UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 10-Q

 

(Mark One)

 

x        Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the quarterly period ended June 30, 2006 or

 

o        Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the transition period from                        to                        

 

Commission file number 1-16017

 

ORIENT-EXPRESS HOTELS LTD.

(Exact name of registrant as specified in its charter)

 

 

441-295-2244

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x  No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.  (See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).

 

Large Accelerated Filer x     Accelerated Filer ¨     Non-Accelerated Filer ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ¨  No x

 

As of July 31, 2006, 42,033,250 Class A common shares and 18,044,478 Class B common shares of Orient-Express Hotels Ltd. were outstanding. All of the Class B shares are owned by a subsidiary of Orient-Express Hotels Ltd.

 

PART I – FINANCIAL INFORMATION

ITEM 1.   Financial Statements

Orient-Express Hotels Ltd. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

		June 30, 2006			December 31, 2005
		(Dollars in thousands)
Assets
Cash and cash equivalents		$	55,937		$	38,397
Accounts receivable, net of allowances of $1,182 and $980		65,980			59,061
Due from related parties		18,204			17,549
Prepaid expenses and other		16,587			13,061
Inventories		32,958			29,636
Real estate assets		15,084			12,149
Total current assets		204,750			169,853
Property, plant and equipment, net of accumulated depreciation of $185,526 and $164,814		1,094,652			1,017,175
Investments		136,153			129,681
Goodwill and other intangible assets		74,271			62,867
Other assets		41,316			35,986
		$	1,551,142		$	1,415,562
Liabilities and Shareholders’ Equity
Working capital facilities		$	48,697		$	47,108
Accounts payable		30,534			22,680
Due to related parties		3,292			7,374
Accrued liabilities		62,680			43,545
Deferred revenue		30,158			19,339
Current portion of long-term debt and capital leases		82,353			72,151
Total current liabilities		257,714			212,197
Long-term debt and obligations under capital leases		566,941			496,156
Deferred income taxes		31,262			29,656
		855,917			738,009
Minority interest		1,588			4,153
Shareholders’ equity:
Preferred shares $0.01 par value (30,000,000 shares authorized, issued nil)		—			—
Class A common shares $0.01 par value (120,000,000 shares authorized):
Issued–39,513,750 (2005 – 39,399,750)		393			393
Class B common shares $0.01 par value (120,000,000 shares authorized):
Issued–18,044,478 (2005–18,044,478)		181			181
Additional paid-in capital		406,969			404,923
Retained earnings		324,497			314,207
Accumulated other comprehensive loss		(38,222		)	(46,123		)
Less: reduction due to Class B common shares owned by a subsidiary – 18,044,478		(181		)	(181		)
Total shareholders’ equity		693,637			673,400
Commitments and contingencies
		$	1,551,142		$	1,415,562

 

See notes to condensed consolidated financial statements.

2

---

Orient-Express Hotels Ltd. and Subsidiaries

Statements of Condensed Consolidated Operations (unaudited)

Three months ended June 30,		2006			2005
(Dollars in thousands, except per share amounts)
Revenue		$	134,705		$	126,252
Expenses:
Depreciation and amortization		9,296			8,632
Operating		62,272			58,351
Selling, general and administrative		36,584			34,975
Total expenses		108,152			101,958
Earnings from operations before net finance costs		26,553			24,294
Gain on sale of investment		6,619			—
Interest expense, net		(9,981		)	(6,726		)
Foreign currency, net		(3,478		)	495
Net finance costs		(13,459		)	(6,231		)
Earnings before income taxes		19,713			18,063
Provision for income taxes		(3,167		)	(3,420		)
Earnings before earnings from unconsolidated companies		16,546			14,643
Earnings from unconsolidated companies, net of tax		3,326			3,814
Net earnings on class A and class B common shares		$	19,872		$	18,457
Net earnings per class A and class B common share:
Basic and diluted		0.50			0.47
Dividends per class A and class B common share		0.025			0.025

 

See notes to condensed consolidated financial statements.

3

---

Orient-Express Hotels Ltd. and Subsidiaries

Statements of Condensed Consolidated Operations (unaudited)

Six months ended June 30,		2006			2005
(Dollars in thousands, except per share amounts)
Revenue		$	213,956		$	206,741
Expenses:
Depreciation and amortization		18,680			16,450
Operating		103,001			99,680
Selling, general and administrative		68,813			66,398
Total expenses		190,494			182,528
Earnings from operations before net finance costs		23,462			24,213
Gain on sale of investment		6,619			—
Interest expense, net		(18,973		)	(13,805		)
Foreign currency, net		(2,796		)	4,075
Net finance costs		(21,769		)	(9,730		)
Earnings before income taxes		8,312			14,483
Provision for income taxes		(1,203		)	(3,122		)
Earnings before earnings from unconsolidated companies		7,109			11,361
Earnings from unconsolidated companies, net of tax		5,152			5,539
Net earnings on class A and class B common shares		$	12,261		$	16,900
Net earnings per class A and class B common share:
Basic		0.31			0.46
Diluted		0.31			0.45
Dividends per class A and class B common share		0.50			0.50

 

See notes to condensed consolidated financial statements.

4

---

Orient-Express Hotels Ltd. and Subsidiaries

Statements of Condensed Consolidated Cash Flows (unaudited)

Six months ended June 30,		2006			2005
		(Dollars in thousands)
Cash flows from operating activities:
Net earnings		$	12,261		$	16,900
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		18,680			16,450
Undistributed earnings of affiliates		(2,395		)	(871		)
Stock-based compensation		428			—
Change in deferred tax		(5,716		)	(815		)
Gain from sale of investments and fixed assets		(6,619		)	(1,044		)
Other non-cash items		4,389			17
Change in assets and liabilities net of effects from acquisition of subsidiaries:
Increase in receivables, prepaid expenses and other		(8,514		)	(24,846		)
Increase in inventories		(2,374		)	(2,572		)
Increase in real estate assets held for sale		(2,935		)	—
Increase in payables, accrued liabilities and deferred revenue		28,571			25,013
Total adjustments		23,515			11,332
Net cash provided by operating activities		35,776			28,232
Cash flows from investing activities:
Capital expenditures		(60,895		)	(58,025		)
Acquisitions and investments, net of cash acquired		(20,377		)	(96,075		)
Proceeds from sale of fixed assets and other		9,499			1,140
Net cash used in investing activities		(71,773		)	(152,960		)
Cash flows from financing activities:
Net (repayment)/proceeds from working capital facilities and redrawable loans		(508		)	(90,004		)
Issuance of common shares		—			122,934
Stock options exercised		1,618			—
Issuance of long-term debt		84,754			108,409
Principal payments under long-term debt		(30,926		)	(20,075		)
Payment of common share dividends		(1,971		)	(1,839		)
Net cash provided by financing activities		52,967			119,425
Effect of exchange rate changes on cash and cash equivalents		570			(1,162		)
Net increase/(decrease) in cash and cash equivalents		17,540			(6,465		)
Cash and cash equivalents at beginning of period		38,397			85,610
Cash and cash equivalents at end of period		$	55,937		$	79,145

See notes to condensed consolidated financial statements.

5

---

Orient-Express Hotels Ltd. and Subsidiaries

Statements of Condensed Consolidated Shareholders’ Equity (unaudited)

(Dollars in thousands)		Preferred Shares at Par Value			Class A Common Shares at Par Value			Class B Common Shares at Par Value			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Common Shares Owned by Subsidiary			Total Comprehensive Income/(Loss)
Balance, January 1, 2006		$	—		$	393		$	181		$	404,923		$	314,207		$	(46,123	)	$	(181	)
Stock-based compensation		—			—			—			428			—			—			—
Stock options exercised		—			—			—			1,618			—			—			—
Dividends on common shares		—			—			—			—			(1,971		)	—			—
Comprehensive loss:
Net earnings on common shares for the period		—			—			—			—			12,261			—			—			$	12,261
Other comprehensive income		—			—			—			—			—			7,901			—			7,901
																							$	20,162
Balance, June 30, 2006		$	—		$	393		$	181		$	406,969		$	324,497		$	(38,222	)	$	(181	)

 

See notes to condensed consolidated financial statements.

6

---

Orient-Express Hotels Ltd. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

1.             Basis of financial statement presentation

In this report Orient-Express Hotels Ltd. is referred to as the “Company”, and the Company and its subsidiaries are referred to collectively as “OEH”.

(a)          Accounting policies

For a description of significant accounting policies and basis of presentation, see Notes 1 and 15 to the consolidated financial statements in the Company’s 2005 Form 10-K annual report.  As of June 30, 2006, these significant accounting policies have not changed from December 31, 2005.

The condensed consolidated financial statements are unaudited and have been prepared following the rules and regulations of the U.S. Securities and Exchange Commission.

In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the three and six months ended June 30, 2006 and 2005, which are all of a normal recurring nature, have been reflected in the information provided.  Due to the seasonal nature of OEH’s business, operating results for the interim period are not necessarily indicative of a full year’s operating results.

(b)          Net earnings per share

The number of shares used in computing basic and diluted earnings per share was as follows (in thousands):

Three months ended June 30,		2006		2005
Basic		39,475		39,311
Effect of dilution		383		369
Diluted		39,858		39,680

 

Six months ended June 30,		2006		2005
Basic		39,443		37,049
Effect of dilution		362		324
Diluted		39,805		37,373

7

---

For the three months ended June 30, 2006 and 2005, the anti-dilutive effect of stock options on nil and 1,127 class A common shares, respectively, was excluded from the computation of diluted losses per share.  For the six months ended June 30, 2006 and 2005, the anti-dilutive effect of stock options on nil and 5,879 class A common shares, respectively, was excluded from the computation of diluted earnings per share.

(c)           Dividends

On January 5, 2006, the Company declared a dividend of $0.025 per common share payable February 4, 2006 to shareholders of record January 20, 2006. On April 5, 2006, the Company declared a dividend of $0.025 per common share payable May 4, 2006 to shareholders of record April 20, 2006.

(d)          Earnings from unconsolidated companies

Earnings from unconsolidated companies include OEH’s share of the net earnings of its equity investments as well as interest income related to loans and advances to the equity investees amounting to $2,752,000 and $2,480,000 for the three months ended June 30, 2006 and 2005, respectively, and $5,094,000 and $4,668,000 for the six months ended June 30, 2006 and 2005, respectively.  

(e)           Reclassifications

Certain items in 2005 have been reclassified to conform to the 2006 presentation.

2.             Acquisitions

Casa de Sierra Nevada

Effective February 8, 2006, OEH acquired a 75% interest in Casa de Sierra Nevada, a 33 room deluxe hotel in San Miguel de Allende, Mexico.  The total purchase price, including acquisition costs, was $8,800,000 paid in cash.  The acquisition included adjacent buildings and land. 

In accordance with the shareholders’ agreement, OEH will purchase the remaining 25% interest as follows:  5% will be purchased in January 2007 for a cash consideration of $520,000; 5% will be purchased in January 2009 for a cash consideration equal to a proportion of ten times the previous 12 months net operating income of the hotel, less its outstanding debt; and the remaining 15% will be purchased in January 2010 for a cash consideration calculated on the same basis.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition.  (dollars in thousands):

8

---

 

		June 30, 2006
Property, plant and equipment		$	8,600
Goodwill and other intangible assets		3,770
Total assets acquired		12,370
Current liabilities		(200		)
Other long-term liabilities (deferred consideration)		(2,850		)
Deferred income taxes		(520		)
Total liabilities assumed		(3,570		)
Net assets acquired		$	8,800

 

The net assets of Casa de Sierra Nevada have been fair valued based on the estimated replacement cost of the buildings.  After fair valuing all other assets and liabilities, goodwill of $3,510,000 has been recorded of which $ nil will be deductible as operating expenses for tax purposes.

The acquisition of Casa de Sierra Nevada has been accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations”.  The results of the operation have been included in the consolidated financial statements of OEH from February 8, 2006.

Guidance in SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”, and EITF 00-4, “Majority owner’s accounting for a transaction in the shares of a consolidated subsidiary and a derivative indexed to the minority interest in that subsidiary”, has been applied to account for the forward contracts for acquisition of the remaining 25% interest in subsequent years.  The liability has been recorded at the fair value of the deferred consideration and the minority interest has been reduced accordingly.

The provisional fair values may be adjusted within one year of the acquisition date of Casa de Sierra Nevada as the valuation of certain forward contracts remains to be finalized.

The proforma results of operations data presented below assume that the Casa de Sierra Nevada acquisition had been made at the beginning of 2005.  The proforma data are presented for informational purposes only and are not necessarily indicative of the results of future operations nor of the actual results that would have been achieved had the acquisition taken place at the beginning of 2005 (dollars in thousands):

9

 

Six months ended June 30,		2006			2005
		(Proforma unaudited)
Revenue		$	214,179		$	207,902
Net earnings		$	12,269		$	16,860
Earnings per share:
Basic		$	0.31		$	0.46
Diluted		$	0.31		$	0.45

 

Maroma Resort and Spa

Effective January 1, 2006, OEH purchased the remaining 25% interest in Maroma Resort and Spa for a cash consideration of $5,400,000 bringing its interest to 100%.  A deferred tax liability of $1,853,000 has been recorded on the acquisition.  Goodwill of $4,728,000 has been recognized on this acquisition.

3.                                      Investments

Acquisition of Pansea Hotels - Napasai

On February 2, 2004, OEH entered into an agreement with the Pansea Hotels group, the owner of interests in six deluxe hotels in Southeast Asia, including 50% of the Napasai hotel in Koh Samui, Thailand.  Under this agreement, OEH was to provide a maximum of $8,000,000 in loans to the hotel holding company which would be convertible after three years into approximately 25% of the holding company’s shares.  As of June 30, 2006, OEH had provided $8,000,000 (December 31, 2005-$8,000,000) in loans to Pansea which are recorded in other assets.  The conversion price of the loans would be determined at a multiple of EBITDA less existing debt on the exercise date (as defined in the investment agreement).  OEH was not managing the hotels but was marketing them along with its other properties.

OEH has decided to accelerate the acquisition of the Pansea Hotels group by acquiring the 50% of the Napasai hotel-owning company shares not owned by Pansea in June 2006 for $10,500,000 cash consideration.  The rest of the Pansea Hotels group has been acquired in July 2006 for a total cash consideration of $41,750,000, which included cash transfers, and before sundry debts owed by the Pansea Hotels group to third parties and any working capital adjustments.

Sale of Harry’s Bar

On June 12, 2006, OEH sold its 49% interest in Harry’s Bar in London, England for a cash consideration of $9,499,000.  The sale of the

10

---

 

investment resulted in a gain of $6,619,000, upon which a tax charge of $3,325,000 was recorded.

Unconsolidated companies

Summarized financial data for OEH’s unconsolidated companies for the periods during which the investments were held by OEH are as follows (dollars in thousands):

		June 30, 2006			December 31, 2005
Current assets		$	48,868		$	45,390
Property, plant and equipment, net		356,171			344,475
Other assets		6,555			5,726
Total assets		$	411,594		$	395,591
Current liabilities		$	49,860		$	50,150
Long-term debt		231,464			203,520
Other liabilities		78,518			90,161
Total shareholders’ equity		51,752			51,760
Total liabilities and shareholders’ equity		$	411,594		$	395,591

 

Three months ended June 30,		2006			2005
Revenue		$	46,519		$	43,500
Earnings from operations before net finance costs		$	8,535		$	6,930
Net earnings		$	50		$	448

 

Six months ended June 30,		2006			2005
Revenue		$	83,577		$	77,314
Earnings from operations before net finance costs		$	12,463		$	9,250
Net losses		$	(3,088	)	$	(2,783	)

 

11

---

 

4.  Property, plant and equipment

The major classes of property, plant and equipment are as follows (dollars in thousands):

 

		June 30, 2006			December 31, 2005
Freehold and leased land and buildings		$	919,698		$	858,350
Machinery and equipment		179,160			156,780
Fixtures, fittings and office equipment		162,696			148,346
River cruiseship and canalboats		18,624			18,513
		1,280,178			1,181,989
Less: accumulated depreciation		(185,526		)	(164,814		)
		$	1,094,652		$	1,017,175

 

The major classes of assets under capital leases included above are as follows (dollars in thousands):

 

		June 30, 2006			December 31, 2005
Land and buildings		$	15,652		$	14,803
Machinery and equipment		2,383			2,067
Fixtures, fittings and office equipment		1,753			1,817
		19,788			18,687
Less: accumulated depreciation		(2,174		)	(1,892		)
		$	17,614		$	16,795

 

5.  Goodwill and other intangible assets

OEH’s goodwill consists of $780,000 related to the trains and cruises reporting segment and $66,131,000 related to the hotels and restaurants reporting segment, of which $28,812,000 relates to the acquisition of the Grand Hotel Europe, $3,510,000 relates to the estimated purchase price allocation of Casa de Sierra Nevada, and $6,822,000 relates to goodwill arising on the acquisition of Maroma.  Other intangible assets consist of the value of the Grand Hotel Europe tradename of $7,100,000 and the estimated purchase price allocation of $260,000 for the Casa de Sierra Nevada tradename.

12

---

 

6.  Long-term debt and obligations under capital lease

Long-term debt consists of the following (dollars in thousands):

 

		June 30, 2006			December 31, 2005
Loans from banks collateralized by property, plant and equipment payable over periods of 1 to 11 years, with a weighted average interest rate of 5.81% and 5.51%, respectively, primarily based on LIBOR		$	627,980		$	546,593
Loan secured by river cruiseship, payable over 3 years, with a weighted interest rate of 6.54% and 5.65% respectively, based on LIBOR		4,000			4,500
Obligations under capital lease		17,314			17,214
		649,294			568,307
Less: current portion		82,353			72,151
		$	566,941		$	496,156

 

Certain credit agreements of OEH have restrictive covenants.  At June 30, 2006, OEH was in compliance with these covenants, including a minimum consolidated net worth test and a minimum consolidated interest coverage test as defined under a bank-syndicated $179,000,000 loan facility secured by three of OEH’s Italian hotels. OEH does not currently have any covenants in its loan agreements which limit the payment of dividends.

The following is a summary of the aggregate maturities of long-term debt, including obligations under capital lease, at June 30, 2006 (dollars in thousands):

Year ending December 31,
2007		$	79,071
2008		245,658
2009		69,944
2010		64,077
2011 and thereafter		108,191
		$	566,941

 

The interest rates on substantially all of OEH’s long-term debt are adjusted regularly to reflect current market rates.  Accordingly, the carrying amounts of OEH’s long-term debt also approximate fair value.

13

---

 

7.                                    Income taxes

Income taxes provided by OEH relate principally to its foreign subsidiaries as pre-tax income is primarily foreign.  The provision for income taxes consisted of the following (dollars in thousands):

Three months ended June 30,		2006			2005
Current		$	5,179		$	2,065
Deferred		(2,012		)	1,355
Total		$	3,167		$	3,420

 

Six months ended June 30,		2006			2005
Current		$	7,449		$	3,938
Deferred		(6,246		)	(816		)
Total		$	1,203		$	3,122

 

The Company is incorporated in Bermuda, which does not impose an income tax.  OEH’s effective tax rate is entirely due to the income taxes imposed by jurisdictions in which OEH conducts business other than Bermuda.

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The following represents OEH’s net deferred tax liabilities (dollars in thousands):

 

		June 30, 2006			December 31, 2005
Gross deferred tax assets		$	62,894		$	60,177
Less: Valuation allowance		(19,487		)	(22,487		)
Net deferred tax assets		43,407			37,690
Deferred tax liabilities		(55,992		)	(53,007		)
Net deferred tax liabilities		$	(12,585	)	$	(15,317	)

 

The deferred tax assets consist of tax loss carry forwards.   A valuation allowance has been provided against gross deferred tax assets where it is thought more likely than not that the benefits associated with these assets will not be realized.  A valuation allowance established in respect of tax loss carry forwards at Bora Bora Lagoon Resort was reduced by $3,000,000 in the quarter ended June 30, 2006, as OEH determined that it was more likely than not that these tax losses would be utilized in the future.

14

---

 

The deferred tax liabilities consist primarily of differences between the tax basis of depreciable assets and the adjusted basis reflected in the financial statements.

8.                                      Pensions

Components of net periodic pension benefit cost were as follows (dollars in thousands):

 

Three months ended June 30,		2006			2005
Service cost		$	284		$	225
Interest cost		229			179
Expected return on plan assets		(214		)	(133		)
Amortization of net loss		125			63
Net periodic benefit cost		$	424		$	334

 

Six months ended June 30,		2006			2005
Service cost		$	547		$	454
Interest cost		442			360
Expected return on plan assets		(412		)	(271		)
Amortization of net loss		240			129
Net periodic benefit cost		$	817		$	672

 

As reported in Note 7 to the financial statements in the Company’s 2005 Form 10-K annual report, OEH expected to contribute $894,000 to its pension plans in 2006.  As of June 30, 2006, $401,000 of contributions had been made.  OEH anticipates contributing an additional $493,000 to fund its pension plans in 2006 for a total of $894,000.

9.                                      Supplemental cash flow information

(Dollars in thousands):

 

Six months ended June 30,		2006			2005
Cash paid for:
Interest		$	20,762		$	12,501
Income taxes		$	4,819		$	4,901

 

In conjunction with acquisitions (see Note 2) liabilities were assumed as follows (dollars in thousands):

15

---

 

Six months ended June 30,		2006			2005
Fair value of assets acquired		$	19,088		$	111,492
Cash paid		(14,200		)	(95,000		)
Liabilities assumed		$	4,888		$	16,492

 

10.                               Accumulated other comprehensive loss

The accumulated balances for each component of other comprehensive loss are as follows (dollars in thousands):

 

		June 30, 2006			December 31, 2005
Foreign currency translation adjustments		$	(38,222	)	$	(46,055	)
Derivative financial instruments		—			(68		)
		$	(38,222	)	$	(46,123	)

 

The components of comprehensive earnings/(loss) are as follows (dollars in thousands):

 

Six months ended June 30,		2006			2005
Net earnings on common shares		$	12,261		$	16,900
Foreign currency translation adjustments		7,833			(27,553		)
Change in fair value of derivatives		68			16
Comprehensive earnings/(loss)		$	20,162		$	(10,637	)

 

11.                               Commitments

Outstanding contracts to purchase fixed assets were approximately $14,446,000 at June 30, 2006 (December 31, 2005 - $24,341,000).

12.                             Information concerning financial reporting for segments and operations in different geographical areas

As reported in the Company’s 2005 Form 10-K annual report, OEH has two reporting segments, (i) hotels and restaurants and (ii) tourist trains and cruises.  Segment performance is evaluated based upon segment net earnings before interest, tax (including tax on earnings from unconsolidated companies), depreciation and amortization (“segment EBITDA”).  Financial information regarding these business segments is as follows, with net finance costs appearing net of capitalized interest and interest and related income (dollars in thousands):

16

---

 

Three months ended June 30,			2006			2005
Revenue:
Hotels and restaurants
Owned hotels	–  Europe		$	61,192		$	54,688
	–  North America		22,981			23,439
	–  Rest of world		22,383			20,229
Hotel management/part ownership interests			2,786			2,599
Restaurants			5,520			5,800
			114,862			106,755
Tourist trains and cruises			19,843			19,497
			$	134,705		$	126,252
Segment EBITDA:
Owned hotels	–  Europe		$	24,268		$	21,082
	–  North America		5,494			5,336
	–  Rest of world		3,564			2,944
Hotel management/part ownership interests .			6,274			5,687
Restaurants			1,491			1,638
Tourist trains and cruises			5,362			5,166
Central overheads			(5,355		)	(4,654		)
Gain on sale of investment			6,619			—
			$	47,717		$	37,199
Segment EBITDA/net earnings reconciliation:
Segment EBITDA			$	47,717		$	37,199
Less:
Depreciation and amortization			9,296			8,632
Interest expense, net			9,981			6,726
Foreign currency, net			3,478			(495		)
Provision for income taxes			3,167			3,420
Share of provision for income taxes of unconsolidated companies			1,923			459
Net earnings			$	19,872		$	18,457

 

Financial information regarding geographic areas based on the location of properties is as follows (dollars in thousands):

 

Three months ended June 30,		2006			2005
Revenue:		$	80,490		$	73,930
Europe		29,778			30,356
North America		24,437			21,966
Rest of world		$	134,705		$	126,252

 

17

---

 

Six months ended June 30,			2006			2005
Revenue:
Hotels and restaurants
Owned hotels	–  Europe		$	73,577		$	71,475
	–  North America		45,886			46,932
	–  Rest of world		52,211			45,430
Hotel management/part ownership interests			4,771			4,418
Restaurants			10,839			10,989
			187,284			179,244
Tourist trains and cruises			26,672			27,497
			$	213,956		$	206,741
Depreciation and amortization:
Hotels and restaurants
Owned hotels	–  Europe		$	7,947		$	6,297
	–  North America		3,848			3,543
	–  Rest of world		4,634			4,320
Restaurants			446			437
			16,875			14,597
Tourist trains and cruises			1,805			1,853
			$	18,680		$	16,450
Segment EBITDA:
Owned hotels	–  Europe		$	17,101		$	17,958
	–  North America		11,515			11,494
	–  Rest of world		13,141			10,038
Hotel management/part ownership interests			9,644			8,614
Restaurants			2,589			2,650
Tourist trains and cruises			5,528			5,058
Central overheads			(9,887		)	(9,151		)
Gain on sale of investment			6,619			—
			$	56,250		$	46,661
Segment EBITDA/net earnings reconciliation:
Segment EBITDA			$	56,250		$	46,661
Less:
Depreciation and amortization			18,680			16,450
Interest expense, net			18,973			13,805
Foreign currency, net			2,796			(4,075		)
Provision for income taxes			1,203			3,122
Share of provision for income taxes of unconsolidated companies			2,337			459
Net earnings			$	12,261		$	16,900
Earnings from unconsolidated companies, net of tax:
Hotels and restaurants
Hotel management/part ownership interests			$	3,352		$	4,071
Restaurants			191			157
			3,543			4,228
Tourist trains and cruises			1,609			1,311
			$	5,152		$	5,539

 

18

---

 

Six months ended June 30,			2006			2005
Capital expenditure:
Owned hotels	–  Europe		$	33,751		$	35,891
	–  North America		14,270			11,686
	–  Rest of world		6,431			7,061
Hotel management/part ownership interests			—			—
Restaurants			194			462
Tourist trains and cruises			6,249			2,925
			$	60,895		$	58,025

 

Financial information regarding geographic areas based on the location of properties is as follows (dollars in thousands):

 

Six months ended June 30,		2006			2005
Revenue:
Europe		$	97,644		$	96,672
North America		58,529			59,502
Rest of world		57,783			50,567
		$	213,956		$	206,741

 

13.  Related party transactions

For the three months ended June 30, 2005, OEH paid subsidiaries of Sea Containers Ltd (“SCL”) $1,523,000 for the provision of various services under a services agreement between OEH and SCL.  For the six months ended June 30, 2005, OEH paid subsidiaries of SCL $2,979,000 under this agreement.  These amounts have been settled in accordance with the services agreement and are included in selling, general and administrative expenses.  As of June 30, 2006, SCL is no longer a related party of OEH.

OEH guarantees a $3,000,000 bank loan to Eastern and Oriental Express Ltd. in which OEH has a minority shareholder interest.  This guarantee was in place before December 31, 2002.

OEH manages under a long-term contract the Charleston Place Hotel (accounted for under the equity method) and has made loans to the hotel-owning company.  For the three months ended June 30, 2006, OEH earned $1,563,000 (2005 - $1,520,000) in management fees which are recorded in revenue, and $2,752,000 (2005 - $2,480,000) in interest income on partnership and other loans, which are recorded in earnings from unconsolidated companies.  For the six months ended June 30, 2006, OEH earned $2,637,000 (2005 - $2,456,000) in management fees, and $5,094,000 (2005 - $4,668,000) in interest income on partnership and other loans.

19