-----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, Jh37BBBAb5KDgDQ5XBh+KGsoyKLQZgnQfBDR+P5ak6IJnAffNi0FlhTiqWNMi88q 2J3Nq+6bKIiL0YH/CRdzCw== 0000950146-98-001940.txt : 19981116 0000950146-98-001940.hdr.sgml : 19981116 ACCESSION NUMBER: 0000950146-98-001940 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981113 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: 98748275 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 SONESTA QUARTERLY REPORT 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, 1998 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 12 b -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 12, 1998 -- $.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, 1998 (Unaudited) and December 31, 1997
(in thousands) --------------------------- September 30 December 31 1998 1997 ------------ ----------- ASSETS Current assets: Cash and cash equivalents $ 5,967 $ 5,581 Accounts and notes receivables: Trade, less allowance of $185,000 ($118,000 at December 31, 1997) for doubtful accounts 5,976 6,549 Interest receivable 75 400 Other 1,144 1,268 -------- -------- Total accounts and notes receivable 7,195 8,217 Current portion of deferred taxes 356 351 Inventories 1,213 792 Prepaid expenses and other 1,518 771 -------- -------- Total current assets 16,249 15,712 Long-term receivables and advances 2,505 14,296 Property and equipment, at cost: Land 10,014 3,010 Buildings 68,828 40,272 Furniture and equipment 26,381 19,879 Leasehold improvements 3,042 2,911 Projects in progress 1,392 1,436 -------- -------- 109,657 67,508 Less accumulated depreciation and amortization 27,239 23,077 -------- -------- Net property and equipment 82,418 44,431 Other long-term assets 1,064 1,977 -------- -------- $102,236 $ 76,416 ======== ========
See accompanying notes to consolidated financial statements. 1 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION CONSOLIDATED BALANCE SHEETS September 30, 1998 (Unaudited) and December 31, 1997
(in thousands) --------------------------- September 30 December 31 1998 1997 ------------ ----------- LIABILITIES AND COMMON STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt and capitalized lease obligations $ 4,042 $ 3,730 Accounts payable 2,968 4,961 Advance deposits 3,221 2,089 Federal, foreign and state income taxes -- 583 Accrued liabilities: Salaries and wages 2,036 1,808 Rentals 4,442 5,549 Interest 458 215 Employee benefits 439 1,408 Other 2,332 1,172 -------- -------- Total accrued liabilities 9,707 10,152 -------- -------- Total current liabilities 19,938 21,515 Long-term debt 51,015 27,727 Deferred federal and state income taxes 5,637 2,494 Other non-current liabilities 1,737 937 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 28,253 28,087 Treasury shares--982,873, at cost (8,126) (8,126) -------- -------- Total common stockholders' equity 23,615 23,449 -------- -------- $102,236 $ 76,416 ======== ========
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 -------------------- -------------------- 1998 1997 1998 1997 -------- -------- -------- -------- Revenues: Rooms $ 11,499 $ 9,020 $ 33,969 $ 29,742 Food and beverage 4,814 3,083 13,667 11,733 Management, license and service fees 1,104 1,750 4,955 5,363 Parking, telephone and other 1,677 1,441 4,599 4,032 -------- -------- -------- -------- 19,094 15,294 57,190 50,870 -------- -------- -------- -------- Costs and expenses: Costs and operating expenses 9,143 6,531 23,811 20,664 Advertising and promotion 1,509 1,386 4,384 4,216 Administrative and general 3,468 2,839 9,940 8,984 Human resources 463 424 1,249 1,232 Maintenance 1,577 1,167 4,173 3,673 Rentals 784 638 5,206 4,851 Property taxes 500 295 1,095 887 Depreciation and amortization 1,645 1,227 4,165 3,509 -------- -------- -------- -------- 19,089 14,507 54,023 48,016 -------- -------- -------- -------- Operating income 5 787 3,167 2,854 Other income (deductions): Interest expense (1,211) (709) (2,660) (2,152) Interest income 173 276 700 765 Foreign exchange gain (loss) 1 1 2 (1) Gain (loss) on sales of assets (1) 1 15 7 -------- -------- -------- -------- (1,038) (431) (1,943) (1,381) -------- -------- -------- -------- Income (loss) before income taxes (1,033) 356 1,224 1,473 Federal, foreign and state income tax provision (benefit) (218) 141 738 648 -------- -------- -------- -------- Net income (loss) (815) 215 486 825 Retained earnings at beginning of period 29,072 28,084 28,087 27,790 Cash dividends on preferred stock (4) (4) (10) (10) Cash dividends on common stock -- -- (310) (310) -------- -------- -------- -------- Retained earnings at end of period $ 28,253 $ 28,295 $ 28,253 $ 28,295 ======== ======== ======== ======== Basic and diluted earnings (loss) per share of common stock $ (.39) $ .10 $ .23 $ .39 ======== ======== ======== ======== Weighted average number of shares outstanding 2,068 2,068 2,068 2,068 ======== ======== ======== ========
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 September 30 1998 1997 ---------- ---------- Cash provided (used) by operating activities Net income $ 486 $ 825 Items not (providing) requiring cash Pension expense 726 478 Depreciation and amortization of property and equipment 4,165 3,509 Other amortization (83) 61 Deferred federal income taxes 51 333 Gain on sales of assets (15) (7) Changes in assets and liabilities Accounts and notes receivable 2,404 (294) Inventories (18) 194 Prepaid expenses (329) (427) Accounts payable (2,411) (2,480) Advance deposits 11 (745) Federal, foreign and state income taxes (586) (400) Accrued liabilities (2,577) (556) -------- -------- Cash provided by operating activities 1,824 491 Cash provided (used) by investing activities Proceeds from sales of assets 22 10 Expenditures for property and equipment (5,478) (4,197) Cash in escrow -- (1,887) Cash reimbursed from escrow 840 840 New loans and advances (164) (2,283) Payments received on long-term receivables and advances 1,317 843 Cash received in purchase of hotel 3,456 -- -------- -------- Cash used by investing activities (7) (6,674) Cash provided (used) by financing activities Proceeds from issuance of long-term debt -- 24,580 Cost of financing -- (423) Payments on long-term debt (755) (17,619) Payments on capitalized lease obligations (45) (40) Cash dividends paid (631) (631) -------- -------- Cash provided (used) by financing activities (1,431) 5,867 Net increase (decrease) in cash 386 (316) Cash and cash equivalents at beginning of period 5,581 3,692 -------- -------- Cash and cash equivalents at end of period $ 5,967 $ 3,376 ======== ========
4 FORM 10-Q CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (continued) Supplemental Schedule of Interest, Income Taxes Paid and Assets Acquired. Cash paid for interest in the 1998 nine-month period and the 1997 nine-month period was approximately $ 2,791,000 and $1,960,000, respectively. Cash paid for income taxes in the 1998 nine-month period and the 1997 nine-month period was approximately $ 691,000 and $715,000, respectively. A subsidiary of the Company acquired the Sonesta Beach Resort, Key Biscayne on July 1, 1998 (see Note 1 - Operations). The amount of cash acquired in the transaction was $ 3,456,000. The Company released the Seller of the hotel of indebtedness owed to the Company with a book value at July 1, 1998 of $10,719,000, and assumed long-term debt with a fair value of $24,549,000. The total assets acquired and liabilities assumed were as follows: Fair value of assets acquired $28,326,117 Cash acquired 3,456,046 Cash paid for partnership interest (100) ----------- Liabilities assumed $31,782,063 ===========
The liabilities assumed included deferred taxes of $3,068,034. 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 condensed 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 normally recurring items, necessary to present fairly the financial position of the Company at September 30, 1998 and December 31, 1997, and the results of its operations for the three and nine month periods ended September 30, 1998 and 1997 and its cash flows for the nine month periods ended September 30, 1998 and 1997, and should be read in conjunction with the 1997 Annual Report. The results of operations for these periods are not indicative of the results for the full years. On July 1, 1998, Sonesta Beach Resort Limited Partnership ("Purchaser"), a subsidiary of the Company, acquired from Key Biscayne Limited Partnership ("Seller") its rights, title and interests in and to the real and personal property known as Sonesta Beach Resort, Key Biscayne, Florida. 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. The Seller has a one percent (1%) limited partnership interest in the Purchaser. The Resort is a 300-room, full-service beachfront resort hotel sited on 10 acres in Key Biscayne, Florida. FSC has 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, the Purchaser assumed indebtedness with a fair value of $24,549,292 (see Note 4 - Long-term debt). A Form 8-K on this transaction was filed by the Company on July 14, 1998. Financial statements and proforma financial information was filed by amendment to the Form 8-K on September 14, 1998. Operating results for the nine months ended September 30, 1998 on a proforma basis after giving effect to this transaction are as follows: Revenues $ 71,384,000 Net Income $ 2,391,000 Basic earnings per share $ 1.16
In September 1998, the Company entered into a management agreement to operate a 170 room full service hotel located in Sharm El Sheikh, Egypt. The hotel will be named Sonesta Club Hotel, Sharm El Sheikh. The Company operates the Sonesta Beach Resort and Casino Curacao under a long-term management agreement. The owner of the hotel has the right to terminate the agreement if the hotel does not achieve certain levels of operating income. For 1997, the hotel did not achieve the stipulated level of income. The owner has notified the Company that it does want to cancel the agreement, and the Company has decided not to exercise its right under the agreement to cure the deficit and avoid cancellation. The 6 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS owner of the hotel is in negotiations with a new operator for the resort. Before a cancellation of the agreement becomes effective, the Company must receive back from the owner the investment it made in the hotel in May 1994 of $2,000,000. 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 deferred fees in the amount of $408,000 in July 1998. This income is included in management fee income in the statement of operations for the period ended September 30, 1998. 2. Long-Term Receivables and Advances
(in thousands) ----------------------------- September 30, December 31, 1998 1997 ------------- ------------ 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 Deferred interest receivable (a) -- 2,306 $6,500,000 fourth mortgage receivable, 10% simple interest due 12/31/04, net of $5,500,000 reserve (a) -- 1,000 Loans to owner (b) -- 3,254 ------- ------- Total Key Biscayne receivables -- 11,560 Sharm El Sheikh (c) 1,000 1,000 Cairo, Egypt, net of discount (d) 595 851 Other 1,304 1,268 ------- ------- Total long-term receivables 2,899 14,679 Less: current portion 394 383 ------- ------- Net long-term receivables $ 2,505 $14,296 ======= =======
7 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (a) These mortgage notes receivable were settled as a result of the acquisition of the resort by the Company in July 1998 (see also Note 1-- Operations). (b) These loans were settled as a result of the acquisition of the Sonesta Beach Resort Key Biscayne by the Company in July 1998 (see also Note 1-- Operations). (c) This loan to the owner of the Sonesta Beach Resort, Sharm El Sheikh bears interest at the prime rate (8-1/2% at September 30, 1998) with repayment in seven annual installments of $142,857, together with interest, commencing January 1, 1999. (d) The remaining balance of this loan, made in February 1997 to the owner of the Sonesta Hotel Cairo, will be repaid with one payment of $330,000 on March 1, 1999, and a final payment of $340,000 on March 1, 2000. There is no interest due during the term of the loan. In connection with its Key Biscayne notes receivable, the Company recorded interest income of $275,000 during the first six months of 1998. 3. Borrowing Arrangements The Company has a $2,000,000 line of credit which expires on September 30, 1999. This line of credit bears interest at the prime rate (8-1/2% at September 30, 1998). 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, 1998. A subsidiary of the Company has a $5,000,000 line of credit which will expire December 31, 2000. The terms of the loan require certain minimum levels of earnings and net worth, limit cash dividends and purchases of the Company's stock, and specify a maximum defined debt to net worth ratio. The loan is secured by the Company's leasehold interest in the Royal Sonesta Hotel, New Orleans, and by a Company guaranty. The interest rate is prime (8-1/2% at September 30, 1998) less one-eighth percent, and the commitment fee on the unused portion of the line is .65% per annum. No amount was outstanding under this line at September 30, 1998. 8 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Long-Term Debt
(in thousands) -------------------------------------- September 30, December 31, 1998 1997 ------------- ------------ Charterhouse of Cambridge Trust and Sonesta of Massachusetts, Inc.: First mortgage note (a) $22,060 $22,416 Sonesta Beach Resort Limited Partnership: First mortgage note (b) 24,015 -- Sonesta Hotels of Anguilla, Ltd: First mortgage note (c) 5,790 6,190 Note from Seller (d) 800 800 Sonesta Curacao Hotel Corporation, N.V.: Bank term loan (e) 2,000 2,000 Other 386 -- ------- ------- 55,051 31,406 Less current portion of long-term debt 4,036 3,679 ------- ------- Total long-term debt $51,015 $27,727 ======= =======
(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 $23,587,000 at September 30, 1998. The interest rate on the loan is 8.86% for the term of the loan, and monthly payments for interest and principal are $203,802. The mortgage loan matures in December 2003, and no prepayments are allowed until January 2000. (b) This loan is secured by a first mortgage on the Sonesta Beach Resort Key Biscayne property. The property is included in fixed assets as a net book value of approximately $37,366,000 at September 30, 1998. The principal balance of this loan is $22,431,000. The Company recorded an additional liability of $1,740,000 when it assumed the mortgage on July 1, 1998, to reflect the fair market value of this liability based on its above market interest rate. This additional liability is being amortized as an adjustment to interest expense over the remaining life of the loan. The loan requires monthly interest payments based on a rate of 11.78% until April 1, 1999, and 12.78% from April 1, 1999 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. (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 $13,435,000 at September 30, 9 FORM 10-Q SONESTA INTERNATIONAL HOTELS CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1998. In addition, an amount of $1,900,000 is secured by a Company guaranty. The loan requires minimum principal payments of $725,000, $3,965,000 and $1,100,000 in the years 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, 1998 was 7.91%. (d) 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, and has further rights to offset certain receivables from the Seller from this loan. Pending resolution of certain outstanding issues with the Seller of the Resort, the Company does not expect to repay this loan on the maturity date. (e) This loan matured June 30, 1998, but was extended through December 31, 1998. No principal payments are required. The interest rate was 9-3/4% at September 30, 1998, and is subject to periodic review by the bank. 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 Hotel & 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 1998 1997 1998 1997 ---- ---- ---- ---- Direct departmental costs Rooms $3,250 $2,356 $ 8,377 $ 7,157 Food and beverage 4,276 2,803 11,172 9,363 Heat, light and power 798 594 1,980 1,803 Other 819 778 2,282 2,341 ------ ------ ------- ------- $9,143 $6,531 $23,811 $20,664 ====== ====== ======= =======
Direct departmental costs include payroll expenses and related payroll burden, the cost of food and beverage consumed and other departmental costs. The 1998 expenses include the expenses from Sonesta Beach Resort Key Biscayne, which the Company acquired on July 1, 1998. 10 FORM 10-Q 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 1998 1997 ------------- ------------ Deferred federal income tax $ 51 $ 333 Current federal income tax 232 125 Current foreign income tax 233 59 Current state income tax 222 131 ---- ------ $738 $ 648 ==== ======
11 FORM 10-Q Part I - Item 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION FIRST NINE MONTHS 1998 COMPARED TO 1997 REVENUES
TOTAL REVENUES (in thousands) ------------------------------------ NO. OF ROOMS 1998 1997 ----- ---- ---- Sonesta Beach Resort Anguilla, BWI 100 $ 3,071 $ 3,000 Royal Sonesta Hotel Boston (Cambridge) 400 20,672 18,690 Royal Sonesta Hotel New Orleans 500 24,204 23,243 Sonesta Beach Resort Key Biscayne 300 3,647 -- Management and service fees 4,955 5,363 Other revenues 641 574 ------- ------- Total revenues $57,190 $50,870 ======= =======
Total revenues for the first nine months of 1998 were $ 57,190,000 compared to $ 50,870,000 in 1997, an increase of approximately $ 6,320,000. The Royal Sonesta Hotel Boston (Cambridge) had an increase in revenues of approximately $1,982,000 in the first nine months of 1998 compared to 1997, due to a 12% increase in the hotels' average room rate, and a 15% increase in food and beverage revenues primarily because of increased banquet and convention business. Revenues at the Royal Sonesta Hotel New Orleans increased by $961,000 during the nine month period ending September 30, 1998 compared to 1997, because of a 4% increase in average room rate, and a slight increase in occupancy. Revenues of Sonesta Beach Resort Key Biscayne, which the Company acquired on July 1, 1998, were $3,647,000. Third quarter revenues of the Key Biscayne hotel were adversely affected because of a forced evacuation 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 hotels' pool area during the third quarter. The Company's Sonesta Beach Resort Anguilla had an increase in revenues of $71,000 during the 1998 nine month period. A substantial increase in room rates of 23% at the resort was partially offset 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 $408,000 in 1998 compared to 1997. In the first quarter of 1998, the Company received a termination fee of $335,000 for agreeing to cancel the license agreement for a hotel in Santiago, Chile. In the second quarter of 1998 the Company recognized additional fee income of $407,000 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. The above increases in fee income were offset by a substantial decrease in fee income of $846,000 from the Company's Egyptian operations in the first nine months of 1998 compared to 1997. Business levels in Egypt continue to suffer from the effects of the November 1997 terrorist attack in Luxor. 12 FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Cont'd) OPERATING INCOME
OPERATING INCOME (in thousands) ------------------------ 1998 1997 -------- -------- Sonesta Beach Resort Anguilla, BWI $(1,024) $(1,363) Royal Sonesta Hotel Boston (Cambridge) 3,969 3,204 Royal Sonesta Hotel New Orleans 1,628 1,415 Sonesta Beach Resort Key Biscayne (1,118) -- -------- ------- Operating income from hotels after management and service fees 3,455 3,256 Management activities and other (288) (402) ------- ------- Operating income $ 3,167 $ 2,854 ======= =======
Operating income for the nine month period ending September 30, 1998, was $3,167,000 compared to $2,854,000 in 1997, an increase of approximately $313,000. The Company's Royal Sonesta Hotel Boston (Cambridge) had an increase in operating income of $765,000, because of increases in revenues of $1,982,000, partially offset by increased expenses of $1,217,000, primarily cost and operating and depreciation expense. The increases in depreciation expense result from extensive renovations and refurbishments to the hotels' guest rooms and other facilities. The operating loss at the Sonesta Beach Resort Anguilla during the first nine months of 1998 compared to 1997 decreased by $339,000, because of increased room revenues and because of a decrease in operating expenses due to the fact that the resort leased out one its two restaurants. The Royal Sonesta Hotel New Orleans had an increase in operating income of $213,000, because of an increase in revenues of $961,000, partially offset by a modest 3% increase in expenses in the 1998 period compared to the previous year. The Sonesta Beach Resort Key Biscayne, acquired by the Company on July 1, 1998, had a seasonal operating loss of $1,118,000 during the third quarter of 1998. The seasonal loss is not indicative of a full years' operations of the resort, and was increased by the loss of business due to the forced evacuation of the hotel because of the threat of Hurricane Georges in September, 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 $114,000 during the first nine months of 1998 compared to 1997, primarily due to lower fee income from the Company's Egyptian operations, partially offset by additional fee income earned from Sonesta Santiago, Chile, and Chateau Sonesta Hotel, New Orleans (see also note 1-Operations). OTHER INCOME (DEDUCTIONS) Interest expense increased by $508,000 during the first nine months of 1998 compared to 1997 due to interest expense of $512,000 incurred during the third quarter of 1998 on the indebtedness the Company assumed in connection with the acquisition of the Sonesta Beach Resort Key Biscayne on July 1, 1998. Interest income during the first nine months of 1998 decreased by $65,000 compared to 1997, primarily because of a reduction in interest income earned 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. 13 FORM 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Cont'd) THIRD QUARTER 1998 COMPARED TO 1997 REVENUES
TOTAL REVENUES (in thousands) ------------------------------------- NO. OF ROOMS 1998 1997 ------ ------- ------- Sonesta Beach Resort Anguilla, BWI 100 $ 376 $ 466 Royal Sonesta Hotel Boston (Cambridge) 400 7,543 7,047 Royal Sonesta Hotel New Orleans 500 6,244 5,880 Sonesta Beach Resort Key Biscayne 300 3,647 -- Management and service fees 1,104 1,750 Other revenues 180 151 ------- Total revenues $19,094 $15,294 ======= =======
Total revenues for the quarter ended September 30, 1998 were $19,094,000 compared to $15,294,000 in 1997, an increase of approximately $3,800,000. Revenues at the Sonesta Beach Resort Key Biscayne, which the Company acquired on July 1, 1998, totaled $3,647,000. The hotels' occupancy and food and beverage revenues were lower than expected because of a decrease in group and convention business due to the renovation of the hotel's pool area, and the forced evacuation of the hotel from the threat of Hurricane Georges. Revenues at the Company's Royal Sonesta Hotel Boston (Cambridge) increased $496,000 in the third quarter of 1998 compared to 1997. During the 1998 third quarter, revenue per available room ("REVPAR") increased by 7% compared to the previous year's quarter, and the hotels' food and beverage revenues increased by 7% because of higher banquet and convention business. The Royal Sonesta New Orleans increased revenues by $364,000 in the 1998 quarter compared to 1997, mainly because of a 13% increase in food and beverage revenues compared to last year. Sonesta Beach Resort Anguilla had a decrease in revenues in the 1998 third quarter of $90,000, because of lower food and beverage revenues due to the fact that the hotel leased out one of its two restaurants. Management and service fees during the third quarter of 1998 decreased by $646,000 compared to 1997, primarily because of a decrease in fee income from the Company's Egyptian operations of $274,000, and the loss of fee income from the Sonesta Beach Resort Key Biscayne, which was a managed hotel until it was acquired by the Company on July 1, 1998. OPERATING INCOME
OPERATING INCOME (in thousands) ------------------------ 1998 1997 -------- -------- Sonesta Beach Resort Anguilla, BWI $ (644) $ (764) Royal Sonesta Hotel Boston (Cambridge) 1,891 1,650 Royal Sonesta Hotel New Orleans 218 152 Sonesta Beach Resort Key Biscayne (1,118) -- ------ ----- Operating income from hotels after management and service fees 347 1,038 Management activities and other (342) (251) ------ ----- Operating income $5 $787 == ====
14 Form 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Cont'd) Operating income for the three month period ending September 30, 1998, was $5,000, compared to operating income of $787,000 in 1997, a decrease of approximately $782,000. The Sonesta Beach Resort Key Biscayne, which was acquired by the Company on July 1, 1998, had a seasonal operating loss of $1,118,000 during the third quarter of 1998. This seasonal loss is not indicative of a full year's operations of the resort. The 1998 third quarter loss was increased by the loss of business due to the forced evacuation of the hotel because of the threat from Hurricane Georges, and by reduced group and convention business due to an extensive renovation of the hotel's pool facilities during the third quarter. The Royal Sonesta Boston (Cambridge) experienced an increase in operating income of $241,000 during the third quarter of 1998 compared to 1997, due to an increase in revenues in the quarter of $496,000, which was reduced by a $255,000 increase in expenses, primarily cost and operating. Royal Sonesta New Orleans had a modest increase in operating income of $66,000 during the third quarter of the year. Sonesta Beach Resort Anguilla had a decrease in its operating loss of $120,000 during the third quarter of 1998 compared to the same period last year, due to savings in expenses of $210,000 which exceeded the revenue decrease of $90,000 during the quarter. The savings were primarily related to cost and operating expenses, due to the fact that the hotel leased out one of its two restaurants. The operating loss from the Company's management activities increased by $91,000 during the 1998 quarter compared to 1997 mainly due to decreased management fees from its Egyptian operations, which were partially offset by decreased costs related to these activities. OTHER INCOME (DEDUCTIONS) Interest expense increased by $502,000 during the third quarter of 1998 compared to 1997, due to interest on the indebtedness the Company assumed with the acquisition of the Sonesta Beach Resort Key Biscayne on July 1, 1998. Interest income during the third quarter decreased by $103,000 due to the loss of income earned on loans from Sonesta Beach Resort Key Biscayne, which were settled when the Company acquired the resort on July 1,1998. This reduction was partially offset by higher interest income earned on the Company's cash balances. FEDERAL, FOREIGN AND STATE INCOME TAXES The provision for income taxes for the first nine months of 1998 is higher than the statutory rate due to state taxes provided on the Company's profits from its operations in Louisiana and Massachusetts, and due to foreign taxes on a termination fee of $335,000 the Company received related to the cancellation of a license agreement for a hotel in Santiago, Chile. LIQUIDITY AND CAPITAL RESOURCES The Company has a working capital deficit of $3,689,000 at September 30, 1998. This is primarily caused by accrued rent of $4,437,000 for 1998 due under the lease for the Royal Sonesta Hotel New Orleans. The 1998 rent is not due until March 1999, and the Company expects to pay this liability out of future cash flow and, if needed, out of proceeds from borrowings under its lines of credit. The Company has a loan of $2,000,000 which was due on June 30, 1998, but has been extended until December 31, 1998 (see Note 4--Long-term debt). The Company plans to repay this loan 15 Form 10-Q MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Cont'd) with a payment of $2,000,000 it is entitled to from the owner of the Sonesta Beach Resort and Casino Curacao, in case its management agreement is terminated. The Company plans to ask for further extensions of the loan in case the contract termination is not effective on the maturity date of the loan (see also Note 1--Operations). 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 $24,015,000 at September 30,1998. During the winters of 1996/97 and 1997/98, the Company has made extensive renovations and improvements to the Royal Sonesta Hotel Cambridge. The total that was spent in addition to the regular capital replacements amounted to approximately $5,300,000. 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 1998, will be more than adequate to meet all of its obligations. YEAR 2000 DISCLOSURE The Company continues to address issues related to required changes in computer systems for the year 2000. The Company expects that by December 31, 1998, all year 2000 issues will have been addressed, either by programming changes implemented by third party vendors to purchased systems, or through the upgrading or purchase of year 2000-compliant hardware and equipment. Extensive testing is expected throughout the remainder of 1998 and in 1999. Management believes there is no material risk that the Company will fail to address year 2000 issues in a timely manner. The Company expects that costs related to the year 2000 issue will not be material, and that most issues will be dealt with by in-house information systems staff. 16 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: /s/ Boy van Riel ------------------------------------ Boy van Riel Vice President and Treasurer (Authorized to sign on behalf of the Registrant as Principal Financial Officer) DATE: November 12, 1998 EX-27 2 FINANCIAL DATA SCHEDULE
5 0000091741 Sonesta International Hotels Corporation 1000 3-MOS DEC-31-1998 JUL-01-1998 SEP-30-1998 5,967 0 6,161 185 1,213 16,249 109,657 27,239 102,236 19,938 51,015 0 294 3,488 20,127 102,236 13,667 57,190 3,273 23,811 30,212 0 2,660 1,224 738 486 0 0 0 486 .23 .23
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