UNITED STATES
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 March 23,1999
Commission file numbers 33-89818, 33-96568, 333-08041 and 333-57107
CLUBCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2626719
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-6191
Former name, former address and former fiscal year,
if changed since last report: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of the Registrant's Common Stock outstanding as of March
23, 1999 was 85,242,342.
CLUBCORP, 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 and Comprehensive Income
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 Disclosure About Market Risk
Part II. OTHER INFORMATION
Item 1. Legal Proceedings
Item 2. Changes in Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INDEPENDENT ACCOUNTANTS' REVIEW REPORT
--------------------------------------
The Board of Directors
ClubCorp, Inc.
We have reviewed the consolidated balance sheet of ClubCorp, Inc. and
subsidiaries (ClubCorp) as of March 23, 1999 and March 25, 1998 and the related
consolidated statements of operations, stockholders' equity and comprehensive
income and cash flows for the twelve weeks ended March 23, 1999 and March 25,
1998. These consolidated financial statements are the responsibility of
ClubCorp'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 29, 1998
and the related consolidated statements of operations, stockholders' equity and
comprehensive income and cash flows for the year then ended (not presented
herein); and in our report dated February 26, 1999 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 29, 1998 is fairly presented, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
KPMG LLP
Dallas, Texas
April 30, 1999
CLUBCORP, INC.
CONSOLIDATED BALANCE SHEET
(Dollars in thousands, except share amounts)
(Unaudited)
March 25, December 29, MARCH 23,
Assets 1998 1998 1999
------ ----------- -------------- -----------
Current assets:
Cash and cash equivalents $ 128,665 $ 72,423 $ 52,255
Membership and other receivables, net 59,288 84,915 71,068
Inventories 16,415 18,082 20,961
Other assets 13,786 17,587 17,011
----------- -------------- -----------
Total current assets 218,154 193,007 161,295
Property and equipment, net 690,937 751,070 777,073
Other assets 142,242 166,081 214,619
----------- -------------- -----------
$1,051,333 $ 1,110,158 $1,152,987
=========== ============== ===========
Liabilities and Stockholders' Equity
-------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 48,389 $ 58,826 $ 45,911
Long-term debt - current portion 96,294 18,633 36,086
Other liabilities 90,782 97,127 118,185
----------- -------------- -----------
Total current liabilities 235,465 174,586 200,182
Long-term debt 180,351 255,917 269,604
Other liabilities 108,517 109,880 103,898
Membership deposits 85,525 95,460 97,640
Redemption value of common stock held by benefit plan 54,521 65,279 65,751
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares
authorized, 90,219,408 issued, 85,003,839
outstanding at March 25, 1998, 84,629,809
outstanding at December 29, 1998 and 85,242,342
outstanding at March 23, 1999 902 902 902
Additional paid-in capital 10,607 11,205 15,943
Accumulated other comprehensive income (loss) 130 (119) (460)
Retained earnings 417,530 445,770 442,916
Treasury stock (42,215) (48,722) (43,389)
----------- -------------- -----------
Total stockholders' equity 386,954 409,036 415,912
$1,051,333 $ 1,110,158 $1,152,987
=========== ============== ===========
See accompanying condensed notes to consolidated financial statements.
CLUBCORP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in thousands, except per share amounts)
(Unaudited)
Twelve Weeks Ended
------------------------
March 25, MARCH 23,
1998 1999
----------- -----------
Operating revenues $ 171,848 $ 181,471
Operating costs and expenses 153,199 162,779
Selling, general and administrative expenses 13,746 15,951
----------- -----------
Operating income 4,903 2,741
Gain on divestitures and sales of assets 346 289
Interest and investment income 2,149 1,932
Interest expense (7,495) (7,153)
----------- -----------
Loss from operations before income tax provision and minority interest (97) (2,191)
Income tax provision (294) (191)
Minority interest (271) -
----------- -----------
Net loss $ (662) $ (2,382)
=========== ===========
Basic and diluted loss per share $ (.01) $ (.03)
=========== ===========
See accompanying condensed notes to consolidated financial statements.
CLUBCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Twelve Weeks Ended March 25, 1998 and March 23, 1999
(Dollars in thousands, except share amounts)
(Unaudited)
Common stock (100,000,000 shares
authorized, par value $.01 per share)
-------------------------------------------
Accumulated
Treasury Additional Other
Shares Stock Shares Par Paid-in Comprehensive Retained
Issued Shares Outstanding Value Capital Income (Loss) Earnings
---------- ---------- ----------- ------ ----------- --------------- ----------
Balances at December 31, 1997 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 260 $ 419,061
Comprehensive loss:
Net loss - - - - - - (662)
Foreign currency translation adjustment - - - - - (130) -
Total comprehensive loss
Change in redemption value of common
stock held by benefit plan - - - - - - (869)
---------- ---------- ----------- ------ ----------- --------------- ----------
Balances at March 25, 1998 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 130 $ 417,530
========== ========== =========== ====== =========== =============== ==========
Balances at December 29, 1998 90,219,408 5,589,599 84,629,809 902 11,205 (119) 445,770
STOCK ISSUED IN CONNECTION WITH:
ACQUISITION - (597,533) 597,533 - 4,717 - -
EXERCISE OF STOCK OPTIONS - (15,000) 15,000 - 21 - -
COMPREHENSIVE LOSS:
NET LOSS - - - - - - (2,382)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - (341) -
TOTAL COMPREHENSIVE LOSS
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - - - - - - (472)
---------- ---------- ----------- ------ ----------- --------------- ----------
BALANCES AT MARCH 23, 1999 90,219,408 4,977,066 85,242,342 $ 902 $ 15,943 $ (460) $ 442,916
========== ========== =========== ====== =========== =============== ==========
Total
Treasury Stockholders'
Stock Equity
---------- ---------------
Balances at December 31, 1997 $ (42,215) $ 388,615
Comprehensive loss:
Net loss - (662)
Foreign currency translation adjustment - (130)
---------------
Total comprehensive loss (792)
Change in redemption value of common
stock held by benefit plan - (869)
---------- ---------------
Balances at March 25, 1998 $ (42,215) $ 386,954
========== ===============
Balances at December 29, 1998 (48,722) $ 409,036
STOCK ISSUED IN CONNECTION WITH:
ACQUISITION 5,202 9,919
EXERCISE OF STOCK OPTIONS 131 152
COMPREHENSIVE LOSS:
NET LOSS - (2,382)
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - (341)
---------------
TOTAL COMPREHENSIVE LOSS (2,723)
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - (472)
---------- ---------------
BALANCES AT MARCH 23, 1999 $ (43,389) $ 415,912
========== ===============
See accompanying condensed notes to consolidated financial statements.
CLUBCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Twelve Weeks Ended
------------------------
March 25, MARCH 23,
1998 1999
----------- -----------
Cash flows from operations:
Net loss $ (662) $ (2,382)
Adjustments to reconcile net loss to cash flows provided from operations:
Depreciation and amortization 11,921 13,508
Gain on divestitures and sales of assets (346) (289)
Minority interest in net income of subsidiaries 271 -
Equity in earnings of affiliates (17) (643)
Amortization of discount on membership deposits 1,573 1,799
Decrease in real estate held for sale 2,449 268
Decrease in membership and other receivables, net 12,384 14,159
Decrease in accounts payable and accrued liabilities (9,238) (12,904)
Net change in deferred membership revenues 3,631 (1,142)
Other 6,318 9,089
----------- -----------
Cash flows provided from operations 28,284 21,463
Cash flows from investing activities:
Additions to property and equipment (18,611) (26,130)
Development of new facilities (905) (914)
Development of real estate ventures (1,168) (736)
Acquisition of facilities (3,037) (22,210)
Investment in affiliates - (23,002)
Other 2,670 5,273
----------- -----------
Cash flows used by investing activities (21,051) (67,719)
Cash flows from financing activities:
Borrowings of long-term debt 44,441 33,167
Repayments of long-term debt (25,003) (7,463)
Membership deposits received, net 575 232
Treasury stock transactions, net - 152
----------- -----------
Cash flows provided from financing activities 20,013 26,088
----------- -----------
Total net cash flows 27,246 (20,168)
----------- -----------
Cash and cash equivalents at beginning of period 101,419 72,423
----------- -----------
Cash and cash equivalents at end of period $ 128,665 $ 52,255
=========== ===========
See accompanying condensed notes to consolidated financial statements.
CLUBCORP, INC.
Condensed Notes to Consolidated Financial Statements
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------
Consolidation
- -------------
The Consolidated Financial Statements include the accounts of ClubCorp, Inc.
(Parent) and its subsidiaries (collectively ClubCorp). All material
intercompany balances and transactions have been eliminated.
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 29, 1998 which were a part of ClubCorp's
Form 10-K.
In the opinion of ClubCorp management, the accompanying unaudited Consolidated
Financial Statements reflect all adjustments necessary (consisting of normal
recurring accruals) to present fairly the consolidated financial position of
ClubCorp as of March 25, 1998 and March 23, 1999 and the consolidated results
of operations and cash flows for the twelve weeks ended March 25, 1998 and March
23, 1999, 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 is computed using the weighted average number of shares
outstanding of 85,423,641 and 85,142,753 for basic for the twelve weeks ended
March 25, 1998 and March 23, 1999, respectively. The potential common stock
equivalents for options to purchase common stock of 866,478 shares for the
twelve weeks ended March 25, 1998 and 1,484,707 shares for the twelve weeks
ended March 23, 1999 are antidilutive due to the net losses for the quarters.
Recent pronouncements
- ----------------------
Effective fiscal year 1999, ClubCorp implemented the American Institute of
Certified Public Accountants 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. Due to the
nature of the operations, the effect of the implementation of SOP 98-5 did not
have a significant impact on ClubCorp's Consolidated Statement of Operations.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities" which establishes accounting and reporting
standards for derivative instruments and hedging activities. It requires that
all derivatives be recognized as either assets or liabilities on the balance
sheet and such instruments be measured at their fair value. The Statement is
effective for all quarters of years beginning after June 15, 1999. Based on
ClubCorp's current operations, the effect of implementation of this new
statement is not expected to have a significant effect on ClubCorp's balance
sheet or statement of operations. SFAS 133 will be reflected in ClubCorp's
first quarter 2000 Consolidated Financial Statements.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current period presentation.
NOTE 2. SEGMENT REPORTING
- ----------------------------
ClubCorp operations are organized into three principal business segments
according to the type of facility or service provided: Country club and golf
facilities, Business and sports facilities (formerly City clubs) and Resorts.
Financial information for the segments is as follows (dollars in thousands):
Twelve Weeks Ended
------------------------
March 25, MARCH 23,
1998 1999
----------- -----------
Operating revenues:
Country club and golf facilities $ 73,247 $ 82,355
Business and sports facilities 57,289 58,441
Resorts 27,509 33,228
----------- -----------
Total operating revenues
for reportable segments 158,045 174,024
Other operations 7,695 3,303
Corporate services and eliminations 6,108 4,144
----------- -----------
Consolidated operating revenues 171,848 181,471
=========== ===========
Operating income:
Country club and golf facilities 8,342 11,968
Business and sports facilities 2,384 3,166
Resorts (3,907) (2,867)
----------- -----------
Total operating income
for reportable segments 6,819 12,267
Other operations 1,719 (1,233)
Corporate services and eliminations (3,635) (8,293)
----------- -----------
Consolidated operating income $ 4,903 $ 2,741
=========== ===========
NOTE 3. 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 reasonably be expected to materially
affect ClubCorp's Consolidated Financial Statements.
NOTE 4. SUBSEQUENT EVENTS
- ----------------------------
On March 31, 1999, ClubCorp, along with American Golf Corporation ("AGC") and
National Golf Operating Partnership, L.P. ("NGP"), consummated the purchase of
Meditrust Golf Group, Inc., Meditrust Golf Group II, Inc. and The Cobblestone
Golf Companies, Inc., in a stock purchase agreement, for a total purchase price
of approximately $391,000,000. ClubCorp and AGC completed the acquisition
through a two member LLC formed for the sole purpose of acquiring the
properties. Upon the closing of the purchase, substantially all of the assets
and liabilities that were acquired were divided between certain subsidiaries of
ClubCorp and NGP and transferred out of the LLC. Three facilities remain in the
LLC of which two will be acquired by ClubCorp and one will be acquired by NGP.
ClubCorp purchased 23 premier golf facilities, including two remaining in the
LLC, for approximately $207,000,000. The acquisition was financed with a
$200,000,000 credit agreement guaranteed by certain subsidiaries of ClubCorp,
Inc. In the Consolidated Statement of Cash Flows, deposits for the acquisition
of approximately $21,200,000 are included as cash paid for the acquisition of
facilities.
On April 7, 1999, ClubCorp through its participation in a rights offering by
ClubLink Corporation of Ontario, Canada (ClubLink), increased its equity
investment in ClubLink to approximately 24.99% of ClubLink's outstanding common
stock. ClubCorp invested approximately $10,300,000 in the ClubLink rights
offering. In addition, pursuant to a stock purchase agreement, ClubCorp intends
to acquire, for approximately $15,000,000, a 50% interest in ClubLink's U.S.
golf holdings, which include loans to or investments in, GolfSouth LLC and the
Links Group, Inc.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
INTRODUCTION
ClubCorp, Inc. ("ClubCorp" or the "Company") is a holding company
incorporated under the laws of the State of Delaware that, through its
subsidiaries, owns, operates and/or manages country clubs, business clubs,
sports clubs, resorts, certain related real estate, golf clubs, and public golf
courses through sole ownership, partial ownership (including joint venture
interests) and management agreements. The Company's primary sources of revenue
include membership dues, fees, and deposits, food and beverage sales, revenues
from golf operations and lodging facilities. The Company also receives
management fees with respect to facilities that it manages for third parties.
The earliest predecessor corporation of ClubCorp was organized in 1957
under the name Country Clubs, Inc. All historical references herein to ClubCorp
include Country Clubs, Inc. and its successor corporations. For purposes of this
document, unless the context indicates otherwise, references to the "Company"
include ClubCorp and its 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 weeks ended March 23, 1999 and March 25, 1998 should be
read in conjunction with the Company's Annual Report on Form 10-K for the year
ended December 29, 1998, as filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
12 WEEKS ENDED MARCH 23, 1999 COMPARED TO 12 WEEKS ENDED MARCH 25, 1998
Consolidated Operations
Operating revenues increased 5.6% to $181.5 million for the 12 weeks ended
March 23, 1999 from $171.8 million for the 12 weeks ended March 25, 1998 due
primarily to higher occupancy rates at resorts and volume increases at mature
country clubs and golf facilities. These increases in revenues were offset by
decreases in sales of real estate held for sale for the 12 week period.
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 9.6% to $170.0 million for the 12 weeks ended March 23,
1999 from $155.1 million for the 12 weeks ended March 25, 1998.
Operating costs and expenses, consisting of direct operating costs,
facility rentals, maintenance, and depreciation and amortization, increased
6.3%, to $162.8 million for the 12 weeks ended March 23, 1999 from $153.2
million for the 12 weeks ended March 25, 1998, principally reflecting increases
at mature country clubs and golf facilities and resorts related to the increases
in revenues at these facilities.
Selling, general and administrative expenses increased 16.8% to $16.0
million for the 12 weeks ended March 23, 1999 from $13.7 million for the 12
weeks ended March 25, 1998 primarily due to planned increases in expenses for
information systems staffing, the company-wide upgrade of technology, and other
administrative costs.
SEGMENT AND OTHER INFORMATION
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
March 25, 1998 and March 23, 1999 (dollars in thousands):
Mature Resorts Total Resorts
------------------- -----------------
1998 1999 1998 1999
-------- --------- -------- ---------
Number of facilities 5 5 7 5
Operating revenues $26,187 $ 33,228 $27,509 $ 33,228
Operating costs and expenses 29,986 36,095 31,416 36,095
-------- --------- -------- ---------
Segment operating income $(3,799) $ (2,867) $(3,907) $ (2,867)
======== ========= ======== =========
Operating revenues from mature resorts increased 26.9% due to an increase
of 11.1 percentage points in the occupancy rate, primarily at Homestead and
Pinehurst, and a 5.2% increase in the average daily room rate per occupied room.
Pinehurst continued to experience significant increases in operating revenues
which the Company believes are attributable to its hosting of the 1999 U.S. Open
in June of this year.
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 March 25, 1998 and March 23, 1999 (dollars in thousands):
Mature Country Total Country
Club and Club and
Golf Facilities Golf Facilities
---------------------- --------------------
1998 1999 1998 1999
--------- ----------- ------- -----------
Number of facilities 103 103 108 112
Operating revenues $ 73,175 $ 80,276 $73,247 $ 82,355
Operating costs and expenses 64,599 68,790 64,905 70,387
--------- ----------- ------- -----------
Segment operating income $ 8,576 $ 11,486 $ 8,342 $ 11,968
========= =========== ======= ===========
Operating revenues from total country club and golf facilities increased
12.4% due primarily to an increase in revenues at mature facilities. Operating
revenues from mature country club and golf facilities increased 9.7% for the 12
weeks ended March 23, 1999 from the 12 weeks ended March 25, 1998 due to
increases in golf operations revenue and membership revenue. The golf
operations revenue increase is primarily merchandise sales from pro shops the
Company purchased during 1998 at mature facilities.
Business & Sports Facilities (formerly City Clubs)
The following table presents certain summary financial data and other
operating data for the Company's business and sports facility segment for the 12
week periods ended March 25, 1998 and March 23, 1999 (dollars in thousands):
Mature Business & Total Business &
Sports Facilities Sports Facilities
-------------------- --------------------
1998 1999 1998 1999
------- ----------- ------- -----------
Number of facilities 89 89 93 94
Operating revenues $55,674 $ 56,542 $57,289 $ 58,441
Operating costs and expenses 52,469 53,490 54,905 55,275
------- ----------- ------- -----------
Segment operating income $ 3,205 $ 3,052 $ 2,384 $ 3,166
======= =========== ======= ===========
Operating income from total business and sports facilities
increased 32.8% from March 25, 1998 to March 23, 1999 primarily due to a
decrease in start-up and pre-opening expenses at development facilities and
divestitures of under performing facilities during 1998.
Other Operations
Realty operating revenues decreased $5.1 million from $6.3 million for the
12 weeks of 1998 to $1.2 million for the 12 weeks of 1999, due primarily to
decreases in sales of land held for resale in Colorado and California. The
decrease in sales resulted in a $2.3 million decrease in operating income for
the 12 weeks ended March 23,1999.
SEASONALITY OF DEMAND; FLUCTUATIONS IN QUARTERLY RESULTS
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 business 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
Historically, the Company has financed its operations and capital
expenditures primarily through cash flows from operations and long-term debt.
The Company distinguishes capital expenditures to refurbish and replace existing
property and equipment (i.e., capital replacements) from discretionary capital
expenditures such as the expansion of existing facilities (i.e., capital
expansions) and acquisition or development of new facilities and investments in
joint ventures. 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 7.1% of operating revenues during the last three years. Capital
expansions are discretionary expenditures which create new amenities or enhance
existing amenities at facilities. Development of the Company's new facilities
and planned expansions at existing properties are expected to require capital
expenditures of approximately $77.0 and $61.8 million, respectively, over the
next two years to be financed with external financing of ClubCorp, Inc. and cash
flows from operations
As is more fully described in the Company's Form 10-K for the fiscal year
ended December 29, 1998, the Company has committed to provide updated technology
to all of its facilities. Completion of the technology upgrade, including
conversion of the existing software, is expected to require approximately $6.0
to $12.0 million in additional expenditures, of which $4.0 to $9.0 million will
be capitalized. The Company expects to fund these additional expenditures
through cash flows from operations and capital leases with a bank over a four to
five year period.
On March 31, 1999, ClubCorp, along with American Golf Corporation ("AGC")
and National Golf Partnership, L.P. ("NGP"), consummated the purchase of
Meditrust Golf Group, Inc., Meditrust Golf Group II, Inc. and The Cobblestone
Golf Companies, Inc. pursuant to a stock purchase agreement for an aggregate of
$391.0 million. ClubCorp and AGC completed the acquisition through a two member
LLC formed for the sole purpose of acquiring the properties. Upon the closing
of the purchase, substantially all of the assets and liabilities that were
acquired by the special purpose LLC were divided between certain subsidiaries of
ClubCorp and NGP and transferred out of the special purpose LLC. Remaining in
the LLC are two facilities to be acquired by ClubCorp and one facility to be
acquired by NGP. These facilities are expected to be transferred out of the LLC
upon resolution of certain tax and legal issues. ClubCorp purchased 23 premier
golf facilities, including the two remaining in the LLC, located in Texas,
Georgia, Florida, California and North Carolina, for approximately $207.0
million. ClubCorp financed this acquisition with a $200.0 million five-year
credit agreement. Certain of its subsidiaries guarantee ClubCorp's obligations
under the credit agreement.
On April 7, 1999, ClubCorp through its participation in a planned rights
offering by ClubLink Corporation of Ontario, Canada, ("ClubLink"), increased its
equity investment in ClubLink stock to approximately 24.99% of ClubLink's
outstanding common stock. ClubCorp invested approximately $10.3 million in the
ClubLink rights offering. In addition, ClubCorp intends to acquire a 50%
interest in ClubLink's U.S. golf holdings, which include loans to or investments
in, GolfSouth LLC and the Links Group Inc. encompassing 33 golf courses located
primarily in the eastern United States. This purchase is expected to require
approximately $15.0 million to be funded through cash flows from operations and
external financing of ClubCorp, Inc.
YEAR 2000 READINESS DISCLOSURE
As is more fully described in the Company's Form 10-K for the fiscal year
ended December 29, 1998, the Company is modifying or replacing significant
portions of its software as well as hardware to enable operations beyond
December 31, 1999. In the current year, the Company has incurred costs of
$0.7 million for the Year 2000 project in addition to the costs of upgrading the
current software. See "Liquidity and Capital Resources". Management's
assessment of the risks associated with the Year 2000, estimates of the costs
involved and timeframes for the completion of this project are unchanged from
that described in the 1998 Form 10-K. For a complete description of the
Company's Year 2000 readiness plans, see the Form 10-K for the fiscal year ended
December 29, 1998.
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.
Enhanced enrollment and retention of members and increased utilization of
existing facilities by members and guests are core components of the Company's
organic growth strategy. Management believes that providing its members and
guests with high quality, personalized service will increase demand for
ClubCorp's services. The Company seeks to achieve a high level of member
satisfaction by creating and executing business plans for each facility. The
Company provides incentives to club and resort managers to exceed business plan
goals by linking their compensation to member and guest satisfaction as well as
the financial performance of the facility. The Company's success depends on its
ability to attract and retain members at its clubs and maintain or increase
usage of its facilities. The Company has experienced varying levels of
membership enrollment and attrition rates and, in certain areas, decreased
levels of usage of its facilities during its operating history. Although
management devotes substantial efforts to ensuring that members and guests are
satisfied, many of the factors affecting club membership and facility usage are
beyond the Company's control and there can be no assurance that the Company will
be able to maintain or increase membership or facility usage. Significant
periods where attrition rates exceed enrollment rates, or where facilities'
usage is below historical levels would have a material adverse effect on the
Company's business, operating results, and financial condition
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to interest rate changes and foreign currency
fluctuations. The interest rate exposure is due to the senior revolving credit
facility used to maintain liquidity and fund capital replacements and
discretionary capital expenditures. The Company uses financial instruments,
principally swaps, to manage its interest rate exposure primarily from
borrowings under its revolving credit facility. We have no material changes to
the disclosure made in our report on Form 10-K for the fiscal year ended
December 29, 1998 on this matter.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Not applicable
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 - $200,000,000 Credit Agreement Among ClubCorp, Inc. and Certain Lenders and Co-Agents dated
March 29, 1999.
15.1 - Letter from KPMG LLP regarding unaudited interim financial statements.
24.1 - Power of Attorney
27.1 - Financial Data Schedule
(b) Reports on Form 8-K
The Company filed Form 8-K, dated January 26, 1999, which included press releases announcing that the
Company had entered into definitive agreements with respect to the transactions referred to in Note 4 to the
Condensed Notes to the Consolidated Financial Statements included in this Quarterly Report on Form 10-Q.
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, Inc.
Date: May 6, 1999 By: /s/James P. McCoy, Jr.
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James P. McCoy, Jr.
Chief Financial Officer
(chief accounting officer)