x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
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|
SECURITIES EXCHANGE ACT OF 1934
|
||
For the Quarterly period ended June 30, 2011
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||
OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
|
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SECURITIES EXCHANGE ACT OF 1934
|
For the transition period from
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to
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NEW YORK
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13-5648107
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(State or other jurisdiction or incorporation or organization)
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(I.R.S. Employer Identification No.)
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617-421-5400
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(Registrant’s telephone number, including area code)
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(Former name, former address and former fiscal year,
|
if changed since last report)
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Part I. Financial Information
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Page
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Item 1.
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|||
1
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|||
3
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|||
4
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|||
5
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|||
Item 2.
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15
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Item 3.
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22
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||
Item 4.
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23
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Part II. Other Information
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24
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||
25
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|||
Certifications by the Company’s Chief Executive Officers and Vice President and Treasurer, as required by Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended.
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|||
Exhibit 32
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Certification by Company Officers required by 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).
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(in thousands)
|
||||||||
June 30, 2011
|
December 31, 2010
|
|||||||
ASSETS
|
||||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 17,362 | $ | 24,162 | ||||
Restricted cash
|
2,500 | 2,500 | ||||||
Accounts and notes receivable:
|
||||||||
Trade, less allowance of $1,144 ($1,103 at December 31, 2010) for doubtful accounts
|
4,228 | 3,759 | ||||||
Other, including current portion of long-term receivables and advances
|
848 | 741 | ||||||
Total accounts and notes receivable
|
5,076 | 4,500 | ||||||
Inventories
|
931 | 958 | ||||||
Current deferred tax assets
|
1,278 | 1,262 | ||||||
Prepaid expenses and other current assets
|
2,442 | 2,020 | ||||||
Total current assets
|
29,589 | 35,402 | ||||||
Restricted cash
|
257 | 2,757 | ||||||
Long-term receivables and advances
|
3,960 | 4,342 | ||||||
Deferred tax assets
|
695 | -- | ||||||
Property and equipment, at cost:
|
||||||||
Land and land improvements
|
3,202 | 3,202 | ||||||
Buildings
|
31,016 | 29,666 | ||||||
Furniture and equipment
|
34,640 | 28,544 | ||||||
Leasehold improvements
|
9,498 | 9,401 | ||||||
Projects in progress
|
1,546 | 2,205 | ||||||
79,902 | 73,018 | |||||||
Less accumulated depreciation and amortization
|
36,441 | 33,597 | ||||||
Net property and equipment
|
43,461 | 39,421 | ||||||
Other long-term assets
|
3,207 | 4,268 | ||||||
$ | 81,169 | $ | 86,190 |
(in thousands)
|
||||||||
June 30, 2011
|
December 31, 2010
|
|||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Current liabilities:
|
||||||||
Current portion of long-term debt
|
$ | 697 | $ | 676 | ||||
Accounts payable
|
4,094 | 3,868 | ||||||
Advance deposits
|
1,326 | 1,224 | ||||||
Accrued liabilities:
|
||||||||
Salaries and wages
|
1,962 | 2,147 | ||||||
Rentals
|
2,176 | 5,195 | ||||||
Interest
|
200 | 209 | ||||||
Pension and other employee benefits
|
1,855 | 1,512 | ||||||
Interest rate swap
|
1,911 | 1,691 | ||||||
Income taxes
|
110 | 580 | ||||||
Other
|
1,500 | 1,190 | ||||||
Total accrued liabilities
|
9,714 | 12,524 | ||||||
Total current liabilities
|
15,831 | 18,292 | ||||||
Long-term debt
|
37,024 | 37,378 | ||||||
Pension liability, non-current
|
6,122 | 6,781 | ||||||
Other non-current liabilities
|
898 | 931 | ||||||
Deferred tax liabilities
|
-- | 220 | ||||||
Commitments and contingencies
|
||||||||
Stockholders’ equity:
|
||||||||
Common stock:
|
||||||||
Class A, $.80 par value
|
||||||||
Authorized--10,000 shares
|
||||||||
Issued – 6,102 shares at stated value
|
4,882 | 4,882 | ||||||
Retained earnings
|
32,186 | 33,340 | ||||||
Treasury shares – 2,404, at cost
|
(12,053 | ) | (12,053 | ) | ||||
Accumulated other comprehensive loss
|
(3,721 | ) | (3,581 | ) | ||||
Total stockholders’ equity
|
21,294 | 22,588 | ||||||
$ | 81,169 | $ | 86,190 |
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
June 30
|
June 30
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Revenues:
|
||||||||||||||||
Rooms
|
$ | 14,513 | $ | 11,545 | $ | 25,824 | $ | 19,735 | ||||||||
Food and beverage
|
6,241 | 5,018 | 11,400 | 9,132 | ||||||||||||
Management, license and service fees
|
511 | 1,417 | 1,191 | 2,820 | ||||||||||||
Parking, telephone and other
|
1,240 | 1,159 | 2,153 | 2,214 | ||||||||||||
22,505 | 19,139 | 40,568 | 33,901 | |||||||||||||
Other revenues from managed and affiliated properties
|
136 | 1,319 | 314 | 2,689 | ||||||||||||
Total revenues
|
22,641 | 20,458 | 40,882 | 36,590 | ||||||||||||
Costs and expenses:
|
||||||||||||||||
Costs and operating expenses
|
10,144 | 8,142 | 19,053 | 15,455 | ||||||||||||
Advertising and promotion
|
2,176 | 1,717 | 4,167 | 3,279 | ||||||||||||
Administrative and general
|
3,785 | 3,147 | 7,235 | 6,222 | ||||||||||||
Human resources
|
293 | 285 | 665 | 565 | ||||||||||||
Maintenance
|
981 | 867 | 1,924 | 1,745 | ||||||||||||
Rentals
|
1,790 | 1,831 | 4,122 | 2,976 | ||||||||||||
Property taxes
|
400 | 343 | 819 | 623 | ||||||||||||
Depreciation and amortization
|
1,492 | 1,222 | 2,990 | 2,602 | ||||||||||||
21,061 | 17,554 | 40,975 | 33,467 | |||||||||||||
Other expenses from managed and affiliated properties
|
136 | 1,319 | 314 | 2,689 | ||||||||||||
Total costs and expenses
|
21,197 | 18,873 | 41,289 | 36,156 | ||||||||||||
Operating income (loss)
|
1,444 | 1,585 | (407 | ) | 434 | |||||||||||
Other income (deductions):
|
||||||||||||||||
Interest expense
|
(641 | ) | (538 | ) | (1,322 | ) | (1,105 | ) | ||||||||
Interest income
|
28 | 65 | 61 | 125 | ||||||||||||
Foreign exchange gain (loss)
|
3 | (7 | ) | 9 | (12 | ) | ||||||||||
Gain (loss) on sales of assets
|
-- | (56 | ) | 2 | (60 | ) | ||||||||||
(610 | ) | (536 | ) | (1,250 | ) | (1,052 | ) | |||||||||
Income (loss) before income tax provision (benefit)
|
834 | 1,049 | (1,657 | ) | (618 | ) | ||||||||||
Income tax provision (benefit)
|
34 | 392 | (503 | ) | (83 | ) | ||||||||||
Net income (loss)
|
800 | 657 | (1,154 | ) | (535 | ) | ||||||||||
Retained earnings at beginning of period
|
31,386 | 34,542 | 33,340 | 35,734 | ||||||||||||
Retained earnings at end of period
|
$ | 32,186 | $ | 35,199 | $ | 32,186 | $ | 35,199 | ||||||||
Net income (loss) per share of common stock
|
$ | 0.22 | $ | 0.18 | $ | (0.31 | ) | $ | (0.14 | ) | ||||||
Weighted average number of shares outstanding
|
3,698 | 3,698 | 3,698 | 3,698 |
(in thousands)
|
||||||||
Six Months Ended June 30
|
||||||||
2011
|
2010
|
|||||||
Cash used for operating activities
|
||||||||
Net loss
|
$ | (1,154 | ) | $ | (535 | ) | ||
Adjustments to reconcile net loss to net cash used for operating activities
|
||||||||
Depreciation and amortization
|
2,990 | 2,635 | ||||||
Provision for doubtful accounts
|
40 | 8 | ||||||
Non-cash interest
|
94 | 37 | ||||||
Deferred federal and state income tax benefit
|
(850 | ) | (506 | ) | ||||
(Gain) loss on sales of assets
|
(2 | ) | 60 | |||||
Changes in assets and liabilities
|
||||||||
Accounts and notes receivable
|
194 | (680 | ) | |||||
Inventories
|
27 | 7 | ||||||
Prepaid expenses and other
|
(453 | ) | 43 | |||||
Accounts payable
|
596 | 162 | ||||||
Advance deposits
|
101 | (57 | ) | |||||
Accrued liabilities
|
(3,762 | ) | (1,676 | ) | ||||
Cash used for operating activities
|
(2,179 | ) | (502 | ) | ||||
Cash used for investing activities
|
||||||||
Proceeds from sales of assets, net
|
17 | 383 | ||||||
Expenditures for property and equipment
|
(6,559 | ) | (1,688 | ) | ||||
Payments received on long-term receivables and advances
|
175 | 620 | ||||||
New loans and advances
|
(51 | ) | (1,579 | ) | ||||
Cash used for investing activities
|
(6,418 | ) | (2,264 | ) | ||||
Cash provided by (used for) financing activities
|
||||||||
Proceeds from issuance of long-term debt
|
-- | 32,000 | ||||||
Cost of financing
|
-- | (399 | ) | |||||
Payments on refinancing of long-term debt
|
-- | (31,644 | ) | |||||
Restricted cash
|
2,500 | (5,000 | ) | |||||
Scheduled payments on long term debt
|
(333 | ) | (329 | ) | ||||
Cash dividends paid
|
(370 | ) | -- | |||||
Cash provided by (used for) financing activities
|
1,797 | (5,372 | ) | |||||
Net decrease in cash and cash equivalents
|
(6,800 | ) | (8,138 | ) | ||||
Cash and cash equivalents at beginning of period
|
24,162 | 35,557 | ||||||
Cash and cash equivalents at end of period
|
$ | 17,362 | $ | 27,419 |
1.
|
Basis of Presentation
|
2.
|
Purchase of Sonesta Bayfront Hotel Coconut Grove
|
For the six months ended
June 30, 2010
|
||||||||||||||||
Sonesta
|
Sonesta Bayfront Hotel
|
Pro Forma Adjustments
|
Pro Forma as Adjusted
|
|||||||||||||
Revenues
|
$ | 33,901 | $ | 5,750 | $ | (255 | ) | $ | 39,396 | |||||||
Other revenues from managed hotels
|
2,689 | -- | (2,241 | ) | 448 | |||||||||||
Total revenues
|
$ | 36,590 | $ | 5,750 | $ | (2,496 | ) | $ | 39,844 | |||||||
Net income (loss)
|
$ | (535 | ) | $ | 396 | $ | (694 | ) | $ | (833 | ) |
June 30,
2010
|
||||
Reduction in management fee income
|
$ | (255 | ) | |
Reduction in other revenues from managed hotels
|
(2,241 | ) | ||
Reduction in other expenses from managed hotels
|
2,241 | |||
Increase in depreciation and amortization
|
(276 | ) | ||
Increase in interest expense
|
(208 | ) | ||
Income tax benefit on additional loss of $343,000
|
45 | |||
Proforma adjustment
|
$ | (694 | ) |
3.
|
Long-Term Receivables and Advances
|
(in thousands)
|
||||||||
June 30,2011
|
December 31,2010
|
|||||||
Sharm El Sheikh, Egypt (a)
|
$ | 572 | $ | 647 | ||||
Sharm El Sheikh, Egypt (b)
|
433 | 433 | ||||||
Luxor, Egypt (c)
|
815 | 822 | ||||||
Sint Maarten, Netherlands Antilles (d)
|
767 | 802 | ||||||
New Orleans, Louisiana (e)
|
317 | 353 | ||||||
Other
|
1,722 | 1,813 | ||||||
Total long-term receivables and advances
|
4,626 | 4,870 | ||||||
Less: current portion
|
666 | 528 | ||||||
Net long-term receivables and advances
|
$ | 3,960 | $ | 4,342 |
|
(a)
|
These loans were made in January 2008 to the owners of Sonesta Beach Hotel Sharm El Sheikh and Sonesta Club Sharm El Sheikh by converting receivables for fees and expenses into five-year loans, payable in monthly installments, starting in January 2008. The Company is accounting for these loans using an effective interest rate of 6.5%. Monthly payments of $28,820 ($18,678 from Sharm Beach and $10,142 from Sharm Club) are due directly from the hotels and deducted from distributions of profits to the owner of these managed hotels. Payments from Sharm Beach have been received through April 2011. Payments from Sharm Club have been received through January 2011.
|
|
(b)
|
This loan, in the original amount of $500,000, was made in January 2010 to the owner of Sonesta Beach Resort Sharm El Sheikh. The interest rate is 5.25%. The original three-year term was extended by five months in December 2010. Monthly payments of principal and interest of $15,075 commenced in February 2010, and the last payment will be due in June 2013. No payments were received on this loan since January 2011.
|
|
(c)
|
These loans, in the original amount of $1,363,000, were made in August 2009 to the owner of Sonesta St. George Hotel Luxor and Sonesta St. George I Cruise Ship, which are both managed by the Company. The loans consisted of cash advances of $500,000, and the conversion of receivables for fees and expenses due to the Company totaling $863,000. The Company made these loans to assist the owner with the financing of improvements to the Sonesta St. George Hotel Luxor, which included additional guest rooms and meeting/function space. The interest rate is 5.25%. Monthly payments of interest and principal are $80,000, and the last payment is due in August 2011. Installments due and unpaid on this loan date back to October
2010.
|
|
d)
|
During 2010 and the first quarter of 2011, the Company loaned $1,000,000 to the owners of two hotels in Sint Maarten, to which the Company licenses the use of its name. At the same time, the license agreements for these hotels were extended by 10 years until December 2019, with a mutual cancellation option beginning in May 2015. The proceeds were used to fund improvements at both of the properties. The loans are being repaid in 10 annual payments of $100,000, the first of which was paid on March 31, 2011. Interest is due quarterly and is based on LIBOR plus a surcharge. The surcharge is based on increases in room revenues from year to year, with the maximum surcharge being 1.5% per annum. The interest rate charged
during the 2011 second quarter was 0.8%. The Company is accounting for this loan using an effective interest rate of 6% and has discounted the loan accordingly. The discount has been recorded as an other long-term asset and is being amortized over the remaining term of the license agreements.
|
|
(e)
|
This loan, in the original amount of $394,000, was made in connection with the sale by the Company in May 2010 of a laundry facility in New Orleans, Louisiana. The interest rate is 5%. Monthly payments for interest and principal are $7,435, and the final payment is due in May 2015.
|
4.
|
Borrowing Arrangements
|
(in thousands)
|
||||||||
June 30,2011
|
December 31,2010
|
|||||||
Charterhouse of Cambridge Trust and Sonesta of Massachusetts, Inc.:
|
||||||||
First mortgage note (a)
|
$ | 31,321 | $ | 31,598 | ||||
Sonesta Coconut Grove, Inc.:
|
||||||||
First mortgage note (b)
|
6,400 | 6,456 | ||||||
Subtotal
|
37,721 | 38,054 | ||||||
Less: current portion
|
697 | 676 | ||||||
Total long-term debt
|
$ | 37,024 | $ | 37,378 |
5.
|
Hotel Costs and Operating Expenses
|
(in thousands)
|
||||||||||||||||
Three Months Ended June 30
|
Six Months Ended
June 30
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Direct departmental costs
|
||||||||||||||||
Rooms
|
$ | 3,689 | $ | 2,946 | $ | 6,824 | $ | 5,381 | ||||||||
Food and beverage
|
5,192 | 4,009 | 9,774 | 7,619 | ||||||||||||
Heat, light and power
|
589 | 544 | 1,206 | 1,162 | ||||||||||||
Other
|
674 | 643 | 1,249 | 1,293 | ||||||||||||
$ | 10,144 | $ | 8,142 | $ | 19,053 | $ | 15,455 |
6.
|
Segment Information
|
(in thousands)
|
||||||||||||||||||||
Royal Sonesta Boston
|
Royal Sonesta New Orleans
|
Sonesta Bayfront Coconut Grove
|
Management Activities
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 9,115 | $ | 10,388 | $ | 2,491 | $ | 511 | $ | 22,505 | ||||||||||
Other revenues from managed and affiliated properties
|
- | - | - | 136 | 136 | |||||||||||||||
Total revenues
|
9,115 | 10,388 | 2,491 | 647 | 22,641 | |||||||||||||||
Operating income (loss) before depreciation & amortization expense
|
2,402 | 2,135 | (65 | ) | (1,536 | ) | 2,936 | |||||||||||||
Depreciation & amortization
|
(621 | ) | (658 | ) | (145 | ) | (68 | ) | (1,492 | ) | ||||||||||
Net interest income (expense)
|
(527 | ) | 3 | (113 | ) | 24 | (613 | ) | ||||||||||||
Other income
|
- | - | - | 3 | 3 | |||||||||||||||
Segment pre-tax profit (loss)
|
1,254 | 1,480 | (323 | ) | (1,577 | ) | 834 | |||||||||||||
Segment assets
|
29,361 | 18,772 | 9,446 | 23,590 | 81,169 | |||||||||||||||
Segment capital additions
|
1,456 | 1,426 | 88 | 4 | 2,974 |
(in thousands)
|
||||||||||||||||||||
Royal Sonesta Boston
|
Royal Sonesta
New Orleans
|
Sonesta Bayfront Coconut Grove
|
Management Activities
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 8,157 | $ | 9,565 | $ | - | $ | 1,417 | $ | 19,139 | ||||||||||
Other revenues from managed and affiliated properties
|
- | - | - | 1,319 | 1,319 | |||||||||||||||
Total revenues
|
8,157 | 9,565 | - | 2,736 | 20,458 | |||||||||||||||
Operating income (loss) before depreciation & amortization expense
|
2,376 | 1,058 | - | (627 | ) | 2,807 | ||||||||||||||
Depreciation & amortization
|
(598 | ) | (557 | ) | - | (67 | ) | (1,222 | ) | |||||||||||
Net interest income (expense)
|
(536 | ) | 4 | - | 59 | (473 | ) | |||||||||||||
Other deductions
|
- | (57 | ) | - | (6 | ) | (63 | ) | ||||||||||||
Segment pre-tax profit (loss)
|
1,242 | 448 | - | (641 | ) | 1,049 | ||||||||||||||
Segment assets
|
27,022 | 17,611 | - | 33,680 | 78,313 | |||||||||||||||
Segment capital additions
|
553 | 500 | - | 50 | 1,103 |
(in thousands)
|
||||||||
2011
|
2010
|
|||||||
Management fee revenues
|
$ | - - | $ | 872 | ||||
Franchise fee revenues
|
235 | 224 | ||||||
Other management revenues
|
276 | 321 | ||||||
Subtotal
|
511 | 1,417 | ||||||
Other revenues from managed and affiliated properties
|
136 | 1,319 | ||||||
Total revenues Managed Activities
|
$ | 647 | $ | 2,736 |
(in thousands)
|
||||||||||||||||||||
Royal Sonesta Boston
|
Royal Sonesta New Orleans
|
Sonesta Bayfront Coconut Grove
|
Management Activities
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 12,929 | $ | 20,398 | $ | 6,050 | $ | 1,191 | $ | 40,568 | ||||||||||
Other revenues from managed and affiliated properties
|
- | - | - | 314 | 314 | |||||||||||||||
Total revenues
|
12,929 | 20,398 | 6,050 | 1,505 | 40,882 | |||||||||||||||
Operating income (loss) before depreciation & amortization expense
|
1,267 | 3,881 | 312 | (2,877 | ) | 2,583 | ||||||||||||||
Depreciation & amortization
|
(1,250 | ) | (1,316 | ) | (289 | ) | (135 | ) | (2,990 | ) | ||||||||||
Net interest income (expense)
|
(1,052 | ) | 4 | (269 | ) | 56 | (1,261 | ) | ||||||||||||
Other deductions
|
- | - | - | 11 | 11 | |||||||||||||||
Segment pre-tax profit (loss)
|
(1,035 | ) | 2,569 | (246 | ) | (2,945 | ) | (1,657 | ) | |||||||||||
Segment assets
|
29,361 | 18,772 | 9,446 | 23,590 | 81,169 | |||||||||||||||
Segment capital additions
|
4,648 | 1,690 | 163 | 58 | 6,559 |
(in thousands)
|
||||||||||||||||||||
Royal Sonesta
Boston
|
Royal Sonesta
New Orleans
|
Sonesta Bayfront Coconut Grove
|
Management Activities
|
Consolidated
|
||||||||||||||||
Revenues
|
$ | 11,885 | $ | 19,196 | $ | - | $ | 2,820 | $ | 33,901 | ||||||||||
Other revenues from managed and affiliated properties
|
- | - | - | 2,689 | 2,689 | |||||||||||||||
Total revenues
|
11,885 | 19,196 | - | 5,509 | 36,590 | |||||||||||||||
Operating income (loss) before depreciation & amortization expense
|
1,567 | 2.911 | - | (1,442 | ) | 3,036 | ||||||||||||||
Depreciation & amortization
|
(1,194 | ) | (1,274 | ) | - | (134 | ) | (2,602 | ) | |||||||||||
Net interest income (expense)
|
(1,104 | ) | 6 | - | 118 | (980 | ) | |||||||||||||
Other deductions
|
- | (57 | ) | - | (15 | ) | (72 | ) | ||||||||||||
Segment pre-tax profit (loss)
|
(731 | ) | 1,586 | - | (1,473 | ) | (618 | ) | ||||||||||||
Segment assets
|
27.022 | 17,611 | - | 33,680 | 78,313 | |||||||||||||||
Segment capital additions
|
777 | 785 | - | 126 | 1,688 |
(in thousands)
|
||||||||
2011
|
2010
|
|||||||
Management fee revenues
|
$ | - - | $ | 1,627 | ||||
Franchise fee revenues
|
588 | 549 | ||||||
Other management revenues
|
603 | 644 | ||||||
Subtotal
|
1,191 | 2,820 | ||||||
Other revenues from managed and affiliated properties
|
314 | 2,689 | ||||||
Total revenues Managed Activities
|
$ | 1,505 | $ | 5,509 |
7.
|
Comprehensive Income (Loss)
|
(in thousands)
|
(in thousands)
|
|||||||||||||||
Three months ended June 30
|
Six months ended June 30
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Net income (loss)
|
$ | 800 | $ | 657 | $ | (1,154 | ) | $ | (535 | ) | ||||||
Unrealized loss on interest rate swap, net of tax
|
(310 | ) | (597 | ) | (140 | ) | (1,067 | ) | ||||||||
Comprehensive income (loss)
|
$ | 490 | $ | 60 | $ | (1,294 | ) | $ | (1,602 | ) |
8.
|
Earnings (Loss) per Share
|
Three months ended June 30
|
Six months ended June 30
|
|||||||||||||||
2011
|
2010
|
2011
|
2010
|
|||||||||||||
Numerator:
|
||||||||||||||||
Net income (loss)
|
$ | 800 | $ | 657 | $ | (1,154 | ) | $ | (535 | ) | ||||||
Denominator:
|
||||||||||||||||
Weighted average number of shares outstanding
|
3,698 | 3,698 | 3,698 | 3,698 | ||||||||||||
Net income (loss) per share of common stock
|
$ | 0.22 | $ | 0.18 | $ | (0.31 | ) | $ | (0.14 | ) |
9.
|
Pension Plan
|
(in thousands)
|
||||||||
Six months ended June 30
|
||||||||
2011
|
2010
|
|||||||
Interest cost
|
$ | 805 | $ | 995 | ||||
Expected return on assets
|
(873 | ) | (1,045 | ) | ||||
Recognized actuarial loss
|
114 | 99 | ||||||
Net expense included in the consolidated statements of operations
|
$ | 46 | $ | 49 |
10.
|
Derivative Financial Instruments
|
(in thousands)
|
||||||||
Liability Derivatives
|
||||||||
June 30, 2011
|
December 31, 2010
|
|||||||
Derivatives designated as hedging instruments:
|
||||||||
Interest rate swap – cash flow hedge
|
$ | 1,911 | $ | 1,691 | ||||
Total derivatives designated as hedging instruments
|
$ | 1,911 | $ | 1,691 | ||||
Derivatives not designated as hedging instruments:
|
$ | -- | $ | -- | ||||
Total derivatives
|
$ | 1,911 | $ | 1,691 |
Derivatives in Cash Flow Hedging
|
Pre-tax Loss
Recognized in OCI on Derivative (Effective Portion)
|
Location of Amount Reclassified
|
Amount Reclassified from Accumulated OCI into Income
|
||||||||||||||
Relationships
|
2011
|
2010
|
from Accumulated OCI into Income
|
2011
|
2010
|
||||||||||||
Interest rate swap
|
$ | (220 | ) | $ | (1,688 | ) |
Interest expense
|
$ | -- | $ | -- | ||||||
|
|
||||||||||||||||
Total
|
$ | (220 | ) | $ | (1,688 | ) |
Total
|
$ | -- | $ | -- |
11.
|
Fair Value Measurements
|
Fair Value Measurements at Reporting Date Using:
|
||||||||||||||||
Quoted Prices in Active Markets for Identical Assets
|
Significant Observable Inputs
|
Significant Unobservable Inputs
|
Balance as of June 30, 2011
|
|||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||||
Money market mutual funds
|
$ | 9,797 | $ | -- | $ | -- | $ | 9,797 | ||||||||
Interest rate swap
|
$ | -- | $ | (1,911 | ) | $ | -- | $ | (1,911 | ) |
Fair Value Measurements at Reporting Date Using:
|
||||||||||||||||
Quoted Prices in Active Markets for Identical Assets
|
Significant Observable Inputs
|
Significant Unobservable Inputs
|
Balance as of December 31, 2010
|
|||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||||
Money market mutual funds
|
$ | 17,283 | $ | -- | $ | -- | $ | 17,283 | ||||||||
Interest rate swap
|
$ | -- | $ | (1,691 | ) | $ | -- | $ | (1,691 | ) |
TOTAL REVENUES
|
||||||||||||
(in thousands)
|
||||||||||||
NO. OF
|
||||||||||||
ROOMS
|
2011
|
2010
|
||||||||||
Royal Sonesta Hotel Boston
|
400 | $ | 12,929 | $ | 11,885 | |||||||
Royal Sonesta Hotel New Orleans
|
500 | 20,398 | 19,196 | |||||||||
Sonesta Bayfront Hotel Coconut Grove
|
200 | 6,050 | -- | |||||||||
Management and service fees and other revenues
|
1,191 | 2,820 | ||||||||||
Total revenues, excluding revenues from managed and affiliated properties
|
$ | 40,568 | $ | 33,901 |
OPERATING INCOME (LOSS)
(in thousands)
|
||||||||
2011
|
2010
|
|||||||
Royal Sonesta Hotel Boston
|
$ | 16 | $ | 373 | ||||
Royal Sonesta Hotel New Orleans
|
2,565 | 1,640 | ||||||
Sonesta Bayfront Hotel Coconut Grove
|
23 | -- | ||||||
Operating income from hotels after management and service fees
|
2,604 | 2,013 | ||||||
Management activities and other
|
(3,011 | ) | (1,579 | ) | ||||
Operating income (loss)
|
$ | (407 | ) | $ | 434 |
TOTAL REVENUES
|
||||||||||||
(in thousands)
|
||||||||||||
NO. OF
|
||||||||||||
ROOMS
|
2011
|
2010
|
||||||||||
Royal Sonesta Hotel Boston
|
400 | $ | 9,115 | $ | 8,157 | |||||||
Royal Sonesta Hotel New Orleans
|
500 | 10,388 | 9,565 | |||||||||
Sonesta Bayfront Hotel Coconut Grove
|
200 | 2,491 | -- | |||||||||
Management and service fees and other revenues
|
511 | 1,417 | ||||||||||
Total revenues, excluding revenues from managed and affiliated properties
|
$ | 22,505 | $ | 19,139 |
OPERATING INCOME (LOSS)
|
||||||||
(in thousands)
|
||||||||
2011
|
2010
|
|||||||
Royal Sonesta Hotel Boston
|
$ | 1,780 | $ | 1,778 | ||||
Royal Sonesta Hotel New Orleans
|
1,477 | 503 | ||||||
Sonesta Bayfront Hotel Coconut Grove
|
(210 | ) | -- | |||||
Operating income from hotels after management and service fees
|
3,047 | 2,281 | ||||||
Management activities and other
|
(1,603 | ) | (696 | ) | ||||
Operating income
|
$ | 1,444 | $ | 1,585 |
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: August 12, 2011
|
|
1.
|
I have reviewed this Report on Form 10-Q for the quarter ended June 30, 2011 of Sonesta International Hotels Corporation;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
|
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of registrant’s Board Directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: August 12, 2011
|
/s/ Boy van Riel
|
||
Name:
|
Boy van Riel
|
||
Title:
|
Vice President and Treasurer
|
|
1.
|
I have reviewed this Report on Form 10-Q for the quarter ended June 30, 2011 of Sonesta International Hotels Corporation;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
|
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of registrant’s Board Directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: August 12, 2011
|
/s/ Peter J. Sonnabend
|
||
Name:
|
Peter J. Sonnabend
|
||
Title:
|
Executive Chairman of the Board
|
|
1.
|
I have reviewed this Report on Form 10-Q for the quarter ended June 30, 2011 of Sonesta International Hotels Corporation;
|
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
|
4.
|
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
d)
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
|
|
5.
|
The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the Audit Committee of registrant’s Board Directors (or persons performing the equivalent functions):
|
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
|
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
|
Date: August 12, 2011
|
/s/ Stephanie Sonnabend
|
||
Name:
|
Stephanie Sonnabend
|
||
Title:
|
Chief Executive Officer and President
|
|
1.
|
The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
|
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Boston, August 12, 2011
|
||
By:
|
/s/ Peter J. Sonnabend
|
|
Name:
|
Peter J. Sonnabend
|
|
Title:
|
Executive Chairman of the Board
|
|
By:
|
/s/ Stephanie Sonnabend
|
|
Name:
|
Stephanie Sonnabend
|
|
Title:
|
Chief Executive Officer and President
|
|
By:
|
/s/ Boy van Riel
|
|
Name:
|
Boy van Riel
|
|
Title:
|
Vice President and Treasurer
|
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Thousands, except Share data |
Jun. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
CONDENSED CONSOLIDATED BALANCE SHEETS | Â | Â |
Trade, less allowance for doubtful accounts | $ 1,144 | $ 1,103 |
Class A Common stock, par value (in dollars per share) | $ 0.80 | $ 0.80 |
Class A Common stock, shares authorized (in shares) | 10,000 | 10,000 |
Class A Common stock, shares issued (in shares) | 6,102 | 6,102 |
Treasury shares (in shares) | 2,404 | 2,404 |
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Thousands, except Share data |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2011
|
Jun. 30, 2010
|
Jun. 30, 2011
|
Jun. 30, 2010
|
|
Revenues: | Â | Â | Â | Â |
Rooms | $ 14,513 | $ 11,545 | $ 25,824 | $ 19,735 |
Food and beverage | 6,241 | 5,018 | 11,400 | 9,132 |
Management, license and service fees | 511 | 1,417 | 1,191 | 2,820 |
Parking, telephone and other | 1,240 | 1,159 | 2,153 | 2,214 |
Total revenues from hotels | 22,505 | 19,139 | 40,568 | 33,901 |
Other revenues from managed and affiliated properties | 136 | 1,319 | 314 | 2,689 |
Total revenues | 22,641 | 20,458 | 40,882 | 36,590 |
Costs and expenses: | Â | Â | Â | Â |
Costs and operating expenses | 10,144 | 8,142 | 19,053 | 15,455 |
Advertising and promotion | 2,176 | 1,717 | 4,167 | 3,279 |
Administrative and general | 3,785 | 3,147 | 7,235 | 6,222 |
Human resources | 293 | 285 | 665 | 565 |
Maintenance | 981 | 867 | 1,924 | 1,745 |
Rentals | 1,790 | 1,831 | 4,122 | 2,976 |
Property taxes | 400 | 343 | 819 | 623 |
Depreciation and amortization | 1,492 | 1,222 | 2,990 | 2,602 |
Total cost and operating expenses | 21,061 | 17,554 | 40,975 | 33,467 |
Other expenses from managed and affiliated properties | 136 | 1,319 | 314 | 2,689 |
Total costs and expenses | 21,197 | 18,873 | 41,289 | 36,156 |
Operating income (loss) | 1,444 | 1,585 | (407) | 434 |
Other income (deductions): | Â | Â | Â | Â |
Interest expense | (641) | (538) | (1,322) | (1,105) |
Interest income | 28 | 65 | 61 | 125 |
Foreign exchange gain (loss) | 3 | (7) | 9 | (12) |
Gain (loss) on sales of assets | 0 | (56) | 2 | (60) |
Total other income (deductions) | (610) | (536) | (1,250) | (1,052) |
Income (loss) before income tax provision (benefit) | 834 | 1,049 | (1,657) | (618) |
Income tax provision (benefit) | 34 | 392 | (503) | (83) |
Net income (loss) | 800 | 657 | (1,154) | (535) |
Retained earnings at beginning of period | 31,386 | 34,542 | 33,340 | 35,734 |
Retained earnings at end of period | $ 32,186 | $ 35,199 | $ 32,186 | $ 35,199 |
Net income (loss) per share of common stock (in dollars per share) | $ 0.22 | $ 0.18 | $ (0.31) | $ (0.14) |
Weighted average number of shares outstanding(in shares) | 3,698 | 3,698 | 3,698 | 3,698 |
Document And Entity Information (USD $)
|
6 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
|
Aug. 11, 2011
|
Jun. 30, 2010
|
|
Entity Registrant Name | SONESTA INTERNATIONAL HOTELS CORP | Â | Â |
Entity Central Index Key | 0000091741 | Â | Â |
Current Fiscal Year End Date | --12-31 | Â | Â |
Entity Well-known Seasoned Issuer | No | Â | Â |
Entity Voluntary Filers | No | Â | Â |
Entity Current Reporting Status | Yes | Â | Â |
Entity Filer Category | Smaller Reporting Company | Â | Â |
Entity Public Float | Â | Â | $ 22,471,993 |
Entity Common Stock, Shares Outstanding | Â | 3,698,230 | Â |
Document Fiscal Year Focus | 2011 | Â | Â |
Document Fiscal Period Focus | Q2 | Â | Â |
Document Type | 10-Q | Â | Â |
Amendment Flag | false | Â | Â |
Document Period End Date | Jun. 30, 2011 |
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Segment Information
|
6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
|
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Segment Information | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information |
Historically, the Company had two reportable segments: Owned and Leased Hotels, and Management Activities. In recent years the Company has divested of and acquired hotel properties, entered into new management agreements and realigned certain management responsibilities. In consideration of these changes the Company has revised its segment reporting to report each of the owned and leased hotels as a separate segment as of January 1, 2011. For our Management Activities segment, additional information is included on revenues, providing a breakdown between revenues from managed hotels, franchised hotels and revenues from other corporate services, which include reservations and purchasing services, amongst others. The operating losses from management activities are computed after giving effect to management and marketing fees from owned and leased hotels. The 2010 segment information has been restated to conform to the new presentation. Segment information for each of the Company's owned and leased hotels and from management activities, for the three-month and six-month periods ending June 30, 2011 and 2010 follows: Quarter ended June 30, 2011:
Quarter ended June 30, 2010:
Breakdown of Management Activities revenues for the quarters ended June 30, 2011 and 2010:
Six-month period ended June 30, 2011:
Six-month period ended June 30, 2010:
Breakdown of Management Activities revenues for the six-month periods ended June 30, 2011 and 2010:
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Fair Value Measurements
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Jun. 30, 2011
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Fair Value Measurements | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurements |
The Company uses a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers include: Level 1, defined as observable inputs such as quoted prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. As of June 30, 2011 and December 31, 2010 the Company's cash equivalents were held in short-term money market mutual funds. The fair value of money market securities is based on quoted prices in an active market. As of June 30, 2011 and December 31, 2010, the Company held an interest rate swap instrument that is required to be measured at fair value on a recurring basis (see Note 10). The fair value of the Company's interest rate swap was determined using cash flow analysis on the expected cash flow of the contract in combination with observable market-based inputs, including interest rate curves and implied volatilities. As part of this valuation, the Company considered the credit ratings of the counterparties to the interest rate swap to determine if a credit risk adjustment was required. Therefore, the Company has categorized the swap contract as Level 2. The Company has consistently applied these valuation techniques in all periods presented and believes it has obtained the most accurate information available for the type of derivative contract it holds. The Company's assets (liabilities) measured at fair value on a recurring basis at June 30, 2011 and December 31, 2010, were as follows (in thousands):
The remainder of the assets and liabilities held by the Company at June 30, 2011 and December 31, 2010 are not required to be measured at fair value. The carrying amount of short-term financial instruments (cash, restricted cash, trade receivables, accounts payable and accrued liabilities) approximates fair value due to the short maturity of those instruments. The concentration of credit risk on trade receivables is minimized by the diverse nature of the Company's customer base. Management has outstanding note receivables at June 30, 2011 with various locations managed by the Company. Interest rates associated with these note receivables are consistent with current market interest rates or are discounted in order for the imputed interest rate to resemble that of current market rates. The carrying value of all notes receivable at June 30, 2011 approximate fair value, after taking into account the allowances recorded at June 30, 2011. The carrying value of the Company's term mortgage loan secured by Royal Sonesta Hotel Boston approximates its fair value due to its variable interest rate. The carrying value of the Company's term mortgage loan secured by Sonesta Bayfront Hotel Coconut Grove approximates its fair value due to the proximity to the closing date of this loan. |
Purchase of Sonesta Bayfront Hotel Coconut Grove
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Jun. 30, 2011
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Purchase of Sonesta Bayfront Hotel Coconut Grove | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Purchase of Sonesta Bayfront Hotel Coconut Grove |
The Company purchased Sonesta Bayfront Hotel Coconut Grove on July 1, 2010. The Hotel had been operated by the Company under a management agreement since its opening in April 2002. Sonesta Bayfront Hotel Coconut Grove is a condominium hotel. Owners of condominium units in the hotel have the option to place their unit in a rental program, and receive rent based on a percentage of room revenues achieved. The Company acquired the “Hotel Lot”, which includes the restaurant, meeting rooms and other hotel facilities, the Hotel's working capital, and the right to operate the rental program pursuant to lease agreements with unit owners. Based on historical cash flow achieved, particularly in 2007 and 2008, the Company believes the hotel represents a good investment. In addition, financing for the acquisition was available on reasonable terms, and the Company's management agreement would otherwise have expired in 2017. The purchase price of $8,185,000 included the assumption of a $6,500,000 first mortgage loan, and cash paid at closing of $1,349,000. The Company also agreed to pay the Seller a share of net cash flow, as defined, for a period of 11 years starting January 1, 2010, and recorded a $336,000 liability for the estimated fair value of this obligation at July 1, 2010. The results of operations of Sonesta Bayfront Hotel Coconut Grove have been included in the Company's consolidated statement of operations since the July 1, 2010 acquisition date. The following unaudited proforma condensed financial information gives effect to our acquisition of the Sonesta Bayfront Hotel Coconut Grove as if it had occurred on January 1, 2010. The unaudited proforma condensed financial information is presented for illustrative purposes only and is not necessarily indicative of the consolidated financial position or consolidated results of operations of the Company that would have been reported had the acquisition occurred on the date indicated, nor does it represent a forecast of the consolidated results of the operations of the Company for any future period. (in thousands)
A reconciliation of the proforma adjustment to net loss follows (in thousands):
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Earnings (loss) Loss per Share
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Jun. 30, 2011
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Loss per Share | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loss per Share |
As the Company has no dilutive securities, there is no difference between basic and diluted earnings per share. The following table sets forth the computation of basic income and loss per share (in thousands, except for per share data):
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Pension Plan
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Pension Plan | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Pension Plan |
The components of the net periodic pension cost for the Company's Pension Plan were as follows:
The Company froze its Pension Plan effective December 31, 2006. Additional service and/or compensation increases after January 1, 2007 will not increase participants' benefits and, in addition, newly hired employees will not receive benefits under the Plan. For additional information on the Pension Plan, and the Company's 401(k) savings plan, refer to Note 9 of the Company's 2010 Annual Report filed on Form 10-K. The Company plans to make contributions of approximately $995,000 to the Pension Plan during the twelve-month period ending June 30, 2012. Accordingly, these amounts have been classified as a current liability. The Company does not have any other post-retirement benefit plans. |
Comprehensive Income (Loss)
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Jun. 30, 2011
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Comprehensive Income (Loss) | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Comprehensive Income (Loss) |
Comprehensive income (loss) is as follows:
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
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6 Months Ended | |
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Jun. 30, 2011
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Jun. 30, 2010
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | Â | Â |
Cash paid for interest | $ 1,223,000 | $ 1,127,000 |
Cash paid for income taxes | $ 839,000 | $ 437,000 |
Long-Term Receivables and Advances
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6 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Long-Term Receivables and Advances | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-Term Receivables and Advances |
Egypt Receivables and Advances The political unrest in Egypt impacted business levels at the Company's managed hotels and Nile River cruise ships starting in February 2011. This will continue to impact fee income in 2011, and delay receipt of outstanding receivables and loans. The total amount due for both loans and receivables from Egypt at June 30, 2011 was approximately $4.2 million. Of the loans included above (total of approximately $1.8 million) the Company currently expects to collect $491,000 during the twelve-month period ending June 30, 2012, and has classified this amount as short-term. The Company's receivables for fees and expenses totaled approximately $2.4 million at June 30, 2011, of which approximately $1.2 million is due from Sonesta St. George Hotel Luxor and Sonesta St. George I Cruise ship, which are owned by the same owner. The Company expects to collect approximately $700,000 of the $2.4 million in receivables for fees and expenses during the twelve-month period ending June 30, 2012. As a result, approximately $1.7 million is included in other long-term receivables. To account for the delays in receiving payments, and for potential uncollectible accounts, the Company provided for a reserve of approximately $700,000 at June 30, 2011 and December 31, 2010, which is recorded as a reduction of the related short-term trade receivables. The Company has not recorded any fee income from Egypt operations during 2011, and will continue same until the properties resume regular payments of loans and receivables. Management continually monitors the collectability of its receivables and advances and believes they are fully realizable, after considering the reserves recorded at June 30, 2011. |
Borrowing Arrangements
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6 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Borrowing Arrangements | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Borrowing Arrangements |
Long-Term Debt
(a) This first mortgage note is payable by Charterhouse of Cambridge Trust and Sonesta of Massachusetts, Inc., the Company's subsidiaries that own and operate Royal Sonesta Hotel Boston. This loan, which will mature in March 2015, has a variable rate based on LIBOR, but the Company has entered into an interest swap agreement that provides for a 6.4% fixed interest rate for the term of the loan. Payments of interest and principal, based on a 25-year amortization period, are approximately $650,000 per quarter. The loan is secured by a first mortgage on the Royal Sonesta Hotel Boston property which is included in fixed assets at a net book value of $23,802,000 at June 30, 2011. As additional security, the Company provides a $5,000,000 parent company guaranty and established a restricted cash collateral account in the amount of $5,000,000 of which $2,500,000 was released in April 2011. The remaining amount will be released provided the Hotel achieves a debt service coverage ratio of no less than 1.5 to 1 for four consecutive quarters starting with the first quarter of 2011. The Company achieved the required debt service ratio during the first two quarters of 2011, and expects to achieve the required ratio during the remaining two quarters of 2011. The loan is subject to a maximum loan-to-value ratio of 65%. Based on an appraisal completed in connection with the refinancing in January 2010, the loan to value ratio equaled 46%. The loan is also subject to a minimum debt service coverage ratio of 1.25 to 1. If the hotel fails to achieve this ratio, additional principal payments are required. (b) This first mortgage note is payable by Sonesta Coconut Grove, Inc., the Company's subsidiary that acquired Sonesta Bayfront Hotel Coconut Grove, a condominium hotel, on July 1, 2010. This loan, which will mature in October 2015, has a 6.25% fixed interest rate. Payments of interest and principal, based on a 25-year amortization period, are $43,247 per month. The loan is secured by a first mortgage on the Sonesta Bayfront Hotel property which is included in fixed assets at a net book value of $5,188,000 at June 30, 2011. As additional security, the Company funded a cash collateral account in the amount of $257,000 (6 months of debt service payments) which will be released if the hotel achieves an annual debt service coverage ratio of 1.2 to 1. The Company does not expect the hotel to achieve this level of earnings in 2011. The Company also provides a parent company guaranty of $4 million to the lender. |
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Hotel Costs and Operating Expenses
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Jun. 30, 2011
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Hotel Costs and Operating Expenses [Abstract] | Â | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Hotel Costs and Operating Expenses |
Hotel costs and operating expenses in the accompanying condensed Consolidated Statements of Operations are summarized below:
Direct departmental costs include payroll expenses and related payroll burden, the cost of food and beverage consumed and other departmental costs. The 2011 periods include expenses from Sonesta Bayfront Hotel Coconut Grove, which the Company acquired on July 1, 2010 ($1,006,000 for the three-month period ending June 30, 2011 and $2,158,000 for the six-month period ending June 30, 2011). |
Basis of Presentation
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Jun. 30, 2011
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Basis of Presentation | Â | ||
Basis of Presentation |
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three-month and six-month periods ended June 30, 2011 are not necessarily indicative of the results that may be expected for the year ended December 31, 2011. The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. The Company evaluated all events and transactions that occurred after June 30, 2011 through the date this report was filed. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2010. |
Derivative Financial Instruments
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Jun. 30, 2011
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Derivative Financial Instruments | Â | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments |
The Company has a mortgage loan, which has a variable rate based on LIBOR (see Note 4 – Borrowing arrangements). The Company entered into an interest rate swap agreement to manage the interest rate risk associated with this loan. The critical terms of the swap agreement match the critical terms of the mortgage loan. Therefore, the Company designated the interest rate swap as a cash flow hedge of the variable rate borrowings. The Company does not engage in speculative transactions, nor does it hold or issue financial instruments for trading purposes. The counterparty to the Company's swap agreement is a financial institution with investment grade credit ratings. Cash Flow Hedging Strategy For derivative instruments that are designated and qualify as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (“OCI”) and reclassified into earnings in the same line item associated with the forecasted transaction and in the same period or periods during which the hedged transaction affects earnings (e.g., in “interest expense” when the hedged transactions are interest cash flows associated with variable rate debt). The remaining gain or loss on the derivative instrument in excess of the cumulative change in the present value of future cash flows of the hedged item, or ineffectiveness, if any, is recognized in the statement of operations during the current period. The interest rate swap agreement the Company entered into manages the interest rate risk on its mortgage loan described in note 4. The forward-starting interest rate swap with a notional amount of $32,000,000 converts the variable rate of LIBOR plus 3.35% on the $32,000,000 principal amount of the loan to a fixed rate of 6.4% for the five-year term of the loan. As the terms of the swap match the terms of the underlying hedged mortgage loan, there should be no gain or loss from the ineffectiveness recognized in income unless there is a termination of the swap or a modification to the mortgage loan terms. If the loan terms remain unchanged, and all payments are being made when scheduled, there will be no future impact on the Company's results from operations. Based upon quotes, the fair value of the interest rate swap was a liability of $1,911,000 and $1,691,000 as of June 30, 2011 and December 31, 2010, respectively. The fair value of the Company's derivative instruments based upon quotes at June 30, 2011 and December 31, 2010 is as follows:
The effect of derivative instruments on the statement of operations for the six-month periods ended June 30, 2011 and 2010 is as follows (in thousands):
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