##### 



Exhibit BAudited Consolidated Financial Statements

Auditors Report

To the Shareholders of Fairmont Hotels & Resorts Inc.

We have audited the consolidated balance sheets of Fairmont Hotels & Resorts
Inc. as at December 31, 2003 and 2002
and the consolidated statements of income, retained earnings (deficit) and cash
flows for each of the three years in the
period ended December 31, 2003. These financial statements are the
responsibility of the Companys management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require
that we plan and perform an audit to obtain reasonable assurance whether the
financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position
of Fairmont Hotels & Resorts Inc. as at December 31, 2003 and 2002 and the
results of its operations and its cash flows
for each of the three years in the period ended December 31, 2003 in accordance
with Canadian generally accepted
accounting principles.

|                                       |  |                 
|-------------------------------------- |  | ----------------
|/s/ PricewaterhouseCoopers LLP         |  |                 
|                                       |  |                 
|Chartered Accountants
Toronto, Ontario |  | January 30, 2004



Comments by Auditors on Canada 
United States
Reporting Differences

To the Shareholders of Fairmont Hotels & Resorts Inc.

In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when there are
changes in accounting principles that have a material effect on the
comparability of the Companys financial statements such as the changes
described in note 2 to the consolidated financial statements. Our report to the
shareholders dated January 30, 2004 is expressed in accordance with Canadian
reporting standards which do not require a reference to such changes in
accounting principles in the auditors report when the changes are properly
accounted for and adequately disclosed in the financial statements.

|                                       |  |                 
|-------------------------------------- |  | ----------------
|/s/ PricewaterhouseCoopers LLP         |  |                 
|                                       |  |                 
|Chartered Accountants
Toronto, Ontario |  | January 30, 2004





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##### 



Consolidated Balance Sheets

|                                                                                  |  |      |         |      |  |   |         | 
|--------------------------------------------------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|As at December 31, (in millions of U.S. dollars)                                  |  | 2003 |         | 2002
|                                                                                  |  |      |         |     
|Assets                                                                            |  |      |         |      |  |   |         | 
|Current assets                                                                    |  |      |         |      |  |   |         | 
|Cash and cash equivalents                                                         |  | $    | 31.7    |      |  | $ | 49.0    | 
|Accounts receivable (net of allowance for doubtful accounts of $0.5; 2002 - $0.5) |  |      | 64.1    |      |  |   | 47.0    | 
|Inventory                                                                         |  |      | 14.2    |      |  |   | 12.5    | 
|Prepaid expenses and other                                                        |  |      | 24.6    |      |  |   | 10.9    | 
|                                                                                  |  |      |         |      |  |   |         | 
|                                                                                  |  |      | 134.6   |      |  |   | 119.4   | 
|Investments in partnerships and corporations(note 5)                              |  |      | 53.1    |      |  |   | 68.9    | 
|Investment in Legacy Hotels Real Estate Investment Trust(note 6)                  |  |      | 105.9   |      |  |   | 96.4    | 
|Non-hotel real estate                                                             |  |      | 95.1    |      |  |   | 88.8    | 
|Property and equipment(note 7)                                                    |  |      | 1,656.2 |      |  |   | 1,441.1 | 
|Goodwill(note 8)                                                                  |  |      | 132.0   |      |  |   | 123.0   | 
|Intangible assets(note 8)                                                         |  |      | 216.7   |      |  |   | 201.7   | 
|Other assets and deferred charges(note 9)                                         |  |      | 109.4   |      |  |   | 83.7    | 
|                                                                                  |  |      |         |      |  |   |         | 
|                                                                                  |  | $    | 2,503.0 |      |  | $ | 2,223.0 | 
|                                                                                  |  |      |         |      |  |   |         | 
|Liabilities                                                                       |  |      |         |      |  |   |         | 
|Current liabilities                                                               |  |      |         |      |  |   |         | 
|Accounts payable and accrued liabilities                                          |  | $    | 124.0   |      |  | $ | 111.0   | 
|Dividends payable                                                                 |  |      | 3.2     |      |  |   | 2.4     | 
|Current portion of long-term debt (note 10)                                       |  |      | 117.8   |      |  |   | 72.3    | 
|                                                                                  |  |      |         |      |  |   |         | 
|                                                                                  |  |      | 245.0   |      |  |   | 185.7   | 
|Long-term debt(note 10)                                                           |  |      | 539.8   |      |  |   | 463.2   | 
|Other liabilities                                                                 |  |      | 91.4    |      |  |   | 78.4    | 
|Future income taxes(note 11)                                                      |  |      | 80.9    |      |  |   | 96.4    | 
|                                                                                  |  |      |         |      |  |   |         | 
|                                                                                  |  |      | 957.1   |      |  |   | 823.7   | 
|                                                                                  |  |      |         |      |  |   |         | 
|Shareholders Equity(note 12)                                                     |  |      |         |      |  |   |         | 
|Common shares                                                                     |  |      | 1,202.2 |      |  |   | 1,191.5 | 
|Contributed surplus                                                               |  |      | 142.3   |      |  |   | 141.9   | 
|Other equity                                                                      |  |      | 19.2    |      |  |   |        | 
|Foreign currency translation adjustments                                          |  |      | 104.1   |      |  |   | 27.4    | 
|Retained earnings                                                                 |  |      | 78.1    |      |  |   | 38.5    | 
|                                                                                  |  |      |         |      |  |   |         | 
|                                                                                  |  |      | 1,545.9 |      |  |   | 1,399.3 | 
|                                                                                  |  |      |         |      |  |   |         | 
|                                                                                  |  | $    | 2,503.0 |      |  | $ | 2,223.0 | 
|                                                                                  |  |      |         |      |  |   |         | 

Commitments, contingencies and guarantees(note 21)

The accompanying notes are an integral part of these consolidated financial statements.

Approved by the Board of Directors

|                         |  |                              
|------------------------ |  | -----------------------------
|/s/ William R. Fatt      |  | /s/ Angus A. MacNaughton     
|                         |  |                              
|William R. Fatt
Director |  | Angus A. MacNaughton
Director





---



##### 



Consolidated Statements of Retained Earnings (Deficit)

|                                                               |  |      |      |      |  |      |       |   |  |   |          |  
|-------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- | - |  | - | -------- | -
|For the years ended December 31, (in millions of U.S. dollars) |  | 2003 |      | 2002 |  | 2001
|                                                               |  |      |      |      |  |     
|Balance - Beginning of year                                    |  | $    | 38.5 |      |  | $    | (19.6 | ) |  | $ | 4,618.0  |  
|Net income for the year                                        |  |      | 50.7 |      |  |      | 92.5  |   |  |   | 895.7    |  
|                                                               |  |      |      |      |  |      |       |   |  |   |          |  
|                                                               |  |      | 89.2 |      |  |      | 72.9  |   |  |   | 5,513.7  |  
|Repurchase of common shares(note 12)                           |  |      | (5.5 | )    |  |      | (30.4 | ) |  |   |         |  
|Dividends                                                      |  |      |      |      |  |      |       |   |  |   |          |  
|Common shares                                                  |  |      | (5.6 | )    |  |      | (4.0  | ) |  |   | (87.9    | )
|Preferred shares                                               |  |      |     |      |  |      |      |   |  |   | (5.4     | )
|Distribution and settlements on reorganization(note 24)        |  |      |     |      |  |      |      |   |  |   | (5,440.0 | )
|                                                               |  |      |      |      |  |      |       |   |  |   |          |  
|Balance - End of year                                          |  | $    | 78.1 |      |  | $    | 38.5  |   |  | $ | (19.6    | )
|                                                               |  |      |      |      |  |      |       |   |  |   |          |  

The accompanying notes are an integral part of these consolidated financial statements.





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##### 



Consolidated Statements of Income

|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ------ | -
|For the years ended December 31, (in millions of U.S. dollars, except per share amounts)                                        |  | 2003 |       | 2002 |  | 2001
|                                                                                                                                |  |      |       |      |  |     
|Revenues                                                                                                                        |  |      |       |      |  |      |       |   |  |   |        |  
|Hotel ownership operations                                                                                                      |  | $    | 584.9 |      |  | $    | 516.6 |   |  | $ | 489.6  |  
|Management operations                                                                                                           |  |      | 37.6  |      |  |      | 36.1  |   |  |   | 34.3   |  
|Real estate activities                                                                                                          |  |      | 36.3  |      |  |      | 37.9  |   |  |   | 13.4   |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|                                                                                                                                |  |      | 658.8 |      |  |      | 590.6 |   |  |   | 537.3  |  
|Other revenues from managed and franchised properties (note 2(f))                                                               |  |      | 32.6  |      |  |      | 27.7  |   |  |   | 29.4   |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|                                                                                                                                |  |      | 691.4 |      |  |      | 618.3 |   |  |   | 566.7  |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Expenses                                                                                                                        |  |      |       |      |  |      |       |   |  |   |        |  
|Hotel ownership operations                                                                                                      |  |      | 460.9 |      |  |      | 367.9 |   |  |   | 358.8  |  
|Management operations                                                                                                           |  |      | 22.5  |      |  |      | 14.5  |   |  |   | 16.4   |  
|Real estate activities                                                                                                          |  |      | 23.6  |      |  |      | 26.4  |   |  |   | 15.5   |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Operating expenses                                                                                                              |  |      | 507.0 |      |  |      | 408.8 |   |  |   | 390.7  |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Other expenses from managed and franchised properties (note 2(f))                                                               |  |      | 35.1  |      |  |      | 28.9  |   |  |   | 31.6   |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|                                                                                                                                |  |      | 542.1 |      |  |      | 437.7 |   |  |   | 422.3  |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Income (loss) from equity investments and other(note 14)                                                                        |  |      | (6.9  | )    |  |      | 17.7  |   |  |   | 18.7   |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Operating income before undernoted items                                                                                        |  |      | 142.4 |      |  |      | 198.3 |   |  |   | 163.1  |  
|Amortization                                                                                                                    |  |      | 67.5  |      |  |      | 52.4  |   |  |   | 50.7   |  
|Other (income) expenses, net(note 15)                                                                                           |  |      | 2.1   |      |  |      | (4.9  | ) |  |   | 10.1   |  
|Reorganization and corporate expenses(note 16)                                                                                  |  |      |      |      |  |      | 2.2   |   |  |   | 156.9  |  
|Interest expense, net(note 17)                                                                                                  |  |      | 33.6  |      |  |      | 19.1  |   |  |   | 69.6   |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Income (loss) before income tax expense (recovery), non-controlling
interest, goodwill amortization and discontinued operations |  |      | 39.2  |      |  |      | 129.5 |   |  |   | (124.2 | )
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Income tax expense (recovery)(note 11)                                                                                          |  |      |       |      |  |      |       |   |  |   |        |  
|Current                                                                                                                         |  |      | 12.8  |      |  |      | 12.0  |   |  |   | 21.1   |  
|Future                                                                                                                          |  |      | (24.3 | )    |  |      | 23.8  |   |  |   | (120.7 | )
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|                                                                                                                                |  |      | (11.5 | )    |  |      | 35.8  |   |  |   | (99.6  | )
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Non-controlling interest                                                                                                        |  |      |      |      |  |      | 1.2   |   |  |   | 1.1    |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Income (loss) before goodwill amortization and discontinued operations                                                          |  |      | 50.7  |      |  |      | 92.5  |   |  |   | (25.7  | )
|Goodwill amortization, net of taxes(note 2(e))                                                                                  |  |      |      |      |  |      |      |   |  |   | 2.5    |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Income (loss) from continuing operations                                                                                        |  |      | 50.7  |      |  |      | 92.5  |   |  |   | (28.2  | )
|Discontinued operations(note 24)                                                                                                |  |      |      |      |  |      |      |   |  |   | 923.9  |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Net income for the year                                                                                                         |  |      | 50.7  |      |  |      | 92.5  |   |  |   | 895.7  |  
|Preferred share dividends                                                                                                       |  |      |      |      |  |      |      |   |  |   | (5.4   | )
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Net income available to common shareholders                                                                                     |  | $    | 50.7  |      |  | $    | 92.5  |   |  | $ | 890.3  |  
|                                                                                                                                |  |      |       |      |  |      |       |   |  |   |        |  
|Weighted average number of common shares
outstanding(in millions) (note 18)                                                     |  |      |       |      |  |      |       |   |  |   |        |  
|Basic                                                                                                                           |  |      | 79.2  |      |  |      | 78.4  |   |  |   | 78.9   |  
|Diluted                                                                                                                         |  |      | 80.0  |      |  |      | 79.7  |   |  |   | 79.0   |  
|Basic earnings (loss) per common share                                                                                          |  |      |       |      |  |      |       |   |  |   |        |  
|Income (loss) from continuing operations                                                                                        |  | $    | 0.64  |      |  | $    | 1.18  |   |  | $ | (0.43  | )
|Discontinued operations                                                                                                         |  |      |      |      |  |      |      |   |  |   | 11.71  |  
|Net income                                                                                                                      |  |      | 0.64  |      |  |      | 1.18  |   |  |   | 11.28  |  
|Diluted earnings (loss) per common share                                                                                        |  |      |       |      |  |      |       |   |  |   |        |  
|Income (loss) from continuing operations                                                                                        |  |      | 0.63  |      |  |      | 1.16  |   |  |   | (0.43  | )
|Discontinued operations                                                                                                         |  |      |      |      |  |      |      |   |  |   | 11.70  |  
|Net income                                                                                                                      |  |      | 0.63  |      |  |      | 1.16  |   |  |   | 11.27  |  
|Dividends declared per common share                                                                                             |  | $    | 0.07  |      |  | $    | 0.05  |   |  | $ | 1.12   |  

The accompanying notes are an integral part of these consolidated financial statements.





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##### 



Consolidated Statements of Cash Flows

|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |        |  
|-------------------------------------------------------------- | ---------------------------------------------------------------- | ---- | ------ | ----- | - | ---- | ------ | ----- | - | - | -------- | ------ | -
|For the years ended December 31, (in millions of U.S. dollars) |                                                                  | 2003 |        | 2002  |   | 2001
|                                                               |                                                                  |      |        |       |   |     
|Cash provided by (used in)                                     |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|Operating activities                                           |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|Income (loss) from continuing operations                       |                                                                  | $    | 50.7   |       |   | $    | 92.5   |       |   | $ | (28.2    | )     
|Items not affecting cash                                       |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|                                                               | Amortization of property and equipment                           |      |        | 64.8  |   |      |        | 50.0  |   |   |          | 45.5   |  
|                                                               | Amortization of goodwill and intangible assets                   |      |        | 2.7   |   |      |        | 2.4   |   |   |          | 8.3    |  
|                                                               | (Income) loss from equity investments and other                  |      |        | 6.9   |   |      |        | (17.7 | ) |   |          | (18.7  | )
|                                                               | Future income taxes                                              |      |        | (24.3 | ) |      |        | 23.8  |   |   |          | (121.3 | )
|                                                               | Non-controlling interest                                         |      |        |      |   |      |        | 1.2   |   |   |          | 1.1    |  
|                                                               | Gain on sale of Legacy Hotels Real Estate Investment Trust units |      |        |      |   |      |        |      |   |   |          | (31.1  | )
|                                                               | Write-off of property and equipment and other assets             |      |        |      |   |      |        |      |   |   |          | 40.7   |  
|                                                               | Distributions from investments                                   |      |        | 6.7   |   |      |        | 15.1  |   |   |          | 11.6   |  
|                                                               | Other                                                            |      |        | (11.6 | ) |      |        | (22.3 | ) |   |          | (56.5  | )
|Changes in non-hotel real estate                               |                                                                  |      | 13.3   |       |   |      | 6.9    |       |   |   | (17.4    | )     
|Changes in non-cash working capital items (note 19)            |                                                                  |      | (0.3   | )     |   |      | (10.5  | )     |   |   | (23.7    | )     
|Discontinued operations                                        |                                                                  |      |       |       |   |      |       |       |   |   | 2,011.4  |       
|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|                                                               |                                                                  |      | 108.9  |       |   |      | 141.4  |       |   |   | 1,821.7  |       
|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|Investing activities                                           |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|Additions to property and equipment                            |                                                                  |      | (87.2  | )     |   |      | (84.3  | )     |   |   | (121.8   | )     
|Acquisitions, net of cash acquired (note 4)                    |                                                                  |      | 6.0    |       |   |      | (136.0 | )     |   |   | (234.6   | )     
|Investments in partnerships and corporations                   |                                                                  |      | (1.6   | )     |   |      | (8.9   | )     |   |   | (26.6    | )     
|Investments in Legacy Hotels Real Estate Investment Trust      |                                                                  |      |       |       |   |      | (37.8  | )     |   |   | (2.8     | )     
|Sale of investments and properties                             |                                                                  |      |       |       |   |      |       |       |   |   | 149.2    |       
|Sale of units in Legacy Hotels Real Estate Investment Trust    |                                                                  |      |       |       |   |      |       |       |   |   | 53.5     |       
|Issuance of notes receivable                                   |                                                                  |      | (31.3  | )     |   |      |       |       |   |   | (27.2    | )     
|Collection of notes receivable                                 |                                                                  |      | 7.2    |       |   |      |       |       |   |   |         |       
|Other                                                          |                                                                  |      |       |       |   |      | (1.0   | )     |   |   | 1.2      |       
|Discontinued operations                                        |                                                                  |      |       |       |   |      |       |       |   |   | (1,407.2 | )     
|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|                                                               |                                                                  |      | (106.9 | )     |   |      | (268.0 | )     |   |   | (1,616.3 | )     
|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|Financing activities                                           |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|Issuance of long-term debt                                     |                                                                  |      | 162.7  |       |   |      | 238.4  |       |   |   | 165.0    |       
|Repayment of long-term debt                                    |                                                                  |      | (423.9 | )     |   |      | (43.9  | )     |   |   | (632.1   | )     
|Net proceeds from issuance of convertible notes                |                                                                  |      | 262.5  |       |   |      |       |       |   |   |         |       
|Issuance of common shares                                      |                                                                  |      | 1.0    |       |   |      | 4.7    |       |   |   | 53.5     |       
|Repurchase of common shares                                    |                                                                  |      | (16.8  | )     |   |      | (73.2  | )     |   |   | (9.9     | )     
|Dividends                                                      |                                                                  |      | (4.8   | )     |   |      | (3.2   | )     |   |   | (122.8   | )     
|Redemption of preferred shares                                 |                                                                  |      |       |       |   |      |       |       |   |   | (144.8   | )     
|Issuance of commercial paper                                   |                                                                  |      |       |       |   |      |       |       |   |   | 61.5     |       
|Repayment of commercial paper                                  |                                                                  |      |       |       |   |      |       |       |   |   | (643.9   | )     
|Other                                                          |                                                                  |      |       |       |   |      |       |       |   |   | 43.0     |       
|Discontinued operations                                        |                                                                  |      |       |       |   |      |       |       |   |   | 668.6    |       
|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|                                                               |                                                                  |      | (19.3  | )     |   |      | 122.8  |       |   |   | (561.9   | )     
|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|Effect of exchange rate changes on cash                        |                                                                  |      |       |       |   |      | 0.1    |       |   |   | (8.1     | )     
|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|Decrease in cash and cash equivalents                          |                                                                  |      | (17.3  | )     |   |      | (3.7   | )     |   |   | (364.6   | )     
|Cash and cash equivalents  Beginning of year                  |                                                                  |      | 49.0   |       |   |      | 52.7   |       |   |   | 417.3    |       
|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |       
|Cash and cash equivalents  End of year                        |                                                                  | $    | 31.7   |       |   | $    | 49.0   |       |   | $ | 52.7     |       
|                                                               |                                                                  |      |        |       |   |      |        |       |   |   |          |       

The accompanying notes are an integral part of these consolidated financial statements.





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##### 



Notes to Consolidated Financial Statements
(in millions of U.S. dollars, except per share amounts)

1. Basis of presentation

Fairmont Hotels & Resorts Inc. (FHR or the Company)
has operated and owned hotels and resorts for 116 years
and currently manages properties, principally under the
Fairmont and Delta brands. As at December 31, 2003,
FHR managed or franchised 82 luxury and first-class hotels
and resorts. FHR owns 83.5% of Fairmont Hotels Inc.
(Fairmont), which as at December 31, 2003, managed 43
properties in major city centers and key resort destinations
throughout Canada, the United States, Mexico, Bermuda,
Barbados and the United Arab Emirates. Delta Hotels
Limited (Delta), a wholly owned subsidiary of FHR,
managed or franchised 39 Canadian hotels and resorts as
at December 31, 2003. In addition to hotel and resort
management, as at December 31, 2003, FHR had hotel
ownership interests ranging from approximately 20% to
100% in 23 properties, located in Canada, the United
States, Mexico, Bermuda and Barbados. FHR also has an
approximate 35% equity interest in Legacy Hotels Real
Estate Investment Trust (Legacy), which owns 24 hotels
and resorts across Canada and the United States. FHR also
owns real estate properties that are suitable for either
commercial or residential development.

2.     Summary of significant accounting policies

The consolidated financial statements have been prepared
in accordance with Canadian generally accepted accounting
principles (GAAP). The significant differences between
Canadian and U.S. GAAP, insofar as they apply to FHR,
are described in note 25.

Principles of consolidation

The Companys consolidated financial statements include
the consolidated accounts of FHR and its wholly owned
subsidiaries, FHR Holdings Inc. (FHRHI), FHR Real
Estate Corporation (FHRREC), Delta, FHR Properties
Inc. and Fairmont, in which the Company owns 83.5%.

Foreign currency translation

Foreign currency assets and liabilities of FHRs operations
are translated at the rate of exchange in effect at the balance
sheet dates for monetary items and at the historical exchange
rates for non-monetary items. Foreign currency denominated
revenues and expenses are translated at the exchange rate
in effect on the dates of the related transactions. Gains and
losses resulting from the translation of assets and liabilities
denominated in foreign currencies are included in income.

The accounts of FHR and its self-sustaining subsidiaries,
where the functional currency is other than the U.S. dollar,
are translated into U.S. dollars using the year-end exchange
rate for assets and liabilities and the average exchange rates
in effect for the year for revenues and expenses. Exchange
gains or losses arising from translation of such accounts
are deferred and included in shareholders equity as foreign
currency translation adjustments.

Reporting currency

The U.S. dollar was adopted as the Companys reporting
currency effective July 1, 2001. Comparative financial
information has been restated in U.S. dollars using the
translation of convenience method. Under this method,
all amounts recorded prior to July 1, 2001 have been
converted from Canadian to U.S. dollars at the exchange
rate in effect as at June 30, 2001 of $0.6589.

Cash and cash equivalents

Cash equivalents consist of short-term investments that are
highly liquid and have initial terms to maturity of three
months or less.

Inventory

Inventory is comprised of operating supplies and is valued
at the lower of cost and replacement cost.

Long-term investments

FHR accounts for its investment in Legacy and its
investments in partnerships and corporations, which are
not controlled but over which the Company has significant
influence, using the equity method. Investments in
partnerships or corporations over which it neither controls
or has significant influence are accounted for using the
cost method.

Non-hotel real estate

Non-hotel real estate consists of land held for sale
and inventory costs for Fairmont Heritage Place (FHP),
the Companys vacation ownership product.

Investments in land held for sale are valued at the lower
of cost and net realizable value. Expenditures directly related
to non-hotel real estate, such as real estate taxes and capital
improvements, are capitalized.

Inventory costs for FHP include construction costs and
ancillary costs related thereto. The Company also capitalizes
direct costs attributable to the sale of vacation ownership
interests (VOIs) until the revenue is recognized. If a sales





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##### 



contract is cancelled, unrecoverable direct selling costs are
expensed upon cancellation.

Property and equipment

Property and equipment are recorded at cost. The Companys
policy is to capitalize major renewals and replacements and
interest incurred during the construction period on new
facilities and during the renovation period of major
renovations to existing facilities. Interest is capitalized,
based on the borrowing rate of debt related to the project
or if no specific financing is obtained, the Companys
average cost of borrowing. Maintenance, repairs and minor
renewals and replacements are charged against income
when incurred.

Computer system development costs for internal use
software are capitalized to the extent the project is expected
to be of continuing benefit to the Company.

Amortization is provided at rates designed to amortize
the assets over their estimated economic lives, except for
buildings on leased land, which are amortized over the
lesser of the term of the lease, including options, and the
economic life of the building. The annual rates of
amortization are as follows:

|                                  |  |                            
|--------------------------------- |  | ---------------------------
|Buildings                         |  | 40 years straight-line     
|Building equipment                |  | 17  25 years straight-line
|Furniture, fixtures
and equipment |  | 5  17 years straight-line 
|Computer software                 |  | 2  7 years straight-line  
|Vehicles                          |  | 3  5 years straight-line  
|Leasehold improvements            |  | over the term of the leases

Goodwill and intangible assets

Goodwill represents the excess of purchase price over
the fair value of identifiable assets acquired in a purchase
business combination. Intangible assets with indefinite
useful lives represent costs that have been allocated to
brand names and trademarks. Intangible assets with
definite useful lives are costs that have been allocated to
management contracts acquired in the acquisitions of Delta
and Fairmont, as well as amounts paid to acquire
individual management contracts.

Goodwill and intangibles with indefinite useful lives

Goodwill and intangible assets with indefinite useful lives
are not amortized but are subject to impairment tests on
at least an annual basis. The Company performs such
impairment tests on at least an annual basis and additionally,
whenever events and changes in circumstances suggest that
the carrying amount may not be recoverable. Impairment
of goodwill is tested at the reporting unit level by comparing
the reporting units carrying amount, including goodwill,
to the fair value of the reporting unit. The fair values of the
reporting units are estimated using a combination of the
income or discounted cash flows approach and the market
approach, which utilizes comparable companies data.
If the carrying amount of the reporting unit exceeds its
fair value, then a second step is performed to measure the
amount of impairment loss, if any. Any impairment loss
would be expensed in the consolidated statements of income.
The impairment test for intangibles with indefinite useful
lives consists of a comparison of the fair value of the
intangible asset with its carrying amount. When the
carrying amount of the intangible asset exceeds its fair
value, an impairment loss is recognized for the difference.

Intangibles with definite useful lives

Management contracts acquired in a business combination
are recorded at values that represent the estimated present
value of net cash flows that, on acquisition, were expected
to be received over the estimated lives of the contracts.
They are amortized on a straight-line basis, reflecting the
weighted average of the fixed, non-cancellable terms and
certain renewal periods of the underlying contracts.
Management contracts acquired in other than business
combinations are recorded at cost and are amortized
on a straight-line basis over the term of the contracts,
including renewal terms where applicable.

Long-lived assets

Effective January 1, 2003, FHR adopted the new
recommendations of The Canadian Institute of Chartered
Accountants (CICA) with respect to accounting for the
impairment of long-lived assets. This standard requires that
long-lived assets be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Long-lived
assets are grouped at the lowest level for which identifiable
cash flows are largely independent, when testing for and
measuring impairment. Under the new standard, a two-step
process is used to assess the impairment of long-lived assets
held for use, with the first step determining when impairment
is recognized and the second step measuring the amount of
the impairment. Impairment losses are recognized when the
carrying amount of long-lived assets exceeds the sum of the
undiscounted cash flows expected to result from their use
and eventual disposition and are measured as the amount
by which the long-lived assets carrying amount exceeds its
fair value. Adoption of this new standard did not have an
impact on FHRs financial position, results of operations
or cash flows.

Also effective January 1, 2003, FHR adopted the new
CICA recommendations relating to the disposal of long-lived
assets and discontinued operations. Subject to certain criteria,
long-lived assets and any associated assets or liabilities that
management expects to dispose of by sale are classified as
held for sale. The related results of operations from these





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##### 



assets classified as held for sale are reported as discontinued
operations if certain criteria are met, with reclassification
of prior years related operating results. Assets to be
disposed of are reported at the lower of the carrying
amount and fair value less costs to sell. Adoption of this
new standard did not have an impact on FHRs financial
position, results of operations or cash flows.

Income taxes

The Company accounts for income taxes under the liability
method. Under this method, future income tax assets and
liabilities are recognized based on differences between the
bases of assets and liabilities used for financial statement
and income tax purposes, using substantively enacted tax
rates. The effect of changes in income tax rates on future
income tax assets and liabilities is recognized in the period
in which the change occurs. Valuation allowances are
recorded when it is more likely than not that a future
income tax asset will not be realized.

Financial instruments

Derivative financial instruments such as swaps, options
and forward contracts are used by FHR in the management
of its foreign currency and interest rate exposures. FHRs
policy is to not use derivative financial instruments for
trading or speculative purposes.

At the inception of a hedge, FHR documents the
relationship between the hedging instruments and the hedged
items. This process includes linking the derivatives to specific
assets and liabilities on the balance sheet or to specific firm
commitments or forecasted transactions. FHR assesses the
effectiveness of the hedge at the inception and throughout
the contract period by considering factors such as the term
of the instrument, the notional settlement amount of the
derivative as compared to the dollar amount of the item
being hedged and any other applicable factors. At the end
of each period, FHR records any changes in fair value related
to the portion of the derivative instruments that is no
longer deemed to be effective or does not meet the criteria
of a hedge in the consolidated statement of income.

FHR designates its interest rate instruments as hedges
of the interest expense on the underlying debt. Interest
expense on the underlying debt is adjusted to include
the payments made or received under the interest rate
instruments. Foreign exchange translation gains or losses
on foreign currency denominated derivative financial
instruments used to hedge anticipated foreign currency
cash flows are recognized as adjustments to revenues or
expenses, as applicable, when the cash flows are recorded.

Stock-based compensation

Effective January 1, 2003, the Company recognizes
compensation expense for stock options granted in the
consolidated statements of income using the fair value
based method of accounting for all options issued on
or after January 1, 2003. Pro forma disclosures of net
income and earnings per share as if the fair value based
accounting method had been used to account for stock-based
compensation for any options granted before January 1,
2003 but on or after January 1, 2002 are provided in the
notes. Any cash paid by the employee on the exercise of
stock options is added to the stated value of common shares.
Compensation expense is recognized for share appreciation
rights (SARs) for the excess of the market value of a
common share over the related option price.

Revenue recognition

Revenues include hotel operations in respect of owned
properties, management and incentive fees, real estate sales
and certain other revenues from properties managed or
franchised by FHR. Hotel ownership operations revenues
are generated primarily from room occupancy and food and
beverage services. Management fees comprise a base fee,
which is a percentage of the revenues of hotels, and incentive
fees, which are generally based on hotel profitability. Revenue
from real estate activities represents the proceeds from sales
of undeveloped lands that the Company is holding for sale
and sales of the Companys VOIs. Other revenues from
managed properties include reimbursements for direct and
indirect costs by the hotel owners for the properties that
are managed. These reimbursed expenditures relate
primarily to marketing and reservation services performed
by the Company under the terms of its hotel management
and franchise agreements.

Revenues from hotel operations are recognized when
services are provided and ultimate collection is reasonably
assured. Management fees, both base and incentive, and
other revenues from managed properties are recognized
when performance hurdles have been met, in accordance
with the terms specified in the related management
agreements. Real estate revenues are realized once title has
transferred and collection of proceeds is reasonably assured.
Revenues related to the sale of VOIs are recognized when a
minimum of 10% of the purchase price of an interest has
been received in cash, the period of cancellation with refund
has expired, receivables are deemed collectible, and certain
minimum sales and construction levels have been attained.
Revenue related to projects still under construction are
recognized under the percentage-of-completion method.
For sales that do not meet these criteria, revenue is deferred.





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##### 



Use of estimates

The preparation of financial statements and related disclosures
in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts
of assets, liabilities, revenues and expenses, and contingencies.
Estimates are based on historical experience and on other
assumptions that are believed at the time to be reasonable
under the circumstances. The actual results may differ
from those previously estimated. Estimates are used when
accounting for items and matters such as amortization,
goodwill and intangible asset impairment assessments,
income taxes, employee future benefits and contingencies.

Comparative figures

Certain of prior years comparative figures have been reclassified to conform with the presentation adopted in 2003.

Changes in accounting policies

a)   Stock-based compensation

Effective January 1, 2003, FHR prospectively adopted
the revised recommendations of the CICA with respect
to accounting for stock-based compensation. The Company
has chosen to apply these new recommendations on a
prospective basis and has recognized compensation expense
for stock options granted on or after January 1, 2003.
Pro forma disclosures of net income and earnings per share
have been provided (note 13) as if the fair value based
accounting method had been used to account for stock-
based compensation for any options granted on or after
January 1, 2002, but before January 1, 2003.

b)   Long-lived assets

Effective January 1, 2003, FHR adopted the new
recommendations of the CICA with respect to accounting
for the impairment of long-lived assets. This standard
requires that long-lived assets be reviewed for impairment
whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Long-lived assets are grouped at the lowest level for which
identifiable cash flows are largely independent when testing
for and measuring impairment. Under the new standard, a
two-step process is used to assess the impairment of long-
lived assets held for use, with the first step determining when
impairment is recognized and the second step measuring
the amount of the impairment. Impairment losses are
recognized when the carrying amount of long-lived assets
exceeds the sum of the undiscounted cash flows expected
to result from their use and eventual disposition and are
measured as the amount by which the long-lived assets
carrying amount exceeds its fair value. Prior to January 1,
2003, the net book value of long-lived assets were reviewed
regularly and compared with their net recoverable amounts,
based on managements projected undiscounted future
cash flows. Adoption of this new standard did not have
an impact on FHRs financial position, results of operations
or cash flows.

Also effective January 1, 2003, FHR adopted the new
CICA recommendations relating to the disposal of long-lived
assets and discontinued operations. Subject to certain criteria,
long-lived assets and any associated assets or liabilities that
management expects to dispose of by sale are classified as
held for sale. The related results of operations from these
assets classified as held for sale are reported as discontinued
operations if certain criteria are met, with reclassification
of prior years related operating results. Assets to be disposed
of are reported at the lower of the carrying amount and
fair value less costs to sell. Adoption of this new standard
did not have an impact on FHRs financial position, results
of operations or cash flows.

c)   Asset retirement obligations

Effective January 1, 2003, FHR adopted the new
recommendations of the CICA with respect to accounting
for asset retirement obligations. This standard requires
that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred
if a reasonable estimate of fair value can be made. The
associated asset retirement costs are capitalized as part of
the carrying amount of the long-lived asset and subsequently
amortized over the assets useful life. Adoption of this new
standard resulted in an increase of $0.7 to other liabilities
and property and equipment.

d)   Foreign currency translation

Effective January 1, 2002, FHR adopted the revised
recommendations of the CICA with respect to accounting
for foreign currency gains and losses. This standard
requires that unrealized exchange gains and losses related
to monetary foreign currency assets and liabilities be
recognized in income immediately. The requirements of
this statement were applied retroactively with restatement
of prior periods and did not have an impact on continuing
operations. This change resulted in decreased income from
discontinued operations of $34.8 for the year ended
December 31, 2001.

e)   Goodwill and intangible assets

On January 1, 2002, FHR adopted the recommendations
of the CICA with respect to goodwill and other intangible
assets. Under the new recommendations, goodwill and
intangible assets with indefinite lives, including amounts
relating to investments accounted for under the equity
method, are no longer amortized, but are subject to
impairment tests on at least an annual basis. Upon initial
adoption of these recommendations, FHR completed
its impairment testing on the balance of goodwill and
intangible assets with indefinite lives and concluded that
these assets were not impaired.





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##### 



A reconciliation of reported net income, earnings per share and diluted
earnings per share to the amounts adjusted for the exclusion of goodwill and
brand name amortization is as follows:

|                                     |  |      |      |      |  |      |      |  |  |   |       | 
|------------------------------------ |  | ---- | ---- | ---- |  | ---- | ---- |  |  | - | ----- | 
|                                     |  | 2003 |      | 2002 |  | 2001
|                                     |  |      |      |      |  |     
|Reported net income                  |  | $    | 50.7 |      |  | $    | 92.5 |  |  | $ | 895.7 | 
|Goodwill amortization, net of tax    |  |      |     |      |  |      |     |  |  |   | 2.5   | 
|Brand name amortizations, net of tax |  |      |     |      |  |      |     |  |  |   | 1.1   | 
|                                     |  |      |      |      |  |      |      |  |  |   |       | 
|Adjusted net income                  |  |      | 50.7 |      |  |      | 92.5 |  |  |   | 899.3 | 
|                                     |  |      |      |      |  |      |      |  |  |   |       | 
|Basic earnings per share             |  |      |      |      |  |      |      |  |  |   |       | 
|Reported net income                  |  |      | 0.64 |      |  |      | 1.18 |  |  |   | 11.28 | 
|Goodwill amortization                |  |      |     |      |  |      |     |  |  |   | 0.03  | 
|Brand name amortization              |  |      |     |      |  |      |     |  |  |   | 0.01  | 
|                                     |  |      |      |      |  |      |      |  |  |   |       | 
|Adjusted net income                  |  |      | 0.64 |      |  |      | 1.18 |  |  |   | 11.32 | 
|                                     |  |      |      |      |  |      |      |  |  |   |       | 
|Diluted earnings per share           |  |      |      |      |  |      |      |  |  |   |       | 
|Reported net income                  |  |      | 0.63 |      |  |      | 1.16 |  |  |   | 11.27 | 
|Goodwill amortization                |  |      |     |      |  |      |     |  |  |   | 0.03  | 
|Brand name amortization              |  |      |     |      |  |      |     |  |  |   | 0.01  | 
|                                     |  |      |      |      |  |      |      |  |  |   |       | 
|Adjusted net income                  |  | $    | 0.63 |      |  | $    | 1.16 |  |  | $ | 11.31 | 
|                                     |  |      |      |      |  |      |      |  |  |   |       | 

f)   Other revenues and expenses from managed and franchised properties

Effective January 1, 2002, other revenues and expenses
from managed and franchised properties are included in
the consolidated statements of income in response to a
CICA Emerging Issues Committee abstract. The 2001
revenues and expenses were reclassified to conform with
the presentation adopted in 2002. These transactions were
previously recorded on a net basis.

Recently issued accounting pronouncements

Hedging relationships

In December 2001, the CICA issued guidance on accounting
for hedging relationships. These guidelines specify the
circumstances in which hedge accounting is appropriate,
including the identification, documentation, designation
and effectiveness of hedges and also the discontinuance of
hedge accounting. This guideline is applicable to hedging
relationships in effect in fiscal years beginning on or after
July 1, 2003. Early adoption is permissible, however, the
Company will be implementing this guidance in 2004. The
adoption of this accounting guidance will not have a material
impact on either financial statement presentation or
operations.

Variable interest entities

The CICA has recently issued a guideline on the
consolidation of Variable Interest Entities (VIEs).
This guideline requires FHR to identify VIEs in which
the Company has an interest, determine whether FHR
is the primary beneficiary of such entities and, if so, to
consolidate the VIE. A VIE is an entity that is structured
such that:



| |  | the equity is not sufficient to permit that entity to
finance its activities without external support, or                                                                                            
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | equity investors lack either a direct or indirect ability
to make decisions about the entitys activities, an
obligation to absorb expected losses or the right to
receive expected residual returns.

A primary beneficiary is an enterprise that will absorb
a majority of a VIEs expected losses, receive a majority
of its expected residual returns, or both.

This guideline is effective for all fiscal periods beginning
on or after November 1, 2004 and early adoption is
encouraged. FHR is currently in the process of identifying
any potential impact and is planning on implementing this
standard in the first quarter of 2004. FHR is adopting this
standard early to minimize potential differences between
Canadian and U.S. GAAP. This guideline could result in the
consolidation of managed hotels and the deconsolidation of
any subsidiary where it is determined that the Company is
not the primary beneficiary. The Company is still reviewing
the impact this standard will have on its financial
statement presentation.

Generally accepted accounting principles and
general standards of financial statement presentation

The CICA has issued new accounting standards surrounding
GAAP and general standards of financial statement
presentation. These standards lay out a framework for the
application of GAAP and the fair presentation of financial
standards in accordance with GAAP. This standard is
effective for fiscal years beginning on or after October 1,
2003 and early adoption is permissible. The Company will
begin to follow these new standards starting in 2004.





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##### 



3. Segmented information

The continuing operations of FHR consist of five operating
segments in two core business activities, ownership and management operations. The segments are hotel ownership,
investment in Legacy, real estate activities, Fairmont and Delta. Hotel ownership consists of real estate interests
ranging from approximately 20% to 100% in 23 properties. The investment in Legacy consists of an approximate 35%
equity interest in Legacy, which owns 24 hotels across Canada and the United States. Real estate activities consist
primarily of two large undeveloped land blocks in Toronto
and Vancouver and a vacation ownership product.
Fairmont is a luxury hotel management company and
Delta is a Canadian first-class hotel management company.

The performance of all segments is evaluated primarily
on earnings before interest, income taxes and amortization
(EBITDA), which management defines as income before
interest, income taxes, non-controlling interest, amortization,
other income and expenses and reorganization and
corporate expenses. EBITDA includes income from equity
investments and other. Amortization, other income and
expenses, reorganization and corporate expenses, interest,
income taxes, non-controlling interest and goodwill amortization are not allocated to the individual segments.
All transactions among operating segments are conducted
at fair market value.

The following tables present revenues, EBITDA, total assets and capital
expenditures for FHRs reportable segments:

|                                                      |  |           |         |            |  |            |       |             |  |       |       |               |  |       |       |  |  |             |      |  |  |   |       |   |  |   |         |  
|----------------------------------------------------- |  | --------- | ------- | ---------- |  | ---------- | ----- | ----------- |  | ----- | ----- | ------------- |  | ----- | ----- |  |  | ----------- | ---- |  |  | - | ----- | - |  | - | ------- | -
|                                                      |  | 2003     
|                                                      |  |          
|                                                      |  | Ownership |         | Management |  | Inter-     |       |             |  |      
|                                                      |  |           |         |            |  | segment    |       |             |  |      
|                                                      |  | Hotel     |         |            |  |            |       | Real estate |  |       |       |               |  |       |       |  |  | elimination |      |  |  |  
|                                                      |  | ownership |         | Legacy     |  | activities |       | Fairmont    |  | Delta |       | and other
(a) |  | Total
|                                                      |  |           |         |            |  |            |       |             |  |       |       |               |  |      
|Operating
revenues                                    |  | $         | 584.9   |            |  | $          |      |             |  | $     | 36.3  |               |  | $     | 44.2  |  |  | $           | 11.7 |  |  | $ | (18.3 | ) |  | $ | 658.8   |  
|Other revenues
from managed
and franchised
properties |  |           |        |            |  |            |      |             |  |       |      |               |  |       | 24.4  |  |  |             | 8.2  |  |  |   |      |   |  |   | 32.6    |  
|                                                      |  |           |         |            |  |            |       |             |  |       |       |               |  |       |       |  |  |             |      |  |  |   |       |   |  |   |         |  
|                                                      |  |           |         |            |  |            |       |             |  |       |       |               |  |       |       |  |  |             |      |  |  |   |       |   |  |   | 691.4   |  
|                                                      |  |           |         |            |  |            |       |             |  |       |       |               |  |       |       |  |  |             |      |  |  |   |       |   |  |   |         |  
|Income (loss) from
equity investments
and other       |  |           | 1.7     |            |  |            | (8.6  | )           |  |       |      |               |  |       |      |  |  |             |     |  |  |   |      |   |  |   | (6.9    | )
|EBITDA(b)                                             |  |           | 107.4   |            |  |            | (8.6  | )           |  |       | 12.7  |               |  |       | 24.8  |  |  |             | 8.7  |  |  |   | (2.6  | ) |  |   | 142.4   |  
|Total
assets(c)                                       |  |           | 1,916.5 |            |  |            | 105.9 |             |  |       | 101.8 |               |  |       | 350.8 |  |  |             | 75.8 |  |  |   | (47.8 | ) |  |   | 2,503.0 |  
|Capital expenditures                                  |  |           | 84.2    |            |  |            |      |             |  |       |      |               |  |       | 3.0   |  |  |             |     |  |  |   |      |   |  |   | 87.2    |  

|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |       |       |  |  |             |      |  |  |   |        |   |  |   |         | 
|----------------------------------------------------- |  | --------- | ------- | ---------- |  | ---------- | ---- | ----------- |  | ----- | ---- | ------------- |  | ----- | ----- |  |  | ----------- | ---- |  |  | - | ------ | - |  | - | ------- | 
|                                                      |  | 2002     
|                                                      |  |          
|                                                      |  | Ownership |         | Management |  | Inter-     |      |             |  |      
|                                                      |  |           |         |            |  | segment    |      |             |  |      
|                                                      |  | Hotel     |         |            |  |            |      | Real estate |  |       |      |               |  |       |       |  |  | elimination |      |  |  |  
|                                                      |  | ownership |         | Legacy     |  | activities |      | Fairmont    |  | Delta |      | and other
(a) |  | Total
|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |      
|Operating
revenues                                    |  | $         | 516.6   |            |  | $          |     |             |  | $     | 37.9 |               |  | $     | 41.3  |  |  | $           | 11.4 |  |  | $ | (16.6  | ) |  | $ | 590.6   | 
|Other revenues
from managed
and franchised
properties |  |           |        |            |  |            |     |             |  |       |     |               |  |       | 19.8  |  |  |             | 7.9  |  |  |   |       |   |  |   | 27.7    | 
|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |       |       |  |  |             |      |  |  |   |        |   |  |   |         | 
|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |       |       |  |  |             |      |  |  |   |        |   |  |   | 618.3   | 
|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |       |       |  |  |             |      |  |  |   |        |   |  |   |         | 
|Income from
equity investments
and other              |  |           | 11.3    |            |  |            | 6.4  |             |  |       |     |               |  |       |      |  |  |             |     |  |  |   |       |   |  |   | 17.7    | 
|EBITDA(b)                                             |  |           | 143.4   |            |  |            | 6.4  |             |  |       | 11.5 |               |  |       | 30.2  |  |  |             | 8.1  |  |  |   | (1.3   | ) |  |   | 198.3   | 
|Total
assets(c)                                       |  |           | 1,879.9 |            |  |            | 96.4 |             |  |       | 95.0 |               |  |       | 285.8 |  |  |             | 66.0 |  |  |   | (200.1 | ) |  |   | 2,223.0 | 
|Capital expenditures                                  |  |           | 80.1    |            |  |            |     |             |  |       |     |               |  |       | 4.2   |  |  |             |     |  |  |   |       |   |  |   | 84.3    | 





---



##### 



|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |       |       |  |  |             |      |  |  |   |       |   |  |   |         | 
|----------------------------------------------------- |  | --------- | ------- | ---------- |  | ---------- | ---- | ----------- |  | ----- | ---- | ------------- |  | ----- | ----- |  |  | ----------- | ---- |  |  | - | ----- | - |  | - | ------- | 
|                                                      |  | 2001     
|                                                      |  |          
|                                                      |  | Ownership |         | Management |  | Inter-     |      |             |  |      
|                                                      |  |           |         |            |  | segment    |      |             |  |      
|                                                      |  | Hotel     |         |            |  |            |      | Real estate |  |       |      |               |  |       |       |  |  | elimination |      |  |  |  
|                                                      |  | ownership |         | Legacy     |  | activities |      | Fairmont    |  | Delta |      | and other
(a) |  | Total
|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |      
|Operating
revenues                                    |  | $         | 489.6   |            |  | $          |     |             |  | $     | 13.4 |               |  | $     | 39.9  |  |  | $           | 10.4 |  |  | $ | (16.0 | ) |  | $ | 537.3   | 
|Other revenues
from managed
and franchised
properties |  |           |        |            |  |            |     |             |  |       |     |               |  |       | 20.9  |  |  |             | 8.5  |  |  |   |      |   |  |   | 29.4    | 
|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |       |       |  |  |             |      |  |  |   |       |   |  |   |         | 
|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |       |       |  |  |             |      |  |  |   |       |   |  |   | 566.7   | 
|                                                      |  |           |         |            |  |            |      |             |  |       |      |               |  |       |       |  |  |             |      |  |  |   |       |   |  |   |         | 
|Income from
equity investments
and other              |  |           | 11.3    |            |  |            | 7.4  |             |  |       |     |               |  |       |      |  |  |             |     |  |  |   |      |   |  |   | 18.7    | 
|EBITDA(b)                                             |  |           | 126.1   |            |  |            | 7.4  |             |  |       | (2.1 | )             |  |       | 26.3  |  |  |             | 7.6  |  |  |   | (2.2  | ) |  |   | 163.1   | 
|Total
assets(c)                                       |  |           | 1,458.9 |            |  |            | 56.4 |             |  |       | 92.1 |               |  |       | 239.3 |  |  |             | 71.0 |  |  |   | 3.7   |   |  |   | 1,921.4 | 
|Capital expenditures                                  |  |           | 115.2   |            |  |            |     |             |  |       |     |               |  |       | 5.9   |  |  |             | 0.7  |  |  |   |      |   |  |   | 121.8   | 

a)Revenues represent management fees that are charged by Fairmont of $18.0
(2002  $16.3; 2001  $16.0) and Delta
of $0.3 (2002  $0.3; 2001  $nil) to the hotel ownership operations, which are
eliminated on consolidation. EBITDA
represents expenses not reimbursed relating to marketing and reservation
services performed by FHR under the terms of
its hotel management and franchise agreement. Adjustments to total assets
represent the elimination of intersegment loans
net of corporate assets.

b)The following costs are not allocated to the individual segments in
evaluating income (loss) before income tax expense,
non-controlling interest, goodwill amortization and discontinued operations:

|                                      |  |      |      |      |  |      |      |   |  |   |       | 
|------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  | - | ----- | 
|                                      |  | 2003 |      | 2002 |  | 2001
|                                      |  |      |      |      |  |     
|Amortization                          |  | $    | 67.5 |      |  | $    | 52.4 |   |  | $ | 50.7  | 
|Other (income) expense                |  |      | 2.1  |      |  |      | (4.9 | ) |  |   | 10.1  | 
|Reorganization and corporate expenses |  |      |     |      |  |      | 2.2  |   |  |   | 156.9 | 
|Interest expense, net                 |  |      | 33.6 |      |  |      | 19.1 |   |  |   | 69.6  | 

c)Hotel ownership assets
include $48.5 (2002  $64.7; 2001  $51.2) of
investments accounted for using the equity method.

Geographical information

|                    |  |          |       |                        |  |      |       |      |  |      |       |  |  |   |         |  |  |   |         | 
|------------------- |  | -------- | ----- | ---------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ------- |  |  | - | ------- | 
|                    |  | Revenues |       | Property and equipment
|                    |  |          |       |                       
|                    |  | 2003     |       | 2002                   |  | 2001 |       | 2003 |  | 2002
|                    |  |          |       |                        |  |      |       |      |  |     
|Canada              |  | $        | 300.1 |                        |  | $    | 289.8 |      |  | $    | 274.3 |  |  | $ | 520.6   |  |  | $ | 447.0   | 
|United States       |  |          | 241.9 |                        |  |      | 163.4 |      |  |      | 142.5 |  |  |   | 742.4   |  |  |   | 614.0   | 
|Bermuda             |  |          | 77.8  |                        |  |      | 91.8  |      |  |      | 73.4  |  |  |   | 237.7   |  |  |   | 235.0   | 
|Mexico              |  |          | 58.5  |                        |  |      | 58.5  |      |  |      | 60.6  |  |  |   | 104.1   |  |  |   | 99.3    | 
|Other international |  |          | 13.1  |                        |  |      | 14.8  |      |  |      | 15.9  |  |  |   | 51.4    |  |  |   | 45.8    | 
|                    |  |          |       |                        |  |      |       |      |  |      |       |  |  |   |         |  |  |   |         | 
|                    |  | $        | 691.4 |                        |  | $    | 618.3 |      |  | $    | 566.7 |  |  | $ | 1,656.2 |  |  | $ | 1,441.1 | 
|                    |  |          |       |                        |  |      |       |      |  |      |       |  |  |   |         |  |  |   |         | 





---



##### 



|                    |  |          |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|------------------- |  | -------- | ----- | ----------------- |  | ---- | ----- | ---- |  | - | ----- |  |  | - | ----- | 
|                    |  | Goodwill |       | Intangible Assets
|                    |  |          |       |                  
|                    |  | 2003     |       | 2002              |  | 2003 |       | 2002
|                    |  |          |       |                   |  |      |       |     
|Canada              |  | $        | 50.7  |                   |  | $    | 41.9  |      |  | $ | 63.4  |  |  | $ | 52.8  | 
|United States       |  |          | 53.2  |                   |  |      | 53.0  |      |  |   | 150.5 |  |  |   | 146.1 | 
|Bermuda             |  |          | 16.3  |                   |  |      | 16.3  |      |  |   | 2.8   |  |  |   | 2.8   | 
|Mexico              |  |          | 11.8  |                   |  |      | 11.8  |      |  |   |      |  |  |   |      | 
|Other international |  |          |      |                   |  |      |      |      |  |   |      |  |  |   |      | 
|                    |  |          |       |                   |  |      |       |      |  |   |       |  |  |   |       | 
|                    |  | $        | 132.0 |                   |  | $    | 123.0 |      |  | $ | 216.7 |  |  | $ | 201.7 | 
|                    |  |          |       |                   |  |      |       |      |  |   |       |  |  |   |       | 

Revenues and assets are allocated to countries based upon the hotels
geographic locations. There were no other
individual international countries comprising greater than 10% of the total
revenues or property and equipment,
intangible assets and goodwill of the Company as at December 31, 2003, 2002 or
2001.

4. Acquisitions

The cash consideration paid (received) net of cash acquired on business
acquisitions comprise the following:

|                                                         |  |      |      |      |  |      |       |  |  |   |       | 
|-------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                                         |  | 2003 |      | 2002 |  | 2001
|                                                         |  |      |      |      |  |     
|The Fairmont Copley Plaza Boston                         |  | $    | (6.0 | )    |  | $    |      |  |  | $ |      | 
|The Fairmont Orchid, Hawaii                              |  |      |     |      |  |      | 136.0 |  |  |   |      | 
|The Fairmont Kea Lani Maui                               |  |      |     |      |  |      |      |  |  |   | 214.3 | 
|The Fairmont Royal Pavilion and The Fairmont Glitter Bay |  |      |     |      |  |      |      |  |  |   | 20.3  | 
|                                                         |  |      |      |      |  |      |       |  |  |   |       | 
|                                                         |  | $    | (6.0 | )    |  | $    | 136.0 |  |  | $ | 234.6 | 
|                                                         |  |      |      |      |  |      |       |  |  |   |       | 

The Fairmont Copley Plaza Boston

In February 2003, FHR acquired the remaining 50% equity
interest in The Fairmont Copley Plaza Boston from entities
controlled by Prince Alwaleed Bin Talal Bin Abdulaziz
Al Saud of Saudi Arabia in exchange for the issuance of
one million common shares and cash of $8.3. The total
purchase price for 100% of The Fairmont Copley Plaza
Boston, including the 50% already owned, was approximately
$117.0 and was satisfied by the issuance of one million
common shares at a fair market value of $21.49 per share,
the assumption of a mortgage at $64.5 and cash paid of
$30.7. FHR purchased the initial 50% equity interest in
the hotel in July 2001 for cash. The acquisition was
accounted for using the step purchase method, and 100%
of the results of the hotel have been included in the
consolidated statements of income from February 10, 2003.
The mortgage, secured by substantially all assets and an
assignment of auxiliary rents of The Fairmont Copley Plaza
Boston, is due March 1, 2006 and bears interest at floating
rates based on LIBOR plus 225 basis points. FHR has
entered into an interest rate contract to cap the LIBOR
rate at 6.5%.

The total cost of the hotel, including the 50% interest
already owned, less cash acquired of $14.8, has been
allocated to the tangible assets acquired and liabilities
assumed on the basis of their respective estimated fair
values on the acquisition date, as follows:

|                                  |  |   |       |  
|--------------------------------- |  | - | ----- | -
|Land                              |  | $ | 25.1  |  
|Building                          |  |   | 77.8  |  
|Furniture, fixtures and equipment |  |   | 2.5   |  
|Long-term debt                    |  |   | (64.5 | )
|Current assets                    |  |   | 3.2   |  
|Current liabilities               |  |   | (6.8  | )
|                                  |  |   |       |  
|                                  |  | $ | 37.3  |  
|                                  |  |   |       |  





---



##### 



Fairmont Hotels Inc.

On September 23, 2002, FHR increased its investment
in Fairmont to 83.5%, through a share exchange with a
subsidiary of Kingdom Hotels (USA), Ltd. (Kingdom),
an affiliate of a trust created by Prince Alwaleed Bin Talal
Bin Abdulaziz Al Saud. Kingdom exchanged its 16.5%
interest in Fairmont for shares of FHR.

FHR issued 2,875,000 common shares at $24.00 per
share to Kingdom, equivalent to approximately 3.7% of
FHRs issued and outstanding common shares at the time.
The acquisition was accounted for using the step purchase
method. The results of Fairmont continue to be included
in the consolidated statements of income, and the portion
related to non-controlling interest was reduced to 16.5%
from September 23, 2002. The goodwill acquired relates
to the Fairmont management operations segment.

The Fairmont Orchid, Hawaii

On December 17, 2002, the Company acquired the assets
of The Orchid at Mauna Lani in Hawaii. These assets were
acquired for a purchase price of $140.0, plus acquisition
costs of approximately $1.5 less the assumption of a $5.5
working capital deficit. The acquisition was accounted for
using the purchase method, and the results of the hotel
have been included in the consolidated statements of
income from the date of acquisition.

The purchase prices of the 2002 acquisitions have been allocated to the
assets acquired and liabilities assumed on the basis of their respective
estimated fair values on the acquisition date. The purchase price allocations
are as follows:

|                                  |  |                      |       |             |  |       |       |   |  |   |       |  
|--------------------------------- |  | -------------------- | ----- | ----------- |  | ----- | ----- | - |  | - | ----- | -
|                                  |  | The Fairmont Orchid, |       | Fairmont    |  |       |       |  
|                                  |  | Hawaii               |       | Hotels Inc. |  | Total
|                                  |  |                      |       |             |  |      
|Land                              |  | $                    | 25.3  |             |  | $     |      |   |  | $ | 25.3  |  
|Building                          |  |                      | 104.9 |             |  |       |      |   |  |   | 104.9 |  
|Furniture, fixtures and equipment |  |                      | 11.3  |             |  |       |      |   |  |   | 11.3  |  
|Goodwill                          |  |                      |      |             |  |       | 16.7  |   |  |   | 16.7  |  
|Management contracts              |  |                      |      |             |  |       | 4.1   |   |  |   | 4.1   |  
|Brand name                        |  |                      |      |             |  |       | 38.9  |   |  |   | 38.9  |  
|Non-controlling interest          |  |                      |      |             |  |       | 26.2  |   |  |   | 26.2  |  
|Future income taxes               |  |                      |      |             |  |       | (16.7 | ) |  |   | (16.7 | )
|Working capital assumed           |  |                      | (5.5  | )           |  |       |      |   |  |   | (5.5  | )
|                                  |  |                      |       |             |  |       |       |   |  |   |       |  
|                                  |  | $                    | 136.0 |             |  | $     | 69.2  |   |  | $ | 205.2 |  
|                                  |  |                      |       |             |  |       |       |   |  |   |       |  

None of the goodwill acquired is expected to be
deductible for income tax purposes. The management
contracts are being amortized over a period of 40 years
and the brand name is not being amortized since it is
considered to have an indefinite useful life.

The Fairmont Kea Lani Maui

In February 2001, the Company acquired the Kea Lani
Resort in Maui for $214.3 in cash. The purchase price
included related acquisition costs paid in cash of
approximately $1.5. The acquisition was accounted for
using the purchase method, and the results of the hotel
have been included in the consolidated statements of
income from the date of acquisition.

The Fairmont Royal Pavilion and The Fairmont Glitter Bay

In January 2001, the Company acquired the remaining
51% interest in The Fairmont Royal Pavilion and
The Fairmont Glitter Bay in Barbados for $20.3 in cash.
The total cost of the two hotels, including the 49% interest
already owned, was $33.8. The acquisition was accounted
for using the step purchase method and the results of the
two hotels have been included in the consolidated
statements of income from the date of acquisition.





---



##### 



The purchase prices of the 2001 acquisitions have been allocated to the
identifiable assets acquired and liabilities assumed on the basis of their
respective estimated fair values on the acquisition date. The purchase price
allocations are as follows:

|                                  |  |                  |       |              |  |                    |      |   |  |   |       |  
|--------------------------------- |  | ---------------- | ----- | ------------ |  | ------------------ | ---- | - |  | - | ----- | -
|                                  |  |                  |       |              |  | The Fairmont Royal |      |   |  |  
|                                  |  |                  |       |              |  | Pavilion and       |      |   |  |  
|                                  |  | The Fairmont Kea |       | The Fairmont |  |                    |      |  
|                                  |  | Lani Maui        |       | Glitter Bay  |  | Total             
|                                  |  |                  |       |              |  |                   
|Land                              |  | $                | 49.7  |              |  | $                  | 18.0 |   |  | $ | 67.7  |  
|Building                          |  |                  | 192.4 |              |  |                    | 24.4 |   |  |   | 216.8 |  
|Furniture, fixtures and equipment |  |                  | 7.6   |              |  |                    | 1.0  |   |  |   | 8.6   |  
|Working capital, net of cash      |  |                  | (5.2  | )            |  |                    | (1.1 | ) |  |   | (6.3  | )
|Note payable                      |  |                  | (30.2 | )            |  |                    |     |   |  |   | (30.2 | )
|Long-term debt assumed            |  |                  |      |              |  |                    | (8.5 | ) |  |   | (8.5  | )
|                                  |  |                  |       |              |  |                    |      |   |  |   |       |  
|                                  |  | $                | 214.3 |              |  | $                  | 33.8 |   |  | $ | 248.1 |  
|                                  |  |                  |       |              |  |                    |      |   |  |   |       |  

5. Investments in partnerships and corporations

|                                      |  |      |      |      |  |   |      | 
|------------------------------------- |  | ---- | ---- | ---- |  | - | ---- | 
|                                      |  | 2003 |      | 2002
|                                      |  |      |      |     
|Accounted for using the equity method |  | $    | 48.5 |      |  | $ | 64.7 | 
|Accounted for using the cost method   |  |      | 4.6  |      |  |   | 4.2  | 
|                                      |  |      |      |      |  |   |      | 
|                                      |  | $    | 53.1 |      |  | $ | 68.9 | 
|                                      |  |      |      |      |  |   |      | 

In September 2002, FHR invested $8.0 for a 19.9% interest in The Fairmont
Sonoma Mission Inn & Spa. FHR has committed to advance a loan of $10.0 on
normal commercial terms to this hotel and has advanced a total of $3.0 as at
December 31, 2003. This investment is accounted for using the equity method.

6. Investment in Legacy Hotels Real Estate Investment Trust

As at December 31, 2003, the Company owned
21,939,143 (2002  21,939,143) units and all 14,700,000
(2002  14,700,000) exchangeable shares of a subsidiary
corporation of Legacy, representing a 35.2% ownership
interest (2002  35.2%). The exchangeable shares are
entitled to a per share dividend equal to the ordinary
distribution by Legacy to its unitholders, less taxes payable.
Each exchangeable share is retractable at the fair market
value of a Legacy unit after a minimum holding period
of five years. The exchangeable shares are tied to voting
certificates issued by Legacy that are entitled to one vote
per voting certificate at meetings of Legacy unitholders.
Based on the December 31, 2003 closing unit price
of Legacy, the market value of this investment was
approximately $121.2. The Company does not guarantee
any of Legacys debt.

The Company holds options to acquire 2,962,224 units
of Legacy at an exercise price of CAD$9.80 per unit. The
options are fully vested, exercisable and expire in 2007.

The following selected consolidated financial
information of Legacy has been prepared in accordance
with accounting principles generally accepted in Canada.
The accounts have been translated to U.S. dollars using
the current rate method.





---



##### 



|                                      |  |      |         |      |  |   |         | 
|------------------------------------- |  | ---- | ------- | ---- |  | - | ------- | 
|                                      |  | 2003 |         | 2002
|                                      |  |      |         |     
|Assets                                |  |      |         |      |  |   |         | 
|Current assets                        |  | $    | 62.1    |      |  | $ | 62.6    | 
|Property and equipment                |  |      | 1,423.2 |      |  |   | 1,104.9 | 
|Other assets                          |  |      | 49.1    |      |  |   | 40.9    | 
|                                      |  |      |         |      |  |   |         | 
|                                      |  | $    | 1,534.4 |      |  | $ | 1,208.4 | 
|                                      |  |      |         |      |  |   |         | 
|Liabilities and Unitholders Interest |  |      |         |      |  |   |         | 
|Current liabilities                   |  | $    | 117.7   |      |  | $ | 144.5   | 
|Long-term debt                        |  |      | 627.1   |      |  |   | 371.9   | 
|Other liabilities                     |  |      | 47.7    |      |  |   | 38.3    | 
|Unitholders interest                 |  |      | 741.9   |      |  |   | 653.7   | 
|                                      |  |      |         |      |  |   |         | 
|                                      |  | $    | 1,534.4 |      |  | $ | 1,208.4 | 
|                                      |  |      |         |      |  |   |         | 

|                                        |  |      |       |      |  |      |       |   |  |   |       |  
|--------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                        |  | 2003 |       | 2002 |  | 2001
|                                        |  |      |       |      |  |     
|Revenues                                |  | $    | 474.2 |      |  | $    | 412.5 |   |  | $ | 394.0 |  
|                                        |  |      |       |      |  |      |       |   |  |   |       |  
|Operating expenses                      |  |      | 336.3 |      |  |      | 272.6 |   |  |   | 261.4 |  
|Other expenses                          |  |      | 98.1  |      |  |      | 76.2  |   |  |   | 69.0  |  
|Interest expense, net                   |  |      | 50.7  |      |  |      | 31.0  |   |  |   | 29.4  |  
|                                        |  |      |       |      |  |      |       |   |  |   |       |  
|                                        |  |      | 485.1 |      |  |      | 379.8 |   |  |   | 359.8 |  
|                                        |  |      |       |      |  |      |       |   |  |   |       |  
|Income (loss) before income tax expense |  |      | (10.9 | )    |  |      | 32.7  |   |  |   | 34.2  |  
|Income tax expense (recovery)           |  |      | (4.9  | )    |  |      | (2.4  | ) |  |   | (0.7  | )
|                                        |  |      |       |      |  |      |       |   |  |   |       |  
|Net income (loss)                       |  | $    | (6.0  | )    |  | $    | 35.1  |   |  | $ | 34.9  |  
|                                        |  |      |       |      |  |      |       |   |  |   |       |  

The Companys investment in Legacy is different than the amount of the
underlying equity in net assets due to adjustments that are made to conform
Legacys accounting policies with those of the Company and an unamortized gain
related to the transfer of properties between the Company and Legacy.

7. Property and equipment

|                                     |  |      |         |              |  |             |        |   |  |   |         | 
|------------------------------------ |  | ---- | ------- | ------------ |  | ----------- | ------ | - |  | - | ------- | 
|                                     |  | 2003
|                                     |  |     
|                                     |  |      |         |              |  | Accumulated |        |   |  |  
|                                     |  | Cost |         | amortization |  | Net        
|                                     |  |      |         |              |  |            
|Land and land improvements           |  | $    | 237.2   |              |  | $           | (0.7   | ) |  | $ | 236.5   | 
|Buildings and leasehold improvements |  |      | 830.7   |              |  |             | (82.2  | ) |  |   | 748.5   | 
|Buildings on leased land             |  |      | 555.6   |              |  |             | (103.0 | ) |  |   | 452.6   | 
|Furniture, fixtures and equipment    |  |      | 337.6   |              |  |             | (159.6 | ) |  |   | 178.0   | 
|Construction-in-progress             |  |      | 40.6    |              |  |             |       |   |  |   | 40.6    | 
|                                     |  |      |         |              |  |             |        |   |  |   |         | 
|                                     |  | $    | 2,001.7 |              |  | $           | (345.5 | ) |  | $ | 1,656.2 | 
|                                     |  |      |         |              |  |             |        |   |  |   |         | 





---



##### 



|                                     |  |      |         |              |  |             |        |   |  |   |         | 
|------------------------------------ |  | ---- | ------- | ------------ |  | ----------- | ------ | - |  | - | ------- | 
|                                     |  | 2002
|                                     |  |     
|                                     |  |      |         |              |  | Accumulated |        |   |  |  
|                                     |  | Cost |         | amortization |  | Net        
|                                     |  |      |         |              |  |            
|Land and land improvements           |  | $    | 205.8   |              |  | $           | (0.4   | ) |  | $ | 205.4   | 
|Buildings and leasehold improvements |  |      | 691.4   |              |  |             | (57.4  | ) |  |   | 634.0   | 
|Buildings on leased land             |  |      | 496.2   |              |  |             | (75.9  | ) |  |   | 420.3   | 
|Furniture, fixtures and equipment    |  |      | 282.5   |              |  |             | (112.7 | ) |  |   | 169.8   | 
|Construction-in-progress             |  |      | 11.6    |              |  |             |       |   |  |   | 11.6    | 
|                                     |  |      |         |              |  |             |        |   |  |   |         | 
|                                     |  | $    | 1,687.5 |              |  | $           | (246.4 | ) |  | $ | 1,441.1 | 
|                                     |  |      |         |              |  |             |        |   |  |   |         | 

The
amortization expense related to property and equipment used in
continuing operations was $64.8 (2002  $50.0; 2001  $45.5). Interest
capitalized as a cost of property and equipment totaled $0.8 (2002
 $0.1; 2001
- $0.5).

8. Goodwill and intangible assets

Goodwill by operating segment

|                                    |  |           |      |        |  |            |   |             |  |       |   |       |  |   |      |  |  |   |      |  |  |   |       | 
|----------------------------------- |  | --------- | ---- | ------ |  | ---------- | - | ----------- |  | ----- | - | ----- |  | - | ---- |  |  | - | ---- |  |  | - | ----- | 
|                                    |  | Hotel     |      |        |  |            |   | Real estate |  |       |   |       |  |   |      |  |  |   |      | 
|                                    |  | ownership |      | Legacy |  | activities |   | Fairmont    |  | Delta |   | Total
|                                    |  |           |      |        |  |            |   |             |  |       |   |      
|Balance as at January 1, 2002       |  | $         | 79.1 |        |  | $          |  |             |  | $     |  |       |  | $ | 7.2  |  |  | $ | 19.7 |  |  | $ | 106.0 | 
|Goodwill from business
acquisitions |  |           |     |        |  |            |  |             |  |       |  |       |  |   | 16.7 |  |  |   |     |  |  |   | 16.7  | 
|Currency translation                |  |           | 0.2  |        |  |            |  |             |  |       |  |       |  |   |     |  |  |   | 0.1  |  |  |   | 0.3   | 
|                                    |  |           |      |        |  |            |   |             |  |       |   |       |  |   |      |  |  |   |      |  |  |   |       | 
|Balance as at
December 31, 2002     |  |           | 79.3 |        |  |            |  |             |  |       |  |       |  |   | 23.9 |  |  |   | 19.8 |  |  |   | 123.0 | 
|Currency translation                |  |           | 4.7  |        |  |            |  |             |  |       |  |       |  |   |     |  |  |   | 4.3  |  |  |   | 9.0   | 
|                                    |  |           |      |        |  |            |   |             |  |       |   |       |  |   |      |  |  |   |      |  |  |   |       | 
|Balance as at
December 31, 2003     |  | $         | 84.0 |        |  | $          |  |             |  | $     |  |       |  | $ | 23.9 |  |  | $ | 24.1 |  |  | $ | 132.0 | 
|                                    |  |           |      |        |  |            |   |             |  |       |   |       |  |   |      |  |  |   |      |  |  |   |       | 

|                                              |  |      |       |      |  |   |       |  
|--------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | -
|                                              |  | 2003 |       | 2002
|                                              |  |      |       |     
|Intangible assets subject to amortization     |  |      |       |      |  |   |       |  
|Cost                                          |  | $    | 82.6  |      |  | $ | 71.8  |  
|Accumulated amortization                      |  |      | (13.9 | )    |  |   | (9.9  | )
|                                              |  |      |       |      |  |   |       |  
|                                              |  |      | 68.7  |      |  |   | 61.9  |  
|                                              |  |      |       |      |  |   |       |  
|Intangible assets not subject to amortization |  |      |       |      |  |   |       |  
|Brand name                                    |  |      | 148.0 |      |  |   | 139.8 |  
|                                              |  |      |       |      |  |   |       |  
|                                              |  | $    | 216.7 |      |  | $ | 201.7 |  
|                                              |  |      |       |      |  |   |       |  

Intangible assets subject to amortization are amortized
over their estimated useful lives, which range from 35 to 50 years. The amortization expense related to intangible
assets subject to amortization was $2.7 (2002  $2.4; 2001  $5.3). Amortization expense
relating to the above intangible assets subject to amortization is expected to be
$2.7 each of the fiscal years 2004 through 2009.





---



##### 



9. Other assets and deferred charges

|                   |  |      |       |              |  |             |      |     |  |   |       |  |  |   |      | 
|------------------ |  | ---- | ----- | ------------ |  | ----------- | ---- | --- |  | - | ----- |  |  | - | ---- | 
|                   |  | 2003 |       | 2002        
|                   |  |      |       |             
|                   |  |      |       |              |  | Accumulated |      |     |  |   |       |  |  |  
|                   |  | Cost |       | amortization |  | Net         |      | Net
|                   |  |      |       |              |  |             |      |    
|Long-term advances |  | $    | 72.8  |              |  | $           |     |     |  | $ | 72.8  |  |  | $ | 57.1 | 
|Pension asset      |  |      | 18.0  |              |  |             |     |     |  |   | 18.0  |  |  |   | 14.2 | 
|Deferred charges   |  |      | 12.5  |              |  |             | (1.5 | )   |  |   | 11.0  |  |  |   | 4.0  | 
|Restricted cash    |  |      | 2.4   |              |  |             |     |     |  |   | 2.4   |  |  |   |     | 
|Other              |  |      | 5.2   |              |  |             |     |     |  |   | 5.2   |  |  |   | 8.4  | 
|                   |  |      |       |              |  |             |      |     |  |   |       |  |  |   |      | 
|                   |  | $    | 110.9 |              |  | $           | (1.5 | )   |  | $ | 109.4 |  |  | $ | 83.7 | 
|                   |  |      |       |              |  |             |      |     |  |   |       |  |  |   |      | 

A portion of the long-term advances are non-interest
bearing, while the remainder bear interest at rates between
three-month LIBOR plus 0.25% and one-month LIBOR
plus 4.5%. They mature between January 2008 and
November 2009. A portion of the long-term advances will
be forgiven if the Company receives two hotel management
contracts from the loan holder prior to January 2008.
Restricted cash is to be used for certain capital expenditures.
Amortization expense related to deferred charges was $0.4
(2002  $0.1; 2001  $0.3).

10. Long-term debt

|                                                      |  |      |        |      |  |   |       |  
|----------------------------------------------------- |  | ---- | ------ | ---- |  | - | ----- | -
|                                                      |  | 2003 |        | 2002
|                                                      |  |      |        |     
|3.75%
convertible senior notes (1)                    |  | $    | 251.1  |      |  | $ |      |  
|Revolving
credit facility, due September 10, 2004 (2) |  |      | 40.5   |      |  |   | 358.5 |  
|Revolving
credit facility, due March 2005 (2)         |  |      | 50.0   |      |  |   | 43.1  |  
|Floating-rate
mortgage due March 1, 2006 (3)          |  |      | 120.0  |      |  |   |      |  
|Floating-rate
mortgage due March 5, 2007 (4)          |  |      | 65.4   |      |  |   |      |  
|8.84%,
notes due, August 1, 2016 (5)                  |  |      | 52.8   |      |  |   | 54.9  |  
|7.47%
mortgage, due May 21, 2008 (6)                  |  |      | 5.5    |      |  |   | 6.7   |  
|Fairmont
put option (7)                               |  |      | 69.0   |      |  |   | 69.0  |  
|Other                                                 |  |      | 3.3    |      |  |   | 3.3   |  
|                                                      |  |      |        |      |  |   |       |  
|                                                      |  |      | 657.6  |      |  |   | 535.5 |  
|Less: Current portion of long-term debt               |  |      | (117.8 | )    |  |   | (72.3 | )
|                                                      |  |      |        |      |  |   |       |  
|                                                      |  | $    | 539.8  |      |  | $ | 463.2 |  
|                                                      |  |      |        |      |  |   |       |  

1)In 2003 FHR issued $270.0 of convertible senior notes
(Convertible Notes). The net proceeds of the issuance,
after deducting offering expenses and underwriters
commission were $262.5. The Convertible Notes were
allocated between debt and equity elements and classified
separately in the balance sheet. The debt element was
calculated by discounting the stream of future payments
of interest and principal at the prevailing market rate for a
similar liability that does not have an associated conversion
feature. Upon issuance $250.8 was recorded as long-term
debt with the balance recorded in other equity (note 12).
This amount will increase to the face value of the debt
over a five-year period. The Convertible Notes mature on
December 1, 2023 and bear interest of 3.75% per annum.
Interest on the Convertible Notes is payable semi-annually
in arrears on June 1 and December 1 of each year. FHR
may call the Convertible Notes in exchange
for cash any time after January 20, 2009
for a price equal to 100% of the principal
amount of the Convertible Notes plus
accrued and unpaid interest. Holders may
put the Convertible Notes to FHR in
exchange for cash on January 20, 2009,
December 1, 2013 and 2018, at a purchase
price equal to 100% of the principal amount
of the Convertible Notes plus accrued and
unpaid interest. Upon occurrence of certain
prescribed conditions, holders of the
Convertible Notes will have the right to
convert them to common shares at an initial
conversion price of approximately $37.73
per common share. The conversion price is
subject to adjustment under certain
circumstances. The Convertible Notes are
senior unsecured obligations and rank
equally with all existing and future
unsecured and unsubordinated indebtedness
of FHR.





---



##### 



2)The interest rate is floating and is
calculated based on bankers acceptance,
LIBOR or prime rate, plus a spread. The
weighted average interest rate as at
December 31, 2003 was 5.2%. These
facilities are unsecured, and contain
financial covenants with respect to debt
levels and interest coverage. As at
December 31, 2003, this balance included
$79.3 of debt denominated in Canadian
dollars.

3)The interest rate is the greater of
4.25% and LIBOR plus 310 basis points. FHR
has entered into an interest rate contract
to cap the LIBOR rate at 9.0%. The mortgage
is secured by substantially all assets and
an assignment of auxiliary rents of The
Fairmont Kea Lani Maui.

4)The interest rate is floating and is
based on LIBOR plus 2.25%. FHR has entered
into an interest rate contract to cap the
LIBOR rate at 6.5%. The mortgage is
secured by substantially all of the
property and equipment and assignment of
auxiliary rents of The Fairmont Copley
Plaza Boston, and is non-recourse to FHR
except for approximately $29.0, which FHR
has guaranteed until such time that
certain financial covenants are met.

5)The 8.84% notes are secured by
substantially all property and
equipment and assignment of rents of
The Fairmont Scottsdale Princess.

6)The 7.47% mortgage is secured by
substantially all property and equipment
and a floating charge over other assets
of The Fairmont Royal Pavilion and The
Fairmont Glitter Bay.

7)A minority shareholder holds shares
in Fairmont that may be put to FHR for
$69.0 at any time prior to October 1,
2004. In the event the put is not
exercised, this amount will no longer
be considered debt.

The principal repayments pursuant to
the loan agreements are as follows:

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 117.8 | 
|2005       |  |   | 55.0  | 
|2006       |  |   | 126.2 | 
|2007       |  |   | 65.5  | 
|2008       |  |   | 4.6   | 
|Thereafter |  |   | 288.5 | 
|           |  |   |       | 
|           |  | $ | 657.6 | 
|           |  |   |       | 

11. Income taxes

The provision for (recovery of) income taxes is as follows:

|                                     |  |      |       |      |  |      |       |  |  |   |        |  
|------------------------------------ |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ------ | -
|                                     |  | 2003 |       | 2002 |  | 2001
|                                     |  |      |       |      |  |     
|Pretax income                        |  |      |       |      |  |      |       |  |  |   |        |  
|Canada                               |  | $    | 14.4  |      |  | $    | 84.7  |  |  | $ | (139.6 | )
|Foreign                              |  |      | 24.8  |      |  |      | 44.8  |  |  |   | 15.4   |  
|                                     |  |      |       |      |  |      |       |  |  |   |        |  
|                                     |  |      | 39.2  |      |  |      | 129.5 |  |  |   | (124.2 | )
|                                     |  |      |       |      |  |      |       |  |  |   |        |  
|Current income tax expense           |  |      |       |      |  |      |       |  |  |   |        |  
|Canada                               |  |      | 5.0   |      |  |      | 7.2   |  |  |   | 14.1   |  
|Foreign                              |  |      | 7.8   |      |  |      | 4.8   |  |  |   | 7.0    |  
|                                     |  |      |       |      |  |      |       |  |  |   |        |  
|                                     |  |      | 12.8  |      |  |      | 12.0  |  |  |   | 21.1   |  
|                                     |  |      |       |      |  |      |       |  |  |   |        |  
|Future income tax expense (recovery) |  |      |       |      |  |      |       |  |  |   |        |  
|Canada                               |  |      | (25.9 | )    |  |      | 20.3  |  |  |   | (117.5 | )
|Foreign                              |  |      | 1.6   |      |  |      | 3.5   |  |  |   | (3.2   | )
|                                     |  |      |       |      |  |      |       |  |  |   |        |  
|                                     |  |      | (24.3 | )    |  |      | 23.8  |  |  |   | (120.7 | )
|                                     |  |      |       |      |  |      |       |  |  |   |        |  
|                                     |  | $    | (11.5 | )    |  | $    | 35.8  |  |  | $ | (99.6  | )
|                                     |  |      |       |      |  |      |       |  |  |   |        |  





---



##### 



The Companys effective income tax expense and the provision (recovery)
reconciled to the statutory tax rate is as follows:

|                                                  |  |      |       |      |  |      |       |   |  |   |       |  
|------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                  |  | 2003 |       | 2002 |  | 2001
|                                                  |  |      |       |      |  |     
|Provision (recovery) at Canadian statutory rates  |  | $    | 14.5  |      |  | $    | 53.0  |   |  | $ | (49.6 | )
|Foreign tax rate differentials                    |  |      | (3.8  | )    |  |      | (4.6  | ) |  |   | (6.3  | )
|Large corporations tax                            |  |      | 1.6   |      |  |      | 1.6   |   |  |   | 1.2   |  
|Reduction in tax rates                            |  |      | 0.4   |      |  |      |      |   |  |   |      |  
|Non-taxable income                                |  |      | (1.5  | )    |  |      | (12.2 | ) |  |   | (15.4 | )
|Other, including tax reassessments and provisions |  |      | (22.7 | )    |  |      | (2.0  | ) |  |   | (29.5 | )
|                                                  |  |      |       |      |  |      |       |   |  |   |       |  
|Income tax expense (recovery)                     |  | $    | (11.5 | )    |  | $    | 35.8  |   |  | $ | (99.6 | )
|                                                  |  |      |       |      |  |      |       |   |  |   |       |  

A $24.4 recovery of future income tax was recorded in 2003 as a result of a
favorable tax reassessment.

Temporary differences

The net future income tax liability in the consolidated balance sheets is
comprised of the following:

|                              |                                    |   |      |        |      |   |      |       |   |   |      |        |  
|----------------------------- | ---------------------------------- | - | ---- | ------ | ---- | - | ---- | ----- | - | - | ---- | ------ | -
|                              |                                    |   | 2003 |        | 2002 |   | 2001
|                              |                                    |   |      |        |      |   |     
|Future income tax liabilities |                                    |   |      |        |      |   |      |       |   |   |      |       
|                              | Depreciable property and equipment |   | $    | 122.4  |      |   | $    | 109.0 |   |   | $    | 127.2  |  
|                              | Other                              |   |      | 84.2   |      |   |      | 62.9  |   |   |      | 73.9   |  
|Future income tax assets      |                                    |   |      |        |      |   |      |       |   |   |      |       
|                              | Tax loss carryforwards             |   |      | (125.7 | )    |   |      | (75.5 | ) |   |      | (137.0 | )
|                              |                                    |   |      |        |      |   |      |       |   |   |      |       
|Future income tax liability   |                                    | $ | 80.9 |        |      | $ | 96.4 |       |   | $ | 64.1 |       
|                              |                                    |   |      |        |      |   |      |       |   |   |      |       

As at December 31, 2003, the Company had the following tax loss
carryforwards available to reduce future taxable income and capital gains:

|                   |  |        |       |           |  |           |       |           |  |            |       |   |  |   |       | 
|------------------ |  | ------ | ----- | --------- |  | --------- | ----- | --------- |  | ---------- | ----- | - |  | - | ----- | 
|                   |  |        |       |           |  | Future    |       | Valuation |  | Net future
|                   |  | Amount |       | tax asset |  | allowance |       | tax asset
|                   |  |        |       |           |  |           |       |          
|Non-capital losses |  |        |       |           |  |           |       |           |  |            |       |   |  |   |       | 
|Canada             |  | $      | 307.4 |           |  | $         | 113.8 |           |  | $          | (9.0  | ) |  | $ | 104.8 | 
|United States      |  |        | 7.9   |           |  |           | 2.9   |           |  |            |      |   |  |   | 2.9   | 
|Other              |  |        | 2.3   |           |  |           | 0.9   |           |  |            | (0.9  | ) |  |   |      | 
|                   |  |        |       |           |  |           |       |           |  |            |       |   |  |   |       | 
|                   |  |        | 317.6 |           |  |           | 117.6 |           |  |            | (9.9  | ) |  |   | 107.7 | 
|                   |  |        |       |           |  |           |       |           |  |            |       |   |  |   |       | 
|Capital losses     |  |        |       |           |  |           |       |           |  |            |       |   |  |   |       | 
|Canada             |  | $      | 396.2 |           |  | $         | 73.3  |           |  | $          | (55.3 | ) |  | $ | 18.0  | 
|                   |  |        |       |           |  |           |       |           |  |            |       |   |  |   |       | 

The Company has non-capital losses expiring in the following years:

|           |  |   |       | 
|---------- |  | - | ----- | 
|2004       |  | $ | 0.2   | 
|2005       |  |   | 3.6   | 
|2006       |  |   | 1.2   | 
|2007       |  |   | 36.3  | 
|2008       |  |   | 134.9 | 
|Thereafter |  |   | 141.4 | 
|           |  |   |       | 
|           |  | $ | 317.6 | 
|           |  |   |       | 





---



##### 



12. Shareholders equity The Companys articles of incorporation authorize the issuance of an unlimited
number of common shares and an unlimited number of first preferred shares and
second preferred shares. Common shares 2003
    
    2002
    
    2001Number of
    
    
    
    
    
    Number of
    
    
    
    
    
    Number of(Share amounts in millions)
    
    shares
    
    Amount
    
    shares
    
    Amount
    
    shares
    
    AmountBalance  January 1
    
    
    78.8
    
    
    $
    1,191.5
    
    
    
    78.6
    
    
    $
    1,162.4
    
    
    
    78.5
    
    
    $
    1,116.8Issued under dividend
reinvestment and share
purchase and stock
option plans
    
    
    
    
    
    
    1.0
    
    
    
    0.3
    
    
    
    4.7
    
    
    
    0.7
    
    
    
    53.5Issued for purchase of
The Fairmont Copley Plaza
Boston (note 4)
    
    
    1.0
    
    
    
    21.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Issued to Kingdom for shares
of Fairmont (note 4)
    
    
    
    
    
    
    
    
    
    
    2.9
    
    
    
    69.0
    
    
    
    
    
    
    
    Share repurchase plans
    
    
    (0.7
    )
    
    
    (11.3
    )
    
    
    (3.0
    )
    
    
    (44.6
    )
    
    
    (0.6
    )
    
    
    (7.9
    )Balance  December 31
    
    
    79.1
    
    
    $
    1,202.2
    
    
    
    78.8
    
    
    $
    1,191.5
    
    
    
    78.6
    
    
    $
    1,162.4
 On October 1, 2001, the issued and
outstanding common shares of FHR were consolidated
on a 1:4 basis. All share numbers, including
earnings per share figures, reflect the effect of
the share consolidation applied retroactively. Under a normal course issuer bid, the Company
may repurchase for cancellation up to
approximately 3.9 million, or approximately 5%, of
its outstanding common shares. The amounts and
timing of repurchases are at the Companys
discretion and, under the current program, can be
made until October 7, 2004 at prevailing market
prices on the Toronto and New York stock
exchanges. The cost of the share repurchases have
been accounted for as follows: 2003
    
    2002
    
    2001Common shares
    
    $
    11.3
    
    
    $
    44.6
    
    
    $
    7.9Contributed surplus
    
    
    
    
    
    
    0.5
    
    
    
    2.0Foreign currency translation adjustments
    
    
    
    
    
    
    (2.3
    )
    
    
    Retained earnings
    
    
    5.5
    
    
    
    30.4
    
    
    
    $
    16.8
    
    
    $
    73.2
    
    
    $
    9.9
 The Company had a dividend reinvestment and
share purchase plan until October 1, 2001 which
permitted participants to acquire additional
common shares of the Company by reinvesting cash
dividends paid on common shares held by them
and/or by investing optional cash payments. Other equity Upon occurrence of certain events, holders of the
Convertible Notes (note 10) will have the right
to convert them to common shares at an initial
conversion price of approximately $37.73 per
common share. The Convertible Notes have been allocated
between debt and equity elements and classified
separately on the balance sheet. Upon issuance,
$19.2 was recorded as other equity and $250.8 was
recorded as long-term debt. Preferred shares On March 31, 1999, the Company completed the issue
of 8.8 million 5.65%, cumulative, redeemable,
first preferred shares, Series A, for $145. The
holders of the preferred shares were entitled to a
fixed annual dividend of $0.9307 per share payable
quarterly. An aggregate redemption premium of $5.5
was paid on redemption in October 2001, and was
charged to contributed surplus.






---



##### 



Foreign currency translation adjustments 2003
    
    2002Balance  January 1
    
    $
    27.4
    
    
    $
    20.2Effect of exchange rate changes on Canadian dollar net assets
    
    
    76.7
    
    
    
    7.2Balance  December 31
    
    $
    104.1
    
    
    $
    27.4
 13. Stock-based compensation The Company has a Key Employee Stock Option Plan
(KESOP), whereby key officers, employees and
consultants of the Company may be granted options
to purchase common shares of FHR at a price per
share not less than the market value of a common
share at the grant date. All options issued to
date vest over a four-year period, with 20%
vesting at the end of each of the first three
years and the remaining 40% vesting after four
years. Options expire ten years after the grant
date. In the event of a change in control of the
Company, all outstanding options are immediately
exercisable. Simultaneously with the grant of an option,
the Company may also grant SARs at a rate of one
SAR for every two options issued. A SAR entitles
the holder to receive payment of an amount equal
to the excess of the market value of a common
share at the exercise date of the SAR over the
related option price. SARs may be exercised no
earlier than three years and no later than ten
years after the grant date. The exercise of a SAR
will result in a reduction in the number of shares
covered by an option on a one-for-one basis. The
exercise of an option results in a reduction in
the number of SARs on the basis of one SAR for
each option exercised in excess of 50% of the
number of options issued with attached SARs. By agreement between FHR and the companies
distributed pursuant to the Arrangement (see note
24), the difference between the strike price and
the exercise price of SARs of the discontinued
operations held by FHR employees is recognized as
an expense by FHR, while the difference between
the strike price and the exercise price of FHR
SARs held by employees of the discontinued
operations are recovered from those companies. The Company also has a Directors Stock
Option Plan (DSOP) under which non-employee
directors of the Company are granted options to
purchase common shares of FHR at a price not less
than the market value of the share at the grant
date. Each non-employee director received an
initial grant of 8,000 options and receives an
additional 4,000 options on an annual basis.
Options are immediately exercisable and expire
ten years after the grant date. As at December 31, 2003, 2.1 million
options were available for future grants under
the KESOP out of the 5.6 million options
currently authorized, and 456,000 options were
available for future grants under the DSOP out
of the 600,000 options currently authorized.






---



##### 



Details of the stock options outstanding were as follows: WeightedNumber of options
    
    average exercise(thousands)
    
    price (Cdn $)Outstanding as at December 31, 2000
    
    
    1,425
    
    
    $
    15.36Granted
    
    
    3,230
    
    
    
    26.77Exercised
    
    
    (650
    )
    
    
    15.66Cancelled
    
    
    (284
    )
    
    
    15.65Outstanding as at December 31, 2001
    
    
    3,721
    
    
    
    25.19Granted
    
    
    264
    
    
    
    38.63Exercised
    
    
    (295
    )
    
    
    24.22Cancelled
    
    
    (103
    )
    
    
    24.78Outstanding as at December 31, 2002
    
    
    3,587
    
    
    
    26.26Granted
    
    
    107
    
    
    
    32.34Exercised
    
    
    (74
    )
    
    
    18.08Cancelled
    
    
    (32
    )
    
    
    24.44Outstanding as at December 31, 2003
    
    
    3,588
    
    
    $
    26.63Exercisable as atDecember 31, 2001
    
    
    555
    
    
    $
    16.10December 31, 2002
    
    
    907
    
    
    
    22.24December 31, 2003
    
    
    1,523
    
    
    
    24.98
 Details as at December 31, 2003, of the stock options outstanding are as follows: Weightedaverage remaining
    
    Weighted
    
    Number
    
    WeightedNumber outstanding
    
    contractual life
    
    average exercise
    
    exercisable
    
    average exerciseRange of exercise prices (Cdn $)
    
    (thousands)
    
    (years)
    
    price (Cdn $)
    
    (thousands)
    
    price (Cdn $)$10.38 to $11.96
    
    
    37
    
    
    
    1.1
    
    
    $
    11.23
    
    
    
    37
    
    
    $
    11.23$14.84 to $20.09
    
    
    332
    
    
    
    5.2
    
    
    
    15.81
    
    
    
    332
    
    
    
    15.81$26.25 to $49.30
    
    
    3,219
    
    
    
    7.9
    
    
    
    27.92
    
    
    
    1,154
    
    
    
    28.063,588
    
    
    
    7.6
    
    
    $
    26.63
    
    
    
    1,523
    
    
    $
    24.98
 During 2003 $(0.3) (2002  $0.9) was (recovered) expensed for outstanding
SARs, and $0.4 (2002  $nil) was expensed relating to the issuance of options.
Contributed surplus increased by $0.4 (2002  $nil) relating to the stock
option expense in 2003. Assuming FHR elected to recognize the cost of its stock-based compensation
based on the estimated fair value of stock options granted after January 1,
2002 and before January 1, 2003, net income and basic and diluted earnings per
share would have been: 2003
    
    2002Reported net income
    
    $
    50.7
    
    
    $
    92.5Net income assuming fair value method used
    
    
    50.1
    
    
    
    92.1Assuming fair value method usedBasic earnings per share
    
    
    0.64
    
    
    
    1.17Diluted earnings per share
    
    
    0.63
    
    
    
    1.16






---



##### 



The weighted average fair value of options granted during 2003 was Cdn $10.12 per option (2002  Cdn$12.73). The fair value of each option
granted was calculated at the respective grant date of each issuance using the Black-Scholes option pricing model with the following weighted
average assumptions: 2003
    
    2002Expected dividend yield
    
    
    0.3
    %
    
    
    0.2
    %Expected volatility
    
    
    36
    %
    
    
    41
    %Risk-free interest rate
    
    
    4.2
    %
    
    
    3.9
    %Expected option life in years
    
    
    3.6
    
    
    
    3.4
 14. Income (loss) from equity investments and other 2003
    
    2002
    
    2001Equity income (loss)Partnerships and corporations
    
    $
    (1.1
    )
    
    $
    2.8
    
    
    $
    2.0Legacy
    
    
    (8.6
    )
    
    
    6.4
    
    
    
    7.4Amortization of deferred gain on sale of property and
equipment to Legacy
    
    
    2.8
    
    
    
    8.5
    
    
    
    9.3$
    (6.9
    )
    
    $
    17.7
    
    
    $
    18.7
 15. Other (income) expenses, net 2003
    
    2002
    
    2001Brand technology development costs
    
    $
    
    
    
    $
    
    
    
    $
    22.4Write-off of deferred development charges, leasehold improvements
and equity investment
    
    
    
    
    
    
    
    
    
    
    7.2Restructuring costs
    
    
    
    
    
    
    
    
    
    
    6.4Write-off of management contracts
    
    
    
    
    
    
    
    
    
    
    5.8Gain on sale of Legacy units
    
    
    
    
    
    
    
    
    
    
    (31.1
    )Foreign currency exchange loss
    
    
    2.1
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (4.9
    )
    
    
    (0.6
    )$
    2.1
    
    
    $
    (4.9
    )
    
    $
    10.1
 Foreign currency losses (gains) included in net income were $4.5 (2002  ($0.8); 2001  ($1.5)). 16. Reorganization and corporate expenses 2003
    
    2002
    
    2001Reorganization expensesSeverance and incentive compensation
    
    $
    
    
    
    $
    
    
    
    $
    67.7Professional advisory fees
    
    
    
    
    
    
    
    
    
    
    36.4Debt redemption premium on medium-term notes
    
    
    
    
    
    
    
    
    
    
    32.7Other
    
    
    
    
    
    
    0.9
    
    
    
    1.30.9
    
    
    
    138.1Corporate expenses
    
    
    
    
    
    
    1.3
    
    
    
    18.8$
    
    
    
    $
    2.2
    
    
    $
    156.9
 Reorganization expenses for 2002 include charges relating to SAR s for former employees of Canadian Pacific Limited (CPL) that have a
continuing impact on operations. Corporate expenses were costs associated with the corporate activities performed by CPL for its subsidiaries, including FHRHI, prior to
October 1, 2001. The majority of these activities have been eliminated subsequent to October 1, 2001.






---



##### 



17. Interest expense, net 2003
    
    2002
    
    2001Long-term debt
    
    $
    22.1
    
    
    $
    20.9
    
    
    $
    44.8Short-term debt
    
    
    16.0
    
    
    
    1.2
    
    
    
    42.238.1
    
    
    
    22.1
    
    
    
    87.0Less: Interest income
    
    
    3.7
    
    
    
    2.9
    
    
    
    16.9Interest capitalized
    
    
    0.8
    
    
    
    0.1
    
    
    
    0.5$
    33.6
    
    
    $
    19.1
    
    
    $
    69.6
 18. Net income per common share Basic net income per common share is determined by dividing net income available to common shareholders as reported
in the consolidated statements of income by the weighted average number of common shares outstanding. Diluted net
income per common share reflects the potential dilutive effect of stock options granted under the Company s option
plans, as determined under the treasury stock method. (millions)
    
    2003
    
    2002
    
    2001Weighted average number of common shares outstanding  basic
    
    
    79.2
    
    
    
    78.4
    
    
    
    78.9Dilutive effect of stock options
    
    
    0.8
    
    
    
    1.3
    
    
    
    0.1Weighted average number of common shares outstanding  diluted
    
    
    80.0
    
    
    
    79.7
    
    
    
    79.0
 19. Supplemental cash flow disclosure a)Changes in non-cash working capital items: 2003
    
    2002
    
    2001Decrease (increase) in current assetsAccounts receivable
    
    $
    4.3
    
    
    $
    1.5
    
    
    $
    1,586.5Inventory
    
    
    
    
    
    
    (0.6
    )
    
    
    262.6Prepaid expenses and other
    
    
    3.9
    
    
    
    (2.0
    )
    
    
    (3.4
    )Increase (decrease) in current liabilitiesAccounts payable and accrued liabilities
    
    
    (8.5
    )
    
    
    (9.4
    )
    
    
    (2,127.4
    )Increase in non-cash working capital balances
before discontinued operations
    
    
    (0.3
    )
    
    
    (10.5
    )
    
    
    (281.7
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    258.0Increase in non-cash working capital balances
after discontinued operations
    
    $
    (0.3
    )
    
    $
    (10.5
    )
    
    $
    (23.7
    )
 b)Cash payments made during the year on account of: 2003
    
    2002
    
    2001Interest paid
    
    $
    36.2
    
    
    $
    25.3
    
    
    $
    106.4Income taxes paid
    
    
    17.8
    
    
    
    21.8
    
    
    
    33.6
 c)Non-cash investing and financing activities: 2003
    
    2002
    
    2001Issuance of common shares on acquisitions
    
    $
    21.0
    
    
    $
    69.0
    
    
    $
    Sale of hotels to Legacy in exchange for exchangeable shares
    
    
    
    
    
    
    
    
    
    
    83.3Acquisition of Legacy units under its distribution reinvestment plan
    
    
    
    
    
    
    3.4
    
    
    
    






---



##### 



20. Employee future benefits The Company has defined benefit pension plans and
other post-retirement plans, primarily life
insurance and health care coverage, for certain
employees. Pension benefits are based principally
on years of service and compensation rates near
retirement. The costs of these defined plans are
actuarially determined using the projected benefit
method pro-rated on service and managements best
estimate of expected plan investment performance,
salary escalation, retirement ages of employees
and expected health care costs. Market-related
values are used for calculating the expected
return on plan assets. The projected benefit
obligation is discounted using a market interest
rate at the end of the year on high-quality
corporate debt instruments. For defined benefit plans, transitional
assets and past service cost due to changes in
plan provisions are amortized on a straight line
basis over eleven years, the expected average
remaining service life of employees covered by the
various plans. In respect of the other actuarial
gains and losses, the portion in excess of 10% of
the greater plan obligation and the fair value of
plan assets is amortized over the same period. For
defined contribution plans, pension costs equal
the Companys share of the contribution allocated
to the employee. The Company uses a measurement date of
December 31 for all of its pension and other post
retirement benefits. Benefit obligations 2003
    
    2002Change in benefit obligation
    
    Pension
    
    Other
    
    Pension
    
    OtherBenefit obligation  January 1
    
    $
    74.5
    
    
    $
    
    
    
    $
    71.1
    
    
    $
    Service cost
    
    
    2.1
    
    
    
    0.1
    
    
    
    0.9
    
    
    
    Interest cost
    
    
    5.7
    
    
    
    0.1
    
    
    
    4.1
    
    
    
    Plan participants contributions
    
    
    0.2
    
    
    
    
    
    
    
    0.2
    
    
    
    Plan amendments
    
    
    1.4
    
    
    
    
    
    
    
    
    
    
    
    Actuarial loss
    
    
    3.8
    
    
    
    0.2
    
    
    
    7.4
    
    
    
    Benefits paid
    
    
    (7.1
    )
    
    
    (0.1
    )
    
    
    (11.3
    )
    
    
    Other
    
    
    5.7
    
    
    
    1.9
    
    
    
    1.3
    
    
    
    Foreign currency exchange rate changes
    
    
    16.4
    
    
    
    0.1
    
    
    
    0.8
    
    
    
    Benefit obligation  December 31
    
    $
    102.7
    
    
    $
    2.3
    
    
    $
    74.5
    
    
    $
    
 The weighted-average assumptions used to determine end of year benefit
obligations are as follows: 2003
    
    2002Change in benefit obligation
    
    Pension
    
    Other
    
    Pension
    
    OtherDiscount rate
    
    
    6.0
    %
    
    
    6.0
    %
    
    
    6.5
    %
    
    
    N/ARate of compensation increase
    
    
    3.5
    %
    
    
    N/A
    
    
    
    3.5
    %
    
    
    N/A
 A 14% annual rate of increase in the per
capita cost of covered health care benefits was
assumed for 2003 and 10% for 2004. The rate was
then assumed to decrease gradually to 5% by 2009
and remain at that level thereafter. Assumed
health care trend rates can have a significant
effect on the amounts reported for the health care
plans. A 1% change in assumed health care cost trend costs would have the following effect for 2003: 1% increase
    
    1% decreaseEffect on post retirement
benefit obligation
    
    $
    0.1
    
    
    $
    (0.1
    )






---



##### 



Plan assets 2003
    
    2002Change in plan assets
    
    Pension
    
    Other
    
    Pension
    
    OtherFair value  January 1
    
    $
    72.8
    
    
    $
    
    
    
    $
    86.9
    
    
    $
    Actual return on plan assets
    
    
    7.2
    
    
    
    
    
    
    
    (4.1
    )
    
    
    Employer contributions
    
    
    2.7
    
    
    
    0.1
    
    
    
    2.6
    
    
    
    Plan participant contributions
    
    
    0.2
    
    
    
    
    
    
    
    0.2
    
    
    
    Benefits paid
    
    
    (7.1
    )
    
    
    (0.1
    )
    
    
    (11.3
    )
    
    
    Transfer to defined contribution plan
    
    
    (3.5
    )
    
    
    
    
    
    
    (2.2
    )
    
    
    Other
    
    
    0.9
    
    
    
    
    
    
    
    
    
    
    
    Foreign currency exchange rate changes
    
    
    15.6
    
    
    
    
    
    
    
    0.7
    
    
    
    Fair value  December 31
    
    $
    88.8
    
    
    $
    
    
    
    $
    72.8
    
    
    $
    
 The asset allocation of the Company s pension plan assets is as follows: Percentage of plan assetsTarget Allocation
    
    at December 31,Asset category
    
    2004
    
    2003
    
    2002Cash
    
    
    010
    %
    
    
    0
    %
    
    
    22
    %Debt securities
    
    
    3040
    %
    
    
    42
    %
    
    
    37
    %Equity securities
    
    
    5060
    %
    
    
    58
    %
    
    
    41
    %
 The Company s investment strategy is to maximize return at an appropriate level of risk in order to minimize its long-term cash contributions and pension
expenses. The expected rate of return on pension plan assets was determined by using long-term historic rates of returns for equities, bonds and cash
weighted according to FHR s current investment allocation policies.
     Equity securities include no common shares of FHR as at December 31, 2003 (2002  8,725 common shares). Funded status The funded status, reconciled to the amounts reported on the consolidated balance sheets as at December 31,
is as follows: December 31, 2003
    
    December 31, 2002Pension
    
    Other
    
    Pension
    
    OtherFair value of plan assets
    
    $
    88.8
    
    
    $
    
    
    
    $
    72.8
    
    
    $
    Benefit obligation
    
    
    (102.7
    )
    
    
    (2.3
    )
    
    
    (74.5
    )
    
    
    Funded status
    
    
    (13.9
    )
    
    
    (2.3
    )
    
    
    (1.7
    )
    
    
    Unrecognized net actuarial loss
    
    
    25.2
    
    
    
    0.2
    
    
    
    19.8
    
    
    
    Unrecognized prior service cost
    
    
    3.8
    
    
    
    
    
    
    
    2.3
    
    
    
    Unrecognized net transitional asset
    
    
    (26.9
    )
    
    
    1.5
    
    
    
    (25.5
    )
    
    
    Valuation allowance
    
    
    (2.4
    )
    
    
    
    
    
    
    (2.2
    )
    
    
    Accrued benefit liability
    
    $
    (14.2
    )
    
    $
    (0.6
    )
    
    $
    (7.3
    )
    
    $
    Amounts recognized in the accompanying consolidated
balances sheets:Other assets and deferred charges
    
    $
    19.4
    
    
    $
    
    
    
    $
    14.2
    
    
    $
    Other liabilities
    
    
    (33.6
    )
    
    
    (0.6
    )
    
    
    (21.5
    )
    
    
    $
    (14.2
    )
    
    $
    (0.6
    )
    
    $
    (7.3
    )
    
    $
    






---



##### 



Included in the above accrued benefit obligation and fair value of plan assets as at
December 31 are the following amounts in respect of plans that are not fully funded: 2003
    
    2002Pension
    
    Other
    
    Pension
    
    OtherAccrued benefit obligation
    
    $
    62.4
    
    
    $
    2.3
    
    
    $
    21.5
    
    
    $
    Fair value of plan assets
    
    
    21.3
    
    
    
    
    
    
    
    
    
    
    
    Underfunded balance
    
    $
    41.1
    
    
    $
    2.3
    
    
    $
    21.5
    
    
    $
    
 As at December 31, 2003, the Company had issued letters of credit of $40.8 (2002 
$28.3) representing financial guarantees on the above unfunded pension liabilities. Funding requirements Employer contributions in 2003 were $2.7 in respect of defined benefit pensions and
$0.1 in respect of other benefits. The date of the most recent funding valuation for the majority of FHR s registered
plan obligations is January 1, 2001. The next funding valuation for the majority of
the registered plan obligations will be as of December 31, 2003. Net periodic cost Components of the Company s net periodic benefit costs related to the defined benefit
pension plans of continuing operations are as follows: 2003
    
    2002
    
    2001Service cost
    
    $
    2.1
    
    
    $
    0.9
    
    
    $
    1.9Interest cost
    
    
    5.7
    
    
    
    4.1
    
    
    
    4.6Expected return on plan assets
    
    
    (5.9
    )
    
    
    (6.3
    )
    
    
    (6.9
    )Settlement loss
    
    
    
    
    
    
    
    
    
    
    12.8Net amortization and deferrals
    
    
    (1.7
    )
    
    
    (8.6
    )
    
    
    3.1Decrease in valuation allowance
    
    
    (0.3
    )
    
    
    
    
    
    
    Other
    
    
    4.7
    
    
    
    
    
    
    
    $
    4.6
    
    
    $
    (9.9
    )
    
    $
    15.5Weighted average assumptionsDiscount rate
    
    
    6.5
    %
    
    
    6.5
    %
    
    
    6.8
    %Expected return on plan assets
    
    
    7.5
    %
    
    
    7.5
    %
    
    
    7.9
    %Rate of compensation increase
    
    
    3.5
    %
    
    
    3.5
    %
    
    
    3.0
    %
 Components of the Company s net periodic benefit costs related to other
post-retirement benefits from continuing operations are as follows: 2003
    
    2002
    
    2001Service cost
    
    $
    0.1
    
    
    $
    
    
    
    $
    Interest cost
    
    
    0.1
    
    
    
    
    
    
    
    Net amortization and deferrals
    
    
    0.1
    
    
    
    
    
    
    
    Other
    
    
    0.4
    
    
    
    
    
    
    
    $
    0.7
    
    
    $
    
    
    
    $
    Weighted average assumptionsDiscount rate
    
    
    6.5
    %
    
    
    N/A
    
    
    
    N/AHealth care
and other benefits cost trend rates (ultimate)
    
    
    5.0
    %
    
    
    N/A
    
    
    
    N/A
 Assumed health care cost trend rates can
have an effect on the amounts reported for the
post-retirement benefits. A one percentage-point
change in assumed health care cost trend rates
would impact total service and interest cost by
$nil. The Company also has a defined benefit plan
for certain retirees that is not included in the
above table. This plan relates to former employees
and retirees of the Company
and predecessor companies that were spun off in
2001. The plan is in the process of being
separated into two plans, one of which will be
sponsored by a third party. Once this separation
occurs, it is the Companys intention to settle
any remaining accrued benefit obligations through
the purchase of a non-participating insurance
contract. The estimated fair value of plan assets
and the projected benefit obligation related to
the Companys portion of






---



##### 



this plan are equal, being approximately $104 as
at December 31, 2003 and $150 as at December 31,
2002. The Company has not recorded any prepaid
or accrued benefit cost from this plan. For the
years ended December 31, 2003, 2002 and 2001,
the service costs of the Companys portion of
this plan were $nil and the
expected return on plan assets was greater than
the interest cost on the projected benefit
obligation. FHR also has defined contribution pension
plans. The net expense for such plans for
continuing operations, which equals the Companys
required contribution, was $2.8, $1.3 and $1.2 in
2003, 2002 and 2001, respectively. 21. Commitments, contingencies and guarantees Commitments As at December 31, 2003, contractual commitments
in respect to capital expenditures for wholly
owned or leased hotels totaled approximately
$26.5. The Company leases certain land, buildings
and equipment under operating leases. Land leases
represent ground leases for certain owned hotels
and, in addition to minimum rental payments, may
require the payment of additional rents based on
varying percentages of revenue. Minimum rentals for operating leases which
expire on various dates are as follows: 2004
    
    $
    13.82005
    
    
    13.82006
    
    
    11.12007
    
    
    10.62008
    
    
    10.4Thereafter
    
    
    50.4$
    110.1
 Rent expense under operating leases amounted
to $11.7 in 2003 (2002  $9.8; 2001  $7.0). As at December 31, 2003, unused committed
lines of credit for short-term and long-term
financing, subject to periodic review, and with
various maturities, amounted to approximately
$303, on which interest rates vary with bank prime
or money market rates. As at December 31, 2003,
the Company had issued and undrawn letters of
credit of $59.4. Contingencies FHR is subject to various claims and legal
proceedings with respect to matters such as
governmental regulations, income taxes and actions
arising out of the normal course of business as a
hotel operator. The Company has provided for
certain claims and, based on information presently
available, management believes that the existing
accruals are sufficient. Recoveries expected to be
received for insured claims are included in
accounts receivable. Any additional liability that
may result from these matters and any additional
liabilities that may result in connection with
other claims are not expected to have a material
adverse effect on FHRs financial position or
results from operations. Guarantees Significant guarantees that have been provided
to third parties include the following: Debt guarantees FHR has provided guarantees totaling $12.0 related
to debts incurred by certain hotels in which FHR
holds a minority equity interest. In the event
that one of these hotels fails to meet certain
financial obligations, the lenders may draw upon
these guarantees. The term of these guarantees are
equal to the terms of the related debts, which are
all due on demand. FHR has collateral security on
the underlying hotel assets if the guarantees are
drawn upon. No amounts have been recorded in the
financial statements for amounts that may be
potentially owed under these guarantees. Business
dispositions In the sale of all or a part of a business, FHR
may agree to indemnify against claims related to
the period the business was owned by FHR, in the
areas of tax and environmental matters. The terms
of such indemnification agreements are subject to
certain actions that are under the control of the
acquirer and the amount of the indemnification is
not limited. The nature of these indemnification
agreements prevents FHR from estimating the
maximum potential liability that it could be
required to pay to
counter parties. FHR has accruals in its financial
statements of approximately $25 related to
potential claims under the indemnifications made. Director and officer
indemnification agreements FHR has entered into indemnification agreements
with its current and former directors and officers
to indemnify them, to the extent permitted by law,
against any and all charges, costs, expenses,
amounts paid in settlement and damages incurred by
the directors and officers as a result of any
lawsuit or any other judicial, administrative or
investigative proceeding in which the directors
and officers are sued as a result of their
service. These indemnification claims are subject
to any statutory or other legal limitation period.
The nature of the indemnification agreements
prevents FHR from making a reasonable estimate of
the maximum potential amount it could be required
to pay to counter parties. FHR has purchased
directors and officers






---



##### 



liability insurance. No amount has been recorded
in the financial statements with respect to these
indemnification agreements as no claims are
outstanding at this date. Other indemnification
agreements In the normal course of operations, FHR may
provide indemnification agreements, other than
those listed above, to counterparties that would
require FHR to compensate them for costs incurred
as a result of changes in laws and regulations or
as a result of litigation claims or statutory
sanctions that may be suffered by the counterparty as
a consequence of the transaction. The terms of these
indemnification agreements will vary based upon the contract.
The nature of the indemnification agreements prevents FHR
from making a reasonable estimate of the maximum potential
amount it could be required to pay to counter parties. No
amount has been recorded in the financial statements with
respect to these indemnification agreements. 22. Risk management and financial instruments Financial instruments for which the Company s carrying values differ from fair value are summarized in the following table: 2003
    
    2002
    
    2001Carrying
    
    Fair
    
    Carrying
    
    Fair
    
    Carrying
    
    Fairamount
    
    value
    
    amount
    
    value
    
    amount
    
    valueLong-term debt
    
    $
    657.6
    
    
    $
    663.1
    
    
    $
    535.5
    
    
    $
    546.4
    
    
    $
    339.7
    
    
    $
    344.2Long-term advances
    
    
    72.8
    
    
    
    68.3
    
    
    
    57.1
    
    
    
    57.1
    
    
    
    56.4
    
    
    
    56.4
 The Company has determined the estimated fair
value of its financial instruments based on
appropriate valuation methodologies. However,
considerable judgment is necessary to develop
these estimates. Accordingly, the estimates
presented herein are not necessarily indicative
of what FHR could realize in a current market
exchange. The use of different assumptions or
methodologies may have a material effect on the
estimated fair value amounts. The following methods and assumptions were
used to estimate the fair value of each class of
financial instrument:  
    
    Due to the relative short exercise
period of the Fairmont put option, the
carrying value of the Fairmont put option
(note 10) is equal to its fair value as
at December 31, 2003.
    
    Short-term financial assets and liabilities
are valued at their carrying amounts as
presented in the consolidated balance
sheets, which are reasonable estimates of
fair values due to the relatively short
period to maturity of these instruments.
    
    The fair value of long-term debt is
estimated based on rates currently available
to the Company for long-term borrowings with
similar terms and conditions to those
borrowings in place as at the consolidated
balance sheet dates.
    
    The fair value of long-term advances is
estimated based on rates currently available
to the Company for long-term advances with
similar terms and conditions to those
advances in place as at the consolidated
balance sheet dates.
    
    Forward foreign exchange contracts have
been fair valued using the period end
foreign exchange rate, due to the
relatively short period until settlement. Foreign currency risk management The Company enters into forward foreign exchange
contracts to partially offset the potential
volatility of foreign exchange rates on foreign
currency denominated liabilities held in entities
with a Canadian dollar functional currency. At
December 31, 2003, the aggregate fair value of the
outstanding forward contracts was a liability of
$7.6. Interest rate risk management The Company enters into interest rate cap
contracts to manage interest rate risk. At
December 31, 2003, FHR had outstanding, two
interest rate contracts to cap LIBOR at 6.5% on
the mortgage secured by The Fairmont Copley Plaza
Boston and to cap LIBOR at 9.0% on the mortgage
secured by The Fairmont Kea Lani Maui. At
December 31, 2003, the fair market value of the
interest rate contracts approximates their
nominal carrying value. Credit risk management Credit risk relates to cash, cash equivalents
and account receivable balances and results from
the possibility that a counterparty defaults on
its contractual obligation to the Company. This
risk is minimized since FHR deals with banks
having an appropriate credit rating, performs
ongoing credit evaluations of customers and
maintains allowances for potential credit
losses. FHR also extends credit in certain
circumstances to the owners of managed hotels
when new management contracts are signed.






---



##### 



23. Related party transactions In August 2003 and December 2002, FHR entered into
long-term incentive based management contracts with
Legacy for The Fairmont Olympic Hotel, Seattle and
The Fairmont Washington, D.C., respectively. These
transactions were recorded at the exchange amount, which
is the amount established and agreed to by the related
parties. In connection with FHR securing the management
contract on these properties, FHR has agreed to pay an
aggregate amount of $18.0 to Legacy over a three-year
period. These amounts have been accounted for as intangible
assets and are amortized over the life of the management
contracts. The amortization expense is being applied to
reduce revenues from management operations. The current
portion of the liability has been recorded in accounts payable
and accrued liabilities, while the long-term portion has
been recorded as other liabilities. At December 31, 2003,
FHR has a liability due to Legacy of $11.0 in connection
with these management contracts with Legacy. In connection with Legacys acquisitions of The Fairmont
Olympic Hotel, Seattle and The Fairmont Washington, D.C.,
FHR entered into reciprocal loan agreements with Legacy
totaling $86.6. The loans mature between October 2008
and October 2013 and bear interest at normal commercial
rates payable quarterly in arrears. In the event that either
FHR or Legacy does not make its required interest or
principal payments, the other party is not required to make
its payment either. If such payment has already been made,
it must be returned. The loans meet all the requirements
for the right of setoff and, as such are presented on a net
basis in the financial statements. Also, in connection with the acquisition of The Fairmont
Olympic Hotel, Seattle, FHR received an acquisition
advisory fee from Legacy of $0.7. This amount has been
included in revenues from management operations. FHR has a 25% participation in the first mortgage
on The Fairmont Olympic Hotel, Seattle in the amount
of $10.9. This loan is due July 2006 and bears interest
at the lenders rate. This loan is classified in other assets
and deferred charges. In addition, at December 31, 2003,
FHR has a receivable from Legacy of $8.7, which has
been classified as a loan receivable. This loan matures
on July 31, 2004, bears interest at the bankers acceptance
rate plus 2.75% and is unsecured. In the ordinary course of business, FHR derives
management fees and other revenues from certain of
its equity-owned investees that are subject to significant
influence. All of these management agreements are on
normal commercial terms. Transactions with these related
parties are recorded at the exchange amount, which is
based on the consideration given for the service provided.
Such transactions with related parties for the years ended
December 31 are summarized as follows: 2003
    
    2002
    
    2001Revenues
    
    $
    38.7
    
    
    $
    35.8
    
    
    $
    32.3Accounts
receivable
    
    
    2.6
    
    
    
    3.1
    
    
    
    1.9
 24. Discontinued operations Until September 30, 2001, the Company operated under
the name of Canadian Pacific Limited (CPL). Effective
October 1, 2001, pursuant to the arrangement approved by
the shareholders and by the court, CPL completed a major
reorganization, (the Arrangement), which divided CPL
into five new public companies: Canadian Pacific Railway
Limited, CP Ships Limited, PanCanadian Energy Corporation
and Fording Inc., while retaining its investment in FHRHI.
This distribution was recorded at the carrying value of the
net investment in each subsidiary. Prior to the distribution of the four operating
businesses, PanCanadian paid a special dividend to CPL
of approximately $645, and Canadian Pacific Railway
returned approximately $450 of capital to CPL. The
proceeds were used, in part, to settle CPLs commercial
paper, medium-term notes and preferred shares. Results from the four operating businesses that were
distributed have been included in discontinued operations
in the consolidated statements of income and consolidated
statements of cash flows up to September 30, 2001. As at the distribution date of October 1, 2001, cash, total
assets and total liabilities of $383.6, $15,108.4 and $9,668.4,
respectively, were distributed as discontinued operations.






---



##### 



The results of discontinued operations are summarized below: Nine months ended September 30, 2001CanadianPacific Railway
    
    CP Ships
    
    PanCanadian
    
    Fording
    
    TotalRevenues
    
    $
    1,799.9
    
    
    $
    1,990.9
    
    
    $
    5,487.3
    
    
    $
    501.5
    
    
    $
    9,779.6Operating income
    
    
    364.2
    
    
    
    105.1
    
    
    
    1,180.7
    
    
    
    85.7
    
    
    
    1,735.7Income tax expense
    
    
    52.1
    
    
    
    8.5
    
    
    
    384.9
    
    
    
    37.1
    
    
    
    482.6Net income
    
    
    167.4
    
    
    
    49.0
    
    
    
    664.7
    
    
    
    42.8
    
    
    
    923.9
 The discontinued operations had certain specific accounting policies related to
revenue recognition and property and
equipment that were disclosed in note 1 of the December 31, 2000 consolidated
financial statements of CPL. 25. United States accounting policies and reporting Canadian and United States accounting principles The consolidated financial statements of FHR have been prepared in accordance
with Canadian GAAP. The material
differences affecting the Company between Canadian GAAP and U.S. GAAP relating
to measurement and recognition
are explained below, along with their effect on the Companys consolidated
financial statements. The following is a reconciliation of net income under Canadian GAAP to net
income under U.S. GAAP: 2003
    
    2002
    
    2001Income (loss) from continuing operations  Canadian GAAP
    
    $
    50.7
    
    
    $
    92.5
    
    
    $
    (28.2
    )Increased (decreased) byPension accounting(1)
    
    
    (1.4
    )
    
    
    (1.4
    )
    
    
    0.3Post-retirement benefits(2)
    
    
    (0.7
    )
    
    
    
    
    
    
    Stock-based compensation(3)
    
    
    1.4
    
    
    
    0.6
    
    
    
    (3.9
    )Convertible senior notes(4)
    
    
    0.3
    
    
    
    
    
    
    
    Variable interest entities(5)
    
    
    (1.3
    )
    
    
    
    
    
    
    Internal use software costs(6)
    
    
    
    
    
    
    (7.4
    )
    
    
    7.4Acquisition costs(7)
    
    
    
    
    
    
    
    
    
    
    0.4Translation rates(8)
    
    
    
    
    
    
    
    
    
    
    0.2Adjusted net income (loss) before taxes
    
    
    49.0
    
    
    
    84.3
    
    
    
    (23.8
    )Future income taxes on above items
    
    
    1.2
    
    
    
    3.6
    
    
    
    (3.2
    )Net income (loss) from continuing operations  U.S. GAAP
    
    
    50.2
    
    
    
    87.9
    
    
    
    (27.0
    )Net income from discontinued operations  Canadian GAAP
    
    
    
    
    

    
    
    
    
    
    923.9Increased (decreased) byOil and gas(9)
    
    
    
    
    
    
    
    
    
    
    2.8Derivative instruments(10)
    
    
    
    
    
    
    
    
    
    
    67.6Pension accounting(1)
    
    
    
    
    
    
    
    
    
    
    (20.0
    )Post-retirement benefits(2)
    
    
    
    
    
    
    
    
    
    
    3.7Termination benefits(11)
    
    
    
    
    
    
    
    
    
    
    (2.9
    )Internal use software(6)
    
    
    
    
    
    
    
    
    
    
    (5.7
    )Translation rates(8)
    
    
    
    
    
    
    
    
    
    
    (14.1
    )Other
    
    
    
    
    
    
    
    
    
    
    (15.4
    )Adjusted net income before taxes
    
    
    
    
    
    
    
    
    
    
    939.9Future income taxes on above items
    
    
    
    
    
    
    
    
    
    
    6.9Future income taxes due to rate differences
    
    
    
    
    
    
    
    
    
    
    86.8Cumulative catch-up adjustment on adoption of
FASB Statement No. 133  net of tax
    
    
    
    
    
    
    
    
    
    
    2.3Income from discontinued operations  U.S. GAAP
    
    $
    
    
    
    $
    
    
    
    $
    1,035.9






---



##### 



Condensed consolidated statements of income 2003
    
    2002
    
    2001RevenuesHotel ownership operations
    
    $
    584.9
    
    
    $
    516.6
    
    
    $
    486.4Management operations
    
    
    37.6
    
    
    
    36.1
    
    
    
    34.2Real estate activities(5)(13)
    
    
    33.9
    
    
    
    31.9
    
    
    
    13.2656.4
    
    
    
    584.6
    
    
    
    533.8Other revenues from managed and franchised properties
    
    
    32.6
    
    
    
    27.7
    
    
    
    29.1689.0
    
    
    
    612.3
    
    
    
    562.9ExpensesHotel ownership operations(1)(2)(3)
    
    
    461.6
    
    
    
    369.3
    
    
    
    360.9Management operations
    
    
    22.5
    
    
    
    15.7
    
    
    
    18.7Real estate activities(5)(13)
    
    
    22.5
    
    
    
    26.2
    
    
    
    15.3Amortization
    
    
    67.5
    
    
    
    59.8
    
    
    
    68.4Reorganization and corporate expenses(12)
    
    
    
    
    
    
    1.6
    
    
    
    173.2574.1
    
    
    
    472.6
    
    
    
    636.5Other expenses from managed and franchised properties
    
    
    35.1
    
    
    
    27.7
    
    
    
    29.1609.2
    
    
    
    500.3
    
    
    
    665.6Income (loss) from equity investments and other
    
    
    (6.9
    )
    
    
    17.7
    
    
    
    18.5Operating income (loss)
    
    
    72.9
    
    
    
    129.7
    
    
    
    (84.2
    )Other (income) expense(13)
    
    
    2.1
    
    
    
    (10.7
    )
    
    
    (31.1
    )Interest expense, net(4)
    
    
    33.3
    
    
    
    19.1
    
    
    
    68.8Income (loss) before income taxes and non-controlling interest
    
    
    37.5
    
    
    
    121.3
    
    
    
    (121.9
    )Income tax expense (recovery)
    
    
    (12.7
    )
    
    
    32.2
    
    
    
    (96.0
    )Non-controlling interest
    
    
    
    
    
    
    1.2
    
    
    
    1.1Income (loss) from continuing operations
    
    
    50.2
    
    
    
    87.9
    
    
    
    (27.0
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    1,035.9Net income
    
    
    50.2
    
    
    
    87.9
    
    
    
    1,008.9Preferred share dividends
    
    
    
    
    
    
    
    
    
    
    (5.3
    )Net income available to common shareholders
    
    $
    50.2
    
    
    $
    87.9
    
    
    $
    1,003.6Basic earnings per common shareIncome (loss) from continuing operations
    
    $
    0.63
    
    
    $
    1.12
    
    
    $
    (0.41
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    13.13Net income
    
    
    0.63
    
    
    
    1.12
    
    
    
    12.72Diluted earnings per common shareIncome (loss) from continuing operations
    
    
    0.63
    
    
    
    1.10
    
    
    
    (0.41
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    13.11Net income
    
    $
    0.63
    
    
    $
    1.10
    
    
    $
    12.70Comprehensive income in accordance with U.S. GAAP(14)Income (loss) from continuing operations  U.S. GAAP
    
    $
    50.2
    
    
    $
    87.9
    
    
    $
    (27.0
    )Income from discontinued operations  U.S. GAAP
    
    
    
    
    
    
    
    
    
    
    1,035.9Other comprehensive income (loss)Foreign currency translation adjustments
    
    
    76.7
    
    
    
    7.2
    
    
    
    (69.2
    )Cumulative catch-up adjustment on adoption
of FASB Statement No. 133
    
    
    
    
    
    
    
    
    
    
    (76.8
    )Change in fair value of cash hedging instruments
    
    
    
    
    
    
    
    
    
    
    71.6Minimum pension liability adjustment
    
    
    (4.4
    )
    
    
    
    
    
    
    Future income taxes
    
    
    1.6
    
    
    
    
    
    
    
    1.6Comprehensive income
    
    $
    124.1
    
    
    $
    95.1
    
    
    $
    936.1






---



##### 



Consolidated balance sheets The following shows the differences, increases (decreases) to account balances,
had the consolidated balance sheets been prepared under U.S. GAAP: 2003
    
    2002AssetsAccounts receivable(5)
    
    $
    (0.9
    )
    
    $
    Prepaid
expenses and other(5)
    
    
    (0.6
    )
    
    
    Non-hotel real estate(5)
    
    
    1.7
    
    
    
    Intangible assets(2)
    
    
    (4.5
    )
    
    
    (5.8
    )Other assets and deferred charges(15)(1)
    
    
    81.0
    
    
    
    65.6$
    76.7
    
    
    $
    59.8Liabilities and shareholders equityAccounts payable and accrued liabilities(5)
    
    $
    1.5
    
    
    $
    Other liabilities(2)
    
    
    5.6
    
    
    
    Current portion of long-term debt(16)
    
    
    
    
    
    
    (69.0
    )Long-term debt(4)(15)
    
    
    105.5
    
    
    
    67.6Future income taxes
    
    
    (4.3
    )
    
    
    (4.2
    )Mandatorily redeemable common shares(16)
    
    
    
    
    
    
    69.0Shareholders equityContributed surplus(3)
    
    
    1.9
    
    
    
    3.3Other equity(4)
    
    
    (19.2
    )
    
    
    Foreign currency translation adjustments(8)
    
    
    (104.1
    )
    
    
    (27.4
    )Retained earnings
    
    
    (8.5
    )
    
    
    (3.9
    )Accumulated other comprehensive income(14)
    
    
    98.3
    
    
    
    24.4$
    76.7
    
    
    $
    59.8






---



##### 



Condensed consolidated statements of cash flows Cash provided by (used in)

    
    2003
    
    2002
    
    2001Operating activitiesNet income
    
    $
    50.2
    
    
    $
    87.9
    
    
    $
    1,008.9ExcludeDiscontinued operations
    
    
    
    
    
    
    
    
    
    
    1,035.9Income (loss) from continuing operations
    
    
    50.2
    
    
    
    87.9
    
    
    
    (27.0
    )Items not affecting cashAmortization property and equipment
    
    
    64.8
    
    
    
    57.4
    
    
    
    60.2Amortization of goodwill and intangible assets
    
    
    2.7
    
    
    
    2.4
    
    
    
    8.2(Income) loss from equity investments and other
    
    
    6.9
    
    
    
    (17.7
    )
    
    
    (18.5
    )Future income taxes
    
    
    (25.5
    )
    
    
    20.2
    
    
    
    (116.8
    )Non-controlling interest
    
    
    
    
    
    
    1.2
    
    
    
    1.1Gains on sale of Legacy Real Estate Investments Trust units
    
    
    
    
    
    
    
    
    
    
    (31.5
    )Write-off of capital and other assets
    
    
    
    
    
    
    
    
    
    
    18.3Distributions from investments
    
    
    6.7
    
    
    
    15.1
    
    
    
    11.5Other
    
    
    (10.8
    )
    
    
    (21.5
    )
    
    
    (52.1
    )Changes in non-hotel real estate
    
    
    11.6
    
    
    
    6.9
    
    
    
    (17.4
    )Changes in non-cash working capital items
    
    
    2.3
    
    
    
    (10.5
    )
    
    
    (23.4
    )Discontinued operations
    
    
    
    
    
    
    
    
    
    
    1,994.4108.9
    
    
    
    141.4
    
    
    
    1,807.0Investing activitiesInvestment in partnerships and corporations
    
    
    (1.6
    )
    
    
    (46.7
    )
    
    
    (28.7
    )Additions to property and equipment
    
    
    (87.2
    )
    
    
    (84.3
    )
    
    
    (120.2
    )Acquisitions, net of cash acquired
    
    
    6.0
    
    
    
    (136.0
    )
    
    
    (234.6
    )Sales of investments and properties
    
    
    
    
    
    
    
    
    
    
    147.4Proceeds from sale of Legacy Hotels Estate Investment Trust units
    
    
    
    
    
    
    
    
    
    
    52.8Issuance of notes receivable
    
    
    (50.3
    )
    
    
    (67.6
    )
    
    
    (27.2
    )Collection of notes receivable
    
    
    7.2
    
    
    
    
    
    
    
    Other
    
    
    
    
    
    
    (1.0
    )
    
    
    1.2Discontinued operations
    
    
    
    
    
    
    
    
    
    
    (1,395.3
    )(125.9
    )
    
    
    (335.6
    )
    
    
    (1,604.6
    )Financing activitiesIssuance of long-term debt
    
    
    181.7
    
    
    
    306.0
    
    
    
    163.6Repayment of long-term debt
    
    
    (423.9
    )
    
    
    (43.9
    )
    
    
    (626.8
    )Issuance of common shares
    
    
    1.0
    
    
    
    4.7
    
    
    
    53.0Repurchase of common shares
    
    
    (16.8
    )
    
    
    (73.2
    )
    
    
    (9.8
    )Issuance of convertible debentures
    
    
    262.5
    
    
    
    
    
    
    
    Dividends
    
    
    (4.8
    )
    
    
    (3.2
    )
    
    
    (121.3
    )Redemption of preferred shares
    
    
    
    
    
    
    
    
    
    
    (144.8
    )Issuance of commercial paper
    
    
    
    
    
    
    
    
    
    
    61.0Repayment of commercial paper
    
    
    
    
    
    
    
    
    
    
    (638.5
    )Other
    
    
    
    
    
    
    
    
    
    
    43.0Discontinued operations
    
    
    
    
    
    
    
    
    
    
    663.0(0.3
    )
    
    
    190.4
    
    
    
    (557.6
    )Effect of exchange rate on cash
    
    
    
    
    
    
    0.1
    
    
    
    (14.6
    )Cash positionIncrease (decrease) in cash
    
    
    (17.3
    )
    
    
    (3.7
    )
    
    
    (369.8
    )Cash  Beginning of year
    
    
    49.0
    
    
    
    52.7
    
    
    
    422.5Cash  End of year
    
    $
    31.7
    
    
    $
    49.0
    
    
    $
    52.7






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##### 



1) Pension accounting In January 2000, the Company prospectively changed
its Canadian GAAP accounting policy for defined benefit
pension plans. As a result of this change, all unamortized
gains and losses, including prior service costs, were
accumulated into a net transitional asset which is being
amortized into income over 11 years, the weighted-average,
expected average remaining service life of the employees
covered by these plans. Under U.S. GAAP, there has been
no change in accounting policy and hence there is no net
transitional asset to be amortized. As a result, the amount
of unamortized actuarial gains and losses is different for
U.S. and Canadian GAAP. Under Canadian GAAP, a valuation allowance has
been provided for on certain pension assets whereas under
U.S. GAAP, no valuation allowance has been provided. Under U.S. GAAP, the Company is required to record
a minimum pension liability, representing the unfunded
accumulated benefit obligation. Accordingly, included in
both accrued liabilities and other assets under U.S. GAAP
is an additional amount, which cannot be recorded under
Canadian GAAP. 2) Post-retirement benefits Post-retirement benefits are covered by the CICA

recommendations for accounting for employee future
benefits. Consistent with accounting for post-retirement
benefits, under Canadian GAAP, the Company amortizes
actuarial gains and losses over the average employee service
life when such gains and losses exceed 10% of the plan
obligation. Under the Financial Accounting Standards Board
(FASB) Statement No. 112, Employers Accounting for
Post-employment Benefits, such gains and losses are
included immediately in income. 3) Stock-based compensation Under FASB Interpretation No. 44, Accounting for
Certain Transactions Involving Stock Compensation,
compensation expense using variable accounting must
be recorded if the intrinsic value of stock options is not
exactly the same immediately before and after an equity
restructuring. As a result of the Arrangement, FHR
underwent an equity restructuring, which resulted in
replacement options in new FHR stock having a different
intrinsic value after the restructuring than prior to the
restructuring. Canadian GAAP does not require revaluation
of these options. Under Canadian GAAP, effective January 1, 2003, the
Company prospectively adopted the new recommendations
of the CICA with respect to accounting for stock-based
compensation. This standard requires that compensation
expense be recognized in the consolidated statements of
income using the fair value based method for stock options
granted in 2003 onward. Under U.S. GAAP, the Company
follows the intrinsic value method of Opinion No. 25
of the Accounting Principles Board. No stock-based
compensation cost is reflected in net income under U.S.
GAAP as all options granted to employees under these
plans have an exercise price equal to the fair value of the
underlying common stock on the date of grant. If the methodology prescribed by FASB Statement No. 123, Accounting for
Stock-Based Compensation (FAS 123),
had been adopted, pro forma results for the year ended December 31 would have
been as follows: 2003
    
    2002
    
    2001U.S. GAAP net income as reported
    
    $
    50.2
    
    
    $
    87.9
    
    
    $
    1,008.9Increase in stock-based compensation if FAS 123 had been adopted
    
    
    5.0
    
    
    
    6.0
    
    
    
    2.0Adjusted net income
    
    
    45.2
    
    
    
    81.9
    
    
    
    1,006.9U.S. GAAP basic earnings per common shareAs reported
    
    
    0.63
    
    
    
    1.12
    
    
    
    12.72Adjusted
    
    
    0.57
    
    
    
    1.04
    
    
    
    12.69U.S. GAAP diluted earnings per common shareAs reported
    
    
    0.63
    
    
    
    1.10
    
    
    
    12.70Adjusted
    
    
    0.56
    
    
    
    1.03
    
    
    
    12.68
 The weighted average fair value of common shares
granted in 2003 at the time of grant was Cdn$10.12
(2002  Cdn$12.73; 2001  Cdn$7.74). The fair value of
common share options granted is estimated at the grant
date using the Black-Scholes option-pricing model with the
assumptions disclosed in Note 13. Pro forma stock-based
compensation expense for a particular year is not necessarily
indicative of expenses to be incurred in future years.






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##### 



4) Convertible senior notes Under Canadian GAAP, obligations relating to convertible
senior notes have been allocated between debt and equity
elements and classified separately on the balance sheet. Under U.S. GAAP, the entire principal amount of the
notes was recorded as long-term debt and interest expense
and translation gains and losses have been calculated on
the principal amount. 5) Variable interest entities In January 2003, the FASB issued Financial Interpretation
(FIN) 46, Consolidation of Variable Interest Entities
(VIEs) in an effort to expand and clarify existing
accounting guidance that addresses when a company should
include in its financial statements the assets, liabilities and
activities of another entity. For U.S. GAAP, FIN 46 is
effective immediately for all enterprises with variable interests
in VIEs created after January 31, 2003 and January 1,
2004 for all previously existing variable interest entities.
Under FIN 46, if an entity is determined to be a variable
interest entity, it must be consolidated by the enterprise that
absorbs the majority of the entitys expected losses if they
occur, receives a majority of the entitys expected residual
returns if they occur, or both. On December 24, 2003, the
FASB issued a revised FIN 46, defined as FIN 46R. The
CICA has issued a standard similar to FIN 46, except that
it applies to annual and interim periods beginning on or
after November 1, 2004. Subsequent to January 31, 2003, FHR created and
settled a Trust which holds the assets of FHP. This entity
is a VIE in accordance with FIN 46R of which FHR is the
primary beneficiary. Under U.S. GAAP the assets, liabilities
and activities of this Trust have been consolidated with
those of FHR. On consolidation, certain profits realized
by FHR, as the primary beneficiary, have been eliminated. For VIEs created prior to January 31, 2003, the
Company is currently evaluating the impact of
FIN 46R and its related interpretations. 6) Internal use software Under Canadian GAAP, computer system development
costs for internal use software are capitalized when the
project is expected to be of continuing benefit to FHR
and otherwise expensed. U.S. GAAP standards require
that certain costs of computer software developed for
internal use be capitalized and amortized. 7) Acquisition costs Under Canadian GAAP, certain integration costs may
be included in the purchase price allocations for business
combinations. These costs must be expensed when incurred
under U.S. GAAP. 8) Translation rates The U.S. dollar was adopted as the Companys reporting
currency effective July 1, 2001. Under Canadian GAAP,
the comparative financial statements prior to that date
have been restated in U.S. dollars using the June 30, 2001
rate under the translation of convenience method. U.S.
GAAP requires the restatement of comparative financial
statements using the average and closing rates in effect
during the period. 9) Oil and gas The full cost methods of accounting for oil and gas
operations promulgated under Canadian GAAP and
U.S. GAAP differ in the following respect. Ceiling test
calculations are performed by comparing the net book
value of petroleum and natural gas properties with the
future net revenues expected to be generated from proven
developed reserves, discounted at 10% for U.S. reporting
purposes and undiscounted for Canadian reporting.
Any excess of net book value over future net revenues
is recognized as an additional depletion expense in both
reporting jurisdictions. 10) Derivative instruments Effective January 1, 2001, FASB Statement No. 133,
Accounting for Derivative Instruments and Hedging
Activities and FASB Statement No. 138, Accounting
for Certain Derivative Instruments and Certain Hedging
Activities became effective for U.S. GAAP. FASB
Statements No. 133 and No. 138 permit hedging of
cash flows when specific documentation is in place from
inception and the hedge meets effectiveness testing on an
ongoing basis. For 2001, certain derivative instruments
qualifying for hedge accounting under Canadian GAAP
did not meet the definition of a hedge under U.S. GAAP. 11) Termination benefits In 2001, the rules required to accrue termination benefits
under U.S. GAAP were more restrictive than those under
Canadian GAAP. In particular, under U.S. GAAP, these
rules required that the plans be implemented within one
year, which was not the case under Canadian GAAP.






---



##### 



12) Extinguishment of debt In April 2002, the FASB issued Statement No. 145,
Rescission of FASB Statements Nos. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical
Corrections (SFAS 145). This statement requires the
reclassification of gains and losses from extinguishment of
debt from extraordinary items to income from continuing
operations, in line with Canadian GAAP requirements.
In 2001, the Company had a loss from the extinguishment
of debt of $19.8, net of income tax. This loss has been
reclassified as part of operating income in 2001. 13) Gains on sale of real estate investment Under Canadian GAAP, the proceeds and costs related
to the sale of a non-hotel real estate investment have been
recorded as real estate revenues and real estate expenses
respectively, on the consolidated statements of income.
Under U.S. GAAP, this gain is considered to be a
non-operating gain and has not been included in
operating income. 14) Comprehensive income U.S. GAAP requires the disclosure, as other comprehensive
income, of changes in equity during the period from
transactions and other events from non-owner sources.
Canadian GAAP does not require similar disclosure.
Other comprehensive income includes foreign currency
translation adjustments and minimum pension
liability adjustments. 15) Long-term advances and long-term debt FHR and Legacy have entered into reciprocal loan
agreements, which, under Canadian GAAP, meet all the
requirements for a right of offset. Under Canadian GAAP,
these loans have been presented on a net basis in the
consolidated balance sheet. Under U.S. GAAP, these loans
do not qualify for offsetting and are presented separately
on the consolidated balance sheet. 16) Fairmont put option With the adoption of FAS 150 Accounting for Certain
Financial Instruments with Characteristics of Both
Liabilities and Equity (FAS 150) in 2003, the Fairmont
put option described in Note 10 has been classified as a
liability and disclosed in the current portion of long-term
debt. This classification as at December 31, 2003 under
U.S. GAAP is now consistent with the classification under
Canadian GAAP. Comparative figures that classified
this item as mezzanine equity have not been restated in
accordance with the translation provisions under FAS 150.