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, 1996
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 and 333-08041
CLUB CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
NEVADA 75-1311242
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-6191
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, 1996 (the most recent date on
which an appraisal was performed), based on the most recent appraised price of
the Registrant's Common Stock, was $47,623,498.
The number of shares of the Registrant's Common Stock outstanding as of
February 28, 1997 was 85,393,241.
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, 1997. 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, 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. The
Company's primary sources of revenue in its hospitality segment include
membership dues and fees, 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 "Hospitality
Operations-Management Services".
Historically, the Company has operated in the financial services segment
through Franklin Federal Bancorp, a Federal Savings Bank ("Franklin"). On
February 16, 1996, the Board of Directors of Franklin, passed a resolution to
solicit offers to sell the financial services segment. 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; therefore, this
segment is presented as discontinued operations in the accompanying
Consolidated Financial Statements. Sales proceeds of $4.0 million were
escrowed representing the maximum contractual obligation of Franklin arising
from any claims which could be asserted by Norwest Corporation against
Franklin based on the representations, warranties, and covenants provided in
the agreement. As the contingency periods expire, within one year of the
closing date, Franklin will receive the remaining balance of the escrowed
funds. Due to the contingencies involved, management cannot determine the
ultimate amount of the gain to be recognized; however, the Company's estimated
net gain on this transaction, net of taxes and minority interest, is expected
to be approximately $23.0 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 the
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.
HOSPITALITY 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 13 executive
officers possess an average of 21 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 eight 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.
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 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 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 227 private club, resort, golf club, and public golf
facilities at December 31, 1996, serving approximately 240,000 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 and
fees, 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 for developing new clubs and expanding or improving
existing clubs. Upon joining a private club operated by the Company, new
members are required to pay a membership deposit, which is generally
refundable after 30 years.
The success of the Company's private clubs and golf clubs 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 resorts, golf
clubs, 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 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 private city,
city/athletic and athletic clubs are primarily located in city business
centers or in downtown areas.
City clubs typically include dining rooms and lounge areas and meeting
and board room facilities. Some of the notable city clubs operated by the
Company include The Metropolitan Club in Chicago, Illinois, The Columbia Tower
Club in Seattle, Washington, The Tower Club in Dallas, Texas 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, saunas and
whirlpools, eating facilities and, occasionally, tennis and basketball courts.
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 in
Dallas, Texas, Kingwood Country Club in Houston, Texas, Mission Hills Country
Club and Indian Wells Country Club in Palm Springs, California, and Firestone
Country Club in Akron, Ohio.
The Company's city/athletic clubs combine various facilities offered by
its city clubs and athletic clubs, described above. Some of the notable
city/athletic clubs operated by the Company include The Rivers Club in
Pittsburgh, Pennsylvania and The University Club in Houston, 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 and Oakmont Golf
Club, both located in Dallas, Texas.
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 and Clear Lake in Houston, Texas, and Plantation Resort in
Dallas, Texas.
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 at private country clubs 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 in North Carolina, the Homestead
Resort in Virginia and the Barton Creek Country Club and Conference Resort in
Texas.
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, resorts, golf clubs, and public golf
facilities. Fees for the Company's management and consulting services
accounted for $8.2 million of operating revenues (1.0% of the Company's total
operating revenues) during 1996, $10.3 million of operating revenues (1.4% of
the Company's total operating revenues) during 1995 and $9.2 million of
operating revenues (1.3% of the Company's total operating revenues) during
1994. 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 facility'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;
- ClubCorp Financial Management Company, which provides primarily
accounting and data processing services related to facility management; and
- ClubCorp Facilities Group, Inc., which negotiates and supervises
national purchasing contracts for the Company's clubs, resorts, golf clubs,
and public golf facilities and provides architecture, design and construction
management services.
During 1996, 1995 and 1994, these corporate services generated
approximately $38.8 million, $34.0 million and $14.6 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 in all areas of its hospitality business.
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 permanent staff to 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
membership deposits and internal funding, equity participations and owner 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 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 185,000 members at the
majority of the Company's clubs and resorts, and which advertises the
Company's other facilities. The Company also hosts a number of professional
golf tournaments, which are to provide community and charitable involvement
and publicity for the Company's facilities. Some of the most notable
tournaments the Company hosted during 1996 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.
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 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. The Company estimates that capital expenditures in
connection with the above mentioned environmental matters will be
approximately $3.0 to $5.0 million over the next five years. 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 will increase 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 regional golf course management companies 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.
DISCONTINUED OPERATIONS
Franklin Federal Bancorp, a Federal Savings Bank ("Franklin") conducted
the Company's operations in the financial services industry during 1996.
ClubCorp owns Franklin through First Federal Financial Corporation, a wholly
owned subsidiary of ClubCorp ("FFFC").
The Company entered the financial services business in September 1988
through a government assisted acquisition of certain assets and liabilities of
three insolvent savings and loan institutions (the "Predecessor
Institutions"). ClubCorp formed FFFC to acquire Franklin and capitalized
Franklin with an investment of $25.0 million in order to engage in the
acquisition. Under the terms of the transaction, Franklin acquired certain
assets and assumed certain liabilities of the Predecessor Institutions,
including liabilities to depositors. The Federal Savings and Loan Insurance
Corporation (the "FSLIC") issued a promissory note to Franklin in an amount
equal to the negative net worth of the Predecessor Institutions at the time of
the acquisition. In addition, in connection with the acquisition, Franklin
issued warrants to the FSLIC to purchase up to 20.0% of the common stock of
Franklin for a nominal exercise price.
On February 16, 1996, the Board of Directors of Franklin, passed a
resolution to solicit offers to sell the financial services segment. 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; therefore, this segment is presented as discontinued operations in
the accompanying Consolidated Financial Statements. Sales proceeds of $4.0
million were escrowed representing the maximum contractual obligation of
Franklin rising from any claims which could be asserted by Norwest Corporation
against Franklin based on the representations, warranties, and covenants
provided in the agreement. As the contingency periods expire, within one year
of the closing date, Franklin will receive the remaining balance of the
escrowed funds. Due to the contingencies involved, management cannot
determine the ultimate amount of the gain to be recognized; however, the
Company's estimated net gain on this transaction, net of taxes and minority
interest, is expected to be approximately $23.0 million.
EMPLOYEES
As of December 31, 1996, the Company employed approximately 14,000
full-time, 6,000 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, 1996, approximately 800 of the employees engaged
in the Company's operations were covered by three collective bargaining
agreements, which will expire June 30, 1997, April 1, 1998 and December 31,
1999.
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, 1996, 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.
PART II
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, 1996.
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).
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------
1996 (1) 1995 (2) 1994 (3) 1993 (4)
----------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Operating revenues (5) $ 784,213 $ 760,851 $ 705,962 $ 626,761
Income (loss) from continuing operations (5) $ 28,962 $ (11,561) $ 28,032 $ 20,292
Income (loss) from continuing operations per share (5) $ 0.34 $ (0.13) $ 0.32 $ 0.23
Net income (loss) $ 17,660 $ (11,128) $ 19,931 $ 55,628
Net income (loss) per share $ 0.21 $ (0.13) $ 0.23 $ 0.64
BALANCE SHEET DATA:
Total assets $1,554,010 $1,825,292 $2,039,556 $2,341,542
Capitalization:
Financial services liabilities $ 549,246 $ 877,345 $1,118,937 $1,552,257
Long-term debt 343,917 313,461 285,128 194,398
Membership deposits 84,088 79,497 56,971 45,222
Redemption value of common stock held by benefit plan (6) 43,233 35,414 37,112 41,165
Stockholders' equity 351,797 333,245 356,320 338,953
----------- ----------- ----------- -----------
Total capitalization $1,372,281 $1,638,962 $1,854,468 $2,171,995
=========== =========== =========== ===========
1992
----------
INCOME STATEMENT DATA:
Operating revenues (5) $ 582,036
Income (loss) from continuing operations (5) $ 24,016
Income (loss) from continuing operations per share (5) $ 0.28
Net income (loss) $ 30,233
Net income (loss) per share $ 0.35
BALANCE SHEET DATA:
Total assets $2,273,562
Capitalization:
Financial services liabilities $1,599,297
Long-term debt 139,161
Membership deposits 38,985
Redemption value of common stock held by benefit plan (6) -
Stockholders' equity 325,256
----------
Total capitalization $2,102,699
==========
__________________
(1) The Company was successful in its efforts in 1996 to control expenses
and increase revenues. While operating revenues increased 3.1%, operating
costs and expenses increased only 1.0%. 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 $13.7 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 represent 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. The cumulative effect of the change in
accounting for income taxes is reported separately in the consolidated income
statement for the year ended December 31, 1993.
(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.
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".
INTRODUCTION
The Company has operated in two distinct business segments, hospitality
and financial services. Hospitality operations include owning, operating and
managing country clubs, city clubs, city/athletic clubs, athletic clubs,
resorts, golf clubs, public golf courses and related real estate. On August 7,
1996, Franklin entered into an agreement in which Norwest Corporation would
purchase certain assets and assume certain liabilities of Franklin. As the
Company disposed of its financial services segment on January 2, 1997, this
segment is presented as discontinued operations for financial reporting
purposes. The following discussion for hospitality operations excludes the
Company's holding company activities which include corporate general and
administrative expenses, certain investment income (loss) items and the
consolidated provision for income taxes. Holding company activities are
discussed separately under the caption "-Holding Company Activities".
The Consolidated Financial Statements of the Company are presented on a
calendar year basis. The Company's subsidiaries operate primarily 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.
GENERAL
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 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:
WHOLLY
OWNED OPERATIONS
--------------------
PARTIALLY
OWNED LEASED OWNED MANAGED UNDER
PROPERTY PROPERTY OPERATIONS (1) OPERATIONS CONSTRUCTION TOTAL
--------- --------- -------------- ----------- ------------- ------
At December 28, 1994 75 115 4 41 4 239
Properties added during 1995 2 1 1 8 - 12
Properties divested during 1995 (1) (7) - (6) (1) (15)
Changes during 1995 2 - 1 - (3) -
--------- --------- -------------- ----------- ------------- ------
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
========= ========= ============== =========== ============= ======
_________________
(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:
TOTAL
PRIVATE GOLF PUBLIC
CITY CITY/ATHLETIC ATHLETIC COUNTRY CLUBS RESORTS CLUBS GOLF TOTAL
----- -------------- --------- -------- -------- ------- ----- ------- ------
At December 28, 1994 84 20 8 84 196 7 9 27 239
Properties added during 1995 - - - 10 10 2 1 5 18
Properties divested during 1995 (5) (2) (1) (11) (19) - - (2) (21)
----- -------------- --------- -------- -------- ------- ----- ------- ------
At December 27, 1995 79 18 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 76 18 5 77 176 10 13 28 227
===== ============== ========= ======== ======== ======= ===== ======= ======
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 nine foreign facilities at December 25, 1996 of
which one is located in Canada, two are located in Mexico, two are in South
Africa, one is in Ecuador, one is 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 25, 1996, December 27, 1995 and December 28, 1994. 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).
MEMBERSHIPS AT MATURE PROPERTIES
FISCAL YEAR ENDED
------------------------------------------
DECEMBER 25, DECEMBER 27, DECEMBER 28,
1996 1995 1994
------------ ------------ ------------
Memberships at beginning of period 188,255 183,217 187,778
Memberships added during period 32,712 30,368 34,383
Memberships lost during period (attrition) (33,897) (33,045) (38,488)
------------- ------------- ------------
Memberships at end of period 187,070 180,540 183,673
============= ============= ============
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 23, 1996,
was as follows for the fiscal years ended December 23, 1996 and December 25,
1995:
MATURE 1996 RESORT PROPERTIES
FISCAL YEAR ENDED
----------------------------
DECEMBER 23, DECEMBER 25,
1996 1995
------------ ------------
Room nights available 622,352 616,676
Occupancy rate 45.63% 48.00%
Average daily room rate per occupied room $ 127.38 $ 117.46
Average daily revenue per available room $ 227.24 $ 220.68
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 25, 1995, were as follows for
the fiscal years ended December 25, 1995 and December 26, 1994:
MATURE 1995 RESORT PROPERTIES
FISCAL YEAR ENDED
------------------------------
DECEMBER 25, DECEMBER 26,
1995 1994
-------------- --------------
Room nights available 427,045 409,511
Occupancy rate 52.12% 55.72%
Average daily room rate per occupied room $ 117.46 $ 108.22
Average daily revenue per available room $ 237.49 $ 236.82
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 25, 1996, were as follows
for the fiscal years ended December 25, 1996 and December 27, 1995:
MATURE 1996 GOLF PROPERTIES
FISCAL YEAR ENDED
----------------------------
DECEMBER 25, DECEMBER 27,
1996 1995
------------- -------------
Rounds 1,379,756 1,342,507
Average revenue per round $ 35.72 $ 34.54
The rounds played and average revenues per round played at the Company's
mature public golf properties owned as of December 27, 1995, were as follows
for the fiscal years ended December 27, 1995 and December 31, 1994:
MATURE 1995 GOLF PROPERTIES
FISCAL YEAR ENDED
----------------------------
DECEMBER 27, DECEMBER 31,
1995 * 1994 *
------------- -------------
Rounds 1,191,547 1,203,250
Average revenue per round $ 28.32 $ 28.12
________________
* Golf clubs became a product line in 1996. Rounds were not tabulated prior to
January 1, 1995 for properties transferred from private clubs to golf clubs;
thus, these rounds represent rounds for public golf properties classified by
management at December 27, 1995 as mature public golf facilities only.
RESULTS OF OPERATIONS
The following table sets forth operating revenues by product line and by
type and certain operating expenses and certain other income and expense items
(excluding holding company income and expense items) for the fiscal years
indicated with percentage change based on comparisons between years (dollars
in millions):
PERCENTAGE CHANGE
FISCAL YEARS ENDED FROM PRIOR YEAR
---------------------------------------------- --------------------
DECEMBER 25, DECEMBER 27, DECEMBER 28, 1996 VS. 1995 VS.
1996 1995 1994 1995 1994
-------------- -------------- -------------- --------- ---------
Operating revenues by product line:
Private clubs $ 535.8 $ 526.1 $ 510.3 1.8% 3.1%
Golf clubs 26.7 23.4 22.1 14.1 5.9
Public golf 29.3 30.3 27.7 (3.3) 9.4
Resorts 150.2 145.9 130.5 2.9 11.8
Realty 30.3 25.8 7.1 17.4 263.4
International 6.8 1.8 0.8 277.8 125.0
Corporate services and eliminations 5.1 7.6 7.5 (32.9) 1.3
-------------- -------------- -------------- --------- ---------
Total operating revenues $ 784.2 $ 760.9 $ 706.0 3.1% 7.8%
============== ============== ============== ========= =========
Operating revenues by type:
Membership dues and fees $ 281.1 $ 276.1 $ 268.1 1.8% 3.0%
Food and beverage 231.9 233.2 230.8 (0.6) 1.0
Golf and other recreation 157.9 144.1 127.7 9.6 12.8
Lodging 45.8 43.2 40.3 6.0 7.2
Other (1) 67.5 64.3 39.1 5.0 64.5
-------------- -------------- -------------- --------- ---------
Total operating revenues $ 784.2 $ 760.9 $ 706.0 3.1% 7.8%
============== ============== ============== ========= =========
Cost and expenses and general administrative
expenses:
Direct operating costs $ 496.0 $ 489.7 $ 453.4 1.3% 8.0%
Facility rentals, operation and maintenance 114.5 114.0 109.3 0.4 4.3
Selling, general and administrative 58.1 63.5 52.6 (8.5) 20.7
Depreciation and amortization 48.9 49.3 40.3 (0.8) 22.3
Impairment loss from assets to be held and used 2.8 23.0 - * *
-------------- -------------- -------------- --------- ---------
Total costs and expenses $ 720.3 $ 739.5 $ 655.6 (2.6)% 12.8%
Income from continuing operations 63.9 21.4 50.4 * *
Interest expense (net) (27.2) (24.9) (15.6) 9.2 59.6
Other (3.0) - 1.1 * *
Gain (loss) on divestitures (2.5) (1.5) 0.6 * *
-------------- -------------- -------------- --------- ---------
Income (loss) from continuing operations before
income tax provision and minority interest $ 31.2 $ (5.0) $ 36.5 * *
============== ============== ============== ========= =========
(1) Other operating revenues includes management fees, corporate services
revenues to third parties, resort telephone, transportation and audio-visual
revenues, club special events income, equity in earnings of primarily real
estate joint ventures, real estate sales, and rental income.
* Percentages not meaningful.
FISCAL YEAR ENDED DECEMBER 25, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 27,
1995
Operating revenues increased 3.1% to $784.2 million in 1996 from $760.9
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 from $654.5 million to $670.4
million, an increase of 2.4% due to improving membership trends and
inflationary price increases. Revenues from properties acquired, net of
revenues lost from properties divested, in 1996 and 1995, represent a decrease
of $0.8 million in operating revenues.
Operating revenues from mature private club properties increased 1.9% to
$479.4 million in 1996 from $470.5 million in 1995 due primarily to
inflationary price increases. Membership enrollment (i.e., members added) was
17.5% and membership attrition (i.e., members lost) was 18.2% for a net
decrease of 1,185 members in 1996 (0.7% of year-end 1995 membership). Mature
private clubs membership dues and usage revenues (i.e., food and beverage,
golf, lodging, and other recreation) increased 2.0% and 2.4%, respectively, to
$238.0 and $237.5 million from $233.3 and $232.0 million, respectively, also
due primarily to inflationary price increases.
Golf clubs' operating revenues increased from $23.4 million to $26.7
million or 14.1% 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 4.8% to $23.8
million in 1996 from $22.7 million in 1995, reflecting an increase of 4.0% in
rounds played combined with an increase of 0.7% in revenue per round.
International operating revenues increased 277.8% from $1.8 million in
1995 to $6.8 million in 1996 primarily due to equity earnings from a recently
opened city club in Singapore and 1996 acquisitions.
Golf and other recreation income increased 9.6% from $144.1 million in
1995 to $157.9 million in 1996, primarily due to acquisitions in 1995 and 1996
and the opening of new golf courses at certain mature properties.
Selling, general and administrative expense, excluding corporate
expenses, represent primarily the costs of executive management and various
support services provided to properties from corporate and regional personnel.
These costs decreased 8.5% from $63.5 million to $58.1 million in 1996 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 is $2.8 million in 1996
representing an estimate of impairment on long-lived assets in accordance with
SFAS 121. SFAS 121 is discussed separately under the caption "-Liquidity and
Capital Resources".
Income from continuing operations increased from $21.4 million in 1995 to
$63.9 million in 1996 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 3.1%,
operating costs and expenses increased only 1.0%.
Interest expense (net) increased 9.2% to $27.2 million for 1996 from
$24.9 million in 1995, due in part to higher leveraged acquisition activity.
Interest expense related to properties added in 1995 and 1996 was $0.7
million. Mature properties' interest expense increased from $22.6 million in
1995 to $23.8 million in 1996.
Other expense of $3.0 million in 1996 is primarily due to an accrual for
pending litigation in the ordinary course of business.
FISCAL YEAR ENDED DECEMBER 27, 1995 COMPARED TO FISCAL YEAR ENDED DECEMBER 28,
1994
Operating revenues increased 7.8% to $760.9 million in 1995 from $706.0
million, primarily due to 1995 and 1994 acquisitions. A real estate
development limited partnership, which is controlled and owned 51.0% by the
Company and began operating in late 1994, contributed $19.4 million to
revenues in 1995 due to its real estate sales. Operating revenues of mature
properties (i.e., those for which a comparable period of activity exists,
generally those owned for at least eighteen months to two years) increased
from $609.9 million to $616.2 million, an increase of only 1.0% due to a
declining membership base.
Operating revenues from mature private club properties remained static at
$481.1 million in 1995 from $479.0 million in 1994, due to adverse membership
trends resulting principally from limitations on the deductibility of dues and
business meals and entertainment expenses included in 1993 tax legislation.
Membership enrollment (i.e., members added) was 14.7% from beginning of the
year membership levels and member attrition (i.e., members lost) was 18.4% for
a net decrease of 2,677 members in 1995 (1.5% of year-end 1994 membership).
Mature private clubs membership dues remained static at $237.1 million in 1995
compared to $235.7 million in 1994, due to a shrinking membership base. Usage
revenues for mature private club properties (i.e., food and beverage, golf,
lodging, and other recreation) remained constant at $238.7 million in 1995
compared to $237.6 million in 1994, also due to a shrinking membership base.
Public golf revenues grew 9.4% from $27.7 million to $30.3 million
resulting primarily from acquisitions in 1995 and 1994. Operating revenues
from mature public golf facilities decreased slightly to $26.3 million in 1995
from $26.7 million in 1994, reflecting constant rounds played and revenue per
round.
Resort operating revenues increased 11.8% from $130.5 million to $145.9
million, due primarily to the acquisition of Mont Sainte-Anne Resort in Canada
in the last half of 1994 which represents $6.9 million of the increase in
1995. Operating revenues from mature owned resorts increased from $97.0
million in 1994 to $101.4 million in 1995, an increase of 4.5%, reflecting a
flat average daily revenue per available room combined with an increase of
8.5% in the average daily room rate per occupied room.
Other operating revenues increased 64.5% from $39.1 million in 1994 to
$64.3 million in 1995, primarily due to real estate sales of land held for
resale in Aspen, Colorado of $19.4 million during 1995 and an increase in
equity in earnings from the Company's 50.0% joint venture interest in
Stonebriar Country Club and related real estate held for resale in Texas
offset by a decrease in real estate sales in other locations. Also, the
Company received rental income of $2.5 million in 1995 under a sale-leaseback
transaction entered into in the last quarter of 1994.
Direct operating costs (which consist principally of property level
payroll related costs and other costs of services provided) increased 8.0%, to
$489.7 million in 1995 from $453.4 million in 1994, principally reflecting
increased costs related to acquisitions in 1995 and 1994. A real estate
development limited partnership incurred $17.3 million in costs directly
associated with its real estate sales in 1995.
Selling, general and administrative costs, excluding corporate expenses,
represent primarily the costs of executive management and of various support
services provided to properties from corporate and regional offices. These
costs increased 20.7%, to $63.5 million in 1995 from $52.6 million in 1994,
due primarily to higher levels of payroll costs, reversals of previously
anticipated incentive compensation for 1994, relocation, severance, and
certain transitional costs related to the reassessment of functions and
positions throughout the organization to enhance the overall effectiveness of
operations. In addition, professional fees, rent and foreign operating and new
business and development costs increased in 1995.
Depreciation and amortization expense increased 22.3%, to $49.3 million
from $40.3 million. The increase relates mainly to acquisitions in 1995 and
1994 and $2.0 million in expense from the depreciation and amortization of
hardware and software associated with an internally developed club management
system placed in service. Depreciation and amortization at mature facilities
increased from $33.9 million in 1994 to $36.4 million in 1995, a 7.4%
increase.
Impairment loss on assets to be held and used is $23.0 million in 1995
representing an estimate of impairment on long-lived assets in accordance with
SFAS 121. SFAS 121 is discussed separately under the caption "-Liquidity and
Capital Resources ".
Income (loss) from continuing operations decreased from $50.4 million in
1994 to $21.4 million in 1995 primarily due to the impairment loss on assets
to be held and used of $23.0 million in 1995.
Interest expense (net) increased 59.6%, to $24.9 million in 1995 from
$15.6 million in 1994, reflecting higher leveraged acquisition activity and
increasing interest rates on variable-rate debt. Interest expense related to
properties added in 1995 and 1994 was $4.1 million. In addition, one of the
Company's subsidiaries began using an external bridge financing arrangement
with a bank in the last half of 1994 primarily for financing of acquisitions.
Interest expense related to this bridge financing increased $2.4 million in
1995. Mature properties' interest expense increased from $17.5 million to
$20.0 million, a 14.3% increase.
SEASONALITY
The Consolidated Financial Statements of the Company are presented on a
calendar year basis. The subsidiaries of the Company operate primarily on a
52/53 week fiscal year. The first three quarters consist of 12 weeks each and
the fourth quarter includes 16 weeks. The timing of fiscal quarter ends,
seasonal weather conditions and other short-term variations cause financial
performance to vary by quarter. The Company has historically generated the
majority of its operating revenue in the second, third and fourth quarters of
each year. Acquisitions, divestitures and other material transactions
occurring between fiscal quarter end and calendar quarter end are included in
the Company's Consolidated Financial Statements. 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 has financed its operations and capital expenditures
primarily through cash flows from operations and long-term debt. Membership
deposits collected by a subsidiary are used to finance such subsidiary's
operations and for capital expenditures. Most capital expenditures other than
capital replacements are considered discretionary and could be curtailed in
periods of low liquidity. Capital replacements are planned expenditures made
each year to maintain high quality standards of facilities for the purpose of
meeting existing members' expectations and to attract new members. Capital
replacements have ranged from 3.8% to 5.9% of operating revenues during the
last three years. The Company distinguishes capital expenditures made to
refurbish and replace existing property and equipment (i.e., capital
replacements) from other discretionary capital expenditures such as the
expansion of existing facilities (i.e., capital expansions) and acquisition or
development of new facilities.
Long-term debt is generally incurred on a property specific basis and is
non-recourse to any corporations other than the subsidiary incurring the debt.
Membership deposits represent advance initiation deposits paid by members and
are generally refundable 30 years from the date of acceptance as 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, 1996. At December 31, 1996, certain hospitality subsidiaries of the
Company were not in compliance with outstanding loan agreements relating to
long-term debt totaling $10.8 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, 1996,
cash balances of $8.9 million were not available for dividends by subsidiaries
due to those restrictions.
At December 31, 1996, the Company's subsidiaries maintained $14.7 million
of unused letters of credit primarily to guarantee payment of potential
insurance claims paid under workers' compensation and general liability
programs. Commitments to fund future capital expenditures were not material as
of December 31, 1996.
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, 1996, the value of the Redemption Right
was $43.2 million. The most recent appraised price of the Common Stock is
$12.04 as of December 31, 1996. The aggregate market value of the Common Stock
at December 31, 1996 is $1,028.1 million. The Redemption Right has never been
exercised by the Plan, although the Company from time to time has repurchased
Common Stock into treasury from certain stockholders. The Company does not
believe that the Redemption Right will be exercised to any material extent by
the Plan to meet any of its fiduciary obligations.
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 1996, 1995 and 1994, 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):
YEARS ENDED DECEMBER 31,
----------------------
1996 1995 1994
------ ------ ------
Treasury stock purchases $(4.4) $(6.5) $(6.0)
Reissuance of treasury stock 0.3 0.3 0.2
Stock issued in connection with bonus plans 1.1 1.9 2.2
------ ------ ------
$(3.0) $(4.3) $(3.6)
====== ====== ======
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.
Several legislative proposals have been enacted into law which could
increase the Company's direct operating costs. The first proposal increased
the minimum wage to $4.75 per hour on October 1, 1996 with a second increase
in the minimum wage to $5.15 per hour occurring on September 1, 1997.
Management estimates that there will not be a significant increase in direct
operating costs as a result of this new law. Benefits legislation may impact
the cost of health coverage, in particular regarding coverage of pre-existing
conditions. Benefit mandates will have no significant financial impact on the
Company in 1997; however, management has not yet determined the financial
impact for 1998 when most requirements become effective.
Over the last three years, attrition rates among members of the Company's
mature clubs have ranged from approximately 17.5% to 22.4%. In certain areas,
the Company has experienced decreased levels of usage of its clubs and public
golf facilities. Membership attrition at mature clubs during 1996 was 18.2%,
which is higher than enrollment rates of 17.5% 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 1997. For the last several years, the Company has focused on
efforts to retain existing members, attract new members and increase club
usage through various programs and membership activities, including increasing
member participation by implementing member survey suggestions and increasing
the involvement of member boards of governors in planning day-to-day
activities. It is uncertain how trends in membership and club usage will
develop in the future, or whether any of the Company's efforts in this area
will be successful.
During 1996, the Company was successful in its efforts to control
expenses and increase revenues. While operating revenues increased 3.1%,
operating costs and expenses increased only 1.0%. Total costs and expenses
(excluding holding company expenses) decreased 2.6%. It is uncertain if the
Company can continue to create operating efficiencies and thus decrease costs
in 1997 to the extent cost reductions were achieved in 1996.
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 $3.0 million to $5.0 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 66 underground storage tanks with
aboveground contained storage systems. It is likely that some 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-Hospitality Operations-Government Regulation".
As of March 24, 1997, the Company was in the final stages of negotiations
to build two properties. The Company is considering several ownership
structures for the properties to be built including lease arrangements, sole
ownership, and partial ownership (including joint venture interests). The
consummation of the construction of these properties is expected to require
approximately $1.0 to $2.0 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, 1996 and March 24, 1997, $74.5 and $25.0 million, respectively, was
outstanding under this financing arrangement. On January 3 and 6, 1997,
discretionary payments of $42.1 million and $7.4 million, respectively, were
made from proceeds on the sale of Franklin Federal Bancorp, a Federal Savings
Bank, to repay outstanding borrowings. Due to its short-term nature, the
amount outstanding, excluding letters of credit and loan guarantees, at
December 31, 1996 is considered current for financial reporting purposes. The
eventual outcome of the negotiations cannot be accurately predicted at this
time.
The Company has acquired 59 properties since January 1, 1991 through
purchase, lease agreement or joint venture arrangements. Actual returns from
these properties have been significantly less than projected returns. The
success of each property depends on different factors; however, some of the
more common factors include a high dependency on real estate sales for new
membership growth, slower progress than anticipated in repositioning
properties, slower than anticipated turnarounds of prior operating deficits,
and extended periods of time to reach economies of scale. Additional purchase
consideration was paid for premier properties, strategically positioned
properties, and properties in markets with significant barriers to entry
reflecting both the tangible and intangible value of the property.
Under-performing and cash flow deficit properties recently acquired are being
carefully analyzed by executive management to determine an optimum business
plan allowing for the highest possible return to the Company. The Company
continually seeks to improve financial performance of existing facilities and
divest properties when management determines that properties will be unable to
provide a positive contribution to profitability. The Company is currently
evaluating several of its properties for ownership and/or financial
restructure or divestiture which could, depending on the outcome of
restructure or divestiture negotiations, limit its short-term ability to grow
revenues and cash flows at historical levels. Executive management believes
that its focus on, and investment in, training and development at the property
manager level could improve performance in the future. Executive management
has developed a risk and reward-based screening model to evaluate specific
risk and reward factors against projected yields or all proposed acquisitions
and certain other significant capital investments of the Company. In addition,
the Company has implemented a "team approach" to acquisitions including all
facets of operations, development, and regional support teams to improve the
transition of ownership.
In March of 1995, the Financial Accounting Standards Board (FASB) issued
SFAS 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 assessed the recoverability of long-lived assets by
determining whether they could be recovered over their remaining life through
undiscounted future operating cash flows. Fair value, for purposes of
calculating any 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. Impairment
losses of $23.0 and $2.8 million for the years ended December 31, 1995 and
1996, respectively, were recognized related to long-lived assets. These losses
are reported separately as a component of income (loss) from continuing
operations in the Company's Consolidated Financial Statements. If events or
circumstances change in the future, additional impairment losses could be
recognized. The ability of certain subsidiaries to refinance present
obligations could be adversely impacted by the impairment. For purposes of the
Company's Consolidated Statement of Cash Flows, these impairment losses are
treated as non-cash transactions. In addition, the impairment losses will have
no impact on the Company's Formula Price.
HOLDING COMPANY ACTIVITIES
ClubCorp maintains investments in marketable equity securities, various
venture capital partnerships and an oil and gas venture. Investment income
(loss) consists of the following for the periods presented (dollars in
millions):
YEARS ENDED DECEMBER 31,
--------------------
1996 1995 1994
----- ----- ------
Gain on sale of investments $ 3.4 $ 1.1 $ -
Write-down of oil and gas venture - - (1.8)
Cash distribution from oil and gas venture 0.9 - -
Stock distribution from venture capital partnership - 0.7 0.3
----- ----- ------
$ 4.3 $ 1.8 $(1.5)
===== ===== ======
ClubCorp files a consolidated federal income tax return. See Note 13 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):
Years ended December 31,
----------------------
1996 1995 1994
------ ------ ------
Income (loss) from continuing operations
before income tax provision and
minority interest $32.1 $(5.8) $33.2
====== ====== ======
Income tax provision:
Federal
Current 0.1 0.9 (0.2)
Deferred (2.8) (3.9) (3.3)
------ ------ ------
(2.7) (3.0) (3.5)
State (1.4) (1.7) (1.7)
------ ------ ------
$(4.1) $(4.7) $(5.2)
====== ====== ======
Percentage of income tax provision to
income (loss) from continuing operations
before income tax provision and
minority interest 12.8% 81.0% 15.7%
====== ====== ======
The Company operates in 33 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 tax liability (to 2% of alternative minimum taxable income) by
using net operating loss carryforwards that resulted from Franklin's
operations. After considering amended returns finalized in 1996, ClubCorp has
estimated net operating loss carryforwards at the end of 1996 of $569.0
million and $147.6 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 1996 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 $210.0 million by 2011. Based
on the Company's historical pretax earnings, adjusted for significant
nonrecurring items such as gains 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, 1996. 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.
Corporate expenses represent primarily general administrative expenses
associated with holding company activities. During 1996, 1995 and 1994
corporate expenses were $3.2 million, $2.7 million and $1.7 million,
respectively.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and related notes are
included in 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 1995, and for the years ended
December 31, 1996, 1995 and 1994 are included in this Amendment No. 1 to the
Annual Report on Form 10-K:
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:
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
No reports on Form 8-K have been filed during the fourth quarter of
the fiscal year ended December 31, 1996.
(c) Exhibits
See Index to Exhibits.
(d) Financial Statement Schedule
The financial statement schedule required by paragraph (d) of Item
14 is presented in this Amendment No. 1 to the Annual Report on Form 10-K.
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.
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.
CLUB CORPORATION INTERNATIONAL
By: *
---------------------------------------------------
Robert H. Dedman, Sr.
Chairman of the Board and Chief
Executive Officer
By: /s/ James P. McCoy, Jr.
---------------------------------------------------
James P. McCoy, Jr.
Senior Vice President, Chief Financial Officer
and Chief Accounting Officer
Date: February 5, 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:
SIGNATURE TITLE DATE
- ----------------------------- ------------------------------------------------ ----------------
*
- ----------------------------- Chairman of the Board and Chief Executive January 30, 1998
Robert H. Dedman, Sr. Officer (Principal Executive Officer)
*
- -----------------------------
James E. Maser Vice Chairman of the Board January 30, 1998
*
- -----------------------------
Robert H. Dedman, Jr. President, Chief Operating Officer and Director January 30, 1998
/s/ James P. McCoy, Jr.
- ----------------------------- Senior Vice President, Chief Financial Officer January 30, 1998
James P. McCoy, Jr. and Director (Principal Financial Officer
and Accounting Officer)
*
- -----------------------------
Jerry W. Dickenson Director January 30, 1998
*
- -----------------------------
James M. Hinckley Director January 30, 1998
*
- ----------------------------- Director January 30, 1998
Robert H. Johnson
*
- ----------------------------- Senior Vice President, Secretary, Chief Legal January 30, 1998
Terry A. Taylor Officer and Director
*
- -----------------------------
Mark W. Dietz Executive Vice President and Director January 30, 1998
*
- -----------------------------
Albert E. Chew, III Executive Vice President and Director January 30, 1998
*
- -----------------------------
Nancy M. Dedman Director January 30, 1998
*
- -----------------------------
Patricia Dedman Dietz Director January 30, 1998
* Executive Vice President and Director January 30, 1998
- -----------------------------
Richard S. Poole
By: /s/ James P. McCoy, Jr.
- -----------------------------
James P. McCoy, Jr.
Attorney-in-Fact
____________________
* Signed by James P. McCoy, Jr. as attorney-in-fact pursuant to a Power of
Attorney and Unanimous Written Consent of the Board of Directors filed with
the Securities and Exchange Commission.
INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Number Page
- ------- -------------------------------- ------------
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, 1996
and 1995, 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, 1996. 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, 1996 and 1995, and the results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 1996 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." Also as discussed in Note 1 to the
consolidated financial statements, ClubCorp changed its method of accounting
for membership deposits and has restated the consolidated financial statements
to give retroactive effect to this change.
KPMG Peat Marwick LLP
Dallas, Texas
February 21, 1997, except as to the twenty-eighth and
twenty-ninth paragraphs of Note 1 which are as of January 16, 1998
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
December 31, 1996 and 1995
(Dollars in thousands, except share amounts)
Assets 1996 1995
------ ----------- -----------
Current assets:
Cash and cash equivalents $ 74,454 $ 55,910
Membership and other receivables, net 73,139 66,402
Inventories 13,886 12,926
Other assets 14,501 16,557
----------- -----------
Total current assets 175,980 151,795
Property and equipment, net 663,387 610,426
Other assets 125,161 146,015
Financial services assets 589,482 917,056
----------- -----------
$1,554,010 $1,825,292
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 54,933 $ 53,779
Long-term debt - current portion 120,694 79,652
Other liabilities 44,371 43,772
----------- -----------
Total current liabilities 219,998 177,203
Long-term debt 223,223 233,809
Other liabilities 82,425 88,779
Membership deposits 84,088 79,497
Financial services liabilities 549,246 877,345
Redemption value of common stock held by benefit plan 43,233 35,414
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 90,219,408
issued in 1996 and 1995, 85,393,241 and 85,667,032 outstanding
in 1996 and 1995, respectively 902 902
Additional paid-in capital 10,380 10,075
Foreign currency translation adjustment (54) (51)
Unrealized gains or losses on investments in debt and equity securities (46) (11,812)
Retained earnings 420,948 403,288
Treasury stock (37,100) (33,743)
Redemption value of common stock held by benefit plan (43,233) (35,414)
----------- -----------
Total stockholders' equity 351,797 333,245
----------- -----------
$1,554,010 $1,825,292
=========== ===========
See accompanying notes to consolidated financial statements.
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands, except per share amounts)
1996 1995 1994
--------- --------- ---------
Operating revenues $784,213 $760,851 $705,962
Operating costs and expenses 659,454 652,976 603,022
Selling, general and administrative expenses 61,344 66,174 54,315
Impairment loss from assets to be held and used (Note 1) 2,800 23,000 -
--------- --------- ---------
Income from operations 60,615 18,701 48,625
Gain (loss) on divestitures (2,549) (1,466) 631
Interest and investment income 11,092 9,399 5,535
Interest expense (34,044) (32,460) (22,662)
Other income (expense) (2,974) 19 1,085
--------- --------- ---------
Income (loss) from continuing operations before
income tax provision and minority interest 32,140 (5,807) 33,214
Income tax provision (4,067) (4,737) (5,182)
Minority interest 889 (1,017) -
--------- --------- ---------
Income (loss) from continuing operations 28,962 (11,561) 28,032
Discontinued operations:
Income (loss) from operations of discontinued financial
services segment, net of income taxes of $95, $(1,563)
and $1,522 in 1996, 1995 and 1994, respectively 1,446 183 (8,968)
Loss on disposal of financial services segment,
net of income tax benefit of $8,425 in 1996 (13,083) - -
--------- --------- ---------
(11,637) 183 (8,968)
--------- --------- ---------
Income (loss) before extraordinary item 17,325 (11,378) 19,064
Extraordinary item - gain on extinguishment of debt, net of income taxes
of $83, $63 and $217 in 1996, 1995 and 1994, respectively 335 250 867
--------- --------- ---------
Net income (loss) $ 17,660 $(11,128) $ 19,931
========= ========= =========
Earnings per share:
Income (loss) from continuing operations $ 0.34 $ (0.13) $ 0.32
Discontinued operations (0.13) - (0.10)
Extraordinary item - gain on extinguishment of debt - - 0.01
--------- --------- ---------
Net income (loss) $ 0.21 $ (0.13) $ 0.23
========= ========= =========
See accompanying notes to consolidated financial statements.
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995 and 1994
(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
---------- ---------- ------------ ------ ----------- -------------
Balances at December 31, 1993, as restated 90,219,408 3,809,503 86,409,905 $ 902 $ 8,352 $ 140
Net income - - - - - -
Purchase of treasury stock - 508,836 (508,836) - - -
Reissuance of treasury stock - (20,532) 20,532 - 85 -
Stock issued in connection with bonus plans - (201,454) 201,454 - 946 -
Foreign currency translation adjustment - - - - - 32
Market adjustment - - - - - -
Change in redemption value - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at December 31, 1994 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)
Market adjustment - - - - - -
Change in redemption value - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at December 31, 1995 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)
MARKET ADJUSTMENT - - - - - -
CHANGE IN REDEMPTION VALUE - - - - - -
---------- ---------- ------------ ------ ----------- -------------
BALANCES AT DECEMBER 31, 1996 90,219,408 4,826,167 85,393,241 $ 902 $ 10,380 $ (54)
========== ========== ============ ====== =========== =============
Unrealized Redemption
Gains or Losses Value of
on Investments Common
in Debt and Stock Total
Equity Retained Treasury Held by Stockholders'
Securities Earnings Stock Benefit Plan Equity
----------------- ---------- ---------- -------------- ---------------
Balances at December 31, 1993, as restated $ 376 $ 394,485 $ (24,136) $ (41,165) $ 338,954
Net income - 19,931 - - 19,931
Purchase of treasury stock - - (5,958) - (5,958)
Reissuance of treasury stock - - 143 - 228
Stock issued in connection with bonus plans - - 1,276 - 2,222
Foreign currency translation adjustment - - - - 32
Market adjustment (3,142) - - - (3,142)
Change in redemption value - - - 4,053 4,053
----------------- ---------- ---------- -------------- ---------------
Balances at December 31, 1994 $ (2,766) $ 414,416 $ (28,675) $ (37,112) $ 356,320
Net loss - (11,128) - - (11,128)
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)
Market adjustment (9,046) - - - (9,046)
Change in redemption value - - - 1,698 1,698
----------------- ---------- ---------- -------------- ---------------
Balances at December 31, 1995 $ (11,812) $ 403,288 $ (33,743) $ (35,414) $ 333,245
NET INCOME - 17,660 - - 17,660
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)
MARKET ADJUSTMENT 11,766 - - - 11,766
CHANGE IN REDEMPTION VALUE - - - (7,819) (7,819)
----------------- ---------- ---------- -------------- ---------------
BALANCES AT DECEMBER 31, 1996 $ (46) $ 420,948 $ (37,100) $ (43,233) $ 351,797
================= ========== ========== ============== ===============
See accompanying notes to consolidated financial statements.
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31, 1996, 1995 and 1994
(Dollars in thousands)
1996 1995 1994
---------- ---------- ----------
Cash flows from operations:
Net income (loss) $ 17,660 $ (11,128) $ 19,931
Adjustments to reconcile net income (loss) to cash flows
provided from operations:
Depreciation and amortization 48,948 49,335 40,304
Impairment loss from assets to be held and used 2,800 23,000 -
Loss (gain) on divestitures 2,549 1,466 (631)
Extraordinary item - gain on extinguishment of debt (418) (313) (1,084)
Equity in earnings and write-downs of investments
in partnerships and joint ventures (3,392) (2,663) (47)
Amortization of discount on membership deposits 5,029 4,555 4,035
Decrease in real estate held for sale 16,919 15,380 2,827
Net change in membership and other receivables, net (7,986) 928 (4,674)
Net change in accounts payable and accrued liabilities 6,055 10,635 5,129
Net change in deferred membership dues (2,496) (10,177) (2,956)
Other 2,869 (5,320) 3,319
Net change in operating assets of discontinued operations 17,067 387 8,125
---------- ---------- ----------
Cash flows provided from operations 105,604 76,085 74,278
Cash flows from investing activities:
Additions to property and equipment (52,288) (71,000) (71,613)
Development costs for real estate held for sale (17,329) (12,509) (420)
Acquisition of facilities (39,685) (25,529) (62,917)
Investment in joint ventures (747) (1,000) (12,100)
Proceeds from disposition of assets and subsidiaries, net 1,216 2,443 351
Sales of investment securities 4,146 10,930 -
Purchases of investment securities (2,825) (2,997) (8,703)
Other 5,364 3,963 (2,558)
Investing activities of discontinued operations 305,772 247,085 383,073
---------- ---------- ----------
Cash flows provided from investing activities 203,624 151,386 225,113
Cash flows from financing activities:
Borrowings of long-term debt 57,606 78,626 92,359
Repayments of long-term debt (33,336) (56,213) (30,908)
Membership deposits received, net 350 2,745 1,637
Treasury stock transactions, net (4,102) (6,231) (5,730)
Financing activities of discontinued operations (324,834) (232,452) (415,727)
---------- ---------- ----------
Cash flows used by financing activities (304,316) (213,525) (358,369)
---------- ---------- ----------
Total net cash flows 4,912 13,946 (58,978)
---------- ---------- ----------
Net cash flows from discontinued operations (13,632) 15,203 (33,497)
---------- ---------- ----------
Net cash flows from continuing operations $ 18,544 $ (1,257) $ (25,481)
========== ========== ==========
See accompanying Notes 2, 3, 4, 8, 11, 12 and 13 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). In the first quarter of 1996, Franklin's Board of Directors passed
a resolution to solicit offers to sell Franklin. This resolution was
subsequently approved by the Board of Directors of First Federal Financial
Corporation, the parent company of Franklin and a subsidiary of Parent. On
August 7, 1996, Franklin entered into an agreement to sell certain assets and
transfer certain liabilities of Franklin. The sale was approved by regulators
and finalized on January 2, 1997. Thus, Franklin is classified as a
discontinued operation (Note 2) 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
the company's share of the undistributed earnings or losses of these
affiliates (Note 4). All material intercompany balances and transactions have
been eliminated.
No minority interest is recorded for minority stockholders of two resort
subsidiaries and three 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 1996 losses which approximate $6,841,000 and
$569,000, 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. The Company's primary sources of
revenue in its hospitality segment include membership dues and fees, 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
- ------------
The accounts of Franklin are included for all of calendar years 1996, 1995 and
1994. The subsidiaries comprising the hospitality segment remain primarily on
a 52/53 week fiscal year and the accounts of those subsidiaries are included
for the years ended December 25, 1996, December 27, 1995 and December 28,
1994. Acquisitions, divestitures and other material transactions of the
hospitality segment during the period from December 25, 1996 to December 31,
1996, December 27, 1995 to December 31, 1995 and December 28, 1994 to December
31, 1994 have been recorded in these statements.
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 from assets to be held and used of $23,000,000. 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. 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:
Depreciable land improvements 20 years
Building and recreational facilities 40 years
Furniture and fixtures 3 - 10 years
Machinery and equipment 3 - 10 years
Leasehold improvements and assets under capital leases are amortized
generally 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, 1995, real estate
held for sale was $34,869,000 and $42,235,000, 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
- -------------------------
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation", which encourages, but does not require, a method of accounting
for employee stock option plans which results in compensation expense being
recognized when stock options are granted based on their fair value. Companies
which elect not to adopt the new method for the financial statements are
required to disclose the proforma effect on net income and earnings per share
as if the fair value method of accounting had been applied. ClubCorp will
continue to account for the stock-based awards using the requirements of
Accounting Principles Board Opinion (APB) No. 25, "Accounting for Stock Issued
to Employees," and provide the required fair value disclosures in the notes to
the consolidated financial statements (Note 9).
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 generally refundable in 30 years
from the date of acceptance as a member. The difference between the amount of
the membership deposit paid and the present value of the obligation is
recognized as revenue upon acceptance, unless uncertainty surrounding
collection exists. At year-end 1996, the amount of membership deposits
contractually due and payable during the next 5 years is not significant.
ClubCorp has previously recorded membership deposits at the face amount of the
obligation when received; however, based on the review of the relevant
accounting literature and accounting practices within the hospitality
industry, ClubCorp has determined that the accounting policy for membership
deposits as described above is appropriate. Accordingly, the accompanying
financial statements have been retroactively adjusted to reflect this change
for all periods presented. The impact of the restatement is summarized as
follows (dollars in thousands):
1996 1995 1994
------- ------- -------
Income from operations $27,771 $28,387 $26,209
Income from continuing operations before
income taxes and minority interest 14,494 19,925 16,784
Income from continuing operations 12,509 15,140 13,529
Net income $12,509 $15,140 $13,529
======= ======= =======
Earnings per share:
Income from continuing operations $ 0.15 $ 0.18 $ 0.16
Net income $ 0.15 $ 0.18 $ 0.16
======= ======= =======
This change also resulted in a decrease in the liability for membership
deposits of $296,714,000 and $282,833,000 and an increase in retained earnings
of $238,963,000 and $226,454,000 as of December 31, 1996 and December 31,
1995, respectively. In addition, retained earnings as of December 31, 1993
increased $197,785,000.
Divestiture of subsidiaries
- -----------------------------
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
- --------------------
Earnings per share is computed using the weighted average number of common
shares outstanding of 85,601,163, 86,141,082, and 86,540,640 for 1996, 1995
and 1994, respectively. Outstanding common stock equivalents, consisting of
contingent shares from deferred stock bonus plans (Note 9), do not have a
material dilutive effect on earnings per share.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current year presentation.
NOTE 2. DISCONTINUED OPERATIONS
- ----------------------------------
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):
Balance Sheet
--------------
1996 1995
-------- --------
Assets
------
Cash and cash equivalents $ 37,852 $ 51,484
Mortgage-backed securities 67,088 379,527
Loans receivable, net 419,106 406,883
Other assets 65,436 79,162
-------- --------
$589,482 $917,056
======== ========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $516,292 $566,083
Federal Home Loan Bank advances 3,153 280,400
Other liabilities 19,742 20,934
Stockholders' equity 50,295 49,639
-------- --------
$589,482 $917,056
======== ========
Statement of Operations
-------------------------
1996 1995 1994
--------- -------- ---------
Net interest income $ 20,308 $17,607 $ 16,072
Other income (loss) (16,902) 5,080 5,989
Other expenses 26,472 20,895 34,793
Income tax (provision) benefit 8,520 (1,563) 1,522
--------- -------- ---------
Net income (loss) (14,546) 229 (11,210)
--------- -------- ---------
Minority interest (2,909) 46 (2,242)
--------- -------- ---------
ClubCorp's interest $(11,637) $ 183 $ (8,968)
========= ======== =========
ClubCorp's stockholders' equity includes $46,000 in 1996 and $12,206,000 in
1995 of unrealized losses on Franklin's investment portfolio. This amount
represents ClubCorp's interest in the unrealized losses of Franklin's
investments in investment securities classified as available for sale.
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. Sales proceeds of $4,000,000 were escrowed representing the
maximum contractual obligation of Franklin arising from any claims which could
be asserted by Norwest Corporation against Franklin based on the
representations, warranties, and covenants provided in the agreement. As the
contingency periods expire, within one year of the closing date, Franklin will
receive the remaining balance of the escrowed funds. Due to the contingencies
involved, management cannot determine the ultimate amount of the gain to be
recognized; however, ClubCorp's estimated net gain on this transaction, net of
taxes and minority interest, is expected to be approximately $23,000,000.
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 valuation of the
portfolio was recorded 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 3. ACQUISITIONS
- ----------------------
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 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. In
addition, ClubCorp exercised an option from a 1994 real estate development
acquisition to purchase additional land.
During 1994, ClubCorp purchased the remaining 50% of the assets of a country
club from its joint venture partner and substantially all the assets of three
country clubs, three public golf courses, one city club, one ski resort and
one real estate development. The ski resort assets include an 80% interest in
the surface rights of a ski complex and the lessor's rights to a hotel, golf
course, commercial and residential property. In addition, ClubCorp has
guaranteed to purchase up to $5,860,000 of surrounding real estate within the
next ten years. The purchase price of the real estate is contingent on the
market value of the property at the future purchase date. Due to this
contingency, no liability was recorded for the guaranty. ClubCorp has majority
ownership and controls the daily operations; therefore, the ski resort is
consolidated in the accompanying financial statements. In addition, ClubCorp
entered into a partnership agreement for the development of a country club and
accompanying residential developments. ClubCorp, as the general and a limited
partner in the partnership, has 51% voting interest and control of daily
operations; therefore the partnership is consolidated in the accompanying
financial statements.
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):
1996 1995 1994
-------- ------- --------
Inventories and other assets $ 1,227 $ 2,584 $ 7,498
Property and equipment 46,439 21,256 84,022
Excess of cost over net assets
acquired, net 7,754 14,659 14,895
Deposit on purchase (5,000) 5,000 -
-------- ------- --------
Total assets acquired $50,420 $43,499 $106,415
======== ======= ========
Accounts payable and
accrued liabilities $ 591 $ 371 $ 5,068
Long-term debt 8,310 1,474 28,098
Membership deposits - 15,479 6,050
Other liabilities 1,834 646 4,282
-------- ------- --------
Total liabilities assumed $10,735 $17,970 $ 43,498
======== ======= ========
Cash paid $39,685 $25,529 $ 62,917
======== ======= ========
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 1995 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):
1996 1995
-------- ---------
Operating revenues $799,373 $792,889
======== =========
Income (loss) before extraordinary item $ 17,471 $(11,283)
======== =========
Net income (loss) $ 17,806 $(11,033)
======== =========
Net income (loss) per share $ 0.21 $ (0.13)
======== =========
NOTE 4. INVESTMENTS IN AFFILIATES
- -------------------------------------
During 1996, ClubCorp entered into joint venture agreements to build and
operate a city club and a golf club. In addition, ClubCorp sold 50% of the
stock of a previously wholly-owned subsidiary which operates a country club in
exchange for cash and debt forgiveness.
ClubCorp's other investments in affiliates include joint venture agreements
for the operation of four real estate developments, two country clubs, a golf
club, a resort and a city club.
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):
1996 1995
------- -------
Cash $ 5,488 $ 6,416
Fixed assets, net 42,709 35,495
Land held for resale 7,923 9,656
Other assets 18,325 12,466
------- -------
Total assets $74,445 $64,033
======= =======
Long-term debt $15,296 $13,806
Membership deposits 5,784 5,149
Other liabilities 14,776 7,731
Venturers' capital 38,589 37,347
------- -------
Total liabilities and venturers' capital $74,445 $64,033
======= =======
Operating revenues $53,203 $37,470
Gross profit $19,935 $12,034
Income before extraordinary item $ 8,210 $ 6,186
Net income $ 8,210 $ 6,186
ClubCorp's equity in:
Net assets $19,737 $18,979
Net income $ 3,392 $ 2,650
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
- -------------------------------------------------
Fair value estimates are made at a specific point in time, based on relevant
market 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. The fair value and carrying
amount of financial instruments at year-end are summarized as follows (dollars
in thousands):
1996 1995
------------------ ---------------------
ESTIMATED Estimated
CARRYING FAIR Carrying Fair
AMOUNT VALUE Amount Value
-------- -------- -------- -----------
Financial assets:
Cash and cash
equivalents $ 74,454 $ 74,454 $ 55,910 $ 55,910
Financial liabilities:
Long-term debt 343,917 340,196 313,461 310,967
Membership deposits 84,088 84,088 79,497 79,497
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. 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 6. PROPERTY AND EQUIPMENT
- ----------------------------------
Property and equipment consists of the following at year-end (dollars in
thousands):
1996 1996 1995 1995
---- ---------- ---- ----------
Land and land improvements $ 283,260 $ 237,622
Buildings and recreational facilities 295,114 270,713
Leasehold improvements 98,416 101,151
Furniture and fixtures 92,883 88,055
Machinery and equipment 151,986 135,643
Construction in progress 18,824 24,824
---------- ----------
940,483 858,008
Accumulated depreciation and amortization (277,096) (247,582)
---------- ----------
$ 663,387 $ 610,426
========== ==========
NOTE 7. CURRENT LIABILITIES
- ------------------------------
Current liabilities consist of the following at year-end (dollars in
thousands):
1996 1996 1995 1995
---- -------- ---- --------
Accounts payable $ 29,040 $ 28,752
Accrued compensation and employee benefits 13,764 11,947
Other accrued liabilities 12,129 13,080
-------- --------
Accounts payable and accrued liabilities 54,933 53,779
Long-term debt - current portion 120,694 79,652
Deferred membership dues 10,936 12,549
Other deferred revenue 17,131 12,154
Property taxes payable 12,337 11,776
Other current liabilities 3,967 7,293
-------- --------
Other liabilities 44,371 43,772
-------- --------
Total current liabilities $219,998 $177,203
======== ========
NOTE 8. LONG-TERM DEBT AND OPERATING LEASES
- -------------------------------------------------
Long-term borrowings are summarized below with weighted average interest rates
of 8.5% and 8.7% at year-end 1996 and 1995, respectively, and the range of
maturity dates in parentheses (dollars in thousands):
1996 1995
-------- --------
Notes payable to financial institutions:
Fixed rate (1996-2016) $ 74,514 $ 64,600
Fluctuating rate (1996-2014) 206,064 182,224
Notes payable to developers and landlords:
Fixed rate (1996-2007) 10,745 11,617
Fluctuating rate (1996) - 592
Capital lease obligations (1996-2068) 12,673 14,266
Other obligations (1996-2006) 39,921 40,162
-------- --------
343,917 313,461
Less current portion 120,694 79,652
-------- --------
$223,223 $233,809
======== ========
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 year-end
1996 and subsequently, certain subsidiaries were not in compliance with debt
covenants due to non-payment of principal due on long-term debt and covenants
relating to financial ratios totaling $5,472,000 and $5,318,000, 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 1995, $65,799,000 and $45,799,000, respectively, is outstanding and
included in the current portion of long-term debt in the accompanying
financial statements. An additional $8,653,000 and $7,877,000 in 1996 and
1995, 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 2).
The amounts of long-term debt maturing in each of the 4 years subsequent to
1997 are as follows (dollars in thousands):
Year
- ----
1998 $54,861
1999 47,300
2000 49,278
2001 22,005
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 year-end 1996, approximately $80,000,000 of retained earnings
was available for the declaration of dividends to Parent.
During 1996, 1995 and 1994, certain subsidiaries recognized extraordinary
gains on early extinguishment of debt by satisfying long-term obligations and
accrued interest payable of $590,000, $578,000 and $1,210,000 for cash
payments of $172,000, $265,000 and $126,000, respectively.
The amount of cash paid for interest on long-term debt approximates interest
expense.
ClubCorp leases operating facilities under agreements ranging from 1 to 46
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 year-end 1996 under
operating leases for buildings and recreational facilities with initial
noncancelable lease terms in excess of one year are as follows (dollars in
thousands):
Year
- ----
1997 $ 21,718
1998 21,290
1999 20,619
2000 19,999
2001 19,634
Thereafter 114,065
--------
Total future minimum
payments required $217,325
========
Total facility rental expense (including contingent rent) during 1996, 1995
and 1994 was $35,816,000, $39,647,000 and $37,324,000, respectively.
Contingent rent during 1996, 1995 and 1994 was $7,565,000, $11,727,000 and
$7,758,000, respectively.
NOTE 9. 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 3,537,855 shares at December 31, 1996 and 1995, respectively) at the
current appraised value ($12.04 and $10.01 at December 31, 1996 and 1995,
respectively) as necessary in order to meet the requirements of the Employment
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, an additional 190,000 options were granted at $10.01 per share
with an expiration date of December 31, 2010.
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 1996 and 1995 grants: risk-free interest rates of 5.6% and 6.6%,
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, 1996 and 1995 and changes during the years ending on those dates
is as follows:
1996 1995
---------------------- ---------------------
EXERCISE Exercise
SHARES PRICE Shares Price
----------- --------- ---------- ---------
Outstanding at beginning
of year 2,945,000 $ 10.14 - $ -
Granted 190,000 10.01 2,945,000 10.14
Forfeited (125,000) 10.14 - -
----------- ----------
Outstanding at end of year 3,010,000 2,945,000
=========== ==========
Options exercisable at
year-end 282,000 -
Fair value of options
granted during the year $ 5.05 $ 5.33
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 income (loss) and net income (loss) per share would have been
reduced to the following pro forma amounts:
1996 1995
----------- -------------
Net income (loss) $16,128,000 $(12,698,000)
Net income (loss) per share $ 0.19 $ (0.15)
NOTE 10. 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 11. INTEREST AND INVESTMENT INCOME
- --------------------------------------------
Interest and investment income consists of the following (dollars in
thousands):
1996 1995 1994
------- ------ --------
Interest income $ 6,815 $7,595 $ 7,047
Gain on sale of investments 3,392 1,098 -
Write-down of oil and gas venture - - (1,833)
Other 885 706 321
------- ------ --------
$11,092 $9,399 $ 5,535
======= ====== ========
ClubCorp reduced its carrying value in an oil and gas venture during 1994 due
to a permanent decline in value.
NOTE 12. OTHER INCOME (EXPENSE)
- -----------------------------------
1996 1995 1994
-------- ----- -------
Accrual for pending litigation $(2,675) $ - $ (293)
Gain on donation of land - - 1,476
Other (299) 19 (98)
-------- ----- -------
$(2,974) $ 19 $1,085
======== ===== =======
In 1996, ClubCorp increased the accrual for litigation claims incurred in the
ordinary course of business.
During 1994, ClubCorp was donated land for a golf course to be constructed by
ClubCorp on the property.
NOTE 13. INCOME TAXES
- ------------------------
Income (loss) from continuing operations before income tax provision and
minority interest consists of the following (dollars in thousands):
1996 1995 1994
------- -------- --------
Domestic $29,819 $(4,847) $33,270
Foreign 2,321 (960) (56)
------- -------- --------
$32,140 $(5,807) $33,214
======= ======== ========
The income tax provision consists of the following (dollars in thousands):
1996 1995 1994
-------- -------- --------
Federal
Current $ 95 $ 868 $ (214)
Deferred (2,776) (3,916) (3,278)
-------- -------- --------
(2,681) (3,048) (3,492)
State (1,386) (1,689) (1,690)
-------- -------- --------
$(4,067) $(4,737) $(5,182)
======== ======== ========
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 (dollars in thousands):
1996 1995 1994
--------- -------- ---------
Expected Federal income tax (provision) benefit $(11,249) $ 2,032 $(11,625)
Effect of consolidated operations and income
taxes of foreign and other entities not
consolidated for Federal tax purposes (548) (288) (1,440)
State taxes, net of Federal benefit (901) (1,098) (1,099)
Change in valuation allowance
allocated to income tax expense 10,725 (5,185) 9,136
Other, net (2,094) (198) (154)
--------- -------- ---------
$ (4,067) $(4,737) $ (5,182)
========= ======== =========
To fully realize the deferred tax asset ClubCorp will need to generate future
taxable income of approximately $210,000,000 by 2011. Based on the Company's
historical pre-tax earnings, adjusted for significant nonrecurring items such
as gains 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, 1996. 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 $7,300,000 of tax credits available
to offset regular taxes payable which expire in varying amounts from 1997 to
2003.
ClubCorp received refunds of approximately $194,000 and $202,000, and
$1,219,000 in 1996, 1995 and 1994, respectively.
After considering amended returns finalized in 1996, ClubCorp's net operating
loss carryforwards at December 31, 1996, after current year utilization of net
operating loss carryforwards, were approximately $568,952,000 and $147,590,000
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 liability 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 1995 are as follows (dollars in thousands):
1996 1995
-------- --------
Deferred tax assets:
Regular tax operating loss carryforwards $199,133 $199,176
Other 18,201 23,425
Total gross deferred tax assets 217,334 222,601
Valuation allowance 115,446 126,171
-------- --------
101,888 96,430
Deferred tax liabilities:
Property and equipment 6,344 6,399
Discounts on membership deposits
and acquired notes 114,196 109,550
Other 15,440 11,796
-------- --------
Total gross deferred tax liabilities 135,980 127,745
-------- --------
Net deferred tax liability $ 34,092 $ 31,315
======== ========
NOTE 14. HOSPITALITY SEGMENT INFORMATION
- --------------------------------------------
Operations in the hospitality segment include owning, operating and managing
country clubs, city clubs, athletic clubs, resorts, public golf courses and
related real estate.
Income from operations consists of operating revenues less applicable
operating costs and expenses, including selling, general and administrative,
excluding general corporate expenses. Additionally, income from operations
consists of tangible revenues related to food and beverage sales of
approximately $231,930,000, $233,205,000 and $230,790,000 less costs related
to food and beverage sales of approximately $198,954,000, $205,475,000 and
$202,085,000 for the years ended December 31, 1996, 1995 and 1994,
respectively. General corporate assets are those not identifiable with the
hospitality operations.
A summary of the hospitality segment information at year-end follows (dollars
in thousands):
1996 1995 1994
--------- --------- ---------
Income from operations $ 63,826 $ 21,381 $ 50,367
Corporate expenses (3,211) (2,680) (1,742)
--------- --------- ---------
$ 60,615 $ 18,701 $ 48,625
========= ========= =========
Identifiable assets $964,072 $905,548 $865,995
General corporate assets 456 2,688 5,654
--------- --------- ---------
Total assets $964,528 $908,236 $871,649
========= ========= =========
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.
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):
QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
FISCAL YEAR 1996
- ----------------
OPERATING REVENUES $151,790 $193,508 $182,895 $256,020
INCOME (LOSS) FROM CONTINUING
OPERATIONS (4,373) 13,216 4,956 15,163
INCOME (LOSS) FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES 533 (12,391) (1,375) 1,596
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM (3,840) 825 3,581 16,759
EXTRAORDINARY ITEM, NET OF
INCOME TAXES 65 - - 270
--------- --------- --------- ---------
NET INCOME (LOSS) $ (3,775) $ 825 $ 3,581 $ 17,029
========= ========= ========= =========
PER COMMON SHARE:
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ (0.05) $ 0.15 $ 0.06 $ 0.18
DISCONTINUED OPERATIONS 0.01 (0.14) (0.02) 0.02
EXTRAORDINARY ITEM - - - -
--------- --------- --------- ---------
NET INCOME (LOSS) $ (0.04) $ 0.01 $ 0.04 $ 0.20
========= ========= ========= =========
Fiscal year 1995
- ----------------
Operating revenues $147,447 $192,702 $177,553 $243,149
Income (loss) from continuing
operations (5,494) 11,253 (8,499) (8,821)
Income (loss) from discontinued
operations, net of income taxes 383 1,995 226 (2,421)
Income (loss) before
extraordinary item (5,111) 13,248 (8,273) (11,242)
Extraordinary item, net of
income taxes - - 74 176
--------- --------- --------- ---------
Net income (loss) $ (5,111) $ 13,248 $ (8,199) $(11,066)
========= ========= ========= =========
Per common share:
Income (loss) from
continuing operations $ (0.06) $ 0.13 $ (0.10) $ (0.10)
Discontinued operations 0.01 0.02 - (0.03)
Extraordinary item - - - -
--------- --------- --------- ---------
Net income (loss) $ (0.05) $ 0.15 $ (0.10) $ (0.13)
========= ========= ========= =========
The fourth quarter 1995 loss from continuing operations includes a $23,000,000
($.27 per share) impairment loss from assets to be held and used. Loss from
discontinued operations in the fourth quarter of 1995 is primarily due to
realized losses on the sale of investment securities.
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Club Corporation International:
Under date of February 21, 1997, except as to the twenty-eighth and
twenty-ninth paragraphs of Note 1 which are as of January 16, 1998, we
reported on the consolidated balance sheet of Club Corporation International
and subsidiaries as of December 31, 1996 and 1995, 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, 1996, which are
included in the annual report on Form 10-K for the fiscal year ended December
31, 1996. In connection with our audits of the aforementioned consolidated
financial statements, we also audited the related consolidated financial
statement schedule as listed in the index 39. 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 21, 1997
CLUB CORPORATION INTERNATIONAL
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1996, 1995 and 1994
ADDITIONS
-------------
BALANCE AT CHARGED CHARGED BALANCE AT
BEGINNING OF TO COSTS TO OTHER END OF
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS PERIOD
------------- ------------- ---------- ----------- ------------
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, 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, 1994:
Allowance for Doubtful Accounts $ 2,743,976 $ 4,395,568 $ 0 $ 4,634,218 (A) $ 2,505,326
Tax Valuation Allowance 124,090,000 0 0 3,104,000 (B) 120,986,000
(A) Accounts receivable charged off.
(B) Utilization and disallowance of net operating loss carryforward
and other adjustments.
(C) Generation of net operating loss and other adjustments.