**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-K/A**

**Amendment No. 1**

 

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**(Mark One)**

 
| **x** | **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF   THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------------------------------------------------------------------------------------------------|

 

**For the fiscal year ended December 31, 2010**

 

**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**

 

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**ORIENT-EXPRESS HOTELS LTD.**

(Exact name of registrant as specified in its charter)

 

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

 

**22 Victoria Street,**

**Hamilton HM 12, Bermuda**

(Address of principal executive offices)

 

Registrant’s telephone number, including area code: **(441) 295-2244**

 

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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

 

| **Title of each class**             | ** ** | **Name of each exchange**

**on which registered** |
|----------------------------------------------------|------------|-----------------------------------------------------------------------------|
|                                               |       |                                                                        |
| Class A Common Shares, $0.01 par   value each |       | New York Stock Exchange                                                     |
| Preferred Share Purchase Rights                    |       | New York Stock Exchange                                                     |

 

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: **None.**

 

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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x  No o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o  No x

 

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

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (Not applicable. See third paragraph under Item 1—Business on page 4 of Form 10-K)

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Act. (Check one):

 

| Large Accelerated Filer x                |   | Accelerated Filer o         |
|-----------------------------------------------|--------|----------------------------------|
|                                          |   |                             |
| Non-Accelerated Filer o                  |   | Smaller reporting company o |
| (Do not check if a smaller reporting company) |   |                             |

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o  No x

 

The aggregate market value of the Class A common shares held by non-affiliates of the registrant computed by reference to the closing price on June 30, 2010 (the last business day of the registrant’s second fiscal quarter in 2010) was approximately $757,000,000.

 

As of June 6, 2011, 102,469,000 Class A common shares and 18,044,478 Class B common shares of the registrant were outstanding.  All of the Class B shares are owned by a subsidiary of the registrant (see Note 15(d) to the Financial Statements (Item 8) in Form 10-K).

 

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DOCUMENTS INCORPORATED BY REFERENCE:  **None**

 

 

 

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**EXPLANATORY NOTE**

 

Orient-Express Hotels Ltd. (the “registrant”) is filing this Amendment No. 1 (the “Amendment”) to its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, filed with the U.S. Securities and Exchange Commission (“SEC”) on February 25, 2011 (The “Original Filing”).

 

This Amendment is being filed because, pursuant to Rule 3-09 of SEC Regulation S-X, the registrant is required to file audited and unaudited financial statements of Hotel Ritz Madrid S.A. and Perurail S.A., each a 50% owned unconsolidated company.  The financial statements of these two unconsolidated companies are filed in this Amendment under Item 15 - Exhibits and Financial Statement Schedules.

 

Except as described above, no other changes have been made to the Original Filing, and this Form 10-K/A does not amend, update or change any other items or disclosures in the Original Filing.  This Form 10-K/A does not reflect events occurring after the Original Filing and, other than providing the financial statements of the two unconsolidated companies named above under Item 15, does not modify or update the disclosures in the Original Filing in any way.

 

2

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**PART IV**

 

**ITEM 15.****              ****Exhibits and Financial Statement Schedules**

 

1. Financial Statements

 

(a) Hotel Ritz Madrid S.A.

 
| ** **                                                  | **Page Number** |
|-------------------------------------------------------------|----------------------|
| Report   of independent registered public accounting firm   | 4                    |
| Financial   statements - year ended December 31, 2009: |                 |
| Balance sheet   (December 31, 2009)                    | 5                    |
| Statements of   operations                                  | 6                    |
| Statements of   cash flows                                  | 7                    |
| Statements   of shareholders’ equity                   | 8                    |
| Notes   to financial statements                             | 9                    |

 

Also presented are the unaudited balance sheet as at December 31, 2010 and unaudited statements of operations, cash flows and shareholders’ equity for the year ended December 31, 2010.

 

(b) Perurail S.A.

 
| ** **                                                           | **Page Number** |
|----------------------------------------------------------------------|----------------------|
| Report of independent registered public accounting   firm            | 17                   |
| Financial   statements - year ended December 31, 2010 and 2009: |                 |
| Balance   sheet (December 31, 2010 and 2009)                    | 18                   |
| Statement   of operations                                            | 19                   |
| Statement   of cash flows                                            | 20                   |
| Statement of shareholders’ equity                               | 21                   |
| Notes   to financial statements                                      | 22                   |

 

Also presented are the unaudited statements of operations, cash flows and shareholders’ equity for the year ended December 31, 2008.

 

2. Financial Statement Schedule

 

Incorporated by reference to the financial statement schedule filed with the Original Filing.  No additional financial statement schedule is filed with this report on Form 10-K/A.

 

3. Exhibits

 

The index to exhibits appears below, on the pages immediately following the signature page to this report.

 

3

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Report of Independent Registered Public Accounting Firm

 

To the Board of Directors and Shareholders of Hotel Ritz Madrid S.A.:

 

We have audited the accompanying balance sheet of Hotel Ritz Madrid S.A. as of December 31, 2009, and the related statements of operations, shareholders’ equity and cash flows for the years ended December 31, 2009 and 2008. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Hotel Ritz Madrid S.A. at December 31, 2009, and the results of its operations and its cash flows for the years ended December 31, 2009 and 2008 in conformity with accounting principles generally accepted in the United States of America.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1(b) to the financial statements, the Company has suffered recurring losses from operations and is out of compliance with its mortgage loan facility covenants that raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1(b). The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
| /s/   PricewaterhouseCoopers Auditores, S.L. |   |
|----------------------------------------------|--------|
| Madrid,   Spain                              |   |
| June 7,   2010                          |   |

 

4

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**Hotel Ritz Madrid S.A.**

**Balance Sheets**

** **
| ** **                                                                                        | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                        | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                                                                                        | ** ** | **€’000**   | ** ** | **€’000** | ** ** |
| ** **                                                                                        | ** ** | **(unaudited)**       | ** ** | ** ** | ** ** |
|                                                                                              |       |                  |       |   |   |
| **Assets**                                                                                        |       |                  |       |   |   |
| Cash and cash   equivalents                                                                       |       | 969                   |       | 521 |   |
| Accounts   receivable, net of allowances of €91 and €56                                 |       | 1,925                 |       | 1,533 |   |
| Prepaid expenses   and other                                                                      |       | 250                   |       | 87 |   |
| Inventories                                                                                       |       | 1,714                 |       | 1,701 |   |
|                                                                                              |       |                  |       |   |   |
| Total current   assets                                                                            |       | 4,858                 |       | 3,842 |   |
|                                                                                              |       |                  |       |   |   |
| Property, plant and   equipment, net of accumulated depreciation of €17,006 and €15,341 |       | 121,992               |       | 123,011 |   |
| Goodwill                                                                                          |       | 4,200                 |       | 4,200 |   |
| Trademark                                                                                         |       | 22,000                |       | 22,000 |   |
| Deferred financing   costs                                                                        |       | 1,054                 |       | 1,134 |   |
|                                                                                              |       |                  |       |   |   |
|                                                                                              |       | 154,104               |       | 154,187 |   |
|                                                                                              |       |                  |       |   |   |
| **Liabilities   and Shareholders’ Equity**                                                   |       |                  |       |   |   |
| Working capital   facilities                                                                      |       | 1,990                 |       | 2,191 |   |
| Accounts payable                                                                                  |       | 2,114                 |       | 2,120 |   |
| Due to related   parties                                                                          |       | 23,140                |       | 15,309 |   |
| Accrued liabilities                                                                               |       | 2,558                 |       | 2,823 |   |
| Deferred revenue                                                                                  |       | 365                   |       | 438 |   |
| Current portion of   long-term debt                                                               |       | 72,395                |       | 75,800 |   |
|                                                                                              |       |                  |       |   |   |
| Total current   liabilities                                                                       |       | 102,562               |       | 98,681 |   |
|                                                                                              |       |                  |       |   |   |
| Long-term debt                                                                                    |       | 609                   |       | 800 |   |
| Other liabilities                                                                                 |       | 1,480                 |       | 1,532 |   |
| Deferred income   taxes                                                                           |       | 25,960                |       | 27,511 |   |
|                                                                                              |       |                  |       |   |   |
|                                                                                              |       | 130,611               |       | 128,524 |   |
| Commitments and   contingencies                                                                   |       |                  |       |   |   |
|                                                                                              |       |                  |       |   |   |
| Shareholders’   equity:                                                                      |       |                  |       |   |   |
| Common shares €3.00   par value (20,000 shares authorized):                                  |       |                  |       |   |   |
| Issued – 20,000   (2009 – 20,000)                                                       |       | 60                    |       | 60 |   |
| Additional paid-in   capital                                                                      |       | 37,235                |       | 37,235 |   |
| Retained earnings                                                                                 |       | (13,802               | )          | (11,632 | ) |
|                                                                                              |       |                  |       |   |   |
| Total shareholders’   equity                                                                 |       | 23,493                |       | 25,663 |   |
|                                                                                              |       |                  |       |   |   |
|                                                                                              |       | 154,104               |       | 154,187 |   |

 

The accompanying notes are an integral part of these financial statements.

 

5

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**Hotel Ritz Madrid S.A.**

**Statements of Operations**

 
| ** **                            | ** ** | **Year ended December 31,** | ** ** |
|---------------------------------------|------------|--------------------------------------------|------------|
| ** **                            | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                            | ** ** | **€’000**                        | ** ** | **€’000** | ** ** | **€’000** | ** ** |
| ** **                            | ** ** | **(Unaudited)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                  |       |                                       |       |   |   |   |   |
| Revenue                               |       | 23,966                                     |       | 23,127 |   | 29,966 |   |
|                                  |       |                                       |       |   |   |   |   |
| Expenses:                             |       |                                       |       |   |   |   |   |
| Depreciation                          |       | 1,779                                      |       | 2,343 |   | 2,410 |   |
| Cost of services                      |       | 14,819                                     |       | 14,789 |   | 17,374 |   |
| Goodwill impairment   loss            |       | —                                     |       | — |   | 7,105 |   |
| Trademark   impairment loss           |       | —                                     |       | — |   | 2,000 |   |
| Selling, general   and administrative |       | 6,478                                      |       | 6,968 |   | 6,693 |   |
|                                  |       |                                       |       |   |   |   |   |
| Total expenses                        |       | 23,076                                     |       | 24,100 |   | 35,582 |   |
|                                  |       |                                       |       |   |   |   |   |
| Earnings/(loss)   from operations     |       | 890                                        |       | (973 | ) | (5,616 | ) |
|                                  |       |                                       |       |   |   |   |   |
| Interest expense,   net               |       | (4,611                                     | )          | (4,709 | ) | (4,974 | ) |
|                                  |       |                                       |       |   |   |   |   |
| Net finance costs                     |       | (4,611                                     | )          | (4,709 | ) | (4,974 | ) |
|                                  |       |                                       |       |   |   |   |   |
| Loss before income   taxes            |       | (3,721                                     | )          | (5,682 | ) | (10,590 | ) |
|                                  |       |                                       |       |   |   |   |   |
| Benefit from income   taxes           |       | 1,551                                      |       | 2,189 |   | 1,494 |   |
|                                  |       |                                       |       |   |   |   |   |
| Net loss                              |       | (2,170                                     | )          | (3,493 | ) | (9,096 | ) |

 

The accompanying notes are an integral part of these financial statements.

 

6

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**Hotel Ritz Madrid S.A.**

**Statements of Cash Flows**

 
| ** **                                                                                               | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                                                                               | ** ** | **€’000**                        | ** ** | **€’000** | ** ** | **€’000** | ** ** |
| ** **                                                                                               | ** ** | **(Unaudited)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash flows from   operating activities:                                                                  |       |                                       |       |   |   |   |   |
| Net loss                                                                                                 |       | (2,170                                     | )          | (3,493 | ) | (9,096 | ) |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Adjustment to   reconcile net loss to net cash (used in)/provided by operating activities:               |       |                                       |       |   |   |   |   |
| Depreciation                                                                                             |       | 1,779                                      |       | 2,343 |   | 2,410 |   |
| Amortization of   deferred finance costs                                                                 |       | 80                                         |       | 81 |   | 114 |   |
| Impairment loss                                                                                          |       | —                                     |       | — |   | 9,105 |   |
| Loss from disposal   of fixed assets                                                                     |       | 6                                          |       | 52 |   | 24 |   |
| Other non-cash   items                                                                                   |       | —                                     |       | — |   | 14 |   |
| Change in deferred   tax                                                                                 |       | (1,551                                     | )          | (2,189 | ) | (1,494 | ) |
| Change in assets   and liabilities:                                                                      |       |                                       |       |   |   |   |   |
| (Increase)/decrease   in accounts receivable, prepaid expenses and other                                 |       | (555                                       | )          | 361 |   | 863 |   |
| (Increase)/decrease   in inventories                                                                     |       | (13                                        | )          | 312 |   | (123 | ) |
| (Decrease)/increase   in accounts payable, accrued liabilities, deferred revenue and other   liabilities |       | (396                                       | )          | 781 |   | 200 |   |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Total adjustments                                                                                        |       | (650                                       | )          | 1,741 |   | 11,114 |   |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Net cash (used   in)/provided by operating activities                                                    |       | (2,820                                     | )          | (1,752 | ) | 2,018 |   |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Cash flows from   investing activities:                                                                  |       |                                       |       |   |   |   |   |
| Capital   expenditures                                                                                   |       | (766                                       | )          | (476 | ) | (1,471 | ) |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Net cash used in   investing activities                                                                  |       | (766                                       | )          | (476 | ) | (1.471 | ) |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Cash flows from   financing activities:                                                                  |       |                                       |       |   |   |   |   |
| Proceeds from   long-term debt                                                                           |       | —                                     |       | 1,000 |   | — |   |
| Proceeds from   shareholder loans                                                                        |       | 7,831                                      |       | 12,721 |   | — |   |
| Net proceeds from   working capital facilities                                                           |       | (201                                       | )          | (9,019 | ) | 2,646 |   |
| Principal payments   under long-term debt                                                                |       | (3,596                                     | )          | (3,100 | ) | (2,800 | ) |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Net cash provided   by/(used in) financing activities                                                    |       | 4,034                                      |       | 1,602 |   | (154 | ) |
|                                                                                                     |       |                                       |       |   |   |   |   |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Net   increase/(decrease) in cash and cash equivalents                                                   |       | 448                                        |       | (626 | ) | 393 |   |
| Cash and cash   equivalents at beginning of year                                                         |       | 521                                        |       | 1,147 |   | 754 |   |
|                                                                                                     |       |                                       |       |   |   |   |   |
| Cash and cash   equivalents at end of year                                                               |       | 969                                        |       | 521 |   | 1,147 |   |

 

The accompanying notes are an integral part of these financial statements.

 

7

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**Hotel Ritz Madrid S.A.**

**Statements of Shareholders’ Equity**

** **
| ** **                                    | ** ** | **Common********Shares at   Par value** | ** ** | **Additional********Paid-In********Capital** | ** ** | **Retained********Earnings** | ** ** | **Total********Comprehensive********Income/(Loss)** | ** ** |
|-----------------------------------------------|------------|---------------------------------------------------|------------|----------------------------------------------|------------|------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                    | ** ** | **€’000**                               | ** ** | **€’000**                          | ** ** | **€’000**          | ** ** | **€’000**                                 | ** ** |
| ** **                                    | ** ** | ** **                                        | ** ** | ** **                                   | ** ** | ** **                   | ** ** | ** **                                          | ** ** |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
| Balance,   January 1, 2008 (unaudited)   |       | 60                                                |       | 37,235                                       |       | 957                          |       | —                                              |       |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
| Comprehensive   income:                       |       |                                              |       |                                         |       |                         |       |                                                |       |
| Net loss for the   year                       |       | —                                            |       | —                                       |       | (9,096                       | )          | (9,096                                              | )          |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
|                                          |       |                                              |       |                                         |       |                         |       | (9,096                                              | )          |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
| Balance,   December 31, 2008             |       | 60                                                |       | 37,235                                       |       | (8,139                       | )          |                                                |       |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
| Comprehensive   income:                       |       |                                              |       |                                         |       |                         |       |                                                |       |
| Net loss for the   year                       |       | —                                            |       | —                                       |       | (3,493                       | )          | (3,493                                              | )          |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
|                                          |       |                                              |       |                                         |       |                         |       | (3,493                                              | )          |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
| Balance,   December 31, 2009             |       | 60                                                |       | 37,235                                       |       | (11,632                      | )          |                                                |       |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
| Comprehensive   income:                       |       |                                              |       |                                         |       |                         |       |                                                |       |
| Net loss for the   year                       |       | —                                            |       | —                                       |       | (2,170                       | )          | (2,170                                              | )          |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
|                                          |       |                                              |       |                                         |       |                         |       | (2,170                                              | )          |
|                                          |       |                                              |       |                                         |       |                         |       |                                                |       |
| Balance,   December 31, 2010 (unaudited) |       | 60                                                |       | 37,235                                       |       | (13,802                      | )          |                                                |       |

 

The accompanying notes are an integral part of these financial statements.

 

8

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**Hotel Ritz Madrid S.A.**

**Notes to Financial Statements**

 

**1.****         ****Summary of significant accounting policies and basis of presentation**

 

*(a)**         **Business*

 

In this report Hotel Ritz Madrid SA is referred to as the “Company”. The Company owns and operates The Hotel Ritz in Madrid, Spain.

 

The Company is 50% owned indirectly by Orient-Express Hotels Ltd. (“OEH”) and 50% owned indirectly by Omega Capital S.L. (“Omega”).

 

*(b)**         **Basis of presentation and liquidity*

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect the results of operations, financial position and cash flows of the Company.  The financial statements have been prepared using the historical cost basis in the assets and liabilities and the historical results of operations directly attributable to the Company in the normal course of business.

 

As noted in Note 6, at December 31, 2010 and 2009, the Company was out of compliance with a loan to value ratio and debt service coverage ratio in its first mortgage loan facility. A total of €72,200,000 (unaudited) had been borrowed under this loan facility at December 31, 2010. The Company continues to service fully the interest and principal repayments as these fall due, including a principal repayment of €3,700,000 (unaudited) in April 2011 and is continuing to negotiate with the lender to determine how to bring the Company back into compliance. Although the loan is otherwise non-recourse to and not credit-supported by OEH and Omega, they have provided separate partial guarantees of €7,500,000 each based on respective ownership percentages as of December 31, 2010 to obtain a covenant waiver from the lender.

 

The risk that the Company may not successfully complete this renegotiation with the lender and obtain the related amendment of certain financial covenants included in the loan facility, and/or the risk that the Company may not have adequate liquidity to fund its operations as a result of not meeting its projected financial results, even if the renegotiation is completed, raise substantial doubt about the Company’s ability to continue as a going concern.

 

During 2009, 2010 and 2011, the Company has taken steps to reduce its operating and selling, general and administrative expenses. In addition, the Company is developing renovation plans that should enhance future revenue growth.  Management believes these actions will enable the Company to improve its future profitability. While these activities are on-going, shareholders continue to provide participative loan financing as necessary to support the operations of the Company.  As a result, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the Company’s ability to continue as a going concern.

 

“FASB” means Financial Accounting Standards Board. “ASC” means the Accounting Standards Codification of the FASB and “ASU” means an Accounting Standards Update of the FASB.

 

*(c)**          **Cash and cash equivalents*

 

Cash and cash equivalents include all cash balances and highly-liquid investments having original maturities of three months or less.

 

*(d)**         **Foreign currency*

 

The functional currency of the Company is Euros which is also the local currency and reporting currency of the Company. Foreign currency transaction gains and losses are recognized in earnings as they occur.

 

*(e)**          **Estimates*

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates include, but are not limited to, the allowance for doubtful accounts, valuation of intangible assets and goodwill, depreciation and amortization, taxes and contingencies.  Actual results could differ materially from management’s estimates.

 

9

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*(f)**           **Accounts receivable*

 

The Company states its accounts receivable at their estimated net realizable value. The Company maintains allowance for doubtful accounts for specifically identified estimated losses resulting from the inability of its customers to make required payments.

 

*(g)**         **Deferred financing costs*

 

Debt issuance costs incurred in connection with the placement of long-term debt are capitalized and amortized to interest expense over the lives of the related debt.

 

*(h)**         **Revenue recognition*

 

Hotel and restaurant revenue is recognized when the rooms are occupied and the services are performed.  Deferred revenue consisting of deposits paid in advance is recognized as revenue when the services are performed.

 

*(i)**          **Marketing costs*

 

Marketing costs are expensed as incurred and are reported in selling, general and administrative expenses.  Marketing costs include costs of advertising and other marketing activities.  These costs were €1,003,500 (unaudited) in 2010 (2009-€836,500; 2008-€1,164,000).

 

*(j)**           **Interest expense, net*

 

The Company capitalizes interest during the construction of assets. Interest expense, net excludes interest which has been capitalized in the amount of €136,000 (unaudited) in 2010 (2009-€136,000; 2008-€119,000).

 

*(k)**         **Income taxes*

 

The Company accounts for income taxes in accordance with ASC 740 “Income Taxes”.  The objectives of accounting for income taxes are to recognize the amount of taxes payable or refundable for the current year and to recognize deferred tax liabilities and assets for the future tax consequences of events that have been recognized in the Company’s financial statements or tax returns.

 

Current and deferred tax assets and liabilities are recognized for estimated taxes payable or refundable due to temporary differences and carryforwards. All available evidence, both positive and negative, is considered to determine whether, based on the weight of that evidence, a valuation allowance is needed for some portion or all of a deferred tax asset. Judgment is used in considering the relative impact of negative and positive evidence.

 

ASC 740-20 requires that any liability created for unrecognized tax benefits is disclosed. The application of ASC 740-20 may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or assets. The Company would recognize interest and penalties related to unrecognized tax benefits in provision for income taxes. At December 31, 2010 (unaudited) and 2009, respectively, the Company did not record any liabilities for uncertain tax positions.

 

*(l)**          **Inventories*

 

Inventories include food, beverages, certain operating stocks and retail goods.  Inventories are valued at the lower of cost or market value under the first-in, first-out method.

 

*(m)**         **Property, plant and equipment, net*

 

Property, plant and equipment, net are stated at cost less accumulated depreciation.  The cost of significant renewals and betterments is capitalized and depreciated, while expenditures for normal maintenance and repairs are expensed as incurred.

 

Depreciation expense is computed using the straight-line method over the following estimated useful lives:

 
| **Description**                   | ** ** | **Useful lives** |
|-----------------------------------|------------|-----------------------|
|                              |       |                  |
| Building                          |       | Up to 40 years        |
| Machinery and equipment           |       | 5 to 25 years         |
| Furniture, fixtures and equipment |       | 5 to 15 years         |

 

Art and certain antiques are not depreciated.

 

10

----

 

*(n)**         **Impairment of long-lived assets*

 

In accordance with ASC 360-10-35 “Impairment or Disposal of Long-Lived Assets-Subsequent Measurement”, the Company’s management reviews long-lived assets whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.  In the event that an impairment occurs, the Company records a charge to income calculated as the excess of the asset’s carrying value over the estimated fair value.

 

*(o)**         **Goodwill*

 

In accordance with ASC 350 “Intangibles-Goodwill and Other”, goodwill must be evaluated at least annually to determine impairment.  Goodwill is not amortized.  The goodwill impairment testing under ASC 350 is performed in two steps, first, the determination of impairment based upon the fair value of a reporting unit as compared with its carrying value and, second, if there is an implied impairment, the measurement of the amount of impairment loss is determined by comparing the implied fair value of goodwill with the carrying amount of that goodwill.  Impairment testing is performed annually at year end.  Other intangible assets with indefinite useful lives are also reviewed for impairment in accordance with ASC 350. During 2010, no impairment losses (unaudited) relating to goodwill have been identified or recorded (2009-€nil; 2008-€7,105,000) (see Note 3).

 

*(p)**         **Trademark*

 

Trademark has indefinite useful life and is reviewed annually for impairment in accordance with ASC 350 “Intangibles-Goodwill and Other”.  During 2010, no impairment losses (unaudited) relating to the trademark have been identified or recorded (2009-€nil; 2008-€2,000,000) (see Note 4).

 

*(q)**         **Concentration of credit risk*

 

Due to the nature of the leisure industry, concentration of credit risk with respect to trade receivables is limited.  The Company’s customer base is comprised of numerous customers across different geographic areas.

 

*(r)**          **Other liabilities*

 

Other liabilities consist of provision for severance payments that are due to be paid to certain employees on their retirement according to local legislation. Employees who are at least 50 years old and worked for the Company for at least 10 years are entitled to receive a lump-sum payment when they leave employment with the Company. The provision is recorded based on the information about staff ages, years of service and history of staff turnover in the Company.

 

*(s)**          **Risks and uncertainties*

 

The Company’s future operating results are subject to a number of risks, including, but not limited to, competition, competitive pricing pressures, economic slowdowns, the Company’s ability to sustain and manage growth and the Company’s ability to attract and retain key personnel.

 

The Company’s primary financial market exposure related to changes in interest rates.

 

*(t)**          **Subsequent events*

 

For the year ended December 31, 2010, the Company has evaluated subsequent events for potential recognition and disclosure through June 7, 2011, the date of financial statement issuance.

 

*(u)**         **Recent accounting pronouncements*

 

In January 2010, the FASB issued an amendment to the accounting for fair value measurements and disclosures requiring a gross presentation of changes within Level 3 valuations period to period as a rollforward, and adding a new requirement to disclose transfers in and out of Level 1 and Level 2 measurements. The new disclosures apply to all entities that report recurring and nonrecurring fair value measurements. This amendment is effective in the first interim reporting period beginning after December 15, 2009, with an exception for the gross presentation of Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The Company’s adoption of the provisions of this amendment during 2010 did not have a material impact on the Company’s financial statement disclosures.

 

The Company is considering the guidance issued by the FASB in October 2009 that amends the accounting for revenue recognition on multiple-deliverable revenue arrangements. Specifically, the guidance addresses the unit of accounting for arrangements involving multiple deliverables. It also addresses how arrangement consideration should be allocated to the separate units of accounting, when applicable. The adoption of the provisions of this amendment is required for fiscal years beginning on or after June 15, 2010, and is not expected to have a material impact on the Company’s financial statements.

 

11

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In December 2010, the FASB issued guidance concerning the performance of the second step of goodwill impairment testing, namely measurement of the amount of an impairment loss. The ASU amends the criteria for performing the second step for reporting units with zero or negative carrying amounts and requires performing the second step if qualitative factors indicate that it is more likely than not that a goodwill impairment exists. The Company will adopt ASU 2010-28 for impairment tests performed in periods beginning after December 15, 2010, and is currently evaluating the impact of this adoption of the ASU on its financial statements.

 

**2.****            ****Property, plant and equipment, net**

 

The major classes of property, plant and equipment are as follows:

 
| ** **                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------|------------|-----------------------|------------|
| ** **                                | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                                | ** ** | **€’000**   | ** ** | **€’000** | ** ** |
| ** **                                | ** ** | **(unaudited)**       | ** ** | ** ** | ** ** |
|                                      |       |                  |       |   |   |
| Building                                  |       | 129,820               |       | 129,820 |   |
| Machinery and   equipment                 |       | 4,095                 |       | 3,922 |   |
| Fixtures, fittings   and office equipment |       | 5,083                 |       | 4,610 |   |
|                                      |       |                  |       |   |   |
|                                      |       | 138,998               |       | 138,352 |   |
| Less: accumulated   depreciation          |       | (17,006               | )          | (15,341 | ) |
|                                      |       |                  |       |   |   |
|                                      |       | 121,992               |       | 123,011 |   |

 

In July 2010, a fire at Hotel Ritz Madrid caused damage to the kitchen and bedrooms, resulting in the closure of the hotel for four days.  Initial insurance proceeds associated with business interruption of €297,000 (unaudited) were received in December 2010 and were recorded within revenue.  Additional proceeds of €310,000 (unaudited) were received in May 2011.

 

**3.****          ****Goodwill**

 

During 2010 (unaudited) and 2009, the Company did not have any goodwill impairment charges as part of its annual impairment testing as of December 31, 2010 and December 31, 2009, respectively.  Under the first step of the 2010 and 2009 testing, the fair value of the reporting unit was approximately 5% in excess of its carrying value. There is no guarantee that the Company ́s business will achieve the forecasted results which have been included in its impairment analysis due to the impact of the economic downturn in the Spanish market. If the Company is unable to meet these forecasted results in future reporting periods, the Company may be required to record a charge in a future statement of operations for goodwill impairment charges.

 

The gross goodwill amount at January 1, 2010 was €4,200,000 (unaudited) (January 1, 2009-€4,200,000) and the accumulated impairment at that date was €7,105,000 (unaudited) (2009-€7,105,000).

 

The Company’s goodwill impairment testing is performed in two steps: first, the determination of impairment based upon the fair value of the reporting unit as compared with its carrying value and, second, if there is an implied impairment, the measurement of the amount of the impairment loss is determined by comparing the implied fair value of goodwill with the carrying value of the goodwill. If the carrying value of the reporting unit’s goodwill exceeds its implied fair value, the goodwill is deemed to be impaired and is written down to the extent of the difference.

 

The determination of the impairment incorporates various assumptions and uncertainties that the Company believes are reasonable and supportable considering all available evidence, such as the future cash flows of the business, future growth rates and the related discount rate. However, these assumptions and uncertainties are, by their very nature, highly judgmental.

 

During 2008, due to the downturn in the economy the Company identified and recorded goodwill impairment loss in the amount of €7,105,000.

 

**4.****            ****Trademark**

 

There were no changes in the carrying amount of the trademark (an unamortized intangible asset) of €22,000,000 for the years ended December 31, 2010 (unaudited) and 2009.

 

The Company’s trademark asset was reviewed for impairment by comparing its carrying value with the fair value. An impairment loss of €2,000,000 was identified and recorded as at December 31, 2008. The fair value was estimated based on expected future cash flows, growth rates and discount rates which were lower than in previous years due to the downturn in the market that occurred over the last few months of 2008.

 

12

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**5.****            ****Working capital facilities**

 

Working capital facilities are composed of the following, all repayable within one year:

 
| ** **                                                                                                              | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                              | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                                                                                                              | ** ** | **€’000**   | ** ** | **€’000** | ** ** |
| ** **                                                                                                              | ** ** | **(unaudited)**       | ** ** | ** ** | ** ** |
|                                                                                                                    |       |                  |       |   |   |
| Unsecured working   capital facilities, with a weighted average annual interest rate of 2.59% and   3.28%, respectively |       | 1,990                 |       | 2,191 |   |

 

The Company had a €2,000,000 (unaudited) working capital line of credit at December 31, 2010 (2009-€3,000,000) issued by one financial institution and having an expiration date of April 9, 2011, of which €10,000 (unaudited) was undrawn (2009-€809,000).  The working capital line has been renewed until April 2012 under the same terms and conditions.  OEH and Omega each guaranteed, until April 2010, €1,500,000 and, as from May 2010 until April 2011, €1,000,000 (unaudited) of this working capital facility of the Company.  These guarantees were also renewed until April 2012 under the same terms and conditions.

 

**6.****            ****Long-term debt**

 

Long-term debt consists of the following:

 
| ** **                                                                                                                                                                                | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                                | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                                                                                                                                                                                | ** ** | **€’000**   | ** ** | **€’000** | ** ** |
| ** **                                                                                                                                                                                | ** ** | **(unaudited)**       | ** ** | ** ** | ** ** |
|                                                                                                                                                                                      |       |                  |       |   |   |
| Loans from banks   collateralized by property, plant and equipment payable over periods of 1 to   14 years, with a weighted average annual interest rate of 5.5% and 5.5%,   respectively |       | 72,200                |       | 75,600 |   |
| Loans from   governmental financial institution payable over 4 years, with a weighted   average annual interest rate of 1.5%                                                              |       | 804                   |       | 1,000 |   |
|                                                                                                                                                                                      |       |                  |       |   |   |
|                                                                                                                                                                                      |       | 73,004                |       | 76,600 |   |
|                                                                                                                                                                                      |       |                  |       |   |   |
| Less: current   portion                                                                                                                                                                   |       | (72,395               | )          | (75,800 | ) |
|                                                                                                                                                                                      |       |                  |       |   |   |
|                                                                                                                                                                                      |       | 609                   |       | 800 |   |

 

In July 2009, the Company borrowed €1,000,000 from a governmental financial institution (Instituto de Crédito Oficial) at a fixed rate of 1.5% and with semi-annual installments and a final payment in July 2014.

 

At December 31, 2010 and 2009, the Company was out of compliance with a loan to value ratio and a debt service coverage ratio in its first mortgage loan facility. A total of €72,200,000 (unaudited) had been borrowed under this loan facility at December 31, 2010. The Company continues to service fully the interest and principal repayments as these fall due, including a principal repayment of €3,700,000 (unaudited) in April 2011, and is continuing to negotiate with the lender to determine how to bring the Company back into compliance.  No assurances can be given that the Company will be successful in completing these negotiations and therefore the €72,200,000 (unaudited) borrowings have been shown in the current portion of long-term debt. Although the loan is otherwise non-recourse to and not credit-supported by OEH and Omega, they have provided separate guarantees of €7,500,000 each of principal repayments and payment of interest as of December 31, 2010 to obtain a covenant waiver from the lender.

 

The following is a summary of the aggregate maturities of long-term debt at December 31, 2010:

 
| **Year ending December 31,** | ** ** | **(unaudited)**     | ** ** |
|---------------------------------------------|------------|---------------------|------------|
| ** **                                  | ** ** | **€’000** | ** ** |
|                                        |       |                |       |
| 2011                                        |       | 72,200              |       |
| 2012                                        |       | 195                 |       |
| 2013                                        |       | 200                 |       |
| 2015                                        |       | 203                 |       |
| 2015 and thereafter                         |       | 206                 |       |
|                                        |       |                |       |
|                                        |       | 73,004              |       |

 

**7.****            ****Other liabilities**

 

Other liabilities at December 31, 2010 amount to €1,480,000 (unaudited) (2009-€1,532,000) relating to deferred retirement benefit obligations of the Company. There are no assets to be disclosed.

 

13

----

 

**8.****            ****Income taxes**

 

The provision for income taxes consists of the following:

 
| ** **          | ** ** | **Year ended December 31,** | ** ** |
|---------------------|------------|--------------------------------------------|------------|
| ** **          | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **          | ** ** | **€’000**                        | ** ** | **€’000** | ** ** | **€’000** | ** ** |
| ** **          | ** ** | **(unaudited)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
|                |       |                                       |       |   |   |   |   |
| Pre-tax loss        |       |                                       |       |   |   |   |   |
| Spain               |       | (3,721                                     | )          | (5,682 | ) | (10,590 | ) |
|                |       |                                       |       |   |   |   |   |
| Current tax         |       |                                       |       |   |   |   |   |
| Spain               |       | —                                     |       | — |   | — |   |
|                |       |                                       |       |   |   |   |   |
| Deferred tax credit |       |                                       |       |   |   |   |   |
| Spain               |       | 1,551                                      |       | 2,189 |   | 1,494 |   |

 

No income taxes were paid during 2010, 2009 and 2008.

 

The reconciliations of the Spanish income tax rate to the Company’s effective tax rate for the three years ended December 31, 2010 are as follows:

 
| ** **                                             | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                             | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                             | ** ** | **%**                                      | ** ** | **%** | ** ** | **%** | ** ** |
| ** **                                             | ** ** | **(unaudited)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
|                                                   |       |                                       |       |   |   |   |   |
| Spanish income tax   rate                              |       | 30                                         |       | 30 |   | 30 |   |
| Permanent   difference relating to goodwill impairment |       | 12                                         |       | 10 |   | (16 | ) |
| Other permanent   differences                          |       | —                                     |       | (1 | ) | — |   |
|                                                   |       |                                       |       |   |   |   |   |
| Effective tax rate                                     |       | 42                                         |       | 39 |   | 14 |   |

 

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

 
| ** **                                                 | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                 | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                                                 | ** ** | **€’000**   | ** ** | **€’000** | ** ** |
| ** **                                                 | ** ** | **(unaudited)**       | ** ** | ** ** | ** ** |
| Gross deferred tax   assets:                               |       |                  |       |   |   |
| Operating loss   carryforwards                             |       | 6,775                 |       | 5,292 |   |
| Employee retirement   provision                            |       | 444                   |       | 460 |   |
| Less: valuation   allowance                                |       | —                |       | — |   |
|                                                       |       |                  |       |   |   |
| Net deferred tax   assets                                  |       | 7,219                 |       | 5,752 |   |
| Deferred tax   liabilities (depreciation and amortization) |       | (33,179               | )          | (33,263 | ) |
|                                                       |       |                  |       |   |   |
| Net deferred tax   liabilities                             |       | (25,960               | )          | (27,511 | ) |

 

The deferred tax assets consist primarily of tax loss carryforwards. The gross amount of tax loss carryforwards is €22,582,000. Of this amount, €nil will expire in the five years ending December 31, 2015, €6,777,000 will expire in the five years ending December 31, 2020, and €15,805,000 will expire in the five years ended December 31, 2025.  No valuation allowance has been provided against gross deferred tax assets as we expect to recover the full value of our tax assets.

 

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

 

**9.****            ****Supplemental cash flow information**

 
| ** **     | ** ** | **Year ended December 31,** | ** ** |
|----------------|------------|--------------------------------------------|------------|
| ** **     | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **     | ** ** | **€’000**                        | ** ** | **€’000** | ** ** | **€’000** | ** ** |
| ** **     | ** ** | **(unaudited)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash paid for: |       |                                       |       |   |   |   |   |
| Interest       |       | 4,139                                      |       | 4,717 |   | 4,913 |   |

 

14

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**10.****         ****Shareholders’ equity**

 

*(a)**         **Share capital and additional-paid in capital*

 

At December 31, 2010, the Company’s share capital consisted of 20,000 fully subscribed and paid shares with a par value of three euros each, all carrying the same rights. The additional paid-in capital amounts to €37,235,000 (unaudited) and is a distributable reserve, except an amount of €3,000,000 at December 31, 2010 (unaudited) (2009-€1,500,000) which is non-distributable under Spanish Law.

 

The shareholders of the Company are as follows:

 
| ** **                             | ** ** | **No. of   shares** | ** ** | **Percent of   ownership** | ** ** |
|----------------------------------------|------------|--------------------------|------------|---------------------------------|------------|
|                                   |       |                     |       |                            |       |
| Orient-Express   Spanish Holding, S.L. |       | 9,995                    |       | 49.98                           |       |
| Landis Inversiones   S.L.              |       | 9,995                    |       | 49.98                           |       |
| Other                                  |       | 10                       |       | 0.04                            |       |
|                                   |       |                     |       |                            |       |
|                                   |       | 20,000                   |       | 100.00                          |       |

 

Landis Inversiones S.L. is a wholly-owned subsidiary of Omega Capital S.L.

 

*(b)**     **Retained earnings*

 

Within retained earnings there is an amount of €3,202,000 at December 31, 2010 (unaudited) (2009-€3,202,000) which is non-distributable under Spanish Law.

 

**11.****         ****Commitments and contingencies**

 

Outstanding contracts to purchase fixed assets were approximately €nil at December 31, 2010 (unaudited) (2009-€nil). There are no operating leases.

 

**12.****         ****Other comprehensive (loss)/income**

 

The components of comprehensive loss are as follows:

 
| ** **         | ** ** | **Year ended December 31,** | ** ** |
|--------------------|------------|--------------------------------------------|------------|
| ** **         | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **         | ** ** | **€’000**                        | ** ** | **€’000** | ** ** | **€’000** | ** ** |
| ** **         | ** ** | **(unaudited)**                            | ** ** | ** ** | ** ** | ** ** | ** ** |
|               |       |                                       |       |   |   |   |   |
| Net loss           |       | (2,170                                     | )          | (3,493 | ) | (9,096 | ) |
|               |       |                                       |       |   |   |   |   |
| Comprehensive loss |       | (2,170                                     | )          | (3,493 | ) | (9,096 | ) |

 

**13.****         ****Fair value**

 

Certain methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value. The carrying amount of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and working capital facilities approximates fair value because of the short maturity of those instruments. The fair value of debt is calculated by discounting back future interest and principal payments using a discount factor which reflects the Company’s current credit metrics. This factor is derived from credit analysis using inputs such as profit, cash generation, and level of debt.

 

The estimated fair values of the Company’s financial instruments as of December 31, 2010 and 2009 are as follows:

 
| **December 31, 2010 (unaudited)** | ** ** | **Carrying   amount** | ** ** | **Fair   value**    | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|---------------------|------------|
| ** **                                       | ** ** | **€’000**   | ** ** | **€’000** | ** ** |
|                                             |       |                  |       |                |       |
| Cash and cash   equivalents                      |       | 969                   |       | 969                 |       |
|                                             |       |                  |       |                |       |
| Accounts receivable                              |       | 1,924                 |       | 1,924               |       |
|                                             |       |                  |       |                |       |
| Working capital   facilities                     |       | 1,990                 |       | 1,990               |       |
|                                             |       |                  |       |                |       |
| Accounts payable                                 |       | 2,113                 |       | 2,113               |       |
|                                             |       |                  |       |                |       |
| Accrued liabilities                              |       | 2,557                 |       | 2,557               |       |
|                                             |       |                  |       |                |       |
| Long-term debt,   including current portion      |       | 73,004                |       | 62,970              |       |

 

15

----

 
| **December 31, 2009**             | ** ** | **Carrying   amount** | ** ** | **Fair   value**    | ** ** |
|---------------------------------------------|------------|-----------------------|------------|---------------------|------------|
| ** **                                  | ** ** | **€’000**   | ** ** | **€’000** | ** ** |
|                                        |       |                  |       |                |       |
| Cash and cash   equivalents                 |       | 521                   |       | 521                 |       |
|                                        |       |                  |       |                |       |
| Accounts receivable                         |       | 1,533                 |       | 1,533               |       |
|                                        |       |                  |       |                |       |
| Working capital   facilities                |       | 2,191                 |       | 2,191               |       |
|                                        |       |                  |       |                |       |
| Accounts payable                            |       | 2,120                 |       | 2,120               |       |
|                                        |       |                  |       |                |       |
| Accrued liabilities                         |       | 2,823                 |       | 2,823               |       |
|                                        |       |                  |       |                |       |
| Long-term debt,   including current portion |       | 76,600                |       | 58,866              |       |

 

The carrying values of non-financial assets that are measured on a non-recurring basis approximate their fair values.

 

**14.****         ****Related party transactions**

 

OEH holds an indirect 50% interest in the Company accounted for under the equity method.  For the year ended December 31, 2010, OEH earned €719,000 (unaudited) (2009-€694,000; 2008-€883,000) in management fees, which are included in the Company’s selling, general and administrative expenses.  The amount due to OEH from the Company at December 31, 2010 was €11,630,000 (unaudited) (2009-€7,380,000), with the increase primarily due to OEH providing participative loans to the Company in 2010 of €3,821,000 (unaudited) (2009-€6,100,000) to fund operations in 2010, at an interest rate of 3.05% with an original maturity in April 2010 and subject to automatic renewal for additional periods as necessary.

 

The amount due to Omega from the Company at December 31, 2010 was €11,510,000 (unaudited) (2009-€7,926,000), with the increase due to Omega providing participative loans to the Company in 2010 of €3,300,000 (unaudited) (2009-€6,621,000) to fund operations in 2010, at an interest rate of 3.05% with an original maturity in April 2010 and subject to automatic renewal for additional periods as necessary.

 

OEH and Omega have provided separate partial guarantees of €7,500,000 each as of December 31, 2010 to obtain a covenant waiver from a third party lender which provides an otherwise non-recourse first mortgage loan facility to the Company.

 

In July 2009, the Company entered into a restructuring plan involving certain employees. All the employees took their cases to court.  As of December 31, 2009, several of the cases had been resolved and the remaining ones were scheduled for a hearing in February 2010.  In February 2010, the Company settled with the Union (cancelling all court hearings) and agreed the employment status of several of the employees and signed voluntary agreements with the remaining employees to leave employment with the Company.

 

16

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BDO — Pazos, López de Romaña, Rodriguez S.C.

 

Report of Independent Registered Public Accounting Firm

 

Board of Directors and Shareholders

Perurail S.A.

 

We have audited the accompanying balance sheets of Perurail S.A. as of December 31, 2010 and 2009, and the related statements of operations, cash flows and shareholders’ equity for the years then ended. These financial statements are the responsibility of the Company ́s management. Our responsability is to express an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Perurail S.A. at December 31, 2010 and 2009, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 
| /s/ Pazos, López de Romaña, Rodriguez S.C. |   |
|------------------------------------------------------|--------|
| Lima,   Peru                                         |   |
| May 20,   2011                                  |   |

 
| Countersigned   by:                     |   |   |
|-----------------------------------------|--------|--------|
|                                    |   |   |
| /s/   MANUEL PAZOS VÉLEZ           |   |   |
| Manuel   Pazos Vélez               |   |   |
| Certified   Chartered Public Accountant |   |   |
| Register   No. 01-05095            |   |   |

 

17

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**Perurail S.A.**

**Balance Sheets**

 
| ** **                                                                                             | ** ** | **December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                             | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                                                                                             | ** ** | **$’000**        | ** ** | **$’000** | ** ** |
| **Assets**                                                                                             |       |                  |       |   |   |
| Cash and cash   equivalents                                                                            |       | 3,340                 |       | 3,377 |   |
| Accounts   receivable, net of allowances of $nil and $nil                                              |       | 5,530                 |       | 4,713 |   |
| Due from related   parties                                                                             |       | 8,020                 |       | 2,758 |   |
| Prepaid expenses                                                                                       |       | 1,218                 |       | 1,042 |   |
| Inventories                                                                                            |       | 5,736                 |       | 6,645 |   |
|                                                                                                   |       |                  |       |   |   |
| Total current   assets                                                                                 |       | 23,844                |       | 18,535 |   |
|                                                                                                   |       |                  |       |   |   |
| Deferred employees’   profit sharing, net                                                         |       | —                |       | — |   |
|                                                                                                   |       |                  |       |   |   |
| Property, plant and   equipment, net of accumulated depreciation of $8,872 and $6,273                  |       | 31,028                |       | 29,023 |   |
| Intangibles, net                                                                                       |       | 190                   |       | 215 |   |
|                                                                                                   |       |                  |       |   |   |
|                                                                                                   |       | 55,062                |       | 47,773 |   |
|                                                                                                   |       |                  |       |   |   |
| **Liabilities   and Shareholders’ Equity**                                                        |       |                  |       |   |   |
| Working capital   facilities                                                                           |       | 3,570                 |       | 4,855 |   |
| Accounts payable                                                                                       |       | 4,172                 |       | 2,892 |   |
| Accrued liabilities                                                                                    |       | 4,979                 |       | 2,309 |   |
| Current portion of   long-term debt                                                                    |       | 2,069                 |       | 2,013 |   |
|                                                                                                   |       |                  |       |   |   |
| Total current   liabilities                                                                            |       | 14,790                |       | 12,069 |   |
|                                                                                                   |       |                  |       |   |   |
| Long-term debt                                                                                         |       | 3,264                 |       | 5,333 |   |
| Deferred employees’   profit sharing, net                                                         |       | —                |       | 2 |   |
| Deferred tax   liability, net                                                                          |       | 5,270                 |       | 4,439 |   |
|                                                                                                   |       |                  |       |   |   |
|                                                                                                   |       | 23,324                |       | 21,843 |   |
| Commitments and   contingencies                                                                        |       |                  |       |   |   |
|                                                                                                   |       |                  |       |   |   |
| Shareholders’   equity:                                                                           |       |                  |       |   |   |
| Common shares   S/1.00 par value (20,000,000 shares authorized) Issued - 20,000,000(2009 - 20,000,000) |       | 6,684                 |       | 6,684 |   |
| Legal reserve                                                                                          |       | 821                   |       | 14 |   |
| Retained earnings                                                                                      |       | 24,233                |       | 19,232 |   |
|                                                                                                   |       |                  |       |   |   |
| Total shareholders’   equity                                                                      |       | 31,738                |       | 25,930 |   |
|                                                                                                   |       |                  |       |   |   |
|                                                                                                   |       | 55,062                |       | 47,773 |   |

 

The accompanying notes are an integral part of these financial statements.

 

18

----

 

**Perurail S.A.**

**Statements of Operations**

 
| ** **                                | ** ** | **Year ended December 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                | ** ** | **$’000**                             | ** ** | **$’000** | ** ** | **$’000** | ** ** |
| ** **                                | ** ** | ** **                                 | ** ** | ** ** | ** ** | **(unaudited)** | ** ** |
|                                      |       |                                       |       |   |   |   |   |
| Revenue                                   |       | 53,218                                     |       | 63,509 |   | 70,187 |   |
|                                      |       |                                       |       |   |   |   |   |
| Expenses:                                 |       |                                       |       |   |   |   |   |
| Cost of services                          |       | (31,887                                    | )          | (35,204 | ) | (39,611 | ) |
| Depreciation and   amortization           |       | (2,739                                     | )          | (1,820 | ) | (1,701 | ) |
| Selling, general   and administrative     |       | (10,350                                    | )          | (10,536 | ) | (11,725 | ) |
|                                      |       |                                       |       |   |   |   |   |
| Total expenses                            |       | (44,976                                    | )          | (47,560 | ) | (53,037 | ) |
|                                      |       |                                       |       |   |   |   |   |
| Gain on insurance   settlement            |       | 646                                        |       | — |   | — |   |
| (Loss)/gain on   disposal of fixed assets |       | (211                                       | )          | 149 |   | (12 | ) |
|                                      |       |                                       |       |   |   |   |   |
| Earnings from   operations                |       | 8,677                                      |       | 16,098 |   | 17,138 |   |
|                                      |       |                                       |       |   |   |   |   |
| Interest expense,   net                   |       | (684                                       | )          | (1,031 | ) | (906 | ) |
| Foreign currency                          |       | 67                                         |       | 429 |   | (660 | ) |
|                                      |       |                                       |       |   |   |   |   |
| Net finance costs                         |       | (617                                       | )          | (602 | ) | (1,566 | ) |
|                                      |       |                                       |       |   |   |   |   |
| Earnings before   income tax              |       | 8,060                                      |       | 15,496 |   | 15,572 |   |
|                                      |       |                                       |       |   |   |   |   |
| Provision for   income taxes              |       | (2,252                                     | )          | (4,102 | ) | (5,817 | ) |
|                                      |       |                                       |       |   |   |   |   |
| Net earnings                              |       | 5,808                                      |       | 11,394 |   | 9,755 |   |

 

The accompanying notes are an integral part of these financial statements.

 

19

----

 

**Perurail S.A.**

**Statements of Cash Flows**

 
| ** **                                                                           | ** ** | **Year ended December 31,** | ** ** |
|--------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                           | ** ** | **2010**                                   | ** ** | **Restated(1)********2009** | ** ** | **Restated(1)********2008** | ** ** |
| ** **                                                                           | ** ** | **$’000**                             | ** ** | **$’000** | ** ** | **$’000** | ** ** |
| ** **                                                                           | ** ** | ** **                                 | ** ** | ** ** | ** ** | **(unaudited)** | ** ** |
| Cash flows from   operating activities:                                              |       |                                       |       |   |   |   |   |
| Net earnings                                                                         |       | 5,808                                      |       | 11,394 |   | 9,755 |   |
|                                                                                 |       |                                       |       |   |   |   |   |
| Adjustment to   reconcile net earnings to net cash provided by operating activities: |       |                                       |       |   |   |   |   |
| Depreciation                                                                         |       | 2,694                                      |       | 1,778 |   | 1,675 |   |
| Amortization                                                                         |       | 45                                         |       | 42 |   | 26 |   |
| Loss/(gain) on   disposal of fixed assets                                            |       | 211                                        |       | (149 | ) | 12 |   |
| Change in deferred   tax                                                             |       | 831                                        |       | 1,400 |   | 672 |   |
| (Decrease)/increase   in employees’ profit sharing                              |       | (2                                         | )          | 20 |   | (4 | ) |
| Change in allowance   for doubtful accounts                                          |       | —                                     |       | (1 | ) | (21 | ) |
| Change in assets   and liabilities:                                                  |       |                                       |       |   |   |   |   |
| (Increase)/decrease   in accounts receivable                                         |       | (817                                       | )          | (394 | ) | 3,772 |   |
| Decrease/(increase)   in inventories                                                 |       | 909                                        |       | (1,974 | ) | (1,207 | ) |
| (Increase)/decrease   in prepaid expenses                                            |       | (176                                       | )          | 367 |   | (943 | ) |
| Increase/(decrease)   of accounts payable                                            |       | 1,280                                      |       | (785 | ) | 1,488 |   |
| Increase/(decrease)   in accrued liabilities                                         |       | 2,670                                      |       | (2,462 | ) | (2,216 | ) |
| Increase in due   from related parties                                               |       | (5,262                                     | )          | (89 | ) | (724 | ) |
|                                                                                 |       |                                       |       |   |   |   |   |
| Total adjustments                                                                    |       | 2,383                                      |       | (2,247 | ) | 2,530 |   |
|                                                                                 |       |                                       |       |   |   |   |   |
| Net cash provided   by operating activities                                          |       | 8,191                                      |       | 9,147 |   | 12,285 |   |
|                                                                                 |       |                                       |       |   |   |   |   |
| Cash flows from   investing activities:                                              |       |                                       |       |   |   |   |   |
| Proceeds from   disposal of fixed assets                                             |       | —                                     |       | 460 |   | — |   |
| Capital expenditures                                                                 |       | (4,930                                     | )          | (7,089 | ) | (6,314 | ) |
|                                                                                 |       |                                       |       |   |   |   |   |
| Net cash used in   investing activities                                              |       | (4,930                                     | )          | (6,629 | ) | (6,314 | ) |
|                                                                                 |       |                                       |       |   |   |   |   |
| Cash flows from   financing activities:                                              |       |                                       |       |   |   |   |   |
| Payment of   dividends                                                               |       | —                                     |       | (4,800 | ) | (6,360 | ) |
| Net proceeds from   working capital facilities                                       |       | (1,285                                     | )          | 3,987 |   | 348 |   |
| Principal payments   under long-term debt                                            |       | (2,013                                     | )          | (1,617 | ) | (1,281 | ) |
| Proceeds from   long-term debt                                                       |       | —                                     |       | 73 |   | 2,267 |   |
|                                                                                 |       |                                       |       |   |   |   |   |
| Net cash used in   financing activities                                              |       | (3,298                                     | )          | (2,357 | ) | (5,026 | ) |
|                                                                                 |       |                                       |       |   |   |   |   |
| Net   (decrease)/increase in cash and cash equivalents                               |       | (37                                        | )          | 161 |   | 945 |   |
|                                                                                 |       |                                       |       |   |   |   |   |
| Cash and cash   equivalents at beginning of year                                     |       | 3,377                                      |       | 3,216 |   | 2,271 |   |
|                                                                                 |       |                                       |       |   |   |   |   |
| Cash and cash   equivalents at end of year                                           |       | 3,340                                      |       | 3,377 |   | 3,216 |   |

 

----

(1) Net earnings, change in deferred tax, (increase)/decrease in accounts receivable, increase/(decrease) in accrued liabilities and increase in due from related parties for the years ended December 31, 2009 and 2008 have been restated.  See Note 15.

 

The accompanying notes are an integral part of these financial statements.

 

20

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**Perurail S.A.**

**Statements of Shareholders’ Equity**

 
| ** **                                         | ** ** | **Common Shares   at Par value** | ** ** | **Legal reserve** | ** ** | **Retained********Earnings** | ** ** | **Total********Comprehensive********Income/(Loss)** | ** ** |
|----------------------------------------------------|------------|-------------------------------------------------|------------|------------------------|------------|------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                         | ** ** | **$’000**                                  | ** ** | **$’000**         | ** ** | **$’000**               | ** ** | **$’000**                                      | ** ** |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
| Balance,   January 1, 2008 (unaudited)   |       | 59                                              |       | 14                     |       | 15,868                       |       |                                                |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
| Dividends                                          |       | —                                          |       | —                 |       | (6,360                       | )          |                                                |       |
| Net earnings                                       |       | —                                          |       | —                 |       | 9,755                        |       | 9,755                                               |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
|                                               |       |                                            |       |                   |       |                         |       | 9,755                                               |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
| Balance,   December 31, 2008 (unaudited) |       | 59                                              |       | 14                     |       | 19,263                       |       |                                                |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
| Capitalization                                     |       | 6,625                                           |       | —                 |       | (6,625                       | )          |                                                |       |
| Dividends                                          |       | —                                          |       | —                 |       | (4,800                       | )          |                                                |       |
| Net earnings                                       |       | —                                          |       | —                 |       | 11,394                       |       | 11,394                                              |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
|                                               |       |                                            |       |                   |       |                         |       | 11,394                                              |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
| Balance,   December 31, 2009                  |       | 6,684                                           |       | 14                     |       | 19,232                       |       |                                                |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
| Legal Reserve                                      |       | —                                          |       | 807                    |       | (807                         | )          |                                                |       |
| Net earnings                                       |       | —                                          |       | —                 |       | 5,808                        |       | 5,808                                               |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
|                                               |       |                                            |       |                   |       |                         |       | 5,808                                               |       |
|                                               |       |                                            |       |                   |       |                         |       |                                                |       |
| Balance,   December 31, 2010                  |       | 6,684                                           |       | 821                    |       | 24,233                       |       |                                                |       |

 

The accompanying notes are an integral part of these financial statements.

 

21

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**Perurail S.A.**

**Notes to Financial Statements**

 

**1.****         ****Summary of significant accounting policies and basis of presentation**

 

*(a)**         **Business*

 

Perurail S.A. (hereinafter the “Company”) was incorporated in the city of Lima, Peru in 1999.

 

The Company is 50% owned by Orient-Express Hotels Ltd. (“OEH”) incorporated in Bermuda, and 50% owned by Peruvian Trains & Railways S.A. incorporated in Peru.

 

Its headquarters and registered address are located at Av. Alcanfores # 775, District of Miraflores, Department of Lima.

 

The purpose of the Company is the operation of passenger and freight transport by rail, as well as ground cargo transport services for the Cerro Verde mine.

 

In order to perform its corporate purpose, in August 2000 the Company entered a lease with Ferrocarril Transandino S.A. by which the Company was granted access to and use of the tracks, locomotives, coaches, wagons, machine shops and parts of the train stations of the South and South-East Railways operated by Ferrocarril Transandino S.A. Under this contract, various rates are established and payable for the use of locomotives, coaches and wagons based on traveled kilometers, which are settled on a monthly basis.

 

In January 2010, heavy rains caused floods that destroyed various sections of the railway on the Cuzco-Machu Picchu route.  As a result, the Company could not operate on this route for approximately three months while repairs were carried out.  Management claimed under the Company’s insurance for the costs of repairs and the disruption of the Company’s business.  In October 2010, the Company received settlement of outstanding insurance claims and recognized a gain of $646,000 related to business interruption insurance.

 

*(b)**         **Basis for the presentation*

 

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect the results of operations, financial position and cash flows of the Company.  The financial statements have been prepared using the historical cost basis in the assets and liabilities and the historical results of operations directly attributable to the Company in the normal course of business.

 

“FASB” means Financial Accounting Standards Board. “ASC” means the Accounting Standards Codification of the FASB and “ASU” means an Accounting Standards Update of the FASB.

 

*(c)**          **Estimates*

 

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  Significant estimates include, but are not limited to, the allowance for doubtful accounts, allowance on devaluation of various supplies, valuation of fixed assets, depreciation, taxes and contingencies. Actual results could differ materially from management’s estimates.

 

*(d)**         **Foreign currency*

 

The functional currency of the Company is the US Dollar which is also the reporting currency of the Company. The local currency is Nuevos Soles. Foreign currency transaction gains and losses are recognized in earnings as they occur.

 

*(e)**          **Cash and cash equivalents*

 

Cash and cash equivalents include all cash balances and highly-liquid investments having original maturities of three months or less.

 

*(f)**           **Accounts receivable and allowance for doubtful accounts*

 

The Company states its accounts receivable at their estimated net realizable value. The Company maintains allowance for doubtful accounts for specifically identified estimated losses resulting from the inability of its customers to make required payments.

 

*(g)**         **Inventories*

 

Inventories include supplies for minor maintenance of fixed assets.  Inventories are valued at the lower of cost or market value under the average cost method.

 

22

----

 

*(h)**         **Income taxes*

 

*Current portion of income tax*

 

Income tax for the current period is measured at the amount expected to be paid to the taxation authorities. The rates and laws used to compute the amount are those in force as of the balance sheet date.

 

*Deferred portion of income tax*

 

Deferred income taxes are provided using the balance sheet method on temporary differences at the balance sheet date between the tax and book bases of assets and liabilities.

 

All deductible temporary differences and loss carryforwards generate the recognition of deferred tax assets to the extent that it is probable that they can be used in calculating taxable income in future years. Deferred income tax is recognized for all deductible temporary differences and tax loss carryforwards, to the extent that is more likely than not that taxable profit will be available against which the deductible temporary differences and unused tax losses can be utilized. The carrying amount of the deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred asset to be utilized. Unrecognized deferred assets are reassessed at each balance sheet date.

 

Deferred income tax assets and deferred income tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same taxation authority.

 

ASC 740-20 “Income Taxes” requires that any liability created for unrecognized tax benefits is disclosed. The application of ASC 740-20 may also affect the tax bases of assets and liabilities and therefore may change or create deferred tax liabilities or assets. The Company would recognize interest and penalties related to unrecognized tax benefits in provision for income taxes. At December 31, 2010 and 2009, the Company did not record any liabilities for uncertain tax positions.

 

*(i)**          **Property, plant and equipment, net*

 

Property, plant and equipment, net are stated at cost less accumulated depreciation.  The cost of significant renewals and betterments is capitalized and depreciated, while expenditures for normal maintenance and repairs are expensed as incurred.

 

Depreciation expense is computed using the straight-line method over the following estimated useful lives: 

 
| Installations                                                     |   | 33 years |
|-------------------------------------------------------------------|--------|----------|
| Machinery and equipment                                           |   | 10 years |
| Transport units                                                   |   | 5 years  |
| Improvements to locomotive and rolling stock   assets under lease |   | 26 years |
| Owned locomotives and rolling stock                               |   | 26 years |
| Furniture and fixtures                                            |   | 10 years |
| Computer equipment                                                |   | 4 years  |
| Operating assets                                                  |   | 10 years |

 

*(j)**           **Intangibles, net*

 

Software costs are recorded under assets and classified as intangibles if such costs are not part of the related hardware. Software is amortized using the straight-line method.

 

Amortization expense is computed using the straight-line method over the following estimated useful lives:

 
| Logo and trademarks   |   | 30 years |
|-----------------------|--------|----------|
| Software and licenses |   | 4 years  |

 

*(k)**         **Impairment of long-lived assets*

 

The Company’s management evaluates the carrying value of long-lived assets for impairment by comparing the expected undiscounted future cash flows of the assets to the net book value of the assets if certain trigger events occur. If the expected undiscounted future cash flows are less than the net book value of the assets, the excess of the net book value over the estimated fair value is charged to current earnings. Fair value is based upon discounted cash flows of the assets at a rate deemed reasonable for the type of asset and prevailing market conditions, sales of similar assets, appraisals and, if appropriate, current estimated net sales proceeds from pending offers. The Company evaluates the carrying value of its long-lived assets based on its plans, at the time, for such assets and such qualitative factors as future development in the surrounding area, status of expected local competition and projected incremental income from renovations. Changes to the Company’s plans, including a decision to dispose of or change the intended use of an asset, can have a material impact on the carrying value of the asset.

 

*(l)**          **Financial leasing*

 

For financial leasing transactions, the method used consists of showing under fixed assets the total cost of the contract and its corresponding liability. Financial expenses are charged to operations in the period in which they become due, and depreciation of assets is charged to operations based on their useful life.

 

23

----

 

*(m)**         **Employees’ length of service compensation*

 

The provision for employees’ length of service compensation included under taxes and other accounts payable is charged to operations as the compensation becomes due.

 

*(n)**         **Revenue recognition*

 

Passenger transport revenue includes ticket revenue that is recognized when the related services are provided.  Rail freight and cargo revenues are recognized when the freight and cargo reaches its destination. Ground cargo transport services revenues are recognized on a fixed fee basis per month, plus variable fees per ton transported when the services are provided.  Revenues are presented net of taxes collected from customers and remitted to governmental authorities.

 

Revenues in providing these services are recognized, as appropriate, when:

 

1.             The amount of revenues can be reliably quantified;

 

2.             The transaction-related economic benefits are likely to flow to the Company;

 

3.             The degree of completion of the transaction, on the date of the balance, can be reliably quantified; and

 

4.             The costs incurred in providing the services, as well as those still to be incurred until completed, can be reliably quantified.

 

Deferred revenue includes all ticket revenue for tickets sold, but the related services have not yet been provided.

 

*(o)**         **Interest expense, net*

 

The Company capitalizes interest during the construction of assets. There was no capitalized interest in 2010, 2009 and 2008.

 

*(p)**         **Deferred financing costs*

 

Debt issuance costs incurred in connection with the placement of long-term debt are capitalized and amortized to interest expense over the term of the related debt.

 

*(q)**         **Risk and uncertainties*

 

The Company’s activities expose it to a variety of financial risks: market risks (including interest rate risk and exchange risk), credit risk, and liquidity risk. The Company’s risk management program tries to minimize the potential adverse effects on its financial performance. Management is aware of the market conditions and, based on its knowledge and experience, controls the exchange, interest rate, credit and liquidity risks, following the policies approved by the Board of Directors. The most important aspects of these risks are:

 

*Liquidity risk*

 

Liquidity risk is the risk that cash may not be available to pay obligations at their maturity at a fair value. The Company controls the required liquidity through a proper management of asset and liability maturity dates, so that the flow of cash matches future payments.

 

*Credit risk*

 

The Company’s financial assets that are potentially exposed to concentration of credit risk are mainly trade accounts receivable, accounts receivable from related parties and from shareholders, and various accounts receivable.

 

*Interest rate risk*

 

The Company ́s exposure to this risk arises from changes in the interest rates in its financial assets and liabilities. The Company keeps mainly long-term debt subject to a floating interest rate.  Management does not expect to incur significant losses due to interest rate risk.

 

*Exchange risk*

 

The Company carries out its transactions mostly in foreign currency, but management estimates that any fluctuation will not adversely affect the results of the Company’s operations.

 

*(r)**          **Employee profit sharing*

 

In accordance with Peruvian law, employee profit sharing is limited to 18 times an employee’s monthly average salary. The excess of calculated statutory employee profit sharing is paid to the Peruvian government and is treated as an additional tax. The Company’s practice is to recognize the employee profit sharing as part of operating cost and any excess profit sharing is recognized as part of current income tax. The Company has a 5% rate for calculating employee profit sharing.  To date, no excess profit sharing has been recognized.

 

 

24

----

 

*(s)**          **Recent accounting pronouncements*

 

In January 2010, the FASB issued an amendment to the accounting for fair value measurements and disclosures requiring a gross presentation of changes within Level 3 valuations period to period as a rollforward, and adding a new requirement to disclose transfers in and out of Level 1 and Level 2 measurements. The new disclosures apply to all entities that report recurring and nonrecurring fair value measurements. This amendment is effective in the first interim reporting period beginning after December 15, 2009, with an exception for the gross presentation of Level 3 rollforward information, which is required for annual reporting periods beginning after December 15, 2010, and for interim reporting periods within those years. The Company’s adoption of the provisions of this amendment during 2010 did not have a material impact on the Company’s financial statement disclosures.

 

The Company is considering the guidance issued by the FASB in October 2009 that amends the accounting for revenue recognition on multiple-deliverable revenue arrangements. Specifically, the guidance addresses the unit of accounting for arrangements involving multiple deliverables. It also addresses how arrangement consideration should be allocated to the separate units of accounting, when applicable. The adoption of the provisions of this amendment is required for fiscal years beginning on or after June 15, 2010, and is not expected to have a material impact on the Company’s financial statements.

 

**2.****         ****Property, plant and equipment, net**

 

The major classes of property, plant and equipment are as follows:

 
| ** **                                                        | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                        | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                                                        | ** ** | **$’000**        | ** ** | **$’000** | ** ** |
| ** **                                                        | ** ** | ** **            | ** ** | ** ** | ** ** |
| Land                                                              |       | 437                   |       | 437 |   |
| Installations                                                     |       | 653                   |       | 465 |   |
| Machinery and   equipment                                         |       | 1,418                 |       | 925 |   |
| Transport units                                                   |       | 2,404                 |       | 2,500 |   |
| Improvements to   locomotive and rolling stock assets under lease |       | 26,599                |       | 22,289 |   |
| Owned locomotives   and rolling stock                             |       | 3,221                 |       | 3,221 |   |
| Furniture and   fixtures                                          |       | 3,068                 |       | 2,864 |   |
| Works in progress                                                 |       | 2,100                 |       | 2,595 |   |
| Less: accumulated   depreciation                                  |       | (8,872                | )          | (6,273 | ) |
|                                                              |       |                  |       |   |   |
|                                                              |       | 31,028                |       | 29,023 |   |

 

The major classes of assets under capital leases included above are as follows: 

 
| ** **                       | ** ** | **December 31,** | ** ** |
|----------------------------------|------------|-----------------------|------------|
| ** **                       | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                       | ** ** | **$’000**        | ** ** | **$’000** | ** ** |
| ** **                       | ** ** | ** **            | ** ** | ** ** | ** ** |
| Locomotives and   rolling stock  |       | 2,340                 |       | 2,340 |   |
| Less: accumulated   depreciation |       | (173                  | )          | (82 | ) |
|                             |       |                  |       |   |   |
|                             |       | 2,167                 |       | 2,258 |   |

 

25

----

 

**3.****         ****Intangibles, net**

 

Intangibles consist of the following as of December 31, 2010 and 2009:

 
| ** **                             | ** ** | **Year ended December 31, 2010** | ** ** |
|----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                             | ** ** | **Logo and********trademarks**                  | ** ** | **Software and********licenses** | ** ** | **Total** | ** ** |
| ** **                             | ** ** | **$’000**                                       | ** ** | **$’000** | ** ** | **$’000** | ** ** |
| Carrying amount:                       |       |                                                 |       |   |   |   |   |
| Balance as of   January 1, 2010   |       | 122                                                  |       | 266 |   | 388 |   |
| Additions                              |       | —                                               |       | 20 |   | 20 |   |
| Transfers                              |       | —                                               |       | — |   | — |   |
|                                   |       |                                                 |       |   |   |   |   |
| Balance as at   December 31, 2010 |       | 122                                                  |       | 286 |   | 408 |   |
|                                   |       |                                                 |       |   |   |   |   |
| Accumulated   amortization:            |       |                                                 |       |   |   |   |   |
| Balance as of   January 1, 2010   |       | 38                                                   |       | 135 |   | 173 |   |
| Charge for the   period                |       | 4                                                    |       | 41 |   | 45 |   |
|                                   |       |                                                 |       |   |   |   |   |
| Balance as at   December 31, 2010 |       | 42                                                   |       | 176 |   | 218 |   |
|                                   |       |                                                 |       |   |   |   |   |
| Net book value:                        |       |                                                 |       |   |   |   |   |
| As at   December 31, 2009         |       | 84                                                   |       | 131 |   | 215 |   |
|                                   |       |                                                 |       |   |   |   |   |
| As at   December 31, 2010         |       | 80                                                   |       | 110 |   | 190 |   |

 
| ** **                             | ** ** | **Year ended December 31, 2009** | ** ** |
|----------------------------------------|------------|------------------------------------------------------|------------|
| ** **                             | ** ** | **Logo and********trademarks**                  | ** ** | **Software and********licenses** | ** ** | **Total** | ** ** |
| ** **                             | ** ** | **$’000**                                       | ** ** | **$’000** | ** ** | **$’000** | ** ** |
| Carrying amount:                       |       |                                                 |       |   |   |   |   |
| Balance as of   January 1, 2009   |       | 122                                                  |       | 159 |   | 281 |   |
| Additions                              |       | —                                               |       | 63 |   | 63 |   |
| Transfers                              |       | —                                               |       | 44 |   | 44 |   |
|                                   |       |                                                 |       |   |   |   |   |
| Balance as at   December 31, 2009 |       | 122                                                  |       | 266 |   | 388 |   |
|                                   |       |                                                 |       |   |   |   |   |
| Accumulated   amortization:            |       |                                                 |       |   |   |   |   |
| Balance as of   January 1, 2009   |       | 34                                                   |       | 97 |   | 131 |   |
| Charge for the   period                |       | 4                                                    |       | 38 |   | 42 |   |
|                                   |       |                                                 |       |   |   |   |   |
| Balance as at   December 31, 2009 |       | 38                                                   |       | 135 |   | 173 |   |
|                                   |       |                                                 |       |   |   |   |   |
| Net book value:                        |       |                                                 |       |   |   |   |   |
| As at   December 31, 2008         |       | 88                                                   |       | 62 |   | 150 |   |
|                                   |       |                                                 |       |   |   |   |   |
| As at   December 31, 2009         |       | 84                                                   |       | 131 |   | 215 |   |

 

Amortization expense for the year ended December 31, 2010 was $45,000 (2009-$42,000; 2008-$26,000 (unaudited)).

 

Estimated amortization expense for each of the years 2011 to 2015 is $45,000.

 

**4.****         ****Working capital facilities**

 

Working capital facilities are composed of the following, all repayable within one year:

 
| ** **                   | ** ** | **December 31,** | ** ** |
|------------------------------|------------|-----------------------|------------|
| ** **                   | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                   | ** ** | **$’000**        | ** ** | **$’000** | ** ** |
| ** **                   | ** ** | ** **            | ** ** | ** ** | ** ** |
| Working capital   facilities |       | 3,570                 |       | 4,855 |   |

 

Bank loans accrue an annual average interest rate of 4.95% (2009-3.7%).

 

The Company had approximately $5,900,000 of working capital lines of credit at December 31, 2010 (2009-$5,215,000) issued by various financial institutions and having various expiration dates, of which $2,330,000 was undrawn (2009-$360,000).

 

26

----

 

**5.        Accrued liabilities and deferred revenue**

 

A breakdown of accrued liabilities and deferred revenue is as follows:

 
| ** **                                       | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                                       | ** ** | **$’000**        | ** ** | **$’000** | ** ** |
| ** **                                       | ** ** | ** **            | ** ** | ** ** | ** ** |
| Value added tax                                  |       | 173                   |       | — |   |
| Other taxes                                      |       | 309                   |       | 176 |   |
| Employees’ length   of service compensation |       | 80                    |       | 67 |   |
| Vacation payable                                 |       | 424                   |       | 348 |   |
| Remuneration and   profit sharing payable        |       | 717                   |       | 1,093 |   |
| Advance payments   received from passengers      |       | 524                   |       | 427 |   |
| Deferred revenue                                 |       | 1,203                 |       | — |   |
| Provision for   purchases and services           |       | 1,236                 |       | 198 |   |
| Other accounts   payable                         |       | 313                   |       | — |   |
|                                             |       |                  |       |   |   |
|                                             |       | 4,979                 |       | 2,309 |   |

 

**6.         Long-term debt, obligations under capital lease and fair value disclosures**

 

*(a)       Long-term debt*

 

Long-term debt consists of the following:

 
| ** **                                                                                                                                                                             | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                                             | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                                                                                                                                                                             | ** ** | **$’000**        | ** ** | **$’000** | ** ** |
| ** **                                                                                                                                                                             | ** ** | ** **            | ** ** | ** ** | ** ** |
| Loans from banks   collateralized by property, plant and equipment payable over periods of 1 to   5 years, with a weighted average interest rate of 4.07% and 6.29%**,** respectively. |       | 4,100                 |       | 5,362 |   |
| Obligations under   capital lease (see Note 6(b))                                                                                                                                      |       | 1,233                 |       | 1,984 |   |
|                                                                                                                                                                                   |       |                  |       |   |   |
|                                                                                                                                                                                   |       | 5,333                 |       | 7,346 |   |
| Less: current   portion                                                                                                                                                                |       | 2,069                 |       | 2,013 |   |
|                                                                                                                                                                                   |       |                  |       |   |   |
|                                                                                                                                                                                   |       | 3,264                 |       | 5,333 |   |

 

Deferred financing costs related to the above outstanding long-term debt were $124,529 at December 31, 2010 (2009-$161,400) and are amortized to interest expense over the term of the corresponding long-term debt.

 

The following is a summary of the aggregate maturities of long-term debt excluding obligations under capital leases at December 31, 2010:

 
| **Year ending December 31,** | ** ** | **$’000** | ** ** |
|---------------------------------------------|------------|----------------|------------|
| 2011                                        |       | 1,262          |       |
| 2012                                        |       | 1,262          |       |
| 2013                                        |       | 1,262          |       |
| 2014                                        |       | 314            |       |
|                                        |       |           |       |
|                                        |       | 4,100          |       |

 

*(b)       Obligations under capital leases*

 

The following is a summary of future minimum lease payments under capital leases together with the present value of the minimum lease payments at December 31, 2010:

 
| **Year ending December 31,**            | ** ** | **$’000** | ** ** |
|--------------------------------------------------------|------------|----------------|------------|
| 2011                                                   |       | 870            |       |
| 2012                                                   |       | 435            |       |
|                                                   |       |           |       |
| Minimum lease   payments                               |       | 1,305          |       |
| Less: amount of   interest contained in above payments |       | 72             |       |
|                                                   |       |           |       |
| Present value of   minimum lease payments              |       | 1,233          |       |
| Less: current   portion                                |       | 807            |       |
|                                                   |       |           |       |
|                                                   |       | 426            |       |

 

The amount of interest deducted from minimum lease payments to arrive at the present value is the interest contained in each of the leases.

 

27

----

 

*(c)         Fair value of financial instruments*

 

Certain methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate fair value. The carrying amount of cash and cash equivalents, accounts payable, accrued liabilities and working capital facilities approximates fair value because of the short maturity of those instruments. The fair value of debt is calculated by discounting back future interest and principal payments using a discount factor which reflects the Company’s current credit metrics. This factor is derived from credit analysis using inputs such as profit, cash generation, and level of debt.

 

The estimated fair values of the Company’s financial instruments as of December 31, 2010 and 2009 are as follows:

 
| ** **                                  | ** ** | **December 31, 2010** | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **Carrying   amount**           | ** ** | **Fair   value** | ** ** |
|                                        |       | **$’000**                  |       | **$’000** |   |
|                                        |       |                            |       |   |   |
| Cash and cash   equivalents                 |       | 3,340                           |       | 3,340 |   |
|                                        |       |                            |       |   |   |
| Accounts receivable                         |       | 5,530                           |       | 5,530 |   |
|                                        |       |                            |       |   |   |
| Working capital   facilities                |       | 3,570                           |       | 3,570 |   |
|                                        |       |                            |       |   |   |
| Accounts payable                            |       | 4,172                           |       | 4,172 |   |
|                                        |       |                            |       |   |   |
| Accrued liabilities                         |       | 4,979                           |       | 4,979 |   |
|                                        |       |                            |       |   |   |
| Long-term debt,   including current portion |       | 5,333                           |       | 5,348 |   |

 
| ** **                                  | ** ** | **December 31, 2009** | ** ** |
|---------------------------------------------|------------|---------------------------------|------------|
| ** **                                  | ** ** | **Carrying   amount**           | ** ** | **Fair   value** | ** ** |
|                                        |       | **$’000**                  |       | **$’000** |   |
|                                        |       |                            |       |   |   |
| Cash and cash equivalents                   |       | 3,377                           |       | 3,377 |   |
|                                        |       |                            |       |   |   |
| Accounts receivable                         |       | 4,713                           |       | 4,713 |   |
|                                        |       |                            |       |   |   |
| Working capital   facilities                |       | 4,855                           |       | 4,855 |   |
|                                        |       |                            |       |   |   |
| Accounts payable                            |       | 2,892                           |       | 2,892 |   |
|                                        |       |                            |       |   |   |
| Accrued liabilities                         |       | 2,309                           |       | 2,309 |   |
|                                        |       |                            |       |   |   |
| Long-term debt,   including current portion |       | 7,346                           |       | 7,055 |   |

 

The carrying values of non-financial assets that are measured on a non-recurring basis approximate their fair values.

 

**7.         Income taxes**

 

The provision for income taxes consists of the following:

 
| ** **          | ** ** | **Year ended December 31,** | ** ** |
|---------------------|------------|--------------------------------------------|------------|
| ** **          | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **          | ** ** | **$’000**                             | ** ** | **$’000** | ** ** | **$’000** | ** ** |
| ** **          | ** ** | ** **                                 | ** ** | ** ** | ** ** | **(unaudited)** | ** ** |
|                |       |                                       |       |   |   |   |   |
| Pre-tax income      |       | 8,060                                      |       | 15,496 |   | 15,572 |   |
|                |       |                                       |       |   |   |   |   |
| Current tax         |       | (1,421                                     | )          | (2,702 | ) | (5,145 | ) |
|                |       |                                       |       |   |   |   |   |
| Deferred tax charge |       | (831                                       | )          | (1,400 | ) | (672 | ) |

 

The reconciliations of the Peru income tax rate to the Company’s effective tax rate for the three years ended December 31, 2010 are as follows:

 
| ** **              | ** ** | **Year ended December 31,** | ** ** |
|-------------------------|------------|--------------------------------------------|------------|
| ** **              | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **              | ** ** | **%**                                      | ** ** | **%** | ** ** | **%** | ** ** |
| ** **              | ** ** | ** **                                 | ** ** | ** ** | ** ** | **(unaudited)** | ** ** |
|                    |       |                                       |       |   |   |   |   |
| Peru income tax   rate  |       | 30                                         |       | 30 |   | 30 |   |
| Permanent   differences |       | (2                                         | )          | (4 | ) | 7 |   |
|                    |       |                                       |       |   |   |   |   |
| Effective tax rate      |       | 28                                         |       | 26 |   | 37 |   |

 

28

----

 

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

 
| ** **                              | ** ** | **December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------|------------|
| ** **                              | ** ** | **2010**              | ** ** | **2009** | ** ** |
| ** **                              | ** ** | **$’000**        | ** ** | **$’000** | ** ** |
| ** **                              | ** ** | ** **            | ** ** | ** ** | ** ** |
| Provisions included in books            |       | 240                   |       | — |   |
| Other deferred tax assets               |       | 40                    |       | — |   |
|                                    |       |                  |       |   |   |
| Net deferred tax assets                 |       | 280                   |       | — |   |
|                                    |       |                  |       |   |   |
| Fixed assets and   intangibles          |       | (5,345                | )          | (4,382 | ) |
| Structure fee loans                     |       | (37                   | )          | (48 | ) |
| Exchange rate   related to fixed assets |       | (104                  | )          | — |   |
| Other deferred tax liabilities          |       | —                |       | (9 | ) |
| Tia Maria project expenses              |       | (64                   | )          | — |   |
|                                    |       |                  |       |   |   |
| Deferred tax liabilities                |       | (5,550                | )          | (4,439 | ) |
|                                    |       |                  |       |   |   |
| Net deferred tax   liabilities          |       | (5,270                | )          | (4,439 | ) |

 

**8.         Shareholders’ equity**

 

*(a)        Share capital and additional-paid in capital*

 

At December 31, 2010, the Company’s share capital consisted of 20,000,000 fully subscribed and paid shares (2009-20,000,000) with a par value of S/1.00 each, all carrying the same rights.

 

In May 2009, the Company recorded a capitalization of earnings from exposure to inflation in 1999 to 2004 amounting to 21,188 shares, equivalent to S/21,188. As of the capitalization date, earnings from exposure to inflation was included as part of common shares. As a consequence, no additional movement was required in the statements of shareholders’ equity.

 

Also in May 2009, the Company recorded a capitalization of retained earnings amounting to 19,776,812 shares, equivalent to S/19,776,812 ($6,625,398), increasing common shares at par value.

 

The shareholders of the Company are as follows:

 
| ** **                                 | ** ** | **Number of********shares** | ** ** | **Percent of********Ownership** | ** ** |
|--------------------------------------------|------------|----------------------------------|------------|--------------------------------------|------------|
|                                       |       |                             |       |                                 |       |
| Orient-Express   Hotels Ltd.               |       | 10,000,000                       |       | 50.00                                |       |
| Peruvian   Trains & Railways S.A. |       | 10,000,000                       |       | 50.00                                |       |
|                                       |       |                             |       |                                 |       |
|                                       |       | 20,000,000                       |       | 100.00                               |       |

 

*(b)     Legal reserve*

 

In accordance with Peruvian law, a minimum 10% of the annual profits that can be distributed have to be transferred to a legal reserve until it equals 20% of the paid-in capital. The legal reserve can be used only to offset losses, but must be replenished and cannot be distributed as dividends, except in case of liquidation. The Company may capitalize the legal reserve but must replenish it in the year immediately after profits are obtained.

 

For the year ending December 31, 2010, the Company increased its legal reserve by the amount of $807,000, which has been set aside from the earnings corresponding to the 2010 period.

 

*(c)      Retained earnings*

 

Retained earnings may be capitalized or distributed as dividends, by resolution of the shareholders. The Company ́s distributable profits are limited to the amount of retained earnings available under local statutory provisions. As from 2003, dividends and any other form of distributed profit are subject to a withholding tax at a 4.1% rate on the distributed amount to be borne by the shareholders who are individuals, whether or not domiciled in Peru, or who are juridical persons not domiciled in Peru. Any dividends distribution must be proportionate to the shareholders’ contribution.

 

**9.         Employees’ profit sharing**

 

According to Peruvian law, employees have a share of 5% of the Company profits before income tax. Employees’ profit sharing is computed on the taxable net income balance of the year subject to tax, as assessed for local purposes.

 

29

----

 

**10.       Information by segments**

 

Accounting standards require that the Company present financial information by segments. Segments are determined by the form in which the management organizes the Company to make decisions and assess the business performance.  In this regard, management considers that the Company operates one single reportable segment.

 

**11.       Commitments and contingencies**

 

The Peruvian Association of Railway Operators began in January 2009, through the National Institute of Antitrust and Intellectual Property Protection (“INDECOPI”), an administrative sanctioning proceeding against the Company, Ferrocarril Transandino S.A., Peruval Corp S.A., and Peruvian Trains & Railways S.A., for alleged abuse of dominant position in the form of abuse of legal proceedings.  In May 2010, INDECOPI notified the Company and the other parties of its ruling in the first instance and imposed a penalty of 657.5 UIT equivalent to S/2,400,000 ($822,000) against the Company and issued a warning to the other parties. The Company filed an appeal to the tribunal of INDECOPI (in the second instance) and believes, based upon current facts and circumstances, that a material payment upon final resolution of this proceeding, including all future judicial remedies, is unlikely.

 

In addition, INDECOPI has begun sanctioning proceedings against the Company because of separate accidents that occurred in January and December 2008 on the Cuzco-Machu Picchu route.  The proceeding relating to the incident occurring in January 2008 concluded in March 2011 and the penalty assessed was $19,200, which will be paid when the final legal notifications in the case have been concluded.  The proceeding relating to the incident occurring in December 2008 is still in process. The maximum penalty on the still pending proceeding is expected to be of a similar amount.

 

**12.       Supplemental cash flow information**

 
| ** **     | ** ** | **Year ended December 31,** | ** ** |
|----------------|------------|--------------------------------------------|------------|
| ** **     | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **     | ** ** | **$’000**                             | ** ** | **$’000** | ** ** | **$’000** | ** ** |
| ** **     | ** ** | ** **                                 | ** ** | ** ** | ** ** | **(unaudited)** | ** ** |
| Cash paid for: |       |                                       |       |   |   |   |   |
| Interest       |       | 306                                        |       | 1,034 |   | 953 |   |
|           |       |                                       |       |   |   |   |   |
| Income taxes   |       | 2,048                                      |       | 3,356 |   | 5,126 |   |

 

**13.       Other comprehensive income**

 

The components of comprehensive income were as follows:

 
| ** **             | ** ** | **Year ended December 31,** | ** ** |
|------------------------|------------|--------------------------------------------|------------|
| ** **             | ** ** | **2010**                                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **             | ** ** | **$’000**                             | ** ** | **$’000** | ** ** | **$’000** | ** ** |
| ** **             | ** ** | ** **                                 | ** ** | ** ** | ** ** | **(unaudited)** | ** ** |
|                   |       |                                       |       |   |   |   |   |
| Net earnings           |       | 5,808                                      |       | 11,394 |   | 9,755 |   |
|                   |       |                                       |       |   |   |   |   |
| Comprehensive   income |       | 5,808                                      |       | 11,394 |   | 9,755 |   |

 

**14.       Related party transactions**

 

Accounts receivable include non-interest bearing loans extended to the Company’s shareholders. The amount due from shareholders to the Company at December 31, 2010 was $ 4,081,712 (2009-$173,215). In 2008, it was resolved to distribute dividends of $6,360,000 (unaudited), of which $1,150,000 (unaudited) were applied to the accounts receivable from shareholders.

 

Accounts receivable from Ferrocarril Transandino S.A. for working capital, according to estimates, will start to be paid in 2011. The amount due from Ferrocarril Transandino S.A. at December 31, 2010 was $7,733,398 (2009-$6,599,619).

 

The amount due to Ferrocarril Transandino S.A. at December 31, 2010 was $78,958 (2009-$38,476) and relates to the invoicing for the access and use of the railway, locomotives and rolling stock, stations and yards, and loans.  These accounts accrue no interest. In 2010, the Company received services from Ferrocarril Transandino S.A. in the amount of $ 15,076,132 (2009-$20,218,000; 2008-$22,467,000 (unaudited)), including the value added tax (19%).

 

The amount due to Orient-Express Peru S.A. at December 31, 2010 was $1,340,664 (2009-$3,975,535) relating to the invoicing of management fees and expense reimbursements established in the current management agreement.

 

The amount due to Peru OEH S.A. at December 31, 2010 was $2,374,850 (2009-$nil) relating to temporary working capital facilities provided, which accrues no interest and will be paid in 2011.

 

30

----

 

**15.      ****Adjustments to prior period amounts**

 

Subsequent to the issuance of the Company’s financial statements for the year ended December 31, 2009, management determined that certain immaterial adjustments were processed in the Statements of Operations of the Company and were not similarly processed in the Statements of Cash Flows.  These related to net earnings, change in deferred tax, and (increase)/decrease in accrued liabilities.  Additionally, certain reclassifications between movements in accounts receivable and due from related parties had not been separated in the Statements of Cash Flows.  The Company considers these adjustments to be immaterial, both quantitatively and qualitatively, as they have no impact on net cash provided by operating activities (see analysis provided below), as well as no impact to the Statements of Operations or the Balance Sheets for the periods presented.

 
| ** **                                   | ** ** | **Year ended December 31,** | ** ** |
|----------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                   | ** ** | **2009**                                   | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **As previously   reported**          | ** ** | **As adjusted** | ** ** | **Adjustment** | ** ** | **As ****previously****reported** | ** ** | **As adjusted** | ** ** | **Adjustment** | ** ** |
|                                         |       | **$’000**                             |       | **$’000** |   | **$’000** |   | **$’000** |   | **$’000** |   | **$’000** |   |
|                                         |       |                                       |       |   |   |   |   | **(unaudited)** |   | **(unaudited)** |   | **(unaudited)** |   |
|                                         |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Cash flows from   operating activities       |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Net earnings                                 |       | 11,408                                     |       | 11,394 |   | (14 | ) | 9,744 |   | 9,755 |   | 11 |   |
|                                         |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Change in deferred   tax                     |       | 1,386                                      |       | 1,400 |   | 14 |   | 675 |   | 672 |   | (3 | ) |
|                                         |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| (Increase)/decrease   in accounts receivable |       | (483                                       | )          | (394 | ) | 89 |   | 3,048 |   | 3,772 |   | 724 |   |
|                                         |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| (Decrease)/increase   in accrued liabilities |       | (2,462                                     | )          | (2,462 | ) | — |   | (2,208 | ) | (2,216 | ) | (8 | ) |
|                                         |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Increase in due   from related parties       |       | —                                     |       | (89 | ) | (89 | ) | — |   | (724 | ) | (724 | ) |
|                                         |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Total adjustments                            |       | (2,261                                     | )          | (2,247 | ) | 14 |   | 2,541 |   | 2,530 |   | (11 | ) |
|                                         |       |                                       |       |   |   |   |   |   |   |   |   |   |   |
| Net cash provided   by operating activities  |       | 9,147                                      |       | 9,147 |   | — |   | 12,285 |   | 12,285 |   | — |   |

 

**16.       Subsequent events**

 

For purposes of the Company’s December 31, 2010 financial statements, management has evaluated subsequent events through May 20, 2011.

 

31

----

 

**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 
| Dated:   June 13, 2011 |   |
|-----------------------------|--------|
|                        |   |
| ** **                  |   | ORIENT-EXPRESS   HOTELS LTD. |
|                        |   |   |
| ** **                  | By:    | /s/ Martin O’Grady |
|                        |   | Martin O’Grady |
|                        |   | Vice President—Finance and |
|                        |   | Chief Financial Officer |

 

**EXHIBIT INDEX**

 
| **Exhibit********No.** | ** ** | **Incorporated by********Reference to**                                                                            | ** ** | **Description**                                                                                                                                                                      |
|------------------------|------------|------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                                                   | ** ** | ** **                                                                                                                                                                           |
| 3.1                    |       | Exhibit 3.1 to July 9, 2007   Form 8-K Current Report (File No. 1-16017)                                 |       | Memorandum of Association and Certificate of   Incorporation of Orient-Express Hotels Ltd.                                                                                           |
|                   |       |                                                                                                                         |       |                                                                                                                                                                                 |
| 3.2                    |       | Exhibit 3.2 to June 15, 2007   Form 8-K Current Report (File No. 1-16017)                                |       | Bye-Laws of Orient-Express Hotels Ltd.                                                                                                                                               |
|                   |       |                                                                                                                         |       |                                                                                                                                                                                 |
| 3.3                    |       | Exhibit 1 to April 23, 2007 Amendment   No. 1 to Form 8-A Registration Statement (File No. 1-16017) |       | Rights Agreement dated June 1, 2000, and   amended and restated April 12, 2007, between Orient-Express Hotels Ltd.   and Computershare Trust Company N.A., as Rights Agent |
|                   |       |                                                                                                                         |       |                                                                                                                                                                                 |
| 3.4                    |       | Exhibit 4.2 to December 10, 2007   Form 8-K Current Report (File No. 1-16017)                            |       | Amendment No. 1 dated December 10, 2007   to Amended and Restated Rights Agreement (Exhibit 3.3)                                                                      |
|                   |       |                                                                                                                         |       |                                                                                                                                                                                 |
| 3.5                    |       | Exhibit 4.3 to May 27, 2010 Form 8-K   Current Report (File No. 1-16017)                                 |       | Amendment No. 2 dated May 27, 2010 to   Amended and Restated Rights Agreement (Exhibit 3.3)                                                                           |
|                   |       |                                                                                                                         |       |                                                                                                                                                                                 |
| 4.1                    |       | Exhibit 1.1 to November 3, 2010   Form 8-K Current Report (File No. 1-16017)                             |       | Secured Facility Agreement dated October 28,   2010 for Orient-Express Hotels Ltd. and certain subsidiaries arranged by   Barclays Bank PLC and other banks                     |

 

The registrant has no instrument with respect to long-term debt not listed above under which the total amount of securities authorized exceeds 10% of the total assets of the registrant on a consolidated basis.  The registrant agrees to furnish to the SEC upon request a copy of each instrument with respect to long-term debt not filed as an exhibit to this report.

 

32

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| **Exhibit********No.** | ** ** | **Incorporated by********Reference to**                                             | ** ** | **Description**                                                                                                                                                                                                                                                                                                             |
|------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **             | ** ** | ** **                                                                                    | ** ** | ** **                                                                                                                                                                                                                                                                                                                  |
| 10.1                   |       | Exhibit 10.1 to 2008 Form 10-K Annual   Report (File No. 1-16017)              |       | Orient-Express Hotels Ltd. 2000 Stock Option Plan                                                                                                                                                                                                                                                                           |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.2                   |       | Exhibit 10.2 to 2008 Form 10-K Annual   Report (File No. 1-16017)              |       | Orient-Express Hotels Ltd. 2004 Stock Option Plan                                                                                                                                                                                                                                                                           |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.3                   |       | Exhibit 10.3 to 2008 Form 10-K Annual   Report (File No. 1-16017)              |       | Orient-Express Hotels Ltd. 2007 Performance Share   Plan                                                                                                                                                                                                                                                                    |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.4                   |       | Exhibit 10.4 to 2009 Form 10-K Annual   Report (File No. 1-16017)              |       | Orient-Express Hotels Ltd. 2007 Stock Appreciation   Rights Plan                                                                                                                                                                                                                                                            |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.5                   |       | Exhibit 10.1 to June 4, 2010   Form 8-K Current Report (File No. 1-16017) |       | Orient-Express Hotels Ltd. 2009 Share Award and   Incentive Plan                                                                                                                                                                                                                                                            |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.6                   |       | Exhibit 10.3 to 2004 Form 10-K Annual   Report (File No. 1-16017)              |       | Amended and Restated Agreement Regarding Hotel   Cipriani Interests dated February 8, 2005 between James B. Sherwood,   Hotel Cipriani S.r.l. and Orient-Express Hotels Ltd.                                                                                                                                           |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.7                   |       | Exhibit 10.4 to 2004 Form 10-K Annual   Report (File No. 1-16017)              |       | Amended and Restated Right of First Refusal and   Option Agreement Regarding Indirectly Held Hotel Cipriani Interests dated   February 8, 2005 between James B. Sherwood and Orient-Express Hotels   Ltd.                                                                                                              |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.8                   |       | Exhibit 10.4 to Form S-1 Registration   Statement No. 333-12030                |       | Agreement dated February 18, 1982 between   James B. Sherwood and Hotel Cipriani S.p.A. regarding apartment                                                                                                                                                                                                            |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.9                   |       | Exhibit 10.10 to 2003 Form 10-K Annual   Report (File No. 1-16017)             |       | Contract of Special Partnership or Joint Venture   dated August 1, 2002 between Alberghiera Fiesolana S.p.A. and Capannelle   S.r.l.                                                                                                                                                                                   |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.10                  |       | Exhibit 10 to July 25, 2007   Form 8-K Current Report (File 1-16017)           |       | Form of Severance Agreement dated   December 1, 2006, as amended July 25, 2007, between Orient-Express   Hotels Ltd. and Paul White                                                                                                                                                                          |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.11                  |       | Exhibit 10.11 to 2006 Form 10-K Annual   Report (File No. 1-16017)             |       | Form of Severance Agreement between   Orient-Express Hotels Ltd. and each of Filip Boyen (dated December 1,   2006), Roger Collins (dated December 1, 2006), Martin O’Grady (dated   November 15, 2007), Philip Calvert (dated December 5, 2008) and Roy   Paul (dated February 1, 2011) |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 10.12                  |       | Exhibit 10.12 to 2006 Form 10-K Annual   Report (File No. 1-16017)             |       | Form of Severance Agreement dated between   Orient-Express Hotels Ltd. and each of Edwin Hetherington (dated   December 1, 2006), David Williams (dated December 1, 2006) and   Phillip A. Gesue (dated February 9, 2009)                                                                               |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 11                     |       |                                                                                          |       | Statement of computation of per share earnings*                                                                                                                                                                                                                                                                             |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 12                     |       |                                                                                          |       | Statement of computation of ratios*                                                                                                                                                                                                                                                                                         |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                                                                        |
| 14                     |       | Exhibit 14 to 2003 Form 10-K Annual   Report (File No. 1-16017)                |       | Code of Business Practices for Principal   Executive, Financial and Accounting Officers                                                                                                                                                                                                                                     |

 

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* Previously Filed

 

33

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| **Exhibit********No.** | ** ** | **Incorporated by********Reference to**                                             | ** ** | **Description**                                                                                                                                                                                                                                                                   |
|------------------------|------------|-----------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                              |
| 21                     |       |                                                                                          |       | Subsidiaries of Orient-Express Hotels Ltd.*                                                                                                                                                                                                                                       |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                              |
| 23.1                   |       |                                                                                          |       | Consent of Deloitte LLP relating to Form S-3   Registration Statement No. 333-158308 and Form S-8 Registration   Statements No. 333-58298, No. 333-129152, No. 333-147448,   No. 333-161459 and 333-168588.*                                   |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                              |
| 23.2                   |       |                                                                                          |       | Consent of PricewaterhouseCoopers Auditores, S.L.   relating to Form S-3 Registration Statement No. 333-165092 and   Form S-8 Registration Statements No. 333-58298,   No. 333-129152, No. 333-147448, No. 333-161459 and 333-168588.          |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                              |
| 23.3                   |       |                                                                                          |       | Consent of BDO Pazos, Lopez de Romaña, Rodriguez   S.C. relating to Form S-3 Registration Statement No. 333-165092 and   Form S-8 Registration Statements No. 333-58298,   No. 333-129152, No. 333-147448, No. 333-161459 and 333-168588. |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                              |
| 31                     |       |                                                                                          |       | Rule 13a-14(a)/15d-14(a) Certification                                                                                                                                                                                                                                  |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                              |
| 32                     |       |                                                                                          |       | Section 1350 Certification                                                                                                                                                                                                                                                   |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                              |
| 99.1                   |       | Exhibit 99 to 2004 Form 10-K Annual   Report (File No. 1-16017)                |       | Corporate Governance Guidelines of Orient-Express   Hotels Ltd.                                                                                                                                                                                                                   |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                              |
| 99.2                   |       | Exhibit 99.1 to June 1, 2010   Form 8-K Current Report (File No. 1-16017) |       | Judgment of Bermuda Supreme Court dated   June 1, 2010 in D.E. Shaw Oculus Portfolios LLC et al. vs. Orient-Express   Hotels Ltd. et al.                                                                                                                                     |
|                   |       |                                                                                          |       |                                                                                                                                                                                                                                                                              |
| 100                    |       |                                                                                          |       | Interactive Data File*                                                                                                                                                                                                                                                            |

 

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* Previously Filed

 

34

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