26 16. SHAREHOLDERS’ EQUITY Set out below is an analysis of movements in the "Shareholders' Equity" accounts of the Group (thousand euros): a) SHARE CAPITAL As at 31st December 2004 and 2003, the Controlling Company’s share capital was represented by 119,532,898 fully subscribed and paid-in bearer shares, each with a par value of 2 euros. All the shares have the same voting and dividend rights and are listed on the Continuous Market of the Madrid Stock Exchange and on Euronext Amsterdam. According to the latest notifications the Controlling Company has received, and to the notifications made to the Spanish Securities Exchange Commission before the year end, the most significant shareholdings were as follows as at 31st December: 2004 2003 Finaf 92, S.A. 5.24% 5.24% Corporación Financiera Caja de Madrid, S.A. 5.00% 5.00% Caja de Ahorros de Valencia, Castellón y Alicante 6.12% 5.00% Shares to be used in Options Plans plus holding Management Team 5.86% 5.85% Holding companies of Amancio Ortega Gaona 10.27% 10.27% Hoteles Participados, S.L. 5.13% 5.00% Grupo Inversor Hesperia 5.02% - CONSOLIDATED FINANCIAL STATEMENTS 2004 Reserves of the Controlliing Company Consolidation reserves Profit/(loss) Total Capital Own Share Prior-year Fully Equity Translation Shareholder’s subscribed Legal Shares Special Voluntary Merger premium losses consolidated method Difference 2002 2003 2004 Equity Balance as at 31.12.02 239,065.80 14,390.07 40,464.23 8,490.47 29,906.61 26,839.00 85,936.51 (11,715.07) 167,483.09 2,370.72 (102,043.95) 85,660.02 -    586,847.50 Distribution of profit/(loss) 2002 Legal reserve 1,793.66 (1,793.66) Voluntary reserve - - - - 6,735.37 - - - - - (6,735.37) - - - Consolidation reserve - - - - - - - - 77,521.65 (390.66) - (77,130.99) - - - Purchase of Shares in the Controlling Company - - 10,247.07 - - - (10,247.07) - - - - - - - - Transfers for merger and other - - - (10,514.87) 909.08 11,715.07 (2,109.28) - - - - - - Charge and reversal - - - - - - - - - - - provision for own shares (13,438.14) 16,146.78 2,708.64 Translation difference - - - - - - - - - - - - and restatement (27,144.45) (27,144.45) Profit/(loss) 2003 - - - - - - - - - - - 50.858,84 - 50.858,84 Balance as at 31.12.03 239,065.80 16,183.73 37,273.16 8,490.47 26,127.11 27,748.08 91,836.22 - 242,895.46 1,980.06 (129,188.40) - 50,858.84 -     613,270.53 Distribution of profit/(loss) 2003 Legal reserve - 10,607.01 - - - - - - - - - -   (10,607.01) - - Voluntary reserve - - - - 65,803.02 - - - - - - -   (65,803.02) - - Dividend - - - - - - - - - - - - - - (29,660.05) Consolidaton reserve - - - - - - - - (55,893.96) 682.72 - -   (29,660.05) - - Purchase of Shares in the Controlling company - - 19,934.47 - - - (19,934.47) - - - - - - - - Sale of Sharers in the Controlling company - - (20,986.75) - - - 20,986.75 - - - - - - - - Transfer for merger and other - - - - (24,050.07) - - 24,050.07 - - - - - - Charge and reversal provision for own shares - - 1.366,57 - - - (1.105,00) - - - - - - - 261.57 Translation difference and restatement - - - - - - - - - - (5,716.96) - - - (5,716.96) Profit/(loss) 2004 - - - - - - - - - - - - - 42,132.26 42,132.26 Balance as at 31,12.04 239,065.80 26,790.74 37,587.45 8,490.47 67,880.06 27,748.08 91,783.50 - 211,051.57 2,662.78 (134,905.36) - - 42,132.26 620,287.35
27 At the end of 2004 and 2003, the different members of the Board of Directors held or were the stable representatives of shareholdings representing approximately 33.04% and 27.69% of the share capital, respectively. B) RESERVES OF THE CONTROLLING COMPANY i)   Legal reserve The current Spanish Companies Act stipulates that 10% of the net profits of the year must be appropriated to the Legal reserve until it attains at least 20% of share capital. The Legal reserve may be used to increase capital to the extent that its balance exceeds 10% of the capital already increased. Except for this purpose, and whenever its balance does not exceed 20% of share capital, this reserve may only be used to offset losses whenever there are no other reserves available. ii)  Reserve for shares of the Controlling Company At the end of 2003, the Group held 204,512 of the shares of the Controlling Company, representing 0.17% of its share capital. In compliance with Section 79.3 of the Companies Act, , said reserve covers not only the shares held by the Company every year end, but also the shares used to cover the share option plans the Company has granted its employees (see note 31), amounting to 37.27 million euros. During 2004, the Group has carried out several operations to purchase (2,203,530 shares) and sell (2,358,042 shares) its own shares, within the limits stipulated by law and has made the required notifications to the National Securities Market Commission and the Governing Bodies of the Stock Exchanges. At the year end, the Group held 50,000 shares in NH Hoteles, S.A., representing 0.04% of the share capital, at a cost of 490.26 thousand euros. As at 31st December 2004, the Group had set up a reserve of 37.59 million euros, not available for distribution. As has been explained in note 5n the Group has stated its own shares at the lowest of cost, year-end listed price (or average for the quarter, if lower) or consolidated book value, which has led to the reversal of provisions amounting to 0.26 million euros. iii) Special reserve This caption records the appropriation made in 2001 of 8.49 million euros to the reserve not available for distribution as a result of reducing the par value of the shares by 0.103542 euros. iv) Other reserves not available for distribution Until such time as formation expenses and goodwill (not including goodwill on consolidation) have been written off, no dividends may be distributed, unless the amount of reserves available for distribution is at least equal to the unamortised balances. v)  Merger Reserve As a result of the dissolution of AHORA, S.L. in which all its assets and liabilities were assigned to NH Hoteles, S.A., in 2003 this reserve also recorded the difference between the cost of this acquisition for NH Hoteles, S.A. and the value of said shares for the purposes of its Consolidated Accounts. c) RESERVES IN FULLY CONSOLIDATED COMPANIES These reserves record the profits contributed to the Controlling Company in prior years by each of the fully consolidated companies. The line "transfer due to merger and other" records the transfer of the capital gain made by AHORA, S.L. on the sale of all the assets relating to the golf and luxury hotel and catering business to Sotogrande, S.A. (see note 3); which, as a result of the merger between AHORA, S.L. and NH Hoteles, S.A. became part of the individual reserves of NH Hoteles, S.A. CONSOLIDATED FINANCIAL STATEMENTS 2004
28 Set out below is company-by-company analysis of the "Reserves in fully consolidated companies" (thousand euros): COMPANY 2004 2003 NH Hotel Albar Ciudad de Albacete, S.L. 195.76 150.29 NH University, S.L. 60.05 57.16 NH Las Palmas, S.A. 1.793.75 1,576.90 NH Numancia, S.A. 9.68 13.75 NH Sarriá, S.A. 3.243.18 800.97 NH Hotel Rallye, S.A. 6.390.32 6,305.69 Explotaciones Hoteleras Condor, S.L. 361.67 426.97 NH Ciutat de Mataró, S.A. (304.20) 305.32 NH Marín, S.A. (143.57) (66.88) NH Lagasca, S.A. 961.84 505.38 NH Logroño, S.A. 397.04 172.81 Hoteles Express, S.L. 8,666.36 22,676.80 Aránzazu Donosti, S.A. 3,675.75 3,351.17 NH Málaga, S.A. 1,495.24 1,463.30 Grufir, S.A. 3.201,20 3,158.41 Ingesa, S.A. (260.24) 787.27 Retail Invest, S.A. (659.81) (165.81) NH Pamplona, S.A. 1,136.58 5,036.79 Shuaa Hotels, B.V. 81,602.07 23,606.00 Latinoamericana de Gestión Hotelera, S.A. and subsidiaries 59,579.80 55,742.34 Sotogrande, S.A. and subsidiaries 31,136.96 48,863.13 NH Participaties, N.V. and subsidiaries 47,805.27 48,794.31 Toralo, S.A. 6,693.28 6,061.74 NH Private Equity, B.V. and subsidiaries 39.68 46.95 NH Ciutat de Reus, S.A. 583.50 374.53 NH Santander, S.A. 2,785.25 2,829.62 Hoteles Palacio de Castilla, S.A. 6,678.26 6,200.97 Hotelera Onubense, S.A. (747.88) (669.00) Lenguados Vivos, S.L. (0.70) (0.54) NH Central Europe GmbH &Co.KG, Berlin and subsidiaries (55,050.40) 4,489.12 NH Portugal (22.71) - Nuevos Espacios Hoteleros,S.A (251.41) - 211,051.57 242,895.46 d) RESERVES IN COMPANIES CONSOLIDATED USING THE EQUITY METHOD. This item includes the profits, net of dividends, contributed to the Controlling Company in prior years by the companies consolidated using the equity method. Set out below is an analysis (thousand euros): 2004 2003 Fonfir 1, S.L. (3,63) (5,22) Jolly Hotels, S.p.A. 3.132,65 2.464,94 Palacio de la Merced, S.A. (466,24) (479,66) 2.662,78 1.980,06 e) TRANSLATION DIFFERENCES The caption "Translation differences" records the exchange difference arising as a result of using the criteria explained in note 5a. CONSOLIDATED FINANCIAL STATEMENTS 2004
29 17. OUTSIDE SHAREHOLDERS The balance included under this heading on the accompanying Consolidated Balance Sheets records, on the one hand, the value of the holding of outside shareholders in the fully consolidated companies and, on the other, the balance included in the accompanying Consolidated Profit and Loss Accounts under the heading "Profit attributed to outside shareholders" which represents the share of these minority shareholders in the results for the year. The movement in 2004 and 2003 in this item of the accompanying Consolidated Balance Sheets is set out below (thousand euros): 2004 2003 Opening balance 246,476.37 229.740,96 Charge in the scope of consolidation 1,250.00 1,926.60 Profits for the year attributable to outside shareholders 14,381.18 4,766.80 Dividends (6,753.97) (9,364.07) Changes in holding (30,809.20) 19,383.65 Other movements (328.13) 22.43 Closing balance 224,216.25 246,476.37 i)   The line "Change in the scope of consolidation" records, in 2004 and 2003, the balances of certain companies which were included for the first time in the scope of consolidation of the Group in those years (see note 2b). In  2003,  this  line  essentially  records  the  increase  in  the  balance  of  outside  shareholders  as  a  result  of  including  the  company Nuevos Espacios Hoteleros, S.A. in the Group. In 2004, this line essentially records the increase in the balance of outside shareholders as a result of including the company NH Italia, S.p.A. in the Group. ii)  In 2003 the line "Changes in holding" essentially recorded the increase in outside shareholders in the company Sotogrande, S.A. as a result of the dilution of the Controlling Company's holding in that company (see note 3). In  2004,  the  line  "Changes  in  holding"  essentially  records  the  reduction  in  outside  shareholders  in  NH  Participaties,  N.V.  and subsidiaries as a result of redeeming part of the preference shares that make up said company's share capital. The balance of this item as at 31st December 2004 and 2003 records the interests of outside Shareholders in the following companies or consolidated sub-groups (thousand euros): 2004 2003 Nuevos Espacios Hoteleros, S.A. 1,231.56 1,676.59 Sotogrande, S.A. and subsidiaries 32,966.04 26,590.44 Latinoamericana de Gestión Hotelera, S.A. and subsidiaries 131,399.98 132,404.31 NH Las Palmas, S.A. 7,222.84 6,654.31 NH Marín, S.A. 1,251.25 1,280.15 NH Lagasca, S.A. 1,200.67 1,400.53 NH Ciutat de Mataró, S.A. 671.45 773.38 NH Participaties, N.V. and subsidiaries 45,357.11 73,546.35 NH Italia, S.p.A. 1,002.58 - Other 1,912.77 2,150.31 224,216.25 246,476.37 CONSOLIDATED FINANCIAL STATEMENTS 2004