-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BQJp/nXX0xzXuYwLdLJsdtruXVAYa1rRaKIeP77Gx7NAjB7L20Z+B1Lhz2iPwMkH js2PU3z4RLG8doRD1/YJwQ== 0001029869-98-000659.txt : 19980514 0001029869-98-000659.hdr.sgml : 19980514 ACCESSION NUMBER: 0001029869-98-000659 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980513 ITEM INFORMATION: FILED AS OF DATE: 19980513 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDITRUST OPERATING CO CENTRAL INDEX KEY: 0000313749 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 963419438 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-08132 FILM NUMBER: 98618936 BUSINESS ADDRESS: STREET 1: 197 FIRST AVE STREET 2: STE 100 CITY: NEEDHAM STATE: MA ZIP: 02194 BUSINESS PHONE: 7814538062 MAIL ADDRESS: STREET 1: MEDITRUST OPERATING CO STREET 2: 197 FIRST AVENUE SUITE 100 CITY: NEEDHAM STATE: CA ZIP: 91066-0808 FORMER COMPANY: FORMER CONFORMED NAME: SANTA ANITA OPERATING CO DATE OF NAME CHANGE: 19920703 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MEDITRUST CORP CENTRAL INDEX KEY: 0000314661 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-RACING, INCLUDING TRACK OPERATION [7948] IRS NUMBER: 953520818 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 001-08131 FILM NUMBER: 98618937 BUSINESS ADDRESS: STREET 1: MEDITRUST CORP STREET 2: 197 FIRST AVE STE 300 CITY: NEEDHAM STATE: MA ZIP: 02194 BUSINESS PHONE: 7814538062 MAIL ADDRESS: STREET 1: MEDITRUST CORP STREET 2: 197 FIRST AVENUE SUITE 300 CITY: NEEDHAM STATE: MA ZIP: 02194 FORMER COMPANY: FORMER CONFORMED NAME: SANTA ANITA REALTY ENTERPRISES INC DATE OF NAME CHANGE: 19920703 8-K 1 MEDITRUST COMPANIES FORM 8-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (date of earliest event reported): May 13, 1998 MEDITRUST CORPORATION (Exact Name of Registrant as specified in its charter) Delaware 0-9109 95-3520818 (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation) Number) Identification No.) 197 First Avenue, Suite 300, Needham, MA 02194 (Address of principal executive offices and zip code) MEDITRUST OPERATING COMPANY (Exact Name of Registrant as specified in its charter) Delaware 0-9110 96-3419438 (State or other jurisdiction (Commission File (I.R.S. Employer of incorporation) Number) Identification No.) 197 First Avenue, Suite 100, Needham, MA 02194 (Address of principal executive offices and zip code) (781) 453-8062 (Registrant's telephone number, including area code) Item 5. Other Events - -------------------- THE MEDITRUST COMPANIES Introduction to Cobblestone's Financial Statements On January 11, 1998, Cobblestone Holdings, Inc., parent of Cobblestone Golf Group, Inc. ("Cobblestone"), Meditrust Corporation and Meditrust Operating Company entered into an agreement and plan of merger pursuant to which Cobblestone will merge with and into Meditrust Corporation, with Meditrust Corporation being the surviving corporation. Item 7. Financial Statements and Exhibits - ----------------------------------------- (a) Financial Statements None (b) Pro Forma Financial Information None (c) Exhibits 23 Consent of Independent Auditors 99.1 Consolidated Financial Statements and Schedules of Cobblestone Holdings, Inc. Index to Consolidated Financial Statements and Schedules Report of Ernst & Young LLP, Independent Auditors Consolidated Balance Sheets of Cobblestone Holdings, Inc. at September 30, 1997 and 1996. Consolidated Statements of Operations of Cobblestone Holdings, Inc. for the years ended September 30, 1997, 1996 and 1995. Consolidated Statements of Stockholders' Equity (Net Capital Deficiency) of Cobblestone Holdings, Inc. at September 30, 1997, 1996 and 1995, and October 1, 1994. Consolidated Statements of Cash Flows of Cobblestone Holdings, Inc. for years ended September 30, 1997, 1996 and 1995. Notes to Consolidated Financial Statements of Cobblestone Holdings, Inc. Schedule I: Condensed Financial Information of Registrant Schedule II: Valuation and Qualifying Accounts 99.2 Unaudited Consolidated Financial Statements of Cobblestone Holdings, Inc. for the three and six month periods ended March 31, 1998 and 1997. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrants have duly caused this report to be signed on their behalf by the undersigned hereunto duly authorized. MEDITRUST CORPORATION Date May 13, 1998 By: /s/ David F. Benson ------------------------------- Name: David F. Benson Title: President MEDITRUST OPERATING COMPANY Date May 13, 1998 By: /s/ Abraham D. Gosman ------------------------------- Name: Abraham D. Gosman Title: Chairman of the Board, Chief Executive Officer and Treasurer EX-23 2 CONSENTS OF EXPERTS AND COUNSEL Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We hereby consent to the incorporation by reference in the registration statements of Meditrust Corporation and/or Meditrust Operating Company on Form S-8 (File Nos. 333-39771, 333-39771-01, 333-36083, 333-36083-01, 33-51843 and 33-51843-01), Form S-3 (File Nos. 333-40055, 333-40055-01,333-41009, 333-41009-01, 333-01843, 33-59215, 33-56663, 33-50835, 33-45979, 333-48051 and 333-48051-0) and on Form S-4 (333-34831 and 333-34831-01) of our report dated December 1, 1997 with respect to the consolidated financial statements and schedules of Cobblestone Holdings, Inc. included in Meditrust Corporation and Meditrust Operating Company's Form 8-K dated May 13, 1998, filed with the Securities and Exchange Commission. San Diego, California May 13, 1998 /s/ Ernst & Young LLP EX-99.1 3 COBBLESTONE HOLDINGS, INC. CONSOLIDATED FINANCIALS Exhibit 99.1 COBBLESTONE HOLDINGS, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
Page ------ Report of Ernst & Young LLP, Independent Auditors ..................................................................... __ Consolidated Balance Sheets--at September 30, 1997 and 1996 ........................................................... __ Consolidated Statements of Operations--for the years ended September 30, 1997, 1996 and 1995 .......................... __ Consolidated Statements of Stockholders' Equity (Net Capital Deficiency)--at September 30, 1997, 1996 and 1995 ............................................................................................................ __ Consolidated Statements of Cash Flows--for the years ended September 30, 1997, 1996 and 1995 .......................... __ Notes to Consolidated Financial Statements--September 30, 1997 ........................................................ __
FINANCIAL STATEMENT SCHEDULE - - ---------------------------- Schedule I --Condensed Financial Information of Registrant .............................................................. __ Schedule II--Valuation and Qualifying Accounts .......................................................................... __
All other Schedules for which provision is made in the applicable accepting regulation of the Securities and Exchange Commission are omitted because such schedules are not required under the related instructions, are inapplicable, or the required information is given in the financial statements. [The remainder of this page intentionally left blank] REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Cobblestone Holdings, Inc. We have audited the accompanying consolidated balance sheets of Cobblestone Holdings, Inc. as of September 30, 1997 and 1996, and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended September 30, 1997. Our audits also included the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Cobblestone Holdings, Inc. at September 30, 1997 and 1996, and the consolidated results of its operations and its cash flows for each of the three years in the period ended September 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. /s/ ERNST & YOUNG LLP San Diego, California December 1, 1997 2 COBBLESTONE HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, ----------------------------- 1997 1996 ------------- ------------- ASSETS Current assets: Cash and cash equivalents ........................................................... $ 3,519,133 $ 6,578,946 Accounts receivable, net of allowance for doubtful accounts of $333,000 and $175,000 at September 30, 1997 and 1996, respectively .............................. 3,067,347 2,868,190 Current portion of notes receivable, net ............................................ 2,108,796 1,729,875 Inventory ............................................................................ 2,450,328 2,202,481 Prepaid expenses and other current assets ........................................... 1,238,616 1,170,884 ------------ ------------ Total current assets ............................................................. 12,384,220 14,550,376 Property, equipment and leasehold interests, net ..................................... 156,228,507 139,541,003 Notes receivable, net ................................................................ 3,964,691 3,889,857 Intangible assets, net of accumulated amortization of $1,489,000 and $1,202,000 at September 30, 1997 and 1996, respectively ........................................... 3,611,199 3,898,185 Other assets, net .................................................................... 6,081,103 6,618,684 ------------ ------------ $182,269,720 $168,498,105 ============ ============ LIABILITIES AND NET CAPITAL DEFICIENCY Current liabilities: Accounts payable .................................................................... $ 3,502,231 $ 4,101,736 Accrued payroll and related expenses ................................................ 2,522,130 2,091,719 Accrued interest expense ............................................................ 2,830,562 2,683,332 Accrued property taxes .............................................................. 1,576,078 1,364,891 Deferred revenue .................................................................... 1,666,970 1,460,028 Current portion of long-term debt and capital lease obligations ..................... 1,171,123 738,981 Current portion of deferred purchase price .......................................... 205,353 387,792 Income taxes payable ................................................................ 49,000 94,431 Other current liabilities ........................................................... 529,823 1,394,352 ------------ ------------ Total current liabilities ........................................................ 14,053,270 14,317,262 Long-term debt and capital lease obligations ......................................... 128,162,096 108,494,952 Note payable to stockholder/officer .................................................. 232,467 224,787 Deferred purchase price .............................................................. 537,797 730,941 Long-term deferred revenue ........................................................... 2,128,480 2,423,707 Deferred income taxes ................................................................ 4,184,000 4,184,000 Minority interest .................................................................... 336,543 380,985 Commitments Redeemable preferred stock, $.01 par value Authorized shares--10,000,000 Issued and outstanding shares--5,220,376 at September 30, 1997 and 1996 Liquidation preference of $43,075,700 ............................................... 42,241,169 42,241,169 Net capital deficiency: Common stock, $.01 par value: Authorized shares--5,000,000 Issued and outstanding shares--1,722,449 at September 30, 1997 and 1996 ............. 17,224 17,224 Paid-in capital ..................................................................... 5,388,983 5,388,983 Accumulated deficit ................................................................. (15,012,309) (9,905,905) ------------ ------------ Net capital deficiency ............................................................... (9,606,102) (4,499,698) ------------ ------------ $182,269,720 $168,498,105 ============ ============
See accompanying notes. 3 COBBLESTONE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, --------------------------------------------------- 1997 1996 1995 --------------- --------------- --------------- Operating revenues: Golf revenues ................................................... $ 59,345,382 $ 45,155,674 $38,043,441 Food and beverage revenues ...................................... 13,083,253 9,664,103 7,034,407 Pro shop sales .................................................. 6,168,729 4,768,310 3,311,062 Other ........................................................... 3,343,445 2,534,833 1,473,869 ------------ ------------ ----------- Total operating revenues ..................................... 81,940,809 62,122,920 49,862,779 Operating expenses: Golf course operations .......................................... 49,928,332 36,925,453 29,591,886 Cost of food and beverage ....................................... 4,308,308 3,219,126 2,613,295 Cost of pro shop sales .......................................... 4,550,672 3,253,771 2,221,330 General and administrative ...................................... 4,028,725 3,449,686 2,517,423 Depreciation and amortization ................................... 8,909,134 7,534,068 6,144,430 ------------ ------------ ----------- Total operating expenses ..................................... 71,725,171 54,382,104 43,088,364 ------------ ------------ ----------- Income from operations ............................................ 10,215,638 7,740,816 6,774,415 Interest expense, net ............................................. (15,273,042) (11,691,072) (8,019,072) Gain on insurance settlement ...................................... -- 738,456 746,845 ------------ ------------ ----------- Loss before income taxes and extraordinary item ................... (5,057,404) (3,211,800) (497,812) Provision for income taxes ........................................ 49,000 209,000 208,000 ------------ ------------ ----------- Loss before extraordinary item .................................... (5,106,404) (3,420,800) (705,812) Extraordinary item ................................................ -- (3,520,402) -- ------------ ------------ ----------- Net loss .......................................................... $ (5,106,404) $ (6,941,202) $ (705,812) ============ ============ =========== See accompanying notes.
4 COBBLESTONE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (NET CAPITAL DEFICIENCY)
TOTAL STOCKHOLDERS' COMMON STOCK EQUITY ------------------------ PAID-IN ACCUMULATED (NET CAPITAL SHARES AMOUNT CAPITAL DEFICIT DEFICIENCY) ----------- ---------- -------------- --------------- --------------- Balance at October 1, 1994 ............ 1,324,517 $13,245 $ 95,845 $ (2,258,891) $(2,149,801) Issuance of common stock for cash .... 311,932 3,119 3,981,200 -- 3,984,319 Net loss ............................. -- -- -- (705,812) (705,812) --------- ------- ---------- ------------ ----------- Balance at September 30, 1995 ......... 1,636,449 16,364 4,077,045 (2,964,703) 1,128,706 Issuance of common stock for cash .... 86,000 860 1,311,938 -- 1,312,798 Net loss ............................. -- -- -- (6,941,202) (6,941,202) --------- ------- ---------- ------------ ----------- Balance at September 30, 1996 ......... 1,722,449 17,224 5,388,983 (9,905,905) (4,499,698) Net loss ............................. -- -- -- (5,106,404) (5,106,404) --------- ------- ---------- ------------ ----------- Balance at September 30, 1997 ......... 1,722,449 $17,224 $5,388,983 $(15,012,309) $(9,606,102) ========= ======= ========== ============ ===========
See accompanying notes. 5 COBBLESTONE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, --------------------------------------------- 1997 1996 1995 ------------- ------------- ------------- OPERATING ACTIVITIES Net loss.......................................................................... $ (5,106,404) $ (6,941,202) $ (705,812) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization.................................................... 9,680,763 8,619,316 6,728,092 Interest expense on zero-coupon notes............................................ 4,415,256 1,362,396 -- Gain on insurance settlement..................................................... -- (738,456) (746,845) Loss on disposal of assets....................................................... -- -- 322,834 Loss on early extinguishment of debt............................................. -- 3,520,402 -- Provision for doubtful accounts.................................................. (506,476) (613,067) 2,125,458 Changes in assets and liabilities: Notes and accounts receivable................................................... 331,540 (1,154,418) (7,321,947) Inventory....................................................................... (123,328) (735,027) (229,801) Prepaid expenses and other assets............................................... (225,465) (314,864) (57,476) Accounts payable, accrued liabilities and deferred revenue........................................................................ (1,576,254) 4,270,790 2,179,909 ------------ ------------ ------------ Net cash provided by operating activities......................................... 6,889,632 7,275,870 2,294,412 INVESTING ACTIVITIES Acquisitions...................................................................... (14,994,039) (6,437,796) (41,245,470) Additions to property, equipment and leasehold interests.......................... (8,314,601) (8,179,620) (17,716,295) Insurance proceeds................................................................ -- 1,189,692 1,941,917 ------------ ------------ ------------ Net cash used in investing activities............................................. (23,308,640) (13,427,724) (57,019,848) FINANCING ACTIVITIES Proceeds from long-term debt...................................................... 20,726,000 107,262,650 37,560,573 Debt issuance costs and other debt-related costs.................................. -- (6,194,100) (2,118,618) Principal payments on long-term debt and capital leases........................... (6,991,222) (90,039,889) (1,219,252) Payments on deferred purchase price............................................... (375,583) (431,267) -- Proceeds from sale and leaseback.................................................. -- -- 7,410,527 Proceeds from issuance of redeemable preferred stock.............................. -- -- 8,629,824 Proceeds from issuance of common stock............................................ -- 1,312,798 3,984,319 ------------ ------------ ------------ Net cash provided by financing activities......................................... 13,359,195 11,910,192 54,247,373 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents.............................. (3,059,813) 5,758,338 (478,063) Cash and cash equivalents at beginning of year.................................... 6,578,946 820,608 1,298,671 ------------ ------------ ------------ Cash and cash equivalents at end of year.......................................... $ 3,519,133 $ 6,578,946 $ 820,608 ============= ============ ============ SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the year for: Interest......................................................................... $ 9,915,994 $ 7,583,613 $ 6,464,811 ============= ============ =========== Income taxes..................................................................... $ 179,990 $ 1,235,810 $ 48,417 ============= ============ =========== NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital leases entered into....................................................... $ 1,928,108 $ 4,192,424 $ 2,395,859 ============= ============ ===========
See accompanying notes 6 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Description of Business Cobblestone Holdings, Inc. (the "Company"), a Delaware corporation, was incorporated on January 18, 1994. The Company, through its wholly-owned subsidiary, Cobblestone Golf Group, Inc. (CGGI), owns and operates golf courses in the United States, with a current portfolio of 24 golf properties including private country clubs, semi-private clubs and public (or daily fee) courses. The Company's courses are concentrated in clusters near metropolitan areas primarily in the Sunbelt states (including Arizona, California, Georgia, Florida, Texas and Virginia) which have large golfing populations and attractive climates. The Company's business consists primarily of operating golf courses and related facilities, with revenue generated from membership fees and dues at private country clubs, greens fees, food and beverage services, golf cart rentals, retail merchandise sales, driving range fees and lodging fees. The Company owns eighteen courses, leases four courses (subject to long-term leases in excess of twenty years, including extension options), leases one driving range and pro shop facility and manages one additional course. The Company's portfolio includes ten private country clubs, nine public facilities and five semi-private facilities. Principles of Consolidation The Company has acquired certain golf facilities through its wholly-owned and majority-owned subsidiaries. The consolidated financial statements include the accounts of the Company and such subsidiaries. Intercompany balances and transactions have been eliminated. Cash and Cash Equivalents Cash and cash equivalents consist of cash and time deposits with original maturities of less than 90 days. Concentration of Credit Risk Management places the Company's cash investments with what they consider to be high credit-quality financial institutions and routinely assesses the financial strength of these institutions. Management believes no significant concentration of credit risk exists with respect to these cash investments. 7 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Concentration of credit risk with respect to accounts receivable is limited due to the geographic dispersion of golf courses and the large number of golf course members and others from whom the receivables are to be collected. Inventories Inventories are carried at lower of cost (first-in, first-out) or market. Property, Equipment and Leasehold Interests Property and equipment are recorded at cost. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets which are generally as follows: Depreciable land improvements ...... 20 years Buildings and improvements ......... 30 years Equipment, furniture and fixtures.... 3 to 10 years Leasehold improvements, equipment recorded under capital leases and property and equipment related to leased facilities are depreciated and amortized using the straight-line method over the shorter of the lease term or the estimated useful lives of the related assets. Costs associated with the acquisition of leasehold interests in golf facilities have been capitalized and are amortized over the remaining life of the related lease (4 to 35 years). Golf course facility construction in progress is carried at cost. All costs associated with, or allocable to golf course facility construction in progress are capitalized until construction is completed. Intangible Assets Costs in excess of net assets of businesses acquired are amortized over 20 years which is consistent with the depreciation of land improvements. Other intangible assets are amortized over their estimated useful lives (5 to 14 years). Debt Issuance Cost Costs associated with the issuance of long-term debt are capitalized and amortized over the term of the related debt using the interest method. Such costs and related accumulated amortization included in other assets totaled $6,627,881 and $1,069,071, respectively, at September 30, 1997 and $6,627,881 and $300,971, respectively, at September 30, 1996. 8 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Fair Value of Financial Instruments To meet the reporting requirements of Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial Instruments, the Company calculates the fair value of financial instruments and includes this additional information in the notes to financial statements when the fair value is different than the carrying value of those financial instruments. When the fair value reasonably approximates the carrying value, no additional disclosure is made. The Company uses quoted market prices and management's estimates to calculate these fair values. Revenue and Deferred Revenue Operating revenue is recognized when received except for dues and fees paid in advance which are recognized over the period which the dues and fees allow the members access to the facilities. The Company recognizes revenue on initiation fees for the amount of the deposit and the amount of the note receivable, less the provision for doubtful accounts and imputed interest, at the time the membership is sold. Long-term deferred revenue relates to the Company's obligation to provide memberships to residential developers of properties adjacent to the golf facility and is recognized when individual homeowners apply for membership. Seasonal weather conditions as well as the timing of new course purchases or leases may cause the Company's results of operations to vary from quarter to quarter. The second half (April through September) of the Company's fiscal year tends to account for a greater portion of the Company's operating revenue and operating income than does the first half. Reliance on Estimates The financial statements have been prepared in accordance with generally accepted accounting principles and have required management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Impairment of Long-Lived Assets Effective October 1, 1996, the Company adopted SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), which requires impairment losses to be recorded on long-lived assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. SFAS 121 also addresses the accounting for long- lived assets that are expected to be disposed of. The adoption of SFAS 121 did not have a material effect on the Company's financial position or results of operations. 9 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Stock-Based Compensation Effective October 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock Based Compensation ("SFAS 123"). SFAS 123 allows companies to either account for stock-based compensation under the new provisions of SFAS 123 or under the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"), but requires pro forma disclosure in the footnotes to the financial statements as if the measurement provisions of SFAS 123 had been adopted. The Company has continued accounting for its stock- based compensation in accordance with the provisions of APB 25. 2. ACQUISITIONS Since inception, the Company has acquired the property and equipment or leasehold interest in twenty-three golf course facilities in transactions that have been recorded under the purchase method of accounting. Accordingly, the acquired facilities have been reported in the consolidated financial statements of the Company since the date of the respective acquisitions. The 1997 acquisitions include: Eastlake Woodlands Country Club acquired in February 1997, and The Champions Club of Gwinnett acquired in April 1997. The 1996 acquisitions include: Eagle Crest Golf Club acquired in June, 1996, and Sweetwater Country Club acquired in July 1996. In addition, the Company entered into a management agreement for the Red Hawk Golf Club in October 1996. The 1995 acquisitions include: The Ranch Country Club and Stonebridge Country Club acquired in December 1994, Red Mountain Ranch Country Club acquired in January 1995, and The Hills of Lakeway, Live Oak Golf Course, Yaupon Golf Course and Brandermill Country Club acquired in March 1995. In conjunction with the purchase of The Hills of Lakeway, the Company is required to pay a deferred purchase price equal to the greater of $4,150 per membership or 25% of Initiation Fees, as defined, collected for the first three hundred memberships sold. The outstanding balance of the deferred purchase price of $743,150 is scheduled to be paid in monthly installments through fiscal 2001. A summary of the aggregate acquisition costs and allocation of the purchase price to the assets and liabilities assumed is as follows:
YEAR ENDED SEPTEMBER 30, ----------------------------------------- 1997 1996 1995 ------------ ----------- ------------ Total acquisition costs: Cash paid and acquisition related costs................................. $14,994,039 $6,437,796 $41,245,470 Long-term debt and assumption of 758,511 342,755 7,379,667 liabilities........................... ----------- ---------- ----------- $15,752,550 $6,780,551 $48,625,137 =========== ========== =========== Allocated to assets as follows: Current assets ....................... $ 675,280 $ 29,182 $ 775,622 Property, equipment and leasehold interests ........................... 15,077,270 6,751,369 47,849,515 ----------- ---------- ----------- $15,752,550 $6,780,551 $48,625,137 =========== ========== ===========
10 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) The following pro forma results for acquisitions consummated through September 30, 1997 assume the acquisitions occurred at the beginning of the fiscal year prior to the year in which the facility was acquired. The unaudited pro forma results have been prepared utilizing the historical financial statements of the Company and the acquired business.
YEAR ENDED SEPTEMBER 30, ----------------------------- 1997 1996 ------------- ------------- (UNAUDITED) (UNAUDITED) Operating revenues ................. $85,268,603 $78,874,940 Loss before extraordinary item ..... (5,414,816) (3,614,902) Net loss ........................... (5,414,816) (7,135,304)
This pro forma information is not necessarily indicative of the actual results that would have been achieved had the acquisitions occurred at the beginning of the fiscal year prior to the year in which the facility was acquired, nor is it necessarily indicative of future results. 3. NOTES RECEIVABLE Notes receivable consists of promissory notes made by golf club members for the payment of initiation fees. The notes carry below market or no interest rates, amortize monthly or annually and generally have a term of three to five years. Management periodically analyzes the collectability of the notes receivable and reserves for the portion that is doubtful of being collected. The notes are secured by the underlying golf club membership and the Company has full recourse against the member. The Company's notes receivable balance was composed of the following:
YEAR ENDED SEPTEMBER 30, --------------------------- 1997 1996 ------------ ------------ Gross receivables ...................... $7,804,836 $ 8,282,575 Less allowance for uncollectable accounts................................ (781,823) (1,404,933) Less valuation allowance for imputed interest .............................. (949,526) (1,257,910) ---------- ----------- 6,073,487 5,619,732 Current portion ........................ 2,108,796 1,729,875 ---------- ----------- $3,964,691 $ 3,889,857 ========== ===========
11 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 4. PROPERTY, EQUIPMENT AND LEASEHOLD INTERESTS Property, equipment and leasehold interests consist of the following:
SEPTEMBER 30, ----------------------------- 1997 1996 ------------- ------------- Land .............................................................................. $ 17,291,637 $ 15,161,226 Land improvements ................................................................. 97,476,310 85,110,308 Buildings and improvements ........................................................ 35,546,584 31,968,131 Equipment, furniture and fixtures ................................................. 23,353,353 18,724,101 Leasehold interests ............................................................... 3,230,266 3,230,266 Golf course facility construction in progress ..................................... 3,110,498 494,637 ------------ ------------ 180,008,648 154,688,669 Less accumulated depreciation and amortization .................................... (23,780,141) (15,147,666) ------------ ------------ Property, equipment and leasehold interests, net .................................. $156,228,507 $139,541,003 ============ ============
Land improvements include $27,134,837 and $24,095,050 at September 30, 1997 and 1996, respectively, of nondepreciable golf course improvements consisting of tees, fairways, roughs, trees, greens, bunkers and sandtraps. 5. LONG-TERM DEBT Long-term debt consists of the following:
SEPTEMBER 30, --------------------------- 1997 1996 ------------ ------------ 8% note payable, due monthly through 2007 .............................................. $ 265,699 $ 282,594 Variable rate note payable, effective interest rate 10.509%, due monthly, secured by the assets of The Vineyard at Escondido ............................................................................. 5,675,100 5,780,976 10% imputed interest note payable January 2000 ......................................... 198,164 179,380 11 1/2% Series B Senior Notes due 2003................................................... 70,000,000 70,000,000 13 1/2% Series B Senior Zero-Coupon Notes ($86,000,000 principal balance) due 2004 ..... 34,740,302 30,325,046 Bank revolver .......................................................................... 14,726,000 -- Capital lease obligations, due at various dates through 2002 ........................... 3,727,954 2,665,937 ------------ ------------ 129,333,219 109,233,933 Less current portion ................................................................... 1,171,123 738,981 ------------ ------------ $128,162,096 $108,494,952 ============ ============
12 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) On June 4, 1996, the Company and CGGI completed two contemporaneous high yield bond offerings (the "Offerings") totaling approximately $100 million. CGGI offered $70 million aggregate principal amount 11 1/2% senior notes due 2003 (the "Senior Notes"). The Senior Notes are senior unsecured general obligations of CGGI and rank pari passu in right of payment to all other senior indebtedness of CGGI. The Company offered 86,000 Units (the "Unit Offering"), each consisting of $1,000 principal amount at maturity of 13 1/2% senior zero-coupon notes due 2004 and one share of common stock, par $.01 per share, of the Company. The Zero-Coupon Notes are senior unsecured general obligations of the Company and rank pari passu in right of payment to all other senior indebtedness of the Company. The net proceeds of the Unit Offering were $28.1 million and were contributed as equity to CGGI. Concurrent with the Offerings, the Company repaid a bank term loan and a bank revolving credit agreement of $77.4 million and $4.6 million, respectively, and repaid obligations under capital leases totaling $4.2 million. The Company also paid a promissory note related to the acquisition of two adjacent golf course facilities which had a balance of $2.8 million at June 4, 1996, which resulted in a gain on early retirement of debt of $0.4 million. This gain and a $3.9 million write-off of unamortized loan fees related to the bank term loan and bank revolving credit agreement have been recorded as extraordinary items in the consolidated statement of operations. In addition, on June 4, 1996, the Company and CGGI obtained a new $50 million bank facility (the "New Credit Facility"), consisting of a $45 million bank revolver for future acquisitions and capital projects and a six year $5 million working capital facility to fund short term operating needs. At September 30, 1997, availability under the acquisition revolver and working capital facility was $30,274,000 and $5,000,000, respectively. The New Credit Facility is secured by substantially all of CGGI's assets, including the capital stock of CGGI and its existing and future subsidiaries, and is guaranteed by the Company. The New Credit Facility provides that borrowings bear interest, which is payable quarterly, at the Eurodollar rate or a Floating Rate, as defined, plus a fluctuating percentage based upon certain financial ratios (7.962% at September 30, 1997) and requires a non-use fee on the unused portion equal to 1/2% per annum. The bank revolver provides that borrowings are payable based on certain specified percentages in quarterly installments commencing September, 1998 and ending March 2002. At the end of six years, the working capital facility expires and any outstanding unpaid principal is payable in full. The New Credit Facility requires mandatory reductions or prepayments of principal as a result of certain events, provides for voluntary prepayments and contains numerous covenants which, among other things, require the Company to maintain defined leverage and interest coverage ratios, and limits the incurrence of debt, capital expenditures and payment of dividends. At September 30, 1997, the Company was in compliance with such covenants. Maturities of long-term debt (exclusive of capital lease obligations) for each of the five years in the period ending September 30, 2002, are as follows: 1998- - - -$146,807; 1999--$2,381,023; 2000--$3,581,115; 2001--$2,556,426; 2002-- $7,219,428; thereafter--$161,032,000. 13 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) 6. REDEEMABLE PREFERRED STOCK The preferred stock has priority upon liquidation over the Company's common stock, and is also entitled to vote along with the common stock on the basis of one vote per share of preferred stock. Shares of the preferred stock are redeemable by the Company at any time, at the discretion of the Board of Directors, for the purchase price of approximately $8 per share. Upon the sale, consolidation or merger of the Company with or into another corporation, the sale of all or substantially all of the Company's assets, or the sale or exchange of stock representing at least 80% of the voting power of stock of the Company, the Company must redeem all remaining outstanding shares of preferred stock at the redemption price as defined above. During Fiscal 1995, the Company issued 1,055,957 shares of preferred stock for proceeds totalling $8,629,824. As of September 30, 1997, there have been no other issuances of preferred stock. 7. INCOME TAXES Income taxes are provided for in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. Under this method, the Company recognizes deferred tax assets and liabilities for the expected future tax effects of temporary differences between the carrying amounts and the tax bases of assets and liabilities, as well as operating loss carryforwards. Significant components of the Company's deferred tax assets and liabilities are shown below. A valuation allowance for $6,724,000, of which $2,742,000 is related to 1997, has been recognized to offset the deferred tax assets as realization of such assets is uncertain.
SEPTEMBER 30, --------------------------- 1997 1996 ------------ ------------ Deferred tax liabilities: Accounting basis in excess of tax basis of golf properties............... $(4,184,000) $(4,184,000) Depreciation .......................... (2,084,000) (1,165,000) ----------- ----------- Total deferred tax liabilities ......... (6,268,000) (5,349,000) Deferred tax assets: Net operating loss carryforwards ...... 6,149,000 2,826,000 Reserve for notes receivable .......... 711,000 1,093,000 Deferred gain on sale and leaseback ... 320,000 320,000 Accrued liabilities ................... 588,000 504,000 Capital loss carryforward ............. 783,000 -- Other, net.............................. 257,000 404,000 ----------- ----------- Total deferred tax assets .............. 8,808,000 5,147,000 Valuation allowance for deferred tax assets ................................ (6,724,000) (3,982,000) ----------- ----------- Net deferred tax assets ................ 2,084,000 1,165,000 ----------- ----------- Net deferred tax liabilities ........... $(4,184,000) $(4,184,000) =========== ===========
At September 30, 1997, the Company has federal and state tax net operating loss carryforwards of approximately $17,069,000 and $4,356,000, respectively. The difference between the federal and state tax loss carryforwards is primarily attributable to the fifty-percent limitation on California loss carryforwards. The federal and state tax loss carryforwards will begin to expire in 2011 and 2001, respectively, unless previously utilized. Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the Company's net operating loss and credit carryforwards may be limited if a cumulative change in ownership of more than 50% occurs within any three year period. 14 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Significant components of the provision for income taxes are as follows: SEPTEMBER 30, --------------------------------------------------- 1997 1996 1995 ---------------- ------------------- ---------- Current: Federal .............................................................. $ -- $(250,000) $ 307,000 State ................................................................ 49,000 152,000 208,000 ------- --------- --------- 49,000 (98,000) 515,000 Deferred: Federal .............................................................. -- 307,000 (307,000) State ................................................................ -- -- -- ------- --------- --------- -- 307,000 (307,000) ------- --------- --------- Total provision ......................................................... $49,000 $ 209,000 $ 208,000 ======= ========= =========
The following is a reconciliation of the actual tax provision to the expected tax provision computed by applying the statutory federal income tax rate to income before income taxes:
SEPTEMBER 30, ----------------------------------------- 1997 1996 1995 ------------ ------------ ----------- Income tax provision at statutory rate .................................. $(1,770,091) $(2,404,395) $(174,234) State income tax provision .............................................. 31,900 98,800 135,200 Permanent differences ................................................... 28,787 87,736 177,938 Increase in valuation allowance and other ............................... 1,758,404 2,426,859 69,096 ----------- ----------- --------- Total provision for income taxes ........................................ $ 49,000 $ 209,000 $ 208,000 =========== =========== =========
8. COMMITMENTS In March 1995, the Company entered into a sale and leaseback transaction for one of its golf course facilities. The Company received proceeds of approximately $7.4 million and entered into a lease for fifteen years with two five year renewal options. Minimum rent was $64,523 per month at September 30, 1997, and is subject to annual increases based upon changes in the Consumer Price Index. The deferred gain on the sale and leaseback transaction of $499,000 is being amortized over the term of the lease. The Company also leases four other golf facilities. The leases expire in the years 1998 to 2029. The Company recorded an aggregate of approximately $1,700,000, $1,346,000 and $639,000 in rent expense related to leased golf course facilities for the years ended September 30, 1997, 1996 and 1995, respectively. The Company leases certain golf carts and maintenance equipment under capital leases with terms of two to five years. Included in equipment, furniture and fixtures in the accompanying consolidated balance sheets is equipment under capital leases totaling $5,141,790 and $3,269,314 at September 30, 1997 and 1996, respectively. Accumulated amortization of equipment under capital leases totaled $1,286,734 and $391,893 at September 30, 1997 and 1996, respectively. 15 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued) Future minimum lease payments at September 30, 1997 are as follows:
CAPITAL OPERATING YEARS ENDING SEPTEMBER 30, LEASES LEASES -------------------------- ----------- ----------- 1998 ........................................... $1,327,860 $ 2,442,366 1999 ........................................... 1,256,951 2,415,366 2000 ........................................... 1,105,210 2,415,366 2001 ........................................... 651,345 2,380,336 2002 ........................................... 61,291 2,310,276 Thereafter ..................................... -- 20,587,320 ---------- ----------- Total minimum lease payments ................ 4,402,657 $32,551,030 =========== Amount representing interest ................... 674,703 ---------- Present value of net minimum lease payments...... 3,727,954 Current portion ................................ 1,024,316 ---------- $2,703,638 ==========
In accordance with certain purchase agreements, the Company is required to maintain the respective golf courses in good condition and make various capital improvements. As of September 30, 1997, the Company had a commitment to build an additional nine holes at a facility with an estimated aggregate cost of approximately $3.6 million. 9. RELATED PARTY TRANSACTIONS In connection with the formation of the Company, an officer of the Company contributed his interests in the leases of two golf course facilities in exchange for 55,105 shares of preferred stock, $235,270 cash and a $250,000 note due in 1999. The officer also contributed his options to acquire certain other golf course facilities at no cost to the Company. An affiliate of the majority stockholder of Holdings provides investment banking and consulting services to the Company. The Company is obligated to pay a service fee to the affiliate semi-annually in advance in an amount equal to 1% per annum of the affiliate's debt and equity investment in the Company and to reimburse the reasonable fees and costs incurred by the affiliate in providing services to the Company. The Company paid $588,031, $436,741 and $1,076,416 in fees to the affiliate pursuant to these obligations during the years ended September 30, 1997, 1996 and 1995, respectively. 10. EMPLOYEE BENEFIT PLAN The Company has an employee savings plan (the "Plan") that qualifies as a deferred salary arrangement under Section 401(k) of the Internal Revenue Code. Under the Plan, which covers employees of the Company who have met certain eligibility requirements, participating employees may defer up to 17% of their pretax earnings, up to $9,500. The Company matches up to 20% of the employee's contributions, up to a maximum of 4% of the employee's earnings. The Company's matching contribution to the Plan, which vests equally over three years, amounted to approximately $49,000, $35,000 and $8,000 for the years ended September 30, 1997, 1996 and 1995, respectively. 16 11. STOCK OPTION PLAN The Company has a stock option plan whereby options to purchase 250,000 of the Company's common stock may be granted. Options granted have a 5 year term and generally vest over 2 to 5 years from the date of grant. Pro forma information regarding net loss is required by SFAS 123, and has been determined as if the Company had accounted for its employee stock options under the fair value method of SFAS 123. The fair value of these options was estimated at the date of grant using the Minimum Value Method option pricing model with the following weighted-average assumptions for 1997 and 1996: risk- free interest rate of 6.1%; dividend yield of 0%; and weighted-average life of the options of 3.3 years. The Minimum Value Method option valuation model was developed for use in estimating the fair value of nonpublic entities. In addition, option valuation models require the input of highly subjective assumptions. Because the Company's employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, in managements' opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options. For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the option's vesting period. The Company's pro forma net loss for the years ended September 30, 1997 and 1996 are $5,208,089 and $6,969,125, respectively. A summary of the Company's stock option activity and related information follows:
Year Ended September 30, ------------------------------------------- 1997 1996 -------------------- -------------------- Weighted- Weighted- Average Average Exercise Exercise Options Price Options Price -------- --------- -------- --------- Outstanding - beginning of year ....... 57,261 $15.27 -- $15.27 Granted ............................... 66,239 $16.23 58,352 $15.27 Forfeited ............................. (5,817) $15.27 (1,091) $15.27 ------- ------ Outstanding - end of year ............. 117,683 $15.81 57,261 $15.27 ======= ====== Weighted-average fair value of options granted during the year .............. $ 0.81 $ 1.67
Exercise prices for options outstanding as of September 30, 1997 ranged from $15.27 to $17.10. The weighted-average remaining contractual life of those options is approximately 4 years. No options were exercisable at September 30, 1997 and 1996. At September 30, 1997, options for 125,409 shares were available for future grant and have been reserved for issuance under the Company's stock option plan. 12. SUBSEQUENT EVENT In November, 1997, the Company purchased an 18-hole semi-private country club located near Orlando, Florida for a total cash purchase price of approximately $5.9 million. 17 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT COBBLESTONE HOLDINGS, INC. (PARENT COMPANY) CONDENSED BALANCE SHEETS
September 30, ---------------------------- 1997 1996 ------------- ------------ ASSETS Debt issuance costs, net of accumulated amortization of $223,783 and $52,769 at September 30, 1997 and 1996, respectively ..................... $ 1,938,239 $ 2,109,253 Investment in and net amounts due from wholly owned subsidiary.............. 65,437,130 65,957,264 ------------ ----------- $ 67,375,369 $68,066,517 ============ =========== LIABILITIES AND NET CAPITAL DEFICIENCY Long-term debt.............................................................. $ 34,740,302 $30,325,046 Redeemable preferred stock.................................................. 42,241,169 42,241,169 Net capital deficiency: Common stock............................................................. 17,224 17,224 Paid-in capital.......................................................... 5,388,983 5,388,983 Accumulated deficit...................................................... (15,012,309) (9,905,905) ------------ ----------- Net capital deficiency...................................................... (9,606,102) (4,499,698) ------------ ----------- $ 67,375,369 $68,066,517 ============ ===========
See accompanying notes. 18 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT COBBLESTONE HOLDINGS, INC. (PARENT COMPANY) CONDENSED STATEMENTS OF OPERATIONS
Year Ended September 30, ---------------------------------------- 1997 1996 1995 ------------ ------------ ---------- Interest expense ................................................ $(4,586,270) $(1,415,165) $ -- Equity in net loss of wholly owned subsidiary ................... (520,134) (5,526,037) (705,812) ----------- ----------- --------- Net loss ........................................................ $(5,106,404) $(6,941,202) $(705,812) =========== =========== =========
See accompanying notes. 19 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT COBBLESTONE HOLDINGS, INC. (PARENT COMPANY) CONDENSED STATEMENTS OF CASH FLOWS
Year Ended September 30, --------------------------------------------- 1997 1996 1995 ------------- ------------- ------------- OPERATING ACTIVITIES Net loss ......................................................... $(5,106,404) $ (6,941,202) $ (705,812) Deferred interest and amortization ............................... 4,586,270 1,415,165 -- Equity in net loss of wholly owned subsidiary .................... 520,134 5,526,037 705,812 ----------- ------------ ------------ Net cash provided by operating activities ........................ -- -- -- INVESTING ACTIVITIES Contribution to wholly owned subsidiary............................ -- (28,113,426) (12,614,143) FINANCING ACTIVITIES Proceeds from long-term debt ..................................... -- 28,962,650 -- Debt issuance costs .............................................. -- (2,162,022) -- Proceeds from issuance of redeemable preferred stock ............. -- -- 8,629,824 Proceeds from issuance of common stock ........................... -- 1,312,798 3,984,319 ----------- ------------ ------------ Net cash provided by financing activities ........................ -- 28,113,426 12,614,143 ----------- ------------ ------------ Net change in cash ............................................... $ -- $ -- $ -- =========== ============ ============
See accompanying notes. 20 SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT COBBLESTONE HOLDINGS, INC. (PARENT COMPANY) NOTES TO CONDENSED FINANCIAL STATEMENTS September 30, 1997 1. BASIS OF PRESENTATION Cobblestone Holdings, Inc. (the "Company"), a Delaware corporation, was incorporated on January 18, 1994 by shareholders of Cobblestone Golf Group, Inc. ("CGGI"). On January 31, 1994, the Company issued shares of its common and preferred stock in exchange for all of the shares of CGGI. The transaction has been accounted for at historical cost in a manner similar to a pooling of interests and, accordingly, had no effect on the accompanying consolidated financial statements. The Company, through its wholly-owned subsidiary CGGI, owns and operates golf courses in the United States, with a current portfolio of 24 golf properties including private country clubs, semi-private clubs and public (or daily fee) courses. The Company's courses are concentrated in clusters near metropolitan areas in the Sunbelt states (including Arizona, California and Texas) which have large golfing populations and attractive climates. The Company's business consists primarily of operating golf courses and related facilities, with revenue generated from membership fees and dues at private country clubs, greens fees, food and beverage services, golf cart rentals, retail merchandise sales, driving range fees and lodging fees. The Company owns 18 courses, leases four courses (subject to long-term leases in excess of 20 years, including extension options), leases one driving range and pro shop facility and manages one additional course. The Company's portfolio includes ten private country clubs, nine public facilities and five semi-private facilities. 2. GUARANTEE The wholly owned subsidiary of the Company, CGGI, has a credit facility with a bank and has borrowings of $14,726,000 under the facility outstanding at September 30, 1997. Under the terms of the credit facility agreement, the Company has guaranteed the payment of all principal and interest. 21 COBBLESTONE HOLDINGS, INC. SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
BALANCE AT CHARGES TO CHARGES TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF YEAR EXPENSES ACCOUNTS ACQUISITIONS DEDUCTIONS YEAR ------------ ---------- ---------- ------------ ---------- ---------- YEAR ENDED SEPTEMBER 30, 1995 Deducted from asset accounts: Allowance for doubtful accounts receivable................. $ 67,000 $ 58,550 $ -- $ -- $ 49,550 $ 76,000 Allowance for uncollectable notes receivable .................. -- -- 2,117,000 -- -- 2,117,000 Valuation allowance for imputed interest .................. -- -- 1,242,867 -- -- 1,242,867 ---------- -------- ---------- ------------ -------- ---------- Total................................... $ 67,000 $ 58,550 $3,359,867 $ -- $ 49,550 $3,435,867 ========== ======== ========== ============ ======== ========== YEAR ENDED SEPTEMBER 30, 1996 Deducted from asset accounts: Allowance for doubtful accounts receivable ............... $ 76,000 $151,000 $ -- $38,000 $ 90,000 $ 175,000 Allowance for uncollectable notes receivable .................. 2,117,000 -- -- -- 712,067 1,404,933 Valuation allowance for imputed interest .................. 1,242,867 -- 15,043 -- -- 1,257,910 ---------- -------- ---------- ------------ -------- ---------- Total ................................. $3,435,867 $151,000 $ 15,043 $38,000 $802,067 $2,837,843 ========== ======== ========== ============ ======== ========== YEAR ENDED SEPTEMBER 30, 1997 Deducted from asset accounts: Allowance for doubtful accounts receivable ............... $ 175,000 $312,000 $ -- $41,000 $195,000 $ 333,000 Allowance for uncollectable notes receivable .................. 1,404,933 -- -- -- 623,110 781,823 Valuation allowance for imputed interest .................. 1,257,910 -- 308,384 -- -- 949,526 ---------- -------- ---------- ------------ -------- ---------- Total ................................. $2,837,843 $312,000 $ 308,384 $41,000 $818,110 $2,064,349 ========== ======== ========== ============ ======== ==========
22 EX-99.2 4 COBBLESTONE HOLDINGS, INC. Exhibit 99.2 COBBLESTONE HOLDINGS, INC. CONSOLIDATED BALANCE SHEETS
March 31, September 30, 1998 1997 ------------- -------------- (Unaudited) (Note) Assets Current assets: Cash and cash equivalents ........................................................... $ 400,432 $ 3,519,133 Accounts receivable, net ............................................................ 3,554,935 3,067,347 Current portion of notes receivable, net ............................................ 2,420,749 2,108,796 Inventory ......................................................................... 3,215,730 2,450,328 Prepaid expenses and other current assets ........................................... 1,504,608 1,238,616 ------------ ------------ Total current assets ............................................................. 11,096,454 12,384,220 Property, equipment and leasehold interests, net ..................................... 176,830,098 156,228,507 Notes receivable, net ................................................................ 3,738,380 3,964,691 Intangible assets, net ............................................................... 3,489,002 3,611,199 Other assets, net .................................................................... 6,332,264 6,081,103 ------------ ------------ $201,486,198 $182,269,720 ============ ============ LIABILITIES AND NET CAPITAL DEFICIENCY Current liabilities: Accounts payable .................................................................... $ 1,587,368 $ 3,502,231 Accrued payroll and related expenses ................................................ 2,272,643 2,522,130 Accrued interest expense ............................................................ 3,275,881 2,830,562 Accrued property taxes .............................................................. 731,154 1,576,078 Deferred revenue .................................................................... 1,797,607 1,666,970 Current portion of long-term debt and capital lease obligations ..................... 997,034 1,171,123 Current portion of deferred purchase price .......................................... 205,353 205,353 Income taxes payable ................................................................ 49,000 49,000 Other current liabilities ........................................................... 722,440 529,823 ------------ ------------ Total current liabilities ........................................................ 11,638,480 14,053,270 Long-term debt and capital lease obligations ......................................... 153,397,491 128,162,096 Note payable to stockholder/officer .................................................. 236,566 232,467 Deferred purchase price .............................................................. 435,120 537,797 Long-term deferred revenue ........................................................... 1,912,992 2,128,480 Deferred income taxes ................................................................ 4,184,000 4,184,000 Minority interest .................................................................... 336,543 336,543 Redeemable preferred stock, $.01 par value Authorized shares--10,000,000 Issued and outstanding shares--5,220,376 at March 31, 1998 and September 30, 1997 Liquidation preference of $43,075,700 at March 31, 1998 and September 30, 1997 ................................................................ 42,241,169 42,241,169 Net capital deficiency: Common stock, $.01 par value: Authorized shares--5,000,000 Issued and outstanding shares--1,722,449 at March 31, 1998 and September 30, 1997 ............................................................... 17,224 17,224 Paid-in capital ..................................................................... 5,388,983 5,388,983 Accumulated deficit ................................................................. (18,302,370) (15,012,309) ------------ ------------ Net capital deficiency................................................................. (12,896,163) (9,606,102) ------------ ------------ $201,486,198 $182,269,720 ============ ============
Note: The balance sheet at September 30, 1997 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles for financial statements. See accompanying notes. COBBLESTONE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED MARCH 31, MARCH 31, -------------------------------- ---------------------------------- 1998 1997 1998 1997 -------------------------------- ---------------------------------- Operating revenues: Golf revenues ............................... $16,360,492 $13,944,044 $31,232,266 $25,759,281 Food and beverage revenues .................. 3,250,266 2,712,508 6,943,452 5,761,745 Pro shop sales .............................. 1,340,402 1,271,721 3,036,487 2,887,937 Other ....................................... 866,928 767,713 1,658,576 1,273,855 ----------- ----------- ----------- ----------- Total operating revenues ................. 21,818,088 18,695,986 42,870,781 35,682,818 Operating expenses: Golf course operations ...................... 12,727,833 11,112,728 25,464,313 22,322,110 Cost of food and beverage ................... 1,123,787 889,832 2,279,317 1,831,492 Cost of pro shop sales ...................... 833,841 852,718 1,882,858 1,858,916 General and administrative .................. 1,081,120 947,782 2,136,929 1,916,329 Depreciation and amortization ............... 2,706,088 2,247,888 5,127,719 4,456,527 ----------- ----------- ----------- ----------- Total operating expenses ................. 18,472,669 16,050,948 36,891,136 32,385,374 ----------- ----------- ----------- ----------- Income from operations ........................ 3,345,419 2,645,038 5,979,645 3,297,444 Interest expense, net ......................... (5,144,876) (3,771,750) (9,260,686) (7,375,271) ----------- ----------- ----------- ----------- Loss before income taxes ...................... (1,799,457) (1,126,712) (3,281,041) (4,077,827) Provision for income taxes .................... -- 60,436 9,020 83,316 ----------- ----------- ----------- ----------- Net loss ...................................... $(1,799,457) $(1,187,148) $(3,290,061) $(4,161,143) =========== =========== =========== ===========
See accompanying notes. 2 COBBLESTONE HOLDINGS, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED MARCH 31, ------------------------------- 1998 1997 ------------------------------- OPERATING ACTIVITIES Net loss ........................................................................... $ (3,290,061) $ (4,161,143) Adjustments to reconcile net loss to net cash provided by ( used in) operating activities: Depreciation and amortization ..................................................... 5,531,499 4,852,222 Interest on zero-coupon notes ..................................................... 2,433,582 2,135,554 Provision for doubtful accounts ................................................... (58,528) (228,999) Changes in assets and liabilities: Notes and accounts receivable ................................................... (322,046) (313,031) Inventory ....................................................................... (488,363) (610,472) Prepaid expenses and other assets ............................................... (850,417) (52,227) Accounts payable, accrued liabilities and deferred revenue ...................... (2,886,231) (3,621,692) ------------ ------------ Net cash provided by (used in) operating activities ................................ 69,435 (1,999,788) INVESTING ACTIVITIES Acquisition-related costs .......................................................... (18,956,349) (9,139,627) Additions to property, equipment and leasehold interests ........................... (5,801,110) (4,070,256) ------------ ------------ Net cash used in investing activities .............................................. (24,757,459) (13,209,883) FINANCING ACTIVITIES Proceeds from long-term debt ....................................................... 22,845,000 11,964,000 Principal payments on long-term debt and capital leases ............................ (1,173,000) (1,489,274) Payments on deferred purchase price ................................................ (102,677) (272,906) ------------ ------------ Net cash provided by financing activities .......................................... 21,569,323 10,201,820 Net decrease in cash and cash equivalents .......................................... (3,118,701) (5,007,851) Cash and cash equivalents at beginning of period ................................... 3,519,133 6,578,946 ------------ ------------ Cash and cash equivalents at end of period ......................................... $ 400,432 $ 1,571,095 ============ ============ SUPPLEMENTARY DISCLOSURES OF CASH FLOW INFORMATION: Cash paid during the period for: Interest .......................................................................... $ 5,980,305 $ 4,697,002 ============ ============ Income taxes, net ................................................................. $ 42,728 $ 100,863 ============ ============ NON-CASH INVESTING AND FINANCING ACTIVITIES: Capital leases entered into ........................................................ $ 945,607 $ 1,003,080 ============ ============
See accompanying notes. 3 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) 1. BASIS OF PRESENTATION Cobblestone Holdings, Inc. (the "Company"), a Delaware corporation, was incorporated on January 18, 1994 by shareholders of Cobblestone Golf Group, Inc. ("CGGI"). On January 31, 1994, the Company issued shares of its common and preferred stock in exchange for all of the shares of CGGI. The Company, through its wholly-owned subsidiary CGGI, owns and operates golf courses in the United States, with a current portfolio of 32 golf properties including private country clubs, semi-private clubs and public (or daily fee) courses. The Company's courses are concentrated in clusters near metropolitan areas primarily in the Sunbelt states (including Arizona, California, Georgia, Florida, Texas and Virginia) which have large golfing populations and attractive climates. The Company's business consists primarily of operating golf courses and related facilities, with revenue generated from membership fees and dues at private country clubs, greens fees, food and beverage services, golf cart rentals, retail merchandise sales, driving range fees and lodging fees. The Company owns twenty-one courses, leases four courses (subject to long-term leases in excess of 20 years, including extension options), leases one driving range and pro shop facility and manages six additional courses. The Company's portfolio includes twelve private country clubs, eleven public facilities and nine semi-private facilities. Seasonal weather conditions as well as the timing of new course purchases or leases may cause the Company's results of operations to vary from quarter to quarter. The Company has acquired certain golf facilities through its wholly-owned and majority-owned subsidiaries. The consolidated financial statements include the accounts of the Company and such subsidiaries. Intercompany balances and transactions have been eliminated. The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six month period ended March 31, 1998 are not necessarily indicative of the results that may be expected for the year ended September 30, 1998. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended September 30, 1997. 2. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. 4 COBBLESTONE HOLDINGS, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 1998 (UNAUDITED) 3. MERGER AGREEMENT In January, 1998, the Company announced that it had reached a definitive merger agreement to be acquired by The Meditrust Companies ("Meditrust") for Meditrust stock valued at approximately $241 million. In addition, under the terms of the agreement, approximately $154 million of the Company's debt and associated costs will be either refinanced or assumed as a condition of closing. Meditrust is a paired share real estate investment trust and the nation's largest heath care real estate investment trust. 5 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS THREE MONTHS ENDED MARCH 31, 1998 COMPARED TO THREE MONTHS ENDED MARCH 31, 1997 Operating Revenue. Operating revenue increased to $21.8 million for the three months ended March 31, 1998 from $18.7 million for the comparable prior year period, an increase of $3.1 million or 16.6%. Of this increase, $2.7 million is attributable to operating revenue for the five courses acquired by the Company subsequent to December, 1996. The remaining $0.4 million is attributable to a general increase in operating revenue from the Company's other facilities, despite poor weather conditions. Course-level Operating Expenses. Course-level operating expenses, which include costs of golf course operations (e.g., salaries, taxes and utilities), costs of food and beverage sales and costs of pro shop sales increased to $14.7 million for the three months ended March 31, 1998 from $12.9 million for the comparable prior year period, an increase of $1.8 million or 14.0%. This increase is primarily attributable to operating course-level operating expenses for the five courses acquired by the Company subsequent to December, 1996. General and Administrative Expenses. General and administrative expenses primarily consist of corporate salaries and related expenses and legal and accounting fees. General and administrative expenses increased to $1.1 million for the three months ended March 31, 1998 from $0.9 million for the comparable prior year period, an increase of $0.2 million or 22.2%. The increase is attributable to additional overhead to support the Company's expanded operations during the second quarter of fiscal 1998. General and administrative expenses as a percentage of operating revenue was 5.0% for the three months ended March 31, 1998, a decrease from 5.1% for the comparable prior year period. Depreciation and Amortization Expense. Depreciation and amortization expense increased to $2.7 million for the three months ended March 31, 1998 from $2.2 million for the comparable prior year period, an increase of $0.5 million or 22.7%. This increase is primarily attributable to depreciation and amortization expense for the five courses acquired by the Company subsequent to December, 1996. Income from Operations. Income from operations increased to $3.3 million for the three months ended March 31, 1998 from $2.6 million for the comparable prior year period, primarily due to the factors described above. Income from operations as a percentage of operating revenue was 15.3% for the three month period ended March 31, 1998, an increase from 14.1% for the comparable prior year period. Interest Expense, Net. Interest expense, net, increased to $5.1 million for the three months ended March 31, 1998 from $3.8 million for the comparable prior period, an increase of $1.3 million or 34.2%. The increase is primarily due to a higher level of outstanding debt as a result of golf course facility acquisitions. Net loss. Net loss increased to $1.8 million for the three months ended March 31, 1998 from $1.2 million for the comparable prior year period, primarily due to the factors described above. SIX MONTHS ENDED MARCH 31, 1998 COMPARED TO SIX MONTHS ENDED MARCH 31, 1997 Operating Revenue. Operating revenue increased to $42.9 million for the six months ended March 31, 1998 from $35.7 million for the comparable prior year period, an increase of $7.2 million or 20.2%. Of this increase, $4.8 million is attributable to the operating revenue for the five courses acquired by the Company subsequent to December 1996. The remaining $2.4 million is attributable to increased revenue from the Company's other facilities as a result of increased marketing efforts, price increases and utilizations. 6 Course-level Operating Expenses. Course-level operating expenses, which include costs of golf course operations (e.g., salaries, taxes and utilities), costs of food and beverage sales and costs of pro shop sales increased to $29.6 million for the six months ended March 31, 1998 from $26.0 million for the comparable prior year period, an increase of $3.6 million or 13.8%. This increase is primarily attributable to course-level operating expenses for the five courses acquired by the Company subsequent to December, 1996. General and Administrative Expenses. General and administrative expenses primarily consist of corporate salaries and related expenses and legal and accounting fees. General and administrative expenses increased to $2.1 million for the six months ended March 31, 1998 from $1.9 million for the comparable prior year period, an increase of $0.2 million or 10.5%. The increase in expense is related to non-recurring costs associated with the settlement of a law suit and to additional overhead to support the Company's expanded operations during the second quarter of fiscal 1998. General and administrative expenses as a percentage of operating revenue was 5.0% for the six months ended March 31, 1998, a decrease from 5.4% for the comparable prior year period. Depreciation and Amortization Expense. Depreciation and amortization expense increased to $5.1 million for the six months ended March 31, 1998 from $4.5 million for the comparable prior year period, an increase of $0.6 million or 13.3%. This increase is primarily attributable to the inclusion of the five courses acquired subsequent to December, 1996. Income from Operations. Income from operations increased to $6.0 million for the six months ended March 31, 1998 from $3.3 million for the comparable prior year period, primarily due to the factors described above. Income from operations as a percentage of operating revenue was 13.9% for the six month period ended March 31, 1998, an increase from 9.2% for the comparable prior year period. The change is due to increased marketing efforts, pricing and utilization of the Company's facilities. Interest Expense, Net. Interest expense, net, increased to $9.3 million for the six months ended March 31, 1998 from $7.4 million for the comparable prior period, an increase of $1.9 million or 25.7%. The increase is primarily due to a higher level of outstanding debt as a result of golf course facility acquisitions. Provision for Income Taxes. The Company recorded a $9,020 provision for income taxes, which reflects the fact that certain subsidiaries generate taxable income in individual states and localities notwithstanding the Company's consolidated loss for financial reporting purposes. Net loss. Net loss increased to $3.3 million for the six months ended March 31, 1998 from $4.2 million for the comparable prior year period, primarily due to the factors described above. LIQUIDITY AND CAPITAL RESOURCES The Company's primary uses of cash are to fund debt service and maintenance capital expenditures at its existing facilities (such as landscaping and purchasing golf cart fleets). The Company also implements one-time upgrade and renovation capital expenditures at its existing facilities in order to enhance their appeal to customers and members and to generate additional revenues and cash flow. Examples of these expenditures are the addition of courses (including nine hole additions) to existing facilities to increase capacity and clubhouse renovations to support increased dues and fees. These expenditures are generally of a non-recurring nature. In addition, the Company implements strategic capital expenditure programs which enable it to reduce course level operating costs and improve the efficiency of operations, such as improving the irrigation system, acquiring more efficient maintenance equipment and other programs which enhance the marketability and/or reduce the operating expenses of existing facilities. As part of its business strategy, the Company will require cash to continue to acquire, lease or manage additional golf courses and the related facilities and to complete any targeted renovations. The Company expended $19.0 million on acquisition-related costs and $5.8 million on capital improvements during the six months ended March 31, 1998. As of March 31, 1998, the Company had approximately $3.6 million of long-term commitments for one-time capital expenditures with respect to a golf facility which is currently under development. 7 Based upon the current level of operations and anticipated growth, the Company believes that cash flow from operations, together with available borrowings under the Company's credit facility and other sources of liquidity, will be adequate to meet the Company's anticipated future requirements for working capital, capital expenditures and scheduled payments of principal and interest on its indebtedness. There can be no assurance, however, that the Company's business will generate sufficient cash flow from operations or that future working capital borrowings will be available in an amount sufficient to enable the Company to service its indebtedness or make necessary capital expenditures. The Company intends to fund these expenditures primarily with operating cash flow and borrowings under its credit facility. The credit facility provides for borrowings of up to $50.0 million, of which $45.0 million is available to fund future acquisitions of golf courses and capital expenditures at such courses and certain capital improvements at existing courses, and $5.0 million of which is available for general working capital purposes. The total borrowing availability under the $45.0 million portion of the credit facility will decrease over the term of the facility beginning September 30, 1998. The credit facility provides that the Company may not make any acquisitions or upgrade capital expenditures when Funded Debt plus certain projected upgrade capital expenditures is greater than 6.5x of Adjusted EBITDA (each as defined in the credit facility), with certain adjustments for notes receivable, reducing over time. The maximum funded debt to EBITDA Ratio was 5.25x at March 31, 1998. The credit facility also imposes other limitations on the ability of the Company with respect to borrowings. As on March 31, 1998, the Company had $37.1 million outstanding under the credit facility. In addition, as of March 31, 1998, the Company had $0.4 million of cash on hand to meet its working capital and other needs. Historically, the Company has financed its operations through borrowings under bank credit facilities and equity contributions by its stockholders. As of March 31, 1998, the Company's stockholders have invested a total of $47.6 million of equity to fund the expansion of the Company and its golf course portfolio. For the six month period ended March 31, 1998, net cash provided by operating activities was $0.1 million versus a $2.0 million use of cash in the comparable prior year period. The largest non-cash charges for the six month period ended March 31, 1998 were depreciation and amortization and interest on zero-coupon notes. During the six month period ended March 31, 1998, net cash used in investing activities was $24.8 million versus $13.2 million in the prior comparable period. Expenditures for the six months ended March 31, 1998 consisted of $19.0 million in acquisition-related costs and $5.8 million in capital expenditures. During the six month period ended March 31, 1998, net cash provided by financing activities was $21.6 million versus $10.2 million in the prior comparable period. During the six months ended March 31, 1998, the Company borrowed $18.3 million under its acquisition facility and $4.5 under its working capital revolver. During that same period, the Company paid $1.3 million in principal of its bank facility and other obligations. At March 31, 1998, borrowings under the $50 million credit facility totaled $37.1 million. 8 -----END PRIVACY-ENHANCED MESSAGE-----