<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 3, 2000
REGISTRATION NO. 333-12030
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
ORIENT-EXPRESS HOTELS LTD.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
BERMUDA 7011 98-0223493
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of Industrial Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
<TABLE>
<S> <C>
JOHN T. LANDRY, JR.
41 CEDAR AVENUE ORIENT-EXPRESS HOTELS INC.
P.O. BOX HM 1179 1155 AVENUE OF THE AMERICAS
HAMILTON HM EX, BERMUDA NEW YORK, NEW YORK 10036
(441) 295-2244 (212) 302-5066
(Address, including zip code, and telephone (Name, address, including zip code, and
number, including area code, of registrant's telephone number, including area code, of
principal executive offices) agent for service)
</TABLE>
------------------------
COPIES TO:
<TABLE>
<S> <C>
STEPHEN V. BURGER ROHAN S. WEERASINGHE
CARTER, LEDYARD & MILBURN SHEARMAN & STERLING
2 WALL STREET 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10005 NEW YORK, NEW YORK 10022
(212) 732-3200 (212) 848-4000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as possible after this registration statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
--------------------------------------------------------------------------------
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<PAGE>
EXPLANATORY NOTE
This registration statement contains two forms of prospectus: one to be used
in connection with a United States and Canadian offering of the registrant's
class A common shares and one to be used in connection with a concurrent
international offering of class A common shares. The U.S. prospectus and the
international prospectus will be identical in all respects except that they will
have different front cover pages. The form of the U.S. prospectus is included
herein and is followed by the alternate front cover page to be used in the
international prospectus. The form of the front cover page of the international
prospectus is labeled "Alternate Cover Page for International Prospectus." Final
forms of each prospectus will be filed with the Securities and Exchange
Commission under Rule 424(b) of the General Rules and Regulations under the
Securities Act of 1933.
-ii-
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 3, 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
P_R_O_S_P_E_C_T_U_S
10,000,000 CLASS A COMMON SHARES
ORIENT-EXPRESS HOTELS LTD.
--------
This is Orient-Express Hotels Ltd.'s initial public offering. Orient-Express
Hotels is selling 5,000,000 of the shares and Sea Containers Ltd. is selling
5,000,000 of the shares. The U.S. underwriters are offering 8,000,000 shares in
the U.S. and Canada, and the international managers are offering 2,000,000
shares outside the U.S. and Canada.
We expect the public offering price to be between $20.00 and $23.00 per
share. Currently, no public market exists for the shares. After pricing of this
offering, we expect that the class A common shares will be listed on the New
York Stock Exchange under the symbol OEH.A.
After completion of this offering, the outstanding capital stock of
Orient-Express Hotels will consist of 28,418,927 class A common shares, of which
Sea Containers will own directly or indirectly about 65%, or 60% if the
underwriters fully exercise their over-allotment option, and 2,481,073 class B
common shares, all of which Sea Containers will own directly or indirectly. In
general, holders of class A common shares and class B common shares vote
together as a single class on all matters submitted to a vote of Orient-Express
Hotels' shareholders, with holders of class B common shares having one vote per
share and holders of class A common shares having one-tenth of one vote per
share. Each class B common share is convertible at any time into one class A
common share. In all other material respects, the class A common shares and
class B common shares are identical and are treated as a single class of common
shares. See "Description of Common Shares."
INVESTING IN THE CLASS A COMMON SHARES INVOLVES RISKS THAT ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
----------------
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<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Orient-Express Hotels......... $ $
Proceeds, before expenses, to Sea Containers................ $ $
</TABLE>
The U.S. underwriters may also purchase up to an additional 1,200,000 shares
from Sea Containers at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments. The international managers may similarly purchase up to an
additional 300,000 shares from Sea Containers.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the class A common shares being
offered by this prospectus, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2000.
------------------
CO-LEAD MANAGERS
MERRILL LYNCH & CO. LAZARD
-----------
SALOMON SMITH BARNEY BANC OF AMERICA SECURITIES LLC
-----------
The date of this prospectus is , 2000.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
Prospectus Summary.......................................... 3
Risk Factors................................................ 11
Forward-Looking Statements.................................. 19
Use of Proceeds............................................. 20
Dividend Policy............................................. 20
Capitalization.............................................. 20
Dilution.................................................... 21
Selected Consolidated Financial Data........................ 22
Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 25
Our Business................................................ 37
Management.................................................. 59
Our Separation from Sea Containers.......................... 64
Security Ownership of Sea Containers' Principal Shareholders
and Management............................................ 68
Description of Common Shares................................ 70
Shares Eligible for Future Sale............................. 75
Material Tax Considerations................................. 76
Underwriting................................................ 77
Legal Matters............................................... 81
Experts..................................................... 81
Where You Can Find More Information......................... 81
Index to Consolidated Financial Statements.................. F-1
</TABLE>
------------------------
You should rely only on the information contained in this prospectus. We
have not, and the underwriters have not, authorized any other person to provide
you with different information. If anyone provides you with different or
inconsistent information, you should not rely on it. We are not, and the
underwriters are not, making an offer to sell these securities in any
jurisdiction where the offer or sale is not permitted. You should assume that
the information appearing in this prospectus is accurate only as of the date on
the front cover of this prospectus. Our business, financial condition, results
of operations and prospects may have changed since that date.
------------------------
In this prospectus, "Orient-Express Hotels," "we," "us" and "our" each
refers to Orient-Express Hotels Ltd., a Bermuda company, and, unless otherwise
required by the context, its subsidiaries, and not to the underwriters or Sea
Containers. "Sea Containers" refers to Sea Containers Ltd., a Bermuda company,
and, unless otherwise required by the context, its subsidiaries.
Orient-Express Hotels, our logo and other brand names of Orient-Express
Hotels mentioned in this prospectus are the property of Orient-Express Hotels.
All other brand and trade names referred to in this prospectus are the property
of their respective owners.
2
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
IT DOES NOT CONTAIN ALL THE INFORMATION THAT MAY BE IMPORTANT TO YOU. YOU SHOULD
READ CAREFULLY THIS ENTIRE PROSPECTUS, ESPECIALLY THE RISK FACTORS SECTION AND
THE CONSOLIDATED FINANCIAL STATEMENTS AND ACCOMPANYING NOTES TO THOSE
STATEMENTS, BEFORE YOU DECIDE WHETHER TO INVEST IN THE CLASS A COMMON SHARES.
WHEN WE LOOK AT RESULTS FOR A PERIOD ON A COMPARABLE BASIS, WE LOOK ONLY AT
THE RESULTS FOR THOSE HOTELS WE OWNED THROUGHOUT THE PERIOD.
ORIENT-EXPRESS HOTELS LTD.
Orient-Express Hotels Ltd. is a hotel and leisure company focused on the
luxury end of the leisure market. We currently own and operate 26 highly
individual deluxe hotels worldwide reported as 22 business units, six tourist
trains, a river cruiseship and two restaurants. We acquire only very distinctive
properties in areas of outstanding cultural, historic or recreational interest
in order to provide luxury lifestyle experiences for the elite traveler.
Orient-Express Hotels has been since its incorporation in 1987 a
wholly-owned subsidiary of Sea Containers Ltd. Sea Containers' hotel and leisure
operations began in the late 1970s when our corporate predecessor acquired the
Hotel Cipriani in Venice and the legendary Venice Simplon-Orient-Express tourist
trains. Since then, we have grown into an international leisure company. We were
recently voted one of the top two hotel groups in Europe by Conde Nast Traveler
magazine, and over the last 18 months, our 31 properties won 67 national and
international awards, 13 of which were "Number One" or "Best" in the category.
Some of our most prominent properties are the Windsor Court in New Orleans, the
Copacabana Palace Hotel in Rio de Janeiro, the Mount Nelson Hotel in Cape Town,
South Africa, Reid's Palace Hotel in Madeira, Portugal, and the '21' Club in New
York City.
Hotels and restaurants represent the largest segment of our business,
contributing 84% of revenue in 1999. Tourist trains and cruises accounted for
the remaining 16%. Our worldwide portfolio of hotels consists of 2,563
individual guest rooms and multiple-room suites, each known as a key, which
achieved an average daily room rate, or ADR, of $289 in 1999. A majority of our
customers are leisure travelers, with approximately 54% of our guests in 1999
originating from the United States, 20% from Europe and the remaining 26% from
elsewhere in the world.
INVESTMENT HIGHLIGHTS
UNIQUE PORTFOLIO OF PROPERTIES IN AREAS WHERE THERE ARE HIGH BARRIERS TO
ENTRY. Our collection of properties are all in distinctive locations throughout
the world. Many of our properties are an essential part of the local history and
could not be replaced or would be prohibitively expensive to replicate. Also,
strict zoning regulations in a number of countries where we operate,
particularly Italy, prohibit or significantly restrict new hotel development in
our areas.
DISTINGUISHED BRAND NAMES. Our brand name "Orient-Express Hotels"
originated with the legendary luxury train traveling between Paris and Istanbul
in the late 19th and early 20th centuries. This brand name is recognized
worldwide and is synonymous with sophisticated travel and refined elegance.
Also, many of our individual properties, such as the Hotel Cipriani or the '21'
Club, have distinctive, local brand identities.
LUXURY MARKET FOCUS. We focus exclusively on the luxury end of the leisure
market. We serve those guests who are less price sensitive and are willing to
pay a premium for services and
3
<PAGE>
accommodations which have a special image, style and character. Our philosophy
is that "quality is luxury with personality."
PRICING POWER. Given their strong reputation and distinctive character, our
properties tend to command a considerable rate premium over those of our
competitors. For example, we have been able to increase the rooms revenue of our
owned hotels on a comparable basis at a compound annual growth rate, or CAGR, of
9% since 1995 measured in U.S. dollars, or 14% measured in local currencies.
Since a large proportion of hotel operating costs are fixed, we thereby can
achieve an enhanced return on our investment.
SUPERIOR OPERATING RESULTS. Our distinctive strategy has allowed us
steadily to improve profitability and sustain consistent growth. Since 1995, our
revenue has grown at a compound annual growth rate of 19% while earnings before
interest, income taxes, depreciation and amortization, or EBITDA, have grown at
a compound annual growth rate of 32%, earnings before interest and income taxes,
or EBIT, have grown at a compound annual growth rate of 40%, and net earnings
have grown at a compound annual growth rate of 46%. These CAGRs exclude the
benefit of onetime gains on sales of assets.
SUCCESSFUL ACQUISITION STRATEGY. In 1999 and the first quarter of 2000, we
spent $85 million on acquisitions which will positively impact profits in 2000
and beyond. Acquisitions in 1999 consisted of Keswick Hall near Monticello in
Charlottesville, Virginia, the Inn at Perry Cabin at St. Michael's on the
eastern shore of Chesapeake Bay in Maryland, and our 50% joint venture interests
which operate two hotels in Peru and the tourist railway up to the famous Machu
Picchu ruins. In the first quarter of 2000, we acquired two Australian
hotels--the Observatory in Sydney, which we had previously managed for over
seven years, and Lilianfels in the Blue Mountains.
SALES, MARKETING AND DISTRIBUTION ADVANTAGES. We attract guests who we
believe have often made a specific decision to stay at one or more of our
properties and therefore are more likely to book directly with our hotels and
tours. This reduces our marketing costs and third-party sales commissions. We
extensively utilize public relations as a communications tool by working with
journalists and travel writers, and we enjoy exceptional media exposure because
of the distinctive nature of our properties. During 1999, we hosted over 1,000
journalists at our properties, who generated over 3,000 articles in newspapers
and magazines around the world having a combined circulation of around
620 million readers. Lastly, we cross-sell our luxury travel to customers
through the local sales staff at each of our properties, through our
international marketing staffs in both New York and London and through in-room
publications.
GLOBAL PRESENCE. We operate hotels and restaurants in eleven countries
across six continents. Also, our trains and cruiseship operate in the U.K.,
continental Europe, Southeast Asia, South America and Australia. We derive
substantial revenue in each of our three geographic segments--Europe, North
America and the rest of the world--so that our results of operations are less
susceptible to an economic downturn in a particular region.
POSITIVE LEISURE SPENDING AND DEMOGRAPHIC TRENDS. We believe that positive
travel and tourism spending trends as well as demographic shifts in both the
U.S. and European populations will increase the long-term demand for our hotels
and trains.
STRONG MANAGEMENT TEAM. Our executive management team consists of nine
individuals who are responsible for our global strategic direction and have an
average of 10 years of experience with Orient-Express Hotels and 18 years of
experience in the hotel and leisure industry.
4
<PAGE>
GROWTH STRATEGY
STRONG INTERNAL GROWTH. We intend to pursue increases in pricing and
earnings both at our established properties and at our newer acquisitions. The
increase in rooms revenue on a comparable basis between 1995 and 1999--a CAGR of
8% in U.S. dollars and 12% in local currencies--has generated over the same
period EBITDA growth at a CAGR of 12% in U.S. dollars and 21% in local
currencies. We believe that Orient-Express Hotels will be able to further
increase ADRs, and consequently rooms revenue, at these properties, given the
prestige of our brand names and significant barriers to entry, including zoning
regulations and space constraints. In addition, since a number of our newer
acquisitions have been from individuals and small companies with limited hotel
experience, we have been able to increase revenue per available room, or REVPAR,
and operating margins by applying our managerial experience, marketing skills,
strong brand name and cost controls.
GROWTH FROM EXPANSIONS. We have significant expansion opportunities at our
existing properties. Typically, expansions generate attractive returns with
limited incremental operating costs. In our hotels and restaurants segment, we
have plans over the next few years to add between 300 and 600 keys, expand
existing banquet and dining facilities and develop new amenities at various
properties, including spas and conference facilities.
GROWTH FROM ACQUISITIONS. We intend to continue to acquire additional
distinctive, luxury properties throughout the world. We have sustained a
consistent program of acquisitions, having acquired more than $150 million of
properties since the beginning of 1998. We target unique properties in markets
with high barriers to entry and opportunities to increase cash flow through
either expansions or REVPAR increases. Through our global contacts and our
reputation for successful management of luxury properties, we are routinely
shown attractive properties for possible acquisition.
INTERNET INITIATIVES. We believe that there is significant potential for
the internet to enhance our distribution and reduce our sales and marketing
expenses. The combination of our strong local brand identities and our strong
umbrella brand name is an effective way to attract those internet users who are
looking for a travel experience with distinctive character but who still need
the assurance of quality. Internet technology also permits lower transaction
costs. Typically, travel agents receive a 10% commission, and tour operators
receive up to a 35% discount, on reservations. Through our own website
reservations, we can reduce these costs to $3 per booking.
OUR RELATIONSHIP WITH SEA CONTAINERS
Sea Containers currently engages in three main businesses:
- passenger transport operations, which provide service-oriented ferry and
rail transportation services, primarily in and around the United Kingdom
and Scandinavia;
- hotel and leisure operations, conducted primarily through Orient-Express
Hotels and its subsidiaries; and
- marine container leasing operations, principally through Sea Containers'
GE SeaCo SRL joint venture with a subsidiary of General Electric Capital
Corporation, which lease a wide variety of standard and specialized cargo
containers.
After the completion of this offering, Sea Containers will own approximately
65% of the outstanding class A common shares of Orient-Express Hotels, or
approximately 60% if the underwriters fully exercise their over-allotment
option. Sea Containers also owns all of the 2,481,073 outstanding class B common
shares of Orient-Express Hotels plus 18,056,640 class B common shares which are
accounted for as a deduction from Orient-Express Hotels' shareholders' equity.
See "Our Separation from Sea Containers--Separation Agreements--Share Owning
Subsidiaries Restructuring Agreement." The shares to be owned by Sea Containers
will represent about 96% of the combined voting power for
5
<PAGE>
most matters submitted to a vote of our shareholders, or 95% if the underwriters
fully exercise their overallotment option.
Sea Containers currently intends to distribute to its shareholders all of
our class A and class B common shares that it owns approximately six months
after this offering, subject to the receipt by Sea Containers of all necessary
consents and approvals from its board of directors, shareholders, lenders and
others, and the delivery to Sea Containers of a favorable tax opinion. Sea
Containers is not obligated to make this distribution, and the distribution may
not occur in six months or at all.
We believe that we will realize benefits from our separation from Sea
Containers, including the following:
GREATER STRATEGIC FOCUS. Sea Containers currently generates significant
revenue from lines of business other than the hotel and leisure business of
Orient-Express Hotels. Our focus after the separation will be entirely on the
hotels and leisure business. This effort will be supported by our own board of
directors, management team and employees.
BETTER INCENTIVES FOR EMPLOYEES AND GREATER ACCOUNTABILITY. We expect the
motivation of our employees and the focus of our management will be strengthened
by incentive compensation programs tied to the market performance of our class A
common shares. The separation will enable us to offer our employees compensation
directly linked to the performance of the Orient-Express Hotels business, which
we expect to enhance our ability to attract and retain qualified personnel.
MORE DIRECT ACCESS TO CAPITAL MARKETS. As a separate company, we will have
more direct access to the capital markets to issue debt or equity securities and
to grow through acquisitions.
Orient-Express Hotels will enter into agreements with Sea Containers
providing for the separation of its business operations from those of Sea
Containers, for the transfer to Orient-Express Hotels of all Sea Containers'
assets and liabilities relating to Sea Containers' hotel and leisure business,
and for various ongoing relationships between the two companies. For more
information on the proposed distribution and these agreements, see the section
entitled "Our Separation from Sea Containers" in this prospectus.
RECENT DEVELOPMENTS
Although the results of operations of Orient-Express Hotels for the quarter
ended June 30, 2000, have not yet been finalized, it is our present expectation
that revenue for the quarter will be approximately 12% higher than the $70.4
million for the second quarter of 1999, earnings from operations before net
finance costs will be approximately 18% higher than the $18.2 million for the
second quarter of 1999, and net earnings will be approximately 16% higher than
the $11.6 million for the second quarter of 1999.
On a cumulative basis for the first six months of 2000, we expect net
earnings to be approximately 20% higher than the $14.4 million for the first six
months of 1999, excluding a onetime gain of $1.3 million on the sale of a
property in 1999.
* * *
Orient-Express Hotels maintains its registered office at 41 Cedar Avenue,
P.O. Box HM 1179, Hamilton HM EX, Bermuda, telephone 441-295-2244. Its main
service subsidiary in the United Kingdom is located at Sea Containers House,
20 Upper Ground, London SE1 9PF, England, telephone 011-44-20-7805-5060, and its
main United States service subsidiary--Orient-Express Hotels Inc.--has offices
at 1155 Avenue of the Americas, New York, New York 10036, telephone
212-302-5055.
Our website is WWW.ORIENT-EXPRESSHOTELS.COM. The information on this website
is not a part of this prospectus.
6
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THE OFFERING
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Class A common shares offered by
Orient-Express Hotels:
U.S. offering.............................. 4,000,000 shares
International offering..................... 1,000,000 shares
Class A common shares offered by
Sea Containers:
U.S. offering.............................. 4,000,000 shares
International offering..................... 1,000,000 shares
Total.................................... 10,000,000 shares
Class A common shares to be held by
Sea Containers immediately after this
offering................................... 18,418,927 shares
Class A common shares to be outstanding
immediately after this offering............ 28,418,927 shares
Class B common shares to be outstanding
immediately after this offering............ 2,481,073 shares
Class A and class B common shares to be
outstanding immediately after this
offering................................... 30,900,000 shares
Use of proceeds.............................. We estimate that the net proceeds to Orient-
Express Hotels from this offering will be
approximately $100 million, assuming a public
offering price of $21.50 per share. We intend
to use these net proceeds to repay
approximately $95 million of our existing
indebtedness secured by five of our
properties. These properties will then be
available to secure a $125 million revolving
credit facility to fund future acquisitions
and expansions. The balance of the proceeds
will be used for working capital and general
corporate purposes. Our use of proceeds is
more fully described under "Use of Proceeds."
Orient-Express Hotels will not receive any of
the proceeds from the sale of shares in this
offering by Sea Containers.
Proposed New York Stock Exchange symbol...... OEH.A
Risk factors................................. See "Risk Factors" and other information
included in this prospectus for a discussion
of factors you should carefully consider
before deciding to invest in the class A
common shares.
</TABLE>
7
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<TABLE>
<CAPTION>
<S> <C>
Preferred share purchase rights.............. This prospectus also relates to rights to
purchase Orient-Express Hotels' series A
junior participating preferred shares. These
rights will be attached to and transferable
only with the class A common shares sold in
this offering. See "Description of Common
Shares--Rights Agreement."
</TABLE>
The number of class A common shares outstanding after the offering excludes
750,000 class A common shares which will be reserved for issuance under a stock
option plan we intend to adopt in connection with the offering, as described
under "Management."
Sea Containers has granted options to the U.S. underwriters and the
international managers to purchase up to 1,500,000 additional class A common
shares at the public offering price less the underwriting discount.
Orient-Express Hotels will not receive any of the proceeds from the sale of
these shares by Sea Containers.
The class B common shares shown above do not include 18,056,640 shares owned
by Sea Containers but accounted for as a deduction from shareholders' equity.
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SUMMARY CONSOLIDATED FINANCIAL DATA
The data presented in the following table as of December 31, 1999, 1998,
1997, 1996 and 1995 and for the years then ended are derived from our audited
financial statements. The corresponding data for the years ended December 31,
1999, 1998 and 1997 and the consolidated balance sheet data as of December 31,
1999 and 1998 are derived from our audited consolidated financial statements
included in this prospectus which have been audited by Deloitte & Touche LLP,
independent auditors, whose report is included elsewhere in this prospectus. The
consolidated statements of operations data for the three months ended March 31,
2000 and 1999, and the consolidated balance sheet data as of March 31, 2000,
have been derived from the unaudited consolidated financial statements of
Orient-Express Hotels which, in the opinion of management, have been prepared on
the same basis as the audited financial statements and reflect all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of our financial position and results of operations for these
periods. These unaudited financial statements are also included in this
prospectus. Results for the three-month period ended March 31, 2000 are not
necessarily indicative of results that may be expected for the entire year. You
should read our selected consolidated financial data set forth below together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our historical consolidated financial statements and notes to
those statements appearing elsewhere in this prospectus.
Orient-Express Hotels has been accounted for as a separate division of Sea
Containers, with each of Orient-Express Hotels' subsidiaries being consolidated
to provide the divisional accounts, to which we add our directly incurred
central overheads and costs paid for under the services agreement with Sea
Containers. No material assumptions or allocations have been made to present our
consolidated financial position, results of operations or cash flows as each of
our subsidiaries produces separate stand-alone accounts.
The historical financial information may not be indicative of our future
performance and does not reflect what our financial position and results of
operations would have been had we operated as a separate, stand-alone entity
during the periods presented.
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
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INCOME STATEMENT DATA:
Revenues:
Revenue............................................ $51.3 $46.5 $242.1 $225.8 $194.7 $166.3 $121.4
Earnings from unconsolidated companies............. 2.7 2.4 7.0 5.1 4.0 3.2 0.8
Gains on sale of assets............................ -- 1.3 3.8 -- 5.0 -- --
Expenses:
Depreciation and amortization...................... 3.5 3.1 13.2 14.2 13.1 10.8 8.2
Operating.......................................... 22.8 21.9 111.4 105.3 92.2 81.9 59.6
Selling, general and administrative................ 18.0 16.0 66.1 64.5 54.8 49.4 39.2
------ ------ ------ ------ ------ ------ ------
Earnings from operations before net finance costs.... 9.7 9.2 62.2 46.9 43.6 27.4 15.2
Net finance costs.................................... 5.3 4.7 19.0 16.5 12.4 9.2 8.0
------ ------ ------ ------ ------ ------ ------
Earnings before income taxes and cumulative effect of
change in accounting principle..................... 4.4 4.5 43.2 30.4 31.2 18.2 7.2
Provision for income taxes........................... 0.5 0.4 5.2 3.7 3.2 1.7 0.3
------ ------ ------ ------ ------ ------ ------
Earnings before cumulative effect of change in
accounting principle............................... 3.9 4.1 38.0 26.7 28.0 16.5 6.9
Cumulative effect of change in accounting
principle(1)....................................... -- (3.0) (3.0) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net earnings......................................... $ 3.9 $ 1.1 $ 35.0 $ 26.7 $ 28.0 $ 16.5 $ 6.9
====== ====== ====== ====== ====== ====== ======
</TABLE>
9
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<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
NET EARNINGS PER SHARE:
Basic:
Earnings before cumulative effect of change in
accounting principle............................. $ 0.15 $ 0.16 $ 1.47 $ 1.03 $ 1.08 $ 0.64 $ 0.27
Cumulative effect of change in accounting
principle........................................ -- (0.12) (0.12) -- -- -- --
Net earnings per share............................. $ 0.15 $ 0.04 $ 1.35 $ 1.03 $ 1.08 $ 0.64 $ 0.27
====== ====== ====== ====== ====== ====== ======
Weighted average number of shares.................... 25.9 25.9 25.9 25.9 25.9 25.9 25.9
BALANCE SHEET DATA (AT END OF PERIOD):
Cash................................................. $ 10.1 $ 9.9 $ 11.1 $ 12.4 $ 11.3 $ 9.6 $ 12.1
Total assets......................................... 705.4 616.3 661.9 602.5 496.0 472.2 369.2
Long-term debt (including current portion)........... 351.6 276.5 310.0 279.1 206.1 187.4 132.9
Total shareholders' equity........................... 281.9 282.8 292.3 266.0 250.4 243.4 188.9
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities............................... 8.7 (7.2) 42.3 39.4 40.8 16.2 27.6
Investing activities............................... (53.6) (26.7) (89.9) (94.4) (41.8) (84.8) (74.0)
Financing activities............................... 44.0 33.2 48.5 56.5 3.1 66.2 52.2
Capital expenditures (excluding acquisitions)........ (10.7) (11.9) (44.3) (43.5) (49.7) (47.4) (35.9)
EBITDA(2)............................................ 13.2 12.3 75.4 61.1 56.7 38.2 23.4
EBITDA margin (% of total revenues).................. 24% 25% 30% 26% 28% 23% 19%
Ratio of earnings to fixed charges(3)................ 1.7x 1.9x 2.9x 2.6x 2.9x 2.1x 1.4x
</TABLE>
--------------------------
(1) Reflects the write-off of deferred start-up costs related to our cruiseship
operations.
(2) Earnings before interest, income taxes, depreciation and amortization.
Management believes that EBITDA is a useful measure of operating performance
because it is industry practice to evaluate hotel properties based on
operating income before interest, depreciation and amortization, which is
generally equivalent to EBITDA, and EBITDA is unaffected by the debt and
equity structure of the property owner. EBITDA does not represent cash flow
from operations as defined by generally accepted accounting principles, is
not necessarily indicative of cash available to fund all cash flow needs and
should not be considered as an alternative to net income under generally
accepted accounting principles for purposes of evaluating our results of
operations.
(3) For purposes of computing this ratio, "earnings" consist of earnings before
income taxes, change in accounting principle, and fixed charges. "Fixed
charges" for this ratio represent interest expense, including amortization
of capitalized financing costs, and one-third of rental expense, which is
assumed to be the representative portion of the interest factor of rental
expense.
10
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and the other
information contained in this prospectus before making a decision to purchase
class A common shares.
If any event arising from these risks occurs, our business, prospects,
financial condition, results of operations or cash flows could be materially
adversely affected. When we say below that the occurrence of a risk factor could
have a material adverse effect on us, we mean that it may have one or more of
these effects. In such case, the market price of the class A common shares could
decline.
RISKS RELATING TO OUR BUSINESS
OUR OPERATIONS ARE SUBJECT TO ADVERSE FACTORS GENERALLY ENCOUNTERED IN THE
HOSPITALITY INDUSTRY.
Besides the specific conditions discussed below, these factors include
- cyclical downturns arising from changes in general and local economic
conditions,
- changes in popular travel patterns,
- periodic local oversupply of guest accommodation, which may adversely
affect occupancy rates and actual room rates achieved,
- regional and local economic and political conditions affecting market
demand, including recessions, civil disorder and terrorism,
- the potential for uninsured or underinsured losses,
- relationships with unions,
- adverse weather conditions, and
- seasonality, in that many of our hotels and tourist trains are located in
the northern hemisphere where they operate at low revenue or close during
the winter months.
The effect of these factors varies among our hotels and other properties because
of their geographic diversity.
THE HOSPITALITY INDUSTRY IS HIGHLY COMPETITIVE, BOTH FOR ACQUISITIONS AND FOR
CUSTOMERS.
We compete for hotel and restaurant acquisition opportunities with others
who have substantially greater financial resources than we do. This competition
may have the effect of reducing the number of suitable investment opportunities
offered to us and increasing our acquisition costs by enhancing the bargaining
power of property owners seeking to sell or to enter into management agreements.
Some of our properties--for example, the Windsor Court Hotel--are located in
areas where there are numerous competitors, many of which have substantially
greater resources than Orient-Express Hotels. Competitive factors in the
hospitality industry include convenience of location, the quality of the
property, pricing, range and quality of food services and amenities offered, and
name recognition. Demographic, geographic or other changes in one or more of our
markets could impact the convenience or desirability of our hotels and
restaurants, and so could adversely affect their operations. Also, new or
existing competitors could significantly lower rates or offer greater
conveniences, services or amenities or significantly expand, improve or
introduce new facilities in markets in which our hotels and restaurants
compete. See "Our Business--Competition."
11
<PAGE>
THE HOSPITALITY INDUSTRY IS HEAVILY REGULATED WITH RESPECT TO FOOD AND BEVERAGE
SALES, EMPLOYEE RELATIONS, CONSTRUCTION AND ENVIRONMENTAL CONCERNS.
Orient-Express Hotels and its various properties are subject worldwide to
numerous laws, including those relating to the preparation and sale of food and
beverages, such as health and liquor license laws. Our properties are also
subject to laws governing our relationship with our employees in such areas as
minimum wage and maximum working hours, overtime, working conditions, hiring and
firing employees and work permits. Also, the success of our strategy to expand
our existing properties may be dependent upon our obtaining necessary building
permits or zoning variances from local authorities. We have applications pending
for various types of governmental permits to expand many of our properties, such
as the Villa San Michele, Hotel Quinta do Lago and Keswick Hall. The failure to
obtain any of these permits could adversely affect our strategy of increasing
revenues and net income through expansion of our existing properties. For
example, 14 new rooms currently under construction at the Lapa Palace Hotel are
now expected to open about three months later than originally scheduled due to a
delay in receiving the required permits.
Orient-Express Hotels also is subject to foreign and U.S. federal, state and
local laws and regulations relating to the environment and the handling of
hazardous substances which may impose or create significant potential
environmental liabilities, even in situations where the environmental problem or
violation occurred on a property before we acquired it.
Compliance with these laws could reduce revenues and profits of properties
owned or managed by Orient-Express Hotels
THE SUCCESS OF OUR ACQUISITION, EXPANSION AND DEVELOPMENT STRATEGY IS NOT
ASSURED.
We intend to increase our revenues and net income through acquisitions of
new properties and expansion of our existing properties. Our ability to pursue
new growth opportunities successfully will depend on our ability to identify
properties suitable for acquisition and expansion, to negotiate purchases or
construction on satisfactory terms, to obtain the necessary financing and
permits and to integrate new properties into our operations. Also, our
acquisition of properties in new locations may present operating and marketing
challenges that are different from those we currently encounter in our existing
locations. We cannot assure you that we will succeed in our growth strategy.
We may develop new properties in the future. New project development is
subject to such adverse factors as market or site deterioration after
acquisition, inclement weather, labor or material shortages, work stoppages and
the continued availability of construction and permanent financing. For example,
the opening of the Westcliff Hotel was about six months later than originally
planned as construction took longer than expected.
WE CANNOT BE SURE THAT WE WILL OBTAIN THE NECESSARY ADDITIONAL CAPITAL TO
FINANCE THE GROWTH OF OUR BUSINESS.
The acquisition and expansion of leisure properties, as well as the ongoing
renovations, refurbishments and improvements required to maintain or upgrade our
existing properties, are capital intensive. Our current expansion plans call for
the expenditure of up to an aggregate of $150 million over the next three years,
and our current acquisition plans call for the expenditure of about $80 million
per year, which would be financed by a suitable level of mortgage debt. The
availability of future borrowings and access to the capital markets for equity
financing to fund these acquisitions and expansions depends on prevailing market
conditions and the acceptability of financing terms offered to us. We cannot
assure you that future borrowings or equity financing will be available to us,
or available on acceptable terms, in an amount sufficient to fund our needs.
Future equity financings would be dilutive to the existing holders of our common
shares. Future debt financings could involve restrictive covenants which would
limit our flexibility in operating our business.
12
<PAGE>
CURRENCY FLUCTUATIONS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR FINANCIAL
STATEMENTS AND/OR OUR OPERATING MARGINS.
Seven of our owned hotels operate in currencies linked to the European euro,
two operate in South African rand, two operate in Australian dollars, one
operates in Botswanan pula, and one operates in Brazilian reis. The remaining
hotels operate in U.S. dollars. The operating results of all these hotels are
set out in the tables on pages 52 through 54, including the average daily rate
in the relevant operating currency. The Venice Simplon-Orient-Express and
British Pullman tourist trains operate primarily in British pounds sterling and
currencies linked to the European euro.
Our financial statements, which are presented in U.S. dollars, can be
impacted by foreign exchange fluctuations through both
- translation risk, which is the risk that our financial statements for a
particular period or as of a certain date depend on the prevailing
exchange rates of the various currencies against the U.S. dollar, and
- transaction risk, which is the risk that the currency of our costs and
liabilities fluctuates in relation to the currency of our revenue and
assets.
With respect to translation risk, even though the fluctuations of currencies
against the U.S. dollar can be substantial and therefore significantly impact
comparisons with prior periods, the translation impact is a reporting
consideration and does not affect the underlying results of operations, as
transaction risk does. As far as we can, we match foreign currency revenues and
costs and assets and liabilities to provide a natural hedge against translation
risks although this is not a perfect hedge.
OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR FINANCIAL HEALTH.
Orient-Express Hotels and its subsidiaries have a significant amount of debt
and may incur additional debt from time to time. As of March 31, 2000, our
consolidated long-term indebtedness was $351.6 million. Our substantial
indebtedness could
- require us to dedicate much of our cash flow from operations to payments
on our indebtedness, and so reduce the availability of cash flow to fund
our working capital, capital expenditures, product and service development
and other general corporate purposes; for example, in 1999 Orient-Express
Hotels generated $42 million of cash from operating activities after
paying interest of $19 million and before loan principal repayments of $14
million,
- limit our ability to obtain additional financing to fund future working
capital, capital expenditures, product and service development and other
general corporate purposes,
- increase our vulnerability to adverse economic and industry conditions,
including the seasonality of some of our properties, or
- limit our flexibility in planning for, or reacting to, changes in our
business and industry as well as the economy generally.
Also, since about 99% of our consolidated long-term debt at March 31, 2000
accrued interest at rates that fluctuate with prevailing interest rates, any
increases in prevailing interest rates may increase our interest payment
obligations. From time to time we enter into hedging transactions in order to
manage our floating interest-rate exposure although no hedging contract is
currently outstanding.
COVENANTS IN OUR FINANCING AGREEMENTS COULD LIMIT OUR DISCRETION IN OPERATING
OUR BUSINESSES; MOST OF OUR INDEBTEDNESS IS SECURED BY OUR PROPERTIES.
Our financing agreements contain provisions which restrict our ability to
operate our business. These covenants include limits on debt, limits on liens on
property, and limits on mergers and asset
13
<PAGE>
sales. Most of our indebtedness is also secured by our properties. Future
financing agreements may contain similar, or even more restrictive, provisions
and covenants. If Orient-Express Hotels fails to comply with the restrictions in
its present or future financing agreements, a default may occur. A default would
allow the creditors to accelerate the related debt as well as any other debt to
which a cross-acceleration or cross-default provision applies. A default would
also allow the creditors to foreclose on the properties securing such debt.
RISKS RELATING TO OUR RELATIONSHIP WITH AND SEPARATION FROM SEA CONTAINERS
WE ARE CURRENTLY A WHOLLY-OWNED SUBSIDIARY OF SEA CONTAINERS, WHICH IS SUBJECT
TO CERTAIN FINANCIAL AND OTHER COVENANTS CONTAINED IN SEVERAL PUBLIC-DEBT
INDENTURES AND LOAN AGREEMENTS.
A default under Sea Containers' public debt indentures or loan agreements
would result in a default under some Orient-Express Hotels' loan agreements
which are guaranteed by Sea Containers and/or which contain cross-default
provisions to debt of Sea Containers.
Sea Containers has received a letter from counsel to certain of the holders
of Sea Containers' public debt asserting that this offering and the distribution
will violate certain covenants in the public debt indentures and asserting that
because Sea Containers will not receive any consideration, the distribution
appears to constitute a fraudulent conveyance. Sea Containers does not believe
that either this offering or the distribution will result in any violation or in
a fraudulent conveyance. If the bondholders attempt to declare a default under
the public debt indentures, Sea Containers intends to oppose vigorously the
declaration.
SEA CONTAINERS' ACTIONS AND FINANCIAL PERFORMANCE COULD TRIGGER A DEFAULT UNDER
SEVERAL OF ORIENT-EXPRESS HOTELS' LOAN AGREEMENTS.
A default by Sea Containers under its public debt indentures or loan
agreements would result in a default under some Orient-Express Hotels' loan
agreements, which are guaranteed by Sea Containers and/or which contain
cross-default provisions to debt of Sea Containers and that finance the Hotel
Cipriani, the Villa San Michele, the Hotel Splendido, the Observatory Hotel,
Lilianfels Hotel, Charleston Place, the Venice Simplon-Orient-Express and our
50% interest in the Peruvian joint venture including two hotels in Peru. As of
June 30, 2000, about $175 million was outstanding under these facilities. We
intend to amend these loan agreements in connection with the distribution to
remove these cross-defaults but cannot assure you that we will be able to do so.
We do not intend to enter into loan agreements with provisions containing
cross-defaults to Sea Containers' debt in the future.
OUR SHARE PRICE MAY BE ADVERSELY AFFECTED IF SEA CONTAINERS DOES NOT COMPLETE
ITS SEPARATION FROM US.
Sea Containers currently intends to distribute to its shareholders all of
our class A and class B common shares that it owns after this offering
approximately six months after this offering, subject to the receipt by Sea
Containers of all necessary consents and approvals from its board of directors,
shareholders, lenders and others, and the delivery to Sea Containers of a
favorable tax opinion. Sea Containers is not obligated to make this
distribution, and the distribution may not occur in six months or at all. A
claim by bondholders under the public debt indentures of Sea Containers, as
noted above, that the distribution is a default under those public debt
indentures could delay or even prevent the distribution from occurring. If the
distribution is delayed or not completed at all, the liquidity of our shares in
the market will continue to be limited unless and until Sea Containers elects to
sell some or all of its significant ownership.
14
<PAGE>
SUBSTANTIAL SALES OF CLASS A COMMON SHARES MAY OCCUR IN CONNECTION WITH THE
DISTRIBUTION, WHICH COULD CAUSE OUR STOCK PRICE TO DECLINE.
If Sea Containers does distribute all of our class A common shares that it
owns after this offering to its shareholders as described in the preceding
paragraph, those shareholders who are not affiliates of Orient-Express Hotels
will be able to sell those class A common shares without restriction. We are
unable to predict whether significant amounts of our class A common shares will
be sold in the open market following this distribution. Any sales of substantial
amounts of common shares in the public market following the distribution, or the
perception that such sales might occur, could adversely affect the market price
of our class A common shares.
BEFORE OUR SEPARATION FROM SEA CONTAINERS, WE WILL BE CONTROLLED BY SEA
CONTAINERS AS LONG AS IT CONTINUES TO OWN A SUBSTANTIAL NUMBER OF OUR CLASS B
COMMON SHARES.
After the completion of this offering and prior to our separation from Sea
Containers in the proposed distribution or otherwise, Sea Containers will own
directly, or indirectly through subsidiaries, approximately 65% of our class A
common shares and all of our class B common shares, together representing about
96% of the combined voting power for most matters that may be submitted to a
vote of our shareholders, or 95% if the underwriters exercise their
over-allotment options in full. As a result, until Sea Containers distributes
these shares to its shareholders, or otherwise disposes of them, it will
continue to be able to elect our entire board of directors and to remove any
director, with or without cause, without calling a special meeting, and Sea
Containers will control all matters affecting Orient-Express Hotels, including
- the composition of our board of directors and, through it, any
determination with respect to our business direction and policies,
including the appointment and removal of officers; at present, for
example, the six-member board of directors of Orient-Express Hotels
includes James B. Sherwood, the President of Sea Containers, and Daniel J.
O'Sullivan, the Senior Vice President and Chief Financial Officer of Sea
Containers,
- our participation in mergers or other business combinations,
- our acquisition or disposition of assets,
- changes to the agreements providing for our separation from Sea
Containers, and
- the payment of dividends on our class A and class B common shares.
AFTER OUR SEPARATION FROM SEA CONTAINERS, OUR DIRECTORS AND OFFICERS MAY CONTROL
THE OUTCOME OF MOST MATTERS SUBMITTED TO A VOTE OF OUR SHAREHOLDERS.
If Sea Containers distributes to its shareholders our class A and class B
common shares which it owns, or otherwise disposes of them, subsidiaries of
Orient-Express Hotels, together with the directors and executive officers of
Orient-Express Hotels, will hold 19,420,922 class B common shares, representing
about 83% of the combined voting power for most matters submitted to a vote of
our shareholders. Under Bermuda law, common shares of Orient-Express Hotels
owned by its subsidiaries, representing approximately 77% of such combined
voting power, will be deemed to be outstanding and may be voted by those
subsidiaries. The manner in which the subsidiaries vote their common shares will
be determined by the respective directors of those subsidiaries, many of whom
are also directors or officers of Orient-Express Hotels, consistently with the
exercise by those directors of their fiduciary duties to the subsidiaries. Those
directors, should they choose to act together, will be able to control all
matters affecting Orient-Express Hotels, including those listed in the preceding
paragraph, and to block a number of matters relating to any potential change of
control of Orient-Express Hotels. See "Description of Common Shares--Voting
Rights."
15
<PAGE>
SEA CONTAINERS WILL BE TRANSFERRING ITS LEISURE ASSETS TO US WITHOUT ANY
REPRESENTATIONS, WARRANTIES OR INDEMNITY.
Under the terms of a restructuring agreement among Sea Containers,
Orient-Express Hotels and various subsidiaries of each, Sea Containers will be
transferring to us all of the assets and liabilities relating to its hotel and
leisure business segment which Orient-Express Hotels does not currently own.
Such assets and liabilities are being transferred without any representations or
warranties being made by Sea Containers, including as to value, the existence of
any liens or encumbrances or the legal sufficiency of any conveyance of title.
Sea Containers will also not be providing any indemnity relating to the assets
transferred or any related liability. A transferor in an arm's-length
transaction would customarily make these representations and warranties. As a
consequence, we will not have any recourse to Sea Containers in the event of any
deficiency or other liability, which could have a material adverse effect on us.
COVENANTS IN SEA CONTAINERS' FINANCING AGREEMENTS COULD LIMIT ITS DISCRETION IN
MATTERS AFFECTING ORIENT-EXPRESS HOTELS.
Sea Containers is the borrower under financing agreements which contain
covenants limiting the actions which Sea Containers may take, or permit a
material subsidiary such as Orient-Express Hotels to take. Orient-Express Hotels
will continue to be a material subsidiary for purposes of these covenants after
this offering so long as it remains majority-owned by Sea Containers. These
covenants include limitations on dividends, limitations on incurring
indebtedness, limitations on transactions with affiliates, limitations on the
ability of subsidiaries, such as Orient-Express Hotels, to impose restrictions
on their payment of dividends or distributions or loans to Sea Containers,
limitations on merger and asset sales and limitations on liens. Sea Containers'
financing agreements also impose financial covenants on Sea Containers measured
on a consolidated basis with its subsidiaries, including Orient-Express Hotels.
Sea Containers' decisions with respect to Orient-Express Hotels may be
affected by its having to remain in compliance with these covenants and other
requirements. This may adversely affect Orient-Express Hotels' financial and
operational flexibility.
SHARES OF COMPANHIA HOTEIS PALACE, OUR SUBSIDIARY WHICH OWNS THE COPACABANA
PALACE HOTEL, ARE PLEDGED AS COLLATERAL FOR A LOAN TO SEA CONTAINERS.
To finance capital expenditures at the Copacabana Palace Hotel, Sea
Containers borrowed approximately $35 million, which is secured by Sea
Containers' shares of Companhia Hoteis Palace, the subsidiary which owns the
hotel. This loan is included in Orient-Express Hotels' $351.6 million
consolidated long-term debt at March 31, 2000, as Orient-Express Hotels used all
proceeds of the loan and is to assume the loan directly. However, if the lender
does not agree to allow Orient-Express Hotels to assume the loan, it will remain
an obligation of Sea Containers. A Sea Containers default under the loan could
lead to foreclosure and loss of control of the hotel.
WE WILL NOT BE ABLE TO RELY ON SEA CONTAINERS TO FUND OUR FUTURE CAPITAL
REQUIREMENTS, AND FINANCING FROM OTHER SOURCES MAY NOT BE AVAILABLE ON AS
FAVORABLE TERMS OR AT ALL.
In the past, a significant portion of our capital needs have been satisfied
by Sea Containers. However, following our separation, Sea Containers will no
longer provide funds to finance our working capital or other cash requirements
although it will continue to guarantee some of our existing bank debt. We cannot
assure you that financing from other sources, if needed, will be available at
all or on terms as favorable as those we obtained as part of Sea Containers.
16
<PAGE>
OUR DIRECTORS AND EXECUTIVE OFFICERS MAY HAVE CONFLICTS OF INTEREST BECAUSE OF
THEIR OWNERSHIP OF SEA CONTAINERS CLASS A AND CLASS B COMMON SHARES.
Some of our directors and executive officers--James B. Sherwood, Simon M.C.
Sherwood, John D. Campbell and Edwin S. Hetherington--hold Sea Containers
class A and class B common shares and options to purchase Sea Containers
class A and class B common shares. See "Security Ownership of Sea Containers'
Principal Shareholders and Management" elsewhere in this prospectus. Ownership
of Sea Containers class A and class B common shares by our directors and
officers after our separation from Sea Containers could create, or appear to
create, potential conflicts of interest when directors and officers are faced
with decisions that could have different implications for Sea Containers and us.
We currently do not have any internal controls or procedures in place for
resolving these conflicts.
James B. Sherwood, the President of Sea Containers, has an option to
purchase the Hotel Cipriani in Venice from us at its fair market value if a
change of control of Sea Containers occurs prior to the distribution, or a
change in control of Orient-Express Hotels occurs after the distribution. See
"Management--Interests of Management in Certain Transactions."
[This space is intentionally left blank]
17
<PAGE>
OTHER RISKS RELATING TO OWNERSHIP OF OUR CLASS A COMMON SHARES
OUR SHARES HAVE NO MARKET, AND WE CANNOT ASSURE YOU THAT OUR SHARE PRICE WILL
NOT DECLINE AFTER THIS OFFERING.
Before this offering, there has been no public market for our class A common
shares. An active public market for our class A common shares may not develop or
be sustained after this offering. The market price of our class A common shares
could be subject to significant fluctuations after this offering.
The stock markets in general have experienced extreme volatility that has
often been unrelated to the operating performance of particular companies. These
broad market fluctuations may adversely affect the trading price of our class A
common shares. In particular, we cannot assure you that you will be able to
resell your shares at or above the initial public offering price, which will be
determined by negotiations between the representatives of the underwriters and
us.
PROVISIONS IN OUR CHARTER DOCUMENTS MAY DISCOURAGE POTENTIAL ACQUISITIONS OF
ORIENT-EXPRESS HOTELS, EVEN THOSE WHICH THE HOLDERS OF A MAJORITY OF OUR
CLASS A COMMON SHARES MIGHT FAVOR.
Our memorandum of association and bye-laws contain provisions that could
make it harder for a third party to acquire us without the consent of our board
of directors. These provisions include
- supermajority shareholder voting provisions for the removal of directors
from office with or without cause, and for "business combination"
transactions with beneficial owners of shares carrying 15% or more of the
votes which may be cast at any annual general meeting of Orient-Express
Hotels, and
- limitations on the voting rights of such 15% beneficial owners.
Also, our board of directors has the right under Bermuda law to issue
preferred shares without shareholder approval, which could be done to dilute the
stock ownership of a potential hostile acquirer. Although we believe these
provisions provide for an opportunity to receive a higher bid by requiring
potential acquirers to negotiate with our board of directors, these provisions
apply even if the offer may be considered beneficial by many shareholders.
These provisions are in addition to the ability of our subsidiaries and
directors and officers to vote shares representing a significant majority of the
total voting power of our common shares following the proposed distribution by
Sea Containers of our shares which it currently holds. See "Description of
Common Shares--Voting Rights." Also, the rights to purchase series A junior
preferred shares, one of which is attached to each class A and class B common
share, may have antitakeover effects. See "Description of Common Shares--Rights
Agreement."
YOU MAY NOT RECEIVE CASH DIVIDENDS ON OUR SHARES.
We intend to retain our earnings to finance the development and expansion of
our business and have not yet decided on a dividend policy. Also, our ability to
declare and pay cash dividends on our shares is restricted by covenants in our
credit facilities. As a result, capital appreciation, if any, of our shares may
be your sole source of gain for the foreseeable future.
PURCHASERS IN THIS OFFERING WILL EXPERIENCE IMMEDIATE DILUTION IN NET TANGIBLE
BOOK VALUE PER SHARE.
Purchasers of our class A common shares in this offering will experience
immediate dilution of $10.14 in net tangible book value per share. See
"Dilution."
WE CANNOT ASSURE YOU THAT A JUDGMENT OF A UNITED STATES COURT FOR LIABILITIES
UNDER U.S. SECURITIES LAWS WOULD BE ENFORCEABLE IN BERMUDA, OR THAT AN ORIGINAL
ACTION CAN BE BROUGHT IN BERMUDA AGAINST ORIENT-EXPRESS HOTELS FOR LIABILITIES
UNDER U.S. SECURITIES LAWS.
Orient-Express Hotels is a Bermuda company, a majority of its directors and
officers are residents of Bermuda, the United Kingdom and elsewhere outside the
United States, and most of its assets and
18
<PAGE>
the assets of its directors and officers are located outside the United States.
As a result, it may be difficult for you to
- effect service of process within the United States on Orient-Express
Hotels or its directors and officers, or
- enforce judgments obtained in United States courts against Orient-Express
Hotels or its directors and officers based upon the civil liability
provisions of the United States federal securities law.
Orient-Express Hotels has been advised by its Bermuda counsel, Appleby
Spurling & Kempe, that there is doubt as to
- whether a judgment of a United States court based solely upon the civil
liability provisions of the United States federal securities laws would be
enforceable in Bermuda against Orient-Express Hotels or its directors and
officers, and
- whether an original action could be brought in Bermuda against
Orient-Express Hotels or its directors and officers to enforce liabilities
based solely upon the United States federal securities law.
FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements, including statements
regarding matters such as
- competitive factors in our businesses,
- future legislation,
- strikes or other labor disruptions,
- currency fluctuations, and
- trends in our future operating performance.
We have based these forward-looking statements largely on our expectations
as well as assumptions we have made and information currently available to our
management. When used in this prospectus, the words "anticipate," "believe,"
"estimate," "expect" and similar expressions, as they relate to Orient-Express
Hotels or its management, are intended to identify forward-looking statements.
Forward-looking statements are subject to a number of risks and uncertainties,
some of which are beyond our control. Our actual results could differ materially
from those anticipated, because of the factors described in the "Risk Factors"
section and elsewhere in this prospectus, and other factors. Furthermore, in
light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus might not transpire.
We undertake no obligation to update publicly or revise any forward-looking
statements after the completion of this offering, whether as a result of new
information, future events or otherwise, unless a statement is revealed by
subsequently discovered information to have been unreasonable or inaccurate at
the time made.
19
<PAGE>
USE OF PROCEEDS
We estimate that Orient-Express Hotels' net proceeds from this offering will
be approximately $100 million, based on an estimated initial public offering
price of $21.50 per share and after deducting the underwriting discount and
estimated offering expenses.
We intend to use approximately $95 million of the proceeds of this offering
to repay existing indebtedness of Orient-Express Hotels bearing interest at
weighted average rate of 7 1/2% per year and payable on dates from 2002 to 2004.
This indebtedness is secured by the Windsor Court Hotel, La Samanna, Keswick
Hall, the Inn at Perry Cabin and the "21" Club. These properties will then be
available to secure a $125 million revolving credit facility to fund future
acquisitions and expansions.
The balance of the proceeds will be used for working capital and general
corporate purposes.
DIVIDEND POLICY
We currently intend to retain any future earnings to fund the development
and growth of our business. We have not yet established a dividend policy. Our
future dividend policy will depend on our earnings, capital requirements and
financial condition, the requirements of the financing agreements to which
Orient-Express Hotels is a party, and other factors which our board of directors
considers relevant. Also, covenants in our bank loan agreements limit our
ability to declare and pay cash dividends on our class A common shares.
CAPITALIZATION
The following table sets forth our capitalization as of March 31, 2000,
- on an actual basis, and
- as adjusted to reflect the sale by Orient-Express Hotels of 5,000,000
class A common shares in this offering at an initial public offering price
of $21.50 per share, the midpoint of the initial public offering price
range set forth on the front cover of this prospectus, and the application
of the net proceeds from such sale as described under "Use of Proceeds."
You should read this table together with "Selected Consolidated Financial
Data," our historical consolidated financial statements and the notes to those
statements and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere in this prospectus.
<TABLE>
<CAPTION>
MARCH 31, 2000
----------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash................................................... $ 10,060 $ 15,060
======== ========
Working capital facilities............................. $ 10,866 $ 10,866
Long term debt (including current portion)............. 351,597 256,597
-------- --------
362,463 267,463
-------- --------
Shareholders' equity:
Class A common shares................................ 234 284
Class B common shares................................ 205 205
Paid-in capital...................................... 56 259,669
Due to Sea Containers................................ 159,663 --
Retained earnings.................................... 137,315 137,315
Accumulated other comprehensive loss................. (15,409) (15,409)
Acquired shares...................................... (181) (181)
-------- --------
Total shareholders' equity............................. 281,883 381,883
-------- --------
Total capitalization................................... $644,346 $649,346
======== ========
</TABLE>
20
<PAGE>
DILUTION
Our net tangible book value at March 31, 2000, was approximately
$251.1 million, or $9.70 per class A and class B common share. Net tangible book
value per share is determined by dividing our tangible net worth, which is total
tangible assets less total liabilities, by the number of class A and class B
common shares outstanding immediately before this offering. Dilution in our net
tangible book value per share represents the difference between the amount per
share paid by purchasers of our class A common shares in this offering and our
net tangible book value per share of our common shares on a pro forma basis
immediately afterwards. After giving effect to the sale of 10,000,000 class A
common shares in this offering at an assumed initial public offering price of
$21.50 per share, the midpoint of the initial public offering price range set
forth on the front cover of this prospectus, and after deducting estimated
underwriting discounts and offering expenses payable by Orient-Express Hotels of
$7.5 million and applying the net proceeds from this offering as described under
"Use of Proceeds," our pro forma as adjusted net tangible book value at
March 31, 2000, would have been approximately $351.1 million, or $11.36 per
share. This represents an immediate increase in pro forma net tangible book
value of $1.66 per share to Sea Containers as our existing shareholder and an
immediate dilution in pro forma net tangible book value of $10.14 per share to
new investors purchasing class A common shares in this offering. The following
table illustrates this dilution per share, without giving effect to the exercise
of the underwriters' over-allotment options:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $21.50
Net tangible book value per share as of
March 31, 2000............................................ $9.70
Pro forma increase in book value per share attributable to
new investors in this offering............................ 1.66
-----
Pro forma as adjusted net tangible book value per share
after this offering....................................... 11.36
------
Dilution per share to new investors......................... $10.14
======
</TABLE>
To the extent that any shares are issued in connection with the
underwriters' over-allotment options, there will be further dilution to new
investors.
The following table sets forth, as of March 31, 2000, on the pro forma as
adjusted basis described above, the differences between the number of common
shares purchased from Orient-Express Hotels, the total price paid and average
price per share paid by Sea Containers, our sole existing shareholder, and by
the new investors in this offering at the initial public offering price of
$21.50 per share, before deducting the estimated underwriting discounts and
commissions and offering expenses payable by us:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------------- ------------------------- AVERAGE PRICE
NUMBER PERCENTAGE AMOUNT PERCENTAGE PER SHARE
---------- ---------- ------------ ---------- -------------
<S> <C> <C> <C> <C> <C>
Sea Containers..................... 18,418,927 65% -0- -- --
New investors...................... 10,000,000 35% $215,000,000 100% $21.50
---------- --- ------------ ----
Total............................ 28,418,927 100% $215,000,000 100%
========== === ============ ====
</TABLE>
No cash was paid by Sea Containers in consideration for our class A common
shares. Accordingly, the cash consideration related to Sea Containers is
reported as zero in the above table.
If the underwriters' option to purchase additional shares is exercised in
full,
- the number of class A common shares held by Sea Containers will decrease
to approximately 60% of the total number of class A common shares
outstanding; and
- the number of class A common shares held by new investors will be
increased to 11,500,000 shares or approximately 40% of the total number of
our class A common shares outstanding after this offering.
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The data presented in the following table as of December 31, 1999, 1998,
1997, 1996 and 1995 and for the years then ended are derived from our audited
financial statements. The corresponding data for the years ended December 31,
1999, 1998 and 1997 and the consolidated balance sheet data as of December 31,
1999 and 1998 are derived from our audited consolidated financial statements
included in this prospectus which have been audited by Deloitte & Touche LLP,
independent auditors, whose report is included elsewhere in this prospectus. The
consolidated statements of operations data for the three months ended March 31,
2000 and 1999, and the consolidated balance sheet data as of March 31, 2000,
have been derived from the unaudited consolidated financial statements of
Orient-Express Hotels which, in the opinion of management, have been prepared on
the same basis as the audited financial statements and reflect all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of our financial position and results of operations for these
periods. These unaudited financial statements are also included in this
prospectus. Results for the three-month period ended March 31, 2000 are not
necessarily indicative of results that may be expected for the entire year. You
should read our selected consolidated financial data set forth below together
with "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our historical consolidated financial statements and notes to
those statements appearing elsewhere in this prospectus.
The historical financial information may not be indicative of our future
performance and does not reflect what our financial position and results of
operations would have been had we operated as a separate, stand-alone entity
during the periods presented.
22
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEAR ENDED DECEMBER 31,
------------------- ----------------------------------------------------
2000 1999 1999 1998 1997 1996 1995
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues:
Revenue.................................... $51.3 $46.5 $242.1 $225.8 $194.7 $166.3 $121.4
Earnings from unconsolidated companies..... 2.7 2.4 7.0 5.1 4.0 3.2 0.8
Gains on sale of assets.................... -- 1.3 3.8 -- 5.0 -- --
Expenses:
Depreciation and amortization.............. 3.5 3.1 13.2 14.2 13.1 10.8 8.2
Operating.................................. 22.8 21.9 111.4 105.3 92.2 81.9 59.6
Selling, general and administrative........ 18.0 16.0 66.1 64.5 54.8 49.4 39.2
------ ------ ------ ------ ------ ------ ------
Earnings from operations before net finance
costs...................................... 9.7 9.2 62.2 46.9 43.6 27.4 15.2
Net finance costs............................ 5.3 4.7 19.0 16.5 12.4 9.2 8.0
------ ------ ------ ------ ------ ------ ------
Earnings before income taxes and cumulative
effect of change in accounting principle... 4.4 4.5 43.2 30.4 31.2 18.2 7.2
Provision for income taxes................... 0.5 0.4 5.2 3.7 3.2 1.7 0.3
------ ------ ------ ------ ------ ------ ------
Earnings before cumulative effect of change
in accounting principle(1)................. 3.9 4.1 38.0 26.7 28.0 16.5 6.9
Cumulative effect of change in accounting
principle.................................. -- (3.0) (3.0) -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net earnings................................. $ 3.9 $ 1.1 $ 35.0 $ 26.7 $ 28.0 $ 16.5 $ 6.9
====== ====== ====== ====== ====== ====== ======
Net earnings per share
Basic:
- Earnings before cumulative effect of
change in accounting principle........... $ 0.15 $ 0.16 $ 1.47 $ 1.03 $ 1.08 $ 0.64 $ 0.27
- Cumulative effect of change in accounting
principle................................ -- (0.12) (0.12) -- -- -- --
- Net earnings per share................... $ 0.15 $(0.04) $ 1.35 $ 1.03 $ 1.08 $ 0.64 $ 0.27
====== ====== ====== ====== ====== ====== ======
Weighted average number of shares............ 25.9 25.9 25.9 25.9 25.9 25.9 25.9
BALANCE SHEET DATA (AT END OF PERIOD):
Cash......................................... $ 10.1 $ 9.9 $ 11.1 $ 12.4 $ 11.3 $ 9.6 $ 12.1
Total assets................................. 705.4 616.3 661.9 602.5 496.0 472.2 369.2
Long-term debt (including current portion)... 351.6 276.5 310.0 279.1 206.1 187.4 132.9
Total shareholders' equity................... 281.9 282.8 292.3 266.0 250.4 243.4 188.9
OTHER FINANCIAL DATA:
Cash flows provided by (used in):
Operating activities....................... 8.7 (7.2) 42.3 39.4 40.8 16.2 27.6
Investing activities....................... (53.6) (26.7) (89.9) (94.4) (41.8) (84.8) (74.0)
Financing activities....................... 44.0 33.2 48.5 56.5 3.1 66.2 52.2
Capital expenditures (excluding
acquisitions).............................. (10.7) (11.9) (44.3) (43.5) (49.7) (47.4) (35.9)
EBITDA(2).................................... 13.2 12.3 75.4 61.1 56.7 38.2 23.4
EBITDA margin (% of total revenues).......... 24% 25% 30% 26% 28% 23% 19%
Ratio of earnings to fixed charges(3)........ 1.7x 1.9x 2.9x 2.6x 2.9x 2.1x 1.4x
</TABLE>
------------------------
(1) Reflects the write-off of deferred start-up costs related to our cruiseship
operations.
(2) Earnings before interest, income taxes, depreciation and amortization.
Management believes that EBITDA is a useful measure of operating performance
because it is industry practice to evaluate hotel properties based on
operating income before interest, depreciation and amortization, which is
23
<PAGE>
generally equivalent to EBITDA, and EBITDA is unaffected by the debt and
equity structure of the property owner. EBITDA does not represent cash flow
from operations as defined by generally accepted accounting principles, is
not necessarily indicative of cash available to fund all cash flow needs and
should not be considered as an alternative to net income under generally
accepted accounting principles for purposes of evaluating our results of
operations.
(3) For purposes of computing this ratio, "earnings" consist of earnings before
income taxes, change in accounting principle, and fixed charges. "Fixed
charges" for this ratio represent interest expense, including amortization
of capitalized financing costs, and one-third of rental expense, which is
assumed to be the representative portion of the interest factor of rental
expense.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Orient-Express Hotels has two business segments: (1) hotels and restaurants
and (2) tourist trains and cruises. Our hotels and restaurants currently consist
of 26 deluxe hotels reported as 22 business units Twenty-two of our hotels are
wholly or majority owned and are referred to in this prospectus as owned hotels.
The other four hotels-- in three of which we have an equity interest and operate
under management contracts, and one of which we operate under a management
contract -- are referred to in this prospectus as hotel management interests. Of
our owned hotels, ten are located in Europe, four in North America and eight in
the rest of the world, including two in Australia which we acquired in
March 2000. One of the hotels in Europe--the Hotel Caruso in Ravello--is not
currently operational as it is undergoing restoration and refurbishment. Also,
we own and operate one restaurant--the '21' Club in New York--and have a 49%
interest in Harry's Bar in London (our "restaurants"). Our tourist trains and
cruises segment operates six tourist trains--three of which we own and operate
and three in which we have an equity interest and management contracts--and a
river cruiseship.
Revenue per available room, or REVPAR, is a key performance indicator used
widely within the hotel industry as it is a function of the average daily rate,
or ADR, achieved for the rooms sold and average occupancy, being the rooms sold
as a proportion of the rooms available to be sold. Average daily rate on its own
gives no indication of the relative occupancy of the hotel and could be shown as
increasing while the number of rooms sold had fallen resulting in a reduction in
rooms revenue over a prior period. We have been pursuing a growth strategy based
on internal growth driven principally by increases in REVPAR, growth from
expansion of existing properties and growth from acquisitions. See "Our
Business--Growth Strategy." As a result of this strategy, from 1995 through 1999
our U.S. dollar revenues grew at a compound annual growth rate, or CAGR, of 19%.
Over the same period, earnings before interest, tax, depreciation and
amortization, or EBITDA, excluding gains on sales of assets, grew at a compound
annual growth rate of 32% and the EBITDA margin (EBITDA over revenue) has
improved from 19.2% to 28.7%, which is an 11% compound annual growth rate. This
favourable improvement in EBITDA margin has largely been achieved through
revenues increasing at a faster rate than cost as the hotels have a largely
fixed cost base. Net earnings, excluding gains on sales of assets, grew at a
compound annual growth rate of 49% over the period.
<TABLE>
<CAPTION>
CAGR
1999 1998 1997 1996 1995 1995-99
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................................. $249.1 $230.9 $198.7 $169.5 $122.2 19%
Gains on sales of assets and other(1)............... 3.8 -- 5.0 -- -- --
Earnings excluding gains on sales of assets and
other:
EBITDA.............................................. 71.6 61.1 51.7 38.2 23.4 32%
EBIT................................................ 58.4 46.9 38.6 27.4 15.2 40%
EBT................................................. 39.4 30.4 26.2 18.2 7.2 53%
Net earnings(2)..................................... 34.2 26.7 23.0 16.5 6.9 49%
EBITDA margin....................................... 28.7% 26.5% 26.0% 22.5% 19.2% 11%
Ratio of earnings to fixed charges.................. 2.9x 2.6x 2.9x 2.1x 1.4x
</TABLE>
------------------------
(1) 1999 includes a $2.5 million onetime special payment to Orient-Express
Hotels received under a management contract in the fourth quarter, and a
$1.3 million gain on the sale of the Windermere Island Club in the Bahamas
in the first quarter. The 1997 gain resulted from the sale of the Lodge at
Vail in Colorado.
(2) 1999 net earnings are shown before cumulative effect of change in accounting
principle.
25
<PAGE>
Orient-Express Hotels has been accounted for as a separate division of Sea
Containers with each of Orient-Express Hotels' subsidiaries being consolidated
to produce the divisional accounts. Each of its subsidiaries' results include
the actual revenues and costs incurred by the companies with no allocation from
Sea Containers. In addition to the results of each of our subsidiaries, we incur
central overhead costs directly which are included in our results. We have
entered into a services agreement with Sea Containers under which we share in
certain central services at an agreed cost. The cost of these services has been
included in the results of operations and cash flows of the business as
presented.
In 1999, 84% of our revenues were derived from our hotels and restaurants
segment and the remainder from our tourist trains and cruises segment. In the
hotels and restaurants segment, 85% of revenues was from owned hotels, 10% was
from restaurants and 5% was from hotel management interests.
We derive our revenue from owned hotel operations primarily from the sale of
rooms and the provision of food and beverages. The main factors for analyzing
rooms revenue are the number of room nights sold and the average daily room
rate, or ADR.
Revenue from restaurants is derived from food and beverages sold to
customers. Revenue from hotel management interests includes fees received under
management contracts, which are based upon a combination of a percentage of the
revenue from operations and operating earnings calculated before specified fixed
charges. It also includes our share of the earnings of unconsolidated companies.
The revenue from the tourist trains and cruises segment primarily comprises
tickets sold for travel and food and beverage sales.
Operating costs include labor, repairs and maintenance, energy and the costs
of food and beverages sold to customers in respect of owned hotel operations,
restaurants and tourist trains and cruises.
Selling, general and administrative expenses include travel agents'
commissions, the salaries and related costs of the sales teams, advertising and
public relations costs, and the salaries and related costs of management. Some
of the central general and administrative expenses are provided under agreement
with Sea Containers. See Note 12 of Notes to Consolidated Financial Statements
appearing elsewhere in this prospectus.
Depreciation and amortization includes depreciation of owned hotels and
restaurants and tourist trains and cruises.
26
<PAGE>
RESULTS OF OPERATIONS
Our operating results for fiscal years 1999, 1998 and 1997 and the first
quarter of 2000 and 1999, expressed as a percentage of total revenue, were as
follows:
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED YEAR ENDED
MARCH 31, DECEMBER 31,
------------------- ------------------------------
2000 1999 1999 1998 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenue:
Hotels and restaurants.................................... 85% 81% 80% 80% 78%
Tourist trains and cruises................................ 10 11 15 18 17
Earnings from unconsolidated companies.................... 5 5 3 2 2
Gains on sale of assets and other......................... -- 3 2 -- 3
--- --- --- --- ---
100 100 100 100 100
Expenses:
Depreciation and amortization............................. 7 6 5 6 6
Operating................................................. 42 44 44 45 45
Selling, general and administrative....................... 33 32 26 28 27
Net finance costs........................................... 10 9 8 7 6
--- --- --- --- ---
Earnings before income taxes................................ 8 9 17 14 16
Provision for income taxes.................................. 1 1 2 2 2
Earnings before cumulative effect of change in
accounting principle...................................... 7 8 15 12 14
--- --- --- --- ---
Cumulative effect of change in accounting principle......... -- (6) (1) -- --
--- --- --- --- ---
Earnings as a percentage of total revenue................... 7% 2% 14% 12% 14%
</TABLE>
YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998
REVENUE
Total revenue, including earnings from unconsolidated companies but
excluding gains, increased by $18.2 million, or 8%, from $230.9 million in 1998
to $249.1 million in 1999. Hotels and restaurants revenue increased by
$19.0 million, from $189.9 million in 1998 to $208.9 million in 1999, partly
offset by a $0.8 million reduction in the revenue from tourist trains and
cruises.
The revenue increase for hotels and restaurants was comprised of
- an increase in our owned hotels revenue of $16.4 million, or 10%, from
$161.3 million in 1998 to $177.7 million in 1999,
- an increase in revenue from our hotel management interests of
$1.5 million, or 16%, from $9.6 million in 1998 to $11.1 million in 1999,
and
- an increase in restaurants revenue of $1.1 million.
The increase in owned hotels revenue of $16.4 million is analyzed as
follows:
EUROPE. Revenue increased by $9.6 million, or 14%, from $70.4 million in
1998 to $80.0 million in 1999.
On a comparable basis, revenue in 1999 increased by $3.0 million over 1998
of which $1.7 million was at the Hotel Cipriani and $0.9 million at the Hotel
Splendido. These increases were primarily due to increased room rates. The
Quinta do Lago and Lapa Palace Hotels in Portugal were acquired during 1998 and
their total revenue in 1999 was $20.0 million, an increase of $5.5 million over
1998. The revenue at the Hotel de la Cite in France increased by $1.0 million in
the year largely because it was shut for part of 1998 for refurbishment.
27
<PAGE>
NORTH AMERICA. Revenue increased by $11.2 million, or 23%, from
$47.9 million in 1998 to $59.1 million in 1999.
On a comparable basis, revenue increased by $2.9 million primarily due to an
increase in the number of rooms sold at the Windsor Court. The overall increase
can also be attributed to the acquisition of the Keswick Hall and Inn at Perry
Cabin hotels in 1999, which generated revenue of $8.4 million.
REST OF THE WORLD. Revenue decreased by $4.4 million, or 10%, from
$43.0 million in 1998 to $38.6 million in 1999.
Revenue on a comparable basis decreased by $4.9 million. The decrease was
primarily attributable to the devaluation of the Brazilian real against the U.S.
dollar in 1999, which had a negative impact of $3.8 million on our operations at
the Copacabana Palace Hotel. The remaining decrease of $1.1 million related to
the Mount Nelson Hotel in South Africa and Gametrackers in Botswana. Revenue
from the Westcliff Hotel in Johannesburg, which opened in March 1998, increased
by $0.5 million.
GAINS
We realized gains of $3.8 million in 1999, including a $2.5 million onetime
special payment in the fourth quarter to Orient-Express Hotels relating to the
buy-out of our right to an early termination fee under our management contract
for the Bora Bora Lagoon Resort, and a $1.3 million gain on the sale of the
Windermere Island Club in the Bahamas in the first quarter. The buy-out
transaction occurred as a result of the owner considering a sale of the property
and, in order to facilitate a sale, we agreed to sell back to the owner our
contractual right to an early termination fee. We continue to manage the
property; however, the owner now has the right to terminate on two months
notice.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization decreased by $1.0 million, or 8%, from
$14.2 million in 1998 to $13.2 million in 1999. This decrease is primarily
attributable to an $0.8 million reduction at our owned hotels and restaurants.
The reduction is a result of an increase in the lives of certain of our fixed
assets.
OPERATING EXPENSES
Operating expenses increased by $6.1 million, or 6%, from $105.3 million in
1998 to $111.4 million in 1999. This increase included a $7.4 million increase
at our owned hotels and restaurants partially offset by a $1.3 million decrease
related to tourist trains and cruises. The increase in hotels and restaurants
included $6.9 million due to the acquisitions of the Quinta do Lago and the Lapa
Palace Hotels in Portugal during 1998 and Keswick Hall and the Inn at Perry
Cabin in the United States during 1999, increases at all other owned hotels of
$2.5 million, and increases at the '21' Club restaurant of $0.6 million,
partially offset by the positive impact of the devaluation of the Brazilian real
on operating expenses at the Copacabana Palace Hotel of $2.9 million. The
decrease in tourist trains and cruises was primarily due to the lower number of
passengers in 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $1.6 million, or
2%, from $64.5 million in 1998 to $66.1 million in 1999, of which $1.0 million
was due to owned hotels and restaurants and $0.6 million was due to tourist
trains and cruises. Of the increase of $1.0 million at our owned hotels and
restaurants, $2.8 million was attributable to the acquisition of hotels during
1999 and 1998, partially offset by a decrease at our existing hotels of
$1.8 million. This included a decrease at the Copacabana Palace Hotel of
$2.1 million mainly as a result of the devaluation of the Brazilian real
referred to above, partly offset by an increase of $0.3 million at all other
owned hotels.
28
<PAGE>
EARNINGS FROM OPERATIONS
Earnings from operations increased by $15.3 million, or 33%, from
$46.9 million in 1998 to $62.2 million in 1999. Excluding gains, earnings from
operations before net finance costs increased $11.5 million, or 25%, from
$46.9 million in 1998 to $58.4 million in 1999. Earnings from operations
represents total revenue less depreciation and amortization, operating expenses
and selling, general and administrative expenses.
NET FINANCE COSTS
Net finance costs increased by $2.5 million, or 15%, from $16.5 million in
1998 to $19.0 million in 1999, which was primarily attributable to the effect of
increases in debt relating to capital expenditures in existing owned hotels and
acquisitions and investments financed in 1999 and 1998.
TAXES ON INCOME
The provision for income taxes increased by $1.5 million, or 41%, from
$3.7 million in 1998 to $5.2 million in 1999. Orient-Express Hotels is
incorporated in Bermuda, which does not impose an income tax. Accordingly, the
entire income tax provision is attributable to income tax charges incurred by
subsidiaries operating in jurisdictions which impose an income tax. The increase
of $1.5 million is due to increased profitability of these subsidiaries.
CHANGE IN ACCOUNTING PRINCIPLE
In 1999, Orient-Express Hotels adopted statement of position No. 98-5,
"Reporting on the Costs of Start-Up Activities", of the American Institute of
Certified Public Accountants. This required Orient-Express Hotels to write-off
$3.0 million, net of tax, in the first quarter of 1999 representing mainly
deferred start-up costs of cruiseship operations which may no longer be carried
forward under this statement. Other than the cumulative effect of this change,
the impact of the adoption was not material in 1999 results.
NET EARNINGS
In 1999 our net earnings, before the cumulative effect of the change in
accounting principle, increased by $11.3 million, or 42%, from $26.7 million in
1998 to $38.0 million in 1999. Excluding gains, net earnings before the
cumulative effect of the change in accounting principle increased $7.5 million,
or 28%, from $26.7 million in 1998 to $34.2 million in 1999. Net earnings
represents earnings from operations less net finance costs, provision for income
taxes and the cumulative effect of change in accounting principle.
YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
REVENUE
Total revenue, including earnings from unconsolidated companies but
excluding gains, increased in 1998 by $32.2 million, or 16%, from
$198.7 million in 1997 to $230.9 million in 1998. Hotels and restaurants revenue
increased by $26.1 million, or 16%, from $163.9 million in 1997 to
$189.9 million in 1998. Tourist trains and cruises increased by $6.2 million, or
18%, from $34.8 million in 1997 to $41.0 million in 1998 which was primarily
attributable to increased passenger volume on the Venice Simplon-Orient-Express
following a high level of corporate incentive travel programs during the year.
The revenue increase for hotels and restaurants of $26.1 million was due to
- an increase in owned hotels of $22.5 million, or 16%, from $138.8 million
in 1997 to $161.3 million in 1998,
- an increase in restaurants of $1.5 million, or 9%, from $17.5 million in
1997 to $19.0 million in 1998, and
29
<PAGE>
- an increase in management interests of $2.0 million, of which
$1.2 million was attributable to our Peruvian joint venture which
commenced during the year.
The increase in owned hotels revenue of $22.5 million is analyzed as
follows:
EUROPE. Revenue increased by $21.8 million, or 45%, from $48.6 million in
1997 to $70.4 million in 1998.
On a comparable basis, revenue increased by $4.7 million, which is
principally comprised of $2.1 million at the Hotel Cipriani and $2.4 million at
the Hotel Splendido, due primarily to increased room rates. During the year,
Orient-Express Hotels acquired the Quinta do Lago and the Lapa Palace hotels
which together had revenue of $14.4 million following acquisition. In addition,
we acquired the Hotel de la Cite in France at the end of 1997 which resulted in
increased revenue in 1998 of $2.7 million.
NORTH AMERICA. Revenue decreased by $2.8 million, or 6%, from
$50.7 million in 1997 to $47.9 million in 1998.
On a comparable basis, revenue increased by $5.6 million, due to a
$2.9 million increase at the Windsor Court Hotel and a $2.7 million increase at
La Samanna achieved through increased occupancy. This increase was offset as a
result of the sale of the Lodge at Vail in August 1997, which had revenue in
1997 of $8.5 million through the date of sale.
REST OF THE WORLD. Revenue increased by $3.5 million, or 9%, from
$39.5 million in 1997 to $43.0 million in 1998.
Rest of the world revenue included a $4.0 million increase at the Copacabana
Palace Hotel due to improved occupancy and room rates, and a $2.5 million
increase due to the opening of the Westcliff Hotel. This was partly offset by a
reduction of $3.2 million in the Mount Nelson due to reduced occupancy following
the opening of several new competing hotels in Cape Town.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $1.0 million, or 8%, from
$13.2 million in 1997 to $14.2 million in 1998. This increase included
$1.4 million from our owned hotels and restaurants as a result of acquisitions
and hotel expansions, partially offset by other reductions in tourist trains and
cruises. The reductions are a result of an increase in the lives of certain of
our fixed assets.
OPERATING EXPENSES
Operating expenses increased by $13.1 million, or 14%, from $92.2 million in
1997 to $105.3 million in 1998, which included $10.0 million relating to our
owned hotels and restaurants and $3.1 million to tourist trains and cruises. The
increase in owned hotels and restaurants included $6.7 million due to the
acquisitions of the Quinta do Lago and the Lapa Palace hotels in 1998, and the
impact in 1998 of the Hotel de la Cite, which was acquired in 1997,
$2.7 million at all other owned hotels and $0.6 million at the '21' Club
restaurant. The increase in tourist trains and cruises costs was due to the
increase in the number of passengers carried.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $9.7 million, or
18%, from $54.8 million in 1997 to $64.5 million in 1998, of which $9.2 million
was due to our owned hotels and restaurants and $0.5 million was due to tourist
trains and cruises. The increase in owned hotels and restaurants included
$3.5 million due to the acquisitions of the Quinta do Lago and the Lapa Palace
hotels in 1998, and the impact in 1998 of the Hotel de la Cite, which was
acquired in 1997, $5.4 million at all other owned hotels and $0.3 million at the
'21' Club restaurant.
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EARNINGS FROM OPERATIONS
Earnings from operations increased by $3.3 million, or 8%, from
$43.6 million in 1997 to $46.9 million in 1998. Excluding gains, earnings from
operations before net finance costs increased by $8.2 million, or 21%, from
$38.6 million in 1997 to $46.9 million in 1998. Earnings from operations
represents total revenue less depreciation and amortization, operating costs and
selling general and administrative expenses.
NET FINANCE COSTS
Net finance costs increased by $4.1 million, or 33%, from $12.4 million in
1997 to $16.5 million in 1998, primarily due to the effect of increases in debt
relating to capital expenditures and investments financed in 1998 and 1997.
TAXES ON INCOME
The provision for income taxes increased $0.5 million, or 16%, from
$3.2 million in 1997 to $3.7 million in 1998. The increase is entirely
attributable to the income tax charges related to subsidiaries operating in
taxpaying jurisdictions, as no income taxes are levied in Bermuda where
Orient-Express Hotels is incorporated.
NET EARNINGS
Net earnings decreased by $1.3 million, or 5%, from $28.0 million in 1997 to
$26.7 million in 1998. Excluding gains, net earnings increased $3.7 million, or
16%, from $23.0 million in 1997 to $26.7 million in 1998. Net earnings
represents earnings from operations less net finance costs and provision for
income taxes.
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999
REVENUE
Total revenue, including equity earnings in unconsolidated companies but
excluding gains, increased by $5.1 million, or 10%, from $48.9 million in the
three months ended March 31, 1999 to $54.0 million in the three months ended
March 31, 2000. Hotels and restaurants revenue increased by $5.2 million, or
12%, from $43.3 million in the three months ended March 31, 1999 to
$48.5 million in the three months ended March 31, 2000 and tourist trains and
cruises remained constant at $5.6 million for the three months ended March 31,
2000 and 1999.
The revenue increase for hotels and restaurants was primarily due to an
increase at our owned hotels of $4.9 million, or 14%, from $36.1 million in the
three months ended March 31, 1999 to $41.0 million in the three months ended
March 31, 2000. This increase is analyzed regionally as follows:
EUROPE. Revenue increased by $0.6 million, or 7%, from $8.7 million in the
three months ended March 31, 1999 to $9.3 million in the three months ended
March 31, 2000. The increase in revenue was primarily due to increased room
rates.
NORTH AMERICA. Revenue increased by $2.0 million, or 12%, from
$16.7 million in the three months ended March 31, 1999 to $18.7 million in the
three months ended March 31, 2000.
On a comparable basis, revenue for our owned hotels remained at the same
level as 1999, which was $16.7 million. Revenue at the Windsor Court Hotel
increased by $1.3 million, or 13%, as a result of increased occupancy, offset by
decreases in revenue at La Samanna of $1.3 million due to its closure in the
first six weeks of 2000 following hurricane damage sustained towards the end of
1999. The Keswick Hall and Inn at Perry Cabin hotels were acquired during the
second quarter of 1999 and provided revenue of $1.8 million in the three months
ended March 31, 2000.
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REST OF THE WORLD. Revenue increased by $2.1 million, or 19%, from
$10.8 million in the three months ended March 31, 1999 to $12.9 million in the
three months ended March 31, 2000.
This increase is primarily due to increased room rates and occupancy at the
Copacabana Palace Hotel.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization increased by $0.4 million, or 13%, from
$3.1 million in the three months ended March 31, 1999 to $3.5 million in the
three months ended March 31, 2000.
OPERATING EXPENSES
Operating expenses increased by $0.9 million, or 4%, from $21.9 million in
the three months ended March 31, 1999 to $22.8 million in the three months ended
March 31, 2000. The increase was primarily due to the new properties acquired in
1999, partially offset by operating efficiencies achieved at our existing
hotels.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $2.0 million, or
13%, from $16.0 million in the three months ended March 31, 1999 to
$18.0 million in the three months ended March 31, 2000, of which $1.1 million
was due to the new properties acquired in 1999.
EARNINGS FROM OPERATIONS
Earnings from operations increased by $0.5 million, or 5%, from
$9.2 million in the three months ended March 31, 1999 to $9.7 million in the
three months ended March 31, 2000. Excluding gains, earnings from operations
before net finance costs increased $1.8 million, or 23%, from $7.9 million in
the three months ended March 31, 1999 to $9.7 million in the three months ended
March 31, 2000. Earnings from operations represents total revenue less
depreciation and amortization, operating expenses and selling, general and
administrative expenses.
NET FINANCE COSTS
Net finance costs increased by $0.6 million, or 13%, from $4.7 million in
the three months ended March 31, 1999 to $5.3 million in the three months ended
March 31, 2000, which is primarily attributable to the effect of increases in
debt relating to capital expenditures and acquisitions financed in 2000 and
1999.
TAXES ON INCOME
The provision for income taxes increased $0.1 million, or 25%, from
$0.4 million in the three months ended March 31, 1999 to $0.5 million in the
three months ended March 31, 2000. The increase is entirely attributable to the
income tax charge in 2000 and 1999 related to subsidiaries operating in
taxpaying jurisdictions, as no income taxes are levied in Bermuda where
Orient-Express Hotels is incorporated.
NET EARNINGS
Net earnings before the cumulative effect of change in accounting principle
decreased by $0.2 million, or 5%, from $4.1 million in the three months ended
March 31, 1999 to $3.9 million in the three months ended March 31, 2000.
Excluding gains, net earnings before the cumulative effect of change in
accounting principle increased by $1.1 million, or 39%, from $2.8 million in
1999 to $3.9 million in 2000. Net earnings represents earnings from operations
less net finance costs and provision for income taxes.
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LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
We had cash and cash equivalents of $10.1 million at March 31, 2000, $1.0
million less than $11.1 million at December 31, 1999. At March 31, 2000 and
March 31, 1999, the undrawn amounts available to Orient-Express Hotels under its
short-term lines of credit were $2.6 million and $4.0 million, respectively. Our
working capital balance, including the current portion of long-term debt, was a
deficit of $38.0 million at March 31, 2000, a decrease of $15.5 million from a
deficit of $22.5 million at December 31, 1999. The overall decrease in our
working capital is comprised of the following:
- an increase in current assets of $5.0 million, of which $5.1 million was
due to increased accounts receivable partially offset by decreases in
other current asset items;
- an increase in current liabilities of $13.1 million, of which $4.7 million
was due to increased drawings under short-term lines of credit and $3.6
million was due to increased deferred revenue primarily from customers
placing deposits for rooms for the busy spring and summer season; and
- an increase in the current portion of long-term debt of $7.4 million.
CASH FLOW
OPERATING ACTIVITIES. Net cash provided by operating activities increased
by $15.9 million to $8.7 million for the three months ended March 31, 2000, from
cash used in operating activities of $7.2 million for the three months ended
March 31, 1999. The increase is primarily attributable to an increase in net
earnings of $1.4 million after adjustment for certain non-cash items, including
depreciation and amortization, and a reduction in working capital of
$14.5 million over the corresponding period in 1999.
INVESTING ACTIVITIES. Cash used in investing activities increased by $26.9
million to $53.6 million for the three months ended March 31, 2000, compared to
$26.7 million for the three months ended March 31, 1999. The principal component
of this increase was $25.4 million of increased expenditure on acquisitions and
investments during the period from $17.6 million to $43.0 million. The
expenditure on acquisitions in the three months ended March 31, 2000, was
$40.0 million on the purchase of Observatory and Lilianfels Hotels in Australia.
FINANCING ACTIVITIES. Cash provided from financing activities for the three
months ended March 31, 2000, was $44.0 million as compared to cash provided by
financing activities of $33.2 million for the three-month period ended
March 31, 1999, an increase of $10.8 million. In the three-month period ended
March 31, 2000, Orient-Express Hotels had net proceeds of long-term debts from
borrowings under long-term debt of approximately $47.4 million as compared to
net proceeds of $1.1 million for the three-month period ended March 31, 1999.
This resulted in a net increase of $46.3 million in cash proceeds from
borrowings under long-term debt. The net proceeds of long-term debt were used to
fund the acquisition of businesses and capital expenditures during the period.
CAPITAL COMMITMENTS. There were $6.0 million of capital commitments
outstanding as of March 31, 2000.
INDEBTEDNESS
At March 31, 2000, Orient-Express Hotels had $351.6 million of bank debt,
secured by our assets which are payable over periods of two to eleven years with
a weighted average interest rate of 6.7%. See Note 4 of the Notes to
Consolidated Financial Statements elsewhere in this prospectus for a summary of
the aggregate maturity of our long-term debt. Substantially all the debt is
subject to floating interest rates with approximately 40% of the outstanding
principal being drawn in European euros at March 31, 2000, and the balance
primarily drawn in U.S. dollars. Approximately $95 million of this debt,
including the loan on the Windsor Court Hotel referred to below, will be repaid
out of the
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net proceeds of this offering removing the mortgages on the relevant properties.
An agreement in principle has been reached with potential lenders to use these
properties as security for a corporate revolving credit loan facility which we
could utilize at any time for Orient-Express Hotels' expansion, capital
expenditures, acquisitions or any other general corporate purpose.
At March 31, 2000, $222.0 million was drawn under a revolving credit
facility for up to $239.6 million with a group of banks secured by the Windsor
Court Hotel and marine cargo containers owned by Sea Containers and its
subsidiaries. Parties to this facility include Windsor Court Hotel Limited
Partnership, which is the subsidiary of Orient-Express Hotels which owns the
Windsor Court Hotel, Sea Containers and its Sea Containers Australia Ltd. and
Sea Containers U.K. Ltd. subsidiaries. Of this amount, $57.5 million drawn by
Windsor Court Hotel Limited Partnership is included in Orient-Express Hotels'
$351.6 million consolidated debt. The agreement governing the revolving credit
facility includes certain restrictive financial covenants that apply to Sea
Containers on a consolidated basis with its subsidiaries, including
Orient-Express Hotels. These financial covenants include but are not limited to
a maximum leverage ratio, minimum net worth, debt service and interest coverage
ratio. Orient-Express Hotels has been advised by Sea Containers that it was in
compliance with these covenants as of March 31, 2000, and December 31, 1999.
Each borrower under the facility may draw only against collateral it has pledged
and, if available, collateral pledged by Sea Containers. The subsidiary
borrowers may not borrow against each other's collateral, but each of the
borrowers has guaranteed the borrowing of each other borrower. If any of the
borrowers default, Windsor Court Hotel Limited Partnership could be held liable
for the entire facility and the lenders could foreclose on the hotel if payment
is not made. The $57.5 million drawn by Windsor Court Hotel will be repaid out
of net proceeds of this offering. Upon repayment, Windsor Court Hotel's
collateral will be released, Windsor Court Hotel will withdraw from the facility
and its guarantee will be cancelled.
Also included in long-term debt is approximately $35 million outstanding
under a loan to Sea Containers secured by its ownership interest in Companhia
Hoteis Palace, which owns the Copacabana Palace Hotel. Proceeds of the loan were
used exclusively for capital expenditures at the hotel. Subject to the approval
of the lender, Orient-Express Hotels plans to assume this loan. Until
assumption, a Sea Containers default under the loan could lead to foreclosure
and loss of control of the hotel. The financial covenants of some of Sea
Containers' credit facilities are also covenants in Sea Containers' guarantees
of loans which finance the '21' Club, Keswick Hall, Inn at Perry Cabin and our
50% interest in the Peruvian joint venture which operates two hotels in Peru.
Sea Containers' failure to comply with these covenants could cause a default in
these financings, which would have a material adverse effect on Orient-Express
Hotels. In addition, a default by Sea Containers under its public debt
indentures or loan agreements would result in a default under Orient-Express
Hotels' loan agreements which contain cross-default provisions to debt of Sea
Containers and that finance the Hotel Cipriani, the Villa San Michele, the Hotel
Splendido, the Observatory Hotel, Lilianfels Hotel, Charleston Place, the Venice
Simplon-Orient-Express and our 50% interest in the joint venture including two
hotels in Peru. The loans for '21' Club, Keswick Hall and Inn at Perry Cabin,
which aggregate approximately $30.0 million, will be repaid out of the net
proceeds of this offering. Sea Containers has advised Orient-Express Hotels that
at December 31, 1999 and March 31, 2000, Sea Containers was in full compliance
with all of the credit/financing agreements it is a party to, including those
relating to guarantees of loans with respect to these hotel and restaurant
properties of Orient-Express Hotels.
Sea Containers has received a letter from counsel to certain of the holders
of Sea Containers' public debt asserting that this offering and the distribution
will violate certain convenants in the public debt indentures and asserting that
because Sea Containers will not receive any consideration, the distribution
appears to constitute a fraudulent conveyance. Sea Containers does not believe
that either this offering or the distribution will result in any violation or in
a fraudulent conveyance. If the bondholders attempt to declare a default under
the public debt indentures, Sea Containers intends to oppose vigorously the
declaration.
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LIQUIDITY
We plan to increase our capital expenditures over the next few years with
the expansion of our hotel properties consistent with our growth strategy. Our
planned expenditure on these expansion projects is $150 million over the next
three years. In addition, we aim to acquire more properties which we would
expect to finance with an appropriate level of debt secured on the property, and
the balance through our available cash resources. We plan to spend approximately
$80 million per year on acquisitions. At March 31, 2000, Orient-Express Hotels
had capital commitments of $6.0 million overall relating to a number of
projects.
We expect to have available to us cash, including from operations and the
proceeds from this offering, and sources of debt finance sufficient to fund our
working capital requirements, capital expenditures, including acquisitions, and
debt service for the foreseeable future. We are not dependent on this offering,
however, to fund operations, including the repayment of debt, for the next
twelve months or longer although without the proceeds we might not be able to
increase our capital expenditures as planned.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As noted under "Liquidity and Capital Resources" above, Orient-Express
Hotels is exposed to market risk from changes in interest rates and foreign
currency exchange rates. These exposures are monitored and managed as part of
our overall risk management program, which recognizes the unpredictability of
financial markets and seeks to mitigate material adverse effects on our
consolidated earnings. Orient-Express Hotels 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 Orient-Express Hotels. Its 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 ten
percent, with all other variables held constant, annual net finance costs of
Orient-Express Hotels would have increased by approximately $2.0 million based
on borrowings at December 31, 1999. There are no interest rate swap agreements
entered into on behalf of Orient-Express Hotels by Sea Containers.
The market risk relating to foreign currencies arises from buying, selling
and financing in currencies other than the U.S. dollar, principally the European
euro, South African rand, Brazilian real and Australian dollar. Some non-U.S.
subsidiaries of Orient-Express Hotels borrow in local currencies, and
Orient-Express Hotels may in the future enter into forward exchange contracts
relating to purchases denominated in foreign currencies There are no foreign
currency financial instruments entered into on behalf of Orient-Express Hotels
by Sea Containers.
Seven of our owned hotels operate in currencies linked to the European euro,
two operate in South African rand, two operate in Australian dollars, one
operates in Botswanan pula, and one operates in Brazilian reis. The Venice
Simplon-Orient-Express and British Pullman tourist trains operate primarily in
British pounds sterling and currencies linked to the European euro.
We face exposure arising from the impact of translating our global foreign
currency earnings into U.S. dollars. As far as we can, we match our foreign
currency earnings with our foreign currency costs which provide a natural hedge
against currency movements. In addition, a significant proportion of the guests
at our hotels located outside of the United States originate from the United
States. When a foreign currency in which we operate devalues against the U.S.
dollar, we have considerable flexibility to increase our prices in local
currency. We believe that when these factors are combined, we do not face a
material exposure to our earnings from currency movements.
The gains or losses we have incurred from transactions denominated in
foreign currencies have not been material.
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RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, Orient-Express Hotels adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income," Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information," and Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," all
issued by the Financial Accounting Standards Board. Current and prior periods
have been presented in accordance with these statements. Our only component of
other comprehensive income is the foreign currency translation adjustment.
In 1999, Orient-Express Hotels adopted Statement of Position No. 98.5,
"Reporting on the Costs of Start-Up Activities," of the American Institute of
Certified Public Accountants. This required Orient-Express Hotels to write-off
$3 million, net of tax, in the first quarter of 1999 representing mainly
deferred start-up costs of cruiseship operations which may no longer be carried
forward under this statement. Other than the cumulative effect of this change,
the impact of the adoption was not material to 1999 results.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This Statement requires that all derivative
instruments, including certain derivative instruments embedded in other
contracts, be recorded on the balance sheet as either an asset or liability
measured at its fair value. This Statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Orient-Express Hotels is not required to
adopt this Statement until the year ended December 31, 2001, and is currently
evaluating the extent to which its financial statements will be affected by this
Statement.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." The
provisions of SAB 101, as amended, are required to be adopted in the second
fiscal quarter of 2000. We do not believe that the adoption of SAB 101 will have
any impact on our financial statements.
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OUR BUSINESS
Orient-Express Hotels is a hotel and leisure company focused on the luxury
end of the leisure market. We currently own and operate 26 highly individual
deluxe hotels worldwide reported as 22 business units, six tourist trains, a
river cruiseship and two restaurants. We acquire only very distinctive
properties in areas of outstanding cultural, historic or recreational interest,
in order to provide luxury lifestyle experiences for the elite traveler.
INDUSTRY AND DEMOGRAPHIC DYNAMICS
We believe that Orient-Express Hotels will benefit from existing trends and
developments which should favorably impact the world hotel, travel and leisure
market including
- strong demand growth trends in the luxury hotel market,
- increased travel and leisure spending,
- strong demographic trends, and
- increased online travel bookings.
LUXURY HOTEL MARKET. The lodging industry has shown significant improvement
in profitability during recent years, with more than $22 billion in estimated
worldwide hotel profits in 1999, according to PricewaterhouseCoopers LLP. The
improved profitability has been achieved as a result of good fundamentals in
terms of supply of new hotels and increased consumer demand for hotel rooms.
Over the last several years, new hotel supply has increased and in certain
segments has outpaced new demand. However, the luxury segment of the hotel
business has seen demand continue to outpace supply. In 1999, according to Smith
Travel Research, luxury hotel chains in the United States, including Four
Seasons, Intercontinental, Le Meridien, Mandarin Oriental and the St. Regis
Luxury Collection, experienced strong operating performance with 5.6% REVPAR
growth, compared with 3.2% REVPAR growth for the lodging sector overall. In
addition, room demand for luxury properties continued to outpace supply in 1999,
with a 3.0% increase in luxury room demand versus a 2.1% increase in luxury room
supply. We believe that in the near-term, pricing power within the lodging
industry is likely to be particularly strong within the luxury segment because
of lower consumer price sensitivity in this segment and continued growth in
worldwide gross domestic product, or GDP, and consumption expenditures.
INCREASED RECREATION, TRAVEL AND LEISURE SPENDING. We expect to benefit
from continued growth in worldwide travel and leisure expenditures. The Travel
Industry Association of America estimates that worldwide travel spending for
both business and leisure grew from approximately $335 billion in 1990 to
approximately $518 billion in 1999, a 55% increase over 1990. Over the next
three years, the Travel Industry Association of America projects that worldwide
travel expenditures will grow to about $610 billion in 2002, a 5.6% compound
annual growth rate.
In the United States, Americans appear to be spending more on recreational
activities. The U.S. Bureau of Economic Analysis estimates that from 1989 until
1999, total personal consumption expenditures increased 36% while expenditures
on recreation more than doubled. As a result, recreational expenditure as a
percent of total personal consumption has increased from 5.4% to 13.6% over the
same time period.
STRONG DEMOGRAPHIC TRENDS. The demographics of both the U.S. and European
populations appear favorable to us as the most significant growth in the
population during the next ten years is projected to be in the 45-64 age group,
which typically have higher average incomes and more time and flexibility for
travel. The U.S. Census Bureau estimates that between the years 1999 and 2009,
the U.S.
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population aged 45-64 will grow by about 32%, and the European population aged
45-64 will grow by about 13%.
INCREASED TRAVEL PURCHASES THROUGH THE INTERNET. We believe that the growth
of the online travel market will enhance our distribution capabilities and
reduce our sales and marketing costs. Forrester Research, an independent
consulting group, estimates that
- more than 9 million U.S. households booked travel online in 1999,
- 26 million U.S. households are expected to book travel online in 2003, and
- online hotel bookings totaled $2.7 billion in 1999 and will grow to
$10 billion in 2003, equivalent to a compound annual growth rate of about
39%.
Through direct access to hotel reservations systems online, we believe that
customers will be drawn by prominent hotels and quality brands, and that the
lower costs of online distribution will lead to an industry-wide reduction in
sales and marketing costs.
GROWTH STRATEGY
STRONG INTERNAL GROWTH. We intend to pursue increases in pricing and
earnings both at our established properties and at our newer acquisitions. The
increase in room revenue on a comparable basis between 1995 and 1999--a compound
annual growth rate of 9% in U.S. dollars and 14% in local currencies--has
generated over the same period EBITDA growth at a compound annual growth rate of
12% in U.S. dollars and 21% in local currencies. We believe that Orient-Express
Hotels will be able to further increase ADRs, and consequently rooms revenue, at
these properties, given the prestige of our brand names and significant barriers
to entry, including zoning regulations and space constraints.
Our newer acquisitions also provide us with significant profit growth
opportunities. We have acquired a number of properties from individuals or small
companies with limited hotel experience. As we have applied our management
experience, public relations and marketing skills and our strong Orient-Express
Hotels brand name, we have been able to increase revenue per available room, or
REVPAR, substantially at these properties and have successfully improved
operating margins by implementing strict cost controls.
GROWTH FROM EXPANSIONS. We have significant expansion opportunities at our
existing properties. Typically, expansions generate attractive returns with
limited incremental operating costs. In our hotels and restaurants segment, we
have plans over the next few years to add between 300 and 600 keys, expand
existing banquet and dining facilities and develop new amenities at various
properties, including spas and conference facilities. Our short-term expansion
plans include
- adding keys to Hotel Cipriani, La Samanna, the Lapa Palace, the Copacabana
Palace, our Peruvian properties, Keswick Hall and the Inn at Perry Cabin,
- redeveloping the Hotel Caruso,
- relaunching the La Cabana restaurant in Buenos Aires, and
- continuing to develop an additional tourist train in the United
Kingdom--the Northern Belle--which should commence operations later in the
year.
Also, we can increase the utilization of our tourist trains and cruiseship by
adding more trips to our largely fixed cost base of operations.
GROWTH FROM ACQUISITIONS. We intend to continue to acquire additional
distinctive, luxury properties throughout the world. We have sustained a
consistent program of acquisitions, having acquired more than $150 million of
properties since the beginning of 1998. We target unique properties
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in markets with high barriers to entry and opportunities to increase cash flow
through either expansion or REVPAR increases. Through our global contacts and
our reputation for successful management of luxury properties, we are routinely
shown attractive properties for possible acquisition.
INTERNET INITIATIVES. We believe that there is significant potential for
the internet to enhance our distribution and reduce our sales and marketing
expenses. The combination of our strong local brand identities and our strong
umbrella brand name is an effective way to attract those internet users who are
looking for a travel experience with distinctive character but who still need
the assurance of quality. Internet technology also permits lower transaction
costs. Typically, travel agents receive a 10% commission, and tour operators
receive up to a 35% discount, on reservations. Through our own website
reservations, we can reduce these costs to $3 per booking. Our plans for further
distribution through the internet include our Orient-Express Hotels Club site
which will allow us to sell excess capacity and to establish a growing on-line
community for promotional activity.
OPERATING PRACTICES
We intend to continue both owning and operating most of our properties.
Ownership encourages us to develop the distinctive character of our properties
and allows us to benefit from all of the current cash flow and future capital
gains should we sell a property. Self-management has enabled us to capture the
economic benefits otherwise retained by a third-party operator, to control the
operations of our hotels, and to use our experience with rate changes,
expansions and renovations to improve cash flow and enhance asset values.
The general manager of each hotel reports to a regional manager, who in turn
reports to our President. Our strategy is to place responsibility and authority
into the hands of the on-site managers, since they are the persons most closely
in touch with local market conditions. Our regional managers and corporate
office provide strategic oversight and monitor progress in key areas such as
pricing, cost control, sales and marketing, capital expenditure and quality
assurance. Our corporate office also provides expertise in such areas as
finance, accounting, tax, legal, technical and project management.
MARKETING, SALES AND PUBLIC RELATIONS
Our sales and marketing strategy is based upon global and local direct
sales, cross-selling to our existing customers and public relations. We have a
global sales force of over 150 people in 24 locations. Our hotel marketing
efforts are coordinated through our regional sales offices in New York, London
and Frankfurt while our tourist trains and cruiseship are marketed through sales
and reservations offices in New York, London, Paris, Cologne, Tokyo, Singapore,
Brisbane and Cusco. We also have local sales representatives at many of our
hotels. The responsibilities of our global and local sales staff include
promoting special events, working with group and corporate account
representatives and planning direct mail efforts.
Because our repeat customers have come to appreciate the consistent quality
of our hotels, trains and restaurants, a key aspect of our strategy is to
promote other Orient-Express Hotels properties through various cross-selling
efforts. Our cross-selling program includes direct mail to existing customers,
in-house brochures and promotions, discounts on travel to frequent guests and
our "Orient-Express Magazine."
Another key aspect of our marketing strategy is to focus on public
relations, which we believe is a highly cost-effective marketing tool for luxury
properties such as ours. Because of the unique nature of our properties, guests
are more likely to hear about our hotels and tours through word-of-mouth or
magazine or newspaper articles than direct advertising. We have two in-house
public relations offices in London and New York and contracts with third-party
public relations firms in eleven countries worldwide to promote our properties
through travel magazines and various local, national and international newspaper
travel sections. During 1999, we hosted over 1,000 journalists at our
properties,
39
<PAGE>
who generated over 3,000 articles in newspapers and magazines around the world
having a combined circulation of around 620 million readers. We also belong to a
number of international organizations to promote our properties in conjunction
with other non-branded, luxury operators through such groups as "The Leading
Hotels of the World" and "Preferred Hotels and Resorts Worldwide."
INTERNET INITIATIVES
We believe that there is significant potential for the internet to enhance
our distribution and reduce our sales and marketing expenses. Forrester Research
estimates that 9 million U.S. households booked travel online in 1999 and that
26 million households are expected to do so by 2003. Through our internet
website, WWW.ORIENT-EXPRESSHOTELS.COM, we are offering enhanced direct booking
services. We believe that a branded Orient-Express Hotels website will continue
to generate increasing internet traffic and online bookings for us because of
the strength of our Orient-Express Hotels brand name and our strong local brand
names, as users are less likely to risk the unknown.
The new internet technology also helps lower our transaction costs.
Typically, travel agents receive 10% commissions, and tour operators receive up
to 35% discount, on reservations. Through our own website reservations, we can
reduce these costs to $3 per booking. Also, given the strong reputation of each
of our hotels, we believe that most of our guests have made a specific decision
to stay at one or more of our properties, based on word-of-mouth recommendations
and travel literature, instead of advice from intermediaries such as travel
agents or tour operators. However, these guests still tend to use intermediaries
instead of directly contacting our properties. As the internet becomes a more
convenient booking channel, we believe that an increasing percentage of these
guests will use the internet to book rooms, thereby reducing our commission
costs per booking.
We have also been developing an Orient-Express Hotels Club site to offer
discounted rates to our frequent guests, and perhaps the frequent guests of
other travel companies whose products are comparable to ours but who do not
compete directly with us. This will allow us to reward our frequent guests, sell
excess room capacity and establish a growing on-line community.
40
<PAGE>
PERFORMANCE OVERVIEW
The success of our strategy can be seen in the financial performance of
Orient-Express Hotels. Since 1995, revenues have grown at a compound annual
growth rate of 19%. Over the same period, EBITDA has grown at a compound annual
growth rate of 32%, EBIT has grown at a compound annual growth rate of 40%, and
net earnings have grown at a compound annual growth rate of 49%. In 1999, net
earnings, excluding gains on sale of assets, were $34.2 million, up 28% from
$26.7 million in 1998.
<TABLE>
<CAPTION>
CAGR
1999 1998 1997 1996 1995 1995-99
-------- -------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Revenue............................................. $249.1 $230.9 $198.7 $169.5 $122.2 19%
Gains on sale of assets(1).......................... 3.8 -- 5.0 -- -- --
Earnings excluding gains on sale of assets and
other:
EBITDA.............................................. 71.6 61.1 51.7 38.2 23.4 32%
EBIT................................................ 58.4 46.9 38.5 27.4 15.1 40%
EBT................................................. 39.4 30.4 26.2 18.2 7.1 53%
Net earnings(2)..................................... 34.2 26.7 23.0 16.5 6.9 49%
EBITDA margin....................................... 29% 26% 26% 23% 19% 11%
Ratio of earnings to fixed charges.................. 2.9x 2.6x 2.9x 2.1x 1.4x
</TABLE>
------------------------
(1) 1999 includes a $2.5 million onetime special payment to Orient-Express
Hotels received under a management contract in the fourth quarter, and a
$1.3 million gain on the sale of the Windermere Island Club in the Bahamas
in the first quarter. The 1997 gain came from the sale of the Lodge at Vail
in Colorado.
(2) 1999 net earnings are shown before cumulative effect of change in accounting
principle.
HISTORICAL EBITDA GROWTH (1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C>
$23.3 $38.2 $51.7 $61.1 $71.6
</TABLE>
EBITDA (in millions)
32% CAGR (1995-1999)
------------------------
(1) Excluding gains on sales of assets and other.
41
<PAGE>
At the same time, we have been able to acquire new businesses, more than
doubling the size of Orient-Express Hotels. Typically, new acquisitions have a
lower initial return, with the return then improving over the years. In the
aggregate, the return on assets of properties that we have owned more than five
years is more than double that of newer ones. These "new acquisitions" should
bear fruit in future years.
INCREASING RETURNS WITH YEARS OF OWNERSHIP(1)
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
ROA REGRESSION ANALYSIS YEARS MID-YEAR
<S> <C> <C> <C> <C> <C>
Asset Owned ROA EBIT NBV
Westcliff 1 1 -4.3% -1091 25237
Cite 2 2 4.0% 485 12020
QDL 3 1 7.8% 2158 27576
Lapa 4 1 10.8% 3162 29371
La Samana 5 3 8.6% 2491 28851
Reids 6 3 9.7% 3618 37311
Gametrackers 7 8 4.6% 326 7124
Windsor Court 8 9 18.8% 10628 56596
Copacabana 9 11 11.5% 8339 72650
Mount Nelson 10 12 9.0% 2040 22579
Splendido 11 13 20.6% 4426 21521
VSM 12 17 17.9% 2301 12867
Cipriani 13 24 14.9% 6384 42942
</TABLE>
------------------------
1. Westcliff Hotel
2. Hotel de la Cite
3. Quinta do Lago Hotel
4. Lapa Palace Hotel
5. La Samanna
6. Reid's Palace Hotel
7. Gametrackers
8. The Windsor Court Hotel
9. Copacabana Palace Hotel
10. Mount Nelson Hotel
11. Hotel Splendido and
Splendido Mare
12. Villa San Michele
13. Hotel Cipriani and Palazzo
Vendramin
------------------------------
(1) Includes all hotels owned through full year 1999.
(2) Return on assets is equal to 1999 EBIT divided by 1999 mid-year net book
value.
42
<PAGE>
<TABLE>
<CAPTION>
SUMMARY 1999 RESULTS (EXCLUDING GAINS) REVENUE EBITDA CAPITAL
-------------------------------------- ------------------- ---------------------- EXPENDITURES
MILLIONS % MILLIONS % -MILLIONS
-------- -------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Hotels and restaurants:
Owned hotels:
Europe........................................... $ 80.0 32% $27.4 38% $24.3
North America.................................... 59.1 24 17.4 24 9.6
Rest of the world................................ 38.6 15 12.7 18 3.4
------ --- ----- ----------- -----
Total owned hotels........................... 177.7 71 57.5 80 37.3
Hotel management interests......................... 11.1 5 11.1 16 --
Restaurants........................................ 20.1 8 5.9 8 0.9
------ --- ----- ----------- -----
Total hotels and restaurants......................... $208.9 84% $74.5 104% 38.2
Tourist trains and cruises........................... 40.2 16 6.0 8 6.1
Overheads............................................ -- -- (8.9) (12) --
------ --- ----- ----------- -----
$249.1 100% $71.6 100% $44.3
</TABLE>
OWNED HOTELS
OWNED HOTELS--EUROPE
<TABLE>
<CAPTION>
TOTAL COMPARABLE BASIS (2)
----------------------------------------- -----------------------------------------
CAGR CAGR
1999 1998 1997 1997-99 1999 1998 1997 1997-99
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of hotel business units at year
end................................. 7 7 5 4 4 4
Rooms available (000)................. 218 178 124 117 116 114
Rooms sold (000)...................... 155 132 87 80 79 78
Average daily rate ($)(1)............. 327 336 374 -6% 460 432 402 +7%
Occupancy (%)......................... 71 74 70 68 68 68
Revenue per available room
(REVPAR) ($)(1)..................... 231 249 261 -6% 312 293 273 +7%
Room revenue ($million)(1)............ 51 44 32 +26% 37 34 31 +9%
EBITDA ($million)(1).................. 27.4 22.6 16.2 +30% 20.0 18.0 16.2 +11%
EBITDA margin of owned hotels total
revenue--Europe (%)................. 34 32 33 36 34 33
</TABLE>
------------------------
(1) Average daily rate and REVPAR data presented on a total basis is lower than
that for previous historical periods. This is due to the acquisition of
properties which have a lower average daily rate and REVPAR. This decline is
not indicative of actual operating performance as the EBITDA has increased
on a comparable basis.
(2) Consists of combined data for the Hotel Cipriani, the Hotel Splendido, the
Villa San Michele and Reid's Palace Hotel, the only properties in Europe
that we owned during the entire three-year period from the beginning of 1997
through the end of 1999.
Europe offers us both stability through our longstanding operations in
Italy, and future growth potential from the Hotel Caruso in Ravello and our
recent acquisitions in Portugal. In 1999, our owned hotels in Europe generated
$27.4 million EBITDA from seven properties. On a comparable basis, rooms revenue
grew since 1997 to the end of 1999 at a compound annual growth rate of 9%,
mainly as a result of increasing room rates, and EBITDA has grown by 11%.
43
<PAGE>
ITALY
Three business units in Italy--Hotel Cipriani, Hotel Splendido and Villa San
Michele, together with the Cipriani's adjacent Palazzo Vendramin hotel and the
Splendido Mare hotel--were among the first hotels acquired by Orient-Express
Hotels. Italy is a very popular destination and offers guests a combination of
fine weather, excellent cuisine and elegant well preserved surroundings. The
country has strict policies limiting development in protected areas, which
limits the entry of new competition. Over the years, Orient-Express Hotels has
invested in refurbishment and expansion of the properties where possible. EBITDA
was $15.8 million in 1999, up 15% from 1998. Our Italian properties are seasonal
and close for varying periods during the winter.
The HOTEL CIPRIANI AND PALAZZO VENDRAMIN--106 keys--in Venice enjoy the
highest room rates of the Orient-Express Hotels properties. They were built for
the most part in the 1950s and are located on three acres on Giudecca Island
opposite the Piazza San Marco. Most of their rooms have views over the Venetian
lagoon. Features include fine cuisine in three indoor and outdoor restaurants,
gardens and terraces encompassing an Olympic-sized swimming pool, a tennis court
and a private boat service to the Piazza San Marco. EBITDA in 1999 was
$8.0 million, an increase of 25% over 1998. As demand has grown for this very
special experience, REVPAR has steadily increased since 1995 at a compound
annual growth rate of 10%, to $578 in 1999. Orient-Express Hotels has added
rooms to these properties although this is not always reflected in the key count
as, on some occasions, smaller rooms have been combined into suites, which
attract higher yield per square foot. In 1998, the new Palazzetto annex to the
Palazzo Vendramin was created from staff accommodation, which added five keys
and a new restaurant overlooking the Piazza San Marco. Orient-Express Hotels has
reached a tentative agreement to acquire a building adjacent to the Palazzetto,
which will provide banquet rooms allowing the Hotel Cipriani to cater for larger
meetings and freeing up space in the main hotel for eight extra keys.
The HOTEL SPLENDIDO and SPLENDIDO MARE--85 keys--overlooks Portofino harbor
on the Italian Riviera. Set on four acres, this resort was built in 1901 and is
surrounded by gardens and terraces which include a swimming pool and tennis
court. The property generated EBITDA of $5.1 million in 1999, up 6% from 1998.
REVPAR increased to $358 in 1999 from $332 in 1998. Orient-Express Hotels has a
long-term lease to operate the Splendido Mare until 2015, with an option to
purchase at a fixed price until 2001.
The VILLA SAN MICHELE--40 keys--is located in Fiesole, a few minutes drive
from Florence. Originally built as a monastery in the 15th century with a facade
attributed to Michelangelo, it has stunning views over the historic center of
Florence and the Arno River Valley. We have remodelled and expanded the guest
accommodation to luxury standards, including the addition of a swimming pool. A
shuttle bus service is provided to the center of Florence. REVPAR in 1999 was
$455 and $420 in 1998 and the property generated EBITDA of $2.7 million in 1999
and $2.5 million in 1998. We plan to expand the property further but the timing
of expansion is dependent on our receipt of necessary permits.
In June 1999, Orient-Express Hotels acquired the HOTEL CARUSO in Ravello
overlooking the Amalfi coast near Naples, and has submitted plans to refurbish
and restore the property, parts of which date back to the 11th century. We have
received a business grant of approximately $5 million from the European Union to
help with the re-development of the property, and we expect that the property
will be operating for the 2002 season. To date, our investment in the property
is about $7 million.
PORTUGAL
In the last few years, Orient-Express Hotels has built a very strong
position in Portugal. It acquired Reid's Palace Hotel in Madeira in 1996 and
followed this with the Lapa Palace Hotel in Lisbon and Quinta do Lago in the
Algarve, which we previously managed under contract, in 1998. All the
44
<PAGE>
properties have expansion potential, particularly the Lapa Palace Hotel, where
we own an adjoining parcel of land and plan to add new keys in the near future.
REID'S PALACE HOTEL--162 keys--is the most famous hotel on the island of
Madeira. This resort is situated on ten acres of semitropical gardens on a cliff
top above the sea and the bay of Funchal, the main port city. Opened in 1891,
the hotel has four restaurants and spacious conference facilities. Leisure and
sports amenities include two swimming pools, a third tide-filled pool, tennis
courts, ocean water sports and access to two championship golf courses. It is
particularly well known in the United Kingdom and German markets and has year
round appeal as it serves both for winter escapes to the sun as well as regular
summer holidays. Orient-Express Hotels undertook major refurbishment in 1997 and
1998. In 1999, the property generated EBITDA of $4.4 million and $4.3 million in
1998. REVPAR was $160 in 1999.
Having managed the property for many years, in 1998 Orient-Express Hotels
acquired the HOTEL QUINTA DO LAGO--141 keys--near Faro in the Algarve region, an
area well known as a premier European golf destination. The Hotel Quinta do Lago
is also popular for more traditional summer holidays as it is set alongside the
beach with views over the Rio Formosa National Park and the Atlantic Ocean.
Opened in 1988, the hotel occupies eight acres and features ocean views, two
restaurants, a health club, indoor and outdoor swimming pools, tennis courts and
extensive gardens, as well as access to ocean beaches and nearby championship
golf courses. In 1999, the first full year of Orient-Express Hotels' ownership,
the property produced EBITDA of $2.7 million. We are undertaking a $3 million
refurbishment program and the rooms are now complete with the public areas
scheduled for the winter of 2000/2001. Orient-Express Hotels has applied for
permits to add a 21-key extension to the property.
Also in 1998, we acquired the LAPA PALACE HOTEL--94 keys--in the embassy
district of Lisbon, near the city center and overlooking the Tagus River. The
main part of the hotel was originally built in the 1870s as the palace of a
Portuguese noble family. It opened as a luxury hotel in 1992 after extensive
conversion and expansion, including the addition of conference facilities and
underground car parking. The hotel is set amid gardens with ornamental fountains
and both indoor and outdoor swimming pools, occupying a total of three acres. In
late 2000, 15 extra keys will be added. Orient-Express Hotels owns an adjoining
parcel of land which is suitable for further development once we obtain planning
permission. In 1999, the first full year of our ownership, the property produced
EBITDA of $3.7 million. REVPAR in 1999 was $146, and we will seek to increase
this over the next few years up to levels more consistent with other European
capitals.
FRANCE
HOTEL DE LA CITE--61 keys--is located in Carcassonne, about a one hour drive
from Toulouse. This beautiful walled medieval city attracts 3 million visitors
per year. The hotel is situated on the square of Basilica Saint-Nazaire, the
town's main architectural attraction, and incorporates one of the 50 watch
towers in Carcassonne's ancient fortifications. Opened in 1909, it features two
restaurants, gardens with a swimming pool and a conference center. In the past
two years, we have undertaken extensive refurbishment work to upgrade the
property and reposition it in the higher end of the hotel market. EBITDA in 1999
was $0.8 million, up from $0.4 million in 1998. Over time, we will seek to
increase REVPAR from the 1999 level of $129 and $112 in 1998 toward the level
enjoyed by our other small properties.
45
<PAGE>
OWNED HOTELS--NORTH AMERICA, INCLUDING THE CARIBBEAN
<TABLE>
<CAPTION>
TOTAL COMPARABLE BASIS (2)
----------------------------------------- -----------------------------------------
CAGR CAGR
1999 1998 1997 1997-99 1999 1998 1997 1997-99
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of hotel business units at year
end.................................... 4 2 2 2 2 2
Rooms available (000).................... 160 142 150 138 142 140
Rooms sold (000)......................... 122 104 104 105 103 95
Average daily rate ($)(1)................ 295 295 284 +2% 297 295 289 +1%
Occupancy (%)............................ 76 73 69 76 72 68
Revenue per available room
(REVPAR) ($)(1)........................ 224 214 195 +7% 226 215 197 +7%
Room revenue ($million)(1)............... 36 31 29 +11% 31 30 27 +7%
EBITDA ($million)(1)..................... 17.4 13.9 16.3 +3% 15.3 13.9 12.4 +11%
EBITDA margin of owned hotels total
revenue--North America (%)............. 29 29 32 30 29 29
</TABLE>
------------------------
(1) Average daily rate and REVPAR data presented on a total basis can be lower
than that for previous historical periods due to the acquisition of
properties which have a lower average daily rate and REVPAR.
(2) Consists of combined data for the Windsor Court Hotel and La Samanna, the
only properties in North America that we owned during the entire three-year
period from the beginning of 1997 through the end of 1999.
Our owned hotels in North America performed well in 1999, generating EBITDA
of $17.4 million. For several years, we decided not to acquire any further
properties in the United States as prices were artificially inflated by the
buying activity of real estate investment trusts. However, in 1999, a decrease
in this activity allowed us to purchase two properties, Keswick Hall and the Inn
at Perry Cabin, at reasonable prices. We believe that both properties have
excellent potential for future expansion.
On a comparable basis, since 1997 REVPAR has increased at a compound annual
growth rate of 7%, mainly as a result of increased occupancy, and EBITDA has
grown by 11%.
THE WINDSOR COURT--324 keys--generated EBITDA of $12.3 million, up from
$10.8 million in 1998. It opened in 1984 and is located in the central business
district of New Orleans near the French Quarter and the Mississippi riverfront.
The property enjoyed both higher occupancy and better room rates in 1999. REVPAR
was $190 in 1999, up from $174 in 1998. In 1999, Harrah's opened the only
land-based casino in Louisiana across the street from the hotel, and we believe
that this should help the property in the year 2000 and beyond. Each room in the
hotel has panoramic views over the river or the city. Facilities include three
restaurants and lounges, a rooftop ballroom, several other banquet and meeting
rooms, an outdoor swimming pool and a health club. The hotel's interior decor
features a collection of historic European art and antique furniture. In 2000, a
new luxury hotel is scheduled to open close by, which may increase competitive
pressures.
In 1996, we acquired LA SAMANNA--83 keys--located on the island of St.
Martin in the French West Indies. Built in 1973, the hotel has two restaurants
and comprises 16 buildings on ten acres of land along a 4,000-foot beach.
Amenities include a freshwater swimming pool, tennis courts, fitness and
conference centers, boating and ocean water sports. The hotel owns an adjacent
45 acres of land available for future development. The hotel is open most of the
year, seasonally closing during the autumn months. After a strong start to 1999,
the hotel was hit by Hurricane Lenny in October and was unable to reopen until
February 2000, missing much of the high season. The property is insured for
46
<PAGE>
damage and business interruption so, in spite of these problems, it generated
EBITDA of $3.0 million in 1999, similar to the result for 1998.
In May 1999, Orient-Express Hotels acquired KESWICK HALL--48 keys--and the
INN AT PERRY CABIN--41 Keys. Keswick Hall, a private home built in 1912, is
located in the rolling countryside of central Virginia near Charlottesville and
Monticello. Keswick Hall is popular for weekend breaks and business meetings in
order to visit the surrounding area and for golfing on the adjacent Arnold
Palmer course which Orient-Express Hotels operates under lease with an option to
purchase. In the same transaction, Orient-Express Hotels acquired the Inn at
Perry Cabin, which was built in 1812 as a country inn and is located in St.
Michaels, Maryland on the eastern shore of Chesapeake Bay. Set on 25 shoreside
acres that include a health club, an indoor swimming pool and boating and
fishing on the Bay, it is an attractive vacation spot, particularly for the
Washington, D.C. market. In 1999 the two properties generated EBITDA of
$2.1 million. REVPAR was $184 at Keswick Hall and $244 at the Inn at Perry
Cabin. Both properties have extensive grounds which should allow for expansion.
During the first quarter of 1999, Orient-Express Hotels sold the Windermere
Island Club in the Bahamas, which its predecessor company had acquired in 1983.
The property had been closed for several years pending sale. The gain on sale of
$1.3 million is not included in the regional figures shown above.
OWNED HOTELS--REST OF THE WORLD
<TABLE>
<CAPTION>
TOTAL COMPARABLE BASIS (2)
--------------------------------------------- -----------------------------------------
CAGR CAGR
1999 1998 1997 1997-99 1999 1998 1997 1997-99
-------- -------- -------- ------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Number of hotel business units at year
end................................. 4 4 3 3 3 3
Rooms available (000)................. 217 205 162 173 171 162
Rooms sold (000)...................... 109 107 99 95 97 99
Average daily rate ($)(1)............. 227 251 254 -5% 241 264 254 -3%
Occupancy (%)......................... 50 52 61 55 57 61
Revenue per available room
(REVPAR) ($)(1)..................... 113 131 154 -14% 133 150 155 -7%
Room revenue ($million)(1)............ 24 27 25 -2% 23 26 25 -4%
EBITDA ($million)(1).................. 12.7 12.3 11.5 +5% 13.3 13.1 11.5 +8%
EBITDA margin of owned hotels total
revenue--rest of the world (%)...... 33 29 29 37 32 29
</TABLE>
------------------------
(1) Average daily rate and REVPAR data presented on a total basis can be lower
than that for previous historical periods due to the acquisition of
properties which have a lower average daily rate and REVPAR. This decline is
not indicative of actual operating performance due to the increase in EBITDA
on a comparable basis. The devaluation of the Brazilian real referred to
below affected room revenue negatively and EBITDA positively.
(2) Consists of combined data for the Mount Nelson Hotel, Gametrackers and the
Copacabana Palace Hotel, the only properties outside Europe and North
America that we owned during the entire three-year period from the beginning
of 1997 through the end of 1999.
In 1999, these properties produced EBITDA of $12.7 million. South America
had an excellent year with the Copacabana Palace Hotel performing well. On the
other hand, we experienced weakness in the African market with the Westcliff
Hotel struggling during its first full year. In Australia, we purchased two
Australian hotels early in 2000--the Observatory in Sydney and Lilianfels in the
Blue Mountains--which position us firmly in the market and should link well with
the Great South Pacific Express train which we manage.
47
<PAGE>
On a comparable basis, since 1997 EBITDA has grown at a compound annual
growth rate of 8%, and REVPAR and room revenue have fallen measured in U.S.
dollars, but this reflects the significant weakening of local currencies against
the U.S. dollar.
SOUTH AMERICA
Built in the 1920s on a three-acre site facing Copacabana Beach near the
central business district of Rio de Janeiro, the COPACABANA PALACE HOTEL--223
keys--is one of the most famous in South America and features two gourmet
restaurants, several spacious function and meeting rooms including a 500-seat
theater, a large swimming pool and a roof-top tennis court. Results have
improved since our major refurbishment program was completed in 1997. The real,
the local Brazilian currency, significantly devalued during 1999 and as a
result, revenue actually fell in US dollar terms to $22.7 million from
$26.5 million in 1998, but this was more than offset by cost savings enabling us
to increase EBITDA from $8.8 million in 1998 to $10 million in 1999. For the
same reason, we believe that the weaker real puts us in a strong position for at
least the year 2000.
AFRICA
During 1998 in anticipation of a boom market under the new government, there
was a significant expansion of the room supply in Cape Town. However, tourism
and business have not grown as fast as expected and results at the MOUNT NELSON
HOTEL--226 keys--have suffered as a consequence, with 1999 EBITDA at
$2.7 million, down from $3.5 million in 1998. The Mount Nelson is an
extraordinary historic property with beautiful gardens and pools. It stands just
below Table Mountain and is within walking distance of the main business, civic
and cultural center of Cape Town. The hotel has a ballroom, two swimming pools,
tennis courts and a fitness center, all situated on ten acres of grounds and
gardens. We believe that the 1999 REVPAR of $91, down from $100 in 1998, does
not reflect these amenities, and that the market will stabilize in future years.
We opened the WESTCLIFF HOTEL--118 keys--in Johannesburg in March 1998. It
is the only garden hotel in the city, perched on a hillside with stunning views
over the zoo and park. Its resort amenities include two swimming pools, a tennis
court and a health club, and the hotel attracts business guests because of its
proximity to the city center. As in Cape Town, the expected boom in Johannesburg
did not materialize. Facing the challenge of opening in a soft market, the
Westcliff had $0.5 million negative EBITDA in 1999 and negative $0.7 million
EBITDA for nine months of 1998. Over time, we expect that market awareness and
repeat business should grow.
In 1999, we substantially completed the refurbishment of GAMETRACKERS--39
keys total--, our three safari lodges in Botswana. Established in 1971, we lease
three lodge and camp sites in the Okavango River delta and nearby game reserves,
where some of the best wildlife in Africa can be observed from open safari
vehicles or boats. Each camp has 12 to 15 twin-bedded deluxe tents, and guests
travel between the camps by light aircraft. Boating, fishing, hiking and
swimming are offered at the various sites. Results in 1999 were adversely
affected by the refurbishment, with EBITDA declining from $0.7 million to
$0.5 million.
AUSTRALIA
In March 2000, Orient-Express Hotels acquired the OBSERVATORY HOTEL--96
keys--in Sydney, and LILIANFELS HOTEL--86 keys--in the Blue Mountains National
Park. Orient-Express Hotels has managed The Observatory Hotel for many years and
the contract had provisions which helped us acquire the property at an
attractive price. Within walking distance of the central business district, this
hotel opened in 1993 and has two restaurants, extensive meeting and banquet
rooms, a health club with indoor swimming pool, a tennis court and a large
parking garage on a site of about one acre.
48
<PAGE>
The Lilianfels Hotel is named after the original estate house, dating from
1890, which has been refurbished as the hotel's gourmet restaurant. The main
hotel, built in 1992, has a second restaurant. The resort's four acres of
grounds encompass an indoor swimming pool, health club and spa, outdoor tennis
courts and extensive gardens with views over the Blue Mountains.
HOTEL MANAGEMENT INTERESTS
<TABLE>
<CAPTION>
CAGR
1999 1998 1997 (1997-99)
-------- -------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
EBITDA (excluding gain on sale of assets)....... $11.1 $9.6 $7.6 +21%
</TABLE>
Our hotel management interests consist of our interest in Charleston Place,
our Peruvian hotels joint venture and our management contract for Bora Bora
Lagoon Resort. The figures above also include management fees from the
Observatory Hotel and Quinta do Lago in the relevant years.
CHARLESTON PLACE--442 keys--is located in the heart of historic Charleston,
South Carolina, a popular destination for tourism, groups and business meetings.
Originally opened in 1986, the hotel has two restaurants, extensive banqueting
and conference space including a grand ballroom, a health club with swimming
pool and tennis court, and 27 retail shops leased to third parties. The hotel
also owns the adjacent historic Riviera Theater recently remodelled as an
additional conference facility and five retail shops. The property has always
enjoyed a high occupancy, and we have focused on improving facilities and
service to enable an increase in room rate. Orient-Express Hotels has a 19.9%
ownership interest in the hotel, manages the property under a long-term contract
and receives interest on partnership loans which it assumed in the original
transaction. In 1998, there was a major increase in performance over
1997--Orient-Express Hotels earnings of $8.8 million in 1998 versus
$6.8 million in 1997--but our earnings for 1999 continued to improve, to
$8.9 million.
We recently commenced operations in Peru, which we believe is one of the
most interesting and promising locations in South America. In March 1999, we
formed a 50/50 joint venture with local Peruvian investors. Under exclusive
management of Orient-Express Hotels, this joint venture operates the Monasterio
Hotel and the Machu Picchu Sanctuary Lodge under 20-year renewable leases which
commenced in 1995.
The MONASTERIO HOTEL--122 keys--is located in the ancient Inca capital of
Cusco, the most important tourist destination in Peru. We plan to upgrade and
expand the property substantially and in that connection have a long-term lease
on the adjoining Nazarenas convent. The hotel was originally built as a Spanish
monastery in the 16th century and was converted to hotel use in 1995. The deluxe
guest rooms and suites and two restaurants are arranged around open-air
cloisters. Wage costs are extremely low in Peru so the property is already
profitable in spite of low room rates and occupancy. We believe that this
property can achieve substantially higher room rates.
The MACHU PICCHU SANCTUARY LODGE--32 keys--is the only hotel in the vicinity
of the famous mountaintop Inca ruins. During 2000, we plan to refurbish the
rooms, which should allow us to increase rates significantly. The joint venture
also has a lease on a site by the river at the foot of the ruins, close to the
town where tourists arrive by train, which we plan to develop as a larger hotel,
but this is unlikely to be open for several years given the time required for
permits, design and construction. During 1999, the joint venture generated
$1.2 million profits to Orient-Express Hotels in the form of profit share and
management fees.
We also operate the BORA BORA LAGOON RESORT in French Polynesia under
management contract. This resort, which opened in 1993, has 50 bungalows
situated over the lagoon water plus 30 additional beach and garden bungalows,
all built in traditional Tahitian style. Guests dine in two restaurants and
enjoy extensive water sports and tennis. The owner is considering selling this
property and, in order to facilitate a sale, Orient-Express Hotels agreed to
sell back to the owner its contractual right to an early termination fee. This
generated a $2.5 million gain in 1999, which is not included in the results
shown
49
<PAGE>
in the table above. The owner now has the right to terminate the contract on two
months notice. Otherwise, it will expire in April 2008. Management fees in 1999
were $0.5 million, excluding the gain.
RESTAURANTS
<TABLE>
<CAPTION>
CAGR
1999 1998 1997 (1997-99)
-------- -------- -------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C>
Revenue....................................... $20.1 $19.0 $17.5 +7%
EBITDA(1)..................................... 5.9 5.4 4.7 +12%
EBITDA margin (%)............................. 29 28 27
</TABLE>
------------------------
(1) Includes equity interest in Harry's Bar.
Orient-Express Hotels owns the '21' Club restaurant in New York and has an
interest in Harry's Bar in London.
In 1995, we acquired '21' CLUB, the famous landmark restaurant in New York.
Originally a speakeasy in the 1920s, this restaurant is open to the public,
occupies three brownstone buildings in midtown Manhattan and features gourmet
American cuisine. It serves a la carte meals in the bar restaurant and also has
a number of banqueting rooms used for functions. It was during Prohibition that
'21's famous secret wine cellar was built--its two-ton door operated by placing
an 18-inch wire into a tiny hole in a certain brick. The business generated
EBITDA of $5.4 million in 1999, $5.0 million in 1998.
Orient-Express Hotels also has a 49% interest in HARRY'S BAR, a private
dining club in the Mayfair area of London. The majority partner manages the
restaurant with assistance from our Italian hotels. Its menu features gourmet
Italian cuisine. Besides generating a good return on a relatively small
investment, this business gives Orient-Express Hotels a presence in London.
Orient-Express Hotels earned $0.5 million from this interest in 1999. We have a
right of first refusal with respect to any or all of the remaining interest in
this property under certain conditions.
We have acquired the contents and famous brand name of the renowned LA
CABANA steak house in Buenos Aires, which we plan to relaunch as soon as we
acquire a suitable site.
TOURIST TRAINS AND CRUISES
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
EBITDA:
Owned train operations (Venice Simplon-Orient-Express
and British Pullman).................................. $5.5 $6.2 $3.3
Management contracts (Eastern & Orient Express and Great
South Pacific Express)(1)............................. 0.4 0.5 0.6
PeruRail(1)............................................. 1.3 -- --
Road to Mandalay........................................ (0.3) 0.9 1.3
Regional costs.......................................... (0.9) (1.2) (1.5)
---- ---- ----
$6.0 $6.4 $3.7
==== ==== ====
</TABLE>
------------------------
(1) Share of joint venture and management fees.
50
<PAGE>
The trains and cruises segment of Orient-Express Hotels produced EBITDA of
$6.0 million in 1999 and $6.4 million in 1998. Results for our luxury tourist
trains have slipped after a strong 1998 and the Road to Mandalay cruiseship had
a very difficult year as it was unable to run its full itinerary due to
exceptional adverse weather conditions. The end of the year was helped by our
investment in PeruRail, which generated $1.3 million EBITDA in the fourth
quarter.
Our principal European tourist trains, called the VENICE
SIMPLON-ORIENT-EXPRESS operate in two parts in a regularly scheduled overnight
service between London and Venice and on short excursions in southern England.
Orient-Express Hotels owns 30 railway cars originally used on the historic
"Orient-Express" and other famous European trains. All have been refurbished in
original 1920s/1930s decor and meet modern safety standards. The services
offered are a continuation of, and are marketed as, the Orient-Express trains of
the pre-World War II years. The trains--one based in Great Britain composed
entirely of Pullman cars with a capacity for up to 250 passengers, and the other
on the continent made up of Compagnie Internationale des Wagon-Lits et Tourisme
sleeping cars and day coaches with capacity for up to 180 passengers--operate
once or twice weekly principally between London and Venice from March to
November each year via Paris, Zurich and Innsbruck on a scenic route through the
Alps. Passengers travel across the English Channel by ferry. Occasional trips
are also made from time to time to Rome, Prague and Istanbul and other European
destinations.
The BRITISH PULLMAN cars operate all year, originating out of London on
short excursions to places of historic or scenic interest in southern England
including some overnight trips when passengers stay at local hotels. Both the
British and Continental trains are available for private charter.
We are developing a new tourist train, the NORTHERN BELLE, to offer day
trips and charter service in the north of the United Kingdom. It should be
operational by the middle of 2000 and will build on the success of our British
Pullman business, which focuses on the south of England around London. The train
comprises a locomotive and six dining cars elegantly decorated to be reminiscent
of old British "Belle" trains of the 1930s, and can carry up to 250 passengers.
Full course gourmet meals will be served on board and passengers will stay in
local hotels on overnight itineraries. Total investment in the project is
expected to be about $7 million.
In September 1999, PERURAIL was formed as a 50/50 joint venture with
Peruvian partners, to operate a large part of the state-owned Peruvian railways
under a 30-year franchise agreement with a possible extension for a further
30 years. In return for the franchise, the joint venture pays the Peruvian
government a fee related to traffic levels which can be offset for ten years
either fully or partially against investment in track improvements. Most of the
profits are generated by the 70-mile Cusco-Machu Picchu line serving tourists
visiting the Inca ruins. This is the principal access for tourists to the famous
Inca ruins because there is no convenient road. A second rail line runs from
Cusco to Matarani on the Pacific Ocean via Puno on Lake Titicaca and Arequipa
and principally serves freight traffic at present. The Cusco-Machu Picchu line
connects our two Peruvian hotels allowing us to create inclusive packages.
Our other luxury trains are the EASTERN & ORIENTAL EXPRESS, which runs
principally from Bangkok to Singapore, and the GREAT SOUTH PACIFIC EXPRESS in
Australia, which commenced operations in May 1999. Both are operated under our
exclusive management contracts with Orient-Express Hotels having a 25%
shareholding in the Eastern & Oriental Express owning company and a 10%
shareholding in the Great South Pacific Express operating company. Total
investment in these operations is about $5.5 million.
The Eastern & Oriental Express makes one round trip each week between
Singapore, Kuala Lumpur and Bangkok. The journey lasts about 48 hours each way
and includes two nights on board and side trips to Penang in Malaysia and the
River Kwai in Thailand. Some overnight trips are also made from Bangkok to
Chiang Mai in northern Thailand. Originally built in 1970, the 24 Eastern &
Oriental Express cars were substantially rebuilt to an elegant oriental style of
decor and fitted with
51
<PAGE>
modern facilities such as air-conditioning and private bathrooms. The train is
made up of sleeping cars with three types of berths, three restaurant cars, a
bar car and an open air observation car and can carry 125 passengers. Like the
Venice Simplon-Orient-Express, the Eastern & Oriental Express is available for
charter by private groups.
The Great South Pacific Express comprises 21 sleeping, restaurant, bar and
observation cars decorated in a late 19th century style with capacity for 100
passengers. Like the Eastern & Oriental Express tourist train, the Great South
Pacific Express train is fully air-conditioned and the three types of passenger
compartments are well appointed with private bathrooms. Regularly scheduled one
or two night itineraries originating out of Brisbane operate north to Cairns in
Queensland and south to Sydney in New South Wales. The northern route includes
stopovers for passengers to visit the Great Barrier Reef and the Kuranda
rainforest.
We operate a deluxe river cruiseship on the Irrawaddy River in central
Burma, or Myanmar, called the ROAD TO MANDALAY. The ship was a Rhine River
cruiser built in 1964 which we bought and refurbished. It features 66
air-conditioned cabins with private bathrooms, spacious restaurants and lounge
areas and a canopied sun deck with swimming pool. The ship travels between
Mandalay and Pagan up to eight times each month and carries 126 passengers who
enjoy sightseeing along the river and guided shore excursions to places of
historic interest. Five to eight night itineraries are offered including airfare
to and from the ship and hotel accommodation in Rangoon. We also operate
occasional cruises to different destinations, such as to Bhamo in the north of
the country close to the Chinese border. The ship does not operate in midsummer
due to the heat. The Road to Mandalay had a very difficult year in 1999. Early
that year, the water level of the Irrawaddy River fell well below normal levels
to the lowest level in 75 years due to lack of rainfall in the north of the
country. This caused the navigation channels to become so shallow that the ship
was unable to travel the whole distance between Pagan and Mandalay. This
seriously affected bookings. We have sought and received commitments from the
Burmese river authorities to maintain adequate navigation channels in the river,
so we do not anticipate that low water levels will be a recurring problem.
52
<PAGE>
OPERATING DATA 1995-1999
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenue:
Owned hotels:
Europe.......................................... $ 80.0 $ 70.4 $ 48.6 $ 46.2 $ 27.8
North America................................... 59.1 47.9 50.7 40.1 36.6
Rest of the world............................... 38.6 43.0 39.5 31.1 25.9
Hotel management interests.......................... 11.1 9.6 7.6 6.3 1.6
Restaurants......................................... 20.1 19.0 17.5 15.0 3.9
Tourist trains and cruises.......................... 40.2 41.0 34.8 30.8 26.4
------ ------ ------ ------ ------
Total............................................... $249.1 $230.9 $198.7 $169.5 $122.2
====== ====== ====== ====== ======
EBITDA:
Owned hotels:
Europe.......................................... $ 27.4 $ 22.6 $ 16.2 $ 13.7 $ 8.5
North America................................... 17.4 13.9 16.3 10.9 11.2
Rest of the world............................... 12.7 12.3 11.5 7.8 4.8
Hotel management interests.......................... 11.1 9.6 7.6 6.3 1.6
Restaurants......................................... 5.9 5.4 4.7 3.8 1.4
Tourist trains and cruises.......................... 6.0 6.4 3.7 2.4 2.3
Gains............................................... 3.8 -- 5.0 -- --
Overhead............................................ (6.4) (6.6) (5.8) (4.2) (3.9)
Corporate........................................... (2.5) (2.5) (2.5) (2.5) (2.5)
------ ------ ------ ------ ------
Total EBITDA........................................ 75.4 61.1 56.7 38.2 23.4
Adjustments to balance to net cash flow from
operations:
Interest........................................ (19.0) (16.5) (12.4) (9.2) (8.0)
Taxation........................................ (5.2) (3.9) (3.2) (1.7) (0.3)
Changes in current assets and liabilities....... (8.9) (3.5) (0.3) (11.1) 12.5
Other items..................................... -- 2.2 -- -- --
------ ------ ------ ------ ------
Cash flow provided by operating activities.......... $ 42.3 $ 39.4 $ 40.8 $ 16.2 $ 27.6
====== ====== ====== ====== ======
No. of hotel business units:
Owned hotels:
Europe............................................ 7 7 5 4 3
North America..................................... 4 2 2 3 2
Rest of the world................................. 4 4 4 3 3
Hotel management interests.......................... 5 3 3 2 2
------ ------ ------ ------ ------
Total............................................... 20 16 14 12 10
====== ====== ====== ====== ======
No. of rooms:
Owned hotels:
Europe............................................ 689 666 575 513 353
North America..................................... 496 407 404 453 371
Rest of the world................................. 606 606 487 472 377
Hotel management interests.......................... 772 616 616 536 536
------ ------ ------ ------ ------
Total............................................... 2,563 2,295 2,082 1,974 1,637
====== ====== ====== ====== ======
</TABLE>
53
<PAGE>
EBITDA BY PROPERTY 1995-1999
<TABLE>
<CAPTION>
EBITDA YEAR ENDED DECEMBER 31,
----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
OWNED HOTELS:
Europe
Hotel Cipriani/Vendramin......... $ 8.0 $ 6.4 $ 5.7 $ 4.8 $ 4.7
Hotel Splendido/Mare............. 5.1 4.8 3.7 3.5 2.5
Villa San Michele................ 2.7 2.5 2.0 1.7 1.3
Reid's Palace.................... 4.4 4.3 4.8 3.7 --
Hotel Quinta do Lago............. 2.7 2.8 -- -- --
Lapa Palace...................... 3.7 1.4 -- -- --
Hotel de la Cite................. 0.8 0.4 0.0 -- --
----- ----- ----- ----- -----
Total Europe................. 27.4 22.6 16.2 13.7 8.5
North America
Windsor Court.................... 12.3 10.8 10.0 9.2 8.9
La Samanna....................... 3.0 3.1 2.4 0.2 --
Lodge at Vail.................... -- -- 3.9 1.5 2.3
Keswick Hall/Perry Cabin......... 2.1 -- -- -- --
----- ----- ----- ----- -----
Total North America.......... 17.4 13.9 16.3 10.9 11.2
Rest of the world:
Mount Nelson..................... 2.7 3.5 5.1 4.8 4.7
Westcliff........................ (0.5) (0.7) -- -- --
Gametrackers..................... 0.5 0.7 0.6 0.8 (0.2)
Copacabana Palace................ 10.0 8.8 5.8 2.2 0.3
----- ----- ----- ----- -----
Total rest of the world...... 12.7 12.3 11.5 7.8 4.8
Total owned hotels................. 57.5 48.8 44.0 32.4 24.5
Management interests............... 11.1 9.6 7.6 6.3 1.6
Restaurants........................ 5.9 5.4 4.7 3.8 1.4
----- ----- ----- ----- -----
Total hotels and
restaurants................ 74.5 63.8 56.3 42.5 27.5
Tourist trains and cruises......... 6.0 6.4 3.7 2.4 2.3
Gains.............................. 3.8 -- 5.0 -- --
Overhead........................... (6.4) (6.6) (5.8) (4.2) (3.9)
Corporate.......................... (2.5) (2.5) (2.5) (2.5) (2.5)
----- ----- ----- ----- -----
Total EBITDA................. $75.4 $61.1 $56.7 $38.2 $23.4
<CAPTION>
DATE
NO. OF DATE ACQUIRED/
LOCATION ROOMS BUILT OPENED
-------- -------- ------------- ---------
<S> <C> <C> <C> <C>
OWNED HOTELS:
Europe
Hotel Cipriani/Vendramin......... Venice, Italy 106 1950's 1976
Hotel Splendido/Mare............. Portofino, Italy 85 1901 1986
Villa San Michele................ Fiesole, Florence, Italy 40 1400's 1982
Reid's Palace.................... Madeira, Portugal 162 1891 1996
Hotel Quinta do Lago............. Algarve, Portugal 141 1988 1998
Lapa Palace...................... Lisbon, Portugal 94 1870's/1992 1998
Hotel de la Cite................. Carcassonne, France 61 1909 1997
Total Europe.................
North America
Windsor Court.................... New Orleans, LA 324 1984 1991
La Samanna....................... St. Martin, Fr. West Indies 83 1973 1996
Lodge at Vail.................... Vail, CO -- -- --
Keswick Hall/Perry Cabin......... VA & MD 48/41 1912/1812 1999
Total North America..........
Rest of the world:
Mount Nelson..................... Cape Town, South Africa 226 1899 1988
Westcliff........................ Johannesburg, South Africa 118 1998 1998
Gametrackers..................... Botswana 39 1971 1992
Copacabana Palace................ Rio de Janeiro, Brazil 223 1920's 1989
Total rest of the world......
Total owned hotels.................
Management interests...............
Restaurants........................
Total hotels and
restaurants................
Tourist trains and cruises.........
Gains..............................
Overhead...........................
Corporate..........................
Total EBITDA.................
</TABLE>
54
<PAGE>
HOTEL AND REGIONAL STATISTICS 1997-1999
<TABLE>
<CAPTION>
AVERAGE DAILY RATE--$ OCCUPANCY REVPAR--$
------------------------------ ------------------------------ ------------------------------
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
------------------------------ ------------------------------ ------------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Europe
Hotel Cipriani/
Vendramin......... $733 $697 $632 79% 81% 79% $578 $562 $499
Hotel
Splendido/Mare.... 551 510 500 65 65 64 358 332 321
Villa San Michele.... 553 528 492 82 80 76 455 420 373
Reid's Palace........ 257 248 247 62 74 65 160 183 159
Hotel Quinta do
Lago.............. 176 183 -- 77 78 -- 135 143 --
Lapa Palace.......... 197 213 -- 74 79 -- 146 167 --
Hotel de la Cite..... 205 199 120 63 56 85 129 112 101
North America
Windsor Court........ 251 242 242 76 72 67 190 174 162
La Samanna........... 558 533 526 77 78 71 432 418 372
Lodge at Vail........ -- -- 224 -- -- 83 -- -- 186
Keswick Hall......... 260 -- -- 71 -- -- 184 -- --
Perry Cabin.......... 309 -- -- 79 -- -- 244 -- --
Rest of World
Mount Nelson......... 206 244 271 44 41 51 91 100 137
Westcliff............ 115 109 -- 28 27 -- 32 29 --
Gametrackers......... 263 259 312 40 40 38 104 103 120
Copacabana Palace.... 256 274 234 69 78 78 176 214 183
Regional Averages
Europe............... 327 336 374 71 74 70 231 249 261
North America........ 295 295 284 76 73 69 224 214 195
Rest of the world.... 227 251 254 50 52 61 113 131 154
Worldwide............ 289 297 301 64 65 66 186 193 199
<CAPTION>
AVERAGE DAILY RATE--LOCAL CURRENCY
-------------------------------------------
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997 CURRENCY
-------- -------- -------- ----------
<S> <C> <C> <C> <C>
Europe
Hotel Cipriani/
Vendramin......... 1,337 1,209 1,075 Lire 000's
Hotel
Splendido/Mare.... 1,005 884 850 Lire 000's
Villa San Michele.... 1,009 916 836 Lire 000's
Reid's Palace........ 48,584 44,596 43,190 Escudos
Hotel Quinta do
Lago.............. 33,172 32,957 -- Escudos
Lapa Palace.......... 37,302 38,360 -- Escudos
Hotel de la Cite..... 1,267 1,174 699 Franc
North America
Windsor Court........ 251 242 242 US $
La Samanna........... 558 533 526 US $
Lodge at Vail........ -- -- 224 US $
Keswick Hall......... 260 -- -- US $
Perry Cabin.......... 309 -- -- US $
Rest of World
Mount Nelson......... 1,263 1,354 1,247 Rand
Westcliff............ 703 604 Rand
Gametrackers......... 1,215 1,095 1,134 Pula
Copacabana Palace.... 463 318 253 Real
Regional Averages
Europe............... -- -- -- --
North America........ -- -- -- --
Rest of the world.... -- -- -- --
Worldwide............ -- -- -- --
</TABLE>
55
<PAGE>
INDUSTRY AWARDS
We have gained a worldwide reputation for quality and service in the luxury
segment of the leisure and business travel market. This reputation was recently
acknowledged by Conde Nast Traveler when we were listed as one of the top two
"Best Hotel Chains in Europe," and over the last 18 months our 31 properties won
67 national and international awards, 13 of which were "Number One" or "Best" in
the category. Following is a selection of our recent awards. These awards were
given by trade or consumer publications or industry bodies. They are based on
opinion polls of their readers or the professional opinion of journalists or
panels of experts. Data is gathered from questionnaires in the publications or
based on journalist or inspector visits. In many cases, the data is processed by
independent market research companies.
Awards from publications such as Conde Nast Traveller (UK), Conde Nast
Traveler (USA), Tatler and private subscription newsletters such as Andrew
Harper's Hideaway Report, are considered to influence consumer choice and are
therefore highly prized. Trade awards such as those from Mobil and the American
Automobile Association result in a listing in their guides, which also
influences consumer travel plans.
A SELECTION OF RECENT AWARDS
<TABLE>
<S> <C>
ORIENT-EXPRESS HOTELS....................................... 2nd Best European Hotel Group in 2000--Conde Nast Traveler
(USA)
3rd Best North American Hotel Group in 1999--Conde Nast
Traveler (USA)
8th Best North American Hotel Group in 2000--Conde Nast
Traveler (USA)
HOTEL CIPRIANI.............................................. 9th Best Hotel in the World 1999--Conde Nast Traveller (UK)
Room at the Top 1998--Gourmet Magazine
HOTEL SPLENDIDO............................................. 5th Best Loved Hotel in the World 1999--The Times (London)
15th Best Hotel in the World 1999--Conde Nast Traveller (UK)
SPLENDIDO MARE.............................................. 1999 Hot List--Conde Nast Traveler (USA)
VILLA SAN MICHELE........................................... Number 1: Top Ten Luxury Escapes 1999--Daily Telegraph
(London)
Number 15: Top Twenty International Resorts 1999--Andrew
Harper's Hideaway Report
QUINTA DO LAGO HOTEL........................................ Best Golf Resort Hotel in Europe 2000--Hertz International
Golf Awards
Finest Golf Resort in the World--Silver Medal--Golf Magazine
REID'S PALACE HOTEL......................................... 4th Best Hotel in the World 1999--Daily Telegraph (London)
HOTEL DE LA CITE............................................ Great Escape 1999--Sunday Business (London)
1999 Hot List--Conde Nast Traveler (USA)
WINDSOR COURT HOTEL......................................... Number 1 Hotel in the World 1999--Conde Nast Traveler (USA)
Top five Hotels in North America 1993-1999--Zagat Hotel
Survey
Number 2 Hotel in the World 1999--American Association of
Travel Editors
Award of Excellence 1999--Millionaire Magazine
CHARLESTON PLACE HOTEL...................................... Four Diamonds--American Automobile Association
Charleston Grill--Mobil Four Star Award 1998
</TABLE>
56
<PAGE>
<TABLE>
<S> <C>
KESWICK HALL HOTEL.......................................... 8th Top Small Hotels in the World 1998
Gold Award: Best 500 Hotels in the World 1998--Conde Nast
Traveler (USA)
INN AT PERRY CABIN.......................................... Best Small Hotel in the US 1998--Conde Nast Traveler (USA)
Country House Hotel of the Year 1997--Andrew Harper's
Hideaway Report
COPACABANA PALACE........................................... Best Luxury Hotel in Latin America--1997 Official Hotel
Guide
MOUNT NELSON HOTEL.......................................... Best Hotel in Africa 1999--Conde Nast Traveler (USA)
Africa's Leading Hotel 1999--World Travel Awards
Cape Colony--Top Ten Restaurants in the World 1998--Hotels
Magazine
OBSERVATORY HOTEL........................................... Asia/Pacific's Leading Hotel 1998 and 1999--World Travel
Awards
4th Best Business Hotel in the World 1999--Conde Nast
Traveller (UK)
LILIANFELS HOTEL............................................ Australian Tourism Award for Luxury Accommodation 1998
101 Best Hotels in the World 1998--Tatler Cunard Travel
Guide
BORA BORA LAGOON RESORT..................................... Asia/Pacific's Leading Resort 1999--World Travel Awards
Number 1 Exotic Destination 1998--Robb Report
'21' CLUB................................................... Forbes Magazine's December 1999 list of Four Star New York
Eateries
Award of Excellence 1998--Wine Spectator Magazine
VENICE SIMPLON-ORIENT-EXPRESS............................... Honorary member of Relais and Chateaux since 1986
Golden Lion: presented by the mayor of Venice in recognition
of
the contribution made by Venice Simplon-Orient-Express to
the people of Venice
EASTERN & ORIENTAL EXPRESS.................................. Five Star Diamond Award 2000--American Academy of
Hospitality Sciences (the first and only such award given to
a train)
GREAT SOUTH PACIFIC EXPRESS................................. 1999 Hot List--Conde Nast Traveler (USA)
</TABLE>
COMPETITION
We compete for hotel and restaurant acquisition opportunities with others
who have substantially greater financial resources than we do. This competition
may have the effect of increasing our acquisition costs by reducing the number
of suitable investment opportunities offered to us and increasing the bargaining
power of property owners seeking to sell or to enter into management agreements.
Competition in the hospitality industry is based generally on convenience of
location, room rates, menu prices, range and quality of food services and
amenities offered, types of cuisine, and name recognition. Demographic,
geographic or other changes in one or more of our markets could impact the
convenience or desirability of the sites of our hotels and restaurants, and so
could adversely affect their operations. Also, new or existing competitors could
significantly lower rates or offer greater conveniences, services or amenities
or significantly expand, improve or introduce new facilities in markets in which
our hotels and restaurants compete.
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Typically, our hotels and restaurants compete with others located in the
same local area. In some locations, new hotels could be built that might lead to
greater competition and adversely affect our performance. For example, a new
hotel is under construction in New Orleans near the Windsor Court Hotel.
In other locations, such as Venice, there are significant barriers to entry.
However, existing competitors may significantly improve their facilities or
change their pricing policies.
Our strategy is to develop and emphasize the special character of each of
our hotels so that the guest experience is different from that offered by
competitors. In this way, we seek to avoid competing solely on the basis of
price.
Our luxury trains have no direct competitors. Other trains may exist on
similar routes, but we believe that our carriages and service are so unique that
guests consider our trains more as a luxury experience and an end in themselves
than as a routine means of transport.
EMPLOYEES
We currently employ about 4,500 persons, about 2,000 of whom are represented
by labor unions. Approximately 3,300 persons are employed in our hotels and
restaurant business 1,100 are employed in our trains and cruises business, and
the balance are engaged in central administration and sales. We believe that our
ongoing labor relations are good.
LITIGATION
There are no material pending legal proceedings, other than ordinary routine
litigation incidental to its business, to which Orient-Express Hotels or any of
its subsidiaries is a party or of which any of their property is the subject.
GOVERNMENT REGULATION
The hospitality industry in general, and Orient-Express Hotels in
particular, is subject to numerous foreign and U.S. federal, state and local
government regulations. See "Risk Factors--The hospitality industry is subject
to much government regulation." We believe that we are in compliance in all
material respects with statutory and administrative government regulations with
respect to our business.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The table below lists the directors, executive officers and key employees of
Orient-Express Hotels and their ages as of May 26, 2000.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- -------- ------------------------------------------
<S> <C> <C>
James B. Sherwood......................... 66 Chairman of the Board of Directors
Simon M.C. Sherwood....................... 39 President and Director
James G. Struthers........................ 36 Vice President--Finance and Chief
Financial Officer
Jean-Paul Foerster........................ 50 Vice President--Hotel Operations, Europe
and South America
Dean P. Andrews........................... 47 Vice President--Hotel Operations, North
America
Paul White................................ 35 Vice President--Hotel Operations, Africa,
Australasia and PeruRail
Nicholas R. Varian........................ 46 Vice President--Tourist Trains and Cruises
Peter Parrott............................. 65 Vice President and Treasurer
Pippa Isbell.............................. 46 Vice President--Public Relations
John D. Campbell.......................... 57 Vice President--Bermuda and Director
Edwin S. Hetherington..................... 50 Secretary
James B. Hurlock.......................... 66 Director
J. Robert Lovejoy......................... 55 Director
Daniel J. O'Sullivan...................... 61 Director
</TABLE>
James B. Sherwood has been President and a director of Sea Containers and
its predecessors since 1965. He is the stepfather of Simon M.C. Sherwood.
Simon M.C. Sherwood was educated in England at Cambridge University and
obtained an MBA degree with distinction at the Harvard Business School. From
1986-90 he was Manager, Strategic Consulting with the Boston Consulting Group
based in San Francisco. In 1991 he came to Sea Containers as Vice
President--Strategy and in 1994 became President of Orient-Express Hotels.
James G. Struthers qualified as a chartered accountant in 1986. He joined
Sea Containers in 1991 and in 1995 became Group Financial Controller. From June
1997 until August 1999 he was Finance Director of Eurostar (UK) Ltd., operator
of the high speed passenger train services between Britain and Continental
Europe. Mr. Struthers returned to Sea Containers as Vice President, Controller
in September 1999 and was appointed Vice President--Finance and Chief Financial
Officer of Orient-Express Hotels in April 2000.
Jean-Paul Foerster became Vice President in 1992. He is responsible for the
Orient-Express Hotels properties in Europe and Latin America. He trained at the
Hotel School Lausanne and gained international experience in various management
positions with Savoy Group, Intercontinental Hotels and Regent International
Hotels. He has worked in Europe, South America, the United States and the Far
East. Mr. Foerster joined Orient-Express Hotels in 1987 as General Manager of
Quinta do Lago Hotel.
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Dean P. Andrews became Vice President--Hotel Operations in August 1997,
responsible for our North American properties. Before joining Orient-Express
Hotels, Mr. Andrews was with Omni Hotels since 1981, where he spearheaded new
hotel development and financial and asset management. He is a graduate of the
University of Colorado.
Paul White trained with Forte and obtained professional qualifications
(ACMA) in 1989. He then served as Financial Controller and subsequently as
General Manager of The Bell Inn, Buckinghamshire, England, a five-star hotel.
Mr. White joined Orient-Express Hotels in 1991, working closely with financial
and operational matters, and was appointed Director--Hotel Operations in Africa
and Australasia in December 1998. In September 1999, he became responsible for
the management of PeruRail and in May 2000 he became Vice President.
Nicholas R. Varian is responsible for the tourist trains of Orient-Express
Hotels except PeruRail, and its Road to Mandalay river cruises. He also oversees
Collection Venice Simplon-Orient-Express, the merchandising arm providing gifts
and souvenirs branded with our properties' names. Mr. Varian joined Sea
Containers in May 1985, with responsibility for its Mediterranean Cruise
Operations, after being employed by P&O Steam Navigation Company for nine years
in various managerial capacities in the passenger transport and tourism
businesses. He joined Orient-Express Hotels in November 1989 as Vice
President--Trains. Mr. Varian is a graduate of Birmingham University with a
degree in law.
Peter Parrott joined Orient-Express Hotels in 1983 and became Vice President
and Treasurer in 1990. Previously he was Financial Director of Cunard Line and
Financial Director of Grand Metropolitan Hotels.
Pippa Isbell joined Orient-Express Hotels in July 1998 after selling the
public relations consultancy firm she had founded in 1987. She has 15 years
experience in public relations in the hospitality industry. She has worked with
Inter-Continental Hotels and Resorts, Forte, Hilton International, Jarvis Hotels
and Millennium and Copthorne. Her earlier career was in retailing, with Harrods,
Harvey Nichols and the Jaeger Group. She was appointed Vice President in May
2000.
John D. Campbell has been Vice President--Bermuda of Orient-Express Hotels
since May 2000 and has also been Vice President--Bermuda of Sea Containers since
1990 and a director of Sea Containers since 1980. He was a member of the Bermuda
law firm of Appleby Spurling & Kempe until April 1999 and since then has been
senior counsel to that firm.
Edwin S. Hetherington has been Secretary of Orient-Express Hotels and its
predecessors since 1980. He has also been General Counsel and Secretary of Sea
Containers since 1984 and a Vice President of Sea Containers since October 1997.
J. Robert Lovejoy has been a Senior Managing Director of Ripplewood Holdings
LLC, a private equity investment firm based in New York City, since January
2000. Prior to joining Ripplewood, he was a Managing Director of Lazard
Freres & Co. LLC and a General Partner of the predecessor partnership for over
15 years. At Lazard he served in various capacities, including co-head of
General Banking and Alternate Member of Lazard Partners, the Firm's global
coordinating body. Prior to joining Lazard in 1984, Mr. Lovejoy was a partner in
the law firm of Davis Polk & Wardwell, which he joined in 1971.
James B. Hurlock is a partner in the law firm of White & Case. As Chairman
of its Management Committee from 1980-2000, Mr. Hurlock oversaw the firm's
operations worldwide. He also headed its sovereign representation practice. He
concentrates in international financial transactions and has significant
experience in debt restructuring. He advises clients regarding mergers and
acquisitions, the secured financing of projects, shipping and aircraft, and a
wide variety of direct foreign investments in manufacturing and service
businesses.
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Daniel J. O'Sullivan has been Senior Vice President--Finance and Chief
Financial Officer of Sea Containers since June 1997, having previously been
Senior Vice President--Finance and Treasurer from 1986.
BOARD STRUCTURE AND COMPENSATION
The Board of Directors of Orient-Express Hotels is currently comprised of
three persons who are, and after this offering will be, directors and executive
officers of Sea Containers--James B. Sherwood, John D. Campbell and Daniel J.
O'Sullivan--and three persons who after this offering will not be directors or
employees of Sea Containers or otherwise associated with it--Simon M.C.
Sherwood, James B. Hurlock and J. Robert Lovejoy. Prior to the distribution by
Sea Containers of our class A and class B common shares to the shareholders of
Sea Containers, the Board of Directors of Orient-Express Hotels will elect an
additional person to that Board who is not affiliated, employed or otherwise
associated with Sea Containers.
Non-employee directors will be paid an annual retainer equal to $15,000 and
a fee of $2,500 for each meeting of the Board of Directors or a committee
thereof which he attends in person, and $1,250 for each meeting attended by
conference telephone call.
AUDIT COMMITTEE
Messrs. Campbell, Hurlock and Lovejoy are members of the audit committee of
our Board of Directors. The audit committee reviews our auditing, accounting,
financial reporting and internal control functions and makes recommendations to
the board of directors for the selection of independent auditors. Also, the
committee monitors the quality of our accounting principles and financial
reporting, as well as the independence of and the non-audit services provided by
our independent auditors. In discharging its duties, the audit committee
- reviews and approves the scope of the annual audit and the independent
auditors' fees,
- meets independently with our independent auditors and our senior
management, and
- reviews the general scope of our accounting, financial reporting, annual
audit and internal control systems as well as the results of the annual
audit.
EXECUTIVE COMPENSATION
The following table shows the salary and bonus of the two highest
compensated executive officers of Orient-Express Hotels paid in cash during
1999, and of all executive officers as a group, for services to Sea Containers
and Orient-Express Hotels in all capacities:
<TABLE>
<CAPTION>
CASH
NAME OF INDIVIDUAL OR GROUP PRINCIPAL CAPACITIES IN WHICH SERVED COMPENSATION
--------------------------- --------------------------------------- ------------
<S> <C> <C>
James B. Sherwood...................... President of Sea Containers; Chairman $1,040,800
of Orient-Express Hotels
Simon M.C. Sherwood.................... Senior Vice President--Leisure of Sea 476,200
Containers; President of Orient-Express
Hotels
All executive officers as a group 3,144,600
(eleven persons).....................
</TABLE>
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<PAGE>
STOCK OPTION PLAN
The Board of Directors of Orient-Express Hotels, and Sea Containers as the
sole shareholder of Orient-Express Hotels, have adopted the Orient-Express
Hotels 2000 Stock Option Plan. This option plan provides for the issue of
options to purchase up to 750,000 class A and class B common shares of
Orient-Express Hotels. To date, no option has been awarded under the option
plan. It is currently anticipated that at the completion of this offering,
- James B. Sherwood will receive options under the option plan to purchase
70,000 class A common shares of Orient-Express Hotels,
- Simon M.C. Sherwood will receive options to purchase 140,000 class A
common shares,
- Seven other executive officers of Orient-Express Hotels will receive
options to purchase an aggregate of 172,000 class A common shares in
individual amounts ranging from 32,000 shares to 14,000 shares, and
- Twenty-two other employees of Orient-Express Hotels will receive options
to purchase an aggregate of 149,500 class A common shares in individual
amounts ranging from 14,000 shares to 3,000 shares.
In all cases, the option price per share will be the initial public offering
price per share in this offering.
ADMINISTRATION AND ELIGIBILITY
The option plan will be administered by the Board of Directors of
Orient-Express Hotels or, if appointed, a committee of the Board. The Board has
appointed no committee to date.
Options under the option plan may be granted in the discretion of the Board
to any director, officer or employee of Orient-Express Hotels or any of its
subsidiaries who, in the opinion of the Board, has contributed significantly to
the growth and progress of Orient-Express Hotels or any subsidiary, or to
persons who hold the promise of so contributing and can be attracted to
directorship, officership or employment through the grant of options under the
option plan.
TERMS OF THE PLAN
Options may be granted for up to an aggregate of 750,000 class A and
class B common shares of Orient-Express Hotels, as adjusted to reflect share
dividends, share splits, share combinations, exchanges of shares or similar
capital adjustments. The shares covered by options may be either shares acquired
in the open market or authorized but unissued shares. The purchase price of the
shares under each option will be not less than the fair market value of the
shares at the time the option is granted, as determined by the Board, and will
be adjusted for any share dividends, splits, combinations, exchanges or similar
capital adjustments.
In general, no option under the option plan may be exercised during the
three years following its grant. Each option will expire
(a) ten years from the date of grant,
(b) one year after the optionee dies,
(c) three months after the optionee ceases to be a director, officer or
employee for reasons not involving misconduct, impropriety or
inefficiency, or
(d) upon termination of the optionee's directorship, officership or
employment for reasons involving misconduct, impropriety or
inefficiency, whichever occurs first.
However, if an optionee dies less than one year prior to the date his or her
option would otherwise expire, the optionee's representative may generally
exercise the option within one year following the
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<PAGE>
death regardless of the expiration of the ten-year term. If an optionee's
directorship, officership or employment terminates due to normal or early
retirement, injury, disability, dismissal for redundancy or, with the Board's
concurrence, sale or other disposition by Orient-Express Hotels of its relevant
subsidiary or operating division, then the option held by the optionee will
continue to be exercisable for three months following termination although the
three-year period commencing on the date of grant has not expired. If an
optionee dies while owning an option, the optionee's representative may exercise
the option although the three-year period has not expired.
At the time of exercise, the optionee must pay to Orient-Express Hotels the
full option price of the shares as to which the option is exercised. With the
permission of the Board of Directors, all or part of the payment may be deferred
for up to five years from the date of exercise if the deferral is in compliance
with United States regulations and the underlying shares are held by
Orient-Express Hotels as collateral for the deferred portion of the purchase
price. Optionees electing to defer payment are required to pay interest at a
rate of not less than four percent per annum on the amount deferred. They will
have the right to withdraw part or all of the option shares held by
Orient-Express Hotels upon payment of a corresponding portion of the deferred
option price and will be entitled, from the date of exercise, to the rights of a
shareholder as to the class A or class B common shares covered by the exercised
option, including the right to vote the shares and receive dividends thereon.
If a "change of control" of Orient-Express Hotels occurs, options granted
under the option plan will become immediately exercisable, and an optionee may
thereafter surrender his option instead of exercising it and receive in cash
from Orient-Express Hotels the difference between the option exercise price and
the "determined value" of the underlying shares. A change in control generally
means
- the acquisition of more than 40% of the voting shares in Orient-Express
Hotels by any person or group (other than James B. Sherwood or any
subsidiary of Orient-Express Hotels, or a group including either of them),
- the current directors of Orient-Express Hotels ceasing to constitute at
least a majority of the Board, or
- a merger, sale of substantially all assets or similar transactions
involving Orient-Express Hotels without approval of its directors at least
a majority of whom are the current directors.
Determined value generally means either the highest market price of the shares
during the twelve months prior to the change in control transaction or the
highest price paid in that transaction.
An optionee may not transfer an option except by will or the laws of descent
and distribution.
TERMINATION AND AMENDMENT OF THE OPTION PLAN
The option plan will terminate on the earliest of
- the date of any corporate amalgamation, merger, consolidation or similar
transaction involving Orient-Express Hotels, if the option plan is not
continued pursuant to that transaction,
- the date of a resolution of the Board of Directors terminating the option
plan, or
- 2010.
Any option outstanding at the time the option plan terminates will remain in
effect until the option is exercised or expires.
The Board of Directors may modify the option plan without further
shareholder action. No amendment may alter or impair the rights of any optionee,
without his consent, under any option granted prior to the amendment.
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<PAGE>
INTERESTS OF MANAGEMENT IN CERTAIN TRANSACTIONS
James B. Sherwood owns a private residential apartment in the Hotel Cipriani
in Venice. Subsidiaries of Orient-Express Hotels have granted him a right of
first refusal to purchase the hotel, or the shares of the subsidiaries which own
the hotel, if Orient-Express Hotels proposes to sell or transfer 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. Similarly, if Mr. Sherwood proposes to sell his
apartment, he has granted a subsidiary of Orient-Express Hotels a right of first
refusal to purchase it at fair market value or, at Mr. Sherwood's option in the
case of a proposed cash sale, the offered sale price. Also, a subsidiary of
Orient-Express Hotels has granted an option to Mr. Sherwood to purchase the
hotel at fair market value if a change in control of Sea Containers occurs. If
Sea Containers distributes our class A and class B common shares to its
shareholders, this option to purchase will be amended to become effective if a
change in control of Orient-Express Hotels occurs, rather than a change in
control of Sea Containers.
Mr. Sherwood and the subsidiary of Orient-Express Hotels which owns the
Hotel Cipriani have entered into an agreement under which he may rent his
apartment to the hotel in return for 50% of the rates paid by hotel guests for
use of the apartment. In 1999, the hotel paid Mr. Sherwood $125,000 for the use
of his apartment. Also, in any calendar year when the apartment is made
available to the hotel for 90 days or more when the hotel is open to guests, the
hotel is obligated to clean, repair and insure the apartment at its expense and
provide Mr. Sherwood and his guests with all hotel services other than food and
drink free of charge, including electricity, air conditioning, telephone rental,
water and room services for the apartment. To the extent that the apartment is
made available to the hotel for less than 90 days per year, Mr. Sherwood must
pay a proportionate share of those expenses.
OUR SEPARATION FROM SEA CONTAINERS
OVERVIEW
Sea Containers has developed a plan to make Orient-Express Hotels, a
wholly-owned subsidiary, into an independent, publicly-traded company focused on
the leisure industry. Until the completion of this offering, Orient-Express
Hotels will continue as a wholly-owned subsidiary of Sea Containers. We expect
that the separation of our business from Sea Containers, including the transfer
of related assets, liabilities and intellectual property rights, will be
substantially completed before the completion of this offering.
BENEFITS OF THE SEPARATION
We believe that we will realize benefits from our separation from Sea
Containers, including the following:
GREATER STRATEGIC FOCUS. Sea Containers currently generates significant
revenue from lines of business other than the hotel and leisure business of
Orient-Express Hotels. These other businesses are comprised of ferry and port
operations, rail operations and the leasing, manufacture and repair of cargo
containers. Our focus after the separation will be entirely on the hotels and
leisure business. This effort will be supported by our own board of directors,
management team and employees.
BETTER INCENTIVES FOR EMPLOYEES AND GREATER ACCOUNTABILITY. We expect the
motivation of our employees and the focus of our management will be strengthened
by incentive compensation programs tied to the market performance of our
class A common shares. The separation will enable us to offer our employees
compensation directly linked to the performance of the Orient-Express Hotels
business, which we expect to enhance our ability to attract and retain qualified
personnel.
MORE DIRECT ACCESS TO CAPITAL MARKETS. As a separate company, we will have
more direct access to the capital markets to issue debt or equity securities and
to grow through acquisitions.
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<PAGE>
THE DISTRIBUTION BY SEA CONTAINERS OF OUR COMMON SHARES
After completion of this offering, Sea Containers will own approximately 65%
of our outstanding class A common shares, or approximately 60% if the U.S.
underwriters and international managers fully exercise their options to purchase
additional shares, and all of our outstanding class B common shares. Sea
Containers currently plans to complete its divestiture of Orient-Express Hotels
approximately six months after this offering, subject to the receipt by Sea
Containers of all necessary consents and approvals from its board of directors,
shareholders, lenders and others and a favorable tax opinion, by distributing
all of our class A common shares it then owns, and all of our class B common
shares, to the holders of Sea Containers' class A and class B common shares.
However, Sea Containers is not obligated to complete the distribution, and we
cannot assure you that it will occur or when.
Sea Containers has advised us that it would not complete the distribution if
its board of directors determines that the distribution is no longer in the best
interest of Sea Containers and its shareholders. Sea Containers has further
advised us that the principal factors that it would consider in determining
whether and when to complete the distribution include
- the relative market prices of our common shares and Sea Containers' common
shares,
- the absence of any court orders or regulations prohibiting or restricting
the completion of the distribution, and
- other conditions affecting our business or Sea Containers' business.
Sea Containers intends to consummate the distribution only if the following
conditions are met, any of which may be waived by Sea Containers;
- Deloitte & Touche LLP must issue a tax opinion satisfactory to Sea
Containers that its distribution of our class A and class B common shares
should be tax-free to Sea Containers' shareholders,
- the shareholders of Sea Containers must approve certain changes to its
bye-laws to permit the distribution as proposed, and the share owning
subsidiaries restructuring agreement described below,
- all required government approvals must be in effect, and
- consents from lenders and others must be received.
SEPARATION AGREEMENTS
The various agreements that detail the separation and various interim and
ongoing relationships between Sea Containers and Orient-Express Hotels following
the separation date include
- a services agreement,
- a restructuring agreement,
- a tax sharing agreement, and
- a share owning subsidiaries restructuring agreement.
Sea Containers and Orient-Express Hotels have also agreed to enter into an
appropriate non-compete agreement before the completion of this offering.
These agreements were made in the context of a parent-subsidiary
relationship, were negotiated in the overall context of our separation from Sea
Containers and were not the result of arm's-length negotiations, and we cannot
assure you that they are on terms comparable to those we could have obtained
from unaffiliated third parties.
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<PAGE>
SERVICES AGREEMENT
Orient-Express Hotels directly employs a staff of about 4,500 persons who
fulfill all of its commercial and operational activities and a significant
proportion of its administration. Under the shared services agreement with Sea
Containers, Orient-Express Hotels will have the services of the equivalent of
approximately twelve administrative personnel of Sea Containers whose cost will
be charged on a time spent basis. Orient-Express Hotels will also occupy space
in Sea Containers' offices in London and its overseas regional offices. These
administrative services and space arrangements are readily available in the open
market, and Orient-Express Hotels can choose to terminate the arrangements with
Sea Containers on one year's notice and make other arrangements. Orient-Express
Hotels has the right to audit the charges made by Sea Containers to verify that
they are in accordance with the agreement and that we have been charged
correctly for the services provided.
RESTRUCTURING AGREEMENT
Sea Containers, Orient-Express Hotels and various subsidiaries of each will
enter into a restructuring agreement providing for the transfer by Sea
Containers to Orient-Express Hotels of assets and liabilities relating to its
hotels and leisure business that we do not already own.
TAX SHARING AGREEMENT
Orient-Express Hotels will enter into a tax sharing agreement with Sea
Containers that will allocate responsibilities for tax matters between the two
companies. In general, Orient-Express Hotels will be responsible only for taxes
of the companies owned by us after the separation from Sea Containers. This
responsibility extends to prior periods. Sea Containers has agreed to indemnify
us for all taxes attributable to the separation itself.
Some of our affiliates file tax returns on a combined or unitary basis with
affiliates of Sea Containers. In general, the tax sharing agreement assigns
primary responsibility for these returns to Sea Containers. We are required to
pay the amount of tax that would be owed by our affiliates if they filed
separately from Sea Containers.
In the United Kingdom, losses of one company may be transferred to another
company under common control. The tax sharing agreement provides that one
company may require another to surrender losses to it, in return for a payment
equal to the amount of taxes thereby avoided by it.
In the United States, some Sea Containers affiliates are included in
consolidated federal income tax returns filed by some of our U.S. affiliates.
The tax sharing agreement provides that Sea Containers' share of the taxes due
on these returns is the amount that would be payable by its affiliates if they
filed separately from us.
In the event of a redetermination of taxes, a recomputation is made of
payments due under the tax sharing agreement, and further payment or
reimbursement is required. Each member of a consolidated group is jointly liable
for the group's federal income tax liability. Accordingly, we could be required
to pay a deficiency in the group's federal income tax liability even if the tax
sharing agreement allocates that liability to Sea Containers. Similarly, if a
tax loss, surrendered by a Sea Containers company to an Orient-Express Hotels
company, is subsequently disallowed, the Orient-Express Hotels company will be
liable to the tax authorities for the tax deficiency. In both cases, we will
merely have a claim for reimbursement against Sea Containers under the tax
sharing agreement.
The tax sharing agreement also assigns responsibility for administrative
matters such as the filing of returns, retention of records and conduct of
audits, examinations and similar proceedings.
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<PAGE>
SHARE OWNING SUBSIDIARIES RESTRUCTURING AGREEMENT
In connection with this offering, Sea Containers and Orient-Express Hotels
and certain of their subsidiaries will enter into a share owning subsidiaries
restructuring agreement pursuant to which subsidiaries of Orient-Express Hotels
at the time of the spinoff distribution will become the record owners of
approximately 18,056,640 class B common shares of Orient-Express Hotels, thereby
providing Orient-Express Hotels with an ownership structure very similar to that
of Sea Containers. Four subsidiaries of Sea Containers currently own 12,900,000
class B common shares of Sea Containers. In a takover of Orient-Express Hotels,
this structure may assist in maximizing the value our shareholders receive in
the takeover transaction.
Also, this agreement will operate to eliminate any cross-shareholdings in
Orient-Express Hotels and Sea Containers by their respective subsidiaries that
might otherwise arise because of the spinoff distribution of Orient-Express
Hotels shares to Sea Containers shareholders. Under applicable IRS rules, Sea
Containers and its subsidiaries may not hold any Orient-Express Hotels shares
following the spinoff in order for the spinoff to qualify as a tax-free
distribution to U.S. shareholders of Sea Containers.
Under this agreement, Sea Containers will transfer to Orient-Express Hotels
the shares of four subsidiaries which own class B common shares of Sea
Containers. Sea Containers will continue to hold all of the class B common
shares of Orient-Express Hotels. This agreement also provides that in the event
that the spinoff distribution of the shares of Orient-Express Hotels is not
consummated, a share owning subsidiary of Orient-Express Hotels will have the
right, commencing not later than the second anniversary of the date of the
agreement and continuing to the fifth anniversary of such date, to buy from Sea
Containers for a price of $.01 per share up to approximately 18,056,640
Orient-Express Hotels class B common shares. The agreement also grants to a
subsidiary of Sea Containers for the same period the right to buy from
subsidiaries of Orient-Express Hotels all of the class B common shares of Sea
Containers owned by those subsidiaries. Pending the exercise of the rights, our
subsidiaries agree to waive the right to any dividends or distribution, other
than the spinoff distribution, on Sea Containers class B common shares, and our
subsidiaries must vote their class B common shares of Sea Containers as its
subsidiary directs.
The effect of the exercise of such rights will be to place 88% of our class
B common shares, or 77% of the combined voting power of the class A and class B
common shares, in the hands of our subsidiaries. Under Bermuda law, common
shares of Orient-Express Hotels owned by its subsidiaries will be deemed to be
outstanding and may be voted by those subsidiaries. See "Description of Common
Shares--Voting Rights."
NO REPRESENTATIONS AND WARRANTIES
Neither Sea Containers nor Orient-Express Hotels is making any promises to
the other regarding
- the value of any asset that Sea Containers is transferring,
- whether there is a lien or encumbrance on any asset Sea Containers is
transferring, or
- the legal sufficiency of any conveyance of title to any asset Sea
Containers is transferring.
Sea Containers also will not be indemnifying Orient-Express Hotels for any
deficiencies or other liabilities relating to the transfer of assets or
liabilities of Orient-Express Hotels.
EXPENSES
All of the costs and expenses related to this offering as well as the costs
and expenses related to the separation and distribution will be allocated
between Orient-Express Hotels and Sea Containers. It is anticipated that
Orient-Express Hotels will bear the costs and expenses associated with this
offering
67
<PAGE>
and Sea Containers will bear the costs and expenses associated with the
distribution. Each will bear its own internal costs incurred in consummating
these transactions.
SECURITY OWNERSHIP OF SEA CONTAINERS'
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
All of our outstanding class A and class B common shares are currently owned
by Sea Containers. After this offering, Sea Containers will own about 65% of the
outstanding class A common shares, or about 60% if the underwriters fully
exercise their over-allotment options, and will continue to own all of our
class B common shares. Except for Sea Containers, we are not aware of any person
or group that will beneficially own more than 5% of the outstanding class A
common shares following this offering. None of the executive officers, directors
or director nominees of Orient-Express Hotels currently owns any shares of
class A common shares of Orient-Express Hotels, but those who own common shares
of Sea Containers will be treated on the same terms as other holders of Sea
Containers' common shares in any distribution by Sea Containers of the class A
and class B common shares of Orient-Express Hotels.
FIVE PERCENT SHAREHOLDERS OF SEA CONTAINERS
The following table contains information concerning the beneficial ownership
of Sea Containers' class A common shares and class B common shares by the only
persons known to Sea Containers to own beneficially more than 5% of the
outstanding shares of either class. The class A and class B common shares of Sea
Containers have the same voting rights as the class A and class B common shares
of Orient-Express Hotels. That is, holders of class A common shares and class B
common shares of Sea Containers generally vote together as a single class on all
matters submitted to a vote of Sea Containers' shareholders, with holders of
class B common shares having one vote per share and holders of class B common
shares having one-tenth of a vote per share.
Each of Sea Containers House Ltd., The Marine Container Insurance Co. Ltd.,
Sea Containers Asia Ltd., Sea Containers Holdings Ltd., and Orient-Express
Hotels Inc. is a direct or indirect wholly-owned Sea Containers subsidiary which
owns Sea Containers' class B shares as shown in the table (except Orient-Express
Hotels Inc., which owns only 500 shares). Sea Containers House Ltd., The Marine
Container Insurance Co. Ltd. and Sea Containers Asia Ltd. are indirect
subsidiaries of Sea Containers and direct subsidiaries of Orient-Express Hotels.
Under Bermuda law, the shares owned by these five direct or indirect
subsidiaries of Sea Containers are deemed to be outstanding and may be voted.
Each class B share is convertible at any time into one class A share and
therefore, the shares listed as owned by the subsidiaries below represent
class B shares and the class A shares into which those shares are convertible.
Voting and dispositive power with respect to the class B common shares of
Sea Containers owned of record by each subsidiary below is exercised by its
Board of Directors. Messrs. Daniel J. O'Sullivan, John D. Campbell, A. Shaun
Morris and John R. Edney are the directors of Sea Containers House Ltd.; Messrs.
James B. Sherwood, O'Sullivan, Campbell, Morris, Ian Hilton, Steven S. James and
Simon J. Moore are the directors of The Marine Container Insurance Co. Ltd.;
Messrs O'Sullivan, Philip J.R. Schlee, Robert S. Ward, Michael V. Scawn,
Chresten A. Bjerrum and Hyston Chow are the directors of Sea Containers Asia,
Ltd.; and Messrs. O'Sullivan, Scawn, Campbell and Morris are the directors of
Sea Containers Holdings Ltd. Each of these persons may be deemed to share
beneficial ownership of the class B common shares of Sea Containers owned by
each subsidiary for which he serves as a
68
<PAGE>
director, as well as the class A common shares of Sea Containers into which
those class B shares are convertible.
<TABLE>
<CAPTION>
SEA CONTAINERS
-------------------------------------------------------
NO. OF CLASS A PERCENT OF PERCENT OF
NAME AND ADDRESS AND CLASS B SHARES CLASS A SHARES(1) CLASS B SHARES
---------------- ------------------ ----------------- --------------
<S> <C> <C> <C>
Sea Containers House Ltd....................... 6,064,000 26.6% 41.3%
41 Cedar Avenue
Hamilton HM EX
Bermuda
The Marine Container Insurance Co. Ltd......... 2,907,000 14.8% 19.8%
41 Cedar Avenue
Hamilton HM EX
Bermuda
Sea Containers Asia Ltd........................ 2,853,000 14.6% 19.4%
811 Ocean Centre
Harbour City
Canton Road, Kowloon
Hong Kong
Sea Containers Holdings Ltd.................... 1,076,000 6.0% 7.3%
41 Cedar Avenue
Hamilton HM Ex
Bermuda
James B. Sherwood(2)........................... 1,334,501 7.5% 6.6%
Sea Containers America Inc.
1155 Avenue of the Americas
New York, New York 10036
Franklin Resources Inc.(3)..................... 1,821,819(4) 10.9% --
777 Mariners Island Blvd.
San Mateo, California 94403
David L. Babson & Co., Inc.(3)................. 1,530,550(4) 9.2% --
One Memorial Drive
Cambridge, Massachusetts 02142
</TABLE>
------------------------
(1) The percentage of class A shares for each person shown in this table is
based on the class A shares outstanding on April 30, 2000, plus the
class A shares issuable upon conversion of the class B shares beneficially
owned by that person.
(2) Comprised of 359,805 class A shares plus 974,696 class A shares issuable
upon conversion of a like number of class B shares, over all of which
Mr. James B. Sherwood has sole voting and investment power.
(3) The information with respect to Franklin Resources Inc. and David L.
Babson & Co., Inc. is derived from their respective Schedule 13G reports
amended as of December 31, 1999, filed with the Securities and Exchange
Commission. The report of Franklin Resources Inc., the parent holding
company of various investment advisers, states that it has sole voting and
investment power with respect to 1,821,819 class A shares. The report of
David L. Babson & Co., Inc., a registered investment adviser, states that it
has sole voting and investment power with respect to 1,530,550 class A
shares.
(4) Class A shares only.
DIRECTORS AND EXECUTIVE OFFICERS
The following table and the footnotes thereto contain information concerning
the beneficial ownership of Sea Containers' class A common shares and class B
common shares by each director and
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<PAGE>
executive officer of Orient-Express Hotels and by all directors and executive
officers of Sea Containers as a group:
<TABLE>
<CAPTION>
SEA CONTAINERS
---------------------------------
NO. OF CLASS A PERCENT OF CLASS
NAME SHARES A SHARES(1)
---- -------------- ----------------
<S> <C> <C>
James B. Sherwood........................................... 1,334,501(2) 7.5%
Simon M.C. Sherwood......................................... 22,045 *
James G. Struthers.......................................... -0- --
Jean-Paul Foerster.......................................... -0- --
Nicholas R. Varian.......................................... -0- --
Peter Parrott............................................... -0- --
Dean P. Andrews............................................. 200 *
Paul M. White............................................... -0- --
Pippa Isbell................................................ -0- --
John D. Campbell............................................ 2,000(3) *
Edwin S. Hetherington....................................... 11,558(4) *
James B. Hurlock............................................ -0- --
J. Robert Lovejoy........................................... -0- --
Daniel J. O'Sullivan........................................ -0- --
All directors and executive officers as a group (14
persons)..................................................
</TABLE>
------------------------
(1) The percentage of class A shares for each person and the group shown in this
table is based on the 16,725,118 class A shares issuable upon conversion of
the class B shares beneficially owned by that person or the group.
Percentages of less than 1% are indicated by an asterisk.
(2) Comprised of 359,805 class A shares plus 974,696 class A shares issuable
upon conversion of a like number of class B shares, over all of which
Mr. James Sherwood has sole voting and dispositive power. In addition,
Mr. James Sherwood has been granted options to purchase 15,000 class A
shares under Sea Containers' 1997 Stock Option Plan which become exercisable
in October 2001 and August 2002.
(3) Mr. Campbell shares voting and dispositive power with respect to these
shares.
(4) Includes 50 class A shares issuable upon conversion of a like number of
class B shares, over all of which Mr. Hetherington has sole voting and
dispositive power.
Depending on market conditions, Simon M.C. Sherwood intends to sell up to
12,000 of his Sea Containers class A common shares and to use most of the
proceeds to buy class A common shares in this offering. See
"Underwriting--Reserved Shares."
DESCRIPTION OF COMMON SHARES
The authorized capital of Orient-Express Hotels consists of 120,000,000
class A common shares, 120,000,000 class B common shares and 30,000,000
preferred shares. Immediately following this offering, there will be 28,418,927
class A common shares and 2,481,073 class B common shares outstanding, assuming
the underwriters do not exercise their overallotment option. The number of
class B common shares outstanding does not include the 18,056,640 shares owned
by Sea Containers that are accounted for as a deduction from shareholders'
equity.
DIVIDEND RIGHTS
Holders of class A and class B common shares receive such dividends as the
Orient-Express Hotels Board of Directors declares out of amounts available under
Bermuda law for that purpose. The Board of Directors may not declare a cash
dividend on the class A or class B common shares without at the same time
declaring an equal cash dividend on the other class of common shares.
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<PAGE>
For distributions other than cash dividends, the class A and class B common
shares rank equally and have the same rights, except that
- Orient-Express Hotels can distribute class A common shares, or rights,
options or warrants to subscribe for class A common shares, only to the
holders of class A common shares,
- Orient-Express Hotels can distribute class B common shares, or rights,
options or warrants to subscribe for class B common shares, only to the
holders of class B common shares, and
- the ratio of the number of class A common shares outstanding to the number
of class B common shares outstanding, each on a fully diluted basis, must
be the same immediately after such a distribution as immediately before
it.
No Bermuda law, decree or regulation restricts the export or import of
capital, affects payment of dividends or other distributions by Orient-Express
Hotels to non-resident shareholders, or subjects United States holders of
class A or class B common shares to taxes. Future dividends will depend upon
Orient-Express Hotels' results of operations, financial position, capital
requirements and other relevant factors.
VOTING RIGHTS
Except as otherwise provided by Bermuda law, the holders of class A and
class B common shares have exclusive voting rights at any general meeting of
shareholders of Orient-Express Hotels, subject to the voting rights of the
holders of any preferred shares which Orient-Express Hotels may issue in the
future.
In general, holders of class A common shares and holders of class B common
shares vote together as single class with holders of class A common shares
having one-tenth of one vote per share and holders of class B common shares
having one vote per share. However,
- Any action varying the rights of either class would require the separate
approval of that class as well as the approval of both classes voting
together.
- Any "Business Combination," as defined in the bye-laws, involving
Orient-Express Hotels and an "interested person" must be approved by the
holders of not less than 90% of the outstanding class A and class B common
shares voting together as a single class, each with one vote, unless the
Business Combination meets certain procedural and fair price requirements.
An interested person is defined generally as a person, other than
Orient-Express Hotels, Sea Containers or a subsidiary, which is the
beneficial owner of shares or rights over shares carrying 15% or more of
the votes which may be cast at any general meeting of Orient-Express
Hotels.
- The shareholders of Orient-Express Hotels may remove directors from
office, with or without cause, at a special general meeting only by a
resolution adopted by the holders of not less than 90% of the outstanding
class A and class B common shares voting together as a single class, each
with one vote. A director may also be removed for cause by resolution of
the directors, or can be defeated for re-election at an annual general
meeting.
- If at any time a person becomes an interested person as defined above,
that person, with certain exceptions, will not be able to cast more than
15% of the votes which may be cast at any general meeting of
Orient-Express Hotels for a period of five years from the date that such
person first became an interested person.
There is no provision for cumulative voting for the election of our
directors, under which, for example, a shareholder with ten votes participating
in an election for three directors could cast 30 votes for one nominee rather
than 10 votes for each of three nominees. In the absence of cumulative voting,
those shareholders can elect all of the directors which together can cast a
majority of the votes
71
<PAGE>
represented by all outstanding class A common shares each with one-tenth of a
vote and class B common shares each with one vote. So long as the number of
outstanding class B common shares exceeds one-tenth the number of outstanding
class A common shares, the holders of class B common shares could control the
outcome of most matters submitted to a vote of our shareholders.
In general, under The Companies Act 1981 of Bermuda and the Orient-Express
Hotels bye-laws, approval of any matter proposed at any general meeting requires
the affirmative vote of a simple majority of the total votes cast on that matter
by the holders of class A common shares and class B common shares present in
person or represented by proxy. Matters requiring such simple majority approval
include proposals for the sale of all or substantially all of Orient-Express
Hotels' assets, and amendments to its memorandum of association or bye-laws. A
few matters would require more than majority approval under The Companies Act
1981, such as loans to directors, which would require the affirmative vote of at
least 90% of the total votes of all outstanding class A and class B common
shares, or a change of Orient-Express Hotels' independent auditors, which would
require the affirmative vote of at least two-thirds of the total votes cast of
class A and class B common shares, or a proposal for the amalgamation or merger
of Orient-Express Hotels with another corporation, which would require the
affirmative vote of at least 75% of the total votes cast of class A and class B
common shares.
The normal quorum for general meetings is the presence, in person or by
proxy, of the holders of class A and class B common shares carrying a majority
of the votes which may be cast at the meeting. However, at any special general
meeting called for the purpose of electing directors or increasing or reducing
the number of directors, the holders of not less than 90% in number of the
outstanding class A and class B common shares must be present in person or by
proxy to constitute a quorum.
There are no limitations imposed by Bermuda law or by Orient-Express Hotels'
charter and bye-laws on the rights of persons who are not citizens or residents
of Bermuda to hold or vote class A or class B common shares.
[This space is intentionally left blank]
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<PAGE>
Immediately after the distribution and related transactions, three
subsidiaries of Orient-Express Hotels will own a total of 18,056,640 class B
common shares, or approximately 88% of the outstanding class B common shares.
The shares held by these subsidiaries are by law deemed issued and outstanding,
so that the subsidiaries may vote them. Therefore, the subsidiaries will be able
to vote approximately
- 77% of the total number of votes which may be cast by the holders of the
class A and class B common shares on matters for which each class A common
share has one-tenth of a vote, and
- 37% of the total number of votes which may be cast by the holders of the
class A and class B common shares on the "Business Combination" and
director removal matters described above for which each class A common
share has one vote.
RIGHTS AGREEMENT
Orient-Express Hotels has in place a shareholder rights agreement providing
for rights to purchase series A junior participating preferred shares of
Orient-Express Hotels. The rights are not currently exercisable and they are
attached to and trade together with the class A and class B common shares on a
one-to-one basis. A right will be attached to each class A common share sold in
this offering.
The shareholder rights agreement will take effect not earlier than the tenth
day after the first to occur of
- the public announcement that a person or group has become an "acquiring
person," that is, a person or group that has acquired beneficial ownership
of shares carrying 20% or more of the total votes which may be cast at any
general meeting of Orient-Express Hotels, but excluding any subsidiary of
Orient-Express Hotels, Sea Containers or any subsidiary of Sea Containers,
and
- the commencement or announcement of an intended tender offer or exchange
offer for shares carrying 30% or more of the total votes which may be cast
at any general meeting of Orient-Express Hotels.
At that time, the rights then attached to all outstanding class A and class B
common shares will become separate securities, and each right will entitle its
holder to purchase one one-hundredth of a Series A junior participating
preferred share of Orient-Express Hotels at an exercise price of $ . The
exercise price will be adjusted in the future to reflect stock splits and other
changes to the class A and class B common shares.
However,
- From and after the date on which any person becomes an acquiring person,
each holder of a right other than the acquiring person may exercise the
right and receive, at the then current exercise price of the right, that
number of class A common shares, in the case of a Right which previously
was attached to a class A common share, or that number of class B common
shares, in the case of a right which previously was attached to a class B
common share, or other securities, cash or property, then having a market
value of twice the exercise price;
- If, after the shareholder rights agreement takes effect, Orient-Express
Hotels is acquired by consolidation, merger or amalgamation, or
Orient-Express Hotels sells or otherwise transfers 50% or more of its
consolidated assets or earning power, each holder of a right, other than
an acquiring person, may exercise the right and receive, at the then
current exercise price of the right, an amount of the common equity of the
acquiring company or its public company parent which at the time of such
transaction would have a market value of twice the exercise price of the
right; and
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<PAGE>
- At any time after any person becomes an acquiring person and before a
person or group (other than Orient-Express Hotels, Sea Containers or
certain of their affiliates) acquires beneficial ownership of 50% or more
of the total voting rights which may be cast at any general meeting of
Orient-Express Hotels, the board of directors of Orient-Express Hotels may
exchange all or some of the rights other than rights beneficially owned by
an acquiring person, which rights will thereafter be void, at an exchange
ratio of
(A) one class A common share per right in the case of rights which
prior to the Distribution Date were evidenced by certificates for
class A common shares, and
(B) one class B common share per right in the case of rights which
prior to the Distribution Date were evidenced by certificates for
class B common shares,
subject to adjustment in certain events.
The rights will expire on , 2010. However, the Board of Directors of
Orient-Express Hotels may redeem all but only all of the rights sooner at a
price of $0.05 per right at any time before the close of business on the tenth
day after the date on which a person becomes an acquiring person.
The purpose of the rights is to diminish the attractiveness of
Orient-Express Hotels to persons who might otherwise have an interest in
acquiring control of Orient-Express Hotels on unfair or coercive terms and to
impede such persons from attempting to gain control of Orient-Express Hotels on
such terms through a tender or exchange offer, by a proxy contest or by other
means.
LIQUIDATION RIGHTS
In a liquidation, dissolution or winding-up of Orient-Express Hotels,
holders of class A and class B common shares as a single class would participate
equally per share in the assets remaining available for distribution to
shareholders, after payment of the liabilities or Orient-Express Hotels and the
liquidation preferences on its preferred shares.
CONVERSION RIGHTS
The class A common shares are not convertible into any other security. Each
class B common share is convertible at any time without any additional payment
into one class A common share.
MISCELLANEOUS
Neither class A nor class B common shares have the benefit of sinking fund
provisions or are redeemable or carry any preemptive or other rights to
subscribe for additional shares, except that holders of class B common shares
may convert their shares into class A common shares as described above. The
holders of class A and class B common shares are not liable for any further
calls or assessments.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
All of our class A common shares sold in this offering will be freely
tradable without restriction under the Securities Act of 1933, except for any
shares which may be acquired by an affiliate of Orient-Express Hotels, as that
term is defined in Rule 144 under the Securities Act. Affiliates of Orient-
Express Hotels generally include individuals or entities that control, are
controlled by, or are under common control with, Orient-Express Hotels and may
include directors and executive officers of Orient-Express Hotels as well as Sea
Containers and its subsidiaries and any other significant shareholders of
Orient-Express Hotels.
Sea Containers currently plans to complete its divestiture of Orient-Express
Hotels approximately six months following this offering by distributing all of
the class A and class B common shares owned by Sea Containers to the holders of
Sea Containers' class A and class B common shares. Orient-Express Hotels
class A or class B common shares distributed to Sea Containers' shareholders in
the distribution generally will be freely transferable, except for class A and
class B common shares received by persons who may be deemed to be affiliates of
Orient-Express Hotels. Affiliates may sell the shares that they purchase in this
offering or that they receive in the distribution only through registration
under the Securities Act, or under an exemption from registration, such as the
one provided by Rule 144.
Our class A and class B common shares held by Sea Containers before
distribution are subject to Rule 144, and may not be sold other than through
registration under the Securities Act or under an exemption from registration,
such as the one provided by Rule 144. Sea Containers, Orient-Express Hotels and
the directors and officers of Orient-Express Hotels have agreed not to offer or
sell any Orient-Express class A common shares, subject to exceptions, for a
period of 180 days after the date of this prospectus, without the prior written
consent of the underwriters.
Orient-Express Hotels will grant options to purchase its class A and
class B common shares pursuant to the 2000 Stock Option Plan. See
"Management--Stock Option Plan." We currently expect to file a registration
statement under the Securities Act to register shares reserved for issuance
under the 2000 Stock Option Plan. Shares issued pursuant to awards after the
effective date of the registration statement, other than shares issued to
affiliates, generally will be freely tradable without further registration under
the Securities Act.
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<PAGE>
MATERIAL TAX CONSIDERATIONS
The income tax consequences of an investment in Orient-Express Hotels are
complex and may vary significantly with the particular situation of each
investor. Before purchasing any class A common shares, each prospective investor
should consult his or her own tax counsel about the particular tax consequences
of investing in Orient-Express Hotels.
MATERIAL BERMUDA TAX CONSIDERATIONS
As of the date of this prospectus, there is no Bermuda income, corporation,
or profits tax, withholding tax, capital gains tax, capital transfer tax, estate
duty or inheritance tax payable by Orient-Express Hotels or its shareholders,
other than shareholders ordinarily resident in Bermuda.
Orient-Express Hotels has received from the Minister of Finance of Bermuda
under the Exempted Undertakings Tax Protection Act, 1966, as amended, an
undertaking that, in the event of there being enacted in Bermuda any legislation
imposing tax computed on profits or income, or computed on any capital assets,
gain or appreciation or any tax in the nature of estate duty or inheritance tax,
such tax shall not until March 28, 2016 be applicable to Orient-Express Hotels
or to any of its operations, or to the class A common shares, debentures or
other obligations of Orient-Express Hotels, except in so far as such tax applies
to persons ordinarily resident in Bermuda and holding such class A common
shares, debentures or other obligations of Orient-Express Hotels or any land
leased or let to Orient-Express Hotels.
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Carter, Ledyard & Milburn, United States counsel to
Orient-Express Hotels, investors in Orient-Express Hotels who are not U.S.
Holders ordinarily will not be subject to U.S. Federal income taxation on
dividends or redemptions paid by Orient-Express Hotels. As used in this
prospectus, "U.S. Holder" means a beneficial owner of class A common shares who
is (i) an individual citizen or resident of the United States, (ii) a
corporation or other entity taxable as a corporation created in or organized
under the laws of the United States or any potential subdivision thereof,
(iii) an estate the income of which is subject to U.S. federal income tax
regardless of its source, or (iv) in general, a trust if a U.S. court can
exercise primary supervision over the administration of such trust, and one or
more U.S. persons have the authority to control all of the substantial decisions
of such trust, or (v) certain trusts that have elected to be treated as trusts
described in (iv) above.
There can be no assurance that the U.S. or Bermuda tax laws will not be
changed.
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<PAGE>
UNDERWRITING
GENERAL
Orient-Express Hotels and Sea Containers intend to offer the class A common
shares in the United States and Canada through the U.S. underwriters and
elsewhere through the international managers. Merrill Lynch, Pierce, Fenner &
Smith Incorporated, Lazard Freres & Co. LLC, Salomon Smith Barney and Banc of
America Securities LLC are acting as U.S. representatives of the U.S.
underwriters named below. Subject to the terms and conditions set forth in a
U.S. purchase agreement among us, Sea Containers as selling shareholder and the
U.S. underwriters, and concurrently with the sale of 2,000,000 class A common
shares to the international managers, we and Sea Containers have agreed to sell
to the U.S. underwriters, and the U.S. underwriters severally have agreed to
purchase from us and Sea Containers, the number of class A common shares listed
opposite their names below.
<TABLE>
<CAPTION>
NUMBER
U.S. UNDERWRITER OF SHARES
---------------- ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated......................................
Lazard Freres & Co. LLC.....................................
Salomon Smith Barney........................................
Banc of America Securities LLC..............................
----------
Total............................................. 10,000,000
==========
</TABLE>
We and Sea Containers, as selling shareholder, have also entered into an
international purchase agreement with the international managers for sale of the
class A common shares outside the U.S. and Canada for whom Merrill Lynch
International and Lazard Capital Markets are acting as lead managers. Subject to
the terms and conditions in the international purchase agreement, and
concurrently with the sale of 8,000,000 class A common shares to the U.S.
underwriters pursuant to the U.S. purchase agreement, we and Sea Containers have
agreed to sell to the international managers, and the international managers
severally have agreed to purchase, 2,000,000 class A common shares. The initial
public offering price and the total underwriting discount per share are
identical under the U.S. purchase agreement and the international purchase
agreement.
The U.S. underwriters and the international managers have agreed to purchase
all of the class A common shares sold under the U.S. and the international
purchase agreements if any of these class A common shares are purchased. If an
underwriter defaults, the U.S. and the international purchase agreements provide
that the purchase commitments of the nondefaulting underwriters may be increased
or the purchase agreements may be terminated. The closings with respect to the
sale of class A common shares to be purchased by the U.S. underwriters and the
international managers are conditioned on one another.
We and Sea Containers have agreed to indemnify the U.S. underwriters and the
international managers against some liabilities, including liabilities under the
United States Securities Act of 1933, or to contribute to payments the U.S.
underwriters and international managers may be required to make in respect of
those liabilities.
The underwriters are offering the class A common shares, subject to prior
sale, when, as and if issued to and accepted by them, subject to approval of
legal matters by their counsel, including the validity of the shares, and other
conditions in the purchase agreements, such as the receipt by the underwriters
of officers' certificates and legal opinions. The underwriters reserve the right
to withdraw, cancel or modify offers to the public and to reject orders in whole
or in part.
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<PAGE>
COMMITMENTS AND DISCOUNTS
The U.S. representatives have advised us and Sea Containers that the U.S.
underwriters propose initially to offer the class A common shares to the public
at the initial public offering price on the cover page of this prospectus and to
dealers at that price less a concession not in excess of $ per class A
common share. The U.S. underwriters may allow, and such dealers may reallow, a
discount not in excess of $ per class A common share to other dealers.
After the initial public offering, the public offering price, concession and
discount may be changed.
We will sell the shares to the U.S. underwriters and the international
managers at a price per share of $ , which represents a % discount from
the public offering price of $ . This discount, which equals % of the
public offering price, is the underwriters' compensation. The following table
shows the public offering price, underwriting discount and proceeds before
expenses to Orient-Express Hotels and Sea Containers. This information assumes
either no exercise or full exercise by the U.S. underwriters and the
international managers of their over-allotment options.
<TABLE>
<CAPTION>
WITHOUT WITH
PER SHARE OPTION OPTION
--------- -------- --------
<S> <C> <C> <C>
Public offering price.............................. $ $ $
Underwriting discount.............................. $ $ $
Proceeds, before expenses, to Orient-Express
Hotels........................................... $ $ $
Proceeds, before expenses, to Sea Containers....... $ $ $
</TABLE>
The expenses of the offering, not including the underwriting discount, are
estimated at $2,300,000 and are payable by Orient-Express Hotels and Sea
Containers.
OVER-ALLOTMENT OPTIONS
Sea Containers has granted an option to the U.S. underwriters to purchase up
to 1,200,000 additional class A common shares at the public offering price less
the underwriting discount. The U.S. underwriters may exercise this option for
30 days from the date of this prospectus solely to cover any over-allotments. If
the U.S. underwriters exercise this option, each will be obligated, subject to
conditions contained in the purchase agreements, to purchase a number of
additional shares proportionate to that U.S. underwriter's initial amount
reflected in the above table.
Sea Containers has also granted an option to the international managers,
exercisable for 30 days from the date of this prospectus, to purchase up to
300,000 additional class A common shares to cover any over-allotments on terms
similar to those granted to the U.S. underwriters.
RESERVED SHARES
At our request, the underwriters have reserved for sale, at the initial
public offering price, up to 2% of the shares offered by this prospectus for
sale to some of our directors, officers and employees. If these persons purchase
reserved shares, this will reduce the number of shares available for sale to the
general public. Any reserved shares that are not orally confirmed for purchase
within one day of the pricing of this offering will be offered by the
underwriters to the general public on the same terms as the other shares offered
by this prospectus.
INTERSYNDICATE AGREEMENT
The U.S. underwriters and the international managers have entered into an
intersyndicate agreement that provides for the coordination of their activities.
Under the intersyndicate agreement, the U.S. underwriters and the international
managers may sell class A common shares to each other for purposes of resale at
the initial public offering price, less an amount not greater than the selling
concession. Under the intersyndicate agreement, the U.S. underwriters and any
dealer to whom they
78
<PAGE>
sell class A common shares will not offer to sell or sell class A common shares
to persons who are non-U.S. or non-Canadian persons or to persons they believe
intend to resell to persons who are non-U.S. or non-Canadian persons, except in
the case of transactions under the intersyndicate agreement. Similarly, the
international managers and any dealer to whom they sell class A common shares
will not offer to sell or sell class A common shares to U.S. persons or to
Canadian persons or to persons they believe intend to resell to U.S. or Canadian
persons, except in transactions under the intersyndicate agreement.
NO SALES OF SIMILAR SECURITIES
Orient-Express Hotels and Sea Containers have agreed, with certain
exceptions, not to sell or transfer any class A or class B common shares for
180 days after the date of this prospectus without first obtaining the written
consent of Merrill Lynch and Lazard Freres & Co. LLC. Specifically, they agreed
not directly or indirectly to,
- offer, pledge, sell or contract to sell any class A or class B common
shares,
- sell any option or contract to purchase any class A or class B common
shares,
- purchase any option or contract to sell any class A or class B common
shares,
- grant any option, right or warrant for the sale of any class A or class B
common shares,
- lend or otherwise dispose of or transfer any class A or class B common
shares
- file a registration statement under the Securities Act relating to the
class A or class B common shares, or
- enter into any swap or other agreement that transfers, in whole or in
part, the economic consequence of ownership of any class A or class B
common shares, whether any such swap or transaction is to be settled by
delivery of the class A or class B common shares or other securities, in
cash or otherwise.
This lockup provision applies to class A and class B common shares and to
securities convertible into or exchangeable or exercisable for or repayable with
class A common shares. It also applies to class A and class B common shares
owned now or acquired later by Sea Containers or Orient-Express Hotels or for
which either of them later acquires the power of disposition.
NEW YORK STOCK EXCHANGE LISTING
We expect the class A common shares to be approved for listing on the New
York Stock Exchange under the symbol "OEH.A." In order to meet the requirements
for listing on the exchange, the U.S. underwriters and the international
managers have undertaken, as required by that exchange, that they will sell at
least 2000 round lots of class A common shares in the United States, that a
minimum of 1.1 million class A common shares will be offered and publicly held
in the United States, and that the offering value of such class A common shares
in the United States will be in excess of $60 million.
Before this offering, there has been no public market for the class A common
shares. The initial public offering price will be determined through
negotiations among us and the U.S. representatives and the lead managers. In
addition to prevailing market conditions, the factors to be considered in
determining the initial public offering price are
- the valuation multiples of publicly traded companies that the U.S.
representatives and the lead managers believe to be comparable to us,
- our financial information,
- the history of, and the prospects for, our company and the industry in
which we compete,
79
<PAGE>
- an assessment of our management, its past and present operations, the
prospects for, and timing of, our future revenues,
- the present state of our development, and
- the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to ours.
An active trading market for the class A common shares may not develop. It
is also possible that after the offering the class A common shares will not
trade in the public market at or above the initial public offering price.
The underwriters do not expect to sell more than 5% of the class A common
shares in the aggregate to accounts over which they exercise discretionary
authority.
PRICE STABILIZATION, SHORT POSITIONS AND PENALTY BIDS
Until the distribution of the class A common shares is completed, SEC rules
may limit underwriters and selling group members from bidding for and purchasing
our class A common shares. However, the U.S. representatives may engage in
transactions that stabilize the price of the class A common shares, such as bids
or purchases to peg, fix or maintain that price.
If the underwriters create a short position in the class A common shares in
connection with the offering, that is, if they sell more class A common shares
than are listed on the cover page of this prospectus, the U.S. representatives
may reduce that short position by purchasing class A common shares in the open
market. The U.S. representatives may also elect to reduce any short position by
exercising all or part of the over-allotment option described above. Purchases
of class A common shares to stabilize their price or to reduce a short position
may cause the price of the class A common shares to be higher than it might be
in the absence of such purchases.
The U.S. representatives may also impose a penalty bid on underwriters and
selling group members. This means that if the U.S. representatives purchase
class A common shares in the open market to reduce the underwriters' short
position or to stabilize the price of the class A common shares, they may
reclaim the amount of the selling concession from the underwriters and selling
group members who sold those shares. The imposition of a penalty bid may also
affect the price of the class A common shares in that it discourages resales of
those shares.
Neither Orient-Express Hotels, Sea Containers nor any of the underwriters
makes any representation or prediction as to the direction or magnitude of any
effect that the transactions described above may have on the price of the
class A common shares. In addition, neither we nor any of the underwriters makes
any representation that the U.S. representatives or the lead managers will
engage in these transactions or that such transactions, once commenced, will not
be discontinued without notice.
ELECTRONIC PROSPECTUS
Merrill Lynch will facilitate Internet distribution for this offering to
certain of its Internet subscription customers. Merrill Lynch intends to
allocate a limited number of shares for sale to its online brokerage customers.
An electronic prospectus is available on the website maintained by Merrill
Lynch.
Other than the prospectus in electronic format, the information on the
website maintained by Merrill Lynch relating to this offering is not intended to
be part of this prospectus.
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<PAGE>
OTHER RELATIONSHIPS
Bank of America, N.A., an affiliate of Banc of America Securities LLC, one
of the underwriters in this offering, is a lender to each of Sea Containers and
Orient-Express Hotels under several loan facilities and will receive a portion
of the proceeds from this offering used to repay a portion of revolving debt.
See "Use of Proceeds."
Some of the underwriters and their affiliates have engaged in, and may in
the future engage in, investment banking and other commercial dealings in the
ordinary course of business with Orient-Express Hotels. They will receive
customary fees and commissions for these transactions.
LEGAL MATTERS
Carter, Ledyard & Milburn, New York, New York, will pass upon legal matters
for Orient-Express Hotels and Sea Containers with respect to this offering, and
Shearman & Sterling, New York, New York will pass upon legal matters for the
underwriters with respect to this offering. Carter, Ledyard & Milburn and
Shearman & Sterling will rely upon Appleby Spurling & Kempe, Hamilton, Bermuda,
with respect to matters of Bermuda law. Robert M. Riggs, a member of Carter,
Ledyard & Milburn, is a director of Sea Containers, and John D. Campbell, senior
counsel of Appleby Spurling & Kempe, is a director and a vice president of Sea
Containers and Orient-Express Hotels.
EXPERTS
The financial statements included in this prospectus and the related
financial statement schedule included elsewhere in the registration statement
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing elsewhere in the registration statement, which reports
express an unqualified opinion and include an explanatory paragraph referring to
the adoption of Statement of Position No. 98-5, Reporting on the Costs of
Start-up Activities, and have been so included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Orient-Express Hotels has filed with the Securities and Exchange Commission,
Washington, D.C. 20549, a registration statement on Form S-1 under the
Securities Act with respect to the class A common shares offered by this
prospectus. This prospectus does not contain all of the information in the
registration statement and the exhibits and schedules to the registration
statement although this prospectus identifies all provisions of the exhibits
which we believe are material to prospective investors in this offering. For
further information about Orient-Express Hotels and its class A common shares,
we refer you to the registration statement and the exhibits and any schedules to
the registration statement. Statements contained in this prospectus as to the
contents of any contract or other document referred to are not necessarily
complete and in each instance, if the contract or document is filed as an
exhibit, we refer to the copy of the contract or other documents filed as an
exhibit to the registration statement, each statement being qualified in all
respects by such reference. A copy of the registration statement, including the
exhibits and schedules to the registration statement, may be read and copied at
the SEC's Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.
20549. Information on the operation of the Public Reference Room may be obtained
by calling the SEC at 1-800-SEC-0330.
As a result of this offering, Orient-Express Hotels will become subject to
the full informational requirements of the Securities Exchange Act of 1934, as
amended. We will fulfill our obligations with respect to those requirements by
filing periodic reports and other information with the SEC. We
intend to furnish our shareholders with annual reports containing consolidated
financial statements
certified by an independent public accounting firm. We also maintain an Internet
site at
81
<PAGE>
WWW.ORIENT-EXPRESSHOTELS.COM. However, you should not consider our website and
the information contained therein or connected thereto to be incorporated into
this prospectus or the registration statement of which it forms a part.
Orient-Express Hotels is a Bermuda company and is, and after this offering
and the separation from Sea Container will continue to be, a "foreign private
issuer" as defined in Rule 3b-4 under the Securities Exchange Act of 1934. As a
result,
- Orient-Express Hotels' proxy solicitations will not be subject to the
disclosure and procedural requirements of Regulation 14A under the
Exchange Act, and
- transactions in Orient-Express Hotels' equity securities by its officers
and directors will be exempt from Section 16 of the Exchange Act.
82
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Audited consolidated financial statements:
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets at December 31, 1999 and
December 31, 1998....................................... F-3
Statements of Consolidated Operations for the years ended
December 31, 1999,
December 31, 1998 and December 31, 1997................. F-4
Statements of Consolidated Cash Flows for the years ended
December 31, 1999, December 31, 1998 and December 31,
1997.................................................... F-5
Statements of Consolidated Shareholders' Equity for the
years ended December 31, 1997, December 31, 1998, and
December 31, 1999....................................... F-6
Notes to consolidated financial statements................ F-7
Unaudited Consolidated Financial Statements:
Consolidated Balance Sheets at March 31, 2000 and
December 31, 1999....................................... F-23
Statements of Consolidated Operations for the three months
ended March 31, 2000 and March 31, 1999................. F-24
Statements of Consolidated Cash Flows for the three months
ended March 31, 2000 and March 31, 1999................. F-25
Statement of Consolidated Shareholders' Equity for the
three months ended March 31, 2000....................... F-26
Notes to unaudited financial statements................... F-27
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The accompanying financial statements give effect to the consummation of the
recapitalization and legal entity reorganization plan (the "Plan") of
Orient-Express Hotels Ltd. (the "Company"), the effect of which would result in
an increase in the number of issued and authorized shares of the Company and a
legal entity reorganization of subsidiaries of the Company. The Plan is expected
to take place prior to the commencement of the proposed offering of securities.
The following report is in the form that will be furnished by Deloitte & Touche
LLP upon the consummation of the aforementioned Plan and as described more fully
in Notes 1 (b) and 9 to the consolidated financial statements assuming that from
April 18, 2000 to the date of the recapitalization and legal entity
reorganization no other material events have occurred that would affect the
accompanying consolidated financial statements or require disclosure therein.
Deloitte & Touche LLP
June 30, 2000
New York, New York
Board of Directors and Shareholders
Orient-Express Hotels Ltd.
Hamilton, Bermuda
We have audited the accompanying consolidated balance sheets of
Orient-Express Hotels Ltd. (a wholly owned subsidiary of Sea Containers Ltd.)
and subsidiaries as of December 31, 1999 and 1998, and the related statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Orient-Express Hotels Ltd. and
subsidiaries as of December 31, 1999 and 1998, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999 in conformity with accounting principles generally accepted in the United
States of America.
As disclosed in footnote 1 (r) to the consolidated financial statements,
effective January 1, 1999, the Company adopted Statement of Position No. 98-5,
Reporting on the Costs of Start-up Activities.
April 18, 2000 ( , 2000 as to Notes 1(b) and 9)
New York, New York
F-2
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash........................................................ $ 11,143 $ 12,446
Accounts receivable, net of allowances of $372 and $397..... 41,002 42,761
Inventories................................................. 13,604 12,193
-------- --------
Total current assets........................................ 65,749 67,400
-------- --------
Property, plant and equipment, less accumulated depreciation
of $60,051 and $51,227.................................... 499,307 462,816
Investments................................................. 63,493 36,909
Intangible assets........................................... 31,296 31,710
Other assets................................................ 2,021 3,652
-------- --------
$661,866 $602,487
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Working capital facilities.................................. $ 6,186 $ 2,628
Accounts payable............................................ 12,775 15,361
Accrued liabilities......................................... 21,822 22,937
Deferred revenue............................................ 9,083 7,561
Current portion of long-term debt and capital leases........ 38,378 22,390
-------- --------
Total current liabilities................................... 88,244 70,877
-------- --------
Long-term debt and obligations under capital leases......... 271,562 256,741
Deferred income taxes....................................... 5,173 4,744
-------- --------
364,979 332,362
Minority interest........................................... 4,574 4,107
-------- --------
Shareholders' equity
Class A common shares, $0.01 par value (120,000,000 shares
authorized):
Issued--23,418,927 (1998-23,418,927).................... 234 234
Class B common shares, $0.01 par value (120,000,000 shares
authorized):
Issued--20,537,713 (1998-20,537,713).................... 205 205
Paid-in capital............................................. 56 56
Due to Sea Containers Ltd................................... 172,030 177,176
Retained earnings........................................... 133,434 98,426
Accumulated other comprehensive loss........................ (13,465) (9,898)
Less: reduction due to class B common shares owned by a
subsidiary-18,056,640..................................... (181) (181)
-------- --------
Total shareholders' equity.................................. 292,313 266,018
-------- --------
Commitments................................................. -- --
-------- --------
$661,866 $602,487
======== ========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------
1999 1998 1997
--------- --------- ---------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Revenue................................................... $242,074 $225,831 $194,686
Earnings from unconsolidated companies.................... 7,008 5,052 4,030
Gains on sale of assets and other......................... 3,800 -- 5,000
-------- -------- --------
252,882 230,883 203,716
-------- -------- --------
Expenses:
Depreciation and amortization........................... 13,149 14,233 13,167
Operating............................................... 111,424 105,317 92,216
Selling, general and administrative..................... 66,122 64,476 54,771
-------- -------- --------
Total expenses............................................ 190,695 184,026 160,154
-------- -------- --------
Earnings from operations before net finance costs......... 62,187 46,857 43,562
Interest expense, net..................................... (19,019) (16,630) (12,404)
Interest and related income............................... -- 169 83
-------- -------- --------
Net finance costs......................................... (19,019) (16,461) (12,321)
-------- -------- --------
Earnings before income taxes and cumulative effect of
change in accounting principle.......................... 43,168 30,396 31,241
Provision for income taxes................................ 5,173 3,700 3,216
-------- -------- --------
Earnings before cumulative effect of change in accounting
principle............................................... 37,995 26,696 28,025
Cumulative effect of change in accounting principle....... (2,987) -- --
-------- -------- --------
Net earnings.............................................. $ 35,008 $ 26,696 $ 28,025
======== ======== ========
Net earnings per class A and B common share:
Basic:
Earnings before cumulative effect of change in
accounting principle.................................. $ 1.47 $ 1.03 $ 1.08
Cumulative effect of change in accounting principle..... (0.12) -- --
-------- -------- --------
Net earnings per share.................................. $ 1.35 $ 1.03 $ 1.08
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 35,008 $ 26,696 $ 28,025
Add non-cash effect of change in accounting principle..... 2,987 -- --
-------- -------- --------
37,995 26,696 28,025
-------- -------- --------
Adjustment to reconcile earnings to net cash provided by
operating activities:
Depreciation and amortization............................. 13,149 14,233 13,167
Undistributed earnings of affiliates and other non-cash
items................................................... 101 2,208 113
Change in assets and liabilities net of effects from
acquisition of subsidiaries:
(Increase)/decrease in accounts receivable.............. (1,214) (5,697) 1,315
Increase in inventories................................. (2,223) (1,068) (309)
(Decrease)/increase in accounts payable................. (5,475) 3,067 (1,471)
-------- -------- --------
Total adjustments......................................... 4,338 12,743 12,815
-------- -------- --------
Net cash provided by operating activities................... 42,333 39,439 40,840
-------- -------- --------
Cash flows from investing activities:
Capital expenditures...................................... (44,335) (43,461) (49,742)
Acquisitions and investments, net of cash acquired........ (48,616) (50,978) (6,229)
Proceeds from sale of fixed assets and other.............. 3,010 85 14,144
-------- -------- --------
Net cash used in investing activities....................... (89,941) (94,354) (41,827)
-------- -------- --------
Cash flows from financing activities:
Net proceeds from working capital facilities and
redrawable loans........................................ 4,174 1,743 311
Issuance of long-term debt................................ 54,904 87,736 27,501
Principal payments under long-term debt................... (13,685) (16,540) (12,335)
Contributions (distributions)............................. 3,097 (16,440) (12,358)
-------- -------- --------
Net cash provided by financing activities................... 48,490 56,499 3,119
-------- -------- --------
Total cash flows............................................ 882 1,584 2,132
Effect of exchange rate changes on cash..................... (2,185) (390) (513)
-------- -------- --------
Net (decrease)/increase in cash............................. (1,303) 1,194 1,619
Cash at beginning of year................................... 12,446 11,252 9,633
-------- -------- --------
Cash at end of year......................................... $ 11,143 $ 12,446 $ 11,252
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON COMMON DUE TO ACCUMULATED COMMON
SHARES SHARES SEA OTHER SHARES
AT PAR AT PAR PAID-IN CONTAINERS RETAINED COMPREHENSIVE HELD BY
VALUE VALUE CAPITAL LTD. EARNINGS INCOME (LOSS) SUBSIDIARIES
$000 $000 $000 $000 $000 $000 $000
-------- --------- -------- ---------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997............. 234 205 56 206,073 43,705 (6,714) (181)
Comprehensive income:
Net earnings for the year.......... 28,025
Cumulative translation
adjustment....................... (3,590)
Distribution to Sea Containers
Ltd. .............................. (18,585)
--- --- ------- ------- ------- ------- ----
----
Balance, December 31, 1997........... 234 205 56 187,488 71,730 (10,304) (181)
Comprehensive income:
Net earnings for the year.......... 26,696
Cumulative translation
adjustment....................... 406
Distribution to Sea Containers
Ltd. .............................. (10,312)
--- --- ------- ------- ------- ------- ----
----
Balance, December 31, 1998........... 234 205 56 177,176 98,426 (9,898) (181)
Comprehensive income:
Net earnings for the year.......... 35,008
Cumulative translation
adjustment....................... (3,567)
Distribution to Sea Containers
Ltd. .............................. (5,146)
--- --- ------- ------- ------- ------- ----
----
Balance, December 31, 1999........... 234 205 56 172,030 133,434 (13,465) (181)
=== === ======= ======= ======= ======= ====
<CAPTION>
TOTAL
COMPREHENSIVE
INCOME
$000
--------------
<S> <C>
Balance, January 1, 1997.............
Comprehensive income:
Net earnings for the year.......... 28,025
Cumulative translation
adjustment....................... (3,590)
Distribution to Sea Containers
Ltd. ..............................
-------
24,435
Balance, December 31, 1997...........
Comprehensive income:
Net earnings for the year.......... 26,696
Cumulative translation
adjustment....................... 406
Distribution to Sea Containers
Ltd. ..............................
-------
27,102
Balance, December 31, 1998...........
Comprehensive income:
Net earnings for the year.......... 35,008
Cumulative translation
adjustment....................... (3,567)
Distribution to Sea Containers
Ltd. ..............................
-------
31,441
Balance, December 31, 1999...........
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(a) BUSINESS
Orient-Express Hotels Ltd. (the "Company") is a wholly owned subsidiary of
Sea Containers Ltd. ("SCL"). The Company and its subsidiaries are referred to
collectively as "OEHL."
OEHL currently owns and/or manages 26 deluxe hotels and resorts (reported as
22 business units) located in the United States ("U.S."), the Caribbean, Europe,
Southern Africa, Brazil, Peru, Australia and the South Pacific, six tourist
trains in Europe, Southeast Asia, Australia and Peru, a river cruiseship in
Burma, and two restaurants in London and New York.
(b) BASIS OF PRESENTATION
The accompanying financial statements reflect the results of operations,
financial position and cash flows of the Company and all its greater than
50 percent owned subsidiaries. The consolidated financial statements have been
prepared using the historical basis in the assets and liabilities and the
historical results of operations directly attributable to OEHL, and all
intercompany accounts and transactions between the Company and its subsidiaries
have been eliminated. Unconsolidated companies that are 20 to 50 percent owned
are accounted for on an equity basis.
The consolidated financial statements include an allocation of certain
general corporate administrative expenses from SCL and its subsidiaries which
are provided under a shared services agreement with SCL. In the opinion of
management, general corporate administrative expenses have been allocated to
OEHL on a reasonable and consistent basis using management's estimate of
services provided by SCL and its subsidiaries. However, such allocations are not
necessarily indicative of the level of expenses which might have been incurred
had OEHL been operating as a separate, stand-alone entity during the periods
presented. The financial information included herein does not necessarily
reflect the consolidated results of operations, financial position, changes in
shareholders' equity and cash flows of OEHL in the future or on an historical
basis had OEHL been a separate stand-alone entity for the years presented.
(c) FOREIGN CURRENCY TRANSLATION
Foreign subsidiary income and expenses are translated into United States
Dollars ("USD" or "$"), the reporting currency of the Company, at the average
rates of exchange prevailing during the year. The assets and liabilities are
translated into USD at the rates of exchange on the balance sheet date and the
related translation adjustments are included in accumulated other comprehensive
income (loss). No income taxes are provided on the translation adjustments as
management does not expect that such gains or losses will be realized. Foreign
currency transaction gains and losses are recognized in operations as they
occur.
(d) ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
F-7
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(CONTINUED)
(e) REVENUE RECOGNITION
Hotel and restaurant revenues are recognized when the services are
performed. Tourist train and cruise revenues are recognized upon completion of
the journey. Deferred revenue consisting of deposits paid in advance are
recognized as revenue when the services are performed for hotels and restaurants
and upon completion of journeys for tourist trains and cruise trips. Revenues
under management contracts are recognized based upon the attainment of certain
financial results, primarily revenue and operating earnings, in each contract as
defined.
(f) EARNINGS FROM UNCONSOLIDATED COMPANIES
Earnings from unconsolidated companies include OEHL'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 $5,790 in 1999 (1998--$5,086
and 1997--$3,868).
(g) GAINS ON SALES OF ASSETS AND OTHER
In 1999, gains on sales of assets included $2,500,000 from the buy-out of
OEHL's right to the payment of an early termination fee in respect of a hotel
management contract as well as $1,300,000 relating to the sale of the Windermere
Island Club. In 1997, the gain of $5,000,000 related to the sale of the Lodge at
Vail.
(h) MARKETING COSTS
Marketing costs, including website development costs, are expensed as
incurred and are reported in selling, general and administrative expenses.
Marketing costs include costs of advertising and other marketing activities.
These costs were $13,993,000 in 1999 (1998--$13,542,000, 1997--$10,815,000).
(i) INTEREST EXPENSE, NET
OEHL capitalizes interest during the construction of assets. Interest
expense, net includes interest which has been capitalized in the amount of $nil
in 1999 (1998--$102,000, 1997--$612,000).
(j) INTEREST AND RELATED INCOME
Interest and related income includes foreign exchange gains of $nil in 1999
(1998--$169,000, 1997--$83,000).
(k) INCOME TAXES
Deferred income taxes result from temporary differences between the
financial reporting and tax basis of assets and liabilities. Deferred taxes are
recorded at enacted statutory rates and are adjusted as enacted rates change.
Classification of deferred tax assets and liabilities corresponds with the
classification of the underlying assets and liabilities giving rise to the
temporary differences or the period of expected reversal, as applicable. A
valuation allowance is established, when necessary, to reduce deferred tax
assets to the amount that is more likely than not to be realized based on
available evidence.
(l) NET EARNINGS PER SHARE
Basic net earnings per share exclude dilution and are computed by dividing
net income available to common shareholders by the weighted-average number of
common shares outstanding for the period.
F-8
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(CONTINUED)
The number of shares used in computing basic net earnings per share was
25,900,000, for the three years ended December 31, 1999, 1998 and 1997 (see
note 9). There were no dilutive items in any period presented.
(m) INVENTORIES
Inventories include wine, food, beverages, certain retail goods and
train-related items. Inventories are valued at the lower of cost or market value
under the first-in, first-out method.
(n) PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net are stated at cost less accumulated
depreciation and amortization. The cost of significant renewals and betterments
is capitalized and depreciated, while expenditures for normal maintenance and
repairs are expensed as incurred.
Depreciation and amortization are computed using the straight-line method
over the following estimated useful lives:
<TABLE>
<CAPTION>
DESCRIPTION USEFUL LIVES
----------- ---------------------
<S> <C>
Buildings........................................... 60 years
Tourist trains...................................... 50 years
Furniture, fixtures and equipment................... 5-25 years
River cruiseship.................................... 25 years
Equipment under capital lease and
leasehold improvements............................ Lesser of lease term
or
economic life
</TABLE>
(o) IMPAIRMENT OF LONG-LIVED ASSETS
Long-lived assets and certain identifiable intangible assets are reviewed by
management whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable. In the event that an
impairment seems likely, the fair value of the related asset is estimated, and
OEHL records a charge to income calculated by comparing the asset's carrying
value to the estimated fair value.
(p) INVESTMENTS
Investments include equity interests in and advances to unconsolidated
companies.
(q) INTANGIBLE ASSETS
Intangible assets include goodwill of $2,295,000 (1998--$2,081,000) and
trademarks of $29,001,000 (1998--$29,629,000) arising upon the purchase of
subsidiaries which are written off over periods up to 40 years by the
straight-line method.
(r) CONCENTRATION OF CREDIT RISK
Due to the nature of the leisure industry, concentration of credit risk with
respect to trade receivables is limited. OEHL's customer base is comprised of
numerous customers across different geographic areas.
F-9
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
(CONTINUED)
(s) FINANCIAL INSTRUMENTS
OEHL operates internationally, giving rise to potential exposure to market
risks from changes in foreign exchange and interest rates. Derivative financial
instruments may be utilized to reduce these potential risks. OEHL does not hold
or issue financial instruments for trading purposes. OEHL may enter into forward
exchange contracts to hedge certain firm commitments and existing assets or
liabilities. Gains and losses related to qualifying hedges of firm commitments
would be deferred, and recognized in income or as adjustments or carrying
amounts when the hedged transaction occurs. The interest differential to be paid
or received under the related interest rate swap agreements would be recognized
over the life of the related debt and included in income. OEHL had no currency
swap or interest rate agreements in place at the year-end.
(t) RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, OEHL adopted Statement of Financial Accounting Standards ("SFAS")
No. 130, "Reporting Comprehensive Income," SFAS No. 131, "Disclosure about
Segments of an Enterprise and Related Information," and SFAS No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits," all
issued by the Financial Accounting Standards Board. Current and prior periods
have been presented in accordance with these statements. OEHL's only component
of other comprehensive income is the foreign currency translation adjustment.
In 1999, OEHL adopted Statement of Position No. 98-5, "Reporting on the
Costs of Start-Up Activities," of the American Institute of Certified Public
Accountants. This required OEHL to write-off $2,987,000, net of tax, in the
first quarter of 1999 representing mainly deferred start-up costs of cruiseship
operations which may no longer be carried forward under this statement. Other
than the cumulative effect of this change, the impact of the adoption was not
material to 1999 results.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities." This Statement
requires that all derivative instruments, including certain derivative
instruments embedded in other contracts, be recorded on the balance sheet as
either an asset or liability measured at its fair value. This Statement requires
that changes in the derivative's fair value be recognized currently in earnings
unless specific hedge accounting criteria are met. OEHL is not required to adopt
this Statement until the year ended December 31, 2001, and is currently
evaluating the extent to which its financial statements will be affected by this
Statement.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Instruments"
("SAB 101"). The provisions of SAB 101, as amended, are required to be adopted
in the second fiscal quarter of 2000. OEHL does not believe the adoption of
SAB 101 will have any impact on its financial statements.
2. ACQUISITIONS AND INVESTMENTS
a) ACQUISITIONS
On May 6, 1999, OEHL acquired Ashley House Inc., owner of Keswick Hall Hotel
near Charlottesville, Virginia, and Inn at Perry Cabin in St. Michaels,
Maryland. The $25,500,000 purchase price was paid in cash and funded in part by
a bank loan to OEHL which is guaranteed by SCL.
F-10
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
On July 29, 1998, OEHL acquired the Lapa Palace Hotel in Lisbon, Portugal,
at a purchase price of $25,000,000 paid in cash and notes payable to the seller.
On June 23, 1998, OEHL acquired the Hotel Quinta do Lago near Faro, Portugal, at
a purchase price of $27,000,000 paid in cash and notes payable to the seller.
The cash elements in these purchases were funded by bank loans guaranteed by
SCL. The latter hotel was previously managed by OEHL under an exclusive
long-term contract.
On April 30, 1997, OEHL acquired Hotel de la Cite in Carcassonne, France.
The purchase price of $6,000,000 was paid in cash and by assumption of existing
debt.
The purchase prices paid for these acquisitions approximated their fair
value and, therefore, no goodwill arose from these purchases.
All the above acquisitions have been accounted for as purchases and,
accordingly, the assets and liabilities of the acquired companies have been
recorded at their fair value at the date of acquisition. The operating results
of the acquired companies have been included in OEHL's consolidated statements
of operations from the effective dates of acquisition. Pro forma data have not
been presented as the revenues and net income resulting from these acquisitions
would not have been materially different.
b) INVESTMENTS
Investments represent equity interests of 20 to 50 percent in any
unconsolidated companies.
At March 31, 1999, OEHL acquired for $10,000,000 a 50% interest in a joint
venture company that bought two hotels in Peru, the Hotel Monasterio del Cusco
and the Machu Picchu Sanctuary Lodge. OEHL is managing these properties.
On September 21, 1999, OEHL acquired a 50% interest in a joint venture to
which the Peruvian government awarded long-term concessions to operate the
Southern and Machu Picchu lines of the state-owned railway system in Peru. OEHL
has been appointed manager of the concessions and rail services which operate
under name PeruRail. No payment was required to acquire these concessions other
than the purchase of spare parts and office equipment of which OEHL's share
amounted to $1,750,000.
OEHL's investments in and advances to unconsolidated companies amounted to
$63,493,000 at December 31, 1999 (1998--$36,909,000). OEHL's earnings from
unconsolidated companies was $7,008,000 in 1999 (1998--$5,052,000,
1997--$4,030,000) and it received dividends of $470,000 in 1999 (1998--$nil,
1997--$587,000).
F-11
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITIONS AND INVESTMENTS (CONTINUED)
Summarized financial data for these unconsolidated companies are as follows
(in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Current assets.......................................... $ 19,294 $ 10,546
Property, plant and equipment, net...................... 151,686 122,105
Other assets............................................ 1,916 1,068
-------- --------
Total assets............................................ $172,896 $133,719
======== ========
Current liabilities..................................... 12,551 9,140
Long-term debt.......................................... 81,871 72,456
Other liabilities....................................... 46,861 38,977
Total shareholders' equity.............................. 31,613 13,146
-------- --------
Total liabilities and shareholders' equity.............. $172,896 $133,719
======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue.......................................... $67,442 $53,489 $49,071
Earnings from operations before net finance
costs.......................................... $10,376 $ 5,930 $ 4,724
Net Loss......................................... $(1,706) $(3,222) $(3,599)
</TABLE>
3. PROPERTY, PLANT AND EQUIPMENT
The major classes of real estate and other fixed assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Freehold and leased land and buildings............... $ 390,115 $ 355,045
Machinery and equipment.............................. 95,706 88,924
Fixtures, fittings and office equipment.............. 57,408 54,001
River cruiseship..................................... 16,129 16,073
---------- ----------
559,358 514,043
Less: accumulated depreciation....................... 60,051 51,227
---------- ----------
$ 499,307 $ 462,816
========== ==========
</TABLE>
At December 31, 1999 and 1998, balances for machinery and equipment under
capital lease were $1,650,000 and $775,000, respectively, and for fixtures and
fittings under capital lease were $278,000 and $1,357,000, respectively.
Accumulated depreciation related to assets under capital lease at December 31,
1999 and 1998 was $332,000 and $261,000, respectively.
F-12
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. WORKING CAPITAL FACILITIES
Working capital facilities are comprised of the following, all repayable
within one year (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1999 1998
-------- --------
<S> <C> <C>
Unsecured working capital facilities, with a weighted
average interest rate of 7.09 and 7.57 percent,
respectively.............................................. $6,186 $2,628
====== ======
</TABLE>
OEHL had approximately $11,800,000 and $13,600,000 of working capital lines
of credit in 1999 and 1998, respectively, of which $5,700,000 and $11,000,000,
respectively, were undrawn.
5. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
(a) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Loans from banks secured by property, plant and
equipment payable over periods of 2 to 14 years, with
a weighted average interest rate of 6.49 and 6.97
percent, respectively, primarily based on LIBOR....... $305,894 $272,525
Loan secured by a river cruiseship payable over 5 years,
with a weighted average interest rate of 7.97 and 7.00
percent, respectively, based on LIBOR................. 3,188 5,312
Obligations under capital lease (see Note 5(b))......... 858 1,294
-------- --------
309,940 279,131
Less: current portion................................... 38,378 22,390
-------- --------
$271,562 $256,741
======== ========
</TABLE>
Included in long-term debt is a revolving credit facility with a group of
banks secured by the Windsor Court Hotel and marine cargo containers owned by
SCL and its subsidiaries. Under this revolving credit facility, Windsor Court
Hotel L.P., a subsidiary of the Company ("WCHLP") and the other parties to this
facility, including SCL, may borrow up to $239,600,000, of which WCHLP may
currently borrow up to $57,546,000 based on the collateral it has pledged. WCHLP
may, under certain circumstances, borrow additional amounts secured by
collateral pledged by SCL. Borrowings may be made on a revolving basis until
October 25, 2004 at which point the balance outstanding must be repaid. Interest
on loans drawn on hotel collateral ranges from 1.75 percent to 2.20 percent over
LIBOR. At December 31, 1999, WCHLP had borrowed $57,546,000 (1998--$nil) under
this facility. The agreement governing this revolving credit facility includes
certain restrictive financial covenants that apply to SCL on a consolidated
basis with its subsidiaries, including the Company. These financial covenants
include, but are not limited to, a maximum leverage ratio, minimum net worth,
and debt
F-13
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
service and interest coverage ratios. OEHL was in compliance with those
covenants at December 31, 1999.
The following is a summary of the aggregate maturities of long-term debt at
December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
2000........................................................ $ 38,087
2001........................................................ 46,402
2002........................................................ 27,489
2003........................................................ 28,695
2004........................................................ 139,768
2005 and thereafter......................................... 28,641
--------
$309,082
========
</TABLE>
The interest rates on substantially all of OEHL's long-term debt are
adjusted regularly to reflect current market rates. Accordingly, the carrying
amounts of OEHL's long-term debt also approximate fair value.
(b) OBLIGATIONS UNDER CAPITAL LEASES
The following is a schedule of future minimum lease payments under capital
leases together with the present value of the minimum lease payments at
December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
2000........................................................ $350
2001........................................................ 282
2002........................................................ 228
2003........................................................ 105
----
Minimum lease payments...................................... 965
Less: amount of interest contained in above payments(1)..... 107
----
Present value of minimum lease payments..................... 858
Less: current portion....................................... 291
----
$567
====
</TABLE>
------------------------
(1) The amount of interest deducted from minimum lease payments to arrive at the
present value is the interest contained in each of the leases.
6. PENSION PLAN
A number of OEHL employees participate in a pension plan of a subsidiary of
SCL. This plan is a defined benefit plan in which the benefits are based
primarily on years of service and employee compensation near retirement. It is
OEHL's policy to fund the plan in accordance with applicable laws and income tax
regulations. Plan assets consist primarily of common stocks, common trust funds,
government securities and corporate debt securities held through separate
trustee-administered funds.
F-14
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. PENSION PLAN (CONTINUED)
The significant weighted-average assumptions for this plan during 1999, 1998
and 1997 consisted of the following:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Discount rate(1)........................................... 6.0% 5.5% 7.0%
Assumed rates of compensation increases.................... 3.5% 3.5% 4.5%
Expected long-term rate of return on plan assets........... 6.5% 6.5% 8.0%
</TABLE>
------------------------
(1) Represents the essentially risk-free rate of return at the end of the year
in the country in which the assets are held.
The changes in the benefit obligation, plan assets and funded status for the
OEHL employees' portion of the plan were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year..................... $3,602 $3,049
Service cost................................................ 282 276
Interest cost............................................... 191 209
Plan participants' contributions............................ 105 118
Actuarial gain.............................................. 726 337
Benefits paid............................................... (415) (405)
Foreign currency translation................................ (113) 18
------ ------
Benefit obligation at end of year........................... 4,378 3,602
------ ------
Change in plan assets:
Fair value of plan assets at beginning of year.............. 3,898 3,397
Actual return on plan assets................................ 1,140 437
Employer contributions...................................... 353 330
Plan participants' contributions............................ 105 118
Benefits paid............................................... (415) (405)
Foreign currency translation................................ (124) 21
------ ------
Fair value of plan assets at end of year.................... 4,957 3,898
------ ------
Funded status............................................... 579 296
------ ------
Unrecognized net actuarial gain............................. (404) (227)
Unrecognized prior service cost............................. 54 70
Unrecognized transition amount.............................. -- --
------ ------
Prepaid benefit cost........................................ $ 229 $ 139
====== ======
</TABLE>
F-15
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. PENSION PLAN (CONTINUED)
The components of net periodic benefit cost for the OEHL employees covered
under the plan consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Service cost............................................ $282 $276 $221
Interest cost on projected benefit obligation........... 191 209 190
Expected return on assets............................... (248) (276) (239)
Net amortization and deferrals.......................... 15 15 15
---- ---- ----
Net periodic benefit cost............................... $240 $224 $187
==== ==== ====
</TABLE>
7. INCOME TAXES
Income taxes provided by OEHL relate principally to its foreign subsidiaries
as pre-tax income is primarily foreign. The provision for income taxes consisted
of the following (in thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Year ended December 31, 1999
United States...................................... $3,009 $ 446 $3,455
Other.............................................. 1,153 565 1,718
------ ------ ------
$4,162 $1,011 $5,173
====== ====== ======
Year ended December 31, 1998
United States...................................... $2,800 $ (162) $2,638
Other.............................................. 259 803 1,062
------ ------ ------
$3,059 $ 641 $3,700
====== ====== ======
Year ended December 31, 1997
United States...................................... $1,816 $ 756 $2,572
Other.............................................. 151 493 644
------ ------ ------
$1,967 $1,249 $3,216
====== ====== ======
</TABLE>
The Company is incorporated in Bermuda which does not impose an income tax.
OEHL's effective tax rate is entirely due to income taxes imposed by
jurisdictions in which OEHL conducts business other than Bermuda.
F-16
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. INCOME TAXES (CONTINUED)
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
OEHL's net deferred tax liabilities (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Gross deferred tax assets (operating loss carry
forwards)............................................. $ 47,075 $ 40,796
Less: valuation allowance............................... (38,835) (39,292)
-------- --------
Net deferred tax assets................................. 8,240 1,504
Deferred tax liabilities................................ (13,413) (6,248)
-------- --------
Net deferred tax liabilities............................ $ (5,173) $ (4,744)
======== ========
</TABLE>
The deferred tax assets consist primarily of tax loss carryforwards. The
deferred tax liabilities consist primarily of differences between the tax basis
of depreciable assets versus the adjusted basis as reflected in the financial
statements.
At December 31, 1999, certain OEHL subsidiaries had net operating losses
("NOLs") available to offset future taxable income. OEHL has approximately
$53.3 million of NOL related to its U.S. subsidiaries and $68.2 million of NOLs
related to its foreign subsidiaries. Varying amounts of the U.S. NOLs will
expire each year from 2002 through 2014. Approximately $11.5 million will expire
if not utilized by 2004. The remaining U.S. NOLs of approximately $41.8 million
will expire between the years 2005 and 2014. OEHL's U.S. subsidiaries also had
approximately $1.2 million of alternative minimum tax credit carryforwards.
Approximately $55.0 million of foreign NOLs have no expiration. Varying amounts
of the remaining foreign NOLs will expire each year from 2000 through 2004.
OEHL has prepared these financial statements on the basis that a tax sharing
agreement is in place with SCL and its subsidiaries. In accordance with this
presentation, OEHL utilized/relinquished losses with certain SCL subsidiaries.
The following represents the net liability that exists from OEHL to SCL and its
subsidiaries (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Tax sharing agreement............................. $(2,337) $(1,619) $(1,188)
======= ======= =======
</TABLE>
8. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash paid for:
Interest......................................... $19,454 $16,770 $13,409
Income taxes..................................... $ 2,456 $ 2,581 $ 1,212
</TABLE>
F-17
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. SUPPLEMENTAL CASH FLOW INFORMATION (CONTINUED)
Non-cash investing and financing activities:
In conjunction with the acquisitions in 1999, 1998 and 1997 (see
note 2(a)), liabilities were assumed as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fair value of assets acquired................... $ 27,319 $ 57,936 $8,562
Cash paid....................................... (25,036) (49,016) (594)
-------- -------- ------
Liabilities assumed............................. $ 2,283 $ 8,920 $7,968
======== ======== ======
</TABLE>
9. SHAREHOLDERS' EQUITY
(a) RECAPITALIZATION
In connection with the Company's contemplated initial public offering, the
Company and its subsidiaries are in the process of completing a recapitalization
and legal entity reorganization plan (the "Plan"). As part of this plan, the
Company's Memorandum of Association and Bye-Laws are being amended, subject to
final board approval, to recapitalize the Company's shares into class A and
class B common shares (see note 9(b) below). The amounts due to SCL have been
reflected in shareholders' equity for all periods presented and will be
reclassified to additional paid-in capital upon completion of the
recapitalization. Lastly, certain legal entities are being reorganized from an
ownership perspective to prepare for the initial public offering. The Company
has prepared these financial statements as if the recapitalization and legal
entity reorganization had occurred in the earliest year presented.
(b) DUAL COMMON SHARE CAPITALIZATION
As part of the foregoing plan, subject to final board approval, the Company
is being capitalized with 23,418,927 class A common shares, of which there are
120,000,000 authorized and 20,537,713 class B common shares, of which there are
120,000,000 authorized, each convertible at any time into one class A common
share. In general, holders of class A and class B common shares vote together as
a single class, with holders of class B shares having one vote per share and
holders of class A shares having one-tenth of one vote per share. In all other
substantial respects, the class A and B common shares are the same. The class A
shares to be offered and sold by the Company in the initial public offering will
be newly issued class A shares in addition to the amounts of shares referred to
above.
(c) SHAREHOLDER RIGHTS AGREEMENT
As part of the foregoing plan, subject to final board approval, the Company
is putting in place a shareholder rights agreement which will be implemented not
earlier than the tenth day following the first to occur of (i) the public
announcement of the acquisition by a person (other than a subsidiary of the
Company, SCL or a subsidiary of SCL) of shares carrying 20% or more of the total
voting rights which may be cast at any general meeting of the Company and
(ii) the commencement or announcement of a tender offer or exchange offer by a
person for shares carrying 30% or more of the total voting rights which may be
cast at any general meeting of the Company. At that time, the rights detach from
the class A and class B common shares, and the holders of the rights will be
entitled to purchase, for each right held, one one-hundredth of a series A
junior participating preferred share of
F-18
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
the Company at an exercise price of $ (the "Purchase Price") for each one
one-hundredth of such junior preferred share, subject to adjustment in certain
events. From and after the date on which any person acquires beneficial
ownership of shares carrying 20% or more of the total voting rights which may be
cast at any general meeting of the Company, each holder of a right (other than
the acquiring person) will be entitled upon exercise to receive, at the then
current Purchase Price and in lieu of the junior preferred shares, that number
of class A or class B common shares (depending on whether the right was
previously attached to a class A or B share) having a market value of twice the
Purchase Price. If the Company is acquired or 50% or more of its consolidated
assets or earning power is sold, each holder of a right will be entitled to
receive, upon exercise at the then current Purchase Price, that amount of common
equity of the acquiring company which at the time of such transaction would have
a market value of two times the Purchase Price. Also, the Company's board of
directors may exchange all or some of the rights for class A and class B common
shares (depending on whether the right was previously attached to a class A or B
share) if any person acquires 20% beneficial ownership as described above, but
less than 50% beneficial ownership. The rights will expire on , 2010 but
may be redeemed at a price of $0.05 per right at any time prior to the tenth day
following the date on which a person acquires beneficial ownership of shares
carrying 20% or more of the total voting rights which may be cast at any general
meeting of the Company.
(d) SHARE OWNING SUBSIDIARIES RESTRUCTURING AGREEMENT
Following the recapitalization of the Company, SCL will own 23,418,927 of
the Company's class A common shares and 20,537,713 of the Company's Class B
common shares. The Company, SCL and certain subsidiaries of SCL will be parties
to a Share Owning Subsidiaries Restructuring Agreement (the "SOS Restructuring
Agreement"), which provides that (i) upon consummation of SCL's contemplated
dividend of the Company's shares (the "spinoff"), four subsidiaries of the
Company will receive 18,056,640 shares of the Company's class B common shares in
the spinoff, and (ii) if the spinoff is not consummated prior to the second
anniversary from the date of the agreement, then at any time on or prior to the
fifth anniversary from the date of the agreement, one of those four subsidiaries
of the Company has the right to purchase 18,056,640 class B common shares of the
Company from SCL for $180,566, and if it has not previously done so, such
subsidiary is required to exercise the option on that date.
As a result of the recapitalization and legal entity reorganization of the
Company, OEHL, through its four wholly owned subsidiaries, is the beneficial
owner of 12,900,000 class B common shares of SCL. The SOS Restructuring
Agreement provides that (i) upon consummation of the spinoff, a subsidiary of
SCL will purchase such 12,900,000 SCL class B common shares from the four
subsidiaries for $129,000, and (ii) if the spinoff is not consummated prior to
the second anniversary from the date of the agreement, then at any time on or
prior to the fifth anniversary from the date of the agreement, the SCL
subsidiary has the right to purchase such 12,900,000 of SCL class B common
shares from the four subsidiaries for $129,000, and if it has not previously
done so, such subsidiary of SCL is required to exercise the options on that
date. As part of the SOS Restructuring Agreement, the four OEHL subsidiaries
have waived the right to receive dividends on, and have assigned their voting
rights with respect to, the 12,900,000 class B common shares of SCL held by
them.
(e) ACQUIRED SHARES
Included in shareholders equity is a reduction for the 18,056,640 class B
common shares that the Company's four subsidiaries will acquire under the SOS
Restructuring Agreement. Consistent with the overall presentation of the capital
structure in the financial statements, the Company has given effect to
F-19
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. SHAREHOLDERS' EQUITY (CONTINUED)
the terms and conditions of the SOS Restructuring Agreement as if the agreement
had been consummated from the earliest year presented. As a result a total of
18,056,640 class B common shares are deemed to be owned by Company subsidiaries
at December 31, 1999. Under applicable law, these shares are outstanding and may
be voted by the subsidiaries although in computing earnings per share these
shares are treated as a reduction to outstanding shares.
(f) PREFERRED SHARES
The Company anticipates having 30,000,000 authorized preferred shares, par
value $0.01 each, as part of the foregoing plan, subject to final board
approval, 300,000 of which to be reserved for issuance as series A junior
participating preferred shares upon exercise of preferred share purchase rights
held by class A and B common shareholders in connection with the shareholder
rights agreement. See Note 9(c) above.
10. ORIENT-EXPRESS HOTELS 2000 STOCK OPTION PLAN
The Board of Directors of the Company, and SCL as the sole shareholder of
the Company, have adopted the Orient-Express Hotels 2000 Stock Option Plan. This
option plan provides for the issue of options to purchase up to 750,000 Class A
and Class B common shares of the Company. To date, no option has been awarded
under the option plan. The exercise price of the options will not be less than
the fair market value at the date of grant. In general no option under the
option plan may be exercised during the three years following its grant and
options expire after ten years. The Company will apply the intrinsic value
method of accounting for its stock options, as permitted under SFAS No. 123,
"Accounting for Stock-Based Compensation." As a result, the option plan will be
noncompensatory.
11. COMMITMENTS
Outstanding contracts to purchase fixed assets were approximately
$46,000,000 at December 31, 1999 (1998--$9,000,000).
Future rental payments under operating leases in respect of equipment
rentals and leased premises are payable as follows (in thousands):
<TABLE>
<CAPTION>
Year ending December 31,
<S> <C>
2000........................................................ $ 721
2001........................................................ 482
2002........................................................ 170
2003........................................................ 102
------
$1,475
======
</TABLE>
Rental expense for the year ended December 31, 1999 amounted to $1,157,000
(1998--$994,000, 1997--$1,167,000).
12. INFORMATION CONCERNING FINANCIAL REPORTING FOR SEGMENTS AND OPERATIONS IN
DIFFERENT GEOGRAPHICAL AREAS
OEHL's segments relate to hotels and restaurants and tourist trains and
cruises and are grouped into various geographical segments. Hotels are located
in the United States, the Caribbean, Europe, southern Africa, Brazil, Peru,
Australia and the South Pacific, tourist trains operate in Europe, Southeast
Asia, Australia and Peru, restaurants are located in London and New York, and a
river cruiseship operates in Myanmar.
F-20
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INFORMATION CONCERNING FINANCIAL REPORTING FOR SEGMENTS AND OPERATIONS IN
DIFFERENT GEOGRAPHICAL AREAS (CONTINUED)
Financial information regarding these business segments is as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue:
Hotels and restaurants...................... $202,915 $184,599 $159,756
Tourist trains and cruises.................. 39,159 41,232 34,930
-------- -------- --------
$242,074 $225,831 $194,686
======== ======== ========
Earnings from unconsolidated companies:
Hotels and restaurants...................... $ 5,974 $ 5,265 $ 4,141
Tourist trains and cruises.................. 1,034 (213) (111)
-------- -------- --------
$ 7,008 $ 5,052 $ 4,030
======== ======== ========
Gains on sale of assets:
Hotels and restaurants...................... $ 3,800 $ -- $ 5,000
Tourist trains and cruises.................. -- -- --
-------- -------- --------
$ 3,800 $ -- $ 5,000
======== ======== ========
Depreciation and amortization:
Hotels and restaurants...................... $ 11,638 $ 12,430 $ 11,012
Tourist trains and cruises.................. 1,511 1,803 2,155
-------- -------- --------
$ 13,149 $ 14,233 $ 13,167
======== ======== ========
Earnings from operations before net finance
costs:
Hotels and restaurants...................... $ 66,604 $ 51,371 $ 50,303
Tourist trains and cruises.................. 4,496 4,626 1,577
-------- -------- --------
71,100 55,997 51,890
Central selling, general and administrative
costs....................................... (8,913) (9,140) (8,328)
-------- -------- --------
62,187 46,857 43,562
Net finance costs(1).......................... (19,019) (16,461) (12,321)
-------- -------- --------
Earnings before income taxes and cumulative
effect of change in accounting principle.... 43,168 30,396 31,241
Provision for income taxes.................... 5,173 3,700 3,216
-------- -------- --------
Earnings before cumulative effect of change in
accounting principle........................ $ 37,995 $ 26,696 $ 28,025
======== ======== ========
Capital expenditures:
Hotels and restaurants...................... $ 38,263 $ 38,535 $ 49,375
Tourist trains and cruises.................. 6,072 4,926 367
-------- -------- --------
$ 44,335 $ 43,461 $ 49,742
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
<S> <C> <C> <C>
Identifiable assets:
Hotels and restaurants...................... $582,627 $527,434
Tourist trains and cruises.................. 79,239 75,053
-------- --------
$661,866 $602,487
======== ========
</TABLE>
------------------------
(1) Net of capitalized interest and interest and related income.
F-21
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. INFORMATION CONCERNING FINANCIAL REPORTING FOR SEGMENTS AND OPERATIONS IN
DIFFERENT GEOGRAPHICAL AREAS (CONTINUED)
Financial information regarding geographic areas based on the location of
properties is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Revenue: (a)
Europe...................................... $115,551 $106,901 $ 79,264
North America............................... 82,778 70,231 70,593
Rest of the world........................... 43,745 48,699 44,829
-------- -------- --------
$242,074 $225,831 $194,686
======== ======== ========
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
-------- --------
Long-lived assets at book value: (PP&E Investments)
<S> <C> <C> <C>
Europe........................................ $219,065 $217,317
North America................................. 177,499 130,747
Rest of the world............................. 166,236 151,661
-------- --------
$562,800 $499,725
======== ========
</TABLE>
------------------------
(a) Revenues are attributable to geographic areas based on the location of the
operations.
13. RELATED PARTY TRANSACTIONS
For the year ended December 31, 1999, OEHL paid subsidiaries of SCL
$5,573,000 (1998--$5,107,000, 1997--$5,040,000) for the provision of various
services, including financial, legal, accounting, corporate executive, public
company, human resources administration, insurance, pension benefits, office
facilities and system and computer services. These services are provided on the
basis of a fee plus reimbursements equivalent to the direct and indirect costs
of providing the services as detailed in the formal services agreement between
OEHL and SCL. The services agreement will have an initial term of one year and
will be automatically renewed annually unless it is terminated by SCL or OEHL.
SCL has guaranteed an aggregate principal amount of $260,000,000 of bank
loans to OEHL outstanding at December 31, 1999 (1998--$221,000,000) including a
loan relating to the Windsor Court Hotel (see Note 5(a)) and a $7,500,000 bank
loan to Charleston Center LLC, owner of Charleston Place Hotel, which is
accounted for as an equity investment in OEHL.
14. SUBSEQUENT EVENT
On March 24, 2000, OEHL acquired the Observatory and Lilianfels Hotels in
Australia for an aggregate purchase price of approximately $40.0 million. The
purchase has been substantially financed by a bank loan guaranteed by SCL. The
acquisition will be accounted for as a purchase in accordance with Accounting
Principles Board Opinion No. 16, "Business Combinations."
F-22
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- -------------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash........................................................ $ 10,060 $ 11,143
Accounts receivable, net of allowances of $363 and $371..... 46,155 41,002
Inventories................................................. 14,550 13,604
-------- --------
Total current assets........................................ 70,765 65,749
-------- --------
Property, plant and equipment, less accumulated depreciation
of $61,855
and $60,051............................................... 538,115 499,307
Investments................................................. 63,286 63,493
Intangible assets........................................... 30,743 31,296
Other assets................................................ 2,468 2,021
-------- --------
$705,377 $661,866
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Working capital facilities.................................. $ 10,866 $ 6,186
Accounts payable............................................ 14,755 12,775
Accrued liabilities......................................... 24,550 21,822
Deferred revenue............................................ 12,731 9,083
Current portion of long-term debt and capital leases........ 45,847 38,378
-------- --------
Total current liabilities................................... 108,749 88,244
-------- --------
Long-term debt and obligations under capital leases......... 305,750 271,562
Deferred income taxes....................................... 4,293 5,173
-------- --------
418,792 364,979
-------- --------
Minority interest........................................... 4,702 4,574
Shareholders' equity
Class A common shares $0.01 par value (120,000,000 shares
authorized):
Issued--23,418,927 (1999-23,418,927).................... 234 234
Class B common shares $0.01 par value (120,000,000 shares
authorized):
Issued--20,537,713 (1999-20,537,713).................... 205 205
Paid-in capital............................................. 56 56
Due to Sea Containers Ltd................................... 159,663 172,030
Retained earnings........................................... 137,315 133,434
Accumulated other comprehensive income...................... (15,409) (13,465)
Less: reduction due to class B common shares owned by a
subsidiary-18,056,640..................................... (181) (181)
-------- --------
Total shareholders' equity.................................. 281,883 292,313
======== ========
Commitments................................................. -- --
-------- --------
$705,377 $661,866
======== ========
</TABLE>
See notes to consolidated financial statements.
F-23
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
---------------------
2000 1999
--------- ---------
(IN THOUSANDS EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Revenue..................................................... $51,287 $46,528
Earnings from unconsolidated companies...................... 2,756 2,398
Gain on sale of asset....................................... -- 1,300
------- -------
54,043 50,226
------- -------
Expenses:
Depreciation and amortization............................. 3,547 3,124
Operating................................................. 22,796 21,885
Selling, general and administrative....................... 18,044 16,002
------- -------
Total expenses.............................................. 44,387 41,011
------- -------
Earnings from operations before net finance costs........... 9,656 9,215
Interest expense, net....................................... (5,266) (4,704)
Interest and related income................................. 6 1
------- -------
Net finance costs........................................... (5,260) (4,703)
------- -------
Earnings before income taxes and cumulative effect of change
in accounting principle................................... 4,396 4,512
Provision for income taxes.................................. 515 425
------- -------
Earnings before cumulative effect of change in accounting
principle................................................. 3,881 4,087
Cumulative effect of change in accounting principle......... -- (2,987)
------- -------
Net earnings................................................ $ 3,881 $ 1,100
======= =======
Net earnings (losses) per class A and class B common share:
Basic:
Earnings before cumulative effect of change in
accounting principle.................................. $ 0.15 $ 0.16
Cumulative effect of change in accounting principle..... -- (0.12)
------- -------
Net earnings per share.................................. $ 0.15 $ 0.04
======= =======
</TABLE>
See notes to consolidated financial statements.
F-24
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities:
Net earnings.............................................. $ 3,881 $ 1,100
Add non-cash effect of change in accounting principle..... -- 2,987
-------- --------
3,881 4,087
-------- --------
Adjustments to reconcile net losses to net cash provided
by operating activities:
Depreciation and amortization........................... 3,547 3,124
Undistributed (earnings)/losses of affiliates and other
non-cash items........................................ (820) (1,969)
Change in assets and liabilities net of effects from
acquisition of subsidiaries:
Increase in accounts receivable....................... (1,482) (10,151)
Increase in inventories............................... (859) (315)
Increase/(decrease) in accounts payable............... 4,400 (1,945)
-------- --------
Total adjustments......................................... 4,786 (11,256)
-------- --------
Net cash provided by/(used in) operating activities......... 8,667 (7,169)
-------- --------
Cash flows from investing activities:
Capital expenditures...................................... (10,680) (11,926)
Acquisitions and investments, net of cash acquired........ (42,992) (17,610)
Proceeds from sale of fixed assets........................ 43 2,821
-------- --------
Net cash used in investing activities....................... (53,629) (26,715)
-------- --------
Cash flows from financing activities:
Net proceeds from working capital facilities and
redrawable loans........................................ 5,098 5,137
Issuance of long-term debt................................ 53,243 4,063
Principal payments under long-term debt................... (5,840) (2,948)
(Distribution)/contribution............................... (8,522) 26,917
-------- --------
Net cash provided by financing activities................... 43,979 33,169
-------- --------
Total cash flows............................................ (983) (715)
Effect of exchange rate on cash............................. (100) (1,857)
-------- --------
Net decrease in cash........................................ (1,083) (2,572)
Cash at beginning of period................................. 11,143 12,446
-------- --------
Cash at end of period....................................... $ 10,060 $ 9,874
======== ========
</TABLE>
See notes to consolidated financial statements.
F-25
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON COMMON ACCUMULATED COMMON
SHARES SHARES OTHER SHARES
AT PAR AT PAR PAID-IN DUE TO SEA RETAINED COMPREHENSIVE HELD BY
VALUE VALUE CAPITAL CONTAINERS LTD. EARNINGS INCOME (LOSS) SUBSIDIARIES
$000 $000 $000 $000 $000 $000 $000
-------- -------- -------- --------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 2000..... 234 205 56 172,030 133,434 (13,465) (181)
Comprehensive income........
Net earnings for the
quarter............... 3,881
Cumulative translation
adjustment............ (1,944)
Distribution to Sea
Containers Ltd............ (12,367)
--- --- ------- ------- ------- ------- ------
Balance, March 31, 2000..... 234 205 56 159,663 137,315 (15,409) (181)
=== === ======= ======= ======= ======= ======
<CAPTION>
TOTAL
COMPREHENSIVE
INCOME
$000
--------------
<S> <C>
Balance January 1, 2000.....
Comprehensive income........
Net earnings for the
quarter............... 3,881
Cumulative translation
adjustment............ (1,944)
Distribution to Sea
Containers Ltd............
------
1,937
------
Balance, March 31, 2000.....
</TABLE>
See notes to consolidated financial statements.
F-26
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF FINANCIAL STATEMENT PRESENTATION
(a) ACCOUNTING POLICIES
Orient-Express Hotels Ltd. (the "Company") is a wholly owned subsidiary of
Sea Containers Ltd. ("SCL"). The Company and its subsidiaries are referred to
collectively as "OEHL".
For a description of significant accounting policies and basis of
presentation, see Notes 1 and 9 to the 1999 Consolidated Financial Statements.
In the opinion of management, all adjustments necessary to a fair statement
of the results of the first three months of 2000 and 1999, which are all of a
normally recurring nature, have been reflected in the information provided.
(b) CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
In the first quarter of 1999, OEHL adopted AICPA Statement of Position 98-5,
Reporting on the Costs of Start-Up Activities, which requires that all start-up
activities be expensed as incurred. The $2,987,000 cumulative effect of this
change (after reduction for income taxes of $nil) is included in losses for the
three months ended March 31, 1999.
(c) NET EARNINGS PER SHARE
The number of shares used in computing basic net earnings per share was as
follows (in thousands): 25,900,000, for the three months ended March 31, 2000
and 1999.
2. ACQUISITIONS AND INVESTMENTS
On March 24, 2000, OEHL acquired the Observatory and Lilianfels Hotels in
Australia for an aggregate purchase price of $40.0 million. The purchase has
been substantially financed by a bank loan guaranteed by SCL. The acquisition
has been accounted for as a purchase in accordance with Accounting Principles
Board No. 16, "Business Combinations." Management is still in the process of
determining the fair value of the assets acquired. The results of each operation
have been included in the consolidated financial results of OEHL from the date
of acquisition.
3. PROPERTY, PLANT AND EQUIPMENT
The major classes of real estate and other fixed assets are as follows (in
thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Freehold and leased land and buildings................ $428,761 $390,115
Machinery and equipment............................... 97,458 95,706
Fixtures, fittings and office equipment............... 57,633 57,408
River cruiseship...................................... 16,118 16,129
-------- --------
599,970 559,358
Less: accumulated depreciation........................ 61,855 60,051
-------- --------
$538,115 $499,307
======== ========
</TABLE>
At March 31, 2000 and December 31, 1999, balances for machinery and
equipment under capital lease were $1,613,000 and $1,650,000, respectively, and
for fixtures and fittings under capital lease were
F-27
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
$227,000 and $278,000, respectively. Accumulated depreciation related to assets
under capital lease at March 31, 2000 and December 31, 1999 was $386,000 and
$332,000, respectively.
4. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES
(a) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Loans from banks secured by property, plant and
equipment payable over periods of 2 to 14 years,
with a weighted average interest rate of 6.70 and
6.49 percent, respectively, primarily based on
LIBOR............................................... $348,158 $305,894
Loan secured by a river cruiseship payable over 5
years, with a weighted average interest rate of 7.78
and 7.97 percent, respectively, based on LIBOR...... 2,656 3,188
Obligations under capital lease (see Note 4(b))....... 783 858
-------- --------
351,597 309,940
Less: current portion................................. 45,847 38,378
-------- --------
$305,750 $271,562
======== ========
</TABLE>
Included in long-term debt is a revolving credit facility with a group of
banks secured by the Windsor Court Hotel and marine cargo containers owned by
SCL and its subsidiaries. Under this revolving facility, Windsor Court Hotel
L.P., a subsidiary of the Company ("WCHLP") and the other parties to the
facility, including SCL, may borrow up to $239,600,000. At March 31, 2000,
$57,546,000 (December 31, 1999--$57,546,000) was drawn under this facility by
WCHLP. WCHLP may, under certain circumstances, borrow additional amounts secured
by collateral pledged by SCL. Borrowings may be made on a revolving basis until
October 25, 2004 at which point the balance outstanding must be repaid. Interest
on loans drawn on hotel collateral ranges from 1.75 percent to 2.20 percent over
LIBOR. The agreement governing this revolving credit facility includes certain
restrictive financial covenants that apply to SCL on a consolidated basis with
its subsidiaries, including the Company. These financial covenants include, but
are not limited to, a maximum leverage ratio, minimum net worth and debt service
and interest coverage ratios. OEHL was in compliance with those covenants as of
March 31, 2000 and December 31, 1999.
F-28
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT AND OBLIGATIONS UNDER CAPITAL LEASES (CONTINUED)
The following is a summary of the aggregate maturities of long-term debt at
March 31, 2000 (in thousands):
<TABLE>
<S> <C>
2000........................................................ $ 45,555
2001........................................................ 55,107
2002........................................................ 30,767
2003........................................................ 29,725
2004........................................................ 138,302
2005 and thereafter......................................... 51,358
--------
$350,814
========
</TABLE>
The interest rates on substantially all of OEHL's long-term debt are
adjusted regularly to reflect current market rates. Accordingly, the carrying
amounts of OEHL's long-term debt also approximate fair value.
(b) OBLIGATIONS UNDER CAPITAL LEASES
The following is a schedule of future minimum lease payments under capital
leases together with the present value of the minimum lease payments at
March 31, 2000 (in thousands):
<TABLE>
<S> <C>
2000........................................................ $276
2001........................................................ 267
2002........................................................ 227
2003........................................................ 105
----
Minimum lease payments...................................... 875
Less: amount of interest contained in above payments(1)..... 92
----
Present value of minimum lease payments..................... 783
Less: current portion....................................... 292
----
$491
====
</TABLE>
------------------------
(1) The amount of interest deducted from minimum lease payments to arrive at the
present value is the interest contained in each of the leases.
F-29
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. INCOME TAXES
Income taxes provided by OEHL relate principally to its foreign subsidiaries
as pre-tax income is primarily foreign. The provision for income taxes consisted
of the following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 2000 CURRENT DEFERRED TOTAL
--------------------------------- -------- -------- --------
<S> <C> <C> <C>
United States........................................ $ 342 $ 200 $542
Other................................................ 963 (990) (27)
------ ----- ----
$1,305 $(790) $515
------ ----- ----
THREE MONTHS ENDED MARCH 31, 1999
-----------------------------------------------------
United States........................................ $ 186 $ 200 $386
Other................................................ 807 (768) 39
------ ----- ----
$ 993 $(568) $425
------ ----- ----
</TABLE>
The Company is incorporated in Bermuda which does not impose an income tax.
OEHL's effective tax rate is entirely due to the income taxes imposed by
jurisdictions in which OEHL 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
OEHL's net deferred tax liabilities (in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Gross deferred tax assets (operating loss carry
forwards)........................................... $ 48,076 $ 47,075
Less: Valuation allowance............................. (38,835) (38,835)
-------- --------
Net deferred tax assets............................... 9,241 8,240
Deferred tax liabilities.............................. (13,534) (13,413)
-------- --------
Net deferred tax liabilities.......................... $ (4,293) $ (5,173)
======== ========
</TABLE>
The deferred tax assets consist primarily of tax loss carryforwards. The
deferred tax liabilities consist primarily of differences between the tax basis
of depreciable assets versus the adjusted basis as reflected in the financial
statements.
OEHL has prepared these financial statements on the basis that a tax sharing
agreement is in place with SCL and its subsidiaries. In accordance with this
presentation, OEHL utilized/relinquished losses with certain SCL subsidiaries.
The following represents the net liability from OEHL to SCL and its subsidiaries
(in thousands):
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Tax sharing agreement................................. $(2,337) $(2,337)
</TABLE>
F-30
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
-------------------
2000 1999
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Cash paid for:
Interest.................................................... $4,646 $3,943
Income taxes................................................ $2,396 $ 728
</TABLE>
7. COMMITMENTS
Outstanding contracts to purchase fixed assets were approximately $6,000,000
at March 31, 2000 (December 31, 1999--$46,000,000).
8. INFORMATION CONCERNING FINANCIAL REPORTING FOR SEGMENTS AND OPERATIONS IN
DIFFERENT GEOGRAPHICAL AREAS
OEHL's segments relate to hotels and restaurants and tourist trains and
cruises and are located in the United States, the Caribbean, Europe, Southern
Africa, Brazil, Peru, Australia and the South Pacific, tourist trains operate in
Europe, Southeast Asia, Australia and Peru, restaurants are located in London
and New York and a river cruiseship operates in Myanmar.
F-31
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INFORMATION CONCERNING FINANCIAL REPORTING FOR SEGMENTS AND OPERATIONS IN
DIFFERENT GEOGRAPHICAL AREAS (CONTINUED)
Financial information regarding these business segments is as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Revenue:
Hotels and restaurants.................................... $ 46,170 $ 40,884
Tourist trains and cruises................................ 5,117 5,644
-------- --------
$ 51,287 $ 46,528
======== ========
Earnings from unconsolidated companies:
Hotel and restaurants..................................... $ 2,320 $ 2,398
Tourist trains and cruises................................ 436 --
-------- --------
$ 2,756 $ 2,398
======== ========
Depreciation and amortization:
Hotels and restaurants.................................... $ 3,105 $ 2,769
Tourist trains and cruises................................ 442 355
-------- --------
$ 3,547 $ 3,124
======== ========
Gain on sale of asset:
Hotels and restaurants.................................... $ -- $ 1,300
Tourist trains and cruises................................ -- --
-------- --------
$ -- $ 1,300
======== ========
Earnings from operations before net finance costs:
Hotels and restaurants.................................... $ 13,143 $ 12,571
Tourist trains and cruises................................ (1,230) (1,199)
-------- --------
11,913 11,372
Central selling, general and administrative costs........... (2,257) (2,157)
-------- --------
9,656 9,215
Net finance costs(1)........................................ (5,260) (4,703)
-------- --------
Earnings before income taxes and cumulative effect of change
in accounting principle................................... 4,396 4,512
Provision for income taxes.................................. 515 425
-------- --------
Earnings before cumulative effect of change in accounting
principle................................................. $ 3,881 $ 4,087
======== ========
Capital expenditures:
Hotels and restaurants.................................... $ 8,034 $ 10,184
Tourist trains and cruises................................ 2,646 1,742
-------- --------
$ 10,680 $ 11,926
======== ========
</TABLE>
------------------------
(1) Net of capitalized interest and interest and related income.
F-32
<PAGE>
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INFORMATION CONCERNING FINANCIAL REPORTING FOR SEGMENTS AND OPERATIONS IN
DIFFERENT GEOGRAPHICAL AREAS (CONTINUED)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Identifiable assets:
Hotels and restaurants.................................... $621,844 $582,627
Tourist trains and cruises................................ 83,533 79,239
-------- --------
$705,377 $661,866
-------- --------
</TABLE>
Financial information regarding geographic areas based on the location of
properties is as follows (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
-------------------
2000 1999
-------- --------
<S> <C> <C>
Geographic area information:
Revenue:(a)
Europe.................................................... $12,533 $12,104
North America............................................. 23,038 21,115
Rest of the world......................................... 15,716 13,309
------- -------
$51,287 $46,528
------- -------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
2000 1999
--------- ------------
<S> <C> <C>
Long-lived assets at book value:
Europe.................................................... $215,968 $219,065
North America............................................. 179,378 177,499
Rest of the world......................................... 206,055 166,236
-------- --------
$601,401 $562,800
-------- --------
</TABLE>
------------------------
(a) Revenues are attributable to geographic areas based on the location of the
operations.
9. RELATED PARTY TRANSACTIONS
For the three months ended March 31, 2000, OEHL paid subsidiaries of SCL
$1,374,000 (1999--$1,349,000) for the provision of various services including
financial, legal, accounting, corporate executive, public company, human
resources administration, insurance, pension benefits, office facilities and
system and computer services. These services are provided on the basis of a fee
plus reimbursements equivalent to the direct and indirect costs of providing the
services. The services agreement will have an initial term of one year and will
be automatically renewed annually unless it is terminated by SCL or OEHL.
SCL has guaranteed an aggregate principal amount of $306,000,000 of bank
loans to OEHL outstanding at March 31, 2000 (December 31, 1999--$260,000,000)
including a loan relating to the Windsor Court Hotel (see Note 4(a)) and a
$7,500,000 bank loan to Charleston Center LLC, owner of Charleston Place Hotel,
which is accounted for as an equity investment in OEHL.
F-33
<PAGE>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Through and including , 2000 (the 25th day after the date of
this prospectus), all dealers effecting transactions in these securities,
whether or not participating in this offering, may be required to deliver a
prospectus. This is in addition to the dealers' obligation to deliver a
prospectus when acting as underwriters and with respect to their unsold
allotments or subscriptions.
10,000,000 SHARES
[LOGO]
ORIENT-EXPRESS HOTELS LTD.
CLASS A COMMON SHARES
----------------
P R O S P E C T U S
----------------
MERRILL LYNCH & CO.
LAZARD
SALOMON SMITH BARNEY
BANC OF AMERICA SECURITIES LLC
, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
[ALTERNATE COVER PAGE FOR INTERNATIONAL PROSPECTUS]
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED JULY 3, 2000
The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
<PAGE>
P_R_O_S_P_E_C_T_U_S
10,000,000 CLASS A COMMON SHARES
ORIENT-EXPRESS HOTELS LTD.
--------
This is Orient-Express Hotels Ltd.'s initial public offering. Orient-Express
Hotels is selling 5,000,000 of the shares and Sea Containers is selling
5,000,000 of the shares. The international managers are offering 2,000,000
shares outside the U.S. and Canada, and the U.S. underwriters are offering
8,000,000 shares in the U.S. and Canada.
We expect the public offering price to be between $20.00 and $23.00 per
share. Currently, no public market exists for the shares. After pricing of this
offering, we expect that the class A common shares will trade on the New York
Stock Exchange under the symbol OEH.A.
After completion of this offering, the outstanding capital stock of
Orient-Express Hotels will consist of 28,418,927 class A common shares, of which
Sea Containers will own directly or indirectly about 65%, or 60% if the
underwriters fully exercise their over-allotment option, and 2,481,073 class B
common shares, all of which Sea Containers will own directly or indirectly. In
general, holders of class A common shares and class B common shares vote
together as a single class on all matters submitted to a vote of Orient-Express
Hotels' shareholders, with holders of class B common shares having one vote per
share and holders of class A common shares having one-tenth of one vote per
share. Each class B common share is convertible at any time into one class A
common share. In all other material respects, the class A common shares and
class B common shares are identical and are treated as a single class of common
shares. See "Description of Common Shares."
INVESTING IN THE CLASS A COMMON SHARES INVOLVES RISKS THAT ARE DESCRIBED IN
THE "RISK FACTORS" SECTION BEGINNING ON PAGE 11 OF THIS PROSPECTUS.
----------------
<TABLE>
<CAPTION>
PER SHARE TOTAL
--------- -----
<S> <C> <C>
Public offering price....................................... $ $
Underwriting discount....................................... $ $
Proceeds, before expenses, to Orient-Express Hotels......... $ $
Proceeds, before expenses, to Sea Containers................ $ $
</TABLE>
The international managers may also purchase up to an additional 300,000
shares from Sea Containers at the public offering price, less the underwriting
discount, within 30 days from the date of this prospectus to cover
over-allotments. The U.S. underwriters may similarly purchase up to an
additional 1,200,000 shares from Sea Containers.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the class A common shares being
offered by this prospectus, or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal offense.
The shares will be ready for delivery on or about , 2000.
------------------
CO-LEAD MANAGERS
MERRILL LYNCH INTERNATIONAL LAZARD
------------
SALOMON SMITH BARNEY BANC OF AMERICA SECURITIES LLC
------------
The date of this prospectus is , 2000.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The expenses of the issuance and distribution of the securities being
registered hereby, other than selling discounts and commissions, are estimated
as follows:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 65,274
NASD filing fee............................................. 25,225
Stock exchange listing fees................................. 166,500
Printing and engraving...................................... 700,000
Blue sky fees and expenses (including legal fees)........... 5,000
Legal fees and expenses..................................... 500,000
Accountants' fees and expenses.............................. 750,000
Miscellaneous............................................... 88,001
----------
Total..................................................... $2,300,000
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Bye-Laws 122-125 of the Registrant provides as follows (references therein
to the Company are references to the Registrant and references to the Companies
Acts mean Bermuda's Companies Act 1981 and such other statutory corporate
enactments in Bermuda as are from time to time in force concerning companies
insofar as the same applies to the Registrant):
"122. Subject to the proviso below, every Director, officer of the
Company and member of a committee constituted under Bye-Law 88 and any
Resident Representative shall be indemnified out of the funds of the Company
against all liabilities, loss, damage or expense (including but not limited
to liabilities under contract, tort and statute or any applicable foreign
law or regulation and all reasonable legal and other costs and expenses
properly payable) incurred or suffered by him as such Director, officer,
committee member or Resident Representative and the indemnity contained in
this Bye-Law shall extend to any person acting as a Director, officer,
committee member or Resident Representative in the reasonable belief that he
has been so appointed or elected notwithstanding any defect in such
appointment or election; provided the indemnity contained in this Bye-Law
shall not extend to any matter which would render it void pursuant to the
Companies Acts.
"123. Every Director, officer, member of a committee duly constituted
under Bye-Law 88 or Resident Representative of the Company shall be
indemnified out of the funds of the Company against all liabilities incurred
by him as such Director, officer, committee member or Resident
Representative in defending any proceedings, whether civil or criminal, in
which judgement is given in his favour, or in which he is acquitted, or in
connection with any application under the Companies Acts in which relief
from liability is granted to him by the court.
"124. To the extent that any Director, officer, member of a committee
duly constituted under Bye-Law 88 or Resident Representative is entitled to
claim an indemnity pursuant to these Bye-Laws in respect of amounts paid or
discharged by him, the relative indemnity shall take effect as an obligation
of the Company to reimburse the person making such payment or effecting such
discharge.
II-1
<PAGE>
"125. Expenses incurred in defending any civil or criminal action, suit
or proceeding may be paid by the Company in advance of the final disposition
of such action, suit or proceeding as authorized by the Directors in the
specific case upon receipt of an undertaking by or on behalf of the
indemnified party to repay such amount if it shall ultimately be determined
that the indemnified party is not entitled to be indemnified pursuant to
Bye-Laws 122 and 123 or otherwise."
Reference is made to Section 6 in each of the U.S. Purchase Agreement
(Exhibit 1.1 to this Registration Statement) and the International Purchase
Agreement (Exhibit 1.2 to this Registration Statement) for certain provisions as
to the indemnification of directors, certain officers and controlling persons of
the Registrant by the underwriters.
The Registrant also maintains directors' and officers' liability and
corporate reimbursement insurance. Such insurance, subject to annual renewal and
certain rights of the insurer to terminate, provides an aggregate maximum of
$25,000,000 of coverage to directors and officers of the Registrant and its
subsidiaries, against claims made during the policy period.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The Registrant, a wholly-owned subsidiary of Sea Containers Ltd., has sold
no securities within the past three years.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
1.1* --Form of U.S. Purchase Agreement.
1.2* --Form of International Purchase Agreement.
2.1 --Form of Services Agreement among Sea Containers Ltd., Sea
Containers Services Ltd. and the Registrant.
2.2 --Form of Share Owning Subsidiaries Restructuring Agreement
by and among Sea Containers Ltd., Sea Containers
Holdings Ltd., Sea Containers House Ltd., The Marine
Containers Insurance Co. Ltd., Sea Containers Asia Ltd.
and the Registrant.
2.3 --Form of Tax Sharing Agreement between Sea Containers Ltd.
and the Registrant.
2.4 --Form of Restructuring Agreement.
3.1 --Memorandum of Association and Certificate of Incorporation
of the Registrant.
3.2 --Bye-Laws of the Registrant.
4 --Note: The exhibits filed herewith do not include the
instruments with respect to long-term debt of the
Registrant and its subsidiaries, inasmuch as the total
amount of debt authorized under any such instrument does
not exceed 10% of the total assets of the Registrant and
its subsidiaries on a consolidated basis. The Registrant
agrees, pursuant to Item 601(b)(4)(iii) of
Regulation S-K, that it will furnish a copy of any such
instrument to the Securities and Exchange Commission
upon request.
4.1 --Schedule 1 to the Bye-Laws of the Registrant (included in
Exhibit 3.2).
4.2 --Form of Rights Agreement between the Registrant and Fleet
National Bank, as Rights Agent.
5 --Opinion of Appleby Spurling & Kempe.
8 --Tax opinion of Carter, Ledyard and Milburn.
</TABLE>
------------------------
* To be supplied by further amendment.
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
--------------------- ------------------------------------------------------------
<C> <S>
10.1 --Orient-Express Hotels Ltd. 2000 Stock Option Plan.
10.2 --Agreement Regarding Hotel Cipriani Interests dated
January 27, 1989, among James B. Sherwood,
Orient-Express Hotels Inc. and Hotel Cipriani S.p.A.,
filed as Exhibit 28(b) to Current Report on Form 8-K of
Orient-Express Hotels Inc. dated February 10, 1989
(Commission File No. 1-6066) and incorporated herein by
reference.
10.3 --Right of First Refusal and Option Agreement Regarding
Indirectly Held Hotel Cipriani Interests dated August
22, 1989, among James B. Sherwood, Orient-Express Hotels
Inc., and Sea Containers America Inc., filed as Exhibit
10(e) to Sea Containers' Annual Report on Form 10-K for
the fiscal year ended December 31, 1989 (Commission File
No. 1-7560) and incorporated herein by reference.
10.4** --Agreement dated February 18, 1982 between James B.
Sherwood and Hotel Cipriani S.p.A.
12 --Computation of ratios of earnings to fixed charges.
21 --Subsidiaries of the Registrant.
23.1 --Consent of Deloitte & Touche LLP and Report on Schedule.
23.2 --Consent of Appleby Spurling & Kempe (included in Exhibit
5).
23.3 --Consent of Carter, Ledyard & Milburn (included in
Exhibit 8).
24** --Powers of Attorney.
27*** --Financial Data Schedule.
99 --Computation of compound annual growth rates.
</TABLE>
------------------------
** Previously filed with this Registration Statement.
*** Not required because the Registrant is a foreign private issuer.
(B) FINANCIAL STATEMENT SCHEDULE
ORIENT-EXPRESS HOTELS LTD. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
-------- -------- -------- -------- --------
ADDITIONS
---------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END OF
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD
----------- ---------- ---------- -------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Allowance for doubtful accounts............... $397,000 $ 15,000 $(49,000)(2) $ 23,000 (1) $372,000
======== ========
32,000 (3)
Year ended December 31, 1998:
Allowance for doubtful accounts............... $370,000 $ 41,000 $ 18,000 (2) $107,000 (1) $397,000
======== ========
75,000 (3)
Year ended December 31, 1997:
Allowance for doubtful accounts............... $256,000 $202,000 $(17,000)(2) $ 58,000 (1) $370,000
======== ========
(13,000)(4)
</TABLE>
------------------------------
(1) Bad debts written off--net of recoveries.
(2) Foreign currency translation adjustments.
II-3
<PAGE>
(3) Acquisition of subsidiary companies.
(4) Disposal of subsidiary.
ITEM 17. UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes to provide to the
underwriter at the closing specified in the underwriting agreements certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(2) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions referred to in Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(3) The undersigned registrant hereby undertakes that
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this amendment to registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in Hamilton, Bermuda on
the 30th day of June, 2000.
ORIENT-EXPRESS HOTELS LTD.
By: /s/ SIMON M.C. SHERWOOD
--------------------------------------
Simon M.C. Sherwood
PRESIDENT
Pursuant to the requirements of the Securities Act of 1933, this amendment
to registration statement has been signed below by the following persons in the
capacities indicated on June 30, 2000.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ SIMON M.C. SHERWOOD
------------------------------------------- President and Director (Principal Executive
Simon M.C. Sherwood Officer)
/s/ JAMES G. STRUTHERS Vice President--Finance and Chief Financial
------------------------------------------- Officer (Principal Financial and Accounting
James G. Struthers Officer)
*
------------------------------------------- Director
John D. Campbell
*
------------------------------------------- Director
James B. Hurlock
/s/ DANIEL J. O'SULLIVAN
------------------------------------------- Director
Daniel J. O'Sullivan
*
------------------------------------------- Director and Authorized Representative in the
J. Robert Lovejoy United States
*
------------------------------------------- Director
James B. Sherwood
</TABLE>
--------------------
*By: /s/ SIMON M.C. SHERWOOD
--------------------------------------
Simon M.C. Sherwood
Attorney-in-fact
II-5
<PAGE>
REGISTRATION NO. 333-12030
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
ORIENT-EXPRESS HOTELS LTD.
AMENDMENT NO. 2
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
EXHIBITS
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
---------- -----------
1.1* -- Form of U.S. Purchase Agreement
1.2* -- Form of International Purchase Agreement
2.1 -- Form of Services Agreement among Sea Containers Ltd., Sea
Containers Services Ltd. and the Registrant
2.2 -- Form of Share Owning Subsidiaries Restructuring Agreement by
and among Sea Containers Ltd., Sea Containers Holdings Ltd.,
Sea Containers House Ltd., The Marine Containers
Insurance Co. Ltd., Sea Containers Asia Ltd. and the
Registrant
2.3 -- Form of Tax Sharing Agreement between Sea Containers Ltd.
and the Registrant
2.4 -- Form of Restructuring Agreement
3.1 -- Memorandum of Association and Certificate of Incorporation
of the Registrant
3.2 -- Bye-Laws of the Registrant
4 -- Note: The exhibits filed herewith do not include the
instruments with respect to long-term debt of the Registrant
and its subsidiaries, inasmuch as the total amount of debt
authorized under any such instrument does not exceed 10% of
the total assets of the Registrant and its subsidiaries on a
consolidated basis. The Registrant agrees, pursuant to
Item 601(b)(4)(iii) of Regulation S-K, that it will furnish
a copy of any such instrument to the Securities and Exchange
Commission upon request.
4.1 -- Schedule 1 to the Bye-Laws of the Registrant (included in
Exhibit 3.2)
4.2 -- Form of Rights Agreement between the Registrant and Fleet
National Bank, as Rights Agent
5 -- Opinion of Appleby Spurling & Kempe
8 -- Tax opinion of Carter, Ledyard & Milburn.
10.1 -- Orient-Express Hotels Ltd. 2000 Stock Option Plan
10.2 -- Agreement Regarding Hotel Cipriani Interests dated
January 27, 1989, among James B. Sherwood, Orient-Express
Hotels Inc. and Hotel Cipriani S.p.A., filed as
Exhibit 28(b) to Current Report on Forum 8-K of
Orient-Express Hotels Inc. dated February 10, 1989
(Commission File No. 1-6066) and incorporated herein by
reference.
10.3 -- Right of First Refusal and Option Agreement Regarding
Indirectly Held Hotel Cipriani Interests dated August 22,
1989, among James B. Sherwood, Orient-Express Hotels Inc.,
and Sea Containers America Inc., filed as Exhibit 10(e) to
Sea Containers' Annual Report on Form 10-K for the fiscal
year ended December 31, 1989 (Commission File No. 1-7560)
and incorporated herein by reference.
10.4** -- Agreement dated February 18, 1982 between James B. Sherwood
and Hotel Cipriani S.p.A.
12 -- Computation of ratios of earnings to fixed charges.
21 -- Subsidiaries of the Registrant
23.1 -- Consent of Deloitte & Touche LLP and Report on Schedule
23.2 -- Consent of Appleby Spurling & Kempe (included in Exhibit 5)
23.3 -- Consent of Carter, Ledyard & Milburn (included in
Exhibit 8).
24** -- Powers of Attorney
27*** -- Financial Data Schedule
99 -- Computation of compound annual growth rates.
------------------------
* To be supplied by further amendment.
** Previously filed with this Registration Statement.
*** Not required because the Registrant is a foreign private issuer.
