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 SEPTEMBER 30, 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
-------------------------------------------------------
(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: October 31, 2001
Common stock, par value $.01 - 2,015,885 shares outstanding
-----------------------------------------------------------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
September 30, 2001 and 2000
(Unaudited)
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
September 30, 2001 and December 31, 2000
(Unaudited)
September 30, December 31,
ASSETS 2001 2000
------------------ -----------------
Current assets:
Cash and cash equivalents, including restricted cash of
$452,821 at September 30, 2001 and $382,646 at December 31, 2000 $ 651,881 $ 1,345,671
Investment securities, including restricted securities of
$118,133 at September 30, 2001 and $182,067 at December 31, 2000 137,998 202,750
Accounts receivable, net 1,614,587 1,436,030
Current portions of notes receivable, net 798,226 832,055
Property held for sale, net 22,873,313 21,273,517
Other current assets 306,799 202,911
------------------ -----------------
Total current assets 26,382,804 25,292,934
Noncurrent portions of notes receivable, net 4,325,591 3,695,160
Property and equipment, at cost, net 9,665,170 20,967,076
Other assets 2,937,372 3,409,302
------------------ -----------------
$ 43,310,937 $ 53,364,472
------------------ -----------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 3,354,178 $ 3,420,277
Current portions of notes payable 15,913,629 18,803,712
------------------ -----------------
Total current liabilities 19,267,807 22,223,989
Noncurrent portions of notes payable 11,920,104 16,353,009
Other liabilities 158,752 269,330
------------------ -----------------
Total liabilities 31,346,663 38,846,328
------------------ -----------------
Minority interests 646,543 764,068
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 September 30, 2001 and December 31, 2000, respectively 21,139 21,139
Additional paid-in capital 7,897,530 7,897,530
Retained earnings 1,369,402 3,729,683
Accumulated other comprehensive loss (283,023) (245,229)
Treasury stock, 97,996 and 88,858 common shares
at September 30, 2001 and December 31, 2000, respectively (687,317) (649,047)
------------------ -----------------
Total shareholders' equity 11,317,731 13,754,076
------------------ -----------------
$ 43,310,937 $ 53,364,472
================== =================
See accompanying notes to condensed consolidated financial statements.
3
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Loss)
Nine Months ended September 30, 2001 and 2000
(Unaudited)
2001 2000
---------------- ---------------
Revenues:
Hotel revenues $ 14,335,846 $ 18,872,173
Franchise fees, management fees, and other income 1,632,657 1,537,628
Gains on property and leasehold interest sales, net - 591,584
Interest income 347,097 348,310
---------------- ---------------
Total revenues 16,315,600 21,349,695
---------------- ---------------
Expenses:
Hotel operations 10,681,736 13,496,944
Other operating and administrative 2,799,648 2,678,620
Leasehold rent 2,100,253 2,074,184
Depreciation and amortization 770,828 1,252,943
Interest 2,230,916 2,183,820
---------------- ---------------
Total expenses 18,583,381 21,686,511
---------------- ---------------
Income (loss) before income taxes (2,267,781) (336,816)
Deferred income tax expense (benefit) - (135,000)
---------------- ---------------
Net income (loss) $ (2,267,781) (201,816)
================ ===============
Net income (loss) per common share:
Basic $ (1.23) (0.21)
================ ===============
Diluted $ (1.23) (0.21)
================ ===============
Weighted average number of shares
used to calculate net income (loss) per common share:
Basic 2,016,934 2,021,892
================ ===============
Diluted 2,016,934 2,021,892
================ ===============
See accompanying notes to condensed consolidated financial statements.
4
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income (Loss)
Three Months ended September 30, 2001 and 2000
(Unaudited)
2001 2000
---------------- --------------
Revenues:
Hotel revenues $ 4,970,551 $ 6,567,003
Franchise fees, management fees, and other income 564,151 560,643
Gains on property and leasehold sales, net - 578,411
Interest income 102,900 106,926
---------------- --------------
Total revenues 5,637,602 7,812,983
---------------- --------------
Expenses:
Hotel operations 3,536,261 4,902,954
Other operating and administrative 880,782 934,278
Leasehold rent 769,499 740,987
Depreciation and amortization 228,065 437,021
Interest 673,503 765,232
---------------- --------------
Total expenses 6,088,110 7,780,472
---------------- --------------
Income (loss) before income taxes (450,508) 32,511
Deferred income tax expense - 13,000
---------------- --------------
Net income (loss) $ (450,508) $ 19,511
================ ==============
Net income (loss) per common share:
Basic $ (0.26) $ (0.03)
================ ==============
Diluted $ (0.26) $ (0.03)
================ ==============
Weighted average number of shares used to
calculate net income (loss) per common share:
Basic 2,015,885 2,024,393
================ ==============
Diluted 2,015,885 2,024,393
================ ==============
See accompanying notes to condensed consolidated financial statements.
5
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2001 and 2000
(Unaudited)
2001 2000
----------------- --------------
Cash flows from operating activities:
Net loss $ (2,267,781) $ (201,816)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 770,828 1,252,943
Sales of trading securities, net - 1,034,142
Gains on property and leasehold sales - (591,894)
Minority interest in income (loss) (146,065) 190,196
Deferred income tax benefit - (135,000)
Increase in accounts receivable, net (178,557) (607,551)
Increase (decrease) in accounts payable and accrued expenses, net (66,099) 903,190
Other, net (187,508) 165,254
----------------- --------------
Net cash provided by (used in) operating activities (2,075,182) 2,009,464
----------------- --------------
Cash flows from investing activities:
Principal receipts on notes receivable 518,398 535,628
Originations of notes receivable (140,000) (652,500)
Acquisitions of businesses and hotels - (992,556)
Capital expenditures (518,812) (3,046,798)
Proceeds from property and leasehold interest sales, net 1,984,915 1,185,266
Other, net 216,903 (248,932)
----------------- --------------
Net cash provided by (used in) investing activities 2,061,404 (3,219,892)
----------------- --------------
Cash flows from financing activities:
Repayments of notes payable (817,782) (990,911)
Proceeds from notes payable 240,000 2,220,809
Distributions to minority interest partners (36,744) (106,768)
Preferred stock dividends paid (92,500) (185,000)
Other, net 27,014 (31,142)
----------------- --------------
Net cash provided by (used in) financing activities (680,012) 906,988
----------------- --------------
Net increase (decrease) in cash and cash equivalents (693,790) (303,440)
Cash and cash equivalents at beginning of period 1,345,671 2,390,856
----------------- --------------
Cash and cash equivalents at end of period $ 651,881 2,087,416
================= ==============
See accompanying notes to condensed consolidated financial statements.
6
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 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)
Total comprehensive income (loss) for the nine months ended September 30,
2001 and 2000 was $(2,305,575) and $(271,805), respectively, and for the
three months ended September 30, 2001 and 2000 was $(451,752) and $(3,819),
respectively.
(3) Segment Information
Condensed operating results for each Company segment for the nine months
ended September 30, 2001 and 2000 are presented below:
Nine months ended September 30, 2001
-------------------------------------------------------------------------------------------------
Hotel Hotel Hotel Development
Operations Management Franchising & Corporate Eliminations Consolidated
-------------- ------------ ------------- ------------- ------------- --------------
Revenues $ 14,335,846 1,267,114 1,597,459 349,100 (1,233,919) 16,315,600
Expenses 11,035,173 1,734,735 845,119 1,100,276 (1,233,919) 13,481,384
-------------- ------------ ------------- ------------- --------------
EBITDAR* 3,300,673 (467,621) 752,340 (751,176) 2,834,216
Rent 2,100,253 - - - 2,100,253
Depreciation 575,040 83,288 94,500 18,000 770,828
Interest 1,729,393 - - 501,523 2,230,916
-------------- ------------ ------------- ------------- --------------
Income (loss) before
income taxes $ (1,104,013) (550,909) 657,840 (1,270,699) (2,267,781)
============== ============ ============= ============= ==============
Nine months ended September 30, 2000
-------------------------------------------------------------------------------------------------
Hotel Hotel Hotel Development
Operations Management Franchising & Corporate Eliminations Consolidated
-------------- ------------ ------------- ------------- ------------- --------------
Revenues $ 18,872,173 1,533,545 1,378,818 955,893 (1,390,734) 21,349,695
Expenses 13,894,395 1,596,126 819,598 1,256,179 (1,390,734) 16,175,564
-------------- ------------ ------------- ------------- --------------
EBITDAR* 4,977,778 (62,581) 559,220 (300,286) 5,174,131
Rent 2,074,184 - - - 2,074,184
Depreciation 1,040,418 100,025 94,500 18,000 1,252,943
Interest 1,729,339 - - 454,481 2,183,820
-------------- ------------ ------------- ------------- --------------
Income (loss) before
income taxes $ 133,837 (162,606) 464,720 (772,767) (336,816)
============== ============ ============= ============= ==============
7
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
September 30, 2001 and 2000
(Unaudited)
Condensed operating results for each Company segment for the three months
ended September 30, 2001 and 2000 are presented below:
Three months ended September 30, 2001
-------------------------------------------------------------------------------------------------
Hotel Hotel Hotel Development
Operations Management Franchising & Corporate Eliminations Consolidated
-------------- ------------ ------------- ------------- ------------- --------------
Revenues $ 4,970,551 402,457 586,867 103,319 (425,592) 5,637,602
Expenses 3,666,145 513,557 274,277 388,656 (425,592) 4,417,043
-------------- ------------ ------------- ------------- --------------
EBITDAR* 1,304,406 (111,100) 312,590 (285,337) 1,220,559
Rent 769,499 - - - 769,499
Depreciation 174,540 16,025 31,500 6,000 228,065
Interest 506,716 - - 166,787 673,503
-------------- ------------ ------------- ------------- --------------
Income (loss) before
income taxes $ (146,349) (127,125) 281,090 (458,124) (450,508)
============== ============ ============= ============= ==============
Three months ended September 30, 2000
-------------------------------------------------------------------------------------------------
Hotel Hotel Hotel Development
Operations Management Franchising & Corporate Eliminations Consolidated
-------------- ------------ ------------- ------------- ------------- --------------
Revenues $ 6,567,003 585,773 474,611 686,586 (500,990) 7,812,983
Expenses 5,049,740 547,309 314,839 426,334 (500,990) 5,837,232
-------------- ------------ ------------- ------------- --------------
EBITDAR* 1,517,263 38,464 159,772 260,252 1,975,751
Rent 740,987 - - - 740,987
Depreciation 362,740 36,781 31,500 6,000 437,021
Interest 626,369 - - 138,863 765,232
-------------- ------------ ------------- ------------- --------------
Income (loss) before
income taxes $ (212,833) 1,683 128,272 115,389 32,511
============== ============ ============= ============= ==============
* Earnings before interest, taxes, depreciation, amortization, and rent
8
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
$2,075,000 during the first nine months of 2001. The Company repaid
approximately $818,000 of debt obligations and invested approximately $519,000
in capital expenditures for improvements and replacements on existing properties
and on new construction. A portion of the funding for these items was from
additional borrowings of approximately $240,000, principal receipts on notes
receivable of approximately $518,000, and from net proceeds from property sales
of approximately $1,985,000 .
As of December 31, 2000, the Company had 17 owned or leased hotel properties
classified as held for sale. Eight of these properties were sold during the
first nine months of 2001 and three others are presently under contract for
sale. During 2001, three additional hotel properties were categorized as held
for sale and management is evaluating other owned hotel properties for their
potential for sale and the resulting impact on the Company. In connection with
the aforementioned property sales, the Company also reduced its notes payable by
approximately $6,745,000.
Management has negotiated the extension of payment terms for certain of its
secured and unsecured borrowings and is presently discussing extension terms
with other lenders. Preferred stock dividends are eight months in arrears.
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,
and the Company's ability to negotiate extensions or replacements of certain of
its existing credit facilities. Management presently intends to continue
increased focus on its hotel franchising segment and expects that the Company's
future profitability will be primarily dependent upon the growth of that
segment.
Material Changes in Results of Operations.
The decline in revenues and increase in net loss in the first three quarters of
2001 versus 2000 is partly 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 nine months
of 2000 amounted to approximately $4,264,000 and $888,000 respectively. The
third quarter of 2000 also included a gain on the sale of the Daytona property
of approximately $592,000. Excluding the Daytona gain, third quarter net loss
decreased slightly in 2001 from the same quarter in 2000. This is partially
attributable to the non-recognition of depreciation expense on properties held
for sale.
Owned and leased hotel earnings before interest, taxes, depreciation,
amortization and rent ("EBITDAR") during the nine month period ended September
30, 2001 decreased approximately $1,069,000 as a result of the loss of the
Orlando and Daytona hotels, most of which occurred in the first six months. The
remaining decrease in EBITDAR in 2001 is attributable to the impact of
properties sold during 2001 and overall revenue declines in other owned hotel
properties which are presently held for sale. Management has noted distinct
declines in demand at Company properties which are consistent within the hotel
industry.
The decrease in owned and leased hotel third quarter loss before income taxes is
attributable to reductions in depreciation expense resulting from 2000 and 2001
property sales and the aforementioned non-recognition of depreciation on
properties held for sale. Also, third quarter interest expense decreased as a
result of the aforementioned reductions in notes payable in connection with
hotel property sales. Interest expense is expected to decrease in future periods
as additional properties are sold.
Hotel management revenues, EBITDAR, and loss before income taxes worsened during
the first, second, and third quarters of 2001 versus the same periods in 2000.
This is partially attributable to increased payroll costs resulting from
severance payments relating to eliminated positions and the addition of three
sales and marketing positions since the third quarter of 2000 in an effort to
improve revenues at Company and third party owned hotels. In April 2001, nine
management contracts relating to hotels owned by affiliates of Quality Lodging
9
LLC were purportedly terminated by the hotel owners. The Company is contesting
the validity of such terminations and is seeking to recover damages through
arbitration and litigation. The Company's September 30, 2001 balance sheet
includes noncurrent assets of approximately $777,000 relating to these
contracts; and management fees earned from these contracts amounted to
approximately $300,000 annually. The valuation of the Company's recorded asset
is dependent upon the Company's ability to recover sought damages. The
recoverability of the carrying value of the Company's deferred management
contracts is dependent upon the Company's success in the aforementioned
arbitration and litigation.
Hotel franchising revenues, EBITDAR, and income before income taxes improved
significantly during the first, second, and third quarters of 2001 versus the
same periods in 2000. Such improvements resulted primarily from additional
franchise property openings. Presently there are 61 Country Hearth Inn
properties open and an additional 20 properties under development, of which
approximately half are expected to open within the next 12 months.
Net losses of approximately $1,350,000 resulting from first, second, and third
quarter 2001 hotel property sales were charged to previously established
impairment allowances and therefore had no impact on 2001 net losses.
Development and corporate revenues primarily consist of net gains on property
sales and interest income. The three and nine month periods ended September 30,
2000 include the aforementioned Daytona gain. The decreases in corporate
expenses in the three and nine month periods ended September 30, 2001 resulted
primarily 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, second, and third quarters of 2000 represented management's estimates of
the impact on the annual income tax expense (benefit) which resulted from each
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 Pronouncements.
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
No. 141, "Business Combinations" ("Statement 141"), and Statement No. 142,
"Goodwill and Other Intangible Assets" ("Statement 142"). Statement 141 requires
that the purchase method of accounting be used for all business combinations
initiated after June 30, 2001 as well as all purchase method business
combinations completed after June 30, 2001. Statement 141 also specifies
criteria intangible assets acquired in a purchase method business combination
must meet to be recognized and reported apart from goodwill, noting that any
purchase price allocable to an assembled workforce may not be accounted for
separately. Statement 142 will require that goodwill and intangible assets with
indefinite useful lives no longer be amortized, but instead tested for
impairment at least annually in accordance with the provisions of Statement 142.
Statement 142 will also require that intangible assets with estimable useful
lives be amortized over their respective estimated useful lives to their
estimated residual values, and reviewed for impairment in accordance with FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
The Company is required to adopt the provisions of Statement 141 immediately,
except with regard to business combinations initiated prior to July 1, 2001,
which it expects to account for using the pooling-of-interests method, and
Statement 142 effective January 1, 2002. Furthermore, goodwill and intangible
assets determined to have an indefinite useful life acquired in a purchase
business combination completed after June 30, 2001, but before Statement 142 is
adopted in full will not be amortized, but will continue to be evaluated for
impairment in accordance with the appropriate pre-Statement 142 accounting
literature. Goodwill and intangible assets acquired in business combinations
completed before July 1, 2001 will continue to be amortized and tested for
impairment in accordance with the appropriate pre-Statement 142 accounting
requirements prior to the adoption of Statement 142.
Statement 141 will require upon adoption of Statement 142, that the Company
evaluate its existing intangible assets and goodwill that were acquired in a
prior purchase business combination, and to make any necessary reclassifications
in order to conform with the new criteria in Statement 141 for recognition apart
from goodwill. Upon adoption of Statement 142, the Company will be required to
reassess the useful lives and residual values of all intangible assets acquired,
10
and make any necessary amortization period adjustments by the end of the first
interim period after adoption. In addition, to the extent an intangible asset is
identified as having an indefinite useful life, the Company will be required to
test the intangible asset for impairment in accordance with the provisions of
Statement 142 within the first interim period. Any impairment loss will be
measured as of the date of adoption and recognized as the cumulative effect of a
change in accounting principle in the first interim period.
In connection with Statement 142's transitional goodwill impairment evaluation,
the Statement will require the Company to perform an assessment of whether there
is an indication that goodwill (and equity-method goodwill) is impaired as of
the date of adoption. To accomplish this, the Company must identify its
reporting units and determine the carrying value of each reporting unit by
assigning the assets and liabilities, including the existing goodwill and
intangible assets, to those reporting units as of the date of adoption. The
Company will then have up to six months from the date of adoption to determine
the fair value of each reporting unit and compare it to the reporting unit's
carrying amount. To the extent a reporting unit's carrying amount exceeds its
fair value, an indication exists that the reporting unit's goodwill may be
impaired and the Company must perform the second step of the transitional
impairment test. In the second step, the Company must compare the implied fair
value of the reporting unit's goodwill, determined by allocating the reporting
unit's fair value to all of its assets (recognized and unrecognized) and
liabilities in a manner similar to a purchase price allocation in accordance
with Statement 141, to its carrying amount, both of which would be measured as
of the date of adoption. This second step is required to be completed as soon as
possible, but no later than the end of the year of adoption. Any transitional
impairment loss will be recognized as the cumulative effect of a change in
accounting principle in the Company's statement of earnings.
And finally, any unamortized negative goodwill (and equity-method negative
goodwill) existing at the date Statement 142 is adopted must be written off as
the cumulative effect of a change in accounting principle.
Because of the extensive effort needed to comply with adopting Statements 141
and 142, it is not practicable to reasonably estimate the impact of adopting
these Statements on the Company's financial statements at the date of this
report, including whether it will be required to recognize any transitional
impairment losses as the cumulative effect of a change in accounting principle.
In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("Statement 144"), which supersedes
both FASB Statement No. 121, "Accounting for the Impairment of Long-Lived Assets
and for Long-Lived Assets to Be Disposed Of" ("Statement 121") and the
accounting and reporting provisions of APB Opinion No. 30, "Reporting the
Results of Operations-Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions" ("Opinion 30"), for the disposal of a segment of a business (as
previously defined in that Opinion). Statement 144 retains the fundamental
provisions in Statement 121 for recognizing and measuring impairment losses on
long-lived assets held for use and long-lived assets to be disposed of by sale,
while also resolving significant implementation issues associated with Statement
121. For example, Statement 144 provides guidance on how a long-lived asset that
is used as part of a group should be evaluated for impairment, establishes
criteria for when a long-lived asset is held for sale, and prescribes the
accounting for a long-lived asset that will be disposed of other than by sale.
Statement 144 retains the basic provisions of Opinion 30 on how to present
discontinued operations in the income statement but broadens that presentation
to include a component of an entity (rather than a segment of a business).
Unlike Statement 121, an impairment assessment under Statement 144 will never
result in a write-down of goodwill. Rather, goodwill is evaluated for impairment
under Statement 142.
Statement 144 also requires that the assets and liabilities of a disposal group
classified as held for sale be presented separately in the asset and liability
sections, respectively, on a gross basis in the balance sheet. In other words,
the assets and liabilities of a disposal group cannot be netted and presented as
a single line in the balance sheet. If a company has netted or offset the assets
and liabilities of an asset group that was reported as held for sale in a
balance sheet prior to the date Statement 144 is adopted, that balance sheet
must be reclassified when it is presented for comparative purposes. The Company
presently does not present such assets and liabilities on a net basis.
The Company is required to adopt Statement 144 no later than the year beginning
after December 15, 2001, and plans to adopt its provisions for the quarter
ending March 31, 2002. Management does not expect the adoption of Statement 144
to have a material impact on the Company's financial statements because the
impairment assessment under Statement 144 is largely unchanged from Statement
121. The provisions of the Statement for assets held for sale or other disposal
generally are required to be applied prospectively after the adoption date to
newly initiated disposal activities. Therefore, management cannot determine the
potential effects that adoption of Statement 144 will have on the Company's
financial statements.
11
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, and 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).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2001, the Company's obligations included variable rate
mortgage notes and a line of credit bank note with aggregate principal balances
of $2,086,835 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 $20,000 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 September 30, 2001, the Company's unrestricted investment securities included
equity securities valued at $24,841. 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 September 30, 2001 amounted to $5,123,817
and consisted of 35 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.
12
PART II - OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
As of November 14, 2001, a total of $185,000 of Series B preferred dividends are
in arrears.
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. (Incorporated by reference to
Exhibit 4(i) to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 2001.)
11 Statement re: Computation of per share Earnings
(b) Reports on Form 8-K
The Company has not filed any reports on Form 8-K during the quarter for
which this report is filed.
13
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)
Date: November 14, 2001 /s/ Douglas C. Collins
--------------------------------
Douglas C. Collins
President and Chief Executive Officer
Date: November 14, 2001 /s/ Robert B. Lee
--------------------------------
Robert B. Lee
Senior Vice President and
Chief Financial and Accounting Officer
14
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