<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 0-9032
SONESTA INTERNATIONAL HOTELS CORPORATION
(Exact name of registrant as specified in its charter)
NEW YORK 13-5648107
- - - - --------------------------------- ---------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Clarendon Street, Boston, MA 02116
-----------------------------------------
(Address of principal executive offices)
(Zip Code)
617-421-5400
----------------------------------------------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of Shares of Common Stock Outstanding
as of May 10, 1995 -- $.80 par value,
Class A -- 2,075,281
<PAGE>
FORM 10-Q
Part I - Item 1. Financial Information
<TABLE>
<CAPTION>
(in thousands)
----------------------
March 31 December 31
1995 1994
-------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,570 $ 3,669
Accounts and notes receivable:
Trade, less allowance of $85,000
($84,000 at 12/31/94) for doubtful accounts 5,146 4,997
Interest receivable 143 3
Current portion of long-term receivables 22 26
Other 215 893
------- -------
Total accounts and notes receivable 5,526 5,919
Refundable income taxes -- 959
Inventories 583 653
Prepaid expenses 758 358
------- -------
Total current assets 10,437 11,558
Long-term receivables and advances 14,185 14,477
Investments in hotels 5,782 5,648
Property and equipment, at cost:
Land 2,202 2,202
Buildings 30,866 30,866
Furniture and equipment 13,763 13,409
Leasehold improvements 483 483
------- -------
47,314 46,960
Less accumulated depreciation and
amortization 19,357 18,529
------- -------
Net property and equipment 27,957 28,431
------- -------
$58,361 $60,114
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1995 (Unaudited) and December 31, 1994
<TABLE>
<CAPTION>
(in thousands)
-------------------------
March 31 December 31
1995 1994
-------- -----------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to banks $ 2,000 $ 500
Current portion of long-term debt and
capitalized lease obligations 940 937
Accounts payable 3,351 5,440
Federal, foreign and state income taxes 700 290
Current portion-deferred taxes 307 623
Accrued liabilities:
Salaries and wages 796 1,662
Rentals 2,255 3,218
Interest 149 143
Taxes, other than income taxes 246 38
Employee benefits 827 1,134
Other 1,136 891
------- ------
Total accrued liabilities 5,409 7,086
------- ------
Total current liabilities 12,707 14,876
Long-term debt 19,888 20,089
Capitalized lease obligations 152 179
Deferred federal and state income taxes 2,830 3,021
Other non-current liabilities 639 135
Redeemable preferred stock, $25 par value, at
redemption value 294 294
Commitments and contingencies
Common stockholders' equity:
Common stock:
Class A, $.80 par value:
Authorized--10,000,000 shares
Issued--3,051,088 shares at stated value 3,488 3,488
Retained earnings 26,426 26,095
Treasury shares--975,807 at cost (8,063) (8,063)
------- ------
Total common stockholders' equity 21,851 21,520
------- ------
$58,361 $60,114
------- ------
------- ------
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands except for per share data)
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31
------------------
1995 1994
---- ----
<S> <C> <C>
Revenues:
Rooms $ 8,136 $ 7,297
Food and beverage 3,132 2,991
Management, license and
service fees 1,230 1,138
Other 1,005 1,012
------- -------
13,503 12,438
------- -------
Costs and expenses:
Costs and operating expenses 5,437 5,325
Advertising and promotion 1,172 1,108
Administrative and general 2,265 2,110
Human resources 301 248
Maintenance 1,021 1,030
Rentals 2,198 1,013
Property taxes 304 297
Depreciation and amortization 828 1,065
------- -------
13,526 12,196
------- -------
Operating income (loss) (23) 242
Other income (deductions):
Interest expense (447) (276)
Interest income 377 61
Foreign exchange gain (loss) 13 (4)
Equity in net income of hotel
and casino 28 --
Gain (loss) on sales of assets 545 (108)
------- -------
516 (327)
Income (loss) before income taxes 493 (85)
Federal, foreign and state income
tax provision (benefit) 159 (42)
------- -------
Net income (loss) 334 (43)
Retained earnings at beginning of period 26,095 26,267
Cash dividends on preferred stock (3) (3)
------- -------
Retained earnings at end of period $26,426 $26,221
------- -------
------- -------
Earnings per share of common stock:
Net income (loss) .16 (.02)
------- -------
------- -------
Weighted average number of shares
outstanding 2,075 2,075
------- -------
------- -------
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
(in thousands)
---------------------------
Three Months Ended March 31
---------------------------
1995 1994
---- ----
<S> <C> <C>
Cash provided (used) by operating activities
Net income (loss) $ 334 $ (43)
Items not (providing) requiring cash
Foreign exchange loss (gain) (13) 4
Pension expense 143 51
Depreciation and amortization 828 1,065
Deferred federal income taxes (507) (988)
Net (gain) loss on sales of assets (545) 108
Provision for doubtful accounts 6 8
Equity in income of hotel and casino (28) --
Changes in assets and liabilities
Accounts and notes receivable 362 (893)
Refundable income taxes 959 --
Inventories 70 119
Prepaid expenses (400) (455)
Accounts payable (1,242) (1,127)
Federal, foreign and state income taxes 410 20
Accrued liabilities (1,319) (1,682)
------- -------
Cash used by operating activities (942) (3,813)
Cash provided (used) by investing activities
Proceeds from sales of assets 10 325
Expenditures for property and equipment (352) (674)
Investments in hotels (106) --
New loans and advances -- (129)
Payments received on long-term receivables
and advances 325 854
------- -------
Cash provided (used) by investing
activities (123) 376
Cash provided (used) by financing activities
Borrowing under lines of credit 1,500 1,500
Payments on long-term debt (201) (74)
Payments on capitalized lease obligations (24) (243)
Cash dividends paid (315) (315)
------- -------
Cash provided by financing activities 960 868
Gain from effect of exchange rate
changes on cash 6 1
------- -------
Net decrease in cash (99) (2,568)
Cash and cash equivalents at beginning of period 3,669 6,919
------- -------
Cash and cash equivalents at end of period $ 3,570 $ 4,351
------- -------
------- -------
</TABLE>
SUPPLEMENTAL SCHEDULE OF INTEREST AND INCOME TAXES PAID
Cash paid for interest in the 1995 three-month period and the 1994
three-month period was approximately $441,000 and $275,000,
respectively. Net cash refunded for income taxes in the 1995 three-
month period was $703,000. Cash paid for income taxes in the 1994
three-month period was $926,000.
See accompanying notes to consolidated financial statements.
4
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
The accompanying unaudited consolidated financial statements include
the accounts of the Company and all foreign and domestic subsidiaries. In
the opinion of management, these financial statements reflect all
adjustments consisting of normally recurring items necessary to present
fairly the financial position of the Company at March 31, 1995 and December
31, 1994, and the results of its operations for the three month periods
ended March 31, 1995 and 1994 and its cash flows for the three month
periods ended March 31, 1995 and 1994, and should be read in conjunction
with the 1994 Annual Report.
The results of operations for these periods are not necessarily
indicative of the results for the full years.
In the first quarter of 1995, the Company recognized a pre-tax gain on
sale of assets of $535,000. This was a result of a settlement, for amounts
less than previously recorded, of liabilities related to the sale in 1991
of the Company's Amsterdam Sonesta Hotel. In 1994, the Company settled a
dispute related to foreign taxes on the same transaction, which resulted in
refundable federal income taxes of $959,000. The Company received payment
for this in March 1995, together with interest.
In May 1994, the Company acquired a 22% equity interest in the Sonesta
Beach Hotel & Casino, Curacao. Included in the first quarter 1995
statement of operations is equity in net income of $28,000, which
represents the Company's share of the net income of the hotel during the
first quarter. The profit achieved in the first quarter is not indicative
of the full year results, due to the seasonal nature of the hotel's
business.
In April 1995, the Company opened the Chateau Sonesta Hotel in New
Orleans, Louisiana. This 243-room full-service hotel is located in the
French Quarter. The Company operates this hotel under a long-term
management agreement, and will receive management and marketing fees based
on revenues, and incentive fees based on cash flow. The Company guarantees
debt service payments of approximately $1,500,000 per year on the hotel's
first mortgage of $12,600,000 for a period of 5 years following the opening
of the hotel. Advances made under this guaranty, if required, would be
secured by a mortgage.
In October 1994, the Company exercised the first of three ten-year
options to extend the lease under which it operates the Royal Sonesta
Hotel in New Orleans. As of the renewal date, no fixed rent is payable,
but percentage rent, based on net income, increased.
5
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Long-Term Receivables and Advances
<TABLE>
<CAPTION>
(in thousands)
--------------------------
March 31 December 31
1995 1994
-------- -----------
<S> <C> <C>
The Sonesta Beach Resort,
Key Biscayne, Florida:
Second mortgage receivable,
14-1/2% interest (of which
11% is payable quarterly and
3-1/2% deferred until maturity)
due 12/31/97 $ 5,000 $ 5,000
Deferred interest receivable 2,306 2,306
$6,500,000 fourth mortgage
receivable, 10% simple interest
due 12/31/04, net of $5,500,000
reserve (a) 1,000 1,000
Loan to owner (b) 2,134 2,272
Loan to owner (c) 2,666 2,791
Sharm el Sheikh (d) 775 800
Other 326 334
------- -------
Total long-term receivables $14,207 $14,503
Less: current portion 22 26
------- -------
Net long-term receivables $14,185 $14,477
------- -------
------- -------
<FN>
(a) The Company's mortgage notes receivable are subordinate to a first
mortgage of $23,338,000 at March 31, 1995. The maturity date of the
first mortgage loan is October 1, 2000. Based on the Company's
analysis of the present situation in the hotel industry and generally
depressed hotel real estate values, it has stopped, effective July 1,
1992, recording as income the deferred portion of interest on the
second mortgage.
(b) In 1993, a subsidiary of the Company loaned $2,684,000 to the
hotel's owner. Of this loan, $550,000 accrues interest at a rate of
14 1/2%, while the balance accrues interest at the prime rate.
Principal and interest are payable out of hotel cash flow remaining
after payment of first and second mortgage interest and a payment to
owner equal to 3/4 of 1% of revenues of the hotel. Of this loan, an
amount of $550,000 and interest thereon is secured by the Company's
second mortgage, while the remaining amount is secured by a third
mortgage on the hotel property. Payments received of $550,000 for
1994 interest on the Company's second mortgage (see 2(a) above) have
been used to reduce the principal balance to $2,134,000 at March 31,
1995.
6
<PAGE> FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) In 1993, a subsidiary of the Company made loans totalling $2,791,000
to the owner of the hotel. These loans earn interest at rates ranging
from 10% to prime plus two percentage points. Principal and interest
is payable out of hotel cash flow available after payment of first and
second mortgage interest. Payments of $125,000 during 1995 have
reduced the principal balance to $2,666,000 at March 31, 1995.
(d) A subsidiary of the Company has loaned $800,000 to the owner of the
Sonesta Beach Resort, Sharm el Sheikh which opened in May, 1994. This
receivable earns interest at an annual rate of ten percent. Principal
and interest is payable in 18 monthly installments out of hotel cash
flow following the opening of the hotel. Payments of $25,000 during
1995 have reduced the principal balance to $775,000 at March 31, 1995.
</TABLE>
3. Borrowing Arrangements
The Company has a $2,000,000 line of credit which expires on September
30, 1995. This line of credit bears interest at the prime rate. The terms
of the line require a certain minimum net worth, a minimum amount of
unrestricted cash or available credit lines during part of each calendar
year, and approval for additional borrowings by the Company. No amount was
outstanding under this line at March 31, 1995.
A subsidiary of the Company has a $5,000,000 line of credit which will
expire on December 31, 1997. The terms of the loan require certain minimum
levels of earnings and net worth, limit cash dividends and purchases of the
Company's stock, and specify a maximum defined debt to net worth ratio.
The loan is secured by the Company's leasehold interest in the Royal
Sonesta Hotel, New Orleans. The interest rate as of January 1, 1995 is
prime less one-eighth percent, and the commitment fee on the unused portion
of the line is .65% per annum. The balance outstanding under this line at
March 31, 1995 was $2,000,000.
4. Long-Term Debt
<TABLE>
<CAPTION>
(in thousands)
--------------------------
March 31 December 31
1995 1994
-------- -----------
<S> <C> <C>
Charterhouse of Cambridge Trust:
First mortgage notes (a) $18,537 $18,738
Sonesta Curacao Hotel Corporation, N.V.:
Bank term loan (b) 2,000 2,000
Other 188 188
------- -------
20,725 20,926
Less current portion of long-term debt 837 837
------- -------
Total long-term debt $19,888 $20,089
------- -------
------- -------
7
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<FN>
(a) The loan is secured by a first mortgage and first lien security
interest on the Royal Sonesta Hotel Boston (Cambridge) property. This
property is included in fixed assets at a net book value of
approximately $19,500,000 at March 31, 1995. In addition, the stock
of Sonesta of Massachusetts, Inc. and the shares of Charterhouse of
Cambridge Trust have been pledged as security for the mortgage loan
along with an unconditional assignment of the lease. The loan was
extended for an additional five years as of April, 1992. The loan
requires monthly principal payments of $66,777. Interest on the loan
was 5% until April 1994, and is two percentage points over the LIBOR
rate for the remaining three years of the extension term. The
interest rate at March 31, 1995 was 8.125%.
(b) This loan is for a three year period ending April 30, 1997. No
principal payments are required during the term. The interest rate
was 9.75% at March 31, 1995, and is subject to periodic review by the
bank. This loan may be prepaid on 60 days notice. The loan is
secured by a Company guaranty, and by an assignment of the right to
receive fees under the management agreement for the Sonesta Beach
Hotel & Casino, Curacao.
</TABLE>
5. Hotel Costs and Operating Expenses
Hotel costs and operating expenses in the accompanying Consolidated
Statement of Operations are summarized below:
<TABLE>
<CAPTION>
(in thousands)
---------------------------
Three Months Ended March 31
---------------------------
1995 1994
---- ----
<S> <C> <C>
Direct Departmental Costs
Rooms $1,934 $1,824
Food and Beverage 2,532 2,391
Other 587 641
------ ------
5,053 4,856
Heat, light and power 384 469
------ ------
$5,437 $5,325
------ ------
------ ------
</TABLE>
Direct departmental costs include payroll expense and related payroll
burden, the cost of food and beverage consumed and other departmental
costs.
8
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Federal, Foreign and State Income Tax
The provision (benefit) for income taxes in the accompanying Consolidated
Statement of Operations is summarized below:
<TABLE>
<CAPTION>
(in thousands)
---------------------------
Three Months Ended March 31
---------------------------
1995 1994
---- ----
<S> <C> <C>
Deferred United States income
tax credit $ (507) $ (988)
Current United States income tax (benefit) (570) 970
Current foreign income tax (benefit) 1,201 (5)
Current state income tax (benefit) 35 (19)
------ ------
$ 159 $ (42)
------ ------
------ ------
</TABLE>
9
<PAGE>
FORM 10-Q
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
FIRST QUARTER 1995 COMPARED TO 1994
REVENUES
Total revenues for the first quarter ended March 31, 1995 were
$13,503,000 compared to $12,438,000 in 1994, an increase of
approximately $1,065,000.
The Company's Boston (Cambridge) hotel had increased revenues in
1995 of approximately $340,000 due principally to a 4.4% increase
in average room rate, a 2.4% increase in occupancy levels, and
increased food and beverage revenues. The Company's New Orleans
hotel had an increase in revenues of approximately $650,000 due
principally to a 3% increase in average room rate and an 8.5%
increase in occupancy levels. The remaining revenue increase of
$75,000 results principally from increases in management and
service fee income.
OPERATING INCOME
Operating loss for the three-month period ended March 31, 1995
was $23,000 compared to operating income of $242,000 in 1994, a
decrease of approximately $265,000. The Company's Boston
(Cambridge) hotel operations showed a $200,000 decrease in
operating loss compared to the 1994 period, due to increased
revenues of $340,000, partially offset by increased operating
expenses of $140,000. The New Orleans hotel showed a $560,000
decrease in operating income, due to an increase of $1,230,000 in
percentage rent expense in the 1995 period, partially offset by
increased revenues (see Note 1--Operations). Operating income
from other sources increased by $95,000.
OTHER INCOME (DEDUCTIONS)
The 1995 period includes a pre-tax gain of approximately $535,000
related to the sale of its Amsterdam Sonesta Hotel in 1991 (see
Note 1--Operations).
Interest expense increased by $171,000 compared to 1994 due to an
increase in the interest rate of the Company's mortgage on the
Boston (Cambridge) hotel, and the additional borrowing of a
$2,000,000 bank term loan in May 1994 (see Note 4--Long-Term
Debt).
Interest income increased by $316,000 in the 1995 period. The
1995 period includes $138,000 from the Company's second mortgage
receivable in Key Biscayne. The Company decided to resume
10
<PAGE>
FORM 10-Q
recording this interest as income effective January 1, 1995, as a
result of improved cash flow from the hotel, compared to 1994.
The remaining increase in interest income of $178,000 is
principally due to interest the Company received on its $959,000
federal income tax refund (see Note 1--Operations).
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1995 the Company has a negative working capital
balance of approximately $2,270,000, due principally to the
accrual of percentage rent due under the lease for the Royal
Sonesta Hotel in New Orleans, which is not payable until March of
1996.
The Company believes that its present cash balances plus its
available borrowing capacity and the expected cash flow generated
during the remainder of the calendar year 1995 will be more than
adequate to meet all of its obligations.
PART II - Other Information
Item Numbers 1, 2, 3, 4, 5 and 6
- - - - --------------------------------
Not applicable during the quarter ended March 31, 1995.
11
<PAGE>
FORM 10-Q
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Registrant has duly
caused this Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SONESTA INTERNATIONAL HOTELS CORPORATION
By: ___________________________________
Boy van Riel
Vice President and Treasurer
(Authorized to sign on behalf of the
Registrant as Principal Financial Officer)
DATE: May 12, 1995
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 3,570
<SECURITIES> 0
<RECEIVABLES> 5,232
<ALLOWANCES> 85
<INVENTORY> 583
<CURRENT-ASSETS> 10,437
<PP&E> 47,314
<DEPRECIATION> 19,357
<TOTAL-ASSETS> 58,361
<CURRENT-LIABILITIES> 12,707
<BONDS> 19,888
<COMMON> 3,488
0
294
<OTHER-SE> 18,363
<TOTAL-LIABILITY-AND-EQUITY> 58,361
<SALES> 3,132
<TOTAL-REVENUES> 13,503
<CGS> 752
<TOTAL-COSTS> 5,437
<OTHER-EXPENSES> 8,089
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 447
<INCOME-PRETAX> 493
<INCOME-TAX> 159
<INCOME-CONTINUING> 334
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 334
<EPS-PRIMARY> .16
<EPS-DILUTED> .16
</TABLE>
