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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 October 29, 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 (unaudited)

See notes to condensed consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries

Statements of Consolidated Operations (unaudited)

        See notes to condensed 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 Operations (unaudited)

See notes to condensed 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 condensed consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries

Statement of Changes in Consolidated Shareholders' Equity and Comprehensive Loss (unaudited)

See notes to condensed consolidated financial statements.

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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". At September 30, 2004, Sea Containers Ltd., a Bermuda company ("SCL"), owned 42% of the equity shares in the Company.

(a)   Accounting policies

        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 September 30, 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 U.S. Financial Accounting Standards Board.

        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 nine months ended September 30, 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 an interim period are not necessarily indicative of a full year's operating results.

(b)   Earnings per share

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

        Stock options with exercise prices greater than the average market price of the common shares have been excluded from the computations of diluted weighted average shares outstanding. There were approximately 40,000 and 156,000 of these options for the nine months ended September 30, 2004 and 2003, respectively, and approximately 55,000 and 70,000 of these options for the three months ended September 30, 2004 and 2003, respectively.

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(c)   Derivative financial instruments

        For the nine months ended September 30, 2004 and 2003, the change in the fair market value of derivative instruments resulted in a charge of $157,000 and $65,000, respectively, to other comprehensive loss.

(d)   Goodwill

        OEH's goodwill consists of $700,000 related to the tourist 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 nine month period ended September 30, 2004.

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(e)   Stock-based compensation

        OEH's compensation cost for share options is accreted in accordance with the intrinsic value method under Accounting Principles Board Opinion No. 25. If compensation cost for the Company's stock option plans 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)    Dividends

        On March 19, June 18 and September 20, 2004, the Company declared a quarterly dividend of $0.025 per common share.

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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 September 30, 2004, $582,000 of contributions have been made. OEH anticipates contributing an additional $242,000 to fund its pension plans in 2004 for a total of $824,000.

(h)   Earnings from unconsolidated companies

        Earnings from unconsolidated companies are presented net of tax and 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 $6,049,000 and $4,647,000 for the nine months ended September 30, 2004 and 2003, respectively, and $2,100,000 and $1,593,000 for the three months ended September 30, 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 is within the scope of FIN No. 46R. The adoption of FIN No. 46R had no impact on OEH.

(j)    Reclassifications

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

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2.     Acquisitions and investments

        On May 25, 2004, OEH acquired a 50% interest in a luxury French canal and river cruise business called Afloat in France. As part of this investment OEH acquired the five canal boats operated in the business. The total investment was $3,000,000 paid in cash.

        On February 2, 2004, OEH entered into an agreement with the Pansea Hotel group, the owner of six 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 September 30, 2004, OEH had provided $4,625,000 in loans to Pansea which is recorded in other assets. In addition, OEH paid $1,400,000 which is recorded in other assets 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 put their shares to OEH after five years. OEH is not managing the hotels but is marketing them along with its other properties.

        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 loans. Subsidiaries of the Company were obligated on $27,000,000 of these loans until the completion in August 2004 of various legal procedures in Spain, when the debt was assumed by the joint venture and became entirely non-recourse to OEH. As a result OEH's investment and debt have been reduced. 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.

        Certain credit agreements of OEH have restrictive covenants. At September 30, 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.

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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, 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 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):

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        The deferred tax assets consist of tax loss carry forwards. In addition, at September 30, 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

        In conjunction with acquisitions and investments (see Note 2), liabilities were assumed relating to non-cash investing and financing activities as follows (dollars in thousands):

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 $7,500,000 at September 30, 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 nine months ended September 30, 2004, OEH paid subsidiaries of SCL $4,009,000 (2003—$3,421,000) for the provision of various services incurred during this period 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 nine months ended September 30, 2004, OEH earned $2,931,000 (2003—$2,933,000) in management fees which are recorded in revenue, and $6,049,000 (2003—$4,647,000) in interest income on partnership and other loans, which are recorded in earnings from unconsolidated companies. These loans have an indefinite maturity period and bear interest at a spread over LIBOR.

        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, 2004, OEH earned management and guarantee fees of $2,620,000 (2003—$1,200,000), which are recorded in revenue, and loan interest of $77,000 (2003—$159,000) which is recorded in earnings from unconsolidated companies from the joint ventures. At September 30, 2004, loans to the hotels aggregated $2,000,000, bear interest at a spread over LIBOR and are 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 nine months ended September 30, 2004, OEH earned $664,000 (2003—$687,000) in management fees, which are included in revenue.

11.   Subsequent event

        Effective November 1, 2004, OEH acquired El Encanto Hotel and Garden Villas in Santa Barbara, California for $26,000,000 paid in cash. Part of the purchase price was financed with a bank loan.

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

Results of Operations

Three Months Ended September 30, 2004 compared to Three Months Ended September 30, 2003

        OEH's operating results for the three months ended September 30, 2004 and 2003, expressed as a percentage of revenue, were as follows:

        Net earnings as adjusted for interest, tax, depreciation and amortization ("EBITDA") of OEH's operations for the three months ended September 30, 2004 and 2003 is analyzed as follows (dollars in millions):