Accounting & Tax

Loss at Sea

Bermuda-based shipping company Sea Containers Ltd. announces a restatement and a large impairment charge; seeks waiver of debt covenants.
Stephen TaubMarch 24, 2006

Sea Containers Ltd. says it will restate its results for the first three quarters of 2005 as a result of an accounting error and will take a $500 million impairment charge, mostly related to a decision to withdraw from its ferry business.

The impairment charge will reduce the Bermuda-based shipping company’s net worth by $475 million, bringing it below the level specified in some of its borrowing agreements. The company says it is seeking waivers of those covenants from its lenders.

“We are in dialogue with the company’s banks in order to amend or waive compliance with covenants,” said CEO Robert MacKenzie in a statement, adding that the 2005 annual report “will be filed as soon as practicable.”

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The restatement stems from the company’s accounting for a March sale of shares in its Orient-Express Hotels investment, which was accounted for using the equity method of accounting. Sea Containers erred in accounting for the release of accumulated foreign currency exchange reserves related to the equity-method investment. The correction resulted in a $10.3 million reduction in the $41.1 million gain reported on the sale for the first three quarters of last year. Although the change increases net losses in these periods, it has no impact on previously reported shareholders’ equity and is a noncash charge.