<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, 1997
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 17, 1998, 1,722,449 SHARES OF COBBLESTONE HOLDINGS, INC.
COMMON STOCK, PAR VALUE $.01 PER SHARE, WERE OUTSTANDING.
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------- --------------
(UNAUDITED) (NOTE)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................... $ 388,758 $ 3,519,133
Accounts receivable, net ..................... 3,563,477 3,067,347
Current portion of notes receivable, net....... 2,140,557 2,108,796
Inventory .................................. 2,977,193 2,450,328
Prepaid expenses and other current assets...... 1,218,678 1,238,616
------------ ------------
Total current assets ..................... 10,288,663 12,384,220
Property, equipment and leasehold interests, net. 163,571,338 156,228,507
Notes receivable, net .......................... 4,051,055 3,964,691
Intangible assets, net ......................... 3,553,209 3,611,199
Other assets, net .............................. 6,004,713 6,081,103
------------ ------------
$187,468,978 $182,269,720
============ ============
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable ............................. $ 1,396,595 $ 3,502,231
Accrued payroll and related expenses ......... 2,241,739 2,522,130
Accrued interest expense ..................... 946,116 2,830,562
Accrued property taxes ....................... 1,594,985 1,576,078
Deferred revenue ............................. 1,579,221 1,666,970
Current portion of long-term debt and capital
lease obligations ........................... 1,145,080 1,171,123
Current portion of deferred purchase price ... 205,353 205,353
Income taxes payable ......................... 49,000 49,000
Other current liabilities .................... 1,006,438 529,823
------------ ------------
Total current liabilities ................ 10,164,527 14,053,270
Long-term debt and capital lease obligations ... 138,947,131 128,162,096
Note payable to stockholder/officer ............ 234,494 232,467
Deferred purchase price ........................ 486,459 537,797
Long-term deferred revenue ..................... 1,971,361 2,128,480
Deferred income taxes .......................... 4,184,000 4,184,000
Minority interest .............................. 336,543 336,543
Commitments
Redeemable preferred stock, $.01 par value
Authorized shares--10,000,000
Issued and outstanding shares--5,220,376 at
December 31, 1997 and September 30, 1997
Liquidation preference of $43,075,700 at
December 31, 1997 and September 30, 1997...... 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, 1997 and September 30, 1997..... 17,224 17,224
Paid-in capital .............................. 5,388,983 5,388,983
Accumulated deficit .......................... (16,502,913) (15,012,309)
------------ ------------
Net capital deficiency......................... (11,096,706) (9,606,102)
------------ ------------
$187,468,978 $182,269,720
============ ============
</TABLE>
Note: The balance sheet at September 30, 1997 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.
<PAGE>
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
------------------------------
1997 1996
------------------------------
<S> <C> <C>
Operating revenues:
Golf revenues ....................... $14,871,774 $11,815,237
Food and beverage revenues .......... 3,693,186 3,049,237
Pro shop sales ...................... 1,696,085 1,616,216
Other ............................... 791,648 506,142
----------- -----------
Total operating revenues ........ 21,052,693 16,986,832
Operating expenses:
Golf course operations .............. 12,736,480 11,209,382
Cost of food and beverage ........... 1,155,530 941,660
Cost of pro shop sales .............. 1,049,017 1,006,198
General and administrative .......... 1,055,809 968,547
Depreciation and amortization ....... 2,421,631 2,208,639
----------- -----------
Total operating expenses ........ 18,418,467 16,334,426
----------- -----------
Income from operations .................. 2,634,226 652,406
Interest expense, net ................... (4,115,810) (3,603,521)
----------- -----------
Loss before income taxes.................. (1,481,584) (2,951,115)
Provision for income taxes .............. 9,020 22,880
----------- -----------
Net loss ................................ $(1,490,604) $(2,973,995)
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
--------------------------------------
1997 1996
--------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss .................................................. $(1,490,604) $(2,973,995)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization ............................ 2,621,770 2,404,497
Interest expense on zero-coupon notes...................... 1,190,592 1,021,797
Provision for doubtful accounts .......................... (59,270) (237,013)
Changes in assets and liabilities:
Notes and accounts receivable .......................... (554,985) 167,860
Inventory .............................................. (518,158) (359,537)
Prepaid expenses and other assets ...................... (96,789) 48,138
Accounts payable, accrued liabilities and deferred
revenue .............................................. (3,989,626) (3,252,458)
----------- -----------
Net cash used in operating activities ..................... (2,897,070) (3,180,711)
INVESTING ACTIVITIES
Acquisitions .............................................. (6,402,631) (316,598)
Additions to property, equipment and leasehold interests .. (3,230,240) (1,506,091)
----------- -----------
Net cash used in investing activities ..................... (9,632,871) (1,822,689)
FINANCING ACTIVITIES
Proceeds from long-term debt .............................. 9,572,000 700,000
Principal payments on long-term debt and capital leases ... (121,096) (184,102)
Payments on deferred purchase price ....................... (51,338) (221,568)
----------- -----------
Net cash provided by financing activities ................. 9,399,566 294,330
Net decrease in cash and cash equivalents ................. (3,130,375) (4,709,070)
Cash and cash equivalents at beginning of period .......... 3,519,133 6,578,946
----------- -----------
Cash and cash equivalents at end of period ................ $ 388,758 $ 1,869,876
=========== ===========
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest ................................................ $ 4,609,526 $ 4,343,953
=========== ===========
Income taxes, net ....................................... $ 9,020 $ 22,880
=========== ===========
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital leases entered into ............................... $ 116,580 $ 153,870
=========== ===========
</TABLE>
See accompanying notes.
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(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 25 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, Georgia, Florida, Texas and
Virginia) 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 nineteen 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 ten private country clubs, nine public facilities and six 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,
1997 are not necessarily indicative of the results that may be expected for the
year ended September 30, 1998. 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, 1997.
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.
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
(UNAUDITED)
3. SUBSEQUENT EVENTS
In January, 1998, the Company announced that it had reached a
definitive merger agreement to be acquired by The Meditrust Companies
("Meditrust") for Meditrust stock valued at approximately $241 million. In
addition, under the terms of the agreement, approximately $154 million of the
Company's debt and associated costs will be either refinanced or assumed as a
condition of closing. Meditrust is a paired share real estate investment trust
and the nation's largest heath care real estate investment trust.
In February, 1998, the Company purchased an 18-hole semi-private
country club located near Orlando, Florida for a total cash purchase price of
approximately $5.8 million. Also in February, 1998, the Company purchased an 18-
hole semi-private country club located near Atlanta, Georgia for a total cash
purchase price of approximately $5.8 million.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1997 COMPARED TO THREE MONTHS ENDED
DECEMBER 31, 1996
Operating Revenue. Operating revenue increased to $21.1 million for
the three months ended December 31, 1997 from $17.0 million for the comparable
prior year period, an increase of $4.1 million or 23.9%. Of this increase, $1.9
million is attributable to operating revenue for the two courses acquired by the
Company in February and March, 1997 and $0.2 million is attributable to the
course acquired by the Company in November, 1997. The remaining $2.0 million is
attributable to a general increase in operating revenue from the Company's other
facilities as a result of increased marketing efforts, price increases and
utilization.
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 $14.9 million for the three months ended December 31, 1997 from
$13.2 million for the comparable prior year period, an increase of $1.7 million
or 13.6%. Of this increase, $1.5 million is attributable to course-level
operating expenses for the two courses acquired by the Company in February and
March, 1997 and $0.1 million is attributable to the course acquired by the
Company in November, 1997. The remaining $0.1 million is attributable to a net
increase in 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 $1.1
million for the three months ended December 31, 1997 from $1.0 million for the
comparable prior year period, an increase of $0.1 million or 9.0%. The increase
in expense is related to non-recurring costs associated with the settlement of a
law suit. General and administrative expenses as a percentage of operating
revenue was 5.0% for the three months ended December 31, 1997, a decrease from
5.7% for the comparable prior year period.
Depreciation and Amortization Expense. Depreciation and amortization
expense increased to $2.4 million for the three months ended December 31, 1997
from $2.2 million for the comparable prior year period, an increase of $0.2
million or 9.6 %. This increase is primarily attributable to the inclusion of
the two courses acquired in February and March, 1997.
Income from Operations. Income from operations increased to $2.6
million for the three months ended December 31, 1997 from $0.7 million for the
comparable prior year period, primarily due to the factors described above.
Income from operations as a percentage of operating revenue was 12.5% for the
three month period ended December 31, 1997, an increase from 3.8% for the
comparable prior year period.
Interest Expense, Net. Interest expense, net, increased to $4.1
million for the three months ended December 31, 1997 from $3.6 million for the
comparable prior period, an increase of $0.5 million or 14.2%. The increase is a
result of a higher level of outstanding debt due to the acquisition of three
facilities since December 31, 1996.
Provision for Income Taxes. The Company recorded a $9,020 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 decreased to $1.5 million for the three months
ended December 31, 1997 from $3.0 million for the comparable period, primarily
due to the factors described above.
<PAGE>
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 $6.4 million on
acquisitions and $3.2 million on capital improvements during the three months
ended December 31, 1997. As of December 31, 1997, the Company had approximately
$3.6 million of long-term commitments for one-time capital expenditures with
respect to a golf facility which is currently under development.
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. The maximum funded debt to EBITDA Ratio was 5.5x at December 31, 1997. The
credit facility also imposes other limitations on the ability of the Company
with respect to borrowings. As on December 31, 1997, the Company had $24.3
million outstanding under the credit facility. In addition, as of December 31,
1997, the Company had $0.4 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, 1997, 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.
For the three month period ended December 31, 1997, net cash used by
operating activities was $2.9 million versus $3.2 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, 1997, net cash used in
investing activities was $9.6 million versus $1.8 million in the prior
comparable period. Expenditures for the three months ended December 31, 1997
consisted of $6.4 million in acquisitions and $3.2 million in capital
expenditures.
<PAGE>
During the three month period ended December 31, 1997, net cash provided by
financing activities was $9.4 million versus $0.3 million in the prior
comparable period. During the three months ended December 31, 1997, the Company
borrowed $9.6 million under the credit facility and paid $0.2 million in
principal of its existing obligations.
SUBSEQUENT EVENTS
In January, 1998, the Company announced that it had reached a definitive
merger agreement to be acquired by The Meditrust Companies ("Meditrust") for
Meditrust stock valued at approximately $241 million. In addition, under the
terms of the agreement, approximately $154 million of the Company's debt and
associated costs will be either refinanced or assumed as a condition of closing.
Meditrust is a paired share real estate investment trust and the nation's
largest heath care real estate investment trust.
In February, 1998, the Company purchased an 18-hole semi-private country
club located near Orlando, Florida for a total cash purchase price of
approximately $5.8 million. Also in February, 1998, the Company purchased an 18-
hole semi-private country club located near Atlanta, Georgia for a total cash
purchase price of approximately $5.8 million.
<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, 1997.
<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 17, 1998 By: /s/ Stefan C. Karnavas
----------------------------------------
Stefan C. Karnavas
Chief Financial Officer (Duly Authorized
Officer and Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 388,758
<SECURITIES> 0
<RECEIVABLES> 10,810,642
<ALLOWANCES> 1,055,553
<INVENTORY> 2,977,193
<CURRENT-ASSETS> 10,288,663
<PP&E> 189,723,435
<DEPRECIATION> 26,152,097
<TOTAL-ASSETS> 187,231,588
<CURRENT-LIABILITIES> 10,164,527
<BONDS> 0
42,241,169
0
<COMMON> 17,224
<OTHER-SE> (11,113,930)
<TOTAL-LIABILITY-AND-EQUITY> 187,231,588
<SALES> 5,389,271
<TOTAL-REVENUES> 21,052,693
<CGS> 2,204,547
<TOTAL-COSTS> 18,418,467
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 29,106
<INTEREST-EXPENSE> 4,115,810
<INCOME-PRETAX> (1,481,584)
<INCOME-TAX> 9,020
<INCOME-CONTINUING> (1,490,604)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,490,604)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
