SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 8-K/A
AMENDMENT NO. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): May 8, 1997
BUCKHEAD AMERICA CORPORATION
(Exact name of registrant as specified in charter)
Commission File Number 0-22132
Delaware 58-2023732
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation)
4243 Dunwoody Club Drive,
Suite 200 30350
Atlanta, Georgia (Zip Code)
(Address of principal executive offices)
Registrant's telephone number including area code (770) 393-2662
(Former name or former address, if changed since last report) Not Applicable
<PAGE>
EXPLANATORY NOTE: On May 22, 1997, Buckhead America Corporation (the
"Registrant") filed with the Securities and Exchange Commission (the
"Commission") a Report on Form 8-K (the "Initial 8-K Report") with respect to
the Registrant's acquisition of all the outstanding capital stock of The Lodge
Keeper Group, Inc., an Ohio corporation ("LodgeKeeper), pursuant to the terms of
a Stock Purchase Agreement dated March 7, 1997 by and among the Registrant,
LodgeKeeper and the stockholders of LodgeKeeper.
In accordance with Item 7(a)(4) of Form 8-K, the Initial 8-K Report did
not include the historical LodgeKeeper financial statements or the condensed
consolidated pro forma financial information of the Registrant (the "Financial
Information") and instead contained an undertaking to file the Financial
Information with the Commission in an amendment to the Initial 8-K Report as
soon as practicable, but not later than 60 days after May 23, 1997. This
amendment is being filed for the purpose of satisfying the Registrant's
undertaking to file the Financial Information, and this amendment should be read
in conjunction with the Initial 8-K Report.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements.
The consolidated balance sheet of LodgeKeeper as of June 29, 1996, and
the related consolidated statement of operations and shareholders' equity
(deficiency), and consolidated statement of cash flows for the fiscal year ended
June 29, 1996, together with the related notes and audit report of Ernst & Young
LLP and the condensed consolidated balance sheet as of March 31, 1997, and the
related condensed consolidated statement of operations and condensed
consolidated statement of cash flows for the nine months ended March 31, 1997,
together with the related note, are included herein.
-1-
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
The Lodge Keeper Group, Inc.
Marion, Ohio
We have audited the accompanying consolidated balance sheet of The Lodge Keeper
Group, Inc. and Subsidiaries as of June 29, 1996 and the related consolidated
statements of operations, shareholders' equity (deficiency) and cash flows for
the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The Lodge Keeper
Group, Inc. and Subsidiaries as of June 29, 1996 and the consolidated results of
their operations and their cash flows for the year then ended, in conformity
with generally accepted accounting principles.
Ernst & Young LLP
Columbus, Ohio
August 29, 1996, except for Note 16 as to which the date is May 8, 1997
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 29, 1996
ASSETS (NOTE 9)
Current assets:
Cash $ 101,648
Accounts and notes receivable including $96,380 from a
related entity, net (Notes 6 and 15) 551,475
Prepaid expenses and other assets 282,841
Certificates of deposit (Note 3) 270,000
Deferred real estate development costs,
Condominium project (Note 2) 495,116
---------
Total current assets 1,701,080
---------
Property and equipment, net (Notes 7 and 9) 3,782,958
---------
Leased assets under capital leases, net (Note 8) 256,114
---------
Other assets:
Deferred expenses (Note 2) 99,717
Mortgage escrow fund (Note 9) 273,515
Accounts and notes receivable, net (Note 6) 56,198
Leasehold interests (Note 4) 214,962
Investments (Notes 5 and 13) 339,201
Cash value of officers' life insurance, net 38,129
---------
1,021,722
---------
$ 6,761,874
=========
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<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Current portion of:
Long-term debt (Note 9) $ 708,494
Subordinated debt (Note 10) 153,704
Obligations under capital leases (Note 8) 124,291
Accounts payable 603,986
Accrued expenses:
Income taxes 6,473
Taxes, other than income 395,117
Compensation 518,425
Other (Note 11) 394,155
------------
Total current liabilities 2,904,645
------------
Deferred income (Note 5) 95,167
Accrued expenses, long-term (Note 11) 177,942
Minority interest 40,275
------------
313,384
------------
Long-term debt, less current portion (Note 9) 2,974,502
------------
Subordinated debt, less current portion (Note 10) 2,307,234
------------
Obligations under capital leases, less current portion (Note 8) 144,740
------------
Shareholders' equity (deficiency):
Common stock, no par value; authorized, 10,000 shares;
issued and outstanding 1,098 shares 4,157,797
Deficit (6,040,428)
------------
(1,882,631)
------------
$ 6,761,874
============
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<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED JUNE 29, 1996
Revenues:
Motel and restaurant operations $10,528,752
Management fees 336,701
----------
10,865,453
----------
Operating expenses:
Motel and restaurant operations 7,759,164
Marketing and advertising 179,041
Depreciation and amortization 666,054
General and administrative 1,876,800
----------
10,481,059
----------
Income from operations 384,394
----------
Other income (expense):
Gain on sale of franchise system (Note 5) 139,833
Loss on sale of fixed assets (34,015)
Income from equity investments (Note 13) 3,155
Interest income 57,518
Interest expense, including interest relating to
leases of $44,920 (545,123)
Other income 43,386
----------
(335,246)
----------
Income before extraordinary item 49,148
Extraordinary gain (Note 10) 36,871
----------
Net Income $ 86,019
==========
-5-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEAR ENDED JUNE 29, 1996
<TABLE>
<CAPTION>
Common Stock Total
------------------------------------- Shareholders' Equity
Shares Amount Deficit (Deficiency)
-------------- ----------------- ------------------- ----------------
<S> <C> <C> <C> <C>
Balance, July 1, 1995 1,098 $ 4,157,797 $ (6,126,447) $ (1,968,650)
Net income for the year 86,019 86,019
-------------- ----------------- ------------------- ----------------
Balance, June 29, 1996 1,098 $ 4,157,797 $ (6,040,428) $ (1,882,631)
============== ================= =================== ================
</TABLE>
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<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 29, 1996
Cash flows from operating activities:
Net income $ 86,019
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 666,054
Income from equity investments (3,155)
Loss on sale of fixed assets 34,015
Extraordinary gain on settlement of subordinated debt (36,871)
Changes in assets and liabilities:
Accounts and notes receivable 90,205
Prepaid expenses and other assets 7,552
Real estate development costs, condominium project (495,116)
Accounts payable 353,564
Accrued expenses 20,529
-----------
Net cash provided by operating activities 722,796
-----------
Cash flows from investing activities:
Proceeds from sale of assets 3,700
Capital expenditures (279,769)
Equity investments (155,000)
Distribution from investments 82,883
Deferred expenses (54,483)
Decrease in deferred income (142,833)
-----------
Net cash used in investing activities (545,502)
-----------
Cash flows from financing activities:
Proceeds from long-term debt 403,485
Principal payments on long-term debt (427,575)
Principal payments on subordinated debt (196,746)
Principal payments on capital lease obligations (142,453)
Deposits to mortgage escrow fund (117,571)
Capital contributions from minority interest 40,275
-----------
Net cash used in financing activities (440,585)
-----------
Net (decrease) in cash (263,291)
Cash at beginning of year 364,939
-----------
Cash at end of year $ 101,648
===========
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<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Organization:
The Lodge Keeper Group, Inc. (the Company) operates a chain of
motels and related business activities and owns 100% of the
outstanding stock of LKG Development I, Inc. and Integrated
Motel Management Group of Ohio, Inc. which owns 100% of the
outstanding stock of Homanco, Inc. The Company also owns 80%
of Concepts in Lodging, Ltd., 70% of LKG Construction Co.,
Ltd., 67% of Timmons Woods, Ltd. and 95% of Roasters Coffee
Concepts, Ltd. These companies were organized to develop+
motels, condominiums and coffee shop properties. The results
of operations of these companies are included from their
respective dates of inception.
Principles of consolidation:
The accompanying consolidated financial statements include the
accounts of The Lodge Keeper Group, Inc. and its majority
owned subsidiaries. All significant intercompany balances and
transactions have been eliminated in the consolidation.
Property and equipment:
Property and equipment are recorded at cost. Depreciation of
property and equipment and amortization of leasehold
improvements are computed on the straight-line method over the
estimated useful lives of the assets or the remaining terms of
the leases, whichever is shorter. Estimated useful lives for
equipment are three to eight years and for buildings,
improvements, and leasehold improvements up to thirty years.
Maintenance and repairs are charged to expense as incurred;
renewals and betterments in excess of five hundred dollars
($500) for property and equipment, with useful lives greater
than one year, are capitalized.
Leasehold interests:
Leasehold interests are amortized over the estimated useful
lives of the leases plus the first renewal period using the
straight-line method.
Inventories:
Inventories are valued at cost. Total cost of inventories at
June 29, 1996 was $63,235 and is included in the Consolidated
Balance Sheet as prepaid assets.
-8-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Leases:
The Company has recorded as capital assets all significant
leases of property and equipment in accordance with generally
accepted accounting principles. These leased assets are
amortized on a straight-line basis over their estimated useful
lives, which approximate the terms of the leases.
Management fees:
Management fees are recorded on an accrual basis in accordance
with the terms of management agreements with non-affiliated
managed properties.
Deferred expenses:
Deferred expenses related to mortgage loan fees are being
amortized on the straight-line basis over the life of the
loan.
Supplemental disclosures of cash flow information:
Cash paid for:
Interest $550,467
Income taxes 26,679
Use of Estimates:
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the amounts
reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Financial Instruments
The carrying amounts of financial instruments reported in the
balance sheet approximate those assets' fair value. Payment of
other long-term liabilities are generally dependent upon the
Company's ability to achieve cash flow. Management believes
that estimating the fair value of these long-term liabilities
is either not appropriate or, because of excess costs,
considers estimation of fair value to otherwise be
impracticable.
-9-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Long-Lived assets - FASB Statement No. 121:
In March 1995, the FASB issued Statement No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of, which requires impairment losses to
be recorded on long-lived assets used in operations, when
indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than
the assets' carrying amount. FASB No. 121 is effective for
fiscal years beginning after December 15, 1995. Although
Management has not undertaken a detailed analysis of the
Company's long-lived assets, which principally consist of
motel properties, Management is not aware of any indicator
currently being present that would result in an impairment
loss had FASB 121 been applied to the Company's financial
statements as of year end.
2. DEFERRED REAL ESTATE DEVELOPMENT COSTS:
The Company has incurred costs related to evaluation and planning for
proposed construction projects at various sites. These costs are
deferred until the construction project is either completed or
discontinued.
In addition, on October 13, 1995, the Company's majority owned
subsidiary, Timmons Woods, Ltd. (Timmons) purchased approximately 8.75
acres of land in Delaware, Ohio for $239,029 in cash to develop a 34
unit condominium project. On February 1, 1996, Timmons closed on
construction loans for $1,450,000 ($213,484 drawn and payable at June
29, 1996) which will be used to complete the infrastructure and the
first 8 unit phase of the project (Note 9). At June 29, 1996, costs
capitalized on the construction project were $256,087.
3. CERTIFICATES OF DEPOSIT:
At June 29, 1996, the Company held $270,000 in certificates of deposit,
which had been assigned to State of Ohio Bureau of Workers'
Compensation and an insurance company as deposits for a self insurance
bond.
4. LEASEHOLD INTERESTS:
The unamortized portion of retained leasehold interests was $214,962 at
June 29, 1996. The amortization charged to operations was $18,022 for
the year ended June 29, 1996.
-10-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
5. SALE OF FRANCHISE SYSTEM ASSETS:
On May 16, 1994, the Company sold the Country Hearth Inn franchise
system, including all trademarks, service marks, reservation system and
license agreements to BAC Franchising, Inc. for $500,000 in cash and
contingent considerations of $200,000 in notes receivable and 5,000
shares of common stock of Buckhead America Corporation (BAC), the
parent corporation of BAC Franchising, Inc. The contingent portion of
the sale price included three notes receivable (see Note 6) that were
to become due and payable if certain franchise agreements, in place at
date of sale, remained in effect through the maturity date of the
notes. The BAC shares are subject to a stock pledge agreement and shall
be delivered in annual increments of 1,000 shares to the Company only
if the terms of the franchise agreements assigned to BAC Franchising,
Inc. at the closing remain substantially unchanged over the five year
period. On May 16, 1995 and 1996, 1,000 BAC shares with a value of
$4,250 and $6,500 respectively were released to the Company in
accordance with the agreement. The restricted and unrestricted common
shares of BAC are valued at the current market price of $21,250 and are
included in investments on the balance sheet. The contingent portion of
the sale price and any dividends received on the remaining pledged
shares are included in deferred income on the balance sheet and will
not be recognized as income until the earnings process is complete.
During 1996 two of the notes receivable were collected and, along with
the 1,000 BAC shares released, resulted in an additional gain on the
sale of the franchise system of $139,833.
-11-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
6. ACCOUNTS AND NOTES RECEIVABLE, NET:
Accounts and notes receivable at June 29, 1996 consist of the
following:
<TABLE>
<S> <C> <C>
Note receivable from affiliate; unsecured, annual payments in various
amounts due on August 31 through 1999, including interest at prime plus
1% $ 44,000
Notes receivable from affiliates; unsecured due on September 28, 1996,
including interest at prime 74,910
Note receivable from a related party, due February 28, 1997 secured by
a membership interest and the right to receive development fees in
connection with a motel development project, interest at 10% payable at
maturity (See Note 9) 50,000
Note receivable; minimum monthly payment of $912, interest at 8% with
any unpaid principal and interest due August 1999, collateralized by
equipment sold 30,516
Note receivable, interest at 8%, due with unpaid accrued interest on
August 26, 1996. The note is contingent on certain franchise agreements
remaining in place through the due date (see Notes 5 and 9) 66,666
---------
266,092
Less allowance for uncollectible accounts 30,516
---------
235,576
Accounts receivable:
Trade, net of allowance for uncollectible accounts of $4,365 226,075
Affiliates, net of allowance for uncollectible accounts of
$37,444 (Note 15) 105,497
Other, net of allowance for uncollectible accounts of $15,957 40,525
---------
Total of accounts and notes receivable, net 607,673
Less amounts classified as long-term 56,198
---------
$ 551,475
=========
</TABLE>
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<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
7. PROPERTY AND EQUIPMENT:
Property and equipment at June 29, 1996 is summarized as follows:
Land $ 737,115
Buildings and improvements 2,264,795
Motel equipment 2,790,848
Bedding and linens 149,060
Restaurant equipment 105,038
Office equipment 75,453
Autos and trucks 14,544
Leasehold improvements 2,909,551
----------
9,046,404
Less accumulated amortization and
depreciation 5,263,446
----------
$ 3,782,958
==========
8. LEASES:
The Company conducts a major part of its operations using leased
facilities and equipment.
The equipment lease payments typically include provisions for executory
costs, such as maintenance and insurance. Contingent rentals on both
capital and operating real estate leases may be incurred based on sales
exceeding certain minimums. The total amount of such contingent rentals
was $244,302 in fiscal 1996 and is included in rental expense in the
period incurred.
Capital Leases:
Leased assets under capital leases include telephone,
television and equipment leases with terms from five to ten
years at fixed rates with bargain purchase options.
-13-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
8. LEASES (CONTINUED):
The Company has capitalized property and equipment leased under capital leases.
Leased property capitalized in the consolidated financial statements by major
class at June 29, 1996 is summarized as follows:
1996
---------
$ 391,486
159,402
20,117
---------
571,005
Less accumulated amortization 314,891
---------
$ 256,114
=========
The future minimum lease payments by year for capital leases and the present
value of the net minimum lease payments as of June 29, 1996 are as follows:
Fiscal Year Ending
- ------------------
1997 $ 151,248
1998 118,154
1999 45,116
2000 749
---------
Total minimum lease payments 315,267
Less amount denoting estimated executory costs (such as taxes, maintenance, and
insurance) included in total minimum lease
payments 17,335
---------
Net minimum lease payments 297,932
Less amount denoting interest 28,901
---------
Present value of net minimum lease payments 269,031
Less current portion 124,291
---------
$ 144,740
==========
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<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
8. LEASES (CONTINUED):
Operating leases:
The following is a schedule of future minimum rental payments currently required
under operating leases that have initial or remaining noncancellable lease terms
in excess of one year as of June 29, 1996, and the related sublease and assigned
rental payments due:
Sublease
Future Payments
Fiscal year Minimum Due to the
Ending Payments Company
- -------------- ------------- -----------------
1997 $ 1,047,693 $ 59,502
1998 967,343 59,502
1999 811,863 51,374
2000 759,007 48,664
2001 723,843 48,664
Later years 2,532,229 143,804
----------- ---------
Total minimum payments $ 6,841,978 $ 411,510
=========== =========
The Company remains contingently liable for future minimum rental payments of
$411,510 on subleased and assigned restaurant units in the event of default by
the sublessees and assignees.
Rental expense, including contingent rentals, for all operating leases was
$1,547,443 in fiscal 1996.
Leases described in the preceding paragraphs include leases between the Company
and a company whose shareholders are common stockholders of the Company. Such
amounts totaled $3,600 in fiscal 1996. Total future minimum payments under these
related party leases amount to $30,900.
-15-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
9. LONG-TERM DEBT:
<TABLE>
<S> <C> <C>
Note payable to bank under a revolving credit agreement with interest
at prime plus 1 1/4% expiring in September 1999 (see additional terms
below) $ 783,000
Note payable to bank, secured by a mortgage on real and personal
property, monthly payments of $13,178, including interest, at June
29, 1996, then in increasing amounts through February 2004, including
interest at 7 1/2%
increasing to 8 1/2% 1,822,271
Note payable due August 1, 1997, secured by a second mortgage on real
and personal property, monthly sinking fund requirement of $8,800
with a balance of
$273,515 at June 29, 1996; interest at 14% payable monthly 400,000
8% Industrial revenue bonds, monthly payments of $9,201, including
interest, to July 1, 1999. Collateralized by a first lien on a motel
facility and rights to all related revenues 300,811
Note payable due August 26, 1996, secured by a contingent note
receivable interest at 10% payable at maturity (See Note 6) 62,389
Note payable due February 28, 1997, secured by a membership interest
and the right to receive development fees in connection with a motel
development project, interest at 10% payable at maturity (See Note 6)
50,000
Construction note payable to bank secured by a mortgage on real
property held for development due in increments of $28,000 as each
developed unit is sold, but no later than February 1, 1999. Interest
is payable monthly at prime plus 1.5% ( See Note 2). This note is
guaranteed by LKG Development I, Inc., Concepts in Lodging, Ltd., and
also by certain individuals 213,484
Notes payable, 8 1/2%, secured by a mortgage deed, monthly payments
of $372, including interest, to September 1, 1997 5,270
Equipment purchase obligation, 15.7%, secured by equipment, monthly
payments of $4,928, including interest, due April 30, 1997 45,771
---------
3,682,996
Less current portion 708,494
---------
$ 2,974,502
=========
</TABLE>
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<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
9. LONG-TERM DEBT (CONTINUED):
Principal payment requirements on the above long-term debt obligations
are as follows:
Fiscal Year Ending
- ------------------
1997 $ 708,494
1998 775,749
1999 410,291
2000 93,782
2001 45,812
Later years 1,648,868
-----------
$ 3,682,996
===========
At June 29, 1996, the Company had outstanding borrowings of $783,000
under a bank line of credit with interest payable monthly at prime plus
1 1/4%. Under the terms of the agreement, the maximum amount of credit
available cannot exceed $783,829 at June 29, 1996, and shall
permanently reduce each month by an amount agreed on by the Company and
the bank. At the end of each succeeding fiscal year the aggregate
amounts outstanding under the agreement cannot exceed the following:
1997 $ 561,399
1998 318,104
1999 51,986
In addition, the add-on interest rate to the prime may be reduced to 1%
if the Company has no loans outstanding under the agreement for 30
consecutive days in any twelve consecutive month period and maintains a
certain cash flow coverage ratio over the preceding twelve months. The
loan is secured by the accounts and notes receivable, inventory and
equipment of the Company, assignment of the capital stock and leases of
the Company, first and second mortgages on certain real estate of the
Company, and guaranteed by the principal shareholder of the Company.
The loan requires that the Company and its subsidiaries maintain
certain levels of accounts receivables and cash flow coverage ratios.
-17-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
10. SUBORDINATED DEBT:
The Company emerged from bankruptcy in December 1992 and under the
terms of a Bankruptcy Plan of Reorganization (the Plan) certain debt
and other obligations were modified. On those obligations where the
modified payment terms were non-interest bearing, the Company
discounted the future payments at its then primary bank lending rate of
9%. All of the obligations are unsecured and consist of the following:
<TABLE>
<S> <C> <C>
Payables to general creditors, quarterly payments of $21,523 to
December 1998 (less unamortized discount of $24,402) $ 190,827
Payable to Sara Lee Corporation, monthly payments of $11,250 to
December 1998, then monthly payments of $22,500 to December
2002 (less unamortized discount of $393,689) 1,023,811
Payables to two shareholders who are also members of the Board
of Directors, monthly payments of $8,333 of interest only to
December 1997, then variously increasing amounts of principal
and interest through December 2002 (less unamortized discount of
$509,089) 1,151,911
Priority tax claims, quarterly payments of $9,439 plus interest at
the statutory rate of 10% to December 1998 94,389
----------
2,460,938
Less current portion 153,704
----------
$ 2,307,234
=========
</TABLE>
Principal payments required on the above subordinated debt, net of
discount, are as follows:
Fiscal Year Ending
------------------
1997 $ 153,704
1998 176,136
1999 236,913
2000 403,071
2001 558,104
Later years 933,010
---------
$ 2,460,938
=========
-18-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
10. SUBORDINATED DEBT (CONTINUED):
In addition to the above payments, the Plan provides for additional
annual payments to certain of the Company's creditors if the Company
generates positive cash flow from operations in any given fiscal year
through 1999. Cash flow for this purpose is defined by the Plan as
equal to net income plus depreciation and amortization, less capital
expenditures up to $470,000 per year in the first two years of the
Plan, $570,000 in the next three years of the Plan, and $600,000 in the
remaining two years of the Plan less current payments under the Plan
including discounted interest. No additional payments were due for
fiscal 1996.
During the current fiscal year the Company negotiated a settlement with
certain of the general creditors. The settlement resulted in a gain on
discharge of indebtedness of $36,871 which has been reflected as an
extraordinary item in the consolidated statement of operations.
11. WORKERS' COMPENSATION ACCRUAL:
For purposes of Workers' Compensation insurance, the majority of the
Company's Ohio employees are included in the Company's self-insured
plan which is approved by the State of Ohio Bureau of Workers'
Compensation. Under the agreement, the Company is required to pay the
full amount of any approved claims directly to the claimant. The future
costs of the claims of former and present employees may be extended
over a period of many years and are periodically estimated by the
Company's independent consultant. For financial statement purposes, the
Company discounts the future estimated costs at 9.5%.
At June 29, 1996 the accrual for worker's compensation, including
related insurance premiums included in accrued expenses, consisted of
the following:
Accrued workers' compensation $ 370,439
Less amount representing interest
relating to net present value 95,523
---------
Less current portion 124,821
---------
Long-term portion $ 150,095
=========
At June 29, 1996, the Company had a $50,000 Irrevocable Letter of
Credit which represents collateral for self-insured workers'
compensation surety bonds.
-19-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
12. 401(K) RETIREMENT PLAN:
The Company has a 401(k) retirement plan covering substantially all
full-time employees. Employer contributions to the plan are based on a
formula related to the employees' participation in the plan.
Contributions to the plan by the employer were $29,648 during fiscal
1996.
13. INVESTMENTS:
Investments at June 29, 1996 include investments by the Company of
8-10% ownership interests in five general partnerships which are
accounted for on the equity method. The initial investment, recorded at
cost, has been adjusted for additional contributions made, the
Company's share of the partnerships' operating profits and losses, and
its share of distributions received.
14. INCOME TAXES:
The Company adopted Financial Accounting Standards Board Statement No.
109, on Accounting for Income Taxes. Under the new rules, the effects
of temporary differences between financial statement income versus tax
income in future years shall be recognized as a net deferred tax asset
or liability.
Temporary differences giving rise to the deferred tax asset consist
primarily of net operating loss carryforwards and differences in the
book and tax treatment of payments to certain subordinated debt
holders. Using an estimated Federal income tax rate of 34%, at June 29,
1996 the estimated tax effects of cumulative deductible temporary
timing differences and loss carryforwards (deferred tax assets) and
cumulative taxable temporary differences (deferred tax liabilities) are
estimated to approximate the following:
Deferred tax asset $ 1,130,000
Less valuation allowance (1,080,000)
-------------
$ 50,000
=============
Deferred tax liability $ 50,000
=============
As a result of the tax losses generated by the Company in prior years,
and the uncertainties relating to the ultimate realization of the
favorable tax attributes, the Company has provided a valuation reserve
for the entire excess of the net deferred tax assets at June 29, 1996.
-20-
<PAGE>
THE LODGE KEEPER GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEAR ENDED JUNE 29, 1996
14. INCOME TAXES (CONTINUED):
At June 29, 1996 the Company and its Subsidiaries have available unused
tax net operating loss carryforwards of approximately $2,100,000, which
may be applied against future taxable income, expiring in 2006.
15. RELATED PARTY TRANSACTIONS:
Accounts receivable at June 29, 1996 includes a balance of $105,497,
net of an allowance for doubtful accounts of $37,444, of amounts due
from various partnerships in which the Company is a partner. The net
amount due from the partnerships relates to franchising and management
services provided by the Company as well as funds advanced to the
partnerships for various operating expenses. The Company advanced funds
to the various partnerships primarily for payroll, advertising,
insurance, and other miscellaneous items.
16. SUBSEQUENT EVENT:
Effective May 8, 1997, the Company was acquired by Buckhead America
Corporation (Buckhead) for a combination of cash and Buckhead common
shares. Prior to the acquistion by Buckhead, the Company sold its
interests in the coffee shop operations to the President of the
Company and distributed its interests in the net assets of Concepts in
Lodging, Ltd., LKG Construction Co., Ltd. and Timmons Woods, Ltd. to
the shareholders of the Comapny.
-21-
<PAGE>
THE LODGE KEEPER GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
March 31, 1997
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents, including
restricted cash of $357,071 $ 488,081
Accounts and notes receivable, net 278,918
Other current assets 251,434
---------
Total current assets 1,018,433
Property and equipment, at cost, net of
accumulated depreciation 3,825,275
Other assets 1,765,087
---------
Total assets $ 6,608,795
===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable and accrued expenses $ 1,912,078
Current portions of notes payable 969,883
---------
Total current liabilities 2,881,961
Noncurrent portions of notes payable 4,714,948
Other noncurrent liabilities 235,269
Total liabilities 7,832,178
---------
Shareholders' equity (deficiency):
Common stock; no par value; 10,000 shares
authorized; 1,098 shares issued and outstanding 4,157,797
Accumulated deficit (5,381,180)
----------
Total shareholders' equity (deficiency) (1,223,383)
----------
Total liabilities and
shareholders' equity (deficiency) $ 6,608,795
===========
See accompanying note to condensed consolidated financial statements.
-22-
<PAGE>
THE LODGE KEEPER GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Income
Nine Months ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Revenues:
Hotel revenues $ 7,573,986 7,752,914
Interest income 41,525 35,775
Gains on sales of property and
equipment, net 1,171,859 -
Other income 382,031 428,415
--------- ---------
Total revenues 9,169,401 8,217,104
--------- ---------
Expenses:
Hotel operations 7,031,411 6,980,037
Depreciation and amortization 426,516 481,633
Other operating and administrative 660,952 583,247
Interest 363,260 372,650
-------- --------
Total operating, administrative,
and interest expenses 8,482,139 8,417,567
--------- ---------
Income (loss)before income taxes 687,262 (200,463)
Provision for income taxes 28,014 14,247
--------- ---------
Net income (loss) $ 659,248 (214,710)
=========== ========
See accompanying note to condensed consolidated financial statements.
-23-
<PAGE>
THE LODGE KEEPER GROUP, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
Nine Months Ended March 31, 1997 and 1996
(Unaudited)
1997 1996
---- ----
Cash flows from operating activities:
Net income (loss) $ 659,248 (214,710)
Adjustments to reconcile net
income (loss) to net cash provided
by operating activities:
Depreciation and amortization 426,516 481,633
Gains on property sales (1,171,859) -
Other, net 254,124 791,570
-------- --------
Net cash provided by
operating activities 168,029 1,058,493
------- ---------
Cash flows from investing activities:
Proceeds from property sales 1,408,300 -
Capital expenditures (987,333) (630,789)
Other, net 11,265 145,366
-------- --------
Net cash provided (used) by
investing activities 432,232 (485,423)
------- --------
Cash flows from financing activities:
Repayments of notes payable (750,119) (399,968)
Other, net 266,291 (167,462)
------- --------
Net cash provided (used) by
financing activities (483,828) (567,430)
-------- --------
Net increase in cash
and cash equivalents 116,433 5,640
Cash and cash equivalents at beginning
of period 371,648 364,939
------- -------
Cash and cash equivalents at end of period $ 488,081 370,579
========= =======
See accompanying note to condensed consolidated financial statements.
-24-
<PAGE>
THE LODGE KEEPER GROUP, INC.
AND SUBSIDIARIES
Note to Condensed Consolidated Financial Statements
March 31, 1997 and 1996
(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 herein for the year ended June 29, 1996.
-25-
<PAGE>
(b) Unaudited Pro Forma Condensed Consolidated Financial Information.
Set forth below are the following unaudited pro forma condensed
consolidated financial statements:
1. Pro Forma Condensed Consolidated Income Statement for the
Year Ended December 31, 1996.
2. Pro Forma Condensed Consolidated Income Statement for the
Three Months Ended March 31, 1997.
3. Pro Forma Condensed Consolidated Balance Sheet as of
March 31, 1997.
-26-
<PAGE>
BUCKHEAD AMERICA CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Historical PRO FORMA PRO FORMA
HISTORICAL Buckhead PURCHASE CONSOLIDATED
LODGE KEEPER America ACCOUNTING INCOME
GROUP, INC. Corporation ADJUSTMENTS STATEMENT
-------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Hotel revenues $ 10,528,752 9,979,477 (536,277) 19,971,952
-------------- --------------- ---------------- ---------------
Interest income:
Notes receivable 256,228 256,228
Investments 57,518 786,641 39,347 883,506
-------------- --------------- ---------------- ---------------
Total interest income 57,518 1,042,869 39,347 1,139,734
Other income 525,931 2,850,459 37,327 3,413,717
-------------- --------------- ---------------- ---------------
Total revenues 11,112,201 13,872,805 (459,603) 24,525,403
-------------- --------------- ---------------- ---------------
Expenses:
Hotel operations 7,938,205 8,659,355 (538,980) 16,058,580
Depreciation and amortization 666,054 956,900 (313,636) 1,309,318
Other operating and administrative 1,876,800 934,543 82,199 2,893,542
Interest 545,123 1,505,163 18,305 2,068,591
-------------- --------------- ---------------- ---------------
Total operating, administrative and
interest expenses 11,026,182 12,055,961 (752,112) 22,330,031
-------------- --------------- ---------------- ---------------
Income before income taxes 86,019 1,816,844 292,509 2,195,372
Provision for income taxes
--------------- ---------------- ---------------
Net income $ 86,019 1,816,844 292,509 2,195,372
============== =============== ================ ===============
Primary and fully diluted net income per common and
common equivalent share: $ 1.00 1.15
=============== ===============
Weighted average number of common and common equivalent
shares used to calculate net income per share:
Primary 1,814,510 101,320 1,915,830
=============== ================ ===============
Fully diluted 1,815,049 101,320 1,916,369
=============== ================ ===============
</TABLE>
See notes to the pro forma condensed consolidated financial statements.
-27-
<PAGE>
BUCKHEAD AMERICA CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA PRO FORMA
HISTORICAL BUCKHEAD PURCHASE CONSOLIDATED
LODGE KEEPER AMERICA ACCOUNTING INCOME
GROUP, INC. CORPORATION ADJUSTMENTS STATEMENT
--------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Hotel revenues $ 1,711,879 2,288,172 (136,107) 3,863,944
--------------- --------------- -------------- ---------------
Interest income:
Notes receivable 19,555 19,555
Investments 7,740 543,024 6,169 556,933
--------------- --------------- -------------- ---------------
Total interest income 7,740 562,579 6,169 576,488
Gains on property sales 1,180,854 1,180,854
Other income 82,784 954,677 1,037,461
--------------- --------------- -------------- ---------------
Total revenues 2,983,257 3,805,428 (129,938) 6,658,747
--------------- --------------- -------------- ---------------
Expenses:
Hotel operations 2,123,996 1,632,260 (220,622) 3,535,634
Depreciation and amortization 137,327 190,300 (73,421) 254,206
Other operating and administrative 319,975 611,578 (46,123) 885,430
Interest 107,229 257,048 364,277
--------------- --------------- -------------- ---------------
Total operating, administrative and
interest expenses 2,688,527 2,691,186 (340,166) 5,039,547
--------------- --------------- -------------- ---------------
Income before income taxes 294,730 1,114,242 210,228 1,619,200
Provision for income taxes 16,127 (16,127)
--------------- --------------- ------------- ---------------
Net income (loss) $ 278,603 1,114,242 226,355 1,619,200
=============== =============== ============== ===============
Primary and fully diluted net income per common and
common equivalent share: $ .61 .84
=============== ===============
Weighted average number of common and common equivalent
shares used to calculate net income per share:
Primary $ 1,821,994 101,320 1,923,314
=============== ============== ===============
Fully diluted $ 1,837,252 101,320 1,938,572
=============== ============== ===============
</TABLE>
See notes to the pro forma condensed consolidated financial statements.
-28-
<PAGE>
BUCKHEAD AMERICA CORPORATION AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
HISTORICAL BUCKHEAD PURCHASE PRO FORMA
LODGE KEEPER AMERICA ACCOUNTING CONSOLIDATED BALANCE
ASSETS GROUP, INC. CORPORATION ADJUSTMENTS SHEET
- -------------------------------------- ------------------ --------------- ------------- -------------------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 488,081 1,878,401 (805,063) 1,561,419
Short-term investments 2,649,005 2,649,005
Current portions of notes receivable 278,918 731,143 1,010,061
Other current assets 251,434 666,317 (94,401) 823,350
------------------ --------------- ------------- -------------------
Total current assets 1,018,433 5,924,866 (899,464) 6,043,835
Noncurrent portions of notes receivable 398,703 398,703
Property and equipment, at cost, net of
accumulated depreciation 3,825,275 19,084,452 1,424,990 24,334,717
Leasehold interests 191,821 1,191,462 1,383,283
Other assets 1,573,266 2,103,557 (953,897) 2,722,926
------------------ --------------- ------------ -------------------
6,608,795 27,511,578 763,091 34,883,464
================== =============== ============= ===================
LIABILITIES AND SHAREHOLDERS' EQUITY
- --------------------------------------
Current liabilities:
Accounts payable and accrued expenses 1,912,078 751,394 (149,149) 2,514,323
Current portions of notes payable 969,883 330,271 (250,000) 1,050,154
------------------ --------------- ------------- -------------------
Total current liabilities 2,881,961 1,081,665 (399,149) 3,564,477
Noncurrent portions of notes payable 4,714,948 12,019,991 (612,448) 16,122,491
Other noncurrent liabilities 235,269 (107,275) 127,994
------------------ --------------- ------------ -------------------
Total liabilities 7,832,178 13,101,656 (1,118,872) 19,814,962
------------------ --------------- ------------- -------------------
Minority interest in partnership 666,674 666,674
Shareholders' equity (deficiency) (1,223,383) 13,743,248 1,881,963 14,401,828
----------------- --------------- ------------- -------------------
$ 6,608,795 27,511,578 763,091 34,883,464
================== =============== ============= ===================
</TABLE>
See notes to the pro forma condensed consolidated financial statements.
-29-
<PAGE>
BUCKHEAD AMERICA CORPORATION AND SUBSIDIARIES
Notes to the Pro Forma Condensed Consolidated
Financial Statements
(Unaudited)
The acquisition of The Lodgekeeper Group, Inc. will be accounted for as a
purchase with a total purchase price of approximately $7.3 million. The purchase
price includes the assumption of approximately $4.8 million of debt, cash
payments to sellers and closing costs of approximately $1.0 million, issuance of
approximately $.7 million of common stock, and the assumption of a working
capital deficit of approximately $.8 million.
Certain assets and liabilities of The Lodge Keeper Group, Inc. were not
included in the acquisition. These excluded items primarily relate to a
condominium project and a chain of coffee shops. The pro forma financial
statements include adjustments to account for the exclusion of these items. Such
adjustments are summarized as follows:
Balance Sheet
- -------------
Cash and cash equivalents $ (5,063)
Other current assets (94,401)
Property and equipment (175,010)
Other assets (891,198)
---------
(1,165,672)
===========
Accounts payable and accrued expenses (287,945)
Noncurrent portions of notes payable (612,448)
Other noncurrent liabilities (107,275)
Shareholders equity (deficiency) (158,004)
---------
$ (1,165,672)
=============
Income Statements
- -----------------
Twelve Mos. Three Mos.
Ended Ended
Dec 31, 1996 Mar 31, 1997
------------ ------------
Hotel revenues $ (227,089) (136,107)
Hotel operations expenses (399,564) (220,622)
Depreciation and amortization (19,479) (16,921)
Other operating and administrative expenses (54,200) (46,123)
-------- --------
Net income $ 246,154 147,559
======== ========
The pro forma adjustments also reflect the effect of the purchase
accounting adjustments. The purchase price has been allocated to the acquired
assets and liabilities based on their respective estimated fair values. The
expected changes to related income statement amounts (such as depreciation and
amortization) are presented as if the acquisition had occurred at the beginning
of the periods presented. The pro forma purchase accounting adjustments are
summarized as follows:
Balance Sheet
- -------------
Cash and cash equivalents $ (800,000)
Property and equipment 1,600,000
Leasehold interests 1,191,462
Other assets (62,699)
----------
1,928,763
==========
Accounts payable and accrued expenses 138,796
Current portions of notes payable (250,000)
Shareholders equity (deficiency) 2,039,967
---------
$ 1,928,763
Income Statements
Twelve Mos. Three Mos.
Ended Ended
Dec 31, 1996 Mar 31, 1997
------------ ------------
Interest income 23,174 6,169
Depreciation and amortization $ (226,000) (56,500)
Provision for income taxes - (16,127)
-30-
<PAGE>
The Lodge Keepers Group, Inc's. last fiscal year ended on June 29, 1996.
The pro forma financial statements include the following adjustments to adjust
the amounts to the year ended December 31, 1996:
Hotel revenues $ (309,188)
Interest income 16,173
Other income` 37,327
Hotel operations expenses (139,416)
Depreciation and amortization (68,157)
Other operating expenses 136,399
Interest expense 18,305
------
Net income $ (202,819)
=========
The weighted average number of shares used to calculate net income per
share increased by 106,320 shares, which is the number of shares issued in the
acquisition and decreased by 5,000 shares which were shares previously held by
The Lodge Keeper Group, Inc. and now held as treasury shares.
-31-
<PAGE>
(c) Exhibits.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1* Stock Purchase Agreement dated as of March 7, 1997 among the
Company, The Lodge Keeper Group, Inc. ("LodgeKeeper") and
Stockholders of LodgeKeeper.
23.1 Consent of Ernst & Young LLP
_______________
* Incorporated by reference to Exhibit 2.1 to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended March 31, 1997.
-32-
<PAGE>
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 hereunto duly authorized.
BUCKHEAD AMERICA CORPORATION
Date: July 22, 1997 By:/s/ Robert B. Lee
_________________________________________
Robert B. Lee, Vice President and Chief
Financial Officer
-33-
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1* Stock Purchase Agreement dated as of March 7, 1997 among the
Company, The Lodge Keeper Group, Inc. ("LodgeKeeper") and
Stockholders of LodgeKeeper.
23.1 Consent of Ernst & Young LLP
_______________
* Incorporated by reference to Exhibit 2.1 to the Registrant's Quarterly Report
on Form 10-QSB for the quarter ended March 31, 1997.
-34-
ACCOUNTANTS' CONSENT
The Board of Directors
Buckhead America Corporation:
We consent to the incorporation by reference in the Regigistration
Statement (No. 33-97046) on Form S-8 and Registration Statement (No. 333-05313)
on Form S-3 of Buckhead America Corporation of our report dated August 29, 1996,
with respect to the financial statements of The Lodge Keeper Group, Inc.,
included in Buckhead America Corporation Form 8-K/A (Amendment No. 1) dated May
8, 1997, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Atlanta, Georgia
July 22, 1997
