UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2005, or

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

For the transition period from                           to                           

Commission file number   1-16017

ORIENT-EXPRESS HOTELS LTD.

(Exact name of registrant as specified in its charter)

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

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

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

As of October 31, 2005, 39,389,750 Class A common shares and 18,044,478 Class B common shares of Orient-Express Hotels Ltd. were outstanding, including 18,044,478 Class B shares owned by a subsidiary of Orient-Express Hotels Ltd. and 9,903,300 Class A shares owned by Sea Containers Ltd.

PART I – FINANCIAL INFORMATION

ITEM 1.   Financial Statements

Orient-Express Hotels Ltd. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

See notes to condensed consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries

Statements of Condensed Consolidated Operations (unaudited)

See notes to condensed consolidated financial statements.

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See notes to condensed consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries

Statements of Condensed Consolidated Cash Flows (unaudited)

See notes to condensed consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries

Statements of Condensed Consolidated Shareholders’ Equity (unaudited)

See notes to condensed consolidated financial statements.

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Orient-Express Hotels Ltd. and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

1.  Basis of financial statement presentation

In this report Orient-Express Hotels Ltd. is referred to as the “Company”, and the Company and its subsidiaries are referred to collectively as “OEH”.  At September 30, 2005, Sea Containers Ltd., a Bermuda company (“SCL”), owned 25% of the equity shares in the Company.

(a)  Accounting policies

For a description of significant accounting policies and basis of presentation, see Notes 1 and 15 to the consolidated financial statements in the Company’s 2004 Form 10-K annual report.  As of September 30, 2005, these significant accounting policies have not changed from December 31, 2004, except as referred to in Note 1(c) below.  “SFAS” means Statement of Financial Accounting Standards and “FIN” means an accounting interpretation, both of the U.S. Financial Accounting Standards Board.

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

In the opinion of management, all adjustments necessary for a fair presentation of the results of operations for the three and nine months ended September 30, 2005 and 2004, which are all of a normal recurring nature, have been reflected in the information provided.  Due to the seasonal nature of OEH’s business, operating results for the interim period are not necessarily indicative of a full year’s operating results.

(b) Net earnings per share

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

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For the three months ended September 30, 2005 and 2004, the anti-dilutive effect of stock options on nil and 54,649 class A common shares, respectively, was excluded from the computation of diluted earnings per share.  For the nine months ended September 30, 2005 and 2004, the anti-dilutive effect of stock options on 2,553 and 40,381 class A common shares, respectively, was excluded from the computation of diluted earnings per share.

(c)  Stock-based compensation

OEH had previously accounted for stock-based compensation under the guidelines of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees”, and followed the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-Based Compensation” as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure”.

With effect from January 1, 2005, the Company adopted SFAS No. 123R, “Stock-Based Payment”, and chose the modified prospective application as its transition method.  Prior to January 1, 2005, the Company has historically reflected the pro-forma impact to net income had all previously issued stock-based compensation been expensed under the provisions of SFAS No. 123.  Upon adoption of SFAS No. 123R, all previously issued stock-based compensation vesting during the three and nine months ended September 30, 2005 has been reflected in the Company’s net earnings, as reported for each period.  This resulted in an expense in the three and nine months ended September 30, 2005 of $519,000 and $1,080,000, respectively.  The following tables illustrate the effect on income attributable to common shares and earnings per share for the three and nine months ended September 30, 2004 had the fair-value based provisions of SFAS No. 123R been applied (dollars in thousands except per share amounts):

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(d)  Dividends

On January 5, 2005, the Company declared a dividend of $0.025 per common share payable February 4, 2005 to shareholders of record January 20, 2005.  On April 5, 2005, the Company declared a dividend of $0.025 per common share payable May 5, 2005 to shareholders of record April 20, 2005.  On July 5, 2005, the Company declared a dividend of $0.025 per common share payable August 5, 2005 to shareholders of record July 20, 2005.

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(e)  Earnings from unconsolidated companies

Earnings from unconsolidated companies include OEH’s share of the net earnings of its equity investments as well as interest income related to loans and advances to the equity investees amounting to $2,482,000 and $2,100,000 for the three months ended September 30, 2005 and 2004, respectively, and $7,150,000 and $6,049,000 for the nine months ended September 30, 2005 and 2004, respectively.

(f)  Recent accounting pronouncements

The Company adopted SFAS No. 123R with effect from January 1, 2005 (see Note 1(c)).

(g)  Reclassifications

Certain items in 2004 have been reclassified to conform to the 2005 presentation.

(h)  Other significant events

Because of hurricane Katrina, the Windsor Court Hotel in New Orleans suffered damage and remained closed throughout the period from August 29 to September 30, 2005.  OEH’s insurance covers property damage and loss of earnings under business interruption for 12 months after the event.  The third quarter earnings from operations include within revenue an insurance recovery of $2,300,000 for business interruption which covers net operating expenses recorded during the closure period.  The initial property damage claim submitted at September 30, 2005, amounted to $1,250,000 and has been recorded as an offset against the costs incurred.  The excess of the insurance recovery claimed over the losses recorded in the third quarter has not been recognized in the financial statements because the excess represents a contingent gain and will only be recognized when the contingencies are resolved.

2.  Acquisitions

Effective February 8, 2005, OEH purchased 100% of the issued equity of LLC Europe Hotel which owns a 93.5% interest in the property operating as the Grand Hotel Europe, St Petersburg, Russia.  The remaining interest in the property is owned by the City of St. Petersburg.  In addition, OEH acquired full management and operational control of the hotel and acquired 100% of a Cyprus company which has agreements with the hotel to provide various management services.  The total purchase price, including acquisition costs, was $95,000,000 paid in cash of which $57,500,000 was financed by a syndicate of banks led by the International Finance Corporation.

The following table summarizes the initial estimated fair values of the assets acquired and liabilities assumed at the date of

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acquisition.  These initial purchase price allocations may be adjusted within one year, given the time it takes to obtain pertinent valuations to finalize the initial fair value estimates from the purchase date.  Accordingly, subsequent revisions to the estimates of the fair value of assets acquired and liabilities assumed as a result of final appraisals may occur (dollars in thousands):

Goodwill of $37,000,000 has been recorded of which $ nil will be deductible for tax purposes.  The initial estimated fair value of the building has been based on its estimated replacement cost.

The acquisition of the Grand Hotel Europe has been accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations”.  The results of the operation have been included in the condensed consolidated financial statements of OEH from February 8, 2005.

3.  Investments

On April 29, 2005, OEH acquired 50% of the equity in the Great Scottish and Western Railway Co. Ltd., which currently operates the Royal Scotsman luxury tourist train on a seasonal service largely within Scotland.  The initial investment was $2,700,000 of which $1,300,000 was paid in cash and the balance represents 50% of the long-term debt within the company in which OEH has invested.  OEH has an option to acquire the remaining 50% of the equity in two years time at an enterprise valuation based upon a multiple of the average EBITDA for the previous 36 months, as defined in the purchase agreement.  This investment has been accounted for under the equity method of accounting.

On February 2, 2004, OEH entered into an agreement with the Pansea Hotel group, the owner of six deluxe hotels in Southeast Asia.  Under this agreement, OEH is to provide a maximum of $8,000,000 in loans to the hotel holding company which are convertible after three years into approximately 25% of the holding company’s shares.  As of September 30, 2005, OEH had

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provided $8,000,000 (December 31, 2004-$4,625,000) in loans in Pansea which are recorded in other assets.  The conversion price of the loans is determined at a multiple of EBITDA less existing debt on the exercise date (as defined in the investment agreement).  OEH is not managing the hotels but is marketing them along with its other properties.

Summarized financial data for OEH’s unconsolidated companies for the periods during which the investments were held and accounted for under the equity method of accounting by OEH are as follows (dollars in thousands):

4.  Property, plant and equipment

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

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

5.  Goodwill

OEH’s goodwill consists of $750,000 related to the trains and cruises reporting segment and $63,386,000 related to the hotels and restaurants reporting segment, of which $37,000,000 relates to initial purchase price allocations for the acquisition of the Grand Hotel Europe effective February 8, 2005 (see Note 2).

6.  Long-term debt and obligations under capital lease

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

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Certain credit agreements of OEH have restrictive covenants.  At September 30, 2005, OEH was in compliance with these covenants, including a minimum consolidated net worth test and a minimum consolidated interest coverage test as defined under a bank-syndicated $179,000,000 loan facility borrowed during 2003 and secured by three of OEH’s Italian hotels. OEH does not currently have any covenants in its loan agreements which limit the payment of dividends.

The following is a summary of the aggregate maturities of long-term debt, including obligations under capital lease, at September 30, 2005 (dollars in thousands):

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

7.  Income taxes

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

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

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

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The deferred tax assets consist primarily of tax loss carry forwards.  A valuation allowance had been provided against gross deferred tax assets where it is thought more likely than not that the benefits associated with these assets will not be realized.

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

The deferred tax liabilities at September 30, 2005 include a liability of $12,500,000 in respect of the Grand Hotel Europe.  The liability is caused by the difference between the tax basis and the fair value of the depreciable assets at the acquisition date.

8.  Pensions

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

As reported in Note 7 to the financial statements in the Company’s 2004 Form 10-K annual report, OEH expected to

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contribute $833,000 to its pension plans in 2005.  As of September 30, 2005, $711,000 of contributions were made.  OEH anticipates contributing an additional $122,000 to fund its pension plans in 2005 for a total of $833,000.

9.  Supplemental cash flow information

     (Dollars in thousands):

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

10.  Accumulated other comprehensive loss

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

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

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11.  Commitments

Outstanding contracts to purchase fixed assets were approximately $18,300,000 at September 30, 2005 (December 31, 2004 - $27,200,000).

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

As reported in the Company’s 2004 Form 10-K annual report, OEH has two reporting segments, (i) hotels and restaurants and (ii) tourist trains and cruises.  Segment performance is evaluated based upon segment net earnings before interest, tax (including tax on earnings from unconsolidated companies), depreciation and amortization (“segment EBITDA”).  Financial information regarding these business segments is as follows, with net finance costs appearing net of capitalized interest and interest and related income (dollars in thousands):