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 June 11, 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 June
11, 1997 was 85,267,515.
<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 July 24, 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 June 11, 1997 and June 30,
1996 and the related consolidated statements of operations for the twelve
weeks and twenty four weeks ended June 11, 1997 and the three months and six
months ended June 30, 1996 and stockholders' equity and cash flows for the
twenty four weeks and six months ended June 11, 1997 and June 30, 1996,
respectively. These consolidated financial statements are the responsibility
of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of ClubCorp as of December 31, 1996
and the related consolidated statements of operations, stockholders' equity
and cash flows for the year then ended (not presented herein); and in our
report dated February 21, 1997, 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
July 18, 1997, except as to the seventh and eighth
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)
JUNE 11, December 31, June 30,
Assets 1997 1996 1996
- ------ ----------- -------------- -----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents $ 122,874 $ 74,454 $ 68,202
Membership and other receivables, net 74,802 73,139 69,461
Inventories 14,975 13,886 14,273
Other assets 12,401 14,501 17,449
----------- -------------- -----------
Total current assets 225,052 175,980 169,385
Property and equipment, net 669,560 663,387 626,824
Other assets 123,463 125,161 130,441
Financial services assets - 589,482 725,082
----------- -------------- -----------
$1,018,075 $ 1,554,010 $1,651,732
=========== ============== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 46,470 $ 54,933 $ 45,541
Long-term debt - current portion 82,879 120,694 90,982
Other liabilities 61,294 44,371 54,282
----------- -------------- -----------
Total current liabilities 190,643 219,998 190,805
Long-term debt 204,246 223,223 229,897
Other liabilities 92,121 82,425 88,663
Membership deposits 87,867 84,088 80,583
Financial services liabilities - 549,246 685,271
Redemption value of common stock held by benefit plan 44,879 43,233 37,560
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,267,515 outstanding
at June 11, 1997, 85,393,241 at December 31, 1996
and 85,594,866 outstanding at June 30, 1996 902 902 902
Additional paid-in capital 10,589 10,380 10,379
Foreign currency translation adjustment (130) (54) (6)
Unrealized gains or losses on investments in debt and
equity securities - (46) (250)
Retained earnings 470,540 420,948 400,338
Treasury stock (38,703) (37,100) (34,850)
Redemption value of common stock held by benefit plan (44,879) (43,233) (37,560)
----------- -------------- -----------
Total stockholders' equity 398,319 351,797 338,953
----------- -------------- -----------
$1,018,075 $ 1,554,010 $1,651,732
=========== ============== ===========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
Twelve and Twenty Four Weeks Ended June 11, 1997
and Three and Six Months Ended June 30, 1996
(Dollars in thousands, except per share amounts)
(Unaudited)
12 WEEKS 3 Months 24 WEEKS 6 Months
ENDED Ended ENDED Ended
JUNE 11, June 30, JUNE 11, June 30,
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Operating revenues $ 201,767 $ 193,508 $ 360,890 $ 345,298
Operating costs and expenses 160,395 157,185 303,120 292,696
Selling, general and administrative expenses 15,564 15,300 29,809 29,273
---------- ---------- ---------- ----------
Income from operations 25,808 21,023 27,961 23,329
Gain (loss) on divestitures 9,510 (1,655) 11,786 (2,351)
Interest and investment income 1,764 2,837 3,671 4,913
Interest expense (8,221) (7,584) (16,206) (15,640)
---------- ---------- ---------- ----------
Income from continuing operations before income
tax provision and minority interest 28,861 14,621 27,212 10,251
Income tax provision (1,830) (1,555) (2,823) (1,527)
Minority interest (71) 150 57 184
---------- ---------- ---------- ----------
Income from continuing operations 26,960 13,216 24,446 8,908
Discontinued operations:
Income from discontinued operations of financial services
segment, net of income tax provision of $137 for the three
months and $15 for the six months ended June 30, 1996 - 1,011 - 1,544
Gain (loss) on disposal of financial services segment, net of
income tax (provision) benefit of ($15,221) for the twenty
four weeks ended June 11, 1997 and $8,631 for the three
months and six months ended June 30, 1996 - (13,402) 25,146 (13,402)
---------- ---------- ---------- ----------
- (12,391) 25,146 (11,858)
---------- ---------- ---------- ----------
Net income (loss) $ 26,960 $ 825 $ 49,592 $ (2,950)
========== ========== ========== ==========
Earnings per share:
Income from continuing operations $ 0.32 $ 0.15 $ 0.29 $ 0.10
Discontinued operations - (0.14) 0.29 (0.13)
---------- ---------- ---------- ----------
Net income (loss) $ 0.32 $ 0.01 $ 0.58 $ (0.03)
========== ========== ========== ==========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Twenty Four Weeks Ended June 11, 1997 and
Six Months Ended June 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 loss - - - - - -
Purchase of treasury stock - 206,392 (206,392) - - -
Reissuance of treasury stock - (24,258) 24,258 - 71 -
Stock issued in connection with bonus plans - (109,968) 109,968 - 233 -
Foreign currency translation adjustment - - - - - 45
Change in unrealized gains and losses - - - - - -
Change in redemption value - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at June 30, 1996, as restated 90,219,408 4,624,542 85,594,866 $ 902 $ 10,379 $ (6)
========== ========== ============ ====== =========== =============
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 - 179,431 (179,431) - - -
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - (53,705) 53,705 - 209 -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - (76)
CHANGE IN UNREALIZED GAINS AND LOSSES - - - - - -
CHANGE IN REDEMPTION VALUE - - - - - -
---------- ---------- ------------ ------ ----------- -------------
BALANCES AT JUNE 11, 1997 90,219,408 4,951,893 85,267,515 $ 902 $ 10,589 $ (130)
========== ========== ============ ====== =========== =============
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 loss - (2,950) - - (2,950)
Purchase of treasury stock - - (2,103) - (2,103)
Reissuance of treasury stock - - 183 - 254
Stock issued in connection with bonus plans - - 813 - 1,046
Foreign currency translation adjustment - - - - 45
Change in unrealized gains and losses 11,562 - - - 11,562
Change in redemption value - - - (2,146) (2,146)
------------------- ---------- ---------- -------------- ---------------
Balances at June 30, 1996, as restated $ (250) $ 400,338 $ (34,850) $ (37,560) $ 338,953
=================== ========== ========== ============== ===============
Balances at December 31, 1996, as restated $ (46) $ 420,948 $ (37,100) $ (43,233) $ 351,797
NET INCOME - 49,592 - - 49,592
PURCHASE OF TREASURY STOCK - - (2,019) - (2,019)
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - - 416 - 625
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - (76)
CHANGE IN UNREALIZED GAINS AND LOSSES 46 - - - 46
CHANGE IN REDEMPTION VALUE - - - (1,646) (1,646)
------------------- ---------- ---------- -------------- ---------------
BALANCES AT JUNE 11, 1997 $ - $ 470,540 $ (38,703) $ (44,879) $ 398,319
=================== ========== ========== ============== ===============
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
Twenty Four Weeks Ended June 11, 1997 and
Six Months Ended June 30, 1996
(Dollars in thousands)
(Unaudited)
JUNE 11, June 30,
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operations:
Net income (loss) $ 49,592 $ (2,950)
Adjustments to reconcile net income (loss) to cash flows
provided from operations:
Depreciation and amortization 22,207 22,721
Loss (gain) on divestitures (11,786) 2,351
Minority interest in net losses of subsidiary (57) (184)
Gain on disposal of financial services segment (25,146) -
Equity in (earnings) losses in partnerships and joint ventures (3,468) 122
Amortization of discount on membership deposits 2,833 2,456
Decrease in real estate held for sale 3,401 5,219
Increase in membership and other receivables, net (1,914) (3,148)
Decrease in accounts payable and accrued liabilities (8,210) (5,962)
Increase in deferred membership dues 6,365 4,565
Other 13,021 2,575
Net change in operating assets of discontinued operations - 11,869
---------- ----------
Cash flows provided from operations 46,838 39,634
Cash flows from investing activities:
Additions to property and equipment (28,516) (18,914)
Development of real estate ventures (4,027) (8,448)
Acquisition of facilities (2,960) (5,512)
Proceeds from disposition of assets and subsidiaries, net 11,129 -
Proceeds from disposal of financial services segment 89,968 -
Other 3,565 3,282
Investing activities of discontinued operations - 169,412
---------- ----------
Cash flows provided from investing activities 69,159 139,820
Cash flows from financing activities:
Borrowings of long-term debt 11,991 11,515
Repayments of long-term debt (62,501) (7,372)
Membership deposits received, net 605 (33)
Treasury stock transactions, net (2,019) (1,849)
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 - (193,251)
---------- ----------
Cash flows used by financing activities (67,577) (190,990)
---------- ----------
Total net cash flows 48,420 (11,536)
Net cash flows from discontinued operations - (23,828)
---------- ----------
Net cash flows from continuing operations $ 48,420 $ 12,292
========== ==========
</TABLE>
See accompanying condensed notes to consolidated financial statements.
<PAGE>
CLUB CORPORATION INTERNATIONAL
Condensed Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------
Consolidation
- -------------
The consolidated financial statements include the accounts of Club Corporation
International (Parent) and its subsidiaries (collectively ClubCorp) except for
certain subsidiaries of Franklin Federal Bancorp, a Federal Savings Bank
(Franklin). On January 2, 1997, Franklin sold certain assets and transferred
certain liabilities to Norwest Corporation (Norwest). Thus, Franklin is
classified as a discontinued operation (Note 2) and Franklin's assets,
liabilities, income from operations and cash flow activity are segregated in
the accompanying consolidated financial statements.
Interim presentation
- ---------------------
The accompanying consolidated financial statements have been prepared by
ClubCorp and are unaudited. Certain information and footnote disclosures
normally included in financial statements presented in accordance with
generally accepted accounting principles have been omitted from the
accompanying statements. ClubCorp's management believes the disclosures made
are adequate to make the information presented not misleading. However, the
financial statements should be read in conjunction with the financial
statements and notes thereto of ClubCorp for the year ended December 31, 1996
which were a part of ClubCorp's Form 10-K/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 June 11, 1997 and June 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 second quarter of 1997 includes the
twelve and twenty four weeks ended June 11, whereas the second quarter of 1996
includes the three and six months ended June 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 June 12, 1996 and June 30, 1996 recorded in the consolidated financial
statements. The accounts of Franklin are included from December 31, 1995 to
June 30, 1996 and December 31, 1996 to May 31, 1997.
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 24 WEEKS 3 Months 6 Months
-------- -------- -------- --------
ENDED JUNE 11, 1997 Ended June 30, 1996
-------------------- --------------------
<S> <C> <C> <C> <C>
Income from operations $8,518 $14,003 $7,335 $12,282
Income from continuing
operations before income
taxes and minority interest 6,896 9,196 5,678 4,118
Income from continuing
operations 5,555 7,549 4,625 3,429
Net income $5,555 $ 7,549 $4,625 $ 3,429
====== ======= ====== =======
Earnings per share:
Income from continuing
operations $ 0.07 $ 0.09 $ 0.05 $ 0.04
Net income $ 0.07 $ 0.09 $ 0.05 $ 0.04
====== ======= ====== =======
</TABLE>
This change also resulted in a decrease in the liability for membership
deposits of $305,592,000, $296,714,000 and $286,710,000 and an increase in
retained earnings of $246,512,000, $238,963,000 and $229,883,000 as of June
11, 1997, December 31, 1996 and June 30, 1996, respectively. In addition,
retained earnings as of December 31, 1995 increased $226,454,000.
Earnings per share
- --------------------
Earnings per share is computed using the weighted average number of shares
outstanding of 85,352,087 and 85,639,419 for the twelve weeks and three months
ended, and 85,399,516 and 85,708,131 for the twenty four weeks and six months
ended June 11, 1997 and June 30, 1996, respectively.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings per Share". SFAS 128
establishes new standards for computing and presenting earnings per share and
is effective for financial statements issued for periods ending after December
15, 1997. Management expects the implementation of SFAS 128 to have minimal
impact on the consolidated financial statements.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current period presentation.
NOTE 2. DISCONTINUED OPERATIONS
- ----------------------------------
On January 2, 1997, Franklin sold certain assets to Norwest for a cash payment
of $89,968,000 and assumption of certain liabilities. Sale proceeds of
$4,000,000 represent the maximum contractual obligation of Franklin arising
from any claims which could be asserted by Norwest against Franklin based on
the representations, warranties, and covenants provided in the agreement. The
contingency periods expire within one year of the closing date. Currently, no
claims have been asserted. On June 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 twenty four weeks ended June 11, 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. ACQUISITIONS
- ----------------------
ClubCorp's acquisitions in 1997 and 1996 were accounted for using the purchase
method and, accordingly, the acquired assets and liabilities were recorded
based on their estimated fair values at the dates of acquisition.
During the first twenty four weeks of 1997, ClubCorp purchased the stock of a
golf club.
The following unaudited proforma financial information assumes the
acquisitions occurred at the beginning of their acquisition year and the
preceding year. This proforma summary does not necessarily reflect the results
of operations as they would have occurred or the results which may occur in
the future (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
June 30,
1996
----------
<S> <C>
Operating revenues $ 354,253
==========
Net loss $ (2,294)
==========
Net loss per share $ (.03)
==========
</TABLE>
ClubCorp's 1997 acquisition occurred at the beginning of the year; therefore,
no proforma information is shown for the current year.
NOTE 4. LONG-TERM DEBT
- -------------------------
At June 11, 1997 and subsequently, certain subsidiaries were not in compliance
with debt covenants due to non-payment of principal due on long-term debt and
covenants relating to financial ratios totaling $11,911,000. This amount is
included in the current portion of long-term debt in the accompanying balance
sheet.
NOTE 5. COMMITMENTS AND CONTINGENCIES
- -----------------------------------------
ClubCorp is subject to certain pending or threatened litigation and other
claims. Management, after review and consultation with legal counsel, believes
ClubCorp has meritorious defenses to these matters and that any potential
liability from these matters would not materially affect ClubCorp's
consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
INTRODUCTION
Club Corporation International ("ClubCorp" or the "Company") is a holding
company incorporated under the laws of the State of Nevada that, through its
subsidiaries, owns, operates and/or manages country clubs, city clubs,
city/athletic clubs, athletic clubs, resorts, golf clubs, public fee golf
courses and related real estate. Historically, the Company operated in the
financial services segment through Franklin Federal Bancorp, a Federal Savings
Bank ("Franklin"). On August 7, 1996, Franklin entered into an agreement to
sell certain assets and transfer certain liabilities of Franklin to Norwest
Corporation. 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" 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 24 and 12 weeks ended June 11, 1997 and June 12, 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 JUNE 11, 1997 COMPARED TO 12 WEEKS ENDED JUNE 12, 1996
Operating revenues increased by 4.3% to $201.8 million for the 12 weeks
ended June 11, 1997 from $193.5 million for the 12 weeks ended June 12, 1996.
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 $168.4 million to $175.3 million, an increase of
4.1%.
Operating revenues from mature private club properties increased from
$116.3 million for the 12 weeks ended June 12, 1996 to $119.9 million for the
same period in 1997, or 3.1%. Membership dues at mature private clubs
increased 4.2% to $57.3 million in 1997 from $55.0 million in 1996 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 2.3% to $61.4 million in 1997 from
$60.0 million for the 12 weeks ended June 12, 1996.
Operating revenues from golf clubs (i.e., those clubs which offer both
private and public play) grew 19.7% from $6.6 million for the 12 weeks ended
June 12, 1996 to $7.9 million for the 12 weeks ended June 11, 1997 resulting
primarily from acquisitions in 1996 and volume and price increases at mature
properties. Operating revenues from mature golf clubs increased to $6.2
million for the 12 weeks ended June 11, 1997 from $5.8 million for the 12
weeks ended June 12, 1996 or 6.9%, reflecting an increase of 2.9% in rounds
played and an increase of 4.3% in revenue per round.
Operating revenues from public fee courses (i.e., those clubs which
exclusively offer public play) increased to $9.2 million for the 12 weeks
ended June 11, 1997 from $8.5 million for the 12 weeks ended June 12, 1996 or
8.2% due primarily to 1996 acquisitions. Mature public fee operating revenues
increased to $7.7 million from $7.1 million in 1996 or 8.5%, reflecting an
increase in rounds played of 9.4% partially offset by a 0.7% decrease in
revenue per round.
Resort operating revenues increased 10.7% from $39.2 million in 1996 to
$43.4 million in 1997 due to increases at mature properties and a 1996
acquisition. Operating revenues from mature resorts increased 5.6% from $39.2
million in 1996 to $41.4 million in 1997, reflecting an increase of 1.9% in
occupancy rates and an increase of 5.2% in the average daily revenue per
available room.
Realty operating revenues decreased from $6.8 million in 1996 to $4.9
million in 1997, or 27.9%, due to decreased real estate sales of land held for
resale in Colorado.
International operating revenues increased from $0.9 million for the 12
weeks ended June 12, 1996 to $2.7 million for the 12 weeks ended June 11, 1997
mainly due to equity in earnings from a city club joint venture in Singapore
and 1996 and 1997 acquisitions.
Direct operating costs increased 2.0% to $160.4 million in 1997 from
$157.2 million in 1996 principally reflecting increased variable costs at
mature properties. Direct operating costs at mature properties increased to
$116.3 million for the 12 weeks ended June 11, 1997 from $112.3 million for
the same period in 1996, or 3.6%. The increase in direct operating costs for
mature properties is due primarily to inflationary payroll cost increases and
incentive bonus accruals.
24 WEEKS ENDED JUNE 11, 1997 COMPARED TO 24 WEEKS ENDED JUNE 12, 1996
Operating revenues increased 4.5% to $360.9 million for the 24 weeks
ended June 11, 1997 from $345.3 million for the 24 weeks ended June 12, 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 $303.9 million to $316.9 million,
an increase of 4.3%.
Operating revenues from mature private club properties increased 2.8%
from $219.9 million in 1996 to $226.1 million for the 24 weeks ended June 11,
1997. Membership dues at mature private clubs increased 4.0% to $114.0
million for the 24 weeks ended June 11, 1997 from $109.6 million for the 24
weeks ended June 12, 1996, due to inflationary price increases and slightly
improved membership trends. Membership enrollment at mature clubs for the 24
weeks ended June 11, 1997 was 19.0%, which is higher than attrition rates of
18.1% during the same period resulting in a 0.9% net enrollment rate. The net
enrollment at mature clubs for the 24 weeks ended June 12, 1996 was 0.8%.
Usage revenues for mature private club properties (i.e., food and beverage,
golf, lodging, and other recreation) increased 1.7% to $109.6 million for the
24 weeks ended June 11, 1997 from $107.7 million for the same period in 1996.
Operating revenues from golf clubs grew 26.4% from $12.5 million in 1996
to $15.8 million in 1997 resulting primarily from acquisitions in 1996.
Operating revenues from mature golf clubs increased 8.3% to $11.7 million from
$10.8 million in 1996, reflecting an increase of 2.4% in rounds played, due to
better weather conditions in markets served, and an increase of 4.8% in
revenue per round.
Resort operating revenues increased 12.8% from $63.2 million in 1996 to
$71.3 million in 1997 due to volume increases at mature properties and a 1996
acquisition. Operating revenues from mature resorts increased from $62.8
million for the 24 weeks ended June 12, 1996 to $67.8 million for the 24 weeks
ended June 11, 1997, an increase of 8.0%, reflecting an increase of 8.3% in
the average daily revenue per available room and an increase of 2.6% in
occupancy rates partially offset by a decrease of 2.5% in the average daily
room rate per occupied room.
Realty operating revenues decreased from $10.7 million in 1996 to $7.1
million in 1997, or 33.6%, primarily due to decreased real estate sales of
land held for resale in Colorado, Ohio, and South Carolina.
International operating revenues increased to $5.7 million for the 24
weeks ended June 11, 1997 from $1.1 million for the same period in 1996 due
primarily to equity in earnings from a city club joint venture in Singapore
and 1996 and 1997 acquisitions.
Direct operating costs increased 3.6% to $303.1 million from $292.7
million principally reflecting increased costs at mature properties. Direct
operating costs at mature properties increased to $218.9 million for the 24
weeks ended June 11, 1997 from $209.5 million for the same period in 1996 or
4.5%. The increase in direct operating costs for mature properties is due
primarily to increased health insurance premiums, an impairment loss for
assets to be disposed of, inflationary payroll cost increases, 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 were not material as of June 11, 1997.
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 June 11,
1997. At June 11, 1997, certain subsidiaries of the Company were not in
compliance with outstanding loan agreements relating to long-term debt
totaling $11.9 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 June 11, 1997,
cash balances of $9.7 million were not available for dividends by subsidiaries
due to those restrictions.
At June 11, 1997, the Company's subsidiaries maintained $13.7 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 June 11, 1997, the value of
the Redemption Right was $44.9 million. The most recent appraised price of
the Common Stock is $11.94 as of June 11, 1997. The aggregate market value of
the Common Stock at June 11, 1997, based on such appraised value, is $1,018.1
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 24 weeks ended June 11, 1997 was 19.0%, which is higher than attrition
rates of 18.1% during the same period. Attrition was primarily due to a
decrease of members at city clubs. The Company is currently analyzing the
existing demands of the city club market and modifying its existing product to
more closely match these needs. In addition, the Company continues to focus
its efforts on membership enrollment programs and quality service to reduce
attrition as one of its top priorities for 1997. For the last several years,
the Company has focused on efforts to retain existing members, attract new
members and increase club usage through various programs and membership
activities, including increasing member participation by implementing member
survey suggestions, 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 24 weeks
ended June 11, 1997, the Company's operating revenues increased 4.5% while
operating costs and expenses increased 3.6%.
As of July 23, 1997, the Company was in the final stages of negotiations
to acquire three properties and to build one property. The Company is
considering several ownership structures for the properties including lease
arrangements, sole ownership, and partial ownership (including joint venture
interests). The consummation of the acquisition and construction of these
properties is expected to require approximately $8.0 to $10.0 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 June 11, 1997, $22.0 million was outstanding under
this financing arrangement. On June 19, 1997, a discretionary payment of
$6.3 million was made from cash flows from operations to repay outstanding
borrowings. Due to its short-term nature, the amount outstanding, excluding
letters of credit and loan guarantees, at June 11, 1997 is considered current
for financial reporting purposes. Additional credit arrangements could be made
if considered necessary. The eventual outcome of the acquisition negotiations
cannot be accurately predicted at this time.
The Company has acquired 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. Executive management
has developed a risk and reward-based screening model to evaluate specific
risk and reward factors against projected yields for all proposed acquisitions
and certain other significant capital investments of the Company. In
addition, the Company has implemented a "team approach" to acquisitions
including all facets of operations, development, and regional support teams to
improve the transition of ownership.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1* - Second Amendment to ClubCorp Stock Investment Plan
10.2* - Third Amendment to ClubCorp Stock Investment Plan
10.3* - Fourth Amendment to ClubCorp Stock Investment Plan
10.4* - Fifth Amendment to ClubCorp Stock Investment Plan
10.5* - 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 filed a Form 8-K during the quarterly
period ended June 11, 1997 on April 3, 1997 which
included Item 8. Change in Fiscal Year.
_______________________
* Filed as an exhibit to Form 10-Q for the quarterly period ended June 11,
1997 on July 24, 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 July 18, 1997, except as to
the seventh and eighth 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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THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
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