<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 21, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 2
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
COMMISSION FILE NUMBER 1-12246
NATIONAL GOLF PROPERTIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MARYLAND 95-4549193
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
1448 15TH STREET, #200 90404
SANTA MONICA, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
(310) 260-5500
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE
COMMON STOCK ON WHICH REGISTERED
$.01 PAR VALUE NEW YORK STOCK EXCHANGE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
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
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. X
---
As of April 25, 1996, the aggregate market value of the voting stock held by
nonaffiliates of the registrant was approximately $239.1 million, based upon
the closing price ($24.625) on the New York Stock Exchange on that date. (For
this computation, the registrant has excluded the market value of all shares
of its common stock reported as owned by executive officers and directors of
the registrant and certain other stockholders; such exclusion shall not be
deemed to constitute an admission that any such person is an "affiliate" of
the registrant).
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
10,621,975 SHARES OF COMMON STOCK, $.01 PAR VALUE AS OF APRIL 25, 1996
DOCUMENTS INCORPORATED BY REFERENCE
None
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- -------------------------------------------------------------------------------
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
a) Market Information
The following table sets forth for periods shown the high and low sales
price for the Company's Common Stock on the New York Stock Exchange and
distributions declared.
<TABLE>
<CAPTION>
HIGH LOW DISTRIBUTION
------- ------- ------------
<S> <C> <C> <C>
1995
Fourth quarter................................ $24.00 $21.50 $.41
Third quarter................................. 22.25 20.00 .41
Second quarter................................ 22.50 19.375 .39375
First quarter................................. 22.125 19.50 .39375
1994
Fourth quarter................................ $22.125 $17.25 $.39375
Third quarter................................. 23.00 20.00 .39375
Second quarter................................ 21.75 19.625 .35
First quarter................................. 21.375 19.25 .35
</TABLE>
b) Holders
The number of record holders of the Company's Common Stock was 534 as of
February 20, 1996. The number of street name stockholders is estimated at
6,200.
c) Distributions
The Company paid distributions to stockholders of $1.59 per share in 1995,
of which $1.34 represents ordinary income and $0.25 represents return of
capital on a tax basis. On a book basis, $0.34 per share represents return of
capital. In 1994, NGP paid distributions to stockholders of $1.44 per share,
of which $1.21 represents ordinary income and $0.23 represents return of
capital on a tax basis. On a book basis, $0.32 per share represents return of
capital. In order to maintain its qualification in 1995 and 1994 as a REIT for
federal income tax purposes, the Company was required to make distributions to
its stockholders of at least $1.18 and $1.10 per share, respectively. In
addition, on January 17, 1996, the Company declared a quarterly distribution
for the fourth quarter of 1995 of $0.41 per share to stockholders of record on
January 31, 1996, which was paid on February 15, 1996.
1
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The selected financial data included in this table by the Company is derived
from the Company's consolidated financial statements and the Company's
predecessors' (Golf Properties Group ("GPG")) combined financial statements
for those years, which have been audited by Coopers & Lybrand L.L.P.
Historical operating results of GPG may not be comparable to future operating
results of the Company because: (i) the Leases with AGC have materially
different terms from the terms of the leases with GPG; (ii) historical
operating revenues and operating expenses include revenues and expenses
relating to five courses that were operated by AGC pursuant to management
agreements (under which GPG received revenues and bore expenses and paid the
operator a fee) rather than leases; and (iii) management fee expense reflects
consulting services provided by AGC to GPG, which were not continued following
the Offering.
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC. GOLF PROPERTIES GROUP
--------------------------------- ------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993 DECEMBER 31,
------------------ THROUGH THROUGH ----------------
1995 1994 DEC. 31, 1993 AUG. 17, 1993 1992 1991
-------- -------- ------------- ------------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
Rent................... $ 45,931 $ 36,637 $10,787 $10,678 $13,200 $13,071
Gain on sale of
property.............. 1,893 -- -- -- -- --
Operating.............. -- -- -- 4,708 5,938 6,581
Other income........... -- -- 17 499 1,013 582
-------- -------- ------- ------- ------- -------
Total revenues.......... 47,824 36,637 10,804 15,885 20,151 20,234
-------- -------- ------- ------- ------- -------
Expenses
Operating.............. -- -- -- 3,950 5,151 5,433
Management fee......... -- -- -- 2,193 2,485 2,286
General &
administrative........ 4,258 4,709 1,374 -- -- --
Depreciation &
amortization.......... 14,027 10,413 3,384 4,661 4,937 4,792
-------- -------- ------- ------- ------- -------
Total expenses.......... 18,285 15,122 4,758 10,804 12,573 12,511
-------- -------- ------- ------- ------- -------
Interest expense....... (8,793) (2,212) (335) (4,627) (5,424) (5,311)
Interest income........ 4,144 3,459 1,584 24 95 678
Other income........... 114 194 -- -- -- --
-------- -------- ------- ------- ------- -------
Income before provision
for taxes and minority
interest............... 25,004 22,956 7,295 478 2,249 3,090
Provision for taxes..... (352) (368) (158) -- -- --
-------- -------- ------- ------- ------- -------
Income before minority
interest............... 24,652 22,588 7,137 478 2,249 3,090
Minority interest....... (11,366) (10,712) (3,317) -- -- --
-------- -------- ------- ------- ------- -------
Net income.............. $ 13,286 $ 11,876 $ 3,820 $ 478 $ 2,249 $ 3,090
======== ======== ======= ======= ======= =======
Net income per common
share.................. $1.25 $1.12 $0.36 -- -- --
Weighted average number
of common shares
outstanding............ 10,622 10,612 10,603 -- -- --
</TABLE>
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES,
INC. GOLF PROPERTIES GROUP
-------------------------- ---------------------
DECEMBER 31,
------------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate before
accumulated
depreciation........... $362,068 $272,034 $166,410 $ 130,327 $ 103,600
Total assets............ 347,967 275,071 222,739 102,779 78,947
Total debt.............. 144,983 66,441 12,666 70,044 49,375
Minority interest....... 23,000 22,936 19,979 -- --
Stockholders' equity.... 177,907 183,136 181,997 -- --
Cash distributions
declared per common
share.................. 1.61 1.49 0.51 -- --
</TABLE>
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC. GOLF PROPERTIES GROUP
--------------------------------- --------------------------------
YEAR ENDED YEAR ENDED
DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993 DECEMBER 31,
------------------ THROUGH THROUGH ------------------
1995 1994 DEC. 31, 1993 AUG. 17, 1993 1992 1991
-------- -------- ------------- ------------- -------- --------
(IN THOUSANDS, EXCEPT PROPERTY DATA)
<S> <C> <C> <C> <C> <C> <C>
OTHER DATA:
Company's funds from
operations(1).......... $ 19,641 $ 17,209 $ 5,587 $ 5,129 $ 7,176 $ 7,872
Cash flows from (used
in):
Operating activities.. 36,383 34,241 9,282 6,649 18,520 34,729
Investing activities.. (76,019) (32,003) (106,728) (8,763) (16,961) (6,082)
Financing activities.. 42,639 (52) 99,346 1,188 (1,069) (28,422)
Number of courses....... 81 71 51 47 43 39
Number of locations..... 72 63 46 42 38 34
</TABLE>
2
<PAGE>
- --------
(1) The Company believes that to facilitate a clear understanding of the
historical consolidated and combined operating results, funds from
operations should be examined in conjunction with net income. Funds from
operations is considered by management as an appropriate measure of the
performance of an equity REIT because it is predicated on cash flow
analyses, which management believes is more reflective of the value of
real estate companies such as the Company rather than a measure predicated
on generally accepted accounting principles which gives effect to non-cash
expenditures such as depreciation. Funds from operations is generally
defined as net income (loss) plus certain non-cash items, primarily
depreciation and amortization. Funds from operations should not be
considered as an alternative to net income as an indication of the
Company's performance or as an alternative to cash flow, as defined by
generally accepted accounting principles, as a measure of liquidity. The
National Association of Real Estate Investment Trusts, Inc. ("NAREIT")
adopted revisions to the definition of funds from operations as set forth
in the NAREIT "White Paper on Funds From Operations" dated March 1995. The
Company has adopted the new definition of funds from operations and
intends to present both the old and new definitions of funds from
operations to assist in comparisons with prior periods of the Company. The
funds from operations presented may not be comparable to funds from
operations for other REITs. The following table summarizes the Company's
funds from operations, based on the old and new definitions, for the years
ended December 31, 1995 and 1994, and the period August 18, 1993 through
December 31, 1993, and Golf Properties Group's funds from operations for
the period January 1, 1993 through August 17, 1993 and the years ended
December 31, 1992 and 1991.
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES,
INC. GOLF PROPERTIES GROUP
------------------------------- ----------------------------
FOR THE YEAR FOR THE PERIOD FOR THE YEAR
ENDED --------------------------- ENDED
DECEMBER 31, AUG. 18, 1993 JAN. 1, 1993 DECEMBER 31,
---------------- TO TO --------------
1995 1994 DEC. 31, 1993 AUG. 17, 1993 1992 1991
------- ------- ------------- ------------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net income.............. $13,286 $11,876 $ 3,820 $ 478 $2,249 $3,090
Minority interest....... 11,366 10,712 3,317 -- -- --
Depreciation and
amortization........... 14,027 10,413 3,384 4,661 4,937 4,792
Amortization--restricted
stock.................. 943 893 311 -- -- --
Amortization--investment
premiums............... -- 540 -- -- -- --
Gain on sale of
property............... (1,893) -- -- -- -- --
Write off of option
payable................ (101) -- -- -- -- --
Discount on payoff of
note payable........... -- (175) -- -- -- --
------- ------- ------- ------ ------ ------
Funds from operations--
old definition......... 37,628 34,259 10,832 5,139 7,186 7,882
Amortization--restricted
stock.................. (943) (893) (311) -- -- --
Amortization--investment
premiums............... -- (540) -- -- -- --
Amortization--loan
costs.................. (195) (66) (78) (10) (10) (10)
Depreciation--
corporate.............. (43) (31) (3) -- -- --
------- ------- ------- ------ ------ ------
Funds from operations--
new definition......... $36,447 $32,729 $10,440 $5,129 $7,176 $7,872
Company's share of funds
from operations........ 53.89% 52.58% 53.52% 100% 100% 100%
------- ------- ------- ------ ------ ------
Company's funds from
operations............. $19,641 $17,209 $ 5,587 $5,129 $7,176 $7,872
======= ======= ======= ====== ====== ======
</TABLE>
In order to maintain its qualification as a REIT for federal income
purposes, the Company is required to make distributions to its
stockholders. The Company's distributions to stockholders have been less
than the total funds from operations because the Company is obligated to
make certain payments with respect to principal debt and capital
improvements. Management believes that to continue the Company's growth,
funds from operations in excess of distributions, principal reductions and
capital improvement expenditures should be invested in assets expected to
generate returns on investment to the Company commensurate with the
Company's investment objectives and policies.
3
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
OVERVIEW
The following discussion should be read in conjunction with the accompanying
Consolidated and Combined Financial Statements and Notes thereto. The
historical Combined Financial Statements of Golf Properties Group (Predecessor
Affiliates) are comprised of the operations, assets and liabilities of two
corporations, 18 partnerships and affiliates which, prior to the Offering and
the related transactions, owned and operated 47 Golf Courses that are now
owned by the Company and the Operating Partnership. Nine of the Golf Courses
were sold to the Company and subsequently contributed to the Operating
Partnership and one corporation, which owned or leased four of the Golf
Courses, was merged with and into the Company. The remaining Golf Courses were
transferred directly to the Operating Partnership. GPG is considered the
predecessor entity to the Company and the Combined Financial Statements are
presented for comparative purposes.
The discussion of the results of operations compares the year ended December
31, 1995 with the year ended December 31, 1994, the year ended December 31,
1994 with the year ended December 31, 1993, which includes the summation of
the Company's (August 18, 1993 to December 31, 1993) and the Predecessor
Affiliates' (January 1, 1993 to August 17, 1993) results of operations, and
includes an analysis of the year ended December 31, 1994 and the periods
August 18, 1993 through December 31, 1993, and January 1, 1993 through August
17, 1993.
RESULTS OF OPERATIONS
Comparison of year ended December 31, 1995 to year ended December 31, 1994
Net income increased by $1,410,000 to $13,286,000 for the year ended
December 31, 1995 compared to $11,876,000 for the year ended December 31,
1994. The increase was primarily attributable to (i) an increase in rent of
approximately $9,294,000; (ii) a decrease in general and administrative
expenses of approximately $451,000; (iii) an increase in depreciation and
amortization expense of approximately $3,614,000; (iv) an increase in interest
income of approximately $560,000; (v) an increase in interest expense of
approximately $6,581,000; (vi) a gain on sale of property of approximately
$1,893,000; and (vii) an increase in income applicable to minority interest of
approximately $654,000.
The increase in rent is due to (i) the acquisition of 11 golf course
properties during 1995; (ii) a full year of rent in 1995 on 20 golf course
properties acquired in 1994; and (iii) an increase in percentage rent of
approximately $1,074,000. The decrease in general and administrative expenses
in 1995 was due to the Company's continued efforts to reduce expenses. The
increase in depreciation and amortization expense is due to (i) the
acquisition of 11 golf course properties during 1995 and (ii) a full year of
depreciation expense in 1995 on 20 golf course properties acquired in 1994.
The increase in interest income is due to (i) interest earned on the
proceeds from the Operating Partnership's sale of $100 million of fixed rate,
unsecured notes due 2004 and 2005 before the proceeds from such sale were
invested in golf course properties and (ii) interest income earned on a $2.2
million mortgage loan. The notes were issued in two series of $50 million. The
first note series was issued with a fixed interest rate of 8.68%, and the
second note series was issued with a fixed interest rate of 8.73%. With
respect to the $50 million first note series, the Operating Partnership
received $30 million in December 1994 and $20 million in January 1995. With
respect to the $50 million second note series, the Operating Partnership
received $50 million in June 1995. On March 13, 1995, the Company sold Hidden
Hills Country Club for approximately $3.2 million. The Company provided seller
financing in the form of a mortgage loan in the amount of $2.2 million at an
initial interest rate of 11% per annum. The increase in interest expense is
primarily due to the $100 million notes issued. The gain on the sale of
property is due to the sale of Hidden Hills Country Club.
4
<PAGE>
Comparison of year ended December 31, 1994 to year ended December 31, 1993
The year ended December 31, 1993 represents the summation of the Company's
(August 18, 1993 to December 31, 1993) and the Predecessor Affiliates'
(January 1, 1993 to August 17, 1993) results of operations for comparison
purposes only. The significant operating differences between the above
entities are (i) the Leases with AGC have materially different terms from the
terms of the leases with the Predecessor Affiliates and (ii) two of the
Predecessor Affiliates conducted golf course operations directly, with
management services provided by AGC, rather than leasing their golf course
properties to AGC.
Net income increased by $7,578,000 to $11,876,000 for the year ended
December 31, 1994 compared to $4,298,000 for the year ended December 31, 1993.
The increase was primarily attributable to (i) an increase in rent from
affiliates of approximately $15,172,000; (ii) elimination of operating
revenues of approximately $4,708,000; (iii) elimination of other income from
affiliates of approximately $516,000; (iv) elimination of operating expenses
of approximately $3,950,000; (v) elimination of management fee to affiliates
of approximately $2,193,000; (vi) an increase in general and administrative
expenses of approximately $3,335,000; (vii) an increase in depreciation and
amortization expense of approximately $2,368,000; (viii) an increase in
interest income of approximately $1,851,000; (ix) a decrease in interest
expense of approximately $2,750,000; and (x) an increase in income applicable
to minority interest of approximately $7,395,000.
The increase in rent from affiliates was primarily attributable to (i) the
acquisition of 20 golf course properties during 1994; (ii) a full year of rent
in 1994 on eight golf course properties acquired during 1993; (iii) an
increase in percentage rent of approximately $2,147,000; and (iv) the Leases
with AGC have materially different terms from the terms of the leases with the
Predecessor Affiliates.
The elimination of operating revenues, other income from affiliates,
operating expenses, and management fee to affiliates is due to the leasing of
all the golf course properties, on a triple net basis, to AGC following the
Offering. Prior to the Offering, two of the Predecessor Affiliates conducted
golf course operations directly, with management services provided by AGC,
rather than leasing their golf course properties to AGC. The operating
revenues and expenses include revenues and expenses relating to the golf
course properties that were operated by AGC pursuant to management agreements
(under which the Predecessor Affiliates received revenues and bore expenses
and paid the operator a fee). The increase in general and administrative
expenses was primarily due to a full year of expenses and employee costs
associated with being a publicly held company.
The increase in depreciation and amortization expense is due to (i) the
acquisition of 20 golf course properties during 1994 and (ii) a full year of
depreciation expense in 1994 on eight golf course properties acquired during
1993. The increase in interest income is primarily due to a full year of
interest income on the Participating Mortgage Loans. The decrease in interest
expense was primarily attributable to the reduction in indebtedness at the
time of the Offering. The income applicable to minority interest is due to the
consolidation of the Company with its majority-owned Operating Partnership and
Royal Golf.
Discussion of results of operations for the year ended December 31, 1994
Net income for the year was $11,876,000. Income was derived primarily from
(i) base and percentage rents under the Leases with AGC and (ii) interest
income from affiliates on the Participating Mortgage Loans. Expenses were
primarily due to (i) depreciation of fixed assets and amortization of
intangible assets; (ii) general and administrative expenses due to expenses
and employee costs associated with being a publicly held company; (iii)
interest expense on notes payable; and (iv) federal alternative minimum and
state income and franchise taxes. In addition, the income applicable to
minority interest is due to the consolidation of the Company with its
majority-owned Operating Partnership and Royal Golf.
The rent revenue from 1994 acquisitions was approximately $4.9 million
compared to total 1994 rent revenue of $36.6 million. The depreciation and
amortization expense for these acquisitions was approximately $2.2 million
compared to the total depreciation and amortization expense of $10.4 million.
The interest expense on the additional debt incurred in the purchase of the
1994 acquisitions was approximately $1.2 million compared to a total interest
expense of $2.2 million.
Discussion of results of operations for the period August 18, 1993 through
December 31, 1993
Net income for the period was $3,820,000. Income was derived primarily from
(i) base and percentage rents under the Leases with AGC and (ii) interest
income earned on the net proceeds of the Offering and from affiliates
5
<PAGE>
on the Participating Mortgage Loans. Expenses were primarily due to (i)
depreciation of fixed assets and amortization of intangible assets; (ii)
general and administrative expenses due to expenses and employee costs
associated with being a publicly held company; (iii) interest expense on notes
payable; and (iv) federal excise and state income and franchise taxes. In
addition, the income applicable to minority interest is due to the
consolidation of the Company with its majority-owned Operating Partnership.
Discussion of results of operations for the period January 1, 1993 through
August 17, 1993
Net income for the period was $478,000. Income was derived primarily from
(i) rents received from lease agreements with AGC on 42 golf courses and (ii)
operating income from five golf courses. Expenses were primarily due to (i)
depreciation of fixed assets and amortization of intangible assets; (ii)
operating and general and administrative expenses; (iii) management fees to
affiliates; and (iv) interest expense on notes payable and intercompany
balances.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had approximately $7.9 million in cash and
investments, Participating Mortgage Loans of approximately $25.2 million, a
mortgage loan of $2.2 million, mortgage indebtedness of approximately $26.6
million and unsecured indebtedness of approximately $116.6 million. The $143.2
million principal amount of mortgage and unsecured indebtedness bears interest
at a weighted average rate of 8.16%, is payable either monthly, quarterly or
semi-annually and matures between 1996 and 2008. Of the $143.2 million of
debt, $131.2 million is fixed-rate debt.
In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to make substantial distributions to its
stockholders. The following factors, among others, will affect cash flow from
operations and will influence the decisions of the Board of Directors
regarding distributions: (i) reduction in debt service resulting from the
repayment of certain mortgage indebtedness relating to the Golf Courses; (ii)
scheduled increases in base rent under the Leases with respect to the Golf
Courses; (iii) any payment to the Company of percentage rent under the Leases
with respect to the Golf Courses; (iv) returns from short-term investments;
and (v) interest payments under Participating Mortgage Loans secured by the
Option Golf Courses. Although the Company receives most of its rental payments
on a monthly basis, it has and intends to continue to pay distributions
quarterly. Amounts accumulated for distribution will be invested by the
Company in short-term money market instruments and marketable securities.
During 1995, investments classified as held-to-maturity securities consisted
of short term commercial paper, state government obligations, and U.S.
government obligations maturing within 90 days. All investments classified as
held-to-maturity securities remained as such and were held until their
respective maturity dates.
The Company anticipates that its cash from operations and its bank line of
credit, described below, will provide adequate liquidity to conduct its
operations, fund administrative and operating costs, interest payments,
capital improvements and acquisitions and allow distributions to the Company's
stockholders in accordance with the Code's requirements for qualification as a
REIT and to avoid any corporate level federal income or excise tax. Capital
improvements for which the Company is responsible would be limited to mandated
projects or projects intended to add value to the property. For Golf Courses
acquired subsequent to the Offering through February 20, 1996, the Company is
required under the Leases to make various remaining capital improvements
totaling approximately $7.7 million of which approximately $7.3 million will
be paid during the next two years. With respect to one of the Option Golf
Courses, if acquired, the Company will reimburse AGC approximately $3 million
for the construction of a clubhouse which was completed during 1995. The
Company believes these improvements will add value to the Golf Courses and
bring the quality of the Golf Courses up to the Company's expected standards.
Any subsequent capital improvements are the responsibility of the lessees.
Upon completion of the capital improvements, the base rent payable under the
Leases with respect to these Golf Courses will be adjusted to reflect, over
the initial term of the Leases (15 to 20 years), the Company's investment in
such improvements.
6
<PAGE>
Future acquisitions will be made subject to the Company's investment
objectives and policies established to maximize both current income and long-
term growth in income. The Company's liquidity requirements with respect to
future acquisitions may be reduced to the extent the Company uses common stock
or OP Units as consideration for such purchases. The Operating Partnership
placed $100 million of fixed rate, unsecured notes due 2004 and 2005 with a
group of institutional investors. The notes were issued in two series of $50
million. The first note series was issued with a fixed interest rate of 8.68%,
and the second note series was issued with a fixed interest rate of 8.73%.
With respect to the $50 million first note series, the Operating Partnership
received $30 million in December 1994 and $20 million in January 1995. With
respect to the $50 million second note series, the Operating Partnership
received $50 million in June 1995. The Operating Partnership applied the net
proceeds from the $100 million notes to repay bank debt of approximately $23.1
million, to finance acquisitions of golf courses and related facilities and
properties of approximately $67.9 million and for capital improvements, loan
costs and general partnership purposes of approximately $9 million. The
Company currently has a $40 million credit facility, which terminates on April
1, 1996, bearing interest at a floating rate (which was 8.5% at December 31,
1995), from a commercial bank that may be used to finance working capital,
acquisitions and capital improvements. There were outstanding advances of
$15.75 million and $12 million under this credit facility as of February 20,
1996 and December 31, 1995, respectively. The definitive agreement pursuant to
which the Company has agreed to purchase 20 golf courses from GEI requires the
Company to pay at closing, at the Company's option, either $58 million in cash
or a combination of approximately $17.2 million in cash and approximately
$40.8 million in Company common stock (based on an average trading price of
such stock prior to closing, subject to certain limitations). Management
currently expects to exercise its option to pay the purchase price for the 20
golf courses in cash and stock, and does not expect that payment of such
purchase price will have an adverse impact on the Company's ability to meet
its liquidity requirements. At December 31, 1995, and February 20, 1996, on a
pro forma basis after giving effect to such purchase, the Company would have
had approximately $10.8 million and $7.05 million, respectively, available
under its existing credit facility.
OP Limited Partners have the right, exercisable once in any twelve month
period, to sell up to one-third of their OP Units or exchange up to the
greater of 75,000 OP Units or one-third of their OP Units to the Company. If
the OP Units are sold for cash, the Company will have the option to pay for
such OP Units with available cash, borrowed funds or from the proceeds of an
offering of common stock. If the OP Units are exchanged for shares of common
stock, the OP Limited Partner will receive the number of shares of common
stock having a market value at the time of exercise equal to the fair market
value of the OP Units being exchanged. On January 17, 1996, the Company
purchased 5,000 OP Units from one unaffiliated limited partner for cash of
approximately $116,000.
Comparison of cash flow statement for year ended December 31, 1995 to year
ended December 31, 1994
Net cash provided by operating activities increased by $2,142,000 to
$36,383,000 for the year ended December 31, 1995 as compared to $34,241,000
for the year ended December 31, 1994. The increase was primarily attributable
to an increase in rent of approximately $9,294,000, which was offset by an
increase in interest expense of approximately $6,581,000.
Net cash used by investing activities increased by $44,016,000 to
$76,019,000 for the year ended December 31, 1995 as compared to $32,003,000
for the year ended December 31, 1994. The increase was primarily attributable
to (i) a decrease in net proceeds from sale of investments of approximately
$37,235,000 and (ii) an increase in purchase of property of approximately
$6,781,000.
Net cash provided by financing activities of $42,639,000 for the year ended
December 31, 1995 represents a decrease of net cash used by financing
activities of $42,691,000, compared to net cash used by financing activities
of $52,000 for the year ended December 31, 1994. The change was primarily
attributable to proceeds from additional notes payable in the amount of
$42,000,000.
7
<PAGE>
Comparison of cash flow statement for year ended December 31, 1994 to year
ended December 31, 1993
Net cash provided by operating activities increased by $18,310,000 to
$34,241,000 for the year ended December 31, 1994 as compared to $15,931,000
for the year ended December 31, 1993. The increase was primarily attributable
to an increase in rent and interest income of approximately $15,172,000 and
$1,851,000, respectively, and a decrease in interest expense of approximately
$2,750,000, which was offset by an increase in general and administrative
expenses of approximately $3,335,000.
Net cash used by investing activities decreased by $83,488,000 to
$32,003,000 for the year ended December 31, 1994 as compared to $115,491,000
for the year ended December 31, 1993. The decrease was primarily attributable
to (i) a decrease in the purchase of investments of approximately $99,343,000;
and (ii) a decrease in the issuance of mortgage notes receivable of
approximately $25,241,000, which was offset by an increase in the purchase of
property and related assets of approximately $44,513,000.
Net cash used by financing activities of $52,000 for the year ended
December 31, 1994 represents a decrease of net cash provided by financing
activities of $100,586,000, compared to net cash provided by financing
activities of $100,534,000 for the year ended December 31, 1993. The change
was primarily attributable to (i) a decrease in proceeds from sale of common
stock of approximately $183,366,000; and (ii) an increase in distributions of
approximately $18,170,000, which was offset by (i) a decrease in principal
payments on notes payable of approximately $54,084,000; and (ii) an increase
in proceeds from notes payable of $34,721,000.
Discussion of cash flow statement for the year ended December 31, 1994
Net cash provided by operating activities was $34,241,000. Cash flows from
operating activities were derived primarily from (i) net income; (ii)
depreciation and amortization; (iii) minority interest in earnings; (iv)
amortization of restricted stock; (v) a decrease in other assets; and (vi) an
increase in accounts payable and other liabilities. Cash flows used by
operating activities were due to a decrease in due to affiliates.
Net cash used by investing activities was $32,003,000. Cash flows from
investing activities were derived from the sale of investments, net, as the
Company used up the proceeds from the Offering. Cash flows used by investing
activities were due to the purchase of 20 Golf Courses and related assets.
Net cash used by financing activities was $52,000. Cash flows from financing
activities were derived from the proceeds from notes payable, which consisted
of $30 million from the first note series and approximately $16.5 million of
advances under the $40 million credit facility. Cash flows used by financing
activities were primarily due to (i) principal payments on notes payable and
repayment of advances under the credit facility and (ii) cash distributions
and limited partners' cash distributions.
Discussion of cash flow statement for the period August 18, 1993 through
December 31, 1993
Net cash provided by operating activities was $9,282,000. Cash flows from
operating activities were derived primarily from (i) net income; (ii)
depreciation and amortization; (iii) minority interest in earnings; and (iv)
an increase in due to affiliates. Cash flows used by operating activities were
primarily due to (i) an increase in other assets and (ii) a decrease in
accounts payable and other liabilities.
Net cash used by investing activities was $106,728,000. Cash flows used by
investing activities were due to (i) the addition of mortgage notes
receivable; (ii) the net purchase of investments; and (iii) the purchase of
four Golf Courses from both affiliated and unaffiliated entities.
Net cash provided by financing activities was $99,346,000. Cash flows from
financing activities were derived from the net proceeds of the Offering. Cash
flows used by financing activities were primarily due to(i) principal payments
on notes payable to both affiliated and unaffiliated entities; (ii) payments
to affiliates; and (iii) cash distributions and limited partners' cash
distributions.
8
<PAGE>
Discussion of cash flow statement for the period January 1, 1993 through
August 17, 1993
Net cash provided by operating activities was $6,649,000. Cash flows from
operating activities were derived from (i) net income; (ii) depreciation and
amortization; (iii) a decrease in other assets; and (iv) an increase in
accounts payable and other liabilities. Cash flows used by operating
activities were due to a decrease in due to affiliates.
Net cash used by investing activities was $8,763,000. Cash flows used by
investing activities were due to the purchase of property and equipment from
unaffiliated entities.
Net cash provided by financing activities was $1,188,000. Cash flows from
financing activities were derived from (i) partners' contributions and (ii)
proceeds from notes payable to affiliates. Cash flows used by financing
activities were due to: (i) principal payments on notes payable to
unaffiliated entities; (ii) the repurchase of common stock; and (iii) cash
distributions and limited partners' cash distributions.
OTHER DATA
The Company believes that to facilitate a clear understanding of the
historical consolidated and combined operating results, funds from operations
should be examined in conjunction with net income as presented in the audited
Consolidated and Combined Financial Statements. Funds from operations is
considered by management as an appropriate measure of the performance of an
equity REIT because it is predicated on cash flow analyses, which management
believes is more reflective of the value of real estate companies such as the
Company rather than a measure predicated on generally accepted accounting
principles which gives effect to non-cash expenditures such as depreciation.
Funds from operations is generally defined as net income (loss) plus certain
non-cash items, primarily depreciation and amortization. Funds from operations
should not be considered as an alternative to net income as an indication of
the Company's performance or as an alternative to cash flow, as defined by
generally accepted accounting principles, as a measure of liquidity.
9
<PAGE>
The National Association of Real Estate Investment Trusts, Inc. ("NAREIT")
adopted revisions to the definition of funds from operations as set forth in
the NAREIT "White Paper on Funds From Operations" dated March 1995. The
Company has adopted the new definition of funds from operations and intends to
present both the old and new definitions of funds from operations to assist in
comparisons with prior periods of the Company. The funds from operations
presented may not be comparable to funds from operations for other REITs. The
following table summarizes the Company's funds from operations, based on the
old and new definitions, for the years ended December 31, 1995 and 1994 and
the period August 18, 1993 through December 31, 1993, and the Predecessor
Affiliates' funds from operations for the period January 1, 1993 through
August 17, 1993.
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED FOR THE PERIOD
---------------- -------------------------------
AUG.
18,
1993 TO
DECEMBER 31, DEC. JAN. 1, 1993
---------------- 31, TO
1995 1994 1993(1) 1993 AUG. 17, 1993
------- ------- ------- ------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net income................... $13,286 $11,876 $ 4,298 $ 3,820 $ 478
Minority interest............ 11,366 10,712 3,317 3,317 --
Depreciation and amortiza-
tion........................ 14,027 10,413 8,045 3,384 4,661
Amortization - restricted
stock....................... 943 893 311 311 --
Amortization - investment
premiums.................... -- 540 -- -- --
Gain on sale of property..... (1,893) -- -- -- --
Write off of option payable.. (101) -- -- -- --
Discount on payoff of note
payable..................... -- (175) -- -- --
------- ------- ------- ------- ------
Funds from operations - old
definition.................. 37,628 34,259 15,971 10,832 5,139
Amortization - restricted
stock....................... (943) (893) (311) (311) --
Amortization - investment
premiums.................... -- (540) -- -- --
Amortization - loan costs.... (195) (66) (88) (78) (10)
Depreciation - corporate..... (43) (31) (3) (3) --
------- ------- ------- ------- ------
Funds from operations - new
definition.................. $36,447 $32,729 $15,569 $10,440 $5,129
Company's share of funds from
operations.................. 53.89% 52.58% 68.83% 53.52% 100%
------- ------- ------- ------- ------
Company's funds from opera-
tions....................... $19,641 $17,209 $10,716 $ 5,587 $5,129
======= ======= ======= ======= ======
</TABLE>
- --------
(1) Represents the summation of the Company (August 18, 1993 to December 31,
1993) and the Predecessor Affiliates (January 1, 1993 to August 17, 1993)
for comparison purposes only.
The primary difference between the old and new definitions of funds from
operations is the exclusion from funds from operations of amortization of
assets that are not uniquely significant to the real estate industry.
In order to maintain its qualification as a REIT for federal income tax
purposes, the Company is required to make distributions to its stockholders.
The Company's distributions to stockholders have been less than the total
funds from operations because the Company is obligated to make certain
payments with respect to principal debt and capital improvements. Management
believes that to continue the Company's growth, funds from operations in
excess of distributions, principal reductions and capital improvement
expenditures should be invested in assets expected to generate returns on
investment to the Company commensurate with the Company's investment
objectives and policies.
Comparison of funds from operations for year ended December 31, 1995 to year
ended December 31, 1994
Funds from operations increased by $3,369,000 to $37,628,000 for the year
ended December 31, 1995 as compared to $34,259,000 for the year ended December
31, 1994. The increase was primarily attributable to an increase in rent of
approximately $9,294,000, which was offset by an increase in interest expense
of approximately $6,581,000.
Comparison of funds from operations for year ended December 31, 1994 to year
ended December 31, 1993
Funds from operations increased by $18,288,000 to $34,259,000 for the year
ended December 31, 1994 as compared to $15,971,000 for the year ended December
31, 1993. The increase was primarily attributable to an
10
<PAGE>
increase in rent and interest income of approximately $15,172,000 and
$1,851,000, respectively, and a decrease in interest expense of approximately
$2,750,000, which was offset by an increase in general and administrative
expenses of approximately $3,335,000.
Discussion of funds from operations for the year ended December 31, 1994
Funds from operations for the year were $34,259,000. Funds from operations
were derived primarily from (i) base and percentage rents received from the
Leases with AGC; (ii) interest income from affiliates due to the Participating
Mortgage Loans; and (iii) interest income from investments reduced by (a)
general and administrative expenses primarily due to the expenses and employee
costs associated with being a publicly held company; (b) interest expense on
notes payable and advances under the $40 million credit facility; and (c)
federal alternative minimum and state income and franchise taxes.
Discussion of funds from operations for the period August 18, 1993 through
December 31, 1993
Funds from operations for the period were $10,832,000. Funds from operations
were derived primarily from (i) base and percentage rents received from the
Leases with AGC for the 47 Initial Golf Courses; (ii) base rents received from
four additional Leases with AGC; (iii) interest income from affiliates due to
the Participating Mortgage Loans; and (iv) interest income from investments
purchased from the net proceeds of the Offering reduced by (a) general and
administrative expenses primarily due to the expenses and employee costs
associated with being a publicly held company; (b) interest expense on notes
payable: and (c) federal excise and state income and franchise taxes.
Discussion of funds from operations for the period January 1, 1993 through
August 17, 1993
Funds from operations for the period were $5,139,000. Funds from operations
were derived primarily from (i) rents received from lease agreements with AGC
on 38 golf courses; (ii) operating income from five golf courses; (iii) rents
received from four new golf leases between David G. Price and his affiliates
and AGC; and (iv) management fee income reduced by (a) operating expenses and
management fees due to the management and operations of the golf courses and
(b) interest expense on notes payable and affiliate balances.
INFLATION
All the Leases of the Golf Courses provide for base and participating rent
features. All of such Leases are triple net leases requiring the lessees to
pay for all maintenance and repair, insurance, utilities and services, and,
subject to certain limited exceptions, all real estate taxes, thereby
minimizing the Company's exposure to increases in costs and operating expenses
resulting from inflation.
SEASONALITY
Although the results of operations of the Company and its predecessors have
not been significantly impacted by seasonality, the Company generally expects
that its results of operations may be adversely affected as a function of
reduced payments of percentage rent in the first and fourth quarters of each
year due to adverse weather conditions and the scheduled closure of Golf
Courses located in harsh winter climates.
NEW PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of." SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount
of an asset may not be recoverable. Certain long-lived assets and certain
identifiable intangibles to be disposed of must be reported at the lower of
carrying amount or fair value less cost to sell. SFAS No. 121 must be adopted
no later than the fiscal year beginning after December 15, 1995. The Company
anticipates adopting SFAS No. 121 in the first quarter of 1996. There is no
material impact anticipated to the Company's financial condition or results of
operations.
11
<PAGE>
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." This Statement encourages entities to adopt a fair value based
method of accounting for all employee stock compensation, as well as
transactions in which an entity issues its equity instruments to acquire goods
or services from nonemployees. Those transactions must be accounted for based
on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reasonably determinable. The
Statement allows an entity to continue measuring compensation cost for the
plans using the accounting principles prescribed by Accounting Principles
Board ("APB") Opinion No. 25, "Accounting for Stock Issued to Employees." In
that case, however, companies must also include pro forma disclosures of net
income and earnings per share, as if the fair value based method of accounting
defined in SFAS No. 123 had been applied. SFAS No. 123 is effective for fiscal
years beginning after December 15, 1995. The Company anticipates adopting SFAS
No. 123 in the first quarter of 1996, and electing to continue to apply the
accounting rules contained in APB Opinion No. 25. There is no material impact
anticipated to the Company's financial condition or results of operations.
12
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of National Golf Properties, Inc.
We have audited the consolidated financial statements and financial
statement schedule of National Golf Properties, Inc. (the "Company") and Golf
Properties Group (Predecessor Affiliates) as listed in Item 14(a)(1) and (2)
of this Form 10-K. These consolidated financial statements and financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of National Golf Properties, Inc. as of December 31, 1995 and 1994, and the
consolidated results of operations and cash flows of National Golf Properties,
Inc. and Golf Properties Group (Predecessor Affiliates) for the years ended
December 31, 1995 and 1994 and the period August 18, 1993 through December 31,
1993 and the period January 1, 1993 through August 17, 1993, respectively, in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedule referred to above, when considered
in relation to the basic financial statements taken as a whole, presents
fairly, in all material respects, the information required to be included
therein.
Coopers & Lybrand L.L.P.
Los Angeles, California
February 28, 1996
13
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Property
Land..................................................... $ 51,909 $ 43,500
Buildings................................................ 108,120 77,833
Ground improvements...................................... 168,872 124,804
Furniture, fixtures and equipment........................ 26,646 22,018
Construction in progress................................. 6,521 3,879
-------- --------
362,068 272,034
Less: accumulated depreciation........................... (58,787) (46,896)
-------- --------
Net property........................................... 303,281 225,138
Cash and cash equivalents.................................. 7,089 4,086
Investments................................................ 809 9,960
Mortgage notes receivable.................................. 27,441 25,241
Due from affiliates........................................ -- 794
Other assets............................................... 9,347 9,852
-------- --------
Total assets........................................... $347,967 $275,071
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable.............................................. $143,176 $ 66,441
Accounts payable and other liabilities..................... 2,077 2,558
Due to affiliates.......................................... 1,807 --
-------- --------
Total liabilities...................................... 147,060 68,999
-------- --------
Minority interest.......................................... 23,000 22,936
-------- --------
Commitments and contingencies (Note 6)
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized--none issued................................. -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 10,621,975 shares issued and outstanding at
December 31, 1995 and 1994.............................. 106 106
Additional paid in capital............................... 181,730 187,902
Accumulated deficit...................................... (1,360) (1,360)
Unamortized restricted stock compensation................ (2,569) (3,512)
-------- --------
Total stockholders' equity............................. 177,907 183,136
-------- --------
Total liabilities and stockholders' equity............. $347,967 $275,071
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
NATIONAL GOLF PROPERTIES, INC. ("COMPANY") AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES) ("GPG")
CONSOLIDATED STATEMENTS OF OPERATIONS OF THE COMPANY AND
COMBINED STATEMENT OF OPERATIONS OF GPG
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
GOLF PROPERTIES
NATIONAL GOLF PROPERTIES, INC. GROUP
------------------------------------- ---------------
FOR THE YEAR
ENDED FOR THE PERIOD FOR THE PERIOD
DECEMBER 31, AUGUST 18, 1993 JANUARY 1, 1993
------------------ TO TO
1995 1994 DECEMBER 31, 1993 AUGUST 17,1993
-------- -------- ----------------- ---------------
<S> <C> <C> <C> <C>
Revenues:
Rent from affiliates... $ 45,339 $ 36,637 $10,787 $10,678
Rent................... 592 -- -- --
Gain on sale of
property.............. 1,893 -- -- --
Operating.............. -- -- -- 4,708
Other income from
affiliates............ -- -- 17 499
-------- -------- ------- -------
Total revenues....... 47,824 36,637 10,804 15,885
-------- -------- ------- -------
Expenses:
Operating.............. -- -- -- 3,950
Management fee to
affiliates............ -- -- -- 2,193
General and
administrative........ 4,258 4,709 1,374 --
Depreciation and
amortization.......... 14,027 10,413 3,384 4,661
-------- -------- ------- -------
Total expenses....... 18,285 15,122 4,758 10,804
-------- -------- ------- -------
Operating income....... 29,539 21,515 6,046 5,081
Other income (expense):
Interest income from
affiliates............ 2,884 2,759 779 24
Interest income........ 1,260 700 805 --
Other income........... 114 194 -- --
Interest expense to
affiliates............ -- -- -- (1,926)
Interest expense....... (8,793) (2,212) (335) (2,701)
-------- -------- ------- -------
Income before provision
for taxes and
minority interest....... 25,004 22,956 7,295 478
Provision for taxes...... (352) (368) (158) --
-------- -------- ------- -------
Income before minority
interest................ 24,652 22,588 7,137 478
Income applicable to mi-
nority interest......... (11,366) (10,712) (3,317) --
-------- -------- ------- -------
Net income............... $ 13,286 $ 11,876 $ 3,820 $ 478
======== ======== ======= =======
Net income per common
share................... $ 1.25 $ 1.12 $ 0.36
======== ======== =======
Weighted average number
of common
shares outstanding...... 10,622 10,612 10,603
======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
NATIONAL GOLF PROPERTIES, INC. ("COMPANY") AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES) ("GPG")
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY OF THE COMPANY AND COMBINED
STATEMENT OF EQUITY OF GPG
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
PARTNERS' STOCKHOLDERS'
EQUITY EQUITY
------------------ --------------------------------------------
RETAINED
ADDITIONAL EARNINGS UNAMORTIZED
GENERAL LIMITED COMMON PAID IN (ACCUMULATED RESTRICTED
TOTAL PARTNERS PARTNERS STOCK CAPITAL DEFICIT) STOCK
-------- -------- -------- ------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992..................... $ 30,489 $ 21,585 $ 5,987 $ 2,051 $ -- $ 866 $ --
Contributions............ 871 871 -- -- -- -- --
Purchase of owner's
interest................ (4,436) -- -- (275) -- (4,161) --
Distributions............ (5,793) (4,443) (1,350) -- -- -- --
Dividends................ (710) -- -- -- -- (710) --
Net income............... 478 591 (553) -- -- 440 --
-------- -------- ------- ------- -------- -------- -------
Balance at August 17,
1993..................... 20,899 18,604 4,084 1,776 -- (3,565) --
Reorganization and
issuance of common stock
for IPO................. 162,417 (18,604) (4,084) (1,672) 183,212 3,565 --
Issuance of restricted
stock................... 311 -- -- 2 4,581 -- (4,272)
Distributions declared
and/or paid............. (5,450) -- -- -- -- (5,450) --
Net income............... 3,820 -- -- -- -- 3,820 --
-------- -------- ------- ------- -------- -------- -------
Balance at December 31,
1993..................... 181,997 -- -- 106 187,793 (1,630) (4,272)
Syndication and
organization costs...... (24) -- -- -- (24) -- --
Amortization of
restricted stock........ 893 -- -- -- -- -- 893
Issuance of restricted
stock, net.............. -- -- -- -- 133 -- (133)
Distributions paid
($1.09375 per share).... (11,606) -- -- -- -- (11,606) --
Net income............... 11,876 -- -- -- -- 11,876 --
-------- -------- ------- ------- -------- -------- -------
Balance at December 31,
1994..................... 183,136 -- -- 106 187,902 (1,360) (3,512)
Amortization of
restricted stock........ 943 -- -- -- -- -- 943
Reduction for minority
interest................ (2,558) -- -- -- (2,558) -- --
Distributions paid ($1.59
per share)................(16,900) -- -- -- (3,614) (13,286) --
Net income............... 13,286 -- -- -- -- 13,286 --
-------- -------- ------- ------- -------- -------- -------
Balance at December 31,
1995..................... $177,907 $ -- $ -- $ 106 $181,730 $ (1,360) $(2,569)
======== ======== ======= ======= ======== ======== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
16
<PAGE>
NATIONAL GOLF PROPERTIES, INC. ("COMPANY") AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES) ("GPG")
CONSOLIDATED STATEMENTS OF CASH FLOWS OF THE COMPANY AND
COMBINED STATEMENT OF CASH FLOWS OF GPG
(IN THOUSANDS)
<TABLE>
<CAPTION>
NATIONAL GOLF PROPERTIES, INC. GOLF PROPERTIES GROUP
-------------------------------------- ---------------------
FOR THE YEAR
ENDED FOR THE PERIOD FOR THE PERIOD
DECEMBER 31, AUGUST 18, 1993 JANUARY 1, 1993
------------------- TO TO
1995 1994 DECEMBER 31, 1993 AUGUST 17, 1993
--------- -------- ----------------- ---------------------
<S> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............ $ 13,286 $ 11,876 $ 3,820 $ 478
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Depreciation and
amortization......... 14,027 10,413 3,384 4,661
Amortization of
restricted stock..... 943 893 311 --
Minority interest in
earnings............. 11,366 10,712 3,317 --
Gain on sale of
property............. (1,893) -- -- --
Other adjustments..... (101) 390 (13) --
Changes in assets and
liabilities:
Other assets......... 122 782 (1,333) 1,296
Accounts payable and
other liabilities... (478) 630 (1,214) 314
Due from/to
affiliates.......... (889) (1,455) 1,010 (100)
--------- -------- --------- -------
Net cash provided by
operating
activities......... 36,383 34,241 9,282 6,649
--------- -------- --------- -------
Cash flows from
investing activities:
Issuance of mortgage
notes receivable..... -- -- (25,241) --
Purchase of
investments.......... -- -- (147,156) --
Proceeds from sale of
investments.......... -- -- 90,257 --
Purchase of held-to-
maturity securities.. (402,910) (18,878) -- --
Proceeds from sale of
held-to-maturity
securities........... 412,870 17,175 -- --
Purchase of available-
for-sale securities.. (22,620) (28,935) -- --
Proceeds from sale of
available-for-sale
securities........... 21,811 77,024 -- --
Purchase of property
and related assets
from affiliates...... -- -- (11,284) --
Purchase of property
and related assets... (85,165) (77,864) (13,304) (8,763)
Payments for covenants
not to compete....... (5) (525) -- --
--------- -------- --------- -------
Net cash used by
investing
activities......... (76,019) (32,003) (106,728) (8,763)
--------- -------- --------- -------
Cash flows from
financing activities:
Principal payments on
notes payable to
affiliates........... -- -- (27,144) --
Principal payments on
notes payable to
others............... (14,159) (18,391) (42,332) (2,999)
Payments to
affiliates........... -- -- (11,281) --
Proceeds from notes
payable to
affiliates........... -- -- -- 11,819
Proceeds from notes
payable to others.... 88,500 46,540 -- --
Loan costs............ (940) (259) (100) --
Repurchase of common
stock................ -- -- -- (2,000)
Repurchase of OP
Units................ -- (82) -- --
Proceeds from sale of
common stock, net of
underwriting
discounts and
offering expenses.... -- -- 183,366 --
Syndication and
organization costs... -- (24) -- --
Partners'
contributions........ -- -- -- 871
Cash distributions.... (16,902) (15,317) (1,738) (710)
Limited partners' cash
distributions........ (13,860) (12,519) (1,425) (5,793)
--------- -------- --------- -------
Net cash provided
(used) by financing
activities......... 42,639 (52) 99,346 1,188
--------- -------- --------- -------
Net increase (decrease)
in cash and cash
equivalents........... 3,003 2,186 1,900 (926)
Cash and cash
equivalents at
beginning of period... 4,086 1,900 -- 926
--------- -------- --------- -------
Cash and cash
equivalents at end of
period................ $ 7,089 $ 4,086 $ 1,900 $ --
========= ======== ========= =======
Supplemental cash flow
information:
Interest paid......... $ 8,503 $ 2,088 $ 2,001 $ 2,430
Taxes paid............ 386 312 1 73
</TABLE>
The accompanying notes are an integral part of these financial statements.
17
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of National Golf Properties, Inc.'s and Golf Properties Group's
significant accounting policies are as follows:
a)Organization
National Golf Properties, Inc. (the "Company") was incorporated under
the General Corporation Law of Delaware in April 1993 and commenced
operations effective with the completion of its initial public stock
offering (the "Offering") of 9,716,000 shares of common stock, par value
$.01 per share (the "Common Stock"), on August 18, 1993. The Company
acquires and owns golf courses primarily located throughout the United
States. At December 31, 1995, the Company leased all but one of its golf
courses to American Golf Corporation ("AGC") or its subsidiary pursuant
to long-term triple net leases (the "Leases"). David G. Price, the
Chairman of the Board of Directors of the Company, owns a controlling
interest in AGC. The Company owns substantially all of the golf courses
through its 54.9% general partner interest in National Golf Operating
Partnership, L.P. (the "Operating Partnership"). On July 8, 1994, the
Operating Partnership acquired an 89% general partner interest in Royal
Golf, L.P. II ("Royal Golf"). Royal Golf owns four golf courses on
Hilton Head Island, South Carolina. Royal Golf's results of operations
for the period July 8, 1994 to December 31, 1994 have been included in
the Company's consolidated financial statements. Unless the context
otherwise requires, all references to the Company's business and
properties include the business and properties of the Operating
Partnership and Royal Golf.
In conjunction with the formation of the Company and the Operating
Partnership, the partners of the entities transferring their interest in
the initial portfolio of 47 golf courses (the "Initial Golf Courses") to
the Operating Partnership became limited partners in the Operating
Partnership (the "OP Limited Partners") and received units of limited
partnership interest in the Operating Partnership (the "OP Units"). An
OP Unit and a share of Common Stock of the Company have the same
economic characteristics inasmuch as they effectively share equally in
the net income or loss and any distributions of the Operating
Partnership.
On August 31, 1995, the Company was reincorporated as a Maryland
corporation, which was also named National Golf Properties, Inc.,
pursuant to a merger of the Company into a wholly-owned Maryland
subsidiary and the conversion of each outstanding share of common stock
of the Company into one share of common stock of the surviving
corporation. Before the reincorporation, the Company had authorized 20
million shares of $.01 par value excess stock. None of the shares had
been issued. When the Company was reincorporated, the excess stock was
eliminated.
The consolidated financial statements include the accounts of the
Company, the Operating Partnership and Royal Golf. All significant
intercompany transactions and balances have been eliminated.
The predecessor to the Company was Golf Properties Group (Predecessor
Affiliates) ("GPG"). Due to common ownership and management of GPG by
its general partner and major shareholder, the historical combined
financial statements have been accounted for as a group of entities
under common control, which is similar to the accounting method used for
a pooling of interest. All significant intercompany transactions and
balances have been eliminated in the combined presentations.
b)Cash Equivalents
The Company considers all money market funds with an original maturity
of three months or less at the date of purchase to be cash equivalents
with cost approximating market.
18
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c)Investments
Debt securities that the Company expects to hold to maturity are
classified as held-to-maturity securities and reported at amortized
cost. Debt securities not classified as either held-to-maturity
securities or bought and held principally for the purpose of selling
them in the near term are classified as available-for-sale securities
and reported at fair value. Cost of investments sold is determined on
the average cost method.
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." The adoption of SFAS No. 115
had no effect on net income for the year ended December 31, 1994. SFAS
No. 115 requires the Company to report available-for-sale securities at
fair value, with unrealized gains and losses excluded from earnings and
reported as a separate component of stockholders' equity.
d)Concentration of Credit Risk
The Company has cash in financial institutions which is insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per
institution. At December 31, 1995 and 1994, the Company had cash
accounts in excess of FDIC insured limits.
e)Property
Property is carried at the lower of cost or net realizable value.
Depreciation is computed on a straight-line basis over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings.................................................. 30 years
Ground improvements........................................ 20 years
Furniture, fixtures & equipment............................ 3 to 10 years
</TABLE>
The Leases presently provide that at the end or termination of the
existing Leases, all improvements and fixtures placed on the rental
property become the property of the Company.
The Company assesses whether there has been a permanent impairment in
the value of rental property by considering factors such as expected
future operating income, trends and prospects, as well as the effects of
demand, competition and other economic factors. Such factors include a
lessee's ability to perform its duties and pay rent under the terms of
the lease. If the property was leased at a significantly lower rent, the
Company may recognize a permanent impairment loss if the income stream
were not sufficient to recover its investment. Such a loss would be
determined as the difference between the carrying value, including any
allocated goodwill, and the fair value of the property, with the
carrying value of the intangible asset reduced first. Management
believes no permanent impairment has occurred in its net property
carrying values.
When assets are sold or retired, the asset and related depreciation
allowance is eliminated from the records and any gain or loss on
disposal is included in operations.
f)Income Taxes
The Company qualifies as a real estate investment trust ("REIT") under
the Internal Revenue Code of 1986, as amended (the "Code"). A REIT will
generally not be subject to federal income taxation to the extent that
it distributes at least 95% of its taxable income to its shareholders
and complies with other requirements. The Company paid distributions to
stockholders of $1.59 per share in 1995 of which $1.34 represents
ordinary income and $0.25 represents return of capital on a tax basis.
On a book basis $0.34 per share represents return of capital. In
addition, on January 17, 1996, the Company declared a quarterly
distribution for the fourth quarter of 1995 of $0.41 per share to
stockholders of record on January 31, 1996, which was paid on February
15, 1996. The Company was subject to federal alternative minimum tax in
1994 and may be subject to such tax in 1995. The Company is also subject
to United Kingdom income taxes and state income and franchise taxes in
certain states in which it
19
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
f)Income Taxes (continued)
operates. Therefore, a tax provision has been reflected for these
income, franchise, and alternative minimum taxes.
g)Revenue Recognition
The Company recognizes rental revenue on an accrual basis over the terms
of the Leases.
h)Reclassification
Reduction for minority interest represents a balance sheet
reclassification from stockholders' equity to minority interest to
properly reflect a limited partner's capital contribution.
i)Intangible Assets
Included in other assets are intangible assets which consist of
covenants not to compete, goodwill and other intangibles. Intangible
assets are carried at cost less accumulated amortization, and are
amortized on a straight-line basis. The covenants are amortized over
their contractual lives which range from three to 30 years. Goodwill,
arising from golf course acquisitions, is amortized over the life of the
Leases (15 to 20 years). Other intangibles are amortized over periods
from one to ten years. The Company assesses whether there has been a
permanent impairment in the value of intangible assets by considering
factors such as expected future operating income, trends and prospects,
as well as the effects of demand, competition and other economic
factors. Such factors include a lessee's ability to perform its duties
and pay rent under the terms of the lease. If the property was leased at
a significantly lower rent, the Company may recognize a permanent
impairment loss if the income stream is not sufficient to recover its
investment. Such a loss would be determined as the difference between
the carrying value, including any allocated goodwill, and the fair value
of the property, with the carrying value of the intangible asset reduced
first. Management believes no permanent impairment in the carrying value
of its intangible assets has occurred. Accumulated amortization at
December 31, 1995 and 1994, was approximately $3,211,000 and $1,880,000,
respectively.
j)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 reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
k)Fair Value of Financial Instruments
To meet the reporting requirements of SFAS No. 107, "Disclosures about
Fair Value of Financial Instruments," the Company calculates the fair
value of financial instruments and includes this additional information
in the notes to the consolidated financial statements when the fair
value is different than the carrying value of those financial
instruments. When the fair value reasonably approximates the carrying
value, no additional disclosure is made. The estimated fair value
amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However,
considerable judgment is required in interpreting market data to develop
the estimates of fair value. Accordingly, the estimates presented herein
are not necessarily indicative of the amounts that the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect
on the estimated fair value amounts.
l)Earnings Per Share
The computation of primary earnings per share is based on the weighted
average number of outstanding common shares during the period.
Outstanding stock options have not been considered in the computation
because their effect would not result in material dilution.
20
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
l) Earnings Per Share (continued)
Net income is used in the computation of primary and fully diluted
earnings per share. The computation of fully diluted earnings per share
is less than 3% dilutive.
m) New Pronouncements
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." SFAS No. 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Certain long-lived assets and certain identifiable intangibles to be
disposed of must be reported at the lower of carrying amount or fair
value less cost to sell. SFAS No. 121 must be adopted no later than the
fiscal year beginning after December 15, 1995. The Company anticipates
adopting SFAS No. 121 in the first quarter of 1996. There is no material
impact anticipated to the Company's financial condition or results of
operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-
Based Compensation." This Statement encourages entities to adopt a fair
value based method of accounting for all employee stock compensation, as
well as transactions in which an entity issues its equity instruments to
acquire goods or services from nonemployees. Those transactions must be
accounted for based on the fair value of the consideration received or
the fair value of the equity instruments issued, whichever is more
reasonably determinable. The Statement allows an entity to continue
measuring compensation cost for the plans using the accounting
principles prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees." In that case, however,
companies must also include pro forma disclosures of net income and
earnings per share, as if the fair value based method of accounting
defined in SFAS No. 123 had been applied. SFAS No. 123 is effective for
fiscal years beginning after December 15, 1995. The Company anticipates
adopting SFAS No. 123 in the first quarter of 1996, and electing to
continue to apply the accounting rules contained in APB Opinion No. 25.
There is no material impact anticipated to the Company's financial
condition or results of operations.
21
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--CONTINUED
(2) PROPERTY ACQUISITIONS
In 1995, the Company purchased 11 golf courses for an aggregate initial
investment of approximately $83.6 million, of which such investment was
financed by $81.3 million of cash and $2.3 million of notes payable. Each golf
course was purchased from an unaffiliated third party. The acquisitions have
been accounted for utilizing the purchase method of accounting and,
accordingly, the acquired assets are included in the statement of operations
from the date of acquisition. The initial investment amount includes purchase
price, closing costs and other direct costs associated with the purchase. Ten
of the 11 golf courses are leased to AGC pursuant to long- term triple net
leases.
<TABLE>
<CAPTION>
INITIAL
DATE COURSE NAME LOCATION INVESTMENT
- ---- ----------- -------- --------------
(IN THOUSANDS)
<S> <C> <C> <C>
2/11/95 Berry Creek Country Club Georgetown, Texas $ 5,085
3/10/95 Carmel Mountain Ranch Country Club San Diego, California 7,534
3/17/95 Creekside Golf Club Salem, Oregon 3,584
3/23/95 Honey Bee Golf Club Virginia Beach, Virginia 5,565
5/11/95 Wood Ranch Golf Club Simi Valley, California 9,592
7/27/95 Monterey Country Club Palm Desert, California 7,955
7/27/95 Palm Valley Country Club (2 Courses) Palm Desert, California 15,855
10/24/95 Ruffled Feathers Golf Course Lemont, Illinois 9,579
12/1/95 Upland Hills Country Club Upland, California 8,147
12/29/95 The Oregon Golf Club West Linn, Oregon 10,663
-------
Total Initial Investment $83,559
=======
</TABLE>
On March 13, 1995, the Company sold Hidden Hills Country Club in Stone
Mountain, Georgia for approximately $3.2 million. The Company provided seller
financing in the form of a mortgage loan in the amount of $2.2 million at an
initial interest rate of 11% per annum (the "Hidden Hills Mortgage"). For
financial statement purposes, the Company recognized a gain of approximately
$1.9 million. However, for tax purposes, the Company accounted for the sale as
part of a Code section 1031 tax-free exchange.
(3) MORTGAGE NOTES RECEIVABLE
The Company has fixed term options to acquire four golf courses (the "Option
Golf Courses") in exchange for OP Units. The Operating Partnership made
participating mortgage loans of approximately $25.2 million at the time of the
Offering (the "Participating Mortgage Loans") to David G. Price and one of his
affiliates (the other partner in the affiliate is Richard C. Price, the
President of the Company) that own the Option Golf Courses and are
collateralized by first mortgage liens on such Option Golf Courses. AGC, the
current operator of the Option Golf Courses, has guaranteed the repayment of
each Participating Mortgage Loan. Interest is payable monthly and the interest
rate for 1995 was 8.92%. The interest rate is subject to annual increases in
an amount equal to the greater of (a) 4% of the rate applicable for the prior
year or (b) an amount corresponding to a percentage of growth in revenues over
a specified baseline amount from each Option Golf Course. All principal,
together with 50% of any appreciation in each Option Golf Course, will be
payable to the Operating Partnership at the end of the tenth year. Each
Participating Mortgage Loan contains customary representations and warranties,
covenants and indemnities, and is cross-defaulted to, and cross-collateralized
with, the other Participating Mortgage Loans.
Interest income from the Hidden Hills Mortgage for the period March 13, 1995
through December 31, 1995 was approximately $194,000.
22
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(3) MORTGAGE NOTES RECEIVABLE (CONTINUED)
The market value of mortgage notes receivable at December 31, 1995 and 1994
is estimated to be approximately $31,397,000 and $27,541,000, respectively,
based on current interest rates for comparable loans.
(4) INVESTMENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1995 1994
----------- -------------
(IN THOUSANDS)
COST MARKET COST MARKET MATURITY
---- ------ ------ ------ --------
<S> <C> <C> <C> <C> <C>
Held-to-maturity securities:
U.S. Government Obligation.............. $ -- $ -- $9,960 $9,971 01/1995
Available-for-sale securities:
Commercial Paper........................ 809 809 -- -- 01/1996
---- ---- ------ ------
Total................................. $809 $809 $9,960 $9,971
==== ==== ====== ======
</TABLE>
In 1995 and 1994, available-for-sale securities were sold resulting in
proceeds of approximately $21,811,000 and $77,024,000, respectively. There
were no gross realized gains or losses in 1995, and in 1994 there were gross
realized gains and losses of approximately $4,000 and $30,000, respectively.
During 1995, investments classified as held-to-maturity securities consisted
of short term commercial paper, state government obligations, and U.S.
government obligations maturing within 90 days. All investments classified as
held-to-maturity securities remained as such and were held until their
respective maturity dates.
Net realized gains on the sale of investments were approximately $13,000 for
the period August 18, 1993 through December 31, 1993.
(5) NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
INTEREST INTEREST ----------------
TYPE OF COLLATERAL RATE PAYMENT 1995 1994 MATURITY
------------------ -------- ------------- -------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Uncollateralized note.......... 7.43% Monthly $ 5,000 $ -- 01/1996
Uncollateralized note.......... 7.44% Monthly 7,000 -- 02/1996
Collateralized notes........... 5.00% Quarterly 785 785 05/1996
Collateralized notes........... Prime+
2.25% Monthly -- 7,409 --
Collateralized note............ 5.50% Quarterly 4,500 4,500 02/1999
Collateralized note............ 5.50% Quarterly 964 1,110 05/2001
Collateralized note............ 6.60% Quarterly 20,000 20,000 07/2001
Uncollateralized notes......... 8.68% Semi-annually 50,000 30,000 12/2004
Uncollateralized notes......... 8.73% Semi-annually 50,000 -- 06/2005
Uncollateralized note.......... 2,394 -- 07/2006
Uncollateralized note.......... 8.00% Quarterly 2,233 2,337 01/2008
Other collateralized notes..... 300 300 various
-------- -------
$143,176 $66,441
======== =======
</TABLE>
23
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(5) NOTES PAYABLE (CONTINUED)
The following is a schedule of maturities on notes payable for the next five
years ending December 31 and in total thereafter:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 13,052
1997....................................................... 2,260
1998....................................................... 3,059
1999....................................................... 8,324
2000....................................................... 4,822
Thereafter................................................. 111,659
--------
$143,176
========
</TABLE>
The note agreements contain, among other things, covenants restricting the
sale of property and certain financial ratios and reporting requirements.
The Operating Partnership placed $100 million of fixed rate,
uncollateralized notes due 2004 and 2005 with a group of institutional
investors. The notes were issued in two series of $50 million. The first note
series was issued with a fixed interest rate of 8.68%, and the second note
series was issued with a fixed interest rate of 8.73%. With respect to the $50
million first note series, the Operating Partnership received $30 million in
December 1994 and $20 million in January 1995. With respect to the $50 million
second note series, the Operating Partnership received $50 million in June
1995. The Operating Partnership applied the net proceeds from the $100 million
notes to repay bank debt, to finance future acquisitions of golf courses and
related facilities and properties, and for general partnership purposes.
The Company has a $40 million credit facility, which terminates on April 1,
1996, bearing interest at a floating rate (which was 8.5% at December 31,
1995), from a commercial bank that may be used to finance working capital,
acquisitions and capital improvements. There were outstanding advances of $12
million under this credit facility as of December 31, 1995.
In connection with the combined purchase of Monterey Country Club and Palm
Valley Country Club, the Company entered into an eleven year, non-interest
bearing, uncollateralized note for $4,000,000 with the seller of the
properties. Based on the borrowing rates available to the Company for debt
with similar terms and average maturities, the interest rate used to discount
the note is 7.75%. The discount is being amortized over the life of the loan
using the effective interest method. The discounted note balance at December
31, 1995 was approximately $2,394,000. The unamortized discount balance at
December 31, 1995 was approximately $1,606,000.
The market value of notes payable at December 31, 1995 and 1994 is estimated
to be approximately $147,882,000 and $63,947,000, respectively, based on
current interest rates for comparable loans. The net book value at December
31, 1995 of the assets collateralizing the notes payable is $53.7 million.
(6) COMMITMENTS AND CONTINGENCIES
For golf courses acquired subsequent to the Offering, the Company is
required under the Leases to make various remaining capital improvements
totaling approximately $7.5 million of which approximately $7.1 million will
be paid during the next two years. Any subsequent capital improvements to
these golf courses are the responsibility of AGC.
24
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(6) COMMITMENTS AND CONTINGENCIES (CONTINUED)
In addition, the Company leases the land associated with Bear Creek Golf
World from a local municipality pursuant to a ground lease. At December 31,
1995, there was a net book value of approximately $3,529,000 of improvements
at this property included in buildings, ground improvements and furniture,
fixtures and equipment on the balance sheet. At the termination of the lease
in June 2022, all fixed improvements are surrendered to the local
municipality. Under the terms of the ground lease, the Company remits a
percentage of the green fees and net profits from the sale of food and
beverages to the local municipality. For the years ended December 31, 1995 and
1994, and the period August 18, 1993 to December 31, 1993 the ground lease
expense was approximately $369,000, $341,000 and $130,000, respectively.
Also, the Company leases approximately 14 acres of land associated with
Mesquite Golf & Country Club from various landowners. The leases for this
property expire between 2041 and 2043. AGC, as the lessee under the Lease, is
required to make all ground lease payments.
(7) LEASE RENTAL AGREEMENTS
Future minimum rents to be received by the Company under the Leases for the
next five years ending December 31 and in total thereafter are as follows:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
1996....................................................... $ 47,827
1997....................................................... 47,827
1998....................................................... 47,828
1999....................................................... 47,828
2000....................................................... 47,828
Thereafter................................................. 485,002
--------
$724,140
========
</TABLE>
The minimum rent for the first year for each golf course under the Leases is
initially set at a fixed amount. Thereafter, with respect to the Leases for
the Initial Golf Courses, minimum rent will be increased each year by 4% or,
if lower, 150% of the annual percentage increase in the Consumer Price Index
("CPI") (the "Base Rent Escalation"). For these Leases, percentage rent will
be paid to the Company each year in the amount, if any, by which the sum of
35% of Course Revenue in excess of a baseline amount plus 5% of Other Revenue
in excess of a baseline amount exceeds the cumulative Base Rent Escalation
since the commencement date of such Leases. Course Revenue is generally
defined in the Leases to include all revenue received from the operation of
the applicable golf course, including revenues from memberships, initiation
fees, dues, green fees, guest fees, driving range charges and golf cart
rentals, but excluding those revenues described as Other Revenue. Other
Revenue is generally defined in the Leases to include all revenue received
from food and beverage and merchandise sales and other revenue not directly
related to golf activities. AGC has options to extend the term of each lease
for one to three five-year terms. Generally, for the Leases entered into
subsequent to the Offering, the rent is based upon the greater of (a) the
minimum base rent or (b) a specified percentage of Course Revenue and Other
Revenue. The minimum base rent under these Leases will be increased for
specified years during the Lease term based upon increases in the CPI,
provided that each such annual CPI increase shall not exceed five percent.
Percentage rent income for the years ended December 31, 1995 and 1994 and the
period August 18, 1993 through December 31, 1993 was approximately $3,731,000,
$2,657,000 and $510,000, respectively.
25
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(8) STOCK OPTIONS AND AWARDS
The Company has established a Stock Incentive Plan, under which executive
officers and other key employees of the Company and AGC may be granted stock
options or restricted stock. Restricted stock is subject to restrictions
determined by the Company's Compensation Committee. The Compensation
Committee, comprised of Directors who are not officers of the Company,
determines compensation, including awards under the Stock Incentive Plan, for
the Company's executive officers. The shares of restricted stock will be sold
at a purchase price equal to $.01 and will vest 20% per year over a five year
period. Restricted stock has the same dividend and voting rights as other
common stock and is considered to be currently issued and outstanding.
Compensation expense is determined by reference to the market value on the
date of grant and is being amortized over the five year vesting period. Such
expense amounted to approximately $943,000, $893,000 and $311,000 for the
years ended December 31, 1995 and 1994 and the period August 18, 1993 through
December 31, 1993, respectively. In 1994, the Company granted 17,500 shares
and cancelled 10,000 shares of restricted stock. In addition, 46,500 and
43,000 shares of restricted stock vested in 1995 and 1994, respectively. At
December 31, 1995, the Company had 143,000 shares of restricted stock
outstanding.
Stock options vest at 25% per year over four years and are exercisable at
the market value on the date of grant. The following table summarizes the
stock option transactions pursuant to the Company's Stock Incentive Plan for
the years ended December 31, 1995 and 1994 and for the period August 18, 1993
through December 31, 1993:
<TABLE>
<CAPTION>
NUMBER OF PRICE PER
SHARES SHARE
--------- --------------
<S> <C> <C>
Outstanding at August 17, 1993.................... -- --
Granted......................................... 502,500 $18.50-$20.375
------- --------------
Outstanding at December 31, 1993.................. 502,500 $18.50-$20.375
------- --------------
Granted......................................... 55,000 $18.50-$21.875
Cancelled....................................... (39,100) $20.375
------- --------------
Outstanding at December 31, 1994.................. 518,400 $18.50-$21.875
------- --------------
Cancelled....................................... (17,300) $20.375
------- --------------
Outstanding at December 31, 1995.................. 501,100 $18.50-$21.875
======= ==============
Options exercisable at:
December 31, 1995............................... 236,800
December 31, 1994............................... 115,850
December 31, 1993............................... --
</TABLE>
As of December 31, 1995, a total of 866,400 additional shares remain
reserved for issuance under the Stock Incentive Plan.
The Company also has adopted the 1995 Independent Director Equity
Participation Plan, pursuant to which directors of the Company may be granted
stock options and restricted stock. Restricted stock is subject to the same
restrictions as the restricted stock issued under the Company's Stock
Incentive Plan. During 1995, no restricted stock or options were granted. As
of December 31, 1995, a total of 148,000 shares remain reserved for issuance
under the 1995 Independent Director Equity Participation Plan.
26
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(9) 401(k) PLAN
The Company established a qualified retirement plan designed to qualify
under Section 401(k) of the Code (the "401(k) Plan"). The 401(k) Plan allows
participants to defer up to 10% of their eligible compensation on a pre-tax
basis subject to certain maximum amounts. Matching contributions may be made
in amounts and at times determined by the Company. The 401(k) Plan provides
for matching contributions by the Company in an amount equal to fifty-cents
for each one dollar of participant contributions up to a maximum of three
percent of the participant's salary per year. Participants received credit for
employment with the predecessors of the Company and affiliates. Amounts
contributed by the Company for a participant will vest over five years.
Employees of the Company will be eligible to participate in the 401(k) Plan if
they meet certain requirements concerning minimum age and period of credited
service.
For the years ended December 31, 1995 and 1994 and for the period August 18,
1993 through December 31, 1993, the Company's contributions to the 401(k) Plan
were approximately $13,000, $12,000 and $1,700, respectively.
(10) RELATED PARTY TRANSACTIONS
GPG leased golf courses and equipment to AGC. The revenue recognized on
these leases was classified as rental income within the combined statement of
operations. AGC provided consulting services to GPG. The cost of these
services was classified as management fees within the combined statement of
operations.
NGP has in the past and will continue to identify golf courses it seeks to
acquire for the purpose of leasing such courses to AGC and other golf course
operators. NGP evaluates potential golf course acquisitions based on a golf
course's ability to generate cash flows sufficient to enable an operator to
operate the course profitably and provide NGP its desired rate of return on
its capital investment. Such evaluation is integral to NGP's determination of
the price it is willing to pay for a particular course. NGP's acquisition of a
course is recorded in NGP's financial statements at cost and the value of such
course then is evaluated periodically to determine its carrying value based on
the cash flow from the lease of such property. Because AGC may be deemed to be
an affiliate of NGP, NGP's leases with AGC may not reflect arms-length
transactions. As a result, there is a risk that the terms of such leases are
not as favorable to NGP as the terms would have been if NGP leased its golf
courses to unaffiliated operators and, if NGP could have obtained more
favorable terms, that NGP's financial statements understate the returns that
NGP could obtain on leases of such properties. It is management's belief,
however, that the terms and conditions of its leases with AGC are no less
favorable to NGP than the terms and conditions that NGP could obtain if it
leased its golf courses to operators other than AGC.
(11) STATEMENT OF CASH FLOWS -- SUPPLEMENTAL DISCLOSURES
Non-cash transactions for the year ended December 31, 1995 include
approximately $2.3 million of golf course acquisitions which were financed by
a note payable and approximately $2.2 million in seller financing related to
the sale of a golf course by the Company.
(12) OTHER DATA
AGC is the lessee of all but one of the golf properties in the Company's
portfolio. AGC is a golf course management company that operates a diverse
portfolio of golf courses for a variety of golf course owners including
municipalities, counties and others. AGC does not own any golf courses, but
rather manages and operates golf courses either as a lessee under leases,
generally triple net, or pursuant to management agreements with golf course
owners. AGC derives revenues from the operation of golf courses principally
through receipt of green fees, membership initiation fees, membership dues,
golf cart rentals, driving range charges and sales of food, beverages and
merchandise.
27
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--(CONTINUED)
(12) OTHER DATA (CONTINUED)
The following table sets forth certain condensed financial information
concerning AGC.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Current assets............................................ $ 47,384 $ 35,847
Non-current assets........................................ 96,771 78,244
-------- --------
Total assets.............................................. $144,155 $114,091
======== ========
Total current liabilities................................. $ 36,478 $ 31,446
Total long-term liabilities............................... 42,394 23,853
Minority interest......................................... 681 --
Total stockholders' equity................................ 64,602 58,792
-------- --------
Total liabilities and stockholders' equity................ $144,155 $114,091
======== ========
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED DECEMBER
31, FOR THE TEN-MONTH
----------------- PERIOD ENDED
1995 1994 DECEMBER 31, 1993
-------- -------- -----------------
<S> <C> <C> <C>
Total revenues.............................. $359,066 $306,529 $239,393
======== ======== ========
Net income.................................. $ 9,682 $ 10,291 $ 22,440
======== ======== ========
</TABLE>
(13) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Summarized quarterly financial data for the years ended December 31, 1995
and 1994 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
FISCAL 1995 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues........................... $10,583 $11,420 $11,842 $13,979
Operating income................... $ 6,377 $ 7,129 $ 7,016 $ 9,017
Net income......................... $ 4,166 $ 3,298 $ 2,993 $ 2,829
Net income per share............... $ 0.39 $ 0.31 $ 0.28 $ 0.27
<CAPTION>
QUARTER ENDED
-----------------------------------------
FISCAL 1994 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
----------- -------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues........................... $ 8,248 $ 8,817 $ 9,607 $ 9,965
Operating income................... $ 4,750 $ 5,218 $ 6,001 $ 5,546
Net income......................... $ 2,876 $ 3,087 $ 3,152 $ 2,761
Net income per share............... $ 0.27 $ 0.29 $ 0.30 $ 0.26
</TABLE>
28
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--CONTINUED
(14) PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The pro forma financial information set forth below is presented as if the
1995 acquisitions (Note 2) had been consummated as of January 1, 1995 and
1994.
The pro forma financial information is not necessarily indicative of what
actual results of operations of the Company would have been assuming the
acquisitions had been consummated as of January 1, 1995 and 1994, nor does it
purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
FOR THE YEAR FOR THE YEAR
(IN THOUSANDS, EXCEPT PER SHARE ENDED ENDED
AMOUNTS) DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------- ----------------- -----------------
<S> <C> <C>
Revenues from rental property........ $50,435 $44,657
Net income........................... $12,715 $10,952
Net income per weighted average com-
mon share........................... $ 1.20 $ 1.03
</TABLE>
The pro forma financial information includes the following adjustments: (i)
an increase in depreciation and amortization expense; (ii) a decrease in
interest income; (iii) an increase in interest expense; and (iv) a decrease in
income applicable to minority interest.
(15) SUBSEQUENT EVENTS
On January 12, 1996, the Company purchased Golden Oaks Country Club located
in Fleetwood, Pennsylvania for approximately $5.7 million.
On January 17, 1996, the Company declared a quarterly distribution for the
fourth quarter of 1995 of $0.41 per share to stockholders of record on January
31, 1996, which was paid on February 15, 1996.
On January 19, 1996, the Company sold Wootton Bassett Golf Club in
Wiltshire, United Kingdom for approximately $2 million. The Company provided
seller financing in the form of a mortgage loan in the amount of approximately
$900,000 at an interest rate of 6% per annum. The Company expects to recognize
a gain of approximately $25,000.
On February 2, 1996, the Company executed a definitive agreement to purchase
20 golf courses from Golf Enterprises, Inc. ("GEI") for a purchase price of
$58 million, payable at closing, at the Company's option, either $58 million
in cash or a combination of approximately $17.2 million in cash and
approximately $40.8 million in Company common stock (based on an average
trading price of such stock prior to closing, subject to certain limitations).
The Company will not be required to issue more than 2,128,000 shares nor less
than 1,418,666 shares in the acquisition. The 20 golf courses will be leased
to AGC. The terms are substantially similar to the terms of the Leases entered
into with AGC subsequent to the Offering.
On February 28, 1996, the Company's Board of Directors approved the
Company's exercise of the options to acquire the Option Golf Courses on terms
that are different from the original terms of such options. The changes to the
terms include, among others, reducing the option prices and base rent payable
by AGC and modifying the percentage rents payable by AGC so as to comport
generally with leases currently entered into with AGC. In the second quarter
of 1996, the Company expects to exercise its options for approximately $29.7
million (including assumed debt of approximately $25.2 million on the Option
Golf Courses, the value of approximately 61,000 OP Units, and approximately $3
million in cash that will be paid to AGC as reimbursement for certain capital
improvements to one of the Option Golf Courses).
29
<PAGE>
NATIONAL GOLF PROPERTIES, INC. AND
GOLF PROPERTIES GROUP (PREDECESSOR AFFILIATES)
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS--CONTINUED
(15) SUBSEQUENT EVENTS (CONTINUED)
The pro forma financial information set forth below is presented as if the
acquisition of the 20 golf courses from GEI (and subsequent lease to AGC), the
exercise of the options to purchase the Option Golf Courses and the
acquisition of Golden Oaks Country Club had been consummated as of January 1,
1995. The unaudited pro forma financial information is not necessarily
indicative of what actual results of operations of the Company would have been
assuming the acquisitions had been consummated as of January 1, 1995, nor does
it purport to represent the results of operations for future periods.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------ -------------------------------------
COMBINED
FOR THE YEAR FOR THE YEAR
ENDED 20 OPTION ENDED
DECEMBER 31, GOLF GOLF GOLDEN DECEMBER 31,
(IN THOUSANDS) 1995 COURSES COURSES OAKS 1995
-------------- ------------ -------- ------- ------ ------------
<S> <C> <C> <C> <C> <C>
Revenues from rental
property............... $45,931 $5,965 $3,263 $553 $55,712
Net income (loss)....... $13,286 $1,917 $ (549) $(84) $14,570
Net income per weighted
average common share... $ 1.25 $ 1.18
</TABLE>
The unaudited pro forma financial information includes the following
adjustments: (i) an increase in depreciation and amortization expense; (ii) a
decrease in interest income; (iii) an increase in interest expense; (iv) an
increase in income applicable to minority interest; (v) an increase in Common
Stock of approximately 1,674,000 shares (based upon the February 20, 1996
closing price ($24.375) on the New York Stock Exchange); and (vi) an increase
in OP Units of approximately 61,000 to David G. Price and his affiliate.
30
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
(a) 1. FINANCIAL STATEMENTS
Report of Independent Accountants..................................................... 13
Consolidated Balance Sheets of National Golf Properties, Inc. as of
December 31, 1995 and 1994............................................................ 14
Consolidated Statements of Operations of National Golf Properties, Inc.
for the years ended December 31, 1995 and 1994 and the period August 18, 1993
to December 31, 1993 and Combined Statement of Operations of Golf Properties Group
(Predecessor Affiliates) for the period January 1, 1993 to August 17, 1993............ 15
Consolidated Statements of Stockholders' Equity of National Golf Properties, Inc.
for the years ended December 31, 1995 and 1994 and the period August 18, 1993 to
December 31, 1993 and Combined Statement of Equity of Golf Properties Group
(Predecessor Affiliates) for the period January 1, 1993 to August 17, 1993............ 16
Consolidated Statements of Cash Flows of National Golf Properties, Inc. for the years
ended December 31, 1995 and 1994 and the period August 18, 1993 to December 31, 1993
and Combined Statement of Cash Flows of Golf Properties Group (Predecessor Affiliates)
for the period January 1, 1993 to August 17, 1993..................................... 17
Notes to Consolidated and Combined Financial Statements............................... 18
2. FINANCIAL STATEMENT SCHEDULES
Schedule III--Real Estate and Accumulated Depreciation................................ 31
</TABLE>
31
<PAGE>
SCHEDULE III
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH
TO COMPANY CARRIED AT CLOSE OF PERIOD
-------------------- -----------------------------
COST
CAPITALIZED TOTAL COST
BUILDINGS & SUBSEQUENT BUILDINGS & ACCUMULATED DATE DATE
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTED ACQUIRED
----------- ------------ ------- ------------ -------------- ------- ------------ -------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
DAILY FEE
COURSES:
Continental,
Scottsdale, AZ.. $ -- $ 64 $ 881 $ 12 $ 66 $ 891 $ 957 $ 454 1974 1986
Desert Lakes,
Fort Mojave, AZ. -- 163 3,102 39 163 3,141 3,304 323 1990 1993
El Caro,
Phoenix, AZ..... -- 61 553 13 63 564 627 523 1975 1983
Kokopelli,
Gilbert, AZ..... -- 1,177 4,261 135 1,177 4,396 5,573 464 1993 1994
Villa De Paz,
Phoenix, AZ..... -- 186 397 18 188 413 601 325 1974 1981
Camarillo
Springs,
Camarillo, CA... -- 141 2,880 710 143 3,588 3,731 1,511 1972 1984
Carmel Mountain,
San Diego, CA... -- 1,669 5,865 -- 1,669 5,865 7,534 210 1986 1995
Lomas Santa Fe
Exec., Solana
Beach, CA....... -- 175 575 20 177 593 770 506 1974 1982
Mesquite, Palm
Springs, CA..... -- 1,057 5,140 203 1,061 5,339 6,400 509 1985 1993
Rancho San
Joaquin, Irvine,
CA.............. -- 871 8,375 411 873 8,784 9,657 1,900 1962 1992
Summitpointe,
Milpitas, CA.... 4,500 2,315 4,813 358 2,315 5,171 7,486 508 1977 1994
Upland Hills,
Upland, CA...... -- 1,835 6,312 -- 1,835 6,312 8,147 29 1982 1995
Vista Valencia,
Valencia, CA.... -- 652 5,369 40 657 5,404 6,061 2,441 1963 1987
Eagle,
Broomfield, CO.. -- 400 2,425 20 402 2,443 2,845 1,283 1961 1988
Arrowhead,
Davie, FL....... -- 601 2,190 20 604 2,207 2,811 416 1967 1993
Binks Forest,
Wellington, FL.. -- 224 4,591 125 224 4,716 4,940 354 1991 1994
Kendale Lakes,
Miami, FL....... -- 611 5,147 12 614 5,156 5,770 3,544 1972 1985
Sabal Palm,
Tamarac, FL..... -- 441 3,357 20 443 3,375 3,818 1,383 1967 1990
Goshen
Plantation,
Augusta, GA..... -- 195 3,042 206 195 3,248 3,443 195 1971 1994
River's Edge,
Fayetteville,
GA.............. -- 250 4,069 88 143 4,264 4,407 233 1989 1994
Ruffled
Feathers,
Lemont, IL...... -- 293 9,316 -- 293 9,316 9,609 83 1992 1995
Sugar Ridge,
Lawrenceburg,
IN.............. -- 168 2,602 440 168 3,042 3,210 193 1994 1994
Dub's Dread,
Kansas City, KS. -- 135 2,997 284 135 3,281 3,416 309 1963 1994
Links at
Northfork,
Ramsey, MN...... -- 280 3,770 75 280 3,845 4,125 322 1992 1994
Royal Meadows,
Kansas City, MO. -- 176 1,822 40 181 1,857 2,038 969 1933 1984
Rancocas,
Willingboro, NJ. -- 239 1,816 1,206 241 3,020 3,261 785 1963 1989
Fowler's Mill,
Chesterland, OH. -- 346 1,760 20 349 1,777 2,126 904 1972 1986
Hershey South,
Hershey, PA..... -- 150 1,995 32 150 2,027 2,177 197 1927 1994
Hickory Heights,
Bridgeville, PA. -- 87 2,027 203 82 2,235 2,317 120 1990 1994
Bear Creek,
Houston, TX..... -- -- 6,163 757 -- 6,920 6,920 3,390 1966 1985
Lake Houston,
Huffman, TX..... -- 823 1,620 63 829 1,677 2,506 838 1975 1985
Riverchase,
Coppell, TX..... 250 250 1,658 1,080 253 2,735 2,988 771 1987 1988
Riverside, Grand
Prairie, TX..... -- 574 4,445 105 576 4,548 5,124 976 1986 1990
Southwyck,
Pearland, TX.... -- 672 3,492 131 673 3,622 4,295 403 1988 1993
Honey Bee,
Virginia Beach,
VA.............. -- 556 5,009 -- 556 5,009 5,565 216 1987 1995
Reston National,
Reston, VA...... -- 996 4,584 20 999 4,601 5,600 681 1968 1993
Capitol City,
Olympia, WA..... 964 437 2,572 160 437 2,732 3,169 210 1961 1994
Lake Wilderness,
Maple Valley,
WA.............. -- 110 1,665 332 110 1,997 2,107 165 1974 1994
------ ------- -------- ------ ------- -------- -------- -------
$5,714 $19,380 $132,657 $7,398 $19,324 $140,111 $159,435 $28,643
------ ------- -------- ------ ------- -------- -------- -------
</TABLE>
32
<PAGE>
SCHEDULE III (CONTINUED)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
DECEMBER 31, 1995
<TABLE>
<CAPTION>
INITIAL COST GROSS AMOUNT AT WHICH
TO COMPANY CARRIED AT CLOSE OF PERIOD
-------------------- -----------------------------
COST
CAPITALIZED TOTAL COST
BUILDINGS & SUBSEQUENT BUILDINGS & ACCUMULATED DATE
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS TO ACQUISITION LAND IMPROVEMENTS TOTAL DEPRECIATION CONSTRUCTED
----------- ------------ ------- ------------ -------------- ------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
PRIVATE COUNTRY
CLUBS:
Canyon Oaks,
Chico, CA....... $ 835 $ 309 $ 2,172 $ 2,041 $ 309 $ 4,213 $ 4,522 $ 199 1987
Escondido,
Escondido, CA... -- 114 2,382 587 116 2,967 3,083 1,301 1962
Sunset Hills,
Thousand Oaks,
CA.............. -- 302 1,378 18 304 1,394 1,698 1,099 1966
Wood Ranch, Simi
Valley, CA...... -- 481 9,111 128 481 9,239 9,720 298 1984
Heather Ridge,
Aurora, CO...... -- 992 1,500 715 995 2,212 3,207 936 1970
Brookstone,
Acworth, GA..... -- 557 2,608 410 559 3,016 3,575 461 1987
Mission Hills,
Northbrook, IL.. -- 400 3,600 531 402 4,129 4,531 1,922 1980
Hunt Valley,
Phoenix, MD..... -- 515 1,662 12 517 1,672 2,189 1,244 1972
Skyline Woods,
Elkhorn, NE..... -- 358 3,432 265 361 3,694 4,055 1,078 1986
Tanoan,
Albuquerque, NM. -- 12 3,241 20 15 3,258 3,273 2,357 1978
Brandywine,
Maumee, OH...... -- 814 2,861 82 816 2,941 3,757 730 1967
Oakhurst, Grove
City, OH........ -- 344 1,776 581 346 2,355 2,701 747 1959
Royal Oak,
Cincinnati, OH.. -- 175 822 12 178 831 1,009 476 1963
Creekside,
Salem, OR....... -- 128 3,456 675 128 4,131 4,259 188 1993
Hershey,
Hershey, PA..... -- 1,624 6,400 633 1,624 7,033 8,657 629 1915
Berry Creek,
Georgetown, TX.. -- 204 4,876 115 204 4,991 5,195 191 1986
Bear Creek,
Woodinville, WA. -- 705 4,823 310 711 5,127 5,838 984 1983
Wootton Bassett,
Wiltshire, UK... -- 142 1,716 5 143 1,720 1,863 150 1992
------- ------- -------- ------- ------- -------- -------- -------
$ 835 $ 8,176 $ 57,816 $ 7,140 $ 8,209 $ 64,923 $ 73,132 $14,990
------- ------- -------- ------- ------- -------- -------- -------
RESORT COURSES:
London Bridge,
Lake Havasu
City, AZ........ $ -- $ 301 $ 1,699 $ 24 $ 305 $ 1,719 $ 2,024 $ 668 1968
Superstition
Springs, Mesa,
AZ.............. -- 698 3,771 32 702 3,799 4,501 874 1986
Tatum Ranch,
Cave Creek, AZ.. -- 1,000 3,972 (5) 1,002 3,965 4,967 1,019 1986
Legend at
Arrowhead,
Glendale, AZ.... -- 502 3,408 -- 502 3,408 3,910 738 1986
Aptos Seascape,
Aptos, CA....... -- 901 3,491 20 904 3,508 4,412 737 1926
Monterey, Palm
Desert, CA...... -- 1,294 6,584 32 1,294 6,616 7,910 160 1978
Palm Valley,
Palm Desert, CA. -- 1,750 13,769 191 1,750 13,960 15,710 284 1985
Arrowhead,
Littleton, CO... -- 302 3,245 11 304 3,254 3,558 993 1972
Las Vegas
Hilton, Las
Vegas, NV....... -- 261 3,727 1,586 264 5,310 5,574 2,754 1961
Wildhorse,
Henderson, NV... -- 4,677 6,557 2,099 4,677 8,656 13,333 395 1959
Brigantine,
Brigantine, NJ.. -- 194 1,768 1,299 196 3,065 3,261 909 1926
Carolina Shores,
Calabash, NC.... -- 588 5,903 12 590 5,913 6,503 2,333 1974
Oregon Golf,
West Linn, OR... -- 433 10,230 -- 433 10,230 10,663 -- 1992
Port Royal,
Hilton Head
Island, SC...... 20,000(1) 6,289 15,190 1,830 6,289 17,020 23,309 1,131 1985
Shipyard, Hilton
Head Island, SC. -- (1) 4,773 9,756 310 4,773 10,066 14,839 718 1969
Pecan Valley,
San Antonio, TX. -- 389 3,989 412 391 4,399 4,790 1,363 1962
------- ------- -------- ------- ------- -------- -------- -------
$20,000 $24,352 $ 97,059 $ 7,853 $24,376 $104,888 $129,264 $15,076
------- ------- -------- ------- ------- -------- -------- -------
$26,549 $51,908 $287,532 $22,391 $51,909 $309,922 $361,831 $58,709
======= ======= ======== ======= ======= ======== ======== =======
<CAPTION>
DATE
DESCRIPTION ACQUIRED
----------- --------
<S> <C>
PRIVATE COUNTRY
CLUBS:
Canyon Oaks,
Chico, CA....... 1994
Escondido,
Escondido, CA... 1983
Sunset Hills,
Thousand Oaks,
CA.............. 1975
Wood Ranch, Simi
Valley, CA...... 1995
Heather Ridge,
Aurora, CO...... 1990
Brookstone,
Acworth, GA..... 1993
Mission Hills,
Northbrook, IL.. 1988
Hunt Valley,
Phoenix, MD..... 1983
Skyline Woods,
Elkhorn, NE..... 1990
Tanoan,
Albuquerque, NM. 1982
Brandywine,
Maumee, OH...... 1991
Oakhurst, Grove
City, OH........ 1980
Royal Oak,
Cincinnati, OH.. 1985
Creekside,
Salem, OR....... 1995
Hershey,
Hershey, PA..... 1994
Berry Creek,
Georgetown, TX.. 1995
Bear Creek,
Woodinville, WA. 1993
Wootton Bassett,
Wiltshire, UK... 1993
RESORT COURSES:
London Bridge,
Lake Havasu
City, AZ........ 1986
Superstition
Springs, Mesa,
AZ.............. 1992
Tatum Ranch,
Cave Creek, AZ.. 1992
Legend at
Arrowhead,
Glendale, AZ.... 1992
Aptos Seascape,
Aptos, CA....... 1986
Monterey, Palm
Desert, CA...... 1995
Palm Valley,
Palm Desert, CA. 1995
Arrowhead,
Littleton, CO... 1988
Las Vegas
Hilton, Las
Vegas, NV....... 1982
Wildhorse,
Henderson, NV... 1994
Brigantine,
Brigantine, NJ.. 1989
Carolina Shores,
Calabash, NC.... 1986
Oregon Golf,
West Linn, OR... 1995
Port Royal,
Hilton Head
Island, SC...... 1994
Shipyard, Hilton
Head Island, SC. 1994
Pecan Valley,
San Antonio, TX. 1990
</TABLE>
- ----
(1) Combined encumbrance for Port Royal and Shipyard golf courses.
33
<PAGE>
SCHEDULE III (CONTINUED)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
(IN THOUSANDS)
DECEMBER 31, 1995
Depreciation of the Company's investment in Buildings and Improvements
reflected in the statements of operations are calculated over the estimated
useful lives of the assets as follows:
<TABLE>
<S> <C>
Buildings................................................... 30 years
Ground improvements......................................... 20 years
Furniture, fixtures and equipment........................... 3 to 10 years
</TABLE>
The changes in total real estate assets and accumulated depreciation
(excluding corporate assets and related accumulated depreciation) for the
three years ended December 31, are as follows:
<TABLE>
<CAPTION>
TOTAL REAL ESTATE ASSETS
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year..................... $271,850 $166,284 $130,327
Acquisitions................................... 83,171 101,742 32,548
Improvements................................... 8,770 3,879 4,212
Disposals...................................... (1,960) (55) (803)
-------- -------- --------
Balance, end of year........................... $361,831 $271,850 $166,284
======== ======== ========
<CAPTION>
ACCUMULATED DEPRECIATION
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year..................... $ 46,862 $ 37,634 $ 30,449
Depreciation for year.......................... 12,598 9,228 7,185
Disposals...................................... (751) -- --
-------- -------- --------
Balance, end of year........................... $ 58,709 $ 46,862 $ 37,634
======== ======== ========
</TABLE>
34
<PAGE>
3. EXHIBITS
<TABLE>
<S> <C>
2.1 Agreement and Plan of Merger dated as of August 31, 1995, by and between National
Golf Properties, Inc., a Delaware corporation, and National Golf Properties of
Maryland, Inc. (renamed "National Golf Properties, Inc." immediately upon
effectiveness of the merger), a Maryland corporation (incorporated by reference to
Exhibit 2 to the Company's Current Report on Form 8-K dated September 26, 1995)
2.2 Asset Purchase Agreement and Agreement and Plan of Merger by and among Golf
Enterprises, Inc., National Golf Properties, Inc. and GEI Acquisition Corporation,
dated February 2, 1996 (incorporated by reference to Exhibit 2 to Golf Enterprises,
Inc. (File No. 0-24264) Current Report on Form 8-K dated February 7, 1996)
2.3 First Amendment to Asset Purchase Agreement and Agreement and Plan of Merger, dated
as of February 16, 1996, by and among National Golf Properties, Inc., GEI
Acquisition Corporation and Golf Enterprises, Inc.
3.1 Articles of Incorporation of National Golf Properties, Inc. (incorporated by
reference to Exhibit 3.1 to the Company's Current Report on Form 8-K dated
September 26, 1995)
3.2 By-Laws of National Golf Properties, Inc. (incorporated by reference to Exhibit 3.2
to the Company's Current Report on Form 8-K dated September 26, 1995)
3.3 Specimen of certificate representing shares of Common Stock (incorporated by
reference to
Exhibit 3.3 to the Company's Report on Form 8-B dated December 29, 1995)
10.1 Agreement of Limited Partnership of National Golf Operating Partnership, L.P.,
dated as of August 18, 1993, by and among National Golf Properties, Inc. and the
Persons named therein as Limited Partners
10.2 Form of Lease Agreement between the Company and AGC with respect to the Initial
Golf Courses and the Mesquite and Desert Lakes golf courses (incorporated by
reference to Exhibit 10.2 to the Company's Registration Statement on Form S-11 No.
33-63110)
10.3 Form of Lease Agreement between the Company and AGC with respect to the following
golf courses: Southwyck, Dub's Dread, Kokopelli, Summitpointe, Lake Wilderness,
Links at Northfork, Hershey, Hershey South, Canyon Oaks, Capitol City, Binks
Forest, Port Royal, Shipyard, Sugar Ridge, Wildhorse, Goshen Plantation, Hickory
Heights, River's Edge, Berry Creek, Carmel Mountain, Creekside, Honey Bee, Wood
Ranch, Monterey, Palm Valley, Ruffled Feathers, Upland Hills, Oregon Golf and
Golden Oaks; and Form of Lease Agreement between the Company and CGG with respect
to the Carmel Mountain golf course
10.4 Registration Rights Agreement, made and entered into as of August 18, 1993, by and
among National Golf Properties, Inc. and the persons named therein
10.5 Shelf Registration Rights Agreement, made and entered into as of August 18, 1993,
by and among National Golf Properties, Inc. and the persons named therein
*10.6 National Golf Properties, Inc. Stock Incentive Plan Key Employees of National Golf
Properties, Inc., National Golf Operating Partnership, L.P. and American Golf
Corporation, effective August 18, 1993
*10.7 Indemnification Agreement, made as of August 18, 1993, by and between National Golf
Properties, Inc. and its directors and officers
*10.8 Employment Agreements, dated August 18, 1993, between National Golf Properties,
Inc. and each of Richard C. Price and Edward R. Sause
10.9 Director Designation Agreement, dated as of August 18, 1993 by and among David G.
Price, National Golf Properties, Inc. and National Golf Operating Partnership, L.P.
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
35
<PAGE>
<TABLE>
<C> <S>
10.10 Services Agreement, entered into as of August 18, 1993, by and between National Golf
Properties, Inc. and National Golf Operating Partnership, L.P.
10.11 Senior Secured Promissory Notes and Guarantees related to the Option Golf Courses,
each made and entered into as of August 18, 1993, between National Golf Operating
Partnership, L.P., and The Price Revocable Trust
10.12 First Deed of Trust, Assignment of Rents, Security Agreement and Fixture Filing
relating to each of the Senior Secured Participating Promissory Notes, each made as
of August 18, 1993, by and among The Price Revocable Trust and National Golf
Operating Partnership, L.P.
10.13 Partnership Interests Exchange Agreement, dated as of August 18, 1993, by and among
National Golf Operating Partnership, L.P. and Partners of Partnerships Controlling
21 Courses
10.14 Agreement for Transfer of Realty and Assets, dated as of August 18, 1993, by and
among The Price Revocable Trust, Myreshan, Inc. and National Golf Operating
Partnership, L.P.
10.15 Plan and Agreement of Merger, dated as of August 18, 1993, by and among Bear Creek
Enterprises, Inc., National Golf Properties, Inc., The Price Revocable Trust and
David G. Price
10.16 Partnership Interests Acquisition Agreement, dated as of August 18, 1993, by and
among The Price Revocable Trust, American Golf Investment, Inc., Supermarine
Aviation, Limited, David G. Price and National Golf Properties, Inc.
10.17 Contribution Agreement, dated as of August 18, 1993, by and between National Golf
Operating Partnership, L.P. and National Golf Properties, Inc.
10.18 Option Courses Agreement, dated as of August 18,1993, by and among David G. Price,
The Price Revocable Trust, Black Lake/Penasquitos, David G. Price, American Golf
Corporation and National Golf Operating Partnership, L.P.
10.19 Agreement relating to prohibition on acquisitions of golf courses by David G. Price
and his affiliates, made and entered into as of August 18, 1993, by and among
National Golf Properties Inc., National Golf Operating Partnership, L.P., American
Golf Corporation, David G. Price, Dallas P. Price and The Price Revocable Trust
10.20 Amendment to agreement relating to prohibition on acquisitions of golf courses by
David G. Price and his affiliates among National Golf Properties, Inc., National
Golf Operating Partnership, L.P., American Golf Corporation, David G. Price, Dallas
P. Price and The Price Revocable Trust (incorporated by reference to Exhibit 10 to
the Company's Quarterly Report on Form 10-Q/A for the period ended September 30,
1995)
10.21 Note Purchase Agreement ("Note Purchase Agreement"), dated as of December 15, 1994,
with respect to National Golf Operating Partnership, L.P.'s Series A 8.68%
Guarantied Senior Promissory Notes due December 15, 2004 and Series B 8.73%
Guarantied Senior Promissory Notes due June 15, 2005
10.22 Series A 8.68% Guarantied Senior Promissory Notes and Series B 8.73% Guarantied
Senior Promissory Notes
10.23 General Continuing Guaranty of National Golf Properties, Inc. ("General Continuing
Guaranty"), dated as of December 15, 1994, with respect to National Golf Operating
Partnership, L.P.'s Series A 8.68% Guarantied Senior Promissory Notes due December
15, 2004 and Series B 8.73% Guarantied Senior Promissory Notes due June 15, 2005
(incorporated by reference to Exhibit 10.16 to the Company's Report on Form 8-B
dated December 29, 1995)
10.24 First Amendment to Note Purchase Agreements, dated as of August 31, 1995
(incorporated by reference to Exhibit 10.17 to the Company's Report on Form 8-B
dated December 29, 1995)
10.25 First Amendment to General Continuing Guarantee, dated as of August 31, 1995
(incorporated by reference to Exhibit 10.18 to the Company's Report on Form 8-B
dated December 29, 1995)
</TABLE>
36
<PAGE>
<TABLE>
<S> <C>
10.26 Agreement of Limited Partnership of Royal Golf, L.P., II, dated as of July 7, 1994
(incorporated by reference to Exhibit 10.19 to the Company's Report on Form 8-B
dated December 29, 1995)
10.27 Amended and Restated Loan Agreement, dated as of July 7, 1994, between Royal Golf,
L.P., II and NationsBank of South Carolina, N.A. (incorporated by reference to
Exhibit 10.20 to the Company's Report on Form 8-B dated December 29, 1995)
10.28 Credit Agreement among Bank of America National Trust and Savings Association,
National Golf Operating Partnership, L.P. and National Golf Properties, Inc. dated
as of September 29, 1993, as amended (incorporated by reference to Exhibit 10.21 to
the Company's Report on Form 8-B dated December 29, 1995)
10.29 Agreement to Enter Into Leases, entered into as of February 1, 1996, by and among
National Golf Properties, Inc., National Golf Operating Partnership and American
Golf Corporation
11.1 Statement regarding computation of per share earnings
21.1 List of Subsidiaries of National Golf Properties, Inc. (incorporated by reference
to Exhibit 22.1 to the Company's Report on Form 8-B dated December 29, 1995)
23.1 Consent of Independent Accountants
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
(b) REPORTS ON FORM 8-K FILED DURING THE LAST QUARTER
None
(d) ADDITIONAL INFORMATION REGARDING AMERICAN GOLF CORPORATION AND SUBSIDIARIES
Analysis of American Golf Corporation's Consolidated Financial Information....... 38
American Golf Corporation's Consolidated Financial Statements
Report of Independent Accountants............................................... 40
Consolidated Balance Sheets as of December 31, 1995 and 1994.................... 41
Consolidated Statements of Income for the years ended December 31, 1995 and
1994 and the ten-month period ended December 31, 1993.......................... 42
Consolidated Statements of Stockholders' Equity for the years ended December 31,
1995 and 1994 and the ten-month period ended December 31, 1993................. 43
Consolidated Statements of Cash Flows for the years ended December 31, 1995 and
1994 and the ten-month period ended December 31, 1993.......................... 44
Notes to Consolidated Financial Statements...................................... 45
</TABLE>
38
<PAGE>
National Golf Properties, Inc. ("NGP") currently leases all but one of its
Golf Courses to AGC and, following consummation of NGP's purchase of the 20
golf courses owned by GEI, will also lease such courses to AGC. Although NGP
has no equity ownership interest in AGC, the following financial analysis and
information is provided because AGC is a significant tenant of NGP.
ANALYSIS OF AMERICAN GOLF CORPORATION'S FINANCIAL INFORMATION
This financial analysis should be read in conjunction with the consolidated
financial statements of American Golf Corporation and Subsidiaries ("AGC") as
of December 31, 1995.
Results of Operations
Comparison of the year ended December 31, 1995 to the year ended December 31,
1994
Total revenues from golf course operations and management agreements for AGC
increased by $52.5 million, or 17.1%, to $359 million for the year ended
December 31, 1995 as compared to $306.5 million for the year ended December
31, 1994. The increase in revenues was primarily attributable to the addition
of 14 new leased courses and 6 new courses under management agreements. Greens
fees for the year ended December 31, 1995 were $134.1 million, an increase of
$14.9 million, or 12.5%, from $119.2 million for the year ended December 31,
1994. Cart rental revenues for the year ended December 31, 1995 were $51.8
million, an increase of $6.8 million, or 15.1% from $45 million for the year
ended December 31, 1994. Member dues and initiation fees for the year ended
December 31, 1995 were $50.1 million, an increase of $11.2 million, or 28.9%
from $38.9 million for the year ended December 31, 1994. Food and beverage
revenues for the year ended December 31, 1995 were $55 million, an increase of
$8.7 million, or 18.8% from $46.3 million for the year December 31, 1994.
Merchandise sales were $30.9 million, an increase of $7.9 million, or 34.3%
from $23 million for the year ended December 31, 1994. Other revenue, which
includes range income, increased by $3.6 million, or 12.3% to $32.8 million
for the year ended December 31, 1995, from $29.2 million for the year ended
December 31, 1994. Each revenue category rose in reasonable proportion to the
overall increase in revenues due to the addition of the new acquisitions, with
the exception of member dues and initiation fees. Such revenue category
increased as a result of the acquisition of a number of large private clubs.
Total operating expenses increased by $52 million or 17.5%, to $348.5
million for the year ended December 31, 1995 as compared to $296.5 million for
the year ended December 31, 1994. The margin on merchandise sold increased
from 29.7% in 1994 to 34.8% in 1995 due to the greater use of national
contracts which provide the Company with more favorable purchasing terms. The
margin on food and beverage sales remained relatively constant. Rent expense
increased by $9.7 million or 14.2% to $77.8 million for the year ended
December 31, 1995, from $68.1 million for the year ended December 31, 1994.
General and administrative expenses of $35.2 million (which include, among
other things, personal and property taxes, insurance and advertising),
increased by $4.8 million, or 15.8% for the year ended December 31, 1995, from
$30.4 million for the year ended December 31, 1994. These expenses increased
primarily due to additional lease agreements. Depreciation and amortization
increased by approximately $1.9 million due, in part, to the completion of
significant capital improvements as well as AGC entering into capital leases
for the purchase of approximately $4.7 million of machinery and equipment.
Net income decreased by $.6 million to $9.7 million for the year ended
December 31, 1995, from $10.3 million for the year ended December 31, 1994.
This decrease is due to a $2.4 million increase in interest expense offset by
increases in operating income of approximately $.7 million, interest income of
$.6 million and minority interest in loss of $.5 million. The increase in
interest expense is due to increased borrowings of approximately $20.3 million
during 1995. Interest income increased primarily due to a full year of
interest earned on the receivable from officers and directors. The income
attributable to the minority interest in loss is due to the consolidation of
the Company with its majority owned entities American Golf of Atlanta,
American Golf of Detroit, American Golf (UK) Limited and CW Golf Partners.
39
<PAGE>
Comparison of the year ended December 31, 1994 to the ten-month period ended
December 31, 1993
Total revenues from golf course operations and management agreements for AGC
increased by $67.1 million, or 28.0%, to $306.5 million for the year ended
December 31, 1994 as compared to $239.4 million for the ten-month period ended
December 31, 1993. The increase in revenue was primarily attributable to the
addition of 26 new leased courses and 6 new courses under management
agreements, as well as increases in greens fees and cart rentals. Greens fees
for the year ended December 31, 1994 were $119.2 million, an increase of $28.4
million, or 31.3%, as compared to $90.8 million for the ten-month period ended
December 31, 1993. Cart rental revenues for the year ended December 31, 1994
were $45 million, an increase of $10.3 million, or 29.6%, from $34.8 million
for the ten-month period ended December 31, 1993. Member dues and initiation
fees for the year ended December 31, 1994 were $38.9 million, an increase of
$2.8 million, or 7.8%, from $36.1 million for the ten-month period ended
December 31, 1993. Food and beverage revenues for the year ended December 31,
1994 were $46.3 million, an increase of $11.5 million, or 33%, from $34.8
million for the ten-month period ended December 31, 1993. Merchandise sales
for the year ended December 31, 1994 were $23 million, an increase of $6.5
million or 39.4%, from $16.5 million for the ten-month period ended December
31, 1993. Other revenue, which includes range income, increased by $8.6
million, or 41.7%, to $29.2 million for the year ended December 31, 1994, from
$20.6 million for the ten-month period ended December 31, 1993.
Total operating expenses increased by $79.7 million, or 36.7%, to $296.6
million for the year ended December 31, 1994 from $216.9 million for the ten-
month period ended December 31, 1993. Rent expense increased by $23.8 million,
or 53.7%, to $68.1 million from $44.3 million for the ten-month period ended
December 31, 1993. General and administrative expenses (which include, among
other things, personal and property taxes, insurance and advertising) for the
year ended December 31, 1994 were $30.4 million, an increase of $10.3 million,
or 51.2%, from $20.1 million for the ten-month period ended December 31, 1993.
These expenses increased primarily due to additional lease agreements as well
as newly negotiated leases.
Net income decreased by $12.1 million, or 54%, to $10.3 million for the year
ended December 31, 1994, from $22.4 million for the ten-month period ended
December 31, 1993, due in part to increased rent expense associated with the
newly negotiated lease agreements as well as additional lease agreements. The
decrease in 1994 net income is also due in part to the ten-month period ended
December 31, 1993, excluding two winter months of activity where a number of
courses are closed due to adverse weather conditions and the scheduled closure
of golf courses located in harsh winter climates.
LIQUIDITY AND CAPITAL RESOURCES
AGC has one $20 million and two $15 million credit facilities with a
commercial bank. The $20 million facility, which bears interest at prime or a
Libor based rate and expires on January 6, 1997, is used to finance working
capital requirements as well as provide for standby letters of credit. At
December 31, 1995 there was $8.5 million advanced against this line of credit,
with standby letters of credit outstanding of approximately $7.1 million. The
first $15 million facility, which expires August 15, 1997, supports the
letters of credit issued (approximately $13.6 million at December 31, 1995) in
favor of NGP pursuant to terms of the leases. Letters of credit issued under
these facilities are charged a 1 to 1.25% annual letter of credit fee. The
second $15 million facility is used for capital improvements and matures on
July 1, 2001. As of December 31, 1995, there was $15 million outstanding on
the second credit facility.
AGC had working capital of approximately $10.9 million as of December 31,
1995. AGC believes it will also be able to satisfy its liquidity requirements,
including capital expenditures and rental payments under the leases, with cash
flow available from operations and available borrowings. AGC has certain
capital expenditure commitments related to acquiring and renewing leases.
These commitments are typically satisfied over several years. The material
capital commitments are clubhouse renovations, building and course
improvements and irrigation systems. At December 31, 1995, AGC's capital
expenditure commitment was approximately $3.3 million. The improvements will
be funded from AGC's operating cash flow and from available borrowings under
the bank credit facilities.
40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
American Golf Corporation
We have audited the accompanying consolidated balance sheets of American
Golf Corporation and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, stockholders' equity and cash flows
for the years ended December 31, 1995 and 1994, and the ten-month period ended
December 31, 1993. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of American Golf Corporation and Subsidiaries as of December 31, 1995 and
1994, and the consolidated results of their operations and their cash flows
for the years ended December 31, 1995 and 1994, and the ten-month period ended
December 31, 1993, in conformity with generally accepted accounting
principles.
Coopers & Lybrand L.L.P.
Los Angeles, California
February 28, 1996
41
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents................................ $ 2,345 $ 5,717
Accounts receivable--members (less allowance for doubtful
accounts of $892 and $516, respectively)................ 10,674 5,497
Other receivables........................................ 11,410 7,966
Receivable from affiliates, net.......................... 9,290 4,599
Inventories.............................................. 10,224 8,355
Prepaid expenses......................................... 3,441 3,713
-------- --------
Total current assets.................................... 47,384 35,847
Property, equipment and capital leases, net............... 75,567 56,948
Licenses.................................................. 696 565
Leasehold rights.......................................... 11,034 11,675
Prepaid rents............................................. 6 125
Deposits and other assets................................. 9,468 8,931
-------- --------
Total assets............................................ $144,155 $114,091
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY:
Current liabilities:
Accounts payable......................................... $ 6,802 $ 5,602
Notes payable--current portion:
Stockholders............................................ 26 343
Capital leases.......................................... 738 --
Other................................................... 1,375 74
Accrued expenses......................................... 21,033 18,577
Other liabilities........................................ 6,504 6,850
-------- --------
Total current liabilities:.............................. 36,478 31,446
Notes payable--long-term portion:
Stockholders............................................. 482 508
Capital leases........................................... 3,701 --
Other.................................................... 32,094 17,536
Accrued expenses.......................................... 6,117 5,809
-------- --------
Total liabilities..................................... 78,872 55,299
-------- --------
Minority interest......................................... 681 --
-------- --------
Commitments and contingencies (Note 9)
Common stock--no par value; 10,000,000 shares authorized;
6,414,497 and 6,398,677 shares issued at December 31,
1995 and 1994, respectively; 6,354,497 and 6,338,677
shares outstanding at December 31, 1995 and 1994,
respectively............................................. 8,682 8,289
Retained earnings......................................... 60,765 55,442
Notes receivable from officers/directors.................. (4,901) (4,939)
Foreign currency translation adjustment................... 56 --
-------- --------
Total stockholders' equity............................ 64,602 58,792
-------- --------
Total liabilities and stockholders' equity............ $144,155 $114,091
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
42
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE FOR THE TEN-MONTH
YEAR ENDED YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Green fees............................ $134,100 $119,228 $ 90,837
Cart rentals.......................... 51,801 45,044 34,788
Member dues and initiation fees....... 50,134 38,891 36,109
Food and beverage sales............... 54,956 46,280 34,763
Merchandise sales..................... 30,888 22,993 16,450
Other revenue......................... 32,755 29,209 20,560
Management fees....................... 4,432 4,884 5,886
-------- -------- --------
Total revenues...................... 359,066 306,529 239,393
Costs & expenses:
Payroll and related expenses.......... 118,440 99,788 74,908
Cost of food and beverage sold........ 17,514 14,697 10,727
Cost of merchandise sold.............. 20,142 16,161 11,129
General and administrative............ 35,204 30,399 20,124
Repairs and maintenance............... 11,435 11,322 10,289
Other operating expenses.............. 60,983 51,020 41,779
Rents................................. 77,767 68,065 44,349
Depreciation and amortization......... 6,970 5,105 3,611
-------- -------- --------
Total costs & expenses.............. 348,455 296,557 216,916
-------- -------- --------
Operating income........................ 10,611 9,972 22,477
Other income (expense):
Interest income....................... 1,583 961 1,340
Interest expense...................... (2,830) (405) (796)
-------- -------- --------
Income before provision for state
income taxes and minority interest
in earnings........................ 9,364 10,528 23,021
Provision for state income taxes........ (201) (237) (518)
-------- -------- --------
Income before minority interest in
loss (earnings).................... 9,163 10,291 22,503
Minority interest in loss (earnings).... 519 -- (63)
-------- -------- --------
Net income.......................... $ 9,682 $ 10,291 $ 22,440
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
43
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOREIGN
COMMON STOCK NOTES RECEIVABLE CURRENCY TOTAL
------------- RETAINED FROM TRANSLATION STOCKHOLDERS'
SHARES AMOUNT EARNINGS OFFICERS/DIRECTORS ADJUSTMENT EQUITY
------ ------ -------- ------------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, February 28,
1993................... 6,140 $3,350 $37,337 $ -- $-- $40,687
Net income............ -- -- 22,440 -- -- 22,440
Dividends............. -- -- (8,800) -- -- (8,800)
----- ------ ------- ------- ---- -------
Balance, December 31,
1993................... 6,140 3,350 50,977 -- -- 54,327
Net income............ -- -- 10,291 -- -- 10,291
Dividends............. -- -- (5,826) -- -- (5,826)
Issuance of stock for
notes receivable..... 199 4,939 -- (4,939) -- --
----- ------ ------- ------- ---- -------
Balance, December 31,
1994................... 6,339 8,289 55,442 (4,939) -- 58,792
Net income............ -- -- 9,682 -- -- 9,682
Dividends............. -- -- (4,359) -- -- (4,359)
Foreign currency
translation
adjustment........... -- -- -- -- 56 56
Issuance of stock for
notes receivable..... 15 393 -- (368) -- 25
Payments on notes
receivable........... -- -- -- 406 -- 406
----- ------ ------- ------- ---- -------
Balance, December 31,
1995................... 6,354 $8,682 $60,765 $(4,901) $ 56 $64,602
===== ====== ======= ======= ==== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
44
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE
FOR THE YEAR FOR THE YEAR TEN-MONTH
ENDED ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net income........................ $ 9,682 $ 10,291 $ 22,440
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization... 6,970 5,105 3,611
Minority interest in earnings
(loss)......................... (519) -- 63
Proceeds from insurance claims.. -- -- 1,890
Increase (decrease) from changes
in:
Accounts receivable........... (5,177) (935) (1,626)
Other receivables............. (3,444) (4,290) (232)
Receivable from affiliates,
net.......................... (4,691) 5,096 (596)
Inventories................... (1,869) (1,335) (1,200)
Prepaid expenses.............. 391 2,534 (4,087)
Licenses, deposits and other
assets....................... (668) (800) (3,200)
Accounts payable.............. 1,200 1,291 (1,175)
Accrued expenses.............. 2,764 (405) 8,000
Other liabilities............. (346) 443 1,978
-------- -------- --------
Net cash provided by
operating activities....... 4,293 16,995 25,866
-------- -------- --------
Cash flows from investing activi-
ties:
Acquisition of property and
equipment and leasehold rights. (20,241) (22,604) (14,681)
Proceeds from insurance claims.. -- -- 1,644
-------- -------- --------
Net cash used in investing
activities................. (20,241) (22,604) (13,037)
-------- -------- --------
Cash flows from financing activi-
ties:
Proceeds from notes payable--
other............................ 28,478 38,254 30,951
Payments on notes payable--
stockholders..................... (343) (23) (177)
Payments on notes payable--other.. (12,619) (30,848) (26,806)
Payments on notes payable--capital
leases........................... (268) -- --
Proceeds on notes receivable from
officers/directors............... 431 -- --
Capital contribution by minority
interest......................... 1,200 -- --
Dividends paid.................... (4,359) (5,826) (8,800)
-------- -------- --------
Net cash provided by (used
in) financing activities... 12,520 1,557 (4,832)
Effect of exchange rate
changes on cash and cash
equivalents................ 56 -- --
-------- -------- --------
Net increase (decrease) in
cash and cash equivalents.. (3,372) (4,052) 7,997
Cash and cash equivalents, beginning
of period.......................... 5,717 9,769 1,772
-------- -------- --------
Cash and cash equivalents, end of
period............................. $ 2,345 $ 5,717 $ 9,769
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
ORGANIZATION
The consolidated financial statements include the accounts of American Golf
Corporation ("AGC"), a California subchapter S Corporation, and its
subsidiaries, American Golf of Atlanta ("Atlanta"), a Georgia general
partnership, American Golf of Detroit ("Detroit"), a Michigan general
partnership, American Golf (UK) Limited ("AG(UK)"), a United Kingdom limited
liability company, and CW Golf Partners ("CWP"), a California limited
partnership (collectively, the "Company"). AGC was formed in 1973 for the
purpose of operating public and private golf and tennis facilities on leased
premises. The Company is 87% owned by David G. Price. The following table
lists AGC's subsidiaries and selected information:
<TABLE>
<CAPTION>
AGC
ENTITY FORMATION DATE OWNERSHIP PURPOSE
------ -------------- --------- --------------------------------------
<C> <C> <C> <S>
Atlanta June 1986 65% Acquire and operate four courses in
Atlanta, Georgia.
Detroit December 1990 80% Acquire and operate four courses in
Detroit, Michigan.
AG(UK) August 1993 75% Operate courses in the United Kingdom.
CWP September 1993 75% Operate one course in Los Angeles,
California.
</TABLE>
The remaining 25% interest in AG(UK) is owned by European Golf Corporation,
an affiliate of AGC.
The term "affiliate," as used in these financial statements, refers to any
entity in which David G. Price has a controlling interest.
At December 31, 1995, the Company leases 80 golf courses from National Golf
Properties, Inc. ("NGP"). David G. Price is the Chairman of the Board of
Directors of NGP and owns 6.3% of NGP's outstanding stock.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
All material intercompany transactions and balances have been eliminated in
consolidation.
RISKS AND UNCERTAINTIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market. Inventories consist primarily of food, beverage, golf and
tennis equipment, and clothing and accessories.
46
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
(CONTINUED):
REVENUE RECOGNITION
Revenue from green fees, cart rentals, food and beverage sales, merchandise
sales and range income are generally recognized at the time of sale.
Revenue from membership dues are generally billed monthly and recognized in
the month earned. The monthly dues are structured to cover the club operating
costs and membership services. Initiation fees are generally refundable in 30
years. Accordingly, the difference between the amount of the fees and the net
present value of the future obligation is recognized as revenue at the time of
sale, unless uncertainty surrounding collectability exists.
PROPERTY, EQUIPMENT, CAPITAL LEASES AND LEASEHOLD RIGHTS
Property, equipment and leasehold rights are recorded at the lower of cost
or net realizable value. Property and equipment under capital leases are
stated at the lower of the present value of the future minimum lease payments
at the beginning of the lease term or the fair value at the inception of the
lease.
Depreciation of property and equipment is computed using the straight-line
method over the lesser of the estimated useful life of the asset (3 to 30
years) or the remaining term of the lease. Property and equipment held under
capital leases and leasehold rights are amortized using the straight-line
method over the lesser of the lease term or the estimated useful life of the
asset.
When property and equipment are sold or otherwise disposed of, the asset
account and related accumulated depreciation and amortization account are
relieved, and any gain or loss is included in operations. Expenditures for
maintenance and repairs are charged to operations. Significant expenditures
which extend the useful life of existing assets are capitalized.
The Company periodically reevaluates the propriety of the carrying amounts
of its assets at each golf course as well as the amortization period to
determine whether current events and circumstances warrant adjustments to the
carrying amounts or a revised estimate of the useful life. The Company
compares the undiscounted future net cash flows expected to result from the
use of each of its properties to the carrying amount of the assets at that
property to determine whether the Company shall recognize an impairment loss.
The Company believes that no impairment has occurred and that no reduction of
the estimated useful lives is warranted.
NEWLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement No. 123"), which establishes a fair value based method of
accounting for stock-based compensation plans. Entities are encouraged to
adopt all provisions of Statement No. 123 and are required to comply with the
disclosure requirements of Statement No. 123. Statement No. 123 is effective
for financial statements for fiscal years beginning after December 15, 1995.
The provisions of Statement No. 123, if adopted, would not have a material
effect on the consolidated financial condition or operating results of AGC, as
AGC does not intend to adopt the value-based measurement concept.
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement No.
121"). Statement No. 121 requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. AGC periodically reevaluates the carrying amounts of its long-
lived assets and the related
47
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES --
(CONTINUED):
depreciation and amortization periods as discussed above, and AGC believes
that the adoption of Statement No. 121 will not have a material effect on its
consolidated financial statements.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of trade receivables.
Concentration of credit risk with respect to trade receivables, which
consists primarily of membership dues and charges, is limited due to the large
number of club members comprising the Company's customer base, and their
dispersion across many different geographic areas. The trade receivables are
billed and due monthly, and all probable bad debt losses have been
appropriately considered in establishing an allowance for doubtful accounts.
As of December 31, 1995 the Company had no significant concentration of credit
risk.
The Company has cash in financial institutions which is insured by the
Federal Deposit Insurance Corporation ("FDIC") up to $100,000 per account. At
various times throughout the year and as of December 31, 1995, the Company had
cash in financial institutions which was in excess of the FDIC insurance
limit.
FAIR VALUE OF FINANCIAL INSTRUMENTS
To meet the reporting requirements of Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments",
the Company calculates the fair value of financial instruments and includes
this additional information in the notes to the consolidated financial
statements when the fair value is different than the carrying value of those
financial instruments. When the fair value reasonably approximates the
carrying value, no additional disclosure is made. The Company uses quoted
market prices to calculate these fair values.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents.
ADVERTISING
The Company expenses advertising costs as incurred. Advertising costs for
the years ended December 31, 1995 and 1994, and the ten-month period ended
December 31, 1993 were approximately $4,521,000, $3,562,000 and $1,869,000,
respectively.
FOREIGN CURRENCY TRANSLATION
The Company translates foreign currency financial statements by translating
balance sheet accounts at the year-end exchange rate and income statement
accounts at the average exchange rate for the year. Translation gains and
losses are recorded in stockholders' equity, and realized gains and losses are
included in operations. The effect of realized gains and losses is not
material to the consolidated financial statements.
48
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) NET RECEIVABLE FROM AFFILIATES:
The net receivable from affiliates is uncollateralized and due within one
year.
(3) PROPERTY, EQUIPMENT AND CAPITAL LEASES:
Property, equipment and capital leases consist of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL DECEMBER 31,
LIVES ----------------
(YEARS) 1995 1994
--------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Golf course improvements............................ 10-20 $40,041 $28,641
Buildings........................................... 15-30 30,535 26,040
Furniture, fixtures, machinery and equipment........ 3-7 19,787 16,240
Equipment under capital leases...................... 3-7 4,707 --
------- -------
95,070 70,921
Less: accumulated depreciation...................... (30,497) (25,057)
------- -------
64,573 45,864
Construction-in-progress............................ 10,994 11,084
------- -------
$75,567 $56,948
======= =======
</TABLE>
Equipment under capital leases includes golf carts, turf and maintenance
equipment, computers, and other office equipment.
Interest capitalized for the years ended December 31, 1995 and 1994, and the
ten-month period ended December 31, 1993 was approximately $416,000, $418,000
and $391,000, respectively.
(4) STATE INCOME TAXES:
The Company has elected to be taxed as an S corporation under the Internal
Revenue Code of 1986, as amended. Accordingly, corporate income is taxed
directly to the stockholders for federal income tax reporting purposes. The
Company therefore has no provision in its consolidated financial statements
for federal income taxes. The following is the provision for state franchise
and income taxes for the years ended December 31, 1995 and 1994, and the ten-
month period ended December 31, 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1995 1994 1993
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Current.................................................... $ -- $128 $420
Deferred................................................... 201 109 98
---- ---- ----
Total provision for state income taxes................... $201 $237 $518
==== ==== ====
</TABLE>
49
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(5) NOTES PAYABLE -- STOCKHOLDERS:
Notes payable to stockholders consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994
--------------- ---------------
(IN THOUSANDS)
LONG- LONG-
INTEREST INTEREST CURRENT TERM CURRENT TERM
RATE PAYMENTS PORTION PORTION PORTION PORTION MATURITY
-------- -------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
8.0% Monthly $25 $474 $ 23 $499 12/2007
8.0% Monthly 1 8 1 9 12/2007
3.1% Annually -- -- 319 -- 12/1995
--- ---- ---- ----
$26 $482 $343 $508
=== ==== ==== ====
</TABLE>
Interest expense to the stockholders for the years ended December 31, 1995
and 1994, and the ten-month period ended December 31, 1993 was approximately
$75,000, $44,000 and $545,000, respectively.
Annual maturities on notes payable to stockholders are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------------
(IN THOUSANDS)
<S> <C>
1996.................................................... $26
1997.................................................... 29
1998.................................................... 31
1999.................................................... 33
2000.................................................... 36
Thereafter.............................................. 353
----
$508
====
</TABLE>
(6) NOTES PAYABLE -- OTHER:
Notes payable to others consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
1995 1994
--------------- ---------------
(IN THOUSANDS)
LONG- LONG-
INTEREST INTEREST CURRENT TERM CURRENT TERM
TYPE OF COLLATERAL RATE PAYMENTS PORTION PORTION PORTION PORTION MATURITY
---------------------- --------- --------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Collateralized note 9.0% Monthly $ 3 $ -- $17 $ 2 1/1996
Collateralized line of
credit Reference Monthly -- 8,500 -- 12,400 1/1997
Uncollateralized note 9.0% Monthly 18 26 16 43 4/1998
Uncollateralized note 8.3% Quarterly 36 260 33 296 6/2002
Collateralized note 8.0% Monthly 68 4,607 -- 4,674 9/2009
Collateralized note 9.5% Monthly -- 4,951 -- -- 1/2010
Collateralized note Reference Monthly 1,250 13,750 -- -- 7/2001
Collateralized note -- Annually -- -- 8 121 12/2001
------ ------- --- -------
$1,375 $32,094 $74 $17,536
====== ======= === =======
</TABLE>
50
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) NOTES PAYABLE -- OTHER -- (CONTINUED):
At December 31, 1995 and 1994, the bank prime and reference rate was 8.5%.
Annual maturities on notes payable to others are as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------------
(IN THOUSANDS)
<S> <C>
1996.................................. $1,375
1997.................................. 3,480
1998.................................. 3,509
1999.................................. 3,548
2000.................................. 3,598
Thereafter............................ 17,959
-------
$33,469
=======
</TABLE>
The Company is a guarantor of various credit facilities provided to David G.
Price in the amount of $14,071,000. At December 31, 1995, the outstanding
balance drawn on these credit facilities was $10,793,000.
On December 30, 1994, the Company entered into one $20 million and two $15
million credit facilities with a commercial bank that bear interest at prime
or a Libor based rate. Letters of credit issued under these credit facilities
are charged a 1 to 1.25% annual letter of credit fee. The $20 million facility
is used to finance working capital requirements and expires on January 6,
1997. At December 31, 1995, there was $8,500,000 advanced against this line of
credit and the standby letters of credit outstanding totalled $7,127,000. At
December 31, 1994, the outstanding cash balance advanced against this line of
credit was $12,400,000 and the standby letters of credit outstanding totalled
$7,572,000. The first $15 million credit facility, which expires on August 15,
1997, supports $13,555,000 of letters of credit issued in favor of NGP,
pursuant to the terms of the leases between NGP and AGC. The second $15
million credit facility matures July 1, 2001 and is used for capital
improvements. As of December 31, 1995, there was $15,000,000 outstanding on
the second credit facility.
The line of credit agreement contains, among other covenants, working
capital maintenance, fixed charge and debt to net worth ratios, minimum
tangible net worth amounts, and certain restrictions regarding indebtedness to
others.
Loans are collateralized by equipment, accounts receivable and inventory.
The net book value at December 31, 1995 of the assets collateralizing the
notes payable is $61.4 million.
51
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) NOTES PAYABLE -- CAPITAL LEASES:
Future minimum payments, by year and in the aggregate, under noncancelable
capital leases with initial remaining terms of one year or more consist of the
following at December 31, 1995:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, AMOUNT
----------------------- --------------
(IN THOUSANDS)
<S> <C>
1996.................................. $1,076
1997.................................. 1,076
1998.................................. 1,076
1999.................................. 1,617
2000.................................. 555
Thereafter............................ --
------
Total minimum lease payments........... 5,400
Amount representing interest........... 961
------
Present value of net minimum payments.. 4,439
Current portion........................ 738
------
Long-term portion...................... $3,701
======
</TABLE>
(8) EMPLOYEE BENEFITS:
In 1994, the Company established the 1994 Employee Equity Participation Plan
(the "1994 Plan"). Under the 1994 Plan, 900,000 shares may be awarded to key
employees as either nonqualified stock options, Performance Awards, as
defined, or the right to purchase common stock. During 1994, the Company
issued 198,677 shares of common stock at $24.86 per share and received notes
receivable totalling $4,939,000. During 1995, the Company issued 15,820 shares
of common stock at $24.86 per share and received notes receivable totalling
$368,000. The stock options vest over a three to five year period and are
subject to continued employment and the Company achieving certain financial
performance targets. There were no shares exercisable at December 31, 1995 and
1994. The following table summarizes the option activity since inception of
the 1994 Plan:
<TABLE>
<CAPTION>
SHARES OPTION
OUTSTANDING PRICE
----------- ------
<S> <C> <C>
January 1, 1994........................................ --
Granted.............................................. 318,954 $24.86
-------
December 31, 1994...................................... 318,954
Granted.............................................. 31,641 $24.86
-------
December 31, 1995...................................... 350,595
=======
</TABLE>
In 1995, Performance Shares were granted to key members of management who
were not awarded the right to purchase common stock or nonqualified stock
options. The 1994 Plan provides that holders of Performance Shares have the
right to receive an amount equal to the appreciation in share value (as
measured by a predetermined formula based on the Company's earnings). All
Performance Shares mature on December 31, 1998 with the appreciation in share
value payable in three equal annual installments, beginning in January, 1999.
Performance Shares vest based on achieving certain earnings targets of the
Company and are subject to continued employment. As of December 31, 1995,
159,886 Performance Shares were outstanding. There were 175,022 and 382,369
shares available under the 1994 Plan as of December 31, 1995 and 1994,
respectively. There was no
52
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) EMPLOYEE BENEFITS -- (CONTINUED):
compensation expense with respect to the 1994 Plan for the years ended
December 31, 1995 and 1994 and the ten-month period ended December 31, 1993.
The Company has a long-term share appreciation plan (phantom stock plan) for
key members of management. The plan is administered by the Board of Directors
of AGC and provides that the participants have the right to receive an amount
equal to the appreciation in share value (as measured by a predetermined
formula based on cash flow) at a date five years following the date of grant.
The appreciation in share value is payable 50% after the exercise period, and
the remainder, with interest in three equal installments, on the last day of
the succeeding three years. There were 157,000 and 251,500 outstanding share
appreciation rights as of December 31, 1995 and 1994, respectively. The share
appreciation expense for the year ended December 31, 1994 was approximately
$620,000. There was no share appreciation expense for the year ended December
31, 1995 and the ten-month period ended December 31, 1993. The Company does
not intend to grant any additional share appreciation rights.
The Company has a 401(k) Employee Savings Plan available to all employees
who have earned one year of vesting service and are at least 21 years of age.
Participants may contribute from 1% to 10% of their earnings, in whole
percentages, on a before-tax basis. The Company contributes to participants'
accounts based on the amount the participant elects to defer and a matching
contribution equal to $.50 on each dollar contributed by a participant up to
3% of the participant's gross pay. The Company's expense for the plan for the
years ended December 31, 1995 and 1994, and the ten-month period ended
December 31, 1993 was approximately $523,000, $524,000 and $347,000,
respectively.
(9) COMMITMENTS AND CONTINGENCIES:
The Company is the lessee under long-term operating leases for golf courses
and equipment. At December 31, 1995, future minimum rental payments required
pursuant to the terms of all lease obligations are as follows:
<TABLE>
<CAPTION>
RELATED UNRELATED
YEAR ENDED DECEMBER 31, PARTIES PARTIES TOTAL
----------------------- -------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1996....................................... $ 52,332 $ 24,064 $ 76,396
1997....................................... 52,332 21,623 73,955
1998....................................... 52,332 18,940 71,272
1999....................................... 52,332 13,981 66,313
2000....................................... 52,332 12,390 64,722
Thereafter................................. 533,671 154,252 687,923
-------- -------- ----------
$795,331 $245,250 $1,040,581
======== ======== ==========
</TABLE>
In addition to minimum rental payments, certain leases require payment of
the excess of various percentages of gross revenue over the minimum rental
payments. During the years ended December 31, 1995 and 1994, and the ten-month
period ended December 31, 1993, percentage rentals paid to unrelated parties
were approximately $7,789,000, $7,604,000 and $8,196,000, respectively.
Under the terms of certain leases, the Company is committed to make
improvements at golf courses. At December 31, 1995, approximately $3,254,000
of such improvements remain to be made.
At December 31, 1995, the Company was contingently liable for outstanding
letters of credit in the amount of approximately $20,682,000.
53
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(9) COMMITMENTS AND CONTINGENCIES -- (CONTINUED):
The Company has continuing litigation matters and other contingencies
incurred in the ordinary course of business and has recorded allowances for
the payment of these contingencies when such amounts can be estimated and are
considered material to the results of operations. Where no allowance has been
recorded, the Company does not consider the contingencies material to either
its consolidated financial position or results of operations.
The Company has guaranteed the obligations of David G. Price and a related
entity in the amount of $25,241,000 related to the repayment of participating
mortgage loans owed to NGP on four golf courses operated by AGC. Such loans
are collateralized by first mortgage liens on the courses and bear interest at
8.92% per annum.
(10) RELATED PARTY TRANSACTIONS:
The Company leases golf and tennis facilities from David G. Price and
related entities, including NGP. Rent expense paid to David G. Price and
related entities was approximately $47,600,000, $42,492,000 and $23,861,000
for the years ended December 31, 1995 and 1994 and the ten-month period ended
December 31, 1993, respectively.
The Company recorded net management fees from related entities in the amount
of approximately $554,000, $1,240,000 and $4,091,000 for the years ended
December 31, 1995 and 1994, and the ten-month period ended December 31, 1993,
respectively.
The Company has accumulated costs in other receivables relating to
construction in progress at certain golf and tennis facilities owned by NGP.
Periodically, substantially all of these costs are reimbursed by NGP and
related entities. At December 31, 1995 and 1994, these accumulated costs
amounted to approximately $3,106,000 and $1,246,000, respectively.
The Company earns interest on receivables from affiliates at a prime based
rate. Interest income from affiliates was approximately $873,000, $753,000 and
$1,001,000 for the years ended December 31, 1995 and 1994 and the ten-month
period ended December 31, 1993, respectively.
(11) STATEMENT OF CASH FLOWS-SUPPLEMENTAL DISCLOSURES:
Interest paid for the years ended December 31, 1995 and 1994, and the ten-
month period ended December 31, 1993 was approximately $2,213,000, $511,000
and $543,000, respectively.
State income taxes paid for the years ended December 31, 1995 and 1994, and
the ten-month period ended December 31, 1993 was approximately $149,000,
$269,000 and $406,000, respectively.
The Company entered into four long-term leases with assignable purchase
options in 1993. During the year ended December 31, 1994, one of the purchase
options in the amount of approximately $600,000 was exercised. This option was
subsequently assigned to an affiliate at cost plus related expenses totalling
approximately $300,000.
Capital lease obligations of approximately $4,707,000 were incurred when the
Company entered into leases for new equipment in 1995.
54
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(12) STOCKHOLDERS' EQUITY:
As discussed in Note 8 to the consolidated financial statements, the Company
has issued 214,497 shares of common stock to key employees for notes receivable
with a balance at December 31, 1995 of $4,901,000. The notes receivable bear
interest ranging from six to seven percent and the principal is due in 2004.
The notes are collateralized by the common stock issued. The amount of the
receivable is shown on the balance sheets as a reduction in stockholders'
equity. During the year ended December 31, 1995, the Company received proceeds
from the notes receivable of approximately $406,000. Interest income accrued on
the notes receivable was approximately $300,000 for the year ended December 31,
1995.
Interest is paid with proceeds from stockholder distributions and, in part,
their annual bonus. To the extent these amounts are insufficient to cover the
current year interest, the unpaid interest may be added to the principal of the
note. No amounts were added to principal for the year ended December 31, 1995.
(13) SUBSEQUENT EVENTS:
On January 19, 1996, NGP sold Wootton Bassett Golf Club in Wiltshire, United
Kindom. As a result of this sale, the Company's lease to operate Wootton
Bassett Golf Club was terminated. The Company realized a loss of approximately
$500,000 on the early termination of this lease. This amount is included in the
results of operations for the year ended December 31, 1995.
On February 2, 1996, NGP executed a definitive agreement to purchase 20 golf
courses from Golf Enterprises, Inc. ("GEI") for a purchase price of $58
million. All of the courses acquired will be leased to the Company on a triple
net basis. NGP will receive minimum base rent equal to 10% of its investment.
The minimum base rent will be adjusted in specific years based on increases in
CPI. Additionally, a percentage rent feature will allow NGP to participate in
any growth in revenues.
The following unaudited pro forma results of operations of the Company assume
NGP's acquisition of the 20 golf courses from GEI had been consummated as of
January 1, 1995. The pro forma financial information includes the following
adjustments: (i) an increase in operating revenues; (ii) an increase in
operating expenses; (iii) an increase in rent expense; (iv) an increase in
interest income; and (v) an increase in interest expense.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------ --------------------
COMBINED
FOR THE YEAR FOR THE YEAR
ENDED ENDED
DECEMBER 31, 20 GOLF DECEMBER 31,
1995 COURSES 1995
------------ ------- ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues................................ $359,066 $40,678 $399,744
Net income.............................. $ 9,682 $ 1,525 $ 11,207
</TABLE>
The unaudited pro forma results of operations do not purport to be indicative
of the results that would actually have been obtained had the acquisition taken
place at January 1, 1995, nor does it purport to represent the results of
operations for future periods.
On February 28, 1996, NGP's Board of Directors approved NGP's exercise of
options to acquire 4 golf courses from affiliates of the Company. The 4 golf
courses will be leased to the Company on a triple net basis.
55
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) 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.
National Golf Properties, Inc.
/s/ EDWARD R. SAUSE
Date: June 20, 1996 By: _________________________________
Edward R. Sause
Executive Vice President,
Chief Financial Officer
and Director
56
