SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] - Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1996
or
[ ] - Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 333-05581
GOLDEN BEAR GOLF, INC.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
FLORIDA 65-0680880
- ------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
11780 U.S. HIGHWAY ONE, NORTH PALM BEACH, FLORIDA 33408
- ------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
(561) 626-3900
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 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 [ ]
The Registrant had outstanding 2,741,887 shares of Class A Common Stock (par
value $.01 per share) and 2,760,000 shares of Class B Common Stock (par value
$.01 per share) as of November 8, 1996.
<PAGE>
GOLDEN BEAR GOLF, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Combined Condensed Balance Sheets as of December 31, 1995
and September 30, 1996 3
Combined Condensed Statements of Operations for the three
months and nine months ended September 30, 1995 and 1996 4
Combined Condensed Statements of Cash Flows for the nine
months ended September 30, 1995 and 1996 5
Notes to Combined Condensed Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
Signatures 17
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
COMBINED CONDENSED BALANCE SHEETS
DECEMBER 31, SEPTEMBER 30,
1995 1996
----------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 377,796 $ 23,459,008
Accounts receivable, net of allowances 6,366,435 6,416,488
Due from GBI 647,146 359,095
Costs and estimated earnings in excess of billings on uncompleted contracts 666,338 1,639,295
Prepaid expenses and other current assets 226,385 967,750
----------------- -----------------
Total current assets 8,284,100 32,841,636
PROPERTY AND EQUIPMENT, net 582,586 15,162,526
INTANGIBLES AND OTHER ASSETS 39,673 2,907,040
----------------- -----------------
Total assets $ 8,906,359 $ 50,911,202
================= =================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,268,808 $ 3,459,134
Accrued expenses and other 2,040,684 2,018,083
Billings in excess of costs and estimated earnings on uncompleted contracts 602,990 673,295
Deferred revenue 700,824 966,816
Current portion of notes payable and capital leases 219,225 726,740
----------------- -----------------
Total current liabilities 7,832,531 7,844,068
----------------- -----------------
NOTES PAYABLE AND CAPITAL LEASES, net of current portion 43,510 4,855,448
----------------- -----------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, 20,000,000 shares authorized,
no shares issued and outstanding --- ---
Common stock-
Class A, $.01 par value, 70,000,000 shares authorized, 240,000 and
2,729,025 shares issued and outstanding at December 31, 1995
and September 30, 1996, respectively 2,400 27,290
Class B, $.01 par value, 10,000,000 shares authorized, 2,760,000
shares issued and outstanding 27,600 27,600
Additional paid-in capital 840,000 40,657,755
Retained earnings (deficit) 160,318 (2,500,959)
----------------- -----------------
Total shareholders' equity 1,030,318 38,211,686
----------------- -----------------
Total liabilities and shareholders' equity $ 8,906,359 $ 50,911,202
================= =================
</TABLE>
The accompanying notes to combined condensed financial
statements are an integral part of these combined
condensed financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
COMBINED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------------- ----------------------------------
REVENUES: 1995 1996 1995 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Golf Division-
Golf centers and academy fees
and royalties $ 367,450 $ 1,502,462 $ 733,385 $ 2,250,511
Related party management fees 288,000 258,985 992,000 946,651
--------------- --------------- --------------- ---------------
Total golf division 655,450 1,761,447 1,725,385 3,197,162
--------------- --------------- --------------- ---------------
Construction Division 7,427,233 6,482,256 13,455,218 13,654,879
--------------- --------------- --------------- ---------------
Marketing Division-
Golf instruction revenues 397,738 578,562 3,081,694 2,721,719
Licensing and other revenues 650,866 688,592 1,611,921 1,927,445
Income from operations of JNAI 158,550 189,901 646,175 787,897
Related party commissions 129,375 176,250 410,625 363,750
--------------- --------------- --------------- ---------------
Total marketing division 1,336,529 1,633,305 5,750,415 5,800,811
--------------- --------------- --------------- ---------------
Total revenues 9,419,212 9,877,008 20,931,018 22,652,852
--------------- --------------- --------------- ---------------
OPERATING COSTS AND EXPENSES:
Construction and shaping costs 6,483,370 5,311,901 11,554,775 11,298,458
Operating expenses 1,675,614 3,251,833 5,428,033 7,755,377
Compensation recorded on sale of
shares to management --- --- --- 3,000,000
Corporate overhead 772,834 1,083,863 2,274,392 2,745,597
Depreciation and amortization 58,952 46,022 170,290 209,808
--------------- --------------- --------------- ---------------
Total operating costs and expenses 8,990,770 9,693,619 19,427,490 25,009,240
--------------- --------------- --------------- ---------------
Operating income (loss) 428,442 183,389 1,503,528 (2,356,388)
--------------- --------------- --------------- ---------------
OTHER INCOME (EXPENSE):
Interest income 9,083 194,913 24,761 202,389
Interest expense (9,308) (48,499) (17,918) (93,569)
Other (3,611) 14,067 (18,300) 25,497
--------------- --------------- --------------- ---------------
Total other income (expense) (3,836) 160,481 (11,457) 134,317
--------------- --------------- --------------- ---------------
Income (loss) before income taxes 424,606 343,870 1,492,071 (2,222,071)
TAX PROVISION 152,136 187,992 342,543 213,368
--------------- --------------- --------------- ---------------
Income (loss) before pro forma
income taxes 272,470 155,878 1,149,528 (2,435,439)
PRO FORMA INCOME TAX
PROVISION (BENEFIT) (Note 1) (66,689) (112,715) 5,246 (127,331)
--------------- --------------- --------------- ---------------
Pro forma net income (loss) $ 339,159 $ 268,593 $ 1,144,282 $ (2,308,108)
=============== =============== =============== ===============
Pro forma net income (loss) per share
of common stock $ 0.11 $ 0.06 $ 0.38 $ (0.65)
=============== =============== =============== ===============
Weighted average number of common
stock and common stock equivalents
outstanding 3,000,000 4,731,838 3,000,000 3,577,279
=============== =============== =============== ===============
</TABLE>
The accompanying notes to combined condensed financial
statements are an integral part of these combined
condensed financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
COMBINED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------------------
1995 1996
------------------ ------------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 1,661,814 $ (1,127,020)
------------------ ------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of golf centers --- (12,834,625)
Capital expenditures (258,366) (1,077,646)
------------------ ------------------
Net cash used in investing activities (258,366) (13,912,271)
------------------ ------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from initial public offering, net --- 35,262,245
Proceeds from sale of common stock --- 1,500,000
Proceeds from exercise of stock options --- 80,400
Proceeds from note payable - shareholder --- 1,625,000
Repayment of note payable - shareholder --- (1,625,000)
Proceeds from note payable --- 1,800,000
Repayment of notes payable (46,667) (296,304)
Divisional transfers to GBI (706,266) (225,838)
------------------ ------------------
Net cash provided by (used in) financing activities (752,933) 38,120,503
------------------ ------------------
Net increase in cash and cash equivalents 650,515 23,081,212
CASH AND CASH EQUIVALENTS, beginning of period 441,308 377,796
------------------ ------------------
CASH AND CASH EQUIVALENTS, end of period $ 1,091,823 $ 23,459,008
================== ==================
NONCASH ACTIVITIES:
Golf center acquisitions accounted for as capital leases --- $ 2,465,757
Notes payable issued in connection with golf center acquisitions --- $ 1,350,000
Compensation recorded on sale of shares to management --- $ 3,000,000
</TABLE>
The accompanying notes to combined condensed financial
statements are an integral part of these combined
condensed financial statements.
5
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited combined condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the financial statements and
notes thereto included in Golden Bear Golf, Inc.'s ("Golden Bear" or the
"Company") Registration Statement on Form S-1 and amendments thereto as filed
with the Securities and Exchange Commission.
The results of operations and cash flows for the three and nine-month periods
ended September 30, 1996 are not necessarily indicative of the results of
operations or cash flows which may be reported for the remainder of 1996.
Golden Bear was formed on June 7, 1996 to enter into an exchange agreement which
was consummated on August 1, 1996 upon the closing of an initial public offering
of Golden Bear's Class A Common Stock. Parties to the plan of reorganization
included, among others, Golden Bear's affiliates, Golden Bear Golf Centers, Inc.
("Golf Centers"), Paragon Golf Construction, Inc. ("Paragon") (collectively, the
"Constituent Companies") and Golden Bear International, Inc. ("GBI"). Pursuant
to the exchange agreement, Golden Bear acquired all of the outstanding common
stock of the Constituent Companies in exchange for an aggregate of 1,668,000
shares of its Class A and Class B Common Stock. In addition, Golden Bear
acquired certain assets and assumed certain liabilities of GBI ("GBI Carveout")
in exchange for 1,332,000 shares of Class B Common Stock. The transaction was
accounted for on an historical cost basis in a manner similar to a pooling of
interests as Golden Bear and the Constituent Companies had common stockholders
and management. Therefore, the financial statements of Golden Bear and the
Constituent Companies are presented in a combined format.
Certain amounts in prior periods' financial statements have been reclassified to
conform to the current period presentation.
PRO FORMA INCOME TAXES
Prior to the reorganization of the Company which was consummated on August 1,
1996 upon the closing of its initial public offering, Golf Centers and Paragon
were S Corporations for Federal and state income tax reporting purposes and GBI
Carveout was a division of GBI, which was also an S Corporation. As S
corporations prior to the reorganization, Golf Centers, Paragon and GBI have
historically only paid foreign income taxes and have not paid United States
Federal and state income taxes. Because the Company became a C corporation as of
the date of the reorganization, a pro forma income tax expense (benefit) has
been included in the Company's combined condensed statements of operations for
informational purposes as if the relevant entities were C corporations during
the periods presented. The Company expects to recognize tax credits for foreign
taxes paid against its United States income tax obligation. The pro forma United
States income taxes were based on an approximate effective rate of 40%.
6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
PRO FORMA NET INCOME (LOSS) PER SHARE
Pro forma net income (loss) per share is computed by dividing pro forma net
income (loss) by the weighted average number of common and dilutive common
equivalent shares outstanding for each period. Common stock equivalents include
the dilutive effect of all outstanding stock options using the treasury stock
method. The calculation used in the current three month period is based upon
4,657,675 average common shares outstanding plus 74,163 average dilutive stock
options. The calculation used in the current nine-month period is based upon
3,552,558 average common shares outstanding plus 24,721 average dilutive stock
options. The calculation used in the prior year three and nine-month periods is
based upon 3,000,000 average common shares outstanding.
2. COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
Costs and estimated earnings on uncompleted construction and shaping contracts
consist of the following for contracts recognized under the
percentage-of-completion method of accounting:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
---------------- ----------------
<S> <C> <C>
Costs incurred on uncompleted contracts $ 16,614,195 $ 25,195,802
Estimated earnings 2,116,225 4,157,635
---------------- ----------------
18,730,420 29,353,437
Less billings to date 18,667,072 28,387,437
---------------- ----------------
$ 63,348 $ 966,000
================ ================
</TABLE>
Such amounts are included in the accompanying combined condensed balance sheets
under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1995 1996
---------------- ----------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 666,338 $ 1,639,295
Billings in excess of costs and estimated
earnings on uncompleted contracts (602,990) (673,295)
---------------- ----------------
$ 63,348 $ 966,000
================ ================
</TABLE>
3. NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases consist of the following:
DECEMBER 31, SEPTEMBER 30,
1995 1996
---------------- ----------------
Notes payable $ --- $ 3,059,600
Capital lease obligations --- 2,461,151
Revolving credit note 150,000 ---
Secured credit note 112,735 61,437
---------------- ----------------
262,735 5,582,188
Less: Current portion (219,225) (726,740)
================ ================
$ 43,510 $ 4,855,448
================ ================
7
<PAGE>
3. NOTES PAYABLE AND CAPITAL LEASES - (CONTINUED)
In June 1996, Jack Nicklaus advanced the Company $1.625 million and the Company
issued a note payable to Jack Nicklaus for such amount. The proceeds were used
to fund the Cool Springs Golf Center acquisition (see Note 7). The note payable
was repaid in full in August 1996 from the proceeds of the initial public
offering.
Notes payable is comprised of certain notes associated with the acquisition of
golf centers. In September 1996, the Company borrowed $1.8 million evidenced by
a note payable to a financial institution, secured by certain real estate and
equipment of its Cool Springs Golf Center (see Note 7). In September 1996, the
Company issued notes payable of $600,000 and $750,000 pursuant to the purchase
of East Coast Facilities and Highlander Facilities, respectively (see Note 7).
Such notes are secured by certain real property and equipment comprising the
respective golf centers.
In April 1996, the Company incurred a capital lease obligation of approximately
$1.2 million in connection with the acquisition of McDain Golf Center (see Note
7). In addition, the Company incurred another capital lease obligation of
approximately $1.2 million as part of the acquisition of Rollandia Golf Park
Plus in September 1996 (see Note 7).
4. ARBITRATION CLAIMS
In August 1995, Paragon brought an arbitration claim against a customer for
breach of contract. Paragon alleges it has properly completed the construction
relating to the renovation of the customer's golf course and is seeking final
payment of retainage and related amounts due, together with additional damages,
totaling approximately $345,000. Simultaneous to this claim of arbitration, the
customer filed a counterclaim of arbitration against Paragon for alleged
construction defects in the renovation of its golf course. Although the customer
recently claims its damages are in excess of $2 million, the initial claim
submitted by the customer in arbitration was for $750,000. The ultimate outcome
of this matter is not determinable at this time; accordingly no provision for
loss regarding this matter has been established at September 30, 1996.
5. OPERATIONS OF JNAI
The apparel licensing activities of the Company are conducted through Jack
Nicklaus Apparel International ("JNAI") and its various partnerships. The
Company serves as a 50% general partner and is generally entitled to receive 50%
to 66-2/3% of the cash distributions of the various partnerships' operations.
The Company's investment in JNAI is recorded on the equity method.
The following is a summary of the financial results of JNAI:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------------------- --------------------------------------
1995 1996 1995 1996
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
License revenues $ 760,395 $ 540,867 $ 2,400,465 $ 2,310,819
Operating expenses 303,221 137,575 699,630 499,592
Tax provision 140,074 23,490 392,484 235,433
================= ================= ================= ================
Net income $ 317,100 $ 379,802 $ 1,308,351 $ 1,575,794
================= ================= ================= ================
</TABLE>
8
<PAGE>
6. RELATED PARTY TRANSACTIONS
The amounts included in the accompanying combined condensed balance sheets under
the caption "Due from GBI" consist of the following:
DECEMBER 31, SEPTEMBER 30,
1995 1996
---------------- ----------------
Paragon $ 637,210 $ 9,183
GBI Carveout 9,936 ---
Golden Bear Golf, Inc. --- 349,912
---------------- ----------------
$ 647,146 $ 359,095
================ ================
The $349,912 current balance due Golden Bear Golf, Inc. at September 30, 1996 is
comprised primarily of commissions on certain design related revenues collected
by Nicklaus Design, a division of GBI and amounts owed by GBI in connection with
the reimbursement of certain allocated payroll and other costs which are paid by
the Company.
In June 1996, members of management and certain Nicklaus Family Members
purchased capital stock of Golf Centers for an aggregate price of $1.5 million.
The shares were sold to members of management for $600,000. The fair value of
the shares sold to management at the date of issuance was deemed to be the
estimated initial public offering price of $15 per share which resulted in the
recognition of compensation expense in the amount of $3 million.
In April 1994, Paragon entered into a fixed price contract to construct a
certain golf course located in Middle Smithfield Township, Pennsylvania on which
the design work was to be performed by Nicklaus Design. Pursuant to the
agreements among Paragon, Nicklaus Design and the owner of the project, a
portion of the compensation payable by the owner was represented by certain
contingent compensation payable to Nicklaus Design based on a share of the golf
club membership sales that were to be generated upon completion of the project.
In September 1996, Paragon received a change order aggregating $750,000 for
certain additional services and contract extras to be provided in addition to
the original fixed price services previously agreed to. Such additional work was
requested in order to enhance the quality of the project so that the finished
product would meet the standards of Nicklaus Design and Jack Nicklaus as
designers of the golf course. Under the terms of the change order, $750,000 is
payable by the owner of the project to Paragon in a lump sum on or before
December 31, 1997. In connection with the foregoing agreement by the owner,
Nicklaus Design has agreed to grant the owner a $750,000 credit against the
total contingent compensation Nicklaus Design would otherwise be entitled to
receive from golf club membership sales.
7. ACQUISITIONS
On April 15, 1996, the Company entered into a long-term lease agreement with
McDain Golf Center of Monroeville (an existing golf practice and instruction
facility located in the greater Pittsburgh, Pennsylvania area). The portion of
the long-term lease attributable to building and improvements has been accounted
for as a capital lease totaling approximately $1.2 million.
On June 17, 1996, the Company purchased Cool Springs Golf Center (an existing
golf practice and instruction facility located in Pittsburgh, Pennsylvania) for
approximately $2.9 million. The fair value of the net assets acquired
(substantially all property and equipment) was approximately $2.6 million which
resulted in the recording of approximately $300,000 of goodwill. The goodwill is
recorded in intangibles and other assets at September 30, 1996 and is being
amortized over a term of 30 years.
On August 7, 1996, the Company consummated the acquisition of certain assets
utilized in connection with the Tom's River Golf Center (an existing golf
practice and instruction facility located in Tom's River, New Jersey) and the
lease of the related real property. The lease is for a term of 20 years and may
be extended for two five-year terms. The purchase price for the assets was $1.9
million, paid in cash at the closing. The purchase price for the assets was
funded from the proceeds of the Company's initial public offering.
9
<PAGE>
7. ACQUISITIONS - (CONTINUED)
On September 9, 1996, the Company consummated the acquisition of certain assets
utilized in connection with Rollandia Golf Park Plus (an existing golf practice
and instruction facility located in the Dayton, Ohio area) and the lease of the
related real property. The lease is for a term of 20 years and the Company has
been granted certain options to purchase the leased premises and a right of
first refusal with respect to proposed sales of the leased premises throughout
the term of the lease. The portion of the long-term lease attributable to
buildings and improvements has been accounted for a capital lease totaling
approximately $1.2 million. The purchase price for the assets was $1.1 million,
which was paid in cash at the closing from the proceeds of the Company's initial
public offering.
On September 11, 1996, the Company purchased certain assets utilized in
connection with East Coast Facilities (comprised of an existing Golden Bear Golf
Center located in Columbus, Ohio and a Golden Bear Golf Center currently under
development in Fort Lauderdale, Florida) and assumed the existing leases related
to the real property at these locations. The purchase price for the facilities
was approximately $5.9 million, of which $5.3 million was paid in cash at the
closing and $600,000 is evidenced by promissory notes. The $5.3 million paid at
closing was funded from the proceeds of the Company's initial public offering.
The fair value of the net assets acquired (substantially all property and
equipment) was approximately $4.2 million which resulted in the recording of
$1.7 million of goodwill. The goodwill is recorded in intangibles and other
assets at September 30, 1996 and is being amortized over a term of 20 years.
On September 13, 1996, the Company consummated the acquisition and lease of
certain assets utilized in connection with Highlander Facilities (comprised of
an existing Golden Bear Golf Center located in Carrollton, Texas and an existing
Golden Bear Golf Center located in Moreno Valley, California). The Company
purchased the facility located in Texas for $2.25 million, of which $1.5 million
was paid at closing and $750,000 is evidenced by a promissory note. The $1.5
million paid at closing was funded from the proceeds of the Company's initial
public offering. The fair value of the net assets acquired (substantially all
property and equipment) was approximately $1.4 million which resulted in the
recording of $816,000 of goodwill. The goodwill is recorded in intangibles and
other assets at September 30, 1996 and is being amortized over a term of 25
years. The Company also entered into a ground lease for the underlying real
property of the Texas facility for a term of 15 years, which may be extended for
two additional five year terms. The Company has the right of first refusal with
regard to proposed sales of the leased premises throughout the term of the
lease. With respect to the facility located in California, the Company entered
into a ground lease for the real property and an operating lease of the
facility. Both the ground lease and the operating lease are for a period of ten
years, renewable for two additional five year terms.
Had these acquisitions occurred as of January 1, 1995, the Company's summarized
unaudited results of operations would have been as follows:
FOR THE NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
1995 1996
---------------- ----------------
Total revenues $ 25,265,168 $ 26,040,382
Operating income (loss) $ 915,998 $ (3,047,166)
Pro forma net income (loss) $ 161,221 $ (3,168,493)
Pro forma net income (loss) per
share of common stock $ 0.05 $ (0.89)
Additional information regarding these acquisitions is contained in the
Company's S-1 filing with the Securities and Exchange Commission and in its
current report on Form 8-K dated September 9, 1996, which reported information
under Item 2. "Acquisition or Disposition of Assets."
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following is a discussion of the financial condition and results of
operations of the Company for the three and nine-month periods ended September
30, 1995 and 1996. This discussion supplements the detailed information
presented in the Combined Condensed Financial Statements and Notes thereto
(which should be read in conjunction with the financial statements and related
notes contained in Golden Bear's filing on Form S-1 and amendments thereof) and
is intended to assist the reader in understanding the financial results and
condition of the Company.
OVERVIEW
The Company operates its business through three principal groups: the Golf
Division, the Construction Division and the Marketing Division. The Golf
Division owns, operates and licenses the Company's golf practice and instruction
facilities under the JACK NICKLAUS GOLF CENTER, JACK NICKLAUS ACADEMY OF GOLF
and GOLDEN BEAR GOLF CENTER brand names, is involved in the marketing of golf
course design services on behalf of designers, primarily Nicklaus Design, and
provides golf course management and consulting services throughout the world.
The Construction Division provides technical construction services in connection
with the construction and renovation of golf courses. The Marketing Division is
involved primarily in the licensing of NICKLAUS, JACK NICKLAUS and GOLDEN BEAR
branded products throughout the world, the operation of the NICKLAUS/FLICK GOLF
SCHOOLS and the generation of marketing fees related to Jack Nicklaus' personal
endorsements (which are reflected in the Company's statement of operations under
the heading related party commissions).
Consistent with the Company's strategy to increase its ownership and operation
of golf practice and instruction facilities, the Company recently entered into
purchase, lease and management agreements pursuant to which it commenced
operations of seven existing golf practice and instruction facilities and one
facility under development. In addition, the Company has entered into
negotiations with respect to the acquisition or lease of several additional
existing golf practice and instruction facilities and one facility under
development. While there is no assurance that any such additional facilities
will be acquired, the Company is seeking to acquire or develop a total of ten
facilities during 1996 and an additional twelve facilities by the end of 1997.
While there is no assurance that the Company will achieve continued growth, the
Company believes that its growth will continue as it pursues its business plan
to acquire additional golf practice and instruction facilities and to expand its
construction and licensing operations. The Company expects that 1996 will be a
transition year as it focuses its efforts on acquiring golf practice and
instruction facilities, invests in additional management information systems and
personnel to support its growth strategy and a new licensee commences its
activities with respect to certain of the Company's branded products. While
revenues in 1996 are expected to increase compared to 1995 as a consequence of
the acquisition of golf practice and instruction facilities, the costs
associated with the foregoing items, the costs associated with such acquisitions
and the integration of the operations of the acquired facilities into the
Company and the costs associated with being a public company are expected to
result in decreased operating income for 1996 as compared to 1995.
11
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH THREE MONTHS ENDED SEPTEMBER
30, 1995
Total revenues for the three months ended September 30, 1996 increased 4.9% over
the comparable period of 1995. The increase in total revenues was principally
the result of an increase in Golf Division revenues to $1.8 million for the
three months ended September 30, 1996 from $0.7 million for the comparable
period of 1995, attributable to the recent acquisition of seven operating golf
centers. Marketing Division revenues increased by $0.3 million or 22.2% for the
three months ended September 30, 1996 compared to the same quarterly period of
1995, due primarily to an increase in golf instruction revenues. Marketing
Division revenues attributable to the Company's licensing activities and income
from the operations of JNAI remained relatively constant for the three months
ended September 30, 1996 in relation to the comparable period of 1995. The
increases in Golf Division and Marketing Division revenues were offset in part,
by a $0.9 million or 12.7% decrease in Construction Division revenues.
Operating income decreased to $0.2 million for the three months ended September
30, 1996 from $0.4 million for the comparable period of 1995. As a percentage of
total revenues, operating income decreased to 1.9% for the three months ended
September 30, 1996 as compared to 4.5% for the comparable period of the prior
year. The decrease in operating income resulted from increased operating
expenses and corporate overhead, offset in part by an increase in the gross
margin realized in the Construction Division. The gross margin realized by the
Construction Division increased due primarily to a differing mix of projects in
process during the current quarterly period. Operating expenses as a percentage
of total revenues were 32.9% and 17.8% for the three months ended September 30,
1996 and 1995, respectively. The increase in operating expenses resulted
primarily from additional expenses incurred to support the expansion of the
Company's businesses.
Corporate overhead, consisting primarily of corporate headquarters rent and
occupancy costs, as well as corporate management and employees, increased to
$1.1 million for the three months ended September 30, 1996 from $0.8 million for
the three months ended September 30, 1995. Management anticipates that corporate
overhead will continue to increase due to planned systems upgrades and additions
of personnel, together with the increased costs associated with operating the
Company as a separate public company and the expansion of the Company's
businesses.
Interest income of $0.2 million for the three months ended September 30, 1996
was primarily attributable to earnings on the unexpended proceeds from the
Company's initial public offering which have been invested in short-term
commercial paper instruments and repurchase agreements. Interest income for the
three months ended September 30, 1995 was not material to the Company's results
of operations.
Prior to the reorganization of the Company which was consummated on August 1,
1996 upon the closing of its initial public offering, Golf Centers and Paragon
were S Corporations for Federal and state income tax reporting purposes and GBI
Carveout was a division of GBI, which was also an S Corporation. As S
corporations prior to the reorganization, Golf Centers, Paragon and GBI have
historically only paid foreign income taxes and have not paid United States
Federal and state income taxes. Because the Company became a C corporation as of
the date of the reorganization, a pro forma income tax expense (benefit) has
been included in the Company's combined condensed statements of operations for
informational purposes as if the relevant entities were C corporations during
the periods presented. The Company expects to recognize tax credits for foreign
taxes paid against its United States income tax obligation. The pro forma United
States income taxes were based on an approximate effective rate of 40%.
12
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH NINE MONTHS ENDED SEPTEMBER
30, 1995
Total revenues for the nine months ended September 30, 1996 increased 8.2% over
the comparable period of 1995. The increase in total revenues was principally
the result of an increase in Golf Division revenues to $3.2 million in the nine
months ended September 30, 1996 from $1.7 million in the comparable period of
1995, attributable primarily to the recent acquisitions of seven operating golf
centers. The Company's Construction Division revenues remained relatively
constant at approximately $13.7 million and $13.5 million for the nine months
ended September 30, 1996 and 1995, respectively. Marketing Division revenues
also remained constant at $5.8 million for the nine months ended September 30,
1996 and 1995, despite a decrease in golf instruction revenues of approximately
$0.4 million which was offset by increased revenues from licensing and other
operations. The decrease in golf instruction revenues resulted primarily from
reduced revenues attributable to a significant corporate client during 1996.
The Company incurred a net operating loss for the nine months ended September
30, 1996 due primarily to a one-time charge of $3.0 million associated with the
purchase of shares of Golf Centers by certain executives (see Note 6 of the
Combined Condensed Financial Statements). Exclusive of the effect of the
one-time expense, operating income would have decreased approximately $0.9
million during the nine-month period ended September 30, 1996 as compared to the
comparable period of 1995. Exclusive of the effect of the one-time charge,
operating income as a percentage of total revenues decreased to 2.8% in the nine
months ended September 30, 1996 from 7.2% in the comparable period for 1995.
This decrease was primarily a result of increased operating expenses and
corporate overhead, offset in part by an increase in the gross margin realized
by the Construction Division. The gross margin realized in the Construction
Division increased due primarily to a differing mix of projects in process
during the current nine-month period. Operating expenses as a percentage of
total revenues were 34.2% and 25.9% for the nine months ended September 30, 1996
and 1995, respectively. The increase in operating expenses resulted primarily
from additional expenses incurred to support the expansion of the Company's
businesses.
Corporate overhead, consisting primarily of corporate headquarters rent and
occupancy costs, as well as corporate management and employees, increased to
$2.7 million for the nine months ended September 30, 1996 from $2.3 million for
the three months ended September 30, 1995. Management anticipates that corporate
overhead will continue to increase due to planned systems upgrades and additions
of personnel, together with the increased costs associated with operating the
Company as a separate public company and the expansion of the Company's
businesses.
Interest income of $0.2 million for the nine months ended September 30, 1996 was
primarily attributable to earnings on the unexpended proceeds from the Company's
initial public offering which have been invested in short-term commercial paper
instruments and repurchase agreements. Interest income for the nine months ended
September 30, 1995 was not material to the Company's results of operations.
Prior to the reorganization of the Company which was consummated on August 1,
1996 upon closing of its initial public offering, Golf Centers and Paragon were
S Corporations for Federal and state income tax reporting purposes and GBI
Carveout was a division of GBI, which was likewise an S Corporation. As S
corporations prior to the reorganization, Golf Centers, Paragon and GBI have
historically only paid foreign income taxes and have not paid United States
Federal and state income taxes. Because the Company became a C corporation as of
the date of the reorganization, a pro forma income tax expense (benefit) has
been included in the Company's combined condensed statements of operations for
informational purposes as if the relevant entities were C corporations during
the periods presented. The Company expects to recognize tax credits for foreign
taxes paid against its United States income tax obligation. The calculation of
pro forma income taxes reflects a deduction of $200,000 on the compensation
recorded in connection with the purchase of shares by executives of the Company
(see discussion above). The pro forma United States income taxes were based on
an approximate effective rate of 40%.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On August 1, 1996, Golden Bear closed an initial public offering of 2,484,000
shares of its Class A Common Stock and received net proceeds (after deducting
underwriting discounts and offering costs) of approximately $35.3 million.
Approximately $1.6 million of the proceeds were utilized to repay indebtedness
owed to Jack Nicklaus in connection with the acquisition of the Cool Springs
Golf Center. In addition, approximately $9.9 million of the proceeds have been
used to fund the acquisition of certain other golf centers through September 30,
1996. The remaining proceeds, which have been invested in short-term commercial
paper instruments and repurchase agreements, will be used for working capital
and general corporate purposes including the acquisition and development of golf
practice and instruction facilities, additional advertising and expansion of the
Company's product development efforts, both domestically and internationally.
Net cash used in operations was $1.1 million during the nine months ended
September 30, 1996 compared to net cash provided by operations of $1.7 million
in the comparable period of 1995. The decrease in net cash provided by (used in)
operations was primarily attributable to changes in the account balances
associated with accounts payable, accounts receivable, accrued expenses and
costs and estimated earnings in excess of billings on uncompleted contracts for
the respective periods, together with a decrease in income before proforma
income taxes for the nine months ended September 30, 1996. Exclusive of the
effect of a one-time, noncash charge of $3.0 million associated with the
purchase of shares of Golf Centers by certain executives (see Note 6 of the
Combined Condensed Financial Statements) during the nine months ended September
30, 1996, income before pro forma income taxes would have decreased
approximately $0.6 million for the nine months ended September 30, 1996 as
compared to the comparable period of 1995.
As further discussed in Notes 3 and 7 of Notes to Combined Condensed Financial
Statements, net property and equipment and notes payable increased primarily as
a result of certain acquisitions which occurred during the second and third
quarters of 1996. These transactions are reflected on the Combined Condensed
Statement of Cash Flows for the nine months ended September 30, 1996 as
investing and financing activities.
The Company believes that the net proceeds of the initial public offering,
together with cash provided by operations, will be sufficient to meet its
operating needs and anticipated capital expenditures and acquisition
requirements through the second quarter of 1997. Beyond such period, the Company
will be required to secure debt financing or raise additional capital in order
to pursue its planned acquisition and expansion strategy.
CURRENCY FLUCTUATIONS
Although substantially all of the Company's contracts are denominated in United
States dollars, fluctuations in the value of foreign currencies relative to the
United States dollar impact the Company's results of operations. A substantial
portion of the revenues of the Company's overseas licensees are generated in
foreign currencies and, accordingly, fluctuations in the value of these
currencies relative to the United States dollar could have a material adverse
effect on the Company's profitability. Royalty payments received by the Company
relating to foreign licensing arrangements are generally based on the exchange
rate at the time of payment. In addition, the Company's construction contracts
are also denominated in United States dollars and, accordingly, the effective
cost to customers for construction services performed overseas will increase or
decrease as foreign currencies fluctuate relative to the United States dollar,
unless the Company changes its United States dollar prices to reflect the
fluctuations in currency. The Company does not currently engage in hedging
activities with respect to such currency fluctuations, but intends to do so in
the near future.
14
<PAGE>
FORWARD-LOOKING STATEMENTS AND ASSOCIATED RISKS
Except for historical information contained herein, the matters discussed in
this report are forward-looking statements made pursuant to the safe harbor
provisions of the Securities Litigation Reform Act of 1995. These
forward-looking statements are based largely on the Company's expectations and
are subject to a number of risks and uncertainties, including but not limited
to, economic, competitive and other factors affecting the Company's operations,
markets, products and services, expansion strategies and other factors discussed
elsewhere in this report and the documents filed by the Company with the
Securities and Exchange Commission. Many of these factors are beyond the
Company's control. Actual results could differ materially from these
forward-looking statements. In light of these risks and uncertainties, there can
be no assurance that the forward-looking information contained in this report
will, in fact, occur.
15
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated September 9, 1996 under
Item 2. "Acquisition or Disposition of Assets," which reported the
acquisitions by the Company of Rollandia Golf Park Plus, East Coast
Facilities and Highlander Facilities. See Note 7 of the Combined
Condensed Financial Statements included herein under Part I, Item 1.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GOLDEN BEAR GOLF, INC.
/s/RICHARD P. BELLINGER
--------------------------------------------------
Richard P. Bellinger
President and Chief Executive Officer
/s/JACK P. BATES
--------------------------------------------------
Jack P. Bates
Senior Vice President and Chief Financial Officer
Date: November 14, 1996
17
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM GOLDEN BEAR
GOLF, INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 23,459,008
<SECURITIES> 0
<RECEIVABLES> 6,920,266
<ALLOWANCES> 503,778
<INVENTORY> 0
<CURRENT-ASSETS> 32,841,636
<PP&E> 16,929,468
<DEPRECIATION> 1,766,942
<TOTAL-ASSETS> 50,911,202
<CURRENT-LIABILITIES> 7,844,068
<BONDS> 4,855,448
0
0
<COMMON> 54,890
<OTHER-SE> 38,156,796
<TOTAL-LIABILITY-AND-EQUITY> 50,911,202
<SALES> 13,654,879
<TOTAL-REVENUES> 22,652,852
<CGS> 11,298,458
<TOTAL-COSTS> 19,053,835
<OTHER-EXPENSES> 5,955,405
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 93,569
<INCOME-PRETAX> (2,222,071)
<INCOME-TAX> 213,368
<INCOME-CONTINUING> (2,435,439)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,435,439)
<EPS-PRIMARY> (0.68)
<EPS-DILUTED> (0.68)
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