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)
Bermuda |
|
98-0223493 |
(State or other jurisdiction |
|
(I.R.S. Employer |
of incorporation or |
|
Identification No.) |
organization) |
|
|
|
|
|
22 Victoria Street |
||
P.O. Box HM 1179 |
||
Hamilton HMEX, Bermuda |
||
(Address of principal executive offices) (Zip Code) |
||
|
|
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441-295-2244 |
||
(Registrants telephone number, including area code) |
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)
|
|
September 30, |
|
December 31, |
|
||
|
|
(Dollars in thousands) |
|
||||
|
|
|
|
|
|
||
Assets |
|
|
|
|
|
||
Cash and cash equivalents |
|
$ |
54,070 |
|
$ |
85,610 |
|
Accounts receivable, net of allowances of $976 and $1,027 |
|
48,788 |
|
34,984 |
|
||
Due from related parties |
|
17,929 |
|
14,718 |
|
||
Prepaid expenses and other |
|
14,760 |
|
11,914 |
|
||
Inventories |
|
31,317 |
|
28,965 |
|
||
Total current assets |
|
166,864 |
|
176,191 |
|
||
|
|
|
|
|
|
||
Property, plant and equipment, net of accumulated depreciation of $166,736 and $155,582 |
|
1,022,989 |
|
916,811 |
|
||
Investments |
|
126,716 |
|
123,599 |
|
||
Goodwill |
|
64,136 |
|
29,529 |
|
||
Other assets |
|
22,677 |
|
19,461 |
|
||
|
|
$ |
1,403,382 |
|
$ |
1,265,591 |
|
|
|
|
|
|
|
||
Liabilities and Shareholders Equity |
|
|
|
|
|
||
Working capital facilities |
|
$ |
38,936 |
|
$ |
42,920 |
|
Accounts payable |
|
24,724 |
|
23,839 |
|
||
Due to related parties |
|
6,669 |
|
5,453 |
|
||
Accrued liabilities |
|
59,205 |
|
37,288 |
|
||
Deferred revenue |
|
22,078 |
|
20,493 |
|
||
Current portion of long-term debt and capital leases |
|
57,799 |
|
46,245 |
|
||
Total current liabilities |
|
209,411 |
|
176,238 |
|
||
|
|
|
|
|
|
||
Long-term debt and obligations under capital leases |
|
495,969 |
|
537,461 |
|
||
Deferred income taxes |
|
16,496 |
|
2,710 |
|
||
|
|
721,876 |
|
716,409 |
|
||
Minority interest |
|
4,574 |
|
4,192 |
|
||
|
|
|
|
|
|
||
Shareholders equity: |
|
|
|
|
|
||
Preferred shares $0.01 par value (30,000,000 shares authorized, issued nil) |
|
|
|
|
|
||
Class A common shares $0.01 par value (120,000,000 shares authorized): |
|
|
|
|
|
||
Issued-36,887,851 (2004 - 31,790,601) |
|
368 |
|
318 |
|
||
Class B common shares $0.01 par value (120,000,000 shares authorized): |
|
|
|
|
|
||
Issued-20,503,877 |
|
205 |
|
205 |
|
||
Additional paid-in capital |
|
404,038 |
|
280,212 |
|
||
Retained earnings |
|
310,841 |
|
277,281 |
|
||
Accumulated other comprehensive loss |
|
(38,339 |
) |
(12,845 |
) |
||
Less: reduction due to Class B common shares owned by a subsidiary - 18,044,478 |
|
(181 |
) |
(181 |
) |
||
Total shareholders equity |
|
676,932 |
|
544,990 |
|
||
Commitments and contingencies |
|
|
|
|
|
||
|
|
$ |
1,403,382 |
|
$ |
1,265,591 |
|
See notes to condensed consolidated financial statements.
2
Orient-Express Hotels Ltd. and Subsidiaries
Statements of Condensed Consolidated Operations (unaudited)
Three months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
(Dollars in thousands, except per share amounts) |
|
||||
|
|
|
|
|
|
||
Revenue |
|
$ |
127,733 |
|
$ |
100,025 |
|
|
|
|
|
|
|
||
Expenses: |
|
|
|
|
|
||
Depreciation and amortization |
|
8,598 |
|
7,182 |
|
||
Operating |
|
58,146 |
|
47,800 |
|
||
Selling, general and administrative |
|
34,761 |
|
29,236 |
|
||
Total expenses |
|
101,505 |
|
84,218 |
|
||
|
|
|
|
|
|
||
Earnings from operations before net finance costs |
|
26,228 |
|
15,807 |
|
||
|
|
|
|
|
|
||
Interest expense, net |
|
(7,896 |
) |
(4,826 |
) |
||
Interest and related income |
|
77 |
|
75 |
|
||
Net finance costs |
|
(7,819 |
) |
(4,751 |
) |
||
|
|
|
|
|
|
||
Earnings before income taxes |
|
18,409 |
|
11,056 |
|
||
|
|
|
|
|
|
||
Provision for income taxes |
|
3,025 |
|
2,504 |
|
||
|
|
|
|
|
|
||
Earnings before earnings from unconsolidated companies |
|
15,384 |
|
8,552 |
|
||
|
|
|
|
|
|
||
Earnings from unconsolidated companies, net of tax |
|
4,099 |
|
2,943 |
|
||
|
|
|
|
|
|
||
Net earnings on class A and class B common shares |
|
$ |
19,483 |
|
$ |
11,495 |
|
|
|
|
|
|
|
||
Net earnings per class A and class B common share: |
|
|
|
|
|
||
Basic |
|
$ |
0.50 |
|
$ |
0.34 |
|
Diluted |
|
$ |
0.49 |
|
$ |
0.34 |
|
|
|
|
|
|
|
||
Dividends per class A and class B common share |
|
$ |
0.025 |
|
$ |
0.025 |
|
See notes to condensed consolidated financial statements.
3
Nine months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
(Dollars in thousands, except per share amounts) |
|
||||
|
|
|
|
|
|
||
Revenue |
|
$ |
334,474 |
|
$ |
264,395 |
|
|
|
|
|
|
|
||
Expenses: |
|
|
|
|
|
||
Depreciation and amortization |
|
25,048 |
|
21,151 |
|
||
Operating |
|
157,826 |
|
129,559 |
|
||
Selling, general and administrative |
|
101,159 |
|
84,282 |
|
||
Total expenses |
|
284,033 |
|
234,992 |
|
||
|
|
|
|
|
|
||
Earnings from operations before net finance costs |
|
50,441 |
|
29,403 |
|
||
|
|
|
|
|
|
||
Interest expense, net |
|
(21,701 |
) |
(14,776 |
) |
||
Interest and related income |
|
4,152 |
|
169 |
|
||
Net finance costs |
|
(17,549 |
) |
(14,607 |
) |
||
|
|
|
|
|
|
||
Earnings before income taxes |
|
32,892 |
|
14,796 |
|
||
|
|
|
|
|
|
||
Provision for income taxes |
|
6,147 |
|
3,867 |
|
||
|
|
|
|
|
|
||
Earnings before earnings from unconsolidated companies |
|
26,745 |
|
10,929 |
|
||
|
|
|
|
|
|
||
Earnings from unconsolidated companies, net of tax |
|
9,638 |
|
8,871 |
|
||
|
|
|
|
|
|
||
Net earnings on class A and class B common shares |
|
$ |
36,383 |
|
$ |
19,800 |
|
|
|
|
|
|
|
||
Net earnings per class A and class B common share: |
|
|
|
|
|
||
Basic |
|
$ |
0.96 |
|
$ |
0.58 |
|
Diluted |
|
$ |
0.95 |
|
$ |
0.58 |
|
|
|
|
|
|
|
||
Dividends per class A and class B Common share |
|
$ |
0.075 |
|
$ |
0.075 |
|
See notes to condensed consolidated financial statements.
4
Orient-Express Hotels Ltd. and Subsidiaries
Statements of Condensed Consolidated Cash Flows (unaudited)
Nine months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
(Dollars in thousands) |
|
||||
Cash flows from operating activities: |
|
|
|
|
|
||
Net earnings |
|
$ |
36,383 |
|
$ |
19,800 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
||
Depreciation and amortization |
|
25,048 |
|
21,151 |
|
||
Undistributed earnings of affiliates |
|
(2,537 |
) |
(2,822 |
) |
||
Other non-cash items |
|
(2,438 |
) |
1,695 |
|
||
Change in assets and liabilities net of effects from acquisition of subsidiaries: |
|
|
|
|
|
||
Increase in receivables, prepaid expenses and other |
|
(23,205 |
) |
(10,076 |
) |
||
Increase in inventories |
|
(4,081 |
) |
(887 |
) |
||
Increase in payables, accrued liabilities and deferred revenue |
|
26,709 |
|
16,160 |
|
||
|
|
|
|
|
|
||
Total adjustments |
|
19,496 |
|
25,221 |
|
||
|
|
|
|
|
|
||
Net cash provided by operating activities |
|
55,879 |
|
45,021 |
|
||
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
||
Capital expenditures |
|
(102,831 |
) |
(44,141 |
) |
||
Acquisitions and investments, net of cash acquired |
|
(99,713 |
) |
(14,809 |
) |
||
Dividends received from affiliates |
|
624 |
|
|
|
||
Proceeds from sale of fixed assets |
|
3,613 |
|
211 |
|
||
|
|
|
|
|
|
||
Net cash used in investing activities |
|
(198,307 |
) |
(58,739 |
) |
||
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
||
Net (repayment of)/proceeds from working capital facilities and redrawable loans |
|
(96,605 |
) |
1,078 |
|
||
Issuance of common shares |
|
123,876 |
|
|
|
||
Issuance of long-term debt |
|
116,834 |
|
20,666 |
|
||
Principal payments under long-term debt |
|
(28,796 |
) |
(35,100 |
) |
||
Payment of common share dividends |
|
(2,823 |
) |
(2,569 |
) |
||
|
|
|
|
|
|
||
Net cash provided by/(used in) financing activities |
|
112,486 |
|
(15,925 |
) |
||
|
|
|
|
|
|
||
Effect of exchange rate changes on cash and cash equivalents |
|
(1,598 |
) |
49 |
|
||
|
|
|
|
|
|
||
Net decrease in cash and cash equivalents |
|
(31,540 |
) |
(29,594 |
) |
||
|
|
|
|
|
|
||
Cash and cash equivalents at beginning of period |
|
85,610 |
|
81,347 |
|
||
|
|
|
|
|
|
||
Cash and cash equivalents at end of period |
|
$ |
54,070 |
|
$ |
51,753 |
|
See notes to condensed consolidated financial statements.
5
Orient-Express Hotels Ltd. and Subsidiaries
Statements of Condensed Consolidated Shareholders Equity (unaudited)
(Dollars in thousands) |
|
Preferred |
|
Class A |
|
Class B |
|
Additional |
|
Retained |
|
Accumulated |
|
Common |
|
Total |
|
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Balance, January 1, 2005 |
|
$ |
|
|
$ |
318 |
|
$ |
205 |
|
$ |
280,212 |
|
$ |
277,281 |
|
$ |
(12,845 |
) |
$ |
(181 |
) |
|
|
|
Issuance of Class A common shares in public offering, net of issuance costs |
|
|
|
50 |
|
|
|
121,848 |
|
|
|
|
|
|
|
|
|
||||||||
Stock-based compensation |
|
|
|
|
|
|
|
1,080 |
|
|
|
|
|
|
|
|
|
||||||||
Stock options exercised |
|
|
|
|
|
|
|
898 |
|
|
|
|
|
|
|
|
|
||||||||
Dividends on common shares |
|
|
|
|
|
|
|
|
|
(2,823 |
) |
|
|
|
|
|
|
||||||||
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
Net earnings on common shares for the period |
|
|
|
|
|
|
|
|
|
36,383 |
|
|
|
|
|
$ |
36,383 |
|
|||||||
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
(25,494 |
) |
|
|
(25,494 |
) |
||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(10,889 |
) |
|||||||
Balance, September 30, 2005 |
|
$ |
|
|
$ |
368 |
|
$ |
205 |
|
$ |
404,038 |
|
$ |
310,841 |
|
$ |
(38,339 |
) |
$ |
(181 |
) |
|
|
See notes to condensed consolidated financial statements.
6
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 Companys 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 OEHs business, operating results for the interim period are not necessarily indicative of a full years 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):
Three months ended September 30, |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
Basic |
|
39,335 |
|
34,250 |
|
Effect of dilution |
|
390 |
|
99 |
|
Diluted |
|
39,725 |
|
34,349 |
|
7
Nine months ended September 30, |
|
2005 |
|
2004 |
|
|
|
|
|
|
|
Basic |
|
37,819 |
|
30,800 |
|
Effect of dilution |
|
339 |
|
53 |
|
Diluted |
|
38,158 |
|
30,853 |
|
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 Companys 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):
8
Three months ended September 30, |
|
2004 |
|
|
|
|
|
|
|
Net earnings on common shares: |
|
|
|
|
As reported |
|
$ |
11,495 |
|
Add: |
|
|
|
|
Stock-based compensation expense included in reported net income, net of related tax effects |
|
|
|
|
Deduct: |
|
|
|
|
Total stock-based employee compensation expense determined under fair value based method, net of related tax |
|
(261 |
) |
|
Pro-forma |
|
$ |
11,234 |
|
|
|
|
|
|
Basic and diluted earnings per share: |
|
|
|
|
As reported: |
|
|
|
|
Basic and diluted |
|
$ |
0.34 |
|
Proforma: |
|
|
|
|
Basic and diluted |
|
$ |
0.33 |
|
Nine months ended September 30, |
|
2004 |
|
|
|
|
|
|
|
Net earnings on common shares: |
|
|
|
|
As reported |
|
$ |
19,800 |
|
Add: |
|
|
|
|
Stock-based compensation expense included in reported net income, net of related tax effects |
|
|
|
|
Deduct: |
|
|
|
|
Total stock-based employee compensation expense determined under fair value based method, net of related tax |
|
(635 |
) |
|
Pro-forma |
|
$ |
19,165 |
|
|
|
|
|
|
Basic and diluted earnings per share: |
|
|
|
|
As reported: |
|
|
|
|
Basic and diluted |
|
$ |
0.58 |
|
Proforma: |
|
|
|
|
Basic and diluted |
|
$ |
0.56 |
|
(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.
9
(e) Earnings from unconsolidated companies
Earnings from unconsolidated companies include OEHs 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. OEHs 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
10
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):
|
|
September 30, |
|
|
Current assets |
|
$ |
2,740 |
|
Property, plant and fixtures and fittings |
|
71,752 |
|
|
Goodwill |
|
37,000 |
|
|
Total assets acquired |
|
111,492 |
|
|
|
|
|
|
|
Current liabilities |
|
3,992 |
|
|
Deferred income taxes |
|
12,500 |
|
|
Total liabilities assumed |
|
16,492 |
|
|
Net assets acquired |
|
$ |
95,000 |
|
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 companys shares. As of September 30, 2005, OEH had
11
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 OEHs 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):
|
|
September 30, |
|
December 31, |
|
||
|
|
|
|
|
|
|
|
Current assets |
|
$ |
45,074 |
|
$ |
39,993 |
|
Property, plant and equipment, net |
|
347,728 |
|
357,949 |
|
||
Other assets |
|
5,831 |
|
5,469 |
|
||
Total assets |
|
$ |
398,633 |
|
$ |
403,411 |
|
|
|
|
|
|
|
||
Current liabilities |
|
$ |
51,271 |
|
$ |
41,290 |
|
Long-term debt |
|
208,415 |
|
216,251 |
|
||
Other liabilities |
|
83,260 |
|
79,403 |
|
||
Total shareholders equity |
|
55,687 |
|
66,467 |
|
||
Total liabilities and shareholders equity |
|
$ |
398,633 |
|
$ |
403,411 |
|
Three months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
||
Revenue |
|
$ |
41,205 |
|
$ |
36,605 |
|
Earnings from operations before net finance costs |
|
$ |
6,888 |
|
$ |
7,322 |
|
Net losses |
|
$ |
(83 |
) |
$ |
1,126 |
|
Nine months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
||
Revenue |
|
$ |
118,519 |
|
$ |
65,257 |
|
Earnings from operations before net finance costs |
|
$ |
16,138 |
|
$ |
9,610 |
|
Net losses |
|
$ |
(2,866 |
) |
$ |
(741 |
) |
4. Property, plant and equipment
The major classes of property, plant and equipment are as follows (dollars in thousands):
12
|
|
September 30, |
|
December 31, |
|
||||
Freehold and leased land and buildings |
|
$ |
863,680 |
|
$ |
769,951 |
|
||
Machinery and equipment |
|
163,288 |
|
149,191 |
|
||||
Fixtures, fittings and office equipment |
|
144,431 |
|
134,935 |
|
||||
River cruiseship and canalboats |
|
18,326 |
|
18,316 |
|
||||
|
|
1,189,725 |
|
1,072,393 |
|
||||
Less: accumulated depreciation |
|
(166,736 |
) |
(155,582 |
) |
||||
|
|
$ |
1,022,989 |
|
$ |
916,811 |
|
||
The major classes of assets under capital leases included above are as follows (dollars in thousands):
|
|
September 30, |
|
December 31, |
|
||||
Land and buildings |
|
$ |
10,019 |
|
$ |
14,612 |
|
||
Machinery and equipment |
|
2,276 |
|
2,410 |
|
||||
Fixtures, fittings and office equipment |
|
4,792 |
|
4,886 |
|
||||
|
|
17,087 |
|
21,908 |
|
||||
Less: accumulated depreciation |
|
(2,358 |
) |
(2,591 |
) |
||||
|
|
$ |
14,729 |
|
$ |
19,317 |
|
||
5. Goodwill
OEHs 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):
13
|
|
September 30, |
|
December 31, |
|
||||
Loans from banks collateralized by property, plant and equipment payable over periods of 1 to 11 years, with a weighted average interest rate of 5.37% and 4.18%, respectively, primarily based on LIBOR |
|
$ |
540,869 |
|
$ |
567,012 |
|
||
Obligations under capital lease |
|
12,899 |
|
16,694 |
|
||||
|
|
553,768 |
|
583,706 |
|
||||
Less: current portion |
|
57,799 |
|
46,245 |
|
||||
|
|
$ |
495,969 |
|
$ |
537,461 |
|
||
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 OEHs 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):
Year ending December 31, |
|
|
|
|
|
|
|
|
|
2006 |
|
$ |
70,831 |
|
2007 |
|
120,395 |
|
|
2008 |
|
129,834 |
|
|
2009 |
|
53,782 |
|
|
2010 and thereafter |
|
121,127 |
|
|
|
|
$ |
495,969 |
|
The interest rates on substantially all of OEHs long-term debt are adjusted regularly to reflect current market rates. Accordingly, the carrying amounts of OEHs 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):
14
Three months ended September 30, 2005 |
|
Current |
|
Deferred |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
(227 |
) |
$ |
(46 |
) |
$ |
(273 |
) |
Other foreign |
|
1,416 |
|
1,882 |
|
3,298 |
|
|||
|
|
$ |
1,189 |
|
$ |
1,836 |
|
$ |
3,025 |
|
Three months ended September 30, 2004 |
|
Current |
|
Deferred |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
(497 |
) |
$ |
304 |
|
$ |
(193 |
) |
Other foreign |
|
504 |
|
2,193 |
|
2,697 |
|
|||
|
|
$ |
7 |
|
$ |
2,497 |
|
$ |
2,504 |
|
Nine months ended September 30, 2005 |
|
Current |
|
Deferred |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
383 |
|
$ |
1,111 |
|
$ |
1,494 |
|
Other foreign |
|
4,744 |
|
(91 |
) |
4,653 |
|
|||
|
|
$ |
5,127 |
|
$ |
1,020 |
|
$ |
6,147 |
|
Nine months ended September 30, 2004 |
|
Current |
|
Deferred |
|
Total |
|
|||
|
|
|
|
|
|
|
|
|||
United States |
|
$ |
93 |
|
$ |
271 |
|
$ |
364 |
|
Other foreign |
|
2,082 |
|
1,421 |
|
3,503 |
|
|||
|
|
$ |
2,175 |
|
$ |
1,692 |
|
$ |
3,867 |
|
The Company is incorporated in Bermuda, which does not impose an income tax. OEHs 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 OEHs net deferred tax liabilities (dollars in thousands):
15
|
|
September 30, |
|
December 31, |
|
||
|
|
|
|
|
|
||
Gross deferred tax assets |
|
$ |
63,222 |
|
$ |
64,493 |
|
Less: Valuation allowance |
|
(31,741 |
) |
(31,996 |
) |
||
Net deferred tax assets |
|
31,481 |
|
32,497 |
|
||
Deferred tax liabilities |
|
(47,977 |
) |
(35,207 |
) |
||
Net deferred tax liabilities |
|
$ |
(16,496 |
) |
$ |
(2,710 |
) |
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):
Three months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
|
|
Service cost |
|
$ |
216 |
|
$ |
206 |
|
Interest cost |
|
171 |
|
96 |
|
||
Expected return on plan assets |
|
(129 |
) |
(109 |
) |
||
Amortization of net loss |
|
61 |
|
34 |
|
||
Net periodic benefit cost |
|
$ |
319 |
|
$ |
227 |
|
Nine months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
|
|
Service cost |
|
$ |
670 |
|
$ |
619 |
|
Interest cost |
|
531 |
|
288 |
|
||
Expected return on plan assets |
|
(400 |
) |
(328 |
) |
||
Amortization of net loss |
|
190 |
|
103 |
|
||
Net periodic benefit cost |
|
$ |
991 |
|
$ |
682 |
|
As reported in Note 7 to the financial statements in the Companys 2004 Form 10-K annual report, OEH expected to
16
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):
Nine months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
||
Cash paid for: |
|
|
|
|
|
||
Interest |
|
$ |
21,488 |
|
$ |
15,075 |
|
Income taxes |
|
$ |
7,141 |
|
$ |
2,988 |
|
In conjunction with acquisitions (see Note 2) liabilities were assumed as follows (dollars in thousands):
Nine months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
||
Fair value of assets acquired |
|
$ |
111,492 |
|
$ |
3,000 |
|
Cash paid |
|
(95,000 |
) |
(3,000 |
) |
||
Liabilities assumed |
|
$ |
16,492 |
|
$ |
|
|
10. Accumulated other comprehensive loss
The accumulated balances for each component of other comprehensive loss are as follows (dollars in thousands):
|
|
September 30, |
|
December 31, |
|
||
Foreign currency translation adjustments |
|
$ |
(38,211 |
) |
$ |
(12,636 |
) |
Net change on derivative financial instruments |
|
(128 |
) |
(209 |
) |
||
|
|
$ |
(38,339 |
) |
$ |
(12,845 |
) |
The components of comprehensive loss are as follows (dollars in thousands):
Nine months ended September 30, |
|
2005 |
|
2004 |
|
||
|
|
|
|
|
|
||
Net earnings on common shares |
|
$ |
36,383 |
|
$ |
19,800 |
|
Foreign currency translation adjustments |
|
(25,575 |
) |
544 |
|
||
Change in fair value of derivatives |
|
81 |
|
(157 |
) |
||
Comprehensive loss |
|
$ |
(10,889 |
) |
$ |
20,187 |
|
17
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 Companys 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):
Three months ended September 30, |
|
2005 |
|
2004 |
|
|||
Revenue: |
|
|
|
|
|
|||
Hotels and restaurants |
|
|
|
|
|
|||
Owned hotels |
- Europe |
|
$ |
62,993 |
|
$ |
46,912 |
|
|
- North America |
|
19,541 |
|
13,973 |
|
||
|
- Rest of world |
|
21,725 |
|
18,009 |
|
||
Hotel management/part ownership interests |
|
1,974 |
|
1,409 |
|
|||
Restaurants |
|
3,430 |
|
3,136 |
|
|||
|
|
109,663 |
|
83,489 |
|
|||
Tourist trains and cruises |
|
18,070 |
|
16,586 |
|
|||
|
|
$ |
127,733 |
|
$ |
100,025 |
|
|
|
|
|
|
|
|
|||
Segment EBITDA: |
|
|
|
|
|
|||
Owned hotels |
- Europe |
|
$ |
26,878 |
|
$ |
19,644 |
|
|
- North America |
|
3,627 |
|
367 |
|
||
|
- Rest of world |
|
4,185 |
|
3,052 |
|
||
Hotel management/part ownership interests |
|
3,880 |
|
2,887 |
|
|||
Restaurants |
|
(165 |
) |
(436 |
) |
|||
Tourist trains and cruises |
|
5,967 |
|
4,560 |
|
|||
Central overheads |
|
(4,856 |
) |
(4,142 |
) |
|||
|
|
$ |
39,516 |
|
$ |
25,932 |
|
|
|
|
|
|
|
|
|||
Segment EBITDA/net earnings reconciliation: |
|
|
|
|
|
|||
Segment EBITDA |
|
$ |
39,516 |
|
$ |
25,932 |
|
|
Less: |
|
|
|
|
|
|||
Depreciation and amortization |
|
8,598 |
|
7,182 |
|
|||
Net finance costs |
|
7,819 |
|
4,751 |
|
|||
Provision for income taxes |
|
3,025 |
|
2,504 |
|
|||
Share of provision for income taxes of unconsolidated companies |
|
591 |
|
|
|
|||
Net earnings |
|
$ |
19,483 |
|
$ |
11,495 |
|
18
Financial information regarding geographic areas based on the location of properties is as follows (dollars in thousands):
Three months ended September 30, |
|
2005 |
|
2004 |
|
||
Revenue: |
|
|
|
|
|
||
Europe |
|
$ |
80,201 |
|
$ |
62,748 |
|
North America |
|
23,425 |
|
17,517 |
|
||
Rest of world |
|
24,107 |
|
19,760 |
|
||
|
|
$ |
127,733 |
|
$ |
100,025 |
|
Nine months ended September 30, |
|
2005 |
|
2004 |
|
|||
|
|
|
|
|
|
|||
Revenue: |
|
|
|
|
|
|||
Hotels and restaurants |
|
|
|
|
|
|||
Owned hotels |
- Europe |
|
$ |
134,468 |
|
$ |
96,046 |
|
|
- North America |
|
66,473 |
|
53,434 |
|
||
|
- Rest of world |
|
67,155 |
|
55,512 |
|
||
Hotel management/part ownership interests |
|
6,392 |
|
4,838 |
|
|||
Restaurants |
|
14,419 |
|
13,117 |
|
|||
|
|
288,907 |
|
222,947 |
|
|||
Tourist trains and cruises |
|
45,567 |
|
41,448 |
|
|||
|
|
$ |
334,474 |
|
$ |
264,395 |
|
|
|
|
|
|
|
|
|||
Depreciation and amortization: |
|
|
|
|
|
|||
Hotels and restaurants |
|
|
|
|
|
|||
Owner hotels |
- Europe |
|
$ |
9,895 |
|
$ |
7,450 |
|
|
- North America |
|
5,382 |
|
4,789 |
|
||
|
- Rest of world |
|
6,263 |
|
5,869 |
|
||
Restaurants |
|
642 |
|
577 |
|
|||
|
|
22,182 |
|
18,685 |
|
|||
Tourist trains and cruises |
|
2,866 |
|
2,466 |
|
|||
|
|
$ |
25,048 |
|
$ |
21,151 |
|
|
|
|
|
|
|
|
|||
Segment EBITDA: |
|
|
|
|
|
|||
Owned hotels |
- Europe |
|
$ |
44,836 |
|
$ |
29,452 |
|
|
- North America |
|
15,121 |
|
9,382 |
|
||
|
- Rest of world |
|
14,223 |
|
11,141 |
|
||
Hotel management/part ownership interests |
|
12,494 |
|
10,571 |
|
|||
Restaurants |
|
2,485 |
|
1,534 |
|
|||
Tourist trains and cruises |
|
11,025 |
|
8,901 |
|
|||
Central overheads |
|
(14,007 |
) |
(11,556 |
) |
|||
|
|
$ |
86,177 |
|
$ |
59,425 |
|
|
|
|
|
|
|
|
|||
Segment EBITDA/net earnings reconciliation: |
|
|
|
|
|
|||
Segment EBITDA |
|
$ |
86,177 |
|
$ |
59,425 |
|
|
Less: |
|
|
|
|
|
|||
Depreciation and amortization |
|
25,048 |
|
21,151 |
|
|||
Net finance costs |
|
17,549 |
|
14,607 |
|
|||
Provision for income taxes |
|
6,147 |
|
3,867 |
|
|||
Share of provision for income taxes of unconsolidated companies |
|
1,050 |
|
|
|
|||
Net earnings |
|
$ |
36,383 |
|
$ |
19,800 |
|
|
|
|
|
|
|
|
|||
Earnings from unconsolidated companies: |
|
|
|
|
|
|||
Hotels and restaurants |
|
|
|
|
|
|||
Hotel management/part ownership interests |
|
$ |
5,689 |
|
$ |
5,733 |
|
|
Restaurants |
|
152 |
|
78 |
|
|||
|
|
5,841 |
|
5,811 |
|
|||
Tourist trains and cruises |
|
3,797 |
|
3,060 |
|
|||
|
|
$ |
9,638 |
|
$ |
8,871 |
|
|
|
|
|
|
|
|
|||
Capital expenditure: |
|
|
|
|
|
|||
Owned hotels |
- Europe |
|
$ |
57,414 |
|
$ |
22,744 |
|
|
- North America |
|
21,775 |
|
8,557 |
|
||
|
- Rest of world |
|
17,711 |
|
11,617 |
|
||
Hotel management/part ownership interests |
|
|
|
|
|
|||
Restaurants |
|
899 |
|
510 |
|
|||
Tourist trains and cruises |
|
5,032 |
|
713 |
|
|||
|
|
$ |
102,831 |
|
$ |
44,141 |
|
19
Financial information regarding geographic areas based on the location of properties is as follows (dollars in thousands):
Nine months ended September 30, |
|
2005 |
|
2004 |
|
||
Revenue: |
|
|
|
|
|
||
Europe |
|
$ |
176,873 |
|
$ |
134,987 |
|
North America |
|
82,927 |
|
68,562 |
|
||
Rest of world |
|
74,674 |
|
60,846 |
|
||
|
|
$ |
334,474 |
|
$ |
264,395 |
|
13. Related party transactions
For the three months ended September 30, 2005, OEH paid subsidiaries of SCL $1,429,000 (2004 - $1,333,000) for the provision of various services under a services agreement between OEH and SCL. For the nine months ended September 30, 2005, OEH paid subsidiaries of SCL $4,408,000(2004 - $4,009,000) for the provision of various services under the same agreement. These amounts have been settled in accordance with the services agreement and are included in selling, general and administrative expenses.
OEH guarantees a $3,000,000 bank loan to Eastern and Oriental Express Ltd. in which OEH has a minority shareholder interest. This guarantee was in place before December 31, 2002.
OEH manages under a long-term contract the Charleston Place Hotel (accounted for under the equity method) and has made loans to the hotel-owning company. For the three months ended September 30, 2005, OEH earned $870,000 (2004 - $700,000) in management fees which are recorded in revenue, and $2,483,000 (2004 - $2,100,000)
20
in interest income on partnership and other loans, which is recorded in earnings from unconsolidated companies. For the nine months ended September 30, 2005, OEH earned $3,326,000 (2004 - $2,931,000) in management fees which are recorded in revenue, and $7,151,000 (2004 - $6,049,000) in interest income on partnership and other loans, which is recorded in earnings from unconsolidated companies.
OEH manages under long-term contracts the Hotel Monasterio and the Machu Picchu Sanctuary Lodge owned by its 50/50 joint venture with local Peruvian interests, as well as the 50/50-owned PeruRail operation, and provides loans, guarantees and other credit accommodation to these joint ventures. In the three months ended September 30, 2005, OEH earned management and guarantee fees of $1,450,000 (2004 - $1,014,000) which are recorded in revenue, and loan interest of $28,000 (2004 - $27,000) which is recorded in earnings from unconsolidated companies. In the nine months ended September 30, 2005, OEH earned management and guarantee fees of $3,518,000 (2004 - $2,620,000) which are recorded in revenue, and loan interest of $86,000 (2004 - $77,000) which is recorded in earnings from unconsolidated companies. At September 30, 2005, loans to the hotels aggregated $2,000,000, bear interest at a spread over LIBOR and come due in 2005. At the same date, OEH had a $750,000 subordinated loan to the PeruRail operation with an indefinite maturity date and interest also at a spread over LIBOR. All of the guarantees relating to the Companys investments in Peru were in place prior to December 31, 2002.
OEH manages, under a long-term contract, the Hotel Ritz in Madrid, Spain, in which OEH owns a 50% interest and is accounted for under the equity method. For the three months ended September 30, 2005, OEH earned $256,000 (2004 - $216,000) in management fees, which are included in revenue. For the nine months ended September 30, 2005, OEH earned $825,000 (2004 - $664,000) in management fees, which are included in revenue.
21
Results of Operations
Three months ended September 30, 2005 compared to Three months ended September 30, 2004
OEHs operating results for the three months ended September 30, 2005 and 2004, expressed as a percentage of revenue, were as follows:
|
|
Three months |
|
||
|
|
2005 |
|
2004 |
|
|
|
% |
|
% |
|
Revenue: |
|
|
|
|
|
Hotels and restaurants |
|
86 |
|
83 |
|
Tourist trains and cruises |
|
14 |
|
17 |
|
|
|
100 |
|
100 |
|
Expenses: |
|
|
|
|
|
Depreciation and amortization |
|
7 |
|
7 |
|
Operating |
|
47 |
|
48 |
|
Selling, general and administrative |
|
26 |
|
29 |
|
Net finance costs |
|
6 |
|
5 |
|
Earnings before income taxes |
|
14 |
|
11 |
|
Provision from income taxes |
|
(2 |
) |
(3 |
) |
Earnings from unconsolidated companies |
|
3 |
|
3 |
|
Net earnings as a percentage of total revenue |
|
15 |
|
11 |
|
Segment net earnings before interest, tax (including tax on unconsolidated companies), depreciation and amortization (segment EBITDA) of OEHs operations for the three months ended September 30, 2005 and 2004 are analyzed as follows (dollars in millions):
|
|
Three months ended |
|
||||
|
|
2005 |
|
2004 |
|
||
Segment EBITDA: |
|
|
|
|
|
||
Owned hotels |
|
|
|
|
|
||
Europe |
|
$ |
26.9 |
|
$ |
19.6 |
|
North America |
|
3.6 |
|
0.4 |
|
||
Rest of the world |
|
4.2 |
|
3.0 |
|
||
Hotel management interests |
|
3.9 |
|
2.9 |
|
||
Restaurants |
|
(0.2 |
) |
(0.4 |
) |
||
Tourist trains and cruises |
|
6.0 |
|
4.6 |
|
||
Central overheads |
|
(4.9 |
) |
(4.1 |
) |
||
Segment EBITDA |
|
$ |
39.5 |
|
$ |
26.0 |
|
22
The foregoing segment EBITDA reconciles to net earnings as follows (dollars in millions):
|
|
Three months ended |
|
||||
|
|
2005 |
|
2004 |
|
||
Segment net earnings |
|
$ |
19.5 |
|
$ |
11.5 |
|
Add: |
|
|
|
|
|
||
Depreciation and amortization |
|
8.6 |
|
7.2 |
|
||
Net finance costs |
|
7.8 |
|
4.8 |
|
||
Provision for income taxes |
|
3.0 |
|
2.5 |
|
||
Share of provision for income taxes of unconsolidated companies |
|
0.6 |
|
|
|
||
Segment EBITDA |
|
$ |
39.5 |
|
$ |
26.0 |
|
Management evaluates the operating performance of OEHs segments on the basis of segment EBITDA and believes that segment EBITDA is a useful measure of operating performance because segment EBITDA is not affected by non-operating factors such as leverage and the historic cost of assets. EBITDA is a financial measure commonly used in OEHs industry. OEHs segment EBITDA, however, may not be comparable in all instances to EBITDA as disclosed by other companies. Segment EBITDA should not be considered as an alternative to earnings from operations or net earnings (as determined in accordance with U.S. generally accepted accounting principles) as a measure of OEHs operating performance, or as an alternative to net cash provided by operating, investing and financing activities (as determined in accordance with U.S. generally accepted accounting principles) as a measure of OEHs ability to meet cash needs.
23
Operating information for OEHs owned hotels for the three months ended September 30, 2005 and 2004 is as follows:
|
|
Three months |
|
|
|
|
|
||
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Rate (in dollars) |
|
|
|
|
|
|
|
|
|
Europe |
|
625 |
|
740 |
|
|
|
|
|
North America |
|
278 |
|
260 |
|
|
|
|
|
Rest of the world |
|
262 |
|
235 |
|
|
|
|
|
Worldwide |
|
427 |
|
414 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms Sold (in thousands) |
|
|
|
|
|
|
|
|
|
Europe |
|
61 |
|
39 |
|
|
|
|
|
North America |
|
30 |
|
31 |
|
|
|
|
|
Rest of the world |
|
47 |
|
43 |
|
|
|
|
|
Worldwide |
|
138 |
|
113 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RevPAR (in dollars) |
|
|
|
|
|
|
|
|
|
Europe |
|
417 |
|
477 |
|
|
|
|
|
North America |
|
183 |
|
156 |
|
|
|
|
|
Rest of the world |
|
148 |
|
122 |
|
|
|
|
|
Worldwide |
|
267 |
|
240 |
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
Change % |
|
||
|
|
|
|
|
|
|
|
Local |
|
|
|
|
|
|
|
Dollars |
|
Currency |
|
Same Store RevPAR (in dollars) |
|
|
|
|
|
|
|
|
|
Europe |
|
506 |
|
477 |
|
6 |
% |
5 |
% |
North America |
|
206 |
|
178 |
|
16 |
% |
16 |
% |
Rest of the world |
|
148 |
|
122 |
|
21 |
% |
22 |
% |
Worldwide |
|
284 |
|
256 |
|
11 |
% |
10 |
% |
Average daily rate is the average amount achieved for the rooms sold. RevPAR is revenue per available room, that is rooms revenue divided by the number of available rooms for each night of operation. Same store RevPAR is a comparison based on the operations of the same units in each period, such as by excluding the effect of any acquisitions or major refurbishments.
Overview
The net earnings for the period were $19.5 million ($0.50 per common share) on revenue of $127.7 million, compared with net earnings of $11.5 million ($0.34 per common share) on revenue of $100.0 million in the prior year third quarter. The results for the quarter represent a 70% increase in net earnings over the prior year quarter and a 47% increase in earnings per share.
This is largely due to improved trading conditions in all businesses in which OEH operates and is the general trend in the lodging and hospitality business worldwide as well as the acquisition of the Grand Hotel Europe. With little forecast growth in additional supply over the next few years in luxury
24
hotel rooms combined with an increasing demand for luxury travel experiences from a demographically ageing and wealthier population, the outlook for continuing improvements in trading conditions is very positive. OEHs outlook for 2006 is very positive with same store bookings (excluding Windsor Court and Maroma) up 16% over 2005.
Hurricane Katrina in August damaged the Windsor Court Hotel which has now reopened. The lost earnings at the hotel as a result of the hurricane are covered by property damage and business interruption insurance, subject to relevant deductible amounts. The impact of the hurricane on reported third quarter 2005 earnings was limited to the deductible and lost net earnings which OEH expects to record when realized. There will be a similar accounting treatment of insurance claims made with respect to Maroma Resort and Spa which was damaged by hurricane Wilma in the fourth quarter of 2005.
Revenue
Total revenue increased by $27.7 million, or 28%, from $100.0 million in the three months ended September 30, 2004 to $127.7 million in the three months ended September 30, 2005. Hotels and restaurants revenue increased by $26.3 million, or 32%, from $83.4 million in the three months ended September 30, 2004 to $109.7 million in the three months ended September 30, 2005, and tourist trains and cruises increased by $1.4 million, or 8%, from $16.6 million for the three months ended September 30, 2004 to $18.0 million for the three months ended September 30, 2005.
The increase for hotels and restaurants (including management fee income) was mainly due to an increase at OEHs owned hotels of $26.0 million, or 32%, from $80.3 million in the three months ended September 30, 2004 to $106.3 million in the three months ended September 30, 2005. The revenue from restaurants increased by $0.3 million, or 10%, from $3.1 million in the three months ended September 30, 2004 to $3.4 million in the three months ended September 30, 2005.
For owned hotels overall, same store RevPAR in U.S. dollars increased by 11% in the three months ended September 30, 2005 compared to the three months ended September 30, 2004. Measured in local currencies this increase was 10%, of which around 5% was due to improved occupancy and 5% to higher achieved daily rate.
25
The change in revenue at owned hotels is analyzed on a regional basis as follows:
Europe. Revenue increased by $16.1 million, or 34%, from $46.9 million for the three months ended September 30, 2004 to $63.0 million for the three months ended September 30, 2005. This increase included revenue of $10.5 million from the Grand Hotel Europe, St Petersburg, which was acquired on February 8, 2005, and $3.2 million from the Hotel Caruso which opened in July 2005.
On a same store basis, RevPAR in local currency increased by 5%, but in U.S. dollars this translated into an increase of 6% as the euro was slightly stronger against the dollar in the third quarter of 2005 compared to the third quarter of 2004. The RevPAR increase in local currency was principally due to increased achieved average daily rate at the hotels.
North America. Revenue increased by $5.6 million, or 40%, from $13.9 million in the three months ended September 30, 2004 to $19.5 million in the three months ended September 30, 2005. This increase included revenue from El Encanto which was acquired on November 1, 2004. Revenue from land sales at Keswick Hall Hotel was $2.5 million in the three months ended September 30, 2005, an increase of $2.0 million on the three months ended September 30, 2004. (Earnings from operations before net finance costs resulting from these land sales were $2.2 million in the 2005 quarter, an increase of $1.8 million over the 2004 quarter.)
On a same store basis, RevPAR increased by 16% which was driven by an 8% increase in achieved daily rate with 8% related to occupancy.
Rest of the World. Revenue increased by $3.7 million, or 21%, from $18.0 million in the three months ended September 30, 2004 to $21.7 million in the three months ended September 30, 2005.
The RevPAR on a same store basis for the rest of the world region increased by 21% in local currencies in the three months ended September 30, 2005 compared to the three months ended September 30, 2004. Approximately 13% of this increase was due to increased achieved daily rate at the hotels and the balance was due to higher occupancies. This RevPAR increase in local currencies was also 22% when expressed in U.S. dollars.
Depreciation and amortization
Depreciation and amortization increased by $1.4 million, or 19%, from $7.2 million in the three months ended September 30, 2004 to $8.6 million in the three months ended September 30, 2005, primarily due to the effect of acquisitions and capital expenditures in 2004 and 2005 as well as the effect of the weakness of the U.S. dollar against currencies in which OEH records some of its assets.
26
Operating expenses
Operating expenses increased by $11.8 million, or 25%, from $47.8 million in the three months ended September 30, 2004 to $59.6 million in the three months ended September 30, 2005, mainly due to the effect of the Grand Hotel Europe acquisition and the Hotel Caruso opening as well as the effect of the weakness of the U.S. dollar against currencies in which OEH records some of its expenses.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $4.1 million, or 14%, from $29.2 million in the three months ended September 30, 2004 to $33.3 million in the three months ended September 30, 2005, mainly due to the aforementioned acquisition and opening, as well as exchange rate movements due to weakening of the U.S. dollar.
Earnings from operations before net finance costs
Earnings from operations increased by $10.4 million from earnings of $15.8 million in the three months ended September 30, 2004 to earnings of $26.2 million in the three months ended September 30, 2005, due to the factors described above.
Net finance costs
Net finance costs increased by $3.0 million, or 63%, from $4.8 million for the three months ended September 30, 2004 to $7.8 million for the three months ended September 30, 2005. This was due to increased interest rates on U.S. dollar borrowings and the interest on the debt for the financing of acquisitions made in 2005.
Provision for income taxes
The provision for income taxes increased by $0.5 million, from a provision of $2.5 million in the three months ended September 30, 2004 to a provision of $3.0 million in the three months ended September 30, 2005. The Company is incorporated in Bermuda, which does not impose an income tax. Accordingly, the entire income tax provision was attributable to income taxes incurred by subsidiaries operating in jurisdictions that impose an income tax. The increased provision was due to the increased profitability of some of these subsidiaries.
Earnings from unconsolidated companies
Earnings from unconsolidated companies increased by $1.2 million, or 41%, from $2.9 million in the three months ended September 30, 2004 to $4.1 million in the three months ended September 30, 2005.
27
Nine months ended September 30, 2005 compared to Nine months ended September 30, 2004
OEHs operating results for the nine months ended September 30, 2005 and 2004, expressed as a percentage of revenue, were as follows:
|
|
Nine months ended |
|
||
|
|
2005 |
|
2004 |
|
|
|
% |
|
% |
|
Revenue: |
|
|
|
|
|
Hotels and restaurants |
|
86 |
|
84 |
|
Tourist trains and cruises |
|
14 |
|
16 |
|
|
|
100 |
|
100 |
|
Expenses: |
|
|
|
|
|
Depreciation and amortization |
|
7 |
|
8 |
|
Operating |
|
48 |
|
49 |
|
Selling, general and administrative |
|
30 |
|
32 |
|
Net finance costs |
|
5 |
|
6 |
|
Earnings before income taxes |
|
10 |
|
5 |
|
Provision for income taxes |
|
(2 |
) |
(1 |
) |
Earnings from unconsolidated companies |
|
3 |
|
3 |
|
Net earnings as a percentage of total revenue |
|
11 |
|
7 |
|
Segment EBITDA of OEHs operations for the nine months ended September 30, 2005 and 2004 are analyzed as follows (dollars in millions):
|
|
Nine months ended |
|
||||
|
|
2005 |
|
2004 |
|
||
Segment EBITDA: |
|
|
|
|
|
||
Owned hotels: |
|
|
|
|
|
||
Europe |
|
$ |
44.8 |
|
$ |
29.5 |
|
North America |
|
15.1 |
|
9.4 |
|
||
Rest of the world |
|
14.2 |
|
11.1 |
|
||
Hotel management interests |
|
12.5 |
|
10.6 |
|
||
Restaurants |
|
2.5 |
|
1.5 |
|
||
Tourist trains and cruises |
|
11.0 |
|
8.9 |
|
||
Central overheads |
|
(13.9 |
) |
(11.6 |
) |
||
Segment EBITDA |
|
$ |
86.2 |
|
$ |
59.4 |
|
28
The foregoing segment EBITDA reconciles to net earnings as follows (dollars in millions):
|
|
Nine months ended |
|
||||
|
|
2005 |
|
2004 |
|
||
Segment net earnings |
|
$ |
36.4 |
|
$ |
19.8 |
|
Add: |
|
|
|
|
|
||
Depreciation and amortization |
|
25.0 |
|
21.1 |
|
||
Net finance costs |
|
17.5 |
|
14.6 |
|
||
Provision for income taxes |
|
6.1 |
|
3.9 |
|
||
Share of provision for income taxes of unconsolidated companies |
|
1.2 |
|
|
|
||
Segment EBITDA |
|
$ |
86.2 |
|
$ |
59.4 |
|
Operating information for OEHs owned hotels for the nine months ended September 30, 2005 and 2004 is as follows:
|
|
Nine months |
|
|
|
|
|
||
|
|
2005 |
|
2004 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Daily Rate (in dollars) |
|
|
|
|
|
|
|
|
|
Europe |
|
565 |
|
645 |
|
|
|
|
|
North America |
|
330 |
|
321 |
|
|
|
|
|
Rest of the world |
|
270 |
|
235 |
|
|
|
|
|
Worldwide |
|
392 |
|
373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rooms Sold (in thousands) |
|
|
|
|
|
|
|
|
|
Europe |
|
140 |
|
88 |
|
|
|
|
|
North America |
|
112 |
|
104 |
|
|
|
|
|
Rest of the world |
|
142 |
|
134 |
|
|
|
|
|
Worldwide |
|
394 |
|
326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RevPAR (in dollars) |
|
|
|
|
|
|
|
|
|
Europe |
|
343 |
|
370 |
|
|
|
|
|
North America |
|
224 |
|
210 |
|
|
|
|
|
Rest of the world |
|
155 |
|
127 |
|
|
|
|
|
Worldwide |
|
240 |
|
217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change % |
|
||
|
|
|
|
|
|
Dollars |
|
Local |
|
Same Store RevPAR (in dollars) |
|
|
|
|
|
|
|
|
|
Europe |
|
409 |
|
376 |
|
9 |
% |
6 |
% |
North America |
|
245 |
|
225 |
|
9 |
% |
9 |
% |
Rest of the world |
|
155 |
|
128 |
|
21 |
% |
18 |
% |
Worldwide |
|
249 |
|
223 |
|
12 |
% |
10 |
% |
29
Overview
The net earnings for the period were $36.4 million ($0.96 per common share) on revenue of $334.5 million, compared with net earnings of $19.8 million ($0.58 per common share) on revenue of $264.4 million in the prior year nine months. This represents an increase of 84% in net earnings in the period over the prior year period and an increase of 66% in earnings per common share.
Revenue
Total revenue increased by $70.1 million, or 27%, from $264.4 million in the nine months ended September 30, 2004 to $334.5 million in the nine months ended September 30, 2005. Hotels and restaurants revenue increased by $66.0 million, or 30%, from $222.9 million in the nine months ended September 30, 2004 to $288.9 million in the nine months ended September 30, 2005, and tourist trains and cruises increased by $4.1 million, or 10%, from $41.5 million for the nine months ended September 30, 2004 to $45.6 million for the nine months ended September 30, 2005.
The increase for hotels and restaurants (including management fee income) was mainly due to an increase at OEHs owned hotels of $63.1 million, or 31%, from $209.8 million in the nine months ended September 30, 2004 to $274.5 million in the nine months ended September 30, 2005. The revenue from restaurants increased by $1.3 million, or 10%, from $13.1 million in the nine months ended September 30, 2004 to $14.4 million in the nine months ended September 30, 2005 which was mainly due to the 21 Club in New York which has seen improvements in its banqueting business following increased corporate entertainment activity.
For owned hotels overall, same store RevPAR in U.S. dollars increased by 12% in the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. Measured in local currencies this increase was 10%, of which 4% was due to improved occupancy and 6% to higher achieved daily rate.
The change in revenue at owned hotels is analyzed on a regional basis as follows:
Europe. Revenue increased by $38.5 million, or 40%, from $96.0 million for the nine months ended September 30, 2004 to $134.5 million for the nine months ended September 30, 2005. This increase included revenue from the Grand Hotel Europe, St Petersburg, which was acquired on February 8, 2005. The revenue from the hotel between this date and September 30, 2005 was $25.0 million.
On a same store basis, RevPAR in local currency increased by 6% (which was entirely related to daily rate), but in U.S. dollars this translated into an increase of 9% as the euro was stronger
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against the dollar in the third quarter of 2005 compared to the third quarter of 2004.
North America. Revenue increased by $13.1 million, or 25%, from $53.4 million in the nine months ended September 30, 2004 to $66.5 million in the nine months ended September 30, 2005. This increase included revenue from El Encanto Hotel which was acquired on November 1, 2004. The revenue from this hotel in the nine months to September 30, 2005 was $5.5 million. Excluding revenue from El Encanto, revenue increased by $7.6 million, or 14%, from $53.4 million for the nine months ended September 30, 2004 to $61.0 million for the nine months ended September 30, 2005. Revenue from land sales at Keswick Hall Hotel was $3.5 million in the nine months ended September 30, 2005, an increase of $2.6 million on the nine months ended September 30, 2004. (Earnings from operations before net finance costs resulting from these land sales were $2.8 million in the 2005 period, an increase of $2.2 million over the 2004 period.)
On a same store basis, RevPAR increased by 9% which was driven by a 5% increase in occupancy and a 4% improvement in achieved daily rate.
Rest of the World. Revenue increased by $11.7 million, or 21%, from $55.5 million in the nine months ended September 30, 2004 to $67.2 million in the nine months ended September 30, 2005.
The RevPAR on a same store basis for the rest of the world region increased by 18% in local currencies in the nine months ended September 30, 2005 compared to the nine months ended September 30, 2004. Approximately 7% of this increase was due to increased occupancies at the hotels and the balance (11%) was due to a higher achieved daily rate. This RevPAR increase in local currencies translated to a 21% increase when expressed in U.S. dollars primarily as the South African rand and Australian dollar were stronger against the U.S. dollar in the period over the comparable period of 2004.
Depreciation and amortization
Depreciation and amortization increased by $3.8 million, or 18%, from $21.2 million in the nine months ended September 30, 2004 to $25.0 million in the nine months ended September 30, 2005, primarily due to the effect of acquisitions and capital expenditures in 2004 and 2005 as well as the effect of the weakness of the U.S. dollar against currencies in which OEH records some of its assets.
Operating expenses
Operating expenses increased by $29.7 million, or 23%, from $129.6 million in the nine months ended September 30, 2004 to $159.3 million in the nine months ended September 30, 2005, mainly due to the effect of the weakness of the U.S. dollar against currencies
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in which OEH incurs operating expenses, increased occupancies at the hotels and acquisition of additional hotels in 2004 and 2005.
Selling, general and administrative expenses
Selling, general and administrative expenses increased by $15.4 million, or 18%, from $84.3 million in the nine months ended September 30, 2004 to $99.7 million in the nine months ended September 30, 2005, mainly due to the effect of the weakness of the U.S. dollar against currencies in which OEH incurs these expenses and acquisitions of additional hotels in 2004 and 2005.
Earnings from operations before net finance costs
Earnings from operations increased by $21.0 million, or 71%, from earnings of $29.4 million in the nine months ended September 30, 2004 to earnings of $50.4 million in the nine months ended September 30, 2005, due to the factors described in the overview above.
Net finance costs
Net finance costs increased by $2.9 million, from $14.6 million for the nine months ended September 30, 2004 to $17.5 million for the nine months ended September 30, 2005, which included a foreign exchange gain of $3.6 million. Excluding this gain, net finance costs increased by $6.5 million, or 45%, from $14.6 million for the nine months ended September 30, 2004 to $21.1 million for the nine months ended September 30, 2005.
Provision for income taxes
The provision for income taxes increased by $2.2 million, from a provision of $3.9 million in the nine months ended September 30, 2004 to a provision of $6.1 million in the nine months ended September 30, 2005. The Company is incorporated in Bermuda, which does not impose an income tax. Accordingly, the entire income tax provision was attributable to subsidiaries operating in jurisdictions that impose an income tax. The increased provision was mainly due to the increased profitability of some of these subsidiaries.
Earnings from unconsolidated companies
Earnings from unconsolidated companies increased by $0.7 million, or 8%, from $8.9 million in the nine months ended September 30, 2004 to $9.6 million in the nine months ended September 30, 2005. This was mainly due to higher earnings from OEHs investment in the Charleston Place.
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Liquidity and Capital Resources
Working Capital
OEH had cash and cash equivalents of $54.1 million at September 30, 2005, $31.5 million less than the $85.6 million at December 31, 2004. At September 30, 2005, the undrawn amounts available to OEH under its short-term lines of credit were $13.2 million. In addition, at September 30, 2005 there were undrawn amounts committed under long-term facilities of $84.0 million. OEHs total cash and availability at September 30, 2005 was, therefore, $151.3 million including the undrawn short-term lines.
Current assets less current liabilities, including the current portion of long-term debt, resulted in a working capital deficit of $42.5 million at September 30, 2005, a decrease in the working capital of $42.5 million from a balance of zero at December 31, 2004.
OEHs business does not require the maintenance of significant inventories or receivables and, therefore, working capital is not regarded as the most appropriate measure of liquidity.
Cash Flow
Operating Activities. Net cash provided by operating activities increased by $10.9 million from $45.0 million for the nine months ended September 30, 2004 to $55.9 million for the nine months ended September 30, 2005, mainly due to the increase in net earnings of $16.6 million for the period over the prior year period.
Investing Activities. Cash used in investing activities increased by $139.6 million to $198.3 million for the nine months ended September 30, 2005, compared to $58.7 million for the nine months ended September 30, 2004. This was mainly due to the acquisition of the Grand Hotel Europe on February 8, 2005.
Financing Activities. Cash provided by financing activities for the nine months ended September 30, 2005 was an increase of $128.4 million from cash used in financing activities of $15.9 million in the nine months ended September 30, 2004. In the nine months ended September 30, 2005, OEH had proceeds from borrowings under long-term debt of $116.8 million which included $57.5 million of finance on the Grand Hotel Europe acquisition, compared to proceeds of $20.7 million for the nine months ended September 30, 2004. In the nine months ended September 30, 2005, OEH had net proceeds from the issuance of common shares of $123.9 million, which were primarily used to pay down a revolving credit facility secured on three of OEHs Italian hotels ($95.0 million) which can be re-drawn at any time with the balance going to cash to be used
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for general corporate purposes including acquisitions and investments.
Capital Commitments. There were $18.3 million of capital commitments outstanding as of September 30, 2005 mainly on investments in owned hotels.
Indebtedness
At September 30, 2005, OEH had $553.8 million of long-term debt secured by assets ($499.7 million net of cash), including the current portion, which is repayable over periods of 1 to 11 years with a weighted average interest rate of 5.37%. See Note 6 to the financial statements regarding the maturity of long-term debt.
Approximately 34% of the outstanding principal was drawn in euros and the balance primarily in U.S. dollars. At September 30, 2005, 99% of borrowings of OEH were in floating interest rates.
Liquidity
OEH raised $122.0 million from the issue and sale of 5.05 million class A common shares during the first quarter of 2005 as referred to above.
Including these proceeds from the issue and sale of shares, OEH expects to have available cash from operations and appropriate debt finance sufficient to fund its working capital requirements, capital expenditures, acquisitions and debt service for the foreseeable future.
Recent Accounting Pronouncements
The Company has adopted SFAS No. 123R, Share-Based Payment, effective January 1, 2005 and has chosen the modified prospective application as its transition method. This resulted in an expense of $519,000 and $1,080,000 in the three and nine months ended September 30, 2005, respectively, relating to the amortization of the fair value of options granted. The expected expense in future periods on the outstanding non-vested share options granted, prior to September 30, 2005 is as follows at September 30, 2005 (dollars in thousands):
Year ended December 31, |
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Remainder of 2005 |
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$ |
204 |
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2006 |
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627 |
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2007 |
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337 |
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2008 |
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81 |
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The Company made no modifications to outstanding share options prior to the adoption of SFAS No. 123R and has applied the valuation methodology and assumptions previously used to calculate
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the pro-forma fair value of options granted as required under SFAS No. 123, Accounting for Stock-Based Compensation, in adopting SFAS No. 123R. These are set out in more detail in Note 11 to the financial statements in the Companys 2004 Form 10-K annual report. The Company expects that these assumptions will continue to be appropriate in fair valuing options granted in the future. The expected life of the options assumption may change over time. Currently the earliest grants to be awarded were made less than five years ago. The Company has made no change to the quantity, types or terms of instruments used in its share-based payment programs.
As of September 30, 2005, the Companys significant accounting policies and estimates, which are described in Notes 1 and 15 to the financial statements in the Companys 2004 Form 10-K annual report, have not changed from December 31, 2004 other than the change described above.
For a discussion of these, see under the heading Critical Accounting Policies in Item 7 Managements Discussion and Analysis in the Companys 2004 Form 10-K annual report.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
OEH is exposed to market risk from changes in interest rates and foreign currency exchange rates. These exposures are monitored and managed as part of OEHs overall risk management program, which recognizes the unpredictability of financial markets and seeks to mitigate material adverse effects on consolidated earnings and cash flows. OEH 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 OEH. Earnings are affected by changes in interest rates on borrowings, principally based on U.S. dollar LIBOR and EURIBOR, and on short-term cash investments. If interest rates increased by 10%, with all other variables held constant, annual net finance costs of OEH would have increased by approximately $2,900,000 on an annual basis based on borrowings at September 30, 2005. The interest rates on substantially all of OEHs long-term debt are adjusted regularly to reflect current market rates. Accordingly, the carrying amounts approximate fair value.
The market risk relating to foreign currencies and its effects have not changed materially during the three and nine months ended September 30, 2005 from those described in the Companys 2004 Form 10-K annual report.
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ITEM 4. Controls and Procedures
The Companys chief executive and financial officers have evaluated the effectiveness of the Companys disclosure controls and procedures (as defined in SEC Rule 13a-15(e)) as of September 30, 2005 and, based on that evaluation, believe those disclosure controls and procedures are effective as of that date. There have been no changes in the Companys internal control over financial reporting (as defined in SEC Rule 13a-15(f)) during the third quarter of 2005 that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting. During the third quarter of 2005, the Company replaced its chief financial officer, the former chief financial officer having resigned, and employed additional legal, tax and accounting personnel including a qualified accountant knowledgeable in U.S. generally accepted accounting principles.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met such as prevention and detection of misstatement. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate, for example. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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PART II - OTHER INFORMATION
The index to exhibits appears below, on the page immediately following the signature page to this report.
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SIGNATURES
Pursuant to the requirements 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.
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ORIENT-EXPRESS HOTELS LTD. |
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By: |
/s/ P.M. White |
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Paul M. White |
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Vice President - Finance |
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and Chief Financial Officer |
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(Principal Accounting Officer) |
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Dated: November 8, 2005
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3.1 - Memorandum of Association and Certificate of Incorporation of the Company, filed as Exhibit 3.1 to Amendment No. 2 to the Companys Registration Statement on Form S-1 (Registration No. 333-12030) and incorporated herein by reference.
3.2 - Bye-Laws of the Company, filed as Exhibit 3.2 to Amendment No. 4 to the Companys Registration Statement on Form S-1 (Registration No. 333-12030) and incorporated herein by reference.
31 - Rule 13a-14(a)/15d-14(a) Certifications.
32 - Section 1350 Certification.
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