**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**

**SECURITIESEXCHANGE ACT OF 1934**

**For the Quarterly period endedSeptember 30, 2001**

 

**OR**

 

**o****        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE**

**                                          SECURITIES EXCHANGE ACTOF 1934**

**For thetransition period from                                                           to                                                           **

 

**Commission file number 0-9032**

 

**SONESTA INTERNATIONAL HOTELS CORPORATION**

(Exact name of registrant as specified in its charter)

 
| **NEW  YORK**                               |   | **13-5648107**      |
|---------------------------------------------|--------|---------------------|
| (State or other  jurisdiction               |   | (I.R.S. Employer    |
| or incorporation or  organization)          |   | Identification No.) |
|                                        |   |                |
| **200  Clarendon Street, Boston, MA 02116** |
| (Address of principal  executive offices)   |
| (Zip Code)                                  |
|                                        |
| **617-421-5400**                            |

(Registrant’stelephone number, including area code)

 

 

 (Former name, former address and formerfiscal year,

if changed sincelast report)

 

 

                Indicateby check mark whether the registrant (1) has filed all reports required to befiled by section 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 

Yes   ý                 No  o

 

 

APPLICABLE ONLY TOCORPORATE ISSUERS:

 

Number of Sharesof Common Stock Outstanding

 as of November 8, 2001 -- $.80 par value,

Class A –3,698,230

 

 

**INDEX**

 

**SONESTA INTERNATIONAL HOTELS CORPORATION**

 

** **
|   Part  I.Financial Information |                                                                                                                                                                    |   |
|--------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                 |                                                                                                                                                                    |   |
| Item 1.                              | Financial Statements (Unaudited)                                                                                                                                        |   |
|                                 |                                                                                                                                                                    |   |
|                                 | Condensed  consolidated balance sheets— September 30, 2001 and December 31, 2000                                                                                   |   |
|                                 |                                                                                                                                                                    |   |
|                                 | Condensed  consolidated statements of operations—Three month and nine month periods  ended September 30, 2001 and 2000                                             |   |
|                                 |                                                                                                                                                                    |   |
|                                 | Condensed  consolidated statements of cash flows—Nine month periods ended September 30,  2001 and 2000                                                             |   |
|                                 |                                                                                                                                                                    |   |
|                                 | Notes  to condensed consolidated financial statements—September 30, 2001 and 2000                                                                                  |   |
|                                 |                                                                                                                                                                    |   |
| Item  2.                             | Management’s  Discussion and Analysis of Results of Operations and Financial  Condition—Three month and nine month periods ended September 30, 2001 and  2000 |   |
|                                 |                                                                                                                                                                    |   |
| Item  3.                             | Quantitative  and Qualitative Disclosure of Market   Risk                                                                                                          |   |
|                                      |                                                                                                                                                                         |        |  |

 

 

###### **Part I  - Item 1.     Financial Information**

 

**SONESTA INTERNATIONAL HOTELS CORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

September 30, 2001(unaudited)  and  December 31, 2000

 
|                                                                             |   | **(in  thousands)**     |          |
|----------------------------------------------------------------------------------|--------|-------------------------|---------------|
|                                                                             |   | **September  30  2001** |          | **December  31  2000** |   |
| ASSETS                                                                           |   |                    |          |   |   |
| Current assets:                                                                  |   |                    |          |   |   |
| Cash and cash  equivalents                                                       |   | $                       | 15,336        |   | $ | 23,850 |   |
| Investments in  government debt securities                                       |   | --                      |          | 10,313 |   |
| Accounts and  notes receivable:                                                  |   |                    |          |   |   |
| Trade, less  allowance of $285 ($270 at December 31, 2000) for doubtful accounts |   | 4,657                   |     | 6,829 |     |
| Other, including  current portion of long-term receivables and advances          |   | 472                     |          | 918 |   |
| Total accounts  and notes receivable                                             |   | 5,129                   |          | 7,747 |   |
| Current portion  of deferred taxes                                               |   | 553                     |          | 630 |   |
| Inventories                                                                      |   | 1,395                   |          | 1,618 |   |
| Prepaid expenses  and other                                                      |   | 4,750                   |          | 1,791 |   |
|                                                                             |   |                    |          |   |   |
| Total current  assets                                                            |   | 27,163                  |          | 45,949 |   |
|                                                                             |   |                    |          |   |   |
| Long-term  receivables and advances                                              |   | 3,328                   |          | 1,008 |   |
|                                                                             |   |                    |          |   |   |
| Property and  equipment, at cost:                                                |   |                    |          |   |   |
| Land and land  improvements                                                      |   | 9,940                   |          | 9,940 |   |
| Buildings                                                                        |   | 72,587                  |          | 70,469 |   |
| Furniture and  equipment                                                         |   | 44,470                  |          | 36,969 |   |
| Leasehold  improvements                                                          |   | 4,539                   |          | 2,855 |   |
| Projects in  progress                                                            |   | 2,509                   |          | 2,246 |   |
|                                                                             |   | 134,045                 |          | 122,479 |   |
|                                                                             |   |                    |          |   |   |
| Less accumulated  depreciation and amortization                                  |   | 39,145                  |     | 32,688 |     |
| Net property and  equipment                                                      |   | 94,900                  |          | 89,791 |   |
|                                                                             |   |                    |          |   |   |
| Other long-term  assets                                                          |   | 1,455                   |          | 1,565 |   |
|                                                                             |   | $                       | 126,846       |   | $ | 138,313 |   |

 

 

*Seeaccompanying notes to condensed consolidated financial statements.*

**SONESTA INTERNATIONAL HOTELS CORPORATION**

**CONDENSED CONSOLIDATED BALANCE SHEETS**

September 30, 2001(unaudited)  and  December 31, 2000

 

 
|                                                              |   | **(in  thousands)**     |    |
|-------------------------------------------------------------------|--------|-------------------------|---------|
|                                                              |   | **September  30  2001** |    | **December  31  2000** |   |
|                                                              |   |                    |    |   |   |
| LIABILITIES AND  COMMON STOCKHOLDERS’ EQUITY                 |   |                    |    |   |   |
| Current  liabilities:                                             |   |                    |    |   |   |
| Current portion  of long-term debt                                |   | $                       | 1,678   |   | $ | 6,246 |   |
| Accounts payable                                                  |   | 2,931                   |    | 5,295 |   |
| Advance deposits                                                  |   | 3,551                   |    | 4,181 |   |
| Federal, foreign  and state income taxes                          |   | 234                     |    | 405 |   |
| Accrued  liabilities:                                             |   |                    |    |   |   |
| Salaries and  wages                                               |   | 1,577                   |    | 2,949 |   |
| Rentals                                                           |   | 3,881                   |    | 6,628 |   |
| Interest                                                          |   | 514                     |    | 526 |   |
| Pension and  other employee benefits                              |   | 363                     |    | 3,777 |   |
| Other                                                             |   | 1,923                   |    | 1,198 |   |
|                                                              |   |                    |    |   |   |
| Total accrued  liabilities                                        |   | 8,258                   |    | 15,078 |   |
|                                                              |   |                    |    |   |   |
| Total current  liabilities                                        |   | 16,652                  |    | 31,205 |   |
|                                                              |   |                    |    |   |   |
| Long-term debt                                                    |   | 74,418                  |    | 70,764 |   |
|                                                              |   |                    |    |   |   |
| Deferred federal  and state income taxes                          |   | 5,257                   |    | 5,524 |   |
|                                                              |   |                    |    |   |   |
| Other  non-current liabilities                                    |   | 1,567                   |    | 599 |   |
|                                                              |   |                    |    |   |   |
| Redeemable  preferred stock, $25 par value, at redemption value   |   | --                      |    | 294 |   |
|                                                              |   |                    |    |   |   |
| 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                                                |   | 36,122                  |    | 37,033 |   |
| Treasury  shares—2,404 (2,397 at December 31, 2000), at cost |   | (12,052                 | )       | (11,988 | ) |
| Total common  stockholders’ equity                           |   | 28,952                  |    | 29,927 |   |
|                                                              |   | $                       | 126,846 |   | $ | 138,313 |   |

 

 

*Seeaccompanying notes to condensed consolidated financial statements.*

**SONESTAINTERNATIONAL HOTELS CORPORATION**

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

(in thousands except forper share data)

 

 
|                                                            |   | **Three  Months Ended September 30** |   | **Nine  Months Ended September 30** |   |
|-----------------------------------------------------------------|--------|--------------------------------------|--------|-------------------------------------|--------|
|                                                            |   | **2001**                             |   | **2000**                            |   | **2001** |   | **2000** |   |
| Revenues:                                                       |   |                                 |   |                                |   |   |   |   |   |
| Rooms                                                           |   | $                                    | 10,527 |                                | $      | 13,756 |   | $ | 46,689 |   | $ | 48,670 |   |
| Food and  beverage                                              |   | 4,763                                |   | 5,999                               |   | 19,281 |   | 20,406 |   |
| Management,  license and service fees                           |   | 575                                  |   | 1,095                               |   | 3,246 |   | 3,616 |   |
| Parking,  telephone and other                                   |   | 1,995                                |   | 2,005                               |   | 7,112 |   | 7,085 |   |
|                                                            |   | 17,860                               |   | 22,855                              |   | 76,328 |   | 79,777 |   |
| Costs and  expenses:                                            |   |                                 |   |                                |   |   |   |   |   |
| Costs and  operating expenses                                   |   | 10,157                               |   | 10,702                              |   | 34,043 |   | 33,234 |   |
| Advertising and  promotion                                      |   | 1,982                                |   | 1,919                               |   | 6,361 |   | 6,149 |   |
| Administrative  and general                                     |   | 3,470                                |   | 4,096                               |   | 12,456 |   | 12,218 |   |
| Human resources                                                 |   | 486                                  |   | 527                                 |   | 1,597 |   | 1,567 |   |
| Maintenance                                                     |   | 1,739                                |   | 1,811                               |   | 5,699 |   | 5,387 |   |
| Rentals                                                         |   | 298                                  |   | 800                                 |   | 4,817 |   | 5,179 |   |
| Property taxes                                                  |   | 649                                  |   | 625                                 |   | 1,951 |   | 1,874 |   |
| Depreciation and  amortization                                  |   | 2,182                                |   | 2,022                               |   | 6,606 |   | 6,121 |   |
|                                                            |   | 20,963                               |   | 22,502                              |   | 73,530 |   | 71,729 |   |
| Operating income  (loss)                                        |   | (3,103                               | )      | 353                                 |   | 2,798 |   | 8,048 |   |
|                                                            |   |                                 |   |                                |   |   |   |   |   |
| Other income  (deductions):                                     |   |                                 |   |                                |   |   |   |   |   |
| Interest expense                                                |   | (1,668                               | )      | (1,710                              | )      | (5,075 | ) | (4,186 | ) |
| Interest income                                                 |   | 270                                  |   | 561                                 |   | 1,160 |   | 954 |   |
| Foreign exchange  gain (loss)                                   |   | 8                                    |   | (3                                  | )      | (38 | ) | (9 | ) |
| Gain on sales of  assets                                        |   | 35                                   |   | 4                                   |   | 56 |   | 14 |   |
| Gain from  casualty                                             |   | --                                   |   | 225                                 |   | 801 |   | 1,175 |   |
|                                                            |   | (1,355                               | )      | (923                                | )      | (3,096 | ) | (2,052 | ) |
|                                                            |   |                                 |   |                                |   |   |   |   |   |
| Income (loss)  before income taxes                              |   | (4,458                               | )      | (570                                | )      | (298 | ) | 5,996 |   |
| Federal, foreign  and state income tax provision (benefit)      |   | (1,397                               | )      | (211                                | )      | 236 |   | 2,308 |   |
| Income (loss)  before extraordinary loss on refinancing of debt |   | (3,061                               | )      | (359                                | )      | (534 | ) | 3,688 |   |
| Extraordinary  loss on refinancing of debt (net of tax)         |   | --                                   |   | --                                  |   | -- |   | (274 | ) |
| Net income  (loss)                                              |   | (3,061                               | )      | (359                                | )      | (534 | ) | 3,414 |   |
| Retained  earnings at beginning of period                       |   | 39,183                               |   | 36,510                              |   | 37,033 |   | 33,114 |   |
| Cash dividends  on preferred stock                              |   | --                                   |   | (4                                  | )      | (6 | ) | (10 | ) |
| Cash dividends  on common stock                                 |   | --                                   |   | --                                  |   | (371 | ) | (371 | ) |
| Retained  earnings at end of period                             |   | $                                    | 36,122 |                                | $      | 36,147 |   | $ | 36,122 |   | $ | 36,147 |   |
|                                                            |   |                                 |   |                                |   |   |   |   |   |
| Basic and  diluted earnings (loss) per share of common stock    |   | $                                    | (0.83  | )                                   | $      | (0.10 | ) | $ | (0.15 | ) | $ | 0.92 |   |
| Weighted average  number of shares outstanding                  |   | 3,698                                |   | 3,705                               |   | 3,701 |   | 3,709 |   |

 

 

*Seeaccompanying notes to consolidated financial statements.*

**SONESTA INTERNATIONAL HOTELS CORPORATION**

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

Increase (Decrease) in Cash

 

##  

|                                                       |   | **(in  thousands)**                 |   |
|------------------------------------------------------------|--------|-------------------------------------|--------|
|                                                       |   | **Nine  Months Ended September 30** |   |
|                                                       |   | **2001**                            |   | **2000** |   |
| Cash provided (used) by operating activities               |   |                                |   |   |   |
| Net  income (loss)                                         |   | $                                   | (534   | ) | $ | 3,414 |   |
| Items not  (providing) requiring cash                      |   |                                |   |   |   |
| Pension expense                                            |   | 1,057                               |   | 804 |   |
| Depreciation and  amortization of property and equipment   |   | 6,606                               |   | 6,121 |   |
| Other  amortization                                        |   | 74                                  |   | (280 | ) |
| Deferred federal  and state income tax provision (benefit) |   | (190                                | )      | 980 |   |
| Gain on sales of  assets                                   |   | (56                                 | )      | (14 | ) |
| Deferred  interest income                                  |   | (71                                 | )      | -- |   |
| Extraordinary  loss on debt refinancing                    |   | --                                  |   | 431 |   |
| Changes in  assets and liabilities                         |   |                                |   |   |   |
| Accounts and  notes receivable                             |   | 2,447                               |   | 2,524 |   |
| Inventories                                                |   | 223                                 |   | 176 |   |
| Prepaid expenses  and other                                |   | (2,965                              | )      | (260 | ) |
| Accounts payable                                           |   | (1,994                              | )      | (3,057 | ) |
| Advance deposits                                           |   | (630                                | )      | (999 | ) |
| Federal, foreign  and state income taxes                   |   | (171                                | )      | 109 |   |
| Accrued  liabilities                                       |   | (6,883                              | )      | (1,386 | ) |
| Cash  provided (used) by operating activities              |   | (3,087                              | )      | 8,563 |   |
|                                                       |   |                                |   |   |   |
|                                                       |   |                                |   |   |   |
| Cash provided  (used) by investing activities              |   |                                |   |   |   |
| Proceeds from  sales of assets                             |   | 71                                  |   | 32 |   |
| Proceeds from  maturities of government debt securities    |   | 10,313                              |   | -- |   |
| Purchases of  government debt securities                   |   | --                                  |   | (10,100 | ) |
| Expenditures for  property and equipment                   |   | (11,725                             | )      | (9,306 | ) |
| New loans and  advances                                    |   | (2,480                              | )      | (36 | ) |
| Payments  received on long-term receivables and advances   |   | 441                                 |   | 737 |   |
| Cash  used by investing activities                         |   | (3,380                              | )      | (18,673 | ) |
|                                                       |   |                                |   |   |   |
| Cash provided  (used) by financing activities              |   |                                |   |   |   |
| Scheduled  payments on long-term debt                      |   | (941                                | )      | (825 | ) |
| Proceeds from  issuance of long-term debt                  |   | --                                  |   | 72,000 |   |
| Cost of  financing                                         |   | --                                  |   | (1,379 | ) |
| Payments on refinancing  of long-term debt                 |   | --                                  |   | (43,566 | ) |
| Cash dividends  paid                                       |   | (748                                | )      | (752 | ) |
| Redemption of  preferred stock                             |   | (294                                | )      | -- |   |
| Purchase of  treasury stock                                |   | (64                                 | )      | (80 | ) |
| Cash provided  (used) by financing activities              |   | (2,047                              | )      | 25,398 |   |
|                                                       |   |                                |   |   |   |
| Net  increase (decrease) in cash                           |   | (8,514                              | )      | 15,288 |   |
| Cash and cash  equivalents at beginning of period          |   | 23,850                              |   | 7,876 |   |
| Cash and cash  equivalents at end of period                |   | $                                   | 15,336 |   | $ | 23,164 |   |

 

 

*Seeaccompanying notes to consolidated financial statements.*

 
| Supplemental  Schedule of Interest and Income Taxes Paid                                                                 |
|--------------------------------------------------------------------------------------------------------------------------|
| Cash paid for  interest in the 2001 nine month period and the 2000 nine month period was  approximately $5,087,000  |
| and $4,338,000,  respectively. Cash paid for income taxes in the 2001 nine month period and  the 2000 nine month         |
| period was  approximately $597,000 and $1,219,000, respectively.                                                         |

 

 

*See accompanying notes to consolidated financial statements.*

 

 

**SONESTAINTERNATIONAL HOTELS CORPORATION**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

 

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

 

The accompanyingunaudited condensed consolidated financial statements have been prepared inaccordance with accounting principles generally accepted in the United Statesfor 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 accounting principles generally accepted in the United States forcomplete financial statements.  In theopinion of management, all adjustments (consisting of normal recurringaccruals) considered necessary for a fair presentation have been included.  Operating results for the nine month periodended September 30, 2001 are not necessarily indicative of the results that maybe expected for the year ended December 31, 2001.

 

The balance sheet atDecember 31, 2000 has been derived from the audited financial statements atthat date but does not include all of the information and footnotes required byaccounting principles generally accepted in the United States for completefinancial statements.

 

For further information,refer to the consolidated financial statements and footnotes thereto includedin the Company’s annual report on Form 10-K for the year ended December 31,2000.

 

 

**2.             Long-TermReceivables and Advances**

 

 
|                                                              |   | **(in  thousands)**   |   |
|-------------------------------------------------------------------|--------|-----------------------|--------|
|                                                              |   | **September 30,2001** |   | **December 31, 2000** |   |
| Sharm El Sheikh, Egypt (a)                                        |   | $                     | 669    |   | $ | 781 |   |
| Cairo, Egypt                                                      |   | --                    |   | 140 |   |
| Sonesta Hotel & Suites Coconut Grove,Miami, Florida  (b) |   | 2,551                 |   | -- |   |
| Other                                                             |   | 317                   |   | 621 |   |
| Total long-term receivables                                       |   | 3,537                 |   | 1,542 |   |
| Less:  current portion                                       |   | 209                   |   | 534 |   |
| Net long-term  receivables                                        |   | $                     | 3,328  |   | $ | 1,008 |   |

 
| (a)    |   | This loan, in the original amount of $1,000,000, was  made in 1996 and 1997 to the owner of Sonesta Beach Resort, Sharm El Sheikh.  The loan agreement was amended in 1999. The loan bears interest at the prime  rate and is adjusted semi-annually. The interest rate charged at September  30, 2001 was 7%.  This loan is being  repaid in 60 monthly installments, commencing January 2000.                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |   |   |   |   |   |   |
| (b)    |   | This loan was made to the owner of the Sonesta Hotel  & Suites Coconut Grove, Miami. This hotel is presently under construction  and is scheduled to open in the spring of 2002. The Company will loan  $4,000,000 to fund construction and furniture, fixtures and equipment costs,  and $1,000,000 for pre-opening costs and working capital.  The construction and FF&E loan bears  interest at the prime rate (6% at September 30, 2001) plus 3⁄4%. No interest  will be charged on the $1,000,000 pre-opening loan.  Following the opening of the hotel, these loans will be repaid,  pre-opening loan first, out of profits that would otherwise be available for  distribution to the owner of the hotel. |

 

 

**3.**             **BorrowingArrangements**

 

*Credit Line*

 

The Company has a$2,000,000 line of credit which expires on September 29, 2002.      This line of credit bears interest atthe prime rate (6% at September 30, 2001).   The terms of the line require a certain minimum net worth, a minimumamount of unrestricted cash or available credit lines during part of eachcalendar year, and approval for additional borrowings by the Company.   No amounts were outstanding under this lineof credit at September 30, 2001.

 

 

*Long-TermDebt*

 
|                                                                                         |   | **(in thousands)**    |          |
|----------------------------------------------------------------------------------------------|--------|-----------------------|---------------|
|                                                                                         |   | **September 30,2001** |          | **December 31,2000** |   |
| Charterhouse of Cambridge Trust and  Sonesta of Massachusetts Inc.:  First mortgage note (a) |   |                  | 40,498        |     |   | 40,802 | ** **  |
|                                                                                         |   |                  |          |   |
|                                                                                         | $      |                  | $             |   |
| Sonesta Beach Resort Limited   Partnership:First mortgage note (b)                           |   | 30,621                |     | 30,850 |     |
| Sonesta Hotels of Anguilla, Ltd:  First mortgage note (c)                                    |   | 4,488                 |     | 4,896 |     |
| Other                                                                                        |   | 489                   |          | 462 |   |
|                                                                                         |   | 76,096                |          | 77,010 |   |
| Less: current portion of long-term debt                                                      |   | 1,678                 |          | 6,246 |   |
| Total long-term debt                                                                         |   | $                     | 74,418        |   | $ | 70,764 |   |

 

 
| (a)    |   | This loan is secured by a first mortgage on the  Royal Sonesta Hotel Boston (Cambridge) property. This property is included in  fixed assets at a net book value of $25,104,000 at September 30, 2001. The  interest rate on this loan is 8.6% for the term of the loan, and amortization  of the principal balance is based on a 25 year schedule. Monthly payments of  principal and interest are $332,911. The mortgage loan matures in July 2010,  and prepayment of this loan is subject to early payment penalties, based on  prevailing interest rates at the time of the prepayment.   |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   |   |   |   |   |   |   |   |   |   |
| (b)    |   | This loan is secured by a first mortgage on the  Sonesta Beach Resort Key Biscayne property.   This property is included in fixed assets at a net book value of  $44,623,000 at September 30, 2001. The interest rate on this loan is 8.6% for  the term of the loan, and amortization of the principal balance is based on a  25 year schedule. Monthly payments of principal and interest are $251,713.  The mortgage loan matures in July 2010, and prepayment of this loan is  subject to early payment penalties, based on prevailing interest rates at the  time of the prepayment. |

 

 
| (c) |   | This loan is secured by a first mortgage on the  Sonesta Beach Resort Anguilla property, and an assignment to the lender of  the hotel’s furniture, fixtures and equipment.  This property is included in fixed assets at a net book value  of $11,899,000 at September 30, 2001. In addition, $1,900,000 is secured by a  Company guaranty. During 2001, the maturity date of this loan was extended by  two years until December 31, 2003. This loan requires minimum principal  payments of $136,000 during the remainder of 2001, and $272,000 in each of  the years 2002 and 2003. In addition, principal payments are required equal  to 25% of the hotel’s annual excess cash flow, as defined. The balance of  $3,808,000 is due on the revised maturity date of December 31, 2003. The  interest rate on the loan is LIBOR plus 2.25%. The interest rate at September  30, 2001 was 5.8%. |
|-----|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

 

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

 

 

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

 

 
|                      |   | **(in  thousands) **            |   |
|---------------------------|--------|--------------------------------------|--------|
|                      |   | **Three  Months Ended September 30** |   | **Nine  Months Ended September 30** |   |
|                      |   | **2001**                             |   | **2000** |   | **2001** |   | **2000** |   |
| Direct departmental costs |   |                                 |   |   |   |   |   |   |   |
| Rooms                     |   | $                                    | 3,429  |   | $ | 3,698 |   | $ | 11,465 |   | $ | 11,465 |   |
| Food and  beverage        |   | 4,650                                |   | 5,023 |   | 15,889 |   | 15,901 |   |
| Heat, light and  power    |   | 925                                  |   | 891 |   | 2,977 |   | 2,453 |   |
| Other                     |   | 1,153                                |   | 1,090 |   | 3,712 |   | 3,415 |   |
|                      |   | $                                    | 10,157 |   | $ | 10,702 |   | $ | 34,043 |   | $ | 33,234 |   |

 

 

Direct departmental costs include payroll expenses andrelated payroll burden, the cost of food and beverage consumed and otherdepartmental costs.

 

 

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

 

 

The provision for incometaxes in the accompanying Consolidated Statements of Operations is summarizedbelow:

 

 
|                                                   |   | **(in  thousands)**                                   |   |
|--------------------------------------------------------|--------|-------------------------------------------------------|--------|
|                                                   |   | **Nine  Months   Ended  September 30** |   |
|                                                   |   | **2001**                                              |   | **2000** |   |
| Deferred federal income tax provision   (benefit) |   | $                                                     | (190   | ) | $ | 980 |   |
| Current federal income tax provision                   |   | 27                                                    |   | 639 |   |
| Current foreign  income tax provision                  |   | 145                                                   |   | 334 |   |
| Current state  income tax provision                    |   | 254                                                   |   | 355 |   |
|                                                   |   | $                                                     | 236    |   | $ | 2,308 |   |

 

 

**6.             Segment Information**

 

Segment information for the Company’s two reportablesegments, Owned & Leased Hotels and Management Activities, for the threemonth and nine month periods ending September 30, 2001 and 2000 follows:

 

Three month period ended September 30, 2001

 
|                                                                 |   | **(in  thousands)**            |   |
|----------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                 |   | **Owned  & Leased Hotels** |   | **Management  Activities** |   | **Consolidated** |   |
| Revenues                                                             |   | $                              | 17,280 |   | $ | 580 |   | $ | 17,860 |   |
| Operating income (loss) before depreciation and amortization expense |   | 77                             |   | (998 | ) | (921 | ) |
| Depreciation and  amortization                                       |   | (2,072                         | )      | (110 | ) | (2,182 | ) |
| Interest income  (expense), net                                      |   | (1,642                         | )      | 244 |   | (1,398 | ) |
| Other income,  net                                                   |   | --                             |   | 43 |   | 43 |   |
| Segment pre-tax  loss                                                |   | (3,637                         | )      | (821 | ) | (4,458 | ) |
|                                                                 |   |                           |   |   |   |   |   |
| Segment assets                                                       |   | 103,234                        |   | 23,612 |   | 126,846 |   |
| Segment capital  additions                                           |   | 4,440                          |   | 63 |   | 4,503 |   |
|                                                                      |        |                                |        |  |  |  |  |  |  |  |

 

 

 

Nine month period ended September 30, 2001

 
|                                                                 |   | **(in  thousands)**            |   |
|----------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                 |   | **Owned  & Leased Hotels** |   | **Management  Activities** |   | **Consolidated** |   |
| Revenues                                                             |   | $                              | 73,035 |   | $ | 3,293 |   | $ | 76,328 |   |
| Operating income (loss) before depreciation and amortization expense |   | 11,171                         |   | (1,767 | ) | 9,404 |   |
| Depreciation and  amortization                                       |   | (6,276                         | )      | (330 | ) | (6,606 | ) |
| Interest income  (expense), net                                      |   | (4,998                         | )      | 1,083 |   | (3,915 | ) |
| Other income  (deductions), net                                      |   | 806                            |   | 13 |   | 819 |   |
| Segment pre-tax  profit (loss)                                       |   | 703                            |   | (1,001 | ) | (298 | ) |
|                                                                 |   |                           |   |   |   |   |   |
| Segment assets                                                       |   | 103,234                        |   | 23,612 |   | 126,846 |   |
| Segment capital  additions                                           |   | 11,365                         |   | 360 |   | 11,725 |   |
|                                                                      |        |                                |        |  |  |  |  |  |  |  |

 

 

Three month period ended September 30, 2000

 
|                                                                 |   | **(in  thousands)**            |   |
|----------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                 |   | **Owned  & Leased Hotels** |   | **Management  Activities** |   | **Consolidated** |   |
| Revenues                                                             |   | $                              | 21,756 |   | $ | 1,099 |   | $ | 22,855 |   |
| Operating income (loss) before depreciation and amortization expense |   | 2,955                          |   | (580 | ) | 2,375 |   |
| Depreciation and  amortization                                       |   | (1,907                         | )      | (115 | ) | (2,022 | ) |
| Interest income  (expense), net                                      |   | (1,357                         | )      | 208 |   | (1,149 | ) |
| Other income  (deductions), net                                      |   | 229                            |   | (3 | ) | 226 |   |
| Segment pre-tax  loss                                                |   | (80                            | )      | (490 | ) | (570 | ) |
|                                                                 |   |                           |   |   |   |   |   |
| Segment assets                                                       |   | 115,910                        |   | 17,668 |   | 133,578 |   |
| Segment capital  additions                                           |   | 4,170                          |   | 76 |   | 4,246 |   |
|                                                                      |        |                                |        |  |  |  |  |  |  |  |

 

 

Nine month period ended September 30, 2000

 
|                                                                 |   | **(in  thousands)**            |   |
|----------------------------------------------------------------------|--------|--------------------------------|--------|
|                                                                 |   | **Owned  & Leased Hotels** |   | **Management  Activities** |   | **Consolidated** |   |
| Revenues                                                             |   | $                              | 75,895 |   | $ | 3,882 |   | $ | 79,777 |   |
| Operating income (loss) before depreciation and amortization expense |   | 14,723                         |   | (554 | ) | 14,169 |   |
| Depreciation and  amortization                                       |   | (5,776                         | )      | (345 | ) | (6,121 | ) |
| Interest income  (expense), net                                      |   | (3,697                         | )      | 465 |   | (3,232 | ) |
| Other income  (deductions), net                                      |   | 1,185                          |   | (5 | ) | 1,180 |   |
| Segment pre-tax  profit (loss)                                       |   | 6,435                          |   | (439 | ) | 5,996 |   |
|                                                                 |   |                           |   |   |   |   |   |
| Segment assets                                                       |   | 115,910                        |   | 17,668 |   | 133,578 |   |
| Segment capital  additions                                           |   | 8,943                          |   | 363 |   | 9,306 |   |
|                                                                      |        |                                |        |  |  |  |  |  |  |  |

 

**7.             Earnings per Share**

 

As the Company has nodilutive securities, there is no difference between basic and diluted earningsper share of common stock.   Thefollowing table sets forth the computation of basic earnings per share ofcommon stock:

 
|                                           |   | ** Three months ended September 30** |          | **Nine  months ended September 30** |          |
|------------------------------------------------|--------|-------------------------------------------|---------------|-------------------------------------|---------------|
|                                           |   | **2001**                                  |          | ** 2000**                      |          | **2001** |   | ** 2000** |   |
| Numerator:                                     |   |                                      |          |                                |          |   |   |   |   |
| Net income  (loss)                        |   | $                                         | (3,061        | )                                   | $             | (359 | ) | $ | (534 | ) | $ | 3,414 |   |
| Preferred stock  dividends                     |   | --                                        |          | (4                                  | )             | (6 | ) | (10 | ) |
|                                           |   |                                      |          |                                |          |   |   |   |   |
| Numerator for  earnings per share              |   | $                                         | (3,061        | )                                   | $             | (363 | ) | $ | (540 | ) | $ | 3,404 |   |
|                                           |   |                                      |          |                                |          |   |   |   |   |
| Denominator:                                   |   |                                      |          |                                |          |   |   |   |   |
| Weighted average  number of shares outstanding |   | 3,698                                     |     | 3,705                               |     | 3,701 |     | 3,709 |     |
|                                           |   |                                      |          |                                |          |   |   |   |   |
| Earnings (loss)  per share of common stock     |   | $                                         | (0.83         | )                                   | $             | (0.10 | ) | $ | (0.15 | ) | $ | 0.92 |   |

 

**Part I – Item 2**

 

**MANAGEMENT’S DISCUSSION AND ANALYSIS**

**OF RESULTS OF OPERATIONS ANDFINANCIAL CONDITION**

 

 

**FIRSTNINE MONTHS 2001 COMPARED TO 2000**

 

For the nine month period ending September 30, 2001the Company recorded a net loss of $534,000, or $(0.15) per common share,compared to net income of $3,414,000, or $0.92 per common share, in the sameperiod in 2000.   Lower demand from boththe transient and group market segments as a result of the September 11 eventsand a slowing economy will have a severe impact on the Company’s 2001earnings.     The Company expects toreport a loss for the year 2001, as the current conditions will also affectbusiness levels during the fourth quarter of 2001.   This loss will be caused primarily by lower earnings from theCompany’s Boston (Cambridge) and Key Biscayne hotels, and lower fee income frommanagement activities.

 

 

**REVENUES**

 
|                                            |   | **TOTAL  REVENUES (in thousands)** |   |
|-------------------------------------------------|--------|------------------------------------|--------|
|                                            |   | **NO. OF  ROOMS**                  |   | **2001** |   | **2000** |   |
| Sonesta Beach Resort Anguilla, BWI              |   | 100                                |   | $ | 3,685 |   | $ | 2,595 |   |
| Sonesta Beach  Resort Key Biscayne              |   | 300                                |   | 21,335 |   | 22,188 |   |
| Royal Sonesta  Hotel Boston (Cambridge)         |   | 400                                |   | 20,931 |   | 23,684 |   |
| Royal Sonesta  Hotel New Orleans                |   | 500                                |   | 27,084 |   | 27,428 |   |
| Management and  service fees and other revenues |   |                               |   | 3,293 |   | 3,882 |   |
| Total revenues                                  |   |                               |   | $ | 76,328 |   | $ | 79,777 |   |

 

Total revenues for thefirst nine months of 2001 were $76,328,000 compared to $79,777,000 in 2000, adecrease of approximately $3,449,000.

 

Sonesta Beach ResortAnguilla was closed from November 17, 1999, until February 10, 2000 to repairdamages sustained by Hurricane Lenny, which accounts for the lower operatingrevenues in the 2000 period.    Revenuesat Sonesta Beach Resort Key Biscayne decreased by $853,000 in the nine monthperiod ending September 30, 2001 compared to the same period in 2000, due tolower room revenues as a result of softening demand from both the transient andgroup markets.    Room revenue peravailable room (“REVPAR”) declined by 5% in the 2001 period compared to lastyear, due to lower occupancy levels.   Royal Sonesta Hotel Boston (Cambridge) experienced a decline in revenuesof $2,753,000 in the first nine months of 2001 compared to a year ago.    Room revenues declined by $2,230,000 dueto a 20% drop in the hotel’s REVPAR, both from lower occupancy levels and aslightly lower average rate.    Revenuesat Royal Sonesta Hotel New Orleans decreased by $344,000 to $27,084,000 in thenine month period ending September 30, 2001 compared to last year.  This was caused by a decrease in revenuesdue to cancellations resulting from the September 11 events.   Before September 11, the hotel’s revenuesincreased slightly compared to last year.  Revenues from management activities decreased by $589,000 in the firstnine month of 2001 compared to 2000, due to lower corporate revenues forreservations and design services, and lower fee income from hotels operatedunder management agreements.

 

**OPERATINGINCOME**

 
|                                                            |   | **OPERATING  INCOME (in thousands)** |   |
|-----------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                            |   | **2001**                             |   | **2000** |   |
| Sonesta Beach Resort Anguilla, BWI                              |   | $                                    | (674   | ) | $ | (1,885 | ) |
| Sonesta Beach  Resort Key Biscayne                              |   | (181                                 | )      | 2,389 |   |
| Royal Sonesta  Hotel Boston (Cambridge)                         |   | 2,746                                |   | 5,376 |   |
| Royal Sonesta  Hotel New Orleans                                |   | 3,004                                |   | 2,695 |   |
| Operating income  from hotels after management and service fees |   | 4,895                                |   | 8,575 |   |
| Management  activities and other                                |   | (2,097                               | )      | (527 | ) |
| Operating income                                                |   | $                                    | 2,798  |   | $ | 8,048 |   |

 

Operating income for thenine-month period ended September 30, 2001 was $2,798,000, compared tooperating income of $8,048,000 in 2000, a decrease of approximately $5,250,000.

 

Sonesta Beach ResortAnguilla had an operating loss of $674,000 during the nine month period endingSeptember 30, 2001 compared to a loss of $1,885,000 during the same period lastyear.    Revenues were lower by$1,090,000 in the 2000 period, because the hotel was closed until February 10,2000 to repair damage from Hurricane Lenny, which struck the island in November1999.  Sonesta Beach Resort Key Biscaynehad an operating loss of $181,000 during the first nine months of 2001 comparedto operating income of $2,389,000 in 2000, a decrease of approximately$2,570,000.     Revenues decreased by$853,000, and expenses increased by $1,717,000 compared to last year.    The increase in expenses was primarily dueto higher labor costs, higher depreciation expense as a result of majorrenovations and refurbishments over the past three years, and higher sales andmarketing and maintenance costs.  Operating income at the Royal Sonesta Hotel Boston (Cambridge) decreasedby $2,630,000 to $2,746,000 in the first nine months of 2001 compared to 2000,due to a decline in revenues in 2001 of $2,753,000 compared to 2000.    Royal Sonesta Hotel New Orleans increased operatingincome by $309,000 to $3,004,000 in the nine month period ending September 30,2001 compared to the same period last year. Revenues decreased $344,000 compared to last year, but expenses werelower by $653,000.    The decrease inexpenses was primarily due to a decrease of $609,000 in rent due under thelease under which the Company operates the hotel, as a result of higherexpenditures for improvements and replacements of FF&E, which aredeductible for purposes of calculating rent expense.    Operating loss from management activities, which is computedafter giving effect to management, marketing and service fees to owned andleased hotels, increased from $527,000 in the first nine months of 2000 to$2,097,000 in the same period in 2001.    Revenues from management activities decreased by $589,000, and expensesrose by $981,000, mainly due to severence costs incurred in 2001 associatedwith the outsourcing of the Company’s design function, and higher costs relatedto development activities, sales and marketing costs and other corporate servicesprovided to the hotels.

 

 

**OTHERINCOME (DEDUCTIONS)**

 

Interest expense increased by $889,000 in the first nine months of2001, due to the additional expense incurred following the refinancing in June2000 of the mortgage loans on the Royal Sonesta Hotel Boston (Cambridge) andSonesta Beach Resort Key Biscayne.   Theproceeds from this refinancing were approximately $27 million.     Interest income increased by $206,000 inthe first nine months of 2001 compared to 2000, primarily due to the short terminvestment of the aforementioned refinancing proceeds, and interest earned onloans made to the owner of the Sonesta Hotels & Suites Coconut Grove, whichis scheduled to open in the spring of 2002.

 

 

Included in gain from casualty in the first nine months of 2001 is$801,000 from the final settlement of a business interruption insurance claimrelated to Hurricane Lenny, which damaged the Sonesta Beach Resort Anguilla inNovember 1999.    The resort was closedfor repairs from November 17, 1999 until February 10, 2000.     Included in the first nine months of 2000was a gain from casualty of $1,175,000, which represented advance paymentsreceived last year against the same business interruption claim.

 

 

**THIRDQUARTER 2001 COMPARED TO 2000**

 

**REVENUES**

 
|                                            |   | **TOTAL  REVENUES (in thousands)** |   |
|-------------------------------------------------|--------|------------------------------------|--------|
|                                            |   | **NO. OF  ROOMS**                  |   | **2001** |   | **2000** |   |
| Sonesta Beach Resort Anguilla, BWI              |   | 100                                |   | $ | 555 |   | $ | 547 |   |
| Sonesta Beach  Resort Key Biscayne              |   | 300                                |   | 3,764 |   | 5,082 |   |
| Royal Sonesta  Hotel Boston (Cambridge)         |   | 400                                |   | 6,561 |   | 8,635 |   |
| Royal Sonesta  Hotel New Orleans                |   | 500                                |   | 6,400 |   | 7,492 |   |
| Management and  service fees and other revenues |   |                               |   | 580 |   | 1,099 |   |
| Total revenues                                  |   |                               |   | $ | 17,860 |   | $ | 22,855 |   |

 

 

Total revenues forthe three month period ended September 30, 2001 were $17,860,000 compared to$22,855,000 in 2000, a decrease of approximately $4,995,000.

 

Revenues atSonesta Beach Resort Anguilla remained virtually the same during the thirdquarter, which is typically the slowest quarter of the year.  Sonesta Beach Resort Key Biscayne had totalrevenues of $3,764,000 during the third quarter of 2001, compared to $5,082,000in the third quarter of 2000.    REVPARduring the 2001 third quarter was down 28% from last year due to much loweroccupancies, which in turn led to reduced food and beverage and other revenues.    Numerous cancellations after the September11 events lowered occupancies sharply during September 2001.  The situation was not different at RoyalSonesta Hotel Boston (Cambridge).  Ofthe total decrease in the 2001 third quarter revenues of $2,074,000, lowerSeptember 2001 revenues accounted for $1,244,000.  REVPAR during the 2001 third quarter decreased 29% compared tothe same quarter in 2000.    TheSeptember 11 events and slowing economy has effected revenues at the RoyalSonesta Hotel New Orleans to a much lesser extent.  Of the decrease in revenues of $1,092,000 during the thirdquarter of 2001 compared to last year, an amount of $838,000 was attributableto the month of September.    Revenuesfrom management activities decreased from $1,099,000 in the third quarter of2000 to $580,000 in the 2000 quarter.  This is due to reduced fee income from managed hotels, in particularfrom Chateau Sonesta Hotel New Orleans and the Company’s Egyptian operations,and lower fee income from corporate reservations and other services.

 

 

**OPERATINGINCOME**

 
|                                                                   |   | **OPERATING  INCOME (LOSS) (in thousands)** |   |
|------------------------------------------------------------------------|--------|---------------------------------------------|--------|
|                                                                   |   | **2001**                                    |   | **2000** |   |
| Sonesta Beach Resort Anguilla, BWI                                     |   | $                                           | (573   | ) | $ | (746 | ) |
| Sonesta  Beach Resort Key Biscayne                                     |   | (2,470                                      | )      | (1,085 | ) |
| Royal Sonesta  Hotel Boston (Cambridge)                                |   | 638                                         |   | 2,259 |   |
| Royal Sonesta  Hotel New Orleans                                       |   | 409                                         |   | 496 |   |
| Operating income  (loss) from hotels after management and service fees |   | (1,996                                      | )      | 924 |   |
| Management  activities and other                                       |   | (1,107                                      | )      | (571 | ) |
| Operating  income  (loss)                                         |   | $                                           | (3,103 | ) | $ | 353 |   |

 

Operating loss for thethird quarter of 2001 was $3,103,000, compared to operating income of $353,000in 2000, a decrease of approximately $3,456,000.

 

Operating loss during the 2001 third quarter at Sonesta Beach ResortAnguilla improved by $173,000 to $573,000, due to decreases in expenses of$166,000 compared to last year.  Thesedecreases were related to lower cost and operating expenses, and lowermaintenance and marketing costs.   Thethird quarter 2001 operating loss at Sonesta Beach Resort Key Biscayne was$2,470,000, compared to $1,085,000 in the same quarter last year, due todecreases in revenues of $1,318,000.   Royal Sonesta Hotel Boston (Cambridge) recorded operating income of$638,000 during the 2001 third quarter, compared to $2,259,000 in the 2000third quarter, a decrease of approximately $1,621,000. Revenue  decreases of $2,074,000 during the thirdquarter were partly offset by savings in cost and operating, administrative andgeneral and advertising expenses of $453,000.  Third quarter 2001 operating income at Royal Sonesta New Orleans was$409,000 compared to $496,000 in the same period last year, a decrease of$87,000.    Decreased revenues of$1,092,000 were almost entirely offset by a decrease in expenses of $1,005,000,primarily in cost and operating, maintenance, administrative and general andrent expense.   The decrease in rentexpense is for the most part due to increased expenditures for improvements andpurchases of FF&E, which are deducted from net income for purposes ofcalculating rent due under the hotel lease.  Operating loss from management activities, which is computed aftergiving effect to management, marketing and service fees to owned and leasedhotels, increased from $571,000 in the 2000 third quarter to $1,107,000 duringthe third quarter of 2001, primarily due to lower income of $519,000 in the2001 quarter.

 

 

**OTHERINCOME (DEDUCTIONS)**

 

Interest income in the third quarter of 2001 was $270,000 compared to$561,000 in the 2000 third quarter, mainly because of lower investment incomeon the Company’s cash balances.   Therates of return on short term cash investments have decreased dramaticallycompared to a year ago.

 

Included in the third quarter of 2000 was a gain from casualty of$225,000, which represented advance payments received during the quarteragainst a business interruption claim related to Hurricane Lenny, which damagedthe Sonesta Beach Resort Anguilla in November 1999.

 

 

**FEDERAL,FOREIGN AND STATE INCOME TAXES**

 

The provision for income taxes is higher than the statutory rateprimarily because of state taxes payable on the Company’s income from RoyalSonesta New Orleans, and because of foreign taxes provided on the Company’smanagement income from its Egyptian operations.

 

 

### **LIQUIDITYAND CAPITAL RESOURCES**

 

The Company had cash and cash equivalents of approximately $15,336,000at September 30, 2001.

 

During the first nine months of 2001, the Company advanced $2,551,000to the owner of the Sonesta Hotel & Suites Coconut Grove, Miami, which is acondo hotel that is expected to open in the spring of 2002.    Under its agreements, the Company willloan $5,000,000 to the project to fund part of the construction and furniture,fixtures and equipment costs, and for pre-opening costs and working capital.

 

During the third quarter of 2001, the Company redeemed its outstandingpreferred stock at the redemption price of $27.50 per share, for a total amountof $294,000.

 

In September 2001 the Company contributed $3,496,000 to its PensionPlan.

 

Due to the sharp increases in the cost of property insurance, theCompany has decided to self insure the windstorm risk for Sonesta Beach ResortAnguilla, and to allow for higher deductibles and limits on insured amounts forwindstorm losses for Sonesta Beach Resort Key Biscayne.

 

The Company believes that its present cash balances will be more thanadequate to meet all of its obligations.

 

 

**PART I – Item 3**

 

** **

**QUANTITATIVE AND QUALITATIVE DISCLOSURE OF MARKET RISK**

 

The Company is exposed to market risk from changes in interest ratesand foreign exchange rates.    TheCompany uses fixed rate debt and debt with variable interest rates to financethe ownership of its properties.   Thetable that follows summarizes the Company’s fixed and variable rate debtobligations outstanding at September 30, 2001.    This information should be read in conjunction with Note3—Borrowing Arrangements.

 

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

 

 

 
|                   |   | **YEAR** |   |     |   |     |   |     |   |
|------------------------|--------|----------|--------|----------|--------|----------|--------|----------|--------|
|                   |   | **2001** |   | **2002** |   | **2003** |   | **2004** |   | **2005** |   | **Thereafter** |   | **Total** |   | **Fair  Value** |   |
| Fixed rate             |   | $        | 699    |     | $      | 867      |   | $        | 946    |   | $ | 1,014 |   | $ | 1,124 |   | $ | 66,958 |   | $ | 71,608 |   | $ | 71,608 |   |
| Average interest  rate |   | 8.6      | %      | 8.6      | %      | 8.6      | %      | 8.6      | %      | 8.6 | % | 8.6 | % |   |   |   |   |
| Variable rate          |   | $        | 136    |     | $      | 272      |   | $        | 4,080  |   | -- |   | -- |   | -- |   | $ | 4,488 |   | $ | 4,488 |   |
| Average interest  rate |   | 5.8      | %      | 5.8      | %      | 5.8      | %      | --       |   | -- |   | -- |   |   |   |   |   |
|                        |        |          |        |          |        |          |        |          |        |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

**PART II – Other Information**

 

 

 

 

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

 

Not applicable during the quarter ended September 30,2001

 

**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 thereuntoduly authorized.

 

 

 
|   | SONESTA INTERNATIONAL HOTELS CORPORATION                                         |
|--------|----------------------------------------------------------------------------------|
|   |                                                                             |
|   |                                                                             |
|   | By:                                                                              | _____________________________________________ |
|   | Boy van Riel                                                                     |
|   | Vice President and Treasurer                                                     |
|   |                                                                             |
|   | (Authorized to sign on behalf of the Registrant as  Principal Financial Officer) |
|   |                                                                             |
|   | Date:   November 8, 2001                                                    |
|        |                                                                                  |  |  |  |