<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
------
For the quarterly period ended September 30, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
____ EXCHANGE ACT OF 1934
For the transition period from __________to__________
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
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
538 Broadhollow Road
Melville, New York 11747
--------------------------------------------------------------------------------
(Address of principal executive offices)
(631) 694-1666
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(Registrant's telephone number)
--------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if changed since last Report)
Check whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 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
--- ---
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 November 13, 2000
-------------------------------------- ------------------------------------
Common Stock, par value $.01 per share 26,039,272
Transitional Small Business Disclosure Format (Check one): Yes No X
------ ---
<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 normal recurring adjustments,
necessary to fairly present the results for the interim periods to which these
financial statements relate.
The results of operations of the Company for the nine months ended September 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
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PAR VALUE)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
ASSETS 2000 1999
------------- ------------
(UNAUDITED)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,016 $ 2,852
Restricted cash deposits 309 689
Inventories 3,750 10,755
Prepaid expenses and other current assets 5,132 4,858
Prepaid and refundable income taxes 131 9,780
---------- ----------
Total current assets 10,338 28,934
Property, plant and equipment, net 346,114 381,066
Assets held for sale 41,471
Loan acquisition costs, net 7,795
Other assets 4,866 5,511
Excess of cost over fair value of assets acquired 20,933 26,609
---------- ----------
TOTAL $ 382,251 $ 491,386
========== ==========
LIABILITIES
Current liabilities:
Accounts payable, accrued expenses and other current liabilities $ 8,214 $ 26,053
Convertible subordinated notes 115,000
Current portion of long-term obligations 184,832
Borrowings under DIP facility 3,500
---------- ----------
Total current liabilities 11,714 325,885
Long-term obligations (less current portion) 5,923
Liabilities Subject to Compromise 322,229
Deferred rent 2,359
Other liabilities 4,614
---------- ----------
Total liabilities 333,943 338,781
---------- ----------
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;
26,039,272 and 26,039,000 shares issued and outstanding at
September 30, 2000 and December 31, 1999, respectively 260 260
Additional paid-in capital 291,671 291,671
Deficit (243,287) (138,838)
Accumulated other comprehensive income:
Foreign currency translation adjustment (247) (251)
Unearned compensation (64) (212)
Treasury shares (47) (47)
---------- ----------
Total stockholders' equity 48,286 152,583
---------- ----------
TOTAL $ 382,251 $ 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
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except par value)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- -------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating revenues $ 89,546 $ 96,892 $ 31,201 $ 34,045
Merchandise sales 14,207 29,902 4,830 10,102
--------- -------- -------- --------
Total revenue 103,753 126,794 36,031 44,147
Operating expenses 98,041 96,790 34,167 41,010
Cost of merchandise sold 10,938 29,320 3,669 15,601
Selling, general and
Administrative expenses 11,065 11,638 3,734 4,057
Loss on sales or disposal of assets 29,298 58,059 23,828 58,059
--------- -------- -------- --------
Loss before, interest expense, other income, reorganization
items, income taxes and extraordinary item (45,589) (69,013) (29,367) (74,580)
Interest expense (12,939) (13,924) (1,530) (6,598)
Other income 491 664 69 170
--------- -------- -------- --------
Loss before reorganization items, income taxes and
extraordinary item (58,037) (82,273) (30,828) (81,008)
Reorganization items:
Professional and bank fees 6,662 1,189
Provision for loss on assets under contract for sale 32,772
--------- -------- -------- --------
Loss before income taxes and extraordinary item (97,471) (82,273) (32,017) (81,008)
--------- -------- -------- --------
Income tax expense (benefit) 539 (17,969) 354 (17,476)
--------- -------- -------- --------
Loss before extraordinary item $ (98,010) $(64,304) $(32,371) $(63,532)
Extraordinary item - loss on disposition of
Pre-Combination Facilities 6,439
--------- -------- -------- --------
Net Loss $(104,449) $(64,304) $(32,371) $(63,532)
========= ======== ======== ========
Basic and diluted loss per share:
Loss before extraordiary item $ (3.77) $ (2.46) $ (1.24) $ (2.44)
Extraordinary item (.24)
-------- -------- -------- --------
Net loss $ (4.01) $ (2.46) $ (1.24) $ (2.44)
======== ======== ======== ========
Weighted average shares outstanding - Basic and Diluted
(in thousands) 26,039 26,064 26,039 26,038
======== ======== ======== ========
</TABLE>
The accompany notes to financial statements are an integral part hereof.
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<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
2000 1999
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(104,449) ($64,304)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 15,357 15,743
Non-cash asset impairment and disposition of assets 68,509 57,059
Non-cash operating asset write down 3,915
Inventory valuation write-down 3,485
Issuance of stock for compensation 148 144
Deferred tax benefit (3,217)
Decrease in inventories 5,389 5,737
(Increase) in prepaid expenses and other current assets (853) (3,594)
Decrease (increase) in prepaid income taxes 9,649 (10,737)
(Increase) decrease in other assets (101) 2,344
Increase in accounts payable and accrued expenses 6,725 4,947
Increase in other liabilities 2,118
(Decrease) in income taxes payable (2,590)
Increase in deferred rent 456
--------- --------
Net cash provided by operating activities 374 11,506
--------- --------
Cash flows from investing activities:
Proceeds from assets sales 10,003
Acquisitions of property and equipment (8,829) (64,907)
Acquisitions of goodwill (2,331)
Restricted cash deposits 380 (17)
Net proceeds from sale of short-term investments 17,374
Foreign currency translation adjustment 4
--------- --------
Net cash provided by (used in) investing activities 1,558 (49,881)
--------- --------
Cash flows from financing activities:
(Increase) in loan acquisition costs (2,185) (493)
Proceeds from loans, banks and others 9,969 54,551
Repayment of bank loans (11,552) (14,276)
--------- --------
Net cash provided by (used in) financing activities (3,768) 39,782
--------- --------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,836) 1,407
Cash and cash equivalents - beginning of period 2,852 3,878
--------- --------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 1,016 $ 5,285
========= ========
Supplemental and noncash disclosures:
Acquisition of property in exchange for common stock $ 522
Acquisition of goodwill in exchange for mortgages, notes, and common stock 1,012
Property additions accrued but not paid 821
Interest paid $ 8,409 8,733
Taxes paid 424 383
</TABLE>
The accompanying notes to financial statements are an integral part hereof.
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<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(NOTE A) - PROCEEDINGS UNDER CHAPTER 11 AND BASIS OF PRESENTATION:
[1] THE COMPANY AND SUBSEQUENT EVENTS
Family Golf Centers, Inc. (the "Parent") and its wholly owned
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, pro
shops and other amenities to encourage family participation. As of
September 30, 2000, FGC owned, leased or managed 103 golf facilities
comprised of 79 golf centers and 24 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 rinks and family sports
supercenters. As of September 30, 2000, FGC owned, leased or managed 16
ice rink 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 Courts 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 $16.2 million
in cash. The Agreement of Sale was approved by the Bankruptcy Court at
a hearing on August 14, 2000. The closing of this transaction occurred
on October 5, 2000, despite the filing by ChinaTrust Bank (USA) of a
notice of appeal from the order approving this transaction on
September 15, 2000. Net proceeds from the sale of $14.8 million were
deposited into an interest-bearing escrow account for the benefit of
FGC's secured creditors. Of the 25 leased properties included in the
transaction, the Purchaser elected to assume 10 leasehold interests
and rejected 15. The Company may decide to reject the leases of all
or certain of the properties rejected by the Purchaser.
Included in the loss for the period ended September 30, 2000 is a
provision for loss on assets under Agreement of Sale amounting to $39.2
million, of which $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.
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<PAGE>
contributed $12.1 million to total revenue and a loss of $3.3 million
to the net loss for the period ended September 30, 2000 and $17.5
million to total revenue and a loss of $4.4 million for the period
ended September 30, 1999.
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. Additionally, the amounts reported on
the consolidated condensed balance sheet could materially change as a
result of a plan of reorganization or liquidation of assets, 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.
In connection with the Company's decision to reject certain leases, the
Company recorded a loss on the disposal of assets in the amount of $7.7
million and an impairment charge of $16.1 million during the period
ended September 30, 2000.
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 were not appropriate, 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 or liquidation of assets, since
the reported amounts in these 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.
In the Chapter 11 cases, the equity and liabilities of FGC 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
by 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
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<PAGE>
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, personal property leases and other pre-petition
executory contracts, subject to Bankruptcy Court approval. Claims for
damages resulting from the rejection of any such leases and other
executory contracts may be subject to a separate bar date.
The amount of liabilities reported on the condensed consolidated
balance sheet may vary significantly from the stated amount of proofs
of claim 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 for 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
include a provision for loss on assets under the Agreement of Sale in
connection with the sale of up to 35 golf properties to KLAK Golf,
L.L.C. The Company recorded a loss of $39.2 million in connection with
the sale, $32.8 million included in reorganization items and $6.4
million recorded as an extraordinary item.
In the opinion of the Company's management, the accompanying unaudited
consolidated condensed financial statements contain all adjustments
consisting of normal recurring accruals necessary to present fairly the
financial position of the Company as of September 30, 2000 and the
results of its operations and cash flows for the nine-month periods
ended September 30, 2000 and 1999, but are not necessarily indicative
of the results to be expected for the full year.
Certain reclassifications to the prior period's financial statements
have been made to conform to 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 September 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
September 30, 2000.
The preparation of financial statements in conformity with generally
accepted accounting principles 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.
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<PAGE>
Certain information and footnote disclosures normally included in the
Company's annual audited 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
herein referred to as "FGC" and the "Company". All significant
intercompany transactions and accounts have been eliminated. Minority
interests in the FGC's operations were insignificant.
(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 September 30, 2000, the Debtors borrowed $3.5
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. As
of September 30, 2000, the Company was not in compliance with the
covenants under the DIP Facility. Notwithstanding such non-compliance,
the lenders have permitted the Company to continue to draw down under
the existing Agreement but have reserved their rights to assert their
remedies at any time, including the right to accelerate all of the
Company's obligations under the DIP Facility. The Company is currently
negotiating an amendment to the DIP Facility.
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.
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(NOTE C) INVENTORIES:
Inventory consists 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:
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 $16.2 million
in cash. The Agreement of Sale was approved by the Bankruptcy Court at
a hearing on August 14, 2000. The closing of this transaction occurred
on October 5, 2000, despite the filing by ChinaTrust Bank (USA) of a
notice of appeal from the order approving this transaction on
September 15, 2000. Net proceeds from the sale of $14.8 million were
deposited into an interest-bearing escrow account for the benefit of
FGC's secured creditors.
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 agreements at Colorado Springs,
Colorado, Olney, Maryland and New York, New York. As of December 31,
1999 certain of 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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(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>
Nine months ended September 30, 2000
Total revenue 78,024 25,729 103,753
Operating loss (42,633) (2,956) (45,589)
Depreciation and amortization 11,382 3,975 15,357
Identifiable assets 263,049 119,202 382,251
Capital expenditures 7,251 1,578 8,829
Nine months ended September 30, 1999
Total revenue $100,963 $ 25,831 $ 126,794
Operating income (loss) (69,742) 729 (69,013)
Depreciation and amortization 12,283 3,460 15,743
Identifiable assets 419,148 131,748 550,896
Capital expenditures 30,304 36,934 67,238
Three months ended September 30, 2000
Total revenue 29,028 7,003 36,031
Operating loss (24,610) (4,757) (29,367)
Depreciation and amortization 3,539 1,314 4,853
Three months ended September 30, 1999
Total revenue $36,263 $ 7,884 $44,147
Operating loss (73,741) (839) (74,580)
Depreciation and amortization 5,056 1,291 6,347
</TABLE>
Non-golf operations relate to complementary sports and family
entertainment facilities which includes 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.
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<PAGE>
To date, no bar date has been set, therefore, liabilities subject to
compromise do not include rejection damages and other potential claims.
At September 30, 2000, liabilities subject to compromise were comprised
of the following:
(dollars in
thousands)
Borrowing under revolving credit facilities $127,687
5 3/4% Convertible Subordinated Notes 115,000
Mortgage and other notes 60,404
Accrued interest 5,469
Accounts payable, accrued interest and
Expenses and other liabilities 23,649
Less: Debt discount and debt acquisition cost (9,980)
--------
$322,229
========
(NOTE G) ASSET IMPAIRMENT AND OTHER CHARGES:
As a result of operating losses, the Company's management performed a
review of long-lived assets in accordance with Statement of Financial
Accounting Standards No. 121 Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of' ("SFAS
No. 121") and determined that events and changes in circumstances have
resulted in the carrying amount of certain long-lived assets exceeding
the sum of the expected future cash flows associated with such assets.
The measurement of the impairment losses recognized was based on the
difference between the fair value, net of estimated disposal costs,
and the carrying amounts of the assets.
In connection with such review a decision was made to exit various
areas of operations that were underperforming. As of September 30,
2000, the Company identified 5 golf facilities where it intends to
cease operations. The Company has recorded an impairment charge of $7.7
million to write down the carrying amount of such assets to their
estimated fair value. There can be no assurance that the estimates of
fair value used by the Company will approximate the actual selling
price of such assets upon their sale or disposition. Further, the
Company has also identified 21 underperforming golf facilities whose
undiscounted future cash flows are not expected to result in the
recovery of the carrying amount of such assets, resulting in an
impairment charge of $16.1 million. In the aggregate the Company
recorded $23.8 million in charges for write-downs of long-lived assets
and related costs in the third quarter.
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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 the Report. The 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 the Report and include statements regarding the
intent, belief or current expectations of the Company with respect to
(i) the Company's acquisition and financing plans, (ii) trends
affecting the Company's financial condition or results of operations,
(iii) the impact of competition and (iv) the expansion and 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 September 30, 2000, we had cash, cash equivalents and short-term
investments of $1.3 million, inclusive of restricted cash deposits
compared to $3.5 million at December 31, 1999. The decrease of $2.2
million was due principally to operating losses incurred in the nine
months ended September 30, 2000.
Our outstanding indebtedness as of September 30, 2000 including 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 on pre-petition unsecured obligations is not being
accrued after the Petition Date. Such unaccrued interest amounts to
$9.3 million through September 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 2, 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 of $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.
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<PAGE>
On May 4, 2000, the Company, excluding its Canadian subsidiaries, filed
petitions for relief 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 an order 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 pre-petition
assets which were subject to existing liens under our $130 million
credit facility with Chase and a junior lien on all of our assets
which were subject to other existing perfected liens.
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. As of September 30, 2000, the Company was not in compliance
with the covenants under the DIP Facility. Notwithstanding such
non-compliance, the Lenders have permitted the Company to continue to
draw down under the existing Agreement but have reserved their rights
to assert their remedies at any time, including the right to accelerate
all of the Company's obligations under the DIP Facility. The Company is
currently negotiating an amendment to the DIP Facility.
The DIP Facility is intended to provide the Company with cash and
liquidity to ensure that it can conduct its operations and pay for
goods and services in the normal course during the Chapter 11
proceedings. The Company's primary sources of liquidity are cash flow
from operations and the DIP Facility.
The Company's current cash flow projections indicate that by the end
of this year it will have utilized substantially all of its
availability under the DIP Facility. The Company can give no assurance
that it will be able to obtain the additional liquidity needed in the
first quarter of 2001 to continue its operations. The Company's
management also believes that it is unlikely that the holders of its
publicly traded equity will realize any recovery in a plan of
reorganization or liquidation.
The Company's net cash provided by operations during the nine months
ended September 30, 2000 decreased by $11.1 million over the same
period of the prior year due to the increase in losses in the period.
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Inventory decreased by $5.4 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 nine months ended September 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 facility of $3.5 million and $11.5 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 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 103 as of September 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 September 30, 2000, we owned,
operated, managed or had under construction 103 golf facilities, and
16 ice rink and family entertainment facilities in 23 states and three
Canadian provinces.
Most of the revenue from our golf centers are 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 from 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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<PAGE>
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>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
----------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operating revenues 86.3% 76.4% 86.6% 77.1%
Merchandise sales 13.7 23.6 13.4 22.9
------ ------ ------ ------
Total revenue 100.0 100.0 100.0 100.0
Operating expenses 109.5 100.0 109.5 120.6
Cost of merchandise sold 77.0 98.1 76.0 154.4
Selling, general and administrative expenses 10.7 9.2 10.4 9.2
Loss on sales or disposal of assets 29.9 45.8 66.1 131.5
Loss before interest expense, other income, (43.9) (54.4) (81.5) (168.9)
reorganization item, income taxes and extraordinary
item
Interest expense 12.5 11.0 4.2 14.9
Other income .5 .5 .2 .4
Loss before reorganization charges, income taxes, (55.9) (64.9) (85.6) (183.5)
and extraordinary item
Reorganization items:
Professional and bank fees 6.4 - 3.3 -
Provision for loss on assets under contract
for sale 31.6 - - -
Loss before income taxes and extraordinary (93.9) (64.9) (88.9) (183.5)
item
Income tax expense (benefit) .5 (14.2) .9 (39.6)
Loss before extraordinary item (94.4) (50.7) (89.8) (143.9)
Extraordinary item - loss on disposition of 6.3 - - -
Pre-Combination Facilities
Net loss (100.7)% (50.7)% (89.8)% (143.9)%
</TABLE>
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<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1999
We acquired and disposed of golf centers, ice rinks and family
entertainment centers at varying times during the 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 nine months ended September 30, 2000 was $103.7
million as compared to $126.8 million for the same period in 1999, a
decrease of $23.1 million (18%). The overall decrease in revenue was
primarily attributable to credit restrictions placed on us by vendors
and the liquidity constraints we faced during the nine months ended
September 30, 2000. For the 95 golf centers operating for the initial
nine months ended September 30, 2000 and 1999, total revenues decreased
16% to $69.2 million in the 2000 period from $86.8 million in the 1999
period. Operating revenues decreased by 5% to $56.8 million while
merchandise sales decreased by 52% to $12.4 million
The liquidity constraints we encountered during the nine months ended
September 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 $89.5 million for the nine months ended September 30, 2000,
as compared to $96.9 million for the comparable 1999 period, a
decrease of $7.4 million (7%).
Merchandise sales, consisting of golf clubs, balls, bags, gloves,
videos, apparel and related accessories, amounted to $14.2 million for
the nine months ended September 30, 2000 as compared to $29.9 million
for the comparable 1999 period, an decrease of $15.7 million (52%). 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 $98.0
million (109% of operating revenue) in the 2000 period from $96.8
million (100% of operating revenue) in the 1999 period, an increase of
$1.2 million (1.2%). The increase in operating expenses was primarily
due to scheduled rent increases and operating expenses incurred in
connection with a family entertainment center which opened during the
third quarter of 1999.
The cost of merchandise sold decreased to $10.9 million (77% of
merchandise sales) in the 2000 period from $29.4 million (98% of
merchandise sales) in the comparable 1999 period. The overall decrease
in the cost of merchandise sold of $18.5 million (62%) was primarily
due to the lower level of merchandise sales.
Selling, general and administrative expenses for the nine months ended
September 30, 2000 amounted to $11.1 million (10.6% of total
revenue) compared to $11.6 million (9.7% of total revenue) in the
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<PAGE>
comparable 1999 period, a decrease of $573,000 (5%). The decrease
in selling, general and administrative expenses are primarily
attributable to less liquidity available for advertising and promotion
during the nine months ended September 30, 2000.
Interest expenses decreased to $12.9 million for the nine months ended
September 30, 2000 from $13.9 million in the comparable 1999 period.
Other income, including interest income, decreased to $491,000 in the
2000 period from $664,000 in the 1999 period, a decrease of $173,000.
THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1999
We acquired and disposed of golf centers, ice rinks and family
entertainment centers at varying times during the year, 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 September 30, 2000 was $36.0
million as compared to $44.1 million for the same period in 1999, a
decrease of $8.1 million (18%). 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
September 30, 2000. Total revenue for the 98 golf centers operating for
the full three months ended September 30, 2000 and 1999 decreased 16%
to $26.7 million in the 2000 period from $32.0 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 September 30, 2000 and the
sale or disposal of certain golf and ice facilities in the 2000 period.
The liquidity crisis we encountered during the three months ended
September 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 Entertainment Centers.
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<PAGE>
Operating revenue, consisting of all sales except merchandise sales,
amounted to $31.2 million for the three months ended September 30,
2000, as compared to $34.0 million for the comparable 1999 period, a
decrease of $2.8 million (8%). Total operating revenue for the 98 golf
centers operating for the full three months ended September 30, 2000
and 1999 decreased 4% to $22.3 million in the 2000 period from $23.1
million in the 1999 period.
Merchandise sales, consisting of golf clubs, balls, bags, gloves,
videos, apparel and related accessories, amounted to $4.8 million for
three months ended September 30, 2000 as compared to $10.1 million for
the comparable 1999 period, a decrease of $5.3 million (52%). The
decrease in merchandise sales was primarily due to the Company's
inability to obtain sufficient fresh product at its pro shops due to
its liquidity problems. Total merchandise sales for the 98 golf centers
operating for the three months ended September 30, 2000 and 1999
decreased 50% to $4.4 million in the 2000 period from $8.8 million in
the 1999 period.
Operating expenses, consisting of operating wages and employee costs,
land rent, depreciation of golf driving ranges, skating and family
entertainment facilities and equipment, utilities and all other
facility operating costs, decreased to $34.1 million (109% of operating
revenue) in the 2000 period from $41.1 million (121%) of operating
revenue) in the 1999 period, a decrease of $7 million. The decrease in
operating expenses was primarily due to the sale or disposal of certain
golf and ice facilities in the 2000 period.
The cost of merchandise sold decreased to $3.7 million (76% of
merchandise sales) in the 2000 period from $15.6 million (154.4%) of
merchandise sales) in the comparable 1999 period. The overall decrease
in this cost of $11.9 million (77%) was primarily due to the lower
level of merchandise sales, and a write down of inventory recorded by
the Company in September 1999.
Selling, general and administrative expenses for the three months ended
September 30, 2000 amounted to $3.7 million (10.3% of total revenue)
compared to $4 million (9.2% of total revenue) in the comparable 1999
period. The decrease in selling, general and administrative expenses is
primarily attributable to less liquidity available for advertising and
promotion during the three months ended September 30, 2000.
Interest expense decreased to $1.5 million for the three months ended
September 30, 2000 from $6.6 million in the comparable 1999 period. The
decrease in interest expense was due primarily to the Chapter 11 filing
and the Bankruptcy courts decision not to pay interest on unsecured
pre-petition debt. Other income, including interest income, decreased
to $69,000 in the 2000 period as compared to $170,000 in the 1999
period.
TRENDS
On May 4, 2000 (the Petition Date), FGC, excluding the Canadian
subsidiaries, (the "Debtors") filed petitions for relief under Chapter
11 of the United States Bankruptcy Code in the United States Bankruptcy
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Court for the Southern District of New York. The Debtors are presently
operating their respective businesses as debtors-in-possession.
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 reduced merchandise sales. Our ability to
attract and retain personnel may also be negatively impacted by our
current financial condition.
Our current cash flow projections project that by the end of this year
we will have utilized substantially all of our availability under the
DIP Facility. The Company can give no assurance that it will be able to
obtain the additional liquidity needed in the first quarter of next
year.
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 and 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 new facility
acquisitions and sales or 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.
INFLATION
There was no significant impact on the Company's operations as a result
of inflation during the nine months ended September 30, 2000.
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<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 the 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 and 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
The Company received notice from the NASDAQ Listing Qualifications
Staff that it 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.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
27 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
Current Report on Form 8-K, dated August 28, 2000 and filed on
August 30, 2000, reporting an Item 5 event.
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
In accordance with the requirements of the Securities Exchange
Act of 1934, the registrant 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:________________________
Margaret M. Santorufo
Vice President &
Chief Accounting Officer
By:________________________
Pamela S. Charles
Vice President and General Counsel
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