UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-Q/A
AMENDMENT NO. 1
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-24264
GOLF ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
KANSAS 75-2596237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1603 LBJ FREEWAY
SUITE 810
DALLAS, TEXAS 75234
(Address of principal executive offices, including zip code)
(214) 247-1199
(Registrant's telephone number, including area code)
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of April 25, 1996 was 6,585,482 shares.
Page 1
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
FORM 10-Q
TABLE OF CONTENTS
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements:
Consolidated Balance Sheets as of March 31, 1996
(unaudited) and December 31, 1995 3
Consolidated Statements of Operations for the three
months ended March 31, 1996 and 1995 (unaudited) 4
Consolidated Statements of Cash Flows for the three
months ended March 31, 1996 and 1995 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 9
Signatures 10
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
March 31, December 31,
1996 1995
----------- ------------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 2,663 $ 1,286
Accounts and notes receivable, net 8,308 8,777
Inventories 3,347 3,092
Prepaid expenses 2,230 1,765
-------- --------
Total current assets 16,548 14,920
Property and equipment, net 95,332 95,733
Debt issuance costs, net 1,086 1,149
Goodwill, net 3,849 3,881
Other assets, net 6,560 6,179
-------- --------
$123,375 $121,862
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,671 $ 4,000
Accrued liabilities 1,328 3,375
Current portion of long-term debt 2,329 2,297
Current portion of deferred income 4,065 4,292
-------- --------
Total current liabilities 13,393 13,964
Long-term debt, less current portion 59,082 59,375
Deferred income, less current portion 1,556 1,782
Other long-term liabilities 1,055 1,029
Deferred income taxes 3,578 3,578
Stockholders' equity:
Preferred stock -- --
Common stock 66 65
Additional paid-in capital 61,322 60,488
Accumulated deficit (16,257) (17,999)
-------- --------
45,131 42,554
Less notes receivable from stockholders (420) (420)
-------- --------
Total stockholders' equity 44,711 42,134
-------- --------
$123,375 $121,862
======== ========
3
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share data)
Three months ended
March 31,
--------- ---------
1996 1995
--------- ---------
Operating revenue:
Green fees and practice facility fees $ 7,616 $ 5,858
Dues and initiation fees 6,339 4,022
Golf cart rentals 3,194 2,395
Food and beverage sales 3,066 2,203
Pro shop sales 2,201 1,609
Other 475 257
------- -------
Total operating revenue 22,891 16,344
------- -------
Costs and expenses:
Payroll and benefits:
Services provided and rentals 2,591 1,908
Food, beverage and pro shop 1,954 1,279
Other 1,975 1,713
Cost of merchandise sold:
Food and beverage 1,194 766
Pro shop 1,448 956
Depreciation and amortization 2,094 1,722
Rent 2,962 1,798
Other 5,586 4,650
------- -------
19,804 14,792
------- -------
Operating income 3,087 1,552
Interest expense, net 1,288 1,225
------- -------
Income before income taxes 1,799 327
Income taxes 57 22
------- -------
Net income $ 1,742 $ 305
======= =======
Weighted average number of
common shares outstanding 6,712 6,673
======= =======
Net income per common share $ 0.26 $ 0.05
======= =======
4
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three months ended
March 31,
-------------------------
1996 1995
----------- -----------
Cash flows from operating activities:
Net income $ 1,742 $ 305
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,094 1,722
Amortization of debt issuance costs 72 65
Compensation expenses--stock options 7 7
Accretion and gain on conversion of members' deposits 10 7
Deferred minimum rent 22 21
Provision for doubtful accounts 16 87
Changes in assets and liabilities:
Accounts and notes receivable 453 (523)
Inventories (255) (417)
Prepaid expenses (465) 236
Other assets (483) 6
Accounts payable and accrued liabilities (376) 358
Deferred income (453) 354
------- -------
Net cash provided by operating activities 2,384 2,228
------- -------
Cash flows from investing activities:
Capital expenditures (1,181) (1,533)
Acquisitions of golf courses - (6,136)
------- -------
Net cash used by investing activities (1,181) (7,669)
------- -------
Cash flows from financing activities:
Issuance of common stock, net 828 -
Proceeds from long-term debt - 7,000
Repayments of long-term debt (641) (2,453)
Debt issuance costs (10) (297)
Other (3) 3
------- -------
Net cash provided by financing activities 174 4,253
------- -------
Increase (decrease) in cash and cash equivalents 1,377 (1,188)
Cash and cash equivalents at beginning of period 1,286 4,723
------- -------
Cash and cash equivalents at end of period $ 2,663 $ 3,535
======= =======
Cash paid during the period for:
Interest $ 1,306 $ 945
======= =======
Income taxes $ 26 $ 9
======= =======
5
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. INTERIM FINANCIAL STATEMENTS
----------------------------
The accompanying interim consolidated financial statements of Golf
Enterprises, Inc. and subsidiaries (the "Company") are unaudited. In the
opinion of the Company's management, the accompanying financial statements
reflect all adjustments (consisting only of normal recurring accruals) necessary
to present fairly the Company's consolidated financial position as of March 31,
1996 and the consolidated results of operations and cash flows for the three
months ended March 31, 1996 and 1995. The results for the three months ended
March 31, 1996 are not necessarily indicative of the results to be expected for
the full fiscal year. Amounts presented as of December 31, 1995 are based on
the audited consolidated financial statements in the Company's 1995 annual
report on Form 10-K.
NOTE 2. NET INCOME PER COMMON SHARE
---------------------------
The weighted average number of shares outstanding for the three months
ended March 31, 1996 and 1995 include the effect of stock options using the
treasury stock method, assuming full dilution. Primary net income per common
share is not materially different from fully diluted net income per common share
for the periods.
NOTE 3. PROPOSED ASSET SALE AND MERGER
------------------------------
On February 2, 1996, the Company entered into a definitive agreement to
sell its 20 owned golf course properties and certain related assets (the
"Purchased Assets") to National Golf Properties ("NGP") and to merge immediately
thereafter with a newly formed corporation ("Newco") affiliated with American
Golf Corporation. Substantially all of NGP's properties are managed by American
Golf Corporation. If the purchase (the "Asset Purchase") and the merger (the
"Merger") are approved by the Company's stockholders and become effective,
stockholders of the Company will be entitled to exchange each share of their
common stock of the Company for, depending on the form of consideration paid by
NGP, at NGP's option, for the Purchased Assets, either (i) a combination of
$6.00 in cash and between approximately 0.20870 and 0.31304 of a share of NGP
common stock (assuming no exercise of options to purchase the Company's common
stock prior to the Merger) valued at approximately $6.00 (subject to limitations
on the maximum and minimum number of NGP shares issuable), or (ii) $12.00 in
cash. Subject to certain adjustments and limitations, stockholders of the
Company will receive total consideration of $79,026,000, and holders of
unexpired and unexercised options to purchase common stock of the Company will
be entitled to receive, in exchange for cancellation of such options, total
consideration of $2,548,000 payable in the same proportion of cash and stock as
is paid to holders of common stock of the Company. Of this total aggregate
consideration of approximately $81,600,000, NGP will pay approximately
$58,000,000 as consideration for the Purchased Assets and Newco will contribute
approximately $23,600,000 in cash. In addition, Newco will refinance
approximately $54,900,000 of the Company's existing indebtedness in connection
with the Merger.
The Asset Purchase and the Merger are subject to certain conditions,
including approval of the stockholders of the Company and NGP. Stockholders of
the Company holding approximately 45% of its outstanding common stock (on a
fully diluted basis) have agreed to vote their shares in favor of the Asset
Purchase and the Merger. The closing of these transactions is currently
expected to occur in the second quarter of 1996. The Company anticipates that a
loss of approximately $19,300,000, net of income tax effect, will be recognized
on the sale of the Purchased Assets to NGP. Although the Company will recognize
the loss on the sale of the Purchased Assets upon consummation of the Asset
Purchase transaction, such transaction is only a component of the entire
transaction and will occur simultaneously with the Merger. The proceeds of the
Asset Purchase together with the proceeds of the Merger will significantly
exceed the historical net book value of the Company. Accordingly, no impairment
of the Company's property and equipment has occurred.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read in conjunction with the
consolidated financial statements of the Company and notes thereto, included at
Part I, Item 1, and with the Company's audited consolidated financial statements
and notes thereto for the fiscal year ended December 31, 1995.
GENERAL
The Company seeks to achieve continued growth in revenue and operating cash
flow by acquiring, either through purchase, lease or contract to manage,
underperforming daily fee, resort and private country club golf courses and by
implementing operating improvements to enhance financial performance. Operating
revenue includes green fees and practice facility fees, dues and initiation fees
of private members, golf cart rentals, retail sales of food, beverages and pro
shop merchandise, and management fees. Historically, the percentage of the
Company's total operating revenue represented by each of these revenue
categories has not fluctuated significantly.
The Company currently owns fee title to 20 of its courses, the purchase
prices of which have been financed with unsecured indebtedness, equity
contributions and/or seller financing. The Company currently operates 21 leased
golf courses, all of which are classified as operating leases for financial
reporting purposes. As a result, leased courses result in lower depreciation
and interest expense than purchased courses. Management fees received under the
Company's three management agreements are classified as operating revenue and
any associated expenses are classified as operating expenses.
Courses are leased or purchased at varying times throughout the year.
Depending on the length of the partial year for which a course is operated, the
seasonality of operations and the unique operating improvements of a course,
results of operations of a course for a portion of a year may not be indicative
of the results of operations at the course for an entire year. In addition, due
to the varying seasons at each golf course, depending on its location, the
results of operations of the Company for a portion of a year may not be
indicative of the results of operations of the Company for an entire year.
PROPOSED ASSET SALE AND MERGER
On February 2, 1996, the Company entered into a definitive agreement to
sell its 20 owned golf course properties and certain related assets (the
"Purchased Assets") to National Golf Properties ("NGP") and to merge immediately
thereafter with a newly formed corporation ("Newco") affiliated with American
Golf Corporation. Substantially all of NGP's properties are managed by American
Golf Corporation. If the purchase (the "Asset Purchase") and the merger (the
"Merger") are approved by the Company's stockholders and become effective,
stockholders of the Company will be entitled to exchange each share of their
common stock of the Company for, depending on the form of consideration paid by
NGP, at NGP's option, for the Purchased Assets, either (i) a combination of
$6.00 in cash and between approximately 0.20870 and 0.31304 of a share of NGP
common stock (assuming no exercise of options to purchase the Company's common
stock prior to the Merger) valued at approximately $6.00 (subject to limitations
on the maximum and minimum number of NGP shares issuable), or (ii) $12.00 in
cash. Subject to certain adjustments and limitations, stockholders of the
Company will receive total consideration of $79,026,000, and holders of
unexpired and unexercised options to purchase common stock of the Company will
be entitled to receive, in exchange for cancellation of such options, total
consideration of $2,548,000 payable in the same proportion of cash and stock as
is paid to holders of common stock of the Company. Of this total aggregate
consideration of approximately $81,600,000, NGP will pay approximately
$58,000,000 as consideration for the Purchased Assets and Newco will contribute
approximately $23,600,000 in cash. In addition, Newco will refinance
approximately $54,900,000 of the Company's existing indebtedness in connection
with the Merger.
The Asset Purchase and the Merger are subject to certain conditions,
including approval of the stockholders of the Company and NGP. Stockholders of
the Company holding approximately 45% of its
7
outstanding common stock (on a fully diluted basis) have agreed to vote their
shares in favor of the Asset Purchase and the Merger. The closing of these
transactions is currently expected to occur in the second quarter of 1996. The
Company anticipates that a loss of approximately $19,300,000, net of income tax
effect, will be recognized on the sale of the Purchased Assets to NGP. Although
the Company will recognize the loss on the sale of the Purchased Assets upon
consummation of the Asset Purchase transaction, such transaction is only a
component of the entire transaction and will occur simultaneously with the
Merger. The proceeds of the Asset Purchase together with the proceeds of the
Merger will significantly exceed the historical net book value of the Company.
Accordingly, no impairment of the Company's property and equipment has
occurred.
RESULTS OF OPERATIONS -- THE QUARTER ENDED MARCH 31, 1996 COMPARED TO THE
QUARTER ENDED MARCH 31, 1995
The following table sets forth, for the three months ended March 31, 1996
and 1995, certain operating data expressed as a percentage of operating revenue
and the percentage change in the dollar amounts of such items compared to the
corresponding period of the prior year.
Percentage of Operating Revenue Percentage Increase
--------------------------------- -----------------------------
Three Months Ended March 31, Three Months Ended March 31,
--------------------------------- -----------------------------
1996 1995 1995 to 1996
--------------- --------------- -----------------------------
Operating revenue 100.0% 100.0% 40.1%
Costs and expenses:
Operating expenses 77.4 80.0 35.5
Depreciation and amortization 9.1 10.5 21.6
----- -----
Total costs and expenses 86.5 90.5 33.9
----- -----
Operating income 13.5 9.5 98.9
Interest expense, net 5.6 7.5 5.1
----- -----
Income before income taxes 7.9 2.0 *
Income taxes 0.3 0.1 *
----- -----
Net income 7.6% 1.9% *
===== =====
- - ------------------
* Percentages exceed 100%.
Operating revenue from each of the five major operating revenue categories
(green fees and practice facility fees, dues and initiation fees, golf cart
rentals, food and beverage sales and pro shop sales) increased, primarily due to
the seven golf courses which were added to the Company's management portfolio in
1995 and through March 31, 1996. These seven new courses contributed $4,734,000
more revenue than in the first quarter of 1995, and revenue at the existing
clubs increased $1,813,000, or 11.5%. As a percentage of total operating
revenue, dues and initiation fees increased to 27.7% from 24.6% and green fees
and practice facility fees decreased to 33.3% from 35.8%, as six of the seven
new courses are private country clubs. Golf cart rentals, food and beverage,
pro shop and other revenue remained relatively constant as a percentage of total
operating revenue.
Operating expenses include payroll; cost of food and beverage and pro shop
merchandise sold; supplies, maintenance and repairs; rent; utilities; insurance;
property and other taxes; advertising and promotion and other general and
administrative expenses. Operating expenses increased by 35.5%, primarily as a
result of the seven new courses, as operating expenses at the existing courses
increased by only 3.8%. Operating expenses decreased as a percentage of
operating revenue as a result of economies of scale that exist upon the
acquisition of quality courses.
Depreciation and amortization expense decreased as a percentage of
operating revenue in the quarter ended March 31, 1996, as only two of the seven
new courses were purchased. Accordingly, rent expense increased as a percentage
of operating revenue during the quarter ended March 31, 1996.
Net interest expense consists of interest on acquisition debt, notes to
related parties and capital lease obligations as well as the amortization of
deferred debt issuance costs. Net interest expense increased by
8
5.1% during the quarter ended March 31, 1996 as a result of borrowings used to
fund the Company's purchase of two courses in 1995. Net interest expense
decreased as a percentage of operating revenue.
LIQUIDITY AND CAPITAL RESOURCES
The Company has a $70,000,000 revolving credit facility (the "Revolving
Credit Facility") for use in financing the acquisition, lease or improvement of
golf courses, financing the acquisition of golf course management companies,
refinancing indebtedness, and for general working capital purposes. A portion
is to be treated as a reducing revolver, with equal installments of $2,083,000
due quarterly beginning on March 31, 1997, and the balance is due on December
31, 1999. Loans under the Revolving Credit Facility are unsecured and bear
interest at either a Eurodollar rate or a customary base rate, plus in each case
a marginal percentage of up to 2.0% depending on the Company's ratio of total
debt to EBITDA. Interest is payable either quarterly with respect to base rate
loans or on the last day of selected interest periods ranging from one to nine
months with respect to Eurodollar loans. The Revolving Credit Facility is
subject to customary conditions and covenants, including dividend payment
limitations, capital expenditure limitations, negative pledge covenants and
financial ratio covenants.
As of March 31, 1996, the Company had borrowed $52,000,000 under the
Revolving Credit Facility to finance the repayment of debt in connection with
its 1994 initial public offering, to finance the purchase of a public golf
course and seven private golf clubs since its initial public offering, and for
general working capital purposes. These loans are currently Eurodollar loans,
bearing interest at rates ranging from 7.125% to 7.5625% (each including a
marginal percentage of 2.0%). The Company was in compliance with all
restrictive covenants and conditions as of March 31, 1996.
The Company analyzes cash flows from operations to evaluate its ability to
service its debt and finance its capital expenditures. In the quarter ended
March 31, 1996, cash provided by operations of $2,384,000 financed the Company's
capital expenditures of $1,181,000 and repayments of long-term debt of $641,000.
In the quarter ended March 31, 1995, cash provided by operations of $2,228,000
financed the Company's capital expenditures of $1,533,000, debt issuance costs
of $297,000 and $453,000 of the Company's repayments of long-term debt, while
borrowings under the Company's Revolving Credit Facility and cash reserves
funded golf course acquisitions and $2,000,000 of the Company's repayments of
long-term debt.
The Company believes that cash generated by operations will be sufficient
to meet its capital expenditure and debt service needs through 1998, while
amounts available under the Revolving Credit Facility will provide the Company
with additional flexibility to take advantage of acquisition opportunities that
may arise. As a result of the Company's aggressive growth strategy, the Company
will require alternate financing arrangements in order to repay its Revolving
Credit Facility upon maturity.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Computation of Net Income Per Common Share (incorporated herein by
reference to exhibit 11.1 of the Company's Form 10-Q for the quarterly period
ended March 31, 1996 filed on May 1, 1996).
(b) Reports on Form 8-K.
The Company filed a report on Form 8-K on February 6, 1996 related to the
Company's signing of a definitive asset purchase agreement and plan of merger
with NGP and an affiliate of American Golf Corporation.
9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GOLF ENTERPRISES, INC.
Date: June 20, 1996 /s/ ROBERT H. WILLIAMS
-------------------------------------
Robert H. Williams
President and Chief Executive Officer
(principal executive officer)
Date: June 20, 1996 /s/ JOHN H. BERNDSEN
-------------------------------------
John H. Berndsen
Chief Financial Officer, Vice President
and Treasurer (principal accounting and
financial officer)
10