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, 2000
[ ] 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, 2000
Common stock, par value $.01 - 2,009,018 shares outstanding
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
March 31, 2000 and 1999
(Unaudited)
2
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
March 31, 2000 and December 31, 1999
(Unaudited)
March 31, December 31,
Assets 2000 1999
------------------ ----------------------
Current assets:
Cash and cash equivalents, including restricted cash of
$404,406 at March 31, 2000 and $486,160 at December 31, 1999 $ 1,395,212 2,390,856
Investment securities, including restricted securities of
$226,879 at March 31, 2000 and $215,849 at December 31, 1999 1,322,561 1,312,256
Accounts receivable, net 2,492,398 1,857,002
Current portions of notes receivable, net 489,686 517,870
Property held for sale, net 7,261,976 8,114,083
Other current assets 408,614 666,439
------------------ ----------------------
Total current assets 13,370,447 14,858,506
Noncurrent portions of notes receivable, net 3,481,725 3,482,633
Property and equipment, at cost, net 32,262,625 31,979,242
Deferred tax assets, net 2,968,000 2,788,000
Other assets 5,400,539 5,606,320
------------------ ----------------------
$ 57,483,336 58,714,701
================== ======================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,770,288 2,634,184
Current portions of notes payable 8,043,559 8,681,568
------------------ ----------------------
Total current liabilities 10,813,847 11,315,752
Noncurrent portions of notes payable 23,770,231 24,097,774
Other liabilities 398,323 396,266
------------------ ----------------------
Total liabilities 34,982,401 35,809,792
------------------ ----------------------
Minority interest in partnerships 400,852 450,290
Shareholders' equity:
Series A 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;
2,094,655 shares issued and 2,020,278 and 2,029,313 shares
outstanding at March 31, 2000 and December 31, 1999, respectively 20,947 20,947
Additional paid-in capital 7,854,921 7,854,921
Retained earnings 11,955,589 12,234,054
Accumulated other comprehensive loss (163,576) (148,023)
Treasury stock, 74,377 and 65,342 common shares
at March 31, 2000 and December 31, 1999, respectively (567,798) (507,280)
------------------ ----------------------
Total shareholders' equity 22,100,083 22,454,619
------------------ ----------------------
$ 57,483,336 58,714,701
================== ======================
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, 2000 and 1999
(Unaudited)
2000 1999
-------------- -------------
Revenues:
Hotel revenues $ 5,950,595 5,999,853
Gains on property and leasehold interest sales - 307,554
Interest income 116,407 112,396
Franchise fees, management fees, and other income 483,466 205,872
-------------- -------------
Total revenues 6,550,468 6,625,675
-------------- -------------
Expenses:
Hotel operations 4,933,097 5,153,793
Other operating and administrative 862,693 747,339
Depreciation and amortization 421,445 470,359
Interest 715,448 799,802
-------------- -------------
Total expenses 6,932,683 7,171,293
-------------- -------------
Income(loss) before income taxes (382,215) (545,618)
Deferred income tax benefit (150,000) (200,000)
-------------- -------------
Net income(loss) $ (232,215) (345,618)
============== =============
Net income(loss) per common share:
Basic $ (0.15) (0.22)
============== =============
Diluted $ (0.15) (0.22)
============== =============
Weighted average number of shares used to
calculate net income(loss) per common share:
Basic 2,026,176 1,944,602
============== =============
Diluted 2,026,176 1,944,602
============== =============
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, 2000 and 1999
(Unaudited)
2000 1999
-------------- ----------------
Cash flows from operating activities:
Net income(loss) $ (232,215) (345,618)
Adjustments to reconcile net income(loss)
to net cash provided by(used in) operating activities:
Depreciation and amortization 421,445 470,359
Gains on property and leasehold interest sales - (307,554)
Deferred income tax expense(benefit) (150,000) (200,000)
Other, net (127,221) (190,649)
-------------- ----------------
Net cash provided by(used in) operating activities (87,991) (573,462)
-------------- ----------------
Cash flows from investing activities:
Principal receipts on notes receivable 129,092 60,309
Originations of notes receivable (100,000) (90,000)
Capital expenditures (624,917) (901,414)
Proceeds from property and leasehold interest sales, net 267,260 262,205
-------------- ----------------
Net cash provided by (used in) investing activities (328,565) (668,900)
-------------- ----------------
Cash flows from financing activities:
Repayments of notes payable (379,992) (351,084)
Proceeds from notes payable 14,440 1,366,518
Distributions to minority interest partners (106,768) (41,181)
Other, net (106,768) 68,800
-------------- ----------------
Net cash provided by (used in) financing activities (579,088) 1,043,053
-------------- ----------------
Net increase (decrease) in cash and cash equivalents (995,644) (199,309)
Cash and cash equivalents at beginning of period 2,390,856 1,604,194
-------------- ----------------
Cash and cash equivalents at end of period $ 1,395,212 1,404,885
============== ================
See accompanying notes to condensed consolidated financial statements.
5
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 2000 and 1999
(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-KSB for the year ended
December 31, 1999.
(2) Comprehensive Income (Loss)
Comprehensive income(loss) for the three months ended March 31, 2000 and
1999 was $(247,768) and $(306,736), respectively.
(3) Segment Information
Condensed operating results for each Company segment for the three months
ended March 31, 2000 and 1999 is presented below:
Three months ended March 31, 2000
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 5,046,631 514,662 256,806 390,318 (412,627) 5,795,790
------------ ---------- ----------- ----------- --------- -------------
EBITDA* 903,964 (75,093) 185,732 (259,925) 754,678
------------ ---------- ----------- ----------- --------- -------------
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)
============ ========== =========== =========== ========= =============
Three months ended March 31, 1999
Hotel Hotel Hotel Development
Ownership Management Franchising & Corporate Eliminations Consolidated
------------ ---------- ----------- ----------- --------- -------------
Revenues $ 5,999,853 313,563 255,982 423,600 (367,323) 6,625,675
Expenses 5,244,539 432,168 301,536 290,212 (367,323) 5,901,132
------------ ---------- ----------- ----------- --------- -------------
EBITDA* 755,314 (118,605) (45,554) 133,388 724,543
------------ ---------- ----------- ----------- --------- -------------
Depreciation 430,337 7,022 30,000 3,000 470,359
Interest 637,158 - - 162,644 799,802
------------ ---------- ----------- ----------- --------- -------------
Income(loss) before
income taxes $ (312,181) (125,627) (75,554) (32,256) (545,618)
============ ========== =========== =========== ========= =============
* Earnings before interest, taxes, depreciation, and amortization
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
$88,000 during the first quarter of 2000. The Company also repaid approximately
$380,000 of debt obligations and invested approximately $625,000 in capital
expenditures for improvements and replacements on existing properties and on new
construction. The combined effect of these and other activities resulted in a
decrease in cash of approximately $1 million from December 31, 1999. As has been
previously disclosed, 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 adequate
additional cash reserves will be generated from second and third quarter
operations. Management further believes that the Company's present liquidity and
existing funding commitments are adequate to sustain current operations and
currently projected capital expenditures.
The Company presently has two Country Hearth Inns under construction. Franchisee
developers have an additional 24 properties under development, most of which are
expected to open in 2000. Three new Country Hearth Inns have opened in 2000 and
the Company terminated one license agreement resulting in 51 Country Hearth Inns
open as of April 30, 2000.
The Company sold a 40-room property in Wharton, Texas in January 2000 resulting
in net cash proceeds of approximately $267,000. Also, a mortgage obligation was
reduced by $600,000 in connection with the sale. The property continues to
operate as a Country Hearth Inn. Three other hotel properties (one in Texas and
two in Georgia) remain held for sale.
Material Changes in Results of Operations.
First quarter 2000 income(loss) before taxes improved by $163,403 from the same
period in 1999. Excluding the $307,554 nonrecurring real estate gain in 1999,
such improvement amounted to $470,957. Such first quarter 2000 improvement
resulted from increased profitability in all three of the Company's operating
segments (hotel ownership, hotel management, and hotel franchising).
Owned and leased hotel earnings before interest, taxes, depreciation and
amortization ("EBITDA") increased 20% from 1999 to $903,964 in the 2000 first
quarter. Such increase primarily results from increased profits on hotels leased
from Host Funding, increased profit margin at the Company's Orlando hotel, and
from 1999 openings and stabilization of 1998 openings of new Rural Gold
properties.
Owned and leased hotel first quarter loss before income taxes was reduced from
$312,181 in 1999 to $8,063 in 2000. Such reduction resulted from the increased
EBITDA discussed above and from the elimination of interest and depreciation on
the Company's Orlando Country Hearth Inn which was sold in June 1999, but
continues to be operated under a lease agreement.
Hotel management EBITDA improved 37% and loss before income taxes improved 15%
in the first quarter of 2000. Such improvements result primarily from the
additional third party hotel management contracts entered into during 1999.
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.
Hotel franchising EBITDA and income before income taxes increased by
approximately $230,000 in the first quarter of 2000 versus the same period in
1999. Such improvement results from additional franchise property openings and
from an approximate $45,000 decrease in franchising payroll and other expenses.
Hotel development results in 1999 included gains of $307,554 resulting from the
sale of leasehold interests in three hotels. The hotel sold in January 2000 had
been adjusted to its net realizable value in 1999, thus no 2000 gain or loss was
recognized. Nonsegment interest income and expense was approximately the same in
the first quarters of 2000 and 1999.
Corporate expenses increased approximately $100,000 in the first quarter of
2000. Approximately $45,000 of such increase resulted from nonrecurring
professional fee charges. Corporate payroll increased approximately $32,000 and
various other expense categories account for the remaining increase.
The Company files income tax returns and recognizes income tax expense (benefit)
on an annual calendar basis. The deferred income tax benefits recognized in the
first quarters of 2000 and 1999 represent management's estimates of the impact
on the annual income tax expense (benefit) which results from such quarter's
operations.
7
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. 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 March 31, 2000, the Company's obligations included four variable mortgage
notes with aggregate principal balances of $2,940,576 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 in the prime interest
rate would increase the Company's interest expense by approximately $29,000 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, 2000, the Company's unrestricted investment securities included
equity securities valued at $96,125. 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. Such risks and the Company's approach to valuing such instruments
is discussed in the Company's December 31, 1999 Form 10-KSB.
8
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During 1999, the Company temporarily suspended payments of Series A preferred
stock dividends due to liquidity requirements created by the seasonal aspects of
the Company's hotel operations. Such preferred dividends are cumulative and
would be required to be paid prior to any distributions to common shareholders.
As of May 10, 2000, a total of $143,750 of Series A preferred dividends were in
arrears. The holders of the Series A preferred stock have tentatively agreed to
forgive the cumulative preferred dividends in arrears in exchange for the
settlement of certain claims the Company has against them.
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
A Preferred Stock of the Registrant. (Incorporated by
reference to Exhibit 3(i)(c) to the Registrant's Quarterly
Report on Form 10-QSB for the quarter ended September 30,
1997.)
11* Statement re: Computation of per share Earnings
27* Financial Data Schedule
- -------------------------------
* Filed herewith.
(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.
9
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, 2000 /s/ Douglas C. Collins
------------ --------------------------------------
Date Douglas C. Collins
President and Chief Executive Officer
May 15, 2000 /s/ Robert B. Lee
------------ --------------------------------------
Date Robert B. Lee
Senior Vice President and
Chief Financial and Accounting Officer