<PAGE>
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, 2000
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
or 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 CORPORATE ISSUERS:
Number of Shares of Common Stock Outstanding
As of August 7, 2000 -- $.80 par value,
Class A - 3,705,230
<PAGE>
INDEX
SONESTA INTERNATIONAL HOTELS CORPORATION
<TABLE>
<CAPTION>
<S> <C> <C>
PAGE
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - June 30, 2000
and December 31, 1999 1
Consolidated statements of operations - Three
month and six month periods ended June 30,
2000 and 1999 3
Consolidated statements of cash flows - Six month
periods ended June 30, 2000 and 1999 4
Notes to consolidated financial statements -
June 30, 2000 and 1999 6
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition--Three month and six
month periods ended June 30, 2000 and 1999 11
Item 3. Quantitative and Qualitative Disclosure of Market Risk 16
Part II. Other Information
Item 4. Submission of matters to a vote of security holders 17
</TABLE>
<PAGE>
PART I - ITEM 1. FINANCIAL INFORMATION
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30 DECEMBER 31
2000 1999
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $32,498 $ 7,876
Accounts and notes receivables:
Trade, less allowance of $ 275
($260 at December 31, 1999) for doubtful accounts 6,368 7,673
Other 1,332 2,083
-------- --------
Total accounts and notes receivable 7,700 9,756
Current portion of deferred taxes 480 459
Inventories 1,519 1,530
Prepaid expenses 1,954 1,092
-------- --------
Total current assets 44,151 20,713
Long-term receivables and advances 1,261 1,507
Property and equipment, at cost:
Land and land improvements 9,939 9,894
Buildings 70,170 69,256
Furniture and equipment 34,877 30,785
Leasehold improvements 2,713 2,471
Projects in progress 797 1,051
-------- --------
118,496 113,457
Less accumulated depreciation and amortization 33,350 29,255
-------- --------
Net property and equipment 85,146 84,202
Other long-term assets 1,832 1,096
-------- --------
$132,390 $107,518
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
JUNE 30, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30 DECEMBER 31
2000 1999
---- ----
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 1,327 $ 24,164
Accounts payable 4,231 6,897
Advance deposits 3,014 4,703
Federal, foreign and state income taxes 1,648 97
Accrued liabilities:
Salaries and wages 2,168 2,917
Rentals 3,896 6,917
Interest 16 410
Employee benefits 270 207
Other 2,050 1,344
-------- ---------
Total accrued liabilities 8,400 11,795
-------- ---------
Total current liabilities 18,620 47,656
Long-term debt 76,285 26,165
Deferred federal and state income taxes 4,183 4,220
Other non-current liabilities 3,604 3,095
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--6,102,176 shares at stated value 4,882 4,882
Retained earnings 36,510 33,114
Treasury shares--2,396,946 (2,386,946 at December 31, 1999) at cost (11,988) (11,908)
-------- ---------
Total common stockholders' equity 29,404 26,088
-------- ---------
$132,390 $107,518
======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
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
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rooms $17,067 $15,774 $34,914 $33,002
Food and beverage 7,497 7,286 14,407 13,535
Management, license and
service fees 1,303 1,212 2,521 2,314
Parking, telephone and other 2,813 2,107 5,080 4,158
----- ----- ----- -----
28,680 26,379 56,922 53,009
------ ------ ------ ------
Costs and expenses:
Costs and operating expenses 11,346 10,799 22,532 20,977
Advertising and promotion 2,187 1,955 4,230 3,938
Administrative and general 4,017 4,198 8,122 8,100
Human resources 522 473 1,040 975
Maintenance 1,747 1,685 3,576 3,370
Rentals 1,839 2,107 4,379 4,494
Property taxes 624 546 1,249 1,088
Depreciation and amortization 2,043 1,799 4,099 3,561
----- ----- ----- -----
24,325 23,562 49,227 46,503
------ ------ ------ ------
Operating income 4,355 2,817 7,695 6,506
Other income (deductions):
Interest expense (1,342) (1,135) (2,476) (2,350)
Interest income 262 225 393 377
Foreign exchange loss (1) (3) (6) (7)
Gain on sales of assets 6 1 10 5
Gain on casualty 450 -- 950 --
Other -- 3,875 -- 3,875
------ ------ ------ ------
(625) 2,963 (1,129) 1,900
Income before income taxes 3,730 5,780 6,566 8,406
Federal, foreign and state income
tax provision 1,454 2,123 2,519 3,087
----- ----- ----- -----
Income before extraordinary loss on
refinancing of debt 2,276 3,657 4,047 5,319
Extraordinary loss on refinancing
of debt (net of tax) (274) -- (274) --
----- ----- ----- -----
Net income 2,002 3,657 3,773 5,319
Retained earnings at beginning
of period 34,882 30,530 33,114 28,871
Cash dividends on preferred stock (3) (3) (6) (6)
Cash dividends on common stock (371) (310) (371) (310)
------- ------- ------- -------
Retained earnings at end of period $36,510 $33,874 $36,510 $33,874
======= ======= ======= =======
Basic and diluted earnings per share of
common stock $ 0.54 $ 0.88 $ 1.01 $ 1.28
====== ======= ====== ======
Weighted average number of shares
outstanding 3,707 4,136 3,711 4,136
===== ===== ===== =====
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
Increase (Decrease) in Cash
<TABLE>
<CAPTION>
(IN THOUSANDS)
SIX MONTHS ENDED JUNE 30
2000 1999
---- ----
<S> <C> <C>
Cash provided (used) by operating activities
Net income $ 3,773 $ 5,319
Items not (providing) requiring cash
Pension expense 543 582
Depreciation and amortization of property and equipment 4,099 3,561
Other amortization (320) (342)
Deferred federal and state income tax provision (benefit) (58) 557
Gain on sales of assets (10) (5)
Gain on casualty (950) --
Extraordinary loss on debt refinancing 431 --
Changes in assets and liabilities
Accounts and notes receivable 2,287 880
Inventories 11 6
Prepaid expenses (834) (225)
Accounts payable (2,666) (2,108)
Advance deposits (1,689) (274)
Federal, foreign and state income taxes 1,551 882
Accrued liabilities (3,411) (2,113)
-------- --------
Cash provided by operating activities 2,757 6,720
Cash provided (used) by investing activities
Proceeds from sales of assets 27 5
Proceeds from casualty insurance 500 --
Expenditures for property and equipment (5,060) (4,520)
Payments received on long-term receivables
and advances 352 565
-------- --------
Cash used by investing activities (4,181) (3,950)
Cash provided (used) by financing activities
Scheduled payments on long-term debt (551) (3,406)
Proceeds from issuance of long-term debt 72,000 --
Cost of financing (1,379) --
Payments on refinancing of long-term debt (43,566) --
Cash dividends paid (378) (316)
Purchase of treasury stock (80) --
-------- --------
Cash provided (used) by financing activities 26,046 (3,722)
-------- --------
Net increase (decrease) in cash 24,622 (952)
Cash and cash equivalents at beginning of period 7,876 9,470
-------- --------
Cash and cash equivalents at end of period $32,498 $8,518
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW (UNAUDITED) (CONTINUED)
SUPPLEMENTAL SCHEDULE OF INTEREST AND INCOME TAXES PAID
Cash paid for interest in the 2000 six-month period and the 1999 six-month
period was approximately $2,870,000 and $2,401,000 respectively. Cash paid
for income taxes in the 2000 six-month period and the 1999 six-month period
was approximately $868,000 and $1,648,000, respectively.
See accompanying notes to consolidated financial statements.
5
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION AND OPERATIONS
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the six month period ended June 30, 2000
are not necessarily indicative of the results that may be expected for the year
ended December 31, 2000.
The balance sheet at December 31, 1999 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, 1999.
Sonesta Beach Resort Anguilla reopened on February 10, 2000, after a brief
closure due to damage sustained by hurricane Lenny, which struck the island in
November 1999. Under its insurance agreements, the hotel will receive loss of
income proceeds for the period of the closure, as well as for a six month period
following the reopening date. The loss of revenues during the first six months
of 2000 compared to the same period in 1999 was approximately $1,103,000.
Included in gain from casualty is income of $950,000 from the receipt of
advances against the business interruption claim.
On June 2, 2000 the Company refinanced the mortgage loans on its hotels in Key
Biscayne, Florida and Cambridge, Massachusetts. The net proceeds from this
refinancing were $27,055,000, and the Company intends to use these proceeds for
improvements to the Key Biscayne property, and to fund its expansion plans. At
December 31, 1999, the mortgage loan on the Key Biscayne property was classified
as a current liability pending receipt of a formal loan commitment.
2. LONG-TERM RECEIVABLES AND ADVANCES
<TABLE>
<CAPTION>
(IN THOUSANDS)
-------------------------------------------
JUNE 30, DECEMBER 31,
2000 1999
-------------- -----------------
<S> <C> <C>
Sharm El Sheikh (a) $859 $936
Cairo, Egypt, net of discount (b) 240 315
Other 684 866
-------------- -----------------
Total long-term receivables 1,783 2,117
Less: current portion 522 610
-------------- -----------------
Net long-term receivables $1,261 $1,507
============== =================
</TABLE>
6
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(a) This loan, in the original amount of $1,000,000, was made in 1996 and 1997
to the owner of Sonesta Beach Resort, Sharm El Sheikh. The loan agreement
was amended in 1999. The loan bears interest at the prime rate (9 1/2% at
June 30, 2000) and will be repaid in 60 monthly installments from January
2000.
(b) The remaining balance of this loan, made in February 1997 to the owner of
the Sonesta Hotel Cairo, will be repaid in 2000. There is no interest due
during the term of the loan.
3. BORROWING ARRANGEMENTS
The Company has a $2,000,000 line of credit which expires on September 30, 2000.
This line of credit bears interest at the prime rate (9 1/2% at June 30, 2000).
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 amounts were
outstanding under this line at June 30, 2000.
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 (9 1/2% at June
30, 2000) less one-eighth percent, and the commitment fee on the unused portion
of the line is .65% per annum. No amounts were outstanding under this line at
June 30, 2000.
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
(IN THOUSANDS)
JUNE 30, DECEMBER 31,
2000 1999
<S> <C> <C>
Charterhouse of Cambridge Trust and Sonesta of
Massachusetts Inc.:
First mortgage note (a) $41,000 $21,414
Sonesta Beach Resort Limited
Partnership:
First mortgage note (b) 31,000 23,049
Sonesta Hotels of Anguilla, Ltd:
First mortgage note (c) 5,168 5,440
Other 444 426
------- -------
77,612 50,329
Less current portion of long-term debt 1,327 24,164
------- -------
Total long-term debt $76,285 $26,165
======= =======
</TABLE>
7
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(a) The mortgage loan on the Royal Sonesta Hotel Boston (Cambridge) was
refinanced in June 2000. The new 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 $25,864,000 at June 30, 2000. The
interest rate on this new loan is 8.6% for the term of the loan, and
amortization of the principal balance is based on a 25 year schedule.
Monthly payments will be $332,911. The mortgage loan matures in July 2010,
and prepayment of this loan will be subject to early payment penalties,
based on prevailing interest rates at the time of prepayment.
(b) The mortgage loan on the Sonesta Beach Resort Key Biscayne was refinanced
in June 2000. The new loan is secured by a first mortgage on the Sonesta
Beach Resort Key Biscayne property. This property is included in fixed
assets at a net book value of $38,193,000 at June 30, 2000. The interest
rate on this new loan is 8.6% for the term of the loan, and amortization of
the principal balance is based on a 25 year schedule. Monthly payments will
be $251,713. The mortgage loan matures in July 2010, and prepayment of this
loan will be subject to early payment penalties, based on prevailing
interest rates at the time of prepayment.
(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 $12,585,000 at June 30, 2000. In addition, an amount of
$1,900,000 is secured by a Company guaranty. The loan requires minimum
principal payments of $272,000 and $544,000 during the remaining six months
of 2000 and 2001, respectively. In addition, principal payments are
required equal to 25% of the hotel's annual excess cash flow, as defined.
The balance of $4,352,000 is due on the scheduled maturity date of December
31, 2001. The interest rate on the loan is LIBOR plus 2.25%. The interest
rate at June 30, 2000 was 8.875%.
5. HOTEL COSTS AND OPERATING EXPENSES
Hotel costs and operating expenses in the accompanying Consolidated Statements
of Operations are summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------------------------------------
Three Months Ended June 30 Six Months Ended June 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Direct departmental costs
Rooms $ 3,878 $ 3,715 $ 7,767 $ 7,245
Food and beverage 5,496 5,423 10,878 10,357
Heat, light and power 793 750 1,562 1,477
Other 1,179 911 2,325 1,898
----- --- ----- -----
$11,346 $10,799 $22,532 $20,977
======= ======= ======= =======
</TABLE>
Direct departmental costs include payroll expenses and related payroll burden,
the cost of food and beverage consumed and other departmental costs.
8
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. FEDERAL, FOREIGN AND STATE INCOME TAX
The provision for income taxes in the accompanying Consolidated Statements of
Operations is summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
Six Months Ended June 30
2000 1999
---- ----
<S> <C> <C>
Deferred federal income tax provision (benefit) $ (58) $ 557
Current federal income tax provision 1,912 2,292
Current foreign income tax provision 232 18
Current state income tax provision 433 220
------- -------
$ 2,519 $ 3,087
======= =======
</TABLE>
7. SEGMENT INFORMATION
Segment information for the Company's two reportable segments, Owned & Leased
Hotels and Management Activities for the three month and six month periods
ending June 30, 2000 and 1999 follows:
<TABLE>
<CAPTION>
Three month period ended June 30, 2000
(IN THOUSANDS)
----------------------------------------------------
OWNED &
LEASED MANAGEMENT
HOTELS ACTIVITIES CONSOLIDATED
---------- -------------- ----------------
<S> <C> <C> <C>
Revenues $27,122 $ 1,558 $28,680
Operating income before depreciation
and amortization expense 6,164 234 6,398
Depreciation and amortization (1,928) (115) (2,043)
Interest income (expense), net (1,219) 139 (1,080)
Other income (deductions) 456 (1) 455
---------- -------------- ----------------
Segment pre-tax profit 3,473 257 3,730
Segment assets 114,018 18,372 132,390
Segment capital additions 2,222 187 2,409
</TABLE>
<TABLE>
<CAPTION>
Six month period ended June 30, 2000
(IN THOUSANDS)
----------------------------------------------------
OWNED &
LEASED MANAGEMENT
HOTELS ACTIVITIES CONSOLIDATED
---------- -------------- ----------------
<S> <C> <C> <C>
Revenues $54,139 $ 2,783 $56,922
Operating income before depreciation
and amortization expense 11,520 274 11,794
Depreciation and amortization (3,869) (230) (4,099)
Interest income (expense), net (2,340) 257 (2,083)
Other income (deductions) 956 (2) 954
---------- -------------- ----------------
Segment pre-tax profit 6,267 299 6,566
Segment assets 114,018 18,372 132,390
Segment capital additions 4,773 287 5,060
</TABLE>
9
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Three month period ended June 30, 1999
(IN THOUSANDS)
----------------------------------------------------
OWNED &
LEASED MANAGEMENT
HOTELS ACTIVITIES CONSOLIDATED
---------- -------------- ----------------
<S> <C> <C> <C>
Revenues $25,153 $ 1,226 $26,379
Operating income before depreciation
and amortization expense 4,991 (375) 4,616
Depreciation and amortization (1,694) (105) (1,799)
Interest income (expense), net (1,075) 165 (910)
Other income -- 3,873 3,873
---------- -------------- ----------------
Segment pre-tax profit 2,222 3,558 5,780
Segment assets 91,337 14,034 105,371
Segment capital additions 2,410 50 2,460
</TABLE>
<TABLE>
<CAPTION>
Six month period ended June 30, 1999
(IN THOUSANDS)
----------------------------------------------------
OWNED &
LEASED MANAGEMENT
HOTELS ACTIVITIES CONSOLIDATED
---------- -------------- ----------------
<S> <C> <C> <C>
Revenues $50,668 $2,341 $53,009
Operating income 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
</TABLE>
8. EARNINGS PER SHARE
As the Company has no dilutive securities, there is no difference between basic
and diluted earnings per share of common stock. The following table sets forth
the computation of basic earnings per share of common stock:
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30 SIX MONTHS ENDED JUNE 30
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Net income $ 2,002 $ 3,657 $ 3,773 $ 5,319
Preferred stock dividends (3) (3) (7) (7)
------- ------- ------- -------
Numerator for earnings per share $ 1,999 $ 3,654 $ 3,766 $ 5,312
======= ======= ======= =======
Denominator:
Weighted average number of
Shares outstanding 3,707 4,136 3,711 4,136
======= ======= ======= =======
Earnings per share of common stock $ 0.54 $ 0.88 $ 1.01 $ 1.28
======= ======= ======= =======
</TABLE>
10
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
FIRST SIX MONTHS 2000 COMPARED TO 1999
--------------------------------------
REVENUES
--------
<TABLE>
<CAPTION>
TOTAL REVENUES
(IN THOUSANDS)
----------------------------------------------------
NO. OF
ROOMS 2000 1999
----- ---- ----
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI 100 $ 2,048 $ 3,151
Sonesta Beach Resort Key Biscayne 300 17,106 16,061
Royal Sonesta Hotel Boston (Cambridge) 400 15,049 12,957
Royal Sonesta Hotel New Orleans 500 19,936 18,499
Management and service fees and other revenues 2,783 2,341
-------- ---------
Total revenues $ 56,922 $ 53,009
======== =========
</TABLE>
Total revenues for the first six months of 2000 were $56,922,000 compared to
$53,009,000 in 1999, an increase of approximately $3,913,000.
Revenues during the first six months of 2000 at Sonesta Beach Resort Anguilla
were $1,103,000 less than during the same period in 1999. The Anguilla resort
was closed due to damage sustained by hurricane Lenny from November 17, 1999
until February 10, 2000. The Company has insurance for the loss of income during
the period of closure, as well as for the reduction in revenues for a six month
period following reopening. The Company recorded a gain on casualty of $950,000
against its insurance claim during the six month period ending June 30, 2000.
Sonesta Beach Resort Key Biscayne increased revenues by 7% in the first six
months of the year compared to last year, mainly due to revenues from the
hotel's retail shops, which have been operated by the Company since late 1999.
Revenues at the Royal Sonesta Hotel Boston (Cambridge) increased by 16% during
the first six months of 2000 compared to the same period in 1999. Room revenue
per available room (REVPAR) increased by 19%, due to both higher occupancies and
an increase in average rate achieved. This increase in room revenues was caused
by higher demand from both the group and convention as well as the transient
market segments. Revenues during the six month period ending June 30, 2000 at
the Company's Royal Sonesta Hotel New Orleans increased by $1,437,000 compared
to 1999. This was due to a 10% increase in the hotel's REVPAR. Revenues from
management activities increased from $2,341,000 during the six month period
ended June 30, 1999 to $2,783,000 during the six month period ended June 30,
2000. This was caused primarily by increases in fee income from the Company's
managed operations in Egypt, in particular from the Sonesta St. George Hotel in
Luxor and the Sonesta Nile River cruise ships, and from the collection of
previously unrecorded fees and other expenses from a hotel which the Company
used to manage in Orlando, Florida.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS (CONTINUED)
OPERATING INCOME
<TABLE>
<CAPTION>
OPERATING INCOME
(in thousands)
--------------------------------
2000 1999
---- ----
<S> <C> <C>
Sonesta Beach Resort Anguilla, BWI $ (1,139) $ 34
Sonesta Beach Resort Key Biscayne 3,474 4,008
Royal Sonesta Hotel Boston (Cambridge) 3,117 1,800
Royal Sonesta Hotel New Orleans 2,199 1,534
--------- --------
Operating income from hotels after
management and service fees 7,651 7,376
Management activities and other 44 (870)
--------- --------
Operating income $ 7,695 $ 6,506
========= ========
</TABLE>
Operating income for the six-month period ending June 30, 2000 was $7,695,000,
compared to operating income of $6,506,000 in 1999, an increase of approximately
$1,189,000.
Operating income at the Sonesta Beach Resort Anguilla decreased by $1,173,000
during the first six months of 2000 compared to the same period in 1999. This
was the result of a $1,103,000 decrease in revenues, due to the closure of the
resort from damage sustained by hurricane Lenny from November 17, 1999 through
February 10, 2000. The Company has insurance for this loss of profits, and has
already recorded casualty income of $950,000 in the six month period ended June
30, 2000. Operating income at Sonesta Beach Resort Key Biscayne for the six
month period ended June 30, 2000 decreased by $534,000 compared to the same
period in 1999. The resort's revenues rose $1,045,000 during the first six
months of 2000, mainly due to income from the hotel's retail shops, which the
Company started operating in late 1999. Expenses rose $1,579,000 compared to
1999, mainly due to increases in cost and operating expenses related to the
retail shops, increases in administrative and general expenses, and a $400,000
increase in depreciation expense, which is a result of the refurbishments the
Company has undertaken since the resort was acquired in July 1998. Royal Sonesta
Boston (Cambridge) had operating income of $3,117,000 during the first six
months of 2000, compared to operating income of $1,800,000 during the first six
months of 1999. Revenues rose $2,092,000 compared to last year, and this
increase was partly offset by increases in expenses of $775,000, primarily in
cost and operating, as well as depreciation expense. Royal Sonesta Hotel New
Orleans increased operating income from $1,534,000 in the first six months of
1999 to $2,199,000 in the first six months of 2000, due to a $1,437,000 increase
in revenues, partially offset by increased expenses of $772,000. This increase
in expenses was primarily in cost and operating expenses and real estate taxes.
Operating income from management activities, which is computed after management
and service fees from the company's owned and leased hotels, was $44,000 during
the first six months of 2000, compared to a loss of $870,000 in the same period
last year. This was mainly due to increased income from the Company's managed
operations in Egypt, which reported higher fee income and lower management
expenses, following a restructuring of the Company's Middle East office in mid
1999.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS (CONTINUED)
OTHER INCOME (DEDUCTIONS)
Included in the first six months of 2000 is a gain on casualty of $950,000,
resulting from a business interruption claim after Hurricane Lenny struck the
island of Anguilla in November 1999. Sonesta Beach Resort Anguilla reopened on
February 10, 2000, but has a claim for lost income for the period of the
closure, as well as a six month period following the reopening. 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.
SECOND QUARTER 2000 COMPARED TO 1999
REVENUES
<TABLE>
<CAPTION>
TOTAL REVENUES
(in thousands)
---------------------------------------------
NO. OF
ROOMS 2000 1999
----- ---- ----
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI 100 $ 1,125 $ 1,172
Sonesta Beach Resort Key Biscayne 300 7,635 6,700
Royal Sonesta Hotel Boston (Cambridge) 400 9,100 8,289
Royal Sonesta Hotel New Orleans 500 9,262 8,992
Management and service fees and other revenues 1,558 1,226
-------- --------
Total revenues $ 28,680 $ 26,379
======== ========
</TABLE>
Total revenues for the six month period ended June 30, 2000 were $28,680,000
compared to $26,379,000 in 1999, an increase of approximately $2,301,000.
Second quarter revenues at the Sonesta Beach Resort Anguilla were $47,000 less
than during the second quarter of 1999, due to lower occupancies in the 2000
quarter which resulted from the closure of the resort due to damage sustained by
Hurricane Lenny from November 17, 1999 until February 10, 2000. The hotel's
insurance policy covers loss of profits for a six month period following
reopening, as well as during the period of closure. Revenues of Sonesta Beach
Resort Key Biscayne during the second quarter of 2000 rose $935,000 compared to
the second quarter of 1999, due to a 10% increase in the resort's REVPAR (from
increased occupancy as well as average rate), and income from the hotel's retail
outlets, which the Company started operating in late 1999. Royal Sonesta Hotel
Boston (Cambridge) increased revenues by 10% compared to last year's second
quarter, due to a 10% increase in average rate, and a slight increase in
occupancy. Revenues during the second quarter of 2000 at the Royal Sonesta Hotel
New Orleans increased by $270,000 to $9,262,000 compared to 1999, due to a 7%
increase in average room rate achieved. Revenues from management activities
increased from $1,226,000 during the second quarter of 1999 to $1,558,000 in the
second quarter of 2000, because of increased fee income from the Company's
managed operations in Egypt and from the collection of previously unrecorded
fees and expenses from a hotel in Orlando, Florida, which the Company operated
before under a management agreement.
13
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS (CONTINUED)
OPERATING INCOME
<TABLE>
<CAPTION>
OPERATING INCOME
(in thousands)
-------------------------
2000 1999
---- ----
<S> <C> <C>
Sonesta Beach Resort Anguilla, BWI $ (409) $ (330)
Sonesta Beach Resort Key Biscayne 896 784
Royal Sonesta Hotel Boston (Cambridge) 2,771 2,120
Royal Sonesta Hotel New Orleans 978 723
------- -------
Operating income from hotels after
management and service fees 4,236 3,297
Management activities and other 119 (480)
------- -------
Operating income $ 4,355 $ 2,817
======= =======
</TABLE>
Operating income for the second quarter of 2000 was $4,355,000, compared to
operating income of $2,817,000 in 1999, an increase of approximately $1,538,000.
Operating loss at the Sonesta Beach Resort Anguilla increased from $330,000
during the second quarter of 1999 to $409,000 during the second quarter of 2000,
due to a reduction in revenues of $47,000 in the 2000 quarter compared to 1999.
Business levels during the second quarter of 2000 were less than anticipated due
to the lingering effects of the closure of the hotel from November 17, 1999 to
February 10, 2000 due to damage sustained to the resort by hurricane Lenny. This
loss of income is covered by insurance. Second quarter 2000 operating income at
Sonesta Beach Resort Key Biscayne increased by $112,000 compared to 1999.
Increased revenues of $935,000 during the second quarter were partially offset
by increased cost and operating expenses related to the hotels' retail outlets,
which the Company started operating in late 1999, and by increased
administrative and general and depreciation expenses. Royal Sonesta Hotel Boston
(Cambridge) increased operating income by $651,000 in the second quarter of 2000
compared to 1999, as revenues increased by $811,000, and expenses rose by only
$160,000, or a modest 2 1/2%. Operating income at Royal Sonesta Hotel New
Orleans in the 2000 second quarter increased by $255,000 compared to 1999, due
to a $270,000 increase in revenues. In the second quarter of 2000 the Company
had operating income of $119,000 from management activities, compared to a loss
of $480,000 during the 1999 second quarter. This was mainly due to the
collection of previously unrecorded fees and the recovery of expenses from a
hotel in Orlando, Florida which the Company used to operate under a management
agreement. Also, the Company incurred costs related to a restructuring of the
management of its Egyptian operations during the second quarter of 1999.
OTHER INCOME (DEDUCTIONS)
Included in the second quarter of 2000 is a gain from casualty of $450,000
resulting from a business interruption claim for Sonesta Beach Resort Anguilla,
which was closed from November 17, 1999 to February 10, 2000, from damage
sustained by hurricane Lenny. 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.
14
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS (CONTINUED)
Interest expense increased by $207,000 during the second quarter of 2000 due to
the additional expense incurred following the refinancing in June 2000 of
mortgage loans on both the Royal Sonesta Hotel Boston (Cambridge) and Sonesta
Beach Resort Key Biscayne. Interest income increased in the second quarter of
2000 due to income received on the short term investment of the refinancing
proceeds.
The Company recorded an extraordinary loss of $274,000 (net of federal and state
taxes) in June 2000, which represents the write-off of unamortized loan costs
and the payment of a prepayment penalty, in connection with the refinancing of
its Cambridge and Key Biscayne hotel's mortgage loans.
FEDERAL, FOREIGN AND STATE INCOME TAXES
The provision for income taxes during the first six months of 2000 was higher
than the statutory rate due to state taxes provided on the Company's income from
its operations in Louisiana, Florida and Massachusetts.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of approximately $32,498,000 at June
30, 2000. The Company also has $7,000,000 available under two lines of credit,
and no amounts were outstanding under these lines at June 30, 2000.
In June 2000, the Company refinanced the mortgage loans on its hotels in
Cambridge, Massachusetts and Key Biscayne, Florida. The net proceeds from this
refinancing were $27,055,000, and the Company intends to use these proceeds for
improvements to the Key Biscayne property, and to fund its expansion plans.
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 2000, will be more than adequate to meet all of its obligations.
15
<PAGE>
PART I - ITEM 3
QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates. The Company uses fixed rate debt and debt with variable interest
rates to finance the ownership of its properties.
The table that follows summarizes the Company's debt obligations outstanding at
June 30, 2000, and includes the principal payments due on the mortgage loans on
the Company's Key Biscayne and Cambridge hotels, which were refinanced on June
2, 2000:
Short and Long Term Debt at June 30, 2000 (in thousands):
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 THEREAFTER TOTAL
---- ---- ---- ---- ---- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Principal Amount Due $1,064 $5,784 $967 $1,054 $1,148 $67,595 $77,612
Average Interest Rate 8.61% 8.61% 8.60% 8.60% 8.60% 8.60%
</TABLE>
16
<PAGE>
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 30, 2000. 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 2000 3,246,296 36,262 6,602
</TABLE>
<TABLE>
<CAPTION>
ELECTION OF COMMON STOCK DIRECTORS
----------------------------------
DIRECTOR VOTES RECEIVED VOTES WITHHELD
-------- -------------- --------------
<S> <C> <C>
George S. Abrams 3,225,944 63,216
Vernon R. Alden 3,202,788 86,372
Joseph L. Bower 3,225,944 63,216
Peter J. Sonnabend 3,225,936 63,224
Roger P. Sonnabend 3,225,936 63,224
Stephanie Sonnabend 3,225,936 63,224
Jean C. Tempel 3,224,776 64,384
</TABLE>
<TABLE>
<CAPTION>
ELECTION OF PREFERRED STOCK DIRECTORS
-------------------------------------
DIRECTOR VOTES RECEIVED VOTES WITHHELD
-------- -------------- --------------
<S> <C> <C>
Paul Sonnabend 8,122 200
Stephen Sonnabend 8,122 200
</TABLE>
17
<PAGE>
PART II - OTHER INFORMATION
ITEM NUMBERS 1, 2, 3, 5 AND 6
Not applicable during the quarter ended June 30, 2000
18
<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 9, 2000
19
