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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 THESECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1997
Commission file number 1-12246
NATIONAL GOLF PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
Maryland 95-4549193
(I.R.S. Employer Identification No.)
(State of incorporation)
2951 28th Street, Suite 3001 Santa
Monica, CA 90405
(Address of principal executive (Zip Code)
offices)
(310) 664-4100
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock New York Stock Exchange
$.01 par value
</TABLE>
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 January 5, 1998, the aggregate market value of the voting stock held
by nonaffiliates of the registrant was approximately $373.1 million, based
upon the closing price ($32.6875) 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:
12,418,195 shares of common stock, $.01 par value, as of January 5, 1998
Documents Incorporated By Reference
Portions of the registrant's Proxy Statement in connection with its Annual
Meeting of Stockholders to be held May 5, 1998, are incorporated by reference
in Part III.
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Item 2. PROPERTIES
As of January 5, 1998, the Golf Courses consisted of 123 golf courses that
are geographically diversified and located in 26 states, with 22 Golf Courses
in California, 19 in Texas, 13 in Arizona, six in each of Florida and South
Carolina, five in each of Ohio and Pennsylvania, four in each of Colorado,
Georgia, Illinois, Kansas and Oregon, three in each of Nevada, Virginia and
Washington, two in each of Maryland, Missouri, New Jersey, New Mexico, North
Carolina, Oklahoma and Tennessee and one in each of Idaho, Indiana, Louisiana
and Minnesota. The distribution of the Golf Courses reflects the Company's
belief that geographic diversification helps insulate the portfolio from
regional economic and climatic influences. Substantially all of the Golf
Courses are located in Standard Metropolitan Statistical Areas with
populations in excess of 250,000 people.
Of the 123 Golf Courses, 58 are daily fee courses, 45 are private club
courses and 20 are resort courses. All of the Golf Courses are owned 100% in
fee by either the Company, the Operating Partnership, Royal Golf or Pumpkin
Ridge except for the three Golf Courses at Bear Creek Golf World, which are
leased by the Company under a ground lease expiring in 2022, and Mesquite Golf
& Country Club, of which approximately 14 acres are under various ground
leases expiring between 2041 and 2043.
Daily Fee Courses. Daily fee courses are open to the public and related
amenities generally include practice facilities, small clubhouses with pro
shops offering limited merchandise and a moderate food and beverage operation.
Daily fee courses generate revenues principally through green fees, golf cart
rentals and food, beverage and merchandise sales. Daily fee courses generated
$29.5 million of rent revenues to the Company in 1997 compared to $24.2
million in 1996.
Private Club Courses. Private club courses are generally closed to the
public and related amenities typically include practice facilities, large
clubhouses with pro shops offering extensive merchandise, locker room
facilities and multiple food and beverage outlets, including grills,
restaurants and banquet facilities. Private club courses generate revenues
principally through initiation fees, membership dues, and food, beverage and
merchandise sales. As of December 31, 1997, the Company's private club courses
had more than 32,000 members. Private club courses generated $26.6 million of
rent revenues to the Company in 1997 compared to $19.8 million in 1996.
Resort Courses. Resort courses are generally higher-quality daily fee
courses that charge a higher green fee than the typical daily fee course and
draw a high percentage of players from outside the immediate area in which the
course is located. Resort courses are generally located in vacation
destination areas. Resort courses generated $18.2 million of rent revenues to
the Company in 1997 compared to $14.9 million in 1996.
The following table sets forth certain information regarding the Golf
Courses as of January 5, 1998. As of that date, the Company owned 123 Golf
Courses in 26 states. The number of locations (112) differs from the number of
Golf Courses because in some cases there is more than one Golf Course at a
specific location. The number of courses at each location is indicated for
locations with more than one course.
The Golf Courses--Daily Fee Courses
<TABLE>
<CAPTION>
Location No. of 1997
Course Name (City, State) Holes Rent Revenues
----------- ------------- ------ --------------
(In thousands)
<C> <S> <C> <C> <C>
1 Continental Golf Course.. Scottsdale, Arizona 18 $ 464
2 Desert Lakes Golf Club... Fort Mojave, Arizona 18 425
3 El Caro Golf Club........ Phoenix, Arizona 18 320
4 Kokopelli Golf Resort.... Gilbert, Arizona 18 611
5 Villa De Paz Golf
Course.................. Phoenix, Arizona 18 303
6 Camarillo Springs Golf
Course.................. Camarillo, California 18 1,193
7 Carmel Mountain Ranch
Country Club............ San Diego, California 18 810
8 Lomas Santa Fe Executive
Golf Course............. Solana Beach, California 18 539
9 Mesquite Golf & Country
Club.................... Palm Springs, California 18 693
</TABLE>
2
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<TABLE>
<CAPTION>
Location No. of 1997
Course Name (City, State) Holes Rent Revenues
----------- ------------- ------ --------------
(In thousands)
<C> <S> <C> <C> <C>
10 Oakhurst Country Club... Clayton, California 18 $ 195
11 Rancho San Joaquin Golf
Course................. Irvine, California 18 2,315
12 San Geronimo Golf
Course................. San Geronimo, California 18 636
13 Summitpointe Golf Club.. Milpitas, California 18 972
14 Upland Hills Country
Club................... Upland, California 18 819
15 Vista Valencia Golf
Course (2 Courses)..... Valencia, California 27 914
16 Eagle Golf Club......... Broomfield, Colorado 18 386
17 Arrowhead Golf & Sports
Club................... Davie, Florida 18 358
18 Baymeadows Golf Club.... Jacksonville, Florida 18 320
19 Binks Forest Country
Club................... Wellington, Florida 18 455
20 Sabal Palm Golf Course.. Tamarac, Florida 18 524
21 Summerfield Crossing
Golf Club.............. Tampa, Florida 18 263
22 Goshen Plantation
Country Club........... Augusta, Georgia 18 318
23 River's Edge Golf Club.. Fayetteville, Georgia 18 446
24 The Golf Club at
Bradshaw Farm.......... Woodstock, Georgia 18 451
25 Ruffled Feathers Golf
Course................. Lemont, Illinois 18 950
26 Tamarack Golf Club...... Naperville, Illinois 18 514
27 Sugar Ridge Golf
Course................. Lawrenceburg, Indiana 18 304
28 Deer Creek Golf Club.... Overland Park, Kansas 18 798
29 Dub's Dread Golf
Course................. Kansas City, Kansas 18 384
30 WestWinds Country Club.. New Market, Maryland 18 382
31 The Links at Northfork.. Ramsey, Minnesota 18 388
32 Royal Meadows Golf
Course (2 Courses)..... Kansas City, Missouri 27 282
33 Rancocas Golf Club...... Willingboro, New Jersey 18 559
34 Paradise Hills Golf
Course................. Albuquerque, New Mexico 18 555
35 Pawtuckett Golf Club.... Charlotte, North Carolina 18 164
36 Bent Tree Golf Club..... Columbus, Ohio 18 436
37 Fowler's Mill Golf
Course................. Chesterland, Ohio 27 429
38 Country Club of Hershey
South Course........... Hershey, Pennsylvania 18 258
39 Golden Oaks Country
Club................... Fleetwood, Pennsylvania 18 576
40 Hickory Heights Golf
Club................... Bridgeville, Pennsylvania 18 299
41 The Links at Stono
Ferry.................. Charleston, South Carolina 18 164
42 Forrest Crossing Golf
Course................. Nashville, Tennessee 18 304
43 Bear Creek Golf World (3
Courses)............... Houston, Texas 54 1,419
44 Lake Houston Golf Club.. Huffman, Texas 18 209
45 Longwood Golf Club...... Houston, Texas 27 410
46 Riverchase Golf Club.... Coppell, Texas 18 1,119
47 Riverside Golf Club..... Grand Prairie, Texas 18 785
48 Southwyck Golf Club..... Pearland, Texas 18 431
49 Chesapeake Golf Club.... Chesapeake, Virginia 18 418
50 Honey Bee Golf Club..... Virginia Beach, Virginia 18 559
51 Reston National Golf
Course................. Reston, Virginia 18 1,124
52 Capitol City Golf Club.. Olympia, Washington 18 305
53 Lake Wilderness Golf
Course................. Maple Valley, Washington 18 281
-------
Total Daily Fee Courses............................. $29,536
=======
</TABLE>
3
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The Golf Courses--Private Club Courses
<TABLE>
<CAPTION>
Location No. of 1997
Course Name (City, State) Holes Rent Revenues
----------- ------------- ------ --------------
(In thousands)
<C> <S> <C> <C> <C>
1 Ancala Country Club..... Scottsdale, Arizona 18 $ 914
2 Arrowhead Country Club.. Glendale, Arizona 18 598
3 Canyon Oaks Country
Club................... Chico, California 18 454
4 Escondido Country Club.. Escondido, California 18 606
5 Monterey Country Club... Palm Desert, California 27 811
6 Palm Valley Country Club
(2 Courses)............ Palm Desert, California 36 1,436
7 SeaCliff Country Club... Huntington Beach, California 18 1,414
8 Spanish Hills Country
Club................... Camarillo, California 18 332
9 Sunset Hills Country
Club................... Thousand Oaks, California 18 1,323
10 Wood Ranch Golf Club.... Simi Valley, California 18 1,084
11 Heather Ridge Country
Club................... Aurora, Colorado 18 331
12 Pinery Country Club..... Denver, Colorado 27 560
13 Crescent Oaks Country
Club................... Clearwater, Florida 18 91
14 Brookstone Golf &
Country Club........... Acworth, Georgia 18 553
15 The Plantation Golf
Club................... Boise, Idaho 18 267
16 Eagle Brook Country
Club................... Geneva, Illinois 18 340
17 Mission Hills Country
Club................... Northbrook, Illinois 18 825
18 Highlands Golf & Supper
Club................... Hutchinson, Kansas 18 63
19 Tallgrass Country Club.. Wichita, Kansas 18 249
20 Shenandoah Country
Club................... Baton Rouge, Louisiana 18 131
21 Stonebridge Country
Club................... New Orleans, Louisiana 27 35*
22 Hunt Valley Golf Club... Phoenix, Maryland 27 1,659
23 Skyline Woods Country
Club................... Elkhorn, Nebraska 18 293*
24 Tanoan Country Club..... Albuquerque, New Mexico 27 1,318
25 Brandywine Country
Club................... Maumee, Ohio 27 689
26 Oakhurst Country Club... Grove City, Ohio 18 386
27 Royal Oak Country Club.. Cincinnati, Ohio 18 365
28 Meadowbrook Country
Club................... Tulsa, Oklahoma 18 335
29 The Trails.............. Norman, Oklahoma 18 242
30 Creekside Golf Club..... Salem, Oregon 18 624
31 The Oregon Golf Club.... West Linn, Oregon 18 1,456
32 Country Club of Hershey
(2 Courses)............ Hershey, Pennsylvania 36 993
33 Gettysvue Polo, Golf &
Country Club........... Knoxville, Tennessee 18 61
34 Berry Creek Country
Club................... Georgetown, Texas 18 528
35 Diamond Oaks Country
Club................... Fort Worth, Texas 18 380
36 Eldorado Country Club... McKinney, Texas 18 657
37 Great Southwest Golf
Club................... Grand Prairie, Texas 18 838
38 Oakridge Country Club... Garland, Texas 18 368
39 Sweetwater Country Club
(2 Courses)............ Sugarland, Texas 36 1,289
40 Walden on Lake Houston
Country Club........... Humble, Texas 18 371
41 Willow Fork Country
Club................... Katy, Texas 18 283
42 Woodhaven Country Club.. Forth Worth, Texas 18 212
43 Bear Creek Country
Club................... Woodinville, Washington 18 850
-------
Total Private Club Courses............................ $26,614
=======
</TABLE>
- --------
* Sold in 1997
4
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The Golf Courses--Resort Courses
<TABLE>
<CAPTION>
Location No. of 1997
Course Name (City, State) Holes Rent Revenues
----------- ------------- ------ --------------
(In thousands)
<C> <S> <C> <C> <C>
1 London Bridge Golf Club
(2 Courses)............ Lake Havasu City, Arizona 36 $ 542
2 Stonecreek Golf Course.. Phoenix, Arizona 18 989
3 Superstition Springs
Golf Club.............. Mesa, Arizona 18 801
4 Tatum Ranch Golf Club... Cave Creek, Arizona 18 1,088
5 The Legend at
Arrowhead.............. Glendale, Arizona 18 620
6 Aptos Seascape Golf
Course................. Aptos, California 18 1,454
7 BlackLake Golf Course... Nipomo, California 18 1,132
8 Arrowhead Golf Club..... Littleton, Colorado 18 1,075
9 Las Vegas National Golf
Club................... Las Vegas, Nevada 18 2,636
10 Painted Desert Golf
Course................. Las Vegas, Nevada 18 875
11 Wildhorse Country Club.. Henderson, Nevada 18 1,661
12 Brigantine Golf Links... Brigantine, New Jersey 18 384
13 Carolina Shores Golf &
Country Club........... Calabash, North Carolina 18 679
14 Colonial Charters Golf
Course................. Longs, South Carolina 18 494
15 Port Royal Golf &
Racquet Club
(3 Courses)............ Hilton Head Island, South Carolina 54 2,197
16 Shipyard Golf Club...... Hilton Head Island, South Carolina 27 1,043
17 Pecan Valley Golf Club.. San Antonio, Texas 18 496
------------
Total Resort Courses........................................ $ 18,166
------------
Total All Courses........................................... $ 74,316
============
The Golf Courses--Owned by Joint Venture
<CAPTION>
Location No. of
Course Name (City, State) Holes Type of Course
----------- ------------- ------ --------------
<C> <S> <C> <C> <C>
1 Pumpkin Ridge Golf Club
(Ghost Creek)........... Cornelius, Oregon 18 Daily Fee
2 Pumpkin Ridge Golf Club
(Witch Hollow).......... Cornelius, Oregon 18 Private Club
</TABLE>
Capital Improvements
Under the Leases, the lessees are required to maintain each Golf Course in
good order, repair and appearance. For the Golf Courses acquired through
January 5, 1998, the Company is required under the applicable Leases to pay
for various remaining capital improvements totaling approximately
$10.2 million, which will be paid during the next two years. Any subsequent
capital improvements are the responsibility of the lessees. However, during
1997, AGC requested that the Company provide additional funding of
approximately $16.4 million in capital improvements intended to add value to
the properties and reposition the facilities for enhanced revenue growth. The
Independent Committee of the Company's Board of Directors approved such
additional funding. The $16.4 million will be paid during the next two years.
Upon the Company's funding of such 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, the Company's investment in such
improvements.
5
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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 Financial Statements and Notes thereto. The forward-looking
statements included in Management's Discussion and Analysis of Financial
Condition and Results of Operations ("MD&A") relating to certain matters
involve risks and uncertainties, including anticipated financial performance,
business prospects, anticipated capital expenditures and other similar
matters, which reflect management's best judgement based on factors currently
known. Actual results and experience could differ materially from the
anticipated results or other expectations expressed in the Company's forward-
looking statements as a result of a number of factors, including but not
limited to those discussed in MD&A.
The discussion of the results of operations compares the year ended December
31, 1997 with the year ended December 31, 1996 and the year ended December 31,
1996 with the year ended December 31, 1995.
Results of Operations
Comparison of year ended December 31, 1997 to year ended December 31, 1996
Net income increased by $2,167,000 to $15,579,000 for the year ended
December 31, 1997 compared to $13,412,000 for the year ended December 31,
1996. The increase was primarily attributable to (i) an increase in rent
revenues of approximately $15,418,000; (ii) an increase in general and
administrative expenses of approximately $602,000; (iii) an increase in
depreciation and amortization expense of approximately $5,634,000; (iv) a
decrease in interest income from affiliates of approximately $1,683,000; (v)
an increase in gain on insurance proceeds of approximately $2,231,000; and
(vi) an increase in interest expense of approximately $5,743,000.
The increase in rent revenues is due to (i) the acquisition of nine golf
course properties during 1997, which accounted for approximately $3,611,000 of
the increase; (ii) a full year of rent in 1997 on 34 golf course properties
acquired in 1996, which accounted for approximately $9,248,000 of the
increase; (iii) an increase in base rent of approximately $1,212,000; and (iv)
an increase in percentage rent of approximately $1,347,000. The increase in
general and administrative expenses in 1997 was primarily due to (i) an
increase in compensation expense resulting from the issuance of restricted
stock and (ii) payments to be made to the former president of the Company
pursuant to a separation agreement. The increase in depreciation and
amortization expense is due to an increase in depreciation expense of
approximately $5,696,000, which was offset by a decrease in amortization
expense of approximately $62,000. The increase in depreciation expense is
primarily due to (i) the acquisition of nine golf course properties during
1997, which accounted for approximately $1,810,000 of the increase and (ii) a
full year of depreciation expense in 1997 on 34 golf course properties
acquired in 1996, which accounted for approximately $4,239,000 of the
increase. The decrease in amortization expense is primarily due to certain
covenants and loan costs becoming fully amortized.
The decrease in interest income from affiliates is due to the retirement of
the participating mortgage loans in 1996. The increase in gain on insurance
proceeds is due to a fire completely destroying a clubhouse at one of the Golf
Courses. The Company is applying the insurance proceeds to rebuild the
clubhouse. The increase in interest expense was primarily attributable to (i)
the issuance of $75 million of fixed-rate, unsecured notes in 1996 ($40
million in July and $35 million in December) and (ii) the increase in
outstanding advances under the Company's $100 million credit facility.
Comparison of year ended December 31, 1996 to year ended December 31, 1995
Net income increased by $126,000 to $13,412,000 for the year ended December
31, 1996 compared to $13,286,000 for the year ended December 31, 1995. The
increase was primarily attributable to (i) an increase in rent revenues of
approximately $12,967,000; (ii) an increase in general and administrative
expenses of
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approximately $476,000; (iii) an increase in depreciation and amortization
expense of approximately $5,097,000; (iv) a decrease in interest income from
affiliates of approximately $1,201,000; (v) a decrease in interest income of
approximately $833,000; and (vi) an increase in interest expense of
approximately $5,274,000.
The increase in rent revenues is due to (i) the acquisition of 35 golf
course properties during 1996, which accounted for approximately $7,248,000 of
the increase; (ii) a full year of rent in 1996 on 11 golf course properties
acquired in 1995, which accounted for approximately $4,854,000 of the
increase; (iii) an increase in base rent of approximately $625,000; and (iv)
an increase in percentage rent of approximately $240,000. The increase in
general and administrative expenses in 1996 was primarily due to (i)
implementation of an investor relations program; (ii) payments made to former
employees; and (iii) relocation of the Company's corporate office. The
increase in depreciation and amortization expense is due to an increase in
depreciation expense of approximately $5,403,000, which was offset by a
decrease in amortization expense of approximately $306,000. The increase in
depreciation expense is primarily due to (i) the acquisition of 35 golf course
properties during 1996, which accounted for approximately $3,237,000 of the
increase and (ii) a full year of depreciation expense in 1996 on 11 golf
course properties acquired in 1995, which accounted for approximately
$2,266,000 of the increase. The decrease in amortization expense is primarily
due to certain covenants and loan costs becoming fully amortized.
The decrease in interest income from affiliates is due to the retirement of
the participating mortgage loans in 1996. The decrease in interest income is
due to less available cash during the year because the Company purchased 35
golf courses for an aggregate initial investment of approximately $155
million. The increase in interest expense was primarily attributable to (i)
the issuance of $50 million of fixed-rate, unsecured notes by the Operating
Partnership in June 1995; (ii) the issuance of $75 million of fixed-rate,
unsecured notes by the Operating Partnership in 1996 ($40 million in July and
$35 million in December); and (iii) the increase in outstanding advances under
the Company's $40 million credit facility.
Liquidity and Capital Resources
At December 31, 1997, the Company had approximately $2.9 million in cash and
investments, mortgage loans of approximately $2.2 million, mortgage
indebtedness of approximately $30.2 million and unsecured indebtedness of
approximately $268.8 million. The $299 million aggregate principal amount of
mortgage and unsecured indebtedness bears interest at a weighted average rate
of 7.81%. Of the $299 million of debt, $208 million is fixed-rate debt and is
payable either quarterly or semi-annually and matures between 1999 and 2008.
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; and (iv) returns from short-term
investments. 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.
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 initial capital improvement projects intended to add value to the
property and reposition the facility for enhanced revenue growth. For the Golf
Courses acquired through January 5, 1998, the Company is required under the
Leases to pay for various remaining capital improvements totaling
approximately $10.2 million, which will be
7
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paid during the next two years. 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 in order to enhance revenue growth. Any
subsequent capital improvements are the responsibility of the lessees.
However, during 1997, AGC requested that the Company provide additional
funding of approximately $16.4 million in capital improvements intended to add
value to the properties and reposition the facilities for enhanced revenue
growth. The Independent Committee of the Company's Board of Directors approved
such additional funding. The $16.4 million will be paid during the next two
years. Upon the Company's funding 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, the Company's investment in
such improvements.
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 Company currently has a
$100 million credit facility with a group of four commercial banks, which
terminates in April 2002. The Company has two interest rate options under the
credit facility depending upon the length of time the advances are
outstanding. For advances which will be outstanding for less than a month, the
advances bear interest at prime. At December 31, 1997, such rate was 8.5%. For
advances which will be outstanding for one month or more, the advances bear
maximum interest at a floating rate equal to LIBOR plus a spread of 1.125%.
The spread will be reduced upon the Company's receipt of specified credit
ratings. There were outstanding advances of $86 million and $91 million under
this credit facility as of January 5, 1998 and December 31, 1997,
respectively. The Company may borrow additional funds or increase its credit
facility to finance future acquisitions. On a long-term basis, the Company may
use Common Stock or OP Units as consideration for future acquisitions or
borrow additional funds, increase its credit facility or issue Common Stock to
finance such purchases.
In 1997, the Company purchased nine golf courses for an aggregate initial
investment of approximately $79.2 million, which investment was financed by
$14.5 million of cash from operations, $59.7 million of advances under the
Company's credit facility and $5 million of notes payable. Also in 1997, the
Company acquired a 50% general partner interest in Pumpkin Ridge for
approximately $8.1 million, which investment was financed by advances under
the Company's 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.
Comparison of cash flow statement for year ended December 31, 1997 to year
ended December 31, 1996
Net cash provided by operating activities increased by $11,359,000 to
$55,576,000 for the year ended December 31, 1997 compared to $44,217,000 for
the year ended December 31, 1996. The increase was primarily attributable to
an increase in rent revenues of approximately $15,418,000, which was offset by
an increase in interest expense of approximately $5,743,000.
Net cash used by investing activities increased by $25,927,000 to
$94,408,000 for the year ended December 31, 1997 compared to $68,481,000 for
the year ended December 31, 1996. The increase was primarily attributable to
(i) a decrease in proceeds from mortgage loans of approximately $24,740,000;
(ii) a decrease in purchase of property from affiliates of approximately
$4,937,000; (iii) an increase in investment in joint venture of approximately
$8,128,000; and (iv) an increase in proceeds from sale of properties and
related assets of approximately $2,575,000.
Net cash provided by financing activities increased by $907,000 to
$29,306,000 for the year ended December 31, 1997 compared to $28,399,000 for
the year ended December 31, 1996. The increase was primarily attributable to
an increase in proceeds from stock options exercised of approximately
$993,000.
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Comparison of cash flow statement for year ended December 31, 1996 to year
ended December 31, 1995
Net cash provided by operating activities increased by $7,834,000 to
$44,217,000 for the year ended December 31, 1996 compared to $36,383,000 for
the year ended December 31, 1995. The increase was primarily attributable to
an increase in rent revenues of approximately $12,967,000, which was offset by
an increase in interest expense of approximately $5,274,000.
Net cash used by investing activities decreased by $7,538,000 to $68,481,000
for the year ended December 31, 1996 compared to $76,019,000 for the year
ended December 31, 1995. The decrease was primarily attributable to (i) an
increase in proceeds from mortgage loans of approximately $25,472,000; (ii) an
increase in purchase of property of approximately $10,140,000; and (iii) a
decrease in net proceeds from sale of investments of approximately $8,628,000.
Net cash provided by financing activities decreased by $14,240,000 to
$28,399,000 for the year ended December 31, 1996 compared to $42,639,000 for
the year ended December 31, 1995. The decrease was primarily attributable to
an increase in principal payments on notes payable of approximately
$97,793,000, which was offset by an increase in proceeds from notes payable of
approximately $84,799,000.
Other Data
The Company believes that to facilitate a clear understanding of the
historical consolidated operating results, funds from operations should be
examined in conjunction with net income as presented in the audited
Consolidated 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.
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 for the years ended December 31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
For the year ended
December 31,
-------------------------
1997 1996 1995
------- ------- -------
(In thousands)
<S> <C> <C> <C>
Net income........................................ $15,579 $13,412 $13,286
Minority interest................................. 12,003 10,852 11,366
Depreciation and amortization..................... 24,883 19,124 14,027
Gain on insurance proceeds........................ (2,231) -- --
Gain on sale of properties........................ (158) (1,199) (1,893)
Excess land sales................................. (469) -- --
Write off of option payable....................... -- -- (101)
Amortization--loan costs.......................... (227) (147) (195)
Depreciation--corporate........................... (69) (47) (43)
------- ------- -------
Funds from operations............................. $49,311 $41,995 $36,447
Company's share of funds from operations.......... 56.48% 55.28% 53.89%
------- ------- -------
Company's funds from operations................... $27,851 $23,215 $19,641
======= ======= =======
</TABLE>
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
9
<PAGE>
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, 1997 to year
ended December 31, 1996
Funds from operations increased by $7,316,000 to $49,311,000 for the year
ended December 31, 1997 compared to $41,995,000 for the year ended December
31, 1996. The increase was primarily attributable to an increase in rent
revenues of approximately $15,418,000, which was offset by an increase in
interest expense of approximately $5,743,000.
Comparison of funds from operations for year ended December 31, 1996 to year
ended December 31, 1995
Funds from operations increased by $5,548,000 to $41,995,000 for the year
ended December 31, 1996 compared to $36,447,000 for the year ended December
31, 1995. The increase was primarily attributable to an increase in rent
revenues of approximately $12,967,000, which was offset by an increase in
interest expense of approximately $5,274,000.
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.
10
<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") as listed
in Item 14(a)(1) and (2) of this Form 10-K/A. 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, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1997, 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.
As described in Note 1(a), the consolidated financial statements have been
restated for the allocation of minority interest.
Additionally, Note 14 to the accompanying consolidated financial statements
has been restated for American Golf Corporation and Subsidiaries change in
their method of accounting for membership initiation deposits and fees and the
related incremental direct costs.
PricewaterhouseCoopers LLP
Los Angeles, California
February 4, 1998, except for Note 14,
as to which the date is December 4, 1998
11
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
-------- --------
ASSETS
<S> <C> <C>
Property
Land..................................................... $ 72,339 $ 63,049
Buildings................................................ 181,571 147,678
Ground improvements...................................... 301,814 263,803
Furniture, fixtures and equipment........................ 35,589 30,531
Construction in progress................................. 10,569 10,733
-------- --------
601,882 515,794
Less: accumulated depreciation........................... (94,872) (73,031)
-------- --------
Net property........................................... 507,010 442,763
Cash and cash equivalents.................................. 1,698 11,224
Investments................................................ 1,215 286
Mortgage notes receivable.................................. 2,200 2,971
Investment in joint venture................................ 8,004 --
Due from affiliate......................................... 4,524 --
Other assets, net.......................................... 10,663 12,701
-------- --------
Total assets........................................... $535,314 $469,945
======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Notes payable.............................................. $299,032 $229,949
Accounts payable and other liabilities..................... 5,385 3,134
Due to affiliate........................................... -- 641
-------- --------
Total liabilities...................................... 304,417 233,724
-------- --------
Minority interest.......................................... 96,007 98,551
-------- --------
Commitments and contingencies (Note 7)
Stockholders' Equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized--none issued................................. -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 12,408,195 and 12,303,720 shares issued and
outstanding at December 31, 1997 and 1996,
respectively............................................ 124 123
Additional paid in capital............................... 139,222 142,265
Accumulated deficit...................................... (1,360) (1,360)
Unamortized restricted stock compensation................ (3,096) (3,358)
-------- --------
Total stockholders' equity............................. 134,890 137,670
-------- --------
Total liabilities and stockholders' equity............. $535,314 $469,945
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
12
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For The Year Ended
December 31,
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Rent from affiliate........................... $ 71,087 $ 57,291 $ 45,339
Rent.......................................... 3,229 1,607 592
Equity in income from joint venture........... 119 -- --
Gain on sale of properties.................... 158 1,199 1,893
-------- -------- --------
Total revenues.............................. 74,593 60,097 47,824
-------- -------- --------
Expenses:
General and administrative.................... 5,336 4,734 4,258
Depreciation and amortization................. 24,758 19,124 14,027
-------- -------- --------
Total expenses.............................. 30,094 23,858 18,285
-------- -------- --------
Operating income.............................. 44,499 36,239 29,539
Other income (expense):
Interest income from affiliates............... -- 1,683 2,884
Interest income............................... 364 427 1,260
Gain on insurance proceeds.................... 2,231 -- --
Other income.................................. 521 238 114
Interest expense.............................. (19,810) (14,067) (8,793)
-------- -------- --------
Income before provision for taxes and minority
interest....................................... 27,805 24,520 25,004
Provision for taxes............................. (223) (256) (352)
-------- -------- --------
Income before minority interest................. 27,582 24,264 24,652
Income applicable to minority interest.......... (12,003) (10,852) (11,366)
-------- -------- --------
Net income...................................... $ 15,579 $ 13,412 $ 13,286
======== ======== ========
Basic earnings per share........................ $ 1.26 $ 1.19 $ 1.25
Weighted average number of shares............... 12,368 11,317 10,622
Diluted earnings per share...................... $ 1.25 $ 1.17 $ 1.25
Weighted average number of shares............... 12,512 11,420 10,643
</TABLE>
The accompanying notes are an integral part of these financial statements.
13
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Additional Unamortized
Number Of Common Paid In Accumulated Restricted
Shares Stock Capital Deficit Stock Total
---------- ------ ---------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1994................... 10,621,975 $106 $117,900 $ (1,360) $(3,512) $113,134
Amortization of
restricted stock...... -- -- -- -- 943 943
Reduction for minority
interest.............. -- -- (2,558) -- -- (2,558)
Distributions paid
($1.59 per share)..... -- -- (3,614) (13,286) -- (16,900)
Allocation for minority
interest in the
Operating Partnership. -- -- 2,393 -- -- 2,393
Net income............. -- -- -- 13,286 -- 13,286
---------- ---- -------- -------- ------- --------
Balance at December 31,
1995................... 10,621,975 106 114,121 (1,360) (2,569) 110,298
Amortization of
restricted stock...... -- -- -- -- 1,089 1,089
Issuance of stock for
acquisitions.......... 1,577,820 16 40,771 -- -- 40,787
Issuance of restricted
stock................. 82,000 1 1,878 -- (1,878) 1
Exercise of stock
options............... 21,925 -- 446 -- -- 446
Distributions paid
($1.65 per share)..... -- -- (4,840) (13,412) -- (18,252)
Allocation for minority
interest in the
Operating Partnership. -- -- (10,111) -- -- (10,111)
Net income............. -- -- -- 13,412 -- 13,412
---------- ---- -------- -------- ------- --------
Balance at December 31,
1996................... 12,303,720 123 142,265 (1,360) (3,358) 137,670
Amortization of
restricted stock...... -- -- -- -- 1,532 1,532
Issuance of restricted
stock................. 52,000 -- 1,840 -- (1,840) --
Forfeiture of
restricted stock...... (20,000) -- (570) -- 570 --
Exercise of stock
options............... 72,475 1 1,438 -- -- 1,439
Distributions paid
($1.69 per share)..... -- -- (5,332) (15,579) -- (20,911)
Allocation for minority
interest in the
Operating Partnership. -- -- (419) -- -- (419)
Net income............. -- -- -- 15,579 -- 15,579
---------- ---- -------- -------- ------- --------
Balance at December 31,
1997................... 12,408,195 $124 $139,222 $ (1,360) $(3,096) $134,890
========== ==== ======== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
14
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Year Ended December
31,
------------------------------
1997 1996 1995
-------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................... $ 15,579 $ 13,412 $ 13,286
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization.............. 24,758 19,124 14,027
Amortization of restricted stock........... 1,532 1,089 943
Minority interest in earnings.............. 12,003 10,852 11,366
Distributions from joint venture, net of
equity in income.......................... 124 -- --
Gain on insurance proceeds................. (2,231) -- --
Gain on sale of properties................. (158) (1,199) (1,893)
Other adjustments.......................... 71 5 (101)
Changes in assets and liabilities:
Other assets............................... 1,863 (591) 122
Accounts payable and other liabilities..... 2,480 866 (478)
Due from/to affiliate...................... (445) 659 (889)
-------- --------- ---------
Net cash provided by operating
activities.............................. 55,576 44,217 36,383
-------- --------- ---------
Cash flows from investing activities:
Purchase of held-to-maturity securities...... -- -- (402,910)
Proceeds from sale of held-to-maturity secu-
rities...................................... -- -- 412,870
Purchase of available-for-sale securities.... (7,623) (5,644) (22,620)
Proceeds from sale of available-for-sale se-
curities.................................... 6,694 6,167 21,811
Proceeds from mortgage notes receivable...... 732 25,472 --
Purchase of property and related assets...... (89,487) (90,368) (85,165)
Purchase of property and related assets from
affiliates.................................. -- (4,937) --
Investment in joint venture.................. (8,128) -- --
Proceeds from sale of properties and related
assets...................................... 3,404 829 --
Payments for covenants not to compete........ -- -- (5)
-------- --------- ---------
Net cash used by investing activities.... (94,408) (68,481) (76,019)
-------- --------- ---------
Cash flows from financing activities:
Principal payments on notes payable.......... (83,300) (111,952) (14,159)
Proceeds from notes payable.................. 147,150 173,299 88,500
Loan costs................................... (106) (530) (940)
Repurchase of OP Units....................... -- (116) --
Proceeds from stock options exercised........ 1,439 446 --
Cash distributions........................... (20,911) (18,252) (16,902)
Limited partners' cash distributions......... (14,966) (14,496) (13,860)
-------- --------- ---------
Net cash provided by financing
activities.............................. 29,306 28,399 42,639
-------- --------- ---------
Net increase (decrease) in cash and cash
equivalents................................... (9,526) 4,135 3,003
Cash and cash equivalents at beginning of
period........................................ 11,224 7,089 4,086
-------- --------- ---------
Cash and cash equivalents at end of period..... $ 1,698 $ 11,224 $ 7,089
======== ========= =========
Supplemental cash flow information:
Interest paid................................ $ 18,729 $ 13,646 $ 8,503
Taxes paid................................... 261 265 386
</TABLE>
The accompanying notes are an integral part of these financial statements.
15
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a) Organization
National Golf Properties, Inc. (the "Company") commenced operations
effective with the completion of its initial public stock offering (the
"Offering") of common stock (the "Common Stock"), on August 18, 1993. The
Company acquires and owns golf courses located throughout the United States.
At December 31, 1997, the Company leased all but five of its golf courses to
American Golf Corporation ("AGC") pursuant to long-term triple net leases (the
"Leases"). David G. Price, the Chairman of the Board of Directors of the
Company, owns approximately 5.4% of the Company's outstanding Common Stock and
approximately 38.4% of National Golf Operating Partnership, L.P. (the
"Operating Partnership") and a controlling interest in AGC. The Company owns
substantially all of the golf courses through its 58.4% general partner
interest in 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. 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 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"). Their interest in the Initial
Golf Courses were carried over to the Operating Partnership on a historical
cost basis similar to pooling of interest accounting and became part of the
beginning balance of minority interest. Minority interest is adjusted for the
OP Limited Partners' proportionate share of net income of the Company and any
additional contributions or distributions to the OP Limited Partners.
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. 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.
In order for the Company to maintain its qualification as a REIT, not more
than 50% in value of its Common Stock may be owned, directly or
constructively, by five or fewer individuals. For the purpose of preserving
the Company's REIT qualification, the Certificate of Incorporation prohibits
direct or constructive ownership of more than 9.8% of the Common Stock by any
person. Thus, although an OP Unit is convertible into a share of Common Stock,
the conversion of the majority of the OP Units owned by David G. Price is
restricted by the Company and the ownership limitations in order to preserve
its REIT status.
The accompanying consolidated balance sheets and statements of stockholders'
equity have been restated to reflect an accounting allocation for reporting
purposes from additional paid in capital to minority interest for the OP
Limited Partners' interest in the net assets of the Company after giving
effect to their exchange rights of OP Units into the Company's Common Stock.
While the OP Limited Partners have not indicated such a desire to convert
their OP Units, generally accepted accounting principles require the reporting
of such exchange rights "as if converted." This reallocation had no effect on
earnings per share or results of operations or allocations of net income to
the general partner and OP Limited Partners of the Operating Partnership. The
reallocation at December 31, 1997, 1996 and 1995 was approximately $78.1
million, $77.7 million, and $67.6 million, respectively.
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.
16
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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.
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 with unrealized gains
and losses excluded from earnings and reported as a separate component of
stockholders' equity. Cost of investments sold is determined on the average
cost method.
d) Concentration of Credit Risk
Concentration of credit risk with respect to the Company's portfolio of 123
golf courses is limited due to the golf courses being geographically
diversified and located in 26 states. The distribution of the golf courses
reflects the Company's belief that geographic diversification helps insulate
the portfolio from regional economic and climatic influences. As of December
31, 1997, 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 institution.
At December 31, 1997 and 1996, 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. The Company determines whether there has been permanent impairment by
comparing the expected undiscounted future cash flows from each golf course
with the net carrying value for such golf course, including any related
intangible asset. 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.
17
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
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 stockholders and complies with other
requirements. The Company paid distributions to stockholders of $1.69 per
share in 1997, of which $1.49 represents ordinary income, $0.05 represents
capital gains (20% tax rate) and $0.15 represents return of capital on a tax
basis. On a book basis, calculated using basic earnings per share, $0.43 per
share represents return of capital. In addition, on January 9, 1998, the
Company declared a quarterly distribution for the fourth quarter of 1997 of
$0.43 per share to stockholders of record on January 30, 1998, which will be
paid on February 13, 1998. The Company may be subject to federal alternative
minimum tax in 1997. The Company is also subject to state income and franchise
taxes in certain states in which it 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) 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. The Company determines
whether there has been permanent impairment by comparing the expected
undiscounted future cash flows from each golf course with the net carrying
value for such golf course, including any related intangible asset. Management
believes no permanent impairment in the carrying value of its intangible
assets has occurred. Accumulated amortization at December 31, 1997 and 1996,
was approximately $4,318,000 and $4,310,000, respectively.
i) 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.
j) Fair Value of Financial Instruments
To meet the reporting requirements of Statement of Financial Accounting
Standards ("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.
18
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(Continued)
j) Fair Value of Financial Investments--(Continued)
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.
k) Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 128, "Earnings Per Share." SFAS No. 128 supersedes and simplifies the
existing computational guidelines under Accounting Principles Board ("APB")
Opinion No. 15, "Earnings Per Share." It is effective for financial statements
issued for periods ending after December 15, 1997. Among other changes, SFAS
No. 128 eliminates the presentation of primary earnings per share and replaces
it with basic earnings per share for which common stock equivalents are not
considered in the computation. It also revises the computation of diluted
earnings per share. The Company has adopted SFAS No. 128 and there is no
material impact to the Company's earnings per share, financial condition, or
results of operations. The Company's earnings per share have been restated for
all periods presented to be consistent with SFAS No. 128.
The computation of diluted earnings per share is based on the weighted
average number of outstanding common shares during the period and the
incremental shares, using the treasury stock method, from stock options. The
incremental shares for the years ended December 31, 1997, 1996 and 1995 were
143,697, 103,365 and 20,816, respectively.
l) Accounting for Stock-Based Compensation
The Company measures compensation cost for their plans using the accounting
principles prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." The pro forma disclosures of net income, basic earnings per share
and diluted earnings per share as if the fair value based method of accounting
defined in SFAS No. 123, "Accounting for Stock-Based Compensation" had been
applied, have been disclosed.
m) Year 2000
There is no material impact anticipated to the Company's earnings per share,
financial condition, or results of operations due to upgrading the Company's
computer systems for the year 2000.
19
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(2) PROPERTY ACQUISITIONS AND SALES
In 1997, the Company purchased nine golf courses for an aggregate initial
investment of approximately $79.2 million. 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. The aforementioned
golf courses, except for Spanish Hills, are leased to AGC pursuant to long-
term triple net leases. Spanish Hills is leased to Camarillo Golf, LLC
pursuant to a long-term triple net lease. Camarillo Golf, LLC subleases
Spanish Hills to AGC.
<TABLE>
<CAPTION>
Acquisition Initial
Date Course Name Location Investment
----------- ----------- -------- --------------
(in thousands)
--------------
<C> <C> <S> <C>
1/2/97 Stonecreek Golf Course Phoenix, Arizona $ 9,447
1/10/97 Tamarack Golf Club Naperville, Illinois 5,393
4/10/97 Baymeadows Golf Club Jacksonville, Florida 4,563
5/1/97 The Golf Club at Bradshaw Farm Woodstock, Georgia 6,603
7/31/97 Longwood Golf Club Houston, Texas 9,706
8/12/97 Eagle Brook Country Club Geneva, Illinois 10,440
10/10/97 Gettysvue Polo, Golf & Country Club Knoxville, Tennessee 6,303
10/17/97 Oakhurst Country Club Clayton, California 9,665
10/24/97 Spanish Hills Country Club Camarillo, California 17,051
-------
Total Initial Investment................................ $79,171
=======
</TABLE>
On May 23, 1997, the Company sold Stonebridge Country Club in New Orleans,
Louisiana for cash of approximately $1.1 million. The Company recognized a
gain of approximately $156,000.
On September 12, 1997, the Company sold Skyline Woods Country Club in
Elkhorn, Nebraska for cash of $2.5 million. The Company recognized a gain of
$2,000.
The Company recognized a gain on insurance proceeds of approximately
$2,231,000 due to a fire completely destroying a clubhouse at one of the Golf
Courses. The Company is applying the insurance proceeds to rebuild the
clubhouse.
(3) INVESTMENTS
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
------------- -----------
Cost Market Cost Market Maturity
------ ------ ---- ------ --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Available-for-sale securities:
Commercial Paper.............. $ -- $ -- $ 86 $ 86 1/1997
Corporate Note................ -- -- 200 200 3/1997
Commercial Paper.............. 107 107 -- -- 1/1998
Corporate Note................ 200 200 -- -- 1/1998
U.S. Government and Agency
Obligation................... 908 908 -- -- 1/1998
------ ------ ---- ----
Total....................... $1,215 $1,215 $286 $286
====== ====== ==== ====
</TABLE>
In 1997 and 1996, available-for-sale securities were sold resulting in
proceeds of $6,694,000 and $6,167,000, respectively. There were no gross
realized gains or losses in 1997 and 1996.
20
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(4) MORTGAGE NOTES RECEIVABLE
The Company had 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 at the time the Participating Mortgage Loans were
made) that owned the Option Golf Courses and were collateralized by first
mortgage liens on such Option Golf Courses. Interest was payable monthly and
the interest rate for 1996 was 9.28%. During 1996, the Participating Mortgage
Loans were paid off and the Company exercised the options on the Option Golf
Courses.
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 and a maturity date of March 2000 (the
"Hidden Hills Mortgage"). Interest income from the Hidden Hills Mortgage for
the years ended December 31, 1997, 1996 and 1995 was $242,000, $242,000 and
approximately $194,000, respectively.
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 and a maturity date of January
1999 (the "Wootton Bassett Mortgage"). Interest income from the Wootton
Bassett Mortgage for the years ended December 31, 1997 and 1996 was
approximately $8,000 and $47,000, respectively. In April 1997, the Wootton
Bassett Mortgage was paid in full.
The market value of mortgage notes receivable at December 31, 1997 and 1996
is estimated to be approximately $2,409,000 and $3,200,000, respectively,
based on current interest rates for comparable loans.
(5) INVESTMENT IN JOINT VENTURE
On September 8, 1997, the Operating Partnership acquired a 50% general
partner interest in Pumpkin Ridge Joint Venture ("Pumpkin Ridge") for
approximately $8.1 million. Pumpkin Ridge owns two golf courses in Cornelius,
Oregon. The Company accounts for its investment in Pumpkin Ridge under the
equity method of accounting. The aforementioned golf courses are leased to AGC
pursuant to a long-term triple net lease.
21
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------
Interest Interest
Type of Collateral Rate Payment 1997 1996 Maturity
------------------ -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Uncollateralized note..... 7.43% Monthly $ -- $ 5,500 1/1997
Uncollateralized note..... 7.64% Monthly -- 6,240 1/1997
Uncollateralized note..... 7.73% Monthly -- 3,850 1/1997
Uncollateralized note..... 8.25% Monthly -- 9,300 1/1997
Collateralized note....... -- 50 5/1997
Uncollateralized note..... 6.88% Monthly 17,000 -- 1/1998
Uncollateralized note..... 6.92% Monthly 5,000 -- 1/1998
Uncollateralized note..... 6.95% Monthly 33,000 -- 1/1998
Uncollateralized note..... 7.01% Monthly 5,500 -- 1/1998
Uncollateralized note..... 7.12% Monthly 9,500 -- 1/1998
Uncollateralized note..... 7.13% Monthly 10,000 -- 1/1998
Uncollateralized note..... 8.50% Quarterly 7,000 -- 1/1998
Uncollateralized note..... 6.88% 4,000 -- 2/1998
Collateralized note....... 5.50% Quarterly 4,500 4,500 2/1999
Collateralized note....... 1,447 -- 8/2000
Collateralized note....... 5.50% Quarterly 646 809 5/2001
Collateralized note....... 6.60% Quarterly 20,000 20,000 7/2001
Collateralized note....... 3,587 -- 10/2004
Uncollateralized notes.... 8.68% Semi-annually 48,705 50,000 12/2004
Uncollateralized notes.... 8.73% Semi-annually 49,369 50,000 6/2005
Uncollateralized notes.... 7.90% Semi-annually 40,000 40,000 6/2006
Uncollateralized note..... 2,779 2,579 7/2006
Uncollateralized notes.... 8.00% Semi-annually 35,000 35,000 12/2006
Uncollateralized note..... 8.00% Quarterly 1,999 2,121 1/2008
-------- --------
$299,032 $229,949
======== ========
</TABLE>
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>
1998...................................................... $ 3,059
1999...................................................... 9,918
2000...................................................... 8,486
2001...................................................... 26,013
2002...................................................... 98,145
Thereafter................................................ 153,411
--------
$299,032
========
</TABLE>
The note agreements contain, among other things, covenants restricting the
sale of property and certain financial ratios and reporting requirements.
22
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) NOTES PAYABLE--(Continued)
The Company currently has a $100 million credit facility with a group of
four commercial banks, which terminates in April 2002. The Company has two
interest rate options under the credit facility depending upon the length of
time the advances are outstanding. For advances which will be outstanding for
less than a month, the advances bear interest at prime. At December 31, 1997,
such rate was 8.5%. For advances which will be outstanding for one month or
more, the advances bear maximum interest at a floating rate equal to LIBOR
plus a spread of 1.125%. The spread will be reduced upon the Company's receipt
of specified credit ratings. There were outstanding advances of $91 million
under this credit facility as of December 31, 1997. The Company intends to
roll over the advances due in 1998 to a future period.
In connection with the purchase of Eagle Brook Country Club, the Company
entered into a three year collateralized note for $1.5 million with the seller
of the property. During the first year of the note, no interest shall be paid
or accrued on the outstanding principal balance. Thereafter, interest shall
accrue on the outstanding principal balance at the rate of 6% per annum. The
interest rate used to discount the note is 6%. The discount is being amortized
over the first year of the note using the effective interest method. The
discounted note balance at December 31, 1997 was approximately $1,447,000. The
unamortized discount balance at December 31, 1997 was approximately $53,000.
In connection with the purchase of Gettysvue Polo, Golf & Country Club, the
Company entered into a seven-year, interest bearing, collateralized note for
$3,750,000 with the seller of the property. During the first year of the note,
no interest shall be paid or accrued on the outstanding principal balance. For
years two through four, the interest rate is 6% per annum. For years five
through seven, the interest rate is 8% per annum. The interest rate used to
discount the note is 6%. The discount is being amortized over the first year
of the note using the effective interest method. The discounted note balance
at December 31, 1997 was approximately $3,587,000. The unamortized discount
balance at December 31, 1997 was approximately $163,000.
In 1996, the Operating Partnership placed $75 million of fixed-rate,
uncollateralized notes due 2006 with a group of institutional investors. The
notes were issued in two series. The first note series in the amount of
$40 million was issued in July 1996 with a fixed interest rate of 7.9%, and
the second note series in the amount of $35 million was issued in December
1996 with a fixed interest rate of 8%. The Operating Partnership applied the
net proceeds from the $75 million notes to repay bank debt and to partially
finance the acquisition of two golf courses.
In 1994, 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.
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, 1997 was approximately $2,779,000. The unamortized discount balance at
December 31, 1997 was approximately $1,221,000.
An OP Limited Partner, who owns or controls 75,003 OP Units, is the holder
of a promissory note for approximately $2 million that the Company assumed at
the time of the Offering in connection with the
23
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) NOTES PAYABLE--(Continued)
Company's acquisition of four golf courses from a corporation that previously
had been 50% owned by such OP Limited Partner. The interest rate is 8% per
annum with a maturity date in January 2008. The Company made interest payments
in 1997 and 1996 of approximately $166,000 and $175,000, respectively.
The market value of notes payable at December 31, 1997 and 1996 is estimated
to be approximately $310,830,000 and $235,095,000, respectively, based on
current interest rates for comparable loans. The net book value at December
31, 1997 of the assets collateralizing the notes payable is $59.7 million.
(7) COMMITMENTS AND CONTINGENCIES
The Company is required under the Leases to pay for various remaining
capital improvements totaling approximately $10.2 million, which will be paid
during the next two years. Any subsequent capital improvements to these golf
courses are the responsibility of the Lessees. However, during 1997, AGC
requested that the Company provide additional funding of approximately $16.4
million in capital improvements intended to add value to the properties and
reposition the facilities for enhanced revenue growth. The Independent
Committee of the Company's Board of Directors approved such additional
funding. The $16.4 million will be paid during the next two years.
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,
1997, there was a net book value of approximately $2,954,000 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, 1997,
1996 and 1995, the ground lease expense was approximately $413,000, $351,000,
and $369,000, 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.
(8) 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>
1998........................................................ $ 74,690
1999........................................................ 74,690
2000........................................................ 74,690
2001........................................................ 74,690
2002........................................................ 74,690
Thereafter.................................................. 649,992
----------
$1,023,442
==========
</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 is 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 is
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
24
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) LEASE RENTAL AGREEMENTS--(Continued)
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 is 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,
1997, 1996 and 1995 was approximately $5,920,000, $4,289,000, and $3,731,000,
respectively.
(9) STOCK OPTIONS AND AWARDS
The Company has established the 1993 Stock Incentive Plan (the "1993 Plan")
and the 1997 Equity Participation Plan (the "1997 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 1993 Plan and
1997 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 on a straight-line basis
over the five year vesting period. Such expense amounted to approximately
$1,532,000, $1,089,000, and $943,000, for the years ended December 31, 1997,
1996, and 1995, respectively.
Stock options vest at 25% per year over four years and are exercisable at
the market value on the date of grant. The options' maximum term is ten years.
The following table summarizes the restricted stock and stock option
transactions pursuant to the 1993 Plan for the years ended December 31, 1997,
1996 and 1995:
<TABLE>
<CAPTION>
Number of Number of Weighted Average
Shares-- Shares-- Option Exercise
Restricted Stock Options Price
---------------- --------- ----------------
<S> <C> <C> <C>
Outstanding at December 31,
1994......................... 189,500 518,400 $20.32
Vested...................... (46,500) -- --
Cancelled................... -- (17,300) 20.38
------- ------- ------
Outstanding at December 31,
1995......................... 143,000 501,100 $20.32
Granted..................... 70,000 40,000 25.88
Vested...................... (46,500) -- --
Cancelled................... -- (34,075) 21.70
Exercised................... -- (21,925) 20.38
------- ------- ------
Outstanding at December 31,
1996......................... 166,500 485,100 $20.68
Granted..................... 50,000 -- --
Vested...................... (56,500) -- --
Forfeited................... (20,000) (20,000) 25.88
Cancelled................... -- -- --
Exercised................... -- (72,475) 19.86
------- ------- ------
Outstanding at December 31,
1997......................... 140,000 392,625 $20.57
======= ======= ======
</TABLE>
25
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) STOCK OPTIONS AND AWARDS--(Continued)
<TABLE>
<CAPTION>
Weighted Average
Number of Option Exercise
Shares Price
--------- ----------------
<S> <C> <C>
Options exercisable at:
December 31, 1997............................... 371,375 $20.44
December 31, 1996............................... 327,575 $20.23
December 31, 1995............................... 236,800 $20.30
</TABLE>
The range of exercise prices for the options outstanding at December 31,
1997 is $18.50 through $25.875 with a weighted average remaining contractual
life of 5.9 years. The range of exercise prices for options exercisable at
December 31, 1997 is $18.50 through $25.875 with a weighted average remaining
contractual life of 5.7 years.
As of December 31, 1997, a total of 780,475 additional shares remain
unissued under the 1993 Plan. There were 1,600,000 shares originally reserved
for issuance under the 1993 Plan. When the 1997 Plan was established, the 1993
Plan was terminated regarding future grants of restricted stock and stock
options.
The following table summarizes the stock option transactions pursuant to the
1997 Plan for the year ended December 31, 1997:
<TABLE>
<CAPTION>
Number of Weighted
Shares Average Option
Options Exercise Price
--------- --------------
<S> <C> <C>
Granted............................................. 22,500 $30.06
------ ------
Outstanding at December 31, 1997.................... 22,500 $30.06
====== ======
</TABLE>
The exercise price for the options outstanding at December 31, 1997 is
$30.06 with a remaining contractual life of 9.8 years.
As of December 31, 1997, a total of 777,500 additional shares remain
reserved for issuance under the 1997 Plan. There were 800,000 shares
originally reserved for issuance under the 1997 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. The shares of restricted stock will be
sold at a purchase price equal to $.01 and will vest at the earlier of (i) the
fifth anniversary of the date of grant or (ii) the directors' normal
retirement at or after age 65. Restricted stock has the same dividend and
voting rights as other common stock and is considered to be currently issued
and outstanding. Stock options vest on the first anniversary of the date on
which the option was granted and are exercisable at the market value on the
date of grant. The options' maximum term is ten years. The following table
summarizes the restricted stock and stock option transactions pursuant to the
Company's 1995 Independent Director Equity Participation Plan for the years
ended December 31, 1997 and 1996:
<TABLE>
<CAPTION>
Number of Number of Weighted
Shares-- Shares-- Average Option
Restricted Stock Options Exercise Price
---------------- --------- --------------
<S> <C> <C> <C>
Granted........................ 12,000 24,000 $23.42
------ ------ ------
Outstanding at December 31,
1996.......................... 12,000 24,000 $23.42
Granted........................ 2,000 8,000 31.50
------ ------ ------
Outstanding at December 31,
1997.......................... 14,000 32,000 $25.44
====== ====== ======
</TABLE>
26
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) STOCK OPTIONS AND AWARDS--(Continued)
<TABLE>
<CAPTION>
Weighted
Number of Average Option
Shares Exercise Price
--------- --------------
<S> <C> <C>
Options exercisable at:
December 31, 1997............................... 24,000 $23.42
December 31, 1996............................... 16,000 $20.94
</TABLE>
The range of exercise prices for the options outstanding at December 31,
1997 is $19.75 through $31.50 with a weighted average remaining contractual
life of 8.5 years. The range of exercise prices for options exercisable at
December 31, 1997 is $19.75 through $28.375 with a weighted average remaining
contractual life of 8 years.
As of December 31, 1997, a total of 102,000 shares remain reserved for
issuance under the 1995 Independent Director Equity Participation Plan. There
were 148,000 shares originally reserved for issuance under the 1995
Independent Director Equity Participation Plan.
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation" and will continue to use the
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees." Accordingly, no compensation cost
has been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in 1997 and 1996 consistent with the provisions of SFAS
No. 123, the Company's net income, basic earnings per share and diluted
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-------------------
1997 1996
--------- ---------
(in thousands,
except per share)
<S> <C> <C>
Net income, as reported............................... $ 15,579 $ 13,412
Net income, pro forma................................. $ 15,501 $ 13,387
Basic earnings per share, as reported................. $ 1.26 $ 1.19
Basic earnings per share, pro forma................... $ 1.25 $ 1.18
Diluted earnings per share, as reported............... $ 1.25 $ 1.17
Diluted earnings per share, pro forma................. $ 1.24 $ 1.17
</TABLE>
The weighted average fair value of options granted during 1997 and 1996 are
$7.10 and $6.23, respectively. The fair value of each option grant issued in
1997 and 1996 is estimated at the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions: (a)
dividend yield of 1.6% in 1997 and 1.3% in 1996, (b) expected volatility of
the Company's stock of 21.5% in 1997 and 19.6% in 1996, (c) a risk free
interest rate based on U.S. Zero Coupon Bonds with time of maturity
approximately equal to the options' expected time to exercise and (d) expected
option lives of four years for options granted in 1997 and 1996.
(10) 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
27
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) 401(K) PLAN--(Continued)
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, 1997, 1996 and 1995 the Company's
contributions to the 401(k) Plan were approximately $21,000, $14,000, and
$13,000, respectively.
(11) DEFERRED COMPENSATION PLAN
During 1997, the Company established a non-qualified deferred compensation
plan under which key executives of the Company may elect to defer receiving up
to 100% of their compensation in any one year until a later year. The
participants' contributions to the deferred compensation plan were invested in
the Company's Common Stock or additional investment options. The assets and
income from the deferred compensation trust are recorded on the Company's
books.
(12) RELATED PARTY TRANSACTIONS
The Company 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. The Company 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 the Company its
desired rate of return on its capital investment. Such evaluation is integral
to the Company's determination of the price it is willing to pay for a
particular course. The Company's acquisition of a course is recorded in the
Company'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 the Company, the Company'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 the Company as the terms would have been if the Company
leased its golf courses to unaffiliated operators and, if the Company could
have obtained more favorable terms, that the Company's financial statements
understate the returns that the Company 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 the Company than the terms and
conditions that the Company could obtain if it leased its golf courses to
operators other than AGC.
(13) STATEMENT OF CASH FLOWS--SUPPLEMENTAL DISCLOSURES
Non-cash transactions for the year ended December 31, 1997 include
approximately $5 million of golf course acquisitions which were financed by
notes payable.
Non-cash transactions for the year ended December 31, 1996 include (i)
approximately $40.8 million of golf course acquisitions which were financed by
the issuance of 1,577,820 shares of Common Stock; (ii) the assumption of
approximately $25.2 million of debt; (iii) approximately $1.3 million in
capital improvements accrued but not paid; (iv) approximately $1.5 million of
golf course acquisitions which were financed by the issuance of 61,339 OP
Units; and (v) approximately $900,000 in seller financing related to the sale
of Wootton Bassett Golf Club by the Company.
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.
28
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(14) OTHER DATA
AGC is the lessee of all but five of the golf courses 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. 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.
The following table sets forth certain condensed financial information
concerning AGC.
<TABLE>
<CAPTION>
December 31,
--------------------
1997 1996
--------- ---------
(in Thousands)
<S> <C> <C>
Current assets........................................ $ 79,692 $ 57,511
Non-current assets.................................... 147,423 131,654
--------- ---------
Total assets.......................................... $227,115 $189,165
--------- ---------
Total current liabilities............................. $ 70,411 $ 59,750
Total long-term liabilities........................... 128,197 93,599
Minority interest..................................... 501 466
Total shareholders' equity............................ 28,006 35,350
--------- ---------
Total liabilities and shareholders' equity............ $227,115 $189,165
========= =========
</TABLE>
<TABLE>
<CAPTION>
For The Year Ended
December 31,
--------------------------
1997 1996 1995
-------- -------- --------
(in Thousands)
<S> <C> <C> <C>
Total revenues.................................... $517,131 $427,743 $352,335
Net income........................................ $ 12,323 $ 4,343 $ 4,168
</TABLE>
(15) QUARTERLY FINANCIAL INFORMATION (Unaudited)
Summarized quarterly financial data for the years ended December 31, 1997
and 1996 is as follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Fiscal 1997
Revenues.......................... $17,449 $18,731 $19,335 $19,078
Operating income.................. $10,317 $11,479 $11,494 $11,209
Net income........................ $ 3,278 $ 4,087 $ 3,752 $ 4,462
Basic earnings per share.......... $ 0.27 $ 0.33 $ 0.30 $ 0.36
Diluted earnings per share........ $ 0.26 $ 0.33 $ 0.30 $ 0.36
</TABLE>
29
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(15) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)--(Continued)
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
<S> <C> <C> <C> <C>
Fiscal 1996
Revenues.......................... $13,114 $13,844 $16,034 $17,105
Operating income.................. $ 7,767 $ 8,279 $ 9,818 $10,375
Net income........................ $ 3,034 $ 3,339 $ 3,401 $ 3,638
Basic earnings per share.......... $ 0.29 $ 0.31 $ 0.29 $ 0.30
Diluted earnings per share........ $ 0.28 $ 0.31 $ 0.29 $ 0.29
</TABLE>
(16) PRO FORMA FINANCIAL INFORMATION (Unaudited)
The pro forma financial information set forth below is presented as if the
1997 acquisitions (Note 2) had been consummated as of January 1, 1996.
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, 1996, nor does it purport
to represent the results of operations for future periods (in thousands,
except per share amounts).
<TABLE>
<CAPTION>
For The Year Ended
December 31,
-------------------
1997 1996
--------- ---------
<S> <C> <C>
Revenues from rental property......................... $ 78,124 $ 66,288
Net income............................................ $ 15,142 $ 12,271
Basic earnings per share.............................. $ 1.22 $ 1.08
Diluted earnings per share............................ $ 1.21 $ 1.07
</TABLE>
The pro forma financial information includes the following adjustments: (i)
an increase in depreciation and amortization expense; (ii) an increase in
interest expense; and (iii) a decrease in income applicable to minority
interest.
(17) SUBSEQUENT EVENTS (Unaudited)
On January 9, 1998, the Company declared a quarterly distribution for the
fourth quarter of 1997 of $0.43 per share to stockholders of record on January
30, 1998, which will be paid on February 13, 1998.
30
<PAGE>
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
1.Financial Statements
Report of Independent Accountants............................... 11
Consolidated Balance Sheets of National Golf Properties, Inc. as
of December 31, 1997 and 1996.................................. 12
Consolidated Statements of Operations of National Golf
Properties, Inc. for the years ended December 31, 1997, 1996
and 1995....................................................... 13
Consolidated Statements of Stockholders' Equity of National Golf
Properties, Inc. for the years ended December 31, 1997, 1996
and 1995....................................................... 14
Consolidated Statements of Cash Flows of National Golf
Properties, Inc. for the years ended December 31, 1997, 1996
and 1995....................................................... 15
Notes to Consolidated Financial Statements...................... 16
2.Financial Statement Schedules
Schedule III--Real Estate and Accumulated Depreciation.......... 32
</TABLE>
(a)
31
<PAGE>
SCHEDULE III
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
(In thousands)
December 31, 1997
<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>
DAILY FEE
COURSES:
Continental,
Scottsdale,
AZ............. $ -- $ 64 $ 881 $ 12 $ 66 $ 891 $ 957 $ 505 1974
Desert Lakes,
Fort Mojave,
AZ............. -- 163 3,102 53 163 3,155 3,318 613 1990
El Caro,
Phoenix, AZ.... -- 61 553 13 63 564 627 545 1975
Kokopelli,
Gilbert, AZ.... -- 1,177 4,261 170 1,177 4,431 5,608 957 1993
Villa De Paz,
Phoenix, AZ.... -- 186 397 18 188 413 601 363 1974
Camarillo
Springs,
Camarillo, CA.. -- 141 2,880 710 143 3,588 3,731 1,746 1972
Carmel Mountain,
San Diego, CA.. -- 1,669 5,865 -- 1,669 5,865 7,534 745 1986
Lomas Santa Fe
Exec.,
Solana Beach,
CA............. -- 175 575 20 177 593 770 539 1974
Mesquite, Palm
Springs, CA.... -- 1,057 5,140 225 1,061 5,361 6,422 989 1985
Oakhurst,
Clayton, CA.... -- 1,596 8,069 1,596 8,069 9,665 97 1997
Rancho San
Joaquin,
Irvine, CA..... -- 871 8,375 411 873 8,784 9,657 2,853 1962
San Geronimo,
San Geronimo, CA.. -- 846 5,426 203 846 5,629 6,475 307 1964
Summitpointe,
Milpitas, CA... 4,500 2,315 4,813 447 2,315 5,260 7,575 1,075 1977
Upland Hills,
Upland, CA..... -- 1,835 6,312 148 1,835 6,460 8,295 735 1982
Vista Valencia,
Valencia, CA... -- 652 5,369 40 657 5,404 6,061 2,823 1963
Eagle,
Broomfield,
CO............. -- 400 2,425 20 402 2,443 2,845 1,460 1961
Arrowhead,
Davie, FL...... -- 601 2,190 20 604 2,207 2,811 719 1967
Baymeadows,
Jacksonville,
FL............. -- 226 4,337 230 226 4,567 4,793 181 1968
Binks Forest,
Wellington,
FL............. -- 224 4,591 145 224 4,736 4,960 830 1991
Sabal Palm,
Tamarac, FL.... -- 441 3,357 20 443 3,375 3,818 1,668 1967
Summerfield
Crossing,
Tampa, FL...... -- 105 2,508 104 105 2,612 2,717 188 1987
Bradshaw Farm,
Woodstock, GA.. -- 238 6,365 111 238 6,476 6,714 172 1995
Goshen
Plantation,
Augusta, GA.... -- 195 3,042 256 195 3,298 3,493 517 1971
River's Edge,
Fayetteville,
GA............. -- 250 4,069 154 143 4,330 4,473 683 1989
Ruffled
Feathers,
Lemont, IL..... -- 293 9,316 (18) 293 9,298 9,591 1,075 1992
Tamarack,
Naperville,
IL............. -- 326 5,067 123 326 5,190 5,516 277 1989
Sugar Ridge,
Lawrenceburg,
IN............. -- 168 2,602 466 168 3,068 3,236 516 1994
Deer Creek,
Overland Park,
KS............. -- 695 7,147 413 696 7,559 8,255 513 1989
Dub's Dread,
Kansas City,
KS............. -- 135 2,997 355 135 3,352 3,487 646 1963
WestWinds, New
Market, MD..... -- 153 3,614 547 153 4,161 4,314 242 1971
Links at
Northfork,
Ramsey, MN..... -- 280 3,770 75 280 3,845 4,125 676 1992
Royal Meadows,
Kansas City, MO.. -- 176 1,822 40 181 1,857 2,038 1,104 1933
Rancocas,
Willingboro,
NJ............. -- 239 1,816 1,206 241 3,020 3,261 1,043 1963
Paradise Hills,
Albuquerque, NM.. -- 350 5,181 34 363 5,202 5,565 459 1963
Pawtuckett,
Charlotte, NC.. -- 63 1,563 15 63 1,578 1,641 113 1971
<CAPTION>
Date
Description Acquired
----------- --------
<S> <C>
DAILY FEE
COURSES:
Continental,
Scottsdale,
AZ............. 1986
Desert Lakes,
Fort Mojave,
AZ............. 1993
El Caro,
Phoenix, AZ.... 1983
Kokopelli,
Gilbert, AZ.... 1994
Villa De Paz,
Phoenix, AZ.... 1981
Camarillo
Springs,
Camarillo, CA.. 1984
Carmel Mountain,
San Diego, CA.. 1995
Lomas Santa Fe
Exec.,
Solana Beach,
CA............. 1982
Mesquite, Palm
Springs, CA.... 1993
Oakhurst,
Clayton, CA.... 1997
Rancho San
Joaquin,
Irvine, CA..... 1992
San Geronimo,
San Geronimo, CA.. 1996
Summitpointe,
Milpitas, CA... 1994
Upland Hills,
Upland, CA..... 1995
Vista Valencia,
Valencia, CA... 1987
Eagle,
Broomfield,
CO............. 1988
Arrowhead,
Davie, FL...... 1993
Baymeadows,
Jacksonville,
FL............. 1997
Binks Forest,
Wellington,
FL............. 1994
Sabal Palm,
Tamarac, FL.... 1990
Summerfield
Crossing,
Tampa, FL...... 1996
Bradshaw Farm,
Woodstock, GA.. 1997
Goshen
Plantation,
Augusta, GA.... 1994
River's Edge,
Fayetteville,
GA............. 1994
Ruffled
Feathers,
Lemont, IL..... 1995
Tamarack,
Naperville,
IL............. 1997
Sugar Ridge,
Lawrenceburg,
IN............. 1994
Deer Creek,
Overland Park,
KS............. 1996
Dub's Dread,
Kansas City,
KS............. 1994
WestWinds, New
Market, MD..... 1996
Links at
Northfork,
Ramsey, MN..... 1994
Royal Meadows,
Kansas City, MO.. 1984
Rancocas,
Willingboro,
NJ............. 1989
Paradise Hills,
Albuquerque, NM.. 1996
Pawtuckett,
Charlotte, NC.. 1996
</TABLE>
32
<PAGE>
SCHEDULE III--(Continued)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
(In thousands)
December 31, 1997
<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>
Bent Tree,
Columbus, OH... $ -- $ 123 $ 4,207 $ 221 $ 123 $ 4,428 $ 4,551 $ 308 1988
Fowler's Mill,
Chesterland, OH.. -- 346 1,760 1,000 349 2,757 3,106 1,040 1972
Hershey South,
Hershey, PA.... -- 150 1,995 378 150 2,373 2,523 436 1927
Golden Oaks,
Fleetwood, PA.. -- 989 4,677 331 1,008 4,989 5,997 513 1994
Hickory Heights,
Bridgeville,
PA............. -- 87 2,027 1,018 82 3,050 3,132 371 1990
The Links,
Charleston,
SC............. -- 44 1,582 68 44 1,650 1,694 117 1989
Forrest
Crossing,
Nashville, TN.. -- 140 2,829 299 140 3,128 3,268 213 1988
Bear Creek,
Houston, TX.... -- -- 6,163 757 -- 6,920 6,920 3,966 1966
Lake Houston,
Huffman, TX.... -- 823 1,620 63 829 1,677 2,506 954 1975
Longwood,
Houston, TX.... -- 1,558 8,148 119 1,558 8,267 9,825 207 1995
Riverchase,
Coppell, TX.... -- 250 1,658 1,220 253 2,875 3,128 1,089 1987
Riverside, Grand
Prairie, TX.... -- 574 4,445 105 576 4,548 5,124 1,357 1986
Southwyck,
Pearland, TX... -- 672 3,492 275 673 3,766 4,439 771 1988
Chesapeake,
Chesapeake,
VA............. -- 321 3,490 606 321 4,096 4,417 310 1984
Honey Bee,
Virginia Beach,
VA............. -- 556 5,009 -- 556 5,009 5,565 793 1987
Reston National,
Reston, VA..... -- 996 4,584 20 999 4,601 5,600 1,176 1968
Capitol City,
Olympia, WA.... 646 437 2,572 163 437 2,735 3,172 483 1961
Lake Wilderness,
MapleValley, WA.. -- 110 1,665 332 110 1,997 2,107 359 1974
------ ------- -------- ------- ------- -------- -------- -------
$5,146 $26,542 $201,720 $13,761 $26,516 $215,507 $242,023 $42,437
====== ======= ======== ======= ======= ======== ======== =======
<CAPTION>
Date
Description Acquired
----------- --------
<S> <C>
Bent Tree,
Columbus, OH... 1996
Fowler's Mill,
Chesterland, OH.. 1986
Hershey South,
Hershey, PA.... 1994
Golden Oaks,
Fleetwood, PA.. 1996
Hickory Heights,
Bridgeville,
PA............. 1994
The Links,
Charleston,
SC............. 1996
Forrest
Crossing,
Nashville, TN.. 1996
Bear Creek,
Houston, TX.... 1985
Lake Houston,
Huffman, TX.... 1985
Longwood,
Houston, TX.... 1997
Riverchase,
Coppell, TX.... 1988
Riverside, Grand
Prairie, TX.... 1990
Southwyck,
Pearland, TX... 1993
Chesapeake,
Chesapeake,
VA............. 1996
Honey Bee,
Virginia Beach,
VA............. 1995
Reston National,
Reston, VA..... 1993
Capitol City,
Olympia, WA.... 1994
Lake Wilderness,
MapleValley, WA.. 1994
</TABLE>
33
<PAGE>
SCHEDULE III--(Continued)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
(In thousands)
December 31, 1997
<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>
PRIVATE COUNTRY
CLUBS:
Ancala,
Scottsdale,
AZ............. $ -- $ 207 $ 8,319 $ -- $ 207 $ 8,319 $ 8,526 $ 510 1990 1996
Arrowhead,
Glendale, AZ... -- 185 5,816 -- 185 5,816 6,001 369 1986 1996
Canyon Oaks,
Chico, CA...... -- 309 2,172 2,350 309 4,522 4,831 468 1987 1994
Escondido,
Escondido, CA.. -- 114 2,382 587 116 2,967 3,083 1,471 1962 1983
Monterey, Palm
Desert, CA..... -- 1,294 6,584 300 1,294 6,884 8,178 934 1978 1995
Palm Valley,
Palm Desert,
CA............. -- 1,750 13,769 391 1,750 14,160 15,910 1,643 1985 1995
SeaCliff,
Huntington
Beach, CA...... -- 2,430 7,602 542 2,451 8,123 10,574 555 1975 1996
Spanish Hills,
Camarillo, CA.. -- 2,975 14,076 250 2,975 14,326 17,301 158 1993 1997
Sunset Hills,
Thousand
Oaks, CA....... -- 302 1,378 18 304 1,394 1,698 1,161 1966 1975
Wood Ranch, Simi
Valley, CA..... -- 481 9,111 1,235 481 10,346 10,827 1,265 1984 1995
Heather Ridge,
Aurora, CO..... -- 992 1,500 715 995 2,212 3,207 1,100 1970 1990
Pinery, Denver,
CO............. -- 174 5,380 155 174 5,535 5,709 415 1972 1996
Crescent Oaks,
Clearwater,
FL............. -- 35 833 134 35 967 1,002 95 1990 1996
Brookstone,
Acworth, GA.... -- 557 2,608 410 559 3,016 3,575 849 1987 1993
The Plantation,
Boise, ID...... -- 87 2,562 86 87 2,648 2,735 190 1920 1996
Eagle Brook,
Geneva, IL..... 1,447 701 9,739 -- 701 9,739 10,440 205 1992 1997
Mission Hills,
Northbrook,
IL............. -- 400 3,600 531 402 4,129 4,531 2,194 1980 1988
Highlands Golf,
Hutchinson,
KS............. -- 40 576 85 40 661 701 50 1972 1996
Tallgrass,
Wichita, KS.... -- 43 2,409 117 43 2,526 2,569 185 1980 1996
Shenandoah,
Baton Rouge,
LA............. -- 38 1,268 69 38 1,337 1,375 125 1972 1996
Hunt Valley,
Phoenix, MD.... -- 515 1,662 1,212 517 2,872 3,389 1,307 1972 1983
Tanoan,
Albuquerque,
NM............. -- 12 3,241 20 15 3,258 3,273 2,555 1978 1982
Brandywine,
Maumee, OH..... -- 814 2,861 82 816 2,941 3,757 985 1967 1991
Oakhurst, Grove
City, OH....... -- 344 1,776 581 346 2,355 2,701 850 1959 1980
Royal Oak,
Cincinnati,
OH............. -- 175 822 12 178 831 1,009 512 1963 1985
Meadowbrook,
Tulsa, OK...... -- 89 3,236 955 89 4,191 4,280 233 mid 1950's 1996
The Trails,
Norman, OK..... -- 42 2,361 111 42 2,472 2,514 201 1982 1996
Creekside,
Salem, OR...... -- 128 3,456 2,411 128 5,867 5,995 682 1993 1995
Oregon Golf,
West Linn, OR.. -- 433 10,230 534 434 10,763 11,197 1,047 1992 1995
Hershey,
Hershey, PA.... -- 1,624 6,400 1,101 1,624 7,501 9,125 1,444 1915 1994
Gettysvue,
Knoxville, TN.. 3,587 753 5,550 -- 753 5,550 6,303 60 1995 1997
Berry Creek,
Georgetown,
TX............. -- 204 4,876 150 204 5,026 5,230 631 1986 1995
Diamond Oaks,
Fort Worth,
TX............. -- 132 3,577 981 132 4,558 4,690 244 1959 1996
Eldorado,
McKinney, TX... -- 221 6,247 162 221 3,697 3,918 251 1981 1996
Great Southwest,
Grand
Prairie, TX.... -- 442 7,825 445 442 8,270 8,712 555 1964 1996
Oakridge,
Garland, TX.... -- 87 3,439 435 87 3,874 3,961 251 1982 1996
Sweetwater,
Sugarland, TX.. -- 207 11,783 1,029 207 12,812 13,019 1,065 1983 1996
Walden, Humble,
TX............. -- 178 3,425 698 180 4,121 4,301 205 1984 1996
Willow Fork,
Katy, TX....... -- 44 2,742 243 44 2,985 3,029 184 1990 1996
Woodhaven, Fort
Worth, TX...... -- 43 2,022 364 43 2,386 2,429 160 1972 1996
Bear Creek,
Woodinville,
WA............. -- 705 4,823 310 711 5,127 5,838 1,716 1983 1993
------ ------- -------- ------- ------- -------- -------- -------
$5,034 $20,306 $194,038 $19,811 $20,359 $211,084 $231,443 $29,080
====== ======= ======== ======= ======= ======== ======== =======
</TABLE>
34
<PAGE>
SCHEDULE III--(Continued)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION(1)
(In thousands)
December 31, 1997
<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>
RESORT COURSES:
London Bridge,
Lake Havasu City, AZ.. $ -- $ 301 $ 1,699 $ 24 $ 305 $ 1,719 $ 2,024 $ 771 1968
Stonecreek,
Phoenix, AZ.... -- 1,197 8,250 237 1,197 8,487 9,684 453 1983
Superstition
Springs, Mesa,
AZ............. -- 698 3,771 32 702 3,799 4,501 1,302 1986
Tatum Ranch,
Cave Creek,
AZ............. -- 1,000 3,972 (5) 1,002 3,965 4,967 1,496 1986
Legend at
Arrowhead,
Glendale, AZ... -- 502 3,408 -- 502 3,408 3,910 1,098 1986
Aptos Seascape,
Aptos, CA...... -- 901 3,491 20 904 3,508 4,412 1,009 1926
BlackLake,
Nipomo, CA..... -- 1,744 9,299 20 1,746 9,317 11,063 674 1965
Arrowhead,
Littleton, CO.. -- 302 3,245 430 304 3,673 3,977 1,195 1972
Las Vegas
National,
Las Vegas, NV.. -- 261 3,727 1,586 264 5,310 5,574 3,150 1961
Painted Desert,
Las Vegas, NV.. -- 1,355 4,741 -- 1,355 4,741 6,096 346 1987
Wildhorse,
Henderson, NV.. -- 4,677 6,557 2,578 4,677 9,135 13,812 1,144 1959
Brigantine,
Brigantine,
NJ............. -- 194 1,768 1,299 196 3,065 3,261 1,161 1926
Carolina Shores,
Calabash, NC... -- 588 5,903 12 590 5,913 6,503 2,674 1974
Colonial
Charters,
Longs, SC...... -- 213 4,579 5 213 4,584 4,797 323 1989
Port Royal,
Hilton Head
Island, SC..... 20,000(2) 6,289 15,190 2,084 6,289 17,274 23,563 2,774 1985
Shipyard, Hilton
Head Island,
SC............. -- (2) 4,773 9,756 446 4,773 10,202 14,975 1,754 1969
Pecan Valley,
San Antonio,
TX............. -- 389 3,989 412 391 4,399 4,790 1,837 1962
------- ------- -------- ------- ------- -------- -------- -------
$20,000 $25,384 $ 93,345 $ 9,180 $25,410 $102,499 $127,909 $23,161
------- ------- -------- ------- ------- -------- -------- -------
Total Courses... $30,180 $72,232 $489,103 $42,752 $72,285 $529,090 $601,375 $94,678
======= ======= ======== ======= ======= ======== ======== =======
<CAPTION>
Date
Description Acquired
----------- --------
<S> <C>
RESORT COURSES:
London Bridge,
Lake Havasu City, AZ.. 1986
Stonecreek,
Phoenix, AZ.... 1997
Superstition
Springs, Mesa,
AZ............. 1992
Tatum Ranch,
Cave Creek,
AZ............. 1992
Legend at
Arrowhead,
Glendale, AZ... 1992
Aptos Seascape,
Aptos, CA...... 1986
BlackLake,
Nipomo, CA..... 1996
Arrowhead,
Littleton, CO.. 1988
Las Vegas
National,
Las Vegas, NV.. 1982
Painted Desert,
Las Vegas, NV.. 1996
Wildhorse,
Henderson, NV.. 1994
Brigantine,
Brigantine,
NJ............. 1989
Carolina Shores,
Calabash, NC... 1986
Colonial
Charters,
Longs, SC...... 1996
Port Royal,
Hilton Head
Island, SC..... 1994
Shipyard, Hilton
Head Island,
SC............. 1994
Pecan Valley,
San Antonio,
TX............. 1990
Total Courses...
</TABLE>
- -------
(1) Corporate assets are not included within the amounts.
(2) Combined encumbrance for Port Royal and Shipyard golf courses.
35
<PAGE>
SCHEDULE III--(Continued)
NATIONAL GOLF PROPERTIES, INC.
REAL ESTATE AND ACCUMULATED DEPRECIATION
(In thousands)
December 31, 1997
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
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year..................... $515,557 $361,831 $271,850
Acquisitions................................... 79,171 155,013 83,171
Improvements................................... 14,307 6,346 8,770
Disposals...................................... (7,660) (7,633) (1,960)
-------- -------- --------
Balance, end of year........................... $601,375 $515,557 $361,831
======== ======== ========
<CAPTION>
Accumulated Depreciation
----------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, beginning of year..................... $ 72,906 $ 58,709 $ 46,862
Depreciation for year.......................... 23,652 17,978 12,598
Disposals...................................... (1,880) (3,781) (751)
-------- -------- --------
Balance, end of year........................... $ 94,678 $ 72,906 $ 58,709
======== ======== ========
</TABLE>
36
<PAGE>
3. Exhibits
<TABLE>
<C> <S>
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.
(incorporated by reference to Exhibit 2.3 to the Company's Annual Report
on Form 10-K dated February 29, 1996)
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)
4.1 The 1995 Independent Director Equity Participation Plan of National Golf
Properties, Inc. (incorporated by reference to Exhibit 4.1 to the
Company's Registration Statement on Form S-8 dated August 15, 1997)
4.2 The 1997 Equity Participation Plan of National Golf Properties, Inc.,
National Golf Operating Partnership, L.P. and American Golf Corporation
(incorporated by reference to Exhibit 4.2 to the Company's Registration
Statement on Form S-8 dated August 15, 1997)
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 (incorporated by
reference to Exhibit 10.1 to the Company's Annual Report on Form 10-K
dated February 29, 1996)
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, Golden Oaks, Paradise Hills,
Chesapeake, SeaCliff, Ancala, Arrowhead, BlackLake, Painted Desert,
Pinery, Crescent Oaks, Summerfield Crossing, The Plantation, Highlands,
Tallgrass, Shenandoah, Pawtuckett, Bent Tree, Meadowbrook, The Trails,
The Links, Forrest Crossing, Diamond Oaks, Eldorado, Great Southwest,
Oakridge, Willow Fork, Woodhaven, Walden, Deer Creek, WestWinds,
Stonecreek, Tamarack, Baymeadows, Bradshaw Farm, Longwood, Eagle Brook,
Gettysvue and Oakhurst; and Form of Lease Agreement between the Company
and CGG with respect to the Carmel Mountain golf course and the
Sweetwater golf course (incorporated by reference to Exhibit 10.3 to the
Company's Annual Report on Form 10-K dated February 29, 1996)
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 (incorporated by reference to Exhibit 10.4 to the Company's
Annual Report on Form 10-K dated February 29, 1996)
</TABLE>
37
<PAGE>
<TABLE>
<C> <S>
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 (incorporated by reference to Exhibit 10.5 to the
Company's Annual Report on Form 10-K dated February 29, 1996)
*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
(incorporated by reference to Exhibit 10.6 to the Company's Annual
Report on Form 10-K dated February 29, 1996)
*10.7 Indemnification Agreement, made as of August 18, 1993, by and between
National Golf Properties, Inc. and its directors and officer
(incorporated by reference to Exhibit 10.7 to the Company's Annual
Report on Form 10-K dated February 29, 1996)
10.8 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. (incorporated by reference to Exhibit 10.9
to the Company's Annual Report on Form 10-K dated February 29, 1996)
10.9 Services Agreement, entered into as of August 18, 1993, by and between
National Golf Properties, Inc. and National Golf Operating Partnership,
L.P. (incorporated by reference to Exhibit 10.10 to the Company's
Annual Report on Form 10-K dated February 29, 1996)
10.10 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 (incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on Form 10-K dated
February 29, 1996)
10.11 Agreement for Transfer of Realty and Assets, dated as of August 18,
1993, by and among The Price Revocable Trust, Myershan, Inc. and
National Golf Operating Partnership, L.P. (incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K dated
February 29, 1996)
10.12 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 (incorporated by reference to
Exhibit 10.15 to the Company's Annual Report on Form 10-K dated
February 29, 1996)
10.13 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. (incorporated by reference to Exhibit 10.16 to the
Company's Annual Report on Form 10-K dated February 29, 1996)
10.14 Contribution Agreement, dated as of August 18, 1993, by and between
National Golf Operating Partnership, L.P. and National Golf Properties,
Inc. (incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K dated February 29, 1996)
10.15 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. (incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K dated February 29, 1996)
10.16 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 (incorporated by
reference to Exhibit 10.19 to the Company's Annual Report on Form 10-K
dated February 29, 1996)
10.17 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 the Company's Quarterly
Report on Form 10-Q/A for the period ended September 30, 1995)
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
38
<PAGE>
<TABLE>
<C> <S>
10.18 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% Guaranteed Senior Promissory Notes due December
15, 2004 and Series B 8.73% Guaranteed Senior Promissory Notes due June
15, 2005 (incorporated by reference to Exhibit 10.21 to the Company's
Annual Report on Form 10-K dated February 29, 1996)
10.19 Series A 8.68% Guaranteed Senior Promissory Notes and Series B 8.73%
Guaranteed Senior Promissory Notes (incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K dated February 29,
1996)
10.20 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% Guaranteed
Senior Promissory Notes due December 15, 2004 and Series B 8.73%
Guaranteed Senior Promissory Notes due June 15, 2005 (incorporated by
reference to Exhibit 10.15 to the Company's Report on Form 8-B dated
December 29, 1995)
10.21 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)
10.22 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)
10.23 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)
10.24 Amended and Restated Loan Agreement, 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)
10.25 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 (incorporated by reference to
Exhibit 10.29 to the Company's Annual Report on Form 10-K dated February
29, 1996)
10.26 Restated Note Agreement, dated as of July 1, 1996, with respect to
National Golf Operating Partnership, L.P.'s Series A-1, Series A-2 and
Series A-3 7.9% Guaranteed Senior Promissory Notes due June 15, 2006 and
Series B 8% Guaranteed Senior Promissory Notes due December 12, 2006
(incorporated by reference to Exhibit 10.30 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.27 Form of Series A 7.9% Guaranteed Senior Promissory Notes and Series B 8%
Guaranteed Senior Promissory Notes (incorporated by reference to Exhibit
10.31 to the Company's Annual Report on Form 10-K dated March 14, 1997)
10.28 Amended and Restated General Continuing Guaranty of National Golf
Properties, Inc., dated as of July 1, 1996, with respect to National
Golf Operating Partnership, L.P.'s Series A-1, Series A-2 and Series A-3
7.9% Guaranteed Senior Promissory Notes due June 15, 2006 and Series B
8% Guaranteed Senior Promissory Notes due December 12, 2006
(incorporated by reference to Exhibit 10.32 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.29 Assumption Agreement, dated as of July 1, 1996, by National Golf
Operating Partnership, L.P. and the Purchasers named therein
(incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.30 Assumption Agreement, dated as of July 1, 1996, by National Golf
Operating Partnership, L.P. and the Purchasers named therein
(incorporated by reference to Exhibit 10.34 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.31 Lease Agreement, dated as of July 11, 1996, between the Company and The
Links Group, Inc. with respect to Colonial Charters Golf Course
(incorporated by reference to Exhibit 10.35 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
</TABLE>
39
<PAGE>
<TABLE>
<C> <S>
10.32 Lease Agreement, dated as of December 17, 1996, between the Company and
Evergreen Alliance Golf Limited with respect to San Geronimo Golf
Course (incorporated by reference to Exhibit 10.36 to the Company's
Annual Report on Form 10-K dated March 14, 1997)
10.33 Lease Agreement, dated as of October 22, 1997, between the Company and
Camarillo Golf, LLC with respect to Spanish Hills Country Club
(incorporated by reference to Exhibit 10.33 to the Company's Annual
Report on Form 10-K dated February 6, 1998)
10.34 Assignment Agreement, dated as of July 30, 1996, between National Golf
Properties, Inc. and National Golf Operating Partnership, L.P.
(incorporated by reference to Exhibit 2.3 to the Company's Current
Report on Form 8-K dated August 13, 1996)
10.35 Lease Agreement, dated as of July 30, 1996, between National Golf
Operating Partnership, L.P. and American Golf Corporation (incorporated
by reference to Exhibit 2.4 to the Company's Current Report on Form 8-K
dated August 13, 1996)
10.36 Amendment of Agreement of Limited Partnership of National Golf
Operating Partnership, L.P., dated as of July 25, 1996, by National
Golf Properties, Inc. (incorporated by reference to Exhibit 10.39 to
the Company's Annual Report on Form 10-K dated March 14, 1997)
10.37 Second Amendment of Agreement of Limited Partnership of National Golf
Operating Partnership, L.P., dated as of July 29, 1996, by National
Golf Properties, Inc. (incorporated by reference to Exhibit 10.40 to
the Company's Annual Report on Form 10-K dated March 14, 1997)
10.38 Registration Rights Agreement, dated as of July 30, 1996, by and among
National Golf Properties, Inc., and the parties set forth therein
(incorporated by reference to Exhibit 10.41 to the Company's Annual
Report on Form 10-K dated March 14, 1997)
10.39 $100,000,000 Credit Agreement dated as of April 25, 1997, among
National Golf Operating Partnership, L.P., National Golf Properties,
Inc., the Lender Parties named therein and NationsBank of Texas, N.A.
(incorporated by reference to Exhibit 10.2 to the Company's Quarterly
Report on Form 10-Q dated April 29, 1997)
*10.40 National Golf Properties, Inc. Deferred Compensation Plan, effective
June 1, 1997 (incorporated by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q dated July 29, 1997)
*10.41 National Golf Properties, Inc. Deferred Compensation Plan Trust
Agreement, dated as of June 1, 1997, by and between National Golf
Properties, Inc. and Imperial Trust Company (incorporated by reference
to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q dated
July 29, 1997)
*10.42 Consulting Agreement, entered into as of the 30th day of April, 1997,
between National Golf Properties, Inc. and Edward R. Sause
(incorporated by reference to Exhibit 10.4 to the Company's Quarterly
Report on Form 10-Q dated July 29, 1997)
10.43 Pumpkin Ridge Joint Venture Joint Venture Agreement, dated as of
September 8, 1997, by and among National Golf Operating Partnership,
L.P. and Pumpkin Ridge Partners (incorporated by reference to Exhibit
10.2 to the Company's Quarterly Report on Form 10-Q dated October 30,
1997)
10.44 Lease Agreement, dated as of September 8, 1997, between Pumpkin Ridge
Joint Venture and AGC (incorporated by reference to Exhibit 10.3 to the
Company's Quarterly Report on Form 10-Q dated October 30, 1997)
10.45 USGA Agreement, made and entered into as of September 8, 1997, by and
between Pumpkin Ridge Joint Venture and AGC (incorporated by reference
to Exhibit 10.4 to the Company's Quarterly Report on Form 10-Q dated
October 30, 1997)
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
27.1 Financial Data Schedule (incorporated by reference to Exhibit 27.1 to
the Company's Annual Report on Form 10-K dated February 6, 1998)
</TABLE>
- --------
* Management contract or compensatory plan or arrangement.
40
<PAGE>
<TABLE>
<CAPTION>
Page No.
--------
(b)Reports on Form 8-K filed during the Last Quarter
<S> <C>
None
(d)Additional Information Regarding American Golf Corporation and Subsidiaries
Analysis of American Golf Corporation's Consolidated Financial In-
formation........................................................ 42
American Golf Corporation's Consolidated Financial Statements
Report of Independent Accountants............................... 44
Consolidated Balance Sheets as of December 31, 1997 and 1996.... 45
Consolidated Statements of Operations for the years ended Decem-
ber 31, 1997, 1996 and 1995.................................... 46
Consolidated Statements of Shareholders' Equity for the years
ended December 31, 1997, 1996 and 1995......................... 47
Consolidated Statements of Cash Flows for the years ended Decem-
ber 31, 1997, 1996 and 1995.................................... 48
Notes to Consolidated Financial Statements...................... 49
</TABLE>
41
<PAGE>
Analysis of American Golf Corporation's Financial Information
Overview
The following discussion should be read in conjunction with the accompanying
Consolidated Financial Statements and Notes thereto. The forward-looking
statements included in Analysis of American Golf Corporation's Financial
Information relating to certain matters involve risks and uncertainties,
including anticipated financial performance, business prospects, anticipated
capital expenditures and other similar matters, which reflect management's
best judgement based on factors currently known. Actual results and experience
could differ materially from the anticipated results or other expectations
expressed in the Company's forward-looking statements as a result of a number
of factors, including but not limited to those discussed in Analysis of
American Golf Corporation's Financial Information.
The discussion of the results of operations compares the year ended December
31, 1997 with the year ended December 31, 1996 and the year ended December 31,
1996 with the year ended December 31, 1995.
Results of Operations
Comparison of the year ended December 31, 1997 to the year ended December
31, 1996.
Total revenues from golf course operations and management agreements for AGC
increased by $89.4 million, or 20.9%, to $517.1 million for the year ended
December 31, 1997 as compared to $427.7 million for the year ended December
31, 1996. The increase in revenues was due, in part, to the net increase of 10
new leased courses and 3 new courses under management agreements in 1997 as
well as a full year of operations related to 48 leased courses and 6
management agreements acquired in July 1996. The increase in revenues was also
attributable to favorable results generated in various regions due to good
weather during 1997 as compared with 1996. Green fees for the year ended
December 31, 1997, $188.7 million, increased by $30.9 million, or 19.6%, as
compared to $157.8 million for the year ended December 31, 1996. Cart rentals
revenues for the year ended December 31, 1997, $60.8 million, increased by
$3.0 million, or 5.2%, from $57.8 million for the year ended December 31,
1996. Member dues and initiation fees for the year ended December 31, 1997,
$83 million, increased by $20.7 million, or 33.2%, from $62.3 million for the
year ended December 31, 1996. Food and beverage revenues for the year ended
December 31, 1997, $89.6 million, increased by $19.3 million, or 27.5%, from
$70.3 million for the year ended December 31, 1996. Merchandise sales were
$44.7 million, an increase of $6.9 million, or 18.3%, from $37.8 million for
the year ended December 31, 1996. Other revenue, which includes range income,
increased by $5.8 million, or 15.5%, to $43.2 million for the year ended
December 31, 1997, from $37.4 million for the year ended December 31, 1996.
Management fees revenue of $7.1 million increased $2.7 million, or 61.4%, for
the year ended December 31, 1997, from $4.4 million for the year ended
December 31, 1996.
Total operating expenses increased by $81.3 million, or 19.3%, to $503.1
million for the year ended December 31, 1997 as compared to $421.8 million for
the year ended December 31, 1996. Payroll and related expenses increased by
$44 million, or 30.4%, to $188.8 million for the year ended December 31, 1997,
from $144.8 million for the year ended December 31, 1996. Rent expense
increased by $15.6 million, or 16.7%, to $109.1 million for the year ended
December 31, 1997, from $93.5 million for the year ended December 31, 1996.
General and administrative expenses for the year ended December 31, 1997,
$42.6 million, increased by $.4 million, or .01%, from $42.2 million for the
year ended December 31, 1996. These expenses increased primarily due to the
addition of new courses.
Net income increased by $8 million to $12.3 million for the year ended
December 31, 1997, from $4.3 million for the year ended December 31, 1996. The
increase in net income is primarily due to the items indicated above as well
as the seasonal nature of AGC's business in that the weather during the year
ended December 31, 1997, was less severe than the year ended December 31,
1996.
42
<PAGE>
Comparison of the year ended December 31, 1996 to the year ended December
31, 1995
Total revenues from golf course operations and management agreements for AGC
increased by $75.4 million, or 21.4%, to $427.7 million for the year ended
December 31, 1996 as compared to $352.3 million for the year ended December
31, 1995. The increase in revenues was primarily attributable to the net
increase of 48 new leased courses and 6 new courses under management
agreements. Green fees for the year ended December 31, 1996, $157.8 million,
increased by $23.7 million, or 17.7%, as compared to $134.1 million for the
year ended December 31, 1995. Cart rental revenues for the year ended December
1996, $57.8 million, increased by $6 million, or 11.6%, from $51.8 million for
the year ended December 31, 1995. Member dues and initiation fees for the year
ended December 31, 1996, $62.3 million, increased by $18.9 million, or 43.5%,
from $43.4 million for the year ended December 31, 1995. Food and beverage
revenues for the year ended December 31, 1996, $70.3 million, increased by
$15.3 million, or 27.8%, from $55 million for the year ended December 31,
1995. Merchandise sales were $37.8 million, an increase of $6.9 million or
22.3% from $30.9 million for the year ended December 31, 1995. Other revenue,
which includes range income, increased by $4.6 million, or 14%, to $37.4
million for the year ended December 31, 1996, from $32.8 million for the year
ended December 31, 1995. Management fee revenue of $4.4 million was unchanged
for the year ended December 31, 1996 when compared to the year ended December
31, 1995. Each revenue category rose in reasonable proportion to the overall
increase in revenues due to the new acquisitions, with the exception of member
dues and initiation fees. This revenue category increased as a result of the
acquisition of a number of large private clubs.
Total operating expenses increased by $74.6 million or 21.5%, to $421.8
million for the year ended December 31, 1996 as compared to $347.2 million for
the year ended December 31, 1995. Rent expense increased by $16.6 million, or
21.6%, to $93.5 million for the year ended December 31, 1996, from $76.9
million for the year ended December 31, 1995. General and administrative
expenses for the year ended December 31, 1996, $42.2 million, increased by $7
million, or $19.9%, from $35.2 million for the year ended December 31, 1995.
These expenses increased primarily due to additional lease agreements.
Net income increased by $100,000 to $4.3 million for the year ended December
31, 1996, from $4.2 million for the year ended December 31, 1995.
Liquidity and Capital Resources
On December 31, 1997, the Company entered into a $40 million credit facility
and a $13.5 million standby letter of credit facility with a commercial bank
that bears interest at prime or a Libor based rate. Letters of credit issued
under these credit facilities are charged a 1.0% annual letter of credit fee.
The $40 million facility is used to finance working capital requirements and
expires on January 1, 2001. At December 31, 1997, there were no amounts
outstanding against this line of credit and the standby letters of credit
outstanding totaled $2.5 million. The $13.5 million standby letter of credit
facility, which expires on January 2, 2001, supports letters of credit issued
in favor of NGP, pursuant to the terms of the leases between NGP and AGC.
AGC had working capital of approximately $9.3 million as of December 31,
1997. AGC believes it will be able to satisfy its liquidity requirements,
including capital expenditures and rental payments under the leases with cash
flow available from operations and borrowings. AGC has 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, 1997, AGC's capital expenditure commitment was
approximately $8,600,000. The improvements will be funded from AGC's operating
cash flow and from borrowings under the bank credit facilities.
43
<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, 1997 and 1996, and the
related consolidated statements of operations, shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1997. 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, 1997 and
1996, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
As discussed in Note 2 to the accompanying consolidated financial
statements, American Golf Corporation and Subsidiaries changed their method of
accounting for membership initiation deposits and fees and the related
incremental direct costs and has restated the consolidated financial
statements to give retroactive effect to this change.
PricewaterhouseCoopers LLP
Los Angeles, California
February 4, 1998, except for Note 2,
as to which the date is December 4, 1998
44
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
December 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 16,738 $ 2,291
Accounts receivable--members (less allowance for doubtful
accounts of $1,312 and $1,234 in 1997 and 1996, respec-
tively)................................................. 18,854 17,605
Other receivables........................................ 18,314 15,635
Receivables from affiliates, net......................... 9,730 7,985
Inventories.............................................. 12,332 11,462
Prepaid expenses......................................... 3,724 2,533
-------- --------
Total current assets................................... 79,692 57,511
Property, equipment and capital leases, net................ 87,597 80,967
Licenses................................................... 815 775
Leasehold rights........................................... 17,888 13,907
Deposits and other assets.................................. 12,123 7,005
Note receivable from shareholder........................... 29,000 29,000
-------- --------
Total assets........................................... $227,115 $189,165
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 4,932 $ 7,572
Notes payable--current portion:
Shareholders........................................... 31 29
Capital leases......................................... 1,587 1,719
Other.................................................. 642 3,627
Accrued expenses......................................... 34,519 26,837
Other liabilities........................................ 17,959 11,209
Deferred revenue......................................... 10,741 8,757
-------- --------
Total current liabilities............................ 70,411 59,750
Notes payable--long-term portion:
Shareholders............................................. 422 453
Capital leases........................................... 2,856 4,437
Other.................................................... 59,188 53,841
Accrued expenses........................................... 35,300 9,310
Deferred revenue........................................... 30,431 25,558
-------- --------
Total liabilities.................................... 198,608 153,349
-------- --------
Minority interest.......................................... 501 466
-------- --------
Commitments and contingencies (Note 10)
Shareholders' equity:
Common stock--no par value; 10,000,000 shares authorized;
6,438,525 and 6,354,497 shares outstanding at December
31, 1997 and 1996, respectively......................... 6,594 8,080
Retained earnings........................................ 28,066 31,592
Notes receivable from officers/directors................. (6,591) (4,299)
Cumulative foreign currency translation adjustment....... (63) (23)
-------- --------
Total shareholders' equity........................... 28,006 35,350
-------- --------
Total liabilities and shareholders' equity........... $227,115 $189,165
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
45
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Green fees............................... $ 188,725 $ 157,821 $ 134,100
Cart rentals............................. 60,762 57,753 51,801
Member dues and initiation fees.......... 82,994 62,288 43,403
Food and beverage sales.................. 89,633 70,289 54,956
Merchandise sales........................ 44,695 37,805 30,888
Other revenue............................ 43,203 37,427 32,755
Management fees.......................... 7,119 4,360 4,432
---------- ---------- ----------
Total revenues......................... 517,131 427,743 352,335
Costs and expenses:
Payroll and related expenses............. 188,808 144,779 118,050
Cost of food and beverage sold........... 28,190 22,682 17,514
Cost of merchandise sold................. 28,598 24,660 20,142
General and administrative............... 42,604 42,155 35,204
Repairs and maintenance.................. 11,996 11,639 11,435
Other operating expenses................. 84,454 72,806 60,983
Rents.................................... 109,141 93,494 76,940
Depreciation and amortization............ 9,275 9,546 6,970
---------- ---------- ----------
Total costs and expenses............... 503,066 421,761 347,238
Operating income........................... 14,065 5,982 5,097
Other income (expense):
Interest income.......................... 4,541 2,210 1,583
Interest expense......................... (5,823) (3,841) (2,830)
---------- ---------- ----------
Income before provision for state
income taxes and minority interest in
(income) loss......................... 12,783 4,351 3,850
Provision for state income taxes........... (425) (223) (201)
---------- ---------- ----------
Income before minority interest in
(income) loss......................... 12,358 4,128 3,649
Minority interest in (income) loss......... (35) 215 519
---------- ---------- ----------
Net income............................. $ 12,323 $ 4,343 $ 4,168
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
46
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
<TABLE>
<CAPTION>
Cumulative
Foreign
Common Stock Notes Receivable Currency Total
-------------- Retained From Translation Shareholders'
Shares Amount Earnings Officers/Directors Adjustment Equity
------ ------ -------- ------------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31,
1994, as restated...... 6,339 $8,289 $ 36,573 $(4,939) $ -- $ 39,923
Net income............ -- -- 4,168 -- -- 4,168
Dividends............. -- -- (4,359) -- -- (4,359)
Foreign currency
translation
adjustment........... -- -- -- -- 56 56
Issuance of stock for
notes receivable from
officers/directors... 15 393 -- (368) -- 25
Payments on notes
receivable from
officers/directors... -- -- -- 406 -- 406
----- ------ -------- ------- ----- --------
Balance, December 31,
1995, as restated...... 6,354 8,682 36,382 (4,901) 56 40,219
Net income............ -- -- 4,343 -- -- 4,343
Dividends............. -- -- (9,133) -- -- (9,133)
Adjustment to notes
receivable from
officers/directors... -- (602) -- 602 -- --
Foreign currency
translation
adjustment........... -- -- -- -- (79) (79)
----- ------ -------- ------- ----- --------
Balance, December 31,
1996, as restated...... 6,354 8,080 31,592 (4,299) (23) 35,350
Net income............ -- -- 12,323 -- -- 12,323
Dividends............. -- -- (15,849) -- -- (15,849)
Issuance of stock for
notes receivable from
officers/directors... 149 4,235 -- (4,115) -- 120
Purchase of stock from
officers/directors... (65) (5,721) -- 1,823 -- (3,898)
Foreign currency
translation
adjustment........... -- -- -- -- (40) (40)
----- ------ -------- ------- ----- --------
Balance, December 31,
1997, as restated...... 6,438 $6,594 $ 28,066 $(6,591) $ (63) $ 28,006
===== ====== ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
47
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
For the year ended December 31,
----------------------------------
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income............................... $ 12,323 $ 4,343 $ 4,168
Adjustments to reconcile net income to
net cash provided by
operating activities:
Depreciation and amortization............ 9,275 9,475 6,970
Minority interest in earnings (loss)..... 35 (215) (519)
Increase (decrease) from changes in:
Accounts receivable.................... (1,253) (6,914) (5,177)
Other receivables...................... (4,243) (4,204) (3,444)
Receivables from affiliates, net....... (1,745) 1,288 (4,691)
Inventories............................ (875) (1,205) (1,869)
Prepaid expenses....................... (1,200) 930 391
Licenses, deposits and other assets.... (5,160) 2,413 (668)
Accounts payable....................... (2,640) 770 1,200
Accrued expenses....................... 33,692 8,882 2,764
Other liabilities...................... 6,766 4,177 (346)
Deferred revenue....................... 6,857 9,932 5,514
---------- ---------- ----------
Net cash provided by operating
activities.......................... 51,832 29,672 4,293
---------- ---------- ----------
Cash flows from investing activities:
Acquisition of property and equipment.... (13,758) (9,970) (19,703)
Acquisition of leasehold rights.......... (4,730) (3,571) (538)
Issuance of note receivable from
shareholder............................. -- (29,000) --
---------- ---------- ----------
Net cash used in investing
activities.......................... (18,488) (42,541) (20,241)
---------- ---------- ----------
Cash flows from financing activities:
Proceeds from notes payable--other....... 12,053 57,732 28,478
Payments on notes payable:
Shareholders........................... (29) (26) (343)
Other.................................. (12,018) (34,717) (12,619)
Capital leases......................... (1,713) (1,160) (268)
Proceeds from notes receivable from
officers/directors...................... 120 -- 431
Purchase of shares from
officers/directors...................... (1,447) -- --
Capital contribution by minority
interest................................ -- -- 1,200
Dividends paid........................... (15,849) (9,133) (4,359)
---------- ---------- ----------
Net cash (used in) provided by
financing activities.................. (18,883) 12,696 12,520
Effect of exchange rate changes on cash
and cash equivalents.................. (14) 119 56
---------- ---------- ----------
Net increase (decrease) in cash and
cash equivalents...................... 14,447 (54) (3,372)
Cash and cash equivalents, beginning of
period.................................... 2,291 2,345 5,717
---------- ---------- ----------
Cash and cash equivalents, end of period... $ 16,738 $ 2,291 $ 2,345
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
48
<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. At December 31, 1997 and 1996, 70% and 71%, respectively, of the
Company was owned by David G. Price. The following table lists AGC's
subsidiaries and selected information:
<TABLE>
<CAPTION>
AGC
Entity Formation Date Ownership Purpose
------ -------------- --------- ----------------------------------------------
<S> <C> <C> <C>
Atlanta................. June 1986 65% Operate four courses in Atlanta, Georgia.
Detroit................. December 1990 80% 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, 1997, the Company leases 118 golf courses from National Golf
Properties, Inc. ("NGP"). David G. Price is the Chairman of the Board of
Directors of NGP and owns 5.4% of NGP's outstanding stock and 38.4% of
National Golf Operating Partnership, L.P. ("NGOP").
On July 30, 1996, NGP purchased 20 golf courses from Golf Enterprises, Inc.
("GEI") for a purchase price of $58 million. All of the courses acquired were
leased to the Company on a triple net basis. NGP receives minimum base rent
for these related golf courses 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 allows NGP to participate in any
growth in revenues.
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.
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.
49
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Organization and Summary of Significant Accounting Policies (Continued):
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 on a straight-
line basis over the expected average life of active membership, unless for
initiation fees paid on terms or on installment basis uncertainty surrounding
collectibility exists. In addition, related incremental direct costs
(primarily commissions and percentage rent) are recorded in the same manner as
the revenues are recognized.
Property, Equipment, Capital Leases and Leasehold Rights
Property, equipment and leasehold rights are carried 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.
Impairment of Long-Lived Assets
Effective January 1, 1996, the Company adopted 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. The Company periodically assesses whether there has
been an impairment in the value of long-lived assets and certain identifiable
intangibles by considering factors such as expected future operating income,
trends and prospects, as well as the effects of demand, competition and other
economic factors. Management believes no impairment has occurred.
Stock-Based Employee Compensation Awards
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but does
not require companies to record compensation cost for stock-based compensation
plans at fair value. The Company has adopted the disclosure requirements of
SFAS No. 123, which involves proforma disclosure of net income under SFAS
No. 123, detailed descriptions of plan terms and assumptions used in valuing
stock option grants. The Company has chosen to continue to account for stock-
based employee compensation awards in accordance with Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees."
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentration
of credit risk consist primarily of cash and cash equivalents and trade
receivables.
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, 1997, the Company had
cash in financial institutions which was in excess of the FDIC insurance
limit.
50
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Organization and Summary of Significant Accounting Policies (Continued):
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, 1997 the Company had no significant concentration of credit
risk.
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 Company uses quoted market prices, when available, or discounted cash
flows 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, 1997, 1996 and 1995 were approximately
$5,627,000, $5,531,000 and $4,521,000, 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 shareholders' 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.
(2) Change in Accounting Policy
Based on recent Securities and Exchange Commission pronouncements the
Company changed its accounting policy for member initiation fees to defer such
revenues and recognize them on a straight-line basis over the expected average
life of active membership. The Company previously recognized as revenue the
difference between the amount of the fees and the net present value of the
future obligation at the time of sale, unless for initiation fees paid on
terms or on installment basis uncertainty surrounding collectability existed.
In addition to the deferral of member initiation fees, the Company has
deferred related incremental direct costs (primarily commissions and
percentage rent) and is recording such costs in the same manner as the
revenues are recognized. As noted below, this change in accounting policy
resulted in a reduction to previously reported revenue and net income. The
deferred member initiation fees and related incremental direct costs will be
recognized in future periods over the expected average life of active
membership. Accordingly, the accompanying consolidated financial statements
have been retroactively adjusted to reflect this change for all periods
presented. The impact of the restatement is summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- -------- -------
(In thousands)
<S> <C> <C> <C>
Total revenues................................ $(8,101) $(11,824) $(6,731)
Net income.................................... $(6,857) $ (9,932) $(5,514)
</TABLE>
In addition, this change resulted in a decrease in retained earnings of
$41,172,000, $34,315,000 and $24,383,000 as of December 31, 1997, 1996 and
1995, respectively.
51
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Receivables from Affiliates, net:
The receivables from affiliates are uncollateralized and due within one
year.
(4) Property, Equipment and Capital Leases:
Property, equipment and capital leases consist of the following:
<TABLE>
<CAPTION>
Estimated
Useful December 31,
Lives ----------------
(Years) 1997 1996
--------- ------- -------
(In thousands)
<S> <C> <C> <C>
Golf course improvements........................ 10-20 $58,038 $48,426
Buildings....................................... 15-30 38,411 35,757
Furniture, fixtures, machinery and equipment.... 3-7 27,627 23,801
Equipment under capital leases.................. 3-7 7,515 7,584
------- -------
131,591 115,568
Less: accumulated depreciation.................. (44,378) (36,850)
------- -------
87,213 78,718
Construction-in-progress........................ 384 2,249
------- -------
$87,597 $80,967
======= =======
</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, 1997, 1996 and 1995
was approximately $177,000, $347,000 and $416,000, respectively.
(5) Note Receivable from Shareholder:
During 1996, the Company loaned $29 million to David G. Price. The note is
due in 2004 with principal payments beginning in 1999. The note bears interest
at 9.35% and is payable semi-annually.
(6) 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 shareholders 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, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
--------------
1997 1996 1995
---- ---- ----
(In thousands)
<S> <C> <C> <C>
Current...................................................... $270 $-- $--
Deferred..................................................... 155 223 201
---- ---- ----
Total provision for state income taxes..................... $425 $223 $201
==== ==== ====
</TABLE>
52
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(7) Notes Payable--Shareholders:
Notes payable to shareholders consist of the following:
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
----------------- -----------------
Interest Interest Current Long-Term Current Long-Term
Rate Payments Portion Portion Portion Portion Maturity
-------- -------- ------- --------- ------- --------- --------
(In thousands) (In thousands)
<S> <C> <C> <C> <C> <C> <C>
8.0%.............. Monthly $30 $414 $28 $445 12/2007
8.0%.................... Monthly 1 8 1 8 12/2007
--- ---- --- ----
$31 $422 $29 $453
=== ==== === ====
</TABLE>
Interest expense to the shareholders for the years ended December 31, 1997,
1996 and 1995 was approximately $37,000, $40,000 and $75,000, respectively.
Annual maturities on notes payable to shareholders are as follows:
<TABLE>
<CAPTION>
Amount
Year ended December 31, (In thousands)
----------------------- --------------
<S> <C>
1998....................................................... $ 31
1999....................................................... 34
2000....................................................... 36
2001....................................................... 39
2002....................................................... 42
Thereafter................................................. 271
----
$453
====
</TABLE>
(8) Notes Payable--Others:
Notes payable to others consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1997 1996
--------------- ---------------
(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>
Uncollateralized line of
credit................. Reference Monthly $-- $ -- $3,000 $ -- 1/1998
Uncollateralized note... 9.0% Monthly 7 -- 19 7 4/1998
Collateralized note..... 9%-23% Monthly 133 16 148 148 4/1999
Collateralized note..... 9.5% Quarterly -- 2,380 -- 2,357 12/2001
Uncollateralized note... 6.1% Annually -- 2,451 -- -- 1/2002
Uncollateralized note... 8.3% Quarterly 42 178 39 221 6/2002
Collateralized note..... 9.4% Semi-Annually -- 41,500 -- 41,500 7/2004
Collateralized note..... 8.0% Monthly 237 4,426 219 4,632 9/2009
Collateralized note..... 9.5% Monthly 223 4,808 202 4,976 1/2010
Collateralized note..... 9.2% Monthly -- 3,429 -- -- 11/2012
---- ------- ------ -------
$642 $59,188 $3,627 $53,841
==== ======= ====== =======
</TABLE>
At December 31, 1997 and 1996, the bank prime and reference rate was 8.50%
and 8.25%, respectively.
53
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Notes Payable--Others (Continued):
Annual maturities on notes payable to others are as follows:
<TABLE>
<CAPTION>
Year ended December 31, Amount
----------------------- --------------
(In thousands)
<S> <C>
1998....................................................... $ 642
1999....................................................... 2,277
2000....................................................... 4,848
2001....................................................... 7,110
2002....................................................... 4,663
Thereafter................................................. 40,290
-------
$59,830
=======
</TABLE>
The note agreements contain, 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.
On December 31, 1997, the Company entered into a $40 million revolving
credit facility and a $13.5 million standby letter of credit facility with a
commercial bank that bears interest at prime or a Libor based rate. Letters of
credit issued under these credit facilities are charged a 1.0% annual letter
of credit fee. The $40 million facility is used to finance working capital
requirements and expires on January 2, 2001. At December 31, 1997, there were
no amounts outstanding and the standby letters of credit outstanding totaled
$2.5 million against the revolving credit facility. The $13.5 million standby
letter of credit facility, which expires on January 2, 2001, supports
outstanding letters of credit issued in favor of NGP, pursuant to the terms of
the leases between NGP and AGC. Under the terms of the credit facilities, the
Company is also required to maintain specified financial ratios and levels of
net worth.
In December 1996, the Company placed $41.5 million of fixed rate senior
collateralized notes due 2004 with a group of institutional investors. The net
proceeds from the private placement were used to repay bank debt and provide a
$29 million loan to David G. Price.
On July 30, 1996, the Company entered into two $15 million credit facilities
with a commercial bank that beared interest at prime or a Libor based rate.
Letters of credit issued under these credit facilities were charged a 1.5%
annual letter of credit fee. The first $15 million facility was used to
finance working capital requirements and expired on August 1, 1997. At
December 31, 1996, there was $3,000,000 outstanding and the standby letters of
credit outstanding totaled $4,181,000. The second $15 million credit facility,
which was due to expire on August 15, 1997, but was extended to December 31,
1997, supported $13,555,000 of letters of credit issued in favor of NGP,
pursuant to the terms of the leases between NGP and AGC. The Company was also
required to maintain specified financial ratios and levels of net worth.
The credit facilities and the private placement loan are collateralized by
the issued and outstanding stock of an affiliate.
54
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(9) 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, 1997:
<TABLE>
<CAPTION>
Year ended December 31, Amount
----------------------- --------------
(In thousands)
<S> <C>
1998....................................................... $1,869
1999....................................................... 2,288
2000....................................................... 740
------
Total minimum lease payments................................. 4,897
Amount representing interest................................. 454
------
Present value of net minimum lease payments.................. 4,443
Current portion.............................................. 1,587
------
Long-term portion............................................ $2,856
======
</TABLE>
(10) Employee Benefit Plans:
1994 Equity Participation Plan
In 1994, the Company established the 1994 Equity Participation Plan, as
amended (the "1994 Plan"). Under the 1994 Plan, 1,200,000 shares may be
awarded to key employees as either nonqualified stock options, Performance
Awards, as defined, or the right to purchase common stock. There were 280,484
and 475,222 shares available under the 1994 Plan as of December 31, 1997 and
1996, respectively. During 1994, the Company issued 198,677 shares of common
stock at $24.86 per share and received notes receivable totaling $4,533,000.
During 1995, the Company issued 15,820 shares of common stock at $24.86 per
share and received notes receivable totaling $368,000. On December 1, 1996,
the stock grants were amended to adjust the formula for determining the
initial share value, and as a result the price per share was reduced to $22.05
and the notes receivable were reduced to $3,975,000 for the 1994 grants and
$324,000 for the 1995 grant. In 1997, the Company issued 149,264 shares of
common stock at prices ranging from $22.05 to $43.12 per share and received
notes receivable totaling $4,115,000. The Company also repurchased 65,236
shares of common stock issued under the 1994 Plan at prices ranging from
$87.05 to $88.06 per share. As part of the repurchase, notes receivable
totaling $1,823,000 were paid off. In January 1998, the Company repurchased
135,053 shares of common stock from certain officers and senior management of
the Company for $12,830,000. As part of this transaction, notes receivable
totaling $2,709,000 were repaid.
Stock options granted vest over a three to five year period and are subject
to continued employment and the Company achieving certain financial
performance targets. The fair value of stock options granted is estimated
using the minimum value pricing method with the following assumptions: (i)
risk-free interest rate of 7.0%, (ii) expected option life of seven years,
(iii) forfeiture rate of zero, (iv) no expected volatility and (v) dividend
yield of 5%.
55
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) Employee Benefit Plans (Continued):
The summary of the status of the Company's stock options as of December 31,
1997, 1996 and 1995, and the activity with executives, key employees and
members of the AGC Board of Directors during the years then ended is presented
below:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Option Option Option
Number of Exercise Number of Exercise Number of Exercise
Shares Price Shares Price Shares Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning
of year................ 350,595 $ 22.05 350,595 $22.05 318,954 $22.05
Granted--price equals
fair value............. 15,821 22.05 -- -- 31,641 22.05
Granted--price greater
than fair value 95,127 43.12 -- -- -- --
Exercised............... -- -- -- -- -- --
Canceled................ (21,119) 22.05 -- -- -- --
------- ------- ------- ------ ------- ------
Options outstanding at
year end............... 440,424 $ 26.60 350,595 $22.05 350,595 $22.05
======= ======= ======= ====== ======= ======
Options exercisable at
year end............... 290,314 -- --
</TABLE>
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------- ---------------------------
Weighted
Number Average Weighted Number Weighted
Outstanding at Remaining Average Outstanding at Average
December 31, Contractual Exercise December 31, Exercise
Exercise price 1997 Life Price 1997 Price
-------------- -------------- ----------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
$22.05................. 345,297 4.1 $22.05 265,690 $22.05
$43.12................. 95,127 6.0 43.12 24,624 43.12
------- -------
440,424 290,314
======= =======
</TABLE>
The Company adopted the disclosure only provision of SFAS No. 123 and
accordingly, no compensation expense has been recognized for stock option
grants to executives, key employees and members of the AGC Board of Directors.
Had compensation expense for such grants been determined based on the fair
value of the award, at the grant date, consistent with the provisions of SFAS
No. 123, the Company's net income would have been reduced to the proforma
amounts indicated below:
<TABLE>
<CAPTION>
For the year ended December 31,
---------------------------------
1997 1996 1995
----------- ---------- ----------
(In thousands)
<S> <C> <C> <C>
Net income--as reported................... $ 12,323 $ 4,343 $ 4,168
=========== ========== ==========
Net income--pro forma..................... $ 12,301 $ 4,343 $ 4,124
=========== ========== ==========
</TABLE>
In 1995, Performance Awards 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 Awards 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 Awards mature on December 31, 1998 with the appreciation in share
value payable in three equal annual installments, beginning in early 1999.
Performance Awards vest based on achieving certain earnings targets of the
Company and are subject to continued employment. Performance Awards
outstanding totaled 180,567 and 159,686, as of December 31, 1997 and 1996,
respectively. For the year ended December 31, 1997, the Company recorded
compensation
56
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(10) Employee Benefit Plans (Continued):
expense with respect to the Performance Awards in the amount of $17,500,000 as
management determined that it is probable the performance targets will be met
by December 31, 1998. For the years ended December 31, 1996 and 1995 no
compensation expense was recorded with respect to the Performance Awards as
the minimum vesting targets had not been achieved.
Share Appreciation Plan
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 125,000 and 138,000 outstanding share
appreciation rights as of December 31, 1997 and 1996, respectively. There was
no share appreciation expense for the years ended December 31, 1997 and 1995.
The share appreciation expense for the year ended December 31, 1996 was
approximately $620,000. The Company does not intend to grant any additional
share appreciation rights.
401(k) Employee Savings Plan
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 $0.50 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, 1997, 1996 and 1995, was approximately $796,000,
$635,000 and $523,000, respectively.
(11) Commitments and Contingencies:
The Company is the lessee under long-term operating leases for golf courses
and equipment. At December 31, 1997, future minimum rental payments required
pursuant to the terms of all lease obligations are as follows:
<TABLE>
<CAPTION>
Year ended December 31, Related Parties Unrelated Parties Total
----------------------- --------------- ----------------- ----------
(In thousands)
<S> <C> <C> <C>
1998......................... $ 71,225 $ 32,007 $ 103,232
1999......................... 71,225 27,303 98,528
2000......................... 71,225 23,733 94,958
2001......................... 71,225 19,550 90,775
2002......................... 71,225 17,126 88,351
Thereafter................... 614,267 213,861 828,128
-------- -------- ----------
$970,392 $333,580 $1,303,972
======== ======== ==========
</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, 1997, 1996 and 1995, percentage
rentals paid to unrelated parties were approximately $10,179,000, $9,430,000
and $7,789,000, respectively.
Under the terms of certain leases, the Company is committed to make
improvements at golf courses. At December 31, 1997, approximately $8,600,000
of such improvements remain to be made.
At December 31, 1997, the Company was contingently liable for outstanding
letters of credit in the amount of approximately $16,010,000.
57
<PAGE>
AMERICAN GOLF CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(11) 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 its
consolidated financial position, results of operations or cash flows.
(12) Related Party Transactions:
The Company rents golf and tennis facilities from David G. Price and related
entities in which he has a controlling interest. Rent expense paid to David G.
Price and related entities was approximately $71,434,000, $58,643,000 and
$47,600,000 for the years ended December 31, 1997, 1996 and 1995,
respectively.
The Company recorded net management fees from related entities in the amount
of approximately $2,610,000, $1,332,000 and $554,000 for the years ended
December 31, 1997, 1996 and 1995, 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, 1997 and 1996, these accumulated costs
amounted to approximately $9,057,000 and $6,456,000, respectively.
The Company earns interest on receivables from affiliates at a prime based
rate. Interest income from affiliates was approximately $587,000, $818,000 and
$873,000 for the years ended December 31, 1997, 1996 and 1995, respectively.
(13) Statement of Cash Flows--Supplemental Disclosures:
Interest paid for the years ended December 31, 1997, 1996 and 1995 was
approximately $5,192,000, $1,950,000 and $2,213,000, respectively.
State income taxes paid for the years ended December 31, 1997, 1996 and 1995
was approximately $38,000, $223,000 and $149,000, respectively.
Capital lease obligations of approximately $2,877,000 and $4,707,000 were
incurred when the Company entered into leases for new equipment in 1996 and
1995, respectively.
(14) Shareholders' Equity:
As discussed in Note 10 to the consolidated financial statements, the
Company has issued 298,525 shares of common stock to key employees for notes
receivable with a balance at December 31, 1997 and 1996 of $6,591,000 and
$4,299,000, respectively. 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 and are shown on the balance sheets
as a reduction in shareholders' equity. Interest income accrued on the notes
receivable was approximately $491,000 for the year ended December 31, 1997 and
$300,000 for the years ended December 31, 1996 and 1995.
Interest is paid with proceeds from shareholder distributions and, if
necessary, a portion of 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
years ended December 31, 1997, 1996 and 1995.
58
<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.
By: /s/ William C. Regan
_________________________________
William C. Regan Vice President --
Controller and Treasurer
Date: January 22, 1999
59
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statements
of National Golf Properties, Inc. on Form S-8 (and related prospectus) (File
No. 33-67350) and on Form S-8 (File No. 333-33775), of our report dated
February 4, 1998, except for Note 14, as to which the date is December 4,
1998, on our audits of the consolidated financial statements and financial
statement schedule of National Golf Properties, Inc. as of December 31, 1997
and 1996, and for each of the three years in the period ended December 31,
1997, which report is included in this Annual Report on Form 10-K/A.
PricewaterhouseCoopers LLP
Los Angeles, California
January 22, 1999
