U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended MARCH 31, 2001
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________ to ____________
Commission file number 0-22132
BUCKHEAD AMERICA CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 58-2023732
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
7000 CENTRAL PARKWAY, SUITE 850, ATLANTA, GEORGIA 30328
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(Address of principal executive offices) (Zip Code)
(770) 393-2662
--------------
(Registrant's telephone number, including area code)
N/A
---
(Former name, former address and former fiscal year, if changed since last
report.)
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
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date: April 30, 2001
Common stock, par value $.01 - 1,970,779 shares outstanding
-----------------------------------------------------------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
March 31, 2001 and 2000
(Unaudited)
2
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2001 and December 31, 2000
(Unaudited)
March 31, December 31,
ASSETS 2001 2000
----------- ------------
Current assets:
Cash and cash equivalents, including restricted cash of
$407,264 at March 31, 2001 and $382,646 at December 31, 2000 $ 1,244,158 $ 1,345,671
Investment securities, including restricted securities of
$162,809 at March 31, 2001 and $182,067 at December 31, 2000 185,467 202,750
Accounts receivable, net 1,766,893 1,436,030
Current portions of notes receivable, net 527,361 832,055
Property held for sale, net 16,480,814 21,273,517
Other current assets 221,995 202,911
----------- -----------
Total current assets 20,426,688 25,292,934
Noncurrent portions of notes receivable, net 4,002,158 3,695,160
Property and equipment, at cost, net 20,991,619 20,967,076
Other assets 3,118,747 3,409,302
------------ -----------
$48,539,212 $53,364,472
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,753,574 $ 3,420,277
Current portions of notes payable 15,039,677 18,803,712
----------- ------------
Total current liabilities 18,793,251 22,223,989
Noncurrent portions of notes payable 16,579,722 16,353,009
Other liabilities 210,903 269,330
----------- ------------
Total liabilities 35,583,876 38,846,328
----------- ------------
Minority interests 646,178 764,068
Shareholders' equity:
Series B preferred stock; par value $100; 200,000 shares
authorized; 30,000 shares issued and outstanding 3,000,000 3,000,000
Common stock; $.01 par value; 5,000,000 shares authorized;
2,113,881 shares issued and 2,015,885 and 2,025,023 shares
outstanding at March 31, 2001 and December 31, 2000, respectively 21,139 21,139
Additional paid-in capital 7,897,530 7,897,530
Retained earnings 2,347,142 3,729,683
Accumulated other comprehensive loss (269,336) (245,229)
Treasury stock, 97,996 and 88,858 common shares
at March 31, 2001 and December 31, 2000, respectively (687,317) (649,047)
----------- -----------
Total shareholders' equity 12,309,158 13,754,076
----------- -----------
$48,539,212 $53,364,472
=========== ===========
See accompanying notes to condensed consolidated financial statements.
3
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Loss)
Three Months ended March 31, 2001 and 2000
(Unaudited)
2001 2000
------------ -----------
Revenues:
Hotel revenues $ 4,276,775 $5,950,595
Franchise fees, management fees, and other income 606,311 483,466
Interest income 120,489 116,407
------------ -----------
Total revenues 5,003,575 6,550,468
------------ -----------
Expenses:
Hotel operations 3,643,604 4,280,975
Other operating and administrative 1,002,278 862,693
Leasehold rent 639,240 652,122
Depreciation and amortization 290,381 421,445
Interest 810,613 715,448
------------ -----------
Total expenses 6,386,116 6,932,683
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Income (loss) before income taxes (1,382,541) (382,215)
Deferred income tax benefit - (150,000)
------------ -----------
Net income (loss) $(1,382,541) $ (232,215)
============ ===========
Net income (loss) per common share:
Basic $ (0.72) $ (0.15)
============ ===========
Diluted $ (0.72) $ (0.15)
============ ===========
Weighted average number of shares used to
calculate net income (loss) per common share:
Basic 2,019,033 2,026,176
------------ -----------
Diluted 2,019,033 2,026,176
============ ===========
See accompanying notes to condensed consolidated financial statements.
4
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 2001 and 2000
(Unaudited)
2001 2000
---- ----
Cash flows from operating activities:
Net income (loss) $(1,382,541) $ (232,215)
Adjustments to reconcile net income (loss)
to net cash provided by (used in) operating activities:
Depreciation and amortization 290,381 421,445
Minority interest in income (loss) (96,306) 57,330
Deferred income tax expense (benefit) - (150,000)
Other, net 59,817 (184,551)
------------ ------------
Net cash provided by (used in) operating activities (1,128,649) (87,991)
Cash flows from investing activities:
Principal receipts on notes receivable 392,696 129,092
Originations of notes receivable (95,000) (100,000)
Capital expenditures (96,455) (624,917)
Proceeds from property and leasehold interest sales, net 800,782 267,260
------------ ------------
Net cash provided by (used in) investing activities 1,002,023 (328,565)
------------ ------------
Cash flows from financing activities:
Repayments of notes payable (155,033) (379,992)
Proceeds from notes payable 240,000 14,440
Distributions to minority interest partners (21,584) (106,768)
Other, net (38,270) (106,768)
------------ ------------
Net cash provided by (used in) financing activities 25,113 (579,088)
------------ ------------
Net increase (decrease) in cash and cash equivalents (101,513) (995,644)
Cash and cash equivalents at beginning of period 1,345,671 2,390,856
------------ -----------
Cash and cash equivalents at end of period $ 1,244,158 $1,395,212
============ ===========
See accompanying notes to condensed consolidated financial statements.
5
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2001 and 2000
(Unaudited)
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial statements do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. The results of operations
for interim periods are not necessarily indicative of the results that may be
expected for a full year or any other interim period. For further information,
see the consolidated financial statements included in the Company's Form 10-K
for the year ended December 31, 2000.
(2) Comprehensive Income (Loss)
Comprehensive income (loss) for the three months ended March 31, 2001 and 2000
was $(1,406,648) and $(247,768), respectively.
(3) Segment Information
Condensed operating results for each Company segment for the three months ended
March 31, 2001 and 2000 is presented below:
Three months ended March 31, 2001
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Hotel Hotel Hotel Development
Ownership Management Franchising & Corporate Eliminations Consolidated
--------- ---------- ----------- ------------- -------------- ------------
Revenues $ 4,276,775 462,176 505,558 121,195 (362,129) $ 5,003,575
Expenses 3,745,009 674,915 300,662 287,425 (362,129) 4,645,882
------------------------------------------------------------- ------------
EBITDAR* 531,766 (212,739) 204,896 (166,230) 357,693
Rent 639,240 639,240
Depreciation 210,574 42,307 31,500 6,000 290,381
Interest 646,215 - - 164,398 810,613
------------------------------------------------------------- ------------
Income (loss) before
income taxes $ (964,263) (255,046) 173,396 (336,628) $(1,382,541)
==============================================================================================
Three months ended March 31, 2001
----------------------------------------------------------------------------------------------
Hotel Hotel Hotel Development
Ownership Management Franchising & Corporate Eliminations Consolidated
--------- ---------- ----------- ------------- -------------- ------------
Revenues $ 5,950,595 439,569 442,538 130,393 (412,627) $ 6,550,468
Expenses 4,394,509 514,662 256,806 390,318 (412,627) 5,143,668
------------------------------------------------------------- -----------
EBITDAR* 1,556,086 (75,093) 185,732 (259,925) 1,406,800
Rent 652,122 652,122
Depreciation 352,502 31,443 31,500 6,000 421,445
Interest 559,525 - - 155,923 715,448
------------------------------------------------------------- -----------
Income (loss) before
income taxes $ (8,063) (106,536) 154,232 (421,848) $(382,215)
===============================================================================================
* Earnings before interest, taxes, depreciation, amortization and rent
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Material Changes in Financial Condition
The Company experienced negative cash flow from operations of approximately $1.1
million during the first quarter of 2001. The Company also repaid approximately
$155,000 of debt obligations and invested approximately $96,000 in capital
expenditures for improvements and replacements on existing properties. Cash
inflows of approximately $393,000 resulted from principal receipts on notes
receivable and nearly $801,000 from the sale of hotel properties. The Company
also drew down the remaining $240,000 on its bank line of credit. The combined
effect of these and other activities resulted in a decrease in cash of
approximately $102,000 from December 31, 2000. The Company's hotel operations
are highly seasonal. Historically, the Company's hotel revenues and operating
profits have been stronger during the second and third quarters as opposed to
the first and fourth quarters. Management expects this trend to continue and
believes that additional cash will be generated from second and third quarter
operations and from additional sales of hotel properties.
As of December 31, 2000 the Company had 17 owned or leased properties classified
as held for sale. Four of these properties were sold during the first quarter of
2001 and three others are presently under contract for sale. Management is also
evaluating other owned hotel properties for their potential for sale and the
resulting impact on the Company.
Management has negotiated the extension of payment terms for certain of its
unsecured borrowings and is presently discussing extension terms with other
lenders. The suspension of preferred stock dividends has been continued. Certain
staff and executive level positions in the Company's hotel management and hotel
franchising operations have been eliminated. Capital expenditure commitments
have been limited and certain previous lease commitments have been cancelled.
Adequate liquidity for future operations will be dependent upon the generation
of significant cash proceeds from hotel property sales and the timing thereof.
Material Changes in Results of Operations
The decline in revenues and increase in net loss in the first quarter of 2001
versus 2000 is mostly attributable to the loss of the Company's Orlando and
Daytona, Florida hotel properties. The Orlando hotel property lease expired at
the end of 2000 and the Daytona hotel was sold in September 2000. The combined
revenues and income before taxes from these two hotels in the first quarter of
2000 amounted to approximately $1,820,000 and $670,000 respectively.
Owned and leased hotel earnings before interest, taxes, depreciation,
amortization and rent ("EBITDAR") decreased approximately $740,000 from the
first quarter of 2000 as a result of the loss of the Orlando and Daytona hotels.
The remaining decrease in 2001 is attributable to a 16% revenue decline in the
hotels leased from Host Funding and slighter revenue declines in certain other
owned hotel properties which are presently held for sale. The Company's Rural
Gold properties generally performed the same as or slightly ahead of the prior
year quarter.
The increase in owned and leased hotel first quarter loss before income taxes
was not as significant as the EBITDAR decline due primarily to reductions in
depreciation expense resulting from 2000 and 2001 property sales and the
non-recognition of depreciation on properties held for sale. Interest expense
increased as a result of hotel acquisitions made in 2000. Interest expense is
expected to decrease in future periods as additional properties are sold.
Hotel management EBITDAR and loss before income taxes declined approximately
$138,000 and $149,000, respectively, from the first quarter of 2000. This
decline is attributable to increased payroll costs resulting from severance
payments relating to eliminated positions and the addition of three sales and
marketing positions since the first quarter of 2000 in an effort to improve
revenues at Company and third party owned hotels. Also note that hotel
management revenues are based on managed hotel gross revenues and are therefore
subject to the same seasonality fluctuations as experienced in the owned and
leased hotels. In April 2001, nine management contracts relating to hotels owned
by affiliates of Quality Lodging LLC were terminated. The Company is contesting
the validity of such terminations. The Company's March 31, 2001 balance sheet
includes deferred costs of approximately $900,000 relating to these contracts,
and management fees earned from these contracts amounted to approximately
$300,000 annually.
7
Hotel franchising EBITDAR and income before income taxes increased by
approximately $20,000 in the first quarter of 2001 versus the same period in
2000. Such improvement results primarily from additional franchise property
openings. Presently there are 59 Country Hearth Inn properties open and an
additional 25 properties under development, of which approximately half are
expected to open within the next 12 months.
Net losses of approximately $506,000 resulting from first quarter 2001 hotel
property sales were charged to previously established impairment allowances and
therefore had no impact on 2001 net loss.
Corporate expenses in the first quarter of 2000 included approximately $45,000
of nonrecurring professional fee charges. The remaining decrease in 2001
resulted from the termination of an executive officer in the fourth quarter of
2000.
The Company files income tax returns and recognizes income tax expense (benefit)
on an annual calendar basis. The deferred income tax benefit recognized in the
first quarter of 2000 represented management's estimate of the impact on the
annual income tax expense (benefit) which resulted from such quarter's
operations. In the fourth quarter of 2000, management elected to establish a
valuation allowance for the full amount of the Company's deferred tax assets.
Consequently, no deferred tax benefit has been recognized in 2001.
Effect of New Accounting Pronouncement
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Certain Hedging Activities." In June 2000, the FASB issued SFAS
No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging
Activity, an Amendment of SFAS 133." SFAS No. 133 and SFAS No. 138 require that
all derivative instruments be recorded on the balance sheet at their respective
fair values. SFAS No. 133 and SFAS No. 138 are effective for all fiscal quarters
of all fiscal years beginning after June 15, 2000; the Company adopted SFAS No.
133 and SFAS No. 138 on January 1, 2001. The adoption of SFAS No. 133 and SFAS
No. 138 did not have a material effect on the Company's financial statements as
the Company had no derivative instruments as of March 31, 2001 or December 31,
2000.
Risk Factors
This Form 10-Q contains forward looking statements that involve risks and
uncertainties. Statements contained in this Form 10-Q that are not historical
facts are forward looking statements that are subject to the safe harbor created
by the Private Securities Litigation Reform Act of 1995. The Company's actual
results may differ significantly from the results indicated by such forward
looking statements.
The Company is subject to a number of risks, including the general risks of
investing in real estate, the illiquidity of real estate, environmental risks,
possible uninsured or under insured losses, fluctuations in property taxes,
hotel operating risks, the impact of competition, the difficulty of managing
growth, seasonality, the risks inherent in operating a hotel franchise business
and hotel management business, the risks involved in hotel renovation and
construction, and the uncertainty of obtaining additional financing or
extensions of existing credit facilities as needed. For a discussion of these
and other risk factors, see the "RISK FACTOR" section contained in the Company's
Registration Statement on Form S-3 (File No. 333-37691).
8
ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of March 31, 2001, the Company's obligations included variable rate mortgage
notes and a line of credit bank note with aggregate principal balances of
$3,002,761 which mature at various dates through 2015. The Company is exposed to
the market risk of significant increases in future interest rates. Each
incremental one-point increase in the prime interest rate would increase the
Company's interest expense by approximately $30,000 per year. This risk is
somewhat mitigated in that inflationary increases in interest rates would
theoretically result in increases in average hotel room rates. Also, significant
increases in interest rates would have a dampening effect on additions of
competitive hotels in the Company's markets.
At March 31, 2001, the Company's unrestricted investment securities included
equity securities valued at $41,321. The Company is exposed to the risk that
such securities will become worthless. The Company's restricted investment
securities also include equity securities. Such restricted securities comprise
the assets of the Company's deferred compensation plan and changes in the value
of such securities have no net impact on the Company's earnings.
The ultimate collection of the Company's notes receivable is subject to various
credit risks. Net notes receivable at March 31, 2001 amounted to $4,529,519 and
consisted of 33 notes, most of which were collateralized by or related to
various hotel assets. Also, certain of these notes relate to leasehold interests
in hotel properties for which the Company remains contingently liable for future
rent payments. The Company is also contingently liable for certain notes payable
relating to hotel properties which have been sold. The collection of such notes
receivable and the potential financial exposure for contingent rents and note
payable obligations is determined by the ability of other hotel operators to
satisfy these obligations. Their ability to satisfy such obligations is subject
to many risks, including economic conditions affecting the hotel industry, their
ability to effectively manage their hotel assets, new competition, and other
factors.
9
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On September 23, 1997, the Company issued 30,000 unregistered shares of $100 par
value ten percent (10%) nonvoting cumulative Series A Preferred Stock as partial
consideration for the acquisition of Hatfield Inns, LLC. Pursuant to a
settlement agreement finalized in 2000, certain dividends in arrears were
forgiven and the Company agreed to exchange all of the outstanding shares of
Series A Preferred Stock for an equal number of unregistered shares of $100 par
value Series B Preferred Stock. The exchange was completed in the first quarter
of 2001. The Series B Preferred Stock is nonvoting and accrues cumulative
dividends at the rate of 9.25%. The Series B Preferred Stock has certain rights,
privileges and preferences that limit and qualify the rights of the Common
Shareholders of the Company. Holders of the Series B Preferred Stock are
entitled to receive, prior and in preference to any distribution to the holders
of Common Stock, cumulative dividends at the rate of 9.25% per annum, to the
extent declared by the Board of Directors. All accrued but unpaid dividends of
the Series B Preferred Stock must be paid in full before any cash dividend may
be declared on the Common Stock. Further, holders of the Series B Preferred
Stock have certain preferential distribution rights in the event of any
liquidation, dissolution or winding-up of the Company. As of March 31, 2001,
there was $115,625 of cumulative preferred dividends in arrears.
Exemption from the registration provisions of the Securities Act of 1933, as
amended (the "Securities Act") for the transaction described above was claimed
on the basis that such transaction did not constitute an "offer," an "offer to
sell," or a "sale" under Section 5 of the Securities Act. Exemption from
registration is also claimed under sections 4(2) and 4(6) of the Securities Act
and the rules and regulations promulgated thereunder.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBIT INDEX
Exhibit Description
-----------------------------------------------------------------------------
3(i) Articles of Incorporation.(Incorporated by reference to
Exhibit 3(i) to the Registrant's Registration Statement on
Form 10-SB (No.0-22132) which became effective on November
22, 1993.)
3(i)(a) Certificate of Amendment of Certificate of Incorporation.
(Incorporated by reference to Exhibit 3(i)(a) to the
Registrant's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994.)
3(i)(b) Certificate of Amendment of Certificate of Incorporation.
(Incorporated by reference to Appendix "A" to the
Registrant's Definitive Proxy Statement filed with the
Securities and Exchange Commission on June 9, 1997.)
3(i)(c) Certificate of Amendment of Certificate of Incorporation.
(Incorporated by reference to Appendix "A" to the
Registrant's Definitive Proxy Statement filed with the
Securities and Exchange Commission on May 5, 1998.)
3(ii) By-Laws - Amended and Restated as of June 27, 1994.
(Incorporated by reference to Exhibit 3(ii) to the
Registrant's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1994.)
4(i) Certificate of Designation, Preferences and Rights of
Series B Preferred Stock of the Registrant.
11 Statement re: Computation of per share Earnings
(B) REPORTS ON FORM 8-K
On February 20, 2001, the Company filed a current report on Form 8-K regarding
the change of the listing of its common stock to The Nasdaq SmallCap Market.
10
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.
Buckhead America Corporation
--------------------------------------
(Registrant)
May 15, 2001 /s/ Douglas C. Collins
------------------------ ---------------------------------------
Date Douglas C. Collins
President and Chief Executive Officer
May 15, 2001 /s/ Robert B. Lee
------------------------- ---------------------------------------
Date Robert B. Lee
Senior Vice President and
Chief Financial and Accounting Officer
11
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