<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 March 31, 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 May 8, 2000 -- $.80 par value,
Class A - 3,715,230
<PAGE>
INDEX
SONESTA INTERNATIONAL HOTELS CORPORATION
Page
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - March 31, 2000
and December 31, 1999 1
Consolidated statements of operations - Three
months ended March 31, 2000 and 1999 3
Consolidated statements of cash flows - Three
months ended March 31, 2000 and 1999 4
Notes to consolidated financial statements -
March 31, 2000 and 1999 6
Item 2. Management's Discussion and Analysis of Results
of Operations and Financial Condition - March 31,
2000 11
Item 3. Quantitative and Qualitative Disclosure of Market
Risk 13
<PAGE>
PART I - ITEM 1. FINANCIAL INFORMATION
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------
March 31 December 31
2000 1999
---------------- -------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 3,040 $ 7,876
Accounts and notes receivables:
Trade, less allowance of $267
($260 at December 31, 1999) for doubtful accounts 7,830 7,673
Other 3,434 2,083
-------- --------
Total accounts and notes receivable 11,264 9,756
Current portion of deferred taxes 494 459
Inventories 1,437 1,530
Prepaid expenses 2,331 1,092
-------- --------
Total current assets 18,566 20,713
Long-term receivables and advances 1,436 1,507
Property and equipment, at cost:
Land and land improvements 9,910 9,894
Buildings 69,916 69,256
Furniture and equipment 33,357 30,785
Leasehold improvements 2,498 2,471
Projects in progress 405 1,051
-------- --------
116,086 113,457
Less accumulated depreciation and
amortization 31,307 29,255
-------- --------
Net property and equipment 84,779 84,202
Other long-term assets 1,357 1,096
-------- --------
$106,138 $107,518
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2000 (UNAUDITED) AND DECEMBER 31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
--------------------------------------------
March 31 December 31
2000 1999
---------------- -------------------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Borrowings under lines of credit $ 4,800 $ --
Current portion of long-term debt 1,705 24,164
Accounts payable 4,222 6,897
Advance deposits 3,800 4,703
Federal, foreign and state income taxes 1,111 97
Accrued liabilities:
Salaries and wages 1,920 2,917
Rentals 2,301 6,917
Interest 261 410
Employee benefits 280 207
Other 1,883 1,344
---------- ---------
Total accrued liabilities 6,645 11,795
---------- ---------
Total current liabilities 22,283 47,656
Long-term debt 48,099 26,165
Deferred federal and state income taxes 4,249 4,220
Other non-current liabilities 3,357 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 34,882 33,114
Treasury shares--2,386,946, at cost (11,908) (11,908)
---------- ---------
Total common stockholders' equity 27,856 26,088
---------- ---------
$106,138 $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
March 31, 2000 March 31, 1999
---------------- -------------------
<S> <C> <C>
Revenues:
Rooms $ 17,847 $ 17,228
Food and beverage 6,910 6,249
Management, license and
service fees 1,218 1,102
Parking , telephone and other 2,267 2,051
---------- ---------
28,242 26,630
---------- ---------
Costs and expenses:
Costs and operating expenses 11,186 10,178
Advertising and promotion 2,043 1,983
Administrative and general 4,105 3,902
Human resources 518 502
Maintenance 1,829 1,685
Rentals 2,540 2,387
Property taxes 625 542
Depreciation and amortization 2,056 1,762
---------- ---------
24,902 22,941
---------- ---------
Operating income 3,340 3,689
Other income (deductions):
Interest expense (1,134) (1,215)
Interest income 131 152
Foreign exchange loss (5) (4)
Gain on casualty 500 --
Gain on sales of assets 4 4
----- -----
(504) (1,063)
Income before income taxes 2,836 2,626
Federal, foreign and state income tax provision 1,065 964
---------- ---------
Net income 1,771 1,662
Retained earnings at beginning of period 33,114 28,871
Cash dividends on preferred stock (3) (3)
---------- ---------
Retained earnings at end of period $ 34,882 30,530
========== =========
Basic earnings per share of common stock $ .48 $ .40
========== =========
Weighted average number of shares
outstanding 3,715 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)
--------------------------------------------
Three Months Ended March 31
2000 1999
---------------- -------------------
<S> <C> <C>
Cash provided (used) by operating activities
Net income $ 1,771 $ 1,662
Items not (providing) requiring cash
Pension expense 279 308
Depreciation and amortization of property and equipment 2,056 1,762
Other amortization (192) (134)
Deferred federal and state income tax provision (benefit) (6) (75)
Gain on sales of assets (4) (4)
Gain on casualty (500) --
Changes in assets and liabilities
Accounts and notes receivable (1,330) (396)
Inventories 93 43
Prepaid expenses (1,239) (512)
Accounts payable (2,303)_ (1,962)
Advance deposits (903) (46)
Federal, foreign and state income taxes 1,014 922
Accrued liabilities (5,159) (4,271)
------- --------
Cash used by operating activities (6,423) (2,703)
Cash provided (used) by investing activities
Proceeds from sales of assets 21 4
Expenditures for property and equipment (2,651) (2,060)
Payments received on long-term receivables
and advances 113 375
------- --------
Cash used by investing activities (2,517) (1,681)
Cash provided (used) by financing activities
Borrowings under lines of credit 4,800 --
Payments on long-term debt (321) (477)
Cash dividends paid (375) (313)
------- --------
Cash provided (used) by financing activities 4,104 (790)
Net decrease in cash (4,836) (5,174)
Cash and cash equivalents at beginning of period 7,876 9,470
------- --------
Cash and cash equivalents at end of period $3,040 $ 4,296
======== =========
</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 three-month period and the 1999 three-month
period was approximately $1,283,000 and $1,174,000, respectively. Cash paid for
income taxes in the 2000 three-month period and the 1999 three-month period was
approximately $57,000 and $117,000, 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 three month period ended March 31, 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 revenue during the first quarter of
2000 compared to the same quarter in 1999 was approximately $1,056,000. Included
in gain from casualty is an initial payment of $500,000 which the Company
received against its business interruption claim.
In March 2000, the Company received a commitment to refinance its hotels in Key
Biscayne, Florida and Cambridge, Massachusetts. A closing is scheduled for May
30, 2000. The net proceeds from this refinancing will be approximately
$27,000,000, 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. As a consequence of the aforementioned commitment, this debt has now
been reclassified as a long term liability. The current portion of long term
debt at March 31, 2000 includes the anticipated repayments on the new loans,
based on the terms of the loan commitment.
2. LONG-TERM RECEIVABLES AND ADVANCES
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------
March 31, December 31,
2000 1999
-------------- --------------
> <C> <C>
Sharm El Sheikh (a) $ 898 $936
Cairo, Egypt, net of discount (b) 320 315
Other 817 866
-------------- --------------
Total long-term receivables 2,035 2,117
Less: current portion 599 610
-------------- --------------
Net long-term receivables $1,436 $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% at March
31, 2000) and shall be repaid in 60 monthly installments, commencing
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% at March 31, 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. An amount of $1,000,000
was outstanding under this line at March 31, 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% at March 31,
2000) less one-eighth percent, and the commitment fee on the unused portion of
the line is .65% per annum. An amount of $3,200,000 was outstanding under this
line at March 31, 2000.
A foreign subsidiary of the Company has a $400,000 operating line of credit and
a $600,000 non-revolving loan, both of which will expire on May 31, 2000. The
interest rate on the non-revolving loan is LIBOR plus 2.25% (8.125% at March 31,
2000), and the rate of the operating line of credit is based on the bank lending
rate plus 1% (11% on March 31, 2000). At March 31, 2000, the Company borrowed
the full $600,000 under the non-revolving loan, but had not utilized the
operating line of credit.
7
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. LONG-TERM DEBT
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------------------------
March 31, December 31,
2000 1999
----------------- -----------------
<S> <C> <C>
Charterhouse of Cambridge Trust and Sonesta of
Massachusetts Inc.:
First mortgage note (a) $21,228 $21,414
Sonesta Beach Resort Limited
Partnership:
First mortgage note (b) 22,837 23,049
Sonesta Hotels of Anguilla, Ltd:
First mortgage note (c) 5,304 5,440
Other 435 426
----------------- -----------------
49,804 50,329
Less current portion of long-term debt 1,705 24,164
----------------- -----------------
Total long-term debt $48,099 $26,165
================= =================
</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 $26,241,000 at March 31, 2000. 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. In March 2000, the Company received a commitment from the
same lender to refinance this loan with a new $41,000,000 mortgage loan. A
closing is scheduled for May 30, 2000. The interest rate on the new 10 year
loan will be 8.6%, and amortization will be based on a 25 year schedule.
Monthly payments will be $332,911.
(b) This loan is secured by a first mortgage on the Sonesta Beach Resort Key
Biscayne property, which is included in fixed assets at a net book value of
approximately $37,932,000 at March 31, 2000. The principal balance of this
loan is $22,431,000. The Company recorded an additional liability when it
assumed the loan in 1998 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 payments of interest only based on a
rate of 12.78% until the maturity date, which is October 1, 2000. In March
2000, the Company received a commitment to refinance this loan with a new
$31,000,000 mortgage loan. A closing is scheduled for May 30, 2000. The
interest rate on the new 10 year loan will be 8.6%, and amortization will
be based on a 25 year schedule. Monthly payments will be $244,923.
8
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(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 $12,704,000 at March 31, 2000. In addition, an amount of
$1,900,000 is secured by a Company guaranty. The loan requires minimum
principal payments of $408,000 and $544,000 during the years 2000 and 2001,
respectively. In addition, principal payments are required equal to 25% of
the hotel's annual excess cash flow, as defined. The 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 March 31, 2000
was 8.125%.
5. HOTEL COSTS AND OPERATING EXPENSES
Hotel costs and operating expenses in the accompanying Consolidated Statements
of Operations are summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------
Three Months Ended March 31
2000 1999
----------------- -------------
<S> <C> <C>
Direct departmental costs
Rooms $3,889 $3,530
Food and beverage 5,382 4,934
Heat, light and power 769 727
Other 1,146 987
------- -------
$11,186 $10,178
======= =======
</TABLE>
Direct departmental costs include payroll expenses and related payroll burden,
the cost of food and beverage consumed and other departmental costs.
6. FEDERAL, FOREIGN AND STATE INCOME TAX
The provision for income taxes in the accompanying Consolidated Statements of
Operations is summarized below:
<TABLE>
<CAPTION>
(IN THOUSANDS)
-----------------------------------
Three Months Ended March 31
2000 1999
----------------- -------------
<S> <C> <C>
Deferred federal income tax benefit $ (6) $ (75)
Current federal income tax provision 907 1,072
Current foreign income tax provision 128 10
Current state income tax provision (benefit) 36 (43)
--------- ---------
$ 1,065 $ 964
========= =========
</TABLE>
9
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SEGMENT INFORMATION
Segment information for the Company's two reportable segments, Owned & Leased
Hotels and Management Activities for the three month periods ending March 31,
2000 and 1999 follows:
Period ended March 31, 2000
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
--------- ------------ ------------
<S> <C> <C> <C>
Revenues $27,017 $1,225 $28,242
Operating income before depreciation
and amortization expense 5,356 40 5,396
Depreciation and amortization (1,941) (115) (2,056)
Interest income (expense), net (1,121) 118 (1,003)
Other income (deductions) 500 (1) 499
--------- ---------- ---------
Segment pre-tax profit 2,794 42 2,836
Segment assets 95,809 10,329 106,138
Segment capital additions 2,551 100 2,651
</TABLE>
Period ended March 31, 1999
<TABLE>
<CAPTION>
(IN THOUSANDS)
----------------------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
--------- ------------ ------------
<S> <C> <C> <C>
Revenues $25,515 $1,115 $26,630
Operating income (loss) before
depreciation and amortization expense 5,736 (285) 5,451
Depreciation and amortization (1,657) (105) (1,762)
Interest income (expense), net (1,137) 74 (1,063)
Other income -- -- --
---------- ------------ ------------
Segment pre-tax profit (loss) 2,942 (316) 2,626
Segment assets 92,308 9,898 102,206
Segment capital additions 1,949 111 2,060
</TABLE>
10
<PAGE>
PART I - ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FIRST 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 $923 $1,979
Sonesta Beach Resort Key Biscayne 300 9,471 9,361
Royal Sonesta Hotel Boston (Cambridge) 400 5,949 4,668
Royal Sonesta Hotel New Orleans 500 10,674 9,507
Management and service fees and other revenues 1,225 1,115
----------- ----------
Total revenues $28,242 $26,630
=========== ==========
</TABLE>
Total revenues for the first quarter ended March 31, 2000 were $28,242,000
compared to $26,630,000 in 1999, an increase of approximately $1,612,000.
Revenues during the first quarter of 2000 at Sonesta Beach Resort Anguilla were
$923,000 compared to $1,979,000 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. Sonesta Beach Resort Key Biscayne had a slight
increase in revenues of $110,000 during the first quarter of 2000 compared to
1999, which was due to revenues from the hotel's retail shops, which have been
operated by the Company since late 1999. Room revenues slightly decreased,
mainly due to the fact that the first quarter of 1999 benefited from the
Superbowl, which was held in Miami in January of that year. Revenues at the
Royal Sonesta Hotel Cambridge increased by 27% during the first quarter of 2000
compared to the same period in 1999. Room revenue per available room (REVPAR)
increased by 25%, due to both higher occupancies and an increase in average rate
achieved. This increase in revenues was caused by higher demand from both the
group and convention and as well as the transient market segments. Revenues
during the first quarter of 2000 at the Company's Royal Sonesta Hotel New
Orleans increased by $1,167,000 compared to the first quarter of 1999. This was
due to a 12% increase in the hotel's REVPAR, and a 14% increase in food and
beverage revenues due to higher occupancies at the hotel. Revenues from
management activities increased from $1,115,000 during the quarter ended March
31, 1999 to $1,225,000 during the quarter ended March 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.
11
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
OPERATING INCOME
<TABLE>
<CAPTION>
OPERATING INCOME
(in thousands)
-------------------------------------------------
2000 1999
---- ----
<S> <C> <C>
Sonesta Beach Resort Anguilla, BWI $ (730) $ 364
Sonesta Beach Resort Key Biscayne 2,578 3,224
Royal Sonesta Hotel Boston (Cambridge) 346 (320)
Royal Sonesta Hotel New Orleans 1,221 811
-------- --------
Operating income from hotels after
management and service fees 3,415 4,079
Management activities and other (75) (390)
-------- --------
Operating income $ 3,340 $ 3,689
======== ========
</TABLE>
Operating income for the three-month period ending March 31, 2000 was
$3,340,000, compared to operating income of $3,689,000 in 1999, a decrease of
approximately $349,000.
Operating income at the Sonesta Beach Resort Anguilla decreased by $1,094,000
during the first quarter of 2000 compared to the first quarter of 1999. This was
the result of a $1,056,000 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 received an initial payment of $500,000 towards its claim for lost
income following this casualty. Royal Sonesta Boston (Cambridge) had operating
income of $346,000 during the first quarter of 2000, compared to an operating
loss of $320,000 during the first quarter of 1999. Revenues rose $1,281,000
compared to last year, and this increase was partly offset by increases in
expenses of $615,000, primarily in cost and operating, as well as depreciation
expense. Royal Sonesta Hotel New Orleans increased operating income from
$811,000 in the first quarter of 1999 to $1,221,000 in the first quarter of
2000, due to a $1,167,000 increase in revenues, partially offset by an increase
in expenses of $757,000. This increase in expenses was primarily in cost and
operating expenses, real estate taxes, and an increase in rent paid under the
lease under which the Company operates the hotel. Operating income at Sonesta
Beach Resort Key Biscayne decreased by $646,000 to $2,578,000 in the first
quarter of 2000 compared to last year. This was due to increases in expenses of
$756,000, primarily due to increased cost and operating expenses, which were
partially related to the hotel's retail shops, which were taken over by the
Company in late 1999. In addition, the hotel had an increase in depreciation
expense of $218,000 in the first quarter of 2000 compared to last year, which
was a result of substantial investments in property improvements and furniture
and equipment the Company has made following the hotel's acquisition in July
1998. Operating loss from management activities, which is computed after
management and service fees to the Company's owned and leased hotels, decreased
from $390,000 in the first quarter of 1999 to $75,000 in the first quarter of
2000. This was mainly due to increased income from the Company's managed
operations in Egypt.
12
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (CONTINUED)
OTHER INCOME (DEDUCTIONS)
Interest income during the first quarter of 2000 decreased by $21,000 to
$131,000, due to a reduction in interest earned on the Company's lower cash
balances. Included in the quarter ended March 31, 2000, is a gain on casualty of
$500,000, which represents an initial payment received by the Company on its
insurance claim for lost income following hurricane Lenny, which caused the
Sonesta Beach Resort Anguilla to close from November 17, 1999 to February 10,
2000. The Company's insurance policy covers lost income during the period of the
closure, as well as for a six month period following the reopening.
FEDERAL, FOREIGN AND STATE INCOME TAXES
The provision for income taxes during the first quarter 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 $3,040,000 at March
31, 2000. The Company also has $8,000,000 available under three lines of credit,
of which $4,800,000 was utilized at March 31, 2000.
In March 2000, the Company received a commitment to refinance its hotels in Key
Biscayne, Florida and Cambridge, Massachusetts. A closing is scheduled for May
30, 2000. The net proceeds from this refinancing will be approximately
$27,000,000, and the Company intends to use these proceeds for improvements to
the Key Biscayne property, and to fund its expansion plans. The current portion
of long term debt at March 31, 2000 includes the anticipated repayments on the
new loans, based on the terms of the loan commitment.
The Company believes that its present cash balances, plus expected cash flow
generated from operations and from the aforementioned refinancing, will be more
than adequate to meet all of its obligations.
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. As disclosed in Note 1, the
Company has received a commitment to refinance the mortgage loans on its hotels
in Key Biscayne, Florida and Cambridge, Massachusetts. The terms of the new
loans are further described in Note 4 - Long Term Debt.
PART II - OTHER INFORMATION
ITEM NUMBERS 1, 2, 3, 4, 5 AND 6
Not applicable during the quarter ended March 31, 2000.
13
<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: May 12, 2000
14
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<NAME> SONESTA INTERNATIONAL HOTELS CORPORATION
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0
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