<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, 1998
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 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 12, 1998
----- ------------------------------
Common 21,061,595
<PAGE> 2
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, 1998 and December 31, 1997 3
Condensed Consolidated Statements of
Income for the Three Months Ended
March 31, 1998 and 1997 4
Condensed Consolidated Statements of
Stockholders' Equity for the Three Months
Ended March 31, 1998 and for the Year
Ended December 31, 1997 5
Condensed Consolidated Statements of
Cash Flows for the Three Months Ended
March 31, 1998 and 1997 6
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
</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,
1998 1997
---------- ----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 15,167 $ 15,243
Accounts receivable, net of allowances 15,378 11,023
Other current assets 18,200 15,638
---------- ----------
Total current assets 48,745 41,904
Property and equipment, net 576,175 534,080
Deposits for capital expenditures 38,605 30,901
Other assets, net 31,329 20,766
---------- ----------
$ 694,854 $ 627,651
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,640 $ 7,543
Accrued liabilities 33,455 27,355
Current portion of long-term obligations 5,530 5,728
---------- ----------
Total current liabilities 49,625 40,626
Long-term obligations, less current portion 376,793 323,320
Deferred income taxes 11,116 10,615
Commitments and contingencies
Minority interests 13,881 13,555
Stockholders' equity:
Common Stock, $.01 par value--25,000,000 shares authorized; 21,074,872
shares and 20,974,852 shares issued and outstanding at
March 31, 1998 and December 31, 1997, respectively 210 210
Additional paid-in capital 211,906 210,998
Retained earnings 31,323 28,327
---------- ----------
Total stockholders' equity 243,439 239,535
---------- ----------
$ 694,854 $ 627,651
========== ==========
</TABLE>
SEE ACCOMPANYING NOTES.
3
<PAGE> 4
SERVICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<PAGE> 5
SERVICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
-------- --------
Revenues:
Rooms $ 55,833 $ 41,494
Food and beverage 22,146 17,275
Other 4,902 3,878
-------- --------
82,881 62,647
Operating expenses:
Direct:
Rooms 15,509 11,150
Food and beverage 17,647 13,603
General and administrative 2,387 2,203
Depreciation and amortization 7,207 5,399
Other 27,650 21,611
-------- --------
70,400 53,966
-------- --------
Income from operations 12,481 8,681
Other income (expenses):
Interest income and other 454 373
Interest expense (7,846) (8,024)
Minority interests (94) (513)
-------- --------
Income before income taxes 4,995 517
Provision for income taxes 1,999 207
-------- --------
Net income $ 2,996 $ 310
======== ========
Income per common share: $ .14 $ .03
======== ========
Income per common share-assuming dilution $ .14 $ .03
======== ========
SEE ACCOMPANYING NOTES.
4
<PAGE> 6
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, 1996 9,369,605 $ 94 $ 55,136 $ 19,508 $ 74,738
401(k) Plan contribution 49,847 -- 282 -- 282
Exercise of stock options 86,600 1 437 -- 438
Tax benefit from exercise of
stock options -- -- 175 -- 175
Adjustment from foreign
currency translation -- -- (579) -- (579)
Issuance of common stock 11,500,000 115 156,085 -- 156,200
Purchase of common stock (31,200) -- (538) -- (538)
Net income -- -- -- 8,819 8,819
---------- ----------- ----------- ----------- -----------
Balance at December 31, 1997 20,974,852 210 210,998 28,327 239,535
401(k) Plan contribution 7,620 -- 138 -- 138
Exercise of stock options 92,400 -- 515 -- 515
Adjustment from foreign
currency translation -- -- 255 -- 255
Net income -- -- -- 2,996 2,996
---------- ----------- ----------- ----------- -----------
Balance at March 31, 1998 21,074,872 $ 210 $ 211,906 $ 31,323 $ 243,439
========== =========== =========== =========== ===========
</TABLE>
The data for the three months ended March 31, 1998 is unaudited.
SEE ACCOMPANYING NOTES.
5
<PAGE> 7
SERVICO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
1998 1997
---------- ------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 9,568 $ 10,082
INVESTING ACTIVITIES:
Capital expenditures, net (14,258) (10,656)
Acquisitions of property and equipment (35,411) --
Net deposits for capital expenditures (5,232) --
Deposits for asset purchases (8,558) --
Other 692 348
-------- --------
Net cash used in investing activities (62,767) (10,308)
-------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term obligations 54,788 14,763
Net proceeds from issuance of common stock 515 147
Principal payments on long-term obligations (1,512) (13,946)
Payments of deferred loan costs (900) (826)
Contributions from (distributions to) minority interests 232 (150)
-------- --------
Net cash provided by (used in) financing activities 53,123 (12)
-------- --------
Net decrease in cash and cash equivalents (76) (238)
Cash and cash equivalents at beginning of period 15,243 19,473
-------- --------
Cash and cash equivalents at end of period $ 15,167 $ 19,235
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amount capitalized $ 6,636 $ 6,422
======== ========
Income taxes $ 285 $ 92
======== ========
</TABLE>
SEE ACCOMPANYING NOTES.
6
<PAGE> 8
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 62 hotels) and partnerships (owning 10
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 using the equity method. The accounts of two
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, 1997.
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, 1998, 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, 1997.
2. DEFERRED COSTS
Deferred franchise, financing and other deferred costs of $17.3 million and
$16.4 million at March 31, 1998 and December 31, 1997, respectively, are
included in other assets, net of accumulated amortization of $3.3 million and
$2.5 million at March 31, 1998 and December 31, 1997, 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. LONG-TERM OBLIGATIONS
During the three months ended March 31, 1998, the Company borrowed $54.8
million, primarily secured by mortgage notes on nine hotels. The funds were used
to purchase four hotels (included in the nine above) for an aggregate purchase
price of $35.4 million; to fund escrow accounts of $10.8 million for future
renovations on the four hotels purchased; and to make deposits of $8.6 million
relating to the future acquisition of an additional 15 hotels.
7
<PAGE> 9
4. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
----------- -----------
<S> <C> <C>
Numerator:
Net income $ 2,996,000 $ 310,000
=========== ===========
Denominator:
Denominator for basic earnings per
share - weighted average shares 20,989,000 9,389,000
Effect of dilutive securities:
Employee stock options 448,000 537,000
----------- -----------
Denominator for dilutive earnings per
share - adjusted weighted average shares 21,437,000 9,926,000
=========== ===========
Basic earnings per share:
Net income $ .14 $ .03
=========== ===========
Diluted earnings per share:
Net income $ .14 $ .03
=========== ===========
</TABLE>
All prior-period earnings per share amounts have been restated to conform to
Financial Accounting Standards Board Statement No. 128 "Earnings Per Share".
5. 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.
6. COMPREHENSIVE INCOME
Financial Accounting Standards Board Statement No. 130, "Reporting Comprehensive
Income," establishes standards for reporting and display of comprehensive
income, its components and accumulated balances. Comprehensive income is defined
to include all changes in equity except those resulting from investments by
owners and distributions to owners. The adoption of this statement does not have
a material impact on the financial statements of the Company.
7. OTHER EVENTS
In November 1997, the Company signed definitive agreements to purchase a
partnership which owns 15 full-service hotels. On March 5, 1998, the Company
purchased for $8.6 million limited partnership units in the entity which
presently owns a 99% interest in the partnership owning the hotels. The Company
currently intends to sell five of the hotels and to retain ten hotels containing
1,772 rooms. The purchase price of the hotels will be approximately $75 million
and is expected to be paid for by the assumption of approximately $63 million in
debt and cash (which includes the $8.6 million)
8
<PAGE> 10
for the balance. This transaction is expected to be completed during the second
quarter of 1998.
On March 20, 1998, the Company signed a definitive agreement with a privately
owned hotel company to merge and form a new publicly owned company. Under the
terms of the agreement, the Company's existing shareholders will receive one
share of the merged company's common stock for each share of Servico stock held
by them (approximately 21,000,000 shares). The owners of the private company
will initially receive 6,000,000 shares of common stock of the merged company
and an additional 1,400,000 shares upon the completion of construction of six
hotels during 1999. The merged company will own and manage 140 hotels, (136 of
which will be owned) with more than 26,000 rooms and operate in 35 states and
Canada. The merger will be accounted for under the purchase method of accounting
and is expected to close during the third quarter of 1998 subject to customary
conditions, including receipt of regulatory approvals and approval by the
Company's shareholders.
9
<PAGE> 11
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management believes that results of operations in the hotel industry are best
explained by four key performance measures: occupancy levels, average daily
rate, revenue per available room ("RevPAR") and earnings before interest, taxes,
depreciation and amortization ("EBITDA") margins. These measures are influenced
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 and weather conditions. 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 (November through February) which may result in lower revenues, lower
net income and less cash flow during these months.
The Company's business strategy includes the acquisition of underperforming
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 a twelve to thirty-six month
period before newly acquired underperforming hotels are repositioned and
stabilized. During this period, the revenues and earnings of these hotels may be
adversely affected and may negatively impact consolidated RevPAR, average daily
rate, and occupancy rate performance as well as consolidated earnings margins.
During 1997 and the first quarter of 1998, the Company purchased a total of 16
hotels (14 subsequent to September 1997) and acquired 100% ownership in three
hotels owned by partnerships in which the Company previously had majority
ownership. The average purchase price of the 16 hotels was $42,522 per room and
the Company expects to spend approximately $10,900 per room in renovations and
capital assets for a total cost per room of $53,422. The Company believes this
cost per room is significantly below replacement cost, which the Company
estimates to be between $75,000 and $90,000 per room for new construction of
hotels with similar facilities in the respective markets. The Company's
operating results were materially impacted by these acquisition and renovation
activities. In order to better illustrate underlying trends of the Company's
core hotel base, the Company tracks the performance of both Stabilized Hotels
and Reposition Hotels. The Stabilized Hotels currently include all hotels which
were acquired by the Company through 1994 and 19 of the hotels acquired during
1995 and 1996 which, based on management's determination, have achieved
normalized operations. The Reposition Hotels currently include five of the
hotels acquired during 1995 and 1996, 12 hotels acquired during 1997 and the
four hotels acquired during the first quarter of 1998, all of which are still
the subject of management's post acquisition repositioning and renovation
initiatives. All of the hotels acquired during 1997 were acquired after the
first quarter, therefore, the performance measures for the Reposition Hotels are
not comparable to the prior period.
10
<PAGE> 12
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 (THE "1998 QUARTER") AS COMPARED TO THE THREE
MONTHS ENDED MARCH 31, 1997 (THE "1997 QUARTER")
At March 31, 1998, the Company owned 72 hotels, managed two hotels for third
party owners and had a minority investment in one hotel compared with 56 hotels
owned, three managed for third party owners and a minority investment in one
hotel at March 31, 1997. Occupancy and average daily rate for owned hotels
operated fully for the 1998 Quarter was 64.8% and $74.38, respectively, compared
with 63.4% and $73.45, respectively, for the 1997 Quarter.
RevPAR for the Stabilized Hotels increased 2.7% during the 1998 Quarter to
$48.40 from $47.11 during the 1997 Quarter. The occupancy level and average
daily rate for the Stabilized Hotels during the 1998 Quarter was 66.1% and
$73.22, respectively, compared with 64.3% and $73.26, respectively, for the 1997
Quarter. The increase in occupancy for the Stabilized Hotels during the quarter
was attributable to successful yield management and marketing strategies
primarily in those hotels that have recently completed major renovations.
RevPAR, occupancy and average daily rate for the Reposition Hotels operated
fully during the 1998 Quarter were $47.75, 61.6% and $77.51, respectively. The
Company is currently implementing new marketing strategies and operational
improvements at all of the Reposition Hotels and expects to complete significant
renovations at many of these hotels during 1998. In addition, the Company is
currently negotiating to obtain new franchise affiliations at certain of the
properties.
Revenues are comprised of room, food and beverage and other revenues. Room
revenues are derived from guest room rentals, while food and beverage revenues
primarily include sales from the Company's hotel restaurants, room service and
hotel catering. Other revenues include charges for guests' long-distance
telephone service, laundry service, use of meeting facilities and fees earned by
the Company for services rendered in conjunction with managed properties.
Revenues for the Company were $82.9 million for the 1998 Quarter, a 32.3%
increase over revenues of $62.6 million for the 1997 Quarter. This increase in
revenues, is primarily attributable to the Reposition Hotels.
Operating expenses are comprised of direct, general and administrative, other
hotel operating costs and depreciation and amortization. Direct expenses,
including both rooms and food and beverage operations, reflect expenses directly
related to hotel operations. General and administrative expenses represent
corporate salaries and other corporate operating expenses. Other expenses
include primarily property level expenses related to general operations such as
advertising, utilities, repairs and maintenance and other property
administrative costs. Direct operating expenses for the Company were $33.2
million for the 1998 Quarter and $24.8 million for the 1997 Quarter. This
increase was primarily related to the revenues generated by the Reposition
Hotels. Other operating expenses for the Company were $27.7 million for the 1998
Quarter and $21.6 million for the 1997 Quarter. This $6.1 million increase was
attributable to the Reposition Hotels. Depreciation and amortization expense for
the Company was $7.2 million for the 1998 Quarter and $5.4 million for the 1997
Quarter. Included in this $1.8 million increase was $1.4 million associated with
the Reposition Hotels and the remaining increase was related to equipment
purchases and improvements made at the Stabilized Hotels.
11
<PAGE> 13
As a result of the above, income from operations was $12.5 million for the 1998
Quarter as compared to $8.7 million for the 1997 Quarter, an increase of 43.8%
despite a $.5 million negative impact associated with three highly seasonal
properties located in Northwestern New York which were acquired during the 1998
Quarter.
Interest expense, net of interest income, was $7.4 million for the 1998 Quarter,
a $.3 million decrease from the $7.7 million for the 1997 Quarter. The hotels
acquired during 1997 and 1998 had $2 million of interest expense during the 1998
Quarter. This interest expense was offset by a $2.3 million decrease in interest
expense for hotels operated during both the 1998 and 1997 quarters. This
decrease was primarily a result of a reduction in the level of debt and
effective interest rate related to debt which was repaid with the proceeds of
the common stock offering as more fully discussed in Liquidity and Capital
Resources.
After a provision for income taxes of $2 million for the 1998 Quarter and $.2
million for the 1997 Quarter, the Company had net income of $3 million ($.14 per
share) for the 1998 Quarter and $.3 million ($.03 per share) for the 1997
Quarter.
The following table summarizes certain operating data for the Company's hotels
for the three months ended March 31, 1998 and 1997:
<TABLE>
<CAPTION>
March 31, 1998 March 31, 1997
--------------------------------------------- --------------
Average
Number of Daily
Hotels Occupancy Rate RevPAR RevPAR
--------- --------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Pre 1997 Hotels
Stabilized 51 66.1% $73.22 $48.40 $47.11
Reposition 5 47.2% $80.17 $37.84 $40.70
1997 Acquisitions
Stabilized -- -- -- -- *
Reposition 12 66.0% $76.93 $50.77 *
Total Stabilized 51 66.1% $73.22 $48.40 $47.11
Total Reposition** 17 61.6% $77.51 $47.75 $40.70
---
Total Company** 68 64.8% $74.38 $48.20 $46.57
===
</TABLE>
* Hotels not comparable in prior year.
**Excludes four hotels purchased by the Company during the first quarter 1998.
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 1998 Quarter of $19.8 million,
a 39.7 % increase over the $14.2 million for the 1997 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 1998 Quarter was $9.6 million as compared to $10.1
million for the 1997 Quarter.
12
<PAGE> 14
At March 31, 1998, the Company had a working capital deficit of $.9 million as
compared to working capital of $1.3 million at December 31, 1997. The Company's
ratio of current assets to current liabilities was 1:1 at March 31, 1998 and 1:1
at December 31, 1997.
At March 31, 1998, the Company's long-term obligations were $376.8 million
compared with $323.3 million at December 31, 1997.
In June 1997, Servico completed a secondary offering of 10,00,000 shares of
common stock at $14.50 per share. An additional 1,500,000 shares were issued in
July 1997 upon exercise by the underwriter of the over-allotment option. The
offering resulted in net proceeds to Servico of $156 million which were used to
repay $128 million of debt, to purchase the minority interests in three majority
owned hotels for $11.8 million and as additional working capital.
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. Additionally, in connection with the refinancing and acquisition
of hotels, the Company has agreed to make certain capital improvements and, as
of March 31, 1998, has approximately $38.5 million escrowed for such
improvements. The Company estimates its remaining obligations for all of such
commitments to be approximately $41.1 million, of which approximately $38.6
million is expected to be spent during the remainder of 1998, and the balance is
expected to be spent during 1999.
In November 1997, the Company signed definitive agreements to purchase a
partnership which owns 15 full-service hotels. On March 5, 1998, the Company
purchased limited partnership units for $8.6 million in the entity which
presently owns a 99% interest in the partnership owning the hotels. The Company
currently intends to sell five of the hotels and to retain ten hotels containing
1,772 rooms. The purchase price of the hotels will be approximately $75 million
and is expected to be paid for by the assumption of approximately $63 million in
debt and cash (which includes the $8.6 million) for the balance. This
transaction is expected to be completed during the second quarter of 1998.
On March 20, 1998, the Company signed a definitive agreement with a privately
owned hotel company to merge and form a new publicly owned company. Under the
terms of the agreement, the Company's existing shareholders will receive one
share of the merged company's common stock for each share of Servico stock held
by them (approximately 21,000,000 shares). The owners of the private company
will initially receive 6,000,000 shares of common stock of the merged company
and an additional 1,400,000 shares upon the completion of construction of six
hotels during 1999. The merged company will own and manage 140 hotels, (136 of
which will be owned) with more than 26,000 rooms and operate in 35 states and
Canada. The merger will be accounted for under the purchase method of accounting
and is expected to close during the third quarter of 1998 subject to customary
conditions, including regulatory approvals and approval by the Company's
shareholders.
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 an increase in 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.
13
<PAGE> 15
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 acquisition, renovation and
operation 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-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.
14
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K
A report on Form 8-K was filed on March 26, 1998, relating to
an Agreement and Plan of Merger, dated as of March 20, 1998,
among Servico, Impac, SHG, Servico Merger-Sub, and Impac
Merger-Sub.
15
<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: May 15, 1998 /s/ David Buddemeyer
---------------------------------------
David Buddemeyer
Chairman of the Board of Directors,
President and Chief Executive Officer
DATE: May 15, 1998 /s/ Warren M. Knight
---------------------------------------
Warren M. Knight
Vice President-Finance and
Chief Financial and Principal
Accounting Officer
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S CONDENSED CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998 AND CONDENSED
CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 1998 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, 1998.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 15,167
<SECURITIES> 0
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0
0
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<EPS-PRIMARY> .14
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</TABLE>
