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EXCEL - IDEA: XBRL DOCUMENT - Belmond Ltd.Financial_Report.xls
EX-32 - EXHIBIT 32 - Belmond Ltd.bel-ex32_20140930x10q.htm
EX-31 - EXHIBIT 31 - Belmond Ltd.bel-ex31_20140930x10q.htm

 
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 September 30, 2014
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 001-16017
 
 
 
 
 
BELMOND LTD.
(Exact name of registrant as specified in its charter) 
Bermuda
 
98-0223493
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 

22 Victoria Street,
Hamilton HM 12, Bermuda
(Address of principal executive offices)(Zip code)
Registrant’s telephone number, including area code:  (441) 295-2244

 
 
 
 
 


Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act 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 o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act.

Large Accelerated Filer x
 
Accelerated Filer o
Non-Accelerated Filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 

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

 As of November 3, 2014, 103,964,923 class A common shares and 18,044,478 class B common shares of the registrant were outstanding.  All of the class B shares are owned by a subsidiary of the registrant.
 



Table of Contents
 


1


PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements

Belmond Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited)
 
 
September 30,
2014
 
December 31,
2013
 
 
 $’000
 
 $’000
Assets
 
 

 
 

Cash and cash equivalents
 
158,826

 
123,159

Restricted cash
 
2,489

 
6,003

Accounts receivable, net of allowances of $470 and $563
 
38,708

 
35,471

Due from unconsolidated companies
 
9,277

 
11,795

Prepaid expenses and other
 
25,185

 
25,896

Inventories
 
40,812

 
45,056

Assets of discontinued operations held for sale
 

 
34,416

Total current assets
 
275,297

 
281,796

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $352,345 and $354,123
 
1,222,063

 
1,309,603

Investments in unconsolidated companies
 
67,561

 
63,401

Goodwill
 
141,249

 
156,916

Other intangible assets
 
14,125

 
14,152

Other assets
 
59,617

 
53,998

Total assets (1)
 
1,779,912

 
1,879,866

 
 
 
 
 
Liabilities and Equity
 
 

 
 

Working capital loans
 

 
138

Accounts payable
 
25,145

 
23,744

Accrued liabilities
 
80,888

 
74,187

Deferred revenue
 
42,129

 
36,983

Liabilities of discontinued operations held for sale
 

 
1,611

Current portion of long-term debt and obligations under capital leases
 
5,569

 
72,816

Total current liabilities
 
153,731

 
209,479

 
 
 
 
 
Long-term debt and obligations under capital leases
 
621,345

 
566,915

Liability for pension benefit
 
449

 
1,606

Other liabilities
 
23,021

 
18,851

Deferred income taxes
 
159,740

 
169,382

Liability for uncertain tax positions
 
3,335

 
2,988

Total liabilities (1)
 
961,621

 
969,221

 
 
 
 
 
Commitments and contingencies (Note 16)
 


 


 
 
 
 
 
Equity:
 
 

 
 

 
 
 
 
 
Shareholders’ equity:
 
 

 
 

Preferred shares $0.01 par value (30,000,000 shares authorized, issued Nil)
 

 

Class A common shares $0.01 par value (240,000,000 shares authorized):
 
 

 
 

Issued — 103,964,923 (2013 — 103,604,245)
 
1,040

 
1,036

Class B common shares $0.01 par value (120,000,000 shares authorized):
 
 

 
 

Issued — 18,044,478 (2013 — 18,044,478)
 
181

 
181

 
 
 
 
 
Additional paid-in capital
 
998,670

 
992,860

Retained earnings
 
7,900

 
7,643

Accumulated other comprehensive loss
 
(190,421
)
 
(93,317
)
Less: Reduction due to class B common shares owned by a subsidiary — 18,044,478 (2013 — 18,044,478)
 
(181
)
 
(181
)
Total shareholders’ equity
 
817,189

 
908,222

Non-controlling interests
 
1,102

 
2,423

Total equity
 
818,291

 
910,645

 
 
 
 
 
Total liabilities and equity
 
1,779,912

 
1,879,866



Belmond Ltd. and Subsidiaries
Condensed Consolidated Balance Sheets (unaudited) (continued)

(1) Included in Belmond Ltd.’s consolidated assets and liabilities are assets of consolidated variable interest entities (“consolidated VIEs”) that can only be used to settle obligations of the consolidated VIEs and liabilities of consolidated VIEs whose creditors have no recourse to Belmond Ltd. The Company’s only consolidated VIE at September 30, 2014 and December 31, 2013 is Charleston Center LLC. These assets and liabilities at September 30, 2014 and December 31, 2013 are as follows:
 
 
September 30,
2014
 
December 31,
2013
 
 
 $’000
 
 $’000
 
 
 
 
 
Assets
 
 
 
 
Cash and cash equivalents
 
2,203

 
3,245

Restricted cash
 
645

 
742

Accounts receivable, net of allowances of $Nil and $Nil
 
1,973

 
3,294

Prepaid expenses and other
 
2,250

 
1,212

Inventories
 
1,942

 
2,024

Total current assets
 
9,013

 
10,517

 
 
 
 
 
Property, plant and equipment, net of accumulated depreciation of $27,312 and $23,733
 
196,344

 
187,854

Other assets
 
1,947

 
1,895

Total assets
 
207,304

 
200,266

 
 
 
 
 
Liabilities
 
 
 
 
Accounts payable
 
1,583

 
2,787

Accrued liabilities
 
2,897

 
1,879

Deferred revenue
 
3,243

 
2,056

Current portion of long-term debt and obligations under capital leases
 
214

 
1,805

Total current liabilities
 
7,937

 
8,527

 
 
 
 
 
Long-term debt and obligations under capital leases
 
97,383

 
94,345

Other liabilities
 
15,790

 
15,340

Deferred income taxes
 
61,318

 
60,892

Total liabilities
 
182,428

 
179,104


See further description in note 4, Variable interest entities.

See notes to condensed consolidated financial statements.
2




Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Operations (unaudited)

 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Revenue
 
183,519

 
185,313

 
461,666

 
458,620

 
 
 
 
 
 
 
 
 
Expenses:
 
 

 
 

 
 

 
 

Cost of services
 
78,700

 
79,965

 
207,241

 
204,722

Selling, general and administrative
 
56,882

 
57,405

 
165,878

 
168,642

Depreciation and amortization
 
12,062

 
10,656

 
36,952

 
34,373

Impairment of property, plant and equipment
 

 

 

 
35,680

 
 
 
 
 
 
 
 
 
Total operating costs and expenses
 
147,644

 
148,026

 
410,071

 
443,417

 
 
 
 
 
 
 
 
 
Gain on disposal of property, plant and equipment
 
121

 

 
3,978

 

 
 
 
 
 
 
 
 
 
Earnings from operations
 
35,996

 
37,287

 
55,573

 
15,203

 
 
 
 
 
 
 
 
 
Loss on extinguishment of debt
 

 

 
(14,506
)
 

Interest income
 
217

 
239

 
917

 
761

Interest expense
 
(8,407
)
 
(8,877
)
 
(26,463
)
 
(24,474
)
Foreign currency, net
 
612

 
(2,546
)
 
(268
)
 
453

 
 
 
 
 
 
 
 
 
Earnings/(losses) before income taxes and earnings from unconsolidated companies, net of tax
 
28,418

 
26,103

 
15,253

 
(8,057
)
 
 
 
 
 
 
 
 
 
Provision for income taxes
 
(15,215
)
 
(11,536
)
 
(16,534
)
 
(9,278
)
 
 
 
 
 
 
 
 
 
Earnings/(losses) before earnings from unconsolidated companies, net of tax
 
13,203

 
14,567

 
(1,281
)
 
(17,335
)
 
 
 
 
 
 
 
 
 
Earnings from unconsolidated companies, net of tax provision of $1,168, $1,928, $1,753 and $904
 
3,149

 
2,063

 
4,187

 
4,696

 
 
 
 
 
 
 
 
 
Earnings/(losses) from continuing operations
 
16,352

 
16,630

 
2,906

 
(12,639
)
 
 
 
 
 
 
 
 
 
Net losses from discontinued operations, net of tax provision/(benefit) of $Nil, $(417), $Nil and $(713)
 
(1,469
)
 
(505
)
 
(2,671
)
 
(905
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses)
 
14,883

 
16,125

 
235

 
(13,544
)
 
 
 
 
 
 
 
 
 
Net losses/(earnings) attributable to non-controlling interests
 
49

 
15

 
22

 
(68
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
14,932

 
16,140

 
257

 
(13,612
)
 
 
 
 
 
 
 
 
 
 



See notes to condensed consolidated financial statements.
3



Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Operations (unaudited) (continued)

 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$
 
$
 
$
 
$
 
 
 
 
 
 
 
 
 
Basic earnings per share
 
 
 
 

 
 

 
 
Net earnings/(losses) from continuing operations
 
0.16

 
0.16

 
0.03

 
(0.12
)
Net earnings/(losses) from discontinued operations
 
(0.01
)
 

 
(0.03
)
 
(0.01
)
Basic net earnings/(losses) per share attributable to Belmond Ltd.
 
0.14

 
0.16

 

 
(0.13
)
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 

 
 

 
 

Net earnings/(losses) from continuing operations
 
0.15

 
0.16

 
0.03

 
(0.12
)
Net earnings/(losses) from discontinued operations
 
(0.01
)
 

 
(0.03
)
 
(0.01
)
Diluted net earnings/(losses) per share attributable to Belmond Ltd.
 
0.14

 
0.15

 

 
(0.13
)
 
 
 
 
 
 
 
 
 
 

See notes to condensed consolidated financial statements.
4



Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Comprehensive Income (unaudited)

 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Net earnings/(losses)
 
14,883

 
16,125

 
235

 
(13,544
)
 
 
 
 
 
 
 
 
 
Other comprehensive income/(losses), net of tax:
 
 

 
 

 
 

 
 
Foreign currency translation adjustments, net of tax provision/(benefit) of $Nil, $260, $Nil and $3
 
(57,937
)
 
13,153

 
(99,432
)
 
(12,509
)
Change in fair value of derivatives, net of tax provision/(benefit) of $Nil, $85, $1,503 and $718
 
812

 
89

 
1,293

 
2,130

Change in pension liability, net of tax provision/(benefit) of $Nil, $52, $Nil and $Nil
 

 
(133
)
 

 
(249
)
Total other comprehensive income/(losses), net of tax
 
(57,125
)
 
13,109

 
(98,139
)
 
(10,628
)
 
 
 
 
 
 
 
 
 
Total comprehensive income/(losses)
 
(42,242
)
 
29,234

 
(97,904
)
 
(24,172
)
 
 
 
 
 
 
 
 
 
Comprehensive (income)/losses attributable to non-controlling interests
 
235

 
30

 
1,057

 
(59
)
 
 
 
 
 
 
 
 
 
Comprehensive income/(losses) attributable to Belmond Ltd.
 
(42,007
)
 
29,264

 
(96,847
)
 
(24,231
)
 
 
 
 
 
 
 
 
 


See notes to condensed consolidated financial statements.
5


Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Cash Flows (unaudited)

 
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
 
$'000
 
$'000
 
 
 
 
 
Cash flows from operating activities:
 
 

 
 

Net earnings/(losses)
 
235

 
(13,544
)
Less: Net losses from discontinued operations, net of tax
 
(2,671
)
 
(905
)
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
2,906

 
(12,639
)
Adjustments to reconcile net earnings/(losses) to net cash provided by operating activities:
 
 

 
 

Depreciation and amortization
 
36,952

 
34,373

Amortization of finance costs
 
3,355

 
5,162

Impairment of property, plant and equipment
 

 
35,680

Earnings from unconsolidated companies, net of tax
 
(4,187
)
 
(4,696
)
Share-based compensation
 
5,704

 
6,531

Excess share-based compensation tax benefit
 
(106
)
 

Change in provisions for uncertain tax positions
 
379

 
(2,140
)
Change in deferred income tax
 
1,510

 
(2,631
)
Loss on extinguishment of debt
 
14,506

 

Gain on disposal of property, plant and equipment
 
(3,978
)
 

Effect of exchange rates on net earnings/(losses)
 
(1,939
)
 
(4,025
)
Change in assets and liabilities, net of effects from acquisitions:
 
 

 
 

Accounts receivable
 
(5,468
)
 
(7,049
)
Due from unconsolidated companies
 
(1,671
)
 
(1,254
)
Prepaid expenses and other
 
2

 
(1,740
)
Inventories
 
1,404

 
(840
)
Escrow and prepaid customer deposits
 
(1,327
)
 
3,124

Accounts payable
 
1,602

 
(2,797
)
Accrued liabilities
 
11,548

 
19,235

Deferred revenue
 
11,029

 
10,929

Other, net
 
(5,378
)
 
3,227

Other cash movements:
 
 
 
 
Dividends from equity method investees
 
2,915

 
5,053

Proceeds from insurance settlements
 
887

 

Payment of key money
 
(3,000
)
 

Payment of swap termination costs
 
(3,985
)
 

 
 
 
 
 
Net cash provided by operating activities from continuing operations
 
63,660

 
83,503

Net cash used in operating activities from discontinued operations
 
(1,951
)
 
(556
)
 
 
 
 
 
Net cash provided by operating activities
 
61,709

 
82,947

 
 
 
 
 

See notes to condensed consolidated financial statements.
6


Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Cash Flows (unaudited) (continued)

 
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
 
$'000
 
$'000
 
 
 
 
 
Cash flows from investing activities:
 
 

 
 

Capital expenditure to acquire property, plant and equipment
 
(52,481
)
 
(52,326
)
Capital expenditure to acquire intangible assets
 
(287
)
 

Investments in unconsolidated companies
 
(4,890
)
 
(6,323
)
Increase in restricted cash
 

 
(159
)
Release of restricted cash
 
7,582

 
2,042

Proceeds from sale of property, plant and equipment
 
37,842

 

Proceeds from insurance settlements
 
297

 
234

 
 
 
 
 
Net cash used in investing activities from continuing operations
 
(11,937
)
 
(56,532
)
Net cash provided by investing activities from discontinued operations
 

 
18,862

 
 
 
 
 
Net cash used in investing activities
 
(11,937
)
 
(37,670
)
 
 
 
 
 
Cash flows from financing activities:
 
 

 
 

Payments of working capital loans
 
(135
)
 

Exercised stock options and vested share awards
 
4

 
5

Excess share-based compensation tax benefit
 
106

 

Issuance of long-term debt
 
571,964

 
104,393

Debt issuance costs
 
(17,366
)
 
(2,664
)
Principal payments under long-term debt
 
(563,661
)
 
(88,319
)
 
 
 
 
 
Net cash (used in)/ provided by financing activities from continuing operations
 
(9,088
)
 
13,415

Net cash (used in)/provided by financing activities from discontinued operations
 

 

 
 
 
 
 
Net cash (used in)/provided by financing activities
 
(9,088
)
 
13,415

 
 
 
 
 
Effect of exchange rate changes on cash and cash equivalents
 
(5,411
)
 
1,070

 
 
 
 
 
Net increase in cash and cash equivalents
 
35,273

 
59,762

 
 
 
 
 
Cash and cash equivalents at beginning of period (includes $394 and $538 of cash presented within assets held for sale)
 
123,553

 
93,382

 
 
 
 
 
Cash and cash equivalents at end of period (includes $Nil and $378 of cash presented within assets held for sale)
 
158,826

 
153,144

 
 
 
 
 



See notes to condensed consolidated financial statements.
7


Belmond Ltd. and Subsidiaries
Statements of Condensed Consolidated Total Equity (unaudited)
 
 
 
Preferred
shares at
par value
$’000
 
Class A
common
shares at
par value
$’000
 
Class B
common
shares at
par value
$’000
 
Additional
paid-in
capital
$’000
 
Retained
earnings
$’000
 
Accumulated
other
comprehensive
loss
$’000
 
Class B
common
shares held by
a subsidiary
$’000
 
Non-
controlling
interests
$’000
 
Total
$’000
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2013
 

 
1,029

 
181

 
982,106

 
39,202

 
(86,381
)
 
(181
)
 
2,367

 
938,323

Share-based compensation
 

 

 

 
6,557

 

 

 

 

 
6,557

Exercised stock options and vested share awards
 

 
5

 

 

 

 

 

 

 
5

Comprehensive loss:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net losses attributable to common shares
 

 

 

 

 
(13,612
)
 

 

 
68

 
(13,544
)
Other comprehensive loss
 

 

 

 

 

 
(10,619
)
 

 
(9
)
 
(10,628
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2013
 

 
1,034

 
181

 
988,663

 
25,590

 
(97,000
)
 
(181
)
 
2,426

 
920,713

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2014
 

 
1,036

 
181

 
992,860

 
7,643

 
(93,317
)
 
(181
)
 
2,423

 
910,645

Share-based compensation
 

 

 

 
5,810

 

 

 

 

 
5,810

Exercised stock options and vested share awards
 

 
4

 

 

 

 

 

 

 
4

Dividend to non-controlling interest
 

 

 

 

 

 

 

 
(264
)
 
(264
)
Comprehensive loss:
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Net earnings/(losses) attributable to common shares
 

 

 

 

 
257

 

 

 
(22
)
 
235

Other comprehensive loss
 

 

 

 

 

 
(97,104
)
 

 
(1,035
)
 
(98,139
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance, September 30, 2014
 

 
1,040

 
181

 
998,670

 
7,900

 
(190,421
)
 
(181
)
 
1,102

 
818,291

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


See notes to condensed consolidated financial statements.
8


Belmond Ltd. and Subsidiaries
 
Notes to Condensed Consolidated Financial Statements (unaudited)
 
1.    Basis of financial statement presentation
 
Business
 
In this report Belmond Ltd. is referred to as the “Company”, and the Company and its consolidated subsidiaries are referred to collectively as “Belmond”. On June 30, 2014, the Company changed its name from Orient-Express Hotels Ltd. to Belmond Ltd. following approval by shareholders at the 2014 annual general meeting held on that date. On July 28, 2014, the Company changed the ticker symbol of its class A common shares listed on the New York Stock Exchange from OEH to BEL.
 
At September 30, 2014, Belmond owned, invested in or managed 35 deluxe hotels and resort properties operating in the United States, Mexico, the Caribbean, Europe, Southern Africa, South America, and Southeast Asia, one stand-alone restaurant in New York, six tourist trains in Europe, Southeast Asia and Peru, two river cruise businesses in Myanmar (Burma) and one canal boat business in France.
 
Basis of presentation

The accompanying condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) for quarterly reporting on Form 10-Q.  Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“U.S. GAAP”) for complete financial statements.  In the opinion of the management of the Company, all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of financial position, operating results and cash flows for the interim period have been included in these condensed consolidated financial statements.

“FASB” means Financial Accounting Standards Board.  “ASC” means the Accounting Standards Codification of the FASB and “ASU” means an Accounting Standards Update of the FASB.

The interim results presented are not necessarily indicative of results that may be expected for any subsequent interim period or the fiscal year ending December 31, 2014.
 
These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013.  See Note 2 to the consolidated financial statements in the 2013 Annual Report on Form 10-K for additional information regarding significant accounting policies.
 
For interim reporting purposes, Belmond calculates its tax expense by estimating its global annual effective tax rate and applies that rate in providing for income taxes on a year-to-date basis. Belmond has calculated an expected annual effective tax rate, excluding significant, unusual or extraordinary items, and the tax effect of jurisdictions with losses for which a tax benefit cannot be recognized. The income tax expense (or benefit) related to all other items is individually computed and recognized when the items occur.

Reclassifications

Discontinued operations and assets and liabilities held for sale were reclassified in the condensed consolidated financial statements for all periods presented. See Note 3 for a summary of the results of discontinued operations and assets and liabilities held for sale.

Accounting policies
 
The accounting policies used in preparing these condensed consolidated financial statements are the same as those applied in the prior year, except for a change in the functional currency of Belmond’s Brazilian operations and codified changes made to the ASC, as described below.


9


Functional currency change

Prior to 2014, Belmond’s Brazilian operations used the U.S. dollar as their functional currency. Effective January 1, 2014, Belmond changed the functional currency to the Brazilian real. Belmond believes that the growth in the Brazilian operations’ real-denominated revenues and expenses indicated a change in the economic facts and circumstances that justified the change in the functional currency. A foreign currency translation adjustment loss of $49,356,000 arising on the remeasurement of non-monetary assets and liabilities of Belmond’s Brazilian operations, of which the majority related to property, plant and equipment, is included in other comprehensive losses for the nine months ended September 30, 2014.

Accounting pronouncements adopted during the period

In July 2013, the FASB issued guidance on financial statement presentation of an uncertain tax benefit (“UTB”) when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The FASB’s objective in issuing this guidance is to eliminate diversity in practice resulting from a lack of guidance on this topic in current U.S. GAAP. Under the ASU, an entity must present a UTB, or a portion of a UTB, in the financial statements as a reduction to a deferred tax asset for a net operating loss carryforward, a similar tax loss, or a tax credit carryforward. The ASU’s amendments are effective for public entities for fiscal years beginning after December 15, 2013, and interim periods within those years. The amendments should be applied to all UTBs that exist as of the effective date. Entities may choose to apply the amendments retrospectively to each prior reporting period presented. The adoption of this guidance did not have a material effect on Belmond’s consolidated financial position, results of operations and cash flows.

In March 2013, the FASB issued guidance which indicates that the entire amount of a cumulative translation adjustment (“CTA”) related to an entity’s investment in a foreign entity should be released when there has been any of the following:

Sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity.
Loss of a controlling financial interest in an investment in a foreign entity (i.e., the foreign entity is deconsolidated).
Step acquisition for a foreign entity (i.e., when an entity has changed from applying the equity method for an investment in a foreign entity to consolidating the foreign entity).

The ASU does not change the requirement to release a pro rata portion of the CTA of the foreign entity into earnings for a partial sale of an equity method investment in a foreign entity. This guidance is effective for fiscal years (and interim periods within those fiscal years) beginning on or after December 15, 2013. The guidance should be applied prospectively from the beginning of the fiscal year of adoption. The adoption of this guidance did not have a material effect on Belmond’s consolidated financial position, results of operations and cash flows.

In February 2013, the FASB issued guidance which requires entities to measure obligations resulting from joint-and-several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of (a) the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors, and (b) any additional amount the reporting entity expects to pay on behalf of its co-obligors. Required disclosures include a description of the joint-and-several arrangement and the total outstanding amount of the obligation for all joint parties. The guidance permits entities to aggregate disclosures (as opposed to providing separate disclosures for each joint-and-several obligation). These disclosure requirements are incremental to the existing related party disclosure requirements. The guidance is effective for all prior periods in fiscal years beginning on or after December 15, 2013 (and interim reporting periods within those years). The guidance should be applied retrospectively to obligations with joint-and-several liability existing at the beginning of an entity’s fiscal year of adoption. Entities that elect to use hindsight in measuring their obligations during the comparative periods must disclose that fact. The adoption of this guidance did not have a material effect on Belmond’s consolidated financial position, results of operations and cash flows.

Accounting pronouncements to be adopted

In April 2014, the FASB issued guidance that amends the definition of a discontinued operation and requires entities to provide additional disclosures about disposal transactions. The revised guidance will change how entities identify and disclose information about disposal transactions. The guidance is effective prospectively for all disposals (except disposals classified as held for sale before the adoption date) or components initially classified as held for sale in periods beginning on or after December 15, 2014, with early adoption permitted. Belmond is assessing what impact, if any, the adoption of this guidance will have on its consolidated financial position, results of operations and cash flows.


10


In May 2014, the FASB issued new guidance which is intended to improve the comparability of revenue recognition practices across entities, industries, jurisdictions, and capital markets. The guidance supersedes existing revenue recognition guidance and requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for the fiscal year beginning January 1, 2017. The Company is currently evaluating the impact of the adoption of this guidance on its condensed consolidated financial statements.

In August 2014, the FASB issued new guidance on determining when and how reporting entities must disclose going-concern uncertainties in their financial statements. The new standard requires management to perform interim and annual assessments of an entity’s ability to continue as a going concern within one year of the date of issuance of the entity’s financial statements. Further, an entity must provide certain disclosures if there is “substantial doubt about the entity’s ability to continue as a going concern”. The guidance is effective for annual periods ending after December 15, 2016, and interim periods thereafter, with early adoption permitted. Belmond is assessing what impact, if any, the adoption of this guidance will have on its disclosures.

2.     Earnings per share
 
The calculation of basic and diluted earnings per share including a reconciliation of the numerator and denominator is as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
 
 
 
 
 
 
 
Numerator ($'000)
 
 
 
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
16,352

 
16,630

 
2,906

 
(12,639
)
Net earnings/(losses) from discontinued operations
 
(1,469
)
 
(505
)
 
(2,671
)
 
(905
)
Net losses/(earnings) attributable to non-controlling interests
 
49

 
15

 
22

 
(68
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
14,932

 
16,140

 
257

 
(13,612
)
 
 
 
 
 
 
 
 
 
Denominator (shares '000)
 
 
 
 
 
 
 
 
Basic weighted average shares outstanding
 
103,923

 
103,337

 
103,793

 
103,138

Effect of dilution
 
2,416

 
2,236

 
2,416

 

 
 
 
 
 
 
 
 
 
Diluted weighted average shares outstanding
 
106,339

 
105,573

 
106,209

 
103,138

 
 
 
 
 
 
 
 
 
 
 
$
 
$
 
$
 
$
Basic earnings per share
 
 
 
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
0.157

 
0.161

 
0.028

 
(0.123
)
Net earnings/(losses) from discontinued operations
 
(0.014
)
 
(0.005
)
 
(0.026
)
 
(0.009
)
Net losses/(earnings) attributable to non-controlling interests
 

 

 

 
(0.001
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
0.143

 
0.156

 
0.002

 
(0.133
)
 
 
 
 
 
 
 
 
 
Diluted earnings per share
 
 
 
 
 
 
 
 
Net earnings/(losses) from continuing operations
 
0.154

 
0.158

 
0.027

 
(0.123
)
Net earnings/(losses) from discontinued operations
 
(0.014
)
 
(0.005
)
 
(0.025
)
 
(0.009
)
Net losses/(earnings) attributable to non-controlling interests
 

 

 

 
(0.001
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses) attributable to Belmond Ltd.
 
0.140

 
0.153

 
0.002

 
(0.133
)


11


For the nine months ended September 30, 2013, all share options and share-based awards were excluded from the calculation of the diluted weighted average number of shares because Belmond incurred a net loss in that period and the effect of their inclusion would be anti-dilutive.

The total number of share options and share-based awards excluded from computing diluted earnings per share were as follows: 
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
 
 
 
 
 
 
 
Share options
 
820,000

 
208,600

 
820,000

 
3,130,450

Share-based awards
 

 

 

 
1,481,827

 
 
 
 
 
 
 
 
 
Total
 
820,000

 
208,600

 
820,000

 
4,612,277

 
The number of share options and share-based awards unexercised at September 30, 2014 was 820,000 (September 30, 2013 - 4,612,277).

3.    Assets held for sale and discontinued operations

At September 30, 2014, no properties were classified as held for sale. During the nine months ended September 30, 2014, a sale was completed on one condominium relating to Porto Cupecoy which was excluded from the disposal of the Porto Cupecoy development in Sint Maarten as it was already under a separate sales contract at the time. During the nine months ended September 30, 2014, Inn at Perry Cabin by Belmond, St Michaels, Maryland was sold. Due to Belmond's continuing involvement in managing the hotel, its results are presented within continuing operations. For the nine months ended September 30, 2014, the results of operations of Ubud Hanging Gardens, Bali, Indonesia have been presented as discontinued operations, following the unannounced dispossession of Belmond from the hotel by the owner in November 2013.

During the nine months ended September 30, 2013, Porto Cupecoy was sold. For the three and nine months ended September 30, 2013, the results of operations of Porto Cupecoy have been presented as discontinued operations.

(a)    Properties sold: Inn at Perry Cabin by Belmond and Porto Cupecoy

On March 21, 2014, Belmond completed the sale of the property and operations of Inn at Perry Cabin by Belmond for consideration of $39,700,000, of which $25,680,000 was paid in cash, $11,020,000 was settled directly with the lender to repay the debt facility secured by the property, and $3,000,000 was retained by the buyer as a key money contribution from Belmond to be used for agreed capital enhancements. Belmond will continue to manage the hotel for the new owner under a management agreement with a ten-year term that permits termination on the fifth anniversary of the agreement. The disposal resulted in a gain of $6,704,000, of which $3,704,000 was recognized on completion on March 21, 2014 and $3,000,000 has been deferred and will be recognized over the initial period of the management contract. The gain on sale of $3,704,000 recognized on March 21, 2014 and the subsequent release of the deferred gain is reported within gain on disposal of property, plant and equipment in the statements of condensed consolidated operations.

On January 31, 2013, Belmond completed the sale of the property and operations of Porto Cupecoy for cash consideration of $19,000,000. The property was a part of Belmond’s former real estate segment. The disposal resulted in a gain of $439,000, which is reported within net earnings/(losses) from discontinued operations, net of tax.


12


The following is a summary of net assets sold and the gain recorded on sale for Inn at Perry Cabin by Belmond and Porto Cupecoy:
 
 
Inn at Perry Cabin by Belmond
 
Porto Cupecoy
 
 
March 21,
2014
 
January 31,
2013
 
 
$'000
 
$'000
 
 
 
 
 
Property, plant and equipment
 
32,293

 
38

Real estate assets
 

 
18,512

Net working capital (deficit)/surplus
 
(820
)
 

Net assets
 
31,473

 
18,550

Transfer of foreign currency translation loss/(gain)
 

 

 
 
31,473

 
18,550

Consideration:
 
 
 
 
Cash
 
25,680

 
19,000

Reduction in debt facility on sale of hotel
 
11,020

 

Key money retained by buyer
 
3,000

 

Less: Working capital adjustment
 
(1,130
)
 
(11
)
Less: Costs to sell
 
(393
)
 

 
 
38,177

 
18,989

 
 
 
 
 
Gain on sale
 
6,704

 
439


(b)    Results of discontinued operations

Belmond had been operating the hotel Ubud Hanging Gardens under a long-term lease arrangement with a third-party owner. The existing lease arrangement continues to 2030. Following an unannounced dispossession of Belmond from the hotel by the owner in November 2013, however, Belmond has been unable to continue to operate the hotel. Belmond believes that the owner's actions are unlawful and constitute a wrongful dispossession and is pursuing its legal remedies under the lease. As Belmond is unable to operate Ubud Hanging Gardens for the foreseeable future, the hotel has been presented as a discontinued operation for all periods shown. The assets and liabilities of the hotel have not been classified as held for sale, as the hotel has not been disposed of through a sale transaction.

Summarized operating results of the properties classified as discontinued operations for the three and nine months ended September 30, 2014 and 2013 are as follows:
 
 
Three months ended September 30, 2014
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Total
 
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
Revenue
 

 
600

 
600

 
 
 
 
 
 
 
Losses before tax, gain on sale and impairment
 
(252
)
 
(1,217
)
 
(1,469
)
 
 
 
 
 
 
 
Losses before tax
 
(252
)
 
(1,217
)
 
(1,469
)
 
 
 
 
 
 
 
Net losses from discontinued operations
 
(252
)
 
(1,217
)
 
(1,469
)

13


 
 
Three months ended September 30, 2013
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Keswick Hall
 
Total
 
 
$'000
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
 
 
Revenue
 
1,876

 
692

 

 
2,568

 
 
 
 
 
 
 
 
 
Earnings before tax, gain on sale and impairment
 
772

 
(1,694
)
 

 
(922
)
 
 
 
 
 
 
 
 
 
Earnings before tax
 
772

 
(1,694
)
 

 
(922
)
Tax provision
 
(231
)
 

 
648

 
417

 
 
 
 
 
 
 
 
 
Net earnings from discontinued operations
 
541

 
(1,694
)
 
648

 
(505
)

 
 
Nine months ended September 30, 2014
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
Total
 
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
Revenue
 

 
600

 
600

 
 
 
 
 
 
 
Losses before tax, gain on sale and impairment
 
(1,170
)
 
(1,501
)
 
(2,671
)
 
 
 
 
 
 
 
Losses before tax
 
(1,170
)
 
(1,501
)
 
(2,671
)
 
 
 
 
 
 
 
Net losses from discontinued operations
 
(1,170
)
 
(1,501
)
 
(2,671
)

 
 
Nine months ended September 30, 2013
 
 
Ubud Hanging Gardens
 
Porto Cupecoy
 
The Westcliff
 
Keswick Hall
 
Total
 
 
$'000
 
$'000
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
 
 
 
 
Revenue
 
4,489

 
1,535

 

 

 
6,024

 
 
 
 
 
 
 
 
 
 
 
Earnings/(losses) before tax, gain on sale and impairment
 
1,303

 
(3,283
)
 

 

 
(1,980
)
Impairment
 

 
(77
)
 

 

 
(77
)
Gain on sale
 

 
439

 

 

 
439

 
 
 
 
 
 
 
 
 
 
 
Earnings/(losses) before tax
 
1,303

 
(2,921
)
 

 

 
(1,618
)
Tax (provision)/benefit
 
(357
)
 

 
422

 
648

 
713

 
 
 
 
 
 
 
 
 
 
 
Net earnings/(losses) from discontinued operations
 
946

 
(2,921
)
 
422

 
648

 
(905
)

The results of discontinued operations for the three and nine months ended September 30, 2014 include legal fees of $252,000 and $1,170,000, respectively, in relation to Ubud Hanging Gardens, as Belmond is pursuing legal remedies following its wrongful dispossession by the owner in November 2013. See Note 16.

14


The results of discontinued operations for the three and nine months ended September 30, 2014 include revenue and costs associated with the sale of one condominium relating to Porto Cupecoy which was excluded from the disposal of the Porto Cupecoy development in Sint Maarten as it was already under a separate sales contract at the time.

The results of discontinued operations for the nine months ended September 30, 2013 include a tax credit of $422,000 in relation to The Westcliff, Johannesburg, South Africa, which was sold in December 2012. This tax credit arose following the submission of the 2012 tax return in 2013.

The results of discontinued operations for the three and nine months ended September 30, 2013 include a tax credit of $648,000 in relation to Keswick Hall, Charlottesville, Virginia, which was sold in January 2012. This tax credit arose following the submission of the 2012 tax return in 2013.

(c)    Assets and liabilities held for sale
 
There were no properties classified as held for sale at September 30, 2014. Assets and liabilities of the properties classified as held for sale at December 31, 2013 consist of the following:
 
 
December 31, 2013
 
 
Inn at Perry Cabin by Belmond
 
Porto Cupecoy
 
Total
 
 
$'000
 
$’000
 
$'000
 
 
 
 
 
 
 
Current assets
 
1,503

 

 
1,503

Real estate assets
 

 
720

 
720

Property, plant and equipment
 
32,193

 

 
32,193

 
 
 
 
 
 
 
Total assets held for sale
 
33,696

 
720

 
34,416

 
 
 
 
 
 
 
Current liabilities
 
(1,611
)
 

 
(1,611
)
 
 
 
 
 
 
 
Total liabilities held for sale
 
(1,611
)
 

 
(1,611
)
 
4.    Variable interest entities
 
(a)    VIEs of which Belmond is the primary beneficiary
 
Belmond holds a 19.9% equity investment in Charleston Center LLC, owner of Belmond Charleston Place, Charleston, South Carolina. Belmond has also made a number of loans to the hotel. Belmond concluded that Charleston Center LLC is a variable interest entity (“VIE”) because the total equity at risk is insufficient for the entity to fund its operations without additional subordinated financial support, the majority of which has been provided by Belmond. Belmond is the primary beneficiary of this VIE because it is expected to absorb a majority of the VIE’s expected losses and residual gains through the subordinated financial support it has provided, and has the power to direct the activities that impact the VIE’s performance, based on the current organizational structure.


15


The carrying amount of consolidated assets and liabilities of Charleston Center LLC included within Belmond’s condensed consolidated balance sheets as of September 30, 2014 and December 31, 2013 are summarized as follows:
 
 
September 30,
2014
 
December 31,
2013
 
 
$’000
 
$’000
 
 
 
 
 
Current assets
 
9,013

 
10,517

Property, plant and equipment, net of accumulated depreciation of $27,312 and $23,733
 
196,344

 
187,854

Goodwill
 
40,395

 
40,395

Other assets
 
1,947

 
1,895

 
 
 
 
 
Total assets
 
247,699

 
240,661

 
 
 
 
 
Current liabilities, including $214 and $1,805 current portion of third-party debt
 
7,937

 
8,527

Long-term third party debt
 
97,383

 
94,345

Long-term accrued interest on subordinated debt
 
15,790

 
15,340

Deferred income taxes
 
61,318

 
60,892

 
 
 
 
 
Total liabilities
 
182,428

 
179,104

 
 
 
 
 
Net assets (before amounts payable to Belmond of $93,428 and $92,692)
 
65,271

 
61,557

 
The third-party debt of Charleston Center LLC is secured by its assets and is non-recourse to its members, including Belmond. The hotel’s separate assets are not available to pay the debts of Belmond and the hotel’s separate liabilities do not constitute obligations of Belmond. The assets of Charleston Center LLC that can be used only to settle obligations of Charleston Center LLC totaled $207,304,000 at September 30, 2014 (December 31, 2013 - $200,266,000) and exclude goodwill of $40,395,000 (December 31, 2013 - $40,395,000). The liabilities of Charleston Center LLC for which creditors do not have recourse to the general credit of Belmond totaled $182,428,000 at September 30, 2014 (December 31, 2013 - $179,104,000).

(b)    VIEs of which Belmond is not the primary beneficiary
 
Belmond holds a 50% equity investment in its rail joint venture in Peru which operates the infrastructure, rolling stock, stations and services on a portion of the state-owned railways in Peru. Belmond concluded that the Peru rail joint venture is a VIE because the total equity at risk is insufficient for it to fund its operations without additional subordinated financial support. The joint venture is under joint control as all the budgetary and capital decisions require a majority of approval of the joint venture’s board of directors, which has equal representation from both joint venture partners. The joint venture is accounted for under the equity method of accounting and included in earnings/(losses) from unconsolidated companies, net of tax in the statements of condensed consolidated operations.

The carrying amounts and maximum exposures to loss as a result of Belmond’s involvement with its Peru rail joint venture are as follows:

16


 
 
Carrying amounts
 
Maximum exposure
 
 
September 30,
2014
 
December 31,
2013
 
September 30,
2014
 
December 31,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Investment
 
42,730

 
38,095

 
42,730

 
38,095

Due from unconsolidated company
 
2,418

 
4,957

 
2,418

 
4,957

Guarantees
 

 

 
4,589

 
5,920

Contingent guarantees
 

 

 
11,968

 
14,731

 
 
 
 
 
 
 
 
 
Total
 
45,148

 
43,052

 
61,705

 
63,703


The maximum exposure to loss for the Peru rail joint venture exceeds Belmond’s carrying amounts in the joint venture due to guarantees, which, as discussed below, are not recognized in the condensed consolidated financial statements. The contingent guarantees may only be enforced in the event there is a change in control in the joint venture, which would occur only if Belmond’s ownership of the economic and voting interests in the joint venture falls below 50%, an event which has not occurred and is not expected to occur. As at September 30, 2014, Belmond does not expect that it will be required to fund these guarantees relating to this joint venture as the entity has the ability to repay the loans.

The Company has guaranteed $4,589,000 and contingently guaranteed $5,538,000 of the debt obligations of the rail joint venture in Peru through 2017. The Company has also contingently guaranteed the rail joint venture’s obligations relating to the performance of its governmental rail concessions, currently in the amount of $6,430,000, through May 2015.

Long-term debt obligations of the rail joint venture in Peru at September 30, 2014 totaling $4,589,000 have been classified within current liabilities of the joint venture in its stand-alone financial statements, as it was out of compliance with a debt service coverage ratio covenant in its loan facilities. Discussions with the lenders to bring the joint venture into compliance are continuing, although this non-compliance is not expected to have a material impact on Belmond’s financial flexibility.

5.    Investments in unconsolidated companies
 
Investments in unconsolidated companies represent equity interests of 50% or less and in which Belmond exerts significant influence, but does not have effective control of these unconsolidated companies and, therefore, accounts for these investments using the equity method. These investments include the 50% ownership in rail and hotel joint venture operations in Peru and in Hotel Ritz by Belmond, Madrid, Spain, the 25% ownership in Eastern and Oriental Express Ltd, and the Buzios land joint venture which is 50% owned and further described below.

In June 2007, Belmond acquired 50% of a company holding real estate in Buzios, Brazil for a cash consideration of $5,000,000. Belmond planned to build a hotel and villas on the acquired land and to purchase the remaining share of the company when the building permits were obtained from the local authorities. In February 2009, the Municipality of Buzios commenced a process for the compulsory purchase of the land by the municipality in exchange for a payment of fair compensation to the owners. In April 2011, the State of Rio de Janeiro declared the land an area of public interest, with the intention that it will become part of an environmental park which is being created in the area. The compulsory purchase of the land is therefore expected to be carried out by the State of Rio de Janeiro. Belmond is currently in negotiation to recover its investment in the project and fully expects to do so.

Summarized financial data for Belmond’s unconsolidated companies are as follows:

17


 
 
September 30,
2014
 
December 31,
2013
 
 
$’000
 
$’000
 
 
 
 
 
Current assets
 
67,467

 
64,145

 
 
 
 
 
Property, plant and equipment, net
 
338,522

 
342,731

Other assets
 
23,555

 
24,142

Non-current assets
 
362,077


366,873

 
 
 
 
 
Total assets
 
429,544

 
431,018

 
 
 
 
 
Current liabilities
 
138,068

 
154,213

 
 
 
 
 
Long-term debt
 
45,708

 
37,043

Other liabilities
 
132,174

 
127,002

Non-current liabilities
 
177,882

 
164,045

 
 
 
 
 
Total shareholders’ equity
 
113,594

 
112,760

 
 
 
 
 
Total liabilities and shareholders’ equity
 
429,544

 
431,018

 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Revenue
 
47,780

 
45,484

 
128,121

 
125,091

 
 
 
 
 
 
 
 
 
Gross profit1
 
30,975

 
21,929

 
77,508

 
66,770

 
 
 
 
 
 
 
 
 
Net earnings2
 
6,093

 
3,763

 
8,689

 
9,259

1 Gross profit is defined as revenues less cost of services of the unconsolidated companies.
2 There were no discontinued operations, extraordinary items or cumulative effects of a change in an accounting principle in the unconsolidated companies.

Included in unconsolidated companies are Belmond’s hotel and rail joint ventures in Peru, under which Belmond and the other 50% participant must contribute equally additional equity needed for the businesses.  If the other participant does not meet this obligation, Belmond has the right to dilute the other participant and obtain a majority equity interest in the affected joint venture company.  Belmond also has rights to purchase the other participant’s interests, which rights are exercisable in limited circumstances such as the other participant’s bankruptcy.

There are guarantees and contingent guarantees to unconsolidated companies which are not recognized in the condensed consolidated financial statements. The contingent guarantees for each Peruvian joint venture may only be enforced in the event there is a change in control of the relevant joint venture, which would occur only if Belmond’s ownership of the economic and voting interests in the joint venture falls below 50%, an event which has not occurred. As at September 30, 2014, Belmond does not expect that it will be required to fund these guarantees relating to these joint venture companies.

The Company has contingently guaranteed, through 2020, $19,583,000 of debt obligations of the joint venture in Peru that operates four hotels. See Note 4 for information regarding guarantees and long-term debt of the rail joint venture in Peru.

At September 30, 2014, long-term debt obligations totaling $71,374,000 of Hotel Ritz by Belmond, in which Belmond has a 50% equity investment, have been classified within current liabilities in the joint venture’s stand-alone financial statements as it was out of compliance with the debt service coverage ratio covenant in its first mortgage loan facility. Belmond anticipates negotiations

18


with the lender as to how to bring the hotel into long-term compliance. Belmond does not expect the loan to be called and, therefore, does not believe the Company will be required to fund its portion of the guarantees. Belmond and its joint venture partner have each guaranteed $9,474,000 of the debt obligations.

6.    Property, plant and equipment
 
The major classes of property, plant and equipment are as follows:
 
 
September 30,
2014
 
December 31,
2013
 
 
$’000
 
$’000
 
 
 
 
 
Land and buildings
 
1,125,537

 
1,201,967

Machinery and equipment
 
201,719

 
212,924

Fixtures, fittings and office equipment
 
227,976

 
229,753

River cruise ship and canal boats
 
19,176

 
19,082

 
 
 
 
 
 
 
1,574,408

 
1,663,726

Less: Accumulated depreciation
 
(352,345
)
 
(354,123
)
 
 
 
 
 
Total property, plant and equipment, net of accumulated depreciation
 
1,222,063

 
1,309,603

 
The major classes of assets under capital leases included above are as follows:
 
 
September 30,
2014
 
December 31,
2013
 
 
$’000
 
$’000
 
 
 
 
 
Machinery and equipment
 
730

 
889

Fixtures, fittings and office equipment
 
99

 
108

 
 
 
 
 
 
 
829

 
997

Less: Accumulated depreciation
 
(692
)
 
(905
)
 
 
 
 
 
Total assets under capital leases, net of accumulated depreciation
 
137

 
92

 
The depreciation charge on property, plant and equipment for the three and nine months ended September 30, 2014 was $11,969,000 (September 30, 2013 - $10,568,000) and $36,667,000 (September 30, 2013 - $34,057,000), respectively.

The table above includes property, plant and equipment of Charleston Center LLC, a consolidated VIE, of $196,344,000 at September 30, 2014 (December 31, 2013 - $187,854,000).

There were no impairments in the three months ended September 30, 2014 (September 30, 2013 - $Nil). There were no impairments in the nine months ended September 30, 2014. During the nine months ended September 30, 2013, Belmond recorded a non-cash property, plant and equipment impairment charge of $35,680,000 in respect of Belmond La Samanna, St. Martin, French West Indies based on a strategic review of its assets. The carrying value was written down to the hotel’s fair value.
 
For the three and nine months ended September 30, 2014, Belmond capitalized interest in the amount of $Nil (September 30, 2013 - $Nil) and $Nil (September 30, 2013 - $1,088,000), respectively. All amounts capitalized were recorded in property, plant and equipment.


19


7.    Goodwill

The changes in the carrying amount of goodwill for the nine months ended September 30, 2014 are as follows:
 
 
At January 1, 2014
 
 
 
 
 
 
 
 
Gross goodwill amount
 
Accumulated impairment
 
Net goodwill amount
 
Impairment
 
Foreign currency translation adjustment
 
Ending balance at September 30, 2014
 
 
$'000
 
$'000
 
$'000
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
 
 
 
 
Europe
 
87,885

 
(10,104
)
 
77,781

 

 
(8,533
)
 
69,248

North America
 
66,101

 
(16,110
)
 
49,991

 

 

 
49,991

Rest of world
 
29,220

 
(8,113
)
 
21,107

 

 
(7,068
)
 
14,039

Owned trains and cruises
 
8,037

 

 
8,037

 

 
(66
)
 
7,971

 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
191,243

 
(34,327
)
 
156,916

 

 
(15,667
)
 
141,249


There were no triggering events in the nine months ended September 30, 2014 that would have required Belmond to reassess the carrying value of goodwill.

8.    Other intangible assets
 
Other intangible assets consist of the following as of September 30, 2014:
 
 
Favorable lease assets
 
Internet sites
 
Trade names
 
Total
 
 
$'000
 
$'000
 
$'000
 
$'000
 
 
 
 
 
 
 
 
 
Carrying amount:
 
 
 
 
 
 
 
 
Balance at January 1, 2014
 
8,660

 
1,723

 
7,100

 
17,483

Additions
 

 
287

 

 
287

Foreign currency translation adjustment
 
(11
)
 
(50
)
 

 
(61
)
 
 
 
 
 
 
 
 
 
Balance at September 30, 2014
 
8,649

 
1,960

 
7,100

 
17,709

 
 
 
 
 
 
 
 
 
Accumulated amortization:
 
 
 
 
 
 
 
 
Balance at January 1, 2014
 
2,268

 
1,063

 
 
 
3,331

Charge for the period
 
182

 
103

 
 
 
285

Foreign currency translation adjustment
 
(5
)
 
(27
)
 
 
 
(32
)
 
 
 
 
 
 
 
 
 
Balance at September 30, 2014
 
2,445

 
1,139

 
 
 
3,584

 
 
 
 
 
 
 
 
 
Net book value:
 
 
 
 
 
 
 
 
At September 30, 2014
 
6,204

 
821

 
7,100

 
14,125

 
 
 
 
 
 
 
 
 
At December 31, 2013
 
6,392

 
660

 
7,100

 
14,152


Favorable lease intangible assets are amortized over the terms of the leases, which are between 19 and 60 years. Internet sites are amortized over a period of five to ten years. Trade names have an indefinite life and therefore are not amortized, but are assessed for impairment annually or when events indicate that impairment may have occurred.


20


Total amortization expense for the three and nine months ended September 30, 2014 was $93,000 (September 30, 2013 - $88,000) and $285,000 (September 30, 2013 - $316,000), respectively. Estimated total amortization expense for the remainder of the year ending December 31, 2014 is $146,000 and for each of the years ending December 31, 2015 to December 31, 2019 is $439,000.

9.    Debt and obligations under capital lease
 
(a)    Long-term debt and obligations under capital lease

Long-term debt and obligations under capital lease consist of the following:
 
 
September 30,
2014
 
December 31,
2013
 
 
$’000
 
$’000
 
 
 
 
 
Loans from banks and other parties collateralized by tangible and intangible personal property and real estate with a maturity of five to 14 years (December 31, 2013 - one to 15 years), with a weighted average interest rate of 4.35% (December 31, 2013 - 4.09%)
 
629,414

 
639,717

Obligations under capital lease
 
50

 
14

 
 
 
 
 
Total long-term debt and obligations under capital lease
 
629,464

 
639,731

 
 
 
 
 
Less: Current portion
 
5,569

 
72,816

Less: Discount on secured term loan
 
2,550

 

 
 
 
 
 
Non-current portion of long-term debt and obligations under capital lease
 
621,345

 
566,915

 
On March 21, 2014, Belmond entered into a $551,955,000 secured term loan and a $105,000,000 revolving credit facility, the proceeds of which were used to repay all outstanding funded debt apart from the debt of Charleston Center LLC, a consolidated VIE, and the debt of Belmond’s unconsolidated joint venture companies.

The term loan consists of two tranches, a $345,000,000 U.S. dollar tranche and a €150,000,000 euro-denominated tranche (equivalent to $206,955,000 at drawdown). The dollar tranche bears interest at a rate of LIBOR plus 3% per annum, and the euro tranche bears interest at a rate of EURIBOR plus 3.25% per annum. Both tranches are subject to a 1% interest rate floor. The term loan matures in seven years and the annual mandatory amortization is 1% of the principal amount.
The revolving credit facility has a maturity of five years and bears interest at a rate of LIBOR plus 2.75% per annum, with a commitment fee of 0.4% paid on the undrawn amount.
The term loan and revolving credit facility are secured by pledges of shares in certain Company subsidiaries and by security interests in tangible and intangible personal property. There are no mortgages over real estate.

In August 2014, Charleston Center LLC refinanced a secured loan of $83,200,000 with a new $86,000,000 loan secured on its real and personal property. The loan has a five year maturity and bears interest at a rate of LIBOR plus 2.12% per annum. This loan has no amortization and is non-recourse to Belmond.


21


The following is a summary of the aggregate maturities of consolidated long-term debt, including obligations under capital lease, at September 30, 2014:
 
 
$’000
 
 
 
Remainder of 2014
 
1,391

2015
 
5,576

2016
 
5,588

2017
 
5,601

2018
 
5,604

2019
 
91,614

2020 and thereafter
 
514,090

 
 
 
Total long-term debt and obligations under capital lease
 
629,464

 
The Company has guaranteed $531,817,000 of the long-term debt of its subsidiary companies as at September 30, 2014 (December 31, 2013 - $384,818,000).
 
Deferred financing costs related to the above outstanding long-term debt were $13,513,000 at September 30, 2014 (December 31, 2013 - $11,080,000) and are amortized to interest expense over the term of the corresponding long-term debt. These costs are included in Other assets on the condensed consolidated balance sheets.

A loss on extinguishment of debt of $14,506,000 was recognized in the nine months ended September 30, 2014 (September 30, 2013 - $Nil). The loss comprised costs associated with the March corporate debt refinancing, including $8,926,000 write-off of unamortized deferred financing costs, $3,985,000 swap cancellation costs and $1,330,000 of fees to prepay Belmond’s previous loans.

The tables above include the debt of Charleston Center LLC, a consolidated VIE, of $97,597,000 at September 30, 2014 (December 31, 2013 - $96,150,000). This amount includes the $86,000,000 refinanced in August 2014 and is non-recourse to Belmond. Deferred financing costs related to this debt were $973,000 at September 30, 2014 (December 31, 2013 - $883,000).

(b)                              Revolving credit and working capital facilities

Belmond had approximately $106,914,000 of revolving credit and working capital facilities at September 30, 2014 (December 31, 2013 - $3,021,000) of which $5,518,000 has been allocated to an existing letter of credit and $101,396,000 was available (December 31, 2013 - $2,883,000).

10.    Other liabilities
 
The major balances in other liabilities are as follows:
 
 
September 30,
2014
 
December 31,
2013
 
 
$’000
 
$’000
 
 
 
 
 
Interest rate swaps (see Note 18)
 

 
1,878

Long-term accrued interest on subordinated debt at Belmond Charleston Place
 
15,790

 
15,340

Deferred lease incentive
 
341

 
393

Contingent consideration on acquisition of Belmond Grand Hotel Timeo and Belmond Villa Sant’Andrea (see Note 16)
 
1,137

 
1,240

Deferred gain on sale of Inn at Perry Cabin by Belmond (see Note 3)
 
2,700

 

Accrued income tax
 
3,053

 

 
 
 
 
 
Total other liabilities
 
23,021

 
18,851

 

22


11.    Pensions
 
Components of net periodic pension benefit cost are as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Service cost
 

 

 

 

Interest cost on projected benefit obligation
 
276

 
297

 
830

 
888

Expected return on assets
 
(289
)
 
(230
)
 
(867
)
 
(686
)
Net amortization and deferrals
 
139

 
231

 
418

 
689

 
 
 
 
 
 
 
 
 
Net periodic benefit cost
 
126

 
298

 
381

 
891


During the three and nine months ended September 30, 2014, a U.K. subsidiary of Belmond made contributions to Belmond’s U.K. defined benefit pension plan of $573,000 (September 30, 2013 - $504,000) and $1,650,000 (September 30, 2013 - $1,503,000), respectively. The pension plan was only open from 2003 to 2006, when it closed to future benefit accruals. The U.K. subsidiary anticipates contributing an additional $677,000 to fund the plan in 2014 for a total of $2,327,000 and it is obligated to the plan’s trust to pay £1,272,000 (equivalent to $2,061,000 at September 30, 2014) annually until the plan is fully funded, which based on its December 2012 actuarial assessment is projected to occur in 2017. Once the plan is fully funded, the U.K. subsidiary will remain obligated to restore the plan to a fully funded balance should its position deteriorate. In May 2014, Belmond Ltd. guaranteed the payment obligations of the U.K. subsidiary through 2023, subject to a cap of £8,200,000 (equivalent to $13,284,000 at September 30, 2014), which reduces commensurately with every payment made to the plan since December 31, 2012.

12.    Income taxes
 
In the three and nine months ended September 30, 2014, the income tax provision was $15,215,000 (September 30, 2013 - $11,536,000) and $16,534,000 (September 30, 2013 - $9,278,000), respectively.

The provision for income taxes in the three and nine months ended September 30, 2014 was higher than in the three and nine months ended September 30, 2013 due primarily to the increased underlying earnings from operations in the three and nine months ended September 30, 2014 and changes in the profits mix.

13.    Supplemental cash flow information

 
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
 
 
 
 
Cash paid during the period for:
 
 
 
 
Interest
 
22,917

 
19,448

 
 
 
 
 
Income taxes, net of refunds
 
14,646

 
12,898


To reflect the actual cash paid for capital expenditure to acquire property, plant and equipment, increases in accounts payable for capital expenditure are non-cash and excluded from capital expenditure, while decreases are cash payments and included. The change in accounts payable was an increase of $833,000 for the nine months ended September 30, 2014 (September 30, 2013 - $536,000).


23


14.    Restricted cash

The major balances in restricted cash are as follows:
 
 
September 30,
2014
 
December 31,
2013
 
 
$’000
 
$’000
 
 
 
 
 
Cash deposit held with a bank pending completion of sale of Inn at Perry Cabin by Belmond
 

 
4,000

Cash deposits required to be held with lending banks as collateral
 
645

 
8,391

Escrow deposits and other restricted cash at Porto Cupecoy
 

 
355

Prepaid customer deposits which will be released to Belmond under its revenue recognition policy
 
1,727

 
681

Bonds and guarantees
 
762

 
209

 
 
 
 
 
Total restricted cash
 
3,134

 
13,636


Restricted cash classified as long-term and included in other assets on the condensed consolidated balance sheets at September 30, 2014 was $645,000 (December 31, 2013 - $7,633,000).

15.    Share-based compensation plans
 
At September 30, 2014, Belmond had three share-based compensation plans. The compensation cost that has been charged to selling, general and administrative expense for these plans for the three and nine months ended September 30, 2014 was $2,713,000 (September 30, 2013 - $2,645,000) and $5,689,000 (September 30, 2013 - $6,530,000), respectively. The total compensation cost related to unexercised options and unvested share awards at September 30, 2014 to be recognized over the period October 1, 2014 to September 30, 2017 was $15,102,000 and the weighted average period over which it is expected to be recognized is 26 months. Measured from the grant date, substantially all awards of deferred shares and restricted shares have a maximum term of three years, and substantially all awards of share options have a maximum term of ten years. There were no grants under the 2000 stock option plan or 2004 stock option plan during the nine months ended September 30, 2014.

2009 share award and incentive plan

During the nine months ended September 30, 2014, the following awards were made under the 2009 share award and incentive plan on the following dates. Estimates of fair values of share options and deferred shares without performance criteria were made using the Black-Scholes options pricing model. Estimates of fair values of deferred shares with performance criteria and market conditions were made using the Monte Carlo valuation model.

24


2009 share award and incentive plan
 
Class A common shares
 
Date granted
 
Vesting date
 
Purchase price
 
Expected share price volatility
 
Risk-free interest rate
 
Expected dividends per share
 
Expected life of awards
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted shares without performance criteria
 
30,600

 
July 1, 2014
 
July 1, 2015
 
$0.01
 
29%
 
0.11%
 
$—
 
1 year
Restricted shares without performance criteria
 
20,400

 
July 1, 2014
 
July 1, 2017
 
$0.01
 
46%
 
0.90%
 
$—
 
3 years
Deferred shares without performance criteria
 
20,400

 
July 1, 2014
 
July 1, 2015
 
$0.01
 
29%
 
0.11%
 
$—
 
1 year
Deferred shares without performance criteria
 
180,150

 
July 1, 2014
 
July 1, 2017
 
$0.01
 
46%
 
0.90%
 
$—
 
3 years
Deferred shares without performance criteria
 
173,350

 
July 1, 2014
 
July 1, 2018
 
$0.01
 
46%
 
1.66%
 
$—
 
4 years
Deferred shares without performance criteria
 
10,300

 
June 30, 2014
 
June 30, 2015
 
$0.01
 
29%
 
0.10%
 
$—
 
1 year
Share options
 
266,700

 
June 20, 2014
 
June 20, 2017
 
$14.08
 
46%
 
1.71%
 
$—
 
4.5 years
Deferred shares without performance criteria
 
94,000

 
March 21, 2014
 
March 21, 2017
 
$0.01
 
46%
 
0.91%
 
$—
 
3 years
Deferred shares with performance criteria and market conditions
 
251,400

 
March 21, 2014
 
March 21, 2017
 
$0.01
 
46%
 
0.89%
 
$—
 
3 years

16.    Commitments and contingencies
 
Outstanding contracts to purchase property, plant and equipment were approximately $13,097,000 at September 30, 2014 (December 31, 2013 - $21,867,000).
 
As part of the consideration for the January 2010 acquisition of Belmond Grand Hotel Timeo and Belmond Villa Sant’Andrea, both located in Sicily, Italy, Belmond agreed to pay the vendor a further €5,000,000 (equivalent to $7,064,000 at date of acquisition) if, by 2015, additional rooms are constructed at Belmond Grand Hotel Timeo and certain required permits are granted to expand and add a swimming pool to Belmond Villa Sant’Andrea. At September 30, 2014, €4,000,000 has been paid (equivalent to $5,250,000 at the dates paid). See Note 10.

In February 2013, the State of Rio de Janeiro Court of Justice affirmed a 2011 decision of a Rio state trial court against Sea Containers Ltd (“SCL”) in lawsuits brought against SCL by minority shareholders in Companhia Hoteis Palace (“CHP”), the company that owns Belmond Copacabana Palace, Rio de Janeiro, Brazil relating to the recapitalization of CHP in 1995, but reduced the total award against SCL to approximately $27,000,000. SCL further appealed the judgments during the second quarter of 2013 to the Superior Court of Justice in Brasilia. SCL sold its shares in CHP to the Company in 2000. Years later, in 2006, SCL entered insolvency proceedings in the U.S. and Bermuda which are continuing in Bermuda. Possible claims could be asserted against the Company or CHP in connection with this Brazilian litigation, although no claims have been asserted to date. In order to defend the hotel, in December 2013, CHP commenced a declaratory lawsuit in the Rio state court seeking judicial declarations that no fraud was committed against the SCL plaintiffs when the shares in CHP were sold to the Company in 2000 and that the sale of the shares did not render SCL insolvent. Pending rulings on those declarations, the court granted CHP an injunction in December 2013 preventing the SCL plaintiffs from provisionally enforcing their 2011 judgments against CHP which judgment was subsequently reversed on appeal in May 2014. CHP is seeking reconsideration by the appellate court of this decision. Management cannot estimate the range of possible loss if the SCL plaintiffs assert claims against the Company or CHP, and Belmond has made no reserves in respect of this matter. If any such claims were brought, Belmond would continue to defend its interests vigorously.

In November 2013, the third-party owner of Ubud Hanging Gardens dispossessed Belmond from the hotel under long-term lease to Belmond without prior notice. As a result, Belmond has been unable to continue operating the hotel and accordingly, to prevent any confusion to its guests, Belmond has ceased referring to the property in its sales and marketing materials, including all electronic marketing, for the time being. Belmond believes that the owner's actions are unlawful and in breach of the lease arrangement and constitute a wrongful dispossession. Belmond is pursuing its legal remedies under the lease which provides for resolution of disputes by arbitration in Singapore, where Belmond has sought emergency arbitral orders to return the hotel to Belmond's possession and management and to stay court proceedings in Indonesia brought by the owner seeking annulment of the lease and

25


damages from Belmond. In December 2013, the arbitrator ordered the owner to suspend the Indonesian court proceedings while the Singapore arbitration continues. In April 2014, the Indonesian court dismissed the owner’s case for lack of jurisdiction due to the arbitration clause in the parties’ lease. The owner has subsequently filed other claims against Belmond in the Indonesian courts, but Belmond does not believe there is any merit to these actions and is aggressively defending its rights. Supplementally, Belmond commenced contempt proceedings in the High Court in London, England, where the owner resides, for pursuing the Indonesian proceedings contrary to an earlier High Court injunction, and obtained against the owner in July 2014 a contempt order and a committal order of imprisonment for 120 days.

While Belmond believes it has a strong case on the merits in the Ubud Hanging Gardens matter, it may ultimately be unsuccessful in recovering the hotel or otherwise in pursuing its remedies against the owner, and therefore Belmond has recorded Ubud Hanging Gardens as a discontinued operation and recorded a non-cash impairment charge relating to long-lived assets and goodwill of the hotel as well as a write-off of net current assets of the hotel in the fourth quarter of 2013. See Note 3. Management cannot estimate the range of possible additional loss to Belmond and has made no reserves in respect of this matter.

In September 2014, the Brazilian Ministry of Planning, Budget and Management notified the Company that the Ministry was denying its application to amend the lease for Belmond Hotel das Cataratas, which was entered into in 2007, among other things, to extend the term and reduce the rent. Belmond had applied for the amendment based on its claim that it suffered additional costs in performing the refurbishment of the hotel as required by the lease and related tender documentation in order to raise the standard of the property to a five star luxury standard. The Ministry reviewed the claim on an item-by-item basis and determined that with two exceptions, the costs did not meet its requirements for an amendment of terms. Belmond’s current annual lease expense for the hotel is R$16,078,000 (equivalent to $6,560,000 at September 30, 2014). However, since October 2009 the Company has been paying, with the approval of the Ministry, the amount of R$11,065,000 ($4,514,000) per annum without the yearly adjustment for inflation as provided for in the lease, pending resolution of the case. The Company has expensed the full rental amount. Consequently, the difference between the cumulative rental charge and the amount paid of R$16,446,000 ($6,710,000) has been fully reserved. Based on the Ministry’s decision, it will be assessing rent at the contractual rate, which has been included in the table of future rental payments as at September 30, 2014 below. The Company has appealed to the Ministry to re-consider its decision on both procedural and substantive grounds. If the Ministry does not alter its decision, the Company can appeal directly to the Minister for Planning and ultimately to the Brazilian courts. Beyond the amounts reserved, management estimates that the range of possible additional loss to Belmond could be approximately R$1,555,000 (equivalent to $634,000 at September 30, 2014) plus interest from the date of the September 2014 decision until a final non-appealable decision is rendered.

The Company and certain of its subsidiaries are parties to various legal proceedings arising in the normal course of business. These proceedings generally include matters relating to labor disputes, tax claims, personal injury cases, lease negotiations and ownership disputes. The outcome of each of these matters cannot be determined with certainty, and the liability that the relevant parties may ultimately incur with respect to any one of these matters in the event of a negative outcome may be in excess of amounts currently accrued for with respect to these matters. Where a reasonable estimate can be made, the additional losses or range of loss that may be incurred in excess of the amount recognized from the various legal proceedings arising in the normal course of business are disclosed separately for each claim, including a reference to where it is disclosed. However, for certain of the legal proceedings, management is unable to estimate the loss or range of loss that may result from these claims due to the highly complex nature or early stage of the legal proceedings.
 
In May 2010, Belmond settled litigation for infringement of its “Cipriani” trademark in the European Union. An amount of $3,947,000 was paid by the defendants to Belmond in March 2010 with the balance of $9,833,000 being payable in installments over five years with interest.  The remaining payments, totaling $1,547,000 at September 30, 2014, have not been recognized by Belmond because of the uncertainty of collectability. Despite the May 2010 settlement and Belmond's belief that the ownership issues over the “Cipriani” trademark in the European Union had been resolved in its favor, Belmond has recently initiated an infringement action in Spain against a company beneficially owned by members of the Cipriani family with whom Belmond had reached the 2010 settlement, and is defending an infringement claim made by certain members of the Cipriani family against Belmond in Italy. While Belmond believes that it has a meritorious defense to the claim in Italy and a strong case against the defendants in Spain, Belmond may fail to prevail in either of these actions. Management cannot estimate the range of possible additional loss to Belmond which has made no reserves in these matters.
 

26


Future rental payments as at September 30, 2014 under operating leases in respect of equipment rentals and leased premises are payable as follows:
 
 
$’000
 
 
 
Remainder of 2014
 
3,513

2015
 
10,628

2016
 
10,423

2017
 
10,432

2018
 
9,954

2019
 
9,380

2020 and thereafter
 
68,690

 
 
 
Future rental payments under operating leases
 
123,020

 
Rental expense for the three and nine months ended September 30, 2014 amounted to $3,014,000 (September 30, 2013 - $2,551,000) and $9,144,000 (September 30, 2013 - $7,864,000), respectively.
 
Belmond has granted to James Sherwood, a former director of the Company, a right of first refusal to purchase the Belmond Hotel Cipriani in Venice, Italy in the event Belmond proposes to sell it. The purchase price would be the offered sale price in the case of a cash sale or the fair market value of the hotel, as determined by an independent valuer, in the case of a non-cash sale. Mr. Sherwood has also been granted an option to purchase the hotel at fair market value if a change in control of the Company occurs. Mr. Sherwood may elect to pay 80% of the purchase price if he exercises his right of first refusal, or 100% of the purchase price if he exercises his purchase option, by a non-recourse promissory note secured by the hotel payable in ten equal annual installments with interest at LIBOR. This right of first refusal and purchase option are not assignable and expire one year after Mr. Sherwood’s death. These agreements relating to the Belmond Hotel Cipriani between Mr. Sherwood and Belmond and its predecessor companies have been in place since 1983 and were last amended and restated in 2005.

17.    Fair value measurements

(a)     Financial instruments recorded at fair value
  
The following tables summarize the valuation of Belmond’s financial instruments recorded at fair value by the fair value hierarchy at September 30, 2014 and December 31, 2013:
 
 
Level 1
 
Level 2
 
Level 3
 
Total
September 30, 2014
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Assets at fair value:
 
 

 
 
 
 
 
 
Derivative financial instruments
 

 
26

 

 
26

 
 
 
 
 
 
 
 
 
Total assets
 

 
26

 

 
26

 
 
 
 
 
 
 
 
 
Liabilities at fair value:
 
 

 
 
 
 

 
 
Derivative financial instruments
 

 
(2,075
)
 

 
(2,075
)
 
 
 
 
 
 
 
 
 
Total net liabilities
 

 
(2,049
)
 

 
(2,049
)


27


 
 
Level 1
 
Level 2
 
Level 3
 
Total
December 31, 2013
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Assets at fair value:
 
 

 
 
 
 
 
 
Derivative financial instruments
 

 
2

 

 
2

 
 
 
 
 
 
 
 
 
Total assets
 

 
2

 

 
2

 
 
 
 
 
 
 
 
 
Liabilities at fair value:
 
 

 
 

 
 

 
 
Derivative financial instruments
 

 
(4,890
)
 

 
(4,890
)
 
 
 
 
 
 
 
 
 
Total net liabilities
 

 
(4,888
)
 

 
(4,888
)
 
During the three and nine months ended September 30, 2014, there were no transfers between levels of the fair value hierarchy.

(b)    Other financial instruments
 
Certain methods and assumptions are used to estimate the fair value of each class of financial instruments. The carrying amount of current assets and current liabilities as disclosed on the condensed consolidated balance sheets approximate their fair value due to the short-term nature of those instruments.
 
The fair value of Belmond's long-term debt, excluding interest rate swaps and caps, is determined using the contractual cash flows and credit-adjusted discount curves. The fair value of the debt is the present value of those contractual cash flows which are discounted at market interest rates adjusted for credit spreads. Credit spreads take into consideration general market conditions and maturity.

The estimated carrying values, fair values, and levels of the fair value hierarchy of Belmond's long-term debt as of September 30, 2014 and December 31, 2013 were as follows:
 
 
 
September 30, 2014
 
December 31, 2013
 
 
 
Carrying
amounts
$’000
 
Fair value
$’000
 
Carrying
amounts
$’000
 
Fair value
$’000
 
 
 
 
 
 
 
 
 
 
Long-term debt, including current portion, excluding obligations under capital leases
Level 3
 
629,414

 
685,554

 
639,717

 
660,363


(c)    Non-financial assets measured at fair value on a non-recurring basis
 
There were no impairments in the nine months ended September 30, 2014. The estimated fair value of Belmond’s non-financial assets measured on a non-recurring basis for the nine months ended September 30, 2013 was as follows:
 
 
 
 
Fair value measurement inputs
 
 
 
 
Fair value
 
Level 1
 
Level 2
 
Level 3
 
Total losses in the nine months ended September 30, 2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
 
 
Property, plant and equipment
 
45,000

 

 

 
45,000

 
(35,680
)

During the nine months ended September 30, 2013, property, plant and equipment at Belmond La Samanna with a carrying value of $80,680,000 was written down to fair value of $45,000,000, resulting in a non-cash impairment charge of $35,680,000. This impairment is included in earnings from continuing operations in the period incurred. See Note 6.


28


18.    Derivatives and hedging activities
 
In connection with Belmond’s new corporate facility and the repayment of all of its outstanding funded debt (excluding the debt of Charleston Center LLC, a consolidated VIE, and the debt of Belmond’s unconsolidated joint venture companies), all of Belmond’s existing interest rate derivatives were terminated in March 2014. See Note 9. The termination costs incurred were $5,162,000. All amounts in other comprehensive income/ (loss) relating to these derivatives were reclassified to interest expense. New interest rate derivatives were entered into to fix an element of the floating interest rate on the new corporate facility.

Cash flow hedges of interest rate risk
 
As of September 30, 2014 and December 31, 2013, Belmond had the following outstanding interest rate derivatives stated at their notional amounts in local currency that were designated as cash flow hedges of interest rate risk: 
 
 
September 30,
2014
 
December 31,
2013
 
 
’000
 
’000
 
 
 
 
 
Interest rate swaps
 
74,625

 
137,469

Interest rate swaps
 
$
214,638

 
$
63,700

Interest rate caps
 
$
17,200

 
$


At September 30, 2014, new interest rate swaps and caps with notional amounts of $43,000,000 and $17,200,000, respectively, had been transacted with a value date of October 8, 2014.

Non-designated hedges of interest rate risk
 
Derivatives not designated as hedges are used to manage Belmond’s exposure to interest rate movements but do not meet the strict hedge accounting requirements prescribed in the authoritative accounting guidance.  As of September 30, 2014, Belmond had notional amounts of €Nil and $58,240,000 (December 31, 2013 - €73,344,000 and $59,080,000) that were non-designated hedges of Belmond’s exposure to interest rate risk. The $58,240,000 non-designated hedge matured on October 8, 2014.
 
Fair value

The table below presents the fair value of Belmond’s derivative financial instruments and their classification as of September 30, 2014 and December 31, 2013
 
 
 
 
Fair value as of
 
Fair value as of
 
 
 
 
September 30, 2014
 
December 31, 2013
 
 
Balance sheet location
 
$’000
 
$’000
Derivatives designated in a cash flow hedging relationship:
 
 
 
 

 
 

Interest rate derivatives
 
Other assets
 
920

 

Interest rate derivatives
 
Accrued liabilities
 
(2,969
)
 
(3,012
)
Interest rate derivatives
 
Other liabilities
 

 
(1,878
)
 
 
 
 
 
 
 
Total
 
 
 
(2,049
)
 
(4,890
)
 
 
 
 
 
 
 
Derivatives not designated as hedging instruments:
 
 
 
 

 
 

Interest rate derivatives
 
Other assets
 

 
2

 
 
 
 
 
 
 
Total
 
 
 

 
2

 
Offsetting

There was no offsetting within derivative assets or derivative liabilities at September 30, 2014 and December 31, 2013. However, these derivatives are subject to master netting arrangements.


29


Other comprehensive income

Information concerning the movements in other comprehensive income/(loss) for cash flow hedges of interest rate risk is shown in Note 19. At September 30, 2014, the amount accounted for in other comprehensive income/(loss) which is expected to be reclassified to interest expense in the next 12 months is $2,963,000. Movement in other comprehensive income/(loss) for net investment hedges recorded through foreign currency translation adjustments for the three and nine months ended September 30, 2014 was a gain of $15,838,000 (September 30, 2013 - $Nil) and $16,877,000 (September 30, 2013 - $72,000 loss), respectively.

Derivative movements not included in other comprehensive income/(loss) for the three and nine months ended September 30, 2014 and 2013 were as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Amount of gain recognized in interest expense for the ineffective portion of derivatives designated as cash flow hedges
 

 

 

 
37

 
 
 
 
 
 
 
 
 
Amount of loss recognized in interest expense for derivatives not designated as hedging instruments
 

 
(35
)
 

 
(64
)
 
Credit-risk-related contingent features
 
Belmond has agreements with some of its derivative counterparties that contain provisions under which, if Belmond defaults on the debt associated with the hedging instrument, Belmond could also be declared in default in respect of its derivative obligations.

As of September 30, 2014, the fair value of derivatives in a net liability position, which includes accrued interest and an adjustment for non-performance risk, related to these agreements was $2,049,000 (December 31, 2013 - $4,890,000). If Belmond breached any of the provisions, it would be required to settle its obligations under the agreements at their termination value of $2,041,000 (December 31, 2013 - $4,899,000).

Non-derivative financial instruments — net investment hedges
 
Belmond uses certain of its debt denominated in foreign currency to hedge portions of its net investments in foreign operations against adverse movements in exchange rates. Belmond designates its euro-denominated indebtedness as a net investment hedge of long-term investments in its euro-functional subsidiaries. These contracts are included in non-derivative hedging instruments. The notional value of non-derivative hedging instruments was $188,542,000 at September 30, 2014, being a liability of Belmond (December 31, 2013 - $26,249,000).


30


19.    Accumulated other comprehensive income/loss
 
Changes in accumulated other comprehensive income/(loss) (“AOCI”) by component (net of tax) are as follows:
 
 
Foreign currency translation adjustments
 
Derivative financial instruments
 
Pension liability
 
Total
Nine months ended September 30, 2014
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Balance at January 1, 2014
 
(81,339
)
 
(3,381
)
 
(8,597
)
 
(93,317
)
 
 
 
 
 
 
 
 
 
Other comprehensive loss before reclassifications
 
(98,397
)
 
(504
)
 

 
(98,901
)
 
 
 
 
 
 
 
 
 
Amounts reclassified from AOCI
 

 
1,797

 

 
1,797

 
 
 
 
 
 
 
 
 
Net current period other comprehensive income/(loss)
 
(98,397
)
 
1,293

 

 
(97,104
)
 
 
 
 
 
 
 
 
 
Balance at September 30, 2014
 
(179,736
)
 
(2,088
)
 
(8,597
)
 
(190,421
)

Foreign currency translation adjustments for the nine months ended September 30, 2014 include a loss of $49,356,000 arising on the remeasurement of non-monetary assets and liabilities of Belmond’s Brazilian operations following a change in functional currency from the U.S. dollar to the Brazilian real, effective from January 1, 2014. See Note 1.

Reclassifications out of AOCI (net of tax) are as follows:
 
 
Amount reclassified from AOCI
 
 
 
 
Three months ended
 
 
 
 
September 30, 2014
 
September 30, 2013
 
 
Details about AOCI components
 
$’000
 
$’000
 
Affected line item in the statement of operations
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
Cash flows from derivative financial instruments related to interest payments made for hedged debt instruments
 
592

 
912

 
Interest expense
 
 
 
 
 
 
 
Total reclassifications for the period
 
592

 
912

 
 

 
 
Amount reclassified from AOCI
 
 
 
 
Nine months ended
 
 
 
 
September 30, 2014
 
September 30, 2013
 
 
Details about AOCI components
 
$’000
 
$’000
 
Affected line item in the statement of operations
 
 
 
 
 
 
 
Derivative financial instruments:
 
 
 
 
 
 
Cash flows from derivative financial instruments related to interest payments made for the hedged debt instrument
 
1,797

 
2,696

 
Interest expense
 
 
 
 
 
 
 
Total reclassifications for the period
 
1,797

 
2,696

 
 


31


20.    Segment information
 
Segment performance is evaluated by the chief operating decision maker based upon segment earnings before gains/(losses) on disposal, impairments, central overheads, interest income, interest expense, foreign currency, tax (including tax on earnings from unconsolidated companies), depreciation and amortization (“segment profit/(loss)”).

Belmond's operating segments are aggregated into six reportable segments primarily around the type of service being provided—hotels, trains and cruises, and management business/part ownership interests—and are secondarily organized by geography for the hotels, as follows:

Owned hotels in each of Europe, North America and Rest of world which derive earnings from the hotels that Belmond owns including its one stand-alone restaurant;
Part-owned/managed hotels which derive earnings from hotels that Belmond jointly owns or manages;
Owned trains and cruises which derive earnings from the train and cruise businesses that Belmond owns; and
Part-owned/managed trains which derive earnings from the train businesses that Belmond jointly owns or manages.

The following tables present information regarding these reportable segments.

Revenue from external customers by segment:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
94,447

 
97,331

 
187,162

 
188,568

North America
 
28,328

 
32,913

 
103,890

 
107,912

Rest of world
 
33,399

 
30,061

 
103,124

 
101,685

Total owned hotels
 
156,174

 
160,305

 
394,176

 
398,165

Part-owned/managed hotels
 
1,832

 
1,562

 
4,570

 
4,332

Total hotels
 
158,006

 
161,867

 
398,746

 
402,497

Owned trains and cruises
 
23,208

 
22,213

 
57,488

 
53,102

Part-owned/managed trains
 
2,305

 
1,233

 
5,432

 
3,021

Total trains and cruises
 
25,513

 
23,446

 
62,920

 
56,123

 
 
 
 
 
 
 
 
 
Total revenue
 
183,519

 
185,313

 
461,666

 
458,620



32


Reconciliation of the total of segment profit/(loss) to consolidated net earnings/(losses) from operations:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
41,779

 
43,103

 
63,289

 
63,281

North America
 
1,664

 
2,878

 
15,870

 
17,412

Rest of world
 
7,558

 
6,077

 
25,024

 
23,673

Total owned hotels
 
51,001

 
52,058

 
104,183

 
104,366

Part-owned/managed hotels
 
2,209

 
1,506

 
3,515

 
1,297

Total hotels
 
53,210

 
53,564

 
107,698

 
105,663

Owned trains and cruises
 
2,538

 
2,852

 
4,232

 
4,321

Part-owned/managed trains
 
5,920

 
4,982

 
11,757

 
10,259

Total trains and cruises
 
8,458

 
7,834

 
15,989

 
14,580

 
 
 
 
 
 
 
 
 
Reconciliation to net earnings/(losses):
 
 
 
 
 
 
 
 
Total segment profit
 
61,668

 
61,398

 
123,687

 
120,243

 
 
 
 
 
 
 
 
 
Gain on disposal of property, plant and equipment
 
121

 

 
3,978

 

Impairment of property, plant and equipment
 

 

 

 
(35,680
)
Central overheads
 
(6,701
)
 
(6,819
)
 
(23,511
)
 
(22,857
)
Share-based compensation
 
(2,713
)
 
(2,645
)
 
(5,689
)
 
(6,530
)
Depreciation and amortization
 
(12,062
)
 
(10,656
)
 
(36,952
)
 
(34,373
)
Loss on extinguishment of debt
 

 

 
(14,506
)
 

Interest income
 
217

 
239

 
917

 
761

Interest expense
 
(8,407
)
 
(8,877
)
 
(26,463
)
 
(24,474
)
Foreign currency, net
 
612

 
(2,546
)
 
(268
)
 
453

(Provision for)/benefit from income taxes
 
(15,215
)
 
(11,536
)
 
(16,534
)
 
(9,278
)
Share of (provision for)/benefit from income taxes of unconsolidated companies
 
(1,168
)
 
(1,928
)
 
(1,753
)
 
(904
)
 
 
 
 
 
 
 
 
 
Earnings/(losses) from continuing operations
 
16,352

 
16,630

 
2,906

 
(12,639
)
(Losses)/earnings from discontinued operations
 
(1,469
)
 
(505
)
 
(2,671
)
 
(905
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses)
 
14,883

 
16,125

 
235

 
(13,544
)

Earnings from unconsolidated companies, net of tax:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Part-owned/managed hotels
 
556

 
(485
)
 
(196
)
 
(1,485
)
Part-owned/managed trains
 
2,593

 
2,548

 
4,383

 
6,181

 
 
 
 
 
 
 
 
 
Total earnings from unconsolidated companies, net of tax
 
3,149

 
2,063

 
4,187

 
4,696


33



Reconciliation of capital expenditure to acquire property, plant and equipment by segment:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
5,104

 
2,076

 
24,229

 
8,517

North America
 
4,135

 
8,315

 
12,966

 
29,736

Rest of world
 
3,148

 
2,025

 
11,433

 
9,271

Total owned hotels
 
12,387

 
12,416

 
48,628

 
47,524

Owned trains and cruises
 
1,011

 
1,539

 
3,595

 
4,612

 
 
 
 
 
 
 
 
 
Unallocated corporate
 
169

 
41

 
258

 
190

 
 
 
 
 
 
 
 
 
Total capital expenditure to acquire property, plant and equipment
 
13,567

 
13,996

 
52,481

 
52,326


Revenue from external customers in Belmond’s country of domicile and significant countries (based on the location of the property):
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$’000
 
$’000
 
$’000
 
$’000
 
 
 
 
 
 
 
 
 
Bermuda
 

 

 

 

Italy
 
70,115

 
65,393

 
124,532

 
116,470

United Kingdom
 
22,807

 
21,378

 
54,373

 
49,475

United States
 
23,209

 
27,932

 
75,105

 
78,835

Brazil
 
20,554

 
15,877

 
64,062

 
57,393

All other countries
 
46,834

 
54,733

 
143,594

 
156,447

 
 
 
 
 
 
 
 
 
Total revenue
 
183,519

 
185,313

 
461,666

 
458,620

 
21.    Related party transactions
 
Belmond manages, under long-term contract, the tourist train owned by Eastern and Oriental Express Ltd., in which Belmond has a 25% ownership interest. In the three and nine months ended September 30, 2014, Belmond earned management fees from Eastern and Oriental Express Ltd. of $1,000 (September 30, 2013 - $12,000) and $206,000 (September 30, 2013 - $245,000), respectively, which are recorded in revenue. The amount due to Belmond from Eastern and Oriental Express Ltd. at September 30, 2014 was $4,858,000 (December 31, 2013 - $4,232,000).
 
Belmond manages, under long-term contracts in Peru, Belmond Hotel Monasterio, Belmond Palacio Nazarenas, Belmond Sanctuary Lodge, Belmond Hotel Rio Sagrado, Peru Rail and Ferrocarril Transandino, in all of which Belmond has a 50% ownership interest. Belmond provides loans, guarantees and other credit accommodation to these joint ventures. In the three and nine months ended September 30, 2014, Belmond earned management and guarantee fees from its Peruvian joint ventures of $3,692,000 (September 30, 2013 - $2,386,000) and $8,576,000 (September 30, 2013 - $6,074,000), respectively, which are recorded in revenue. The amount due to Belmond from its Peruvian joint ventures at September 30, 2014 was $2,804,000 (December 31, 2013 - $5,726,000).
 
Belmond manages, under long-term contract, Hotel Ritz by Belmond, in which Belmond has a 50% ownership interest. In the three and nine months ended September 30, 2014, Belmond earned $288,000 (September 30, 2013 - $248,000) and $843,000

34


(September 30, 2013 - $746,000), respectively, in management fees from Hotel Ritz by Belmond which are recorded in revenue, and $158,000 (September 30, 2013 - $152,000) and $484,000 (September 30, 2013 - $437,000), respectively, in interest income. The amount due to Belmond from Hotel Ritz by Belmond at September 30, 2014 was $30,923,000 (December 31, 2013 - $28,828,000). See Note 5 regarding a partial guarantee of the hotel’s bank indebtedness.
 

35


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

Forward-looking statements
 
Forward-looking statements concerning the operations, performance, financial condition, plans and prospects of the Company and its subsidiaries are based on the current expectations, assessments and assumptions of management, are not historical facts, and are subject to various risks and uncertainties.
 
Forward-looking statements can be identified by the fact that they do not relate only to historical or current facts, and often use words such as “anticipate”, “target”, “expect”, “estimate”, “intend”, “plan”, “goal”, “believe” or other words of similar meaning.
 
Actual results could differ materially from those anticipated in the forward-looking statements due to a number of factors, including those described in this Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, in Item 1—Business, Item 1A—Risk Factors, Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations, Item 7A—Quantitative and Qualitative Disclosures about Market Risk, and Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters in the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, and in Part II—Other Information, Item 1A—Risk Factors in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2014.
 
Investors are cautioned not to place undue reliance on these forward-looking statements which are not guarantees of future performance.  The Company undertakes no obligation to update or revise publicly any forward-looking statement, whether as a result of new information, future events or otherwise.

Introduction
 
On June 30, 2014, the Company changed its name from Orient-Express Hotels Ltd. to Belmond Ltd. following approval by shareholders at the 2014 annual general meeting held on that date. On July 28, 2014, the Company changed the ticker symbol of its class A common shares listed on the New York Stock Exchange from OEH to BEL.

Belmond has six reportable segments: owned hotels in (1) Europe, (2) North America (including one stand-alone restaurant) and (3) Rest of world, (4) Part-owned/managed hotels, (5) Owned trains and cruises and (6) Part-owned/managed trains.
 
At September 30, 2014, Belmond’s hotel portfolio consisted of 35 deluxe hotels, 29 of which were wholly or majority owned or, in the case of Belmond Charleston Place, owned by a consolidated variable interest entity. Eleven of the owned hotels are located in Europe, five in North America and 13 in the rest of the world. In addition, Belmond currently owns and operates the stand-alone restaurant ‘21’ Club in New York, New York.
 
The remaining six hotels are properties which Belmond operates under management contracts. Belmond has unconsolidated equity interests in five of the managed hotels.
 
During 2013, Belmond ceased to operate Ubud Hanging Gardens in Bali, Indonesia, following what Belmond believes was an unlawful dispossession of Belmond by the landlord. Accordingly, the results of Ubud Hanging Gardens have been reflected as discontinued operations for all periods presented.

In March 2014, Belmond completed the sale of Inn at Perry Cabin by Belmond. Belmond will continue to manage the hotel for the new owner. The property has been reclassified as held for sale for all periods shown. Due to Belmond's continuing involvement in managing the hotel, its results, including the gain on sale, are presented within continuing operations.
 
Belmond's owned trains and cruises segment consists of four tourist trains, two river cruise ships and five canal boats. Belmond's part-owned/ managed trains segment consists of two train businesses, one in which Belmond has an equity interest and an exclusive management contract, and one in which Belmond has an equity investment.
 
Belmond's real estate development project at Porto Cupecoy on the Dutch side of St. Martin was sold in January 2013 and has been reflected as discontinued operations for all periods presented.

In this report, “ADR” means average daily rate and “RevPAR” means revenue per available room.


36


Constant currency

Belmond analyzes certain key financial measures on a constant currency basis as this helps identify underlying business trends, without distortion from the effects of currency movements. Measurement on a constant currency basis means the results exclude the effect of foreign currency translation and are calculated by translating prior year results at current year exchange rates.
 
Results of Operations

Belmond’s operating results for the three and nine months ended September 30, 2014 compared to the three and nine months ended September 30, 2013, expressed as a percentage of revenue, are as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
%
 
%
 
%
 
%
 
 
 
 
 
 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
52

 
52

 
41

 
41

North America
 
15

 
18

 
23

 
23

Rest of world
 
18

 
16

 
22

 
22

Total owned hotels
 
85

 
86

 
86

 
86

Part-owned/managed hotels
 
1

 
1

 
1

 
1

Total hotels
 
86

 
87

 
87

 
87

Owned trains and cruises
 
13

 
12

 
12

 
12

Part-owned/managed trains
 
1

 
1

 
1

 
1

Total trains and cruises
 
14

 
13

 
13

 
13

 
 
 
 
 
 
 
 
 
Total revenue
 
100

 
100

 
100

 
100

 
 
 
 
 
 
 
 
 
Cost of services
 
(43
)
 
(43
)
 
(45
)
 
(45
)
Selling, general and administrative
 
(31
)
 
(31
)
 
(36
)
 
(37
)
Depreciation and amortization
 
(7
)
 
(6
)
 
(8
)
 
(7
)
Impairment of property, plant and equipment
 

 

 

 
(8
)
Gain on disposal of property, plant and equipment
 

 

 
1

 

Loss on extinguishment of debt
 

 

 
(3
)
 

Interest income, interest expense and foreign currency, net
 
(4
)
 
(6
)
 
(6
)
 
(5
)
Earnings/(losses) before income taxes and earnings from unconsolidated companies, net of tax
 
15

 
14

 
3

 
(2
)
Provision for income taxes
 
(8
)
 
(6
)
 
(4
)
 
(2
)
Earnings from unconsolidated companies, net of tax
 
2

 
1

 
1

 
1

Earnings/(losses) from continuing operations
 
9

 
9

 

 
(3
)
Net (losses)/earnings from discontinued operations, net of tax
 
(1
)
 

 
(1
)
 

 
 
 
 
 
 
 
 
 
Net earnings/(losses)
 
8

 
9

 
(1
)
 
(3
)


37


Operating information for Belmond’s owned hotels for the three and nine months ended September 30, 2014 and 2013 is as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
 
 
 
 
 
 
 
Rooms available
 
 
 
 
 
 
 
 
Europe
 
86,296


86,756

 
213,422

 
219,013

North America
 
63,140


70,346

 
199,575

 
204,454

Rest of world
 
94,484


93,288

 
280,371

 
276,822

Worldwide
 
243,920

 
250,390

 
693,368

 
700,289

 
 
 
 
 
 
 
 
 
Rooms sold
 
 
 
 
 
 
 
 
Europe
 
58,638


63,803

 
124,632

 
132,321

North America
 
41,422


47,872

 
130,284

 
140,085

Rest of world
 
47,589


46,311

 
151,212

 
153,892

Worldwide
 
147,649

 
157,986

 
406,128

 
426,298

 
 
 
 
 
 
 
 
 
Occupancy (percentage)
 
 
 
 
 
 
 
 
Europe
 
68


74

 
58

 
60

North America
 
66


68

 
65

 
69

Rest of world
 
50


50

 
54

 
56

Worldwide
 
61

 
63

 
59

 
61

 
 
 
 
 
 
 
 
 
Average daily rate (in U.S. dollars)
 
 

 
 

 
 
 
 
Europe
 
967


922

 
864

 
827

North America
 
353


347

 
418

 
400

Rest of world
 
429


359

 
421

 
385

Worldwide
 
621

 
583

 
556

 
527

 
 
 
 
 
 
 
 
 
RevPAR (in U.S. dollars)
 
 
 
 
 
 
 
 
Europe
 
657


678

 
505

 
499

North America
 
232


236

 
273

 
274

Rest of world
 
216


178

 
227

 
214

Worldwide
 
376

 
368

 
326

 
321

 

38


 
 
 
 
 
 
Change %
Three months ended September 30,
 
2014
 
2013
 
Dollars
 
Local
currency
 
 
 
 
 
 
 
 
 
Same store RevPAR (in U.S. dollars)
 
 

 
 

 
 

 
 

Europe
 
657

 
678

 
(3
)%
 
(4
)%
North America
 
232

 
218

 
6
 %
 
6
 %
Rest of world
 
216

 
178

 
21
 %
 
20
 %
Worldwide
 
376

 
367

 
2
 %
 
2
 %

The same store RevPAR data for the three months ended September 30, 2014 and September 30, 2013 exclude the operations of Inn at Perry Cabin by Belmond.
 
 
 
 
 
 
Change %
Nine months ended September 30,
 
2014
 
2013
 
Dollars
 
Local
currency
 
 
 
 
 
 
 
 
 
Same store RevPAR (in U.S. dollars)
 
 

 
 

 
 

 
 

Europe
 
505

 
499

 
1
%
 
%
North America
 
275

 
272

 
1
%
 
1
%
Rest of world
 
235

 
214

 
10
%
 
18
%
Worldwide
 
336

 
327

 
3
%
 
4
%

The same store RevPAR data for the nine months ended September 30, 2014 and September 30, 2013 exclude the operations of Inn at Perry Cabin by Belmond, Belmond El Encanto in Santa Barbara, California and Belmond Miraflores Park in Lima, Peru.
 
Overview

Three months ended September 30, 2014 compared to three months ended September 30, 2013

The net earnings attributable to Belmond Ltd. for the three months ended September 30, 2014 were $14.9 million ($0.14 per common share) on revenue of $183.5 million, compared with net earnings of $16.1 million ($0.16 per common share) on revenue of $185.3 million for the three months ended September 30, 2013. The decrease in net earnings is principally due to the provision for income taxes, which was $15.2 million for the three months ended September 30, 2014 compared to $11.5 million for the three months ended September 30, 2013.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

The net earnings attributable to Belmond Ltd. for the nine months ended September 30, 2014 were $0.3 million ($0.00 per common share) on revenue of $461.7 million, compared with net losses of $13.6 million ($0.13 per common share) on revenue of $458.6 million for the nine months ended September 30, 2013. The decrease in net losses is principally due to the fact that in the nine months ended September 30, 2013, a non-cash property, plant and equipment impairment charge of $35.7 million was recognized at Belmond La Samanna, while there were no impairments of property, plant and equipment recorded in the nine months ended September 30, 2014. This was partially offset by a loss on extinguishment of debt of $14.5 million recorded in the nine months ended September 30, 2014, compared to $Nil for the nine months ended September 30, 2013 and an increase in provision for income taxes, which was $9.3 million for the nine months ended September 30, 2013 compared to $16.5 million for the nine months ended September 30, 2014.


39


Revenue 
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$ millions
 
$ millions
 
$ millions
 
$ millions
 
 
 

 
 

 
 
 
 
Revenue:
 
 
 
 
 
 
 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
94.5

 
97.3

 
187.2

 
188.6

North America
 
28.3

 
32.9

 
103.9

 
107.9

Rest of world
 
33.4

 
30.1

 
103.1

 
101.7

Total owned hotels
 
156.2

 
160.3

 
394.2

 
398.2

Part-owned/managed hotels
 
1.8

 
1.6

 
4.6

 
4.3

Total hotels
 
158.0

 
161.9

 
398.8

 
402.5

Owned trains and cruises
 
23.2

 
22.2

 
57.5

 
53.1

Part-owned/managed trains
 
2.3

 
1.2

 
5.4

 
3.0

Total trains and cruises
 
25.5

 
23.4

 
62.9

 
56.1

 
 
 
 
 
 
 
 
 
Total revenue
 
183.5

 
185.3

 
461.7

 
458.6


Three months ended September 30, 2014 compared to three months ended September 30, 2013

Total revenue was $183.5 million for the three months ended September 30, 2014, a decrease of $1.8 million, or 1%, from $185.3 million for the three months ended September 30, 2013. Total hotels revenue was $158.0 million for the three months ended September 30, 2014, a decrease of $3.9 million, or 2%, from $161.9 million for the three months ended September 30, 2013. The decline is primarily due to decreases in revenue of $8.5 million at Belmond Grand Hotel Europe, St. Petersburg, Russia and $4.4 million at Inn at Perry Cabin by Belmond as a result of the March 2014 sale. Year-over-year comparisons for Belmond Grand Hotel Europe were impacted by the 2013 G20 summit, which took place in St. Petersburg in September 2013 and drove unusually strong third quarter results for the hotel in 2013. Additionally, the hotel's results for the third quarter of 2014 continued to be negatively impacted by a lack of demand resulting from the political situation in Ukraine, increased local competition and softness in food and beverage revenue partially as a result of the ongoing restaurant renovation works. These decreases were partially offset by revenue growth of $4.2 million and $4.7 million from the Company’s Italian and Brazilian hotels, respectively. Revenue from trains and cruises was $25.5 million for the three months ended September 30, 2014, an increase of $2.1 million, or 9%, from $23.4 million for the three months ended September 30, 2013, due primarily to an increase in revenue from the Venice Simplon-Orient-Express, Belmond Northern Belle and the Company's PeruRail joint venture.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Total revenue was $461.7 million for the nine months ended September 30, 2014, an increase of $3.1 million, or 1%, from $458.6 million for the nine months ended September 30, 2013. Total hotels revenue was $398.8 million for the nine months ended September 30, 2014, a decrease of $3.7 million or 1%, from $402.5 million for the nine months ended September 30, 2013. Same store RevPAR growth of 4% in local currency was offset by a decrease in food and beverage and other revenues coupled with the result of unfavorable foreign exchange rate movements, as the Brazilian real, South African rand and Russian ruble weakened against the U.S. dollar. The decrease in total hotels revenue is due to year-over-year drops of $12.5 million at Belmond Grand Hotel Europe as the impact of the Ukraine crisis continues, $2.9 million following the closure of Belmond Miraflores Park for renovation through mid-April 2014 and $8.2 million following the sale of Inn at Perry Cabin by Belmond in March 2014. These decreases were partially offset by year-over-year revenue growth of $7.0 million at the Company’s Italian hotels, $6.7 million at the Company’s two Brazilian hotels due to the hosting of the FIFA World Cup in that country and $3.4 million at Belmond El Encanto that opened in March 2013. Revenue from trains and cruises was $62.9 million for the nine months ended September 30, 2014, an increase of $6.8 million, or 12%, from $56.1 million for the nine months ended September 30, 2013, due primarily to increased revenue from the Venice Simplon-Orient-Express, Belmond Northern Belle, the Company's PeruRail joint venture and to the new river cruise ship Belmond Orcaella, Myanmar which launched in July 2013.



40


Owned hotels - Europe 
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
 
 
 
 
 
 
 
Rooms available
 
86,296

 
86,756

 
213,422

 
219,013

Rooms sold
 
58,638

 
63,803

 
124,632

 
132,321

Occupancy (percentage)
 
68

 
74

 
58

 
60

Average daily rate (in U.S. dollars)
 
967

 
922

 
864

 
827

RevPAR (in U.S. dollars)
 
657

 
678

 
505

 
499

Same store RevPAR (in U.S. dollars)
 
657

 
678

 
505

 
499


Three months ended September 30, 2014 compared to three months ended September 30, 2013

Revenue was $94.5 million for the three months ended September 30, 2014, a decrease of $2.8 million, or 3%, from $97.3 million for the three months ended September 30, 2013. Combined revenue growth of $5.6 million from the Company's hotels in continental Europe and the United Kingdom was offset by a $8.5 million decrease in revenue at the Company’s one Russian hotel, Belmond Grand Hotel Europe. The Company saw particular strength in the quarter from its Italian hotels, with combined revenue growth of $4.2 million. This 7% year-over-year increase was driven by strong ADR growth, due in part to a 19% increase in local currency ADR at Belmond Villa Sant'Andrea following the May 2014 introduction of six new junior suites. Additionally, the Company saw a continued improvement in the performance of Belmond La Residencia in Mallorca, Spain, where third quarter revenue grew by $1.3 million or 19% compared to the prior-year quarter due primarily to a five percentage-point increase in occupancy and a 5% growth in ADR that resulted predominantly from a change in the hotel's revenue management strategy. Revenue at Belmond Grand Hotel Europe continued to be negatively impacted by currency depreciation, with a 17% year-over-year depreciation in the ruble contributing $1.6 million of the hotel’s $8.5 million revenue decline. The hotel’s results were also affected by a strong comparative prior year quarter that benefited from the September 2013 G20 Summit in St. Petersburg, Russia along with increased local competition, lower food and beverage revenue due to ongoing restaurant renovation works, and cancellations related to the political situation in Ukraine which management is closely monitoring and expects to have a further negative impact in the fourth quarter.

ADR in U.S. dollars increased to $967 in the three months ended September 30, 2014 from $922 in the three months ended September 30, 2013, due to the factors described above. Occupancy decreased to 68% in the three months ended September 30, 2014 from 74% in the three months ended September 30, 2013, with the most significant decreases at Belmond Hotel Cipriani, with a reduction of five percentage points due primarily to the Biennale arts festival occurring in 2013 but not 2014, and Belmond Grand Hotel Europe, with a 19 percentage point decline. Same store RevPAR decreased by 3% in U.S. dollars (4% in local currency), to $657 for the three months ended September 30, 2014 from $678 in the three months ended September 30, 2013, as the 5% increase in ADR was offset by the six percentage-point decrease in occupancy.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Revenue was $187.2 million for the nine months ended September 30, 2014, a decrease of $1.4 million, or 1%, from $188.6 million for the nine months ended September 30, 2013. Combined revenue growth of $11.1 million from the Company's hotels in continental Europe and the United Kingdom was offset by a $12.5 million decrease in revenue at Belmond Grand Hotel Europe. Exchange rate movements contributed revenue growth of $1.2 million, as the favorable effects of the euro and sterling appreciating by 3% and 8%, respectively, against the U.S. dollar, were partially offset by a 13% depreciation of the Russian ruble. Additionally, the Company saw a continued improvement in the performance of Belmond La Residencia, where revenue growth of $2.2 million, or 16% (after excluding favorable foreign exchange effects), was due primarily to an 11 percentage-point increase in occupancy and a 15% increase in ADR that resulted predominantly from a change in the hotel's revenue management strategy. Of the $12.5 million revenue decline at Belmond Grand Hotel Europe, $3.9 million was due to the depreciation of the ruble, with the remainder attributable to a strong comparative 2013 period that benefited from the September 2013 G20 Summit in St Petersburg, Russia along with increased local competition, lower food and beverage revenue due to ongoing restaurant renovation works, and cancellations related to the political situation in Ukraine which management is closely monitoring and expects to have a further negative impact in the fourth quarter.

ADR for the European owned hotels segment increased to $864 in the nine months ended September 30, 2014 from $827 in the nine months ended September 30, 2013, due to the factors described above. Occupancy decreased to 58% in the nine months ended September 30, 2014 from 60% in the nine months ended September 30, 2013. Same store RevPAR increased by 1% in U.S.

41


dollars (nil in local currency), to $505 in the nine months ended September 30, 2014 from $499 in the nine months ended September 30, 2013.

Owned hotels - North America 
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
 
 
 
 
 
 
 
Rooms available
 
63,140

 
70,346

 
199,575

 
204,454

Rooms sold
 
41,422

 
47,872

 
130,284

 
140,085

Occupancy (percentage)
 
66

 
68

 
65

 
69

Average daily rate (in U.S. dollars)
 
353

 
347

 
418

 
400

RevPAR (in U.S. dollars)
 
232

 
236

 
273

 
274

Same store RevPAR (in U.S. dollars)
 
232

 
218

 
275

 
272


Three months ended September 30, 2014 compared to three months ended September 30, 2013
 
Revenue was $28.3 million for the three months ended September 30, 2014, a decrease of $4.6 million, or 14%, from $32.9 million for the three months ended September 30, 2013. The decrease was primarily the result of the March 2014 sale and agreement to manage Inn at Perry Cabin by Belmond, which resulted in the Company no longer reporting the hotel's results in its owned hotels segment but instead recognizing management fees earned in its part-owned/managed hotels segment. Inn at Perry Cabin by Belmond generated revenue of $4.4 million in the three months ended September 30, 2013. North American ADR increased to $353 in the three months ended September 30, 2014 from $347 in the three months ended September 30, 2013, due primarily to ADR growth of 13% at Belmond El Encanto, which opened in March 2013, and 6% at Belmond Charleston Place. Occupancy for the segment decreased to 66% for the three months ended September 30, 2014 from 68% for the three months ended September 30, 2013. On a same store basis (which excludes Inn at Perry Cabin by Belmond), RevPAR increased to $232 for the three months ended September 30, 2014 from $218 in the three months ended September 30, 2013, an increase of 6% in U.S. dollar and local currency terms, as the 2% increase in ADR was partially offset by the two percentage-point decrease in occupancy.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Revenue was $103.9 million for the nine months ended September 30, 2014, a decrease of $4.0 million, or 4%, from $107.9 million for the nine months ended September 30, 2013. The decrease was primarily the result of the March 2014 sale of Inn at Perry Cabin by Belmond which generated revenue of $9.5 million in the nine months ended September 30, 2013 compared with $1.3 million in nine months ended September 30, 2014. Partially offsetting this decrease was revenue growth of $3.4 million at Belmond El Encanto, which opened in March 2013, and $1.0 million at Belmond Charleston Place, due to strong ADR and food and beverage growth. Overall, North American ADR increased to $418 in the nine months ended September 30, 2014 from $400 in the nine months ended September 30, 2013. Occupancy decreased to 65% for the nine months ended September 30, 2014 from 69% for the nine months ended September 30, 2013. On a same store basis (which excludes Belmond El Encanto and Inn at Perry Cabin by Belmond), RevPAR increased to $275 for the nine months ended September 30, 2014 from $272 in the nine months ended September 30, 2013, an increase of 1% in U.S. dollar terms.

Owned hotels - Rest of world 
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
 
 
 
 
 
 
 
Rooms available
 
94,484

 
93,288

 
280,371

 
276,822

Rooms sold
 
47,589

 
46,311

 
151,212

 
153,892

Occupancy (percentage)
 
50

 
50

 
54

 
56

Average daily rate (in U.S. dollars)
 
429

 
359

 
421

 
385

RevPAR (in U.S. dollars)
 
216

 
178

 
227

 
214

Same store RevPAR (in U.S. dollars)
 
216

 
178

 
235

 
214



42


Three months ended September 30, 2014 compared to three months ended September 30, 2013
 
Revenue was $33.4 million for the three months ended September 30, 2014, an increase of $3.3 million, or 11%, from $30.1 million for the three months ended September 30, 2013. This increase was the result of the strong performances of the Company's two Brazilian hotels due largely to the 2014 FIFA World Cup, which impacted the first few weeks of the third quarter of 2014. Belmond Copacabana Palace had a year-over-year revenue growth of $3.6 million or 30% and Belmond Hotel das Cataratas, Iguassu Falls had a revenue growth of $1.1 million or 27%. Excluding the impact of the 8% year-over-year depreciation of the Brazilian real, combined revenue for the two hotels would have increased by $4.4 million over the second quarter of 2013. Growth at the Company's Brazilian hotels was partially offset by the $1.2 million year-over-year declines at the Company's Asian hotels, primarily as a result of the impact of the media coverage of the political situation in Bangkok, which is an important point of arrival for several of Belmond’s Asian hotels.

ADR for the Rest of world region increased to $429 in the three months ended September 30, 2014 from $359 in the three months ended September 30, 2013. This increase is largely as a result of the impact of the FIFA World Cup in Brazil where ADR increased by 46% at Belmond Copacabana Palace and 28% at Belmond Hotel das Cataratas. Occupancy for the region as a whole remained flat at 50% for the three months ended September 30, 2014 compared to the three months ended September 30, 2013. Same store RevPAR increased by 21% in U.S. dollars, to $216 for the three months ended September 30, 2014 from $178 in the three months ended September 30, 2013, an increase of 20% when measured in local currency.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Revenue was $103.1 million for the nine months ended September 30, 2014, an increase of $1.4 million, or 1%, from $101.7 million for the nine months ended September 30, 2013. This increase is largely attributable to the impact of the FIFA World Cup which resulted in a $6.7 million revenue increase in the Company’s Brazilian hotels. Excluding the impact of the 8% year-over-year depreciation of the Brazilian real, combined revenue for the two hotels would have increased by $11.0 million over the nine months ended September 30, 2013. Belmond Mount Nelson Hotel in Cape Town, South Africa had a revenue increase of $1.1 million or 12% due to an eight percentage-point increase in occupancy over the nine months ended September 30, 2014. The revenue growth for the region as a whole was partially offset by the fact that Belmond Miraflores Park was closed for renovation from December 2013 through the middle of April 2014, which caused a $2.9 million decline in revenue. In addition, revenue for the Company's Asian hotels was down $2.6 million year-over-year primarily as a result of the impact of the media coverage of the political situation in Bangkok, which is an important point of arrival for several of Belmond’s Asian hotels.

ADR for the Rest of world region increased to $421 in the nine months ended September 30, 2014 from $385 in the nine months ended September 30, 2013. Occupancy decreased to 54% for the nine months ended September 30, 2014 from 56% for the nine months ended September 30, 2013. Same store RevPAR (which excludes Belmond Miraflores Park) increased by 10% in U.S. dollars, to $235 for the nine months ended September 30, 2014 from $214 in the nine months ended September 30, 2013, an increase of 18% when measured in local currency.

Part-owned/managed hotels 

Three months ended September 30, 2014 compared to three months ended September 30, 2013

Revenue was $1.8 million for the three months ended September 30, 2014, an increase of $0.2 million, or 13%, from $1.6 million for the three months ended September 30, 2013. The increase is due to improved performance of the Company’s Peru hotel joint venture and to technical service fees related to the redesign of The Cadogan, the hotel in London, England which Belmond recently signed an agreement to manage.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Revenue was $4.6 million for the nine months ended September 30, 2014, a increase of $0.3 million, or 7%, from $4.3 million for the nine months ended September 30, 2013, primarily due to technical service fees related to the redesign of The Cadogan, which Belmond recently signed an agreement to manage.
 

43


Owned trains and cruises 

Three months ended September 30, 2014 compared to three months ended September 30, 2013

Revenue was $23.2 million for the three months ended September 30, 2014, an increase of $1.0 million, or 5%, from $22.2 million for the three months ended September 30, 2013. This was primarily due to a revenue increase of $0.7 million at Belmond Northern Belle which operated eight more trips in the current-year quarter and a $0.6 million increase from the Venice Simplon-Orient-Express primarily due to a 8% year-over-year appreciation in the British pound sterling. In addition, there was an increase of $0.5 million or 29% at Belmond Afloat in France due to increased demand for river barges in France.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Revenue was $57.5 million for the nine months ended September 30, 2014, an increase of $4.4 million, or 8%, from $53.1 million for the nine months ended September 30, 2013. The increase was driven by Belmond Orcaella, Belmond’s river cruise operation launched in July 2013, which contributed $1.8 million of revenue growth. The Venice Simplon-Orient-Express and Belmond Northern Belle also recorded revenue increases, primarily due to the appreciation of the British pound sterling against the U.S. dollar.

Part-owned/managed trains

Three months ended September 30, 2014 compared to three months ended September 30, 2013

Revenue was $2.3 million in the three months ended September 30, 2014, an increase of $1.1 million, or 92%, from $1.2 million in the three months ended September 30, 2013, primarily due to an increase in Peru Rail management fee rates.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Revenue was $5.4 million in the nine months ended September 30, 2014, an increase of $2.4 million, or 80%, from $3.0 million in the nine months ended September 30, 2013, primarily due to a change in Peru Rail management fee rates.

Cost of services

Three months ended September 30, 2014 compared to three months ended September 30, 2013

Cost of services was $78.7 million for the three months ended September 30, 2014, a decrease of $1.3 million, or 2%, from $80.0 million for the three months ended September 30, 2013. As a percentage of revenue, cost of services was 43% in the three months ended September 30, 2014 and 2013.
 
Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Cost of services was $207.2 million for the nine months ended September 30, 2014, an increase of $2.5 million, or 1%, from $204.7 million for the nine months ended September 30, 2013. As a percentage of revenue, cost of services was 45% in the nine months ended September 30, 2014 and 2013.

Selling, general and administrative expenses

Three months ended September 30, 2014 compared to three months ended September 30, 2013

Selling, general and administrative expenses were $56.9 million for the three months ended September 30, 2014, a decrease of $0.5 million, or 1%, from $57.4 million for the three months ended September 30, 2013. As a percentage of revenue, selling, general and administrative expenses were 31% in the three months ended September 30, 2014 and 2013.

Central costs within selling, general and administrative expenses were $9.4 million for the three months ended September 30, 2014 (including $2.7 million of non-cash share-based compensation expense), a decrease of $0.1 million, or 1%, from $9.5 million for the three months ended September 30, 2013 (including $2.6 million of non-cash share-based compensation expense). As a percentage of revenue, central costs (excluding non-cash share-based compensation expense) were 4% for the three months ended September 30, 2014 and 2013.


44


Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Selling, general and administrative expenses were $165.9 million for the nine months ended September 30, 2014, a decrease of $2.7 million, 2%, from $168.6 million for the nine months ended September 30, 2013. As a percentage of revenue, selling, general and administrative expenses were 36% in the nine months ended September 30, 2014 compared to 37% in the nine months ended September 30, 2013.

Central costs within selling, general and administrative expenses were $29.2 million for the nine months ended September 30, 2014 (including $5.7 million of non-cash share-based compensation expense), a decrease of $0.2 million, or Negative one in percentage terms, from $29.4 million for the nine months ended September 30, 2013 (including $6.5 million of non-cash share-based compensation expense). Central costs for the nine months ended September 30, 2014 included central marketing costs of $2.5 million compared to $0.8 million in the nine months ended September 30, 2013, partially due to Belmond brand launch expenses incurred in 2014. As a percentage of revenue, central costs (excluding non-cash share-based compensation expense) were 5% for the nine months ended September 30, 2014 and 2013.


45


Segment profit/(loss)

Segment performance is evaluated based upon segment earnings/(losses) before gains/(losses) on disposal, impairments, central overheads, interest income, interest expense, foreign currency, tax (including tax on earnings from unconsolidated companies), depreciation and amortization (“segment profit/(loss)”). Segment performance for the three and nine months ended September 30, 2014 and 2013 is analyzed as follows:
 
 
Three months ended
 
Nine months ended
 
 
September 30,
2014
 
September 30,
2013
 
September 30,
2014
 
September 30,
2013
 
 
$ millions
 
$ millions
 
$ millions
 
$ millions
 
 
 
 
 
 
 
 
 
Segment profit/(loss):
 
 

 
 

 
 

 
 
Owned hotels:
 
 
 
 
 
 
 
 
Europe
 
41.8

 
43.1

 
63.3

 
63.3

North America
 
1.7

 
2.9

 
15.9

 
17.4

Rest of world
 
7.6

 
6.1

 
25.0

 
23.7

Total owned hotels
 
51.1

 
52.1

 
104.2

 
104.4

Part-owned/managed hotels
 
2.2

 
1.5

 
3.5

 
1.3

Total hotels
 
53.3

 
53.6

 
107.7

 
105.7

Owned trains and cruises
 
2.5

 
2.8

 
4.2

 
4.3

Part-owned/managed trains
 
6.0

 
5.0

 
11.8

 
10.3

Total trains and cruises
 
8.5

 
7.8

 
16.0

 
14.6

 
 
 
 
 
 
 
 
 
Reconciliation to net earnings/(losses):
 
 
 
 
 
 
 
 
Total segment profit
 
61.8

 
61.4

 
123.7

 
120.3

 
 
 
 
 
 
 
 
 
Gain on disposal of property, plant and equipment
 
0.1

 

 
4.0

 

Impairment of property, plant and equipment
 

 

 

 
(35.7
)
Central costs
 
(9.4
)
 
(9.5
)
 
(29.2
)
 
(29.4
)
Depreciation and amortization
 
(12.1
)
 
(10.7
)
 
(37.0
)
 
(34.4
)
Loss on extinguishment of debt
 

 

 
(14.5
)
 

Interest income, interest expense and foreign currency, net
 
(7.6
)
 
(11.2
)
 
(25.8
)
 
(23.2
)
(Provision for)/benefit from income taxes
 
(15.2
)
 
(11.5
)
 
(16.5
)
 
(9.3
)
Share of (provision for)/benefit from income taxes of unconsolidated companies
 
(1.2
)
 
(1.9
)
 
(1.8
)
 
(0.9
)
 
 
 
 
 
 
 
 
 
Earnings/(losses) from continuing operations
 
16.4

 
16.6

 
2.9

 
(12.6
)
(Losses)/earnings from discontinued operations
 
(1.5
)
 
(0.5
)
 
(2.7
)
 
(0.9
)
 
 
 
 
 
 
 
 
 
Net earnings/(losses)
 
14.9

 
16.1

 
0.2

 
(13.5
)

Three months ended September 30, 2014 compared to three months ended September 30, 2013

The European owned hotels reported segment profit of $41.8 million for the three months ended September 30, 2014, a decrease of $1.3 million, or 3%, from $43.1 million for the three months ended September 30, 2013. This decrease was the result of $5.6 million decrease in earnings from Belmond Grand Hotel Europe, partially offset by earnings growth of $4.3 million at the Company's hotels in continental Europe and the United Kingdom. As a percentage of European owned hotels revenue, segment profit was 44% for the three months ended September 30, 2014 and three months ended September 30, 2013.

The North American owned hotels reported segment profit of $1.7 million for the three months ended September 30, 2014, a decrease of $1.2 million, or 41%, from $2.9 million for the three months ended September 30, 2013, primarily as a result of the

46


March 2014 sale of Inn at Perry Cabin by Belmond, which reported earnings of $1.6 million in the three months ended September 30, 2013. The remaining decrease is due to declines of $0.3 million at Belmond La Samanna and Belmond Charleston Place. Partially offsetting these decreases was a $0.8 million year-over-year increase in earnings at Belmond El Encanto which is now in full operation and $0.2 million at '21' Club. As a percentage of North American owned hotels revenue, segment profit was 6% for the three months ended September 30, 2014 compared to 9% for the three months ended September 30, 2013.

The Rest of world owned hotels reported segment profit of $7.6 million for the three months ended September 30, 2014, an increase of $1.5 million, or 25%, from $6.1 million for the three months ended September 30, 2013. Combined year-over-year growth of $2.3 million at Belmond Copacabana Palace and Belmond Hotel das Cataratas due to the FIFA World Cup in Brazil was offset by a $0.8 million net decrease in earnings from Belmond's Asian hotels. As a percentage of Rest of world owned hotels revenue, segment profit was 23% for the three months ended September 30, 2014 compared to 20% for the three months ended September 30, 2013.

The Part-owned/managed hotels reported segment profit of $2.2 million for the three months ended September 30, 2014, an increase of $0.7 million, or 47%, from $1.5 million for the three months ended September 30, 2013. This growth was largely due to a $0.5 million increase at Hotel Ritz by Belmond, which had a six percentage-point increase in occupancy and 9% increase in ADR as a result of new sales strategies and continued signs of an improvement in the Spanish economy.

The Owned trains and cruises reported segment profit of $2.5 million for the three months ended September 30, 2014 a decrease of $0.3 million, or 11% from $2.8 million for the three months ended 2013. Decreases from Venice Simplon-Orient-Express of $0.5 million, Belmond Royal Scotsman of $0.3 million and Belmond Road to Mandalay of $0.3 million were partially offset by growth of $0.5 million from the U.K. day-trains and $0.4 million from Belmond Afloat in France.

The Part-owned/managed trains reported segment profit of $6.0 million for the three months ended September 30, 2014, an increase of $1.0 million, or 20%, from $5.0 million for the three months ended September 30, 2013 attributable to the Company’s Peru Rail joint venture, due largely to an improvement in the Company's management fee structure for this business starting in 2014.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

The European owned hotels reported segment profit of $63.3 million for the nine months ended September 30, 2014 and 2013. This was the result of earnings growth of $7.5 million at the Company’s hotels in continental Europe and the United Kingdom, offset by a $7.5 million decrease in earnings at Belmond Grand Hotel Europe. As a percentage of European owned hotels revenue, segment profit was 34% for the nine months ended September 30, 2014 and for the nine months ended September 30, 2013.

The North American owned hotels reported segment profit of $15.9 million for the nine months ended September 30, 2014, a decrease of $1.5 million, or 9%, from $17.4 million for the nine months ended September 30, 2013. The March 2014 sale of Inn at Perry Cabin by Belmond caused a decrease of $2.6 million. There was also a decrease of $1.5 million at Belmond La Samanna, which experienced cancellations and reduced demand as a result of guest concerns over reports of an outbreak of a mosquito-borne illness in St. Martin and elsewhere in the Caribbean and also suffered from cost increases related to the appreciation of the euro. These declines were partially offset by growth of $2.8 million at Belmond El Encanto, which opened in March 2013. As a percentage of North American owned hotels revenue, segment profit was 15% for the nine months ended September 30, 2014 compared with 16% for the nine months ended September 30, 2013.

The Rest of world owned hotels reported segment profit of $25.0 million for the nine months ended September 30, 2014, an increase of $1.3 million, or 5%, from $23.7 million for the nine months ended September 30, 2013. This increase was largely due to combined year-over-year growth of $4.2 million at Belmond Copacabana Palace and Belmond Hotel das Cataratas due to the FIFA World Cup in Brazil and growth of $1.6 million year-over-year for Belmond Mount Nelson Hotel, due to a an eight percentage-point increase in occupancy as the weaker South African rand has benefited booking pace. These increases were offset by a $2.5 million year-over-year decrease for Belmond Miraflores Park due to the hotel’s planned renovation and a $2.0 million net decrease in earnings for the Company's Asian hotels due to the political unrest in the region’s gateway city of Bangkok. Excluding the effect of the 8% depreciation of the Brazilian real against the U.S. dollar, the combined earnings reported by Belmond’s Brazilian hotels would have increased by $5.2 million compared to the nine months ended September 30, 2013. As a percentage of Rest of world owned hotels revenue, segment profit was 24% for the nine months ended September 30, 2014 compared with 23% nine months ended September 30, 2013.

The Part-owned/managed hotels reported segment profit of $3.5 million for the nine months ended September 30, 2014, an improvement of $2.2 million from earnings of $1.3 million for the nine months ended September 30, 2013. A $1.6 million increase at Hotel Ritz by Belmond, which had a nine percentage-point increase in occupancy as a result of new sales strategies and continued

47


signs of an improvement in the Spanish economy, was offset by decreased earnings from the Company's Peru hotels joint venture due to a $0.5 million expense for Belmond’s share of debt extinguishment costs incurred by the joint venture.

The Owned trains and cruises reported segment profit of $4.2 million for the nine months ended September 30, 2014, a decrease of $0.1 million, or 2%, from profit of $4.3 million for the nine months ended September 30, 2013. Growth of $0.5 million from Belmond Orcaella river cruise in Myanmar was partially offset by decreases from the Venice Simplon Orient-Express and Belmond Royal Scotsman.

The Part-owned/managed trains reported segment profit of $11.8 million for the nine months ended September 30, 2014, an increase of $1.5 million, or 15%, from $10.3 million for the nine months ended September 30, 2013 attributable to the Company’s Peru Rail joint venture, due to an increase in passenger train revenue primarily as a result of an increase in tickets sold resulting from increased foreign arrivals to the country.

Gain on disposal of property, plant and equipment

Three months ended September 30, 2014 compared to three months ended September 30, 2013

A gain on disposal of $0.1 million was recorded in the three months ended September 30, 2014. This relates to Inn at Perry Cabin by Belmond, which was sold on March 21, 2014 but which Belmond has continued to manage under a management contract. The disposal resulted in a gain of $6.7 million, of which $3.7 million was recognized on completion on March 21, 2014 and $3.0 million, relating to Belmond’s key money contribution, was deferred and is being recognized over the initial period of the management contract. Due to Belmond's continuing involvement in managing the hotel, the results of operations of Inn at Perry Cabin by Belmond and the gain on disposal have been recorded within continuing operations.

There were no gains or losses on disposal of property, plant and equipment recorded in the three months ended September 30, 2013.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

A gain on disposal of $4.0 million was recorded in the nine months ended September 30, 2014. This relates to Inn at Perry Cabin by Belmond, which was sold on March 21, 2014 but which Belmond has continued to manage under a management contract. The disposal resulted in a gain of $6.7 million, of which $3.7 million was recognized on completion on March 21, 2014 and $3.0 million, relating to Belmond’s key money contribution, was deferred and is being recognized over the initial period of the management contract. Due to Belmond's continuing involvement in managing the hotel, the results of operations of Inn at Perry Cabin by Belmond and the gain on disposal have been recorded within continuing operations.

There were no gains or losses on disposal of property, plant and equipment recorded in the nine months ended September 30, 2013.

Impairment of property, plant and equipment

Three months ended September 30, 2014 compared to three months ended September 30, 2013

There were no impairments of property, plant and equipment recorded in the three months ended September 30, 2014 or 2013.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

There were no impairments of property, plant and equipment recorded in the nine months ended September 30, 2014. In the nine months ended September 30, 2013, property, plant and equipment at Belmond La Samanna was written down to fair value, resulting in a non-cash impairment charge of $35.7 million.

Depreciation and amortization

Three months ended September 30, 2014 compared to three months ended September 30, 2013

Depreciation and amortization was $12.1 million for the three months ended September 30, 2014, an increase of $1.4 million, or 13%, from $10.7 million for the three months ended September 30, 2013. As a percentage of revenue, depreciation and amortization was 7% in the three months ended September 30, 2014 and 6% in the three months ended September 30, 2013.


48


Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Depreciation and amortization was $37.0 million for the nine months ended September 30, 2014, an increase of $2.6 million, or 8%, from $34.4 million for the nine months ended September 30, 2013. As a percentage of revenue, depreciation and amortization was 8% in the nine months ended September 30, 2014 and 7% in the nine months ended September 30, 2013.

Loss on extinguishment of debt

Three months ended September 30, 2014 compared to three months ended September 30, 2013

Loss on extinguishment of debt was $Nil for the three months ended September 30, 2014 and 2013.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Loss on extinguishment of debt was $14.5 million for the nine months ended September 30, 2014 compared to $Nil for the nine months ended September 30, 2013. The loss for the nine months ended September 30, 2014 comprised of costs associated with the March corporate debt refinancing, including an $8.9 million write-off of unamortized deferred financing costs, $4.0 million in swap cancellation costs and $1.3 million of fees to prepay Belmond’s previous loans.

Interest income, interest expense and foreign currency, net
 
Three months ended September 30, 2014 compared to three months ended September 30, 2013

Interest income, interest expense and foreign currency, net was an expense of $7.6 million for the three months ended September 30, 2014, a decrease of $3.6 million, or 32%, from an expense of $11.2 million for the three months ended September 30, 2013. The increase in net expense is mainly due to the fact that a foreign exchange gain of $0.6 million was recognized in the three months ended September 30, 2014 compared to a loss of $2.5 million in the three months ended September 30, 2013.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Interest income, interest expense and foreign currency, net was an expense of $25.8 million for the nine months ended September 30, 2014, an increase of $2.6 million, or 11%, from an expense of $23.2 million for the nine months ended September 30, 2013. The increase in net expense is caused by slightly higher interest rates on refinanced debt and the fact that a foreign exchange loss of $0.3 million was recognized in the nine months ended September 30, 2014 compared to a gain of $0.5 million in the nine months ended September 30, 2013. Additionally, Belmond did not capitalize any interest in the nine months ended September 30, 2014 but capitalized $1.1 million related to Belmond El Encanto in the nine months ended September 30, 2013.

Provision for income taxes

Three months ended September 30, 2014 compared to three months ended September 30, 2013

The provision for income taxes was $15.2 million for the three months ended September 30, 2014, an increase of $3.7 million, or 32%, from $11.5 million for the three months ended September 30, 2013, The increase is primarily due to an increase in underlying earnings and changes in the Company's profits mix.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

The provision for income taxes was $16.5 million for the nine months ended September 30, 2014, an increase of $7.2 million, or 77%, from $9.3 million for the nine months ended September 30, 2013. The provision for income taxes for the nine months ended September 30, 2013 included a tax credit of $3.9 million for release of uncertain tax positions and a tax credit of $2.0 million relating to favorable deferred tax impacts of currency fluctuations.



49


Earnings from unconsolidated companies

Three months ended September 30, 2014 compared to three months ended September 30, 2013

Earnings from unconsolidated companies net of tax were $3.1 million for the three months ended September 30, 2014, an increase of $1.0 million, or 48%, from $2.1 million for the three months ended September 30, 2013. A tax charge of $1.2 million was recognized on earnings from unconsolidated companies for the three months ended September 30, 2014, compared to $1.9 million for the three months ended September 30, 2013.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

Earnings from unconsolidated companies net of tax were $4.2 million for the nine months ended September 30, 2014, a decrease of $0.5 million, or 11%, from $4.7 million for the nine months ended September 30, 2013. A tax charge of $1.8 million was recognized on earnings from unconsolidated companies for the nine months ended September 30, 2014, compared to $0.9 million for the nine months ended September 30, 2013.

Net losses from discontinued operations

Three months ended September 30, 2014 compared to three months ended September 30, 2013

The losses from discontinued operations for the three months ended September 30, 2014 were $1.5 million, compared with $0.5 million for the three months ended September 30, 2013.

Losses from discontinued operations for the three months ended September 30, 2014 comprised of legal fees of $0.3 million in relation to Ubud Hanging Gardens, as Belmond is pursuing legal remedies following the wrongful dispossession by the owner in November 2013, and operating losses of $1.2 million at Porto Cupecoy.

Losses from discontinued operations for the three months ended September 30, 2013 related to Ubud Hanging Gardens and Porto Cupecoy plus a tax credit of $0.6 million related to Keswick Hall, which was sold in January 2012.

Nine months ended September 30, 2014 compared to nine months ended September 30, 2013

The losses from discontinued operations for the nine months ended September 30, 2014 were $2.7 million, compared to $0.9 million for the nine months ended September 30, 2013.

Losses from discontinued operations for the nine months ended September 30, 2014 comprised legal fees of $1.2 million in relation to Ubud Hanging Gardens, as Belmond is pursuing legal remedies following the wrongful dispossession by the owner in November 2013, and operating losses of $1.5 million at Porto Cupecoy.

Losses from discontinued operations for the nine months ended September 30, 2013 included a gain of $0.4 million on the disposal of Porto Cupecoy, which was sold in January 2013, tax gains of $0.4 million and $0.6 million relating to The Westcliff and Keswick Hall respectively, which were both sold in 2012, and net earnings of $0.9 million from Ubud Hanging Gardens. These gains were offset by operating losses of $2.9 million from Porto Cupecoy.

Other comprehensive income/(losses): Foreign currency translation adjustments, net

Foreign currency translation adjustments for the three and nine months ended September 30, 2014 were a loss of $57.9 million and $99.4 million, respectively. This largely resulted from the retranslation of Belmond’s net investment in subsidiary accounts denominated in foreign currencies into the group’s reporting currency of U.S. dollars. The loss was driven by a 20%, 8% and 4% depreciation, respectively, of the Russian ruble, euro and Brazilian real against the U.S. dollar from the rate at December 31, 2013, negatively impacting the carrying value of Belmond’s net investments denominated in those currencies.

Also included within the foreign currency translation adjustment loss for the nine months ended September 30, 2014 is a loss of $49.4 million arising on the remeasurement of non-monetary assets and liabilities of Belmond’s Brazilian operations following a change in the functional currency of those entities. Prior to 2014, Belmond’s Brazilian operations used the U.S. dollar as their functional currency. Effective January 1, 2014, Belmond changed the functional currency to the Brazilian real. Belmond believes that the growth in the Brazilian operations’ real-denominated revenues and expenses indicated a change in the economic facts and circumstances that justified the change in the functional currency.


50


Liquidity and Capital Resources
 
Overview

Belmond’s primary short-term cash needs include payment of compensation, general business expenses, capital commitments and contractual payment obligations, which include principal and interest payment on its debt facilities. Long-term liquidity needs may include existing and ongoing property refurbishments, potential investment in strategic acquisitions, and the repayment of current and long-term debt. At September 30, 2014, total debt and obligations under capital leases, including debt of consolidated variable interest entities, amounted to $626.9 million (December 31, 2013 - $639.8 million), including a current portion of $5.6 million (December 31, 2013 - $72.9 million, including a working capital loan of $0.1 million) repayable within 12 months. Additionally, Belmond had capital commitments at September 30, 2014 amounting to $13.1 million (December 31, 2013 - $21.9 million).

Belmond had cash and cash equivalents of $158.8 million at September 30, 2014, compared to $123.2 million at December 31, 2013. In addition, Belmond had restricted cash balances of $3.1 million, of which $2.5 million is classified as current restricted cash on the consolidated balance sheets and $0.6 million is classified in other assets (December 31, 2013 - $13.6 million, of which $6.0 million was classified in restricted cash and $7.6 million was classified in other assets). At September 30, 2014, there were undrawn amounts available to Belmond under committed lines of credit of $101.4 million (December 31, 2013 - $2.9 million), bringing total cash availability at September 30, 2014 to $260.2 million (December 31, 2013 - $126.1 million), excluding the restricted cash of $3.1 million (December 31, 2013 - $13.6 million). When assessing cash and cash equivalents within Belmond, management considers the availability of those cash resources held within local business units to meet the strategic needs of Belmond.

Belmond expects to fund scheduled debt repayments and working capital and capital expenditure commitments for the foreseeable future from cash resources, operating cash flow and available committed borrowing.

Recent Events Affecting Belmond’s Liquidity and Capital Resources

In March 2014, Belmond entered into a credit agreement (the “Credit Agreement”) providing for a $552.0 million secured term loan and a $105.0 million revolving credit facility, the proceeds of which were used to repay all outstanding funded debt apart from the debt of Charleston Center LLC, a consolidated VIE, which is non-recourse to Belmond, and apart from the debt of Belmond’s unconsolidated joint venture companies.
Covenant Compliance

The Credit Agreement limits Belmond’s ability to incur additional debt unless certain covenants are met. These covenants are measured on the performance of the consolidated group. The revolving credit facility in the Credit Agreement contains two financial covenants, a maximum net leverage test and a minimum interest cover test, which are both measured quarterly based on Belmond’s trailing 12 months results.
If Belmond does not comply with its financial covenants and the banks that provide the revolving credit facility declare a default and accelerate the repayment of their debt, this will cause an event of default under the Credit Agreement. The cross default threshold in the Credit Agreement to other debt that is recourse to Belmond is $25.0 million.
Belmond continues to closely monitor projected covenant compliance, and if there were a possibility of non-compliance with a covenant, Belmond would proactively meet with the agent or lending bank or banks of the relevant facility to seek an amendment or waiver. Obtaining a waiver may result in additional bank fees or an increase in the interest cost.


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At September 30, 2014, two unconsolidated joint venture companies for which Belmond provides guarantees were out of compliance with debt covenants as follows:

The unconsolidated rail joint venture in Peru, in which Belmond has a 50% interest, was out of compliance with a debt service coverage ratio covenant for a loan of $4.6 million, which could require the Company to fund its guarantee should the banks call the loan facility. Discussions with the banks are ongoing to bring the joint venture back into compliance and Belmond anticipates the joint venture will rectify the breach through refinancing or renegotiating covenant terms. Although the banks currently remain entitled to do so, Belmond does not expect the banks to call the loan or that the Company will be required to fund the guarantee as the cash flows from the joint venture remain strong.

Hotel Ritz by Belmond, 50% owned by Belmond, was out of compliance at September 30, 2014 with the debt service coverage ratio in its first mortgage loan facility amounting to $71.4 million.  Although the loan is non-recourse to Belmond and the joint venture partner in the hotel, each has provided separate partial guarantees of $9.5 million as of September 30, 2014, which may be required to be funded should the bank call the loan. Although covenant waivers have been obtained in the past, there currently is no waiver in place for the breached covenant. Belmond anticipates negotiations with the lender as to how to bring the hotel into long-term compliance. At the date of this report, Belmond does not expect the loan to be called and, therefore, does not believe the Company will be required to fund its portion of the guarantees.

Based on its current financial forecasts, Belmond believes it will comply with all of the financial covenants in its loan facilities except for the instances of non-compliance noted above which are not expected to have a material impact on Belmond’s financial flexibility.

Working Capital
  
Current assets less current liabilities, including the current portion of long-term debt, resulted in a working capital surplus of $121.6 million at September 30, 2014 (December 31, 2013 - $72.3 million). This increase in working capital is largely due to the refinancing completed during the period that has caused a significant decrease in the current portion of long-term debt and obligations under capital leases falling due within the next 12 months.

Cash Flow - Sources and Uses of Cash

At September 30, 2014 and December 31, 2013, Belmond had cash and cash equivalents of $158.8 million and $123.2 million (excluding $0.4 million cash presented within assets held for sale), respectively. In addition, Belmond had restricted cash of $3.1 million (of which $2.5 million is classified as current restricted cash on the condensed consolidated balance sheets and $0.6 million is classified in other assets) and $13.6 million (of which $6.0 million is classified in restricted cash on the condensed consolidated balance sheets and $7.6 million is classified in other assets) as of September 30, 2014 and December 31, 2013, respectively.

Operating Activities. Net cash provided by operating activities for the nine months ended September 30, 2014 was $61.7 million compared to $82.9 million for the nine months ended September 30, 2013.
 
The primary driver of operating cash flows is the result for the period, adjusted for any non-cash components. Net earnings from continuing operations were $2.9 million for the nine months ended September 30, 2014, an improvement of $15.5 million from net losses of $12.6 million for the nine months ended September 30, 2013. This improvement is offset in cash terms by the fact that the net losses for the nine months ended September 30, 2013 included a non-cash property, plant and equipment impairment charge of $35.7 million, compared to $Nil in the nine months ended September 30, 2014. For the nine months ended September 30, 2014 there were additional non-cash items including a loss on extinguishment of debt of $14.5 million and a gain on disposal of property, plant and equipment of $4.0 million. In addition, during the nine months ended September 30, 2014, the Company paid swap termination costs of $4.0 million and key money in relation to the management agreement of Inn at Perry Cabin by Belmond of $3.0 million.

Investing Activities. Net cash used in investing activities was $11.9 million for the nine months ended September 30, 2014, compared to net cash used in investing activities of $37.7 million for the nine months ended September 30, 2013.

Capital expenditure of $52.5 million during the nine months ended September 30, 2014 included $11.9 million at Belmond Charleston Place primarily for the first and second phases of the hotel’s rooms renovation project, $9.9 million at Belmond Grand Hotel Europe primarily for the conversion of 19 historic rooms into six suites and renovations of the hotel’s restaurants and meeting rooms, $4.7 million at Belmond Miraflores Park for the hotel’s renovation, $3.4 million at Belmond Hotel Cipriani primarily for the renovation of the hotel’s new Oro restaurant, $3.0 million at Belmond Hotel Splendido in Portofino, Italy primarily for the renovation of several of the hotel’s rooms and suites, $2.8 million at Belmond Villa Sant’Andrea primarily for the six junior suites

52


that opened in May 2014, $2.4 million at Belmond Copacabana Palace for the renovation of the hotel’s new MEE restaurant and other routine capital expenditure, $2.2 million on the Venice Simplon-Orient-Express and Belmond British Pullman primarily related to statutory maintenance works and $2.1 million at Belmond Le Manoir aux Quat’Saisons primarily for the construction of a new conservatory in the hotel’s garden, with the balance being for routine capital expenditures.

Capital expenditure of $52.3 million during the nine months ended September 30, 2013 included $23.2 million for the renovation of Belmond El Encanto, $5.9 million at Belmond Charleston Place including the refurbishment of the Palmetto Café and guest rooms, $4.9 million primarily for completion of the refurbishment at Belmond Copacabana Palace, $3.2 million primarily for façade works at Belmond Grand Hotel Europe, $2.0 million on the Venice Simplon-Orient-Express and the balance for routine capital expenditures.

During the nine months ended September 30, 2014, disposal of non-core assets of Inn at Perry Cabin by Belmond resulted in net cash proceeds of $37.8 million. The disposal resulted in a gain of $6.7 million, of which $3.7 million was recognized on completion on March 21, 2014 and $3.0 million, relating to Belmond’s key money contribution, has been deferred and will be recognized over the initial period of the management contract. The gain on sale of $3.7 million is reported within gain on sale from property, plant and equipment. Belmond will continue to manage the hotel for the new owner under a management agreement with a ten-year term that permits termination on the fifth anniversary of the agreement.

During the nine months ended September 30, 2014, there was a release of restricted cash of $7.6 million compared to $2.0 million in the nine months ended September 30, 2013. The primary reason for this increase was the repayment of the outstanding property level funded debt of Belmond with the exception of the debt of Charleston Center LLC, a consolidated VIE. Cash deposits were previously required to be held with lending banks to support Belmond’s payment of interest and principal.

Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2014 was $9.1 million, compared to net cash provided by financing activities of $13.4 million for the nine months ended September 30, 2013.

During the nine months ended September 30, 2014, Belmond drew $5.4 million of loans to fund capital expenditure at Belmond Miraflores Park and Belmond Grand Hotel Europe and refinanced a $12.0 million loan secured on Belmond Mount Nelson Hotel. Subsequent to these drawdowns, Belmond entered into a $552.0 million secured term loan, the proceeds of which were used to repay all outstanding funded debt of Belmond apart from the debt of Charleston Center LLC, a consolidated VIE, and the debt of Belmond’s unconsolidated joint venture companies. In August 2014, the debt of Charleston Center LLC was refinanced, resulting in an additional drawdown of $2.8 million. Principal repayments under long-term debt were $563.7 million for the nine months ended September 30, 2014.

During the nine months ended September 30, 2013, $63.9 million was borrowed to refinance debt secured on Belmond Reid’s Palace, Belmond Le Manoir aux Quat’Saisons, Inn at Perry Cabin by Belmond and ‘21’ Club, $14.5 million was borrowed for Belmond El Encanto construction, $2.0 million for refurbishment of Belmond Grand Hotel Europe and $24.0 million for corporate purposes. $4.0 million of the existing debt for Belmond Grand Hotel Europe was repaid, and repayments of $17.0 million of the existing debt at Inn at Perry Cabin by Belmond and ‘21’ Club and $42.8 million of the existing debt of Belmond Reid’s Palace and Belmond Le Manoir aux Quat’Saisons were made. The remaining debt payments were scheduled amortization of existing debt.

Cash Flows from Discontinued Operations. The results of Ubud Hanging Gardens and Porto Cupecoy have been presented as discontinued operations for all periods presented.

During the nine months ended September 30, 2013, the disposal of non-core assets of Porto Cupecoy resulted in net cash proceeds of $19.0 million (gain on sale of $0.4 million) being realized within net cash provided by investing activities from discontinued operations.

Capital Commitments

Belmond routinely makes capital expenditures to enhance its business. These capital expenditures relate to maintenance, improvements to existing properties and investment in new properties. These capital commitments are expected to be funded through current cash balances, cash flows from operations and existing debt facilities.
 
There were $13.1 million of capital commitments outstanding at September 30, 2014 (December 31, 2013 - $21.9 million) relating to project developments and refurbishment for existing properties.
 

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Indebtedness
 
At September 30, 2014, Belmond had $626.9 million (December 31, 2013 - $639.8 million) of consolidated debt, including the current portion and including debt held by consolidated variable interest entities. Total debt at September 30, 2014 includes a $2.6 million reduction to the face value of the corporate debt facility which reflects the balance of the unamortized original issue discount and will be amortized through interest expense over the term of the loan.

On March 21, 2014, Belmond entered into a $552.0 million secured term loan and a $105.0 million revolving credit facility, the proceeds of which were used to repay all outstanding funded debt apart from the debt of Charleston Center LLC, a consolidated VIE, and the debt of Belmond’s unconsolidated joint venture companies.

The term loan consists of two tranches, a $345.0 million U.S. dollar tranche and a €150.0 million euro-denominated tranche (equivalent to $207.0 million at draw down). The dollar tranche bears interest at a rate of LIBOR plus 3% per annum, and the euro tranche bears interest at a rate of EURIBOR plus 3.25% per annum. Both tranches are subject to a 1% interest rate floor. The term loan matures in seven years and the annual mandatory amortization is 1% of the principal amount.
The revolving credit facility has a maturity of five years and a margin of 2.75% per annum, with a commitment fee of 0.4% paid on the undrawn amount.
The term loan and revolving credit facility are secured by pledges of shares in certain subsidiaries and by security interests in tangible and intangible personal property. There are no mortgages over real estate.

The weighted average duration of Belmond’s debt, including debt held by consolidated variable interest entities, is 6.2 years, and the weighted average interest rate is 4.35% which incorporates derivatives used to mitigate interest rate risk.  See Note 9 to the Financial Statements regarding the maturity of long-term debt.

Debt of consolidated variable interest entities at September 30, 2014 included above comprised $97.4 million (December 31, 2013 - $94.3 million), including the current portion, of debt obligations of Charleston Center LLC, owner of Belmond Charleston Place in which Belmond has a 19.9% equity investment. In August 2014, Charleston Center LLC refinanced a secured loan of $83.2 million with a new $86.0 million loan secured on its real and personal property. The loan has a five year maturity, requires no amortization and bears interest at a rate of LIBOR plus 2.12% per annum. There is no recourse to Belmond for debt obligations of Charleston Center LLC and the principal and interest payments on that debt are funded from the operations of Belmond Charleston Place.
 
Including debt of consolidated variable entities, approximately 30% of the outstanding principal amount of Belmond’s consolidated debt is in euros and the balance primarily in U.S. dollars. At September 30, 2014, 49% of borrowings of Belmond were at floating interest rates.

Belmond has guaranteed or contingently guaranteed debt obligations of certain of its unconsolidated joint venture companies. The following table summarizes these commitments at September 30, 2014:
 
 
Guarantee
 
Contingent guarantee
 
Duration
September 30, 2014
 
$ millions
 
$ millions
 
 
 
 
 
 
 
 
 
Hotel Ritz by Belmond:
 
 
 
 
 
 
Debt obligations
 
9.5

 

 
ongoing
Peru rail joint venture:
 
 
 
 
 
 
Debt obligations
 
4.6

 
5.5

 
through 2017
Concession performance
 

 
6.4

 
through May 2015
Peru hotel joint venture:
 
 
 
 
 
 
Debt obligations
 

 
19.6

 
through 2020
Total
 
14.1

 
31.5

 
 

Belmond has guaranteed certain debt obligations for Hotel Ritz by Belmond, in which Belmond has a 50% equity investment.


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Belmond has guaranteed and contingently guaranteed the debt obligations of the rail joint venture in Peru through 2017. Belmond has also guaranteed the rail joint venture’s contingent obligations relating to the performance of its governmental rail concessions through May 2015. In addition, Belmond has contingently guaranteed $19.6 million of the debt obligations maturing in 2020 of the Peru hotels joint venture that operates four hotels. The contingent guarantees for each Peruvian joint venture may only be enforced in the event there is a change in control of the relevant joint venture, which would occur only if Belmond’s ownership of the economic and voting interests in the joint venture falls below 50%, an event which has not occurred and is not expected to occur.

Recent Accounting Pronouncements

As of September 30, 2014, Belmond had adopted all relevant accounting guidance, as reported in Note 1 to the condensed consolidated financial statements. Accounting pronouncements to be adopted are also reported in Note 1.

Critical Accounting Policies and Estimates

For a discussion of these, see under the heading “Critical Accounting Policies” in Item 7 — Management’s Discussion and Analysis in the Company’s 2013 Annual Report on Form 10-K.

ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
 
Belmond is exposed to market risk from changes in interest rates and foreign currency exchange rates.  These exposures are monitored and managed as part of its overall risk management program, which recognizes the unpredictability of financial markets and seeks to mitigate material adverse effects on consolidated earnings and cash flow. Belmond does not hold market rate sensitive financial instruments for trading purposes.
 
The market risk relating to interest rates arises mainly from the financing activities of Belmond. Earnings are affected by changes in interest rates on floating rate borrowings, principally based on U.S. dollar LIBOR and EURIBOR, and on short-term cash investments. Belmond management assesses market risk based on changes in interest rates using a sensitivity analysis. If interest rates increased by 10% with all other variables held constant, annual net finance costs of Belmond would have increased by approximately $1.2 million based on borrowings outstanding at September 30, 2014.
 
The market risk relating to foreign currencies arises from holding assets, buying, selling and financing in currencies other than the U.S. dollar, principally the euro, British pound, South African rand, Russian ruble and Brazilian real. Some non-U.S. subsidiaries of the Company borrow in local currencies, and Belmond may in the future enter into forward exchange contracts relating to purchases denominated in foreign currencies.
 
Nine of Belmond’s owned hotels in 2014 operated in euros, two operated in Brazilian reals, one operated in South African rands, one in British pounds sterling, three in Botswanan pulas, one in Mexican pesos, one in Peruvian nuevo soles, six in various Southeast Asian currencies and one in Russian rubles. Revenue of the Venice Simplon-Orient-Express, Belmond British Pullman, Belmond Northern Belle and Belmond Royal Scotsman tourist trains was primarily in British pounds sterling, but the operating costs of the Venice Simplon-Orient-Express were mainly denominated in euros. Revenue derived by Belmond Maroma Resort and Spa and Belmond La Samanna was recorded in U.S. dollars, but the majority of the hotels’ expenses were denominated in Mexican pesos and the euro, respectively.
 
Belmond’s properties generally match foreign currency earnings and costs to provide a natural hedge against currency movements.  In addition, a significant proportion of the guests at Belmond hotels located outside of the United States originate from the United States. When a foreign currency in which Belmond operates devalues against the U.S. dollar, Belmond has some flexibility to increase prices in local currency, or vice versa.  Management believes that when these factors are combined, Belmond does not face a material exposure to its net earnings from currency movements, although the reporting of Belmond’s revenue and costs translated into U.S. dollars can, from period to period, be materially affected.

Belmond management uses a sensitivity analysis to assess the potential impact on net earnings of changes in foreign currency financial instruments from hypothetical changes in the foreign currency exchange rates. The primary assumption used in this model is a hypothetical 10% weakening or strengthening of the foreign currencies against the U.S. dollar. However, because Belmond does not have at September 30, 2014 any significant financial instruments in a currency other than the functional currency of the operation concerned, apart from the euro-denominated indebtedness designated as a net investment hedge discussed in Note 18, there is no material potential impact on net earnings at September 30, 2014 as a result of hypothetical changes in the foreign currency exchange rates.


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ITEM 4. Controls and Procedures
 
Disclosure Controls and Procedures
 
The Company’s chief executive officer and chief financial officer have evaluated the effectiveness of Belmond’s disclosure controls and procedures (as defined in SEC Exchange Act Rule 13a-15(e)) to ensure that the information included in periodic reports filed with the SEC is assembled and communicated to Belmond management and is recorded, processed, summarized and reported within the appropriate time periods. Based on that evaluation, Belmond management has concluded that these disclosure controls and procedures were effective as of September 30, 2014.

Changes in Internal Control over Financial Reporting
 
There have been no changes in Belmond’s internal control over financial reporting (as defined in SEC Exchange Act Rule 13a-15(f)) during the third quarter of 2014 that have materially affected, or are reasonably likely to materially affect, Belmond’s internal control over financial reporting.


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PART II — OTHER INFORMATION

ITEM 6.    Exhibits

The index to the exhibits appears below, on the page immediately following the signature page to this report.


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EXHIBIT INDEX
Exhibit No.
 
Incorporated by Reference to
 
Description
 
 
 
 
 
3.1
 
Exhibit 3.1 to July 2, 2014 Form 8-K Current Report (File No. 001-16017)
 
Memorandum of Association and Certificate of Incorporation of Belmond Ltd.

3.2
 
Exhibit 3.2 to June 15, 2007 Form 8-K Current Report (File No. 001-16017)
 
Bye-Laws of Orient-Express Hotels Ltd.
3.3
 
Exhibit 1 to April 23, 2007 Amendment No. 1 to Form 8-A Registration Statement
(File No. 001-16017)
 
Rights Agreement dated June 1, 2000, and amended and restated April 12, 2007, between Orient-Express Hotels Ltd. and Computershare Trust Company N.A., as Rights Agent

3.4
 
Exhibit 4.2 to December 10, 2007 Form 8-K Current Report (File No. 001-16017)
 
Amendment No. 1 dated December 10, 2007 to Amended and Restated Rights Agreement (Exhibit 3.3)
3.5
 
Exhibit 4.3 to May 27, 2010 Form 8-K Current Report (File 001-16017)
 
Amendment No. 2 dated May 27, 2010 to Amended and Restated Rights Agreement (Exhibit 3.3)
31
 
 
 
Rule 13a-14(a)/15d-14(a) Certifications
32
 
 
 
Section 1350 Certification
101
 
 
 
Interactive data file


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Dated:  November 6, 2014
 
 
BELMOND LTD.
 
 
 
 
 
By:
/s/ Martin O’Grady
 
 
Martin O’Grady
 
 
Vice President—Finance and Chief Financial Officer
(Principal Accounting Officer)


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