-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GsYpYOwENl6en6/CH7dIXnzZsSR2c2fYUi8EUhEsPzwd95A24yOCe1G7WCX6aTAe CLSssVfQVnRD0o1fgFTMtQ== 0000950144-98-007224.txt : 19980609 0000950144-98-007224.hdr.sgml : 19980609 ACCESSION NUMBER: 0000950144-98-007224 CONFORMED SUBMISSION TYPE: 10-K/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980608 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SERVICO INC CENTRAL INDEX KEY: 0000089121 STANDARD INDUSTRIAL CLASSIFICATION: HOTELS & MOTELS [7011] IRS NUMBER: 650350241 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K/A SEC ACT: SEC FILE NUMBER: 001-11342 FILM NUMBER: 98644065 BUSINESS ADDRESS: STREET 1: 1601 BELVEDERE RD STE 501 S CITY: WEST PALM BEACH STATE: FL ZIP: 33406 BUSINESS PHONE: 5616899970 MAIL ADDRESS: STREET 1: 1601 BELVEDERE ROAD CITY: WEST PALM BEACH STATE: FL ZIP: 33406 10-K/A 1 SERVICO, INC. FORM 10-K/A 12-31-97 1 - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K/A [X] Amendment to Application or Report Filed Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] FOR THE YEAR ENDED DECEMBER 31, 1997 Commission File Number 0-23444 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, FLORIDA 33406 - --------------------------------------- ------------------------- (Address of principal executive offices) (Zip Code) (561) 689-9970 ---------------------------------------------------- (Registrant's telephone number, including area code) AMENDMENT NO. 1 TO ANNUAL REPORT ON FORM 10-K - -------------------------------------------------------------------------------- 2 The undersigned Registrant hereby amends its Annual Report on Form 10-K for the year ended December 31, 1997 to amend Items 6 and 7 to Part II, as set forth in the pages attached hereto: 1 3 ITEM 6. SELECTED FINANCIAL DATA Selected Consolidated Financial Data The following table presents selected financial data derived from the Company's historical financial statements for the years ended December 31, 1993 through 1997. This financial data should be read in conjunction with "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Item 8. Financial Statements and Supplementary Data" included in this Form 10-K.
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- (In Thousands, Except Per Share Data) Revenues $276,657 $239,526 $178,480 $149,683 $128,998 Income before extraordinary items, net of taxes 12,570 8,548 3,909 2,781 1,777 Net income 8,819 8,200 3,909 4,217 1,777 EBITDA (a) 69,559 57,915 36,894 26,376 19,697 Earnings per common share (b): Income before extraordinary items, net of taxes .83 .92 .45 .36 .25 Net income .58 .88 .45 .54 .25 Earnings per common share- assuming dilution: Income before extraordinary items, net of taxes .80 .88 .42 .33 .25 Net income .56 .84 .42 .51 .25 Basic weighted averages shares 15,183 9,295 8,651 7,827 7,061 Diluted weighted average shares 15,640 9,751 9,319 8,335 7,131 Cash dividends per common share -- -- -- -- -- End of period: Total assets $627,651 $439,786 $324,202 $228,900 $191,270 Long-term obligations 323,320 284,880 210,242 143,830 114,841 Total stockholders' equity 239,535 74,738 62,820 46,740 35,008
(a) Represents earnings before interest expense, income taxes, depreciation and amortization ("EBITDA"). EBITDA is a widely regarded industry measure of lodging performance used in the assessment of hotel property values and management believes it is a useful indicator of the Company's ability to meet its debt service requirements. 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 ("GAAP"). EBITDA is a non-GAAP measure and, therefore, it is not calculated identically by all companies. The presentation herein may not be comparable to other similarly titled measures as other companies. The following table presents the Company's computations of EBITDA:
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Net income $ 8,819 $ 8,200 $ 3,909 $ 4,217 $ 1,777 Extraordinary items, net of taxes 3,751 348 -- (1,436) -- Income taxes 8,379 3,225 2,605 1,855 1,184 Interest and other income (1,720) (1,723) (1,197) (325) (399) Interest expense 25,909 29,443 17,903 12,554 11,330 Depreciation 23,023 18,677 12,370 9,465 8,028 Amortization 438 375 139 197 2 Minority interest-other 960 2,060 572 171 (446) Non-recurring items -- (2,690) 593 (322) (1,779) -------- -------- -------- -------- -------- EBITDA $ 69,559 $ 57,915 $ 36,894 $ 26,376 $ 19,697 ======== ======== ======== ======== ========
(b) All prior-period earnings per share amounts have been restated to conform to the Financial Accounting Standards Board Statement No. 128 "Earnings per Share". 2 4 ITEM 7. MANAGEMENT'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, RevPAR and 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. 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 1996 and 1997, the Company purchased 23 hotels and acquired 100% ownership in three hotels owned by partnerships in which the Company previously had majority ownership. The average purchase price of the 23 hotels was $39,905 per room and the Company expects to spend approximately $8,500 per room in renovations and capital assets for a total cost per room of $48,405. 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 renovations activities. Accordingly, 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 17 of the hotels acquired during 1995 and 1996 which, based on management's determination, have achieved normalized operations. The Reposition Hotels currently include seven of the hotels acquired during 1995 and 1996 and the 12 hotels acquired during 1997 (the "1997 Acquisitions"), all of which are still the subject of management's post acquisition repositioning and renovation initiatives. Ten of the hotels acquired during 1997 were acquired during the last quarter; therefore, the performance measures for the Reposition Hotels are not comparable to prior periods. The discussion of results of operations, income taxes and liquidity and capital resources that follows is derived from the Company's Audited Consolidated Financial Statements set forth in "Item 8. Financial Statements and Supplementary Data" included in this Form 10-K and should be read in conjunction with such financial statements and notes thereto. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 ("1997") AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1996 ("1996") At December 31, 1997, the Company owned 68 hotels, managed two hotels for third party owners and had a minority investment in one hotel compared with 56 hotels owned, four managed for third party owners and a minority investment in one hotel at December 31, 1996. Occupancy and average daily rate for owned hotels for 1997 was 66.7% and $71.91, respectively, compared with 66.0% and $68.01, respectively, for 1996. RevPAR for the Stabilized Hotels increased 6.4% during 1997 to $50.71 from $47.68 during 1996. The occupancy level and average daily rate for the Stabilized Hotels during 1997 was 69.0% and $73.49 respectively, compared with 67.4% and $70.74 respectively for 1996. The increase in occupancy and average daily rate for the Stabilized Hotels during 1997 is 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 during 1997 were $39.52, 59.7% and $66.20 respectively. The Company is currently implementing new marketing strategies and operational improvements at all of the 3 5 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 $276.7 million for 1997, a 15.5% increase over revenues of $239.5 million for 1996. Of this $37.2 million increase in revenues, approximately $9.2 million was attributable to the Stabilized Hotels primarily as a result of the 6.4% increase in RevPAR discussed above. The Reposition Hotels contributed approximately $28 million to the increase in revenues, of which approximately $14.6 million related to the Reposition Hotels acquired in 1996 which were not operated for the full year of 1996 but were operated for the full year of 1997. The 1997 Acquisitions contributed the remaining balance of approximately $13.4 million. 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 $110.5 million for 1997 and $96.4 million for 1996. Of the $14.1 million increase, $13.1 million is directly attributable to the Reposition Hotels with approximately $5.9 million relating to 1997 Acquisitions. The direct operating expenses for the Stabilized Hotels were $87.3 million (41.7% of related direct revenues) for 1997 as compared to $86.2 million (42.9% of related direct revenues) for 1996. The decrease in operating expenses as a percentage of revenues was a result of the combined effect of strong revenue growth and continued emphasis on cost controls. Other operating expenses for the Company were $88 million for 1997 and $77.2 million for 1996. This increase of $10.8 million represents the expenses incurred by the Reposition Hotels associated with the generation of the $28 million increase in revenues discussed above. Depreciation and amortization expense for the Company was $23 million for 1997 and $18.7 million for 1996. Included in this $4.3 million increase was $2.7 million associated with the Reposition Hotels and the remaining increase was related to equipment purchases and improvements made at the Stabilized Hotels. As a result of the above, income from operations was $46.1 million for 1997 as compared to $37.9 million for 1996. (Included in 1996 was a non-recurring charge of $.8 million relating to a severance payment.) Interest expense, net of interest income, was $24.2 million for 1997, a $3.6 million decrease from the $27.8 million for 1996. The decrease was offset in part by a $1.2 million increase relating to the 1997 Acquisitions. The decrease was primarily a result of a reduction in the level of debt and effective interest rate in connection with certain debt which was repaid with the proceeds of the common stock offering as more fully discussed in Liquidity and Capital Resources. Included in other income for 1996 was a non-recurring $3.6 million gain on litigation settlement (net of expenses) in connection with a lawsuit brought on behalf of the Company against a bank group and law firm based on alleged breaches of their duties to the Company. Minority interests in net income of consolidated partnerships were approximately $1 million for 1997 and $2.1 million for 1996. Of this $1.1 million decrease, $.9 million related to three hotels in which the Company increased its ownership from 51% to 100% during 1997. During 1997 the Company repaid, prior to maturity, approximately $128 million in debt, and as a result recorded an extraordinary loss on early extinguishment of debt of approximately $3.8 million (net of income tax benefit of $2.5 million) relating to the write-off of unamortized loan costs associated with the debt. The Company recognized an extraordinary loss on early extinguishment of debt of $.3 million, after taxes in 1996 which related to the refinancing of certain hotels as more fully discussed in Liquidity and Capital Resources. 4 6 After a provision for income taxes of $8.4 million for 1997 and $3.2 million for 1996, the Company had net income of $8.8 million ($.56 per share) for 1997 and $8.2 million ($.84 per share) for 1996. Without consideration of the non-recurring items discussed above, the Company had recurring income of $12.6 million for 1997 ($.80 per share) and $5.4 million for 1996 ($.55 per share). YEAR ENDED DECEMBER 31, 1996 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 1995 ("1995") At December 31, 1996, the Company owned 56 hotels, managed 4 hotels for third party owners and had a minority investment in 1 hotel compared with 43 hotels owned, 9 managed for third party owners and 3 minority investments at December 31, 1995. Revenues in 1996 were $239.5 million, a 34.2% increase over 1995's revenues of $178.5 million. Of the $61 million increase, $9.3 million was attributable to the Stabilized Hotels and $51.7 million was attributable to the Reposition Hotels. The increase for the Stabilized Hotels was primarily the result of a 6.1% increase in RevPAR due to successful yield management and marketing strategies as well as the continued improvement in the hospitality industry generally. However, the increase in RevPAR for these hotels was impacted during 1996 by the loss of business associated with hurricane and storm activity in the southeastern United States during July and September. Operating expenses before depreciation and amortization were $182.9 million in 1996 (76.4% of revenue) compared with $142.3 million (79.7% of revenue) for 1995. The decrease in operating expenses as a percentage of revenues was a result of the combined effect of strong revenue growth and continued emphasis on cost controls. Depreciation and amortization expense in 1996 was $18.7 million, an increase over 1995 depreciation and amortization expense of $12.4 million. Of this increase, $2.1 and $4.2 million related to capital improvements made at the Stabilized Hotels and the Reposition Hotels, respectively. As a result of the above, income from operations for 1996 was $37.9 million, an increase of 59.2% over 1995 income from operations of $23.8 million. Interest expense (net of interest income) was $27.8 million for 1996, a $10.9 million increase over the $16.9 million of interest expense for 1995. Included in the $10.9 million increase was $7 million of interest expense on mortgages related to the Reposition Hotels. The remaining $3.9 million increase for the Stabilized Hotels included a $1.7 million expense associated with the amortization of certain deferred loan costs related to a $123.2 million refinancing (See Note 4 of the Notes to Consolidated Financial Statements), with the balance related to new borrowings. Minority interests in net income of consolidated partnerships was $2.1 million for 1996 and $.6 million for 1995. Of this $1.5 million increase, $1.2 million related to nine of the Reposition Hotels which were acquired in partnership with third parties. Other income for 1996 includes a $3.6 million net settlement of a lawsuit received by the Company as more fully discussed in Note 10 of the Notes to Consolidated Financial Statements. The Company recognized an extraordinary charge of $.3 million, after taxes, in 1996 which 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 $3.2 million and a loss on early extinguishment of debt of $.3 million, net of taxes, for 1996 and a provision for income taxes of $2.6 million for 1995, the Company had net income of $8.2 million ($.84 per share) for 1996 and $3.9 million ($.42 per share) for 1995. Without consideration of the non-recurring and extraordinary items, the Company had net income of $5.4 million ($.55 per share) for 1996 and $4.3 million ($.46 per share) for 1995. INCOME TAXES As of December 31, 1997, the Company had a net operating loss carryforward of approximately $22.1 million for federal income tax purposes. 5 7 LIQUIDITY AND CAPITAL RESOURCES The Company's principal sources of liquidity are existing cash balances and cash flow from operations. Net cash provided by operating activities for 1997 was $42 million as compared to $31 million for 1996. The Company had earnings before interest, taxes, depreciation and amortization ("EBITDA") for 1997 of $69.6 million, a 20.2% increase over the $57.9 million for 1996. 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. At December 31, 1997, the Company had working capital of $1.3 million as compared to a working capital deficit of $14.2 million at December 31, 1996. Included in the working capital deficit for 1996 was $15.3 million of mortgage notes payable which were due to mature within twelve months. The Company refinanced these mortgage notes before their due dates. The Company's ratio of current assets to current liabilities was 1:1 at December 31, 1997 and .7:1 at December 31, 1996 (1:1 at December 1996 without consideration of the mortgages due to mature in 1997). At December 31, 1997, the Company's long-term obligations were $323.3 million compared with $284.9 million at December 31, 1996. In June 1997 Servico completed a secondary offering of 10 million shares of common stock at $14.50 per share. An additional 1.5 million shares were issued in July 1997 upon exercise by the underwriter of the over-allotment option. These stock sales 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 to provide 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 December 31, 1997, has approximately $29.8 million escrowed for such improvements. The Company estimates its remaining obligations for all of such commitments to be approximately $32 million, of which approximately $29 million is expected to be spent during 1998, and the balance is expected to be spent during 1999. 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. INFLATION The rate of inflation has not had a material effect on the Company's revenues or costs and expenses in the three most recent fiscal years, and it is not anticipated that inflation will have a material effect on the Company in the near term. YEAR 2000 MATTERS The Year 2000 Issue is the result of certain computer programs being written using two digits rather than four to define the applicable year. Certain of the Company's computer programs may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in miscalculations causing disruptions of operations, including a temporary inability to process transactions. In 1995, the Company initiated the updating of its existing accounting software to be year 2000 compliant. Management has determined that the year 2000 Issue will not pose significant operational problems for its computer systems. As a result, all costs associated with this conversion, estimated to be less than $150,000, are being expensed as incurred. 6 8 The Company has initiated formal communications with its significant suppliers to determine the Company's vulnerability to those third parties' failure to remediate their own Year 2000 Issue. There can be no guarantee that the systems of the Company's suppliers will be timely converted and would not have an adverse effect on the Company. The Company will utilize both internal and external resources to reprogram, or replace, and test the software for Year 2000 modifications. The Company anticipates completing the Year 2000 project within one year but not later than September 30, 1999, which is prior to any anticipated impact on its operating systems. The costs of the project and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. FORWARD-LOOKING STATEMENTS Statements in this Form 10-K 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 Part I of this Form 10-K and 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-K 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. 7 9 Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Amendment to be signed on its behalf by the undersigned, thereunto duly authorized. SERVICO, INC. Date: June 8, 1998 By: /s/ Warren M. Knight ------------------------------------ Warren M. Knight Vice President-Finance and Chief Financial Officer 8 -----END PRIVACY-ENHANCED MESSAGE-----