<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
X EXCHANGE ACT OF 1934
- ------
For the quarterly period ended March 31, 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
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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 reports), 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 Sections 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 X No
--- ---
Indicate 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 May 15, 2000
- -------------------------------------- -------------------------------
Common Stock, par value $.01 per share 26,039,272
<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.
On May 4, 2000 the Company, filed petitions for relief under Chapter 11 of
the United States Bankruptcy Court. See Note A for additional information.
The results of operations of the Company for the three months ended March
31, 2000 are not necessarily indicative of the results to be expected for the
full year.
<PAGE>
FAMILY GOLF CENTERS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except par value)
(SEE NOTE A)
<TABLE>
<CAPTION>
March 31, December 31,
--------- ------------
ASSETS 2000 1999
---- ----
(Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 438 $ 2,852
Restricted cash deposits 689 689
Inventories 8,548 10,755
Prepaid expenses and other current assets 4,181 4,858
Prepaid and refundable income taxes 333 9,780
----------------- ----------------
Total current assets 14,189 28,934
Property, plant and equipment (net) 407,088 381,066
Assets held for sale -- 41,471
Loan acquisition costs (net) 7,189 7,795
Other assets 5,508 5,511
Excess of cost over fair value of assets acquired 25,602 26,609
----------------- ----------------
TOTAL $459,576 $491,386
======== ========
LIABILITIES
Current liabilities:
Accounts payable, accrued expenses and other current liabilities $ 21,606 $ 26,053
Convertible subordinated notes 115,000 115,000
Current portion of long-term obligations 180,110 184,832
----------------- ----------------
Total current liabilities 316,716 325,885
Long-term obligations (less current portion) 5,283 5,923
Deferred rent 2,195 2,359
Other liabilities 4,204 4,614
----------------- ----------------
Total liabilities 328,398 338,781
----------------- ----------------
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
March 31, 2000 and December 31, 1999, respectively 260 260
Additional paid-in capital 291,671 291,671
Accumulated deficit (160,319) (138,838)
Accumulated other comprehensive loss:
Foreign currency translation adjustment (247) (251)
Unearned compensation (162) (212)
Treasury shares (at cost) (47) (47)
----------------- ----------------
Total stockholders' equity 131,156 152,583
----------------- ----------------
TOTAL $459,576 $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 PER SHARE DATA)
(SEE NOTE A)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31,
------------------------------------
2000 1999
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(Unaudited)
<S> <C> <C>
Operating revenues $26,694 $27,329
Merchandise sales 4,159 7,820
-------------- ----------------
Total revenue 30,853 35,149
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Operating expenses 31,249 22,203
Cost of merchandise sold 3,191 5,346
Selling, general and administrative expenses 4,738 3,591
Loss on sales or disposal of assets 5,470 --
-------------- ----------------
(Loss) income from operations (13,795) 4,009
Interest expense (7,696) (3,155)
Other income 154 378
-------------- ----------------
(Loss) income before income taxes (21,337) 1,232
Income tax expense 144 480
-------------- ----------------
Net (loss) income $(21,481) $752
============== ================
Basic (loss) earnings per share $ (.82) $.03
======== ====
Diluted (loss) earnings per share $ (.82) $.03
======== ====
Weighted - average shares outstanding - Basic 26,039,000 25,957,000
Effect Of Dilutive Securities - 117,000
-------------- ----------------
Weighted average shares outstanding - Diluted 26,039,000 26,074,000
============== ===============
</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 CASH FLOW
(Unaudited)
(SEE NOTE A)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
----------------------------
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (21,481) $ 752
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 5,379 3,753
Non-cash operating expenses 50
Amortization of debt discount 260
Loss on disposal of assets 5,470
Changes in:
Inventories 2,207 1,064
Prepaid expenses and other current assets 677 (3,865)
Prepaid income taxes 9,447
Other assets 3 (316)
Accounts payable, accrued expenses and other current liabilities (8,221) (1,480)
Deferred rent (164) 161
Other liabilities (410) (34)
Income taxes payable (1,470)
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Net cash (used in) operating activities (6,783) (1,435)
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Cash flows from investing activities:
Acquisitions of property and equipment -- (23,728)
Proceeds from sale and disposal of assets 9,381
Restricted cash deposits -- 188
Net proceeds from sale of short-term investments -- 11,962
Increase (decrease) in foreign currency exchange 4 84
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Net cash provided by (used in) investing activities 9,385 (11,494)
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Cash flows from financing activities:
Loan acquisition costs -- (88)
Proceeds from loans, banks and others 5,591 11,512
Repayment of bank loans (10,607) (935)
Increase in unearned compensation 97
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Net cash provided by (used in) financing activities (5,016) $10,586
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NET (DECREASE) IN CASH AND CASH EQUIVALENTS (2,414) (2,343)
Cash and cash equivalents - beginning of period 2,852 3,878
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CASH AND CASH EQUIVALENTS - END OF PERIOD $438 $1,535
==== ======
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 $ 3,774 3,903
Interest paid 5,097 1,798
Taxes paid 242 2,904
</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
MARCH 31, 2000
(NOTE A) - PROCEEDINGS UNDER CHAPTER 11 AND BASIS OF PRESENTATION:
[1] THE COMPANY:
Family Golf Centers, Inc. (the "Parent") and its wholly owned subsidaries
(together with the Parent, ("FGC" or the "Company")) operates golf centers
designed to provide a wide variety of practice and play 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 March 31, 2000, FGC owned, leased or managed 111 golf
facilities comprised of 85 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 March 31,
2000, FGC owned, leased or managed 19 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
Court for the Southern District of New York. The Debtors are operating their
respective businesses as debtors-in-possession. A statutory Creditor's Committee
has been organized in the Chapter 11 cases which are being jointly administered
for procedural purposes only.
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 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 settlement 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 all financial statements for the period beginning May 4,
2000 and threafter. Additionally, the amounts reported on the consolidated
condensed balance sheet could materially change because 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.
In the opinion of 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 March 31,
2000, and the results of operations and cash flows for the period then ended.
The results of operations and cash flows for the three month periods ended March
31, 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.
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
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<PAGE>
transactions and accounts have been eliminated. Minority interests in FGC's
operations were insignificant.
(NOTE B) 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 C) ASSET DISPOSITIONS:
During the three months ended March 31, 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 was $9.5 million. At 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. The Company also
terminated its lease agreement at Colorado Springs, Colorado.
(NOTE D) BUSINESS SEGMENT INFORMATION:
Information concerning operations by industry segment is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Golf Non-Golf Consolidated
Operations Operations
<S> <C> <C> <C>
Three months ended March 31, 2000
Total revenue $ 19,330 $ 11,523 $ 30,853
Operating income (loss) (15,827) 2,032 (13,795)
Depreciation and amortization 4,017 1,362 5,379
Identifiable assets 339,250 120,326 459,576
Capital expenditures 4,142 985 5,127
Three months ended March 31, 1999:
Total revenue $ 24,461 $ 10,688 $ 35,149
Operating income (loss) 1,904 2,105 4,009
Depreciation and amortization 2,676 1,077 3,753
Identifiable assets 452,812 125,546 578,358
Capital expenditures 20,819 1,288 22,107
</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 E - ASSET IMPAIRMENT AND OTHER CHARGES
As a result of continuing operating losses and in connection with the
restructuring of FGC's indebtedness and the strategic review of its operations
through March 31, 2000, FGC's management has reviewed 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 where it has 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,
impairment losses have been recognized. The measurement of the impairment losses
recognized was based on the difference between the estimated fair values, net of
estimated disposal costs, and the carrying amounts of the assets. In conjunction
with the formulation of a plan of reorganization under the Chapter 11
proceedings, management will be reevaluating its business strategy, including
which assets will be held for sale. For purposes of presentation, property,
plant and equipment, including assets held for sale of $41,471 at December 31,
1999 have been combined at March 31, 2000.
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<PAGE>
For the three months ended March 31, 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 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 our 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 and the Township
released the Company from certain performance bonds and reimbursed the Company
for certain costs in connection with such settlement.
NOTE F - LIABILITIES AND SUBSEQUENT EVENTS-CHAPTER 11 FILING
At March 31, 2000, liabilities were comprised of the following:
(dollars in thousands)
<TABLE>
<CAPTION>
<S> <C>
Borrowings under revolving credit facilities $126,638
Convertible subordinated notes 115,000
Mortgages and other interest bearing debt 58,755
Accounts payable, accrued expenses and other liabilities 28,005
--------
$328,398
---------
</TABLE>
During the three months ended March 31, 2000, FGC failed to comply with certain
financial tests contained in several of its financing agreements. The applicable
lenders granted waivers of the tests through May 5, 2000, however since the
lenders would not extend the waivers of FGC's non-compliance with the financial
tests or enter into amendments to the applicable agreements, substantially all
of FGC debt which would otherwise be classified as long-term debt has been
classified as a current liability.
On April 15, 2000, FGC failed to make the interest payment due on its 5 3/4%
Convertible Subordinated Notes and a 30 day grace period to make the payment
commenced. On May 1, 2000, FGC failed to make interest payments pertaining to
borrowings under revolving credit facilities, mortgages and other interest
bearing debt. The next day, revolving credit facilities lenders issued notices
of default to FGC and on May 4, 2000, FGC filed for Chapter 11 relief.
In the Chapter 11 cases, substantially all unsecured 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. FGC 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 a company
must be filed if the claimants wish to receive any distribution 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 prepetition 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 amounts of liabilities of FGC may vary significantly from the stated amounts
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.
As a result of the Chapter 11 filing, no principal or interest payments will be
made on unsecured prepetition debt. Payments may be made on secured prepetition
debt upon Bankruptcy Court approval.
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<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion and analysis should be read in conjunction with our
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 our intent, belief or current expectations with respect to
(i) our acquisition and financing plans, (ii) trends affecting our financial
condition or results of operations, (iii) the impact of competition, (iv) the
expansion and integration of certain operations and (v) the impact of the
Chapter 11 filing. We caution 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 our 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 March 31, 2000, we had cash, cash equivalents and short-term investments of
$1.1 million compared to $3.5 million at December 31, 1999. The decrease of $2.4
million was due principally to operating losses incurred in the quarter ended
March 31, 2000
Our outstanding indebtedness as of March 31, 2000, including the 5 3/4%
Convertible Subordinated Notes and other indebtedness of $300.4 million, bears
interest at fixed and variable rates ranging from 5 3/4% to 11.5% per annum.
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 payment which was 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 and its non-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 Court. The Bankruptcy Court has issued orders
authorizing the payment of certain prepetition wages, employee benefits and
other payments that are essential to our daily operations.
On May 9, 2000, the Bankruptcy Court approved an interim order, subject to a
final order, whereby we received debtor-in-possession financing of $15 million
from The Chase Manhattan Bank ("DIP Financing"). Borrowings under the DIP
Financing bear interest at the prime rate plus 1 1/2% and 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
facility and a junior lien on all of our assets which were subject to
other existing perfected liens. The DIP Financing matures on November 7, 2001,
provided we receive $50 million in net cash proceeds from the sale of assets by
May 5, 2001. 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 at
normal levels during the course of the Chapter 11 proceedings.
Our primary sources of liquidity are cash flow from operations and the DIP
Financing. 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 three months ended March
31, 2000 increased by $5.3 million over the same period of the prior year due to
the increase in losses in the period.
Inventory decreased by $2.2 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 three months ended March 31, 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 $5.0 million included net borrowings
under the revolving credit facilities of $1.7 million and $6.7 million of
principal payments on mortgages and notes payable.
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<PAGE>
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 111 as of March
31, 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 March 31, 2000, we owned, operated, managed or had under
construction 111 golf facilities and 19 ice rink and family entertainment
facilities in 23 states and three Canadian provinces.
Most of our 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>
THREE MONTHS ENDED
MARCH 31,
-----------------------
2000 1999
---- ----
<S> <C> <C>
Operating revenues 86.5% 77.8%
Merchandise sales 13.5 22.2
Total revenue 100.0 100.0
Operating expenses 117.1 81.2
Cost of merchandise sold 76.7 68.4
Selling, general and admin. expenses 15.4 10.2
Loss on sale or disposal of assets (17.7)
(Loss) income from operations (44.7) 11.4
Interest expense 24.9 9.0
Other income .05 1.1
(Loss) income before income taxes (69.2) 3.5
Income tax expense (.01) 1.4
Net (loss) income (70.0) 2.1
</TABLE>
THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 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 March 31, 2000 was $30.9 million as
compared to $35.1 million for the same period in 1999, a decrease of $4.2
million (12.2%). 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 March 31, 2000. Total revenue for the 90
golf centers operating for the full three months ended March 31, 2000 and 1999
decreased 22.2% to $15.4 million in the 2000 period from $19.8 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 March 31, 2000.
The liquidity crisis we encountered during the three months ended March
31, 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.
Operating revenue, consisting of all sales except merchandise sales, amounted to
$26.7 million for the three months ended March 31, 2000, as compared to $27.3
million for the comparable 1999 period, a decrease of $.6 million (2.3%). The
decrease in operating revenue was primarily attributable to credit restrictions
placed on us by vendors and the liquidity constraints we faced resulting in lack
of funds for advertising during the three months ended March 31, 2000. Total
operating revenue for the 90 golf centers operating for the full three months
ended March 31, 2000 and 1999 decreased 8% to $12.1 million in the 2000 period
from $13.2 million in the 1999 period.
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<PAGE>
Merchandise sales, consisting of golf clubs, balls, bags, gloves, videos,
apparel and related accessories, amounted to $4.2 million for the three months
ended March 31, 2000 as compared to $7.8 million for the comparable 1999 period,
a decrease of $3.7 million (46.8%). 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 90 golf
centers operating for the full three months ended March 31, 2000 and 1999
decreased 50% to $3.3 million in the 2000 period from $6.6 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, increased to
$31.2 million (117.1% of operating revenue) in the 2000 period from $22.2
million (81.2% of operating revenue) in the 1999 period, an increase of $9.0
million. The increase in operating expenses was primarily due to having
additional golf and family entertainment centers in operation during the 2000
period.
The cost of merchandise sold decreased to $3.2 million (76.7% of merchandise
sales) in the 2000 period from $5.3 million (68.4% of merchandise sales) in the
comparable 1999 period. The overall decrease in this cost of $2.1 million
(40.3%) 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 March
31, 2000 amounted to $4.7 million (15.4% of total revenue) compared to $3.6
million (10.2% of total revenue) in the comparable 1999 period. The increase in
selling, general and administrative expenses is primarily attributed to legal,
consulting and other incremental fees and costs relating to our restructuring
efforts.
Interest expense increased to $7.7 million for the three months ended March 31,
2000 from $3.2 in the comparable 1999 period. The increase in interest expense
was due primarily to additional debt outstanding and higher interest rates
imposed by financial institutions. Other income, including interest income,
decreased to $.2 million in the 2000 period as compared to $.4 million in the
1999 period.
TRENDS
On May 4, 2000 (the "Petition Date"), FGC, excluding its Canadian subsidiaries,
(the "Debtors") filed 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 Debtors are presently operating their
respective businesses as debtors-in-possession. A statutory Creditor's Committee
has been formed in the Chapter 11 cases which are being jointly administered for
procedural purposes only.
From 1994 through 1998, we rapidly expanded, growing from one golf facility in
1992 to 111 golf facilities as of March 31, 2000, most of which were acquired
through acquisition. Our strategy was to quickly reach critical mass to achieve
economics of scale. Although we achieved certain of such economies, our recent
performance has been extremely disappointing.
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 34 non-core sites which are being marketed on our behalf by Keen Realty
Consultants, Inc., we may close or sell additional underperforming 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 proceedings and the
ongoing restructuring of our business operations throughout fiscal year 2000. We
also believe that revenues will be negatively impacted by
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<PAGE>
the reduced level of advertising and promotions and that merchandise sales may
continue to be negatively impacted by limitations on our ability 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 which
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
openings 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 three months ended March 31, 2000.
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<PAGE>
PART II - OTHER INFORMATION
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<CAPTION>
<S> <C> <C>
ITEM 1. LEGAL PROCEEDINGS
On or about February 22, 2000 Jerrold Schaffer filed a class
action in the United States District Court for the Eastern District of
New York alleging that Family Golf and certain of our executive
officers violated federal securities laws in connection with the sale
of our common stock during the period July, 1998 through August, 1999.
The complaint seeks an unspecified amount of compensatory damages, as
well as attorney's fees. The allegations against us and our officers
arise out of public statements during the relevant period concerning
our financial health and expected future earnings. The complaint
alleges that while management stated that our rapid growth through
acquisitions was progressing smoothly and achieving economies of
scale, in reality we were experiencing increased operating expenses
and insufficient working capital. The complaint further alleges that
when the true facts regarding our financial health and expected future
earnings became known in August, 1999, our stock price dropped.
Several other complaints have also been filed in the same court
alleging virtually identical facts and securities law violations, at
least one of which seeks punitive damages. We believe that the
allegations lack merit and intend to vigorously contest such claims.
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 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 triggered cross-defaults under substantially all
of our senior indebtedness. On May 4, 2000, we filed voluntary
petitions for protection under Chapter 11 of the Bankruptcy Code.
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.
Based upon our Chapter 11 filing, we were notified by NASDAQ that
its staff had determined to halt trading in our securities pending the
receipt and review of certain requested information. We are in the
process of preparing a response to such request but can give no
assurances that our securities will not ultimately be delisted.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
--------
10.2 Amendment No. 2 and Waiver dated as of December 31, 1999 to the Amended
and Restated Credit, Security, Guaranty and Pledge Agreement, dated as
of December 2, 1998 as amended and restated as of October 15, 1999,
incorporated herein by reference to the Company's Current Report on
Form 8-K, dated as of January 28, 2000 and filed on February 4, 2000.
10.3 Amendment No. 3 and Waiver dated as of March 31, 2000 to the Amended
and Restated Credit, Security, Guaranty and Pledge Agreement, dated as
of December 2, 1998 as amended and restated as of October 15, 1999,
incorporated herein by reference to the Company's Current Report on
Form 8-K, dated as of March 31, 2000 and filed on March 31, 2000.
27 FINANCIAL DATA SCHEDULE
(B) REPORTS ON FORM 8-K
-------------------
Current Report on Form 8-K, dated January 28, 2000, and filed on
February 4, 2000, reporting an Item 5 event.
Current Report on Form 8-K, dated February 16, 2000, and filed on
February 28, 2000, reporting an Item 5 event.
Current Report on Form 8-K, dated March 31, 2000 and filed on the
same date, reporting an Item 5 event.
Current Report on Form 8-K, dated May 3, 2000 and filed on May 18,
2000, reporting an Item 3 and Item 5 event.
</TABLE>
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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: May 22, 2000
Melville, NY
FAMILY GOLF CENTERS, INC.
(Registrant)
By: /s/ KRISHNAN P. THAMPI
-------------------------------
KRISHNAN P. THAMPI
President,
Chief Operating Officer,
Assistant Secretary,
and Treasurer
By: /s/ JOHN CALIOLO
------------------------------
JOHN CALIOLO
Chief Financial Officer
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND THE CONSOLIDATED STATEMENT OF INCOME FOR THE
PERIOD ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 1,127,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 8,548,000
<CURRENT-ASSETS> 14,189,000
<PP&E> 407,088,000
<DEPRECIATION> 5,379,000
<TOTAL-ASSETS> 459,576,000
<CURRENT-LIABILITIES> 316,716,000
<BONDS> 0
0
0
<COMMON> 260,000
<OTHER-SE> 130,896,000
<TOTAL-LIABILITY-AND-EQUITY> 459,576,000
<SALES> 30,853,000
<TOTAL-REVENUES> 30,853,000
<CGS> 3,191,000
<TOTAL-COSTS> 39,178,000
<OTHER-EXPENSES> 5,470,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,696,000
<INCOME-PRETAX> (21,337,000)
<INCOME-TAX> 144,000
<INCOME-CONTINUING> (21,481,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (21,481,000)
<EPS-BASIC> (.82)
<EPS-DILUTED> (.82)
</TABLE>
