UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
Commission file numbers 33-89818 and 33-96568
CLUB CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
NEVADA 75-1311242
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 243-6191
Former name, former address and former fiscal year,
if changed since last report: NONE
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.
The number of shares of the Registrant's Common Stock outstanding as of March
31, 1996 was 85,667,032.
<PAGE>
CLUB CORPORATION INTERNATIONAL
Index
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Auditors' Review Report
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows
Condensed Notes to Consolidated Financial Statements
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors
Club Corporation International:
We have reviewed the consolidated balance sheet of Club Corporation
International and subsidiaries (ClubCorp) as of March 31, 1996 and 1995 and
the related consolidated statements of operations, stockholders' equity and
cash flows for the three month periods then ended. These consolidated
financial statements are the responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of ClubCorp as of December 31, 1995,
and the related statements of operations, stockholders' equity and cash flows
for the year then ended (not presented herein); and in our report dated
February 23, 1996, we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet as of December 31, 1995, is fairly
presented, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
Our report dated February 23, 1996 on the consolidated financial statements of
ClubCorp as of and for the year ended December 31, 1995 refers to a change in
its method of accounting for the impairment of long-lived assets and for
long-lived assets to be disposed of.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
May 6, 1996
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
MARCH 31, December 31, March 31,
Assets 1996 1995 1995
------ ----------- -------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 66,509 $ 55,910 $ 61,120
Membership and other receivables, net 55,719 66,402 51,748
Inventories 13,895 12,926 13,201
Other assets 14,851 16,557 15,454
----------- -------------- -----------
Total current assets 150,974 151,795 141,523
Property and equipment, net 658,440 652,441 631,218
Notes receivable - related parties 3,984 11,506 11,984
Other assets 111,659 110,763 101,096
Financial services assets 900,189 917,056 1,161,666
----------- -------------- -----------
$1,825,246 $ 1,843,561 $2,047,487
=========== ============== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 42,271 $ 53,779 $ 41,567
Long-term debt - current portion 102,177 79,652 107,269
Other liabilities 50,383 43,772 46,524
----------- -------------- -----------
Total current liabilities 194,831 177,203 195,360
Long-term debt 218,799 233,809 184,411
Other liabilities 49,786 50,669 56,359
Membership deposits 361,862 362,330 324,290
Financial services liabilities 865,698 877,345 1,110,769
Redemption value of common stock held by benefit plan 36,051 35,414 37,149
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,667,032 outstanding
at March 31, 1996 and December 31, 1995 and
86,123,548 outstanding at March 31, 1995 902 902 902
Additional paid-in capital 10,075 10,075 9,385
Foreign currency translation adjustment (42) (51) (7)
Unrealized gains or losses on investments in debt and
equity securities (17,177) (11,812) (1,222)
Retained earnings 174,255 176,834 195,911
Treasury stock (33,743) (33,743) (28,671)
Redemption value of common stock held by benefit plan (36,051) (35,414) (37,149)
----------- -------------- -----------
Total stockholders' equity 98,219 106,791 139,149
----------- -------------- -----------
$1,825,246 $ 1,843,561 $2,047,487
=========== ============== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
THREE MONTHS ENDED
------------------------
MARCH 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Operating revenues $ 146,843 $ 142,827
Operating costs and expenses 135,511 132,355
Selling, general and administrative expenses 13,973 13,910
----------- -----------
Loss from operations (2,641) (3,438)
Gain on divestitures 4,510 880
Interest and investment income 2,076 1,716
Interest expense (6,836) (6,435)
----------- -----------
Loss from continuing operations before
income tax provision (2,891) (7,277)
Income tax provision (286) (297)
----------- -----------
Loss from continuing operations (3,177) (7,574)
Income from discontinued operations of financial services
segment, net of income taxes 533 383
----------- -----------
Loss before extraordinary item (2,644) (7,191)
Extraordinary item - gain on extinguishment of debt,
net of income taxes 65 -
----------- -----------
Net loss $ (2,579) $ (7,191)
=========== ===========
Earnings per share:
Loss from continuing operations $ (.04) $ (.09)
Discontinued operations .01 .01
Extraordinary item - gain on extinguishment of debt - -
----------- -----------
Net loss $ (.03) $ (.08)
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1996 and 1995
(Dollars in thousands, except share amounts)
(Unaudited)
Common stock (100,000,000 shares
authorized, par value $0.01 per share)
------------------------------------------------------
Foreign
Treasury Additional Currency
Shares Stock Shares Par Paid-in Translation
Issued Shares Outstanding Value Capital Adjustment
---------- ---------- ----------- ------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1994 90,219,408 4,096,353 86,123,055 $ 902 $ 9,383 $ 172
Net loss - - - - - -
Stock issued in connection with bonus plans - (493) 493 - 2 -
Foreign currency translation adjustment - - - - - (179)
Market adjustment - - - - - -
Change in redemption value - - - - - -
---------- ---------- ----------- ------ ----------- -------------
Balances at March 31, 1995 90,219,408 4,095,860 86,123,548 $ 902 $ 9,385 $ (7)
========== ========== =========== ====== =========== =============
Balances at December 31, 1995 90,219,408 4,552,376 85,667,032 $ 902 $ 10,075 $ (51)
NET LOSS - - - - - -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - 9
MARKET ADJUSTMENT - - - - - -
CHANGE IN REDEMPTION VALUE - - - - - -
---------- ---------- ----------- ------ ----------- -------------
BALANCES AT MARCH 31, 1996 90,219,408 4,552,376 85,667,032 $ 902 $ 10,075 $ (42)
========== ========== =========== ====== =========== =============
Unrealized Redemption
Gains or Value of
Losses on Common
Investments in Stock Total
Debt and Retained Treasury Held by Stockholders'
Equity Securities Earnings Stock Benefit Plan Equity
-------------------- ---------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1994 $ (2,766) $ 203,102 $ (28,675) $ (37,112) $ 145,006
Net loss - (7,191) - - (7,191)
Stock issued in connection with bonus plans - - 4 - 6
Foreign currency translation adjustment - - - - (179)
Market adjustment 1,544 - - - 1,544
Change in redemption value - - - (37) (37)
-------------------- ---------- ---------- -------------- ---------------
Balances at March 31, 1995 $ (1,222) $ 195,911 $ (28,671) $ (37,149) $ 139,149
==================== ========== ========== ============== ===============
Balances at December 31, 1995 $ (11,812) $ 176,834 $ (33,743) $ (35,414) $ 106,791
NET LOSS - (2,579) - - (2,579)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - 9
MARKET ADJUSTMENT (5,365) - - - (5,365)
CHANGE IN REDEMPTION VALUE - - - (637) (637)
-------------------- ---------- ---------- -------------- ---------------
BALANCES AT MARCH 31, 1996 $ (17,177) $ 174,255 $ (33,743) $ (36,051) $ 98,219
==================== ========== ========== ============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
THREE MONTHS ENDED
------------------------
MARCH 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operations:
Net loss $ (2,579) $ (7,191)
Adjustments to reconcile net loss to cash flows
provided from operations:
Depreciation and amortization 11,219 9,513
Gain on divestitures (4,510) (880)
Extraordinary item - gain on extinguishment of debt (81) -
Equity in (earnings) losses and write-downs of investments
in partnerships and joint ventures 10 (1,153)
Decrease in land held for sale 1,383 309
Decrease in membership and other receivables, net 11,725 14,122
Decrease in accounts payable and accrued liabilities (10,772) (10,189)
Increase in deferred membership dues 2,834 379
Other 4,418 3,489
Net change in operating assets of discontinued operations 10,340 5,743
----------- -----------
Cash flows provided from operations 23,987 14,142
Cash flows from investing activities:
Additions to property and equipment (11,677) (13,775)
Acquisition of facilities (3,948) -
Other 790 (231)
Investing activities of discontinued operations 22,776 30,772
----------- -----------
Cash flows provided from investing activities 7,941 16,766
Cash flows from financing activities:
Borrowings of long-term debt 11,428 10,646
Repayments of long-term debt (4,636) (5,534)
Increase in membership deposits 5,528 4,831
Financing activities of discontinued operations (11,023) (5,214)
----------- -----------
Cash flows provided from financing activities 1,297 4,729
----------- -----------
Total net cash flows 33,225 35,637
Net cash flows from discontinued operations 22,626 31,684
----------- -----------
Net cash flows from continuing operations $ 10,599 $ 3,953
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
CLUB CORPORATION INTERNATIONAL
Condensed Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CONSOLIDATION
The consolidated financial statements include the accounts of Club Corporation
International (Parent) and its subsidiaries (collectively ClubCorp) except for
certain subsidiaries of Franklin Federal Bancorp, a Federal Savings Bank
(Franklin). In the first quarter of 1996, Franklin's Board of Directors passed
a resolution to solicit offers to sell Franklin. This resolution was
subsequently approved by the Board of Directors of First Federal Financial
Corporation, the parent company of Franklin and a subsidiary of Parent. Thus,
Franklin is classified as a discontinued operation (Note 2) and Franklin's
assets, liabilities, income from operations and cash flow activity are
segregated in the accompanying financial statements. The prior year financial
information has also been restated to reflect the discontinued operation.
INTERIM PRESENTATION
The accompanying consolidated financial statements have been prepared by
ClubCorp and are unaudited. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been omitted from the
accompanying statements. ClubCorp's management believes the disclosures made
are adequate to make the information presented not misleading. However, the
financial statements should be read in conjunction with the financial
statements and notes thereto of ClubCorp for the year ended December 31, 1995
which were a part of ClubCorp's Form 10-K.
In the opinion of ClubCorp management, the accompanying unaudited consolidated
financial statements reflect all adjustments necessary to present fairly the
consolidated financial position of ClubCorp as of March 31, 1996 and March 31,
1995 and the consolidated results of operations and cash flows for the three
months then ended. Interim results are not necessarily indicative of fiscal
year performance because of the impact of seasonal and short-term variations.
FISCAL PERIODS
ClubCorp operates on a calendar year ended December 31; however, the
subsidiaries comprising the hospitality segment are primarily on a 52/53 week
fiscal year and the accounts of those subsidiaries are included for the 12
weeks ended March 20, 1996 and March 22, 1995, respectively. Acquisitions,
divestitures and other material transactions of the hospitality segment during
the period from March 20, 1996 to March 31, 1996 and March 22, 1995 to March
31, 1995 have been recorded in these statements.
EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of shares
outstanding of 85,761,114 and 86,334,705 for the first quarter of 1996 and
1995, respectively.
RECLASSIFICATIONS
Certain amounts previously reported have been reclassified to conform with the
current period presentation.
NOTE 2. DISCONTINUED OPERATIONS
The financial services assets, financial services liabilities and income from
discontinued operations are segregated in the accompanying financial
statements, net of minority interest. The financial impact from any resulting
sale cannot presently be determined. However, ClubCorp does not believe the
sale of Franklin will result in a loss. Accordingly, the accompanying
financial statements do not include any adjustment that might result from the
outcome of this uncertainty. The condensed balance sheet and statement of
operations of the discontinued segment are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Balance Sheet
MARCH 31, December 31, March 31,
1996 1995 1995
---------- ------------- ----------
<S> <C> <C> <C>
Assets
------
Cash and cash
equivalents $ 74,110 $ 51,484 $ 67,965
Mortgage-backed
securities 359,595 379,527 573,582
Loans receivable, net 397,415 406,883 420,786
Other assets 69,069 79,162 99,333
---------- ------------- ----------
$ 900,189 $ 917,056 $1,161,666
========== ============= ==========
Liabilities and
Stockholders' Equity
- - --------------------
Deposits $ 554,392 $ 566,083 $ 677,288
Federal Home Loan
Bank advances 280,400 280,400 398,560
Other liabilities 22,283 20,934 28,446
Stockholders' equity 43,114 49,639 57,372
---------- ------------- ----------
$ 900,189 $ 917,056 $1,161,666
========== ============= ==========
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
THREE MONTHS ENDED
------------------------
MARCH 31, March 31,
1996 1995
----------- -----------
<S> <C> <C>
Net interest income $ 4,590 $ 4,939
Other income 1,006 966
Other expenses 4,778 5,168
Income tax provision (152) (258)
----------- -----------
Net income 666 479
----------- -----------
Minority interest 133 96
----------- -----------
ClubCorp's interest $533 $ 383
=========== ===========
</TABLE>
<PAGE>
CLUB CORPORATION INTERNATIONAL
(Note 2 continued)
ClubCorp's stockholders' equity includes unrealized losses on Franklin's
investment portfolio of $17,961,000, $12,206,000 and $1,222,000 at March 31,
1996, December 31, 1995 and March 31, 1995, respectively. This amount
represents ClubCorp's interest in the unrealized losses of Franklin's
investments in investment securities classified as available for sale.
NOTE 3. ACQUISITIONS
ClubCorp's acquisitions in 1996 and 1995 were accounted for using the purchase
method and, accordingly, the acquired assets and liabilities were recorded
based on their estimated fair values at the dates of acquisition.
The following unaudited proforma financial information assumes the
acquisitions occurred at the beginning of their acquisition year. This
proforma summary does not necessarily reflect the results of operations as
they would have occurred or the results which may occur in the future (dollars
in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1995
-----------
<S> <C>
Operating revenues $ 148,260
===========
Loss before extraordinary item $ (7,650)
===========
Net loss $ (7,650)
===========
Net loss per share $ (.09)
===========
</TABLE>
ClubCorp's 1996 acquisitions occurred within the first week of the year;
therefore, no proforma information is shown for the current year.
NOTE 4. LONG-TERM DEBT
At March 31, 1996 and subsequently, certain subsidiaries were not in
compliance with debt covenants principally relating to financial ratios for
long-term debt totalling $18,910,000. This amount is included in the current
portion of long-term debt in the accompanying balance sheet.
NOTE 5. COMMITMENTS AND CONTINGENCIES
ClubCorp is subject to certain pending or threatened litigation and other
claims. Management, after review and consultation with legal counsel,
believes ClubCorp has meritorious defenses to these matters and that any
potential liability from these matters would not materially affect ClubCorp's
consolidated financial statements.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
The Company has operated in two distinct business segments, hospitality and
financial services. Hospitality operations include owning, operating and
managing country clubs, city clubs, city/athletic clubs, athletic clubs,
resorts, golf clubs, public golf courses and related real estate. Golf clubs
combine services and access to private club members and the public. Country
clubs and public golf courses cater exclusively to private club members and
public fee play, respectively. The Company has committed to a formal plan to
dispose of its financial services segment; therefore, this segment is
presented as a discontinued operation. The following discussion for the
hospitality segment excludes the Company's holding company activities which
include corporate general and administrative expenses, certain investment
income (loss) items, consolidated provision for income taxes and stockholders'
equity transactions.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth operating revenues by product line and by type
and certain operating expenses and certain other income and expense items
(excluding holding company income and expense items) for the periods indicated
with percentage change based on comparisons between periods (dollars in
millions):
<TABLE>
<CAPTION>
Percentage change from
comparable prior period
12 weeks ended
March 20, March 22, March 20, 1996 vs.
1996 1995 March 22, 1995
----------- ----------- -------------------
<S> <C> <C> <C> <C>
Operating revenues by product line:
Private clubs $ 110.1 $ 109.3 0.7 %
Golf clubs 3.5 3.0 16.7
Public golf 4.1 4.0 2.5
Resorts 23.9 24.4 (2.0)
Realty 3.8 0.5 660.0
Corporate services and eliminations 1.4 1.6 (12.5)
----------- ----------- -------------------
Total operating revenues $ 146.8 $ 142.8 2.8 %
=========== =========== ===================
Operating revenues by type:
Membership dues and fees $ 58.3 $ 56.8 2.6 %
Food and beverage 44.9 47.1 (4.7)
Golf and other recreation 27.3 24.1 13.3
Lodging 6.1 6.2 (1.6)
Other (1) 10.2 8.6 18.6
----------- ----------- -------------------
Total operating revenues $ 146.8 $ 142.8 2.8 %
=========== =========== ===================
Costs and expenses and general administrative expenses:
Direct operating costs $ 98.5 $ 97.3 1.2 %
Facility rentals, operation and maintenance 25.8 25.5 1.2
Selling, general and administrative 13.5 13.4 0.7
Depreciation and amortization 11.2 9.5 17.9
----------- ----------- -------------------
Total costs and expenses 149.0 145.7 2.3
Loss from continuing operations (2.2) (2.9) 24.1
Interest expense, net (5.2) (4.6) (13.0)
Other - (0.1) *
Gain on divestitures 4.5 0.9 *
----------- ----------- -------------------
Loss from continuing operations before
income tax provision $ (2.9) $ (6.7) 56.7 %
=========== =========== ===================
</TABLE>
- - -------------------------------
<TABLE>
<CAPTION>
<C> <S>
(1) Includes primarily management fees, corporate services revenues to third parties, resort telephone, transportation and
audio-visual revenues, club special events income, equity in earnings of primarily real estate joint ventures, real estate
sales and rental income.
* Percentages not meaningful.
</TABLE>
<PAGE>
12 WEEKS ENDED MARCH 20, 1996 COMPARED TO 12 WEEKS ENDED MARCH 22, 1995
Operating revenues increased 2.8% to $146.8 million for the twelve weeks ended
March 20, 1996 from $142.8 million for the twelve weeks ended March 22, 1995,
primarily due to 1996 and 1995 acquisitions and developing properties.
Operating revenues of mature properties (i.e., those for which a comparable
period of activity exists, generally those owned for at least eighteen months
to two years) were $126.6 million for both the twelve weeks ended March 22,
1995 and March 20, 1996.
Operating revenues from mature private club properties remained static at
$100.6 million in 1996 from $101.0 million due to adverse membership trends in
1995 and 1994 resulting principally from limitations on the deductibility of
dues and business meals and entertainment expenses included in 1993 tax
legislation. Mature private club membership dues remained constant at $51.0
million for the twelve weeks ended March 20, 1996 compared to $50.8 million in
1995. Usage revenues for mature private club properties (i.e., food and
beverage, golf, lodging, and other recreation) remained static at $48.7
million in 1996 compared to $49.0 million in 1995. Golf and other recreation
revenues increased due to 1995 and 1996 acquisitions and developing properties
while food and beverage revenues decreased because of 1995 and 1996
divestitures of city and city/athletic mature private clubs and due to reduced
non-member catering and banquets.
<PAGE>
Operating revenues from golf clubs grew 16.7% from $3.0 million to $3.5
million resulting primarily from acquisitions in 1996 and 1995. Mature golf
clubs operating revenues increased to $3.2 million from $3.0 million for the
twelve weeks ended March 22, 1995 or 6.7%, reflecting an increase of 8.4% in
rounds played slightly offset by a decrease of 0.5% in revenue per round.
Resort operating revenues decreased 2.0% from $24.4 million to $23.9 million
in 1996. Operating revenues from mature owned resorts decreased from $19.1
million in 1995 to $18.9 million in 1996, a decrease of only 1.0%, reflecting
an increase of 6.0% in the average daily revenue per available room combined
with a decrease of 3.4% in the average daily room rate per occupied room.
Other operating revenues increased 18.6% from $8.6 million for the twelve
weeks ended March 22, 1995 to $10.2 million in 1996, due to a $1.8 million
increase in sales of land held for resale in Aspen, Colorado for the twelve
weeks ended March 20, 1996.
Depreciation and amortization expense increased 17.9%, to $11.2 million for
the twelve weeks ended March 20, 1996 from $9.5 million for the twelve weeks
ended March 22, 1995. The increase relates mainly to acquisitions in 1996 and
1995 and developing properties. Depreciation and amortization at mature
facilities increased from $8.3 million in 1995 to $9.1 million for the twelve
weeks ended March 20, 1996, a 9.6% increase.
Interest expense, net increased 13.0% to $5.2 million in 1996 from $4.6
million in 1995, reflecting higher leveraged acquisition activity. Interest
expense related to properties added in 1996 and 1995, net of properties
divested, was $0.5 million. Mature properties' interest expense increased
from $4.2 million to $4.5 million, a 7.1% increase.
Gain on divestitures for the twelve weeks ended March 20, 1996 and March 22,
1995 primarily represents gains of $4.5 and $0.9 million, respectively, from
the divestiture of two city clubs and one city/athletic club in 1996 and one
athletic club in 1995, which management determined were unable to provide a
positive contribution to profitability. Gain on divestitures fluctuates from
period to period depending on the nature of assets and liabilities on the
separate subsidiary's balance sheet prior to divestiture.
<PAGE>
SEASONALITY
The Consolidated Financial Statements of the Company are presented on a
calendar year basis. The subsidiaries of the hospitality group operate
primarily on a 52/53 week fiscal year. The first three quarters consist of 12
weeks each and the fourth quarter includes 16 weeks. The timing of fiscal
quarter ends, seasonal weather conditions and other short-term variations
cause financial performance to vary by quarter. The Company has historically
generated the majority of its operating revenue in the second, third and
fourth quarters of each year. Acquisitions, divestitures and other material
transactions of the hospitality segment occurring between fiscal quarter end
and calendar quarter end are included in the Company's Consolidated Financial
Statements. The timing of new operating properties purchases, joint venture
arrangements, or leases and investment gains and losses also cause the
Company's results of operations to vary significantly from quarter to quarter.
INFLATION
The Company has not experienced a significant overall impact from inflation.
As operating expenses increase, the Company, to the extent the value of
services rendered to members is not adversely impacted, recovers increased
costs by increasing prices.
LIQUIDITY AND CAPITAL RESOURCES
The Company has financed its operations and capital expenditures primarily
through cash flows from operations, membership deposits and long-term debt.
Most capital expenditures other than capital replacements are considered
discretionary and could be curtailed in periods of low liquidity. Capital
replacements are planned expenditures made each year to maintain high quality
standards of facilities for the purpose of meeting existing members'
expectations and to attract new members. Capital replacements have ranged from
4.4% to 6.1% of operating revenues during the last three years. The Company
distinguishes capital expenditures made to refurbish and replace existing
property and equipment (i.e., capital replacements) from other discretionary
capital expenditures such as the expansion of existing facilities (i.e.,
capital expansions) and acquisition or development of new facilities.
Long-term debt is generally incurred on a property specific basis and is
non-recourse to any corporations other than the subsidiary incurring the debt.
Membership deposits represent non-interest-bearing advance initiation deposits
paid by members when they join a club and are generally due and payable 30
years from the date of acceptance. Management does not consider maturities of
membership deposits over the next five years to be material. Due to the
utilization of long-term operating leases and membership deposits, the
hospitality segment's leverage ratio (i.e., long-term debt to total capital)
has been maintained at manageable levels which allow for adequate capability
to finance future growth with long-term debt.
<PAGE>
The Company relies on its low leverage position and maintenance of positive
relationships with existing and potential lenders to arrange financing as
needed for general corporate purposes or for specific projects. Consequently,
the Company maintained no committed lines of credit at March 31, 1996. At
March 31, 1996, certain hospitality subsidiaries of the Company were not in
compliance with outstanding loan agreements relating to long-term debt
totaling $18.9 million. Such noncompliance relates primarily to financial
ratio covenants and not to payments due under the terms of such agreements.
The provisions of certain subsidiary lending and other agreements limit the
amount of dividends that may be paid to the parent. At March 31, 1996, cash
balances of $11.0 million were not available for dividends by subsidiaries due
to those restrictions.
At March 31, 1996, the Company's subsidiaries maintained $17.4 million of
unused letters of credit primarily to guarantee payment of potential insurance
claims paid under workers' compensation and general liability programs and to
guarantee the payment of development costs of residential lots for resale in
Aspen, Colorado. Commitments to fund future capital expenditures were not
material as of March 31, 1996.
All of the assets of the ClubCorp Stock Investment Plan (Plan) are invested in
shares of ClubCorp's common stock, $.01 par value per share (Common Stock),
except for temporary investments of cash pending investment in Common Stock.
All distributions from the Plan are made in cash. As a means of providing
liquidity to the trustees of the Plan to meet their fiduciary obligations to
distribute cash to participants requesting withdrawals, ClubCorp has provided
the trustees the right (Redemption Right) to cause the Company to redeem
Common Stock, held in trust on behalf of the Plan, at the most recent
appraised price as necessary to meet certain requirements. Withdrawals by
participants and terminations by and/or resignations from the Company of
participants in excess of anticipated levels could give rise to the exercise
of withdrawal rights in substantial amounts and place significant demands on
the liquidity of the Company. In such an event, the resources available to
meet business expansion or other working capital needs could be adversely
affected. As of March 31, 1996, the value of the Redemption Right was $36.1
million. The most recent appraised price of the Common Stock is $10.19 for the
first quarter of 1996. The aggregate market value of the Common Stock at March
31, 1996 is $872.9 million. The Company does not believe that the Redemption
Right will be exercised to any material extent by the Plan to meet any of its
fiduciary obligations.
<PAGE>
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Several legislative proposals have been introduced in Congress that could, if
approved and enacted into law, increase the Company's direct operating costs.
The first proposal introduced in Congress would increase the minimum wage
above the current level of $4.50 per hour. A second legislative proposal in
Congress could impact the eligibility waiting period and/or pre-existing
condition requirements for health insurance coverage. The likelihood of
passage into federal law or the financial impact of these proposals, if
passed, is uncertain.
Over the last three years, attrition rates among members of the Company's
mature clubs have ranged from approximately 17.9% to 22.4%. In certain areas,
the Company has experienced decreased levels of usage of its private clubs,
golf clubs, and public golf facilities. Membership enrollment at mature clubs
for the twelve weeks ended March 20, 1996 was 18.0%, which is higher than
attrition rates of 17.9% during the same period. During 1993, President
Clinton signed into law certain amendments to the Internal Revenue Code that
have had an adverse effect on the Company's hospitality business. During the
last three years the net enrollment rate for mature clubs has decreased from
1.4% to (3.7%). In response to these adverse trends in 1994 and 1995, the
Company continues to focus its efforts on membership and quality service as
its top priority for 1996. For the twelve weeks ended March 20, 1996, the net
enrollment rate increased to 0.1%. While management believes that many of its
members maintain membership at the Company's clubs for their recreational and
entertainment enjoyment, many other club members use the Company's clubs for
business purposes and have deducted membership dues and certain club expenses
for income tax purposes. For these members, the tax code changes had the
effect of increasing the cost of club related expenditures. For the last
several years, the Company has focused on efforts to retain existing members,
attract new members and increase club usage through various programs and
membership activities, including increasing member participation by
implementing member survey suggestions and increasing the involvement of
member boards of governors in planning day-to-day activities. It is uncertain
how trends in membership and club usage will develop in the future, or whether
any of the Company's efforts in this area will be successful.
As of May 9, 1996, the Company was negotiating the acquisition of, or had
reached preliminary agreements to acquire, three properties and to build five
properties. The Company is considering several ownership structures for the
properties to be built including lease arrangements, sole ownership, and
partial ownership (including joint venture interests). The consummation of the
acquisition and construction of these properties is expected to require
approximately $39.0 to $42.0 million in capital expenditures, to be funded
primarily with external bridge financing of Club Corporation of America (CCA).
The bridge financing arrangement is a "guidance line", styled as a promissory
note, with a bank and is due on a short-term basis up to a maximum of $75.0
million. Borrowings are generally renewed as they become due; therefore, CCA
does not expect to be required to repay the outstanding borrowings within the
next twelve months. As of March 31, 1996 and May 1, 1996, $57.6 million was
outstanding under this financing arrangement. Due to its short-term nature,
the amount outstanding, excluding letters of credit and loan guarantees, at
March 31, 1996 is considered current for financial reporting purposes.
Additional credit arrangements could be made if considered necessary. The
eventual outcome of the acquisition negotiations cannot be accurately
predicted at this time.
<PAGE>
The Company has acquired 52 properties since January 1, 1991 through purchase,
lease agreement or joint venture arrangements. Actual returns from these
properties have been significantly less than projected returns. The success of
each property depends on different factors; however, some of the more common
factors include a high dependency on real estate sales for new membership
growth, slower progress than anticipated in repositioning properties, slower
than anticipated turnarounds of prior operating deficits, and extended periods
of time to reach economies of scale. Additional purchase consideration was
paid for premier properties, strategically positioned properties, and
properties in markets with significant barriers to entry reflecting both the
tangible and intangible value of the property. The Company has also
experienced greater than expected development costs at three properties built
and opened since January 1, 1991. Under-performing and cash flow deficit
properties recently acquired are being carefully analyzed by executive
management to determine an optimum business plan allowing for the highest
possible return to the Company. The Company continually seeks to improve
financial performance of existing facilities and divest properties when
management determines that properties will be unable to provide a positive
contribution to profitability. The Company is currently evaluating several of
its properties for ownership and/or financial restructure or divestiture which
could, depending on the outcome of restructure or divestiture negotiations,
limit its short-term ability to grow revenues and cash flows at historical
levels. Executive management believes that its focus on, and investment in,
training and development at the property manager level could improve
performance in the future. Recently, executive management began developing a
risk and reward-based screening model to evaluate specific risk and reward
factors against projected yields for all proposed acquisitions and certain
other significant capital investments of the Company. In addition, the Company
has implemented a "team approach" to acquisitions including all facets of
operations, development, and regional support teams to allow for a smooth
transition of ownership.
<PAGE>
DISCONTINUED OPERATIONS--GENERAL
During the period from December 31, 1995 to March 31, 1996, the fair value of
Franklin's financial instruments decreased by $8.5 million. The primary
reasons for this decrease were a rise in interest rates during the first
quarter of 1996 and a decrease in the speed of prepayment assumptions on
mortgage related securities.
RESULTS OF DISCONTINUED OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996 COMPARED TO THREE MONTHS ENDED MARCH 31,
1995
INTEREST INCOME
Total interest income amounted to $16.1 million for the three months ended
March 31, 1996, a $3.5 million or 17.9% decline from the comparable period in
1995. While the yield on all earning assets increased from 7.1% for the three
months ended March 31, 1995 to 7.4% for the same period in 1996, the average
outstanding balances of earnings assets decreased $236.9 million or 21.3% from
$1,110.5 million for the first three months of 1995 to $873.6 million for the
comparable period in 1996. The decline in average balance is primarily
attributable to the $214.0 million decrease in mortgage-backed securities as a
result of principal maturities and sales and a $60.0 million decrease in
covered assets as a result of termination of the Assistance Agreement in the
fourth quarter of 1995. The increase in yield for the period was due
generally to higher interest rates on adjustable rate assets, and to the sale
of lower-yielding fixed rate mortgage-backed securities in the fourth quarter
of 1995 and the disposition of lower-yielding covered assets in the third and
fourth quarters of 1995.
INTEREST EXPENSE
Total interest expense amounted to $11.5 million for the three months ended
March 31, 1996, a $2.8 million or 19.6% decline from the comparable period in
1995. While the cost of all interest-bearing liabilities increased from 5.6%
for the three months ended March 31, 1995 to 5.8% for the same period in 1996,
the average outstanding balances of interest-bearing liabilities decreased
$231.9 million or 22.5% from $1,029.0 million for the first three months of
1995 to $797.1 million for the comparable period in 1996. The decline in
average balance is primarily attributable to the sale of three branches with
$120.2 million in deposits in the second quarter of 1995 and the early
retirement of $98.0 million in Federal Home Loan Bank (FHLB) advances in the
fourth quarter of 1995. The 20 basis point increase in the cost of
interest-bearing liabilities is attributable largely to the replacement of
$75.0 million of short-term Federal Home Loan Bank borrowings with a 10-year
prepayable Federal Home Loan Bank advance as a hedge against interest rate
risk.
<PAGE>
PROVISION FOR LOAN LOSSES
There were no provisions for loan losses made in the first three months ended
March 31, 1996, while $0.4 million was provided for in the comparable period
in 1995. The improvement is attributable to lower levels of adversely graded
loans.
NON-INTEREST INCOME
Non-interest income amounted to $1.0 million for the three months ended March
31, 1996, an increase of $41,000 or 3.9% from the comparable period in 1995.
This increase is primarily attributable to slightly higher loan fee income,
deposit fee income and loan sale gains.
NON-INTEREST EXPENSE
Non-interest expense amounted to $4.8 million for the three months ended March
31, 1996, a decrease of $0.4 million or 7.7% from the comparable period in
1995. This decrease is primarily attributable to a reduction of personnel
(compensation and benefits) and Savings Association Insurance Fund (SAIF)
insurance expense.
CAPITAL RESOURCES AND LIQUIDITY
On September 29, 1995, Franklin was advised by the Office of Thrift
Supervision (OTS) that it had been deemed "well capitalized" under existing
regulations and its capital plan was terminated.
Franklin's assets have declined from $917.1 million at December 31, 1995 to
$900.2 million at March 31, 1996. The recent decline in assets is the result
of maturity proceeds received on loans and mortgage-backed securities and the
disposition of receivables from the Federal Savings and Loan Insurance
Corporation Resolution Fund (FSLIC/RF). Franklin's regulatory capital at
March 31, 1996 exceeded all three regulatory capital requirements. Tangible
and core capital ratios were 6.8% and 6.8% respectively, compared to
respective requirements of 1.5% and 4.0% and its total regulatory capital to
risk-adjusted assets ratio was 14.5% compared to the requirement of 8.0%.
Although Franklin meets all regulatory capital requirements at March 31, 1996,
such compliance was achieved primarily through asset reduction rather than
through the retention of earnings. The possibility of future increases in the
general level of interest rates will likely further reduce capital levels
which would require additional asset shrinkage and possible capital funding.
Franklin is required by the OTS to maintain average daily balances of liquid
assets and short-term liquid assets (as defined) in amounts equal to 5.0% and
1.0% respectively, of net withdrawable deposits and borrowings payable in one
year or less to assure its ability to meet demand for withdrawals and
repayment of short-term borrowings. The liquidity requirements may vary from
time to time at the direction of the OTS depending upon economic conditions
and deposit flows. Franklin generally maintains a liquidity ratio of between
5.0% and 6.0%. Franklin's average monthly liquidity ratio for the month ended
March 31, 1996 was 11.0%.
<PAGE>
Franklin's primary sources of funds consist of savings deposits bearing market
rates of interest, FHLB advances, and principal payments on mortgage-backed
securities. Franklin uses its funding sources principally to meet its ongoing
commitments to fund maturing deposits and deposit withdrawals, repay FHLB
advances, fund existing and continuing loan commitments, maintain its
liquidity and meet operating expenses. At March 31, 1996, Franklin had
binding commitments to originate or purchase loans totaling $27.0 million and
had $15.0 million of undisbursed loans in process. Scheduled maturities of
certificates of deposit during the twelve months following March 31, 1996
total $182.1 million. Management believes that Franklin has adequate
resources to fund all its commitments.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Franklin entered into a supervisory agreement with the OTS on July 5, 1995
requiring the reduction of interest rate risk to acceptable levels by December
31, 1997 and the implicit maintenance of higher levels of capital. Club
Corporation International's executive management also provided the OTS with a
Board of Directors resolution reflecting their intention to keep Franklin
properly capitalized. The OTS rescinded the supervisory agreement with
Franklin on April 5, 1996.
Although steps were taken during the second quarter of 1995 to reduce
Franklin's levels of interest rate risk, the possibility remains that actual
or threatened increases in rates will necessitate additional steps to reduce
interest rate risk. Such measures will entail costs which could erode
earnings and/or capital.
The SAIF, the federal deposit insurance fund which insures Franklin's
deposits, needs to achieve an improved level of capitalization. The Federal
Deposit Insurance Corporation (FDIC) has proposed a one-time assessment on all
SAIF-insured deposits of approximately 85 cents per $100 of domestic deposits,
held as of March 31, 1995. This one-time assessment is intended to
recapitalize the SAIF to the required level of 1.25% of insured deposits, and
could be payable in mid-1996. If the assessment is made at the proposed rate,
the effect on Franklin would be a pre-tax charge of approximately $5.8
million. Although it is likely that some action to recapitalize the SAIF will
be taken and that it will adversely impact Franklin's capital/earnings, it is
not possible to estimate the timing, extent, or manner of implementation of
such action.
<PAGE>
In the first quarter of 1996, Franklin's Board of Directors passed a
resolution to solicit offers to sell the financial services segment. First
Federal Financial Corporation's Board of Directors subsequently approved this
resolution. Management believes Franklin will be sold within the year. The
financial impact from any resulting sale cannot presently be determined;
however, management does not believe the sale of Franklin will result in a
loss.
Franklin is party to financial instruments with off-balance sheet risk and
risk of credit loss in the normal course of business primarily in the form of
commitments to extend additional credit of approximately $102.0 million.
These credit risks are controlled through credit approvals, limits, collateral
requirements and various monitoring procedures.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 5 to Condensed Notes to Consolidated Financial Statements.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Refer to Note 4 to Condensed Notes to Consolidated Financial Statements.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3.1 - Amendment to Bylaws of Club Corporation International
15.1 - Letter from KPMG Peat Marwick LLP regarding unaudited
interim financial statements.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the
quarterly period ended March 31, 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
<S> <C> <C>
CLUB CORPORATION INTERNATIONAL
Date : May 10, 1996 By: /s/ John H. Gray
-------------------------------
John H. Gray
Executive Vice President and
Chief Administrative Officer
(chief accounting officer)
</TABLE>
<PAGE>
EXHIBIT 3.1
STATEMENT OF UNANIMOUS CONSENT
(IN LIEU OF A SPECIAL MEETING OF THE DIRECTORS)
OF
CLUB CORPORATION INTERNATIONAL
We, the undersigned, being all of the Directors of Club Corporation
International, a corporation organized and existing under the laws of the
State of Nevada (hereinafter called the "Corporation"), do hereby consent and
declare that when we, as all of the members of the Board of Directors, shall
have signed this Statement of Unanimous Consent, or an exact counterpart
hereof, the following resolution shall be deemed to be adopted to the same
extent and to have the same force and effect as if adopted at a regular or
special meeting of the Directors of the Corporation for the purpose of acting
on the proposal to adopt such resolution:
RESOLUTION: AUTHORIZATION TO AMEND BYLAWS
WHEREAS, Section 2.6 of Article 2 of the Bylaws of the Corporation provides
that the annual meeting of the shareholders shall be on the first Monday in
April of each year; and
WHEREAS, Article 7 of the Bylaws of the Corporation provides that the Bylaws
may be amended by the Directors of the Corporation; and
WHEREAS, the undersigned deem it to be in the best interest of the Corporation
to amend the Bylaws so that the annual meeting date of the shareholders shall
be the second Tuesday in May of each year.
NOW, THEREFORE, BE IT RESOLVED, that Section 2.6 of Article 2 of the Bylaws of
the Corporation is hereby amended to read as follows:
"Section 2.6. Stockholder Meetings. Time and Place.
The annual meeting shall be held at the principal office of the corporation in
the state of Texas or at such other place within or without the state of Texas
as may be determined by the Board of Directors and designated in notice of
such meeting. The meeting shall be held on the second Tuesday in May of each
year, or at any other date and at the time fixed, from time to time, by the
directors. A special meeting shall be held on the date and at the time fixed
by the directors.
<PAGE>
IN WITNESS WHEREOF, we, the undersigned, being all of the Directors of the
Corporation, do hereby adopt this Statement of Unanimous Consent in lieu of a
special meeting of the Directors on February 20, 1996.
/s/ Nancy M. Dedman
Nancy M. Dedman
Director
/s/ Robert H. Dedman
Robert H. Dedman
Director
/s/ Robert H. Dedman, Jr.
Robert H. Dedman, Jr.
Director
/s/ Patricia Dedman-Dietz
Patricia Dedman-Dietz
Director
/s/ Jerry W. Dickenson
Jerry W. Dickenson
Director
/s/ Mark Dietz
Mark Dietz
Director
/s/ John H. Gray
John H. Gray
Director
/s/ James M. Hinckley
James M. Hinckley
Director
/s/ Robert H. Johnson
Robert H. Johnson
Director
/s/ James E. Maser
James E. Maser
Vice-Chairman of the Board
/s/ Richard S. Poole
Richard S. Poole
Director
/s/ James P. McCoy, Jr.
James P. McCoy, Jr.
Director
/s/ Terry A. Taylor
Terry A. Taylor
Director
/s/ Randy L. Williams
Randy L. Williams
Director
<PAGE>
EXHIBIT 15.1
Club Corporation International
Dallas, Texas
Ladies and Gentlemen:
Re: Registration Statement Nos. 33-89818 and 33-96568
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated May 6, 1996 related to our
review of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933, such report is not
considered part of a registration statement prepared or certified by an
accountant or a report prepared or certified by an accountant within the
meaning of sections 7 and 11 of the Act.
/s/ KPMG Peat Marwick LLP
Dallas, Texas
May 10, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> MAR-31-1996 MAR-31-1995
<CASH> 66,509 61,120
<SECURITIES> 767 3,549
<RECEIVABLES> 64,764 69,372
<ALLOWANCES> 3,691 2,389
<INVENTORY> 13,895 13,201
<CURRENT-ASSETS> 150,974 141,523
<PP&E> 912,342 867,304
<DEPRECIATION> 253,902 236,086
<TOTAL-ASSETS> 1,825,246 2,047,487
<CURRENT-LIABILITIES> 194,831 195,360
<BONDS> 0 0
0 0
0 0
<COMMON> 902 902
<OTHER-SE> 97,317 138,247
<TOTAL-LIABILITY-AND-EQUITY> 1,825,246 2,047,487
<SALES> 44,922 47,109
<TOTAL-REVENUES> 146,843 142,827
<CGS> 42,689 44,152
<TOTAL-COSTS> 149,484 146,265
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 605 667
<INTEREST-EXPENSE> 6,836 6,435
<INCOME-PRETAX> (2,891) (7,277)
<INCOME-TAX> 286 297
<INCOME-CONTINUING> (3,177) (7,574)
<DISCONTINUED> 533 383
<EXTRAORDINARY> 65 0
<CHANGES> 0 0
<NET-INCOME> (2,579) (7,191)
<EPS-PRIMARY> (0.03) (0.08)
<EPS-DILUTED> (0.03) (0.08)
</TABLE>
