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, 1997
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 (I.R.S. Employer
jurisdiction of Identification No.)
incorporation
or organization)
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 [ ] No [X] (see Form 12b-25 filed June 30, 1997)
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 ISSUERS:
Number of Shares of Common Stock Outstanding
as of August 12, 1997 -- $.80 par value,
Class A -- 2,068,215
<PAGE>
FORM 10-Q
Part I - Item 1. Financial Information
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1997 (Unaudited) and December 31, 1996
<TABLE>
<CAPTION>
(in thousands)
----------------------------
June 30 December 31
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,366 $ 3,692
Accounts and notes receivables:
Trade, less allowance of $127,000
($108,000 at December 31, 1996) for doubtful accounts 5,505 6,049
Interest receivable 228 140
Other 650 821
-------- --------
Total accounts and notes receivable 6,383 7,010
Current portion of deferred taxes 272 317
Inventories 751 852
Prepaid expenses 1,270 1,040
-------- --------
Total current assets 12,042 12,911
Long-term receivables and advances 15,368 13,567
Investments in hotels -- 563
Other long-term assets 1,590 --
Property and equipment, at cost:
Land 2,931 2,877
Buildings 39,592 37,792
Furniture and equipment 20,596 17,319
Leasehold improvements 3,178 3,140
Projects in progress -- 2,036
-------- --------
66,297 63,164
Less accumulated depreciation and amortization 23,503 21,234
-------- --------
Net property and equipment 42,794 41,930
-------- --------
$ 71,794 $ 68,971
======== ========
See accompanying notes to consolidated financial statements.
1
<PAGE>
</TABLE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1997 (Unaudited) and December 31, 1996
(in thousands)
--------------------------
June 30 December 31
1997 1996
---------- -------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capitalized lease obligations $ 1,127 $ 1,005
Accounts payable 2,735 5,484
Advance deposits 1,227 2,324
Federal, foreign and state income taxes 706 706
Accrued liabilities:
Salaries and wages 1,256 1,775
Rentals 3,744 5,031
Interest 214 23
Employee benefits 435 567
Other 1,830 1,007
-------- --------
Total accrued liabilities 7,479 8,403
-------- --------
Total current liabilities 13,274 17,922
Long-term debt 30,749 23,795
Deferred federal and state income taxes 2,230 2,282
Other non-current liabilities 1,801 1,526
Redeemable preferred stock, $25 par value, at
redemption value 294 294
Commitments and contingencies
Common stockholders' equity:
Class A, $.80 par value:
Authorized--10,000,000 shares
Issued--3,051,088 shares at stated value 3,488 3,488
Retained earnings 28,084 27,790
Treasury shares--982,873, at cost (8,126) (8,126)
-------- --------
Total common stockholders' equity 23,446 23,152
-------- --------
$ 71,794 $ 68,971
======== ========
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
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rooms $ 10,746 $ 9,724 $ 20,722 $ 18,054
Food and beverage 4,687 3,975 8,650 7,222
Management, license and
service fees 1,842 1,709 3,613 3,137
Other 1,354 1,346 2,591 2,523
-------- -------- -------- --------
18,629 16,754 35,576 30,936
-------- -------- -------- --------
Costs and expenses:
Costs and operating expenses 7,279 6,830 14,133 13,006
Advertising and promotion 1,374 1,373 2,830 2,756
Administrative and general 2,985 2,819 6,145 5,509
Human resources 413 378 808 705
Maintenance 1,242 1,191 2,506 2,361
Rentals 1,872 1,491 4,213 3,200
Property taxes 297 82 592 352
Depreciation and amortization 1,141 1,028 2,282 2,028
-------- -------- -------- --------
16,603 15,192 33,509 29,917
-------- -------- -------- --------
Operating income 2,026 1,562 2,067 1,019
Other income (deductions):
Interest expense (717) (570) (1,443) (1,068)
Interest income 261 286 489 584
Foreign exchange loss (2) (1) (2) (2)
Equity in net income of hotels -- 265 -- 249
Gain on sales of assets -- 26 6 209
-------- -------- -------- --------
(458) 6 (950) (28)
Income before income taxes 1,568 1,568 1,117 991
Federal, foreign and state income
tax provision 599 835 507 888
-------- -------- -------- --------
Net income 969 733 610 103
Retained earnings at beginning
of period 27,428 27,602 27,790 28,235
Cash dividends on preferred stock (3) (3) (6) (6)
Cash dividends on common stock (310) (310) (310) (310)
-------- -------- -------- --------
Retained earnings at end of period $ 28,084 $ 28,022 $ 28,084 $ 28,022
======== ======== ======== ========
Earnings per share of common stock $ .47 $ .35 $ .29 $ .05
======== ======== ======== ========
Weighted average number of shares
outstanding 2,068 2,070 2,068 2,070
======== ======== ======== ========
</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
(in thousands)
------------------------
Six Months Ended June 30
1997 1996
------- ------
Cash provided (used) by operating activities
Net income $ 610 103
Items not (providing) requiring cash
Foreign exchange loss 2 2
Pension expense 352 302
Depreciation and amortization 2,282 2,027
Amortization of loan costs 40 --
Deferred federal income tax benefit (7) (4)
Deferred interest income -- (275)
Gain on sales of assets (6) (209)
Provision for doubtful accounts 19 19
Equity in net income of hotels -- (248)
Changes in assets and liabilities
Accounts and notes receivable 928 (138)
Inventories 101 (95)
Prepaid expenses (230) (765)
Accounts payable (2,749) (1,643)
Advance deposits (1,097) (344)
Federal, foreign and state income taxes -- 580
Accrued liabilities (970) (2,519)
------- ------
Cash used by operating activities (725) (3,207)
Cash provided (used) by investing activities
Proceeds from sales of assets 9 57
Expenditures for property and equipment (3,149) (2,079)
Cash in escrow (1,887) --
Cash reimbursed from escrow 840 --
Investments in hotels -- (102)
New loans and advances (2,149) (197)
Payments received on long-term receivables
and advances 431 1,336
------- ------
Cash used by investing activities (5,905) (985)
4
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Increase (Decrease) in Cash (Continued)
(in thousands)
------------------------
Six Months Ended June 30
1997 1996
------- -------
Cash provided (used) by financing activities
Changes in notes payable -- 2,844
Proceeds from issuance of long-term debt 24,580 --
Costs of financing (423) --
Payments on long-term debt (17,508) (551)
Payments on capitalized lease obligations (27) (49)
Purchase of common stock -- (5)
Cash dividends paid (316) (317)
-------- --------
Cash provided by financing activities 6,306 1,922
Gain (loss) from effect of exchange rate changes on cash (2) 1
-------- --------
Net decrease in cash (326) (2,269)
Cash and cash equivalents at beginning of period 3,692 3,370
-------- --------
Cash and cash equivalents at end of period $ 3,366 $ 1,101
======== ========
Supplemental Schedule of Interest and Income Taxes Paid
-------------------------------------------------------
Cash paid for interest in the 1997 six-month period and the 1996 six-month
period was approximately $1,252,000 and $1,018,000, respectively. Cash paid for
income taxes in the 1997 six-month period and the 1996 six-month period was
approximately $514,000 and $312,000, respectively.
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, 1997 and December 31, 1996, and
the results of its operations for the six month periods ended June 30, 1997 and
1996 and its cash flows for the six month periods ended June 30, 1997 and 1996,
and should be read in conjunction with the 1996 Annual Report.
The results of operations for these periods are not necessarily indicative of
the results for the full years.
In January 1997, Company subsidiaries refinanced the mortgage loan on the Royal
Sonesta Hotel Boston (Cambridge), (see also Note 4--Long-term debt).
During the first quarter of 1997 the Company loaned $1,000,000 to the owner of
the Sonesta Hotel Cairo, Egypt, to partially finance improvements to the hotel,
which include additional rooms. The owner of the hotel also agreed to extend the
management agreement until May 2012. The original agreement was to expire in
2002, and the owner had the right to convert the agreement to a license
agreement as of 1997, which would have reduced the Company's management fee
income.
In December 1994, Company subsidiaries entered into agreements to acquire a 50%
interest in a partnership to develop a 320-room beach resort and casino in
Guanacaste, Costa Rica. The Company has advanced $563,000, to acquire the hotel
site and for other project-related expenses, which is in part secured by a
mortgage on the hotel site. As permitted under the partnership agreements, in
March 1997 the Company notified its partner that it does not intend to proceed
with the project. The Company expects to fully recover its investment, which is
included in Long-term receivables and advances at June 30, 1997.
In February 1997, the Financial Accounting Standards Board issued Statement No.
128, Earnings per Share, which is required to be adopted on December 31, 1997.
At that time, the Company will be required to change the method currently used
to compute earnings per share and to restate all prior periods if there is a
change to the previously reported amount. Statement 128 is not expected to have
any effect on the calculation of earnings per share.
6
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Long-Term Receivables and Advances
(in thousands)
------------------------
June 30, December 31,
1997 1996
----------- --------
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 (a) 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) 3,654 4,007
Sharm El Sheikh (c) -- 10
Sharm El Sheikh (d) 1,000 500
Cairo, Egypt, net of discount (e) 851 --
Other 1,949 781
----------- --------
Total long-term receivables 15,760 13,604
Less: current portion 392 37
----------- --------
Net long-term receivables $15,368 $13,567
=========== ========
(a) The Company's mortgage notes receivable are subordinate to a first mortgage
of $22,431,000 at June 30, 1997. 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. A
substantial part of these receivables are due on December 31, 1997. The
Company and the owner of the hotel are currently discussing alternatives to
address the repayment of these loans, the outcome of which is uncertain at
this point. Management expects that all amounts due from the hotel will be
realized.
7
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 (8 1/2% at June 30, 1997) 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 loan interest, and a payment to the hotel's owner
equal to 3/4 of 1% of revenues of the hotel.
(c) A subsidiary of the Company loaned $800,000 to the owner of the Sonesta
Beach Resort, Sharm el Sheikh which opened in May 1994. The principal
balance of this loan has been repaid in full.
(d) The Company has agreed to loan $1,500,000 to the owner of the Sonesta Beach
Resort, Sharm El Sheikh, to finance certain improvements to the resort,
including construction of 160 additional guestrooms, conference and other
hotel facilities. The loan bears interest at the prime rate (8 1/2% at June
30, 1997) with repayment in eight annual installments of $187,500, together
with interest, commencing January 1, 1998. At June 30, 1997, the Company
has advanced $1,000,000, and the remaining $500,000 will be advanced once
the improvements are substantially completed.
(e) This loan, made in February 1997 to the owner of the Sonesta Hotel Cairo,
will be repaid with two payments of $330,000 each on March 1, 1998 and
1999, and a final payment of $340,000 on March 1, 2000. There is no
interest due during the term of the loan.
3. Borrowing Arrangements
The Company has a $2,000,000 line of credit which expires on September 30, 1997.
This line of credit bears interest at the prime rate (8 1/2% at June 30, 1997).
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 June 30, 1997.
8
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 (8 1/2% at June
30, 1997) less one-eighth percent, and the commitment fee on the unused portion
of the line is .65% per annum. No amount was outstanding under this line at June
30, 1997.
Both aforementioned lines of credit are expected to be renewed.
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 (8 1/2% at
June 30, 1997) plus one percentage point. This line of credit is subject to
periodic review by the bank. No amount was outstanding under this line at June
30, 1997.
4. Long-Term Debt
(in thousands)
--------------------------
June 30, December 31,
1997 1996
----------- ---------
Charterhouse of Cambridge Trust:
First mortgage notes (a) $22,639 $17,068
Sonesta Hotels of Anguilla, Ltd:
First mortgage notes (b) 6,190 4,690
Note from Seller (c) 800 800
Sonesta Curacao Hotel Corporation, N.V.:
Bank term loan (d) 2,000 2,000
Other 188 188
----------- ---------
31,817 24,746
Less current portion of long-term debt 1,068 951
----------- ---------
Total long-term debt $30,749 $23,795
=========== =========
(a) The mortgage loan on the Royal Sonesta Hotel Boston (Cambridge) was
refinanced in January 1997. The new loan is secured by a first mortgage on
the Royal Sonesta Hotel Boston (Cambridge) property. This property is
included in fixed assets at a net book value of approximately $22,399,000
at June 30, 1997. The interest rate on the new loan is 8.86% for the term
of the loan, and monthly payments for interest and principal are $203,802.
The mortgage loan matures in December 2003, and no prepayments are allowed
during the first three years of the loan.
(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
9
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
loan was increased by $1,700,000 in March 1997 to partially finance
improvements to the resort made during the winter of 1996/97. The
property is included in fixed assets at a book value of $13,176,000 at
June 30, 1997. In addition, an amount of $1,900,000 is secured by a
Company guaranty. The loan requires minimum principal payments of
$450,000, $650,000, $725,000, $3,490,000 and $1,075,000 in the years
1997, 1998, 1999, 2000 and 2001, respectively. In addition, principal
payments are required equal to 25% of the hotel's annual excess cash
flow, as defined. The interest rate on the loan is LIBOR plus 2 1/4
percentage points. The interest rate at June 30, 1997 was 8%.
(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. Principal payments of up to $300,000 are required during the
term of the loan if certain conditions are met. The Company has reduced
this loan by $200,000 to which it is entitled under the agreements with
the Seller.
(d) This loan matures June 30, 1998. No principal payments are required
during the term. The interest rate was 9 3/4% at June 30, 1997, 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:
(in thousands)
-------------------------------------
Three Months Ended Six Months Ended
June 30 June 30
1997 1996 1997 1996
---- ---- ---- ----
Direct departmental costs
Rooms $ 2,493 $ 2,285 $ 4,801 $ 4,399
Food and beverage 3,408 3,180 6,560 6,024
Heat, light and power 584 567 1,209 1,123
Other 794 798 1,563 1,460
------- ------- ------- -------
$ 7,279 $ 6,830 $14,133 $13,006
======= ======= ======= =======
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
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
1997 1996
---- ----
Deferred federal income tax benefit $ (7) $ (4)
Current federal income tax 361 705
Current foreign income tax 49 87
Current state income tax 104 100
---- ----
$507 $888
==== ====
11
<PAGE>
FORM 10-Q
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
FIRST SIX MONTHS 1997 COMPARED TO 1996
REVENUES
Total revenues for the six month period ended June 30, 1997 were $35,576,000
compared to $30,936,000 in 1996, an increase of approximately $4,640,000.
The Company's New Orleans hotel had increased revenues of $1,835,000 in the six
month period ended June 30, 1997 compared to 1996, primarily due to a 6.5%
increase in average room rates, a 3% increase in occupancy levels, and increased
food and beverage revenues. The Company's Sonesta Beach Resort Anguilla, which
opened January 18th 1996, had an increase in revenues of $1,222,000 during the
six month period ending June 30, 1997 compared to the same period in 1996. In
the first six months of 1997, its second year of operations, the hotel increased
occupancy levels by 14% and the average room rate by 34%. The Company's Boston
(Cambridge) hotel had increased revenues in the 1997 period of approximately
$1,020,000, primarily because of a 10% increase in average room rates and
increased food and beverage revenues. The remaining revenue increase of $563,000
was primarily from increases in management and service fee income, in particular
from the Company's management activities in Egypt.
OPERATING INCOME
Operating income for the six month period ended June 30, 1997 was $2,067,000
compared to operating income of $1,019,000 in the same period in 1996, an
increase of approximately $1,048,000.
The Company's Sonesta Beach Resort Anguilla, which opened on January 18, 1996,
had a decrease in its operating loss during the 1997 six month period of
$646,000 compared to 1996. This was primarily due to increased revenues of
$1,222,000. The Royal Sonesta Boston (Cambridge) had an increase in its
operating income during the 1997 six month period of $102,000 compared to 1996.
Increased revenues of $1,020,000 were partially offset by increases in expenses
of $918,000. The Royal Sonesta New Orleans experienced a very slight increase in
operating income of $7,000 in 1997 compared to 1996. Revenue increases of
$1,835,000 during the six-month period were offset by increases in expense,
primarily increased rent expense of $962,000 and increases in cost and operating
expenses of $575,000. Operating loss from management and other activities
decreased by $293,000, because of increased revenues of $563,000, which exceeded
the $270,000 increase in expenses related to these activities.
OTHER INCOME (DEDUCTIONS)
Interest expense increased by $375,000 in the first six months of 1997 compared
to the 1996 period, primarily due to the additional indebtedness related to the
refinancing of the Royal Sonesta Hotel Boston (Cambridge) and the additional
loan for the Sonesta Beach Resort, Anguilla (see Note 4--Long-term Debt).
Interest income decreased by $95,000 in the six month period ending June 30,
1997, compared to the same period last year, primarily due to a $275,000
decrease in interest recorded on the
12
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
Company's Key Biscayne notes receivable partially offset by higher interest
income on the Company's cash balances, and interest income from the loans to the
owner of Sonesta Beach Resort, Sharm El Sheikh (see Note 2 Long term Receivables
and Advances).
Equity in net income of hotels in the 1996 period of $249,000 included $617,000
income from a hotel project in New York City, partially offset by the Company's
share of the losses of $368,000 of Sonesta Beach Hotel and Casino, Curacao, in
which the Company has a 22% equity interest.
In the first quarter of 1996 the Company recorded a gain on sale of $175,000
resulting from a reduction of accrued costs related to a prior year sale of
certain assets in Cambridge, Massachusetts.
SECOND QUARTER 1997 COMPARED TO 1996
REVENUES
Total revenues for the second quarter ended June 30, 1997 were $18,629,000
compared to $16,754,000 in 1996, an increase of approximately $1,875,000.
The Royal Sonesta Hotel Boston (Cambridge) had an increase in revenues of
$912,000 in the second quarter of 1997 compared to 1996 due to an increase in
occupancy from 83% to 88%, an 8.5% increase in average room rate, and an
increase in food and beverage revenues. The Royal Sonesta Hotel New Orleans had
an increase in revenues of $530,000 in the 1997 quarter compared to 1996, due to
a 4.5% increase in average room rate and an increase in food and beverage
revenues. The Company's Sonesta Beach Resort Anguilla, which opened January 18,
1996, had an increase in revenues of $269,000 in the 1997 quarter compared to
the 1996 quarter, due to an increase in occupancy levels of 9% and an increase
in average rate of 22%. Revenues from management activities and other sources
increased by $164,000 in the 1997 period compared to 1996, primarily because of
increases in management and service fee income.
OPERATING INCOME
Operating income for the second quarter ended June 30, 1997, was $2,026,000,
compared to $1,562,000 in 1996, an increase of approximately $464,000.
The Royal Sonesta Boston (Cambridge) had an increase in its operating income
during the second quarter of $276,000 compared to 1996. Increases in revenues of
$912,000 were partially offset by expense increases of $636,000. The Company's
Sonesta Beach Resort Anguilla, which opened on January 18, 1996, had a decrease
in its operating loss during the second quarter of $225,000 compared to 1996.
This was primarily due to increased revenues of $269,000. The Royal Sonesta New
Orleans experienced a decrease in operating income of $146,000 in 1997 compared
to 1996 as revenue increases of $530,000 during the quarter were offset by
increases in expense of $676,000. This increase in expense consisted primarily
of an increase in rent expense of $356,000, and increases in cost and operating
expenses of $242,000. Operating loss from management and other activities
decreased by $109,000, because of increased revenues of $164,000, which exceeded
the $55,000 increase in expenses related to these activities.
13
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
OTHER INCOME (DEDUCTIONS)
Interest expense increased by $147,000 in the second quarter of 1997 compared to
the first quarter of 1996, primarily due to the additional indebtedness related
to the refinancing of the Royal Sonesta Hotel Boston (Cambridge) and the
additional loan for Sonesta Beach Resort Anguilla (see Note 4--Long-term Debt).
Interest income decreased by $25,000 in the three month period ending June 30,
1997, compared to the same period last year, primarily due to a $137,000
decrease in interest recorded on the Key Biscayne notes receivable partially
offset by higher interest income on the Company's cash balances and interest
income on the loans to the owner of Sonesta Beach Resort, Sharm El Sheikh (see
Note 2--Long-term Receivables and Advances).
In the second quarter of 1996 the Company recorded equity in net income of
hotels of $265,000, which consisted of $617,000 income from a hotel project in
New York City, partially offset by the Company's share of the losses of Sonesta
Beach Hotel & Casino, Curacao of $352,000. The Company owns a 22% equity
interest in the Curacao hotel.
LIQUIDITY AND CAPITAL RESOURCES
In January 1997 the Company refinanced the mortgage loan on the Royal Sonesta
Hotel Boston (Cambridge). The net proceeds of this refinancing were
approximately $5,357,000, of which $1,040,000 is held in escrow by the lender at
June 30, 1997 for certain improvements to the hotel. These escrow funds are
included in Other long-term assets at June 30, 1997.
The Company increased the mortgage loan on the Sonesta Beach Resort Anguilla by
$1,700,000 in March 1997. These funds were used to partially finance
improvements to the resort made during the winter of 1996/97.
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 1997, will be more than adequate to meet all of its
obligations.
FEDERAL, FOREIGN AND STATE INCOME TAXES
The provision for income taxes for the 1996 six-month period was higher than the
statutory rate due to certain losses from the Company's foreign subsidiary which
operated the Sonesta Beach Resort Anguilla, B.W.I., which were 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, 1997.
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: _____________________________________________
Boy van Riel
Vice President and Treasurer
(Authorized to sign on behalf of the Registrant as Principal
Financial Officer)
DATE: August 13, 1997
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