U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER 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
(Name of small business issuer in its charter)
DELAWARE 58-2023732
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
4243 DUNWOODY CLUB DRIVE, SUITE 200, ATLANTA, GA 30350
(Address of principal executive offices)
Issuer's telephone number. (770)-393-2662
Securities registered pursuant to Section 12(b) of the Act:
NONE NONE
(Title of each class) (Name of each exchange on which registered)
Securities registered under Section 12(g) of the Act:
COMMON STOCK, PAR VALUE $.01
(Title of Class)
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
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB.[X]
State issuer's revenues for its most recent fiscal year. $ 18,816,191
State the aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. As of February 28, 1998: $ 8,802,038
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. As of February 28, 1998:
COMMON STOCK, PAR VALUE $.01 - 1,897,780 SHARES OUTSTANDING
DOCUMENTS INCORPORATED BY REFERENCE
No documents which are required to be listed under this caption are
incorporated by reference.
Transitional Small Business Disclosure Format (Check one): Yes _____; No X .
533311.1
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
BUSINESS DEVELOPMENT
FORM AND YEAR OF ORGANIZATION. Buckhead America Corporation ("Buckhead"
or the "Company") and most of its wholly-owned subsidiaries were incorporated in
Delaware on December 17, 1992 in connection with the bankruptcy reorganization
of Buckhead America Corporation ("Old Buckhead"), a Georgia corporation formerly
known as Days Inns of America, Inc. ("Days Inns"), and certain of its
affiliates. The Company, the successor-in-interest to certain assets and
liabilities of Days Inns, commenced operations on December 29, 1992. Other
wholly-owned subsidiaries were subsequently created, generally for the purpose
of acquiring assets. Unless the context otherwise requires, references to the
Company herein include the Company and its subsidiaries.
MATERIAL PURCHASES AND SALES OF SIGNIFICANT ASSETS. In March 1993, the
Company acquired through foreclosure a 180-room Days Inn hotel in Daytona,
Florida (the "Daytona Hotel") and in September 1994, the Company acquired
through foreclosure a 150-room Days Inns hotel in Miami, Florida (the "Miami
Hotel").
In May 1994, the Company, through a newly formed, wholly-owned
subsidiary, BAC Franchising Inc., a Delaware corporation, acquired the trademark
rights and license agreements comprising the Country Hearth Inn mid-priced hotel
franchise system.
On May 15, 1995, Buckhead acquired a fifty-five percent (55%) interest
in Heritage Inn Associates, Ltd., a partnership which owns a 150-room hotel in
Orlando, Florida formerly known as the Heritage Inn. Immediately upon
acquisition, the hotel (the "Orlando Hotel")was converted to operate as a
Country Hearth Inn.
On December 7, 1995 Buckhead purchased three Homeplace Inn hotel
properties in Texas from affiliates of American Liberty Hospitality, Inc.
("ALH"). Immediately upon acquisition, the acquired hotels (the "Texas Hotels")
along with three other ALH owned Homeplace Inn properties were converted to
operate as Country Hearth Inns.
On March 11, 1996 the Company acquired an 82-room hotel in Atlanta,
Georgia. During the latter half of 1996 the hotel (the "Atlanta Hotel") was
renovated and refurbished and presently operates as a Country Hearth Inn.
On August 30, 1996 the Company acquired a 96-room hotel in Dalton,
Georgia. Renovation and refurbishment of that hotel was completed in February
1997 and the hotel (the "Dalton Hotel") presently operates as a Country Hearth
Inn.
On December 28, 1996 the Company sold the Miami Hotel.
533311.1
<PAGE>
On May 8, 1997, the Company completed its acquisition of The Lodge
Keeper Group, Inc. of Prospect, Ohio ("Lodge Keeper"). Lodge Keeper operated 18
hotels under long-term leases, held management contracts on six Country Hearth
Inn hotels and owned a 186-room independent extended-stay hotel. Simultaneously,
Lodge Keeper assumed the management responsibilities of four hotels previously
owned by the Company. In December 1997, the Company entered into long-term
leases with Host Funding, Inc. ("Host") on two of the already managed Country
Hearth Inn hotels (the "Host Leases").
On September 23, 1997, the Company completed its acquisition of
Hatfield Inns, LLC. ("Hatfield"). The acquisition was deemed effective on
September 1, 1997. The acquisition included eight 40-room hotel properties
located in Kentucky and Missouri (the"Kentucky/Missouri Hotels"). All eight
properties have been converted to operate as Country Hearth Inns. The
acquisition also included the plans and design rights which the Company believes
have potential for the development and construction of additional properties.
Currently three properties are under development utilizing such plans.
Additionally, during 1994, 1995, 1996 and 1997 the Company expanded its
Country Hearth Inn franchising operations by developing updated prototype
hotels, implementing a franchise sales and marketing plan, and establishing a
centralized room reservation system. The Company became licensed to sell Country
Hearth Inn hotel franchises in 50 states. As of February 28, 1998, twenty-nine
Country Hearth Inns were open and operating in eleven states, fourteen of which
were Company owned.
BUSINESS
PRINCIPAL PRODUCTS AND SERVICES. The Company operates in the
hospitality industry and its principal holdings include hotels, leasehold
interests in hotels, loans and other investments secured by hotels, franchising
rights, hotel management contracts and other related assets. Its principal
product is the Country Hearth Inn mid-priced hotel chain which the Company
acquired in May 1994. The primary activity of the Company involves the expansion
of the Country Hearth chain and limited-service hotel management. Expansion of
the chain has been effected through direct acquisition and conversion of
existing hotels and through franchise sales. Additionally, the Company manages
36 hotels, 13 of which are Company owned.
A substantial portion of the Company's assets were transferred to it by
Old Buckhead. In addition to a significant amount of cash, the principal assets
transferred to the Company were notes receivable primarily secured by limited
service hotel properties, other unsecured receivables, and limited service hotel
properties acquired through foreclosure. As a result of the assets transferred
to it, the initial operations of the Company also included mortgage servicing .
The Daytona Hotel is operated under a Days Inn license agreement. The
Daytona Hotel is managed by the Company. The Orlando, Atlanta, Dalton, Texas and
Kentucky/Missouri Hotels, as well as six other properties managed by the Company
operate under Country Hearth Inns license agreements. ALH manages the Texas
Hotels under a hotel management agreement. All other Company owned hotels are
managed by the Company. Additionally, the Company manages seventeen leased
properties, ten of which operate under Travelodge franchise license agreements.
533311.1
<PAGE>
COMPETITION. There is significant competition in every phase of the
hospitality industry including development, construction, management, and
franchising. The Company competes in a very limited way with other hotel
management companies because the Company generally manages only hotels which it
owns or operates under long term leases. There are many hotel management
companies in the United States, and many of them are significantly larger than
the Company.
As a franchisor, the Company competes with a large number of hotel
franchise companies, most of whom are much larger than the Company and own
brands which are more nationally recognized than the Company's.
As a hotel operator, the Company's owned and leased properties compete
with other hotels in each local market in which they are located. The Company
competes directly with these other hotels for hotel guests. The Company's rates
and occupancies are directly impacted by activities of these other hotels and by
additions to the supply of competing rooms in each local market.
The Company is a relatively new entrant in the hotel industry. It
believes that its management is experienced in hotel development, hotel
franchising, and hotel management. In addition, the Company may identify other
opportunities in the hospitality industry. However, existing hotel companies and
new entrants to the hotel industry in markets which the Company may pursue will
present significant competition which may have an adverse effect on the Company.
REGULATION. Sales of franchises are principally regulated through
fairly uniform state laws. Such laws generally provide for registration by the
franchisor of standardized offering documents and compliance with numerous
financial qualifications. The Company undertook substantial registration
activities and is presently licensed to sell Country Hearth Inn franchises in 50
states.
RESEARCH AND DEVELOPMENT. During 1997 and 1996 the Company invested
approximately $63,000 and $25,000, respectively, in market studies,
environmental studies, and other feasibility analyses relating to potential
hotel acquisitions.
ENVIRONMENTAL COMPLIANCE. The Company's operations and maintenance
policies and procedures at each owned property include policies and procedures
regarding environmental compliance. The costs of such compliance is not
significant.
EMPLOYEES. As of February 28, 1998, the Company has 36 full-time and 4
part-time corporate employees and 174 full-time and 431 part-time hotel
employees. Three full-time hotel employees are employed under a collective
bargaining agreement.
RISK FACTORS
This Form 10-KSB contains forward looking statements that involve risks
and uncertainties. Statements contained in this Form 10-KSB 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. For a discussion of risk factors, see the "RISK
FACTOR" section contained in the Company's Registration Statement on Form S-3
(File No. 333-05313).
533311.1
<PAGE>
ITEM 2. DESCRIPTION OF PROPERTY.
CORPORATE OFFICES
The Company's corporate headquarters are located at 4243 Dunwoody Club
Drive, Suite 200, Atlanta, Georgia. The Company leases approximately 3,600
square feet as its corporate headquarters. The lease term extends through
October 1998 at an annual rate of approximately $55,000. The Company believes
that its headquarters are adequate for its current needs.
Hotel management and accounting functions are conducted by Lodge Keeper
which operates in leased office space located in Prospect, Ohio. The Lodge
Keeper leased space includes approximately 16,800 square feet and extends
through November 2001 at an annual rate of approximately $50,000. The Company
believes these offices are adequate for its current needs and provide room
for moderate expansion. An officer of the Company is related to principals of
the lessor - See "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS."
OWNED REAL PROPERTIES
LAND. As of February 28, 1997, the Company owned seven parcels of
undeveloped and unencumbered land, with an aggregate book value of $250,889. All
of such parcels are held for sale.
The following table sets forth certain 1997 information for each of the
Company's owned and leased hotels:
<TABLE>
<CAPTION>
Revenue
Average Average per
No. of Year Year Occupancy Daily Available Total
Properties Rooms Built Acquired Rate(1) Rate(1) Room(1) Revenue(2)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Days Inn
Daytona, FL 180 1972 1993 40.7% $ 46.99 $ 19.12 $1,582,446
Country Hearth Inn
Orlando, FL 150 1985 1995 82.5% 66.62 54.96 3,789,147
3 Country Hearth Inns
in Texas 120 1984-1986 1995 59.0% 45.84 27.05 1,227,272
2 Country Hearth Inns
in Georgia 172 1967-1971 1996 39.6% 47.75 18.91 1,239,740
8 Country Hearth Inns
in Kentucky & Missouri 319 1993-1997 1997 57.7% 46.51 26.84 937,733
19 Leased Properties 1137 1968-1975 1997 53.9% 40.94 22.07 5,973,624
St. Louis NW Inn 186 1964-1968 1997 92.0% 19.95 18.35 840,782
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Statistical information represents full year of operation.
(2) Total revenue represents earned revenues during ownership period.
533311.1
<PAGE>
DAYTONA HOTEL. The Company owns a 180-room Days Inn hotel in Daytona,
Florida (the "Daytona Hotel"), which was acquired by the Company through
foreclosure in March 1993. The hotel was acquired subject to a first mortgage
which was in default. The mortgage note was restructured effective May 15, 1994
and as of December 31, 1997 had an unpaid balance of $2,088,599. The
restructured note bears interest at 8%, and is due in monthly installments of
$15,850 until April 15, 1999 at which time the then remaining balance will be
due.
The market for comparable rooms is extremely competitive due to the
large number of hotels/motels in the Daytona area. The area does benefit,
however, from certain event related demand peaks. Average room occupancy and
average daily rate during 1997 was 40.7% and $46.99, respectively.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the property is adequately covered by insurance and is suitable
and adequate for its present use. Property taxes in 1997 were approximately
$69,000.
Differences between financial reporting asset bases and federal tax
bases are not significant. Straight-line depreciation methods are used based on
useful lives of 40 years for depreciable real property and 5-10 years for all
other depreciable property.
ORLANDO HOTEL. On May 15, 1995, the Company acquired the majority
ownership of a 150-room hotel in Orlando, Florida (the "Orlando Hotel"). Prior
to the acquisition, the Company held a second mortgage on the property with an
aggregate principal and interest balance of approximately $2.8 million (the "Old
Second Mortgage"). The second mortgage balance was reduced to $1 million (the
"New Second Mortgage") in exchange for a fifty-five percent (55%) interest in
Heritage Inn Associates, Ltd., the partnership which owns the hotel. The hotel
was also subject to a first mortgage which collateralized certain Orange County,
Florida industrial development bonds (the "Orlando IRB").
The Orlando IRB and the New Second Mortgage were fully paid and
satisfied in November 1996 with proceeds from a new first mortgage loan secured
by the property (the "First Mortgage Loan"). The First Mortgage Loan had a
December 31, 1997 balance of $4,518,726, bears interest at 9.55% and requires
monthly principal and interest payments of $43,028 until December 2016 at which
time the then remaining balance is due and payable.
The market for hotel rooms in Orlando is extremely competitive due to
the multitude of properties in the area. The Orlando Hotel does benefit from the
large number of local attractions and from the Orlando Convention Center
activities. The hotel is positioned as a lower priced alternative property
situated among mega-room high rises. Occupancy and room rates in 1997 averaged
82.5% and $66.62, respectively.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. The First
Mortgage Loan required the Company to expend approximately $200,000 for
maintenance and improvements; as of December 31, 1997, these requirements were
substantially completed. In the opinion of management, the property is
adequately
<PAGE>
covered by insurance and is suitable and adequate for its present use. Property
taxes in 1997 were approximately $113,000.
Differences between financial reporting asset bases and federal tax
bases are not significant. Straight-line depreciation methods are used based on
useful lives of 40 years for depreciable real property and 5-10 years for all
other depreciable property.
TEXAS HOTELS. On December 7, 1995 Buckhead purchased three Homeplace
Inn hotel properties in Texas from affiliates of American Liberty Hospitality,
Inc. ("ALH"). The three hotels secure a first mortgage loan with a December 31,
1997 balance of $2,305,258. The remainder of the $3.6 million purchase price was
paid with approximately $950,000 cash and 41,558 shares of the Company's common
stock. The first mortgage loan matures December 7, 2002, bears interest at
9.056%, and requires monthly payments of $21,680.
Immediately upon acquisition, the acquired hotels (the "Texas Hotels")
along with three other ALH owned Homeplace Inn properties were converted to
operate as Country Hearth Inns.
The Texas Hotels are limited service 40-room properties located in
smaller southeastern Texas cities. Generally, comparable rooms are not
immediately available in their selected markets. Occupancy and room rates in
1997 averaged approximately 59.0% and $45.84, respectively, during 1997.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the properties are adequately covered by insurance and are
suitable and adequate for their present use. Property taxes in 1997 totaled
approximately $42,000.
Differences between financial reporting asset bases and federal tax
bases are not significant. Straight-line depreciation methods are used based on
useful lives of 40 years for depreciable real property and 5-10 years for all
other depreciable property.
ATLANTA HOTEL. On March 11, 1996, the Company acquired an 82-room hotel
in Atlanta, Georgia formerly known as the Sandy Springs Inn (the "Atlanta
Hotel"). During the latter half of 1996, the hotel was renovated and refurbished
for conversion to operate as a Country Hearth Inn. The conversion was
substantially completed in January 1997 at a total cost of approximately
$800,000, approximately half of such was financed through lease arrangements,
which were subsequently paid off in February 1998.
The Atlanta Hotel secures a first mortgage loan with a December 31,
1997 balance of $2,131,037. The loan bears interest at 9.5% and requires monthly
payments of $20,350 until August 11, 2016.
The market for hotel rooms in Atlanta is extremely competitive due to
the multitude of properties in the area. The hotel is positioned as a
moderately priced property targeted primarily at business travelers . Occupancy
and room rates in 1997 averaged approximately 45.1% and $57.09 during 1997.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the property is
<PAGE>
adequately covered by insurance and is suitable and adequate for its present
use. Property taxes in 1997 were approximately $37,000.
Differences between financial reporting asset bases and federal tax
bases are not significant. Straight-line depreciation methods are used based on
useful lives of 40 years for depreciable real property and 5-10 years for all
other depreciable property.
DALTON HOTEL. On August 30, 1996 , the Company acquired a 96-room hotel
in Dalton, Georgia formerly known as the Sunset Inn (the "Dalton Hotel"). The
Company immediately initiated a renovation and refurbishment project to convert
the hotel to operate as a 90-room Country Hearth Inn. The project was
substantially completed in February 1997 at a total cost of approximately
$850,000, including leased equipment which was paid off in February 1998.
The Dalton Hotel secures a first mortgage loan with a December 31, 1997
balance of $1,027,845. The loan bears interest at 9.15% and requires monthly
payments of $9,549 until September 1, 2001 at which time the then remaining
balance is due.
The Dalton Hotel also secures a second mortgage loan with a December
31, 1997 balance of $262,079. The loan bears interest at 8.74% and requires
monthly payments of $2,313 until September 1, 2001, at which time the then
remaining balance is due.
The property is positioned to compete with the existing low and
moderately priced properties in the area. It will also compete with new
properties presently under development in the area. It is located adjacent to
and is highly visible from I-75, a major north/south interstate highway.
Occupancy and room rates in 1997 averaged approximately 34.8% and $36.92
respectively.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the property is adequately covered by insurance and is suitable
and adequate for its present use. Property taxes in 1997 were approximately
$17,000.
Differences between financial reporting asset bases and federal tax
bases are not significant. Straight-line depreciation methods are used based on
useful lives of 40 years for depreciable real property and 5-10 years for all
other depreciable property.
KENTUCKY/MISSOURI HOTELS. On September 1, 1997, the Company acquired
eight 40- room hotel properties located in Kentucky and Missouri from Hatfield
Inns, LLC. All eight properties (the "Kentucky/Missouri Hotels") were converted
to Country Hearth Inns. The conversion costs were not significant; approximately
$10,000 to $20,000 per property.
The Kentucky/Missouri Hotels secure first and second mortgage notes
payable with December 31, 1997 balances aggregating $6,849,939. Three of these
notes with December 31, 1997 balances of $2,387,964 are cross collateralized,
bear interest at 9.18%, and require aggregate monthly payments of $21,826 until
October 1, 2007 at which time the then remaining balances are due and payable.
The remaining notes bear interest at prime plus 1% (9.5% at December 31, 1997)
and require aggregate
<PAGE>
monthly payments of $47,188. The notes mature at various dates (1999-2015) at
which time the then remaining balances are due and payable.
The Kentucky/Missouri Hotels are limited service 40-room interior
corridor properties located in smaller cities where they enjoy limited
competition in their selected markets. Occupancy and room rates in 1997 averaged
approximately 57.7% and $46.51 respectively.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the properties are adequately covered by insurance and are
suitable and adequate for their present use. Property taxes in 1997 were
approximately $96,000 on an annualized basis.
Differences between personal property financial reporting asset bases
and federal tax bases are not significant. Federal tax bases of real property
are approximately $2.4 million less than financial reporting asset bases.
Straight-line depreciation methods are used based on useful lives of 40 years
for depreciable real property and 5-10 years for all other depreciable property.
THE ST. LOUIS NW INN. The Company acquired the 186-room Northwest Inn
in St. Louis, Missouri (the "NW Inn"), as part of the May 8, 1997 Lodge Keeper
acquisition. The property is an extended stay facility which is positioned to
compete with existing low priced extended stay properties in the area. It will
also compete with new extended stay properties presently under development in
the area. Occupancy and room rates in 1997 averaged approximately 92.0% and
$19.95, respectively
The property secures a first mortgage loan with a December 31, 1997
balance of $1,786,268. The loan bears interest at 8.5% and requires monthly
payments of $13,178 until February 1, 2004, at which time the then remaining
balance is due and payable.
Renovation and environmental programs are continuously ongoing and the
Company believes adequate funds are available for these purposes. In the opinion
of management, the property is adequately covered by insurance and is suitable
and adequate for its present use. Property taxes in 1997 were approximately
$61,000 on an annualized basis.
Differences between financial reporting asset bases and federal tax
bases are not significant. Straight-line depreciation methods are used based on
useful lives of 40 years for depreciable real property and 5-10 years for all
other depreciable property.
LEASED HOTELS. In addition to the owned properties described above, the
Company leases 19 other limited-service hotels (the "Leased Hotels") which are
primarily located in Ohio, Indiana, and Michigan. Lease terms range from 10 to
30 years with options to renew at varying terms. Certain of the leases provide
for contingent payments based upon a percentage of revenues.
The Leased Hotels are generally located along highways and interstates
and compete with similarly situated budget properties. Occupancy and room rates
in 1997 averaged 53.9% and $40.94, respectively.
<PAGE>
INVESTMENT POLICIES
Most of the Company's initial real estate holdings was principally
hospitality related. Asset acquisitions since inception have also been
predominately hospitality related and made for the primary purpose of generating
additional income. Further, management's experience and expertise is in the
hospitality business. Accordingly, the Company has determined that it will
primarily seek out investments in the hospitality industry. In that regard, the
Board of Directors has determined that the Company will focus upon investments
in hospitality related companies with income growth potential. Such investments
could take the form of (a) hotel property purchases, (b) hotel mortgage
purchases, (c) hotel mortgage servicing, (d) hotel management and/or (e) hotel
franchising. The Board of Directors has not set any limitations on the
percentage of assets which may be invested in any one investment. These policies
may be changed without a vote of security holders.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party in any pending legal proceedings other than
routine litigation that is incidental to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The Company's Common Stock trades on The Nasdaq Stock Market under the
symbol: BUCK.
The following table presents the high and low sales prices for the
Common Stock for each quarter of 1996 and 1997.
($ PER SHARE)
----------------
HIGH LOW
---- ---
Quarter ended March 31, 1996 6.62 5.00
Quarter ended June 30, 1996 7.75 5.00
Quarter ended September 30, 1996 6.87 5.62
Quarter ended December 31, 1996 6.87 5.50
Quarter ended March 31, 1997 7.37 6.00
Quarter ended June 30, 1997 7.25 6.25
Quarter ended September 30, 1997 9.12 6.62
Quarter ended December 31, 1997 8.87 7.00
The sales price amounts have been supplied by The Nasdaq Stock Market
and do not include retail mark-up, mark-down, or commission and may not
represent actual transactions.
HOLDERS
As of February 28, 1998, the Company estimates that there were
approximately 1,000 beneficial holders of its Common Stock.
DIVIDENDS
On September 23, 1997, the Company issued 30,000 unregistered shares of
$100 par value ten percent (10%) nonvoting cumulative Series A Preferred Stock
as partial consideration for the acquisition of Hatfield Inns, LLC. The Series A
Preferred Stock has certain rights, privileges and preferences that limit and
qualify the rights of the Common Stockholders 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 of
10% per annum, to the extent declared by the Board of Directors. 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.
<PAGE>
During 1997, the Board of Directors declared dividends of $92,333 on
the Series A Preferred Stock.
Certain of the Company's debt obligations contain provisions relating
to minimum net worth and debt to equity ratios. In the opinion of management,
such restrictions are not likely to limit the ability to pay dividends in the
future.
<PAGE>
Item 6. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
FINANCIAL CONDITION AND CHANGES IN FINANCIAL CONDITION
Two significant acquisitions which nearly doubled the assets of the
Company highlighted 1997. On May 8, 1997, the Company completed its acquisition
of The Lodge Keeper Group, Inc. of Prospect, Ohio ("Lodge Keeper"). Lodge Keeper
operated 18 hotels under long-term leases, held management contracts on six
Country Hearth Inn hotels and owned a 186-room independent extended-stay hotel.
On September 23, 1997, the Company completed its acquisition of Hatfield Inns,
LLC. ("Hatfield"). The Hatfield acquisition included eight 40-room hotel
properties located in Kentucky and Missouri.
The Lodge Keeper acquisition included a fully-staffed hotel management
operations center capable of additional capacity. Simultaneous with the
acquisition, Lodge Keeper assumed the management responsibilities of four hotels
previously owned by the Company. As of December 31, 1997, Lodge Keeper managed
36 hotel properties, including 13 owned by the Company. Management believes
there is significant growth potential for its hotel management business and the
Company is aggressively pursuing opportunities to manage hotels for
institutional and individual investors.
The Lodge Keeper purchase price totaled approximately $6.3 million
consisting of $825,000 cash, 106,320 shares of common stock of the Company, and
the assumption of approximately $4.8 million of debt. Management believes that
hotel management and leasehold profits will be adequate to service the assumed
debt.
All eight of the properties acquired from Hatfield have been converted
to operate as Country Hearth Inns. Conversion costs were not significant. The
acquisition also included the plans and design rights for these 40-room interior
corridor properties specifically designed for smaller markets. Management
believes there is significant growth potential for the development and
construction of these properties. Currently three properties are under
development utilizing such plans.
The Hatfield 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 nonvoting and accrues
cumulative dividends at the rate of 10%, payable when and to the extent declared
by the Company's board of directors. All accrued but unpaid dividends of the
preferred stock must be paid in full before any cash dividend may be declared on
the Company's common stock. Management believes that the acquired hotels'
operating profits will adequately service the related debt and preferred stock
dividends, if declared.
The Company completed its third full year of Country Hearth Inn
franchising, marketing, and conversion activities in 1997. At the start of 1996,
the Country Hearth chain had 15 properties open and operating in six states. As
of December 31, 1997, there were 29 properties open and operating in eleven
states. Further, the Company has executed Country Hearth licenses for an
additional 18 properties presently under development. Also during 1997, the
Company executed three master license agreements for the development of 40 new
Country Hearth Inns, three of which are presently under construction. Future
activities of the Company are expected to continue to be focused on the growth
of the Country Hearth system.
In 1996, the Company acquired an 82-room hotel in Atlanta, Georgia and a
96-room hotel in Dalton, Georgia. Both of these properties have been fully
renovated and refurbished and are presently operating as Country Hearth Inns.
Additionally, in 1996 the Company executed nine license agreements for
development or conversion of Country Hearth Inns in seven states.
<PAGE>
A significant source of unrestricted funds during previous years was the
successful resolution of claims against the former Days Inns of America, Inc.
("Old Buckhead"). The Company received over $300,000 in 1997 and nearly $1
million in 1996 relating to these activities. Further material amounts to be
released to the Company are not anticipated.
During 1997 and 1996, the Company received aggregate note receivable
principal payments of approximately $4.6 million, including $1.6 million of
collections on impaired notes. The increase in the aggregate note receivable
balances in 1997 resulted from notes acquired with the Lodge Keeper acquisition.
Management does not expect to make significant amounts of loan originations in
the future and does not expect the notes receivable balances to significantly
change unless as a result of a material business acquisition.
Most of the 1996 note receipts were used to reduce the Company's note
payable to Trilon International, Inc. ("Trilon"). The Company's note payable to
Trilon had been secured by notes receivable, cash, and the Company's interest in
three hotel properties. The Trilon note was fully paid and satisfied in November
1996.
Approximately $1.6 million of the December 31, 1996 short-term investments
were represented by industrial revenue bonds ("IRB's") secured by a hotel. The
IRB's were called at par and as a result, the Company's shareholders' equity at
December 31, 1996 included a $455,000 unrealized gain. Such gain was realized in
February 1997 when the IRB's were liquidated.
For operating purposes, the Company has not historically encountered
liquidity shortfalls, the need for short-term financing, or the need to raise
additional equity capital. Significant acquisitions have been financed primarily
by mortgage debt and issuance of equity securities to the sellers. Management
presently intends to pursue additional multi-property acquisitions and expects
to finance such acquisitions, if any, in a similar manner. The specific need for
financing would be directly impacted by the size and nature of any such
acquisition.
On December 22, 1997, the Company issued $5,000,000 of convertible
debentures to investment funds managed by Tower Investment Group, Inc.
("Tower"). Tower manages investment funds which already owned 262,000 (13.8%) of
the outstanding common shares of the Company. The related debenture notes bear
interest at 8%, payable quarterly in arrears, and are due December 22, 2002. The
debentures are convertible into common shares of the Company at any time at
$9.00 per share. If all such debentures were converted, an additional 555,555
shares of common stock would be issued. The Company intends to use the proceeds
for conversions of certain leased properties into Country Hearth Inns and for
deposits and/or cash portions of potential hotel acquisitions. A portion of the
proceeds will also be used to defer the need for short term financing which may
have otherwise become necessary due to the highly seasonal impact of hotel
operations.
The Company's balance sheet at December 31, 1997 includes a deferred
tax asset of $2,930,000. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all
of the deferred tax assets will not be realized. The ultimate realization of
deferred tax assets is dependent upon the generation of future taxable income by
the Company during the periods in which those temporary differences become
deductible. Management considers the projected future taxable income and tax
planning strategies in determining whether a valuation allowance is necessary.
Some of the various factors considered by management are discussed below.
During 1997, the Company sold a wholly owned subsidiary which held an investment
in Days Inns Mortgage Trust ("DIMT"). DIMT was treated as a partnership for
income tax purposes and had produced significant tax purpose net operating
losses (NOLs) totaling approximately $34 million through December 31, 1996.
These NOLs had no impact on the Company's book provision for regular taxes
because the ultimate dissolution of the partnership would result in immediate
gain recognition for a comparable amount. Because of NOL limitations, the
Company was exposed, however, to significant potential future alternative
minimum tax liability. All of these tax attributes accompanied the DIMT interest
with its sale, and the Company's tax position is no longer impacted by DIMT.
Also during 1997, the Internal Revenue Service commenced and completed an
examination of the Company's 1994 federal income tax return. No changes to the
Company's return, as filed, were made or proposed.
The Hatfield acquisition was structured as a tax-free merger; thus, the
Company's tax basis in the assets acquired were not stepped-up to fair market
value. The resulting deferred tax liability was offset, however, by a reduction
in the Company's deferred tax asset valuation allowance of $930,000.
The Lodge Keeper acquisition was similarly structured; thus, there were
deferred tax liabilities relating to differences in book and tax bases of the
assets acquired. Lodge Keeper, however, had NOLs available to offset such
built-in gains; thus, no net deferred tax impact from the Lodge Keeper
acquisition was recognized by the Company.
In evaluating the impact of the above events in conjunction with recent trends
in the Company's operations, specifically franchising activities and hotel
development, management has determined that it is more likely than not that the
results of future operations will generate sufficient taxable income to realize
the deferred tax assets. Such determination was made in the fourth quarter of
1997, resulting in the recognition of a $2,930,000 deferred income tax benefit.
Although no assurances can be made, realization of the Company's deferred tax
assets should occur if the Company generates approximately $10 million of
taxable income over the next 15 years.
<PAGE>
RESULTS OF OPERATIONS
Hotel revenues and operating profits in 1997 amounted to approximately
$15.6 million and $3.7 million, respectively, compared with $10.0 million and
$2.6 million in 1996. These 1997 increases reflect the results of the Lodge
Keeper and Hatfield acquisitions. On a pro forma basis, assuming these
acquisitions had occurred at the beginning of 1996, hotel revenues in 1997 and
1996 would have been $23.3 million and $27.8 million, respectively. The 1996
amounts include hotel revenues of $2.5 million and operating profits of $0.9
million relating to a hotel which was sold in December 1996.
For hotel properties which were owned by the Company in 1997 and 1996,
revenues and operating profits increased slightly, primarily as a result of
increases in average daily rates. Management expects this trend to continue in
1998. Average daily rates for the properties acquired from Hatfield were also
increased upon their conversion to Country Hearth Inns. The leased properties
acquired with Lodge Keeper reported profits after rent in the aggregate. The
leasehold interests in certain properties which are not budgeted to report
operating profits in 1998 are held for sale. No value was assigned to such
leasehold interests as part of the Lodge Keeper acquisition.
The Company experienced an operating loss in the fourth quarter of 1997
which largely reflects the seasonal nature of limited service hotel operations.
The increase in the number of properties from the Lodge Keeper and Hatfield
acquisitions magnified this aspect of the Company's operations.
Investment income declined from approximately $1 million in 1996 to
$784,000 in 1997. The 1997 amount includes the IRB gain previously discussed.
Management does not expect investment income to be significant in future periods
due to the reduction in the Company's note receivable portfolio.
Franchising activities generated losses of approximately $700,000 in
1997 and 1996. The Company has continued investing in the establishment of the
Country Hearth Inn brand and expects that franchising activities will report a
loss in 1998, as well. However, management continues to believe that substantial
profits will be realized in future years from its investments in franchising
activities.
The Company recognized gains on property sales in 1997 and 1996 of
approximately $289,000 and $587,000, respectively. The Company presently holds
seven parcels of undeveloped land and certain leasehold interests for sale.
Ultimate proceeds are not presently ascertainable.
Other income in 1997 and 1996 includes nonrecurring gains of
approximately $1.1 million and $1.5 million, respectively, from collections on
impaired notes and favorable settlements of Old Buckhead claims.
Other operating and administrative expenses increased in 1997 to
approximately $2.6 million from $1.0 million in 1996. The substantial portion of
this increase is attributable to the acquisition of Lodge Keeper's hotel
management operations. Such expenses are expected to increase in 1998 as a
result of owning the operations for a full year and to a lesser extent as a
result of payroll increases.
Interest expense in 1997 increased to approximately $1.6 million from
$1.5 million in 1996. The increase is attributable to the additional debt from
the Lodge Keeper and Hatfield acquisitions offset somewhat by the payoff of
Trilon in November 1996 and the release of a debt obligation in connection with
a sale of a hotel in December 1996. The Company has approximately $4.5 million
of debt obligations which are floating rate (prime plus 1%). The remainder of
the Company's debt obligations are fixed rate (8% to 9.55%). Interest expense in
1998 is expected to increase as a result of the obligations added in 1997 being
outstanding for a full year. Management considers the present borrowing rates
and availability of hotel financing to be favorable, thus increasing the
likelihood of further hotel acquisitions.
Similarly, depreciation and amortization expenses increased in 1997 as
a result of the hotel acquisitions and should increase further in 1998 as a
result of the acquired properties being held for a full year.
The Company reported no income tax expense in 1996. This was attributable
to differences in the book and tax bases of certain assets and liabilities. As
previously discussed, the Company recognized a $2,930,000 deferred income tax
benefit in 1997.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, Reporting Comprehensive Income.
This statement establishes standards for reporting and displaying comprehensive
income and its components in a full set of general purpose financial statements.
SFAS No. 130 requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed in equal prominence with the other
financial statements. The term "comprehensive income" is used in the statement
to describe the total of all components of comprehensive income including net
income. "Other comprehensive income" refers to revenues, expenses, gains, and
losses that are included in comprehensive income but excluded from earnings
under current accounting standards. SFAS No. 130 is effective for financial
statements for years beginning after December 15, 1997. The Company will adopt
SFAS No. 130 effective January 1, 1998. YEAR 2000 ISSUES
The Company has evaluated the impact of Year 2000 issues relating to its
computer information systems and has determined such impact to be immaterial.
Item 7. Financial Statements.
ANNUAL FINANCIAL STATEMENTS
The Company's consolidated financial statements with independent auditors'
report thereon are included on the pages which follow.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1997 and 1996
With Independent Auditors' Report Thereon
532603.1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Buckhead America Corporation:
We have audited the accompanying consolidated balance sheets of Buckhead America
Corporation and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of income, shareholders' equity, and cash flows for the
years 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Buckhead America
Corporation and subsidiaries as of December 31, 1997 and 1996, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
February 27, 1998
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 1997 and 1996
<TABLE>
<CAPTION>
Assets 1997 1996
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents, including restricted cash of
$410,397 in 1997 and $338,882 in 1996 (note 3) $ 3,281,774 $ 1,801,670
Investment securities (note 4) 3,188,115 3,026,873
Accounts receivable (note 6) 1,049,009 396,870
Current portions of notes receivable (note 5) 370,520 466,988
Other current assets 344,207 168,994
---------- ----------
Total current assets 8,233,625 5,861,395
Noncurrent portions of notes receivable (note 5) 724,307 465,518
Property and equipment, at cost, net of accumulated
depreciation (notes 6, 8, and 9) 34,275,664 18,730,897
Deferred tax assets (note 12) 2,930,000 -
Deferred costs, net (note 7) 1,933,153 1,650,558
Leasehold interests, net (note 7) 2,839,487 -
Other assets (note 7) 1,227,787 326,727
---------- ---------
$52,164,023 27,035,095
========== ==========
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued expenses $ 3,291,528 $ 933,884
Current portions of notes payable (note 8) 933,183 337,567
---------- ----------
Total current liabilities 4,224,711 1,271,451
Noncurrent portions of notes payable (note 8) 27,648,925 12,081,392
Other liabilities 262,567 -
---------- ----------
Total liabilities 32,136,203 13,352,843
---------- ----------
Minority interest in partnership 674,269 598,118
Shareholders' equity (notes 10 and 13):
Series A preferred stock; par value $100; 200,000 shares
authorized; 30,000 shares issued and outstanding in 1997 3,000,000 -
Common stock; $.01 par value; 3,000,000 shares
authorized; 1,949,630 and 1,817,977 shares issued
and 1,897,780 and 1,771,127 shares outstanding in
1997 and 1996, respectively 19,496 18,180
Additional paid-in capital 6,963,024 6,288,574
Retained earnings 9,793,352 6,712,073
Unrealized gain on investment securities - 455,128
Treasury stock, 51,850 and 46,850 common shares
in 1997 and 1996, respectively (422,321) (389,821)
---------- ----------
Total shareholders' equity 19,353,551 13,084,134
Commitments (notes 6 and 9)
---------- ----------
$52,164,023 $27,035,095
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Income
Years ended December 31, 1997 and 1996
1997 1996
---- ----
Revenues:
Hotel revenues $15,590,744 $ 9,979,477
Investment income 784,090 1,042,869
Franchise fee income 538,632 554,073
Gains on property sales (note 6) 289,300 586,864
Other income (notes 11 and 14) 1,613,425 1,709,522
---------- ----------
Total revenues 18,816,191 13,872,805
---------- ----------
Expenses:
Hotel operations 11,919,512 7,404,412
Franchise operations 1,265,505 1,254,943
Other operating and administrative (note 14) 2,582,297 934,543
Depreciation and amortization 1,204,082 956,900
Interest 1,601,183 1,505,163
---------- ----------
Total operating, administrative, and
interest expenses 18,572,579 12,055,961
---------- ----------
Income before income taxes 243,612 $ 1,816,844
Deferred income tax benefit (note 12) (2,930,000) -
---------- ----------
Net income $ 3,173,612 $ 1,816,844
========== ==========
Net income per common share (note 10):
Basic $ 1.67 $ 1.03
==== ====
Diluted $ 1.56 $ 1.00
==== ====
See accompanying notes to consolidated financial statements.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
Unrealized
Additional gain on Total
Common Preferred paid-in Retained investment Treasury shareholders'
stock stock capital earnings securities stock equity
----- ----- ------- -------- ---------- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1995 $18,080 - 6,254,274 4,895,229 51,717 (389,821) $10,829,479
Issue of 10,000 common shares
pursuant to exercise of option 100 - 34,300 - - - 34,400
Change in unrealized gain on
investment securities - - - - 403,411 - 403,411
Net income - - - 1,816,844 - - 1,816,844
------ --------- --------- --------- -------- --------- ----------
Balances at December 31, 1996 18,180 - 6,288,574 6,712,073 455,128 (389,821) 13,084,134
Issue of 106,320 common shares
for business acquisition, net of
5,000 treasury shares acquired 1,063 - 690,017 - - (32,500) 658,580
Issue of 25,333 common shares
pursuant to exercise of options 253 - 97,239 - - - 97,492
Issue of 30,000 preferred shares for
business acquisition, net of
$112,806 issuance costs - 3,000,000 (112,806) - - - 2,887,194
Change in unrealized gain on
investment securities - - - - (455,128) - (455,128)
Preferred stock dividends - - - (92,333) - - (92,333)
Net income - - - 3,173,612 - - 3,173,612
------ --------- --------- --------- -------- --------- ----------
Balances at December 31, 1997 $19,496 3,000,000 6,963,024 9,793,352 - (422,321) $19,353,551
====== ========= ========= ========= ======== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $3,173,612 $1,816,844
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 1,204,082 956,900
Sales (purchases) of trading securities, net (1,631,470) 417,525
Realized gains on trading securities (146,527) (24,748)
Unrealized holding losses (gains) on trading securities 51,755 (163,103)
Realized gains on available-for-sale securities (455,128) -
Gains on property sales (289,300) (586,864)
Gain on note sale (800,000) (700,000)
Minority interest in partnership income 121,154 174,725
Equity in joint venture losses 125,487 -
Deferred income tax benefit (2,930,000) -
Change in assets and liabilities, net of effect of acquisitions:
Accounts receivable (415,596) 19,437
Accounts payable and accrued expenses (162,000) (753,250)
Other, net 79,267 (207,514)
--------- ---------
Net cash (used in) provided by operating activities (2,074,664) 949,952
--------- ---------
Cash flows from investing activities:
Note receivable principal receipts 1,188,566 3,419,472
Originations of notes receivable (440,000) (282,389)
Acquisitions of businesses and hotels (1,601,815) (1,163,457)
Capital expenditures (1,364,478) (1,681,306)
Investments in joint ventures (648,525) (291,727)
Investment maturities 1,565,000 90,000
Proceeds from property sales 348,000 1,342,859
--------- ---------
Net cash (used in) provided by investing activities (953,252) 1,433,452
--------- ---------
Cash flows from financing activities:
Proceeds from notes payable 5,396,353 376,769
Repayments of notes payable (848,489) (4,143,064)
Distribution to minority interest partners (45,003) (22,500)
Issuance of common shares 97,492 34,400
Preferred stock dividends (92,333) -
--------- ---------
Net cash provided by (used in) financing activities 4,508,020 (3,754,395)
--------- ---------
Net increase (decrease) in cash and cash equivalents 1,480,104 (1,370,991)
Cash and cash equivalents at beginning of year 1,801,670 3,172,661
--------- ---------
Cash and cash equivalents at end of year $3,281,774 $1,801,670
========= =========
</TABLE>
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Supplemental disclosure of cash flow information -
cash paid for interest, net of interest capitalized
of $32,843 in 1997 and $110,412 in 1996 $1,615,431 1,476,618
========= =========
Supplemental disclosures of noncash investing and financing activities:
In May 1997, the Company recorded the following amounts 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 $ 4,489,490
Other assets 3,127,860
Working capital deficit (1,349,016)
---------
$ 6,268,334
=========
In September 1997, the Company recorded the following amounts relating to
the acquisition of Hatfield Inns, LLC:
Costs:
Cash and payables $ 1,464,293
Preferred stock issued, net of issuance costs 2,887,194
Debt assumed or placed 6,547,911
---------
$10,899,398
==========
Allocated to:
Property and equipment $10,740,632
Other assets 158,766
----------
$10,899,398
==========
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
In 1996, the Company recorded the following activity related to noncash and
partial cash transactions:
Acquisition of two hotels through partial cash transactions:
Cash paid $ 1,163,457
Debt issued 3,450,000
----------
Property and equipment acquired $ 4,613,457
==========
Sale of two hotels through partial cash transactions:
Book value of properties sold $ 6,297,614
Debt retired (5,541,619)
----------
755,995
Gains on property sales 586,864
----------
Proceeds from property sales $ 1,342,859
==========
Refinanced debt relating to hotel property:
New debt issued $ 4,600,000
Old debt retired (4,000,000)
----------
600,000
New debt issuance costs (223,231)
----------
Proceeds from property refinancing $ 376,769
===========
See accompanying notes to consolidated financial statements.
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 1997 and 1996
(1) THE COMPANY
-----------
Buckhead America Corporation (the Company) was created in December
1992 and effectively commenced operations on January 1, 1993. The
Company operates in the hospitality industry and its principal
holdings include hotels, loans and other investments secured by
hotels, hotel management contracts, hotel franchising rights, and
other related assets. Its principal product is the Country Hearth Inn
midpriced hotel franchise system which the Company acquired in May
1994.
The primary activities of the Company involve hotel management, hotel
franchising, and hotel development/ownership. Expansion of the Country
Hearth franchise system is being effected through direct acquisition
and conversion of existing hotels and through franchise sales.
The Company also owns and manages other hotel properties not included
in the Country Hearth system. Hotel management operations are
conducted through the Company's wholly owned subsidiary, The Lodge
Keeper Group, Inc.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
(a) PRINCIPLES OF CONSOLIDATION
---------------------------
The accompanying financial statements include the accounts of the
Company and its consolidated wholly owned subsidiaries. They also
include, on a consolidated basis, the accounts of a 55%-owned
partnership which owns a hotel subject to a nonrecourse mortgage. The
accounts of the partnership are consolidated on a gross basis with the
minority partners' interest reflected separately on a net basis.
(b) CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include demand and savings deposits with
financial institutions, cash on hand, and funds held by trustees for
the benefit of the Company or its creditors. The Company considers all
highly liquid instruments with maturities of less than three months to
be cash equivalents.
(c) NOTES RECEIVABLE
----------------
Notes receivable are recorded at cost, less the related allowance for
impaired notes receivable. The Company, considering current
information and events regarding the borrowers' ability to repay their
obligations, values its notes receivable, for which it is probable
that the Company will be unable to collect the full amount due in
accordance with the note agreement, at the present value of the
expected future cash flows, market price of the loan, if available, or
the value of the underlying collateral, if any. The Company does not
accrue interest for notes receivable considered to be impaired. Cash
receipts on impaired notes receivable is either applied against
principal or may be reported as interest income depending on
management's judgment as to the collectibility of principal.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(d) PROPERTY AND EQUIPMENT
----------------------
Property and equipment is stated at cost, including interest and
taxes incurred during construction, less accumulated depreciation.
Properties acquired by foreclosure are recorded at the lower of cost
or fair value at the time of foreclosure.
Depreciation on property and equipment is calculated on the
straight-line method over the estimated useful lives of the assets.
Property and equipment held under capital leases and leasehold
improvements are amortized over the shorter of the lease term or
estimated useful life of the asset.
Property and equipment is reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability is measured by a
comparison of the carrying amount of the asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets.
(e) DEFERRED COSTS
--------------
Deferred costs primarily consist of costs associated with the
acquisition of trademark rights and franchise licenses and are
amortized over the estimated useful lives of the assets, which range
from 10 - 20 years. Deferred costs also include unamortized debt
issue costs which are amortized on the interest method over the term
of the related debt.
(f) INVESTMENT SECURITIES
---------------------
The Company classifies its debt and marketable equity securities in
one of three categories: trading, available for sale, or held to
maturity. The Company has classified all of its investments as
either "trading" or "available for sale." Available for sale
securities are recorded at fair value with unrealized gains and
losses, net of the related tax effect, reported as a separate
component of shareholders' equity until realized. Trading securities
are also recorded at fair value. Unrealized holding gains and losses
on trading securities are included in investment income in the
consolidated statements of income.
(g) LEASEHOLD INTERESTS
-------------------
Leasehold interests are stated at cost, less accumulated
amortization. Amortization is calculated on the straight-line method
over the expected life of the lease.
(h) OTHER ASSETS
------------
Other assets primarily consist of deposits and investments in
partnerships or corporate joint ventures other than those which are
consolidated due to control. Investees in which the Company has the
ability to exercise significant influence are accounted for using
the equity method.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(i) INCOME TAXES
------------
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date.
A valuation allowance is recognized when it appears it is more likely
than not that some or all of deferred tax assets will not be
realized.
(j) TREASURY STOCK
--------------
Treasury stock is stated at cost. In noncash exchanges, fair value
represents cost.
(k) REVENUE RECOGNITION
-------------------
Hotel revenue is recognized as earned, which is generally defined as
the date upon which a guest occupies a room and utilizes the hotel's
services.
Initial hotel franchise fees are recognized as income upon receipt as
the Company has no future obligations associated with the initial
fees. The Company also receives continuing royalty, marketing, and
other fees based upon a percentage of each hotel's gross revenues.
These continuing fees are recognized when earned.
Investment income is recognized as earned.
(l) MARKETING COSTS
---------------
The Company incurs costs for various marketing and advertising
efforts. All costs related to marketing and advertising are expensed
in the period incurred. Marketing costs amounted to $368,289 and
$397,555 for the years ended December 31, 1997 and 1996,
respectively, and are included in franchise operations expense in the
accompanying consolidated statements of income.
(m) FAIR VALUE OF FINANCIAL INSTRUMENTS
-----------------------------------
Management believes that the carrying amounts of cash and cash
equivalents, accounts receivable, other current assets, accounts
payable and accrued expenses, current portions of notes receivable
and payable are reasonable approximations of their fair value because
of the short-term nature of these instruments.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The fair value of noncurrent portions of notes receivable is
determined as the present value of expected future cash flows
discounted at the interest rate currently offered by the Company,
which approximates rates currently offered by local lending
institutions for loans of similar terms to companies with comparable
credit risk. Based on this valuation methodology, management believes
that the carrying amount of the noncurrent portions of notes
receivable is a reasonable approximation of its fair value.
The fair values of investment securities (both trading and
available-for-sale) are based on quoted market prices at the
reporting date for those or similar investments. The fair values of
the Company's investment securities are disclosed in note 4.
The fair value of the Company's noncurrent portions of notes payable
is estimated by discounting the future cash flows of each instrument
at rates currently offered to the Company for similar debt
instruments of comparable maturities by the Company's bankers. Based
on this valuation methodology, management believes that the carrying
amount of the noncurrent portions of notes payable is a reasonable
estimation of its fair value.
(n) RECLASSIFICATIONS
-----------------
Certain reclassifications have been made to the 1996 balances to
conform with classifications adopted in 1997.
(o) USE OF ESTIMATES
----------------
Management of the Company has made a number of estimates and
assumptions relating to the reporting of assets and liabilities and
the disclosure of contingent assets and liabilities as of the balance
sheet date and revenues and expenses during the reporting period to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from
those estimates.
(p) STOCK OPTIONS
-------------
Prior to January 1, 1996, the Company accounted for its stock option
plan in accordance with the provisions of Accounting Principles Board
("APB") Opinion No. 25, Accounting for Stock Issued to Employees, and
related interpretations. As such, compensation expense would be
recorded on the date of grant only if the current market price of the
underlying stock exceeded the exercise price. On January 1, 1996, the
Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation, which encourages
entities to recognize as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively,
SFAS No. 123 allows entities to continue to apply the provisions of
APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants as if
the fair-value-based method defined in SFAS No. 123 had been applied.
The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma provisions of SFAS No. 123.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(q) EARNINGS PER SHARE
------------------
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, Earnings Per Share. SFAS No. 128 supersedes APB
Opinion No. 15, Earnings Per Share, and specifies the computation,
presentation, and disclosure requirements for earnings per share
("EPS"). SFAS No. 128 replaces the presentation of primary EPS and
fully diluted EPS with a presentation of basic EPS and diluted EPS,
respectively. SFAS No. 128 also requires dual presentation of basic
and diluted EPS on the face of the income statement for all entities
with complex capital structures. All prior period EPS data has been
restated to conform with SFAS No. 128.
(r) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED
--------------------------------------------------------------------
OF
--
The Company adopted the provisions of SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed Of, on January 1, 1996. This statement requires that
long-lived assets and certain identifiable intangibles be reviewed
for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceed the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell. Adoption of this statement did not have a material impact on
the Company's financial position, results of operations, or
liquidity.
(s) RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and
displaying comprehensive income and its components in a full set of
general purpose financial statements. SFAS No. 130 requires all items
that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial
statement that is displayed in equal prominence with the other
financial statements. The term "comprehensive income" is used in the
statement to describe the total of all components of comprehensive
income including net income. "Other comprehensive income" refers to
revenues, expenses, gains, and losses that are included in
comprehensive income but excluded from earnings under current
accounting standards. SFAS No. 130 is effective for financial
statements for years beginning after December 15, 1997. The Company
will adopt SFAS No. 130 effective January 1, 1998.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(3) CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents at December 31, 1997 and 1996 included the
following:
1997 1996
---- ----
Unrestricted cash:
Demand deposits, money market funds,
and overnight investments $ 2,264,632 $1,244,396
Hotel demand deposits, savings accounts,
and cash on hand 606,745 218,392
--------- ---------
2,871,377 1,462,788
--------- ---------
Restricted cash:
Unsettled claim reserves (a) 27,282 18,308
Mortgage-related escrows (b) 330,625 320,574
Insurance deposits (c) 52,490 -
--------- ---------
410,397 338,882
--------- ---------
$ 3,281,774 $1,801,670
========= =========
(a) The Company acts as a trustee and administers certain aspects
of claims asserted in the bankruptcy of the entity formerly
known as Days Inns of America, Inc. (the Days Bankruptcy). The
residual amounts, if any, in certain of the related reserve
accounts inure to the benefit of the Company (note 11).
Accordingly, these accounts, along with the related
liabilities, are reflected in the accompanying consolidated
balance sheets. Such liabilities, which equal the restricted
cash balances, are included in accounts payable and accrued
expenses.
(b) Mortgage-related escrows are standard reserve accounts held by
or on behalf of the holders of mortgages on certain Company
properties (note 8). Such amounts are restricted to the payment
of insurance, property taxes, and/or property and equipment
replacements and enhancements relating to the mortgaged
properties.
(c) The Company is self-insured for workers' compensation
liabilities relating to certain employees in certain locations.
Some states require deposits be made by self-insuring
companies. Such deposits are restricted to the payment of
workers' compensation claims which are otherwise not settled.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(4) INVESTMENT SECURITIES
---------------------
The amortized cost, gross unrealized holding gains, gross unrealized
holding losses, and fair value for trading and available-for-sale
securities by investment type and class of investment at December 31,
1997 and 1996, were as follows:
1997
___________________________________________
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
--------- ---------- ---------- -------
Trading securities:
U.S. government and
agency obligations $ 2,962,739 - - $2,962,739
Equity securities 10,763 216,779 (2,166) 225,376
---------- ------- ------- ---------
Total $ 2,973,502 216,779 (2,166) $3,188,115
========= ======= ====== =========
1996
_____________________________________________
Gross Gross
unrealized unrealized
Amortized holding holding Fair
cost gains losses value
_________ __________ __________ ______
Trading securities:
U.S. government and
agency obligations $ 1,184,742 - - $1,184,742
Equity securities 10,763 268,703 (2,335) 277,131
---------- ------- ------- ---------
1,195,505 268,703 (2,335) 1,461,873
Available-for-sale securities:
IRBs ($1,565,000 par
value) 1,109,872 455,128 - 1,565,000
--------- ------- ------ ---------
Total $2,305,377 723,831 (2,335) $3,026,873
========= ======= ====== =========
At December 31, 1997 and 1996, all investments are classified as
short-term.
The IRBs were secured by a Days Inn hotel located in Birmingham, Alabama
and were called at par on February 1, 1997. Investment income in 1997
includes a realized gain of $455,128 resulting from the call of the IRBs.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Equity securities are primarily concentrated in hospitality related
companies.
Proceeds from the sale of trading securities were $2,600,000 and
$3,887,000 in 1997 and 1996, respectively. Net realized gains calculated
on a specific identification basis and included in investment income in
1997 was $146,527 and in 1996 was $24,748.
The Company owned the equity certificates representing the residual
interest in the Days Inns Mortgage Trust ("DIMT"), a special-purpose CMO
Trust. The Company initially recorded the investment at zero which was
the estimated net realizable value of the certificates. During 1996, the
Company sold an option to purchase the equity certificates to a DIMT
bondholder. As a result of the sale of the option, the Company
reclassified its investment in DIMT from available for sale to trading,
and the option price of $275,000 is included in 1996 investment income.
In February 1997, the option was exercised and the Company sold the DIMT
equity certificates for $100,000. Such amount is included in unrealized
holding gains on trading securities at December 31, 1996.
(5) NOTES RECEIVABLE
----------------
Notes receivable at December 31, 1997 consist of the following:
Other
Secured notes Total
------- ----- -----
Principal balances $ 232,048 920,653 $ 1,152,701
Less allowances 40,856 17,018 57,874
--------- ---------- ----------
191,192 903,635 1,094,827
Less current portions 191,192 179,328 370,520
------- ------- ----------
Noncurrent portions $ - 724,307 $ 724,307
========= ======= ==========
Number of notes 4 9 13
= = ==
Notes receivable at December 31, 1996 consist of the following:
Other
Secured notes Total
------- ----- -----
Principal balances $ 1,849,254 525,062 $ 2,374,316
Less allowances 1,341,810 100,000 1,441,810
--------- ------- ---------
507,444 425,062 932,506
Less current portions 359,481 107,507 466,988
--------- ------- ---------
Noncurrent portions $ 147,963 317,555 $ 465,518
========= ======= =========
Number of notes 6 2 8
= = =
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The secured notes are primarily collateralized by mortgages on hotel
properties.
The recorded investment in notes receivable for which an impairment has
been recognized as of December 31, 1997 and 1996 was approximately
$17,018 and $1,290,954, respectively, and the Company has fully reserved
for these notes. Cash received in payment of impaired loans during 1997
and 1996 amounted to $806,199 and $831,468, respectively, and is included
in other income in the accompanying consolidated statements of income.
The activity in the allowance for doubtful notes receivable for the years
ended December 31, 1997 and 1996 was:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Allowance for doubtful notes at beginning of year $ 1,441,810 $2,380,450
Allowance allocated to impaired notes acquired in
business combination 41,196 -
Write-downs charged against the allowance (618,933) (107,172)
Collections on impaired notes (806,199) (831,468)
--------- ----------
Allowance for doubtful notes at end of year $ 57,874 $1,441,810
======== =========
</TABLE>
(6) PROPERTY AND EQUIPMENT
----------------------
Property and equipment at December 31, 1997 and 1996 consist of the
following:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Hotel properties:
Country Hearth Inn in Atlanta, Georgia:
Land and building $ 3,910,363 $ 3,729,808
Furniture, fixtures, and equipment 61,240 92,623
----------- ----------
3,971,603 3,822,431
Accumulated depreciation (137,550) (18,500)
----------- ----------
3,834,053 3,803,931
----------- -----------
Country Hearth Inn in Dalton, Georgia:
Land and building 1,952,639 1,821,040
Furniture, fixtures, and equipment 300,660 100,000
----------- -----------
2,253,299 1,921,040
Accumulated depreciation (72,686) -
----------- ----------
2,180,613 1,921,040
----------- ----------
Country Hearth Inn in Orlando, Florida:
Land and building 6,932,578 6,909,268
Furniture, fixtures, and equipment 933,259 546,419
----------- -----------
7,865,837 7,455,687
Accumulated depreciation (1,319,416) (1,080,268)
----------- -----------
6,546,421 6,375,419
----------- -----------
</TABLE>
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
<TABLE>
<S> <C> <C>
Three Country Hearth Inns in southeastern
Texas:
Land and buildings $ 3,033,000 $ 3,033,000
Furniture, fixtures, and equipment 537,995 522,793
----------- ----------
3,570,995 3,555,793
Accumulated depreciation (318,500) (162,500)
----------- ----------
3,252,495 3,393,293
----------- ----------
Eight Country Hearth Inns in Kentucky
and Missouri:
Land and buildings 9,744,326 -
Furniture, fixtures, and equipment 1,363,557 -
11,107,883 -
Accumulated depreciation (129,000) -
10,978,883 -
Days Inn in Daytona, Florida:
Land and building 3,029,895 3,025,591
Furniture, fixtures, and equipment 338,363 326,729
Capital lease assets 49,110 _-
---------- ----------
3,417,368 3,352,320
Accumulated depreciation and amortization (455,052) (359,391)
---------- ----------
2,962,316 2,992,929
Extended-stay facility in St. Louis, Missouri:
Land and building 3,382,966 -
Furniture, fixtures, and equipment 111,785 -
3,494,751 -
Accumulated depreciation (53,457) -
3,441,294 -
Seventeen leased hotel properties in the Midwest:
Leasehold improvements 383,837 -
Furniture, fixtures, and equipment 257,202 -
Capital lease assets 156,268 -
---------- ----------
797,307 -
Accumulated depreciation and amortization (95,892) -
701,415 -
Corporate offices:
Leasehold improvements 60,985 -
Furniture, fixtures, and equipment 145,539 73,785
206,524 73,785
Accumulated depreciation (79,239) (45,000)
---------- ----------
127,285 28,785
---------- ----------
Land held for sale 250,889 215,500
---------- ----------
Total property and equipment $ 34,275,664 $ 18,730,897
========== ==========
</TABLE>
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In March 1996, the Company acquired an 82-room hotel in Atlanta,
Georgia formerly known as the Sandy Springs Inn. The $3,060,000
purchase price was partially funded by a seller-provided $2,330,000
first mortgage loan (note 8). The remainder was paid in cash. During
the latter half of 1996, the Company spent approximately $700,000 for
renovations and refurbishments and converted the hotel to a Country
Hearth Inn. The operations of the hotel are included in the 1996
consolidated income statement from the date of acquisition.
In August 1996, the Company acquired a 96-room hotel in Dalton,
Georgia formerly known as the Sunset Inn. The $1,400,000 purchase
price was partially funded by a $1,050,000 first mortgage loan from a
local bank and a seller-provided $70,000 purchase money note (note 8).
The remainder was paid in cash. The Company completed renovations and
refurbishments in February 1997 and converted the hotel to a Country
Hearth Inn. Expenditures for such amounted to approximately $850,000.
The operations of the hotel are included in the 1996 consolidated
income statement from the date of acquisition. A $262,500 second
mortgage was added in 1997 (note 8).
In May 1995, the Company acquired majority ownership in a 150-room
hotel in Orlando, Florida formerly known as the Heritage Inn.
Immediately upon acquisition, the hotel was converted to operate as a
Country Hearth Inn. The hotel secures a first mortgage loan (note 8).
In December 1995, the Company purchased three Homeplace Inn hotel
properties in southeastern Texas from affiliates of American Liberty
Hospitality, Inc. (ALH). The three hotels secure a first mortgage loan
(note 8). Immediately upon acquisition, the acquired hotels along with
three other ALH owned Homeplace Inn properties were converted to
operate as Country Hearth Inns under license agreements with the
Company. ALH continues to manage the hotels under agreements which
provide for management fees equal to 4% of gross revenues.
The 180-room hotel in Daytona, Florida was acquired through
foreclosure in 1993. The Company's foreclosure was completed subject
to a first mortgage note payable (note 8).
In May 1997, the Company acquired 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 (note 8). Lodge Keeper operated 18
hotels under long-term leases, held management contracts on six
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.
In September 1997, the Company acquired Hatfield Inns, LLC
("Hatfield"). 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 (note 10), and the assumption
or placement of approximately $6.5 million of debt (note 8). Hatfield
owned eight 40-unit hotel properties located in Kentucky and Missouri.
The Company has converted 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 acquisition date.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
All of the above described business and hotel acquisitions were
accounted for using the purchase method. The following table presents,
on an unaudited pro forma basis, the Company's 1997 and 1996
consolidated revenues, net income, and net income per share that would
have been reported if all of these transactions had occurred at the
beginning of the periods presented. The unaudited pro forma results
are not necessarily indicative of the results which will occur in the
future.
For the year ended
December 31,
------------------
1997 1996
---- ----
Revenues $ 23,312,916 $27,818,502
Net income 3,501,861 2,368,268
Basic net income per share 1.73 1.17
Diluted net income per share 1.48 1.07
In 1997, the Company recognized a gain of $289,300 as a result of the
taking of a parcel of land by the Commonwealth of Virginia under
eminent domain statutes. Compensation proceeds of $348,000 are
included in accounts receivable in the accompanying consolidated
balance sheet at December 31, 1997.
A 150-room hotel in Miami, Florida was sold in December 1996 resulting
in a gain of $445,761.
In 1996, the Company acquired and sold a hotel in Lake Park, Georgia
resulting in gain of $141,103.
(7) DEFERRED COSTS, LEASEHOLD INTERESTS, AND OTHER ASSETS
-----------------------------------------------------
Deferred costs at December 31, 1997 and 1996 consist of the following:
1997 1996
---- ----
Country Hearth Inn franchise system:
Trademark rights $ 584,300 $ 584,300
Franchise licenses 939,778 931,117
Other deferred costs 162,338 142,243
--------- ----------
1,686,416 1,657,660
Accumulated amortization (350,334) (230,333)
--------- ----------
1,336,082 1,427,327
Unamortized debt issue costs 597,071 223,231
--------- ----------
$1,933,153 $1,650,558
========= ==========
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Leasehold interests represent the cost of leasehold rights in real
property acquired by the Company and consist of the following at December
31, 1997 and 1996:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Leasehold interests $ 2,927,409 $ -
Accumulated amortization (87,922) -
------------ ---
$ 2,839,487 -
Other assets at December 31, 1997 and 1996 consist of the following:
1997 1996
---- ----
Contract deposits $ 68,677 $ 35,000
Investments in joint ventures 1,135,269 291,727
Other 23,841 -
--------- -------
$ 1,227,787 $ 326,727
========= =======
(8) NOTES PAYABLE
-------------
Notes payable at December 31, 1997 and 1996 consist of the following:
1997 1996
---- ----
First mortgage note payable (Daytona) $ 2,088,599 $ 2,108,868
First mortgage note payable (Texas) 2,305,258 2,355,362
First mortgage note payable (Orlando) 4,518,726 4,593,580
First mortgage note payable (Atlanta) 2,131,037 2,170,713
First mortgage note payable (Dalton) 1,027,845 1,046,148
Second mortgage note payable (Dalton) 262,079 -
First mortgage notes payable (Kentucky) 2,387,964 -
First and second mortgage notes payable
(Kentucky/ Missouri) 4,461,975 -
First mortgage note payable (St. Louis) 1,786,268 -
Unsecured subordinated debt 2,232,258 -
Convertible debentures, net of unamortized
discount 4,900,555 -
Construction loan (Kentucky) 23,391 -
Capital lease obligations (note 9) 142,083 -
Other notes payable 314,070 144,288
---------- ----------
28,582,108 12,418,959
Less current portions 933,183 337,567
---------- ----------
Noncurrent portions of notes payable $ 27,648,925 $12,081,392
========== ==========
</TABLE>
The Daytona first mortgage note payable is secured by the Daytona
hotel property. The note bears interest at 8% and requires monthly
payments of $15,850 until April 1999 at which time the then remaining
balance is due and payable.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Texas first mortgage note payable is secured by the Texas hotel
properties. The note bears interest at 9.056% and requires monthly
payments of $21,680 until December 2002 at which time the then remaining
balance is due and payable.
The Orlando first mortgage note payable is secured by the Orlando hotel
property. The note bears interest at 9.55% and requires monthly payments
of $43,028 until December 2016.
The Atlanta first mortgage note payable is secured by the Atlanta hotel
property. The note bears interest at 9.5% and requires monthly payments
of $20,350 until August 2016.
The Dalton first and second mortgage notes payable are secured by the
Dalton hotel property. The first mortgage note payable bears interest at
9.15% and requires monthly payments of $9,549 until September 2001 at
which time the then remaining balance is due and payable. The second
mortgage note payable bears interest at 8.74% and requires monthly
payments of $2,313 until September 2001 at which time the then remaining
balance is due and payable.
The Kentucky first mortgage notes payable consist of three notes secured
by three hotels in Kentucky with an aggregate book value at December 31,
1997 of approximately $4.1 million. The notes are cross-collateralized,
bear interest at 9.18%, and require aggregate monthly payments of $21,826
until October 2007 at which time the then remaining balances are due and
payable.
The Kentucky/Missouri first and second mortgage notes payable consist of
six notes secured by five hotels in Kentucky (2) and Missouri (3) with an
aggregate book value at December 31, 1997 of approximately $6.7 million.
The notes bear interest at prime plus 1% (9.5% at December 31, 1997),
require aggregate monthly payments of $47,188, and mature at various
dates (1999-2015).
The St. Louis first mortgage note payable is secured by the St. Louis
extended-stay facility. The note bears interest at 8.5% and requires
monthly payments of $13,178 until February 2004 at which time the then
remaining balance is due and payable.
The unsecured subordinated debt consists of five notes assumed as part of
the Lodge Keeper acquisition. The notes are due in varying amounts of
monthly and quarterly payments and mature at various dates through
December 2002. The stated balances represent the present value of amounts
to be paid at a discount rate of 9%.
The convertible debentures, which were issued to investment funds managed
by a related party (note 14), consist of four notes aggregating
$5,000,000 net of unamortized original issue discount of $99,445. The
notes bear interest at 8%, are unsecured, require quarterly interest only
payments, and are due December 2002. Under the debenture agreements, the
holders also have certain rights of conversion (note 10).
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In connection with the construction of a Country Health Inn in
Nicholasville, Kentucky, the Company entered into a construction loan
secured by the hotel property under construction with a total commitment
of $1,000,000. Borrowings under the loan bear interest at prime plus 1%
(9.5% at December 31, 1997) with required monthly interest only payments
until maturity in October 2001.
The combined aggregate amount of maturities for all notes payable for
each of the next five years and thereafter is as follows:
Minimum
Year ending December 31, amount
------------------------ -------
1998 $ 933,183
1999 3,559,618
2000 2,662,949
2001 2,243,558
2002 8,031,311
Thereafter 11,151,489
----------
$28,582,108
(9) LEASES
------
The Company leases certain equipment under agreements that are
classified as capital leases. The leases have terms ranging from three
to seven years and have purchase options at the end of the original
lease terms.
Capital lease assets included in property and equipment at December
31, 1997 and 1996, are as follows:
1997 1996
---- ----
Equipment $ 205,378 $ -
Accumulated amortization (20,836) -
--------- ---
$ 184,542 -
======= $ ===
The Company operates several of its locations in leased facilities.
Lease terms range from 10 to 30 years with options to renew at varying
terms. Certain of the leases provide for contingent payments based
upon a percent of sales. Some leased vehicles and equipment are
classified as operating leases.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Future minimum payments, by year and in the aggregate, under
noncancelable capital leases and operating leases with initial or
remaining terms of one year or more consist of the following at
December 31, 1997:
Year ending Capital Operating
December 31, leases lease
____________ _______ _________
1998 $ 107,257 $ 1,635,971
1999 24,785 1,514,449
2000 19,818 1,461,854
2001 14,449 1,381,353
2002 9,631 1,337,637
Subsequent years - 7,137,361
------- ----------
Total minimum lease payments 175,940 14,468,625
==========
Less estimated executory costs 8,826
-------
Net minimum lease payments 167,114
Amounts representing interest (25,031)
--------
Present value of net minimum payments 142,083
Current portions (89,551)
--------
Long-term capitalized lease obligation $ 52,532
==========
The Company remains contingently liable for future minimum rental
payments of $581,174 on subleased and assigned properties and
equipment in the event of default by the sublessees and assignees.
Rental expense, including contingent rentals of $109,489 and net of
sublease rentals of $84,741, for all operating leases was $1,356,003
in 1997. Rental expense for all operating leases in 1996 was
immaterial.
Leases described in the preceding paragraphs include leases between
the Company and operating companies whose shareholders are common
stockholders of the Company. Such amounts totaled $33,745 in 1997.
Total future minimum payments under these related party leases amount
to $264,163.
(10) CAPITAL STRUCTURE AND NET INCOME PER SHARE
------------------------------------------
Series A Preferred Stock
------------------------
In connection with the Hatfield acquisition (note 6), the Company
issued 30,000 shares of Series A (par value $100) preferred stock. The
Series A preferred stock is nonvoting and accrues cumulative dividends
at the rate of 10%, payable when and to the extent declared by the
Company's Board of Directors. 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 Company's common stock. As of December 31,
1997, there were no cumulative preferred dividends in arrears.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In the event of any voluntary or involuntary liquidation, dissolution,
or winding-up of the Company, the holders of the Series A preferred
stock shall be entitled to receive, prior and in preference to any
distribution to the holders of the Company's common stock, an amount
equal to the par value of the preferred shares held plus any unpaid
cumulative dividends.
At any time after September 17, 2004, each holder of Series A
preferred stock may convert any or all such stock, at par, into common
shares of the Company. The conversion price for such common shares
shall be the market price of such shares immediately prior to
conversion.
At any time after September 17, 2004, the Company may convert all of
the Series A preferred stock, at 110% of par, into common shares of
the Company. The conversion price for such common shares shall be the
market price of such shares immediately prior to conversion. If the
Company converts the Series A preferred stock into common shares of
the Company, the holders of such converted shares have certain rights
for a limited time period to put the shares back to the Company for
cash.
Convertible Debentures
----------------------
The convertible debentures (note 8) are convertible into common shares
of the Company any time at the option of the holder at a price of $9
per share. If all such debentures were converted, an additional
555,555 shares of common stock would be issued.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Net Income Per Share
--------------------
The following table sets forth the computations of basic and diluted net
income per common share for the years ended December 31, 1997 and 1996:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Numerator:
Net income $ 3,173,612 $1,816,844
Less Series A preferred stock dividends (92,333) -
---------- --------
Numerator for basic net income per common
share 3,081,279 1,816,844
Add back Series A preferred stock dividends
(assumed converted) 92,333 -
Numerator for diluted net income per common
share $ 3,173,612 $1,816,844
========= =========
Denominator:
Denominator for basic net income per common share:
Actual weighted-average shares outstanding 1,844,098 1,767,720
Effect of dilutive securities:
Series A preferred stock 122,178 -
Outstanding stock options 63,470 46,790
--------- ---------
Denominator for diluted net income per
common share 2,029,746 1,814,510
========= =========
Net income per common share:
Basic $ 1.67 $ 1.03
==== ====
Diluted $ 1.56 $ 1.00
==== ====
</TABLE>
The assumed conversion of the convertible debentures was excluded from
the computation of diluted net income per common share because the effect
would be antidilutive.
(11) OTHER INCOME
------------
Other income includes $806,199 in 1997 and $831,468 in 1996 relating to
collections on impaired loans (note 5). Other income in 1997 includes
hotel management fees of $254,954. Other income in 1997 and 1996 also
includes $330,540 and $721,117, respectively, from favorable settlements
of Days Bankruptcy claims and changes in estimates of allowed amounts of
remaining unsettled claims (note 3).
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(12) INCOME TAXES
------------
Total income tax expense (benefit), principally Federal, recognized
differs from the amount computed by applying the U.S. Federal income tax
rate of 34% to pretax income as a result of the following:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Computed "expected" tax expense $ 83,000 $ 618,000
Increase (reduction) in income taxes resulting from:
State taxes, net of Federal tax benefit 7,000 39,000
Income not subject to taxation - (282,000)
Change in valuation allowance for deferred
tax assets (3,020,000) (375,000)
--------- --------
$(2,930,000) $ -
========= ========
</TABLE>
At December 31, 1997, the Company has net operating loss carryforwards
for Federal income tax purposes of approximately $10.1 million which is
available to offset future taxable income, if any, through 2012.
The tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities as of December 31, 1997
and 1996 are presented below:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred tax assets:
Notes receivable allowances $ 10,000 $ 500,000
Net operating loss carryforwards 3,450,000 14,550,000
Effect of state income taxes 400,000 400,000
---------- -----------
Total deferred tax assets 3,860,000 15,450,000
Less valuation allowance - 3,950,000
---------- -----------
Net deferred tax assets 3,860,000 11,500,000
Deferred tax liabilities:
Partnership losses - (11,500,000)
Property and equipment basis differences (930,000) -
---------- -----------
Net deferred tax assets $ 2,930,000 $ -
========== ===========
</TABLE>
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The valuation allowance for deferred tax assets as of December 31, 1997 and
1996 was $- 0- and $3,950,000, respectively. The net change in the total
valuation allowance for the year ended December 31, 1997 was a decrease of
$3,950,000 and for year ended December 31, 1996 was a decrease of $375,000.
Approximately $930,000 of the 1997 decrease was attributable to the
Hatfield acquisition (note 6) - (see below).
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income by the
Company during the periods in which those temporary differences become
deductible. Management considers the projected future taxable income and
tax planning strategies in determining the valuation allowance.
During 1997, the Company sold two wholly owned subsidiaries which held the
investment in DIMT (note 4). DIMT was treated as a partnership for income
tax purposes and had produced significant tax purpose net operating losses
(NOLs) totaling approximately $34 million through December 31, 1996. These
NOLs had no impact on the Company's book provision for regular taxes
because the ultimate dissolution of the partnership would result in
immediate gain recognition for a comparable amount. Because of NOL
limitations, the Company was exposed, however, to significant potential
future alternative minimum tax liability. All of these tax attributes
accompanied the DIMT interest with its sale, and the Company's tax position
is no longer impacted by DIMT.
Also during 1997, the Internal Revenue Service commenced and completed an
examination of the Company's 1994 federal income tax return. No changes to
the Company's return, as filed, were made or proposed.
The Hatfield acquisition (note 6) was structured as a tax-free merger;
thus, the Company's tax basis in the assets acquired were not stepped-up to
fair market value. The resulting deferred tax liability was offset,
however, by a reduction in the Company's deferred tax asset valuation
allowance of $930,000.
The Lodge Keeper acquisition was similarly structured; thus, there were
deferred tax liabilities relating to differences in book and tax bases of
the assets acquired. Lodge Keeper, however, had NOLs available to offset
such built-in gains; thus, no net deferred tax impact from the Lodge Keeper
acquisition was recognized by the Company.
In evaluating the impact of the above events in conjunction with recent
trends in the Company's operations, specifically franchising activities and
hotel development, management had determined that it is more likely than
not that the results of future operations will generate sufficient taxable
income to realize the deferred tax assets. Such determination was made in
the fourth quarter of 1997, resulting in the recognition of a $2,930,000
deferred income tax benefit. Although no assurances can be made,
realization of the Company's deferred tax assets should occur if the
Company generates approximately $10 million of taxable income over the next
15 years.
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(13) STOCK OPTION PLAN
-----------------
The Company's 1995 Stock Option Plan (the 1995 Plan) authorized the
issuance of options for up to 170,000 shares of the Company's common
stock. The Company's 1997 Stock Option Plan (the 1997 Plan) authorized
the issuance of options for up to 80,000 shares of the Company's common
stock. Granted options vest one-third immediately, one-third on the first
anniversary of the grant date, and one-third on the second anniversary of
the grant date. The exercise price for all options represents the fair
value of the common stock at the grant date. All 1995 Plan options
terminate five years after vesting, or earlier under certain conditions.
All 1997 Plan options terminate ten years after vesting, or earlier under
certain conditions.
The granted stock option activity is as follows:
Number Weighted-average
of shares exercise price
--------- ----------------
Balance at December 31, 1995 110,000 $ 3.44
Granted in 1996 56,000 5.69
Exercised in 1996 (10,000) 3.44
------- ----
Balance December 31, 1996 156,000 4.25
Granted in 1997 77,000 6.88
Exercised in 1997 (25,333) 3.85
Forfeited in 1997 (1,667) 5.38
--------- ----
Balance December 31, 1997 206,000 $ 5.27
======= ====
The following table summarizes information concerning stock options
outstanding as of December 31, 1997:
<TABLE>
<CAPTION>
Outstanding Exercisable
_____________________________________ __________________________________
<S> <C> <C> <C> <C> <C>
Weighted- Weighted- Weighted-
Range of average average average
exercise remaining exercise exercise
prices Shares life price Shares price
________ ______ __________ _________ ______ _________
$ 3.44 80,000 3.3 years $ 3.44 80,000 $ 3.44
$5.38 - 6.25 49,000 4.5 years 5.74 32,667 5.74
$ 6.88 77,000 10.5 years 6.88 25,667 6.88
------- ---- -------
206,000 $ 5.27 138,334
======= ==== =======
</TABLE>
(Continued)
<PAGE>
BUCKHEAD AMERICA CORPORATION
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
No compensation expense has been recognized for the Company's stock
option plans. Had compensation cost for the Company's stock option plans
been determined based upon the fair value methodology prescribed under
SFAS No. 123, the Company's net income would have been reduced by
approximately $73,000 or approximately $0.04 per common share (basic and
diluted) in 1997 and reduced by approximately $44,000, or approximately
$0.02 per common share (basic and dilutive) in 1996. The effects of
either recognizing or disclosing compensation cost under SFAS No. 123 may
not be representative of the effects on reported net income for future
years. The fair value of the options granted during 1997 is estimated as
$2.16 on the date of grant using the Black-Sholes option-pricing model
with the following assumptions: dividend yield 0%, volatility of 20%,
risk-free interest rate of 6.0%, and an expected life of 5 years. The
weighted-average fair value of options granted during 1996 is estimated
as $0.84 on the date of grant using the Black-Sholes option-pricing model
with the following assumptions: dividend yield 0%, volatility 15%,
risk-free interest rate of 6.0%, and an expected life of 2 years.
(14) RELATED PARTY TRANSACTIONS
--------------------------
Following the Days Bankruptcy, a trust was created (the Creditors' Trust)
to pursue certain claims for the benefit of unsecured creditors. The
Company acts as trustee for the Creditors' Trust. The Company was
reimbursed $100,000 in 1997 and 1996 for expenses incurred related to the
Creditors' Trust. Other operating and administrative expenses in the
accompanying 1997 and 1996 consolidated statements of income are
presented net of such amounts, respectively.
The Company performed accounting and tax services for DIMT. Other income
in 1997 and 1996 includes $60,000 and $31,025, respectively, for the
performance of such services.
Other notes receivable (note 5) at December 31, 1997 includes $230,221
due from an officer and shareholder of the Company. Such note was
originated in connection with the Lodge Keeper acquisition, bears
interest at 10%, and is due in monthly installments of $5,312 until June
2002.
The convertible debentures (notes 8 and 10) were issued to investment
funds managed by a subsidiary of Tower Investment Group, Inc. (Tower).
Tower owns or controls approximately 15% of the Company's outstanding
common stock. An executive officer of Tower is on the Company's Board of
Directors.
Item 8. Changes In and Disagreements with Accountants on Accounting and
Financial Disclosure.
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
YEAR JOINED
NAME AGE POSITION THE COMPANY
Robert M. Miller 46 Chairman of the Board of Directors 1992
Douglas C. Collins 45 Director 1992
President, Chief Executive
Officer and Treasurer
Robert B. Lee 43 Director 1992
Senior Vice President, Chief
Financial Officer and Secretary
William K. Stern 71 Director 1992
Steven A. Van Dyke 39 Director 1997
Ronald L. Devine 54 President - The Lodge Keeper Group 1997
Gregory C. Plank 52 President - BAC Franchising, Inc. 1996
ROBERT M. MILLER. Mr. Miller, the chairman of the board of directors of the
Company, was a partner in the law firm of Berlack, Israels & Liberman from 1984
to 1995. Mr. Miller's practice involved corporate restructuring and
reorganization, both in and out of bankruptcy. Mr. Miller has been involved in
numerous reorganizations (including R.H. Macy & Co., Inc., Zale Corporation,
Integrated Resources, Inc., Insilco Corporation and First City Industries). In
1995, Mr. Miller affiliated with the law firm of Rosenman & Colin. In November
1996, Mr. Miller founded Cakewalk LLC, which owns various independent music
labels.
DOUGLAS C. COLLINS. Mr. Collins became President and Chief Executive
Officer of the Company in December 1992. Prior to joining the Company, Mr.
Collins served as President of Days Inns from February 1992 through September
1992 and Director of Days Inns from September 1992 through November 1992. Mr.
Collins served as Senior Vice President and Chief Financial Officer of Days Inns
from August 1990 through February 1992, after serving as President of Imperial
Hotels Corporation, a hotel chain owner and operator, from April 1988 until May
1990. Mr. Collins joined Imperial Hotels
<PAGE>
Corporation in August 1980, serving as Vice President of Finance and Development
from June 1984 to April 1988.
ROBERT B. LEE. Mr. Lee became Secretary of the Company in December 1992 and
became Vice President and Chief Financial Officer in July 1993. Mr. Lee was
named Senior Vice President of Buckhead in May 1996. Prior to joining the
Company, Mr. Lee served as the Corporate Controller of Days Inns from October
1990 until December 1992. He functioned in numerous capacities up to senior
manager in the accounting and audit practice of KPMG Peat Marwick from December
1979 to October 1990.
WILLIAM K. STERN. Mr. Stern, a director of the Company, has over forty
years of experience in the hospitality industry. He served as Vice President of
Loews Hotels and as President of Loews Representation International, Inc.
("LRI"), a separate division of Loews Hotels. In 1987, Mr. Stern established
"The Grande Collection of Hotels," a deluxe division of LRI. Mr. Stern also
served as the Chief Executive Officer of the Grande Collection division. Mr.
Stern has been the owner of Stern Services International, a hotel consulting
company, since 1992.
STEVEN A. VAN DYKE. Mr. Van Dyke, a director of the Company, is the
President and Chief Executive Officer of Tower Investment Group, Inc. ("Tower")
and has served in that capacity for more than the last five years. Tower is an
investment advisor and manages multimillion dollar private equity and debt
funds.
RONALD L. DEVINE. Mr. Devine was the President and Chief Executive Officer
of The Lodge Keeper Group, Inc. ("Lodge Keeper") prior to its acquisition by the
Company and served in that capacity for more than the last five years. Mr.
Devine continues to serve as President of Lodge Keeper and is an executive
officer of the Company.
GREGORY C. PLANK. Mr. Plank became President of BAC Franchising, Inc., the
Company's Country Hearth Inn franchising subsidiary, in May 1996. From 1991 to
1996, Mr. Plank served as Executive Vice President of Forte Hotels, Inc.
overseeing Travelodge and Thriftlodge in North and South America. Mr. Plank
previously served as Vice President of Marketing for Ramada and has held Vice
President positions in development and operations for Sheraton Inns, Hawthorn
Suites, and independent developers.
The members of the Company's Board of Directors are elected annually to
serve one year terms. The holders of Common Stock will elect a new Board of
Directors at the next annual meeting, which is scheduled to occur on or about
Thursday, May 28, 1998.
<PAGE>
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
None.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on its review of copies of forms received by it pursuant to Section
16(a) of the Securities Exchange Act of 1934, as amended, or written
representations from certain reporting persons, the Company believes that during
1997 all Section 16(a) filing requirements applicable to its executive officers,
directors and greater than 10% beneficial owners were complied with.
14
533311.1
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid by the Company to the
named executive officers for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND SALARY BONUS UNDERLYING COMPENSA-
PRINCIPAL POSITION YEAR ($) ($) OPTIONS (#) TION ($)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Douglas C. Collins 1997 $235,000 94,005 16,000 (c) $1,500 (d)
Chief Executive Officer 1996 235,000 72,000 7,000 (c) 4,750 (d)
1995 210,000 82,500 30,000 (c) 4,620 (d)
Robert B. Lee 1997 105,000 31,502 9,000 (c) 1,449 (d)
Chief Financial Officer 1996 98,600 22,292 4,000 (c) 3,022 (d)
1995 88,800 17,760 10,000 (c) 2,664 (d)
Gregory C. Plank 1997 135,000 40,502 6,000 (c) -
President - Franchising 1996 (a) 81,000 24,111 15,000 (c) 35,312 (e)
Ronald L. Devine 1997 (b) 70,240 21,005 9,000 (c) -
President - Lodge Keeper
</TABLE>
(a) Mr. Plank's employment with the Company began on May 20, 1996.
(b) Mr. Devine's employment with the Company began on May 8, 1997.
(c) See "OPTION GRANTS TABLE."
(d) Employer's portion of 401(k) contribution.
(e) Relocation allowance.
<PAGE>
OPTION GRANTS TABLE
The following table sets forth the number of shares of Common Stock
underlying options granted to the named executive officers during the year ended
December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF
SHARES OF TOTAL
COMMON STOCK OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES PRICE EXPIRATION
NAME GRANTED (#) IN FISCAL 1997 ($/SHARE) DATE (G)
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Douglas C. Collins 5,333 9.7% $ 6.88 (f) June 26, 2007
5,333 9.7% $ 6.88 (f) June 26, 2008
5,334 9.7% $ 6.88 (f) June 26, 2009
Robert B. Lee 3,000 5.5% $ 6.88 (f) June 26, 2007
3,000 5.5% $ 6.88 (f) June 26, 2008
3,000 5.5% $ 6.88 (f) June 26, 2009
Gregory C. Plank 2,000 3.6% $ 6.88 (f) June 26, 2007
2,000 3.6% $ 6.88 (f) June 26, 2008
2,000 3.6% $ 6.88 (f) June 26, 2009
Ronald L. Devine 3,000 5.5% $ 6.88 (f) June 26, 2007
3,000 5.5% $ 6.88 (f) June 26, 2008
3,000 5.5% $ 6.88 (f) June 26, 2009
</TABLE>
(f) The exercise price was fixed as the market price at the date of grant.
(g) The options expire ten years after the date they become vested.
<PAGE>
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUE TABLE
The following table sets forth the number and fiscal year-end value of
unexercised options granted to the named executive officers as of December 31,
1997.
NUMBER OF
SHARES OF
COMMON STOCK VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
FY-END(#) FY-END($)
EXERCISABLE/ EXERCISABLE/
NAME UNEXERCISABLE UNEXERCISABLE
Douglas C. Collins 40,000 / 13,000 $120,000 / 6,685
Robert B. Lee 15,667 / 7,333 42,239 / 3,796
Gregory C. Plank 12,000 / 9,000 9,240 / 5,355
Ronald L. Devine 3,000 / 6,000 735 / 1,470
No options were exercised by the named executive officers during 1997.
COMPENSATION OF DIRECTORS
Mr. Miller, the chairman of the board of directors of the Company,
receives annual fees of $87,000 and $750 per attendance at board of directors
meetings.
Each of the Company's other outside directors, Mr. Stern and Mr. Van
Dyke, receive an annual fee of $12,000 and $750 per attendance at board of
directors meetings.
Stern Services International, a company owned by Mr. Stern, received
$4,000 in 1997 for consulting services performed for the Company.
<PAGE>
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE- IN-CONTROL
ARRANGEMENTS
DOUGLAS C. COLLINS. The Company has entered into an employment
contract with Mr. Collins for a term which expires in July 1999. If the contract
is terminated by the Company (1) prior to the end of its term, (2) other than
for cause, and (3) within twelve months following a change-in-control
(generally, acquisition of control of over 50% of the Common Stock or a change
in a majority of the board of directors), Mr. Collins shall be entitled to the
greater of (x) his annual base salary payable through the end of his employment
term and (y) one-half of his base salary for the rest of the year in which such
termination occurs. If such event occurred as of January 1, 1998, Mr. Collins
would be entitled to a payment of $375,000.
If Mr. Collins terminates his contract (1) between 90 and 120 days
following a change-in-control or (2) within 30 days following any demotion,
diminution of responsibility or pay or forced relocation occurring within twelve
months of a change-in-control, he shall be entitled to the lesser of (x) his
annual base salary through the end of his employment term, and (y) one-half of
his base salary for the year in which such termination occurs. If such event
occurred as of January 1, 1998, Mr.
Collins would be entitled to a payment of $125,000.
If Mr. Collins' employment is otherwise terminated without cause
before the expiration of his employment term, the Company must pay him an amount
equal to his annual base salary for the year in which such termination occurs.
If such event occurred as of January 1, 1998, Mr. Collins would be entitled to a
payment of $250,000.
ROBERT B. LEE. The Company has entered into an employment contract
with Mr. Lee for a term which expires in July 1999. If the contract is
terminated by the Company (1) prior to the end of its term, (2) other than for
cause, and (3) within twelve months following a change-in-control (generally,
acquisition of control of over 50% of the Common Stock or a change in a majority
of the board of directors), Mr. Lee shall be entitled to the greater of (x) his
annual base salary payable through the end of his employment term and (y)
one-half of his base salary for the rest of the year in which such termination
occurs. If such event occurred as of January 1, 1998, Mr. Lee would be entitled
to a payment of $173,250.
If Mr. Lee terminates his contract (1) between 90 and 120 days
following a change-in-control or (2) within 30 days following any demotion,
diminution of responsibility or pay or forced relocation occurring within twelve
months of a change-in-control, he shall be entitled to the lesser of (x) his
annual base salary through the end of his employment term, and (y) one-half of
his base salary for the year in which such termination occurs. If such event
occurred as of January 1, 1998, Mr. Lee would be entitled to a payment of
$57,750.
If Mr. Lee's employment is otherwise terminated without cause before
the expiration of his employment term, the Company must pay him an amount equal
to his annual base salary for the year in which such termination occurs. If such
event occurred as of January 1, 1998, Mr. Lee would be entitled to a payment of
$115,500.
GREGORY C. PLANK. The Company has entered into an employment contract
with Mr. Plank for a term which expires in April 1999. If the contract is
terminated by the Company (1) prior to the end
<PAGE>
of its term, (2) other than for cause, and (3) within twelve months following a
change-in-control (generally, acquisition of control of over 50% of the Common
Stock or a change in a majority of the board of directors), Mr. Plank shall be
entitled to the greater of (x) his annual base salary payable through the end of
his employment term and (y) one-half of his base salary for the rest of the year
in which such termination occurs. If such event occurred as of January 1, 1998,
Mr. Plank would be entitled to a payment of $200,000.
If Mr. Plank terminates his contract (1) between 90 and 120 days
following a change-in-control or (2) within 30 days following any demotion,
diminution of responsibility or pay or forced relocation occurring within twelve
months of a change-in-control, he shall be entitled to the lesser of (x) his
annual base salary through the end of his employment term, and (y) one-half of
his base salary for the year in which such termination occurs. If such event
occurred as of January 1, 1998, Mr. Plank would be entitled to a payment of
$75,000.
If Mr. Plank's employment is otherwise terminated without cause before
the expiration of his employment term, the Company must pay him an amount equal
to his annual base salary for the year in which such termination occurs. If such
event occurred as of January 1, 1998, Mr. Plank would be entitled to a payment
of $150,000.
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information as of February 28, 1998
with respect to the beneficial ownership of shares of the Common Stock held by
beneficial owners of more than 5% of the Common Stock. The information set forth
below is based upon the Company's stock records and information obtained by the
Company from the persons named below. Unless otherwise indicated, each person
has sole voting and investment power with respect to such shares.
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP OF CLASS
NY Motel Enterprises 112,821 - Direct 5.94%
440 West 57th Street
New York, NY 10019
Leon M. & Marsha C. Wagner 116,025 - (a) 6.11%
1325 Avenue of the Americas
22nd Floor
New York, NY 10019
Hotel-Motel Management Corporation 149,000 - Direct 7.85%
3485 N. Desert Drive - Suite 106
Building 2
East Point, GA 30344
Heartland Advisors, Inc. 251,200 - Investment 13.24%
790 North Milwaukee Street Advisor
Milwaukee, WI 53202
Tower Investment Group, Inc. 817,555 - Investment 33.32%
Suite 270 Advisor (b)
777 South Harbour Island Boulevard
Tampa, FL 33602
(a) Mr. Wagner holds 36,632 shares directly and Ms. Wagner, his spouse, holds
12,082 shares directly. They share investment and voting power with respect
to 67,311 shares.
(b) Includes 262,000 shares owned by investment funds managed by Tower and
555,555 contingently issuable shares from the conversion of debentures
owned by investment funds managed by Tower.
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth, as of February 28, 1998, all beneficial
holdings of outstanding Common Stock by the directors and the named executive
officers of the Company and all directors and executive officers as a group. The
information set forth below is based upon the Company's stock records and
information obtained by the Company from the persons named below. Unless
otherwise indicated, each person has sole voting and investment power with
respect to such shares. The address of each director and executive officer is in
care of the Company, Suite 200, 4243 Dunwoody Club Drive, Atlanta, Georgia
30350.
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL HOLDER BENEFICIAL OWNERSHIP OF CLASS
Douglas C. Collins 60,941 - (a) 3.14 %
Ronald L. Devine 68,452 - (b) 3.60 %
Robert B. Lee 30,808 - (c) 1.61 %
Robert M. Miller 49,922 - (d) 2.59 %
Gregory C. Plank 14,000 - (e) 0.73 %
William K. Stern 37,333 - (f) 1.94 %
Steven A. Van Dyke 822,419 - (g) 33.49 %
Directors and Officers 1,077,367 - (a-g) 41.66 %
as a group (7 persons)
(a) Mr. Collins holds 12,100 shares directly and holds 6,508 shares
indirectly through DC Hospitality, Inc., which is 85% owned by Mr. Collins and
15% owned by Mr. Lee. Mr. Collins also has the right to acquire an additional
42,333 shares within the next 60 days pursuant to option agreements.
(b) Mr. Devine holds 65,452 shares directly and has the right to
acquire an additional 3,000 shares within the next 60 days pursuant to an option
agreement.
(c) Mr. Lee holds 7,300 shares directly and holds 6,508 shares
indirectly through DC Hospitality, Inc., which is 15% owned by Mr. Lee and 85%
owned by Mr. Collins. Mr. Lee also has the right to acquire an additional 17,000
shares within the next 60 days pursuant to option agreements.
(d) Mr. Miller holds 21,255 shares directly and has the right to
acquire 28,667 additional shares within the next 60 days pursuant to option
agreements.
(e) Mr. Plank holds 2,000 shares directly and has the right to acquire
12,000 additional shares within the next 60 days pursuant to option agreements.
(f) Mr. Stern holds 10,000 shares directly and has the right to acquire
27,333 additional shares within the next 60 days pursuant to option agreements.
(g) Mr. Van Dyke holds 2,531 shares directly and has the right to
acquire an additional 2,333 shares within the next 60 days pursuant to an option
agreement.. Mr. Van Dyke is the President and Chief Executive Officer of Tower
Investment Group, Inc. Tower manages investment funds which own 262,000 shares
and have the right to acquire 555,555 within the next 60 days from the
conversion of debentures.
CHANGES IN CONTROL
To the best of the Company's knowledge, there are no arrangements which
may result in a change of control.
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
On December 22, 1997, the Company issued $5,000,000 of Convertible
Debentures to investment funds managed by Tower Investment Group, Inc. Tower
manages investment funds which already owned 262,000 (13.8%) of the outstanding
common shares of the Company. Mr. Van Dyke, a director of the Company is the
Chief Executive Officer of Tower.
The related debenture notes bear interest at 8%, payable quarterly in
arrears, and are due December 22, 2002. The debentures are convertible into
common shares of the Company at any time at $9.00 per share. If all such
debentures were converted, an additional 555,555 shares of Common Stock would be
issued.
In connection with the Lodge Keeper acquisition, the Company assumed a
lease for office space in Prospect, Ohio. The lease requires annual rent
payments of approximately $50,000 through 2001. Members of the immediate family
of Mr. Devine, an executive officer of the Company, own 50% of the lessor.
Also in connection with the Lodge Keeper acquisition, Mr. Devine
executed a $250,000 note payable to the Company for certain inventory and
equipment which did not relate to Lodge Keeper's primary business. The note
bears interest at 10% and is due in monthly installments of $5,312 until June
2002.
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) INDEX TO EXHIBITS
-----------------
Exhibit Description
------- -----------
2.1 Closing Agreement dated May 15, 1995 between Heritage Inn
Associates, Ltd. and BLM EB, Inc. (Incorporated by reference to
Exhibit (2) to the Registrant's Current Report on Form 8-K filed
May 25, 1995.)
2.2 Agreement for Purchase and Sale of Hotel between Buckhead and ALH
Properties No. One, Inc. (Incorporated by reference to Exhibit
(2)(a) to the Registrant's Current Report on Form 8-K filed
December 20, 1995.)
2.3 Agreement for Purchase and Sale of Hotel between Buckhead and ALH
Properties No. Two, Inc. (Incorporated by reference to Exhibit
(2)(b) to the Registrant's Current Report on Form 8-K filed
December 20, 1995.)
2.4 Stock Purchase Agreement dated as of March 7, 1997 among the
Registrant, The Lodge Keeper Group, Inc. ("Lodge Keeper") and the
Stockholders of Lodge Keeper. (Incorporated by reference to
Exhibit 2.1 to the Registrant's Quarterly Report on Form 10-QSB
for the quarter ended March 31, 1997.)
2.5 Agreement of Merger dated as of March 11, 1997 among the
Registrant, BLM-RH, Inc., Hatfield Inns, LLC, Guy Hatfield
Dorothy Hatfield, and Hatfield Inns Advisors, LLC. (Incorporated
by reference to Appendix B to the Registrant's Definitive Proxy
Statement filed with the Securities and Exchange Commission on
June 9, 1997.)
2.6 Second Amendment to Agreement of Merger, dated as of September
17, 1997 among the Company, BLM-RH, Inc., Hatfield Inns, LLC, Guy
Hatfield, Dorothy Hatfield, and Hatfield Inn Advisors, LLC.
(Incorporated by reference to Exhibit 2.1.1 to the Registrant's
Current Report on Form 8-K filed October 8, 1997.)
3.1 Articles of Incorporation. (Incorporated by reference to Exhibit
2.1 to the Registrant's Registration Statement on Form 10-SB (No.
0-22132) which became effective on November 22, 1993.)
3.2 Certificate of Amendment of Certificate of Incorporation.
<PAGE>
(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.)
3.4 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.)
3.5 Certificate of Designation, Preference and Rights of Series A
Preferred Stock of the Registrant. (Incorporated by reference to
Exhibit 3.1(c) to the Registrant's Quarterly Report on Form
10-QSB for the quarter ended September 30, 1997.)
3.6 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.)
4.1 Mortgage Note Payable dated as of November 7. 1996 made by
Heritage Inn Associates, LP as maker, to Bloomfield Acceptance
Company, LLC. (Incorporated by reference to Exhibit 4(ii) to the
Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1996.)
4.2 Certificate of Designation, Preference 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.)
10.1 Employment Agreement dated as of June 30, 1993 between the
Company and Douglas C. Collins. (Incorporated by reference to
Exhibit 6.2 to the Registrant's Registration Statement on Form
10-SB (No.022132) which became effective on November 22, 1993.)
10.2 Amendment to Douglas C. Collins Employment Agreement.
(Incorporated by reference to Exhibit (ii)(b) to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December
31, 1995.)
10.3 Employment Agreement dated as of June 30, 1993 between the
Company and Robert B. Lee. (Incorporated by reference to Exhibit
10(ii)(c) to the Registrant's Annual Report on Form 10-KSB for
the fiscal year ended December 31, 1995.)
10.4 Amendment to Robert B. Lee Employment Agreement. (Incorporated by
reference to Exhibit 10(ii)(d) to the Registrant's Annual Report
<PAGE>
on Form 10-KSB for the fiscal year ended December 31, 1995.)
10.5 Employment Agreement dated as of April 29, 1996 between the
Company and Gregory C. Plank. (Incorporated by reference to
Exhibit 10(ii)(e) to the Registrant's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1996.)
10.6 1995 Stock Option Plan. (Incorporated by reference to Appendix A
to the Registrant's Definitive Proxy Statement dated April 25,
1995.)
10.7 1997 Employee Stock Option Plan (Incorporated by reference to
Annex 1 to the Registrant's Definitive Proxy Statement filed with
the Securities and Exchange Commission on June 9, 1997.)
10.8 Form of Amended and Restated Debenture (Incorporated by reference
to Exhibit II to the Schedule 13D of Bay Harbour, Tower and
Steven Van Dyke filed December 31, 1997 (File No. 005-47807)).
10.9 Debentures Purchase Agreement dated as of December 2, 1997
between the Company and Bay Harbour for its managed accounts.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Current Report on Form 8-K filed January 9, 1998.)
21 Subsidiaries of the Company
23 Accountants' Consent
27 Financial Data Schedule (Electronic filing only)
<PAGE>
(b) REPORTS ON FORM 8-K.
The Company has not filed any reports on Form 8-K during the last quarter
of the period covered by this report.
The Company filed a report on Form 8-K on January 9, 1998 which reported
the December 22, 1997 sale of debentures to investment funds managed by Tower
Investment Group, Inc.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
(Registrant) BUCKHEAD AMERICA CORPORATION
By: (Signature and Title):
/s/ DOUGLAS C. COLLINS /s/ ROBERT B. LEE
Douglas C. Collins Robert B. Lee
President & Senior Vice President & Chief
Chief Executive Officer Financial & Accounting Officer
Date: March 31 , 1998 Date: March 31 , 1998
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: (Signature and Title) DATE
/s/ DOUGLAS C. COLLINS March 31, 1998
Douglas C. Collins
Director
/s/ ROBERT B. LEE March 31, 1998
Robert B. Lee
Director
/s/ ROBERT M. MILLER March 31, 1998
Robert M. Miller
Director
/s/ WILLIAM K. STERN March 31, 1998
William K. Stern
Director
March 31, 1998
Steven A. Van Dyke
Director
Exhibit 21 to Buckhead America Corporation
December 31, 1997 Form 10-KSB
BUCKHEAD AMERICA CORPORATION
(A Delaware Corporation)
SUBSIDIARY COMPANIES
As of December 31, 1997
DELAWARE CORPORATIONS
BLM Virginia, Inc.
BLM Prime, Inc.
CHI - Sandy Springs, Inc.
BAC Hotel Management, Inc.
BLM EB Orlando, Inc.
BLM EB, Inc.
BLM EB Miami, Inc. BLM EB
Daytona, Inc.
BLM-F, Inc.
BLM-RH, Inc.
BLM-RF, Inc.
BAC Franchising Inc.
TEXAS CORPORTION
Country Hearth Inns/Texas, Inc.
GEORGIA CORPORATION
Country Hearth Inns - Dalton, Inc.
OHIO CORPORATIONS
The Lodge Keeper Group, Inc.
Integrated Motel Management Group of Ohio, Inc.
HOMANCO, Inc.
LKG Development I, Inc.
ACCOUNTANTS' CONSENT
The Board of Directors
Buckhead America Corporation:
We consent to incorporation by reference in the Registration Statements (Nos.
333-05313 and 333-37691) on Form S-3 and in the Registration Statements (Nos.
33-97046 and 333-33097) on Form S-8 of Buckhead America Corporation of our
report dated February 27, 1998, relating to the consolidated balance sheets of
Buckhead America Corporation and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for the years then ended, which report appears in the December 31,
1997 annual report on Form 10-KSB of Buckhead America Corporation.
KPMG PEAT MARWICK LLP
Atlanta, Georgia
March 30, 1998
533107.1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF BUCKHEAD AMERICA CORPORATION FOR THE TWELVE MONTHS ENDED
DECEMBER 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS. </LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-START> JAN-01-1997 JAN-01-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 3,282 1,802
<SECURITIES> 3,188 3,027
<RECEIVABLES> 2,202 2,374
<ALLOWANCES> 58 1,442
<INVENTORY> 0 0
<CURRENT-ASSETS> 8,234 5,861
<PP&E> 36,937 20,352
<DEPRECIATION> 2,661 1,621
<TOTAL-ASSETS> 52,164 27,035
<CURRENT-LIABILITIES> 4,225 1,271
<BONDS> 28,582 12,419
0 0
3,000 0
<COMMON> 19 18
<OTHER-SE> 16,334 13,066
<TOTAL-LIABILITY-AND-EQUITY> 52,164 27,035
<SALES> 15,591 9,979
<TOTAL-REVENUES> 18,816 13,873
<CGS> 11,920 8,659
<TOTAL-COSTS> 13,185 10,552
<OTHER-EXPENSES> 3,786 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,601 1,505
<INCOME-PRETAX> 244 1,817
<INCOME-TAX> (2,930) 0
<INCOME-CONTINUING> 3,174 1,817
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 3,174 1,817
<EPS-PRIMARY> 1.67 1.03
<EPS-DILUTED> 1.56 1.00
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