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 September 30, 1999
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 ISSUERS:
Number of Shares of Common Stock Outstanding
as of November 8, 1999 -- $.80 par value,
Class A - 3,715,230
<PAGE>
Index
Sonesta International Hotels Corporation
<TABLE>
<CAPTION>
Page
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - September 30, 1999 1
and December 31, 1998
Consolidated statements of operations - Three
month and nine month periods ended September 30,
1999 and 1998 3
Consolidated statements of cash flows - Nine
months ended September 30, 1999 and 1998 4
Notes to consolidated financial statements -
September 30, 1999 and 1998 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition - Three month
and nine month periods ended September 30, 1999
and 1998 12
Item 3. Quantitative and Qualitative Disclosure of Market
Risk 16
</TABLE>
<PAGE>
FORM 10-Q
Part I - Item 1. Financial Information
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1999 (Unaudited) and December 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------
September 30 December 31
1999 1998
------------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $4,300 $ 9,470
Accounts and notes receivable:
Trade, less allowance of $152
($141 at December 31, 1998) for doubtful accounts 6,936 7,654
Other 761 905
-------- --------
Total accounts and notes receivable 7,697 8,559
Current portion of deferred taxes 356 347
Inventories 1,281 1,268
Prepaid expenses 1,194 1,384
-------- --------
Total current assets 14,828 21,028
Long-term receivables and advances 1,908 2,535
Property and equipment, at cost:
Land 10,014 10,014
Buildings 69,903 68,899
Furniture and equipment 31,195 25,255
Leasehold improvements 2,699 2,464
Projects in progress 436 1,105
-------- --------
114,247 107,737
Less accumulated depreciation and
amortization 31,106 25,789
-------- --------
Net property and equipment 83,141 81,948
Other long-term assets 1,074 1,092
-------- --------
$100,951 $106,603
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
September 30, 1999 (Unaudited) and December 31, 1998
----------------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------
September 30 December 31
1999 1998
------------- -----------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 967 $4,048
Accounts payable 3,492 6,179
Advance deposits 4,172 3,869
Federal, foreign and state income taxes 544 383
Accrued liabilities:
Salaries and wages 2,312 2,569
Rentals 4,768 6,138
Interest 416 459
Employee benefits 146 468
Other 2,016 1,682
------- --------
Total accrued liabilities 9,658 11,316
------- -------
Total current liabilities 18,833 25,795
Long-term debt 49,701 50,731
Deferred federal and state income taxes 3,978 3,403
Other non-current liabilities 2,922 2,147
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--20,000,000 shares
Issued--6,102,176 shares at stated value 3,488 3,488
Retained earnings 33,643 28,871
Treasury shares--2,386,946 (1,965,746 at
December 31, 1998), at cost (11,908) (8,126)
-------- --------
Total common stockholders' equity 25,223 24,233
-------- --------
$100,951 $106,603
======== ========
</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 Nine Months Ended
September 30 September 30
------------- ------------
1999 1998 1999 1998
------- ------- ------- --------
<S> <C> <C> <C> <C>
Revenues:
Rooms $13,483 $11,499 $46,485 $33,969
Food and beverage 5,428 4,814 18,963 13,667
Management, license and
service fees 1,092 1,104 3,406 4,955
Parking, telephone and other 1,877 1,677 6,035 4,599
------- ------- ------- -------
21,880 19,094 74,889 57,190
------- ------- ------- -------
Costs and expenses:
Costs and operating expenses 10,013 9,143 30,990 23,811
Advertising and promotion 2,101 1,509 6,039 4,384
Administrative and general 3,643 3,468 11,743 9,940
Human resources 480 463 1,455 1,249
Maintenance 1,617 1,577 4,987 4,173
Rentals 1,020 784 5,514 5,206
Property taxes 516 500 1,604 1,095
Depreciation and amortization 1,756 1,645 5,317 4,165
------- ------- ------- -------
21,146 19,089 67,649 54,023
------- ------- ------- -------
Operating income 734 5 7,240 3,167
Other income (deductions):
Interest expense (1,125) (1,211) (3,475) (2,660)
Interest income 120 173 497 700
Foreign exchange gain (loss) 2 1 (5) 2
Gain (loss) on sales of assets -- (1) 5 15
Other -- -- 3,875 --
------- ------- ------- -------
(1,003) (1,038) 897 (1,943)
------- ------- ------- -------
Income (loss) before income taxes (269) (1,033) 8,137 1,224
Federal, foreign and state income
tax provision (benefit) (42) (218) 3,045 738
------- ------- ------- -------
Net income (loss) (227) (815) 5,092 486
Retained earnings at beginning of period 33,874 29,072 28,871 28,087
Cash dividends on preferred stock (4) (4) (10) (10)
Cash dividends on common stock -- -- (310) (310)
------- ------- ------- -------
Retained earnings at end of period $33,643 $28,253 $33,643 $28,253
======= ======= ======= =======
Basic and diluted earnings (loss) per
share of common stock $ (.06) $ (.20) $ 1.27 $ .12
======= ======= ======= =======
Weighted average number of shares
outstanding 3,716 4,136 3,995 4,136
======= ======= ======= =======
</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)
--------------------------------
Nine Months Ended September 30
1999 1998
------ ------
<S> <C> <C>
Cash provided (used) by operating activities
Net income $ 5,092 $ 486
Items not (providing) requiring cash
Pension expense 792 726
Depreciation and amortization of property and equipment 5,317 4,165
Other amortization (534) (83)
Deferred federal income taxes 566 51
Gain on sales of assets (5) (15)
Changes in assets and liabilities
Accounts and notes receivable 1,049 2,404
Inventories (13) (18)
Prepaid expenses 190 (329)
Accounts payable (2,376) (2,411)
Advance deposits 303 11
Federal, foreign and state income taxes 161 (586)
Accrued liabilities (1,649) (2,577)
------- -------
Cash provided by operating activities 8,893 1,824
Cash provided (used) by investing activities
Proceeds from sales of assets 5 22
Expenditures for property and equipment (6,724) (5,478)
Cash reimbursed from escrow -- 840
New loans and advances -- (164)
Payments received on long-term receivables
and advances 607 1,317
Cash received in purchase of hotel -- 3,456
------- -------
Cash used by investing activities (6,112) (7)
Cash used by financing activities
Purchase of common stock (3,782) --
Payments on long-term debt (3,538) (755)
Payments on capitalized lease obligations -- (45)
Cash dividends paid (631) (631)
------- -------
Cash used by financing activities (7,951) (1,431)
Net increase (decrease) in cash (5,170) 386
Cash and cash equivalents at beginning of period 9,470 5,581
------- -------
Cash and cash equivalents at end of period $ 4,300 $ 5,967
======= =======
</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 1999 nine-month period and the 1998
nine-month period was approximately $4,028,000 and $2,889,000,
respectively. Cash paid for income taxes in the 1999 nine-month period
and the 1998 nine-month period was approximately $2,318,000 and
$691,000, 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 have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1999 are not necessarily indicative of the results that may be
expected for the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
The management agreement under which the Company operated the Sonesta Beach
Resort & Casino, Curacao was terminated on June 1, 1999. The Company received a
termination fee of $1,875,073, which is based on the equity investment of
$2,000,000 the Company made in the hotel in 1994, less incentive fees earned in
1998 of $124,927. This termination fee was included in Other income in the
consolidated statement of operations in the second quarter of 1999. The carrying
value of the investment had previously been written down to zero through the
recognition by the Company of its equity in losses sustained by the hotel.
The Company operates the Sonesta Beach Resort Bermuda under a management
agreement. The owner of the hotel has the right to terminate the agreement in
the event of a sale of the hotel. In return for this right of termination, the
Company was entitled to a supplemental fee of $2,000,000 on the earlier of (1) a
sale of the hotel or (2) June 4, 1999. The Company received the supplemental fee
in June 1999 and recorded this as Other income in the consolidated statement of
operations in the second quarter of 1999.
During the second quarter of 1999, the Company settled a legal dispute with the
seller of the Sonesta Beach Resort Anguilla, a hotel that the Company acquired
in November 1995. In connection with the settlement, the Company repaid an
$800,000 loan from the seller that was related to the purchase of the hotel. The
loan had originally matured in November 1998.
Included in the results from operations as of July 1, 1998 are the revenues and
expenses from Sonesta Beach Resort Key Biscayne. Before the acquisition on July
1, 1998, the Company operated the hotel under a management agreement.
6
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Long-Term Receivables and Advances
----------------------------------
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------------------
September 30, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Sharm El Sheikh (a) $1,000 $1,000
Cairo, Egypt, net of discount (b) 315 708
Other 1,026 1,174
----- ------
Total long-term receivables 2,341 2,882
Less: current portion 433 347
------ ------
Net long-term receivables $1,908 $2,535
====== ======
</TABLE>
(a) This loan to the owner of the Sonesta Beach Resort, Sharm El Sheikh bears
interest at the prime rate (8 1/4% at September 30, 1999) with repayment
in seven annual installments of $142,857, together with interest,
commencing January 1, 1999.
(b) The remaining balance of this loan, made in February 1997 to the owner of
the Sonesta Hotel Cairo, will be repaid with 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, 2000.
This line of credit bears interest at the prime rate (8 1/4% at September 30,
1999). 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 September 30, 1999.
A subsidiary of the Company has a $5,000,000 line of credit which will expire
December 31, 2000. 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 1/4% at
September 30, 1999) less one-eighth percent, and the commitment fee on the
unused portion of the line is .65% per annum. The Company received a waiver with
regards to the limitation on treasury stock purchases in connection with the
purchase of stock described in Note 5 - Capital Transactions. No amount was
outstanding under this line at September 30, 1999.
7
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Long-Term Debt
--------------
<TABLE>
<CAPTION>
(in thousands)
----------------------------------------
September 30, December 31,
1999 1998
------------- -------------
<S> <C> <C>
Charterhouse of Cambridge Trust and Sonesta of
Massachusetts Inc.:
First mortgage note (a) $21,549 $21,937
Sonesta Beach Resort Limited
Partnership:
First mortgage note (b) 23,261 23,859
Sonesta Hotels of Anguilla, Ltd:
First mortgage note (c) 5,440 5,790
Note from Seller (d) -- 800
Sonesta Curacao Hotel Corporation, N.V.:
Bank term loan (e) -- 2,000
Other 418 393
------------- -------------
50,668 54,779
Less current portion of long-term debt 967 4,048
------------- -------------
Total long-term debt $49,701 $50,731
============= =============
</TABLE>
(a) This 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 $25,377,000 at September 30, 1999.
The interest rate on the 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 until
January 2000.
(b) This loan is secured by a first mortgage on the Sonesta Beach Resort
Key Biscayne property, which is included in fixed assets at a net book
value of approximately $37,588,000 at September 30, 1999. The principal
balance of this loan is $22,431,000. The Company recorded an additional
liability in 1998 when it assumed the loan to reflect the fair market
value of this liability based on its above market interest rate. This
additional liability is being amortized as an adjustment to interest
expense over the remaining life of the loan. The loan requires monthly
interest payments based on a rate of 11.78% until March 1, 1999, and
12.78% from March 1, 1999 until the maturity date, which is October 1,
2000. Additional interest will become due in case the loan is not
repaid on the scheduled maturity date. No provision for such payment is
included in the accompanying consolidated balance sheets. No principal
payments are due during the term of the loan.
8
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) 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 book value of $12,784,000 at September 30, 1999. In
addition, an amount of $1,900,000 is secured by a Company guaranty. The
maturity date of this loan has been extended until December 31, 2001,
and the loan requires minimum principal payments of $544,000 and
$4,896,000 in the years 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 September 30, 1999
was 7.6%.
(d) This loan from the seller of the Sonesta Beach Resort Anguilla was
repaid in the second quarter of 1999.
(e) This loan was repaid in May 1999.
5. Capital Transactions
--------------------
Treasury stock purchase
On July 1, 1999, the Company completed its acquisition of 419,200 shares of its
Class A Common Stock from a stockholder. The Company acquired the stock for a
price of $9.00 per share, for a total of $3,772,800. As part of its agreement
with the stockholder, the Company also agreed that if its Class A Common Stock
shareholders received more than $9.00 per share as part of a tender offer or a
sale of the Company prior to July 1, 2001, the stockholder would receive
additional compensation based on that excess.
Stock Split
On July 30, 1999, the Company completed a two for one stock split of its Class A
Common Stock. All shareholders of record on July 16, 1999 received a stock
dividend of one share for each share held. The current period and historical
earnings per share are computed based on the number of shares outstanding after
giving effect to the stock split.
9
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. 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 Nine Months Ended
September 30 September 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Direct departmental costs
Rooms $ 3,607 $ 3,250 $ 10,852 $ 8,377
Food and beverage 4,712 4,276 15,069 11,172
Heat, light and power 796 798 2,273 1,980
Other 898 819 2,796 2,282
-------- ------- -------- --------
$ 10,013 $ 9,143 $ 30,990 $ 23,811
======== ======= ======== ========
</TABLE>
Direct departmental costs include payroll expenses and related payroll burden,
the cost of food and beverage consumed and other departmental costs.
7. Federal, Foreign and State Income Tax
-------------------------------------
The provision for income taxes in the accompanying Consolidated Statements of
Operations is summarized below:
<TABLE>
<CAPTION>
(in thousands)
---------------------------------
Nine Months Ended September 30
1999 1998
------------- ----------
<S> <C> <C>
Deferred federal income tax $ 566 $ 51
Current federal income tax 2,141 232
Current foreign income tax 28 233
Current state income tax 310 222
---------- --------
$ 3,045 $ 738
========== =========
</TABLE>
10
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Segment Information
-------------------
Segment information for the Company's two reportable segments, Owned & Leased
Hotels and Management Activities for the nine month periods ending September 30,
1999 and 1998 follows:
<TABLE>
<CAPTION>
Nine-month period ended September 30, 1999
(in thousands)
-------------------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
-------- ---------- ------------
<S> <C> <C> <C>
Revenues $ 71,451 $ 3,438 $ 74,889
Operating income (loss) before
depreciation and amortization expense 13,509 (952) 12,557
Depreciation and amortization (5,002) (315) (5,317)
Interest income (expense), net (3,301) 323 (2,978)
Other income -- 3,875 3,875
-------- ------- --------
Segment pre-tax profit 5,206 2,931 8,137
Segment assets 90,357 10,594 100,951
Segment capital additions 6,490 234 6,724
Nine-month period ended September 30, 1998
(in thousands)
-------------------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
-------- ---------- ------------
Revenues $ 52,207 $ 4,983 57,190
Operating income (loss) before
depreciation and amortization expense 7,392 (60) 7,332
Depreciation and amortization (3,895) (270) (4,165)
Interest income (expense), net (2,420) 460 (1,960)
Other income (1) 18 17
-------- ------- -------
Segment pre-tax profit 1,076 148 1,224
Segment assets 89,527 12,709 102,236
Segment capital additions 4,580 898 5,478
</TABLE>
11
<PAGE>
FORM 10-Q
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
FIRST NINE MONTHS 1999 COMPARED TO 1998
- ---------------------------------------
REVENUES
- --------
<TABLE>
<CAPTION>
TOTAL REVENUES
(in thousands)
-------------------------------------------
NO. OF
ROOMS 1999 1998
------ ---- ----
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI 100 $ 3,808 $ 3,071
Sonesta Beach Resort Key Biscayne 300 20,801 3,918
Royal Sonesta Hotel Boston (Cambridge) 400 21,119 20,672
Royal Sonesta Hotel New Orleans 500 25,723 24,546
Management and service fees and other revenues 3,438 4,983
-------- --------
Total revenues $ 74,889 $ 57,190
======== ========
</TABLE>
Total revenues for the first nine months of 1999 were $74,889,000 compared to
$57,190,000 in 1998, an increase of approximately $17,699,000.
The Company acquired the Sonesta Beach Resort Key Biscayne on July 1, 1998.
Revenues of this resort during the nine-month period ending September 30, 1999
were $20,801,000 compared to $18,887,000 during the same period in 1998. During
the first six months of 1998, the Company operated the hotel under a management
agreement. The increase in revenues of approximately $1,914,000 was due to a 5%
increase in the resort's average room rate, a slight increase in occupancy
levels, and increased food and beverage revenues. The Company's Sonesta Beach
Resort Anguilla reported an increase in revenues of $737,000 during the first
nine months of 1999 compared to the same period in 1998, due to a 5% increase in
the hotel's room revenue per available room ("REVPAR"), increased food and
beverage revenues, and an increase in revenue from the hotel's retail shops. At
the Royal Sonesta Hotel Boston (Cambridge), revenues in the first three quarters
of 1999 increased by approximately $447,000 due to an 8% increase in average
room rate partially offset by slight decreases in both occupancy levels and the
hotel's banquet revenues. Revenues at the Royal Sonesta Hotel New Orleans rose
$1,177,000 in 1999 compared to the first nine months of 1998, primarily due to a
5% increase in REVPAR and a 7% increase in food and beverage revenues. Revenues
from management activities decreased by $1,545,000 during the first three
quarters of 1999 compared to 1998. The 1998 revenues included fee income of
$669,000 from Sonesta Beach Resort Key Biscayne, which was operated by the
Company under a management agreement until its acquisition on July 1, 1998. The
1998 revenues also included a cancellation fee of $335,000 in connection with
the termination of a license agreement for a hotel in Santiago, Chile, and
additional fee income of $407,000 for previously deferred fees from Chateau
Sonesta Hotel New Orleans. In addition, the 1998 revenues included $266,000 of
service fees to an in-house advertising agency, which function was outsourced as
of January 1, 1999. These decreases in fee income were partially offset by
increases in fee income from the Company's operations in Egypt.
12
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
OPERATING INCOME
- ----------------
<TABLE>
<CAPTION>
OPERATING INCOME
(in thousands)
------------------------------------
1999 1998
---- ----
<S> <C> <C>
Sonesta Beach Resort Anguilla, BWI (595) $(1,024)
Sonesta Beach Resort Key Biscayne 3,200 (1,168)
Royal Sonesta Hotel Boston (Cambridge) 3,984 3,969
Royal Sonesta Hotel New Orleans 1,918 1,720
----- -------
Operating income from hotels after
management and service fees 8,507 3,497
Management activities and other (1,267) (330)
------- --------
Operating income $ 7,240 $ 3,167
======= ========
</TABLE>
Operating income for the nine-month period ending September 30, 1999 was
$7,240,000, compared to operating income of $3,167,000 in 1998, an increase of
approximately $4,073,000.
Operating income of the Sonesta Beach Resort Key Biscayne, which the Company
acquired on July 1, 1998, was $3,200,000 in the first nine months of 1999.
Included in the 1998 results is a seasonal loss during the third quarter only of
$1,168,000. Operating loss at the Sonesta Beach Resort Anguilla decreased by
$429,000 in the first nine months of 1999 compared to the previous year due to
increased revenues of $737,000, partially offset by a $308,000 increase in
expenses. Royal Sonesta New Orleans experienced a $198,000 increase in operating
income due to an increase in revenues of $1,177,000, which was partially offset
by a $979,000 increase in total expenses, primarily rent and cost and operating
expenses. During the first nine months of 1999, operating income at the Royal
Sonesta Hotel Boston (Cambridge) increased slightly by $15,000 compared to 1998,
due to a $447,000 increase in revenues offset by a $432,000 increase in total
operating expenses. Operating loss from management and other activities, which
is computed after giving effect to management, marketing and service fees to the
Company's owned and leased hotels, increased by $937,000 in 1999 compared to
1998. The 1998 loss included a one-time fee payment of $335,000 in connection
with the cancellation of a license agreement for a hotel in Santiago, Chile, and
additional fee income of $407,000 for previously deferred fees from Chateau
Sonesta Hotel New Orleans. In addition, fee income from the Sonesta Beach Resort
& Casino, Curacao decreased by $179,000 in 1999 compared to 1998 as a result of
the termination of the Company's management agreement effective June 1, 1999.
OTHER INCOME (DEDUCTIONS)
- -------------------------
Interest expense increased from $2,660,000 in the first nine months of 1998 to
$3,475,000 in 1999, primarily due to increased interest expense of $1,026,000 on
indebtedness related to the Sonesta Beach Resort Key Biscayne, which was
acquired by the Company on July 1, 1998. Interest income decreased by $203,000
in the first nine months of 1999 compared to the same period in 1998, mainly due
to interest of $275,000 included in the first six months of 1998 from
receivables due from the previous owner of Sonesta Beach Resort Key Biscayne.
These receivables were settled when the Company acquired the hotel on July 1,
1998. This decrease was partially offset by increases in interest income from
the Company's loans to Sonesta Beach Resort Sharm El Sheikh and by interest
received from Sonesta Beach Resort & Casino, Curacao as a result of the late
payment of a termination fee.
13
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
Included in Other income in 1999 is a termination fee of approximately
$1,875,000 which the Company received in connection with the June 1, 1999
cancellation of the management agreement under which the Company operated the
Sonesta Beach Resort & Casino, Curacao. Also included in Other income in 1999 is
a supplemental fee of $2,000,000 from Sonesta Beach Resort Bermuda, which the
Company continues to operate under a management agreement (see also Note
1-Operations).
THIRD QUARTER 1999 COMPARED TO 1998
- -----------------------------------
REVENUES
- --------
<TABLE>
<CAPTION>
TOTAL REVENUES
(in thousands)
--------------------------------------------
NO. OF
ROOMS 1999 1998
----- ---- ----
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI 100 $ 657 $ 376
Sonesta Beach Resort Key Biscayne 300 4,740 3,918
Royal Sonesta Hotel Boston (Cambridge) 400 8,162 7,543
Royal Sonesta Hotel New Orleans 500 7,224 6,341
Management and service fees and other revenues 1,097 916
------- -------
Total revenues $21,880 $19,094
======= =======
</TABLE>
Total revenues for the quarter ended September 30, 1999 were $21,880,000
compared to $19,094,000 in 1998, an increase of approximately $2,786,000.
The Company's Royal Sonesta Hotel New Orleans had an increase in revenues of
$883,000 in the third quarter of 1999 compared to 1998 due to a 9% increase in
occupancy levels, a 7% increase in average room rate, and increased food and
beverage revenues. Third quarter 1999 revenues at the Sonesta Beach Resort Key
Biscayne increased by $822,000 due primarily to increased food and beverage
revenues, an 8% increase in average room rate, and a slight increase in
occupancy levels. Royal Sonesta Hotel Boston (Cambridge) third quarter revenues
increased by $619,000 compared to the 1998 third quarter due to a 12% increase
in room revenue per available room ("REVPAR"). The Company's Sonesta Beach
Resort Anguilla had an increase in revenues of $281,000 in the third quarter of
1999 compared to 1998, due to a 7% increase in REVPAR, and increased food and
beverage revenues. Revenues from management activities and other sources
increased by $181,000 in the third quarter of 1999 compared to 1998 primarily
due to increased fee income from the Company's operations in Egypt.
14
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
OPERATING INCOME
- ----------------
<TABLE>
<CAPTION>
OPERATING INCOME
(in thousands)
------------------------ -------------------------
1999 1998
---- ----
<S> <C> <C>
Sonesta Beach Resort Anguilla, BWI $ (629) $ (644)
Sonesta Beach Resort Key Biscayne (808) (1,168)
Royal Sonesta Hotel Boston (Cambridge) 2,184 1,891
Royal Sonesta Hotel New Orleans 384 235
------ ------
Operating income from hotels after
management and service fees 1,131 314
Management activities and other (397) (309)
------ ------
Operating income $ 734 $ 5
====== ======
</TABLE>
Operating income for the three-month period ending September 30, 1999 was
$734,000, compared to operating income of $5,000 in 1998, an increase of
approximately $729,000.
Operating losses at the Sonesta Beach Resort Key Biscayne in the third quarter
of 1999 decreased by $360,000 compared to the previous year's quarter, due to
increased revenues of $822,000 offset by increases in total expenses of
$462,000. Operating income at the Royal Sonesta Hotel Boston (Cambridge)
increased by $293,000 in 1999 compared to 1998, due to an increase in revenues
of $619,000, partially offset by increased expenses of $326,000. Royal Sonesta
Hotel New Orleans had a slight increase in operating income of $149,000, due to
an increase in revenues of $883,000, which was offset by a $734,000 increase in
total expenses, primarily rent and cost and operating expenses. The Sonesta
Beach Resort Anguilla had a slight decrease of $15,000 in operating losses, due
to increased revenues of $281,000 which was offset by a $266,000 increase in
expenses. Operating losses from management and other activities, which is
computed after giving effect to management, marketing and service fees to the
Company's owned and leased hotels, increased by $88,000 in the third quarter of
1999 compared to 1998. Expense increases of $269,000 related to management and
other activities were partially offset by a $181,000 increase in fee income
during the third quarter of 1999 compared to 1998.
OTHER INCOME (DEDUCTIONS)
- -------------------------
Interest expense decreased by $86,000 in the third quarter of 1999 compared to
the 1998 quarter, primarily due to the repayment of two loans during the second
quarter of 1999 (see note 4 - Long Term Debt). Interest income decreased by
$53,000 in the third quarter of 1999 compared to the same period in 1998 due to
lower short term investment interest income from the Company's decreased cash
balances, and due to interest income recorded in the third quarter of 1998 on
previously deferred management fees related to the Chateau Sonesta Hotel in New
Orleans.
FEDERAL, FOREIGN AND STATE INCOME TAXES
- ---------------------------------------
The provision for income taxes for the first nine months of 1999 was higher than
the statutory rate due to state taxes provided on the Company's profits from its
operations in Louisiana, Florida, and Massachusetts.
15
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash and cash equivalents of approximately $4,300,000 at
September 30, 1999. The Company also has $7,000,000 available under two lines of
credit, and no amounts were outstanding under these lines at September 30, 1999.
The Company had a working capital deficit of approximately $4,005,000 at
September 30, 1999. Included in current liabilities is accrued rent of
approximately $4,761,000 for 1999 due under the lease for the Royal Sonesta
Hotel New Orleans. This 1999 rent is not due until March 2000, and the Company
expects to pay this liability out of future cash flow and, if needed, out of
proceeds from borrowings under its lines of credit.
The first mortgage note of $22,431,000 related to Sonesta Beach Resort Key
Biscayne matures on October 1, 2000. The Company is currently seeking to
refinance this debt and, considering the resort's history of substantial cash
flows, foresees no difficulty in acquiring such replacement financing.
On July 1, 1999, the Company paid $3,772,800 related to a treasury stock
purchase (see Note 5-Capital Transactions).
The Company believes that its present cash balances, plus available borrowing
capacity and the expected cash flow generated during the remainder of the
calendar year 1999, will be more than adequate to meet all of its obligations.
YEAR 2000 COMPLIANCE
- --------------------
The Company has completed its program to address issues related to the year
2000, and believes that substantially all of its automated systems are
compliant. Management at the hotels and the corporate office are finalizing
contingency plans. Company management believes that the compliance program that
it has executed over the past three years, as well as the contingency plans it
will have in place, will reduce the possibility of major interruptions of normal
operations.
PART I - Item 3
---------------
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates. The Company uses fixed rate debt and debt with variable interest
rates to finance the ownership of its properties. The Company does not believe
that there have been any material changes in its market risk exposure since
December 31, 1998.
PART II - Other Information
---------------------------
Item Numbers 1, 2, 3, 4 and 5
- -----------------------------
Not applicable during the quarter ended September 30, 1999.
Item 6
- ------
Exhibits and reports on Form 8-K were filed on July 19, 1999.
16
<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: November 10, 1999
17
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000091741
<NAME> Sonesta International Hotels Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> Sep-30-1999
<CASH> 4,300
<SECURITIES> 0
<RECEIVABLES> 7,088
<ALLOWANCES> 152
<INVENTORY> 1,281
<CURRENT-ASSETS> 14,828
<PP&E> 114,247
<DEPRECIATION> 31,106
<TOTAL-ASSETS> 100,951
<CURRENT-LIABILITIES> 18,833
<BONDS> 49,701
0
294
<COMMON> 3,488
<OTHER-SE> 21,735
<TOTAL-LIABILITY-AND-EQUITY> 100,951
<SALES> 18,963
<TOTAL-REVENUES> 74,889
<CGS> 4,687
<TOTAL-COSTS> 30,990
<OTHER-EXPENSES> 36,659
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,475
<INCOME-PRETAX> 8,137
<INCOME-TAX> 3,045
<INCOME-CONTINUING> 5,092
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,092
<EPS-BASIC> 1.27
<EPS-DILUTED> 1.27
</TABLE>
