Three months ended
Nine months ended
September 30
September 30
2003 2002 Variance
2003 2002 Variance
OWNED
HOTELS
Worldwide
RevPAR $132.68 $128.92
2.9% $120.51 $118.83
1.4%
ADR 208.48
193.36 7.8%
201.37 187.48
7.4%
Occupancy 63.6% 66.7%
(3.1 points) 59.8% 63.4% (3.6 points)
Canada
RevPAR $152.77 $146.89
4.0% $108.67 $106.46
2.1%
ADR 207.67
186.90 11.1% 171.20
153.76 11.3%
Occupancy 73.6% 78.6%
(5.0 points) 63.5% 69.2% (5.7 points)
U.S. and
International
RevPAR $110.91 $109.41
1.4% $133.31 $132.27
0.8%
ADR 209.70
203.60 3.0%
238.42 231.93
2.8%
Occupancy 52.9% 53.7%
(0.8 points) 55.9% 57.0% (1.1 points)
FAIRMONT MANAGED
HOTELS
Worldwide
RevPAR $119.27 $119.18
0.1% $105.49 $108.98
(3.2%)
ADR 178.18
168.37 5.8%
171.52 164.29 4.4%
Occupancy 66.9% 70.8%
(3.9 points) 61.5% 66.3% (4.8 points)
Canada
RevPAR $120.15 $122.02
(1.5%) $90.12 $93.52
(3.6%)
ADR 166.60
152.72 9.1%
143.81 132.34 8.7%
Occupancy 72.1% 79.9%
(7.8 points) 62.7% 70.7% (8.0 points)
U.S. and
International
RevPAR $118.20 $115.70
2.2% $124.11 $127.81
(2.9%)
ADR 195.00
194.04 0.5%
206.50 209.32 (1.3%)
Occupancy 60.6% 59.6%
1.0 points 60.1% 61.1% (1.0 points)
DELTA MANAGED
HOTELS
Worldwide
RevPAR $66.96 $65.77
1.8% $56.79 $56.34
0.8%
ADR 97.16
90.79 7.0%
91.67 86.58
5.9%
Occupancy 68.9% 72.4% (3.5
points) 62.0% 65.1% (3.1 points)
Comparable hotels and resorts are considered to be properties
that were fully open under FHR management for at least the entire current
and prior period. Comparable hotels and resorts statistics exclude properties
under major renovation that would have a significant adverse effect on
the properties� primary operations. The following properties were excluded:
Owned:
The Fairmont Southampton; The Fairmont Orchid,
Hawaii; The Fairmont Copley Plaza Boston
Fairmont Managed: The Fairmont
Southampton; The Fairmont Orchid,
Hawaii; The Fairmont Washington, D.C.; The
Fairmont Olympic Hotel, Seattle; The Fairmont
Sonoma Mission Inn & Spa; The Fairmont Dubai
Delta Managed:
Delta Sun Peaks Resort; Delta St. Eugene Mission
Resort
(1) 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
generally accepted accounting principles (�Canadian GAAP�). FHR�s calculation
of operating revenues may be different than the calculation used by other
entities.
(2) EBITDA is defined as earnings before interest, taxes,
amortization, other income and expenses and reorganization and corporate
expenses. Income from investments and other is included in EBITDA.
Management considers EBITDA to be a meaningful indicator of hotel operations,
however, it is not a defined measure of operating performance under Canadian
GAAP. FHR�s calculation of EBITDA may be different than the calculation
used by other entities.
Fairmont Hotels & Resorts Inc.
Consolidated Balance Sheets (Stated in millions of U.S.
dollars)
(Unaudited)
ASSETS
September 30 December 31
2003 2002
----------- -----------
Current assets
Cash and cash equivalents
$ 49.4 $
49.0
Accounts receivable
58.0 47.0
Inventory
13.5 12.5
Prepaid expenses and other
34.7 10.9
----------- -----------
155.6 119.4
Investments in partnerships and corporations
(note 3)
53.5 68.9
Investment in Legacy Hotels Real Estate
Investment Trust
105.5 96.4
Non-hotel real estate
96.6 88.8
Property and equipment
1,622.4 1,441.1
Goodwill
130.1 123.0
Intangible assets
215.0 201.7
Other assets and deferred charges (note
4) 104.0
83.7
----------- -----------
$ 2,482.7 $ 2,223.0
----------- -----------
----------- -----------
LIABILITIES
Current liabilities
Accounts payable and accrued
liabilities $ 108.6
$ 101.3
Taxes payable
3.4 5.3
Dividends payable
- 2.4
Current portion of long-term
debt (note 5) 421.0
72.3
----------- -----------
533.0 181.3
Long-term debt
244.2 463.2
Other liabilities
94.0 82.8
Future income taxes (note
6)
87.5 96.4
----------- -----------
958.7 823.7
----------- -----------
Shareholders� equity (note 7)
1,524.0 1,399.3
----------- -----------
$ 2,482.7 $ 2,223.0
----------- -----------
----------- -----------
Fairmont Hotels & Resorts Inc.
Consolidated Statements of Income (Stated in millions
of U.S. dollars)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2003 2002 2003
2002
--------- --------- --------- ---------
Revenues
Hotel ownership operations
$ 168.6 $ 150.3 $ 462.5 $ 407.5
Management operations
10.6 10.2 27.8
25.6
Real estate activities
0.2 11.9 31.4
31.9
--------- --------- --------- ---------
Operating revenues
179.4 172.4 521.7
465.0
Other revenues from managed
and franchised properties
9.2 7.1
23.7 21.0
--------- --------- --------- ---------
188.6 179.5
545.4 486.0
Expenses
Hotel ownership operations
130.0 95.0 353.7
275.6
Management operations
4.7 4.0
15.7 12.1
Real estate activities
1.2 9.8
16.5 26.2
--------- --------- --------- ---------
Operating expenses
135.9 108.8 385.9
313.9
Other expenses from managed
and franchised properties
9.7 7.4
24.6 21.8
--------- --------- --------- ---------
145.6 116.2
410.5 335.7
Income (loss) from equity
investments and other
3.9 10.9 (2.4)
15.2
--------- --------- --------- ---------
Operating income before
undernoted items
46.9 74.2 132.5
165.5
Amortization
17.5 13.9 51.0
41.9
Other (income) expenses, net
- 0.5
- (5.7)
Reorganization and
corporate expenses
- -
- 1.3
Interest expense, net
8.9 5.0
23.1 13.5
--------- --------- --------- ---------
Income before income tax expense
and non-controlling interest
20.5 54.8 58.4
114.5
--------- --------- --------- ---------
Income tax expense
Current
2.5 1.1
9.0 9.0
Future (note 6)
6.4 14.2 (14.8)
22.7
--------- --------- --------- ---------
8.9 15.3
(5.8) 31.7
--------- --------- --------- ---------
Non-controlling interest
- 0.5
- 1.3
--------- --------- --------- ---------
Net income
$ 11.6 $ 39.0 $ 64.2
$ 81.5
--------- --------- --------- ---------
Weighted average number of common
shares outstanding (in millions)
(note 7)
Basic
79.1 77.9 79.2
78.4
Diluted
79.9 79.0 80.0
79.7
Basic earnings per common share
$ 0.15 $ 0.50 $ 0.81
$ 1.04
Diluted earnings per common share
$ 0.15 $ 0.49 $ 0.79
$ 1.02
Fairmont Hotels & Resorts Inc.
Consolidated Statements of Cash Flows (Stated in millions
of U.S. dollars)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2003 2002 2003
2002
--------- --------- --------- ---------
Cash provided by (used in)
Operating activities
Net income
$ 11.6 $ 39.0 $ 64.2
$ 81.5
Items not affecting cash
Amortization of property
and equipment
16.9 13.4 49.1
40.7
Amortization of
intangible assets
0.6 0.5
1.9 1.2
(Income) loss from equity
investments and
other
(3.9) (10.9) 2.4
(15.2)
Future income taxes
6.4 14.2 (14.8)
22.7
Non-controlling interest
- 0.5
- 1.3
Distributions from investments
- 1.2
4.4 6.3
Other
(2.8) (2.6) (9.0)
(10.7)
Change in non-hotel real estate
(2.7) 1.3
7.4 5.2
Changes in non-cash working capital items (note 9)
15.1 5.4 (19.5)
(30.8)
--------- --------- --------- ---------
41.2 62.0
86.1 102.2
--------- --------- --------- ---------
Investing activities
Additions to property and equipment (19.9)
(11.6) (55.5) (63.9)
Acquisitions, net of cash acquired
(note 3)
- -
6.0 - Issuance of loans
receivable (note 15)
(26.8) -
(28.3) - Investments in partnerships
and corporations
- (10.4) (0.7)
(13.4)
--------- --------- --------- ---------
(46.7) (22.0) (78.5)
(77.3)
--------- --------- --------- ---------
Financing activities
Issuance of long-term debt
14.8 58.0 161.5
97.0
Repayment of long-term debt
(7.7) (13.2) (151.2) (37.9)
Issuance of common shares
0.5 -
0.6 0.5
Repurchase of common shares
- (71.8) (16.8)
(73.0)
Dividends paid
(2.4) (1.6) (4.8)
(3.2)
--------- --------- --------- ---------
5.2 (28.6)
(10.7) (16.6)
--------- --------- --------- ---------
Effect of exchange rate
changes on cash
- 0.6
3.5 2.8
--------- --------- --------- ---------
Increase in cash
(0.3) 12.0
0.4 11.1
Cash - beginning of period
49.7 51.8 49.0
52.7
--------- --------- --------- ---------
Cash - end of period
$ 49.4 $ 63.8 $ 49.4
$ 63.8
--------- --------- --------- ---------
--------- --------- --------- ---------
Fairmont Hotels & Resorts Inc.
Consolidated Statements of Retained Earnings (Deficit)
(Stated in millions of U.S. dollars)
(Unaudited)
Three months ended Nine months ended
September 30 September 30
2003 2002 2003
2002
--------- --------- --------- ---------
Balance - Beginning of period
$ 83.2 $ 21.3 $ 38.5
$ (19.6)
Net income
11.6 39.0 64.2
81.5
--------- --------- --------- ---------
94.8 60.3
102.7 61.9
Repurchase of common shares
(note 7)
- (30.4) (5.5)
(30.4)
Dividends
- -
(2.4) (1.6)
--------- --------- --------- ---------
Balance - End of period
$ 94.8 $ 29.9 $ 94.8
$ 29.9
--------- --------- --------- ---------
--------- --------- --------- ---------
Fairmont Hotels & Resorts Inc.
Notes to Consolidated Financial Statements
(Stated in millions of U.S. dollars)
(Unaudited)
1. Fairmont Hotels & Resorts Inc. (�FHR�) has operated
and owned hotels
and resorts for 115 years and currently manages properties
principally under the Fairmont and Delta brands. At September 30, 2003,
FHR managed or franchised 81 luxury and first-class hotels. FHR owns 83.5%
of Fairmont Hotels Inc. (�Fairmont�), which at September 30, 2003, managed
42 luxury Fairmont branded 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 September 30, 2003.
In addition to hotel and resort management, at September
30, 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 22 hotels
and resorts across Canada and two in the United States. FHR also owns real
estate properties that are suitable for either commercial or residential
development.
Results for the three and nine months ended September
30, 2003 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 in contrast to fixed costs such as amortization
and interest, which are not significantly impacted by seasonal or short-term
variations.
2. These interim consolidated financial statements
do not include all
disclosures as required by Canadian generally accepted
accounting principles for annual consolidated financial statements and
should be read in conjunction with the audited consolidated financial statements
for the year ended December 31, 2002 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, 2002 audited consolidated financial statements, except
as discussed below.
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 will determine 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 will be 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 will be
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 will
now be classified as held for sale. The related results of operations from
these assets classified as held for sale will be reported in discontinued
operations if certain criteria are met, with reclassification of prior
year�s related operating results. Assets to be disposed of are reported
at the lower of the carrying amount or 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.
3. Acquisition
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. 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. Certain acquisition costs
have been estimated in the purchase price equation and have not yet been
finalized. The mortgage, secured by substantially all assets and an assignment
of auxiliary rents of The Fairmont Copley Plaza Boston, is due March 5,
2007 and bears interest at floating rates based on LIBOR plus 225 basis
points. In order to hedge against exposures to increases in interest rates,
FHR has entered into an interest rate hedge to cap the LIBOR rate at 6.5%.
The total cost of the hotel, including the 50% interest
already owned, acquisition costs of $0.5 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
----------
4. Other assets and deferred charges at September
30, 2003, includes a
cash balance of $3.1 which is in reserve pursuant to
terms of certain mortgage agreements. This cash is to be held in reserve
for use towards certain capital expenditures.
5. As at September 30, 2003, borrowings under two
bank credit facilities
which mature in the third quarter of 2004 were classified
as current debt. FHR is currently negotiating the extension of one of these
facilities and reviewing proposals for the replacement of the other.
6. A $24.4 recovery of future income tax was recorded
in June 2003 as a
result of a favorable tax reassessment.
7. Shareholders� equity
September 30, December 31,
2003
2002
------------- -------------
Common shares
$ 1,201.8 $ 1,191.5
Contributed
surplus
141.9 141.9
Foreign currency
translation adjustments
85.5 27.4
Retained earnings
94.8 38.5
------------- -------------
$ 1,524.0 $ 1,399.3
------------- -------------
The diluted weighted-average number of common shares outstanding
is calculated as follows:
Three months ended Nine months ended
September 30 September 30
2003 2002 2003
2002
--------- --------- --------- ---------
(in millions) (in
millions)
Weighted-average number of common
shares
outstanding - basic 79.1
77.9 79.2 78.4
Stock options
0.8 1.1
0.8 1.3
--------- --------- --------- ---------
Weighted-average number of common
shares outstanding - diluted
79.9 79.0 80.0
79.7
--------- --------- --------- ---------
Effective October 8, 2003, FHR may repurchase for cancellation
up to approximately 3.9 million or 5% of its outstanding common shares.
The amounts and timing of repurchases are at FHR�s discretion. Under the
previous issuer bid which ended on October 2, 2003, during the nine months
ended September 30, 2003, FHR repurchased 747,100 shares (nil for the third
quarter) for total consideration of $16.8 ($nil for the third quarter),
of which, $11.3 was charged to common shares and $5.5 was charged to retained
earnings. During the nine months ended September 30, 2003, FHR issued 47,637
shares (33,843 shares for the third quarter) pursuant to the Key Employee
Stock Option Plan (�KESOP�). $0.6 ($0.5 for the third quarter) was credited
to common shares for options exercised. At September 30, 2003, 79,080,159
common shares were outstanding (2002 - 78,569,035).
During the nine months ended September 30, 2003, 107,000
(nil in the third quarter) stock options were granted. 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, net income and
basic and diluted earnings per share would have been:
Three months ended Nine months ended
September 30 September 30
2003 2002 2003
2002
--------- --------- --------- ---------
Reported net income
$ 11.6 $ 39.0 $ 64.2
$ 81.5
Net income assuming fair
value method used
$ 11.4 $ 39.0 $ 63.3
$ 81.1
Assuming fair value method used
Basic earnings
per share $ 0.14 $
0.50 $ 0.80 $ 1.03
Diluted earnings
per share $ 0.14 $ 0.49
$ 0.79 $ 1.02
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:
Three months ended Nine months ended
September 30 September 30
2003 2002 2003
2002
--------- --------- --------- ---------
Expected dividend
yield
- 0.2% 0.3%
0.2%
Expected volatility
- 32.0% 36.2%
32.0%
Risk-free
interest rate
- 4.24% 4.16%
4.24%
Expected option
life in years -
4.0 3.6
4.0
8. In September, the two owned properties in Bermuda
suffered extensive
damage from Hurricane Fabian. FHR has insurance coverage
for both property damage and business interruption. This insurance is subject
to deductible amounts and uninsured items, estimated at $10 - $12. Of this
amount, a provision of $7.4 was recorded in the third quarter.
9. Changes in non-cash working capital:
Three months ended Nine months ended
September 30 September 30
2003 2002 2003
2002
--------- --------- --------- ---------
Decrease (increase)
in current assets
Accounts receivable
$ 10.8 $ 4.1 $
0.9 $ (13.7)
Inventory
0.8 1.2
0.3 -
Prepaid expenses
and other 9.1
- (0.9) (10.8)
Increase (decrease) in
current liabilities
Accounts payable and accrued
liabilities
(6.1) (5.3) (17.3)
(9.6)
Taxes payable
0.5 5.4
(2.5) 3.3
--------- --------- --------- ---------
$ 15.1 $ 5.4 $ (19.5) $
(30.8)
--------- --------- --------- ---------
10. In February 2003, FHR completed a $120.0 financing
secured by
substantially all assets and an assignment of auxiliary
rents of The Fairmont Kea Lani Maui. The mortgage is due March 1, 2006
and bears interest at 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%.
11. Guarantees
Significant guarantees that have been provided to third
parties include the following:
Debt guarantees
FHR has provided guarantees totalling $11.6 related to
debts incurred by hotels in which it 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
is equal to the term 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 amount has been recorded in the financial statements
for amounts owing under these guarantees.
Business dispositions
In the sale of all or a part of a business, FHR may agree
to indemnify against claims for FHR�s past business practices in the areas
of tax and environmental matters. The term of such indemnification is 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 $9 related to potential claims
under the indemnifications made to date.
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 will be 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 be paid to counter parties. No amount has been recorded
in the financial statements with respect to these indemnification agreements.
12. 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 hedge
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 are no longer deemed to be effective or
do 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.
At September 30, 2003, FHR had outstanding, two interest
rate hedges 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 September 30, 2003, the fair market value
of the interest rate hedge agreements approximates their carrying value.
13. Certain of the prior period figures have been reclassified
to conform
with the presentation adopted for 2003.
14. 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 20% to 100% in 23 properties. The investment in Legacy consists
of an approximate 35% equity interest in Legacy, which owns 22 hotels and
resorts across Canada and two in the United States. Real estate activities
consists primarily of two large undeveloped land blocks in Toronto and
Vancouver. 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, taxes, amortization, other income and
expenses and reorganization and corporate expenses. It includes income
from investments and other. Amortization, other income and expenses, reorganization
and corporate expenses, interest and income taxes 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:
Three months ended September 30, 2003
Ownership
Management
---------------------------- ---------------
Inter-
Real
segment
Hotel Legacy estate Fairmont
Delta Elimi- Total
Ownership activities
nation (a)
--------- ------- -------- --------- ------- -------- --------
Operating
revenues $ 168.6 $
- $ 0.2 $ 12.5 $ 3.0
$ (4.9) $ 179.4
Other
revenues
from
managed and
franchised
properties
- -
- 7.0 2.2
- 9.2
--------
188.6
Income (loss)
from equity
investments
and other
1.3 2.6
- -
- -
3.9
EBITDA
35.0 2.6 (1.0)
8.6 2.2 (0.5)
46.9
Total
assets (b) 2,121.6 105.5
100.2 351.5 73.1 (269.2)
2,482.7
Capital
expenditures 19.3
- -
0.6 -
- 19.9
Three months ended September 30, 2002
Ownership
Management
---------------------------- ---------------
Inter-
Real
segment
Hotel Legacy estate Fairmont
Delta Elimi- Total
Ownership activities
nation (a)
--------- ------- -------- --------- ------- -------- --------
Operating
revenues $ 150.3 $
- $ 11.9 11.3
3.6 $ (4.7) $ 172.4
Other
revenues
from
managed and
franchised
properties
- -
- 5.1 2.0
- 7.1
--------
179.5
Income (loss)
from equity
investments
and other
3.7 7.2
- -
- - 10.9
EBITDA
54.3 7.2 2.1
8.2 2.7 (0.3)
74.2
Total
assets (b) 1,848.7 69.7
87.1 201.5 70.4 (252.9)
2,024.5
Capital
expenditures 10.6
- -
1.0 -
- 11.6
Nine months ended September 30, 2003
Ownership
Management
---------------------------- ---------------
Inter-
Real
segment
Hotel Legacy estate Fairmont
Delta Elimi- Total
Ownership activities
nation (a)
--------- ------- -------- --------- ------- -------- --------
Operating
revenues $ 462.5 $
- $ 31.4 $ 33.4 $ 8.7 $(14.3)
$ 521.7
Other
revenues
from
managed and
franchised
properties
- -
- 17.6 6.1
- 23.7
--------
545.4
Income (loss)
from equity
investments
and other
1.8 (4.2) -
- -
- (2.4)
EBITDA
96.3 (4.2) 14.9
19.9 6.5 (0.9)
132.5
Total
assets (b) 2,121.6 105.5
100.2 351.5 73.1 (269.2)
2,482.7
Capital
expenditures 54.3
- -
1.2 -
- 55.5
Nine months ended September 30, 2002
Ownership
Management
---------------------------- ---------------
Inter-
Real
segment
Hotel Legacy estate Fairmont
Delta Elimi- Total
Ownership activities
nation (a)
--------- ------- -------- --------- ------- -------- --------
Operating
revenues $ 407.5 $
- $ 31.9 $ 30.3 $ 8.6 $(13.3)
$ 465.0
Other
revenues
from
managed and
franchised
properties
- -
- 14.9 6.1
- 21.0
--------
486.0
Income (loss)
from equity
investments
and other
8.3 6.9
- -
- - 15.2
EBITDA
126.9 6.9 5.7
20.6 6.2 (0.8)
165.5
Total
assets (b) 1,848.7 69.7
87.1 201.5 70.4 (252.9)
2,024.5
Capital
expenditures 60.3
- -
3.6 -
- 63.9
(a) Revenues represent management fees that are charged
by Fairmont of
$4.8 (2002 - $4.6) and $14.1 (2002 - $13.1) for the three
and nine months ended September 30, 2003 respectively, and Delta of $0.1
(2002 - $0.1) and $0.2 (2002 - $0.2) for the three and nine months ended
September 30, 2003 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) Hotel ownership assets include $41.9 (2002 - $51.9)
of investments
accounted for using the equity method.
15. Related Party Transactions
In August 2003, FHR entered into a long-term incentive
based management contract with Legacy for The Fairmont Olympic Hotel, Seattle.
This transaction was recorded at the exchange value, which is the amount
established and agreed to by the related parties. In connection with FHR
securing the management contract on this property and another under a similar
arrangement, FHR has agreed to pay an aggregate amount of $18.0 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 will be 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 September 30, 2003, FHR has a liability due to
Legacy of $13.5 in connection with various management contracts with Legacy.
In connection with Legacy�s acquisition of The Fairmont
Olympic Hotel, Seattle, FHR entered into a reciprocal loan agreement with
Legacy for $19.0. The loan matures October 2013 and bears 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 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 $11.0. This loan is
due July 2006 and bears interest at the same rate as the lender. This loan
is classified in other assets and deferred charges. In addition, at September
30, 2003, FHR has a receivable from Legacy of $15.8, which has been classified
as a loan receivable. This loan matures on July 31, 2004 and bears interest
at the bankers� acceptance rate plus 2.75%. |