-----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, HgzUmm+XJMABXW1hlfnoJXXzJ4Lbf04QjiWAIrBOSodyKeEYD+E9T50B2wbfwlTz RFktdNBeMvtmBZcZM3k7dQ== 0000950146-97-001637.txt : 19971110 0000950146-97-001637.hdr.sgml : 19971110 ACCESSION NUMBER: 0000950146-97-001637 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970930 FILED AS OF DATE: 19971107 SROS: NONE 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-Q SEC ACT: SEC FILE NUMBER: 000-09032 FILM NUMBER: 97710359 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-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly period ended September 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________________ to ____________________ Commission file number 0-9032 SONESTA INTERNATIONAL HOTELS CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) NEW YORK 13-5648107 --------------------------------- ------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 200 Clarendon Street, Boston, MA 02116 - ------------------------------------------------------------------------------- (Address of principal executive offices) (Zip Code) 617-421-5400 - ------------------------------------------------------------------------------- (Registrant's telephone number, including area code) - ------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X (See Form 12b-25 filed June 30, 1997) ---- ---- APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ____ No ____ APPLICABLE ONLY TO CORPORATE ISSUERS: Number of Shares of Common Stock Outstanding as of November 5, 1997 -- $.80 par value, Class A - 2,068,215 FORM 10-Q Part I - Item 1. Financial Information SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 1997 (Unaudited) and December 31, 1996
(in thousands) -------------------------------- September 30 December 31 1997 1996 ---------------- ----------- ASSETS Current assets: Cash and cash equivalents $ 3,376 $ 3,692 Accounts and notes receivables: Trade, less allowance of $96,000 ($108,000 at December 31, 1996) for doubtful accounts 6,679 6,049 Interest receivable 292 140 Other 659 821 ------- ------- Total accounts and notes receivable 7,630 7,010 Current portion of deferred taxes 273 317 Inventories 658 852 Prepaid expenses 1,461 1,040 ------- ------- Total current assets 13,398 12,911 Long-term receivables and advances 15,085 13,567 Investments in hotels -- 563 Other long-term assets 1,576 -- Property and equipment, at cost: Land 2,942 2,877 Buildings 40,098 37,792 Furniture and equipment 21,069 17,319 Leasehold improvements 3,235 3,140 Projects in progress -- 2,036 ------- ------- 67,344 63,164 Less accumulated depreciation and amortization 24,730 21,234 ------- ------- Net property and equipment 42,614 41,930 ------- ------- $72,673 $68,971 ======= =======
See accompanying notes to consolidated financial statements 1 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 1997 (Unaudited) and December 31, 1996
(in thousands) ------------------------------ September 30 December 31 1997 1996 --------------- ----------- LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capitalized lease obligations $ 964 $ 1,005 Accounts payable 2,694 5,484 Advance deposits 1,579 2,324 Federal, foreign and state income taxes 306 706 Accrued liabilities: Salaries and wages 1,419 1,775 Rentals 4,145 5,031 Interest 215 23 Employee benefits 1,290 567 Other 1,950 1,007 -------- -------- Total accrued liabilities 9,019 8,403 -------- -------- Total current liabilities 14,562 17,922 Long-term debt 30,803 23,795 Deferred federal and state income taxes 2,571 2,282 Other non-current liabilities 786 1,526 Commitments and contingencies Redeemable preferred stock, $25 par value, at redemption value 294 294 Common stockholders' equity: Common stock: Class A, $.80 par value: Authorized--10,000,000 shares Issued--3,051,088 shares at stated value 3,488 3,488 Retained earnings 28,295 27,790 Treasury shares--982,873 at cost (8,126) (8,126) -------- -------- Total common stockholders' equity 23,657 23,152 -------- -------- $ 72,673 $ 68,971 ======== ========
See accompanying notes to consolidated financial statements 2 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) (in thousands except for per share data)
Three Months Ended Nine Months Ended September 30 September 30 ------------- ------------ 1997 1996 1997 1996 ---- ---- ---- ---- Revenues: Rooms $ 9,020 $ 8,702 $ 29,742 $ 26,756 Food and beverage 3,083 3,445 11,733 10,667 Management, license and service fees 1,750 1,434 5,363 4,571 Other 1,441 1,265 4,032 3,788 -------- -------- -------- -------- 15,294 14,846 50,870 45,782 -------- -------- -------- -------- Costs and expenses: Costs and operating expenses 6,531 6,592 20,664 19,598 Advertising and promotion 1,386 1,422 4,216 4,178 Administrative and general 2,839 2,886 8,984 8,395 Human resources 424 404 1,232 1,109 Maintenance 1,167 1,139 3,673 3,500 Rentals 638 771 4,851 3,971 Property taxes 295 275 887 627 Depreciation and amortization 1,227 1,063 3,509 3,091 -------- -------- -------- -------- 14,507 14,552 48,016 44,469 -------- -------- -------- -------- Operating income 787 294 2,854 1,313 Other income (deductions): Interest expense (709) (518) (2,152) (1,586) Interest income 276 316 765 900 Foreign exchange gain (loss) 1 2 (1) -- Equity in net loss of hotels -- (338) -- (89) Gain on sales of assets 1 -- 7 209 -------- -------- -------- -------- (431) (538) (1,381) (566) -------- -------- -------- -------- Income (loss) before income taxes 356 (244) 1,473 747 Federal, foreign and state income tax provision (benefit) 141 (230) 648 658 -------- -------- -------- -------- Net income (loss) 215 (14) 825 89 Retained earnings at beginning of period 28,084 28,022 27,790 28,235 Cash dividends on preferred stock (4) (4) (10) (10) Cash dividends on common stock -- -- (310) (310) -------- -------- -------- -------- Retained earnings at end of period $ 28,295 $ 28,004 $ 28,295 $ 28,004 ======== ======== ======== ======== Earnings per share of common stock $ .10 $ (.01) $ .39 $ .04 ======== ======== ======== ======== Weighted average number of shares outstanding 2,068 2,070 2,068 2,070 ======== ======== ======== ========
See accompanying notes to consolidated financial statements 3 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Increase (Decrease) in Cash
(in thousands) ----------------------------- Nine Months Ended Sept 30 1997 1996 ---------- --------- Cash provided (used) by operating activities Net income $ 825 $ 89 Items not (providing) requiring cash Foreign exchange loss 1 -- Pension expense 478 561 Depreciation and amortization 3,509 3,091 Deferred federal income taxes 333 22 Amortization of loan costs 61 -- Deferred interest income -- (412) Net gain on sales of assets (7) (209) Provision for doubtful accounts 29 28 Equity in net loss of hotels -- 89 Changes in assets and liabilities Accounts and notes receivable (323) (994) Inventories 194 (60) Prepaid expenses (427) (825) Advance deposits (745) 171 Accounts payable (2,480) (1,538) Federal, foreign and state income taxes (400) 74 Accrued liabilities (556) (2,245) ------- ------- Cash provided (used) by operating activities 492 (2,158) Cash provided (used) by investing activities Proceeds from sales of assets 10 57 Expenditures for property and equipment (4,197) (3,580) Cash in escrow (1,887) -- Cash reimbursed from escrow 840 -- Investments in hotels -- (103) Proceeds from sale of investment in hotel -- 5,792 New loans and advances (2,283) (137) Payments received on long-term receivables and advances 843 1,551 ------- ------- Cash provided (used) by investing activities (6,674) 3,580
4 Form 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) (continued)
(in thousands) ------------------------------ Nine Months Ended Sept 30 1997 1996 ------------------------------ Cash provided (used) by financing activities Changes in notes payable -- (562) Proceeds from issuance of long-term debt 24,580 -- Costs of financing (423) -- Payments on long-term debt (17,619) (962) Payments on capitalized lease obligations (40) (61) Purchase of common stock -- (22) Cash dividends paid (631) (631) -------- -------- Cash provided (used) by financing activities 5,867 (2,238) Loss from effect of exchange rate changes on cash (1) -- -------- -------- Net decrease in cash (316) (816) -------- -------- Cash and cash equivalents at beginning of period 3,692 3,370 -------- -------- Cash and cash equivalents at end of period $ 3,376 $ 2,554 ======== ========
Supplemental Schedule of Interest and Income Taxes Paid ------------------------------------------------------- Cash paid for interest in the 1997 nine-month period and the 1996 nine-month period was approximately $1,960,000 and $1,598,000, respectively. Cash paid for income taxes in the 1997 and 1996 nine-month periods was approximately $715,000 and $562,000, respectively. See accompanying notes to consolidated financial statements. 5 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Operations The accompanying unaudited consolidated financial statements include the accounts of the Company and all foreign and domestic subsidiaries. In the opinion of management, these financial statements reflect all adjustments, consisting of normal recurring items, necessary to present fairly the financial position of the Company at September 30, 1997 and December 31, 1996, and the results of its operations for the nine month periods ended September 30, 1997 and 1996 and its cash flows for the nine month periods ended September 30, 1997 and 1996, and should be read in conjunction with the 1996 Annual Report. The results of operations for these periods are not necessarily indicative of the results for the full years. Certain amounts in the 1996 financial statements have been reclassified to conform to the 1997 presentation. 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 will receive management fees based on revenues, and incentive fees based on operating profits, as defined in the agreement. The company is committed to loan $250,000 to the owner of the hotel for working capital, as part of the agreements. In January 1997, Company subsidiaries refinanced the mortgage loan on the Royal Sonesta Hotel Boston (Cambridge) (see also Note 4--Long-term debt). During the first quarter of 1997, the Company loaned $1,000,000 to the owner of the Sonesta Hotel Cairo, Egypt, to partially finance improvements to the hotel which include additional rooms. The owner of the hotel also agreed to extend the management agreement until May 2012. The original agreement was to expire in 2002, and the owner had the right to convert the agreement to a license agreement as of 1997, which would have reduced the Company's management fee income. In December 1994, Company subsidiaries entered into agreements to acquire a 50% interest in a partnership to develop a 320-room beach resort and casino in Guanacaste, Costa Rica. The Company has advanced $563,000, to acquire the hotel site and for other project-related expenses, which is in part secured by a mortgage on the hotel site. As permitted under the partnership agreements, in March 1997 the Company notified its partner that it does not intend to proceed with the project. The Company expects to fully recover its investment, which is included in Long-term receivables and advances--other at September 30, 1997. 6 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS In February 1997, the Financial Accounting Standards Board issued Statement No. 128, Earnings per Share, which is required to be adopted on December 31, 1997. At that time, the Company will be required to change the method currently used to compute earnings per share and to restate all prior periods if there is a change to the previously reported amount. Statement 128 is not expected to have any effect on the calculation of the Company's earnings per share. 2. Long-Term Receivables and Advances
(in thousands) ------------------------------------ September 30, December 31, 1997 1996 ------------- ----------------- The Sonesta Beach Resort, Key Biscayne, Florida: Second mortgage receivable, 14-1/2% interest (of which 11% is payable quarterly and 3-1/2% deferred until maturity) due 12/31/97 (a) $5,000 $5,000 Deferred interest receivable (a) 2,306 2,306 $6,500,000 fourth mortgage receivable, 10% simple interest due 12/31/04, net of $5,500,000 reserve (a) 1,000 1,000 Loans to owner (b) 3,254 4,007 Sharm El Sheikh (c) -- 10 Sharm El Sheikh (d) 1,000 500 Cairo, Egypt, net of discount (e) 851 -- Other 2,079 781 -------- -------- Total long-term receivables 15,490 13,604 Less: current portion 405 37 -------- -------- Net long-term receivables $15,085 $13,567 ======== ========
(a) The Company's mortgage notes receivables are subordinate to a first mortgage of $22,431,000 at September 30, 1997. The maturity date of the first mortgage loan is October 1, 2000. The Company has not recorded as income the deferred portion of interest on the second mortgage since July 1, 1992. The Company's total receivable recorded at September 30, 1997 was $ 11,560,000 (see also (b) below). Of these receivables, an amount of $7,306,000 is due on December 31, 1997. The Company and the owner are currently discussing the repayment of the loans due at December 31, 1997. The alternative solutions being discussed include repayment of the loans with new loan proceeds or sale proceeds, acquisition of the resort by the Company, or an extension of the current loan agreements. The Company believes that all amounts due from the hotel will be realized based on its 7 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS assessment of the value of the hotel, which in its opinion exceeds the amount of the first mortgage and the Company's total receivable recorded at September 30, 1997, of $11,560,000. Management bases this belief on its evaluation of sales of comparable hotel properties in the recent past, and the cash flow generated by the resort. (b) Under five separate agreements, a subsidiary of the Company loaned $5,475,000 to the resorts owner during 1993 and 1994. These loans earn interest at rates ranging from the prime rate (8 1/2% at September 30, 1997) to 14 1/2%. Of these loans, an amount of $2,684,000, and interest thereon, is secured by second and third mortgages on the hotel property. Principal and interest are payable out of hotel cash flow remaining after payment of first and second mortgage loan interest, and a payment to the resort owner equal to 3/4 of 1% of revenues of the resort. (c) A subsidiary of the Company loaned $800,000 to the owner of the Sonesta Beach Resort, Sharm El Sheikh which opened in May 1994. The principal balance of this loan has been repaid in full. (d) The Company has agreed to loan $1,500,000 to the owner of the Sonesta Beach Resort, Sharm El Sheikh, to finance certain improvements to the resort, including construction of 160 additional guestrooms, conference and other hotel facilities. The loan bears interest at the prime rate (8 1/2% at September 30, 1997) with repayment in eight annual installments of $187,500, together with interest, commencing January 1, 1998. At September 30, 1997, the Company has advanced $1,000,000, and the remaining $500,000 will be advanced once the improvements are substantially completed. (e) This loan, made in February 1997 to the owner of the Sonesta Hotel Cairo, will be repaid with two payments of $330,000 each on March 1, 1998 and 1999, and a final payment of $340,000 on March 1, 2000. There is no interest due during the term of the loan. 3. Borrowing Arrangements The Company has a $2,000,000 line of credit which expires on September 30, 1998. This line of credit bears interest at the prime rate (8 1/2% at September 30, 1997). 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 September 30, 1997. A subsidiary of the Company has a $5,000,000 line of credit which will expire December 31, 1997. 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 (8 1/2% at September 30, 1997) less one-eighth percent, and the commitment fee on the unused portion of the line is .65% per annum. No amount 8 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS was outstanding under this line at September 30, 1997. The Company expects this line to be renewed. A foreign subsidiary had an operating line of credit of $500,000, which the Company cancelled in August 1997. 4. Long-Term Debt
(in thousands) ----------------------------------- September 30, December 31, 1997 1996 -------------------- -------------------- Charterhouse of Cambridge Trust: First mortgage notes (a) $22,529 $17,068 Sonesta Hotels of Anguilla, Ltd: First mortgage notes (b) 6,190 4,690 Note from Seller (c) 800 800 Sonesta Curacao Hotel Corporation, N.V.: Bank term loan (d) 2,000 2,000 Other 188 188 -------- -------- 31,707 24,746 Less current portion of long-term debt 904 951 -------- -------- Total long-term debt $30,803 $23,795 ======== ========
(a) The mortgage loan on the Royal Sonesta Hotel Boston (Cambridge) was refinanced in January 1997. The new loan is secured by a first mortgage on the Royal Sonesta Hotel Boston (Cambridge) property. This property is included in fixed assets at a net book value of approximately $22,053,000 at September 30, 1997. The interest rate on the new loan is 8.86% for the term of the loan, and monthly payments for interest and principal are $203,802. The mortgage loan matures in December 2003, and no prepayments are allowed during the first three years of the loan. (b) 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 $13,457,000 at September 30, 1997. In addition, an amount of $1,900,000 is secured by a Company guaranty. The loan was increased by $1,700,000 in March 1997 to partially finance improvements to the resort made during the winter of 1996/97. Principal payments for 1997 and 1998 were reduced by $500,000, after the Company in August 1997 agreed to cancel the operating line of credit it had with the same lender (see Note 3 - Borrowing Arrangements). The loan requires minimum principal payments of $400,000, $725,000, $3,965,000, and $1,100,000 in the years 1998, 1999, 2000 and 2001, respectively. In addition, principal payments are required equal to 25% of the hotel's annual excess cash flow, as defined. The interest rate on the loan is LIBOR plus 2 1/4 percentage points. The interest rate at September 30, 1997 was 7.9%. 9 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (c) This loan from the Seller of the Sonesta Beach Resort Anguilla is for a three year period ending November 28, 1998. The interest rate is 8% per annum. The Company has reduced this loan by $200,000 to which it is entitled under the agreements with the Seller. (d) This loan matures June 30, 1998. No principal payments are required during the term. The interest rate was 9 3/4% at September 30, 1997, and is subject to periodic review by the bank. This loan may be prepaid on 60 days notice. The loan is secured by a Company guaranty, and by an assignment of the right to receive fees under the management agreement for the Sonesta Beach Resort & Casino, Curacao. 5. Hotel Costs and Operating Expenses Hotel costs and operating expenses in the accompanying Consolidated Statements of Operations are summarized below:
(in thousands) ---------------------------------------------------------- Three Months Ended Nine Months Ended September 30, September 30, 1997 1996 1997 1996 ---- ---- ---- ---- Direct departmental costs Rooms $2,356 $2,354 $7,157 $6,753 Food and beverage 2,803 2,938 9,363 8,962 Heat, light and power 594 595 1,803 1,718 Other 778 705 2,341 2,165 ------- ------- --------- -------- $6,531 $6,592 $20,664 $19,598 ======= ======= ========= ========
Direct departmental costs include payroll expenses and related payroll burden, the cost of food and beverage consumed and other departmental costs. 6. Federal, Foreign and State Income Tax The provision for income taxes in the accompanying Consolidated Statements of Operations is summarized below: (in thousands) --------------------------------- Nine Months Ended September 30 1997 1996 ------------ ----------- Deferred federal income tax $ 333 $ 22 Current federal income tax 125 330 Current foreign income tax 59 119 Current state income tax 131 187 ----- ----- $ 648 $ 658 ===== ===== 10 FORM 10-Q Part I - Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST NINE MONTHS 1997 COMPARED TO 1996 REVENUES Total revenues for the nine month period ended September 30, 1997 were $50,870,000 compared to $45,782,000 in 1996, an increase of approximately $5,088,000. The Company's Sonesta Beach Resort Anguilla, which opened January 18, 1996, had an increase in revenues of $1,398,000 during the nine month period ending September 30, 1997 compared to the same period in 1996. In the first nine months of 1997, its second year of operations, the hotel increased occupancy levels by 16% and average room rates by 33%. The Company's Boston (Cambridge) hotel had increased revenues in the 1997 period of approximately $1,653,000, primarily because of an 12% increase in average room rates and increased food and beverage revenues. The Company's New Orleans hotel had increased revenues of $1,137,000 in the nine month period ended September 30, 1997 compared to 1996, primarily due to a 6% increase in average room rates and increased food and beverage revenues. The remaining revenue increase of $900,000 was primarily from increases in management and service fee income, in particular from the Company's management activities in Egypt. OPERATING INCOME Operating income for the nine month period ended September 30, 1997 was $2,854,000 compared to operating income of $1,313,000 in the same period in 1996, an increase of approximately $1,541,000. The Company's Sonesta Beach Resort Anguilla, which opened on January 18, 1996, had a decrease in its operating loss during the 1997 nine month period of $844,000 compared to 1996. This was primarily due to increased revenues of $1,398,000. The Royal Sonesta Boston (Cambridge) had an increase in its operating income during the 1997 nine month period of $466,000 compared to 1996. Increased revenues of $1,653,000 were partially offset by an increase in operating expenses of $1,187,000. The Royal Sonesta New Orleans experienced a decrease in operating income of $211,000 in 1997 compared to 1996. Increases in expenses, primarily increased rent expense of $792,000 and increases in cost and operating expenses of $428,000 were partially offset by revenue increases of $1,137,000 during the nine month period. Operating loss from management and other activities decreased by $442,000, because of increased revenues of $900,000, which exceeded the $458,000 increase in expenses related to these activities. OTHER INCOME (DEDUCTIONS) Interest expense increased by $566,000 in the first nine months of 1997 compared to the 1996 period, primarily due to the additional indebtedness related to the refinancing of the Royal Sonesta Hotel Boston (Cambridge) and the additional loan for the Sonesta Beach Resort, Anguilla (see Note 4 -- Long-Term Debt). 11 Form 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Interest income decreased by $135,000 in the nine period ending September 30, 1997, compared to the same period last year, primarily due to a $412,500 decrease in interest recorded on the Company's Key Biscayne notes receivable, partially offset by higher interest income on the Company's cash balances, and interest income from the loans to the owner of Sonesta Beach Resort, Sharm El Sheikh (see Note 2 -- Long term Receivables and Advances). Equity in net loss of hotels in the 1996 period of $89,000 included $617,000 income from a hotel project in New York City, partially offset by the Company's share of the losses of $706,000 of Sonesta Beach Hotel and Casino, Curacao, in which the Company has a 22% equity interest. The Company is not required to fund its share of the losses in excess of its $2,000,000 equity investment. In the first quarter of 1996 the Company recorded a gain on sale of $175,000 resulting from a reduction of accrued costs related to the sale in a prior year of certain assets in Cambridge, Massachusetts. THIRD QUARTER 1997 COMPARED TO 1996 Total revenues for the third quarter ended September 30, 1997 were $15,294,000 compared to $14,846,000 in 1996, an increase of approximately $448,000. The Royal Sonesta Hotel Boston (Cambridge) had an increase in revenues of $649,000 in the third quarter of 1997 compared to 1996 primarily due to a 15% increase in average room rate. The Royal Sonesta Hotel New Orleans had a decrease in revenues of $698,000 in the 1997 quarter compared to 1996, due to a 7% decrease in occupancy levels and a decrease in food and beverage revenues. The Company's Sonesta Beach Resort Anguilla, which opened January 18, 1996, had an increase in revenues of $176,000 in the 1997 quarter compared to the 1996 quarter. Revenues from management activities and other sources increased by $321,000 in the 1997 period compared to 1996, primarily because of increases in management and service fee income. OPERATING INCOME Operating income for the third quarter ended September 30, 1997, was $787,000, compared to $294,000 in 1996, an increase of approximately $493,000. The Royal Sonesta Boston (Cambridge) had an increase in its operating income during the third quarter of $365,000 compared to 1996. Increases in revenues of $649,000 were partially offset by increased expenses of $284,000. The Company's Sonesta Beach Resort Anguilla, which opened on January 18, 1996, had a decrease in its operating loss during the third quarter of $201,000 compared to 1996. This was primarily due to increased revenues of $176,000. The Royal Sonesta New Orleans experienced a decrease in operating income of $217,000 in 1997 compared to 1996 as revenue decreases of $698,000 during the quarter were offset by decreases in expense of $481,000. This decrease in expense consisted primarily of a decrease in rent expense of $170,000, and decreases in cost and operating expenses of $147,000. Operating loss from management and other activities decreased by $144,000, because of increased revenues of $321,000, which exceeded the $177,000 increase in expenses related to these activities. 12 Form 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION OTHER INCOME (DEDUCTIONS) Interest expense increased by $191,000 in the third quarter of 1997 compared to the third quarter of 1996, primarily due to the additional indebtedness related to the refinancing of the Royal Sonesta Hotel Boston (Cambridge) and the additional loan for Sonesta Beach Resort Anguilla (see Note 4 -- Long-term Debt). Interest income decreased by $40,000 in the three month period ending September 30, 1997, compared to the same period last year, primarily due to a $137,500 decrease in interest recorded on the Key Biscayne notes receivable partially offset by higher interest income on the Company's cash balances and interest income on the loans to the owner of Sonesta Beach Resort, Sharm El Sheikh (see Note 2 -- Long-term Receivables and Advances). In the third quarter of 1996 the Company recorded equity in net loss of hotels of $338,000, which represented the Company's share of the losses of Sonesta Beach Hotel & Casino, Curacao. The Company owns a 22% equity interest in the Curacao hotel. LIQUIDITY AND CAPITAL RESOURCES 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, of which $1,040,000 is held in escrow by the lender at September 30, 1997 for certain improvements to the hotel. These escrow funds are included in Other long-term assets at September 30, 1997. The Company increased the mortgage loan on the Sonesta Beach Resort Anguilla by $1,700,000 in March 1997. These funds were used to partially finance improvements to the resort made during the winter of 1996/97. Principal repayments due on September 1, 1997 and March 1, 1998 under the mortgage loans on Sonesta Anguilla (see Note 4 -- Long-term Debt) were reduced by $500,000 by the Lender. To achieve this, the Company agreed to the cancellation of a $500,000 line of credit it had with the same Lender. The Company is committed to loan an additional amount of $500,000 to the owner of the Sonesta Beach Resort, Sharm El Sheikh, Egypt, once certain improvements to the resort are completed (See Note 2 (d) - Long-Term Receivables and Advances). The Company entered into agreements to operate a hotel in Miami Beach, Florida. The Company is committed to loan up to $4,150,000 to the hotel, once the hotel is substantially ready for opening, which is expected to be in late 1999. The Company had a working capital deficit of $1,164,000 at September 30, 1997. This was primarily caused by accrued percentage rent of $4,144,000 for the nine month period ending September 30, 1997, related to the Royal Sonesta Hotel New Orleans. This rent is payable in March 1998, and will be paid from cash generated during the remainder of the year, available cash balances and borrowings under its lines of credit, if necessary. 13 Form 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION The Company believes that its present cash balances, plus its available borrowing capacity and the expected cash flow generated during the remainder of the calendar year 1997, will be more than adequate to meet of all of its obligations. FEDERAL, FOREIGN AND STATE INCOME TAXES The provision for income taxes for the 1996 nine month period was higher than the statutory rate due to certain losses from the Company's foreign subsidiary which operated the Sonesta Beach Resort Anguilla, B.W.I., which were not deductible for U.S. income taxes. PART II - Other Information Item Numbers 1, 2, 3, 4, 5 and 6 Not applicable during the quarter ended September 30, 1997. 14 FORM 10-Q SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized. SONESTA INTERNATIONAL HOTELS CORPORATION By: _________________________________________________ Boy van Riel Vice President and Treasurer (Authorized to sign on behalf of the Registrant as Principal Financial Officer) DATE: November 7, 1997 EX-27 2 FINANCIAL DATA SCHEDULE
5 9-MOS DEC-31-1997 JAN-01-1997 SEP-30-1997 3,376 0 6,775 96 658 13,398 67,344 24,730 72,673 14,562 30,803 0 294 3,488 20,169 72,673 11,733 50,870 2,814 20,664 27,352 12 2,152 1,473 648 825 0 0 0 825 .39 .39
-----END PRIVACY-ENHANCED MESSAGE-----