FOURSEASONS HOTELS INC.

FORM 51-102F1MANAGEMENT’SDISCUSSION AND ANALYSIS

March  9,2006

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Table ofContents

|                                                        |  |        |  |  |  |  |
|--------------------------------------------------------|--|--------|--|--|--|--|
| **Businessof FourSeasons**                             |  | **5**  |
| **Objectives**                                         |  | **5**  |
| **OurBusinessModel**                                   |  | **6**  |
| ManagementOperations                                   |  | 6      |
| Ownership Operations(which includes CorporateExpenses) |  | 7      |
| **Overview of2005**                                    |  | **8**  |
| **Operational andFinancial Review andAnalysis**        |  | **10** |
| **Hotel and ResortOperating Results**                  |  | **10** |
| **CompanyOperatingResults**                            |  | **15** |
| ManagementOperations                                   |  | 15     |
| Management OperationsRevenues                          |  | 15     |
| Management OperationsExpenses                          |  | 17     |
| Management OperationsEarnings                          |  | 18     |
| Ownership Operations(which includes CorporateExpenses) |  | 19     |
| OwnershipOperations                                    |  | 19     |
| CorporateExpenses                                      |  | 20     |
| Other Income/Expense,Net                               |  | 20     |
| Net InterestIncome/Expense                             |  | 22     |
| Income TaxRecovery/Expense                             |  | 23     |
| Stock OptionExpense                                    |  | 23     |
| Net Earnings and Earningsper Share                     |  | 23     |
| Adjusted Net Earningsand Adjusted Earnings perShare    |  | 24     |
| **Two-Year Summary byQuarter**                         |  | **24** |
| **Balance SheetReview andAnalysis**                    |  | **25** |
| CorporateStrategy Relating toInvestments               |  | 25     |
| Long-TermReceivables                                   |  | 26     |
| Consolidated HotelOwnership Interests                  |  | 26     |
| Investments inHotel Partnerships andCorporations       |  | 26     |
| Investment inManagement Contracts                      |  | 27     |
| FixedAssets                                            |  | 27     |
| **Liquidity and CapitalResources**                     |  | **28** |
| ContractualObligations                                 |  | 28     |
| ConvertibleNotes                                       |  | 29     |
| **CashFlows**                                          |  | **30** |
| Cash fromOperations                                    |  | 30     |
| FinancingActivities                                    |  | 30     |
| InvestingActivities                                    |  | 30     |
| Long-TermReceivables                                   |  | 30     |
| Investments in HotelPartnerships andCorporations       |  | 31     |
| Investment inManagement Contracts                      |  | 31     |
| FixedAssets                                            |  | 32     |
| Outstanding ShareData                                  |  | 32     |
| **FinancialInstruments**                               |  | **33** |
| ForeignExchange ForwardContracts                       |  | 33     |
| Currency and InterestRate Swap                         |  | 33     |
| Other FinancialInstruments                             |  | 34     |
| Fair Value ofFinancial Instruments                     |  | 34     |
| **Off-BalanceSheetArrangements**                       |  | **34** |
| Guarantees                                             |  | 35     |
| Indemnities                                            |  | 35     |
| DispositionIndemnificationArrangements                 |  | 35     |
| Director and OfficerIndemnification Arrangements       |  | 35     |
|                                                        |

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|                                                                   |  |        |  |  |  |  |
|-------------------------------------------------------------------|--|--------|--|--|--|--|
| Other IndemnificationArrangements                                 |  | 35     |
| **LookingAhead**                                                  |  | **36** |
| NewOpenings                                                       |  | 36     |
| Service                                                           |  | 36     |
| RevPARand Margin Improvements                                     |  | 36     |
| ManagementOperations                                              |  | 36     |
| **Four SeasonsPortfolio**                                         |  | **38** |
| Descriptionof Hotels and Resorts                                  |  | 38     |
| Propertiesunder Construction orDevelopment                        |  | 41     |
| **Three-YearReview**                                              |  | **43** |
| **OperatingRisks**                                                |  | **45** |
| Geopolitical,Economic and Lodging IndustryConditions              |  | 45     |
| Competition                                                       |  | 45     |
| Dependenceon ManagementAgreements                                 |  | 46     |
| Dependence on PropertyOwners                                      |  | 47     |
| Risk Associated withExpansion, Growth and NewConstruction         |  | 47     |
| Investments in andAdvances to Managed and OwnedProperties         |  | 47     |
| Debt RatingRisks                                                  |  | 48     |
| GovernmentRegulation                                              |  | 48     |
| PoliticalRisk                                                     |  | 49     |
| Insurance                                                         |  | 49     |
| LegalProceedings                                                  |  | 49     |
| CurrencyExposure                                                  |  | 49     |
| Seasonality/QuarterlyPredictability                               |  | 50     |
| IntellectualProperty                                              |  | 51     |
| Risks Associated with theFour Seasons Branded ResidentialBusiness |  | 51     |
| Dependence on KeyEmployees                                        |  | 51     |
| **Critical AccountingEstimates**                                  |  | **51** |
| Recoverabilityof Investments                                      |  | 52     |
| FixedAssets                                                       |  | 53     |
| Retirement BenefitPlan                                            |  | 53     |
| IncomeTaxes                                                       |  | 53     |
| **Recent Canadian AccountingStandards Issued but Not YetAdopted** |  | **55** |
| Non-MonetaryTransactions                                          |  | 55     |
| FinancialInstruments                                              |  | 55     |
| **Disclosure Controls andProcedures**                             |  | **55** |
| **AdditionalInformation**                                         |  | **55** |
|                                                                   |

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ForwardLooking Statements

This document contains‘‘forward-looking statements’’ within themeaning of applicable securities laws, including RevPAR, profit marginand earning trends; statements concerning the number of lodgingproperties expected to be added in this and future years; expectedinvestment spending; and similar statements concerning anticipatedfuture events, results, circumstances, performance or expectations thatare not historical facts. Various factors and assumptions were appliedor taken into consideration in arriving at these statements, which donot take into account the effect that non-recurring or other specialitems announced after the statements are made may have on our business.These statements are not guarantees of future performance and,accordingly, you are cautioned not to place undue reliance on thesestatements. These statements are subject to numerous risks anduncertainties, including those described in our annual information formand in this document. (See discussion under ‘‘OperatingRisks’’ on page 45.) Those risks and uncertaintiesinclude adverse factors generally encountered in the lodging industry;the

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risks associated with world events, includingwar, terrorism, international conflicts, natural disasters, extremeweather conditions and infectious diseases; general economicconditions, fluctuations in relative exchange rates of variouscurrencies, supply and demand changes for hotel rooms and residentialproperties, competitive conditions in the lodging industry, the risksassociated with our ability to maintain and renew management agreementsand expand the portfolio of properties that we manage, relationshipswith clients and property owners and the availability of capital tofinance growth. Many of these risks and uncertainties can affect ouractual results and could cause our actual results to differ materiallyfrom those expressed or implied in any forward-looking statement madeby us or on our behalf. All forward-looking statements in this documentare qualified by these cautionary statements. These statements are madeas of the date of this document and, except as required by applicablelaw, we undertake no obligation to publicly update or revise anyforward-looking statement, whether as a result of new information,future events or otherwise. Additionally, we undertake no obligation tocomment on analyses, expectations or statements made by third partiesin respect of Four Seasons, its financial or operating results or itssecurities or any of the properties that we manage or in which we mayhave an interest.

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Effective thefirst quarter of 2005, we have adopted US dollars as our reportingcurrency. All amounts disclosed in this MD&A (including amounts forprior periods) are in US dollars unless otherwise noted. Our financialstatements are prepared in accordance with Canadian generally acceptedaccounting principles.

The consolidated financialstatements in Canadian dollars have been translated to US dollars usingthe foreign exchange rates applicable at each balance sheet date forassets and liabilities, and the weighted average exchange rates of thecorresponding quarters for the consolidated statements of operations,consolidated statements of cash provided by operations and consolidatedstatements of cash flow. Equity transactions have been translated to USdollars at the historical exchange rates for 2005 and 2004 with openingequity accounts on January  1,  2004 translated at theexchange rate on that date. Any resulting exchange gain or loss wascharged or credited to ‘‘Equity adjustment from foreigncurrency translation’’, which is included as a separatecomponent of shareholders’ equity.

We have notchanged the functional currencies of our entities. As a result, whileUS dollar reporting will minimize the currency fluctuations related tothe majority of our US dollar management fee revenues, it will noteliminate foreign currency fluctuations related to our management feesin other currencies or the majority of our management operationsgeneral and administrative expenses, which are incurred in Canadiandollars. It also will not eliminate foreign currency gains and lossesrelated to unhedged net monetary asset and liabilitypositions.

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This Management’sDiscussion and Analysis for the year and three-months endedDecember  31,  2005 is provided as of March9,  2006. It should be read in conjunction with the consolidatedfinancial statements for those periods and the Annual Information Formfor the year ended December  31,  2005.

Businessof Four Seasons

Four Seasons is one of the world’sleading managers of luxury hotels and resorts. We endeavour to offerbusiness and leisure travelers the finest accommodations andexperiences beyond compare in each destination in which weoperate.

Four Seasons has a portfolio of 70 luxury hotel andresort properties (containing approximately 17,300 guest rooms) severalof which include a residential component. These properties are operatedprimarily under the Four Seasons brand name in principal cities andresort destinations in 31 countries in North America, the Caribbean,Europe, Asia, Australia, the Middle East and South America. Inaddition, 27 properties are under construction or development in afurther nine countries around the world. Of these, 18 new propertiesare to include a residential component.

Objectives

Ourcore strategic goal is to be recognized as the **undisputed globalleader in luxury lodging**. Supporting that goal are the followingstrategic objectives:

|  |              |                                                                                            |
|--|--------------|--------------------------------------------------------------------------------------------|
|  | •  | **Create guestexperiences beyond compare**so that we are first choice for luxurytravelers. |

|  |              |                                                                                                                                                          |
|--|--------------|----------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | **Maintain and enhance ourunique culture**based on treating all others — partners,guests and employees — the way we would want to betreated. |

|  |              |                                                                                                                           |
|--|--------------|---------------------------------------------------------------------------------------------------------------------------|
|  | •  | **Provide economic returnsthat are acceptable to our hotel owners**to sustain our portfolioand generate newopportunities. |

|  |              |                                                                                            |
|--|--------------|--------------------------------------------------------------------------------------------|
|  | •  | **Protect and enhancethe value of Four Seasons’ reputation and brand nameglobally**. |

|  |              |                                                             |
|--|--------------|-------------------------------------------------------------|
|  | •  | **Generate premiumshareholder returns over the long term**. |

Set out below are ourkey financial and growth objectives for 2006 andbeyond:

RevenueGrowth:

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|  | •  | Achieve leadingRevPAR1results in each of the hotels and resorts wemanage. |

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|--|--------------|--------------------------------------------------------------------------------------|
|  | •  | Produce leading profitabilityperformance in each of the hotels and resorts wemanage. |

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|  | •  | Identify and secure newdevelopment opportunities in destinations and locations that meet theneeds of our international guestbase. |

|  |              |                                                                                      |
|--|--------------|--------------------------------------------------------------------------------------|
|  | •  | Successfully open an average ofsix to eight new projects per year over thelong-term. |

|  |              |                                                                                       |
|--|--------------|---------------------------------------------------------------------------------------|
|  | •  | Be the first choice forexisting and new capital partners for luxury hoteldevelopment. |

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|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Generate top-tiermanagement revenue growth through improved results at properties undermanagement and through the addition of new properties undermanagement. |

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| 1 | RevPARis defined as average room revenue per available room. It is a non-GAAPmeasure. We use RevPAR because it is a commonly used indicator ofmarket performance for hotels and resorts and represents thecombination of the average daily room rate and the average occupancyrate achieved during the period. RevPAR does not include food andbeverage or other ancillary revenues generated by a hotel or resort.RevPAR is the most commonly used measure in the lodging industry tomeasure the period-over-period performance of comparable properties.Our calculation of RevPAR may be different than the calculation used byother lodging companies. |

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CostManagement:

|  |              |                                                                              |
|--|--------------|------------------------------------------------------------------------------|
|  | •  | Control corporate expensesto increase earnings before other operating items. |

• Minimize exposure to short-term fluctuations inforeign exchange rates on operating results.

CapitalAllocation:

|  |              |                                                                                                            |
|--|--------------|------------------------------------------------------------------------------------------------------------|
|  | •  | Achieve over the long-terman average return on capital employed in excess of our long-term costof capital. |

|  |              |                                                           |
|--|--------------|-----------------------------------------------------------|
|  | •  | Maintain a strong balancesheet and a low cost of capital. |

|  |              |                                                                                                                                                                                               |
|--|--------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Deploythe majority of our annual operating cash flow to obtain and enhancemanagement opportunities that expand the Four Seasons brand and furtherimprove the overall liquidity of theCompany. |

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|--|--------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | Divest equity investments oradvances when appropriate opportunities arise, to allow previouslycommitted capital to be made available for new investments or enhancedmanagement or royaltyopportunities. |

|  |              |                                                         |
|--|--------------|---------------------------------------------------------|
|  | •  | Maintain a prudent riskprofile when investing our cash. |

In achieving our key financialand growth objectives we seek to balance any associated risk. See‘‘Operating Risks’’ for a description ofthe risks inherent in our business.

Our BusinessModel

We have two operating segments: (i) management operations,and (ii) ownership operations, which includes corporate expenses.

Management Operations

We are principally a managementcompany. We generally manage our hotels and resorts on behalf of ourproperty owners pursuant to separate management agreements for eachproperty. Under our management agreements, we generally oversee, asagent for the property owner, all aspects of the day-to-day operationsof the hotels and resorts, including sales and marketing, advertising,reservations, accounting, purchasing, budgeting and the hiring,training and supervising of staff. In addition, we generally provideowners with advice with respect to information technology systems anddevelopment of certain database applications, as well as, advice withrespect to the design, construction and furnishing of new or renovatedhotels, resorts and residences. We also provide a centralizedpurchasing system for goods. We generally perform these services withinthe guidelines contained in annual operating and capital plans that aresubmitted to the owners of the hotels and resorts during the lastquarter of the preceding year for their review and approval. Forproviding these services, we generally receive a variety of fees,including management fees (comprised of a base fee and an incentivefee), other fees (including royalty and management fees from ourresidential business, fees we earn during the development of our hotelsand resorts and other miscellaneous fees) and reimbursed costs(including a sales and marketing charge, an advertising charge and areservation charge).

Our base fees are dependent on totalrevenues of all managed hotels and resorts, which consist of rooms,food and beverage, and other revenues. Our base fees are typicallyearned as a percentage of total revenues for each property undermanagement. RevPAR, which relates to room revenues and does notrepresent total revenue of a property, provides a strong indication ofchanges in revenues from properties under management and is a commonlyused indicator of market performance for hotels and resorts.

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Our incentive fees are typically earnedbased on the profitability of each property that we manage, but mayvary depending on the specific terms of the relevant managementagreement. Gross operatingprofit2changes at the hotels and resorts provide an indication of the changein each property’s profitability. However, due to the variationsin the calculation of incentive fees in our management agreements,there is not always a direct link between changes in gross operatingprofit and changes in incentive fees.

We receive royalty fees forthe use of our name in association with the sale of Four Seasonsbranded real estate. These royalties are typically based on the salesproceeds of the residences sold. We also manage Four Seasons brandedand serviced residential projects pursuant to management agreementsunder which we oversee the management of the day-to-day operations ofthe completed projects in return for ongoing management fees from theowners of interests in these projects.

As a part of expanding ourportfolio of properties under management, we make investments in theform of long-term receivables, minority equity investments andinvestments in management contracts. In determining whether to makethese investments, we consider the overall expected returns to us,including the expected management operations revenue. These investmentsmust meet our financial criteria and have a manageable risk profile. Weconsider whether the structure should be in the form of an investmentor an advance, and, among other things, the relative risk and returnsof the investment or advance, including interest, dividends and feeincome. We generally seek to limit our total long-term capital exposureto no more than 20% of the total equity required for a property.We generally structure our equity investments to be able to have ourequity interest diluted if additional capital is required. Depending onthe nature of the investment or advance, it will be classified on ourconsolidated balance sheet as ‘‘Long-termreceivables’’, ‘‘Investments in hotelpartnerships and corporations’’, or‘‘Investment in managementcontracts’’.

General and administrative expensesfor management operations are incurred by us to provide thesemanagement services, together with those items normally associated withcorporate overhead, such as operations, finance, informationtechnology, accounting, legal, development and other costs ofmaintaining the corporate offices. Reimbursed costs, representing thesales, marketing, advertising and central reservation expenses, aregenerally incurred on a cost-recovery basis to us and are a function ofthe number of hotels and resorts we manage.

Ownership Operations(which includes Corporate Expenses)

Our strategy has been tofocus on hotel management rather than ownership. This operating segmentrepresents our remaining (and primarily minority) interests in hotelsand resorts and our corporate operations. Our earnings from ownershipoperations include the consolidated results of our 100%leasehold interest in Four Seasons Hotel Vancouver and results for ThePierre for the first six months of 2005. In June  2005, FourSeasons’ disposed of its interest in The Pierre and ceasedmanaging the property on June  30,  2005, leaving FourSeasons Hotel Vancouver as our one remaining leasehold interest and theonly remaining hotel whose results we consolidate. In addition, weinclude in ownership operations profit distributions from our otherownership interests relating to minority equity positions and corporateexpenses not related to the management operations segment of ourbusiness. Other ownership interests are discussed under‘‘Balance Sheet Review and Analysis — Investmentsin Hotel Partnerships and Corporations’’.

Ourinvestment strategy is not to hold any additional majority investmentsin hotels and resorts. However, Four Seasons Hotel Vancouver is along-term leasehold interest that was established atan

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| 2 | Grossoperating profit is defined as gross operating revenues less operatingexpenses. |

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earlier stage in ourdevelopment.3 We are continuing to review options in respect of Four SeasonsHotel Vancouver to determine what, if any, alternatives may beavailable to modify or restructure our operation of, or investment in,this hotel. There can be no assurance that acceptable alternativearrangements can be found with respect to this hotel or as to the termsof any such alternative arrangements.

Overview of2005

During 2005, worldwide travel demand remained robust,continuing on the favourable trends the lodging industry experienced in2004. The operating results at the hotels and resorts under ourmanagement reflect these travel trends. We realized strong RevPARgrowth, primarily as the result of improvements in achieved room rates,and improved gross operatingmargins4at the hotels and resorts under our management in 2005. Improvements ingross operating margins at hotels and resorts under management were theresult of revenue improvements at the hotels and resorts and effectivecost management programmes. There was some variation in performanceamong the regions in which we operate, with the US properties achievingthe strongest performance.

Revenues from management operationsreflect the results achieved at our hotels and resorts with growth inhotel management fees increasing in line with our overall RevPARgrowth. However, during 2005, a number of hotels and resorts underwentsignificant renovations, which had a negative impact on the hotelmanagement fees we earned from those properties. The improvementsshould put the properties in a favourable competitive position andtranslate into improved management fees in the future.

While weare pleased with the growth in management fee revenues in 2005, annualgrowth in our overall management operations fee revenue was restrainedin 2005, primarily as a result of income realized in 2004 on foreignexchange forward contracts purchased in prior years.

Royaltyfees from our residential business in 2005 were lower than in 2004 as aresult of the higher sales volumes of residential real estate realizedin 2004, due primarily to the launch of a number of new projects inthat year. Royalty fees are earned on the sale of residences andtherefore vary based on the number and nature of residences sold in agiven period.

Our cost base is relatively small. We directlyemploy approximately 520 employees, the majority of whom are located inToronto. We also have corporate offices in Geneva and Singapore andhave 16 sales offices around the world. Of these corporate employees,almost half are devoted to sales and marketing activities (includingour worldwide reservations service), the cost of which is reimbursed bythe hotels and resorts that we manage.

We are in the process ofcompleting an addition to our Toronto corporate office to allow us tocentralize our Toronto based staff in one location from the currentthree facilities. In addition to improving communication andefficiency, we believe this will allow us to realize certain costreducing synergies over time. During 2005, our costs increased as weadded staff to effectively manage a larger base of hotels and resortsand an increasing number of projects under development. Our costs,which are largely incurred in Canadian dollars, also increased in USdollars due to the US dollar having declined relative to the Canadiandollar on a year-over-year basis. We are taking steps, including thepurchase of foreign exchange forward contracts, to moderate the impactof changes in foreign currency rates over time. However, this impactcannot be completely eliminated.

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| 3 | Wehave leased and managed Four Seasons Hotel Vancouver since 1976. Thelease on Four Seasons Hotel Vancouver expires in2020. |

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|---|----------------------------------------------------------------------------------------------------|
| 4 | Grossoperating margin represents gross operating profit as a percentage ofgross operating revenue. |

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Despite the items discussed above, ourmanagement operations profitmargin5remained strong.

Revenues from our ownership operations segmentdeclined, primarily as the result of the disposition of The Pierre.With the disposition of The Pierre, we achieved a significant milestonein our long-term strategic objective of reducing exposure to hotelownership and the associated volatile impact on earnings caused by,among other things, business cycles, seasonality and event risk. Ourcorporate expenses relate to capital allocation and public companycosts, including the costs of staff employed in these activities. Themajority of these costs are in Canadian dollars and, accordingly, someof the increase was attributable to the US dollar having declinedrelative to the Canadian dollar during 2005.

In 2005, there werea number of other expense items, including a one-time accounting chargerelated to the transition of the majority of our senior executives andhotel and resort general managers from an unfunded defined benefitretirement plan to a funded defined contribution retirement plan (see‘‘Company Operating Results — Other Income/Expense,Net — Retirement Benefit Plan’’). We believe thechange in format of the plan will improve the predictability andcertainty related to the cost of the retirement benefits. In addition,in 2005, we reported a large, primarily unrealized, foreign exchangeloss relating to the translation of certain US dollar and poundsterling net monetary assets into Canadian dollars. During 2005, werecorded $28.6  million in other expense, net related to thedisposition of certain assets, net of the write down of otherinvestments. For financial reporting purposes, the determination of thevalue of a long-term receivable or an equity investment does not takeinto account the expected management operations revenue or theintangible benefits related to brand development and is based solely onthe cash flow related to the investment.

During 2005, in additionto ceasing management of The Pierre, we also agreed to cease managementof the Four Seasons Hotel Newport Beach for a monetary payment, as theowner of that hotel decided to independently manage that property. Morerecently, we have begun a transition out of The Regent Kuala Lumpur inorder to secure a prominent new opportunity for Four Seasons in thatmarket. These are the latest in a series of refinements to ourportfolio in the last several years aimed at improving our financialposition and strengthening the quality of our management portfoliothrough strategic divestitures and significant enhancements toestablished properties, as well as important new openings.

Theaddition of new properties continues to be an important component ofour growth. In 2005 we opened exciting new properties in Geneva,Hampshire, Langkawi, Doha, Damascus, Hong Kong, and Lana’i.Since the beginning of 2005, we added 10 new Four Seasons projects toour list of properties under construction or advanced stages ofdevelopment, including new projects in Shanghai, Macau, Marrakech andBarbados.

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| 5 | Themanagement operations profit margin represents management operationsearnings before other operating items, as a percent of managementoperations revenue. |

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Operational and Financial Review andAnalysisHotel and Resort Operating Results

Consistent withindustry practices, we track RevPAR on a US dollar basis, and allnumbers noted below reflect that practice unless otherwise noted. Forthe full year 2005, RevPAR of our worldwide CoreHotels6, increased 11.4%, as compared to 2004, reflecting improvementsin each of the regions in which we manage hotels and resorts. Theincrease in RevPAR was attributed to a 6.3% improvement inachieved room rates and a 290 basis point increase in overalloccupancy. For the quarter ended December  31,  2005,RevPAR for our worldwide Core Hotels increased 7.4%, as comparedto the same period in 2004. This increase was primarily attributable toa 4.4% improvement in achieved room rates.

Gross operatingrevenues of our worldwide Core Hotels, increased 10.6% for thefull year 2005, as compared to 2004. The improvements in revenue,combined with continued cost management efforts at the properties underour management, resulted in a 19.0% and 220 basis point increasein gross operating profits and gross operating margins, respectively.For the fourth quarter of 2005, gross operating margins of ourworldwide Core Hotels increased 140 basis points, to 29.9%, ascompared to 28.5% in the same period in 2004.

With respectto our Core Hotels, the United States represents the most significantgeographic area to us, with 52.2% of revenues under managementfor the full year 2005, followed by Europe (15.6%), Asia/Pacific(15.3%), Other Americas/Caribbean (12.6%) and the MiddleEast (4.3%). The following tables highlight our results ofoperations for our Core Hotels in each of theseregions.

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| 6 | Theterm ‘‘Core Hotels’’ means hotels andresorts under management for the full year of both 2005 and 2004.However, if a ‘‘Core Hotel’’ has undergoneor is undergoing an extensive renovation program in one of those yearsthat materially affects the operation of the property in that year, itceases to be included as a ‘‘Core Hotel’’in either year. Changes from the 2004/2003 Core Hotels are theadditions of Four Seasons Resort Jackson Hole, Four Seasons HotelMiami, Four Seasons Resort Great Exuma at Emerald Bay, Four SeasonsHotel Prague, Four Seasons Hotel Riyadh and Four Seasons Hotel Jakarta,and the deletions of Four Seasons Resort Maldives at Kuda Huraa (due toits temporary closure caused by the tsunami), The Pierre in New York(due to its disposition on June  30,  2005) and FourSeasons Hotel Newport Beach (due to the owner’s decision tomanage that property independently). |

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United StatesRegion

Results for periods in 2005, as compared toperiods in 2004

|               |  |         |  |                             |  |                            |  |                       |  |        |  |                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|---------------|--|---------|--|-----------------------------|--|----------------------------|--|-----------------------|--|--------|--|-----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|          |  | RevPAR  |  | GrossOperatingRevenue (GOR) |  | Gross OperatingProfit(GOP) |  | Gross OperatingMargin |
|          |  | $       |  | PercentageChange            |  | PercentageChange           |  | PercentageChange      |  | Margin |  | BasisPointImprovement |
| FourthQuarter |  | **276** |  | 11.5%                       |  |   9.4%           |  | 16.9%                 |  | 28.2%  |  | 180                   |
| FullYear      |  | **273** |  | 13.3%                       |  | 11.6%                      |  | 22.5%                 |  | 28.7%  |  | 260                   |
|               |

Inthe fourth quarter of 2005, RevPAR increased 11.5%, which wasprimarily attributable to a 7.3% increase in achieved room ratesin the region. Exceptions were Four Seasons Resort Palm Beach, whichwas affected by hurricanes in the area, and Four Seasons HotelPhiladelphia and The Regent Beverly Wilshire, both of which wereundergoing renovations during the quarter. Properties under managementin San Francisco, New York, Houston, Los Angeles, Maui, Atlanta, andBoston had particularly strong improvements in RevPAR, relative to theaverage for the U.S. region. As a result of improvements in RevPAR,gross operating profits and gross operating margins increased16.9% and 180 basis points, respectively, during the fourthquarter of 2005.

For the full year 2005, all of theproperties under management in the region realized RevPAR improvementswith the exception of Four Seasons Hotel Houston, which, despite astrong fourth quarter, continued to experience pressure on rates due tosupply of hotel rooms in that market. The increases in RevPAR for 2005were attributable to a 7.3% increase in achieved room rates anda 360 basis point improvement in occupancy. Properties under managementin New York, Jackson Hole, Miami, San Francisco, Aviara, Austin, andLos Angeles realized particularly strong improvements in RevPAR,relative to the average for the region. In addition, for the full year2005, gross operating profits and gross operating margins improved22.5% and 260 basis points, respectively, as compared to 2004,which was primarily attributable to an 11.6% increase in grossoperating revenues.

Other Americas/CaribbeanRegion

Results for periods in 2005, as compared toperiods in2004

|               |  |         |  |                             |  |                            |  |                       |  |        |  |                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|---------------|--|---------|--|-----------------------------|--|----------------------------|--|-----------------------|--|--------|--|-----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|          |  | RevPAR  |  | GrossOperatingRevenue (GOR) |  | Gross OperatingProfit(GOP) |  | Gross OperatingMargin |
|          |  | $       |  | PercentageChange            |  | PercentageChange           |  | PercentageChange      |  | Margin |  | BasisPointImprovement |
| FourthQuarter |  | **206** |  |   8.7%            |  | 10.3%                      |  | 19.7%                 |  | 24.4%  |  | 190                   |
| FullYear      |  | **217** |  | 13.8%                       |  | 15.1%                      |  | 29.9%                 |  | 28.2%  |  | 320                   |
|               |

Inthe fourth quarter of 2005, all of the properties under management inthe region experienced increases in RevPAR with the exception of FourSeasons Resort Great Exuma at Emerald Bay, which had weaker occupancydue to the threat of hurricanes in the area. On a local currency basis,RevPAR improved 6.0% in the fourth quarter of 2005. Propertiesunder management in Buenos Aires, Punta Mita,

11

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and Vancouver had particularly strongimprovements relative to the average for the region. As a result ofimprovements in RevPAR, gross operating profits and gross operatingmargins increased 19.7% and 190 basis points, respectively, inthe fourth quarter of 2005 as compared to the same period in2004.

For the full year 2005, the 13.8%(10.5% on a local currency basis) improvement in RevPAR wasattributable to a 6.9% increase in achieved room rates and a 390basis point improvement in occupancy. For the full year 2005, all ofthe properties under management in the region experienced improvementsin RevPAR, leading to increases in gross operating profits and grossoperating margins of 29.9% and 320 basis points, respectively.Properties under management in Buenos Aires and Exuma had particularlystrong improvements in RevPAR and gross operating profits, as comparedto the averages for the region.

EuropeRegion

Results for periods in 2005, as compared toperiods in2004

|               |  |         |  |                             |  |                            |  |                       |  |        |  |                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|---------------|--|---------|--|-----------------------------|--|----------------------------|--|-----------------------|--|--------|--|-----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|          |  | RevPAR  |  | GrossOperatingRevenue (GOR) |  | Gross OperatingProfit(GOP) |  | Gross OperatingMargin |
|          |  | $       |  | PercentageChange            |  | PercentageChange           |  | PercentageChange      |  | Margin |  | BasisPointImprovement |
| FourthQuarter |  | **329** |  | (0.9)%                      |  | (1.1)%                     |  | 4.3%                  |  | 32.9%  |  | 170                   |
| FullYear      |  | **351** |  | 4.5%                        |  | 4.7%                       |  | 4.5%                  |  | 34.6%  |  | (10)                  |
|               |

RevPARin the European Core Hotels remained relatively flat in the fourthquarter of 2005, as compared to the fourth quarter of 2004. On a localcurrency basis, however, RevPAR increased 6.0%, reflectingimproved operating results at the hotels under management in Istanbul,Dublin, and London relative to the other hotels in the region. Alsoduring the fourth quarter of 2005, gross operating profits increased4.3% (10.8% on a local currency basis), and grossoperating margins improved 170 basis points, as compared to the sameperiod in 2004, due to improvements in overall occupancy and achievedroom rates on a local currency basis.

For the full yearended December  31,  2005, RevPAR increased 4.5%(4.4% on a local currency basis) primarily due to a 4.1%improvement in achieved room rates. All of the hotels in the region hadimproved operating results, with the exception of the hotels undermanagement in Lisbon and Canary Wharf, which continue to experiencelower group and corporate demand. While there was a 4.5%increase in gross operating profits, gross operating margins remainedrelatively flat for the full year of 2005, as compared to 2004, mainlyas a result of the lower operating results at Four Seasons HotelLisbon.

Middle East Region

Results for periods in2005, as compared to periods in2004

|               |  |         |  |                             |  |                            |  |                       |  |        |  |                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|---------------|--|---------|--|-----------------------------|--|----------------------------|--|-----------------------|--|--------|--|-----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|          |  | RevPAR  |  | GrossOperatingRevenue (GOR) |  | Gross OperatingProfit(GOP) |  | Gross OperatingMargin |
|          |  | $       |  | PercentageChange            |  | PercentageChange           |  | PercentageChange      |  | Margin |  | BasisPointImprovement |
| FourthQuarter |  | **132** |  | **15.9%**                   |  | 19.8%                      |  | 16.9%                 |  | 33.7%  |  | (90)                  |
| **FullYear**  |  | **142** |  | **19.3%**                   |  | 24.8%                      |  | 39.8%                 |  | 42.4%  |  | 450                   |
|               |

12

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In the Middle East region,nearly all of the properties under management had improvements inRevPAR in the fourth quarter of 2005, which was driven primarily by a12.7% increase in achieved room rates, as compared to the sameperiod in 2004. Four Seasons Hotel Riyadh and Four Seasons Hotel Cairoat First Residence had particularly strong improvements in RevPAR, ascompared to the average for the region. On a local currency basis,RevPAR improved 11.0% in the fourth quarter of 2005, as comparedto the same period in 2004. With the exception of Four Seasons ResortSharm El Sheikh, whose business was affected by bombings in the area,all of the hotels experienced RevPAR improvements. Gross operatingprofits increased 16.9% during the fourth quarter of 2005, ascompared to the same period in 2004. However, gross operating marginsdeclined slightly (90 basis points), as compared to the same period in2004.

For the full year of 2005, the 19.3%improvement in RevPAR was attributable to a 14.5% increase inachieved room rates and a 270 basis point improvement in occupancy. Ona local currency basis, RevPAR improved 15.1% for the full yearof 2005. Also for the full year of 2005, gross operating profits andgross operating margins improved 39.8% and 450 basis points,respectively, from 2004, as all of the properties under management inthe region had stronger operating results. The only exception was FourSeasons Hotel Cairo at First Residence, which, despite a strong fourthquarter, experienced a slight reduction in occupancy and achieved roomrates during the first three quarters of 2005 due to additional supplyin the city.

Asia/Pacific Region

Results forperiods in 2005, as compared to periods in2004

|               |  |         |  |                             |  |                            |  |                       |  |        |  |                       |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|---------------|--|---------|--|-----------------------------|--|----------------------------|--|-----------------------|--|--------|--|-----------------------|--|--|--|--|--|--|--|--|--|--|--|--|--|--|
|          |  | RevPAR  |  | GrossOperatingRevenue (GOR) |  | Gross OperatingProfit(GOP) |  | Gross OperatingMargin |
|          |  | $       |  | PercentageChange            |  | PercentageChange           |  | PercentageChange      |  | Margin |  | BasisPointImprovement |
| FourthQuarter |  | **122** |  | 0.1%                        |  | (1.0)%                     |  |   2.2%      |  | 36.0%  |  | 110                   |
| FullYear      |  | **118** |  | 9.5%                        |  | 6.5%                       |  | 13.5%                 |  | 33.0%  |  | 210                   |
|               |

13

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In the Asia/Pacific region,RevPAR remained relatively flat in the fourth quarter of 2005, ascompared to the same period in 2004. On a local currency basis, RevPARimproved 3.0% for the fourth quarter of 2005. Achieved roomrates improved 2.1% (6.3% on a local currency basis).However, this was offset by a 110 basis point decrease in occupancy. Inparticular, the resorts in Bali experienced lower demand during thefourth quarter of 2005 (due to the bombings that occurred in thatmarket in October  2005). Also during the fourth quarter of 2005,gross operating profits and margins improved 2.2% and 110 basispoints, respectively, mainly as the result of improved operatingresults at properties under management in Jakarta, Singapore, Shanghai,and Chiang Mai.

For the full year 2005, RevPAR improved9.5% on a US dollar and local currency basis, as compared to2004. This improvement was attributable to a 4.5% increase inachieved room rates and a 260 basis point improvement in occupancy.Virtually all of the properties under management in the regionexperienced increases in RevPAR with the exception of Four SeasonsHotel Bangkok, which had lower occupancy levels due to a roomsrenovation during the year, and Four Seasons Resort Bali at JimbaranBay, which was affected by bombings in that market in 2005. Grossoperating profits and gross operating margins improved 13.5% and210 basis points, respectively, mainly due to improved operatingresults at the properties under management in Jakarta, Singapore,Shanghai, and Chiang Mai.

For our 2005 to 2004 comparisons, 51 ofour 68 properties were considered Core Hotels, as compared to 48 of 63properties for our 2004 to 2003 comparisons. Of the properties notconsidered Core Hotels for 2005 to 2004, four properties (Four SeasonsResort Maldives at Kuda Huraa, Four Seasons Biltmore Resort SantaBarbara, Four Seasons Resort Scottsdale at Troon North, and FourSeasons Hotel Washington) were undergoing extensive renovations during2005. We have opened 12 new properties over the course of 2004 and 2005(Four Seasons Resort Costa Rica, Four Seasons Resort Provence at TerreBlanche, Four Seasons Hotel Budapest, Four Seasons Resort Whistler,Four Seasons Hotel Cairo at Nile Plaza, Four Seasons Hotel Hampshire,Four Seasons Resort Langkawi, Four Seasons Hotel Doha, Four SeasonsHotel Hong Kong, Four Seasons Resort Lana’i at Manele Bay, FourSeasons Hotel Geneva and Four Seasons Hotel Damascus). The results fromthese properties are not included in 2005 to 2004 Core Hotels becausethey were not open during both 2004 and 2005. In addition, RegentTaipei is excluded from the comparisons in both years. For our 2004 to2003 comparisons, five properties (Four Seasons Hotel Prague, FourSeasons Biltmore Resort Santa Barbara, Four Seasons Resort Scottsdaleat Troon North, Four Seasons Hotel Washington and Four Seasons HotelJakarta) were undergoing extensive renovations during 2004 and theremaining nine had not been under management during both 2003 and2004.

At December  31,  2005, we had approximately17,300 total rooms under management, as compared to approximately16,375 rooms as at December  31,  2004.

|                                |  |                   |  |                   |  |  |  |  |  |  |
|--------------------------------|--|-------------------|--|-------------------|--|--|--|--|--|--|
| Numberof rooms undermanagement |  | AsatDecember31,   |
|                           |  | 2005              |  | 2004              |
| UnitedStates                   |  |   6,845 |  |   7,110 |
| OtherAmericas/Caribbean        |  |   2,165 |  |   2,160 |
| Europe                         |  |   1,960 |  |   1,785 |
| MiddleEast                     |  |   1,740 |  |   1,210 |
| Asia/Pacific                   |  |   4,590 |  |   4,110 |
|                           |  | 17,300            |  | 16,375            |
|                                |

14

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Total revenues of all managed hotels andresorts were approximately $2.6  billion for the full year 2005,as compared to $2.2  billion in 2004, which represents anincrease of 14.2%. In the fourth quarter of 2005, hotel andresort total revenues increased 11.9% to $676.7  millionas compared to $604.8  million for the same period in 2004. Theincreases in total revenues of all managed hotels and resorts were dueto increased revenues at existing hotels as a result of generalimprovements in travel trends and due to an increase in revenues fromrecently opened hotels and resorts.

Company OperatingResults

Management Operations

Management OperationsRevenues

|                                  |  |                       |         |              |  |                  |        |        |  |               |        |               |  |          |  |  |  |  |
|----------------------------------|--|-----------------------|---------|--------------|--|------------------|--------|--------|--|---------------|--------|---------------|--|----------|--|--|--|--|
| (inmillions ofdollars)           |  | YearsendedDecember31, |         | DollarChange |  | PercentageChange |
|                             |  |                  | 2005    |         |  |             | 2004   |   |  | 2005over 2004 |        | 2005over 2004 |
| Hotel managementfees             |  |                  |    |         |  |             |   |   |  |          |   |          |  |     |
| Base                             |  | $                     | 75.6    |         |  | $                | 65.9   |   |  | $             | 9.7    |          |  | 14.8%    |
| Incentive                        |  |                  | 27.5    |         |  |             | 20.3   |   |  |          | 7.2    |          |  | 35.4%    |
| Subtotal                         |  |                  | 103.1   |         |  |             | 86.2   |   |  |          | 16.9   |          |  | 19.6%    |
| Otherfees7                       |  |                  | 14.1    |         |  |             | 14.6   |   |  |          | (0.5   | )        |  | (3.6)%   |
| Subtotal                         |  |                  | 117.2   |         |  |             | 100.8  |   |  |          | 16.4   |          |  | 16.3%    |
| Foreignexchange forwardcontracts |  |                  | — |         |  |             | 11.2   |   |  |          | (11.2  | )        |  | (100.0)% |
| Reimbursedcosts                  |  |                  | 69.1    |         |  |             | 56.1   |   |  |          | 13.0   |          |  | 23.2%    |
| Managementoperationsrevenues     |  | $                     | 186.3   |         |  | $                | 168.1  |   |  | $             | 18.2   |          |  | 10.8%    |
|                                  |

|                                  |  |                               |         |              |  |                  |        |        |  |               |        |               |  |          |  |  |  |  |
|----------------------------------|--|-------------------------------|---------|--------------|--|------------------|--------|--------|--|---------------|--------|---------------|--|----------|--|--|--|--|
| (inmillions ofdollars)           |  | Threemonths ended December31, |         | DollarChange |  | PercentageChange |
|                             |  |                          | 2005    |         |  |             | 2004   |   |  | 2005over 2004 |        | 2005over 2004 |
| Hotel managementfees             |  |                          |    |         |  |             |   |   |  |          |   |          |  |     |
| Base                             |  | $                             | 19.5    |         |  | $                | 17.9   |   |  | $             | 1.6    |          |  | 8.3%     |
| Incentive                        |  |                          | 6.0     |         |  |             | 5.0    |   |  |          | 1.0    |          |  | 21.0%    |
| Subtotal                         |  |                          | 25.5    |         |  |             | 22.9   |   |  |          | 2.6    |          |  | 11.1%    |
| Otherfees                        |  |                          | 4.1     |         |  |             | 2.1    |   |  |          | 2.0    |          |  | 89.7%    |
| Subtotal                         |  |                          | 29.6    |         |  |             | 25.0   |   |  |          | 4.6    |          |  | 17.8%    |
| Foreignexchange forwardcontracts |  |                          | — |         |  |             | 3.1    |   |  |          | (3.1   | )        |  | (100.0)% |
| Reimbursedcosts                  |  |                          | 21.8    |         |  |             | 16.2   |   |  |          | 5.6    |          |  | 35.0%    |
| Managementoperationsrevenues     |  | $                             | 51.4    |         |  | $                | 44.3   |   |  | $             | 7.1    |          |  | 15.9%    |
|                                  |

Theincreases in management operations revenues for the full year andfourth quarter of 2005 were the result of the improvements in revenuesand gross operating profits at the worldwide Core Hotels,

|  |
|--|

|   |                                                                                                                                                                         |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 7 | Otherfees include royalty and management fees from our residential business,fees we earn during the development of our hotels and resorts, andother miscellaneous fees. |

15

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resulting primarily from RevPAR and otherrevenue increases, as well as fees from new properties and increases inreimbursed costs.

Base Fees

Base fees increased$9.7  million (from $65.9  million to $75.6  million)for the year ended December  31,  2005 as compared to 2004.Of this increase, base fees from Core Hotels contributed $6.6million or 68.4% of the increase. The increase in base fees fromCore Hotels in 2005 represented a 12.8% increase over the basefees generated from Core Hotels in 2004. Properties that opened in 2004and 2005 contributed base fees of $5.4  million and $1.6million in 2005 and 2004, respectively. The $9.7  millionincrease in base fees in 2005 was lower than it would have otherwisebeen as a result of a $0.9  million reduction in base fees fromproperties no longer under management.

Base fees increased$1.6  million (from $17.9  million to $19.5  million)for the quarter ended December  31,  2005, as compared tothe quarter ended December  31,  2004. Of the $1.6million increase in base fees, base fees from Core Hotels contributed$1.0  million or 66.2% of the increase. The increase inbase fees from Core Hotels in the three months ended December31,  2005 represented a 7.2% increase over the feesgenerated from Core Hotels in the fourth quarter of 2004. Propertiesthat opened in 2004 and 2005 contributed base fees of $1.9million and $0.7  million in the fourth quarters of 2005 and2004, respectively. The $1.6  million increase in base fees inthe quarter was lower than it would have otherwise been as the resultof a $0.9  million reduction in base fees from properties nolonger under management and differences in foreign exchange on feesdenominated in other than the US dollar.

IncentiveFees

For the full year 2005, incentive fees increased$7.2  million, as compared to 2004. Due to a one-time charge atthe properties under our management related to the transition of theretirement benefit plan (see ‘‘Liquidity and CapitalResources — Retirement Plan Commitments’’ below)during the fourth quarter of 2005, incentive fees were reduced byapproximately $1.0  million. Incentive fees contributed26.6% of the total hotel management fee revenues for the fullyear 2005, as compared to 23.5% for the full year 2004. Theincrease was attributable to improvements in the US, Middle East, andOther Americas/Caribbean regions, which more than offset moderatedeclines in incentive fees from the Europe and Asia/Pacific regions.The incentive fees earned from properties that opened in 2004 and 2005represented $3.2  million of the increase in incentive fees. Wecurrently have the ability to earn incentive fees in virtuallyall8of the hotels and resorts that we manage. In 2005, incentive fees wereearned from459of our management agreements, as compared to 35 of our managementagreements in 2004.

For the quarter ended December31,  2005, incentive fees increased $1.0  million ascompared to the same period in 2004. As mentioned above, due to aone-time charge at the properties under our management related to thetransition of the retirement benefit plan in the fourth quarter of2005, incentive fees were reduced by $1.0  million. The incentivefees earned from properties that opened in 2004 and 2005 represented$1.3  million of the increase. Incentive fees were earned from 37of the 68 hotels and resorts under management for the fourth quarter2005, as compared to 32 of the 63 hotels and resorts under managementin 2004.

Other Fees

For the full year endedDecember  31,  2005, other fees declined 3.6% or$0.5  million, to $14.1  million, as compared to 2004. Thedecline was attributable to a $2.0  million decline inresidential royalty

|  |
|--|

|   |                                                                          |
|---|--------------------------------------------------------------------------|
| 8 | Wehave this ability in 66 of 70 of the hotels and resorts that wemanage. |

|   |                                                                                                                  |
|---|------------------------------------------------------------------------------------------------------------------|
| 9 | IncludesThe Pierre in New York and Four Seasons Hotel Newport Beach, which areno longer managed by Four Seasons. |

16

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fees due to fewer residential sales closingand a $1.3  million decline in other miscellaneous fees, offsetby a $2.8  million increase in design and procurement fees. Forthe three months ended December  31,  2005, other feesincreased 89.7% or $2.0  million, to $4.1  million.The increase in other fees for the fourth quarter of 2005, as comparedto the same period in 2004, was mainly attributable to royalty feesrelated to the sale of residences, as well as an increase in design andprocurement fees.

Foreign Exchange ForwardContracts

We reported our financial results in Canadiandollars up to December  31,  2004, and, as a result, wewere subject to foreign exchange gains and losses on conversion of ourUS dollar fee revenues to Canadian dollars. To reduce this currencyexposure, we typically hedged a portion of these fees through foreignexchange forward contracts. Effective January  1,  2004, weceased designating our US dollar foreign exchange forward contracts ashedges of our US dollar fee revenues. All of the outstanding foreignexchange forward contracts at that date were entered into in 2002 andhad maturity dates in 2004. For the full year and fourth quarter of2004, there was a deferred foreign exchange gain of $11.2million and $3.1  million, respectively, on these foreignexchange forward contracts, which was recognized in 2004 as an increasein fee revenues. We had no such gain for the corresponding period in2005, as there were no foreign exchange forward contracts in place in2005 that related to fee revenues.

ReimbursedCosts

As described above under ‘‘ManagementOperations’’, reimbursed costs are incurred on a costrecovery basis to us and, as a result, we analyze our managementoperations excluding reimbursed costs. For the full year and threemonths ended December  31,  2005, reimbursed costsincreased $13.0  million and $5.6  million, respectively,as compared to the corresponding periods in 2004. The increase wasattributable to higher revenues under management and a growingportfolio of properties, as compared to the same periods in2004.

Impact of Renovations

Several of thehotels and resorts under our management were undergoing significantrenovations during 2005. The renovations at Four Seasons ResortScottsdale at Troon North and Four Seasons Hotel New York werecompleted in the first quarter of 2005, while the renovations at FourSeasons Hotel Washington, D.C., Four Seasons Hotel Philadelphia, andFour Seasons Hotel Las Vegas were completed during the second half of2005. These renovations resulted in a decrease in fee revenuesestimated at approximately $1.8  million for the full year 2005.Significant renovation programs at other hotels under management,including Atlanta, Boston, Santa Barbara, and The Regent BeverlyWilshire, are expected to be substantially completed in 2006. Inaddition, after refurbishments and a major renovation, Four SeasonsResort Maldives at Kuda Huraa is expected to reopen in 2006.Significant rooms renovations are also expected to commence at FourSeasons Resort Maui and Four Seasons Hotel Dublin in 2006.

**Management OperationsExpenses**

|                                    |  |                       |  |              |  |                  |  |              |  |  |  |  |  |  |  |  |  |  |
|------------------------------------|--|-----------------------|--|--------------|--|------------------|--|--------------|--|--|--|--|--|--|--|--|--|--|
| (inmillions of dollars)            |  | YearsendedDecember31, |  | DollarChange |  | PercentageChange |
|                               |  | 2005                  |  | 2004         |  | 2005over2004     |  | 2005over2004 |
| General and administrativeexpenses |  |   41.2      |  | 34.5         |  |   6.7  |  | 19.4%        |
| Reimbursedcosts                    |  |   69.1      |  | 56.1         |  | 13.0             |  | 23.2%        |
| Managementoperationsexpenses       |  | 110.3                 |  | 90.6         |  | 19.7             |  | 21.7%        |
|                                    |

17

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|                                    |  |                              |      |                  |  |                      |      |        |  |              |  |              |  |  |  |  |  |  |
|------------------------------------|--|------------------------------|------|------------------|--|----------------------|------|--------|--|--------------|--|--------------|--|--|--|--|--|--|
| (inmillion of dollars)             |  | Three monthsendedDecember31, |      | **DollarChange** |  | **PercentageChange** |
|                               |  |                         | 2005 |             |  |                 | 2004 |   |  | 2005over2004 |  | 2005over2004 |
| General and administrativeexpenses |  |                         | 11.6 |             |  |                 | 10.0 |   |  | 1.6          |  | 16.0%        |
| Reimbursedcosts                    |  |                         | 21.8 |             |  |                 | 16.2 |   |  | 5.6          |  | 35.0%        |
| Managementoperationsexpenses       |  |                         | 33.4 |             |  |                 | 26.2 |   |  | 7.2          |  | 27.8%        |
|                                    |

Themajority of our general and administrative expenses are in Canadiandollars and, accordingly, a portion of the increase for the full yearand fourth quarter of 2005, as compared to 2004, was attributable tothe US dollar having declined relative to the Canadian dollar. For thefull year and fourth quarter of 2005, general and administrativeexpenses (excluding reimbursed costs) increased 11.5% and11.7%, respectively, on a Canadian dollar basis, as compared tothe same period in 2004. On a Canadian dollar basis, the increase inthese costs related primarily to an increase in the number of employeesat our corporate offices to handle the significant unit growth in ourportfolio and to the cost of living increases for corporate employeesthat were implemented at the beginning of 2005. In addition, in thefourth quarter of 2005, the increase in general and administrativeexpenses was attributable to reorganization costs.

For reimbursedcosts, see ‘‘Management Operations — ManagementOperations Revenues — Reimbursed Costs’’above.

**Management Operations Earnings**

As a resultof the items described above, management operations earnings andmanagement operations profit margin were thefollowing:

|                                                                                                                                              |  |                        |       |                               |  |        |       |         |  |        |      |         |  |        |      |         |  |  |
|----------------------------------------------------------------------------------------------------------------------------------------------|--|------------------------|-------|-------------------------------|--|--------|-------|---------|--|--------|------|---------|--|--------|------|---------|--|--|
| (inmillions of dollars)                                                                                                                      |  | YearsendedDecember 31, |       | Three months endedDecember31, |
|                                                                                                                                         |  |                   | 2005  |                          |  |   | 2004  |    |  |   | 2005 |    |  |   | 2004 |    |
| Managementfee revenues (excluding reimbursed costs and the impact of foreignexchange forwardcontracts)10                                     |  | $                      | 117.2 |                          |  | $      | 100.8 |    |  | $      | 29.6 |    |  | $      | 25.0 |    |
| Managementoperations earnings before other operating items (excluding reimbursedcosts and the impact of foreign exchange forwardcontracts)11 |  | $                      | 76.0  |                          |  | $      | 66.3  |    |  | $      | 18.0 |    |  | $      | 15.0 |    |
| Managementoperations profit margin (excluding reimbursed costs and the impact offoreign exchange forwardcontracts)12                         |  |                   | 64.8  | %                        |  |   | 65.8  | %  |  |   | 60.8 | %  |  |   | 60.2 | %  |
| Managementoperations revenues                                                                                                                |  | $                      | 186.3 |                          |  | $      | 168.1 |    |  | $      | 51.4 |    |  | $      | 44.3 |    |
| Managementoperations earnings before other operating items                                                                                   |  | $                      | 76.0  |                          |  | $      | 77.5  |    |  | $      | 18.0 |    |  | $      | 18.1 |    |
|                                                                                                                                              |

|  |
|--|

|    |                                                                                                                              |
|----|------------------------------------------------------------------------------------------------------------------------------|
| 10 | See‘‘Company Operating Results — ManagementOperations — Management OperationsRevenues’’. |

|    |                                                                                                                                                                                                            |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 11 | Thisis a non-GAAP measure and is calculated as management fee revenues(excluding reimbursed costs and the impact of foreign exchange forwardcontracts) less management general and administrativeexpenses. |

|    |                                                                                                                                                                                                                                                                                                                |
|----|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 12 | Thisis a non-GAAP measure and is calculated as management fee revenues(excluding reimbursed costs and the impact of foreign exchange forwardcontracts) divided by management operations earnings before otheroperating items (excluding reimbursed costs and the impact of foreignexchange forward contracts). |

18

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|                                   |  |                        |  |                               |  |           |  |       |  |  |  |  |  |  |  |  |  |  |
|-----------------------------------|--|------------------------|--|-------------------------------|--|-----------|--|-------|--|--|--|--|--|--|--|--|--|--|
| (inmillions of dollars)           |  | YearsendedDecember 31, |  | Three months endedDecember31, |
|                              |  | 2005                   |  | 2004                          |  | 2005      |  | 2004  |
| Managementoperations profitmargin |  | **40.8%**              |  | 46.1%                         |  | **35.0%** |  | 41.0% |
|                                   |

OwnershipOperations (which includes Corporate Expenses)

Operating lossesfrom ownership operations before other operating items for the fullyear 2005 increased $1.4  million to a loss of $18.0million, as compared to a loss of $16.6  million in 2004. Theincreased loss for the year was primarily attributable to increasedcorporate expenses relating to foreign exchange and a retirementallowance, partially offset by a decrease in operating losses of$2.0  million at The Pierre, which was disposed of on June30,  2005, and a decrease in operating losses at Four SeasonsHotel Vancouver of $0.3  million. In the fourth quarter of 2005,operating losses from ownership operations before other operating itemswere $5.3  million, as compared to $3.1  million in thefourth quarter of 2004. The increase was primarily attributable to ThePierre (which contributed operating earnings of $1.4  million inthe fourth quarter of 2004 and no operating earnings in the fourthquarter of 2005 as a result of its disposition), and increasedcorporate expenses related to foreign exchange and a retirementallowance.

Ownership Operations

The Pierre

InJune  2005, we disposed of our interest in The Pierre and ceasedmanaging the property on June  30,  2005. This transactionreduced the ownership operations loss for the year endedDecember  31,  2005 by $2.0  million, as compared tothe same period in 2004. During the fourth quarter of 2004, operatingearnings at The Pierre were $1.4  million. For the full year2005, management fees from The Pierre were $1.2  million, ascompared to $2.0  million in 2004. Further details on thedisposition of this investment are discussed below under‘‘Other Income/Expense, Net — Gain/Loss onDisposition of Assets’’.

Four Seasons HotelVancouver

RevPAR at Four Seasons Hotel Vancouver increased4.0%, on a Canadian dollar basis, for the full year endedDecember  31,  2005, as compared to 2004, as a result ofoccupancy improvements. Consequently, the operating results aftermanagement fees at that hotel improved $0.3  million to a loss of$0.5  million in 2005, as compared to 2004. During the fourthquarter of 2005, RevPAR at Four Seasons Hotel Vancouver increased9.6%, on a Canadian dollar basis, as compared to the same periodin 2004, primarily as a result of an 8.2% increase in achievedroom rates. Operating results at the hotel improved approximately$0.4  million to a loss of $0.4  million in the fourthquarter of 2005, as compared to the same period last year.

Other

Our ownership interest in 10 other Four Seasons hotelsand resorts that are open and under management are accounted for on acost basis (see ‘‘Balance Sheet Review and Analysis— Investments in Hotel Partnerships andCorporations’’). In 2005 and 2004, we received$0.1  million and $0.3  million of cash distributions,respectively, from one of these ownership interests.

CorporateExpenses

For the full year and three months endedDecember  31,  2005, our corporate expenses increased$3.5  million and $1.0  million to $15.1  million and$4.6  million, respectively, as compared to $11.6  millionand $3.6  million for the same periods in 2004. The majority ofthese costs are in Canadian dollars and, accordingly, some of theincrease was attributable to the US dollar having declined relative tothe Canadian dollar since 2004. The remainder of the increase for thefull year and fourth quarter of 2005 was primarily attributable to aretirement allowance.

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Other Income/Expense, Net

For thefull year 2005, other expense, net was $89.2  million, ascompared to $11.9  million in 2004. For the fourth quarter of2005, other expense, net was $56.8  million, as compared to otherincome, net of $5.1  million for the same period in 2004.

|                                                                                   |  |                        |         |                               |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|-----------------------------------------------------------------------------------|--|------------------------|---------|-------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
| (inmillions of dollars)                                                           |  | Years endedDecember31, |         | Three months endedDecember31, |
|                                                                              |  |                   | 2005    |                          |  |   | 2004    |    |  |   | 2005    |    |  |   | 2004    |    |
| Retirementbenefitplan                                                             |  | $                      | (35.5   | )                        |  | $      | — |    |  | $      | (34.5   | )  |  | $      | — |    |
| Assetprovisions andwrite-downs                                                    |  |                   | (31.8   | )                        |  |   | — |    |  |   | (25.3   | )  |  |   | — |    |
| Foreignexchange gain(loss)                                                        |  |                   | (24.6   | )                        |  |   | 3.2     |    |  |   | (4.8    | )  |  |   | 5.3     |    |
| Gain(loss) on disposition ofassets                                                |  |                   | 3.2     |                          |  |   | (3.7    | )  |  |   | 9.0     |    |  |   | (0.2    | )  |
| Other                                                                             |  |                   | (0.5    | )                        |  |   | (0.2    | )  |  |   | (0.2    | )  |  |   | — |    |
| Losson redemption of Liquid Yield Option Notes(‘‘LYONs’’) |  |                   | — |                          |  |   | (11.2   | )  |  |   | — |    |  |   | — |    |
| Otherincome (expense),net                                                         |  | $                      | (89.2   | )                        |  | $      | (11.9   | )  |  | $      | (56.8   | )  |  | $      | 5.1     |    |
|                                                                                   |

RetirementBenefit Plan 

During the fourth quarter of 2005, wetransitioned the majority of our senior executives and hotel and resortgeneral managers from an unfunded defined benefit retirement plan to afully funded defined contribution retirement plan. We made the changein the retirement plan to improve the certainty and predictabilityrelated to the cost of the retirement benefits. We do not expect thatthe change will have a significant impact on our ongoing annual pensioncost.

The transition to this defined contribution format resultedin a funding requirement of $42.2  million, of which $36.0million was funded in 2005, and a one-time pre-tax loss of $35.5million. In addition, as a result of the costs incurred by our hotelsand resorts for the transition of general manager participants, ourincentive fees for 2005 were reduced by approximately $1.0million since the funding by the hotel owners was typically deducted incalculating the amounts upon which our incentive fees aredetermined.

We continue to maintain the unfunded multi-employer,non-contributory, defined benefit plan on behalf of four activeexecutives and 14 retired executives and general managers, as well asthe owners of two of our managed properties. As at December31,  2005 we have accrued a defined benefit liability of $25.8millionin ‘‘Long-term obligations’’ inrespect of this plan. This accrued defined benefit liability excludesthe defined benefit obligation of the owners of the two managedproperties for their current general managers.

AssetProvisions and Write-Downs

From time to time, we makeinvestments in hotels and resorts under our management in the form ofequity, loans and investments in management contracts in order toobtain long-term management agreements in respect of these projects. Inmaking these investments, we assess the expected overall returns toFour Seasons, including the value created through our long-termmanagement agreements. However, for financial reporting purposes eachdiscrete investment or component of an investment must be valued onlyin relation to the cash flow that the particular investment orcomponent of an investment generates to Four Seasons, without regard tothe ongoing value of the management agreement.

For the yearended December 31, 2005, other expense, net, includes an expense of$31.8 million relating to the provision for and the write-down ofcertain assets, including a provision for loss of $8.8  millionon long-term receivables, a write-down of $17.9 million on investmentsin hotel partnerships and corporations and a write-down of $5.1 millionon investment in management contracts.

For three months endedDecember 31, 2005, other expense, net, includes an expense of $25.3million relating to the provision for and the write-down of certainassets, including a provision for loss of $8.8 million on long-termreceivables, a write-down of $15.9 million on investments in hotelpartnerships and corporations and a write-down of $0.6 million relatedto investment in management contracts.

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Foreign Exchange

Otherexpense for the full year ended December  31,  2005included a foreign exchange loss of $24.6  million, as comparedto a gain of $3.2  million in 2004. Other expense for the fourthquarter of 2005 included a foreign exchange loss of $4.8million, as compared to a gain of $5.3  million for the sameperiod in 2004.

Foreign exchange gains and losses aroseprimarily from the translation to Canadian dollars (using currentexchange rates at the end of each quarter) of our foreigncurrency-denominated net monetary assets, which are not included in ourdesignated foreign self-sustaining subsidiaries. They also reflectedlocal currency foreign exchange gains and losses on net monetary assetsincurred by our designated foreign self-sustaining subsidiaries. Netmonetary assets is the difference between our foreigncurrency-denominated monetary assets and our foreigncurrency-denominated monetary liabilities in each currency, and consistprimarily of cash and cash equivalents, accounts receivable, long-termreceivables and short-term and long-term liabilities, as determinedunder Canadian generally accepted accounting principles(‘‘GAAP’’). As a result of the currencyswap relating to our convertible senior notes, which is described belowunder ‘‘Liquidity and Capital Resources —Convertible Notes’’, our US dollar net monetary assetposition increased significantly during the second quarter of 2005.This, combined with the strengthening of the Canadian dollar relativeto the US dollar and the British pound sterling, resulted in theforeign exchange loss during the full year and fourth quarter of2005.

Further fluctuations in rates of exchange betweencurrencies will likely result in future foreign exchange gains orlosses.

The following table sets out the exchange rates obtainedfrom the Bank ofCanada:

|                                |  |                       |  |                       |  |                    |  |  |  |  |  |  |  |  |
|--------------------------------|--|-----------------------|--|-----------------------|--|--------------------|--|--|--|--|--|--|--|--|
|                           |  | AsatDecember 31, 2004 |  | As atDecember 31,2005 |  | Average during2005 |
| US dollar toCanadian$1.00      |  | 0.8308                |  | 0.8577                |  | 0.8253             |
| Poundsterling to Canadian$1.00 |  | 0.4336                |  | 0.4991                |  | 0.4532             |
| Euroto Canadian$1.00           |  | 0.6138                |  | 0.7244                |  | 0.6627             |
| Australiandollar to US$1.00    |  | 1.2821                |  | 1.3630                |  | 1.3109             |
|                                |

Gain/Losson Disposition of Assets 

Other expense, net for the yearended December  31,  2005 included a net gain of$3.2  million related to the disposition of certain investmentsin hotel partnerships and corporations and the exit from certainmanagement contracts, and a loss of $6.2  million on theassignment of leases and the sale of related assets in The Pierre.

Included in other expense, net during the year ended December31,  2004, was a net loss of $3.7  million related to thesale of certain investments and the settlement of a long-termreceivable.

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Other expense, net for the fourth quarterof 2005 included a net gain of $9.0  million related to thedisposition of certain investments in hotel partnerships andcorporations and the exit from certain management contracts, and a lossof $0.9  million on the assignment of leases and the sale ofrelated assets in The Pierre.

Included in other expense, net forthe fourth quarter of 2004, was a net loss of $0.2  millionrelated to the sale of one of our investments.

Redemption ofthe LYONs 

Included in other expense, net for the yearended December  31,  2004 is the loss on the redemption ofthe debt component of our LYONs (issued in 1999) of $11.2million. As discussed below under ‘‘Liquidity and CapitalResources — Convertible Notes’’, we redeemed allof our LYONs for $328.73 cash per $1,000 principal amount at maturity(the redemption price being the issue price plus interest that wasaccrued but unpaid to but excluding September  23,  2004)for an aggregate payment of $215.5  million. The redemption ofthese convertible notes is more fully described in our consolidatedfinancial statements for the year ended December  31,2005.

Net InterestIncome/Expense

|                              |  |                              |  |                                |  |                         |  |                               |  |  |  |  |  |  |  |  |  |  |
|------------------------------|--|------------------------------|--|--------------------------------|--|-------------------------|--|-------------------------------|--|--|--|--|--|--|--|--|--|--|
| (inmillions of dollars)      |  | Years endedDecember31,       |  | Three months endedDecember 31, |
|                         |  | 2005                         |  | 2004                           |  | 2005                    |  | 2004                          |
| Interestincome               |  | $  16.7            |  | $  13.0              |  | $  5.2        |  | $   3.4        |
| Interestexpense              |  |    (13.3)     |  |    (11.9)       |  |    (3.6) |  |     (3.5) |
| Interestincome (expense),net |  | $    3.4 |  | $    1.1   |  | $  1.6        |  | $ (0.1)                  |
|                              |

Theincrease in interest income for the year ended December31,  2005, as compared to the same period in 2004, was primarilyattributable to higher deposit interest rates, as well as new loans tocertain properties under our management. The increase in interestexpense for the year ended December  31,  2005 wasprimarily attributable to higher interest expense relating to theconvertible senior notes issued during the second quarter of 2004, ascompared to the interest costs relating to the LYONs, which wereoutstanding for the first eight months of 2004. For financial reportingpurposes, the convertible senior notes are bifurcated into debt andequity components under Canadian GAAP, and a notional interest rate isapplied to the portion that is allocated to the debt component.Although the interest rate that is applied to the convertible seniornotes is lower than the rate applied to the LYONs, a larger componentof the convertible senior notes is allocated to debt than was the casewith the LYONs. As a result, for accounting purposes, the interestexpense associated with the convertible senior notes is higher than wasthe case for the LYONs.

As discussed below under‘‘Liquidity and Capital Resources’’, wehave entered into currency and interest rate swap arrangements relatingto the convertible senior notes. Taking into account the amortizationof the gain on the terminated swap and the existing swap, the effectiveinterest rate on the convertible senior notes in the fourth quarter of2005 was approximately 4.5%, which represents $2.5million of interest expense for that period. For the year endedDecember  31,  2005, the effective interest rate on theconvertible senior notes was approximately 4.2%, whichrepresents $9.2  million of interest expense for the fullyear.

Income Tax Recovery/Expense

Our income taxrecovery during the full year and fourth quarter of 2005 was$10.8  million and $7.4  million, respectively (effectivetax rate of 27.8% and 16.4%, respectively), as comparedto income tax

22

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expense of $12.6  million and$4.0  million (effective tax rate of 32.9% and23.9%), respectively, for the same periods in 2004.

Thevariation from our expected 24% tax rate is the result ofcertain items not being tax effected, including the non-taxable amountsrelated to the redemption of the LYONs in 2004 and, in 2005 and 2004, aportion of the foreign exchange gains and losses, since they will neverbe realized for tax purposes. In addition, we increased the valuationallowance in the fourth quarter of 2005 to reflect the uncertaintyrelating to our realization of the benefit of certain income taxassets. In 2004, the impact of these items was partially offset by areduction in the tax rate related to the utilization of certain losses,which previously had not been recorded. Excluding these items, our taxrate would have been our expected 24%.

Stock OptionExpense

Stock option expense for the full year 2005 was$2.3  million ($0.8  million allocated to ManagementOperations and $1.5  million allocated to Ownership Operationsand Corporate Expenses), as compared to $1.6  million for 2004($0.7  million allocated to Management Operations and $0.9million allocated to Ownership Operations and CorporateExpenses).

Net Earnings and Earnings per Share

For thereasons outlined above, net loss for the year ended December31,  2005 was $28.2  million ($0.77 basic and diluted lossper share), as compared to net earnings of $25.7  million ($0.72basic earnings per share and $0.69 diluted earnings per share) for theyear ended December  31,  2004.

For the reasonsoutlined above, net loss for the quarter ended December31,  2005 was $37.8  million ($1.03 basic and diluted lossper share), as compared to net earnings of $12.8  million ($0.35basic earnings per share and $0.34 diluted earnings per share) for thequarter ended December  31,  2004.

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Adjusted Net Earnings and AdjustedEarnings per Share

Adjusting for certain items, adjustedearningswere:

|                                                                      |  |                        |       |                                |  |        |      |        |  |        |       |         |  |        |      |         |  |  |
|----------------------------------------------------------------------|--|------------------------|-------|--------------------------------|--|--------|------|--------|--|--------|-------|---------|--|--------|------|---------|--|--|
| (inmillions of dollars)                                              |  | Years endedDecember31, |       | Three months endedDecember 31, |
|                                                                 |  |                   | 2005  |                           |  |   | 2004 |   |  |   | 2005  |    |  |   | 2004 |    |
| Netearnings(loss)                                                    |  | $                      | (28.2 | )                         |  | $      | 25.7 |   |  | $      | (37.8 | )  |  | $      | 12.8 |    |
| Adjustmentsrelated to items included in other (income) expense,net13 |  |                   | 89.2  |                           |  |   | 11.9 |   |  |   | 56.8  |    |  |   | (5.1 | )  |
| Taxeffect ofadjustments                                              |  |                   | (24.6 | )                         |  |   | 0.1  |   |  |   | (12.0 | )  |  |   | 1.0  |    |
| Adjustednetearnings                                                  |  | $                      | 36.4  |                           |  | $      | 37.7 |   |  | $      | 7.0   |    |  | $      | 8.7  |    |
| Adjustedbasic earnings pershare                                      |  | $                      | 0.99  |                           |  | $      | 1.06 |   |  | $      | 0.19  |    |  | $      | 0.24 |    |
| Adjusteddiluted earnings pershare                                    |  | $                      | 0.96  |                           |  | $      | 1.01 |   |  | $      | 0.19  |    |  | $      | 0.23 |    |
|                                                                      |

Adjusted net earnings is a non-GAAP measure, is not defined byCanadian GAAP and should not be considered as an alternative to netearnings, cash flow from operating activities or any other measure ofperformance prescribed by Canadian GAAP. Our adjusted net earnings mayalso not be comparable to adjusted net earnings used by othercompanies, which may be calculated differently. We consider adjustednet earnings to be a meaningful indicator of our operations and we useit as a measure to assess our operating performance. Adjusted netearnings is also used by investors, analysts, and our lenders as ameasure of our financial performance. As a result, we have chosen toprovide this information.

Two-Year Summary byQuarter

|                                                 |  |               |        |               |  |               |        |              |  |        |        |         |  |        |        |         |  |        |        |         |  |        |        |         |  |        |        |         |  |        |        |         |  |  |
|-------------------------------------------------|--|---------------|--------|---------------|--|---------------|--------|--------------|--|--------|--------|---------|--|--------|--------|---------|--|--------|--------|---------|--|--------|--------|---------|--|--------|--------|---------|--|--------|--------|---------|--|--|
| (inmillions of dollars except per shareamounts) |  | FourthQuarter |        | Third Quarter |  | SecondQuarter |        | FirstQuarter |
|                                            |  |          | 2005   |          |  |          | 2004   |         |  |   | 2005   |    |  |   | 2004   |    |  |   | 2005   |    |  |   | 2004   |    |  |   | 2005   |    |  |   | 2004   |    |
| Consolidatedrevenues                            |  | $             | 58.5   |          |  | $             | 69.5   |         |  | $      | 52.2   |    |  | $      | 63.3   |    |  | $      | 74.5   |    |  | $      | 71.4   |    |  | $      | 63.1   |    |  | $      | 57.1   |    |
| Earnings(loss) before other operatingitems:     |  |          |   |          |  |          |   |         |  |   |   |    |  |   |   |    |  |   |   |    |  |   |   |    |  |   |   |    |  |   |   |    |
| Managementoperations                            |  |          | 18.0   |          |  |          | 18.1   |         |  |   | 15.9   |    |  |   | 20.1   |    |  |   | 22.8   |    |  |   | 22.1   |    |  |   | 19.3   |    |  |   | 17.1   |    |
| Ownershipoperations and corporateexpenses       |  |          | (5.3   | )        |  |          | (3.1   | )       |  |   | (3.6   | )  |  |   | (4.9   | )  |  |   | (2.3   | )  |  |   | (1.3   | )  |  |   | (6.8   | )  |  |   | (7.4   | )  |
| Netearnings(loss):                              |  |          |   |          |  |          |   |         |  |   |   |    |  |   |   |    |  |   |   |    |  |   |   |    |  |   |   |    |  |   |   |    |
| Total                                           |  | $             | (37.8  | )        |  | $             | 12.8   |         |  | $      | (11.4  | )  |  | $      | (8.5   | )  |  | $      | 15.8   |    |  | $      | 12.8   |    |  | $      | 5.2    |    |  | $      | 8.7    |    |
| Basicearnings (loss)                            |  | $             | (1.03  | )        |  | $             | 0.35   |         |  | $      | (0.31  | )  |  | $      | (0.24  | )  |  | $      | 0.43   |    |  | $      | 0.36   |    |  | $      | 0.14   |    |  | $      | 0.25   |    |
|                                                 |

|  |
|--|

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 13 | Otherexpense, net for the full year ended December  31,  2005included a foreign exchange loss of $24.6  million, $35.5million in connection with the transition of a retirement benefit planand $29.1  million relating primarily to the write-down ofcertain of our assets reduced by net gains on disposition of certainhotel investments. For the full year ended December  31,2004, other expense, net included a foreign exchange gain of$3.2  million, $11.2  million related to the redemption ofthe LYONs and $3.9  million net loss on sales of investments.Other expense, net for the three months ended December31,  2005 included a foreign exchange loss of $4.8million, $35.5  million in connection with the transition of aretirement benefit plan and $16.5  million relating primarily tothe write-down of certain of our assets reduced by net gains ondisposition of certain hotel investments. For the three months endedDecember  31,  2004, other expense, net included a foreignexchange gain of $5.3  million and $0.2  million loss onsales of investments. |

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|                                                |  |                |        |              |  |                |        |              |  |        |        |         |  |        |        |         |  |        |        |        |  |        |        |        |  |        |        |        |  |        |        |        |  |  |
|------------------------------------------------|--|----------------|--------|--------------|--|----------------|--------|--------------|--|--------|--------|---------|--|--------|--------|---------|--|--------|--------|--------|--|--------|--------|--------|--|--------|--------|--------|--|--------|--------|--------|--|--|
| (inmillions of dollarsexcept per shareamounts) |  | Fourth Quarter |        | ThirdQuarter |  | Second Quarter |        | FirstQuarter |
| pershare1                                      |  |           |   |         |  |           |   |         |  |   |   |    |  |   |   |    |  |   |   |   |  |   |   |   |  |   |   |   |  |   |   |   |
| Diluted earnings (loss) pershare1              |  | $              | (1.03  | )       |  | $              | 0.34   |         |  | $      | (0.31  | )  |  | $      | (0.24  | )  |  | $      | 0.42   |   |  | $      | 0.34   |   |  | $      | 0.14   |   |  | $      | 0.24   |   |
|                                                |

|   |                                                                                                                                                                                    |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1 | Quarterlyand year-to-year computations of per share amounts are madeindependently. The sum of per share amounts for the quarters may notagree with per share amounts for the year. |

As discussedbelow under ‘‘Operating Risks —Seasonality/Quarterly Predictability’’, our managementand ownership operations are seasonal in nature. The dispositions ofour interests in The Pierre and Four Seasons Hotel Berlin during 2005and 2004, respectively, also affect the comparative amounts. Inaddition to the impact of seasonality on our quarter-over-quarteroperating results, net earnings each quarter were impacted by theweakening US dollar against the Canadian dollar over the course of 2005(resulting in foreign exchange gains and losses upon the translation toCanadian dollars of non-Canadian dollar-denominated net monetary assetsnot included in our designated self-sustaining operations) (See‘‘Company Operating Results — OtherIncome/Expense, Net’’). In addition, as discussed under‘‘Other Income/Expense, Net’’, during thefourth quarter of 2005 we wrote-down certain of our investments andtransitioned our retirement benefit plan. The impact of certain ofthese items is highlighted in the followingtable:

|                                    |  |               |         |               |  |               |         |              |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|------------------------------------|--|---------------|---------|---------------|--|---------------|---------|--------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
| (inmillions of dollars)            |  | FourthQuarter |         | Third Quarter |  | SecondQuarter |         | FirstQuarter |
|                               |  |          | 2005    |          |  |          | 2004    |         |  |   | 2005    |    |  |   | 2004    |    |  |   | 2005    |    |  |   | 2004    |    |  |   | 2005    |    |  |   | 2004    |    |
| Retirementbenefit plan             |  | $             | (35.5   | )        |  | $             | — |         |  | $      | — |    |  | $      | — |    |  | $      | — |    |  | $      | — |    |  | $      | — |    |  | $      | — |    |
| Assetprovisions andwrite-downs     |  |          | (25.3   | )        |  |          | — |         |  |   | (4.6    | )  |  |   | — |    |  |   | — |    |  |   | — |    |  |   | (1.9    | )  |  |   | — |    |
| Foreignexchange gain(loss)         |  |          | (4.8    | )        |  |          | 5.3     |         |  |   | (16.2   | )  |  |   | (3.4    | )  |  |   | (3.3    | )  |  |   | (2.2    | )  |  |   | (0.4    | )  |  |   | 3.5     |    |
| Losson redemption ofLYONs          |  |          | — |          |  |          | — |         |  |   | — |    |  |   | (11.2   | )  |  |   | — |    |  |   | — |    |  |   | — |    |  |   | — |    |
| Gain(loss) on disposition ofassets |  |          | 9.0     |          |  |          | (0.2    | )       |  |   | (0.3    | )  |  |   | (3.5    | )  |  |   | (5.1    | )  |  |   | — |    |  |   | (0.4    | )  |  |   | — |    |
| Legaland enforcementcosts          |  |          | (0.2    | )        |  |          | — |         |  |   | — |    |  |   | — |    |  |   | (0.2    | )  |  |   | — |    |  |   | — |    |  |   | (0.2    | )  |
| Otherincome (expense),net          |  | $             | (56.8   | )        |  | $             | 5.1     |         |  | $      | (21.1   | )  |  | $      | (18.1   | )  |  | $      | (8.6    | )  |  | $      | (2.2    | )  |  | $      | (2.7    | )  |  | $      | 3.3     |    |
|                                    |

BalanceSheet Review and Analysis

Corporate Strategy Relating toInvestments

An important part of our overall strategy is tomaintain the strength of our balance sheet. Accordingly, we intend tocontinue to be disciplined in the allocation of our capital. We alsointend to seek to dispose of certain of our equity investments, whichcould contribute further cash and cash equivalents in the near term.Our capital investment plans remain focused on allocating the majorityof our capital for investment opportunities that are intended toestablish new long-term management contracts in key destinations orenhance existing management arrangements. We make investments in, oradvances in respect of or to owners of, properties with a view toobtaining management agreements or enhancing existing managementagreements where we believe the overall returns will justify theinvestment or advance.

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These investments must meet our financialcriteria considering all sources of cash flow (including managementfees), certain minimum return hurdles and a manageable risk profile. Weconsider whether the structure should be in the form of an investmentor an advance, and, among other things, the relative risk and returnsof the investment or advance, including interest, dividends and feeincome. We generally seek to limit our total long-term capital exposureto no more than 20% of the total equity required for a propertyand can typically choose to have our equity interest diluted ifadditional capital is required. We attempt to structure our equityinterests separately from our management interests to enable us todispose of equity interests as opportunities arise, without affectingour management interests. Depending on the nature of the investment oradvance, it will be characterized on our consolidated balance sheet as‘‘Investments in hotel partnerships andcorporations’’, ‘‘Investment in managementcontracts’’ or ‘‘Long-termreceivables’’.

As part of our ongoing balance sheetevaluation, we reviewed our significant investments and advances atDecember  31,  2005 and determined that write-downs wererequired with respect to certain of our investments. These charges arediscussed under ‘‘Company Operating Results —Other Income/Expense, Net’’.

Long-TermReceivables

Included on our balance sheet as at December31,  2005 is $175.4  million (2004 — $179.1million) of long-term receivables relating primarily to advances inrespect of, and to owners of, properties that we manage, includingsecured and unsecured long-term receivables relating to our managedproperties in London, Hampshire, Sydney, Geneva, Prague, Toronto,Scottsdale and Buenos Aires.

Consolidated Hotel OwnershipInterests

We have a 100% leasehold interest in FourSeasons Hotel Vancouver. In June  2005, Four Seasons disposed ofits interest in The Pierre and ceased managing the property onJune  30,  2005. See ‘‘Company OperatingResults — Ownership Operations (which includes CorporateExpenses) — Ownership Operations’’. InSeptember  2004, our lease was terminated and we ceased managingFour Seasons Hotel Berlin. Our consolidated financial statementsreflect the consolidation of the balance sheet of Four Seasons HotelVancouver. There is no third party debt associated with this leaseholdinterest.

Investments in Hotel Partnerships andCorporations

Included on our balance sheet as at December31,  2005 is $99.9  million (2004 — $131.3million) related to investments in hotel partnerships and corporations.For a listing of other hotels and resorts under management in which wehave equity investments, see ‘‘Four Seasons Portfolio— Description of Hotels and Resorts’’.

Weaccount for these equity investments on a cost basis because either thepercentage ownership or the structure does not give us significantinfluence over these investments. In 2004, in accordance with CanadianGAAP, investments in which we had a greater than 20% ownershipinterest and which had been acquired before May  1,  2003with the intention that they be disposed of in the foreseeable futurewere also accounted for on a cost basis. Beginning January1,  2005, we were required to either equity account orconsolidate our investments in which we have a greater than 20%ownership interest. In March  2005, we sold the majority of our71% equity interest in Four Seasons Residence Club Scottsdale atTroon North and in April  2005, we sold the majority of ourequity interest in Four Seasons Hotel Shanghai. As a result of thesales, our equity interest in each property was reduced to less than20%.

Each of our investments in hotel partnerships andcorporations individually represents less than 5% of our totalassets, and none of these investments individually is material to us.We are not liable for any further obligations relating to theseinvestments, other than any commitment discussed under‘‘Four

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Seasons Portfolio — Properties underConstruction or Development’’, ‘‘Liquidityand Capital Resources’’, and ‘‘Off-BalanceSheet Arrangements’’.

Investment in ManagementContracts

Included in our balance sheet as at December31,  2005 is $164.9  million (2004 — $181.3million) relating to our investment in management contracts. Thelargest component of these amounts relates to management contractsacquired during the Regent transaction in 1992, including themanagement contracts for the Four Seasons hotels in New York and Milanand Four Seasons Resort Bali at Jimbaran Bay. The most significantamounts advanced for individual management contracts include amountsadvanced in the context of obtaining or improving the managementcontracts for Four Seasons properties in Paris, Scottsdale, Hampshire,and Chicago.

Fixed Assets

Included on our balance sheetas at December  31,  2005 is $64.9  million (2004— $59.9  million) relating to our fixed assets. A majorityof this amount relates to the land, building, and furniture, fixtures,and equipment for our Corporate Office in Toronto. Also included infixed assets at December  31,  2005 is $6.2  million(2004 — $7.4  million), which represents a majority of ourinvestment in Four Seasons Hotel Vancouver.

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Liquidity and CapitalResources

As at December  31,  2005, our cash andcash equivalents were $242.2  million, as compared to$226.4  million as at December  31,  2004. Ourinvestments in cash and cash equivalents are highly liquid, withmaturities of less than 90 days. These investments include bankdeposits, guaranteed investment certificates and money market fundsheld with major financial institutions.

We have a committed bankcredit facility of $125  million, which expires September2007. Borrowings under this credit facility bear interest at LIBOR plusa spread ranging between 0.875% and 2.25% in respect ofLIBOR-based borrowings (prime rate plus a spread ranging between niland 1.25% in respect of prime rate borrowings), depending uponcertain criteria specified in the loan agreement. As at December31,  2005, no amounts were borrowed under the credit facility.However, approximately $1.6  million of letters of credit wereissued under the facility. No amounts have been drawn under theseletters of credit. We believe that, absent unusual opportunities, thisbank credit facility, when combined with cash on hand and internallygenerated cash flow, should be more than adequate to allow us tofinance our normal operating needs and anticipated investmentcommitments related to our current growth objectives.

Ourcommitments include the contractual obligations and other commitmentsdescribed below in this ‘‘Liquidity and CapitalResources’’ section as well as those described under‘‘Off-Balance Sheet Arrangements’’ and‘‘Four Seasons Portfolio — Properties underConstruction or Development’’.

ContractualObligations

|                                             |  |                              |  |                             |  |                                 |  |                                             |  |                                 |  |  |  |  |  |  |  |  |  |  |  |  |
|---------------------------------------------|--|------------------------------|--|-----------------------------|--|---------------------------------|--|---------------------------------------------|--|---------------------------------|--|--|--|--|--|--|--|--|--|--|--|--|
| ContractualObligations(inmillionsofdollars) |  | Payments Due byPeriod        |
| Total                                       |  | Less than1year               |  | 1 – 3 years           |  | 4 – 5years                |  | After 5 years                               |
| ConvertibleNotes1                           |  | $260.4                       |  | $10.4                       |  |     — |  | $250.0                                      |  |     — |
| Currencyand Interest RateSwap2              |  |     17.1 |  |    (0.3)     |  |     — |  |     17.4                |  |     — |
| OperatingLeases3                            |  |     39.8 |  |     4.3 |  |     6.6     |  |       5.9     |  |   23.0                |
| OtherLong-TermObligations4                  |  |     36.4 |  |   34.6            |  |     1.8     |  |       — |  |     — |
| RetirementBenefitPlan5                      |  |     27.8 |  |     1.3 |  |     3.2     |  |       4.7     |  |   18.6                |
| TotalContractualObligations6                |  | $381.5                       |  | $50.3                       |  | $11.6                           |  | $278.0                                      |  | $41.6                           |
|                                             |

|  |
|--|
|  |  |
|  |

|   |                                                                                                                                                             |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1 | Theamount represents the principal amount plus accrued interest atDecember  31,  2005 of $252.5  million. See‘‘Convertible Notes’’. |

|   |                                                                                                                     |
|---|---------------------------------------------------------------------------------------------------------------------|
| 2 | The amount represents the carrying amount(foreign exchange loss net of interest receivable) as atDecember  31,2005. |

|   |                                                                                                                                                                                                                                                          |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3 | This amount excludes thefuture minimum lease payments in connection with Four Seasons HotelLondon and includes the future minimum lease payments in connectionwith Four Seasons Hotel Vancouver. See note 15(a) to our consolidatedfinancial statements. |

|   |                                                                                                                                                                                                                                                                                                                    |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4 | This amountincludes our donation to the Canadian Opera Company for its new operahouse, which will be named the ‘‘Four Seasons Centre forthe Performing Arts’’, our contractual obligationsrelated to the expansion of our Toronto corporate office, as well asother long-term obligations. |

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|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 5 | We continue tomaintain the unfunded multi-employer, non-contributory, defined benefitplan on behalf of four active executives and 14 retired executives andgeneral managers, as well as the owners of two of our managedproperties. As at December  31,  2005 we have accrued adefined benefit liability of $25.8  million in‘‘Long-term obligations’’ in respect ofthis plan. This accrued defined benefit liability excludes the definedbenefit obligation of the owners of the two managed properties fortheir current generalmanagers. |

|   |                                                                                                                                                                                                      |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 6 | This does not include theamounts that are disclosed as capital commitments in the chart under‘‘Four Seasons Portfolio — Properties underConstruction or Development’’. |

ConvertibleNotes

During 1999, we issued LYONs for $655.5  millionprincipal amount at maturity (September 23, 2029) for gross proceeds of$172.5  million. We were entitled to redeem the LYONs commencingin September 2004 for cash equal to the issue price plus accruedinterest calculated at 41⁄2% per annum. Asdiscussed above in ‘‘Company Operating Results —Other Income/Expense, Net’’, during the third quarter of2004, we exercised this right and redeemed all of our LYONs for anaggregate payment of $215.5  million.

During the secondquarter of 2004, we issued $250  million principal amount ofconvertible senior notes. We used a majority of the net proceeds fromthe issuance of the convertible senior notes to repay the LYONs. Thesenotes bear interest at the rate of 1.875% per annum (payablesemi-annually in arrears on January  30 and July  30 toholders of record on January  15 and July  15, beginningJanuary  30,  2005) and will mature on July30,  2024, unless earlier redeemed or repurchased. The notes areconvertible into our Limited Voting Shares at an initial conversionrate of 13.9581 shares per $1,000 principal amount (equal to aconversion price of approximately $71.64 per Limited Voting Share),subject to adjustments in certain events, in circumstances in which (i)the Limited Voting Shares have traded for more than 130% of theconversion price for a specified period, (ii) the notes have a tradingprice of less than 95% of the market price of the Limited VotingShares into which they may be converted for a specified period, (iii)we call the notes for redemption, or (iv) specified corporatetransactions or a ‘‘fundamental change’’occurs. We may choose to settle conversion in our Limited VotingShares, cash or a combination of our Limited Voting Shares and cash.Holders of the notes will have the right to require us to purchase thenotes for their principal amount plus accrued and unpaid interest onJuly  30,  2009, July  30,  2014 andJuly  30,  2019 and in connection with certain events.Repurchases of notes made on July  30,  2014 andJuly  30,  2019 may be made (at our option) in cash, ourLimited Voting Shares or a combination of cash and our Limited VotingShares. Subject to conversion rights, we will have the right to redeemthe convertible senior notes for their principal amount, plus anyaccrued and unpaid interest, beginning August  4,2009.

In accordance with Canadian GAAP, the convertible seniornotes are bifurcated on our financial statements into a debt component(representing the principal value of a bond of $211.8  million,which was estimated based on the present value of a $250  millionbond maturing in 2009, yielding 5.33% per annum, compoundedsemi-annually, and paying a coupon of 1.875% per annum) and anequity component of $36.9  million (representing the value of theconversion feature of the convertible senior notes). For furtherdetails, see note 10(a) to our consolidated financialstatements.

In connection with the offering of the convertiblesenior notes, we entered into a five-year interest rate swap with aninitial notional amount of $211.8  million, pursuant to which weagreed to receive interest at a fixed rate of 5.33% per year andpay interest at six-month LIBOR, in arrears, plus 0.4904%. InOctober  2004, we terminated the interest rate swap agreement andreceived proceeds of $9  million. The book value of the interestrate swap at the date of termination was approximately $1.5million. The recognition of the resulting gain was deferred and isbeing amortized over the period to July  30,  2009.

In the second quarter of 2005, we entered into a new currency andinterest rate swap agreement until July  30,  2009,pursuant to which we have agreed to receive interest at a fixed rate of5.33% per annum on an initial notional amount of $215.8million (C$269.2 million) and pay interest at afloating

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rate of six-month Canadian BankersAcceptances (‘‘BA’’) in arrears plus1.1% per annum. On July  30,  2009, we will payC$311.8 million and receive $250  million under the swap. We havedesignated the swap as a fair value hedge of our convertible seniornotes.

Cash Flows

Cash from Operations

Duringthe year ended December  31,  2005, we generated cash fromoperations of $62.6  million (before the payment related to thetransition of the retirement benefit plan) and $26.5  million(after the payment related to the transition of the retirement benefitplan), as compared to $44.4  million in 2004. During the threemonths ended December  31,  2005, we used cash of$9.9  million from operations, as compared to generating cash of$32.3  million for the same period in 2004.

The decrease incash from operations of $17.9  million in 2005, as compared to2004, resulted primarily from a $36.0  million cash payment in2005 related to the restructuring of the retirement benefit plan,$9.0  million in proceeds that were received in 2004 on thetermination of the interest rate swap, an increase in taxes paid in2005 of $6.9  million, and an increase in interest paid of$4.4  million, partially offset by the $25.8  millioninterest payment on redemption of the LYONs in 2004, a $10.3million increase in interest received in 2005, and $2.3  millionin 2005 arising from changes in non-cash working capital.

Thedecrease in cash from operations of $42.2  million in the fourthquarter of 2005, as compared to the same period in 2004, resultedprimarily from a $36.0  million cash payment related to therestructuring of the retirement benefit plan. In the fourth quarter of2005, we transitioned the majority of our senior executives and hoteland resort general managers from an unfunded defined benefit plan to afully funded defined contribution plan (see ‘‘OtherIncome/Expense, Net—Retirement Benefit Plan’’above). The transition to this defined contribution format resulted ina funding requirement of $42.2  million, of which $36.0million was funded in 2005, and a one-time pre-tax loss of $35.5million.

Financing Activities

In 2005, we receivedproceeds of $7.0  million relating to the exercise of options byemployees to purchase 32,380 Limited Voting Shares, as compared tooption exercise proceeds of $33.9  million in 2004 relating tothe purchase of 1,367,054 Limited Voting Shares.

We paid$3.1  million and $2.8  million in dividends during 2005and 2004, respectively, based on a dividend policy of C$0.11 perLimited Voting Share and C$0.055 per Variable Multiple Voting Share perannum, paid semi-annually in January and July.

In 2004, weissued $250.0  million (principal amount) convertible seniornotes. In 2004, we also redeemed all of our LYONs for an aggregatepayment of $215.5  million (see ‘‘Liquidity andCapital Resources — Convertible Notes’’above).

Investing Activities

Long-TermReceivables

In 2005, we advanced $44.9  million, in theaggregate, as long-term receivables, including amounts to Four Seasonsproperties in Geneva, Toronto, Washington, Buenos Aires, and Exumaat

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Emerald Bay. Also in 2005, we were repaid$34.6  million, in the aggregate, of our long-term receivables,including repayments from Four Seasons properties in Nevis, SanFrancisco, and Scottsdale.

In 2004, we advanced $25.1million, in the aggregate, as long-term receivables, including amountsto Four Seasons properties in Hampshire, Scottsdale at Troon North, andExuma at Emerald Bay. Also in 2004, we were repaid $8.9  million,in the aggregate, of our long-term receivables, of which the largestcomponent was $5.9  million relating to the settlement of ourloan receivable from our proposed project in Sedona.

During thefourth quarter of 2005, we advanced $6.2  million, in theaggregate, as long-term receivables, including amounts to Four Seasonsproperties in Geneva, Bangkok and Buenos Aires. Also during the fourthquarter of 2005, we were repaid $15.2  million, in the aggregate,of which the largest component related to our loan receivable fromNevis.

During the fourth quarter of 2004, we advanced$8.4  million, in the aggregate, as long-term receivables,including amounts to Four Seasons properties in Scottsdale, Exuma andHampshire.

Investments in Hotel Partnerships andCorporations

To fund capital requirements in properties inwhich we have an interest (primarily in properties under constructionor development), we invested $8.7  million in 2005. Theseincluded additional investments in Four Seasons Resort Jackson Hole andFour Seasons Hotel Silicon Valley at East Palo Alto, with our equityinvestments in these properties being 10% and 15%,respectively, at December  31,  2005. In 2005, we realizedcash of $24.6  million, from the sales of approximately53% of our equity interest in Four Seasons Hotel Shanghai,80% of our equity interest in Four Seasons Residence ClubScottsdale at Troon North, and all of our interests in Four SeasonsHotel Cairo at Nile Plaza and Four Seasons Hotel Amman.

The 2004investments of $36.1  million included Four Seasons ResortWhistler (which we subsequently sold in the third quarter of 2004),Four Seasons Hotel Silicon Valley at East Palo Alto (approximate equityinterest of 15%), and funding of an additional equity investmentin one opened property, Four Seasons Resort Jackson Hole (approximateequity interest of 10%). In 2004, we realized cash from disposalof our investments of $38.4  million from the sale of FourSeasons Resort Whistler and the majority of our 8% investment inFour Seasons Hotel Amman.

During the fourth quarter of 2005, on anet basis, we realized cash from the disposition of our investments of$14.0  million, reflecting the sale of our interests in FourSeasons Hotel Cairo at Nile Plaza and Four Seasons Hotel Amman, and thesale of a portion of our interest in Four Seasons HotelMiami.

During the fourth quarter of 2004, we funded $1.5million related to our property in Jackson Hole and realized cash of$2.4  million from the sale of part of our interest in FourSeasons Resort Scottsdale at Troon North.

Investment inManagement Contracts

For the full year and fourth quarter of2005, we received total net proceeds of $10.5  million and$11.1  million, respectively, related to our investments inmanagement contracts, including our property in Canary Wharf and ourproperty in Newport Beach (which we ceased managing in October2005). Of the amounts that were invested in management contracts during2005, there was no significant investment in any individual managementcontract.

For the full year and fourth quarter of 2004, weinvested a net amount of $12.1  million and $2.4  million,respectively, in investments in management contracts, includinginvestments in Four Seasons Hotel Hampshire, Four Seasons ResortWhistler and Four Seasons Resort Costa Rica.

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Fixed Assets

Our capitalexpenditures were $18.7  million for the year endedDecember  31,  2005 and $5.9  million in the fourthquarter of 2005, as compared to $6.6  million and $2.4million, respectively, for the same periods in 2004. In 2004, wecommenced construction on our Toronto corporate office expansion, whichis scheduled to be completed during 2006. Capital expenditures relatedto this expansion were $14.7  million in 2005 and $3.1million in 2004. Costs to complete the facility are estimated at$30.1  million and are expected to be fully incurred in2006.

During the fourth quarters of 2005 and 2004, our capitalexpenditures were $5.9  million and $2.4  million,respectively, which primarily related to our Toronto corporate officeexpansion.

Owners of properties that we manage are contractuallyresponsible for funding the capital requirements of the properties,including guest room and common area renovations, and for maintainingcapital reserves to fund ongoing annual maintenance capitalexpenditures required by the management agreements. The owners annuallyspend an average of between 3% and 5% of hotel grossrevenues on capital expenditures to maintain properties at the FourSeasons standard (other than in newly constructed or recently renovatedproperties where the annual amounts generally range from 1% to2% in the initial years of operation following opening and majorrefurbishment). Capital expenditures are funded primarily by workingcapital generated from property operations and through advances fromthe owners. Our share of capital expenditures in 2005 and 2004 wasimmaterial for the properties in which we have a minority equityinterest or pursuant to management contractobligations.

Outstanding Share Data

|                                                        |  |                                |            |        |  |  |
|--------------------------------------------------------|--|--------------------------------|------------|--------|--|--|
| Designation                                            |  | Outstandingas at March 8, 2006 |
| Variable Multiple VotingShares1                        |  |                           | 3,725,698  |   |
| LimitedVotingShares                                    |  |                           | 33,018,768 |   |
| Optionsto acquire Limited VotingShares2:               |  |                           |       |   |
| Outstanding                                            |  |                           | 4,358,823  |   |
| Exercisable                                            |  |                           | 3,385,319  |   |
| ConvertibleSenior Notes issued June  2004 and due20243 |  | $250.5million4                 |
|                                                        |

|   |                                                                                                      |
|---|------------------------------------------------------------------------------------------------------|
| 1 | Convertibleinto Limited Voting Shares at any time at the option of the holder on aone-for-one basis. |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | As disclosed innote 11(a) to our consolidated financial statements, pursuant to anagreement approved by the shareholders in 1989, Four Seasons has agreedto make a payment to Mr.  Isadore  Sharp on an arm’slength sale of control of Four Seasons Hotels Inc. that is calculatedby reference to the consideration received per Limited Voting Share inthe transaction and the total number of Variable Multiple Voting Sharesand Limited Voting Shares outstanding at the time of sale. |

|   |                                                                                                                                                              |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3 | The terms of the convertible senior notesare more fully described under ‘‘Liquidity and CapitalResources — ConvertibleNotes’’. |

|   |                                                                                                                                                              |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4 | This amountis equal to the issue price of the convertible senior notes issued inJune  2004 and due 2024 plus accrued interest calculated at1.875% per annum. |

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Financial Instruments

ForeignExchange Forward Contracts

We use derivative financialinstruments in the management of our foreign currency exposures, whenwe believe it is appropriate. We do not use derivative financialinstruments for trading or speculative purposes.

Because asignificant portion of our revenues is generated in foreign currencies(the most significant currency being the US dollar, our reportingcurrency) and the expenditures we incur for our management operationsare denominated primarily in Canadian dollars, we enter into foreignexchange forward contracts from time to time as a hedge against foreigncurrency fluctuations. We estimate future foreign currency cash flowson an ongoing basis and enter into foreign exchange forward contractsin proportion to the magnitude and timing of these anticipated cashflows. For a description of foreign currency-related risks, see‘‘Operating Risks — CurrencyExposure’’. We are also subject to credit risks relatedto the counterparties to our foreign exchange forward contracts.

As at December  31,  2005, we had foreign exchangeforward contracts to convert $21.2  million of US dollars toCanadian dollars at an average rate of 1.16099 over the first sixmonths of 2006. These foreign exchange forward contracts aremarked-to-market each period, with the resulting gains or lossesrecorded in income in the period. As of December  31,2005, the fair value of the outstanding contracts was $0.1million and has been included in accounts payable and accruedliabilities on our consolidated balance sheet and in other expense, netin our consolidated statements of operations.

Currency andInterest Rate Swap

We have entered into a currency and interestrate swap agreement with a duration until July  30,  2009pursuant to which we have agreed to receive interest at a fixed rate of5.33% per annum on an initial notional amount of $215.8million and pay interest at a floating rate of six-month CanadianBankers Acceptances (‘‘BA’’) in arrearsplus 1.1% per annum on an initial notional amount of C$269.3million. On July  30,  2009, we will pay C$311.8 millionand receive $250  million under the swap. We have designated theswap as a fair value hedge of our convertible senior notes (see‘‘Liquidity and Capital Resources — ConvertibleNotes’’ above). A liability of $17.1  million hasbeen recorded in our accounts in 2005 related to the swap as a fairvalue hedge, offsetting the translation gain on the underlying debtobligation. It is our intention to continue the swap agreement untilmaturity. Interest income and interest expense recognized on the swapagreement during the year was $8.0  million and C$8.3 million,respectively. Upon maturity, we will have an obligation to pay C$311.8million to the swap counterparty and may be required to convert some orall of the proceeds of the $250  million we will receive intoCanadian dollars at exchange rates which may be either more or lessfavourable than at December  31,  2005. The fair value ofthe swap as at December  31,  2005 represented a loss of$24.3  million. The difference between the fair value and theliability recorded to date has not been recorded in our accountsbecause the swap has been designated as a fair value hedge. The fairmarket value of the swap may change over time as a result of changes inthe forward exchange rate between the Canadian and US dollar and/or asa result of changes in interest rates.

As part of the interestrate component of the swap agreement, we receive a fixed interest rateamount in exchange for our payment of a floating interest rate chargeon the notional Canadian value of the swap. As a result, the amount weare obligated to pay is subject to changes in the six-month BA rate. Byway of example, a 1% increase in the six-month BA rate wouldresult in an increase in interest expense, on an annualized basis, ofapproximately C$2.8 million. Conversely, a 1% decrease in thesix-month BA rate would result in a decrease in interest expense, on anannualized basis, of approximately C$2.8 million. We try to manage ourexposure to changes in short-term interest rates by investing ouravailable cash balances in short-term securities, to provide a partialoffset to changes in interest expense,

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however, there can be no assurance that thispractice, which is dependent upon cash balances available forinvestment and the short-term interest rate spreads between Canada andthe US, will be effective.

Other Financial Instruments

In addition to the foreign exchange forward contracts and thecurrency and interest rate swap, we had the following financialinstruments at December  31,  2005: cash equivalents (see‘‘Liquidity and Capital Resources’’),long-term receivables (see ‘‘Balance Sheet Review andAnalysis — Long-Term Receivables’’), convertiblesenior notes (see ‘‘Liquidity and Capital Resources— Convertible Notes’’) and short-term financialinstruments, including current receivables and current accountspayable.

Fair Value of Financial Instruments

Theestimated fair value of a financial instrument is the amount at whichthe instrument could be exchanged in a transaction between willingparties, other than a forced or liquidation sale. These estimates,although based on the relevant market information about the financialinstrument, are subjective in nature and involve uncertainties andmatters of significant judgment and, therefore, cannot be determinedwith precision. Changes in assumptions could materially affect theestimates.

As cash equivalents, current receivables, currentaccounts payable and certain other short-term financial instruments areall short-term in nature, their carrying amounts approximate fairvalues. The fair value of our 2004 convertible senior notes is based onmarket quotes obtained from one of our financial advisors. The fairvalue of foreign exchange forward contracts is estimated from quotesobtained from our counterparties for the same or similar financialinstruments.

We do not have plans to sell loans receivable tothird parties and we expect to realize or settle them in the ordinarycourse of business. The fair values of these instruments cannot bereasonably estimated because no active and liquid market exists forthese instruments, and a market rate of interest (for instrumentshaving similar terms and characteristics) that is required to be usedin estimation techniques, such as discounted cash flow analysis, cannotreasonably be determined due to the unusual terms of theseinstruments.

The fair values of our financial instruments are asfollows:

|                                  |  |                      |        |                |  |        |        |         |  |  |
|----------------------------------|--|----------------------|--------|----------------|--|--------|--------|---------|--|--|
| (inmillions of dollars)          |  | Estimated fair value |        | Carryingamount |
| **2005:**                        |  |                 |   |           |  |   |   |    |
| Convertibleseniornotes1          |  | $                    | (243.0 | )         |  | $      | (260.4 | )  |
| Currencyand interest rateswap    |  |                 | (24.0  | )         |  |   | (17.1  | )  |
| Foreignexchange forwardcontracts |  |                 | (0.1   | )         |  |   | (0.1   | )  |
| **2004:**                        |  |                 |   |           |  |   |   |    |
| Convertibleseniornotes1          |  |                 | (322.0 | )         |  |   | (253.6 | )  |
|                                  |

|   |                                                                                                                                                                                                                                                                                                                                                                                                    |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1 | Thecarrying amount of the convertible senior notes includes the amountsallocated to both long-term obligations and shareholders’equity. It excludes, however, the offering expenses andunderwriters’ commission related to the shareholders’equity component of the notes of $1.3  million in 2005 (2004− $1.3  million), which are recorded inshareholders’ equity. |

Off-Balance SheetArrangements

In addition to the financial instruments discussedabove we have various off-balance sheet arrangements, the mostsignificant of which are discussed below.

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Guarantees and Commitments

As atDecember  31,  2005, we had provided certain guarantees inconnection with properties under our management. These includeguarantees in respect of four projects totalling a maximum ofapproximately $18.5  million, as well as a guarantee of$0.3  million for relocation costs for certain employees. We havelease guarantees in respect of Four Seasons Hotel London, as well as alease guarantee in respect of Four Seasons Hotel Prague (see notes15(a) and (d), respectively, to our consolidated financial statements).To the extent we are called upon to honour any one of these guarantees,we generally have either the right to be repaid from hotel operationsand/or have various forms of security or recourse to the owner of theproperty.

We also have four other commitments totallingapproximately $16.0  million to four properties under ourmanagement. In addition, during 2005, we assigned our lease and assetsof The Pierre. As part of the sale of The Pierre, in accordance withstatutory provisions, the purchaser agreed to assume a portion of ourcontribution history with a multi-employer pension fund for theunionized hotel employees (the "NYCPension’’). This permitted us to withdraw from the NYCPension without incurring a withdrawal liability estimated at$10.7  million. In certain limited circumstances, as a part ofour agreement, we may be required to pay a portion of thepurchaser’s withdrawal liability, if any. We believe that thelikelihood of our being required to make a payment is remote, and havenot recorded any amount as at December  31,  2005 inrespect of a potential NYC Pension withdrawal liability.

During2006, we expect to fund $1.7  million relating to one of thesecommitments. Our assessment of our potential liability for such matterscould change as a result of, among other things, the associated risksand uncertainties.

Indemnities

DispositionIndemnification Arrangements

In connection with the sale of allor a part of our interest in a property, we may agree to provide anindemnity against claims relating to breaches of specific covenants orrepresentations and warranties. The maximum amount of theindemnification in these transactions is generally limited to thepurchase price paid for the interest being purchased. The nature ofthese indemnities prevents the calculation of an exact amount that maybe payable to the indemnified parties.

Director and OfficerIndemnification Arrangements

To the extent permitted by law, weindemnify individuals that are, or have been, directors or officersagainst certain claims that may be made against them as a result oftheir being, or having been, a director or officer at our request. Wehave purchased directors’ and officers’ liabilityinsurance that may be available in respect of certain of theseclaims.

Other Indemnification Arrangements

In theordinary course of our business, we enter into other agreements withthird parties that may contain indemnification provisions pursuant towhich the parties to the agreements agree to indemnifyone

35

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another if certain events occur (such as,but not limited to, changes in laws and regulations or as a result oflitigation claims or liabilities that arise in respect of tax orenvironmental matters).

The terms of our indemnificationprovisions vary based on the contract, which (together with the factthat any amounts that could be payable would be dependent on theoutcome of future, contingent events, the nature and likelihood ofwhich cannot be determined at this time) precludes us from making areasonable estimate of the maximum potential amount we could berequired to pay to counterparties. We believe that the likelihood thatwe would incur significant liability under these obligations is remote.Historically, we have not made any significant payments under suchindemnification arrangements. No amount has been recorded in theconsolidated financial statements with respect to these indemnificationprovisions. Our assessment of our potential liability could change inthe future as a result of currently unforeseencircumstances.

Looking Ahead

Our business objectives for2006 continue to focus on those aspects of our business that we believeprovide the greatest potential for maximizing long-term shareholdervalue.

New Openings

In addition to Four Seasons HotelSilicon Valley at East Palo Alto and Four Seasons Tented Camp GoldenTriangle, Thailand, which both opened in January  2006, we expectto open nine new hotels and resorts over the course of 2006 and 2007,and re-open Four Seasons Resort Maldives at Kuda Huraa. The averageterm of the management contracts for these properties is 58 years, andthese management contracts are expected to provide us with significantadditional long-term fee income. During 2006, we expect to fund in therange of $50.0  million to $75.0  million in connectionwith obtaining new or enhancing existing managementagreements.

Service

During 2006, we intend to maintainour focus on value to our guests by continuing to deliver ourexceptional quality of service, while at the same time controllingcosts. We also intend to focus on enhancing our premium service qualityand rate premiums at each of the 11 Four Seasons hotels and resortsthat opened over the past 24 months and the new Four Seasons projectsthat are expected to open in 2006.

We expect that the strongeconomic environment should translate into continued strength in traveldemand, particularly business travel. We also expect that leisuretravel demand will remain strong. On a full-year basis, we expect ouraverage daily room rates for 2006 to exceed the rates achieved in2005.

RevPAR and Margin Improvements

If the travel trendsthat we experienced in 2005 continue and exchange rates remain atcurrent levels, we expect RevPAR, on a US dollar basis, for worldwideCore Hotels for the full year 2006 to increase in the range of8% to 10%, as compared to 2005. We expect that thisimprovement will result from occupancy and pricing improvements. Ifcurrent trends continue, we expect the full-year gross operatingmargins of our worldwide Core Hotels to increase more than 150 basispoints in 2006.

Management Operations

As a result of theportfolio refinements, including our ceasing management of The Pierreand Four Seasons Hotel Newport Beach in 2005 and, our ceasingmanagement of The Regent Kuala Lumpur later this year and renovationplans at certain hotels, including Four Seasons Resort Maui, we expectfull year hotel management fee revenues to grow in line with our fullyear RevPAR growth expectations for

36

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2006. Assuming no significant changes to theUS to Canadian dollar exchange rate, we expect our operating costs(which include the amounts included in general and administrativeexpenses in Management Operations together with corporate expensesincluded in Ownership Operations) should increase in the range of6% to 8% for the full year 2006 as compared to full year2005.

"As previously noted, we view 2006 as atransition year. The moderate growth in management fee revenue expectedin 2006 reflects the loss of ongoing fee revenue from The Pierre,Newport Beach and Kuala Lumpur," said John Davison, ChiefFinancial Officer. "As we look beyond 2006, we expect allelements of our growth program to make a solid contribution toearnings, including strong fee improvements from existing hotels (inparticular those completing renovation programs) increased fees fromrecently opened hotels as they stabilize, and the continued addition ofexciting new Four Seasons properties around theworld."

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Four SeasonsPortfolio

Description of Hotels and Resorts

Thefollowing table provides an overview of the properties that wecurrently manage, many of which include a residentialcomponent:

|                                                                  |  |                           |        |                            |  |        |         |              |  |  |
|------------------------------------------------------------------|--|---------------------------|--------|----------------------------|--|--------|---------|--------------|--|--|
| Hotel/Resortand Location                                         |  | ApproximateNumber ofRooms |        | ApproximateEquityInterest1 |
| **UnitedStates**                                                 |  |                      |   |                       |  |   |    |         |
| Four Seasons Hotel Atlanta,Georgia                               |  |                      | 245    |                       |  |   | — |         |
| FourSeasons Hotel Austin, Texas                                  |  |                      | 290    |                       |  |   | — |         |
| Four Seasons Resort Aviara,California2                           |  |                      | 330    |                       |  |   | 7.3     | %3      |
| TheRegent Beverly Wilshire (Beverly Hills), California           |  |                      | 395    |                       |  |   | — |         |
| Four Seasons BiltmoreResort (Santa Barbara),California           |  |                      | 205    |                       |  |   | — |         |
| FourSeasons Hotel Boston, Massachusetts2                         |  |                      | 275    |                       |  |   | — |         |
| FourSeasons Hotel Chicago, Illinois                              |  |                      | 345    |                       |  |   | — |         |
| The Ritz-Carlton HotelChicago, Illinois                          |  |                      | 435    |                       |  |   | — |         |
| Four Seasons Resort andClub Dallas at Las Colinas, Texas         |  |                      | 355    |                       |  |   | — |         |
| Four Seasons Hotel Houston,Texas2                                |  |                      | 405    |                       |  |   | — |         |
| FourSeasons Resort Hualalai at Historic Ka’upulehu,Hawaii  |  |                      | 245    |                       |  |   | — |         |
| FourSeasons Resort Jackson Hole, Wyoming2                        |  |                      | 140    |                       |  |   | — | 4       |
| FourSeasons Resort Lana’i at Manele Bay,Hawaii             |  |                      | 235    |                       |  |   | — |         |
| FourSeasons Hotel Las Vegas, Nevada                              |  |                      | 425    |                       |  |   | — |         |
| Four Seasons Hotel LosAngeles, California                        |  |                      | 285    |                       |  |   | — | 4       |
| FourSeasons Resort Maui at Wailea, Hawaii                        |  |                      | 375    |                       |  |   | — |         |
| Four Seasons Hotel Miami,Florida                                 |  |                      | 220    |                       |  |   | 4.7     | %3      |
| FourSeasons Hotel New York, NewYork                              |  |                      | 370    |                       |  |   | — |         |
| Four SeasonsResort Palm Beach, Florida                           |  |                      | 210    |                       |  |   | — |         |
| Four Seasons HotelPhiladelphia, Pennsylvania                     |  |                      | 365    |                       |  |   | — |         |
| Four Seasons Hotel SanFrancisco, California2                     |  |                      | 275    |                       |  |   | — |         |
| FourSeasons Resort Scottsdale at Troon North, Arizona2           |  |                      | 210    |                       |  |   | 3.9     | %3,4,5  |
| FourSeasons Hotel Silicon Valley at East Palo Alto,California    |  |                      | 200    |                       |  |   | 15      | %3      |
| FourSeasons Hotel Washington, District of Columbia               |  |                      | 210    |                       |  |   | — |         |
| **OtherAmericas/Caribbean**                                      |  |                      |   |                       |  |   |    |         |
| FourSeasons Hotel Buenos Aires, Argentina                        |  |                      | 165    |                       |  |   | — |         |
| Four Seasons ResortCarmelo, Uruguay2                             |  |                      | 45     |                       |  |   | — |         |
| FourSeasons Resort Costa Rica at Peninsula Papagayo, Costa Rica3 |  |                      | 165    |                       |  |   | 11.4    | %6      |
| FourSeasons Resort Great Exuma at Emerald Bay, The Bahamas3      |  |                      | 185    |                       |  |   | — |         |
| FourSeasons Hotel Mexico City, Mexico                            |  |                      | 240    |                       |  |   | — |         |
| Four Seasons Resort Nevis,West Indies2                           |  |                      | 195    |                       |  |   | — |         |
| FourSeasons Resort Punta Mita, Mexico2                           |  |                      | 140    |                       |  |   | — |         |
| FourSeasons Hotel Toronto, Ontario, Canada                       |  |                      | 380    |                       |  |   | — |         |
| Four Seasons HotelVancouver, British Columbia, Canada            |  |                      | 375    |                       |  |   | 100     | %6      |
| FourSeasons Resort Whistler, British Columbia, Canada2           |  |                      | 275    |                       |  |   | — | 4       |
| **Asia/Pacific**                                                 |  |                      |   |                       |  |   |    |         |
| FourSeasons Resort Bali at Jimbaran Bay, Indonesia               |  |                      | 145    |                       |  |   | — |         |
| Four Seasons Resort Bali atSayan, Indonesia2                     |  |                      | 60     |                       |  |   | — |         |
|                                                                  |

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|                                                                                                    |  |                           |        |                            |  |        |         |               |  |  |
|----------------------------------------------------------------------------------------------------|--|---------------------------|--------|----------------------------|--|--------|---------|---------------|--|--|
| Hotel/Resortand Location                                                                           |  | ApproximateNumber ofRooms |        | ApproximateEquityInterest1 |
| Four Seasons Hotel Bangkok,Thailand                                                                |  |                      | 340    |                       |  |   | — |          |
| FourSeasons Resort Chiang Mai,Thailand                                                             |  |                      | 80     |                       |  |   | — |          |
| FourSeasons Tented Camp, Golden Triangle,Thailand                                                  |  |                      | 15     |                       |  |   | — |          |
| FourSeasons Hotel Hong Kong, Special Administrative Region of thePeople’s Republic of China2 |  |                      | 400    |                       |  |   | — |          |
| FourSeasons Hotel Jakarta, Indonesia2                                                              |  |                      | 365    |                       |  |   | 2       | %3       |
| TheRegent Kuala Lumpur, Malaysia7                                                                  |  |                      | 470    |                       |  |   | — |          |
| FourSeasons Resort Langkawi,Malaysia                                                               |  |                      | 90     |                       |  |   | — |          |
| FourSeasons Resort Maldives at Kuda Huraa, Maldives                                                |  |                      | 95     |                       |  |   | — |          |
| Four Seasons Hotel Shanghai,People’s Republic of China                                       |  |                      | 440    |                       |  |   | 10      | %3,4     |
| FourSeasons Hotel Singapore, Singapore                                                             |  |                      | 255    |                       |  |   | — |          |
| The Regent Singapore,Singapore                                                                     |  |                      | 440    |                       |  |   | — |          |
| FourSeasons Hotel Sydney,Australia                                                                 |  |                      | 530    |                       |  |   | 15.2    | %6       |
| GrandFormosa Regent Taipei, Taiwan                                                                 |  |                      | 540    |                       |  |   | — |          |
| Four Seasons Hotel Tokyo atChinzan-so, Japan                                                       |  |                      | 285    |                       |  |   | — |          |
| Four Seasons Hotel Tokyo atMarunouchi, Japan                                                       |  |                      | 55     |                       |  |   | — |          |
| **MiddleEast**                                                                                     |  |                      |   |                       |  |   |    |          |
| Four Seasons Hotel Amman,Jordan                                                                    |  |                      | 195    |                       |  |   |    |          |
| Four SeasonsHotel Cairo at The First Residence, Egypt2                                             |  |                      | 270    |                       |  |   | — |          |
| FourSeasons Hotel Cairo at Nile Plaza, Egypt2                                                      |  |                      | 365    |                       |  |   |    |          |
| Four SeasonsHotel Damascus, Syria8                                                                 |  |                      | 295    |                       |  |   | — |          |
| FourSeasons Hotel Doha,Qatar                                                                       |  |                      | 230    |                       |  |   | — |          |
| FourSeasons Hotel Riyadh, SaudiArabia                                                              |  |                      | 250    |                       |  |   | — |          |
| Four SeasonsResort Sharm el Sheikh, Egypt2                                                         |  |                      | 135    |                       |  |   | — |          |
| **Europe**                                                                                         |  |                      |   |                       |  |   |    |          |
| FourSeasons Hotel Gresham Palace Budapest, Hungary                                                 |  |                      | 180    |                       |  |   | 18.3    | %3       |
| FourSeasons Hotel Dublin, Ireland                                                                  |  |                      | 195    |                       |  |   | — |          |
| Four Seasons Hotel Geneva,Switzerland                                                              |  |                      | 105    |                       |  |   | — |          |
| FourSeasons Hotel Hampshire,England                                                                |  |                      | 135    |                       |  |   | — | 4        |
| FourSeasons Hotel Istanbul, Turkey                                                                 |  |                      | 65     |                       |  |   | — | 9        |
| FourSeasons Hotel The Ritz Lisbon, Portugal                                                        |  |                      | 280    |                       |  |   | — |          |
| Four Seasons Hotel CanaryWharf, England                                                            |  |                      | 140    |                       |  |   | — |          |
| Four Seasons Hotel London,England                                                                  |  |                      | 220    |                       |  |   | 12.5    | %4,6,10  |
| FourSeasons Hotel Milan, Italy                                                                     |  |                      | 120    |                       |  |   | — |          |
| Four Seasons Hotel George VParis, France                                                           |  |                      | 245    |                       |  |   | — |          |
| Four Seasons Hotel Prague,CzechRepublic                                                            |  |                      | 160    |                       |  |   | — | 4        |
| FourSeasons Resort Provence at Terre Blanche, France2                                              |  |                      | 115    |                       |  |   | — |          |
|                                                                                                    |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1 | Inthe ordinary course, we make investments in, or advances in respect ofor to owners of, properties to obtain new management agreements or toenhance existing management agreements where we believe the overallreturns will justify the investment or advance. We generally seek tolimit our total long-term capital exposure to no more than 20%of the total equity required for a property. For a description of ourinvestments in, or advances made in respect of or to owners, ofproperties and other commitments in respect of existing properties,including the equity investments listed in this chart, see‘‘Balance Sheet Review and Analysis’’ and‘‘Liquidity and Capital Resources’’ in thisdocument. |

|   |                                                                                               |
|---|-----------------------------------------------------------------------------------------------|
| 2 | This projectincludes, or is expected to include, a Four Seasons branded residentialcomponent. |

|   |                   |
|---|-------------------|
| 3 | Freeholdinterest. |

|   |                                                                                                                                                                                                                                    |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4 | In addition to providingmanagement services to this property, we have a guarantee or otheroff-balance sheet commitment in respect of this property. See‘‘Off-Balance Sheet Arrangements’’ in thisdocument. |

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|   |                                                                                                                                                                                                                                                                                  |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 5 | We have apreferred profits interest derived from previously existingsubordinated loans to the resort or property of approximately$17.4  million in aggregate plus a loan in the amount of$6.0  million to an entity that owns approximately 85% ofthe entity that owns thehotel. |

|   |                    |
|---|--------------------|
| 6 | Leaseholdinterest. |

|   |                                                                                                                                                                                                                                                          |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 7 | We have entered into anagreement to manage a new 140 room Four Seasons hotel in Kuala Lumpurand have reached agreement with the owner of the existing Kuala Lumpurhotel to transition out of managing that Regent property over the next12 to 18 months. |

|   |                                                                                                                                                                                                                                                                                                                                                                                               |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 8 | The Four SeasonsHotel Damascus is located in Damascus, Syria, a country that is on theU.S. list of state sponsors of terrorism and that is subject to U.S.regulations (including prohibitions on dealings with specifiedentities) and legislatively mandated penalties (including exportsanctions and ineligibility to receive most forms of U.S. aid or topurchase U.S. military equipment). |

|   |                                                                                                                                                                                                            |
|---|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 9 | Subject to satisfaction of certainconditions, we may invest up to $4.08 million to acquire up toan 18% interest in conjunction with a proposed expansion andrenovation of Four Seasons HotelIstanbul. |

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10 | Four Seasons HotelsLimited (‘‘FSHL’’) is the tenant of theland and premises constituting Four Seasons Hotel London. FSHL hasentered into a sublease of the hotel with the entity on whose behalf wemanage the hotel. The annual rent payable by FSHL under the lease isthe same as the annual rent that is payable by the sub-tenant pursuantto the sublease. Indirectly, we now hold a 12.5% ownershipinterest in the sub-tenant. |

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Properties under Construction orDevelopment

We currently have 27 properties underconstruction or development that are to be operated under the FourSeasons name. We expect 18 of those properties to include a residentialbranded component. The following table provides an overview of theseproperties:

|                                                                                                |  |                               |        |                        |  |        |        |        |  |  |
|------------------------------------------------------------------------------------------------|--|-------------------------------|--------|------------------------|--|--------|--------|--------|--|--|
| **Hotel/Resortand Location**1,2                                                                |  | **ApproximateNumber ofRooms** |        | **CapitalCommitment**3 |
| Scheduled2006/2007 Openings                                                                    |  |                          |   |                   |  |   |   |   |
| FourSeasons Hotel Alexandria, Egypt4                                                           |  | 125                           |        |                   |
| FourSeasons Hotel Beirut,Lebanon                                                               |  | 235                           |        | X                      |
| FourSeasons Hotel Florence,Italy                                                               |  | 120                           |        | X                      |
| FourSeasons Hotel Istanbul at the Bosphorus,Turkey                                             |  | 170                           |        | X                      |
| The Lodgeat Koele, Hawaii, USA5                                                                |  | 100                           |        |                   |
| Four SeasonsHotel Macau, Special Administrative Region of the People’sRepublic of China4 |  | 400                           |        |                   |
| Four SeasonsResort Maldives at Landaa Giraavaru,Maldives                                       |  | 100                           |        | X                      |
| FourSeasons Hotel Mumbai, India4                                                               |  | 235                           |        | X                      |
| FourSeasons Hotel Westlake Village, California,USA                                             |  | 270                           |        |                   |
| Beyond2007                                                                                     |  |                          |        |                   |
| Four Seasons HotelBahrain, Bahrain                                                             |  | 270                           |        |                   |
| FourSeasons Hotel Baltimore, Maryland, USA4                                                    |  | 200                           |        | X                      |
| FourSeasons Resort Barbados, Barbados4                                                         |  | 117                           |        |                   |
| Four SeasonsHotel Beijing, People’s Republic ofChina                                     |  | 325                           |        | X                      |
| Four SeasonsResort Bora Bora, FrenchPolynesia                                                  |  | 105                           |        | X                      |
| FourSeasons Hotel Dubai, United Arab Emirates4                                                 |  | 375                           |        |                   |
| Four SeasonsHotel Kuala Lumpur, Malaysia4                                                      |  | 140                           |        |                   |
| Four SeasonsHotel Marrakech, Morocco4                                                          |  | 140                           |        | X                      |
| FourSeasons Resort Mauritius, Republic of Mauritius4                                           |  | 120                           |        | X                      |
| FourSeasons Hotel Moscow, Russia4                                                              |  | 215                           |        | X                      |
| FourSeasons Hotel Moscow Kamenny Island, Russia4                                               |  | 80                            |        | X                      |
| FourSeasons Hotel New Orleans, Louisiana, USA4                                                 |  | 240                           |        | X                      |
| FourSeasons Resort Puerto Rico, Puerto Rico4                                                   |  | 250                           |        | X                      |
| FourSeasons Hotel Seattle, Washington, USA4                                                    |  | 150                           |        | X                      |
| FourSeasons Hotel Shanghai at Pudong, People’s Republic of China4                        |  | 190                           |        | X                      |
| FourSeasons Hotel Taipei, Taiwan4                                                              |  | 275                           |        |                   |
| Four SeasonsHotel Toronto, Ontario, Canada4                                                    |  | 265                           |        |                   |
| Four SeasonsResort Vail, Colorado, USA4                                                        |  | 120                           |        | X                      |
|                                                                                                |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                |
|---|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1 | Informationconcerning hotels, resorts and branded residential components underconstruction or under development is based upon agreements and lettersof intent and may change prior to the completion of the project. Wehave estimated the dates of scheduled openings based upon informationprovided by the various developers. There can be no assurance that thedates of scheduled openings will be achieved, that estimated capitalcommitments will not change or that these projects will be completed.In particular, where a property is scheduled to open near the end of ayear there is a greater possibility that the year of opening could bechanged. |

|   |                                                                                                                                                                                                                                                           |
|---|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | We have made an investmentin Orlando, Florida, which we expect to include a Four Seasons brandedresidential component. The financing for this project has not yet beencompleted and therefore a scheduled opening date cannot be establishedat this time. |

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|   |                                                                                                                                                                                                                                                                                                                           |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3 | The aggregatecapital commitment for the properties indicated is $142.6million, of which $2.6  million has been funded and $19million is expected to be funded in the remainder of 2006. Theseamounts include capital commitments in respect of Four Seasons brandedresidential projects under construction ordevelopment. |

|   |                                                                               |
|---|-------------------------------------------------------------------------------|
| 4 | We expect this projectto include a Four Seasons branded residentialcomponent. |

|   |                                                                                                                                                |
|---|------------------------------------------------------------------------------------------------------------------------------------------------|
| 5 | The Lodge at Koele isexpected to be rebranded as Four Seasons Resort Lana’i at Koelein 2006 when the necessary renovations arecompleted. |

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Three–Year Review

|                                                                                                                    |  |        |         |         |  |        |         |         |  |        |         |         |  |  |
|--------------------------------------------------------------------------------------------------------------------|--|--------|---------|---------|--|--------|---------|---------|--|--------|---------|---------|--|--|
| (Inmillions of dollars except per share amounts and unless otherwisenoted)                                         |  | 2005   |         | 2004    |  | 2003   |
| **Statementsof OperationsData:**                                                                                   |  |   |    |    |  |   |    |    |  |   |    |    |
| Consolidatedrevenues1                                                                                              |  | $      | 248.3   |    |  | $      | 261.3   |    |  | $      | 225.1   |    |
| Managementoperations:                                                                                              |  |   |    |    |  |   |    |    |  |   |    |    |
| Revenues(excluding reimbursedcosts)                                                                                |  | $      | 117.2   |    |  | $      | 112.0   |    |  | $      | 86.4    |    |
| Managementearnings before other operating items                                                                    |  |   | 76.0    |    |  |   | 77.5    |    |  |   | 56.9    |    |
| Ownershipoperations and corporateexpenses:                                                                         |  |   |    |    |  |   |    |    |  |   |    |    |
| Revenues                                                                                                           |  |   | 65.3    |    |  |   | 97.4    |    |  |   | 88.6    |    |
| Distributionfrom hotel investments                                                                                 |  |   | 0.1     |    |  |   | 0.3     |    |  |   | 0.1     |    |
| Ownershipoperations and corporate expenses before other operating items                                            |  |   | (18.0   | )  |  |   | (16.6   | )  |  |   | (21.0   | )  |
| Earningsbefore other operating items2                                                                              |  |   | 58.0    |    |  |   | 60.9    |    |  |   | 35.9    |    |
| Depreciationand amortization                                                                                       |  |   | (11.2   | )  |  |   | (11.8   | )  |  |   | (10.7   | )  |
| Otherexpense, net3                                                                                                 |  |   | (89.2   | )  |  |   | (11.9   | )  |  |   | (17.7   | )  |
| Earnings(loss) from operations4                                                                                    |  |   | (42.4   | )  |  |   | 37.2    |    |  |   | 7.5     |    |
| Interestincome, net                                                                                                |  |   | 3.4     |    |  |   | 1.1     |    |  |   | 2.4     |    |
| Earnings (loss)before income taxes5                                                                                |  |   | (39.0   | )  |  |   | 38.3    |    |  |   | 9.9     |    |
| Incometax recovery (expense)                                                                                       |  |   | 10.8    |    |  |   | (12.6   | )  |  |   | (5.0    | )  |
| Net earnings(loss)                                                                                                 |  | $      | (28.2   | )  |  | $      | 25.7    |    |  | $      | 4.9     |    |
| Earnings(loss) pershare:                                                                                           |  |   |    |    |  |   |    |    |  |   |    |    |
| Basic                                                                                                              |  | $      | (0.77   | )  |  | $      | 0.72    |    |  | $      | 0.14    |    |
| Diluted                                                                                                            |  | $      | (0.77   | )  |  | $      | 0.69    |    |  | $      | 0.14    |    |
| Weightedaverage number of shares(millions):                                                                        |  |   |    |    |  |   |    |    |  |   |    |    |
| LimitedVotingShares                                                                                                |  |   | 32.9    |    |  |   | 31.8    |    |  |   | 31.1    |    |
| VariableMultiple VotingShares                                                                                      |  |   | 3.7     |    |  |   | 3.8     |    |  |   | 3.9     |    |
| **CashFlow Data:**                                                                                                 |  |   |    |    |  |   |    |    |  |   |    |    |
| Cashprovided by operations                                                                                         |  | $      | 26.5    |    |  | $      | 44.4    |    |  | $      | 47.1    |    |
| Cash providedby financing                                                                                          |  |   | 3.9     |    |  |   | 82.6    |    |  |   | 3.0     |    |
| Cash used incapital investments                                                                                    |  |   | (10.2   | )  |  |   | (41.2   | )  |  |   | (28.1   | )  |
| **BalanceSheet Data:**                                                                                             |  |   |    |    |  |   |    |    |  |   |    |    |
| Cash andcash equivalents                                                                                           |  |   | 242.2   |    |  | $      | 226.4   |    |  | $      | 132.1   |    |
| Totalassets                                                                                                        |  |   | 880.2   |    |  |   | 902.1   |    |  |   | 732.5   |    |
| Long-termobligations                                                                                               |  |   | 273.8   |    |  |   | 253.0   |    |  |   | 90.9    |    |
| Shareholders’equity                                                                                          |  |   | 546.7   |    |  |   | 584.9   |    |  |   | 592.3   |    |
| **OtherData:**                                                                                                     |  |   |    |    |  |   |    |    |  |   |    |    |
| Total revenuesof all managed hotelsandresorts6                                                                     |  | $      | 2,559.7 |    |  | $      | 2,240.9 |    |  | $      | 1,856.1 |    |
| Managementoperations profit margin (excluding reimbursed costs and the impact offoreign exchange forwardcontracts) |  |   | 64.0    | %  |  |   | 65.8    | %  |  |   | 63.5    | %  |
| Marketprice per share at year-end(C$)                                                                              |  | $      | 57.84   |    |  | $      | 98.11   |    |  | $      | 66.33   |    |
| Cashdividends declared per share(C$):                                                                              |  |   |    |    |  |   |    |    |  |   |    |    |
| LimitedVotingShares                                                                                                |  | $      | 0.11    |    |  | $      | 0.11    |    |  | $      | 0.11    |    |
| VariableMultiple VotingShares                                                                                      |  | $      | 0.055   |    |  | $      | 0.055   |    |  | $      | 0.055   |    |
| Sharesoutstanding(millions):                                                                                       |  |   |    |    |  |   |    |    |  |   |    |    |
| LimitedVotingShares                                                                                                |  |   | 32.9    |    |  |   | 32.9    |    |  |   | 31.4    |    |
|                                                                                                                    |

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|                                                                            |  |        |         |        |  |        |         |        |  |        |         |        |  |  |
|----------------------------------------------------------------------------|--|--------|---------|--------|--|--------|---------|--------|--|--------|---------|--------|--|--|
| (Inmillions of dollars except per share amounts and unless otherwisenoted) |  | 2005   |         | 2004   |  | 2003   |
| Variable Multiple VotingShares                                             |  |   | 3.7     |   |  |   | 3.7     |   |  |   | 3.8     |   |
| Marketcapitalization at year-end(C$)                                       |  | $      | 2,119.3 |   |  | $      | 3,591.7 |   |  | $      | 2,337.6 |   |
| Employees7                                                                 |  |   | 30,900  |   |  |   | 31,300  |   |  |   | 28,640  |   |
|                                                                            |

|   |                                                                                                                                                                                                                                                       |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 1 | Consolidatedrevenues are comprised of revenues from management operations, revenuesfrom ownership operations (which includes corporate expenses) anddistributions from hotel investments, less fees from ownershipoperations to managementoperations. |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2 | Earnings before otheroperating items is equal to net earnings plus (i) income tax expenseplus (ii) interest expense less (iii) interest income plus (iv) otherexpense less (v) other income plus (vi) depreciation and amortization.Earnings before other operating items is a non-GAAP measure and is notintended to represent cash flow from operations, as defined by CanadianGAAP, and it should not be considered as an alternative to netearnings, cash flow from operations or any other measure of performanceprescribed by GAAP. Our earnings before other operating items may alsonot be comparable to earnings before other operating items used byother companies, which may be calculated differently. We considerearnings before other operating items to be a meaningful indicator ofour operations and we use it as a measure to assess our operatingperformance. It is included because we believe it can be useful inmeasuring our ability to service debt, fund capital expenditures andexpand our business. Earnings before other operating items is also usedby investors, analysts and our lenders as a measure of our financialperformance. |

|   |                                                                                                                                                                                                                                                                   |
|---|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3 | Other expense, net iscomprised of net loss on transition of the retirement benefit plan,asset provisions and write-down of investments, foreign exchangegain/loss, gain/loss on disposition of assets, legal and enforcementcosts and loss on redemption ofLYONs. |

|   |                                                                                                                                                               |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 4 | Earnings from operationsrepresent earnings before other operating items less (i) depreciationand amortization plus (ii) other income less (iii) otherexpense. |

|   |                                                                                                                    |
|---|--------------------------------------------------------------------------------------------------------------------|
| 5 | Earnings before incometaxes represent earnings from operations plus (i) interest income less(ii) interest expense. |

|   |                                                                                                                                                               |
|---|---------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 6 | Totalrevenues of all managed hotels and resorts consist of rooms, food andbeverage, telephone and other revenues of all the hotels and resortsthat we manage. |

|   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|---|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 7 | We directly employ,and are financially responsible for, approximately 520 people at ourvarious corporate offices, worldwide sales offices and centralreservations office. Of these corporate employees, almost half aredevoted to sales and marketing activities (including our worldwidereservations service), the cost of which is reimbursed by the hotelsand resorts that we manage. In addition, there are approximately 30,900employees located at the 70 hotels and resorts that we manage, many ofwhich include a residential component. All costs relating to theseproperty-based employees, including wages, salaries and health andinsurance benefits, are the responsibility of the property owners andare generally paid out of the operating cash flow of theproperty. |

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Operating Risks

Ourbusiness is subject to many risks and uncertainties, including thosediscussed below.

Geopolitical, Economic and Lodging IndustryConditions

We focus exclusively on the luxury segment ofthe lodging industry, which is subject to operating risks inherent inthe industry. These risks include, among otherthings:

|  |              |                                                                                                                |
|--|--------------|----------------------------------------------------------------------------------------------------------------|
|  | •  | changes in general, local andindustry-specific economic and financial conditions, such as theairline industry, |

|  |              |                                                           |
|--|--------------|-----------------------------------------------------------|
|  | •  | periodic overbuildingin the industry or a specificmarket, |

|  |              |                                                                                                         |
|--|--------------|---------------------------------------------------------------------------------------------------------|
|  | •  | varying levels of demand forrooms and related services (including food and beverage and functionspace), |

|  |              |                                   |
|--|--------------|-----------------------------------|
|  | •  | competition from otherproperties, |

|  |              |                            |
|--|--------------|----------------------------|
|  | •  | changes in travelpatterns, |

|  |              |                                                                                                |
|--|--------------|------------------------------------------------------------------------------------------------|
|  | •  | the recurring need forrenovation, refurbishment and improvement of hotel and resortproperties, |

|  |              |                                                                                                                                           |
|--|--------------|-------------------------------------------------------------------------------------------------------------------------------------------|
|  | •  | changes in wages, benefits,prices, construction and maintenance, insurance and operating coststhat may result from inflation orotherwise, |

|  |              |                        |
|--|--------------|------------------------|
|  | •  | governmentregulations, |

|  |              |                                     |
|--|--------------|-------------------------------------|
|  | •  | changes in taxes andinterest rates, |

|  |              |                       |
|--|--------------|-----------------------|
|  | •  | currencyfluctuations, |

|  |              |                                                                              |
|--|--------------|------------------------------------------------------------------------------|
|  | •  | the availability and costof financing for operating or capital requirements, |

|  |              |                    |
|--|--------------|--------------------|
|  | •  | natural disasters, |

|  |              |                             |
|--|--------------|-----------------------------|
|  | •  | extreme weather conditions, |

|  |              |                 |
|--|--------------|-----------------|
|  | •  | labourdisputes, |

|  |              |                         |
|--|--------------|-------------------------|
|  | •  | infectious diseases,and |

|  |              |                                                                                |
|--|--------------|--------------------------------------------------------------------------------|
|  | •  | war, civil unrest, terrorism,international conflict and political instability. |

Weoperate and have interests in luxury hotels, resorts and serviced andbranded residential projects in many areas of the world and ourrevenues are dependent upon the results of the individual properties.The conditions listed above can have, and have from time to time had, asignificant adverse impact upon individual properties or particularregions. A period of economic recession or downturn in any of theworld’s primary outbound travel markets could materially andadversely affect, and have from time to time materially and adverselyaffected, our business, results of operations and financial condition,including fee revenue and ownership earnings. An economic downturngenerally affects ownership results to a significantly greater degreethan management results due to the high fixed costs associated withhotel ownership.

Competition

The luxury segment ofthe hotel and resort industry is subject to intense competition, bothfor guests and for the acquisition of new management agreements.Competition for guests arises primarily from other luxury hotel chains,individual luxury hotels and resorts and a limited number of luxuryproperties

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operated by larger hotel chains. Thatcompetition is primarily based on, among other things, brand namerecognition, location, room rates and quality of service andaccommodations. Demographic, geographic and other changes in specificmarket conditions could materially and adversely affect the convenienceor desirability of the locales in which hotels and resorts that wemanage are located.

We compete for managementopportunities with other operators of luxury hotels. We believe thatour ability to obtain management agreements is based primarily on thevalue and quality of our management services, brand name recognitionand the economic advantages to the hotel owner of retaining ourmanagement services and using our brand name. We also believe that anowner’s assessment of the economic advantages of retaining ourmanagement services and using our brand name is, in part, a function ofthe success of the hotels and resorts currently under management by us.Competitive factors also include relationships with hotel owners andinvestors, marketing support, reservation system capacity and theability to make investments that may be necessary to obtain managementagreements. Our failure to compete successfully for expansionopportunities or to attract and maintain relationships with currenthotel owners could materially and adversely affect our business,results of operations and financial condition.

Dependence onManagement Agreements

Management agreements expire in theordinary course, and may in certain circumstances be renegotiated andbe subject to termination upon the occurrence of specified events.Failure to obtain new management agreements or maintain existingmanagement agreements could materially and adversely affect ourbusiness, results of operations and financial condition. We managehotels and resorts for various owners subject to the terms of eachproperty’s management agreements. Those agreements generally canbe terminated by the non-defaulting party upon default in payment orunremedied failure to comply with the terms of the agreements unless,in most cases, such default or unremedied failure was caused by typicalforce majeure events. Most of the management agreements aresubject to performance tests that, if not met, could allow theagreements to be terminated by the owner prior to the expiration oftheir respective terms. The failure to maintain the standards specifiedin the agreement or to meet the other terms and conditions of anagreement, including a performance test, could result in the loss orcancellation of a management agreement. Typically, but not in allcases, we have certain rights to cure a default to avoid termination.Substantially all of the management agreements include typical forcemajeure events, which, if they were to occur would prevent thetermination of the management agreements. Some management agreementsalso can be terminated, subject in certain cases, to a payment to us,upon a change in use of the property or upon a sale by the owner to anew owner who does not wish to retain the existingagreement.

In the event of bankruptcy involving a propertyand foreclosure, a management agreement may be terminated in mostjurisdictions, unless the lender has executed a non-disturbanceagreement that is enforceable under applicable bankruptcy laws. Wegenerally have non-disturbance agreements with the lenders to owners ofhotels and resorts that we manage. Where no non-disturbance agreementis in place or where it is not enforceable under applicable bankruptcylaws, the risk of loss of a management agreement increases where theowner incurs debt at the property level that cannot be servicedadequately. In some jurisdictions, particularly in the United States,management agreements have been construed by courts to create an agencyrelationship that is terminable by the owner, notwithstanding anyprovision of the agreement that purports to make the agreement notterminable under such circumstances. In such circumstances, we wouldgenerally have an unsecured claim for breach of contract against theowner of the hotel or its trustee in bankruptcy.

Management agreements for hotels and resorts we manage havevarying remaining terms (including extension periods that we may elect)and have remaining terms averaging of approximately 52 years. Renewalof management agreements at the end of their term is the subject ofnegotiation between us and the relevant owners. There can be noassurance that any particular management agreement or agreements willbe renewed or with respect to the terms and conditions of anyrenewal.

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Dependence on PropertyOwners

As a result of our strategic decision to focus onmanagement as opposed to ownership of hotel and resort properties, ourgrowth opportunities are dependent in part on our ability to establishand maintain satisfactory relationships and enhance those relationshipswith existing and new property owners. Those growth opportunities arealso dependent on access to capital by these investors. In 2005, oneowner had an ownership interest in a combination of hotels, resorts andserviced and branded residential properties managed by Four Seasonsthat represented in excess of 10% of our hotel management fees.A failure by us to maintain satisfactory relationships with any owneror owners of a significant number of properties could have a materialadverse effect on our business, results of operations and financialcondition.

Risk Associated with Expansion, Growth and NewConstruction

An element of our business strategy is toincrease the number of hotels and resorts under management. Thatexpansion is dependent upon a number of factors, including theidentification of appropriate management opportunities, competingsuccessfully for the management agreements relating to thoseopportunities, availability of financing for new developments andtimely completion of construction of new hotels and resorts (or therefurbishment of existing properties) that are, or are to be, managedby us.

From time to time, the hotel industry hasexperienced periods during which financial institutions generally havebeen reluctant to provide financing for the construction of real estateproperties, including hotels and resorts. There can be no assurancethat we will be able to obtain financing for projects or that the termson which such financing can be obtained will be acceptable to us. Theinability to obtain financing for a project could cause cancellationof, or short-term interruption in, the progress or completion ofproperties under construction or development.

Additionally, any construction project entails significantconstruction risks that could delay or result in a substantial increasein the cost of construction. The opening of newly constructedproperties, in particular, is contingent upon, among other things,receipt of all required licences, permits and authorizations, includinglocal land use permits, building and zoning permits, health and safetypermits and liquor licences. Changes or concessions required byregulatory authorities could also involve significant additional costsand delays or prevent completion of construction or opening of aproject. As a result of the global nature of our business, theseregulatory matters arise in a number of jurisdictions, many of whichhave distinctive regulatory regimes.

Investments in and Advancesto Managed and Owned Properties

We have made investmentsin, and/or advances in respect of or to owners of, hotels and resortsthat we manage, to enable us to acquire the management agreements forthose properties or to enhance the terms of those agreements.Currently, we hold an ownership interest in, or have made advances inrespect of, 33 of the 70 hotels and resorts that we manage. We alsohave one remaining leasehold interest in the Four Seasons HotelVancouver. We also have made, or expect to make in the near term,investments in, or advances in respect of or to owners of, 17 of the 27properties under construction or development. The book value of totalinvestments and advances as at December  31,  2005 wasapproximately $409  million.

In addition to therisks associated with the operation of a hotel, we are subject to risksgenerally related to owning and leasing real estate in connection withthese properties. These risks include, among others, adverse changes ingeneral or local economic conditions, local real estate marketconditions, property and income taxes, interest rates, theavailability, cost and terms of financing, the financial stability ofthe property owner, liability for long-term lease obligations, theavailability and costs of insurance coverage, the potential foruninsured casualty and other losses, the impact of present or futurelegislation or regulation (including those relating to theenvironment), adverse changes in zoning laws and other regulations,civil unrest, terrorism, war and political instability. In addition,these investments in real

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estate are relatively illiquid and ourability to dispose of our ownership interests, particularly ourleasehold interests, in response to changes in economic or otherconditions may be limited. Further, advances to owners of propertiesare typically subordinated and, in any event, may be subject to loss inthe event of insolvency of the owner to which an advance was made. Anyof these factors could result in material operating losses by us or aparticular hotel or resort and possibly the whole or partial loss ofour investment in the property or the inability to collect advancesoutstanding. Holding an interest in a hotel also introduces risksassociated with funding of capital expenditures and incurring ourproportionate share of any operating losses. Where cash and workingcapital reserves provided by hotel operations are insufficient, debtservice, major repairs, renovations, refurbishments, alterations orother capital expenditures generally must be funded by the owners ofthe hotels and resorts, including us in some cases.

Debt RatingRisks

Our corporate rating is currently investment grade(BBB−) as rated by Standard & Poor’s. Our seniorunsecured debt is currently rated by three debt rating agencies(Standard & Poor’s: BBB− with stable outlook;Moody’s: Baa3 with stable outlook; Dominion Bond Rating Service:BBB with stable outlook). A negative change in either global economicor political events may result in the rating agencies downgrading therating and/or outlook for many of the lodging companies, including us,which would result in an increase in our borrowing costs. In addition,pricing of any amounts drawn under our syndicated bank creditfacilities (which are undrawn but under which $1.6 million ofletters of credit were issued at December 31, 2005) includes aspread to LIBOR ranging between 0.875% and 2.25%,depending upon the ratings from Standard & Poor’s andMoody’s and certain financial ratios.

GovernmentRegulation

We are subject to laws, ordinances andregulations relating to, among other things, taxes, environmentalmatters, the preparation and sale of food and beverages, accessibilityfor disabled persons and general building and zoning requirements inthe various jurisdictions in which we manage hotels and resorts. Ownersand managers of hotels and resorts also may be subject to lawsgoverning the relationship with employees, including minimum wagerequirements, overtime, working conditions and work permitrequirements. In addition, the properties we manage (and in, or inrespect of which, we may have made advances or investments) may belocated in countries (such as Syria), which may from time to time besubject to international trade restrictions, regulations or other formsof economic or political sanction. Compliance with these laws canaffect the revenues and profits of properties managed by us or couldmaterially and adversely affect our business, results of operations andfinancial condition.

Four Seasons, as the current orprevious owner or operator of certain hotels, could be liable forinvestigation and clean-up of contamination and other corrective orremedial action under various laws, ordinances and regulations relatingto environmental matters. These laws often impose liability withoutregard to whether the owner or operator knew of, or was responsiblefor, the condition requiring environmental response and whether theparty is currently or formerly the owner or manager of the property.The presence of contamination from hazardous or toxic substances, orthe failure to properly remediate a contaminated property, may affectthe ability to use the property for its intended purpose, to sell orrent the property, or to borrow using the property as collateral.Persons who arrange for the disposal or treatment of hazardous or toxicsubstances also may be liable for the cost of removal or remediation ofsubstances at the disposal or treatment facility. In connection withthe operation and ownership of various properties, we could be heldliable for the cost of remedial action with respect to environmentalmatters. We are not aware of any potential material environmentalliabilities for which we will be responsible with respect to any of theproperties which we currently manage or previouslymanaged.

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Pursuant to the managementagreements to which we are a party, the owner is responsible for thecosts and expenses of the employees at each hotel and for all costs,expenses and liabilities incurred in connection with the operation ofthe hotel, including compliance with government regulations. However,as the manager, we may be contingently liable for certain liabilitiesin respect of which we do not maintain insurance, including certainworkers’ compensation claims, environmental liabilities and, inrespect of hotels in the United States, claims arising under theAmericans with Disabilities Act.

We generallyobtain indemnities from the owners of the hotels that we manage inrespect of these liabilities. The value of those indemnities isdependent upon, among other things, the financial condition of theowners who have provided them.

Political Risk

Wecurrently manage and in some cases have an ownership interest in hotelsand resorts in 31 countries and currently have development plans toopen hotels and resorts in nine additional countries around the world.In certain of these countries, from time to time, the related assetsand revenues may be exposed to political and other risks associatedwith foreign investment. In some jurisdictions, at certain times, theremay be a risk that we may have difficulty enforcing our contractualrights relating to our assets including our non-disturbance agreementsand any security relating to our loan receivables if due process of lawis not respected.

Insurance

Our managementagreements require the hotels and resorts that we manage to be insuredagainst property damage, business interruption and liability at theexpense of the owner of the property. Under these policies we are alsotypically insured against loss of fee income in the event of atemporary business interruption at any of the hotels and resorts thatwe manage. We also maintain our own insurance coverage in respect ofliability, in excess of that obtained at the property level. Inaddition, we obtain indemnities from the owners of the hotels andresorts that we manage in respect of damages caused by acts, omissionsand liabilities of the employees of the property or of Four Seasons,other than damages resulting from certain actions of Four Seasons andcertain senior management personnel. Insurance premiums are continuingto increase and underwriters are imposing increasingly restrictiveterms and conditions. All lines of coverage generally have beenaffected; however, commercial properties generally continue to be themost difficult to insure. Exposures for terrorism, cyber perils andtoxic mould are now common exclusions. If we were held liable foramounts exceeding the limits of our insurance coverage or for claimsoutside the scope of that coverage or if the indemnities wereinsufficient for any reason, including as a result of theowner’s or indemnitor’s financial condition, ourbusiness, results of operations and financial condition could bematerially and adversely affected.

LegalProceedings

In the ordinary course of our business, weare named as a defendant in legal proceedings resulting from incidentstaking place at properties we manage or in which we have an ownershipinterest. We maintain comprehensive liability insurance and alsorequire owners to maintain adequate insurance coverage as describedabove under ‘‘Insurance’’. We believe suchcoverage to generally be of a nature and amount sufficient to ensurethat we are adequately protected from suffering material financial lossas a result of such claims.

Currency Exposure

Wehave entered into management agreements with respect to hotelsthroughout the world and accordingly, earn revenue and make investmentsand advances in many foreign currencies. Our most

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significant currency is US dollars, as morethan half of our revenues and assets currently are USdollar-denominated, as are the majority of our investment commitments.However, we incur the majority of our costs in Canadian dollars and ourmost significant liability (which is related to our convertible seniornotes) is a Canadian dollar obligation.

In 2005, weadopted US dollars as our reporting currency. This means that ourCanadian dollar consolidated financial statements are translated intoUS dollars for reporting purposes. Our consolidated statements ofoperations, consolidated statements of cash provided by operations andconsolidated statements of cash flow are translated using the weightedaverage exchange rates for the period, and assets and liabilities areconverted from Canadian dollars into US dollars at the foreign exchangerate applicable at the balance sheet date.

We have notchanged our functional currency, which remains Canadian dollars, or thefunctional currencies of any of our subsidiaries. As a result, while USdollar reporting will minimize the currency fluctuations related to themajority of our US dollar management fee revenues, it will noteliminate the impact of foreign currency fluctuations related to ourmanagement fees in other currencies, or our general and administrativeexpenses, which are incurred primarily in Canadian dollars. It willalso not eliminate foreign currency gains and losses related toun-hedged net monetary assets and liability positions. As such, ourconsolidated results will continue to include gains and losses relatedto foreign currency fluctuations. The impact of foreign currency gainsand losses has been material in the past and could continue to bematerial in the future.

We endeavour to match foreigncurrency revenues to costs and investment commitments to provide anatural hedge against currency fluctuations, although there can be noassurance that these measures will be effective in the management ofthose risks. We also endeavour to manage our currency exposure through,among other things, the use of foreign exchange forward contracts. Asat December  31,  2005, we held $21.2  million inforeign exchange forward contracts for the sale of US dollars intoCanadian dollars to meet our operating needs. In addition, certaincurrencies are subject to exchange controls or are not freely tradeableand as a result are relatively illiquid. We attempt to minimize ourforeign currency risk by monitoring our cash position, keeping feereceivables current, monitoring the political and economic climate andconsidering whether to insure convertibility risk in each country inwhich we manage a property. In certain properties, the foreign currencyrisk is further mitigated by pricing room rates in US dollars. However,no assurances can be given as to whether our strategies relating tocurrency exposure will be successful or that foreign exchangefluctuations will not materially adversely affect our business, resultsof operations and financial condition.

Seasonality/QuarterlyPredictability

Our hotels and resorts are generallyaffected by normally recurring seasonal patterns and, for most of theproperties, demand is typically lower in December through March thanduring the remainder of the year.

Management operationsare seasonal in nature, as fee revenues are affected by the seasonalityof hotel and resort revenues and operating results. Urban hotelsgenerally experience lower revenues and operating results in the firstquarter, which has a negative impact on management revenues. However,this negative impact on management revenues generally is offset, tosome degree, by increased travel to resorts in that quarter and may beoffset to a greater extent as the portfolio of resort properties thatwe manage increases. However, seasonality can be affected by specificlocal events that can cause, and from time to time have caused,unanticipated disruptions to the operations of certain of theproperties we manage.

In addition, certain managementfees, in particular incentive fees and residential royalty fees, aredifficult to predict both in terms of timing and amount and can beimpacted to a greater extent than other elements of our business byeconomic cycles, interest rate levels and other external factors.Although the majority of our management fees are based on the totalrevenues of the properties we manage and as a result are

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easier to predict, fluctuations in ourincentive fees and residential royalty fees can cause volatility in ourearnings, particularly as measured from quarter toquarter.

Our hotel ownership position is also affected byseasonal fluctuations, with lower revenue, operating profit and cashflow in the first quarter; ownership positions typically incur anoperating loss in the first quarter of each year. Typically, the thirdquarter has been the strongest quarter for the Four Seasons HotelVancouver.

Intellectual Property

In the highlycompetitive service industry in which we operate, trade names,trademarks, service marks and logos are very important in the sales andmarketing of those services. We have a significant number of tradenames, trademarks, service marks and logos, and significant time andeffort are expended each year on surveillance, registration andprotection of our trade names, trademarks, service marks and logos. Theloss or infringement of any of our trade names, trademarks, servicemarks or logos could have a material and adverse effect on ourbusiness, results of operations and financial condition.

RisksAssociated with the Four Seasons Branded ResidentialBusiness

We currently license and manage Four Seasonsbranded residential projects, including whole ownership and fractionalownership, in many of our existing hotel and resort locations. We areexpanding our presence in the luxury segment of the whole ownership andfractional ownership business with a number of other projects underdevelopment. Our ability to successfully develop and sell interests inthe residential units that are built, and the various fees earned by usfrom each residential project, could be materially and adverselyaffected by one or any combination of the factors described in this‘‘Operating Risks’’ section. Although webelieve that we are in compliance in all material respects withapplicable laws and regulations to which the marketing, sale andoperation of Four Seasons branded residential projects are currentlysubject, changes in these requirements or a determination by aregulatory authority that we are not in compliance could materially andadversely affect our business, results of operations and financialcondition.

Dependence on Key Employees

Oursuccess depends in part on the continued service of our seniorexecutives, who have an average tenure of approximately 22 years withFour Seasons. In particular, our senior management is responsible forthe development and/or maintenance of ongoing relationships with newand existing investors in the properties that are managed by us. Theunanticipated departure of individuals responsible for thoserelationships could have a material and adverse effect on, among otherthings, relationships affecting properties that are, or that may be,managed by us.

Critical Accounting Estimates

Thesignificant accounting policies used by us in preparing ourconsolidated financial statements are described in note 1 to ourconsolidated financial statements and should be read to ensure a properunderstanding and evaluation of the estimates and judgments made bymanagement in preparing those financial statements. Our consolidatedfinancial statements are prepared in accordance with Canadian GAAP. Wealso prepare a reconciliation to United States generally acceptedaccounting principles, which is included as note 18 to the consolidatedfinancial statements.

Under Canadian GAAP, we are also requiredto make estimates when we account for and report assets, liabilities,revenues and expenses, and contingencies. We are also required toevaluate the estimates that we use.

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We base our estimates on past experienceand other factors that we believe are reasonable under thecircumstances. Because this process of estimation involves varyingdegrees of judgment and uncertainty, the amounts currently reported inthe financial statements could, in the future, prove to beinaccurate.

We believe the following critical accountingestimates involve the more significant judgments and estimates used inthe preparation of our consolidated financialstatements.

Recoverability of Investments

Estimates arerequired to be used by management to assess the recoverability of ourinvestments in long-term receivables, hotel partnerships andcorporations, management contracts, and trademarks and trade names.

Long-term receivables are reviewed for impairment when significantevents or circumstances occur, including, but not limited to, thefollowing: changes in general economic trends, defaults in interest orprincipal payments, deterioration in a borrower’s financialcondition or creditworthiness (including severe losses in the currentyear or recent years), or a significant decline in the value of thesecurity underlying a loan. We measure the impairment of long-termreceivables based on the present value of expected future cash flows(discounted at the original effective interest rate) or the estimatedfair value of the collateral. If an impairment exists, we establish aspecific allowance for doubtful long-term receivables for thedifference between the recorded investment and the present value of theexpected future cash flows or the estimated fair value of thecollateral. We apply this impairment policy individually to alllong-term receivables and do not aggregate long-term receivables forthe purpose of applying this policy.

Investments in hotelpartnerships and corporations are written down to their estimatedrecoverable amount in the event of a decline in value that is otherthan temporary.

Investments in management contracts andinvestments in trademarks and trade names are reviewed for impairmentwhenever events or changes in circumstances indicate that the carryingamount of investments in management contracts or investments intrademarks and trade names may not be recoverable. Recoverability ismeasured by a comparison of the carrying amount of the investment toestimated undiscounted future cash flows expected to be generated bythe investment. If the carrying amount of the investment exceeds itsestimated undiscounted future cash flows, an impairment charge isrecognized by the amount by which the carrying amount of the investmentexceeds its fair value.

Estimates of recoverable amounts, futurecash flows, and fair values are based on estimates of the profitabilityof the related managed properties, which, in turn, depend uponassumptions regarding future conditions in the general or localhospitality industry, including competition from other hotels, changesin travel patterns, and other factors that affect theproperties’ gross operating revenues and profits. Estimates ofrecoverable amounts, future cash flows, and fair values may also dependupon, among other things, periodic independent valuations, assumptionsregarding local real estate market conditions, property and incometaxes, interest rates and the availability, cost and terms offinancing, the impact of present or future legislation or regulation,debt incurred by the properties that rank ahead of debt owed to us,owners’ termination rights under the terms of the managementagreements, disputes with owners, and other factors affecting theprofitability and saleability of the properties (including the proposedtiming of a sale) and our investments. Estimates of recoverable amountscan also be affected by variations in historical and current foreignexchange rates.

These assumptions, estimates and evaluations areamong other things, subject to the availability of reliable comparabledata, ongoing geopolitical concerns and the uncertainty of predictionsconcerning future events. Accordingly, estimates of recoverableamounts, future cash flows, and fair values are

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subjective and may not ultimately beachieved. Should the underlying circumstances change, the estimatedrecoverable amounts and future cash flows could change by a materialamount.

Fixed Assets

Fixed assets include land,buildings, furniture, fixtures, equipment and leasehold interests andimprovements (including our 100% leasehold interest in FourSeasons Hotel Vancouver), which are all recorded at cost. Our fixedassets are reviewed for impairment whenever events or changes incircumstances indicate that their carrying amount may not berecoverable. An impairment loss will be recorded if the projectedundiscounted future cash flows from the fixed assets are less than thenet book value of the fixed assets. Impairment losses are measured bythe excess of the book value over the fair value of the asset. Futurecash flows are forecasted on an asset specific basis based on ourintentions with respect to the asset, historical results and recenttrends or events that may impact the asset’s future performance,including general economic conditions, property and income taxes, theimpact of present or future legislation or regulation, and otherfactors affecting the recoverability of the fixed assets. As discussedabove under ‘‘Operational and Financial Review andAnalysis — Overview — Ownership Operations (whichincludes Corporate Expenses)’’, we continue to review ouroptions in respect of Four Seasons Hotel Vancouver to determine what,if any, alternatives may be available to modify or restructure ouroperation of, or investment in, this hotel.

Retirement BenefitPlan

We maintain an unfunded, multi-employer, non-contributory,defined benefit retirement plan on behalf of four active executives and14 retired executives and general managers, as well as the owners oftwo of our managed properties (see ‘‘OtherIncome/Expense, Net — Retirement Benefit Plan’’discussed above). The accrued benefit liability of $25.8  millionthat is recorded on our balance sheet in ‘‘Long-termobligations’’ as at December  31,  2005excludes the accrued benefit liability owed by the owners of the twomanaged properties in respect of the general managers of thoseproperties. Due to the long-term nature of the defined benefit plan,the calculation of benefit expenses and liabilities depends on variousassumptions, such as discount rates, expected rates of increase infuture compensation levels, retirement age, and mortality. Theseassumptions are determined by management and are reviewed annually bythe actuaries. Actual future experience that differs from the assumedor future changes in assumptions may affect the amounts of benefitliability and expense. For further details on our retirement planexpense and liability, see note 15(b) of our consolidated financialstatements.

Income Taxes

We account for income taxesusing the liability method and calculate our income tax provision basedon the expected tax treatment of transactions recorded in ourconsolidated financial statements. Under this method, future tax assetsand liabilities are recognized based on differences between the basesof assets and liabilities used for financial statement and income taxpurposes, using substantively enacted tax rates. In determining thecurrent and future components of the tax provision, managementinterprets tax legislation in a variety of jurisdictions and makesassumptions about the expected timing of the reversal of future taxassets and liabilities. If our interpretations differ from those of thetax authorities, enacted tax rates change or the timing of reversals isnot as anticipated, the tax provision could materially increase ordecrease in future periods.

In measuring the amount of futureincome tax assets and liabilities, we are periodically required todevelop estimates of the tax basis of assets and liabilities. Incircumstances where the applicable tax laws and regulations are eitherunclear or subject to ongoing varying interpretations, changes in theseestimates could occur that could materially affect the amounts offuture income tax assets and liabilities recorded in our consolidatedfinancial statements. For the year ended December  31,2005, the most

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significant tax basis estimate that would beaffected by differences in interpretation of tax laws was theaccumulated net operating losses carried forward of $43.0million.

For every material future tax asset, we evaluate thelikelihood of realization of some portion or all of the asset. Thisevaluation is based on, among other things, expected levels of futuretaxable income and the pattern and timing of reversals of temporarytiming differences that give rise to future tax assets and liabilities.If, based on the available evidence, we determine that it is morelikely than not (a likelihood of more than 50%) that all or someportion of a future tax asset will not be realized, we record avaluation allowance against that asset. For the year endedDecember  31,  2005, the future income tax asset was$14.4  million, net of a valuation allowance of $10.5million.

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Recent Canadian Accounting StandardsIssued but Not Yet Adopted

Non-Monetary Transactions

InJune  2005, the CICA issued Section 3831,‘‘Non-Monetary Transactions’’, whichintroduces new requirements for non-monetary transactions entered intoon or after January  1,  2006. The amended requirementswill result in non-monetary transactions being measured at fair valuesunless certain criteria are met, in which case, the transaction ismeasured at carrying value. As this standard is to be implemented fornon-monetary transactions entered into on or after January1,  2006, the impact of adoption of this standard will dependupon future non-monetary transactions.

FinancialInstruments

In January  2005, the CICA issued Section 1530‘‘Comprehensive Income’’, Section 3855‘‘Financial Instruments — Recognition andMeasurement’’, and Section 3865‘‘Hedges’’. These standards are effectivefor fiscal years beginning on or after October  1,  2006.The impact of adoption of these standards is not yet determinable, asit will be dependent on our unsettled positions, hedging strategies,and on market volatility at the time of transition.

DisclosureControls and Procedures

Our senior management, which includesthe Chief Executive Officer and the Chief Financial Officer, hasevaluated the effectiveness of our disclosure controls and procedures(as defined in the rules of the Securities and Exchange Commission andthe policies of the Canadian Securities Administrators) and hasconcluded that such disclosure controls and procedures areeffective.

Additional Information

Additionalinformation about us (including our most recent Annual InformationForm) is available on SEDAR atwww.sedar.com.

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