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 SEPTEMBER 30, 1997
---------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
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: October 31, 1997
--------------------
Common stock, par value $.01 - 1,897,780 shares outstanding
-----------------------------------------------------------
Transitional Small Business Disclosure Format (Check one):
Yes No X
--- ---
1
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Condensed Financial Statements
September 30, 1997 and 1996
(Unaudited)
2
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Condensed Balance Sheet
September 30, 1997
(Unaudited)
Assets
------
Current assets:
Cash and cash equivalents, including
restricted cash of $560,166 $ 1,820,646
Short-term investments 320,628
Current portions of notes receivable 599,169
Other current assets 1,738,303
------------
Total current assets 4,478,746
Noncurrent portions of notes receivable 630,087
Property and equipment, at cost, net of
accumulated depreciation 34,701,026
Other assets 4,865,100
------------
Total assets $ 44,674,959
============
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 3,033,924
Current portions of notes payable 1,435,061
------------
Total current liabilities 4,468,985
Noncurrent portions of notes payable 21,764,622
Other liabilities 142,277
------------
Total liabilities 26,375,884
------------
Minority interest in partnership 697,820
Shareholders' equity:
Common stock; par value $.01; 3,000,000
shares authorized; 1,949,630 shares issued
and 1,897,780 shares outstanding 19,496
Preferred Stock; par value $100; 200,000
shares authorized; 30,000 shares
issued and outstanding 3,000,000
Additional paid-in capital 7,075,830
Retained earnings 7,928,250
Treasury stock (51,850 shares) (422,321)
------------
Total shareholders' equity 17,601,255
------------
Total liabilities and shareholders' equity $ 44,674,959
============
See accompanying notes to consolidated condensed financial statements.
3
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Condensed Statements of Income
Nine Months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
Revenues:
Hotel revenues $10,796,669 7,762,931
Interest income 762,108 722,194
Other income 1,908,716 1,682,657
----------- -----------
Total revenues 13,467,493 10,167,782
----------- -----------
Expenses:
Hotel operations 7,891,810 5,593,179
Depreciation and amortization 801,081 722,300
Other operating and administrative 2,488,111 1,617,808
Interest 1,050,314 1,143,954
----------- -----------
Total operating, administrative,
and interest expenses 12,231,316 9,077,241
----------- -----------
Income before income taxes 1,236,177 1,090,541
Provision for income taxes -- --
----------- -----------
Net income $ 1,236,177 1,090,541
=========== ===========
Net income per common and common
equivalent share $ .64 .60
=== ===
Weighted average number of common and
common equivalent shares used to
calculate net income per share 1,886,739 1,813,431
========= =========
See accompanying notes to consolidated condensed financial statements.
4
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Condensed Statements of Income
Three Months ended September 30, 1997 and 1996
(Unaudited)
1997 1996
---------- ----------
Revenues:
Hotel revenues $5,081,763 2,444,487
Interest income 85,304 208,351
Other income 359,361 818,828
---------- ----------
Total revenues 5,526,428 3,471,666
---------- ----------
Expenses:
Hotel operations 3,604,005 1,805,361
Depreciation and amortization 342,537 238,600
Other operating and administrative 1,040,926 736,479
Interest 436,772 364,245
---------- ----------
Total operating, administrative,
and interest expenses 5,424,240 3,144,685
---------- ----------
Income before income taxes 102,188 326,981
Provision for income taxes -- --
---------- ----------
Net income $ 102,188 326,981
========== ==========
Net income per common and common
equivalent share $ .04 .18
=== ===
Weighted average number of common and
common equivalent shares used to
calculate net income per share 1,950,637 1,818,582
========= =========
See accompanying notes to consolidated condensed financial statements.
5
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
1997 1996
----------- -----------
Cash flows from operating activities:
Net income $ 1,236,177 1,090,541
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Depreciation and amortization 801,081 722,300
Gain on note sale (800,000) --
Other, net (959,912) (907,673)
----------- -----------
Net cash provided (used) by
operating activities 277,346 905,168
----------- -----------
Cash flows from investing activities:
Note receivable principal receipts 934,137 2,519,659
Originations of notes receivable (320,000) (282,389)
Hotel assets acquired -- (4,419,778)
Capital expenditures (887,416) (805,904)
Other, net 524,358 543,262
----------- -----------
Net cash provided (used) by
investing activities 251,079 (2,445,150)
----------- -----------
Cash flows from financing activities:
Repayments of notes payable (586,941) (2,698,155)
Additional borrowings -- 3,450,000
Preferred dividends (20,000) --
Issuance of common shares 97,492 34,400
----------- -----------
Net cash provided (used) by
financing activities (509,449) 786,245
----------- -----------
Net increase (decrease) in cash and
cash equivalents 18,976 (753,737)
Cash and cash equivalents at beginning
of period 1,801,670 3,172,661
----------- -----------
Cash and cash equivalents at end of period $ 1,820,646 2,418,924
=========== ===========
(Continued)
See accompanying notes to consolidated condensed financial statements.
6
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows - Continued
Nine Months Ended September 30, 1997 and 1996
(Unaudited)
In May 1997, the Company recorded the following partial cash activity relating
to the acquisition of The Lodge Keeper Group, Inc.:
Costs:
Cash $ 825,000
Common stock issued, net
of treasury stock acquired 658,580
Debt assumed 4,784,754
----------
$ 6,268,334
==========
Allocated to:
Property and equipment $ 4,724,329
Other assets 2,893,021
Working capital deficit (1,349,016)
---------
$ 6,268,334
==========
In September 1997, the Company recorded the following partial cash activity
relating to the acquisition of Hatfield Inns, LLC:
Costs:
Cash and payables $ 1,464,293
Preferred stock issued 3,000,000
Debt assumed or placed 6,547,911
----------
Allocated to property and equipment $ 11,012,204
==========
See accompanying notes to consolidated condensed financial statements.
7
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
September 30, 1997 and 1996
(Unaudited)
(1) Basis of Presentation
---------------------
The accompanying unaudited 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, 1996.
(2) Business Acquisitions
---------------------
On May 8, 1997, the Company completed its acquisition of The Lodge
Keeper Group, Inc. of Prospect, Ohio ("Lodge Keeper"). The purchase
price totaled approximately $6.3 million consisting primarily of
cash of $825,000, 106,320 shares of common stock of the Company, and
the assumption of approximately $4.8 million of debt. Lodge Keeper
operated 18 hotels under long-term leases, held management contracts
on five Country Hearth Inn hotels and owned one independent hotel,
among other assets. The acquisition has been accounted for using the
purchase method and Lodge Keeper's results of operations are
included in the Company's financial statements from the acquisition
date.
On September 23, 1997, the Company completed its acquisition of
Hatfield Inns, LLC ("Hatfield"); the acquisition was deemed
effective on September 1, 1997. The purchase price totaled
approximately $11 million consisting primarily of cash and payables
of $1.5 million, $3 million of preferred stock issued by the
Company, and the assumption or placement of approximately $6.5
million of debt. The preferred stock is a 10% cumulative instrument
convertible to common stock in seven years at the then current
market value of the common shares. Hatfield owned eight 40 unit
hotel properties located in Kentucky and Missouri. The Company is
converting all eight properties into Country Hearth Inns and intends
to use the plans and design rights which were also acquired to
develop and construct additional properties. The acquisition has
been accounted for using the purchase method and Hatfield's results
of operations are included in the Company's financial statements
from the deemed effective date.
(Continued)
8
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements - Continued
September 30, 1997 and 1996
(Unaudited)
The following pro forma financial information presents total
revenue, net income, and net income per share for the nine months
ended September 30, 1997 and 1996 as if the Lodge Keeper and
Hatfield acquisitions had occurred at the beginning of such periods:
Nine Months ended September 30,
Pro forma: 1997 1996
--------------------- -------------- ----------
Total revenue $ 17,964,218 20,228,144
========== ==========
Net income $ 1,564,426 1,759,494
========= =========
Net income per common and
common equivalent share
Primary $ .72 .85
=== ===
Fully Diluted $ .67 .80
=== ===
9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION.
- -------------------------------------------------------
1996
- ----
During the third quarter of 1996, the Company acquired a 96 room hotel in
Dalton, Georgia ("Dalton Hotel") for approximately $1.5 million. The purchase
was financed by a $1,050,000 (9.15%) first mortgage loan from a local bank and a
$70,000 (10%) short term note from the seller. The remainder was paid in cash. A
$700,000 renovation was begun and completed in the first quarter of 1997.
Renovations at the Company's hotel in Atlanta, Georgia ("Atlanta Hotel") began
shortly after the completion of the Olympic Games. The $900,000 renovation was
completed prior to year end when the hotel reopened as a Country Hearth Inn. The
Company funded a substantial portion of the renovation costs through lease
agreements.
The Company's joint venture project in Mason, Ohio broke ground in September
1996 and opened in mid-May 1997. This new 93 room hotel ("Mason Hotel") is the
first of the Company's new interior-corridor prototype.
The Company received a $4.6 million loan commitment to refinance its Orlando
Country Hearth Inn. Proceeds from the refinancing allowed the Company to pay off
the remaining balance of its obligation to Trilon International, Inc., which was
to be due on December 31, 1996.
1997
- ----
The most significant event occurring in the third quarter of 1997 was the
completion of the Hatfield Inn, LLC ("Hatfield") acquisition. On September 23,
1997, the Company completed its acquisition of Hatfield; the acquisition was
deemed effective on September 1, 1997. The purchase price totaled approximately
$11 million consisting primarily of cash and payables of $1.5 million, $3
million of preferred stock issued by the Company, and the assumption or
placement of approximately $6.5 million of debt. The preferred stock is a 10%
cumulative instrument convertible to common stock in seven years at the then
current market value of the common shares. The new debt has a weighted average
interest rate of approximately 9.4%. Hatfield owned eight 40 unit hotel
properties located in Kentucky and Missouri. The Company is converting all eight
properties into Country Hearth Inns and intends to use the plans and design
rights which were also acquired to develop and construct additional properties.
Also in September 1997, the Company financed approximately $260 thousand of its
Dalton Hotel renovation costs by placing a second mortgage on the property with
the same local bank that holds the first mortgage.
The Company received approximately $100 thousand of additional capital as a
result of the exercises of stock options by a former director and a former
employee.
10
RESULTS OF OPERATIONS
- ---------------------
Periods ended September 30, 1997 and 1996
- -----------------------------------------
Hotel revenues amounted to $5,081,763 and $10,796,669 for the three month and
nine month periods ended September 30, 1997, respectively, as opposed to
$2,444,487 and $7,762,931 during the same periods in 1996. Hotel operating
profits for the 1997 three and nine month periods amounted to $1,477,758 and
$2,904,859, respectively, versus $639,126 and $2,169,752 in 1996. Such increases
largely reflect the completion of the acquisitions of The Lodgekeeper Group Inc.
("Lodge Keeper") in May 1997 and Hatfield in September 1997. With this growth in
hotel ownership, the Company is now more susceptible to the seasonal nature of
the lodging business. As a result, fourth quarter results are not expected to be
as strong as results year to date.
Interest income continues to decline as a result of decreases in the note
receivable portfolio and in funds available for investment. As disclosed in
previous filings with the Commission, management intends to shift financial
resources to other assets, such as the hotel acquisitions previously discussed.
Other income in the third quarter of 1996 included $275,000 for the sale by the
Company of an option to purchase its equity certificates in Days Inn Mortgage
Trust. The option was exercised in the first quarter of 1997 and the Company
received an additional $100,000.
Country Hearth Inn franchise fees included in other income in the third quarter
of 1997 amounted to $156,533 versus $191,156 in the same period in 1996. Such
amounts exclude the fees from Company owned hotels which are eliminated in
consolidation. The slight decline in 1997 is attributable to the timing of
recognition of initial fees.
The remainder of other income in the third quarter of 1997 primarily consisted
of management fees earned by Lodge Keeper on leased hotels. Except for seasonal
fluctuations, such fees are expected to increase as additional leases are
executed. In October 1997, the Company completed the first hotel financing
transaction under a previously announced financing and development agreement
with Host Funding Inc., a Dallas-based, real estate investment trust ("Host").
The Company is managing and leasing two Country Hearth Inns acquired by Host.
The Company and Host are seeking other similar transactions.
Depreciation and interest expense increases resulted from the hotel
acquisitions. Interest expense on each individual debt obligation, most of which
is fixed rate, generally decreases as the principal balances are reduced.
Approximately $3.5 million of the debt assumed or placed in connection with the
Hatfield acquisition is floating rate, presently at 9.5%. The Company expects
that hotel operations will adequately service the Company's debt obligations in
addition to providing additional cash profits.
Other operating and administrative expenses increased $304,447 from the third
quarter of 1996 to the same period in 1997. This is attributable to a $379,305
increase as a result of the Lodge Keeper acquisition offset by a $74,858
decrease in franchising and corporate overhead.
11
Significant changes in general and administrative expenses are not anticipated.
Management believes the Company has adequate sources of liquidity to meet it's
operational needs for the next twelve months. Further growth of the Company,
however, may necessitate the raising of additional debt or equity financing.
FORWARD LOOKING STATEMENTS
- --------------------------
Certain of the above statements are forward looking statements that involve
risks and uncertainties. Statements 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. See a further discussion of certain risk factors which may affect
these results contained in the Company's filing on Form S-3 (File no. 333-37691)
with the Securities and Exchange Commission.
12
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On September 23, 1997, the Registrant issued 30,000 unregistered shares of $100
par value ten percent (10%) nonvoting cumulative Series A Preferred Stock to the
former members of Hatfield Inns, LLC, a Delaware limited liability company
("Hatfield"), as partial consideration for the merger of Hatfield with and into
BLM-RH, Inc., a Delaware corporation ("BLM") wholly-owned by the Company. The
Series A Preferred Stock has certain rights, privileges and preferences that
limit and qualify the rights of the Common Stock of the Company. Holders of the
Series A Preferred Stock are entitled to receive, prior and in preference to any
distribution to the holders of Common Stock, cumulative dividends at the rate
per annum of 10% on the $100.00 original issuance price per share ("Original
Issuance Price") of the Series A Preferred Stock from the date of issuance, to
the extent declared by the Board of Directors out of funds legally available
therefor. All accrued but unpaid dividends of the Series A Preferred Stock must
be paid in full before any cash dividend may be declared on the Common Stock.
Further, holders of the Series A Preferred Stock have certain preferential
distribution rights in the event of any liquidation, dissolution or winding-up
of the Company. Except as required by law, the Series A Preferred Stock will not
have any voting rights. At any time after September 17, 2004, each holder of
Series A Preferred Stock may convert any or all of such Series A Preferred Stock
into shares of the Company's Common Stock at a conversion price equal to the
average trading price of the Company's Common Stock over the ten (10) trading
days immediately preceding the date of conversion. In addition, the Series A
Preferred Stock are convertible by the Company into Common Stock of the Company
at one hundred ten percent (110%) of the Original Issuance Price at any time
after September 17, 2004. See Exhibit 3(i)(c) filed herewith for further details
regarding the rights and preferences of the Series A Preferred Stock.
The Series A Preferred Stock was issued to accredited investors. The Company
relied upon the exemptions from registration contained in Section 4(2) and
Regulation D of the Securities Act of 1933, as amended.
13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Index to Exhibits
-----------------
Exhibit Description
3(i) Articles of Incorporation (Previously filed as Exhibit
3(i) to the Registrant's Registration Statement on Form
10-SB which became effective on November 22, 1993 and
incorporated herein by reference.)
3(i)(a) Certificate of Amendment of Certificate of
Incorporation(Previously filed as Exhibit 3(i)(a) to the
Registrant's December 31, 1994 Form 10-KSB and
incorporated herein by reference.)
3(i)(b) Certificate of Amendment of Certificate of Incorporation
(Previously filed as Appendix "A" to the Registrant's
Definitive Proxy Statement filed with the Commission on
June 9, 1997 and incorporated herein by reference.)
3(i)(c) Certificate of Designation, Preference and Rights
of Series A Preferred Stock of the Registrant
3(ii) By-Laws - Amended and Restated as of June 27, 1994
(Previously filed as Exhibit 3(ii) to the Registrant's
December 31, 1994 Form 10-KSB and incorporated herein by
reference.)
4(iii) Certificate of Designation, Preference and Rights of
Series A Preferred Stock of the Registrant (See Exhibit
3(i)(c) filed herewith.)
11 Statement re: Computation of Per Share Earnings
27 Financial Data Schedule (Electronic filing only)
(b) Reports on Form 8-K
-------------------
On July 22, 1997, the Registrant filed a report on Form 8 K/A which
included the financial statements and pro forma financial information
related to the Company's acquisition of The Lodge Keeper Group, Inc.
14
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: November 14, 1997 /s/Douglas C. Collins
---------------------- -------------------------------------------
Douglas C. Collins
President and Chief Executive Officer
Date: November 14, 1997 /s/Robert B. Lee
---------------------- -------------------------------------------
Robert B. Lee
Vice President and Chief Financial Officer
15