<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
X EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from to
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Commission File Number: 0-25098
Family Golf Centers, Inc.
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(Exact name of Registrant as specified in its Charter)
Delaware 11-3223246
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
538 Broadhollow Road
Melville, New York 11747
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(Address of principal executive offices)
(631) 694-1666
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(Registrant's telephone number)
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(Former Name, Former Address and Former Fiscal Year, if changed since last
Report)
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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes No X
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State the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class Outstanding as of August 11, 2000
-------------------------------------- ---------------------------------
Common Stock, par value $.01 per share 26,039,272
Transitional Small Business Disclosure Format (Check one): Yes No X.
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<PAGE>
ITEM 1.
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
INTRODUCTORY COMMENT
The condensed consolidated financial statements included herein have
been prepared by Family Golf Centers, Inc. (the "Company"), without audit,
pursuant to the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
management of the Company believes that the disclosures are adequate to make the
information presented not misleading. These condensed consolidated financial
statements should be read in conjunction with the notes thereto. In the opinion
of the management of the Company, the condensed consolidated financial
statements include all adjustments, consisting of only normal recurring
adjustments, necessary to fairly present the results for the interim periods to
which these financial statements relate. As a result of the Company's Chapter 11
case and circumstances relating to this event, including the Company's debt
structure, its recurring losses, and current economic conditions, the condensed
consolidated financial statements are subject to significant uncertainty.
The results of operations of the Company for the six months ended June 30, 2000
are not necessarily indicative of the results to be expected for the full year.
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<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 726 $ 2,852
Restricted cash deposits 313 689
Inventories 5,918 10,755
Prepaid expenses and other current assets 4,161 4,858
Prepaid and refundable income taxes 332 9,780
--------- ---------
Total current assets 11,450 28,934
Property, plant and equipment (net) 367,427 381,066
Assets held for sale 41,471
Loan acquisition costs (net) 7,795
Other assets 5,100 5,511
Excess of cost over fair value of assets acquired (net) 25,224 26,609
--------- ---------
TOTAL $ 409,201 $ 491,386
========= =========
LIABILITIES
Liabilities not subject to compromise:
Current liabilities
Accounts payable, accrued expenses and other current liabilities $ 4,363 $ 26,053
Convertible subordinated notes 115,000
Current portion of long-term obligations 184,832
Borrowings under DIP facility 1,000
-------- ---------
Total current liabilities 5,363 325,885
Long-term obligations (less current portion) 5,923
Liabilities subject to compromise 323,209
Deferred rent 2,359
Other liabilities 4,614
--------- ---------
Total liabilities 328,572 338,781
--------- ---------
Minority interest 22 22
--------- ---------
Commitments and contingencies
STOCKHOLDERS' EQUITY
Preferred stock - authorized 2,000,000 shares, none outstanding
Common stock - authorized 50,000,000 shares, $.01 par value;
26,039,000 and 26,039,000 shares outstanding at
June 30, 2000 and December 31, 1999, respectively 260 260
Additional paid-in capital 291,671 291,671
Retained earnings (210,917) (138,838)
Accumulated other comprehensive income:
Foreign currency translation adjustment (247) (251)
Unearned compensation (113) (212)
Treasury shares (47) (47)
--------- ---------
Total stockholders' equity 80,607 152,583
--------- ---------
TOTAL $ 409,201 $ 491,386
========= =========
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
------------------------- -------------------------
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Operating revenues $ 58,345 $ 62,847 $ 31,651 $ 35,518
Merchandise sales 9,377 19,800 5,218 11,980
--------- --------- --------- ---------
Total revenue 67,722 82,647 36,869 47,498
Operating expenses 63,874 55,780 32,625 33,578
Cost of merchandise sold 7,269 13,719 4,078 8,373
Selling, general and administrative expenses 7,331 7,581 4,352 3,989
Loss on sales or disposal of assets 5,470
--------- --------- --------- ---------
(Loss) income before interest expense, other income,
reorganization items, income taxes and extraordinary item (16,222) 5,567 (4,186) 1,558
Interest expense (11,409) (7,326) (3,713) (4,171)
Other income 422 494 268 116
--------- --------- --------- ---------
Loss before reorganization items, income taxes and
extraordinary item (27,209) (1,265) (7,631) (2,497)
Reorganization items:
Professional fees and bank fees 5,473 3,714
Provision for loss on assets under contract for sale 32,772 32,772
--------- --------- --------- ---------
Loss before income taxes and extraordinary item (65,454) (1,265) (44,117) (2,497)
Income tax expense (benefit) 185 (493) 41 (973)
--------- --------- --------- ---------
(Loss) before extraordinary item (65,639) (772) (44,158) (1,524)
Extraordinary item-loss on disposition of
Pre-Combination Facilities 6,439 6,439
--------- --------- --------- ---------
Net loss $ (72,078) $ (772) $ (50,597) $ (1,524)
========= ========= ========= =========
Basic and Diluted loss per share:
(Loss) before extraordinary item $ (2.52) $ (0.03) $ (1.70) $ (0.06)
Extraordinary item (0.24) (0.24)
--------- --------- --------- ---------
Net (loss) $ (2.76) $ (0.03) $ (1.94) $ (0.06)
========= ========= ========= =========
Weighted average shares outstanding - Basic and Diluted(000's) 26,039 26,056 26,039 26,088
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
(DEBTORS-IN-POSSESSION)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(72,078) $ (772)
Adjustments to reconcile net income to net cash
Provided by operating activities:
Depreciation and amortization 10,505 9,396
Loss on sale of property and equipment 44,681
Non-cash operating expenses 98 193
(Increase) decrease in inventories 3,440 (2,181)
(Decrease) increase in prepaid expenses and other current assets 174 (5,809)
(Decrease) increase in prepaid income taxes 9,448
(Increase) decrease in other assets (260) 2,136
Increase in accounts payable and accrued expenses 2,273 2,214
Increase (decrease) in other liabilities (877) 2,006
(Decrease) in income taxes payable (2,236)
-------- --------
Net cash (used in) provided by operating activities (2,596) 4,947
-------- --------
Cash flows from investing activities:
Acquisitions of property and equipment (5,476) (46,365)
Proceeds from sale and disposal of assets 9,381 --
Restricted cash deposits 376
Net proceeds from sale of short-term investments 17,043
-------- --------
Net cash provided by (used in) investing activities 4,280 (29,322)
-------- --------
Cash flows from financing activities:
(Increase) in loan acquisition costs (334)
Borrowings under DIP Facility 1,000
Proceeds from loans, banks and others 37,551
Repayment of long term debt (4,810) (13,130)
-------- --------
Net cash (used in) provided by financing activities (3,810) 24,087
-------- --------
NET (DECREASE) IN CASH AND CASH EQUIVALENTS (2,126) (288)
Cash and cash equivalents - beginning of period 2,852 3,878
-------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 726 $ 3,590
======== ========
Supplemental and noncash disclosures:
Acquisition of property in exchange for common stock $ 522
Acquisition of property subject to loans payable 1,012
Property additions accrued but not paid 4,496
Interest paid $ 6,860 4,564
Taxes paid 337 3,048
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
DEBTORS-IN-POSSESSION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 2000
(Note A) - PROCEEDINGS UNDER CHAPTER 11 AND BASIS OF PRESENTATION:
[1] THE COMPANY AND SUBSEQUENT EVENTS:
Family Centers, Inc. (the "Parent") and its subsidiaries (together with the
Parent, "FGC" or the "Company") operates golf centers designed to provide a
wide variety of practice opportunities, including facilities for driving,
chipping, putting, pitching and sand play. In addition, FGC's golf centers
typically offer golf lessons instructed by PGA-certified golf professionals,
full-line pro shops and other amenities to encourage family participation. As of
June 30, 2000, FGC owned, leased or managed 107 golf facilities comprised of 81
golf centers and 26-combination golf center and golf course facilities located
in 23 states and three Canadian provinces.
In addition to its golf business, FGC operates sports and family entertainment
facilities, including ice rink and family sports supercenters. As of June 30,
2000, FGC owned, leased or managed 19 ice rinks facilities and family
entertainment centers.
On May 4, 2000 (the "Petition Date"), FGC, excluding its Canadian subsidiaries,
(the "Debtors") filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code ("Chapter 11") in the United States Bankruptcy
Court for the Southern District of New York (the "Bankruptcy Court"). The
Chapter 11 cases are being jointly administered for procedural purposes only.
The Debtors are operating their respective businesses as debtors-in-possession.
On May 12, 2000, the Office of the United States Trustee for the Southern
District of New York, appointed an Official Committee of Unsecured Creditors.
On August 1, 2000, the Parent and certain of its subsidiaries entered into an
Agreement of Sale, as amended, (the "Agreement of Sale") to sell and assign its
fee owned interests and the right to control the disposition of its leasehold
interests in 35 golf properties to KLAK Golf, L.L.C. (the "Purchaser") for a
purchase price of $16.15 million in cash. The Agreement of Sale is subject to,
among other things, Bankruptcy Court approval and certain regulatory approvals.
The closing of this transaction is scheduled to occur no later than 30 days
after entry, by the Bankruptcy Court, of an order approving the transaction,
provided, however, that the Purchaser has the right through October 9, 2000 to
designate those leases it desires to acquire (or to cause its designee to
acquire) or reject. The Purchaser is not entitled to a purchase price reduction
for leases it elects not to accept. Proceeds from the sale shall be deposited
into an interest-bearing escrow account for the benefit of FGC's secured
creditors. There can be no assurance that the transaction contemplated by the
Agreement of Sale will be consummated. Included in the loss for the period ended
June 30, 2000 is a provision for loss on assets under contract for sale of the
35 properties amounting to $39.2 million $32.8 million of the loss is included
in reorganization items and $6.4 million is recorded as an extraordinary item.
The 35 golf properties included in the sale to KLAK Golf, L.L.C. contributed
$8.5 million to total revenue and a loss of $2.4 million to the net loss for
the period ended June 30, 2000.
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles applicable to a going concern,
which principles, except as otherwise disclosed, assume continuity of
operations, that assets will be realized and liabilities will be discharged in
the normal course of business. As a result of the Chapter 11 case and
circumstances relating to this event, including the Company's debt structure,
its recurring losses, and current economic conditions, such realization of
assets and liquidation of liabilities are subject to significant uncertainty.
However, in connection with the Chapter 11 filing, the Company is required to
report in accordance with Statement of Position 90-7 ("Financial Reporting by
Entities in Reorganization Under the Bankruptcy Code") for financial statements
for the period beginning May 4, 2000 and thereafter. Due to the Company's
Chapter 11 filing, the value of certain of the Company's property and equipment,
as well as goodwill, may be impaired, however, such impairment cannot be
estimated. Additionally, the amounts reported on the consolidated condensed
balance sheet could materially change as a result of a plan of reorganization,
since such reported amounts do not give effect to adjustments to the carrying
value of the underlying assets or amounts of liabilities that may ultimately
result.
The interim financial statements, prepared in accordance with statement of
position 90-7 ("Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code") do not reflect adjustments that would be necessary if the
going concern basis was not appropriate. If the going concern basis was not
appropriate for these interim consolidated financial statements, then
significant adjustments would be necessary in the carrying value of assets and
liabilities, the reported revenues and expenses and the balance sheet
classifications used. Additionally, the amounts reported could materially change
because of a plan of reorganization, since the reported amounts in those
interim consolidated financial statements do not give effect to adjustments to
the carrying value of the underlying assets or amounts of liabilities that may
ultimately result. The appropriateness of the going concern basis is dependent
upon, among other things, confirmation of a plan of reorganization, future
profitable operations, the ability to comply with the provisions of the
debtor-in-possession revolving credit agreements (the "DIP Facility") and the
ability to generate sufficient cash from operations.
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<PAGE>
In the Chapter 11 cases, substantially all liabilities as of the Petition Date
are subject to compromise or other treatment under a plan of reorganization to
be confirmed by the Bankruptcy Court after submission to any required vote by
affected parties. Generally, all actions to enforce or otherwise effect
repayment of pre-Chapter 11 liabilities as well as all pending litigation
against the Debtors are stayed while the Debtors continue their business
operations as debtors-in-possession. The Debtors will notify all known claimants
subject to the bar date of their need to file a proof of claim with the
Bankruptcy Court. A bar date is the date by which claims against the Company
must be filed if the claimants wish to receive any distribution in the Chapter
11 cases. A bar date has not yet been established in the Chapter 11 cases.
Differences between amounts shown by the Debtors and eventual claims filed by
creditors will be investigated and will be either amicably resolved or
adjudicated before the Bankruptcy Court. The ultimate amount of and settlement
terms for such liabilities are subject to an approved plan of reorganization and
accordingly, are not presently determinable.
Under the Bankruptcy Code, the Debtors may elect to assume or reject real estate
leases, employment contracts, personal property leases, service contracts and
other pre-petition executory contracts, subject to Bankruptcy Court approval.
Claims for damages resulting from the rejection of real estate leases and other
executory contracts will be subject to separate bar dates.
The amount of liabilities reported on the condensed consolidated balance sheet
may vary significantly from the stated amount of proofs of claim that will be
filed with the Bankruptcy Court and may be subject to future adjustment
depending on Bankruptcy Court action, developments with respect to potential
disputed claims, determination as to the value of any collateral securing
claims, or other events.
Reorganization items include professional fees, including accounting, legal and
consulting services provided to the Debtors, certain creditors and the Official
Committee of Unsecured Creditors in connection with the Chapter 11 filing.
Reorganization items also includes a provision for loss on assets under contract
for sale of 35 golf properties in connection with the pending sale to KLAK Golf,
L.L.C. The Company recorded a loss of $39.2 million in connection with the
pending sale, $32.8 million is included in reorganization items and $6.4 million
is recorded as an extraordinary item.
In the opinion of FGC's Management, the accompanying unaudited consolidated
condensed financial statements contain all adjustments consisting of normal
recurring accruals necessary to present fairly the financial position as of June
30, 2000 and the results of operations and cash flows for the periods then
ended. The results of operations and cash flows for the six-month periods ended
June 30, 2000 and 1999, are not necessarily indicative of the results to be
expected for the full year.
Certain reclassifications to the prior periods' financial statements have been
made to conform with classifications used in the current periods. For purposes
of presentation, property, plant and equipment, including assets held for sale
of $41,471 at December 31, 1999 have been combined at June 30, 2000, and
expenses incurred through March 31, 2000 amounting to $1.8 million, in
connection with the reorganization have been included with reorganization items
through June 30, 2000.
The preparation of financial statements in conformity with generally accepted
accounting principals requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities as of the balance sheet date and revenues and expenses
during the reporting period. Actual amounts could differ from those estimates.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated condensed financial
statements be read in conjunction with the financial statements and notes
thereto included in FGC's audited financial statements for the year ended
December 31, 1999, which is included in its Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 filed in April 2000.
[2] PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of Family Golf
Centers, Inc. and its wholly owned and majority owned subsidiaries. All
significant intercompany transactions and accounts have been eliminated.
Minority interests in the FGC's operations were insignificant.
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<PAGE>
(NOTE B) DEBTOR-IN POSSESSION FACILITY:
In connection with the Company's Chapter 11 filing, the Debtors entered into a
debtor-in-possession ("DIP") credit facility, dated June 2, 2000 (the "DIP
Facility"), with The Chase Manhattan Bank acting for itself and as agent for a
syndicate of banks. The DIP Facility, which has been approved by the Bankruptcy
Court, provides for revolving credit loans up to a maximum of $15 million
outstanding. The DIP Facility is available to the Debtors for working capital
and to pay post-petition operating expenses. As of June 30, 2000, the Debtors
borrowed $1.0 million under the DIP Facility.
Amounts outstanding under the DIP Facility bear interest at a rate of
approximately prime plus 1 1/2% per annum. The terms of the DIP Facility contain
certain restrictive covenants including: limitations on the incurrence of
additional guarantees, liens and indebtedness, and limitations on the sale of
assets and the making of capital expenditures. The DIP Facility also requires
that the Company meet certain minimum earnings before taxes and other expenses
as defined, such minimum earnings requirement is calculated on each of September
30, 2000, December 31, 2000 and March 31, 2001.
The DIP Facility matures on May 5, 2001, or earlier upon the occurrence of
certain events, including confirmation of a Chapter 11 plan of reorganization by
the Bankruptcy Court. The DIP Facility provides for an automatic extension of
the maturity date to November 7, 2001 in the event the Company receives, on or
prior to May 5, 2001, in excess of $50.0 million in net cash proceeds from the
sale of assets.
(NOTE C) INVENTORIES:
Inventories consist of merchandise for sale in the pro shop at each facility and
is valued at the lower of cost on a first-in, first-out (FIFO) basis or market.
(NOTE D) ASSET DISPOSITIONS:
In the first quarter of 2000, the Company sold the assets of three golf
facilities in Tucson, Arizona, Mesa, Arizona and Olympia, Washington as well as
one ice rink facility in Simsbury, Connecticut. The Company also sold a golf
school located in Hilton Head, South Carolina. The aggregate proceeds for these
transactions were $9.5 million. Also, the Company also terminated its lease
agreement at Colorado Springs, Colorado. As of December 31, 1999 these assets
were classified as held for sale and the losses incurred in conjunction with
their disposition were recorded in the year ended December 31, 1999.
In March 2000, the Company wrote off $5.4 million in connection with the
Woodbridge, New Jersey construction project, which is included in the loss on
sale or disposal of assets. In April 1998, the Company entered into agreements
with the Township of Woodbridge ("Township") to lease, construct and operate an
ice rink facility with two sheets of ice and a family entertainment center. In
February 2000, the Township served the Company with a Notice to Quit Termination
of Tenancy and Demand for Possession based upon the Company's alleged breach of
these agreements. The Company entered into a settlement agreement with the
Township on April 21, 2000 whereby the 1998 agreements were terminated, the
Company surrendered possession of the site to the Township, the Township
released the Company from certain performance bonds and reimbursed the Company
for certain costs in connection with the settlement.
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<PAGE>
(NOTE E) BUSINESS SEGMENT INFORMATION:
Information concerning operations by industry segment is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Golf Non-Golf
Operations Operations Consolidated
<S> <C> <C> <C>
SIX MONTHS ENDED JUNE 30, 2000
Total revenue $ 48,996 $ 18,726 $ 67,722
(Loss) income before interest expense,
reorganization items, income taxes and
extraordinary item (18,023) 1,801 (16,222)
Depreciation and amortization 7,844 2,661 10,505
Identifiable assets 291,031 118,170 409,201
Capital expenditures 4,108 1,368 5,476
SIX MONTHS ENDED JUNE 30, 1999
Total revenue $ 64,700 $ 17,947 $ 82,647
Income before interest expense and income taxes 4,000 1,567 5,567
Depreciation and amortization 7,227 2,169 9,396
Identifiable assets 476,459 125,532 601,991
Capital expenditures 43,729 8,785 52,514
THREE MONTHS ENDED JUNE 30, 2000
Total revenue $ 29,666 $ 7,203 $ 36,869
(Loss) Income before interest expense,
reorganization items, income taxes and
extraordinary item (3,938) (248) (4,186)
Depreciation and amortization 3,827 1,299 5,126
THREE MONTHS ENDED JUNE 30, 1999 $ 40,239 $ 7,259 $ 47,498
Total revenue 2,096 (538) 1,558
Income before interest expense and income taxes 4,552 1,092 5,644
Depreciation and amortization
</TABLE>
Non-golf operations relate to complementary sports and family entertainment
facilities which include ice rink facilities, soccer fields and other indoor
family sports and amusements.
NOTE F - LIABILITIES SUBJECT TO COMPROMISE
The principal categories of obligations classified as liabilities subject to
compromise under the reorganization proceeding are identified below. The amounts
in total may vary significantly from the stated amounts of proofs of claims that
ultimately will be filed with the Bankruptcy Court, and may be subject to future
adjustments depending on Bankruptcy Court action, further developments with
respect to potential disputed claims, and determination as to the value of any
collateral securing claims or other events. Additional claims may arise from the
rejection of executory contracts by the Debtors.
The Debtors have not yet filed Schedules of Assets and Liabilities and
Statements of Affairs with the Bankruptcy Court. Therefore, liabilities subject
to compromise do not include rejection damages and other potential claims.
At June 30, 2000, liabilities subject to compromise were comprised of the
following:
(dollars in thousands)
Borrowings under revolving credit facilities $ 127,153
5 3/4 Convertible Subordinated Notes 115,000
Mortgage and other notes 61,930
Accrued interest 5,469
Accounts payable, accrued interest and
expenses and other liabilities 23,146
Less: Debt discount and debt acquisition cost (9,489)
----------
$ 323,209
==========
-9-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with the
Company's financial statements and the notes thereto appearing elsewhere in this
Report. This Report contains statements which constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. These statements appear in a number of places in this Report and include
statements regarding the intent, belief or current expectations of the Company
with respect to (i) the Company's disposition and financing plans, (ii) trends
affecting the Company's financial condition or results of operations, (iii) the
impact of competition and (iv) the integration of certain operations. The
Company cautions that forward-looking statements are not guarantees of future
performance and involve risks and uncertainties, and that actual results may
differ materially from those in the forward-looking statements as a result of
various factors. The information contained in this Report, including, without
limitation, the information under "Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations," and the information contained
in the Company's Annual Report on Form 10-K for the year ended 1999 under "Risk
Factors" and "Business" identifies important factors that could cause or
contribute to such differences.
CHAPTER 11 FILING, LIQUIDITY AND CAPITAL RESOURCES
At June 30, 2000, we had cash, cash equivalents and short-term investments of
$1.0 million inclusive of restricted cash deposits compared to $3.5 million at
December 31, 1999. The decrease of $2.5 million was due principally to operating
losses incurred in the six months ended June 30, 2000.
Our outstanding indebtedness as of June 30, 2000, including the 5 3/4%
Convertible Subordinated Notes and other indebtedness of $304.1 million, bears
interest at fixed and variable rates ranging from 5 3/4% to 11.5% per annum.
However, as a result of the Chapter 11 filing, no principal or interest payments
are being made on unsecured pre-petition debt. Interest payments are being made
on secured pre-petition debt. Interest on pre-petition unsecured obligations is
not being accrued after the Petition Date. Such unaccrued interest amounts to
$2.4 million through June 30, 2000. The Bankruptcy Court has authorized, and the
Company has made, interest payments on certain secured debt from the Petition
Date.
On May 2, 2000 we received notices of default from our lenders under our $130
million credit facility and under our Bank of America loan agreement for our
failure to make our monthly interest payments which were due on May 1, 2000. As
a result of such defaults, the lenders declared all amounts under such loan
facilities to be immediately due and payable. The lenders under our $130 million
credit facility notified us that we were prohibited from making any payment to
the holders of our 5 3/4% Convertible Subordinated Notes. Such defaults
triggered cross-defaults under substantially all of the Company's senior
indebtedness.
On May 4, 2000, the Company, excluding its Canadian subsidiaries, filed
petitions for reorganization under Chapter 11 of the United States Bankruptcy
Code. The Company will continue to conduct business in the ordinary course as
debtors-in-possession under the protection of the Bankruptcy Court while a plan
of reorganization is developed.
Requirements for the payment of debt, accounts payable and other liabilities
that arose prior to the Chapter 11 filings are in most cases stayed while we are
under the protection of the Bankruptcy Code. The Bankruptcy Court has issued
orders authorizing the payment of certain pre-petition wages, employee benefits
and other payments that are essential to our daily operations.
On June 2, 2000 the Bankruptcy Court approved a debtor-in-possession credit
facility (the "DIP Facility") of $15 million from The Chase Manhattan Bank
("Chase") acting for itself and as agent for a syndicate of banks. Borrowings
under the DIP Facility bear interest at a rate of approximately the prime rate
plus 1 1/2% per annum. Borrowings under the DIP Facility are secured by a first
perfected lien on all of our unencumbered assets, a senior priming lien on all
of our assets which were subject to existing liens under our $130 million credit
pre-petition facility with The Chase and a junior lien on all of our assets
which were subject to other existing perfected liens.
-10-
<PAGE>
The terms of the DIP Facility contain certain restrictive covenants including:
limitations on the incurrence of additional guarantees, liens and indebtedness,
and limitations on the sale of assets and the making of capital expenditures.
The DIP Facility also requires that we meet certain minimum earnings before
taxes and other expenses as defined, such minimum earnings requirement is
calculated on each of September 30, 2000, December 31, 2000 and March 31, 2001.
The DIP Facility matures on May 5, 2001, or earlier upon the occurrence of
certain events, including confirmation of a Chapter 11 plan of reorganization by
the Bankruptcy Court. The DIP Facility provides for an automatic extension of
the maturity date to November 7, 2001 in the event we receive, on or prior to
May 5, 2001, in excess of $50.0 million in net cash proceeds from the sale of
assets.
The DIP Facility is intended to provide us with cash and liquidity to ensure
that we can conduct our operations and pay for goods and services in the normal
course during the Chapter 11 proceedings.
Our primary sources of liquidity are cash flow from operations, asset sales and
the DIP Facility. To this end, the Bankruptcy Court has authorized our use of
cash collateral and thereby enables us to use such cash flows.
The Company's net cash used in operations during the six months ended June 30,
2000 increased by $13.0 million over the same period of the prior year due to
the increase in losses in the period.
Inventory decreased by $3.4 million due to a shortage of cash to purchase
merchandise and the slow-down in shipments by merchandise vendors prior to the
Petition Date.
Capital expenditures for the six months ended June 30, 2000 were principally for
the ongoing construction of our Fremont, California and San Bruno, California
sites and the improvement of existing facilities.
Net cash used in financing activities of $3.8 million included net borrowings
under the DIP facilities of $1.0 million and $4.8 million of principal payments
on mortgages and notes payable.
GENERAL
We operate golf centers in North America. Our golf centers provide a wide
variety of practice and play opportunities including facilities for driving,
chipping, putting, pitching and sand play. Our golf centers typically offer
full-line pro shops, golf lessons instructed by PGA-certified golf professionals
and other amenities such as miniature golf and snack bars to encourage family
participation. We have grown from one golf facility in 1992 to 107 as of June
30, 2000. In addition, in order to generate additional sources of revenue,
attract a more diverse customer base and offset the seasonality of our core golf
business, we also operate sports and family entertainment facilities, including
ice rinks and "Family Sports Supercenters," which have two or more
sports-related attractions, such as golf, ice rinks, bowling centers, soccer
facilities and batting cages, as well as a variety of family entertainment
activities. As of June 30, 2000, we owned, operated, managed or had under
construction 107 golf facilities and 19 ice rink and family entertainment
facilities in 23 states and three Canadian provinces.
Most of the revenue from our golf centers is derived from selling tokens and
debit cards for use in automated range-ball dispensing machines, pro shop
merchandise sales, charging for rounds of miniature golf, golf lessons and
management fees. We also derive revenue at our golf centers from food and
beverage sales, video games and batting cages. We derive revenue from our golf
courses from golf club membership fees, fees from rounds of golf and golf
lessons, pro shop merchandise sales and from food and beverage sales at the
clubhouses. We derive revenue from our ice rinks by renting the rinks to hockey
leagues and teams and figure skaters, charging admission to our skating
facilities for public skating, providing lessons through USFSA-certified
instructors, skate equipment rentals and pro shop merchandise sales, as well as
from food and beverage sales and video games. We derive revenue from our Family
Sports Supercenters from substantially the same sources as described above. As a
result of their greater size and number of attractions, our Family Sports
Supercenters generate significantly more revenue than individual golf centers,
and generate a majority of their revenue in the first and fourth quarters of
each calendar year.
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RESULTS OF OPERATIONS
The following table sets forth selected operations data of the Company expressed
as a percentage of total revenue (except for operating expenses which is
expressed as a percentage of operating revenue and cost of merchandise sold
which is expressed as a percentage of merchandise sales) for the periods
indicated below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30,
----------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues 86.2% 76.0% 85.8% 74.8%
Merchandise sales 13.8 24.0 14.2 25.2
---- ---- ---- ----
Total revenue 100.0 100.0 100.0 100.0
Operating expenses 109.5 88.8 103.1 94.5
Cost of merchandise sold 77.5 69.3 78.2 69.9
Selling, general and admin. Expenses 11.0 9.2 7.3 8.4
Gain/loss on sales or disposal of assets 8.4 (0.3) 3.3
Loss (Income) before interest expense,
reorganization items, income taxes and
extraordinary item (24.0) 6.7 (6.6) 8.8
Interest expense 16.8 8.9 10.1 0.2
Other income 0.6 0.6 0.7 (5.0)
Loss before reorganization charges,
income taxes and extraordinary item (48.0) (1.5) (31.0) (5.0)
Income tax expense (0.6) (0.6) (0.4) (2.1)
Net loss (48.5) (1.0) (30.9) (3.2)
</TABLE>
SIX MONTHS ENDED JUNE 30, 2000 COMPARED TO SIX MONTHS ENDED JUNE 30, 1999
We acquired and disposed of golf centers, ice rinks and family entertainment
centers at varying times during each year, and as a result of the change in the
number of facilities open from period to period, the comparison between 2000 and
1999 periods may not necessarily be meaningful.
Total revenue for the six months ended June 30, 2000 was $67.7 million as
compared to $82.6 million for the same period in 1999, a decrease of $14.9
million (18.0%). The overall decrease in revenue was attributable to credit
restrictions placed on us by vendors and the liquidity constraints we faced
during the six months ended June 30, 2000. For the 95 golf centers operating for
the full six months ended June 30, 2000 and 1999 total revenue decreased 22% to
$43.2 million in the 2000 period from $55.2 million in the 1999 period.
Operating revenues decreased by 8% to $35.1 million and merchandise sales
decreased by 53% to $8.1 million.
The liquidity constraints we encountered during the six months ended June 30,
2000 negatively impacted revenues in the period as follows: the inability to
obtain current product from vendors significantly affected merchandise sales and
driving range sales; lack of funds for advertising contributed to lower sales,
particularly at the Family Entertainment Centers and newly renovated golf
centers; and customer concern resulting from negative publicity about our
financial condition impacted reservations for parties and other functions at our
Family Sports Supercenters.
Operating revenue, consisting of all sales except merchandise sales, amounted to
$58.3 million for the six months ended June 30, 2000, as compared to $62.8
million for the comparable 1999 period, a decrease of $4.5 million (7.2%).
Merchandise sales, consisting of golf clubs, balls, bags, gloves, videos,
apparel and related accessories, amounted to $9.4 million for the six months
ended June 30, 2000 as compared to $19.8 million for the comparable 1999 period,
a decrease of $10.4 million (52.5%). The decrease in merchandise sales was
primarily due to the lower level of merchandise available for sale.
Operating expenses, consisting of operating wages and employee costs, land rent,
depreciation of golf driving range facilities and equipment, utilities and
facility operating costs, increased to $63.9 million (109% of operating revenue)
in the 2000 period from $55.8 million (89% of operating revenue) in the 1999
period, an increase of $8.1 million (14.5%). The increase in operating expenses
was primarily due to having additional golf and family entertainment centers in
operation during the six month period ended June 30, 2000.
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<PAGE>
The cost of merchandise sold decreased to $7.3 million (77%) of merchandise
sales) in the 2000 period from $13.7 million (69% of merchandise sales) in the
comparable 1999 period. The overall decrease in the cost of merchandise sold of
$6.4 million (46.7%) was primarily due to the lower level of merchandise sales.
The increase in cost of merchandise sold as a percentage of merchandise sales
was due to our inability to purchase fresh merchandise and credit restrictions
placed on us by vendors.
Selling, general and administrative expenses for the six months ended June 30,
2000 amounted to $7.3 million (11% of total revenue) compared to $7.6
million (9% of total revenue) in the comparable 1999 period, a decrease of
$300,000 (3.9%). The decrease in selling, general and administrative expenses is
primarily attributable to less liquidity available for advertising and promotion
during the six months ended June 30, 2000.
Interest expenses increased to $11.4 million for the six months ended June 30,
2000 from $7.3 in the comparable 1999 period. Other income, including interest
income, decreased to $422,000 in the 2000 period from $494,000 in the 1999
period a decrease of $72,000.
THREE MONTHS ENDED JUNE 30, 2000 COMPARED TO THREE MONTHS ENDED JUNE 30, 1999
We acquired and disposed of golf centers, ice rinks and family entertainment
centers at varying times during the period, and as a result of the change in the
number of facilities open from period to period, the comparison between the 2000
and 1999 periods may not necessarily be meaningful.
Total revenue for the three months ended June 30, 2000 was $36.9 million as
compared to $47.5 million for the same period in 1999, a decrease of $10.6
million (22.3%). The overall decrease in revenue was primarily attributable to
credit restrictions placed on us by vendors and the liquidity constraints we
faced during the three months ended June 30, 2000. Total revenue for the 99 golf
centers operating for the full three months ended June 30, 2000 and 1999
decreased 22% to $27.4 million in the 2000 period from $35.1 million in the 1999
period. The decrease in revenues for these golf centers was primarily due to our
liquidity constraints and credit restrictions placed on us by vendors during the
three months ended June 30, 2000.
The liquidity constraints we encountered during the three months ended June 30,
2000 negatively impacted revenues in the period as follows: the inability to
obtain current product from vendors significantly affected merchandise sales and
driving range sales; lack of funds for advertising contributed to lower sales,
particularly at the Family Entertainment Centers and newly renovated golf
centers; and customer concern resulting from negative publicity about our
financial condition impacted reservations for parties and other functions at the
Family Sports Supercenters.
Operating revenue, consisting of all sales except merchandise sales, amounted to
$31.7 million for the three months ended June 30, 2000, as compared to $35.5
million for the comparable 1999 period, a decrease of $3.8 million (12.4%). The
decrease in operating revenue was primarily attributable to credit restrictions
placed by vendors and liquidity constraints faced by us during the three months
ended June 30, 2000. Total operating revenue for the 99 golf centers operating
for the full three months ended June 30, 2000 and 1999 decreased 8% to $22.6
million in the 2000 period from $24.4 million in the 1999 period.
Merchandise sales, consisting of golf clubs, balls, bags, gloves, videos,
apparel and related accessories, amounted to $5.2 million for the three months
ended June 30, 2000 as compared to $12.0 million for the comparable 1999 period,
a decrease of $6.8 million. The decrease in merchandise sales was primarily due
to our inability to obtain sufficient fresh product at our pro shops due to our
liquidity problems. Total merchandise sales for the 99 golf centers operating
for the full three months ended June 30, 2000 and 1999 decreased 53% to $4.7
million in the 2000 period from $10.7 million in the 1999 period.
Operating expenses, consisting of operating wages and employee costs, land rent,
depreciation of golf driving range skating and family entertainment facilities
and equipment, utilities and all other facility operating costs,
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<PAGE>
decreased to $32.6 million (103% of operating revenue) in the 2000 period from
$33.6 million (95% of operating revenue) in the 1999 period, a decrease of $1.0
million primarily due to lower depreciation expense resulting from the write
down of assets to the fair value in the third and fourth quarter of 1999. In
addition, certain operating expenses decreased due to the closing and disposing
of golf facilities during the current period.
The cost of merchandise sold decreased to $4.1 million (78.0%) of merchandise
sales) in the 2000 period from $8.4 million (70.0% of merchandise sales) in the
comparable 1999 period. The overall decrease in this cost of merchandise was
$4.3 million (51% of merchandise sales) and was primarily due to the lower level
of merchandise sales. The increase in cost of merchandise sold as a percentage
of merchandise sales was due to our inability to purchase fresh merchandise and
credit restrictions placed on us by our vendors.
Selling, general and administrative expenses for the three months ended June 30,
2000 amounted to $4.4 million (12.1% of total revenue) compared to $4.0 million
(8.0% of total revenue) in the comparable 1999 period. The increase in selling,
general and administrative expenses is primarily attributed to having additional
golf and Family Sports Supercenters in operation during the three months ended
June 30, 2000.
Interest expense decreased to $3.7 million for the three months ended June 30,
2000 from $4.2 million in the comparable 1999 period. The decrease in interest
expense was due primarily to non-accrual of interest relating to the
pre-petition unsecured obligations. Other income, including interest income,
decreased to $268,000 in the 2000 period as compared to $116,000 million in the
1999 period.
TRENDS
On May 4, 2000, the Company, excluding the Canadian subsidiaries (the
"Debtors"), filed petitions for relief under Chapter 11 of the United States
Bankruptcy Code. These cases are jointly administered for procedural purposes
only. The Debtors are presently operating their respective businesses as
debtors-in-possession. On May 12, 2000, the Office of the United States Trustee
for the Southern District of New York appointed an Official Committee of
Unsecured Creditors.
In connection with the formulation of a plan of reorganization, management will
be reviewing the performance of each of the Company's operations. In addition to
the 35 non-core sites, which are under contract to be sold, we may close or sell
additional under-performing or non-core sites to improve operational results and
reduce debt.
We anticipate that we will continue to incur significant professional fees and
other restructuring costs in connection with the Chapter 11 proceeding and the
ongoing restructuring of our business operations throughout fiscal year 2000. We
also believe that revenues will be negatively impacted by the reduced level of
advertising and promotions and that merchandise sales may continue to be
negatively impacted by our inability to obtain current merchandise. Our ability
to attract and retain personnel may also be negatively impacted by our current
financial condition.
SEASONALITY
Historically, the second and third quarters have accounted for a greater portion
of the Company's revenues than have the first and fourth quarters of the year.
This is primarily due to an outdoor playing season limited by inclement weather.
Although most of the Company's facilities are designed to be all-weather,
portions of the facilities, such as driving ranges, miniature golf courses that
are outdoors, tend to be vulnerable to weather conditions. Also, golfers are
less inclined to practice when weather conditions limit their ability to play
golf on outdoor courses. The Company has acquired golf centers in various
locations (Arizona, California, Florida, Georgia, North Carolina, South
Carolina, Texas and Virginia) where inclement weather may not limit the outdoor
season as much as weather limits the outdoor playing season at the Company's
golf facilities in Northern states. In addition, the ice rink facilities and the
Family Sports Supercenters are expected to generate a greater portion of their
revenues in the first and fourth quarters of the years and accordingly, may
partially offset such seasonality. The timing of facility acquisitions and
dispositions may cause the Company's results of operations to vary significantly
from quarter to quarter. Accordingly, period-to-period comparisons are not
necessarily meaningful and should not be relied on as indicative of future
results.
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<PAGE>
INFLATION
There was no significant impact on the Company's operations as a result of
inflation during the six months ended June 30, 2000.
-15-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As previously reported, during the first quarter of this year, several class
action lawsuits were filed against the Company and certain of its executive
officers alleging that federal securities laws were violated in connection with
the sale of our common stock during July, 1998. On or about July 18, 2000, these
class action lawsuits were consolidated into one and a consolidated amended
class action complaint was filed in the United States District Court for the
Eastern District of New York. The Company was not named as a defendant in the
amended complaint because of its filing for protection under Chapter 11 of the
Bankruptcy Code.
On May 4, 2000, FGC excluding its Canadian subsidiaries, filed petitions for
relief under Chapter 11 of the United States Bankruptcy Code in the United
States Bankruptcy Court for the Southern District of New York. We are presently
operating our business as debtors-in-possession.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS NONE
ITEM 3. DEFAULT UPON SENIOR SECURITIES
On May 2, 2000 we received notices of default from our lenders under our $130
million credit facility and under our Bank of America loan agreement for the
Company's failure to make its monthly interest payments which were due on May 1,
2000. As a result of such defaults, the lenders accelerated the Company's
obligations under such loan agreements and, accordingly, all amounts outstanding
were declared immediately due any payable. In addition, the lenders under the
$130 million credit facility notified us that we were prohibited from making any
payments to the holders of the 5 3/4% convertible subordinated notes. These
defaults also triggered cross-defaults under substantially all of our senior
indebtedness. On May 4, 2000, the Company, excluding its Canadian subsidiaries,
filed voluntary petitions for protection under Chapter 11 of the Bankruptcy Code
in the U.S. Bankruptcy Court in the Southern District of New York. The filings
were consolidated for joint administration.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS NONE
ITEM 5. OTHER INFORMATION
On May 1, 2000 we received the resignation of Stephen F. Cooper and Philip J.
Gund from the Office of the Chairman of Family Golf Centers, Inc. and Mr.
Cooper's resignation as Chief Restructuring Officer. Mr. Gund, who had been our
Acting Chief Financial Officer, resigned upon the appointment of John J. Caliolo
as our Chief Financial Officer.
The Company received notice from the Nasdaq Listing Qualifications Staff that is
had determined that, given the Company's Chapter 11 filing, the continued
listing of the Company's securities on The Nasdaq Stock Market was no longer
warranted and, accordingly, the Company's securities were de-listed on June 1,
2000.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.4 Agreement of Sale between the parties listed on Exhibit E thereto which
are debtors and debtors-in-
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<PAGE>
possession, (the "Sellers") and KLAK Golf, L.L.C.
10.5 First Amendment to Agreement of Sale, dated as of August 14, 2000,
between the Sellers and KLAK Golf, L.L.C.
27 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
Current Report on Form 8-K, dated June 1, 2000 and filed on June 7,
2000, reporting an Item 5 event.
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<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Dated: , 2000
------------
Melville, NY
FAMILY GOLF CENTERS, INC.
(Registrant)
By:
----------------------------
KRISHNAN P. THAMPI
President,
Chief Operating Officer,
Assistant Secretary,
and Treasurer
By:
----------------------------
JOHN CALIOLO
Chief Financial Officer
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