---

---

SECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549

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FORM 10-Q

(Mark One)

|/x/ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
|--- | ---------------------------------------------------------------------------------------

For the quarterly period ended June 30, 2001

or

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

For the transition period from  to

Commission file number 1-16017

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ORIENT-EXPRESS HOTELS LTD.(Exact name of registrant as specified in its charter)

Bermuda(State or other jurisdiction of incorporation or organization)

98-0223493(I.R.S. Employer Identification No.)


41 Cedar Avenue
P.O. Box HM 1179
Hamilton HMEX, Bermuda(Address of principal executive offices) (Zip Code)

441-295-2244(Registrant's telephone number, including area code)

---

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes /x/  No / /

As
of July 31, 2001, 28,440,601 Class A common shares and 20,503,877 Class B common shares of Orient-Express Hotels Ltd. were outstanding, including
18,044,478 Class B shares owned by subsidiaries of Orient-Express Hotels Ltd. and 16,940,601 Class A shares and 2,459,399 Class B shares owned by Sea Containers Ltd.

---

---



PART I

Orient-Express Hotels Ltd. and Subsidiaries  Consolidated Balance Sheets

|                                                                                    |                                                                        | June 30,
2001 |         | December 31,
2000 |  
|----------------------------------------------------------------------------------- | ---------------------------------------------------------------------- | ------------- | ------- | ----------------- | -
|
|Assets                                                                              |                                                                        |               |         |                   |  
|Cash and cash equivalents                                                           |                                                                        | $             | 34,043  |                   | $
|Accounts receivable, net of allowances of $431 and $422                             |                                                                        |               | 46,730  |                   |  
|Inventories                                                                         |                                                                        |               | 16,823  |                   |  
|                                                                                    |                                                                        |               |         |                   |  
|Total current assets                                                                |                                                                        |               | 97,596  |                   |  
|                                                                                    |                                                                        |               |         |                   |  
|Property, plant and equipment, less accumulated depreciation of $75,298 and $71,159 |                                                                        |               | 571,157 |                   |  
|Investments                                                                         |                                                                        |               | 86,109  |                   |  
|Intangible assets                                                                   |                                                                        |               | 29,976  |                   |  
|Other assets                                                                        |                                                                        |               | 1,998   |                   |  
|                                                                                    |                                                                        |               |         |                   |  
|                                                                                    |                                                                        | $             | 786,836 |                   | $
|                                                                                    |                                                                        |               |         |                   |  
|Liabilities and Shareholders' Equity                                                |                                                                        |               |         |                   |  
|Working capital facilities                                                          |                                                                        | $             | 7,213   |                   | $
|Accounts payable                                                                    |                                                                        |               | 18,961  |                   |  
|Accrued liabilities                                                                 |                                                                        |               | 33,386  |                   |  
|Deferred revenue                                                                    |                                                                        |               | 10,690  |                   |  
|Current portion of long-term debt                                                   |                                                                        |               | 38,135  |                   |  
|                                                                                    |                                                                        |               |         |                   |  
|Total current liabilities                                                           |                                                                        |               | 108,385 |                   |  
|Long-term debt                                                                      |                                                                        |               | 280,027 |                   |  
|Deferred income taxes                                                               |                                                                        |               | 4,208   |                   |  
|                                                                                    |                                                                        |               |         |                   |  
|                                                                                    |                                                                        |               | 392,620 |                   |  
|                                                                                    |                                                                        |               |         |                   |  
|Minority interest                                                                   |                                                                        |               | 5,187   |                   |  
|                                                                                    |                                                                        |               |         |                   |  
|Shareholders' equity:                                                               |                                                                        |               |         |                   |  
|                                                                                    | Class A common shares $0.01 par value (120,000,000 shares authorized): |               |         |                   |  
|                                                                                    | Issued28,440,601                                                      |               |         | 284               |  
|                                                                                    | Class B common shares $0.01 par value (120,000,000 shares authorized): |               |         |                   |  
|                                                                                    | Issued20,503,877                                                      |               |         | 205               |  
|Additional paid-in capital                                                          |                                                                        |               | 228,862 |                   |  
|Retained earnings                                                                   |                                                                        |               | 192,706 |                   |  
|Accumulated other comprehensive loss                                                |                                                                        |               | (32,847 | )                 |  
|Less: reduction due to class B common shares owned by subsidiaries18,044,478       |                                                                        |               | (181    | )                 |  
|                                                                                    |                                                                        |               |         |                   |  
|Total shareholders' equity                                                          |                                                                        |               | 389,029 |                   |  
|                                                                                    |                                                                        |               |         |                   |  
|Commitments                                                                         |                                                                        |               |        |                   |  
|                                                                                    |                                                                        |               |         |                   |  
|                                                                                    |                                                                        | $             | 786,836 |                   | $
|                                                                                    |                                                                        |               |         |                   |  

See
notes to consolidated financial statements.



Orient-Express Hotels Ltd. and Subsidiaries  Statements of Consolidated Operations

|                                                   |                                     | Three months ended June 30, |       
|-------------------------------------------------- | ----------------------------------- | --------------------------- | ------
|
|
|Revenue                                            |                                     | $                           | 74,266
|Earnings from unconsolidated companies             |                                     |                             | 2,431 
|                                                   |                                     |                             |       
|                                                   |                                     |                             | 76,697
|                                                   |                                     |                             |       
|Expenses:                                          |                                     |                             |       
|                                                   | Depreciation and amortization       |                             |       
|                                                   | Operating                           |                             |       
|                                                   | Selling, general and administrative |                             |       
|                                                   |                                     |                             |       
|Total expenses                                     |                                     |                             | 55,944
|                                                   |                                     |                             |       
|Earnings from operations before net finance costs  |                                     |                             | 20,753
|Interest expense, net                              |                                     |                             | (5,396
|Interest and related income                        |                                     |                             | 762   
|                                                   |                                     |                             |       
|Net finance costs                                  |                                     |                             | (4,634
|                                                   |                                     |                             |       
|Earnings before income taxes                       |                                     |                             | 16,119
|Provision for income taxes                         |                                     |                             | 1,704 
|                                                   |                                     |                             |       
|Net earnings                                       |                                     | $                           | 14,415
|                                                   |                                     |                             |       
|Net earnings per class A and class B common share: |                                     |                             |       
|                                                   | Basic and diluted                   |                             | $     
|                                                   |                                     |                             |       

See
notes to consolidated financial statements.



|                                                   |                                     | Six months ended June 30, |        
|-------------------------------------------------- | ----------------------------------- | ------------------------- | -------
|
|
|Revenue                                            |                                     | $                         | 129,973
|Earnings from unconsolidated companies             |                                     |                           | 4,635  
|                                                   |                                     |                           |        
|                                                   |                                     |                           | 134,608
|                                                   |                                     |                           |        
|Expenses:                                          |                                     |                           |        
|                                                   | Depreciation and amortization       |                           |        
|                                                   | Operating                           |                           |        
|                                                   | Selling, general and administrative |                           |        
|                                                   |                                     |                           |        
|Total expenses                                     |                                     |                           | 103,178
|                                                   |                                     |                           |        
|Earnings from operations before net finance costs  |                                     |                           | 31,430 
|Interest expense, net                              |                                     |                           | (10,492
|Interest and related income                        |                                     |                           | 747    
|                                                   |                                     |                           |        
|Net finance costs                                  |                                     |                           | (9,745 
|                                                   |                                     |                           |        
|Earnings before income taxes                       |                                     |                           | 21,685 
|Provision for income taxes                         |                                     |                           | 2,378  
|                                                   |                                     |                           |        
|Net earnings                                       |                                     | $                         | 19,307 
|                                                   |                                     |                           |        
|Net earnings per class A and class B common share: |                                     |                           |        
|                                                   | Basic and diluted                   |                           | $      
|                                                   |                                     |                           |        

See
notes to consolidated financial statements.



Orient-Express Hotels Ltd. and Subsidiaries  Statements of Consolidated Cash Flows

|                                                 |                                                                                     | Six months ended June 30,       |        
|------------------------------------------------ | ----------------------------------------------------------------------------------- | ------------------------------- | -------
|
|
|Cash flows from operating activities:            |                                                                                     |                                 |        
|                                                 | Net earnings                                                                        |                                 | $      
|                                                 |                                                                                     |                                 |        
|                                                 | Adjustments to reconcile net earnings to net cash provided by operating activities: |                                 |        
|                                                 | Depreciation and amortization                                                       |                                 |        
|                                                 | Undistributed (earnings) of affiliates and other non-cash items                     |                                 |        
|                                                 | Change in assets and liabilities net of effects from acquisition of subsidiaries:   |                                 |        
|                                                 |                                                                                     | Increase in accounts receivable |        
|                                                 |                                                                                     | Increase in inventories         |        
|                                                 |                                                                                     | Increase in accounts payable    |        
|                                                 |                                                                                     |                                 |        
|                                                 | Total adjustments                                                                   |                                 |        
|                                                 |                                                                                     |                                 |        
|Net cash provided by operating activities        |                                                                                     |                                 | 24,161 
|                                                 |                                                                                     |                                 |        
|Cash flows from investing activities:            |                                                                                     |                                 |        
|                                                 | Capital expenditures                                                                |                                 |        
|                                                 | Acquisitions and investments, net of cash acquired                                  |                                 |        
|                                                 | Proceeds from sale of fixed assets and other                                        |                                 |        
|                                                 |                                                                                     |                                 |        
|Net cash used in investing activities            |                                                                                     |                                 | (56,035
|                                                 |                                                                                     |                                 |        
|Cash flows from financing activities:            |                                                                                     |                                 |        
|                                                 | Net proceeds from working capital facilities and redrawable loans                   |                                 |        
|                                                 | Issuance of long-term debt                                                          |                                 |        
|                                                 | Principal payments under long-term debt                                             |                                 |        
|                                                 | Movement in SCL investment prior to initial public offering                         |                                 |        
|                                                 |                                                                                     |                                 |        
|Net cash provided by financing activities        |                                                                                     |                                 | 50,993 
|                                                 |                                                                                     |                                 |        
|Total cash flows                                 |                                                                                     |                                 | 19,119 
|Effect of exchange rate changes on cash          |                                                                                     |                                 | (965   
|                                                 |                                                                                     |                                 |        
|Net increase/(decrease) in cash                  |                                                                                     |                                 | 18,154 
|Cash and cash equivalents at beginning of period |                                                                                     |                                 | 15,889 
|                                                 |                                                                                     |                                 |        
|Cash and cash equivalents at end of period       |                                                                                     | $                               | 34,043 
|                                                 |                                                                                     |                                 |        

See
notes to consolidated financial statements.



Orient-Express Hotels Ltd. and Subsidiaries  Statements of Consolidated Shareholders' Equity

|                         |                                              | Class A
Common
Shares
at Par
Value |     | Class B
Common
Shares
at Par
Value |   | Additional
Paid-In
Capital |  | Retained
Earnings |         | Accumulated
Other
Comprehensive
Loss |   | Common
Shares
Owned by
Subsidiaries |        | Total
Comprehensive
Income (Loss) |        
|------------------------ | -------------------------------------------- | ---------------------------------- | --- | ---------------------------------- | - | -------------------------- |  | ----------------- | ------- | ------------------------------------ | - | ----------------------------------- | ------ | --------------------------------- | -------
|
|Balance, January 1, 2001 |                                              | $                                  | 284 |                                    | $ | 205                        |  | $                 | 228,862 |                                      | $ | 173,399                             |        | $                                 | (23,852
|Comprehensive income:    |                                              |                                    |     |                                    |   |                            |  |                   |         |                                      |   |                                     |        |                                   |        
|                         | Net earnings on common shares for the period |                                    |     |                                    |   |                            |  |                   |         |                                      |   |                                     | 19,307 |                                   |        
|                         | Other comprehensive loss                     |                                    |     |                                    |   |                            |  |                   |         |                                      |   |                                     |        |                                   |        
|                         |                                              |                                    |     |                                    |   |                            |  |                   |         |                                      |   |                                     |        |                                   |        
|                         |                                              |                                    |     |                                    |   |                            |  |                   |         |                                      |   |                                     |        |                                   |        
|                         |                                              |                                    |     |                                    |   |                            |  |                   |         |                                      |   |                                     |        |                                   |        
|Balance, June 30, 2001   |                                              | $                                  | 284 |                                    | $ | 205                        |  | $                 | 228,862 |                                      | $ | 192,706                             |        | $                                 | (32,847
|                         |                                              |                                    |     |                                    |   |                            |  |                   |         |                                      |   |                                     |        |                                   |        

See notes to consolidated financial statements.



Orient-Express Hotels Ltd. and Subsidiaries  Notes to Consolidated Financial Statements

1. Basis of financial statement presentation

Orient-Express
Hotels Ltd. (the "Company") is a majority-owned subsidiary of Sea Containers Ltd. ("SCL"). The Company and its subsidiaries are referred to
collectively as "OEH".

For
a description of significant accounting policies and basis of presentation, see Notes 1 and 13 to the consolidated financial statements in the 2000 Form 10-K
annual report.

In
the opinion of management, all adjustments necessary for a fair statement of the results of operations for the six months ended June 30, 2001 and 2000, which are all of a
normal recurring nature, have been reflected in the information provided.

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

Six months ended June 30,2001

2000Basic

30,900

25,900Diluted

30,906

25,900


Three months ended June 30,2001

2000Basic

30,900

25,900Diluted

30,901

25,900


Effective
January 1, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities", issued by the Financial Accounting Standards Board ("FASB"), as amended by SFAS No. 137 and No. 138.

SFAS
No. 133 requires OEH to record all derivatives, whether designated in hedging relationships or not, on the balance sheet at fair value. There are two types of derivatives
which may be entered into, namely hedges of fair value exposure and hedges of cash flow exposure. Hedges of fair value exposure are entered into in order to hedge the fair value of a recognized asset
or liability, or a firm commitment. Hedges of cash flow exposure are entered into in order to hedge a forecasted transaction or the variability of cash flows to be paid related to a recognized
liability. On the date the derivative contract is entered into, OEH designates the derivative as either a fair value hedge or a cash flow
hedge. If the derivative is designated as a fair value hedge, the changes in the fair value of the derivative and of the hedged item attributable to the hedged risk are recognized in earnings. If the
derivative is designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are recorded as a component of accumulated other comprehensive income (loss) in
shareholders' equity and are recognized in the statement of consolidated operations when the hedged item affects earnings. The ineffective portion of a hedging derivative's change in the fair value
will be immediately recognized in earnings.

The
initial adoption of SFAS No. 133 resulted in an unrealized loss of $1,333,000 in accumulated other comprehensive income (loss) as of January 1, 2001. For the six
months ended June 30, 2001, the change in the fair market value of derivative instruments resulted in a charge to other comprehensive income (loss) of $119,000.

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

Six months ended June 30,2001

2000Net earnings on common shares

$
19,307

$
17,476Other comprehensive income (loss):Foreign currency translation adjustments


(7,923
)

(5,191
)Cumulative effect of change in accounting principle (SFAS 133) on other comprehensive income


(953
)

Changes in fair value of derivatives


(119
)

Comprehensive income

$
10,312

$
12,285


OEH
formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objectives and strategies for undertaking various
hedge transactions. OEH links all hedges that are designated as fair value hedges to specific assets or liabilities on the balance sheet or to specific firm commitments. OEH links all hedges that are
designated as cash flow hedges to forecasted
transactions. OEH also assesses, both at the inception of the hedge and on an on-going basis, whether the derivatives that are used in hedging transactions are highly effective in
offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative is not highly effective as a hedge, OEH discontinues hedge accounting prospectively.

In
July 2001, the FASB issued SFAS No. 141, "Business Combinations", requiring the purchase method of accounting for business combinations initiated after
June 30, 2001 and eliminating the pooling-of-interests method. OEH is currently assessing but has not yet determined the impact of SFAS No. 141 on its financial
position and results of operations.

In
July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets", which is effective January 1, 2002. SFAS No. 142 requires, among other
things, the discontinuance of goodwill amortization. In addition, the standard includes provisions for the reclassification of certain existing recognized intangibles as goodwill, reassessment of the
useful lives of existing recognized intangibles, reclassification of certain intangibles out of previously reported goodwill and the identification of reporting units for purposes of assessing
potential future impairments of goodwill. SFAS No. 142 also requires OEH to complete a transitional goodwill impairment test six months from the date of adoption. OEH is currently assessing but
has not yet determined the impact of SFAS No. 142 on its financial position and results of operations.

2. Acquisitions and investments

On April 27, 2001, OEH acquired the Bora Bora Lagoon Resort in French Polynesia, a hotel previously managed by OEH, for a cash price of approximately
$19,600,000. OEH plans to fund most of the purchase price with bank mortgage finance. The acquisition has been accounted for as a purchase in accordance with Accounting Principles Board No. 16,
"Business Combinations". The results of this operation have been included in the consolidated financial results of OEH from the date of acquisition. The pro forma impact on results, had this
acquisition occurred on January 1, 2001, is not material.

On
January 17, 2001, OEH acquired the Miraflores Park Plaza in Lima, Peru for approximately $17,000,000. The price was paid largely by the assumption of existing debt, with the
balance paid in cash and the issuance of notes to the seller. OEH's 50/50 hotel joint venture in Peru has an option to purchase the hotel at cost which, when exercised, will result in OEH becoming the
exclusive long-term manager of the hotel.

3. Property, plant and equipment

The major classes of real estate and other fixed assets are as follows (dollars in thousands):

June 30,
2001

December 31,
2000Freehold and leased land and buildings

$
461,906

$
437,094Machinery and equipment


105,526


104,335Fixtures, fittings and office equipment


62,905


62,400River cruiseship


16,118


16,118646,455


619,947Less: accumulated depreciation


75,298


71,159$
571,157

$
548,788


At
June 30, 2001, the balance for machinery and equipment under capital lease was $1,661,000 (December 31, 2000$1,877,000) and for fixtures and fittings
under capital lease was $332,000 (December 31, 2000$247,000). Accumulated depreciation related to assets under capital lease at June 30, 2001 was $443,000
(December 31, 2000$441,000).

4. Long-term debt

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

June 30,
2001

December 31,
2000Loans from banks secured by property, plant and equipment payable over periods of 5 to 12 years, with a weighted average interest rate of 6.52 and 6.94 percent, respectively, primarily based on LIBOR

$
317,396

$
274,852Loan secured by a river cruiseship payable over 5 years, with a weighted average interest rate of 8.50 percent based on LIBOR





1,062Obligations under capital lease


766


859318,162


276,773Less: current portion


38,135


53,722$
280,027

$
223,051


Certain
credit agreements of OEH have restrictive covenants. At June 30, 2001, OEH was in compliance with these covenants.

The
following is a summary of the aggregate maturities of long-term debt, including obligations under capital leases, at June 30, 2001 (dollars in thousands):

Year ending December 31,Remainder of 2002

$
34,0712003


23,2982004


83,1342005


31,2402006 and thereafter


108,284$
280,027


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

5. Income taxes

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

Six months ended June 30, 2001Current

Deferred

TotalUnited States

$
1,187

$
158

$
1,345Other foreign


2,024


(991
)

1,033$
3,211

$
(833
)
$
2,378


Six months ended June 30, 2000Current

Deferred

TotalUnited States

$
1,044

$
500

$
1,544Other foreign


907


12


919$
1,951

$
512

$
2,463


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

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

June 30,
2001

December 31,
2000Gross deferred tax assets (operating loss carry forwards)

$
57 458

$
40,871Less: Valuation allowance


(41,568
)

(25,063
)Net deferred tax assets


15,890


15,808Deferred tax liabilities


(20,098
)

(21,264
)Net deferred tax liabilities

$
(4,208
)
$
(5,456
)


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.

6. Supplemental cash flow information

Six months ended June 30,2001

2000(Dollars in thousands):Cash paid for:Interest

$
11,006

$
10,903Income taxes

$
4,493

$
3,157


In
conjunction with the acquisition of Bora Bora Lagoon Resort in 2001 and the Observatory and Lilianfels Hotels in 2000, liabilities were assumed as follows:

Non-cash investing and financing activities:Fair value of assets acquired

$
22,352

$
47,636Cash paid


(19,600
)

(42,934
)Liabilities assumed

$
2,752

$
4,702


7. Commitments

Outstanding contracts to purchase fixed assets were approximately $5,700,000 at June 30, 2001 (December 31, 2000$32,000,000).



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

As reported in the Company's 2000 Form 10-K annual report, OEH has two business segments, (i) hotels and restaurants and
(ii) tourist trains and cruises. Financial information regarding these business segments is as follows (dollars in thousands):

Six months ended June 30,2001

2000Revenue:Hotels and restaurants

$
112,085

$
111,187Tourist trains and cruises


17,888


18,008$
129,973

$
129,195Earnings from unconsolidated companies:Hotels and restaurants

$
3,200

$
2,897Tourist trains and cruises


1,435


755$
4,635

$
3,652Depreciation and amortization:Hotels and restaurants

$
6,881

$
6,495Tourist trains and cruises


1,143


926$
8,024

$
7,421Earnings from operations before net finance costs:Hotels and restaurants

$
33,496

$
34,545Tourist trains and cruises


2,488


1,74835,984


36,293Central selling, general and administrative costs


(4,554
)

(4,786
)31,430


31,507Net finance costs(1)


(9,745
)

(11,568
)Earnings before income taxes


21,685


19,939Provision for income taxes


2,378


2,463Net earnings

$
19,307

$
17,476Capital expenditure:Hotels and restaurants

$
24,961

$
17,955Tourist trains and cruises


1,190


4,298$
26,151

$
22,253


June 30,
2001

December 31,
2000Identifiable assets:Hotels and restaurants

$
707,534

$
644,517Tourist trains and cruises


79,302


81,359$
786,836

$
725,876


---



Financial
information regarding geographic areas based on the location of properties is as follows (dollars in thousands):

Six months ended June 30,2001

2000Revenue:Europe

$
51,770

$
51,478North America


47,498


48,477Rest of the world


30,705


29,240$
129,973

$
129,195


June 30,
2001

December 31,
2000Long-lived assets, at book value:Europe

$
228,352

$
224,869North America


193,624


185,201Rest of the world


235,290


205,691$
657,266

$
615,761


9. Related party transactions

For the six months ended June 30, 2001, OEH paid subsidiaries of SCL $2,851,000 (2000$2,731,000) for the provision of various services
under a shared services agreement between OEH and SCL. These amounts have been included in selling, general and administrative expenses, and the unpaid net amount of $6,201,000 at June 30, 2001
is included in accounts payable.

SCL
has guaranteed an aggregate principal amount of $198,620,000 of bank loans to OEH outstanding at June 30, 2001 (December 31, 2000$236,812,000),
including a bank loan of $7,500,000 to Charleston Center LLC, owner of Charleston Place Hotel, and a $2,000,000 bank loan to Eastern & Oriental Express Ltd. in which OEH has minority
shareholder interests.



Management's Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

OEH's operating results for the three months ended June 30, 2001 and June 30, 2000, expressed as a percentage of revenue, were as follows:

Three months ended June 302001

2000%

%Revenue:Hotels and restaurants

83

83Tourist trains and cruises

17

17100

100Expenses:Depreciation and amortization

5

5Operating

45

45Selling, general and administrative

23

22Net finance costs

6

8Earnings before income taxes

21

20Provision of income taxes

2

3Net earnings as a percentage of total revenue

19

17


The
revenues and earnings before interest, tax, depreciation and amortization (EBITDA) of OEH's operations for the three months ended June 30, 2001 and June 30, 2000 are
analyzed as follows:

Three months ended June 30,2001

2000(Dollars in millions)Revenue:Owned Hotels:Europe

$
27.7

$
26.6North America


16.3


17.5Rest of the world


11.7


13.1Hotel management and part ownership interests


3.3


3.3Restaurants


5.0


5.1Tourist trains and cruises


12.7


13.2Total

$
76.7

$
78.8EBITDA:Owned Hotels:Europe

$
11.8

$
11.5North America


4.7


5.2Rest of the world


2.3


3.5Hotel management and part ownership interests


3.3


3.3Restaurants


1.4


1.4Tourist trains and cruises


3.5


3.2Central overheads


(2.3
)

(2.4
)Total EBITDA

$
24.7

$
25.7




OEH's
operating results for the six months ended June 30, 2001 and June 30, 2000, expressed as a percentage of revenue, were as follows:

Six months ended June 302001

2000%

%Revenue:Hotels and restaurants

86

86Tourist trains and cruises

14

14100

100Expenses:Depreciation and amortization

6

6Operating

45

45Selling, general and administrative

26

26Net finance costs

7

8Earnings before income taxes

16

15Provision of income taxes

2

2Net earnings as a percentage of total revenue

14

13


The
revenues and earnings before interest, tax, depreciation and amortization (EBITDA) of OEH's operations for the six months ended June 30, 2001 and June 30, 2000 are
analyzed as follows:

Six months ended June 30,2001

2000(Dollars in millions)Revenue:Owned Hotels:Europe

$
36.8

$
35.9North America


35.6


36.2Rest of the world


27.3


26.0Hotel management and part ownership interests


5.9


5.6Restaurants


9.7


10.3Tourist trains and cruises


19.3


18.8Total

$
134.6

$
132.8EBITDA:Owned Hotels:Europe

$
11.6

$
11.1North America


12.1


12.9Rest of the world


8.4


8.6Hotel management and part ownership interests


5.9


5.6Restaurants


2.4


2.8Tourist trains and cruises


3.7


2.7Central overheads


(4.6
)

(4.8
)Total EBITDA

$
39.5

$
38.9


Three Months Ended June 30, 2001 Compared To Three Months Ended June 30, 2000

Revenue

Total revenue, including earnings from unconsolidated companies, decreased by $2.1 million, or 3%, from $78.8 million in the three months ended
June 30, 2000 to $76.7 million in the three months ended June 30, 2001. Hotels and restaurants revenue decreased by $1.6 million, or 2%, from $65.6 million in the
three months ended June 30, 2000 to $64.0 million in the three months ended June 30, 2001, and tourist trains and cruises decreased by $0.5 million, or 4%, from
$13.2 million for the three months ended June 30, 2000 to $12.7 million for the three months ended June 30, 2001.

The
revenue decrease for hotels and restaurants was primarily due to a decrease at OEH's owned hotels of $1.5 million, or 3%, from $57.2 million in the three months
ended June 30, 2000 to $55.7 million in the three months ended June 30, 2001. This revenue decrease was against the backdrop of one of the most difficult quarters trading in the
lodging industry for a number of years with significant REVPAR declines being experienced. Overall on a comparable basis, OEH's REVPAR at its owned hotels declined by 4% in U.S. dollars in the three
months ended June 30, 2001. In addition the U.S. dollar was stronger in the period compared to the prior year period which adversely impacted the translation of non-U.S. dollar
revenues which OEH earns. This is illustrated by the fact that in local currencies the comparable REVPAR at OEH's owned hotels increased by 1% in the quarter over the same period in the prior year
compared to the 4% decline in U.S. dollars.

The
OEH hotels that were adversely impacted during the quarter were generally those hotels which have U.S. business customers such as the Windsor Court Hotel in New Orleans and the
Copacabana Palace Hotel in Rio de Janeiro. A decline in U.S. business travel in line with the economic slowdown has had a negative impact generally on business hotels and in particular those operating
in the upper upscale market such as OEH. OEH believes it is well positioned to ride out the worst effects of the current economic slowdown as it caters predominantly for leisure travel (65% of OEH's
guests) in the upper upscale market which is traditionally very resilient in periods of economic slowdown and because OEH's wide geographical mix of both customers and operations means it is not
over-reliant on any individual market.

The
change in revenue at owned hotels is analyzed on a regional basis as follows:

Europe.Revenue increased by $1.1 million, or 4%, from $26.6 million for the three months ended
June 30, 2000 to $27.7 million for the three months ended June 30, 2001. The reported revenues were impacted by the weaker European euro against the U.S. dollar in the second
quarter of 2001 against the prior year period as the European hotels revenues are incurred in currencies linked with the euro. REVPAR on a comparable basis increased by 15% in local currencies in the
three months ended June 30, 2001 compared to the three months ended June 30, 2000.

North America.Revenue decreased by $1.2 million, or 7%, from $17.5 million in the three months ended
June 30, 2000 to $16.3 million in the three months ended June 30, 2001. The decrease was mainly due to the Windsor Court Hotel in New Orleans with a decline in U.S. business
customers and the impact of a new competitor, with the other hotels in the U.S. showing no growth over the prior year. REVPAR on a comparable basis for the North American region declined by 10% in the
three months ended June 30, 2001 compared to the three months ended June 30, 2000.

Rest of the World.Revenue decreased by $1.4 million, or 11%, from $13.1 million in the three months
ended June 30, 2000 to $11.7 million in the three months ended June 30, 2001. This decrease was mainly due to the Copacabana Palace Hotel in Rio de Janeiro with a decline in U.S.
business customers as referred to above. The REVPAR on a comparable basis for the rest of the world region decreased by 16% in local currencies in the three months ended June 30, 2001 compared
to the three months ended June 30, 2000.

Depreciation and Amortization

Depreciation and amortization increased by $0.2 million, or 6%, from $3.9 million in the three months ended June 30, 2000 to
$4.1 million in the three months ended June 30, 2001.

Operating Expenses

Operating expenses decreased by $1.5 million, or 4%, from $35.5 million in the three months ended June 30, 2000 to $34.1 million in
the three months ended June 30, 2001. The decrease was primarily due to the translation of the operating costs of the European owned hotels whose operating costs are
largely derived in euro-denominated currencies. The weakening of the euro against the U.S. dollar favorably impacted the reported U.S. dollar operating costs of these hotels compared to
the three months ended June 30, 2000. In addition OEH has taken action to reduce costs where possible and particularly at those hotels impacted by lower occupancy referred to above.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $0.2 million, or 1%, from $17.5 million in the three months ended June 30, 2000
to $17.8 million in the three months ended June 30, 2001.

Earnings from Operations

Earnings from operations decreased by $1.1 million, or 5%, from $21.9 million in the three months ended June 30, 2000 to
$20.8 million in the three months ended June 30, 2001. Earnings from operations represent total revenue less depreciation and amortization, operating expenses and selling, general and
administrative expenses.

Net Finance Costs

Net finance costs decreased by $1.7 million, or 26%, from $6.3 million in the three months ended June 30, 2000 to $4.6 million in
the three months ended June 30, 2001, primarily due to repayment of debt out of the proceeds of the Company's initial public offering of shares in August 2000 and lower interest rates
partly offset by increases in debt relating to capital expenditures and acquisitions financed in 2000.

Taxes on Income

The provision for income taxes decreased by $0.2 million, or 12%, from $1.9 million in the three months ended June 30, 2000 to
$1.7 million in the three months ended June 30, 2001. OEH is incorporated in Bermuda, which does not impose an income tax. Accordingly, the entire income tax provision was attributable
to income tax charges incurred by subsidiaries operating in jurisdictions that impose an income tax. The decrease of $0.2 million was mainly due to reduced profitability of some of these
subsidiaries.

Net Earnings

Net earnings increased by $0.8 million, or 6%, from $13.6 million in the three months ended June 30, 2000 to $14.4 million in the
three months ended June 30, 2001. Net earnings represents earnings from operations less net finance costs and provision for income taxes.



Six Months Ended June 30, 2001 Compared To Six Months Ended June 30, 2000

Revenue

Total revenue, including equity earnings in unconsolidated companies, increased by $1.8 million, or 1%, from $132.8 million in the six months
ended June 30, 2000 to $134.6 million in the six months ended June 30, 2001. Hotels and restaurants revenue increased by $1.2 million, or 1%, from $114.1 million in
the six months ended June 30, 2000 to $115.3 million for the six months ended June 30, 2001. Tourist trains and cruises increased by $0.6 million, or 3%, from
$18.8 million for the six months ended June 30, 2000 to $19.3 million for the six months ended June 30, 2001.

The
revenue increase for hotels and restaurants was primarily due to an increase at OEH's owned hotels of $1.5 million, or 2%, from $98.2 million in the six months ended
June 30, 2000 to $99.7 million in the six months ended June 30, 2001. This includes a decline in revenue in the three months ended June 30, 2001 compared to the three
months ended June 30, 2000 that is described above. This increase in the six months ended June 30, 2001 is analyzed regionally as follows:

Europe.Revenue increased by $0.9 million, or 2%, from $35.9 million in the six months ended
June 30, 2000 to $36.8 million in the six months ended June 30, 2001. The reported revenues were impacted by the weaker European euro against the U.S. dollar in the first six
months of 2001 against the prior year period as the European hotels revenues are incurred in currencies linked with the euro. The REVPAR on a comparable basis increased by 14% in local currencies in
the six months ended June 30, 2001 compared to the six months ended June 30, 2000.

North America.Revenue decreased by $0.5 million, or 1%, from $36.2 million in the six months ended
June 30, 2000 to $35.6 million in the six months ended June 30, 2001. The REVPAR on a comparable basis declined by 6% in U.S. dollars in the six months ended June 30, 2001
compared to the six months ended June 30, 2000.

Rest of the World.Revenue increased by $1.2 million, or 4%, from $26.1 million in the six months ended
June 30, 2000 to $27.3 million in the six months ended June 30, 2001. The increase was mainly due to the Observatory and Lilianfels Hotels which were acquired in March 2000
and Bora Bora Lagoon Resort which was acquired in April 2001 partly offset by reduced revenues at the Copacabana Palace Hotel. The REVPAR on a comparable basis declined by 8% in local
currencies in the six months ended June 30, 2001 compared to the six months ended June 30, 2000.

Depreciation and Amortization

Depreciation and amortization increased by $0.6 million, or 8%, from $7.4 million in the six months ended June 30, 2000 to
$8.0 million in the six months ended June 30, 2001.

Operating Expenses

Operating expenses increased by $1.1 million, or 2%, from $59.2 million in the six months ended June 30, 2000 to $60.3 million in
the six months ended June 30, 2001. The increase was primarily due to the new properties acquired in 2000 and the effects of inflation, partially offset by the translation of the operating
costs of the European owned hotels whose operating costs are largely derived in euro-denominated currencies and the impact of cost savings in the three months ended June 30, 2001.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $0.1 million from $34.7 million in the six months ended June 30, 2000 to
$34.8 million in the six months ended June 30, 2001.

Earnings from Operations

Earnings from operations reduced by $0.1 million from $31.5 million in the six months ended June 30, 2000 to $31.4 million in the
six months ended June 30, 2001. Earnings from operations represents total revenue less depreciation and amortization, operating expenses and selling, general and administrative expenses.

Net Finance Costs

Net finance costs decreased by $1.8 million, or 16%, from $11.6 million in the six months ended June 30, 2000 to $9.7 million in
the six months ended June 30, 2001, primarily due to repayment of debt out of
the proceeds of the Company's initial public offering of shares in August 2000 and lower interest rates partly offset by increases in debt relating to capital expenditures and acquisitions
financed in 2000.

Taxes on Income

The provision for income taxes decreased by $0.1 million from $2.5 million in the six months ended June 30, 2000 to $2.4 million in
the six months ended June 30, 2001. OEH is incorporated in Bermuda, which does not impose an income tax. Accordingly, the entire income tax provision was attributable to income tax charges
incurred by subsidiaries operating in jurisdictions that impose an income tax. The decrease of $0.1 million was mainly due to reduced profitability of some of these subsidiaries.

Net Earnings

Net earnings increased by $1.8 million, or 10%, from $17.5 million in the six months ended June 30, 2000 to $19.3 million in the
six months ended June 30, 2001. Net earnings represents earnings from operations less net finance costs and provision for income taxes.

LIQUIDITY AND CAPITAL RESOURCES

Working Capital

OEH had cash and cash equivalents of $34.0 million at June 30, 2001, $18.1 million more than the $15.9 million at
December 31, 2000. At June 30, 2001 and December 31, 2000, the undrawn amounts available to OEH under its short-term lines of credit were $19.7 million and
$12.3 million, respectively. In addition OEH has available to draw under long-term facilities a further $43.5 million, bringing its total cash and availability to
$97.2 million.

Current
assets less current liabilities, including the current portion of long-term debt, resulted in a working capital deficit of $10.8 million at June 30,
2001, a decrease in the working capital deficit of $25.4 million from a deficit of $36.2 million at December 31, 2000. The overall decrease in the working capital deficit was
comprised of the following:



OEH's
business does not require the maintenance of significant inventories or receivables and, therefore, working capital is not the most appropriate measure of liquidity.

Cash Flow

Operating Activities.Net cash provided by operating activities increased by $1.9 million to
$24.2 million for the six months ended June 30, 2001, from cash provided by operating activities of $22.3 million for the six months ended June 30, 2000. The increase is
primarily attributable to increased earnings.

Investing Activities.Cash used in investing activities decreased by $8.3 million to $56.0 million for
the six months ended June 30, 2001, compared to $64.3 million for the six months ended June 30, 2000. The principal components of this decrease were a $4.1 million decrease
in expenditure on acquisitions and investments during the period from $42.1 million to $38.0 million offset by a $3.9 million decrease in capital expenditure.

Financing Activities.Cash provided from financing activities for the six month period ended June 30, 2001 was
$51.0 million as compared to cash provided by financing activities of $42.1 million for the six month period ended June 30, 2000, an increase of $8.9 million. In the six
month period ended June 30, 2001, OEH had net proceeds from borrowings under long-term debt of $75.6 million as compared to net proceeds of $82.6 million for the six
month period ended June 30, 2000. The net proceeds of long-term debt were used to fund acquisitions, investments and capital expenditures during the period.

Capital Commitments.There were $5.7 million of capital commitments outstanding as of June 30, 2001.

Indebtedness

At June 30, 2001, OEH had $318.2 million of long-term debt ($284.2 million net of cash), including the current portion,
secured by assets which is repayable over periods of five to twelve years with a weighted average interest rate of 6.52%. See Note 4 to the Financial Statements regarding the maturity of
long-term debt.

Approximately
40% of the outstanding principal was drawn in European euros and the balance primarily in U.S. dollars. At June 30, 2001, OEH had the equivalent of
$99.0 million of floating rate euro debt which had been swapped in to fixed rate euro debt that will convert back to floating rates in September 2002. At June 30, 2001 all other
borrowings of OEH were in floating interest rates.

Liquidity

OEH plans to increase its capital expenditures over the next few years by the expansion of existing hotel properties and the acquisition of additional
properties consistent with its growth strategy. At June 30, 2001, OEH had capital commitments of $5.7 million overall relating to a number of projects.

OEH
expects to have available cash from operations and appropriate debt finance sufficient to fund its working capital requirements, capital expenditure, acquisitions and debt service
for the foreseeable future.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

OEH is exposed to market risk from changes in interest rates and foreign currency exchange rates. These exposures are monitored and managed as part of its
overall risk management program, which recognizes the unpredictability of financial markets and seeks to mitigate material adverse effects on consolidated earnings. OEH does not hold market rate
sensitive financial instruments for trading purposes.

The
market risk relating to interest rates arises mainly from the financing activities of OEH. Earnings are affected by changes in interest rates on borrowings, principally based on
U.S. dollar LIBOR and EURIBOR, and on short-term cash investments. In September 2000, OEH entered into an interest rate swap, which exchanged floating rate euro debt for fixed rate
euro debt in respect of the equivalent of
euro 117 million ($99.0 million at June 30, 2001). If interest rates increased by ten percent, with all other variables held constant, annual net finance costs of OEH would have
increased by approximately $1.5 million based on borrowings at June 30, 2001. The interest rates on substantially all of OEH's long-term debt are adjusted regularly to
reflect current market rates. Accordingly, the carrying amounts approximate fair value. The fair value of the interest rate swap at June 30, 2001 was a net liability of $1.5 million.

The
market risk relating to foreign currencies and its effects have not changed materially during the second quarter of 2001 from those described in the Company's 2000
Form 10-K report.

RECENT ACCOUNTING PRONOUNCEMENTS

For a discussion of OEH's adoption of recent accounting pronouncements, see Note 1(c) and (d) to the Financial Statements.



PART II

ITEM 1. Legal Proceedings

As reported in Note 11(b) of the financial statements of the Company included in its Form 10-K annual report for the year ended
December 31, 2000, the Company has been named defendant in a lawsuit by purported holders of four series of publicly-traded senior notes of Sea Containers Ltd. challenging the proposed
spinoff distribution by Sea Containers of the Company's common shares owned by Sea Containers to its shareholders as not complying with the indenture terms of those notes. On June 15, 2001,
that suit was dismissed by the New York Supreme Court because the plaintiffs failed to comply with the pre-suit requirements in the indentures and therefore lacked standing to sue. On
August 2, 2001, the plaintiffs filed notices of appeal of the dismissal to the Appellate Division of the New York Supreme Court but have filed no substantive arguments.

On
May 8, 2001, two individuals, claiming to own $479,000 of two of the four series of Sea Containers' publicly-traded senior notes and $476,000 of the $125 million
aggregate principal amount of Sea Containers' publicly-traded 121/2% senior subordinated debentures, commenced a separate lawsuit in the
same New York trial court referred to above and against the same defendants plus additional unnamed individual defendants. The plaintiffs allege, among other things, that the proposed spinoff
distribution would result in a default under the note and debenture indentures and would also constitute a fraudulent conveyance. The plaintiffs purport to bring their suit under the federal Trust
Indenture Act of 1939 and as a class action under state law on behalf of all holders of Sea Containers' publicly-traded debt, and are seeking, among other things, a declaratory judgment that a default
has occurred under the indentures and all principal and unpaid interest are now due. On June 25, 2001, Sea Containers filed a motion to dismiss this second lawsuit on substantially the same
grounds as the court decision in the first lawsuit.

The
management of Sea Containers believes that the concerns of the holders of its public debt relate primarily to the proposed spinoff distribution. The possibility of such a
distribution is specifically raised in the indentures, and management of Sea Containers intends to effect the spinoff distribution in a manner that will not result in any violation of the indenture
covenants or in a fraudulent conveyance. Accordingly, management of Sea Containers has concluded that the allegations of the plaintiffs in the above-mentioned lawsuits are without merit, and therefore
Sea Containers will oppose vigorously any litigation relating to the proposed spinoff. In order to protect the Company, Sea Containers has agreed to indemnify OEH with respect to possible losses
arising from the spinoff distribution as a result of any declaration of default or proceeding brought by holders of Sea Containers' public debt within one year after August 1, 2000, including
the above-mentioned lawsuits.

Other
than this noteholder litigation, the Company is involved in no material legal proceedings, other than ordinary routine litigation incidental to its business.



ITEM 4. Submission of Matters to a Vote of Security Holders

The Company convened and held an annual general meeting of shareholders on June 5, 2001. The holders of Class A and B common shares, voting
together, (i) duly elected John D. Campbell, James B. Hurlock, J. Robert Lovejoy, Daniel J. O'Sullivan, James B. Sherwood and Simon M.C. Sherwood as Directors of the Company and
(ii) duly appointed Deloitte & Touche LLP as the Company's independent auditor. The number of votes on each matter was as follows:

For

Authority WithheldJ.D. Campbell

22,470,938

14,600J.B. Hurlock

22,470,938

14,600J.R. Lovejoy

22,470,938

14,600D.J. O'Sullivan

22,470,938

14,600J.B. Sherwood

22,470,938

14,600S.M.C. Sherwood

22,470,938

14,600


ITEM 6. Exhibits and Reports on Form 8-K

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

| |  | ORIENT-EXPRESS HOTELS LTD.
| |  | --------------------------
| |  | By:                       

Dated:
August 10, 2001

EXHIBIT INDEX

|2.1. |  | Amended and Restated Share Owning Subsidiaries Restructuring Agreement dated as of June 6, 2001 by and among Sea Containers Ltd., Orient-Express Hotels Ltd., Orient-Express Holdings 1 Ltd.,
Orient-Express Holdings 2 Ltd., Orient-Express Holdings 3 Ltd., Orient- Express Holdings 4 Ltd. and Contender 2 Ltd., being filed with this report.
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Memorandum of Association and Certificate of Incorporation of the Company, filed as Exhibit 3.1 to Amendment No. 2 to the Company's Registration Statement on Form S-1 (Registration No. 333-12030) and incorporated herein by
reference.                                                                                                        
|3.2  |  | Bye-Laws of the Company, filed as Exhibit 3.2 to Amendment No. 4 to the Company's Registration Statement on Form S-1 (Registration No. 333-12030) and incorporated herein by reference.                                                                                                                                                          



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