UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
__________________
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file numbers 33-89818, 33-96568, 333-08041 and 333-57107
CLUB CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
NEVADA 75-1311242
(State or other jurisdiction of (I.R.S. employer incorporation
or organization) Identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-6191
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: 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
---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at December 31, 1997 (the most recent date on
which an appraisal was performed), based on the most recent appraised price of
the Registrant's Common Stock, was $56,292,929.
The number of shares of the Registrant's Common Stock outstanding as of
February 28, 1998 was 85,003,839.
<PAGE>
TABLE OF CONTENTS
This Amendment No. 1 amends Item 1, Item 6, Item 7, Item 8 and Exhibit 23.1 of
the Annual Report on Form 10-K filed with the Securities and Exchange Commission
on March 27, 1998. The complete text of each item which has been amended is
included. Text of items which have not been amended are not included.
Item 1. Business
Item 6. Selected Financial Data
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 8. Financial Statements and Supplementary Data
Item 14. Exhibits, Financial Statement Schedule, and Reports on Form
8-K
PART I
ITEM 1. BUSINESS
GENERAL
Club Corporation International ("ClubCorp" or the "Company") is a holding
company incorporated under the laws of the State of Nevada that, through its
subsidiaries, owns, operates, and/or manages country clubs, city clubs,
city/athletic clubs, athletic clubs, resorts, certain related real estate, golf
clubs, and public golf courses through sole ownership, partial ownership
(including joint venture interests) and management agreements. The Company's
primary sources of revenue include membership dues, fees, and deposits, food and
beverage sales, revenues from golf operations and lodging facilities. The
Company also receives management fees with respect to facilities that it manages
for third parties. See "Operations-Management Services".
Historically, the Company 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 pending
regulatory approval. The sale was consummated on January 2, 1997 for $90.0
million. ClubCorp's gain on the sale, net of taxes and minority interest, was
$25.1 million.
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 subsidiaries or
between ClubCorp and its subsidiaries.
STOCK INVESTMENT PLAN
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, pursuant to Section 15(d) thereof, because the
Company has filed a registration statement on Form S-1, which became effective
October 24, 1994 pursuant to the Securities Act of 1933 (the "Registration
Statement"). The Registration Statement registered participation interests in
the ClubCorp Stock Investment Plan (the "Plan"), which became effective on
January 1, 1993, and the Company's common stock, $.01 par value per share (the
"Common Stock"), to be sold to the Plan. Employees eligible to participate in
the Plan may invest in participation interests in the Common Stock through
payroll deductions of 1% to 6% of their pre-tax compensation, subject to certain
limitations. Prior to July 1, 1995, eligible employees invested through payroll
deductions of 1% to 6% of their after-tax compensation, subject to certain
limitations. The Company contributes an amount on such employee's behalf of at
least 20% and up to an additional 30%, for a maximum potential total of 50%, of
the eligible employee's contributions to the Plan, and Company contributions
vest over time. Any contributions by the Company over the 20% minimum are within
the discretion of the Board of Directors of ClubCorp, and are based on
improvement in the value of the Common Stock during the 12-month period ending
on September 30 of each year in accordance with a schedule approved by the
Board of Directors, which is subject to change.
All contributions to the Plan are invested in Common Stock (except for
contributions temporarily invested pending investment in Common Stock). The Plan
purchases Common Stock from ClubCorp and certain of its stockholders at fair
market value, which is determined quarterly by the Company using a formula based
on certain financial measures (the "Formula Price") and confirmed as within the
range of fair market value by Houlihan, Lokey, Howard and Zukin, an independent
financial advisory firm (the "Financial Advisor"). See Item 5, "Market for
Registrant's Common Equity and Related Stockholder Matters". Because the Plan
invests primarily in Common Stock, the value of each eligible employee's
participation interests in the Plan depends on the value of the Common Stock
from time to time, which in turn is dependent on the financial success of the
Company. No employee participating in the Plan, however, has any right to vote
the Common Stock or to receive a distribution of Common Stock from the Plan.
OPERATIONS
Background and Philosophy
- ---------------------------
Robert H. Dedman, Sr. founded the Company in 1957 under the name Country
Clubs, Inc. to develop Brookhaven Country Club in the north Dallas area. During
the succeeding 15 years, the Company expanded its country club operations and
began to develop city, city/athletic and athletic clubs. In the early 1980s, the
Company further expanded its operations by entering the resort industry, and in
1986 the Company began operating public golf facilities.
The Company conducts its business through various subsidiaries of ClubCorp,
including the following:
Club Corporation of America ("CCA"), which conducts the Company's
private club, golf club, and public golf operations; and
Club Resorts Holding, Inc. ("Club Resorts"), which conducts the
Company's resort operations.
Mr. Dedman founded the Company based upon his belief that an opportunity
existed for any company that could provide quality services and professional
management to private clubs. Management believes that the Company's
opportunities have grown as a result of a general trend in the private club
industry toward professionally managed clubs and that this trend will continue
in the future.
In directing the Company's growth since its formation, Mr. Dedman has
emphasized quality service and facilities, endeavoring to exceed the
expectations of the Company's members and guests. Senior management believes
that the Company's success depends greatly upon the motivation, training and
experience of its employees. See "-Employees".
From the beginning of the Company, Mr. Dedman focused on assembling an
experienced management team to lead the Company. ClubCorp's 11 executive
officers possess an average of 23 years of experience with the Company. The
Company has also attempted to attract and retain qualified, dedicated managers
for its clubs, resorts, golf clubs, and public golf facilities, and these
managers possess an average of nine years of experience with the Company. The
Company provides an extensive, proprietary system of in-house training and
education for all of its employees that is designed to improve the quality of
services provided to members and guests.
The Company's commitment to value is also reflected in its policy of
monitoring satisfaction levels through frequent surveys of members and guests.
In addition, employees are regularly surveyed to help management develop
appropriate training and education programs, increase job satisfaction levels
and improve the quality of service.
ClubCorp has invested over 40 years seeking to perfect its development,
management, operations, and membership skills, with results evident in some of
the world's foremost private clubs.
Nature of Operations
- --------------------
The Company operates private clubs, resorts, golf clubs, and public golf
facilities through sole ownership, partial ownership and management agreements.
In addition, the Company performs various corporate services internally and for
third parties and develops and sells real estate. See "-Corporate Services and
Other". With respect to its wholly-owned operations, in some cases the Company
owns the real property where the private club, resort, golf club, or public golf
facility is operated, and in other cases the Company leases the real property
from third parties.
The Company operated 220 private club, resort, golf club, and public golf
facilities at December 31, 1997, serving approximately 220,000 members.
Management believes that the Company's existing club, resort and other property
locations, and its base of club members, represent a significant value to the
Company. For example, certain of the Company's country clubs that were developed
many years ago are now located in highly populated areas where development of a
new facility would be prohibitively expensive.
The Company's primary sources of revenue include membership dues, fees, and
deposits, food and beverage sales, revenues from golf operations, and lodging
facilities. The Company also receives management fees with respect to facilities
that it manages for third parties.
The Company receives membership deposits that constitute an important
source of cash flows. Membership deposits represent advance initiation deposits
paid by members and are refundable a fixed number of years (generally 30 years)
after 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 on a straight line basis over the expected average life of
active membership.
The success of the Company's private club and golf club business is
dependent on the Company's ability to attract new members, retain existing
members and maintain or increase levels of club usage. For a tabular
presentation of certain statistical information relating to memberships in the
Company's private clubs, see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations-General-Regional Information;
Other Operating Information". The success of the Company's resort, golf club,
and public golf operations is also dependent on levels of usage by the Company's
guests and customers. For a tabular presentation of certain statistical
information relating to the Company's resorts, golf clubs, and public golf
operations, see Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-General-Regional Information; Other
Operating Information". Although the Company devotes a large amount of resources
to promote its facilities and services, many of the factors affecting club
membership and usage are beyond the control of the Company. Local and federal
government laws, including income tax regulations applicable to the Company and
its club members and guests, can adversely influence membership activity. See
"-Government Regulation". Changes in consumer tastes and preferences, local,
regional and national economic conditions, including levels of disposable
income, weather, and demographic trends can also have an adverse impact on club
membership and usage. See Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations-Seasonality".
Private Clubs
- -------------
The Company's private clubs generally fall into one of four categories:
city, athletic, country and city/athletic clubs. The Company's city,
city/athletic and athletic clubs are primarily located in city business centers
or downtown areas.
City clubs typically include dining rooms and lounge areas and meeting and
board room facilities. With private settings in the best metropolitan locations,
city clubs provide superior food, service, and a sophisticated atmosphere in
which members can entertain business associates, family, and friends, host
special events, or simply relax in comfort. Some of the notable city clubs
operated by the Company include The Metropolitan Club in Illinois, The Columbia
Tower Club in Washington, and The City Club of San Francisco in California.
The Company's athletic clubs generally include a combination of the
following facilities: racquetball and squash courts, jogging tracks, exercise
areas, weight machines, aerobic studios, swimming pools, wellness programs,
saunas and whirlpools, eating facilities and, occasionally, tennis and
basketball courts. Many athletic clubs also offer personalized training and
massage services. Some of the notable athletic clubs operated by the Company
include The Athletic and Swim Club at Equitable Center in New York and The San
Francisco Tennis Club in California.
The country clubs operated by the Company span a broad range of size,
price, prestige and facilities. Generally, the Company's country clubs include a
combination of one or more of the following facilities: dining rooms and lounge
areas, meeting and board room facilities, grills and ballrooms, golf, tennis,
swimming and fitness facilities and pro shops. Some of the notable country clubs
operated by the Company include Gleneagles Country Club and Kingwood Country
Club in Texas, Mission Hills Country Club and Indian Wells Country Club in
California, and Firestone Country Club in Ohio.
City/athletic clubs combine all the ambiance and amenities of a city club
with the facilities of the best athletic clubs. Offering members convenient
locations, these clubs provide a variety of athletic activities, including
racquet sports, exercise and fitness programs, and wellness programs. Some of
the notable city/athletic clubs operated by the Company include The Rivers Club
in Pittsburgh and The University Club in Texas.
The private club industry is highly competitive, but management believes
that the Company's size and substantial experience allow it to compete
effectively. The Company's private clubs compete primarily on the basis of
featured facilities, memberships, quality and comprehensiveness of services,
management experience, geographic breadth and financial resources. The number
and quality of private clubs and other facilities with similar types of
recreation in a particular area could have a material effect on the revenue of a
private club. In addition, revenue will be affected by a number of factors,
including the demand for golf and the availability of other forms of recreation.
Golf Clubs
- -----------
The Company's golf clubs generally include a combination of the following
facilities: golf courses, driving ranges, and food and beverage concessions.
Generally, these clubs offer both private and public play. Some of the notable
golf clubs operated by the Company include Timarron Golf Club in Texas and
Queen's Harbour in Florida.
The private and public golf industries are highly fragmented. The Company
competes with a number of regional and national golf management companies. With
the rising popularity of golf, the Company expects the number of competitors in
the industry to increase over the next few years. The Company's golf clubs
compete on the basis of price, quality and comprehensiveness of service,
memberships, management experience, geographic breadth, featured facilities and
financial strength. The Company believes that its substantial experience in
operating golf facilities will enable it to compete effectively in this area.
Public Golf
- ------------
The Company's public golf facilities generally include a combination of the
following facilities: golf courses, driving ranges, and food and beverage
concessions. Some of the public golf courses operated by the Company include
Kingwood Cove in Texas and Cook's Creek Golf Course in Ohio.
The public golf industry is highly fragmented. The Company competes with a
number of regional and national golf management companies. With the rising
popularity of golf, the Company expects the number of competitors in this
industry to increase over the next few years. The Company's public golf
operations compete on the basis of price, quality and comprehensiveness of
service, management experience, featured facilities and financial strength. The
Company believes that its substantial experience in operating golf facilities
will enable it to compete effectively in the public golf market.
Resorts
- -------
The Company's resorts typically offer lodging facilities, dining and lounge
areas, meeting rooms and golf, tennis and other recreational activities
associated with resorts. The Company seeks to create and maintain a significant
golf component at its resorts. In some cases, memberships in a resort's country
club facilities are offered primarily to those living in the surrounding
community. Some of the notable resorts operated by the Company include the
Pinehurst Resort and Country Club (Pinehurst) in North Carolina, the Homestead
Resort (Homestead) in Virginia, and the Barton Creek Country Club and Conference
Resort in Texas. Pinehurst is the largest and oldest "golf" resort in the
world. Homestead is the oldest resort in the country. Both of these properties
have received the distinction of being listed on the National Register of
Historic Cities. In addition, Pinehurst will host the 1999 United States Open.
The resort industry is highly competitive, and the Company competes with
numerous hotel and resort companies engaged in the lodging, travel and resort
businesses, some of which have substantially greater financial and other
resources than the Company. The principal competitive factors in the resort
industry include featured facilities, quality of services, geographic breadth
and financial resources. The Company believes that its substantial experience in
providing quality services to both members and guests allow it to compete
effectively in the resort industry.
Management Services
- --------------------
In addition to operations that are solely or partially owned by the
Company, the Company provides professional management and consulting services to
third parties who own private clubs and public golf facilities. Fees for the
Company's management and consulting services accounted for $9.4 million of
operating revenues (1.1% of the Company's total operating revenues) during 1997,
$8.2 million of operating revenues (1.1% of the Company's total operating
revenues) during 1996 and $10.3 million of operating revenues (1.4% of the
Company's total operating revenues) during 1995. In calculating revenues from
management and consulting services, the Company includes only the fees received
by the Company for such services and does not include revenues of the facilities
under management.
For its services, the Company generally receives a monthly base management
fee, as well as one or more performance-related fees based upon such factors as
the property's net operating income or operating cash flows, gross receipts,
membership sales or new member deposits. Generally, the owner is responsible for
all operating and other expenses.
Other terms of the Company's management agreements vary depending on the
nature and extent of the services provided. Management agreements generally
provide for an initial term of two to four years, with renewal options for
successive one to five year terms. In addition, most of the management
agreements may be terminated without cause upon advance written notice, provided
the terminating party pays a specified termination fee. The agreements may be
terminated for cause upon the occurrence of certain events, including
nonperformance of the obligations specified under such management agreements.
Corporate Services and Other
- -------------------------------
Additional subsidiaries of ClubCorp provide operating and support services
within the organization and to third parties. These subsidiaries include:
Associate Clubs International, Inc., which is responsible for the
Company's Associate Clubs Program, a program that provides club members with
access to other clubs operated by the Company;
ClubCorp Realty, which conducts real estate development and sales
operations and offers real estate marketing and brokerage services, zoning,
subdivision and platting services and other real estate consulting services;
Associate Clubs Publications Inc., which publishes the Company's
Private Clubs magazine; and
ClubCorp Financial Management Company, which provides primarily
accounting and information technology services related to facility management.
During 1997, 1996 and 1995, these corporate services generated
approximately $35.0 million, $37.9 million and $31.8 million, respectively, in
operating revenues for the Company.
Expansion and Development
- ---------------------------
The Company is pursuing a strategy to increase the number of private clubs,
resorts, golf clubs and public golf facilities that it operates both
domestically and internationally. The Company evaluates specific growth
opportunities based upon existing market conditions and economic factors, and
intends to pursue opportunities that it perceives to be favorable as they arise.
The success of the Company's growth strategy will depend upon the
availability of suitable properties on acceptable terms, the availability of
adequate financing, and other factors beyond the Company's control. The Company
has a committed staff to constantly evaluate development and acquisition
opportunities. The Company seeks to finance each project separately and
anticipates that sources of capital for new developments and acquisitions will
include cash flows from operations, equity participations, and owner/developer
and third party financing.
The Company also intends to continue to pursue growth opportunities related
to city and city/athletic clubs through acquisitions, mergers between the
Company's clubs and those owned by third parties, management contracts with
ownership options, relocations of existing clubs, and development of new clubs.
Sales and Marketing
- ---------------------
The Company advertises and markets its clubs, resorts, golf clubs, and
public golf facilities through diverse media. Among other things, the Company
sponsors the Associate Clubs Program, which provides members of clubs owned,
leased or managed by the Company with access to other clubs. In addition, the
Company publishes Private Clubs magazine, which reaches over 188,000 members at
the majority of the Company's clubs and resorts, and which advertises the
Company's other facilities. Regular features include unusual destinations and
travel tips, profiles of members who are business leaders, investment advice,
club profiles, wine reviews, recipes from club chefs, golf and tennis tips,
solutions to health and fitness concerns, and humor. Private Clubs magazine has
won numerous awards including several 1997 Maggie Awards.
The Company also hosts a number of professional golf tournaments, which are
intended to provide community and charitable involvement and publicity for the
Company's facilities. Some of the most notable tournaments the Company hosted
during 1997 were the National Equipment Corporation ("NEC") World Series of Golf
at Firestone Country Club, the Bob Hope Chrysler Classic at Indian Wells Country
Club, the Nabisco Dinah Shore Classic at Mission Hills Country Club, and the
J.C. Penney's Ladies Professional Golf Association Skins Game at Stonebriar
Country Club. In addition, Pinehurst Resort and Country Club will host the 1999
United States Open.
The Company has established a strong rapport with numerous professional
organizations including the following:
- - United States Golf Association;
- - Professional Golf Association and Ladies Professional Golf
Association Tours;
- - American Junior Golf Association;
- - Golf Course Owners Association;
- - Club Managers Association of America;
- - National Club Association;
- - International Health, Racquet & Sports Club Association; and
- - National Restaurant Association.
These special relationships enable the Company to bring distinctive
tournaments and events, such as the United States Open and the PGA Tour
Championship, as well as numerous other prestigious events, to the Company's
clubs and resorts throughout the world. The Company hosts many United States
Tennis Association events along with other athletic activities such as swimming,
diving, lawn bowling, and croquet. In addition, the Company's clubs have been
recognized for their culinary artistry. Many have earned distinctive awards
from the American Culinary Federation.
Government Regulation
- ----------------------
The Company's operations are subject to numerous laws and government
regulations, including environmental, occupational health and safety, labor and
alcoholic beverage control laws and laws relating to access for disabled
persons. Changes to these laws or regulations could adversely affect the
Company. The Company has in place policies designed to bring or keep its
properties in compliance with all current federal, state and local environmental
laws.
Operations at the Company's golf courses involve the use and storage of
various hazardous materials such as herbicides, pesticides, fertilizers, motor
oil and gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removing such hazardous substances that are released on or in its
property and for remediation of its property. Such laws often impose liability
regardless of whether a property owner or operator knew of, or was responsible
for, the release of hazardous materials. In addition, the presence of such
hazardous substances, or the failure to remediate the surrounding soil when such
substances are released, may adversely affect the ability of a property owner to
sell such real estate or to pledge such property as collateral for a loan. The
Company has not been informed by the Environmental Protection Agency or any
state or local governmental authority of any non-compliance or violation of any
environmental laws, ordinances or regulations likely to be material to the
Company, and the Company believes that it is in substantial compliance with all
such laws, ordinances and regulations applicable to its properties and
operations. See Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-Factors That May Affect Future Operating
Results".
The Company is also subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. A significant number of
the Company's personnel receive the federal minimum wage, and recently adopted
increases in the minimum wage have increased the Company's labor costs. In
addition, the Company is subject to certain state "dram-shop"laws, which provide
a person injured by an intoxicated individual the right to recover damages from
an establishment that wrongfully served alcoholic beverages to the intoxicated
individual. The Company is also subject to the Americans with Disabilities Act
of 1990, which, among other things, may require certain minor renovations to
various of the Company's properties to meet federally mandated access and use
requirements. The cost of these renovations is expected to be approximately $3.0
million over the next five years. The Company believes it is operating in
substantial compliance with applicable laws and regulations governing its
operations.
Competition
- -----------
The Company competes with local fine dining establishments and other city
clubs in its city club business. The competition in the city club business is
largely fragmented, and no competitor is dominant in a material portion of the
Company's markets. The number and quality of city clubs and/or fine dining
establishments in a particular area can affect the revenue of a particular city
club.
The Company competes with other country clubs, golf clubs, public golf
courses and resorts in its country club, golf club, public golf and resort
business. Similarly, competition is fragmented and no competitor is dominant in
a significant portion of the markets where the Company maintains these
facilities. The number and quality of competing facilities in a particular
market can affect the revenue of a particular facility.
The Company also competes for the purchase, lease, and/or management of
golf courses with American Golf Corporation, a national golf course management
company. In addition, the Company competes for the purchase of golf courses with
national and regional golf course management companies and real estate
investment trusts that each own several golf courses and, less frequently, with
individuals and small ventures that typically own one or more golf courses. In
the acquisition of golf courses, companies compete primarily on the basis of
price and their reputation for operating golf courses.
In the operation of its facilities, the Company competes on the basis of
its reputation to deliver value through the quality of the facility and quality
of services provided to its members and guests. The Company believes it competes
favorably with respect to these factors. The Company has a program, known as
"Associate Clubs", that allows members of a club in one market to utilize
Company clubs in different markets, thus enhancing the value of the membership.
Because of the large number of facilities maintained by the Company, a member is
provided access to a wide number of facilities. The Company believes this
program affords it a competitive advantage over competitors that do not maintain
similar programs and over other competitors that have similar programs, but
fewer facilities.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 14,000
full-time, 5,000 part-time and 1,000 seasonal employees in its operations.
The success of the Company's business is dependent in part on the Company's
ability to attract and retain experienced management and other employees on
economical terms. Management believes that the Company's employees represent an
important asset; however, the Company is not dependent upon any single employee,
or a few employees, whose loss would have a material adverse effect on the
Company. Although the Company believes that its labor relations are good,
increased labor and benefit costs or a deterioration in the Company's labor
relations could adversely affect the Company's operating results. As of December
31, 1997, approximately 600 of the employees engaged in the Company's operations
were covered by three collective bargaining agreements, which will expire March
31, 1999, December 31, 1999 and June 1, 2002.
CUSTOMERS
The Company is not dependent upon a single customer, or a few customers,
whose loss would have a material adverse effect on the Company. In addition, as
of December 31, 1997, there is no customer to which the Company has sales equal
to 10.0% or more of the Company's consolidated revenues and whose loss would
have a material adverse effect on the Company as a whole.
INTELLECTUAL PROPERTY
The Company has registered various service marks, including the names
CLUBCORP, CCA, CLUB RESORTS and ASSOCIATE CLUBS, with the United States Patent
and Trademark Office, and has applied with the United States Patent and
Trademark Office for the registration of various other service marks. In
addition, the Company has registered certain of its service marks in a number of
foreign countries. The Company regards its service marks as valuable assets and
intends to protect such service marks vigorously against infringement.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are the selected consolidated financial and operating data
for each of the years in the five-year period ended December 31, 1997. The
table presented below should be read in conjunction with Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations", as
well as Item 8, "Financial Statements and Supplementary Data" (dollars in
thousands, except per share data).
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31, (7)
-------------------------------------------------
1997 (1) 1996 1995 (2) 1994 (3)
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Operating revenues (5) $ 827,597 $ 771,177 $ 752,479 $ 698,984
Income (loss) from continuing operations (5) $ 87,864 $ 17,202 $ (17,623) $ 23,933
Income (loss) from continuing operations per share assuming dilution (5) $ 1.02 $ 0.20 $ (0.20) $ 0.28
Net income (loss) $ 113,010 $ 5,565 $ (17,440) $ 15,832
Net income (loss) per share assuming dilution $ 1.31 $ 0.06 $ (0.20) $ 0.18
BALANCE SHEET DATA:
Total assets $1,028,674 $1,554,597 $1,830,449 $2,043,406
Capitalization:
Financial services liabilities $ - $ 549,246 $ 877,345 $1,118,937
Long-term debt (including current portion) 255,857 343,917 313,461 285,128
Membership deposits 83,066 74,202 68,729 56,971
Redemption value of common stock held by benefit plan (6) 53,652 43,233 35,414 37,112
Stockholders' equity 388,615 290,552 284,095 313,482
----------- ---------- ----------- -----------
Total capitalization $ 781,190 $1,301,150 $1,579,044 $1,811,630
=========== ========== =========== ===========
1993 (4)
-----------
<S> <C>
INCOME STATEMENT DATA:
Operating revenues (5) $ 620,077
Income (loss) from continuing operations (5) $ 16,511
Income (loss) from continuing operations per share assuming dilution (5) $ 0.19
Net income (loss) $ 51,847
Net income (loss) per share assuming dilution $ 0.60
BALANCE SHEET DATA:
Total assets $2,345,565
Capitalization:
Financial services liabilities $1,552,257
Long-term debt (including current portion) 194,398
Membership deposits 45,222
Redemption value of common stock held by benefit plan (6) 41,165
Stockholders' equity 341,379
-----------
Total capitalization $2,174,421
===========
</TABLE>
__________________
(1) The sale of Franklin Federal Bancorp was consummated on January 2, 1997
for $90.0 million. ClubCorp's gain on the sale, net of taxes and minority
interest, was $25.1 million. In addition, the Company decreased the valuation
allowance on its deferred tax asset. See Item 7, "Management's Discussion and
Analysis of Financial Condition and Results of Operations".
(2) The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121 for the year ended December 31, 1995. In adopting SFAS 121, the Company
recorded an impairment loss of $23.0 million on long-lived assets which is
reported separately as a component of income (loss) from continuing operations.
(3) The Company acquired Mission Hills Country Club and the Homestead Resort
in the last quarter of 1993. These properties significantly impacted the
Company's operating revenues in 1994, generating $12.1 and $30.8 million,
respectively, in operating revenues in 1994. Franklin had a net loss of $12.7
million in 1994 due to rising interest rates and lower of cost or market
adjustments on whole loan adjustable rate mortgages. In order to maintain
compliance with capital ratios, Franklin effected shrinkage chiefly through the
liquidation of assets designated as available for sale and the retirement of
short-term liabilities, primarily FHLB advances. Hospitality properties acquired
in 1994 accounted for the increase in long-term debt.
(4) The Company adopted SFAS 109 on January 1, 1993. In adopting SFAS 109,
the Company recorded a cumulative effect of the change in accounting for income
taxes, included in income, and a deferred tax asset, included in other assets,
equal to $27.0 million.
(5) The Company disposed of its financial services segment on January 2,
1997; therefore, the segment is presented as discontinued operations.
(6) As a means of providing liquidity to the trustees of the Plan, which
became effective January 1, 1993, to meet their fiduciary obligations to
distribute cash to Plan participants requesting withdrawals, ClubCorp has
provided a redemption right to the trustees to cause the Company to redeem
Common Stock at the most recent appraised price. The value (Redemption Value) of
this redemption right has been accounted for as a reduction of stockholders'
equity. The Redemption Value is calculated as the product of the most recent
appraised price multiplied by the number of shares of Common Stock held by the
benefit plan.
(7) As discussed in Note 2 to the Consolidated Financial Statements of the
Company, the Company changed its method of accounting for membership initiation
deposits and fees and the related incremental direct selling costs and has
restated the Consolidated Financial Statements to give retroactive effect to
this change.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Item 6, "Selected Financial Data" as well as Item 8, "Financial Statements and
Supplementary Data".
GENERAL
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year, with the first three quarters consisting of 12 weeks
each and the fourth quarter consisting of 16 weeks. The financial statements
included in Item 8 for the year ended December 31, 1997 are comprised of 53
weeks with the first three quarters consisting of 12 weeks each and the fourth
quarter consisting of 17 weeks.
The Company operates its business activities through sole ownership
(including lease arrangements), partial ownership (including joint venture
arrangements) and management agreements. The Company seeks to achieve growth in
revenues, earnings, and cash flows through effective management of existing
facilities and through the acquisition of new facilities via purchase, joint
venture, lease and management agreement.
During the past few years, the Company has pursued a growth strategy
resulting in an emphasis on the expansion of its golf related operations,
including country clubs, resorts, golf clubs, and public golf facilities. The
Company's access to adequate capital sources in addition to its own internally
generated cash flows has provided it an opportunity to compete effectively with
other hospitality related management companies in the acquisition of new
facilities.
The Company also intends to continue to pursue growth opportunities related
to city and city/athletic clubs through acquisitions, mergers between the
Company's clubs and those owned by third parties, management contracts with
ownership options, relocations of existing clubs, and development of new clubs.
The Company has a committed staff to constantly evaluate development and
acquisition opportunities.
The Company continually seeks to improve financial performance of existing
facilities by determining an optimum business plan allowing for the highest
possible return to the Company. Management attempts to create operating
efficiencies and maximize operating revenues and cash inflows through member
enhancement and utilization programs.
If efforts to improve the facility performance to acceptable financial
partners' and Company standards are not successful or financial partners' and
Company goals are not being achieved, then restructuring its ownership position,
leasing agreements, and borrowing arrangements are considered. Properties are
divested when management determines they will be unable to provide a positive
contribution to profitability, when they no longer represent a strategic
facility in the Company's network of affiliated clubs and resorts, when members
and financial partners no longer support the property, or, in the case of
leases, joint ventures and management agreements, when their contractual terms
expire without being renewed or are terminated.
Properties by Contract Type
The following table summarizes the number and changes in the Company's
properties operated for the periods indicated:
<TABLE>
<CAPTION>
WHOLLY
OWNED OPERATIONS
--------------------
PARTIALLY
OWNED LEASED OWNED MANAGED UNDER
PROPERTY PROPERTY OPERATIONS (1) OPERATIONS CONSTRUCTION TOTAL
--------- --------- -------------- ----------- ------------- ------
<S> <C> <C> <C> <C> <C> <C>
At December 27, 1995 78 109 6 43 - 236
Properties added during 1996 4 - - 1 8 13
Properties divested during 1996 (1) (7) - (14) - (22)
Changes during 1996 2 (1) 1 (2) - -
--------- --------- -------------- ----------- ------------- ------
At December 25, 1996 83 101 7 28 8 227
========= ========= ============== =========== ============= ======
Properties added during 1997 1 - 1 1 2 5
Properties divested during 1997 (4) (4) (1) (3) - (12)
Changes during 1997 1 1 4 - (6) -
--------- --------- -------------- ----------- ------------- ------
At December 31, 1997 81 98 11 26 4 220
========= ========= ============== =========== ============= ======
</TABLE>
_________________
(1) The Company also serves as the manager of each of these properties.
Properties divested include expired or terminated lease arrangements or
management agreements which have shorter terms than leases, joint venture
agreements or other forms of ownership. The Company generally includes a
termination clause in its management agreements which imposes a financial
penalty, paid to the Company by the managed owner, to discourage early
termination of management agreements.
Properties by Property Type
- ------------------------------
The Company's private clubs generally fall into one of four categories:
city, city/athletic, athletic and country clubs. The following tables summarize
the number and changes in the type of private club, resort, golf club, and
public golf properties operated during the periods indicated:
<TABLE>
<CAPTION>
TOTAL
PRIVATE GOLF PUBLIC
CITY CITY/ATHLETIC ATHLETIC COUNTRY CLUBS RESORTS CLUBS GOLF TOTAL
----- -------------- --------- -------- -------- -------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
At December 27, 1995 77 20 7 83 187 9 10 30 236
Properties added during 1996 4 1 - 7 12 1 3 1 17
Properties divested during 1996 (7) (1) (2) (13) (23) - - (3) (26)
----- -------------- --------- -------- -------- -------- ------ ------- ------
At December 25, 1996 74 20 5 77 176 10 13 28 227
===== ============== ========= ======== ======== ======== ====== ======= ======
Properties added during 1997 2 1 - 2 5 - - - 5
Properties divested during 1997 (2) - (1) (3) (6) (3) (1) (2) (12)
----- -------------- --------- -------- -------- -------- ------ ------- ------
At December 31, 1997 74 21 4 76 175 7 12 26 220
===== ============== ========= ======== ======== ======== ====== ======= ======
</TABLE>
Facilities are leased or purchased at varying times throughout the year.
Depending on the length of the partial year for which a facility is operated and
the seasonality of operations, the results of operations of a facility for a
portion of a year may not be indicative of the results of operations at the
facility for an entire year. During 1996, the operations of one private country
club were transferred to golf clubs and the operations of one city club were
transferred to city/athletic clubs.
Regional Information; Other Operating Information
- -----------------------------------------------------
The success of the Company's operations in each region of the country is
dependent in part on economic and weather conditions in these areas. The
Company's largest concentrations of operations are in the states of Texas,
California, and Florida.
The Company operated twelve foreign facilities at December 31, 1997 of
which one is located in Canada, two are in Mexico, two are in South Africa, one
is in Panama, one is in the United Kingdom, one is in Ecuador, two are in
Singapore, one is in China, and one is located in Indonesia.
The following table presents certain information with respect to membership
in the Company's mature private clubs and golf clubs (i.e., those properties for
which a comparable period of activity exists, generally those owned for at least
eighteen months to two years) for fiscal years ended December 31, 1997, December
25, 1996 and December 27, 1995. The table reflects memberships at private clubs
and golf clubs which were classified as mature as of the end of the period
indicated. Memberships at beginning of period do not equal prior period
memberships at end of period primarily due to the inclusion of new properties
added as mature, and deletions of properties sold or divested. Management
adjusts memberships at beginning of period to provide an accurate mechanism for
comparison and analysis of identical mature clubs (i.e., same clubs compared to
same clubs).
<TABLE>
<CAPTION>
MEMBERSHIPS AT MATURE PROPERTIES
FISCAL YEAR ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Memberships at beginning of period 189,210 188,818 183,780
Memberships added during period 38,501 32,771 30,368
Memberships lost during period (attrition) (35,330) (33,897) (33,045)
------------- ------------- -------------
Memberships at end of period 192,381 187,692 181,103
============= ============= =============
</TABLE>
The following table presents certain information regarding room nights
available, occupancy rate, average daily room rate per occupied room and average
daily revenue per available room at the Company's mature resorts (i.e., those
resorts for which a comparable period of activity exists, generally those owned
for at least eighteen months to two years). This information for the Company's
mature resorts owned as of December 31, 1997, was as follows for the fiscal
years ended December 31, 1997 and December 23, 1996:
<TABLE>
<CAPTION>
MATURE 1997 RESORT PROPERTIES
FISCAL YEAR ENDED
---------------------------------
DECEMBER 31, DECEMBER 23,
1997 1996
-------------- --------------
<S> <C> <C>
Room nights available 467,822 472,074
Occupancy rate 53.7% 49.7%
Average daily room rate per occupied room $ 149 $ 140
Average daily revenue per occupied room $ 601 $ 562
</TABLE>
The room nights available, occupancy rate, average daily room rate per
occupied room and average daily revenue per available room at the Company's
mature resort properties owned as of December 23, 1996, were as follows for the
fiscal years ended December 23, 1996 and December 25, 1995:
<TABLE>
<CAPTION>
MATURE 1996 RESORT PROPERTIES
FISCAL YEAR ENDED
------------------------------
DECEMBER 23, DECEMBER 25,
1996 1995
-------------- --------------
<S> <C> <C>
Room nights available 622,352 616,676
Occupancy rate 45.6% 48.0%
Average daily room rate per occupied room $ 127 $ 117
Average daily revenue per occupied room $ 505 $ 466
</TABLE>
The rounds played and average revenues per round played at the Company's
mature public golf and golf club properties (i.e., those properties for which a
comparable period of activity exists, generally those owned for at least
eighteen months to two years) owned as of December 31, 1997, were as follows for
the fiscal years ended December 31, 1997 and December 25, 1996:
<TABLE>
<CAPTION>
MATURE 1997 GOLF PROPERTIES
FISCAL YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 25,
1997 1996
------------- -------------
<S> <C> <C>
Rounds 1,423,259 1,309,660
Average revenue per round $ 35.80 $ 35.03
</TABLE>
The rounds played and average revenues per round played at the Company's
mature public golf properties owned as of December 25, 1996, were as follows for
the fiscal years ended December 25, 1996 and December 27, 1995:
<TABLE>
<CAPTION>
MATURE 1996 GOLF PROPERTIES
FISCAL YEAR ENDED
----------------------------
DECEMBER 25, DECEMBER 27,
1996 1995
------------- -------------
<S> <C> <C>
Rounds 1,379,756 1,342,507
Average revenue per round $ 35.63 $ 34.51
</TABLE>
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 25,
1996
Operating revenues increased 7.3% to $827.6 million in 1997 from $771.2
million during 1996 due primarily to volume increases at mature resorts,
improvement in net enrollment at mature private clubs, and an additional week of
operations. The subsidiaries of the Company operate primarily on a 52/53 week
fiscal year. 1997 includes 53 weeks. 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 to $727.3 million
from $665.8 million, an increase of 9.2% due to improving membership trends,
volume increases, an additional week of operations, and inflationary price
increases.
Operating revenues from mature private club properties increased 7.6% to
$521.1 million in 1997 from $484.1 million in 1996 due to improvement in net
enrollment rates, volume increases, an additional week of operations, and
inflationary price increases. Membership enrollment (i.e., members added) was
20.3% and membership attrition (i.e., members lost) was 18.7% for a net increase
of 3,171 members in 1997 (1.7% of year-end 1996 membership). Mature private
clubs membership dues and food and beverage revenues increased 7.6% and 4.4%,
respectively, to $252.4 and $179.6 million from $234.6 and $172.0 million,
respectively, also due primarily to improving membership trends, volume
increases, an additional week of operations, and inflationary price increases as
profit margins on food and beverage remained flat.
Golf clubs' operating revenues increased to $29.6 million from $26.3
million or 12.5% resulting primarily from improved usage at golf clubs,
including one property which recently opened its clubhouse, and 1996
acquisitions. Mature golf clubs' operating revenues increased 3.0% to $24.1
million in 1997 from $23.4 million in 1996, reflecting an increase of 4.1% in
rounds played combined with an increase of 6.1% in revenue per round.
Public golf operating revenues increased to $33.3 million for 1997, or
13.7%, from $29.3 million for 1996 due primarily to the opening of a new course
in California. Mature public golf operating revenues increased from $23.3
million in 1996 to $26.0 million in 1997 or 11.6% as rounds played increased by
11.2% and revenue per round increased by 0.4%.
Resorts' operating revenues increased 13.2% to $168.2 million from $148.6
million in 1996 primarily due to the acquisition of one resort late in 1996 and
volume increases at mature properties. Mature resorts' operating revenues
increased to $155.7 million from $136.6 million or 14.0%, reflecting increases
of 4.0 percentage points in the occupancy rate, 6.9% in the average daily
revenue per occupied room, and 6.4% in the average daily room rate per occupied
room. Pinehurst, which will host the 1999 United States Open, experienced
significant increases in operating revenues in anticipation of this event.
Realty operating revenues decreased to $24.5 million from $29.4 million or
16.7% primarily due to decreased sales of real estate held for resale in Ohio
and South Carolina.
International operating revenues increased to $3.2 million in 1997 from
$1.7 million in 1996 due to 1997 and 1996 acquisitions.
Golf and other recreation income increased 12.8% to $178.1 million in 1997
from $157.9 million in 1996, primarily due to acquisitions in 1996, volume
increases at mature properties including the opening of new golf courses at
certain properties, and an additional week of operations.
Operating costs and expenses, representing direct operating costs, facility
rentals, maintenance, and depreciation and amortization, increased to $694.2
million for 1997 from $659.9 million for 1996 or 5.2%. Operating costs and
expenses at mature properties increased 8.1% to $522.0 million in 1997 from
$483.1 million in 1996, mainly due to increases in costs of sales for food and
beverage, golf operations, payroll costs, and incentive bonus accruals.
Selling, general and administrative expenses increased to $68.0 million
from $61.3 million or 10.9% due primarily to increased costs for international
new business and development.
Income tax (provision) benefit increased to $41.3 million in 1997 from
$(2.6) million in 1996 due to a decrease in the valuation allowance of $66.6
million allocated to income tax expense. See "- Factors That May Affect Future
Operating Results".
Income from continuing operations increased to $87.9 million in 1997 from
$17.2 million in 1996 due to the Company's success in controlling costs and
growing revenues and volume increases at mature properties and a decrease in the
valuation allowance on the Company's deferred tax asset. See "- Factors That
May Affect Future Operating Results".
Other income of $1.1 million in 1997 is due to the partial reversal of an
accrual for pending litigation in the ordinary course of business.
FISCAL YEAR ENDED DECEMBER 25, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 27,
1995
Operating revenues increased 2.5% to $771.2 million in 1996 from $752.5
million during 1995. 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 to $666.1 million from $650.7 million,
an increase of 2.4% due to improving membership trends and inflationary price
increases.
Operating revenues from mature private club properties increased 2.1% to
$476.8 million in 1996 from $466.9 million in 1995 due primarily to inflationary
price increases. Membership enrollment (i.e., members added) was 17.4% and
membership attrition (i.e., members lost) was 18.0% for a net decrease of 1,126
members in 1996 (0.6% of year-end 1995 membership). Mature private clubs
membership dues and usage revenues (i.e., food and beverage, golf, lodging, and
other recreation) increased 2.5% and 2.4%, respectively, to $235.4 and $237.5
million from $229.7 and $232.0 million, respectively, also due primarily to
inflationary price increases.
Golf clubs' operating revenues increased to $26.3 million from $23.4
million or 12.4% resulting primarily from improved usage at golf clubs including
one property which recently opened its clubhouse and 1996 acquisitions. Mature
golf clubs' operating revenues increased 4.4% to $23.7 million in 1996 from
$22.7 million in 1995, reflecting an increase of 4.0% in rounds played combined
with an increase of 0.3% in revenue per round.
Golf and other recreation income increased 9.6% to $157.9 million in 1996
from $144.1 million in 1995, primarily due to acquisitions in 1995 and 1996 and
the opening of new golf courses at certain mature properties.
Selling, general and administrative expense decreased 7.4% to $61.3 million
in 1996 from $66.2 million in 1995 due to lower levels of relocation costs,
severance, professional fees, rent, and international new business and
development costs.
Impairment loss on assets to be held and used was $2.8 million in 1996
representing an estimate of impairment on long-lived assets in accordance with
SFAS 121.
Income (loss) from continuing operations increased to $17.2 million in 1996
from $(17.6) million in 1995 primarily due to the impairment loss on assets to
be held and used of $23.0 million in 1995 which decreased to $2.8 million in
1996. Also, during 1996 the Company was successful in its efforts to control
expenses and increase revenues. While operating revenues increased 2.5%,
operating costs and expenses increased only 1.1%.
Interest expense increased 4.9% to $34.0 million for 1996 from $32.4
million in 1995, due in part to higher leveraged acquisition activity.
Other expense of $3.0 million in 1996 is primarily due to an accrual for
pending litigation in the ordinary course of business.
SEASONALITY
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year. In general, the first three quarters consist of 12 weeks
each and the fourth quarter includes 16 weeks. The financial statements included
in Item 8 for the year ended December 31, 1997 are comprised of 53 weeks with
the first three quarters consisting of 12 weeks each and the fourth quarter
consisting of 17 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 share of
its operating revenue in the second, third and fourth quarters of each year. The
timing of purchases or leases of new 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 impact on the Company. As operating
expenses increase, the Company, to the extent the value of services rendered to
members is not adversely impacted and as industry standards dictate, recovers
increased costs by increasing prices.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations and capital expenditures primarily
through cash flows from operations and long-term debt. Membership deposits
collected by a subsidiary are used to finance such subsidiary's operations and
capital expenditures. Most capital expenditures other than capital replacements
are considered discretionary and could be curtailed in periods of low liquidity.
Capital replacements are planned expenditures made each year to maintain high
quality standards of facilities for the purpose of meeting existing members'
expectations and to attract new members. Capital replacements have ranged from
3.8% to 5.3% of operating revenues during the last three years. The Company
distinguishes capital expenditures made to refurbish and replace existing
property and equipment (i.e., capital replacements) from other discretionary
capital expenditures such as the expansion of existing facilities (i.e., capital
expansions) and acquisition or development of new facilities.
The Company has committed to provide updated technology to all of its
properties over the next two years. This technology will include installation
of point-of-sale hardware and software, replacement of computer hardware and
software to provide network capabilities, the purchase of new accounting
software and hardware, and the installation of electronic time management
systems which will interface with accounting software. In January of 1998, the
Company signed an agreement with Oracle Corporation to purchase new software for
its accounting, purchasing, and human resources applications. The decision to
acquire Oracle's software was made primarily to better enable management to
improve operating efficiencies, exceed member expectations, grow the people,
performance, profits, and markets by re-engineering processes using enterprise
resource planning software. Executive management has pledged to allocate the
necessary resources to develop additional technology applications and tools that
will allow the properties to operate more effectively and efficiently and to
increase the value of membership in conjunction with service excellence.
Completion of the technology upgrade, including conversion of the existing
software, is expected to require approximately $39.0 to $44.0 million in
expenditures, of which $35.0 to $40.0 million will be capitalized, to be funded
through a capital lease with a bank over a four to five year period and through
cash flows from operations.
Computer programs were historically written using two digits rather than
four digits to identify the year. The computer might then recognize the two
digits "00" as year 1900 rather than year 2000 resulting in possible system
failures, miscalculations, and/or loss of data. This is referred to as the
"Year 2000" issue. Implementation of Oracle software addresses the Year 2000
issue and is expected to be completed prior to the year 2000. If the conversion
is not completed in a timely manner, Year 2000 issues may have a significant
impact on the Company's operations. The Company does not believe that the Year
2000 problem will have a material adverse effect on the business operations or
the financial performance of the Company. There can be no assurance, however,
that the Year 2000 problem will not adversely affect the Company and its
business.
Long-term debt is generally incurred on a property specific basis and is
non-recourse to any corporations other than the subsidiary incurring the debt.
Membership deposits represent advance initiation deposits paid by members and
are refundable a fixed number of years (generally 30 years) after 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 December 31, 1997. At
December 31, 1997, certain hospitality subsidiaries of the Company were not in
compliance with outstanding loan agreements relating to long-term debt totaling
$6.7 million. Such noncompliance relates both to financial ratio covenants and
to nonpayment of amounts due under the terms of such agreements.
The provisions of certain subsidiary lending and other agreements limit
the amount of dividends that may be paid to the parent. At December 31, 1997,
cash balances of $11.0 million were not available for dividends by subsidiaries
due to those restrictions.
At December 31, 1997, the Company's subsidiaries maintained $14.4 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 (the "Plan") are
invested in shares of ClubCorp's common stock, $.01 par value per share (the
"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 (the "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 December 31, 1997, the value of the Redemption Right was $53.7 million.
The most recent appraised price of the Common Stock is $14.21 as of December 31,
1997. The aggregate market value of the Common Stock at December 31, 1997 is
$1,207.9 million. The Redemption Right has never been exercised by the Plan,
although the Company 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.
The Company maintains a first right of refusal with the majority of its
stockholders and, accordingly, it has historically purchased shares from
stockholders when offered for sale back to the Company. During the fiscal years
1997, 1996 and 1995, treasury stock purchases of ClubCorp from stockholders,
sales of stock (which were primarily to the Plan), and other shares issued were
as follows (dollars in millions):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Treasury stock purchases $(5.6) $(4.4) $(6.5)
Reissuance of treasury stock - 0.3 0.3
Stock issued in connection with bonus plans 0.7 1.1 1.9
------ ------ ------
$(4.9) $(3.0) $(4.3)
====== ====== ======
</TABLE>
See the Consolidated Statement of Stockholders' Equity located elsewhere
herein for a summary of stockholder equity transactions.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Certain information in this Annual Report on Form 10-K may contain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact are "forward-looking statements" for purposes of these
provisions, including any projections of earnings, revenues or other financial
items, any statements of the plans and objectives of management for future
operations, any statements concerning proposed new products or services, any
statements regarding future economic conditions or performance and any statement
of assumptions underlying any of the foregoing. In some cases, forward-looking
statements can be identified by the use of terminology such as "may," "will,"
"expects," "plans," "anticipates," "estimates," "potential" or "continue," or
the negative thereof or other comparable terminology. Although the Company
believes that the expectations reflected in its forward-looking statements are
reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the Company's
forward-looking statements. Forward-looking statements are subject to inherent
risks and uncertainties, some of which are summarized in this section.
Over the last three years, quarterly attrition rates among members of the
Company's mature clubs have ranged from approximately 17.5% to 19.9%. Membership
enrollment at mature clubs during 1997 was 20.3%, which is higher than attrition
rates of 18.7% during the same period. The Company continues to focus its
efforts on membership enrollment programs to increase membership levels and
quality service to reduce attrition as its top priorities for 1998. For the
last several years, the Company has focused on efforts to retain existing
members, attract new members and increase club usage through various programs
and membership activities, including increasing member participation by
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 and 1997, the Company was successful in its efforts to control
expenses and increase operating revenues. While operating revenues increased
2.5% and 7.3% in 1996 and 1997, respectively, operating costs and expenses
increased only 1.1% and 5.2%, in 1996 and 1997, respectively. It is uncertain
if the Company can continue to create operating efficiencies and thus decrease
costs in 1998 to the extent cost reductions were achieved in 1996 and 1997.
The Company has policies in place designed to bring its properties in
substantial compliance with all current federal, state and local environmental
laws and laws relating to access for disabled persons. The Company estimates
that capital expenditures in connection with certain environmental matters will
be approximately $1.0 million to $2.0 million in the aggregate over the next
five years and that capital expenditures in connection with compliance with the
Americans with Disabilities Act of 1990 will be approximately $3.0 million over
the next five years. The Company is not subject to any recurring costs
associated with managing hazardous materials or pollution. In addition,
management does not believe that the Company will incur expenses for infrequent
or non-recurring cleanup, based upon the Company's due diligence inspection,
employee training, standards of operations and on-site assessments performed and
maintained for each property. However, the Company is in the process of
replacing approximately 27 underground storage tanks with aboveground contained
storage systems. It is unlikely that any of those tanks will be found to require
remediation. The Company is permitted under various state laws to recover a
portion of its costs of remediation through various state superfunds created to
address environmental cleanups. The Company is not subject to any remediation
mandates related to previously contaminated sites. See Item 1,
"Business-Operations-Government Regulation".
As of March 27, 1998, the Company was in the final stages of negotiations
to acquire six properties. 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 of these properties is expected to require approximately $17.0 to
$21.0 million in capital expenditures, to be funded primarily with external
bridge financing of Club Corporation of America (CCA) and cash flows from
operations. 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 December 31, 1997 and March 27, 1998, $11.8 and
$50.1 million, respectively, was outstanding under this financing arrangement.
Due to its short-term nature, the amount outstanding, excluding letters of
credit and loan guarantees, at December 31, 1997 is considered current for
financial reporting purposes. The eventual outcome of the negotiations cannot be
accurately predicted at this time.
ClubCorp files a consolidated federal income tax return. See Note 12 of the
Notes to the Consolidated Financial Statements for additional disclosures
related to ClubCorp's income taxes. ClubCorp's federal and state income taxes
are as follows (dollars in millions):
<TABLE>
<CAPTION>
Years ended December 31,
----------------------------------------
1997 1997 1996 1996 1995 1995
---- ------ ---- ------ ---- ------
<S> <C> <C> <C> <C> <C> <C>
Income tax benefit (provision):
Federal
Current (0.7) 0.1 0.9
Deferred 44.1 (1.2) (2.3)
------ ------ ------
43.4 (1.1) (1.4)
State (2.1) (1.5) (1.8)
------ ------ ------
$41.3 $(2.6) $(3.2)
====== ====== ======
</TABLE>
The Company operates in 32 states and its operations are subject to tax by
various state and local taxing authorities. The Company generates substantial
taxable income in various states including Texas, Illinois, North Carolina and
Florida. As state and local taxing authorities raise tax rates and change tax
codes to increase tax revenues (in order to compensate for lower federal
assistance and increased responsibility for administration of social programs),
the Company is increasingly experiencing more exposure to state and local income
taxes.
Since the acquisition of Franklin in 1988, ClubCorp has reduced or
eliminated its current federal tax liability (to 2% of alternative minimum
taxable income) by using net operating loss carryforwards that resulted from
Franklin's operations. ClubCorp has estimated net operating loss carryforwards
at the end of 1997 of $556.1 million and $136.2 million for regular and
alternative minimum taxes, respectively. As a result, the Company will be able
to continue to reduce its estimated tax liability to 2% of alternative minimum
taxable income until such alternative minimum tax net operating losses are fully
utilized or expire. The net operating losses expire from 2004 to 2010. These
estimates are based upon certain assumptions concerning the Company's 1997
operations from an alternative minimum tax perspective and may be revised at the
time the Company prepares its federal income tax return.
The Company has substantial regular net operating loss carryforwards
available. To realize the deferred tax asset fully the Company will need to
generate future taxable income of approximately $353.0 million by 2012. Based on
the Company's historical pretax earnings, adjusted for significant nonrecurring
items such as gains (losses) on divestitures, management believes it is more
likely than not the Company will realize the benefit of the deferred tax assets,
net of the valuation allowance, existing at December 31, 1997. The Company has
experienced a trend of increasing taxable income from its continuing operations
which in turn has increased estimates of future taxable income. Based on these
new estimates, the Company decreased its valuation allowance by $66.6 million
for the year ended December 31, 1997. The assumptions used to estimate the
realizability of the deferred tax assets are subjective in nature and involve
uncertainties and matters with significant judgment. There can be no assurance
that the Company will generate any specific level of continuing earnings. The
Company will receive benefits in the form of tax credits in the future to the
extent of alternative minimum taxes paid.
The Company's federal income tax returns for 1991 through 1994 are under
examination by the Internal Revenue Service. Because many types of transactions
are susceptible to varying interpretations under federal income tax laws and
regulations, the net operating loss carryforwards and net deferred tax asset
reported in the Consolidated Financial Statements could change at a later date
upon final determination by the taxing authorities. Management believes the
Company will prevail on any significant interpretation issues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and related notes begin on
Page F-1 of this Amendment No. 1 to the Annual Report on Form 10-K.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)(1) The following audited Consolidated Financial Statements of ClubCorp
and its subsidiaries as of December 31, 1996 and 1997, and for the years ended
December 31, 1995, 1996 and 1997 are included in this Amendment No. 1 to the
Annual Report on Form 10-K, beginning on Page F-1:
Independent auditors' report
Consolidated balance sheet
Consolidated statement of operations
Consolidated statement of stockholders' equity
Consolidated statement of cash flows
Notes to consolidated financial statements
(a)(2) The following financial statement schedule is included in this
Amendment No. 1 to the Annual Report on Form 10-K, beginning on Page S-1:
Independent auditors' report on financial statement schedule
Schedule II Valuation and qualifying accounts
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or the notes thereto.
(a)(3) See Index to Exhibits.
(b) Reports on Form 8-K
Form 8-K was filed on April 3, 1997 relating to a change in fiscal
year.
(c) Exhibits
See Index to Exhibits.
(d) Financial Statement Schedule
The financial statement schedule required by paragraph (d) of Item 14
is presented on page S-2.
SUPPLEMENTAL INFORMATION
The Registrant has not furnished to its security holders an annual report
covering the Registrant's last fiscal year or any proxy statement, form of proxy
or other proxy soliciting material with respect to any annual or other meeting
of security holders other than a proxy for the election of officers and
directors at the annual shareholders meeting if the security holder did not plan
to attend.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CLUBCORP INTERNATIONAL, INC.
(formerly Club Corporation International)
By: *
----------------------------------
Robert H. Dedman, Sr.
Chairman of the Board
By: /s/James P. McCoy, Jr.
----------------------------------
James P. McCoy, Jr.
Executive Vice President,
Chief Financial Officer/
Chief Accounting Officer
Date: October 22, 1998
------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------- ------------------------------------------------ ----------------
<S> <C> <C>
* October 22, 1998
- ---------------------------- Chairman of the Board and Chief Executive
Robert H. Dedman, Sr. Officer (Principal Executive Officer)
* Vice Chairman of the Board October 22, 1998
- ----------------------------
James E. Maser
* President, Chief Operating Officer and Director October 22, 1998
- ----------------------------
Robert H. Dedman, Jr.
/s/ James P. McCoy, Jr. October 22, 1998
- ---------------------------- Senior Vice President, Chief Financial Officer
James P. McCoy, Jr. and Director (Principal Financial Officer)
* Director October 22, 1998
- ----------------------------
Jerry W. Dickenson
* Director October 22, 1998
- ----------------------------
James M. Hinckley
* Director October 22, 1998
- ----------------------------
Robert H. Johnson
* October 22, 1998
- ---------------------------- Senior Vice President, Secretary, Chief Legal
Terry A. Taylor Officer and Director
* Executive Vice President and Director October 22, 1998
- ----------------------------
Mark W. Dietz
* Senior Vice President and Director October 22, 1998
- ----------------------------
Albert E. Chew, III
* Director October 22, 1998
- ----------------------------
Nancy M. Dedman
* Director October 22, 1998
- ----------------------------
Patricia Dedman Dietz
* Executive Vice President and Director October 22, 1998
- ----------------------------
Richard S. Poole
By: /s/ James P. McCoy, Jr.
- ----------------------------
James P. McCoy, Jr.
Attorney-in-Fact
</TABLE>
____________________
* Power of Attorney and Unanimous Written Consent of the Board of Directors
authorizing James P. McCoy, Jr. to sign this Amendment No.1 on Form 10-K on
behalf of the directors and certain officers of the Company has been filed with
the Securities and Exchange Commission.
<PAGE>
INDEX TO EXHIBITS
Exhibit Number Exhibit
- --------------- -------
23.1 Consent of KPMG Peat Marwick LLP
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Board of Directors
Club Corporation International
We have audited the accompanying consolidated balance sheet of Club Corporation
International and subsidiaries (ClubCorp) as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
These consolidated financial statements are the responsibility of ClubCorp's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of ClubCorp as of
December 31, 1997 and 1996, and the results of their operations and their cash
flows for each of the years in the three-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
As discussed in Note 1, ClubCorp changed its method of accounting for the
impairment of long-lived assets in 1995 to adopt the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." As discussed in Note 2 to the accompanying
consolidated financial statements, ClubCorp changed its method of accounting for
membership initiation deposits and fees and the related incremental direct
selling costs and has restated the consolidated financial statements to give
retroactive effect to this change.
KPMG Peat Marwick LLP
Dallas, Texas
February 27, 1998, except as to Note 2
which is as of October 13, 1998
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1997
(Dollars in thousands, except share amounts)
Assets 1996 1997
------ ---------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 74,454 $ 101,419
Membership and other receivables, net 73,139 76,522
Inventories 13,886 14,954
Other assets 14,118 14,968
----------- -----------
Total current assets 175,597 207,863
Property and equipment, net 663,387 677,227
Other assets 126,131 143,584
Financial services assets 589,482 -
----------- -----------
$1,554,597 $1,028,674
=========== ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 54,933 $ 57,996
Long-term debt - current portion 120,694 74,621
Other liabilities 77,778 79,995
----------- -----------
Total current liabilities 253,405 212,612
Long-term debt 223,223 181,236
Other liabilities 120,736 109,493
Membership deposits 74,202 83,066
Financial services liabilities 549,246 -
Redemption value of common stock held by benefit plan 43,233 53,652
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 90,219,408
issued in 1996 and 1997, 85,393,241 and 85,003,839 outstanding
in 1996 and 1997, respectively 902 902
Additional paid-in capital 10,380 10,607
Foreign currency translation adjustment (54) 260
Unrealized gains or losses on investments in debt and equity securities (46) -
Retained earnings 316,470 419,061
Treasury stock (37,100) (42,215)
----------- -----------
Total stockholders' equity 290,552 388,615
----------- -----------
$1,554,597 $1,028,674
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended December 31, 1995, 1996 and 1997
(Dollars in thousands, except per share amounts)
1995 1996 1997
--------- ------------- ---------
<S> <C> <C> <C> <C>
Operating revenues $752,479 $ 771,177 $827,597
Operating costs and expenses 652,995 659,892 694,165
Selling, general and administrative expenses 66,174 61,344 67,988
Impairment loss from assets to be held and used (Note 1) 23,000 2,800 -
--------- ------------- ---------
Income from operations 10,310 47,141 65,444
(Loss) gain on divestitures (1,132) (1,974) 4,729
Interest and investment income 9,399 11,092 9,643
Interest expense (32,460) (34,044) (34,044)
Other income (expense) 19 (2,974) 1,118
--------- ------------- ---------
(Loss) income from continuing operations before
income taxes and minority interest (13,864) 19,241 46,890
Income tax (provision) benefit (3,217) (2,581) 41,264
Minority interest (542) 542 (290)
--------- ------------- ---------
(Loss) income from continuing operations (17,623) 17,202 87,864
Discontinued operations:
Income from operations of discontinued financial
services segment, net of income taxes of $(1,563)
and $95 in 1995 and 1996, respectively 183 1,446 -
(Loss) income on disposal of financial services segment,
net of income taxes of $8,425 and $(15,221)
in 1996 and 1997, respectively - (13,083) 25,146
--------- ------------- ---------
183 (11,637) 25,146
--------- ------------- ---------
Net (loss) income $(17,440) $ 5,565 $113,010
========= ============= =========
Basic earnings per share:
(Loss) income from continuing operations $ (.20) $ .20 $ 1.03
Discontinued operations - (.13) .29
--------- ------------- ---------
Net (loss) income $ (.20) $ .07 $ 1.32
========= ============= =========
Diluted earnings per share:
(Loss) income from continuing operations $ (.20) $ .20 $ 1.02
Discontinued operations - (.14) .29
--------- ------------- ---------
Net (loss) income $ (.20) $ .06 $ 1.31
========= ============= =========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1996 and 1997
(Dollars in thousands, except share amounts)
Common stock (100,000,000 shares
authorized, par value $0.01 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, 1994, as restated 90,219,408 4,096,353 86,123,055 $ 902 $ 9,383 $ 172
Net loss - - - - - -
Purchase of treasury stock - 653,689 (653,689) - - -
Reissuance of treasury stock - (25,399) 25,399 - 72 -
Stock issued in connection with bonus plans - (172,267) 172,267 - 620 -
Foreign currency translation adjustment - - - - - (223)
Change in unrealized gains and losses - - - - - -
Change in redemption value of common
stock held by benefit plan - - - - - -
---------- ---------- ------------ ------ ----------- -------------
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 - 408,487 (408,487) - - -
Reissuance of treasury stock - (24,258) 24,258 - 71 -
Stock issued in connection with bonus plans - (110,438) 110,438 - 234 -
Foreign currency translation adjustment - - - - - (3)
Change in unrealized gains and losses - - - - - -
Change in redemption value of common
stock held by benefit plan - - - - - -
---------- ---------- ------------ ------ ----------- -------------
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 - 447,850 (447,850) - - -
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - (58,448) 58,448 - 227 -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - 314
CHANGE IN UNREALIZED GAINS AND LOSSES - - - - - -
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - - - - - -
---------- ---------- ------------ ------ ----------- -------------
BALANCES AT DECEMBER 31, 1997, AS RESTATED 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 260
========== ========== ============ ====== =========== =============
Unrealized
Gains or Losses
on Investments
in Debt and Total
Equity Retained Treasury Stockholders'
Securities Earnings Stock Equity
----------------- ---------- ---------- ---------------
<S> <C> <C> <C> <C>
Balances at December 31, 1994, as restated $ (2,766) $ 334,466 $ (28,675) $ 313,482
Net loss - (17,440) - (17,440)
Purchase of treasury stock - - (6,487) (6,487)
Reissuance of treasury stock - - 184 256
Stock issued in connection with bonus plans - - 1,235 1,855
Foreign currency translation adjustment - - - (223)
Change in unrealized gains and losses (9,046) - - (9,046)
Change in redemption value of common
stock held by benefit plan - 1,698 - 1,698
----------------- ---------- ---------- ---------------
Balances at December 31, 1995, as restated $ (11,812) $ 318,724 $ (33,743) $ 284,095
Net income - 5,565 - 5,565
Purchase of treasury stock - - (4,356) (4,356)
Reissuance of treasury stock - - 183 254
Stock issued in connection with bonus plans - - 816 1,050
Foreign currency translation adjustment - - - (3)
Change in unrealized gains and losses 11,766 - - 11,766
Change in redemption value of common
stock held by benefit plan - (7,819) - (7,819)
----------------- ---------- ---------- ---------------
Balances at December 31, 1996, as restated $ (46) $ 316,470 $ (37,100) $ 290,552
NET INCOME - 113,010 - 113,010
PURCHASE OF TREASURY STOCK - - (5,568) (5,568)
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - - 453 680
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - 314
CHANGE IN UNREALIZED GAINS AND LOSSES 46 - - 46
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - (10,419) - (10,419)
----------------- ---------- ---------- ---------------
BALANCES AT DECEMBER 31, 1997, AS RESTATED $ - $ 419,061 $ (42,215) $ 388,615
================= ========== ========== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31, 1995, 1996 and 1997
(Dollars in thousands)
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operations:
Net (loss) income $ (17,440) $ 5,565 $ 113,010
Adjustments to reconcile net (loss) income to cash flows
provided from operations:
Depreciation and amortization 49,335 48,948 47,314
Impairment loss from assets to be held and used 23,000 2,800 -
Gain (loss) on divestitures 1,132 1,974 (4,729)
Minority interest in net income (loss) of subsidiary 542 (542) 290
Gain on disposal of financial services segment - - (25,146)
Amortization of discount on membership deposits 4,555 5,029 5,777
Equity in (losses) earnings of joint ventures (2,209) 2,084 (852)
Deferred income taxes 2,283 1,207 (44,045)
Decrease in real estate held for sale 15,380 16,919 14,828
Net change in membership and other receivables, net 928 (7,986) (3,033)
Net change in accounts payable and accrued liabilities 10,635 6,055 2,017
Net change in deferred membership revenues (2,356) 4,641 2,823
Other (10,087) 1,843 (1,223)
Net change in operating assets of discontinued operations 387 17,067 -
---------- ---------- ----------
Cash flows provided from operations 76,085 105,604 107,031
Cash flows from investing activities:
Additions to property and equipment (65,307) (47,982) (58,768)
Development of new facilities (5,693) (4,306) (5,775)
Development costs for real estate held for sale (12,509) (17,329) (9,563)
Acquisition of facilities (25,529) (39,685) (6,436)
Investment in joint ventures (1,000) (747) (6,123)
Proceeds from disposition of assets and subsidiaries, net 2,443 1,216 13,026
Proceeds from disposal of financial services segment - - 89,968
Other 11,896 6,685 7,371
Investing activities of discontinued operations 247,085 305,772 -
---------- ---------- ----------
Cash flows provided from investing activities 151,386 203,624 23,700
Cash flows from financing activities:
Borrowings of long-term debt 78,626 57,606 19,441
Repayments of long-term debt (56,213) (33,336) (103,730)
Membership deposits received, net 2,745 350 1,744
Treasury stock transactions, net (6,231) (4,102) (5,568)
Repayment of Federal Home Loan Bank advances - - (3,153)
Dividends paid to minority shareholders of financial services segment - - (12,500)
Financing activities of discontinued operations (232,452) (324,834) -
---------- ---------- ----------
Cash flows used by financing activities (213,525) (304,316) (103,766)
---------- ---------- ----------
Total net cash flows 13,946 4,912 26,965
---------- ---------- ----------
Net cash flows from discontinued operations 15,203 (13,632) -
---------- ---------- ----------
Net cash flows from continuing operations $ (1,257) $ 18,544 $ 26,965
========== ========== ==========
</TABLE>
See accompanying Notes 3, 4, 5, 9, 13 and 14 for
supplemental disclosure of non-cash activities.
See accompanying notes to consolidated financial statements.
CLUB CORPORATION INTERNATIONAL
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. Thus, Franklin is classified as a
discontinued operation (Note 3) and Franklin's assets, liabilities, income
(loss) from operations and cash flow activity are segregated in the accompanying
financial statements. Unless otherwise indicated, all financial information in
the Notes to the Consolidated Financial Statements excludes the discontinued
operation.
Investments in affiliates are accounted for on the equity method. Under the
equity method, original investments are recorded at cost and are adjusted by
ClubCorp's share of the undistributed earnings or losses of these affiliates
(Note 5). All material intercompany balances and transactions have been
eliminated.
No minority interest is recorded for minority stockholders of three city clubs,
two resort subsidiaries and two real estate development subsidiaries because of
deficit capital positions and a joint venture partner's deficit capital
position. The deficit capital position of the joint venture partner is included
as a reduction of other liabilities. Minority stockholders' share of these
entities' cumulative and 1997 losses which approximate $7,558,000 and
$1,291,000, respectively, have been charged to ClubCorp. Future earnings of
these subsidiaries will be credited to ClubCorp to the extent of minority
interest losses previously absorbed.
Nature of operations
- ----------------------
Club Corporation International is a holding company incorporated under the laws
of the State of Nevada that, through its subsidiaries, has operated in two
distinct business segments, hospitality and financial services. The hospitality
segment involves the operation of private clubs (including city, city/athletic,
athletic and country clubs), resorts, golf clubs and public golf facilities
through sole ownership, partial ownership (including joint venture interests)
and management agreements. ClubCorp's primary sources of revenue in its
hospitality segment include membership dues and fees, membership deposits, food
and beverage sales and revenues from golf operations and lodging facilities. The
Company also receives management fees with respect to facilities that it manages
for third parties.
The financial services segment is presented as discontinued operations for
financial reporting purposes.
Fiscal year
- ------------
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. The hospitality segment subsidiaries were previously reported on a
52/53 week fiscal year with acquisitions, divestitures and other material
transactions of the hospitality segment during the period from December 27, 1995
to December 31, 1995 and December 25, 1996 to December 31, 1996 recorded in
these statements. The current year is comprised of the 53 weeks ended December
31, 1997. The accounts of Franklin are included for all of calendar years 1995
and 1996.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and cash equivalents
- ----------------------------
ClubCorp's policy is to invest cash in excess of operating requirements in
income producing investments. For purposes of the consolidated statement of cash
flows, cash and cash equivalents include cash on hand and interest-bearing
deposits in financial institutions, substantially all of which have maturities
of three months or less.
Impairment of long-lived assets and intangible assets
- -----------------------------------------------------
In March 1995, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of". SFAS 121
requires, among other things, that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
ClubCorp adopted SFAS 121 for the year ended December 31, 1995 which resulted in
an impairment loss of $23,000,000 from assets to be held and used. An additional
impairment loss of $2,800,000 was recorded for the year ended December 31, 1996.
The impairment losses are reported separately in the consolidated statement of
operations.
ClubCorp assessed the recoverability of long-lived assets by determining whether
the fixed asset balance plus any intangibles for each property could be
recovered over its remaining life through undiscounted future operating cash
flows. Fair value, for purposes of calculating impairment, was measured based on
discounted future operating cash flows using a risk-adjusted discount rate.
Events or changes in circumstances identified indicating that the carrying
amount of certain long-lived assets may not be recoverable were primarily
decreases in the market values of assets and current period cash flow deficits
combined with historical cash flow deficits and forecasts of continuing
deficits. In 1995 and 1996, impaired assets identified were property and
equipment including land and land improvements, buildings, leasehold
improvements, and furniture and equipment for certain properties. No intangible
assets were associated with these properties. ClubCorp believes that no
impairment has occurred related to any of its intangible assets.
Identifiable intangibles represent primarily the excess cost over fair value of
net assets of businesses acquired and public golf leasehold interests which are
amortized using the straight-line method over 5 to 40 years.
Property and equipment
- ------------------------
Property and equipment is stated at cost. Land and land improvements include
nondepreciable golf course improvements including fairways, roughs and trees.
ClubCorp capitalizes costs which both materially add value and appreciably
extend the useful life of an asset. With respect to golf course improvements,
only costs associated with original construction, complete replacements, or the
addition of new trees, sandtraps, fairways or greens are capitalized. All other
related costs are expensed as incurred.
Depreciation is provided primarily using the straight line method based on the
following estimated useful lives:
<TABLE>
<CAPTION>
<S> <C>
Depreciable land improvements 20 years
Building and recreational facilities 40 years
Furniture and fixtures 3 - 10 years
Machinery and equipment 3 - 10 years
</TABLE>
Leasehold improvements and assets under capital leases are amortized over the
period of the respective leases using the straight line method.
Inventories
- -----------
Inventories, which consist primarily of food and beverage and merchandise held
for resale, are stated at the lower of cost (first-in, first-out method) or
market value.
Real estate held for sale
- -----------------------------
Real estate held for sale consists primarily of land, land development costs and
related amenities if they are to be left with the project upon completion. Costs
are allocated to project components based on the specific identification method
whenever possible. Otherwise, costs are allocated based on their relative sales
value. At December 31, 1996 and December 31, 1997, real estate held for sale was
$34,869,000 and $28,180,000, respectively, and is included in other non-current
assets in the accompanying financial statements.
Sales of real estate generally are accounted for under the full accrual method.
Under that method, gain is not recognized until the collectibility of the sales
price is reasonably assured and the earnings process is virtually complete. One
real estate subsidiary has a project that is accounted for under the
percentage-of-completion method since the subsidiary has material obligations
under sales contracts to provide improvements after the property is sold. Under
the percentage-of-completion method, the gain on the sale is recognized as the
related obligations are fulfilled.
Income taxes
- -------------
Income taxes are accounted for using the asset and liability method. Under this
method deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using tax rates expected
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled.
Deferred membership dues
- --------------------------
Deferred membership dues represents lifetime membership dues and prepaid dues.
Deferred membership dues are recognized as income using the straight-line method
over 20 years, the estimated average life of a lifetime membership. Prepaid dues
are recognized as income over the prepayment period.
Foreign currency translation
- ------------------------------
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the current exchange rate in effect at year-end. All foreign
income and expenses are translated at the weighted average exchange rates during
the year.
Translation gains and losses are reported separately as a component of
stockholders' equity. Realized foreign currency transaction gains and losses are
reflected in the statement of operations.
Treasury stock
- ---------------
Purchases of treasury stock are recorded at the cost of the shares acquired.
When treasury stock is subsequently issued, the difference between the cost of
shares issued, using the average cost method, and the sales price is charged or
credited to additional paid-in capital.
Stock-based compensation
- -------------------------
Stock-based compensation is accounted for using Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". Under APB 25
if the exercise price of the options is greater than or equal to the market
price at the date of grant, no compensation expense is recorded. Effective
fiscal year-end 1996, ClubCorp adopted the disclosure-only provisions of SFAS
123, "Accounting for Stock-based Compensation" (Note 11).
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 represent advance initiation
deposits paid by members and are refundable a fixed number of years (generally
30 years) after 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
deferred and recognized as revenue on a straight line basis over the expected
average life of active membership. In addition, related incremental direct
selling costs of membership initiation deposits and fees (primarily commissions)
is recorded in the same manner as the revenues are recognized. The membership
deposit liability accretes over 30 years using the interest method. The
accretion is recorded to interest expense in the accompanying Consolidated
Statement of Operations. At year-end 1997, the amount of membership deposits
contractually due and payable during the next 5 years is not significant.
Divestiture of subsidiaries
- -----------------------------
(Loss) gain on divestitures includes gains and losses from the disposition of
assets and subsidiaries. Subsidiaries are divested when management determines
they will be unable to provide a positive contribution to cash flows in future
periods. Gains from divestitures are generally recognized in the period in which
operations cease and losses are recognized when they become apparent.
Earnings per share
- --------------------
In February 1997, FASB issued SFAS No. 128, "Earnings per Share", which
establishes new standards for computing and presenting basic and diluted
earnings per share. ClubCorp implemented these standards at year-end 1997 with
no impact on the earnings per share calculation for the periods presented in the
accompanying statement of operations.
Earnings per share is computed using the weighted average number of common
shares outstanding of 86,141,082, 85,601,163, and 85,283,231 for basic and
86,141,082, 85,854,088 and 85,946,231, for diluted for 1995, 1996 and 1996,
respectively. The weighted average shares outstanding used in the calculation
of diluted earnings per share includes options to purchase common stock (Note
11).
Segment disclosures
- --------------------
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. The disclosures required by
SFAS 131 will be reflected in ClubCorp's 1998 consolidated financial statements.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current year presentation.
NOTE 2. CHANGE IN ACCOUNTING POLICY
- ----------------------------------------
ClubCorp changed its accounting policy for membership initiation deposits and
fees to defer such revenues and recognize them on a straight line basis over the
expected average life of active membership. Revenues from membership initiation
deposits and fees were previously recognized by ClubCorp as revenue on the date
of acceptance of the member. In addition to the deferral of membership
initiation deposits and fees, ClubCorp has deferred the related incremental
direct selling costs of membership initiation deposits and fees (primarily
commissions) and is recording such costs in the same manner as the revenues are
recognized. Accordingly, the accompanying consolidated financial statements
have been retroactively adjusted to reflect this change for all periods
presented. The impact of the restatement is summarized as follows (dollars in
thousands, except per share amounts):
<TABLE>
<CAPTION>
1995 1996 1997
-------- --------- ---------
<S> <C> <C> <C>
Operating revenues $(8,372) $(13,036) $(12,666)
Income from operations (8,391) (13,474) (12,347)
(Loss) income from continuing
operations before income taxes
and minority interest (8,370) (13,317) (11,917)
Income tax (provision) benefit 1,583 1,569 2,010
(Loss) income from
continuing operations (6,312) (12,095) (8,978)
-------- --------- ---------
Net (loss) income $(6,312) $(12,095) $ (8,978)
======== ========= =========
Basic earnings per share:
(Loss) income from
continuing operations $ (0.07) $ (0.14) $ (0.11)
-------- --------- ---------
Net (loss) income $ (0.07) $ (0.14) $ (0.11)
======== ========= =========
Diluted earnings per share:
(Loss) income from
continuing operations $ (0.07) $ (0.14) $ (0.10)
-------- --------- ---------
Net (loss) income $ (0.07) $ (0.14) $ (0.10)
======== ========= =========
</TABLE>
In addition, this change resulted in a decrease in retained earnings of
$49,150,000, $61,245,000 and $70,223,000 as of December 31, 1995, 1996 and
1997, respectively.
ClubCorp now presents changes in the redemption value of common stock held by
the benefit plan as a direct charge to retained earnings instead of a separate
component of stockholders' equity. This reclassification resulted in a decrease
in retained earnings of $35,414,000, $43,233,000 and $53,652,000 as of December
31, 1995, 1996 and 1997, respectively. This reclassification had no net effect
on total stockholders' equity.
NOTE 3. DISCONTINUED OPERATIONS
- ----------------------------------
On August 7, 1996, Franklin entered into an agreement to sell certain assets and
transfer certain liabilities of Franklin to Norwest Corporation pending
regulatory approval. The sale was consummated on January 2, 1997 for
$89,968,000. ClubCorp's gain on the sale, net of income taxes and minority
interest, is $25,146,000 for the year ended December 31, 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.
The financial services assets, financial services liabilities and income (loss)
from discontinued operations are segregated in the accompanying financial
statements, net of minority interest. The condensed balance sheet and statement
of operations of the discontinued segment are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Balance Sheet
--------------
1996
--------
<S> <C>
Assets
- ------
Cash and cash equivalents $ 37,852
Mortgage-backed securities 67,088
Loans receivable, net 419,106
Other assets 65,436
--------
$589,482
========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $516,292
Federal Home Loan Bank advances 3,153
Other liabilities 19,742
Stockholders' equity 50,295
--------
$589,482
========
</TABLE>
Statement of Operations
-------------------------
<TABLE>
<CAPTION>
1995 1996
-------- ---------
<S> <C> <C>
Net interest income $17,607 $ 20,308
Other income (loss) 5,080 (16,902)
Other expenses 20,895 26,472
Income tax (provision) benefit (1,563) 8,520
-------- ---------
Net income (loss) 229 (14,546)
-------- ---------
Minority interest 46 (2,909)
-------- ---------
ClubCorp's interest $ 183 $(11,637)
======== =========
</TABLE>
In 1996, in conjunction with the sale, Franklin's Board of Directors made a
decision to sell the fixed-rate mortgage-backed securities and use the funds to
prepay the Federal Home Loan Bank (FHLB) advances. A write down of the portfolio
was recognized due to the decision to sell the fixed-rate mortgage-backed
securities and the decline in their value deemed other than temporary. Losses
recognized as of December 31, 1996 on the sale of fixed-rate mortgage-backed
securities and write down on the remaining securities to be sold totaled
$21,500,000. The proceeds on the sale of these investments allowed Franklin to
prepay a majority of the FHLB advances.
NOTE 4. ACQUISITIONS
- ----------------------
During 1995, ClubCorp purchased substantially all of the assets of four country
clubs, a fitness and tennis center and the remaining 49% minority interest of
stock in a corporation which operates eight public golf facilities. ClubCorp
previously consolidated the public golf subsidiary.
During 1996, ClubCorp purchased substantially all the assets of three golf
clubs, two country clubs and two resorts. ClubCorp previously leased one of the
resorts.
During 1997, ClubCorp purchased the stock of a golf club and substantially all
the assets of a country club and a hotel. The hotel is an addition to an
existing resort subsidiary of the Parent.
These acquisitions 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. A summary of the combined
assets and liabilities on the acquisition dates is as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- -------
<S> <C> <C> <C>
Inventories and other assets $ 2,584 $ 1,227 $ 39
Property and equipment 21,256 46,439 9,587
Excess of cost over net assets
acquired, net 14,659 7,754 732
Deposit on purchase 5,000 (5,000) -
------- -------- -------
Total assets acquired $43,499 $50,420 $10,358
======= ======== =======
Accounts payable and
accrued liabilities $ 371 $ 591 $ 1,003
Long-term debt 1,474 8,310 2,919
Membership deposits 4,398 - -
Other liabilities 11,727 1,834 -
------- -------- -------
Total liabilities assumed $17,970 $10,735 $ 3,922
======= ======== =======
Cash paid $25,529 $39,685 $ 6,436
======= ======== =======
</TABLE>
The deposit on purchase is an advance payment made in 1995 on the purchase of a
golf club. The purchase was finalized during 1996.
The following unaudited proforma financial information for ClubCorp assumes the
acquisitions in 1996 and 1997 occurred at the beginning of their respective
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>
1996 1997
-------- --------
<S> <C> <C>
Operating revenues $788,399 $828,802
======== ========
Net income $ 4,720 $113,198
======== ========
Net income per share
assuming dilution $ .05 $ 1.32
======== ========
</TABLE>
NOTE 5. INVESTMENTS IN AFFILIATES
- -------------------------------------
During 1997, ClubCorp entered into joint venture agreements to build and operate
a golf course and a hotel and to operate a country club. In addition, ClubCorp
sold the interest in a resort joint venture for cash and a note receivable.
ClubCorp's other investments in affiliates include joint ventures for the
operation of four real estate developments, three country clubs, two golf clubs
and two city clubs.
ClubCorp does not have operational or financial control over these
entities; therefore, the entities are accounted for using the equity method and
the investment balances are included in other non-current assets in the
accompanying financial statements.
A summary of the significant financial information of affiliated companies
accounted for on the equity method is as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- -------
<S> <C> <C>
Cash $ 5,488 $13,259
Property and equipment, net 42,709 47,287
Land held for resale 7,923 3,877
Other assets 18,559 15,909
-------- -------
Total assets $74,679 $80,332
======== =======
Long-term debt $15,296 $19,879
Membership deposits 5,784 5,063
Other liabilities 27,980 30,551
Venturers' capital 25,619 24,839
-------- -------
Total liabilities and venturers' capital $74,679 $80,332
======== =======
Operating revenues $41,682 $29,456
Gross profit $ 8,587 $ 5,111
Net (loss) income $(2,952) $ 2,285
ClubCorp's equity in:
Net assets $13,356 $14,117
Net (loss) income $(2,084) $ 852
</TABLE>
NOTE 6. FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------------
Fair value estimates are made at a specific point in time, based on relevant
information about the financial instrument. These estimates do not reflect any
premium or discount that could result from offering for sale at one time
ClubCorp's entire holdings of a particular financial instrument. Because no
market exists for certain financial instruments, fair value estimates are based
on management's judgment regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and
other factors. These fair value estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
estimates. At December 31, 1996 and 1997, ClubCorp's estimate of fair value
approximates the carrying value of its financial instruments.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate that
value:
Cash and cash equivalents
- ----------------------------
The carrying amount of cash and cash equivalents approximates fair value due to
the short maturity of these instruments.
Long-term debt
- ---------------
Fair values for fixed rate and other obligations are based on the discounted
value of contractual cash flows using ClubCorp's incremental borrowing rates for
similar types of debt arrangements. The fair value calculated at December 31,
1996 and 1997 approximates the carrying value. ClubCorp's fluctuating rate and
capital lease obligations' carrying amounts approximate fair value.
Membership deposits
- --------------------
The carrying amount of membership deposits is the present value of the future
obligations and therefore approximates fair value.
NOTE 7. PROPERTY AND EQUIPMENT
- ----------------------------------
Property and equipment consists of the following at year-end (dollars in
thousands):
<TABLE>
<CAPTION>
1996 1997
---------- ----------
<S> <C> <C>
Land and land improvements $ 283,260 $ 298,571
Buildings and recreational facilities 295,114 280,692
Leasehold improvements 98,416 102,866
Furniture and fixtures 92,883 99,483
Machinery and equipment 151,986 169,279
Construction in progress 18,824 24,110
---------- ----------
940,483 975,001
Accumulated depreciation and amortization (277,096) (297,774)
---------- ----------
$ 663,387 $ 677,227
========== ==========
</TABLE>
NOTE 8. CURRENT LIABILITIES
- ------------------------------
Current liabilities consist of the following at year-end (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Accounts payable $ 29,040 $ 27,527
Accrued compensation and employee benefits 13,764 18,689
Other accrued liabilities 12,129 11,780
-------- --------
Accounts payable and accrued liabilities 54,933 57,996
Long-term debt - current portion 120,694 74,621
Deferred membership revenue 34,457 31,440
Other deferred revenue 17,131 20,772
Property taxes payable 12,337 11,070
Other current liabilities 13,853 16,713
-------- --------
Other liabilities 77,778 79,995
-------- --------
Total current liabilities $253,405 $212,612
======== ========
</TABLE>
NOTE 9. LONG-TERM DEBT AND OPERATING LEASES
- -------------------------------------------------
Long-term borrowings are summarized below with weighted average interest rates
of 8.5% and 8.4% at year-end 1996 and 1997, respectively, and the range of
maturity dates in parentheses (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Notes payable to financial institutions:
Fixed rate (1997-2016) $ 74,514 $ 64,077
Fluctuating rate (1997-2010) 206,064 128,501
Notes payable to developers and landlords
Fixed rate (1997-2007) 10,745 8,857
Capital lease obligations (1997-2068) 12,673 15,972
Other obligations (1997-2006) 39,921 38,450
-------- --------
343,917 255,857
Less current portion 120,694 74,621
-------- --------
$223,223 $181,236
======== ========
</TABLE>
Certain real and personal property and equipment of the Parent's subsidiaries
are pledged as collateral on their long-term debt.
As the result of operating performance of certain subsidiaries, at December 31,
1997 and subsequently, certain subsidiaries were not in compliance with debt
covenants due to non-payment of principal due and covenants relating to
financial ratios on long-term debt totaling $3,996,000 and $2,730,000,
respectively.
A subsidiary of Parent maintains an external bridge financing agreement with a
financial institution. The bridge financing arrangement is a "guidance line",
styled as a promissory note, and is due on a short-term basis up to a maximum of
$75,000,000. Borrowings are generally renewed as they become due; therefore, the
subsidiary does not expect to be required to repay the outstanding borrowings
within the next twelve months. As of December 31, 1996 and 1997, $65,799,000 and
$7,080,000, respectively, is outstanding and included in the current portion of
long-term debt in the accompanying financial statements. An additional
$8,653,000 and $4,703,000 in 1996 and 1997, respectively, is considered
outstanding under this agreement for loan guarantees and unused letters of
credit. ClubCorp repaid $49,475,000 in January 1997 with the proceeds from the
sale of Franklin (Note 3).
The amounts of long-term debt maturing in each of the four years subsequent to
1998 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year
- ----
<S> <C>
1999 $44,265
2000 53,436
2001 27,738
2002 16,978
</TABLE>
The provisions of certain subsidiary lending agreements limit the amount of
dividends that may be paid to Parent. Under the most restrictive of these
limitations, at December 31, 1997, approximately $85,000,000 of retained
earnings was available for the declaration of dividends to Parent.
The amount of cash paid for interest in 1995, 1996 and 1997 was approximately
$24,700,000, $26,000,000 and $24,700,000, respectively.
ClubCorp leases operating facilities under agreements ranging from 1 to 45
years. These agreements normally provide for minimum rentals plus executory
costs. In some cases, ClubCorp must pay contingent rent generally based on a
percentage of gross receipts or positive cash flow as defined in the lease
agreements. Future minimum lease payments required at December 31, 1997 under
operating leases for buildings and recreational facilities with initial
noncancelable lease terms in excess of one year are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
Year
- ----
<S> <C>
1998 $ 23,391
1999 22,675
2000 22,140
2001 21,826
2002 19,895
Thereafter 113,627
--------
Total future minimum
payments required $223,554
========
</TABLE>
Total facility rental expense (including contingent rent) during 1995, 1996 and
1997 was $39,647,000, $35,816,000 and $32,018,000, respectively. Contingent rent
during 1995, 1996 and 1997 was $11,727,000, $7,565,000 and $7,840,000,
respectively.
NOTE 10. OTHER LIABILITIES
- -----------------------------
Other liabilities consist of the following at year-end (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Deferred membership revenue $ 72,736 $ 79,332
Insurance reserves 16,057 15,867
Net deferred tax liability 20,345 -
Other 11,598 14,294
-------- --------
Total other liabilities 120,736 109,493
-------- --------
</TABLE>
NOTE 11. BENEFIT PLANS
- -------------------------
ClubCorp maintains a qualified contributory profit sharing plan covering
substantially all eligible employees of its various domestic subsidiaries that
elect to participate. The profit sharing plan allows participants to contribute
a maximum of 6% of their annual compensation. Participant contributions are
matched by the participating subsidiary ranging from 20% of the participant's
contributions to 50% based on improvements in the value of ClubCorp's common
stock.
All of the assets of the plan are invested in ClubCorp common stock, except for
temporary investments of cash. Since ClubCorp's common stock is not publicly
traded, ClubCorp has granted the trustees of the plan the right to require
ClubCorp to purchase ClubCorp common stock held by the plan (3,590,793 and
3,775,673 shares at December 31, 1996 and 1997, respectively) at the current
appraised value ($12.04 and $14.21 at December 31, 1996 and 1997, respectively)
as necessary in order to meet the requirements of the Employee Retirement Income
Security Act and the plan. Accordingly, the redemption value of ClubCorp's
common stock held by the benefit plan has been reclassified out of stockholders'
equity in the accompanying consolidated balance sheet. This redemption right has
never been exercised by the trustees, and management does not believe that the
trustees have any intention to exercise the redemption right in the foreseeable
future.
ClubCorp maintains a second qualified contributory profit sharing plan for all
eligible employees of certain domestic subsidiaries. The plan allows
participants to invest their contributions among five investment fund options.
The Club Corporation International Executive Stock Option Plan was adopted
August 31, 1995. Under the plan, 4,000,000 options to purchase shares of common
stock may be granted to key management personnel at a price not less than fair
market value at the date of grant. The options fully vest 120 days prior to
their expiration date. The plan provides for accelerated vesting, not to exceed
10% per year, if the employee maintains a certain performance level as defined
in the plan. Employees are required to maintain a minimum ownership level of
company stock holdings, as set forth in the plan, to sell stock acquired from
exercised options. In August 1995, 2,945,000 options were granted at $10.14 per
share with an expiration date of December 31, 2009. In January 1996, 190,000
options were granted at $10.01 per share with an expiration date of December 31,
2010 and in January 1997, an additional 150,000 options were granted at $12.04
per share with an expiration date of December 31, 2011.
ClubCorp applies APB 25 in accounting for the plan; therefore, no compensation
expense has been recognized for the options. In accordance with the requirements
of SFAS 123, the fair value of the options granted was estimated using the
Black-Scholes option-pricing model with the following assumptions for the 1995,
1996 and 1997 grants: risk-free interest rates of 6.6%, 5.6% and 5.8%,
respectively, an expected volatility of 25%, an expected life of 10 years and
zero dividend yield. A summary of the status of the options outstanding as of
December 31, 1995, 1996 and 1997 and changes during the years ending on those
dates is as follows:
<TABLE>
<CAPTION>
Average
Exercise
Shares Price
---------- ---------
<S> <C> <C>
Outstanding at January 1, 1995 - -
Granted 2,945,000 $ 10.14
Forfeited - -
----------
Outstanding at December 31, 1995 2,945,000 10.14
Granted 190,000 10.01
Forfeited (125,000) 10.14
----------
Outstanding at December 31, 1996 3,010,000 10.13
GRANTED 150,000 12.04
FORFEITED (50,000) 10.14
----------
OUTSTANDING AT DECEMBER 31, 1997 3,110,000 10.22
==========
</TABLE>
<TABLE>
<CAPTION>
1995 1996 1997
----- -------- --------
<S> <C> <C> <C>
Options exercisable at year-end - 282,000 573,000
Fair value of options
granted during the year $5.33 $ 5.05 $ 6.14
</TABLE>
If compensation cost for the plan had been determined based on the fair value at
the grant dates for the options consistent with the method of SFAS 123,
ClubCorp's net (loss) income and net (loss) income per share would have been
reduced to the following pro forma amounts (dollars in thousands, except per
share amounts):
<TABLE>
<CAPTION>
1995 1996 1997
--------- ------ --------
<S> <C> <C> <C>
Net (loss) income $(19,010) $4,033 $111,399
Net (loss) income per share
assuming dilution $ (.22) $ .05 $ 1.30
</TABLE>
NOTE 12. 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.
NOTE 13. INTEREST AND INVESTMENT INCOME
- --------------------------------------------
Interest and investment income consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
------ ------- -------
<S> <C> <C> <C>
Interest income $7,595 $ 6,815 $9,663
Gain on sale of investments 1,098 3,392 -
Other 706 885 (20)
------ ------- -------
$9,399 $11,092 $9,643
====== ======= =======
</TABLE>
NOTE 14. INCOME TAXES
- ------------------------
(Loss) income from continuing operations before income taxes and minority
interest consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
1995 1996 1997
--------- -------- --------
<S> <C> <C> <C>
Domestic $(12,904) $22,024 $55,770
Foreign (960) (2,783) (8,880)
--------- -------- --------
$(13,864) $19,241 $46,890
========= ======== ========
</TABLE>
The income tax (provision) benefit consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Federal
Current $ 818 $ 95 $ (674)
Deferred (2,283) (1,207) 44,045
-------- -------- --------
(1,465) (1,112) 43,371
State (1,752) (1,469) (2,107)
-------- -------- --------
$(3,217) $(2,581) $41,264
======== ======== ========
</TABLE>
The differences between income taxes computed using the U.S. statutory Federal
income tax rate of 35% and actual income tax provision as reflected in the
accompanying Consolidated Statement of Operations are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Expected Federal income tax (benefit) provision $ 4,852 $(6,734) $(16,412)
Effect of consolidated operations and income
taxes of foreign and other entities not
consolidated for Federal tax purposes (1,058) (2,544) (3,508)
State taxes, net of Federal benefit (1,139) (955) (1,370)
Change in valuation allowance
allocated to income tax expense (5,185) 10,725 66,566
Other, net (687) (3,073) (4,012)
-------- -------- ---------
$(3,217) $(2,581) $ 41,264
======== ======== =========
</TABLE>
To fully realize the deferred tax asset ClubCorp will need to generate future
taxable income of approximately $353,000,000 by 2012. Based on the Company's
historical pre-tax earnings, adjusted for significant nonrecurring items such as
gains (losses) on divestitures, management believes it is more likely than not
ClubCorp will realize the benefit of the deferred tax assets, net of the
valuation allowance, existing at December 31, 1997. The Company has experienced
a trend of increasing taxable income from its continuing operations which in
turn has increased estimates of future taxable income. Based on these new
estimates, the Company decreased its valuation allowance by $66,566,000 for the
year ended December 31, 1997. The assumptions used to estimate the
realizability of the deferred tax assets are subjective in nature and involve
uncertainties and matters with significant judgment. There can be no assurance
that ClubCorp will generate any specific level of continuing earnings. ClubCorp
also has approximately $6,600,000 of tax credits available to offset regular
taxes payable which expire in varying amounts from 1998 to 2003.
ClubCorp's net operating loss carryforwards at December 31, 1997, after current
year utilization of net operating loss carryforwards, were approximately
$556,092,000 and $136,174,000 for regular tax and alternative minimum tax,
respectively. These net operating loss carryforwards are available to offset
future taxable income and will expire from 2004 to 2010.
The Company's federal income tax returns for 1991 through 1994 are under
examination by the Internal Revenue Service. Because many types of transactions
are susceptible to varying interpretations under Federal income tax laws and
regulations, the net operating loss carryforwards and net deferred tax asset
reported in the consolidated financial statements could change at a later date
upon final determination by the taxing authorities. Management believes the
Company will prevail on any significant interpretation issues.
The components of the deferred tax assets and deferred tax liabilities at
December 31, 1996 and 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- --------
<S> <C> <C>
Deferred tax assets:
Regular tax operating loss carryforwards $199,133 $194,632
Other 18,201 15,129
--------- --------
Total gross deferred tax assets 217,334 209,761
Valuation allowance 115,446 48,880
--------- --------
101,888 160,881
Deferred tax liabilities:
Property and equipment 6,344 15,634
Discounts on membership deposits
and acquired notes 100,449 104,140
Other 15,440 17,406
--------- --------
Total gross deferred tax liabilities 122,233 137,180
--------- --------
Net deferred tax (liability) asset $(20,345) $ 23,701
========= ========
</TABLE>
NOTE 15. SELECTED QUARTERLY FINANCIAL DATA, (UNAUDITED)
- -------------------------------------------------------------
The hospitality segment's operations for the first three quarters consist of 12
weeks each and the fourth quarter includes 16 weeks in 1996 and 17 weeks in
1997.
Interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations. Selected quarterly
financial data are summarized as follows (dollars in thousands, except per share
data):
<TABLE>
<CAPTION>
QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Fiscal year 1996
- ----------------
Operating revenues $151,825 $191,005 $177,507 $250,840
(Loss) income from continuing
operations (4,350) 11,120 (302) 10,734
(Loss) income from discontinued
operations, net of income taxes 533 (12,391) (1,375) 1,596
--------- --------- --------- --------
Net (loss) income $ (3,817) $ (1,271) $ (1,677) $ 12,330
========= ========= ========= ========
Per common share:
(Loss) income from
continuing operations $ (.05) $ .13 $ - $ .12
Discontinued operations .01 (.14) (.02) .02
--------- --------- --------- --------
Net (loss) income $ (.04) $ (.01) $ (.02) $ .14
========= ========= ========= ========
Per common share
assuming dilution:
(Loss) income from
continuing operations $ (.05) $ .13 $ - $ .12
Discontinued operations .01 (.14) (.02) .02
--------- --------- --------- --------
Net (loss) income $ (.04) $ (.01) $ (.02) $ .14
========= ========= ========= ========
FISCAL YEAR 1997
- ----------------
OPERATING REVENUES $157,086 $197,572 $192,084 $280,855
(LOSS) INCOME FROM CONTINUING
OPERATIONS (4,693) 23,052 2,144 67,361
INCOME FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES 25,146 - - -
--------- --------- --------- --------
NET INCOME $ 20,453 $ 23,052 $ 2,144 $ 67,361
========= ========= ========= ========
PER COMMON SHARE:
(LOSS) INCOME FROM
CONTINUING OPERATIONS $ (.05) $ .27 $ .03 $ .78
DISCONTINUED OPERATIONS .29 - - -
--------- --------- --------- --------
NET INCOME $ .24 $ .27 $ .03 $ .78
========= ========= ========= ========
PER COMMON SHARE
ASSUMING DILUTION:
(LOSS) INCOME FROM
CONTINUING OPERATIONS $ (.05) $ .27 $ .03 $ .77
DISCONTINUED OPERATIONS .29 - - -
--------- --------- --------- --------
NET INCOME $ .24 $ .27 $ .03 $ .77
========= ========= ========= ========
</TABLE>
As discussed in Note 14, ClubCorp recorded a significant tax adjustment in the
fourth quarter of 1997.
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Club Corporation International:
Under date of February 27, 1998, except as to Note 2 which is as of October 13,
1998, we reported on the consolidated balance sheet of Club Corporation
International and subsidiaries as of December 31, 1997 and 1996, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 1997, which are
included in the annual report on Form 10-K for the fiscal year ended December
31, 1997. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule in the annual report on Form 10-K. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement schedule based on our
audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
February 27, 1998 except as to Note 2
which is as of October 13, 1998
<PAGE>
<TABLE>
<CAPTION>
CLUB CORPORATION INTERNATIONAL
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1995, 1996 and 1997
ADDITIONS
-------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING OF TO COSTS TO OTHER END OF
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------- ------------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1995:
Allowance for Doubtful Accounts $ 2,505,326 $ 6,169,857 $ 0 $ 5,026,367 (A) $ 3,648,816
Tax Valuation Allowance 120,986,000 0 5,185,000 (C) 0 126,171,000
Year Ended December 31, 1996:
Allowance for Doubtful Accounts $ 3,648,816 $ 2,985,125 $ 0 $ 2,734,278 (A) $ 3,899,663
Tax Valuation Allowance 126,171,000 0 0 10,725,000 (B) 115,446,000
Year Ended December 31, 1997:
Allowance for Doubtful Accounts $ 3,899,663 $ 3,602,747 $ 0 $ 999,175 (A) $ 6,503,235
Tax Valuation Allowance 115,446,000 0 0 66,566,000 (B) 48,880,000
</TABLE>
(A) Accounts receivable charged off.
(B) Utilization and disallowance of net operating loss carryforward.
(C) Generation of net operating loss.
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Club Corporation International:
We consent to incorporation by reference in the registration statements (Nos.
33-96568, 33-89818, 333-08041, and 333-57107) on Form S-8 of Club Corporation
International of our report dated February 27, 1998, except as to Note 2 which
is as of October 13, 1998, relating to the consolidated balance sheet of Club
Corporation International and subsidiaries as of December 31, 1997 and 1996, and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
Our report on the consolidated financial statements refers to a change in 1995
in the method of accounting for impairment of long-lived assets and to a
retroactive change in the method of accounting for membership initiation
deposits and fees and the related incremental direct selling costs.
KPMG Peat Marwick LLP
Dallas, Texas
October 22, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SEC FORM
10-K/A AMENDMENT NO. 1 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1996
<PERIOD-END> DEC-31-1997 DEC-31-1996
<CASH> 101,419 74,454
<SECURITIES> 0 0
<RECEIVABLES> 89,908 83,127
<ALLOWANCES> 6,604 3,900
<INVENTORY> 14,954 13,886
<CURRENT-ASSETS> 207,863 175,597
<PP&E> 971,462 940,483
<DEPRECIATION> 297,773 277,096
<TOTAL-ASSETS> 1,028,674 1,554,597
<CURRENT-LIABILITIES> 212,612 253,405
<BONDS> 0 0
0 0
0 0
<COMMON> 902 902
<OTHER-SE> 387,713 289,650
<TOTAL-LIABILITY-AND-EQUITY> 1,028,674 1,554,597
<SALES> 239,053 231,930
<TOTAL-REVENUES> 827,597 771,177
<CGS> 204,156 198,954
<TOTAL-COSTS> 762,153 724,036
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 3,603 2,985
<INTEREST-EXPENSE> 34,044 34,044
<INCOME-PRETAX> 46,890 19,241
<INCOME-TAX> (41,264) 2,581
<INCOME-CONTINUING> 87,864 17,202
<DISCONTINUED> 25,146 (11,637)
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 113,010 5,565
<EPS-PRIMARY> 1.32 0.07
<EPS-DILUTED> 1.31 0.07
</TABLE>
