UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q/A
AMENDMENT NO. 1
__________________
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 3, 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: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No.
-----
The number of shares of the Registrant's Common Stock outstanding as of
September 3, 1997 was 85,218,416.
<PAGE>
CLUB CORPORATION INTERNATIONAL
TABLE OF CONTENTS
This Amendment No. 1 amends Part I, Item 1 and Item 2, and Part II, Item 6 of
the Quarterly Report on Form 10-Q filed with the Securities and Exchange
Commission on October 16, 1997. 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 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
Item 6. Exhibits and Reports on Form 8-K
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REVIEW REPORT
-----------------------------------
The Board of Directors
Club Corporation International:
We have reviewed the consolidated balance sheet of Club Corporation
International and subsidiaries (ClubCorp) as of September 3, 1997 and
September 30, 1996 and the related consolidated statements of operations for
the twelve weeks and thirty six weeks ended September 3, 1997 and the three
months and nine months ended September 30, 1996 and stockholders' equity and
cash flows for the thirty six weeks and nine months ended September 3, 1997
and September 30, 1996, respectively. These consolidated financial statements
are the responsibility of the Company's management.
We conducted our review 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, except as to the twenty-eighth and
twenty-ninth paragraphs of Note 1 which are as of January 16, 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, 1996, 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 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, and to a retroactive change in its method
of accounting for membership deposits and the restatement of the consolidated
financial statements for this change.
As discussed in Note 1 to the consolidated financial statements, ClubCorp
changed its method of accounting for membership deposits and has restated the
consolidated financial statements to give retroactive effect to this change.
KPMG Peat Marwick LLP
Dallas, Texas
October 10, 1997, except as to the eighth and ninth
paragraphs of Note 1 which are as of January 16, 1998
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
SEPTEMBER 3, December 31, September 30,
Assets 1997 1996 1996
- ------ -------------- -------------- ---------------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 112,432 $ 74,454 $ 68,234
Membership and other receivables, net 74,241 73,139 66,194
Inventories 15,365 13,886 13,908
Other assets 14,980 14,501 15,931
-------------- -------------- ---------------
Total current assets 217,018 175,980 164,267
Property and equipment, net 665,391 663,387 650,815
Other assets 119,602 125,161 132,309
Financial services assets - 589,482 590,567
-------------- -------------- ---------------
$ 1,002,011 $ 1,554,010 $ 1,537,958
============== ============== ===============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 44,930 $ 54,933 $ 45,825
Long-term debt - current portion 71,376 120,694 112,200
Other liabilities 60,989 44,371 49,063
-------------- -------------- ---------------
Total current liabilities 177,295 219,998 207,088
Long-term debt 195,203 223,223 235,914
Other liabilities 93,428 82,425 81,817
Membership deposits 89,917 84,088 82,195
Financial services liabilities - 549,246 552,024
Redemption value of common stock held by benefit plan 49,878 43,233 39,930
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,218,416 outstanding
at September 3, 1997, 85,393,241 at December 31, 1996
and 85,476,674 outstanding at September 30, 1996 902 902 902
Additional paid-in capital 10,593 10,380 10,380
Foreign currency translation adjustment 48 (54) (9)
Unrealized losses on investments in debt and equity securities - (46) (143)
Retained earnings 473,918 420,948 403,919
Treasury stock (39,293) (37,100) (36,129)
Redemption value of common stock held by benefit plan (49,878) (43,233) (39,930)
-------------- -------------- ---------------
Total stockholders' equity 396,290 351,797 338,990
-------------- -------------- ---------------
$ 1,002,011 $ 1,554,010 $ 1,537,958
============== ============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
Twelve and Thirty Six Weeks Ended September 3, 1997
and Three and Nine Months Ended September 30, 1996
(Dollars in thousands, except per share amounts)
(Unaudited)
12 WEEKS 3 Months 36 WEEKS 9 Months
ENDED Ended ENDED Ended
SEPTEMBER 3, September 30, SEPTEMBER 3, September 30,
1997 1996 1997 1996
-------------- --------------- -------------- ---------------
<S> <C> <C> <C> <C>
Operating revenues $ 193,695 $ 182,895 $ 554,585 $ 528,193
Operating costs and expenses 162,971 155,174 466,091 447,870
Selling, general and administrative expenses 15,597 14,495 45,406 43,768
-------------- --------------- -------------- ---------------
Income from operations 15,127 13,226 43,088 36,555
Gain (loss) on divestitures (5,854) (586) 5,932 (2,937)
Interest and investment income 2,875 3,750 6,546 9,011
Interest expense (7,129) (8,145) (23,335) (23,785)
Other expense (90) (2,809) (90) (3,157)
-------------- --------------- -------------- ---------------
Income from continuing operations before income
tax provision and minority interest 4,929 5,436 32,141 15,687
Income tax provision (1,459) (736) (4,282) (2,263)
Minority interest (92) 256 (35) 440
-------------- --------------- -------------- ---------------
Income from continuing operations 3,378 4,956 27,824 13,864
Discontinued operations:
Loss from discontinued operations of financial
services segment, net of income tax provision
of $738 for the three months and $723 for the
nine months ended September 30, 1996 - (1,681) - (137)
Gain (loss) on disposal of financial services segment,
net of income tax (provision) benefit of ($15,221)
for the thirty six weeks ended September 3, 1997
and ($196) for the three months ended and $8,435
for the nine months ended September 30, 1996 - 306 25,146 (13,096)
-------------- --------------- -------------- ---------------
- (1,375) 25,146 (13,233)
-------------- --------------- -------------- ---------------
Net income $ 3,378 $ 3,581 $ 52,970 $ 631
============== =============== ============== ===============
Earnings per share:
Income from continuing operations $ 0.04 $ 0.06 $ 0.33 $ 0.16
Discontinued operations - (0.02) 0.29 (0.15)
-------------- --------------- -------------- ---------------
Net income $ 0.04 $ 0.04 $ 0.62 $ 0.01
============== =============== ============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirty Six Weeks Ended September 3, 1997 and
Nine Months Ended September 30, 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, as restated 90,219,408 4,552,376 85,667,032 $ 902 $ 10,075 $ (51)
Net income - - - - - -
Purchase of treasury stock - 325,053 (325,053) - - -
Reissuance of treasury stock - (24,258) 24,258 - 71 -
Stock issued in connection with bonus plans - (110,437) 110,437 - 234 -
Foreign currency translation adjustment - - - - - 42
Change in unrealized gains and losses - - - - - -
Change in redemption value - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at September 30, 1996 90,219,408 4,742,734 85,476,674 $ 902 $ 10,380 $ (9)
========== ========== ============ ====== =========== =============
Balances at December 31, 1996, as restated 90,219,408 4,826,167 85,393,241 $ 902 $ 10,380 $ (54)
NET INCOME - - - - - -
PURCHASE OF TREASURY STOCK - 229,498 (229,498) - - -
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - (54,673) 54,673 - 213 -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - 102
CHANGE IN UNREALIZED GAINS AND LOSSES - - - - - -
CHANGE IN REDEMPTION VALUE - - - - - -
---------- ---------- ------------ ------ ----------- -------------
BALANCES AT SEPTEMBER 3, 1997 90,219,408 5,000,992 85,218,416 $ 902 $ 10,593 $ 48
========== ========== ============ ====== =========== =============
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, as restated $ (11,812) $ 403,288 $ (33,743) $ (35,414) $ 333,245
Net income - 631 - - 631
Purchase of treasury stock - - (3,385) - (3,385)
Reissuance of treasury stock - - 183 - 254
Stock issued in connection with bonus plans - - 816 - 1,050
Foreign currency translation adjustment - - - - 42
Change in unrealized gains and losses 11,669 - - - 11,669
Change in redemption value - - - (4,516) (4,516)
------------------- --------- ---------- -------------- ---------------
Balances at September 30, 1996 $ (143) $ 403,919 $ (36,129) $ (39,930) $ 338,990
=================== ========= ========== ============== ===============
Balances at December 31, 1996, as restated $ (46) $ 420,948 $ (37,100) $ (43,233) $ 351,797
NET INCOME - 52,970 - - 52,970
PURCHASE OF TREASURY STOCK - - (2,617) - (2,617)
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - - 424 - 637
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - 102
CHANGE IN UNREALIZED GAINS AND LOSSES 46 - - - 46
CHANGE IN REDEMPTION VALUE - - - (6,645) (6,645)
------------------- --------- ---------- -------------- ---------------
BALANCES AT SEPTEMBER 3, 1997 $ - $ 473,918 $ (39,293) $ (49,878) $ 396,290
=================== ========= ========== ============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
Thirty Six Weeks Ended September 3, 1997 and
Nine Months Ended September 30, 1996
(Dollars in thousands)
(Unaudited)
SEPTEMBER 3, September 30,
1997 1996
-------------- ---------------
<S> <C> <C>
Cash flows from operations:
Net income $ 52,970 $ 631
Adjustments to reconcile net income to cash flows
provided from operations:
Depreciation and amortization 33,183 33,611
Loss (gain) on divestitures (5,932) 2,937
Minority interest in net income (losses) of subsidiary 35 (440)
Gain on disposal of financial services segment (25,146) -
Equity in earnings in partnerships and joint ventures (3,563) (1,047)
Amortization of discount on membership deposits 4,280 3,727
Decrease in real estate held for sale 6,938 8,029
Increase in membership and other receivables (1,253) (832)
Decrease in accounts payable and accrued liabilities (9,524) (1,797)
Increase in deferred membership dues 3,532 1,322
Other 13,584 3,274
Net change in operating assets of discontinued operations - 13,326
-------------- ---------------
Cash flows provided from operations 69,104 62,741
Cash flows from investing activities:
Additions to property and equipment (41,093) (32,276)
Development of new facilities (4,390) (2,556)
Development of real estate ventures (5,011) (11,893)
Acquisition of facilities (2,960) (38,303)
Proceeds from disposition of assets and subsidiaries, net 13,074 -
Proceeds from disposal of financial services segment 89,968 -
Other 6,625 6,620
Investing activities of discontinued operations - 298,719
-------------- ---------------
Cash flows provided from investing activities 56,213 220,311
Cash flows from financing activities:
Borrowings of long-term debt 11,902 54,806
Repayments of long-term debt (81,838) (23,548)
Membership deposits received, net 867 (43)
Treasury stock transactions, net (2,617) (3,131)
Repayment of Federal Home Loan Bank advances (3,153) -
Dividends paid to minority shareholder of financial services segment (12,500) -
Financing activities of discontinued operations - (327,378)
-------------- ---------------
Cash flows used by financing activities (87,339) (299,294)
-------------- ---------------
Total net cash flows 37,978 (16,242)
Net cash flows from discontinued operations - (28,566)
-------------- ---------------
Net cash flows from continuing operations $ 37,978 $ 12,324
============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
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/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 September 3, 1997 and
September 30, 1996 and the consolidated results of operations and cash flows
for the interim periods then ended. Interim results are not necessarily
indicative of fiscal year performance because of the impact of seasonal and
short-term variations.
Fiscal periods
- ---------------
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 third quarter of 1997 includes the
twelve and thirty six weeks ended September 3, whereas the third quarter of
1996 includes the three and nine months ended September 30. 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 September 4, 1996 and September 30, 1996 recorded in the consolidated
financial statements. The accounts of Franklin are included from December 31,
1995 to September 30, 1996.
Earnings per share
- --------------------
Earnings per share is computed using the weighted average number of shares
outstanding of 85,222,588 and 85,538,585 for the twelve weeks and three months
ended, and 85,341,186 and 85,651,928 for the thirty six weeks and nine months
ended September 3, 1997 and September 30, 1996, respectively.
Revenue recognition
- --------------------
Revenue from green fees, lodging, cart rentals, food and beverage sales and
merchandise sales are generally recognized at the time of sale or when the
service is provided.
Revenues from membership dues are generally billed monthly and recognized in
the period earned. The monthly dues are expected to cover the cost of
providing future membership services. Membership deposits are generally
refundable in 30 years from the date of acceptance as a member. The
difference between the amount of the membership deposit paid and the present
value of the obligation is recognized as revenue upon acceptance, unless
uncertainty surrounding collection exists.
ClubCorp has previously recorded membership deposits at the face amount of the
obligation when received; however, based on the review of the relevant
accounting literature and accounting practices within the hospitality
industry, ClubCorp has determined that the accounting policy for membership
deposits as described above is appropriate. Accordingly, the accompanying
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):
<TABLE>
<CAPTION>
12 WEEKS 36 WEEKS 3 Months 9 Months
-------------------- --------------------
ENDED Ended
SEPTEMBER 3, 1997 September 30, 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Income from operations $6,913 $20,916 $6,442 $18,724
Income from continuing
operations before income
taxes and minority interest 5,466 14,662 4,020 8,138
Income from continuing
operations 4,405 11,954 3,517 6,946
Net income $4,405 $11,954 $3,517 $ 6,946
====== ======= ====== =======
Earnings per share:
Income from continuing
operations $ 0.05 $ 0.04 $ 0.14 $ 0.08
Net income $ 0.05 $ 0.04 $ 0.14 $ 0.08
====== ======= ====== =======
</TABLE>
This change also resulted in a decrease in the liability for membership
deposits of $310,895,000 and $296,714,000 and $290,506,000 and an increase in
retained earnings of $250,917,000, $238,963,000 and $233,400,000 as of
September 3, 1997, December 31, 1996 and September 30, 1996, respectively. In
addition, retained earnings as of December 31, 1995 increased $226,454,000.
Recent accounting pronouncements
- ----------------------------------
In February 1997, the Financial Accounting Standards Board (FASB) 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.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 establishes standards for
reporting information about operating segments in interim and annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. SFAS 131 is
effective for financial statements for periods beginning after December 15,
1997.
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. Currently, no
claims have been asserted. On September 30, 1997, one contingency period
expired decreasing the obligation to $3,000,000. 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 for the thirty six weeks ended September 3, 1997.
In January 1997, Franklin paid $62,500,000 in dividends to its shareholders.
ClubCorp used a majority of its dividend to repay long-term debt.
NOTE 3. LONG-TERM DEBT
- -------------------------
At September 3, 1997 and subsequently, certain subsidiaries were not in
compliance with outstanding loan agreements relating to long-term debt
totaling $9,220,000. The noncompliance relates both to financial ratio
covenants and to nonpayment of amounts due under the terms of such agreements.
NOTE 4. 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 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 fee golf courses and related real estate.
Historically, ClubCorp also 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. The sale was
consummated on January 2, 1997 for $90.0 million. A gain of $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" shall 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 and 36 weeks ended September 3, 1997 and September 4,
1996 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, 1996, as
filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
12 WEEKS ENDED SEPTEMBER 3, 1997 COMPARED TO 12 WEEKS ENDED SEPTEMBER 4, 1996
Operating revenues increased by 5.9% to $193.7 million for the 12 weeks
ended September 3, 1997 from $182.9 million for the 12 weeks ended September
4, 1996 resulting primarily from inflationary price increases on membership
dues and golf related revenues at mature properties and to slightly improved
membership trends. Operating revenues of mature properties (i.e., those for
which a comparable period of activity exists, generally those owned for at
least eighteen months to two years) increased from $154.2 million to $169.3
million for the 12 weeks ended September 3, 1997, an increase of 9.8%.
Operating revenues from mature private club properties increased from
$111.6 million for the 12 weeks ended September 4, 1996 to $120.0 million for
the same period in 1997, or 7.5%. Membership dues at mature private clubs
increased 5.0% from $56.2 million in 1996 to $59.0 million in 1997 due to
inflationary price increases and slightly improved membership trends. Usage
revenues for mature private club properties (i.e., food and beverage, golf,
lodging, and other recreation) increased 8.0% to $58.1 million for the 12
weeks ended September 3, 1997 from $53.8 million for the same period in 1996.
Operating revenues from golf clubs (i.e., those clubs which offer both
private and public play) grew 12.5% from $5.6 million for the 12 weeks ended
September 4, 1996 to $6.3 million for the 12 weeks ended September 3, 1997
resulting primarily from acquisitions in 1996 and volume increases at mature
properties. Operating revenues from mature golf clubs increased to $5.3
million in 1997 from $4.8 million for the 12 weeks ended September 4, 1996 or
10.4%, reflecting an increase of 8.0% in rounds played combined with an
increase of 2.6% in revenue per round.
Operating revenues from public fee courses (i.e., those clubs which
exclusively offer public play) increased by 22.2% to $11.0 million for the 12
weeks ended September 3, 1997 from $9.0 million for the 12 weeks ended
September 4, 1996 due primarily to a 1996 acquisition and volume increases at
mature properties. Mature public fee operating revenues increased to $8.8
million from $7.6 million in 1996 or 15.8%, reflecting an increase in rounds
played of 18.9% offset by a 2.3% decrease in revenue per round.
Direct operating costs increased 5.0% to $163.0 million in 1997 from
$155.2 million for the 12 weeks ended September 4, 1996 principally reflecting
increased variable costs at mature properties. Direct operating costs at
mature properties increased to $136.7 million for the 12 weeks ended September
3, 1997 from $124.8 million for the same period in 1996, or 9.5% due to
increased variable costs.
Selling, general and administrative expenses represent primarily the
costs of executive management and various support services provided to
properties from corporate and regional personnel and certain holding company
expenses. These costs increased from $14.5 million for the 12 weeks ended
September 4, 1996 to $15.6 million for the 12 weeks ended September 3, 1997,
or 7.6% due to higher levels of international new business and development
costs.
Gain (loss) on divestitures of $(5.9) million for the 12 weeks ended
September 3, 1997 primarily represents a loss on the sale of a resort during
the third quarter.
Interest expense decreased from $8.1 million for the 12 weeks ended
September 4, 1996 to $7.1 million for the 12 weeks ended September 3, 1997, or
14.1%, primarily due to the repayment of external bridge financing of Club
Corporation of America. Interest expense at mature properties increased only
$0.2 million or 3.4% from $5.9 million in 1996 to $6.1 million for the 12
weeks ended September 3, 1997.
Other expense of $2.9 million for the 12 weeks ended September 4, 1996 is
primarily due to an accrual for pending litigation in the ordinary course of
business.
36 WEEKS ENDED SEPTEMBER 3, 1997 COMPARED TO 36 WEEKS ENDED SEPTEMBER 4, 1996
Operating revenues increased 5.0% to $554.6 million for the 36 weeks
ended September 3, 1997 from $528.2 million for the 36 weeks ended September
4, 1996, resulting primarily from inflationary price increases on membership
dues and golf related revenues at mature properties and to slightly improved
membership trends. Operating revenues of mature properties (i.e., those for
which a comparable period of activity exists, generally those owned for at
least eighteen months to two years) increased from $458.1 million to $486.2
million for the 36 weeks ended September 3, 1997, an increase of 6.1%.
Operating revenues from mature private club properties increased 4.4%
from $331.5 million in 1996 to $346.1 million for the 36 weeks ended September
3, 1997. Membership dues at mature private clubs increased 4.3% to $173.0
million for the 36 weeks ended September 3, 1997 from $165.8 million for the
36 weeks ended September 4, 1996, due to inflationary price increases and
slightly improved membership trends. Membership enrollment at mature clubs
for the 36 weeks ended September 3, 1997 was 19.0%, which is higher than
attrition rates of 18.0% during the same period resulting in a 1.0% net
enrollment rate. For the 36 weeks ended September 4, 1996, enrollment was
equal to attrition at 17.5%. Usage revenues for mature private club
properties (i.e., food and beverage, golf, lodging, and other recreation)
increased 3.9% to $167.8 million for the 36 weeks ended September 3, 1997 from
$161.5 million for the same period in 1996.
Operating revenues from golf clubs grew 22.1% from $18.1 million in 1996
to $22.1 million in 1997 resulting primarily from acquisitions in 1996 and
increases at mature properties. Operating revenues from mature golf clubs
increased 9.0% to $17.0 million for the 36 weeks ended September 3, 1997 from
$15.6 million for the same period in 1996, reflecting an increase of 3.3% in
rounds played combined with an increase of 5.7% in revenue per round.
Operating revenues from public fee courses (i.e., those clubs which
exclusively offer public play) increased to $24.1 million for the 12 weeks
ended September 3, 1997 from $21.7 million for the 12 weeks ended September 4,
1996 or 11.1% due primarily to a 1996 acquisition and volume increases at
mature properties. Mature public fee operating revenues increased to $20.0
million from $17.9 million for the 36 weeks ended September 4, 1996 or 11.7%,
reflecting an increase in rounds played of 13.8% offset by a 2.3% decrease in
revenue per round.
Resort operating revenues increased 10.1% from $102.5 million for the 36
weeks ended September 4, 1996 to $112.9 million in 1997 due to volume
increases at mature properties and a 1996 acquisition. Operating revenues
from mature resorts increased from $93.2 million for the 36 weeks ended
September 4, 1996 to $103.1 million for the 36 weeks ended September 3, 1997,
an increase of 10.6%, reflecting an increase of 11.4% in the average daily
revenue per available room, an increase of 3.7% in occupancy rates, and an
increase of 5.1% in the average daily room rate per occupied room.
Realty operating revenues decreased from $16.7 million in 1996 to $12.9
million in 1997, or 22.8%, primarily due to decreased real estate sales of
land held for resale in Ohio and South Carolina.
International operating revenues increased to $6.7 million in 1997 from
$1.6 million in 1996 due primarily to equity in earnings from a city club
joint venture in Singapore and a 1996 and a 1997 acquisition.
Direct operating costs increased 4.1% to $466.1 million for the 36 weeks
ended September 3, 1997 from $447.9 million for the 36 weeks ended September
4, 1996 principally reflecting increased costs at mature properties. Direct
operating costs at mature properties increased to $399.0 million for the 36
weeks ended September 3, 1997 from $379.0 million for the same period in 1996
or 5.3%. The increase in direct operating costs for mature properties is due
primarily to volume increases, inflationary payroll cost increases, increased
health insurance premiums, an impairment loss on assets to be disposed of 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 purchases or leases of operating properties, 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
for 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 5.9% 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. Commitments to fund future capital
expenditures are not material as of September 3, 1997.
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, and the purchase of electronic time
clocks which will interface with accounting 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. Completion of the technology rollout is
expected to require approximately $25.0 to $30.0 million in capital
expenditures to be funded through a capital lease with a bank over a four to
five year period.
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 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 September
3, 1997. At September 3, 1997, certain subsidiaries of the Company were not
in compliance with outstanding loan agreements relating to long-term debt
totaling $9.2 million. The 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 September 3, 1997,
cash balances of $10.2 million were not available for dividends by
subsidiaries due to those restrictions.
At September 3, 1997, the Company's subsidiaries maintained $14.0 million
of unused letters of credit primarily to guarantee payment of potential
insurance claims paid 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 September 3, 1997, the value
of the Redemption Right was $49.9 million. The most recent appraised price of
the Common Stock is $13.27 as of September 3, 1997. The aggregate market value
of the Common Stock at September 3, 1997, based on such appraised value, is
$1,130.8 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, attrition rates among members of the Company's
mature clubs have ranged from 17.5% to 20.5%. In certain geographic areas,
the Company has experienced decreased levels of usage of its private clubs,
golf clubs, and public golf facilities. Membership enrollment at mature clubs
for the 36 weeks ended September 3, 1997 was 19.0%, which is higher than
attrition rates of 18.0% during the same period. Attrition was primarily due
to a decrease of members at city clubs and athletic 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, increasing the involvement of
member boards of governors in planning club activities, and the alignment of
club activities with member needs. 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 3.1%,
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 36 weeks
ended September 3, 1997, the Company's operating revenues increased 5.0% while
operating costs and expenses increased 4.1%.
As of October 15, 1997, the Company was in the final stages of
negotiations to build three properties. The Company is considering several
ownership structures for the properties to be built including lease
arrangements and partial ownership (including joint venture interests). The
consummation of the construction of these properties is expected to require
approximately $64.0 million in capital expenditures, to be funded primarily
with cash flows from operations and external bridge financing of Club
Corporation of America. 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. As of September 3, 1997, $5.2 million
was outstanding under this financing arrangement representing primarily
letters of credit and loan guarantees. The eventual outcome of the
negotiations cannot be accurately predicted at this time.
The Company has acquired 63 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 certain 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. 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 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1* - Second Fifth Amendment to ClubCorp Stock Investment
Plan
10.2* - Sixth Amendment to ClubCorp Stock Investment 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 September 3, 1997.
_______________________
* Filed as an exhibit to Form 10-Q for the quarterly period ended
September 3, 1997 on October 16, 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 : February 5, 1998 By: /s/ James P. McCoy, Jr.
-------------------------
James P. McCoy, Jr.
Senior 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 October 10, 1997, except as
to the eighth and ninth paragraphs of Note 1 which are as of January 16, 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
February 5, 1998
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