SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 10-Q
(X) QUARTERLY REPORT ( ) TRANSITION REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly
Period Ended JUNE 30, 1996 Commission File No. 333-05581
GOLDEN BEAR GOLF, INC.
(Exact name of Registrant as specified in its charter)
FLORIDA APPLIED FOR
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
11780 U.S. HIGHWAY ONE NORTH PALM BEACH, FLORIDA 33408
(Address of principal executive offices) Zip Code
(561) 626-3900
(Registrant's telephone number, including area code)
SAME
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 [ ] No [X]
The Registrant had outstanding 2,724,000 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 September 9, 1996.
<PAGE>
GOLDEN BEAR GOLF, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED JUNE 30, 1996
INDEX
PAGE
PART I. FINANCIAL STATEMENTS
Item 1. Financial Statements
Combined Condensed Balance Sheets 1
Combined Condensed Statements of Operations 2
Combined Condensed Statements of Cash Flows 3
Notes to Combined Condensed Financial Statements 4
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 12
Signatures 13
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
COMBINED CONDENSED BALANCE SHEETS
DECEMBER 31, JUNE 30,
1995 1996
------------- -------------
(UNAUDITED)
ASSETS
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents $ 377,796 $ 88,828
Accounts receivable, net of allowances 6,366,435 6,506,563
Due from GBI 647,146 -
Costs and estimated earnings in excess of billings on
uncompleted contracts 666,338 1,436,540
Prepaid expenses and other current assets 226,385 320,704
------------- -------------
Total current assets 8,284,100 8,352,635
PROPERTY AND EQUIPMENT, net 582,586 4,658,947
OTHER ASSETS 39,673 1,119,266
------------- -------------
Total assets $8,906,359 $14,130,848
========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 4,268,808 $ 4,195,041
Accrued expenses and other 2,040,684 1,782,817
Due to GBI - 136,927
Billings in excess of costs and estimated earnings on
uncompleted contracts 602,990 1,014,864
Deferred revenue 700,824 923,451
Current portion of notes payable 219,225 2,117,863
------------- -------------
Total current liabilities 7,832,531 10,170,963
------------- -------------
NOTES PAYABLE, net of current portion 43,510 1,413,574
------------- -------------
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 shares issued and outstanding 2,400 2,400
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 5,340,000
Retained earnings (deficit) 160,318 (2,823,689)
------------- -------------
Total shareholders' equity 1,030,318 2,546,311
------------- -------------
Total liabilities and shareholders' equity $8,906,359 $14,130,848
========== ===========
</TABLE>
The accompanying notes to combined condensed financial
statements are an integral part of these combined
condensed financial statements.
1
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
COMBINED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------- ------------------------------
1995 1996 1995 1996
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Golf Division-
Golf centers and academy fees
and royalties $ 189,611 $ 596,596 $ 314,986 $ 830,548
Related party management fees 465,000 388,127 704,000 687,666
----------- ------------ ------------ ------------
Total golf division 654,611 984,723 1,018,986 1,518,214
----------- ------------ ------------ ------------
Construction Division 4,593,305 5,116,729 6,027,985 7,172,623
----------- ------------ ------------ ------------
Marketing Division-
Golf instruction revenues 1,542,185 1,182,121 2,683,956 2,143,158
Licensing and other revenues 460,946 777,622 961,057 1,238,850
Income from operations of JNAI 284,485 273,286 487,625 597,993
Related party commissions 151,875 108,750 281,250 187,500
----------- ------------ ------------ ------------
Total marketing division 2,439,491 2,341,779 4,413,888 4,167,501
----------- ------------ ------------ ------------
Total revenues 7,687,407 8,443,231 11,460,859 12,858,338
----------- ------------ ------------ ------------
OPERATING COSTS AND EXPENSES:
Construction and shaping costs 3,814,085 4,481,026 5,071,405 6,048,566
Operating expenses 2,090,097 2,528,784 3,701,472 4,524,030
Compensation recorded on sale of
shares to management - 3,000,000 - 3,000,000
Corporate overhead 787,506 911,267 1,501,558 1,661,733
Depreciation and amortization 58,033 91,579 111,338 163,786
----------- ------------ ------------ ------------
Total operating costs and expenses 6,749,721 11,012,656 10,385,773 15,398,115
----------- ------------ ------------ ------------
Operating income (loss) 937,686 (2,569,425) 1,075,086 (2,539,777)
----------- ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest income 14,326 3,120 15,678 7,476
Interest expense (4,556) (32,728) (8,610) (45,070)
Other (13,334) (686) (14,689) 11,430
----------- ------------ ------------ ------------
Total other expense (3,564) (30,294) (7,621) (26,164)
----------- ------------ ------------ ------------
Income (loss) before income taxes 934,122 (2,599,719) 1,067,465 (2,565,941)
FOREIGN TAX PROVISION 118,617 24,790 190,407 25,376
----------- ------------ ------------ ------------
Income (loss) before pro forma
income taxes 815,505 (2,624,509) 877,058 (2,591,317)
PRO FORMA INCOME TAX PROVISION
(BENEFIT) (Note 1) 156,437 30,984 71,935 (14,616)
----------- ------------ ------------ ------------
Pro forma net income (loss) $ 659,068 $ (2,655,493) $ 805,123 $(2,576,701)
=========== ============ ============ ===========
Pro forma net income (loss) per share of
common stock $0.22 $(0.89) $0.27 $(0.86)
===== ====== ===== ======
Weighted average number of common
stock and common stock equivalents
outstanding 3,000,000 3,000,000 3,000,000 3,000,000
========= ========= ========= =========
</TABLE>
The accompanying notes to combined condensed financial
statements are an integral part of these combined
condensed financial statements.
2
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
COMBINED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS ENDED
JUNE 30,
--------------------------------
1995 1996
------------- ------------
<S> <C> <C>
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ 547,488 $ (199,732)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of Cool Springs Golf Center - (2,924,777)
Capital expenditures (89,914) (314,127)
------------- -------------
Net cash used in investing activities (89,914) (3,238,904)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock - 1,500,000
Proceeds from notes payable 352,750 453,220
Proceeds from notes payable - shareholder - 1,625,000
Payments on notes payable (30,741) (35,862)
Divisional transfers to GBI (448,149) (392,690)
-------------- -------------
Net cash provided by (used in) financing activities (126,140) 3,149,668
-------------- ------------
Net increase (decrease) in cash and
cash equivalents 331,434 (288,968)
CASH AND CASH EQUIVALENTS, beginning of period 441,308 377,796
------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 772,742 $ 88,828
============= ============
NONCASH ACTIVITIES:
McDain acquisition accounted for as a capital lease - $ 1,226,344
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.
3
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO COMBINED CONDENSED FINANCIAL STATEMENTS
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 six-month periods
ended June 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 "Companies") and Golden Bear International, Inc. ("GBI"). Pursuant to the
exchange agreement, Golden Bear acquired all of the outstanding common stock of
the 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 Companies had common stockholders and management. Therefore, the
financial statements of Golden Bear and the Companies are presented in a
combined format. In connection with the initial public offering, the Company had
incurred offering costs of approximately $0.6 million (included in other assets)
at June 30, 1996. These costs have now been netted against the proceeds of the
initial public offering.
PRO FORMA INCOME TAXES
Prior to the reorganization, Golf Centers and Paragon were S Corporations for
Federal income tax reporting purposes. GBI Carveout was a division of GBI, an S
Corporation. Foreign tax provision represents taxes paid or accrued on the
Companies' foreign operations as foreign jurisdictions do not recognize the S
Corporation status.
The pro forma income tax provision (benefit) is included in the combined
condensed statements of operations and is presented for informational purposes
as if the domestic operations of the Companies were C Corporations during the
periods presented. Generally, foreign taxes paid will serve to reduce the
Companies' U.S. tax obligation. Pro forma taxes have been presented to reflect
this benefit and to reduce the historical effective tax rate to an overall
estimated effective rate of approximately 39%.
4
<PAGE>
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, JUNE 30,
1995 1996
------------- -------------
<S> <C> <C>
Costs incurred on uncompleted contracts $16,614,195 $19,923,786
Estimated earnings 2,116,225 3,289,454
------------- -------------
18,730,420 23,213,240
Less: Billings to date 18,667,072 22,791,564
------------- -------------
$ 63,348 $ 421,676
============= =============
</TABLE>
Such amounts are included in the accompanying combined condensed balance sheets
under the following captions:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
------------- -------------
<S> <C> <C>
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 666,338 $1,436,540
Billings in excess of costs and estimated
earnings on uncompleted contracts (602,990) (1,014,864)
------------- -------------
$ 63,348 $ 421,676
============= =============
</TABLE>
3. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------ --------
1995 1996
<S> <C> <C>
Note payable - shareholder $ - $ 1,625,000
Capital lease - 1,224,274
Revolving credit note 150,000 603,220
Secured credit note 112,735 78,943
--------- -----------
262,735 3,531,437
Less: Current portion (219,225) (2,117,863)
--------- -----------
$ 43,510 $ 1,413,574
========= ===========
</TABLE>
In June 1996, Jack Nicklaus advanced to 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.
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).
5
<PAGE>
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 other amounts due, totaling $238,053. In addition,
Paragon is seeking additional damages of $144,820. 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. The
customer is seeking damages in the amount of $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 June 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 (in thousands):
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------- ------------------
1995 1996 1995 1996
----- ----- ----- --------
License revenues $958 $889 $1,640 $1,770
Operating expenses 227 226 396 362
Tax provision 163 117 268 212
----- ----- ----- --------
Net income $568 $546 $ 976 $1,196
==== ==== ===== ======
Certain amounts in prior periods' financial statements have been reclassified to
conform to the current period's condensed presentation.
6. RELATED PARTY TRANSACTIONS
"Due from (to) GBI" consists of the following:
DECEMBER 31, JUNE 30,
1995 1996
---------- -----------
Paragon $ 637,210 $(223,943)
Golf Centers - (66,915)
GBI Carveout 9,936 153,931
---------- -----------
$ 647,146 $(136,927)
========== =========
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 $0.6 million. The fair value
of the shares sold to management at the date of issuance was deemed to be the
assumed initial public offering price of $15 per share which resulted in the
recognition of compensation expense in the amount of $3 million.
6
<PAGE>
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 $0.3 million of goodwill. The
goodwill is recorded in other assets at June 30, 1996 and is being amortized
over a term of 30 years.
The acquisition of these golf centers did not have a material effect on the
operations of the Company during the three-month and six-month periods ended
June 30, 1996. Additional information regarding these acquisitions and
prospective acquisitions is contained in the Company's S-1 filing with the
Securities and Exchange Commission.
8. SUBSEQUENT EVENT
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, in accordance with an agreement, dated as of
April 26, 1996, among the Company and First Sports Capital Development
Associates, Ltd., Inc. 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
dollars, paid in cash at the closing.
The purchase price for the assets was funded from the Company's working capital.
7
<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 six-month periods ended June 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 three existing golf practice and instruction facilities and has
entered into letter agreements or letters of intent with respect to the
acquisition or lease of four additional existing golf practice and instruction
facilities and two facilities 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 contemplated acquisitions 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.
8
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996 COMPARED
WITH THREE MONTHS ENDED JUNE 30, 1995
Total revenues for the three months ended June 30, 1996 increased 9.8% over the
comparable period of 1995. The increase in total revenues was principally the
result of an increase in Construction Division revenues to $5.1 million in the
three months ended June 30, 1996 from $4.6 million in the comparable period of
1995, attributable primarily to an increase in the number of construction and
shaping projects in process. Golf Division revenues increased to $1.0 million in
the three months ended June 30, 1996, from $0.7 million in the comparable period
of 1995 due primarily to increased revenues from golf centers and academy fees
and royalties which was partly offset by a decrease in related party management
fees. The increase in revenues from golf centers and academy fees and royalties
was primarily attributable to an increase in the number of owned facilities
while the decrease in related party management fees resulted primarily from a
decrease in commissions associated with the collections of Nicklaus Design. The
Company's Marketing Division revenues remained relatively constant at
approximately $2.3 million and $2.4 million in the three months ended June 30,
1996 and 1995, respectively, despite a decrease of approximately $0.4 million in
golf instruction revenues during the same period. The decrease in golf
instruction revenues primarily resulted from the loss of a significant corporate
client during 1996.
The Company incurred a net operating loss for the three months ended June 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 Notes to
Combined Condensed Financial Statements). Exclusive of the effect of the
one-time charge, operating income would have decreased approximately $0.5
million during the three-month period ended June 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 5.1% in the
three months ended June 30, 1996 from 12.2% in the comparable period for 1995.
This decrease was primarily a result of the lower gross margin realized in the
Construction Division and a relative increase in operating costs. The gross
margin in the Construction Division was 12.4% in the three months ended June 30,
1996 compared to 17.0% for the comparable period of 1995 which primarily
resulted from the differing mix of jobs during those two periods. Operating
costs as a percentage of total revenues were 30.0% in the three months ended
June 30, 1996 as compared to 27.2% for the comparable period of 1995. The
increase in operating costs resulted primarily from additional expenses incurred
to support the expansion of the Company's business.
Corporate overhead, consisting primarily of corporate headquarters rent and
occupancy costs, as well as corporate management and employees, remained
relatively constant at approximately $0.9 million and $0.8 million in the three
months ended June 30, 1996 and 1995, respectively. Management anticipates that
corporate overhead will increase due to planned systems upgrades and additions
to personnel as well as the increased costs associated with operating the
Company as a separate public company and the expansion of the Company's
business.
As S corporations, Golf Centers, Paragon and GBI have historically only paid
foreign income taxes and have not paid United States federal income taxes.
Because the Company will be a C corporation, 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 does not reflect a benefit for the
compensation expense recorded in connection with the purchase of shares by
executives of the Company (as discussed above) as the deductibility of this item
for United States federal income tax purposes has not yet been determined. The
pro forma United States income taxes were based on an approximate effective rate
of 39%.
9
<PAGE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED
WITH SIX MONTHS ENDED JUNE 30, 1995
Total revenues for the six months ended June 30, 1996 increased 12.2% over the
comparable period of 1995. The increase in total revenues was principally the
result of an increase in Construction Division revenues to $7.2 million in the
six months ended June 30, 1996 from $6 million in the comparable period of 1995,
attributable primarily to an increase in the number of construction and shaping
projects in process. Golf Division revenues increased to $1.5 million in the six
months ended June 30, 1996, from $1 million in the comparable period of 1995 due
primarily to increased revenues from golf centers and academy fees and royalties
which was partly offset by a decrease in related party management fees. The
increase in revenues from golf centers and academy fees and royalties was
primarily attributable to an increase in the number of owned facilities while
the decrease in related party management fees resulted primarily from a decrease
in commissions associated with the collections of Nicklaus Design. The Company's
Marketing Division revenues remained relatively constant at approximately $4.2
million and $4.4 million in the six months ended June 30, 1996 and 1995,
respectively, despite a decrease of approximately $0.5 million in golf
instruction revenues during the same period. The decrease in golf instruction
revenues primarily resulted from the loss of a significant corporate client
during 1996.
The Company incurred a net operating loss for the six months ended June 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 Notes to Combined
Condensed Financial Statements). Exclusive of the effect of the one-time
expense, operating income would have decreased approximately $0.6 million during
the six-month period ended June 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 3.6% in the six months ended June 30,
1996 from 9.4% in the comparable period for 1995. This decrease was primarily a
result of a relative increase in operating costs. Operating costs as a
percentage of total revenues were 35.2% in the six months ended June 30, 1996 as
compared to 32.3% for the comparable period of 1995. The increase in operating
costs resulted primarily from additional expenses incurred to support the
expansion of the Company's business. The gross margin in the Construction
Division remained relatively constant at approximately 15.7% and 15.8% in the
six months ended June 30, 1996 and 1995, respectively.
Corporate overhead, consisting primarily of corporate headquarters rent and
occupancy costs, as well as corporate management and employees, remained
relatively constant at approximately $1.7 million and $1.5 million in the six
months ended June 30, 1996 and 1995, respectively. Management anticipates that
corporate overhead will increase due to planned systems upgrades and additions
to personnel as well as the increased costs associated with operating the
Company as a separate public company and the expansion of the Company's
business.
As S corporations, Golf Centers, Paragon and GBI have historically only paid
foreign income taxes and have not paid United States federal income taxes.
Because the Company will be a C corporation, 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 does not reflect the compensation
expense 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 39%.
10
<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 estimated offering costs) of approximately $36
million. Approximately $1.6 million of the proceeds were utilized to repay
indebtedness incurred to Jack Nicklaus in connection with the acquisition of the
Cool Springs Golf Center. The remaining proceeds will be used for working
capital and general corporate purposes including the acquisition and development
of golf practice and instruction facilities, additional advertising and
expansions of the Company's product development efforts, both domestically and
internationally.
Net cash used in operations was $199,732 during the six months ended June 30,
1996 compared to net cash provided by operations of $547,488 in the comparable
period of 1995. The decrease in net cash provided by (used in) operating
activities was primarily due to an increase in costs and estimated earnings in
excess of billings on uncompleted contracts and a decrease in accrued expenses
and other which were partly offset by increases in billings in excess of costs
and estimated earnings on uncompleted contracts and a net decrease in due from
GBI. The changes in these balances are primarily attributable to the operations
of the Construction Division.
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 occurring during the second quarter of 1996.
These transactions are reflected on the combined condensed statement of cash
flows for the six months ended June 30, 1996 as investing and financing
activities.
While there is no assurance that the Company will be successful in its efforts,
the Company is seeking to obtain a $10-$15 million line of credit from a bank or
other financial institution. 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 first quarter of 1997. If the Company
obtains the line of credit it is seeking, the Company anticipates it will have
sufficient funds through 1997. Beyond such period, the Company will be required
to 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 may do so in the
future.
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.
11
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
2.1 Purchase and Sale Agreement, dated April 26, 1996,
between First Sports Capital Development Associates, Ltd., Inc. and Golden Bear
Golf Centers, Inc. (incorporated herein by reference to the Prospectus of the
Company, dated July 31, 1996, which has been filed with the Securities and
Exchange Commission).
23 Consent of Arthur Andersen, LLP
27 Financial Data Schedule (for SEC use only)
99.1 Financial statements of First Sports Capital Development
Associates, Ltd., Inc. for the year ended December 31, 1995 and for the three
months ended March 31, 1996 (incorporated herein by reference to the Prospectus
of the Company, dated July 31, 1996, which has been filed with the Securities
and Exchange Commission).
99.2 Pro forma financial statements for the acquisitions of McDain
Golf Center of Monroeville, Cool Springs Golf Center and Tom's River Golf
Center.
b. Reports on Form 8-K:
There were no reports on Form 8-K filed during the three-month
period ended June 30, 1996.
12
<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: September 10, 1996
13
EXHIBIT 23
ARTHUR
ANDERSEN
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
As independent certified public accountants, we hereby consent to the
incorporation by reference in the Quarterly Report on Form 10-Q and in the
Registration Statement on Form S-1 No. 333-106??1 of Golden Bear Golf, Inc. of
our report dated June 21, 1996, with respect to the financial statements of
First Sports Capital Development Associates Ltd., Inc. and of our report dated
June 7, 1996, with respect to the financial statements of Cool Springs, Inc.,
all included in Golden Bear Golf, Inc.'s Prospectus dated July 31, 1996.
ARTHUR ANDERSEN LLP
West Palm Beach, Florida,
September 10, 1996
<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 JUNE 30, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 88,828
<SECURITIES> 0
<RECEIVABLES> 6,506,563
<ALLOWANCES> 503,778
<INVENTORY> 0
<CURRENT-ASSETS> 8,352,635
<PP&E> 4,658,947
<DEPRECIATION> 1,684,661
<TOTAL-ASSETS> 14,130,848
<CURRENT-LIABILITIES> 10,170,963
<BONDS> 2,303,217
0
0
<COMMON> 30,000
<OTHER-SE> 2,516,311
<TOTAL-LIABILITY-AND-EQUITY> 14,130,848
<SALES> 7,172,623
<TOTAL-REVENUES> 12,858,338
<CGS> 6,048,566
<TOTAL-COSTS> 10,572,596
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 45,070
<INCOME-PRETAX> (2,565,941)
<INCOME-TAX> 25,376
<INCOME-CONTINUING> (2,591,317)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,591,317)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
GOLDEN BEAR GOLF, INC.
UNAUDITED PRO FORMA FINANCIAL INFORMATION
<PAGE>
GOLDEN BEAR GOLF, INC.
INTRODUCTION TO
UNAUDITED PRO FORMA FINANCIAL INFORMATION
GENERAL
The following Unaudited Pro Forma Consolidated Balance Sheet as of June 30, 1996
and the Unaudited Pro Forma Consolidated Statements of Operations for the six
months ended June 30, 1996 and for the year ended December 31, 1995 reflect
adjustments to Golden Bear Golf, Inc.'s ("Golden Bear" or the "Company")
historical financial position and results of operations to give effect to the
transactions discussed below as if such transactions had been consummated at
June 30, 1996 for the balance sheet purposes, or at the beginning of the period
presented for income statement purposes.
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
"Companies") and Golden Bear International, Inc. ("GBI"). Pursuant to the
exchange agreement, Golden Bear acquired all of the outstanding common stock of
the 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 Current")in exchange for 1,332,000
shares of Class B Common Stock. The transaction was accounted for on a
historical cost basis in a manner similar to a pooling of interests as Golden
Bear and the Companies have common stockholders and management.
The pro forma financial statements do not reflect the effect of expected
increases in levels of expenses as a result of an upgrade to Golden Bear's
management information systems, the addition of accounting personnel to
support its growth strategy and increased costs associated with operating the
Company as a separate public company. Such increases are not reflected because
they are not currently factually determinable or estimable.
The pro forma financial statements have been prepared by Golden Bear based, in
part, on the audited financial statements of certain of the businesses acquired
and to be acquired as required under the Securities Act, which financial
statements are included elsewhere in this report or in other filings of the
Company with the Securities and Exchange Commission, and the unaudited
financial statements of other businesses acquired, which financial statements
are included elsewhere in this report or in other filings of the Company with
the Securities and Exchange Commission, and the unaudited financial statements
of other businesses acquired which financial statements are, in certain
circumstances, not included herein, adjusted where necessary, with respect to
pre-acquisition periods, to the basis of accounting used in Golden Bear's
historical financial statements. These pro forma financial statements are not
intended to be indicative of the results that would have occurred on the dates
indicated or which may be realized in the future.
Certain amounts in prior periods' financial statements have been reclassified.
BUSINESSES ACQUIRED
Subsequent to December 31, 1995, the Companies entered into agreements pursuant
to which it acquired three golf practice and instruction facilities, two by
purchase and the other pursuant to a long-term lease.
P-1
<PAGE>
MCDAIN GOLF CENTER-
On April 15, 1996, Golden Bear entered into a long-term lease agreement with
McDain Golf Center of Monroeville, a Pennsylvania limited partnership, for the
lease of an existing golf practice and instruction facility in the greater
Pittsburgh area and has begun operating the facility as a Golden Bear Golf
Center. The lease is for a term of twenty-nine years and calls for annual
payments of $325,000 with annual cost of living increases commencing after the
fifth year. The Company has been granted an option to purchase the leased
premises for $2,000,000 in 2001. The Company has not yet determined whether it
will acquire the leased premises pursuant to the option.
For financial statement purposes, the portion of the long-term lease
attributable to building and improvements is considered a capital lease as the
net present value of the future payments exceeds 90% of the fair value of the
properties.
COOL SPRINGS GOLF CENTER-
On June 17, 1996, the Company purchased an existing golf practice and
instruction facility on 40.833 acres of land in Pittsburgh, Pennsylvania,
pursuant to purchase and sale agreements with Cool Springs, Inc. and William T.
Duckworth. The purchase price for the land and assets was $2.9 million.
TOM'S RIVER GOLF CENTER-
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, in accordance with an agreement, dated as of
April 26, 1996, among the Company and First Sports Capital Development
Associates, Ltd., Inc. 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
dollars, paid in cash at the closing. The purchase price for the assets was
funded from the Company's working capital.
P-2
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
ASSETS
BUSINESS
ACQUIRED
------------- PRO FORMA
TOM'S ACQUISITION FOR
ACTUAL RIVER ADJUSTMENTS ACQUISITION
---------- -------------- ---------------- ------------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 89 $ - $ - $ 89
Accounts receivable, net 6,507 - - 6,507
Costs and estimated earnings in excess
of billings on uncompleted contracts 1,437 - - 1,437
Prepaid expenses and other current assets 320 29 (29)(a) 320
--------- ----------- ---------- ---------
Total current assets 8,353 29 (29) 8,353
PROPERTY AND EQUIPMENT, net 4,659 2,285 (385)(b) 6,559
OTHER ASSETS 1,119 36 (36)(a) 1,119
--------- ----------- ---------- ---------
Total assets $ 14,131 $ 2,350 $ (450) $ 16,031
========= =========== ========== =========
</TABLE>
(Continued)
P-3
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
UNAUDITED PRO FORMA BALANCE SHEET
AS OF JUNE 30, 1996
(IN THOUSANDS)
(CONTINUED)
LIABILITIES AND SHAREHOLDERS' EQUITY
BUSINESS ACQUIRED
------------------ PRO FORMA
TOM'S ACQUISITION FOR
ACTUAL RIVER ADJUSTMENTS ACQUISITION
------------ ----------------- -------------- --------------
<S> <C> <C> <C> <C>
CURRENT LIABILITIES:
Accounts payable $ 4,195 $ 53 $ (53)(a) $ 4,195
Accrued expenses 1,783 125 (125)(a) 1,783
Due to stockholder and affiliates 137 375 (375)(a) 137
Billings in excess of costs and estimated
earnings on uncompleted contracts 1,015 1,015
Deferred revenue 923 923
Current portion of long term debt 2,118 28 (28)(a) 2,118
----------- ----------- -------- ---------
Total current liabilities 10,171 581 (581) 10,171
----------- ----------- -------- ---------
LONG TERM DEBT, net of current portion 1,900 (c)
1,414 512 (512)(a) 3,313
----------- ----------- --------- ---------
SHAREHOLDERS' EQUITY:
Common stock 30 30
Additional paid-in capital 5,340 1,354 (1,354)(a) 5,340
Deficit (2,824) (97) 97 (a) (2,824)
----------- ----------- -------- ---------
Total shareholders' equity 2,546 1,257 (1,257) 2,546
----------- ----------- -------- ---------
Total liabilities and shareholders' equity $ 14,131 $ 2,350 $ (450) $ 15,531
=========== =========== ======== =========
</TABLE>
P-4
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 1996
(In thousands, except per share data)
BUSINESSES ACQUIRED
-------------------------------------- PRO FORMA
COOL TOM'S ACQUISITION FOR
ACTUAL MCDAIN SPRINGS RIVER ADJUSTMENTS ACQUISITIONS
------ ------ ------- ----- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Golf division $ 1,518 $ 59 $ 389 $ 165 $ (80)(h) $ 2,051
Construction division 7,172 -- -- -- -- 7,172
Marketing division 4,168 -- -- -- -- 4,168
---------- ----------- --------- -------- --------- --------
12,858 59 389 165 (80) 13,391
---------- ----------- --------- -------- --------- --------
OPERATING COSTS AND EXPENSES:
Construction and shaping costs 6,049 -- -- -- 6,049
Operating expenses 4,523 59 353 113 (110)(h) 4,938
Compensation expense 3,000 -- -- -- -- 3,000
Corporate overhead 1,662 -- -- -- -- 1,662
Depreciation and amortization 164 17 8 31 5 (e) 225
---------- --------- --------- -------- --------- --------
15,398 76 361 144 (105) 15,874
---------- --------- --------- -------- --------- --------
Operating income (loss) (2,540) (17) 28 21 (25) (2,483)
OTHER INCOME (EXPENSE) (191)(d)
(26) -- 1 (15) 15 (f) (216)
---------- --------- -------- --------- --------- ---------
Income (loss) before foreign and
pro forma provision for income taxes (2,566) (17) 29 6 (151) (2,699)
ACTUAL AND PRO FORMA TAX PROVISIONS (BENEFITS) 11 -- 13 -- (59)(g) (35)
--------- -------- --------- --------- ---------
Net income (loss) $ (2,577) $ (17) $ 16 $ 6 $ (92) (2,664)
=========== ========= ======= ========= ========== =========
Net income per share $ (.86) (.89)
Weighted average number of common stock
and common stock equivalents outstanding 3,000
=========== 3,000
========
</TABLE>
P-5
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
(In thousands, except per share data)
BUSINESSES ACQUIRED
---------------------------------- PRO FORMA
COOL TOM'S ACQUISITION FOR
ACTUAL MCDAIN SPRINGS RIVER ADJUSTMENTS ACQUISITIONS
----------- --------- --------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
REVENUES:
Golf division $ 2,298 $ 469 $ 1,523 $ 424 $ (244) (h) $ 4,470
Construction division 19,177 - - - - 19,177
Marketing division 7,306 - - - - 7,306
----------- --------- --------- -------- ----------- -----------
28,781 469 1,523 424 (244) 30,953
----------- --------- --------- -------- ----------- -----------
OPERATING COSTS AND EXPENSES:
Construction and shaping costs 16,500 - - - - 16,500
Operating expenses 7,327 450 1,397 402 (336) (h) 9,240
Corporate overhead 3,121 - - - - 3,121
Depreciation and amortization 233 67 60 72 10 (f) 442
----------- --------- --------- -------- ---------- -----------
27,181 517 1,457 474 (326) 29,303
----------- --------- --------- -------- ---------- -----------
Operating income (loss) 1,600 (48) 66 (50) 82 1,650
OTHER INCOME (EXPENSE) (427) (d)
(1) (110) 12 (46) 156 (f) (416)
----------- --------- --------- -------- ---------- -----------
Income (loss) before foreign and
pro forma provision for income taxes 1,599 (158) 78 (96) (189) 1,234
ACTUAL AND PRO FORMA TAX PROVISIONS 230 (62) 36 (37) (74) (g) 93
----------- --------- --------- -------- ---------- -----------
Net income (loss) $ 1,369 $ (96) $ 42 $ (59) $ (115) $ 1,141
=========== ========= ========= ======== ========== ===========
Net income per share $ .46 $ .38
=========== ===========
Weighted average number of common stock
and common stock equivalents outstanding 3,000 3,000
=========== ===========
</TABLE>
P-6
<PAGE>
GOLDEN BEAR GOLF INC
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(a) As the acquisition includes only the purchase of certain property and
equipment, adjustment has been made to eliminate assets, liabilities and
equity which are excluded from the acquisition but which are included in
the historical financial statements of the acquired entity.
(b) Represents adjustment to record the purchase of property and equipment
from Tom's River for the fair value of the net assets acquired of $1.9
million.
(c) Represents debt assumed to have been incurred in connection with the
acquisition of Tom's River. No debt was actually incurred in connection
with this acquisition as payment was made in cash. See Note (d).
(d) Represents interest expense on debt resulting from the acquisitions as
follows (in thousands):
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
DEBT RATE 1995 1996
-------- --- ------------ ----------
McDain $ 1,226 9% $ 110 $ 32
Tom's River 1,900 9% 171 86
Nicklaus 1,625 9% 146 73
-------- ----- -----
$ 4,751 $ 427 $ 191
======== ===== =====
(e) Represents amortization expense related to goodwill resulting from the
acquisitions as follows (in thousands):
SIX MONTHS
YEAR ENDED ENDED
AMORTIZATION DECEMBER 31, JUNE 30,
AMOUNT PERIOD 1995 1996
------ ------------ ----------- --------
Cool Springs $300 30 years $ 10 $ 5
(f) Represents elimination of interest expense on debt of the Acquired
Business which will not be assumed in the acquisition.
(g) Represents the tax effect of the pro forma adjustments at an effective
rate of 39%.
(h) Represents the elimination of revenue and expenses from the operation of
Cool Spring's roller skating center which is excluded from the
acquisition.
P-7
