rooms 1,492 1,492 -- Occupancy(2) 69.6% 70.1% (0.5)pts. ADR(3) - in US dollars $560 $538 4.1% RevPAR(4) - in US dollars $402 $385 4.6% Gross operating margin(5) 39.1% 40.9% (1.8)pts. Middle East No. of Properties 4 4 -- No. of Rooms 847 847 -- Occupancy(2) 70.0% 65.4% 4.6pts. ADR(3) - in US dollars $216 $183 18.3% RevPAR(4) - in US dollars $152 $119 28.3% Gross operating margin(5) 47.1% 38.5% 8.6pts. Asia/Pacific No. of Properties 12 12 -- No. of Rooms 3,465 3,465 -- Occupancy(2) 62.8% 60.7% 2.1pts. ADR(3) - in US dollars $230 $216 6.7% RevPAR(4) - in US dollars $113 $99 14.1% Gross operating margin(5) 32.3% 29.2% 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. FOUR SEASONS HOTELS INC. SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1) Six months ended June 30, (Unaudited) 2005 2004 Variance ------------------------------------------------------------------------- Worldwide No. of Properties 52 52 -- No. of Rooms 13,802 13,802 -- Occupancy(2) 69.2% 65.2% 4.0pts. ADR(3) - in US dollars $349 $327 6.9% RevPAR(4) - in US dollars $228 $201 13.2% Gross operating margin(5) 31.5% 29.2% 2.3pts. United States No. of Properties 20 20 -- No. of Rooms 6,274 6,274 -- Occupancy(2) 73.8% 69.2% 4.6pts. ADR(3) - in US dollars $364 $343 6.0% RevPAR(4) - in US dollars $266 $236 13.0% Gross operating margin(5) 29.0% 26.6% 2.4pts. Other Americas/Caribbean No. of Properties 8 8 -- No. of Rooms 1,724 1,724 -- Occupancy(2) 69.2% 63.9% 5.3pts. ADR(3) - in US dollars $364 $338 7.7% RevPAR(4) - in US dollars $247 $208 18.4% Gross operating margin(5) 33.6% 29.7% 3.9pts. Europe No. of Properties 8 8 -- No. of Rooms 1,492 1,492 -- Occupancy(2) 62.2% 64.0% (1.8)pts. ADR(3) - in US dollars $533 $503 6.1% RevPAR(4) - in US dollars $348 $331 5.0% Gross operating margin(5) 34.0% 35.4% (1.4)pts. Middle East No. of Properties 4 4 -- No. of Rooms 847 847 -- Occupancy(2) 71.3% 65.6% 5.7pts. ADR(3) - in US dollars $218 $186 17.2% RevPAR(4) - in US dollars $155 $122 26.9% Gross operating margin(5) 47.5% 39.2% 8.3pts. Asia/Pacific No. of Properties 12 12 -- No. of Rooms 3,465 3,465 -- Occupancy(2) 63.5% 58.8% 4.7pts. ADR(3) - in US dollars $236 $222 6.7% RevPAR(4) - in US dollars $115 $99 16.4% Gross operating margin(5) 31.2% 28.9% 2.3pts. ------------------------------------------------ (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. FOUR SEASONS HOTELS INC. SUMMARY OF HOTEL OPERATING DATA - ALL MANAGED HOTELS As at June 30, (Unaudited) 2005 2004 Variance ------------------------------------------------------------------------- Worldwide No. of Properties 66(1) 63 3 No. of Rooms 16,834(1) 16,217 617 United States No. of Properties 24(1) 24 -- No. of Rooms 7,109(1) 7,109 -- Other Americas/Caribbean No. of Properties 10 10 -- No. of Rooms 2,162 2,162 -- Europe No. of Properties 11 11 -- No. of Rooms 1,919 1,990 (71) Middle East No. of Properties 6 4 2 No. of Rooms 1,444 847 597 Asia/Pacific No. of Properties 15 14 1 No. of Rooms 4,200 4,109 91 ------------------------------------------------ (1) Since June 30, 2005, we ceased management of The Pierre in New York, which had 201 rooms. FOUR SEASONS HOTELS INC. REVENUES UNDER MANAGEMENT - ALL MANAGED HOTELS (Unaudited) Three months ended Six months ended (In thousands of June 30, June 30, US dollars) 2005 2004 2005 2004 ------------------------------------------------------------------------- Revenues under management(1) $ 677,683 $ 571,869 $1,279,246 $1,102,059 --------------------------------------------------- --------------------------------------------------- ------------------ (1) Revenues under management consist of rooms, food and beverage, telephone and other revenues of all the hotels and resorts which we manage. Approximately 66% 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. FOUR SEASONS HOTELS INC. SCHEDULED OPENING OF PROPERTIES UNDER CONSTRUCTION OR IN ADVANCED STAGES OF DEVELOPMENT Hotel/Resort/Residence Club Approximate and Location(1)(2) Number of Rooms Scheduled 2005/2006 openings ---------------------------- Four Seasons Hotel Damascus, Syria 305 Four Seasons Hotel Geneva, Switzerland 100 Four Seasons Hotel Hong Kong, People's Republic of China(x) 395 Four Seasons Resort Lanai at Koele, HI, USA 100 Four Seasons Resort Lanai at Manele Bay, HI, USA 250 Four Seasons Resort Maldives at Landaa Giraavaru, Maldives 100 Four Seasons Hotel Mumbai, India(x) 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(x) 125 Four Seasons Hotel Baltimore, MD, USA(x) 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(x) 300 Four Seasons Hotel Florence, Italy 120 Four Seasons Hotel Istanbul at the Bosphorus, Turkey 170 Four Seasons Hotel Kuwait City, Kuwait 225 Four Seasons Hotel Marrakech, Morocco(x) 140 Four Seasons Hotel Moscow, Russia(x) 210 Four Seasons Hotel Moscow Kamenny Island, Russia(x) 80 Four Seasons Resort Puerto Rico, Puerto Rico(x) 250 Four Seasons Hotel Seattle, WA, USA(x) 150 Four Seasons Hotel Toronto, Ontario, Canada(x) 265 Four Seasons Resort Vail, CO, USA(x) 120 (x) 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. END FIRST AND FINAL ADD DATASOURCE: Four Seasons Hotels and Resorts CONTACT: PRNewswire -- Aug. 11

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