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 19, 1997
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: THE REGISTRANT'S FISCAL YEAR WAS
PREVIOUSLY THE CALENDAR YEAR
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
19, 1997 was 85,423,641.
<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 19, 1997 and March 31,
1996 and the related consolidated statements of operations, stockholders'
equity and cash flows for the twelve weeks and three months ended March 19,
1997 and March 31, 1996, respectively. 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, 1996
and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended (not presented herein); and in our
report dated February 21, 1997, 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, 1996, is
fairly presented, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
Our report dated February 21, 1997 on the consolidated financial statements of
ClubCorp as of and for the year ended December 31, 1996 refers to a change in
1995 in its method of accounting for the impairment of long-lived assets and
for long-lived assets to be disposed of.
KPMG Peat Marwick
Dallas, Texas
April 24, 1997
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
MARCH 19, December 31, March 31,
Assets 1997 1996 1996
- ------ ----------- -------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 84,091 $ 74,454 $ 66,509
Membership and other receivables, net 58,977 73,139 55,719
Inventories 14,171 13,886 13,895
Other assets 13,599 14,501 14,851
----------- -------------- -----------
Total current assets 170,838 175,980 150,974
Property and equipment, net 670,155 663,387 614,526
Other assets 144,093 144,517 159,557
Financial services assets 26,664 589,482 900,189
----------- -------------- -----------
$1,011,750 $ 1,573,366 $1,825,246
=========== ============== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 41,106 $ 54,933 $ 42,271
Long-term debt - current portion 82,039 120,694 102,177
Other liabilities 50,380 44,371 50,383
----------- -------------- -----------
Total current liabilities 173,525 219,998 194,831
Long-term debt 217,116 223,223 218,799
Other liabilities 48,482 44,030 49,786
Membership deposits 384,437 380,802 361,862
Financial services liabilities 11,105 549,246 865,698
Redemption value of common stock held by benefit plan 42,766 43,233 36,051
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,423,641 outstanding
at March 19, 1997, 85,393,241 at December 31, 1996
and 85,667,032 outstanding at March 31, 1996 902 902 902
Additional paid-in capital 10,500 10,380 10,075
Foreign currency translation adjustment (74) (54) (42)
Unrealized gains or losses on investments in debt and
equity securities - (46) (17,177)
Retained earnings 202,623 181,985 174,255
Treasury stock (36,866) (37,100) (33,743)
Redemption value of common stock held by benefit plan (42,766) (43,233) (36,051)
----------- -------------- -----------
Total stockholders' equity 134,319 112,834 98,219
----------- -------------- -----------
$1,011,750 $ 1,573,366 $1,825,246
=========== ============== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
Twelve Weeks Ended March 19, 1997 and
Three Months Ended March 31, 1996
(Dollars in thousands, except per share amounts)
(Unaudited)
MARCH 19, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Operating revenues $ 153,638 $ 146,843
Operating costs and expenses 142,725 135,511
Selling, general and administrative expenses 14,245 13,973
----------- -----------
Loss from operations (3,332) (2,641)
Gain on divestitures 4,033 4,591
Interest and investment income 1,776 2,076
Interest expense (6,557) (6,836)
----------- -----------
Loss from continuing operations before
income tax provision (4,080) (2,810)
Income tax provision (559) (302)
----------- -----------
Loss from continuing operations (4,639) (3,112)
Discontinued operations:
Income from discontinued operations of financial services
segment, net of income tax provision of $152 in 1996 131 533
Gain on disposal of financial services segment, net of
income tax provision of $15,221 25,146 -
----------- -----------
25,277 533
----------- -----------
Net income (loss) $ 20,638 $ (2,579)
=========== ===========
Earnings per share:
Loss from continuing operations $ (.05) $ (.04)
Discontinued operations .29 .01
----------- -----------
Net income (loss) $ .24 $ (.03)
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Twelve Weeks Ended March 19, 1997 and
Three Months Ended March 31, 1996
(Dollars in thousands, except share amounts)
(Unaudited)
Common stock (100,000,000 shares
authorized, par value $.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, 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)
========== ========== =========== ====== =========== =============
Balances at December 31, 1996 90,219,408 4,826,167 85,393,241 $ 902 $ 10,380 $ (54)
NET INCOME - - - - - -
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - (30,400) 30,400 - 120 -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - (20)
MARKET ADJUSTMENT - - - - - -
CHANGE IN REDEMPTION VALUE - - - - - -
---------- ---------- ----------- ------ ----------- -------------
BALANCES AT MARCH 19, 1997 90,219,408 4,795,767 85,423,641 $ 902 $ 10,500 $ (74)
========== ========== =========== ====== =========== =============
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, 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
=================== ========== ========== ============== ===============
Balances at December 31, 1996 $ (46) $ 181,985 $ (37,100) $ (43,233) $ 112,834
NET INCOME - 20,638 - - 20,638
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - - 234 - 354
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - (20)
MARKET ADJUSTMENT 46 - - - 46
CHANGE IN REDEMPTION VALUE - - - 467 467
------------------- ---------- ---------- -------------- ---------------
BALANCES AT MARCH 19, 1997 $ - $ 202,623 $ (36,866) $ (42,766) $ 134,319
=================== ========== ========== ============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
Twelve Weeks Ended March 19, 1997 and
Three Months Ended March 31, 1996
(Dollars in thousands)
(Unaudited)
MARCH 19, March 31,
1997 1996
----------- -----------
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ 20,638 $ (2,579)
Adjustments to reconcile net income (loss) to cash flows
provided from operations:
Depreciation and amortization 11,591 11,219
Gain on divestitures (4,033) (4,591)
Gain on disposal of financial services segment (25,146) -
Equity in (earnings) losses in partnerships
and joint ventures (2,097) 10
Decrease in real estate held for sale 783 1,383
Decrease in membership and other receivables, net 14,310 11,725
Decrease in accounts payable and accrued liabilities (13,759) (10,772)
Increase in deferred membership dues 4,790 2,834
Other 7,938 4,418
Net change in operating assets of discontinued operations (1,173) 10,340
----------- -----------
Cash flows provided from operations 13,842 23,987
Cash flows from investing activities:
Additions to property and equipment (12,101) (8,086)
Development of real estate ventures (694) (3,591)
Acquisition of facilities (2,960) (3,948)
Proceeds from disposal of subsidiaries, net 4,292 -
Proceeds from disposal of financial services segment, net 52,396 -
Other 492 790
Investing activities of discontinued operations 337 22,776
----------- -----------
Cash flows provided from investing activities 41,762 7,941
Cash flows from financing activities:
Borrowings of long-term debt 7,409 11,428
Repayments of long-term debt (57,205) (4,636)
Increase in membership deposits 5,520 5,528
Dividends paid to minority shareholder of financial
services segment (12,500) -
Financing activities of discontinued operations (3,153) (11,023)
----------- -----------
Cash flows provided from (used by) financing activities (59,929) 1,297
----------- -----------
Total net cash flows (4,325) 33,225
Net cash flows from discontinued operations (13,962) 22,626
----------- -----------
Net cash flows from continuing operations $ 9,637 $ 10,599
=========== ===========
</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). On January 2, 1997, Franklin sold certain assets and transferred
certain liabilities to Norwest Corporation (Norwest). 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 consolidated financial statements.
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, 1996
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 19, 1997 and March 31,
1996 and the consolidated results of operations and cash flows for the twelve
weeks and three months ended March 19, 1997 and March 31, 1996, respectively.
Interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations.
Fiscal periods
- ---------------
Effective January 1, 1997, ClubCorp changed its fiscal year from a calendar
year ending December 31 to a 52/53 week fiscal year ending on the last
Wednesday of December. Accordingly, the first quarter of 1997 includes the
twelve weeks ended March 19, whereas the first quarter of 1996 includes the
three months ended March 31. The hospitality segment subsidiaries were
previously reported on a 52/53 week fiscal year with acquisitions,
divestitures and other material transactions during the period of March 20,
1996 and March 31, 1996 recorded in the consolidated financial statements.
The accounts of Franklin are included from December 31, 1995 to March 31, 1996
and December 31, 1996 to February 28, 1997.
Earnings per share
- --------------------
Earnings per share is computed using the weighted average number of shares
outstanding of 85,423,641 and 85,761,114 for the first quarter of 1997 and
1996, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS 128
establishes new standards for computing and presenting earnings per share and
is effective for financial statements issued for periods ending after December
15, 1997. Management expects the implementation of SFAS 128 to have minimal
impact on the consolidated financial statements.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current period presentation.
NOTE 2. DISCONTINUED OPERATIONS
- ----------------------------------
On January 2, 1997, Franklin sold certain assets to Norwest for a cash payment
of $89,968,000 and assumption of certain liabilities. Sale proceeds of
$4,000,000 represent the maximum contractual obligation of Franklin arising
from any claims which could be asserted by Norwest against Franklin based on
the representations, warranties, and covenants provided in the agreement. The
contingency periods expire within one year of the closing date. Management
does not expect any claims to be asserted; therefore, the $4,000,000 is
included in the gain on the disposal of financial services segment in the
accompanying statement of operations. ClubCorp's gain on the sale, net of
taxes and minority interest is $25,146,000.
The financial services assets, liabilities and income from discontinued
operations are segregated in the accompanying consolidated 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
-------------
FEBRUARY 28, December 31, March 31,
1997 1996 1996
------------- ------------- ----------
<S> <C> <C> <C>
Assets
- ------
Cash and cash equivalents $ 23,890 $ 37,852 $ 74,110
Mortgage-backed securities - 67,088 359,595
Loans receivable, net - 419,106 397,415
Other assets 2,774 65,436 69,069
------------- ------------- ----------
$ 26,664 $ 589,482 $ 900,189
============= ============= ==========
Liabilities and
Stockholders' Equity
- --------------------
Deposits $ - $ 516,292 $ 554,392
Federal Home Loan
Bank Advances - 3,153 280,400
Other liabilities 7,215 19,742 22,283
Stockholders' equity 19,449 50,295 43,114
------------- ------------- ----------
$ 26,664 $ 589,482 $ 900,189
============= ============= ==========
</TABLE>
<TABLE>
<CAPTION>
Statement of Operations
-----------------------
FEBRUARY 28, March 31,
1997 1996
-------------- -----------
<S> <C> <C>
Net interest income $ 227 $ 4,590
Other income 46,653 1,006
Other expenses 63 4,778
Income tax provision (15,221) (152)
-------------- -----------
Net income 31,596 666
-------------- -----------
Minority interest 6,319 133
-------------- -----------
ClubCorp's interest $ 25,277 $ 533
============== ===========
</TABLE>
Federal income taxes payable due to the sale are $6,172,000 and are included
in other liabilities at February 28, 1997.
In January 1997, Franklin paid $62,500,000 in dividends to its shareholders.
ClubCorp used a majority of its dividend to pay down debt balances.
NOTE 3. ACQUISITIONS
- ----------------------
ClubCorp's acquisitions in 1997 and 1996 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 quarter of 1997, ClubCorp purchased the stock of a golf club.
The following unaudited proforma financial information assumes the
acquisitions occurred at the beginning of their acquisition year and the
preceding 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>
March 31,
1996
-----------
<S> <C>
Operating revenues $ 150,695
===========
Net loss $ (3,320)
===========
Net loss per share $ (.04)
===========
</TABLE>
ClubCorp's 1997 acquisition occurred at the beginning of the year; therefore,
no proforma information is shown for the current year.
NOTE 4. LONG-TERM DEBT
- -------------------------
At March 19, 1997 and subsequently, certain subsidiaries were not in
compliance with debt covenants due to non-payment of principal due on
long-term debt and covenants relating to financial ratios totaling
$12,316,000. 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Club Corporation International ("ClubCorp" or the "Company") is a holding
company incorporated under the laws of the State of Nevada that, through its
subsidiaries, owns, operates and/or manages country clubs, city clubs,
city/athletic clubs, athletic clubs, resorts, golf clubs, public golf courses
and related real estate. Historically, the Company operated in the financial
services segment through Franklin Federal Bancorp, a Federal Savings Bank
("Franklin"). On August 7, 1996, Franklin entered into an agreement to sell
certain assets and transfer certain liabilities of Franklin to Norwest
Corporation pending regulatory approval. The sale was consummated on January
2, 1997 for $90.0 million. Sales proceeds of $4.0 million represent 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. The
contingency periods expire within one year of the closing date. A gain of
approximately $25.1 million was recognized on the sale, net of taxes and
minority interest.
The predecessor corporation to ClubCorp was organized in 1957 under the
name Country Clubs, Inc. All references herein to ClubCorp shall also include
Country Clubs, Inc. and its successor corporations. For purposes of this
document, references to the "Company" include ClubCorp's various subsidiaries.
However, each of ClubCorp and its subsidiaries is careful to maintain its
separate legal existence, and general references to the Company should not be
interpreted in any way to reduce the legal distinctions between the
subsidiaries or between ClubCorp and its subsidiaries.
The following discussion of the Company's financial condition and results
of operations for the 12 weeks ended March 19, 1997 and March 20, 1996 should
be read in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 1996, as filed with the Securities and Exchange
Commission.
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth operating revenues by product line and
operating expenses and other 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 Prior Period
------------------------ ------------
12 weeks
ended
March 19,
1997
vs.
March 19, March 20, March 20,
1997 1996 1996
----------- ----------- -----------
<S> <C> <C> <C>
Operating revenues by product line:
Private clubs $ 108.8 $ 107.6 1.1%
Golf clubs 7.5 5.9 27.1
Public golf 3.9 4.1 (4.9)
Resorts 27.8 23.9 16.3
Realty 2.1 3.8 (44.7)
International 3.0 0.2 1,400.0
Corporate services and eliminations 0.5 1.3 (61.5)
----------- ----------- ----------
Total operating revenues $ 153.6 $ 146.8 4.6%
=========== =========== ==========
Direct operating expenses and general
administrative expenses:
Direct operating costs $ 142.7 $ 135.5 5.3%
Selling, general and administrative 14.2 14.0 1.4
----------- ----------- ----------
Total costs and expenses $ 156.9 $ 149.5 4.9%
----------- ----------- ----------
Loss from continuing operations $ (3.3) $ (2.7) *
Interest expense (net) (4.8) (5.2) (7.7)%
Other 0.0 0.5 *
Gain on divestitures 4.0 4.5 *
----------- ----------- ----------
Loss from continuing operations before income
taxes and minority interest $ (4.1) $ (2.9) *
=========== =========== ==========
</TABLE>
- ---------------------
* Percentages not meaningful.
12 WEEKS ENDED MARCH 19, 1997 COMPARED TO 12 WEEKS ENDED MARCH 20, 1996
Operating revenues increased 4.6% to $153.6 million for the 12 weeks
ended March 19, 1997 from $146.8 million for the 12 weeks ended March 20, 1996
primarily due to inflationary price increases on membership dues and golf
related revenues. 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 4.3% from $131.5 million to
$137.1 million also due to inflationary price increases. Revenues from
properties added, net of revenues lost from properties divested in 1996 and
1997, represent a decrease of $0.9 million.
Operating revenues from mature private club properties increased 2.0% to
$101.8 million for the 12 weeks ended March 19, 1997 from $99.8 million for
the 12 weeks ended March 20, 1996 primarily due to inflationary price
increases on membership dues offset by adverse membership trends. Mature
private club membership dues increased from $50.8 million for the 12 weeks
ended March 20, 1996 to $52.3 million for the same period in 1997 or 3.0% due
primarily to inflationary price increases. Usage revenues for mature private
club properties (i.e., food and beverage, golf, lodging, and other recreation)
increased slightly to $48.2 million in 1997 from $47.7 million in 1996.
Golf clubs' (i.e., those clubs which offer both private and public play)
operating revenues increased from $5.9 million to $7.5 million or 27.1%
resulting primarily from 1996 acquisitions. Mature golf clubs' operating
revenues increased 10.0% to $5.5 million for the 12 weeks ended March 19, 1997
from $5.0 million for the 12 weeks ended March 20, 1996, reflecting an
increase of 1.8% in rounds played combined with an increase of 5.9% in revenue
per round.
Resorts operating revenues grew 16.3% from $23.9 million to $27.8 million
for the 12 weeks ended March 19, 1997 due to increases at mature properties
and a 1997 acquisition. Operating revenues from mature owned resorts
increased from $23.5 million in 1996 to $26.3 million in 1997, an increase of
11.9%, reflecting an increase of 10.1% in the average daily revenue per
available room, an increase of 1.2% in occupancy rates, and the opening of a
new golf course at one resort.
Realty operating revenues decreased from $3.8 million in 1996 to $2.1
million in 1997 or 44.7% due primarily to decreases in sales of land held for
resale in Colorado and Ohio.
International operating revenues increased from $0.2 million in 1996 to
$3.0 million in 1997, mainly due to equity earnings from a recently opened
city club in Singapore and 1996 and 1997 acquisitions.
Direct operating costs increased 4.9%, to $142.7 million from $135.5
million, principally reflecting increased costs at mature properties. Direct
operating costs at mature properties increased to $96.5 million for the 12
weeks ended March 19, 1997 from $90.3 million for the same period in 1996 or
6.9%. The increase in direct operating costs for mature properties is due
primarily to increased health insurance premiums, an impairment loss for
assets to be disposed of, membership promotions and programs, bad debt
expense, and incentive bonus accruals.
SEASONALITY
The subsidiaries of the Company 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. 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
Inflation has not had a significant adverse impact on the Company. As
operating expenses increase, the Company, to the extent the value of services
rendered to members is not adversely impacted and as industry standards
dictate, 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
3.9% 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
Company'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 March 19,
1997. At March 19, 1997, certain subsidiaries of the Company were not in
compliance with outstanding loan agreements relating to long-term debt
totaling $12.3 million. Such noncompliance relates both to financial ratio
covenants and to nonpayment of amounts 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 19, 1997,
cash balances of $10.7 million were not available for dividends by
subsidiaries due to those restrictions.
At March 19, 1997, the Company's subsidiaries maintained $14.7 million of
unused letters of credit primarily to guarantee payment of potential insurance
claims paid under workers' compensation and general liability programs.
Commitments to fund future capital expenditures were not material as of March
19, 1997.
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 19, 1997, the value of
the Redemption Right was $42.8 million. The most recent appraised price of
the Common Stock is $11.91 as of March 19, 1997. The aggregate market value of
the Common Stock at March 19, 1997 is $1,017.4 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
Certain information in this Quarterly Report on Form 10-Q may contain
"forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
these provisions, including any projections of earnings, revenues or other
financial items, any statements of the plans and objectives of management for
future operations, any statements concerning proposed new products or
services, any statements regarding future economic conditions or performance
and any statement of assumptions underlying any of the foregoing. In some
cases, forward-looking statements can be identified by the use of terminology
such as "may," "will," "expects," "plans," "anticipates," "estimates,"
"potential" or "continue," or the negative thereof or other comparable
terminology. Although the Company believes that the expectations reflected in
its forward-looking statements are reasonable, it can give no assurance that
such expectations or any of its forward-looking statements will prove to be
correct, and actual results could differ materially from those projected or
assumed in the Company's forward-looking statements. Forward-looking
statements are subject to inherent risks and uncertainties, some of which are
summarized in this section.
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 change in the 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 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
geographic areas, the Company has experienced decreased levels of usage of its
private clubs, golf clubs, and public golf facilities. Membership attrition
at mature clubs for the 12 weeks ended March 19, 1997 was 18.5%, which was
higher than enrollment rates of 17.2% during the same period. Attrition was
primarily due to a decrease in members at city clubs. The Company is
currently analyzing the existing demands of the city club market and modifying
its existing product to more closely match these needs. In addition, the
Company continues to focus its efforts on membership enrollment programs and
quality service to reduce attrition as one of its top priorities for 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.
During 1996, the Company was successful in its efforts to control
expenses and increase revenues. While operating revenues increased 3.3%,
operating costs and expenses increased only 1.0%. It is uncertain if the
Company can continue to create operating efficiencies and thus decrease costs
in 1997 to the extent cost reductions were achieved in 1996. For the first
quarter of 1997, the Company's operating revenues increased 4.6% while
operating costs and expenses increased 4.9%.
As of April 30, 1997, the Company was in the final stages of negotiations
to acquire two properties and to build one property. The Company is
considering several ownership structures for the properties 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 $2.0 to $3.0 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 twelve months. As of March 19, 1997, $24.8 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 19,
1997 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 60 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.
<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
10.1 - Appendix C to ClubCorp Comprehensive
Compensation Plan
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 19, 1997.
<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.
CLUB CORPORATION INTERNATIONAL
Date : May 1, 1997 By: /s/ John H. Gray
-------------------------------
John H. Gray
Executive Vice President and
Chief Administrative Officer
(chief accounting officer)
EXHIBIT 15.1
Club Corporation International
Dallas, Texas
Ladies and Gentlemen:
Re: Registration Statement 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 April 24, 1997 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.
KPMG Peat Marwick
Dallas, Texas
May 1, 1997
<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 STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-19-1997
<CASH> 84,091
<SECURITIES> 0
<RECEIVABLES> 68,583
<ALLOWANCES> 4,075
<INVENTORY> 14,171
<CURRENT-ASSETS> 170,838
<PP&E> 953,923
<DEPRECIATION> 283,768
<TOTAL-ASSETS> 1,011,750
<CURRENT-LIABILITIES> 173,525
<BONDS> 0
0
0
<COMMON> 902
<OTHER-SE> 133,417
<TOTAL-LIABILITY-AND-EQUITY> 1,011,750
<SALES> 45,040
<TOTAL-REVENUES> 153,638
<CGS> 42,521
<TOTAL-COSTS> 156,970
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 907
<INTEREST-EXPENSE> 6,557
<INCOME-PRETAX> (4,080)
<INCOME-TAX> 559
<INCOME-CONTINUING> (4,639)
<DISCONTINUED> 25,277
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,638
<EPS-PRIMARY> 0.24
<EPS-DILUTED> 0.24
</TABLE>
EXHIBIT 10.1
APPENDIX C: EXECUTIVE CASH COMPONENT PLAN
I. PLAN DESIGN
A. RELATIONSHIP TO THE CLUBCORP PLAN. This ClubCorp Executive Cash
Component Plan for 1996 (the "Executive Cash Plan") is a part of and governed
by the terms and conditions of the ClubCorp Plan. All terms which are
initially capitalized in the Executive Cash Plan and are not defined in the
Executive Cash Plan, have the same meaning as the terms defined in the
ClubCorp Plan.
B. GENERAL PLAN DESCRIPTION. Total Potential Compensation targets are
established for the Executive positions by evaluating the responsibilities,
complexity and impact of each job, internal equity and market competitive
information. Specific financial targets are established as the measure of
financial performance. Qualitative performance is based on the results of a
documented performance appraisal. Total Earned Variable compensation is
distributed to Participants in the form of Cash Awards and Stock Awards.
C. ELIGIBILITY. All individuals who have been designated as eligible
individuals under the Executive Stock Option Plan of Club Corporation
International, to the extent designated as Participants pursuant to Section
3.1 of the ClubCorp Plan, shall participate in the Executive Cash Plan,
subject to the terms and conditions of the ClubCorp Plan, other than the
eligibility requirements.
II. COMPONENTS OF COMPENSATION
A. TOTAL POTENTIAL COMPENSATION consists of two components, the Fixed and
Variable Compensation.
B. TOTAL EARNED VARIABLE equals the amount earned based on achievement of
the financial targets plus the amount earned based on the individual
performance rating.
C. OVERACHIEVEMENT is capped at 120% for the financial measure.
D. MINIMUM TARGETS for both the financial and individual targets must be
achieved to qualify for any payout.
III. DISTRIBUTION
The "Fixed" is paid in cash, each payroll period. Total Earned Variable will
be paid as a Cash Award and as a Stock Award to the extent elected by the
Participant prior to the Award Date in accordance with procedures established
by the Compensation Committee. The percentage of Total Earned Variable to be
paid in Restricted Stock will be elected annually by the Participant. The
elected percentage can be 0% to 100%, in 10% increments.
