SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
__________________
QUARTERLY REPORT UNDER SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 9, 1998
Commission file numbers 33-89818, 33-96568, 333-08041 and 333-57107
CLUBCORP INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-1311242
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-6191
Former name, former address and former fiscal year,
if changed since last report: FORMER NAME: CLUB CORPORATION INTERNATIONAL
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No.
-----
The number of shares of the registrant's Common Stock outstanding as of
September 9, 1998 was 84,911,248.
CLUBCORP INTERNATIONAL, INC.
INDEX
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants' Review Report
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders' Equity
Consolidated Statement of Cash Flows
Condensed Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Part II. OTHER INFORMATION
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------
The Board of Directors
ClubCorp International, Inc.:
We have reviewed the consolidated balance sheet of ClubCorp International, Inc.
and subsidiaries (ClubCorp) as of September 9, 1998 and September 3, 1997 and
the related consolidated statements of operations for the twelve weeks and
thirty six weeks ended September 9, 1998 and September 3, 1997 and stockholders'
equity and cash flows for the thirty six weeks ended September 9, 1998 and
September 3, 1997, respectively. These consolidated financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of ClubCorp as of December 31, 1997
and the related consolidated statements of operations, stockholders' equity and
cash flows for the year then ended (not presented herein); and in our report
dated February 27, 1998, except as to Note 2, which is as of October 13, 1998,
we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1997 is fairly presented, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived. Our report on the consolidated financial statements of ClubCorp refers
to a retroactive change in the Company's method of accounting for membership
initiation deposits and fees and the related incremental direct selling.
As discussed in Note 2 to the accompanying consolidated financial statements,
ClubCorp changed its method of accounting for membership initiation deposits and
fees and the related incremental direct selling costs and has restated the
consolidated financial statements to give retroactive effect to this change.
KPMG Peat Marwick LLP
Dallas, Texas
October 16, 1998
CLUBCORP INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
September 3, December 31, SEPTEMBER 9,
Assets 1997 1997 1998
- ------ -------------- -------------- --------------
Current assets:
Cash and cash equivalents $ 112,432 $ 101,419 $ 78,801
Membership and other receivables, net 74,241 76,522 76,559
Inventories 15,365 14,954 18,619
Other assets 15,036 14,968 17,454
-------------- -------------- --------------
Total current assets 217,074 207,863 191,433
Property and equipment, net 665,391 677,227 723,530
Other assets 116,673 143,584 148,988
-------------- -------------- --------------
$ 999,138 $ 1,028,674 $ 1,063,951
============== ============== ==============
Liabilities and Stockholders' Equity
- ------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 44,930 $ 57,996 $ 51,705
Long-term debt - current portion 71,376 74,621 18,443
Other liabilities 95,265 79,995 99,712
-------------- -------------- --------------
Total current liabilities 211,571 212,612 169,860
Long-term debt 195,203 181,236 240,035
Other liabilities 134,237 109,493 109,014
Membership deposits 80,525 83,066 90,781
Redemption value of common stock held by benefit plan 49,878 53,652 58,749
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,218,416 outstanding
at September 3, 1997, 85,003,839 at December 31, 1997
and 84,911,248 at September 9, 1998 902 902 902
Additional paid-in capital 10,593 10,607 11,037
Accumulated other comprehensive income 48 260 380
Retained earnings 355,474 419,061 427,234
Treasury stock (39,293) (42,215) (44,041)
-------------- -------------- --------------
Total stockholders' equity 327,724 388,615 395,512
-------------- -------------- --------------
$ 999,138 $ 1,028,674 $ 1,063,951
============== ============== ==============
See accompanying condensed notes to consolidated financial statements.
CLUBCORP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
12 WEEKS ENDED 36 WEEKS ENDED
------------------------------ ------------------------------
September 3, SEPTEMBER 9, September 3, SEPTEMBER 9,
1997 1998 1997 1998
-------------- -------------- -------------- --------------
Operating revenues $ 192,084 $ 196,831 $ 546,742 $ 580,175
Operating costs and expenses 163,041 170,547 466,416 486,909
Selling, general and administrative expenses 15,597 16,569 45,406 48,550
-------------- -------------- -------------- --------------
Operating income 13,446 9,715 34,920 44,716
(Loss) gain on divestitures (5,524) (3,324) 6,378 (5,386)
Interest and investment income 2,875 5,522 6,546 9,508
Interest expense (7,129) (6,473) (23,335) (21,344)
Other (expense) income (90) 1,025 (90) 1,025
-------------- -------------- -------------- --------------
Income from continuing operations before income tax
provision, minority interest and extraordinary item 3,578 6,465 24,419 28,519
Income tax provision (1,342) (4,305) (3,754) (13,327)
Minority interest (92) (32) (162) (746)
-------------- -------------- -------------- --------------
Income from continuing operations
before extraordinary item 2,144 2,128 20,503 14,446
Discontinued operations:
Gain on disposal of financial services segment,
net of income tax provision of $15,221 - - 25,146 -
-------------- -------------- -------------- --------------
Income before extraordinary item 2,144 2,128 45,649 14,446
Extraordinary item - loss on extinguishment of debt,
net of income taxes of $634 - - - (1,176)
-------------- -------------- -------------- --------------
Net income $ 2,144 $ 2,128 $ 45,649 $ 13,270
============== ============== ============== ==============
Basic and diluted earnings per share:
Income from continuing operations $ .03 $ .03 $ .24 $ .17
Discontinued operations - - .29 -
Extraordinary item - loss on extinguishment of debt - - - (.01)
-------------- -------------- -------------- --------------
Net income $ .03 $ .03 $ .53 $ .16
============== ============== ============== ==============
See accompanying condensed notes to consolidated financial statements.
CLUBCORP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Thirty Six Weeks Ended September 3, 1997 and September 9, 1998
(Dollars in thousands, except share amounts)
(Unaudited)
Accumulated
other
Common stock (100, 000,000 shares comprehensive
authorized, par value $.01 per share) income
-------------------------------------------- -------------
Foreign
Treasury Additional Currency
Shares Stock Shares Par Paid-in Translation
Issued Shares Outstanding Value Capital Adjustment
---------- ---------- ------------ ------ ----------- -------------
Balances at December 31, 1996, as restated 90,219,408 4,826,167 85,393,241 $ 902 $ 10,380 $ (54)
Net income - - - - - -
Purchase of treasury stock - 229,498 (229,498) - - -
Stock issued in connection with bonus plans - (54,673) 54,673 - 213 -
Foreign currency translation adjustment - - - - - 102
Market adjustment - - - - - -
Change in redemption value of common
stock held by benefit plan - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at September 3, 1997, as restated 90,219,408 5,000,992 85,218,416 $ 902 $ 10,593 $ 48
========== ========== ============ ====== =========== =============
BALANCES AT DECEMBER 31, 1997, AS RESTATED 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 260
NET INCOME - - - - - -
PURCHASE OF TREASURY STOCK - 163,185 (163,185) - - -
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - (70,594) 70,594 - 430 -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - 120
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - - - - - -
---------- ---------- ------------ ------ ----------- -------------
BALANCES AT SEPTEMBER 9, 1998 90,219,408 5,308,160 84,911,248 $ 902 $ 11,037 $ 380
========== ========== ============ ====== =========== =============
Accumulated
other
comprehensive
income
------------------
Unrealized
Gains or
Losses on
Investments in Total
Debt and Retained Treasury Stockholders'
Equity Securities Earnings Stock Equity
------------------- ---------- ---------- ---------------
Balances at December 31, 1996, as restated $ (46) $ 316,470 $ (37,100) $ 290,552
Net income - 45,649 - 45,649
Purchase of treasury stock - - (2,617) (2,617)
Stock issued in connection with bonus plans - - 424 637
Foreign currency translation adjustment - - - 102
Market adjustment 46 - - 46
Change in redemption value of common
stock held by benefit plan - (6,645) - (6,645)
------------------- ---------- ---------- ---------------
Balances at September 3, 1997, as restated $ - $ 355,474 $ (39,293) $ 327,724
=================== ========== ========== ===============
BALANCES AT DECEMBER 31, 1997, AS RESTATED $ - $ 419,061 $ (42,215) $ 388,615
NET INCOME - 13,270 - 13,270
PURCHASE OF TREASURY STOCK - - (2,399) (2,399)
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - - 573 1,003
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - 120
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - (5,097) - (5,097)
------------------- ---------- ---------- ---------------
BALANCES AT SEPTEMBER 9, 1998 $ - $ 427,234 $ (44,041) $ 395,512
=================== ========== ========== ===============
See accompanying condensed notes to consolidated financial statements.
CLUBCORP INTERNATIONAL, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
36 WEEKS ENDED
------------------------------
September 3, SEPTEMBER 9,
1997 1998
-------------- --------------
Cash flows from operations:
Net income $ 45,649 $ 13,270
Adjustments to reconcile net income to cash flows provided from operations:
Depreciation and amortization 33,183 36,688
(Gain) loss on divestitures (6,378) 5,386
Minority interest in net income of subsidiaries 162 746
Gain on disposal of financial services segment (25,146) -
Gain on the sale of investments - (4,043)
Extraordinary item - loss on extinguishment of debt - 1,810
Equity in losses (earnings) in partnerships and joint ventures 1,518 (1,727)
Amortization of discount on membership deposits 4,280 4,838
Deferred income taxes 2,836 11,037
Decrease in real estate held for sale 6,938 6,696
(Increase) decrease in membership and other receivables, net (1,253) 270
Decrease in accounts payable and accrued liabilities (9,524) (2,377)
Increase in deferred membership revenues 4,698 4,740
Other 12,141 4,788
-------------- --------------
Cash flows provided from operations 69,104 82,122
Cash flows from investing activities:
Additions to property and equipment (41,093) (57,409)
Development of real estate ventures (5,011) (10,576)
Development of new facilities (4,390) (10,756)
Acquisition of facilities (2,960) (9,038)
Investment in joint ventures (1,000) (16,414)
Proceeds from disposition of subsidiaries and assets, net 13,074 4,697
Proceeds from disposal of financial services segment, net 89,968 -
Proceeds from sale of investments - 9,864
Other 7,625 (8,351)
-------------- --------------
Cash flows provided from (used by) investing activities 56,213 (97,983)
Cash flows from financing activities:
Borrowings of long-term debt 11,902 223,092
Repayments of long-term debt (81,838) (225,175)
Membership deposits received, net 867 1,902
Treasury stock transactions, net (2,617) (2,399)
Repayment of Federal Home Loan bank advances (3,153) -
Dividend paid to minority shareholder of financial services segment (12,500) (4,177)
-------------- --------------
Cash flow used by financing activities (87,339) (6,757)
-------------- --------------
Total net cash flows 37,978 (22,618)
Cash and cash equivalents at beginning of period 74,454 101,419
-------------- --------------
Cash and cash equivalents at end of period $ 112,432 $ 78,801
============== ==============
See accompanying condensed notes to consolidated financial statements.
CLUBCORP INTERNATIONAL, INC.
Condensed Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------
Consolidation
- -------------
The consolidated financial statements include the accounts of ClubCorp
International, Inc. (Parent) and its subsidiaries (collectively ClubCorp) except
for certain subsidiaries of Franklin Federal Bancorp, a Federal Savings Bank
(Franklin). On January 2, 1997, Franklin sold certain assets and transferred
certain liabilities to Norwest Corporation. Thus, Franklin is classified as a
discontinued operation in the accompanying consolidated financial statements.
Interim presentation
- ---------------------
The accompanying consolidated financial statements have been prepared by
ClubCorp and are unaudited. Certain information and footnote disclosures
normally included in financial statements presented in accordance with generally
accepted accounting principles have been omitted from the accompanying
statements. ClubCorp's management believes the disclosures made are adequate to
make the information presented not misleading. However, the financial statements
should be read in conjunction with the financial statements and notes thereto of
ClubCorp for the year ended December 31, 1997 which were a part of ClubCorp's
Form 10-K and Form 10-K/A Amendment No. 1.
In the opinion of ClubCorp management, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of normal recurring
accruals) necessary to present fairly the consolidated financial position of
ClubCorp as of September 3, 1997 and September 9, 1998 and the consolidated
results of operations and cash flows for the twelve weeks and thirty six weeks
ended September 3, 1997 and September 9, 1998, respectively. Interim results are
not necessarily indicative of fiscal year performance because of the impact of
seasonal and short-term variations.
Earnings per share
- --------------------
Earnings per share for the twelve weeks ended September 3, 1997 and September 9,
1998 is computed using the weighted average number of shares outstanding of
85,222,588 and 84,917,273 for basic and 85,969,474 and 86,077,714 for diluted,
respectively. For the thirty six weeks ended September 3, 1997 and September 9,
1998, earnings per share is computed using the weighted average number of shares
outstanding of 85,341,186 and 85,001,850 for basic and 85,944,298 and 86,321,454
for diluted, respectively. The weighted average shares outstanding used in the
calculation of diluted earnings per share includes the effect of options to
purchase common stock.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current period presentation.
NOTE 2. CHANGE IN ACCOUNTING POLICY
- ----------------------------------------
ClubCorp has changed its accounting policy for membership initiation deposits
and fees to defer such revenues and recognize them on a straight line basis over
the expected average life of active membership. Revenues from membership
initiation deposits and fees were previously recognized by ClubCorp as revenue
on the date of acceptance of the member. In addition to the deferral of
membership initiation deposits and fees, ClubCorp has deferred the related
incremental direct selling costs of membership initiation deposits and fees
(primarily commissions) and is recording such costs in the same manner as the
revenues are recognized. Accordingly, the accompanying consolidated financial
statements have been retroactively adjusted to reflect this change for all
periods presented. The impact of the restatement is summarized as follows
(dollars in thousands, except per share amounts):
12 Weeks 36 WEEKS
Ended ENDED
September 3, SEPTEMBER 3,
1997 1997
-------------- --------------
Operating revenues $ (1,611) $ (7,843)
Operating income (1,681) (8,168)
Income from continuing
operations before
income tax and
minority interest (1,351) (7,722)
Income tax provision 117 528
Income from
continuing operations (1,234) (7,321)
-------------- --------------
Net income $ (1,234) $ (7,321)
============== ==============
Basic and diluted
earnings per share:
Income from
continuing operations $ .01 $ .09
-------------- --------------
Net income $ .01 $ .09
============== ==============
In addition, this change resulted in a decrease in retained earnings of
$68,566,000 and $70,223,000 as of September 3, 1997 and December 31, 1997,
respectively.
ClubCorp now presents changes in the redemption value of common stock held by
the benefit plan as a direct charge to retained earnings instead of a separate
component of stockholders' equity. This reclassification resulted in a decrease
in retained earnings of $49,878,000 and $53,652,000 as of September 3, 1997 and
December 31, 1997, respectively. This reclassification had no net effect on
total stockholders' equity.
NOTE 3. TOTAL COMPREHENSIVE INCOME
- --------------------------------------
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income".
SFAS 130 requires that an entity include in total comprehensive income certain
amounts which were previously recorded directly to stockholders' equity. For the
twelve weeks and thirty six weeks ended September 3, 1997 and September 9, 1998
the other comprehensive income amounts included in total comprehensive income
consisted of unrealized gains on investments in debt and equity securities and
foreign currency translation adjustments. Total comprehensive income was
$2,322,000 and $2,602,000 for the twelve weeks ended and $45,797,000 and
$13,390,000 for the thirty six weeks ended September 3, 1997 and September 9,
1998, respectively.
NOTE 4. OMNIBUS STOCK OPTION PLAN
- --------------------------------------
The Club Corporation International Omnibus Stock Plan (Plan) was adopted to be
effective February 1998. The Plan provides for granting to key employee partners
options to purchase shares of common stock at a price not less than fair market
value at the date of grant. The vesting will be determined at the time of grant
and will generally be three to five years. The initial grant was 1,739,000
options with a five year vesting and a ten year expiration date. None of these
options are currently exercisable.
NOTE 5. SENIOR CREDIT FACILITY
- ----------------------------------
On May 27, 1998, Parent finalized a five-year $300,000,000 unsecured revolving
credit facility agreement with a group of banks. The obligations under this
facility are guaranteed by certain of its subsidiaries. The interest rate is
determined using a LIBOR-based pricing matrix as defined in the agreement. As
of September 9, 1998, Parent has used this facility to refinance approximately
$174,944,000 in existing debt and related accrued interest of its subsidiaries.
In conjunction with this refinancing, unamortized loan costs and discounts on
long-term debt totaling $1,810,000 are shown in the accompanying Consolidated
Statement of Operations as an extraordinary item - loss on extinguishment of
debt. The amount outstanding under this agreement, including letters of credit
of $14,703,000, as of September 9, 1998, is $189,703,000 at an interest rate of
LIBOR plus 62.5 basis points.
NOTE 6. 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 the resolution of these matters would not materially affect
ClubCorp's consolidated financial statements.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
INTRODUCTION
ClubCorp International, Inc. ("ClubCorp" or the "Company"), formerly Club
Corporation International, is a holding company incorporated under the laws of
the State of Delaware that, through its subsidiaries, owns, operates and/or
manages country clubs, golf clubs, public golf courses, city clubs,
city/athletic clubs, athletic clubs, resorts, and certain related real estate
through sole ownership, partial ownership (including joint venture interests)
and management agreements. The Company's operations are organized into three
principal business segments according to the type of facility or service -
resorts, country club and golf facilities, and city facilities. The Company's
primary sources of revenue include membership dues, fees, and deposits, food and
beverage sales, revenues from golf operations, and lodging.
The predecessor corporation to ClubCorp was organized in 1957 under the
name Country Clubs, Inc. All references herein to ClubCorp shall also include
Country Clubs, Inc. and its successor corporations. For purposes of this
document, references to the "Company" include ClubCorp's various subsidiaries.
However, each of ClubCorp and its subsidiaries is careful to maintain its
separate legal existence, and general references to the Company should not be
interpreted in any way to reduce the legal distinctions between the subsidiaries
or between ClubCorp and its subsidiaries.
The following discussion of the Company's financial condition and results
of operations for the 12 and 36 weeks ended September 3, 1997 and September 9,
1998 should be read in conjunction with the Company's Annual Report on Form 10-K
and Form 10-K/A Amendment No. 1 for the year ended December 31, 1997, as filed
with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
12 WEEKS ENDED SEPTEMBER 9, 1998 COMPARED TO 12 WEEKS ENDED SEPTEMBER 3, 1997
Consolidated Operations
Operating revenues increased 2.4% to $196.8 million for the 12 weeks ended
September 9, 1998 from $192.1 million for the 12 weeks ended September 3, 1997
due primarily to increased revenues at mature facilities. Operating revenues of
mature facilities (i.e., those for which a comparable period of activity exists,
generally those owned for at least eighteen months to two years) increased 2.0%
to $175.4 million from $172.0 million for the same period.
Operating costs and expenses, consisting of direct operating costs,
facility rentals, maintenance, and depreciation and amortization, increased
4.6%, to $170.5 million for the 12 weeks ended September 9, 1998 from $163.0
million for the 12 weeks ended September 3, 1997, principally reflecting
increased operating costs and expenses at mature facilities which increased 3.9%
to $151.2 million from $145.5 million for the same period, due primarily to
increased costs of sales for food and beverage, golf operations, cash flow based
facility rentals, inflationary payroll cost increases, and bonus accruals for
property level management.
Selling, general and administrative expenses increased 6.4% to $16.6
million from $15.6 million, due primarily to bonus accruals for executives,
regional and corporate management.
Interest expense decreased 8.5% to $6.5 million for the 12 weeks ended
September 9, 1998 from $7.1 million for the 12 weeks ended September 3, 1997 due
mainly to 1997 and 1998 divestitures.
Other income of $1.0 million in 1997 is due to the partial reversal of an
accrual for pending litigation in the ordinary course of business.
Segment and Other Information - 12 Weeks
Resorts
The following table presents certain summary financial data and other
operating data for the Company's resort segment for the 12 week periods ended
September 3, 1997 and September 9, 1998:
MATURE RESORTS TOTAL RESORTS
----------------- -----------------
1997 1998 1997 1998
------- -------- ------- --------
(dollars in thousands)
Number of facilities at period end 4 4 7 6
Operating revenues $39,159 $ 37,899 $41,493 $ 40,163
Operating costs and expenses 32,124 30,906 36,441 34,636
------- -------- ------- --------
Segment operating income $ 7,035 $ 6,993 $ 5,052 $ 5,527
======= ======== ======= ========
Operating revenues from total resorts decreased 3.2% due primarily to
increased revenues at mature facilities offset by the effect of divestitures.
Operating revenues from mature resorts decreased 3.2% due mainly to
divestitures. The decrease is also indicative of a decrease of 1.2 percentage
points in the occupancy rate and an increase of 12.3% in the average daily
revenue per occupied room for Pinehurst, Homestead, and Barton Creek. Pinehurst
continued to experience significant increases in operating revenues which are
attributable to its hosting of the 1999 U.S. Open.
Country Club and Golf Facilities
The following table presents certain summary financial data and other
operating data for the Company's country club and golf facility segment for the
12 week periods ended September 3, 1997 and September 9, 1998:
MATURE COUNTRY TOTAL COUNTRY
CLUB AND CLUB AND
GOLF FACILITIES GOLF FACILITIES
-------------------- --------------------
1997 1998 1997 1998
------- ----------- ------- -----------
(dollars in thousands)
Number of facilities at period end 100 100 111 109
Operating revenues $84,348 $ 87,208 $88,226 $ 94,637
Operating costs and expenses 67,616 71,901 70,708 77,504
------- ----------- ------- -----------
Segment operating income $16,732 $ 15,307 $17,518 $ 17,133
======= =========== ======= ===========
Operating revenues from total country club and golf facilities increased
7.3% primarily due to increased revenues at mature properties and acquisitions.
Operating revenues from mature country club and golf facilities increased 3.4%
due to an increase in members, the reopening of several courses at existing
facilities which were closed for renovation during the prior year, and the
acquisition of pro shops previously owned by golf professionals.
City Facilities
The following table presents certain summary financial data and other
operating data for the Company's city facility segment for the 12 week periods
ended September 3, 1997 and September 9, 1998:
MATURE TOTAL
CITY FACILITIES CITY FACILITIES
-------------------- --------------------
1997 1998 1997 1998
------- ----------- ------- -----------
(dollars in thousands)
Number of facilities at period end 91 91 95 95
Operating revenues $48,456 $ 50,250 $50,478 $ 52,262
Operating costs and expenses 45,785 48,362 47,823 50,584
------- ----------- ------- -----------
Segment operating income $ 2,671 $ 1,888 $ 2,655 $ 1,678
======= =========== ======= ===========
Operating revenues from total city facilities increased 3.5% primarily due
to increased revenues at mature facilities. Operating revenues from mature city
facilities increased by 3.7% due to an increase in members and facilities usage.
International and Realty
International operating revenues increased to $2.0 million in 1998 from
$1.6 million in 1997 due primarily to increased equity earnings from a city club
in Singapore that opened in 1997.
Realty operating revenues decreased to $3.9 million in 1998 from $6.2
million in 1997 due to decreased sales of land held for resale in connection
with golf facilities in Colorado, California, and Hilton Head.
36 WEEKS ENDED SEPTEMBER 9, 1998 COMPARED TO 36 WEEKS ENDED SEPTEMBER 3, 1997
Consolidated Operations
Operating revenues increased 6.1% to $580.2 million for the 36 weeks ended
September 9, 1998 from $546.7 million for the 36 weeks ended September 3, 1997
due primarily to increased revenues at mature facilities. Operating revenues of
mature facilities (i.e., those for which a comparable period of activity exists,
generally those owned for at least eighteen months to two years) increased 5.4%
to $522.7 million from $496.1 million for the same period.
Operating costs and expenses, consisting of direct operating costs,
facility rentals, maintenance, and depreciation and amortization, increased
4.4%, to $486.9 million for the 36 weeks ended September 9, 1998 from $466.4
million for the 36 weeks ended September 3, 1997, principally reflecting
increased operating costs and expenses at mature facilities which increased 4.3%
to $452.8 million from $434.2 million for the same period, due primarily to
increases in costs of sales for food and beverage, golf operations, cash flow
based facility rentals, inflationary payroll cost increases, and bonus accruals
for property level management.
Selling, general and administrative expenses increased 7.0% to $48.6
million for the 36 weeks ended September 9, 1998 from $45.4 million for the 36
weeks ended September 3, 1997, due primarily to bonus accruals for executives,
corporate and regional management.
Interest expense decreased 8.6% to $21.3 million for the 36 weeks ended
September 9, 1998 from $23.3 million for the 36 weeks ended September 3, 1997,
due mainly to 1997 and 1998 divestitures.
Segment and Other Information - 36 Weeks
Resorts
The following table presents certain summary financial data and other
operating data for the Company's resort segment for the 36 week periods ended
September 3, 1997 and September 9, 1998:
MATURE RESORTS TOTAL RESORTS
-------------------- ------------------
1997 1998 1997 1998
--------- --------- -------- --------
(dollars in thousands)
Number of facilities at period end 4 4 7 6
Operating revenues $102,868 $107,156 $112,504 $113,414
Operating costs and expenses 90,536 92,384 105,608 102,736
--------- --------- -------- --------
Segment operating income $ 12,332 $ 14,772 $ 6,896 $ 10,678
========= ========= ======== ========
Room nights available 277,787 274,636
Occupancy rate 51.4% 52.6%
Average daily room rate per occupied room $ 165 $ 176
Average daily revenue per occupied room $ 625 $ 689
Operating revenues from total resorts increased only 0.8% as mature
resorts' increased operating revenues were offset by the effect of divestitures.
Mature resorts' operating revenues increased 4.2%, which is indicative of
increases of 1.2 percentage points in the occupancy rate, 6.7% in the average
daily room rate per occupied room, and 10.2% in the average daily revenue per
occupied room for Pinehurst, Barton Creek, and Homestead. Pinehurst continued
to experience significant increases in operating revenues which are attributable
to its hosting of the 1999 U.S. Open.
The differences in operating revenues, operating costs and expenses, and
segment operating income between mature resorts and total resorts are primarily
attributable to the Company's operations at Daufuskie Island ("Daufuskie").
ClubCorp purchased Daufuskie at the end of 1996 for nominal consideration as a
turn-around opportunity. Daufuskie had operating losses of approximately $4.1
million for the 36 weeks ended September 9, 1998 and aggregate operating losses
of approximately $10.9 million since it was acquired by ClubCorp at the end of
1996.
Country Clubs and Golf Facilities
The following table presents certain summary financial data and other
operating data for the Company's country club and golf facility segment for the
36 week periods ended September 3, 1997 and September 9, 1998:
MATURE COUNTRY TOTAL COUNTRY
CLUB AND CLUB AND
GOLF FACILITIES GOLF FACILITIES
--------------------- ---------------------
1997 1998 1997 1998
-------- ----------- -------- -----------
(dollars in thousands)
Number of facilities at period end 100 100 111 109
Operating revenues $235,032 $ 249,460 $243,833 $ 263,870
Operating costs and expenses 195,648 206,818 203,796 219,222
-------- ----------- -------- -----------
Segment operating income $ 39,384 $ 42,642 $ 40,037 $ 44,648
======== =========== ======== ===========
Operating revenues from total country club and golf facilities increased
8.2% primarily due to increased revenues at mature facilities. Operating
revenues from mature country club and golf facilities increased 6.1% primarily
due to an increase in members, the reopening of several courses at existing
facilities which were closed for renovation during the prior year, and the
acquisition of pro shops previously owned by golf professionals.
City Facilities
The following table presents certain summary financial data and other
operating data for the Company's city facility segment for the 36 week periods
ended September 3, 1997 and September 9, 1998:
MATURE CITY FACILITIES TOTAL CITY FACILITIES
------------------------- ------------------------
1997 1998 1997 1998
------------ ----------- ----------- -----------
(dollars in thousands)
Number of facilities at period end 91 91 95 95
Operating revenues $ 158,177 $ 166,092 $ 161,906 $ 169,712
Operating costs and expenses 148,032 153,618 152,126 157,343
------------ ----------- ----------- -----------
Segment operating income $ 10,145 $ 12,474 $ 9,780 $ 12,369
============ =========== =========== ===========
Operating revenues from total city facilities increased 4.8% due primarily
to increased revenues at mature facilities. Operating revenues from mature city
facilities increased by 5.0% due to an increase in members and facility usage.
International and Realty
International operating revenues increased to $5.6 million from $3.2
million primarily due to increased equity earnings from a city club in Singapore
that opened in 1997.
Realty operating revenues increased to $16.0 million in 1998 from $14.5
million in 1997 primarily due to increased sales of real estate held for resale
in connection with a golf facility in Colorado.
SEASONALITY
The Company's quarterly results fluctuate as a result of a number of
factors. Usage of the Company's country club and golf facilities and resorts
declines significantly during the first and fourth quarters, when colder
temperatures and shorter days reduce the demand for golf and golf-related
activities. The Company's city facilities generate a disproportionately greater
share of their yearly revenues in the fourth quarter, which includes the holiday
and year-end party season. As a result of these factors, the Company usually
generates a disproportionate share of its revenues in the second, third, and
fourth quarters of each year and has lower revenues in the first quarter. The
timing of purchases, sales, or leases of facilities also have caused and may
cause the Company's results of operations to vary significantly in otherwise
comparable periods. In addition, the Company's results can be affected by
non-seasonal and severe weather patterns.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations and capital replacements primarily
through cash flows from operations. Historically, the Company financed its
capital expansions through cash from operations and long-term debt at the
subsidiary level. Most capital expenditures other than capital replacements are
considered discretionary and could be curtailed in periods of low liquidity.
Capital replacements are planned expenditures made each year to maintain high
quality standards of facilities for the purpose of meeting existing members'
expectations and to attract new members. Capital replacements have ranged from
3.8% to 5.3% of operating revenues during the last three years. The Company
distinguishes capital expenditures made to refurbish and replace existing
property and equipment (i.e., capital replacements) from other discretionary
capital expenditures such as the expansion of existing facilities (i.e., capital
expansions) and acquisition or development of new facilities.
The Company has committed to provide updated technology to all of its
properties during 1998 and 1999. This technology will include installation of
point-of-sale hardware and software, replacement of computer hardware and
software to provide network capabilities, the purchase and development of
accounting software and hardware, and the installation of electronic time
management systems. In January of 1998, the Company signed an agreement with
Oracle Corporation to purchase new software for its accounting, purchasing, and
human resources applications. The decision to acquire Oracle's software was
made primarily to better enable management to improve operating efficiencies,
exceed member expectations, grow people, performance, profits, and markets by
re-engineering processes using enterprise resource planning software. Executive
management intends to allocate the necessary resources to develop additional
technology applications and tools that will allow the properties to operate more
effectively and efficiently and to increase the value of membership in
conjunction with service excellence. Completion of the technology upgrade,
including conversion of the existing software, is expected to require
approximately $17.0 to $20.0 million in additional expenditures, of which $14.0
to $17.0 million will be capitalized. The upgrade will be funded through both a
capital lease with a bank over a four to five year period and through cash flows
from operations.
Computer programs were historically written using two digits rather than
four digits to identify the year. The computer might then recognize the two
digits "00" as year 1900 rather than year 2000 resulting in possible system
failures, miscalculations, and/or loss of data. This is referred to as the
"Year 2000" issue. Implementation of Oracle software and updating and/or
replacement of other software programs addresses the Company's Year 2000 issue
with respect to its information technology systems and is expected to be
completed by November 1999. If the conversion is not completed in a timely
manner, Year 2000 issues may have a significant impact on the Company's
operations. The Company, however, has alternative plans in the event Oracle
software is not implemented in a timely manner. These alternative plans include
the simultaneous reprogramming of existing systems to enable them to be Year
2000 compliant. The Company is currently evaluating its non information
technology systems, suppliers, landlords, and vendors for Year 2000 compliance.
The Company does not believe that Year 2000 issues will have a material adverse
effect on the business operations or the financial performance of the Company.
However, contingency plans will be developed for identified key risks and
suppliers. There can be no assurance, however, that Year 2000 issues will not
adversely affect the Company and its business.
Membership deposits represent advance initiation deposits paid by members
and are refundable a fixed number of years (generally 30 years) after the date
of acceptance as a member. Management does not consider maturities of membership
deposits over the next five years to be significant. Due to the utilization of
long-term operating leases and membership deposits, the Company's leverage ratio
(i.e., long-term debt to total capital) has been maintained at manageable levels
which allow for adequate capability to finance future growth with long-term
debt.
All of the assets of the ClubCorp Stock Investment Plan ("Plan") are
invested in shares of ClubCorp's common stock, $.01 par value per share ("Common
Stock"), except for temporary investments of cash pending investment in Common
Stock. All distributions from the Plan are made in cash. As a means of providing
liquidity to the trustees of the Plan to meet their fiduciary obligations to
distribute cash to participants requesting withdrawals, ClubCorp has provided
the trustees the right ("Redemption Right") to cause the Company to redeem
Common Stock, held in trust on behalf of the Plan, at the most recent appraised
price as necessary to meet certain requirements. Withdrawals by participants and
terminations by, and/or resignations from, the Company of participants in excess
of anticipated levels could give rise to the exercise of withdrawal rights in
substantial amounts and place significant demands on the liquidity of the
Company. In such an event, the resources available to meet business expansion or
other working capital needs could be adversely affected. As of September 9,
1998, the value of the Redemption Right was $58.7 million. The most recent
appraised price of the Common Stock is $15.56 as of September 9, 1998. The
appraised value of the Common Stock at September 9, 1998 is $1,321.2 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. On April 14, 1998, ClubCorp's Board of Directors agreed to amend
and restate the Plan to create the ClubCorp Employee Stock Ownership Plan which
becomes effective January 1, 1999.
The Company finalized an agreement on May 27, 1998 with a group of banks
for a five-year $300.0 million unsecured senior revolving credit facility. The
Company's obligations under this facility are guaranteed by certain of its
subsidiaries. The interest rate is determined using a LIBOR-based pricing
matrix as defined in the agreement. It is anticipated that interest rates under
this facility will be substantially lower than interest rates on indebtedness
which was repaid. The Company has used the facility to refinance approximately
$174.9 million in existing debt and related accrued interest of certain of its
subsidiaries. In conjunction with this refinancing, unamortized loan costs and
discounts on long-term debt totaling $1.8 million are shown in the accompanying
Consolidated Statement of Operations as an extraordinary item - loss on
extinguishment of debt. The Company also is using the facility for working
capital, capital expenditures, and acquisitions. The amount outstanding under
this agreement, including letters of credit of $14.7 million, as of September 9,
1998, is $189.7 million at an interest rate of LIBOR plus 62.5 basis points.
The Company uses financial instruments, principally swaps, to manage its
interest rate exposure primarily from borrowings under its revolving credit
facility. These contracts generally hedge balances for periods and amounts
consistent with the Company's exposure and do not constitute investments
independent of such exposures. The Company does not use these financial
instruments for speculative or trading purposes. Swaps outstanding as of
September 11, 1997 and September 9, 1998 were not material.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Certain information in this Quarterly Report on Form 10-Q may contain
"forward-looking statements" within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended. All statements other than statements of
historical fact are "forward-looking statements" for purposes of these
provisions, including any projections of earnings, revenues or other financial
items, any statements of the plans and objectives of management for future
operations, any statements concerning proposed new products or services, any
statements regarding future economic conditions or performance and any statement
of assumptions underlying any of the foregoing. In some cases, forward-looking
statements can be identified by the use of terminology such as "may," "will,"
"expects," "plans," "anticipates," "estimates," "potential" or "continue," or
the negative thereof or other comparable terminology. Although the Company
believes that the expectations reflected in its forward-looking statements are
reasonable, it can give no assurance that such expectations or any of its
forward-looking statements will prove to be correct, and actual results could
differ materially from those projected or assumed in the Company's
forward-looking statements. Forward-looking statements are subject to inherent
risks and uncertainties, some of which are summarized in this section.
The success of the Company depends on the Company's ability to attract and
retain members at its clubs and maintain or increase usage of its facilities.
The Company continues to focus its efforts on membership enrollment programs and
quality service to reduce attrition as one of its top priorities for 1998. For
the last several years, the Company has focused on efforts to retain existing
members, attract new members and increase club usage through various programs
and membership activities, including increasing member participation by
continuing to implement member survey suggestions and increasing the involvement
of member boards of governors in planning day-to-day activities. Although
retention of existing members is one of ClubCorp's top priorities and the
Company devotes substantial efforts to ensuring that members and customers are
satisfied, many of the factors affecting club membership and facility usage are
beyond the control of the Company. There can be no assurance that the Company
will be able to maintain or increase membership or facilities' usage.
Significant periods of attrition rates exceeding enrollments rates or facility
usage below historical levels could have a material adverse effect on the
Company's business, operating results, and financial condition.
As of October 20, 1998, the Company was in the final stages of negotiations
to build three properties. The consummation of the agreements to develop these
properties is expected to require approximately $17.0 to $20.0 million in
capital expenditures, to be funded primarily with cash flows from operations and
external financing of ClubCorp International, Inc. The eventual outcome of the
negotiations cannot be accurately predicted at this time.
In April of 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities". SOP 98-5 requires that the costs of start-up activities, including
organizational costs, be expensed as incurred. SOP 98-5 will be effective for
the Company in its fiscal year ending in 1999. Due to the nature of the
operations of the Company, the effect of the implementation of SOP 98-5 is not
expected to have a significant impact on the financial position or results of
operations of the Company.
In June of 1998, the Financial Accounting Standards Board issued SFAS 133,
"Accounting for Derivative Instruments and Hedging Activities". SFAS 133
establishes accounting and reporting standards for derivative instruments,
including certain derivatives embedded in other contracts, and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the balance sheet and measure those instruments at fair
value. SFAS 133 will be effective for the Company in its fiscal year ending in
2000. Due to the nature of the operations of the Company, the effect of
implementation of SFAS 133 is not expected to have a significant impact on the
financial position or results of operations of the Company.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Refer to Note 6 to Condensed Notes to Consolidated Financial
Statements
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable
Item 5. Other Information
Not applicable
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Ninth Amendment to the ClubCorp Stock Investment Plan
10.2 - First Amendment to the ClubCorp Stock Trust
15.1 - Letter from KPMG Peat Marwick LLP regarding unaudited
interim financial statements
(b) Reports on Form 8-K
Not applicable
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CLUBCORP INTERNATIONAL, INC.
Date: October 23, 1998 By: /s/ James P. McCoy, Jr.
-----------------------------
James P. McCoy, Jr.
Executive Vice President and
Chief Financial Officer
(chief accounting officer)