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2012 Four Seasons Annual Report EXPANDING ALTRUISM

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Four Seasons Annual Report

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Page 1: Expanding Altruism

2012 Four Seasons Annual Report

EXPANDING ALTRUISM

Page 2: Expanding Altruism
Page 3: Expanding Altruism

The simple idea that if you treat people well, the way you would like to be treated, they will do the same.”

Expansion of this credo has always, and will always be the

driving force behind what makes The Four Seasons a

successful, global luxury brand.

“It’s the Golden Rule.

-Isadore Sharp(Chairman & Chief Executive Officer)

Page 4: Expanding Altruism

OUR GOALS, OUR BELIEFS,

OUR PRINCIPLES

Who We Are

What We Believe

How We Behave

How We Succeed

We have chosen to specialize within the hospitality industry, by

offering only experiences of exceptional quality. Our objective is to

be recognized as the company that manages the finest hotels, resorts,

residence clubs and other residential projects wherever we locate.

We create properties of enduring value using superior design and

finishes, and support them with a deeply instilled ethic of personal

service. Doing so allows The Four Seasons to satisfy the needs and

tastes of our discriminating customers, and to maintain our position

as the world’s premier luxury hospitality company.

Our greatest asset, and the key to our success, is our people. We believe that each of us needs a sense of dignity, pride and satisfaction in what we do. Because satisfying our guests depends on the united efforts of many, we are most effective when we work together cooperatively, respecting each other’s contribution and importance.

We demonstrate our beliefs most meaningfully in the way we treat each other and by the example we set for one another. In all our interactions with our guests, business associates and colleagues, we seek to deal with others as we would have them deal with us.

We succeed when every decision is based on a clear understanding of and belief in what we do and when we couple this conviction with sound financial planning. We expect to achieve a fair and reasonable profit to ensure the prosperity of the company, and to offer long-term benefits to our hotel owners, our shareholders, our customers and our employees.

“One way to characterize Four Seasons service would be to call it an exchange of mutual respect performed with an attitude of kindness.”

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Financial Highlights

(In Millions)

Revenues under managementEarnings before other operations

Net EarningsBasic Earnings per share

Cash provided by operationsLong-term obligations

Cash and Cash Equivalents

2012

$2,820.7 $139.4 $ 103.1 $ 2.98 $102.6 $ 204.9 $ 218.1

2011

$2,370.2 $97.5 $ 86.5 $ 2.52

$ 106.8 $ 187.1 $ 222.2

2010

$ 2,270.7 $ 88.0 $ 69.7 $ 2.06 $ 75.8

$ 165.0 $ 17.6

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I

IV

II

V

III

VI

TABLE OF CONTENTS

Message to our Shareholders(Letter from CEO)

Management Committee Round Table

Worldwide Locations

Selected Consolidated Financial Information

Business & Growth StrategyCompetitive Strengths

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1960 – 1969

Four Seasons is BornIsadore (Issy) Sharp had no plans to enter the hotel

business on a grand scale when the young architect and

builder working with his contractor father, Max Sharp,

constructed his first hotel. Over the course of this decade,

he opened three Four Seasons hotels. Sharp’s experience

would pave the way for the creation of a new kind of hotel,

one focused solely on the guest.

Page 8: Expanding Altruism

“Ours is a strategy for growth that is based on our fundamental beliefs: that quality has inherent value; that sound business is rooted in trustworthiness;

and that our people have built an unrivalled depth of reliability, trust and connection with our guests – a connection we will steadfastly uphold, now and always.”

In the pages that follow, you will read more about what we believe

was a most successful year for Four Seasons Hotels and Resorts.

It was a year of continued growth in earnings and improvements

in profitability, as net earnings increased by over 24% to over

$86 million. We also opened more hotels in a single year than

ever before in our nearly 40-year history, adding important new

properties in Las Vegas; Punta Mita, Mexico; Scottsdale; Canary

Wharf; and Paris to the Four Seasons portfolio.

But in reflecting on the achievements of 1999, we at Four Seasons

believe that it was much more than another good year. For us, it was

the culmination of a series of successful years, all based on a strategy

that now enables us to set new goals for the future—goals that would

have been inconceivable two decades ago when the essential

elements of our strategy first came together.

Ours is a strategy for growth that is based on our fundamental

beliefs: that quality has inherent value; that sound business is rooted

in trustworthiness; and that most people, when treated fairly,

respond in kind. These core values have guided the key decisions

that shaped our business decisions in the years gone by.

First, we decided to develop only mid-sized hotels of exceptional

quality, which has resulted in our current portfolio of irreplaceable

buildings in irreplaceable locations. Second, we decided to focus

on customer satisfaction, which led us early on to redefine luxury,

not in the form of buildings and decor, but as consistent, intuitive,

personalized service.

This meant giving high priority to the morale of our employees, so

our third major decision was to create and adhere to a set of core

values that determine how we should act toward each other, whether

we be co-workers, business partners, customers or shareholders. In

essence, we committed ourselves to treating all others as we ourselves

would want to be treated. Written credos were common decades

ago, but they usually became quite meaningless. So we didn’t talk

about ours, we lived it and enforced it. Within a few years, we had

a complete managerial consensus on what is now known as the Four

Seasons corporate culture.

The fourth key decision was a low-risk financial strategy, shifting our

focus from investments in hotel ownership to investment in hotel

management, and capitalizing on what is now known as the Four

Seasons brand name. This also meant reallocating our corporate

assets into what were considered at that time to be costly procedures

for hiring, training and motivating our employees, who have always

been and continue to be the custodians of the brand.

Our execution of these strategies has brought us where we are today.

And looking forward, we believe that it is exactly these attributes that

will help us achieve our next goal, which is to be recognized as what

the world calls a “blue chip” company, one of the stellar mainstays

of the international marketplace.

Given our size, such a goal may seem presumptuous, but we believe

that the Four Seasons situation is unique. We view blue chip status

as a position that is defined not by size, but by what a blue chip

company truly represents: a global brand name, a dominant

nized as a “blue chip” company, as a market leader, for all of the

things that such a label represents. We are in the strongest financial

market position and a sustainable competitive advantage. At Four

Seasons, we believe that the key performance drivers—those that

are often most proclaimed to be the priorities and practices that

lead to outstanding business success—are those that we have been

focusing on, expounding upon, and perfecting for the better part of

the last three decades.

Already, wherever we are around the world, our brand commands

a premium price. Dominate our industry sector the best

of the blue chips dominate theirs. And every year brand

recognition rises spreads as the pace of our global market penetra-

tion mounts: past year, five new hotels, over the next three years,

over three times that many, with each new property in each new

location extending the drawing power of the Four Seasons brand

name and reinforcing our competitive advantage.

So as we look to the years ahead, our next goal is to become recog-

nized as a “blue chip” company, as a market leader, for all of the

things that such a label represents. We are in the strongest financial

position in our history, with a growing brand name that stands for

service excellence the world over and a committed work force that

has almost doubled in the past decade, thereby expanding the base

from which the Four Seasons organization can now grow.

We are very optimistic about the future. As a leader in the luxury

segment of the world’s fastest growing industry, we look forward to

capitalizing on the opportunities available to extend the reach of the

Four Seasons brand and experience. We believe that our strong cash

flow position and our proven operational capabilities should help to

ensure that Four Seasons is a candidate for all appropriate luxury

management opportunities, thus allowing us

to successfully expand our portfolio of hotel properties and residen-

tial products around the world. At the same time, we will remain

committed to the values that have brought us where we are today,

with the people who have contributed to this success. As we have

said over the years, it is these people who share our core values and

who are committed to sustaining them, and it is these same people

who are in the best position to ensure the operational and financial

success of Four Seasons as we continue our program of focused

global growth in the years ahead.

I. MESSAGE TO OUR SHAREHOLDERS

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ANTOINE CORINTHIOS

President Hotel Operations, Europe/Middle East/Africa

Chief Financial Officer and Executive Vice

President Residential

Chairman and Chief Executive Officer

JOHN DAVISON

CHRIS HART

President Hotel Operations, Asia Pacific

Executive Vice President Human Resources and

Administration

NICK MUTTON

CHRIS HUNSBERGER

Executive Vice President, Product and Innovation

Executive Vice President Worldwide Development

SCOTT WOROCH

CRAIG REID

President Hotel Operations, Americas

Executive Vice President Marketing

SUSAN HELSTAB

ISADORE SHARP

II. MANAGEMENT COMMITTEE

ROUND TABLE

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1970 – 1979

Focus on LuxuryThe 1970s began with a defining moment – the opening of

a hotel in London, England. This hotel set the tone for the

future direction of the company and pioneered many of the

signature Four Seasons services now delivered worldwide.

Within a few years, the company’s portfolio also included 10

hotels across Canada, and its first US management contracts,

in San Francisco and Chicago. By the close of the decade,

Four Seasons had entered the US market under its own

brand name in Washington, DC.

Page 11: Expanding Altruism

10 Costa Rica11 Dallas 12 Hawaii 13 Houston 14 Jackson Hole15 Las Vegas16 Los Angeles17 Los Angeles (The Regent Beverly Wilshire)18 Maui19 Mexico City

1 Atlanta2 Austin3 Aviara4 Aviara (Resort Club)5 Exuma, Bahamas6 Boston7 Caracas8 Chicago9 Chicago (The Ritz Carlton)

30 San Francisco31 Santa Barbara32 São Paulo33 Scottsdale34 Scottsdale (Resort Club)35 Seattle36 Toronto 37 Vancouver 38 Washington, D.C. 39 Whistler

III. WORLDWIDE LOCATIONS

20 Miami21 Nevis22 New York23 New York (The Pierre)24 Newport Beach25 Palm Beach26 Philadelphia27 Puerto Rico28 Punta Mita, México29 Punta Mita, México (Residence Club)

The Americas

1

21

11

31

2

22

12

32

3

23

13

33

4

24

14

34

5

25

15

35

6

26

16

36

7

27

17

37

8

28

18

38

9

2919

39

10

30

20

Page 12: Expanding Altruism

III. WORLDWIDE LOCATIONS

49 Singapore50 Singapore (The Regent)51 Sydney (The Regent)52 Taipei (The Regent)53 Tokyo

40 Bali at Jimbaran Bay41 Bali at Sayan42 Bangkok (The Regent)43 Chiang Mai (The Regent)4 Hong Kong (The Regent)5 Jakarta (The Regent)46 Kuala Lumpur (The Regent)47 Kuda Huraa48 Shanghai

64 Alexandria65 Amman66 Beirut67 Cairo (First Residence)68 Cairo (Nile Plaza)69 Doha70 Provence 71 Riyadh 72 Sharm el Sheikh 73 Shrestha

54 Berlin55 Budapest56 Dublin57 Istanbul58 Istambul (at the Bosphorous)59 Lisbon60 London61 London, (Canary Wharf)62 Milan63 Paris

Asia/Pacific Europe Middle East

45

21

50

57

49

69

66

62

3

53

51

72

70

73

64

71

52

25

68

60

41

51

67

50

40

45

58

65

42

46

69

38

41

61

47

5659

55

44

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1980 – 1989

Expansion into the USAThe 1980s unveiled flagship hotels in a dozen US cities,

including Philadelphia, Boston, Dallas, Los Angeles and

Chicago. Four Seasons as a distinct brand name was coming

into its own. Divesting less-strategic properties, the company

began to transform itself from a hotel owner-operator into

a management company. It also started to manage hotels in

mixed-use developments – a new concept at the time –

allowing it to extend its expertise into high-quality

residential environments.

Page 14: Expanding Altruism

IV. COMPETITIVE STRENGTHS

Strong Brand Recognition

Four Seasons properties are widely recognized for the quality of

their guest facilities, service and atmosphere, and have been named

more frequently than any other competitor among the world’s best

hotels and travel experiences by Institutional Investor, Condé Nast

Traveler, AAA Five Diamond, Zagat and others. The Corporation

believes that its brand name recognition cannot easily be replicated

by competitors, as it is dependent upon the establishment of a global

chain of unique properties of the highest quality.

Superior Hotel Operating Results

Four Seasons generally achieves average room revenue per available

room (“RevPAR”) and operating profit margins for hotels under its

management above the average achieved in the luxury segment of

the lodging industry. Four Seasons believes that owners of luxury

hotels worldwide are attracted to the Corporation as a result of the

superior financial performance of the hotels under its management.

Global Presence

Hotels currently managed by Four Seasons are located in major

international financial centres, such as London, New York, Paris,

Chicago, Washington, Los Angeles, Tokyo, Milan, Singapore, Hong

Kong, Toronto and Sydney, as well as in emerging international

markets, such as Berlin, Dublin and Mexico City.

In addition, Four Seasons manages resorts in world-class

destinations, such as California, Hawaii, Nevis, Mexico and Bali,

and has Residence Clubs in active sales and operation in California

and Arizona. Four Seasons anticipates that it will continue to expand

in urban and resort destinations where consumer demand warrants

a luxury property. The Corporation maintains a fully integrated

global reservation and sales office system that provides international

sales coverage for the Four Seasons properties.

Management Focus

Four Seasons is principally a global hotel and resort company,

deriving over 90% of its 2011 earnings before other operating items

from its management business. Although Four Seasons will continue

to make loans or investments to secure long-term management

contracts, these investments will generally be minority interests and

will only be made in order to expand or enhance its management

business and where the overall economic return to Four Seasons

justifies the investment.

Management agreements for the hotels and resorts managed by the

Corporation generally are long-term, having an average remaining

term of approximately 57 years for Four Seasons hotels and

approximately 22 years for hotels and resorts operated under the

Regent name, including extension periods available at Four Seasons’

option. These agreements entitle Four Seasons to earn base fees, as

well as a range of fees for pre-opening development, purchasing,

marketing, advertising and reservation services. The Corporation

has the ability to participate in the profits of the hotels under its

management through incentive fees in respect of 47 hotels and

resorts under management.

51

2

19

LuxuryHotels & Resorts

Countries

Residence Clubs

UnderConstruction

23

10

North AmericaAsia/PacificEuropeMiddle East/Caribbean/South America

CORPORATE MANAGEMENT REVENUE

71%

12%

13%

4%

GLOBAL PRESENCE

Page 15: Expanding Altruism

Strong Competitive Position

The Corporation believes that its competitive position is

strengthened by the significant barriers to entry into the luxury

segment of the hotel management business. Those barriers to

entry include the time and significant capital resources required to

establish a well recognized luxury brand name and to obtain

management contracts for luxury properties in strategic markets.

Strategic Relationships

Strategic relationships are an important source of financing for

future development opportunities to expand Four Seasons’

management operations. Four Seasons has established relationships

with numerous institutional and private equity sources that invest in

and develop luxury properties. Several of the existing owners have

an ownership interest in more than one Four Seasons hotel or resort,

including three owners each having an interest in four, five and six

properties, respectively.

In addition, in 1994, a company controlled by His Royal

Highness Prince Alwaleed Bin Talal Bin Abdulaziz Al Saud (“Prince

Alwaleed”) purchased a significant minority position in FSHI. Since

purchasing this interest in FSHI, companies controlled by Prince

Alwaleed (collectively, “Kingdom”) purchased a majority interest in

the Four Seasons Hotel London and purchased the Four Seasons

Hotel George V, Paris, which opened under their management in

late 1999, following an extensive renovation program.

Strong Management Team

Four Seasons’ corporate executive management team consists of

eight individuals who are responsible for the global strategic

direction of the Corporation and who have an average of

approximately 21 years of experience with Four Seasons.

This team is supported by 27 corporate vice presidents, who are

responsible for various aspects of the Corporation’s daily operations,

as well as by 55 general managers and regional vice presidents, who

together have an average of approximately 13 years of experience

with Four Seasons. It is a fundamental strategy of Four Seasons to

develop its senior management team, to the extent possible, from

within in order to ensure consistency of the Corporation’s service

culture and work ethic.

“The Corporation also believes that it developed a unique service culture, depth of management expertise, and multiple capital resources over its nearly 40-year history that would be dif f icult for a competitor to replicate.”

COMPONENTS OF THE MANAGEMENT TEAM

21

1

8

Average years of experience

CorporateExecutive Team

Individuals 55

13

27

General Managers

Average years of experience

Corporate Vice Presidents

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1990 – 1999

Growth Around the WorldAcclaimed as a North American leader in hospitality by the

start of the decade, the Four Seasons brand had arrived.

Anticipating the demand for a new generation of leisure

experiences – offering exceptional service and facilities in

exotic destinations – the company focused on expanding its

portfolio of resorts throughout the 1990s. It also introduced

the Four Seasons experience to a significant number of

destinations in Europe and Asia.

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BUSINESS & GROWTH STRATEGY

The business strategy of Four Seasons is to continue to enhance

its industry position and overall profitability through a focused

international expansion program that capitalizes on the strengths

of its core management operations and the global value of its name.

In 2011, revenue generated by the hotels and resorts managed by

Four Seasons was approximately $2.8 billion. In 2011, the

Corporation’s consolidated revenues from management and

ownership of these properties and Residence Clubs were $347.5

million. From 1996 through 2011, the Corporation increased its

management earnings from $55.7 million to $125.8 million, a

compounded annual growth rate of 22.6%, and the profit margin

in its management operations over this period increased from

\58.8% to 67.9%. The Corporation believes that the strength of

its brand name, its global marketing presence and its operational

expertise result in RevPAR premiums and strong operating

profitability for luxury hotels under its management, providing

Four Seasons with a competitive advantage in obtaining new

management contracts worldwide. RevPAR for Core Hotels6 in

North America during 2000 was US$242, 126% higher than the

RevPAR of the North American luxury segment, as compiled by

Smith Travel Research. RevPAR for Core Hotels in Europe during

1999, the most recent year for which comparable data is available,

was US$221, 109% higher than the RevPAR of the European

luxury segment, as compiled by Horwath International.

The Corporation’s growth strategy is to seek to utilize its

competitive strengths to increase earnings, cash flow, hotel

owners’ returns, and shareholder value by continuing to improve

the operating performance of its existing hotel portfolio, by

generating profitable growth through the acquisition of new

management contracts and by capitalizing on opportunities to

leverage its luxury brand name through compatible business

extensions such as Residence Clubs and other Four Seasons

branded residential products.

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SELECTED CONSOLIDATED

FINANCIAL INFORMATION

Three-Year Review

(In Millions of dollars except per share amounts)

Statements of Operations Data:Consolidated revenues(2) Management Operations:RevenuesManagement earnings before operating items Ownership Operations:Revenues Distribution from hotel investments Ownership earnings before operating itemsEarnings before other operating items Depreciation and amortization Other operating income (expense), net Earnings from operations(3)Interest income (expense), net Earnings before income taxes(4)Income tax expense Net earningsEarnings per share: BasicWeighted average number of shares (millions)(5)

Cash Flow Data:Cash provided by operations Cash provided by (used in) financing Cash used in capital investments

Balance Sheet Data: Cash and cash equivalents Total assets Long-term obligations Shareholders’ equity

Other Data: Total revenues of all managed hotels and resorts(6) Management operating margin(7) Management earnings before other operating itemsas a % of earnings before other operating items EBITDA(8) Market price per share at year-end Shares out-standing (millions)(5)Market capitalization at year-endEmployees (9)

2012

347.5

185.3 125.8

161.1 9.0

13.6 139.4(14.0)

8.7134.0

4.2 138.2(35.1) 103.1

2.98 34.6

102.6 3.6

(112.0)

218.1 984.4 204.9 708.2

2,820.7 67.9%

90.2% 139.4 95.3034.9

3,322.426,800

2011

277.5

144.0$ 89.1

132.4 8.3 8.4

97.5(12.5)

3.688.6 0.4

89.0(2.5) 86.5

2.5234.3

106.8202.5

(102.9)

222.2832.1

187.1 587.7

2,370.261.9%

91.4%97.5

76.8034.5

2,649.125,300

2010

121.0

94.7 55.7

17.6 9.4 8.9

64.6(14.0) 50.6

(18.8) 31.8

(2.0) $29.81.04

28.7 43.7

(45.8) (19.6)

15.4

385.3 240.0 88.1

1,901.5

58.8%86.2%

82.4%64.6

27.75 28.7

797.2 21,000

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Two-Year Summary by Quarter

Annual Information Form

(In Millions of dollarsexcept per share amounts)

Consolidated Revenues

Earnings (Loss) Before Operating Items:Management OperationsOwnership Operations Net Earnings:TotalBasic Earnings Per Share

2012

$104.1

$ 39.1 $ 8.6

$ 38.5 $ 1.11

2012

$ 80.8

$ 29.9 $ 3.4

$ 23.1 $ 0.67

2012

$ 90.6

$ 31.9$ 3.7

$ 27.1 $ 0.78

2012

$72.0

$ 24.8$ (2.1)

$ 14.4$ 0.42

2011

$ 85.8

$ 25.4$ 11.5

$ 33.9$ 0.98

2011

$ 66.0

$ 23.0 $ 1.0

$ 20.3$ 0.60

2011

$ 68.6

$ 21.6$ 0.7

$ 22.2$ 0.64

2011

$ 57.1

$ 19.1$ (4.8)

$ 10.1$ 0.30

4th Quarter 3rd Quarter 2nd Quarter 1st Quarter

1 The data for 2000 reflects the change in accounting policies relating to the accounting for future employee benefits, including pension benefits, and the accounting for income taxes (see note 1(j) to the consolidated financial statements).

2 Consolidated revenues are comprised of revenues from management operations, revenues from ownership operations and distributions from hotel investments, less fees from ownership operations to management operations.

3 Earnings from operations represent earnings before other operating items less (i) depreciation and amortization plus (ii) other operating income less (iii) other operating expense.

4 Earnings before income taxes represent earnings from operations plus (i) interest income less (ii) interest expense.

5 Weighted average number of shares and shares outstanding are comprised of Limited Voting Shares and Variable Multiple Voting Shares.

6 Total revenues of all managed hotels and resorts consist of rooms, food and beverage, telephone and other revenues of all the hotels and resorts which the Corporation manages.

7 Management operating margin is equal to management earnings before other operating items divided by management revenues.

8 EBITDA is equal to net earnings plus (i) income tax expense plus (ii) interest expense less (iii) interest income plus (iv) other operating expense less (v) other operating income plus (vi) de-preciation and amortization. EBITDA is the same as earnings before other operating items. EBITDA is not intended to represent cash flow from operations as defined by generally accepted accounting principles, and such information should not be considered as an alternative to net income, cash flow from operations or any other measure of performance prescribed by gener-ally accepted accounting principles. EBITDA is included herein because management believes that certain investors find it to be a useful tool for measuring the ability to service debt.

9 Four Seasons directly employs and is financially responsible for approximately 350 people at the various corporate offices, the worldwide sales offices and the central reservation offices. In addition, there are approximately 26,400 employees located at the 51 hotels and resorts and two Residence Clubs managed by Four Seasons. All costs relating to property based employees, including wages, salaries and health and insurance benefits, are the responsibility of the property owners and are generally paid out of the operating cash flow of the property.

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2000 – 2012

A Global Luxury BrandAs its fifth decade began, Four Seasons continued to grow

– in both size and recognition – around the world. The

company now welcomed guests to 50 properties, on every

continent except Antarctica. More than ever, Four Seasons

Private Residences, Residence Clubs and other branded

residential offerings were integrated with urban and resort

Four Seasons locations. The strength of the brand had

become a promise of a quality of life.

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