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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------------
FORM 10-K/A
AMENDMENT NO. 1
[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
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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
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COMMISSION FILE NUMBER 0-24264
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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)
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Securities registered pursuant to Section 12(b) of the Act: None
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Securities registered pursuant to Section 12(g) of the Act: Common Stock
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(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.
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The number of shares outstanding of the registrant's Common Stock, $.01 par
value, as of April 25, 1996 was 6,585,482 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
None.
Page 1
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PART I
ITEM 1. BUSINESS
GENERAL
Golf Enterprises, Inc. ("GEI" or the "Company") is a golf course operator
that owns, leases or contracts to manage 44 golf courses in 18 states, primarily
in the southern and western United States. GEI operates daily fee (public) and
resort courses and private country clubs and derives revenue from green fees and
practice facility fees, dues and initiation fees of private members, golf cart
rentals, retail sale of food, beverages and pro shop merchandise, and management
fees.
The Company's strategy is to grow revenue and operating cash flow by
(i) identifying and acquiring well-located courses that have the potential for
significant improvement under professional management, (ii) installing trained
management personnel and standardized operating systems, (iii) creating a value
image by making visible, cost-effective capital improvements and upgrading the
quality of the golf course turf grass under the supervision of the Company's
director of agronomy, (iv) enhancing the golf experience by emphasizing customer
service and the projection of a professional image, (v) implementing marketing
programs to increase the number of rounds of golf played at daily fee and resort
courses and the number of members at private clubs and (vi) improving
merchandising and pro shop, food and beverage and practice facility operations.
HISTORY
The Company is a Kansas corporation and was formed in connection with a
1991 recapitalization (the "Recapitalization") to acquire substantially all of
the equity interest in Jim Colbert Golf, Inc. ("JCG"), which began operations in
1981. Unless the context indicates otherwise, all references herein to the
"Company" or "GEI" include JCG (the Company's wholly owned subsidiary) and the
operations of JCG prior to the Recapitalization.
On July 13, 1994, the Company completed an initial public offering of
2,350,000 shares of its common stock, and on August 22, 1994, the underwriter of
the initial public offering exercised its over-allotment option, purchasing an
additional 352,500 shares of common stock. Upon closing of the offering, a
credit agreement (the"Credit Agreement") was executed setting forth the final
terms and conditions of a revolving credit facility (the "Revolving Credit
Facility"). The proceeds of the offering, together with borrowings under the
Revolving Credit Facility, were used to retire debt, pay related accrued
interest and prepayment penalties and pay fees and expenses associated with the
offering and the Revolving Credit Facility.
Upon consummation of the initial public offering, the holders of all
classes of redeemable convertible preferred stock and convertible notes of the
Company converted such redeemable convertible preferred stock 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. Also in connection with the offering, the
Company effected a common stock split in the form of a 1.32-for-1 common stock
dividend.
On February 2, 1996, the Company entered into a definitive agreement to
sell its 20 owned golf course properties and certain related assets (the
"Purchased Assets") to NGP and to merge immediately thereafter with a newly
formed corporation ("Newco") affiliated with American Golf Corporation.
Substantially all of NGP's properties are managed by American Golf Corporation.
If the purchase (the "Asset Purchase") and the merger (the "Merger") are
approved by the Company's stockholders and become effective, stockholders of the
Company will be entitled to exchange each share of their common stock of the
Company for, depending on the form of consideration paid by NGP, at NGP's
option, for the Purchased Assets, 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), or (ii) $12.00 in cash. Subject to
certain adjustments and limitations, stockholders of the Company will receive
total
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consideration of $79,026,000, and holders of unexpired and unexercised options
to purchase common stock of the Company will be entitled to receive, in exchange
for cancellation of such options, total consideration of $2,548,000 payable in
the same proportion of cash and stock as is paid to holders of common stock of
the Company. Of this total aggregate consideration of approximately $81,600,000,
NGP will pay approximately $58,000,000 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 currently expected
to occur in the second quarter of 1996.
INDUSTRY OVERVIEW
According to the National Golf Foundation (the "NGF"), at December 31,
1994, there were 24.3 million golfers in the United States, which represented a
net gain of only 147,000 golfers, or 0.6% growth, over the last five years. The
general population growth rate exceeded the golfer growth rate as indicated by
the decreasing golf participation rate, which fell from 12.0% in 1989 to 11.4%
in 1994. Golfers in the United States played 464.8 million rounds in 1994, a
decrease of 0.9% from the 469 million played in 1989. Core golfers, those
playing eight or more rounds, comprised 45.9% of all golfers in 1994 and
accounted for 87.6% of all rounds played.
Over the next several years, the Company expects to see a rebound in the
overall participation rates for golfing due to continued growth in the number of
golf courses as well as supporting demographic trends, such as aging baby
boomers. Over the next five years, the population of the 40-49 and 50-59 age
groups are expected to grow by 14% and 21%, respectively.
Growth in golf course supply was evident in golf course construction. Since
1989 the industry added 1,201 golf courses, bringing December 31, 1994 course
supply to 14,939. This represented an 8.7% increase over the last five years.
Additionally, the NGF estimated that a total of 634 golf courses were scheduled
to open in 1995. However, management believes that after 1995 the rate at which
new golf courses will be constructed will decrease as a result of the lack of
available development capital, increasing restrictions on development and
increasing requirements of environmental and water regulation. The Company
believes existing, well-located courses will become more valuable over time as
increased demand may enable these courses to increase throughput (i.e. rounds
per year) and fees.
The golf industry is comprised of three general course types: daily fee
courses, resort courses and private country clubs. According to NGF estimates,
of the 14,939 courses in the United States today, 68% are daily fee, including
public, municipal and resort courses, and 32% are private country clubs. Daily
fee courses are open to the public and generate revenue principally from green
fees, golf cart rentals and practice facility charges. Facilities at daily fee
courses generally include golf courses, practice facilities, clubhouses with pro
shops carrying a limited inventory of golf merchandise, limited locker
facilities and a snack bar food and beverage operation. The operation of a daily
fee course focuses on maximization of the number of rounds played given the
limitations of the particular course. Certain daily fee courses draw a high
percentage of players from outside the immediate area in which the course is
located. Such courses are referred to as resort courses and typically include
the more extensive facilities found at private country clubs, including
championship courses.
Private country clubs are typically closed to the public and generate
revenue principally through member initiation fees, monthly membership dues,
golf cart rentals and guest green fees. Facilities at private country clubs
generally include championship-quality golf courses, practice facilities,
clubhouses with pro shops carrying an extensive inventory of golf merchandise,
locker and card room facilities and multiple food and beverage operations,
including grills, evening dining and banquet facilities. Members of private
country clubs are either equity owners of the club or have non-equity membership
privileges. The operation of a private country club focuses primarily on
maximization of the membership base.
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The Company believes that the ownership and operation of golf courses in
the United States is highly fragmented, with less than 5% of golf courses owned
and operated by multi-course management companies. Most golf courses are owned
by individuals, municipalities or other government entities. The Company
believes that the industry will experience consolidation as existing owners and
operators continue to experience financial and operating difficulties and sell
or lease courses to professional management companies such as the Company.
COMPETITION
GEI is a golf course management company which competes for the purchase of
golf courses with NGP and Club Corporation International and for the lease
and/or management of golf courses with American Golf Corporation and Club
Corporation International. In addition, the Company also competes for the
purchase and lease of golf courses with regional golf course companies that each
operate several golf courses and, less frequently, with individuals and small
ventures that typically operate one or more golf courses. In the acquisition of
golf courses, companies compete primarily on the basis of price and their
reputation for operating golf courses.
In the operation of golf courses, the Company competes on the basis of
price, the quality of a golf course and customer service. Golf courses are
subject to competition for players and members from other golf courses located
in the same geographic areas. The number and quality of golf courses in a
particular area can have a material effect on the revenue of a golf course. In
addition, revenue is affected by a number of factors, including the demand for
golf and the availability of other forms of recreation.
ACQUISITIONS
Sources
Because of its experienced management, national operations and financial
strength, the Company believes it can actively participate in the consolidation
of the golf industry. Information about acquisition opportunities is obtained
through contacts at every level of the Company, including golf course general
managers, regional managers and senior management. Industry association
contacts, golf course brokers, and golf industry vendors also provide
information about potential acquisitions. Management's knowledge of existing
golf courses throughout the United States and personal relationships with
numerous golf course owners and operators provide the Company with extensive
information regarding acquisition opportunities.
Acquisition Criteria
The Company targets well-located, underperforming daily fee and resort
courses and private country clubs that meet certain general criteria. The
principal criteria for evaluating acquisition opportunities include course
location and visibility, size and demographics of the surrounding population
base, course condition and current operating costs, and the location, quality
and price of local competition.
When evaluating a course location, the Company considers access to the
course, visibility, proximity to competition and the seasonal conditions which
will affect the play and maintenance of the course. The population base near a
golf course should be large enough to support that course and local competition.
In addition, the Company obtains a detailed demographic study of the local
population, to assist it in determining the likelihood that golf will be a sport
of preference for that population. When evaluating the condition of a course,
the Company looks for operating inefficiencies which can be corrected, potential
capital improvements which will enhance course quality and increase revenue, and
other operational problems which can be improved by the Company's professional
management. The Company analyzes the local competition by focusing on the
condition of a competitor's golf course, its level of service and the total
price at which the golf product is provided. The Company then determines whether
it will be able to provide a better product at a more competitive price, while
achieving desired operating margins at the target location.
In addition to these general criteria, the Company evaluates other specific
factors which vary depending upon whether the golf course is a daily fee,
private country club or resort course. At a daily fee course, the
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Company reviews potential marketing options and considers how the number of
rounds played might be increased, what fees can be charged and how increases
might be restricted, the length of any proposed lease and the potential
relationship with a landlord, particularly where a municipality is involved. At
a private country club, the Company analyzes the membership profile, how
membership and dues might be increased, whether the members currently have
equity ownership, what past liabilities or promises to members exist and the
extent of any deferred maintenance costs. If the Company has targeted a resort
course, the Company also assesses other risks associated with the particular
playing population at that course, such as access to the resort area and
dependence upon affiliated resort facilities.
COURSE OPERATIONS
Management and Employees
The Company has 6 regional managers (as of December 31, 1995) who report to
the Senior Vice President of Operations. Each course has a general manager who
reports to a regional manager, at least one assistant manager, a superintendent
and between 20 and 125 part time and full time staff members. Course staff
levels fluctuate significantly on a seasonal basis.
General managers have overall responsibility for golf course operations,
including the practice facilities, pro shops, food and beverage operations and
banquet facilities. In addition, general managers work with regional managers to
prepare monthly and annual budgets and marketing plans. Superintendents report
to the general manager and have responsibility for the quality of turf
conditions, maintenance of the course and execution of the comprehensive
agronomic plan prepared for each course by the Company's agronomy personnel.
The Company places great importance on recruiting and training skilled
personnel. Newly acquired golf courses are staffed either with a general manager
who was trained as an assistant manager at another GEI course, or with the
existing course manager who will learn the Company's systems and expectations
from an experienced GEI manager. The Company recruits assistant managers
directly from college, focusing on business and marketing majors. Assistant
managers displaying high levels of motivation and business and managerial talent
are promoted to general managers as the Company acquires more courses.
Management seeks to hire superintendents with college degrees in agronomy and
prior experience in the golf industry. Regional managers, general managers and
superintendents are provided bonus incentives to achieve revenue and operating
goals.
Operating Improvements
The Company employs specific operating strategies to increase revenue and
improve operating cash flow at each of its golf courses. In addition to the
professional general manager and superintendent staffed immediately upon
acquisition of a golf course, the Company also implements uniform cash control
and accounting and management information systems. The Company makes visible,
cost-effective capital improvements to enhance the quality of the golf course,
including general golf course manicure, improvement of turf grass quality
through implementation of a turf seeding/landscaping plan designed by the
Company's agronomy personnel, repairs of cart paths and other structures and
refurbishment of clubhouses.
While initial improvements are being made, the Company focuses on
developing marketing plans to increase revenue and developing budgets to control
costs. Marketing plans for daily fee courses focus on increasing rounds played
and include increasing seniors' play during weekday mornings, increasing league
and tournament play, extending special fee offers to fill weekday afternoons and
promotions to increase cart rentals. Potential customers are contacted through
direct mail advertising and promotions through newspapers, radio and other local
publications. Marketing plans for private country clubs focus on achieving full
membership potential, increasing cart rentals and use of other services, and
setting initiation fees and monthly dues at competitive rates. Potential members
are contacted through general advertising and promotion and by membership
directors who are hired to recruit new members and promote continuing member
participation in club activities.
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Newly acquired courses have historically generated relatively large revenue
increases during each of the first two to three years under GEI's management,
with lesser increases in following years. As the operations of a golf course
mature through the initial stage, the Company must look for creative ways to
continue increasing revenue and operating cash flow. These include further
refinement of marketing plans and budgets, additional capital improvements and
greater focus on other aspects of the operations, such as practice facilities,
pro shops, food and beverage operations and banquet facilities. Course quality,
playability and customer service are continually reviewed to ensure high quality
at an efficient cost. Additional cost-cutting measures are evaluated in light of
their impact on course quality.
SEASONALITY
Seasonal weather conditions limit the playing season at certain of the
Company's golf courses. As a result, the second and third quarters of the year
tend to account for a greater portion of the Company's operating revenue and
operating income than do the first and fourth quarters of the year. This
seasonal pattern, as well as the timing of new course purchases or leases, may
cause the Company's results of operations to vary significantly from quarter to
quarter.
GOVERNMENTAL REGULATION
Environmental Matters
Operations at the Company's golf courses involve the use and storage of
various hazardous materials such as herbicides, pesticides, fertilizers, motor
oil and gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removing such hazardous substances that are released on or in its
property and for remediation of its property. Such laws often impose liability
regardless of whether a property owner or operator knew of, or was responsible
for, the release of hazardous materials. In addition, the presence of such
hazardous substances, or the failure to remediate the surrounding soil when such
substances are released, may adversely affect the ability of a property owner to
sell such real estate or to pledge such property as collateral for a loan. The
Company has not been informed by the United States Environmental Protection
Agency (the federal agency which regulates environmental matters related to the
Company's operations) or any state or local governmental authority of any non-
compliance or violation of any environmental laws, ordinances or regulations
likely to be material to the Company, and the Company believes that it is in
substantial compliance with all such laws, ordinances and regulations applicable
to its properties and operations. The Company has not performed invasive
procedures such as soil sampling or ground water analysis on all of the golf
courses it owns or operates, and there may be potential environmental
liabilities or conditions of which the Company is not aware. In addition, there
are a number of underground storage tanks located on various of the Company's
golf courses. Although these storage tanks are in substantial compliance with
current federal or state requirements, the Company is in the process of removing
these storage tanks and does not believe, based on its prior experience, that
the cost of removing or replacing these tanks or, if necessary, remediating the
surrounding soil will be material to its financial condition or results of
operations. However, there can be no assurance that the removal or replacement
of such tanks and/or the remediation of surrounding soil will not materially and
adversely affect the Company.
General
The Company is subject to the Fair Labor Standards Act and various state
laws governing such matters as minimum wage requirements, overtime and other
working conditions and citizenship requirements. A significant number of the
Company's golf course personnel receive the federal minimum wage, and increases
in the minimum wage would increase the Company's labor costs. In addition, the
Company is subject to certain state "dram-shop" laws, which provide a person
injured by an intoxicated individual the right to recover damages from an
establishment that wrongfully served alcoholic beverages to the intoxicated
individual. The Company is also subject to the Americans with Disabilities Act
of 1990, which, among other things, may require certain minor renovations to
various clubhouses at the Company's properties to meet federally mandated access
and use
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requirements. The cost of these renovations is not expected to be material to
the Company. The Company believes it is operating in substantial compliance with
applicable laws and regulations governing its operations.
EMPLOYEES
At December 31, 1995, the Company had a total of 2007 part-time and full-
time employees, 42 located at corporate headquarters, 6 regional managers and 82
course managers and superintendents. The majority of the Company's golf course
employees receive the minimum wage. The maintenance and groundskeeping employees
at the Company's Mission Hills golf courses are represented by a labor union.
ITEM 2. PROPERTIES
The Company currently owns, leases or manages 44 golf courses in 18 states,
with 8 courses in California, 7 courses in Texas, 5 courses in Florida, 4
courses in Louisiana, 3 courses in Nevada, 2 courses in Arizona, 2 courses in
Kansas, 2 courses in Oklahoma, 2 courses in South Carolina, 1 course in
Arkansas, 1 course in Colorado, 1 course in Idaho, 1 course in Minnesota, 1
course in New Mexico, 1 course in North Carolina, 1 course in Ohio, 1 course in
Oregon and 1 course in Tennessee. Of these, 20 are daily fee courses, 20 are
private country clubs and 4 are resort courses. Set forth below is information
concerning each of the Company's golf courses.
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<TABLE>
<CAPTION>
Year Company Lease Green Approximate
Operations Ownership Expiration Fees Number of Playing
Daily Fee Courses Commenced Type and Extensions Range Rounds in 1995 Season
- - ----------------- --------- ---- -------------- ----- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Bayou Barriere Golf Club 1989 Leased 1998 $12-25 56,000 Year-round
New Orleans, LA 7-3 year options
Bent Tree Golf Club 1994 Owned N/A 33-53 34,000 March-
Sunbury, OH October
Briarwood Golf Club 1989 Leased 1998 13-27 49,000 Year-round
Baton Rouge, LA 2-5 year options
Canoa Hills Golf Course 1994 Leased 1999 40-67 65,000 Year-round
Green Valley, AZ
Crystal Lake Golf Course 1995 Leased 1999 23-37 33,000 (1) April-
Lakeville, MN 2-5 year options October
Desert Rose Golf Course 1984 Leased 2004 19-41 80,000 Year-round
Las Vegas, NV
Emerald River Golf Course 1993 Leased 2003 27-45 38,000 Year-round
Laughlin, NV 2-5 year options (2)
Forrest Crossing Golf Course 1989 Owned N/A 28-43 40,000 March-
Nashville, TN November
Indian Creek Golf Course 1995 Management 1998 21-24 110,000 (3) Year-round
Carrollton, TX Contract 1-2 year option
Jess Ranch Golf Club 1993 Leased 2008 13-18 50,000 Year-round
Apple Valley, CA 1-5 year option (4)
Las Vegas Golf Club 1981 Leased 1999 12-21 120,000 Year-round
Las Vegas, NV 1-5 year option
The Links at Stono Ferry 1989 Owned N/A 22-32 45,000 Year-round
Charleston, SC
Paradise Hills Golf Club 1996 Leased 2016 15-28 (5) Year-round
Albuquerque, NM
Paradise Knolls Golf Club 1992 Leased 2012 17-27 52,000 Year-round
Riverside, CA 2-5 year options (6)
Pawtuckett Golf Club 1989 Owned N/A 27-34 30,000 March-
Charlotte, NC November
San Dimas Canyon Golf Club 1986 Leased 2010 19-26 85,000 Year-round
San Dimas, CA
Shandin Hills Golf Club 1989 Leased 2037 15-28 64,000 Year-round
San Bernardino, CA
Simi Hills Golf Course 1992 Leased 2007 19-30 95,000 Year-round
Simi Valley, CA
Summerfield Crossing Golf Club 1989 Owned N/A 20-33 61,000 Year-round
Tampa, FL
Williams Golf Course 1993 Leased 1996 (2,7) 15-27 69,000 Year-round
Mesa, AZ
</TABLE>
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<TABLE>
<CAPTION>
Year Company Lease Approximate
Operations Ownership Expiration and Number of Playing
Private Country Clubs (8) Commenced Type Extensions Members Season
- - ------------------------- --------- ---- ---------- ------- ------
<S> <C> <C> <C> <C> <C>
The Classics at Lely Resort 1995 Leased 2034 280 (9) Year-round
Naples, FL
Corvallis Country Club 1995 Management 2015 560 March-
Corvallis, OR Contract November
Crescent Oaks Country Club 1990 Owned N/A 430 Year-round
Clearwater, FL
Diamond Oaks Country Club 1995 Owned N/A 710 Year-round
Fort Worth, TX
Eldorado Country Club 1995 Owned N/A 780 Year-round
McKinney, TX
Great Southwest Golf Club 1995 Owned N/A 570 Year-round
Grand Prairie, TX
Highlands Golf and Supper Club 1987 Owned N/A 660 March-
Hutchinson, KS November
Killearn Country Club and Inn 1995 Leased 2020 1,000 Year-round
Tallahassee, FL
Links O'Tryon Golf Course 1994 Leased 2009 270 (10) Year-round
Greenville, SC 2-5 year options
Meadowbrook Country Club 1985 Owned N/A 550 March-
Tulsa, OK November
North Hills Country Club 1989 Leased 1999 410 March-
Sherwood, AR 4-5 year options November
Oakridge Country Club 1995 Owned N/A 750 Year-round
Garland, TX
Pinery Country Club 1995 Owned N/A 830 April-
Denver, CO November
The Plantation Golf Club 1991 Owned N/A 520 April-
Boise, ID November
Shenandoah Country Club 1988 Owned N/A 570 Year-round
Baton Rouge, LA
Stonebridge Country Club 1989 Owned N/A 510 Year-round
New Orleans, LA
Tallgrass Country Club 1989 Owned N/A 550 March-
Wichita, KS November
The Trails 1993 Owned N/A 450 March-
Norman, OK November
Willow Fork Country Club 1995 Owned N/A 770 Year-round
Katy, TX
Woodhaven Country Club 1995 Owned N/A 610 Year-round
Fort Worth, TX
</TABLE>
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<TABLE>
<CAPTION>
Year Company Lease Green Approximate
Operations Ownership Expiration and Fees Number of Playing
Resort Courses Commenced Type Extensions Range Rounds in 1995 Season
- - -------------- --------- ---- ---------- ----- -------------- ------
<S> <C> <C> <C> <C> <C> <C>
Lely Flamingo Island Club 1995 Leased 2034 $39-122 (9) Year-round
Naples, FL
Mission Hills North Golf Course-- 1994 (11) Leased 1996 (7) 80-130 41,000 Year-round
The Gary Player Course
Palm Springs, CA
Tustin Ranch Golf Club 1989 Management 1996 (2,7) 70-95 60,000 Year-round
Tustin, CA Contract
Westin Mission Hills Resort Golf 1994 (11) Leased 1996 (7) 80-130 40,000 Year-round
Course
Palm Springs, CA
</TABLE>
____________________
(1) Leased in July 1994 with operations commencing in May 1995.
(2) Terminable by lessor without cause.
(3) The course is a 36-hole course; a round is considered 18 holes.
(4) Terminable by lessor upon sale of property.
(5) Leased in April 1996.
(6) Terminates automatically upon sale of property.
(7) The Company is currently negotiating an extension.
(8) Monthly dues range from $95 to $250 and initiation fees range from $250 to
$47,500.
(9) Leased in December 1995.
(10) Course is semi-public; green fees for non-members range from $15 to 35.
(11) Leased in December 1993 with operations commencing in January 1994.
Each golf course generally consists of an 18-hole course, practice
facilities, clubhouse with pro shop and food and beverage facilities. Some
courses also include tennis courts, swimming pools and banquet facilities.
In addition to the golf courses, at December 31, 1995, the Company leased
9,848 square feet of office space in Dallas, Texas for its corporate
headquarters. This lease expires in December 1998 and requires annual rental
payments of approximately $134,000.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in legal proceedings arising in the ordinary course
of its business. The Company is not involved in any legal proceedings which it
believes could have a material adverse effect upon its consolidated financial
condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of stockholders of the Company during
the fourth quarter of fiscal year 1995.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION FOR COMMON STOCK
GEI's common stock (the "Common Stock") is traded on the Nasdaq Stock
Market ("Nasdaq") under the symbol GLFE. The following table reflects the range
of high and low selling prices of Common Stock by quarter since its initial
public offering in July 1994. This information is based on closing prices as
reported by Nasdaq.
<TABLE>
<CAPTION>
1995 1994 1995 1994
------ ------ ------ ------
High Low High Low
------ ------ ------ ------
<S> <C> <C> <C> <C>
First Quarter $12.25 $ 7.75 N/A N/A
Second Quarter 14.00 10.25 N/A N/A
Third Quarter 14.25 12.25 $15.00 $12.50
Fourth Quarter 13.75 6.75 13.50 10.25
</TABLE>
HOLDERS
At April 25, 1996, there were approximately 74 holders of record and 736
beneficial holders of the Company's Common Stock.
DIVIDENDS
No dividends were declared in fiscal 1995. GEI is currently restricted by
certain debt covenants from paying dividends during the term of its Credit
Agreement. See Note 6 to the Consolidated Financial Statements in Item 8.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
Set forth on the following page are the selected consolidated financial and
operating data for each of the years in the five-year period ended December 31,
1995. The statement of operations data for the year ended December 31, 1991
represent the combined results of operations of JCG for the period from January
1, 1991 to March 24, 1991 and the Company for the period from March 25, 1991 to
December 31, 1991. The statement of operations data for the period from January
1, 1991 to March 24, 1991 have been derived from the unaudited historical
financial statements of JCG. The statement of operations and balance sheet data
as of and for the period from March 25, 1991 to December 31, 1991 and as of and
for the years ended December 31, 1992, 1993, 1994 and 1995 have been derived
from the audited financial statements of the Company. The data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations in Item 7," as well as the Consolidated Financial
Statements of the Company and notes thereto in Item 8.
11
<PAGE>
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------------------------------------
1995 1994 1993 1992 1991 (1)
----------- ------------ ------------ ----------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Statement of Operations Data:
Operating revenue $ 80,190 $ 48,682 $ 38,404 $ 34,716 $ 30,137
-------- -------- -------- -------- --------
Costs and expenses:
Operating expenses 64,733 38,288 29,772 26,316 24,285
Depreciation and amortization (2) 6,871 4,802 4,089 3,995 4,398
Other expense (3) - - 334 88 2,226
-------- -------- -------- -------- --------
Total costs and expenses 71,604 43,090 34,195 30,399 30,909
-------- -------- -------- -------- --------
Operating income (loss) (4) 8,586 5,592 4,209 4,317 (772)
Interest expense, net 5,090 3,996 4,801 5,177 5,184
-------- -------- -------- -------- --------
Income (loss) before income taxes
and extraordinary item 3,496 1,596 (592) (860) (5,956)
Income taxes (5) 109 50 52 42 22
-------- -------- -------- -------- --------
Income (loss) before extraordinary
item 3,387 1,546 (644) (902) (5,978)
Extraordinary item (6) - 2,638 - - -
-------- -------- -------- -------- --------
Net income (loss) $ 3,387 $ (1,092) $ (644) $ (902) $ (5,978)
======== ======== ======== ======== ========
Income (loss) per common share
before extraordinary item (7) $ 0.51 $ 0.33 $ (0.09)
======== ======== ========
Balance Sheet Data (at year-end):
Working capital (deficit) $ 956 $ 5,366 $ (1,573) $ (118) $ (1,285)
Total assets 121,862 102,894 58,087 49,438 48,225
Long-term debt, net of current portion 59,375 50,653 45,156 40,105 39,750
Redeemable convertible preferred stock - - 22,212 17,258 13,863
Stockholders' equity (deficit) 42,134 38,591 (18,095) (15,706) (13,410)
Supplemental Data:
Net cash provided by operating
activities 9,635 4,617 4,353 3,761 2,216
Net cash used by investing activities (19,811) (35,959) (7,035) (2,683) (3,011)
Net cash provided (used) by financing
activities 6,739 35,030 1,698 (256) 1,315
Number of golf facilities at year-end 43 36 27 22 19
Number of rounds played (in thousands) 1,793 1,388 1,238 1,124 933
</TABLE>
12
<PAGE>
_______________
(1) Represents the combined results of operations of JCG from January 1, 1991
to March 24, 1991 (unaudited) and the results of operations of the Company
for the period from March 25, 1991 (the date of the Recapitalization) to
December 31, 1991.
(2) Includes amortization of consulting, confidentiality and noncompete
agreements recorded in connection with the Recapitalization of $211,000,
$845,000 and $887,000 in 1993, 1992 and 1991, respectively.
(3) Consists of non-recurring, non-cash charges associated with the early
termination of leases and in 1991 includes a one-time charge to
compensation expense recorded by JCG in connection with the
Recapitalization in the amount of $1,011,000, primarily associated with
payments made to cancel certain stock options.
(4) Includes effects of (i) corporate relocation expenses of $347,000 and
$173,000 in 1993 and 1991, respectively, and (ii) operating income (loss)
associated with terminated leased facilities of ($347,000), ($33,000) and
$82,000 in 1993, 1992 and 1991, respectively.
(5) Consists solely of state income taxes.
(6) In 1994, in connection with the initial public offering, the Company paid
prepayment penalties of $1,971,000 associated with the early retirement of
debt and wrote off $667,000 of debt issuance costs related to the debt
retired.
(7) Income (loss) per common share before extraordinary item is based on the
weighted average number of common shares outstanding. The weighted average
number of common shares outstanding during 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 1995 and 1994 results in full dilution,
as such price exceeds the market price at the end of the respective
periods. The weighted average number of common shares outstanding during
1994 and 1993 have been adjusted for (i) the retroactive effect of the
conversion of the Company's 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. 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. Net loss attributable to
common stockholders used to calculate income (loss) per common share before
extraordinary item excludes $1,234,000 and $1,745,000 of preferred stock
dividends and accretion to mandatory redemption value for all classes of
redeemable convertible preferred stock during 1994 and 1993, respectively,
and $186,000 and $308,000 of interest expense associated with the
convertible notes during 1994 and 1993, respectively.
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" in Item 6 as well as the Consolidated
Financial Statements of the Company and Notes thereto in Item 8.
GENERAL
The Company seeks to achieve continued growth in revenue and operating cash
flow by acquiring, either through purchase, lease or contract to manage,
underperforming daily fee, resort and private golf courses and by implementing
operating improvements to enhance financial performance. Operating revenue
includes green fees and practice facility fees, dues and initiation fees of
private members, golf cart rentals, retail sale of food, beverages and pro shop
merchandise, and management fees. Historically, the percentage of the Company's
total operating revenue represented by each of these revenue categories has not
fluctuated significantly.
The Company acquires golf courses through purchase, lease or a contract to
manage. The Company currently owns fee title to 20 of its courses, the purchase
prices of which have been financed with unsecured indebtedness, equity
contributions and/or seller financing. The Company currently operates 21 leased
golf courses, all of which are classified as operating leases for financial
reporting purposes. As a result, leased courses result in lower depreciation and
interest expense than do purchased courses. Management fees received under the
Company's three management agreements are classified as operating revenue and
any associated expenses are classified as operating expenses.
The Company operated 43 golf courses at December 31, 1995 (and has leased
one additional golf course facility subsequent to December 31, 1995). The
following table sets forth, for the periods indicated, the change in the number
of golf courses owned, leased or managed by the Company during each of the last
three years.
<TABLE>
<CAPTION>
Owned Leased Managed Total
----- ------- ------- ------
<S> <C> <C> <C> <C>
At December 31, 1992....................... 10 11 1 22
Increases during 1993..................... 1 5 -- 6
Decreases during 1993..................... -- (1) -- (1)
Transfers during 1993 *................... 1 (1) -- --
-- -- - --
At December 31, 1993....................... 12 14 1 27
Increases during 1994..................... 6 3 -- 9
-- -- - --
At December 31, 1994....................... 18 17 1 36
Increases during 1995..................... 2 3 2 7
-- -- - --
At December 31, 1995....................... 20 20 3 43
== == = ==
- - ----------------
</TABLE>
* The Company leased The Plantation Golf Club from September 1991 until it
purchased the course in September 1993.
Courses are leased or purchased at varying times throughout the year.
Depending on the length of the partial year for which a course is operated, the
seasonality of operations and the unique operating improvements of a course,
results of operations of a course for a portion of a year may not be indicative
of the results of operations at the course for an entire year.
SUBSEQUENT EVENT
On February 2, 1996, the Company entered into a definitive agreement to
sell its 20 owned golf course properties and certain related assets comprising
the Purchased Assets to NGP and to merge immediately thereafter with Newco. If
the Asset Purchase and the Merger are approved by the Company's stockholders and
become effective, stockholders of the Company will be entitled to exchange each
share of their common stock
14
<PAGE>
of the Company for, depending on the form of consideration paid by NGP, at NGP's
option, for the Purchased Assets, 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), or (ii) $12.00 in cash. Subject to
certain adjustments and limitations, stockholders of the Company will receive
total consideration of $79,026,000, and holders of unexpired and unexercised
options to purchase common stock of the Company will be entitled to receive, in
exchange for cancellation of such options, total consideration of $2,548,000
payable in the same proportion of cash and stock as is paid to holders of common
stock of the Company. Of this total aggregate consideration of approximately
$81,600,000, NGP will pay approximately $58,000,000 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 currently 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 the Purchased 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.
LIQUIDITY AND CAPITAL RESOURCES
The Company's $70,000,000 Revolving Credit Facility is for use in financing
the acquisition, lease or improvement of golf courses, the acquisition of golf
course management companies, refinancing indebtedness, and for general working
capital purposes. 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. 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 on the
Company's ratio of total debt to 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 nine months with respect to Eurodollar loans. The Revolving
Credit Facility is subject to customary conditions and covenants, including
dividend payment limitations, capital expenditure limitations, negative pledge
covenants and financial ratio covenants.
As of December 31, 1995, the Company had borrowed $52,000,000 under the
Revolving Credit Facility to finance the repayment of debt in connection with
the initial public offering, to finance the purchase of a public golf course and
seven private golf clubs, and for general working capital purposes. As of
December 31, 1995, the loans are Eurodollar loans, bearing interest at rates
ranging from 7.56% to 8.0% (each including a marginal percentage of 2.0%). The
Company was in compliance with all restrictive covenants and conditions as of
December 31, 1995.
The Company believes that cash generated by operations will be sufficient
to meet its capital expenditure and debt service needs through 1998, while
amounts available under the Revolving Credit Facility will provide the Company
with additional flexibility to take advantage of acquisition opportunities that
may arise. As a result of the Company's aggressive growth strategy, the Company
will require alternate financing arrangements in order to repay the amounts
outstanding under its Revolving Credit Facility upon maturity.
The Company analyzes cash flows from operations to evaluate its ability to
service its debt and finance its operations and capital expenditures. The
Company generated cash flows from operating activities in the amounts of
$9,635,000, $4,617,000 and $4,353,000 in 1995, 1994 and 1993, respectively. The
Company's capital expenditures totalled $8,331,000, $3,117,000 and $4,090,000 in
1995, 1994 and 1993, respectively
15
<PAGE>
(excluding acquisitions of golf courses). In 1993 the Company sold approximately
$2,000,000 of redeemable convertible preferred stock to fund repayments of debt
and used excess cash, seller financing and loans from a stockholder to finance
acquisitions.
At December 31, 1995, the Company had a net operating loss carryforward of
$12,350,000, which expires in 2003 to 2009, available to offset future taxable
income. Accordingly, the Company does not anticipate paying any federal income
taxes in the next several years. Income tax expense incurred in 1995 consists
solely of state income taxes.
It has been the Company's practice to lease golf carts and certain turf
maintenance equipment under leases which are capitalized for financial reporting
purposes. The Company typically invests in new golf carts upon the purchase or
lease of a golf course. As of December 31, 1995, the Company had financed
$7,431,000 of assets under capital leases.
NEWLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") has issued SFAS 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 FASB has also issued SFAS 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 the notes to the
Company's Consolidated Financial Statements. 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.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from "Selected Consolidated Financial Data" expressed as a percentage of
operating revenue and the percentage change in the dollar amounts of such items
compared to the prior period.
<TABLE>
<CAPTION>
Percentage of Operating Revenue Percentage Increase (Decrease)
-------------------------------- --------------------------------
Years Ended December 31, Years Ended December 31,
-------------------------------- --------------------------------
1995 1994 1993 1994 to 1995 1993 to 1994
---- ---- ---- ------------ ------------
<S> <C> <C> <C> <C> <C>
Operating revenue 100.0 % 100.0 % 100.0 % 64.7% 26.8 %
Costs and expenses:
Operating expenses 80.7 78.6 77.5 69.1 28.6
Depreciation and amortization 8.6 9.9 10.6 43.1 17.5
Other expense 0.0 0.0 0.9 * *
----- ----- -----
Total costs and expenses 89.3 88.5 89.0 66.2 26.0
----- ----- -----
Operating income 10.7 11.5 11.0 53.5 32.9
Interest expense, net 6.4 8.2 12.6 27.4 (16.8)
----- ----- -----
Income (loss) before income
taxes and extraordinary item 4.3 3.3 (1.6) * *
Income taxes 0.1 0.1 0.1 * (3.8)
----- ----- -----
Income (loss) before
extraordinary item 4.2 3.2 (1.7) * *
Extraordinary item 0.0 5.4 0.0 * *
----- ----- -----
Net income (loss) 4.2 % (2.2) % (1.7) % * (69.6)
===== ===== =====
- - -----------
</TABLE>
* Percentages exceed 100%.
16
<PAGE>
Year Ended December 31, 1995 Compared to Year Ended December 31, 1994
Operating revenue increased by 64.7%, to $80,190,000 in 1995 from
$48,682,000 in 1994. Revenue from each of the five major operating revenue
categories (green fees and practice facility fees, dues and initiation fees,
golf cart rentals, food and beverage sales and pro shop sales) increased,
primarily due to the golf courses acquired in 1995 and 1994. As the Company's
1994 acquisitions were not purchased or leased until the fourth quarter of 1994,
these courses did not contribute significantly to the Company's total operating
revenue in 1994. Excluding the courses acquired in 1995 and 1994, the Company's
operating revenue increased by $1,790,000 in 1995 from 1994, primarily as a
result of a $1,287,000, or 7.3%, increase in green fees and practice facility
fees due to an increase in rates charged at certain of the Company's public
courses. Additionally, food and beverage and pro shop sales at the existing
courses increased by 2.3% and 6.5%, respectively as a result of increased
banquet activities and marketing efforts. Dues and initiation fees at the
existing courses increased 2.1%. These increases occurred despite (i) generally
adverse weather conditions in several of the Company's markets during 1995 and
(ii) negative effects of decreased participation rates in the industry.
According to the NGF, the overall golf participation rate has decreased in
recent years, from 12.0% in 1989 to 11.4% in 1994. However, over the next
several years, the Company expects to see a rebound in the overall participation
rates for golfing due to continued growth in the number of golf courses as well
as supporting demographic trends, such as aging baby boomers. Over the next five
years, the population of the 40-49 and 50-59 age groups are expected to grow by
14% and 21%, respectively.
Operating expenses include payroll; cost of food and beverage and pro shop
merchandise sold; supplies, maintenance and repairs; rent; utilities; insurance;
property and other taxes; advertising and promotion and other general and
administrative expenses. Operating expenses increased by 69.1% to $64,733,000 in
1995 from $38,288,000 in 1994. This increase was primarily attributable to the
golf courses purchased or leased during 1995 and 1994. Operating expenses as a
percentage of operating revenue increased to 80.7% in 1995 from 78.6% in 1994.
Excluding the courses purchased or leased during 1995 and 1994, the Company's
operating expenses increased by 10.4%. These increases were primarily a result
of increased acquisition activity, advertising and promotion, and costs
associated with being publicly held. Additionally, cost of food and beverage and
pro shop merchandise sold at the existing courses increased by 2.4% and 2.1%,
respectively, consistent with the related increases in revenues.
Depreciation and amortization expense increased by 43.1%, to $6,871,000 in
1995 from $4,802,000 in 1994 due to the Company's newly purchased courses and
initial capital expenditures required at a few of its newly leased courses.
Depreciation and amortization expense as a percentage of operating revenue
decreased to 8.6% in 1995 from 9.9% in 1994.
Operating income increased by 53.5%, to $8,586,000 in 1995 from $5,592,000
in 1994 as a result of the golf courses acquired in 1995 and 1994.
Net interest expense increased by 27.4%, to $5,090,000 in 1995 from
$3,996,000 in 1994, as a result of additional borrowings made to fund the
Company's purchases of golf courses in 1995 and 1994.
Year Ended December 31, 1994 Compared to Year Ended December 31, 1993
Operating revenue increased by 26.8%, to $48,682,000 in 1994 from
$38,404,000 in 1993. Revenue from each of the five major operating revenue
categories increased, primarily due to the six golf courses that were purchased
and leased in 1993. As the Company's 1994 acquisitions were not purchased or
leased until the fourth quarter of 1994, these courses did not contribute
significantly to the Company's total operating revenue in 1994. Excluding the
courses acquired in 1994 and 1993 and the practice facility whose lease was
terminated during 1993, the Company's operating revenue increased by $405,000 in
1994 from 1993.
Operating expenses includes payroll; cost of food and beverage and pro shop
merchandise sold; supplies, maintenance and repairs; rent; utilities; insurance;
property and other taxes; advertising and promotion and other general and
administrative expenses. Operating expenses increased by 28.6% to $38,288,000 in
1994 from
17
<PAGE>
$29,772,000 in 1993. This increase was attributable to the golf courses
purchased or leased during 1994 and 1993 and was offset by $684,000 of operating
expenses associated with a terminated practice facility lease in 1993 and the
$347,000 cost of relocating the Company's corporate office from Los Angeles to
Dallas in 1993. Excluding the courses purchased or leased during 1994 and 1993,
the terminated practice facility and the cost of relocating the Company's
corporate office, the Company's operating expenses remained flat. Operating
expenses as a percentage of operating revenue increased to 78.6% in 1994 from
77.5% in 1993, reflecting an increase in rent expense as a result of a higher
percentage of leased courses contributing to the Company's operations in 1994
and higher rent expense generally associated with newer leases.
Depreciation and amortization expense increased by 17.5%, to $4,802,000 in
1994 from $4,089,000 in 1993. During 1994, the Company changed its depreciable
life for certain golf carts from six to four years. The effect of this change
increased depreciation and amortization expense by approximately $338,000 in
1994. Additionally, depreciation and amortization expense in 1993 includes
$211,000 of amortization of consulting, confidentiality and noncompete
agreements recorded in connection with the 1991 Recapitalization. Excluding
these amounts in 1994 and 1993, depreciation and amortization expense as a
percentage of operating revenue decreased to 9.2% in 1994 from 10.1% in 1993,
reflecting a lower proportion of owned courses, which resulted in a relatively
lower depreciable asset base.
Other expense of $334,000 in 1993 represents a non-recurring charge in
connection with the early termination of a practice facility lease with an
affiliated party.
Operating income increased by 32.9%, to $5,592,000 in 1994 from $4,209,000
in 1993. Operating income in 1993 includes $347,000 of corporate relocation
expenses, $211,000 of amortization expense associated with the 1991
Recapitalization, a $334,000 non-cash charge associated with the early
termination of the leased facility and a $347,000 operating loss on the
terminated leased facility.
Net interest expense decreased by 16.8%, to $3,996,000 in 1994 from
$4,801,000 in 1993. This decrease is a result of the reduction of interest
expense associated with the debt retired in connection with the initial public
offering, offset by interest expense of $474,000 attributable to additional
borrowings in 1994 and an increase in the adjustment to the carrying value of
certain secured debt retired in connection with the Company's initial public
offering to $286,000 in 1994 from $50,000 in 1993.
The extraordinary item in 1994 consists of prepayment penalties of
$1,971,000 associated with the early retirement of debt in connection with the
initial public offering and the write off of $667,000 of debt issuance costs
related to the debt retired.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Consolidated Financial Statements of GEI attached hereto and listed
in "Index to Consolidated Financial Statements" on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
18
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF TO THE REGISTRANT
DIRECTORS
<TABLE>
<CAPTION>
Name Age Director Since Term Expires
---- --- -------------- ------------
<S> <C> <C> <C>
Bryan C. Cressey 46 1991 1997
Robert H. Williams 52 1991 1996
James E. Bertelsmeyer 53 1994 1996
Thomas R. Devlin 48 1991 1998
Joseph P. Nolan 31 1994 1998
</TABLE>
Bryan C. Cressey has been Chairman of the Board of the Company since March
1991. He is also a principal in Golder, Thoma, Cressey, Rauner, Inc. ("GTCR"), a
private equity investing firm, and for the past sixteen years has been a general
partner of Golder, Thoma, Cressey, Rauner, L.P. ("GTCR L.P."). He is also the
chairman of the board of directors of Cable Design Technologies Corporation and
a director of Paging Network, Inc., each of which is unaffiliated with the
Company.
Robert H. Williams has been President, Chief Executive Officer and a
director of the Company since March 1991. Mr. Williams was president and chief
executive officer of American Golf Corporation from 1983 to 1991.
James E. Bertelsmeyer has been a director of the Company since April 1994.
Mr. Bertelsmeyer has been chairman of the board and chief executive officer of
Heritage Propane Corporation, a propane gas distributor, since 1989. An
investment affiliate of GTCR L.P. is a significant stockholder of Heritage
Propane Corporation.
Thomas R. Devlin has been a director of the Company since March 1991. Since
1987, Mr. Devlin has been the president, chairman and sole stockholder of Devlin
Management, Inc., a private investment company which oversees investments in
numerous public and private businesses made by various affiliated entities,
including Devlin Golf, Inc. ("Devlin Golf"), a stockholder of the Company.
Joseph P. Nolan has been a director of the Company since March 1994 and an
associate of GTCR since February 1994. From 1990 to 1994, Mr. Nolan held the
positions of vice president and associate in the investment banking department
of Dean Witter Reynolds Inc. From 1986 to 1989, Mr. Nolan was a senior
consultant at Coopers & Lybrand.
EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Robert H. Williams 52 President and Chief Executive Officer
Stephen D. Lambert 52 Executive Vice President of Acquisitions
Steven R. Reynolds 41 Senior Vice President of Acquisitions and Secretary
Joe R. Munsch 44 Senior Vice President of Operations
John H. Berndsen 39 Vice President, Chief Financial Officer and Treasurer
Michael D. Mitzner 42 Senior Vice President of Acquisitions
</TABLE>
In addition to Mr. Robert H. Williams, whose biographical information
appears above, the following people are executive officers of the Company as of
December 31, 1995:
Stephen D. Lambert has been Executive Vice President of Acquisitions of the
Company since January 1996. Prior to that time, Mr. Lambert served the Company
as Senior Vice President of Operations since March 1991. Mr. Lambert held that
same position with the Company's predecessor since 1981.
19
<PAGE>
Steven R. Reynolds has been Senior Vice President of Acquisitions and
Secretary of the Company since October 1994. Prior to that time, Mr. Reynolds
served the Company as Vice President, Chief Financial Officer, Treasurer and
Secretary since March 1991, and he held the same positions with the Company's
predecessor since 1989.
Joe R. Munsch has been Senior Vice President of Operations since May 1995.
Mr. Munsch joined the Company from Club Corporation of America, where he held
diverse positions since 1976, including Executive Vice President of Development,
President of Purchasing and Design and President of CCA Financial Corporation.
John H. Berndsen has been Vice President, Chief Financial Officer and
Treasurer of the Company since October 1994. Mr. Berndsen joined the Company
from KPMG Peat Marwick LLP where he had been the audit partner serving the
Company. Mr. Berndsen was with KPMG Peat Marwick LLP since 1979.
Michael D. Mitzner has been Senior Vice President of Acquisitions of the
Company since April 1994. Prior to joining the Company, Mr. Mitzner served as
president of Eagle Golf, Inc., a golf management company, which he co-founded in
1986.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's directors,
executive officers, and any persons holding more than ten percent of the Common
Stock are required to report to the Securities and Exchange Commission their
initial ownership of the Common Stock and any subsequent changes in that
ownership. Specific due dates of these reports have been established, and the
Company is required to disclose any failure to file these reports on a timely
basis. To the Company's knowledge and based solely on its review of copies of
such reports received by it, or written representations from certain reporting
persons that no Forms 5 were required for those persons, all of these
requirements have been satisfied.
ITEM 11. EXECUTIVE COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee. The Board of Directors designates the members and the
Chairman of the committee. The Compensation Committee is comprised of directors
who are not employees of the Company.
20
<PAGE>
SUMMARY COMPENSATION TABLE
The following table sets forth the 1995, 1994 and 1993 compensation paid to
the Company's CEO and the four other most highly compensated executive officers
of the Company whose salary and bonus exceeded $100,000 during 1995 (the "Named
Executive Officers").
<TABLE>
<CAPTION>
Long Term Compensation
--------------------------------------
Annual Compensation Awards Payouts
------------------------------------ --------------------------- -------
Securities All Other
Other Annual Restricted Underlying LTIP Compen-
Name and Fiscal Salary Bonus Compensation Stock Options/SARs Payouts sation
Principal Position Year ($) ($) ($) Award(s) (#) ($) ($) (1)
- - ----------------------- ------ -------- ------- ------------ -------- ------------ ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert H. Williams, 1995 $205,000 $75,000 -- -- -- -- $ --
President and Chief 1994 195,000 50,000 -- -- -- -- 29,050
Executive Officer 1993 194,911 50,000 -- -- -- -- 1,740
Stephen D. Lambert, 1995 162,000 35,000 -- -- -- -- 585
Executive Vice Pres- 1994 157,000 30,000 -- -- 40,000 -- 13,299
ident of Acquisitions 1993 157,059 30,000 -- -- -- -- 5,817
Steven R. Reynolds, 1995 125,000 135,000 -- -- -- -- 2,422
Senior Vice President 1994 118,405 45,000 -- -- 76,826 -- 3,683
of Acquisitions and 1993 103,101 25,000 -- -- -- -- 11,348
Secretary
Joe R. Munsch, 1995 124,754 -- -- -- 100,000 -- --
Senior Vice President 1994 -- -- -- -- -- -- --
of Operations 1993 -- -- -- -- -- -- --
John H. Berndsen 1995 152,200 12,500 -- -- -- -- --
Vice President, Chief 1994 34,368 -- -- -- 100,000 -- --
Financial Officer 1993 -- -- -- -- -- -- --
and Treasurer
</TABLE>
____________________
(1) Amounts in 1995 consist of contributions by the Company to the Company's
401(k) plan.
OPTION GRANTS DURING 1995 FISCAL YEAR
The following table sets forth information regarding options to purchase
the Company's Common Stock granted by the Company to its Named Executive
Officers during 1995.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------
Potential Realizable Value at
Number of % of Total Assumed Annual Rates of
Securities Stock Options Stock Price Appreciation for
Underlying Granted to Option Term (1)
Options Employees in Exercise Price -----------------------------
Name Granted(#) Fiscal Year ($/Share) Expiration Date 5% ($) 10% ($)
- - ------------------- ---------- ------------- -------------- --------------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Williams -- -- -- -- -- --
Stephen D. Lambert -- -- -- -- -- --
Steven R. Reynolds -- -- -- -- -- --
Joe R. Munsch 100,000 (2) 100% $11.25 (3) May 24, 2005 $707,506 $1,792,960
John H. Berndsen -- -- -- -- -- --
</TABLE>
___________________
(1) The assumed annual rates of appreciation for the option term (10 years) in
the table are shown for illustrative purposes only pursuant to applicable
Securities and Exchange Commission requirements. Actual values realized on
stock options are dependent on actual future performance of the Common
Stock, among other factors. Accordingly, the amounts shown may not
necessarily be realized.
(2) Represents options to purchase shares of Common Stock granted under the
Company's 1995 Stock Option Plan (the "1995 Option Plan"). All such options
vest as to 20% of the shares on the date of grant and become exercisable
with respect thereto six months after the date of grant, and thereafter vest
and become exercisable at the rate of 20% of the shares on each anniversary
of the date of grant. The options expire ten years from the date of grant
except that the options may expire earlier upon the termination of
employment with the Company. The options are not transferable except by will
or by the applicable laws of descent and distribution.
(3) The exercise price of these options was based on the fair market value on
the date of grant.
21
<PAGE>
OPTION EXERCISES DURING 1995 FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
The following table provides information related to options exercised by
the Named Executive Officers during 1995 and the number and value of options
held at December 31, 1995. The Company does not have any outstanding stock
appreciation rights.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Options/SAR's at Options/SAR's at
December 31, 1995 (#) (1) December 31, 1995 ($) (2)
--------------------------- ---------------------------
Shares Acquired Value
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- - ------------------------- --------------- ----------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Williams (3) -- -- 525,285 -- -- --
Stephen D. Lambert (4) -- -- 81,872 24,000 $109,326 --
Steven R. Reynolds (5) -- -- 53,406 42,994 -- --
Joe R. Munsch (6) -- -- 20,000 80,000 -- --
John H. Berndsen (7) -- -- 40,000 60,000 -- --
</TABLE>
___________________
(1) Options will fully vest and become exercisable simultaneously with the
consummation of a sale of the Company.
(2) Value is calculated on the basis of the difference between the option
exercise price and the closing price of Common Stock as of December 29, 1995
multiplied by the number of shares of Common Stock underlying the option. On
December 29, 1995, the closing price of the Common Stock as reported on the
Nasdaq Stock Market was $7.25.
(3) Issued pursuant to the Company's 1991 Stock Option Plan. Options have an
exercise price of $8.62.
(4) Includes 41,728 options (with an exercise price of $4.63) issued by the
Company in exchange for the surrender of their predecessor company options,
24,144 options (with an exercise price of $8.62) issued pursuant to the
Company's 1991 Stock Option Plan, and 40,000 options (with an exercise price
of $12.00) issued pursuant to the Company's 1994 Stock Option Plan.
(5) Includes 46,400 options (with an exercise price of $8.62) issued pursuant to
the Company's 1991 Stock Option Plan, and 50,000 options (with an exercise
price of $12.00) issued pursuant to the Company's 1994 Stock Option Plan.
(6) Issued pursuant to the Company's 1995 Stock Option Plan. Options have an
exercise price of $11.25.
(7) Issued pursuant to the Company's 1994 Stock Option Plan. Options have an
exercise price of $12.23.
COMPENSATION OF DIRECTORS
Directors who are also officers of the Company receive no additional
compensation for their services as directors. Directors who are not officers
receive an attendance fee of $1,000 for each meeting of the Board of Directors
and $500 for each meeting of a committee of the Board of Directors. Directors
are also reimbursed for travel expenses and other out-of-pocket costs incurred
in connection with such meetings.
EMPLOYMENT, NONCOMPETE AND SEVERANCE AGREEMENTS
Each of Mr. Williams and Mr. Lambert entered into an employment agreement
with the Company on March 25, 1991. Mr. Williams' employment agreement continues
until (i) his resignation, death or disability or other incapacity or (ii) the
Board of Directors elects to terminate his employment with or without cause. If
the agreement is terminated and if the Company elects to continue to pay Mr.
Williams' base salary for a period of twelve months, then in such case Mr.
Williams may not, for such twelve-month period, directly or indirectly engage in
any business in competition with the Company in any geographic area in which the
Company engages in or plans to engage in business, and Mr. Williams may not
disclose any confidential information concerning the Company. The base salary
under this employment agreement may be established by the Compensation Committee
from time to time. Based upon his performance and the results of Company
operations, the Compensation Committee, in its discretion, may award Mr.
Williams a bonus of up to 50% of his base salary.
Mr. Lambert's employment agreement continues until (i) his resignation,
death or disability or other incapacity or (ii) the Board of Directors elects to
terminate his employment with or without cause. The base salary under this
employment agreement may be established by the Compensation Committee from time
to time. If the agreement is terminated, Mr. Lambert may not for a period of two
years (i) directly or indirectly engage in any
22
<PAGE>
business in competition with the Company in any geographic area in which the
Company engages in or plans to engage in business, (ii) disclose any
confidential information concerning the Company or (iii) solicit any employees,
customers or suppliers of the Company.
Mr. Berndsen entered into a severance agreement with the Company upon his
employment in October 1994. The agreement states that the Company will pay
severance compensation to Mr. Berndsen in an amount equal to twelve months base
compensation in the event his employment with the Company terminates for any
reason other than his death, disability, retirement with the approval of the
Board of Directors or the Compensation Committee, resignation or discharge for
cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is currently composed
of Messrs. Cressey, Bertelsmeyer and Nolan, none of whom are executive officers
of the Company.
During 1995, there were no interlocking relationships between any executive
officers of the Company and any entity whose directors or executive officers
serve on the Compensation Committee, nor did any officers of the Company serve
on the Compensation Committee.
In 1993, Golder, Thoma, Cressey Fund III Limited Partnership ("GTC Fund
III") and the Company entered into a loan agreement pursuant to which GTC Fund
III loaned the Company $1,825,000 to facilitate the Company's acquisition of a
golf course. Upon closing of the initial public offering, the Company repaid the
note.
Also in connection with the initial public offering, the Company's
redeemable preferred stock was converted to 2,535,074 shares of Common Stock and
accrued dividends on such redeemable preferred stock were paid by delivery of
435,190 shares of Common Stock. Golder, Thoma, Cressey Fund II ("GTC Fund II")
received 1,420,270 shares of Common Stock in exchange for its shares of
redeemable preferred stock and in payment of $2,235,961 of accrued dividends
thereon. GTC Fund III received 1,266,557 shares of Common Stock in exchange for
its shares of redeemable preferred stock and in payment of $2,415,968 of accrued
dividends thereon.
23
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock of the Company as of April 25, 1996 (i) by each
stockholder who is known by the Company to own beneficially more than 5% of the
Company's Common Stock, (ii) by each director, (iii) by each Named Executive
Officer and (iv) by all executive officers and directors as a group. Except as
otherwise indicated, each named beneficial owner has sole voting and investment
power with respect to the shares listed.
<TABLE>
<CAPTION>
Shares Percent
Beneficially Beneficially
Name of Beneficial Owner Owned (1) Owned
- - ------------------------ ------------ ------------
<S> <C> <C>
GTC Fund II............................................. 1,557,710 23.66%
6100 Sears Tower, Chicago, IL 60606
GTC Fund III............................................ 1,266,557 19.23
6100 Sears Tower, Chicago, IL 60606
Wellington Management Company (2)....................... 641,500 9.74
75 State Street, Boston, MA 02109
Williams Family Trust (3)............................... 601,077 8.45
c/o Robert H. Williams, 1603 LBJ Freeway,
Suite 810, Dallas, TX 75234
Leeway & Co. (4)........................................ 445,931 6.77
State Street Bank as Trustee, 1 Enterprise Dr.,
North Quincy, MA 02171
Bryan C. Cressey (5).................................... 2,824,267 42.89
6100 Sears Tower, Chicago, IL 60606
Robert H. Williams (6).................................. 601,077 8.45
1603 LBJ Freeway, Suite 810, Dallas, TX 75234
Thomas R. Devlin (7).................................... 133,833 2.03
Stephen D. Lambert (8).................................. 135,252 2.03
Steven R. Reynolds (9).................................. 69,219 1.04
John H. Berndsen (10)................................... 40,000 *
Joe R. Munsch (11)...................................... 40,000 *
James E. Bertelsmeyer (12).............................. 12,000 *
Joseph P. Nolan......................................... 300 *
All directors and officers as a group
(ten persons) (13)..................................... 3,857,648 52.40%
</TABLE>
- - -------------
* Less than 1%
(1) The information as to beneficial ownership is based on statements furnished
to the Company by the beneficial owners.
24
<PAGE>
(2) These shares are owned by various investment advisory clients of Wellington
Management Company, which is deemed a beneficial owner of such shares by
virtue of its capacity as investment advisor to such clients.
(3) Includes 525,285 shares subject to presently exercisable options.
(4) Leeway & Co. is a nominee partnership for the AT&T Master Pension Trust,
which is the beneficial owner of, and has sole voting and investment power
with respect to, such shares.
(5) All such shares are held by GTC Fund II and GTC Fund III, of which GTCR
L.P. is the general partner. Mr. Cressey is a general partner of GTCR L.P.,
but disclaims beneficial ownership of such shares of Common Stock.
(6) All shares are held of record by the Williams Family Trust, of which Mr.
Williams is a trustee and may be deemed to share voting and investment
power.
(7) Includes 8,916 shares subject to presently exercisable options. All shares
are held of record by Devlin Golf, Inc. Mr. Devlin, a director of the
Company, is a director and majority stockholder of Devlin Golf, Inc., and
may be deemed to share voting and investment power as to all shares owned
by Devlin Golf, Inc.
(8) Includes 89,872 shares subject to options exercisable within 60 days of
April 25, 1996.
(9) Includes 66,874 shares subject to options exercisable within 60 days of
April 25, 1996.
(10) Includes 40,000 shares subject to options exercisable within 60 days of
April 25, 1996.
(11) Includes 40,000 shares subject to options exercisable within 60 days of
April 25, 1996.
(12) Includes 6,000 shares subject to options exercisable within 60 days of
April 25, 1996.
(13) Includes 776,947 shares subject to options exercisable within 60 days of
April 25, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Williams issued a promissory note to the Company for the purchase of
redeemable preferred stock of the Company in March 1991. In connection with the
Company's initial public offering in July 1994, such redeemable preferred stock
was converted to Common Stock. The note has a principal amount of $400,000,
bears interest at 9% and matures on March 25, 2001.
See "Compensation Committee Interlocks and Insider Participation" above for
transactions between the Company and certain directors.
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 (2)
- - -----------------------------------
(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.
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 20, 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 20, 1996
- - ---------------------------
Bryan C. Cressey
/s/ ROBERT H. WILLIAMS Director, President and Chief June 20, 1996
- - --------------------------- Executive Officer (principal
Robert H. Williams executive officer)
/s/ JAMES E. BERTELSMEYER Director June 20, 1996
- - ---------------------------
James E. Bertelsmeyer
/s/ THOMAS R. DEVLIN Director June 20, 1996
- - ---------------------------
Thomas R. Devlin
/s/ JOSEPH P. NOLAN Director June 20, 1996
- - ---------------------------
Joseph P. Nolan
/s/ JOHN H. BERNDSEN Vice President, Chief Financial June 20, 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
