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 25, 1998
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 March
25, 1998 was 85,003,839.
<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 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, 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.
KPMG Peat Marwick LLP
Dallas, Texas
May 1, 1998
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
MARCH 25, December 31, March 19,
Assets 1998 1997 1997
------ ----------- -------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 128,665 $ 101,419 $ 107,982
Membership and other receivables, net 59,288 76,522 58,993
Inventories 16,415 14,954 14,171
Other assets 13,831 14,546 13,604
----------- -------------- -----------
Total current assets 218,199 207,441 194,750
Property and equipment, net 690,937 677,227 670,292
Other assets 124,555 126,884 127,693
----------- -------------- -----------
$1,033,691 $ 1,011,552 $ 992,735
=========== ============== ===========
Liabilities and Stockholders' Equity
-------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 48,389 $ 57,996 $ 48,321
Long-term debt - current portion 96,294 74,621 82,039
Other liabilities 64,351 53,974 60,154
----------- -------------- -----------
Total current liabilities 209,034 186,591 190,514
Long-term debt 180,351 181,236 217,116
Other liabilities 47,386 48,169 91,148
Membership deposits 85,525 83,066 75,778
Redemption value of common stock held by benefit plan 54,521 53,652 42,766
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,003,839 outstanding
at March 25, 1998, and December 31, 1997
and 85,423,641 outstanding at March 19, 1997 902 902 902
Additional paid-in capital 10,607 10,607 10,500
Accumulated other comprehensive income 130 260 (74)
Retained earnings 541,971 542,936 443,580
Treasury stock (42,215) (42,215) (36,866)
Redemption value of common stock held by benefit plan (54,521) (53,652) (42,766)
----------- -------------- -----------
Total stockholders' equity 456,874 458,838 375,276
----------- -------------- -----------
$1,033,691 $ 1,011,552 $ 992,598
=========== ============== ===========
</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 25, March 19,
1998 1997
----------- -----------
<S> <C> <C>
Operating revenues $ 171,959 $ 159,123
Operating costs and expenses 152,346 142,795
Selling, general and administrative expenses 14,416 14,245
----------- -----------
Income from operations 5,197 2,083
Gain on divestitures 346 2,276
Interest and investment income 2,149 2,010
Interest expense (7,495) (7,985)
----------- -----------
Income (loss) from continuing operations before
income taxes and minority interest 197 (1,616)
Income tax provision (443) (993)
Minority interest (719) 95
----------- -----------
Loss from continuing operations (965) (2,514)
Discontinued operations:
Gain on disposal of financial services segment, net of
income tax provision of $15,221 - 25,146
----------- -----------
Net income (loss) $ (965) $ 22,632
=========== ===========
Basic and diluted earnings per share:
Loss from continuing operations $ (0.01) $ (0.03)
Discontinued operations - 0.29
----------- -----------
Net income (loss) $ (0.01) $ 0.26
=========== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Twelve Weeks Ended March 25, 1998 and March 19, 1997
(Dollars in thousands, except share amounts)
(Unaudited)
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 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)
========== ========== =========== ====== =========== =============
Balances at December 31, 1997 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 260
NET LOSS - - - - - -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - (130)
CHANGE IN REDEMPTION VALUE - - - - - -
---------- ---------- ----------- ------ ----------- -------------
BALANCES AT MARCH 25, 1998 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 130
========== ========== =========== ====== =========== =============
Accumulated
other
comprehensive
income
-------------------
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, 1996 $ (46) $ 420,948 $ (37,100) $ (43,233) $ 351,797
Net income - 22,632 - - 22,632
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 $ - $ 443,580 $ (36,866) $ (42,766) $ 375,276
=================== ========== ========== ============== ===============
Balances at December 31, 1997 $ - $ 542,936 $ (42,215) $ (53,652) $ 458,838
NET LOSS - (965) - - (965)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - (130)
CHANGE IN REDEMPTION VALUE - - - (869) (869)
------------------- ---------- ---------- -------------- ---------------
BALANCES AT MARCH 25, 1998 $ - $ 541,971 $ (42,215) $ (54,521) $ 456,874
=================== ========== ========== ============== ===============
</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 25, March 19,
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ (965) $ 22,632
Adjustments to reconcile net income (loss) to cash flows
provided from operations:
Depreciation and amortization 11,921 11,591
Gain on divestitures (346) (2,276)
Minority interest in net earnings (losses) of subsidiaries 719 (95)
Gain on disposal of financial services segment - (25,146)
Equity in (earnings) losses of joint ventures 114 (2,226)
Amortization of discount on membership deposits 1,573 1,428
Decrease in real estate held for sale 2,449 783
Decrease in membership and other receivables, net 12,384 14,310
Decrease in accounts payable and accrued liabilities (9,238) (13,759)
Increase in deferred membership dues 3,467 4,790
Other 6,206 7,447
----------- -----------
Cash flows provided from operations 28,284 19,479
Cash flows from investing activities:
Additions to property and equipment (19,516) (12,101)
Development of real estate ventures (1,168) (694)
Acquisition of facilities (3,037) (2,960)
Proceeds from disposal of subsidiaries, net - 4,292
Proceeds from disposal of financial services segment, net - 89,968
Other 2,670 829
----------- -----------
Cash flows provided from (used by) investing activities (21,051) 79,334
Cash flows from financing activities:
Borrowings of long-term debt 44,441 7,409
Repayments of long-term debt (25,003) (57,205)
Membership deposits received, net 575 164
Repayment of Federal Home Loan Bank advances - (3,153)
Dividends paid to minority shareholder of financial
services segment - (12,500)
----------- -----------
Cash flows provided from (used by) financing activities 20,013 (65,285)
----------- -----------
Net cash flows $ 27,246 $ 33,528
=========== ===========
</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 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.
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 25, 1998 and March 19,
1997 and the consolidated results of operations and cash flows for the twelve
weeks ended March 25, 1998 and March 19, 1997, 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 first quarter 1998
and 1997, respectively and 85,881,789 shares for diluted for first quarter 1997.
The common stock equivalents are antidilutive for first quarter 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. 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 25, 1998 and March 19, 1997 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 25, 1998 and March 19, 1997 was $(1,095,000) and $22,658,000,
respectively.
NOTE 3. 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 4. OMNIBUS STOCK PLAN
- -----------------------------
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 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, 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 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
Operating revenues increased 8.1% to $172.0 million for the 12 weeks ended
March 25, 1998 from $159.1 million for the 12 weeks ended March 19, 1997 due
primarily to volume increases at mature properties as the number of members has
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 7.4%
from $143.8 million for the 12 weeks ended March 19, 1997 to $154.5 million for
the 12 weeks ended March 25, 1998.
Operating revenues from mature private club properties increased 8.3% to
$116.3 million for the 12 weeks ended March 25, 1998 from $107.4 million for the
12 weeks ended March 19, 1997 due to volume increases from a larger base of
members. Mature private club membership dues and food and beverage revenues
increased from $56.9 million and $43.2 million, respectively, for the 12 weeks
ended March 19, 1997 to $60.2 million and $47.0 million for the same period in
1998 or 5.8% and 8.8%, respectively, also due to volume increases from a larger
base of members from 1997 to 1998.
Realty operating revenues increased from $2.2 million in 1997 to $5.4
million in 1998 due primarily to increases in sales of land held for resale in
Colorado and South Carolina.
International operating revenues decreased from $3.0 million in 1997 to
$1.9 million in 1998, mainly due to decreased equity earnings from a city club
in Singapore opened in 1997.
Operating costs and expenses, representing direct operating costs, facility
rentals, operations, and maintenance, and depreciation and amortization,
increased 6.7%, to $152.3 million for the 12 weeks ended March 25, 1998 from
$142.8 million for the 12 weeks ended March 19, 1997, principally reflecting
increased direct operating costs at mature properties. Direct operating costs at
mature properties increased to $103.9 million for the 12 weeks ended March 25,
1998 from $98.6 million for the same period in 1997 or 5.4%. The increase in
direct operating costs for mature properties is due primarily to volume
increases in food and beverage and golf and inflationary payroll cost increases.
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 5.2% 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 prior to the year 2000. 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.
Over the last three years, quarterly attrition rates among members of the
Company's mature clubs have ranged from approximately 17.5% to 20.0%.
Membership attrition at mature clubs for the 12 weeks ended March 25, 1998 was
20.0%, which was higher than enrollment rates of 18.8% during the same period.
Historically, the Company's net enrollment rates are lowest during the first
quarter of each year due primarily to poor weather conditions in certain major
markets served. 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. It is uncertain how trends in membership and club usage will develop
in the future, or whether any of the Company's efforts in this area will be
successful.
As of May 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 1. Legal Proceedings
Refer to Note 5 to Condensed Notes to Consolidated Financial
Statements.
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Refer to Note 3 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
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.
CLUB CORPORATION INTERNATIONAL
Date: May 8, 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 and 333-08041
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated May 1, 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
May 8, 1998
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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
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