FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________________ to _______________________
Commission file number 0-9032
SONESTA INTERNATIONAL HOTELS CORPORATION
----------------------------------------
(Exact name of registrant as specified in its charter)
NEW YORK 13-5648107
- -------------------------------- -------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
200 Clarendon Street, Boston, MA 02116
- -------------------------------------------------------------------------------
(Address of principal executive offices)
(Zip Code)
617-421-5400
- -------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes ____ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Number of Shares of Common Stock Outstanding
as of August 6, 1999 -- $.80 par value,
Class A - 3,717,230
<PAGE>
Index
Sonesta International Hotels Corporation
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - June 30, 1999 1
and December 31, 1998
Consolidated statements of operations - Three month
and six month periods ended June 30, 1999 and 1998 3
Consolidated statements of cash flows - Six
months ended June 30, 1999 and 1998 4
Notes to consolidated financial statements -
June 30, 1999 and 1998 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition - Three month
and six month periods ended June 30, 1999 and 1998 12
Item 3. Quantitative and Qualitative Disclosure of Market Risk 17
Part II. Other Information
Item 4. Submission of matters to a Vote of security holders 18
</TABLE>
<PAGE>
FORM 10-Q
Part I - Item 1. Financial Information
--------------------------------------
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1999 (Unaudited) and December 31, 1998
-----------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
--------------------------------
June 30 December 31
1999 1998
---------- -----------
ASSETS
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 8,518 $ 9,470
Accounts and notes receivables:
Trade, less allowance of $148
($141 at December 31, 1998) for doubtful accounts 7,132 7,654
Other 631 905
-------- --------
Total accounts and notes receivable 7,763 8,559
Current portion of deferred taxes 377 347
Inventories 1,262 1,268
Prepaid expenses 1,609 1,384
-------- --------
Total current assets 19,529 21,028
Long-term receivables and advances 1,956 2,535
Property and equipment, at cost:
Land 10,014 10,014
Buildings 69,705 68,899
Furniture and equipment 29,451 25,255
Leasehold improvements 2,550 2,464
Projects in progress 322 1,105
-------- --------
112,042 107,737
Less accumulated depreciation and
amortization 29,350 25,789
-------- --------
Net property and equipment 82,692 81,948
Other long-term assets 1,194 1,092
-------- --------
$105,371 $106,603
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
June 30, 1999 (Unaudited) and December 31, 1998
-----------------------------------------------
<TABLE>
<CAPTION>
(in thousands)
------------------------------
June 30 December 31
1999 1998
--------- ---------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 4,712 $ 4,048
Accounts payable 4,071 6,179
Advance deposits 3,595 3,869
Federal, foreign and state income taxes 1,265 383
Accrued liabilities:
Salaries and wages 2,170 2,569
Rentals 3,993 6,138
Interest 408 459
Employee benefits 489 468
Other 2,138 1,682
--------- ---------
Total accrued liabilities 9,198 11,316
--------- ---------
Total current liabilities 22,841 25,795
Long-term debt 46,292 50,731
Deferred federal and state income taxes 3,990 3,403
Other non-current liabilities 2,718 2,147
Redeemable preferred stock, $25 par value, at
redemption value 294 294
Commitments and contingencies
Common stockholders' equity:
Common stock:
Class A, $.80 par value:
Authorized--10,000,000 shares
Issued--3,051,088 shares at stated value 3,488 3,488
Retained earnings 33,874 28,871
Treasury shares--982,873, at cost (8,126) (8,126)
--------- ---------
Total common stockholders' equity 29,236 24,233
--------- ---------
$ 105,371 $ 106,603
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
(in thousands except for per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------- -----------------------
June 30 June 30
-------- --------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rooms $ 15,774 $ 11,753 $ 33,002 $ 22,470
Food and beverage 7,286 4,771 13,535 8,853
Management, license and
service fees 1,212 1,969 2,314 3,851
Parking, telephone and other 2,107 1,595 4,158 2,922
-------- -------- -------- --------
26,379 20,088 53,009 38,096
Costs and expenses:
Costs and operating expenses 10,799 7,594 20,977 14,668
Advertising and promotion 1,955 1,446 3,938 2,875
Administrative and general 4,198 3,325 8,100 6,472
Human resources 473 403 975 786
Maintenance 1,685 1,292 3,370 2,596
Rentals 2,107 2,068 4,494 4,422
Property taxes 546 298 1,088 595
Depreciation and amortization 1,799 1,292 3,561 2,520
-------- -------- -------- --------
23,562 17,718 46,503 34,934
-------- -------- -------- --------
Operating income 2,817 2,370 6,506 3,162
Other income (deductions):
Interest expense (1,135) (724) (2,350) (1,449)
Interest income 225 204 377 527
Foreign exchange gain (loss) (3) 2 (7) 1
Gain on sales of assets 1 2 5 16
Other 3,875 -- 3,875 --
-------- -------- -------- --------
2,963 (516) 1,900 (905)
Income before income taxes 5,780 1,854 8,406 2,257
Federal, foreign and state income
tax provision 2,123 689 3,087 956
-------- -------- -------- --------
Net income 3,657 1,165 5,319 1,301
Retained earnings at beginning
of period 30,530 28,087 28,871 28,087
Cash dividends on preferred stock (3) (3) (6) (6)
Cash dividends on common stock (310) (310) (310) (310)
-------- -------- -------- --------
Retained earnings at end of period $ 33,874 $ 28,939 $ 33,874 $ 29,072
======== ======== ======== ========
Basic and diluted earnings per
share of common stock $ .88 $ .28 $ 1.28 $ .31
======== ======== ======== ========
Weighted average number of shares
outstanding 4,136 4,136 4,136 4,136
======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
(in thousands)
------------------------------
Six Months Ended June 30
1999 1998
--------- ---------
<S> <C> <C>
Cash provided (used) by operating activities
Net income $ 5,319 $ 1,301
Items not (providing) requiring cash
Pension expense 582 417
Depreciation and amortization 3,561 2,520
Other amortization (342) 44
Deferred federal income taxes provision (benefit) 557 (8)
Gain on sales of assets (5) (16)
Changes in assets and liabilities
Accounts and notes receivable 880 820
Inventories 6 (7)
Prepaid expenses (225) (521)
Accounts payable (2,108) (2,121)
Advance deposits (274) (731)
Federal, foreign and state income taxes 882 107
Accrued liabilities (2,113) (1,140)
--------- ---------
Cash provided by operating activities 6,720 665
Cash used by investing activities
Proceeds from sales of assets 5 19
Expenditures for property and equipment (4,520) (3,122)
Cash reimbursed from escrow -- 840
New loans and advances -- (396)
Payments received on long-term receivables
and advances 565 1,228
--------- ---------
Cash used by investing activities (3,950) (1,431)
Cash used by financing activities
Payments on long-term debt (3,406) (309)
Payments on capitalized lease obligations -- (30)
Cash dividends paid (316) (316)
--------- ---------
Cash used by financing activities (3,722) (655)
--------- ---------
Net decrease in cash (952) (1,421)
Cash and cash equivalents at beginning of period 9,470 5,581
--------- ---------
Cash and cash equivalents at end of period $ 8,518 $ 4,160
========= =========
</TABLE>
4
<PAGE>
FORM 10-Q
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
Supplemental Schedule of Interest and Income Taxes Paid
-------------------------------------------------------
Cash paid for interest in the 1999 six-month period and the 1998
six-month period was approximately $2,401,000 and $1,433,000,
respectively. Cash paid for income taxes in the 1999 six-month period
and the 1998 six-month period was approximately $1,648,000 and
$857,000, respectively.
See accompanying notes to consolidated financial statements.
5
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Operations
----------
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods ended June
30, 1999 are not necessarily indicative of the results that may be expected for
the year ended December 31, 1999.
The balance sheet at December 31, 1998 has been derived from the audited
financial statements at that date but does not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements.
For further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's annual report on Form 10-K for the
year ended December 31, 1998.
The management agreement under which the Company operated the Sonesta Beach
Resort & Casino, Curacao was terminated on June 1, 1999. The Company received a
termination fee of $1,875,073, which is based on the equity investment of
$2,000,000 the Company made in the hotel in 1994, less incentive fees earned in
1998 of $124,927. This fee is included in Other income in the consolidated
statement of operations for the quarter ended June 30, 1999. The carrying value
of the investment had previously been written down to zero through the
recognition by the Company of its equity in losses sustained by the hotel.
The Company operates the Sonesta Beach Resort Bermuda under a management
agreement. The owner of the hotel has the right to terminate the agreement in
the event of a sale of the hotel. In return for this right of termination upon a
sale, the Company is entitled to a supplemental fee of $2,000,000 on the earlier
of (1) a sale of the hotel or (2) June 4, 1999. The Company received the
supplemental fee in June 1999, and recorded this as Other income in the
consolidated statement of operations for the quarter ended June 30, 1999.
During the second quarter of 1999, the Company settled a legal dispute with the
seller of the Sonesta Beach Resort Anguilla, a hotel that the Company acquired
in November 1995. In connection with the settlement, the Company repaid a loan
from the seller in connection with the purchase of the hotel of $800,000, which
had originally matured in November 1998.
Included in the results from operations for the six month period ended June 30,
1999 are the revenues and expenses from Sonesta Beach Resort Key Biscayne, which
the Company acquired on July 1, 1998. Before the acquisition, the Company
operated the hotel under a management agreement.
6
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Long-Term Receivables and Advances
----------------------------------
<TABLE>
<CAPTION>
(in thousands)
-------------------------
June 30, December 31,
1999 1998
--------- ---------
<S> <C> <C>
Sharm El Sheikh (a) $1,000 $1,000
Cairo, Egypt, net of discount (b) 315 708
Other 1,071 1,174
------ ------
Total long-term receivables 2,386 2,882
Less: current portion 430 347
------ ------
Net long-term receivables $1,956 $2,535
====== ======
</TABLE>
(a) This loan to the owner of the Sonesta Beach Resort, Sharm El Sheikh bears
interest at the prime rate (7 3/4% at June 30, 1999) with repayment in seven
annual installments of $142,857, together with interest, commencing January
1, 1999.
(b) The remaining balance of this loan made in February 1997 to the owner of the
Sonesta Hotel Cairo, will be repaid with a final payment of $340,000 on
March 1, 2000. There is no interest due during the term of the loan.
3. Borrowing Arrangements
----------------------
The Company has a $2,000,000 line of credit which expires on September 30, 1999.
This line of credit bears interest at the prime rate (7 3/4% at June 30, 1999).
The terms of the line require a certain minimum net worth, a minimum amount of
unrestricted cash or available credit lines during part of each calendar year,
and approval for additional borrowings by the Company. No amount was outstanding
under this line at June 30, 1999.
A subsidiary of the Company has a $5,000,000 line of credit which will expire
December 31, 2000. The terms of the loan require certain minimum levels of
earnings and net worth, limit cash dividends and purchases of the Company's
stock, and specify a maximum defined debt to net worth ratio. The loan is
secured by the Company's leasehold interest in the Royal Sonesta Hotel, New
Orleans, and by a Company guaranty. The interest rate is prime (7 3/4% at June
30, 1999) less one-eighth percent, and the commitment fee on the unused portion
of the line is .65% per annum. The Company received a waiver with regards to the
limitation on treasury stock purchases in connection with the purchase of stock
described in Note 5 - Capital Transactions. No amount was outstanding under this
line at June 30, 1999.
7
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Long-Term Debt
--------------
<TABLE>
<CAPTION>
(in thousands)
-----------------------------
June 30, December 31,
1999 1998
-------- --------
<S> <C> <C>
Charterhouse of Cambridge Trust and Sonesta of
Massachusetts Inc.:
First mortgage note (a) $21,681 $21,937
Sonesta Beach Resort Limited Partnership:
First mortgage note (b) 23,473 23,859
Sonesta Hotels of Anguilla, Ltd:
First mortgage note (c) 5,440 5,790
Note from Seller (d) -- 800
Sonesta Curacao Hotel Corporation, N.V.:
Bank term loan (e) -- 2,000
Other 410 393
------- --------
51,004 54,779
Less current portion of long-term debt 4,712 4,048
------- --------
Total long-term debt $46,292 $50,731
======= ========
</TABLE>
(a) This loan is secured by a first mortgage on the Royal Sonesta Hotel Boston
(Cambridge) property. This property is included in fixed assets at a net
book value of approximately $25,630,000 at June 30, 1999. The interest rate
on the loan is 8.86% for the term of the loan, and monthly payments for
interest and principal are $203,802. The mortgage loan matures in December
2003, and no prepayments are allowed until January 2000.
(b) This loan is secured by a first mortgage on the Sonesta Beach Resort Key
Biscayne property, which is included in fixed assets at a net book value of
approximately $36,541,000 at June 30, 1999. The principal balance of this
loan is $22,431,000. The Company recorded an additional liability in 1998
when it assumed the loan to reflect the fair market value of this liability
based on its above market interest rate. This additional liability is being
amortized as an adjustment to interest expense over the remaining life of
the loan. The loan requires monthly interest payments based on a rate of
11.78% until March 1, 1999, and 12.78% from March 1, 1999 until the maturity
date, which is October 1, 2000. Additional interest will become due in case
the loan is not repaid on the scheduled maturity date. No provision for such
payment is included in the accompanying consolidated balance sheets. No
principal payments are due during the term of the loan.
8
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(c) The loan is secured by a first mortgage on the Sonesta Beach Resort Anguilla
property, and an assignment to the lender of the hotel's furniture, fixtures
and equipment. The property is included in fixed assets at a book value of
$12,935,000 at June 30, 1999. In addition, an amount of $1,900,000 is
secured by a Company guaranty. The loan requires minimum principal payments
of $375,000, $3,965,000 and $1,100,000 in the years 1999, 2000 and 2001,
respectively. In addition, principal payments are required equal to 25% of
the hotel's annual excess cash flow, as defined. The interest rate on the
loan is LIBOR plus 2 1/4 percentage points. The interest rate at June 30,
1999 was 7.2%.
(d) This loan from the seller of the Sonesta Beach Resort Anguilla was repaid in
the second quarter of 1999.
(e) This loan was repaid in May 1999.
5. Capital Transactions
--------------------
Treasury stock purchase
On July 1, 1999, the Company completed its acquisition of 209,600 shares of its
Class A Common Stock from a stockholder. The Company acquired the stock for a
price of $18.00 per share, for a total of $3,772,800. As part of its agreement
with the stockholder, the Company also agreed that if its Class A Common Stock
shareholders received more than $18.00 per share as part of a tender offer or a
sale of the Company prior to July 1, 2001, the stockholder would receive
additional compensation based on that excess.
Stock Split
On July 30, 1999, the Company completed a two for one stock split of its Class A
Common Stock. All shareholders of record on July 16, 1999 received a stock
dividend of one share for each share held. The current period and historical
earnings per share are computed based on the number of shares outstanding after
giving effect to the stock split.
9
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Hotel Costs and Operating Expenses
----------------------------------
Hotel costs and operating expenses in the accompanying Consolidated Statements
of Operations are summarized below:
<TABLE>
<CAPTION>
(in thousands)
---------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Direct departmental costs
Rooms $ 3,715 $2,685 $ 7,245 $ 5,127
Food and beverage 5,423 3,591 10,357 6,896
Heat, light and power 750 580 1,477 1,182
Other 911 738 1,898 1,463
------- ------ ------- -------
$10,799 $7,594 $20,977 $14,668
======= ====== ======= =======
</TABLE>
Direct departmental costs include payroll expenses and related payroll burden,
the cost of food and beverage consumed and other departmental costs.
7. Federal, Foreign and State Income Tax
-------------------------------------
The provision for income taxes in the accompanying Consolidated Statements of
Operations is summarized below:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------
Six Months Ended June 30
1999 1998
------- -------
<S> <C> <C>
Deferred federal income tax provision (benefit) $ 557 $ (8)
Current federal income tax 2,292 621
Current foreign income tax 18 229
Current state income tax 220 114
------- -------
$ 3,087 $ 956
======= =======
</TABLE>
10
<PAGE>
FORM 10-Q
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Segment Information
-------------------
Segment information for the Company's two reportable segments, Owned & Leased
Hotels and Management Activities for the six month periods ending June 30, 1999
and 1998 follows:
Six month period ended June 30, 1999
<TABLE>
<CAPTION>
(in thousands)
-------------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
------- ----------- ------------
<S> <C> <C> <C>
Revenues $50,668 $ 2,341 $ 53,009
Operating income (loss) before
depreciation and amortization expense 10,727 (660) 10,067
Depreciation and amortization (3,351) (210) (3,561)
Interest income (expense), net (2,212) 239 (1,973)
Other income -- 3,873 3,873
------- ------- --------
Segment pre-tax profit 5,164 3,242 8,406
Segment assets 91,337 14,034 105,371
Segment capital additions 4,359 161 4,520
Six-month period ended June 30, 1998
(in thousands)
-------------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
------- ----------- ------------
Revenues $34,029 $ 4,067 $ 38,096
Operating income before
depreciation and amortization expense 5,478 204 5,682
Depreciation and amortization (2,295) (225) (2,520)
Interest income (expense), net (1,306) 384 (922)
Other income -- 17 17
------- ------- --------
Segment pre-tax profit 1,877 380 2,257
Segment assets 48,852 24,637 73,489
Segment capital additions 2,584 538 3,122
</TABLE>
11
<PAGE>
FORM 10-Q
Part I - Item 2
---------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
FIRST SIX MONTHS 1999 COMPARED TO 1998
- --------------------------------------
REVENUES
- --------
<TABLE>
<CAPTION>
TOTAL REVENUES
(in thousands)
-----------------------------------
NO. OF
ROOMS 1999 1998
----- ---- ----
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI 100 $ 3,151 $ 2,695
Sonesta Beach Resort Key Biscayne 300 16,061 --
Royal Sonesta Hotel Boston (Cambridge) 400 12,957 13,129
Royal Sonesta Hotel New Orleans 500 18,499 18,205
Management and service fees and other revenues 2,341 4,067
------- -------
Total revenues $53,009 $38,096
======= =======
</TABLE>
Total revenues for the first six months of 1999 were $53,009,000 compared to
$38,096,000 in 1998, an increase of approximately $14,913,000.
The first two quarters of 1999 include the revenues of Sonesta Beach Resort Key
Biscayne, which the Company acquired on July 1, 1998. Revenues of this resort
during the six-month period ending June 30, 1999 were $16,061,000, which
compares to revenues of $15,109,000 during the same period in 1998, when the
hotel was operated by the Company under a management agreement. The increase in
revenues of approximately $952,000 was primarily due to a 7% increase in the
resorts' average room rate. The Company's Sonesta Beach Resort Anguilla reported
an increase in revenues of $456,000 during the first six months of 1999 compared
to the same period in 1998, due to a 12% increase in the hotel's room revenue
per available room ("REVPAR"), increased food and beverage revenues and an
increase in revenues from the hotel's retail shops, which the Company operates
as part of the resort. At the Royal Sonesta Hotel Boston (Cambridge), revenues
during the first half of 1999 decreased by approximately $172,000, primarily due
to a slight decrease in the hotel's banquet business. Due to increased
competition in the Boston and Cambridge marketplace, the hotel's increases in
revenues have slowed down after a number of years of strong growth. Revenues at
the Royal Sonesta Hotel New Orleans rose slightly from $18,205,000 during the
first six months of 1998 to $18,499,000 in 1999, mainly due to a 7% increase in
food and beverage revenues. Revenues from management activities decreased by
$1,726,000 during the first half of 1999 compared to 1998. The 1998 revenues
included fee income of $669,000 from Sonesta Beach Resort Key Biscayne, which
was operated by the Company under a management agreement until its acquisition
by the Company on July 1, 1998. The 1998 revenues also included a cancellation
fee of $335,000 in connection with the termination of a license agreement for a
hotel in Santiago, Chile, and additional fee income of $407,000 for previously
deferred fees from Chateau Sonesta Hotel New Orleans. In addition, the 1998
first half of the year revenues included $308,000 of service fees to an in-house
advertising agency, which function was outsourced as of January 1, 1999.
12
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONTINUED)
OPERATING INCOME
- ----------------
<TABLE>
<CAPTION>
OPERATING INCOME
(in thousands)
--------------------------------
1999 1998
------ ------
<S> <C> <C>
Sonesta Beach Resort Anguilla, BWI $ 34 $ (380)
Sonesta Beach Resort Key Biscayne 4,008 --
Royal Sonesta Hotel Boston (Cambridge) 1,800 2,078
Royal Sonesta Hotel New Orleans 1,534 1,485
------ ------
Operating income from hotels after
management and service fees 7,376 3,183
Management activities and other (870) (21)
------ ------
Operating income $6,506 $3,162
====== ======
</TABLE>
Operating income for the six-month period ending June 30, 1999 was $6,506,000,
compared to operating income of $3,162,000 in 1998, an increase of approximately
$3,344,000.
Included in operating income for the six-month period ending June 30, 1999 is
income of $4,008,000 from Sonesta Beach Resort Key Biscayne, which the Company
acquired on July 1, 1998. Due to the seasonality of the resort's business, the
results for the first six months of the year are not indicative of the results
of a full year of operations. Operating income at the Sonesta Beach Resort
Anguilla increased by $414,000 in the first half of 1999 compared to the
previous year due to increased revenues of $456,000 partially offset by a slight
increase in expenses of $42,000. During the first six months of 1999, operating
income at the Royal Sonesta Hotel Boston (Cambridge) decreased by $278,000
compared to 1998, due to a decrease in revenues of $172,000 and a slight
increase in total operating expenses of $106,000. Royal Sonesta New Orleans
experienced a slight increase in operating income of $49,000 due to an increase
in revenues of $294,000, which was partially offset by a modest 1.5% increase in
expenses. Operating loss from management and other activities, which is computed
after giving effect to management, marketing and service fees to the Company's
owned and leased hotels, increased by $849,000 in 1999 compared to 1998. The
1998 loss included a one-time fee payment of $335,000 in connection with the
cancellation of a license agreement for a hotel in Santiago, Chile, and
additional fee income of $407,000 for previously deferred fees from Chateau
Sonesta Hotel New Orleans.
13
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONTINUED)
OTHER INCOME (DEDUCTIONS)
- -------------------------
Interest expense increased from $1,449,000 in the first half of 1998 to
$2,350,000 in 1999, due to interest expense of $1,025,000 on indebtedness
related to the Sonesta Beach Resort Key Biscayne, which was acquired by the
Company on July 1, 1998. Interest income decreased by $150,000 in the first half
of 1999 compared to the same period in 1998, mainly due to interest of $275,000
included in 1998 from receivables due from the previous owner of Sonesta Beach
Resort Key Biscayne. These receivables were settled when the Company acquired
the hotel on July 1, 1998. This decrease was partially offset by increases in
interest income from the Company's loans to Sonesta Beach Resort Sharm El Sheikh
and by interest received from Sonesta Beach Resort & Casino, Curacao as a result
of the late payment of a termination fee.
Included in Other income in 1999 is a termination fee of approximately
$1,875,000 which the Company received in connection with the June 1, 1999
cancellation of the management agreement under which the Company operated the
Sonesta Beach Resort & Casino, Curacao. Also included in Other income in 1999 is
a supplemental fee of $2,000,000 from Sonesta Beach Resort Bermuda, which the
Company continues to operate under a management agreement (see also Note
1-Operations).
SECOND QUARTER 1999 COMPARED TO 1998
- ------------------------------------
REVENUES
- --------
<TABLE>
<CAPTION>
TOTAL REVENUES
(in thousands)
--------------------------------------
NO. OF
ROOMS 1999 1998
----- -------- -------
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI 100 $ 1,172 $ 991
Sonesta Beach Resort Key Biscayne 300 6,700 --
Royal Sonesta Hotel Boston (Cambridge) 400 8,289 8,116
Royal Sonesta Hotel New Orleans 500 8,992 8,804
Management and service fees and other revenues 1,226 2,177
------- -------
Total revenues $26,379 $20,088
======= =======
</TABLE>
Total revenues for the quarter ended June 30, 1999 were $26,379,000 compared to
$20,088,000 in 1998, an increase of approximately $6,291,000.
The second quarter of 1999 include the revenues of Sonesta Beach Resort Key
Biscayne, which the Company acquired on July 1, 1998. Revenues of this resort
during the 1999 second quarter were $6,700,000, compared to revenues of
$6,494,000 during the second quarter of 1998, when the hotel was operated by the
Company under a management agreement. The increase in revenues of $206,000 was
primarily the result of a 6% increase in the average room rate achieved at the
resort. The Company's Sonesta Beach Resort Anguilla had an increase in revenues
of $181,000 in the second quarter of 1999 compared to 1998, due to an 18%
increase in room revenue per available room ("REVPAR"), and increased revenues
from the hotel's retail shops, which the Company operates. Second quarter 1999
revenues at the Royal Sonesta Hotel New
14
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONTINUED)
Orleans increased by $188,000. Royal Sonesta Hotel Boston (Cambridge) second
quarter revenues increased slightly by $173,000 compared to the second quarter
of 1998. This was primarily caused by a 4% increase in the room revenue per
available room ("REVPAR"). Revenues from management activities and other sources
decreased by $951,000 in the second quarter of 1999 compared to 1998. The 1998
revenues included previously deferred fee income of $407,000 from Chateau
Sonesta Hotel New Orleans, and fee income of $288,000 from Sonesta Beach Resort
Key Biscayne, which was operated by the Company under a management agreement
until its acquisition by the Company on July 1, 1998. The remaining decrease was
mainly due to a decrease in revenues from an in-house advertising agency, which
function was outsourced as of January 1, 1999.
OPERATING INCOME
- ----------------
<TABLE>
<CAPTION>
OPERATING INCOME
(in thousands)
----------------------
1999 1998
---- ----
<S> <C> <C>
Sonesta Beach Resort Anguilla, BWI $ (330) $ (459)
Sonesta Beach Resort Key Biscayne 784 --
Royal Sonesta Hotel Boston (Cambridge) 2,120 2,101
Royal Sonesta Hotel New Orleans 723 647
------ ------
Operating income from hotels after
management and service fees 3,297 2,289
Management activities and other (480) 81
------ ------
Operating income $2,817 $2,370
====== ======
</TABLE>
Operating income for the three-month period ending June 30, 1999 was $2,817,000,
compared to operating income of $2,370,000 in 1998, an increase of approximately
$447,000.
Included in the 1999 second quarter operating income is income of $784,000 from
Sonesta Beach Resort Key Biscayne, which the Company acquired on July 1, 1998.
Operating losses at the Sonesta Beach Resort Anguilla decreased by $129,000 in
the second quarter of 1999 compared to the previous year's quarter, due to
increased revenues during the quarter of $181,000, and after an increase of
$52,000 in expenses. Second quarter operating income at the Royal Sonesta Hotel
Boston (Cambridge) increased by $19,000 in 1999 compared to 1998, due to an
increase in revenues of $173,000, partially offset by a modest increase in
expenses of $154,000. Royal Sonesta New Orleans had a slight increase in
operating income of $76,000, due to an increase in revenues of $188,000, which
was offset by a modest 1% increase in expenses of $112,000. Operating loss from
management and other activities, which is computed after giving effect to
management, marketing and service fees to the Company's owned and leased hotels,
increased by $561,000 in the second quarter of 1999 compared to 1998. The 1998
quarter included additional fee income of $407,000 for previously deferred fees
from Chateau Sonesta Hotel New Orleans.
15
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONTINUED)
OTHER INCOME (DEDUCTIONS)
- -------------------------
Interest expense increased from $724,000 in the second quarter of 1998 to
$1,135,000 in the 1999 second quarter, due to interest expense of $494,000 on
indebtedness related to the Sonesta Beach Resort Key Biscayne, which was
acquired by the Company on July 1, 1998. Interest income increased by $21,000 in
the second quarter of 1999 compared to the same period in 1998, due to increases
in interest received in 1999 from Sonesta Beach Resort Sharm El Sheikh and
Sonesta Beach Resort & Casino, Curacao, which increases offset the decrease in
interest received from receivables due from Sonesta Beach Resort Key Biscayne.
These receivables were settled when the Company acquired the hotel on July 1,
1998.
Included in Other income in 1999 is a termination fee of approximately
$1,875,000 which the Company received in connection with the June 1, 1999
cancellation of the management agreement under which the Company operated the
Sonesta Beach Resort & Casino, Curacao. Also included in Other income in 1999 is
a supplemental fee of $2,000,000 from Sonesta Beach Resort Bermuda, which the
Company continues to operate under a management agreement (see also Note-1
Operations).
FEDERAL, FOREIGN AND STATE INCOME TAXES
- ---------------------------------------
The provision for income taxes for the first six months of 1999 was higher than
the statutory rate due to state taxes provided on the Company's profits from its
operations in Louisiana, Florida and Massachusetts.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
The Company had cash and cash equivalents of approximately $8,518,000 at June
30, 1999. The Company also has $7,000,000 available under two lines of credit,
and no amounts were outstanding under these lines at June 30, 1999.
The Company had a working capital deficit of approximately $3,312,000 at June
30, 1999. Included in current liabilities is $4,165,000 which is due on or
before March 1, 2000 on the Company's mortgage loan on the Anguilla hotel. The
Company expects to refinance, or to seek alternative financing, for this loan.
Included in current liabilities is accrued rent of approximately $3,985,000 for
1999 due under the lease for the Royal Sonesta Hotel New Orleans. This 1999 rent
is not due until March 2000, and the Company expects to pay this liability out
of future cash flow and, if needed, out of proceeds from borrowings under its
lines of credit.
The Company expects to renew under the same conditions a $2,000,000 line of
credit which would otherwise expire on September 30, 1999.
On July 1, 1999, the Company paid $3,772,800 related to a treasury stock
purchase (see Note 5-Capital Transactions).
16
<PAGE>
FORM 10-Q
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION (CONTINUED)
The Company believes that its present cash balances, plus available borrowing
capacity and the expected cash flow generated during the remainder of the
calendar year 1999, will be more than adequate to meet all of its obligations.
YEAR 2000 COMPLIANCE
- --------------------
The Company continues to address issues related to the Year 2000. A new property
management computer system will be implemented at the Sonesta Beach Resort Key
Biscayne during the third quarter of 1999. During management meetings held in
the second quarter the Company has started with the development of contingency
plans, which will be completed for each property by November 1, 1999. Management
believes that its compliance program and its contingency plans under development
will reduce the possibility of major interruptions of normal operations.
PART I - Item 3
---------------
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates. The Company uses fixed rate debt and debt with variable interest
rates to finance the ownership of its properties.
17
<PAGE>
FORM 10-Q
PART II - Item 4
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ---------------------------------------------------
The Annual Meeting of Shareholders of Sonesta International Hotels Corporation
was held on May 18, 1999. All nominees for directors were elected. The results
of the votes with regard to the appointment of the Company's independent
auditors as well as the election of common stock and preferred stock directors
are as follows:
<TABLE>
<CAPTION>
VOTES CAST
MANAGEMENT PROPOSAL FOR AGAINST ABSTAIN
- ------------------- ------------------------------------------------
<S> <C> <C> <C>
Approval of the appointment of
independent auditors for 1999 1,610,664 4,801 7,276
</TABLE>
ELECTION OF COMMON STOCK DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR VOTES RECEIVED VOTES WITHHELD
- -------- -------------- --------------
<S> <C> <C>
George S. Abrams 1,610,805 11,936
Vernon R. Alden 1,610,775 11,966
Joseph L. Bower 1,605,987 16,754
Peter J. Sonnabend 1,605,098 17,643
Roger P. Sonnabend 1,609,905 12,836
Stephanie Sonnabend 1,609,905 12,836
Jean C. Tempel 1,520,894 101,847
</TABLE>
The results of the votes above are based on the number of outstanding shares
prior to the stock split on July 30, 1999 (see Note 5 - Capital Transactions).
ELECTION OF PREFERRED STOCK DIRECTORS
- -------------------------------------
<TABLE>
<CAPTION>
DIRECTOR VOTES RECEIVED VOTES WITHHELD
- -------- -------------- --------------
<S> <C> <C>
Paul Sonnabend 7,185 252
Stephen Sonnabend 7,185 252
</TABLE>
18
<PAGE>
FORM 10-Q
PART II - Other Information
---------------------------
Item Numbers 1, 2, 3, and 5
- ---------------------------
Not applicable during the quarter ended June 30, 1999.
Item 6
- ------
No exhibits or reports on Form 8-K were filed during the three month period
ended June 30, 1999.
19
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
SONESTA INTERNATIONAL HOTELS CORPORATION
By: _____________________________________________
Boy van Riel
Vice President and Treasurer
(Authorized to sign on behalf of the Registrant as Principal
Financial Officer)
DATE: August 10, 1999
20
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000091741
<NAME> Sonesta Inernational Hotels Corporation
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 8,518
<SECURITIES> 0
<RECEIVABLES> 7,280
<ALLOWANCES> 148
<INVENTORY> 1,262
<CURRENT-ASSETS> 19,529
<PP&E> 112,042
<DEPRECIATION> 29,350
<TOTAL-ASSETS> 105,371
<CURRENT-LIABILITIES> 22,841
<BONDS> 46,292
0
294
<COMMON> 3,488
<OTHER-SE> 25,748
<TOTAL-LIABILITY-AND-EQUITY> 105,371
<SALES> 13,535
<TOTAL-REVENUES> 53,009
<CGS> 3,243
<TOTAL-COSTS> 20,977
<OTHER-EXPENSES> 25,526
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,350
<INCOME-PRETAX> 8,406
<INCOME-TAX> 3,087
<INCOME-CONTINUING> 5,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,319
<EPS-BASIC> 1.28
<EPS-DILUTED> 1.28
</TABLE>
