<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED MARCH 31, 1996
COMMISSION FILE # 1-13290
THE SPORTS CLUB COMPANY, INC.
A DELAWARE CORPORATION - I.R.S. NO. 95-4479735
11100 SANTA MONICA BLVD., SUITE 300, LOS ANGELES, CA 90025
(310) 479-5200
Indicate by check mark whether the company (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
company was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
<TABLE>
<CAPTION>
Shares
Outstanding at
Class May 10, 1996
- ---------------------------- --------------
<S> <C>
Common stock, $.01 par value 11,355,000
</TABLE>
1
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THE SPORTS CLUB COMPANY, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
<S> <C>
Item 1. Financial Statements
Condensed Consolidated Balance Sheets - 3
December 31, 1995 and March 31, 1996
Condensed Consolidated Statements of Operations - 4
Three Months ended March 31, 1995 and 1996
Condensed Consolidated Statements of Cash Flows - 5
Three Months ended March 31, 1995 and 1996
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
Part II. Other Information 14
Signatures 16
</TABLE>
2
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THE SPORTS CLUB COMPANY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND MARCH 31, 1996
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
December 31, March 31,
ASSETS 1995 1996
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,545 $ 1,849
Accounts receivable, net of allowance for doubtful
accounts of $39 and $31 at December 31, 1995 and
March 31, 1996 1,323 1,314
Inventories 401 390
Other current assets 370 520
Due from affiliates 3,508 4,068
------- -------
Total current assets 7,147 8,141
Property and equipment, at cost, net of accumulated
depreciation and amortization of $2,750 and $3,242 at
December 31, 1995 and March 31, 1996 59,956 59,873
Equity interest in unconsolidated subsidiaries 4,478 4,385
Costs in excess of net assets acquired, less accumulated
amortization of $215 and $280 at December 31, 1995 and
March 31, 1996 10,136 10,066
Other assets, at cost, net 1,389 1,426
------- -------
$83,106 $83,891
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current installments of notes payable and capitalized
lease obligations $ 1,890 $ 2,021
Accounts payable 2,021 1,442
Accrued liabilities 2,165 2,489
Deferred membership revenues 4,742 4,631
------- -------
Total current liabilities 10,818 10,583
Notes payable and capitalized lease obligations,
less current installments 31,023 31,556
Deferred lease obligations 691 770
Minority interest 600 600
------- -------
Total liabilities 43,132 43,509
Commitments and contingencies
Shareholders' equity:
Preferred stock, $.01 par value, 1,000,000
shares authorized; no shares issued or outstanding -- --
Common stock, $.01 par value, 40,000,000 shares authorized;
11,355,000 shares issued and outstanding
at December 31, 1995 and March 31, 1996 114 114
Additional paid-in capital 37,044 37,044
Retained earnings 2,816 3,224
-------- -------
Total shareholders' equity 39,974 40,382
-------- -------
$ 83,106 $83,891
======== =======
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
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THE SPORTS CLUB COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31,
1995 1996
---- ----
<S> <C> <C>
Revenues $ 8,889 $ 9,306
Operating expenses:
Direct 5,624 5,941
Selling, general and administrative 1,142 1,452
Depreciation and amortization 553 616
-------- --------
Total operating expenses 7,319 8,009
-------- --------
Income from operations 1,570 1,297
Other income (expense):
Interest (660) (657)
Minority interests (38) (38)
Equity interest in net income of unconsolidated subsidiaries 247 91
-------- --------
Income before income taxes 1,119 693
Provision for income taxes 459 284
-------- --------
Net income $ 660 $ 409
======== ========
Net income per share $ 0.06 $ 0.04
======== ========
Weighted average number of common shares outstanding 11,351 11,355
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
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THE SPORTS CLUB COMPANY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1995 AND 1996
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31,
1995 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 660 $ 409
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 553 616
Accrued management fees -- (199)
Equity interest in net income of unconsolidated subsidiaries (247) (91)
Stock issued as directors' fees 21 --
(Increase) decrease in:
Accounts receivable, net 207 9
Inventories 23 11
Other current assets (417) (246)
Increase (decrease) in:
Accounts payable 666 (579)
Accrued liabilities (695) 324
Deferred membership revenues (97) (111)
Deferred lease obligations 78 79
-------- --------
Net cash provided by operating activities 752 222
Cash flows from investing activities:
Capital expenditures (249) (410)
Purchase of other assets (541) --
-------- --------
Net cash used for investing activities (790) (410)
Cash flows from financing activities:
(Increase) decrease in due from affiliates 496 (361)
Proceeds from notes payable and capital lease obligations -- 23,029
Repayments of notes payable and capital lease obligations (602) (22,360)
Equity interest distributions 274 184
Distributions and redemptions of partnership interests (30) --
-------- --------
Net cash provided by financing activities 138 492
-------- --------
Net increase in cash and cash equivalents 100 304
Cash and cash equivalents at beginning of period 5,042 1,545
-------- --------
Cash and cash equivalents at end of period $ 5,142 $ 1,849
======== ========
Supplemental disclosure of cash flow information:
Cash paid for interest $ 847 $ 731
======== ========
Cash paid for income taxes $ 742 $ 159
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
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THE SPORTS CLUB COMPANY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995 AND MARCH 31, 1996
1. BASIS OF PRESENTATION
The condensed consolidated financial statements included herein have
been prepared by the Company pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The condensed consolidated financial
statements should be read in conjunction with the Company's December 31, 1995,
consolidated financial statements and notes thereto, included on Form 10-K (SEC
File Number 1-13290). Certain information and footnote disclosures which are
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to SEC
rules and regulations. The Company believes that the disclosures made are
adequate to make the information presented not misleading. The information
reflects all adjustments which, in the opinion of Management, are necessary for
a fair presentation of the financial position and results of operations for the
interim period set forth herein. All such adjustments are of a normal and
recurring nature. The results for the three month period ended March 31, 1996,
are not necessarily indicative of the results for the entire fiscal year ending
December 31, 1996. Certain reclassifications have been made to the 1995
financial statements to conform to the presentation used in 1996.
2. EQUITY INTEREST IN UNCONSOLIDATED SUBSIDIARIES
Equity interest in unconsolidated subsidiaries consists of a 40%
interest in the Reebok-Sports Club/NY, a 46.1% interest in a Spectrum Club
located in Manhattan Beach, California, and an interest in the Sports
Connections included in a joint venture agreement with Bally's Health and Tennis
Corporation ("Bally's").
The Company allocates profits and losses on a basis defined in its
various partnership and joint venture agreements relating to its unconsolidated
subsidiaries. Operating losses in the Reebok-Sports Club/NY are allocated 99% to
Reebok and 1% to the Company. Any future operating profits will first be
allocated to the partners to recoup any operating losses. Next, the partnership
agreement calls for a $3.0 million annual priority distribution to a limited
partner and the return of various capital contributions with interest to the
partners. After the allocation of a one time $2.5 million distribution (of which
the Company is entitled to $1.25 million), the Company is entitled to 40% of
future operating income.
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Summary financial information of unconsolidated subsidiaries is as
follows:
<TABLE>
<CAPTION>
Three months ended March 31,
----------------------------
1995 1996
---- ----
(Amounts in thousands)
<S> <C> <C>
Revenues $3,882 $7,856
Net income 382 26
<CAPTION>
December 31, March 31,
1995 1996
---- ----
(Amounts in thousands)
<S> <C> <C>
Current assets $ 1,214 $ 1,249
Non-current assets 18,658 18,405
------- -------
Total assets $19,872 $19,654
======= =======
Current liabilities $ 4,153 $ 4,811
Non-current liabilities 7,422 7,015
------- -------
Total liabilities 11,575 11,826
Partners' capital 8,297 7,828
------- -------
$19,872 $19,654
======= =======
</TABLE>
3. RELATED PARTY TRANSACTIONS
Due from affiliates are summarized as follows:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---- ----
<S> <C> <C>
Note receivable from the Company's CEO, including interest at 6.8%,
due on April 3, 1996. Secured by a pledge of 384,000 shares of the
Company's common stock ( the note
was renewed for one year in April, 1996) $ 631 $ 641
Note receivable from the Reebok-Sports Club/NY, interest at 10%
payable quarterly; principal repayable as net cash flow
of the partnership is available 1,500 1,500
Accrued management fees from the Reebok-Sports Club/NY, interest at
10%, payable as net cash flow of the partnership
is available 502 701
Advances to entities with common partners made in the
normal course of business, payable on demand 875 1,226
------ ------
$3,508 $4,068
====== ======
</TABLE>
7
<PAGE> 8
The Company manages the operation of the Spectrum Club/Manhattan Beach,
53.9% of which is owned by outside investors. The Company receives a fee of
$27,447 per month plus 4.5% of the Club's gross revenues for managing this Club.
The Company also manages the operations of the Reebok-Sports Club/NY
for a fee of approximately 5% of the gross monthly collections, as defined.. The
Company has invested $50,000 in the capital of the Reebok-Sports Club/NY. Under
the arrangement, the Company may be required to fund additional costs of the
partnership.
4. NOTES PAYABLE AND CAPITALIZED LEASE OBLIGATIONS
Notes payable and capitalized lease obligations are summarized as
follows:
<TABLE>
<CAPTION>
December 31, March 31,
1995 1996
---- ----
(Amounts in thousands)
<S> <C> <C>
The Sports Club/LA note ............................ $22,104 $23,029
The Sports Club/Irvine note ........................ 5,500 5,500
The Spectrum Club/Agoura Hills note ................ 2,550 2,550
Secured bank notes ................................. 629 517
Capitalized lease obligations ...................... 1,494 1,390
Other notes payable ................................ 636 591
------- -------
32,913 33,577
Less current installments .......................... 1,890 2,021
------- -------
$31,023 $31,556
======= =======
</TABLE>
In March 1995, the Reebok-Sports Club/NY obtained a $4,000,000 lease
facility to finance personal property. The Company is a guarantor of this
financing. As of March 31, 1996 the unpaid principal outstanding was $3,630,000.
5. NET INCOME PER SHARE
Net income per share is based on the weighted average number of common
and common equivalent shares outstanding. Fully diluted net income per share is
not presented as it does not differ materially from primary net income per
share.
6. INCOME TAXES
Income taxes were computed using the effective tax rate estimated to be
applicable for the full fiscal year, which is subject to ongoing review and
evaluation by management.
8
<PAGE> 9
7. RECENT DEVELOPMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of " ("Statement No. 121"), effective for
fiscal years beginning after December 31, 1995. Statement No. 121 establishes
accounting standards for the recognition and measurement of impairment of
long-lived assets, certain identifiable intangibles, and goodwill either to be
held or disposed of. The Company's policy is to account for goodwill and all
other intangible assets at the lower of amortized cost or fair value. As part of
an ongoing review of the valuation and amortization of intangible assets,
management assesses the carrying value of the Company's intangible assets if
facts and circumstances suggest that it may be impaired. If this review
indicates that the intangibles will not be recoverable, as determined by an
undiscounted cash flow analysis over the remaining amortization period, the
carrying value of the Company's intangibles will be reduced to its estimated
fair market value. The Company adopted the provisions of Statement No. 121
effective January 1, 1996. Management believes that Statement No. 121 will not
have a material impact on the consolidated financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123"), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, permits but does
not require, a fair value based method of accounting for employee stock options
or similar equity instruments. Statement No. 123 allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APBO No. 25"), but requires
pro forma disclosures of net earnings and earnings per share as if the fair
value based method of accounting had been applied. The Company expects to adopt
Statement No. 123 in 1996 and will continue to measure compensation cost under
APBO No. 25, and comply with the pro forma disclosure requirements. Statement
No. 123 will have no impact on the Company's consolidated financial position or
results of operations other than the inclusion of the pro forma disclosures.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
The following discussion should be read in conjunction with the condensed
consolidated financial statements and notes thereto appearing elsewhere in this
Form 10-Q. The Company's consolidated financial statements reflect the
operations of The Sports Clubs and The Spectrum Clubs. The Reebok Sports
Club/NY, which was opened in April 1995, is accounted for under the equity
method of accounting.
The comparability of the Company's operating results, financial condition
and capital requirements is greatly impacted by the number of clubs which the
Company operates. Seasonal factors have not had a significant effect on the
Company's operating results.
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1996 to Three Months Ended March 31,
1995
Revenues for the three months ended March 31, 1996 were $9.3 million,
compared to $8.9 million in 1995, an increase of $400,000 or 4.5%. The increase
resulted primarily from additional membership dues, which increased as a result
of membership growth. Other revenue increased as a result of management fees
generated from the Reebok Sports Club/NY, which opened in April 1995.
Direct operating expenses increased to $5.9 million in the three months
ended March 31, 1996 versus $5.6 million in 1995. Over 50% of the increase was
due to the acquisition of HealthFitness Organization of America, Inc. (HFA) with
the remaining $138,000 increase due to higher club operating expenses. Direct
operating expenses as a percentage of revenues increased slightly to 63.8% in
1996 compared to 63.3% in 1995 due to the HFA acquisition.
Selling, general and administrative expenses were $1.4 million in the
three months ended March 31, 1996 versus $1.1 million in 1995. This increase in
expense was incurred primarily as a result of the acquisition of HFA and its
operations. There were no comparable costs for HFA in 1995.
Depreciation and amortization expenses were $616,000 in the three months
ended March 31, 1996 versus $553,000 in 1995. Interest expense was $657,000 in
the three months ended March 31, 1996 versus $660,000 in 1995.
Equity interest in net income of unconsolidated subsidiaries was $91,000
in the three months ended March 31, 1996 versus $247,000 in 1995. The Company
did not record any income from the Sports Connections for the three months ended
March 31, 1996 versus $150,000 in 1995. The 1996 amounts are associated with the
Spectrum Club/Manhattan Beach's operations.
The Company's net income before income taxes was $693,000 for the three
months ended March 31, 1996 verses $1.1 million in 1995. The results for 1996
include pre-tax loss of $328,000 from the operations of HFA. The Company's
estimated income tax rate has remained at 41%, resulting in a net income of
$409,000 for the three months ended March 31, 1996 versus net income of $660,000
in 1995, a decrease of 38%.
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<PAGE> 11
LIQUIDITY AND CAPITAL RESOURCES
During the year ended December 31, 1995 and the three months ended March
31, 1996 the Company generated $8.8 million and $2.0 million of earnings before
interest, depreciation, amortization and income taxes, respectively. At March
31, 1996 the Company had a cash balance of $1.8 million. The first quarter net
income reflects a net loss of $194,000 from the operations of HFA. The Company
expects HFA to improve its operating performance in the second quarter, but to
continue to operate at a loss and have its operations funded out of the
Company's cash flow. Overall, the Company anticipates its cash balance on hand
plus cash generated from operations will be adequate to fund the Company's
current operating activities, debt service and committed capital requirements
and recurring capital expenditures for the next twelve months.
As a result of The Sports Club/LA acquisition, the Company had outstanding
a promissory note in the amount of $22.1 million at December 31, 1995, bearing
interest at 10%, secured by the land, building and equipment of The Sports
Club/LA. This note required a balloon payment of approximately $22.0 million on
December 31, 1996. In March, 1996, the Company refinanced The Sports Club/LA
property. The new $23.0 million loan bears interest at a fixed interest rate of
10.63%. The Company is required to make monthly principal and interest payments
of $256,421, compared with monthly payments of $264,163 under the old note. The
note matures in March 2003 but, if certain conditions exist, the Company may
extend the term of the note by an additional five years. All assets of The
Sports Club/LA have been pledged to secure this loan.
In connection with the acquisition of The Sports Club/Irvine, MKDG
Partners agreed to pay the Company for each of the years ending December 31,
1994, 1995 and 1996, the lesser of approximately $1.0 million or the amount by
which The Sports Club/Irvine's earnings before depreciation and the Company's
administrative overhead relating to the Club for such year is less than
approximately $2.9 million. The Company anticipates collecting approximately
$900,000 related to the 1995 shortfall.
The Company is the manager and holds a 40% general partnership interest in
the partnership operating the Reebok Sports Club/NY. An affiliate of Reebok owns
a 40% general partnership interest and the remaining 20% limited partnership
interest is owned by Millennium Partners, an affiliate of the landlord of the
building in which the Reebok Sports Club/NY is located. The initial capital
contribution of the partners' and the proceeds from a $4.0 million lease
financing facility has been expended on the development of the Club. In December
1995, the partners made additional contributions of $3.0 million, with the
Company's contribution of $1.5 million made in the form of a note receivable
from the partnership. As of March 31, 1996, the Company had also advanced the
partnership $1,002,000 for various construction and operating costs, and the
Company has a receivable of $701,000 for accrued but unpaid management fees. The
Reebok Sports Club/NY achieved a positive cash flow in September 1995, and is
expected to continue to improve its operating results as membership levels
increase. The cash flows of the partnership will first be used to satisfy the
principal and interest requirements of the lease financing facility. Additional
cash flows will then be used to first repay the Company's $1,002,000 advance and
then to concurrently repay the Company's $1.5 million loan and a similar $1.5
million loan from Reebok. Next, the partnership agreement calls for a $3.0
million annual priority distribution to the limited partner and the return of
various capital contributions with interest to the partners. After a one time
distribution of $2.5 million (to be split equally between Reebok and the
Company), the Company would be entitled to a 40% interest in future cash
distributions.
The Company is eligible to receive a priority distribution of up to
$250,000 per month from the operating profits of the Sports Connections which
are managed by Bally's. The Company did not record any earnings from the Sports
Connections in the three months ended March 31, 1996, and no cash was paid to
the Company. The Company cannot predict the amount of any such earnings or if
any portion thereof will be distributed to the Company. In the event the Sports
Connections experience
11
<PAGE> 12
cash shortfalls, the Company is required to contribute 50% to certain operating
expenses including lease payments, salaries and benefits (but not Bally's
overhead expenses). The Sports Connections currently have a combined $500,000
working capital reserve which would first be available to support any such cash
shortfalls.
The Company's long term capital needs are to provide funds for the
retirement of existing long term debt and to secure funds for the acquisition of
existing clubs and development of new clubs. The Company intends to continue its
efforts to pursue joint venture arrangements with strategic partners as a means
of financing the acquisition and development of new clubs. The Company has also
had preliminary discussions with several banking institutions regarding the
possibility of securing a revolving credit facility which could be used for the
acquisition of existing or development of new clubs, or for working capital
purposes. In the first quarter of 1996, the Company began development of the
52,000 square foot Spectrum Club in Santa Clarita, California. This is a joint
venture with The Newhall Land and Farming Company. The Company will be required
to advance approximately $1.3 million to the project in 1996. As of April 1996,
$500,000 has been paid into a special construction escrow account. The Company
anticipates that it will be able to fund the remaining portion of this
development from operating cash flows.
Other than as described above and for normal replacement of fitness
equipment and remodeling of clubs, the Company has no commitments for capital
expenditures. Equipment has generally been available under capital lease
arrangements. In 1995, the Company invested approximately 1.9 million in capital
expenditures. In the three months ended March 31, 1996, capital expenditures
were $410,000. The Company is currently seeking an additional $1.0 million lease
facility to be used to finance 1996 capital expenditures. While capital
expenditures may fluctuate from time to time, generally the Company expects to
spend approximately 4% of revenues on facility and equipment upgrades and
replacements. Expansion of the Company's operations beyond existing clubs will
require expenditures above this level.
FORWARD LOOKING STATEMENTS
The foregoing discussion contains forward-looking statements relating to
the future operations of The Reebok Sports Club/NY, HFA and other operations,
the adequacy of the Company's cash for its anticipated requirements, and other
matters. These forward-looking statements are based on a series of projections
and assumptions regarding the economy, the Company's operations and the sports
and fitness industry in general. These projections and assumptions involve
certain risks and uncertainties that could cause actual results to differ
materially from those included in the forward-looking statements. Furthermore,
actual results may differ from projected results as a result of unforeseen
developments relating to demand for the Company's services and competitive
pricing trends in the health and fitness market; the success of planned
advertising, marketing and promotional campaigns; changes in personnel or
compensation; business interruptions resulting from earthquakes, landlord
disputes or other causes; general market acceptance of new and existing clubs
operated by the Company; changes in membership growth patterns; the success of
new products; and regulatory or legal proceedings and rulings which might
adversely affect the Company. Investors are also directed to consider other risk
and uncertainties discussed in all documents filed by the Company with the SEC.
RECENT DEVELOPMENTS
In March 1995, the Financial Accounting Standards Board issued Statement
No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived
Assets to be Disposed Of " ("Statement No. 121"), effective for fiscal years
beginning after December 31, 1995. Statement No. 121 establishes accounting
standards for the recognition and measurement of impairment of long-lived
assets, certain
12
<PAGE> 13
identifiable intangibles, and goodwill either to be held or disposed of. The
Company's policy is to account for goodwill and all other intangible assets at
the lower of amortized cost or fair value. As part of an ongoing review of the
valuation and amortization of intangible assets, management assesses the
carrying value of the Company's intangible assets if facts and circumstances
suggest that it may be impaired. If this review indicates that the intangibles
will not be recoverable, as determined by an undiscounted cash flow analysis
over the remaining amortization period, the carrying value of the Company's
intangibles will be reduced to its estimated fair market value. The Company
adopted the provisions of Statement No. 121 effective January 1, 1996.
Management believes that Statement No. 121 will not have a material impact on
the consolidated financial statements.
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("Statement No. 123"), issued in October 1995 and
effective for fiscal years beginning after December 15, 1995, permits but does
not require, a fair value based method of accounting for employee stock options
or similar equity instruments. Statement No. 123 allows an entity to elect to
continue to measure compensation cost under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" ("APBO No. 25"), but requires
pro forma disclosures of net earnings and earnings per share as if the fair
value based method of accounting had been applied. The Company expects to adopt
Statement No. 123 in 1996 and will continue to measure compensation cost under
APBO No. 25, and comply with the pro forma disclosure requirements. Statement
No. 123 will have no impact on the Company's consolidated financial position or
results of operations other than the inclusion of the pro forma disclosures.
13
<PAGE> 14
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is currently involved in a dispute with the landlord
of the facility used for the Spectrum Club/Century City. The
landlord has claimed that the Company owes approximately $800,000
in past due rent as of December 31, 1995. The Company denies it
owes any past due rent, due to the landlord's breach of several
provisions of the lease. Thus, the Company believes that it has
the right to terminate the lease and abandon the property.
The Company has filed suit against the landlord seeking a
judicial declaration that the landlord's breach of the lease has
relieved the Company of the obligation to pay the alleged past
due rent. The Company also seeks to recover damages resulting
from the landlord's breach. The landlord has countersued the
Company for the past due rent.
In settlement of the existing disputes, the Company offered to
invest an additional $500,000 to improve the Club in exchange for
rent concessions and an option to extend the lease term. The
Company and the landlord are still engaged in settlement
discussions.
On July 15, 1995, the Company closed the Spectrum Club/Century
City. The Company believes that the closure of the Club and the
resolution of this matter will not have a material adverse impact
on its operations or financial position. However, there can be no
assurance that the Company will be able to settle this dispute or
that the landlord will not prevail in its claim for past and
future rent from the Company.
The Company is also involved in various claims and lawsuits
incidental to its business, including claims arising from
accidents and disputes with landlords. However, in the opinion of
management, the Company is adequately insured against such claims
and lawsuits involving personal injuries, and any ultimate
liability arising out of any such proceedings will not have a
material adverse effect on the financial condition, cash flow or
operations of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
14
<PAGE> 15
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
None
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
THE SPORTS CLUB COMPANY, INC.
Date: May 10, 1996 by /s/ David Michael Talla
-----------------------------------
David Michael Talla
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
Date: May 10, 1996 by /s/ Timothy M. O'Brien
-----------------------------------
Timothy M. O'Brien
Chief Financial Officer
(Principal Financial and Accounting
Officer)
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<EXCHANGE-RATE> 1
<CASH> 1,849
<SECURITIES> 0
<RECEIVABLES> 1,345
<ALLOWANCES> 31
<INVENTORY> 390
<CURRENT-ASSETS> 8,141
<PP&E> 63,115
<DEPRECIATION> 3,242
<TOTAL-ASSETS> 83,891
<CURRENT-LIABILITIES> 10,583
<BONDS> 0
0
0
<COMMON> 114
<OTHER-SE> 40,268
<TOTAL-LIABILITY-AND-EQUITY> 83,891
<SALES> 9,306
<TOTAL-REVENUES> 9,306
<CGS> 5,941
<TOTAL-COSTS> 5,941
<OTHER-EXPENSES> 2,068
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 657
<INCOME-PRETAX> 693
<INCOME-TAX> 284
<INCOME-CONTINUING> 409
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 409
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
