-----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, MBdqey9EMiHWFH8Ke3fEFh0PCxgtLjY0BAh5JG99qCmqjjkuqXzfXJV6ywAStb7/ RQ9Ss8Ut/t8MKfPXg+AjmA== 0000950144-96-005347.txt : 19960814 0000950144-96-005347.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950144-96-005347 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: AMEX 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11342 FILM NUMBER: 96611016 BUSINESS ADDRESS: STREET 1: 1601 BELVEDERE RD STE 501 S CITY: WEST PALM BEACH STATE: FL ZIP: 33406 BUSINESS PHONE: 4076899970 MAIL ADDRESS: STREET 1: 1601 BELVEDERE ROAD CITY: WEST PALM BEACH STATE: FL ZIP: 33406 10-Q 1 SERVICO, INC. 10-Q 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 2 SERVICO, INC. AND SUBSIDIARIES INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page No. 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
2 3 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS SERVICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In Thousands, Except Share Data)
June 30, December 31, 1996 1995 ----------- ------------ (Unaudited) 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 ======== ========
See accompanying notes. 3 4 SERVICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In Thousands, Except Share Data) (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, ---------------------- ------------------- 1996 1995 1996 1995 ---- ---- ---- ---- 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 ======= ======= ======== =======
See accompanying notes. 4 5 SERVICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (In Thousands, Except Share Data)
Common Stock Additional Total ------------ Paid-In Retained Stockholders' Shares Amount Capital Earnings Equity ----------------------- ---------- -------- ------------- 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 ========= ==== ======= ======= =======
The data for the six months ended June 30, 1996 is unaudited. See accompanying notes. 5 6 SERVICO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands) (Unaudited)
Six Months Ended June 30, ------------------------- 1996 1995 ---- ---- 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 ======== =======
See accompanying notes. 6 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 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 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 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 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 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 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 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 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:
Director For Against Withheld - ------------- --------- ------- -------- David A. Buddemeyer 7,095,677 - 2,241 Peter R. Tyson 7,095,840 - 2,078 Richard H. Weiner 7,096,414 - 1,504
15 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 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 EX-10.1 2 FIRST AMENDMENT TO STOCK ACQUISITION 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." 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- EX-10.2 3 FIRST AMENDMENT TO STOCK ACQUISITION 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." 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- EX-11 4 COMPUTATION OF PER SHARE EARNINGS 1 Exhibit 11 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS (In Thousands, Except Share Data)
Three Months Ended Six Months Ended June 30, June 30, --------------------- ------------------- 1996 1995 1996 1995 ---- ---- ---- ---- 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 ====== ====== ====== ======
EX-15.1 5 INDEPENDENT ACCOUNTANTS REVIEW REPORT 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 EX-15.2 6 LETTER FROM INDEPENDENT ACCOUNTANTS 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 EX-27 7 FINANCIAL DATA SCHEDULE
5 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. 1,000 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 32,939 0 9,272 0 0 52,839 329,007 0 417,148 37,709 282,076 0 0 93 69,973 417,148 0 115,899 0 96,388 (2,787) 0 13,155 9,143 3,657 5,486 0 (202) 0 5,284 .55 .55
-----END PRIVACY-ENHANCED MESSAGE-----