Hotel Online  Special Report

Four Seasons Hotels Reports 36% Decline in 2nd Qtr Profit;
Weak Business Travel Continues at 
City Centre Hotels Within the US 
Hotel Operating Data
TORONTO, Aug. 2, 2002 - Four Seasons Hotels Inc. (TSX Symbol "FSH"; NYSE Symbol "FS") today reported its results for the second quarter ended June 30, 2002. Net earnings decreased 35.7% to $18.1 million ($0.52 basic earnings per share and $0.48 diluted earnings per share) for the three months ended June 30, 2002, as compared to $28.2 million ($0.80 basic earnings per share and $0.72 diluted earnings per share) for the comparable period in 2001.

For the six months ended June 30, 2002, net earnings decreased 42.8% to $25.8 million ($0.74 basic earnings per share and $0.70 diluted earnings per share), as compared to $45.2 million ($1.29 basic earnings per share and $1.17 diluted earnings per share) for the comparable period in 2001.

"Our results, as expected, continue to reflect a slowdown in the lodging industry globally and, more specifically, the continued weakness in corporate travel demand. In this challenging environment we are continuing to follow our established business model and we are doing this profitably. We believe this strategy positions us well for the expected economic recovery and the period leading up to that recovery," said Isadore Sharp, Chairman and Chief Executive Officer. "We are introducing more Four Seasons properties to new key markets, enhancing our ability to attract business to our new and existing properties and continuing to deliver the unparalleled service our customers expect."

OPERATING RESULTS
During the quarter, those markets that are more dependent upon business travel continued to underperform relative to other markets in which the Company operates. In addition, certain of the US city centre hotels experienced reduced Middle Eastern travel demand. However, overall leisure travel demand remained relatively strong, a trend reflected in the RevPAR results of the majority of the Company's resorts, with the exception of the Company's two resorts in Bali, which were affected by reduced travel to Indonesia. Generally business travel within Europe was not as weak as that experienced in the US, and hotels such as Paris and Milan (that typically have a balance of business and leisure travel) realized RevPAR improvements during the second quarter.

"Although certain of the hotels, including Paris and Milan, and the majority of the resorts under Four Seasons management are experiencing strong demand levels, the majority of our city centre hotels, particularly within the US, continue to operate in a challenging environment," said Wolf Hengst, President Worldwide Hotel Operations. "Booking windows have stayed relatively short, making it difficult to forecast demand levels. As a result, we remain cautious in our outlook for the remainder of 2002."

RevPAR(1), on a US dollar basis, for worldwide Core Hotels(2) decreased 5.8% during the second quarter of 2002, as compared to the same period in 2001. This decline was consistent with the Company's expectation of a 4% to 6% decline for the quarter. The RevPAR decline was attributable primarily to lower occupancy levels and a 2.6% decline in average daily room rate during the second quarter of 2002, as compared to the same period in 2001. The decline in average daily room rate was a result of a change in sales mix, with fewer suites and deluxe rooms being sold in the quarter, combined with a greater proportion of negotiated rate volume business. The Company is continuing its strategy of maintaining the high level of product and services it has consistently provided to its customers without compromising room rates within a category. This strategy should allow the Company to maintain its industry-leading service reputation and average daily room rates in the near term and set the stage for improved RevPAR results as demand strengthens and as corporate business travel returns to more normal levels.
Worldwide Core Hotels gross operating margin(3) declined 2.3 percentage points from 36.6% in the second quarter of 2001 to 34.3% in the second quarter of 2002. The decline in gross operating margin was attributable, in part, to the contraction of hotel revenue, but was also influenced by increases in insurance, energy and employee benefit costs.

For the first six months of 2002, RevPAR, on a US dollar basis, for worldwide Core Hotels decreased 8.9% and the gross operating margin declined 2.8 percentage points from 35.6% to 32.8%, as compared to the same period in 2001.

During the second quarter of 2002, RevPAR for US Core Hotels, on a US dollar basis, decreased 7.7% and the gross operating margin declined 2.8 percentage points to 33% from 35.8%, as compared to the same period in 2001. New York and Boston continued to be among the most difficult markets as a result of reduced levels of business travel. For the first six months of 2002, RevPAR for US Core Hotels, on a US dollar basis, decreased 10.2%, and the gross operating margin declined 3.5 percentage points to 30.8% from 34.3%, as compared to the same period in 2001.

In the second quarter of 2002, RevPAR for Canada/Mexico/Caribbean Core Hotels, on a US dollar basis, decreased by 5.4% and the gross operating margin declined 2.2 percentage points from 35.4% to 33.2%, as compared to the same quarter in 2001. For the first six months of 2002, Canada/Mexico/Caribbean Core Hotels experienced a decrease in RevPAR, on a US dollar basis, of 8.5% and the gross operating margin declined 3.4 percentage points from 38.2% to 34.8%, as compared to the same period in 2001.

RevPAR for the Europe/Middle East Core Hotels, on a US dollar basis, was essentially flat and the gross operating margin declined 1 percentage point from 41.4% to 40.4% in the second quarter of 2002, as compared to the same period in 2001. During the quarter there was a divergence of operating performance within the Europe/Middle East Core Hotels. Four Seasons hotels in Paris and Milan both experienced occupancy levels in excess of 80% as a result of strong demand from both leisure and business travelers. Four Seasons hotels in Cairo and Istanbul experienced occupancy declines of over 15% as a result of generally weak travel demand in those markets.

For the six months ended June 30, 2002, RevPAR for the Europe/Middle East Core Hotels, on a US dollar basis, decreased 3.9% and the gross operating margin improved from 38.0% to 38.2%, as compared to the same period in 2001. The Europe/Middle East Core Hotels experienced a decrease in RevPAR of 5.1%, on a local currency basis, for the second quarter of 2002, as compared to the same period in 2001. On a local currency basis, RevPAR for Europe/Middle East Core Hotels decreased 4.7% during the first half of 2002, as compared to the same period in 2001.

For the second quarter of 2002, RevPAR for the Asia/Pacific Core Hotels, on a US dollar basis, decreased 2.2% and the gross operating margin declined 2.1 percentage points from 37.4% to 35.3%, as compared to the second quarter of 2001. The Company's properties under management in Tokyo, Sydney and Bangkok performed well relative to other Four Seasons hotels in the region during the quarter. The hotels and resorts in Singapore and Bali experienced RevPAR declines in excess of 15% as a result of weak travel demand, particularly from the US.

RevPAR for the Asia/Pacific Core Hotels decreased by 7.9%, on a US dollar basis, for the first six months of 2002, as compared to the same period in 2001, and the gross operating margin declined 2.1 percentage points from 37.7% to 35.6%, on a US dollar basis.  The Asia/Pacific Core Hotels experienced a RevPAR decrease of 5.9%, on a local currency basis, during the second quarter of 2002, as compared to the same period in 2001. On a local currency basis, RevPAR for the Asia/Pacific Core Hotels decreased 8% in the first six months of 2002, as compared to the same period in 2001.

The Company's worldwide resort portfolio experienced a US dollar RevPAR decline of 3.3% in the second quarter of 2002, as compared to the same period in 2001. Resort occupancies declined on average by 2.9 occupancy points to 72.4%, while the average daily room rate of US$387 was essentially flat, as compared to the second quarter of 2001. For the six months ended June 30, 2002, the Company's resort portfolio experienced a US dollar RevPAR decline of 4.2%, as compared to the same period in 2001, as occupancies declined on average by 3 percentage points and the average daily room rate was essentially flat at US$424, as compared to the same period in 2001.

MANAGEMENT OPERATIONS
Management fee revenues decreased 18.2% to $39.9 million for the quarter ended June 30, 2002, and decreased 19.6% to $75.9 million for the six months ended June 30, 2002, as compared to the same periods in 2001. As expected, RevPAR declined on a worldwide basis, which reduced profitability of the hotels under management and negatively affected the Company's profit-based incentive fees during the second quarter of 2002, as compared to the second quarter of 2001. 

Incentive fees declined by 35% during the quarter, which represented $3.9 million of the fee decline experienced during the second quarter of 2002. Reduced incentive fees caused by lower profitability of the hotels under management accounted for $6.8 million of the fee decline during the first six months of 2002.

A portion of the decline in fee revenues was caused by the Company ceasing to manage The Regent Hong Kong on June 1, 2001.  During the second quarter of 2001, the fee revenues from The Regent Hong Kong were $926,000. The decline in fee revenues was also attributable, in part, to a reduction in fees received from Four Seasons residential projects. The sales of residential projects were negatively affected by lower demand levels caused by the weakening economic conditions in the United States, although average achieved selling prices of the units increased by 36% in the second quarter of 2002, as compared to the second quarter of 2001.
As a result of these reductions in fee revenues and to increases in general and administrative costs, which were in line with inflation, Four Seasons' management earnings, before other operating items, for the second quarter of 2002 decreased 28.2% to $24 million, as compared to $33.5 million in the second quarter of 2001. Management earnings before other operating items for the six months ended June 30, 2002 were $44.9 million, a 28.8% decrease as compared to $63.1 million for the same period in 2001.

The management operations profit margin (4) for the quarter ended June 30, 2002 declined to 60.1%, as compared to 68.5% for the same period in 2001, and was 59.2% for the six months ended June 30, 2002, as compared to 66.8% for the same period in 2001.  On a full year basis, the Company expects the profit margin on its management business to be comparable to the 59.3% profit margin achieved for the full year of 2001.
 

OWNERSHIP OPERATIONS (5)
Ownership operations losses, before other operating items, were $249,000 in the second quarter of 2002, as compared to earnings of $721,000 in the second quarter of 2001. The weaker economic conditions in New York continued to negatively affect the Company's ownership interest in The Pierre. The Pierre's RevPAR declined by 18.9% during the second quarter of 2002, as compared to the second quarter of 2001, which resulted in a reduction of operating earnings at this hotel.
The Pierre
Fifth Avenue at 61st Street 
New York, New York

Ownership operations losses, before other operating items, for the first six months of 2002 were $8.4 million, as compared to losses of $4.4 million for the comparable period in 2001. The Pierre accounted for a substantial portion of this decline year over year, reflecting the particularly difficult conditions in the New York market.

OTHER INCOME/EXPENSE
Other income, net for the second quarter was $2.8 million compared to $3.4 million for the same period in 2001. The Company realized a net foreign exchange accounting gain in the second quarter of 2002 of $3.6 million, as compared to a $1.5 million loss in the second quarter of 2001. The Company attempts to minimize the impact of fluctuations in foreign currencies through the use of foreign exchange forward contracts. The gain in the second quarter of 2002 was the result of a significant strengthening of various currencies against the Canadian and US dollar, relating primarily to the Company's working capital position and other monetary assets. In light of the unusual volatility in foreign currencies experienced during the quarter, the Company increased the proportion of its working capital and other monetary assets that are hedged.

During the second quarter of 2001 the Company recognized a $4.7 million gain relating to the reversal of provisions in connection with its investment in Four Seasons Hotel Prague, the sale of which closed in the third quarter of 2001.

DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the second quarter of 2002 was $3.6 million and $7.1 million for the six months ended June 30, 2002, as compared to $3.7 million and $7.7 million respectively, for the same periods in 2001. The decrease in depreciation and amortization expense was primarily attributable to a change in the accounting standard relating to goodwill and other intangible assets that became effective January 1, 2002 and is discussed in note 1(a) to the second quarter consolidated financial statements.  This decrease was partially offset by additional depreciation and amortization expense on new management contracts. If the new accounting standard had been in place during the second quarter of 2001, net earnings would have reflected an improvement of $729,000 ($0.03 basic earnings per share or $0.02 diluted earnings per share), as compared to the same period in 2001, due to lower amortization expense. Similarly, for the six month period ended June 30, 2001, net earnings would have reflected an improvement of $1.5 million ($0.05 basic earnings per share or $0.03 diluted earnings per share), as compared to the same period in 2001, as a result of lower amortization expense (see reconciliation in note 1(a) to the second quarter consolidated financial statements).

NET INTEREST INCOME
Net interest income for the quarter ended June 30, 2002 was $956,000, as compared to net interest income of $3.3 million for the same period in 2001, primarily due to lower interest rates earned on short-term cash deposits, offset by reduced interest expense resulting from the redemption of $100 million principal amount of unsecured debentures in November 2001. In addition, higher interest
income was realized in the second quarter of 2001 from interest on receivables relating to the Prague and Scottsdale properties, which were subsequently repaid in 2001.

For the six months ended June 30, 2002, net interest income was $3 million, as compared to net interest income of $4.8 million for the same period in 2001.

INCOME TAX EXPENSE
The Company's effective tax rate in both the second quarter and the first six months ended June 30 of 2002 and the comparable periods in 2001 was 24%.

BALANCE SHEET
A part of the Company's business strategy is to invest a portion of available cash to obtain new management agreements or enhance existing management arrangements. The loans or investments will only be made where the overall economic return to Four Seasons justifies the investment. As a part of its ongoing balance sheet evaluation, the Company has reviewed each investment and has determined that the book value of none of these loans or investments is impaired as at June 30, 2002.

The Company is, however, currently in a dispute with the owner of Four Seasons Hotel Caracas regarding a variety of matters relating to the completion and ongoing operation of the Hotel, including the default on a US$5 million loan owed to the Company that is secured by a second mortgage and that is registered against the hotel. Formal notice of the default has been given to the owner.  The dispute has been referred to arbitration and the Company currently has no reason to believe that its loan is not appropriately secured, provided due process of law is respected. Due to the ongoing financial difficulties of the owner of the Caracas hotel and the resulting working capital deficiencies at the hotel, Four Seasons Hotel Caracas ceased taking guest reservations as at June 12, 2002. The Company is pursuing all available remedies with the objective of protecting its management rights and its loan and allowing the hotel to resume its operations on a sound financial basis. The Company's total balance sheet exposure to the Caracas property is $10.9 million.

Cash and cash equivalents continue to be the single largest asset on the Company's balance sheet. The Company's cash and cash equivalents were $207.3 million as at June 30, 2002, as compared to $210.4 million as at December 31, 2001.

Long-term obligations were $119.4 million as at June 30, 2002 and December 31, 2001. The Company's debt position consists primarily of its zero coupon convertible debt that matures in 2029 and that is redeemable by the Company at any time after September 2004 (the terms and conditions of the convertible notes are more fully described in the Company's 2001 Annual Report).

The Company has investment grade ratings from each of the bond rating agencies that cover the Company. Recently, Moody's confirmed its investment grade rating and changed its outlook for the Company from "negative" to "stable". Moody's has indicated that the improvement in the outlook was due to Four Seasons' rebound from the initial negative impact of the events of September 11th in line with overall industry trends, the reduction in debt levels and Moody's expectation that the Company is unlikely to face any material impairment with respect to its on or off-balance sheet hotel-related receivables or investments.

CASH FLOW
The Company generated $6.2 million of cash from operations in the second quarter of 2002 and $13.9 million during the six months ended June 30, 2002, as compared to $27.6 million and $58.6 million, respectively, for the same periods in 2001. During the quarter, the Company funded $6.8 million in new management opportunities. The Company expects total capital spending and dividends in 2002 to be approximately the same as in 2001 (approximately $73.2 million). During the remainder of 2002, the Company expects to make investments in a number of Four Seasons projects, including Sedona, Jackson Hole, Costa Rica and Sao Paulo.

LEASE AND CONTINGENT COMMITMENTS
As discussed in the Company's 2001 Annual Report, the Company has certain lease and contingent commitments. There has been no material change to these commitments through the first six months of 2002 and the Company does not anticipate any material change in respect of these commitments over the remainder of this fiscal year.

CURRENT OPERATING OUTLOOK
The Company expects that the remainder of the year will continue to be challenging due to the ongoing weakness in corporate travel demand, which continues to negatively affect a number of the Company's key properties. The recent, significant declines and ongoing volatility in global equity markets are also expected to impede the recovery of the global economy and corporate profits generally. The uncertainty regarding the timing and extent of recovery makes it particularly difficult at this time to develop forward-looking information about which one can be confident.

In the current environment, the Company has revised its estimates to reduce the RevPAR and net earnings expectations over the remainder of the year. On a full-year basis, the Company expects its average daily room rates for 2002 to be comparable with both 2000 and 2001.

Based on these revised assumptions, the Company expects fee revenues on a full year basis to be approximately the same as those achieved in 2001, as compared to our initial expectation that fee revenues would increase by 5% in 2002. General and administrative expenses are expected to continue to remain generally unchanged compared to 2001 on a full year basis.  Accordingly, the Company expects that the management operations profit margin for the full year 2002 also will remain comparable to the 2001 profit margin of 59.3%.

The continued weak global economic conditions, combined with delays in the start of construction of the Four Seasons Residence Club Sedona at Seven Canyons, also are expected to result in the fees from the Company's residential business being $7.4 million below the Company's business plan expectations for 2002.
With the weak economic conditions experienced through June 30, 2002 in New York and their impact on The Pierre, the Company expects ownership operations losses for the full year 2002 to be approximately $11.5 million, which is approximately $3 million greater than was anticipated at the beginning of this year.
Accordingly, the Company is revising downwards its expected full year diluted earnings per share guidance to $1.47 to $1.57 from $1.72 to $1.76.

The following table provides updated quarterly earnings guidance for the remainder of 2002: 
                              Change in Worldwide RevPAR        Diluted
                                   versus prior year              Earnings Per Share
    First Quarter (Actual)                (12%)                  $0.21
    Second Quarter (Actual)            (5.8%)                  $0.48
    Third Quarter (Estimate)            2% to 3%             $0.24 - $0.28
    Fourth Quarter (Estimate)          15% to 17%            $0.54 - $0.60
    Full Year of 2002 (Estimate)      flat to (3%)           $1.47 - $1.57

During the quarter, the owner of the Four Seasons Olympic Hotel Seattle began marketing the hotel for sale. The owner is asserting that the hotel can be sold without the Company's management agreement. The Company strongly disagrees with the owner's assertion and does not believe the hotel can be sold unencumbered by the Company's management.

The Regent Hotel Jakarta has been closed since February 2002 as a result of damage from extensive flooding. The timing on the re-opening of the hotel is uncertain pending resolution of discussions with the insurer regarding the expenses relating to the repairs and interruption of business of the hotel.

For the year ended December 31, 2001, the management fees from Four Seasons Olympic Hotel Seattle and The Regent Hotel Jakarta represented less than 2.5% of total fee revenues for that year. For the six months ended June 30, 2002, the management fees from Four Seasons Olympic Hotel Seattle and The Regent Hotel Jakarta represented approximately 1.6% of total fee revenues for that period.

NEW UNIT GROWTH
Four Seasons is continuing to expand its international presence with several new projects. To date in 2002, new Four Seasons properties have opened in Shanghai and Sharm el Sheikh. Later this year, the Company expects to open Four Seasons hotels in Amman, Riyadh and Tokyo at Marunouchi. Looking out over the next 24 months, the Company expects to open new Four Seasons hotels and resorts in Budapest, Hampshire, England, Istanbul at the Bosphorus, Jackson Hole, Exuma and Miami. A full list of the Company's properties under construction or advanced development is provided in a schedule attached to this press release.
"We continue to expect the pace of openings of our hotels and resorts over the next two years to be very strong, and are continuing to have the opportunity to consider a number of very exciting new projects," said Kathleen Taylor, President Worldwide Business Operations. "We continue to see interest in developing and building luxury projects, and our development partners have been able to continue to secure financing in connection with these new hotels."

CONCLUSION
"We believe the recent confirmation by Moody's of Four Seasons investment grade rating and a change of outlook to "stable" from "negative" is consistent with the financial strength of the Company, which combined with our new unit growth program positions Four Seasons extremely well for the ultimate recovery in business conditions internationally," said Douglas Ludwig, Chief Financial Officer
and Executive Vice President.

All dollar amounts referred to in this press release are Canadian dollars unless otherwise noted. The financial statements are prepared in accordance with Canadian generally accepted accounting principles.
 

FOUR SEASONS HOTELS INC.
CONSOLIDATED BALANCE SHEETS
                                                                 As at            As at
    (Unaudited)                                        June 30,  December 31,
    (In thousands of dollars)                            2002        2001

    ASSETS
    Current assets:
      Cash and cash equivalents                     $  207,321    $  210,421
      Receivables                                       85,947        78,450
      Inventory                                          2,679         3,074
      Prepaid expenses                                   4,995         2,492
                                                       300,942       294,437

    Long-term receivables                              207,407       201,453
    Investments in hotel partnerships
     and corporations                                  136,565       141,005
    Fixed assets                                        51,897        50,715
    Investment in management contracts                 202,758       201,460
    Investment in trademarks and trade names
     (note 1(a))                                         6,482        33,784
    Future income tax assets                            14,590        17,745
    Other assets                                        40,867        39,782
                                                    $  961,508    $  980,381
 

    LIABILITIES AND SHAREHOLDERS' EQUITY
    Current liabilities:
      Accounts payable and accrued liabilities      $   36,723    $   50,813
      Long-term obligations due within one year            555         1,188
                                                                         37,278        52,001

    Long-term obligations                              118,875       118,244
    Shareholders' equity (note 2):
      Capital stock                                    324,347       319,460
      Convertible notes                                178,543       178,543
      Contributed surplus                                4,784         4,784
      Retained earnings                                283,275       285,619
      Equity adjustment from foreign
       currency translation                             14,406        21,730
                                                               805,355       810,136

                                                           $  961,508    $  980,381
 

    See accompanying notes to consolidated financial statements.
 

    FOUR SEASONS HOTELS INC.
    CONSOLIDATED STATEMENTS OF OPERATIONS

    (Unaudited)                   Three months ended       Six months ended
    (In thousands of dollars            June 30,               June 30,
     except per share amounts)     2002        2001        2002        2001

    Consolidated revenues
     (note 3)                  $  80,964   $  90,185   $ 145,545   $ 168,968
                              -----------------------------------------------
                              -----------------------------------------------

    MANAGEMENT OPERATIONS
    Revenues (note 4)          $  39,934   $  48,824   $  75,926   $  94,483
    General and
     administrative expenses     (15,925)    (15,373)    (31,009)    (31,414)

                                  24,009      33,451      44,917      63,069

    OWNERSHIP OPERATIONS
    Revenues                      42,214      43,291      71,804      77,546
    Distributions from
     hotel investments               465         225         571         417
    Expenses:
      Cost of sales
       and expenses              (41,279)    (40,640)    (77,974)    (78,917)
      Fees to Management
       Operations                 (1,649)     (2,155)     (2,756)     (3,478)

                                    (249)        721      (8,355)     (4,432)

    Earnings before other
     operating items              23,760      34,172      36,562      58,637
    Depreciation and
     amortization                 (3,639)     (3,728)     (7,144)     (7,667)
    Other income, net              2,765       3,368       1,624       3,640

    Earnings from operations      22,886      33,812      31,042      54,610
    Interest income, net             956       3,268       2,966       4,811

    Earnings before
     income taxes                 23,842      37,080      34,008      59,421

    Income tax expense:
      Current                     (3,007)     (8,298)     (4,387)    (13,009)
      Future                      (2,715)       (601)     (3,775)     (1,252)
                              -----------------------------------------------

                                  (5,722)     (8,899)     (8,162)    (14,261)

    Net earnings               $  18,120   $  28,181   $  25,846   $  45,160
                              -----------------------------------------------
                              -----------------------------------------------

    Basic earnings per share   $    0.52   $    0.80   $    0.74   $    1.29
 

    Diluted earnings per share $    0.48   $    0.72   $    0.70   $    1.17
 

    See accompanying notes to consolidated financial statements.
 

    FOUR SEASONS HOTELS INC.
    CONSOLIDATED STATEMENTS OF CASH PROVIDED BY OPERATIONS
                                  Three months ended       Six months ended
    (Unaudited)                         June 30,               June 30,
    (In thousands of dollars)      2002        2001        2002        2001

    Cash provided by (used in) operations:
    MANAGEMENT OPERATIONS
    Earnings before other
     operating items           $  24,009   $  33,451   $  44,917   $  63,069
    Items not requiring
     an outlay of funds              374         290         744         460

    Working capital
     provided by
     Management Operations        24,383      33,741      45,661      63,529

    OWNERSHIP OPERATIONS
    Earnings (loss) before
     other operating items          (249)        721      (8,355)     (4,432)
    Items not requiring
     an outlay of funds                -           -           -       2,657

    Working capital provided
     by (used in)
     Ownership Operations           (249)        721      (8,355)     (1,775)

                                  24,134      34,462      37,306      61,754

    Interest received              2,746       3,423       8,151      10,736
    Interest paid                   (138)       (140)       (425)     (3,541)
    Current income tax paid       (4,446)     (4,446)     (8,892)     (8,892)
    Change in non-cash
     working capital             (13,258)     (5,373)    (18,251)     (4,312)
    Other                         (2,847)       (373)     (4,011)      2,852
                              -----------------------------------------------

    Cash provided
     by operations             $   6,191   $  27,553   $  13,878   $  58,597
                              -----------------------------------------------
                              -----------------------------------------------

    See accompanying notes to consolidated financial statements.
 

    FOUR SEASONS HOTELS INC.
    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  Three months ended       Six months ended
    (Unaudited)                         June 30,               June 30,
    (In thousands of dollars)      2002        2001        2002        2001

    Cash provided by (used in):
    Operations:                $   6,191   $  27,553   $  13,878   $  58,597
                              -----------------------------------------------

    Financing:
      Long-term obligations
       including
       current portion              (159)       (224)       (799)       (275)
      Issuance of shares             724       1,353       4,887       1,641
      Dividends paid                   -           -      (1,815)     (1,813)

    Cash provided by
     (used in) financing             565       1,129       2,273        (447)

    Capital investments:
      Long-term receivables       (7,543)     (6,641)     (8,151)    (28,589)
      Hotel investments           (1,100)     (3,017)     (1,682)     (5,059)
      Disposal of hotel
       investments                 5,455           -       5,455      18,425
      Purchase of fixed assets    (2,740)     (1,934)     (5,730)     (3,894)
      Investments in trademarks
       and trade names and
       management contracts       (1,809)       (746)     (2,199)     (7,356)
      Other assets                (2,407)     (1,581)     (6,093)     (2,415)

    Cash used in capital
     investments                 (10,144)    (13,919)    (18,400)    (28,888)
                              -----------------------------------------------

    Increase (decrease) in
     cash and cash equivalents    (3,388)     14,763      (2,249)     29,262
    Decrease in cash due to
     unrealized foreign
     exchange loss                (1,017)     (2,678)       (851)     (1,663)
    Cash and cash equivalents,
     beginning of period         211,726     233,614     210,421     218,100

    Cash and cash equivalents,
     end of period             $ 207,321   $ 245,699   $ 207,321   $ 245,699
                              -----------------------------------------------
                              -----------------------------------------------

    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 dollars)                            2002         2001
 

    Retained earnings, beginning of period          $  285,619    $  202,760
    Effect of adoption of new standard on
     accounting for intangible assets (note 1(a))      (26,366)            -

                                                       259,253       202,760

    Net earnings                                        25,846        45,160
    Dividends declared                                  (1,824)       (1,812)

    Retained earnings, end of period                $  283,275    $  246,108
 

    See accompanying notes to consolidated financial statements.
 

    FOUR SEASONS HOTELS INC.
    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
    (Unaudited)
    (In thousands of dollars except per share amounts)

    These interim consolidated financial statements do not include all
    disclosures required by Canadian generally accepted accounting principles
    for annual financial statements and should be read in conjunction with
    the Company's annual consolidated financial statements for the year ended
    December 31, 2001.

    1. Significant accounting policies:

       The significant accounting policies used in preparing these interim
       consolidated financial statements are consistent with those used in
       preparing the Company's annual consolidated financial statements for
       the year ended December 31, 2001, except as disclosed below:

       (a) Intangible assets

           Effective January 1, 2002, the Company adopted the new accounting
           standard for goodwill and other intangible assets as established
           by the Canadian Institute of Chartered Accountants ("CICA")
           without restatement of prior periods. Intangible assets with
           indefinite useful lives are no longer amortized but are subject to
           impairment tests on at least an annual basis. Potential impairment
           of an intangible asset is determined by comparing the asset's
           carrying value to its fair value. Any loss resulting from
           impairment tests effective January 1, 2002 must be recognized as a
           charge to opening retained earnings. Impairment arising subsequent
           to January 1, 2002 will be recognized as a charge to income.
           Intangible assets which do not have indefinite lives are amortized
           over their useful lives. These intangible assets are subject to an
           annual impairment test comparing carrying values to net
           recoverable amounts.

           During the first quarter of 2002, in accordance with the new
           accounting standard, the Company completed its review of its
           existing intangible assets. That review determined that its
           investment in the rights to the Regent trade name, which was
           transferred to Carlson Hospitality Worldwide ("Carlson") in 1997
           in exchange for the entitlement to receive payments from Carlson
           based on a percentage of gross royalty revenue of new development
           projects, has an indefinite useful life. As required by the new
           standard, the Company tested this intangible asset for impairment
           as at January 1, 2002 under the new fair value based impairment
           methodology, and determined that its fair value was less than its
           carrying amount. As a result, the Company recorded during the
           first quarter of 2002 a decrease to retained earnings of $26,366,
           a decrease to investment in trademarks and trade names of $27,042
           and an increase to future income tax assets of $676.

           The Company has determined that none of its other intangible
           assets have indefinite lives and accordingly, amortizes such
           intangible assets over their estimated useful lives. Prior to
           2002, the Company amortized its investment in management contracts
           on a straight-line basis over the terms of the contracts to a
           maximum of 40 years. Effective January 1, 2002, as required under
           the new accounting standard, the Company amortizes its investment
           in management contracts over the actual term of the contracts in
           proportion to the benefits received.

           For the three months and six months ended June 30, 2001, had the
           Regent trade name transferred to Carlson not been amortized and
           had the amortization of investment in management contracts been
           adjusted for the change in estimated useful lives, the reported
           net earnings, basic earnings per share and diluted earnings per
           share would be adjusted as follows:

                               Three months ended       Six Months ended
                                 June 30, 2001           June 30, 2001
                                   Basic   Diluted           Basic   Diluted
                                  Earnings Earnings         Earnings Earnings
                           Net      Per      Per     Net       Per     Per
                         Earnings  Share    Share  Earnings   Share   Share

           Reported
            amounts       $28,181   $0.80    $0.72   $45,160   $1.29   $1.17
           Trade name
            amortization
            (net of income
            tax recovery of
            $5 and $10,
            respectively)     190    0.01     0.01       380    0.01    0.01
           Management
            contract
            amortization
            (net of income
            tax recovery of
            $79 and $160,
            respectively)     539    0.02     0.01     1,090    0.04    0.02

           Adjusted
            amounts       $28,910   $0.83    $0.74   $46,630   $1.34   $1.20
 

       (b) Foreign currency translation and hedging relationships

           Effective January 1, 2002, the CICA amended the accounting
           standard for foreign currency translation by eliminating the
           requirement to defer and amortize unrealized translation gains and
           losses on long-term foreign currency denominated monetary items
           with a fixed or determinable life. Due to the hedging
           relationships established by the Company during 2001 relating to
           its long-term receivables, long-term obligations, investments in
           self-sustaining foreign operations and foreign exchange forward
           contracts, the adoption by the Company of the amendment to the
           standard on accounting for foreign currency translation did not
           have an impact on the Company for the six months ended June 30,
           2002.

           In addition, in December 2001, the CICA issued an accounting
           guideline relating to hedging relationships. The guideline
           establishes requirements for the identification, documentation,
           designation and effectiveness of hedging relationships, which will
           be effective for fiscal years beginning on or after July 1, 2002.
           The Company has not yet determined the impact of the
           implementation of this guideline on its 2003 consolidated
           financial statements.

       (c) Stock-based compensation and other stock-based payments

           Effective January 1, 2002, the CICA issued a new standard relating
           to the accounting for stock-based compensation and other stock-
           based payments. The new accounting standard requires the use of a
           fair value based method to account for stock-based payments to non-
           employees, and for employee awards that are direct awards of
           stock, cash or other assets, or are stock appreciation rights that
           call for settlement by the issuance of equity instruments, granted
           on or after January 1, 2002.

           As permitted by the new standard, the Company has opted to
           continue to use its existing policy under which no compensation
           expense is recorded on the grant of stock options to employees.
           Consideration paid by employees on the exercise of stock options
           or the purchase of shares is recorded as capital stock. The new
           accounting standard does, however, require additional disclosures
           for options granted to employees, including disclosure of pro
           forma earnings and pro forma earnings per share as if the fair
           value based accounting method had been used to account for
           employee stock options.

           Accordingly, the compensation element of stock options issued by
           the Company during the first six months of 2002, based on the fair
           value of the options on the date of grant, has been estimated
           using a Black-Scholes option pricing model with the following
           assumptions: risk-free interest rates ranging from 4.29% to 5.20%;
           semi-annual dividend per Limited Voting Shares of $0.055;
           volatility factors of the expected market price of the Company's
           Limited Voting Shares ranging from 47.4% to 49.8%; and expected
           lives of the options ranging between 4 and 7 years, depending on
           the level of the employee who was granted stock options.

           For the three months and six months ended June 30, 2002, assuming
           the Company had accounted for its stock options issued under the
           fair value based method, pro forma net earnings would have been
           $17,905 and $25,624, respectively, pro forma basic earnings per
           share would have been $0.51 and $0.73, respectively, and pro forma
           diluted earnings per share would have been $0.48 and $0.70,
           respectively. In calculating pro forma net earnings and pro forma
           basic and diluted earnings per share, stock options issued prior
           to January 1, 2002 have been excluded from the fair value based
           accounting method.

    2. Shareholders' equity:

       As at June 30, 2002, the Company has outstanding Variable Multiple
       Voting and Limited Voting Shares of 35,162,262 and outstanding stock
       options of 5,728,347 (weighted average exercise price of $52.09). In
       addition, the Company has 655,404 convertible notes outstanding, each
       of which may be converted into 5.284 Limited Voting Shares of the
       Company. The Company, however, has the right to acquire for cash the
       notes that a holder has required to be so converted. Holders also have
       the right to require the Company to purchase all or a portion of their
       notes on September 23, 2004, September 23, 2009 and September 23, 2014
       in consideration for Limited Voting Shares having a fair value equal
       to the issue price plus accrued interest to the date of purchase. The
       Company has the right to acquire for cash all or a portion of the
       notes that a holder has required to be so purchased. Also, on or after
       September 23, 2004, the Company may redeem for cash all or a portion
       of the notes.

    3. Consolidated revenues:

       Consolidated revenues for Four Seasons Hotels Inc. are comprised of
       revenues from Management Operations, revenues from Ownership
       Operations, distributions from hotel investments, less fees from
       Ownership Operations to Management Operations.

    4. Revenues under management:

       Total revenues under management were $752,481 for the three months
       ended June 30, 2002 ($786,649 for the three months ended June 30,
       2001), and $1,438,419 for the six months ended June 30, 2002
       ($1,537,174 for the six months ended June 30, 2001). Total revenues
       under management consist of rooms, food and beverage, telephone and
       other revenues of all the hotels and resorts which the Company
       manages. Approximately 67% of the fee revenues earned by the Company
       were calculated as a percentage of the total revenues under management
       of all hotels and resorts.

    5. Seasonality:

       The Company's hotels and resorts are affected by normally recurring
       seasonal patterns and, for most of the properties, demand is lower in
       December through March than during the remainder of the year. The
       Company's ownership operations are particularly affected by seasonal
       fluctuations, with lower revenue, operating profit and cash flow in
       the first quarter; ownership operations typically incur an operating
       loss in the first quarter of each year. Typically the fourth quarter
       is the strongest quarter for the majority of the hotels.

       Management operations are also seasonal in nature, as fee revenues are
       affected by the seasonality of hotel revenues and operating results.
       Urban hotels generally experience lower revenues and operating results
       in the first quarter which has a negative impact on management
       revenues. However, this negative impact on management revenues
       generally is offset, to some degree, by increased travel to resorts in
       those months and may be offset to a greater extent as the portfolio of
       resort properties managed by the Company increases.

       In 2002, this normal seasonality is also heightened by the ongoing
       impact from the September 11th terrorist attacks, the war on terrorism
       and the weak US economy, which adversely affected the normal decision
       cycle for first and second quarter business travel and meetings and
       leisure travel.
 
 

    FOUR SEASONS HOTELS INC.
    SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1)
                                                   Three months ended
                                                        June 30,
    (Unaudited)                                      2002      2001  Variance

    Worldwide
      No. of Properties                                45        45        -
      No. of Rooms                                 12,575    12,575        -
      Occupancy(2)                                  69.3%     71.7%    (2.4%)
      ADR(3)    - in US dollars                      $293      $301    (2.6%)
                - in equivalent Canadian dollars     $455      $463    (1.7%)
      RevPAR(4) - in US dollars                      $203      $216    (5.8%)
                - in equivalent Canadian dollars     $315      $332    (5.0%)
      Gross operating margin(5)                     34.3%     36.6%    (2.3%)
    United States
      No. of Properties                                22        22        -
      No. of Rooms                                  6,971     6,971        -
      Occupancy(2)                                  72.1%     73.9%    (1.8%)
      ADR(3)    - in US dollars                      $322      $341    (5.4%)
                - in equivalent Canadian dollars     $500      $524    (4.5%)
      RevPAR(4) - in US dollars                      $232      $252    (7.7%)
                - in equivalent Canadian dollars     $360      $387    (6.9%)
      Gross operating margin(5)                     33.0%     35.8%    (2.8%)
    Canada/Mexico/Caribbean
      No. of Properties                                 5         5        -
      No. of Rooms                                  1,341     1,341        -
      Occupancy(2)                                  68.3%     70.8%    (2.5%)
      ADR(3)    - in US dollars                      $252      $257    (1.9%)
                - in equivalent Canadian dollars     $391      $395    (1.0%)
      RevPAR(4) - in US dollars                      $172      $182    (5.4%)
                - in equivalent Canadian dollars     $267      $280    (4.6%)
      Gross operating margin(5)                     33.2%     35.4%    (2.2%)
    Asia/Pacific
      No. of Properties                                10        10        -
      No. of Rooms                                  2,715     2,715        -
      Occupancy(2)                                  64.2%     65.9%    (1.7%)
      ADR(3)    - in US dollars                      $168      $167     0.3%
                - in equivalent Canadian dollars     $261      $257     1.2%
      RevPAR(4) - in US dollars                      $108      $110    (2.2%)
                - in equivalent Canadian dollars     $167      $170    (1.4%)
      Gross operating margin(5)                     35.3%     37.4%    (2.1%)
    Europe/Middle East
      No. of Properties                                 8         8        -
      No. of Rooms                                  1,548     1,548        -
      Occupancy(2)                                  66.5%     72.6%    (6.1%)
      ADR(3)    - in US dollars                      $402      $371     8.3%
                - in equivalent Canadian dollars     $624      $571     9.3%
      RevPAR(4) - in US dollars                      $267      $269    (0.8%)
                - in equivalent Canadian dollars     $415      $414     0.1%
      Gross operating margin(5)                     40.4%     41.4%    (1.0%)

    1  The term "Core Hotels" means hotels and resorts under management for
       the full year of both 2002 and 2001. Changes from the 2001/2000 Core
       Hotels are the additions of Four Seasons Resort Nevis and Four Seasons
       Hotel Cairo at The First Residence, and the deletion of The Regent
       Jakarta (which closed for repairs in February 2002 following damage
       from extensive flooding).
    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 per room occupied.
    4  RevPAR is defined as average room revenue per available room. RevPAR
       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.
    5  Gross operating margin represents gross operating profit as a percent
       of gross operating revenue.
 

    FOUR SEASONS HOTELS INC.
    SUMMARY OF HOTEL OPERATING DATA - CORE HOTELS(1)
                                                    Six months ended
                                                        June 30,
    (Unaudited)                                      2002      2001  Variance

    Worldwide
      No. of Properties                                45        45        -
      No. of Rooms                                 12,575    12,575        -
      Occupancy(2)                                  66.8%     71.3%    (4.5%)
      ADR(3)    - in US dollars                      $294      $302    (2.8%)
                - in equivalent Canadian dollars     $461      $463    (0.3%)
      RevPAR(4) - in US dollars                      $196      $215    (8.9%)
                - in equivalent Canadian dollars     $308      $330    (6.6%)
      Gross operating margin(5)                     32.8%     35.6%    (2.8%)
    United States
      No. of Properties                                22        22        -
      No. of Rooms                                  6,971     6,971        -
      Occupancy(2)                                  69.0%     73.2%    (4.2%)
      ADR(3)    - in US dollars                      $325      $341    (4.7%)
                - in equivalent Canadian dollars     $511      $523    (2.3%)
      RevPAR(4) - in US dollars                      $224      $250   (10.2%)
                - in equivalent Canadian dollars     $352      $383    (7.9%)
      Gross operating margin(5)                     30.8%     34.3%    (3.5%)
    Canada/Mexico/Caribbean
      No. of Properties                                 5         5        -
      No. of Rooms                                  1,341     1,341        -
      Occupancy(2)                                  64.0%     69.5%    (5.5%)
      ADR(3)    - in US dollars                      $286      $288    (0.8%)
                - in equivalent Canadian dollars     $448      $441     1.7%
      RevPAR(4) - in US dollars                      $183      $200    (8.5%)
                - in equivalent Canadian dollars     $287      $306    (6.2%)
      Gross operating margin(5)                     34.8%     38.2%    (3.4%)
    Asia/Pacific
      No. of Properties                                10        10        -
      No. of Rooms                                  2,715     2,715        -
      Occupancy(2)                                  65.0%     69.1%    (4.1%)
      ADR(3)    - in US dollars                      $165      $168    (2.1%)
                - in equivalent Canadian dollars     $259      $258     0.4%
      RevPAR(4) - in US dollars                      $107      $116    (7.9%)
                - in equivalent Canadian dollars     $168      $178    (5.6%)
      Gross operating margin(5)                     35.6%     37.7%    (2.1%)
    Europe/Middle East
      No. of Properties                                 8         8        -
      No. of Rooms                                  1,548     1,548        -
      Occupancy(2)                                  62.9%     68.3%    (5.4%)
      ADR(3)    - in US dollars                      $378      $363     4.2%
                - in equivalent Canadian dollars     $593      $555     6.9%
      RevPAR(4) - in US dollars                      $238      $248    (3.9%)
                - in equivalent Canadian dollars     $374      $379    (1.4%)
      Gross operating margin(5)                     38.2%     38.0%     0.2%

    1  The term "Core Hotels" means hotels and resorts under management for
       the full year of both 2002 and 2001. Changes from the 2001/2000 Core
       Hotels are the additions of Four Seasons Resort Nevis and Four Seasons
       Hotel Cairo at The First Residence, and the deletion of The Regent
       Jakarta (which closed for repairs in February 2002 following damage
       from extensive flooding).
    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 per room occupied.
    4  RevPAR is defined as average room revenue per available room. RevPAR
       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.
    5  Gross operating margin represents gross operating profit as a percent
       of gross operating revenue.
 

    FOUR SEASONS HOTELS INC.
    SUMMARY OF HOTEL OPERATING DATA - ALL MANAGED HOTELS
                                                      As at
                                                     June 30,
    (Unaudited)                                    2002    2001     Variance

    Worldwide
      No. of Properties                              55      50        5
      No. of Rooms                               15,181  14,112    1,069

    United States
      No. of Properties                              23      22        1
      No. of Rooms                                7,248   6,971      277

    Canada/Mexico/Caribbean/South America
      No. of Properties                               8       6        2
      No. of Rooms                                1,762   1,553      209

    Asia/Pacific
      No. of Properties                              13      12        1
      No. of Rooms                                4,062   3,619      443

    Europe/Middle East
      No. of Properties                              11      10        1
      No. of Rooms                                2,109   1,969      140
 
 

    FOUR SEASONS HOTELS INC.
    SCHEDULED OPENING OF HOTELS UNDER CONSTRUCTION OR
    IN ADVANCED STAGES OF DEVELOPMENT

    Hotel/Resort/Residence Club and Location(1)        Approx. No.  Scheduled
                                                         of Rooms    Opening

    Four Seasons Hotel Alexandria, Egypt(x)                    120      2004
    Four Seasons Hotel Amman, Jordan                           195      2002
    Four Seasons Hotel Beirut, Lebanon                         287      2005
    Four Seasons Hotel Budapest, Hungary                       179      2003
    Four Seasons Hotel Nile Plaza, Cairo, Egypt(x)             374      2004
    Four Seasons Resort Costa Rica, Costa Rica(x)              179      2004
    Four Seasons Hotel Doha, Qatar(x)                          235      2004
    Four Seasons Resort Exuma, The Bahamas(x)                  180      2003
    Four Seasons Hotel Florence, Italy                         116      2004
    Four Seasons Hotel Hampshire, England                      134      2003
    Four Seasons Hotel Hong Kong, Hong Kong(x)                 400      2004
    Four Seasons Hotel Istanbul at the Bosphorus, Turkey       170      2004
    Four Seasons Resort Jackson Hole, WY, USA(x)               124      2003
    Four Seasons Hotel Miami, FL, USA(x)                       222      2003
    Four Seasons Hotel Palo Alto, CA, USA                      200      2004
    Four Seasons Resort Provence at Terre Blanche, France(x)   115      2003
    Four Seasons Resort Puerto Rico, Puerto Rico(x)            250      2005
    Four Seasons Residence Club Punta Mita, Mexico(x)           35      2005
    Four Seasons Hotel Riyadh, Saudi Arabia(x)                 234      2002
    Four Seasons Hotel Sao Paulo, Brazil                       125      2003
    Four Seasons Residence Club Sedona at
     Seven Canyons, AZ, USA(x)                                  20      2005
    Four Seasons Hotel Tokyo at Marunouchi, Japan               57      2002
    Four Seasons Resort Whistler, B.C., Canada(x)              271      2004

    (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. The dates of scheduled opening
       have been estimated by management based upon information provided by
       the various developers. There can be no assurance that the date of
       scheduled opening will be achieved or that these projects will be
       completed. The process and risks associated with the management of new
       properties are dealt with in greater detail in the Company's Annual
       Report.

(1) RevPAR is defined as average room revenue per available room. RevPAR
        is a commonly used indicator of market performance for hotels and
        resorts and represents the combination of 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.

    (2) The term "Core Hotels" means hotels and resorts under management for
        the full year of both 2002 and 2001. Changes from the 2001/2000 Core
        Hotels are the additions of Four Seasons Resort Nevis and Four
        Seasons Hotel Cairo at The First Residence, and the deletion of The
        Regent Jakarta (which closed for repairs in February 2002 following
        damage from extensive flooding).

    (3) Gross operating margin represents gross operating profit as a percent
        of gross operating revenue.
    (4) The management operations profit margin represents management earnings, before other operating items, as a percent of management operations revenue.
    (5) Included in ownership operations earnings (losses) are the
        consolidated revenues and expenses from the Company's 100% interest
        in The Pierre in New York, Four Seasons Hotel Vancouver, Four Seasons
        Hotel Berlin, distributions from minority ownership interests in
        properties that Four Seasons manages and corporate overhead expenses.

This press release contains "forward-looking statements" within the meaning of federal securities laws, including RevPAR, profit margin and earning trends; statements concerning the number of lodging properties expected to be added in this and future years; expected investment spending; and similar statements concerning anticipated future events and expectations that are not historical facts. 

With a history spanning four decades and a portfolio that now extends around the world, Four Seasons Hotels and Resorts is the world's leading operator of luxury hotels, currently managing 55 properties in 25 countries.


 
Contact:
Four Seasons Hotels Inc. 
www.fourseasons.com


 
Also See: Four Seasons Hotels Reports 76% Decline in Fourth Quarter Earnings, Company Stress Tested But plans to Add Five New Hotels in 2002 and Seven in 2003 / Feb 2002
Next Goal for Four Seasons - To Be Recognized as a �Blue Chip� Company, a Mainstay of the International Hotel Marketplace / May 2000


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