SONESTA INTERNATIONAL HOTELS CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____________________ to _____________________

Commission file number 0-9032

SONESTA INTERNATIONAL HOTELS CORPORATION
(Exact name of registrant as specified in its charter)

NEW YORK 13-5648107
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

200 Clarendon Street, Boston, Massachusetts 02116
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (617) 421-5400

Securities registered pursuant to Section 12 (b) of the Act:

NONE
(Title of Class)

Securities registered pursuant to Section 12 (g) of the Act:

Title of each class Name of each exchange on which registered

Class A Common Stock
$ .80 par value NASDAQ

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 /X/ No / /.

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (section 229,405 of this chapter) 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. /X/

The aggregate market value of the common stock held by non-affiliates of
the registrant as of the close of business on March 15, 2002 was $5,641,338.

The number of shares outstanding of the registrant's common stock as of the
close of business on March 15, 2002 was 3,698,230.

Documents incorporated by reference

1. Portions of the annual report to shareholders for the year ended
December 31, 2001 are incorporated by reference into Parts I, II and IV.

2. Portions of the proxy statement for the 2002 annual meeting of
stockholders are incorporated by reference into Part III.

An Index to Exhibits appears on pages 13 through 17 of this Form 10-K.

PART I

ITEM 1. BUSINESS

(a) General Development of Business. The Company is engaged in the
operation of hotels that it owns or leases in Boston (Cambridge),
Massachusetts; Key Biscayne, Florida; New Orleans, Louisiana; and
Anguilla, B.W.I. It also operates, under management agreements, hotels
in Southampton, Bermuda; New Orleans, Louisiana; and Cairo, Luxor,
Port Said and Sharm el Sheikh (2), Egypt; and three Nile River cruise
vessels. In April 2002, the Company will open a condominium hotel
consisting of up to 364 hotel guestrooms in Coconut Grove, in Florida,
which the Company will operate under a management contract, and the
Company has agreed to provide $5 million of loans to this project. The
Company has also entered into management agreements to operate new
hotels being created in Biloxi, Mississippi; and in Taba, Ras Sudr and
Nuweiba, Egypt; these projects are expected to open in 2002 or 2003.
The Company has for several years licensed the use of the Sonesta name
to a hotel called Aruba Sonesta Beach Resort at Seaport Village, in
Aruba, but this license arrangement will terminate in April 2002. The
Company has entered into master franchise agreements for Peru and
Italy, and currently licenses six (6) hotels in Peru, and four (4)
hotels, including a 10th century castle, in Tuscany, Italy. In March
2001, the Company entered into a master franchise agreement for
Brazil.

(b) Refer to Note 8 to the Company's consolidated financial statements
(pages 18 and 19 of the 2001 Annual Report to Shareholders) for
information concerning the segment(s) in which the Company operates.

(c) Narrative Description of Business: The Company's business is to a
great extent dependent upon a high level of economic activity. The
hotel business is highly competitive. The facilities of competitors
are often affiliated with national or regional chains having more room
accommodations and greater financial resources than the Company. The
Company follows the practice of refurnishing and redecorating the
hotels which it operates in order to keep the properties attractive
and competitive with new hotel properties, and this requires the
Company to make substantial capital expenditures. During the two years
ended December 31, 2001, the Company made such capital expenditures
totaling approximately $25,428,000.

The Company endeavors to create individual and distinctive features
for each hotel property while utilizing common corporate
identification in order to obtain the benefits of chain operation. The
Company is using the name "Sonesta" for all of its hotels.

The Company has approximately 1750 employees. Approximately 270 of
these employees are covered by a collective bargaining agreement. The
Company considers its relations with its employees to be satisfactory.

2

While the business of the Company's individual hotels is seasonal, the
diverse locations of the four owned or leased properties tend to
mitigate the impact of this factor. Traditionally, only the third
quarter has produced significantly less revenues and operating income
than the first, second and fourth quarters, although these seasonal
fluctuations do not materially affect the Company's business
activities.

The following table reflects total revenues, annual occupancy
percentages, average room rates and revenues per available room
("REVPAR") for the Company's owned and leased properties for the years
2001, 2000, and 1999. REVPAR is calculated by dividing annual room
revenue by the total number of rooms available during the year.
Sonesta Beach Resort Anguilla was closed due to damage caused by
Hurricane Lenny from November 17, 1999 through February 10, 2000. The
1999 and 2000 room statistics are based on the number of days the
resort was open for business.

The Company has established and maintains trademark protection for
certain service marks it uses in conducting its bus7iness, including
the service marks "Sonesta", "Sonesta Beach", "Just Us Kids", and the
Company's stylized "S" logo. Trademarks are maintained in numerous
countries, besides the United States. Each mark is generally protected
for several years, subject to periodic renewal.

For revenues by class of service for the three years ended December
31, 2001, reference is made to the Consolidated Statements of
Operations which appear on page 9 of the 2001 Annual Report to
Shareholders.

(d) Financial Information about Foreign and Domestic Operations: This
information is incorporated by reference from Note 8 on pages 18 and
19 of the 2001 Annual Report to Shareholders.

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 three hotels: Royal Sonesta Hotel, Boston
(Cambridge), Massachusetts; Sonesta Beach Resort, Key Biscayne, Florida; and
Sonesta Beach Resort Anguilla, B.W.I. Reference is made to Note 4 of the Notes
to the Consolidated Financial Statements of the registrant which appears on
pages 16 and 17 of the Company's 2001 Annual Report to Shareholders for details
of the mortgage liens on the Boston (Cambridge), Massachusetts property, the Key
Biscayne, Florida property, and the Anguilla property.

The Company operates the Royal Sonesta Hotel, New Orleans, Louisiana under a
long-term lease which expires on September 30, 2024, provided the Company
exercises its two remaining ten-year extension options.

The Company also operates under management agreements hotels in Southampton,
Bermuda; Coconut Grove (Miami), Florida (opening April 2002); New Orleans,
Louisiana; and Cairo, Luxor, Port Said and Sharm el Sheikh (2), Egypt; and three
Nile River cruise vessels. The Company has granted licenses for the use of its
name to a hotel in Aruba (terminating April 2002), six (6) hotels in Peru, and
four (4) hotels, including a 10th century castle, in Tuscany, Italy.

In addition to the properties listed above, the Company leases space for its
executive offices at 200 Clarendon Street, Boston, Massachusetts 02116.
Effective April 30, 2002, that lease will terminate. The Company has committed
to a new 10-year lease, and will relocate its executive offices to 116
Huntington Avenue, Boston, Massachusetts 02116, at the end of April 2002.

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ITEM 3. LEGAL PROCEEDINGS

In early 1997, Sonesta Hotels of Anguilla Limited ("SHAL") filed a lawsuit in
The Court of First Instance, in Curacao, Netherlands Antilles, against the
insurance company that was insuring the resort in Anguilla that the Company
acquired in November 1995, when it incurred damage from Hurricane Luis, in
September 1995. In the suit, SHAL seeks to establish its entitlement to business
interruption coverage for periods subsequent to the date SHAL acquired ownership
of the Resort. The insurer, Ennia Caribe Schade N.V., has taken the position
that (1) it has no obligation to fund business losses realized after the date of
sale, and (2) the applicable policy does not recognize business losses incurred
after the Resort was restored and reopened. Following an interim judgment in
September 1998, in April 1999 the Court of First Instance, Curacao Circuit,
entered final declaratory judgment in favor of SHAL. Ennia appealed both
judgments to the Court of Appeal, and SHAL filed an accessory appeal to two
matters addressed in the final judgment and, again, seeking a declaratory
judgment. By judgment rendered in May 2000, the Court of Appeal ruled in Ennia's
favor, and set aside the final judgment. SHAL has appealed this ruling to the
Supreme Court in The Hague, The Netherlands, and a decision is expected shortly.
While the Company is vigorously pursuing its claims against Ennia Caribe, it is
not able to predict with certainty how this lawsuit will be resolved. No amounts
which may be recoverable in this lawsuit have been reflected in the Company's
financial statements.

The Company is from time to time 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 a vote of shareholders of the Company in the fourth
quarter of 2001.

5

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Common stock market prices and dividends and the number of shareholders of
record are incorporated by reference from page 2 of the 2001 Annual Report to
Shareholders.

A dividend of $ .10 per share was paid on the Company's common stock in July
2000 and a dividend of $ .10 per share was declared on the Company's common
stock in December 2000, but was paid in January 2001. A dividend of $ .10 per
share was paid on the Company's common stock in July 2001 and a dividend of $
.10 per share was declared on the Company's common stock in December 2001, but
was paid in January 2002. Other information required by this item is
incorporated by reference from the Consolidated Statements of Stockholders'
Equity which appears on page 12 of the 2001 Annual Report to Shareholders.

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

ITEM 6. SELECTED FINANCIAL DATA

Selected Financial Data, on page 2 of the 2001 Annual Report to Shareholders, is
incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION

This information is incorporated by reference from pages 3 through 6 of the 2001
Annual Report to Shareholders.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This information is incorporated by reference from page 7 of the 2001 Annual
Report to Shareholders.

6

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 Ernst & Young LLP dated March 5, 2002, are incorporated herein by
reference from the 2001 Annual Report to Shareholders.

Selected Quarterly Financial Data, on page 7 of the 2001 Annual Report to
Shareholders, is incorporated by reference.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There were no disagreements with auditors on accounting principles or practices
or financial statement disclosures.

7

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

A. DIRECTORS OF THE COMPANY AND COMPLIANCE WITH SECTION 16 (a)

The information required by this item is incorporated herein by
reference from the proxy statement for the 2002 Annual Meeting of
Stockholders, which will be held on May 6, 2002.

B. THE EXECUTIVE OFFICERS OF THE COMPANY ARE AS FOLLOWS:

Roger, Paul and Stephen Sonnabend are brothers. Stephanie Sonnabend and
Jacqueline Sonnabend are the daughters of Roger Sonnabend. Peter J. Sonnabend is
the son of Paul Sonnabend. Kathy Rowe is the daughter of Stephen Sonnabend.

The Board of Directors elects officers of the Company on an annual basis.

ITEM 11. EXECUTIVE COMPENSATION

and

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

and

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

The information required by these items is incorporated by reference from the
proxy statement for the 2002 Annual Meeting of Stockholders, which will be held
on May 6, 2002.

9

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) 1. Financial Statements: The financial statements listed in the
accompanying Index to Consolidated Financial Statements are filed as
part of this Annual Report.

2. Financial Statement Schedules: The schedule listed in the accompanying
Index to Consolidated Financial Statements is filed as part of this
Annual Report.

3. Exhibits: The exhibits listed on the accompanying Index to Exhibits
are filed as part of this Annual Report.

(b) Reports on Form 8-K filed during the last quarter of 2001: None

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SONESTA INTERNATIONAL HOTELS CORPORATION

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULE

Item 14 (a) (1) and (2) References (Page)

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.

- ----------
*Incorporated by Reference

11

SONESTA INTERNATIONAL HOTELS CORPORATION
SCHEDULE II
CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS
THREE YEARS ENDED DECEMBER 31, 2001

12

SONESTA INTERNATIONAL HOTELS CORPORATION

INDEX TO EXHIBITS

- ----------
(1) Incorporated by reference to the Company's 1967 Report on Form 10-K.
(2) Incorporated by reference to the Company's 1973 Report on Form 10-K.
(3) Incorporated by reference to the Company's 1977 Report on Form 10-K.
(4) Incorporated by reference to the Company's 1979 Report on Form 10-K.
(5) Incorporated by reference to the Company's 1981 Report on Form 10-K.
(6) Incorporated by reference to the Company's 1992 Report on Form 10-K.
(7) Incorporated by reference to the Company's 1993 Report on Form 10-K.
(8) Incorporated by reference to the Company's 1994 Report on Form 10-K.
(9) Incorporated by reference to the Company's 1995 Report on Form 8-K.
(10) Incorporated by reference to the Company's 1995 Report on Form 10-K.
(11) Incorporated by reference to the Company's 1996 Report on Form 10-K.
(12) Incorporated by reference to the Company's 1997 Report on Form 10-K.
(13) Incorporated by reference to the Company's 1998 Report on Form 10-K.
(14) Incorporated by reference to the Company's 1999 Report on Form 10-K.
(15) Incorporated by reference to the Company's 2000 Report on Form 10-K.

17

SIGNATURES

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
(Registrant)

By: /s/ Date: March 15, 2002
-----------------------------
Boy van Riel
Vice President and Treasurer

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.

By: /s/ Date: March 15, 2002
-----------------------------
Roger P. Sonnabend
Chairman of the Board and Chief Executive Officer

By: /s/ Date: March 15, 2002
-----------------------------
Boy van Riel
Vice President and Treasurer, Principal
Financial and Accounting Officer

By: /s/ Date: March 15, 2002
-----------------------------
Paul Sonnabend
Director

By: /s/ Date: March 15, 2002
-----------------------------
Peter J. Sonnabend
Director

By: /s/ Date: March 15, 2002
-----------------------------
Stephanie Sonnabend
Director

By: /s/ Date: March 15, 2002
-----------------------------
Stephen Sonnabend
Director

18

By: /s/ Date: March 15, 2002
-----------------------------
George S. Abrams
Director

By: /s/ Date: March 15, 2002
-----------------------------
Vernon R. Alden
Director

By: /s/ Date: March 15, 2002
-----------------------------
Joseph L. Bower
Director

By: /s/ Date: March 15, 2002
-----------------------------
Jean C. Tempel
Director
19