<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Period Ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE
For the transition period from to
------------ ------------
Commission File No. 1-11342
---------
SERVICO, INC.
(Exact name of registrant as specified in its charter)
Florida 65-0350241
------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 Belvedere Road, West Palm Beach, FL 33406
---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 561-689-9970
--------------
(Former name, former address and former fiscal year, if changed since last
report) Not applicable
---------------------
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 whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15 (d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
------- --------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
Class Outstanding as of August 12, 1996
----- ---------------------------------
Common 9,314,305
1
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SERVICO, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995 3
Condensed Consolidated Statements of
Income for the Three and Six Months Ended
June 30, 1996 and 1995 4
Condensed Consolidated Statements of
Stockholders' Equity for the Six Months
Ended June 30, 1996 and for the Year
Ended December 31, 1995 5
Condensed Consolidated Statements of
Cash Flows for the Six Months Ended
June 30, 1996 and 1995 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SERVICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 32,939 $ 11,401
Accounts receivable, net of allowances 9,272 6,652
Other current assets 10,628 7,380
-------- --------
Total current assets 52,839 25,433
Property and equipment, net 329,007 277,873
Investment in unconsolidated entities 916 3,591
Other assets, net 34,386 17,305
-------- --------
$417,148 $324,202
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 6,156 $ 5,723
Accrued liabilities 24,494 19,977
Current portion of long-term obligations 7,059 5,992
-------- --------
Total current liabilities 37,709 31,692
Long-term obligations, less current portion 282,076 210,242
Deferred income taxes 8,562 7,682
Commitments and contingencies
Minority interests 18,735 11,766
Stockholders' equity:
Common Stock, $.01 par value--25,000,000
shares authorized; 9,314,305 and 8,846,269
shares issued and outstanding at June 30, 1996
and December 31, 1995, respectively 93 88
Additional paid-in capital 53,381 51,424
Retained earnings 16,592 11,308
-------- --------
Total stockholders' equity 70,066 62,820
-------- --------
$417,148 $324,202
======== ========
</TABLE>
See accompanying notes.
3
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SERVICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
---------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Rooms $41,201 $28,299 $ 76,298 $53,461
Food and beverage 18,346 13,720 32,737 25,373
Other 3,753 2,788 6,864 5,455
------- ------- -------- -------
63,300 44,807 115,899 84,289
------- ------- -------- -------
Operating expenses:
Direct:
Rooms 10,994 7,723 20,402 14,745
Food and beverage 13,740 10,353 24,992 19,636
General and administrative 2,316 2,032 4,876 4,353
Depreciation and amortization 4,454 2,909 8,480 5,682
Other 19,026 14,367 37,638 28,305
------- ------- -------- -------
50,530 37,384 96,388 72,721
------- ------- -------- -------
Income from operations 12,770 7,423 19,511 11,568
Other income (expenses):
Other income, net 558 405 4,378 618
Interest expense (7,154) (4,035) (13,155) (7,870)
Minority interests (756) (141) (1,591) (418)
------- ------- -------- -------
Income before income taxes
and extraordinary item 5,418 3,652 9,143 3,898
Provision for income taxes 2,168 1,461 3,657 1,559
------- ------- -------- -------
Income before extraordinary item 3,250 2,191 5,486 2,339
Extraordinary item:
Loss on early extinguishment of debt,
net of income taxes of $134 (202) - (202) -
------- ------- -------- -------
Net income $ 3,048 $ 2,191 $ 5,284 $ 2,339
======= ======= ======== =======
Earnings per common and common
equivalent share:
Primary:
Income before extraordinary item $ .33 $ .23 $ .57 $ .25
Extraordinary item (.02) - (.02) -
------- ------- -------- -------
Net income $ .31 $ .23 $ .55 $ .25
======= ======= ======== =======
Fully diluted:
Income before extraordinary item $ .33 $ .23 $ .57 $ .25
Extraordinary item (.02) - (.02) -
------- ------- -------- -------
Net income $ .31 $ .23 $ .55 $ .25
======= ======= ======== =======
</TABLE>
See accompanying notes.
4
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SERVICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Common Stock Additional Total
------------ Paid-In Retained Stockholders'
Shares Amount Capital Earnings Equity
----------------------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1994 8,110,172 $ 81 $39,260 $7,399 $46,740
Issuance of common stock 830,000 8 8,157 - 8,165
Shares retired (159,532) (2) 2 - -
401(k) Plan contribution 38,829 1 331 - 332
Exercise of stock options 26,800 - 107 - 107
Reduction of valuation allowance - - 3,567 - 3,567
Net income - - - 3,909 3,909
--------- ---- ------- ------- -------
Balance at December 31, 1995 8,846,269 88 51,424 11,308 62,820
401(k) Plan contribution 25,536 1 191 - 192
Exercise of stock options 442,500 4 1,766 - 1,770
Net income - - - 5,284 5,284
--------- ---- ------- ------- -------
Balance at June 30, 1996 9,314,305 $ 93 $53,381 $16,592 $70,066
========= ==== ======= ======= =======
</TABLE>
The data for the six months ended June 30, 1996 is unaudited.
See accompanying notes.
5
<PAGE> 6
SERVICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
-------------------------
1996 1995
---- ----
<S> <C> <C>
CASH PROVIDED BY OPERATIONS $ 17,662 $ 7,605
INVESTING ACTIVITIES:
Acquisitions of property and equipment (40,794) -
Capital expenditures, net (10,400) (10,424)
Net deposits for capital expenditures (3,417) (3,081)
Notes receivable issued (1,200) -
Notes receivable issued to related parties (470) -
Decrease (increase) in investment in unconsolidated entities 2,146 (2,026)
Other 779 95
-------- -------
Net cash used by investing activities (53,356) (15,436)
-------- -------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 167,235 65,821
Contributions from minority interests 5,378 -
Net proceeds from issuance of common stock 1,770 8,027
Principal payments on long-term obligations (104,207) (54,958)
Payments of deferred loan costs (12,944) (3,365)
-------- -------
Net cash provided by financing activities 57,232 15,525
-------- -------
Net increase in cash and cash equivalents 21,538 7,694
Cash and cash equivalents at beginning of period 11,401 12,972
-------- -------
Cash and cash equivalents at end of period $ 32,939 $20,666
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest, net of amount capitalized $ 10,678 $ 7,078
======== =======
Income taxes paid, net of refunds $ 2,402 $ 452
======== =======
</TABLE>
See accompanying notes.
6
<PAGE> 7
SERVICO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. GENERAL
The financial statements consolidate the accounts of Servico, Inc.
("Servico"), its wholly-owned subsidiaries (owning 37 hotels) and partnerships
(owning 13 hotels) in which Servico exercises control over the partnerships'
assets and operations (collectively, the "Company"). An unconsolidated entity
(owning 1 hotel) in which the Company exercises significant influence over
operating and financial policies is accounted for on the equity method. The
accounts of 9 hotels which the Company manages for third party owners are not
included in the consolidation, however, management fee income received from
these hotels is included in other revenues. All significant intercompany
accounts and transactions have been eliminated.
The accounting policies followed for quarterly financial reporting are the same
as those disclosed in Note 1 of the Notes to Consolidated Financial Statements
included in the Company's annual report on Form 10-K for the year ended
December 31, 1995.
In the opinion of management, the accompanying unaudited condensed consolidated
financial statements contain all adjustments, consisting primarily of normal
recurring adjustments, necessary to present fairly the financial position of
the Company as of June 30, 1996, and the results of operations for the three
and six months then ended. While management believes that the disclosures
presented are adequate to make the information not misleading, these financial
statements should be read in conjunction with the consolidated financial
statements and related notes included in the Company's annual report on Form
10-K for the year ended December 31, 1995.
The accompanying condensed consolidated balance sheet and statement of
stockholders' equity of the Company at June 30, 1996 and the condensed
consolidated statements of income and cash flows for the three and six months
ended June 30, 1996 and 1995 have been reviewed in accordance with standards
established by the American Institute of Certified Public Accountants, by Ernst
& Young LLP, Independent Certified Public Accountants, whose review report,
with respect thereto, is filed as Exhibit 15.1 in Item 6.(a) in this Form
10-Q.
Certain amounts in the prior period condensed consolidated financial statements
have been reclassified to conform to the current period presentation.
2. PROPERTY AND EQUIPMENT
During the six months ended June 30, 1996, the Company purchased two hotels and
entered into three partnerships which purchased an additional three hotels.
The aggregate purchase price for the five hotels was $31,750,000 and was paid
for by the delivery of mortgage notes totaling $18,597,000 and cash for the
balance, of which approximately $2,000,000 was contributed by the minority
partners.
The above hotels contain a total of 1,037 guest rooms, are operated under
franchise agreements and are managed by the Company.
7
<PAGE> 8
3. LONG-TERM OBLIGATIONS
During the six months ended June 30, 1996, the Company refinanced certain
long-term obligations on 21 of its hotels. The Company issued approximately
$123,200,000 in new variable rate mortgage notes, satisfied approximately
$84,500,000 of existing obligations, paid approximately $5,000,000 in fees and
expenses, escrowed approximately $1,300,000 for future use by the Company and
generated approximately $32,400,000 of net proceeds.
4. COMMITMENTS AND CONTINGENCIES
Certain of the Company's hotels are operated under license agreements that
require the Company to make capital improvements in accordance with a specified
time schedule. Further, in connection with the refinancing and acquisition of
hotels, the Company has agreed to make certain capital improvements and, as of
June 30, 1996, has approximately $9,900,000 escrowed for such improvements. The
Company estimates its remaining obligations for all of the above commitments to
be approximately $17,800,000 of which approximately $8,100,000 is expected to
be spent in 1996, with the balance expected to be spent during the 1997-1999
time period.
The Company is a party to legal proceedings arising in the ordinary course of
its business, the impact of which would not, either individually or in the
aggregate, in management's opinion, based upon facts currently known by it and
discussion with counsel, have a material adverse effect on the Company's
financial condition or results of operations.
5. RELATED PARTIES
In 1994, the Company sold one million shares of its common stock to Energy
Management Corporation ("EMC") and in 1995 the Company sold an additional
800,000 shares to an affiliate of EMC. The Company has entered into nine
partnerships with affiliates of EMC, each of which has purchased a hotel. The
aggregate of the purchase prices and related mortgage debt, at the time of
purchase, of these hotels was $65,605,000 and $45,690,000, respectively. In
April 1996, the Company increased its ownership interests in two of the
partnerships from 25% to 51% for approximately $2,900,000. As a result of this
transaction, the Company holds a 51% ownership interest in all nine
partnerships.
In March 1996, 117,500 shares of the Company's common stock was issued to three
officers of the Company upon their exercise of outstanding options under the
Company's stock option plan. The officers exercised the options by the
delivery of promissory notes payable to the Company in an amount equal to 100%
of the exercise price. These notes totaling $470,000 are secured by shares of
the Company's common stock.
8
<PAGE> 9
6. NON-RECURRING ITEMS
In January 1996, the Company entered into an agreement with its former Chief
Executive Officer in connection with his resignation from the Company and its
Board of Directors. This agreement provides for payments totaling
approximately $830,000 over a twenty-four month period, the cost of which is
included in other operating expenses for the six months ended June 30, 1996.
Additionally, in accordance with the terms of the agreement, the former Chief
Executive Officer exercised stock options to acquire 300,000 shares of the
Company's common stock by delivery of a $1,200,000 promissory note payable to
the Company. This note is secured by shares of the Company's common stock and
is included in other current assets at June 30, 1996.
In March 1996, the Company received $3,900,000 in connection with the
settlement of a lawsuit brought on behalf of Servico, against a bank group and
law firm, based on alleged breaches prior to 1990 of their duties to the
Company. This amount, less $300,000 of associated expenses, is included in
other income for the six months ended June 30, 1996.
In April, 1996, the Company refinanced several of its hotels and recorded a
loss on early extinguishment of debt of $202,000 (net of income taxes of
$134,000). This transaction was recorded as an extraordinary item for the
three and six months ended June 30, 1996.
7. SUBSEQUENT EVENT
In July, 1996 the Company purchased five hotels for $23,300,000 by the delivery
of $16,840,000 in new fixed rate mortgage notes and cash for the balance.
These hotels contain a total of 783 guest rooms, are operated under franchise
agreements and are managed by the Company.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Occupancy levels and average daily room rates are important hospitality
performance measures. Occupancy levels and average daily rates at the
Company's hotels are impacted by a variety of factors including national,
regional and local economic conditions, the degree of competition with other
hotels in the area and, in the case of occupancy levels, changes in travel
patterns. The demand for accommodations is also affected by normally recurring
seasonal patterns and most Company properties experience lower occupancy in the
fall and winter (September through February) which may result in lower
revenues, less net income and less cash flow during these months.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 (THE "1996 QUARTER")
AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 1995 (THE "1995 QUARTER")
During the 1996 Quarter, the Company owned or managed 60 hotels of which 9 were
managed for third party owners. This compares with 45 hotels owned or managed
during the 1995 Quarter of which 10 were managed for third party owners. The
occupancy level for Company owned hotels which were operated fully during both
periods was 73.8% for the 1996 Quarter, an increase of 3.4% over the 1995
Quarter of 71.4%. Average daily rate for Company owned hotels which were
operated fully during both periods was $71.45 for the 1996 Quarter, an increase
of 4.8% over the 1995 Quarter of $68.15.
Revenues were $63.3 million for the 1996 Quarter, a 41.3% increase over
revenues of $44.8 million for the 1995 Quarter. Revenues for hotels operated
fully during both periods increased by $4 million, or 9% over the previous
year. The balance of the increase in revenues of $14.5 million is attributable
to 17 hotels acquired subsequent to the 1995 Quarter (the "New Hotels"). The
Company plans to continue to acquire hotel properties during the remainder of
1996 and has purchased five hotels subsequent to June 30, 1996. The revenue
increase for hotels operated fully during both periods was primarily the result
of renovations and changes in franchise affiliations made at many of the
Company's hotels since 1992, along with the implementation of new marketing
strategies and a general improvement in the hospitality industry. The Company
is continuing its renovation program and is further reviewing its franchise
affiliations, primarily for the New Hotels.
Direct operating expenses were $24.7 million (41.5% of direct revenue) for the
1996 Quarter and $18.1 million (43% of direct revenue) for the 1995 Quarter.
Of this increase, $5.7 million is attributable to the New Hotels. Other
operating expenses were $21.3 million for the 1996 Quarter (33.7% of total
revenue) and $16.4 million for the 1995 Quarter (36.6% of total revenue). Of
this increase, $4.4 million is attributable to the New Hotels. Depreciation
and amortization expense was $4.5 million for the 1996 Quarter and $2.9 million
for the 1995 Quarter. Included in this $1.6 million increase is $1.1 million
associated with the New Hotels and the remaining increase relates to the
improvements made at properties the Company operated fully during both periods.
As a result of the above, income from operations was $12.8 million for the 1996
Quarter, a 72% increase over $7.4 million for the 1995 Quarter.
10
<PAGE> 11
Interest expense was $7.2 million for the 1996 Quarter, a $3.2 million increase
over the $4 million interest expense for the 1995 Quarter. Included in this
$3.2 million increase is $2.1 million associated with the New Hotels. The
remaining $1.1 million increase for properties operated fully during both
periods is associated with the refinancing of certain hotels (as more fully
discussed under Liquidity and Capital Resources) and new borrowings for
equipment purchases.
Minority Interests were $.8 million for the 1996 Quarter and $.1 million for
the 1995 Quarter. Of this $.7 million increase, $.5 million related to certain
of the New Hotels which were acquired in partnerships with third parties.
The Company recognized an extraordinary charge of $.2 million (net of taxes) in
the 1996 Quarter related to early extinguishment of debt associated with the
refinancing of certain hotels as more fully discussed under Liquidity and
Capital Resources.
After a provision for income taxes of $2.2 million for the 1996 Quarter and
$1.5 million for the 1995 Quarter, the Company had net income of $3 million
($.31 per share) for the 1996 Quarter and $2.2 million ($.23 per share) for the
1995 Quarter. Without consideration of the extraordinary charge, the Company
had income before extraordinary item of $3.3 million ($.33 per share) for the
1996 Quarter and $2.2 million ($.23 per share) for the 1995 Quarter.
SIX MONTHS ENDED JUNE 30, 1996 (THE "1996 PERIOD")
AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 1995 (THE "1995 PERIOD")
During the 1996 Period, the Company owned or managed 60 hotels of which 9 were
managed for third party owners. This compares with 46 hotels owned or managed
during the 1995 Period of which 11 were managed for third party owners. The
occupancy level for Company owned hotels which were operated fully during both
periods was 69.2% for the 1996 Period, an increase of 2.2% over the 1995 Period
of 67.7%. Average daily rate for Company owned hotels which were operated
fully during both periods was $71.13 for the 1996 Period, an increase of 4.5%
over the 1995 Period of $68.06.
Revenues were $115.9 million for the 1996 Period, a 37.5% increase over
revenues of $84.3 million for the 1995 Period. Revenues for hotels operated
fully during both periods increased by $6.4 million, or 7.6% over the previous
year. The balance of the increase in revenues of $25.2 million is attributable
to the New Hotels. The Company plans to continue to acquire hotel properties
during the remainder of 1996 and has purchased five hotels subsequent to June
30, 1996. The revenue increase for hotels operated fully during both periods
was primarily the result of renovations and changes in franchise affiliations
made at many of the Company's hotels since 1992, along with both the
implementation of new marketing strategies and a general improvement in the
hospitality industry. The Company is continuing its renovation program and is
further reviewing its franchise affiliations, primarily for the New Hotels.
11
<PAGE> 12
Direct operating expenses were $45.4 million (41.6% of direct revenue) for the
1996 Period and $34.4 million (43.6% of direct revenue) for the 1995 Period.
Of this increase, $9.5 million is attributable to the New Hotels. Other
operating expenses were $42.5 million for the 1996 Period (36.7% of total
revenue) and $32.7 million for the 1995 Period (38.7% of total revenue).
Included in this increase was $7.8 million which is attributable to the New
Hotels and $.8 million related to a severance agreement with the Company's
former Chief Executive Officer (as more fully discussed in Note 6 of the Notes
to Condensed Consolidated Financial Statements). Depreciation and amortization
expense was $8.5 million for the 1996 Period and $5.7 million for the 1995
Period. Included in this $2.8 million increase is $1.9 million associated with
the New Hotels and the remaining increase relates to improvements made at
properties the Company operated fully during both periods.
As a result of the above, income from operations was $19.5 million for the 1996
Period, a 68.7% increase over $11.6 million for the 1995 Period.
Interest expense was $13.2 million for the 1996 Period, a $5.3 million increase
over the $7.9 million of interest expense for the 1995 Period. Included in
this $5.3 million increase is $3.8 million associated with the New Hotels. The
remaining $1.5 million increase for properties operated fully during both
periods is associated with the refinancing of certain hotels (as more fully
discussed under Liquidity and Capital Resources) and new borrowings for
equipment purchases.
Minority Interests were $1.6 million for the 1996 Period and $.4 million for
the 1995 Period. Of this $1.2 million increase, $1 million related to certain
of the New Hotels which were acquired in partnerships with third parties.
Other income was $4.4 million for the 1996 Period and $.6 million for the 1995
Period. Included in the 1996 Period is a $3.6 million settlement (net of
expenses) received by the Company as more fully discussed in Note 6 of the
Notes to Consolidated Financial Statements.
The Company recognized an extraordinary charge of $.2 million (net of taxes)
in the 1996 Period related to early extinguishment of debt associated with the
financing of certain hotels (as more fully discussed under Liquidity and
Capital Resources).
12
<PAGE> 13
After a provision for income taxes of $3.7 million for the 1996 Period and $1.6
million for the 1995 Period, the Company had net income of $5.3 million ($.55
per share) for the 1996 Period and $2.3 million ($.25 per share) for the 1995
Period. Without consideration of the non-recurring and extraordinary items,
the Company had income of $3.8 million ($.40 per share) for the 1996 Period and
$2.3 million ($.25 per share) for the 1995 Period.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are existing cash balances and
future cash flow from operations. Net cash provided by operating activities
for the 1996 Period was $17.7 million. In March 1996, the Company received a
$3.6 million settlement (net of expenses) in connection with a lawsuit brought
on behalf of Servico, against a bank group and law firm, based on alleged
breaches prior to 1990 of their duties to the Company.
At June 30, 1996, the Company had working capital of $15.1 million. The
Company's ratio of current assets to current liabilities at June 30, 1996 was
1.4:1. This compares to a working capital deficit of $6.3 million and a ratio
of current assets to current liabilities of .8:1 at December 31, 1995.
During the 1996 Period, the Company purchased two hotels, entered into three
partnerships which purchased three hotels and increased its ownership interest
from 25% to 51% in two of its existing partnerships (owning two hotels) for
$34.7 million by the deliverance of mortgage notes totaling $18.6 million and
cash for the balance of which approximately $2 million was contributed by the
minority partners.
Subsequent to June 30, 1996, the Company purchased five hotels for $23.3
million by the delivery of mortgage notes totaling $16.8 million and cash for
the balance.
All of the above hotels, containing an aggregate of 2,271 guest rooms, are
operated under license agreements with nationally recognized franchisors and
are managed by the Company.
At June 30, 1996, the Company's long term obligations were $282.1 million
compared to $210.2 million at December 31, 1995. This increase is primarily
the result of the acquisition of the hotels during the 1996 Period as discussed
above and the refinancing of 21 hotels for approximately $123.2 million,
generating approximately $32.4 million in net proceeds (See Note 3 of the Notes
to Condensed Consolidated Financial Statements). The Company is in the process
of obtaining financing of approximately $7 million on one hotel which was
purchased for cash during the 1996 Period.
13
<PAGE> 14
Certain hotels which the Company owns are operated under license agreements
that require the Company to make certain capital improvements in accordance
with a specified time schedule. In addition, the acquisition and refinancing
of certain hotels requires the Company to agree to make capital improvements
and approximately $9.9 million has been escrowed for such improvements. The
Company believes its remaining obligations for all of the above commitments to
be approximately $17.8 million, of which $8.1 million is expected to be spent
in 1996, with the balance expected to be spent during the 1997-1999 time
period.
The Company may require additional financing to continue its renovation
program, maintain current operations and achieve growth. There is no assurance
that such financing will be available in amounts required or on terms
satisfactory to the Company and the Company does not currently have any lines
of credit. The Company's financial position may, in the future, be
strengthened through the generation of revenues, the refinancing of its
properties or capital from equity or debt markets. There is no assurance the
Company will be successful in these efforts.
14
<PAGE> 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on May 17, 1996. At
the annual meeting, the Company's shareholders elected three directors.
The number of votes cast for, against or withheld for each nominee for director
were as follows:
<TABLE>
<CAPTION>
Director For Against Withheld
- ------------- --------- ------- --------
<S> <C> <C> <C>
David A. Buddemeyer 7,095,677 - 2,241
Peter R. Tyson 7,095,840 - 2,078
Richard H. Weiner 7,096,414 - 1,504
</TABLE>
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 First Amendment to Stock Acquisition and Standstill
Agreement between Servico, Inc. and Pengo Securities Corp.,
dated April 26, 1996.
10.2 First Amendment to Stock Acquisition and Standstill
Agreement between Servico, Inc. and Energy Management
Corporation, dated as of April 26, 1996.
11 Statement re: computation of per share earnings.
15.1 Independent Accountants' Review Report.
15.2 Letter from independent certified public accountants
relating to unaudited interim financial information.
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Quarter ended June
30, 1996. However, a report on Form 8-K was filed on August 2,
1996, relating to the purchase of five hotels by the Company on
July 18, 1996.
16
<PAGE> 17
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.
SERVICO, INC.
Registrant
DATE: August 13, 1996 /s/ David Buddemeyer
-----------------------
David Buddemeyer
President and
Chief Executive Officer
DATE: August 13, 1996 /s/ Warren M. Knight
--------------------------
Warren M. Knight
Vice President-Finance and
Chief Financial Officer
17
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDMENT TO STOCK
ACQUISITION AND STANDSTILL AGREEMENT
First Amendment, dated April 26, 1996, to that certain Stock Acquisition
and Standstill Agreement dated March 23, 1995 (the "Standstill Agreement")
between SERVICO, INC., a Florida corporation (the "Company"), and PENGO
SECURITIES CORP., a New York corporation ("Pengo").
WHEREAS, the Company and Pengo desire to amend the Standstill Agreement on
the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree as follows:
1. The Standstill Agreement shall remain in full force and effect as
amended hereby.
2. All capitalized terms used herein shall have the same meanings as in
the Standstill Agreement.
3. The limitation in Section 6.a. on ownership of the Company's Voting
Securities by Pengo and its Affiliates is hereby amended to delete the language
"would exceed 25% of the Voting Power (as hereinafter defined)" and replace it
with the language "would equal or exceed 30% of the Voting Power (as
hereinafter defined)".
4. The last paragraph of Section 6.f. is hereby deleted in its entirety
and replaced with the following:
"As used in this Agreement, (i) the term "Voting Securities" shall
mean the Company Common Stock and all other securities of the Company of
any kind or class having power to vote for the election of directors, (ii)
the term "Outstanding Voting Securities" shall at any time mean the then
issued and outstanding Voting Securities as set forth in the Company's
most recent quarterly or annual report and any current report subsequent
thereto filed with the SEC pursuant to the Exchange Act, unless Pengo
knows or has reason to believe that the information contained therein is
inaccurate and (iii) the term "Voting Power" shall mean, with respect to
Outstanding Voting Securities, the highest number of votes that the
holders of all such Outstanding Voting Securities would be entitled to
cast for the election of directors or on any other matter."
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
the Standstill Agreement to be duly executed as of the day and year first above
written.
SERVICO, INC.
By:/s/David Buddemeyer
-------------------------
PENGO SECURITIES CORP.
By:/s/David A. Persing
-------------------------
Senior Vice President
-2-
<PAGE> 1
EXHIBIT 10.2
FIRST AMENDMENT TO STOCK
ACQUISITION AND STANDSTILL AGREEMENT
First Amendment, dated as of April 26, 1996, to that certain Stock
Acquisition and Standstill Agreement dated April 13, 1994 (the "Standstill
Agreement") between SERVICO, INC., a Florida corporation (the "Company"), and
ENERGY MANAGEMENT CORPORATION, a Colorado corporation ("EMC").
WHEREAS, the Company and EMC desire to amend the Standstill Agreement on
the terms set forth herein;
NOW, THEREFORE, in consideration of the premises and the agreements
hereinafter set forth, the parties hereto hereby agree as follows:
1. The Standstill Agreement shall remain in full force and effect as
amended hereby.
2. All capitalized terms used herein shall have the same meanings as in
the Standstill Agreement.
3. The limitation in Section 7.a. on ownership of the Company's Voting
Securities by EMC and its Affiliates is hereby amended to delete the language
"of more than 25% of the Voting Power (as hereinafter defined)" and replace it
with the language "of 30% or more of the Voting Power (as hereinafter
defined)".
4. The last paragraph of Section 7.f. is hereby deleted in its entirety
and replaced with the following:
"As used in this Agreement, (i) the term "Voting Securities" shall
mean the Company Common Stock and all other securities of the Company of
any kind or class having power to vote for the election of directors, (ii)
the term "Outstanding Voting Securities" shall at any time mean the then
issued and outstanding Voting Securities as set forth in the Company's
most recent quarterly or annual report and any current report subsequent
thereto filed with the SEC pursuant to the Exchange Act, unless EMC knows
or has reason to believe that the information contained therein is
inaccurate and (iii) the term "Voting Power" shall mean, with respect to
Outstanding Voting Securities, the highest number of votes that the
holders of all such Outstanding Voting Securities would be entitled to
cast for the election of directors or on any other matter."
<PAGE> 2
IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to
the Standstill Agreement to be duly executed as of the day and year first above
written.
SERVICO, INC.
By:/s/David Buddemeyer
-------------------------
ENERGY MANAGEMENT CORPORATION
By:/s/ David A. Persing
-------------------------
Senior Vice President
-2-
<PAGE> 1
Exhibit 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- -------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
PRIMARY
Weighted average common
shares outstanding 9,316 8,966 9,218 8,606
Net effect of dilutive stock options-
based on the treasury stock
method using average market price 485 587 446 604
------ ------ ------ ------
9,801 9,553 9,664 9,210
====== ====== ====== ======
Income before extraordinary item $3,250 $2,191 $5,486 $2,339
Extraordinary item:
Loss on early extinguishment of
debt, net of income taxes (202) - (202) -
------ ------ ------ ------
Net income $3,048 $2,191 $5,284 $2,339
====== ====== ====== ======
Per share amount:
Income before extraordinary item $ .33 $ .23 $ .57 $ .25
Extraordinary item (.02) - (.02) -
------ ------ ------ ------
Net income $ .31 $ .23 $ .55 $ .25
====== ====== ====== ======
FULLY DILUTED
Weighted average common shares
outstanding 9,316 8,966 9,218 8,606
Net effect of dilutive stock options-
based on the treasury stock method
using the period-end market price,
if higher than average market price 500 596 450 609
------ ------ ------ ------
9,816 9,562 9,668 9,215
====== ====== ====== ======
Income before extraordinary item $3,250 $2,191 $5,486 $2,339
Extraordinary item:
Loss on early extinguishment of
debt, net of income taxes (202) - (202) -
------ ------ ------ ------
Net income $3,048 $2,191 $5,284 $2,339
====== ====== ====== ======
Per share amount:
Income before extraordinary item $ .33 $ .23 $ .57 $ .25
Extraordinary item (.02) - (.02) -
------ ------ ------ ------
Net income $ .31 $ .23 $ .55 $ .25
====== ====== ====== ======
</TABLE>
<PAGE> 1
Exhibit 15.1
Independent Accountants' Review Report
Board of Directors and Shareholders
Servico, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Servico, Inc. and subsidiaries as of June 30, 1996, the related condensed
consolidated statements of income for the three-month and six-month periods
ended June 30, 1996 and 1995, the condensed consolidated statement of
stockholders' equity for the six-month period ended June 30, 1996 and the
condensed consolidated statement of cash flows for the six-month periods ended
June 30, 1996 and 1995. These financial statements are the responsibility of
the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data, and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, which will be
performed for the full year with the objective of expressing an opinion
regarding the financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
referred to above for them to be in conformity with generally accepted
accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Servico, Inc. and subsidiaries as
of December 31, 1995, and the related consolidated statements of income,
stockholders' equity and cash flows for the year then ended not presented
herein and in our report dated February 12, 1996, except as to the last
paragraph of Note 5 as to which the date is March 18, 1996 and the last
paragraph of Note 11 as to which the date is March 12, 1996, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of December 31, 1995 and the condensed consolidated statement
of stockholders' equity for the year ended December 31, 1995, is fairly stated,
in all material respects, in relation to the consolidated balance sheet and the
consolidated statement of stockholders' equity from which they have been
derived.
/s/ Ernst & Young LLP
July 22, 1996
<PAGE> 1
Exhibit 15.2
July 22, 1996
Board of Directors and Stockholders
Servico, Inc.
We are aware of the incorporation by reference in the Registration Statements
(Form S-8 No. 33-60088, Form S-8 No. 33-60090, Form S-8 No. 33-81954, Form S-3
No. 33-78566 and Form S-3 No. 33-93658) of Servico, Inc. for the registration
of 1,000,000, 150,000, 250,000, 1,620,100 and 800,000 shares, respectively, of
its common stock of our report dated July 22, 1996 relating to the unaudited
condensed consolidated interim financial statements of Servico, Inc. and
subsidiaries which is included in its Form 10-Q for the quarter ended June 30,
1996.
Pursuant to Rule 436(c) of the Securities Act of 1933 our report is not a part
of the registration statements prepared or certified by accountants within the
meaning of Section 7 or Section 11 of the Securities Act of 1933.
Very truly yours,
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT JUNE 30, 1996 AND CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED IN
THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING JUNE 30, 1996.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 32,939
<SECURITIES> 0
<RECEIVABLES> 9,272
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 52,839
<PP&E> 329,007
<DEPRECIATION> 0
<TOTAL-ASSETS> 417,148
<CURRENT-LIABILITIES> 37,709
<BONDS> 282,076
0
0
<COMMON> 93
<OTHER-SE> 69,973
<TOTAL-LIABILITY-AND-EQUITY> 417,148
<SALES> 0
<TOTAL-REVENUES> 115,899
<CGS> 0
<TOTAL-COSTS> 96,388
<OTHER-EXPENSES> (2,787)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,155
<INCOME-PRETAX> 9,143
<INCOME-TAX> 3,657
<INCOME-CONTINUING> 5,486
<DISCONTINUED> 0
<EXTRAORDINARY> (202)
<CHANGES> 0
<NET-INCOME> 5,284
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
</TABLE>
