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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Commission file number 1-16017

ORIENT-EXPRESS HOTELS LTD.
(Exact name of registrant as specified in its charter)

        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 ý    No o

        Indicate by check mark whether the registrant is an accelerated filer (under Rule 12b-2 of the Exchange Act). Yes ý    No o

        As of October 31, 2003, 28,340,601 Class A common shares and 20,503,877 Class B common shares of Orient-Express Hotels Ltd. were outstanding, including 18,044,478 Class B shares owned by a subsidiary of Orient-Express Hotels Ltd. and 11,943,901 Class A shares and 2,459,399 Class B shares owned by Sea Containers Ltd.

PART I—FINANCIAL INFORMATION

Orient-Express Hotels Ltd. and Subsidiaries
Consolidated Balance Sheets

See notes to consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries
Statements of Consolidated Operations (unaudited)

See notes to consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries
Statements of Consolidated Operations (unaudited)

See notes to consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries
Statements of Consolidated Cash Flows (unaudited)

See notes to consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries
Statements of Consolidated Shareholders' Equity (unaudited)

See notes to consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries
Notes to Consolidated Financial Statements

1.     Basis of financial statement presentation

(a)   Accounting policies

        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". At September 30, 2003, Sea Containers Ltd., a Bermuda company ("SCL"), owned 47% of the equity shares in the Company.

        For a description of significant accounting policies and basis of presentation, see Notes 1, 4 and 14 to the consolidated financial statements in the 2002 Form 10-K annual report. "SFAS" means Statement of Financial Accounting Standards and "FIN" means an accounting interpretation, both of the Financial Accounting Standards Board.

        In the opinion of management, all adjustments necessary for a fair statement of the results of operations for the three and nine months ended September 30, 2003 and 2002, which are all of a normal recurring nature, have been reflected in the information provided.

(b)   Net earnings per share

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

        For the nine months ended September 30, 2003 and 2002, the anti-dilutive effect of stock options on 155,121 and 62,299 class A common shares, respectively, was excluded from the computation of diluted earnings per share.

        For the three months ended September 30, 2003 and 2002, the anti-dilutive effect of stock options on 68,946 and 182,750 class A common shares, respectively, was excluded from the computation of diluted earnings per share.

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(c)   Derivative financial instruments

        As reported in Note 1(s) to the financial statements in the 2002 Form 10-K annual report, the Company adopted with effect on January 1, 2001, SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS No. 137, No. 138 and No. 149. For the nine months ended September 30, 2003 and 2002, the change in the fair market value of derivative instruments resulted in a charge of $65,000 and a credit of $1,756,000, respectively, to other comprehensive income.

        The components of comprehensive income are as follows (dollars in thousands):

(d)   Goodwill

        OEH's goodwill relates to its hotels and restaurants business segment. There were no changes in the carrying amount of goodwill for the three and nine-month periods ended September 30, 2003.

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(e)   Stock-based compensation

        OEH's compensation cost for share options is measured as the excess, if any, of the quoted market price of the Company's shares at the date of the grant over the amount an employee must pay to acquire the shares, in accordance with the intrinsic value method under Accounting Principles Board Opinion No. 25. If compensation cost for the Company's stock option plan had been determined based on fair values as of the date of grant, OEH's net earnings and earnings per share would have been reported as follows (dollars in thousands, except per share amounts):

        The pro forma figures in the preceding tables may not be representative of pro forma amounts in future years.

(f)    Reclassifications

        Certain items in 2002 have been reclassified to conform to the 2003 presentation.

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2.     Acquisitions and investments

        In February 2002, OEH acquired the hotel La Residencia in Mallorca, Spain and the hotel Le Manoir aux Quat'Saisons in Oxfordshire, England for a total of approximately $40,000,000. The price was paid largely with bank mortgage finance.

        In March 2002, OEH acquired for approximately $7,500,000 a 75% share interest in Maroma Resort and Spa near Cancun, Mexico. The purchase price was paid in cash, with $1,000,000 paid in March 2003.

        No goodwill was recognized in these transactions. These acquisitions have been accounted for as a purchase in accordance with SFAS No. 141, Business Combinations.

        The results of these operations have been included in the consolidated financial results of OEH from the dates of acquisition, and the assets and liabilities of the acquired companies have been recorded at their fair value at the dates of acquisition. The pro forma impact on results, had these acquisitions occurred on January 1, 2002, is not material.

        In addition, on April 25, 2003, OEH acquired a 50% interest in the Hotel Ritz in Madrid, Spain through a 50/50 joint venture with a Spanish real estate investment company. The purchase price was $135,000,000, and each joint venture partner contributed $22,000,000 with the balance financed by bank loans. Subsidiaries of the Company are obligated on $27,000,000 of these loans until the completion of various legal procedures in Spain, which are expected to take about nine months after the purchase, when the debt would be entirely non-recourse to OEH. In addition to its interest in the hotel, OEH acquired the exclusive long-term management contract of the hotel. This investment is accounted for under the equity method of accounting.

        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):

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3.     Property, plant and equipment

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

        At September 30, 2003, the balance under capital lease for land and buildings was $10,138,000 (December 31, 2002—$9,527,000), for machinery and equipment $2,228,000 (December 31, 2002—$2,039,000), and for fixtures and fittings $979,000 (December 31, 2002—$945,000). Accumulated depreciation related to assets under capital lease at September 30, 2003 was $1,380,000 (December 31, 2002—$1,075,000).

4.     Long-term debt and obligations under capital lease

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

        Certain credit agreements of OEH have restrictive covenants. At September 30, 2003, OEH was in compliance with these covenants. OEH does not currently have any covenants in any of its loan agreements which limit the payment of dividends. See also Note 11.

        On July 30, 2003, OEH borrowed $103,000,000 under a bank-syndicated loan facility totalling $154,000,000 secured on three Italian hotels. The initial drawdown was used principally to refinance an existing $78,000,000 loan facility secured on the same hotels and guaranteed by SCL, with the balance providing additional working capital. The new facility which is not guaranteed by SCL places certain financial covenants on OEH, namely a minimum consolidated net worth test and a minimum consolidated interest coverage test, both as defined.

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        The following is a summary of the aggregate maturities of long-term debt, including obligations under capital lease, at September 30, 2003 (dollars in thousands):

        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.

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5.     Income taxes

        The provision for income taxes consists of the following (dollars in thousands):

        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):

        The deferred tax assets consist of tax loss carryforwards and the future tax benefits of accrued pension costs recognized in other comprehensive income. The deferred tax liabilities consist primarily of differences between the tax basis of depreciable assets and the adjusted basis as reflected in the financial statements.

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6.     Supplemental cash flow information

7.     Accumulated other comprehensive loss

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

8.     Commitments

        Outstanding contracts to purchase fixed assets were approximately $2,800,000 at September 30, 2003 (December 31, 2002—$10,100,000).

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

        As reported in the Company's 2002 Form 10-K annual report, OEH has two reporting segments, (i) hotels and restaurants and (ii) tourist trains and cruises. 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):

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

10.   Related party transactions

        For the nine months ended September 30, 2003, OEH paid subsidiaries of SCL $3,421,000 (2002—$4,547,000) for the provision of various services under a shared services agreement between OEH and SCL. These amounts have been settled in accordance with the shared services agreement and are included in selling, general and administrative expenses.

        SCL has guaranteed since 2000 a bank loan of OEH in the principal amount of $18,579,000 outstanding at September 30, 2003 (December 31, 2002—$112,854,000).

        OEH guarantees a $3,000 000 bank loan to Eastern and Oriental Express Ltd. in which OEH has a minority shareholder interest.

        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 nine months ended September 30, 2003, OEH earned $2,933,000 (2002—$3,122,000) in management fees and $4,647,000 (2002—$5,197,000) in interest income on partnership and other loans.

        OEH manages under long-term contracts the Hotel Monasterio and the Machu Picchu Sanctuary Lodge owned by its 50/50 joint venture with local Peruvian interests, as well as the 50/50-owned PeruRail operation, and provides loans, guarantees and other credit accommodation to these joint ventures. In the nine months ended September 30, 2003, OEH earned management and guarantee fees of $1,200,000 (2002—$969,000) and loan interest of $159,000 (2002—$255,000) from the joint ventures. At September 30, 2003, loans to the hotels aggregated $5,000,000, bear interest at a spread over LIBOR and come due in 2003 and 2005. At the same date, OEH had a $750,000 subordinated loan to the PeruRail operation with an indefinite maturity date and interest also at a spread over LIBOR.

        OEH manages under a long-term contract the Hotel Ritz in Madrid, Spain, in which OEH acquired a 50% interest on April 25, 2003 (see Note 2) and is accounted for under the equity method. For the nine months ended September 30, 2003, OEH earned $687,000 (2002—$nil) in management fees.

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11.   Subsequent events

        On November 6, 2003, OEH announced the sale of its Hotel Quinta do Lago in the Algarve region of Portugal at a price of $40,000,000 paid in cash. This transaction will result in a gain which will be recognized in the fourth quarter of 2003. At the same time, OEH announced the filing of a registration statement for a proposed offering of 3,000,000 class A common shares of the Company, with an additional 450,000 shares available to cover an over-allotment option. The primary purpose of the hotel sale and sale of common shares is to raise additional capital for purchase of hotels and related businesses and to fund investment in some of OEH's existing owned properties.

        On November 11, 2003, OEH announced an initial quarterly cash dividend payable on the Company's common shares of 2.5 cents per share commencing January 20, 2004 to holders of record on January 5, 2004.

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Management's Discussion and Analysis of Financial Condition
and Results of Operations

RESULTS OF OPERATIONS

Three Months ended September 30, 2003 compared to
Three Months ended September 30, 2002

        OEH's operating results for the three months ended September 30, 2003 and 2002, expressed as a percentage of revenue and earnings from unconsolidated companies, were as follows:

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        The earnings before interest, tax, depreciation and amortization ("EBITDA") of OEH's operations for the three months ended September 30, 2003 and 2002 are analyzed as follows, including a reconciliation to net earnings (dollars in millions):

        Management believes that EBITDA is a useful measure of operating performance, used by management and investors to help determine the ability of a company or property to incur capital expenditure or service indebtedness, because it is not affected by non-operating factors such as leverage and the historic cost of assets. EBITDA is also a financial measure commonly used in the hotel and leisure industry. However, EBITDA does not represent cash flow from operations as defined by U.S. generally accepted accounting principles, is not necessarily indicative of cash available to fund all cash flow needs and should not be considered as an alternative to earnings from operations under U.S. generally accepted accounting principles for purposes of evaluating results of operations.

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        Operating information for OEH's owned hotels for the three months ended September 30, 2003 and 2002 is as follows: