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 June 30, 1996
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 Section 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 ISSURERS:
Number of Shares of Common Stock Outstanding
as of August 5, 1996 -- $.80 par value,
Class A -- 2,070,015
<PAGE>
FORM 10-Q
Part I - Item 1. Financial Information
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1996 (Unaudited) and December 31, 1995
<TABLE>
<CAPTION>
(in thousands)
June 30 December 31
1996 1995
------------------------ -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,101 $ 3,370
Accounts and notes receivables:
Trade, less allowance of $94,000
($98,000 at December 31, 1995) for doubtful accounts 5,103 5,098
Interest receivable 139 145
Other 964 828
--------- --------
Total accounts and notes receivable 6,206 6,071
Current portion of deferred taxes 301 400
Inventories 751 656
Prepaid expenses 1,261 496
--------- ----------
Total current assets 9,620 10,993
Long-term receivables and advances 12,652 13,544
Investments in hotels 6,692 6,341
Property and equipment, at cost:
Land 2,221 2,202
Buildings 39,776 39,611
Furniture and equipment 16,867 15,096
Leasehold improvements 762 700
-------- -------
59,626 57,609
Less accumulated depreciation and
amortization 21,224 19,247
-------- -------
Net property and equipment 38,402 38,362
-------- -------
$ 67,366 $ 69,240
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1996 (Unaudited) and December 31, 1995
<TABLE>
<CAPTION>
(in thousands)
June 30 December 31
1996 1995
--------- ---------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 3,408 $ 562
Current portion of long-term debt and
capitalized lease obligations 17,973 1,211
Accounts payable 3,393 5,380
Federal, foreign and state income taxes 990 411
Accrued liabilities:
Salaries and wages 1,364 1,782
Rentals 2,783 5,270
Interest 223 173
Employee benefits 769 982
Other 1,358 1,056
---------- -------
Total accrued liabilities 6,497 9,263
---------- --------
Total current liabilities 32,261 16,827
Long-term debt 7,643 24,977
Capital lease obligations 78 105
Deferred federal and state income taxes 2,278 2,381
Other non-current liabilities 1,404 1,030
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 28,022 28,235
Treasury shares--980,473 (979,851 at December 31, 1995), at cost (8,102) (8,097)
--------- ----------
Total common stockholders' equity 23,408 23,626
-------- ----------
$ 67,366 $ 69,240
========= ==========
</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 Six Months Ended
June 30 June 30
-------- --------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rooms $ 9,724 $ 8,411 $18,054 $16,547
Food and beverage 3,975 3,543 7,222 6,675
Management, license and
service fees 1,709 1,335 3,137 2,565
Other 1,346 1,155 2,523 2,160
------------ --------- ----------- --------
16,754 14,444 30,936 27,947
------------ --------- ----------- --------
Costs and expenses:
Costs and operating expenses 6,830 5,823 13,006 11,260
Advertising and promotion 1,373 1,148 2,756 2,316
Administrative and general 2,819 2,270 5,509 4,539
Human resources 378 285 705 586
Maintenance 1,191 1,020 2,361 2,041
Rentals 1,491 1,286 3,200 3,484
Property taxes 82 306 352 610
Depreciation and amortization 1,028 831 2,028 1,659
------------ --------- ----------- --------
15,192 12,969 29,917 26,495
------------ --------- ----------- --------
Operating income 1,562 1,475 1,019 1,452
Other income (deductions):
Interest expense (570) (458) (1,068) (905)
Interest income 286 189 584 566
Foreign exchange gain (loss) ( 1) -- (2) 13
Equity in net income (loss) of hotels 265 (273) 249 (245)
Gain on sales of assets 26 5 209 550
Gain from casualty insurance -- 365 -- 365
------------ --------- ----------- --------
6 (172) (28) 344
------------ --------- ----------- --------
Income before income taxes 1,568 1,303 991 1,796
Federal, foreign and state income
tax provision 835 436 888 595
------------ --------- ----------- --------
Net income 733 867 103 1,201
Retained earnings at beginning
of period 27,602 26,426 28,235 26,095
Cash dividends on preferred stock (3) (3) (6) (6)
Cash dividends on common stock (310) (311) (310) (311)
------------ --------- ----------- --------
Retained earnings at end of period $28,022 $26,979 $28,022 $26,979
============ ========= =========== ========
Earnings per share of common stock $ .35 $ .42 $ .05 $ .58
============ ========= =========== ========
Weighted average number of shares
outstanding 2,070 2,075 2,070 2,075
============ ========= =========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
(in thousands)
Six Months Ended June 30
1996 1995
------ ------
<S> <C> <C>
Cash provided (used) by operating activities
Net income $ 103 $ 1,201
Items not (providing) requiring cash
Foreign exchange loss (gain) 2 (13)
Pension expense 302 290
Depreciation and amortization 2,027 1,659
Deferred federal income taxes benefit (4) (568)
Deferred interest income (275) --
Gain on sales of assets (209) (550)
Gain from casualty insurance -- (365)
Provision for doubtful accounts 19 13
Equity in net (income) loss of hotels (248) 245
Changes in assets and liabilities
Accounts and notes receivable (138) 1,155
Refundable income taxes -- 959
Inventories (95) 22
Prepaid expenses (765) (418)
Accounts payable (1,987) (1,866)
Federal, foreign and state income taxes 580 394
Accrued liabilities (2,519) 80
--------- -------
Cash provided (used) by operating activities (3,207) 2,238
Cash provided (used) by investing activities
Proceeds from sales of assets 57 27
Proceeds from casualty insurance -- 250
Expenditures for property and equipment (2,079) (1,521)
Investments in hotels (102) (578)
New loans and advances (197) --
Payments received on long-term receivables
and advances 1,336 757
--------- --------
Cash used by investing activities (985) (1,065)
Cash provided (used) by financing activities
Changes in notes payable 2,844 (500)
Payments on long-term debt (551) (401)
Payments on capitalized lease obligations (49) (48)
Purchase of common stock (5) (33)
Cash dividends paid (317) (318)
---------- ---------
Cash provided (used) by financing activities 1,922 (1,300)
Gain from effect of exchange rate changes on cash 1 7
------------- ---------
Net decrease in cash (2,269) (120)
---------- ---------
Cash and cash equivalents at beginning of period 3,370 3,669
----------- ----------
Cash and cash equivalents at end of period $1,101 $ 3,549
========== ==========
</TABLE>
4
<PAGE>
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
Supplemental Schedule of Interest and Income Taxes Paid
Cash paid for interest in the 1996 six-month period and the 1995
six-month period was approximately $1,018,000 and $903,000,
respectively. Cash paid for income taxes in the 1996 six-month period
was $312,000. Net cash refunded for income taxes in the 1995 six-month
period was $190,000.
See accompanying notes to consolidated financial statements.
5
<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 June 30, 1996 and December 31, 1995, and
the results of its operations for the three and six month periods ended June 30,
1996 and 1995 and its cash flows for the six month periods ended June 30, 1996
and 1995, and should be read in conjunction with the 1995 Annual Report.
The results of operations for these periods are not necessarily indicative of
the results for the full years.
In December 1994 Company subsidiaries entered into a partnership through which
it acquired a 50% interest in a building in New York City, with the intent to
develop a hotel. In October 1995, the Company notified its partner of its
intention not to proceed with the development. The partnership has sold its
interest in the building, and in July 1996 the Company received a payment of
$5,792,000, which consisted of its cash investment in the partnership of
$5,175,000, and distribution of income of $617,000. This income is included in
Equity in Net Income of Hotels in the consolidated statements of operations at
June 30, 1996.
On November 28, 1995, a wholly-owned subsidiary of the Company purchased the
Casablanca Resort in Anguilla, British West Indies. The Seller restored all
damage done to the 100-room hotel property by Hurricane Luis in September 1995,
and the hotel reopened as Sonesta Beach Resort Anguilla in January 1996. The
Company has filed a claim for business interruption insurance proceeds as a
result of the hurricane as of March 1, 1996. No income regarding that claim is
included in the results of operations at June 30, 1996. Also, as part of the
transaction, the Company is entitled to a credit on the purchase price for
certain expenses related to the hotel property and operations until March 1,
1996. Included in Accounts Receivable-Other is an amount of $400,000 at June 30,
1996, for this credit. During the first quarter of 1996, the Company received an
assignment of certain expected insurance proceeds from the Seller to satisfy
this receivable. In the event such insurance proceeds prove insufficient to
satisfy this receivable, the Company has the right to deduct any remaining
amounts from a loan from the Seller which is due in November 1998 (see Note 4,
Long-Term Debt).
In the first quarter of 1996, the Company adopted Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of. The Statement requires impairment losses to be recorded on long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amounts. Statement 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of Statement
121 had no effect on the Company's consolidated balance sheet at June 30,1996,
and the result of operations for the three and six month periods ended June 30,
1996.
6
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. Long-Term Receivables and Advances
(in thousands)
June 30, December 31,
1996 1995
----------------- -----------------
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 (a) $ 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
Loans to owner (b) 3,731 4,472
Sharm el Sheikh (c) 130 370
Other 567 408
---------- -------
Total long-term receivables $12,734 $13,556
Less: current portion 82 12
---------- -------
Net long-term receivables $12,652 $13,544
======= =======
(a) The Company's mortgage notes receivable are subordinate to a first
mortgage of $22,431,000 at June 30, 1996. The maturity date of the
first mortgage loan is October 1, 2000. The Company has not recorded as
income the deferred portion of interest on the second mortgage since
July 1, 1992.
(b) Under five separate agreements, a subsidiary of the Company loaned
$5,475,000 to the hotel's owner during 1993 and 1994. These loans earn
interest at rates ranging from the prime rate to 14 1/2%. Of these
loans, an amount of $2,684,000, and interest thereon is secured by
second and third mortgages on the hotel property. Principal and
interest are payable out of hotel cash flow remaining after payment of
first and second mortgage interest, and a payment to the hotel's owner
equal to 3/4 of 1% of revenues of the hotel.
7
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c) 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 are payable in 18 monthly installments out of hotel cash
flow following the opening of the hotel. During 1995 and 1996 the
company received payments of $670,000, reducing the principal balance
to $130,000 at June 30, 1996.
In connection with its Key Biscayne notes receivable, the Company recorded
interest income of $550,000 during the six month period ending June 30, 1996.
During the same period, cash payments received were $1,291,000.
3. Borrowing Arrangements
The Company has a $2,000,000 line of credit which expires on September 30, 1996.
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. The Company anticipates that this line
will be renewed. The balance outstanding under this line at June 30, 1996 was
$1,391,042.
A subsidiary of the Company has a $5,000,000 line of credit which will expire
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, and by a Company guaranty. The interest rate 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 June 30, 1996 was $1,500,000.
A foreign subsidiary has an operating line of credit of $500,000, which is
guaranteed by the Company. The interest rate is at the prime rate plus one
percentage point. This line of credit is subject to periodic review by the bank.
This line was fully utilized at June 30, 1996.
8
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Long-Term Debt
(in thousands)
-----------------------------------
June 30, December 31,
1996 1995
-----------------------------------
Charterhouse of Cambridge Trust:
First mortgage notes (a) $17,535 $17,936
Sonesta Hotels of Anguilla, Ltd:
First mortgage notes (b) 4,840 4,990
Note from Seller (c) 1,000 1,000
Sonesta Curacao Hotel Corporation, N.V.:
Bank term loan (d) 2,000 2,000
Other 214 188
--------- --------
25,589 26,114
Less current portion of long-term debt 17,946 1,137
-------- --------
Total long-term debt $ 7,643 $24,977
======== ========
(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 $18,400,000 at June 30,1996. 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 requires
monthly principal payments of $66,777, and the remaining balance is due
at maturity in April 1997. Interest on the loan is two percentage
points over the LIBOR rate. The interest rate at June 30, 1996 was
7-7/16%.
(b) The loan is secured by a first mortgage on the Sonesta Beach Resort
Anguilla property, and an assignment to the Lender of the hotel's
furniture, fixtures and equipment. The property is included in fixed
assets at a net book value of $8,900,000 at June 30, 1996. In addition,
an amount of $1,000,000 is secured by a Company guaranty. The loan
requires minimum principal payments of $300,000 in 1996, $425,000 in
1997 and $550,000 in each of the years 1998 and 1999. In addition,
principal payments are required equal to 25% of the hotel's annual
excess cash flow, as defined. The balance is due on March 1, 2000. The
interest rate on the loan is LIBOR plus 2 1/4 percentage points. The
interest rate at June 30, 1996 was 7-3/4%.
9
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(c) This loan from the Seller of the Sonesta Beach Resort Anguilla is for a
three year period ending November 28, 1998. The interest rate is 8% per
annum. No principal payments are due during the term of the loan. The
Company has the right to offset certain receivables from the Seller
from this loan (see Note 1 -- Operations).
(d) This loan was for a three year period ending April 30, 1997, but has
been extended for a further period of two years by the Lender. No
principal payments are required during the term. The interest rate was
9.75% at June 30, 1996, 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.
5. Hotel Costs and Operating Expenses
Hotel costs and operating expenses in the accompanying Consolidated Statements
of Operations are summarized below:
<TABLE>
<CAPTION>
(in thousands)
Three Months Ended Six Months Ended
June 30 June 30
-------- --------
1996 1995 1996 1995
---- ---- ----- ----
<S> <C> <C> <C> <C>
Direct departmental costs
Rooms $2,285 $2,042 $ 4,399 $ 3,976
Food and beverage 3,180 2,712 6,024 5,244
Other 798 633 1,460 1,220
-------- -------- ------- -------
6,263 5,387 11,883 10,440
Heat, light and power 567 436 1,123 820
-------- -------- -------- ----------
$6,830 $5,823 $13,006 $11,260
======= ======= ========= ==========
</TABLE>
Direct departmental costs include payroll expenses and related payroll burden,
the cost of food and beverage consumed and other departmental costs.
10
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Federal, Foreign and State Income Tax
The provision for income taxes in the accompanying Consolidated Statements of
Operations is summarized below:
(in thousands)
Six Months Ended June 30
1996 1995
------ ------
Deferred United States income tax benefit $ (4) $ (568)
Current United States income tax (benefit) 705 (150)
Current foreign income tax 87 1,207
Current state income tax 100 106
--------- ----------
$ 888 $ 595
========= =========
11
<PAGE>
FORM 10-Q
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
FIRST SIX MONTHS 1996 COMPARED TO 1995
REVENUES
Total revenues for the six month period ended June 30, 1996 were $30,936,000
compared to $27,947,000 in 1995, an increase of approximately $2,989,000.
The Company's Boston (Cambridge) hotel had increased revenues in the six month
period ended June 30, 1996 of approximately $879,000, primarily because of an
11% increase in average room rates. The Company's New Orleans hotel had a slight
increase in revenues of $204,000 in the first six months of 1996 compared to
1995. The Company's Sonesta Beach Resort Anguilla, which opened January 18th
1996, had revenues of $1,312,000 during the six month period ending June 30,
1996. The remaining revenue increase of $594,000 was primarily from increases in
management and service fee income, in particular from the Company's managed
hotels in New Orleans, Sharm El Sheikh, Egypt, and Bermuda.
OPERATING INCOME
Operating income for the six month period ended June 30, 1996 was $1,019,000
compared to operating income of $1,452,000 in 1995, a decrease of approximately
$433,000.
The Company's Anguilla Resort had an operating loss of $1,242,000 from the
opening on January 18, 1996 until June 30, 1996. The Boston (Cambridge) hotel
had an increase in operating income of $637,000, primarily because of increased
revenues of $879,000. The Boston (Cambridge) hotel's operating income also
benefitted from a refund for prior years real estate taxes, after expenses, of
approximately $180,000. The New Orleans hotel's operating income increased by
$76,000 during the six month period ending June 30, 1996. Operating loss from
management activities and other sources decreased by $96,000, because of
increased revenues of $594,000, which exceeded the increase in expenses of
$498,000 related to these activities.
OTHER INCOME (DEDUCTIONS)
Interest expense during the first six months of 1996 increased by $163,000,
primarily due to interest on the additional indebtedness related to the Sonesta
Beach Resort Anguilla, which the Company purchased in November 1995.
Interest income during the first six months of 1996 increased by $18,000
compared to 1995. Interest income on the Company's Key Biscayne receivables
increased by $275,000 in 1996. The 1995 period included interest received on a
federal income tax refund, and higher interest income on the Company's cash
balances, reducing the increase to $18,000.
Equity in net income of hotels includes income of $617,000 in the second quarter
of 1996 related to its investment in a hotel project in New York City (see Note
1 -- Operations).
12
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
The Company's equity in net loss of the Sonesta Beach Hotel & Casino Curacao
increased by $123,000 in the 1996 six month period compared to 1995.
The 1995 period includes a pre-tax gain of approximately $535,000 related to the
sale of the Amsterdam Sonesta Hotel in 1991.
The gain from casualty insurance in 1995 was a result of a flood claim in May
1995 at the Company's Royal Sonesta Hotel New Orleans.
SECOND QUARTER 1996 COMPARED TO 1995
REVENUES
Total revenues for the second quarter 1996 were $16,754,000 compared to
$14,444,000 in 1995, an increase of approximately $2,310,000.
The Company's Boston (Cambridge) hotel had increased revenues in the 1996
quarter of approximately $465,000, primarily because of a 10% increase in
average room rates. The Company's New Orleans hotel experienced an increase in
revenues of approximately $761,000 in the second quarter of 1996 compared to the
same period in 1995, which was primarily due to an 8% increase in occupancy
levels and a 6% increase in average room rates. The Company's Sonesta Beach
Resort Anguilla, which opened on January 18th 1996, had revenues in the second
quarter of $727,000. The remaining revenue increase of $357,000 was primarily
from increases in management and service fee income.
OPERATING INCOME
Operating income for the three month period ended June 30, 1996 was $1,562,000,
compared to operating income of $1,475,000 in the same period in 1995, an
increase of approximately $87,000.
The Boston (Cambridge) hotel had an increase in operating income of $401,000
compared to 1995. This was due to increased revenues of $465,000, reduced real
estate taxes due to a refund for prior year taxes of $180,000, partially offset
by increased expenses, primarily cost and operating, of $244,000. The New
Orleans hotel increased operating income during the second quarter by $251,000,
due to increased revenues of $761,000 and increased operating expenses of
$510,000. The Company's Sonesta Beach Resort Anguilla had an operating loss of
$700,000 during the second quarter of 1996. The operating loss from management
and other sources decreased by $135,000, primarily because of increased income
$357,000, partially offset by increased expenses of $222,000.
OTHER INCOME (DEDUCTIONS)
Interest expense increased by $112,000 during the second quarter of 1996
compared to 1995, primarily due to interest on the additional indebtedness
related to the Sonesta Beach Resort Anguilla, which the Company purchased in
November 1995.
13
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
Interest income increased by $97,000 during the three-month period ended June
30, 1996, compared to the same period the year before, primarily due to
increased interest income on the Company's Key Biscayne receivables in 1996.
Equity in net income of hotels increased by $538,000 in the second quarter of
1996 compared to 1995, because of income of $617,000 from the Company's New York
hotel project (see Note 1, Operations), and an increase in the Company's share
of the losses of Sonesta Beach Hotel & Casino, Curacao of $79,000.
The gain from casualty insurance of $365,000 in the 1995 second quarter was a
result of a flood claim at the Company's Royal Sonesta Hotel New Orleans.
LIQUIDITY AND CAPITAL RESOURCES
At June 30, 1996 the Company has a negative working capital balance of
approximately $22,641,000. Current liabilities include the mortgage note of
$17,535,000 on the Company's Boston (Cambridge) hotel, which matures in April
1997. The Company expects to find replacement financing for this loan. Current
liabilities also include the accrual of 1996 percentage rent due under the lease
for the Royal Sonesta Hotel in New Orleans of $2,783,000. This rent is payable
in March 1997, and will be paid from available cash and/or borrowings under the
Company's lines of credit.
In July 1996, the Company received $5,792,000 as a result of the sale of its
interest in a hotel project in New York City (see also Note 1 -- Operations).
The Company believes that is present cash balances, the above-mentioned sales
proceeds, and the expected cash flow generated during the remainder of the
calendar year 1996, will be adequate to meet all of its obligations.
FEDERAL, FOREIGN AND STATE INCOME TAXES
The provision for income taxes in 1996 is higher than the statutory rate due to
losses from the Company's foreign subsidiary which operates the Sonesta Beach
Resort Anguilla, B.W.I., which are not deductible for U. S. income taxes.
PART II - Other Information
Item Numbers 1, 2, 3, 4, 5 and 6
Not applicable during the quarter ended June 30, 1996.
14
<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: /S/
--------------------------------------
Boy van Riel
Vice President and Treasurer
(Authorized to sign on behalf of the Registrant as Principal
Financial Officer)
DATE: August 9, 1996
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