U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(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, 1999
[ ] 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 small business issuer as
specified in its charter)
DELAWARE 58-2023732
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
4243 DUNWOODY CLUB DRIVE, SUITE 200, ATLANTA, GEORGIA 30350
(Address of principal executive offices)
(770) 393-2662
(Issuer's telephone number)
N/A
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date: April 30, 1999
Common stock, par value $.01 - 1,963,935 shares outstanding
Transitional Small Business Disclosure Format (Check one):
Yes No X
-------- --------
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Financial Statements
March 31, 1999 and 1998
(Unaudited)
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
March 31, 1999
(Unaudited)
Assets
Current assets:
Cash and cash equivalents, including
restricted cash of $692,674 $ 1,404,885
Investment securities 114,229
Accounts receivable, net 1,582,005
Current portions of notes receivable 444,164
Other current assets 436,536
-----------------------
Total current assets 3,981,819
Noncurrent portions of notes receivable, net 3,474,105
Property and equipment, at cost, net 42,680,715
Deferred tax assets 4,031,000
Deferred costs, net 1,832,328
Leasehold interests, net 2,499,695
Other assets 1,273,859
-----------------------
$ 59,773,521
=======================
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 2,878,098
Current portions of notes payable 1,949,166
-----------------------
Total current liabilities 4,827,264
Noncurrent portions of notes payable 33,674,697
Other liabilities 423,371
-----------------------
Total liabilities 38,925,332
-----------------------
Minority interest in partnership 593,800
Shareholders' equity:
Series A preferred stock; par value $100;
200,000 shares authorized; 30,000 shares
issued and outstanding 3,000,000
Common stock; $.01 par value; 5,000,000
shares authorized; 2,023,277 shares issued
and 1,963,935 shares outstanding 20,233
Additional paid-in capital 7,431,087
Retained earnings 10,383,229
Accumulated other comprehensive loss (109,141)
Treasury stock (59,342 shares) (471,019)
----------------------
Total shareholders' equity 20,254,389
----------------------
$ 59,773,521
======================
See accompanying notes to condensed consolidated financial statements.
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Income(Loss)
Three Months ended March 31, 1999 and 1998
(Unaudited)
1999 1998
------------ -----------
Revenues:
Hotel revenues $ 5,999,853 5,032,590
Interest income 112,396 90,903
Other income 377,110 180,766
------------ -----------
Total revenues 6,489,359 5,304,259
------------ -----------
Expenses:
Hotel operations 5,017,477 4,136,914
Other operating and administrative 747,339 704,851
Depreciation and amortization 470,359 411,631
Interest 799,802 660,049
------------ -----------
Total expenses 7,034,977 5,913,445
------------ -----------
Income(loss) before income taxes (545,618) (609,186)
Deferred income tax benefit (200,000) (220,000)
------------ -----------
Net income(loss) $ (345,618) (389,186)
============ ===========
Net income(loss) per common share:
Basic $ (0.22) (0.24)
============ ===========
Diluted $ (0.22) (0.24)
============ ===========
See accompanying notes to condensed consolidated financial statements.
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998
(Unaudited)
1999 1998
-------------- ------------
Cash flows from operating activities:
Net income(loss) $ (345,618) (389,186)
Adjustments to reconcile net income(loss)
to net cash provided by(used in)
operating activities:
Depreciation and amortization 470,359 411,631
Other, net (455,311) (486,128)
-------------- ------------
Net cash provided by(used in)
operating activities (330,570) (463,683)
-------------- ------------
Cash flows from investing activities:
Notes receivable principal receipts 60,309 192,034
Originations of notes receivable (90,000) (186,780)
Capital expenditures (901,414) (389,685)
Other, net 19,313 (513,957)
-------------- ------------
Net cash provided by (used in)
investing activities (911,792) (898,388)
-------------- ------------
Cash flows from financing activities:
Repayments of notes payable (351,084) (228,654)
Additional borrowings 1,366,518 26,482
Preferred stock dividends - (75,000)
Other, net 27,619 -
-------------- ------------
Net cash provided by (used in)
financing activities 1,043,053 (277,172)
-------------- ------------
Net increase (decrease) in cash and
cash equivalents (199,309) (1,639,243)
Cash and cash equivalents at
beginning of period 1,604,194 3,281,774
-------------- ------------
Cash and cash equivalents at
end of period $ 1,404,885 1,642,531
============== ============
See accompanying notes to condensed consolidated financial statements.
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
March 31, 1999 and 1998
(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, 1998.
(2) Comprehensive Income (Loss)
Total comprehensive income(loss)for the three months ended March 31,
1999 was $(306,736) compared to $(389,186) for the three months ended
March 31, 1998.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION.
First Quarter 1999
The Company began 1999 with 19 owned hotel properties and 17 leased hotel
properties open and operating. The Company also held management contracts on six
additional hotel properties owned by third parties. There were 37 Country Hearth
Inns open and operating in thirteen states, nineteen of which were owned or
leased by the Company and the remainder owned by third party franchisees.
During the first quarter of 1999, the Company entered into four additional hotel
management contracts with third party owners. Management intends to continue to
market the Company's hotel management services and believes additional
opportunities exist in this area.
During the first quarter of 1999, four additional Country Hearth Inns were
opened and in April 1999, the 42nd Country Hearth Inn was opened. Presently,
eight new Country Hearth Inn properties are under construction and the Company
has executed license agreements for 12 additional properties.
The Company sold its leasehold interests in three hotel properties during the
first quarter of 1999 resulting in aggregate gains of approximately $300,000.
These sales represent a continuation of the Company's previously announced
desire to divest itself of older properties. Additional such sales are
anticipated, the timing of such and impact on earnings are not presently
determinable.
During the first quarter of 1999, the Company drew down $800,000 on its $1
million line of credit in order to fund working capital needs and construction
commitments. Also, the Company temporarily suspended payment of dividends on its
Series A preferred stock. 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 funds will be generated from second and
third quarter operations which will be used to repay the line of credit and
generate additional cash reserves. Management further believes that the
Company's present liquidity and existing commitments are adequate to sustain the
current operations of the Company.
The Company has been notified by representatives of Orange County, Florida of
the intention to acquire the land underlying the Orlando Country Hearth Inn. The
Company holds a 59% interest in the partnership which owns this hotel. Such
acquisition is necessary for the planned expansion of the Orange County
Convention Center and could be effected through a negotiated purchase and sale
or, if necessary, through condemnation proceedings. Company management and
representatives of the County have reached a tentative agreement for the sale of
the property. The proposed agreement provides for a purchase price of $13.5
million payable in cash at closing, which could occur during the Summer of 1999.
The proposed agreement further provides that the partnership would lease the
property from the County and continue to operate the hotel through the end of
2000 after which the property would need to be demolished for the Convention
Center expansion. The tentative agreement is subject to numerous contingencies
including, but not limited to, approval by Orange County's board, approval by a
majority of the other partners in the partnership, and certain cooperation from
the property's mortgage holder. No assurances can be given regarding the closing
of the proposed transaction; however, if the transaction occurs as presently
structured, at closing the Company would receive net cash of approximately $5.5
million and recognize a net of tax gain of approximately $2.4 million. Further,
the Company would receive and recognize its share of continued hotel operating
profits, if any, through the end of the lease term.
First Quarter 1998
The Company began 1998 with 33 hotel properties owned or leased, 36 properties
managed, and 29 Country Hearth Inn franchise properties open and operating. The
30th Country Hearth Inn was opened in March 1998.
Construction of an additional Company owned Country Hearth Inn in Nicholasville,
Kentucky was underway and the Company acquired rights to a site in Eddyville,
Kentucky which began construction in the second quarter of 1998. Loan
commitments were in place which funded the major portion of the construction
costs for both of these projects. The Nicholasville property opened in September
1998 and the Eddyville property opened in March 1999.
Renovation and conversion of two Ohio properties to Country Hearth Inns was
begun in the first quarter using funds from the Company's December 1997
debenture sale. Both conversions were completed during 1998.
Additionally, four new franchised properties were under construction in
Kentucky, Missouri, and Georgia and two conversion franchise properties in
Georgia were under renovation.
The Company also announced agreements for the acquisition and/or development of
twelve additional Country Hearth Inn properties.
RESULTS OF OPERATIONS
First Quarter of 1999 vs. First Quarter of 1998
Hotel revenues in the first quarter of 1999 increased to approximately $6
million, a 19% increase from the same period in 1998. Hotel operating profits
approached $1 million in the first quarter of 1999, a 10% increase from the 1998
period. Overall hotel revenues were reduced as a result of the sales of
leasehold interests in eleven hotel properties during 1998 and the first quarter
of 1999. These reductions were more than offset by additional revenues from the
eight new leases entered into during 1998 and two additional hotel acquisitions.
Hotel operating profit margins in the first quarters of 1999 and 1998 were
generally lower than the average margins generated during the full year 1998.
This is attributable to the extreme seasonal impact given the geographic
locations of the Company's owned and leased hotels. Management expects profit
margins to increase sharply in the second and third quarters before declining
again in the fourth. Operating profits for hotels which were owned or leased in
both of the first quarters of 1999 and 1998 were generally unchanged. First
quarter 1999 results of the acquired hotels were in line with management's
expectations.
Interest income increased due to the increases in the note receivable portfolio
resulting from the 1998 and 1999 property sales.
Other income in 1999 included the gains from the leasehold sales previously
discussed. Other income also included Country Hearth Inn franchise fees of
approximately $108,000 in each of the first quarters of 1999 and 1998.
Management expects franchise fee income to increase as more franchised
properties are opened. Other income is presented net of the Company's share of
unconconsolidated partnership losses and minority interest expense relating to
the Orlando partnership. Such losses and expenses aggregated approximately
$137,000 in each of the first quarters of 1999 and 1998.
Other operating and administrative expenses increased 6% primarily as a result
of payroll increases during 1998 and 1999.
Property related depreciation and interest expense in the first quarter of 1999
increased proportionately to the revenue increases associated with the 1998
hotel acquisitions.
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 1999 and 1998 represents management's estimates of the impact
on the annual income tax expense (benefit) which results from such quarter's
operations.
YEAR 2000 ISSUES
The Year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in a system failure or miscalculations causing disruptions of
operations. The Year 2000 issue affects virtually all companies and all
organizations. The Company recognizes the importance of ensuring that its
business operations are not disrupted as a result of Year 2000 related computer
system and software issues.
The Company has conducted an assessment of its computer and data
telecommunications information systems ("IT Systems"), as well those computer
systems that do not relate to information technology, including, without
limitation, electronic locks, telephone systems, elevators, VCR's and other
guest service related systems ("Non-IT Systems"), to identify needed Year 2000
remediation. The Company currently anticipates that its Year 2000 assessment,
remediation, and testing efforts will be completed by December 31, 1999.
The Company's home office, and management company IT Systems have been
evaluated and tested and are considered to be Year 2000 compliant. All hotel
front office systems have been evaluated. Seven such systems were found not to
be Year 2000 compliant and will need to be upgraded or replaced at an estimated
total cost of $40,000.
The Company has communicated with its significant vendors and service
providers regarding the extent to which these entities have addressed Year 2000
compliance issues. The most critical IT System, credit card processing, has been
tested and found to be Year 2000 compliant. Other vendor and service provided
systems such as electronic lock systems and guest related telephone and
television systems have been tested and found to be Year 2000 compliant. All
other less critical systems are currently being evaluated. Management estimates
that this overall process is approximately 85% complete and expenditures to
remediate any problems encountered will not be significant.
The Company has not communicated with its hotel guests regarding Year 2000
compliance issues, since none of its guests is considered to be individually
significant and the Company receives no electronic data from its guests other
than credit card information which is discussed above.
Based on the Company's assessments and available information, the Company
believes that its cost to ensure Year 2000 compliance will not exceed $100,000.
As of April 30, 1999 the Company had incurred approximately $12,000 related to
Year 2000 assessment, remediation and testing. The Company believes that the
Year 2000 issue will not pose significant operational problems for the Company.
However, if all Year 2000 issues are not properly identified, or assessment,
remediation and testing are not completed timely, there can be no assurance that
the Year 2000 issue will not materially adversely impact the Company's results
of operations or adversely affect the Company's relationships with guests,
vendors or others. Additionally, there can be no assurance that the Year 2000
issues of other entities, including, but not limited to, the Company's third
party vendors and service providers and its guests, will not have a material
adverse impact on the Company's systems or results of operations. The Company
has not engaged an independent expert solely to assist in its Year 2000 efforts.
However, when installing new software, the Company requires year 2000 compliance
assurances from its vendors.
The Company has not yet determined the operational costs and problems that
would be reasonably likely to result from the failure by the Company and certain
third parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. The Company has not developed a contingency plan for dealing with
the most reasonably likely worst case scenario, and such scenario has not yet
been clearly identified. The Company currently plans to complete such analysis
and contingency planning prior to December 31, 1999.
Readers are cautioned that forward-looking statements regarding Year 2000
issues should be read in conjunction with the cautionary statement in the RISK
FACTORS section which follows.
RISK FACTORS
This Form 10-QSB contains forward looking statements that involve risks and
uncertainties. Statements contained in this Form 10-QSB 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 underinsured 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 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).
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
During the first quarter of 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 April 30, 1999, a total of $100,000 of Series A preferred
dividends were in arrears.
ITEM 5. OTHER INFORMATION
The Company has been notified by representatives of Orange County, Florida of
the intention to acquire the land underlying the Orlando Country Hearth Inn. The
Company holds a 59% interest in the partnership which owns the hotel. Such
acquisition is necessary for the planned expansion of the Orange County
Convention Center and could be effected through a negotiated purchase and sale
or, if necessary, through condemnation proceedings. Company management and
representatives of the County have reached a tentative agreement for the sale of
the property. The proposed agreement provides for a purchase price of $13.5
million payable in cash at closing, which could occur during the Summer of 1999.
The proposed agreement further provides that the partnership would lease the
property from the County and continue to operate the hotel through the end of
2000 after which the property would need to be demolished for the Convention
Center expansion. The tentative agreement is subject to numerous contingencies
including, but not limited to, approval by Orange County's board, approval by a
majority of the other partners in the partnership, and certain cooperation from
the property's mortgage holder. No assurances can be given regarding the closing
of the proposed transaction; however, if the transaction occurs as presently
structured, at closing the Company would receive net cash of approximately $5.5
million and recognize a net of tax gain of approximately $2.4 million. Further,
the Company would receive and recognize its share of continued hotel operating
profits, if any, through the end of the lease term.
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
(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.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
Buckhead America Corporation
(Registrant)
Date: May 14, 1999 /s/Douglas C. Collins
----------------------------------------
Douglas C. Collins
President and Chief Executive Officer
Date: May 14, 1999 /s/Robert B. Lee
----------------------------------------
Robert B. Lee
Senior Vice President and
Chief Financial and Accounting Officer