##### 



Exhibit 99.1 (PICTURE) The lodging industry continues to benefit
from a widespread recovery in travel
demand. We have enjoyed a remarkable
rebound in performance at our Canadian
properties since last year and are
pleased to report considerable revenue
per available room (RevPAR) growth
throughout our portfolio, driven by solid
occupancy and rate improvements in most
markets. Second quarter 2004 highlights include the following:  
    
    Operating revenues1 increased 20.6% to $210.3 million;
    
    RevPAR for the comparable owned
portfolio improved 22.7%. Occupancy
improved 10.7 points (19.8%) and
average daily rate (ADR) increased
2.5%;
    
    RevPAR for the comparable
managed portfolio increased
18.0%, driven by 5.5% ADR
growth and a 7.2 point (11.8%)
occupancy increase;
    
    Earnings before interest,
taxes and amortization1
(EBITDA) increased 44.0% to
$62.5 million;
    
    Net income of $29.0 million and
earnings per share (EPS) of $0.37
increased approximately 85% over
2003 levels excluding a favorable
income tax recovery of $24.4 million
in the second quarter of 2003. Improving industry fundamentals
continue to gain momentum. This trend is
translating into a sustainable recovery
for Fairmont. Our group bookings are
in-line with our 2004 outlook and our tour
business for the peak summer months is
ahead of expectations, returning to 2002
levels. There has been some short-term
softness in U.S. travel outside of the
United States. This has affected the
performance of Fairmonts Canadian
properties relative to our original
expectations. This segment of our business has rebounded significantly over 2003
levels, and we are encouraged about the
long-term growth potential of our
world-class Canadian resorts. Fairmonts previous 2004 EBITDA
guidance of $210  $220 million has been
revised to reflect the lost earnings from
the two recent hotel sales ($13 million),
the short-term softness in U.S. travel
into Canada ($6 million), lower real
estate earnings ($2 million) and some
modest increases in corporate expenses.
FHR now estimates that 2004 EBITDA will be
in the range of $185  $195 million,
including approximately $7 million from
real estate activities. Including the $76 million gain from
the two hotel sales ($0.96 per share), net
income is estimated to be between $132 
$138 million and basic EPS to be in the
range of $1.67  $1.75, assuming a
full-year tax rate of approximately 31%. This is an exciting time for
Fairmont. Our solid balance sheet and new
development team position us to further
grow our company and expand the Fairmont
brand. In addition, our recently renovated
portfolio of world-class properties is
poised to benefit from the overall
recovery in the industry. In 2004, our
intent remains to add two to four
properties to our portfolio while
continuing to seek development
opportunities in resort destinations to
increase the exposure of our existing
portfolio. (-S- WILLIAM R. FATT) William R. Fatt
Chief Executive Officer
July 22, 2004  (FAIRMONT LOGO)1
    
    See Non-GAAP Financial Measures on page 12 for
reconciliation to generally accepted accounting
principals.




---



##### 



Managements Discussion and Analysis Managements discussion and analysis (the
MD&A) should be read in conjunction with
the unaudited consolidated financial
statements and notes, which begin on page
13. The financial statements of Fairmont
Hotels & Resorts Inc. (FHR or the
Company) are prepared in accordance with
Canadian generally accepted accounting
principles (GAAP). The financial
statements and the MD&A are presented in
United States dollars unless otherwise
indicated. This MD&A is based on the
segmented financial information of our
operations presented in note 8 of the
unaudited consolidated financial
statements on page 18. We use non-GAAP measures to assess
our operating performance. Securities
regulators require that companies caution
readers that earnings and other measures
adjusted to a basis other than GAAP do not
have standardized meanings and are
unlikely to be comparable to similar
measures used by other companies. We
consider income before interest, taxes and
amortization (EBITDA) to be a meaningful
indicator of operations and use it as our
primary measure to assess the operating
performance of our business segments. It
is likely that our calculation of EBITDA
is different than the calculations used by
other entities. EBITDA is represented on
the unaudited consolidated statements of
income as Operating income before
undernoted items. This document contains
forward-looking information based on our
best estimates of the current operating
environment. These forward-looking
statements are related to, but not
limited to, our operations, anticipated
financial performance, business prospects
and strategies. Forward-looking
information typically contains statements
with words such as anticipate,
believe, expect, plan or similar
words suggesting future outcomes. Such
forward-looking statements are subject to
risks, uncertainties and other factors,
which could cause actual results to differ
materially from future results
expressed, projected or implied by such
forward-looking statements. Such factors
include, but are not limited to, economic,
competitive and lodging industry
conditions. A detailed description of
these factors can be found starting on
page 41 of the 2003 annual report in the
section entitled Risks and
Uncertainties. There is significant risk
that our predictions and other
forward-looking statements will not prove
to be accurate. Readers are cautioned not
to place undue reliance on our
forward-looking statements as a number of
factors could cause actual future results
to differ materially from our
expectations. We disclaim any intention or
obligation to update or revise any such
forward-looking statements, whether as a
result of new information, future events
or otherwise. Industry Update A solid recovery in the North American
hotel industry is now well underway.
Industry fundamentals continue to improve
in both corporate and leisure travel
segments with most major markets in the
United States generating solid upturn in
operating performance over 2003. Luxury
hotels continue to show the greatest
levels of improvement over 2003. These
hotels have generated sizeable increases
in occupancy and modest increases in
average daily rates (ADR). Financial Highlights Three Months Ended June 30
    
    Six Months Ended June 30(in millions, except per share data)
    
    2004
    
    2003
    
    2004
    
    2003Revenues
    
    $
    219.2
    
    
    $
    181.9
    
    
    $
    396.3
    
    
    $
    356.8EBITDA
    
    
    62.5
    
    
    
    43.4
    
    
    
    96.6
    
    
    
    85.6Net
income(1)
    
    
    29.0
    
    
    
    40.1
    
    
    
    28.4
    
    
    
    52.6Earnings per share
    
    
    0.37
    
    
    
    0.51
    
    
    
    0.36
    
    
    
    0.66Basic
    
    
    0.37
    
    
    
    0.51
    
    
    
    0.36
    
    
    
    0.66Diluted
    
    
    0.36
    
    
    
    0.50
    
    
    
    0.36
    
    
    
    0.66Dividends declared
    
    
    0.04
    
    
    
    0.03
    
    
    
    0.04
    
    
    
    0.03
  (1)
    
    2003 results include a $24.4 million income tax recovery related to a
favorable settlement regarding a pre-reorganization tax issue. 2




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##### 



Corporate Developments On July 15, 2004, we sold The Fairmont
Kea Lani Maui for gross proceeds of $355
million, realizing a pre-tax gain of $109
million and an after-tax gain of about
$68 million. The resort will continue to
be operated as The Fairmont Kea Lani Maui
and will be managed by Fairmont Hotels
Inc. (Fairmont), our management
company, under the existing long-term
management contract. On July 9, 2004, we sold The
Fairmont Glitter Bay to a group of
investors for approximately $31
million, resulting in a non-taxable
gain of about $8 million. The resort
continues to be managed by Fairmont as
The Fairmont Glitter Bay. We expect to reinvest a portion of
the proceeds from these sales in
additional hotels over the course of the
next year. In addition, we will use these
proceeds towards the upcoming acquisition
of the remaining 16.5% minority interest
in Fairmont, to potentially increase our
share repurchases and, in the interim, to
reduce existing indebtedness. Results of Operations THREE MONTHS ENDED JUNE 30, 2004 We continue to benefit from improving
demand from both leisure and business
travelers. Our owned portfolio generated
significant revenue and EBITDA growth and
our management operations have also
realized significant gains, both in base
and incentive management fees, from the
widespread increase in travel. Hotel Ownership Operations Revenues from hotel ownership operations
were $180.6 million in the second
quarter, up $27.1 million, or 17.7% from
the prior year. Strengthening demand was
evident throughout the portfolio,
particularly in Canada, as travel
patterns return to more normal levels
after the impact of severe acute
respiratory syndrome (SARS) on 2003
performance. Revenues from U.S. and International
hotels were up 15.9% with several hotels
generating significant improvements over
2003. We are particularly pleased with
these results because SARS did not have
a significant impact on their results
in 2003. Revenues generated by   Ownership Highlights The following properties generated about 75% of second quarter EBITDA: Banff, Lake Louise & Jasper In the second quarter, these resorts
experienced very strong demand from the
tour segment. EBITDA was up 34% from the
second quarter of 2003 despite the fact
that The Fairmont Banff Springs
generated exceptional group meeting
business in the prior year. With the
opening of the new meeting facility at
The Fairmont Chateau Lake Louise in May
2004, strong group business is expected
to continue throughout the remainder of
2004. Despite the softness in U.S.
leisure travel this summer, third
quarter EBITDA generated by these
resorts is forecasted to be at or above
2002 levels. Hawaii Our Hawaiian resorts continue to benefit
from the strong improvement in travel
fundamentals. Once again, The Fairmont
Kea Lani Maui earned record-breaking
profits with second quarter EBITDA up
21.0% over 2003. On July 15, 2004, we
capitalized on our success at this
resort by selling it for an after-tax
gain of about $68 million. We will
continue to manage this property under
the existing long-term management
contract. Results at The Fairmont Orchid
also improved significantly during the
quarter. Revenues were up 29.5% and
occupancy levels were 37.0% higher when
compared to the second quarter of 2003. Scottsdale Strong demand from the group meeting
segment contributed to another
impressive quarter at The Fairmont
Scottsdale Princess. ADR for the
individual leisure travel segment was
also up almost 8% in the quarter. The
combination of ADR and occupancy growth
allowed the resort to generate
impressive margin improvements during
the quarter. Bermuda The business climate in Bermuda has been
very strong in 2004. In the second
quarter, The Fairmont Hamilton Princess
enjoyed strong growth in both ADR and
occupancy, as demand was solid from the
group meeting and leisure travel
segments. The Fairmont Southampton
reopened, as planned, in April. The
speed and strength of the recovery at
this property has greatly exceeded our
expectations. Acapulco Our Mexican properties continue to
generate significant improvement over
2003. Demand from the group meeting
and individual leisure segments were
both strong during the quarter. These
improvements have been driven by
strong domestic business. 3




---



##### 



Managements Discussion and Analysis(contd)   Comparable Owned Hotels 2004
    
    2003
    
    VarianceWorldwideRevPAR(1)
    
    $
    132.41
    
    
    $
    107.87
    
    
    
    22.7
    %ADR(2)
    
    
    204.36
    
    
    
    199.29
    
    
    
    2.5
    %Occupancy
    
    
    64.8
    %
    
    
    54.1
    %
    
    10.7 pointsCanadaRevPAR
    
    $
    106.23
    
    
    $
    85.97
    
    
    
    23.6
    %ADR
    
    
    156.93
    
    
    
    154.61
    
    
    
    1.5
    %Occupancy
    
    
    67.7
    %
    
    
    55.6
    %
    
    12.1 pointsU.S. and InternationalRevPAR
    
    $
    156.64
    
    
    $
    127.90
    
    
    
    22.5
    %ADR
    
    
    252.23
    
    
    
    242.37
    
    
    
    4.1
    %Occupancy
    
    
    62.1
    %
    
    
    52.8
    %
    
    9.3 points
  (1)
    
    RevPAR is calculated as rooms revenues per available room per day(2)
    
    ADR is calculated as rooms revenues per occupied room per day Comparable Hotels are considered to be properties that were fully open under
FHR management for at least the entire current and prior periods. Comparable
Hotels statistics exclude properties where renovations have had a significant
adverse effect on the properties primary operations.   Exclusions: The Fairmont Southampton (renovations); The Fairmont Copley Plaza
Boston.   our Canadian properties increased 21.5%
over 2003 primarily due to the impact of
SARS in 2003. Compared to 2002, Canadian
properties generated an 18.4% improvement
in revenues, or about a 5% improvement
after adjusting for the increase in the
value of the Canadian dollar. RevPAR at the Comparable Hotels
increased 22.7% to $132.41 in 2004 from
$107.87 in 2003. Strong occupancy growth
of 9.3 points at our U.S. and
International properties was generated
through significant increases in demand
from the group business and tour group
segments. Our Canadian hotels also
generated considerable occupancy
improvements due to the impact of SARS in
2003. Operating performance at the
Canadian hotels has returned to levels
realized in 2002. EBITDA from our hotel ownership
operations of $40.5 million in 2004 was up
$8.8 million, or 27.8%, from $31.7 million
in 2003. EBITDA at the U.S. and
International properties was up 36.2% with
improvements at virtually all hotels.
EBITDA generated by the Canadian
properties was also up considerably
over 2003. The majority of this
improvement was generated through higher
occupancy levels, which have returned to
more normal levels following the impact of
SARS in 2003. Overall, EBITDA margins improved to
22.4%, up from 20.7% in 2003. This
improvement was primarily the result of
higher occupancy levels across our owned
portfolio as well as higher ADR at our
U.S. and International properties. When
measured in Canadian dollars, ADR at our
Canadian resorts was down slightly over
2003. Since there are typically no
incremental costs associated with a change
in ADR, such a change typically impacts
EBITDA margin more than a change in
occupancy. Despite our relatively fixed
cost base at current occupancy levels, our
commitment to a high level of personalized
service requires modest increases in
staffing during periods of higher
occupancy. Improvements in EBITDA and EBITDA
margins were partially offset by increased
general and administrative costs that we
allocate to hotel ownership operations.
These costs relate primarily to increased
costs for public company regulatory
requirements such as the certification
requirements under the Sarbanes-Oxley Act. We initially expected margin
pressures at our owned hotels to linger
through 2004. Given the large increases
in occupancy and modest improvements in
ADR that we have experienced, we now
anticipate profit margins to improve
throughout the remainder of the year.
Stringent cost controls remain in place
at all hotels in a continuing effort to
improve EBITDA margins. Hotel ownership operations also
include $0.9 million in equity income from
minority equity investments in various
managed hotels. This amount is unchanged
from 2003. 4




---



##### 



Our approximate 35% investment in
Legacy generated equity income of $2.8
million in 2004 compared to an equity
loss of $0.5 million in 2003. Our
investment in Legacy performed at a
level comparable to the second quarter
of 2002. Real Estate Activities In the second quarter, we disposed of one
block of land at our Coal Harbour site in
Vancouver, British Columbia for proceeds
of $14.1 million. This was the last land
block in Coal Harbour zoned for
residential purposes. We hold one
remaining block of land that is zoned for
a hotel. We expect no further disposals
during the remainder of 2004. The sale of
vacation ownership properties contributed
$3.6 million in revenues during the
quarter. EBITDA generated by real estate
activities during the quarter was $8.4
million, up from $6.6 million in 2003. Management Operations Fairmont Hotels Inc. (Fairmont) In the second quarter of 2004, revenues
under management were $445 million, up $79
million, or 21.7% from 2003. Improved
operating results at the U.S. and
International hotels, new management
contracts and a return to more normal
occupancy levels in Canada following the
impact of SARS in 2003 all contributed to
this increase. Fairmont earned fee revenues of
$13.7 million in the second quarter, a
30.5% improvement over 2003. This
increase consists primarily of higher
base management fees, which rose
commensurate with the increase in
revenues under management. Increased
incentive fees accounted for the fee
revenues growing at a faster rate than
revenues under management. Fee revenues
included $5.6 million from our owned
properties, up $1.2 million from 2003. For the Fairmont managed portfolio
of Comparable Hotels, RevPAR increased
18.0% to $123.59. RevPAR at the U.S. and
International properties was up 15.1%
from 2003 due to strong occupancy growth
at our resort properties as well as
widespread ADR growth across the city
center portfolio. RevPAR at the Canadian
properties was up 22.5% as occupancy
rebounded sharply from 2003 levels. When
measured in Canadian dollars, ADR
increased approximately 3% over 2003. Fairmont generated second quarter
EBITDA of $8.4 million in 2004, up 100.0%
from $4.2 million in the prior year.
EBITDA margins also increased sharply to
61.3%, up from 40.0% in 2003. In addition
to increased fee revenues, Fairmont
incurred a $1.7 million charge in 2003
related to employee future benefits that
is highly unlikely to repeat. Margins
realized in 2004 are more typical of
normal operations. Fairmont Managed Hotels 2004
    
    2003
    
    VarianceWorldwideRevPAR
    
    $
    123.59
    
    
    $
    104.76
    
    
    
    18.0
    %ADR
    
    
    181.49
    
    
    
    172.08
    
    
    
    5.5
    %Occupancy
    
    
    68.1
    %
    
    
    60.9
    %
    
    7.2 pointsCanadaRevPAR
    
    $
    101.20
    
    
    $
    82.62
    
    
    
    22.5
    %ADR
    
    
    146.22
    
    
    
    137.95
    
    
    
    6.0
    %Occupancy
    
    
    69.2
    %
    
    
    59.9
    %
    
    9.3 pointsU.S. and InternationalRevPAR
    
    $
    146.19
    
    
    $
    127.03
    
    
    
    15.1
    %ADR
    
    
    218.29
    
    
    
    205.29
    
    
    
    6.3
    %Occupancy
    
    
    67.0
    %
    
    
    61.9
    %
    
    5.1 points
 Exclusions: The Fairmont Southampton (renovations); The Fairmont Olympic Hotel,
Seattle; The Fairmont Turnberry Isle Resort & Club, Miami 5




---



##### 



Managements Discussion and Analysis(contd) Delta Hotels Limited (Delta) Revenues under management were $93
million, a 15.8% increase from 2003, while
management fee revenues were $3.6 million
versus $2.6 million in 2003. A large
portion of this increase in revenues
related to Delta receiving a payout during
the second quarter on the early
termination of a franchise agreement. Deltas Comparable Hotels RevPAR of
$64.86 was up 20.4% from 2003 due
primarily to the impact of SARS on the
prior years results. When measured in
Canadian dollars, RevPAR was up
approximately 17% over 2003. Delta Managed Hotels 2004
    
    2003
    
    VarianceRevPAR
    
    $
    64.86
    
    
    $
    53.88
    
    
    
    20.4
    %ADR
    
    
    96.11
    
    
    
    93.22
    
    
    
    3.1
    %Occupancy
    
    
    67.5
    %
    
    
    57.8
    %
    
    9.7 points
   Exclusions: none Other Items Revenues and Expenses
from Managed and
Franchised Properties Other revenues and expenses from managed
and franchised properties represent the
expenditure and recovery of central
marketing, reservation and other services
that we provide on a cost recovery basis
under the terms of our management and
franchise agreements. The net difference
represents the portion of amounts spent in
excess of recoveries from managed hotels
that are owned by third parties. In the
second quarter, we recognized a $0.2
million deficit on these programs. Amortization Amortization expense was $18.0 million
in 2004 compared to $17.2 million in
2003. This increase was consistent with
higher levels of capital spending and
the appreciation of the Canadian dollar. Interest Expense, Net Net interest expense of $9.0 million was
up from $8.3 million in 2003. This
increase was due in part to foreign
currency fluctuations and increased
borrowings over 2003. Income Tax Expense (Recovery) Income tax expense for the quarter was
$6.5 million versus a recovery of $22.2
million in 2003, when a favorable
settlement reduced income tax expense by
$24.4 million. Our effective tax rate in
the second quarter was 18.3%. In the
second quarter, our international hotels
in non-taxable jurisdictions usually
produce a greater portion of our pre-tax
income than in other quarters. In addition, the sale of undeveloped
lands during the quarter did not generate
income taxes due to the utilization of
capital loss carryforwards that had not
been recognized for accounting purposes.
These factors combined to generate a lower
effective tax rate in the second quarter
than we typically experience over our
fiscal year. For 2004, we now expect our
effective tax rate to be approximately
31%. This is higher than the 28%
previously expected due primarily to the
taxes applicable to the gain on the sale
of The Fairmont Kea Lani Maui. SIX MONTHS ENDED JUNE 30, 2004 Hotel Ownership Operations Revenues from hotel ownership operations
were $336.0 million in the first half of
the year, up $42.1 million, or 14.3% from
the prior year. Strengthening demand was
evident throughout the portfolio as both
the leisure and business segments
generated increased occupancy levels. In
addition, the impact of SARS has passed
and occupancies have returned to more
normal levels. Revenues from U.S. and International
hotels were up 13.4% despite revenues
lost from the closure of The Fairmont
Southampton through April to repair
damage caused by Hurricane Fabian.
Virtually all other U.S. and
International hotels reported significant
improvements over 2003. Revenues
generated by our Canadian properties
increased 16.3% over 2003
due to the appreciation in the
Canadian dollar and a strengthening in
demand following the SARS crisis in 2003.
When measured in local currency, revenues
from our Canadian properties increased by
about 8%. 6




---



##### 



Comparable Owned Hotels 2004
    
    2003
    
    VarianceWorldwideRevPAR(1)
    
    $
    135.86
    
    
    $
    115.58
    
    
    
    17.5
    %ADR(2)
    
    
    209.77
    
    
    
    201.26
    
    
    
    4.2
    %Occupancy
    
    
    64.8
    %
    
    
    57.4
    %
    
    7.4 pointsCanadaRevPAR
    
    $
    100.08
    
    
    $
    86.12
    
    
    
    16.2
    %ADR
    
    
    155.72
    
    
    
    147.65
    
    
    
    5.5
    %Occupancy
    
    
    64.3
    %
    
    
    58.3
    %
    
    6.0 pointsU.S. and InternationalRevPAR
    
    $
    168.82
    
    
    $
    142.53
    
    
    
    18.4
    %ADR
    
    
    258.82
    
    
    
    251.79
    
    
    
    2.8
    %Occupancy
    
    
    65.2
    %
    
    
    56.6
    %
    
    8.6 points
   Exclusions: The Fairmont Southampton (renovations); The Fairmont Copley Plaza
Boston. RevPAR at the Comparable Hotels increased
17.5% to $135.86 in 2004 from $115.58 in
2003. Strong occupancy growth of 8.6
points at our U.S. and International
properties was generated through
significant increases in demand from the
group business and tour group segments. At
our Canadian hotels, foreign currency
fluctuations helped to offset slightly
lower ADR when measured in Canadian
dollars. EBITDA from FHRs hotel ownership
operations of $73.3 million in 2004 was
up $12.0 million, or 19.6%, from $61.3
million in 2003. Both our U.S. and
International properties and Canadian
hotels generated significant EBITDA
improvements over 2003. EBITDA margins of 21.8% are up 0.9
points over 2003 as the positive impact of
higher occupancies on margins has been
partially offset by increases in fixed
costs such as insurance, property taxes
and energy. In addition, ADR at the
Canadian properties has dropped
approximately 3% when measured in Canadian
dollars. This has further compressed
margins. Changes in ADR typically produce
greater changes in EBITDA margin since
there are no incremental costs associated
with such a change. Improvements in EBITDA and EBITDA
margins were also partially offset by
increased general and administrative
costs that we allocate to hotel
ownership operations. These costs
relate primarily to increased costs for
public company regulatory requirements
such as the certification requirements
under the Sarbanes-Oxley Act. Our approximate 35% investment in
Legacy generated an expected $4.5 million
equity loss in 2004 compared to a loss of
$6.8 million in 2003. Operating results
from Legacys portfolio experienced a sharp
rebound in the second quarter, however,
these improvements were partially
offset by first quarter equity losses
that were magnified by the appreciation
in the Canadian dollar. Real Estate Activities In 2004, we disposed of one block of land
from our Coal Harbour site in Vancouver,
B.C. as well as several smaller blocks of
land that were not part of our principal
real estate holdings in Toronto or
Vancouver. Total proceeds received for
these lands were $15.4 million. In 2003,
FHR disposed of a total of three blocks of
land for proceeds of $30.8 million. Sales
of vacation ownership interests generated
$5.0 million in revenues. Real estate
activities generated EBITDA of $8.8
million compared to $15.9 million in 2003. Management Operations Fairmont Hotels Inc. (Fairmont) In the first half of 2004, revenues under
management were $819 million, up $144
million or 21.4% from 2003. Improved
operating results at the U.S. and
International hotels, new management
contracts, a return to more normal
occupancy levels following the impact of
SARS in 2003 and the appreciation in the
Canadian dollar all contributed to this
increase. Fairmont earned fee revenues of $26.2
million in the first half of 2004, a 25.4%
improvement over 2003. This increase
consists primarily of higher base
management fees and is commensurate with
the increase in revenues under management.
Fee revenues included $11.1 million from
our owned properties, up $1.8 million from
2003. 7




---



##### 



Managements Discussion and Analysis(contd) Fairmont Managed Hotels 2004
    
    2003
    
    VarianceWorldwideRevPAR
    
    $
    115.29
    
    
    $
    100.01
    
    
    
    15.3
    %ADR
    
    
    178.33
    
    
    
    169.28
    
    
    
    5.3
    %Occupancy
    
    
    64.6
    %
    
    
    59.1
    %
    
    5.5 pointsCanadaRevPAR
    
    $
    88.29
    
    
    $
    74.62
    
    
    
    18.3
    %ADR
    
    
    139.05
    
    
    
    129.11
    
    
    
    7.7
    %Occupancy
    
    
    63.5
    %
    
    
    57.8
    %
    
    5.7 pointsU.S. and InternationalRevPAR
    
    $
    142.37
    
    
    $
    125.38
    
    
    
    13.5
    %ADR
    
    
    216.31
    
    
    
    207.72
    
    
    
    4.1
    %Occupancy
    
    
    65.8
    %
    
    
    60.4
    %
    
    5.4 points
   Exclusions:
    
    The Fairmont Southampton (renovations); The Fairmont Olympic Hotel,
Seattle; The Fairmont Turnberry Isle Resort & Club, Miami For the Fairmont managed portfolio of
Comparable Hotels, RevPAR increased 15.3%
to $115.29. RevPAR at the U.S. and
International properties was up 13.5% from
2003 due to strong occupancy growth from
both leisure and business travel. RevPAR
at the Canadian properties was up 18.3%
primarily due to the impact of SARS on
occupancy levels in the second quarter of
2003 as well as the impact of foreign
exchange rate fluctuations. When measured
in Canadian dollars, RevPAR at the
Canadian properties was up about 9% from
2003. Fairmont generated EBITDA of $15.3
million in the first half of 2004, up
36.6% from 2003. EBITDA margin increased
to 58.4% from 53.6% in 2003. The
improvement from increased fee revenues
was partially offset by higher
administrative costs. The appreciation in
the Canadian dollar also reduced EBITDA
and EBITDA margin since virtually all of
Fairmonts operating expenses are incurred
in Canadian dollars. Delta Hotels Limited (Delta) Revenues under management were $173
million, a 16.4% increase from 2003, while
management fee revenues were $6.1 million
versus $5.7 million in 2003. The increase
in management fees is not consistent with
the increase in revenues under management
due to the receipt of a payout resulting
from the termination of a franchise
agreement in 2004 and a one-time payout in
2003 resulting from a settlement of the
early termination of two management
contacts in 2000 and 2001. Excluding these
amounts, management fees have increased
more than revenues under management due to
higher incentive fee income. Deltas Comparable Hotels RevPAR of
$59.12 was up 17.3% from 2003 due to
occupancy returning to more normal levels
and the appreciation of the Canadian
dollar. When measured in Canadian dollars,
RevPAR was up approximately 8% over 2003. Delta Managed Hotels 2004
    
    2003
    
    VarianceRevPAR
    
    $
    59.12
    
    
    $
    50.40
    
    
    
    17.3
    %ADR
    
    
    94.35
    
    
    
    88.20
    
    
    
    7.0
    %Occupancy
    
    
    62.7
    %
    
    
    57.1
    %
    
    5.6 points
   Exclusions: none Other Items Revenues and Expenses from Managed and Franchised Properties Other revenues and expenses from
managed and franchised properties
represent the expenditure and recovery of central marketing, reservation
and other services that we provide on a
cost recovery basis under the terms of our
management and franchise agreements. The
net difference represents the portion of
amounts spent in excess of recoveries from
managed hotels that are owned 8




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##### 



by third parties. In the first half of
2004, we recognized a $0.4 million
deficit on these programs, consistent
with the deficit incurred in 2003. Amortization Amortization expense was $37.5 million in
2004 compared to $33.5 million in 2003.
This increase was consistent with higher
levels of capital spending, the
acquisition of The Fairmont Copley Plaza
Boston in February 2003 and the
appreciation of the Canadian dollar. Interest Expense, Net Net interest expense of $19.0 million was
up from $14.2 million in 2003. This
increase was due in part to foreign
currency fluctuations, additional interest
expense from the full period inclusion of
$65 million in debt assumed on the
acquisition of The Fairmont Copley Plaza
Boston in February 2003 as well as higher
borrowings during 2004. Income Tax Expense (Recovery) Income tax expense for 2004 was $11.7
million versus a recovery of $14.7
million in 2003 when a favorable
settlement reduced income tax expense by
$24.4 million. Our effective tax rate for
the period was 29.2%. Foreign Exchange Three Months
    
    Six MonthsImpact of Canadian Dollar
    
    Ended June 30,
    
    Ended June 30,Appreciation in 2004
    
    2004
    
    2004Operating revenues
    
    $
    2.0
    
    
    $
    9.0EBITDA
    
    $
    0.6
    
    
    $
    0.7Interest
    
    
    (0.1
    )
    
    
    (0.2
    )Amortization
    
    
    (0.2
    )
    
    
    (1.3
    )Income taxes
    
    
    
    
    
    
    (0.3
    )Net income impact
    
    $
    0.3
    
    
    $
    (1.1
    )EPS impact
    
    $
    0.00
    
    
    $
    (0.01
    )
 Average Canadian dollar exchange
rates in the second quarter and first half
of 2004 were approximately 3% higher and
8.5% higher, respectively, than the same
periods in 2003. As it is not possible to
accurately determine the impact on
business levels, if any, specifically due
to the higher Canadian dollar, any such
impact has been excluded from the analysis
above. Liquidity and Capital Resources Capitalization June 30,
    
    December 31,(in millions)
    
    2004
    
    2003Cash
    
    $
    47.8
    
    
    $
    31.7Current debt(1)
    
    $
    201.5
    
    
    $
    117.8Long-term debt
    
    
    471.7
    
    
    
    539.8673.2
    
    
    
    657.6Shareholders equityconvertible notes(2)
    
    
    19.2
    
    
    
    19.2common share equity(3)
    
    
    1,529.3
    
    
    
    1,526.71,548.5
    
    
    
    1,545.9Total capitalization
    
    $
    2,221.7
    
    
    $
    2,203.5Debt to total capitalization ratio
    
    
    30.3
    %
    
    
    29.8
    %Debt to total asset ratio
    
    
    26.6
    %
    
    
    26.3
    %Interest coverage(4)
    
    
    5.6
    x
    
    
    5.2
    x
   (1)
    
    Includes $69 million related to the put option held by the minority shareholder of Fairmont, the $120 million mortgage on
The Fairmont Kea Lani Maui that was repaid in July 2004 and the $5.2 million mortgage on The Fairmont Glitter Bay that was
also repaid in July 2004.(2)
    
    Amount of the $270 million convertible notes related to conversion feature.(3)
    
    Includes contributed surplus, foreign currency translation adjustments and retained earnings.(4)
    
    Calculated as 12-month trailing EBITDA divided by annual interest payments on debts outstanding at the end of period. 9




---



##### 



Managements Discussion and Analysis(contd) Our consolidated net borrowing position
increased to $673.2 million at June 30,
2004, up $15.6 million from the beginning
of the year. The increase in cash balances
at quarter-end was temporary and has since
been applied to reduce borrowings under
our credit facilities. The increase in
interest coverage relates primarily to
improved earnings in the second quarter of
2004. Cash Flows Cash Flows Three Months Ended June 30
    
    Six Months Ended June 30(millions of dollars)
    
    2004
    
    2003
    
    2004
    
    2003InflowsFunds generated from operations
    
    $
    54.4
    
    
    $
    30.2
    
    
    $
    85.6
    
    
    $
    78.0Change in working capital
    
    
    (45.3
    )
    
    
    (22.9
    )
    
    
    (36.3
    )
    
    
    (34.6
    )Cash generated from operations
    
    
    9.1
    
    
    
    7.3
    
    
    
    49.3
    
    
    
    43.4Other
    
    
    0.1
    
    
    
    
    
    
    
    8.9
    
    
    
    6.0Total inflows
    
    
    9.2
    
    
    
    7.3
    
    
    
    58.2
    
    
    
    49.4OutflowsAdditions to property and equipment
    
    
    (24.2
    )
    
    
    (19.8
    )
    
    
    (44.0
    )
    
    
    (35.6
    )Acquisitions and investments
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.7
    )Repurchase (issuance) of common shares, net
    
    
    (5.1
    )
    
    
    (11.7
    )
    
    
    (4.8
    )
    
    
    (16.7
    )Dividends
    
    
    
    
    
    
    
    
    
    
    (3.2
    )
    
    
    (2.4
    )Other
    
    
    (2.0
    )
    
    
    
    
    
    
    (7.0
    )
    
    
    Total outflows
    
    
    (31.3
    )
    
    
    (32.1
    )
    
    
    (59.0
    )
    
    
    (55.4
    )Net borrowing (repayment) of debt
    
    
    0.8
    
    
    
    22.2
    
    
    
    17.1
    
    
    
    3.2Effect of exchange rates on cash balances
    
    
    (0.1
    )
    
    
    2.0
    
    
    
    (0.2
    )
    
    
    3.5Increase in cash
    
    $
    (21.4
    )
    
    $
    (0.6
    )
    
    $
    16.1
    
    
    $
    0.7
 Cash generated by operations totaled $9.1
million for the second quarter of 2004 and
$49.3 million for the period ended June
30, 2004, representing improvements of
$1.8 and $5.9 million, respectively. These
improvements were achieved despite a large
decline in cash generated by real estate
activities. In the period ended June 30,
2004, real estate activities generated
$9.1 million of cash compared to $26.0
million in 2003 when three blocks of land
were sold. As expected, accounts receivable
balances at June 30, 2004 were up
considerably over year-end due to the
seasonality of our business. Receivable
balances at year-end are typically from
revenues earned in the fourth quarter,
our lowest earnings period. Prepaid
expense balances also increased during
the quarter due to the timing of annual
insurance and property tax payments.
Otherwise, all other working capital
balances are consistent with December
31, 2003. During the first quarter, Legacy
repaid $8.8 million that had been
advanced upon the acquisition of The
Fairmont Olympic Hotel, Seattle in
August 2003. Major 2004 Capital Projects The Fairmont Chateau Lake Louise
    
    Construction of a 18,000 square foot meeting facility and 81 new guestroomsThe Fairmont Copley Plaza Boston
    
    Creation of a Fairmont Gold loungeGuestroom renovations (remaining one-third of hotel)Upgrades to public areas
 Net expenditures on
profit-enhancing and upgrade capital
expenditures totaled $24.2 million in
the second quarter, up $4.4 million from
2003. For the six-month period ended
June 30, 2004, we have spent a total of
$44.0 million on profit-enhancing and
upgrade capital. These expenditures were
principally directed to upgrade capital
and profit-enhancing projects at our
owned hotels, specifically The Fairmont
Chateau Lake Louise and The Fairmont
Copley Plaza Boston. Capital expenditure
amounts do not include costs related to
the repairs in Bermuda since such costs
were covered by insurance. 10




---



##### 



For the remainder of 2004, we expect
spending on upgrade capital and
profit-enhancing projects to be in the
range of $30 - $40 million. Our estimated
expenditures have been reduced due to the
sale of The Fairmont Kea Lani Maui and
revised estimates of capital spending at
other properties. We plan to fund the
remaining capital expenditures primarily
through cash generated from operating
activities. We do not expect to undertake
any other major profit-enhancing projects
before 2005. In October 2003, we obtained
regulatory approval to purchase for
cancellation up to approximately 3.9
million or 5% of our common shares within
a twelve-month period ending October 7,
2004. At June 30, 2004, we have
repurchased 208,400 shares under this
program at a total cost of $5.4 million.
All purchases were made in the second
quarter of 2004. Liquidity In March, we entered into a $400 million
unsecured credit facility to replace the
Cdn$453 million bank facility that would
have expired in September 2004. The
interest rate on the unsecured credit
facility is floating based on market
interest rates plus a spread. At June 30, 2004, our primary sources
of contractual obligations consisted of
property-specific mortgages and $270
million in convertible senior notes. At
June 30, 2004, we had drawn $49.4 million
on our $400 million unsecured credit
facility, issued $67.5 million in letters
of credit against this facility and
reserved $69.0 million of availability in
respect of the minority shareholders
right to sell their shares of Fairmont to
us. Additionally, $57.2 million was
outstanding at June 30, 2004 on Fairmonts
$100 million operating line. In July 2004, we repaid the $120.0
million mortgage that had been secured by
The Fairmont Kea Lani Maui using proceeds
received from the sale of this hotel. A
portion of the funds received from this
hotel will also be used for the upcoming
$69 million acquisition of the remaining
16.5% minority interest in Fairmont. The
remainder of the proceeds, along with
proceeds from the sale of The Fairmont
Glitter Bay may be used in the short term to further reduce
borrowings under our credit facilities. Contractual Obligations Payments Due by Period(in millions)
    
    Total
    
    < 1 Year
    
    1 - 3 Years
    
    4 - 5 Years
    
    After 5 YearsLong-term debt
    
    $
    673.2
    
    
    $
    201.5
    
    
    $
    176.3
    
    
    $
    7.2
    
    
    $
    288.2Operating leases
    
    
    100.0
    
    
    
    13.4
    
    
    
    32.9
    
    
    
    20.7
    
    
    
    33.0Purchase obligations
    
    
    13.3
    
    
    
    13.3
    
    
    
    
    
    
    
    
    
    
    
    Other liabilities
    
    
    79.8
    
    
    
    11.3
    
    
    
    29.7
    
    
    
    12.0
    
    
    
    26.8Total
    
    $
    866.3
    
    
    $
    239.5
    
    
    $
    238.9
    
    
    $
    39.9
    
    
    $
    348.0
 Contractual Commitments Commitment Expiration per Period(in millions)
    
    Total
    
    < 1 Year
    
    1 - 3 Years
    
    4 - 5 Years
    
    After 5 YearsStandby letters of credit(1)
    
    $
    69.9
    
    
    $
    69.9
    
    
    
    
    
    
    
    
    
    
    
    Guarantees
    
    
    11.3
    
    
    
    11.3
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    $
    81.2
    
    
    $
    81.2
    
    
    
    
    
    
    
    
    
    
    
    
   (1)
    
    FHR typically issues letters of credit against its lines of credit. 11




---



##### 



Managements Discussion and Analysis(contd) Outstanding Common Share Data June 30,
    
    December 31,Shares Outstanding (in 000s)
    
    2004
    
    2003Common shares
    
    
    78,947.4
    
    
    
    79,106.3Potential issuance
of common shares:Options issued to directors
and employees
    
    
    3,532.9
    
    
    
    3,587.8Conversion of convertible
senior notes (conversion price $37.73)
    
    
    7,156.1
    
    
    
    7,156.1
 Non-GAAP Financial Measures Operating Revenues Operating revenues excludes other revenues
from managed and franchised properties
(consists of direct and indirect costs
relating primarily to marketing and
reservation services that are reimbursed
by hotel owners on a cost recovery basis).
Management considers that the exclusion of
such revenues provides a meaningful
measure of operating performance, however,
it is not a defined measure of operating
performance under Canadian GAAP. It is
likely that FHRs calculation of operating
revenues is different than the calculation
used by other entities. EBITDA EBITDA is defined as earnings before
interest, taxes and amortization. Income
from investments and other is included in
EBITDA. Management considers EBITDA to be
a meaningful indicator of hotel operations
and uses it as the primary measurement of
operating segment profit and loss.
However, it is not a defined measure of
operating performance under Canadian
generally accepted accounting principles
(Canadian GAAP). It is likely that FHRs
calculation of EBITDA is different than
the calculations used by other entities.
EBITDA is represented on the consolidated
statements of income as operating income
before undernoted items. Reconciliation of EBITDA to net income: Three Months Ended June 30
    
    Six Months Ended June 30(millions of dollars)
    
    2004
    
    2003
    
    2004
    
    2003EBITDA
    
    $
    62.5
    
    
    $
    43.4
    
    
    $
    96.6
    
    
    $
    85.6Deduct:Amortization
    
    
    18.0
    
    
    
    17.2
    
    
    
    37.5
    
    
    
    33.5Interest expense, net
    
    
    9.0
    
    
    
    8.3
    
    
    
    19.0
    
    
    
    14.2Income tax expense (recovery)
    
    
    6.5
    
    
    
    (22.2
    )
    
    
    11.7
    
    
    
    (14.7
    )Net income
    
    $
    29.0
    
    
    $
    40.1
    
    
    $
    28.4
    
    
    $
    52.6
 Changes in Accounting Policies Hedging Relationships Effective January 1, 2004, we implemented
new guidance on accounting for hedging
relationships. The new 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. The adoption of this
accounting guidance did not have a
material impact on operations or
financial statement presentation. Generally Accepted Accounting Principles and General Standards of Financial Statement Presentation Effective January 1, 2004, we are now
following 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. No changes to our
financial statement presentation were
required as we were already in full
compliance with these new standards. 12




---



##### 



Pending Accounting Policy Changes The following are upcoming changes to
Canadian GAAP that may have an impact on
our financial statement presentation.
Details on these and any other recent
accounting changes can be found on the
website of the Accounting Standards Board
of Canada at www.acsbcanada.org. Variable Interest Entities New accounting guidelines will require us
to identify Variable Interest Entities
(VIEs) in which we have an interest,
determine whether we are the primary
beneficiary of such entities and, if so,
to consolidate the VIE. A VIE is an entity
in which:  
    
    the equity is not sufficient to
permit that entity to finance its
activities without external support,
or
    
    equity investors lack either voting
control, 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 could result in the
consolidation of managed hotels or
investments currently accounted for
using the equity method and the
deconsolidation of any subsidiary where
we determine that the Company is not the
primary beneficiary. We originally anticipated
implementing this guideline in the first
quarter of 2004. However, due to the
complexities and continually evolving
guidance surrounding this guideline, we
have delayed the implementation of this
standard under Canadian GAAP until 2005.
Our intent is to reduce our ownership
interest in Legacy to a level below which
consolidation would be required under the
VIE guidelines. In the event such a
disposal occurs, we do not expect this
guideline to have a material impact on our
financial statement presentation. 13




---



##### 



Consolidated Balance Sheets June 30
    
    December 31(Stated in millions of U.S. dollars)
    
    2004
    
    2003(Unaudited)AssetsCurrent assetsCash and cash equivalents
    
    $
    47.8
    
    
    $
    31.7Accounts receivable
    
    
    83.6
    
    
    
    64.1Inventory
    
    
    14.5
    
    
    
    14.2Prepaid expenses and other
    
    
    20.7
    
    
    
    24.6Assets held for sale (note 3)
    
    
    271.1
    
    
    
    437.7
    
    
    
    134.6Investments in partnerships and corporations (note 5)
    
    
    69.0
    
    
    
    53.1Investment in Legacy Hotels Real Estate Investment Trust
    
    
    96.9
    
    
    
    105.9Non-hotel real estate
    
    
    91.4
    
    
    
    95.1Property and equipment
    
    
    1,381.9
    
    
    
    1,656.2Goodwill
    
    
    140.5
    
    
    
    132.0Intangible assets
    
    
    214.3
    
    
    
    216.7Other assets and deferred charges (note 5)
    
    
    102.0
    
    
    
    109.4$
    2,533.7
    
    
    $
    2,503.0Liabilities and Shareholders EquityCurrent liabilitiesAccounts payable and accrued liabilities
    
    $
    111.8
    
    
    $
    124.0Dividends payable
    
    
    3.2
    
    
    
    3.2Current portion of long-term debt (note 3)
    
    
    201.5
    
    
    
    117.8Liabilities related to assets held for sale (note 3)
    
    
    10.6
    
    
    
    327.1
    
    
    
    245.0Long-term debt (note 4)
    
    
    471.7
    
    
    
    539.8Other liabilities
    
    
    88.7
    
    
    
    91.4Future income taxes
    
    
    97.7
    
    
    
    80.9985.2
    
    
    
    957.1Shareholders Equity (note 6)
    
    
    1,548.5
    
    
    
    1,545.9$
    2,533.7
    
    
    $
    2,503.0
 Consolidated Statements of Retained Earnings Three months ended June 30
    
    Six months ended June 30(Stated in millions of U.S. dollars) (Unaudited)
    
    2004
    
    2003
    
    2004
    
    2003Balance  Beginning of period
    
    $
    77.5
    
    
    $
    49.8
    
    
    $
    78.1
    
    
    $
    38.5Net income
    
    
    29.0
    
    
    
    40.1
    
    
    
    28.4
    
    
    
    52.6106.5
    
    
    
    89.9
    
    
    
    106.5
    
    
    
    91.1Repurchase of common shares (note 6)
    
    
    (2.2
    )
    
    
    (4.3
    )
    
    
    (2.2
    )
    
    
    (5.5
    )Dividends
    
    
    (3.2
    )
    
    
    (2.4
    )
    
    
    (3.2
    )
    
    
    (2.4
    )Balance  End of period
    
    $
    101.1
    
    
    $
    83.2
    
    
    $
    101.1
    
    
    $
    83.2
 14




---



##### 



Consolidated Statements of Income Three months ended June 30
    
    Six months ended June 30(Stated in millions of U.S. dollars, except per share amounts) (Unaudited)
    
    2004
    
    2003
    
    2004
    
    2003RevenuesHotel ownership operations
    
    $
    180.6
    
    
    $
    153.5
    
    
    $
    336.0
    
    
    $
    293.9Management operations
    
    
    11.6
    
    
    
    8.6
    
    
    
    21.1
    
    
    
    17.2Real estate activities
    
    
    18.1
    
    
    
    12.3
    
    
    
    21.4
    
    
    
    31.2Operating revenues
    
    
    210.3
    
    
    
    174.4
    
    
    
    378.5
    
    
    
    342.3Other revenues from managed and franchised properties
    
    
    8.9
    
    
    
    7.5
    
    
    
    17.8
    
    
    
    14.5219.2
    
    
    
    181.9
    
    
    
    396.3
    
    
    
    356.8ExpensesHotel ownership operations
    
    
    135.3
    
    
    
    118.2
    
    
    
    252.0
    
    
    
    223.7Management operations
    
    
    6.3
    
    
    
    7.0
    
    
    
    12.9
    
    
    
    11.0Real estate activities
    
    
    9.7
    
    
    
    5.7
    
    
    
    12.6
    
    
    
    15.3Operating expenses
    
    
    151.3
    
    
    
    130.9
    
    
    
    277.5
    
    
    
    250.0Other expenses from managed and franchised properties
    
    
    9.1
    
    
    
    8.0
    
    
    
    18.2
    
    
    
    14.9160.4
    
    
    
    138.9
    
    
    
    295.7
    
    
    
    264.9Income (loss) from equity investments and other
    
    
    3.7
    
    
    
    0.4
    
    
    
    (4.0
    )
    
    
    (6.3
    )Operating income before undernoted items
    
    
    62.5
    
    
    
    43.4
    
    
    
    96.6
    
    
    
    85.6Amortization
    
    
    18.0
    
    
    
    17.2
    
    
    
    37.5
    
    
    
    33.5Interest expense, net
    
    
    9.0
    
    
    
    8.3
    
    
    
    19.0
    
    
    
    14.2Income before income tax expense
    
    
    35.5
    
    
    
    17.9
    
    
    
    40.1
    
    
    
    37.9Income tax expense (recovery)Current
    
    
    2.6
    
    
    
    1.2
    
    
    
    5.5
    
    
    
    6.5Future
    
    
    3.9
    
    
    
    (23.4
    )
    
    
    6.2
    
    
    
    (21.2
    )6.5
    
    
    
    (22.2
    )
    
    
    11.7
    
    
    
    (14.7
    )Net income
    
    $
    29.0
    
    
    $
    40.1
    
    
    $
    28.4
    
    
    $
    52.6Weighted average number of
common shares outstanding(in millions) (note 6)Basic
    
    
    79.1
    
    
    
    79.4
    
    
    
    79.1
    
    
    
    79.3Diluted
    
    
    79.9
    
    
    
    80.1
    
    
    
    79.9
    
    
    
    80.0Basic earnings per common share
    
    $
    0.37
    
    
    $
    0.51
    
    
    $
    0.36
    
    
    $
    0.66Diluted earnings per common share
    
    $
    0.36
    
    
    $
    0.50
    
    
    $
    0.36
    
    
    $
    0.66
 15




---



##### 



Consolidated Statements of Cash Flows Three months ended June 30
    
    Six months ended June 30(Stated in millions of U.S. dollars) (Unaudited)
    
    2004
    
    2003
    
    2004
    
    2003Cash provided by (used in)Operating activitiesNet Income
    
    $
    29.0
    
    
    $
    40.1
    
    
    $
    28.4
    
    
    $
    52.6Items not affecting cashAmortization of property and equipment
    
    
    17.3
    
    
    
    16.6
    
    
    
    36.1
    
    
    
    32.2Amortization of intangible assets
    
    
    0.7
    
    
    
    0.6
    
    
    
    1.4
    
    
    
    1.3(Income) loss from equity investments and other
    
    
    (3.7
    )
    
    
    (0.4
    )
    
    
    4.0
    
    
    
    6.3Future income taxes
    
    
    3.9
    
    
    
    (23.4
    )
    
    
    6.2
    
    
    
    (21.2
    )Unrealized foreign exchange loss
    
    
    10.2
    
    
    
    
    
    
    
    10.2
    
    
    
    Distributions from investments
    
    
    
    
    
    
    4.4
    
    
    
    
    
    
    
    4.4Other
    
    
    (3.5
    )
    
    
    (10.4
    )
    
    
    (1.0
    )
    
    
    (7.7
    )Changes in non-hotel real estate
    
    
    0.5
    
    
    
    2.7
    
    
    
    0.3
    
    
    
    10.1Changes in non-cash working capital items (note 7)
    
    
    (45.3
    )
    
    
    (22.9
    )
    
    
    (36.3
    )
    
    
    (34.6
    )9.1
    
    
    
    7.3
    
    
    
    49.3
    
    
    
    43.4Investing activitiesAdditions to property and equipment
    
    
    (24.2
    )
    
    
    (19.8
    )
    
    
    (44.0
    )
    
    
    (35.6
    )Acquisitions, net of cash acquired
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.0Investments in partnerships and corporations
    
    
    
    
    
    
    (0.6
    )
    
    
    
    
    
    
    (0.7
    )Collection of loans receivable
    
    
    0.1
    
    
    
    
    
    
    
    8.9
    
    
    
    Issuance of loans receivable
    
    
    (2.0
    )
    
    
    
    
    
    
    (7.0
    )
    
    
    (26.1
    )
    
    
    (20.4
    )
    
    
    (42.1
    )
    
    
    (30.3
    )Financing activitiesIssuance of long-term debt
    
    
    2.8
    
    
    
    23.2
    
    
    
    82.7
    
    
    
    146.7Repayment of long-term debt
    
    
    (2.0
    )
    
    
    (1.0
    )
    
    
    (65.6
    )
    
    
    (143.5
    )Issuance of common shares
    
    
    0.3
    
    
    
    0.1
    
    
    
    0.6
    
    
    
    0.1Repurchase of common shares
    
    
    (5.4
    )
    
    
    (11.8
    )
    
    
    (5.4
    )
    
    
    (16.8
    )Dividends paid
    
    
    
    
    
    
    
    
    
    
    (3.2
    )
    
    
    (2.4
    )(4.3
    )
    
    
    10.5
    
    
    
    9.1
    
    
    
    (15.9
    )Effect of exchange rate changes on cash
    
    
    (0.1
    )
    
    
    2.0
    
    
    
    (0.2
    )
    
    
    3.5Increase (decrease) in cash
    
    
    (21.4
    )
    
    
    (0.6
    )
    
    
    16.1
    
    
    
    0.7Cash and cash equivalents  beginning of period
    
    
    69.2
    
    
    
    50.3
    
    
    
    31.7
    
    
    
    49.0Cash and cash equivalents  end of period
    
    $
    47.8
    
    
    $
    49.7
    
    
    $
    47.8
    
    
    $
    49.7
 16




---



##### 



Notes to Consolidated Financial Statements
(Stated in millions of U.S. dollars) (Unaudited) Note 1. Fairmont Hotels & Resorts Inc. (FHR)
has operated and owned hotels and resorts
for over 116 years and currently manages
properties principally under the Fairmont
and Delta brands. At June 30, 2004, FHR
managed or franchised 82 luxury and
first-class hotels. FHR owns 83.5% of
Fairmont Hotels Inc. (Fairmont), which
at June 30, 2004, managed 44 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
38 Canadian hotels and resorts at June
30, 2004. In addition to hotel and resort
management, as at June 30, 2004, FHR had
hotel ownership interests ranging from
approximately 15% to 100% in 24
properties, located in Canada, the United
States, Mexico, Bermuda, Barbados and the
United Arab Emirates. 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, and
has a vacation ownership product. Results for the three and six months
ended June 30, 2004 are not necessarily
indicative of the results that may be
expected for the full year due to seasonal
and short-term variations. Revenues are
typically higher in the second and third
quarters versus the first and fourth
quarters of the year. Note 2. These interim consolidated financial
statements do not include all disclosures
as required by Canadian generally
accepted accounting principles (GAAP)
for annual consolidated financial
statements and should be read in
conjunction with the audited consolidated financial statements
for the year ended December 31, 2003
presented in the annual report. The
accounting policies used in the
preparation of these interim consolidated
financial statements are consistent with
the accounting policies used in the
December 31, 2003 audited consolidated
financial statements, except as discussed
below. Hedging Relationships Effective January 1, 2004, FHR
implemented new guidance on accounting
for hedging relationships. The new
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. The
adoption of this accounting guidance did
not have an impact on the Companys
financial statements. Generally Accepted Accounting Principles and General Standards of Financial Statement Presentation The Canadian Institute of Chartered
Accountants has issued new accounting
standards surrounding GAAP and 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 and are effective for years beginning
January 1, 2004. No changes to accounting
principles or financial statement
presentation were required as FHR was
already in full compliance with these new
standards. Assets Held for Sale Long-lived assets are classified as held
for sale when specific GAAP criteria are
met. Assets held for sale are measured at
the lower of their carrying amounts and
fair values less costs to dispose and are
no longer amortized. Assets classified as
held for sale and liabilities related to
these assets are reported separately on
the balance sheet. A component of FHR that
is held for sale is reported as a
discontinued operation if the operations
and cash flows of the component will be
eliminated from ongoing operations as a
result of the sale and FHR will not have a
significant continuing involvement in the
operations of the component after the
sale. Note 3. In June 2004, FHR finalized an agreement
with Host Marriott Corporation to sell The
Fairmont Kea Lani Maui for cash proceeds
of $355.0. As such, the assets and the
liabilities of The Fairmont Kea Lani Maui
have been reclassified to Assets held for
sale and Liabilities related to assets
held for sale, respectively. As at June
30, 2004, The Fairmont Kea Lani Maui had
property and equipment with a carrying
value of $242.4 and a working capital
deficit of $2.5. The transaction closed on
July 15, 2004 and the mortgage of $120.0
on this property was 17




---



##### 



Notes to Consolidated Financial Statements(contd) repaid. As of June 30, 2004, the mortgage
was classified on the balance sheet as
current portion of long-term debt. The
after-tax gain on the sale of
approximately $68.0 will be recognized in
the third quarter. The resort will
continue to be managed by Fairmont under a
long-term management contract. The assets
and liabilities of this property are
currently included in the hotel ownership
segment (note 8). In June 2004, FHR finalized an
agreement to sell The Fairmont Glitter Bay
for cash proceeds of approximately $31.0.
As such, the assets and the liabilities of
The Fairmont Glitter Bay have been
reclassified to Assets held for sale and
Liabilities related to assets held for
sale respectively. As at June 30, 2004,
The Fairmont Glitter Bay had property and
equipment with a carrying value of $20.6.
The transaction closed on July 9, 2004 and
the mortgage of $5.2 on this property was
repaid. The after-tax gain on the sale of
approximately $8.0 will be recognized in
the third quarter. As of June 30, 2004,
the mortgage was classified on the balance
sheet as current portion of long-term
debt. The resort will continue to be
managed by Fairmont under a long-term
management contract. The assets and
liabilities of this property are currently
included in the hotel ownership segment
(note 8). Note 4. In March 2004, FHR entered into a new $400
unsecured credit facility due March 2007.
The interest rate is floating and is
calculated based on the borrowers choice
of prime rate, bankers acceptance or LIBOR
plus a spread. Note 5. In April 2004, FHR finalized an agreement
to invest $15.6 for a 14.5% interest in
The Fairmont Dubai. This investment is
accounted for using the equity method. In
the quarter, $15.6 was reclassified from
Other assets and deferred charges to
Investments in partnerships and
corporations. Note 6. Shareholders equity June 30,
    
    December 31,2004
    
    2003Common shares
    
    $
    1,199.6
    
    
    $
    1,202.2Other equity
    
    
    19.2
    
    
    
    19.2Contributed surplus
    
    
    142.3
    
    
    
    142.3Foreign currency
translation adjustments
    
    
    86.3
    
    
    
    104.1Retained earnings
    
    
    101.1
    
    
    
    78.1$
    1,548.5
    
    
    $
    1,545.9
 The diluted weighted-average number of common shares outstanding is calculated
as follows: Three months ended June 30
    
    Six months ended June 30(in millions)
    
    2004
    
    2003
    
    2004
    
    2003Weighted-average number
of common shares outstanding  basic
    
    
    79.1
    
    
    
    79.4
    
    
    
    79.1
    
    
    
    79.3Stock options
    
    
    0.8
    
    
    
    0.7
    
    
    
    0.8
    
    
    
    0.7Weighted-average number
of common shares outstanding  diluted
    
    
    79.9
    
    
    
    80.1
    
    
    
    79.9
    
    
    
    80.0
 Under a normal course issuer bid, FHR may
repurchase for cancellation up to
approximately 3.9 million, or
approximately 5% of its outstanding
common shares. During the six months
ended June 30, 2004, FHR repurchased
208,400 shares (208,400 during the second
quarter) for total consideration of $5.4
( $5.4 for the second quarter), of which,
$3.2 was charged to common shares and
$2.2 was charged to retained earnings. During the six months ended June 30,
2004, FHR issued 38,568 shares (21,378
shares for the second quarter) pursuant
to the Key Employee Stock Option Plan.
$0.6 was credited to common shares ($0.3
for the second quarter) for proceeds from
options exercised. At June 30, 2004,
78,944,445 common shares were outstanding
(2003  79,046,316). 18




---



##### 



During the six months ended June 30,
2004, 10,000 stock options were granted
(nil in the second quarter). 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 but before January 1,
2003, net income and basic and diluted
earnings per share would have been: Three months ended June 30
    
    Six months ended June 302004
    
    2003
    
    2004
    
    2003Reported net income
    
    $
    29.0
    
    
    $
    40.1
    
    
    $
    28.4
    
    
    $
    52.6Net income assuming fair value method used
    
    
    28.9
    
    
    
    39.6
    
    
    
    28.2
    
    
    
    51.9Basic earnings per share
    
    
    0.37
    
    
    
    0.50
    
    
    
    0.36
    
    
    
    0.65Diluted earnings per share
    
    
    0.36
    
    
    
    0.49
    
    
    
    0.35
    
    
    
    0.65
 Note 7. Changes in non-cash working capital Three months ended June 30
    
    Six months ended June 302004
    
    2003
    
    2004
    
    2003Decrease (increase) in current assetsAccounts receivable
    
    $
    (25.9
    )
    
    $
    (0.2
    )
    
    $
    (25.2
    )
    
    $
    (9.9
    )Inventory
    
    
    (0.9
    )
    
    
    0.3
    
    
    
    (1.3
    )
    
    
    (0.5
    )Prepaid expenses and other
    
    
    (8.9
    )
    
    
    (9.1
    )
    
    
    (7.9
    )
    
    
    (10.0
    )Increase (decrease) in current liabilitiesAccounts payable and accrued liabilities
    
    
    (9.6
    )
    
    
    (13.9
    )
    
    
    (1.9
    )
    
    
    (14.2
    )$
    (45.3
    )
    
    $
    (22.9
    )
    
    $
    (36.3
    )
    
    $
    (34.6
    )
 Note 8. Segmented Information FHR has five reportable 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 15% to 100% in 24
properties. The investment in Legacy
consists of an approximate 35% equity
interest in Legacy, which owns 24 hotels
and resorts across Canada and the United
States. Real estate activities consists
primarily of two large undeveloped land
blocks in Toronto and Vancouver and a
vacation ownership product. Fairmont is a
North American luxury hotel and resort
management company and Delta is a Canadian
first-class hotel and resort management
company. The performance of all segments is
evaluated primarily on earnings before
interest, taxes and amortization
(EBITDA), which is defined as income
before interest, income taxes and
amortization. EBITDA includes income from
investments and other. Amortization,
interest and income taxes are not
allocated to the individual segments. All
transactions among operating segments are
conducted at fair market value. 19




---



##### 



Notes to Consolidated Financial Statements(contd) The following tables present revenues, EBITDA, total assets and capital
expenditures for FHRs reportable segments: Three months ended June 30, 2004Ownership
    
    ManagementHotel
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    
    
    
    Inter-segmentOwnership
    
    Legacy
    
    activities
    
    Fairmont
    
    Delta
    
    elimination(a)
    
    TotalOperating revenues
    
    $
    180.6
    
    
    $
    
    
    
    $
    18.1
    
    
    $
    13.7
    
    
    $
    3.6
    
    
    $
    (5.7
    )
    
    $
    210.3Other revenues from
managed and
franchised properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6.2
    
    
    
    2.7
    
    
    
    
    
    
    
    8.9219.2Income (loss) from equity
investments and other
    
    
    0.9
    
    
    
    2.8
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3.7EBITDA(b)
    
    
    40.5
    
    
    
    2.8
    
    
    
    8.4
    
    
    
    8.4
    
    
    
    2.6
    
    
    
    (0.2
    )
    
    
    62.5Total assets(c)
    
    
    1,925.2
    
    
    
    96.9
    
    
    
    95.9
    
    
    
    363.6
    
    
    
    73.2
    
    
    
    (21.1
    )
    
    
    2,533.7Capital expenditures
    
    
    23.9
    
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    
    
    
    
    
    
    
    
    24.2
 Three months ended June
30, 2003Ownership
    
    ManagementHotel
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    
    
    
    Inter-segmentOwnership
    
    Legacy
    
    activities
    
    Fairmont
    
    Delta
    
    elimination(a)
    
    TotalOperating revenues
    
    $
    153.5
    
    
    $
    
    
    
    $
    12.3
    
    
    $
    10.5
    
    
    $
    2.6
    
    
    $
    (4.5
    )
    
    $
    174.4Other revenues from
managed and
franchised properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5.8
    
    
    
    1.7
    
    
    
    
    
    
    
    7.5181.9Income (loss) from equity
investments and other
    
    
    0.9
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.4EBITDA(b)
    
    
    31.7
    
    
    
    (0.5
    )
    
    
    6.6
    
    
    
    4.2
    
    
    
    1.9
    
    
    
    (0.5
    )
    
    
    43.4Total assets(c)
    
    
    2,087.3
    
    
    
    102.1
    
    
    
    105.6
    
    
    
    348.0
    
    
    
    77.0
    
    
    
    (265.4
    )
    
    
    2,454.6Capital expenditures
    
    
    19.4
    
    
    
    
    
    
    
    
    
    
    
    0.4
    
    
    
    
    
    
    
    
    
    
    
    19.8
 20




---



##### 



Six months ended June 30, 2004Ownership
    
    ManagementHotel
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    
    
    
    Inter-segmentOwnership
    
    Legacy
    
    activities
    
    Fairmont
    
    Delta
    
    elimination(a)
    
    TotalOperating revenues
    
    $
    336.0
    
    
    $
    
    
    
    $
    21.4
    
    
    $
    26.2
    
    
    $
    6.1
    
    
    $
    (11.2
    )
    
    $
    378.5Other revenues from
managed and
franchised properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    12.7
    
    
    
    5.1
    
    
    
    
    
    
    
    17.8396.3Income (loss) from equity
investments and other
    
    
    0.5
    
    
    
    (4.5
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4.0
    )EBITDA(b)
    
    
    73.3
    
    
    
    (4.5
    )
    
    
    8.8
    
    
    
    15.3
    
    
    
    4.1
    
    
    
    (0.4
    )
    
    
    96.6Total assets(c)
    
    
    1,925.2
    
    
    
    96.9
    
    
    
    95.9
    
    
    
    363.6
    
    
    
    73.2
    
    
    
    (21.1
    )
    
    
    2,533.7Capital expenditures
    
    
    43.5
    
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    
    
    
    
    
    
    
    
    44.0
 Six months ended June 30, 2003Ownership
    
    ManagementHotel
    
    
    
    
    
    Real estate
    
    
    
    
    
    
    
    
    
    Inter-segmentOwnership
    
    Legacy
    
    activities
    
    Fairmont
    
    Delta
    
    elimination(a)
    
    TotalOperating revenues
    
    $
    293.9
    
    
    $
    
    
    
    $
    31.2
    
    
    $
    20.9
    
    
    $
    5.7
    
    
    $
    (9.4
    )
    
    $
    342.3Other revenues from
managed and
franchised properties
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10.6
    
    
    
    3.9
    
    
    
    
    
    
    
    14.5356.8Income (loss) from equity
investments and other
    
    
    0.5
    
    
    
    (6.8
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6.3
    )EBITDA(b)
    
    
    61.3
    
    
    
    (6.8
    )
    
    
    15.9
    
    
    
    11.2
    
    
    
    4.4
    
    
    
    (0.4
    )
    
    
    85.6Total assets(c)
    
    
    2,087.3
    
    
    
    102.1
    
    
    
    105.6
    
    
    
    348.0
    
    
    
    77.0
    
    
    
    (265.4
    )
    
    
    2,454.6Capital expenditures
    
    
    35.0
    
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    
    
    
    
    
    
    
    
    35.6
 (a) Revenues represent management fees that are charged by Fairmont of $5.6
(2003  $4.4) and $11.1 (2003-$9.3) for the three and six months ended June 30,
2004 respectively, and Delta of $0.1 (2003  $0.1) and $0.1 (2003  $0.1) for the
three and six months ended June 30, 2004 respectively, 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 agreements. Total assets
represent the elimination of inter-segment loans net of corporate assets. (b) The following costs are not allocated to the individual segments in
evaluating net income: Three months ended June 30
    
    Six months ended June 302004
    
    2003
    
    2004
    
    2003Amortization
    
    $
    18.0
    
    
    $
    17.2
    
    
    $
    37.5
    
    
    $
    33.5Interest expense, net
    
    
    9.0
    
    
    
    8.3
    
    
    
    19.0
    
    
    
    14.2Income tax expense (recovery)
    
    
    6.5
    
    
    
    (22.2
    )
    
    
    11.7
    
    
    
    (14.7
    )
 (c) Hotel ownership assets include $63.6 (2003  $46.7) of investments
accounted for using the equity method. 21




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##### 



Notes to Consolidated Financial Statements(contd) Note 9. As required under the terms and
conditions of the 3.75% convertible
senior notes due 2023, the debt and the
common shares issuable upon conversion of
the shares were registered on Form F-10
with the United States Securities and
Exchange Commission on April 6, 2004. Note 10. At June 30, 2004, FHR has a payable to
Legacy of $7.0 in connection with various
management contracts, and reciprocal loan
agreements with Legacy for $86.6. A subsidiary of FHR has a 25%
participation amounting to $10.7 in the
first mortgage on The Fairmont Olympic
Hotel, Seattle. Note 11. FHR has recorded pension and other post
employment benefit expenses as follows: Three months ended June 30
    
    Six months ended June 30(in millions)
    
    2004
    
    2003
    
    2004
    
    2003Pension
    
    $
    0.5
    
    
    $
    0.1
    
    
    $
    1.0
    
    
    $
    0.1Other post-employment benefits
    
    
    0.1
    
    
    
    
    
    
    
    0.2
    
    
    
    $
    0.6
    
    
    $
    0.1
    
    
    $
    1.2
    
    
    $
    0.1
 22




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##### 



Shareholder Information Executive Office Canadian Pacific Tower
100 Wellington Street West
Suite 1600
TD Centre, P.O. Box 40
Toronto, Ontario M5K 1B7
Telephone:    416.874.2600
Fax:               416.874.2601 Investor Relations Emma Thompson
Executive Director Investor Relations
Toll-free:   866.627.0642
Fax:            416.874.2761
Email:         investor@fairmont.com
Website:     www.fairmont.com Stock Exchange Listings Toronto Stock Exchange
New York Stock Exchange
Trading symbol: FHR Hotel Reservations Fairmont Hotels & Resorts
Toll-free:     800.441.1414
Website:      www.fairmont.com Delta Hotels
Toll-free:     800.268.1133
Website:      www.deltahotels.com Transfer Agent and Registrar Computershare Trust Company of Canada
100 University Avenue, 9th Floor
Toronto, Ontario
M5J 2Y1
Toll-free:      800.340.5017
Telephone:   514.982.7800
Email:           caregistryinfo@computershare.com For further information on
Legacy Hotels Real Estate Investment Trust Toronto Stock Exchange symbol: LGY.UN
Toll-free:     866.627.0641
Website:      www.legacyhotels.com




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##### 



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