1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16 OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
RENAISSANCE HOTEL GROUP N.V.
(Translation of Registrant's Name Into English)
C/O RENAISSANCE HOTELS INTERNATIONAL
17TH FLOOR, NEW WORLD TOWER II, 18 QUEEN'S ROAD, CENTRAL, HONG KONG
(Address of Principal Executive Offices)
(Indicate by check mark whether the registrant files or will file
annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F X Form 40-F
----- -----
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the information to
the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.)
Yes No X
----- -----
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82-_________.)
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TABLE OF CONTENTS
Page
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PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
December 31, 1996 and June 30, 1996 2
Consolidated Statements of Operations
for the Three and Six Months Ended
December 31, 1996 and 1995 3
Consolidated Statements of Cash Flows for the
Six Months Ended December 31, 1996 and 1995 4
Notes to Consolidated Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 7
PART II OTHER INFORMATION
Item 1. Legal Proceedings 14
Item 2. Change in Securities 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security-Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 6-K 17
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PART I
ITEM 1. FINANCIAL STATEMENTS
RENAISSANCE HOTEL GROUP N.V.
CONSOLIDATED BALANCE SHEETS
(U.S. DOLLARS IN THOUSANDS)
======================================================================================================================
DECEMBER 31, JUNE 30,
1996 1996
----------- --------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents $ 79,044 $ 67,367
Accounts receivable, net 6,751 9,196
Due from affiliates 26,760 20,399
Deferred income taxes 16,789 14,590
Other current assets 10,447 9,276
--------- ---------
Total current assets 139,791 120,828
Furniture and equipment, net 5,186 3,842
Unconsolidated joint ventures 32,125 31,659
Intangible assets, net:
License agreement 106,815 108,471
Management agreements 18,415 19,476
Franchise agreements 4,058 4,464
Rights and marks 13,605 13,824
Other intangibles 57 276
Other assets 5,125 3,643
--------- ---------
TOTAL ASSETS $ 325,177 $ 306,483
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 46,570 $ 50,441
Current portion of long-term debt 278 3,504
Other current liabilities 9,020 8,247
--------- ---------
Total current liabilities 55,868 62,192
Long-term debt 132,234 132,158
Deferred income taxes 50,279 42,085
Other long-term liabilities 12,641 13,164
--------- ---------
TOTAL LIABILITIES 251,022 249,599
Commitments and contingencies
Common stock, par value NLG 0.01 per share, 100,000,000 shares authorized;
30,100,000 shares issued and outstanding 196 196
Additional paid-in capital 54,315 54,315
Retained earnings 49,783 31,849
Foreign currency translation and other (739) (645)
--------- ---------
103,555 85,715
Less: amounts receivable from an affiliate 29,400 28,831
--------- ---------
TOTAL SHAREHOLDERS' EQUITY 74,155 56,884
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 325,177 $ 306,483
========= =========
The accompanying notes are an integral part of these
financial statements.
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RENAISSANCE HOTEL GROUP N.V.
CONSOLIDATED STATEMENTS OF OPERATIONS
(U.S. DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
====================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
---------------------- -----------------------
1996 1995 1996 1995
--------- -------- ---------- --------
Revenue
Management fees $ 16,303 $ 15,389 $ 31,103 $ 29,892
Marketing fees 9,307 8,920 18,557 17,501
License fees 5,293 5,614 10,941 10,425
Franchise fees 769 740 1,550 1,497
Other 2,078 2,322 4,966 2,721
-------- -------- -------- --------
Total revenue 33,750 32,985 67,117 62,036
Operating costs and expenses
Marketing, general and administrative 17,739 18,372 32,885 33,401
Depreciation 254 408 480 580
Amortization of intangibles 1,645 1,745 3,399 3,378
-------- -------- -------- --------
Total operating costs and expenses 19,638 20,525 36,764 37,359
Operating income 14,112 12,460 30,353 24,677
Equity in income of unconsolidated
joint ventures 719 195 229 1,099
Interest income 1,212 1,072 2,321 1,643
Foreign currency gain (loss) (55) (193) (180) 9
Other income 260 128 402 269
-------- -------- -------- --------
Earnings before interest and taxes 16,248 13,662 33,125 27,697
Interest expense 3,170 3,269 6,356 5,266
-------- -------- -------- --------
Earnings before taxes 13,078 10,393 26,769 22,431
Provision for income taxes 4,442 3,621 8,835 7,888
-------- -------- -------- --------
Net earnings $ 8,636 $ 6,772 $ 17,934 $ 14,543
======== ======== ======== ========
Earnings per share $ 0.29 $ 0.22 $ 0.60 $ 0.48
======== ======== ======== ========
Weighted average shares outstanding (000's) 30,100 30,100 30,100 30,100
Revenues and expenses from related parties
included above are:
Revenue $ 22,490 $ 22,177 $ 43,041 $ 41,647
Operating costs and expenses 372 115 688 216
Interest income 257 262 515 522
Interest expense -- -- -- 577
The accompanying notes are an integral part of these
financial statements.
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RENAISSANCE HOTEL GROUP N.V.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(U.S. DOLLARS IN THOUSANDS)
(UNAUDITED)
===================================================================================================================
SIX MONTHS ENDED DECEMBER 31,
-----------------------------
1996 1995
------ -----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 17,934 $ 14,543
Adjustments to reconcile to net cash provided by operating activities:
Depreciation 480 580
Amortization of intangibles 3,399 3,378
Equity in income of unconsolidated joint ventures (229) (1,099)
Foreign currency (gain) loss 180 (9)
Amortization of discount on put option 454 460
Amortization of debt issuance fees and discount 44 33
Deferred tax provision 6,084 6,540
Changes in operating assets and liabilities:
Accounts receivable 2,405 (3,754)
Due from affiliates (68) (3,410)
Accounts payable and accrued expenses (3,806) 6,940
Due to affiliates 859 3,658
Other (1,837) 4,251
--------- ---------
NET CASH PROVIDED FROM OPERATING ACTIVITIES 25,899 32,111
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments received from unconsolidated joint ventures -- 397
Investments in unconsolidated joint ventures (469) (2,000)
Addition to notes receivable from affiliate (2,531) (13,033)
Purchases of furniture and equipment (1,888) (1,313)
Other -- (588)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (4,888) (16,537)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 8 7/8% Guaranteed Notes Due 2005 -- 119,881
Payment of amounts due to New World Group Members (5,072) (53,550)
Retirement of long-term debt (3,222) --
Principal payments on long-term debt -- (54,500)
Payment of dividend -- (16,200)
Payment of issuance fees -- (1,200)
Payment of other long-term liabilities (501) (462)
Proceeds from notes payable to affiliate -- 10,132
Payments under capital leases (117) (87)
Other (188) --
--------- ---------
NET CASH (USED IN) PROVIDED FROM FINANCING ACTIVITIES (9,100) 4,014
Effect of exchange rate changes on cash (234) (867)
--------- ---------
NET CHANGE IN CASH AND CASH EQUIVALENTS 11,677 18,721
Cash and cash equivalents at beginning of period 67,367 16,200
--------- ---------
Cash and cash equivalents at end of period $ 79,044 $ 34,921
========= =========
The accompanying notes are an integral part of these
financial statements.
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RENAISSANCE HOTEL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(ALL INFORMATION AS OF AND FOR THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 1996 AND 1995 IS UNAUDITED - U.S. DOLLARS IN THOUSANDS)
================================================================================
(1) BASIS OF PRESENTATION
The data as of December 31, 1996 and for the three and six months ended
December 31, 1996 and 1995 are unaudited and, in the opinion of management,
include all adjustments (which are normal and recurring in nature) necessary for
a fair presentation of financial position and results of operations. The results
of operations for such interim periods are not necessarily indicative of the
results of operations for a full year. The statements, which do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements, should be read in conjunction with the
audited financial statements of Renaissance Hotel Group N.V. (the "Company")
contained in the Company's Annual Report on Form 20-F for the year ended June
30, 1996. Certain prior period amounts have been reclassified to conform to the
current period presentation.
(2) SUPPLEMENTAL CASH FLOW INFORMATION
The Company paid $5,902 and $1,637 in interest and taxes, respectively,
during the six months ended December 31, 1996. For the six months ended December
31, 1995, the Company paid interest and taxes of $3,716 and $1,067,
respectively.
(3) PRO FORMA FINANCIAL INFORMATION
The following pro forma condensed statement of operations data reflects
the Company's consolidated results of operations for the six months ended
December 31, 1995, assuming the issuance of the 8 7/8% Guaranteed Notes Due 2005
(the "Notes"), which occurred on October 2, 1995, had actually occurred on July
1, 1995. The Company believes that the assumptions made with respect to such
transaction provides a reasonable basis on which to present the pro forma
condensed consolidated results of operations. This data is provided for
informational purposes only and may not be indicative of the Company's results
of operations for any future period (U.S. dollars in thousands, except per share
amounts).
SIX MONTHS ENDED DECEMBER 31, 1995
----------------------------------
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
Total revenue $62,036 $ -- $62,036
Marketing, general and administrative expenses 33,401 -- 33,401
Depreciation 580 -- 580
Amortization of intangibles 3,378 -- 3,378
------- ------- -------
Operating income 24,677 -- 24,677
Equity in income of unconsolidated joint ventures 1,099 -- 1,099
Interest income 1,643 -- 1,643
Other income 278 -- 278
------- ------- -------
Earnings before interest and taxes 27,697 -- 27,697
Interest expense 5,266 1,183 (A) 6,449
------- ------- -------
Earnings before taxes 22,431 (1,183) 21,248
Provision for income taxes 7,888 (450) (B) 7,438
------- ------- -------
Net earnings $14,543 $ (733) $13,810
======= ======= =======
Net earnings per share of common stock (C) $ 0.48 $ (0.02) $ 0.46
======= ======= =======
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RENAISSANCE HOTEL GROUP N.V.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
(ALL INFORMATION AS OF AND FOR THE THREE AND SIX MONTHS ENDED
DECEMBER 31, 1996 AND 1995 IS UNAUDITED - U.S. DOLLARS IN THOUSANDS)
================================================================================
(A) Represents the following:
Interest expense on Notes $ 2,663
Amortization of fees related to the issuance of the Notes 30
Amortization of original issue discount 3
Interest expense on borrowings under the bank note repaid
with the proceeds from the issuance of the Notes (935)
Interest expense on borrowings under note payable to an
affiliate repaid with proceeds from the issuance of the Notes (578)
-------
$ 1,183
=======
(B) Represents the tax effect of the foregoing adjustment.
(C) Calculated using 30.1 million weighted average shares of common stock
outstanding.
(4) SUBSEQUENT EVENT - PROPOSED ACQUISITION BY DOUBLETREE CORPORATION
On January 6, 1997, the Company and Doubletree Corporation announced
that their respective Boards of Directors approved a memorandum of understanding
for the proposed acquisition of the Company by Doubletree. The consummation of
the proposed transaction is subject to various terms and conditions, including
the completion of due diligence by both parties, the negotiation and execution
of definitive agreements, approval by the respective Boards of Directors and the
completion of regulatory approvals. No assurances can be given as to the
completion, timing or final terms and conditions of the proposed transaction.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
================================================================================
OVERVIEW
The following discussion and analysis contains certain forward-looking
statements that are based on management expectations. Such statements are
subject to certain risks and uncertainties that may cause actual results to
vary. Such risks, among other things, include a reliance on economic growth for
RevPAR increases, legal protections to enforce management and franchise
agreements in the many countries in which the Company operates, dependance on
air travel for the majority of the Company's guests to get to hotels, reliance
on the adherence to contracts by the third parties for whom the Company performs
services, and the Company's ability to obtain new management and franchise
agreements to fuel growth.
The following discussion and analysis should be read in conjunction with
the audited financial statements of the Company contained in the Company's
Annual Report on Form 20-F for the year ended June 30, 1996. All references to a
year, such as "1997," refer to the Company's fiscal year ended June 30 of such
year.
As of December 31, 1996, the Company had a portfolio of 150 hotels with
46,369 rooms, including (i) management agreements for 63 Renaissance hotels, 15
New World hotels and 33 Ramada International hotels and (ii) franchise
agreements for eight Renaissance hotels and 31 Ramada International hotels.
The Company has entered into management agreements, franchise agreements
and exclusive license agreements with respect to hotels throughout the world.
Approximately 46% and 48% of the Company's revenue for the first half of 1997
and 1996, respectively, was earned outside of the United States and Canada. The
Company's Europe region management and marketing fee revenue is comprised of
eight European and two Middle Eastern currencies in addition to the U.S. dollar.
Management fee revenues and marketing fee revenues in the Asia/Pacific region
are comprised primarily of seven Asian currencies in addition to the U.S.
dollar.
Marketing, general and administrative expenses in the Europe region are
incurred primarily in German marks. In the Asia/Pacific region, marketing,
general and administrative expenses are incurred primarily in Hong Kong dollars.
RESULTS OF OPERATIONS
QUARTERS ENDED DECEMBER 31, 1996 AND 1995
Revenue. Total revenue increased 2% in the second quarter of 1997
compared to the same period of 1996 primarily due to improved management and
marketing fees from existing hotels. This positive effect was offset by the
unfavorable impact of $0.6 million related to changes in local currency
exchange rates to the U.S. dollar and the impact of second quarter 1996
non-recurring: (i) technical assistance fee revenue of $1.4 million; (ii)
license fee revenue of $0.9; and (iii) incentive fee revenue of $0.3 million.
Management fees increased 6% in the second quarter of 1997 to $16.3 million
compared to $15.4 million in the second quarter of 1996. The $0.9 million
increase was primarily a net result of higher management fees from existing
hotels due to improved gross revenue performance. This was offset by $0.3
million of non-recurring incentive fee revenue recorded in the second quarter
of 1996 related to a multi-property management agreement.
Marketing fees increased 4% in the second quarter of 1997 to $9.3 million
compared to $8.9 million in the same period of 1996. This increase was primarily
the result of higher fees at existing managed and franchised hotels in the
Americas.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
================================================================================
In the Americas region, management fees decreased 4% and marketing fees
increased 3% in the second quarter of 1997 compared to same period of 1996.
Management fees in the Americas region decreased $0.2 million primarily as a
net result of: (i) a reduction of seven management contracts; (ii) the impact
of $0.3 million of non-recurring incentive fee revenue recorded the second
quarter of 1996 related to a multi-property management agreement; and (iii)
higher management fees from existing hotels due to improved gross revenue
performance. Marketing fees increased mainly as a net result of higher fees
from existing managed and franchised hotels offset by the lower number of
managed properties.
In the Europe region, management fees and marketing fees increased 7%
and 14%, respectively, in the second three months of 1997 compared to second
three months of 1996. Management fees in the Europe region increased $0.2
million overall, primarily as a result of seven additional management contracts
and the renegotiation of two existing contracts. Management fees from existing
hotels decreased approximately $0.1 million, primarily as a result of the
unfavorable impact of the change in exchange rates for the second quarter of
1997 compared to second quarter of 1996. Had the same exchange rates been in
effect during the three months ended December 31, 1996 as were in effect during
the three months ended December 31, 1995, management fees would have been
approximately $0.4 million higher.
Marketing fees in Europe increased mainly as a result of additional fees
from new management and franchise contracts. Had the same exchange rates been in
effect during the three months ended December 31, 1996 as were in effect during
the three months ended December 31, 1995, marketing fees in the Europe region
would have been approximately $0.1 million higher.
In the Asia/Pacific region, management fees and marketing fees
increased 18% and 1%, respectively, in the second quarter of 1997 compared to
the second quarter of 1996. Management fees increased $0.9 million mainly as a
result of improved performance from existing hotels and the addition of three
new management contracts. Marketing fees remained relatively unchanged in the
second quarter of 1997 compared to the same time period of 1996. Had the same
exchange rates been in effect in the Asia/Pacific region during the second
quarter of 1997 as were in effect during the second quarter of 1996, management
fee revenue would have been $0.1 million higher and marketing fee revenue would
have been unchanged.
License fees decreased in the second quarter of 1997 to $5.3 million
compared to $5.6 million in the second quarter of 1996 reflecting the impact of
$0.9 million of non-recurring revenue recorded last year relating to limited
service properties licensed by HFS Incorporated ("HFS") in the United States.
Scheduled minimum license fees due from HFS were $0.3 million higher in the
second quarter of 1997 compared to the same period of 1996. The second quarter
of 1997 includes $0.1 million of license fee revenue earned on timeshare
properties licensed by HFS in the United States. There was no revenue earned in
the second quarter of the prior year on timeshare properties licensed by HFS.
Other revenue decreased $0.2 million in the second quarter of 1997
compared to the second quarter of 1996. The Company recorded $1.8 million of
technical assistance fee revenue in the second quarter of 1996 related to the
finalization of a two year agreement with a hotel outside the United States. The
agreement had a retroactive application date of January 1, 1995 which resulted
in approximately $1.4 million of revenue earned prior to the second quarter
being recorded in the second quarter of 1996. During the second quarter of 1997
the Company earned a $1.0 million fee on the termination of one management
contract in the Americas. No significant termination fees were earned in the
second quarter of 1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
================================================================================
Marketing, General and Administrative Expenses. Marketing, general and
administrative expense decreased 3% to $17.7 million in the 1997 second quarter
compared to $18.4 million in the 1996 second quarter. Increases in personnel
costs were offset by reduced advertising costs in the Americas and a reduction
of $1.0 million of development costs in Eastern Europe. Personnel costs
increased $1.0 million due primarily to higher staffing levels in Europe and
Asia/Pacific, and $0.4 million of regional restructuring and severance costs
incurred in the Americas. Advertising expenses were approximately $1.0 million
less than the second quarter of 1996 due to a shift in advertising strategy in
the Americas. The Company also continued the aggressive advertising campaign
initiated in Europe last year. Had the same exchange rates been in effect during
the three months ended December 31, 1996 as were in effect during the three
months ended December 31, 1995, world-wide marketing, general and administrative
expenses would have been approximately $0.2 million higher in the second quarter
of 1997.
Operating Income. Operating income in the second quarter of 1997 increased
13% to $14.1 million compared to $12.5 million in the second quarter of 1996.
Operating income represented 42% and 38% of total revenue in the second quarter
of 1997 and 1996, respectively. Had the same exchange rates been in effect
during the three months ended December 31, 1996 as were in effect during the
three months ended December 31, 1995, operating income would have been
approximately $0.4 million higher in the second quarter of 1997.
Equity in Income of Unconsolidated Joint Ventures. Equity in income of
unconsolidated joint ventures was $0.5 million higher in the second quarter of
1997 compared to the second quarter of 1996. The higher equity income amount was
primarily a result of improved performance at the Company's joint venture
properties in Moscow and Seoul.
Interest Income. Interest income increased $0.1 million in the second
quarter of 1997 compared to the same period of 1996 mainly as a net result of
maintaining higher cash balances in the current year quarter offset by the
impact of interest income related to a tax refund recorded in the second
quarter of 1996.
Interest Expense. Interest expense decreased $0.1 million in the second
quarter of 1997 to $3.2 million.
Provision for Income Taxes. The provision for income taxes of $4.4 million
for the second quarter of 1997 represents a 34% effective tax rate. The income
tax provision was $3.6 million in the second quarter of 1996, representing an
effective tax rate of 35%. The decrease in the effective tax rate represents the
impact of the Company's world-wide restructuring. The effective tax rates differ
from the U.S. statutory tax rates due to income tax rate differentials between
the U.S. and other jurisdictions, state income taxes, and non-deductible
goodwill amortization.
Net Earnings. Net earnings increased 28% to $8.6 million in the second
quarter of 1997 compared to $6.8 million in the second quarter of 1996.
SIX MONTHS ENDED DECEMBER 31, 1996 AND 1995
Revenue. Total revenue increased 8% in the first six months of 1997
compared to the same period of 1996 primarily due to improved management and
marketing fees from existing hotels, $2.9 million of termination fees received
in the 1997 period, and the unfavorable impact of $1.1 million related to
changes in local currency to U.S. dollar exchange rates for the six months
ended December 31, 1996 as compared to the same period ended December 31, 1995.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
================================================================================
Management fees increased 4% in the first six months of 1997 to $31.1
million compared to $29.9 million in the same period of 1996. The $1.2 million
increase was primarily a net result of higher base management fees from existing
hotels due to improved gross room revenue performance. Overall incentive fee
revenue decreased slightly, primarily as a result of the Company recording $0.3
million of non-recurring incentive fee revenue related to a multi-property
management agreement in the second quarter of 1996.
Marketing fees increased 6% in the first half of 1997 to $18.6 million
compared to $17.5 million in the first half of 1996. This increase was primarily
the result of higher fees at existing managed and franchised hotels.
In the Americas region, management fees decreased 1% and marketing fees
increased 3% in the first six months of 1997 compared to same period of 1996.
Management fees in the Americas region decreased primarily as a net result of:
(i) a reduction of seven management contracts; (ii) the impact of $0.3 million
of non-recurring incentive fee revenue recorded in the first half of 1996
related to a multi-property management agreement; and (iii) higher base
management fees at existing hotels due to improved gross room revenue. Marketing
fees increased mainly as a net result of higher fees from existing managed and
franchised hotels offset by a reduction of five properties charged a marketing
fee.
In the Europe region, management fees and marketing fees increased 5% and
16%, respectively, in the first six months of 1997 compared to the first six
months of 1996. Management fees in the Europe region increased mainly as a
result of seven new management contracts and higher base management fees from
existing hotels due to improved gross room revenue. Had the same exchange rates
been in effect during the six months ended December 31, 1996 as were in effect
during the six months ended December 31, 1995, management fees in the Europe
region would have been approximately $0.9 million higher.
Marketing fees in Europe increased mainly as a result of additional fees
from new management and franchise contracts and higher fees from existing
managed and franchised hotels. Had the same exchange rates been in effect during
the six months ended December 31, 1996 as were in effect during the six months
ended December 31, 1995, marketing fees in the Europe region would have been
approximately $0.1 million higher.
In the Asia/Pacific region, management fees and marketing fees
increased 9% and 5%, respectively, in the first half of 1997 compared to the
same period of 1996. Management fees increased mainly as a result of improved
performance at existing hotels and the addition of three new management
contracts. Marketing fees increased in the first six months of 1997 compared to
the same time period of 1996 mainly as a result of improved room revenues at
existing hotels. Had the same exchange rates been in effect in the Asia/Pacific
region during the first half of 1997 as were in effect during the first half of
1996, management fee revenue would have been $0.1 million higher and marketing
fee revenue would have been unchanged.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
================================================================================
License fees increased in the first half of 1997 to $10.9 million compared
to $10.4 million in the same period of 1996 primarily as a net result of: (i)
the impact of $0.4 million of non-recurring revenue recorded last year relating
to limited service properties licensed by HFS in the United States; (ii)
scheduled minimum license fees due from HFS were $0.5 million higher in the
first six months of 1997 compared to the same period of 1996; (iii) the first
six months of 1997 includes $0.3 million of license fee revenue earned on
timeshare properties licensed by HFS in the United States (there was no revenue
earned in the first six months of the prior year on timeshare properties
licensed by HFS); and (iv) license fee revenue earned on limited service
properties licensed by HFS in the United States increased $0.1 million in the
first six months of 1997 as compared to the same period of 1996.
Other revenue increased $2.2 million in the first six months of 1997
compared to the same period of 1996. During the first six months of 1997 the
Company earned termination fees totaling $2.9 million on three management
contracts terminated in the Americas. No significant termination fees were
earned in the first half of 1996. The Company also recorded $1.8 million of
technical assistance fee revenue in the first six months of 1996 related to the
finalization of a two year agreement with a hotel outside the United States. The
agreement had a retroactive application date of January 1, 1995 which resulted
in approximately $0.9 million of revenue earned prior to the first half being
recorded in the first half of 1996. The Company earned revenue of $0.9 million
on this agreement in the first six months of 1997. This technical assistance
agreement concluded on December 31, 1996.
Marketing, General and Administrative Expenses. Marketing, general and
administrative expense decreased 2% to $32.9 million in the 1997 first six
months compared to $33.4 million in the first six months of 1996. Increases in
personnel costs were offset by reduced advertising costs in the Americas and a
reduction of $0.6 million in Eastern Europe development costs. Personnel costs
increased $2.7 million due primarily to cost of living and performance
increases and: (i) $1.0 million related to higher staffing levels in Europe and
Asia/Pacific; (ii) $0.9 million of additional bonus expense as a result of
improved performance and additional plan participants; and (iii) $0.4 million
of regional restructuring and severance costs incurred in the Americas.
Advertising expenses were approximately $1.6 million less in the first half of
1997 than the first half of 1996, and approximately $1.0 million less than
expected, due to a shift in advertising strategy in the Americas. In addition,
the Company delayed advertising projects in the first quarter of 1997 while a
new advertising agency was selected in the Americas. The Company also continued
the aggressive advertising campaign initiated in Europe last year. Had the same
exchange rates been in effect during the six months ended December 31, 1996 as
were in effect during the six months ended December 31, 1995, world-wide
marketing, general and administrative expenses would have been approximately
$0.3 million higher in the first six months of 1997.
Operating Income. Operating income in the first half of 1997 increased 23%
to $30.4 million compared to $24.7 million in the first half of 1996. Operating
income represented 45% and 40% of total revenue in the first half of 1997 and
1996, respectively. Had the same exchange rates been in effect during the six
months ended December 31, 1996 as were in effect during the six months ended
December 31, 1995, operating income would have been approximately $0.8 million
higher in the first half of 1997.
Equity in Income of Unconsolidated Joint Ventures. Equity in income of
unconsolidated joint ventures was $0.9 million lower in the first half of 1997
compared to the same period of 1996. Approximately $0.7 million of this
reduction is attributed to the addition of joint venture hotels in St.
Petersburg, Florida and Paris, France which were added to the Company's
portfolio in December 1995 and June 1996, respectively.
Interest Income. Interest income increased $0.7 million in the first six
months of 1997 compared to the first six months of 1996 mainly as a net result
of maintaining higher cash balances in the current year period and interest
income related to a tax refund recorded in the second quarter of 1996.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
================================================================================
Interest Expense. Interest expense increased $1.1 million in the first
half of 1997 to $6.4 million compared to $5.3 million in the first half of
1996. This increase is due to the issuance of $120.0 million principal amount
of 8 7/8% Guaranteed Notes Due 2005 ("Notes") on October 2, 1995. Had the
Notes been outstanding during the entire first six months of 1996, interest
expense would have been $6.4 million in that period as well. On December 27,
1996, the Company fully satisfied its $3.2 million obligation under
subordinated notes due in 1999. These notes bore interest at an 11.625% annual
rate.
Provision for Income Taxes. The provision for income taxes of $8.8 million
for the first six months of 1997 represents a 33% effective tax rate. The
income tax provision was $7.9 million in the same period of 1996, representing
an effective tax rate of 35%. The decrease in the effective tax rate represents
the impact of the Company's world-wide restructuring. The effective tax rates
differ from the U.S. statutory tax rates due to income tax rate differentials
between the U.S. and other jurisdictions, state income taxes, and non-deductible
goodwill amortization.
Net Earnings. Net earnings increased 23% to $17.9 million in the first
half of 1997 compared to $14.5 million in the first half of 1996.
SEASONALITY
The Company's operations are somewhat seasonal in nature, with lower
revenues, operating profit and cash flow from operations in the second quarter
due to decreased travel during the November and December holiday periods and in
the first quarter as a result of reduced business travel during the summer
vacation months. However, the Company believes that the geographical
distribution of its hotels lessens the impact of seasonal fluctuations.
INFLATION
The Company believes that inflation has not had a material effect on its
financial position or results of operations for the periods presented.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary source of funds to meet working capital requirements
is cash provided from operations. During the first half of 1997, the Company
generated cash flow from operations of $25.9 million. Operational cash flow is
comprised mainly of net earnings, changes in operating assets and liabilities,
and non-cash items, including deferred taxes, amortization of intangibles, and
the Company's equity interest in unconsolidated joint ventures.
Net cash used in investing activities totaled $4.9 million in the first
six months of 1997. The Company loaned $2.0 million to an affiliate for the
acquisition of a hotel in London, England, which the Company will manage upon
the hotel's opening, expected in 1998. This contract represents the first
Renaissance Hotel in Great Britain. The loan was in the form of an unsecured
short-term note. During the first six months of 1997 capital expenditures were
$1.9 million. The majority of the capital expenditures was in the Americas for a
new reservation system.
Net cash used in financing activities was $9.1 million. The primary
components were the repayment of a $5.1 million obligation to an affiliated
party and the $3.2 million payment to retire the subordinated notes due in
1999.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - CONTINUED
================================================================================
As of June 30, 1996, the Company had approximately $68 million of
available NOL's expiring at various times from 2005-2010. The Company estimates
that an additional $20 million will be utilized based upon the first half
results. The actual amount of NOL utilization is dependant upon the U.S. taxable
income generated by the Company in 1997. The Company expects to be able to fully
utilize these NOL's on its future U.S. tax returns. Despite the positive impact
on cash provided from operations, such NOL's do not provide a benefit to the
statement of operations.
As of December 31, 1996, the Company had $79.0 million of cash and cash
equivalents. The Company expects that cash generated from operations will be
adequate for its current and forecasted working capital and investment
requirements for the foreseeable future. The Company currently does not have a
short-term line of credit and does not anticipate the need for such a facility
in the foreseeable future.
RECENT ACCOUNTING PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123-Accounting for Stock-Based
Compensation ("SFAS 123"). SFAS 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. SFAS 123 also
allows companies to continue to account for employee stock compensation plans in
accordance with Accounting Principles Board Opinion No. 25 - Accounting for
Stock Issued to Employees ("APB 25"). However, if APB 25 methodology is used,
SFAS 123 requires certain pro forma disclosures. The Company has not yet
determined the effect of implementing this standard. The Company is required to
adopt the provisions of SFAS 123 in 1997.
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PART II
OTHER INFORMATION
================================================================================
ITEM 1. LEGAL PROCEEDINGS.
No changes have occurred in any of the pending legal proceedings discussed
in Note 18 to the financial statements contained in the Annual Report on Form
20-F filed for the year ended June 30, 1996. These legal proceedings are not
expected to have a material effect on the Company's financial position or
results of operations.
ITEM 2. CHANGES IN SECURITIES.
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
The Company's annual meeting of shareholders was held on November 20, 1996
at the Renaissance Amsterdam Hotel. Of the Company's 30,100,000 issued and
outstanding shares, 23,982,095 were voted at the annual meeting. The
shareholders reelected the following individuals to the board of managing
directors: Dr. Henry Cheng Kar-Shun; Mr. William Wai-Hoi Doo; Mr. James Kwok
Chak Choi; Mr. Michael Williams; Mr. Robert W. Olesen; Mr. Erwin J. Rieck; Mr.
Thomas G. Stauffer; Mr. Andrew Wong Kwok Kin; The Hon. J. Carter Beese, Jr.; Mr.
W. Grant Gregory and The Hon. Thomas Hsieh. Mesrs. Williams, Stauffer and Beese
were elected by a vote of 23,981,495 for and 600 withheld. All other members
were elected by a vote of 23,981,795 for and 300 withheld. All of the Company's
shareholders voting at the meeting voted in favor of (i) the ratification of the
recommendation by the board of managing directors of the reappointment of
Coopers & Lybrand as the independent auditors of the Company for the fiscal year
ending June 30, 1997 and (ii) the adoption of the June 30, 1996 audited annual
financial statements of the Company (prepared in accordance with U.S. GAAP).
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ITEM 5. OTHER INFORMATION.
The following table sets forth certain comparative brand information by
region with respect to all of the Company's managed hotel properties for the
periods indicated:
REVENUE PER
OCCUPANCY PERCENTAGE AVERAGE DAILY RATE AVAILABLE ROOM
-------------------- ------------------ --------------
SECOND QUARTER OF: 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(ALL MANAGED HOTELS)
AMERICAS
Renaissance........... 64.9% 64.0% $115.99 $106.69 $75.28 $68.28
Ramada.................. 71.0 61.4 67.20 61.40 47.71 37.70
EUROPE
Renaissance........... 61.3 59.6 109.54 118.63 67.15 70.70
Ramada.................. 61.3 61.1 87.12 88.80 53.40 54.26
ASIA/PACIFIC
Renaissance........... 73.6 70.0 119.28 120.26 87.79 84.18
New World............... 68.2 72.7 117.34 121.20 80.03 88.11
Ramada.................. 71.0 80.8 81.57 79.45 57.91 64.20
TOTALS BY
BRAND
Renaissance........... 65.0 63.6 114.98 110.39 74.74 70.21
New World............... 68.2 72.7 117.34 121.20 80.03 88.11
Ramada.................. 64.4 65.0 83.64 82.12 53.86 53.38
The following table sets forth certain comparative brand information by
region for hotels managed by the Company and operational during both of the
periods indicated:
OCCUPANCY PERCENTAGE AVERAGE DAILY RATE
-------------------- ------------------ REVENUE PER
AVAILABLE ROOM
--------------
SECOND QUARTER OF: 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(SAME STORE DATA)
AMERICAS
RENAISSANCE........... 65.1% 63.7% $115.90 $109.54 $75.45 $69.78
RAMADA.................. 71.0 65.6 67.20 62.44 47.71 40.96
EUROPE
RENAISSANCE........... 63.8 59.6 108.87 118.63 69.46 70.70
RAMADA.................. 65.7 62.3 89.24 89.39 58.63 55.69
ASIA/PACIFIC
RENAISSANCE........... 74.5 72.9 122.98 122.56 91.62 89.35
NEW WORLD............... 72.2 73.5 122.32 121.64 88.32 89.41
RAMADA.................. 73.9 80.8 82.37 79.45 60.87 64.20
TOTALS BY
BRAND
RENAISSANCE........... 65.7 63.6 115.16 112.85 75.66 71.77
NEW WORLD............... 72.2 73.5 122.32 121.64 88.32 89.41
RAMADA.................. 68.2 66.7 84.95 83.75 57.94 55.86
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ITEM 5. OTHER INFORMATION - CONTINUED
The following table sets forth certain comparative brand information by
region with respect to all of the Company's managed hotel properties for the
periods indicated:
OCCUPANCY PERCENTAGE AVERAGE DAILY RATE
-------------------- ------------------ REVENUE PER
AVAILABLE ROOM
--------------
FIRST SIX MONTHS 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(ALL MANAGED HOTELS)
AMERICAS
Renaissance 67.8% 66.7% $113.52 $103.23 $76.97 $68.85
Ramada 74.0 60.9 65.04 61.94 48.13 37.69
EUROPE
Renaissance 63.5 61.7 108.88 116.26 69.14 71.73
Ramada 63.3 61.0 86.14 86.24 54.53 52.61
ASIA/PACIFIC
Renaissance 71.3 70.5 122.53 121.74 87.36 85.83
New World 68.1 72.2 111.36 114.56 75.84 82.71
Ramada 67.8 76.6 80.86 78.60 54.82 60.21
TOTALS BY
BRAND
Renaissance 67.2 66.1 113.51 107.61 76.28 71.13
New World 68.1 72.2 111.36 114.56 75.84 82.71
Ramada 65.4 64.0 82.47 80.42 53.94 51.47
The following table sets forth certain comparative brand information by
region for hotels managed by the Company and operational during both of the
periods indicated:
OCCUPANCY PERCENTAGE AVERAGE DAILY RATE
-------------------- ------------------ REVENUE PER
AVAILABLE ROOM
--------------
FIRST SIX MONTHS 1997 1996 1997 1996 1997 1996
---- ---- ---- ---- ---- ----
(SAME STORE DATA)
AMERICAS
Renaissance 67.8% 66.6% $113.73 $105.79 $77.11 $70.46
Ramada 74.2 65.8 64.80 62.28 48.08 40.98
EUROPE
Renaissance 66.8 61.7 109.32 116.26 73.03 71.73
Ramada 66.7 62.4 87.50 86.67 58.36 54.08
ASIA/PACIFIC
Renaissance 71.9 74.3 126.54 126.76 90.98 94.18
New World 71.0 72.6 114.96 114.77 81.62 83.32
Ramada 70.0 76.6 81.35 78.60 56.95 60.21
TOTALS BY
BRAND
Renaissance 68.0 66.3 114.06 110.17 77.56 73.04
New World 71.0 72.6 114.96 114.77 81.62 83.32
Ramada 68.4 66.0 83.16 81.72 56.88 53.94
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The following table sets forth for each region and brand the number of
hotels and rooms managed and franchised by the Company and the number of managed
and franchised hotels and rooms under construction and under contract as of
December 31, 1996:
FRANCHISED HOTELS UNDER HOTELS UNDER
MANAGED HOTELS HOTELS CONSTRUCTION CONTRACT
---------------- ---------------- ---------------- -----------------
Total
Hotels
Open Hotels Rooms Hotels Rooms Hotels Rooms Hotels Rooms
---- ------ ----- ------ ----- ------ ----- ------ -----
(MANAGED AND FRANCHISED)
AMERICAS
Renaissance.......... 38 36 15,719 2 447 2 677 -- --
Ramada............... 5 1 723 4 527 -- -- -- --
--- --- ------- --- ------ --- ----- --- -----
Total........... 43 37 16,442 6 974 2 677 -- --
EUROPE
Renaissance.......... 20 19 5,497 1 635 1 175 1 340
Ramada............... 48 25 5,168 23 3,950 6 688 4 551
--- --- ------- --- ------ --- ----- --- -----
Total........... 68 44 10,665 24 4,585 7 863 5 891
ASIA/PACIFIC
Renaissance.......... 13 8 2,532 5 1,505 5 1,813 2 456
New World............ 15 15 7,373 -- -- 1 430 5 2,094
Ramada............... 11 7 1,586 4 707 6 1,918 1 325
--- --- ------- --- ------ --- ----- --- -----
Total........... 39 30 11,491 9 2,212 12 4,161 8 2,875
TOTAL..................... 150 111 38,598 39 7,771 21 5,701 13 3,766
ITEM 6. EXHIBITS AND REPORTS ON FORM 6-K
(a) Exhibits None.
(b) Reports on Form 6-K None.
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SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
RENAISSANCE HOTEL GROUP N.V.
By: /s/ Robert W. Olesen
----------------------------------------
Robert W. Olesen
Executive Director, Executive Vice
President and Chief Financial Officer
Date: February 12, 1997
18