<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 March 31, 1997
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 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 May 7, 1997
- ----- -----------------------------
Common 9,396,405
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SERVICO, INC. AND SUBSIDIARIES
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets as of
March 31, 1997 and December 31, 1996 3
Condensed Consolidated Statements of
Income for the Three Months Ended
March 31, 1997 and 1996 4
Condensed Consolidated Statements of
Stockholders' Equity for the Three Months
Ended March 31, 1997 and for the Year
Ended December 31, 1996 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
March 31, 1997 and 1996 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 9
Item 4. Submission of Matters to a Vote of Security Holders 12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
</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>
MARCH 31, DECEMBER 31,
1997 1996
--------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 19,235 $ 19,473
Accounts receivable, net of allowances 10,018 7,742
Other current assets 11,409 10,765
-------- --------
Total current assets 40,662 37,980
Property and equipment, net 370,179 364,922
Investment in unconsolidated entities 902 906
Other assets, net 33,427 35,978
-------- --------
$445,170 $439,786
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 7,841 $ 6,369
Accrued liabilities 25,203 23,100
Current portion of long-term obligations 23,179 22,719
-------- --------
Total current liabilities 56,223 52,188
Long-term obligations, less current portion 285,237 284,880
Deferred income taxes 8,405 8,353
Commitments and contingencies
Minority interests 19,990 19,627
Stockholders' equity:
Common Stock, $.01 par value--25,000,000 shares
authorized; 9,402,399 and 9,369,605 shares issued
and outstanding at March 31, 1997 and
December 31, 1996, respectively 94 94
Additional paid-in capital 55,403 55,136
Retained earnings 19,818 19,508
-------- --------
Total stockholders' equity 75,315 74,738
-------- --------
$445,170 $439,786
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE> 4
SERVICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Share Data)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Rooms $ 41,494 $ 35,097
Food and beverage 17,275 14,391
Other 3,878 3,111
-------- --------
62,647 52,599
Operating expenses:
Direct:
Rooms 11,150 9,408
Food and beverage 13,603 11,252
General and administrative 2,203 2,560
Depreciation and amortization 5,399 4,026
Other 21,611 18,611
-------- --------
53,966 45,857
-------- --------
Income from operations 8,681 6,742
Other income (expenses):
Other income, net 373 3,820
Interest expense (8,024) (6,001)
Minority interests (513) (835)
-------- --------
Income before income taxes 517 3,726
Provision for income taxes 207 1,490
-------- --------
Net income $ 310 $ 2,236
======== ========
Income per common and common
equivalent share: $ .03 $ .24
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
4
<PAGE> 5
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, 1995 8,846,269 $88 $51,424 $11,308 $62,820
401(k) Plan contribution 25,536 1 465 -- 466
Exercise of stock options 497,800 5 2,008 -- 2,013
Tax benefit from exercise of stock
options -- -- 1,239 -- 1,239
Net income -- -- -- 8,200 8,200
--------- --- ------- ------- -------
Balance at December 31, 1996 9,369,605 94 55,136 19,508 74,738
401 (k) Plan contribution 6,794 -- 120 -- 120
Exercise of stock options 26,000 -- 147 -- 147
Net income -- -- -- 310 310
--------- --- ------- ------- -------
Balance at March 31, 1997 9,402,399 $94 $55,403 $19,818 $75,315
========= === ======= ======= =======
</TABLE>
The data for the three months ended March 31, 1997, is unaudited.
SEE ACCOMPANYING NOTES.
5
<PAGE> 6
SERVICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 10,082 $ 6,254
INVESTING ACTIVITIES:
Capital expenditures, net (10,656) (3,483)
Acquisitions of property and equipment -- (17,241)
Net deposits for capital expenditures -- (2,762)
Net proceeds from litigation settlement -- 3,915
Decrease in investment in unconsolidated entities 9 448
Notes receivable issued -- (1,200)
Notes receivable issued to related parties -- (470)
Other 339 107
-------- --------
Net cash used in investing activities (10,308) (20,686)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 14,763 30,299
Net proceeds from issuance of common stock 147 1,669
Principal payments on long-term obligations (13,946) (14,253)
Payments of deferred loan costs (826) (862)
(Distributions to) contributions from minority interests (150) 2,705
-------- --------
Net cash (used in) provided by financing activities (12) 19,558
-------- --------
Net (decrease) increase in cash and cash equivalents (238) 5,126
Cash and cash equivalents at beginning of period 19,473 11,401
-------- --------
Cash and cash equivalents at end of period $ 19,235 $ 16,527
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amount capitalized $ 6,422 $ 5,417
======== ========
Income taxes $ 92 $ 363
======== ========
</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 43 hotels) and partnerships (owning 13
hotels) in which Servico exercises control over the partnerships' assets and
operations (collectively, the "Company"). An unconsolidated entity (owning one
hotel) in which the Company exercises significant influence over operating and
financial policies is accounted for using the equity method. The accounts of
three hotels which the Company managed 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, 1996.
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 March 31, 1997, and the results of its operations and its cash
flows for the three 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, 1996.
The accompanying condensed consolidated balance sheet at March 31, 1997 and the
condensed consolidated statement of stockholders' equity for the three month
period ended March 31, 1997, the condensed consolidated statements of income for
the three months ended March 31, 1997 and 1996 and the condensed consolidated
statements of cash flows for the three months ended March 31, 1997 and 1996 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) of this Form 10-Q.
Certain amounts in the prior period condensed consolidated financial statements
have been reclassified to conform to the current period presentation.
7
<PAGE> 8
2. DEFERRED COSTS
Deferred franchise, financing and other deferred costs are stated at cost, net
of accumulated amortization of $5.5 million and $4.1 million at March 31, 1997
and December 31, 1996, respectively, which is computed using the straight-line
method, over the terms of the related franchise, loan or other agreements. The
straight-line method of amortizing deferred financing costs approximates the
interest method.
3. COMMITMENTS AND CONTINGENCIES
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
discussions with counsel, have a material adverse effect on the Company's
financial condition or results of operations.
4. EARNINGS PER COMMON AND COMMON EQUIVALENT SHARE
Earnings per share is calculated based on the weighted average number of common
shares and dilutive common equivalent shares outstanding during the periods.
Earnings per common share include the Company's outstanding stock options, if
dilutive, and common stock contributed or to be contributed by the Company to
its employee 401(k) Plan. Weighted average shares outstanding used for the
computation of earnings per share was 9.9 million and 9.5 million for the 1997
and 1996 three month periods, respectively. Primary and fully diluted shares
were the same for both periods.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share". SFAS
128 requires companies with complex capital structures that have publicly held
common stock or common stock equivalents to present both basic and diluted
earnings per share ("EPS") on the face of the income statement. The presentation
of basic EPS replaces the presentation of primary EPS currently required by
Accounting Principles Board Opinion No. 15 ("APB No. 15"), "Earnings Per Share".
Basic EPS is calculated as income available to common stockholders divided by
the weighted average number of common shares outstanding during the period.
Diluted EPS (previously referred to as fully diluted EPS) is calculated using
the "if converted" method for convertible securities and the treasury stock
method for options and warrants as prescribed by APB No. 15. This statement is
effective for financial statements issued for interim and annual periods ending
after December 15, 1997. The Company does not believe the adoption of SFAS 128
in fiscal 1997 will have a significant impact on the Company's reported EPS.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Occupancy levels, average daily rate and revenue per available room ("RevPAR")
are important hospitality performance measures. These performance measures for
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 hotels experience lower occupancy levels in
the fall and winter (September through February) which may result in lower
revenues, lower net income and less cash flow during these months.
The Company's growth strategy includes the acquisition of under-performing
hotels and the implementation of the Company's operational initiatives and
repositioning and renovation programs to achieve revenue and margin
improvements. Such initiatives typically require between 12 and 36 months before
newly acquired hotels are repositioned and stabilized. During this period, the
revenues and earnings of newly acquired hotels can be adversely affected and can
impact consolidated RevPAR, Average Daily Rate, and occupancy rate performance
as well as consolidated earnings. The Company purchased 11 hotels in 1995 (the
"1995 Acquisitions") and 13 hotels during 1996 (the "1996 Acquisitions") and
accordingly, the impact of such activities is material. In order to better
illustrate underlying trends of the Company's core hotel base, the Company
tracks the performance of both Stabilized and Reposition Hotels. The Stabilized
Hotels include the hotels which were acquired by the Company through 1994 and
which, based on management's determination, have achieved normalized operations.
Reposition Hotels include the 1995 Acquisitions and the 1996 Acquisitions which
are still the subject of management's continuing post-acquisition repositioning
and renovating initiatives.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 (THE "1997 QUARTER") AS COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1996 (THE "1996 QUARTER")
During the 1997 Quarter, the Company owned 56 hotels, managed 3 hotels for third
party owners and had a minority investment in 1 hotel, compared with 46 hotels
owned, 9 managed and minority investments in 3 hotels during the 1996 Quarter.
Occupancy and average daily rate for owned hotels for the 1997 Quarter was 62.7%
and $73.45, compared with 65.6% and $70.93 for the 1996 Quarter.
RevPAR for the Stabilized Hotels increased 5.1% during the 1997 Quarter to
$49.15 from $46.77 during the 1996 Quarter. The occupancy level and average
daily rate for the Stabilized Hotels during the 1997 Quarter was 65.3% and
$75.21 respectively, compared with 64.9% and $72.08 respectively for the 1996
Quarter. The increase in occupancy and average daily rate for the Stabilized
Hotels during the 1997 Quarter is attributable to successful yield management
and marketing strategies as well as a general improvement in the hospitality
industry.
9
<PAGE> 10
Most of the 1995 Acquisitions were in various stages of repositioning and major
renovations during the 1997 Quarter and as a result, occupancy for the 1995
Acquisitions during the 1997 Quarter was 69.6% as compared to 71.9% for the 1996
Quarter. The average daily rate for these hotels was $72.76 for the 1997 Quarter
as compared to $70.42 for the 1996 Quarter and RevPAR was $50.64 for both the
1997 and 1996 Quarters. RevPAR for the 1996 Acquisitions was $35.04 during the
1997 Quarter. The occupancy level and average daily rate for the 1996
Acquisitions during the 1997 Quarter was 51.4% and $68.17, respectively. These
performance measures are not comparable to the 1996 Quarter as most of the 1996
Acquisitions were made subsequent to March 31, 1996. The Company is implementing
new marketing strategies and operational improvements at both the 1995
Acquisitions and the 1996 Acquisitions. In addition, the Company is currently
negotiating to obtain certain new franchise affiliations and expects to complete
significant renovations at many of these hotels during 1997.
Revenues for the Company were $62.6 million for the 1997 Quarter, a 19.0%
increase over revenues of $52.6 million for the 1996 Quarter. Of this $10
million increase in revenues, approximately $9 million was attributable to the
Reposition Hotels, primarily the 1996 Acquisitions.
Direct operating expenses for the Company were $24.8 million for the 1997
Quarter and $20.7 million for the 1996 Quarter. This increase was fully
attributable to the Reposition Hotels. The direct operating expenses for the
Stabilized Hotels were $16.4 million (41.9% of related direct revenues) for the
1997 Quarter as compared to $16.9 million (43.6% of related direct revenues) for
the 1996 Quarter. This decrease was a result of continued cost control measures
implemented by management. Other operating expenses for the Company were $21.6
million for the 1997 Quarter and $18.6 million for the 1996 Quarter. This
increase was also attributable to the Reposition Hotels. Depreciation and
amortization expense for the Company was $5.4 million for the 1997 Quarter and
$4 million for the 1996 Quarter. Included in this $1.4 million increase is $1
million associated with the Reposition Hotels and the remaining increase related
to equipment purchases and improvements made at the Stabilized Hotels.
As a result of the above, income from operations was $8.7 million for the 1997
Quarter as compared to $6.7 million for the 1996 Quarter. Included in the 1996
Quarter was a non-recurring charge of $.8 million relating to the resignation of
the Company's former Chief Executive Officer.
Interest expense, net of interest income, was $7.7 million for the 1997 Quarter,
a $1.9 million increase over the $5.8 million for the 1996 Quarter. Included in
this $1.9 million increase was $1 million associated with the amortization of
certain non-cash deferred loan costs relating to a $123.2 million refinancing
completed in April 1996, with the balance primarily relating to borrowings
associated with the 1996 Acquisitions.
Included in other income for the 1996 Quarter was a non-recurring $3.6 million
net settlement of a lawsuit received by the Company in March 1996.
After a provision for income taxes of $.2 million for the 1997 Quarter and $1.5
million for the 1996 Quarter, the Company had net income of $.3 million ($.03
per share) for the 1997 Quarter and $2.2 million ($.24 per share) for the 1996
Quarter. Without consideration of the non-recurring items discussed above, the
Company had recurring income of $.3 million for the 1997 Quarter ($.03 per
share) and $.6 million for the 1996 Quarter ($.06 per share).
10
<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity are existing cash balances and cash
flow from operations. The Company had earnings before interest, taxes,
depreciation and amortization ("EBITDA") for the 1997 Quarter of $14.2 million,
a 21.4% increase over the $11.7 million for the 1996 Quarter. EBITDA is a widely
regarded industry measure of lodging performance used in the assessment of hotel
property values, although EBITDA is not indicative of and should not be used as
an alternative to net income or net cash provided by operations as specified by
generally accepted accounting principles. Net cash provided by operating
activities for the 1997 Quarter was $10 million.
At March 31, 1997, the Company had a working capital deficit of $15.6 million as
compared to a working capital deficit of $14.2 million at December 31, 1996.
Included in the working capital deficit for both periods was $15.3 million of
mortgage notes payable which mature within twelve months. The Company expects to
refinance these mortgage notes before their due dates. The Company's ratio of
current assets to current liabilities was .7:1 at March 31, 1997 and December
31, 1996 (1:1 for both periods without consideration of the mortgages due in
1997).
At March 31, 1997, the Company's long-term obligations were $285.2 million
compared with $284.9 million at December 31, 1996.
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
March 31, 1997, has approximately $11.4 million escrowed for such improvements.
The Company estimates its remaining obligations for all of such commitments to
be approximately $17.2 million, of which approximately $13.9 million is expected
to be spent during the remainder of 1997, and the balance expected to be spent
during the 1998-1999 time period.
The Company may require additional financing to continue its growth strategy.
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.
FORWARD-LOOKING STATEMENTS
Statements in this Form 10-Q which express "belief", "anticipation", or
"expectation", as well as other statements which are not historical fact, are
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 and involve risks and uncertainties. Moreover,
there are important factors which include, but are not limited to, general and
local economic conditions, risks relating to the operation and acquisition of
hotels, government legislation and regulation, changes in interest rates, the
impact of rapid growth, the availability of capital to finance growth, the
historical cyclicality of the lodging industry and other factors described in
other Servico, Inc. filings with the United States Securities and Exchange
Commission, all of which are difficult to predict and many of which are beyond
the control of the Company. Actual results could differ materially from these
forward-
11
<PAGE> 12
looking statements. In light of the risks and uncertainties, there is no
assurance that the forward-looking statements contained in this Form 10-Q will
in fact prove correct or occur. The Company does not undertake any obligation to
publicly release the results of any revisions to these forward-looking
statements to reflect future events or circumstances.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on May 6, 1997. At
the annual meeting, the Company's shareholders elected two directors and
approved a proposal to amend the Company's stock option plan, to increase the
number of shares issuable pursuant to the plan from 1,425,000 to 1,675,000.
The number of votes cast for, against or withheld for each nominee for director
were as follows:
Director For Against Withheld
-------- --- ------- --------
John W. Adams 7,427,882 - 286,982
Joseph C. Calabro 7,450,104 - 264,760
The votes cast for and against the proposal relating to the Company's stock
option plan, as well as the number of abstentions relating to such proposal,
were as follows:
FOR 6,808,021
AGAINST 710,232
ABSTAIN 196,611
12
<PAGE> 13
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 (for SEC use only).
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the Quarter ended
March 31, 1997.
13
<PAGE> 14
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: May 9, 1997 /s/ David Buddemeyer
-----------------------
David Buddemeyer
President and
Chief Executive Officer
DATE: May 9, 1997 /s/ Warren M. Knight
-----------------------
Warren M. Knight
Vice President-Finance and
Chief Financial Officer
14
<PAGE> 1
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1997 1996
---- ----
<S> <C> <C>
PRIMARY
Weighted average common shares outstanding 9,389 9,119
Net effect of dilutive stock options -
based on the treasury stock method using
average market price 537 407
------ ------
Total 9,926 9,526
====== ======
Net income $ 310 $2,236
====== ======
Per share amount $ .03 $ .24
====== ======
FULLY DILUTED
Weighted average common shares outstanding 9,389 9,119
Net effect of dilutive stock options-
based on the treasury stock method
using the period-end market price,
if higher than average market price 537 407
------ ------
Total 9,926 9,526
====== ======
Net income $ 310 $2,236
====== ======
Per share amount $ .03 $ .24
====== ======
</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 March 31, 1997, the related condensed
consolidated statements of income for the three-month periods ended March 31,
1997 and 1996, the condensed consolidated statement of stockholders' equity for
the three-month period ended March 31, 1997 and the condensed consolidated
statement of cash flows for the three-month periods ended March 31, 1997 and
1996. 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, 1996, 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 13, 1997, 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, 1996 and the condensed consolidated statement of stockholders' equity for
the year ended December 31, 1996 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
April 18, 1997
<PAGE> 1
Exhibit 15.2
------------
April 18, 1997
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. and subsidiaries 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 April 18, 1997 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
March 31, 1997.
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 MARCH 31, 1997 AND CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS CONTAINED
IN THE COMPANY'S FORM 10-Q FOR THE PERIOD ENDING MARCH 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
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0
0
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</TABLE>
