** **

**FORM 10-Q**

 

**SECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C. 20549**

 
| **(Mark One)**                                     |                                                                                           |
|----------------------------------------------------|------------------------------------------------------------------------------------------------|
|                                               |                                                                                           |
| **ý**                                         | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|                                               |                                                                                           |
| **For  the Quarterly period ended March 31, 2002** |
|                                                    |                                                                                                |  |

 

**OR**

 
| **o**                                                                                                                                                                                                                            | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF  1934** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                             |                                                                                            |
| **For  the transition period  from                to               ** |

 

**Commissionfile number 0-9032**

 

**SONESTA INTERNATIONAL HOTELSCORPORATION**

(Exact name of registrantas specified in its charter)

 

| **NEW  YORK**                                                                      |   | **13-5648107**                        |
|------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction or incorporation or organization)                    |   | (I.R.S. Employer  Identification No.) |
|                                                                               |   |                                  |
| **116  Huntington Avenue, Boston, MA**                                             |   | **02116**                             |
| (Address of principal  executive offices)                                          |   | (Zip Code)                            |
|                                                                               |   |                                  |
| **617-421-5400**                                                                   |
| (Registrant’s telephone  number, including area code)                         |
|                                                                               |   |                                  |
| **200  Clarendon Street, Boston, MA 02116**                                        |
| (Former name, former  address and former fiscal year, if changed since last report |

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by section 13 or 15 (d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter 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  ý             No  o

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

 

Number of Shares ofCommon Stock Outstanding

As of May 7, 2002 – $.80par value,

Class A – 3,698,230

 

----

 

**INDEX**

 

**SONESTAINTERNATIONAL HOTELS CORPORATION**

 

** **
| Part I. Financial Information |                                                                                                        |   |
|-------------------------------|-------------------------------------------------------------------------------------------------------------|--------|
|                          |                                                                                                        |   |   |
| Item  1.                      | Financial  Statements (Unaudited)                                                                      |   |   |
|                          |                                                                                                        |   |   |
|                          | Condensed  consolidated balance sheets—March 31, 2002 and December 31, 2001                            |   |   |
|                          |                                                                                                        |   |   |
|                          | Condensed  consolidated statements of operations—Three months ended March 31, 2002 and  2001      |   |   |
|                          |                                                                                                        |   |   |
|                          | Condensed  consolidated statements of cash flows—Three months ended March 31, 2002 and  2001      |   |   |
|                          |                                                                                                        |   |   |
|                          | Notes  to condensed consolidated financial statements—March 31, 2002 and 2001                          |   |   |
|                          |                                                                                                        |   |   |
| Item  2.                      | Management's  Discussion and Analysis of Results of Operations and Financial Condition—March  31, 2002 |   |   |
|                          |                                                                                                        |   |   |
| Item  3.                      | Quantitative  and Qualitative Disclosure of Market Risk                                                     |   |   |

 

 

----

 

**Part I****  –  Item 1.       Financial Information**

 

**SONESTA INTERNATIONAL HOTELS CORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

March  31, 2002 (unaudited)  and December 31, 2001

 
|                                                                    |   | **(in thousands)**       |    |
|-------------------------------------------------------------------------|--------|--------------------------|---------|
|                                                                    |   | **March  31  2002** |    | **December 31  2001** |   |
| ASSETS                                                                  |   |                     |    |   |   |
| Current assets:                                                         |   |                     |    |   |   |
| Cash and cash  equivalents                                              |   | $                        | 9,348   |   | $ | 14,256 |   |
| Accounts and  notes receivable:                                         |   |                     |    |   |   |
| Trade, less  allowance of $260 for doubtful accounts                    |   | 8,401                    |    | 6,190 |   |
| Other, including  current portion of long-term receivables and advances |   | 549                      |    | 753 |   |
| Total accounts  and notes receivable                                    |   | 8,950                    |    | 6,943 |   |
| Refundable  income taxes                                                |   | 1,161                    |    | 1,499 |   |
| Current portion  of deferred taxes                                      |   | 389                      |    | 391 |   |
| Inventories                                                             |   | 1,242                    |    | 1,413 |   |
| Prepaid expenses  and other                                             |   | 4,180                    |    | 3,964 |   |
|                                                                    |   |                     |    |   |   |
| Total current  assets                                                   |   | 25,270                   |    | 28,466 |   |
|                                                                    |   |                     |    |   |   |
| Long-term  receivables and advances                                     |   | 4,654                    |    | 3,690 |   |
|                                                                    |   |                     |    |   |   |
| Property and  equipment, at cost:                                       |   |                     |    |   |   |
| Land and land  improvements                                             |   | 9,940                    |    | 9,940 |   |
| Buildings                                                               |   | 74,634                   |    | 73,418 |   |
| Furniture and  equipment                                                |   | 43,913                   |    | 42,878 |   |
| Leasehold  improvements                                                 |   | 4,684                    |    | 4,605 |   |
| Projects in  progress                                                   |   | 552                      |    | 706 |   |
|                                                                    |   | 133,723                  |    | 131,547 |   |
|                                                                    |   |                     |    |   |   |
| Less accumulated  depreciation and amortization                         |   | 38,657                   |    | 36,418 |   |
| Net property and  equipment                                             |   | 95,066                   |    | 95,129 |   |
|                                                                    |   |                     |    |   |   |
| Other long-term  assets                                                 |   | 1,510                    |    | 1,532 |   |
|                                                                    |   | $                        | 126,500 |   | $ | 128,817 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

1

----

 
|                                                                       |   | **(in thousands)** |    |
|----------------------------------------------------------------------------|--------|--------------------|---------|
|                                                                       |   | **March 31  2002** |    | **December 31  2001** |   |
| LIABILITIES AND  COMMON STOCKHOLDERS’ EQUITY                          |   |               |    |   |   |
| Current  liabilities:                                                      |   |               |    |   |   |
| Current portion  of long-term debt                                         |   | $                  | 1,158   |   | $ | 1,139 |   |
| Accounts payable                                                           |   | 3,984              |    | 3,955 |   |
| Advance deposits                                                           |   | 3,671              |    | 4,576 |   |
| Federal, foreign  and state income taxes                                   |   | 1,107              |    | 969 |   |
| Accrued  liabilities:                                                      |   |               |    |   |   |
| Salaries and wages                                                         |   | 1,630              |    | 1,577 |   |
| Rentals                                                                    |   | 2,475              |    | 5,827 |   |
| Interest                                                                   |   | 528                |    | 527 |   |
| Other                                                                      |   | 2,323              |    | 1,645 |   |
|                                                                       |   |               |    |   |   |
| Total accrued  liabilities                                                 |   | 6,956              |    | 9,576 |   |
|                                                                       |   |               |    |   |   |
| Total current  liabilities                                                 |   | 16,876             |    | 20,215 |   |
|                                                                       |   |               |    |   |   |
| Long-term debt                                                             |   | 73,805             |    | 74,123 |   |
|                                                                       |   |               |    |   |   |
| Deferred federal  and state income taxes                                   |   | 5,756              |    | 5,324 |   |
|                                                                       |   |               |    |   |   |
| Other  non-current liabilities                                             |   | 2,297              |    | 1,937 |   |
|                                                                       |   |               |    |   |   |
| Commitments and  contingencies                                             |   |               |    |   |   |
|                                                                       |   |               |    |   |   |
| Common  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                                                         |   | 34,937             |    | 34,389 |   |
| Treasury  shares—2,404, at cost                                       |   | (12,053            | )       | (12,053 | ) |
| Total common  stockholders’ equity                                    |   | 27,766             |    | 27,218 |   |
|                                                                       |   | $                  | 126,500 |   | $ | 128,817 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements*

 

2

----

 

**SONESTA INTERNATIONAL HOTELS CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)**

(in thousands except forper share data)

 
|                                             |   | **Three Months Ended March 31** |   |
|--------------------------------------------------|--------|---------------------------------|--------|
|                                             |   | **2002**                        |   | **2001** |   |
| Revenues:                                        |   |                            |   |   |   |
| Rooms                                            |   | $                               | 16,505 |   | $ | 18,978 |   |
| Food and  beverage                               |   | 6,882                           |   | 6,974 |   |
| Management,  license and service fees            |   | 1,143                           |   | 1,366 |   |
| Parking,  telephone and other                    |   | 2,500                           |   | 2,518 |   |
|                                             |   | 27,030                          |   | 29,836 |   |
|                                             |   |                            |   |   |   |
| Costs and  expenses:                             |   |                            |   |   |   |
| Costs and  operating expenses                    |   | 10,966                          |   | 11,917 |   |
| Advertising and  promotion                       |   | 2,097                           |   | 2,164 |   |
| Administrative  and general                      |   | 3,823                           |   | 4,668 |   |
| Human resources                                  |   | 446                             |   | 555 |   |
| Maintenance                                      |   | 1,590                           |   | 2,028 |   |
| Rentals                                          |   | 2,687                           |   | 2,369 |   |
| Property taxes                                   |   | 721                             |   | 653 |   |
| Depreciation and  amortization                   |   | 2,239                           |   | 2,219 |   |
|                                             |   | 24,569                          |   | 26,573 |   |
|                                             |   |                            |   |   |   |
| Operating income                                 |   | 2,461                           |   | 3,263 |   |
|                                             |   |                            |   |   |   |
| Other income  (deductions):                      |   |                            |   |   |   |
| Interest expense                                 |   | (1,593                          | )      | (1,741 | ) |
| Interest income                                  |   | 128                             |   | 520 |   |
| Foreign exchange  loss                           |   | (1                              | )      | (37 | ) |
| Gain from  casualty                              |   | —                          |   | 801 |   |
| Gain  on sales of assets                         |   | —                          |   | 5 |   |
|                                             |   | (1,466                          | )      | (452 | ) |
|                                             |   |                            |   |   |   |
| Income before  income taxes                      |   | 995                             |   | 2,811 |   |
| Federal, foreign  and state income tax provision |   | 447                             |   | 1,025 |   |
| Net income                                       |   | 548                             |   | 1,786 |   |
| Retained  earnings at beginning of period        |   | 34,389                          |   | 37,033 |   |
| Cash dividends  on preferred stock               |   | —                          |   | (3 | ) |
| Retained  earnings at end of period              |   | $                               | 34,937 |   | $ | 38,816 |   |
|                                             |   |                            |   |   |   |
| Basic earnings  per share of common stock        |   | $                               | .15    |   | $ | .48 |   |
|                                             |   |                            |   |   |   |
| Weighted average  number of shares outstanding   |   | 3,698                           |   | 3,705 |   |

 

*Seeaccompanying notes to condensed consolidated financial statements.*

 

3

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** **

**SONESTA INTERNATIONAL HOTELS CORPORATION**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)**

Increase (Decrease) inCash  (in thousands)

 
|                                                     |   | **Three Months Ended March 31** |   |
|----------------------------------------------------------|--------|---------------------------------|--------|
|                                                     |   | **2002**                        |   | **2001** |   |
| Cash provided (used) by operating activities             |   |                            |   |   |   |
| Net  income                                              |   | $                               | 548    |   | $ | 1,786 |   |
| Items not  (providing) requiring cash                    |   |                            |   |   |   |
| Pension expense                                          |   | 380                             |   | 283 |   |
| Depreciation and  amortization of property and equipment |   | 2,239                           |   | 2,219 |   |
| Other  amortization                                      |   | 22                              |   | 25 |   |
| Deferred federal  and state income tax provision         |   | 434                             |   | 29 |   |
| Gain on sales of  assets                                 |   | —                          |   | (5 | ) |
| Deferred  interest income                                |   | (35                             | )      | (8 | ) |
|                                                     |   |                            |   |   |   |
| Changes in  assets and liabilities                       |   |                            |   |   |   |
| Accounts and  notes receivable                           |   | (1,878                          | )      | (1,375 | ) |
| Refundable  income taxes                                 |   | 338                             |   | — |   |
| Inventories                                              |   | 171                             |   | 155 |   |
| Prepaid expenses  and other                              |   | (216                            | )      | (829 | ) |
| Accounts payable                                         |   | 399                             |   | (272 | ) |
| Advance deposits                                         |   | (905                            | )      | (540 | ) |
| Federal, foreign  and state income taxes                 |   | 138                             |   | 848 |   |
| Accrued  liabilities                                     |   | (2,642                          | )      | (4,316 | ) |
| Cash  used by operating activities                       |   | (1,007                          | )      | (2,000 | ) |
|                                                     |   |                            |   |   |   |
| Cash provided  (used) by investing activities            |   |                            |   |   |   |
| Proceeds from sales  of assets                           |   | —                          |   | 5 |   |
| Proceeds from  maturities of government debt securities  |   | —                          |   | 10,313 |   |
| Expenditures for  property and equipment                 |   | (2,175                          | )      | (3,983 | ) |
| Payments  received on long-term receivables and advances |   | 49                              |   | 331 |   |
| New loans and  advances                                  |   | (1,107                          | )      | (1,051 | ) |
| Cash  provided (used) by investing activities            |   | (3,233                          | )      | 5,615 |   |
|                                                     |   |                            |   |   |   |
| Cash used by  financing activities                       |   |                            |   |   |   |
| Payments on  long-term debt                              |   | (298                            | )      | (297 | ) |
| Cash dividends  paid                                     |   | (370                            | )      | (374 | ) |
| Cash  used by financing activities                       |   | (668                            | )      | (671 | ) |
|                                                     |   |                            |   |   |   |
| Net increase  (decrease) in cash                         |   | (4,908                          | )      | 2,944 |   |
| Cash and cash  equivalents at beginning of period        |   | 14,256                          |   | 23,850 |   |
| Cash and cash  equivalents at end of period              |   | $                               | 9,348  |   | $ | 26,794 |   |

 

Supplemental Schedule ofInterest and Income Taxes Paid

Cash paid for interest in the 2002 three-month periodand the 2001 three-month period was approximately $1,592,000 and $1,728,000,respectively.  Cash refunded for incometaxes in the 2002 three-month period was approximately $463,000.  Cash paid for income taxes in the 2001three-month period was approximately $148,000.

 

*Seeaccompanying notes to condensed consolidated financial statements.*

** **

**4**

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**SONESTA INTERNATIONAL HOTELS CORPORATION**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.**             **Basis of Presentation**

 

The accompanying unaudited condensed consolidated financial statementshave been prepared in accordance with generally accepted accounting principlesfor interim financial information and with the instructions to Form 10-Q andArticle 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotesrequired by generally accepted accounting principles for complete financialstatements.  In the opinion ofmanagement, all adjustments (consisting of normal recurring accruals)considered necessary for a fair presentation have been included.  Operating results for the three month periodended March 31, 2002 are not necessarily indicative of the results that may beexpected for the year ended December 31, 2002.

 

The balance sheet at December 31, 2001 has been derived from theaudited financial statements at that date but does not include all of theinformation and footnotes required by generally accepted accounting principlesfor complete financial statements.

 

For further information, refer to the consolidated financial statementsand footnotes thereto included in the Company’s annual report on Form 10-K forthe year ended December 31, 2001.

 

**2.             Long-Term Receivables andAdvances**

 
|                                                           |   | **(in thousands)**  |   |
|----------------------------------------------------------------|--------|---------------------|--------|
|                                                           |   | **March 31,  2002** |   | **December  31, 2001** |   |
| Sharm El Sheikh,  Egypt (a)                                    |   | $                   | 577    |   | $ | 609 |   |
| Sonesta Hotels  & Suites Coconut Grove, Miami, Florida (b) |   | 3,990               |   | 2,958 |   |
| Other                                                          |   | 413                 |   | 322 |   |
| Total long-term  receivables                                   |   | 4,980               |   | 3,889 |   |
| Less:  current portion                                    |   | 326                 |   | 199 |   |
| Net long-term  receivables                                     |   | $                   | 4,654  |   | $ | 3,690 |   |

 

----

(a)                                  Thisloan, in the original amount of $1,000,000, was made in 1996 and 1997 to theowner of the Sonesta Beach Resort, Sharm El Sheikh.  The loan agreement was amended in 1999.  The loan bears interest at the prime rate and is adjustedsemi-annually.  The interest ratecharged at March 31, 2002 was 4.75%. The loan is being repaid in 60 monthly installments, commencing January2000.

 

(b)                                 Thisloan is made to the owner of the Sonesta Hotel & Suites Coconut Grove,Miami, which opened in April 2002.  TheCompany will loan up to $4,000,000 to fund construction and furniture, fixturesand equipment (“FF&E”) costs, and up to $1,000,000 for pre-opening costsand working capital.  The constructionand FF&E loan bears interest at the prime rate (43⁄4% at March 31, 2002) plus3⁄4%.  No interest will be charged on the$1,000,000 pre-opening loan.  Theseloans will be repaid, the pre-opening loan first, out of profits that wouldotherwise be available for distribution to the owner of the hotel.

 

5

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**3.**             **Borrowing Arrangements**

 

*CreditLine*

 

The Company has a $2,000,000 line of credit which expires on September30, 2002.  This line of credit bearsinterest at the prime rate (4 3/4% at March 31, 2002).  The terms of the line require a certainminimum net worth, a minimum amount of unrestricted cash or available creditlines during part of each calendar year, and approval for additional borrowingsby the Company.  No amounts wereoutstanding under this line of credit at March 31, 2002.

 

A subsidiary of the Company closed on a $5,000,000 line of credit inMarch 2002.  This line of credit willexpire on March 31, 2005.  The loan issecured by a mortgage on the Company’s leasehold interest in the Royal SonestaHotel New Orleans, and by a parent Company guaranty.  The terms of the loan require certain minimum levels of incomefor Royal Sonesta Hotel New Orleans, and specify a maximum defined debt to networth ratio.  The terms also require aminimum net worth, approval for additional borrowings by the Company, andlimits on cash dividends and purchases of the Company’s stock.  The interest rate is LIBOR plus 3% (4.9% atMarch 31, 2002), and the commitment fee on the unused portion of the line is0.65% per annum.  No amounts wereoutstanding under this line at March 31, 2002.

 

## *Long-Term Debt*

 
|                                                                |   | **(in  thousands)** |       |
|---------------------------------------------------------------------|--------|---------------------|------------|
|                                                                |   | **March 31,  2002** |       | **December  31, 2001** |   |
| Charterhouse of  Cambridge Trust and Sonesta of Massachusetts Inc.: |   |                | ** ** |   | ** ** |
| First mortgage  note (a)                                            |   | $                   | 40,248     |   | $ | 40,379 |   |
| Sonesta Beach  Resort Limited Partnership:                          |   |                |       |   |   |
| First mortgage  note (b)                                            |   | 30,431              |       | 30,531 |   |
| Sonesta Hotels  of Anguilla, Ltd:                                   |   |                |       |   |   |
| First mortgage  note (c)                                            |   | 4,284               |       | 4,352 |   |
|                                                                |   | 74,963              |       | 75,262 |   |
| Less current  portion of long-term debt                             |   | 1,158               |       | 1,139 |   |
| Total long-term  debt                                               |   | $                   | 73,805     |   | $ | 74,123 |   |

 

----

(a)                                  This loan is secured by a first mortgageon the Royal Sonesta Hotel Boston (Cambridge) property.  This property is included in fixed assets at a net book value of$24,378,000 at March 31, 2002.  Theinterest rate on this loan is 8.6% for the term of the loan, and amortizationof the principal balance is based on a 25 year schedule.  Monthly payments of principal and interestare $332,911.  The mortgage loan maturesin July 2010, and prepayment of this loan is subject to early paymentpenalties, based on prevailing interest rates at the time of theprepayment.  This mortgage loan, and themortgage loan on Sonesta Beach Resort Key Biscayne (see (b), below) are providedby the same lender, and are cross-collateralized.

 

(b)                                 This loan is secured by a first mortgageon the Sonesta Beach Resort Key Biscayne property.  The property is included in fixed assets at a net book value of$45,628,000 at March 31, 2002.  The interestrate on this loan is 8.6% for the term of the loan, and amortization of theprincipal balance is based on a 25 year schedule.  Monthly payments of principal and interest are $251,713.  The mortgage loan matures in July 2010, andprepayment of this loan is subject to early payment penalties, based onprevailing interest rates at the time of the prepayment.  This mortgage loan, and the mortgage loan onRoyal Sonesta Hotel Boston (Cambridge) (see (a), above) are provided by thesame lender, and are cross-collateralized.

 

(c)                                  Thisloan is secured by a first mortgage on the Sonesta Beach Resort Anguillaproperty, and an assignment to the lender of the hotel’s furniture, fixturesand equipment.        This property isincluded in fixed assets at a net book value of $11,598,000 at March 31,2002.  In addition, an amount of$1,900,000 is secured by a Company guaranty. This loan requires minimum principal payments of $204,000 during the remainderof  2002, and $272,000 in 2003.  In addition, principal payments are requiredequal to 25% of the hotel’s annual excess cash flow, as defined.  The balance of $3,808,000 is due on December31, 2003.  The interest rate on the loanis LIBOR plus 2.25%.  The interest rateat March 31, 2002 was 4.1%.

 

6

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**4.**             **Hotel Costs and Operating Expenses**

 

Hotel costs and operating expenses in the accompanying condensedConsolidated Statements of Operations are summarized below:

 
|                       |   | **(in  thousands)**              |   |
|----------------------------|--------|----------------------------------|--------|
|                       |   | **Three  Months Ended March 31** |   |
|                       |   | **2002**                         |   | **2001** |   |
| Direct  departmental costs |   |                             |   |   |   |
| Rooms                      |   | $                                | 3,748  |   | $ | 3,964 |   |
| Food and  beverage         |   | 5,238                            |   | 5,605 |   |
| Heat, light and  power     |   | 827                              |   | 1,059 |   |
| Other                      |   | 1,153                            |   | 1,289 |   |
|                       |   | $                                | 10,966 |   | $ | 11,917 |   |

 

Direct departmental costs include payroll expenses and related payrollburden, the cost of food and beverage consumed and other departmental costs.

 

**5.**             **Federal, Foreign and State Income Tax**

 

The provision for incometaxes in the accompanying condensed Consolidated Statements of Operations issummarized below:

 
|                                            |   | **(in  thousands)**              |   |
|-------------------------------------------------|--------|----------------------------------|--------|
|                                            |   | **Three  Months Ended March 31** |   |
|                                            |   | **2002**                         |   | **2001** |   |
| Current  federal income tax provision (benefit) |   | $                                | (134   | ) | $ | 847 |   |
| Current foreign  income tax provision           |   | 47                               |   | 74 |   |
| Current state  income tax provision             |   | 100                              |   | 75 |   |
| Deferred  federal income tax provision          |   | 434                              |   | 29 |   |
|                                            |   | $                                | 447    |   | $ | 1,025 |   |

 

7

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**6.             Segment Information**

 

Segment information for the Company’s two reportable segments, Owned& Leased Hotels and Management Activities, for the three month periodsending March 31, 2002 and 2001 follows:

 

Period ended March 31, 2002

 
|                                                                  |   | **(in  thousands)**             |   |
|-----------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                  |   | **Owned  &  Leased Hotels** |   | **Management  Activities** |   |   |   |
|                                                                  |   | **Consolidated**                |   |
|                                                                  |   |                            |   |   |   |   |   |
| Revenues                                                              |   | $                               | 25,882 |   | $ | 1,148 |   | $ | 27,030 |   |
| Operating income  (loss) before depreciation and amortization expense |   | 4,817                           |   | (117 | ) | 4,700 |   |
| Depreciation and  amortization                                        |   | (2,129                          | )      | (110 | ) | (2,239 | ) |
| Interest income  (expense), net                                       |   | (1,584                          | )      | 119 |   | (1,465 | ) |
| Other deductions                                                      |   | —                          |   | (1 | ) | (1 | ) |
| Segment  pre-tax profit (loss)                                        |   | 1,104                           |   | (109 | ) | 995 |   |
|                                                                  |   |                            |   |   |   |   |   |
| Segment assets                                                        |   | 105,795                         |   | 20,705 |   | 126,500 |   |
| Segment capital  additions                                            |   | 1,334                           |   | 841 |   | 2,175 |   |
|                                                                       |        |                                 |        |  |  |  |  |  |  |  |

 

Period ended March 31, 2001

 
|                                                                  |   | **(in  thousands)**             |   |
|-----------------------------------------------------------------------|--------|---------------------------------|--------|
|                                                                  |   | **Owned  &  Leased Hotels** |   | **Management  Activities** |   |   |   |
|                                                                  |   | **Consolidated**                |   |
|                                                                  |   |                            |   |   |   |   |   |
| Revenues                                                              |   | $                               | 28,436 |   | $ | 1,400 |   | $ | 29,836 |   |
| Operating income  (loss) before depreciation and amortization expense |   | 5,966                           |   | (484 | ) | 5,482 |   |
| Depreciation and  amortization                                        |   | (2,109                          | )      | (110 | ) | (2,219 | ) |
| Interest income  (expense), net                                       |   | (1,720                          | )      | 499 |   | (1,221 | ) |
| Other income  (deductions)                                            |   | 806                             |   | (37 | ) | 769 |   |
| Segment  pre-tax profit (loss)                                        |   | 2,943                           |   | (132 | ) | 2,811 |   |
|                                                                  |   |                            |   |   |   |   |   |
| Segment assets                                                        |   | 101,559                         |   | 33,800 |   | 135,359 |   |
| Segment capital  additions                                            |   | 3,821                           |   | 162 |   | 3,983 |   |
|                                                                       |        |                                 |        |  |  |  |  |  |  |  |

 

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**7.             Earnings per Share**

 

As the Company has no dilutive securities, there is no differencebetween basic and diluted earnings per share of common stock.  The following table sets forth thecomputation of basic earnings per share of common stock (in thousands):

 
|                                           |   | **Three  Months   Ended  March 31** |   |
|------------------------------------------------|--------|----------------------------------------------------|--------|
|                                           |   | **2002**                                           |   | **2001** |   |
| Numerator:                                     |   |                                               |   |   |   |
| Net income                                     |   | $                                                  | 548    |   | $ | 1,786 |   |
| Preferred stock  dividends                     |   | —                                             |   | (3 | ) |
| Numerator  for earnings per share              |   | $                                                  | 548    |   | $ | 1,783 |   |
|                                           |   |                                               |   |   |   |
| Denominator:                                   |   |                                               |   |   |   |
| Weighted average  number of shares outstanding |   | 3,698                                              |   | 3,705 |   |
|                                           |   |                                               |   |   |   |
| Earnings  per share of common stock       |   | $                                                  | .15    |   | $ | .48 |   |

 

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**Part I – Item 2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS**

**OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION**

 

**FIRSTQUARTER 2002 COMPARED TO 2001**

 

In the first quarter of 2002 the Company recorded net income of$548,000, or $.15 per common share, compared to net income of $1,786,000, or$.48 per common share, in the first quarter of 2001.  The Company’s results continue to be affected by lower demandfrom both group and transient market segments due to the economic recession andthe reduction in travel following the events of September 11, 2001.  Discounted room rates have resulted indecreases in revenue per available room (“REVPAR”) in most locations, resultingin lower revenues and operating profits during the first quarter of 2002  compared to the same period in 2001.

 

**REVENUES**

 
|                                            |   | **TOTAL  REVENUES  (in thousands)** |       |
|-------------------------------------------------|--------|-------------------------------------|------------|
|                                            |   | **NO. OF  ROOMS**                   | ** ** |   |   |   | ** ** |
|                                            |   |                                | **2002**   | ** ** | **2001** |   |
| Sonesta Beach  Resort Anguilla, BWI             |   | 100                                 |       | $ | 1,643 |   | $ | 2,011 |   |
| Sonesta Beach  Resort Key Biscayne              |   | 300                                 |       | 8,993 |   | 9,723 |   |
| Royal Sonesta  Hotel Boston (Cambridge)         |   | 400                                 |       | 4,679 |   | 5,925 |   |
| Royal Sonesta  Hotel New Orleans                |   | 500                                 |       | 10,567 |   | 10,777 |   |
| Management and  service fees and other revenues |   |                                |       | 1,148 |   | 1,400 |   |
| Total revenues                                  |   |                                |       | $ | 27,030 |   | $ | 29,836 |   |

 

Total revenues for the quarter ended March 31, 2002 were $27,030,000compared to $29,836,000 in 2001, a decrease of approximately $2,806,000.

 

Revenues during the first quarter of 2002 at Sonesta Beach ResortAnguilla were $1,643,000, compared to $2,011,000 during the same quarter lastyear.  The decrease of $368,000 wasprimarily due to an 18% reduction in the hotel’s revenue per available room(“REVPAR”), mainly because of lower average room rates.  Sonesta Beach Resort Key Biscayne reportedrevenues of $8,993,000 in the 2002 first quarter, a reduction of $730,000compared to the 2001 first quarter, which was entirely due to lower roomrevenues.  The Key Biscayne resortmanaged to report virtually the same occupancy during the 2002 quarter comparedto last year, but discounted room rates lowered the REVPAR by 13%.  First quarter 2002 revenues at Royal SonestaHotel Boston (Cambridge) were $4,679,000, compared to $5,925,000 in 2001, adecrease of $1,246,000, due to a reduction in room revenues of $829,000, andlower food and beverage revenues.  Thehotel’s REVPAR decreased by 22% due to both lower occupancies, as well as areduction in average room rates. Revenues at Royal Sonesta New Orleans were $10,567,000 during the 2002first quarter, compared to $10,777,000 in the 2001 first quarter.  A slight drop in room revenues due toreduced convention business was partially offset by increased food and beveragerevenues.  The New Orleans hotelcontinued to enjoy strong demand from the transient market segment during the2002 first quarter, in part due to special events, including the SuperBowl.  Revenues from managementactivities decreased from $1,400,000 during the first quarter of 2001 to$1,148,000 during the 2002 first quarter, which was mainly due to a $285,000decrease in income from the Company’s managed hotels in Egypt.  The Company’s license agreement with theowner of Aruba Sonesta Beach Resort has expired, and the property has beenreflagged with another hotel chain as of May 1, 2002.

 

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**OPERATINGINCOME**

 
|                                                            |   | **OPERATING  INCOME (LOSS)  (in thousands)** |   |
|-----------------------------------------------------------------|--------|----------------------------------------------|--------|
|                                                            |   | **2002**                                     |   | **2001** |   |
| Sonesta  Beach Resort Anguilla, BWI                             |   | $                                            | 147    |   | $ | 290 |   |
| Sonesta  Beach Resort Key Biscayne                              |   | 1,888                                        |   | 2,270 |   |
| Royal Sonesta  Hotel Boston (Cambridge)                         |   | (466                                         | )      | (37 | ) |
| Royal Sonesta  Hotel New Orleans                                |   | 1,118                                        |   | 1,334 |   |
| Operating  income from hotels after management and service fees |   | 2,687                                        |   | 3,857 |   |
| Management  activities and other                                |   | (226                                         | )      | (594 | ) |
| Operating  income                                               |   | $                                            | 2,461  |   | $ | 3,263 |   |

 

Operating income for the three-month period endedMarch 31, 2002 was $2,461,000, compared to operating income of $3,263,000 in2001, a decrease of approximately $802,000.

 

Operating income at Sonesta Beach Resort Anguilla decreased from$290,000 in the first quarter of 2001 to $147,000 in the 2002 firstquarter.  A decrease in revenues of$368,000 was partially offset by a decrease of $225,000 in expenses, primarilyin cost and operating, administrative and general and repairs and maintenanceexpense.  Operating income at SonestaBeach Resort Key Biscayne decreased by $382,000 to $1,888,000 in the firstquarter of 2002 compared to last year.  Decreasedrevenues of $730,000 were partially offset by a decrease in expenses of$348,000, which decrease consisted primarily of lower cost and operating andrepairs and maintenance expense. Operating loss at Royal Sonesta Hotel Boston (Cambridge) increased from$37,000 in 2001 to $466,000 in the first quarter of 2002.  Revenues decreased by $1,246,000 andexpenses went down by $817,000, which represents a 16% decrease compared tolast year.  Decreases in expense weremainly in cost and operating, administrative and general and maintenance expense.  Operating income at Royal Sonesta NewOrleans showed a slight decrease of $216,000 in the 2002 first quarter comparedto a year ago, due to a $210,000 decrease in revenues.  Total expenses were virtually the samecompared to last year’s first quarter. The Company’s loss from management activities, which is computed aftergiving effect to management, marketing and service fees to owned and leasedhotels, decreased from $594,000 in the first quarter of 2001 to an operatingloss of $226,000 in the 2002 first quarter. Decreased management revenues of $252,000 were more than offset bydecreases in expenses related to these activities of $620,000, primarily due tolower corporate office costs.  Inaddition, last years first quarter expenses included severance costs incurredassociated with outsourcing the Company’s design function.

 

**OTHER INCOME (DEDUCTIONS)**

 

Interest expense decreased by $148,000 from $1,741,000 in the first quarter of2001 to $1,593,000 in the same period in 2002, due to lower interest on theCompany’s Mortgage loans, because of a lower interest rate on the Anguillaloan, and a lower principal balance on the Cambridge and Key Biscayne loans(see also Note 3—Borrowing Arrangements).

 

Interest income in the first quarter of 2002 was$128,000 compared to $520,000 in the 2001 first quarter, a decrease of$392,000.  This decrease was due tolower short-term investment income because of much lower rates of return in2002 compared to 2001, and because of the Company’s lower cash balances.

 

Included in gain from casualty in the first quarter of2001 was $801,000 from the final settlement of a business interruption claimrelated to Hurricane Lenny, which damaged the Sonesta Beach Resort Anguilla inNovember 1999.

 

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**FEDERAL, FOREIGN AND STATE INCOME TAXES**

 

The provision for income taxes during the firstquarter of 2002 and 2001 was higher than the statutory rate primarily due tostate taxes payable on the Company’s income from Royal Sonesta Hotel NewOrleans.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

The Company had cash and cash equivalents ofapproximately $9,348,000 at March 31, 2002. In addition, the Company has $7,000,000 available under two creditlines.

 

During the first quarter of 2002, the Company advanced$997,000 to the owner of the Sonesta Hotel & Suites Coconut Grove, Miami,which is a condominium hotel that opened in April 2002.  Under its agreements, the Company will loanup to $5,000,000 to the project to fund part of the project cost, and forpre-opening costs and working capital.

 

Also during the first quarter, the Company enteredinto an agreement to manage a condominium hotel in Sunny Isles, Florida.   This hotel is currently under construction,and is expected to open in late 2002. Under its agreements, the Company will fund pre-opening costs andworking capital.  In addition, theCompany will fund costs for hotel furniture, fixtures and equipment in excessof a certain limit, and is also committed to purchase four condominium units inthe hotel.  The Company expects itstotal commitment not to exceed $2,500,000. Based on the management agreement, the Company will receive managementfees based on revenues, and incentive fees based on profits, as defined.  Under the same agreements, the Company iscommitted to provide the hotel’s owner with certain minimum returns each year,subject to limits, following the opening of the hotel.  In addition, the Company has an option tobuy the hotel, which option can be exercised after the hotel opens.

 

The Company believes that its present cash balancesand other available credit lines will be more than adequate to meet its cashrequirements for 2002 and beyond.

 

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**PART I – Item 3**

 

**QUANTITATIVEAND QUALITATIVE DISCLOSURE OF MARKET RISK**

 

The Company is exposed to market risk from changes in interest ratesand foreign exchange rates.  The Companyuses fixed rate debt and debt with variable interest rates to finance theownership of its properties.  The tablethat follows summarizes the Company’s fixed and variable rate debt obligationsoutstanding at March 31, 2002.  Thisinformation should be read in conjunction with Note 3—Borrowing Arrangements.

 

Short and Long Term Debt (in thousands) maturing in:

 
|                   |   | **YEAR** |   |     |   |     |   |     |   |
|------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                   |   | **2002** |   | **2003** |   | **2004** |   | **2005** |   | **2006** |   | **Thereafter** |   | **Total** |   | **Fair Value** |   |
| Fixed rate             |   | $        | 636    |     | $      | 946      |   | $        | 1,013  |   | $ | 1,124 |   | $ | 1,226 |   | $ | 65,734 |   | $ | 70,679 |   | $ | 70,679 |   |
| Average interest  rate |   | 8.6      | %      | 8.6      | %      | 8.6      | %      | 8.6      | %      | 8.6 | % | 8.6 | % |   |   |   |   |
| Variable rate          |   | 204      |   | 4,080    |   | —   |   | —   |   | — |   | — |   | 4,284 |   | 4,284 |   |
| Average interest  rate |   | 4.1      | %      | 4.1      | %      | —   |   | —   |   | — |   | — |   |   |   |   |   |
|                        |        |          |        |          |        |          |        |          |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**PART II – Other Information**

 

**ItemNumbers 1, 2, 3, 4,  5 and 6**

 

Not applicable during the quarter ended March 31, 2002

 

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**SIGNATURE**

 

## Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this Report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

**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:  May 9,  2002 |

 

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