<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K/A
AMENDMENT NO. 2
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
---------------------
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
---------------- ---------------
COMMISSION FILE NUMBER 0-24264
-------------
GOLF ENTERPRISES, INC.
(Exact name of registrant as specified in its charter)
KANSAS 75-2596237
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1603 LBJ FREEWAY, SUITE 810
DALLAS, TEXAS 75234
(Address of principal executive offices, including zip code)
(214) 247-1199
(Registrant's telephone number, including area code)
------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
----
Securities registered pursuant to Section 12(g) of the Act: Common Stock
----------------
(Title of class)
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]
The aggregate market value of the voting stock held by non-affiliates of
the registrant, as of April 25, 1996, was $36,260,000.
-------------- -----------
The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of April 25, 1996 was 6,585,482 shares.
--------------
DOCUMENTS INCORPORATED BY REFERENCE
None.
Page 1
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a),(d) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The financial statements filed as part of this report are listed in the
Index to Consolidated Financial Statements included elsewhere herein. All
financial statement schedules have been omitted because the required information
is shown in the Company's Consolidated Financial Statements or notes thereto or
they are not applicable.
(b) REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on August 8, 1995 and a Form 8-K/A
on September 11, 1995 related to the Company's acquisition of Willow Fork
Country Club ("Willow Fork"). Included in the Form 8-K/A were audited financial
statements of Willow Fork for the years ended December 31, 1994 and 1993,
unaudited financial statements of Willow Fork for the six months ended June 28,
1995 and June 30, 1994 and unaudited pro forma financial information for the
Company for the six months ended June 30, 1995 and the year ended December 31,
1994.
SUBSEQUENT REPORTS ON FORM 8-K
The Company filed a report on Form 8-K on February 6, 1996 related to the
Company's signing of a definitive asset purchase agreement and plan of merger
with NGP and an affiliate of American Golf Corporation.
25
<PAGE>
(c) EXHIBITS
2.1 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 (exhibit 2) (1)
2.2 First Amendment to 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 16, 1996 (2)
3.1 Articles of Incorporation of Golf Enterprises, Inc. (exhibit 4.1) (3)
3.2 Bylaws of Golf Enterprises, Inc. (exhibit 4.2) (3)
10.1 Promissory Note dated December 31, 1986 issued by Shandin Hills Golf Club
to the Redevelopment Agency of the City of San Bernardino, California.
(exhibit 10.45) (4)
10.3 Stock Option Agreement dated March 25, 1991 between Golf Enterprises,
Inc. and Devlin Golf, Inc. (exhibit 10.47) (4)
10.7 Promissory Note dated September 15, 1993 issued by Golf Enterprises, Inc.
to James G. Jackson and Sheila J. Smith. (exhibit 10.56) (4)
10.9 Modification Agreement dated April 13, 1994 between GTC Fund III and Golf
Enterprises, Inc. (exhibit 10.60) (4)
10.11 First Amendment to Modification Agreement dated June 22, 1994 between GTC
Fund III and Golf Enterprises, Inc. (exhibit 10.60.1) (4)
10.13 Purchaser Conversion and Consent Agreement dated April 13, 1994 between
Golf Enterprises, Inc. and Leeway & Co. (exhibit 10.61) (4)
10.15 First Amendment to Purchaser Conversion and Consent Agreement dated June
22, 1994 by and between Golf Enterprises, Inc. and Leeway & Co. (exhibit
10.61.1) (4)
10.17 Stockholders Conversion and Consent Agreement dated April 13, 1994 among
Golf Enterprises, Inc., GTC Fund II, GTC Fund III, Williams Family Trust,
Devlin Golf, Inc., S. Lambert, S. Reynolds, Leeway & Co. and R. Hubbard.
(exhibit 10.62) (4)
10.19 First Amendment to Stockholders Conversion and Consent Agreement dated
June 22, 1994 among Golf Enterprises, Inc., GTC Fund II, GTC Fund III,
Williams Family Trust, Devlin Golf, Inc., S. Lambert, S. Reynolds, Leeway
& Co. and R. Hubbard. (exhibit 10.62.1) (4)
10.21 Registration Waiver and Amendment Agreement dated April 13, 1994 among
Golf Enterprises, Inc., GTC Fund II, GTC Fund III, Leeway & Co., Williams
Family Trust, E.C. Burns, S. Reynolds, S. Lambert, Devlin Golf, Inc., J.
Colbert, R. Hubbard, K. Kochsiek, G. Zimmermann, R. Fogler and J. Barber.
(exhibit 10.63) (4)
10.23 First Amendment to Registration Waiver and Amendment Agreement dated June
22, 1994 among Golf Enterprises, Inc., GTC Fund II, GTC Fund III, Leeway
& Co., Williams Family Trust, E.C. Burns, S. Reynolds, S. Lambert, Devlin
Golf, Inc., J. Colbert, R. Hubbard, K. Kochsiek, G. Zimmermann, R. Fogler
and J. Barber. (exhibit 10.63.1) (4)
26
<PAGE>
10.25 Credit Agreement dated July 20, 1994 among Golf Enterprises, Inc.,
Bankers Trust Company; Bank One, Arizona, NA; Bank One, Texas, N.A.;
First Interstate Bank of Texas N.A.; and Girocredit Bank, A.G. Der
Sparkassen, Grand Cayman Island Branch. (exhibit 10.2) (5)
10.27 First Amendment to Credit Agreement dated February 16, 1995 by and among
Golf Enterprises, Inc., Bankers Trust Company; Bank One, Texas, N.A.;
Comerica Bank - Texas; First Interstate Bank of Texas N.A.; Giro Credit
Bank; NBD Bank; and Shawmut Bank Connecticut, N.A. (exhibit 10.27) (6)
10.28 Second Amendment to Credit Agreement dated June 22, 1995 by and among
Golf Enterprises, Inc., Bankers Trust Company; Bank One, Texas, N.A.;
Comerica Bank - Texas; First Interstate Bank of Texas N.A.; Giro Credit
Bank; NBD Bank; and Shawmut Bank Connecticut, N.A. (2)
10.29 Third Amendment to Credit Agreement dated December 5, 1995 by and among
Golf Enterprises, Inc., Bankers Trust Company; Bank One, Texas, N.A.;
Comerica Bank - Texas; First Interstate Bank of Texas N.A.; Giro Credit
Bank; NBD Bank; and Shawmut Bank Connecticut, N.A. (2)
10.30 The Agreement of Purchase and Sale dated August 18, 1994 by and among
Golf Enterprises, Inc. and Par-Mee Development Corporation, William E.
Parker, Carolyn S. Parker and Kristal L. Parker (Bent Tree Golf Club).
(exhibit 10.1) (5)
10.31 Stock Purchase and Sale Agreement dated December 20, 1994 by and between
James E. Sowell, Keith D. Martin, Paul J. Daly, Susan C. Martin and
Steven T. Hukill as Sellers and Golf Enterprises, Inc. as Buyer
(Woodhaven Country Club). (exhibit 1) (7)
10.33 Stock Purchase and Sale Agreement dated December 20, 1994 by and between
James E. Sowell, Keith D. Martin, Paul J. Daly, Susan C. Martin, Robert
H. McDole and Steven T. Hukill as Sellers and Golf Enterprises, Inc. as
Buyer (Oakridge Country Club). (exhibit 2) (7)
10.35 Stock Purchase and Sale Agreement dated December 20, 1994 by and between
James E. Sowell, Keith D. Martin, Paul J. Daly, Susan C. Martin, Robert
H. McDole and Steven T. Hukill as Sellers and Golf Enterprises, Inc. as
Buyer (Pinery Country Club and Diamond Oaks Country Club). (exhibit 3)
(7)
10.37 Asset Purchase and Sale Agreement dated December 20, 1994 by and between
Great Southwest Golf Club I Limited Partnership as Seller and Golf
Enterprises, Inc. as Buyer (Great Southwest Golf Club). (exhibit 4) (7)
10.38 The Agreement of Purchase and Sale By and Between Golf Enterprises, Inc.
and Wheatstone Development Company, dated June 29, 1995 (Willow Fork
Country Club). (exhibit 1) (8)
10.40 Golf Enterprises, Inc. 1991 Stock Option Plan. (exhibit 10.50) (4)
10.41 Promissory Note dated March 25, 1991 issued by Robert H. Williams to Golf
Enterprises, Inc. (exhibit 10.44) (4)
10.43 Stock Option Agreement dated March 25, 1991 between Golf Enterprises,
Inc. and Stephen D. Lambert. (exhibit 10.46) (4)
10.45 Employment Agreement dated March 25, 1991 by and between Golf
Enterprises, Inc. and Robert H. Williams. (exhibit 10.48) (4)
10.47 Employment Agreement dated March 25, 1991 by and between Golf
Enterprises, Inc. and Stephen D. Lambert. (exhibit 10.49) (4)
10.49 Golf Enterprises, Inc. 1994 Stock Option Plan. (exhibit 10.64) (4)
27
<PAGE>
10.50 Golf Enterprises, Inc. 1995 Stock Option Plan. (2)
10.51 Severance Agreement dated November 2, 1994 by and between Golf
Enterprises, Inc. and John H. Berndsen. (exhibit 5.1) (6)
11.1 Computation of Net Income (Loss) Per Common Share. (2)
21.1 List of Subsidiaries of Golf Enterprises, Inc. (2)
23.3 Consent of KPMG Peat Marwick LLP (9)
- - -----------------------------------
(1) Incorporated herein by reference to the designated exhibit of the
Company's Form 8-K dated February 6, 1996.
(2) Incorporated herein by reference to the designated exhibit of the
Company's Form 10-K dated March 5, 1996.
(3) Incorporated herein by reference to the Company's Registration Statement
on Form S-8 dated July 3, 1995 (Registration No. 33-94302).
(4) Incorporated herein by reference to the designated exhibit of the
Company's Registration Statement on Form S-1 dated July 13, 1994
(Registration No. 33-77706).
(5) Incorporated herein by reference to the designated exhibit of the
Company's Form 10-Q for the quarterly period ended June 30, 1994.
(6) Incorporated herein by reference to the designated exhibit of the
Company's Form 10-K for the fiscal year ended December 31, 1994.
(7) Incorporated herein by reference to the designated exhibit of the
Company's Form 8-K dated January 13, 1995.
(8) Incorporated herein by reference to the designated exhibit of the
Company's Form 8-K dated August 8, 1995.
(9) Filed herewith
28
<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.
Golf Enterprises, Inc.
June 21, 1996 By: /s/ ROBERT H. WILLIAMS
_____________________________________
Robert H. Williams
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Capacity Date
- - ---- -------- ----
<S> <C> <C>
/s/ BRYAN C. CRESSEY Chairman of the Board June 21, 1996
- - ---------------------------
Bryan C. Cressey
/s/ ROBERT H. WILLIAMS Director, President and Chief June 21, 1996
- - --------------------------- Executive Officer (principal
Robert H. Williams executive officer)
/s/ JAMES E. BERTELSMEYER Director June 21, 1996
- - ---------------------------
James E. Bertelsmeyer
/s/ THOMAS R. DEVLIN Director June 21, 1996
- - ---------------------------
Thomas R. Devlin
/s/ JOSEPH P. NOLAN Director June 21, 1996
- - ---------------------------
Joseph P. Nolan
/s/ JOHN H. BERNDSEN Vice President, Chief Financial June 21, 1996
- - --------------------------- Officer and Treasurer (principal
John H. Berndsen accounting and financial officer)
</TABLE>
29
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
GEI CONSOLIDATED FINANCIAL STATEMENTS:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1994............ F-3
Consolidated Statements of Operations for the Years Ended December 31,
1995, 1994 and 1993.................................................... F-4
Consolidated Statements of Stockholders' Equity (Deficit) for the Years
Ended December 31, 1995, 1994 and 1993................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1995, 1994 and 1993.................................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Golf Enterprises, Inc.:
We have audited the accompanying consolidated balance sheets of Golf
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December
31, 1995. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated 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 financial position of Golf
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
Dallas, Texas
February 23, 1996
F-2
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1995 1994
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 1,286 $ 4,723
Accounts and notes receivable, net (note 2(i))........... 8,777 4,161
Inventories.............................................. 3,092 2,273
Prepaid expenses......................................... 1,765 1,264
-------- --------
Total current assets................................... 14,920 12,421
Property and equipment, net (note 4)....................... 95,733 79,660
Debt issuance costs, net................................... 1,149 979
Goodwill, net (notes 2(e) and 3(b))........................ 3,881 4,007
Other assets, net (note 5)................................. 6,179 5,827
-------- --------
$121,862 $102,894
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 4,000 $ 1,965
Accrued liabilities...................................... 3,375 1,721
Current portion of long-term debt (note 6)............... 2,297 1,739
Current portion of deferred income....................... 4,292 1,630
-------- --------
Total current liabilities.............................. 13,964 7,055
Long-term debt, less current portion (note 6).............. 59,375 50,653
Deferred income, less current portion...................... 1,782 2,110
Other long-term liabilities................................ 1,029 907
Deferred income taxes (notes 3(b) and 7)................... 3,578 3,578
Stockholders' equity (notes 1(b), 8, 9, 10 and 11):
Preferred stock, $1.00 par value; 5,000,000 shares
authorized, none issued and outstanding................. -- --
Common stock, $.01 par value; 20,000,000 shares
authorized, 6,489,412 and 6,475,932 shares issued and
outstanding at December 31, 1995 and 1994,
respectively............................................ 65 65
Additional paid-in capital............................... 60,488 60,332
Accumulated deficit...................................... (17,999) (21,386)
-------- --------
42,554 39,011
Notes receivable from stockholders....................... (420) (420)
-------- --------
Total stockholders' equity............................. 42,134 38,591
Commitments and contingencies (notes 6, 10, 12, 15 and 16)
-------- --------
$121,862 $102,894
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Operating revenue:
Green fees and practice facility fees ............ $23,603 $17,835 $12,465
Dues and initiation fees.......................... 20,259 7,640 6,238
Golf cart rentals................................. 12,321 9,139 7,923
Food and beverage sales........................... 13,501 7,696 7,140
Pro shop sales.................................... 8,522 5,340 3,679
Other, including management fees.................. 1,984 1,032 959
------- ------- -------
Total operating revenue.......................... 80,190 48,682 38,404
------- ------- -------
Costs and expenses:
Payroll and benefits:
Services provided and rentals.................... 9,735 5,890 4,174
Food, beverage and pro shop...................... 6,891 3,682 2,765
Other............................................ 7,107 4,242 3,784
Cost of merchandise sold:
Food and beverage................................ 4,733 2,621 2,504
Pro shop......................................... 5,833 3,745 2,460
Depreciation and amortization..................... 6,871 4,802 4,089
Rent (note 12).................................... 6,759 4,822 3,048
Other (note 13)................................... 23,675 13,286 11,371
------- ------- -------
71,604 43,090 34,195
------- ------- -------
Operating income................................. 8,586 5,592 4,209
Interest expense, net............................... 5,090 3,996 4,801
------- ------- -------
Income (loss) before income taxes and
extraordinary item.............................. 3,496 1,596 (592)
Income taxes (note 7)............................... 109 50 52
------- ------- -------
Income (loss) before extraordinary item.......... 3,387 1,546 (644)
Extraordinary item--loss on early extinguishment of
debt (notes 1(b) and 2(d))......................... -- (2,638) --
------- ------- -------
Net income (loss)................................ 3,387 (1,092) (644)
Preferred stock dividends and accretion to mandatory
redemption value
(note 1(b))........................................ -- 1,234 1,745
------- ------- -------
Net income (loss) attributable to common
stockholders.................................... $ 3,387 $(2,326) $(2,389)
======= ======= =======
Per share data (note 2(m)):
Income (loss) per common share before
extraordinary item............................... $ 0.51 $ 0.33 $ (0.09)
Extraordinary item................................ -- (0.50) --
------- ------- -------
Net income (loss) per common share................ $ 0.51 $ (0.17) $ (0.09)
======= ======= =======
Weighted average number of common shares
outstanding...................................... 6,688 5,283 3,690
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- ADDITIONAL NOTES RECEIVABLE TOTAL
NUMBER PAID-IN ACCUMULATED FROM STOCKHOLDERS'
OF SHARES AMOUNT CAPITAL DEFICIT STOCKHOLDERS EQUITY (DEFICIT)
--------- ------ ---------- ----------- ---------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31,
1992................... 429 $ 4 $ 961 $(16,671) $ -- $(15,706)
Preferred stock
dividends and accretion
to mandatory redemption
value.................. -- -- -- (1,745) -- (1,745)
Net loss................ -- -- -- (644) -- (644)
----- --- -------- -------- ----- --------
Balances at December 31,
1993................... 429 4 961 (19,060) -- (18,095)
Preferred stock
dividends and accretion
to mandatory redemption
value.................. -- -- -- (1,234) -- (1,234)
Net loss................ -- -- -- (1,092) -- (1,092)
Proceeds from issuance
of common stock, net of
offering costs of
$1,243,000 (note
1(b)).................. 2,702 27 32,646 -- -- 32,673
Conversion of debt to
common stock (note
1(b)).................. 375 4 3,467 -- -- 3,471
Conversion of redeemable
convertible preferred
stock to common stock
(note 1(b))............ 2,970 30 23,212 -- (420) 22,822
Compensation expense--
stock options.......... -- -- 46 -- -- 46
----- --- -------- -------- ----- --------
Balances at December 31,
1994................... 6,476 65 60,332 (21,386) (420) 38,591
Net income.............. -- -- -- 3,387 -- 3,387
Proceeds from exercise
of stock options (note
11(c))................. 13 -- 130 -- -- 130
Compensation expense--
stock options.......... -- -- 26 -- -- 26
----- --- -------- -------- ----- --------
Balances at December 31,
1995................... 6,489 $65 $ 60,488 $(17,999) $(420) $ 42,134
===== === ======== ======== ===== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities--net cash
provided by operating activities (note 14)...... $ 9,635 $ 4,617 $ 4,353
-------- -------- -------
Cash flows from investing activities:
Capital expenditures........................... (8,331) (3,117) (4,090)
Proceeds from disposal of assets............... 3 231 --
Acquisitions of golf courses, net of cash
acquired (note 3)............................. (11,483) (33,073) (2,945)
-------- -------- -------
Net cash used by investing activities........ (19,811) (35,959) (7,035)
-------- -------- -------
Cash flows from financing activities:
Issuance of common stock, net.................. 130 32,673 --
Issuance of redeemable convertible preferred
stock......................................... -- -- 2,209
Proceeds from long-term debt................... 11,000 43,000 2,066
Repayments of long-term debt................... (3,931) (37,570) (2,544)
Payment of prepayment penalty on long-term debt
(note 1(b))................................... -- (1,971) --
Debt issuance costs............................ (453) (1,099) (181)
Other, net..................................... (7) (3) 148
-------- -------- -------
Net cash provided by financing activities.... 6,739 35,030 1,698
-------- -------- -------
Increase (decrease) in cash and cash
equivalents..................................... (3,437) 3,688 (984)
Cash and cash equivalents at beginning of
year............................................ 4,723 1,035 2,019
-------- -------- -------
Cash and cash equivalents at end of year......... $ 1,286 $ 4,723 $ 1,035
======== ======== =======
Cash paid during the year for:
Interest....................................... $ 4,915 $ 3,418 $ 3,889
======== ======== =======
Income taxes................................... $ 112 $ 3 $ 53
======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
(a) Operations
Golf Enterprises, Inc. (the "Company") owns, leases or contracts to manage
daily fee (public) golf courses, resort courses and private country clubs and
derives revenue from green fees, golf cart rentals, practice facility fees,
retail sale of golf merchandise, food and beverages and initiation fees and
dues of private members.The Company operated 43, 36 and 27 courses at December
31, 1995, 1994 and 1993, respectively.
(b) 1994 Financing Transaction
During the third quarter of 1994, the Company completed an initial public
offering of 2,702,500 shares of its common stock (including the exercise of
the underwriter's over-allotment option) and executed a credit agreement (the
"Credit Agreement") setting forth the terms and conditions of a new revolving
credit facility (as amended, the "Revolving Credit Facility") (see note 6(a)).
The proceeds realized by the Company totaled $33,916,000 before offering
costs. These proceeds, together with $11,000,000 of borrowings under the
Revolving Credit Facility, were used to (i) pay all outstanding obligations
due to GATX Leasing Corporation, including the outstanding debt balance and
accrued interest thereon, an additional liability resulting from the
fluctuating value of the underlying property, and a $1,971,000 prepayment
penalty associated with the early retirement of the debt (a component of the
extraordinary loss in 1994), (ii) retire the senior subordinated notes and the
related interest notes and accrued interest thereon, (iii) retire certain
notes to stockholders and accrued interest thereon, (iv) retire certain other
notes and accrued interest thereon and (v) pay fees and expenses associated
with the offering and the Revolving Credit Facility.
As part of this transaction, the holders of all classes of redeemable
convertible preferred stock and the convertible notes of the Company converted
such shares and notes into shares of common stock of the Company. In addition,
pursuant to agreements between the Company and the holders, accrued but unpaid
dividends on the redeemable convertible preferred stock and the interest notes
and additional accrued interest related to the convertible notes were paid by
delivery of additional shares of common stock.
On July 13, 1994, the Company effected a common stock split in the form of a
1.32-for-1 common stock dividend. All references to the number of shares of
common stock and per share amounts reflect the common stock split.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Basis of Presentation
The accompanying consolidated financial statements include the accounts of
the Company and its wholly owned subsidiaries. All significant intercompany
transactions and balances have been eliminated in consolidation.
F-7
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(b) Inventories
Inventories are stated at the lower of cost (weighted average cost basis) or
market, and consist primarily of food, beverages, golf equipment and clothing.
(c) Property and Equipment
Property and equipment to be held and used are stated at less impairment
losses, if any. 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 estimated useful lives of the assets. Property and equipment
held under capital leases and leasehold improvements are amortized using the
straight-line method over the shorter 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 against operations. Renewals and
betterments that materially extend the life of an asset are capitalized.
The Company periodically reevaluates the propriety of the carrying amounts
of its golf course properties to be held and used as well as the amortization
period to determine whether current events and circumstances warrant adjustments
to the carrying amounts or a revised estimate of the useful life. The Company
compares the undiscounted future net cash flows expected to result from the use
of each of its properties to the carrying amount of that property to determine
whether the Company shall recognize an impairment loss. The Company believes
that no impairment has occurred and that no reduction of the estimated useful
lives is warranted.
Property and equipment to be disposed of are stated at the lower of carrying
amount or fair value, less costs to sell. See footnote 16 for further
discussion.
All interest cost incurred has been expensed in the accompanying
consolidated financial statements.
(d) Debt Issuance Costs
Debt issuance costs represent the costs associated with obtaining the
Revolving Credit Facility, net of accumulated amortization, and are amortized
over its five-year term.
In connection with the initial public offering, the Company wrote off
$667,000 of debt issuance costs related to the debt retired. Such amount is a
component of the extraordinary loss in 1994.
(e) Goodwill
In connection with the 1994 acquisition of Great American Clubs, Inc. and
Affiliate Clubs (see note 3(b)) and the 1989 acquisition of a golf course
facility, the Company recorded aggregate goodwill of $4,244,000, representing
the excess of the purchase prices over the fair values of the net assets
acquired. This amount is being amortized over periods of 18 to 40 years.
Goodwill is presented net of accumulated amortization of $363,000 and $237,000
as of December 31, 1995 and 1994, respectively.
The Company assesses the recoverability of goodwill by determining whether
the amortization of the asset balance over its remaining life can be recovered
through the undiscounted future operating cash flows of the
F-8
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
acquired operation. The amount of impairment, if any, is measured based on
projected discounted future operating cash flows. The Company believes that no
impairment has occurred and that no reduction of the estimated useful lives is
warranted.
(f) Revenue Recognition
Revenue from green fees, practice facility fees, golf cart rentals and food,
beverage and pro shop sales is recognized at the time the facility is used or
the date of purchase.
Membership at certain of the Company's private country clubs requires
payment of an up front, non-refundable initiation fee and subsequent payments
of monthly dues. Revenue from initiation fees is recognized at the time of
sale, unless uncertainty surrounding collectability exists, and revenue from
monthly dues is recognized as earned.
Revenue from term memberships reflects the advance payment of dues and is
deferred and recognized over the term of the membership (ranging from two to
twelve years). Revenue from lifetime memberships reflects the advance payment
of dues and is deferred and recognized over the expected term of the
membership based on historical experience (approximately ten years).
(g) Lease Arrangements
The Company generally leases golf courses under terms that provide for a
lease payment equal to the greater of a percentage of gross revenues or a
minimum annual amount. The aggregate of the minimum annual payments over the
term of the lease is expensed on a straight-line basis.
Certain leases provide for reimbursement of rental payments upon completion
of lessor-approved capital improvements. These reimbursements are accounted
for as a reduction of rent expense. The related asset is depreciated in
accordance with the foregoing policy on property and equipment.
(h) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss carryforwards. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rate is recognized in income in the period that includes the enactment date.
(i) Concentration of Credit Risk
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of accounts and notes
receivable for initiation fees and monthly membership dues and expenses
incurred by club members. The Company provides an allowance for accounts and
notes receivable when factors surrounding the credit risk of a member indicate
an impairment in value.
A summary of allowance activity follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year......................... $ 216 $ 267 $ 399
Provision for doubtful accounts...................... 315 72 55
Write-off of uncollectable accounts.................. (337) (123) (187)
------- ------- -------
Balance at end of year............................... $ 194 $ 216 $ 267
======= ======= =======
</TABLE>
F-9
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(j) Fair Value of Financial Instruments
In accordance with the reporting requirements of Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of Financial
Instruments," the Company calculates the fair value of its 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.
(k) Cash and Cash Equivalents
The Company considers temporary cash investments purchased with original
maturities of three months or less and which are available for use in
operations to be cash equivalents.
(l) Reclassifications
Certain 1994 and 1993 balances have been reclassified to conform to the
current year's presentation.
(m) Per Share Data
The weighted average number of common shares outstanding during the years
ended December 31, 1995 and 1994 includes the effect of stock options, using
the treasury stock method and the average market price per share, as the
inclusion of these options has a dilutive effect on income per common share
before extraordinary item. The use of the average market price per share in
these periods results in full dilution, as such price exceeds the market price
at the end of the respective years.
The weighted average number of common shares outstanding during 1993
includes the effect of stock options issued in 1994 at prices below the
initial public offering price without regard for the antidilutive effect of
such options.
The weighted average number of common shares outstanding in 1994 and 1993
has been adjusted for (i) the retroactive effect of the conversion of the
redeemable convertible preferred stock and convertible notes to common stock,
(ii) the issuance of common stock in payment of dividends on the redeemable
convertible preferred stock and interest notes and additional accrued interest
related to the convertible notes and (iii) the common stock split, as if these
events occurred at the beginning of the respective year.
Net loss attributable to common stockholders used to calculate net loss per
common share of $0.17 and income per common share before extraordinary item of
$0.33 in 1994 excludes $1,234,000 of preferred stock dividends and accretion
to mandatory redemption value for all classes of redeemable convertible
preferred stock and $186,000 of interest expense associated with the
convertible notes. Net loss attributable to common stockholders used to
calculate net loss per common share of $0.09 in 1993 excludes $1,745,000 of
preferred stock dividends and accretion to mandatory redemption value for all
classes of redeemable convertible preferred stock and $308,000 of interest
expense associated with the convertible notes.
F-10
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(n) Use of Estimates
Management of the Company has made certain estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare the accompanying consolidated
financial statements in conformity with generally accepted accounting
principles. Actual results could differ from those estimates.
(o) Newly Issued Accounting Standards
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation"
("Statement No. 123"), which establishes a fair value based method of
accounting for stock-based compensation plans. Entities are encouraged to
adopt all provisions of Statement No. 123 and are required to comply with the
disclosure requirements of Statement No. 123. Statement No. 123 is effective
for financial statements for fiscal years beginning after December 15, 1995.
The adoption of Statement No. 123 as of January 1, 1996 did not have a
material effect on the consolidated financial condition or operating results
of the Company as the Company did not adopt the value-based measurement
concept.
The Financial Accounting Standards Board has also issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("Statement No.
121"). Statement No. 121 requires that long-lived assets and certain
intangibles be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company periodically reevaluates the carrying amounts of its
long-lived assets and the related depreciation and amortization periods as
discussed in notes 2(c) and 2(e). The adoption of Statement No. 121 as of
January 1, 1996 did not have a material effect on the Company's consolidated
financial condition or operating results.
(p) Advertising Costs
The Company expenses advertising costs as incurred.
(3) ACQUISITIONS
(a) 1995 Acquisitions
On February 10, 1995, the Company acquired substantially all of the assets
which comprise the Eldorado Country Club ("Eldorado") in McKinney, Texas.
On June 29, 1995, the Company acquired substantially all of the assets which
comprise the Willow Fork Country Club ("Willow Fork") in Katy, Texas.
The aggregate consideration for these acquisitions was $9,878,000. Funds
used for these acquisitions were obtained primarily by loans totalling
$7,000,000 under the Revolving Credit Facility.
A summary of the combined assets acquired and liabilities assumed related to
Eldorado and Willow Fork follows (in thousands):
<TABLE>
<S> <C>
Current assets.................................................... $ 446
Property and equipment and other assets........................... 9,723
Current liabilities............................................... (134)
Deferred income................................................... (157)
------
$9,878
======
</TABLE>
F-11
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) ACQUISITIONS--(CONTINUED)
(b) 1994 Acquisitions
On October 11, 1994, the Company acquired substantially all of the assets
which comprise the Bent Tree Golf Club ("Bent Tree") near Columbus, Ohio.
On December 30, 1994, the Company purchased all the common stock of three
corporations and substantially all the assets of a limited partnership,
together comprising the five private golf clubs owned by Great American Clubs,
Inc. and Affiliate Clubs ("GAC").
The aggregate consideration for these acquisitions was $33,323,000. Funds
used for these acquisitions were obtained primarily by loans totaling
$32,000,000 under the Revolving Credit Facility.
A summary of the combined assets acquired and liabilities assumed related to
Bent Tree and GAC follows (in thousands):
<TABLE>
<S> <C>
Current assets................................................... $ 1,767
Property and equipment and other assets.......................... 35,126
Goodwill......................................................... 3,578
Current liabilities.............................................. (1,296)
Long-term debt................................................... (493)
Deferred income.................................................. (1,781)
Deferred income taxes............................................ (3,578)
-------
$33,323
=======
</TABLE>
(c) 1993 Acquisitions
On June 23, 1993, the Company acquired substantially all of the assets and
assumed certain liabilities of The Trails ("Trails") golf course in Norman,
Oklahoma.
On September 16, 1993, the Company exercised its purchase option and
acquired substantially all of the assets and assumed certain liabilities of
The Plantation Golf Club ("Plantation") in Boise, Idaho. The Company operated
Plantation under an operating lease agreement from September 9, 1991 until the
purchase date.
The aggregate consideration for these acquisitions was $5,679,000.
A summary of the combined assets acquired and liabilities assumed related to
Trails and Plantation follows (in thousands):
<TABLE>
<S> <C>
Current assets.................................................... $ 36
Property and equipment and other assets........................... 6,666
Current liabilities............................................... (20)
Long-term debt.................................................... (466)
Other long-term liabilities....................................... (537)
------
$5,679
======
</TABLE>
Consideration for these acquisitions was provided from (i) the proceeds of a
note payable to a stockholder of $1,850,000 (ii) cash of $1,295,000 (including
$200,000 paid in 1991 as a purchase option) and (iii) a $2,534,000 note
payable to the seller (see note 6).
F-12
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) ACQUISITIONS--(CONTINUED)
(d) Pro forma Results of Operations
The aforementioned acquisitions have been accounted for as purchases.
Accordingly, results of operations of the acquirees have been included in the
consolidated statements of operations of the Company since the acquisition
dates. However, the consolidated statements of operations of the Company
include the results of operations of Plantation, as lessee, for periods prior
to the acquisition. Consolidated condensed pro forma results of operations for
the year ended December 31, 1993, as if the acquisitions of Trails and
Plantation occurred on January 1, 1993, do not differ significantly from the
historical consolidated results of operations presented herein.
The following unaudited pro forma financial information presents the
combined results of operations of the Company and the acquirees as if the 1995
and 1994 acquisitions had occurred on January 1, 1994 and 1993, respectively,
after giving effect to certain adjustments, including additional depreciation
and amortization expense, increased interest expense on debt related to the
acquisitions, the elimination of certain management fees and salaries paid by
GAC that will not be incurred by the Company, and for the events discussed in
note 2(m). The pro forma financial information does not necessarily reflect
the results of operations that would have occurred had the Company and the
acquirees constituted a single entity during such periods.
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
(IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Operating revenue.................................. $81,365 $68,236 $52,514
======= ======= =======
Operating income................................... $ 8,434 $ 8,327 $ 6,556
======= ======= =======
Income (loss) before extraordinary item............ $ 3,054 $ 1,096 $ (929)
======= ======= =======
Income (loss) per common share before extraordinary
item
(see note 2(m))................................... $ 0.46 $ 0.24 $ (0.17)
======= ======= =======
</TABLE>
(4) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------ ESTIMATED
1995 1994 USEFUL LIVES
-------- -------- ------------
<S> <C> <C> <C>
Land...................................... $ 15,718 $ 8,733 --
Land improvements......................... 42,884 36,464 20-40 years
Buildings................................. 19,033 16,960 40 years
Leasehold improvements.................... 13,677 10,086 8-20 years
Golf carts and equipment.................. 26,030 23,081 3-10 years
Construction in progress.................. 567 260 --
-------- --------
117,909 95,584
Less accumulated depreciation and amorti-
zation................................... (22,176) (15,924)
-------- --------
$ 95,733 $ 79,660
======== ========
</TABLE>
Golf carts and equipment include assets under capital leases with a gross
book value of $7,431,000 and $5,430,000 as of December 31, 1995 and 1994,
respectively. Accumulated amortization of these assets is $2,910,000 and
$1,731,000 as of December 31, 1995 and 1994, respectively. Amortization of
assets recorded under capital leases is included in depreciation and
amortization expense.
F-13
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) PROPERTY AND EQUIPMENT--(CONTINUED)
During 1994, the Company changed its depreciable life for certain golf carts
from six to four years. The effect of this change in estimate increased
depreciation and amortization expense and reduced income before extraordinary
item by approximately $338,000, or $0.06 per share in 1994.
(5) OTHER ASSETS
Other assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------
1995 1994
------ ------
<S> <C> <C>
Leasehold interests and origination costs, net of accumulated
amortization of $2,210,000 and $1,883,000 as of December 31,
1995 and 1994, respectively.................................. $4,692 $4,704
Refundable deposits........................................... 1,037 531
Other......................................................... 450 592
------ ------
$6,179 $5,827
====== ======
</TABLE>
(6) LONG-TERM DEBT
Long-term debt consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
----------------
1995 1994
------- -------
<S> <C> <C>
Loans under the Revolving Credit Facility (see (a))....... $52,000 $43,000
Capital lease obligations for golf carts, turf and office
equipment, principal and interest payments of $199,000
due monthly with fixed rates of interest ranging from 7%
to 18% per annum, secured by the equipment under lease
(see note 4)............................................. 4,310 3,497
Note payable to seller of Plantation (see note 3(c)), due
in 2007, with variable interest only payments for the
first seven years not to exceed a rate of 8% per annum,
secured by property and equipment of the acquired course
(aggregate net book value of $4,200,000 at December 31,
1995).................................................... 2,534 2,534
Notes payable to former principal stockholders, principal
and interest payments of $27,000 due monthly, with
interest at 8% per annum, and balloon payments due in
1998 (see (b))........................................... 1,473 1,668
Other notes payable with interest ranging from 8% to 20%
per annum................................................ 1,355 1,693
------- -------
61,672 52,392
Less current portion...................................... (2,297) (1,739)
------- -------
$59,375 $50,653
======= =======
</TABLE>
F-14
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) LONG-TERM DEBT--(CONTINUED)
(a) Revolving Credit Facility
The Revolving Credit Facility is a five-year agreement providing up to
$70,000,000 for use in refinancing certain indebtedness, financing the
acquisition or lease of golf courses and golf course management companies, and
for general working capital purposes. Loans under the Revolving Credit
Facility are unsecured and bear interest at either a Eurodollar rate or a
customary base rate, plus in each case a marginal percentage of up to 2.0%,
depending upon the Company's ratio of total debt to earnings before interest,
income taxes, depreciation, amortization and income or expense related to
terminated leased facilities ("EBITDA"). Interest is payable either quarterly
with respect to base rate loans or on the last day of selected interest
periods ranging from one to six months with respect to Eurodollar loans. The
Credit Agreement contains customary conditions and covenants, including
dividend payment limitations, capital expenditure limitations, negative pledge
covenants and financial ratio covenants. The Company was in compliance with
all restrictive covenants and conditions as of December 31, 1995.
At December 31, 1995, the loans outstanding are Eurodollar loans, bearing
interest at 7.56% to 8.0% (including a marginal percentage of 2.0% determined
by the Company's ratio of total debt to EBITDA). A portion is to be treated as
a reducing revolver, with equal installments of $2,083,000 due quarterly
beginning on March 31, 1997, and the balance is due on December 31, 1999.
(b) Notes Payable to Former Principal Stockholders
Notes payable to former principal stockholders are secured by the capital
stock of a subsidiary of the Company and an assignment of lease rents.
Interest expense to former principal stockholders during the years ended
December 31, 1995, 1994 and 1993 was $126,000, $263,000 and $244,000,
respectively.
(c) Other
A summary of future maturities of long-term debt as of December 31, 1995
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL
NOTES LEASES TOTAL
------- ------- -------
<S> <C> <C> <C>
1996............................................... $ 523 $2,090 $ 2,613
1997............................................... 503 1,460 1,963
1998............................................... 1,230 706 1,936
1999............................................... 52,095 522 52,617
2000............................................... 76 122 198
Thereafter......................................... 2,935 -- 2,935
------- ------ -------
57,362 4,900 62,262
Less interest component of capital leases.......... -- (590) (590)
------- ------ -------
$57,362 $4,310 $61,672
======= ====== =======
</TABLE>
F-15
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(7) INCOME TAXES
The components of income tax expense consist of the following (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Current--federal..................................... $ -- $ -- $ --
Current--state....................................... 109 50 52
Deferred--federal.................................... -- -- --
Deferred--state...................................... -- -- --
------- ------- -------
$ 109 $ 50 $ 52
======= ======= =======
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the U.S. federal income tax rate of 34% to income (loss) before income taxes
and extraordinary item as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1995 1994 1993
--------- ------- -------
<S> <C> <C> <C>
Expected income tax expense (benefit) at
federal statutory rate...................... $ 1,189 $ 543 $ (201)
State income taxes........................... 109 50 52
Goodwill amortization........................ 43 12 13
Change in beginning of the period balance of
the valuation allowance for deferred tax
assets allocated to income taxes............ (1,232) (571) 203
Other........................................ -- 16 (15)
--------- ------- -------
$ 109 $ 50 $ 52
========= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities as of December 31, 1995
and 1994 are presented below (in thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards....................... $ 4,200 $ 5,079
Deferred income........................................ 376 454
Allowance for doubtful accounts........................ 66 73
Other.................................................. 74 52
------- -------
Total gross deferred tax assets...................... 4,716 5,658
Less valuation allowance............................... (2,312) (3,544)
------- -------
Net deferred tax assets.............................. 2,404 2,114
------- -------
Deferred tax liabilities--property and equipment,
primarily due to differences in depreciation............ 5,982 5,692
------- -------
Net deferred tax liabilities......................... $(3,578) $(3,578)
======= =======
</TABLE>
Management believes that it is more likely than not that the net deferred
tax assets at December 31, 1995 will be realized as a result of the generation
of future taxable income during the net operating loss carryforward period and
the reversal of existing taxable temporary differences giving rise to deferred
tax liabilities.
At December 31, 1995, the Company has net operating loss carryforwards for
federal income tax purposes of $12,350,000 which expire from 2003 to 2009.
F-16
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(8) NOTES RECEIVABLE FROM STOCKHOLDERS
Notes receivable from stockholders represent advances to two stockholders to
acquire common stock of the Company. These notes bear interest at 9% per
annum, mature in 2001 and 2002 and are secured by the common stock of the
Company held by the two stockholders.
(9) PREFERRED STOCK
As of December 31, 1995 and 1994, 5,000,000 shares of preferred stock have
been authorized, the designation and terms of which may be set by the Board of
Directors of the Company.
(10) COMMON STOCK
Holders of common stock are entitled to one vote per share on all matters to
be voted upon by stockholders. In the event of a liquidation, dissolution or
winding up of the Company, the holders of common stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
liquidation rights of holders of preferred stock then outstanding, if any.
Holders of shares of common stock are entitled to receive such dividends as
the Board of Directors may declare in its discretion out of funds legally
available, subject to the prior rights of holders of preferred stock then
outstanding, if any.
The rights, preferences and privileges of holders of common stock will be
subject to and may be adversely affected by the rights of the holders of
shares of any series of preferred stock that the Company may designate and
issue in the future.
Certain holders of common stock are also entitled to certain rights with
respect to the registration of such shares under federal securities laws.
(11) STOCK OPTIONS
(a) 1991, 1994 and 1995 Stock Option Plans
The Company's 1991, 1994 and 1995 Stock Option Plans were adopted by the
Board of Directors and stockholders of the Company, as an incentive for
directors, officers and other key employees. These plans are administered by a
committee of two or more directors appointed by the Board of Directors. The
committee has sole discretion to determine employees eligible for grants of
options and all terms of the options. Generally, the exercise price of an
option must be at least 100% of the fair market value of the common stock on
the date of the grant and the term of the option may not exceed ten years. The
1991, 1994 and 1995 Stock Option Plans provide for an aggregate of 731,278,
330,000 and 300,000 shares, respectively, which may be subject to options.
Stock options under the 1994 and 1995 Stock Option Plans vest and become
exercisable over a four-year period, 20% at the date of grant and 20% for each
year from the date of grant, and will remain exercisable for as long as an
employee remains employed by the Company. Stock options under the 1991 Stock
Option Plan vest and become exercisable over a four-year period, 20% at the
date of grant and on a daily prorated basis thereafter at the rate of 20% per
year. Vesting of stock options may be accelerated under certain circumstances,
including the sale of the Company. The stock options (including the vested and
exercisable portion) generally expire and are forfeited on termination of
employment.
(b) Other Stock Options
On March 25, 1991, the Company granted stock options for 50,643 common
shares, at an average exercise price of $4.72 per share, to two option holders
of a predecessor company in exchange for the surrender of their predecessor
company options. These options are fully vested.
F-17
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(11) STOCK OPTIONS--(CONTINUED)
(c) Stock Option Activity
A summary of stock option activity follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
(IN THOUSANDS) EXERCISE PRICE
---------------- --------------
<S> <C> <C>
Outstanding at December 31, 1992............ 730 $ 4.63--$ 8.62
Grants..................................... 47 $ 8.62
-----
Outstanding at December 31, 1993............ 777 $ 4.63--$ 8.62
Grants..................................... 356 $ 8.62--$12.23
Forfeitures................................ (33) $ 8.62
-----
Outstanding at December 31, 1994............ 1,100 $ 4.63--$12.23
Grants..................................... 100 $11.25
Forfeitures................................ (15) $11.40--$12.00
Exercises.................................. (13) $ 8.62--$12.00
-----
Outstanding at December 31, 1995............ 1,172 $ 4.63--$12.23
=====
Options exercisable at December 31, 1995.... 885 $ 4.63--$12.23
=====
</TABLE>
(12) OPERATING LEASES
The Company leases certain golf courses under operating leases. Rent expense
includes rent under these leases of $5,981,000, $4,259,000 and $2,491,000,
including contingent rent of $999,000, $550,000 and $477,000 in the years
ended December 31, 1995, 1994 and 1993, respectively.
The minimum future rental payments, net of noncancellable subleases, for all
operating leases as of December 31, 1995 are as follows (in thousands):
<TABLE>
<S> <C>
1996.............................................................. $ 7,648
1997.............................................................. 5,423
1998.............................................................. 5,311
1999.............................................................. 4,977
2000.............................................................. 4,235
Thereafter........................................................ 91,286
=======
</TABLE>
Certain golf course leases contain renewal options. The expiration dates of
the leases (or option periods, if applicable) range from 1996 to 2036. The
leases generally contain provisions for rental payments based on a minimum
amount or a percentage of revenues, whichever is greater. Certain leases
provide that a portion or all of current or future lease payments may be
reduced upon completion of lessor approved capital improvements. Additionally,
certain leases are terminable by the lessor without cause or upon the sale of
the underlying property.
On October 1, 1993 the Company terminated its Los Angeles driving range
lease and recorded a loss of $334,000 primarily related to the write-off of
the net book value of property and equipment.
F-18
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(13) CONSOLIDATED STATEMENTS OF OPERATIONS
Other costs and expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Supplies, maintenance and repairs...................... $ 6,853 $ 3,779 $ 3,037
Utilities.............................................. 4,058 2,745 1,956
Insurance.............................................. 3,217 2,028 1,731
Property and other taxes............................... 2,498 1,373 1,059
Advertising and promotion.............................. 1,186 654 577
Other general and administrative....................... 5,863 2,707 2,677
Loss on lease terminations (note 12)................... -- -- 334
------- ------- -------
$23,675 $13,286 $11,371
======= ======= =======
</TABLE>
Other general and administrative consists primarily of outside professional
fees, postage and freight, printing, contract labor, bad debt expense, data
processing and bank charges.
(14) CONSOLIDATED STATEMENTS OF CASH FLOWS
(a) Cash Flows from Operating Activities
Cash flows from operating activities consist of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
------------------------
1995 1994 1993
------- ------- ------
<S> <C> <C> <C>
Net income (loss)................................... $ 3,387 $(1,092) $ (644)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization...................... 6,871 4,802 4,089
Amortization of debt issuance costs................ 283 220 246
Loss on early extinguishment of debt............... -- 2,638 --
Compensation expense--stock options................ 26 46 --
Accretion and gain on conversion of members'
deposits.......................................... 41 (43) (248)
Gain on sale of assets............................. -- (30) --
Loss on lease terminations......................... -- -- 334
Deferred minimum rent.............................. 86 (34) (25)
Interest added to principal of long-term debt...... -- 820 926
Interest added to principal of notes receivable.... -- (19) (38)
Provision for doubtful accounts.................... 315 72 55
Changes in assets and liabilities:
Accounts and notes receivable..................... (1,576) (666) (763)
Inventories....................................... (388) (91) (681)
Prepaid expenses.................................. 166 (640) (195)
Other assets...................................... 100 (390) (306)
Accounts payable and accrued liabilities.......... 1,362 (1,300) 1,361
Deferred income................................... (1,038) 324 242
------- ------- ------
Net cash provided by operating activities....... $ 9,635 $ 4,617 $4,353
======= ======= ======
</TABLE>
F-19
<PAGE>
GOLF ENTERPRISES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(14) CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
(b) Other Noncash Financing and Investing Activities
During the years ended December 31, 1995, 1994 and 1993 the Company acquired
new carts and equipment under capital leases recorded at $2,211,000,
$1,460,000 and $1,600,000, respectively, which represents the net present
values of the future minimum lease payments.
During 1995, the Company acquired a building and improvements from a
developer at a golf course facility (recorded at $1,487,000) in exchange for
certain membership privileges at the facility.
(15) CONTINGENCIES
The Company is involved in various lawsuits; however, management believes
that the lawsuits, individually or in the aggregate, will not have a material
effect on the Company's consolidated financial position or results of
operations.
(16) SUBSEQUENT EVENT
On February 2, 1996, the Company entered into a definitive agreement to sell
its 20 owned golf course properties and related assets ("the Purchased
Assets") to National Golf Properties, Inc. ("NGP"), a real estate investment
trust, and to merge immediately thereafter with a newly formed corporation
("Newco") affiliated with David G. Price (who is the Chairman of NGP's Board
of Directors and the principal shareholder of American Golf Corporation
("AGC")). Substantially all of NGP's properties are leased to AGC.
If the purchase (the "Asset Purchase") and the merger (the "Merger") are
approved by the stockholders and become effective, stockholders of the Company
will be entitled to exchange each share of their common stock for, depending
on the form of consideration paid by NGP, at NGP's option, in connection with
the Asset Purchase, either (i) a combination of $6.00 in cash and between
approximately 0.20870 and 0.31304 of a share of NGP common stock (assuming no
exercise of options to purchase the Company's common stock prior to the
Merger) valued at approximately $6.00 (subject to limitations on the maximum
and minimum number of NGP shares issuable, as discussed below), or (ii) $12.00
in cash. Subject to certain adjustments and limitations, the Company's
stockholders will receive total consideration of approximately $79,026,000,
and holders of unexpired and unexercised options to purchase the Company's
common stock will be entitled to receive, in exchange for cancellation of such
options, total consideration of approximately $2,548,000 payable in the same
proportion of cash and stock as is paid to holders of the Company's common
stock. Of this total aggregate consideration of approximately $81,600,000,
$58,000,000 will come from NGP as consideration for the Purchased Assets and
Newco will contribute approximately $23,600,000 in cash. In addition, Newco
will refinance approximately $54,900,000 of the Company's existing
indebtedness in connection with the Merger.
The Asset Purchase and the Merger are subject to certain conditions,
including approval of the stockholders of the Company and NGP. Stockholders of
the Company holding approximately 45% of its outstanding common stock (on a
fully diluted basis) have agreed to vote their shares in favor of the Asset
Purchase and the Merger. The closing of these transactions is expected to
occur in the second quarter of 1996. The Company anticipates that a loss of
approximately $19,300,000, net of income tax effect, will be recognized on the
sale of its 20 owned golf course properties and related assets to NGP.
Although the Company will recognize the loss on the sale of the Purchased Assets
upon consummation of the Asset Purchase transaction, such transaction is only a
component of the entire transaction and will occur simultaneously with the
Merger. The proceeds of the Asset Purchase together with the proceeds of the
Merger will significantly exceed the historical net book value of the Company.
Accordingly, no impairment of the Company's property and equipment has
occurred.
F-20
<PAGE>
EXHIBIT 23.3
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Golf Enterprises, Inc.:
We consent to incorporation by reference in the registration statement
(No. 33-94302) on Form S-8 of Golf Enterprises, Inc. of our report dated
February 23, 1996, relating to the consolidated balance sheets of Golf
Enterprises, Inc. and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for each of the years in the three-year period ended December 31,
1995, which report appears in the December 31, 1995 annual report on Form 10-K/A
Amendment No. 2 of Golf Enterprises, Inc.
KPMG Peat Marwick LLP
Dallas, Texas
June 21, 1996
