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 September 30, 1996
Commission file numbers 33-89818, 33-96568 and 333-08041
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: (972) 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
September 30, 1996 was 85,476,674.
<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 September 30, 1996 and 1995
and the related consolidated statements of operations for the three months and
nine months ended September 30, 1996 and 1995 and stockholders' equity and
cash flows for the nine months ended September 30, 1996 and 1995. 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.
KPMG Peat Marwick LLP
Dallas, Texas
November 6, 1996
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
SEPTEMBER 30, December 31, September 30,
Assets 1996 1995 1995
------ --------------- -------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 68,234 $ 55,910 $ 58,611
Membership and other receivables, net 66,194 66,402 65,819
Inventories 13,908 12,926 13,395
Other assets 15,931 16,557 16,660
--------------- -------------- ---------------
Total current assets 164,267 151,795 154,485
Property and equipment, net 692,431 652,441 675,558
Notes receivable - related parties 3,520 11,506 11,540
Other assets 106,317 110,763 110,185
Financial services assets 590,567 917,056 1,082,380
--------------- -------------- ---------------
$ 1,557,102 $ 1,843,561 $ 2,034,148
=============== ============== ===============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 45,825 $ 53,779 $ 51,938
Long-term debt - current portion 112,200 79,652 89,544
Other liabilities 49,063 43,772 56,389
--------------- -------------- ---------------
Total current liabilities 207,088 177,203 197,871
Long-term debt 235,914 233,809 222,642
Other liabilities 43,855 50,669 56,578
Membership deposits 372,701 362,330 354,458
Financial services liabilities 552,024 877,345 1,028,574
Redemption value of common stock held by benefit plan 39,930 35,414 36,879
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,476,674,
85,667,032 and 85,951,647 outstanding at September 30, 1996,
December 31, 1995 and September 30, 1995, respectively 902 902 902
Additional paid-in capital 10,380 10,075 10,061
Foreign currency translation adjustment (9) (51) (39)
Unrealized gains or losses on investments in debt and
equity securities (143) (11,812) 1,453
Retained earnings 170,519 176,834 192,632
Treasury stock (36,129) (33,743) (30,984)
Redemption value of common stock held by benefit plan (39,930) (35,414) (36,879)
--------------- -------------- ---------------
Total stockholders' equity 105,590 106,791 137,146
--------------- -------------- ---------------
$ 1,557,102 $ 1,843,561 $ 2,034,148
=============== ============== ===============
</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 NINE MONTHS ENDED
------------------------------- --------------------------------
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Operating revenues $ 176,453 $ 170,115 $ 509,469 $ 499,661
Operating costs and expenses 155,174 157,158 447,870 450,062
Selling, general and administrative expenses 14,495 16,394 43,768 44,709
--------------- --------------- --------------- ---------------
Income (loss) from operations 6,784 (3,437) 17,831 4,890
Gain (loss) on divestitures 565 (195) 3,922 513
Interest and investment income 3,750 1,607 9,011 5,791
Interest expense (6,874) (6,455) (20,058) (18,495)
Other income (expense) (2,809) 188 (3,157) 5
--------------- --------------- --------------- ---------------
Income (loss) from continuing operations before
income taxes and minority interest 1,416 (8,292) 7,549 (7,296)
Income tax (provision) benefit 23 (4,789) (729) (4,887)
Minority interest - 263 98 (891)
--------------- --------------- --------------- ---------------
Income (loss) from continuing operations 1,439 (12,818) 6,918 (13,074)
Discontinued operations:
Income (loss) from operations of discontinued financial
services segment, net of income taxes of $738 and $(168)
for the three months ended, and $723 and $(1,752) for
the nine months ended September 30, 1996 and 1995 (1,681) 226 (137) 2,604
Income (loss) on disposal of financial services segment,
net of income taxes of $(196) for the three months
ended and $8,435 for the nine months ended
September 30, 1996 306 - (13,096) -
--------------- --------------- --------------- ---------------
(1,375) 226 (13,233) 2,604
--------------- --------------- --------------- ---------------
Net income (loss) $ 64 $ (12,592) $ (6,315) $ (10,470)
=============== =============== =============== ===============
Earnings per share:
Income (loss) from continuing operations $ .02 $ (.15) $ .08 $ (.15)
Discontinued operations (.02) - (.15) .03
--------------- --------------- --------------- ---------------
Net loss $ - $ (.15) $ (.07) $ (.12)
=============== =============== =============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 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 - - - - - -
Purchase of treasury stock - 364,248 (364,248) - - -
Reissuance of treasury stock - (25,399) 25,399 - 72 -
Stock issued in connection with bonus plans - (167,441) 167,441 - 606 -
Foreign currency translation adjustment - - - - - (211)
Market adjustment - - - - - -
Change in redemption value - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at September 30, 1995 90,219,408 4,267,761 85,951,647 $ 902 $ 10,061 $ (39)
========== ========== ============ ====== =========== =============
Balances at December 31, 1995 90,219,408 4,552,376 85,667,032 $ 902 $ 10,075 $ (51)
NET LOSS - - - - - -
PURCHASE OF TREASURY STOCK - 325,053 (325,053) - - -
REISSUANCE OF TREASURY STOCK - (24,258) 24,258 - 71 -
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - (110,437) 110,437 - 234 -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - 42
MARKET ADJUSTMENT - - - - - -
CHANGE IN REDEMPTION VALUE - - - - - -
---------- ---------- ------------ ------ ----------- -------------
BALANCES AT SEPTEMBER 30, 1996 90,219,408 4,742,734 85,476,674 $ 902 $ 10,380 $ (9)
========== ========== ============ ====== =========== =============
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 - (10,470) - - (10,470)
Purchase of treasury stock - - (3,691) - (3,691)
Reissuance of treasury stock - - 184 - 256
Stock issued in connection with bonus plans - - 1,198 - 1,804
Foreign currency translation adjustment - - - - (211)
Market adjustment 4,219 - - - 4,219
Change in redemption value - - - 233 233
------------------- ---------- ---------- -------------- ---------------
Balances at September 30, 1995 $ 1,453 $ 192,632 $ (30,984) $ (36,879) $ 137,146
=================== ========== ========== ============== ===============
Balances at December 31, 1995 $ (11,812) $ 176,834 $ (33,743) $ (35,414) $ 106,791
NET LOSS - (6,315) - - (6,315)
PURCHASE OF TREASURY STOCK - - (3,385) - (3,385)
REISSUANCE OF TREASURY STOCK - - 183 - 254
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - - 816 - 1,050
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - 42
MARKET ADJUSTMENT 11,669 - - - 11,669
CHANGE IN REDEMPTION VALUE - - - (4,516) (4,516)
------------------- ---------- ---------- -------------- ---------------
BALANCES AT SEPTEMBER 30, 1996 $ (143) $ 170,519 $ (36,129) $ (39,930) $ 105,590
=================== ========== ========== ============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, September 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Cash flows from operations:
Net loss $ (6,315) $ (10,470)
Adjustments to reconcile net loss
to cash flows provided from operations:
Depreciation and amortization 33,611 32,986
Gain on divestitures (3,922) (513)
Minority interest in net earnings (losses) of subsidiary (98) 891
Equity in earnings from investments in partnerships and joint ventures (581) (2,446)
Decrease in real estate held for sale 8,029 12,839
Decrease in membership and other receivables, net 150 913
Net change in accounts payable and accrued liabilities (1,797) 1,764
Net change in deferred membership dues 1,322 (2,982)
Other 1,740 4,646
Net change in operating assets of discontinued operations 13,326 4,517
--------------- ---------------
Cash flows provided from operations 45,465 42,145
Cash flows from investing activities:
Additions to property and equipment (32,276) (47,167)
Development of new facilities (2,556) (5,411)
Development of real estate ventures (11,893) (6,893)
Acquisition of facilities (38,303) (20,529)
Sales of investment securities 4,714 6,279
Maturities of investment securities 3,170 2,895
Purchase of investment securities (2,825) (2,997)
Other 1,561 869
Investing activities of discontinued operations 298,719 82,418
--------------- ---------------
Cash flows provided from investing activities 220,311 9,464
Cash flows from financing activities:
Borrowings of long-term debt 54,806 65,798
Repayments of long-term debt (23,548) (43,140)
Increase in membership deposits 17,233 20,151
Treasury stock transactions, net (3,131) (3,435)
Financing activities of discontinued operations (327,378) (84,288)
--------------- ---------------
Cash flows used by financing activities (282,018) (44,914)
--------------- ---------------
Total net cash flows (16,242) 6,695
Net cash flows from discontinued operations (28,566) 5,251
--------------- ---------------
Net cash flows from continuing operations $ 12,324 $ 1,444
=============== ===============
</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. On
August 7, 1996, Franklin entered into an agreement to sell certain assets and
transfer certain liabilities of Franklin. Thus, Franklin is classified as a
discontinued operation (Note 2) and Franklin's assets, liabilities, income
(loss) 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 September 30, 1996 and 1995
and the consolidated results of operations and cash flows for the interim
periods 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 and 36 weeks ended September 4, 1996 and September 6, 1995,
respectively. Acquisitions, divestitures and other material transactions of
the hospitality segment during the period from September 4, 1996 to September
30, 1996 and September 6, 1995 to September 30, 1995 have been recorded in
these statements.
Earnings per share
- --------------------
Earnings per share is computed using the weighted average number of shares
outstanding of 85,538,585 and 86,034,719 for the three months ended, and
85,651,928 and 86,219,854 for the nine months ended September 30, 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
(loss) from discontinued operations are segregated in the accompanying
financial statements, net of minority interest. The condensed balance sheet
and statement of operations of the discontinued segment are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
Balance Sheet
SEPTEMBER 30, December 31, September 30,
1996 1995 1995
-------------- ------------- --------------
<S> <C> <C> <C>
Assets
- ------
Cash and cash
equivalents $ 22,918 $ 51,484 $ 41,532
Mortgage-backed
securities 71,343 379,527 516,575
Loans receivable, net 428,773 406,883 398,170
Other assets 67,533 79,162 126,103
-------------- ------------- --------------
$ 590,567 $ 917,056 $ 1,082,380
============== ============= ==============
Liabilities and
Stockholders' Equity
- --------------------
Deposits $ 513,233 $ 566,083 $ 557,169
Federal Home Loan
Bank advances - 280,400 433,100
Other liabilities 29,156 20,934 26,162
Stockholders' equity 48,178 49,639 65,949
-------------- ------------- --------------
$ 590,567 $ 917,056 $ 1,082,380
============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
THREE MONTHS ENDED NINE MONTHS ENDED
-------------------------------- --------------------------------
SEPTEMBER 30, September 30, SEPTEMBER 30, September 30,
1996 1995 1996 1995
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Net interest income $ 5,193 $ 4,124 $ 14,696 $ 13,174
Other income (loss) 1,697 1,226 (18,040) 7,194
Other expenses 9,151 4,899 22,355 15,361
Income tax (provision)
benefit 542 (168) 9,158 (1,752)
--------------- --------------- --------------- ---------------
Net income (loss) (1,719) 283 (16,541) 3,255
--------------- --------------- --------------- ---------------
Minority interest (344) 57 (3,308) 651
--------------- --------------- --------------- ---------------
ClubCorp's interest $ (1,375) $ 226 $ (13,233) $ 2,604
=============== =============== =============== ===============
</TABLE>
On September 30, 1996, President Clinton signed Omnibus Appropriations
legislation providing for a one time assessment on all Saving Association
Insurance Fund (SAIF) deposits to recapitalize the SAIF to the required level.
Franklin recorded an estimate of $4,500,000 for the assessment in the third
quarter. This amount is included in other expenses in the preceding financial
statements.
On August 7, 1996, Franklin entered into an agreement in which Norwest
Corporation will purchase certain assets and assume certain liabilities of
Franklin. The sale is pending regulatory approval and, although no assurances
can be given, management anticipates that the required approvals will be
received prior to the contract termination date of March 31, 1997. The sales
price is defined as $45,500,000 plus the net assets of Franklin to be
acquired, which Franklin guarantees to be no less than $40,000,000, as of the
approval date. Sales proceeds of $4,000,000 will be escrowed representing the
maximum contractual obligation of Franklin arising from any claims which
could be asserted by Norwest Corporation against Franklin based on the
representations, warranties, and covenants provided in the agreement. As the
contingency periods expire, within one year of the closing date, Franklin will
receive the remaining balance of the escrowed funds. Due to the contingencies
involved, management cannot determine the ultimate amount of the gain to be
recognized; however, ClubCorp's estimated net gain on this transaction, net of
taxes and minority interest, is expected to be within a range of $18,000,000
to $27,000,000.
In conjunction with the pending sale, Franklin's Board of Directors made a
decision to sell the fixed-rate mortgage-backed securities and use the funds
to prepay the Federal Home Loan Bank (FHLB) advances. As of September 30,
1996, $278,900,000 in fixed-rate mortgage-backed securities had been sold or
called. A write down valuation of the portfolio was recorded due to the
decision to sell the fixed-rate mortgage-backed securities and the decline in
their value deemed other than temporary. Losses recognized as of September
30, 1996 on the sale of fixed-rate mortgage-backed securities and write down
on the remaining securities to be sold totaled $21,500,000. The proceeds on
the sale of these investments allowed Franklin to prepay all of the FHLB
advances as of September 30, 1996.
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.
During the first nine months of 1996, ClubCorp purchased substantially all the
assets of three golf clubs, two country clubs and a resort which ClubCorp
previously leased.
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>
NINE MONTHS ENDED
--------------------------------
SEPTEMBER 30, September 30,
1996 1995
--------------- ---------------
<S> <C> <C>
Operating revenues $ 512,182 $ 515,671
=============== ===============
Net loss $ (5,156) $ (10,412)
=============== ===============
Net loss per share $ (.06) $ (.12)
=============== ===============
</TABLE>
<PAGE>
NOTE 4. LONG-TERM DEBT
At September 30, 1996 and subsequently, certain subsidiaries were not in
compliance with debt covenants relating to financial ratios for long-term debt
totaling $6,773,000. 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. The Company has entered into an agreement with Norwest Corporation to
sell its financial services segment; therefore, this segment is presented as
discontinued operations. 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.
This discussion of the Company's financial condition and results of
operations for the three and nine months ended September 30, 1996 and 1995
should be read in conjunction with the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, as filed with the Securities and
Exchange Commission.
<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
12 weeks ended 36 weeks ended prior period
------------------------------ ------------------------------ ------------
12 weeks
ended
September 4,
1996 vs.
September 4, September 6, September 4, September 6, September 6,
1996 1995 1996 1995 1995
-------------- -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Operating revenues by product line:
Private clubs $ 114.6 $ 113.4 $ 345.4 $ 340.3 1.1%
Golf clubs 5.5 4.8 17.9 16.1 14.6
Public golf 9.0 9.1 21.7 21.7 (1.1)
Resorts 39.2 34.7 102.1 95.1 13.0
Realty 5.8 6.0 16.0 20.2 (3.3)
International 0.5 0.5 1.5 1.0 -
Corporate services and eliminations 1.9 1.7 4.9 5.3 11.8
-------------- -------------- -------------- -------------- -------------
Total operating revenues $ 176.5 $ 170.2 $ 509.5 $ 499.7 3.7%
============== ============== ============== ============== =============
Operating revenues by type:
Membership dues and fees $ 59.0 $ 57.2 $ 176.2 $ 171.3 3.1%
Food and beverage 49.9 49.2 151.8 153.0 1.4
Golf and other recreation 40.9 38.0 112.5 100.7 7.6
Lodging 12.2 11.1 30.3 28.3 9.9
Other (1) 14.5 14.7 38.7 46.4 (1.4)
-------------- -------------- -------------- -------------- -------------
Total operating revenues $ 176.5 $ 170.2 $ 509.5 $ 499.7 3.7%
============== ============== ============== ============== =============
Costs and expenses and general
administrative expenses:
Direct operating costs $ 115.8 $ 117.9 $ 332.9 $ 337.2 (1.8)%
Facility rentals, operation
and maintenance 28.5 26.3 81.4 79.9 8.4
Selling, general and administrative 13.7 15.6 41.8 42.9 (12.2)
Depreciation and amortization 10.9 13.0 33.6 33.0 (16.2)
-------------- -------------- -------------- -------------- -------------
Total costs and expenses 168.9 172.8 489.7 493.0 (2.3)
Income (loss) from continuing operations 7.6 (2.6) 19.8 6.7 *
Interest expense, net (5.3) (4.5) (15.2) (13.0) 17.8
Other 0.4 0.3 - 0.5 *
Gain (loss) on divestitures 0.6 (0.2) 3.9 0.5 *
-------------- -------------- -------------- -------------- -------------
Income (loss) from continuing operations
before income taxes and minority
interest $ 3.3 $ (7.0) $ 8.5 $ (5.3) *
============== ============== ============== ============== =============
Percentage
change
from
comparable
prior period
-------------
36 weeks
ended
September 4,
1996
vs.
September 6,
1995
-------------
<S> <C>
Operating revenues by product line:
Private clubs 1.5%
Golf clubs 11.2
Public golf -
Resorts 7.4
Realty (20.8)
International 50.0
Corporate services and eliminations (7.5)
-------------
Total operating revenues 2.0%
=============
Operating revenues by type:
Membership dues and fees 2.9%
Food and beverage (0.8)
Golf and other recreation 11.7
Lodging 7.1
Other (1) (16.6)
-------------
Total operating revenues 2.0%
=============
Costs and expenses and general
administrative expenses:
Direct operating costs (1.3)%
Facility rentals, operation
and maintenance 1.9
Selling, general and administrative (2.6)
Depreciation and amortization 1.8
-------------
Total costs and expenses (0.7)
Income (loss) from continuing operations *
Interest expense, net 16.9
Other *
Gain (loss) on divestitures *
-------------
Income (loss) from continuing operations
before income taxes and minority
interest *
=============
- ----------------------
</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>
12 WEEKS ENDED SEPTEMBER 4, 1996 COMPARED TO 12 WEEKS ENDED SEPTEMBER 6, 1995
Operating revenues increased 3.7% to $176.5 million for the 12 weeks
ended September 4, 1996 from $170.2 million for the 12 weeks ended September
6, 1995. 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) increased from $144.6 million to $152.1 million
or 5.2%. Revenues from properties added, net of revenues lost from properties
divested, in 1996 and 1995 represent a decrease of $1.1 million.
Operating revenues from mature private club properties increased 2.7% to
$101.3 million in 1996 from $98.6 million due to improving membership trends
in 1996 and inflationary price increases. Mature private clubs membership
dues and usage revenues (i.e., food and beverage, golf, lodging, and other
recreation) increased 3.1% and 2.2%, respectively, to $49.4 and $50.9 million
from $47.9 and $49.8 million, respectively, also due to improving membership
trends in 1996 and inflationary price increases.
Golf clubs' operating revenues increased from $4.8 million to $5.5
million or 14.6% resulting primarily from improved usage at golf clubs
including one property which recently opened its clubhouse and 1996
acquisitions. Mature golf clubs' operating revenues increased 8.7% to $5.0
million for the 12 weeks ended September 4, 1996 from $4.6 million for the 12
weeks ended September 6, 1995, reflecting an increase of 6.3% in rounds played
combined with an increase of 4.5% in revenue per round.
Resort operating revenues grew 13.0% from $34.7 million to $39.2 million
for the 12 weeks ended September 4, 1996 due to increases at mature
properties. Operating revenues from mature owned resorts increased from $34.1
million in 1995 to $38.2 million in 1996, an increase of 12.0%, due primarily
to a large group function at one resort and the opening of a new course and
related income at one resort.
Golf and other recreation income increased 7.6% to $40.9 million from
$38.0 million primarily due to acquisitions in 1996 and 1995, the opening of
new golf courses at certain mature properties, and a large group function at
one resort.
Facility rentals, operations, and maintenance expense increased from
$26.3 million to $28.5 million, or 8.4%, due to increased claims related to
workers' compensation and general liability insurance of $2.9 million.
Selling, general and administrative expense, excluding corporate
expenses, represent primarily the costs of executive management and various
support services provided to properties from corporate and regional personnel.
These costs decreased 12.2% to $13.7 million for the 12 weeks ended September
4, 1996 from $15.6 million for the 12 weeks ended September 6, 1995 due to
lower levels of relocation costs and the write off of a public golf receivable
in 1995.
Depreciation and amortization expense decreased 16.2% to $10.9 million
from $13.0 million. The decrease relates to $1.6 million in expense for the
12 weeks ended September 6, 1995 from the depreciation and amortization of
hardware and software associated with an internally developed club management
system placed in service in 1995 and written off in 1996. Depreciation and
amortization at mature facilities decreased from $9.1 million for the 12 weeks
ended September 6, 1995 to $8.6 million for the 12 weeks ended September 4,
1996 or 5.5%.
36 WEEKS ENDED SEPTEMBER 4, 1996 COMPARED TO 36 WEEKS ENDED SEPTEMBER 6, 1995
Operating revenues increased 2.0% to $509.5 million for the 36 weeks
ended September 4, 1996 from $499.7 million for the 36 weeks ended September
6, 1995. 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) increased from $431.2 million to $443.6 million,
an increase of 2.9%. Revenues from properties added, net of revenues lost
from properties divested, in 1996 and 1995 represent an increase of $2.2
million. Sales of land held for resale in Colorado decreased $10.1 million
for the 36 weeks ended September 4, 1996 offset by an increase in real estate
sales in South Carolina and Ohio.
Operating revenues from mature private club properties increased only
1.3% from $308.5 million in 1995 to $312.6 million for the 36 weeks ended
September 4, 1996 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 which affected
usage revenues offset by inflationary price increases. Mature private clubs
membership dues increased 2.2% to $151.1 million in 1996 from $147.9 million
in 1995, primarily due to inflationary price increases. Usage revenues for
mature private club properties (i.e., food and beverage, golf, lodging, and
other recreation) increased 1.5% to $158.9 million in 1996 from $156.6 million
for the 36 weeks ended September 6, 1995.
Operating revenues from golf clubs grew 11.2% from $16.1 million in 1995
to $17.9 million in 1996 resulting from acquisitions in 1996 and 1995 and the
opening of the clubhouse at one mature property. Mature golf clubs' operating
revenues increased 5.7% to $16.7 million from $15.8 million in 1995,
reflecting an increase of 4.8% in rounds played offset by a decrease of 1.4%
in revenue per round.
Resort operating revenues increased 7.4% from $95.1 million to $102.1
million. Operating revenues from mature owned resorts increased from $88.3
million in 1995 to $95.2 million in 1996, an increase of 7.8%, reflecting an
increase of 7.2% in the average daily revenue per available room and an
increase of 10.9% in the average daily room rate per occupied room slightly
offset by a decrease of 1.9% in occupancy rates. Also, one resort hosted a
large group function and one resort opened a new course and generated related
income.
Realty revenues decreased from $20.2 million to $16.0 million, or 20.8%,
due to decreased real estate sales of land held for resale in Colorado
partially offset by an increase in real estate sales in South Carolina and
Ohio.
Golf and other recreation income increased 11.7% to $112.5 million from
$100.7 million primarily due to acquisitions in 1996 and 1995 and the opening
of new golf courses at certain mature properties.
Other operating revenues decreased 16.6% from $46.4 million for the 36
weeks ended September 6, 1995 to $38.7 million in 1996, due to decreased real
estate sales of land held for resale in Colorado of $10.1 million offset by an
increase in real estate sales in South Carolina and Ohio.
Interest expense, net increased 16.9% to $15.2 million for the 36 weeks
ended September 4, 1996 from $13.0 million for the 36 weeks ended September 6,
1995, reflecting higher leveraged acquisition and development activity.
Interest expense related to properties added in 1996 and 1995 and developing
properties was $1.5 million. Mature properties' interest expense increased
from $12.5 million to $13.1 million, a 4.8% increase.
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 a disproportionate amount 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 or leases, divestitures of operating properties, 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 finances 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.
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 September
30, 1996. At September 30, 1996, certain hospitality subsidiaries of the
Company were not in compliance with outstanding loan agreements relating to
long-term debt totaling $6.8 million. Such noncompliance relates 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 September 30,
1996, cash balances of $8.4 million were not available for dividends by
subsidiaries due to those restrictions.
At September 30, 1996, the Company's subsidiaries maintained $15.8
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 Colorado. Commitments to fund future capital
expenditures were not material as of September 30, 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 September 30, 1996, the value
of the Redemption Right was $39.9 million. The most recent appraised price of
the Common Stock is $11.12 as of September 30, 1996. The aggregate market
value of the Common Stock at September 30, 1996 is $950.5 million. The
Redemption Right has never been exercised by the Plan, although the Company
from time to time has repurchased Common Stock into treasury from certain
stockholders. 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.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Several legislative proposals have been enacted into law which could
increase the Company's direct operating costs. The first proposal increased
the minimum wage to $4.75 per hour on October 1, 1996 with a second increase
in the minimum wage to $5.15 per hour occurring on September 1, 1997.
Management estimates that there will not be a significant increase in direct
operating costs for this new law. Benefits legislation may impact the cost of
health coverage, in particular regarding coverage of pre-existing conditions.
Benefit mandates will have no significant financial impact to the Company in
1996 or 1997; however, management has not yet determined the financial impact
for 1998 when most requirements become effective.
Over the last three years, attrition rates among members of the Company's
mature clubs have ranged from approximately 17.5% 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 and attrition at
mature clubs for the 36 weeks ended September 4, 1996 were 17.5%. During
1993, President Clinton signed into law certain amendments to the Internal
Revenue Code that had an adverse effect on the Company's hospitality business
from 1993 to 1995. During these three years, the net enrollment rate for
mature clubs decreased from 1.4% to (3.7%). Net enrollment rates have been
positive or flat during 1996. In response to these trends, the Company
continues to focus its efforts on membership enrollment programs and quality
service to reduce attrition as its top priorities for 1996 and 1997. 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 November 13, 1996, the Company was negotiating the acquisition of,
or had reached preliminary agreements to acquire, two properties and to build
two 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 $6.0 to $9.0 million in capital expenditures, to be funded
primarily with cash flows from operations and 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 12 months. As of September
30, 1996 and November 13, 1996, $73.3 million was outstanding under this
financing arrangement. Due to its short-term nature, the amount outstanding,
excluding letters of credit and loan guarantees, at September 30, 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.
The Company has acquired 57 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 risk factors include a high dependency on real estate sales for
new membership growth, slower progress than anticipated in repositioning
properties and slower than anticipated turnarounds of prior operating
deficits. 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. Executive management
has developed 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
improve the transition of ownership.
DISCONTINUED OPERATIONS
In the first quarter of 1996, the Board of Directors of Franklin Federal
Bancorp, a Federal Savings Bank ("Franklin") passed a resolution to solicit
offers to sell the financial services segment. On August 7, 1996, Franklin
entered into an agreement in which Norwest Corporation will purchase certain
assets and assume certain liabilities of Franklin. The sale is pending
regulatory approval and, although no assurances can be given, management
anticipates that the required approvals will be received prior to the contract
termination date of March 31, 1997. As the Company has committed to dispose
of its financial services segment, the segment is presented as discontinued
operations.
Franklin's assets decreased from $917.1 million at December 31, 1995 to
$590.6 million at September 30, 1996. The decline in assets is the result of
maturity proceeds received on mortgage-backed securities and sales of these
securities.
THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER
30, 1995
INTEREST INCOME. Total interest income amounted to $11.7 million for the
three months ended September 30, 1996, a $7.5 million or 39.1% decline from
the comparable period in 1995. While the yield on all earning assets
increased from 7.2% for the three months ended September 30, 1995 to 8.0% for
the same period in 1996, the average outstanding balance of earnings assets
decreased 44.6% from $1,061.5 million for the third quarter of 1995 to $587.8
million for the comparable period in 1996. The decline in average balance
is primarily attributable to a $438.6 million decrease in mortgage-backed
securities and a decrease in covered assets of $48.3 million. The decrease in
mortgage-backed securities resulted from repayments of principal and the sale
of a significant portion of the bond portfolio. The decrease in covered
assets resulted from the termination of an assistance agreement between
Franklin, First Federal Financial Corporation ("FFFC"), Club Corporation
International and The Federal Savings and Loan Insurance Corporation
("Assistance Agreement") in the fourth quarter of 1995. The increase in yield
for the period was due to the sale of lower yielding fixed-rate
mortgage-backed securities in the fourth quarter of 1995 and the second and
third quarters of 1996.
INTEREST EXPENSE. Total interest expense amounted to $5.7 million for
the three months ended September 30, 1996, a $9.2 million or 61.7% decline
from the comparable period in 1995. The total cost of funds for
interest-bearing liabilities decreased from 6.2% in September 1995 to 4.5% in
September 1996, while the average outstanding balance of interest-bearing
liabilities decreased 47.0% from $963.5 million in 1995 to $510.2 million in
1996. The decline in average balance is primarily attributable to the early
retirement of $87.7 million in Federal Home Loan Bank ("FHLB") advances in the
fourth quarter of 1995, $165.4 million in the second quarter of 1996 and
$100.0 million in the third quarter of 1996. In addition, average deposits
for the third quarter of 1996 decreased $21.5 million from $505.0 million to
$483.5 million for the comparable period in 1996. The decrease in the cost of
interest-bearing liabilities is attributable largely to the decrease in FHLB
borrowings which changed the total mix of interest-bearing liabilities as well
as generally declining interest rates.
PROVISION FOR LOAN LOSSES. The provision for loan losses of $0.8 million
for the three months ended September 30, 1996 increased $0.6 million from the
comparable period in 1995. The increase in the third quarter of 1996 can be
attributed to an increase of approximately $3.0 million in classified assets.
NON-INTEREST INCOME. Non-interest income amounted to $1.7 million for
the three months ended September 30, 1996, an increase of $0.5 million or
41.7% from the comparable period in 1995. This increase is primarily due to
gains recognized in the third quarter of 1996 on the sale of fixed-rate
mortgage-backed securities and U.S. Treasury Bills totaling $0.6 million. The
gains on the mortgage-backed securities resulted from market improvement
subsequent to the permanent impairment valuation established on those
securities in June of 1996.
NON-INTEREST EXPENSE. Non-interest expense amounted to $9.2 million for
the three months ended September 30, 1996, an increase of $4.3 million or
87.8% from the comparable period in 1995. This increase is attributable to a
special one time recapitalization assessment of the Savings Association
Insurance Fund ("SAIF"), the federal deposit insurance fund which insures
Franklin's deposits, estimated at $4.5 million, which was recognized in
September 1996.
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER
30, 1995
INTEREST INCOME. Total interest income amounted to $43.2 million for the
nine months ended September 30, 1996, a $15.2 million or 26.0% decline from
the comparable period in 1995. While the yield on all earning assets
increased from 7.2% for the nine months ended September 30, 1995 to 7.6% for
the same period in 1996, the average outstanding balance of earnings assets
decreased 29.8% from $1,084.7 million for the first nine months of 1995 to
$761.2 million for the comparable period in 1996. The decline in average
balance is primarily attributable to a $295.7 million decrease in
mortgage-backed securities and a decrease in covered assets of $55.2 million.
The decrease in mortgage-backed securities resulted from repayments of
principal and the sale of a significant portion of the bond portfolio. The
decrease in covered assets resulted from the termination of the Assistance
Agreement in the fourth quarter of 1995. The increase in yield for the period
was due to generally 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 second and third quarters of 1996, combined with the
disposition of lower yielding covered assets in the fourth quarter of 1995.
INTEREST EXPENSE. Total interest expense amounted to $27.9 million for
the nine months ended September 30, 1996, a $16.3 million or 36.9% decline
from the comparable period in 1995. The cost of interest-bearing liabilities
decreased by 51 basis points for the nine months ended September 30, 1996 over
the same period in 1995, while the average outstanding balance of
interest-bearing liabilities decreased 31.0% from $994.1 million for the first
nine months of 1995 to $685.6 million for the comparable period in 1996. The
decline in average balance is primarily attributable to the early retirement
of $87.7 million in FHLB advances in the fourth quarter of 1995, $165.4
million in the second quarter of 1996 and $100.0 million in the third quarter
of 1996. The total cost of funds for interest-bearing liabilities decreased
51 basis points from 5.9% in September 1995 to 5.4% in September 1996. The
decrease in the cost of interest-bearing liabilities is attributable largely
to the decrease in FHLB borrowings which changed the total mix of
interest-bearing liabilities.
PROVISION FOR LOAN LOSSES. Total provision for loan losses as of
September 30, 1996 was $0.6 million, $0.4 million or 40% less than the
comparable period in 1995. This was due in part to a credit of $0.3 million
to the provision for loan losses in June 1996 resulting from the annual
revision of credit loss experience factors and a reduction in problem asset
levels.
NON-INTEREST INCOME. Non-interest income (loss) amounted to ($18.0)
million for the nine months ended September 30, 1996, a decrease of $25.2
million or 350.0% from the comparable period in 1995. This decrease is
primarily due to losses recognized on the sale of fixed-rate mortgage-backed
securities and permanent impairment valuations of the remaining fixed-rate
mortgage-backed security portfolio totaling $21.5 million. In addition, gains
totaling $3.9 million were recognized in the second quarter of 1995 on the
sale of Franklin's Mission, McAllen and Lockhart branches.
NON-INTEREST EXPENSE. Non-interest expense amounted to $22.4 million for
the nine months ended September 30, 1996, an increase of $7.0 million or 45.5%
from the comparable period in 1995. This increase is primarily attributable
to FHLB prepayment penalties and accelerated commitment fees totaling $4.4
million associated with the prepayments of the FHLB advances along with a
special one time SAIF recapitalization assessment estimated at $4.5 million
which was recognized in September 1996.
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 $590.6 million at September 30, 1996. The recent decline in assets is the
result of maturity proceeds received on mortgage-backed securities and sales
of these securities. Since December 31, 1995, the investment portfolio has
declined approximately $316.0 million. Franklin's regulatory capital at
September 30, 1996 exceeded all three regulatory capital requirements.
Tangible and core capital ratios were 7.67% and 7.67% respectively, compared
to respective requirements of 1.5% and 4.0%. Total regulatory capital to
risk-adjusted assets ratio was 11.8% compared to the requirement of 8.0%.
Although Franklin meets all regulatory capital requirements at September 30,
1996, such compliance was achieved primarily through asset reduction rather
than through the retention of earnings. In the second quarter of 1996,
Franklin's Board of Directors made a decision to sell the fixed-rate
mortgage-backed securities and use those funds to prepay the FHLB advances.
The pending sale of Franklin impacted the decision to liquidate the fixed-rate
mortgage-backed securities. Other considerations were the Board's commitment
to improve interest rate risk and the possibility of rising interest rates
which could adversely affect the investment portfolio's market value in the
future.
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 September 30, 1996 was 5.1%.
Historically, Franklin's primary sources of funds consist of savings
deposits and time 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 September 30, 1996, Franklin had binding commitments to
originate or purchase loans totaling $4.8 million and had $26.0 million of
undisbursed loans in process. Scheduled maturities of certificates of deposit
during the 12 months following September 30, 1996 total $196.4 million.
Management believes that Franklin has adequate resources to fund all its
commitments.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
On August 7, 1996, Franklin entered into an agreement in which Norwest
Corporation will purchase certain assets and assume certain liabilities of
Franklin. The sale is pending regulatory approval and, although no assurances
can be given, management anticipates that the required approvals will be
received prior to the contract termination date of March 31, 1997. The sales
price is defined as $45.5 million plus the net assets of Franklin to be
acquired, which Franklin guarantees to be no less than $40.0 million, as of
the approval date. Sales proceeds of $4.0 million will be escrowed
representing the maximum contractual obligation of Franklin arising from any
claims which could be asserted by Norwest Corporation against Franklin based
on the representations, warranties, and covenants provided in the agreement.
As the contingency periods expire, within one year of the closing date,
Franklin will receive the remaining balance of the escrowed funds. Due to the
contingencies involved, management cannot determine the ultimate amount of the
gain to be recognized; however, the Company's estimated net gain on this
transaction, net of taxes and minority interest, is expected to be within a
range of $18.0 to $27.0 million.
In conjunction with the pending sale, a decision was made to sell the
fixed-rate mortgage-backed securities and prepay the FHLB advances. As of
September 30, 1996, $278.9 million in fixed-rate mortgage-backed securities
had been sold or called. As of September 30, 1996, losses recognized on the
sale of fixed-rate mortgage-backed securities and permanent impairment
valuations totaled $21.5 million. The proceeds on the sale of these
investments allowed Franklin to prepay the FHLB advances as of September 30,
1996, resulting in prepayment penalties totaling $3.2 million and accelerated
commitment fees totaling $0.2 million. Based on the losses incurred in
September 1996, Franklin recorded $8.0 million in FSLIC/RF tax benefits (or
net operating loss carryforwards). Management believes that it will realize
this benefit.
On September 30, 1996, President Clinton signed Omnibus Appropriations
legislation providing for a one time assessment on all SAIF-insured deposits
of 65.7 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 is due within 60 days of the first month
following enactment. Preliminary estimates of the assessment indicate a
pre-tax charge of approximately $4.5 million which is included in Franklin's
net loss as of September 30, 1996.
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.
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 $72.4 million at
September 30, 1996. 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 at page 7.
Item 2. Changes in Securities
Not applicable
Item 3. Defaults upon Senior Securities
Refer to Note 4 to Condensed Notes to Consolidated Financial
Statements at page 7.
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
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 September 30, 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 : November 13, 1996 By: /s/ John H. Gray
-------------------------------
John H. Gray
Executive Vice President and
Chief Administrative Officer
(chief accounting officer)
</TABLE>
Exhibit 15.1
Club Corporation International
Dallas, Texas
Ladies and Gentlemen:
Re: Registration Statements Nos. 33-89818, 33-96568 and 333-08041
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated November 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.
Very truly yours,
KPMG Peat Marwick LLP
Dallas, Texas
November 12, 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> 9-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995
<PERIOD-END> SEP-30-1996 SEP-30-1995
<CASH> 68,234 58,611
<SECURITIES> 0 6,505
<RECEIVABLES> 75,220 81,637
<ALLOWANCES> 3,776 3,052
<INVENTORY> 13,908 13,395
<CURRENT-ASSETS> 164,267 154,485
<PP&E> 958,418 930,569
<DEPRECIATION> 265,987 255,011
<TOTAL-ASSETS> 1,557,102 2,034,148
<CURRENT-LIABILITIES> 207,088 197,871
<BONDS> 0 0
0 0
0 0
<COMMON> 902 902
<OTHER-SE> 104,688 136,244
<TOTAL-LIABILITY-AND-EQUITY> 1,557,102 2,034,148
<SALES> 151,751 153,038
<TOTAL-REVENUES> 509,469 499,661
<CGS> 135,166 139,373
<TOTAL-COSTS> 491,638 494,771
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 4,278 2,345
<INTEREST-EXPENSE> 20,058 18,495
<INCOME-PRETAX> 7,549 (7,296)
<INCOME-TAX> 729 4,887
<INCOME-CONTINUING> 6,918 (13,074)
<DISCONTINUED> (13,233) 2,604
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (6,315) (10,470)
<EPS-PRIMARY> (0.07) (0.12)
<EPS-DILUTED> (0.07) (0.12)
</TABLE>
