SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: July 13, 1998 Commission File No.: 0-9032
SONESTA INTERNATIONAL HOTELS CORPORATION
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
New York
------------------------------------------------------
(State or Other Jurisdiction)
13-5648107
------------------------------------------------------
(I.R.S. Employer Identification Number)
200 Clarendon Street, Boston, Massachusetts 02116
------------------------------------------------------
(Address of Principal Executive Offices)
Registrant's Telephone Number, Including Area Code: (617) 421-5400
Not Applicable
------------------------------------------------------
(Former Name or Former Address, if Changed Since Last Report)
<PAGE>
The Registrant hereby amends its Form 8-K of July 13, 1998, to include Item 7,
consisting of the historical financial statements of the acquired company and
pro forma financial information.
Item 2. Acquisition or Disposition of Assets
On July 1, 1998, the Registrant, through its subsidiary, Sonesta Beach Resort
Limited Partnership ("Purchaser") -- a Delaware limited partnership of which the
Registrant's wholly-owned subsidiaries, Florida Sonesta Corporation ("FSC") and
Key Biscayne Land Corporation are the sole general partner with a one percent
(1%) partnership interest, and a limited partner with a 98% partnership
interest, respectively -- acquired from Key Biscayne Limited Partnership
("Seller") its rights, title and interests in and to the real and personal
property known as Sonesta Beach Resort, in Key Biscayne, Florida ("the Resort").
The Seller has a one- percent (1%) limited partnership interest in the
Purchaser.
The Resort is a 300-room, full-service beachfront resort hotel sited on 10 acres
in Key Biscayne, Florida. FSC has continuously operated the hotel under a
management agreement since it sold the property to the Seller in 1984. The
Resort has been operated by Sonesta as a deluxe beach hotel since it opened in
the early 1970's. The Purchaser intends to continue operating the Resort as a
deluxe resort hotel.
The purchase price consisted of FSC's release of the Seller from indebtedness
owed to FSC and/or its affiliates in connection with the Registrant's sale of
the Resort to the Seller, in 1984, and loans advanced by FSC to restore the
Resort following Hurricane Andrew, in 1992. This indebtedness is carried on
Sonesta's books at approximately $10,720,000 at March 31, 1998, and the debt had
matured or otherwise become due and payable at the end of 1997 and/or in early
1998. In addition, the Purchaser assumed a first mortgage loan in the amount of
$22,431,000; interest on this first mortgage loan is payable monthly at 11.78%
per annum until April 1999 when it increases to 12.78% per annum, and matures in
October 2000. No principal payments are due until the maturity date. The
Purchaser has also agreed to pay the Seller additional compensation if it sells
the Resort prior to January 1, 2002.
The transaction was completed pursuant to a pre-packaged bankruptcy. A Joint
Plan of Reorganization was filed by the Seller and FSC in the U.S. Bankruptcy
Court for the Southern District of Florida, Miami Division, on April 23, 1998,
and the Plan was confirmed by the Court on June 25, 1998.
1
<PAGE>
Item 7. Financial Statements and Exhibits.
a) Financial statements of Key Biscayne Limited Partnership ("KBLP"):
<TABLE>
<CAPTION>
Page
<S> <C>
Balance sheets as of December 31, 1997 and 1996 3
Statements of operations and accumulated deficit for
the three years ended December 31, 1997, 1996 and 1995 5
Statements of Cash flow for the three years ended
December 31, 1997, 1996 and 1995 6
Notes to financial statements 7
Report of independent auditors 14
b) Pro Forma financial information (unaudited) of the
Registrant reflecting the acquisition of a 99%
partnership interest in Sonesta Beach Resort Key
Biscayne from KBLP:
Proforma condensed consolidated balance sheet
as of June 30, 1998 15
Proforma condensed consolidated statement of
operations for the six month period ended
June 30, 1998 17
Proforma condensed consolidated statement of
operations for the year ended December 31, 1997 18
Notes to Proforma consolidated financial statements 19
</TABLE>
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 hereunto duly authorized.
SONESTA INTERNATIONAL HOTELS CORPORATION
By: ____________________________________
Boy van Riel
Vice President & Treasurer
July 13, 1998
2
<PAGE>
KEY BISCAYNE LIMITED PARTNERSHIP
Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
-------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 774,074 $ 761,117
Accounts receivable trade, less allowance
for doubtful accounts of $33,000 in 1997
and 1996 2,422,488 2,174,432
Inventories 430,567 388,900
Prepaid expenses 754,301 376,301
Other assets 79,839 72,885
----------- -----------
Total current assets 4,461,269 3,773,635
Property and equipment, at cost:
Land 6,218,403 6,218,403
Building and improvements 23,344,066 22,840,338
Furniture and equipment 4,402,900 3,678,885
----------- -----------
33,965,369 32,737,626
Less accumulated depreciation and amortization 6,928,377 5,703,759
----------- -----------
Net property and equipment 27,036,992 27,033,867
----------- -----------
$31,498,261 $30,807,502
=========== ===========
</TABLE>
3
<PAGE>
KEY BISCAYNE LIMITED PARTNERSHIP
Balance Sheets
<TABLE>
<CAPTION>
December 31
1997 1996
----------------------------
<S> <C> <C>
Liabilities
Current liabilities:
Accounts payable $ 828,232 $ 695,716
Accounts payable to operator 209,330 485,595
Advance deposits 1,027,974 841,213
Accrued liabilities:
Salaries and wages 740,513 597,390
Interest 137,500 339,010
Taxes other than income taxes 262,361 181,787
Other 626,526 574,196
------------ ------------
1,766,900 1,692,383
------------ ------------
Total current liabilities 3,832,436 3,714,907
Long-term debt 41,088,735 41,808,176
Deferred interest payable 18,298,153 15,918,317
Pension liability, non current 233,495 226,587
Partners' deficit:
Partnership capital 15,267,588 15,267,588
Accumulated deficit (47,222,146) (46,128,073)
------------ ------------
Total partners' deficit (31,954,558) (30,860,485)
------------ ------------
$ 31,498,261 $ 30,807,502
============ ============
</TABLE>
See accompanying notes.
4
<PAGE>
KEY BISCAYNE LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS AND ACCUMULATED DEFICIT
Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Revenue:
Rooms $ 15,060,609 $ 13,486,028 $ 12,637,257
Food and beverage 7,792,035 7,240,550 7,159,614
Parking, telephone and other 2,547,557 2,224,203 2,105,884
------------ ------------ ------------
25,400,201 22,950,781 21,902,755
Costs and expenses:
Costs and operating expenses 11,735,287 10,688,062 10,303,445
Advertising and promotion 1,995,123 1,797,604 1,821,161
Administrative and general 3,738,204 3,409,315 3,029,164
Human resources 386,586 328,659 305,112
Maintenance 1,320,729 1,289,550 1,222,956
Property taxes 671,337 660,182 557,204
Rentals 53,955 41,356 98,196
Depreciation and amortization 1,224,124 1,120,421 1,048,866
------------ ------------ ------------
21,125,345 19,335,149 18,386,104
Operating income 4,274,856 3,615,632 3,516,651
Interest expense (5,437,667) (5,277,343) (5,266,617)
Interest income 68,738 21,159 25,592
Insurance gain -- 900,419 --
------------ ------------ ------------
Net loss (1,094,073) (740,133) (1,724,374)
Accumulated deficit at
Beginning of year (46,128,073) (45,387,940) (43,663,566)
------------ ------------ ------------
Accumulated deficit at end
of year $(47,222,146) $(46,128,073) $(45,387,940)
============ ============ ============
</TABLE>
See accompanying notes.
5
<PAGE>
KEY BISCAYNE LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996, and 1995
<TABLE>
<CAPTION>
1997 1996 1995
-----------------------------------------
<S> <C> <C> <C>
Cash provided (used) by operating activities
Net loss $(1,094,073) $ (740,133) $(1,724,374)
Items not requiring (providing) cash
Depreciation and amortization 1,224,124 1,120,421 1,048,866
Deferred interest 2,380,331 2,034,419 1,879,819
Pension expense 6,908 38,181 40,000
Change in assets and liabilities
Accounts receivable (248,056) 82,861 (979,723)
Inventories (41,667) (28,917) (9,622)
Prepaid expenses (378,000) 75,704 (224,282)
Other assets (6,954) 91,644 (121,018)
Accounts payable 132,516 151,075 60,109
Advance deposits 186,761 35,353 (146,490)
Accounts payable to operator (276,265) (145,471) 318,010
Accrued liabilities 74,517 95,520 240,381
----------- ----------- -----------
Cash provided by operating activities 1,960,142 2,810,657 381,676
Cash used by investing activities
Expenditures for property and equipment (1,227,743) (972,914) (512,324)
----------- ----------- -----------
Cash used by investing activities (1,227,743) (927,914) (512,324)
Cash used by financing activities
Payments on long-term debt (719,442) (1,670,401) (152,915)
----------- ----------- -----------
Cash used by financing activities (719,442) (1,670,401) (152,915)
Net increase (decrease) in cash and cash 12,957 167,342 (283,563)
equivalents
Cash and cash equivalents at beginning of year 761,117 593,775 877,338
----------- ----------- -----------
Cash and cash equivalents at end of year $ 774,074 $ 761,117 $ 593,775
=========== =========== ===========
Cash paid for:
Interest $ 3,258,848 $ 3,251,016 $ 3,162,393
=========== =========== ===========
</TABLE>
See accompanying notes.
6
<PAGE>
KEY BISCAYNE LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1997, 1996 and 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
Key Biscayne Limited Partnership ("KBLP") is the owner of the Sonesta Beach
Resort, located in Key Biscayne, Florida (the Resort). KBLP purchased the Resort
from Sonesta International Hotels Corporation (Sonesta) in 1984. The Resort is
operated by Florida Sonesta Corporation, a subsidiary of Sonesta, under a
long-term management agreement. Sonesta has provided loans to KBLP both in
connection with the purchase of the Resort in 1984, and in connection with the
restoration and re-opening of the Resort following Hurricane Andrew, which
caused severe damage to the Resort in 1992. The debt to Sonesta matured or
otherwise became payable at the end of 1997 and in early 1998 (see Note 5,
Long-term Debt).
Key Biscayne Hotel Associates, Ltd. and VMS Realty Investment, Ltd., the general
partners of KBLP, hold interests of 98.99% and .91%, respectively. Limited
Partners hold a .1% interest. Partners' deficit balances attributable to the
General and Limited Partners are as follows:
<TABLE>
<CAPTION>
General Partners Limited Partners
Loss for years ended December 31,
<S> <C> <C>
1997 (1,092,978) (1,095)
1996 (739,393) (740)
1995 (1,722,650) (1,724)
Deficit at December 31,
1997 (31,908,272) (46,286)
1996 (30,815,294) (45,191)
</TABLE>
Subsequent Events
A Joint Plan of Reorganization was filed by KBLP and Florida Sonesta Corporation
in the U.S. Bankruptcy court for the Southern District of Florida, Miami
Division, in April 1998. The Plan was confirmed by the Court on June 25, 1998.
Under the Plan, Sonesta Beach Resort Limited Partnership (SBRLP), in which KBLP
has a one percent limited partnership interest, acquired all real and personal
property of the Resort. FSC and Key Biscayne Land Corporation, both
7
<PAGE>
subsidiaries of Sonesta International Hotels Corporation, are the sole general
partner and a limited partner of SBRLP, with a 1% and 98% partnership interest,
respectively. This transaction was completed on July 1, 1998. FSC and affiliates
of KBLP released KBLP from its indebtedness in connection with the Resort (see
Note 5 (b), 5 (c) and 5 (d), Long-Term debt). SBRLP assumed the first mortgage
note (see Note 5 (a)), and assumed the indebtedness to FSC and extended its
maturity on a long-term basis.
Merchandise and supplies
Merchandise and supplies are stated at the lower of cost (first-in, first-out)
or market.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Advertising
The cost of advertising is generally expensed as incurred.
Revenues
Revenues are generally recognized as services are provided.
Property and equipment
Depreciation and amortization of items of property and equipment are computed on
the straight-line method using the following estimated useful lives:
<TABLE>
<S> <C>
Buildings and improvements 30 to 40 years
Furniture and equipment 5 to 10 years
</TABLE>
Beginning in 1997, the cost of operating equipment (chinaware, glassware,
linens, etc.) is charged to expenses in the period during which such equipment
is put in circulation. Previously, the cost of such equipment was amortized over
its useful life. The effect of the change was not deemed to be material to the
Partnerships' financial position or results of operations. Included in furniture
and equipment is the value, at cost, of the operating equipment not in
circulation.
8
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
Cash and Cash Equivalents
Cash and cash equivalents consist of cash on hand and short-term, highly liquid
investments with maturities of less than 91 days, which are readily convertible
into cash.
Income Taxes
No provisions for income taxes has been made as the liability for such taxes is
the obligation of the partners of KBLP.
2. TRANSACTIONS WITH MANAGEMENT COMPANY
The Resort is operated by Sonesta under a long-term management agreement. For
its services, Sonesta is entitled to a management fee of 3% and a marketing fee
of 1 1/2% of gross revenues of the Resort. Sonesta is also entitled to certain
incentive fees based on net operating income, as defined. No incentive fees were
earned by Sonesta during the periods reflected in these financial statements.
Sonesta also charges the Resort for certain other services, such as purchasing
and design services, and advertising and reservation services.
During 1997, 1996, and 1995, Sonesta's management and marketing fee charges
totaled $1,143,000, $1,033,000 and $986,000 respectively. During 1997, 1996 and
1995, Sonesta's charges also included reservation fees of $55,000, $37,000 and
$41,000, respectively, and fees charged by Sonesta's advertising subsidiary of
$76,000 in 1997, and $69,000 in each of the years 1996 and 1995. Charges from
Sonesta for design and purchasing services were $90,000, $59,000 and $50,000 in
1997, 1996 and 1995, respectively.
3. TRANSACTIONS WITH AFFILIATED COMPANIES
The Resort pays a management fee equal to 3/4 of 1% of revenues to Strategic
Realty Inc., an affiliate of the general partner of KBLP, which provides asset
management services for the Resort which include services pertaining to
accounting, tax and insurance related matters, and certain other services.
During 1997, 1996 and 1995, Strategic Realty Inc.'s fees totaled $191,000,
$172,000 and $164,000, respectively.
9
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
4. COSTS AND EXPENSES
The following summarizes costs and operating expenses:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Rooms $ 3,658,022 $ 3,213,190 $ 2,939,407
Food and beverage 6,121,442 5,705,097 5,603,998
Heat, light and power 879,667 856,427 837,479
Other 1,076,156 913,348 922,561
----------- ----------- -----------
$11,735,287 $10,688,062 $10,303,445
=========== =========== ===========
</TABLE>
5. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
First mortgage note (a) $ 22,431,486 $ 22,431,486
Mortgage notes from Sonesta (b) 11,500,000 11,500,000
Mortgage loans from Affiliates (c) 3,317,426 3,317,426
Other loans from operator (d) 3,839,823 4,559,264
------------ ------------
Subtotal 41,088,735 41,808,176
Deferred interest 18,298,153 15,918,317
------------ ------------
Total long-term debt $ 59,386,888 $ 57,726,493
============ ============
</TABLE>
10
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
a) This loan in the original amount of $22,000,000 is secured by a first
mortgage on the Sonesta Beach Resort Key Biscayne property. By agreement
certain unpaid interest during 1992 and 1993 was added to the loan, which
brought the loan to its current balance. The loan requires monthly
interest payments based on a pay rate of 10.78% until November 1, 1997,
11.78% from November 1, 1997 until April 1, 1999, and 12.78% from April 1,
1999 until the maturity date, which is October 1, 2000. The loan accrues
interest at a rate of 12.78% per annum, and the deferred interest, being
the difference between the interest at 12.78% and the interest based on
the aforementioned pay rate, will become payable only in the event that
the loan is not repaid at maturity. The deferred interest is not recorded
on the accompanying balance sheets. No principal payments are due during
the term of the loan.
b) KBLP received two loans from Sonesta in 1984. The first loan of $5,000,000
has an interest rate of 14-1/2%, of which 11% is payable in quarterly
installments, and 3-1/2% is deferred until maturity. This loan matured on
December 31, 1997. The second loan in the amount of $6,500,000 accrues
simple interest at a rate of 10% per year. The maturity date of this loan
is December 31, 2004. No principal payments are due on either of these
loans until maturity. The maturity of the aforementioned loan of
$5,000,000, which totaled $11,481,332 including deferred interest on the
maturity date, caused certain other loans from Sonesta to become due and
payable.
c) These loans consist of an assignment note of $2,000,000 which accrues
interest at 12%, and a loan of $1,317,426 which accrues interest at 10%
per annum. These notes matured on December 31, 1997. Both loans are
secured by mortgages on the Resort's property, which are junior to the
mortgages which secure the loans mentioned in (a) and (b) above. The terms
and amounts of these notes were amended pursuant to KBLP's plan of
reorganization (see Note 1).
d) Sonesta, the operator of the Resort made loans in the original aggregate
amount of $5,475,000 under five separate agreements during 1993 and 1994.
These loans earn interest at rates ranging from the prime rate (8-1/2% at
December 31, 1997) to 14-1/2%. Of these loans, an amount of $2,684,000 and
interest thereon is secured by a mortgage on the resort's property.
Principal and interest are payable from available cash flow after payment
of all resort expenses, including the fees mentioned in notes 2 and 3, and
after payment of interest on the first mortgage loan in (a) above, and the
current interest payable on the $5,000,000 mortgage loan in (b) above.
11
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
6. PENSION AND BENEFIT PLANS
Pension Plan
Substantially all of the KBLP's employees participate in a non-contributory
defined benefit pension plan (the Plan). Benefits are based on the employee's
years of service and the highest average monthly salary during any 60
consecutive months of employment. KBLP's funding policy is to contribute
annually at least the minimum contribution required by ERISA.
The pension cost for the Plan for the years 1997 and 1996 was computed as
follows:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Service cost $ 235,539 $ 219,149
Interest cost 198,087 193,423
Return on plan assets (325,077) (138,624)
Amortization of:
Unrecognized transition liability 72,131 72,131
Unrecognized asset (gain) loss 160,033 (27,023)
--------- ---------
$ 340,713 $ 319,056
========= =========
</TABLE>
The following table sets forth the funded status of the Plan at December 31,
1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Actuarial present value of accumulated benefit obligation:
Vested $1,844,226 $1,804,085
Nonvested 199,289 120,586
---------- ----------
Accumulated benefit obligation 2,043,515 1,924,671
Effect of assumed increase in compensation
levels 1,001,993 835,725
---------- ----------
Projected benefit obligation 3,045,508 2,760,396
Market value of Plan assets 1,741,466 1,592,748
---------- ----------
Projected benefit obligation in excess of
Plan assets 1,304,042 1,167,648
Unrecognized net gain (5,424) 94,743
Unrecognized net transition obligation (735,734) (807,864)
---------- ----------
Accrued pension liability, including current portion $ 562,884 $ 454,527
========== ==========
</TABLE>
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS (continued)
The Plan's assets include equity and fixed income securities,
short-term investments and cash.
Assumptions used to develop the pension costs were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Assumed discount rate 7.0% 7.25%
Assumed rate of compensation increases 4.0% 4.0%
Expected weighted average rate of return on
Plan assets 8.5% 8.5%
</TABLE>
Savings Plan
The Resort has an employee savings plan (the "Savings Plan") that qualifies as a
deferred salary arrangement under Section 401(K) of the Internal Revenue
Code. The Savings Plan started on August 1, 1996. Under the Savings Plan,
participating employees may defer a portion of their pre-tax earnings up to the
Internal Revenue Service annual contribution limit. All employees of the Resort
are eligible to participate in the Savings Plan. Participating employees may
choose to invest their contributions in each one of the seven mutual funds,
which include equity funds, balanced funds and a money market fund. The Savings
Plan does not provide for contributions by the Resort.
7. YEAR 2000 (Unaudited)
During 1997, KBLP committed to address issues related to required changes in
computer systems for the year 2000. KBLP expects that by December 31, 1998, all
year 2000 issues will have been addressed, either by programming changes
implemented by third party vendors to purchased systems, or through the
upgrading or purchase of year 2000 compliant hardware and equipment. Extensive
testing is expected in 1998 and 1999. Management believes there is no material
risk that KBLP will fail to address year 2000 issues in a timely manner. KBLP
expects that costs related to the year 2000 issue will not be material.
13
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Sonesta International Hotels Corporation:
We have audited the accompanying balance sheets of Key Biscayne Limited
Partnership (the "Partnership") as of December 31, 1997 and 1996, and the
related statements of operations and accumulated deficit, and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. 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 Key Biscayne Limited
Partnership at December 31, 1997 and 1996, and the results of its operations and
its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
/s/ Ernst & Young LLP
Boston, Massachusetts
August 21, 1998
14
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION x $ 1,000
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 1998
<TABLE>
<CAPTION>
Sonesta Beach Pro forma
ASSETS Resort, Other consolidated
Historical Key Biscayne adjustments balance sheet
<S> <C> <C> <C> <C>
Current assets:
Cash $ 4,160 $ 3,456 $ -- $ 7,616
Accounts and notes receivable 7,483 2,619 (756) (a) 9,324
(22) (b)
Current portion of deferred taxes 254 -- 66 (g) 320
Inventories 799 402 -- 1,201
Prepaid expenses 1,292 415 -- 1,707
-------- -------- -------- ---------
Total current assets 13,988 6,892 (712) 20,168
Long-term receivables and advances 13,387 -- (225) (b) 2,442
(10,720) (c)
Property and Equipment, at cost:
Land 3,013 6,218 782 (f) 10,013
Buildings 41,455 23,297 620 (b) 68,378
(21,722) (c)
1,740 (d)
2,953 (g)
(4,555) (e)
24,590 (f)
Furniture and equipment 22,970 4,718 (2,404) (f) 25,284
Leasehold improvements 2,951 -- -- 2,951
Projects in progress 241 286 -- 527
-------- -------- -------- ---------
70,630 34,519 2,004 107,153
Less accumulated depreciation and
amortization 25,597 7,567 (7,567) (f) 25,597
-------- -------- -------- ---------
Net property and equipment 45,033 26,952 9,571 81,556
Other long-term assets 1,081 -- -- 1,081
-------- -------- -------- ---------
$73,489 $33,844 $ (2,086) $105,247
======== ======== ======== =========
</TABLE>
15
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION x $ 1,000
PROFORMA CONDENSED CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 1998
<TABLE>
<CAPTION>
LIABILITIES, STOCKHOLDERS' EQUITY Sonesta Beach Pro forma
AND PARTNERS' DEFICIT Resort, Other consolidated
Historical Key Biscayne adjustments balance sheet
<S> <C> <C> <C> <C>
Current liabilities:
Current portion of long-term debt and
capitalized lease obligations $ 3,997 $ -- $ -- $ 3,997
Accounts payable 2,840 1,346 (618) (a) 3,568
Advance deposits 1,358 1,122 -- 2,480
Federal, foreign and state income taxes 690 -- -- 690
Accrued liabilities 9,090 1,673 (138) (a) 10,998
-- -- 373 (b) --
-------- -------- -------- --------
Total current liabilities 17,975 4,141 (383) 21,733
Long-term debt 27,121 59,806 (32,442) (c) 51,670
1,740 (d)
(4,555) (e)
Deferred federal and state income taxes 2,389 -- 3,019 (g) 5,408
Other non-current liabilities 1,276 432 -- 1,708
Commitments and contingencies
Redeemable preferred stock 294 -- -- 294
Common stockholders' equity:
Common stock 3,488 3,488
Retained earnings 29,072 29,072
Partners' deficit (30,535) 30,535 (f) --
Treasury shares (8,126) -- -- (8,126)
-------- -------- -------- --------
Total common stockholders' equity 24,434 (30,535) 30,535 24,434
-------- -------- -------- --------
$ 73,489 $ 33,844 $ (2,086) $105,247
======== ======== ======== ========
</TABLE>
16
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION x $ 1,000
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the six month period ended June 30, 1998
<TABLE>
<CAPTION>
Pro forma
Sonesta Beach consolidated
Resort, Other statement
Historical Key Biscayne adjustments of income
<S> <C> <C> <C> <C>
Revenues:
Rooms $ 22,470 $ 9,390 $ -- $ 31,860
Food & beverage 8,853 4,288 -- 13,141
Management, license and service fees 3,851 1,239 (723) (a) 4,367
Parking, telephone and other 2,922 -- -- 2,922
-------- ------- ------ --------
Total revenues 38,096 14,917 (723) 52,290
Costs and expenses:
Costs and operating expenses 14,668 6,134 -- 20,802
Advertising and promotion 2,875 801 (222) (a) 3,454
Administrative and general 6,472 1,862 (501) (a) 7,833
Human resources 786 182 -- 968
Maintenance 2,596 675 -- 3,271
Rentals 4,422 30 -- 4,452
Property taxes 595 363 -- 958
Depreciation and amortization 2,520 637 (111) (e) 3,046
-------- ------- ------ --------
34,934 10,684 (834) 44,784
-------- ------- ------ --------
Operating income 3,162 4,233 111 7,506
Other income (deductions):
Interest expense (1,449) (2,856) 275 (b) (2,473)
1,260 (c)
297 (d)
Interest income 527 42 (275) (b) 294
Foreign exchange gain 1 -- -- 1
Gain on sales of assets 16 -- -- 16
-------- ------- ------ --------
(905) (2,814) 1,557 (2,162)
Income before income taxes 2,257 1,419 1,668 5,344
Federal, foreign and state income
tax provision 956 -- 1,182 (f) 2,138
-------- ------- ------ --------
Net income 1,301 1,419 486 $3,206
======== ======= ====== ========
Basic earnings per share of common stock $ 0.62 $1.54
Weighted average number of shares
outstanding 2,068 2,068
</TABLE>
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<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION x $ 1,000
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
For the year ended December 31, 1997
<TABLE>
<CAPTION>
Pro forma
Sonesta Beach consolidated
Resort, Other statement
Historical Key Biscayne adjustments of income
<S> <C> <C> <C> <C>
Revenues:
Rooms $ 39,865 $ 15,061 $ -- $ 54,926
Food & beverage 16,423 7,792 -- 24,215
Management, license and service fees 6,884 -- (1,364) (a) 5,520
Parking, telephone and other 5,296 2,547 -- 7,843
-------- -------- ------- --------
Total revenues 68,468 25,400 (1,364) 92,504
Costs and expenses:
Costs and operating expenses 28,035 11,735 -- 39,770
Advertising and promotion 5,520 1,995 (512) (a) 7,003
Administrative and general 12,653 3,738 (852) (a) 15,539
Human resources 1,607 387 -- 1,994
Maintenance 5,017 1,321 -- 6,338
Rentals 6,499 54 -- 6,553
Property taxes 1,185 671 -- 1,856
Depreciation and amortization 4,603 1,224 (263) (e) 5,564
-------- -------- ------- --------
65,119 21,125 (1,627) 84,617
-------- -------- ------- --------
Operating income 3,349 4,275 263 7,887
Other income (deductions):
Interest expense (2,861) (5,438) 550 (b) (4,931)
2,413 (c)
405 (d)
Interest income 1,103 69 (550) (b) 622
Foreign exchange loss (3) -- -- (3)
Gain on sales of assets 22 -- -- 22
-------- -------- ------- --------
(1,739) (5,369) 2,818 (4,290)
Income (loss) before income taxes 1,610 (1,094) 3,081 3,597
Federal, foreign and state income
tax provision 677 -- 761 (f) 1,438
-------- -------- ------- --------
Net income (loss) $ 933 $ (1,094) $ 2,320 $ 2,159
======== ======== ======= ========
Basic earnings per share of common stock $ 0.44 $ 1.03
Weighted average number of shares
outstanding 2,068 2,068
</TABLE>
18
<PAGE>
NOTES TO THE PROFORMA FINANCIAL STATEMENTS (Unaudited)
Basis of presentation
The proforma balance sheet at June 30, 1998 presents the historical balance
sheet of the Registrant and is adjusted to reflect the acquisition of the
Sonesta Beach Resort Key Biscayne, assuming this transaction took place on
June 30, 1998.
The proforma statements of operations for the year ended December 31, 1997
and for the six month period ended June 30, 1998 present the historical
statements of income of the Registrant for the year ended December 31, 1997
and the six month period ended June 30, 1998, both of which are adjusted to
reflect the acquisition of Sonesta Beach Resort Key Biscayne assuming this
transaction took place on January 1, 1997 and January 1, 1998, respectively.
Please note that because of the seasonal nature of the tourist industry in
Florida, income during the first 6 months of the year is higher than during
the last 6 months of the year.
Adjustments to proforma balance sheets
Following is a summary of the required adjustments to the proforma balance
sheet at June 30, 1998:
(a) Elimination of intercompany payables and receivables, and elimination
of interest accrual and receivable between KBLP and Sonesta at June
30, 1998.
(b) Accrual of costs for legal and accounting services related to the
transaction.
(c) Elimination of Sonesta's loans from KBLP recorded at June 30, 1998 on
Sonesta's books in the amount of $10,720,000, and adjustment of the
loans and deferred interest owed by KBLP to Sonesta of $21,722,000,
which had previously been fully reserved by Sonesta.
(d) Adjustment of the first mortgage loan assumed by Sonesta to reflect
interest at current market rates on this loan until its maturity in
October 2000.
(e) Write down of KBLP's loans to its affiliated parties from the amounts
recorded on KBLP's books at June 30, 1998, to the actual liability
assumed by Sonesta.
19
<PAGE>
(f) Adjustment of KBLP's partners capital, its accumulated deficit and
accumulated depreciation, and the adjustment of the real and personal
property to the book value of the assets assumed by Sonesta.
(g) Recording of deferred tax assets and liabilities, primarily due to
book and tax basis differences of the assets assumed by Sonesta.
Adjustments to proforma statements of operations
Following is a description of the required adjustments to the proforma
statements of operations for the six month period ending June 30, 1998 and
the year ending December 31, 1997:
(a) To eliminate management, marketing, and other fees earned by Sonesta
under its management agreement with KBLP prior to July 1, 1998.
(b) To eliminate current interest paid by KBLP to Sonesta pursuant to a
second mortgage loan from Florida Sonesta Corporation to KBLP.
(c) To adjust KBLP's statement of operations for interest expense recorded
on Sonesta loans, which was reserved by Sonesta due to non-payment,
and by interest on other loans which are not being assumed by Sonesta.
(d) To adjust interest expense for:
- reduction in interest expense on the first mortgage loan assumed by
Sonesta due to adjustment of the above market interest rate to
market rate.
- addition of interest expense on a new $500,000 loan payable to
affiliates of the Seller on December 31, 2001.
(e) Adjustment of depreciation expense based on consolidated book value of
the assets of Sonesta Beach Resort Key Biscayne following the
transaction.
(f) Provision for federal and state income taxes on the additional income
from Sonesta Beach Resort Key Biscayne.
20
