**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

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**FORM 10-Q**

**(MarkOne)**
| x                                                         | **Quarterly  Report Pursuant to Section 13 or 15(d) of the**  |
|-----------------------------------------------------------|---------------------------------------------------------------|
| ** **                                                | **Securities  Exchange Act of 1934**                          |
| ** **                                                | ** **                                                    |
| **For the quarterly period ended September 30,  2006 or** |
| ** **                                                | ** **                                                    |
| **o**                                                     | **Transition  Report Pursuant to Section 13 or 15(d) of the** |
| ** **                                                | **Securities  Exchange Act of 1934**                          |

** **

**For the transition period from                                to                                **

**Commission file number    1-16017**

**ORIENT-EXPRESS HOTELS LTD.**

**(Exact name of registrant asspecified in its charter)**

| **Bermuda**                                                                | ** ** | **98-0223493**       |
|----------------------------------------------------------------------------|------------|----------------------|
| (State or other  jurisdiction                                              |       | (I.R.S. Employer     |
| of incorporation  or                                                       |       | Identification  No.) |
| organization)                                                              |       |                 |
|                                                                       |       |                 |
| **22  Victoria Street**

**P.O.  Box HM 1179**

**Hamilton HMEX, Bermuda** |
| (Address of principal executive offices)                                   |       | (Zip Code)           |

 

**441–295–2244**

(Registrant’s telephone number, includingarea code)

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No o

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. (See definition of “accelerated filer and large accelerated filer” inRule 12b-2 of the Exchange Act).

LargeAccelerated Filer x AcceleratedFiler o Non-Accelerated Filer o

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).  Yes o No x

As of October 31, 2006, 42,148,350 Class Acommon shares and 18,044,478 Class B common shares of Orient-Express HotelsLtd. were outstanding. All of the Class B shares are owned by a subsidiary ofOrient-Express Hotels Ltd.

 

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**PART I – FINANCIAL INFORMATION**

**ITEM 1.  Financial Statements**

**Orient-ExpressHotels Ltd. and Subsidiaries**

**CondensedConsolidated Balance Sheets (unaudited)**
| ** **                                                                               | ** ** | **September 30,  2006**         | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|
| ** **                                                                               | ** ** | **(Dollars in thousands)** | ** ** |
| **Assets**                                                                               | ** ** | ** **                           | ** ** | ** **                  | ** ** |
| Cash and cash equivalents                                                                |       | $                                    | 105,692    |                        | $          | 38,397 |   |
| Accounts receivable,  net of allowances of $1,344 and $980                               |       | 67,581                               |       | 59,061                      |       |
| Due from related  parties                                                                |       | 19,157                               |       | 17,549                      |       |
| Prepaid expenses and  other                                                              |       | 20,234                               |       | 13,061                      |       |
| Inventories                                                                              |       | 33,298                               |       | 29,636                      |       |
| Real estate assets                                                                       |       | 22,366                               |       | 12,149                      |       |
| Total current assets                                                                     |       | 268,328                              |       | 169,853                     |       |
|                                                                                     |       |                                 |       |                        |       |
| Property, plant and  equipment, net of accumulated depreciation of $196,181 and $164,814 |       | 1,138,391                            |       | 1,017,175                   |       |
| Investments                                                                              |       | 127,330                              |       | 129,681                     |       |
| Goodwill and other  intangible assets                                                    |       | 102,368                              |       | 62,867                      |       |
| Other assets                                                                             |       | 38,795                               |       | 35,986                      |       |
|                                                                                     |       | $                                    | 1,675,212  |                        | $          | 1,415,562 |   |
| **Liabilities and Shareholders’  Equity**                                           |       |                                 |       |                        |       |
| Working capital  facilities                                                              |       | $                                    | 28,987     |                        | $          | 47,108 |   |
| Accounts payable                                                                         |       | 26,184                               |       | 22,680                      |       |
| Due to related parties                                                                   |       | 3,296                                |       | 7,374                       |       |
| Accrued liabilities                                                                      |       | 65,698                               |       | 43,545                      |       |
| Deferred revenue                                                                         |       | 29,413                               |       | 19,339                      |       |
| Current portion of long-term  debt and capital leases                                    |       | 100,394                              |       | 72,151                      |       |
| Total current  liabilities                                                               |       | 253,972                              |       | 212,197                     |       |
|                                                                                     |       |                                 |       |                        |       |
| Long-term debt and  obligations under capital leases                                     |       | 554,992                              |       | 496,156                     |       |
| Other liabilities                                                                        |       | 3,331                                |       | —                      |       |
| Deferred income taxes                                                                    |       | 39,820                               |       | 29,656                      |       |
|                                                                                     |       | 852,115                              |       | 738,009                     |       |
| Minority interest                                                                        |       | 1,774                                |       | 4,153                       |       |
|                                                                                     |       |                                 |       |                        |       |
| Shareholders’ equity:                                                               |       |                                 |       |                        |       |
| Preferred shares  $0.01 par value (30,000,000 shares authorized, issued nil)             |       | —                               |       | —                      |       |
| Class A common  shares $0.01 par value (120,000,000 shares authorized):                  |       |                                 |       |                        |       |
| Issued–42,147,350  (2005–39,399,750)                                           |       | 418                                  |       | 393                         |       |
| Class B common  shares $0.01 par value (120,000,000 shares authorized):                  |       |                                 |       |                        |       |
| Issued–18,044,478  (2005–18,044,478)                                           |       | 181                                  |       | 181                         |       |
| Additional paid-in  capital                                                              |       | 508,630                              |       | 404,923                     |       |
| Retained earnings                                                                        |       | 343,667                              |       | 314,207                     |       |
| Accumulated other  comprehensive loss                                                    |       | (31,392                              | )          | (46,123                     | )          |
| Less: reduction due to  Class B common shares owned by a subsidiary – 18,044,478    |       | (181                                 | )          | (181                        | )          |
| Total shareholders’  equity                                                         |       | 821,323                              |       | 673,400                     |       |
| Commitments and  contingencies                                                           |       |                                 |       |                        |       |
|                                                                                     |       | $                                    | 1,675,212  |                        | $          | 1,415,562 |   |

 

See notes tocondensed consolidated financial statements.

2

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**Orient-ExpressHotels Ltd. and Subsidiaries**

**Statements of CondensedConsolidated Operations (unaudited)**
| **Three months ended September 30,**                           | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **(Dollars in thousands, except per share amounts)** | ** ** |
| ** **                                                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                            |       | $          | 144,764    |       | $          | 127,733 |   |
|                                                                               |       |       |       |       |       |
| Expenses:                                                                          |       |       |       |       |       |
| Depreciation and amortization                                                      |       | 8,960      |       | 8,598      |       |
| Operating                                                                          |       | 62,657     |       | 58,146     |       |
| Selling, general and administrative                                                |       | 38,367     |       | 34,761     |       |
| Total expenses                                                                     |       | 109,984    |       | 101,505    |       |
|                                                                               |       |       |       |       |       |
| Earnings from  operations before net finance costs                                 |       | 34,780     |       | 26,228     |       |
|                                                                               |       |       |       |       |       |
| Interest  expense, net                                                             |       | (12,117    | )          | (7,896     | )          |
| Foreign  currency, net                                                             |       | (2,752     | )          | 77         |       |
| Net finance  costs                                                                 |       | (14,869    | )          | (7,819     | )          |
|                                                                               |       |       |       |       |       |
| Earnings before  income taxes                                                      |       | 19,911     |       | 18,409     |       |
|                                                                               |       |       |       |       |       |
| Provision for  income taxes                                                        |       | 3,615      |       | 3,025      |       |
|                                                                               |       |       |       |       |       |
| Earnings before  earnings from unconsolidated companies                            |       | 16,296     |       | 15,384     |       |
|                                                                               |       |       |       |       |       |
| Earnings from  unconsolidated companies, net of tax                                |       | 3,925      |       | 4,099      |       |
|                                                                               |       |       |       |       |       |
| Net earnings on  class A and class B common shares                                 |       | $          | 20,221     |       | $          | 19,483 |   |
|                                                                               |       |       |       |       |       |
| Net earnings per  class A and class B common share:                                |       |       |       |       |       |
| Basic                                                                              |       | $          | 0.49       |       | $          | 0.50 |   |
| Diluted                                                                            |       | $          | 0.48       |       | $          | 0.49 |   |
| Dividends per class A  and class B common share                                    |       | $          | 0.025      |       | $          | 0.025 |   |

 

See notes to condensed consolidated financial statements.

3

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**Orient-ExpressHotels Ltd. and Subsidiaries**

**Statementsof Condensed Consolidated Operations (unaudited)**
| **Nine months ended September 30,**                            | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **(Dollars in thousands, except per share amounts)** | ** ** |
| ** **                                                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Revenue                                                                            |       | $          | 358,720    |       | $          | 334,474 |   |
|                                                                               |       |       |       |       |       |
| Expenses:                                                                          |       |       |       |       |       |
| Depreciation and amortization                                                      |       | 26,268     |       | 25,048     |       |
| Operating                                                                          |       | 165,658    |       | 157,826    |       |
| Selling, general and administrative                                                |       | 107,180    |       | 101,159    |       |
| Total expenses                                                                     |       | 299,106    |       | 284,033    |       |
|                                                                               |       |       |       |       |       |
| Earnings from  operations before net finance costs                                 |       | 59,614     |       | 50,441     |       |
| Gain on sale of  investment                                                        |       | 6,619      |       | —     |       |
|                                                                               |       |       |       |       |       |
| Interest  expense, net                                                             |       | (32,462    | )          | (21,701    | )          |
| Foreign  currency, net                                                             |       | (5,548     | )          | 4,152      |       |
| Net finance  costs                                                                 |       | (38,010    | )          | (17,549    | )          |
|                                                                               |       |       |       |       |       |
| Earnings before  income taxes                                                      |       | 28,223     |       | 32,892     |       |
|                                                                               |       |       |       |       |       |
| Provision for  income taxes                                                        |       | 4,818      |       | 6,147      |       |
|                                                                               |       |       |       |       |       |
| Earnings before  earnings from unconsolidated companies                            |       | 23,405     |       | 26,745     |       |
|                                                                               |       |       |       |       |       |
| Earnings from  unconsolidated companies, net of tax                                |       | 9,077      |       | 9,638      |       |
|                                                                               |       |       |       |       |       |
| Net earnings on  class A and class B common shares                                 |       | $          | 32,482     |       | $          | 36,383 |   |
|                                                                               |       |       |       |       |       |
| Net earnings per  class A and class B common share:                                |       |       |       |       |       |
| Basic                                                                              |       | $          | 0.81       |       | $          | 0.96 |   |
| Diluted                                                                            |       | $          | 0.80       |       | $          | 0.95 |   |
|                                                                               |       |       |       |       |       |
| Dividends per class A  and class B common share                                    |       | $          | 0.075      |       | $          | 0.075 |   |

 

See notes to condensed consolidated financial statements.

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**Orient-ExpressHotels Ltd. and Subsidiaries**

**Statements of Condensed Consolidated Cash Flows(unaudited)**

 
| **Nine months ended September 30,**                              | ** ** | **2006**                             | ** ** | **2005** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------|------------|----------|------------|
| ** **                                                                           | ** ** | **(Dollars in thousands)** | ** ** |
| Cash flows from  operating activities:                                               |       |                                 |       |     |       |
| Net earnings                                                                         |       | $                                    | 32,482     |     | $          | 36,383 |   |
| Adjustments to reconcile net earnings to net cash  provided by operating activities: |       |                                 |       |     |       |
| Depreciation and amortization                                                        |       | 26,268                               |       | 22,827   |       |
| Amortization and write-off of finance costs                                          |       | 3,839                                |       | 2,221    |       |
| Undistributed earnings of affiliates                                                 |       | (5,366                               | )          | (2,537   | )          |
| Stock-based compensation                                                             |       | 660                                  |       | 1,080    |       |
| Change in deferred tax                                                               |       | (2,184                               | )          | 1,020    |       |
| Gain from sale of investments and fixed assets                                       |       | (6,619                               | )          | (3,499   | )          |
| Other non-cash items                                                                 |       | 7,123                                |       | 41       |       |
| Change in assets and liabilities net of effects from  acquisition of subsidiaries:   |       |                                 |       |     |       |
| Increase in receivables, prepaid expenses and other                                  |       | (8,618                               | )          | (23,205  | )          |
| Increase in inventories                                                              |       | (2,617                               | )          | (4,081   | )          |
| Increase in real estate assets held for sale                                         |       | (4,217                               | )          | —   |       |
| Increase in payables, accrued liabilities and  deferred revenue                      |       | 18,708                               |       | 26,709   |       |
| Dividends received from affiliates                                                   |       | —                               |       | 624      |       |
|                                                                                 |       |                                 |       |     |       |
| Total adjustments                                                                    |       | 26,977                               |       | 21,200   |       |
|                                                                                 |       |                                 |       |     |       |
| Net cash  provided by operating activities                                           |       | 59,459                               |       | 57,583   |       |
|                                                                                 |       |                                 |       |     |       |
| Cash flows from  investing activities:                                               |       |                                 |       |     |       |
| Capital expenditures                                                                 |       | (83,489                              | )          | (102,831 | )          |
| Acquisitions and investments, net of cash acquired                                   |       | (42,908                              | )          | (99,713  | )          |
| Proceeds from sale of fixed assets and other                                         |       | 9,499                                |       | 3,613    |       |
|                                                                                 |       |                                 |       |     |       |
| Net cash used in  investing activities                                               |       | (116,898                             | )          | (198,931 | )          |
|                                                                                 |       |                                 |       |     |       |
| Cash flows from  financing activities:                                               |       |                                 |       |     |       |
| Net repayment of working capital facilities and  redrawable loans                    |       | (19,824                              | )          | (96,605  | )          |
| Issuance of common shares                                                            |       | 99,350                               |       | 121,898  |       |
| Stock options exercised                                                              |       | 3,722                                |       | 898      |       |
| Issuance of long-term debt                                                           |       | 360,159                              |       | 116,834  |       |
| Principal payments under long-term debt                                              |       | (316,106                             | )          | (28,796  | )          |
| Payment of common share dividends                                                    |       | (3,022                               | )          | (2,823   | )          |
|                                                                                 |       |                                 |       |     |       |
| Net cash  provided by financing activities                                           |       | 124,279                              |       | 111,406  |       |
|                                                                                 |       |                                 |       |     |       |
| Effect of  exchange rate changes on cash and cash equivalents                        |       | 455                                  |       | (1,598   | )          |
|                                                                                 |       |                                 |       |     |       |
| Net  increase/(decrease) in cash and cash equivalents                                |       | 67,295                               |       | (31,540  | )          |
|                                                                                 |       |                                 |       |     |       |
| Cash and cash  equivalents at beginning of period                                    |       | 38,397                               |       | 85,610   |       |
|                                                                                 |       |                                 |       |     |       |
| Cash and cash  equivalents at end of period                                          |       | $                                    | 105,692    |     | $          | 54,070 |   |

 

See notes to condensed consolidated financial statements.

5

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**Orient-ExpressHotels Ltd. and Subsidiaries**

**Statements of Condensed Consolidated Shareholders’Equity (unaudited)**

 
| (Dollars in thousands)                                             | ** ** | **Preferred  Shares  at Par  Value** | ** ** | ** 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  Subsidiary** | ** ** | **Total  Comprehensive   Income/(Loss)** | ** ** |
|------------------------------------------------------------------------------|------------|-------------------------------------------|------------|------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------|------------|----------------------------------|------------|------------------------------------|------------|---------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------|------------|
|                                                                         |       |                                      |       |                                                                         |       |                                                                         |       |                             |       |                               |       |                                              |       |                                                |       |                                          |       |
| Balance, January  1, 2006                                                    |       | $                                         | —     |                                                                         | $          | 393                                                                          |       | $                                | 181        |                               | $          | 404,923                                           |       | $                                                   | 314,207    |                                          | $          | (46,123 | ) | $ | (181 | ) |   |   |
| Stock-based  compensation                                                    |       | —                                    |       | —                                                                       |       | —                                                                       |       | 660                              |       | —                             |       | —                                            |       | —                                              |       |                                          |       |
| Stock options  exercised                                                     |       | —                                    |       | —                                                                       |       | —                                                                       |       | 3,722                            |       | —                             |       | —                                            |       | —                                              |       |                                          |       |
| Dividends on  common shares                                                  |       | —                                    |       | —                                                                       |       | —                                                                       |       | —                           |       | (3,022                             | )          | —                                            |       | —                                              |       |                                          |       |
| Issuance of Class  A common shares in public offering, net of issuance costs |       | —                                    |       | 25                                                                           |       | —                                                                       |       | 99,325                           |       | —                             |       | —                                            |       | —                                              |       |                                          |       |
| Comprehensive  loss:                                                         |       |                                      |       |                                                                         |       |                                                                         |       |                             |       |                               |       |                                              |       |                                                |       |                                          |       |
| Net earnings on common shares for the period                                 |       | —                                    |       | —                                                                       |       | —                                                                       |       | —                           |       | 32,482                             |       | —                                            |       | —                                              |       | $                                             | 32,482     |   |
| Other comprehensive income                                                   |       | —                                    |       | —                                                                       |       | —                                                                       |       | —                           |       | —                             |       | 14,731                                            |       | —                                              |       | 14,731                                        |       |
|                                                                         |       |                                      |       |                                                                         |       |                                                                         |       |                             |       |                               |       |                                              |       |                                                |       | $                                             | 47,213     |   |
| Balance, September 30,  2006                                                 |       | $                                         | —     |                                                                         | $          | 418                                                                          |       | $                                | 181        |                               | $          | 508,630                                           |       | $                                                   | 343,667    |                                          | $          | (31,392 | ) | $ | (181 | ) |   |   |

 
| Balance, January 1, 2005                                                     |   | $      | — |   | $      | 318    |   | $       | 205    |   | $      | 280,212 |   | $      | 277,281 |    | $       | (12,845 | ) | $ | (181 | ) |   |   |
|------------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|---------|--------|--------|--------|---------|--------|--------|---------|---------|---------|---------|---|---|------|---|--------|--------|
| Stock-based  compensation                                                    |   | — |   | — |   | — |   | 1,080   |   | — |   | —  |   | — |    |    |    |
| Stock options  exercised                                                     |   | — |   | — |   | — |   | 898     |   | — |   | —  |   | — |    |    |    |
| Dividends on  common shares                                                  |   | — |   | — |   | — |   | —  |   | (2,823 | )      | —  |   | — |    |    |    |
| Issuance of Class  A common shares in public offering, net of issuance costs |   | — |   | 50     |   | — |   | 121,848 |   | — |   | —  |   | — |    |    |    |
| Comprehensive  loss:                                                         |   |   |   |   |   |   |   |    |   |   |   |    |   |   |    |    |    |
| Net earnings on common shares for the period                                 |   | — |   | — |   | — |   | —  |   | 36,383 |   | —  |   | — |    | $       | 36,383  |    |
| Other comprehensive income                                                   |   | — |   | — |   | — |   | —  |   | — |   | (25,494 | )      | — |    | (25,494 | )       |
|                                                                         |   |   |   |   |   |   |   |    |   |   |   |    |   |   |    | $       | (10,889 | )       |
| Balance,  September 30, 2005                                                 |   | $      | — |   | $      | 368    |   | $       | 205    |   | $      | 404,038 |   | $      | 310,841 |    | $       | (38,339 | ) | $ | (181 | ) |   |   |

 

See notes to condensed consolidated financial statements.

6

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**Orient-ExpressHotels Ltd. and Subsidiaries**

**Notes to Condensed ConsolidatedFinancial Statements**

**1.             Basis of financial statementpresentation**

In this reportOrient-Express Hotels Ltd. is referred to as the “Company”, and the Company andits subsidiaries are referred to collectively as “OEH”.

*(a)*       *Accountingpolicies*

For a descriptionof significant accounting policies and basis of presentation, see Notes 1 and15 to the consolidated financial statements in the Company’s 2005 Form 10-Kannual report.  As of September 30, 2006,these significant accounting policies have not changed from December 31, 2005.

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

In the opinion ofmanagement, all adjustments necessary for a fair statement of the results ofoperations for the three and nine months ended September 30, 2006 and 2005,which are all of a normal recurring nature, have been reflected in theinformation provided.  Due to the seasonalnature of OEH’s business, operating results for the interim period are notnecessarily indicative of a full year’s operating results.

*(b)**       Net earnings per share*

The number of shares used in computing basic anddiluted earnings per share was as follows (in thousands):
| **Three months ended September 30,** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                     |       |     |       |     |       |
| Basic                                                    |       | 41,688   |       | 39,335   |       |
| Effect of  dilution                                      |       | 279      |       | 390      |       |
| Diluted                                                  |       | 41,967   |       | 39,725   |       |

 
| **Nine months ended September 30,** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                    |       |     |       |     |       |
| Basic                                                   |       | 40,200   |       | 37,819   |       |
| Effect of  dilution                                     |       | 284      |       | 339      |       |
| Diluted                                                 |       | 40,484   |       | 38,158   |       |

 

7

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For the three monthsended September 30, 2006 and 2005, the anti-dilutive effect of stock options on1,154 and nil class A common shares, respectively, was excluded from thecomputation of diluted losses per share. For the nine months ended September 30, 2006 and 2005, the anti-dilutiveeffect of stock options on 232 and 2,553 class A common shares, respectively,was excluded from the computation of diluted earnings per share.

*(c)**        Dividends*

On January 5, 2006, theCompany declared a dividend of $0.025 per common share payable February 4, 2006to shareholders of record January 20, 2006.

On April 5, 2006, theCompany declared a dividend of $0.025 per common share payable May 4, 2006 toshareholders of record April 20, 2006.

On July 5, 2006, theCompany declared a dividend of $0.025 per common share payable August 4, 2006to shareholders of record July  20, 2006.

*(d)**       Earningsfrom unconsolidated companies*

Earnings fromunconsolidated companies include OEH’s share of the net earnings of its equityinvestments as well as interest income related to loans and advances to theequity investees amounting to $2,777,000 and $2,482,000 for the three monthsended September 30, 2006 and 2005, respectively, and $7,871,000 and $7,150,000for the nine months ended September 30, 2006 and 2005, respectively.

*(e)**        Reclassifications*

Certain items in 2005have been reclassified to conform to the 2006 presentation.

**2.****              Acquisitions**

*Pansea Hotels Group*

On February 2, 2004, OEH entered into an agreementwith the Pansea Hotels group, the owner of interests in six deluxe hotels inSoutheast Asia, including 50% of the Napasai Hotel in Koh Samui, Thailand.  Under this agreement, OEH was to provide amaximum of $8,000,000 in loans to the hotel holding company which would beconvertible after three years into approximately 25% of the holding company’sshares.  OEH was not managing the hotelsbut was marketing them along with its other properties.

8

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OEH decided to accelerate the acquisition of thePansea Hotels group by acquiring the 50% of the Napasai hotel-owning companyshares not owned by Pansea in June 2006 for $10,500,000 cashconsideration.  The rest of the PanseaHotels group was acquired on July 21, 2006 for a total cash consideration of$33,362,000 (including the original $8,000,000 loan) and assumption of sundrydebts owed by the Pansea Hotels group to third parties of $15,524,000.

This strategic acquisition enables OEH to expand itsposition in the Southeast Asian market.

The acquisition of the Pansea Hotels group has beenaccounted for a purchase in accordance with SFAS No. 141, “BusinessCombinations”.  OEH allocated thepurchase price for the acquisition based on fair value of assets acquired andliabilities assumed, which is defined as the amount at which an asset orliability could be exchanged in a current transaction  between knowledgeable, unrelated willingparties when neither party is acting under compulsion.  The following table summarizes theprovisional estimated fair values of the assets acquired and liabilitiesassumed at the date of acquisition (dollars in thousands):
| ** **                            | ** ** | **September 30,  2006** | ** ** |
|---------------------------------------|------------|------------------------------|------------|
|                                  |       |                         |       |
| Current assets                        |       | $                            | 15,082     |   |
| Property, plant  and equipment        |       | 29,501                       |       |
| Goodwill and  other intangible assets |       | 28,263                       |       |
| Total assets  acquired                |       | 72,846                       |       |
|                                  |       |                         |       |
| Current liabilities                   |       | (5,912                       | )          |
| Liabilities to  minority shareholders |       | (7,818                       | )          |
| Third party debt                      |       | (6,115                       | )          |
| Other long-term  liabilities          |       | (3,340                       | )          |
| Deferred income  taxes                |       | (5,799                       | )          |
| Total  liabilities assumed            |       | (28,984                      | )          |
| Net assets acquired                   |       | $                            | 43,862     |   |
|                                  |       |                         |       |
| Paid in July for  the rest of Pansea  |       | $                            | 33,362     |   |
| Paid in June for  50% of Napasai      |       | 10,500                       |       |
| Total cash  consideration             |       | $                            | 43,862     |   |

 

The net assets of Pansea Hotels group have been fairvalued based on the estimated market values of the freehold and leaseholdproperties.  After fair valuing all otherassets and liabilities, goodwill of $11,070,000 has been recorded of which $nilwill be deductible as operating expenses for tax purposes.  Included in the goodwill is a debit balanceof 

9

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$2,230,000 for minority interest relating to lossescarried forward as at the date of acquisition. In the future periods, minority interest share of profits will becredited against goodwill to the extent of the previously recorded minorityinterest losses.  The provisional fairvalues may be adjusted within one year of the acquisition date of Pansea Hotelsgroup, as the fair values of certain assets and liabilities remain to befinalized.

The results of the operation of Pansea Hotels grouphave been included in the consolidated financial statements of OEH from July21, 2006.

The proforma results of operations data presentedbelow assume that the Pansea Hotels group acquisition had been made at thebeginning of 2005.  The proforma data arepresented for informational purposes only and are not necessarily indicative ofthe results of future operations, nor of the actual results that would havebeen achieved had the acquisition taken place at the beginning of 2005 (dollarsin thousands):
| **Nine months ended September 30,** | ** ** | **2006**                      | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|----------|------------|
| ** **                                              | ** ** | **(Proforma unaudited)** | ** ** |
| Revenue                                                 |       | $                             | 364,724    |     | $          | 340,462 |   |
| Net earnings                                            |       | $                             | 30,279     |     | $          | 35,704 |   |
| Earnings per  share:                                    |       |                          |       |     |       |
| Basic                                                   |       | $                             | 0.76       |     | $          | 0.94 |   |
| Diluted                                                 |       | $                             | 0.75       |     | $          | 0.93 |   |

 

*Casa de Sierra Nevada*

Effective February 8,2006, OEH acquired a 75% interest in Casa de Sierra Nevada, a 33 room deluxehotel in San Miguel de Allende, Mexico.  The total purchase price, including acquisition costs, was $8,800,000paid in cash.  The acquisition includedadjacent buildings and land.

In accordance with theshareholders’ agreement, OEH will purchase the remaining 25% interest asfollows:  5% will be purchased in January2007 for a cash consideration of $520,000; 5% will be purchased in January 2009for a cash consideration equal to a proportion of ten times the previous 12months net operating income of the hotel, less its outstanding debt; and theremaining 15% will be purchased in January 2010 for a cash considerationcalculated on the same basis.

10

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The following tablesummarizes the estimated fair values of the assets acquired and liabilitiesassumed at the date of acquisition (dollars in thousands):
| ** **                                            | ** ** | **September 30,  2006** | ** ** |
|-------------------------------------------------------|------------|------------------------------|------------|
|                                                  |       |                         |       |
| Property, plant  and equipment                        |       | $                            | 8,600      |   |
| Goodwill and  other intangible assets                 |       | 3,770                        |       |
| Total assets  acquired                                |       | 12,370                       |       |
|                                                  |       |                         |       |
| Current  liabilities                                  |       | (200                         | )          |
| Other long-term  liabilities (deferred consideration) |       | (2,850                       | )          |
| Deferred income  taxes                                |       | (520                         | )          |
| Total  liabilities assumed                            |       | (3,570                       | )          |
| Net assets acquired                                   |       | $                            | 8,800      |   |

 

The net assets of Casa deSierra Nevada have been fair valued based on the estimated market value of thebuildings.  After fair valuing all otherassets and liabilities, goodwill of $3,510,000 has been recorded of which $ nilwill be deductible as operating expenses for tax purposes.  The provisional fair values may be adjustedwithin one year of the acquisition date of Casa de Sierra Nevada, as thevaluation of certain forward contracts remains to be finalized.

The acquisition of Casade Sierra Nevada has been accounted for as a purchase in accordance with SFASNo. 141, “Business Combinations”.  Theresults of the operation have been included in the consolidated financialstatements of OEH from February 8, 2006.

Guidance in SFAS No. 150,“Accounting for Certain Financial Instruments with Characteristics of bothLiabilities and Equity”, and EITF 00-4, “Majority owner’s accounting for atransaction in the shares of a consolidated subsidiary and a derivative indexedto the minority interest in that subsidiary”, has been applied to account forthe forward contracts for acquisition of the remaining 25% interest insubsequent years.  The liability has beenrecorded at the fair value of the deferred consideration and the minorityinterest has been reduced accordingly.

The proforma results ofoperations data presented below assume that the Casa de Sierra Nevadaacquisition had been made at the beginning of 2005.  The proforma data are presented forinformational purposes only and are not necessarily indicative of the resultsof future operations, nor of the actual results 

11

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that would have beenachieved had the acquisition taken place at the beginning of 2005 (dollars inthousands):
| **Nine months ended September 30,** | ** ** | **2006**                      | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|-------------------------------|------------|----------|------------|
| ** **                                              | ** ** | **(Proforma unaudited)** | ** ** |
|                                                    |       |                          |       |     |       |
| Revenue                                                 |       | $                             | 358,943    |     | $          | 336,195 |   |
| Net earnings                                            |       | $                             | 32,490     |     | $          | 36,330 |   |
| Earnings per share:                                     |       |                          |       |     |       |
| Basic                                                   |       | $                             | 0.81       |     | $          | 0.96 |   |
| Diluted                                                 |       | $                             | 0.80       |     | $          | 0.95 |   |

 

*Maroma Resort and Spa*

Effective January 1,2006, OEH purchased the remaining 25% interest in Maroma Resort and Spa for acash consideration of $5,400,000 bringing its interest to 100%.  A deferred tax liability of $1,853,000 hasbeen recorded on the acquisition. Goodwill of $4,728,000 has been recognized on this acquisition.

**3.             Investments**

*Sale of Harry’s Bar*

On June 12, 2006, OEHsold its 49% interest in Harry’s Bar in London, England, for a cashconsideration of $9,499,000.  The sale ofthe investment resulted in a gain of $6,619,000, upon which a tax charge of$3,325,000 was recorded.

*Unconsolidated companies*

Summarized financial datafor OEH’s unconsolidated companies for the periods during which the investmentswere held by OEH are as follows (dollars in thousands):

12

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| ** **                                      | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                                      |       |                         |       |                        |       |
| Current assets                                  |       | $                            | 47,852     |                        | $          | 45,390 |   |
| Property, plant and  equipment, net             |       | 359,832                      |       | 344,475                     |       |
| Other assets                                    |       | 6,561                        |       | 5,726                       |       |
| Total assets                                    |       | $                            | 414,245    |                        | $          | 395,591 |   |
|                                            |       |                         |       |                        |       |
| Current liabilities                             |       | $                            | 55,722     |                        | $          | 50,150 |   |
| Long-term debt                                  |       | 226,581                      |       | 203,520                     |       |
| Other liabilities                               |       | 82,399                       |       | 90,161                      |       |
| Total shareholders’  equity                |       | 49,543                       |       | 51,760                      |       |
| Total liabilities and shareholders’ equity |       | $                            | 414,245    |                        | $          | 395,591 |   |

 
| **Three months ended September 30,** | ** ** | **2006** | ** ** | **2005** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                     |       |     |       |     |       |
| Revenue                                                  |       | $        | 43,702     |     | $          | 43,500 |   |
| Earnings from  operations before net finance costs       |       | $        | 8,760      |     | $          | 6,930 |   |
| Net earnings                                             |       | $        | 5,090      |     | $          | 448 |   |

 
| **Nine months ended September 30,** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                    |       |     |       |     |       |
| Revenue                                                 |       | $        | 127,279    |     | $          | 77,314 |   |
| Earnings from  operations before net finance costs      |       | $        | 21,223     |     | $          | 9,250 |   |
| Net earnings/(losses)                                   |       | $        | 2,010      |     | $          | (2,783 | ) |

 

**4.             Property, plant and equipment**

The major classesof property, plant and equipment are as follows (dollars in thousands):
| ** **                               | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                     |       |                         |       |                        |       |
| Freehold and  leased land and buildings  |       | $                            | 967,783    |                        | $          | 858,350 |   |
| Machinery and  equipment                 |       | 197,347                      |       | 156,780                     |       |
| Fixtures,  fittings and office equipment |       | 170,501                      |       | 148,346                     |       |
| River cruiseship  and canalboats         |       | 18,644                       |       | 18,513                      |       |
|                                     |       | 1,354,275                    |       | 1,181,989                   |       |
| Less:  accumulated depreciation          |       | (215,884                     | )          | (164,814                    | )          |
|                                     |       | $                            | 1,138,391  |                        | $          | 1,017,175 |   |

 

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The major classes ofassets under capital leases included above are as follows (dollars in thousands):
| ** **                               | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
| ** **                               |       |                         |       |                        |       |
| Land and  buildings                      |       | $                            | 15,554     |                        | $          | 14,803 |   |
| Machinery and  equipment                 |       | 2,072                        |       | 2,067                       |       |
| Fixtures,  fittings and office equipment |       | 1,778                        |       | 1,817                       |       |
|                                     |       | 19,404                       |       | 18,687                      |       |
| Less:  accumulated depreciation          |       | (2,072                       | )          | (1,892                      | )          |
|                                     |       | $                            | 17,332     |                        | $          | 16,795 |   |

 

**5.****                                      Goodwilland other intangible assets**

OEH’s goodwillconsists of $788,000 related to the trains and cruises reporting segment and$78,027,000 related to the hotels and restaurants reporting segment, of which$28,812,000 relates to the acquisition of the Grand Hotel Europe, $3,510,000relates to the estimated purchase price allocation of Casa de Sierra Nevada,$6,822,000 relates to goodwill arising on the acquisition of Maroma, and$11,070,000 relates to the estimated purchase price allocation of the PanseaHotels group.  Other intangible assetsconsist of the value of the Grand Hotel Europe tradename of $7,100,000, theestimated purchase price allocation of $260,000 for the Casa de Sierra Nevadatradename, and a lease intangible asset acquired as part of the acquisition ofthe Pansea Hotels group of $17,193,000.

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**6.****                                      Long-termdebt and obligations under capital lease**

Long-term debtconsists of the following (dollars in thousands):
| ** **                                                                                                                                                                                                  | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                                                                                                                                                                                        |       |                         |       |                        |       |
| Loans from banks  collateralized by property, plant and equipment payable over periods of 1 to  11 years, with a weighted average interest rate of 5.66% and 5.51%,  respectively, primarily based on LIBOR |       | $                            | 635,165    |                        | $          | 546,593 |   |
| Loan secured by  river cruiseship, payable over 3 years, with a weighted interest rate of  6.54% and 5.65%, respectively, based on LIBOR                                                                    |       | 3,500                        |       | 4,500                       |       |
| Obligations  under capital lease                                                                                                                                                                            |       | 16,721                       |       | 17,214                      |       |
|                                                                                                                                                                                                        |       | 655,386                      |       | 568,307                     |       |
| Less: current  portion                                                                                                                                                                                      |       | 100,394                      |       | 72,151                      |       |
|                                                                                                                                                                                                        |       | $                            | 554,992    |                        | $          | 496,156 |   |

 

Certain credit agreementsof OEH have restrictive covenants.  AtSeptember 30, 2006, OEH was in compliance with these covenants, including aminimum consolidated net worth test and a minimum consolidated interestcoverage test as defined under a bank-syndicated $241,000,000 loan facility.OEH does not currently have any covenants in its loan agreements which limitthe payment of dividends.

On July 20, 2006, OEHborrowed $241,000,000 (€190,000,000) under a bank-syndicated loan facilitytotalling $317,000,000 (€250,000,000) secured by four of OEH’s Italian hotels,its two Portuguese hotels, and its properties in the UK and France. The initialdrawdown was used to refinance an existing $254,000,000 (€201,000,000) loanfacility. On repayment of this existing loan facility outstanding deferredfinance costs amounting to $1,300,000 were written off.

The following is asummary of the aggregate maturities of long-term debt, including obligationsunder capital lease, at September 30, 2006 (dollars in thousands):
| **Year ending December 31,** | ** ** | ** ** | ** ** |
|---------------------------------------------|------------|------------|------------|
|                                        |       |       |       |
| 2007                                        |       | $          | 9,798      |   |
| 2008                                        |       | 89,115     |       |
| 2009                                        |       | 42,668     |       |
| 2010                                        |       | 50,376     |       |
| 2011 and  thereafter                        |       | 363,035    |       |
|                                        |       | $          | 554,992    |   |

 

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**7.             Other liabilities**

Other liabilities consistsof $2,500,000 assumed in the Pansea Hotels group acquisition, and $831,000being the estimated liability on the interest rate swap agreement entered intowith banks as part of the refinancing discussed in Note 14.

**8.             Income taxes**

The Company is incorporatedin Bermuda, which does not impose an income tax.  OEH’s effective tax rate is entirely due tothe income taxes imposed by jurisdictions in which OEH conducts business otherthan Bermuda.

OEH recorded a taxprovision for the three months ended September 30, 2006 of $3,615,000, comparedto a provision of $3,025,000 for the corresponding period in 2005.  The 2006 provision includes deferred taxbenefits totalling $5,829,000 that arose on the reduction of valuationallowances established in respect of tax losses in Portugal and Australia,after OEH concluded that it was more likely than not that these tax losseswould be utilized in the future.

Cumulatively, OEHrecorded a tax provision for the nine months ended September 30, 2006 of$4,818,000, compared to a provision of $6,147,000 for the corresponding ninemonths in 2005.

OEH’s current tax costfor the nine months ended September 30, 2006 was $8,245,000, compared to a costof $5,127,000 in 2005.  The 2006 costincludes a current tax cost of $2,213,000 arising on the sale of the Harry’sBar investment.

Earnings fromunconsolidated subsidiaries are reported net of tax in the Statements ofCondensed Consolidated Operations.  Thetax provision applicable to these unconsolidated subsidiaries in the three monthsended September 30, 2006 was $1,827,000, compared to a provision of $590,000 inthe corresponding period in 2005.  Thecumulative tax provision applicable to unconsolidated subsidiaries in the ninemonths ended September 30, 2006 was $4,164,000 compared to a provision of$1,050,000 in the corresponding period in 2005.

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**9.             Pensions**

Components of netperiodic pension benefit cost were as follows (dollars in thousands):
| Three months ended September 30, | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                 |       |     |       |     |       |
| Service cost                                         |       | $        | 295        |     | $          | 216 |   |
| Interest cost                                        |       | 238      |       | 171      |       |
| Expected return  on plan assets                      |       | (222     | )          | (129     | )          |
| Amortization of  net loss                            |       | 130      |       | 61       |       |
| Net periodic benefit  cost                           |       | $        | 441        |     | $          | 319 |   |

 
| Nine months ended September 30, | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|
|                                                |       |     |       |     |       |
| Service cost                                        |       | $        | 842        |     | $          | 670 |   |
| Interest cost                                       |       | 681      |       | 531      |       |
| Expected return  on plan assets                     |       | (635     | )          | (400     | )          |
| Amortization of  net loss                           |       | 370      |       | 190      |       |
| Net periodic benefit  cost                          |       | $        | 1,258      |     | $          | 991 |   |

 

The Orient-Express Hotels2003 Pension Scheme has been closed for future accruals.  As of September 30, 2006, $601,500 ofcontributions had been made to this plan. OEH anticipates contributing an additional $218,500 to fund this pensionplan in 2006 for a total of $820,000.

**10.          Supplemental cash flow information**

(Dollars inthousands):
| **Nine months ended September 30,** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                    |       |     |       |     |       |
| Cash paid for:                                          |       |     |       |     |       |
| Interest                                                |       | $        | 29,789     |     | $          | 21,488 |   |
| Income taxes                                            |       | $        | 6,949      |     | $          | 7,141 |   |

 

In conjunction withacquisitions (see Note 2) liabilities were assumed as follows (dollars in thousands):
| **Nine months ended September 30,** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                    |       |     |       |     |       |
| Fair value of  assets acquired                          |       | $        | 72,846     |     | $          | 111,492 |   |
| Cash paid                                               |       | (43,862  | )          | (95,000  | )          |
| Liabilities assumed                                     |       | $        | 28,984     |     | $          | 16,492 |   |

 

17

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**11.          Accumulated other comprehensive loss**

The accumulated balancesfor each component of other comprehensive loss are as follows (dollars inthousands):
| ** **                                | ** ** | **September 30,  2006** | ** ** | **December 31,  2005** | ** ** |
|-------------------------------------------|------------|------------------------------|------------|-----------------------------|------------|
|                                      |       |                         |       |                        |       |
| Foreign currency  translation adjustments |       | $                            | (31,392    | )                           | $          | (46,055 | ) |
| Derivative  financial instruments         |       | —                       |       | (68                         | )          |
|                                      |       | $                            | (31,392    | )                           | $          | (46,123 | ) |

 

The components ofcomprehensive earnings/(loss) are as follows (dollars in thousands):
| **Nine months ended September 30,** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                    |       |     |       |     |       |
| Net earnings on  common shares                          |       | $        | 32,482     |     | $          | 36,383 |   |
| Foreign currency  translation adjustments               |       | 14,663   |       | (25,575  | )          |
| Change in fair  value of derivatives                    |       | 68       |       | 81       |       |
| Comprehensive  earnings/(loss)                          |       | $        | 47,213     |     | $          | (10,889 | ) |

 

**12.          Commitments**

Outstanding contracts topurchase fixed assets were approximately $22,645,000 at September 30, 2006(December 31, 2005 - $24,341,000).

**13.          Information concerning financial reporting for segments and operationsin different geographical areas**

As reported in theCompany’s 2005 Form 10-K annual report, OEH has two reporting segments, (i)hotels and restaurants and (ii) tourist trains and cruises.  Segment performance is evaluated based uponsegment net earnings before interest, tax (including tax on earnings fromunconsolidated companies), depreciation and amortization (“segment EBITDA”).  Financial information regarding thesebusiness segments is as follows, with net finance costs appearing net ofcapitalized interest and interest and related income (dollars in thousands):

18

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| **Three months ended September 30,**         | ** **                        | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------|-----------------------------------|----------|------------|----------|------------|
| Revenue:                                                         |                              |     |       |     |       |
| Hotels and restaurants                                           |                              |     |       |     |       |
| Owned hotels                                                     | –   Europe         |     | $          | 72,569   |       | $ | 62,993 |   |
|                                                             | –   North  America |     | 21,545     |     | 19,541     |   |
|                                                             | –   Rest of  world |     | 26,308     |     | 21,725     |   |
| Hotel management/part ownership interests                        |                              | 2,130    |       | 1,974    |       |
| Restaurants                                                      |                              | 3,511    |       | 3,430    |       |
|                                                             |                              | 126,063  |       | 109,663  |       |
| Tourist trains and  cruises                                      |                              | 18,701   |       | 18,070   |       |
|                                                             |                              | $        | 144,764    |     | $          | 127,733 |   |
|                                                             |                              |     |       |     |       |
| Segment EBITDA:                                                  |                              |     |       |     |       |
| Owned hotels                                                     | –   Europe         |     | $          | 32,484   |       | $ | 26,878 |   |
|                                                             | –   North  America |     | 3,279      |     | 3,627      |   |
|                                                             | –   Rest of  world |     | 7,201      |     | 4,185      |   |
| Hotel management/part ownership interests                        |                              | 4,721    |       | 3,880    |       |
| Restaurants                                                      |                              | (128     | )          | (165     | )          |
| Tourist trains and cruises                                       |                              | 7,001    |       | 5,967    |       |
| Central overheads                                                |                              | (5,066   | )          | (4,856   | )          |
|                                                             |                              | $        | 49,492     |     | $          | 39,516 |   |
|                                                             |                              |     |       |     |       |
| Segment  EBITDA/net earnings reconciliation:                     |                              |     |       |     |       |
| Segment EBITDA                                                   |                              | $        | 49,492     |     | $          | 39,516 |   |
| Less:                                                            |                              |     |       |     |       |
| Depreciation and amortization                                    |                              | 8,960    |       | 8,598    |       |
| Interest expense, net                                            |                              | 12,117   |       | 7,896    |       |
| Foreign currency, net                                            |                              | 2,752    |       | (77      | )          |
| Provision for income taxes                                       |                              | 3,615    |       | 3,025    |       |
| Share of provision for income taxes of  unconsolidated companies |                              | 1,827    |       | 591      |       |
| Net earnings                                                     |                              | $        | 20,221     |     | $          | 19,483 |   |

 

Financialinformation regarding geographic areas based on the location of properties isas follows (dollars in thousands):
| **Three months ended September 30** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                    |       |     |       |     |       |
| Revenue:                                                |       |     |       |     |       |
| Europe                                                  |       | $        | 90,155     |     | $          | 80,201 |   |
| North America                                           |       | 25,628   |       | 23,425   |       |
| Rest of world                                           |       | 28,981   |       | 24,107   |       |
|                                                    |       | $        | 144,764    |     | $          | 127,733 |   |

 

19

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| **Nine months ended September 30,**          | ** **                        | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------------------------------|-----------------------------------|----------|------------|----------|------------|
| Revenue:                                                         |                              |     |       |     |       |
| Hotels and  restaurants                                          |                              |     |       |     |       |
| Owned hotels                                                     | –   Europe         |     | $          | 146,146  |       | $ | 134,468 |   |
|                                                             | –   North  America |     | 67,431     |     | 66,473     |   |
|                                                             | –   Rest  of world |     | 78,519     |     | 67,155     |   |
| Hotel management/part ownership interests                        |                              | 6,901    |       | 6,392    |       |
| Restaurants                                                      |                              | 14,350   |       | 14,419   |       |
|                                                             |                              | 313,347  |       | 288,907  |       |
| Tourist trains  and cruises                                      |                              | 45,373   |       | 45,567   |       |
|                                                             |                              | $        | 358,720    |     | $          | 334,474 |   |
|                                                             |                              |     |       |     |       |
| Depreciation and  amortization:                                  |                              |     |       |     |       |
| Hotels and  restaurants                                          |                              |     |       |     |       |
| Owned hotels                                                     | –   Europe         |     | $          | 10,631   |       | $ | 9,895 |   |
|                                                             | –   North  America |     | 5,315      |     | 5,382      |   |
|                                                             | –   Rest  of world |     | 6,929      |     | 6,263      |   |
| Restaurants                                                      |                              | 705      |       | 642      |       |
|                                                             |                              | 23,580   |       | 22,182   |       |
| Tourist trains  and cruises                                      |                              | 2,688    |       | 2,866    |       |
|                                                             |                              | $        | 26,268     |     | $          | 25,048 |   |
|                                                             |                              |     |       |     |       |
| Segment EBITDA:                                                  |                              |     |       |     |       |
| Owned hotels                                                     | –   Europe         |     | $          | 49,585   |       | $ | 44,836 |   |
|                                                             | –   North  America |     | 14,794     |     | 15,121     |   |
|                                                             | –   Rest  of world |     | 20,342     |     | 14,223     |   |
| Hotel management/part ownership interests                        |                              | 14,365   |       | 12,494   |       |
| Restaurants                                                      |                              | 2,461    |       | 2,485    |       |
| Tourist trains and cruises                                       |                              | 12,529   |       | 11,025   |       |
| Central overheads                                                |                              | (14,953  | )          | (14,007  | )          |
| Gain on sale of investment                                       |                              | 6,619    |       | —   |       |
|                                                             |                              | $        | 105,742    |     | $          | 86,177 |   |
|                                                             |                              |     |       |     |       |
| Segment  EBITDA/net earnings reconciliation:                     |                              |     |       |     |       |
| Segment EBITDA                                                   |                              | $        | 105,742    |     | $          | 86,177 |   |
| Less:                                                            |                              |     |       |     |       |
| Depreciation and amortization                                    |                              | 26,268   |       | 25,048   |       |
| Interest expense, net                                            |                              | 32,462   |       | 21,701   |       |
| Foreign currency, net                                            |                              | 5,548    |       | (4,152   | )          |
| Provision for income taxes                                       |                              | 4,818    |       | 6,147    |       |
| Share of provision for income taxes of  unconsolidated companies |                              | 4,164    |       | 1,050    |       |
| Net earnings                                                     |                              | $        | 32,482     |     | $          | 36,383 |   |
|                                                             |                              |     |       |     |       |
| Earnings from  unconsolidated companies, net of tax:             |                              |     |       |     |       |
| Hotels and restaurants                                           |                              |     |       |     |       |
| Hotel management/part ownership interests                        |                              | $        | 5,116      |     | $          | 5,689 |   |
| Restaurants                                                      |                              | 191      |       | 152      |       |
|                                                             |                              | 5,307    |       | 5,841    |       |
| Tourist trains and cruises                                       |                              | 3,770    |       | 3,797    |       |
|                                                             |                              | $        | 9,077      |     | $          | 9,638 |   |

 

20

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| **Nine months ended September 30,** | ** **                        | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|-----------------------------------|----------|------------|----------|------------|
| Capital  expenditure:                                   |                              |     |       |     |       |
| Owned hotels                                            | –   Europe         |     | $          | 44,813   |       | $ | 57,414 |   |
|                                                    | –   North  America |     | 19,132     |     | 21,775     |   |
|                                                    | –   Rest of  world |     | 11,433     |     | 17,711     |   |
| Restaurants                                             |                              | 1,203    |       | 899      |       |
| Tourist trains and cruises                              |                              | 6,903    |       | 5,032    |       |
|                                                    |                              | $        | 83,489     |     | $          | 102,831 |   |

 

Financialinformation regarding geographic areas based on the location of properties isas follows (dollars in thousands):
| **Nine months ended September 30,** | ** ** | **2006** | ** ** | **2005** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|
|                                                    |       |     |       |     |       |
| Revenue:                                                |       |     |       |     |       |
| Europe                                                  |       | $        | 187,799    |     | $          | 176,873 |   |
| North America                                           |       | 84,157   |       | 82,927   |       |
| Rest of world                                           |       | 86,764   |       | 74,674   |       |
|                                                    |       | $        | 358,720    |     | $          | 334,474 |   |

 

**14.          Derivatives**

OEH is exposed tointerest rate risk on its floating rate debt, and in September 2006 it enteredinto interest rate swap agreements for the notional amounts of €75,000,000($95,000,000) and €24,700,000 ($31,300,000) that limit such exposure to a fixedrate level.  Although these interest rateswaps economically hedge the interest rate risk, these instruments have notbeen designated as hedging instruments.

At September 30, 2006 andDecember 31, 2005, the fair values of the outstanding interest rate swaps wereaccounted for as other long-term liabilities at $831,000 and $ nil,respectively.

21

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**15.          Related party transactions**

For the three monthsended September 30, 2005, OEH paid subsidiaries of Sea Containers Ltd (“SCL”)$1,429,000 for the provision of various services under a services agreementbetween OEH and SCL.  For the nine monthsended September 30, 2005, OEH paid subsidiaries of SCL $4,408,000 under thisagreement.  These amounts have beensettled in accordance with the services agreement and are included in selling,general and administrative expenses.  Asof September 30, 2006, SCL is no longer a related party of OEH.

OEH guarantees a$3,000,000 bank loan to Eastern and Oriental Express Ltd. in which OEH has aminority shareholder interest.  Thisguarantee was in place before December 31, 2002. 

OEH manages under along-term contract the Charleston Place Hotel (accounted for under the equitymethod) and has made loans to the hotel-owning company.  For the three months ended September 30,2006, OEH earned $955,000 (2005 - $870,000) in management fees which arerecorded in revenue, and $2,777,000 (2005 - $2,483,000) in interest income onpartnership and other loans, which are recorded in earnings from unconsolidatedcompanies.  For the nine months endedSeptember 30, 2006, OEH earned $3,592,000 (2005 - $3,326,000) in managementfees, and $7,871,000 (2005 - $7,151,000) in interest income on partnership andother loans. 

OEHmanages under long-term contracts the Hotel Monasterio and the Machu PicchuSanctuary Lodge owned by its 50/50 joint venture with local Peruvian interests,as well as the 50/50-owned PeruRail operation, and provides loans, guaranteesand other credit accommodation to these joint ventures.  In the three months ended September 30, 2006,OEH earned management and guarantee fees of $1,469,000 (2005 - $1,450,000) andloan interest of $15,000 (2005 - $28,000) which are recorded in revenue.  In the nine months ended September 30, 2006,OEH earned management and guarantee fees of $3,889,000 (2005 - $3,518,000) andloan interest of $71,000 (2005 - $86,000). At September 30, 2006, OEH had a $750,000 subordinated loan to thePeruRail operation with an indefinite maturity date and interest at a spreadover LIBOR.  All of the guaranteesrelating to the Company’s investments in Peru were in place prior to December31, 2002.

OEHmanages under a long-term contract the Hotel Ritz in Madrid, Spain, in whichOEH owns a 50% interest and is accounted for under the equity method.  For the three months ended September 30,2006, OEH earned $300,000 (2005 - $256,000) in management fees, which are includedin revenue.  For the nine months ended 

22

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September30, 2006, OEH earned $910,000 (2005 - $825,000) in management fees.

Withthe acquisition of the Pansea Hotels group, OEH has assumed $7,818,000 ofliabilities payable to minority shareholders.

23

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# **ITEM 2.****                                                     Management’sDiscussion and Analysis of Financial Condition and Results of Operations**

**Results of Operations**
| Three months ended September  30, 2006 compared to |
|----------------------------------------------------|
| Three months  ended September 30, 2005             |   |

 

OEH’s operating resultsfor the three months ended September 30, 2006 and 2005, expressed as apercentage of revenue, were as follows:
| ** **                                     | ** ** | **Three months  ended  September 30** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------|------------|
| ** **                                     | ** ** | **2006**                                        | ** ** | **2005** | ** ** |
| ** **                                     | ** ** | **%**                                           | ** ** | **%** | ** ** |
| Revenue:                                       |       |                                            |       |   |   |
| Hotels and restaurants                         |       | 87                                              |       | 86 |   |
| Tourist trains and cruises                     |       | 13                                              |       | 14 |   |
|                                           |       | 100                                             |       | 100 |   |
| Expenses:                                      |       |                                            |       |   |   |
| Depreciation and amortization                  |       | 6                                               |       | 7 |   |
| Operating                                      |       | 43                                              |       | 47 |   |
| Selling, general and administrative            |       | 27                                              |       | 26 |   |
| Net finance  costs                             |       | 10                                              |       | 6 |   |
| Profit before  income taxes                    |       | 14                                              |       | 14 |   |
| Benefit from  (provision for) income taxes     |       | (2                                              | )          | (2 | ) |
| Earnings from  unconsolidated companies        |       | 3                                               |       | 3 |   |
| Net earnings as a  percentage of total revenue |       | 15                                              |       | 15 |   |

 

Segment netearnings before interest, tax (including tax on unconsolidated companies),depreciation and amortization (“segment EBITDA”) of OEH’s operations for thethree months ended September 30, 2006 and 2005 are analyzed as follows (dollarsin millions):

24

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| ** **                  | ** ** | **Three months ended   September 30** | ** ** |
|-----------------------------|------------|-----------------------------------------------------------|------------|
| ** **                  | ** ** | **2006**                                                  | ** ** | **2005** | ** ** |
| Segment EBITDA:             |       |                                                      |       |   |   |
| Owned hotels:               |       |                                                      |       |   |   |
| Europe                      |       | $                                                         | 32.5       |   | $ | 26.9 |   |
| North America               |       | 3.3                                                       |       | 3.6 |   |
| Rest of the world           |       | 7.2                                                       |       | 4.2 |   |
| Hotel management  interests |       | 4.7                                                       |       | 3.9 |   |
| Restaurants                 |       | (0.1                                                      | )          | (0.2 | ) |
| Tourist trains  and cruises |       | 7.0                                                       |       | 6.0 |   |
| Central  overheads          |       | (5.1                                                      | )          | (4.9 | ) |
| Total segment EBITDA        |       | $                                                         | 49.5       |   | $ | 39.5 |   |

 

The foregoing segmentEBITDA reconciles to net earnings as follows (dollars in millions):
| ** **                                                       | ** ** | **Three months ended  September 30** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
|                                                             |       |                                                |       |   |   |
| Net earnings                                                     |       | $                                                   | 20.2       |   | $ | 19.5 |   |
| Add:                                                             |       |                                                |       |   |   |
| Depreciation and  amortization                                   |       | 9.0                                                 |       | 8.6 |   |
| Interest  expense, net                                           |       | 12.1                                                |       | 7.8 |   |
| Foreign  currency, net                                           |       | 2.8                                                 |       | — |   |
| Provision for  income taxes                                      |       | 3.6                                                 |       | 3.0 |   |
| Share of  provision for income taxes of unconsolidated companies |       | 1.8                                                 |       | 0.6 |   |
| Segment EBITDA                                                   |       | $                                                   | 49.5       |   | $ | 39.5 |   |

 

Management evaluates theoperating performance of OEH’s segments on the basis of segment EBITDA andbelieves that segment EBITDA is a useful measure of operating performancebecause segment EBITDA is not affected by non-operating factors such asleverage and the historic cost of assets. EBITDA is a financial measure commonly used in OEH’s industry.  OEH’s segment EBITDA, however, may not becomparable in all instances to EBITDA as disclosed by other companies.  Segment EBITDA should not be considered as analternative to earnings from operations or net earnings (as determined inaccordance with U.S. generally accepted accounting principles) as a measure ofOEH’s operating performance, or as an alternative to net cash provided byoperating, investing and financing activities (as determined in accordance withU.S. generally accepted accounting principles) as a measure of OEH’s ability tomeet cash needs. 

Operating information forOEH’s owned hotels for the three months ended September 30, 2006 and 2005 is asfollows:

25

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|                                       | ** ** | Three months ended | ** ** |
|---------------------------------------|------------|------------------------------|------------|
| ** **                            | ** ** | **September 30**        | ** ** |
| ** **                            | ** ** | **2006**                     | ** ** | **2005** | ** ** |
| Average Daily  Rate (in U.S. dollars) |       |                         |       |   |   |
| Europe                                |       | 670                          |       | 625 |   |
| North America                         |       | 284                          |       | 278 |   |
| Rest of World                         |       | 245                          |       | 262 |   |
| Worldwide                             |       | 427                          |       | 427 |   |
|                                  |       |                         |       |   |   |
| Rooms Available  (000’s)         |       |                         |       |   |   |
| Europe                                |       | 92                           |       | 92 |   |
| North America                         |       | 53                           |       | 45 |   |
| Rest of World                         |       | 100                          |       | 83 |   |
| Worldwide                             |       | 245                          |       | 220 |   |
|                                  |       |                         |       |   |   |
| Rooms Sold  (000’s)              |       |                         |       |   |   |
| Europe                                |       | 65                           |       | 61 |   |
| North America                         |       | 36                           |       | 30 |   |
| Rest of World                         |       | 59                           |       | 47 |   |
| Worldwide                             |       | 160                          |       | 138 |   |
|                                  |       |                         |       |   |   |
| RevPAR (in U.S.  dollars)             |       |                         |       |   |   |
| Europe                                |       | 478                          |       | 417 |   |
| North America                         |       | 193                          |       | 183 |   |
| Rest of World                         |       | 145                          |       | 148 |   |
| Worldwide                             |       | 280                          |       | 267 |   |

 
|                                                                  | ** ** | ** ** | ** ** | ** ** | ** ** | **Change%** | ** ** |
|------------------------------------------------------------------|------------|------------|------------|------------|------------|-------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** **  | ** ** | **Local** | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | ** ** | ** ** | **Dollar**  | ** ** | **Currency** | ** ** |
| **Same Store RevPAR (in U.S. dollars)** |       |       |       |       |       |        |       |   |   |
| Europe                                                           |       | 463        |       | 415        |       | 12          | %          | 11 | % |
| North America                                                    |       | 282        |       | 259        |       | 9           | %          | 9 | % |
| Rest of World                                                    |       | 156        |       | 148        |       | 5           | %          | 10 | % |
| Worldwide                                                        |       | 311        |       | 283        |       | 10          | %          | 10 | % |

 

26

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Average daily rate is theaverage amount achieved for the rooms sold. RevPAR is revenue per available room, that is the rooms revenue dividedby the number of available rooms for each night of operation.  Same store RevPAR is a comparison based onthe operations of the same units in each period, such as by excluding theeffect of any acquisitions or major refurbishments.

*Overview*

The net earnings for theperiod were $20.2 million ($0.48 per common share) on revenue of $144.8million, compared with net earnings of $19.5 million ($0.50 per common share)on revenue of $127.7 million in the prior year third quarter.  

*Revenue*

Total revenue increasedby $17.1 million, or 13%, from $127.7 million in the three months endedSeptember 30, 2005 to $144.8 million in the three months ended September 30,2006.  Hotels and restaurants revenueincreased by $16.5 million, or 15%, from $109.6 million in the three monthsended September 30, 2005 to $126.1 million in the three months ended September30, 2006, and tourist trains and cruises increased by $0.6 million, or 3%, from$18.1 million for the three months ended September 30, 2005 to $18.7 millionfor the three months ended September 30, 2006. 

The increase in totalrevenue was due primarily to the performance of the hotels portfolio, inparticular the European properties which showed an increase in revenue of $9.6million.  The strong performance of theRest of the World properties contributed a further $4.6 million.  

The revenue fromrestaurants increased by $0.1 million, or 2%, from $3.4 million in the threemonths ended September 30, 2005 to $3.5 million in the three months endedSeptember 30, 2006.  The increase was dueto revenues from ‘21’ Club.

For owned hotels overall,same store RevPAR in U.S. dollars increased by 10% in the three months endedSeptember 30, 2006 compared to the three months ended September 30, 2005.  Measured in local currencies this increasewas 10%, of which 5% relates to higher achieved average daily rates.

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

*Europe*.  Revenue increased by $9.6 million, or 15%,from $63.0 million for the three months ended September 30, 2005 to $72.6million for the three months ended September 30, 2006.  The improved results from the Hotel Caruso,opened in July 2005, 

27

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resulted in $1.6 millionof incremental revenue for the three months ended September 30, 2006.  Revenue at the Grand Hotel Europe increasedby $2.4 million, or 23%, from $10.5 million in the three months ended September30, 2005 to $12.9 million for the three months ended September 30, 2006.  In Italy, the revenue for Hotel Splendidoincreased by $1.6 million, or 14%, from $11.3 million for the three months endedSeptember 30, 2005 to $12.9 million for the three months ended September 30,2006. 

On a same store basis,RevPAR in local currency increased by 11%, but in U.S. dollars this translatedinto an increase of 12%.  

*North America*.  Revenue increased by $2.0 million, or 10%,from $19.5 million in the three months ended September 30, 2005 to $21.5million in the three months ended September 30, 2006.  Revenue at the Windsor Court and Maroma, bothaffected by accounting for insurance recoveries under SFAS No. 5, “Accountingfor Contingencies”, increased by $4.2 million, or 63%, from $6.8 million in thethree months ended September 30, 2005 to $11.0 million in the three monthsended September 30, 2006.  Revenues atthe remaining North American properties decreased by $2.3 million, or 18%, from$12.8 million in the three months ended September 30, 2005 to $10.5 million inthe three months ended September 30, 2006, primarily due to the closure of ElEncanto, and reduced real estate sales at Keswick.  Included in the 2006 revenues are $0.4million relating to real estate sales at Keswick Hall compared with $2.5million in the same period in 2005.  

On a same store basis,RevPAR increased by 9% which was driven by approximately a 6% increase inoccupancy.

*Rest of the World*.  Revenue increased by $4.6 million, or 21%,from $21.7 million in the three months ended September 30, 2005 to $26.3million in the three months ended September 30, 2006.  Southern Africa revenues decreased by $0.2million, or 2%, from $6.8 million in the three months ended September 30, 2005to $6.6 million in the three months ended September 30, 2006.  South America revenues increased by $1.3million, or 20%, from $6.6 million in the three months ended September 30, 2005to $7.9 million in the three months ended September 30, 2006.  Revenues in Asia Pacific increased by $3.3million, or 42%, from $8.3 million in the three months ended September 30, 2005to $11.7 million in the three months ended September 30, 2006, of which anincrease of $2.6 million was due to the acquisition of the Pansea Hotels group.

The RevPAR on a samestore basis for the Rest of the World region increased by 10% in localcurrencies in the three months ended September 30, 2006 compared to the threemonths ended

28

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September 30, 2005.  This RevPAR increase in local currenciestranslated to a 5% increase when expressed in U.S. dollars.

*Hotel Management andPart-Ownership Interests. *Revenueincreased by $0.1 million, or 5%, from $2.0 million in the three months endedSeptember 30, 2005 to $2.1 million in the three months ended September 30,2006, due to increased revenues at Charleston Place.

*Restaurants. *Revenues for the threemonths to September 30, 2006 were $3.5 million, up $0.1 million, or 2%, againstthe three months to September 30, 2005. This was primarily due to improved revenues at the ‘21’ Club.

*Trains and Cruises. *Revenue increased by $0.6million, or 3%, from $18.1 million in the three months ended September 30, 2005to $18.7 million in the three months ended September 30, 2006, due primarily tothe performance of PeruRail and Venice Simplon-Orient-Express. 

*Depreciation and amortization*

Depreciation andamortization increased by $0.4 million, or 5%, from $8.6 million in the threemonths ended September 30, 2005 to $9.0 million in the three months endedSeptember 30, 2006.  The increaseincludes $0.4 million relating to the recent Pansea Hotels acquisition.  

*Operating expenses*

Operating expensesincreased by $4.5 million, or 8%, from $58.1 million in the three months endedSeptember 30, 2005 to $62.7 million in the three months ended September 30,2006.  The increase was lower than theproportionate revenue increases, with operating expenses being at 43% ofrevenue for the three months ended September 30, 2006, compared to 46% as forthe three months ended September 30, 2005. 

*Selling, general andadministrative expenses*

Selling, general andadministrative expenses increased by $3.7 million, or 10%, from $34.7 millionin the three months ended September 30, 2005 to $38.4 million in the threemonths ended September 30, 2006.  Theincrease was in line with inflation, with selling, general and administrativeexpenses being 27% of revenues for the three months to 2006, a 10% increase overthe three months ended September 30, 2005.

29

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*Margins*

Segment EBITDA margins(calculated as segment EBITDA as a percentage of revenue) for the three monthsended September 30, 2006 for OEH were 34%, up from 31% for the three monthsended September 30, 2005.  The increasewas due to increased margins in Europe and the Rest of the World.  Margins in Europe increased from 43% in thethree months ended September 30, 2005 to 45% in the three months endedSeptember 30, 2006.  Margins in the Restof the World increased from 19% in the three months ended September 30, 2005 to27% in the three months ended September 30, 2006, helped by the impact of thePansea Hotels acquisition.  

*Earnings from operations beforenet finance costs*

Earnings from operationsincreased by $8.6 million from earnings of $26.2 million in the three monthsended September 30, 2005 to a profit of $34.8 million in the three months endedSeptember 30, 2006, due to the factors described above.

*Net finance costs*

Net finance costsincreased by $7.1 million, from $7.8 million for the three months endedSeptember 30, 2005 to $14.9 million for the three months ended September 30,2006.  The three months ended September30, 2006 included a foreign exchange loss of $2.8 million compared to a gain of$0.1 million in the three months ended September 30, 2005.  The three months to September 30, 2006 alsoincluded a $2.5 million write-off of deferred finance costs.  Excluding this foreign exchange loss anddeferred finance write-off, net finance costs increased by $1.7 million, or22%, from $7.9 million for the three months ended September 30, 2005 to $9.6million for the three months ended September 30, 2006, due to the impact offinancing of new investments and increases in interest rates.  

*Provision for income taxes*

The provision for incometaxes increased by $0.6 million, from a provision of $3.0 million in the threemonths ended September 30, 2005 to a provision of $3.6 million in the threemonths ended September 30, 2006.  Theprovision includes deferred tax credits of $5.8 million that arose on thereduction of valuation allowances established in respect of tax losses inPortugal and Australia.  

*Earnings from unconsolidatedcompanies*

Earnings fromunconsolidated companies decreased by $0.2 million, or 5%, from $4.1 million inthe three months ended September 30, 2005 to $3.9 million in the threemonths ended September 30, 2006.  Thiswas mainly due to an increase in taxation on the Peruvian entities.

30

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| Nine months ended September  30, 2006 compared to |
|---------------------------------------------------|
| Nine months ended  September 30, 2005             |   |

 

OEH’s operating resultsfor the nine months ended September 30, 2006 and 2005, expressed as apercentage of revenue, were as follows:
| ** **                                     | ** ** | **Nine months ended   September 30,** | ** ** |
|------------------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                                     | ** ** | **2006**                                                  | ** ** | **2005** | ** ** |
| ** **                                     | ** ** | **%**                                                     | ** ** | **%** | ** ** |
| Revenue:                                       |       |                                                      |       |   |   |
| Hotels and restaurants                         |       | 87                                                        |       | 86 |   |
| Tourist trains and cruises                     |       | 13                                                        |       | 14 |   |
|                                           |       | 100                                                       |       | 100 |   |
| Expenses:                                      |       |                                                      |       |   |   |
| Depreciation and amortization                  |       | 7                                                         |       | 7 |   |
| Operating                                      |       | 46                                                        |       | 48 |   |
| Selling, general and administrative            |       | 30                                                        |       | 30 |   |
| Gain on sale of  investment                    |       | (2                                                        | )          | — |   |
| Net finance  costs                             |       | 11                                                        |       | 5 |   |
| Earnings before  income taxes                  |       | 8                                                         |       | 10 |   |
| Provision for  income taxes                    |       | (1                                                        | )          | (2 | ) |
| Earnings from  unconsolidated companies        |       | 3                                                         |       | 3 |   |
| Net earnings as a  percentage of total revenue |       | 10                                                        |       | 11 |   |

 

Segment EBITDA ofOEH’s operations for the nine months ended September 30, 2006 and 2005 areanalyzed as follows (dollars in millions):
| ** **                  | ** ** | **Nine months ended  September 30,** | ** ** |
|-----------------------------|------------|-----------------------------------------------------|------------|
| ** **                  | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Segment EBITDA:             |       |                                                |       |   |   |
| Owned hotels:               |       |                                                |       |   |   |
| Europe                      |       | $                                                   | 49.6       |   | $ | 44.8 |   |
| North America               |       | 14.8                                                |       | 15.1 |   |
| Rest of the world           |       | 20.3                                                |       | 14.2 |   |
| Hotel management  interests |       | 14.3                                                |       | 12.5 |   |
| Restaurants                 |       | 2.5                                                 |       | 2.5 |   |
| Tourist trains  and cruises |       | 12.5                                                |       | 11.0 |   |
| Central  overheads          |       | (14.9                                               | )          | (13.9 | ) |
| Gain on sale of  investment |       | 6.6                                                 |       | — |   |
| Segment EBITDA              |       | $                                                   | 105.7      |   | $ | 86.2 |   |

 

31

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The foregoing segmentEBITDA reconciles to net earnings as follows (dollars in millions):
| ** **                                                       | ** ** | **Nine months ended  September 30,** | ** ** |
|------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                                       | ** ** | **2006**                                            | ** ** | **2005** | ** ** |
| Net earnings                                                     |       | $                                                   | 32.5       |   | $ | 36.4 |   |
| Add:                                                             |       |                                                |       |   |   |
| Depreciation and  amortization                                   |       | 26.3                                                |       | 25.0 |   |
| Interest expense, net                                            |       | 32.4                                                |       | 21.7 |   |
| Foreign currency, net                                            |       | 5.5                                                 |       | (4.2 | ) |
| Provision for income  taxes                                      |       | 4.8                                                 |       | 6.1 |   |
| Share of provision for  income taxes of unconsolidated companies |       | 4.2                                                 |       | 1.2 |   |
| Segment EBITDA                                                   |       | $                                                   | 105.7      |   | $ | 86.2 |   |

 

32

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Operating information forOEH’s owned hotels for the nine months ended September 30, 2006 and 2005 is asfollows:
|                                       | ** ** | **Three months ended   September 30** | ** ** |
|---------------------------------------|------------|-----------------------------------------------------------|------------|
| ** **                            | ** ** | **2006**                                                  | ** ** | **2005** | ** ** |
| Average Daily  Rate (in U.S. dollars) |       |                                                      |       |   |   |
| Europe                                |       | 611                                                       |       | 565 |   |
| North America                         |       | 318                                                       |       | 330 |   |
| Rest of World                         |       | 269                                                       |       | 270 |   |
| Worldwide                             |       | 396                                                       |       | 392 |   |
|                                  |       |                                                      |       |   |   |
| Rooms Available  (000’s)         |       |                                                      |       |   |   |
| Europe                                |       | 225                                                       |       | 230 |   |
| North America                         |       | 157                                                       |       | 165 |   |
| Rest of World                         |       | 269                                                       |       | 248 |   |
| Worldwide                             |       | 651                                                       |       | 643 |   |
|                                  |       |                                                      |       |   |   |
| Rooms Sold  (000’s)              |       |                                                      |       |   |   |
| Europe                                |       | 139                                                       |       | 140 |   |
| North America                         |       | 113                                                       |       | 112 |   |
| Rest of World                         |       | 166                                                       |       | 142 |   |
| Worldwide                             |       | 418                                                       |       | 394 |   |
|                                  |       |                                                      |       |   |   |
| RevPAR (in U.S.  dollars)             |       |                                                      |       |   |   |
| Europe                                |       | 376                                                       |       | 343 |   |
| North America                         |       | 228                                                       |       | 224 |   |
| Rest of World                         |       | 166                                                       |       | 155 |   |
| Worldwide                             |       | 254                                                       |       | 240 |   |

 
|                                      | ** ** | ** ** | ** ** | ** ** | ** ** | **Change%** | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|-------------|------------|
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | **Dollar**  | ** ** | **Local  currency** | ** ** |
| Same Store RevPAR (in  U.S. dollars) |       |       |       |       |       |        |       |   |   |
| Europe                               |       | 414        |       | 383        |       | 8           | %          | 9 | % |
| North America                        |       | 319        |       | 292        |       | 9           | %          | 9 | % |
| Rest of World                        |       | 170        |       | 155        |       | 10          | %          | 14 | % |
| Worldwide                            |       | 278        |       | 256        |       | 9           | %          | 11 | % |

 

*Overview*

The net earnings for theperiod were $32.5 million ($0.81 per common share) on revenue of $358.7million, compared with net earnings of $36.4 million ($0.96 per common share)on revenue of $334.5 million in the prior year for the first nine months.  This represents a decrease of 11% in netearnings in the period over the prior year period and a decrease of 16% in earningsper common share.

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*Revenue*

Total revenue increasedby $24.2 million, or 7%, from $334.5 million in the nine months ended September30, 2005 to $358.7 million in the nine months ended September 30, 2006.  Hotels and restaurants revenue increased by$24.4 million, or 8%, from $288.9 million in the nine months ended September30, 2005 to $313.3 million in the nine months ended September 30, 2006, andtourist trains and cruises decreased by $0.2 million, or 4%, from $45.6 millionfor the nine months ended September 30, 2005 to $45.4 million for the ninemonths ended September 30, 2006.

The increase for hotelsand restaurants was mainly due to an increase at OEH’s owned hotels of $24.0million, or 9%, from $268.1 million in the nine months ended September 30, 2005to $292.1 million in the nine months ended September 30, 2006.  The revenue from restaurants was unchanged at$14.4 million in the nine months ended September 30, 2006.

For owned hotels overall,same store RevPAR in U.S. dollars increased by 9% in the nine months endingSeptember 30, 2006 compared to the nine months ending September 30, 2005.  Measured in local currencies this increasewas 11%, of which 8% was due to improved occupancy and 3% to higher achieveddaily rate.

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

*Europe*.  Revenue increased by $11.7 million, or 9%,from $134.5 million for the nine months ended September 30, 2005 to $146.1million for the nine months ended September 30, 2006.  This increase includes the revenue from theHotel Caruso which opened in July 2005 and produced an increase in revenue of$5.4 million, and the Grand Hotel Europe, St Petersburg, which was acquired inFebruary 2005, producing an increase of $5.3 million.  The impact of the closure of Reids PalaceHotel in the first quarter and La Residencia accounted for a $4.1 million dropin revenue for the nine months ended September 30, 2005 compared with the ninemonths ended September 30, 2006.

On a same store basis,RevPAR in local currency increased by 9% (6% in higher average dailyrate).  In U.S. dollars this translatedinto an increase of 8%.

*North America*.  Revenue increased by $1.0 million, or 1%,from $66.4 million in the nine months ended September 30, 2005 to $67.4 millionin the nine months ended September 30, 2006. Included in the 2006 revenues are $4.5 million relating to real 

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estate sales at KeswickHall compared with $3.5 million in the same period in 2005.

On a same store basis,RevPAR increased by 9% which was driven by a 6% increase in occupancy and a 3%improvement in achieved average daily rate.

*Rest of the World*.  Revenue increased by $11.3 million, or 17%,from $67.2 million in the nine months ended September 30, 2005 to $78.5 millionin the nine months ended September 30, 2006.

The RevPAR on a samestore basis for the Rest of the World region increased by 14% in localcurrencies in the nine months ended September 30, 2006 compared to the ninemonths ended September 30, 2005.  Thistranslated to a 10% increase in U.S. dollar RevPAR.

*Hotel Management andPart-Ownership Interests. *Revenueincreased by $0.5 million, or 8%, from $6.4 million in the nine months endedSeptember 30, 2005 to $6.9 million in the nine months ended September 30, 2006,due to increased revenues at Charleston Place and the hotels in Peru.

*Restaurants. *Revenues for the ninemonths to September 30, 2006 were $14.6 million, the same as for the ninemonths to September 30, 2005.

*Trains and Cruises. *Revenue decreased by $0.2million, or nil%, from $45.6 million in the nine months ended September 30,2005 to $45.4 million in the nine months ended September 30, 2006, dueprimarily to the performance of the U.K. day trains, offset by growth inPeruRail and Venice Simplon-Orient-Express.

*Depreciation and amortization*

Depreciation andamortization increased by $1.3 million, or 5%, from $25.0 million in the ninemonths ended September 30, 2005 to $26.3 million in the nine months endedSeptember 30, 2006, primarily due to the effect of acquisitions and capitalexpenditures in 2005/6.

*Operating expenses*

Operating expensesincreased by $7.8 million, or 5%, from $157.8 million in the nine months endedSeptember 30, 2005 to $165.6 million in the nine months ended September 30,2006, which was above inflation but lower in respect to revenue increases.  As a percentage to revenue, operatingexpenses for the nine months ended September 30, 2006 46% compared to 48% forthe nine months ended September 30, 2005.

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*Selling, general andadministrative expenses*

Selling, general andadministrative expenses increased by $6.0 million, or 6%, from $101.2 millionin the nine months ended September 30, 2005 to $107.2 million in the ninemonths ended September 30, 2006.  As apercentage to revenue, these expenses remained at 30% for the nine months endedSeptember 30, 2006.

*Margins*

Segment EBITDA margins(calculated as segment EBITDA as a percentage of revenue before asset sales)for the nine months ended September 30, 2006 for OEH were 28%, an increase of2% over the nine months ended September 30, 2005.  Margins in Europe increased from 33% in thenine months ended September 30, 2005 to 34% in the nine months ended September30, 2006.  The increase was impacted bythe closure of some European hotels in the three months to March 31, 2006.  Margins in North America decreased from 23%to 22% for the nine months ended September 30, 2006.  Margins in the Rest of the World increasedfrom 21% in the nine months ended September 30, 2005 to 26% in the nine monthsended September 30, 2006.

*Earnings from operations beforenet finance costs*

Earnings from operationsincreased by $9.2 million, or 18%, from earnings of $50.4 million in the ninemonths ended September 30, 2005 to earnings of $59.6 million in the nine monthsended September 30, 2006, due to the factors described above.

*Net finance costs*

Net finance costsincreased by $20.5 million, from $17.5 million for the nine months endedSeptember 30, 2005 to $38.0 million for the nine months ended September 30,2006, which included a foreign exchange loss of $5.5 million compared with aforeign exchange gain of $4.2 million in the nine months ended September 30,2006.  The nine months to September 30,2006, also included a $3.8 million write-off of deferred finance costs.Excluding the foreign exchange amounts and the write-off of deferred financecosts, net finance costs increased by $7.0 million, or 32%, from $21.7 millionfor the nine months ended September 30, 2005 to $28.7 million for the ninemonths ended September 30, 2006, due to the impact of the financing of newinvestments and increases in interest rates.

*Provision for income taxes*

The provision for incometaxes reduced by $1.3 million, from a provision of $6.1 million in the ninemonths ended September 30, 2005 to a provision of $4.8 million in the ninemonths ended September 30, 2006.  Thisprovision is inclusive of $3.3 million of tax due in respect of the gainarising on the sale of the Harry’s Bar investment, and deferred tax credits of$8.9 million that arose on the reduction of valuation allowances established inrespect of tax losses in Portugal and Australia and at Bora Bora Lagoon Resort.

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*Earnings from unconsolidatedcompanies*

Earnings fromunconsolidated companies reduced by $0.5 million, or 5%, from $9.6 million inthe nine months ended September 30, 2005 to $9.1 million in the nine monthsended September 30, 2006.  This wasmainly due to increased tax provision in Peruvian investments.

**Liquidity and Capital Resources**

*Working Capital*

OEH had cash and cashequivalents of $105.7 million at September 30, 2006, $67.3 million more thanthe $38.4 million at December 31, 2005. At September 30, 2006, the undrawn amounts available to OEH under itsshort-term lines of credit were $28.5 million.  In addition, at September 30, 2006, there were undrawn amounts committedunder long-term facilities of $76.0 million. OEH’s total cash and availability at September 30, 2006 was, therefore,$210.2 million including the undrawn short-term lines.

Current assets lesscurrent liabilities, including the current portion of long-term debt, resultedin a working capital surplus of $14.3 million at September 30, 2006, anincrease in the working capital of $56.6 million from a balance of $42.3million deficit at December 31, 2005. The overall increase in working capital was comprised of the following:

·                  anincrease in current assets of $98.4 million, of which $67.3 million was anincrease in cash, accounts receivable of $8.5 million, amounts due from relatedparties of $1.6 million, prepaid expenses of $7.1 million, inventories of $3.7million and real estate assets of $10.2 million; and

·                  anincrease in current liabilities of $41.8 million, including the current portionof long-term debt, which was due to increases in accrued liabilities of $22.2million, deferred revenue of $10.1 million, current portion of long-term debtof $28.2 million and accounts payable of $3.5 million, offset by decreases inworking capital facilities of $18.1 million, and amounts due to related partiesof $4.1 million.

OEH’s business does notrequire the maintenance of significant inventories or receivables and,therefore, working capital is not regarded as the most appropriate measure of liquidity.

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*Cash Flow*

*Operating Activities*.  Net cash flow from operating activitiesincreased by $1.9 million from $57.6 million cash surplus for the nine monthsended September 30, 2005 to $59.5 million for the nine months ended September30, 2006.  The increase was primarily dueto improvements in segment EBITDA and the favorable movements in workingcapital balances (accounts receivable and accounts payable).

*Investing Activities*.  Cash used in investing activities decreasedby $82.0 million to $116.9 million for the nine months ended September 30,2006, compared to $198.9 million for the nine months ended September 30,2005.  Current year acquisitions of $42.9million included the acquisition of Casa de Sierra Nevada, the remaining 25%interest in Maroma and the Pansea Hotels group. The 2005 amount was mainly due to the acquisition of the Grand HotelEurope in February 2005.

Capital expenditure of$83.5 million included $16.3 million for refurbishment of the Italian hotels,$6.2 million spent on Reids Palace Hotel, $9.5 million for refurbishment of theGrand Hotel Europe, $7.3 million for post-hurricane construction at Maroma, and$5.8 million spent on acquisition of wheelsets for VeniceSimplon-Orient-Express.

The cash used in capitalexpenditures and acquisitions was offset by $9.5 million proceeds from the saleof the Harry’s Bar investment in June 2006.

*Financing Activities*.  Cash provided by financing activities for thenine months ended September 30, 2006 was $124.3 million compared to $111.4million for the nine months ended September 30, 2005, an increase of $12.9million.  In the nine months endedSeptember 30, 2006, OEH had proceeds from borrowings under long-term debt of$360.2 million, compared to proceeds of $116.8 million for the nine months endedSeptember 30, 2005.  The borrowings madefor the nine months to September 30, 2006 included the new European hotelsfacility of $240.7 million.  2005included $58.5 million of finance on the Grand Hotel Europe acquisition.  In the nine months ended September 30, 2006,OEH had net proceeds from the issuance of common shares of $99.4 million, whichwere primarily used to acquire the Pansea Hotels group, and to pay down shortterm debt.  In the nine months ended September30, 2005, OEH had net proceeds from the issuance of common shares of $121.9million.  In 2006, OEH used most of thebalance of long-term debt proceeds for general corporate purposes includingacquisitions and investments.

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*Capital Commitments*.  There were $22.6 million of capital commitmentsoutstanding as of September 30, 2006 mainly on investments in owned hotels.

*Indebtedness*

At September 30, 2006,OEH had $655.4 million of long-term debt secured by assets ($549.7 million netof cash), including the current portion, which is repayable over periods of 1to 11 years with a weighted average interest rate of 5.66%.  See Note 6 to the financial statementsregarding the maturity of long-term debt.

Approximately 48% of theoutstanding principal was drawn in European euros and the balance primarily inU.S. dollars.  At September 30, 2006, 79%of borrowings of OEH were in floating interest rates.

*Liquidity*

OEH expects to haveavailable cash from operations and appropriate debt finance sufficient to fundits working capital requirements, capital expenditures, acquisitions and debtservice for the foreseeable future.

**Recent Accounting Pronouncements**

As of September 30, 2006,the Company’s significant accounting policies and estimates, which aredescribed in Notes 1 and 15 to the financial statements in the Company’s 2005Form 10-K annual report, have not changed from December 31, 2005.

*FIN 48*

In July 2006, theFinancial Accounting Standards Board issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes”, an interpretation of SFAS No. 109 (“FIN 48”),which clarifies the accounting for uncertainty in tax positions.  The evaluation of a tax position under FIN 48is a two-step process.  The first step isrecognition, under which tax positions taken or expected to be taken in a taxreturn should be recognized only if those positions are more likely than not ofbeing sustained upon examination, based on the technical merits of theposition.  In evaluating whether a taxposition has met the more likely than not recognition threshold, it should bepresumed that the position will be examined by the relevant taxing authoritythat would have full knowledge of all relevant information.  The second step is measurement, under whichtax positions that meet the recognition criteria are measured at the largestamount of benefit that is greater than 50 percent likely of being recognizedupon ultimate settlement.

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FIN 48 also providesguidance on de-recognition, classification, interest and penalties, accountingin interim periods, disclosure and transition. FIN 48 is effective for fiscal years beginning after December 15, 2006and is effective for the Company in the first quarter of the year beginningJanuary 1, 2007.  The Company iscurrently assessing FIN 48 and has not yet determined the impact that theadoption of this interpretation will have on its financial position or resultsof operations.

*SAB 108*

In September 2006, theSecurities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No.108, “Considering the Effects of Prior Year Misstatements when QuantifyingMisstatements in Current Year Financial Statements” (“SAB 108”).  This provides interpretive guidance on howthe effects of the carryover or reversal of prior year misstatements should beconsidered in quantifying a current year misstatement.  The SEC staff believes that registrantsshould quantify errors using both a balance sheet and an income statementapproach and evaluate whether either approach results in quantifying amisstatement that, when all relevant quantitative and qualitative factors areconsidered, is material.  SAB 108 iseffective for the Company’s fiscal year ending December 31, 2006, with earlyapplication encouraged.  The Company isin the process of evaluating SAB 108 impact on its financial statements.

*SFAS 157*

In September 2006, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards No. 157, “Fair Value Management” (“SFAS 157”).  SFAS 157 addresses the need for increasedconsistency in fair value measurements, defining fair value as the price thatwould be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date.  It also establishes a framework for measuringfair value and expands disclosure requirements. SFAS 157 is effective for the Company’s fiscal year ending December 31,2008.  The Company is in the process ofevaluating SFAS 157.

*SFAS 158*

In September 2006, the FASBissued Statement of Financial Accounting Standards No. 158, “Employers’Accounting for Defined Benefit Pension and Other Post-retirement Plans – anamendment of FASB Statements No. 87, 

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88, 106, and 132(R)” (“SFAS158”).  This statement requires anemployer to recognize the over-funded or under-funded status of defined benefitpension plans and post-retirement plans (other than a multi-employer plan) asan asset or liability in its statement of financial position and to recognizechanges in that funded status in the year in which the changes occur throughcomprehensive income.  SFAS 158 alsorequires an employer to measure the funded status of a plan as of the date ofits year-end statement of financial position and requires disclosure in the notesto financial statements of certain additional information related to netperiodic benefit cost for the next fiscal year. SFAS 158 defines the funded status of a defined benefit plan as itsassets less its projected benefit obligation and defines the funded status of apost-retirement plan as its assets less its accumulated post-retirement benefitobligation.  Calendar year-end companiessuch as OEH, are required to adopt the recognition and disclosure provisions ofSFAS 158 as of December 31, 2006.  Themeasurement date provisions are not required to be adopted until 2008.  The Company is currently assessing the impactthat this statement will have on its financial statements and results ofoperations.

## **CriticalAccounting Policies**

For a discussion ofthese, see under the heading “Critical Accounting Policies” in Item 7 –Management’s Discussion and Analysis in the Company’s 2005 Form 10-K annualreport.

**ITEM 3.****                                     Quantitativeand Qualitative Disclosures about Market Risk**

OEH is exposed to marketrisk from changes in interest rates and foreign currency exchange rates.  These exposures are monitored and managed aspart of OEH’s overall risk management program, which recognizes theunpredictability of financial markets and seeks to mitigate material adverseeffects on consolidated earnings and cash flows.  OEH does not hold market rate sensitivefinancial instruments for trading purposes.

The market risk relatingto interest rates arises mainly from the financing activities of OEH. Earningsare affected by changes in interest rates on borrowings, principally based onU.S. dollar LIBOR and EURIBOR, and on short-term cash investments.  If interest rates increased by 10%, with allother variables held constant, annual net finance costs of OEH would haveincreased by approximately $2,900,000 on an annual basis based on borrowings atSeptember 30, 2006.

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The market risk relatingto foreign currencies and its effects have not changed materially during thefirst nine months of 2006 from those described in the Company’s 2005 Form 10-Kannual report.

**ITEM 4.****                                     Controlsand Procedures**

The Company’s chief executive and financial officers have evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin SEC Rule 13a-15(e)) as of September 30, 2006 and, based on that evaluation,have concluded those disclosure controls and procedures are effective as ofthat date.  There have been no changes inthe Company’s internal control over financial reporting (as defined in SEC Rule13a-15(f)) during the third quarter of 2006 that have materially affected, orare reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

It should be noted that any system of controls, however well designedand operated, can provide only reasonable, and not absolute, assurance that theobjectives of the system are met such as prevention and detection ofmis-statement.  In addition, the designof any control system is based in part upon certain assumptions about thelikelihood of future events.  Controlsmay become inadequate because of changes in conditions, or the degree of compliancewith policies or procedures may deteriorate, for example.  Because of these and other inherentlimitations of control systems, there can be no assurance that any design willsucceed in achieving its stated goals under all potential future conditions.

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**PART II – OTHERINFORMATION**

**ITEM 5.****                                     OtherInformation**

On November 1, 2006, the Company announced that Mr.Simon Sherwood, President of the Company, has been formally appointed by theBoard of Directors as President and Chief Executive Officer.  Mr. James Sherwood continues as Chairman ofthe Board of the Company.  Accordingly,commencing with this report, Mr. James Sherwood will no longer signcertifications under Rule 13a-14(a) and Rule 13a-14(b).

**ITEM 6.****                                     Exhibits**

Theindex to exhibits appears below, on the page immediately following thesignature page to this report.

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**SIGNATURES**

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.
|        | ORIENT-EXPRESS HOTELS LTD.      |
|--------|---------------------------------|
|   |                            |   |
|   |                            |   |
|   | By:                             |   | /s/ P. M. White |   |
|   | Paul M. White                   |   |
|   | Vice President -  Finance       |   |
|   | and Chief  Financial Officer    |   |
|   | (Principal  Accounting Officer) |   |

 

Dated: November 8,   2006

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# **EXHIBITINDEX**

3.1           –              Memorandumof Association and Certificate of Incorporation of the Company, filed asExhibit 3.1 to Amendment No. 2 to the Company’s Registration Statement on FormS-1 (Registration No. 333-12030) and incorporated herein by reference.

3.2           –              Bye-Lawsof the Company, filed as Exhibit 3 to the Company’s Form 8-K Current Report onJuly 6, 2006 and incorporated herein by reference.

31            –              Rule13a-14(a)/15d-14(a) Certifications.

32            –              Section1350 Certification.

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