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 March 31, 1997
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.
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(Exact name of Registrant as specified in its charter)
FLORIDA 65-0680880
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
11780 U.S. HIGHWAY ONE, NORTH PALM BEACH, FLORIDA 33408
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(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 Section 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 2,744,962 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 May 9, 1997.
<PAGE>
GOLDEN BEAR GOLF, INC.
INDEX TO QUARTERLY REPORT ON FORM 10-Q
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Condensed Balance Sheets as of
March 31, 1997 and December 31, 1996..................... 3
Consolidated Condensed Statements of Operations for the
Three Months Ended March 31, 1997 and 1996............... 4
Consolidated Condensed Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996............... 5
Notes to Consolidated 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............................ 15
Signatures................................................................ 16
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 8,267,702 $ 16,477,420
Accounts receivable, net of allowances 6,525,924 5,352,224
Due from International 1,502,199 843,235
Costs and estimated earnings in excess of billings on uncompleted contracts 2,980,385 3,341,500
Inventory 2,357,098 1,953,857
Prepaid expenses and other current assets 492,407 221,800
Deferred income taxes, net 938,971 --
------------ ------------
Total current assets 23,064,686 28,190,036
PROPERTY AND EQUIPMENT, net 21,644,901 18,347,927
INTANGIBLES AND OTHER ASSETS 7,713,116 4,868,919
------------ ------------
Total assets $ 52,422,703 $ 51,406,882
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 1,639,270 $ 3,542,187
Accrued liabilities and other 2,211,073 1,871,915
Billings in excess of costs and estimated earnings on uncompleted contracts 968,212 419,705
Deferred revenue 1,116,088 449,515
Current portion of notes payable and capital leases 1,707,984 1,313,383
------------ ------------
Total current liabilities 7,642,627 7,596,705
------------ ------------
NOTES PAYABLE AND CAPITAL LEASES, net of current portion 8,122,621 5,556,667
------------ ------------
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, 2,744,962 and
2,744,812 shares issued and outstanding at March 31, 1997
and December 31, 1996, respectively 27,450 27,448
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 40,856,943 40,850,358
Retained earnings (deficit) (4,254,538) (2,651,896)
------------ ------------
Total shareholders' equity 36,657,455 38,253,510
------------ ------------
Total liabilities and shareholders' equity $ 52,422,703 $ 51,406,882
============ ============
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
3
<PAGE>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
----------------------------
REVENUES: 1997 1996
----------- -----------
Golf Division-
Golf centers and academy fees
and royalties $ 2,972,931 $ 151,453
Related party commissions 359,393 299,539
----------- -----------
Total golf division 3,332,324 450,992
----------- -----------
Construction Division 1,270,498 2,055,894
----------- -----------
Marketing Division-
Golf instruction revenues 927,160 961,037
Licensing and other revenues 727,173 461,233
Income from operations of JNAI 405,924 324,707
Related party management fees 157,500 78,750
----------- -----------
Total marketing division 2,217,757 1,825,727
----------- -----------
Total revenues 6,820,579 4,332,613
----------- -----------
OPERATING COSTS AND EXPENSES:
Construction and shaping costs 1,582,142 1,505,531
Operating expenses 6,172,775 1,974,760
Corporate overhead 1,305,960 750,467
Depreciation and amortization 289,695 72,207
----------- -----------
Total operating costs and expenses 9,350,572 4,302,965
----------- -----------
Income (loss) from operations (2,529,993) 29,648
----------- -----------
OTHER INCOME (EXPENSE):
Interest income 138,908 4,356
Interest expense (176,576) (12,342)
Other 56,509 12,116
----------- -----------
Total other income 18,841 4,130
----------- -----------
Income (loss) before income taxes (2,511,152) 33,778
PROVISION (BENEFIT) FOR INCOME TAXES (908,510) 586
----------- -----------
Net income (loss) $(1,602,642) $ 33,192
=========== ===========
EARNINGS PER SHARE:
Net income (loss) $ (0.29) $ 0.01
=========== ===========
PRO FORMA EARNINGS PER SHARE (Note 1):
Net income (loss) $ (0.29) $ 0.03
=========== ===========
Weighted average common and common
equivalent shares outstanding 5,505,912 3,000,000
=========== ===========
The accompanying notes are an integral part of these unaudited statements.
4
<PAGE>
<TABLE>
<CAPTION>
GOLDEN BEAR GOLF, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS ENDED
MARCH 31,
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1997 1996
------------ ---------
<S> <C> <C>
Net income (loss) $ (1,602,642) $ 33,192
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 289,695 72,207
Depreciation included in construction and
shaping costs 8,015 24,089
Provision for uncollectibles -- 7,886
Changes in assets and liabilities:
Accounts receivable (1,173,700) (32,569)
Due from International (658,964) 385,187
Costs and estimated earnings in excess of
billings on uncompleted contracts 361,115 (203,602)
Inventory (403,241) 3,613
Prepaid expenses and other current assets (270,607) (226,564)
Deferred income taxes, net (938,971) --
Other assets (558,571) 170,531
Accounts payable (1,902,917) (543,646)
Accrued liabilities and other 339,158 (276,640)
Billings in excess of costs and estimated
earnings on uncompleted contracts 548,507 243,223
Deferred revenue 666,573 455,052
------------ ---------
Net cash (used in) provided by
operating activities (5,296,550) 111,959
------------ ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of golf centers (1,465,236) --
Capital expenditures, net (1,516,074) (80,392)
------------ ---------
Net cash used in investing activities (2,981,310) (80,392)
------------ ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options 50,400 --
Payments on notes payable and capital leases (111,905) (16,652)
Proceeds from revolving credit facility, net 173,460 453,220
Divisional transfers to International -- (783,463)
Other (43,813) --
------------ ---------
Net cash provided by (used in)
financing activities 68,142 (346,895)
------------ ---------
Net decrease in cash and cash equivalents (8,209,718) (315,328)
CASH AND CASH EQUIVALENTS, beginning of period 16,477,420 347,010
------------ ---------
CASH AND CASH EQUIVALENTS, end of period $ 8,267,702 $ 31,682
============ =========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Notes payable issued in connection with
the acquisition of golf centers $ 2,899,000 $ --
============ =========
</TABLE>
The accompanying notes are an integral part of these unaudited statements.
5
<PAGE>
GOLDEN BEAR GOLF, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The accompanying unaudited Consolidated 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 audited Consolidated
Financial Statements and Notes thereto included in Golden Bear Golf, Inc.'s
("Golden Bear" or the "Company") Annual Report on Form 10-K for the fiscal year
ended December 31, 1996, as filed with the Securities and Exchange Commission.
The results of operations and cash flows for the three months ended March 31,
1997 are not necessarily indicative of the results of operations or cash flows
which may be reported for the remainder of fiscal 1997.
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. ("International"),
a privately owned company controlled by Jack Nicklaus. 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 International ("International
Carve-out") 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 for all periods prior to the reorganization are
presented in a combined format.
Certain amounts attributable to the operations of Jack Nicklaus Apparel
International ("JNAI"), which were included in the prior period's financial
statements on a consolidated basis, have been reclassified to conform to the
current period's presentation. See Note 5, Operations of JNAI.
PRO FORMA INCOME TAXES
Prior to becoming a C Corporation upon the reorganization of the Company on
August 1, 1996, Golf Centers and Paragon were S Corporations for Federal and
state income tax reporting purposes and International Carve-out was a division
of International, which was also an S Corporation. As S corporations prior to
the reorganization, Golf Centers, Paragon and International have historically
only paid foreign income taxes and have not paid United States Federal and state
income taxes. The following pro forma income taxes have been reflected in the
pro forma earnings per share data presented in the accompanying Consolidated
Condensed Statements of Operations to show the effects on the Company's
operations as if the relevant entities had been C Corporations during both of
the periods presented.
6
<PAGE>
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
The following pro forma taxes reflect consideration of all permanent differences
between book and tax income at the Company's estimated effective tax rate of
39%.
FOR THE THREE MONTHS ENDED
MARCH 31,
--------------------------
1997 1996
----------- -------
Historical income (loss) before income taxes $(2,511,152) $33,778
Pro forma benefit for income taxes 908,510 45,014
----------- -------
Pro forma net income (loss) $(1,602,642) $78,792
=========== =======
PRO FORMA EARNINGS PER SHARE
Pro forma net income (loss) per share is computed by dividing pro forma net
income (loss) by the weighted average 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 calculations used in the accompanying Consolidated Condensed
Statements of Operations are based upon 5,505,912 and 3,000,000 average common
shares outstanding during the three months ended March 31, 1997 and 1996,
respectively.
Effective December 15, 1997, the Company will be required to adopt Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
among other changes, will require that basic earnings per share be computed
without regard to any outstanding common equivalent shares. Basic earnings per
share as computed under SFAS No. 128 would not differ from the earnings per
share and pro forma earnings per share amounts presented in the accompanying
Consolidated Condensed Statements of Operations.
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:
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
Costs incurred on uncompleted contracts $24,153,154 $23,604,746
Estimated earnings 2,072,549 2,446,337
----------- -----------
26,225,703 26,051,083
Less billings to date 24,213,530 23,129,288
----------- -----------
$ 2,012,173 $ 2,921,795
=========== ===========
The amounts associated with costs and estimated earnings on uncompleted
construction and shaping costs are included in the accompanying Consolidated
Condensed Balance Sheets under the following captions:
MARCH 31, DECEMBER 31,
1997 1996
---------- ----------
Costs and estimated earnings in excess of
billings on uncompleted contracts $2,980,385 $3,341,500
Billings in excess of costs and estimated
earnings on uncompleted contracts (968,212) (419,705)
---------- ----------
$2,012,173 $2,921,795
========== ==========
7
<PAGE>
3. NOTES PAYABLE AND CAPITAL LEASES
Notes payable and capital leases consist of the following:
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1997 1996
----------- -----------
<S> <C> <C>
Note payable to financial institution, due in monthly
principal installments of $10,000 plus interest at
prime + 3/4%, with balloon payment due at maturity
in August, 2003 $ 1,730,000 $ 1,760,000
Notes payable to sellers of golf centers, with interest
ranging from 0% to prime + 1/2%, with maturities
through August, 2001(1) 4,215,608 1,367,008
Capital lease obligations, with maturities through
April, 2025 2,447,876 2,454,457
Deferred profit participation obligation, payable
quarterly, discounted at an effective rate of 9%,
matures December, 2006 412,527 419,097
Revolving credit note with a bank, with interest
at 8 1/2% payable monthly, matures May, 1997 999,436 825,976
Secured credit note, with principal and interest
at 9 1/2% payable monthly, matures July, 1997 25,158 43,512
----------- -----------
9,830,605 6,870,050
Less current portion (1,707,984) (1,313,383)
----------- -----------
$ 8,122,621 $ 5,556,667
=========== ===========
</TABLE>
(1) Notes payable to sellers is comprised of certain notes associated with the
acquisition of golf centers. In September 1996, the Company issued
non-interest bearing notes payable of $600,000 in connection with the
purchase of East Coast Facilities, secured by certain property and
equipment. The outstanding principal on these notes was $216,608 and
$267,008 at March 31, 1997 and December 31, 1996, respectively. Such notes
have certain defined payment terms and any remaining principal on the notes
is due in September 1997. Also in September 1996, the Company issued a note
payable for $750,000 in connection with its acquisition of Highlander
Facilities. The note is secured by certain property and equipment of the
golf center and bears interest at 8% payable monthly, with the entire
principal due in August 2001.
In December 1996, the Company issued a note payable for $350,000 in
connection with the purchase of MacDivott's Golf Center. The note is
secured by certain property and equipment of the golf center and bears
interest at prime + 1/2% payable quarterly, with the entire principal due
in December 1999.
In January 1997, the Company incurred certain secured indebtedness
aggregating approximately $2.1 million in connection with the purchase of
Oasis Golf Center. Such obligations are comprised of a non-interest bearing
installment of $200,000 due in August 1997, an $899,000 installment due in
May 1998 with interest imputed at 9%, together with a $1 million promissory
note due in two $500,000 installments each in January 1999 and 2001 with
interest at 9% payable quarterly. See Note 7, Acquisitions.
In February 1997, the Company issued a note payable for $800,000 in
connection with the purchase of Caddy-Shack Golf Dome. The note is secured
by certain property and equipment of the golf center and requires quarterly
payments of $38,820 representing the amortization of principal and interest
at 9%. Based on such required quarterly payments, the note will be fully
amortized in March 2004. See Note 7, Acquisitions.
8
<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 related amounts due, together with additional damages,
totaling approximately $350,000. 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 $1.2 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 March 31, 1997.
5. OPERATIONS OF JNAI
The apparel licensing activities of the Company in the Far East are conducted
through 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 operating results of JNAI:
FOR THE THREE MONTHS ENDED
MARCH 31,
-------------------------
1997 1996
-------- --------
Licensing revenues $765,250 $881,307
Operating expenses 83,268 136,508
Provision (benefit) for income taxes (129,866) 95,385
-------- --------
Net income $811,848 $649,414
======== ========
6. RELATED PARTY TRANSACTIONS
The amounts included in the accompanying Consolidated Condensed Balance Sheets
under the caption "Due from International" consist of the following:
MARCH 31, DECEMBER 31,
1997 1996
---------- --------
Golden Bear Golf, Inc. $1,459,914 $807,231
Paragon 28,072 22,329
International Carve-out 14,213 13,675
---------- --------
$1,502,199 $843,235
========== ========
The $1.5 million balance due Golden Bear Golf, Inc. at March 31, 1997 is
comprised primarily of International's allocable portion of certain costs
associated with maintaining shared office space in Singapore, together with
reimbursements for certain legal expenses and commissions on specific design
related revenues collected by Nicklaus Design, a division of International. The
balance also includes amounts owed by International in connection with the
reimbursement of certain allocated payroll and other costs which are paid by the
Company.
Pursuant to an office sharing agreement, the Company subleases its corporate
office facilities from International. The rent expense incurred under such
sublease for the three months ended March 31, 1997 was $148,402. The Company
also has an office staff sharing agreement with International which provides for
the sharing of the services of certain specifically identified office staff and
personnel that can effectively serve the needs of both organizations. During the
first quarter of fiscal 1997, a total of $145,200 attributable to payroll and
related costs associated with such shared employees was allocated to
International.
9
<PAGE>
6. RELATED PARTY TRANSACTIONS - (CONTINUED)
In addition, the Company maintains certain office space in Singapore that is
shared with International. During the three months ended March 31, 1997, a total
of $70,000 of costs associated with maintaining such facilities was allocated to
International.
International has retained the Company as the exclusive manager and
representative to market the personal endorsement services of Jack Nicklaus,
pursuant to which the Company is generally entitled to 30% of the personal
endorsement fees received by Mr. Nicklaus. During the first quarters of fiscal
1997 and 1996, the Company earned revenues for services provided in this
capacity of $157,500 and $78,750, respectively.
Pursuant to a design services marketing agreement, the Company markets golf
course designs worldwide for Nicklaus Design for which it generally receives 10%
of the gross design fees collected by International. During the three months
ended March 31, 1997 and 1996, the Company earned commissions for such services
of $359,393 and $299,539, respectively.
7. ACQUISITIONS
Effective January 1, 1997, the Company entered into a long-term lease agreement
for certain assets and the underlying real property utilized in connection with
the Sunset Golf Center, an existing golf practice and instruction facility
located in Beaverton, Oregon. The lease term is for a period of 20 years and
provides for annual rentals equal to the greater of a minimum base rent or a
percentage rent calculated based on the gross revenues of the project. Under the
terms of the lease agreement, the Company is required to invest at least
$500,000 in improvements to the property prior to the end of the second lease
year.
On January 31, 1997, the Company purchased the Oasis Golf Center, an existing
"dome" type golf practice and instruction facility located in Plymouth,
Michigan, for $3.2 million of which $1.0 million was paid in cash at the closing
and the remainder was evidenced by a $1.0 million secured promissory note and
certain other obligations to pay $1.2 million. The cash portion of the purchase
price was funded from the proceeds of the Company's initial public offering. The
fair value of net assets acquired (substantially all property and equipment) was
approximately $1.8 million, resulting in the recording of goodwill in the amount
of $1.4 million which will be amortized over the 20 year term of the related
ground lease for the underlying property.
On February 28, 1997, the Company purchased Caddy-Shack Golf Dome, an existing
golf practice and instruction facility located in Williamsville, New York, for
approximately $1.1 million of which $300,000 was paid in cash at the closing and
$800,000 was evidenced by certain secured promissory notes. The $300,000 paid at
the closing was funded from the proceeds of the Company's initial public
offering. The fair value of net assets acquired (substantially all property and
equipment) was approximately $500,000, resulting in the recording of goodwill in
the amount of $600,000 which will be amortized over the expected 20 year term
(including renewal options) of the related ground lease for the underlying
property.
All of the foregoing acquisitions were accounted for under the purchase method
of accounting. Accordingly, the results of operations of these golf centers are
included in the accompanying Consolidated Condensed Statements of Operations for
all periods starting with their respective acquisition dates. Had these
acquisitions occurred as of January 1, 1997, the Company's summarized unaudited
pro forma results of operations for the three months ended March 31, 1997 would
have been as follows.
Total revenues $ 7,179,413
Loss from operations $(2,459,789)
Net loss $(1,572,357)
Net loss per share $ (0.29)
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company operates its business through three divisions: 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.
The Company was formed on June 7, 1996 to enter into a reorganization agreement
which was consummated on August 1, 1996 upon the closing of an initial public
offering of the Company's Class A Common Stock. Parties to the plan of
reorganization included, among others, the Company's affiliates, Golf Centers,
Paragon and International, a privately owned company controlled by Jack
Nicklaus. Pursuant to the agreement, the Company acquired all of the outstanding
common stock of Golf Centers and Paragon in exchange for shares of its Class A
and Class B Common Stock. In addition, the Company acquired certain assets and
assumed certain liabilities of International in exchange for shares of its 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, Golf Centers and
Paragon had common stockholders and management.
Consistent with the Company's strategy to increase its ownership and operation
of golf practice and instruction facilities, the Company entered into purchase
and lease agreements pursuant to which it acquired three existing golf practice
and instruction facilities during the first quarter of fiscal 1997. These three
acquisitions, together with the ten operating golf centers and one center under
development that were owned by the Company as of the beginning of fiscal 1997,
bring the total of such facilities acquired to-date by the Company to 14.
However, the substantial majority of the golf centers acquired prior to the
current fiscal year were acquired during the last four months of fiscal 1996 and
the renovations and upgrades required to convert such facilities to the
Company's standards had not been completed as of the beginning of the current
fiscal period. Upon acquisition, the Company attempts to develop a business plan
tailored to the specific markets and renovation requirements of each golf center
facility that is acquired. Although the renovation and upgrade programs for the
recently acquired golf centers have commenced, certain of these golf center
facilities are not expected to contribute significantly to the Company's
operating performance through the third quarter of the current fiscal year.
Moreover, certain of the golf centers acquired by the Company are located in
geographic regions that are typically out of season during the winter months.
Accordingly, many of the recently acquired golf practice and instruction
facilities and certain golf centers located in the northern climates did not
contribute significantly to the operating performance of the Company during the
three months ended March 31, 1997.
While there is no assurance that it will successfully do so, the Company is
seeking to acquire or develop a total of eight additional facilities by the end
of 1997, bringing its total facilities to 22. However, such plans are subject to
obtaining sufficient financing and the successful integration of the operations
of the golf centers acquired to-date and the implementation of proper internal
controls and systems at such centers. Although there is no assurance that the
Company will obtain financing on favorable terms, or at all, or that the Company
will achieve continued growth, the Company believes that it will achieve growth
through the acquisition of additional golf practice and instruction facilities
and the expansion of its construction and licensing operations.
11
<PAGE>
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED
MARCH 31, 1996
Total revenues for the three months ended March 31, 1997 increased 57.4% over
the comparable period of 1996. The increase in total revenues was principally
the result of an increase in Golf Division revenues to $3.3 million for the
first quarter of fiscal 1997 from $0.5 million for the first quarter of fiscal
1996. This increase was attributable to the acquisition of 13 operating golf
centers that contributed to revenues starting with their respective acquisition
dates. Marketing Division revenues increased by $0.4 million or 21.5% for the
three months ended March 31, 1997 compared to the same quarterly period of 1996,
due primarily to an increase in licensing revenues. Marketing Division revenues
attributable to the Company's golf instruction activities and income from the
operations of JNAI remained relatively constant for the first quarter of fiscal
1997 in relation to the comparable period of 1996. The increases in Golf
Division and Marketing Division revenues were offset in part, by a $0.8 million
or 38.2% decrease in Construction Division revenues. Construction services
provided during the first quarter of the current year were limited by a decision
on the part of the Company to curtail such activities pending the implementation
of new systems and the integration of new staff in a restructuring which began
in the fourth quarter of 1996. The Company believes that restructuring has
resulted in improved processes and controls that will facilitate the future
growth of the Construction Division. The Construction Division received new
project awards in excess of $35 million during the first quarter of fiscal 1997.
Operating income decreased to a loss of $2.5 million for the three months ended
March 31, 1997 from a break-even level for the comparable period of 1996. Such
decrease was primarily attributable to the start-up costs associated with
converting and upgrading acquired golf centers to Company standards without
commensurate revenues during the conversion process, together with a one-time
severance charge of $0.6 million which resulted from personnel changes made in
connection with the Company's appointment of new presidents in both its Golf
Centers and Paragon subsidiaries. The Company also incurred additional operating
expenses associated with the reorganization and expansion of the staffing and
other resources in its Construction Division necessary to accommodate the
increased level of construction activities that the current backlog of projects
will require. Accordingly, operating expenses as a percentage of total revenues
were 90.5% and 45.6% for the three months ended March 31, 1997 and 1996,
respectively.
The decrease in operating income for the first quarter of 1997 was also impacted
by a decrease in the gross margin realized by the Construction Division and an
increase in the level of spending on corporate overhead. The decrease in the
gross margin realized by the Construction Division during the current quarterly
period was attributable to costs associated with the completion of specific
construction projects that were contracted for in previous years.
Corporate overhead, consisting primarily of corporate headquarters rent and
occupancy costs, as well as corporate management and employees, increased to
$1.3 million for the three months ended March 31, 1997 from $0.8 million for the
three months ended March 31, 1996. The increase in corporate overhead is
attributable to planned systems upgrades and additions of personnel, together
with the increased costs associated with the expansion of the Company's
businesses and operating the Company as a separate public company.
Interest income of $0.1 million for the first quarter of 1997 was primarily
attributable to earnings on the unexpended proceeds from the Company's initial
public offering invested in short-term commercial paper instruments and
repurchase agreements. Interest expense for the first quarter of the current
year was approximately $0.2 million attributable primarily to indebtedness
associated with the Company's acquisition of golf practice and instruction
facilities. Interest income and interest expense for the first quarter of 1996
were not material to the Company's results of operations.
12
<PAGE>
RESULTS OF OPERATIONS - (CONTINUED)
Prior to becoming a C Corporation upon the reorganization of the Company on
August 1, 1996, the various entities that comprised its operations were S
Corporations and therefore not subject to United States Federal and state income
taxes. Prior to the reorganization, such entities generally paid only foreign
income taxes. Accordingly, a pro forma income tax benefit has been included in
pro forma earnings per share for the three months ended March 31, 1996 to
present the Company's results of operations as if the respective entities had
been C Corporations for both of the periods presented. The pro forma taxes
reflect consideration of all permanent differences between book and tax income
at the Company's estimated effective tax rate of 39% (see Note 1 of the
Consolidated Condensed Financial Statements included herein under Part I, Item
1).
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 $35.2 million. The
net proceeds have been utilized by the Company through March 31, 1997 for the
following purposes, (i) approximately $13.6 million has been used to fund the
acquisition of golf centers, (ii) approximately $9.3 million has been utilized
for working capital purposes, (iii) approximately $4.0 million has been used for
capital improvements to the recently acquired golf center facilities and other
capital expenditures, (iv) approximately $1.6 million was utilized to repay
indebtedness incurred by the Company in connection with the acquisition of the
Cool Springs Golf Center which had been funded by Jack Nicklaus and (v)
approximately $0.2 million was used for the repayment of other indebtedness. 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. As
of March 31, 1997 and December 31, 1996, the Company had working capital of
$15.4 million and $20.6 million, respectively.
Net cash used in operations was $5.3 million during the three months ended March
31, 1997 compared to net cash provided by operations of $0.1 million in the
comparable period of 1996. The decrease in net cash provided by (used in)
operations was primarily attributable to a decrease in net income (loss) for the
three months ended March 31, 1997, together with changes in the account balances
associated with accounts payable, accounts receivable and due from International
for the respective periods.
Net cash used in investing activities was $3.0 million and $0.1 million for the
three months ended March 31, 1997 and 1996, respectively. The increase in cash
used for investing activities resulted from the acquisition and renovation of
golf practice and instruction facilities during the current quarterly period.
Net cash provided by financing activities was approximately $0.1 million during
the first quarter of 1997 compared to net cash used in financing activities of
$0.3 million in the comparable period of 1996. The increase in net cash provided
by (used in) financing activities was primarily attributable to certain
divisional transfers to International during the first quarter of the prior
year.
Subject to obtaining sufficient financing, the Company intends to continue its
acquisition of golf practice and instruction facilities during the remainder of
fiscal 1997, funding such acquisitions with the remaining net proceeds from its
initial public offering along with mortgage financing secured by the facilities
acquired. The Company may also finance such acquisitions by entering into
leasing arrangements or by utilizing other seller financing with deferred
payment terms which would serve to reduce the initial up-front cash outlay on
the part of the Company. Leasing arrangements and seller financing have been
used by the Company to fund all or a portion of the purchase price associated
with certain golf centers that it has already acquired. There is no assurance
additional facilities will be acquired. Actual spending on the acquisition of
additional golf centers during the remainder of fiscal 1997 will depend on,
among other things, the availability of funds, the identification and
availability of suitable facilities on terms satisfactory to the Company, the
location and condition of the acquired facilities (i.e. whether significant
capital improvements are necessary), whether the Company acquires or leases the
related land, competitive developments and strategic marketing decisions.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES - (CONTINUED)
To provide for additional liquidity, the Company is seeking to obtain a $15-$20
million line of credit from a bank or other financial institution. Any such
credit facility would likely include customary representations, warranties and
covenants with respect to the conduct of the Company's business and require the
maintenance of various financial ratios, which could limit amounts available to
be borrowed under the facility. There can be no assurance that the Company will
obtain a credit facility or as to the amount or terms of any such facility. The
Company currently has outstanding indebtedness of approximately $1.0 million
under a revolving credit note that matures in May, 1997 (see Note 3 of the
Consolidated Condensed Financial Statements included herein under Part I, Item
1).
The Company believes that the remaining proceeds from the initial public
offering, together with cash provided by operations will be sufficient to meet
its operating needs through the end of 1997. In addition, in appropriate
situations, the Company may seek financing from other sources or may enter into
joint ventures and other collaborative or licensing arrangements for the
acquisition and operation of additional golf practice and instruction
facilities. However, the acquisition of the substantial majority of the new golf
centers that the Company is seeking to acquire during the remainder of fiscal
1997 is subject to obtaining additional financing. If the Company obtains the
line of credit financing described in the prior paragraph, the Company believes
that it would have sufficient funds to continue its planned acquisition and
expansion strategy through December 31, 1997.
Beyond such period, additional funds may be required. Such funds may be raised
by the issuance of additional equity or by incurring additional indebtedness.
There is no assurance that the Company will be able to obtain additional
liquidity in a timely manner, on favorable terms or at all. To the extent that
the Company is not able to obtain additional funds, the Company may be required
to delay or reduce 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
outside of the United States are also generally 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
This Quarterly Report on Form 10-Q contains 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, many of
which are beyond the Company's control, 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. 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 prove accurate. The Company does not undertake any
obligation to revise these forward-looking statements to reflect future events
or circumstances.
14
<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 Current Report on Form 8-K dated January 31, 1997
under Item 2. "Acquisition or Disposition of Assets," which reported
the acquisitions by the Company of the Oasis Golf Center and certain
other golf centers. See Note 7 of the Consolidated Condensed
Financial Statements included herein under Part I, Item 1.
15
<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 thereunto duly authorized.
GOLDEN BEAR GOLF, INC.
By: /S/ RICHARD P. BELLINGER
-------------------------------------
Richard P. Bellinger
President and Chief Executive Officer
By: /S/ JACK P. BATES
-------------------------------------------------
Jack P. Bates
Senior Vice President and Chief Financial Officer
Date: May 9, 1997
16
<PAGE>
EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
GOLDEN BEAR GOLF, INC.'S FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1997, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 8,267,702
<SECURITIES> 0
<RECEIVABLES> 7,066,730
<ALLOWANCES> 540,806
<INVENTORY> 2,357,098
<CURRENT-ASSETS> 23,064,686
<PP&E> 23,514,412
<DEPRECIATION> 1,869,511
<TOTAL-ASSETS> 52,422,703
<CURRENT-LIABILITIES> 7,642,627
<BONDS> 8,122,621
0
0
<COMMON> 55,050
<OTHER-SE> 36,602,405
<TOTAL-LIABILITY-AND-EQUITY> 52,422,703
<SALES> 1,270,498
<TOTAL-REVENUES> 6,820,579
<CGS> 1,582,142
<TOTAL-COSTS> 7,754,917
<OTHER-EXPENSES> 1,595,655
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 176,576
<INCOME-PRETAX> (2,511,152)
<INCOME-TAX> (908,510)
<INCOME-CONTINUING> (1,602,642)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,602,642)
<EPS-PRIMARY> (0.29)
<EPS-DILUTED> (0.29)
</TABLE>
