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

FORM 10-Q

Commission file number 1-16017

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            

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

As of April 30, 2004, 31,790,601 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

ITEM 1. Financial Statements

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 including Note 1(j) regarding reclassification of earnings from unconsolidated companies.

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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 March 31, 2004, Sea Containers Ltd., a Bermuda company ("SCL"), owned 42% of the equity shares in the Company.

        For a description of significant accounting policies and basis of presentation, see Notes 1, 4 and 15 to the consolidated financial statements in the Company's 2003 Form 10-K annual report. As of March 31, 2004, these significant accounting policies have not changed from December 2003. "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 months ended March 31, 2004 and 2003, 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 losses per share

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

        For the three months ended March 31, 2004 and 2003, the anti-dilutive effect of stock options on 102,261 and 279,307 class A common shares, respectively, was excluded from the computation of diluted losses per share.

(c) Derivative financial instruments

        For the three months ended March 31, 2004 and 2003, the change in the fair market value of derivative instruments resulted in a charge of $260,000 and $83,000, respectively, to other comprehensive income.

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

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(d) Goodwill

        OEH's goodwill consists of $700,000 related to the trains and cruises reporting segment and $28,829,000 related to the hotels and restaurants reporting segment. There were no changes in the carrying amount of goodwill for the three month period ended March 31, 2004.

(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 losses and losses 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) Dividends

        On March 19, 2004, the Company declared a dividend of $0.025 per common share payable April 20, 2004 to shareholders of record April 5, 2004.

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(g) Pensions

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

        As reported in Note 7 to the financial statements in the Company's 2003 Form 10-K annual report, OEH expected to contribute $954,000 to its pension plans in 2004. As of March 31, 2004, $208,000 of contributions have been made. OEH anticipates contributing an additional $735,000 to fund its pension plans in 2004 for a total of $943,000.

(h) 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 $1,929,000 and $1,661,000 for the three months ended March 31, 2004 and 2003, respectively.

(i) Recent accounting pronouncements

        In January 2003, the Financial Accounting Standards Board issued FIN No. 46 "Consolidation of Variable Interest Entities," as amended by FIN No. 46R which applied immediately to variable interest entities created after January 31, 2003, and with respect to variable interest entities held before February 1, 2003, applied beginning with OEH's quarter ended March 31, 2004. OEH has evaluated all of its existing joint-venture agreements, and has determined that none of its joint ventures are within the scope of FIN No. 46R.

(j) Reclassifications

        Certain items in 2003 have been reclassified to conform to the 2004 presentation. Earnings from unconsolidated companies are now presented below earnings/(losses) from operations before net finance costs.

2. Acquisitions and investments

        On February 2, 2004, OEH entered into an agreement with the Pansea Hotel group, the owner of five deluxe hotels in Southeast Asia. Under this agreement, OEH is to provide a maximum of $8,000,000 in loans to the hotel holding company which are convertible after three years into approximately 25% of the holding company's shares. As of March 31, 2004, OEH had provided $2,125,000 in loans to Pansea. In addition, OEH paid $1,400,000 for options exercisable after three to five years to acquire all of the holding company's shares, and the existing shareholders have the right to sell their shares to OEH after five years. OEH is not managing the hotels but is marketing them along with its other properties.

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        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 working capital loans. Subsidiaries of the Company are obligated on $27,000,000 of these working capital loans until the completion of various legal procedures in Spain, when the debt is expected to become 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):

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

4. Long-term debt and obligations under capital lease

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

        In March 2004, the last guarantee by SCL of an OEH bank loan (December 31, 2003—$19,088,000 principal amount) that predated the Company's initial public offering in August 2000 was released and cancelled.

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        Certain credit agreements of OEH have restrictive covenants. At March 31, 2004, 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.

        The following is a summary of the aggregate maturities of long-term debt, including obligations under capital lease, at March 31, 2004 (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.

5. Income taxes

        The benefit from 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.

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        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 carry forwards. In addition, at March 31, 2004, OEH has recorded a deferred tax asset of $691,000 (December 31, 2003—$691,000) representing the future tax benefits of accrued pension costs recognized in other comprehensive income pursuant to SFAS No. 87, "Employers' Accounting for Pensions". 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.

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 $7,800,000 at March 31, 2004 (December 31, 2003—$11,200,000).

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

        As reported in the Company's 2003 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 three months ended March 31, 2004, OEH paid subsidiaries of SCL $1,369,000 (2003—$1,527,000) 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.

        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 March 31, 2004, OEH earned $860,000 (2003—$892,000) in management fees which are recorded in revenue, and $1,929,000 (2003—$1,661,000) in interest income on partnership and other loans, which are recorded in earnings from unconsolidated companies.

        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 three months ended March 31, 2004, OEH earned management and guarantee fees of $451,000 (2003—$226,000), which are recorded in revenue, and loan interest of $24,000 (2003—$60,000) which are recorded in earnings from unconsolidated companies from the joint ventures. At March 31, 2004, loans to the hotels aggregated $2,000,000, bear interest at a spread over LIBOR and come due in 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. All of the guarantees relating to the Company's investments in Peru were in place prior to December 31, 2002.

        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 three months ended March 31, 2004, OEH earned $178,000 (2003—$nil) in management fees which are included in revenue.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

        OEH's operating results for the three months ended March 31, 2004 and March 31, 2003, expressed as a percentage of revenue were as follows:

        The earnings before interest, tax, depreciation and amortization ("EBITDA") of OEH's operations for the three months ended March 31, 2004 and 2003 are analyzed as follows (dollars in millions):

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        The foregoing EBITDA reconciles to net losses as follows (dollars in millions):

        Management believes that EBITDA is a useful measure of operating performance, to help determine the ability 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 March 31, 2004 and March 31, 2003 is as follows:

        Average daily rate is the average amount achieved for the rooms sold. RevPAR is revenue per available room, that is the rooms department revenue divided by the number of available rooms for each night of operation. Same store RevPAR is a comparison based on the operations of the same units in each period, such as by excluding the effect of any acquisitions or major refurbishments.

Three Months Ended March 31, 2004 Compared To Three Months Ended March 31, 2003

Overview

        The net loss for the period was $4.6 million ($0.13 per common share) on revenue of $63.8 million, compared with a net loss of $2.6 million ($0.08 per common share) on revenue of $60.4 million in the prior year first quarter. The first quarter is a traditional loss making period because a number of OEH's properties are closed for the winter, the Venice Simplon-Orient-Express train does not operate and tourist arrivals are low in locations with poor winter weather. In addition, in this year's first quarter two properties were closed for major renovation: La Residencia in Mallorca, Spain and Bora Bora Lagoon Resort in Bora Bora, French Polynesia. Losses from euro-bloc properties translated into more U.S. dollars than in the prior year because of significant weakness of the U.S. dollar against the euro, however, this effect is expected to reverse out in the profitable part of the year.

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Revenue

        Total revenue increased by $3.4 million, or 6%, from $60.4 million in the three months ended March 31, 2003 to $63.8 million in the three months ended March 31, 2004. Hotels and restaurants revenue increased by $2.9 million, or 5%, from $54.4 million in the three months ended March 31, 2003 to $57.3 million in the three months ended March 31, 2004, and tourist trains and cruises increased by $0.5 million, or 8%, from $6.0 million for the three months ended March 31, 2003 to $6.5 million for the three months ended March 31, 2004.

        The increase for hotels and restaurants was mainly due to an increase at OEH's owned hotels of $2.1 million, or 4%, from $49.3 million in the three months ended March 31, 2003 to $51.4 million in the three months ended March 31, 2004. The revenue from restaurants increased by $0.8 million, or 20%, from $3.8 million in the three months ended March 31, 2003 to $4.6 million in the three months ended March 31, 2004 which was mainly due to the '21' Club and revenue from La Cabana which opened in late 2003.

        The change in revenue at owned hotels is analyzed on a regional basis as follows:

        Europe.    Revenue decreased by $0.8 million, or 6%, from $12.6 million for the three months ended March 31, 2003 to $11.8 million for the three months ended March 31, 2004. Excluding revenue from the Hotel Quinta do Lago (sold in November 2003), in the three months ended March 31, 2004 revenue increased by $0.8 million. Also during the three months ended March 31, 2004, La Residencia was closed for refurbishment. In the three months ended March 31, 2003 this hotel had revenue of $1.1 million.

        On a same store basis, excluding the above, RevPAR in local currency declined by 4% but in U.S. dollars this translated into an increase of 12% as the euro was stronger against the dollar in the first quarter of 2004 compared to the first quarter of 2003.

        North America.    Revenue increased by $0.2 million, or 1%, from $19.3 million in the three months ended March 31, 2003 to $19.5 million in the three months ended March 31, 2004. Revenue at the Windsor Court Hotel declined by $0.8 million in the three months ending March 31, 2004 compared to the three months ended March 31, 2003 due to the drop in citywide conventions in New Orleans by a third. Excluding this, revenue increased by $1.0 million in the quarter. A significant contributor to this increase was from new rooms added at the Inn at Perry Cabin and Maroma Resort and Spa.

        On a same store basis, RevPAR declined by 3% which was driven by the Windsor Court referred to above. Excluding this, same store RevPAR increased by 6%.

        Rest of the World.    Revenue increased by $2.6 million, or 15%, from $17.4 million in the three months ended March 31, 2003 to $20.0 million in the three months ended March 31, 2004. During the period, Bora Bora Lagoon Resort was closed for refurbishment. In the same period last year, revenue from this hotel was $1.6 million.

        The RevPAR on a same store basis for the rest of the world region increased by 3% in local currencies in the three months ended March 31, 2004 compared to the three months ended March 31, 2003. This translated to a 18% increase when expressed in U.S. dollars primarily as the South African rand and Australian dollar were significantly stronger against the U.S. dollar in the period over the comparable period of 2003.

Depreciation and amortization

        Depreciation and amortization increased by $1.5 million, or 27%, from $5.5 million in the three months ended March 31, 2003 to $7.0 million in the three months ended March 31, 2004, primarily due

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to the effect of acquisitions and capital expenditures in 2003 as well as the effect of the weakness of the U.S. dollar against currencies in which OEH records some of its assets.

Operating expenses

        Operating expenses increased by $3.0 million, or 10%, from $30.8 million in the three months ended March 31, 2003 to $33.8 million in the three months ended March 31, 2004, primarily due to the effect of the weakness of the U.S. dollar against currencies in which OEH incurs operating expenses.

Selling, general and administrative expenses

        Selling, general and administrative expenses increased by $2.6 million, or 11%, from $23.4 million in the three months ended March 31, 2003 to $26.0 million in the three months ended March 31, 2004, mainly due to the effect of the weakness of the U.S. dollar against currencies in which OEH incurs these expenses.

Losses from operations before net finance costs

        Losses from operations increased by $3.6 million from earnings of $0.7 million in the three months ended March 31, 2003 to a loss of $2.9 million in the three months ended March 31, 2004, due to the factors described in the overview above.

Net finance costs

        Net finance costs remained the same at $5.0 million in the three months ended March 31, 2003 compared to the three months ended March 31, 2004.

Benefit from income taxes

        The benefit from income taxes increased by $0.5 million, from a benefit of $0.5 million in the three months ended March 31, 2003 to a benefit of $1.0 million in the three months ended March 31, 2004. The Company is incorporated in Bermuda, which does not impose an income tax. Accordingly, the entire income tax benefit was attributable to income tax credits incurred by subsidiaries operating in jurisdictions that impose an income tax. The increase was mainly due to the reduced profitability of some of these subsidiaries.

Earnings from unconsolidated companies

        Earnings from unconsolidated companies increased by $1.2 million, or 100% from $1.1 million in the three months ended March 31, 2003 to $2.3 million in the three months ended March 31, 2004. This was mainly due to improved earnings from OEH's investments in Peru.

Net losses

        Net losses increased by $2.0 million from a loss of $2.6 million in the three months ended March 31, 2003 to a loss of $4.6 million in the three months ended March 31, 2004. Net losses represent losses from operations less net finance costs and benefit from income taxes.

Liquidity and Capital Resources

Working Capital

        OEH had cash and cash equivalents of $58.5 million at March 31, 2004, $22.8 million less than the $81.3 million at December 31, 2003. At March 31, 2004 and December 31, 2003, the undrawn amounts available to OEH under its short-term lines of credit were $23.0 million and $35.8 million, respectively.

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In addition, at March 31, 2004 and December 31, 2003 there were undrawn amounts committed under long-term facilities of $31 million and $32 million, respectively. OEH's total cash and availability at March 31, 2004 was $112.5 million including the undrawn short-term lines.

        Current assets less current liabilities, including the current portion of long-term debt, resulted in a working capital deficit of $64.0 million at March 31, 2004, a decrease in the working capital of $74.8 million from a surplus of $10.8 million at December 31, 2003. The overall decrease in working capital was comprised of the following:

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a decrease in current assets of $15.4 million, of which $22.8 million was due to a decrease in cash partly offset by an increase in receivables from related parties of $2.6 million, and accounts receivable of $0.7 million and prepaid expenses and other of $4.0 million;



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an increase in current liabilities of $43.2 million, excluding the current portion of long-term debt, of which $35.3 million was mainly due to an increase in working capital facilities and deferred revenue of $10.1 million; and



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an increase in the current portion of long-term debt of $16.2 million.

        OEH's business does not require the maintenance of significant inventories or receivables and, therefore, working capital is not regarded as the most appropriate measure of liquidity.

Cash Flow

        Operating Activities.    Net cash provided by operating activities decreased by $1.4 million from $2.1 million cash surplus for the three months ended March 31, 2003 to $0.7 million for the three months ended March 31, 2004. Of the decrease, $2.0 million was attributable to reduced earnings.

        Investing Activities.    Cash used in investing activities increased by $3.5 million to $17.3 million for the three months ended March 31, 2004, compared to $13.8 million for the three months ended March 31, 2003.