-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NbJ3ZAHmf4lGNDqC305pYrS7Nvmc9yXaQ76O5zSKB7Mrhc4XH3tKxldbduZO1RzY w6UF5Sulz996GqsLD83u8Q== 0000950146-00-000330.txt : 20000411 0000950146-00-000330.hdr.sgml : 20000411 ACCESSION NUMBER: 0000950146-00-000330 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SONESTA INTERNATIONAL HOTELS CORP CENTRAL INDEX KEY: 0000091741 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 135648107 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-09032 FILM NUMBER: 583137 BUSINESS ADDRESS: STREET 1: 200 CLARENDON ST CITY: BOSTON STATE: MA ZIP: 02116 BUSINESS PHONE: 6174215400 MAIL ADDRESS: STREET 1: 200 CLARENDON ST CITY: BOSTON STATE: MA ZIP: 02116 FORMER COMPANY: FORMER CONFORMED NAME: HOTEL CORP OF AMERICA DATE OF NAME CHANGE: 19700622 FORMER COMPANY: FORMER CONFORMED NAME: CHILDS CO DATE OF NAME CHANGE: 19681121 10-K 1 FORM 10-K 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 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 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 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.
TOTAL NUMBER OF YEAR BUILT REVENUES HOTEL ROOMS OR ACQUIRED (in thousands) - ----- ----- ----------- ----------------------------------- 1999 1998 1997 ---- ---- ---- 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 AVERAGE AVERAGE OCCUPANCY DAILY PERCENTAGE RATE ---------- ---- HOTEL 1999 1998 1997 1999 1998 1997 - ----- -------------------------------- ------------------------------------------- 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
3 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 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 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 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):
2000 2001 2002 2003 Total Fair Value ---- ---- ---- ---- ----- ---------- 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%
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 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:
Employment History Name Present Position Age 1995 to Present ---- ---------------- --- --------------- 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
8 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
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 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 SONESTA INTERNATIONAL HOTELS CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES Item 14 (a) (1) and (2) References (Page)
1999 Annual Report to Form 10-K Shareholders* --------- ------------- 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
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 SONESTA INTERNATIONAL HOTELS CORPORATION SCHEDULE II CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS THREE YEARS ENDED DECEMBER 31, 1999
Amounts Balance Charged Amounts Balance, Beginning Acquisition (Credited) (Written Off) End Of Of Year Of Hotel To Income Recovered Year ------- -------- --------- --------- ---- 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 =========== =========== =========== ===========
- -------------------------------------------------------------------------------- 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 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 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 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 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 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 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 (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 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 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 EX-10.5(D) 2 LETTER TO THE VICE CHAIR OF THE BOARD 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. 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. 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 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 EX-10.6(G) 3 THIRD AMENDMENT TO LOAN AGREEMENT 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. 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 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 EX-10.14(C) 4 COMMITMENT LETTER 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: - 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. - 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. - 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. - 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 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 EX-10.14(D) 5 COMMITMENT LETTER 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: - 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. - 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. - 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 - 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. - 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 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 EX-13 6 SONESTA INTERNATIONAL HOTELS FRONT COVER This year's cover offers an ocean view from our Sonesta Beach Resort Key Biscayne, one of South Florida's premier resorts. 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 SONESTA INTERNATIONAL HOTELS CORPORATION 5-YEAR SELECTED FINANCIAL DATA - -------------------------------------------------------------------------------- (In thousands except for per share data)
1999 1998 (1) 1997 1996 1995 ---------- -------- ------- -------- -------- 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
(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:
NASDAQ Quotations ------------------------------------- 1999 1998 ------------------ ---------------- High Low High Low -------- ------- ------- ------ 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
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 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
TOTAL REVENUES (in thousands) --------------------------------------- NO. OF ROOMS 1999 1998 1997 ------- ----------- --------- --------- 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 ======== ======= =======
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 - -------------------------------------------------------------------------------- $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
OPERATING INCOME/(LOSS) (in thousands) -------------------------------------- 1999 1998 1997 ------- ------- -------- 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 ======= ======= =======
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 - -------------------------------------------------------------------------------- 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 - -------------------------------------------------------------------------------- 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):
2000 2001 2002 2003 Total Fair Value --------- -------- ------- --------- --------- ----------- 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%
Selected Quarterly Financial Data Selected quarterly financial information for the years ended December 31, 1999 and 1998 are as follows:
(in thousands except for per share data) 1999 --------------------------------------------- 1st 2nd 3rd 4th -------- -------- ------- -------- 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
Included in net income in the second quarter of 1999 is non-recurring other income of $3,875,000 (see Note 2--Operations).
1998 --------------------------------------------------- 1st 2nd 3rd 4th -------- -------- ------- -------- Revenues $ 18,008 $ 20,088 $19,094 $ 24,850 Operating income 792 2,370 5 2,422 Net income (loss) 136 1,165 (815) 931 Net income (loss) per share of common stock $ 0.03 $ 0.28 $ (0.19) $ 0.22
6 SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS - -------------------------------------------------------------------------------- For the three years ended December 31, 1999
1999 1998 1997 ----------- ------------ ------------ 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
See accompanying notes to consolidated financial statements. 7 SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED BALANCE SHEETS - -------------------------------------------------------------------------------- December 31, 1999 and 1998
1999 1998 ------------ ------------ 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 ============ ============
See accompanying notes to consolidated financial statements. 8 - --------------------------------------------------------------------------------
1999 1998 ------------- ------------ 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 ============= ============
9 SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY - -------------------------------------------------------------------------------- For the three years ended December 31, 1999
COMMON STOCK TREASURY SHARES TOTAL ---------------------- ------------------------- ----------------------------- No. of No. of Retained No. of shares Stockholders' Shares Amount shares Amount earnings outstanding equity --------- ---------- ---------- ------------ ----------- ------------- -------------- 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 ========= ========== ========== ============ =========== ========= ===========
See accompanying notes to consolidated financial statements. 10 SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS - -------------------------------------------------------------------------------- For the three years ended December 31, 1999
1999 1998 1997 ------------ ------------ ------------- 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 ============ ============ =============
See accompanying notes to consolidated financial statements. 11 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: 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
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 - -------------------------------------------------------------------------------- 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: 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 ===========
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:
Year ended Year ended December 31, December 31, 1998 1997 (unaudited) (unaudited) ------------ ------------ Revenues $96,234,000 $92,504,000 Net Income 3,322,000 2,159,000 Basic earnings per share $ 0.80 $ 0.52
13 - -------------------------------------------------------------------------------- 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:
(in thousands) (unaudited) ---------------------------------- 1999 1998 1997 ------- ------- -------- 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 ======= ======= ========
Costs and operating expenses for owned and leased hotels are summarized below:
(in thousands) --------------------------------- 1999 1998 1997 ------- ------- ------- 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 ======= ======= =======
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
(in thousands) -------------------------------------- Owned & Leased Management Hotels Activities Consolidated ------- ---------- ------------ 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
Year ended December 31, 1998
(in thousands) -------------------------------------- Owned & Leased Management Hotels Activities Consolidated ------- ---------- ------------ 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
14 - -------------------------------------------------------------------------------- Year ended December 31, 1997
(in thousands) -------------------------------------- Owned & Leased Management Hotels Activities Consolidated ------- ---------- ------------ 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
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:
(in thousands) Revenues ------------------------------------ 1999 1998 1997 -------- ------- ------- United States $94,138 $74,786 $60,615 Other 7,158 7,254 7,853 -------- ------- ------- Consolidated $101,296 $82,040 $68,468 ======== ======= =======
Operating Income ------------------------------------ 1999 1998 1997 -------- ------- ------- United States $10,032 $ 5,464 $ 3,571 Other (346) 125 (222) -------- ------- -------- Consolidated $ 9,686 $ 5,589 $ 3,349 ======== ======= ========
Long-lived Assets ------------------------------------ 1999 1998 1997 -------- ------- ------- United States $71,834 $68,663 $30,546 Anguilla, BWI 12,368 13,285 13,885 -------- ------- -------- Consolidated $84,202 $81,948 $44,431 ======== ======= ========
3. Long-Term Receivables and Advances
(in thousands) ---------------------------- December 31, December 31, 1999 1998 ------------ ----------- 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 ====== ======
(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
(in thousands) --------------------------- December 31, December 31, 1999 1998 ------------ ------------ 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 ======= =======
(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 - -------------------------------------------------------------------------------- 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:
Year (in thousands) ---- -------------- 2000 $23,547 2001 6,020 2002 681 2003 19,537
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:
1999 1998 1997 ---------- ---------- --------- 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 ========== ========== =========
(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 - -------------------------------------------------------------------------------- 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:
(in thousands) -------------- Operating Leases -------------- Period ------ 2000 $ 940 2001 805 2002 789 2003 706 2004 546 Thereafter 10,325 ------- $14,111 =======
Rentals charged to operations are as follows:
(in thousands) ---------------------------- 1999 1998 1997 ------ ------ ------ 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 ====== ====== ======
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:
(in thousands) ----------------------- 1999 1998 ---------- ---------- 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 ======= =======
The Plan's assets include equity and fixed income securities, short-term investments and cash. Assumptions used to develop the pension costs were:
1999 1998 1997 ----- ----- ----- 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%
The Company's pension cost for the Plan was computed as follows:
(in thousands) ------------------------------ 1999 1998 1997 -------- -------- ------ 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 ======== ======== ======
17 - -------------------------------------------------------------------------------- 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:
(in thousands) 1999 1998 1997 -------------------- -------------------- --------------------- Domestic Foreign Domestic Foreign Domestic Foreign ---------- --------- ---------- --------- ---------- ---------- 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) ====== ====== ====== ====== ====== ======
A reconciliation of net tax expense applicable to income before provision for income taxes at the statutory rate follows:
(in thousands) ----------------------------- 1999 1998 1997 ------ ------ ----- 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 ====== ====== =====
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:
(in thousands) ----------------------------- 1999 1998 1997 ------ ------ ----- 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 ====== ====== =====
18 - -------------------------------------------------------------------------------- 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:
(in thousands) ------------------ 1999 1998 ------ ------ 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 ====== ======
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 [LOGO ERNST & YOUNG LLP] [BULLET] 60 State Street [BULLET] Phone: 617 570 8400 Boston Fax: 617 367 9133 Massachusetts 02109
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 SONESTA INTERNATIONAL HOTELS CORPORATION Executive Offices, John Hancock Tower, 200 Clarendon Street Boston, Massachusetts 02116 (617) 421-5400 Fax 421-5402 - --------------------------------------------------------------------------------------------------------------------------------- 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) - ---------------------------------------------------------------------------------------------------------------------------------
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 EX-21 7 LIST OF WHOLLY-OWNED SUBSIDIARIES 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. EX-23 8 CONSENT OF INDEPENDENT AUDITORS 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 EX-27 9 FDS
5 (Replace this text with the legend) 0000091741 Sonesta International Hotels Corporation 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 7,876 0 7,933 260 1,530 20,713 113,457 29,255 107,518 47,656 26,165 0 294 4,882 21,206 107,518 26,185 101,296 6,447 42,336 49,274 0 4,598 9,923 3,590 6,333 0 0 0 6,333 $1.61 $1.61
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