<PAGE>
UNITED STATES
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 DECEMBER 31, 1996
OR
[ ] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _______________.
333-09437
(COMMISSION FILE NUMBER)
COBBLESTONE HOLDINGS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 33-0597600
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3702 VIA DE LA VALLE, SUITE 202
DEL MAR, CA 92014
(ADDRESS OF PRINCIPAL OFFICES) (ZIP CODE)
(619) 794-2602
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
PERIOD)
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 [ ].
AS OF FEBRUARY 14, 1997, 1,722,449 SHARES OF COBBLESTONE HOLDINGS, INC. COMMON
STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING.
<PAGE>
COBBLESTONE HOLDINGS, INC.
FIRST QUARTER REPORT ON FORM 10-Q
INDEX
Page
----
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets -
December 31, 1996 and September 30, 1996............... 1
Consolidated Statements of Operations -
Three months ended December 31, 1996 and 1995.......... 2
Consolidated Statements of Cash Flows -
Three months ended December 31, 1996 and 1995.......... 3
Notes to Consolidated Financial Statements -
December 31, 1996...................................... 4
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 6
Part II. Other Information
Item 1. Legal Proceedings........................................ 9
Item 2. Changes in Securities.................................... 9
Item 3. Default upon Senior Securities........................... 9
Item 4. Submission of Matters to a Vote of Security Holders...... 9
Item 5. Other Information........................................ 9
Item 6. Exhibit and Reports on Form 8-K.......................... 9
Signatures............................................................. 10
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1996
------------- --------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............ $ 1,869,876 $ 6,578,946
Accounts receivable, net............. 2,944,738 2,868,190
Current portion of notes
receivables, net.................... 1,822,792 1,729,875
Inventory............................ 2,562,018 2,202,481
Prepaid expenses and other current
assets.............................. 1,121,746 1,170,884
------------ ------------
Total current assets......... 10,321,170 14,550,376
Property, equipment and leasehold
interests, net........................... 139,055,846 139,541,003
Notes receivable, net..................... 3,789,545 3,889,857
Intangible assets, net.................... 3,826,438 3,898,185
Other assets, net......................... 6,745,516 6,618,684
------------ ------------
$163,738,515 $168,498,105
============ ============
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable..................... $ 4,166,626 $ 4,101,736
Accrued payroll and related
expenses............................ 2,193,607 2,091,719
Accrued interest expense............. 737,914 2,683,332
Accrued property taxes............... 597,602 1,364,891
Deferred revenue..................... 1,022,970 1,460,028
Current portion of long-term debt
and capital lease obligations....... 593,707 738,981
Current portion of deferred
purchase price...................... 405,792 387,792
Income taxes payable................. 94,431 94,431
Other current liabilities............ 1,185,686 1,394,352
------------ ------------
Total current liabilities.... 10,998,335 14,317,262
Long-term debt and capital lease
obligations.............................. 110,336,313 108,494,952
Note payable to stockholder/officer....... 226,645 224,787
Deferred purchase price................... 491,373 730,941
Long-term deferred revenue................ 2,354,588 2,423,707
Deferred income taxes..................... 4,184,000 4,184,000
Minority interest......................... 379,785 380,985
Commitments
Redeemable preferred stock, $.01 par value
Authorized shares--10,000,000
Issued and outstanding shares--5,220,376
at December 31, 1996 and
September 30, 1996
Liquidation preference of $43,075,700 at
December 31, 1996 and
September 30, 1996.................... 42,241,169 42,241,169
Net capital deficiency:
Common stock, $.01 par value:
Authorized shares--5,000,000
Issued and outstanding shares--1,722,449
at December 31, 1996 and
September 30, 1996.................. 17,224 17,224
Paid-in capital......................... 5,388,983 5,388,983
Accumulated deficit..................... (12,879,900) (9,905,905)
------------ ------------
Net capital deficiency.................... (7,473,693) (4,499,698)
------------ ------------
$163,738,515 $168,498,105
============ ============
</TABLE>
Note: The balance sheet at September 30, 1996 has been derived from the
audited financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting principles
for financial statements.
See accompanying notes.
1
<PAGE>
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-------------------------------
1996 1995
-------------------------------
<S> <C> <C>
Operating revenues:
Golf revenues....................... $11,815,237 $ 9,373,464
Food and beverage revenues.......... 3,049,237 2,195,379
Pro shop sales...................... 1,616,216 1,138,159
Other............................... 506,142 307,723
----------- -----------
Total operating
revenues................. 16,986,832 13,014,725
Operating expenses:
Golf course operations.............. 11,209,382 8,448,048
Cost of food and beverage........... 941,660 746,604
Cost of pro shop sales.............. 1,006,198 734,078
General and administrative.......... 968,547 838,730
Depreciation and amortization....... 2,208,639 1,918,311
----------- -----------
Total operating
expenses................. 16,334,426 12,685,771
----------- -----------
Income from operations........................ 652,406 328,954
Interest expense, net......................... (3,603,521) (2,573,612)
----------- -----------
Loss before income taxes...................... (2,951,115) (2,244,658)
Provision for income taxes.................... 22,880 7,660
----------- -----------
Net loss...................................... $(2,973,995) $(2,252,318)
=========== ===========
</TABLE>
See accompanying notes.
2
<PAGE>
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
1996 1995
------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss..................................... $(2,973,995) $(2,252,318)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization............... 2,404,497 1,938,332
Deferred interest........................... 1,021,797 --
Provision for doubtful accounts............. (237,013) 402,544
Changes in assets and liabilities:
Notes and accounts
receivable................................ 167,860 (1,845,347)
Inventory.................................. (359,537) (201,770)
Prepaid expenses and
other assets.............................. 48,138 264,684
Accounts payable,
accrued liabilities and
deferred revenue.......................... (3,252,458) (1,169,523)
----------- -----------
Net cash used in operating activities........ (3,180,711) (2,863,398)
INVESTING ACTIVITIES
Escrow deposits and other
acquisition-related costs................... (316,598) --
Additions to property, equipment and
leasehold interests......................... (1,506,091) (2,073,228)
----------- -----------
Net cash used in investing activities........ (1,822,689) (2,073,228)
FINANCING ACTIVITIES
Proceeds from long-term debt................. 700,000 4,500,000
Debt issuance costs and other
debt-related costs.......................... -- (18,587)
Principal payments on long-term debt
and capital leases.......................... (184,102) (440,662)
Payments on deferred purchase price.......... (221,568) --
----------- -----------
Net cash provided by financing
activities.................................. 294,330 4,040,751
Net decrease in cash and cash
equivalents................................. (4,709,070) (895,875)
Cash and cash equivalents at beginning....... 6,578,946 1,504,730
of period................................... ----------- -----------
Cash and cash equivalents at end of
period...................................... $ 1,869,876 $ 608,855
=========== ===========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the period for:
Interest................................ $ 4,343,953 $ 2,556,212
=========== ===========
Income taxes, net....................... $ 22,880 $ 892,660
=========== ===========
NON-CASH INVESTING AND FINANCING
ACTIVITIES:
Capital leases entered into.................. $ 153,870 $ 289,549
=========== ===========
</TABLE>
See accompanying notes.
3
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION
Cobblestone Holdings, Inc. (the "Company"), a Delaware corporation, was
incorporated on January 18, 1994 by shareholders of Cobblestone Golf Group, Inc.
("CGGI"). On January 31, 1994, the Company issued shares of its common and
preferred stock in exchange for all of the shares of CGGI. The Company, through
its wholly-owned subsidiary CGGI, owns and operates golf courses in the United
States, with a current portfolio of 22 golf properties including private country
clubs, semi-private clubs and public (or daily fee) courses. The Company's
courses are concentrated in clusters near metropolitan areas primarily in the
Sunbelt states (including Arizona, California and Texas) which have large
golfing populations and attractive climates.
The Company's business consists primarily of operating golf courses and
related facilities, with revenue generated from membership fees and dues at
private country clubs, greens fees, food and beverage services, golf cart
rentals, retail merchandise sales, driving range fees and lodging fees. The
Company owns 16 courses, leases four courses (subject to long-term leases in
excess of 20 years, including extension options), leases one driving range and
pro shop facility and manages one additional course. The Company's portfolio
includes nine private country clubs, eight public facilities and five semi-
private facilities.
Seasonal weather conditions as well as the timing of new course purchases or
leases may cause the Company's results of operations to vary from quarter to
quarter.
The Company has acquired certain golf facilities through its wholly-owned and
majority-owned subsidiaries. The consolidated financial statements include the
accounts of the Company and such subsidiaries. Intercompany balances and
transactions have been eliminated.
The accompanying unaudited consolidated 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
footnotes 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. Operating results for the three month period ended December 31,
1996 are not necessarily indicative of the results that may be expected for the
year ended September 30, 1997. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended September 30, 1996.
2. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
4
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
(UNAUDITED)
3. NEW ACCOUNTING STANDARDS
Effective October 1, 1996, the Company adopted SFAS No. 121, Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of
("SFAS 121"). SFAS 121 requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
the assets' carrying amount. SFAS 121 also addresses the accounting for long-
lived assets that are expected to be disposed of. The adoption had no impact on
the Company's financial position or results of operations.
Effective October 1, 1996, the Company adopted SFAS No. 123, Accounting for
Stock-Based Compensation ("SFAS 123"). SFAS 123 established the fair value-based
method of accounting for stock-based compensation arrangements under which
compensation cost is determined using the fair value of the stock option at the
grant date and the number of options vested, and is recognized over the periods
in which the related services are rendered. The Company has elected to continue
with the current intrinsic value-based method, as allowed by SFAS 123, and will
disclose the pro forma effect of adopting the fair value based method in future
fiscal years beginning with the fiscal year ending September 30, 1997.
5
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1996 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1995
Operating Revenue. Operating revenue increased to $17.0 million for the three
months ended December 31, 1996 from $13.0 million for the comparable prior year
period, an increase of $4.0 million or 30.5%. Of this increase, $3.1 million is
attributable to operating revenue for the two courses acquired by the Company in
June and July of 1996. The remaining $0.9 million is attributable to increased
revenue from the Company's other facilities.
Year over year comparisons at certain of the Company's private clubs are
difficult. During the second half of fiscal 1995 and into fiscal 1996, the
Company had established marketing programs to take advantage of the pent-up
demand in areas surrounding certain of its private clubs. As a result, while
revenues have generally increased at the Company's public and private facilities
for the three months ended December 31, 1996 as compared to the three months
ended December 31, 1995, initiation fee revenues at certain of the Company's
private clubs have decreased.
Course-level Operating Expenses. Course-level operating expenses, which
include costs of golf course operations (e.g., salaries, taxes and utilities),
costs of food and beverage sales and costs of pro shop sales increased to $13.2
million for the three months ended December 31, 1996 from $9.9 million for the
comparable period, an increase of $3.2 million or 32.5%. Of this increase, $2.5
million is attributable to course-level operating expenses for the two courses
acquired by the Company in June and July of 1996. The remaining $0.7 million is
attributable to increased course-level operating expenses from the Company's
other facilities.
General and Administrative Expenses. General and administrative expenses
primarily consist of corporate salaries and related expenses and legal and
accounting fees. General and administrative expenses increased to $1.0 million
for the three months ended December 31, 1996 from $0.8 million for the
comparable period, an increase of $0.1 million or 15.5%. The increase in
expense was related to additional overhead to support the Company's expanded
operations. General and administrative expenses as a percentage of operating
revenue was 5.7% for the three months ended December 31, 1996, a decrease from
6.4% for the comparable prior year period.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased to $2.2 million for the three months ended December 31, 1996 from $1.9
million for the comparable prior year period, an increase of $0.3 million or
15.1%. Of this increase, approximately $0.2 million is attributable to the
inclusion of the two courses acquired in June and July of 1996.
Income from Operations. Income from operations increased to $0.7 million for
the three months ended December 31, 1996 from $0.3 million for the comparable
prior year period, primarily due to the factors described above. Income from
operations as a percentage of operating revenue was 3.8% for the three month
period ended December 31, 1996, an increase from 2.5% for the comparable prior
year period.
Interest Expense, Net. Interest expense, net, increased to $3.6 million for
the three months ended December 31, 1996 from $2.6 million for the comparable
prior period, an increase of $1.0 million or 40%. The increase is a result of a
higher level of outstanding debt due to a unit offering by the Company in June,
1996.
6
<PAGE>
Provision for Income Taxes. The Company recorded a $0.1 million provision for
income taxes, which reflects the fact that certain subsidiaries generate taxable
income in individual states and localities notwithstanding the Company's
consolidated loss for financial reporting purposes.
Net loss. Net loss increased to $3.0 million for the three months ended
December 31, 1996 from $2.3 million for the comparable period, primarily due to
the factors described above.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary uses of cash are to fund debt service and maintenance
capital expenditures at its existing facilities (such as landscaping and
purchasing golf cart fleets). The Company also implements one-time upgrade and
renovation capital expenditures at its existing facilities in order to enhance
its appeal to customers and members and to generate additional revenues and cash
flow. Examples of these expenditures are the addition of courses (including nine
hole additions) to existing facilities to increase capacity and clubhouse
renovations to support increased dues and fees. These expenditures are generally
of a non-recurring nature. In addition, the Company implements strategic capital
expenditure programs which enable it to reduce course level operating costs and
improve the efficiency of operations, such as improving the irrigation system,
acquiring more efficient maintenance equipment and other programs which enhance
the marketability and/or reduce the operating expenses of existing facilities.
As part of its business strategy, the Company will require cash to continue to
acquire, lease or manage additional golf courses and the related facilities and
to complete any targeted renovations. The Company expended $0.3 million on
escrow deposits and acquisition-related costs and $1.5 million on capital
improvements during the three months ended December 31, 1996. As of December 31,
1996, the Company had approximately $3.6 million of long-term commitments for
one-time capital expenditures with respect to a golf facility. The Company is
not required and does not plan on expending the funds related to these
commitments during fiscal 1997.
Based upon the current level of operations and anticipated growth, the Company
believes that cash flow from operations, together with available borrowings
under the Company's credit facility and other sources of liquidity, will be
adequate to meet the Company's anticipated future requirements for working
capital, capital expenditures and scheduled payments of principal and interest
on its indebtedness. There can be no assurance, however, that the Company's
business will generate sufficient cash flow from operations or that future
working capital borrowings will be available in an amount sufficient to enable
the Company to service its indebtedness or make necessary capital expenditures.
The Company intends to fund these expenditures primarily with operating cash
flow and borrowings under its credit facility. The credit facility provides for
borrowings of up to $50.0 million, of which $45.0 million is available to fund
future acquisitions of golf courses and capital expenditures at such courses and
certain capital improvements at existing courses, and $5.0 million of which is
available for general working capital purposes. The total borrowing availability
under the $45.0 million portion of the credit facility will decrease over the
term of the facility beginning September 30, 1998. The credit facility provides
that the Company may not make any acquisitions or upgrade capital expenditures
when Funded Debt plus certain projected upgrade capital expenditures is greater
than 6.5x of Adjusted EBITDA (each as defined in the credit facility), with
certain adjustments for notes receivable, reducing over time. This 6.5x Funded
Debt to Adjusted EBITDA test is reduced in subsequent years. The credit facility
also imposes other limitations on the ability of the Company with respect to
borrowings. In addition, as of December 31, 1996, the Company had $1.9 million
of cash on hand to meet its working capital and other needs.
Historically, the Company has financed its operations through borrowings under
bank credit facilities and equity contributions by its stockholders. As of
December 31, 1996, the Company's stockholders have invested a total of $47.6
million of equity to fund the expansion of the Company and its golf course
portfolio.
7
<PAGE>
For the three month period ended December 31, 1996, net cash used by operating
activities was $3.2 million versus $2.9 million in the prior comparable period.
The primary component of this change is the payment of accrued property taxes
and accrued interest.
During the three month period ended December 31, 1996, net cash used in
investing activities was $1.8 million versus $2.1 million in the prior
comparable period. Expenditures for the three months ended December 31, 1996
consisted of $0.3 million in escrow deposits and acquisition-related costs and
$1.5 million in capital expenditures.
During the three month period ended December 31, 1996, net cash provided by
financing activities was $0.3 million versus $4.0 million in the prior
comparable period. During the three months ended December 31, 1996, the Company
borrowed $0.7 million under its working capital revolver and paid $0.4 million
in principal of its existing obligations. At December 31, 1996, borrowings under
the $50 million credit facility totaled $0.7 million.
RECENT DEVELOPMENTS
In December, 1996, the Company entered into a purchase agreement and made a
$200,000 escrow deposit on a 36-hole private country club located near Tampa,
Florida. The Company is currently performing due diligence related to the
acquisition of the facility and expects that the transaction will be completed
during the second quarter of fiscal 1997.
8
<PAGE>
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three month
period ended December 31, 1996.
9
<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.
COBBLESTONE HOLDINGS, INC.
Date: February 14, 1997 By: /s/ STEFAN C. KARNAVAS
----------------------------
Stefan C. Karnavas
Chief Financial Officer (Duly
Authorized Officer and Principal
Financial and Accounting Officer)
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,869,876
<SECURITIES> 0
<RECEIVABLES> 9,900,480
<ALLOWANCES> 1,343,405
<INVENTORY> 2,562,018
<CURRENT-ASSETS> 10,321,170
<PP&E> 156,348,630
<DEPRECIATION> 17,292,784
<TOTAL-ASSETS> 163,738,515
<CURRENT-LIABILITIES> 10,998,335
<BONDS> 0
42,241,169
0
<COMMON> 17,224
<OTHER-SE> (7,490,917)
<TOTAL-LIABILITY-AND-EQUITY> 163,738,515
<SALES> 4,665,453
<TOTAL-REVENUES> 16,986,832
<CGS> 1,947,858
<TOTAL-COSTS> 16,334,426
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 61,214
<INTEREST-EXPENSE> 3,603,521
<INCOME-PRETAX> (2,951,115)
<INCOME-TAX> 22,880
<INCOME-CONTINUING> (2,973,995)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,973,995)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
