SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Commission file number 0-9032
SONESTA INTERNATIONAL HOTELS CORPORATION
(Exact name of registrant as specified in its charter)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes £ No S
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes £ No S
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes S No £.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. S
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer £ Accelerated filer £ Non-accelerated filer £
Smaller reporting company S
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No S
The aggregate market value of the common stock held by non-affiliates of the registrant as of the close of business on June 30, 2009 was $13,489,273.
The number of shares outstanding of the registrant's common stock as of the close of business on March 22, 2010 was 3,698,230.
Documents incorporated by reference:
An Index to Exhibits appears on pages 16 through 18 of this Form 10-K.
Item 1. Business
The Company’s Executive Officers are:
Item 1A. Risk Factors
The Company’s business is subject to various risks that could have a negative effect on the Company’s results from operations and its financial condition. These risks could cause results to differ materially from those expressed in forward-looking statements made by the Company, including those contained in the Managements’ Discussion and Analysis and the footnotes to the consolidated financial statements appearing in the Company’s 2009 Annual Report, which is filed herewith as Exhibit 13. These forward-looking statements are based on current expectations and, except as required by law, we assume no obligation to update this information. The following risk factors are not the only risk factors facing our Company. Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business. Our business, financial condition and results of operations could be seriously harmed if any of the events underlying any of these risks or uncertainties actually occurs. In that event, the price for our common stock could decline, and shareholders may lose all or part of their investments.
The lodging industry is highly competitive. The Company competes with much larger hotel chains, and its ability to compete successfully depends on its ability to offer business and leisure travelers lodging products and services that are perceived to be of equal of better quality and value than those offered by its competitors.
The Company is subject to a range of operating risks common to the hotel industry. These operating risks include, but are not limited to:
Certain risks, described below, pose more significant threats to the Company’s future results and financial condition, because of the particular businesses the Company is involved in and the markets in which we operate.
Because the Company’s U.S. hotels are located in only three markets, a decline in market conditions in any of these markets could have an adverse impact on the Company’s results from operations. A major portion of the Company’s revenues and income is derived from its owned and leased hotels, and from its managed hotel, in the United States. The three U.S. hotels the Company operated at the end of 2009 are located in Miami, Florida, New Orleans, Louisiana, and Cambridge, Massachusetts. This means the Company’s future results are heavily dependent on the market conditions and the supply of and demand for hotel rooms in these specific markets.
Hurricanes and other natural disasters can damage our properties and affect our results from operations. Two of the Company’s three U.S. hotels operating at the end of 2009 are located in New Orleans, Louisiana and in Miami, Florida. These areas are prone to hurricanes, and the Company’s financial condition will be affected if its hotels suffer damage from hurricanes, as well as from the loss of business due to hurricane activity in these areas. As a result of the high cost of insurance for these catastrophic risks, damage to hotels and loss of income may only be partially covered by insurance, since the Company, and the owner of the Company’s managed hotel, have significant deductibles, and certain caps on coverages for windstorm and flood.
The Company’s fee income from its operations in Egypt may be adversely impacted by terrorism. During 2009, the Company’s management revenues from its hotels in Egypt totaled approximately $2.4 million ($3.5 million in 2008). In previous years, Egypt experienced terrorist activity, which affected tourism. Potential future terrorist incidents will affect tourism to Egypt, and the Company’s management income from this region.
Under its management agreement for Sonesta Bayfront Hotel Coconut Grove, the owner is entitled to receive minimum owner returns. The Company operates Sonesta Bayfront Hotel Coconut Grove under a management agreement, under which it is committed to fund net operating losses, and provide the owner with minimum annual returns ($419,000 during 2009). In addition, the management agreement can be terminated by the owner if the Company elects not to cure shortfalls against a minimum target return ($978,000 during 2009). Both the minimum return and the minimum target return are adjusted annually by increases in the Consumer Price Index. If the earnings of the hotel are insufficient to meet the minimum return, the Company will have to reduce its fee income from the hotel. If the shortfall in earnings exceeds the fee income, the Company will incur an expense to cure the shortfall.
Item 1B. Unresolved Staff Comments
Item 2. Properties
The Company's hotels are primarily metropolitan and resort hotels in popular vacation areas which emphasize luxury accommodations and personal service.
The Company has fee ownership in Royal Sonesta Hotel, Boston (Cambridge), Massachusetts. Reference is made to Note 5 to the consolidated financial statements of the Company which appears on page 21 of the Company's 2009 Annual Report to Shareholders, filed herewith as Exhibit 13, for details of the mortgage lien on the Boston (Cambridge), Massachusetts property.
The Company operates the Royal Sonesta Hotel, in New Orleans, Louisiana under a long-term lease which expires on September 30, 2024, provided the Company exercises its remaining ten-year extension option. As of March 20, 2010, the Company has exercised options through September 30, 2014.
The Company also currently operates under management agreements hotels in Coconut Grove (Miami), Florida; and Cairo, Luxor, Taba, Hurghada and Sharm el Sheikh (2), Egypt; and six Nile River cruise vessels. At December 31, 2009, the Company has granted licenses for the use of its name to seven hotels in Peru, two hotels in St. Maarten, two hotels in Brazil, three hotels in Chile and one hotel in Colombia.
In addition to the properties listed above, the Company leases space for its executive offices at 116 Huntington Avenue, Boston, Massachusetts 02116. That lease commenced May 1, 2002, and has a 10-year term.
Item 3. Legal Proceedings
From time to time, the Company is subject to routine litigation incidental to its business, and generally covered by insurance. The Company believes that the results of such litigation will not have a materially adverse effect on the Company’s financial condition.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to security holders during the fourth quarter of the fiscal year ended December 31, 2009.
Common stock market prices and dividends and the number of shareholders of record are incorporated by reference from page 2 of the 2009 Annual Report to Shareholders, filed herewith as Exhibit 13.
A dividend of $0.10 was declared in December 2007, but paid in January 2008. A special dividend of $1.00 per share was paid in February 2008. In addition, during 2008 a dividend of $0.10 per share was paid in July, and a dividend of $0.10 and a special dividend of $0.15 were declared in October 2008, but paid in January 2009. An additional special dividend of $1.00 per share was paid in November 2009. Other information required by this item is incorporated by reference from the Consolidated Statements of Stockholders' Equity which appears on page 16 of the 2008 Annual Report to Shareholders, filed herewith as Exhibit 13.
Item 6. Selected Financial Data
Selected Financial Data, which appears on page 2 of the 2009 Annual Report to Shareholders, filed herewith as Exhibit 13, is incorporated herein by reference.
This information is incorporated by reference from pages 4 through 12 of the 2009 Annual Report to Shareholders, filed herewith as Exhibit 13.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This information is incorporated by reference from page 11 of the 2009 Annual Report to Shareholders, filed herewith as Exhibit 13.
Item 8. Consolidated Financial Statements and Supplementary Data
The financial statements listed in the Index to Consolidated Financial Statements filed as part of this Annual Report on Form 10-K, together with the report of Caturano and Company, P.C., dated March 25, 2010 are incorporated herein by reference from the 2009 Annual Report to Shareholders, filed herewith as Exhibit 13.
Selected Quarterly Financial Data are incorporated by reference on page 11 of the 2009 Annual Report to Shareholders, filed herewith as Exhibit 13.
There were no disagreements with the Company’s independent auditors on accounting principles or practices or financial statement disclosures during 2009.
Item 9A.(T) Controls and Procedures
Management’s Report on Internal Control over Financial Reporting. Company management is responsible for establishing and maintaining adequate internal control over financial reporting for the Company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of Company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of Company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that misstatements of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2009, based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The evaluation included a full scale, documented risk assessment, based on the principles described in the framework, and included identification of key controls. Based on the evaluation, management concluded that the Company’s internal control over financial reporting was effective as of December 31, 2009.
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
This Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Annual Report.
Evaluation of Disclosure Controls and Procedures. As of December 31, 2009, Company management carried out an evaluation, under the supervision and with the participation of the Company’s Executive Chairman of the Board, Chief Executive Officer and President, and Vice President and Treasurer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. Based on that evaluation, the Company’s Executive Chairman of the Board, Chief Executive Officer and President, and Vice President and Treasurer concluded that the Company’s disclosure controls and procedures are effective, as of December 31, 2009. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act (i) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) is accumulated and communicated to management, including the Executive Chairman of the Board, Chief Executive Officer and President and Vice President and Treasurer, as appropriate, to allow timely decisions regarding required disclosures.
Item 9B. Other Information
Item 10. Directors, Executive Officers and Corporate Governance
Directors of the Company and Compliance with Section 16 (a). The information required by this item is incorporated herein by reference from the Company’s proxy statement for the 2010 Annual Meeting of Stockholders, which will be held in May 2010.
Code of Ethics for Senior Financial Executives and Directors. The Company, for many years, has had in place a written Code of Ethics covering, among other subjects, ethical behavior, compliance with laws, and conflicts of interest. This Code of Ethics was adopted by the Company's Board of Directors and is applicable to all Company employees, including Senior Financial Officers and Directors. Each year, Company Directors, officers, management, supervisory and administrative employees are required to acknowledge, in writing, that they have read and understood the Company's Code of Ethics.
A copy of the Company’s Code of Ethics is posted on its web site at www.sonesta.com. The Company intends to disclose on its website any amendments of waivers to its Code of Ethics applicable to its principal executive officer(s), principal financial and accounting officer or any person performing similar functions.
Audit Committee Charter. The Company’s Audit Committee Charter, which is posted on the Company’s website at www.Sonesta.com, outlines the Committee’s purpose, responsibilities, and authorities, and is reviewed and reassessed by the Audit Committee on an annual basis.
Audit Committee Members and Financial Expert. The Company's Board of Directors has an Audit Committee consisting of Ms. Jean C. Tempel, and Mssrs. Joseph L. Bower, Charles J. Clark and Clarence A. Davis. All members of the Audit Committee are financially literate and independent. Mr. Clark, who the Company considers a financial expert, as defined by NASDAQ rules, and an audit committee financial expert, as defined by SEC rules, serves as Chairman of the Audit Committee. Mr. Clark has 35 years of experience as a commercial banker, 25 years of which were spent managing a commercial lending department, and 2 years as head of a commercial credit department. Mr. Clark has vast experience in reviewing and evaluating financial statements.
Item 11. Executive Compensation
The information required by this Item 11 is incorporated herein by reference from the Company’s proxy statement for the 2010 Annual Meeting of Stockholders, which will be held in May 2010.
This information is incorporated by reference from the Company’s proxy statement for the 2010 Annual Meeting of Stockholders, which will be held in May 2010.
The Company has no equity compensation plans for which disclosure under Item 201(d) of Regulation S-K is required.
This information is incorporated by reference from the Company’s Proxy Statement for the 2010 Annual Meeting of Stockholders, which will be held in May 2010.
Information regarding related person transactions is also incorporated by reference from Note 11 to the Company’s consolidated financial statements, filed herewith as Exhibit 13.
Item 14. Principal Accountant Fees and Services
Auditors. Caturano and Company, P.C. has served as the Company’s independent registered public accounting firm since 2004. A representative of Caturano and Company P.C. is expected to be present at our Annual Meeting of Stockholders, with the opportunity to make a statement if he or she desires to do so. This representative will be available to respond to appropriate questions from shareholders who are present at our annual meeting.
The fees for services provided by Caturano and Company, P.C. to the Company in the last two fiscal years were as follows:
(1)Other fees include tax advisory fees.
The Company’s Audit Committee has established policies and procedures which are intended to control the services provided by the Company’s auditors and to monitor their continued independence. Under these policies, no services may be undertaken by the Company’s auditors unless the engagement is specifically approved by the Company’s Audit Committee or the services are included within a category which has been pre-approved by the Audit Committee. The maximum charge for services is established by the Audit Committee when the specific engagement or the category of services is approved or pre-approved. In certain circumstances, management is required to notify the Audit Committee when pre-approved services are undertaken and the Committee or its Chairman may approve amendments or modifications of the engagement or the maximum fees.
The Company’s Audit Committee will not approve engagements of the Company’s auditors to perform non-audit services for the Company if doing so will cause the auditors to cease to be independent within the meaning of applicable SEC or NASDAQ rules. In other circumstances, the Audit Committee considers among other things, whether the auditors are able to provide the required services in a more or less effective and efficient manner than other available service providers.
All services for which the Company engages the auditors are approved by the Audit Committee. The total fees the Company paid to Caturano and Company P.C. for services in 2008 and 2009 are set forth above.
The Company’s Audit Committee approved the engagement of Caturano and Company P.C. to provide audit related services and tax services in 2008 and 2009, respectively (which include the annual
audits of the Company’s Pension Plan and 401(k) Plan) because it determined that for Caturano and Company, P.C. to provide these services would not compromise its independence, and that its familiarity with the Company’s record keeping and accounting systems would permit them to provide these services with equal or higher quality, more quickly and at a cost similar to what the Company could obtain these services from other providers.
Item 15 Exhibits and Financial Statement Schedules
SONESTA INTERNATIONAL HOTELS CORPORATION
Index to Consolidated Financial Statements
and Financial Statement Schedule
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted.
*Filed herewith as Exhibit 13
Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SONESTA INTERNATIONAL HOTELS CORPORATION
Pursuant to the requirements of the Securities and Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.