FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended March 31, 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 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 May 7, 1999 -- $.80 par value,
Class A -- 2,068,215
<PAGE>
Index
Sonesta International Hotels Corporation
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - March 31, 1999 1
and December 31, 1998
Consolidated statements of operations - Three
months ended March 31, 1999 and 1998 3
Consolidated statements of cash flows - Three
months ended March 31, 1999 and 1998 4
Notes to consolidated financial statements -
March 31, 1999 and 1998 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition - March 31,
1999 11
Item 3. Quantitative and Qualitative Disclosure of Market
Risk 13
<PAGE>
FORM 10-Q
Part I - Item 1. Financial Information
--------------------------------------
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1999 (Unaudited) and December 31, 1998
<TABLE>
<CAPTION>
(in thousands)
--------------
March 31 December 31
1999 1998
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,296 $ 9,470
Accounts and notes receivables:
Trade, less allowance of $147
($141 at December 31, 1998) for doubtful accounts 8,170 7,654
Other 658 905
-------- --------
Total accounts and notes receivable 8,828 8,559
Current portion of deferred taxes 357 347
Inventories 1,225 1,268
Prepaid expenses 1,896 1,384
-------- --------
Total current assets 16,602 21,028
Long-term receivables and advances 2,147 2,535
Property and equipment, at cost:
Land and land improvements 10,014 10,014
Buildings 68,903 68,899
Furniture and equipment 25,893 25,255
Leasehold improvements 2,489 2,464
Projects in progress 2,278 1,105
-------- --------
109,577 107,737
Less accumulated depreciation and
amortization 27,551 25,789
-------- --------
Net property and equipment 82,026 81,948
Other long-term assets 1,431 1,092
-------- --------
$102,206 $106,603
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
March 31, 1999 (Unaudited) and December 31, 1998
------------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
--------------
March 31 December 31
1999 1998
------------ -------------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capitalized lease obligations $ 7,500 $ 4,048
Accounts payable 3,904 6,179
Advance deposits 3,823 3,869
Federal, foreign and state income taxes 1,305 383
Accrued liabilities:
Salaries and wages 1,592 2,569
Rentals 2,140 6,138
Interest 500 459
Employee benefits 480 468
Other 2,333 1,682
-------- ---------
Total accrued liabilities 7,045 11,316
-------- ---------
Total current liabilities 23,577 25,795
Long-term debt 46,655 50,731
Deferred federal and state income taxes 3,338 3,403
Other non-current liabilities 2,450 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--10,000,000 shares
Issued--3,051,088 shares at stated value 3,488 3,488
Retained earnings 30,530 28,871
Treasury shares--982,873, at cost (8,126) (8,126)
-------- --------
Total common stockholders' equity 25,892 24,233
-------- --------
$102,206 $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
March 31,1999 March 31, 1998
------------- --------------
<S> <C> <C>
Revenues:
Rooms $ 17,228 $ 10,717
Food and beverage 6,249 4,082
Management, license and
service fees 1,102 1,882
Parking , telephone and other 2,051 1,327
-------- --------
26,630 18,008
-------- --------
Costs and expenses:
Costs and operating expenses 10,178 7,074
Advertising and promotion 1,983 1,429
Administrative and general 3,902 3,147
Human resources 502 383
Maintenance 1,685 1,304
Rentals 2,387 2,354
Property taxes 542 297
Depreciation and amortization 1,762 1,228
-------- --------
22,941 17,216
-------- --------
Operating income 3,689 792
Other income (deductions):
Interest expense (1,215) (725)
Interest income 152 323
Foreign exchange loss (4) (1)
Gain on sales of assets 4 14
-------- --------
(1,063) (389)
Income before income taxes 2,626 403
Federal, foreign and state income tax provision 964 267
-------- --------
Net income 1,662 136
Retained earnings at beginning of period 28,871 28,087
Cash dividends on preferred stock (3) (3)
-------- --------
Retained earnings at end of period $ 30,530 $ 28,220
======== ========
Basic earnings per share of common stock $ .80 $ .06
======== ========
Weighted average number of shares
outstanding 2,068 2,068
======== ========
</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)
--------------
Three Months Ended March 31
1999 1998
------------- --------------
<S> <C> <C>
Cash provided (used) by operating activities
Net income $1,662 $ 136
Items not (providing) requiring cash
Pension expense 308 153
Depreciation and amortization 1,762 1,228
Other amortization (134) 22
Deferred federal income tax provision (benefit) (75) 12
Gain on sales of assets (4) (14)
Changes in assets and liabilities
Accounts and notes receivable (396) (301)
Inventories 43 (13)
Prepaid expenses (512) (383)
Accounts payable (1,962) (2,284)
Advance deposits (46) 257
Federal, foreign and state income taxes 922 96
Accrued liabilities (4,271) (3,351)
------ -------
Cash used by operating activities (2,703) (4,442)
Cash provided (used) by investing activities
Proceeds from sales of assets 4 14
Expenditures for property and equipment (2,060) (1,907)
Payments received on long-term receivables
and advances 375 1,126
------ -------
Cash used by investing activities (1,681) (767)
Cash provided (used) by financing activities
Changes in notes payable -- 640
Payments on long-term debt (477) (191)
Payments on capitalized lease obligations -- (15)
Cash dividends paid (313) (313)
------ -------
Cash provided (used) by financing activities (790) 121
Net decrease in cash (5,174) (5,088)
Cash and cash equivalents at beginning of period 9,470 5,581
------ -------
Cash and cash equivalents at end of period $4,296 $ 493
====== =======
</TABLE>
4
<PAGE>
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOW (unaudited) (continued)
Supplemental Schedule of Interest and Income Taxes Paid
-------------------------------------------------------
Cash paid for interest in the 1999 three-month period and the 1998
three-month period was approximately $1,174,000 and $712,000,
respectively. Cash paid for income taxes in the 1999 three-month period
and the 1998 three-month period was approximately $117,000 and $159,000,
respectively.
See accompanying notes to consolidated financial statements.
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and 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 month period ended March 31, 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.
Included in the results from operations for the quarter ended March 31, 1999 are
the revenues and expenses from Sonesta Beach Resort Key Biscayne, which the
Company acquired on July 1, 1998. Before the acquisition, the Company operated
the hotel under a management agreement.
2. Long-Term Receivables and Advances
<TABLE>
<CAPTION>
(in thousands)
-----------------------------
March 31, December 31,
1999 1998
----------------- -----------------
<S> <C> <C>
Sharm El Sheikh (a) $1,000 $1,000
Cairo, Egypt, net of discount (b) 315 708
Other 1,262 1,174
----------------- -----------------
Total long-term receivables 2,577 2,882
Less: current portion 430 347
----------------- -----------------
Net long-term receivables $2,147 $2,535
================= =================
</TABLE>
(a) This loan to the owner of the Sonesta Beach Resort, Sharm El Sheikh
bears interest at the prime rate (7 3/4% at March 31, 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.
6
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Borrowing Arrangements
The Company has a $2,000,000 line of credit which expires on September 30, 1999.
This line of credit bears interest at the prime rate (7 3/4% at March 31, 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 March 31, 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 (7 3/4% at March
31, 1999) 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
March 31, 1999.
4. Long-Term Debt
<TABLE>
<CAPTION>
(in thousands)
-------------------------------------------------------
March 31, December 31,
1999 1998
------------------ -------------------
<S> <C> <C>
Charterhouse of Cambridge Trust and Sonesta of
Massachusetts Inc.:
First mortgage note (a) $21,810 $21,937
Sonesta Beach Resort Limited
Partnership:
First mortgage note (b) 23,703 23,859
Sonesta Hotels of Anguilla, Ltd:
First mortgage note (c) 5,440 5,790
Note from Seller (d) 800 800
Sonesta Curacao Hotel Corporation, N.V.:
Bank term loan (e) 2,000 2,000
Other 402 393
------------------ -------------------
54,155 54,779
Less current portion of long-term debt 7,500 4,048
------------------ -------------------
Total long-term debt $46,655 $50,731
================== ===================
</TABLE>
7
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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 $25,043,000 at March 31, 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 $36,015,000 at March 31, 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.
(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 $13,116,000 at March 31, 1999. In addition,
an amount of $1,900,000 is secured by a Company guaranty. The loan
requires minimum principal payments of $375,000, $3,965,000 and
$1,100,000 in the years 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 March 31, 1999 was
7.2%.
(d) This loan from the Seller of the Sonesta Beach Resort Anguilla was for
a three year period ending November 28, 1998. The interest rate is 8%
per annum. The Company has reduced this loan by $200,000 to which it is
entitled under the agreements with the Seller, and has further rights
to offset certain receivables from the Seller from this loan. The
Company did not repay this loan on the maturity date, pending
resolution of certain outstanding legal issues with the Seller of the
resort. The Company has since resolved these issues and will repay this
loan in the second quarter of 1999.
(e) This loan matured on June 30, 1998, but was extended through June 30,
1999. No principal payments are required. The interest rate was 9 3/4%
at March 31, 1999, and is subject to periodic review by the bank. 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.
8
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Hotel Costs and Operating Expenses
Hotel costs and operating expenses in the accompanying Consolidated Statements
of Operations are summarized below:
<TABLE>
<CAPTION>
(in thousands)
--------------
Three Months Ended March 31
1999 1998
------------- --------------
<S> <C> <C>
Direct departmental costs
Rooms $3,530 $2,442
Food and beverage 4,934 3,305
Heat, light and power 727 602
Other 987 725
------- ------
$10,178 $7,074
======= ======
</TABLE>
Direct departmental costs include payroll expenses and related payroll burden,
the cost of food and beverage consumed and other departmental costs.
6. 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)
--------------
Three Months Ended March 31
1999 1998
------------- --------------
<S> <C> <C>
Deferred federal income tax provision (benefit) $ (75) $ 12
Current federal income tax provision 1,072 64
Current foreign income tax provision 10 135
Current state income tax provision (benefit) (43) 56
------ ------
$ 964 $ 267
====== ======
</TABLE>
9
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. Segment Information
Segment information for the Company's two reportable segments, Owned & Leased
Hotels and Management Activities for the three month periods ending March 31,
1999 and 1998 follows:
Period ended March 31, 1999
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
------- ------------ ------------
<S> <C> <C> <C>
Revenues $25,515 $1,115 $26,630
Operating income (loss) before
depreciation and amortization expense 5,736 (285) 5,451
Depreciation and amortization (1,657) (105) (1,762)
Interest income (expense), net (1,137) 74 (1,063)
Other income -- -- --
-------- -------- ---------
Segment pre-tax profit (loss) 2,942 (316) 2,626
Segment assets 92,308 9,898 102,206
Segment capital additions 1,949 111 2,060
</TABLE>
Period ended March 31, 1998
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
------- ------------ ------------
<S> <C> <C> <C>
Revenues $15,997 $2,011 $18,008
Operating income before
depreciation and amortization expense 1,972 48 2,020
Depreciation and amortization (1,115) (113) (1,228)
Interest income (expense), net (650) 248 (402)
Other income -- 13 13
--------- ------ -------
Segment pre-tax profit 207 196 403
Segment assets 51,279 20,232 71,511
Segment capital additions 1,710 197 1,907
</TABLE>
10
<PAGE>
FORM 10-Q
Part I - Item 2
---------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
FIRST 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 $ 1,979 $ 1,704
Sonesta Beach Resort Key Biscayne 300 9,361 --
Royal Sonesta Hotel Boston (Cambridge) 400 4,668 5,013
Royal Sonesta Hotel New Orleans 500 9,507 9,280
Management and service fees and other revenues 1,115 2,011
--------- ------
Total revenues $ 26,630 $ 18,008
========= ======
</TABLE>
Total revenues for the first quarter ended March 31, 1999 were $26,630,000
compared to $18,008,000 in 1998, an increase of approximately $8,622,000.
The first quarter of 1999 included the revenues of Sonesta Beach Resort Key
Biscayne, which the Company acquired on July 1, 1998. Revenues of this resort
during the 1999 first quarter were $9,361,000, compared to revenues of
$8,615,000 during the first quarter of 1998, when the hotel was operated by the
Company under a management agreement. The increase in revenues of $746,000 was
primarily the result of an 8% increase in the average room rate achieved at the
resort. The Company's Sonesta Beach Resort Anguilla had an increase in revenues
of $275,000 in the first quarter of 1999 compared to 1998, due to a 10% increase
in room revenue per available room ("REVPAR"), and increased revenues from the
hotel's retail shops, which the Company operates. First quarter 1999 revenues at
the Royal Sonesta Hotel New Orleans increased by $227,000, primarily due to an
increase of 3% in the hotel's average room rate. The Royal Sonesta Hotel Boston
(Cambridge) first quarter revenues decreased by $345,000 compared to the first
quarter of 1998. This was caused by lower rooms and banquet revenues as a result
of a decrease in the group and convention business during the first quarter of
1999 compared to the same period in 1998. Revenues from management activities
and other sources decreased by $896,000 in the first quarter of 1999 compared to
1998. The 1998 revenues included a one time fee of $335,000 in connection with
the cancellation of a license agreement for a hotel in Santiago, Chile. The 1998
revenues also included fee income of $381,000 from Sonesta Beach Resort Key
Bicayne, which was operated by the Company under a management agreement until
its acquisition by the Company on July 1, 1998.
11
<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 $ 364 $ 79
Sonesta Beach Resort Key Biscayne 3,224 --
Royal Sonesta Hotel Boston (Cambridge) (320) (23)
Royal Sonesta Hotel New Orleans 811 801
------- -----
Operating income from hotels after
management and service fees 4,079 857
Management activities and other (390) (65)
------- -----
Operating income $ 3,689 $ 792
======= =====
</TABLE>
Operating income for the three-month period ending March 31, 1999 was
$3,689,000, compared to operating income of $792,000 in 1998, an increase of
approximately $2,897,000.
Included in the 1999 first quarter operating income is income of $3,224,000 from
Sonesta Beach Resort Key Biscayne, which the Company acquired on July 1, 1998.
The first quarter of the year is the hotel's most profitable quarter, and this
result is, therefore, not indicative of the result of a full year of operations.
Operating income at the Sonesta Beach Resort Anguilla increased by $285,000 in
the first quarter of 1999 compared to the previous year's quarter, due to
increased revenues during the quarter of $275,000, and a decrease of $10,000 in
expenses. The first quarter operating loss at the Royal Sonesta Hotel Boston
(Cambridge) increased by $297,000 in 1999 compared to 1998, due to a decrease in
revenues of $345,000, partially offset by a decrease in expenses of $48,000.
Royal Sonesta New Orleans had a slight increase in operating income of $10,000,
due to an increase in revenues of $227,000, which was offset by a modest 3%
increase in expenses of $217,000. 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 $325,000 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.
OTHER INCOME (DEDUCTIONS)
- -------------------------
Interest expense increased from $725,000 in the first quarter of 1998 to
$1,215,000 in the 1999 first quarter, due to interest expense of $531,000 on
indebtedness related to the Sonesta Beach Resort Key Biscayne, which was
acquired by the Company on July 1, 1998. Interest income decreased by $171,000
in the first quarter of 1999 compared to the same period in 1998, mainly due to
interest of $138,000 included in the 1998 first quarter 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.
12
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONTINUED)
FEDERAL, FOREIGN AND STATE INCOME TAXES
- ---------------------------------------
The provision for income taxes for the first quarter of 1999 was higher than the
statutory rate due to state taxes provided on the Company's profits from its
operations in Louisiana and Florida.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash and cash equivalents of approximately $4,296,000 at March
31, 1999. The Company also has $7,000,000 available under two lines of credit,
and no amounts were oustanding under these lines at March 31, 1999.
The Company had a working capital deficit of approximately $6,975,000 at March
31, 1999. Included in current liabilities is $4,165,000 which is due on or
before March 1, 2000 on the Company's mortgage on the Anguilla hotel. The
Company expects to refinance, or to seek alternative financing, for this loan.
Also included in current liabilities is a loan of $2,000,000 related to the
Sonesta Beach Hotel & Casino Curacao. The Company expects to repay this loan
with the proceeds of a termination fee which the Company is entitled to receive
upon the termination of its management agreement, which is expected to happen in
the second quarter of 1999. 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 continues to address issues related to the Year 2000. Updated action
plans from each property were obtained during the first quarter, and are being
reviewed by corporate Information Systems and Financial Managers. A new property
management computer system was implemented at the Sonesta Beach Resort Bermuda
during the first quarter. Year 2000 compliance and contingency planning will
also be an agenda item during Company wide management meetings for Financial and
Information Systems Managers and General Managers to be held during the month of
May 1999. Management believes that its compliance program and its contingency
plans under development 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.
13
<PAGE>
PART II - Other Information
---------------------------
Item Numbers 1, 2, 3, 4, 5
- --------------------------
Not applicable during the quarter ended March 31, 1999.
Item 6
- ------
No exhibits or reports on form 8-K were filed during the three months ended
March 31, 1999.
14
<PAGE>
FORM 10-Q
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be
signed on its behalf by the undersigned thereunto duly
authorized.
SONESTA INTERNATIONAL HOTELS CORPORATION
By: /s/
---------------------------------------------
Boy van Riel
Vice President and Treasurer
(Authorized to sign on behalf of the Registrant as Principal
Financial Officer)
DATE: May 7, 1999
15
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000091741
<NAME> Sonesta Inernational Hotels Corporation
<MULTIPLIER> 1000
<S> <C>
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0
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</TABLE>
