<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 March 31, 1998
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 May 11, 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>
March 31, September 30,
1998 1997
------------- --------------
(Unaudited) (Note)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents ........................................................... $ 400,432 $ 3,519,133
Accounts receivable, net ............................................................ 3,554,935 3,067,347
Current portion of notes receivable, net ............................................ 2,420,749 2,108,796
Inventory ......................................................................... 3,215,730 2,450,328
Prepaid expenses and other current assets ........................................... 1,504,608 1,238,616
------------ ------------
Total current assets ............................................................. 11,096,454 12,384,220
Property, equipment and leasehold interests, net ..................................... 176,830,098 156,228,507
Notes receivable, net ................................................................ 3,738,380 3,964,691
Intangible assets, net ............................................................... 3,489,002 3,611,199
Other assets, net .................................................................... 6,332,264 6,081,103
------------ ------------
$201,486,198 $182,269,720
============ ============
LIABILITIES AND NET CAPITAL DEFICIENCY
Current liabilities:
Accounts payable .................................................................... $ 1,587,368 $ 3,502,231
Accrued payroll and related expenses ................................................ 2,272,643 2,522,130
Accrued interest expense ............................................................ 3,275,881 2,830,562
Accrued property taxes .............................................................. 731,154 1,576,078
Deferred revenue .................................................................... 1,797,607 1,666,970
Current portion of long-term debt and capital lease obligations ..................... 997,034 1,171,123
Current portion of deferred purchase price .......................................... 205,353 205,353
Income taxes payable ................................................................ 49,000 49,000
Other current liabilities ........................................................... 722,440 529,823
------------ ------------
Total current liabilities ........................................................ 11,638,480 14,053,270
Long-term debt and capital lease obligations ......................................... 153,397,491 128,162,096
Note payable to stockholder/officer .................................................. 236,566 232,467
Deferred purchase price .............................................................. 435,120 537,797
Long-term deferred revenue ........................................................... 1,912,992 2,128,480
Deferred income taxes ................................................................ 4,184,000 4,184,000
Minority interest .................................................................... 336,543 336,543
Redeemable preferred stock, $.01 par value
Authorized shares--10,000,000
Issued and outstanding shares--5,220,376 at March 31, 1998
and September 30, 1997
Liquidation preference of $43,075,700 at March 31, 1998 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 March 31, 1998 and
September 30, 1997 ............................................................... 17,224 17,224
Paid-in capital ..................................................................... 5,388,983 5,388,983
Accumulated deficit ................................................................. (18,302,370) (15,012,309)
------------ ------------
Net capital deficiency................................................................. (12,896,163) (9,606,102)
------------ ------------
$201,486,198 $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 SIX MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------- ----------------------------------
1998 1997 1998 1997
-------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
Operating revenues:
Golf revenues ............................... $16,360,492 $13,944,044 $31,232,266 $25,759,281
Food and beverage revenues .................. 3,250,266 2,712,508 6,943,452 5,761,745
Pro shop sales .............................. 1,340,402 1,271,721 3,036,487 2,887,937
Other ....................................... 866,928 767,713 1,658,576 1,273,855
----------- ----------- ----------- -----------
Total operating revenues ................. 21,818,088 18,695,986 42,870,781 35,682,818
Operating expenses:
Golf course operations ...................... 12,727,833 11,112,728 25,464,313 22,322,110
Cost of food and beverage ................... 1,123,787 889,832 2,279,317 1,831,492
Cost of pro shop sales ...................... 833,841 852,718 1,882,858 1,858,916
General and administrative .................. 1,081,120 947,782 2,136,929 1,916,329
Depreciation and amortization ............... 2,706,088 2,247,888 5,127,719 4,456,527
----------- ----------- ----------- -----------
Total operating expenses ................. 18,472,669 16,050,948 36,891,136 32,385,374
----------- ----------- ----------- -----------
Income from operations ........................ 3,345,419 2,645,038 5,979,645 3,297,444
Interest expense, net ......................... (5,144,876) (3,771,750) (9,260,686) (7,375,271)
----------- ----------- ----------- -----------
Loss before income taxes ...................... (1,799,457) (1,126,712) (3,281,041) (4,077,827)
Provision for income taxes .................... -- 60,436 9,020 83,316
----------- ----------- ----------- -----------
Net loss ...................................... $(1,799,457) $(1,187,148) $(3,290,061) $(4,161,143)
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
<PAGE>
COBBLESTONE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-------------------------------
1998 1997
-------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss ........................................................................... $ (3,290,061) $ (4,161,143)
Adjustments to reconcile net loss to net cash provided by ( used in)
operating activities:
Depreciation and amortization ..................................................... 5,531,499 4,852,222
Interest on zero-coupon notes ..................................................... 2,433,582 2,135,554
Provision for doubtful accounts ................................................... (58,528) (228,999)
Changes in assets and liabilities:
Notes and accounts receivable ................................................... (322,046) (313,031)
Inventory ....................................................................... (488,363) (610,472)
Prepaid expenses and other assets ............................................... (850,417) (52,227)
Accounts payable, accrued liabilities and deferred revenue ...................... (2,886,231) (3,621,692)
------------ ------------
Net cash provided by (used in) operating activities ................................ 69,435 (1,999,788)
INVESTING ACTIVITIES
Acquisition-related costs .......................................................... (18,956,349) (9,139,627)
Additions to property, equipment and leasehold interests ........................... (5,801,110) (4,070,256)
------------ ------------
Net cash used in investing activities .............................................. (24,757,459) (13,209,883)
FINANCING ACTIVITIES
Proceeds from long-term debt ....................................................... 22,845,000 11,964,000
Principal payments on long-term debt and capital leases ............................ (1,173,000) (1,489,274)
Payments on deferred purchase price ................................................ (102,677) (272,906)
------------ ------------
Net cash provided by financing activities .......................................... 21,569,323 10,201,820
Net decrease in cash and cash equivalents .......................................... (3,118,701) (5,007,851)
Cash and cash equivalents at beginning of period ................................... 3,519,133 6,578,946
------------ ------------
Cash and cash equivalents at end of period ......................................... $ 400,432 $ 1,571,095
============ ============
SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest .......................................................................... $ 5,980,305 $ 4,697,002
============ ============
Income taxes, net ................................................................. $ 42,728 $ 100,863
============ ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Capital leases entered into ........................................................ $ 945,607 $ 1,003,080
============ ============
</TABLE>
See accompanying notes.
<PAGE>
COBBLESTONE HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(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 32 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 twenty-one 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 six additional courses. The Company's
portfolio includes twelve private country clubs, eleven public facilities and
nine 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 and six month period ended March
31, 1998 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
MARCH 31, 1998
(UNAUDITED)
3. MERGER AGREEMENT
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.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997
Operating Revenue. Operating revenue increased to $21.8 million for the three
months ended March 31, 1998 from $18.7 million for the comparable prior year
period, an increase of $3.1 million or 16.6%. Of this increase, $2.7 million is
attributable to operating revenue for the five courses acquired by the Company
subsequent to December, 1996. The remaining $0.4 million is attributable to a
general increase in operating revenue from the Company's other facilities,
despite poor weather conditions.
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 $14.7
million for the three months ended March 31, 1998 from $12.9 million for the
comparable prior year period, an increase of $1.8 million or 14.0%. This
increase is primarily attributable to operating course-level operating expenses
for the five courses acquired by the Company subsequent to December, 1996.
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 March 31, 1998 from $0.9 million for the comparable
prior year period, an increase of $0.2 million or 22.2%. The increase is
attributable to additional overhead to support the Company's expanded operations
during the second quarter of fiscal 1998. General and administrative expenses
as a percentage of operating revenue was 5.0% for the three months ended March
31, 1998, a decrease from 5.1% for the comparable prior year period.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased to $2.7 million for the three months ended March 31, 1998 from $2.2
million for the comparable prior year period, an increase of $0.5 million or
22.7%. This increase is primarily attributable to depreciation and amortization
expense for the five courses acquired by the Company subsequent to December,
1996.
Income from Operations. Income from operations increased to $3.3 million for
the three months ended March 31, 1998 from $2.6 million for the comparable prior
year period, primarily due to the factors described above. Income from
operations as a percentage of operating revenue was 15.3% for the three month
period ended March 31, 1998, an increase from 14.1% for the comparable prior
year period.
Interest Expense, Net. Interest expense, net, increased to $5.1 million for
the three months ended March 31, 1998 from $3.8 million for the comparable prior
period, an increase of $1.3 million or 34.2%. The increase is primarily due to a
higher level of outstanding debt as a result of golf course facility
acquisitions.
Net loss. Net loss increased to $1.8 million for the three months ended March
31, 1998 from $1.2 million for the comparable prior year period, primarily due
to the factors described above.
SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997
Operating Revenue. Operating revenue increased to $42.9 million for the six
months ended March 31, 1998 from $35.7 million for the comparable prior year
period, an increase of $7.2 million or 20.2%. Of this increase, $4.8 million is
attributable to the operating revenue for the five courses acquired by the
Company subsequent to December 1996. The remaining $2.4 million is attributable
to increased revenue from the Company's other facilities as a result of
increased marketing efforts, price increases and utilizations.
<PAGE>
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 $29.6
million for the six months ended March 31, 1998 from $26.0 million for the
comparable prior year period, an increase of $3.6 million or 13.8%. This
increase is primarily attributable to course-level operating expenses for
the five courses acquired by the Company subsequent to December, 1996.
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 $2.1 million
for the six months ended March 31, 1998 from $1.9 million for the comparable
prior year period, an increase of $0.2 million or 10.5%. The increase in
expense is related to non-recurring costs associated with the settlement of a
law suit and to additional overhead to support the Company's expanded operations
during the second quarter of fiscal 1998. General and administrative expenses as
a percentage of operating revenue was 5.0% for the six months ended March 31,
1998, a decrease from 5.4% for the comparable prior year period.
Depreciation and Amortization Expense. Depreciation and amortization expense
increased to $5.1 million for the six months ended March 31, 1998 from $4.5
million for the comparable prior year period, an increase of $0.6 million or
13.3%. This increase is primarily attributable to the inclusion of the five
courses acquired subsequent to December, 1996.
Income from Operations. Income from operations increased to $6.0 million for
the six months ended March 31, 1998 from $3.3 million for the comparable prior
year period, primarily due to the factors described above. Income from
operations as a percentage of operating revenue was 13.9% for the six month
period ended March 31, 1998, an increase from 9.2% for the comparable prior year
period. The change is due to increased marketing efforts, pricing and
utilization of the Company's facilities.
Interest Expense, Net. Interest expense, net, increased to $9.3 million for
the six months ended March 31, 1998 from $7.4 million for the comparable prior
period, an increase of $1.9 million or 25.7%. The increase is primarily due to a
higher level of outstanding debt as a result of golf course facility
acquisitions.
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 increased to $3.3 million for the six months ended March
31, 1998 from $4.2 million for the comparable prior year 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
their 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 $19.0 million on
acquisition-related costs and $5.8 million on capital improvements during the
six months ended March 31, 1998. As of March 31, 1998, 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.
<PAGE>
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 5.25x at March 31, 1998. The credit facility also
imposes other limitations on the ability of the Company with respect to
borrowings. As on March 31, 1998, the Company had $37.1 million outstanding
under the credit facility. In addition, as of March 31, 1998, 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 March
31, 1998, 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 six month period ended March 31, 1998, net cash provided by operating
activities was $0.1 million versus a $2.0 million use of cash in the comparable
prior year period. The largest non-cash charges for the six month period ended
March 31, 1998 were depreciation and amortization and interest on zero-coupon
notes.
During the six month period ended March 31, 1998, net cash used in investing
activities was $24.8 million versus $13.2 million in the prior comparable
period. Expenditures for the six months ended March 31, 1998 consisted of $19.0
million in acquisition-related costs and $5.8 million in capital expenditures.
During the six month period ended March 31, 1998, net cash provided by
financing activities was $21.6 million versus $10.2 million in the prior
comparable period. During the six months ended March 31, 1998, the Company
borrowed $18.3 million under its acquisition facility and $4.5 under its working
capital revolver. During that same period, the Company paid $1.3 million in
principal of its bank facility and other obligations. At March 31, 1998,
borrowings under the $50 million credit facility totaled $37.1 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
On January 11, 1998, the Company filed a report on Form 8-K. The
Form 8-K reported that the Company has entered into an Agreement
and Plan of Merger with Meditrust Corporation and Meditrust
Operating Company, dated as of January 11, 1998.
<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: May 11, 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
<CIK> 0001017481
<NAME> COBBLESTONE HOLDINGS, INC.
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> MAR-30-1998
<CASH> 400,432
<SECURITIES> 0
<RECEIVABLES> 10,770,359
<ALLOWANCES> 1,056,295
<INVENTORY> 3,215,730
<CURRENT-ASSETS> 11,096,454
<PP&E> 205,633,691
<DEPRECIATION> 28,803,593
<TOTAL-ASSETS> 201,486,198
<CURRENT-LIABILITIES> 11,638,480
<BONDS> 0
42,241,169
0
<COMMON> 17,224
<OTHER-SE> (12,913,387)
<TOTAL-LIABILITY-AND-EQUITY> 201,486,198
<SALES> 9,979,939
<TOTAL-REVENUES> 42,870,781
<CGS> 4,162,175
<TOTAL-COSTS> 36,891,136
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 45,668
<INTEREST-EXPENSE> 9,260,686
<INCOME-PRETAX> (3,281,041)
<INCOME-TAX> 9,020
<INCOME-CONTINUING> (3,290,061)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,290,061)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
