SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Clarendon Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 421-5400
Securities registered pursuant to Section 12 (b) of the Act:
NONE
(Title of Class)
Securities registered pursuant to Section 12 (g) of the Act:
Title of each class Name of each exchange on which registered
Class A Common Stock
$ .80 par value NASDAQ
<PAGE>
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (ss.229,405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. |X|
The aggregate market value of the common stock held by non-affiliates of
the registrant as of the close of business on March 17, 2000 was $7,812,359.
The number of shares outstanding of the registrant's common stock as of
the close of business on March 17, 2000 was 3,715,230.
Documents incorporated by reference
1. Portions of the annual report to shareholders for the year ended
December 31, 1999 are incorporated by reference into Parts I, II and IV.
2. Portions of the proxy statement for the 2000 annual meeting of
stockholders are incorporated by reference into Part III.
An Index to Exhibits appears on pages 13 through 19 of this Form 10-K.
- --------------------------------------------------------------------------------
1
<PAGE>
PART I
Item 1. Business
(a) General Development of Business: The Company is engaged in the operation
of hotels that it owns or leases in Boston (Cambridge), Massachusetts; Key
Biscayne, Florida; New Orleans, Louisiana; and Anguilla, B.W.I. It also
operates, under management agreements, hotels in Southampton, Bermuda; New
Orleans, Louisiana; and Cairo, Luxor, Port Said and Sharm el Sheikh (2),
Egypt; and two Nile River cruise vessels. The Company had paid $2 million
for a 22% ownership interest in the hotel and casino it operated under a
management contract in Curacao, Netherlands Antilles, but in May 1998, the
Company elected not to fund a performance threshold deficit and the owner
of the property exercised its right to terminate the Company's management
contract, which termination became effective in June 1999. In connection
with that termination, the Company received a $1.875 million termination
fee and transferred to the property owner its 22% ownership interest. The
Company has entered into management agreements to operate new hotels being
created in Taba and Nuweiba, Egypt; these projects are scheduled to open
in 2001 or 2002. The Company has for several years licensed the use of the
Sonesta name to two hotels in Aruba; in 1999, the Company entered into
master franchise agreements for Peru and Italy, and currently also
licenses five (5) hotels in Peru, and a golf resort in Tuscany, Italy. The
Company terminated contracts under which it operated two properties in
Hurghada, Egypt, effective in early January 1998, and a license agreement
for a hotel in Santiago, Chile was terminated effective at the end of
February 1998. In July 1998, the Company acquired ownership of Sonesta
Beach Resort, in Key Biscayne, Florida, a property it has operated for
many years. In February 1999, the owner of the hotel in El Gouna, Egypt
that the Company has both operated and licensed notified the Company that
it was terminating its relationship with the Company for that property,
effective in May 1999. In November 1995, the Company acquired a 100-room
resort in Anguilla, B.W.I., which at that time was closed due to damage
from Hurricane Luis, in September 1995.
(b) Refer to Note 2 to the Company's consolidated financial statements for
information concerning the segment(s) in which the Company operates.
(c) Narrative Description of Business: The Company's business is to a great
extent dependent upon a high level of economic activity. The hotel
business is highly competitive. The facilities of competitors are often
affiliated with national or regional chains having more room
accommodations and greater financial resources than the Company. The
Company follows the practice of refurnishing and redecorating the hotels
which it operates in order to keep the properties attractive and
competitive with new hotel properties, and this requires the Company to
make substantial capital expenditures. During the two years ended December
31, 1999, the Company made such capital expenditures totaling
approximately $17,200,000.
2
<PAGE>
Item 1(c) (Cont'd)
The Company endeavors to create individual and distinctive features for
each hotel property while utilizing common corporate identification in
order to obtain the benefits of chain operation. The Company is using the
name "Sonesta" for all of its hotels.
The Company has approximately 1,900 employees. Approximately 300 of these
employees are covered by a collective bargaining agreement. The Company
considers its relations with its employees to be satisfactory.
While the business of the Company's individual hotels is seasonal, the
diverse locations of the four owned or leased properties tend to mitigate
the impact of this factor. Traditionally, the second and fourth quarters
have produced greater revenues and operating income than the first and
third quarters, although these seasonal fluctuations do not materially
affect the Company's business activities.
The following table reflects total revenues, annual occupancy percentages,
average room rates and revenues per available room ("REVPAR") for the
Company's owned and leased properties for the years 1999, 1998, and 1997.
REVPAR is calculated by dividing annual room revenue by the total number
of rooms available during the year. Sonesta Beach Resort Anguilla was
closed due to damage caused by Hurricane Lenny from November 17, 1999
through February 10, 2000. The 1999 room statistics are based on the
number of days the resort was open for business. Sonesta Beach Resort Key
Biscayne was acquired by the Company on July 1, 1998. Revenue and room
statistics for Sonesta Beach Resort Key Biscayne are for the period July 1
to December 31, 1998, and for the year ending December 31, 1999.
<TABLE>
<CAPTION>
TOTAL
NUMBER OF YEAR BUILT REVENUES
HOTEL ROOMS OR ACQUIRED (in thousands)
- ----- ----- ----------- -----------------------------------
1999 1998 1997
---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Sonesta Beach Resort Anguilla,
B.W.I. Owned 100 1995 $ 4,190 $ 4,253 $ 4,071
Sonesta Beach Resort Key Biscayne Owned 300 1998 28,129 10,821 --
Royal Sonesta Hotel Boston
(Cambridge) Owned 400 1963/1984 29,240 27,602 25,521
Royal Sonesta Hotel New Orleans Leased 500 1969 34,959 33,131 31,491
<CAPTION>
AVERAGE AVERAGE
OCCUPANCY DAILY
PERCENTAGE RATE
---------- ----
HOTEL 1999 1998 1997 1999 1998 1997
- ----- -------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Sonesta Beach Resort Anguilla,
B.W.I. 45.6% 44.6% 48.8% $219 $236 $192
Sonesta Beach Resort Key Biscayne 76.7% 68.3% -- 207 163 --
Royal Sonesta Hotel Boston
(Cambridge) 75.0% 74.1% 76.2% 174 161 144
Royal Sonesta Hotel New Orleans 82.3% 79.7% 79.1% 159 153 147
</TABLE>
3
<PAGE>
Item 1 (c) (Cont'd)
"REVPAR"
--------
HOTEL 1999 1998 1997
- ----- ---- ---- ----
Sonesta Beach Resort Anguilla, B.W.I $100 $106 $ 94
Sonesta Beach Resort Key Biscayne 158 111 --
Royal Sonesta Hotel Boston (Cambridge) 130 119 109
Royal Sonesta Hotel New Orleans 131 122 117
The Company has established and maintains trademark protection for certain
service marks it uses in conducting its business, including the service
marks "Sonesta", "Sonesta Beach", "Just Us Kids", and the Company's
stylized "S" logo. Trademarks are maintained in numerous countries,
besides the United States. Each mark is generally protected for several
years, subject to periodic renewal.
For revenues by class of service for the three years ended December 31,
1999, reference is made to the Consolidated Statements of Operations which
appears on page 7 of the 1999 Annual Report to Shareholders.
(d) Financial Information about Foreign and Domestic Operations: This
information is incorporated by reference to Note 2 on pages 13 through 15
of the 1999 Annual Report to Shareholders.
Item 2. Properties
The Company's hotels are primarily metropolitan and resort hotels in popular
vacation areas which emphasize luxury accommodations and personal service.
The Company has fee ownership in three hotels: Royal Sonesta Hotel, Boston
(Cambridge), Massachusetts, Sonesta Beach Resort, Key Biscayne, Florida, and
Sonesta Beach Resort Anguilla, B.W.I. Reference is made to Note 5 of the Notes
to the Consolidated Financial Statements of the registrant which appears on
pages 15 and 16 of the Company's 1999 Annual Report to Shareholders for details
of the mortgage liens on the Boston (Cambridge), Massachusetts property, the Key
Biscayne, Florida property, and the Anguilla property.
The Company operates the Royal Sonesta Hotel, New Orleans, Louisiana under a
long-term lease which expires on September 30, 2024, provided the Company
exercises its two remaining ten-year extension options.
The Company also operates under management agreements hotels in Southampton,
Bermuda; New Orleans, Louisiana; and Cairo, Luxor, Port Said and Sharm el Sheikh
(2), Egypt; and two Nile River cruise vessels. The Company has granted licenses
for the use of its name to two (2) hotels in Aruba, five (5) hotels in Peru, and
a golf resort in Tuscany, Italy.
4
<PAGE>
In addition to the properties listed above, the Company leases space for its
executive offices at 200 Clarendon Street, Boston, Massachusetts 02116.
Item 3. Legal Proceedings
In April 1999, a wholly-owned subsidiary of the Company, Sonesta Hotels of
Anguilla Limited ("SHAL"), and two executive officers of the Company were named
as defendants in a lawsuit filed in October, 1997, in Anguilla, B.W.I., by the
former owner of the resort hotel in Anguilla which the subsidiary purchased in
November 1995 (the "Resort"), and the principals of that entity, claiming that
the defendants did not comply with certain "implied terms" of the agreements
between them and with the terms of an alleged oral agreement. In its
Counterclaim SHAL sought offsets against amounts otherwise owed to the former
owner, specifically a loan of $1,000,000 that matured in November 1998. The
parties entered into a settlement of their respective claims in April 1999. The
settlement had no material effect on the Company's financial position.
In early 1997, SHAL filed a lawsuit in The Court of First Instance, in Curacao,
Netherlands Antilles, against the insurance company that was insuring the resort
in Anguilla at the time of Hurricane Luis, in September 1995. In the suit, SHAL
seeks to establish its entitlement to business interruption coverage for periods
subsequent to the date SHAL acquired ownership of the Resort. The insurer, Ennia
Caribe Schade N.V., has taken the position that (1) it has no obligation to fund
business losses realized after the date of sale, and (2) the applicable policy
does not recognize business losses incurred after the Resort was restored and
reopened. The Company expects to vigorously pursue its claims against Ennia
Caribe, but it is not able to predict with certainty how this lawsuit will be
resolved. No amounts which may be recoverable in this lawsuit have been
reflected in the Company's financial statements.
The Company is from time to time subject to routine litigation incidental to its
business, and generally covered by insurance. The Company believes that the
results of such litigation will not have a materially adverse effect on the
Company's financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of shareholders of the Company in the fourth
quarter of 1999.
5
<PAGE>
PART II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters
Common stock market prices and dividends and the number of shareholders of
record are incorporated by reference to page 2 of the 1999 Annual Report to
Shareholders.
A dividend of $ .15 per share was paid on the Company's common stock in July
1998 and a dividend of $ .15 per share was declared on the Company's common
stock in December 1998, but was paid in January 1999. A dividend of $ .15 per
share was paid on the Company's common stock in July 1999 and a dividend of $.10
per share was declared on the Company's common stock in December 1999, but was
paid in January 2000 (the Company's common stock having split 2-for-1 at the end
of July 1999). Other information required by this item is incorporated by
reference to the Consolidated Statements of Stockholders' Equity which appears
on page 10 of the 1999 Annual Report to Shareholders.
No dividends may be declared or paid on the Company's common stock nor may
common stock be purchased or redeemed unless (a) preferred stock dividend and
sinking fund requirements are met; and (b) the total of dividends paid does not
exceed the maximum amount permitted by one of the Company's bank loan
agreements.
Item 6. Selected Financial Data
Selected Financial Data, on page 2 of the 1999 Annual Report to Shareholders, is
incorporated herein by reference.
Item 7. Management's Discussion and Analysis of Results of Operations and
Financial Condition
This information is incorporated by reference to pages 3 through 6 of the 1999
Annual Report to Shareholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates and foreign
exchange rates. The Company uses fixed rate debt and debt with variable interest
rates to finance the ownership of its properties.
6
<PAGE>
Item 7A (Cont'd)
The table that follows summarizes the Company's debt obligations outstanding as
of December 31, 1999. This information should be read in conjunction with Note 5
to the consolidated financial statements.
Short and Long Term Debt at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
2000 2001 2002 2003 Total Fair Value
---- ---- ---- ---- ----- ----------
<S> <C> <C> <C> <C> <C> <C>
Principal Amount Due $23,547 $6,020 $681 $19,537 $49,785 $50,329
Average Interest Rate 10.54% 8.68% 8.87% 8.87%
</TABLE>
Item 8. Consolidated Financial Statements and Supplementary Data
The financial statements listed in the Index to Consolidated Financial
Statements filed as part of this Annual Report on Form 10-K, together with the
report of Ernst & Young LLP dated March 15, 2000, are incorporated herein by
reference to the 1999 Annual Report to Shareholders.
Selected Quarterly Financial Data, on page 6 of the 1999 Annual Report to
Shareholders, is incorporated by reference.
Item 9. Changes in and Disagreements with Auditors on Accounting and Financial
Disclosure
There were no disagreements with auditors on accounting principles or practices
or financial statement disclosures.
7
<PAGE>
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Directors of the Company and Compliance with Section 16 (a)
The information required by this item is incorporated herein by reference
to the proxy statement for the 2000 Annual Meeting of Stockholders, which
will be held on May 30, 2000.
B. The Executive Officers of the Company are as follows:
<TABLE>
<CAPTION>
Employment History
Name Present Position Age 1995 to Present
---- ---------------- --- ---------------
<S> <C> <C> <C>
Roger P. Sonnabend Chairman of the Board 74 Chairman and Chief Executive Officer
and Chief Executive
Officer
Stephanie Sonnabend President 47 Executive Vice President
until January 1, 1996
Paul Sonnabend Chairman of the 72 President until December 31, 1995
Executive Committee
and Chief Financial
Officer
Stephen Sonnabend Senior Vice President 68 Senior Vice President
Boy van Riel Vice President and 41 Vice President and Treasurer
Treasurer
Peter J. Sonnabend Vice Chairman, Vice 46 Vice President and Secretary
President and Secretary until May, 1995
Christopher Baum Vice President, Sales 46 Vice President, Sales and Marketing
and Marketing
Carol Beggs Vice President, 39 Director of Information Systems
Technology
Felix Madera Vice President, 51 Vice President and General Manager, Sonesta
International Beach Resort, Key Biscayne, Florida
</TABLE>
8
<PAGE>
<TABLE>
<S> <C> <C> <C>
Mary Jane Rosa Vice President, Design 51 Vice President, Design
Kathy Rowe Vice President, Food 41 Director of Food and Beverage
and Beverage
Jacqueline Sonnabend Executive Vice 45 Vice President, Human Resources
President until March, 1996
Hans Wandfluh Vice President 65 President and General Manager,
Royal Sonesta Hotel, New Orleans,
Louisiana
</TABLE>
Roger, Paul and Stephen Sonnabend are brothers. Stephanie Sonnabend and
Jacqueline Sonnabend are the daughters of Roger Sonnabend. Peter J. Sonnabend is
the son of Paul Sonnabend. Kathy Rowe is the daughter of Stephen Sonnabend.
The Board of Directors elects officers of the Company on an annual basis.
Item 11. Executive Compensation
and
Item 12. Security Ownership of Certain Beneficial Owners and Management
and
Item 13. Certain Relationships and Related Transactions.
The information required by these items is incorporated by reference to the
proxy statement for the 2000 Annual Meeting of Stockholders to be held on May
30, 2000.
9
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements: The financial statements listed in the
accompanying Index to Consolidated Financial Statements are filed as
part of this Annual Report.
2. Financial Statement Schedules: The schedule listed in the
accompanying Index to Consolidated Financial Statements is filed as
part of this Annual Report.
3. Exhibits: The exhibits listed on the accompanying Index to Exhibits
are filed as part of this Annual Report.
(b) Reports on Form 8-K filed during the last quarter of 1999: None
10
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
Item 14 (a) (1) and (2) References (Page)
<TABLE>
<CAPTION>
1999 Annual Report to
Form 10-K Shareholders*
--------- -------------
<S> <C>
Consolidated Balance Sheets
at December 31, 1999 and 1998 ...................................... 8-9
For the years ended December 31,
1999, 1998 and 1997:
Consolidated Statements of
Operations ........................................... 7
Consolidated Statements of
Stockholders' Equity ................................. 10
Consolidated Statements of
Cash Flows ........................................... 11
Notes to Consolidated
Financial Statements ................................. 12-19
</TABLE>
Consolidated Financial Statement
Schedule for the year ended
December 31, 1999:
II. Consolidated Valuation and
Qualifying Accounts ................................... 12
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
- ---------------------------------------------------------
*Incorporated by Reference
11
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 1999
<TABLE>
<CAPTION>
Amounts
Balance Charged Amounts Balance,
Beginning Acquisition (Credited) (Written Off) End Of
Of Year Of Hotel To Income Recovered Year
------- -------- --------- --------- ----
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1997
Deducted from assets:
Valuation reserve on long-term
receivable and advances $ 5,500,000 $ -- $ -- $ 5,500,000
=========== =========== =========== ===========
Allowance for doubtful accounts $ 107,974 $ 26,001 $ (16,317) $ 117,658
=========== =========== =========== ===========
Year Ended December 31, 1998
Deducted from assets:
Valuation reserve on long-term
receivable and advances $ 5,500,000 $(5,500,000) $ -- $ -- $ --
=========== =========== =========== =========== ===========
Allowance for doubtful accounts $ 117,658 $ 33,000 $ (18,309) $ 8,473 $ 140,822
=========== =========== =========== =========== ===========
Year Ended December 31, 1999
Allowance for doubtful accounts $ 140,822 $ 154,293 $ (35,532) $ 259,583
=========== =========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
Note: The Company acquired Sonesta Beach Resort Key Biscayne on July 1, 1998.
The Company released the seller from indebtedness owed to Company subsidiaries
and reversed a valuation reserve against one of the loans owed to the Company
prior to the acquisition. In connection with the acquisition the Company also
acquired a $33,000 reserve for trade receivables.
12
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
INDEX TO EXHIBITS
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
3.1 Certificate of Incorporation as amended to date. (8)
3.2 Company By-laws, as amended to date. (12)
9.1(a) Sonnabend Voting Trust Agreement, dated August 1, 1984,
providing for the combination of the voting power of
stock held by members of the Sonnabend Family. (6)
9.1(b) First Amendment, dated December 1984, to Sonnabend Voting
Trust Agreement (6)
10.1(a) "1995 Loan Agreement" between Hibernia National Bank
("Hibernia") and Royal Sonesta, Inc. ("Royal Sonesta"),
as of January 1, 1995. (10)
10.1(b) "Promissory Note" ($5,000,000) from Royal Sonesta to
Hibernia, dated "Effective January 1, 1995". (10)
10.1(c) "First Amendment to 1995 Loan Agreement" between Hibernia
and Royal Sonesta, dated December 12, 1994. (10)
10.1(d) "Second Amendment to 1995 Loan Agreement" between
Hibernia and Royal Sonesta, dated as of December 31,
1997. (14)
10.1(e) "Second Modification to Promissory Note" between Hibernia
and Royal Sonesta, dated as of December 31, 1997. (14)
10.2(a) 1992 Loan Agreement, dated December 30, 1992, between
Royal Sonesta and Hibernia. (8)
10.2(b) Promissory Note, dated December 30, 1992, between Royal
Sonesta and Hibernia. (8)
10.2(c) Restatement and Continuation of Continuing Guaranty,
dated December 30, 1992, between the Registrant and
Hibernia. (8)
13
<PAGE>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
10.3(a) "Amendment and Restatement of the Amended and Restated
Loan Agreement", dated December 23, 1991, between
Hibernia, Royal Sonesta and the Registrant. (7)
10.3(b) $2,875,000 Promissory Note, dated December 23, 1991, from
Royal Sonesta to Hibernia. (7)
10.4(a) Promissory Note ($22,880,000), dated December 18, 1996,
from the Trustees of Charterhouse of Cambridge Trust
("Trust") and Sonesta of Massachusetts, Inc. ("Sonesta
Mass") to SunAmerica Life Insurance Company
("SunAmerica"). (13)
10.4(b) Mortgage, Security Agreement, Fixture Filing, Financing
Statement and Assignment of Leases and Rents, dated as of
December 18, 1996, between Trust and Sonesta Mass, and
SunAmerica. (13)
10.4(c) Environmental Indemnity Agreement, dated as of December
18, 1996, between Trust, Sonesta Mass, and Sonesta
International Hotels Corporation ("Sonesta"), and
SunAmerica. (13)
10.4(d) Escrow Agreement, dated as of December 18, 1996, between
Trust, Sonesta Mass, and SunAmerica, "Escrow Agent". (13)
10.4(e) Replacement Reserve and Security Agreement, dated as of
December 18, 1996, between Trust and Sonesta Mass, and
SunAmerica. (13)
10.4(f) Limited Guaranty Agreement, dated as of December 18,
1996, between Sonesta and SunAmerica. (13)
10.5(a) Revolving Term Note ($2,000,000) from Sonesta
International Hotels Corporation ("Sonesta") to USTrust
Bank, dated September 30, 1995. (12)
10.5(b) Commitment Letter agreement, dated September 28, 1995,
between Sonesta and USTrust. (12)
10.5(c) Amendment and Allonge to Commercial Promissory Note,
dated as of September 30, 1998, between Sonesta and
USTrust Bank. (16)
14
<PAGE>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
10.5(d) Renewal of Line of Credit letter agreement, dated 22-25
November 17, 1999, between Sonesta and USTrust Bank.
10.6(a) Loan Agreement($1,000,000), dated December 18, 1996,
between Masters of Tourism and Sonesta International
Hotels Limited ("SIHL"). (13)
10.6(b) (Personal) Guaranty of Hisham Aly, dated as of December
18, 1996. (13)
10.6(c) Loan Agreement ($277,935) dated as of January 1, 1997,
between Masters of Tourism and SIHL (consolidating two
(2) outstanding loan balances). (13)
10.6(d) "Amendment to Loan Agreement", dated April 29, 1997,
between Masters of Tourism and SIHL. (14)
10.6(e) (Personal) Guaranty of Hisham Aly, dated as of April 29,
1997. (14)
10.6(f) Second Amendment to Loan Agreement, dated September 15,
1998, between Masters of Tourism and SIHL. (16)
10.6(g) Third Amendment to Loan Agreement, dated January 1, 2000, 26-27
between Masters of Tourism and SIHL.
10.7(a) Indenture of Lease, dated June 26, 1979, between John
Hancock Mutual Life Insurance Company ("John Hancock")
and Sonesta International Hotels Corporation ("Sonesta").
(4)
10.7(b) "Second Amendment to Lease" between John Hancock and
Sonesta, dated March 22, 1994. (10)
10.7(c) "Third Amendment to Lease" between John Hancock and
Sonesta, dated June, 1994. (10)
10.8(a) Intercreditor, Payment Priority and Lien Priority
Agreement, dated as of September 15, 1993, between
Sonesta International Hotels Corporation ("Sonesta"),
Sonesta Louisiana Hotels Corporation ("SLHC"), 800 Canal
Street Limited Partnership (the "Partnership"), and
numerous other parties. (9)
15
<PAGE>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
10.8(b) Commercial Guaranty, dated September 15, 1993, by SLHC
and Sonesta. (9)
10.8(c) CSDC/Manager Reserve Agreement, dated September 15, 1993,
between SLHC, the Partnership and Canal Street
Development Corporation. (9)
10.9(a) Manager Advance Agreement, dated as of May 6, 1997,
between SLHC and the Partnership. (14)
10.9(b) Term Note ($500,000) from the Partnership to SLHC, dated
May 6, 1997. (14)
10.9(c) Collateral Note ($650,000) from the Partnership to SLHC,
dated May 6, 1997. (14)
10.9(d) Commercial Guaranty, dated May 6, 1997, between SLHC,
Sonesta, and First National Bank of Commerce. (14)
10.9(e) Amended and Restated Intercreditor, Payment Priority and
Lien Priority Agreement, dated as of May 6, 1997, between
Sonesta, SLHC, the Partnership, and numerous other
parties. (14)
10.10(a) Extension of Lease by Royal Sonesta, Inc., dated August
6, 1993. (9)
10.10(b) Agreement, dated September 9, 1993, between Royal
Sonesta, Inc. and Aetna Life Insurance Company. (9)
10.11(a) Hotel Lease, dated December 12, 1967, between Chateau
Louisiane, Inc., as "Landlord", and The Royal Orleans,
Inc., as "Tenant". (1)
10.11(b) Hotel lease-Amendment No. 1, dated November 26, 1973,
between Chateau Louisiane, Inc. and Louisiana Sonesta
Corporation. (2)
10.11(c) Hotel Lease-Amendment No. 2, dated September 1, 1977,
between Chateau Louisiane, Inc. and Royal Sonesta, Inc.
(3)
10.11(d) Hotel Lease-Amendment No. 3, dated September 17, 1981,
between Aetna Life Insurance Company and Royal Sonesta,
Inc. (5)
16
<PAGE>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
10.12(a) Restated Employment Agreement, dated January 1, 1992,
between the Registrant and Paul Sonnabend, together with
letter agreement regarding permanent and total
disability. (8) (Management contract under Item 601
(10)(iii) (A))
10.12(b) Restated Employment Agreement, dated January 1, 1992,
between the Registrant and Roger P. Sonnabend, together
with letter agreement regarding permanent and total
disability. (8) (Management contract under Item 601 (10)
(iii) (A)).
10.12(c) Restated Employment Agreement, dated January 1, 1992,
between the Registrant and Stephen Sonnabend together
with letter agreement regarding permanent and total
disability. (8) (Management contract under Item 601 (10)
(iii) (A)).
10.13 Lease, dated September 21, 1991, between "the Crown" and
Casablanca Resorts Development of Anguilla Limited
("CRDAL") (assumed by Sonesta Hotels of Anguilla Limited
("Sonesta Anguilla") in November 1995). (11)
10.14(a) Debenture, dated November 28, 1995, between Scotiabank
Anguilla Limited and Sonesta Anguilla (11)
10.14(b) Debenture ($6,390,000) from Sonesta Hotels of Anguilla
Limited ("SHAL") to Scotiabank Anguilla Limited
("Scotiabank"), dated December 1996 (evidencing
additional $1,700,000 loan). (13)
10.14(c) Renewal of two (2) credit facilities: $3,915,000 and 28-33
$1,525,000, between SHAL and Scotiabank, dated October
12, 1999.
10.14(d) Commitment Letter, dated March 13, 2000, between 34-40
Scotiabank and SHAL.
10.15 Agreement, dated as of March 1, 1996, between CRDAL and
Sonesta Anguilla. (13)
10.16 (Letter) Lease Agreement, dated June 3, 1996, between
Sonesta Hotels of Anguilla, Ltd. and Amsterdam Sonesta
Corporation (subsequently renamed Anguilla Hotel
Management, Inc.) (13)
17
<PAGE>
NUMBER DESCRIPTION PAGE NOS.
- ------ ----------- ---------
10.17(a) Contribution and Formation Agreement, dated as of January
30,1998, by and among Key Biscayne Limited Partnership
("KBLP"), Florida Sonesta Corporation and Key Biscayne
Land Corporation ("Sonesta II"), and joined in by Key
Biscayne Hotel Associates, LTD. ("KBHA"), Partners
Liquidating Trust,("PLT"), Strategic Realty Advisors,
Inc., ("SRAI") and Sonesta International Hotels
Corporation ("Sonesta International"). (15)
10.17(b) First Amendment to Contribution and Formation Agreement,
dated as of April 3, 1998, by and among KBLP, FSC and
Sonesta II, and joined in by KBHA, PLT, SRAI and Sonesta
International. (15)
10.17(c) Agreement of Limited Partnership of Sonesta Beach Resort
Limited Partnership, dated April 1998, by and between
FSC,Sonesta II and KBLP. (15)
10.17(d) Assumption Agreement, dated as of July 1, 1998, by and
between Sonesta Beach Resort Limited Partnership
("SBRLP") and State Street Bank and Trust Company,
trustee. (15)
10.17(e) Amendment to and Assignment of KBHA/PLT Indebtedness,
dated as of July 1, 1998, by and between KBLP, KBHA,PLT
and SBRLP,including KBHA/PLT Note, dated July 1, 1998.
(15)
10.18 Agreement, dated June 17, 1999, between Sonesta
International Hotels Corporation and Marvin Schwartz.
(17)
13 Annual Report to Security Holders for the calendar year
ended December 31, 1999. 41-61
21 Subsidiaries of the Registrant. 62
23 Consent of Ernst & Young LLP filed herewith. 63
27 Financial Data Schedule. 64
18
<PAGE>
(1) Incorporated by reference to the Company's 1967 Report on Form 10-K.
(2) Incorporated by reference to the Company's 1973 Report on Form 10-K.
(3) Incorporated by reference to the Company's 1977 Report on Form 10-K.
(4) Incorporated by reference to the Company's 1979 Report on Form 10-K.
(5) Incorporated by reference to the Company's 1981 Report on Form 10-K.
(6) Incorporated by reference to the Company's 1984 Report on Form 10-K.
(7) Incorporated by reference to the Company's 1991 Report on Form 10-K.
(8) Incorporated by reference to the Company's 1992 Report on Form 10-K.
(9) Incorporated by reference to the Company's 1993 Report on Form 10-K.
(10) Incorporated by reference to the Company's 1994 Report on Form 10-K.
(11) Incorporated by reference to the Company's 1995 Report on Form 8-K.
(12) Incorporated by reference to the Company's 1995 Report on Form 10-K.
(13) Incorporated by reference to the Company's 1996 Report on Form 10-K.
(14) Incorporated by reference to the Company's 1997 Report on Form 10-K.
(15) Incorporated by reference to the Company's 1998 Report on Form 8-K.
(16) Incorporated by reference to the Company's 1998 Report on Form 10-K.
(17) Incorporated by reference to the Company's 1999 Report on Form 8-K.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
SONESTA INTERNATIONAL HOTELS CORPORATION
(Registrant)
By: s/s Date: March 22, 2000
--------------------------------------
Boy van Riel
Vice President and Treasurer
Pursuant to the requirements of the Securities and Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
By: s/s Date: March 22, 2000
--------------------------------------
Roger P. Sonnabend
Chairman of the Board and Chief
Executive Officer
By: s/s Date: March 22, 2000
--------------------------------------
Boy van Riel
Vice President and Treasurer, Principal
Financial and Accounting Officer
By: s/s Date: March 22, 2000
--------------------------------------
Paul Sonnabend
Director
By: s/s Date: March 22, 2000
--------------------------------------
Peter J. Sonnabend
Director
By: s/s Date: March 22, 2000
--------------------------------------
Stephanie Sonnabend
Director
By: s/s Date: March 22, 2000
--------------------------------------
Stephen Sonnabend
Director
20
<PAGE>
By: s/s Date: March 22, 2000
--------------------------------------
George S. Abrams
Director
By: s/s Date: March 22, 2000
--------------------------------------
Vernon R. Alden
Director
By: s/s Date: March 22, 2000
--------------------------------------
Joseph L. Bower
Director
By: s/s Date: March 22, 2000
--------------------------------------
Jean C. Tempel
Director
21
USTrust Bank USTRUST
30 Court Street
Boston, MA 02108
617-726-7000
November 17, 1999
Mr. Peter J. Sonnabend
Vice Chair of the Board
Sonesta International Hotel Corp.
John Hancock Tower
200 Clarendon Street
Boston, MA 02116
Dear Peter:
We are pleased to advise you that USTrust has approved the renewal of your
$2,000,000.00 unsecured line of credit at our Base Lending Rate. Unless renewed,
the line will expire on September 30, 2000. The line continues to be guaranteed
by the company's principal domestic subsidiaries (as described in Exhibit
A-1999). Additionally, you have agreed to add the guaranty of Sonesta Beach
Resort Limited Partnership. Please sign the enclosed guaranty document and
return an executed copy. Exhibit A has been amended to include Sonesta Beach
Resort Limited Partnership. This line will be governed by the terms and
conditions of the commitment letter originally dated September 28, 1995 and the
Commercial Promissory Note originally dated September 30, 1995, except as
amended as follows:
1. The maturity date of the Commercial Promissory Note dated September 30,
1995 is hereby extended from September 30, 1999 to September 30, 2000.
2. The permitted indebtedness and guaranties as described in Exhibit B shall
be replaced with Exhibit B-1999.
<PAGE>
Sonesta International Hotels Corp.
Page 2
Again we are pleased to make this accommodation to you, and are pleased to
continue to have Sonesta as one of our customers. If you are in agreement with
these terms and conditions, please indicate your acceptance by signing on the
line designated below and returning an executed copy to my attention. Thank you.
Sincerely,
s/s
Charles J. Clark
Regional President
ACCEPTED
Sonesta International Hotels Corporation
By: s/s
----------------------------------------
Peter J. Sonnabend, as authorized signer
I hereby acknowledge and affirm guaranty of the above described credit facility,
by the principal domestic subsidiaries of Sonesta International Hotels
Corporation as described in Exhibit A, in my capacity as authorized signer for
said subsidiaries.
By: s/s
----------------------------------------
Peter J. Sonnabend, as authorized signer for Sonesta subsidiaries.
<PAGE>
Exhibit A-1999
Principal Domestic Subsidiaries of
Sonesta International Hotels Corporation
Anguilla Hotel Management Inc. Guaranty Unlimited
Brewster Wholesale Corporation Guaranty Unlimited
Florida Sonesta Corporation Guaranty Unlimited
SIA Advertising, Inc. Guaranty Unlimited
Sonesta Beach Resort Limited Partnership Guaranty Unlimited
Royal Sonesta, Inc. Guaranty Limited to $1,000,000
<PAGE>
Exhibit B-1999
Financial Institute Maximum Commitment
- ------------------- ------------------
SunAmerica Insurance Co. $23.0 Million
Hibernia Bank $5.0 Million
Maduro & Curiels Bank $2.0 Million
First National Bank $1.5 Million
Scotia Bank $7.5 Million
Seller Note (Anguilla) $1.0 Million
Aetna Realty Co. $22.5
EXHIBIT 10.6(g)
THIRD AMENDMENT TO LOAN AGREEMENT
Reference is made to the Loan Agreement made as of the 18th day of December,
1996 in the City of Boston, Massachusetts, U.S.A. by and between SONESTA
INTERNATIONAL HOTELS LIMITED (or its assignee) organized and existing under the
laws of The Bahamas and having its principal place of business at 200 Clarendon
Street, Boston, Massachusetts, U.S.A. and represented in the signature of that
Agreement by PETER J. SONNABEND, VICE PRESIDENT (hereinafter referred to as the
"Lender"), and MASTERS OF TOURISM organized and existing under the laws of The
Arab Republic of Egypt and having its principal place of business at Salah Salem
Avenue, El Abour Building, No. 13, Flat 84, Heliopolis, Cairo, Egypt and
represented in the signature of that Agreement by MOHAMMED HISHAM AHMED ALY,
CHAIRMAN (hereinafter referred to as the "Borrower") ("Loan Agreement"), as
amended by an "Amendment to Loan Agreement," dated April 29, 1997 ("the
Amendment"), and further amended by a "Second Amendment to Loan Agreement,"
dated September 15, 1998 (the "Second Amendment"). This Agreement shall
constitute the "Third Amendment" to the Loan Agreement.
WHEREAS, the purpose of the Loan Agreement was to provide U.S. $1,000,000
to the Borrower as a loan to finance the expansion and improvement of Sonesta
Beach Resort, Sharm El Sheikh (the "Hotel"), as described in the Loan Agreement;
and
WHEREAS, the purpose of the Amendment was to provide an additional U.S.
$500,000 to the Borrower as a loan in connection with the further expansion of
the Hotel, but Borrower subsequently informed Lender that the additional U.S.
$500,000, described in the Amendment, was no longer required by the Borrower in
order to complete the expansion and improvement of the Hotel, and the further
expansion of the Hotel - such expansion and improvements being referred to as
"Improvements" under the Loan Agreement, as amended by the Amendment; and
WHEREAS, pursuant to the Second Amendment, Loan principal was to be repaid
in seven (7) annual installments of U.S. $142,857, together with interest, with
the first payment due January 1, 1999, and said principal payment was made
during 1999, but accrued interest of U.S. $78,750 remained unpaid as of December
31, 1999, leaving a Loan balance of U.S. $935,893 as of December 31, 1999; and
WHEREAS, the parties now desire to amend the Loan Agreement to provide for
repayment of the Loan in monthly installments over five (5) years;
NOW THEREFORE, for consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree to amend the terms of the Loan Agreement,
as previously amended by the Amendment and the Second Amendment, as follows:
1. Loan Balance. The parties agree and acknowledge that the outstanding
balance of the Loan as of December 31, 1999 including all accrued and unpaid
interest, was U.S. $935,893.
<PAGE>
2. Repayment of Loan. The Loan balance of U.S. $935,893 shall be repaid in
sixty (60) equal monthly payments, together with interest at the "Prime" rate
charged by United States Trust Company, Boston, Massachusetts (currently 8.5%),
from time to time; provided that for purposes of the Loan the interest shall be
adjusted twice each year, on January 1 and July 1. Attached hereto as "Exhibit
A" is a payment schedule which illustrates the amortization of the Loan over the
sixty (60) month term (this schedule assumes a constant interest rate of 8.5%
per annum; as noted above, the applicable rate of interest is subject to
adjustment semi-annually). Loan payments shall be due and payable on or before
the last day of each calendar month (i.e. the first payment shall be due on or
before January 31, 2000).
3. As Amended, Loan Agreement Otherwise Unchanged. In all other respects,
the Loan Agreement, as amended, remains unchanged and in full force and effect,
including without limitation the provisions of Section 2.06 of the Loan
Agreement under which the "Operator" under the Management Agreement between
Borrower and Lender is authorized and instructed to make payments directly to
the Lender. (Since the Management Agreement has been amended to delete the
concept of "Owner's Return," such payments from Operator to Lender shall be made
from Hotel funds.)
IN WITNESS WHEREOF, the parties hereto have caused this Third Amendment to be
executed by their respective, duly authorized signatories as of January 1, 2000.
Witness SONESTA INTERNATIONAL HOTELS LIMITED
s/s By: s/s
- ------------------- ------------------------------------
Name: Peter Sonnabend
Title: Vice President
Witness MASTERS OF TOURISM
s/s By: s/s
- ------------------- ------------------------------------
Name: Mohamed Hisham Ahmed Aly
Title: Chairman
Mohamed Hisham Ahmed Aly hereby executes this Third Amendment to Loan Agreement
in order to acknowledge his continuing personal guaranty under the Loan
Agreement.
Witness:
s/s By: s/s
- ------------------- ------------------------------------
Mohamed Hisham Ahmed Aly
2
<PAGE>
EXHIBIT A
SHARM EXPANSION LOAN
BALANCE 1/1/99 1,085,000
1998 INTEREST PAID IN 1999 (85,000)
INTEREST ON LOAN 1999 78,750
PRINCIPAL PAYMENT DUE 1/1/99, PAID
IN DECEMBER 1999 (142,857)
----------
BALANCE 1/1/2000 $ 935,893
INTEREST
YEAR MONTH PRINCIPAL RATE INTEREST PAYMENT BALANCE
2000 JAN 935,893 8.5% 6,629 (19,200) 923,322
2000 FEB 923,322 8.5% 6,540 (19,200) 910,662
2000 MAR 910,662 8.5% 6,451 (19,200) 897,913
2000 APR 897,913 8.5% 6,360 (19,200) 885,073
2000 MAY 885,073 8.5% 6,269 (19,200) 872,142
2000 JUN 872,142 8.5% 6,178 (19,200) 859,120
2000 JUL 859,120 8.5% 6,085 (19,200) 846,006
2000 AUG 846,006 8.5% 5,993 (19,200) 832,798
2000 SEP 832,798 8.5% 5,899 (19,200) 819,497
2000 OCT 819,497 8.5% 5,805 (19,200) 806,102
2000 NOV 806,102 8.5% 5,710 (19,200) 792,612
2000 DEC 792,612 8.5% 5,614 (19,200) 779,026 156,867
2001 JAN 779,026 8.5% 5,518 (19,200) 765,344
2001 FEB 765,344 8.5% 5,421 (19,200) 751,565
2001 MAR 751,565 8.5% 5,324 (19,200) 737,689
2001 APR 737,689 8.5% 5,225 (19,200) 723,714
2001 MAY 723,714 8.5% 5,126 (19,200) 709,641
2001 JUN 709,641 8.5% 5,027 (19,200) 695,467
2001 JUL 695,467 8.5% 4,926 (19,200) 681,193
2001 AUG 681,193 8.5% 4,825 (19,200) 666,819
2001 SEP 666,819 8.5% 4,723 (19,200) 652,342
2001 OCT 652,342 8.5% 4,621 (19,200) 637,763
2001 NOV 637,763 8.5% 4,517 (19,200) 623,080
2001 DEC 623,080 8.5% 4,413 (19,200) 608,294
2002 JAN 608,294 8.5% 4,309 (19,200) 593,402
2002 FEB 593,402 8.5% 4,203 (19,200) 578,406
2002 MAR 578,406 8.5% 4,097 (19,200) 563,303
2002 APR 563,303 8.5% 3,990 (19,200) 548,093
2002 MAY 548,093 8.5% 3,882 (19,200) 532,775
2002 JUN 532,775 8.5% 3,774 (19,200) 517,349
2002 JUL 517,349 8.5% 3,665 (19,200) 501,813
2002 AUG 501,813 8.5% 3,555 (19,200) 486,168
2002 SEP 486,168 8.5% 3,444 (19,200) 470,412
2002 OCT 470,412 8.5% 3,332 (19,200) 454,544
2002 NOV 454,544 8.5% 3,220 (19,200) 438,563
2002 DEC 438,563 8.5% 3,106 (19,200) 422,470
2003 JAN 422,470 8.5% 2,992 (19,200) 406,262
2003 FEB 406,262 8.5% 2,878 (19,200) 389,940
2003 MAR 389,940 8.5% 2,762 (19,200) 373,502
2003 APR 373,502 8.5% 2,646 (19,200) 356,948
2003 MAY 356,948 8.5% 2,528 (19,200) 340,276
2003 JUN 340,276 8.5% 2,410 (19,200) 323,486
2003 JUL 323,486 8.5% 2,291 (19,200) 306,578
2003 AUG 306,578 8.5% 2,172 (19,200) 289,549
2003 SEP 289,549 8.5% 2,051 (19,200) 272,400
2003 OCT 272,400 8.5% 1,930 (19,200) 255,130
2003 NOV 255,130 8.5% 1,807 (19,200) 237,737
2003 DEC 237,737 8.5% 1,684 (19,200) 220,221
2004 JAN 220,221 8.5% 1,560 (19,200) 202,581
2004 FEB 202,581 8.5% 1,435 (19,200) 184,816
2004 MAR 184,816 8.5% 1,309 (19,200) 166,925
2004 APR 166,925 8.5% 1,182 (19,200) 148,907
2004 MAY 148,907 8.5% 1,055 (19,200) 130,762
2004 JUN 130,762 8.5% 926 (19,200) 112,488
2004 JUL 112,488 8.5% 797 (19,200) 94,085
2004 AUG 94,085 8.5% 666 (19,200) 75,552
2004 SEP 75,552 8.5% 535 (19,200) 56,887
2004 OCT 56,887 8.5% 403 (19,200) 38,090
2004 NOV 38,090 8.5% 270 (19,200) 19,159
2004 DEC 19,159 8.5% 136 (19,295) 0
EXHIBIT 10.14(c)
Scotiabank
Scotiabank Anguilla Limited
P.O. Box 250
The Valley, Anguilla W.I.
12th October, 1999
Mr. Peter J. Sonnabend
Vice Chairman
Sonesta International Hotel Corporation
Dear Mr. Sonnabend:
RE: SONESTA HOTELS OF ANGUILLA LIMITED
We are pleased to confirm the renewal of the following credit facilities to
Sonesta Hotels of Anguilla Limited ("The Borrower") by Scotiabank Anguilla
Limited ("The Bank") subject to the terms and conditions set out below and in
the Schedule A attached hereto (collectively referred to as the "Commitment
Letter").
This Commitment Letter supersedes all previous Commitment Letters and is not in
addition to any previous Commitment Letters.
Booking Office Scotiabank Anguilla Limited or any Branch of the
Bank of Nova Scotia designated by the Bank.
Credit #1
Amount: USD 3,915,000 non-revolving loan.
Purpose: To purchase the hotel now known as Sonesta Beach Resort of
Anguilla.
Interest Rate: 30, 60, or 90 day (Borrower's option) London Inter-Bank Offer
Rate (LIBOR) plus 2.25% per annum. Interest is payable on
funding rollover dates, net of any withholding tax.
Availment: The credit/facility has been fully drawn.
Repayment: Repayable in quarterly installments with a balloon payment as
follows:
<PAGE>
- 2 -
Date Amount
---- ------
March 01, 2000 $ 97,875
June 01, 2000 $ 97,875
Sept. 01, 2000 $ 97,875
Dec. 01, 2000 $ 97,875
March 01, 2001 $ 97,875
June 01, 2001 $ 97,875
Sept. 01, 2001 $ 97,875
Dec. 01, 2001 $ 97,875
Dec. 31, 2001 $3,132,000 (or the balance of
---------- principal and interest
$3,915,000 then outstanding,
---------- whichever is the
greater).
The foregoing principal payments and/or those payments due on
Credit #2 at the Bank's option, are to be supplemented
annually by application of 25% of Excess Cash Flow after debt
service as evidenced by audited year end financial
statements, with such payment to be made within 120 days of
each fiscal year end and applied to the loan in inverse order
of loan payment maturity. Excess Cash Flow is defined as net
income plus depreciation and amortization, plus disbursements
of any kind to officers, affiliates or non-arms length
parties, less principal paid on Bank term loans, less
Furniture, Fixtures and Equipment ("FF & E") Reserve to a
maximum of 5% of gross revenues, and Management Fees, and all
other amounts payable under the Management Contract and/or
Lease Agreement (to affiliates and other related companies),
all calculated on an annual basis. Permission from the Bank
to increase the maximum allowable FF & E reserve will not be
unreasonably withheld.
Prepayment: Prepayment is permitted in multiples of $100,000 on interest
funding rollover dates. Any charges normally applied by the
Bank to cover losses incurred when prepayments are made on
other than rollover dates are for the account of the
Borrower.
Credit #2 Amount: USD 1,525,000 non-revolving loan.
Purpose: Assist in funding expansion of the hotel.
<PAGE>
- 3 -
Interest Rates: 30, 60, or 90 day (Borrower's option) London Inter-Bank Offer
Rate (LIBOR) plus 2.25% per annum. Interest is payable on
funding rollover dates, net of any withholding tax.
Availment: The credit/facility has been fully drawn.
Repayment: Repayable in quarterly installments with a balloon payment as
follows:
Date Amount
---- ------
March 01, 2000 $ 38,125
June 01, 2000 $ 38,125
Sept. 01, 2000 $ 38,125
Dec. 01, 2000 $ 38,125
March 01, 2001 $ 38,125
June 01, 2001 $ 38,125
Sept. 01, 2001 $ 38,125
Dec. 01, 2001 $ 38,125
Dec. 31, 2001 $1,220,000 (or the balance of
---------- principal and
$1,525,000 interest then
---------- outstanding,
whichever is the
greater).
Security 1. Registered First Demand Mortgage Debenture stamped to
$6,390,000 providing the Bank with a first legal mortgage
over a total of approximately 39 acres of leasehold land
at Merrywing, Anguilla and the construction thereon,
presently substantially represented by the hotel known as
Sonesta Beach Resort of Anguilla, and a floating charge
over all of the other assets of the company. This
includes the 2.0 acres of land leased from Jeremiah
Gumbs, known as West Central Block 28009B Parcel 3 (Lot
1).
2. A registered caution over 12 acres of land adjacent to
that on which the hotel is constructed along with a
letter from the company not to encumber this asset.
3. All perils insurance, including flood and windstorm, for
the full amount of the hotel as well as FF & E and
inventory, with an insurer acceptable to the Bank.
<PAGE>
- 4 -
4. The guarantee of Sonesta International Hotels Corporation
(SIHC) for US $1,900,000 supported by all necessary
resolutions. The guarantee will reduce to US $1,000,000
upon the Borrower achieving an operating cash flow to
provide a debt service ratio of not less than 1.25 to 1
in a year in which payments of principal are made as
scheduled.
The guarantee will further reduce to US $500,000 in the
next year in which the same ratio is maintained and
principal payments are made as scheduled.
Conditions
Precedent: Nil
Other 1. No advances, bonuses, loans or dividends to officers,
Conditions: affiliates or parent without the prior written consent of
the Bank.
2. 25% of cash flow after debt service and annual
maintenance expenditures (5% of gross revenues to be set
aside for annual maintenance) to be applied to N/R loan
commencing fiscal year 2000, as detailed under
"Repayment" above.
3. No change in ownership without the prior written consent
of the Bank.
4. No lease agreements, development orders, condominium
developments, timeshare schemes or other forms of room
pre-selling are permitted without the prior written
consent of the Bank.
5. All accounts of the hotel including Visa/Mastercard sales
drafts are to be maintained with the Bank, subject to
pricing being competitive.
6. Any contract to manage the hotel must be in form and
substance acceptable to the Bank, with a management
entity acceptable to the Bank.
7. The management company shall provide its written
acknowledgement, that its management contract may be
terminated by the Bank at its sole option, without
penalty in the event of default by the Borrower under the
terms of the loan documentation and the Bank having
instituted proceedings to realize its security. The Bank
would consider any default to be cured by the Borrower or
Guarantor if the same is remedied within 30 days of
notice to the Borrower and Guarantor.
<PAGE>
- 5 -
Reporting: 1. Annual audited financial statements of the Borrower
within 120 days of fiscal year end, duly signed.
2. Annual audited financial statements of the Guarantor
within 120 days of fiscal year end, duly signed.
3. Quarterly in-house financial statements of the Borrower
within 45 days of period end.
4. Profit and loss projections for the next fiscal year
within 45 days of the Borrower's fiscal year end.
5. Copy of the annual Government health certificate to be
provided to the Bank on receipt of the same.
6. Evidence satisfactory to the Bank is to be provided
annually, concurrently with the Borrower's financial
statements or at such other time as may be agreed by the
Bank, that all property taxes and other taxes, including
gross receipts taxes due and payable have been paid or
arrangements satisfactory to the Bank have been made for
their payment, and that all employee deductions have been
remitted to the government as required.
7. Where the prior written consent of the Bank is required,
such will not be unreasonably withheld or delayed.
Applicable All agreements and documentation shall be governed by and
Law: construed in accordance with the laws of Anguilla.
If the terms and conditions set out above and in Schedule `A' attached hereto
are acceptable to you, please sign the enclosed copy of this letter in the
spaces indicated on the following page and return the letter to the undersigned
by the close of business on 12th November, 1999.
Yours very truly,
SCOTIABANK ANGUILLA LIMITED
s/s
A.W. MacCalman
Managing Director
<PAGE>
The terms and conditions set out above and in Schedule A attached hereto are
hereby acknowledged and accepted by:
Sonesta Hotels of Anguilla Limited
11/19/99 s/s
- -------------------- -----------------------------------------
Date Mr. Peter Sonnabend
Director
Sonesta International Hotels Corporation
(as Guarantor)
11/19/99 s/s
- -------------------- -----------------------------------------
Date Name and Title
Peter J. Sonnabend - Vice Chairman
EXHIBIT 10.14(d)
Scotiabank
Scotiabank Anguilla Limited
P.O. Box 250
The Valley, Anguilla W.I.
13th March, 2000
Mr. Peter J. Sonnabend
Vice Chairman
Sonesta International Hotels Corporation
Dear Mr. Sonnabend:
RE: SONESTA HOTELS OF ANGUILLA LIMITED
We are pleased to confirm, subject to acceptance by Sonesta Hotels of Anguilla
Limited, Scotiabank Anguilla Limited ("The Bank") will make available to Sonesta
Hotels of Anguilla Limited ("The Borrower"), the following credit facilities on
the terms and conditions set out below and in the Schedule A attached hereto
(collectively referred to as the "Commitment Letter").
This Commitment Letter supersedes all previous Commitment Letters and is not in
addition to any previous Commitment Letters.
Booking Office Scotiabank Anguilla Limited or any Branch of the Bank of
Nova Scotia designated by the Bank.
Credit #1
Amount: USD 3,817,125 non-revolving loan.
Purpose: To purchase the hotel now known as Sonesta Beach Resort
of Anguilla.
Interest Rate: 30, 60, or 90 day (Borrower's option) London Inter-Bank
Offer Rate (LIBOR) plus 2.25% per annum. Interest is
payable on funding rollover dates, net of any withholding
tax.
Availment: The credit/facility has been fully drawn.
Repayment: Repayable in quarterly installments with a balloon
payment as follows:
<PAGE>
- 2 -
Date Amount
---- ------
June 01, 2000 $ 97,875
Sept. 01, 2000 $ 97,875
Dec. 01, 2000 $ 97,875
March 01, 2001 $ 97,875
June 01, 2001 $ 97,875
Sept. 01, 2001 $ 97,875
Dec. 01, 2001 $ 97,875
Dec. 31, 2001 $3,132,000 (or the balance of
---------- principal and interest
$3,817,125 then outstanding,
---------- whichever is the
greater).
The foregoing principal payments and/or those payments
due on Credit #2 at the Bank's option, are to be
supplemented annually by application of 25% of Excess
Cash Flow after debt service as evidenced by audited year
end financial statements, with such payment to be made
within 120 days of each fiscal year end and applied to
the loan in inverse order of loan payment maturity.
Excess Cash Flow is defined as net income plus
depreciation and amortization, plus disbursements of any
kind to officers, affiliates or non-arms length parties,
less principal paid on Bank term loans, less Furniture,
Fixtures and Equipment ("FF & E") Reserve to a maximum of
5% of gross revenues, and Management Fees, and all other
amounts payable under the Management Contract and/or
Lease Agreement (to affiliates and other related
companies), all calculated on an annual basis. Permission
from the Bank to increase the maximum allowable FF & E
reserve will not be unreasonably withheld.
Prepayment: Prepayment is permitted in multiples of $100,000 on
interest funding rollover dates. Any charges normally
applied by the Bank to cover losses incurred when
prepayments are made on other than rollover dates are for
the account of the Borrower.
Credit #2 Amount: USD 1,486,875 non-revolving loan.
Purpose: Assist in funding expansion of the hotel.
Interest Rates: 30, 60, or 90 day (Borrower's option) London Inter-Bank
Offer Rate (LIBOR) plus 2.25% per annum. Interest is
payable on funding rollover dates, net of any withholding
tax.
<PAGE>
- 3 -
Availment: The credit/facility has been fully drawn.
Repayment: Repayable in quarterly installments with a balloon
payment as follows:
Date Amount
---- ------
June 01, 2000 $ 38,125
Sept. 01, 2000 $ 38,125
Dec. 01, 2000 $ 38,125
March 01, 2001 $ 38,125
June 01, 2001 $ 38,125
Sept. 01, 2001 $ 38,125
Dec. 01, 2001 $ 38,125
Dec. 31, 2001 $1,220,000 (or the balance of
---------- principal and interest
$1,486,875 then outstanding,
---------- whichever is the
greater).
Credit #3 Amount: USD 400,000 operating overdraft.
Purpose: Assist with any cash flow shortfalls the hotel may
experience during the months of March 2000 to May 2000,
pending receipt of insurance proceeds.
Interest Rates: Scotiabank Anguilla Limited's Base lending rate for US
Dollars in Anguilla plus a spread of 1%. (Presently
effective 11%).
Availment: The credit may be availed by cheques drawn on the current
account of the Borrower at this Bank.
Repayment: The facility is to be repaid in full by 31st May, 2000.
Credit #4 Amount: USD 600,000 non-revolving loan.
Purpose: To repay indebtedness to parent, Sonesta International
Hotels Corporation, for financial assistance provided in
connection with repairs to hotel after hurricane Lenny.
<PAGE>
- 4 -
Interest Rates: 30, 60, or 90 day (Borrower's option) London Inter-Bank
Offer Rate (LIBOR) plus 2.25% per annum. Interest is
payable on funding rollover dates, net of any withholding
tax.
Availment: The credit may be availed by direct advance(s) evidenced
by demand promissory notes(s).
Repayment: Repayable in full with a lump sum payment by 31st May,
2000.
Fees: A commitment fee of US $5,000 is payable upon your
acceptance of this offer of credit.
Security 1. Registered First Demand Mortgage Debenture stamped to
$6,390,000 providing the Bank with a first legal mortgage
over a total of approximately 39 acres of leasehold land
at Merrywing, Anguilla and the construction thereon,
presently substantially represented by the hotel known as
Sonesta Beach Resort of Anguilla, and a floating charge
over all of the other assets of the company. This
includes the 2.0 acres of land leased from Jeremiah
Gumbs, known as West Central Block 28009B Parcel 3 (Lot
1).
2. A registered caution over 12 acres of land adjacent to
that on which the hotel is constructed along with a
letter from the company not to encumber this asset.
3. All perils insurance, including flood and windstorm, for
the full amount of the hotel as well as FF & E and
inventory, with an insurer acceptable to the Bank.
4. The guarantee of Sonesta International Hotels Corporation
(SIHC) for US $1,900,000 supported by all necessary
resolutions. The guarantee will reduce to US $1,000,000
upon the Borrower achieving an operating cash flow to
provide a debt service ratio of not less than 1.25 to 1
in a year in which payments of principal are made as
scheduled.
The guarantee will further reduce to US $500,000 in the
next year in which the same ratio is maintained and
principal payments are made as scheduled.
Conditions
Precedent: Nil
<PAGE>
- 5 -
Other 1. No advances, bonuses, loans or dividends to officers,
Conditions: affiliates or parent without the prior written consent of
the Bank.
2. 25% of cash flow after debt service and annual
maintenance expenditures (5% of gross revenues to be set
aside for annual maintenance) to be applied to N/R loan
commencing fiscal year 2000, as detailed under
"Repayment" above.
3. No change in ownership without the prior written consent
of the Bank.
4. No lease agreements, development orders, condominium
developments, timeshare schemes or other forms of room
pre-selling are permitted without the prior written
consent of the Bank.
5. All accounts of the hotel including Visa/Mastercard sales
drafts are to be maintained with the Bank, subject to
pricing being competitive.
6. Any contract to manage the hotel must be in form and
substance acceptable to the Bank, with a management
entity acceptable to the Bank.
7. The management company shall provide its written
acknowledgement, that its management contract may be
terminated by the Bank at its sole option, without
penalty in the event of default by the Borrower under the
terms of the loan documentation and the Bank having
instituted proceedings to realize its security. The Bank
would consider any default to be cured by the Borrower or
Guarantor if the same is remedied within 30 days of
notice to the Borrower and Guarantor.
Reporting: 1. Annual audited financial statements of the Borrower
within 120 days of fiscal year end, duly signed.
2. Annual audited financial statements of the Guarantor
within 120 days of fiscal year end, duly signed.
3. Quarterly in-house financial statements of the Borrower
within 45 days of period end.
4. Profit and loss projections for the next fiscal year
within 45 days of the Borrower's fiscal year end.
<PAGE>
- 6 -
5. Copy of the annual Government health certificate to be
provided to the Bank on receipt of the same.
6. Evidence satisfactory to the Bank is to be provided
annually, concurrently with the Borrower's financial
statements or at such other time as may be agreed by the
Bank, that all property taxes and other taxes, including
gross receipts taxes due and payable have been paid or
arrangements satisfactory to the Bank have been made for
their payment, and that all employee deductions have been
remitted to the government as required.
7. Where the prior written consent of the Bank is required,
such will not be unreasonably withheld or delayed.
Applicable All agreements and documentation shall be governed by and
Law: construed in accordance with the laws of Anguilla.
If the terms and conditions set out above and in Schedule 'A' attached hereto
are acceptable to you, please sign the enclosed copy of this letter in the
spaces indicated on the following page and return the letter to the undersigned
by the close of business on 10th April, 2000.
Yours very truly,
SCOTIABANK ANGUILLA LIMITED
s/s
A.W. MacCalman
Managing Director
<PAGE>
The terms and conditions set out above and in Schedule A attached hereto are
hereby acknowledged and accepted by:
Sonesta Hotels of Anguilla Limited
3/14/00 s/s
- -------------------- -----------------------------------------
Date Mr. Peter Sonnabend
Director
Sonesta International Hotels Corporation
(as Guarantor)
3/14/00 s/s
- -------------------- -----------------------------------------
Date Name and Title
Peter J. Sonnabend - Vice Chairman
FRONT COVER
This year's cover offers an ocean view from our Sonesta Beach Resort Key
Biscayne, one of South Florida's premier resorts.
<PAGE>
REPORT TO SHAREHOLDERS
- --------------------------------------------------------------------------------
Sonesta Hotels and Resorts had another strong year in 1999. Results were
enhanced by approximately $3.9 million of non-recurring income related to the
Company's management activities.
Results for 1999 reflect a full year ownership of Sonesta Beach Resort Key
Biscayne, which the Company acquired in July 1998. This hotel was managed by the
Company prior to that date. The resort did very well in 1999. The renovation
program we announced following acquisition of the resort continued throughout
the year. In 2000, we expect to complete renovation of all guestrooms, enhance
the hotel's lobby and build a new spa and fitness center. Sonesta Key Biscayne
is generally recognized as one of South Florida's premier resorts, and the
significant investment we are making in the property will ensure that its
stature continues to grow.
Royal Sonesta Hotel Boston (Cambridge) also had a record year. We are
currently completing the last phase of guestroom renovations. Renovations at
this property began three years ago and have included all guestrooms, enhanced
HVAC systems, and upgraded property management systems. The Hotel now offers
guests high-speed Internet access. This property also enjoys the reputation of
being one of Boston's most desirable banqueting venues.
The outstanding performance of Royal Sonesta Hotel New Orleans continues.
In 1999, the hotel maintained its status as one of the city's average rate and
occupancy leaders. Renovations will begin this summer on 100 guestrooms, and
will include bathroom upgrades.
Chateau Sonesta Hotel New Orleans, which opened in 1995, continues to
develop its own character. The hotel benefits from its outstanding location
between the French Quarter and Canal Street.
Sonesta Beach Resort Anguilla experienced improved results compared to
previous years until Hurricane Lenny damaged the hotel in November 1999. The
resort reopened on February 10, 2000. Anguilla, which boasts some of the most
beautiful beaches and exciting restaurants in the world, continues to suffer
from low awareness and limited air service.
Sonesta Beach Resort Bermuda suffered loss of business due to weather that
both deterred and prevented guests from reaching the island. Bermuda continues
to be a challenging place to do business, even though it still offers a
wonderful vacation experience only two hours from several major east coast U.S.
cities.
We are excited about the results reported for 1999 by our Egyptian hotels,
which we operate under various management agreements. Sonesta Hotel Cairo
completed the renovations of all guestrooms, and the hotel is in wonderful
condition. Sonesta Beach Resort Sharm El Sheikh benefited from the addition of
180 new guestrooms and a new swimming pool. Similarly, the rooms inventory
increased at Sonesta Club. Despite significant competition from new hotels in
Sharm El Sheikh, both Sonesta properties are in great demand because of their
outstanding locations, superior facilities, and high level of personal service.
Both of our Nile cruise ships are in excellent condition and are known for being
among the best ships on the Nile. Sonesta Hotel Port Said is completing its
guestroom renovation program. Sonesta St. George Hotel Luxor enjoys the
reputation of being one of that destination's best hotels: its location on the
banks of the Nile, looking west to the cliffs by the Valley of the Kings and
Queens, is one of the most spectacular anywhere in Egypt.
Our two licensed properties in Aruba continue to do well. The owner of the
Aruba Sonesta Resort and Aruba Sonesta Suites has invested a considerable amount
to create new facilities and exciting products. Aruba, of course, continues to
be one of the most successful of the destination resort islands in the
Caribbean.
In 1999, the Company expanded its presence in Peru. In addition to Sonesta
Lima Hotel El Olivar, which was flagged as a Sonesta property in March, 1999, we
have added five Sonesta posadas--small hotels, each offering deluxe
accommodations in Puno, Cuzco, Yucay and Lima. In April 1999, the Company
entered into a master franchise relationship with a hotel owner/developer in
Italy. Sonesta Resort and Country Club opened in Tuscany in September 1999. We
recently reached agreement to add two additional Sonesta licensed properties in
Tuscany.
The Company's expansion plans for 2000 will focus on the United States as
we seek opportunities to acquire hotels, reposition existing properties, or
operate additional hotels under management contracts. In order to fund this
expansion activity, we are in the process of refinancing our Boston (Cambridge)
and Key Biscayne hotels, and expect to complete this refinancing effort shortly.
If you would like additional information about Sonesta hotels, cruise
ships, or posadas--or about the Company generally--please visit our Web site at
sonesta.com.
We appreciate the continued interest and support of you, our shareholders,
and of our hotel owners, guests, partners, and employees.
/s/ Roger P. Sonnabend
Roger P. Sonnabend
Chairman of the Board and Chief Executive Officer
/s/ Stephanie Sonnabend
Stephanie Sonnabend
President
March 10, 2000
1
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
5-YEAR SELECTED FINANCIAL DATA
- --------------------------------------------------------------------------------
(In thousands except for per share data)
<TABLE>
<CAPTION>
1999 1998 (1) 1997 1996 1995
---------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues ......................................... $ 101,296 $ 82,040 $68,468 $ 62,590 $ 55,840
Operating income ................................. 9,686 5,589 3,349 1,768 2,659
Net interest expense ............................. (3,857) (2,946) (1,758) (825) (823)
Equity in net loss of hotels ..................... -- -- -- (89) (656)
Gain on sales of assets .......................... 46 15 22 213 548
Other ............................................ 4,048(2) 1 (3) 254 828
---------- -------- ------- -------- --------
Income before income taxes ....................... 9,923 2,659 1,610 1,321 2,556
Federal, foreign and state income tax provision
(benefit) ....................................... 3,590 1,242 677 1,134 (219)
---------- -------- ------- -------- --------
Net income ..................................... $ 6,333 $ 1,417 $ 933 $ 187 $ 2,775
========== ======== ======= ======== ========
Per share of common stock:
Basic and diluted earnings ....................... $ 1.61 $ .34 $ .22 $ .04 $ .67
========== ======== ======= ======== ========
Cash dividends declared .......................... $ .18 $ .15 $ .15 $ .15 $ .15
========== ======== ======= ======== ========
Working capital deficit .......................... $ (26,943)(3) $ (4,767) $(5,802) $ (5,044) $ (5,834)
Net property and equipment ....................... 84,202 81,948 44,431 41,930 38,362
Total assets ..................................... 107,518 106,603 76,416 68,971 69,240
Long-term debt and capitalized lease
obligations including currently payable
portion ......................................... 50,329 54,779 31,456 24,801 26,293
Redeemable preferred stock ....................... 294 294 294 294 294
Common stockholders' equity ...................... 26,088 24,233 23,450 23,152 23,626
Common stockholders' equity per share ............ 7.02 5.86 5.67 5.60 5.70
Total revenues including hotels operated under
management contracts ............................ 177,588 169,238 173,093 163,765 144,002
Common shares outstanding at end of year ......... 3,715 4,136 4,136 4,136 4,142
</TABLE>
(1) Gives effect to the acquisition of Sonesta Beach Resort Key Biscayne on
July 1, 1998.
(2) Includes non-recurring income of $3,875,000 (see Note 2--Operations).
(3) Includes first mortgage note on Key Biscayne property, which the Company
expects to refinance before the scheduled maturity date of October 1,
2000.
Market price data for the Company's common stock showing
high and low prices by quarter for each of the last two years is
as follows:
<TABLE>
<CAPTION>
NASDAQ Quotations
-------------------------------------
1999 1998
------------------ ----------------
High Low High Low
-------- ------- ------- ------
<S> <C> <C> <C> <C>
First .......... 6 1/2 5 7 1/2 6 1/2
Second ......... 6 19/32 4 5/16 6 3/4 5 7/16
Third .......... 8 5/8 6 3/8 7 3/4 6 1/16
Fourth ......... 8 1/16 6 3/8 7 5/16 6 3/8
</TABLE>
The Company's common stock trades on the NASDAQ Stock Market under the symbol
SNSTA. As of February 23, 2000 there were 514 holders of record of the
Company's common stock. The Company completed a two for one common stock split
in July 1999 (see Note 6--Stockholders' Equity).
A copy of the Company's Form 10-K Report, which is filed annually with the
Securities and Exchange Commission, is available to stockholders. Requests
should be sent to the Office of the Secretary at the Company's Executive
Offices.
2
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
- --------------------------------------------------------------------------------
The Company's consolidated financial statements include the revenues,
expenses, assets and liabilities of the Royal Sonesta Hotel, Boston
(Cambridge), the Sonesta Beach Resort Anguilla, B.W.I., the Royal Sonesta
Hotel, New Orleans, and, effective July 1, 1998, the Sonesta Beach Resort Key
Biscayne. The Boston (Cambridge), Anguilla and Key Biscayne properties are
owned by the Company, and the New Orleans hotel is operated under a long-term
lease. The Sonesta Beach Resort Key Biscayne was acquired by the Company on
July 1, 1998. Before that date, this hotel was operated by the Company under a
management agreement. The financial statements also include the revenues and
expenses from the management of properties located in the United States,
Bermuda, Caribbean and Egypt.
Results of Operations
Revenues
<TABLE>
<CAPTION>
TOTAL REVENUES
(in thousands)
---------------------------------------
NO. OF
ROOMS 1999 1998 1997
------- ----------- --------- ---------
<S> <C> <C> <C> <C>
Sonesta Beach Resort
Anguilla, BWI 100 $ 4,190 $ 4,253 $ 4,071
Sonesta Beach Resort
Key Biscayne 300 28,129 10,821 --
Royal Sonesta Hotel Boston
(Cambridge) 400 29,240 27,602 25,521
Royal Sonesta Hotel
New Orleans 500 34,959 33,131 31,491
Management and service
fees and other revenues 4,778 6,233 7,385
-------- ------- -------
Total revenues $101,296 $82,040 $68,468
======== ======= =======
</TABLE>
1999 versus 1998: Total revenues in 1999 were $101,296,000 compared to
$82,040,000 in 1998, an increase of approximately $19,256,000. The Company
acquired the Sonesta Beach Resort Key Biscayne on July 1, 1998. Before July 1,
1998, this hotel was operated under a management agreement. Revenues of the Key
Biscayne hotel were $28,129,000 in 1999 compared to $25,738,000 during the whole
year of 1998, primarily due to a 9% increase in revenue per available room
("REVPAR") and a 7% increase in food and beverage revenues. Revenues at the
Royal Sonesta Hotel Boston (Cambridge) increased by $1,638,000, mainly due to an
8% increase in average room rate coupled with a slight increase in occupancy.
Royal Sonesta New Orleans increased revenues by $1,828,000 in 1999 compared to
1998. REVPAR at the New Orleans hotel increased by 7% compared to 1998, and food
and beverage revenues increased by 5% because of higher occupancy levels
achieved in 1999. Revenues at Sonesta Beach Resort Anguilla in 1999 decreased by
$63,000 compared to 1998. This was due to the loss of revenues of approximately
$800,000 in November and December 1999 as a result of the closure of the resort
on November 17, 1999 due to damage done by Hurricane Lenny. This loss of income
is covered by insurance, and management has filed a claim to recover this
income. The resort reopened for full business operations on February 10, 2000.
Revenues from management activities decreased by $1,455,000 in 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 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 income of $407,000 for
previously deferred fees from Chateau Sonesta Hotel New Orleans. In addition,
the 1998 revenues included approximately $344,000 of service fees from managed
hotels to an in-house advertising agency, whose function was outsourced as of
January 1, 1999, and a full year's fee income from Sonesta Beach Hotel & Casino
Curacao, which was operated by the Company under a management agreement until
June 1, 1999. The above decreases in income were partially offset by increases
in fees of $719,000 from the Company's managed hotels in Egypt. Business in
Egypt recovered in 1999 from a downturn in tourism that followed the terrorist
attack in Luxor in November 1997.
1998 versus 1997: Total revenues in 1998 were $82,040,000 compared to
$68,468,000 in 1997, an increase of approximately $13,572,000. Revenues of
Sonesta Beach Resort Key Biscayne, which the Company acquired on July 1, 1998,
were $10,821,000 for the period July 1 to December 31, 1998. Revenues of the Key
Biscayne hotel during the period July 1 to December 31, 1997, when the hotel was
operated by Sonesta under a management agreement, were $11,555,000. The hotel's
1998 revenues were adversely affected by a forced evacuation in September 1998
due to Hurricane Georges (which caused no damage to the hotel), and because of
lower group and convention business due to the renovation of the hotel's pool
area during the third quarter. The Royal Sonesta Hotel Boston (Cambridge) had an
increase in revenues of approximately $2,081,000 in 1998 compared to 1997, due
to an 11% increase in the hotel's average room rate, and a 9% increase in food
and beverage revenues, primarily because of increased banquet business. Revenues
at the Royal Sonesta Hotel New Orleans increased by $1,640,000 during 1998
compared to 1997, mainly because of a 4% increase in average room rate. The
Company's Sonesta Beach Resort Anguilla had an increase in revenues of $182,000
in 1998 compared to 1997. A substantial increase in average room rate of 23% at
the resort was partially offset by a slightly lower occupancy, and by a decrease
in food and beverage revenues because the hotel leased out one of its two
restaurants. Revenues from management activities and other sources decreased by
$1,152,000 in 1998 compared to 1997. Fee income from the Company's Egyptian
operations decreased by $939,000 in 1998 compared to 1997. Business levels in
Egypt suffered from the effects of the November 1997 terrorist attack in Luxor.
The Company's management fee income from Sonesta Key Biscayne decreased by
3
<PAGE>
- --------------------------------------------------------------------------------
$471,000 in 1998, because of the acquisition of this property on July 1, 1998.
The decrease in fee income from Egypt and Key Biscayne was partially offset by
a termination fee of $335,000 the Company received in 1998 for agreeing to
cancel the license agreement for a hotel in Santiago, Chile, and the
recognition of additional fee income of $408,000 for previously deferred fees
from Chateau Sonesta Hotel New Orleans. The Company became entitled to these
fees because the hotel's profits have been sufficient to meet all the owner's
obligations from the time the hotel opened in April 1995.
Operating Income
<TABLE>
<CAPTION>
OPERATING INCOME/(LOSS)
(in thousands)
--------------------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
Sonesta Beach Resort Anguilla, BWI $(1,592) $(1,192) $(1,803)
Sonesta Beach Resort Key
Biscayne 4,175 (101) --
Royal Sonesta Hotel Boston
(Cambridge) 6,165 5,319 4,366
Royal Sonesta Hotel New Orleans 2,329 2,227 1,928
------- ------- -------
Operating income from hotels after
management and service fees 11,077 6,253 4,491
Management activities and other (1,391) (664) (1,142)
------- ------- -------
Operating income $ 9,686 $ 5,589 $ 3,349
======= ======= =======
</TABLE>
1999 versus 1998: Operating income in 1999 was $9,686,000 which
represented an increase of $4,097,000 compared to 1998 operating income of
$5,589,000. Operating income of Sonesta Beach Resort Key Biscayne, which the
Company acquired on July 1, 1998, was $4,175,000 during 1999. Included in the
1998 results was an operating loss of $101,000 for the period July 1 to December
31, 1998. This loss was not representative of a full year's operations due to
the seasonal nature of the hotel's business. Operating loss at Sonesta Beach
Resort Anguilla in 1999 increased by $400,000 compared to 1998, due to the loss
of revenue of approximately $800,000 in November and December of 1999 as a
result of the closure of the hotel on November 17, 1999, due to damage sustained
by Hurricane Lenny. The Company's insurance policy covers loss of profits, but
no such income has been recorded in 1999 pending the resolution of the insurance
claim. The hotel resumed full business operations on February 10, 2000.
Operating income at the Royal Sonesta Hotel Boston (Cambridge) increased by
$846,000 to $6,165,000 during 1999, due to increased revenues of $1,638,000,
partially offset by an increase in expenses of $792,000, of which $243,000 was
due to increased depreciation expense as a result of major refurbishments at the
hotel in the past three years. Operating income at Royal Sonesta Hotel New
Orleans increased $102,000 to $2,329,000 in 1999. Increased revenues of
$1,828,000 were offset by increases in expenses, mainly in cost and operating
expenses of $471,000, sales and marketing expenses of $209,000, and by increased
rent expense of $780,000. The rent expense is based on a percentage of profits
as defined in the lease under which the Company operates the hotel. Operating
loss from management and other activities, which is computed after giving effect
to management, marketing, and service fees to owned and leased hotels, increased
by $727,000 in 1999 compared to 1998. This was primarily caused by the fact that
1998 income included a cancellation fee of $335,000 in connection with the
termination of a license agreement for a hotel in Santiago, Chile, and the
receipt in 1998 of $407,000 for previously deferred fees from Chateau Sonesta
Hotel New Orleans.
1998 versus 1997: Operating income in 1998 was $5,589,000 compared to
$3,349,000 in 1997, an increase of approximately $2,240,000. The Company's Royal
Sonesta Hotel Boston (Cambridge) had an increase in operating income of
$953,000, because of an increase in revenues of $2,081,000, partially offset by
increased expenses of $1,128,000, primarily cost and operating and depreciation
expense. The increase in depreciation expense resulted from extensive
renovations and refurbishments to the hotel's guest rooms and other facilities.
The operating loss at Sonesta Beach Resort Anguilla during 1998 compared to 1997
decreased by $611,000, because of increased room revenues and a decrease in
operating expenses due to the fact that the resort leased out one of its two
restaurants. The Royal Sonesta Hotel New Orleans had an increase in operating
income of $299,000, because of an increase in revenues of $1,640,000, partially
offset by increased expenses in 1998 of $1,341,000. The increase in expenses
consisted mainly of increased operating expenses, and an increase of $587,000 in
percentage rent due under the lease under which the Company operates the hotel.
The Sonesta Beach Resort Key Biscayne, acquired by the Company on July 1, 1998,
had an operating loss of $101,000 during the second half of 1998. This loss is
not indicative of a full year's operations due to the seasonal nature of the
hotel's business. In addition, this result was adversely affected by the loss of
business from the forced evacuation of the hotel because of the threat of
Hurricane Georges in September 1998, and by reduced group and convention
business due to the extensive renovation of the hotel's pool area during the
third quarter. Operating loss from management and other activities decreased by
$478,000 during 1998 compared to 1997. Lower corporate office expenses,
additional fee income of $335,000 from Sonesta Santiago, Chile, and $407,000
from Chateau Sonesta New Orleans offset the loss of fee income during 1998 from
the Company's Egyptian operations.
Other Income and Deductions
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 for 1999
is a supplemental fee of $2,000,000 from Sonesta Beach Resort Bermuda, which
4
<PAGE>
- --------------------------------------------------------------------------------
the Company continues to operate under a management agreement (see also Note
2--Operations).
Sonesta Beach Resort Anguilla sustained damage in November 1999 when
Hurricane Lenny struck the island. The Company has reached agreement with its
insurance carrier regarding its claim for building damages and loss of personal
property, and included in Other receivables is $639,000 for the net insurance
proceeds. Since the book values of the assets destroyed were less than the
proceeds from insurance, the Company recorded a gain from casualty of $181,000.
The Company is also entitled to recover lost income under its insurance policy,
but no such income has been recorded at December 31, 1999. The resort reopened
for full business operations on February 10, 2000.
Interest expense in 1999 increased by $738,000 compared to 1998, and
interest expense in 1998 increased by $998,000 compared to 1997. This was caused
by interest expense incurred of $2,052,000 in 1999 and $1,025,000 in 1998 on a
mortgage loan the Company assumed in connection with the acquisition of the
Sonesta Beach Resort Key Biscayne on July 1, 1998.
Interest income decreased by $172,000 in 1999 compared to 1998, mainly due
to interest of $275,000 included in the first six months of 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. Interest income in 1998
decreased by $190,000 compared to 1997, due to a $275,000 reduction in interest
earned in 1998 compared to 1997 on loans from Sonesta Beach Resort Key Biscayne,
which were settled when the Company acquired the resort on July 1, 1998. This
decrease was partially offset by higher income earned on the Company's cash
balances.
Federal, State and Foreign Income Taxes
The 1999 and 1998 tax expenses are higher than the statutory rate
primarily due to the provision for state taxes 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 $7,876,000 at
December 31, 1999. The Company has $7,000,000 available under two lines of
credit (see Note 4--Borrowing Arrangements). No amounts were outstanding under
these lines at December 31, 1999.
The Company had a working capital deficit of approximately $26,943,000 at
December 31, 1999. Included in current liabilities is the fair value of the
first mortgage note of $23,049,000 on the Company's hotel in Key Biscayne,
Florida, which matures on October 1, 2000. The Company is currently working on
refinancing this loan and, considering the resort's history of substantial cash
flows, foresees no difficulty in arranging such replacement financing. Also
included in current liabilities is accrued percentage rent of approximately
$6,910,000 for the year ending December 31, 1999, related to the Royal Sonesta
Hotel New Orleans, which is operated by the Company under a long-term lease.
This rent is payable at the end of March 2000, and will be paid from the
Company's available cash balances, and borrowings under its lines of credit, if
needed.
On July 1, 1999, the Company paid $3,772,800 related to a treasury stock
purchase (see also Note 6 --Stockholders' Equity).
The Company acquired cash of $3,456,000 with the acquisition of the
Sonesta Beach Resort Key Biscayne on July 1, 1998. It also assumed a mortgage
note payable in this transaction with a fair value of $24,171,000 at July 1,
1998 (see Note 2--Operations).
In addition to normal capital replacements, approximately $2,700,000 was
spent in 1999 on improvements at the Company's Sonesta Beach Resort Key
Biscayne. These improvements included guest room and bathroom renovations,
elevator modernization, and replacement of property management systems.
In January 1997 the Company refinanced the mortgage loan on the Royal
Sonesta Hotel Boston (Cambridge). The net proceeds of this refinancing were
approximately $5,357,000. During the years 1997 through 1999, an amount of
approximately $6,600,000 was spent on improvements to the hotel.
Company management believes that its present cash balances plus its
available borrowing capacity are more than adequate to meet its cash
requirements for 2000 and beyond.
Year 2000 Compliance
The Year 2000 compliance issue concerned the inability of computer systems
to accurately perform their functions after December 31, 1999, which could have
had a negative impact on the operations of the Company's hotels and corporate
office. The Company successfully addressed these issues, and experienced no
disruptions to its operations. Similarly, no disruptions were experienced as a
result of Year 2000 issues experienced by vendors and other parties with which
the Company has relationships that are critical to its operations.
The Company considered the costs related to Year 2000 issues not to be
material. Management will continue to monitor any Year 2000 issues that may come
up and which could have a potential negative impact on its operations.
5
<PAGE>
- --------------------------------------------------------------------------------
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 as of December 31,
1999. This information should be read in conjunction with Note 5--Long-Term
Debt.
Short and Long Term Debt at December 31, 1999 (in thousands):
<TABLE>
<CAPTION>
2000 2001 2002 2003 Total Fair Value
--------- -------- ------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Principal amount due $23,547 $6,020 $681 $19,537 $49,785 $50,329
Average interest rate 10.54% 8.68% 8.87% 8.87%
</TABLE>
Selected Quarterly Financial Data
Selected quarterly financial information for the years ended December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(in thousands except for per share data)
1999
---------------------------------------------
1st 2nd 3rd 4th
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues $ 26,630 $ 26,379 $21,880 $ 26,407
Operating income 3,689 2,817 734 2,446
Net income (loss) 1,662 3,657 (227) 1,241
Net income (loss) per share of common stock $ 0.40 $ 0.88 $ (0.06) $ 0.33
</TABLE>
Included in net income in the second quarter of 1999 is non-recurring
other income of $3,875,000 (see Note 2--Operations).
<TABLE>
<CAPTION>
1998
---------------------------------------------------
1st 2nd 3rd 4th
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Revenues $ 18,008 $ 20,088 $19,094 $ 24,850
Operating income 792 2,370 5 2,422
Net income (loss) 136 1,165 (815) 931
Net income (loss) per share of common stock $ 0.03 $ 0.28 $ (0.19) $ 0.22
</TABLE>
6
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
- --------------------------------------------------------------------------------
For the three years ended December 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Revenues:
Rooms ................................................... $62,245,632 $ 48,462,302 $ 39,864,616
Food and beverage ....................................... 26,184,867 20,710,199 16,423,045
Management, license and service fees .................... 4,679,265 6,197,785 6,884,440
Parking, telephone and other ............................ 8,185,841 6,669,603 5,295,948
----------- ------------ ------------
101,295,605 82,039,889 68,468,049
----------- ------------ ------------
Costs and expenses:
Costs and operating expenses ............................ 42,336,436 34,188,515 28,035,454
Advertising and promotion ............................... 7,761,614 6,166,645 5,520,283
Administrative and general .............................. 15,723,768 13,851,373 12,653,368
Human resources ......................................... 2,028,417 1,741,782 1,607,143
Maintenance ............................................. 6,831,662 6,105,482 5,016,595
Rentals ................................................. 7,885,165 7,156,291 6,499,015
Property taxes .......................................... 2,068,556 1,552,485 1,184,700
Depreciation and amortization ........................... 6,974,349 5,688,319 4,602,317
----------- ------------ ------------
91,609,967 76,450,892 65,118,875
----------- ------------ ------------
Operating income ......................................... 9,685,638 5,588,997 3,349,174
----------- ------------ ------------
Other income (deductions):
Interest expense ........................................ (4,597,697) (3,859,500) (2,861,590)
Interest income ......................................... 740,890 912,607 1,102,980
Foreign exchange gain (loss) ............................ (7,900) 1,238 (2,815)
Gain on sales of assets ................................. 46,275 15,188 22,471
Gain from casualty ...................................... 180,858 -- --
Other ................................................... 3,875,073 -- --
----------- ------------ ------------
237,499 (2,930,467) (1,738,954)
----------- ------------ ------------
Income before income taxes ............................... 9,923,137 2,658,530 1,610,220
Federal, foreign and state income tax provision ......... 3,590,545 1,241,567 677,620
----------- ------------ ------------
Net income ............................................... $6,332,592 $ 1,416,963 $ 932,600
=========== ============ ============
Basic earnings per share of common stock ................. $ 1.61 $ .34 $ .22
=========== ============ ============
Dividends per common share ............................... $ .18 $ .15 $ .15
Dividends per preferred share ............................ $ 1.25 $ 1.25 $ 1.25
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................................. $ 7,876,096 $ 9,470,235
Accounts and notes receivable:
Trade, less allowance of $259,583 ($140,822 in 1998) for
doubtful accounts ...................................................... 7,673,107 7,653,760
Other, including current portion of long-term receivables and advances ... 2,082,985 904,770
------------ ------------
Total accounts and notes receivable .................................... 9,756,092 8,558,530
Current portion of deferred taxes ......................................... 458,778 347,480
Inventories ............................................................... 1,529,976 1,268,360
Prepaid expenses .......................................................... 1,092,181 1,383,653
------------ ------------
Total current assets ............................................... 20,713,123 21,028,258
Long-term receivables and advances ......................................... 1,506,761 2,534,595
Property and equipment, at cost:
Land and land improvements ................................................ 9,893,998 10,013,559
Buildings ................................................................. 69,255,989 68,899,147
Furniture and equipment ................................................... 30,784,773 25,255,538
Leasehold improvements .................................................... 2,470,607 2,464,136
Projects in progress ...................................................... 1,051,719 1,104,841
------------ ------------
113,457,086 107,737,221
Less accumulated depreciation and amortization ............................ 29,255,363 25,788,732
------------ ------------
Net property and equipment ............................................. 84,201,723 81,948,489
Other long-term assets ..................................................... 1,096,175 1,091,602
------------ ------------
$107,517,782 $106,602,944
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
8
<PAGE>
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1999 1998
------------- ------------
<S> <C> <C>
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt ....................................... $ 24,163,935 $ 4,047,943
Accounts payable ........................................................ 6,896,950 6,178,532
Advance deposits ........................................................ 4,703,497 3,869,392
Federal, foreign and state income taxes ................................. 96,808 382,766
Accrued liabilities:
Salaries and wages .................................................... 2,916,900 2,569,153
Rentals ............................................................... 6,917,100 6,138,200
Interest .............................................................. 409,706 458,864
Employee benefits ..................................................... 206,906 468,470
Other ................................................................. 1,344,286 1,682,124
------------- ------------
11,794,898 11,316,811
------------- ------------
Total current liabilities ........................................ 47,656,088 25,795,444
Long-term debt ........................................................... 26,164,661 50,731,447
Deferred federal and state income taxes .................................. 4,220,289 3,402,739
Other non-current liabilities ............................................ 3,094,821 2,146,283
Commitments and contingencies
Redeemable preferred stock, $25 par value, at redemption value ........... 293,917 293,917
Common stockholders' equity:
Common stock:
Class A, $.80 par value:
Authorized--10,000,000 shares
Issued--6,102,176 shares (3,051,088 at December 31, 1998),
at stated value ....................................................... 4,881,741 3,488,382
Retained earnings ....................................................... 33,114,429 28,870,291
Treasury shares--2,386,946 (982,873 at December 31, 1998), at cost ...... (11,908,164) (8,125,559)
------------- ------------
Total common stockholders' equity ..................................... 26,088,006 24,233,114
------------- ------------
$ 107,517,782 $106,602,944
============= ============
</TABLE>
9
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
For the three years ended December 31, 1999
<TABLE>
<CAPTION>
COMMON STOCK TREASURY SHARES TOTAL
---------------------- ------------------------- -----------------------------
No. of No. of Retained No. of shares Stockholders'
Shares Amount shares Amount earnings outstanding equity
--------- ---------- ---------- ------------ ----------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1,
1997 ................... 3,051,088 $3,488,382 (982,873) $ (8,125,559) $27,789,537 2,068,215 $23,152,360
Cash dividends on
common stock
($.15 per share) ....... -- -- -- -- (621,664) -- (621,664)
Cash dividends on
preferred stock
($1.25 per share) ...... -- -- -- -- (13,340) -- (13,340)
Net income .............. -- -- -- -- 932,600 -- 932,600
--------- ---------- -------- ------------ ----------- --------- -----------
Balance December 31,
1997 ................... 3,051,088 3,488,382 (982,873) (8,125,559) 28,087,133 2,068,215 23,449,956
Cash dividends on
common stock
($.15 per share) ....... -- -- -- -- (620,465) -- (620,465)
Cash dividends on
preferred stock
($1.25 per share) ...... -- -- -- -- (13,340) -- (13,340)
Net income .............. -- -- -- -- 1,416,963 -- 1,416,963
--------- ---------- -------- ------------ ----------- --------- -----------
Balance December 31,
1998 ................... 3,051,088 3,488,382 (982,873) (8,125,559) 28,870,291 2,068,215 24,233,114
Purchase of 209,600
shares ................. -- -- (209,600) (3,766,425) -- (209,600) (3,766,425)
2 for 1 stock split ..... 3,051,088 1,393,359 (1,192,473) -- (1,393,359) 1,858,615 --
Purchase of 2,000
shares ................. -- -- (2,000) (16,180) -- (2,000) (16,180)
Cash dividends on
common stock
($0.18 per share) ...... -- -- -- -- (681,755) -- (681,755)
Cash dividends on
preferred stock
($1.25 per share) ...... -- -- -- -- (13,340) -- (13,340)
Net income .............. -- -- -- -- 6,332,592 -- 6,332,592
--------- ---------- ---------- ------------ ----------- --------- -----------
Balance December 31,
1999 ................... 6,102,176 $4,881,741 (2,386,946) $(11,908,164) $33,114,429 3,715,230 $26,088,006
========= ========== ========== ============ =========== ========= ===========
</TABLE>
See accompanying notes to consolidated financial statements.
10
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
For the three years ended December 31, 1999
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ -------------
<S> <C> <C> <C>
Cash provided (used) by operating activities
Net income .................................................... $ 6,332,592 $ 1,416,963 $ 932,600
Items not (providing) requiring cash
Pension expense ............................................. 998,621 1,041,003 338,667
Depreciation and amortization of property and equipment ..... 6,974,349 5,688,319 4,602,317
Other amortization .......................................... (724,740) (225,754) 81,315
Deferred federal and state income taxes ..................... 706,252 25,207 178,700
Gain on sales of assets ..................................... (46,275) (15,188) (22,471)
Gain from casualty .......................................... (180,858) -- --
Other ....................................................... 68,720 -- (188,674)
Changes in assets and liabilities
Accounts and notes receivable ............................... (124,215) 992,144 (428,035)
Inventories ................................................. (261,616) (73,278) 58,890
Prepaid expenses ............................................ 281,472 (198,262) 279,703
Accounts payable ............................................ 657,127 489,738 (523,331)
Advance deposits ............................................ 834,105 658,792 (234,919)
Federal, foreign and state income taxes ..................... (285,958) (215,533) (123,659)
Accrued liabilities ......................................... 487,862 (971,286) 873,601
------------ ------------ -------------
Cash provided by operating activities ...................... 15,717,438 8,612,865 5,824,704
Cash provided (used) by investing activities
Proceeds from sales of assets ............................... 49,175 28,688 34,400
Expenditures for property and equipment ..................... (9,990,117) (8,607,896) (7,115,089)
Cash in escrow .............................................. -- -- (1,880,000)
Cash reimbursed from escrow ................................. -- 840,000 840,000
New loans and advances ...................................... (55,000) (198,692) (2,403,293)
Payments received on long-term receivables and advances ..... 773,716 1,321,559 852,716
Cash received in purchase of hotel .......................... -- 3,456,046 --
------------ ------------ -------------
Cash used by investing activities .......................... (9,222,226) (3,160,295) (9,671,266)
Cash provided (used) by financing activities
Proceeds from issuance of long-term debt .................... -- -- 24,580,000
Cost of financing ........................................... -- -- (423,125)
Payments on long-term debt .................................. (3,672,942) (878,760) (17,732,247)
Payments on capitalized lease obligations ................... -- (50,825) (54,348)
Purchase of common stock .................................... (3,782,605) -- --
Cash dividends paid ......................................... (633,804) (633,805) (634,404)
------------ ------------ -------------
Cash provided (used) by financing activities ............... (8,089,351) (1,563,390) 5,735,876
Net increase (decrease) in cash and cash equivalents ........... (1,594,139) 3,889,180 1,889,314
Cash and cash equivalents at beginning of year ................. 9,470,235 5,581,055 3,691,741
------------ ------------ -------------
Cash and cash equivalents at end of year ....................... $ 7,876,096 $ 9,470,235 $ 5,581,055
============ ============ =============
</TABLE>
See accompanying notes to consolidated financial statements.
11
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation:
Sonesta International Hotels Corporation (the Company) is engaged in the
operation of hotels in Boston (Cambridge), Massachusetts; New Orleans,
Louisiana; Key Biscayne, Florida and Anguilla, British West Indies. The Key
Biscayne hotel was acquired by the Company in July 1998. The Anguilla hotel was
purchased in November 1995, and opened in January 1996. The Company also
operates, under management agreements, hotels in Bermuda; Curacao, Netherlands
Antilles until June 1, 1999; Key Biscayne, Florida until June 30, 1998; New
Orleans, Louisiana; and in Cairo, Sharm El Sheikh, Luxor, and Port Said, Egypt.
The Company also manages two Nile River cruise ships in Egypt. Sonesta has
granted licenses, for which it receives fees, for the use of its name for two
hotels on the island of Aruba, hotels in Peru, Italy, and, until February 28,
1998, a hotel in Santiago, Chile.
Principles of Consolidation:
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Operations:
The consolidated financial statements include the results of operations
of wholly owned and leased properties and fee income from managed and licensed
properties.
Foreign Currency Translation:
Assets and liabilities denominated in foreign currency are translated at
end of year rates, and income and expense items are translated at weighted
average rates during the period. The net result of such translation is charged
or credited to the income statement.
Inventories:
Merchandise and supplies are stated at the lower of cost (first-in,
first-out method) or market.
Revenues:
Revenues are generally recognized as services are provided.
Advertising:
The cost of advertising is generally expensed as incurred.
Property and Equipment:
Depreciation and amortization of items of property and equipment are
computed generally on the straight-line method based on the following estimated
useful lives:
<TABLE>
<S> <C>
Land and land improvements:
Owned properties 20 to 50 years
Leases Term of leases
Buildings:
Owned properties 20 to 40 years
Capital leases Initial lease periods
Furniture and equipment:
Located in owned properties 5 to 10 years
Located in leased properties 5 to 10 years or
remaining lease terms,
including option terms
Leasehold improvements: Remaining lease terms,
including option terms
</TABLE>
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of:
The carrying values of long-lived assets, which include property and
equipment and all intangibles, are evaluated periodically in relation to the
operating performance and future undiscounted cash flows of the underlying
assets. Adjustments are made if the sum of expected future net cash flows is
less than book value if impairment indicators are present.
Income Taxes:
The Company and its United States subsidiaries file a consolidated
federal income tax return. Where appropriate, federal and foreign income taxes
are provided on earnings of foreign subsidiaries that are intended to be
remitted to the parent company.
Fair Value of Financial Instruments:
The Company's financial instruments consist of cash and cash equivalents,
accounts and notes receivable, accounts payable and long-term debt. The
Company's financial instruments also include certain guarantees of indebtedness
(see Note 7--Commitments and Contingencies). The Company believes that the
carrying value of the financial instruments approximates their fair values. The
Company recorded a first mortgage loan it assumed on July 1, 1998, at an amount
which reflects interest at current market rates on this loan. The Company
believes that the carrying value of its other long term debt approximates their
fair values because of the recent refinancing of a significant portion of the
debt, and the fact that the balance of its debt has a variable interest rate
that fluctuates with the LIBOR rate.
Impact of Recently Issued Accounting Standards:
The Financial Accounting Standards Board has issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("FAS 133"). FAS 133 is effective for years beginning
after June 15, 2000. The Company does not believe that the adoption of FAS 133
will have an impact on its financial position or results of operations.
Use of Estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
12
<PAGE>
- --------------------------------------------------------------------------------
Reclassification:
Certain amounts in the 1997 and 1998 financial statements have been
reclassified to conform to the 1999 presentation.
Statement of Cash Flows:
Cash and cash equivalents consists of cash on hand and short-term, highly
liquid investments with maturities of less than 91 days when acquired, which
are readily convertible into cash.
Cash paid for interest in 1999, 1998, and 1997 was approximately
$4,647,000, $3,973,000 and $2,670,000, respectively. Cash paid for income taxes
in 1999, 1998, and 1997 was approximately $3,170,000, $1,432,000 and $623,000,
respectively.
A subsidiary of the Company acquired the Sonesta Beach Resort, Key
Biscayne on July 1, 1998 (see Note 2--Operations). The amount of cash acquired
in the transaction was $3,456,046. The total assets and liabilities assumed
were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired, net of
carrying value of notes
receivable $26,256,684
Cash acquired 3,456,046
Cash paid for partnership interest (100)
-----------
Liabilities assumed, including
mortgage indebtedness and
deferred taxes $29,712,630
===========
</TABLE>
2. Operations
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 termination fee is included in Other
income in the 1999 consolidated statement of operations. 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, the
Company was 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 this is included in Other income in the 1999 consolidated
statement of operations.
Sonesta Beach Resort Anguilla sustained damage in November 1999, when
Hurricane Lenny struck the island. The Company has reached agreement with its
insurance carrier regarding its claim for building damages and loss of personal
property, and included in Other receivables is $639,000 for the net insurance
proceeds. Because the book values of the assets destroyed were less than the
proceeds from insurance, the Company recorded a gain from casualty of $180,858.
The Company is also entitled to recover loss of income under its insurance
policy, but no such income has been recorded at December 31, 1999. The resort
reopened for full business operations on February 10, 2000.
In 1998 the Company entered into a master franchise agreement for Peru,
under which it has now granted licenses to a hotel in Lima, Peru, and to a
collection of smaller boutique hotels ("Posadas del Inca"). In 1999, the
Company also entered into a license agreement for a hotel in Tuscany, Italy.
During the second quarter of 1999, the Company resolved a legal dispute
with the seller of the Sonesta Beach Resort Anguilla. In connection with the
resolution, the Company repaid an $800,000 loan from the seller that was
related to the purchase of the hotel in 1995. The loan had originally matured
in November 1998.
Included in the results from operations as of July 1, 1998 are the
revenues and expenses from Sonesta Beach Resort Key Biscayne. Before the
acquisition on July 1, 1998, the Company operated the hotel under a management
agreement. The July 1 acquisition of the hotel by Sonesta Beach Resort Limited
Partnership (SBRLP) was accounted for using the purchase method. Florida
Sonesta Corporation (FSC) and Key Biscayne Land Corporation, both subsidiaries
of the Company, are the sole general partner with a 1% partnership interest,
and a limited partner with a 98% partnership interest, respectively, of SBRLP.
The seller has a one percent (1%) limited partnership interest in SBRLP, which
the Company has the right to acquire at a later date. The resort is a 300-room,
full-service beachfront resort hotel sited on 10 acres in Key Biscayne,
Florida. FSC had continuously operated the hotel under a management agreement
since it sold the property to the seller in 1984. The purchase price consisted
of FSC's release of the seller from indebtedness owed to FSC and/or its
affiliates in connection with the Company's sale of the resort to seller in
1984, and loans advanced by FSC to restore and improve the resort following
Hurricane Andrew in 1992. This indebtedness was carried on the Company's books
at approximately $10,720,000 on July 1, 1998, and the debt had matured or
otherwise become due and payable at the end of 1997 and/or in early 1998. In
addition, SBRLP assumed indebtedness with a fair value of approximately
$24,549,000 (see Note 5--Long-Term Debt). Operating results for 1998 and 1997
for the Company on a proforma basis after giving effect to this transaction are
as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, December 31,
1998 1997
(unaudited) (unaudited)
------------ ------------
<S> <C> <C>
Revenues $96,234,000 $92,504,000
Net Income 3,322,000 2,159,000
Basic earnings per share $ 0.80 $ 0.52
</TABLE>
13
<PAGE>
- --------------------------------------------------------------------------------
In September 1998, the Company entered into a management agreement to
operate the Sonesta Club Hotel, a 170 room, full service hotel located in Sharm
El Sheikh, Egypt.
During the first quarter of 1998, the Company agreed to terminate the
license agreement it had for the Sonesta Hotel, in Santiago, Chile. In
connection with the cancellation, the Company received a termination fee of
$335,000.
The Company operates the Chateau Sonesta Hotel under a long-term
management agreement. The hotel opened in April 1995 and the Company deferred
half of its management fees during the first two years of operations to be used
as a reserve for debt service shortfalls. Since the hotel has consistently
serviced all its obligations to its lenders, the Company received and
recognized as income previously deferred fees in the amount of $408,000 in July
1998.
The Sonesta St. George Hotel Luxor, Egypt, opened in October 1997. The
220 room full-service hotel is operated by the Company under a long-term
management agreement, under which it receives management fees based on
revenues, and incentive fees based on operating profits, as defined in the
agreement. The Company has loaned $250,000 to the owner of the hotel for
working capital.
Gross revenues for hotels operated by the Company under management
contracts, by geographic area, are summarized below:
<TABLE>
<CAPTION>
(in thousands)
(unaudited)
----------------------------------
1999 1998 1997
------- ------- --------
<S> <C> <C> <C>
United States $12,212 $26,709 $ 35,970
Caribbean 34,522 43,737 43,554
Egypt 34,237 22,950 31,985
------- ------- --------
$80,971 $93,396 $111,509
======= ======= ========
</TABLE>
Costs and operating expenses for owned and leased hotels are summarized
below:
<TABLE>
<CAPTION>
(in thousands)
---------------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Direct departmental costs:
Rooms $14,699 $11,863 $ 9,691
Food and beverage 20,648 16,378 13,244
Heat, light and power 3,031 2,710 2,392
Other 3,958 3,238 2,708
------- ------- -------
$42,336 $34,189 $28,035
======= ======= =======
</TABLE>
Direct departmental costs include payroll expense and related payroll
burden, the cost of food and beverage consumed and other departmental costs.
The Company has two reportable segments: Owned and Leased Hotels and
Management Activities. The Owned and Leased Hotels segment consists of the
operations of the Company's owned hotels in Boston (Cambridge), Key Biscayne
and Anguilla, and the operation of its leased property in New Orleans. Revenues
for this segment are derived mainly from room, food and beverage, parking and
telephone receipts from external customers. The Management Activities segment
includes the operations of hotels and resorts under management agreements, and
also includes income from hotels to which the Company has granted licenses.
Revenues from this segment are derived mainly from management, marketing,
license and service fees charged to the third party owners of these properties.
The accounting policies of the reportable segments are the same as those
described in the summary of significant accounting policies. The segments'
operating income or losses and pretax profit or losses are after giving effect
to management, marketing and service fees to the Company's owned and leased
properties. Segment data for the three years ended December 31, 1999 follows:
Year ended December 31, 1999
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
------- ---------- ------------
<S> <C> <C> <C>
Revenues $96,518 $4,778 $101,296
Operating income (loss)
before depreciation and
amortization expense 17,630 (970) 16,660
Depreciation and
amortization (6,553) (421) (6,974)
Interest income
(expense), net (4,411) 554 (3,857)
Other income 185 3,909 4,094
------- ------- --------
Segment pre-tax profit 6,851 3,072 9,923
Segment assets 92,770 14,748 107,518
Segment capital additions 9,625 365 9,990
</TABLE>
Year ended December 31, 1998
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
------- ---------- ------------
<S> <C> <C> <C>
Revenues $75,807 $6,233 $82,040
Operating income (loss)
before depreciation and
amortization expense 11,528 (251) 11,277
Depreciation and
amortization (5,275) (413) (5,688)
Interest income
(expense), net (3,543) 597 (2,946)
Other income -- 16 16
------- ------- --------
Segment pre-tax profit
(loss) 2,710 (51) 2,659
Segment assets 90,477 16,126 106,603
Segment capital additions 7,587 1,021 8,608
</TABLE>
14
<PAGE>
- --------------------------------------------------------------------------------
Year ended December 31, 1997
<TABLE>
<CAPTION>
(in thousands)
--------------------------------------
Owned &
Leased Management
Hotels Activities Consolidated
------- ---------- ------------
<S> <C> <C> <C>
Revenues $61,083 $7,385 $68,468
Operating income (loss)
before depreciation and
amortization expense 8,647 (696) 7,951
Depreciation and
amortization (4,156) (446) (4,602)
Interest income
(expense), net (2,594) 836 (1,758)
Other income -- 19 19
------- ------- -------
Segment pre-tax profit
(loss) 1,897 (287) 1,610
Segment assets 48,969 27,447 76,416
Segment capital additions 6,656 459 7,115
</TABLE>
Segment assets for Management Activities in the information above include
cash held in corporate accounts, and loans to and receivables from properties
under management and license agreements.
Segment data by geographic area of the Company's revenues, operating
income and long-lived assets follows:
<TABLE>
<CAPTION>
(in thousands)
Revenues
------------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
United States $94,138 $74,786 $60,615
Other 7,158 7,254 7,853
-------- ------- -------
Consolidated $101,296 $82,040 $68,468
======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
Operating Income
------------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
United States $10,032 $ 5,464 $ 3,571
Other (346) 125 (222)
-------- ------- --------
Consolidated $ 9,686 $ 5,589 $ 3,349
======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
Long-lived Assets
------------------------------------
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
United States $71,834 $68,663 $30,546
Anguilla, BWI 12,368 13,285 13,885
-------- ------- --------
Consolidated $84,202 $81,948 $44,431
======== ======= ========
</TABLE>
3. Long-Term Receivables and Advances
<TABLE>
<CAPTION>
(in thousands)
----------------------------
December 31, December 31,
1999 1998
------------ -----------
<S> <C> <C>
Sharm El Sheikh, Egypt (a) $ 936 $1,000
Cairo, Egypt, net of discount (b) 315 708
Other 866 1,174
------ ------
Total long-term receivables 2,117 2,882
Less: current portion 610 347
------ ------
Net long-term receivables $1,507 $2,535
====== ======
</TABLE>
(a) This loan, in the original amount of $1,000,000, was made in 1996 and 1997
to the owner of the Sonesta Beach Resort, Sharm El Sheikh. The loan
agreement was amended in 1999. The loan bears interest at the prime rate
(8 1/2% at December 31, 1999) 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.
4. 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 (8 1/2% at
December 31, 1999). The terms of the line require a certain minimum net worth,
a minimum amount of unrestricted cash or available credit lines during part of
each calendar year, and approval for additional borrowings by the Company. No
amount was outstanding under this line at December 31, 1999.
A subsidiary of the Company has a $5,000,000 line of credit which expires
on December 31, 2000. The terms of the loan require certain minimum levels of
earnings and net worth, limit cash dividends and purchases of the Company's
stock, and specify a maximum defined debt to net worth ratio. The loan is
secured by the Company's leasehold interest in the Royal Sonesta Hotel, New
Orleans, and by a Company guaranty. The interest rate is prime less one-eighth
percent (8 3/8% at December 31, 1999), and the commitment fee on the unused
portion of the line is .65% per annum. No amount was outstanding under this
line at December 31, 1999.
There were no short-term borrowings during 1999 and 1997. During 1998
average short-term borrowings were approximately $15,000 at an average interest
rate of 8.5%. The maximum amount of short-term borrowings outstanding during
1998 was $772,000.
5. Long-Term Debt
<TABLE>
<CAPTION>
(in thousands)
---------------------------
December 31, December 31,
1999 1998
------------ ------------
<S> <C> <C>
Charterhouse of Cambridge Trust and
Sonesta of Massachusetts Inc.:
First mortgage note (a) $21,414 $21,937
Sonesta Beach Resort Limited
Partnership:
First mortgage note (b) 23,049 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 426 393
------- -------
50,329 54,779
Less current portion of long-term debt 24,164 4,048
------- -------
Total long-term debt $26,165 $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 $25,390,000 at December 31, 1999. The
15
<PAGE>
- --------------------------------------------------------------------------------
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.
(b) This loan was assumed by the Company in connection with the acquisition of
the Sonesta Beach Resort Key Biscayne on July 1, 1998 (see Note 2 --
Operations). This loan is secured by a first mortgage on the acquired
property, which is included in fixed assets at a net book value of
approximately $38,232,000 at December 31, 1999. The principal balance of
this loan is $22,431,000. The Company recorded an additional liability of
$1,740,000 when it assumed the loan to reflect the fair market value of
this liability based on its above market interest rate. This additional
liability is being amortized as an adjustment to interest expense over the
remaining life of the loan. The loan requires monthly interest payments
based on a rate of 12.78% 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. The Company is currently working on
refinancing this loan and, considering the substantial cash flows
generated by the resort, foresees no difficulty in arranging such
replacement financing.
(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 approximately $12,368,000 at December 31, 1999.
In addition, an amount of $1,900,000 is secured by a Company guaranty. The
loan requires minimum principal payments of $544,000 in 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. This loan matures
on December 31, 2001. The interest rate on the loan is LIBOR plus 2 1/4
percentage points, which was 7.85% at December 31, 1999.
(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.
Aggregate principal payments for the years subsequent to December 31, 1999, are
as follows:
<TABLE>
<CAPTION>
Year (in thousands)
---- --------------
<S> <C>
2000 $23,547
2001 6,020
2002 681
2003 19,537
</TABLE>
6. Stockholders' Equity
Basic Earnings per Share
The following table sets forth the computation of basic earnings per
share. As the Company has no dilutive securities, there is no difference
between basic and diluted earnings per share of common stock:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ---------
<S> <C> <C> <C>
Numerator:
Net income $6,332,592 $1,416,963 $ 932,600
Preferred stock dividends (13,340) (13,340) (13,340)
---------- ---------- ---------
Numerator for earnings per
share $6,319,252 $1,403,623 $ 919,260
========== ========== =========
Denominator:
Weighted number of
shares outstanding (1) 3,924,411 4,136,430 4,136,430
========== ========== =========
Earnings per share
of common stock $ 1.61 $ 0.34 $ 0.22
========== ========== =========
</TABLE>
(1) After giving effect to 2 for 1 stock split.
Preferred Stock
The 5% cumulative preferred stock is subject to redemption at $27.50 per
share plus accrued dividends to the date of redemption. At December 31, 1999
and 1998, 395,535 shares were authorized, and 10,672 shares were outstanding.
Preferred stock sinking fund requirements to December 31, 1999 have been
satisfied by the exchange in prior years of common stock for preferred stock
and by the purchase and retirement of preferred stock. No dividends on common
stock may be declared or paid and no common stock may be purchased or redeemed,
unless preferred stock sinking fund requirements are met.
Treasury Stock Purchase
In July 1999, the Company acquired 209,600 shares of its Class A Common
Stock from a stockholder. The Company acquired the stock for a price of $18.00
(pre-split) per share. As part of its agreement with the stockholder, the
Company also agreed that if its Class A Common Stock shareholders receive more
than $9.00 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
In July 1999, the Company completed a two for one split, effected through
a stock dividend, of the outstanding shares of its Class A Common Stock. All
shareholders of record on July 16, 1999 received one share for each share held.
All average and per share amounts in the accompanying consolidated financial
statements and notes thereto have been retroactively adjusted to reflect this
stock split.
7. Commitments and Contingencies
A subsidiary of the Company purchased the Sonesta Beach Resort Anguilla
in November 1995. The hotel is located on 49 acres of land leased from the
Government of Anguilla. There are 91 years remaining on the lease. In 1996, the
same subsidiary of the Company entered into a 50 year lease for an additional
two acres of beachfront land adjacent to the Anguilla hotel site. The Company
operates the Royal Sonesta Hotel, New Orleans, Louisiana, under a lease. In
September 1994 the Company exercised its first of three 10-year options to
extend the lease. The lease requires payment of a percentage rent based on net
16
<PAGE>
- --------------------------------------------------------------------------------
profits, as defined. The Company leases space for its executive offices in
Boston, Massachusetts, which lease will expire in 2004. The Company provides
for rent expense on a straight line basis over the term of the lease. The
Company is also committed, under various leases, for certain other property and
real estate.
Minimum fixed rentals, principally on real estate, payable subsequent to
December 31, 1999 (exclusive of real estate taxes, insurance and other
occupancy costs) are as follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
Operating
Leases
--------------
<S> <C>
Period
------
2000 $ 940
2001 805
2002 789
2003 706
2004 546
Thereafter 10,325
-------
$14,111
=======
</TABLE>
Rentals charged to operations are as follows:
<TABLE>
<CAPTION>
(in thousands)
----------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Real Estate:
Fixed rentals $ 917 $ 981 $ 935
Percentage rentals
based on defined
operating profits 6,910 6,131 5,544
Other rentals 58 44 20
------ ------ ------
$7,885 $7,156 $6,499
====== ====== ======
</TABLE>
The Company manages the Chateau Sonesta Hotel in New Orleans under a
long-term management agreement. The hotel opened in April 1995. The Company
guarantees debt service payments of approximately $1,500,000 per year on the
hotel's first mortgage in the original amount of $12,600,000 for a period of 5
years following the opening of the hotel. In 1997, the Company guaranteed
additional debt service payments of up to a total of $285,000 on an additional
hotel loan of $1,300,000. The proceeds from this loan, together with a loan of
$500,000 that the Company made to the hotel, were used to expand and improve
the hotel. If advances are made under these guarantees, they will be secured by
a mortgage. No advances were required under these guarantees to date.
The Company has incentive compensation plans under which hotel profit
bases, as established annually, must be achieved before any incentive
compensation may be earned. The incentive compensation charged to operations
was $1,673,000 in 1999, $1,446,600 in 1998 and $1,047,700 in 1997.
8. Pension and Benefit Plans
Pension Plan
The Company maintains a non-contributory defined benefit pension plan
(the Plan) for certain employees of Sonesta International Hotels Corporation
and its subsidiaries. Benefits are based on the employee's years of service and
the highest average monthly salary during any 60 consecutive months of
employment. The Company's funding policy is to contribute annually at least the
minimum contribution required by ERISA.
The Company acquired Sonesta Beach Resort Key Biscayne on July 1, 1998
(see Note 2--Operations). The employees of the hotel were covered by a pension
plan (the Key Biscayne Plan) which provided substantially the same benefits as
the Company's Plan. The Key Biscayne Plan was merged with the Company's Plan on
December 31, 1998. The cost of the Key Biscayne Plan has been included since
July 1, 1998.
The following table sets forth the funded status of the Plan at December
31, 1999 and 1998:
<TABLE>
<CAPTION>
(in thousands)
-----------------------
1999 1998
---------- ----------
<S> <C> <C>
Change in benefit obligation
Benefit obligation at beginning of year $21,951 $14,209
Service cost 1,176 915
Interest cost 1,426 1,211
Obligation attributable to the Key Biscayne
Plan assumed as of July 1, 1998 -- 3,266
Actuarial (gain) loss (1,702) 3,252
Benefits paid (1,163) (902)
------- -------
Benefit obligation at end of year 21,688 21,951
Change in plan assets
Fair value of plan assets at beginning
of year 19,719 13,917
Actual return on plan assets 1,115 2,977
Employer contribution 328 1,471
Assets attributable to the Key Biscayne
Plan assumed as of July 1, 1998 -- 2,425
Benefits paid (1,163) (902)
Administrative expenses (175) (169)
------- -------
Fair value of plan assets at end of year 19,824 19,719
Projected benefit obligation in excess of
Plan assets 1,864 2,232
Unrecognized actuarial gain (loss) 842 (247)
Unrecognized prior service cost (590) (656)
Unrecognized transition asset 528 616
------- -------
Accrued pension liability $ 2,644 $ 1,945
======= =======
</TABLE>
The Plan's assets include equity and fixed income securities, short-term
investments and cash.
Assumptions used to develop the pension costs were:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Discount rate 7.00% 6.75% 7.00%
Expected return on plan assets 8.50% 8.50% 8.50%
Rate of compensation increase 4.00% 4.00% 4.00%
</TABLE>
The Company's pension cost for the Plan was computed as follows:
<TABLE>
<CAPTION>
(in thousands)
------------------------------
1999 1998 1997
-------- -------- ------
<S> <C> <C> <C>
Service cost $ 1,176 $ 915 $ 616
Interest cost 1,426 1,211 929
Expected return on plan assets (1,585) (1,192) (947)
Amortization of prior service cost 65 65 65
Amortization of transition asset (88) (88) (88)
Recognized actuarial loss 32 93 53
-------- -------- ------
Net periodic benefit cost $ 1,026 $ 1,004 $ 628
======== ======== ======
</TABLE>
17
<PAGE>
- --------------------------------------------------------------------------------
Savings Plan
The Company has an employee savings plan (the Savings Plan) that
qualifies as a deferred salary arrangement under Section 401(k) of the Internal
Revenue Code. Under the Savings Plan, participating U.S. employees may defer a
portion of their pre-tax earnings up to the Internal Revenue Service annual
contribution limit. All U.S. employees of the Company are eligible to
participate in the Savings Plan. Participating employees may choose to invest
their contributions in each one of nine mutual funds, which include equity
funds, balanced funds and a money market fund. The Savings Plan does not
provide for contributions by the Company.
The Sonesta Beach Resort Key Biscayne, which the Company acquired on July
1, 1998, had a savings plan identical to the Company's Savings Plan, and the
plans were merged on December 31, 1998.
9. Legal Proceedings
The Company is from time to time subject to routine litigation incidental
to its business, and generally covered by insurance. The Company believes that
the results of such litigation will not have a materially adverse effect on the
Company's financial condition.
10. Income Taxes
The table below allocates the Company's income tax expense (benefit) based
upon the source of income:
<TABLE>
<CAPTION>
(in thousands)
1999 1998 1997
-------------------- -------------------- ---------------------
Domestic Foreign Domestic Foreign Domestic Foreign
---------- --------- ---------- --------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before income taxes $6,368 $3,555 $3,053 $ (394) $2,252 $ (642)
====== ====== ====== ====== ====== ======
Federal, foreign and state income tax provision (benefit):
Current federal income tax (benefit) $1,825 $ 439 $ 826 $ (91) $ 470 $ (230)
State and foreign taxes, principally current 510 110 317 165 172 86
Deferred federal income tax (benefit) 135 571 120 (95) 260 (81)
------ ------ ------ ------ ------ ------
$2,470 $1,120 $1,263 $ (21) $ 902 $ (225)
====== ====== ====== ====== ====== ======
</TABLE>
A reconciliation of net tax expense applicable to income before provision
for income taxes at the statutory rate follows:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Expected provision for taxes at statutory rate $3,374 $ 904 $ 547
State income taxes, net of federal benefit 337 209 114
Foreign income taxes (benefit), net of federal benefit (11) 109 57
Other (110) 20 (41)
------ ------ -----
$3,590 $1,242 $ 677
====== ====== =====
</TABLE>
Deferred tax expense (benefits) result from temporary differences in the
recognition of revenues and expenses for tax and financial reporting purposes.
The source of these differences and their tax effects are as follows:
<TABLE>
<CAPTION>
(in thousands)
-----------------------------
1999 1998 1997
------ ------ -----
<S> <C> <C> <C>
Tax depreciation more than book depreciation $ 204 $ 119 $ 26
Pension contribution more (less) than pension expense (340) (298) 174
Income from foreign subsidiary not reported for tax purposes 680 -- --
Tax deductible interest payments in excess of interest expense 264 101 --
Other temporary differences (102) 103 (22)
------ ------ -----
$ 706 $ 25 $ 178
====== ====== =====
</TABLE>
18
<PAGE>
- --------------------------------------------------------------------------------
Temporary differences between the financial statement carrying amounts and
the tax basis of assets and liabilities that give rise to significant portions
of deferred income taxes at December 31, 1999 and 1998 relate to the following:
<TABLE>
<CAPTION>
(in thousands)
------------------
1999 1998
------ ------
<S> <C> <C>
Current deferred tax asset
Expenses accrued but deferred for tax purposes $ 459 $ 348
------ ------
Current deferred tax asset $ 459 $ 348
====== ======
Long-term deferred tax liabilities (assets)
Depreciation book tax difference $5,508 $5,304
Pension expense in excess of contributions (914) (574)
Expenses accrued but deferred for tax purposes (139) (151)
Losses from foreign subsidiary, not currently deductible -- (680)
Interest accrued but deferred for tax purposes (185) (449)
State tax benefits of $460,000 ($550,000 in 1998) from net operating loss carry-forwards,
net of valuation allowances -- --
Other (50) (47)
------ ------
Deferred tax liability $4,220 $3,403
====== ======
</TABLE>
At December 31, 1999 and 1998, the Company had state net operating loss
carry-forwards of approximately $4,800,000 and $5,800,000, respectively, for
income tax purposes. Of the total carry-forwards available at December 31, 1999
approximately $400,000, $1,800,000, $2,000,000, $600,000 expire in the years
2000 through 2003, respectively. For financial reporting purposes valuation
allowances of $460,000 and $550,000 have been recognized at December 31, 1999
and 1998, respectively, to offset the deferred tax assets related to those
carry-forwards.
Unremitted foreign earnings on which no deferred taxes have been provided
approximated $900,000 at December 31, 1999 and 1998. Deferred taxes of
approximately $306,000 would have been provided had the earnings not been
permanently invested overseas.
In connection with the July 1, 1998 acquisition of the Sonesta Beach
Resort Key Biscayne, the Company recognized a net deferred tax liability of
$902,527 (see Note 2--Operations).
19
<PAGE>
<TABLE>
<S> <C> <C>
[LOGO ERNST & YOUNG LLP] [BULLET] 60 State Street [BULLET] Phone: 617 570 8400
Boston Fax: 617 367 9133
Massachusetts 02109
</TABLE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Sonesta International Hotels Corporation
We have audited the accompanying consolidated balance sheets of Sonesta
International Hotels Corporation as of December 31, 1999 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Sonesta
International Hotels Corporation at December 31, 1999 and 1998 and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended December 31, 1999, in conformity with generally
accepted accounting principles.
/s/ Ernst & Young LLP
March 15, 2000
20
<PAGE>
SONESTA INTERNATIONAL HOTELS CORPORATION
Executive Offices, John Hancock Tower, 200 Clarendon Street
Boston, Massachusetts 02116 (617) 421-5400 Fax 421-5402
<TABLE>
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
SONESTA DIRECTORS
George S. Abrams(2) Paul Sonnabend(1) Roger P. Sonnabend(1)
Winer & Abrams Chairman of the Executive Chairman of the Board and
Attorneys at Law Committee and Chief Financial Chief Executive Officer,
Officer, Sonesta International Sonesta International
Hotels Corporation Hotels Corporation
Vernon R. Alden(2)(3)
Director and Trustee of Peter J. Sonnabend Stephen Sonnabend
Several Organizations Vice Chairman, General Counsel Senior Vice President,
& Secretary, Sonesta Sonesta International
Joseph L. Bower(1)(2)(3) International Hotels Corporation Hotels Corporation
Professor, Harvard
Business School Stephanie Sonnabend Jean C. Tempel(3)
President, Sonesta International Special Limited Partner, TL Ventures
Hotels Corporation
(1)Member Executive Committee (2)Member Audit Committee (3)Member Compensation Committee
- ---------------------------------------------------------------------------------------------------------------------------------
SONESTA OFFICERS
Roger P. Sonnabend Christopher Baum Kathy S. Rowe
Chairman of the Board Vice President- Vice President-Food & Beverage
and Chief Executive Officer Sales & Marketing
Jacqueline Sonnabend
Stephanie Sonnabend Carol C. Beggs Executive Vice President
President Vice President-Technology
Peter J. Sonnabend
Paul Sonnabend Felix Madera Vice Chairman,
Chairman of the Executive Committee Vice President-International General Counsel and Secretary
and Chief Financial Officer
Boy A. J. van Riel Hans U. Wandfluh
Stephen Sonnabend Vice President and Treasurer Vice President
Senior Vice President
Mary Jane Rosa David Rakouskas
Vice President-Design Assistant Secretary
and Corporate Controller
- ---------------------------------------------------------------------------------------------------------------------------------
SONESTA HOTELS AND OTHER OPERATIONS
Royal Sonesta Hotel Sonesta Club Aruba Sonesta Resort & Casino
Boston (Cambridge), Sharm el Sheikh, Egypt(2) Oranjestad, Aruba(3)
Massachusetts(1)
Sonesta Hotel Aruba Sonesta Suites & Casino
Royal Sonesta Hotel Cairo, Egypt(2) Oranjestad, Aruba(3)
New Orleans, Louisiana(1)
Sonesta Hotel Sonesta Resort & Country Club
Sonesta Beach Resort Port Said, Egypt(2) Tuscany, Italy(3)
Key Biscayne, Florida(1)
Sonesta Nile Goddess Cruise Ship Sonesta Lima Hotel El Olivar
Sonesta Beach Resort Cairo, Egypt(2) Lima, Peru(3)
Anguilla, B.W.I.(1)
Sonesta Sun Goddess Cruise Ship Sonesta Posada del Inca
Chateau Sonesta Hotel Cairo, Egypt(2) Yucay, Peru(3)
New Orleans, Louisiana(2)
Sonesta St. George Hotel, Sonesta Posada del Inca
Sonesta Beach Resort Luxor, Egypt(2) Puno, Peru(3)
Southampton, Bermuda(2)
Sonesta Beach Resort Sonesta Posada del Inca
Sonesta Beach Resort Nuweiba, Egypt(2) Cuzco, Peru(3)
Sharm el Sheikh, Egypt(2) (Opening 2001)
Sonesta Posada del Inca
Sonesta Taba Resort & Casino Miraflores, Peru(3)
Taba, Egypt(2)
(Opening Fall 2001) Sonesta Posada del Inca
San Isidro, Peru(3)
(1)Owned or Leased (2)Operated under Management Agreement (3)Licensed
For reservations, call toll free 800-SONESTA (800-766-3782)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
INDEPENDENT AUDITORS
Ernst & Young LLP, 60 State Street, Boston, Massachusetts 02109
TRANSFER AGENT AND REGISTRAR
American Stock Transfer, 400 Wall Street, 46th Floor, New York, NY 10005
EXHIBIT 21
ALPHABETICAL LIST OF WHOLLY-OWNED SUBSIDIARIES
Anguilla Hotel Management, Inc.
Brewster Wholesale Corporation
Charterhouse of Cambridge Trust
Florida Sonesta Corporation
Hotel Corporation of America
Hotel Corporation of Georgia
Key Biscayne Land Corporation
Newo Aruba N.V.
P.R. By Design, Inc.
Royal Sonesta, Inc.
S.I.A. Advertising, Inc.
Sonesta Charitable Foundation, Inc.
Sonesta Costa Rica, S.A.
Sonesta Curacao Hotel Corporation, N.V.
Sonesta Hotels of Anguilla Limited
Sonesta Hotels of Florida, Inc.
Sonesta International Hotels Limited:
Hotel Corporation of America (Bermuda) Limited
Port Royal Company, Limited
Sonesta Licensing Corporation
Sonesta Louisiana Hotels Corporation
Sonesta of Massachusetts, Inc.
Sonesta Miami Beach Hotel Company, Inc.
Sonesta Middle East Hotel Corporation
TBD, Inc.
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Sonesta International Hotels Corporation of our report dated March 15, 2000,
included in the 1999 Annual Report to Shareholders of Sonesta International
Hotels Corporation.
Our audit also included the financial statement schedule of Sonesta
International Hotels Corporation listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion based on our audit. In our opinion, the financial statement schedule
referred to above, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set
forth therein.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 15, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0000091741
<NAME> Sonesta International Hotels Corporation
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 7,876
<SECURITIES> 0
<RECEIVABLES> 7,933
<ALLOWANCES> 260
<INVENTORY> 1,530
<CURRENT-ASSETS> 20,713
<PP&E> 113,457
<DEPRECIATION> 29,255
<TOTAL-ASSETS> 107,518
<CURRENT-LIABILITIES> 47,656
<BONDS> 26,165
0
294
<COMMON> 4,882
<OTHER-SE> 21,206
<TOTAL-LIABILITY-AND-EQUITY> 107,518
<SALES> 26,185
<TOTAL-REVENUES> 101,296
<CGS> 6,447
<TOTAL-COSTS> 42,336
<OTHER-EXPENSES> 49,274
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,598
<INCOME-PRETAX> 9,923
<INCOME-TAX> 3,590
<INCOME-CONTINUING> 6,333
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,333
<EPS-BASIC> $1.61
<EPS-DILUTED> $1.61
</TABLE>
