UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
__________________
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 25, 1998
Commission file numbers 33-89818, 33-96568, 333-08041 and 333-57107
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 March
25, 1998 was 85,003,839.
<PAGE>
CLUB CORPORATION INTERNATIONAL
TABLE OF CONTENTS
This Amendment No. 1 amends Part I, Item 1 and 2, and Part II, Item 6 of the
Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission
on May 8, 1998. The complete text of each item which has been amended is
included. Text of items which have not been amended are not included.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' 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
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' 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 25, 1998 and March 19,
1997 and the related consolidated statements of operations, stockholders' equity
and cash flows for the twelve weeks ended March 25, 1998 and March 19, 1997,
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, 1997
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 27, 1998 except as to Note 2 which is as of October 13, 1998, 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, 1997 is fairly presented, in all material respects, in
relation to the consolidated balance sheet from which it has been derived. Our
report on the consolidated financial statements of ClubCorp refers to a
retroactive change in the Company's method of accounting for membership
initiation deposits and fees and the related incremental direct selling costs.
As discussed in Note 2 to the accompanying consolidated financial statements
ClubCorp changed its method of accounting for membership initiation deposits and
fees and the related incremental direct selling costs and has restated the
consolidated financial statements to give retroactive effect to this change.
KPMG Peat Marwick LLP
Dallas, Texas
May 1, 1998, except as to Note 2
which is as of October 13, 1998
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
March 19, December 31, MARCH 25,
Assets 1997 1997 1998
- ------ ----------- -------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 107,982 $ 101,419 $ 128,665
Membership and other receivables, net 58,993 76,522 59,288
Inventories 14,171 14,954 16,415
Other assets 13,204 14,968 13,786
----------- -------------- -----------
Total current assets 194,350 207,863 218,154
Property and equipment, net 670,155 677,227 690,937
Other assets 126,514 143,584 142,242
----------- -------------- -----------
$ 991,019 $ 1,028,674 $1,051,333
=========== ============== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 48,321 $ 57,996 $ 48,389
Long-term debt - current portion 82,039 74,621 96,294
Other liabilities 83,843 79,995 90,782
----------- -------------- -----------
Total current liabilities 214,203 212,612 235,465
Long-term debt 217,116 181,236 180,351
Other liabilities 129,304 109,493 108,517
Membership deposits 75,778 83,066 85,525
Redemption value of common stock held by benefit plan 42,766 53,652 54,521
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,423,641 outstanding
at March 19, 1997 and 85,003,839 outstanding
at December 31, 1997 and March 25, 1998 902 902 902
Additional paid-in capital 10,500 10,607 10,607
Accumulated other comprehensive income (74) 260 130
Retained earnings 337,390 419,061 417,530
Treasury stock (36,866) (42,215) (42,215)
----------- -------------- -----------
Total stockholders' equity 311,852 388,615 386,954
----------- -------------- -----------
$ 991,019 $ 1,028,674 $1,051,333
=========== ============== ===========
</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)
Twelve Weeks Ended
------------------------
March 19, MARCH 25,
1997 1998
----------- -----------
<S> <C> <C>
Operating revenues $ 157,086 $ 171,848
Operating costs and expenses 142,898 152,529
Selling, general and administrative expenses 14,245 14,416
----------- -----------
Operating (loss) income (57) 4,903
Gain on divestitures 2,401 346
Interest and investment income 1,907 2,149
Interest expense (7,985) (7,495)
----------- -----------
Loss from continuing operations before
income taxes and minority interest (3,734) (97)
Income tax provision (959) (294)
Minority interest - (271)
----------- -----------
Loss from continuing operations (4,693) (662)
Discontinued operations:
Gain on disposal of financial services segment, net of
income tax provision of $15,221 25,146 -
----------- -----------
Net income (loss) $ 20,453 $ (662)
=========== ===========
Basic and diluted earnings per share:
Loss from continuing operations $ (0.05) $ (0.01)
Discontinued operations 0.29 -
----------- -----------
Net income (loss) $ 0.24 $ (0.01)
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Twelve Weeks Ended March 19, 1997 and March 25, 1998
(Dollars in thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
other
Common stock (100,000,000 shares comprehensive
authorized, par value $.01 per share) income
------------------------------------------- -------------
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, 1996, as restated 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 of common
stock held by benefit plan - - - - - -
---------- ---------- ----------- ------ ----------- -------------
Balances at March 19, 1997, as restated 90,219,408 4,795,767 85,423,641 $ 902 $ 10,500 $ (74)
========== ========== =========== ====== =========== =============
Balances at December 31, 1997, as restated 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 260
NET LOSS - - - - - -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - (130)
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - - - - - -
---------- ---------- ----------- ------ ----------- -------------
BALANCES AT MARCH 25, 1998, AS RESTATED 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 130
========== ========== =========== ====== =========== =============
Accumulated
other
comprehensive
income
--------------
Unrealized
Gains or
Losses on
Investments in Total
Debt and Retained Treasury Stockholders'
Equity Securities Earnings Stock Equity
------------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Balances at December 31, 1996, as restated $ (46) $ 316,470 $ (37,100) $ 290,552
Net income - 20,453 - 20,453
Stock issued in connection with bonus plans - - 234 354
Foreign currency translation adjustment - - - (20)
Market adjustment 46 - - 46
Change in redemption value of common
stock held by benefit plan - 467 - 467
------------------- ---------- ---------- ---------------
Balances at March 19, 1997, as restated $ - $ 337,390 $ (36,866) $ 311,852
=================== ========== ========== ===============
Balances at December 31, 1997, as restated $ - $ 419,061 $ (42,215) $ 388,615
NET LOSS - (662) - (662)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - (130)
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - (869) - (869)
------------------- ---------- ---------- ---------------
BALANCES AT MARCH 25, 1998, AS RESTATED $ - $ 417,530 $ (42,215) $ 386,954
=================== ========== ========== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twelve Weeks Ended
------------------------
March 19, MARCH 25,
1997 1998
----------- -----------
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ 20,453 $ (662)
Adjustments to reconcile net income (loss) to cash flows
provided from operations:
Depreciation and amortization 11,591 11,921
Gain on divestitures (2,401) (346)
Minority interest in net income of subsidiaries - 271
Gain on disposal of financial services segment (25,146) -
Equity in earnings of joint ventures (312) (17)
Amortization of discount on membership deposits 1,428 1,573
Decrease in real estate held for sale 783 2,449
Decrease in membership and other receivables, net 14,310 12,384
Decrease in accounts payable and accrued liabilities (13,759) (9,238)
Increase in deferred membership dues 4,656 3,631
Other 7,876 6,318
----------- -----------
Cash flows provided from operations 19,479 28,284
Cash flows from investing activities:
Additions to property and equipment (12,101) (19,516)
Development of real estate ventures (694) (1,168)
Acquisition of facilities (2,960) (3,037)
Proceeds from disposal of subsidiaries, net 4,292 -
Proceeds from disposal of financial services segment, net 89,968 -
Other 829 2,670
----------- -----------
Cash flows provided from (used by) investing activities 79,334 (21,051)
Cash flows from financing activities:
Borrowings of long-term debt 7,409 44,441
Repayments of long-term debt (57,205) (25,003)
Membership deposits received, net 164 575
Repayment of Federal Home Loan Bank advances (3,153) -
Dividends paid to minority shareholder of financial
services segment (12,500) -
----------- -----------
Cash flows (used by) provided from financing activities (65,285) 20,013
----------- -----------
Net cash flows $ 33,528 $ 27,246
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.CLUB
<PAGE>
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 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, 1997 which were a part of ClubCorp's
Form 10-K and Form 10-K/A Amendment No. 1.
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 25,
1998 and the consolidated results of operations and cash flows for the twelve
weeks ended March 19, 1997 and March 25, 1998, respectively. Interim results are
not necessarily indicative of fiscal year performance because of the impact of
seasonal and short-term variations.
Earnings per share
- --------------------
Earnings per share is computed using the weighted average number of shares
outstanding of 85,003,839 and 85,423,641 for basic for the twelve weeks ended
March 19, 1997 and March 28, 1998, respectively and 85,881,789 shares for
diluted for the twelve weeks ended March 19, 1997. The common stock
equivalents are antidilutive for the twelve weeks ended March 25, 1998 due to
the net loss for the quarter.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current period presentation.
NOTE 2. CHANGE IN ACCOUNTING POLICY
- ----------------------------------------
ClubCorp has changed its accounting policy for membership initiation deposits
and fees to defer such revenues and recognize them on a straight line basis over
the expected average life of active membership. Revenues from membership
initiation deposits and fees were previously recognized by ClubCorp as revenue
on the date of acceptance of the member. In addition to the deferral of
membership initiation deposits and fees, ClubCorp has deferred the related
incremental direct selling costs of membership initiation deposits and fees
(primarily commissions) and is recording such costs in the same manner as the
revenues are recognized. Accordingly, the accompanying consolidated financial
statements have been retroactively adjusted to reflect this change for all
periods presented. The impact of the restatement is summarized as follows
(dollars in thousands, except per share amounts):
<TABLE>
<CAPTION>
12 WEEKS ENDED
------------------------
March 19, MARCH 25,
1997 1998
----------- -----------
<S> <C> <C>
Operating revenues $ (2,037) $ (111)
Operating (loss) income (2,210) (294)
Loss from continuing operations
before income taxes
and minority interest (2,085) (294)
Income tax provision 34 149
Loss from continuing operations (2,179) 303
----------- -----------
Net income (loss) $ (2,179) $ 303
=========== ===========
Basic and diluted earnings per share:
Loss from continuing operations $ (0.03) $ -
----------- -----------
Net income (loss) $ (0.03) $ -
=========== ===========
</TABLE>
In addition, this change resulted in a decrease in retained earnings of
$63,424,000, $70,223,000 and $69,920,000 as of March 19, 1997, December 31, 1997
and March 28, 1998, respectively.
ClubCorp now presents changes in the redemption value of common stock held by
the benefit plan as a direct charge to retained earnings instead of a
separate component of stockholders' equity. This reclassification resulted in a
decrease in retained earnings of $42,766,000, $53,652,000 and $54,521,000 as of
March 19, 1997, December 31, 1997 and March 28, 1998, respectively. This
reclassification had no net effect on total stockholders' equity.
NOTE 3. TOTAL COMPREHENSIVE INCOME
- --------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
SFAS 130 requires that an entity include in total comprehensive income certain
amounts which were previously recorded directly to stockholders' equity. For the
twelve weeks ended March 19, 1997 and March 25, 1998 the other comprehensive
income amounts included in total comprehensive income consisted of unrealized
gains on investments in debt and equity securities and foreign currency
translation adjustments. Total comprehensive income (loss) for the twelve weeks
ended March 19, 1997 and March 25, 1998 was $20,479,000 and $(792,000),
respectively.
NOTE 4. LONG-TERM DEBT
- -------------------------
At March 25, 1998 and subsequently, certain subsidiaries were not in compliance
with debt covenants primarily due to non-payment of principal due on long-term
debt totaling $4,336,000. This amount is included in the current portion of
long-term debt in the accompanying balance sheet.
NOTE 5. OMNIBUS STOCKPLAN
- ----------------------------
The Club Corporation International Omnibus Stock Plan (Plan) was effective in
February 1998. The Plan provides for granting of stock appreciation rights,
options to purchase shares of common stock, phantom shares, restricted stock and
other stock based compensation to key employee partners. A maximum of 4,000,000
shares are authorized to be issued or transferred pursuant to awards under the
Plan. The specific provisions of the awards will be determined at the date of
grant.
NOTE 6. 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, certain related real estate, golf
clubs, and public golf courses through sole ownership, partial ownership
(including joint venture interests) and management agreements. The Company's
primary sources of revenue include membership dues, fees, and deposits, food and
beverage sales, revenues from golf operations and lodging facilities. The
Company also receives management fees with respect to facilities that it manages
for third parties.
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 25, 1998 and March 19, 1997 should be
read in conjunction with the Company's Annual Report on Form 10-K and Form
10-K/A Amendment No. 1 for the year ended December 31, 1997, as filed with the
Securities and Exchange Commission.
RESULTS OF OPERATIONS
12 WEEKS ENDED MARCH 25, 1998 COMPARED TO 12 WEEKS ENDED MARCH 19, 1997
Consolidated Operations
Operating revenues increased 9.4% to $171.8 million for the 12 weeks ended
March 25, 1998 from $157.1 million for the 12 weeks ended March 19, 1997 due
primarily to volume increases at mature properties as the number of members
increased from March 19, 1997 to March 25, 1998. 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 5.7%
to $153.1 million for the 12 weeks ended March 25, 1998 from $144.9 million for
the 12 weeks ended March 19, 1997.
Operating costs and expenses, consisting of direct operating costs,
facility rentals, maintenance, and depreciation and amortization, increased
6.7%, to $152.5 million for the 12 weeks ended March 25, 1998 from $142.9
million for the 12 weeks ended March 19, 1997, principally reflecting increased
operating costs and expenses at mature facilities which increased 4.5% to $144.5
million for the 12 weeks ended March 25, 1998 from $138.3 million for the same
period in 1997, due primarily to increases in costs of sales for food and
beverage, golf operations, and payroll costs.
Segment and Other Information - 12 weeks
Resorts
The following table presents certain summary financial data and other
operating data for the Company's resort segment for the 12 week periods ended
March 19, 1997 and March 25, 1998:
<TABLE>
<CAPTION>
Mature Resorts Total Resorts
-------------------- ------------------
1997 1998 1997 1998
--------- --------- -------- --------
<S> <C> <C> <C> <C>
(dollars in thousands)
Number of facilities at period end 6 6 8 7
Operating revenues $ 25,554 $ 26,183 $27,614 $27,509
Operating costs and expenses 27,817 28,564 31,570 31,416
--------- --------- -------- --------
Segment operating income $ (2,263) $ (2,381) $(3,956) $(3,907)
========= ========= ======== ========
Room nights available 105,859 105,605
Occupancy rate 40.2% 36.8%
Average daily room rate per occupied room $ 128 $ 136
Average daily revenue per occupied room $ 497 $ 591
</TABLE>
Operating revenues from mature resorts increased 2.5% for Pinehurst,
Homestead, Quail Hollow, and Barton Creek. Pinehurst continued to experience
significant increases in operating revenues which are attributable to its
hosting of the 1999 U.S. Open.
Country Club and Golf Facilities
The following table presents certain summary financial data and other
operating data for the Company's country club and golf facility segment for the
12 week periods ended March 19, 1997 and March 25, 1998:
<TABLE>
<CAPTION>
Mature Country Total Country
Club and Club and
Golf Facilities Golf Facilities
---------------- ----------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
(dollars in thousands)
Number of facilities at period end 101 101 112 108
Operating revenues $66,151 $70,233 $68,565 $73,247
Operating costs and expenses 59,785 61,806 62,697 64,905
------- ------- ------- -------
Segment operating income $ 6,366 $ 8,427 $ 5,868 $ 8,342
======= ======= ======= =======
</TABLE>
Operating revenues from total country club and golf facilities increased
6.8% due primarily to increased revenues at mature facilities. Operating
revenues from mature country club and golf facilities increased 6.2% for the 12
weeks ended March 25, 1998 from the 12 weeks ended March 19, 1997 due to volume
increases from a larger base of members.
City Facilities
The following table presents certain summary financial data and other
operating data for the Company's city facility segment for the 12 week periods
ended March 19, 1997 and March 25, 1998:
<TABLE>
<CAPTION>
Mature Total
City City
Facilities Facilities
---------------- ----------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
(dollars in thousands)
Number of facilities at period end 92 92 97 93
Operating revenues $53,182 $56,597 $54,356 $57,289
Operating costs and expenses 50,677 54,128 52,108 54,905
------- ------- ------- -------
Segment operating income $ 2,505 $ 2,469 $ 2,248 $ 2,384
======= ======= ======= =======
</TABLE>
Operating revenues from total city facilities increased 5.4% from March 19,
1997 to March 25, 1998 primarily due to increased revenues at mature facilities.
Operating revenues from mature city facilities increased 6.4% due to an increase
in members and facilities usage.
International and Realty
Realty operating revenues increased to $6.5 million in 1998 from $2.5
million in 1997, due primarily to increases in sales of land held for resale in
Colorado and South Carolina.
International operating revenues increased to $1.9 million in 1998 from
$1.2 million in 1997, mainly due to increased equity earnings from a city club
in Singapore opened in 1997.
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 property 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 and long-term debt. Membership deposits
collected by a subsidiary are used to finance such subsidiary's operations and
capital expenditures. 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
3.8% to 5.3% 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.
The Company has committed to provide updated technology to all of its
properties over the next two years. This technology will include installation
of point-of-sale hardware and software, replacement of computer hardware and
software to provide network capabilities, the purchase of new accounting
software and hardware, and the installation of electronic time management
systems which will interface with accounting software. In January of 1998, the
Company signed an agreement with Oracle Corporation to purchase new software for
its accounting, purchasing, and human resources applications. The decision to
acquire Oracle's software was made primarily to better enable management to
improve operating efficiencies, exceed member expectations, grow the people,
performance, profits, and markets by re-engineering processes using enterprise
resource planning software. Executive management has pledged to allocate the
necessary resources to develop additional technology applications and tools that
will allow the properties to operate more effectively and efficiently and to
increase the value of membership in conjunction with service excellence.
Completion of the technology upgrade, including conversion of the existing
software, is expected to require approximately $39.0 to $44.0 million in
expenditures, of which $35.0 to $40.0 million will be capitalized. The upgrade
will be funded through both a capital lease with a bank over a four to five year
period and through cash flows from operations.
Computer programs were historically written using two digits rather than
four digits to identify the year. The computer might then recognize the two
digits "00" as year 1900 rather than year 2000 resulting in possible system
failures, miscalculations, and/or loss of data. This is referred to as the
"Year 2000" issue. Implementation of Oracle software addresses the Year 2000
issue and is expected to be completed by November 1999. If the conversion is
not completed in a timely manner, Year 2000 issues may have a significant impact
on the Company's operations. The Company does not believe that the Year 2000
problem will have a material adverse effect on the business operations or the
financial performance of the Company. There can be no assurance, however, that
the Year 2000 problem will not adversely affect the Company and its business.
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 advance initiation deposits paid by members and
are generally refundable 30 years from the date of acceptance as a member.
Management does not consider maturities of membership deposits over the next
five years to be significant. 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 25, 1998. At March 25,
1998, certain subsidiaries of the Company were not in compliance with
outstanding loan agreements relating to long-term debt totaling $4.3 million.
Such noncompliance relates primarily 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 25, 1998, cash
balances of $8.4 million were not available for dividends by subsidiaries due to
those restrictions.
At March 25, 1998, the Company's subsidiaries maintained $14.6 million of
unused letters of credit primarily to guarantee payment of potential insurance
claims under workers' compensation and general liability programs.
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 25, 1998,
the value of the Redemption Right was $54.5 million. The most recent appraised
price of the Common Stock is $14.44 as of March 25, 1998. The aggregate market
value of the Common Stock at March 25, 1998 is $1,227.5 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
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.
The success of the Company depends on the Company's ability to attract and
retain members at its clubs and maintain or increase usage of its facilities.
The Company continues to focus its efforts on membership enrollment programs and
quality service to reduce attrition as one of its top priorities for 1998. 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
continuing to implement member survey suggestions and increasing the involvement
of member boards of governors in planning day-to-day activities. Although
retention of existing members is one of ClubCorp's top priorities and the
Company devotes substantial efforts to ensuring that members and customers are
satisfied, many of the factors affecting club membership and facility usage are
beyond the control of the Company. There can be no assurance that the Company
will be able to maintain or increase membership or facilities' usage.
Significant periods of attrition rates exceeding enrollments rates or facility
usage below historical levels could have a material adverse effect on the
Company's business, operating results, and financial condition.
As of May 7, 1998, the Company was in the final stages of negotiations to
acquire one property. The consummation of the acquisition of this property is
expected to require approximately $6.0 to $7.0 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 25, 1998, $50.2 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 25, 1998 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.
Club Corporation International is negotiating with a group of banks for a
$300 million unsecured senior revolving credit facility. It is anticipated that
interest rates under this facility will be substantially lower than current
interest rates on existing indebtedness. The proceeds of the facility would be
used for refinancing existing debt, working capital, capital expenditures and
acquisitions. Closing is expected to occur in the second quarter of 1998.
There can be no assurance that the negotiations will be successful.
<PAGE>
PART II. OTHER INFORMATION
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 March 25, 1998.
<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.
CLUBCORP INTERNATIONAL, INC.
(formerly Club Corporation International)
Date: October 22, 1998 By: /s/ James P. McCoy, Jr.
-----------------------------------------
James P. McCoy, Jr.
Executive Vice President and
Chief Financial Officer
(chief accounting officer)
EXHIBIT 15.1
Club Corporation International
Dallas, Texas
Ladies and Gentlemen:
Re: Registration Statement Nos. 33-89818, 33-96568, 333-08041 and 333-57107
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated May 1, 1998, except as to Note
2 which is as of October 13, 1998, 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 LLP
Dallas, Texas
October 22, 1998
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
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STATEMENTS.
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