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, 2002
[ ] 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: April 30, 2002
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
March 31, 2002 and 2001
(Unaudited)
2
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2002 and December 31, 2001
(Unaudited)
March 31, December 31,
Assets 2002 2001
--------------- -------------
Current assets:
Cash and cash equivalents, including restricted cash of
$107,172 at March 31, 2002 and $329,479 at December 31, 2001 $ 361,244 $ 625,005
Investment securities, including restricted securities of
$171,686 at March 31, 2002 and $168,259 at December 31, 2001 195,657 190,678
Accounts receivable, net 888,882 1,013,534
Current portions of notes receivable, net 325,278 676,017
Property, equipment, and leasehold interests held for sale, net 4,332,580 10,539,253
Other current assets 369,163 289,438
------------- -----------
Total current assets 6,472,804 13,333,925
Noncurrent portions of notes receivable, net 3,831,187 3,871,373
Property, equipment, and leasehold interests held for sale, net 9,433,361 9,415,229
Other property and equipment, at cost, net 963,640 966,640
Deferred costs 1,096,309 1,149,831
------------- -----------
$ 21,797,301 $ 28,736,998
============= ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 1,091,489 $ 1,250,123
Accrued expenses 1,860,027 2,514,933
Current portions of notes payable 10,173,919 15,227,767
------------- -----------
Total current liabilities 13,125,435 18,992,823
Noncurrent portions of notes payable 9,319,074 9,537,617
Other liabilities 286,556 289,551
------------- -----------
Total liabilities 22,731,065 28,819,991
------------- -----------
Minority interests 347,784 587,520
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 outstanding 21,139 21,139
Additional paid-in capital 7,897,530 7,897,530
(Accumulated deficit) retained earnings (11,512,900) (10,901,865)
Treasury stock, 97,996 common shares (687,317) (687,317)
------------- -----------
Total shareholders' equity (1,281,548) (670,513)
------------- -----------
$ 21,797,301 $ 28,736,998
============= ===========
See accompanying notes to condensed consolidated financial statements.
3
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Loss
Three Months ended March 31, 2002 and 2001
(Unaudited)
2002 2001
-------------- ---------------
Revenues:
Hotel revenues $ 2,114,660 $ 4,276,775
Franchise fees and other income 321,594 340,448
Investment income 119,184 120,489
----------- -----------
Total revenues 2,555,438 4,737,712
----------- -----------
Expenses:
Hotel operations 1,930,348 3,643,604
Other operating and administrative 427,228 523,676
Leasehold rent 256,979 639,240
Depreciation and amortization 34,500 248,074
Interest 494,293 810,613
----------- -----------
Total expenses 3,143,348 5,865,207
----------- -----------
Loss from continuing operations
before income taxes (587,910) (1,127,495)
Provision for income taxes - -
----------- -----------
Loss from continuing operations $ (587,910) $ (1,127,495)
----------- -----------
Discontinued operations:
Loss from operations of hotel management segment - (255,046)
----------- -----------
Net loss $ (587,910) $ (1,382,541)
=========== ===========
Net loss per common share:
Basic:
Continuing operations $ (0.33) $ (0.59)
Discontinued operations - (0.13)
----------- -----------
Net loss $ (0.33) $ (0.72)
=========== ===========
Diluted:
Continuing operations $ (0.33) $ (0.59)
Discontinued operations - (0.13)
----------- ------------
Net loss $ (0.33) $ (0.72)
=========== ============
Weighted average number of shares used to
calculate net loss per common share:
Basic 2,015,885 2,019,033
=========== ===========
Diluted 2,015,885 2,019,033
=========== ===========
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, 2002 and 2001
(Unaudited)
2002 2001
-------------- --------------
Cash flows from operating activities:
Loss from continuing operations $ (587,910) $ (1,127,495)
Adjustments to reconcile loss from continuing operations
to net cash used in continuing operating activities:
Depreciation and amortization 34,500 248,074
Minority interest in loss (52,577) (96,306)
Decrease (increase) in accounts receivable 124,652 (330,863)
(Decrease) increase in accounts payable and accrued expenses (374,219) 333,297
Other, net (65,677) 57,383
------------- ------------
Net cash used in continuing operating activities (921,231) (915,910)
------------- ------------
Net cash used in discontinued operations (390,242) (212,739)
------------- ------------
Net cash used in operations (1,311,473) (1,128,649)
------------- ------------
Cash flows from investing activities:
Principal receipts on notes receivable 435,925 392,696
Originations of notes receivable (45,000) (95,000)
Capital expenditures (18,132) (96,455)
Proceeds from property and leasehold interest sales, net 1,171,223 800,782
------------- ------------
Net cash provided by investing activities 1,544,016 1,002,023
------------- ------------
Cash flows from financing activities:
Repayments of notes payable (470,147) (155,033)
Proceeds from notes payable - 240,000
Distributions to minority interest partners (3,032) (21,584)
Other, net (23,125) (38,270)
------------- ------------
Net cash (used in) provided by financing activities (496,304) 25,113
------------- ------------
Net decrease in cash and cash equivalents (263,761) (101,513)
Cash and cash equivalents at beginning of period 625,005 1,345,671
-------------- ------------
Cash and cash equivalents at end of period $ 361,244 $ 1,244,158
============== ============
See accompanying notes to condensed consolidated financial statements.
5
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2002 and 2001
(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, 2001.
(2) Comprehensive Loss
Comprehensive loss for the three months ended March 31, 2002 and 2001 was
$587,910 and $1,406,648, respectively.
(3) Segment Information
Condensed operating results for each Company segment for the three months
ended March 31, 2002 and 2001 is presented below:
Three months ended March 31, 2002
-----------------------------------------------------------------------------------------------------------------------------
Hotel Development
Operations Franchising & Corporate Eliminations Consolidated
--------------- --------------- ---------------- ---------------- -------------------
Revenues $ 2,114,660 408,950 137,652 (105,824) $ 2,555,438
Expenses 1,990,777 208,471 264,152 (105,824) 2,357,576
--------------- --------------- ---------------- -------------------
EBITDAR* 123,883 200,479 (126,500) 197,862
Rent 256,979 256,979
Depreciation - 31,500 3,000 34,500
Interest 339,923 - 154,370 494,293
--------------- --------------- ---------------- -------------------
Income (loss) before
income taxes $ (473,019) 168,979 (283,870) $ (587,910)
=============== =============== ================ ===================
Three months ended March 31, 2001
-----------------------------------------------------------------------------------------------------------------------------
Hotel Development
Operations Franchising & Corporate Eliminations Consolidated
--------------- --------------- ---------------- ---------------- -------------------
Revenues $ 4,276,775 505,558 121,195 (165,816) $ 4,737,712
Expenses 3,745,009 300,662 287,425 (165,816) 4,167,280
--------------- --------------- ---------------- -------------------
EBITDAR* 531,766 204,896 (166,230) 570,432
Rent 639,240 639,240
Depreciation 210,574 31,500 6,000 248,074
Interest 646,215 - 164,398 810,613
--------------- --------------- ---------------- -------------------
Income (loss) before
income taxes $ (964,263) 173,396 (336,628) $ (1,127,495)
=============== =============== ================ ===================
* 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 $1.3
million during the first quarter of 2002, including approximately $390,000
relating to the Company's discontinued hotel management segment. The Company
also repaid approximately $470,000 of debt obligations. Cash inflows of
approximately $436,000 resulted from principal receipts on notes receivable and
nearly $1.2 million from the sale of hotel properties after the repayment of
approximately $4.8 million of related mortgage obligations The combined effect
of these and other activities resulted in a decrease in cash of approximately
$264,000 from December 31, 2001. 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, 2001 the Company had 15 owned or leased properties classified
as held for sale. Three of these properties were sold during the first quarter
of 2002 and three others are presently under contract for sale. Further, three
long-term hotel leases were terminated. Management is also evaluating other
hotel properties for their potential for sale and the resulting impact on the
Company.
The phase-out of the Company's hotel management segment has continued as planned
and management expects completion during the second quarter of 2002.
Liquidity and Capital Resources
The Company has suspended payment of preferred stock dividends and has
negotiated deferrals of certain note payable obligations. The Company has
significantly reduced personnel and implemented a salary deferral program.
Certain other overhead costs have been reduced or eliminated. The combination of
these and the previously discussed actions are expected to reduce the Company's
negative cash flow from operations to an amount which management expects could
be funded from continued property sales and other sources.
The Company is presently in default on certain of its note payable obligations.
Management is presently conducting negotiations with certain of its creditors
regarding the modification of repayment terms. If such negotiations are not
successful, the Company will most likely not be able to satisfy all its
obligations as they become due.
Management is also exploring sources of liquidity other than those described
above, including the sale or financing of some of its other assets. No assurance
can be given that any of the previously described activities will be successful.
These circumstances raise substantial doubt about the Company's ability to
continue as a going concern.
Material Changes in Results of Operations
The decline in hotel revenues is principally attributable to the 2001 and 2002
property sales. Same hotel revenues in the aggregate declined slightly from the
same period in 2001 which continues to reflect the weakened economic conditions
affecting the hospitality industry. The property sales and revenue declines
resulted in reduced earnings before interest, taxes, depreciation, amortization
and rent ("EBITDAR") from the hotel operations segment from $531,766 in the
first quarter of 2001 to $123,883 in the current quarter. However, negotiated
rent abatements relating to terminated leases and the elimination of
depreciation expense relating to properties held for sale resuled in a reduction
of the first quarter hotel operations segment loss of nearly $500,000.
Management expects continued reductions in hotel revenues, EBITDAR, and segment
losses as additional properties are sold and leases terminated.
Hotel franchising EBITDAR and income before income taxes in the first quarter of
2002 were comparable to 2001. This resulted from an approximate $100,000
reduction in both revenues and expenses. The expense reductions resulted from
the previously discussed overall cost reduction plans. A significant portion of
the revenue change is attributable to a reduction in initial fees which relates
to the timing of sales. In addition, fees from Company owned and leased
7
properties decreased approximately $60,000. The percentage of total fees
generated from third parties increased from 67% in 2001 to 74% in 2002.
Management expects this trend to continue.
Net losses of approximately $1.9 million resulting from first quarter 2002 hotel
property sales were charged to previously established impairment allowances and
therefore had no impact on 2002 net loss. 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 EBITDAR loss and net loss before income taxes decreased approximately
$40,000 and $50,000, respectively from the first quarter of 2001. This is
primarily attributable to expense reductions which were offset somewhat by
increased professional fees. Management expects this may continue.
The Company files income tax returns and recognizes income tax expense (benefit)
on an annual calendar basis.. 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 or
2002.
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,
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). Also see "Liquidity and Capital Resources" above and "Item 3.
Quantitative and Qualitative Disclosures About Market Risk."
8
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2002, the Company's obligations included variable rate mortgage
notes and a bank note with aggregate principal balances of $1,588,946 which
mature at various dates through 2015. The Company is exposed to the market risk
of significant increases in future interest rates. Each incremental point
increase in the prime interest rate would increase the Company's interest
expense by approximately $16,000 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, 2002, the Company's unrestricted investment securities included
equity securities valued at $23,971. 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, 2002 amounted to $4,156,465 and
consisted of 30 notes, most of which were collateralized by or related to
various hotel assets. Additionally, the Company remains contingently liable on
three mortgage notes payable on which the Company is guarantor relating to
properties sold in 2000 and 2001. The notes' balances at December 31, 2001 were
approximately $3.7 million and the notes are due in aggregate monthly
installments of $34,318 until 2018. The Company also remains contingently liable
for future minimum rental payments totaling approximately $1.9 million on sold
leasehold interests and on subleased and assigned properties and equipment in
the event of default by the purchasers, sublessees and/or assignees. The
collection of such notes receivable and the potential financial exposure for
guaranteed note obligations and contingent rents 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 3. Defaults Upon Senior Securities
As of May 14, 2002, a total of $161,875 of Series B preferred dividends are in
arrears.
As of May 14, 2002, a total of $193,570 of accrued interest which was previously
due and payable remained unpaid on the Company's convertible debenture notes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit Index
Exhibit Description
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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.
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, 2002 /s/ Douglas C. Collins
----------------------- --------------------------------
Date Douglas C. Collins
President and Chief Executive Officer
May 15, 2002 /s/ Robert B. Lee
------------------------ ---------------------------------
Date Robert B. Lee
Senior Vice President and
Chief Financial and Accounting Officer
12
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