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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q/A
Amendment No. 1
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
Commission file number 1-12246
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NATIONAL GOLF PROPERTIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Maryland 95-4549193
(State of incorporation) (I.R.S. Employer Identification No.)
2951 28th Street, Suite 3001, Santa Monica, CA 90405
(Address of principal executive offices) (Zip Code)
</TABLE>
(310) 664-4100
(Registrant's telephone number, including area code)
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 [_]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
12,517,745 shares of common stock, $.01 par value, as of November 6, 1998
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Property:
Land.............................................. $ 76,961 $ 72,339
Buildings......................................... 193,068 181,571
Ground improvements............................... 324,675 301,814
Furniture, fixtures and equipment................. 39,268 35,589
Construction in progress.......................... 24,683 10,569
--------- ---------
658,655 601,882
Less: accumulated depreciation...................... (114,101) (94,872)
--------- ---------
Net property.................................... 544,554 507,010
Cash and cash equivalents........................... 4,602 1,698
Investments......................................... 1,273 1,215
Mortgage notes receivable........................... 24,849 2,200
Investment in joint venture......................... 7,728 8,004
Due from affiliate.................................. -- 4,524
Other assets, net................................... 19,588 10,663
--------- ---------
Total assets.................................... $ 602,594 $ 535,314
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable....................................... $ 283,330 $ 299,032
Accounts payable and other liabilities.............. 20,513 5,385
Due to affiliate.................................... 1,790 --
--------- ---------
Total liabilities............................... 305,633 304,417
--------- ---------
Minority interest................................... 165,950 96,007
--------- ---------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized--none issued............................ -- --
Common stock, $.01 par value, 40,000,000 shares
authorized, 12,509,895 and 12,408,195 shares issued
and outstanding at September 30, 1998 and
December 31, 1997, respectively.................... 125 124
Additional paid in capital.......................... 135,564 139,222
Accumulated deficit................................. (1,360) (1,360)
Unamortized restricted stock compensation........... (3,318) (3,096)
--------- ---------
Total stockholders' equity...................... 131,011 134,890
--------- ---------
Total liabilities and Stockholders' equity...... $ 602,594 $ 535,314
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
2
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three For the Three
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues:
Rent from affiliates.................. $18,716 $18,532
Rent.................................. 858 814
Equity in income from joint venture... 97 48
------- -------
Total revenues...................... 19,671 19,394
------- -------
Expenses:
General and administrative............ 1,236 1,535
Depreciation and amortization......... 6,777 6,306
Net loss on sale of properties........ -- 59
------- -------
Total expenses...................... 8,013 7,900
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Operating income...................... 11,658 11,494
Other income (expense):
Interest income....................... 342 88
Other income.......................... 2 44
Interest expense...................... (4,998) (4,978)
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Income before provision for taxes and
minority interest...................... 7,004 6,648
Provision for taxes..................... (60) (52)
------- -------
Income before minority interest......... 6,944 6,596
Income applicable to minority interest.. (3,850) (2,844)
------- -------
Net income.............................. $ 3,094 $ 3,752
======= =======
Basic earnings per share................ $ 0.25 $ 0.30
Weighted average number of shares....... 12,510 12,375
Diluted earnings per share.............. $ 0.25 $ 0.30
Weighted average number of shares....... 12,599 12,521
Distribution declared per common share
outstanding............................ $ 0.44 $ 0.43
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Revenues:
Rent from affiliates.................. $ 55,575 $ 52,952
Rent.................................. 2,504 2,357
Equity in income from joint venture... 287 48
Gain on sale of properties............ -- 158
-------- --------
Total revenues...................... 58,366 55,515
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Expenses:
General and administrative............ 3,760 4,034
Depreciation and amortization......... 19,861 18,191
-------- --------
Total expenses...................... 23,621 22,225
-------- --------
Operating income...................... 34,745 33,290
Other income (expense):
Interest income....................... 549 268
Gain on property condemnation......... 993 --
Other income.......................... 348 519
Interest expense...................... (14,922) (14,241)
-------- --------
Income before provision for taxes and
minority interest...................... 21,713 19,836
Provision for taxes..................... (176) (165)
-------- --------
Income before minority interest......... 21,537 19,671
Income applicable to minority interest.. (11,228) (8,554)
-------- --------
Net income.............................. $ 10,309 $ 11,117
======== ========
Basic earnings per share................ $ 0.83 $ 0.90
Weighted average number of shares....... 12,491 12,359
Diluted earnings per share.............. $ 0.82 $ 0.89
Weighted average number of shares....... 12,598 12,505
Distribution declared per common share
outstanding............................ $ 1.30 $ 1.27
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
September 30, 1998 September 30, 1997
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................. $ 10,309 $ 11,117
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization.......... 19,861 18,191
Amortization of restricted stock....... 1,294 1,135
Minority interest in earnings.......... 11,228 8,554
Distributions from joint venture, net
of equity in income................... 295 2
Gain on sale of properties............. -- (158)
Gain on property condemnation.......... (993) --
Other adjustments...................... 68
Changes in assets and liabilities:
Other assets.......................... (1,561) 2,568
Accounts payable and other
liabilities.......................... 5,812 4,256
Due from/to affiliate................. 472 (1,461)
--------- --------
Net cash provided by operating
activities.......................... 46,717 44,272
--------- --------
Cash flows from investing activities:
Purchase of available-for-sale
securities............................. (3,672) (4,714)
Proceeds from sale of available-for-sale
securities............................. 3,627 4,695
Investment in joint venture............. (19) (8,036)
Proceeds from short-term investment..... 366 --
Issuance of mortgage note receivable.... (22,649) --
Loan costs on mortgage note issued...... (147) --
Proceeds from mortgage loans............ -- 732
Purchase of property and related
assets................................. (51,272) (51,960)
Proceeds from sale of properties and
related assets......................... 1,305 3,613
--------- --------
Net cash used by investing
activities.......................... (72,461) (55,670)
--------- --------
Cash flows from financing activities:
Principal payments on notes payable..... (101,074) (68,335)
Proceeds from notes payable............. 85,000 97,050
Loan costs.............................. (15) --
Proceeds from Preferred Units, net of
offering expenses...................... 73,011 --
Proceeds from stock options exercised... 1,053 1,174
Cash distributions...................... (16,124) (15,581)
Limited partners' cash distributions.... (13,203) (11,130)
--------- --------
Net cash provided by financing
activities.......................... 28,648 3,178
--------- --------
Net increase (decrease) in cash.......... 2,904 (8,220)
Cash and cash equivalents at beginning of
period.................................. 1,698 11,224
--------- --------
Cash and cash equivalents at end of
period.................................. $ 4,602 $ 3,004
========= ========
Supplemental cash flow information:
Interest paid........................... $ 11,279 $ 10,087
Taxes paid.............................. 145 188
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Organization and Summary of Significant Accounting Policies
National Golf Properties, Inc. (the "Company") owns substantially all of the
golf courses through its general partner interest in National Golf Operating
Partnership, L.P. (the "Operating Partnership"), pursuant to its 58.5%
ownership of the common units of partnership interest in the Operating
Partnership ("Common Units"). The Operating Partnership has an 89% general
partner interest in Royal Golf, L.P. II ("Royal Golf"). 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.
The consolidated financial statements include the accounts of the Company,
the Operating Partnership and Royal Golf. All significant intercompany
transactions and balances have been eliminated.
The accompanying consolidated financial statements for the three and nine
months ended September 30, 1998 and 1997 have been prepared in accordance with
generally accepted accounting principles ("GAAP") and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. These financial statements have
not been audited by independent public accountants, but include all
adjustments (consisting of normal recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of the financial
condition, results of operations and cash flows for such periods. However,
these results are not necessarily indicative of results for any other interim
period or for the full year. The accompanying consolidated balance sheet as of
December 31, 1997 has been derived from the audited financial statements, but
does not include all disclosures required by GAAP.
Certain information and footnote disclosures normally included in financial
statements in accordance with GAAP have been omitted pursuant to requirements
of the Securities and Exchange Commission (the "SEC"). Management believes
that the disclosures included in the accompanying interim financial statements
and footnotes are adequate to make the information not misleading, but should
be read in conjunction with the consolidated financial statements and notes
thereto included in the Company's annual report on Form 10-K/A for the year
ended December 31, 1997.
The computation of basic earnings per share is computed by dividing net
income by the weighted average number of outstanding common shares during the
period. 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 three months ended September 30, 1998 and 1997 were
88,831 and 145,984, respectively. The incremental shares for the nine months
ended September 30, 1998 and 1997 were 106,919 and 146,417, respectively.
In March 1998, the Emerging Issues Task Force of the Financial Accounting
Standards Board (the "EITF") issued Issue No. 97-11, "Accounting for Internal
Costs Relating to Real Estate Property Acquisitions." This statement provides
that internal acquisition costs of identifying and acquiring operating
properties should be expensed as incurred. Prior to this statement, the only
internal acquisition costs capitalized by the Company were acquisition
bonuses. This statement applies to all internal acquisition costs incurred
after March 19, 1998. There is no material impact anticipated by the adoption
of this statement to the Company's earnings per share, financial condition, or
results of operations.
In May 1998, the EITF issued Issue No. 98-9, "Accounting for Contingent Rent
in Interim Financial Periods." This statement provides that recognition of
contingent rental income should be deferred until specified targets that
trigger the contingent rent are achieved. This statement applies to all
contingent rental income effective with the second quarter of 1998. On a
quarterly basis, there is a material impact anticipated to the Company's
earnings per share, financial condition, and results of operations. Contingent
rent not recorded in the first, second or third quarters will be recognized in
the fourth quarter. Therefore, on an annual basis, there is no material impact
anticipated to the Company's earnings per share, financial condition, or
results of operations.
6
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NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(1) Organization and Summary of Significant Accounting Policies--(Continued)
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS 133 will require the Company to
recognize all derivatives on the balance sheet at fair value. The accounting
for the changes in the fair values of such derivatives would depend on the use
of the derivative and whether it qualifies for hedge accounting. SFAS 133 is
effective for the Company's financial statements issued for periods beginning
January 1, 2000. The Company has not determined when it will implement SFAS
133, however, there is no material impact anticipated to the Company's
financial condition or results of operations. However, there could be a
material impact on comprehensive income.
The accompanying consolidated balance sheet has been restated to reflect an
accounting allocation for reporting purposes from additional paid in capital
to minority interest for the limited partners' interest in the net assets of
the Company after giving effect to their exchange rights of Common Units into
the Company's common stock. While the limited partners have not indicated such
a desire to convert their Common Units, GAAP requires 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
and limited partners of the Operating Partnership. The reallocation at
September 30, 1998 and December 31, 1997 was approximately $78.6 million and
$78.1 million, respectively.
(2) Property
During the nine months ended September 30, 1998, the Company purchased seven
golf courses for an initial investment of approximately $42.8 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. Initial investment amount includes
purchase price, closing costs and other direct costs associated with the
purchase. The aforementioned golf courses are leased to American Golf
Corporation ("AGC") pursuant to a long-term triple net lease.
<TABLE>
<CAPTION>
Acquisition Initial
Date Course Name Location Investment
----------- ----------- -------- ----------
(In
thousands)
<C> <S> <C> <C>
4/13/98 Ivy Hills Country Club Cincinnati, Ohio $ 1,806
7/8/98 Majestic Oaks Golf Club Ham Lake, Minnesota 11,907
Woodland Creek Golf Course Andover, Minnesota 559
9/1/98 The Club at Sonterra San Antonio, Texas 28,553
-------
Total Initial Investment $42,825
=======
</TABLE>
The Company recognized a gain on property condemnation of approximately $1
million due to the State of North Carolina condemning four golf holes at one
of the Company's golf courses for a state highway project. The State has not
taken physical possession of the property because the project has not been
started. The Company expects to purchase land adjacent to the golf course
sufficient to replace the condemned holes.
(3) Mortgage Notes Receivable
On August 20, 1998, the Company made a participating mortgage loan of
approximately $22.6 million to an unrelated entity that owns Badlands Golf
Course in Las Vegas, Nevada. On or before November 15, 1998, the borrower may
repay approximately $9.6 million of the principal amount. Thereafter, the
principal amount of the Company's participating mortgage loan will be $13
million. As part of the loan agreement, the Company has agreed to loan an
additional $315,000 to the borrower to be used for capital improvements at the
golf course.
7
<PAGE>
NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(3) Mortgage Notes Receivable--(Continued)
Under the terms of the participating mortgage loan, the Company will receive
minimum annual base interest equal to 8.75% of the principal amount. The
minimum interest will be increased during each of the first five years of the
15-year term of the loan. In addition, a participating interest feature will
allow the Company to participate in growth in revenues at the golf course and
a portion of the appreciation in the fair market value of the golf course.
(4) Treasury Lock Swap Transactions
In anticipation of the Operating Partnership placing $100 million of fixed-
rate, ten-year notes, the Operating Partnership entered into a $100 million
treasury lock swap transaction with a financial institution in order to hedge
its exposure to interest rate fluctuations. Under this agreement, the
Operating Partnership pays or receives an amount equal to the difference
between the treasury lock rate and the market rate on the date of settlement,
based on the principal of $100 million. The realized gain or loss on the
transaction at the settlement date will be recorded on the balance sheet and
amortized to interest expense over the period of the related note. At
September 30, 1998, the treasury lock rate was higher than the market rate.
Therefore, the Operating Partnership has an unrealized loss of approximately
$8.2 million. This amount has been recorded in the consolidated balance sheet
as other assets, with a corresponding amount recorded as other liabilities.
During 1998, the Operating Partnership entered into two other treasury lock
swap transactions, which resulted in approximately $215,000 and $151,000 being
received by the Operating Partnership. These amounts are being amortized as a
credit to interest expense over a period of ten years.
(5) Preferred Units
On March 4, 1998, the Operating Partnership completed the private placement
of 1,200,000 8% Series A Cumulative Redeemable Preferred Units ("Preferred
Units"), representing a limited partnership interest in the Operating
Partnership, to an institutional investor for a contribution to the Operating
Partnership of $60 million. The Preferred Units, which may be called by the
Operating Partnership at par on or after March 4, 2003, have no stated
maturity or mandatory redemption and pay a cumulative, quarterly dividend at
an annualized rate of 8%. The dividend attributable to such Preferred Units
has been reported as a component of minority interest, as required accounting
by the SEC, in the related financial statements. The Preferred Units are not
convertible into common stock of the Company. The Operating Partnership used
$58 million of the approximately $58.5 million of net proceeds from such
private placement to reduce outstanding indebtedness under the Operating
Partnership's revolving credit facility.
Also, on April 20, 1998, the Operating Partnership completed the private
placement of an additional 300,000 Preferred Units to the same institutional
investor for a contribution to the Operating Partnership of $15 million. The
Operating Partnership used $14.5 million of the approximately $14.6 million of
net proceeds from such private placement to reduce outstanding indebtedness
under the Operating Partnership's revolving credit facility.
(6) Pro Forma Financial Information
The pro forma financial information set forth below is presented as if the
1998 acquisitions (Note 2) had been consummated as of January 1, 1997.
8
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NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(6) Pro Forma Financial Information--(Continued)
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, 1997, nor does it purport
to represent the results of operations for future periods.
<TABLE>
<CAPTION>
For the Nine
Months Ended
September 30,
---------------
1998 1997
------- -------
(In thousands,
except per
share amounts)
<S> <C> <C>
Revenues from rental property............................... $60,626 $58,454
Net income.................................................. $10,069 $10,210
Basic earnings per share.................................... $ 0.81 $ 0.83
Diluted earnings per share.................................. $ 0.80 $ 0.82
</TABLE>
The pro forma financial information includes the following adjustments: (i)
an increase in depreciation and amortization expense and (ii) an increase in
interest expense.
(7) Statement of Cash Flows--Supplemental Disclosures
Non-cash transactions for the nine months ended September 30, 1998 include
approximately $2.3 million in capital improvements accrued but not paid. Non-
cash transactions for the nine months ended September 30, 1997 include $1.5
million of a golf course acquisition which was financed by a note payable.
(8) Other Data
AGC is the lessee of all but five of the golf course properties in the
Company's portfolio at September 30, 1998. David G. Price, the Chairman of the
Board of Directors of the Company, owns approximately 2.7% of the Company's
outstanding common stock and approximately 16.2% of the Common Units of the
Operating Partnership and a controlling interest in AGC. 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 unaudited financial
information concerning AGC:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
------------- ------------
(In thousands)
<S> <C> <C>
Current assets.................................... $ 86,320 $ 79,692
Non-current assets................................ 158,830 147,423
-------- --------
Total assets.................................... $245,150 $227,115
======== ========
Current liabilities............................... $ 94,586 $ 70,411
Long-term liabilities............................. 124,249 128,197
Minority interest................................. 461 501
Shareholders' equity.............................. 25,854 28,006
-------- --------
Total liabilities and shareholders' equity........ $245,150 $227,115
======== ========
</TABLE>
9
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NATIONAL GOLF PROPERTIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
(8) Other Data--(Continued)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
-------------------------
1998 1997
------------ ------------
(In thousands)
<S> <C> <C>
Total revenues..................................... $ 446,129 $ 404,709
============ ============
Net income......................................... $ 11,298 $ 32,486
============ ============
</TABLE>
Total revenues from golf course operations and management agreements for AGC
increased by $41.4 million, or 10.2%, to $446.1 million for the nine months
ended September 30, 1998 compared to $404.7 million for the nine months ended
September 30, 1997. The increase in revenues was primarily attributable to the
addition of 19 leased courses and four management courses.
Net income decreased by $21.2 million to $11.3 million for the nine months
ended September 30, 1998 compared to $32.5 million for the corresponding nine
months of 1997. The decrease in net income was primarily due to the reduction
in same course revenue from the adverse weather caused by El Nino in the sun
belt states, where AGC has more mature properties with higher operating
margins. In addition, while the new acquisitions contributed favorably to
revenue, such properties historically operate at lower margins in the first
year of operation.
(9) Subsequent Events
On October 15, 1998, the Board of Directors declared a distribution of $0.44
per share for the quarter ended September 30, 1998 to stockholders of record
on October 30, 1998, which distribution will be paid on November 13, 1998.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NATIONAL GOLF PROPERTIES, INC.
By: /s/ William C. Regan
Date: January 22, 1999 ----------------------------------
William C. Regan
Vice President -- Controller and
Treasurer
11
