SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1998
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 of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Clarendon Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 421-5400
Securities registered pursuant to Section 12 (b) of the Act:
NONE
(Title of Class)
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock
$ .80 par value NASDAQ
<PAGE>
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.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229,405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
The aggregate market value of the common stock held by non-affiliates of
the registrant as of the close of business on March 23, 1999 was $8,187,302.
The number of shares outstanding of the registrant's common stock as of the
close of business on March 23, 1999 was 2,068,215.
Documents incorporated by reference
1. Portions of the annual report to shareholders for the year ended
December 31, 1998 are incorporated by reference into Parts I, II and IV.
2. Portions of the proxy statement for the 1999 annual meeting of
stockholders are incorporated by reference into Part III.
An Index to Exhibits appears on pages 14 through 21 of this Form 10-K.
----------------------------------------------------------------------------
<PAGE>
PART I
Item 1. Business
(a) General Development of Business: The Company is engaged in the operation of
hotels that it owns or leases in Boston (Cambridge), Massachusetts; Key
Biscayne, Florida; New Orleans, Louisiana; and Anguilla, B.W.I. It also
operates, under management agreements, hotels in Southampton, Bermuda;
Curacao, Netherlands Antilles; New Orleans, Louisiana; and Cairo, Luxor, El
Gouna, Port Said and Sharm el Sheikh, Egypt; and two Nile River cruise
vessels. The Company has paid $2 million for a 22% ownership interest in
the hotel and casino it operates under a management contract in Curacao,
Netherlands Antilles. The Company has entered into management agreements to
operate new hotels being created in Miami Beach; Taba and Nuweiba, Egypt;
and Manama, Bahrain; these projects are scheduled to open in 1999 or 2000.
The Company also licenses the use of the Sonesta name to two hotels in
Aruba, and a hotel in Lima, Peru. The Company terminated contracts under
which it operated two properties in Hurghada, Egypt, effective in early
January 1998; and a license agreement for a hotel in Santiago, Chile was
terminated effective at the end of February 1998. In May 1998, the Company
elected not to fund a performance threshold deficit and the owner of
Sonesta Beach Resort & Casino, in Curacao, exercised its right to terminate
the Company's management contract. While the Company is cooperating in the
transition to new management at that property, it continues to operate it
under the Sonesta flag. In July 1998, the Company acquired ownership of
Sonesta Beach Resort, in Key Biscayne, Florida, a property it has operated
for many years. In February 1999, the owner of the hotel in El Gouna, Egypt
that the Company has both operated and licensed notified the Company that
it was terminating its relationship with the Company for that property,
effective in May 1999. In November 1995, the Company acquired the 100-room
Casablanca resort in Anguilla, B.W.I., which at that time was closed due to
damage from Hurricane Luis, in September 1995 (for details of this
transaction, reference is made to Note 2-Operations, on pages 14 through 16
of the 1998 Annual Report to Shareholders.) In December 1994, the Company
entered into two partnerships: one involving an 82-room hotel in SoHo, New
York; the other to create a 320-room resort in Costa Rica. In July, 1996,
the Company liquidated its investment in the SoHo project, and in March
1997 the Company notified its partner in the Costa Rica project that it was
terminating its participation in that project. Through a foreclosure
procedure the Company now owns the resort site in Costa Rica.
(b) Not applicable.
(c) Narrative Description of Business: The Company's business is to a great
extent dependent upon a high level of economic activity. The hotel business
is highly competitive. The facilities of competitors are often affiliated
with national or regional
2
<PAGE>
Item 1. Business
(c) (Cont'd)
chains having more room accommodations and greater financial resources than
the Company. The Company follows the practice of refurnishing and
redecorating the hotels which it operates in order to keep the properties
attractive and competitive with new hotel properties, and this requires the
Company to make substantial capital expenditures. During the two years
ended December 31, 1998, the Company made capital expenditures for its
hotels totaling approximately $14,200,000.
The Company endeavors to create individual and distinctive features for
each hotel property while utilizing common corporate identification in
order to obtain the benefits of chain operation. The Company is using the
name "Sonesta" for all of its hotels.
The Company has approximately 1,900 employees. Approximately 300 of these
employees are covered by a collective bargaining agreement. The Company
considers its relations with its employees to be satisfactory.
While the business of the Company's individual hotels is seasonal, the
diverse locations of the four owned or leased properties tend to mitigate
the impact of this factor. Traditionally, the second and fourth quarters
have produced greater revenues and operating income than the first and
third quarters, although these seasonal fluctuations do not materially
affect the Company's business activities.
The following table reflects total revenues, annual occupancy percentages,
average room rates and revenues per available room ("REVPAR") for the
Company's owned and leased properties for the years 1998, 1997, and 1996.
REVPAR is calculated by dividing annual room revenue by the total number of
rooms available during the year. Sonesta Beach Resort Anguilla was acquired
by the Company in November 1995 and opened on January 18, 1996. Sonesta
Beach Resort Key Biscayne was acquired by the Company on July 1, 1998.
Revenue and room statistics for Sonesta Beach Resort Key Biscayne are for
the period July 1 to December 31, 1998.
<TABLE>
<CAPTION>
TOTAL
NUMBER OF YEAR BUILT REVENUES
HOTEL ROOMS OR ACQUIRED (in thousands)
- ----- ----- ----------- --------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sonesta Beach Resort Anguilla,
B.W.I Owned 100 1995 $ 4,253 $ 4,071 $ 2,717
Sonesta Beach Resort Key Biscayne Owned 300 1998 10,821 -- --
Royal Sonesta Hotel Boston
(Cambridge) Owned 400 1963/1984 27,602 25,521 22,891
Royal Sonesta Hotel New Orleans Leased 500 1969 33,131 31,491 30,802
</TABLE>
3
<PAGE>
(c) (Cont'd)
<TABLE>
<CAPTION>
AVERAGE AVERAGE
OCCUPANCY DAILY
PERCENTAGE RATE
-------------------- ------------------
HOTEL 1998 1997 1996 1998 1997 1996
- ----- -------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Sonesta Beach Resort Anguilla,
B.W.I. 44.6% 48.8% 39.3% $236 $192 $147
Sonesta Beach Resort Key Biscayne 68.3% -- -- 163 -- --
Royal Sonesta Hotel Boston
(Cambridge) 74.1% 76.2% 76.5% 161 144 127
Royal Sonesta Hotel New Orleans 79.7% 79.1% 80.5% 153 147 141
</TABLE>
<TABLE>
<CAPTION>
"REVPAR"
--------
HOTEL 1998 1997 1996
- ----- ---- ---- ----
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, B.W.I. $106 $ 94 $ 58
Sonesta Beach Resort Key Biscayne 111 -- --
Royal Sonesta Hotel Boston (Cambridge) 119 109 97
Royal Sonesta Hotel New Orleans 122 117 114
</TABLE>
The Company has established and maintains trademark protection for certain
service marks it uses in conducting its business, including the service
marks "Sonesta", "Sonesta Beach", "Just Us Kids", and the Company's
stylized "S" logo. Trademarks are maintained in numerous countries, besides
the United States. Each mark is generally protected for several years,
subject to periodic renewal.
For revenues by class of service for the three years ended December 31,
1998, reference is made to the Consolidated Statements of Operations which
appears on page 8 of the 1998 Annual Report to Shareholders.
(d) Financial Information about Foreign and Domestic Operations: This
information is incorporated by reference to Note 2 on pages 14 through 16
of the 1998 Annual Report to Shareholders.
Item 2. Properties
The Company's hotels are primarily metropolitan and resort hotels in popular
vacation areas which emphasize luxury accommodations and personal service.
The Company has fee ownership in three hotels: Royal Sonesta Hotel, Boston
(Cambridge), Massachusetts, Sonesta Beach Resort, Key Biscayne, Florida, and
Sonesta Beach Resort Anguilla, B.W.I. Reference is made to Note 5 of the Notes
to the Consolidated Financial Statements of the registrant which appears on
pages 17 and 18 of the Company's 1998 Annual Report to Shareholders for details
of the mortgage liens on the Boston (Cambridge), Massachusetts property, the Key
Biscayne, Florida property, and the Anguilla property.
4
<PAGE>
The Company operates the Royal Sonesta Hotel, New Orleans, Louisiana under a
long-term lease which expires on September 30, 2024, provided the Company
exercises its two remaining ten-year extension options.
The Company also operates under management agreements hotels in Southampton,
Bermuda; Curacao, Netherlands Antilles; New Orleans, Louisiana; and Cairo,
Luxor, El Gouna, Port Said and Sharm el Sheikh (2), Egypt; and two Nile River
cruise vessels. The Company's hotel and casino on the island of Curacao is
operated under a management contract, and the Company has invested $2 million
for a 22% ownership interest in that property. As previously discussed,
ownership of the Curacao property has exercised its right to terminate the
Company's management contract for that property. Before the termination becomes
effective, the Company is entitled to receive a termination fee of $1,875,073,
which is based on the investment the Company made in the hotel of $2,000,000,
less incentive fees earned during 1998 of $124,927. As previously mentioned, the
Company's involvement with the El Gouna, Egypt property will terminate in May
1999. The Company has granted licenses for the use of its name to two hotels in
Aruba and a hotel in Lima, Peru.
In December 1994, the Company entered into two partnerships: one of the
partnerships was formed to acquire and develop as a hotel, including retail
space, a building in the SoHo district of New York; the other partnership was
formed to acquire a beachfront hotel site in Guanacaste, Costa Rica on which the
partnership intended to develop a 320-room resort and casino. The Company
liquidated its investment in the SoHo project in July 1996. The Company notified
its development partner that it did not intend to proceed with the Costa Rica
project, in which a Company subsidiary was a 50% partner, triggering the
repayment of certain funds advanced by the Company and secured by a mortgage.
Those funds were not repaid and the Company foreclosed on the mortgage and now
holds fee ownership of the development site in Costa Rica.
In addition to the properties listed above, the Company leases space for its
executive offices at 200 Clarendon Street, Boston, Massachusetts 02116.
Item 3. Legal Proceedings
A wholly-owned subsidiary of the Company, Sonesta Hotels of Anguilla Limited
("SHAL"), and two executive officers of the Company were named as defendants in
a lawsuit filed in October, 1997, in Anguilla, B.W.I., by the former owner of
the resort hotel in Anguilla which the subsidiary purchased in November 1995
(the "Resort"), and the principals of that
5
<PAGE>
entity. The Statement of Claim in this lawsuit, which was substantially amended
in January 1998, alleges, inter alia, that the defendants have not complied with
certain "implied terms" of the agreements between them and with the terms of an
alleged oral agreement. The plaintiffs in this action are seeking relief from
their contractual obligations, entitlement to certain financial benefits, and
certain equitable relief. In late February 1998 defendants filed a "Defense and
Counterclaim" to plaintiffs' "Amended Statement of Claim". As part of its
Counterclaim SHAL is seeking offsets against amounts otherwise owed to the
former owner, specifically a loan of $1,000,000 that matured in November 1998.
In light of its numerous claims against the former owner, SHAL has made no
payments on account of that loan since 1996. The parties have engaged in
settlement discussions which to date have not been fruitful. In the absence of a
settlement SHAL intends to vigorously defend against this action, and to
vigorously prosecute its counterclaims, and expects a favorable outcome.
In early 1997, SHAL filed a lawsuit in The Court of First Instance, in Curacao,
Netherlands Antilles, against the insurance company that was insuring the resort
in Anguilla at the time of Hurricane Luis, in September 1995. In the suit, SHAL
seeks to establish its entitlement to business interruption coverage for periods
subsequent to the date SHAL acquired ownership of the Resort. The insurer, Ennia
Caribe Schade N.V., has taken the position that (1) it has no obligation to fund
business losses realized after the date of sale, and (2) the applicable policy
does not recognize business losses incurred after the Resort was restored and
reopened. The Company expects to vigorously pursue its claims against Ennia
Caribe, but it is not able to predict with certainty how this lawsuit will be
resolved. No amounts which may be recoverable in this lawsuit have been
reflected in the Company's financial statements.
The Company is from time to time subject to routine litigation incidental to its
business, and generally covered by insurance. The Company believes that the
results of such litigation will not have a materially adverse effect on the
Company's financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the Company in the fourth
quarter of 1998.
6
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Common stock market prices and dividends and the number of shareholders of
record are incorporated by reference to page 2 of the 1998 Annual Report to
Shareholders.
A dividend of $ .15 per share was paid on the Company's common stock in July
1997 and a dividend of $ .15 per share was declared on the Company's common
stock in December 1997, but was paid in January 1998. A dividend of $ .15 per
share was paid on the Company's common stock in July 1998 and a dividend of
$.15 per share was declared on the Company's common stock in December 1998, but
was paid in January 1999. Other information required by this item is
incorporated by reference to the Consolidated Statements of Stockholders' Equity
which appears on page 11 of the 1998 Annual Report to Shareholders.
No dividends may be declared or paid on the Company's common stock nor may
common stock be purchased or redeemed unless (a) preferred stock dividend and
sinking fund requirements are met; and (b) the total of dividends paid does not
exceed the maximum amount permitted by one of the Company's bank loan
agreements.
Item 6. Selected Financial Data
Selected Financial Data, on page 2 of the 1998 Annual Report to Shareholders, is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
This information is incorporated by reference to pages 3 through 6 of the 1998
Annual Report to Shareholders.
Item 7A. Quantitative and Qualitative Disclosures About 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.
7
<PAGE>
The table that follows summarizes the Company's debt obligations outstanding as
of December 31, 1998. This information should be read in conjunction with note 5
to the consolidated financial statements.
Short and Long Term Debt at December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
1999 2000 2001 2002 2003 Total Fair Value
<S> <C> <C> <C> <C> <C> <C> <C>
Principal Amount Due 4,048 26,967 2,224 682 19,537 53,458 54,779
Average Interest Rate 10.31% 10.41% 8.64% 8.87% 8.87%
</TABLE>
Item 8. Consolidated Financial Statements and Supplementary Data
The financial statements listed in the Index to Consolidated Financial
Statements filed as part of this Annual Report on Form 10-K, together with the
report of Ernst & Young LLP dated March 19, 1999, are incorporated herein by
reference to the 1998 Annual Report to Shareholders.
Selected Quarterly Financial Data, on page 6 of the 1998 Annual Report to
Shareholders, is incorporated by reference.
Item 9. Changes in and Disagreements with Auditors on Accounting and Financial
Disclosure
There were no disagreements with auditors on accounting principles or practices
or financial statement disclosures.
8
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Directors of the Company and Compliance with Section 16 (a)
The information required by this item is incorporated herein by reference
to the proxy statement for the 1999 Annual Meeting of Stockholders.
B. The Executive Officers of the Company are as follows
<TABLE>
<CAPTION>
Employment History
Name Present Position Age 1994 to Present
- ---- ---------------- --- ---------------
<S> <C> <C> <C>
Roger P. Sonnabend Chairman of the Board and Chief 73 Chairman and Chief
Executive Officer. Executive Officer.
Stephanie Sonnabend President 46 Executive Vice President
until January 1, 1996.
Paul Sonnabend Chairman of the Executive Committee 71 President until
and Chief Financial Officer December 31, 1995.
Stephen Sonnabend Senior Vice President 67 Senior Vice President.
Boy van Riel Vice President and Treasurer 40 Vice President & Treasurer.
Peter J. Sonnabend Vice Chairman, Vice President and 45 Vice President and
Secretary Secretary Until May
1995.
Christopher Baum Vice President - Sales & Marketing 45 Vice President - Sales
& Marketing.
Michael Levie Vice President - Egypt 38 Vice President &
General Manager, Royal
Sonesta Hotel, Boston
(Cambridge), Until
January 1996.
</TABLE>
9
<PAGE>
<TABLE>
<CAPTION>
Employment History
Name Present Position Age 1994 to Present
- ---- ---------------- --- ---------------
<S> <C> <C> <C>
Felix Madera Vice President - International 50 Vice President &
General Manager,
Sonesta Beach Resort,
Key Biscayne, Florida.
Mary Jane Rosa Vice President - Design 50 Vice President - Design
Jacqueline Sonnabend Executive Vice President 44 Vice President - Human
Resources Until March
1996.
Hans Wandfluh Vice President 64 President & General
Manager, Royal Sonesta
Hotel, New Orleans,
Louisiana.
</TABLE>
Roger, Paul and Stephen Sonnabend are brothers. Stephanie Sonnabend and
Jacqueline Sonnabend are the daughters of Roger Sonnabend. Peter J. Sonnabend is
the son of Paul Sonnabend.
The Board of Directors elects officers of the Company on an annual basis.
Item 11. Executive Compensation
and
Item 12. Security Ownership of Certain Beneficial Owners and Management
and
Item 13. Certain Relationships and Related Transactions.
The information required by these items is incorporated by reference to the
proxy statement for the 1999 Annual Meeting of Stockholders to be held on May
18, 1999.
10
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements: The financial statements listed in the
accompanying Index to Consolidated Financial Statements are filed as
part of this Annual Report.
2. Financial Statement Schedules: The schedule listed in the accompanying
Index to Consolidated Financial Statements is filed as part of this
Annual Report.
3. Financial Statements of significant subsidiary, RIF Resort Hotel,
N.V., if available, shall be provided by amendment to this Form 10-K
by June 30, 1999, as allowed under Regulation S-X, Rule 3-09.
4. Exhibits: The exhibits listed on the accompanying Index to Exhibits
are filed as part of this Annual Report.
(b) Reports on Form 8-K filed during the last quarter of 1998: None
11
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
Index to Consolidated Financial Statements
and Financial Statement Schedules
<TABLE>
<CAPTION>
Item 14 (a) (1) and (2) References (Page)
1998 Annual Report to
Form 10-K Shareholders*
--------- -------------
<S> <C> <C>
Consolidated Balance Sheets
at December 31, 1998 and 1997........................................ 9-10
For the years ended December 31, 1998, 1997 and 1996:
Consolidated Statements of
Operations...................................................... 8
Consolidated Statements of
Stockholders' Equity............................................ 11
Consolidated Statements of
Cash Flows...................................................... 12
Notes to Consolidated
Financial Statements............................................ 13-21
Consolidated Financial Statement
Schedule for the year ended
December 31, 1998:
II. Consolidated Valuation and
Qualifying Accounts............................................. 13
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
- --------------------------------------------------------------------------------
*Incorporated by Reference
12
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
SCHEDULE II - CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Amounts
Year Ended December 31, 1996 Balance Charged Amounts Balance,
Beginning Acquisition (Credited) (Written Off) End Of
Of Year Of Hotel To Income Recovered Year
------- -------- --------- --------- ----
<S> <C> <C> <C> <C> <C>
Deducted from assets:
Valuation reserve on long-term
receivable and advances $5,500,000 $ - $ - $5,500,000
========== ======== ======== ==========
Allowance for doubtful accounts $ 97,901 $ 37,650 $(27,577) $ 107,974
========== ======== ======== ==========
Year Ended December 31, 1997
Deducted from assets:
Valuation reserve on long-term
receivable and advances $5,500,000 $ - $ - $5,500,000
========== ======== ======== ==========
Allowance for doubtful accounts $ 107,974 $ 26,001 $(16,317) $ 117,658
========== ======== ======== ==========
Year Ended December 31, 1998
Deducted from assets:
Valuation reserve on
long-term
receivable and advances $5,500,000 $(5,500,000) $ - $ - $ -
========== =========== ======== ======== ==========
Allowance for doubtful accounts $ 117,658 $ 33,000 $(18,309) $ 8,473 $ 140,822
========== =========== ======== ======== ==========
</TABLE>
- --------------------------------------------------------------------------------
Note: The Company acquired Sonesta Beach Resort Key Biscayne on July 1, 1998.
The Company released the seller from indebtedness owed to Company subsidiaries
and reversed a valuation reserve against one of the loans owed to the Company
prior to the acquisition. In connection with the acquisition the Company also
acquired a $33,000 reserve for trade receivables.
13
<PAGE>
Sonesta International Hotels Corporation
Index to Exhibits
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
3.1 Certificate of Incorporation as amended to date. (8)
3.2 Company By-laws, including all amendments through
March 16, 1999. (12)
9.1(a) Sonnabend Voting Trust Agreement, dated August 1,
1984, providing for the combination of the voting
power of stock held by members of the Sonnabend
Family. (6)
9.1(b) First Amendment, dated December 1984, to Sonnabend
Voting Trust Agreement (6)
10.1(a) "Third Amendment of Mortgage and Security Agreement
and Second Amendment of Note" Between Key Biscayne
Limited Partnership, Mortgagor ("KBLP") and Florida
Sonesta Corporation, Mortgagee ("FSC"), dated
February 4, 1994. (10)
10.1(b) "Operating Deficit Loan Mortgage Note"
($2,194,005.00) from KBLP to FSC, dated as of
December 31, 1993. (10)
10.1(c) "Operating Deficit Loan Mortgage and Security
Agreement" between KBLP and FSC, dated February 4,
1994. (10)
10.1(d) "Promissory Note" ($1,576,600.00) from KBLP to FSC,
dated February 4, 1994 . (10)
10.1(e) "Second Amendment to Management Agreement", dated as
of December 31, 1993 between KBLP and FSC. (10)
10.2(a) Renovation Enhancement Agreement, dated February 19,
1993, between Florida Sonesta Corporation ("FSC") and
Key Biscayne Limited Partnership ("KBLP"). (9)
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.2(b) First Amendment to Renovation Enhancement Agreement,
dated May 18, 1993, between FSC and KBLP. (9)
10.3 Second Renovation Enhancement Agreement, dated April
30, 1993, between FSC and KBLP. (9)
10.4(a) "Sonesta Loan" agreement, dated April 13, 1993 between
FSC and KBLP. (9)
10.4(b) First Amendment to "Sonesta Loan" agreement, dated
September 29, 1993, between FSC and KBLP. (9)
10.5(a) "Renovation Agreement", dated September 12, 1991,
between Florida Sonesta Corporation ("FSC") and Key
Biscayne Limited Partnership ("KBLP"). (7)
10.5(b) "First Amendment to Management Agreement", dated
September 12, 1991, between FSC and KBLP. (7)
10.5(c) "Amendment of Note and Second Mortgage", dated
September 12, 1991, between FSC and KBLP. (7)
10.5(d) "Amendment of Note and Third Mortgage", dated
September 12, 1991, between FSC and KBLP. (7)
10.6(a) "1995 Loan Agreement" between Hibernia National Bank
("Hibernia") and Royal Sonesta, Inc. ("Royal
Sonesta"), as of January 1, 1995. (10)
10.6(b) "Promissory Note" ($5,000,000) from Royal Sonesta to
Hibernia, dated "Effective January 1, 1995". (10)
10.6(c) "First Amendment to 1995 Loan Agreement" between
Hibernia and Royal Sonesta, dated December 12, 1994.
(10)
10.6(d) "Second Amendment to 1995 Loan Agreement" between
Hibernia and Royal Sonesta, dated as of December 31,
1997. (14)
10.6(e) "Second Modification to Promissory Note" between
Hibernia and Royal Sonesta, dated as of December 31,
1997. (14)
</TABLE>
15
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.7(a) 1992 Loan Agreement, dated December 30, 1992, between
Royal Sonesta and Hibernia. (8)
10.7(b) Promissory Note, dated December 30, 1992, between
Royal Sonesta and Hibernia. (8)
10.7(c) Restatement and Continuation of Continuing Guaranty,
dated December 30, 1992, between the Registrant and
Hibernia. (8)
10.8(a) "Amendment and Restatement of the Amended and Restated
Loan Agreement", dated December 23, 1991, between
Hibernia, Royal Sonesta and the Registrant. (7)
10.8(b) $2,875,000 Promissory Note, dated December 23, 1991,
from Royal Sonesta to Hibernia. (7)
10.9(a) Promissory Note ($22,880,000), dated December 18,
1996, from the Trustees of Charterhouse of Cambridge
Trust ("Trust") and Sonesta of Massachusetts, Inc.
("Sonesta Mass") to SunAmerica Life Insurance Company
("SunAmerica"). (13)
10.9(b) Mortgage, Security Agreement, Fixture Filing,
Financing Statement and Assignment of Leases and
Rents, dated as of December 18, 1996, between Trust
and Sonesta Mass, and SunAmerica. (13)
10.9(c) Environmental Indemnity Agreement, dated as of
December 18, 1996, between Trust, Sonesta Mass, and
Sonesta International Hotels Corporation ("Sonesta"),
and SunAmerica. (13)
10.9(d) Escrow Agreement, dated as of December 18, 1996,
between Trust, Sonesta Mass, and SunAmerica, "Escrow
Agent". (13)
10.9(e) Replacement Reserve and Security Agreement, dated as
of December 18, 1996, between Trust and Sonesta Mass,
and SunAmerica. (13)
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.9(f) Limited Guaranty Agreement, dated as of December 18,
1996, between Sonesta and SunAmerica. (13)
10.10(a) Revolving Term Note ($2,000,000) from Sonesta
International Hotels Corporation to USTrust, dated
September 30, 1995. (12)
10.10(b) Commitment Letter agreement, dated September 28, 1995,
between Sonesta International Hotels Corporation and
USTrust. (12)
10.11 Amendment and Allonge to Commercial Promissory Note, 24-26
dated as of September 30, 1998, between Sonesta
International Hotels Corporation and USTrust Bank.
10.12(a) Loan Agreement($1,000,000), dated December 18, 1996,
between Masters of Tourism and Sonesta International
Hotels Limited ("SIHL"). (13)
10.12(b) (Personal) Guaranty of Hisham Aly, dated as of
December 18, 1996. (13)
10.13 Loan Agreement ($277,935) dated as of January 1, 1997,
between Masters of Tourism and SIHL (consolidating two
(2) outstanding loan balances). (13)
10.14(a) "Amendment to Loan Agreement", dated April 29, 1997,
between Masters of Tourism and SIHL. (14)
10.14(b) (Personal) Guaranty of Hisham Aly, dated as of April
29, 1997. (14)
10.15 Second Amendment to Loan Agreement, dated September 27-29
15, 1998, between Masters of Tourism and SIHL.
10.16 Indenture of Lease, dated June 26, 1979, between John
Hancock Mutual Life Insurance Company ("John Hancock")
and Sonesta International Hotels Corporation
("Sonesta"). (4)
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.17 "Second Amendment to Lease" between John Hancock and
Sonesta, dated March 22, 1994. (10)
10.18 "Third Amendment to Lease" between John Hancock and
Sonesta, dated June, 1994. (10)
10.19(a) Intercreditor, Payment Priority and Lien Priority
Agreement, dated as of September 15, 1993, between
Sonesta International Hotels Corporation ("Sonesta"),
Sonesta Louisiana Hotels Corporation ("SLHC"), 800
Canal Street Limited Partnership (the "Partnership"),
and numerous other parties. (9)
10.19(b) Commercial Guaranty, dated September 15, 1993, by SLHC
and Sonesta. (9)
10.19(c) CSDC/Manager Reserve Agreement, dated September 15,
1993, between SLHC, the Partnership and Canal Street
Development Corporation. (9)
10.20(a) Manager Advance Agreement, dated as of May 6, 1997,
between SLHC and the Partnership. (14)
10.20(b) Term Note ($500,000) from the Partnership to SLHC,
dated May 6, 1997. (14)
10.20(c) Collateral Note ($650,000) from the Partnership to
SLHC, dated May 6, 1997. (14)
10.20(d) Commercial Guaranty, dated May 6, 1997, between SLHC,
Sonesta, and First National Bank of Commerce. (14)
10.20(e) Amended and Restated Intercreditor, Payment Priority
and Lien Priority Agreement, dated as of May 6, 1997,
between Sonesta, SLHC, the Partnership, and numerous
other parties. (14)
10.21 Extension of Lease by Royal Sonesta, Inc., dated
August 6, 1993. (9)
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.22 Agreement, dated September 9, 1993, between Royal
Sonesta, Inc. and Aetna Life Insurance Company. (9)
10.23 Hotel Lease-Amendment No. 3, dated September 17, 1981,
between Aetna Life Insurance Company and Royal
Sonesta, Inc. (5)
10.24 Hotel Lease-Amendment No. 2, dated September 1, 1977,
between Chateau Louisiane, Inc. and Royal Sonesta,
Inc. (3)
10.25 Hotel lease-Amendment No. 1, dated November 26, 1973,
between Chateau Louisiane, Inc. and Louisiana Sonesta
Corporation. (2)
10.26 Hotel Lease, dated December 12, 1967, between Chateau
Louisiane, Inc., as "Landlord", and The Royal Orleans,
Inc., as "Tenant". (1)
10.27(a) Restated Employment Agreement, dated January 1, 1992,
between the Registrant and Paul Sonnabend, together
with letter agreement regarding permanent and total
disability. (8) (Management contract under Item 601
(10) (iii) (A))
10.27(b) Restated Employment Agreement, dated January 1, 1992,
between the Registrant and Roger P. Sonnabend,
together with letter agreement regarding permanent and
total disability. (8) (Management contract under Item
601 (10) (iii) (A)).
10.27(c) Restated Employment Agreement, dated January 1, 1992,
between the Registrant and Stephen Sonnabend together
with letter agreement regarding permanent and total
disability. (8) (Management contract under Item 601
(10) (iii) (A)).
10.28(a) (Letter) Loan Agreement ($2,000,000), dated July 18,
1996, between Maduro & Curiel's Bank N.V. and Sonesta
Curacao Hotel Corporation N.V. (13)
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.28(b) Letter Agreement extending term of Loan Agreement, 30
dated December 23, 1998, between Maduro & Curiel's
Bank N.V. and Sonesta Curacao Hotel Corporation N.V.
10.29 Lease, dated September 21, 1991, between "the Crown"
and Casablanca Resorts Development of Anguilla Limited
("CRDAL") (assumed by Sonesta Hotels of Anguilla
Limited ("Sonesta Anguilla") in November 1995). (11)
10.30 Debenture, dated November 28, 1995, between Scotiabank
Anguilla Limited and Sonesta Anguilla (11)
10.31 Debenture ($6,390,000) from Sonesta Hotels of Anguilla
Limited to Scotiabank Anguilla Limited, dated December
1996 (evidencing additional $1,700,000 loan). (13)
10.32 Agreement, dated as of March 1, 1996, between CRDAL
and Sonesta Anguilla. (13)
10.33 (Letter) Loan Agreement ($1,000,000), dated February
9, 1997, between Sakkara Hotels and Sonesta
International Hotels Corporation. (13)
10.34 (Letter) Lease Agreement, dated June 3, 1996, between
Sonesta Hotels of Anguilla, Ltd. and Amsterdam Sonesta
Corporation (subsequently renamed Anguilla Hotel
Management, Inc.) (13)
10.35 Loan Agreement, dated July 30, 1997, between Sonesta
Miami Beach Hotel Company, Inc. and Skip Properties
N.V. (14)
10.36(a) Contribution and Formation Agreement, dated as of
January 30,1998, by and among Key Biscayne Limited
Partnership ("KBLP"), Florida Sonesta Corporation and
Key Biscayne Land Corporation ("Sonesta II"), and
joined in by Key Biscayne Hotel Associates, LTD.
("KBHA"), Partners Liquidating Trust,("PLT"),
Strategic Realty Advisors, Inc., ("SRAI") and Sonesta
International Hotels Corporation ("Sonesta
International"). (15)
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
<S> <C> <C>
10.36(b) First Amendment to Contribution and Formation
Agreement, dated as of April 3, 1998, by and among
KBLP, FSC and Sonesta II, and joined in by KBHA, PLT,
SRAI and Sonesta International. (15)
10.36(c) Agreement of Limited Partnership of Sonesta Beach
Resort Limited Partnership, dated April 1998, by and
between FSC,Sonesta II and KBLP. (15)
10.36(d) Assumption Agreement, dated as of July 1, 1998, by and
between Sonesta Beach Resort Limited Partnership
("SBRLP") and State Street Bank and Trust Company,
trustee. (15)
10.36(e) Amendment to and Assignment of KBHA/PLT Indebtedness,
dated as of July 1, 1998, by and between KBLP,
KBHA,PLT and SBRLP,including KBHA/PLT Note, dated July
1, 1998. (15)
13 Annual Report to Security Holders for the calendar 31-53
year ended December 31, 1998.
21 Subsidiaries of the Registrant. 54
23 Consent of Ernst & Young LLP filed herewith. 55
27 Financial Data Schedule 56
</TABLE>
(1) Incorporated by reference to the Company's 1967 Report on Form 10-K.
(2) Incorporated by reference to the Company's 1973 Report on Form 10-K.
(3) Incorporated by reference to the Company's 1977 Report on Form 10-K.
(4) Incorporated by reference to the Company's 1979 Report on Form 10-K.
(5) Incorporated by reference to the Company's 1981 Report on Form 10-K.
(6) Incorporated by reference to the Company's 1984 Report on Form 10-K.
(7) Incorporated by reference to the Company's 1991 Report on Form 10-K.
(8) Incorporated by reference to the Company's 1992 Report on Form 10-K.
(9) Incorporated by reference to the Company's 1993 Report on Form 10-K.
(10) Incorporated by reference to the Company's 1994 Report on Form 10-K.
(11) Incorporated by reference to the Company's 1995 Report on Form 8-K.
(12) Incorporated by reference to the Company's 1995 Report on Form 10-K.
(13) Incorporated by reference to the Company's 1996 Report on Form 10-K.
(14) Incorporated by reference to the Company's 1997 Report on Form 10-K.
(15) Incorporated by reference to the Company's 1998 Report on Form 8-K.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
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
(Registrant)
<TABLE>
<S> <C>
By: /s/ Boy van Riel Date: March 22, 1999
-----------------------------------
Boy van Riel
Vice President and Treasurer
Pursuant to the requirements of the Securities and Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
By: /s/ Roger P. Sonnabend Date: March 22, 1999
-----------------------------------
Roger P. Sonnabend
Chairman of the Board and Chief Executive Officer
By: /s/ Boy van Riel Date: March 22, 1999
-----------------------------------
Boy van Riel
Vice President and Treasurer, Principal
Financial and Accounting Officer
By: /s/ Paul Sonnabend Date: March 22, 1999
-----------------------------------
Paul Sonnabend
Director
By: /s/ Peter J. Sonnabend Date: March 22, 1999
-----------------------------------
Peter J. Sonnabend
Director
</TABLE>
22
<PAGE>
<TABLE>
<S> <C>
By: /s/ Stephanie Sonnabend Date: March 22, 1999
-----------------------------------
Stephanie Sonnabend
Director
By: /s/ Stephen Sonnabend Date: March 22, 1999
-----------------------------------
Stephen Sonnabend
Director
By: /s/ George S. Abrams Date: March 22, 1999
-----------------------------------
George S. Abrams
Director
By: /s/ Vernon R. Alden Date: March 22, 1999
-----------------------------------
Vernon R. Alden
Director
By: /s/ Joseph L. Bower Date: March 22, 1999
-----------------------------------
Joseph L. Bower
Director
By: /s/ Jean C. Tempel Date: March 22, 1999
-----------------------------------
Jean C. Tempel
Director
</TABLE>
23
<PAGE>
AMENDMENT AND ALLONGE TO COMMERCIAL PROMISSORY NOTE
This Amendment and Allonge to Commercial Promissory Note (the
"Allonge") is made as of September 30, 1998 by Sonesta International Hotels
Corporation, a New York corporation ("Borrower"), and USTrust ("Bank").
WHEREAS, Borrower issued a Commercial Promissory Note dated September
30, 1995 in the face principal amount of $2,000,000 made payable to the order of
Bank (as amended September 30, 1997, the "Note"); and
WHEREAS, Borrower has requested the Bank to amend the Note in
accordance with the terms of this Allonge;
NOW, THEREFORE, in consideration of the premises and agreements set
forth herein and for other good and valuable consideration, the parties hereto
agree as follows:
1. The maturity date of the Note is hereby changed to September 30,
1999.
2. Exhibit B-1997 to the Commitment Letter dated September 30, 1997,
which set forth certain terms and conditions of the line of credit, is replaced
with Exhibit B-1998 attached hereto.
3. Capitalized terms used in this Allonge shall have the same meaning
as in the Note except as otherwise specified herein. All references in the Note
to the "Note" shall mean the Note as previously amended and as amended by this
Allonge
4 This Allonge shall be attached to the Note, incorporated therein and
made a part thereof.
5. This Allonge shall be governed by and construed in accordance with
the laws of The Commonwealth of Massachusetts.
Executed as an agreement under seal effective as of the day and year
set forth above.
USTrust
By: /s/ By: /s/ Peter J. Sonnabend
------------------------------ ----------------------------
Its Its Vice President
I hereby acknowledge and affirm guaranty of the above-described facility by the
principal domestic subsidiaries of Sonesta International Hotels Corporation as
described in Exhibit A, in my capacity as authorized signer for said
subsidiaries.
By: /s/ Peter J. Sonnabend
-----------------------------
24
<PAGE>
EXHIBIT A
Principal Domestic Subsidiaries of
Sonesta International Hotels Corporation
<TABLE>
<S> <C>
Anguilla Hotel Management Inc. Guaranty Unlimited
Brewster Wholesale Corporation Guaranty Unlimited
Florida Sonesta Corporation Guaranty Unlimited
S.I.A. Advertising, Inc. Guaranty Unlimited
Sonesta Beach Resort Limited Partnership Guaranty Unlimited
Royal Sonesta, Inc. Guaranty Limited to $1,000,000
</TABLE>
25
<PAGE>
EXHIBIT B-1998
<TABLE>
<CAPTION>
Financial Institute Maximum Commitment
------------------- ------------------
<S> <C>
SunAmerica Insurance Co. $23.0 Million
Hibernia National $5.0 Million
Maduro & Curiels Bank $2.0 Million
First National Bank $1.5 Million Guaranty
Scotia Bank $6.5 Million, with a
$1.0 Million Guaranty
Seller Note (Anguilla) $1.0 Million
Aetna Realty Co. $22.45 Million
</TABLE>
26
<PAGE>
SECOND AMENDMENT TO LOAN AGREEMENT
Reference is made to the Loan Agreement made as of the 18th day of December,
1996 in the City of Boston, Massachusetts, U.S.A. by and between SONESTA
INTERNATIONAL HOTELS LIMITED (or its assignee) organized and existing under the
laws of The Bahamas and having its principal place of business at 200 Clarendon
Street, Boston, Massachusetts, U.S.A. and represented in the signature of this
Agreement by PETER J. SONNABEND, VICE PRESIDENT (hereinafter referred to as the
"Lender"), and MASTERS OR TOURISM organized and existing under the laws of The
Arab Republic of Egypt and having its principal place of business at Salah Salem
Avenue, El Abour Building, No. 13, Flat 84, Heliopolis, Cairo, Egypt and
represented in the signature of this Agreement by MOHAMED HISHAM AHMED ALY,
CHAIRMAN (hereinafter referred to as the "Borrower") ("Loan Agreement"), as
amended by an "Amendment to Loan Agreement", dated April 29, 1997 (the
"Amendment"). This agreement shall constitute the "Second Amendment" to the Loan
Agreement.
WHEREAS the purpose of the Loan Agreement was to provide U.S.
$1,000,000 to the Borrower as a loan to finance the expansion and improvement of
Sonesta Beach Resort, Sharm El Sheikh (the "Hotel"), as described in the Loan
Agreement; and
WHEREAS the purpose of the Amendment was to provide an additional U.S.
$500,000 to the Borrower as a loan in connection with the further expansion of
the Hotel; and
WHEREAS the Borrower has informed the Lender that the additional U.S.
$500,000, described in the Amendment, is no longer required by the Borrower in
order to complete the expansion and improvement of the Hotel, and the further
expansion of the Hotel -- such expansion and improvements being referred to as
"Improvements" under the Loan Agreement, as amended by the Amendment;
NOW THEREFORE, for consideration the receipt and sufficiency of which
is hereby acknowledged, the parties agree to amend the terms of the Loan
Agreement, as amended by the Amendment, as follows:
1. Amendment. The Lender shall have no further obligation to advance funds to
the Borrower under the Amendment.
2. Repayment of Loan. The parties acknowledge that, pursuant to Section 5 of
the Amendment, Borrower owed Lender U.S. $187,500, on January 1, 1998,
representing the first installment of the repayment of Loan principal, but
that said payment was not made. The parties now agree that Loan principal
shall be repaid in seven (7) annual installments of U.S. $142,857, with the
first payment due January 1, 1999. Other Loan terms, including without
limitation the interest rate, shall remain unchanged.
27
<PAGE>
3. Advance for Increased Water Capacity. The parties acknowledge that the
"Improvements" described in Section 2.02 of the Loan Agreement included
"increased water capacity" for the expanded and improved Hotel.
Notwithstanding the provisions of Section 1, above, to the contrary,
Borrower shall provide increased water-making capacity for the
"Improvements" (as said term was amended by the Amendment), provided
Lender, at its option, advances an additional U.S. $250,000 for this
purpose, which amount Borrower has represented is the minimum cost of the
increased water-making capacity. If Lender elects to advance the additional
U.S. $250,000, it shall advance said amount in installments upon
presentation by Borrower of invoices from third party contractors,
satisfactory in form in content to Lender, in Lender's sole judgement. As
portions of said additional U.S. $250,000 are advanced, they shall accrue
interest and be repaid on the same basis as the Loan under the Loan
Agreement. Even if it elects to advance the additional U.S. $250,000,
Lender shall have no obligation to advance any portion of said until all of
the "Improvements" (including the 80 guest rooms referenced in the
Amendment) -- but excepting the "increased water-capacity" -- have been
fully completed and are operational.
4. Default. The following is added to Section 8.01 of the Loan Agreement as
subsection (E):
(E) In the event the "additional Hotel facilities" described in
Section 2.02 of the Loan Agreement, as amended by the Amendment,
has not commenced full business operations by January 1, 1999.
5. In all other, as amended, respects the Loan Agreement remains unchanged and
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized signatories as of
September __, 1998.
Witness: SONESTA INTERNATIONAL HOTELS LIMITED
_______________________ By: /s/ Peter J. Sonnabend
--------------------------
Name: Peter J. Sonnabend
Title: Vice President
Witness: MASTERS OF TOURISM
_______________________ By: /s/ Mohamed Hisham Ahmed Aly
--------------------------
Name: Mohamed Hisham Ahmed Aly
Title: Chairman
28
Mohamed Hisham Ahmed Aly hereby executes this Second Amendment to Loan Agreement
in order to acknowledge and re-affirm his continuing personal guaranty under the
Loan Agreement.
Witness:
_______________________ By: /s/ Mohamed Hisham Ahmed Aly
--------------------------
Mohamed Hisham Ahmed Aly
29
<PAGE>
December 21, 1998
Maduro & Curiel's Bank N.V.
P.O. Box 305
Curacao, N.A.
Attn: Kenneth Isidora
RE: Sonesta Curacao Hotel Corporation Loan
Dear Kenneth,
As you recall, we extended Sonesta's loan until December 31, 1998, hoping that
by then Marriott Corporation would have taken over the management of the Resort.
As it stands now, it does not look like that will happen, and I would like to
request that you further extend Sonesta's loan until the earlier of the
termination of our agreement to manage the Resort, or March 31, 1999.
I'd appreciate if you could send me a confirmation of your approval to fax
number 617-421-5423.
I appreciate your help and wish you a happy holiday season.
Kindest regards,
/s/ Boy van Riel
----------------------
Boy van Riel
BVR/se
30
[cover]
[logo] Sonesta International
Hotels Corporation
1998 Annual Report
[photo of tiled walls]
This is what you came to find.
<PAGE>
REPORT TO SHAREHOLDERS
- --------------------------------------------------------------------------------
In 1998, Sonesta Hotels and Resorts performed well, especially in the
United States. A highlight for our Company was the reacquisition of Sonesta
Beach Resort Key Biscayne on July 1. Total revenues increased to over $82
million, and operating income increased more than $2.2 million to over $5.5
million, for the year.
After completing the purchase of Sonesta Beach Resort Key Biscayne, a
hotel that Sonesta has operated since its opening in 1969, we embarked on a
major renovation program including a redesign of the pool area and upgrading all
guestrooms. Disruption from the pool renovation and the threat of Hurricane
Georges resulted in flat revenues and a slight decline in profits during the
whole year of 1998.
Royal Sonesta Hotel Boston (Cambridge) increased revenues by over $2
million in 1998, due mostly to an 11% increase in the hotel's average room rate,
and a 9% increase in food and beverage revenues. Operating income improved by $1
million. Two hundred guestrooms have been totally renovated and we anticipate
completing the remaining two hundred by the end of the first quarter of 2000. We
have also upgraded our function space which is extremely popular for meetings
and social functions.
Royal Sonesta Hotel New Orleans had another very strong year, increasing
revenue by over $1.6 million, due to a 4% increase in average room rate. The
hotel continues to be among the price and occupancy leaders in the City.
Chateau Sonesta Hotel New Orleans also had a strong year. In 1998, the
hotel added function space and guestrooms. The conversion of the D.H. Holmes
department store into a hotel and entertainment complex is now complete with the
addition of the Storyville Jazz Club.
Sonesta Beach Resort Anguilla's results improved slightly over 1997. Due
to lack of island awareness and limited air service, the destination still
struggles.
Sonesta Beach Resort Bermuda had a significantly better year in 1998 with
revenues increasing substantially. With a newly elected government, there is a
new spirit of optimism on the island.
Sonesta Beach Resort & Casino Curacao had a very good year under difficult
circumstances. As previously reported, Sonesta decided last spring that we could
not achieve adequate profitability and preferred to recover our $2 million
investment. Accordingly, the owning company has arranged for a new management
company to operate the resort. As of March 1999, however, Sonesta is still
operating the resort, although we expect a transition and to recover our
remaining investment soon.
Aruba Sonesta Resorts at Seaport Village, which are licensed properties,
also had a good year. The hotel and suites have undergone major renovations and
the hotels continue to feature the finest casinos in Aruba and the largest
conference center.
Sonesta's Egyptian properties suffered as a result of the unfortunate
incident in November 1997. Nevertheless, Sonesta Hotel Cairo had a good year
with revenues and profits equal to 1997. In Cairo, two additional concierge
floors were completed which are truly luxurious. The building facade is being
completely redone, giving the hotel a whole new look. Sonesta St. George Luxor,
which opened in October of 1997, is establishing its presence in the Luxor
market. Business declined at all other Sonesta properties. In Sharm El Sheikh,
Sonesta signed an agreement to operate the Sonesta Club, a 170-room hotel across
the street from the Sonesta Beach Resort. The two Sonesta cruise ships continue
to be among the best ships on the Nile, and Sonesta Port Said operates
efficiently in a challenging market. Building continues at two new Red Sea
Sonesta resorts in Nuweiba and Taba, Egypt.
Sonesta continues to work with local partners in creating the Sonesta
Sasson Hotel on Miami Beach, an outstanding project right on the beach with
extensive facilities. This project includes a 124-room hotel and a 200-unit
condominium tower, with many units operated as part of the hotel.
We recently signed a license agreement for the Sonesta Lima El Olivar
Hotel in Peru. This 130-room luxury hotel is in the San Isidro district of Lima
and is a wonderful addition to Sonesta, with its several restaurants and
extensive meeting facilities.
While there continue to be acquisitions and reorganizations among the
larger hotel chains, Sonesta operates in its own niche, focusing on each hotel
individually. We believe our financial stability and prudent approach will
enhance our profitability. We will continue to search out additional management
opportunities in the United States and elsewhere.
If you would like additional information on any Sonesta Hotel, please
visit our Web site at sonesta.com.
We appreciate the continuing interest and support of you, our shareholders
and of our owners, guests and employees.
/s/ Roger P. Sonnabend
Roger P. Sonnabend
Chairman of the Board and Chief Executive Officer
/s/ Stephanie Sonnabend
Stephanie Sonnabend
President
March 15, 1999
- --------------------------------------------------------------------------------
FRONT COVER
This dramatic fountain by noted artist Katherine Pavlis Porter was commissioned
by the Sonesta Beach Resort Key Biscayne for the resort's pool area, which was
completely renovated following the Company's acquisition of the hotel in July
1998.
1
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
5-YEAR SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands except for per share data)
<TABLE>
<CAPTION>
1998(1) 1997 1996 1995 1994
------------ ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues ......................................... $ 82,040 $68,468 $ 62,590 $ 55,840 $ 53,321
Operating income ................................. 5,589 3,349 1,768 2,659 2,906
Net interest expense ............................. (2,946) (1,758) (825) (823) (1,286)
Equity in net loss of hotels ..................... -- -- (89) (656) (637)
Gain (loss) on sales of assets ................... 15 22 213 548 (90)
Other ............................................ 1 (3) 254 828 72
-------- ---------- -------- -------- --------
Income before income taxes ....................... 2,659 1,610 1,321 2,556 965
Federal, foreign and state income tax provision
(benefit) ....................................... 1,242 677 1,134 (219) 501
-------- --------- -------- -------- --------
Net income ..................................... $ 1,417 $ 933 $ 187 $ 2,775 $ 464
======== ========= ======== ======== ========
Per share of common stock:
Basic and diluted earnings ....................... $ .68 $ .44 $ .09 $ 1.33 $ .22
======== ========= ======== ======== ========
Cash dividends declared .......................... $ .30 $ .30 $ .30 $ .30 $ .30
======== ========= ======== ======== ========
Working capital deficit .......................... $ (4,767) $(5,802) $ (5,044) $ (5,834) $ (3,318)
Net property and equipment ....................... 81,948 44,431 41,930 38,362 28,431
Total assets ..................................... 106,603 76,416 68,971 69,240 60,114
Long-term debt and capitalized lease obligations
including currently payable portion ............. 54,779 31,456 24,801 26,293 21,204
Redeemable preferred stock ....................... 294 294 294 294 294
Common stockholders' equity ...................... 24,233 23,450 23,152 23,626 21,520
Common stockholders' equity per share ............ 11.72 11.34 11.19 11.41 10.37
Total revenues including hotels operated under
management contracts ............................ 169,238 173,093 163,765 144,002 132,853
Common shares outstanding at end of year ......... 2,068 2,068 2,068 2,071 2,075
</TABLE>
(1) Gives effect to the acquisition of Sonesta Beach Resort Key Biscayne on
July 1, 1998.
Market price data for the Company's common stock showing
high and low prices by quarter for each of the last two years is
as follows:
<TABLE>
<CAPTION>
NASDAQ Quotations
-----------------------------------
1998 1997
----------------- ---------------
High Low High Low
------- ------- ------- -----
<S> <C> <C> <C> <C>
First .......... 15 13 10-3/4 9
Second ......... 14-1/4 10-7/8 9-7/8 8-7/8
Third .......... 15-1/2 12-1/4 10-3/4 8-7/8
Fourth ......... 14-5/8 12-3/4 16 9-3/4
</TABLE>
The Company's common stock trades on the NASDAQ Stock Market under the symbol
SNSTA. As of March 5, 1999 there were 505 holders of record of the Company's
common stock.
A copy of the Company's Form 10-K Report, which is filed annually with the
Securities and Exchange Commission, is available to stockholders. Requests
should be sent to the Office of the Secretary at the Company's Executive
Offices.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
- --------------------------------------------------------------------------------
The Company's consolidated financial statements include the revenues,
expenses, assets and liabilities of the Royal Sonesta Hotel, Boston
(Cambridge), the Sonesta Beach Resort Anguilla, B.W.I., the Royal Sonesta
Hotel, New Orleans, and, effective July 1, 1998, the Sonesta Beach Resort Key
Biscayne. The Boston (Cambridge), Anguilla and Key Biscayne properties are
owned by the Company, and the New Orleans hotel is operated under a long-term
lease. The Sonesta Beach Resort Key Biscayne was acquired by the Company on
July 1, 1998. Before that date, this hotel was operated by the Company under a
management agreement. The Sonesta Beach Resort Anguilla was purchased by the
Company in November 1995, and opened in January 1996. The financial statements
also include the revenues and expenses from the management of properties
located in the United States, Bermuda, Caribbean and Middle East.
Results of Operations
Revenues
<TABLE>
<CAPTION>
TOTAL REVENUES
(in thousands)
-------------------------------------------
NO. OF
ROOMS 1998 1997 1996
------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sonesta Beach Resort
Anguilla, BWI 100 $ 4,253 $ 4,071 $ 2,717
Sonesta Beach Resort
Key Biscayne 300 10,821 -- --
Royal Sonesta Hotel Boston
(Cambridge) 400 27,602 25,521 22,891
Royal Sonesta Hotel
New Orleans 500 33,131 31,491 30,802
Management and service
fees and other revenues 6,233 7,385 6,180
------- ------- -------
Total revenues $82,040 $68,468 $62,590
======= ======= =======
</TABLE>
1998 versus 1997: Total revenues in 1998 were $82,040,000 compared to
$68,468,000 in 1997, an increase of approximately $13,572,000. The Royal
Sonesta Hotel Boston (Cambridge) had an increase in revenues of approximately
$2,081,000 in 1998 compared to 1997, due to an 11% increase in the hotel's
average room rate, and a 9% increase in food and beverage revenues, primarily
because of increased banquet business. Revenues at the Royal Sonesta Hotel New
Orleans increased by $1,639,000 during 1998 compared to 1997, mainly because of
a 4% increase in average room rate. Revenues of Sonesta Beach Resort Key
Biscayne, which the Company acquired on July 1, 1998, were $10,821,000 for the
period July 1 to December 31, 1998. Revenues of the Key Biscayne hotel during
the period July 1 to December 31, 1997, when the hotel was operated by Sonesta
under a management agreement, were $11,555,000. The hotel's 1998 revenues were
adversely affected by a forced evacuation in September 1998 due to Hurricane
Georges (which caused no damage to the hotel), and because of lower group and
convention business due to the renovation of the hotel's pool area during the
third quarter. The Company's Sonesta Beach Resort Anguilla had an increase in
revenues of $182,000 in 1998 compared to 1997. A substantial increase in
average room rate of 23% at the resort was partially offset by a slightly lower
occupancy, and by a decrease in food and beverage revenues because the hotel
leased out one of its two restaurants. Revenues from management activities and
other sources decreased by $1,151,000 in 1998 compared to 1997. Fee income from
the Company's Egyptian operations decreased by $939,000 in 1998 compared to
1997. Business levels in Egypt suffered from the effects of the November 1997
terrorist attack in Luxor. The Company's management fee income from Sonesta Key
Biscayne decreased by $471,000 in 1998, because of the acquisition of this
property on July 1, 1998. The decrease in fee income from Egypt and Key
Biscayne was partially offset by a termination fee of $335,000 the Company
received in 1998 for agreeing to cancel the license agreement for a hotel in
Santiago, Chile, and the recognition of additional fee income of $408,000 for
previously deferred fees from Chateau Sonesta Hotel New Orleans. The Company
became entitled to these fees because the hotel's profits have been sufficient
to meet all the owner's obligations from the time the hotel opened in April
1995.
1997 versus 1996: Revenues in 1997 increased by $5,878,000 from
$62,590,000 in 1996 to $68,468,000 in 1997. The Company's Boston (Cambridge)
hotel had increased revenues in 1997 of approximately $2,630,000, primarily
because of a 13% increase in average room rate and an 11% increase in food and
beverage revenues. The Company's Royal Sonesta Hotel New Orleans had an
increase in revenues of $689,000 in 1997 compared to 1996 due to a 2% increase
in average room rate and a 3% increase in food and beverage revenues. In its
first full year of operations, the Company's Sonesta Beach Resort Anguilla had
increased revenues in 1997 of $1,354,000 due to an 11% increase in occupancy
and a 31% increase in average room rate. The remaining revenue increase of
$1,205,000 was primarily from increases in management and service fee income,
in particular from the Company's managed hotels in New Orleans, Key Biscayne
and Sharm El Sheikh, Egypt.
Operating Income
<TABLE>
<CAPTION>
OPERATING INCOME/(LOSS)
(in thousands)
------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI $(1,192) $(1,803) $(2,782)
Sonesta Beach Resort Key
Biscayne (101) -- --
Royal Sonesta Hotel Boston
(Cambridge) 5,319 4,366 3,602
Royal Sonesta Hotel New Orleans 2,227 1,928 2,281
------- ------- -------
Operating income from hotels after
management and service fees 6,253 4,491 3,101
Management activities and other (664) (1,142) (1,333)
------- ------- -------
Operating income $ 5,589 $ 3,349 $ 1,768
======= ======= =======
</TABLE>
1998 versus 1997: Operating income in 1998 was $5,589,000 compared to
$3,349,000 in 1997, an
3
<PAGE>
- --------------------------------------------------------------------------------
increase of approximately $2,240,000. The Company's Royal Sonesta Hotel Boston
(Cambridge) had an increase in operating income of $953,000, because of an
increase in revenues of $2,081,000, partially offset by increased expenses of
$1,128,000, primarily cost and operating and depreciation expense. The increase
in depreciation expense results from extensive renovations and refurbishments
to the hotel's guest rooms and other facilities. The operating loss at Sonesta
Beach Resort Anguilla during 1998 compared to 1997 decreased by $611,000,
because of increased room revenues and a decrease in operating expenses due to
the fact that the resort leased out one of its two restaurants. The Royal
Sonesta Hotel New Orleans had an increase in operating income of $299,000,
because of an increase in revenues of $1,639,000, partially offset by increased
expenses in 1998 of $1,340,000. The increase in expenses consisted mainly of
increased operating expenses, and an increase of $587,000 in percentage rent
due under the lease under which the Company operates the hotel. The Sonesta
Beach Resort Key Biscayne, acquired by the Company on July 1, 1998, had an
operating loss of $101,000 during the second half of 1998. This loss is not
indicative of a full year's operations due to the seasonal nature of the
hotel's business. In addition, this result was adversely affected by the loss
of business from the forced evacuation of the hotel because of the threat of
Hurricane Georges in September 1998, and by reduced group and convention
business due to the extensive renovation of the hotel's pool area during the
third quarter. Operating loss from management and other activities decreased by
$478,000 during 1998 compared to 1997. Lower corporate office expenses,
additional fee income of $335,000 from Sonesta Santiago, Chile, and $407,000
from Chateau Sonesta New Orleans offset the loss of fee income from the
Company's Egyptian operations.
1997 versus 1996: Operating income in 1997 was $3,349,000, compared to
operating income of $1,768,000 in 1996, an increase of approximately
$1,581,000. The Boston (Cambridge) hotel had an increase in operating income of
$764,000, primarily because of increased revenues of $2,630,000, offset by an
increase in expenses of $1,866,000, primarily in costs and operating expense,
depreciation and real estate tax expense. The operating loss at the Sonesta
Beach Resort Anguilla decreased by $979,000 in 1997 due to an increase in
revenues of $1,354,000, offset by an increase in expenses of $375,000.
Operating income at the Royal Sonesta New Orleans decreased by $353,000 in 1997
due to an increase in expenses of $1,042,000, primarily in operating expenses
and rent expense, offset by an increase in revenues of $689,000. In 1996, the
New Orleans hotel's rent expense was lower because of higher capital
expenditures during that year, which the Company deducts when calculating
percentage rent due. The Company's operating loss from management activities
and other sources decreased by $191,000 because of increased revenues of
$1,205,000, which exceeded the increase in expenses of $1,014,000 related to
these areas.
Other Income and Deductions
Interest expense in 1998 increased by $998,000 compared to 1997, due to
interest of $1,025,000 on a mortgage loan the Company assumed in connection
with the acquisition of the Sonesta Beach Resort Key Biscayne on July 1, 1998.
Interest expense in 1997 increased by $774,000 compared to 1996. This was
primarily due to the additional indebtedness following the refinancing of the
mortgage loan on the Royal Sonesta Hotel Boston (Cambridge) in January 1997.
Interest income in 1998 decreased by $190,000 compared to 1997. This was
due to a $275,000 reduction in interest earned in 1998 on loans from Sonesta
Beach Resort Key Biscayne, which were settled when the Company acquired the
resort on July 1, 1998. This decrease was partially offset by higher income
earned on the Company's cash balances. Interest income decreased by $160,000 in
1997 compared to 1996. This was due to a $550,000 increase in interest recorded
in 1996 on the Company's notes receivable from the owner of Sonesta Beach
Resort Key Biscayne. This decrease in 1997 was partially offset by increases in
interest income on the Company's cash balances, and income from loans to the
owner of Sonesta Beach Resort Sharm El Sheikh.
A gain on sale of $175,000 in 1996 resulted from a reduction of accrued
costs related to a prior year sale of certain assets in Cambridge,
Massachusetts.
Included in equity in net loss of hotels in 1996 is a loss of $706,000,
which reflects the Company's 22% share of the 1996 loss of the Sonesta Beach
Resort & Casino, Curacao. Also included in equity in net loss of hotels in 1996
is income of $617,000 related to the Company's participation in a joint venture
to construct a hotel in New York City (see Note 2--Operations).
Federal, State and Foreign Income Taxes
The 1998 and 1997 tax expense is higher than the statutory rate due to
the provision for state and foreign income taxes on the Company's profits. The
1996 provision for income taxes is higher than the statutory rate due primarily
to certain losses in 1996 from the Company's Sonesta Beach Resort Anguilla,
B.W.I. which were not deductible for U.S. income taxes.
Liquidity and Capital Resources
The Company had cash and cash equivalents of approximately $9,470,000 at
December 31, 1998. The Company has $7,000,000 available under two lines of
credit (see Note 4--Borrowing Arrangements). No amounts were outstanding under
these lines at December 31, 1998.
The Company had a working capital deficit of approximately $4,767,000 at
December 31, 1998. This
4
<PAGE>
- --------------------------------------------------------------------------------
was primarily caused by accrued percentage rent of approximately $6,131,000 for
the year ending December 31, 1998, related to the Royal Sonesta Hotel New
Orleans, which is operated by the Company under a long-term lease. This rent is
payable in March of the following year, and will be paid from the Company's
available cash balances, and borrowings under its lines of credit, if needed.
The Company acquired cash of $3,456,000 with the acquisition of the
Sonesta Beach Resort Key Biscayne on July 1, 1998. It also assumed a mortgage
note payable in this transaction with a fair value of $24,171,000 at July 1,
1998 (see Note 2--Operations).
In January 1997 the Company refinanced the mortgage loan on the Royal
Sonesta Hotel Boston (Cambridge). The net proceeds of this refinancing were
approximately $5,357,000. During 1996, 1997 and 1998, an amount of
approximately $5,900,000 was spent on improvements to the hotel.
In 1997 the Company entered into agreements to operate a hotel in Miami
Beach, Florida. Under the current agreements, the Company is committed to loan
up to $4,150,000 to the hotel, once the hotel is substantially ready for
opening.
Company management believes that its present cash balances plus its
available borrowing capacity are more than adequate to meet its cash
requirements for 1999 and beyond.
Year 2000 Compliance
Year 2000 issues have arisen because many existing computer programs and
chip-based embedded technology systems use only the last two digits to refer to
a year. As a result, they do not properly recognize a year that begins with
"20" instead of "19". If not corrected, computer applications that are date
sensitive or dependent may fail or create erroneous results.
During 1997, the Company began addressing issues related to the Year 2000
to ensure that the disruptions that may occur to the Company's operations are
minimized or eliminated. The Company's compliance program includes the Year
2000 compatibility assessment of three major areas, as follows:
--Computer hardware and software used in the operation of the Company's
hotels and headquarters, such as hotel property management and
accounting systems.
--Equipment with embedded chips that are critical to the operation of the
Company's hotels, such as telephone systems, life and safety systems,
and elevators.
--Third parties with which the Company has relationships and whose
systems are key to the operations of the Company's properties and head
office.
The compliance program consists of four phases: assessment, remediation,
testing, and implementation. The principal focus of the compliance program is
on hardware and software used, and equipment which could have embedded chips
that are time sensitive. Suppliers of such equipment and third parties with
which the Company has relationships significant to its business operations have
been contacted to verify their readiness.
The Company completed its assessment of its computer hardware and
software in early 1998. This assessment identified a number of systems
requiring upgrade or replacement in order to be Year 2000 compliant. All such
systems either have been upgraded or replaced as of December 31, 1998, or will
be upgraded or replaced no later than September 1, 1999. The Company has
commenced testing of the new or upgraded systems that are key to its
operations, and has also obtained, or is obtaining, written representations
from the manufacturers or software developers that the systems in use are Year
2000 compliant.
The assessment of the Year 2000 compliance of systems with embedded chips
also commenced in early 1998 and is ongoing. As part of the process, the
Company has obtained, or is obtaining, written representations from
manufacturers as to the Year 2000 status of components, and has been or will be
replacing all known non-compliant components or systems. The Company expects to
have the systems with embedded chips that are significant to its operations
Year 2000 compliant by November 1, 1999.
The Company believes that the costs related to the Year 2000 issue will
not be material because it does not expect to accelerate replacement of
significant systems in its owned and leased hotels, and because most of its
issues are dealt with by in-house information systems and engineering staff.
The Company manages a hotel in Curacao, Netherlands Antilles, and the
owner of the hotel has exercised its right to cancel the management agreement
(see also Note 7--Commitments and Contingencies). The Company has notified the
owner of the hotel of certain issues pertaining to the Year 2000, but is not
actively working on remedying these issues as part of its compliance program.
The Company also manages several properties for third party owners in Egypt.
The Company has a compliance program for these operations which is executed by
regional and local hotel management. The Company does believe there is a higher
risk of disruptions due to Year 2000 problems arising with third parties in its
Egyptian operations compared to its domestic and Caribbean operations.
There can be no assurances that all Year 2000 issues will be properly and
timely resolved by the Company or third parties. Failure to do so could have an
adverse effect on the Company's operations. The Com-
5
<PAGE>
- --------------------------------------------------------------------------------
pany cannot predict the actual impact of the Year 2000 issue due to the
numerous uncertainties, including whether significant parties have properly
addressed their Year 2000 issues. The Company's hotels rely heavily on the
uninterrupted services of industries such as airline transportation and
reservation systems, and utilities, and a systemic and broad based failure of
these services would have a material impact on the Company's business. Due to
this and the general uncertainty inherent to the Year 2000 issue, the Company
is unable to determine the actual impact on its operations. Management does
believe that its compliance program should reduce the possibility of major
interruptions of normal operations.
During 1999 the Company will develop contingency plans for certain
critical applications, which may include increased staffing in certain areas.
Market Risk
Discussion of market risks is located in Item 7(a) of the Company's Form
10-K.
Selected Quarterly Financial Data
Selected quarterly financial information for the years ended December 31,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(in thousands except for per share data)
1998
-----------------------------------------------
<S> <C> <C> <C> <C>
1st 2nd 3rd 4th
------- ------- ------- -------
Revenues $18,008 $20,088 $19,094 $24,850
Operating income 792 2,370 5 2,422
Net income (loss) 136 1,165 (815) 931
Net income (loss) per share of common stock $ 0.06 $ 0.56 $ (0.39) $ 0.45
1997
--------------------------------------------
1st 2nd 3rd 4th
------- ------- ------- -------
Revenues $16,947 $18,629 $15,294 $17,598
Operating income 41 2,026 787 495
Net income (loss) (359) 969 215 108
Net income (loss) per share of common stock $ (0.17) $ 0.47 $ 0.10 $ 0.04
</TABLE>
6
<PAGE>
[letterhead: Ernst & Young LLP]
[logo: Ernst & Young LLP]
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sonesta International Hotels Corporation
We have audited the accompanying consolidated balance sheets of Sonesta
International Hotels Corporation as of December 31, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1998. These
financial statements are the responsibility of the Company'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 consolidated financial position of Sonesta
International Hotels Corporation at December 31, 1998 and 1997 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
March 19, 1999
7
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the three years ended December 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------ -----------
<S> <C> <C> <C>
Revenues:
Rooms ................................................... $48,462,302 $39,864,616 $36,275,739
Food and beverage ....................................... 20,710,199 16,423,045 15,165,619
Management, license and service fees .................... 6,197,785 6,884,440 6,026,487
Parking, telephone and other ............................ 6,669,603 5,295,948 5,122,609
----------- ----------- -----------
82,039,889 68,468,049 62,590,454
----------- ----------- -----------
Costs and expenses:
Costs and operating expenses ............................ 34,188,515 28,035,454 26,359,988
Advertising and promotion ............................... 6,166,645 5,520,283 5,420,235
Administrative and general .............................. 13,851,373 12,653,368 11,893,456
Human resources ......................................... 1,741,782 1,607,143 1,480,969
Maintenance ............................................. 6,105,482 5,016,595 4,662,437
Rentals ................................................. 7,156,291 6,499,015 5,882,124
Property taxes .......................................... 1,552,485 1,184,700 951,416
Depreciation and amortization ........................... 5,688,319 4,602,317 4,171,714
----------- ----------- -----------
76,450,892 65,118,875 60,822,339
----------- ----------- -----------
Operating income ......................................... 5,588,997 3,349,174 1,768,115
----------- ----------- -----------
Other income (deductions):
Interest expense ........................................ (3,859,500) (2,861,590) (2,087,458)
Interest income ......................................... 912,607 1,102,980 1,262,974
Equity in net loss of hotels ............................ -- -- (89,068)
Foreign exchange gain (loss) ............................ 1,238 (2,815) 163
Gain on sales of assets ................................. 15,188 22,471 212,552
Gain from casualty ...................................... -- -- 254,082
----------- ----------- -----------
(2,930,467) (1,738,954) (446,755)
----------- ----------- -----------
Income before income taxes ............................... 2,658,530 1,610,220 1,321,360
Federal, foreign and state income tax provision ......... 1,241,567 677,620 1,133,916
----------- ----------- -----------
Net income ............................................... $ 1,416,963 $ 932,600 $ 187,444
=========== =========== ===========
Basic earnings per share of common stock ................. $ .68 $ .44 $ .09
=========== =========== ===========
Dividends paid per common share .......................... $ .30 $ .30 $ .30
Dividends paid per preferred share ....................... $ 1.25 $ 1.25 $ 1.25
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
--------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .............................................. $ 9,470,235 $ 5,581,055
Accounts and notes receivable:
Trade, less allowance of $140,822 ($117,658 in 1997) for doubtful
accounts ............................................................ 7,653,760 6,549,190
Interest receivable ................................................... 97,480 399,669
Other, including current portion of long-term receivables and advances 807,290 1,268,314
------------ -----------
Total accounts and notes receivable ................................. 8,558,530 8,217,173
Current portion of deferred taxes ...................................... 347,480 351,110
Inventories ............................................................ 1,268,360 792,570
Prepaid expenses ....................................................... 1,383,653 770,818
------------ -----------
Total current assets ............................................ 21,028,258 15,712,726
Long-term receivables and advances ...................................... 2,534,595 14,296,215
Property and equipment, at cost:
Land and land improvements ............................................. 10,013,559 3,010,132
Buildings .............................................................. 68,899,147 40,272,336
Furniture and equipment ................................................ 25,255,538 19,879,381
Leasehold improvements ................................................. 2,464,136 2,910,894
Projects in progress ................................................... 1,104,841 1,435,372
------------ -----------
107,737,221 67,508,115
Less accumulated depreciation and amortization ......................... 25,788,732 23,077,348
------------ -----------
Net property and equipment .......................................... 81,948,489 44,430,767
Other long-term assets .................................................. 1,091,602 1,976,678
------------ -----------
$106,602,944 $76,416,386
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
9
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and capitalized lease obligations ..... $ 4,047,943 $ 3,729,585
Accounts payable ........................................................ 6,178,532 4,961,162
Advance deposits ........................................................ 3,869,392 2,088,586
Federal, foreign and state income taxes ................................. 382,766 582,582
Accrued liabilities: ....................................................
Salaries and wages .................................................... 2,569,153 1,808,283
Rentals ............................................................... 6,138,200 5,549,167
Interest .............................................................. 458,864 215,006
Employee benefits ..................................................... 468,470 1,408,491
Other ................................................................. 1,682,124 1,172,343
------------ ------------
11,316,811 10,153,290
------------ ------------
Total current liabilities ........................................ 25,795,444 21,515,205
Long-term debt ........................................................... 50,731,447 27,726,510
Deferred federal and state income taxes .................................. 3,402,739 2,494,352
Other non-current liabilities ............................................ 2,146,283 936,446
Commitments and contingencies
Redeemable preferred stock, $25 par value, at redemption value ........... 293,917 293,917
Common stockholders' equity:
Common stock:
Class A, $.80 par value:
Authorized--10,000,000 shares
Issued--3,051,088 shares at stated value ............................... 3,488,382 3,488,382
Retained earnings ....................................................... 28,870,291 28,087,133
Treasury shares--982,873 at cost ........................................ (8,125,559) (8,125,559)
------------ ------------
Total common stockholders' equity ..................................... 24,233,114 23,449,956
------------ ------------
$106,602,944 $ 76,416,386
============ ============
</TABLE>
10
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
For the three years ended December 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK TREASURY SHARES TOTAL
------------------------- ------------------------------ -------------- ------------------------------
No. of No. of Retained No. of shares Stockholders'
shares Amount shares Amount earnings outstanding equity
----------- ------------- ------------- ---------------- -------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1,
1996 .................. 3,051,088 $3,488,382 (979,851) $ (8,097,354) $28,235,172 2,071,237 $23,626,200
Purchase of 3022
shares ................ -- -- (3,022) (28,205) -- (3,022) (28,205)
Cash dividends on
common stock
($.30 per share) ...... -- -- -- -- (619,715) -- (619,715)
Cash dividends on
preferred stock
($1.25 per share) ..... -- -- -- -- (13,364) -- (13,364)
Net income ............. -- -- -- -- 187,444 -- 187,444
--------- ---------- -------- ------------ ----------- --------- -----------
Balance December 31,
1996 .................. 3,051,088 3,488,382 (982,873) (8,125,559) 27,789,537 2,068,215 23,152,360
Cash dividends on
common stock
($.30 per share) ...... -- -- -- -- (621,664) -- (621,664)
Cash dividends on
preferred stock
($1.25 per share) ..... -- -- -- -- (13,340) -- (13,340)
Net income ............. -- -- -- -- 932,600 -- 932,600
--------- ---------- -------- ------------ ----------- --------- -----------
Balance December 31,
1997 .................. 3,051,088 3,488,382 (982,873) (8,125,559) 28,087,133 2,068,215 23,449,956
Cash dividends on
common stock
($.30 per share) ...... -- -- -- -- (620,465) -- (620,465)
Cash dividends on
preferred stock
($1.25 per share) ..... -- -- -- -- (13,340) -- (13,340)
Net income ............. -- -- -- -- 1,416,963 -- 1,416,963
--------- ---------- -------- ------------ ----------- --------- -----------
Balance December 31,
1998 .................. 3,051,088 $3,488,382 (982,873) $ (8,125,559) $28,870,291 2,068,215 $24,233,114
========= ========== ======== ============ =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the three years ended December 31, 1998
<TABLE>
<CAPTION>
1998 1997 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Cash provided (used) by operating activities
Net income .................................................... $ 1,416,963 $ 932,600 $ 187,444
Items not (providing) requiring cash
Pension expense ............................................. 1,041,003 338,667 210,164
Depreciation and amortization of property and equipment ..... 5,688,319 4,602,317 4,171,714
Other amortization .......................................... (225,754) 81,315 --
Deferred federal and state income taxes ..................... 25,207 178,700 (16,215)
Gain from casualty .......................................... -- -- (254,082)
Gain on sales of assets ..................................... (15,188) (22,471) (212,552)
Other ....................................................... -- (188,674) --
Equity in net loss of hotels ................................ -- -- 89,068
Changes in assets and liabilities
Accounts and notes receivable ............................... 992,144 (428,035) (1,249,954)
Inventories ................................................. (73,278) 58,890 (195,414)
Prepaid expenses ............................................ (198,262) 279,703 (544,628)
Accounts payable ............................................ 489,738 (523,331) 1,426,406
Advance deposits ............................................ 658,792 (234,919) 1,002,367
Federal, foreign and state income taxes ..................... (215,533) (123,659) 295,539
Accrued liabilities ......................................... (971,286) 873,601 (450,217)
------------ ------------- ------------
Cash provided by operating activities ...................... 8,612,865 5,824,704 4,459,640
Cash provided (used) by investing activities
Proceeds from sales of assets ............................... 28,688 34,400 64,822
Proceeds from casualty insurance ............................ -- -- 54,082
Expenditures for property and equipment ..................... (8,607,896) (7,115,089) (7,755,680)
Cash in escrow .............................................. -- (1,880,000) --
Cash reimbursed from escrow ................................. 840,000 840,000 --
Investments in hotels ....................................... -- -- (102,434)
Proceeds from sale of investment in hotel ................... -- -- 5,791,631
New loans and advances ...................................... (215,533) (2,403,293) (727,220)
Payments received on long-term receivables and advances...... 1,321,559 852,716 1,004,073
Cash received in purchase of hotel .......................... 3,456,046 -- --
------------ ------------- ------------
Cash used by investing activities .......................... (3,160,295) (9,671,266) (1,670,726)
Cash provided (used) by financing activities
Changes in notes payable .................................... -- -- (562,060)
Proceeds from issuance of long-term debt .................... -- 24,580,000 --
Cost of financing ........................................... -- (423,125) --
Payments on long-term debt .................................. (878,760) (17,732,247) (1,168,111)
Payments on capitalized lease obligations ................... (50,825) (54,348) (73,930)
Purchase of common and preferred stock ...................... -- -- (28,455)
Cash dividends paid ......................................... (633,805) (634,404) (634,132)
------------ ------------- ------------
Cash provided (used) by financing activities ............... (1,563,390) 5,735,876 (2,466,688)
Net increase in cash and cash equivalents ...................... 3,889,180 1,889,314 322,226
Cash and cash equivalents at beginning of year ................. 5,581,055 3,691,741 3,369,515
------------ ------------- ------------
Cash and cash equivalents at end of year ....................... $ 9,470,235 $ 5,581,055 $ 3,691,741
============ ============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
12
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation:
Sonesta International Hotels Corporation (the Company) is engaged in the
operation of hotels in Boston (Cambridge), Massachusetts; New Orleans,
Louisiana; Key Biscayne, Florida and Anguilla, British West Indies. The Key
Biscayne hotel was acquired by the Company in July 1998. The Anguilla hotel was
purchased in November 1995, and opened in January 1996. The Company also
operates, under management agreements, hotels in Bermuda; Curacao, Netherlands
Antilles; Key Biscayne, Florida until June 30, 1998; New Orleans, Louisiana;
and in Cairo, Sharm El Sheikh, Luxor, El Gouna and Port Said, Egypt. The
Company also manages two Nile River cruise ships in Egypt. Sonesta has granted
licenses, for which it receives fees, for the use of its name for two hotels on
the island of Aruba, a hotel in Lima, Peru, and, until February 28, 1998, a
hotel in Santiago, Chile.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Operations:
The consolidated financial statements include the results of operations
of wholly owned and leased properties and fee income from managed and licensed
properties. The equity method of accounting is used for the Company's
investments in certain hotels (see Note 2 -- Operations). Under the equity
method, original investments are recorded at cost and adjusted by the Company's
share of undistributed earnings or losses of these hotels.
Foreign Currency Translation:
Assets and liabilities denominated in foreign currency are translated at
end of year rates, and income and expense items are translated at weighted
average rates during the period. The net result of such translation is charged
or credited to the income statement.
Inventories:
Merchandise and supplies are stated at the lower of cost (first-in,
first-out method) or market.
Revenues:
Revenues are generally recognized as services are provided.
Advertising:
The cost of advertising is generally expensed as incurred.
Property and Equipment:
Depreciation and amortization of items of property and equipment are
computed generally on the straight-line method based on the following estimated
useful lives:
<TABLE>
<S> <C>
Land and land improvements:
Owned properties 50 years
Leases Term of leases
Buildings:
Owned properties 20 to 40 years
Capital leases Initial lease periods
Furniture and equipment:
Located in owned properties 5 to 10 years
Located in leased properties 5 to 10 years or
remaining lease terms,
including option terms
Leasehold improvements Remaining lease terms,
including option terms
</TABLE>
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:
The carrying values of long-lived assets, which include property and
equipment and all intangibles, are evaluated periodically in relation to the
operating performance and future undiscounted cash flows of the underlying
assets. Adjustments are made if the sum of expected future net cash flows is
less than book value if impairment indicators are present.
Income Taxes:
The Company and its United States subsidiaries file a consolidated
federal income tax return. Where appropriate, federal and foreign income taxes
are provided on earnings of foreign subsidiaries that are intended to be
remitted to the parent company.
Fair Value of Financial Instruments:
The Company's financial instruments consist of cash and cash equivalents,
accounts and notes receivable, accounts payable and long-term debt. The
Company's financial instruments also include certain guarantees of indebtedness
(see Note 7--Commitments and Contingencies). The Company believes that the
carrying value of the financial instruments approximates their fair values. The
Company recorded a first mortgage loan it assumed on July 1, 1998, at an amount
which reflects interest at current market rates on this loan. The Company
believes that the carrying value of its other long term debt approximates their
fair values because of the recent refinancing of a significant portion of the
debt, and the fact that the balance of its debt has a variable interest rate
that fluctuates with the LIBOR rate.
Impact of Recently Issued Accounting Standards:
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("Statement 130"). Statement 130
establishes standards for reporting and display of comprehensive income and its
components (revenues, expenses, gains and losses) in a full set of general
purpose financial statements. This statement had no impact on the financial
condition or results of operations of the Company.
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("Statement 131"). Statement 131 establishes standards for the way that public
business enterprises report information
13
<PAGE>
- --------------------------------------------------------------------------------
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Financial information regarding
operating segments of the Company for the three years ending December 31, 1998
is provided in Note 2.
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." The provisions of FAS No. 132 revise employers'
disclosures about pension and other postretirement benefit plans. It does not
change the measurement or recognition of these plans. It standardizes the
disclosure requirements for pensions and other postretirement benefits to the
extent practicable.
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.
Reclassification:
Certain amounts in the 1996 and 1997 financial statements have been
reclassified to conform to the 1998 presentation.
Statement of Cash Flows:
Cash and cash equivalents consists of cash on hand and short-term, highly
liquid investments with maturities of less than 91 days when acquired, which
are readily convertible into cash.
Cash paid for interest in 1998, 1997, and 1996 was approximately
$3,973,000, $2,670,000 and $2,237,000, respectively. Cash paid for income taxes
in 1998, 1997, and 1996 was approximately $1,432,000, $623,000 and $816,000,
respectively.
A subsidiary of the Company acquired the Sonesta Beach Resort, Key
Biscayne on July 1, 1998 (see Note 2 -- Operations). The amount of cash
acquired in the transaction was $3,456,046. The total assets and liabilities
assumed were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired, net of
carrying value of notes
receivable $26,256,684
Cash acquired 3,456,046
Cash paid for partnership interest (100)
-----------
Liabilities assumed, including
mortgage indebtedness and
deferred taxes $29,712,630
===========
</TABLE>
2. Operations
On July 1, 1998, Sonesta Beach Resort Limited Partnership ("Purchaser"),
a subsidiary of the Company, 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, Key Biscayne, Florida. The acquisition
has been accounted for using the purchase method. Florida Sonesta Corporation
(FSC) and Key Biscayne Land Corporation, both subsidiaries of the Company, are
the sole general partner with a 1% partnership interest, and a limited partner
with a 98% partnership interest, respectively. The Seller has a one percent
(1%) limited partnership interest in the Purchaser, which the Company has the
right to acquire at a later date. 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 purchase price consisted of FSC's release
of the Seller from indebtedness owed to FSC and/or its affiliates in connection
with the Company's sale of the Resort to Seller in 1984, and loans advanced by
FSC to restore and improve the Resort following Hurricane Andrew in 1992. This
indebtedness was carried on the Company's books at approximately $10,720,000 on
July 1, 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
indebtedness with a fair value of approximately $24,549,000 (see Note 5 --
Long-Term Debt). Operating results for 1998 and 1997 for the Company on a
proforma basis after giving effect to this transaction are as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
(unaudited) (unaudited)
---------------- ----------------
<S> <C> <C>
Revenues $96,234,000 $92,504,000
Net Income 3,322,000 2,159,000
Basic earnings per share $ 1.60 $ 1.03
</TABLE>
In September 1998, the Company entered into a management agreement to
operate the Sonesta Club Hotel, a 170 room, full service hotel located in Sharm
El Sheikh, Egypt.
During the first quarter of 1998, the Company agreed to terminate the
license agreement it had for the Sonesta Hotel, in Santiago, Chile. In
connection with the cancellation, the Company received a termination fee of
$335,000.
The Company operates the Chateau Sonesta Hotel under a long-term
management agreement. The hotel opened in April 1995 and the Company deferred
half of its management fees during the first two years of operations to be used
as a reserve for debt service shortfalls. Since the hotel has consistently
serviced all its obligations to its lenders, the Company received and
recognized as income previously deferred fees in the amount of $408,000 in July
1998.
The Sonesta St. George Hotel Luxor, Egypt, opened in October 1997. The
220 room full-service hotel is operated by the Company under a long-term
management agreement, under which it receives management fees based on
revenues, and incentive fees based on oper-
14
<PAGE>
- --------------------------------------------------------------------------------
ating profits, as defined in the agreement. The Company has loaned $250,000 to
the owner of the hotel for working capital.
During the first quarter of 1997, the Company loaned $1,000,000 to the
owner of the Sonesta Hotel Cairo, Egypt, to partially finance improvements to
the hotel which include additional rooms (see Note 3 -- Long-Term Receivables
and Advances). The owner of the hotel also agreed to extend the management
agreement until May 2012. The original agreement was to expire in 2002, and the
owner had the right to convert the agreement to a license agreement as of 1997,
which would have substantially reduced the Company's management fee income.
Included in the Company's statement of operations for 1996 is equity in
net loss of $706,090, which represents the Company's share of the losses of the
Sonesta Beach Resort & Casino, Curacao. The Company acquired a 22% equity
interest in this hotel in 1994 for a payment of $2,000,000. The Company is not
required to fund its share of the losses in excess of its $2,000,000
investment, so losses have only been recorded during the years 1994 to 1996 up
to an amount which brought the recorded investment to zero (see also Note 7 --
Commitments and Contingencies).
In July 1996, the Company sold its 50% interest in a building in New York
City, which it acquired in 1994. The Company received a payment of $5,792,000,
which consisted of its cash investment in the building of $5,175,000, and
distribution of income of $617,000. This income is included in Equity in net
loss of hotels in the consolidated statement of operations for the year ended
December 31, 1996.
On November 28, 1995, a wholly-owned subsidiary of the Company purchased
the Casablanca Resort in Anguilla, British West Indies. The 100-room resort
suffered extensive damage from Hurricane Luis in September 1995, and the Seller
remained obligated following the sale to restore all damage done to the
property. The hotel reopened as the Sonesta Beach Resort Anguilla in January
1996. The purchase price for the assets and personal property was approximately
$10,050,000. The resort is situated on 49 acres of land leased from the
Government of Anguilla; there are 92 years remaining in the lease term. The
purchase was financed in part by the assumption of an existing mortgage loan of
$4,990,000. The Seller provided $1,500,000 in loans, of which $1,000,000 was
payable in November 1998 (see Note 5--Long-Term Debt), and $500,000 was paid in
March 1996. The remaining portion of the purchase price, approximately
$3,560,000, was paid in cash. As part of the purchase of the resort, the
Company also acquired the rights to the insurance claim for business
interruption proceeds as of March 1, 1996. The insurance carrier has not
recognized the claim that has been submitted by the Company. Included in Gain
from casualty at December 31, 1996 is income of $200,000 which the Company is
entitled to under the Purchase and Sale Agreement in the event there is no
recovery on its insurance claim. As permitted by the agreements, the Company
has reduced the $1,000,000 loan from the Seller by this amount (see Note
5--Long-Term Debt). The Company is contesting the rejection of the claim by the
insurance company. No other amounts which may be recoverable have been
reflected in the Financial Statements. In 1996, the Company entered into a
50-year lease agreement for two acres of beachfront land adjacent to the
resort. The Company paid $435,000 for the right to use this land, which amount
is included in Land and land improvements and is being amortized over the lease
term. A lawsuit was filed against the Company in October 1997 by the Seller of
the resort (see Note 9 -- Legal Proceedings).
In December 1994, Company subsidiaries entered into agreements to acquire
a 50% interest in a partnership to develop a 320-room beach resort and casino
in Guanacaste, Costa Rica. The Company advanced $563,000, to acquire the hotel
site and for other project-related expenses. As permitted under the partnership
agreements, in March 1997 the Company notified its partner that it did not
intend to proceed with the project. The Company has foreclosed on a mortgage it
held on the hotel site as security for its advances. The land it acquired as a
result of the foreclosure is included in Other long-term assets at a value of
$450,000. The remaining portion of the receivable is included in Long-term
receivables and advances.
Gross revenues for hotels operated by the Company under management
contracts, by geographic area, are summarized below:
<TABLE>
<CAPTION>
(in thousands)
(unaudited)
------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
United States $26,709 $ 35,970 $ 33,284
Caribbean 43,737 43,554 42,925
Egypt 22,950 31,985 30,992
------- -------- --------
$93,396 $111,509 $107,201
======= ======== ========
</TABLE>
Costs and operating expenses for owned and leased hotels are summarized
below:
<TABLE>
<CAPTION>
(in thousands)
----------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Direct departmental costs:
Rooms $11,863 $ 9,691 $ 8,928
Food and beverage 16,378 13,244 12,332
Heat, light and power 2,710 2,392 2,315
Other 3,238 2,708 2,785
------- ------- -------
$34,189 $28,035 $26,360
======= ======= =======
</TABLE>
Direct departmental costs include payroll expense and related payroll
burden, the cost of food and beverage consumed and other departmental costs.
The Company has two reportable segments: Owned and Leased Hotels and
Management Activities. The Owned and Leased Hotel segment consists of the
15
<PAGE>
- --------------------------------------------------------------------------------
operations of the Company's owned hotels in Boston (Cambridge), Key Biscayne
and Anguilla, and the operation of its leased property in New Orleans. Revenues
for this segment are derived mainly from room, food and beverage, parking and
telephone receipts from external customers. The Management Activities segment
includes the operations under management agreements of properties in Bermuda,
Curacao, New Orleans and Egypt, and also includes two properties in Aruba, to
which the Company has granted licenses. Revenues from this segment are derived
mainly from management, marketing, license and service fees charged to the
third party owners of these properties. The accounting policies of the
reportable segments are the same as those described in the summary of
significant accounting policies. The segments' operating income or losses and
pretax profit or losses are after giving effect to management, marketing and
service fees to the Company's owned and leased properties. Segment data for the
three years ended December 31, 1998 follows:
Year ended December 31, 1998
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
---------- ------------ -------------
<S> <C> <C> <C>
Revenues $75,807 $6,233 $82,040
Operating income (loss)
before depreciation and
amortization expense 11,528 (250) 11,278
Depreciation and
amortization (5,275) (413) (5,688)
Interest income
(expense), net (3,543) 596 (2,947)
Other income -- 16 16
------- ------- --------
Segment pre-tax profit
(loss) 2,710 (51) 2,659
Segment assets 90,477 16,126 106,603
Segment capital additions 7,587 1,021 8,608
</TABLE>
Year ended December 31, 1997
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
---------- ------------ -------------
<S> <C> <C> <C>
Revenues $61,083 $7,385 $68,468
Operating income (loss)
before depreciation and
amortization expense 8,647 (696) 7,951
Depreciation and
amortization (4,156) (446) (4,602)
Interest income
(expense), net (2,594) 835 (1,759)
Other income -- 20 20
------- ------- -------
Segment pre-tax profit
(loss) 1,897 (287) 1,610
Segment assets 48,969 27,447 76,416
Segment capital additions 6,656 459 7,115
</TABLE>
Year ended December 31, 1996
<TABLE>
<CAPTION>
(in thousands)
-----------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
---------- ------------ -------------
<S> <C> <C> <C>
Revenues $56,410 $6,180 $62,590
Operating income (loss)
before depreciation and
amortization expense 6,895 (955) 5,940
Depreciation and
amortization (3,794) (378) (4,172)
Interest income
(expense), net (1,852) 1,028 (824)
Other income -- 377 377
------- ------- -------
Segment pre-tax profit 1,249 72 1,321
Segment assets 45,626 23,345 68,971
Segment capital additions 7,122 634 7,756
</TABLE>
Segment assets for Management Activities in the information above include
cash held in corporate accounts, and loans to and receivables from properties
under management and license agreements.
Segment data by geographic area of the Company's revenues, operating
income and long-lived assets follows:
<TABLE>
<CAPTION>
(in thousands)
Revenues
-----------------------------------
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
United States $75,133 $60,615 $56,597
Other 6,907 7,853 5,993
------- ------- --------
Consolidated $82,040 $68,468 $62,590
======= ======= ========
Operating Income
-----------------------------------
1998 1997 1996
-------- -------- --------
United States $ 5,811 $ 3,571 $ 3,452
Other (222) (222) (1,684)
-------- -------- --------
Consolidated $ 5,589 $ 3,349 $ 1,768
======== ======== ========
Long-lived Assets
-----------------------------------
1998 1997 1996
-------- -------- --------
United States $68,213 $30,096 $29,185
Anguilla, BWI 13,285 13,885 12,745
Other 450 450 --
-------- -------- --------
Consolidated $81,948 $44,431 $41,930
======== ======== ========
</TABLE>
3. Long-Term Receivables and Advances
<TABLE>
<CAPTION>
(in thousands)
------------------------------
December 31, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
Key Biscayne receivables (a) $ -- $11,560
Sharm El Sheikh, Egypt (b) 1,000 1,000
Cairo, Egypt, net of discount (c) 708 851
Other 1,174 1,268
------ -------
Total long-term receivables 2,882 14,679
Less: current portion 347 383
------ -------
Net long-term receivables $2,535 $14,296
====== =======
</TABLE>
(a) Various mortgage notes and loans with interest rates ranging from the prime
rate (7-3/4% at December 31, 1998) to 14-1/2%, which were settled as a
result of the acquisition of the Key Biscayne resort by the Company in
July 1998 (see also Note 2 -- Operations).
16
<PAGE>
- --------------------------------------------------------------------------------
(b) This loan to the owner of the Sonesta Beach Resort, Sharm El Sheikh bears
interest at the prime rate (7-3/4% at December 31, 1998) with repayment in
seven annual installments of $142,857, together with interest, commencing
January 1, 1999.
(c) The remaining balance of this loan, made in February 1997 to the owner of
the Sonesta Hotel Cairo, will be repaid with one payment of $330,000 on
March 1, 1999, and a final payment of $340,000 on March 1, 2000. There is
no interest due during the term of the loan.
4. 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
December 31, 1998). 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 December 31, 1998.
A subsidiary of the Company has a $5,000,000 line of credit which expires
on 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 less one-eighth
percent (7-5/8% at December 31, 1998), and the commitment fee on the unused
portion of the line is .65% per annum. No amount was outstanding under this
line at December 31, 1998.
There were no short-term borrowings during 1997. During 1998 and 1996
average short-term borrowings were approximately $15,000 and $875,000 at
average interest rates of 8.5% and 8.3%, respectively. The maximum amounts of
short-term borrowings outstanding during 1998 and 1996 were $772,000 and
$4,640,000, respectively.
5. Long-Term Debt
<TABLE>
<CAPTION>
(in thousands)
----------------------------
December 31, December 31,
1998 1997
-------------- -------------
<S> <C> <C>
Charterhouse of Cambridge Trust and
Sonesta of Massachusetts Inc.:
First mortgage note (a) $21,937 $ 22,416
Sonesta Beach Resort Limited
Partnership:
First mortgage note (b) 23,859 --
Sonesta Hotels of Anguilla, Ltd:
First mortgage note (c) 5,790 6,190
Note from Seller (d) 800 800
Sonesta Curacao Hotel Corporation, N.V.:
Bank term loan (e) 2,000 2,000
Other 393 --
------- --------
54,779 31,406
Less current portion of long-term debt 4,048 3,679
------- --------
Total long-term debt $50,731 $ 27,727
======= ========
</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 $24,153,000 at December 31, 1998. 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 was assumed by the Company in connection with the acquisition of
the Sonesta Beach Resort Key Biscayne on July 1, 1998 (see Note 2 --
Operations). This loan is secured by a first mortgage on the acquired
property, which is included in fixed assets at a net book value of
approximately $36,115,000 at December 31, 1998. The principal balance of
this loan is $22,431,000. The Company recorded an additional liability of
$1,740,000 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 $13,285,000 at December 31, 1998. In addition,
an amount of $1,900,000 is secured by a Company guaranty. The loan
requires minimum principal payments of $725,000, $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 December 31, 1998 was 7.3%.
(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. Pending
resolution of certain outstanding issues with the Seller of the resort,
the Company has not repaid this loan on the maturity date (see Note 9 --
Legal Proceedings).
(e) This loan matured June 30, 1998, but was extended through March 31, 1999.
No principal payments are required. The interest rate was 9-3/4% at
December 31,
17
<PAGE>
- --------------------------------------------------------------------------------
1998, 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.
Aggregate principal payments for the next five years subsequent to
December 31, 1998, are as follows:
<TABLE>
<CAPTION>
Year (in thousands)
- -------- ---------------
<S> <C>
1999 $ 4,048
2000 28,395
2001 2,117
2002 682
2003 19,537
</TABLE>
6. Stockholders' Equity
Basic Earnings per Share
The following table sets forth the computation of basic earnings per
share. As the Company has no dilutive securities, there is no difference
between basic and diluted earnings per share of common stock:
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Numerator:
Net income $1,416,963 $ 932,600 $ 187,444
Preferred stock dividends (13,340) (13,340) (13,364)
---------- ---------- ----------
Numerator for earnings per
share $1,403,623 $ 919,260 $ 174,080
========== ========== ==========
Denominator:
Weighted number
of shares outstanding 2,068,215 2,068,215 2,070,057
========== ========== ==========
Earnings per share
of common stock $ 0.68 $ 0.44 $ 0.09
========== ========== ==========
</TABLE>
Preferred Stock
The 5% cumulative preferred stock is subject to redemption at $27.50 per
share plus accrued dividends to the date of redemption. At December 31, 1998
and 1997, 395,535 shares were authorized, and 10,672 shares were outstanding.
Preferred stock sinking fund requirements to December 31, 1998 have been
satisfied by the exchange in prior years of common stock for preferred stock
and by the purchase and retirement of preferred stock. No dividends on common
stock may be declared or paid and no common stock may be purchased or redeemed,
unless preferred stock sinking fund requirements are met.
7. Commitments and Contingencies
A subsidiary of the Company purchased the Sonesta Beach Resort Anguilla
in November 1995 (see Note 2--Operations). The hotel is located on 49 acres of
land leased from the Government of Anguilla. There are 92 years remaining on
the lease. In 1996, the same subsidiary of the Company entered into a 50 year
lease for an additional two acres of beachfront land adjacent to the Anguilla
hotel site. The Company operates the Royal Sonesta Hotel, New Orleans,
Louisiana, under a lease. In September 1994 the Company exercised its first of
three 10-year options to extend the lease. The lease requires payment of a
percentage rent based on net profits, as defined. The Company leases space for
its executive offices in Boston, Massachusetts, which lease will expire in
2004. The Company provides for rent expense on a straight line basis over the
term of the lease. The Company is also committed, under various leases, for
certain other property, equipment and real estate.
Minimum fixed rentals, principally on real estate, payable subsequent to
December 31, 1998 (exclusive of real estate taxes, insurance and other
occupancy costs) are as follows:
<TABLE>
<CAPTION>
(in thousands)
---------------
Operating
Leases
---------------
<S> <C>
Period
------
1999 $ 997
2000 843
2001 779
2002 783
2003 709
Thereafter 10,860
-------
$14,971
=======
</TABLE>
Rentals charged to operations are as follows:
<TABLE>
<CAPTION>
(in thousands)
------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Real Estate:
Fixed rentals $ 981 $ 935 $ 813
Percentage rentals
based on defined
operating profits 6,131 5,544 5,031
Other rentals 44 20 38
------ ------ ------
$7,156 $6,499 $5,882
====== ====== ======
</TABLE>
The Company manages the Chateau Sonesta Hotel in New Orleans under a
long-term management agreement. The hotel opened in April 1995. The Company
guarantees debt service payments of approximately $1,500,000 per year on the
hotel's first mortgage in the original amount of $12,600,000 for a period of 5
years following the opening of the hotel. In 1997, the Company guaranteed
additional debt service payments of up to a total of $285,000 on an additional
hotel loan of $1,300,000. The proceeds from this loan, together with a loan of
$500,000 that the Company made to the hotel, were used to expand and improve
the hotel. If advances are made under these guarantees, they will be secured by
a mortgage. No advances were required under these guarantees to date.
The Company entered into agreements during 1997 to operate a hotel in
Miami Beach, Florida. Under the current agreements, the Company is committed to
loan up to $4,150,000 to the owner of the hotel. This loan will be funded once
the hotel is substantially completed.
The Company operates the Sonesta Beach Resort & Casino Curacao under a
management agreement. The owner of the hotel has the right to terminate the
agreement if the hotel does not achieve certain levels of operating income. For
1997, the hotel did not achieve the stipulated level of income, and the owner
exercised its right to terminate the agreement. Based on its agreement, the
Com-
18
<PAGE>
- --------------------------------------------------------------------------------
pany has to receive a termination fee of $1,875,073 before the termination
becomes effective. This termination fee is calculated based on the equity
investment of $2,000,000 the Company made in the hotel in 1994, less incentive
fees earned during 1998 of $124,927.
The Company has incentive compensation plans under which hotel profit
bases, as established annually, must be achieved before any incentive
compensation may be earned. The incentive compensation charged to operations
was $1,446,600 in 1998, $1,047,700 in 1997 and $928,700 in 1996.
8. Pension and Benefit Plans
Pension Plan
The Company maintains a non-contributory defined benefit pension plan
(the Plan) for certain employees of Sonesta International Hotels Corporation
and its subsidiaries. Benefits are based on the employee's years of service and
the highest average monthly salary during any 60 consecutive months of
employment. The Company's funding policy is to contribute annually at least the
minimum contribution required by ERISA.
The Company acquired Sonesta Beach Resort Key Biscayne on July 1, 1998
(see Note 2 -- Operations). The employees of the hotel were covered by a
pension plan (the Key Biscayne Plan) which provides substantially the same
benefits as the Company's Plan. The Key Biscayne Plan was merged with the
Company's Plan on December 31, 1998. The cost of the Key Biscayne Plan has been
included since July 1, 1998. The Key Biscayne Plan assets and projected benefit
obligation are included in the Company's accrued pension liability at December
31, 1998.
The following table sets forth the funded status of the Plan at December
31, 1998 and 1997:
<TABLE>
<CAPTION>
(in thousands)
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $14,209 $12,317
Service cost 915 616
Interest cost 1,211 929
Obligation attributable to the Key Biscayne
Plan assumed as of July 1, 1998 3,266 --
Actuarial loss 3,252 1,450
Benefits paid (902) (1,103)
------- -------
Benefit obligation at end of year 21,951 14,209
Change in plan assets
Fair value of plan assets at beginning
of year 13,917 11,665
Actual return on plan assets 2,808 3,067
Employer contribution 1,471 288
Assets attributable to the Key Biscayne
Plan assumed as of July 1, 1998 2,425 --
Benefits paid (902) (1,103)
------- -------
Fair value of plan assets at end of year 19,719 13,917
Projected benefit obligation in excess of
Plan assets 2,232 292
Unrecognized actuarial gain (loss) (247) 1,295
Unrecognized prior service cost (656) (721)
Unrecognized transition asset 616 705
------- -------
Accrued pension liability $1,945 $1,571
======= =======
</TABLE>
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>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Discount rate 6.75% 7.00% 7.00%
Expected return on plan assets 8.50% 8.50% 8.50%
Rate of compensation increase 4.00% 4.00% 4.00%
</TABLE>
The Company's pension cost for the Plan was computed as follows:
<TABLE>
<CAPTION>
(in thousands)
---------------------------------
1998 1997 1996
----------- -------- --------
<S> <C> <C> <C>
Service cost $ 915 $ 616 $ 606
Interest cost 1,211 929 936
Expected return on plan assets (1,192) (947) (920)
Amortization of prior service cost 65 65 65
Amortization of transition asset (88) (88) (88)
Recognized actuarial loss 93 53 172
------ ----- -----
Net periodic benefit cost $1,004 $ 628 $ 771
====== ===== =====
</TABLE>
Savings Plan
The Company has an employee savings plan (the Savings Plan) that
qualifies as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. Under the Savings Plan, participating U.S. employees may defer a
portion of their pre-tax earnings up to the Internal Revenue Service annual
contribution limit. All U.S. employees of the Company are eligible to
participate in the Savings Plan. Participating employees may choose to invest
their contributions in each one of seven mutual funds, which include equity
funds, balanced funds and a money market fund. The Savings Plan does not
provide for contributions by the Company.
The Sonesta Beach Resort Key Biscayne, which the Company acquired on July
1, 1998, had a savings plan identical to the Company's Savings Plan, and the
plans were merged on December 31, 1998.
9. Legal Proceedings
A wholly-owned subsidiary of the Company, Sonesta Hotels of Anguilla
Limited ("SHAL"), and two executive officers of the Company were named as
defendants in a lawsuit filed in October 1997 in Anguilla, B.W.I., by the
former owner of Sonesta Beach Resort Anguilla, which SHAL purchased in November
1995, and the principals of that entity. The Statement of Claim in this
lawsuit, which was substantially amended in January 1998, alleges, inter alia,
that the defendants have not complied with certain "implied terms" of the
agreements between them and with the terms of an alleged oral agreement. The
plaintiffs in this action are seeking relief from their contractual
obligations, entitlement to certain financial benefits, and certain equitable
relief. In late February 1998 defendants filed a "Defense and Counterclaim" to
plaintiffs' "Amended Statement of Claim". As part of its counterclaim SHAL is
seeking offsets against amounts otherwise owed to the former owner,
specifically a loan of $1,000,000 that matured in 1998. In light of its
numerous claims against the former owner, SHAL has made no payments on account
of that
19
<PAGE>
- --------------------------------------------------------------------------------
loan since 1996. The parties have engaged in settlement discussions which to
date have not been fruitful. In the absence of a settlement SHAL intends to
vigorously defend against this action, and to vigorously prosecute its
counterclaims, and expects a favorable outcome.
The Company is from time to time subject to routine litigation incidental
to its business, and generally covered by insurance. The Company believes that
the results of such litigation will not have a materially adverse effect on the
Company's financial condition.
10. Income taxes
The table below allocates the Company's income tax expense (benefit) based
upon the source of income:
<TABLE>
<CAPTION>
(in thousands)
1998 1997 1996
-------------------- ---------------------- -----------------------
Domestic Foreign Domestic Foreign Domestic Foreign
---------- --------- ---------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $3,053 $ (394) $2,252 $ (642) $4,174 $ (2,853)
====== ====== ====== ======= ====== ========
Federal, foreign and state income tax provision (benefit):
Current federal income tax (benefit) $ 826 $ (91) $ 470 $ (230) $1,128 $ (440)
State and foreign taxes, principally current 317 165 172 86 285 178
Deferred federal income tax (benefit) 120 (95) 260 (81) 228 (245)
------ ------ ------ ------- ------ --------
$1,263 $ (21) $ 902 $ (225) $1,641 $ (507)
====== ====== ====== ======= ====== ========
</TABLE>
A reconciliation of net tax expense applicable to income before provision
for income taxes at the statutory rate follows:
<TABLE>
<CAPTION>
(in thousands)
--------------------------------
1998 1997 1996
--------- -------- ---------
<S> <C> <C> <C>
Expected provision for taxes at statutory rate $ 904 $ 547 $ 449
State income taxes, net of federal benefit 209 114 188
Foreign income taxes, net of federal benefit 109 57 --
Tax on foreign losses, not deductible for federal income taxes -- -- 459
Other 20 (41) 38
------ ----- ------
$1,242 $ 677 $1,134
====== ===== ======
</TABLE>
Deferred tax expense (benefits) result from temporary differences in the
recognition of revenues and expenses for tax and financial reporting purposes.
The source of these differences and their tax effects are as follows:
<TABLE>
<CAPTION>
(in thousands)
----------------------------------
1998 1997 1996
--------- -------- -----------
<S> <C> <C> <C>
Losses from foreign subsidiary, not reported for tax purposes $ -- $ -- $ (240)
Tax depreciation more than book depreciation 119 26 107
Pension contribution more (less) than pension expense (298) 174 (164)
Tax deductible interest payments in excess of interest expense 101 -- --
Other temporary differences 103 (22) 281
------ ----- -------
$ 25 $ 178 $ (16)
====== ===== =======
</TABLE>
20
<PAGE>
- --------------------------------------------------------------------------------
Temporary differences between the financial statement carrying amounts and
the tax basis of assets and liabilities that give rise to significant portions
of deferred income taxes at December 31, 1998 and 1997 relate to the following:
<TABLE>
<CAPTION>
(in thousands)
-----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current deferred tax asset
Expenses accrued but deferred for tax purposes $ 348 $ 351
------ -------
Current deferred tax asset $ 348 $ 351
====== =======
Long-term deferred tax liabilities (assets)
Depreciation book tax difference $5,304 $ 3,524
Pension expense in excess of contributions (574) (146)
Expenses accrued but deferred for tax purposes (151) (162)
Losses from foreign subsidiary, not currently deductible (680) (680)
Interest accrued but deferred for tax purposes (449) --
State tax benefits of $550,000 ($590,000 in 1997) from net operating loss carry-forwards,
net of valuation allowances -- --
Other (47) (42)
------ -------
Deferred tax liability $3,403 $ 2,494
====== =======
</TABLE>
At December 31, 1998 and 1997, the Company had state net operating loss
carry-forwards of approximately $5,800,000 and $6,500,000, respectively, for
income tax purposes. Of the total carry-forwards available at December 31,
1998, approximately $1,000,000, $400,000, $1,800,000, $2,000,000 and $600,000
expire in the years 1999 through 2003, respectively. For financial reporting
purposes valuation allowances of $550,000 and $590,000 have been recognized at
December 31, 1998 and 1997, respectively, to offset the deferred tax assets
related to those carry-forwards.
Unremitted foreign earnings on which no deferred taxes have been provided
approximated $900,000 at December 31, 1998 and 1997. Deferred taxes of
approximately $306,000 would have been provided had the earnings not been
permanently invested overseas.
In connection with the July 1, 1998 acquisition of the Sonesta Beach
Resort Key Biscayne, the Company recognized a net deferred tax liability of
$902,527 (see Note 2 -- Operations).
21
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
Executive Offices, John Hancock Tower, 200 Clarendon Street
Boston, Massachusetts 02116 (617) 421-5400 Fax 421-5402
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SONESTA DIRECTORS
George S. Abrams(2) Paul Sonnabend(1) Roger P. Sonnabend(1)
Winer & Abrams Chairman of the Executive Chairman of the Board and
Attorneys at Law Committee and Chief Financial Chief Executive Officer,
Officer, Sonesta International Sonesta International
Hotels Corporation Hotels Corporation
Vernon R. Alden(2)(3)
Director and Trustee of Peter J. Sonnabend Stephen Sonnabend
Several Organizations Vice Chairman, General Counsel Senior Vice President,
& Secretary, Sonesta Sonesta International
International Hotels Corporation Hotels Corporation
Joseph L. Bower(1)(2)(3)
Professor, Harvard Stephanie Sonnabend Jean C. Tempel(3)
Business School President, Sonesta International Special Limited Partner, TL Ventures
Hotels Corporation
(1)Member Executive Committee (2)Member Audit Committee (3)Member Compensation Committee
- ------------------------------------------------------------------------------------------------------------------------------------
SONESTA OFFICERS
Roger P. Sonnabend Christopher Baum Jacqueline Sonnabend
Chairman of the Board Vice President- Executive Vice President
and Chief Executive Officer Sales & Marketing
Peter J. Sonnabend
Stephanie Sonnabend Michael Levie Vice Chairman,
President Vice President-Egypt General Counsel and Secretary
Felix Madera Hans U. Wandfluh
Paul Sonnabend Vice President-International Vice President
Chairman of the Executive Committee
and Chief Financial Officer Boy A. J. van Riel David Rakouskas
Vice President and Treasurer Assistant Secretary
Stephen Sonnabend and Corporate Controller
Senior Vice President Mary Jane Rosa
Vice President-Design
- ------------------------------------------------------------------------------------------------------------------------------------
SONESTA HOTELS AND OTHER OPERATIONS
Royal Sonesta Hotel Sonesta Beach Resort Sonesta St. George Hotel,
Boston (Cambridge), Sharm el Sheikh, Egypt(2) Luxor, Egypt(2)
Massachusetts(1)
Sonesta Club Sonesta Beach Resort
Royal Sonesta Hotel Sharm el Sheikh, Egypt(2) Nuweiba, Egypt(2)
New Orleans, Louisiana(1) (Opening 1999)
Sonesta Hotel
Sonesta Beach Resort Cairo, Egypt(2) Sonesta Taba Resort & Casino
Key Biscayne, Florida(1) Taba, Egypt(2)
Sonesta Hotel (Opening Fall 1999)
Sonesta Beach Resort Port Said, Egypt(2)
Anguilla, B.W.I.(1) Sonesta Beach Plaza Hotel
Sonesta Paradisio Hotel Manama, Bahrain(2)
Chateau Sonesta Hotel El Gouna, Egypt(2) (Opening 2000)
New Orleans, Louisiana(2)
Sonesta Nile Goddess Cruise Ship Aruba Sonesta Resort & Casino
Sonesta Beach Resort Cairo, Egypt(2) Oranjestad, Aruba(3)
Southampton, Bermuda(2)
Sonesta Sun Goddess Cruise Ship Aruba Sonesta Suites & Casino
Sonesta Beach Resort & Casino Cairo, Egypt(2) Oranjestad, Aruba(3)
Curacao, Netherlands Antilles(2)
Sonesta Lima Hotel El Olivar
Sonesta Sasson Resort Hotel & Lima, Peru(3)
Condominiums
Miami Beach, Florida(2)
(Opening 2000)
(1)Owned or Leased (2)Operated under Management Agreement (3)Licensed
For reservations, call toll free 800-SONESTA (800-766-3782)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INDEPENDENT AUDITORS
Ernst & Young LLP, 60 State Street, Boston, Massachusetts 02109
TRANSFER AGENT AND REGISTRAR
American Stock Transfer, 400 Wall Street, 46th Floor, New York, NY 10005
ALPHABETICAL LIST OF WHOLLY-OWNED SUBSIDIARIES
Anguilla Hotel Management, Inc.
Brewster Wholesale Corporation
Charterhouse of Cambridge Trust
Florida Sonesta Corporation
Hotel Corporation of America
Hotel Corporation of Georgia
Key Biscayne Land Corporation
Newo Aruba N.V.
PR By Design, Inc.
Royal Sonesta, Inc.
S.I.A. Advertising, Inc.
Sonesta Charitable Foundation, Inc.
Sonesta Costa Rica, S.A.
Sonesta Curacao Hotel Corporation, N.V.
Sonesta Hotels of Anguilla Limited
Sonesta Hotels of Florida, Inc.
Sonesta International Hotels Limited:
Hotel Corporation of America (Bermuda) Limited
Port Royal Company, Limited
Sonesta Licensing Corporation
Sonesta of Massachusetts, Inc.
Sonesta Miami Beach Hotel Company, Inc.
Sonesta Middle East Hotel Corporation
TBD, Inc.
54
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sonesta International Hotels Corporation of our report dated March 19, 1999,
included in the 1998 Annual Report to Shareholders of Sonesta International
Hotels Corporation.
Our audit also included the financial statement schedule of Sonesta
International Hotels Corporation listed in Item 14 (a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
ERNST & YOUNG LLP
Boston, Massachusetts
March 19, 1999
55
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000091741
<NAME> Sonesta International Hotels Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 9,470
<SECURITIES> 0
<RECEIVABLES> 7,795
<ALLOWANCES> 141
<INVENTORY> 1,268
<CURRENT-ASSETS> 21,028
<PP&E> 107,737
<DEPRECIATION> 25,789
<TOTAL-ASSETS> 106,603
<CURRENT-LIABILITIES> 25,795
<BONDS> 50,731
0
294
<COMMON> 3,488
<OTHER-SE> 20,745
<TOTAL-LIABILITY-AND-EQUITY> 106,603
<SALES> 20,710
<TOTAL-REVENUES> 82,040
<CGS> 4,954
<TOTAL-COSTS> 34,189
<OTHER-EXPENSES> 42,262
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,860
<INCOME-PRETAX> 2,659
<INCOME-TAX> 1,242
<INCOME-CONTINUING> 1,417
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,417
<EPS-PRIMARY> 0.68
<EPS-DILUTED> 0.68
</TABLE>
