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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
__________________
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file numbers 33-89818, 33-96568, 333-08041 and 333-57107
CLUBCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2778488
(State or other jurisdiction (I.R.S. employer
of 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. [X]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at December 28, 1999 (the most recent date on
which an appraisal was performed), based on the most recent appraised price of
the Registrant's Common Stock, was $96,822,483.
The number of shares of the Registrant's Common Stock outstanding as of
March 9, 2000 was 94,436,903.
TABLE OF CONTENTS
PART I
Item 1 Business 3
Item 2 Properties 10
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 11
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 12
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 7a Quantitative and Qualitative Disclosures about Market Risk 27
Item 8 Financial Statements and Supplementary Data 28
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 28
PART III
Item 10 Directors and Executive Officers of the Registrant 29
Item 11 Executive Compensation 31
Item 12 Security Ownership of Certain Beneficial Owners and Management 34
Item 13 Certain Relationships and Related Transactions 35
PART IV
Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K 36
2
PART I
ITEM 1. BUSINESS
GENERAL
ClubCorp, Inc. (referred to as ClubCorp or the Company), is a holding
company incorporated under the laws of the State of Delaware that, through its
subsidiaries, owns, operates or manages country clubs, golf clubs, public golf
courses, business clubs, business/sports clubs, sports 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: country club and golf facilities, business and sports clubs
and resorts. The Company's primary sources of revenue include membership dues,
membership fees and deposits, food and beverage sales, revenues from golf
operations and lodging.
ClubCorp is the world's leader in delivering golf, private clubs and resort
experiences. As of December 28, 1999, the Company's operations and ventures
spanned 30 states and 10 countries. The Company's portfolio of 224 facilities
included (i) 137 country clubs, golf clubs, public golf facilities and resorts,
with a total of 187 golf courses and (ii) 87 business, sports and
business/sports clubs and its membership base exceeded 225,000 memberships.
Trophy resorts and clubs in the Company's portfolio include Pinehurst Resort
and Country Club in North Carolina, The Homestead Resort in Virginia, Barton
Creek Resort and Country Club in Austin, Texas, Firestone Country Club in
Akron, Ohio, Mission Hills Country Club near Palm Springs, California, The
Metropolitan Club in Chicago and the Lakelands Golf Club in Brisbane, Australia.
Golf Digest, Golf Travel and other golf industry publications consistently rank
golf courses at Pinehurst, Barton Creek and The Homestead among the best in the
United States.
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, ClubCorp and each of its subsidiaries is careful to maintain its
separate legal existence, and general references to the Company should not be
interpreted in any way to reduce the legal distinctions between subsidiaries or
between ClubCorp and its subsidiaries.
EMPLOYEE STOCK OWNERSHIP 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") and the Company's common stock, $.01
par value per share (the Common Stock), to be sold to the Plan, which was
amended and restated on January 1, 1999, to become the ClubCorp Employee Stock
Ownership Plan (the Amended Plan). Employees eligible to participate in the Plan
and the Amended Plan were able to invest in participation interests in the
Common Stock through payroll deductions of 1% to 6% of their pretax
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 the Amended Plan with the Company contributions vesting over time. Any
contributions by the Company over the 20% minimum are within the discretion of
the Board of Directors.
Funds that were in the Plan before January 1, 1999, remain in the Amended
Plan. Generally, contributions to the Amended Plan will be invested in Common
Stock. A participant may elect to diversify a portion of their account assets
into other investments upon meeting certain age and participation requirements.
The Amended Plan allows for the transfer of these assets to a Company sponsored
individual investment plan. In addition, upon termination, retirement or
permanent disability, a participant or beneficiary may demand distribution of
Common Stock in his account in lieu of cash. Pass-through voting rights for
Common Stock held on behalf of participants is only permitted for certain
events, not including annual Board of Director elections, but is required for
certain corporate transactions.
3
All contributions to the Amended Plan were invested in Common Stock (except
for contributions temporarily invested pending investment in Common Stock) at
December 28, 1999. The Amended Plan purchased 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 Financial Advisors, Inc., an independent financial advisory
firm (the "Financial Advisor"). See Item 5-"Market for Registrant's Common
Equity and Related Stockholder Matters". Because the Amended Plan invests
primarily in Common Stock, the value of each eligible employee's participation
interests in the Amended 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.
However, in general, no employee participating in the Amended Plan has any right
to vote the Common Stock or to receive a distribution of Common Stock from the
Amended Plan, other than in the case of termination, disability or retirement.
OPERATIONS
Background and Philosophy
- -------------------------
ClubCorp was founded in 1957 to develop Brookhaven Country Club in the
north Dallas area. In the mid-1960s, the Company established its first business
club (formerly referred to as a city club) on the belief that it could
profitably expand its operations by applying its club management skills and
member-oriented philosophy to a related line of business. The Company commenced
international operations in 1980 and recently extended its international
presence by acquiring a 29.9% interest in the PGA European Tour Courses, PLC
(referred to as ETC) and by developing a 27 hole semi-private club in
Lipperswil, Switzerland. In the mid-1980s, the Company entered the resort
industry when it capitalized on a turn-around opportunity by acquiring Pinehurst
and further diversified its participation in the golf industry when it began
developing, owning and operating public golf facilities in 1986. On March 31,
1999, the Company completed its largest acquisition to date by acquiring 22
facilities of the Cobblestone Golf Group.
Mr. Robert H. Dedman, Sr. established ClubCorp on the belief that private
clubs represented a significant business opportunity for a company that could
combine professional development and management skills with the dedication to
personal service necessary to attract and retain members. This commitment to
professionalism and personal service is reflected in the Company's
member-oriented philosophy: create lasting value for members, guests, employees
and financial partners by providing facilities and services that exceed
expectations and engender pride in belonging. ClubCorp's management and
employees recognize that the Company is in a relationship business where member
and guest satisfaction are essential to long-term growth and profitability. The
Company is committed to maintaining its leadership position in the golf-related
and business club segments by creating an environment where members, guests and
employees are treated with respect, trust and honesty. ClubCorp's policy is not
to restrict membership in its facilities on the basis of race, religion, gender
or other immutable characteristics.
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 nine executive
officers, including the Chairman of the Board, possess an average of 17 years of
experience with the Company. The Company has also attempted to attract and
retain qualified, dedicated managers for its country club, golf club and public
facilities, business and sports clubs and resorts. These managers possess an
average of nine years of experience with the facilities of 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 believes that a factor in its attaining a leadership position
in the industry is the Company's member-oriented philosophy. Underlying this
philosophy are progressive human resource values and goals which the Company
believes have resulted in superior customer service. The Company's managers and
employees participate in extensive, internally developed and administered
training and educational programs. Management believes that the Company's
member-oriented philosophy and culture set it apart from many of its competitors
that focus on short-term returns which may jeopardize member satisfaction and
long-term profitability.
Nature of Operations
- --------------------
The Company operates country club and golf facilities, business and sports
clubs and resorts through sole ownership, partial ownership and management
agreements. In addition, the Company performs various corporate services
internally and for third parties and develops and sells real estate. See-"Other
Operations". With respect to its wholly-owned operations, in some cases the
Company owns the real property where the country club, golf club and public golf
facility, business and sports facility and resort is operated and in other cases
the Company leases the real property from third parties.
4
The Company owned and/or operated 224 country club, golf club and public
golf facilities, business and sports clubs and resorts at December 28, 1999,
serving approximately 225,000 memberships. Management believes that the
Company's existing club, resort and other facilities 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 success of the Company's private club and golf club business is
dependent on the Company's ability to attract new members, retain existing
members and maintain or increase levels of club usage. The success of the
Company's country club, golf club, public golf and resort operations is also
dependent on levels of usage by the Company's members and guests. 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 of Demand; Fluctuations in Quarterly Results".
The Company's operations are organized into three principal business
segments according to the type of facility or service: country club and golf
facilities, business and sports clubs and resorts. Lines of business not
assigned to a principal business segment include international operations and
real estate.
Country Club and Golf Facilities
- --------------------------------
The Company's domestic portfolio includes 125 private country clubs, golf
clubs or public golf facilities. The Company's private country clubs generally
provide at least one golf course and a combination of one or more of the
following: dining rooms, lounge areas, meeting rooms, grills and ballrooms,
tennis courts, swimming pools and pro shops. The Company's private country clubs
include Firestone Country Club, host of one of the two U.S. stops on the 1999
World Golf Championship Tour - NEC Invitational, Mission Hills Country Club,
home of the Nabisco Championship, Indian Wells Country Club near Palm Springs,
California, home of the Bob Hope Chrysler Classic, Gleneagles Country Club near
Dallas and Kingwood Country Club near Houston. The Company's golf clubs
generally offer both private and public play, a driving range and food and
beverage concessions. Golf clubs include Inverrary Country Club in Florida and
Golden Bear Golf Club at Indigo Run in South Carolina. ClubCorp's public golf
facilities are daily fee facilities that offer a "member for the day" experience
and generally provide the same facilities and services as golf clubs. The
Company's public golf facilities include Kingwood Cove Golf Club near Houston
and Teal Bend Golf Club in Sacramento. In 1999, the Company's country club and
golf facilities segment had operating revenues of $460.0 million and segment
operating income of $60.9 million. See Note 11 to the Consolidated Financial
Statements of the Company included in Item 8.
Business and Sport Clubs (formerly City Clubs)
- ----------------------------------------------
The Company's 82 domestic business and sports clubs consist of business
clubs, sports clubs and business/sports clubs. In 1999, the Company
repositioned its business clubs as the "office away from the office" where
members and guests can conduct business and business entertaining. Business
clubs provide private and sophisticated settings in metropolitan locations to
fulfill the dining, business or social entertainment needs of the business
professional. Sports clubs provide an array of facilities, which generally
include racquetball and squash courts, jogging tracks, exercise areas, weight
machines, aerobic studios, swimming pools and, occasionally, tennis and
basketball courts. Business/sports clubs combine the ambiance and amenities of a
business club with the facilities of premier sports clubs. The Company's
business clubs include The Metropolitan Club in Chicago, The Columbia Tower Club
in Seattle, The City Club of San Francisco, The Athletic and Swim Club at
Equitable Center in New York City and The University Club in Houston. In 1999,
the Company's business clubs segment had operating revenues of $263.4 million
and segment operating income of $18.4 million. See Note 11 to the Consolidated
Financial Statements of the Company included in Item 8.
Resorts
- -------
The Company's five destination resorts typically offer lodging and
conference facilities, dining and lounge areas, golf, tennis, recreational
facilities, European style spas and other resort amenities. Golf Digest, Golf
Travel and other golf industry publications consistently rank golf courses at
Pinehurst, Barton Creek and The Homestead among the best in the United States.
Pinehurst, the largest golf resort in the world, with eight golf courses, hosted
the 1999 United States Golf Association Open Championship (the "U.S. Open"). It
was recently announced by the USGA that Pinehurst will once again host the U.S.
Open in 2005. In 1999, the Company's resort segment had operating revenues of
$238.6 million and segment operating income of $19.1 million. See Note 11 to
the Consolidated Financial Statements of the Company included in Item 8.
5
Other Operations
- ----------------
International Operations and Real Estate
- ----------------------------------------
The Company's international division operates seven golf facilities,
including one under construction, and five business and sports clubs outside the
United States. The Company's international operations include the Marina
Vallarta Club de Golf in Puerto Vallarta, Mexico, the Drift Golf Club in Surrey,
England and the Capital Club in Beijing, China.
ClubCorp develops and sells residential real estate adjacent to its golf
facilities and sells ownership shares at destination golf clubs through its
Owner's Club program. Owner's Club members now enjoy five locations including
the Telluride Club in Colorado and The Homestead in Virginia.
In 1999, the Company's international operations and real estate business
had combined operating revenues of $47.3 million and an operating loss of $2.9
million. See Notes 11 and 12 to the Consolidated Financial Statements of the
Company included in Item 8.
Other Services
- --------------
ClubCorp performs a number of services on a company-wide basis, including
certain centralized marketing, accounting, technology support, purchasing and
disbursement functions. The Company publishes Private Clubs , an award winning
bi-monthly magazine directed at club members and resort guests which showcases
ClubCorp's facilities. The Company is currently developing members-only web
sites for each of its private clubs worldwide. The web sites will deliver
club-related and lifestyle content for members.
Equity Investments
- ------------------
The Company owns a 29.9% interest in ETC, a publicly traded English company
which owns and operates golf facilities in England, Sweden, Spain and Portugal,
many of which have hosted premier golf tournaments, including the British
Masters. Robert H. Dedman, Jr., President, Chief Executive Officer and Director
and Terry A. Taylor, Executive Vice President, Secretary and General Counsel,
are members of the Board of Directors of ETC.
The Company also owns a 24.9% interest in ClubLink Corporation, the largest
owner and operator of high quality golf facilities in Canada. ClubLink is a
publicly traded company that owns and operates golf facilities and resorts.
Robert H. Dedman, Jr. and James M. Hinckley, Chief Operating Officer and
Director, are members of the Board of Directors of ClubLink.
ClubCorp's other investments include joint ventures for the operation of
four real estate developments, four country clubs, three golf clubs and two
business clubs. The results of operations of these other investments are
included in the operating segment to which they relate.
Expansion and Development
- -------------------------
The Company continually evaluates opportunities to increase the number of
golf facilities, business and sports clubs and resorts that it owns and operates
both domestically and internationally, through acquisitions, joint ventures and
development. ClubCorp's executive officers routinely participate in the
evaluation of strategic opportunities. An example of the Company's
implementation of its external growth strategy is its 1998 joint venture
agreement with Jack Nicklaus' Golden Bear International, Inc. The joint venture
was formed to build and operate a variety of private and public golf facilities,
including "The Bear's Best " concept, a series of courses that will feature
replicas of the best Nicklaus-designed golf holes. The Golden Bear joint
venture has resulted in two facilities which are currently under construction,
The Nicklaus Golf Clubs at BirchRiver near Atlanta, Georgia and at Lionsgate in
Overland, Kansas, which are expected to open in the fall of 2000 and 2001,
respectively.
On March 31, 1999, ClubCorp completed its largest acquisition to date when
it acquired 22 facilities of the Cobblestone Golf Group. Through this $213.0
million acquisition, the Company expanded its presence significantly in the
southeastern United States and Texas. Management believes that the integration
of all functions has been substantially completed, including, but not limited
to, club management, human resources, accounting and membership.
The success of the Company's external growth strategy will depend in part
upon the availability of suitable facilities on acceptable terms, the
availability of adequate financing, equity capital and other factors beyond the
Company's control. The Company has a committed staff to constantly evaluate
development and acquisition opportunities. The success of the Company's
external growth strategy also will depend on the Company's ability to
effectively integrate acquired facilities and development projects into existing
operations, including achieving synergies between new and existing operations
and instilling its member-oriented philosophy.
6
A core component of the growth strategy is the internal growth strategy
which involves the expansion of existing facilities in order to increase
profitability. Management believes that many of its facilities have unused
capacity and that the Company has the experience and management skills necessary
to increase the utilization of these facilities while maintaining member
satisfaction. Some of the Company's facilities are at, or near, capacity. For
some of these facilities, management believes it can grow revenues by adding
additional amenities, such as additional golf courses. During 1999, the Company
demonstrated the success of its internal growth strategy with the construction
of an additional Tom Fazio designed golf course and room expansion at Barton
Creek.
Sales and Marketing
- -------------------
The Company advertises and markets its golf facilities, business and sports
clubs and resorts 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 outside a certain
radius of the members' club. In cities where multiple Associate Clubs are
located, membership in a Society is often available. Society membership
provides privileges in many clubs within the same city area without any radius
restrictions and also provides additional benefits such as VIP seating at events
and concierge services. In addition, the Company publishes Private Clubs
magazine, which reaches the majority of the members at the Company's clubs and
resorts plus the Company's affiliate clubs and resorts and which advertises the
Company's facilities. The magazine's focus is on golf, travel, food, wine and
spirits and other aspects of the "private club experience." Regular features
include unusual destinations and travel tips, profiles of members who are
business leaders, club profiles, wine reviews, recipes from club chefs, golf and
tennis tips, solutions to health and fitness concerns and humor.
The Company hosts a number of professional golf tournaments, which are
intended to provide community and charitable involvement and publicity for the
Company's facilities. Some of the most notable tournaments the Company hosted
during 1999 were the 1999 U.S. Open at Pinehurst, the 1999 World Golf
Championship - NEC Invitational at Firestone Country Club, the Bob Hope Chrysler
Classic at Indian Wells Country Club and the Nabisco Championship at Mission
Hills Country Club. In addition, Pinehurst Championship Management, the sports
marketing division of ClubCorp, was selected to manage the 2001 United States
Women's Open Championship at the Pine Needles Golf Resort in Southern Pines,
North Carolina and in 2005 Pinehurst will once again host the U.S. Open.
The Company believes it has established a strong rapport with numerous
professional organizations including the following:
* United States Golf Association;
* Professional Golf Association and Ladies Professional Golf Association
Tours;
* American Junior Golf Association;
* National Golf Course Owners Association;
* Club Managers Association of America;
* National Club Association;
* International Health, Racquet & Sports Club Association; and
* National Restaurant Association.
These special relationships have enabled the Company to bring distinctive
tournaments and events, such as the U. S. Open and the PGA Tour Championship, as
well as numerous other prestigious events, to the Company's clubs and resorts
throughout the world. The Company hosts many United States Tennis Association
events, including the Rolex Indoor Collegiate Tennis Tournament, along with
other athletic activities such as swimming, diving, lawn bowling and croquet.
In addition, the Company's clubs have been recognized for their culinary
artistry. Many have earned distinctive awards from the American Culinary
Federation. In March 2000 it was announced that Chief Executive Officer and
President of ClubCorp, Robert H. Dedman, Jr. will serve a three year term on the
Board of Directors of the National Golf Foundation which is a nonprofit
organization that provides information, consulting and research for the golf
industry.
7
Government Regulation
- ---------------------
The Company's operations are subject to numerous laws and government
regulations, including environmental, occupational health and safety, labor and
alcoholic beverage control laws and laws relating to access for disabled
persons. Changes to these laws or regulations could adversely affect the
Company. The Company has in place policies designed to bring or keep its
facilities in compliance, and audit procedures to inspect for 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 facilities and
operations. See Item 7-"Management's Discussion and Analysis of Financial
Condition and Results of Operations-Factors That May Affect Future Operating
Results".
The Company is also subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. The salaries of a
significant number of the Company's personnel are based on the federal minimum
wage and recently adopted increases in the minimum wage have increased the
Company's labor costs. In addition, the Company is subject to certain state
"dram-shop" laws, which provide a person injured by an intoxicated individual
the right to recover damages from an establishment that wrongfully served
alcoholic beverages to the intoxicated individual. The Company is also subject
to the Americans with Disabilities Act of 1990, which, among other things, may
require certain minor renovations to various of the Company's facilities to meet
federally mandated access and use requirements. The Company believes it is
operating in substantial compliance with applicable laws and regulations
governing its operations.
The Company has operations in a number of states which regulate the
licensing of restaurants and resorts, including liquor license grants, by
requiring registration, disclosure statements and compliance with specific
standards of conduct. While the Company believes that it is, and will continue
to be, in substantial compliance with these requirements, there can be no
assurance that these requirements will not change or that any such change will
not adversely affect the Company.
Competition
- -----------
The Company operates in a highly competitive industry. The Company's clubs
and resorts compete primarily on the basis of price, management expertise,
featured facilities and quality and breadth of services. With respect to
resorts, the Company competes on a national and international level with
numerous hotel and resort companies. Competition in this part of the industry is
intense and there can be no assurance that such competition will not adversely
affect revenues, costs or operating income of the Company's resorts. The
Company's country club and golf facilities compete on a local and regional level
with other country club and golf facilities and the Company's business and
sports clubs compete on a local and regional level with fine dining
establishments and other clubs. The level of competition in these lines of
business varies from region to region and is subject to change as existing
facilities are renovated or new facilities are developed. An increase in the
number or quality of similar clubs and other facilities in a particular region
could significantly increase competition, which could have a material adverse
effect on the Company's results from that region. The Company's results of
operations also could be affected by a number of additional competitive factors,
including the availability of, and demand for, alternative forms of recreation.
In addition, many of the Company's public golf and destination resort facility
competitors have substantially greater financial and other resources than the
Company.
The Company also competes for the purchase and lease of golf courses with
national and regional golf course management companies, including American Golf
Corporation, real estate investment trusts such as National Golf Properties,
and, less frequently, with individuals and small ventures that typically own one
or more golf courses. There are many opportunities for consolidation in the
highly fragmented golf course ownership industry in the United States and the
industry has seen a high level of consolidation in the last few years. As a
result of these consolidations the Company has and may continue to experience
increased competition in the acquisition of premier properties. In the
acquisition of golf courses, companies compete primarily on the basis of price
and their reputation for operating golf courses and many of these investors have
significant equity resources available to them, sometimes providing the ability
to pay substantially more for the type of facilities consistent with those in
the Company's portfolio.
8
Acquisitions are based not only upon the value of the facility, but on the
strategic positioning of the transaction, such as concentration in a
geographical area and in markets that represent the best investment opportunity.
Management believes that it is uniquely prepared to capitalize on consolidation
opportunities due to its external growth experience with large acquisitions such
as Cobblestone, and its ability to apply economies of scale and other advantages
associated with having a substantial portfolio of facilities. The Company is
focusing on "clustering" potential acquisitions in geographical proximity with
existing clubs in order to experience significant operating efficiencies,
thereby allowing the Company to compete more efficiently than its competitors in
the operation of these facilities.
Recently, there has been a substantial increase in the development of golf
facilities throughout the United States. Significant numbers of the new courses
being built are open to the public for a daily fee. Competition in this market
has intensified and the increase in availability of daily fee courses has
adversely affected demand in portions of the private club market. According to
the National Golf Foundation, the ratio of average number of golfers per course
(18-hole equivalent) has declined and new course development has outpaced demand
in growth in recent years. Continued substantial increases in the number of
available golf facilities and additional decreases in the ratio of average
number of golfers per course could adversely affect the Company's business and
results of operations.
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" with varying levels of membership, that allows members of a
club in one market to utilize Company clubs in different markets, thus enhancing
the value of club membership. Because of the large number of facilities
maintained by the Company, a member is provided access to a wide number of
facilities. The Company believes this program affords it a competitive advantage
over competitors that do not maintain similar programs and over other
competitors that have similar programs, but fewer facilities.
EMPLOYEES
As of December 28, 1999, the Company employed approximately 15,000
full-time, 7,000 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 small group of 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
28, 1999, approximately 125 of the employees engaged in the Company's operations
were covered by two collective bargaining agreements, one of which expired on
December 31, 1999 and is currently being renegotiated and one that expires on
March 31, 2002.
CUSTOMERS
The Company is not dependent upon a single customer, or a few customers,
whose loss would have a material adverse effect on the Company. In addition, as
of December 28, 1999, 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, ASSOCIATE CLUBS and PINEHURST 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.
AVAILABLE INFORMATION
ClubCorp, Inc. files annual, quarterly and special reports and other
information with the Securities and Exchange Commission (the "SEC"). All
documents may be located at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549 or you may obtain information on the operation of
the Public Reference Room by calling 1-800-SEC-0330. ClubCorp's SEC filings are
also available to the public at ClubCorp's internet site www.clubcorp.com or at
the SEC's internet site www.sec.gov.
9
ITEM 2. PROPERTIES
The Company owned and/or operated 224 golf facilities, business and sports
clubs and resorts as of December 28, 1999. The following table provides a
profile of the composition of the Company's portfolio of facilities from
December 25, 1996 to December 28, 1999.
Additions, Divestitures and Reclassifications of Facilities
COUNTRY GOLF PUBLIC BUSINESS/
CLUBS CLUBS GOLF BUSINESS SPORTS SPORTS RESORTS INTERNATIONAL TOTAL
-------- ------ ------- --------- ---------- ------- -------- -------------- ------
AT DECEMBER 25, 1996 72 13 28 71 20 5 10 8 227
Facilities added during 1997 1 - - 1 - - - 3 5
Facilities divested during 1997 (3) (1) (2) (2) - (1) (3) - (12)
-------- ------ ------- --------- ---------- ------- -------- -------------- ------
AT DECEMBER 31, 1997 70 12 26 70 20 4 7 11 220
Facilities added during 1998 2 - 1 3 - - 1 2 9
Facilities divested during 1998 (2) - (2) (3) - (1) (1) (1) (10)
Reclassifications during 1998 5 (4) 1 (1) 1 - (2) - -
-------- ------ ------- --------- ---------- ------- -------- -------------- ------
AT DECEMBER 29, 1998 75 8 26 69 21 3 5 12 219
Facilities added during 1999 11 15 4 1 - - 1 3 35
Facilities divested during 1999 (4) (1) (9) (11) (1) - (1) (3) (30)
Reclassifications during 1999 (2) 3 (1) - (2) 2 - - -
-------- ------ ------- --------- ---------- ------- -------- -------------- ------
AT DECEMBER 28, 1999 80 25 20 59 18 5 5 12 224
======== ====== ======= ========= ========== ======= ======== ============== ======
_____________________________
(1) Facilities added includes acquisitions of owned, leased, partially owned
or managed facilities, joint ventures and other investments. Facilities
divested includes sales of owned or partially owned facilities and other
investments and terminated leases and management agreements that are not renewed
or replaced.
Facilities divested include expired or terminated lease arrangements or
management agreements which generally 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.
10
The Company owns, leases or manages the facilities in its portfolio. The
following table summarizes the number and reclassifications in the type of the
Company's facilities operated for the periods indicated:
PARTIALLY
WHOLLY OWNED OWNED
------------------------ OPERATIONS
OWNED LEASED AND MANAGED UNDER
FACILITIES FACILITIES MANAGED OPERATIONS CONSTRUCTION TOTAL
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 25, 1996 84 100 7 28 8 227
Facilities added during 1997 1 - 1 1 2 5
Facilities divested during 1997 (4) (4) (1) (3) - (12)
Reclassifications during 1997 1 1 4 - (6) -
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 31, 1997 82 97 11 26 4 220
Facilities added during 1998 1 2 - 1 5 9
Facilities divested during 1998 (1) (4) - (4) (1) (10)
Reclassifications during 1998 3 1 (1) - (3) -
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 29, 1998 85 96 10 23 5 219
Facilities added during 1999 22 4 3 2 4 35
Facilities divested during 1999 (3) (20) - (6) (1) (30)
Reclassifications during 1999 1 3 1 (1) (4) -
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 28, 1999 105 83 14 18 4 224
=========== =========== =========== =========== ============= ======
The Company leases its executive offices in Dallas, Texas, an office in
Australia in connection with its operations in Australia and Southeast Asia and
an office in England in connection with its operations in England, Europe and
South Africa.
With respect to leased facilities, the Company generally pays a monthly
base rent, as well as charges for real estate taxes, common area maintenance and
various other items. In some cases, the Company must also pay a percentage of
gross receipts or positive net cash flow. In most instances, the Company has
full authority over the operation of the leased facilities, operating on a fully
net basis, except in some cases where the owner remains responsible for major
structural repairs or for property insurance or real estate taxes.
Certain real and personal property and equipment of ClubCorp's subsidiaries
are pledged as collateral on their long-term debt. See Note 8 of the Notes to
Consolidated Financial Statements included under Item 8.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to certain pending or threatened litigation and
other claims. Management, after review and consultation with legal counsel,
believes the Company has meritorious defenses to these legal matters and that
any potential liability from these matters would not materially affect the
Company's financial condition and results of operations. See Note 14 of the
Notes to Consolidated Financial Statements included under Item 8.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no public market for the Common Stock. In connection
with certain employee benefit plans (including the Plan and the Amended Plan),
the Board of Directors of ClubCorp has periodically established a formula price
for the Common Stock (the "Formula Price"). The Formula Price is based upon a
multiple of the Company's recurring cash flows from operations, with certain
exceptions for specific assets, including certain long-term investments valued
at the lower of cost or market. See Item 1, -"Business - Employee Stock
Ownership Plan".
On December 1, 1999, the Company sold 9.4 million shares of Common Stock at
a price of $16.00 per share and issued 1.0 million Common Stock purchase
warrants with an exercise price of $17.00 per share to Cypress Merchant Banking
Partners II L.P., Cypress Offshore Partners L.P., Cypress Merchant Banking
Partners L.P., 55th Street Partners L.P. and Cypress Merchant Banking II C.V.,
(collectively referred to as The Cypress Group) for total consideration of
$150.0 million. Along with this transaction, Robert H. Dedman, Sr., Robert H.
Dedman, Jr., Patricia Dedman Dietz, and the Dedman Foundation and related
trusts, collectively referred to as the Dedman Stockholders, sold a total of 4.7
million shares of Common Stock at a price of $16.00 to The Cypress Group for
$75.0 million. In connection with this sale, a Stockholders Agreement was
signed between the Company, the Dedman Stockholders and The Cypress Group. The
Stockholders Agreement includes (i) restrictions on transfers, (ii) a potential
repurchase obligation of the Company in respect to a portion of the shares of
Common Stock owned by The Cypress Group at fair market value that may not be
exercised prior to 2004 and (iii) customary tag along, drag along and
registration rights. The Agreement also provides The Cypress Group with consent
rights over significant operating and strategic actions of the Company. The
Stockholders Agreement provides for an increase in the Board of Directors from
four directors to seven directors, of which two are to be designees of The
Cypress Group and one an independent director to be appointed by the Dedman
Stockholders.
The table below sets forth the quarterly Formula Price for the Common Stock
during the years ended December 29, 1998 and December 28, 1999.
FORMULA
1998 PRICE
- ---- --------
First Quarter $ 14.44
Second Quarter 15.04
Third Quarter 15.56
Fourth Quarter 16.60
1999
- ----
First Quarter $ 16.72
Second Quarter 16.95
Third Quarter 17.20
Fourth Quarter 17.71
The Financial Advisor has been engaged by the trustees of the Plan and the
Amended Plan to confirm the fairness of the Formula Price for purposes of the
Plan and the Amended Plan by forming independent appraisals. Based upon
appraisals, the Financial Advisor confirms whether or not the Formula Price
falls within the range of fair market value of the Common Stock on the date of
each appraisal and at each fiscal year end. If there is any discrepancy between
the Formula Price and the range of fair market value of the Common Stock as
determined by the Financial Advisor, the Company expects that it would adjust
the Formula Price so that it falls within the range of fair market value as
determined by the Financial Advisor. All purchases of Common Stock by the Plan
and the Amended Plan were made on or shortly after an appraisal date at the
Formula Price as confirmed by the Financial Advisor. See Item 1, -"Business -
Employee Stock Ownership Plan".
As of March 9, 2000, there were approximately 360 holders of record of the
Common Stock.
12
ClubCorp has never paid cash dividends on the Common Stock. Management
expects to continue its policy of retaining earnings for use in the Company's
business, and accordingly, does not expect to pay cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are the selected consolidated income statement and balance
sheet data for each of the years in the five year period ended December 28,
1999. The table presented below should be read in conjunction with Item 7-
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", Item 7a-"Quantitative and Qualitative Disclosures about Market
Risk" and Item 8-"Financial Statements and Supplementary Data" (dollars in
thousands, except per share data).
December 31, December 31, December 31, December 29, December 28,
1995 (1) (2) 1996 (1) (2) 1997 (1) (3) 1998 (1) (3) 1999 (1) (2)
-------------- -------------- -------------- -------------- --------------
INCOME STATEMENT DATA:
Continuing operations (4):
Operating revenues $ 755,468 $ 774,263 $ 830,740 $ 854,648 $ 1,027,549
Operating income $ 13,299 $ 50,227 $ 68,587 $ 70,133 $ 58,924
Income (loss) from continuing operations
before extraordinary item ($17,623) $ 16,867 $ 87,864 $ 39,512 $ 11,626
Income (loss) from continuing
operations before extraordinary
item per share (diluted) ($0.20) $ 0.20 $ 1.02 $ 0.45 $ 0.13
BALANCE SHEET DATA:
Continuing operations (4):
Total assets $ 908,236 $ 964,528 $ 1,028,674 $ 1,110,158 $ 1,546,530
Long-term debt (including current portion) $ 313,461 $ 343,917 $ 255,857 $ 274,550 $ 512,125
Membership deposits $ 68,729 $ 74,202 $ 83,066 $ 95,460 $ 96,365
Stockholders' equity $ 284,095 $ 290,552 $ 388,615 $ 409,036 $ 564,953
OTHER INFORMATION:
Continuing operations:
Adjusted EBITDA (5): $ 100,034 $ 122,550 $ 132,363 $ 137,892 $ 166,215
_____________
(1) The Company reports its financial results on a 52/53 week basis, with
the first three quarters consisting of 12 weeks each and the fourth quarter
consisting of either 16 weeks (1995, 1996, 1998 and 1999) or 17 weeks (1997).
Prior to 1997, the Company reported its year-end results at and as of December
31, with acquisitions, divestitures and other material transactions that
occurred between the last day of the 52/53 week period and December 31 being
recorded in that year. Effective January 1, 1997, the Company changed its
reporting year from December 31 to the last day of the 52/53 week period.
(2) The Company adopted Statement of Financial Accounting Standards No. 121
for the year ended December 31, 1995. The Company recorded impairment losses of
$23.0 million in 1995, $2.8 million in 1996, and $13.5 in 1999 on long-lived
assets, which are reported separately as components of operating income. If the
Company had not recorded such impairment losses, operating income, income from
continuing operations and diluted earnings per share from continuing operations
would have been approximately $36.3 million, $5.4 million and $0.06 for 1995,
$53.0 million, $20.0 million and $0.23 for 1996, and $72.4 million, $20.4
million and $0.23 for 1999.
(3) The Company has substantial net operating loss carryforwards ("NOLs")
for federal income tax purposes. Based on new estimates of taxable income, the
Company decreased its valuation allowance on its deferred tax assets by
approximately $14.2 million and $66.6 million at December 29, 1998 and December
31, 1997, respectively. The Company's estimated valuation allowance is based on
a number of assumptions, one or more of which may prove to be incorrect. There
can be no assurance that the actual value the Company realizes from its NOLs
will not differ materially from the Company's estimate. See-"Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 16 to the Consolidated Financial Statements of the Company.
(4) Continuing operations includes the Company's three principal business
segments (country club and golf facilities, business and sports clubs and
resorts). From 1988 through 1996, the Company operated in the financial services
industry through Franklin Federal Bancorp, a Federal Savings Bank ("Franklin").
The Company sold Franklin for $90.0 million in a transaction that was
consummated on January 2, 1997. The Company's gain on the sale, net of taxes and
minority interest, was $25.1 million. Because the Company has disposed of its
financial services operations, this segment is classified as discontinued
operations and balance sheet data for all years shown reflects this
classification. See Note 2 to the Consolidated Financial Statements of the
Company included in Item 8.
(5) Management uses Adjusted EBITDA to monitor the performance of the
Company and its facilities. Adjusted EBITDA consists of operating income,
depreciation and amortization from wholly owned entities, net membership
deposits and fees, and a joint venture adjustment and excludes impairment loss
from assets to be held and used. Net membership deposits and fees represent the
difference between current period sales of initiation deposits and fees and the
revenue recognized from initiation deposits and fees, less incremental direct
selling costs. The joint venture adjustment is comprised of depreciation,
amortization, interest, income taxes and net membership deposits and fees for
joint venture entities at the Company's ownership percentage. Revenues from
membership deposits are calculated as the difference between the amount of the
membership deposits sold and the present value of the obligation. Adjusted
EBITDA is not intended to represent cash flow in accordance with generally
accepted accounting principles and is not necessarily a measure of the Company's
ability to fund its cash needs. The Company's Adjusted EBITDA from continuing
operations may not be comparable to similarly titled measures reported by other
companies. See Note 11 to the Company's Consolidated Financial Statements
included under Item 8.
13
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," Item 7a- "Quantitative and Qualitative
Disclosure about Market Risk" as well as Item 8-"Financial Statements and
Supplementary Data".
General
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year, with the first three quarters consisting of 12 weeks
each and the fourth quarter consisting of 16 or 17 weeks. The financial
statements included in Item 8 for the year ended December 28, 1999 are comprised
of 52 weeks, with the first three quarters consisting of 12 weeks each and the
fourth quarter consisting of 16 weeks.
The Company operates its business activities through sole ownership
(including lease arrangements), partial ownership (including joint venture
arrangements and equity investments) 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 purchases, joint ventures, leases, equity investments and strategic
management agreements.
The Company routinely evaluates opportunities to increase the number of
resorts, country club and golf facilities and business and sports clubs that it
owns and operates both domestically and internationally, through acquisitions,
joint ventures, equity investments and development. ClubCorp's executive
officers routinely participate in the evaluation of strategic opportunities.
The Company seeks to improve financial performance of existing facilities
by determining an optimal business plan. 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 financial partners and Company standards are not successful or
the goals of financial partners and the Company are not being achieved, then
alternatives such as restructuring the ownership position or refinancing
existing borrowing arrangements are considered. Facilities generally 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 facility or, in the case of leases,
joint ventures and management agreements, when their contractual terms expire
without being renewed or are terminated.
The Company employs "same store" analysis techniques for a variety of
management purposes. Each of the Company's facilities is classified in one of
two categories: developing or same store. Facilities are initially classified as
developing, except for management agreements which are considered same store. At
the beginning of each year, the Company reviews its developing facilities and
determines which facilities, if any, should be reclassified as same store.
Facilities are generally moved from developing to same store after they have
been operated for a full year by ClubCorp. Facilities divested during a period
are removed from the same store classification for all periods presented. The
Company does not reclassify same store facilities as developing facilities.
The distinction between developing and same store facilities allows
ClubCorp to separately analyze the operating results of its established and new
facilities. Management believes this ability provides an effective analysis
tool because it allows the Company to assess the results of its organic growth
strategies by tracking the performance of its same store facilities without the
distortions that would be caused by the inclusion of developing properties,
including distortions caused by initial operating losses at turn-around
facilities and new developments.
Management uses Adjusted EBITDA to monitor the performance of the Company
and its facilities. Adjusted EBITDA consists of operating income, depreciation
and amortization from wholly owned entities, net membership deposits and fees,
and a joint venture adjustment and excludes impairment loss from assets to be
held and used. Net membership deposits and fees represent the difference
between current period sales of initiation deposits and fees and the revenue
recognized from initiation deposits and fees, less incremental direct selling
costs. The joint venture adjustment is comprised of depreciation, amortization,
interest, income taxes and net membership deposits and fees for joint venture
entities at the Company's ownership percentage. Revenues from membership
deposits are calculated as the difference between the amount of the membership
deposits sold and the present value of the obligation. Adjusted EBITDA is not
intended to represent cash flow in accordance with generally accepted accounting
principles and is not necessarily a measure of the Company's ability to fund its
cash needs. The Company's Adjusted EBITDA from continuing operations may not be
comparable to similarly titled measures reported by other companies. See Note
11 to the Company's Consolidated Financial Statements included under Item 8.
14
Other Operating Information
The Company owned and/or operated 11 facilities in nine foreign countries
at December 28, 1999. Two facilities each are located in Mexico and Singapore
and the remainder are each located in Australia, South Africa, England,
Luxembourg, Germany, Panama and China. In addition, the Company owns a 29.9%
interest in ETC which owns and manages golf facilities, with courses in England,
Sweden, Spain and Portugal. The Company also owns 24.9% of ClubLink Corporation,
the largest owner and operator of high quality golf facilities in Canada.
ClubLink is a publicly traded company that owns and operates golf facilities and
resorts.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 28, 1999 COMPARED TO YEAR ENDED DECEMBER 29, 1998
Consolidated Operations
Operating revenues increased 20.2% to $1,027.5 million in 1999 from $854.6
million in 1998 primarily due to the acquisition of the Cobblestone properties,
increased revenues at Pinehurst related to the hosting of the 1999 U.S. Open and
increased golf operations and membership revenue at same store facilities. The
increase in membership revenue at same store facilities is partially
attributable to the addition and promotion of a new level of Associate Club
membership (see Item 1, -"Business-Sales and Marketing"). The golf operations
revenue increase is primarily attributable to merchandise sales from certain pro
shops the Company purchased during 1999 at same store facilities (formerly
referred to as mature facilities). Operating revenues of same store facilities
increased 15.0% to $860.2 million in 1999 from $748.3 million in 1998.
Operating costs and expenses, representing direct operating costs, facility
rentals, maintenance, and depreciation and amortization, increased 22.0% to
$873.9 million in 1999 from $716.5 million in 1998. This increase is primarily
due to the addition of the operating costs and expenses from the Cobblestone
facilities and costs incurred to prepare and produce the 1999 U.S. Open. In
addition, operating costs increased at same store country clubs, golf facilities
and resorts which were related to the increases in revenues at these facilities,
increased payroll costs due to a more competitive labor market and costs
associated with the cost of merchandise for the pro shops purchased during 1999.
Operating costs and expenses at same store facilities increased 16.2% to $746.2
million in 1999 from $642.4 million in 1998.
Selling, general and administrative expenses increased 19.6% to $81.3
million for the year ended December 28, 1999 from $68.0 million for the year
ended December 29, 1998 primarily due to increases in expenses for information
systems staffing, the company-wide upgrade of technology (including costs
associated with the Year 2000 remediation plan), severance costs and other
administrative costs.
Gain (loss) on divestitures and sales of assets increased $8.7 million in
1999 to a gain of $3.0 million from a loss of $5.7 in 1998 primarily related to
the divestiture and/or sale of wholly owned and leased facilities during 1999
consisting of 12 golf facilities, 10 business clubs and one resort.
Interest expense increased to $43.3 million in 1999 from $28.9 million in
1998, or 49.8%, primarily due to the increase in outstanding debt as a result of
the Cobblestone acquisition. This increase was partially offset by a lower
interest rate on the outstanding debt in 1999 than was experienced during the
first two quarters of 1998. The higher rate in the first two quarters of 1998
was before the consolidation and refinancing of debt from the facility level to
corporate, which was at a higher interest rate than the 1998 year end rate.
Income tax provision increased to $11.8 million in 1999 from $5.8 million
in 1998 mainly due to decrease of $14.2 million in 1998 in the Company's
valuation allowance on its deferred tax assets, which was partially offset by a
decrease in income from operations in 1999. See "- Factors That May Affect
Future Operating Results" and Note 16 to the Company's Consolidated Financial
Statements included under Item 8.
Income from continuing operations before extraordinary item decreased to
$11.6 million in 1999 from $39.5 million in 1998 due primarily to the 1998
decrease of $14.2 million in the Company's valuation allowance on its deferred
tax assets and the impairment loss of $13.5 million on long-lived assets
recognized in 1999.
15
Adjusted EBITDA increased $28.3 million to $166.2 million in 1999 from
$137.9 million in 1998, due primarily to the increases in operating income
resulting principally from the acquisition of the Cobblestone facilities,
increased operating income at resort facilities and an increase in net
membership deposits and fees. The increase in net membership deposits and fees
is primarily due to the increase in sales of initiation fees sold at developing
golf facilities acquired during 1999 and at a resort facility.
SEGMENT AND OTHER INFORMATION
Country Club and Golf Facilities
The following tables present certain summary financial and membership
information for the Company's country club and golf facilities segment for 1998
and 1999 (dollars in thousands, except facility and membership data):
Same Store Total
Country Club and Country Club and
Golf Facilities Golf Facilities
--------------------- ---------------------
1998 1999 1998 1999
-------- ----------- -------- -----------
Number of facilities 91 91 109 125
Operating revenues $353,579 $ 385,725 $376,125 $ 459,967
Operating costs and expenses 293,005 322,002 317,786 399,084
-------- ----------- -------- -----------
Segment operating income $ 60,574 $ 63,723 $ 58,339 $ 60,883
======== =========== ======== ===========
Adjusted EBITDA $ 97,869 $ 98,224 $ 96,262 $ 119,430
======== =========== ======== ===========
Membership information (67 clubs) (1):
Memberships at beginning of period 66,785 69,009
Memberships added during period 12,660 12,338
Memberships lost during period 10,436 10,451
-------- -----------
Memberships at end of period 69,009 70,896
======== ===========
__________
(1) Number of facilities includes owned same store country club and golf
facilities. Membership information is comprised of the same store clubs where
the Company received membership initiation deposits or fees and membership dues.
Total country club and golf facilities' operating revenues increased 22.3%
in 1999 compared to 1998 due primarily to the addition of the Cobblestone
properties and an increase in golf operations revenue at same store facilities.
Same store country club and golf facilities' operating revenues increased 9.1%
primarily due to merchandise sales from pro shops the Company purchased during
1999 and increased membership revenue. Total country club and golf facilities'
operating costs and expenses increased 25.6% due primarily to the addition of
the operating costs and expenses of the Cobblestone properties and increased
costs associated with pro shop operations the Company purchased during 1999 at
same store facilities together with increased payroll costs at total and same
store facilities due to a more competitive labor market. The slight increase in
segment operating income for total country clubs and golf facilities is
primarily due to lower margins at developing facilities and increases in general
and administrative costs at same store facilities.
The increase of 24.1% in Adjusted EBITDA at total country club and golf
facilities is predominantly a result of the factors discussed in the preceding
paragraph and sales of initiation fees at developing facilities acquired during
1999. The slight increase in Adjusted EBITDA at same store country club and
golf facilities is primarily due to increases in operating costs and expenses
related to increased revenues, the reacquiring of the pro shops, increased
payroll costs and increased general and administrative costs coupled with
greater sales of initiation fees in 1998 than was experienced during 1999 at a
joint venture facility during the initial opening of the club.
16
Business and Sports Clubs (formerly City Clubs)
The following tables present certain summary financial and membership
information for the Company's business and sports clubs segment for 1998 and
1999 (dollars in thousands, except facility and membership data):
Same Store Business Total Business
and Sports Clubs and Sports Clubs
---------------------- ----------------------
1998 1999 1998 1999
----------- --------- ----------- ---------
Number of facilities 78 78 93 82
Operating revenues $ 232,587 $ 242,592 $ 257,810 $ 263,366
Operating costs and expenses 204,974 223,374 231,351 244,996
----------- --------- ----------- ---------
Segment operating income $ 27,613 $ 19,218 $ 26,459 $ 18,370
=========== ========= =========== =========
Adjusted EBITDA $ 36,453 $ 29,732 $ 36,596 $ 29,797
=========== ========= =========== =========
Membership information (68 clubs) (1):
Memberships at beginning of period 103,462 107,663
Memberships added during period 24,690 22,268
Memberships lost during period 20,489 20,816
----------- ---------
Memberships at end of period 107,663 109,115
=========== =========
__________
(1) Number of facilities includes owned same store business and sports clubs
(business clubs, sports clubs and business/sports clubs). Membership information
is comprised of the same store clubs where the Company received membership
initiation deposits or fees and membership dues.
Segment operating income from same store business and sports clubs
decreased $8.4 million, primarily due to the write off of a liability of $6.2
million recorded during 1998 that did not occur in 1999. Excluding the effect
of this item, segment operating income from same store business and sports clubs
would have decreased $2.2 million. This decrease is primarily due to increased
labor costs as a result of a more competitive labor market and increased general
and administrative costs related to member support services. The difference
between segment operating income at same store facilities and total facilities
is current year divestitures and facilities in development.
Adjusted EBITDA from total business and sports clubs decreased 18.6%
primarily due to the write off of a liability as discussed above.
17
Resorts
The following tables present certain summary financial data and lodging
data for the Company's resorts segment for 1998 and 1999 (dollars in thousands,
except facility and lodging data):
Same Store Resorts Total Resorts
-------------------- ------------------
1998 1999 1998 1999
--------- --------- -------- --------
Number of facilities 5 5 5 5
Operating revenues $162,091 $231,844 $172,624 $238,626
Operating costs and expenses 144,392 200,787 155,835 205,996
Impairment loss from assets
to be held and used - 13,483 - 13,483
--------- --------- -------- --------
Segment operating income $ 17,699 $ 17,574 $ 16,789 $ 19,147
========= ========= ======== ========
Adjusted EBITDA $ 30,822 $ 46,932 $ 30,572 $ 48,729
========= ========= ======== ========
Lodging data (4 resorts) (1)
Room nights available 443,858 458,417
Occupancy rate 54.1% 59.5%
Average daily room rate per occupied room $ 175 $ 179
Average daily revenue per occupied room $ 675 $ 742
__________
(1) Lodging data is comprised of data from wholly owned resorts consisting
of Pinehurst, The Homestead, Barton Creek and Daufuskie.
Total resorts operating revenues increased 38.2% primarily due to the
increased revenues from Pinehurst principally due to merchandise sales, ticket
sales and rental of corporate hospitality tents during the hosting of the 1999
U.S. Open as well as improved pricing on golf and lodging in connection with the
hosting of the event. Same store resorts' operating revenues increased 43.0%,
reflecting increases of 5.4 percentage points in the occupancy rate, primarily
at The Homestead and an increase of 9.9% in the average daily revenue per
occupied room, primarily at Pinehurst.
Included in 1999 same store resorts' segment operating income is an
impairment of long-lived assets at Daufuskie Island Club and Resort. An
impairment loss of $13.5 million was recognized in 1999 related to these
long-lived assets. This loss is reported separately as a component of operating
income in the Company's Consolidated Financial Statements. In 1996, the Company
purchased Daufuskie for assumption of its liabilities of $4.5 million and had
invested an additional $18.4 million in capital expenditures as of December 28,
1999. Excluding the effect of this impairment loss, Daufuskie had operating
losses of approximately $6.7 million and $6.3 million in 1999 and 1998,
respectively. Management assessed the recoverability of the long-lived assets
by determining whether such assets could be recovered over their remaining
estimated life through estimated future cash flows. Fair value, for purposes of
calculating any impairment, was measured based on discounted estimated future
cash flows using a risk-adjusted discount rate. If events or circumstances
change in the future, additional impairment losses could be recognized.
The increase of 59.4% in Adjusted EBITDA at total resorts is primarily
attributable to the increased segment operating income at Pinehurst and
initiation fee sales at Barton Creek due to the opening of a new course.
Other Operations
Operating revenues for international operations increased to $8.5 million
in 1999 from $4.7 million in 1998 primarily due to acquisition of a facility in
Australia and increased earnings from facilities in Panama and Germany.
Operating costs and expenses for international operations increased to $12.1
million in 1999 from $8.1 million in 1998 primarily due to costs related to
acquired and developing facilities.
Realty operating revenues increased to $38.8 million in 1999 from $21.7
million in 1998, or 78.8%, primarily due to sales of units in the Owners Club
program (see Item 1, -"Business-Other Operations") at The Homestead, Barton
Creek and Hilton Head.
18
SEGMENT AND OTHER INFORMATION
YEAR ENDED DECEMBER 29, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Consolidated Operations
Operating revenues increased 2.9% to $854.6 million in 1998 from $830.7
million in 1997 primarily due to increased usage at same store resorts and
country club and golf facilities, acquisitions and increases at developing
facilities. Operating revenues at same store facilities increased 2.6% to
$768.3 million in 1998 from $748.5 million in 1997.
Operating costs and expenses, representing direct operating costs, facility
rentals, maintenance, and depreciation and amortization, increased 2.7% to
$716.5 million in 1998 from $697.6 million in 1997, reflecting an increase in
operating costs and expenses at same store and developing facilities. Operating
costs and expenses at same store facilities increased to $659.4 million in 1998
from $653.4 million in 1997 or 0.9% due primarily to increased costs of sales
for food and beverage and golf operations offset by the write off of a liability
at business and sports clubs and the Company's success in controlling expenses.
Interest expense decreased to $28.9 million in 1998 from $34.0 million in
1997, or 15.0%, primarily due to the refinancing of approximately $174.9 million
in existing debt and to a lesser extent, 1997 and 1998 divestitures, which
resulted in a decrease in the Company's weighted average interest rate from 8.5%
to 6.6%.
Income tax provision increased to $5.8 million in 1998 from a current year
benefit of $41.3 million in 1997 mainly due to decreases of $14.2 million and
$66.6 million in 1998 and 1997, respectively, in the Company's valuation
allowance on its deferred tax assets, primarily related to net operating loss
carryforwards. See "- Factors That May Affect Future Operating Results" and
Note 16 to the Company's Consolidated Financial Statements.
Income from continuing operations before extraordinary item decreased to
$39.5 million in 1998 from $87.9 million in 1997 due primarily to decreases of
$14.2 million and $66.6 million in the Company's valuation allowance on its
deferred tax assets. If the Company had not made these adjustments to the
valuation allowance on its deferred tax assets, income from continuing
operations before extraordinary item would have been $25.3 million in 1998 and
$21.3 million in 1997.
Adjusted EBITDA increased $5.5 million to $137.9 million in 1998 from
$132.4 million in 1997, due primarily to the increase in operating income at
same store facilities and acquisitions partially offset by a decrease in the
joint venture adjustment. The decrease in the joint venture adjustment is
primarily due to a decrease in the amount of membership fees sold at an
international business club after the initial year of operations.
19
Country Club and Golf Facilities
The following tables present certain summary financial and membership
information for the Company's country club and golf facilities segment for 1997
and 1998 (dollars in thousands, except facility and membership data):
Same Store Total
Country Club and Country Club and
Golf Facilities Golf Facilities
--------------------- ---------------------
1997 1998 1997 1998
-------- ----------- -------- -----------
Number of facilities 98 98 108 109
Operating revenues $343,066 $ 355,410 $356,324 $ 376,125
Operating costs and expenses 289,420 297,127 302,212 317,785
-------- ----------- -------- -----------
Segment operating income $ 53,646 $ 58,283 $ 54,112 $ 58,340
======== =========== ======== ===========
Adjusted EBITDA $ 88,879 $ 93,622 $ 90,743 $ 96,262
======== =========== ======== ===========
Membership information (65 clubs) (1):
Memberships at beginning of period 66,360 68,205
Memberships added during period 12,493 12,592
Memberships lost during period 10,648 10,903
-------- -----------
Memberships at end of period 68,205 69,894
======== ===========
__________
(1) Number of facilities includes owned same store country club and golf
facilities. Membership information is comprised of the same store clubs where
the Company received membership initiation deposits or fees and membership dues.
Total country club and golf facilities' operating revenues increased 5.6%
in 1998 compared to 1997 primarily due to increased usage at same store
facilities, acquisitions and increases at developing facilities. Same store
country club and golf facilities' operating revenues increased 3.6% due to the
reopening of several courses at existing facilities which were closed for
renovation during the prior year and the acquisition of golf pro shops
previously owned by golf professionals.
Total country club and golf facilities' operating costs and expenses
increased 5.2% due primarily to increased costs and expenses at same store
facilities, acquisitions and increases at developing facilities. Total same
store country and golf facilities' operating costs and expenses increased 2.7%
primarily due to increased costs of sales for food and beverage and golf
operations and payroll increases.
Adjusted EBITDA for total country club and golf facilities increased 6.1%
primarily due to increased segment operating income and sales of membership
deposits at same store facilities.
20
Business and Sports Clubs (formerly City Clubs)
The following tables present certain summary financial and membership
information for the Company's business and sports clubs segment for 1997 and
1998 (dollars in thousands, except facility and membership data):
Same Store Business Total Business
and Sports Clubs and Sports Clubs
---------------------- ----------------------
1997 1998 1997 1998
----------- --------- ----------- ---------
Number of facilities 89 89 94 93
Operating revenues $ 249,190 $ 249,309 $ 251,668 $ 257,810
Operating costs and expenses 227,221 221,733 229,920 231,351
----------- --------- ----------- ---------
Segment operating income $ 21,969 $ 27,576 $ 21,748 $ 26,459
=========== ========= =========== =========
Adjusted EBITDA $ 29,129 $ 36,925 $ 28,855 $ 36,596
=========== ========= =========== =========
Membership information (78 clubs) (1):
Memberships at beginning of period 108,753 110,729
Memberships added during period 23,660 25,186
Memberships lost during period 21,684 22,219
----------- ---------
Memberships at end of period 110,729 113,696
=========== =========
__________
(1) Number of facilities includes owned same store business and sports clubs
(business clubs, sports clubs and business/sports clubs). Membership information
is comprised of the same store clubs where the Company received membership
initiation deposits or fees and membership dues.
Total business and sports clubs' operating revenues increased 2.4% from
1997 to 1998 due primarily to acquisitions and increases at facilities in
development. Same store business and sports clubs' operating costs and expenses
decreased 2.4% from 1997 to 1998 due to the write off of a liability of $6.2
million recorded during the year ended December 29, 1998.
Adjusted EBITDA from total business and sports clubs increased 26.8%
primarily due to increases in segment operating income as discussed above.
Resorts
The following tables present certain summary financial data and lodging
data for the Company's resorts segment for 1997 and 1998 (dollars in thousands,
except facility and lodging data):
Same Store Resorts Total Resorts
-------------------- ------------------
1997 1998 1997 1998
--------- --------- -------- --------
Number of facilities 4 4 7 5
Operating revenues $156,217 $163,607 $168,099 $172,624
Operating costs and expenses 136,757 140,575 156,615 155,835
--------- --------- -------- --------
Segment operating income $ 19,460 $ 23,032 $ 11,484 $ 16,789
========= ========= ======== ========
Adjusted EBITDA $ 29,971 $ 36,086 $ 22,873 $ 30,572
========= ========= ======== ========
Lodging data (3 resorts) (1)
Room nights available 407,011 396,217
Occupancy rate 52.3% 54.3%
Average daily room rate per occupied room $ 173 $ 184
Average daily revenue per occupied room $ 643 $ 712
__________
(1) Lodging data is comprised of data from Pinehurst, The Homestead and
Barton Creek.
21
Total resorts' operating revenues increased 2.7% primarily due to increases
at same store properties offset by the effect of divestitures. Same store
resorts' operating revenues increased 4.7%, reflecting increases of 2.0
percentage points in the occupancy rate, 10.7% in the average daily revenue per
occupied room and 6.4% in the average daily room rate per occupied room.
Pinehurst, which hosted the 1999 U. S. Open, experienced significant increases
in operating revenues in anticipation of this event. Total resorts' operating
costs and expenses decreased slightly due to the effect of divestitures.
The difference in resorts' operating revenues, operating costs and expenses
and segment operating income between same store resorts and total resorts is
primarily attributable to the Company's operations at Daufuskie Island Club &
Resort. ClubCorp purchased Daufuskie at the end of 1996 for nominal
consideration as a turn-around opportunity. Daufuskie had operating losses of
approximately $6.3 and $6.8 million for 1998 and 1997, respectively.
Other Operations
Operating revenues for international operations increased to $7.4 million
in 1998 from $4.9 million in 1997 primarily due to acquisitions and increased
equity earnings from an investment in Singapore. Operating costs and expenses
for international operations increased to $13.0 million in 1998 from $8.2
million in 1997 primarily due to increased start up and pre-opening expenses at
developing facilities.
Realty operating revenues decreased to $22.3 million in 1998 from $33.7
million in 1997, or 33.8%, primarily due to decreased sales of real estate in
Colorado, Texas and California, the timing of certain sales at Owner's Clubs and
a divestiture.
SEASONALITY OF DEMAND; FLUCTUATIONS IN QUARTERLY RESULTS
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year. The first three quarters consist of 12 weeks each and
the fourth quarter includes 16 or 17 weeks. The financial statements included in
Item 8 for the year ended December 28, 1999 are comprised of 52 weeks, with the
first three quarters consisting of 12 weeks each and the fourth quarter
consisting of 16 weeks. The timing of fiscal quarter ends, seasonal weather
conditions and other short-term variations cause financial performance to vary
by quarter. The Company has historically generated a disproportionate share of
its operating revenue in the second, third and fourth quarters of each year. The
timing of purchases or leases of new operating properties and the timing of
operating gains and losses as a result of partial ownership (including joint
venture arrangements) agreements, management agreements and equity investments
in golf related facilities where the Company does not have operational or
financial control could also cause the Company's results of operations to vary
significantly from quarter to quarter.
The Company's results can also be affected by non-seasonal and severe
weather patterns. Periods of extremely hot, cold or rainy weather in a given
region can be expected to reduce the Company's golf-related revenue for that
region. Similarly, extended periods of low rainfall can affect the cost and
availability of water needed to irrigate the Company's golf courses and can
adversely affect results for facilities in the region affected.
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, attempts to
offset the adverse effects of increased costs by increasing prices.
22
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
5.6% to 9.0% 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 $75.7 and $78.5 million, respectively, over the
next two years and are expected to be financed with external financing of
ClubCorp, Inc. and cash flows from operations.
On September 24, 1999, the Company finalized a comprehensive refinancing
agreement with a group of banks to replace its $300.0 million revolving credit
facility and $200.0 million five year credit facility with a combined $650.0
million senior credit facility. The Company's obligations under this combined
facility are guaranteed by certain of its subsidiaries and secured by stock
pledges of certain of its subsidiaries. The interest rate is typically
determined using a LIBOR-based pricing matrix as defined in the agreement. The
Company used the combined facility to refinance approximately $519.1 million in
existing debt, consisting primarily of the amounts outstanding under the $300.0
million and $200.0 million credit facility agreements. The Company intends to
use the facility to finance future acquisitions, capital expansions at existing
facilities and working capital needs. This combined facility includes the
following: (i) a $350.0 million revolving credit facility which matures on
September 24, 2004, (ii) a $100.0 million Facility A Term Loan which matures on
September 24, 2004 and (iii) a $200.0 million Facility B Term Loan which matures
on March 24, 2007. The total amount outstanding under the revolving credit
facility, including letters of credit of $11.3 million, was $463.5 million as of
March 9, 2000. The amount outstanding is comprised of $163.5 million under the
revolving credit facility at an interest rate of LIBOR plus 150 basis points,
including letters of credit, $100.0 million under the Facility A Term Loan, and
$200.0 million under the Facility B Term Loan, at interest rates of LIBOR plus
200 basis points and LIBOR plus 300 basis points, respectively. The incremental
margin added to the LIBOR rate is subject to change based upon certain financial
ratios of the Company as specified in the agreement.
The Company has authorized 150.0 million shares of preferred stock and as
of March 9, 2000 there were no shares issued or outstanding. Shares of
preferred stock may be issued in one or more series from time to time by the
Board of Directors, and the Board of Directors is expressly authorized to fix by
resolution(s) the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions of the shares of each series of
Preferred Stock, including such items as dividend rate, the cumulative feature
of such dividends and the price of such shares in the series. Management has no
intention of issuing the preferred stock during 2000.
On December 1, 1999, the Company sold approximately 9.4 million shares of
Common Stock at a price of $16.00 per share and issued approximately 1.0 million
Common Stock purchase warrants with an exercise price of $17.00 per share, to
The Cypress Group for total consideration of $150.0 million. Each Common Stock
purchase warrant is exercisable immediately and expires in ten years from the
date of issuance. In connection with this sale, a Stockholders Agreement was
signed between the Company, the controlling stockholders of the Company and The
Cypress Group. The Stockholders Agreement includes (i) certain restrictions on
transfers, (ii) a potential repurchase obligation of the Company in respect to a
portion of the shares of Common Stock owned by The Cypress Group at fair market
value that may not be exercised prior to 2004 and (iii) customary tag-along
rights, drag-along rights and registration rights. See Item 5, -"Market for
Registrant's Common Equity and Related Stockholder Matters."
Net cash flows from continuing operations decreased $38.7 million for the
year ended December 28, 1999 due primarily to capital expenditures made during
1999, including the purchase of additional common stock of ClubLink and the
development of real estate. This was partially offset by the increase in
borrowings of long-term debt and proceeds from the sale of stock to The Cypress
Group.
23
Membership dues, which are generally billed monthly, are expected to cover
the costs of providing future membership services. Membership deposits
represent advance initiation deposits for the right to become a member and
generally are refundable a fixed number of years (generally 30 years) from the
date of acceptance as a member. Management does not consider maturities of
membership deposits over the next five years to be significant. The difference
between the amount of the membership deposit and the present value of the
obligation is deferred and recognized as revenue on a straight-line basis over
the expected average life of an active membership. The membership deposit
liability accretes to interest expense over the refundable term using the
interest method.
The provisions of certain subsidiary lending and lease agreements limit the
amount of dividends that may be paid to ClubCorp. Under the most restrictive of
these limitations, at December 28, 1999, approximately $184.8 million of
retained earnings was available for the declaration of dividends.
As a means of providing liquidity to the trustees of the Amended 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 Amended 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 28, 1999, the value of the
Redemption Right was $72.8 million. The most recent appraised price of the
Common Stock was $17.71 as of December 28, 1999. The Redemption Right has never
been exercised by the Amended Plan, although the Company has repurchased Common
Stock into treasury from certain stockholders. The Company does not expect that
the Redemption Right will be exercised to a significant extent in 2000.
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 fiscal years
1997, 1998 and 1999, treasury stock transactions, including purchases of stock
from stockholders, sales of stock (which were primarily to the Plan and Amended
Plan) and other shares issued were as follows (dollars in millions):
December 31, December 29, December 28,
1997 1998 1999
-------------- -------------- --------------
Purchase of treasury stock $ (5.6) $ (7.6) $ (4.5)
Stock issued in connection with purchases by benefit plan - 0.2 -
Stock issued in connection with acquisition - - 9.9
Stock issued in connection with bonus plans 0.7 1.0 1.3
Stock issued in connection with exercise of stock options - 0.5 0.2
-------------- -------------- --------------
$ (4.9) $ (5.9) $ 6.9
============== ============== ==============
See the Consolidated Statement of Stockholders' Equity included in Item 8
for a summary of stockholder equity transactions.
24
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Annual Report on Form 10-K contains "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 should be
considered "forward-looking statements" for purposes of these provisions,
including statements that include projections of, or expectations about,
earnings, revenues or other financial items, statements about the plans and
objectives of management for future operations, statements concerning proposed
new products or services, statements regarding future economic conditions or
performance, statements regarding Year 2000 issues and statements 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. Actual results and developments are likely
to be different from, and may be materially different from, those expressed or
implied by 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. 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 facility usage is below
historical levels would have a material adverse effect on the Company's
business, operating results and financial condition.
Changes in membership levels and facilities' usage can be caused by a
number of factors. A substantial portion of the Company's revenue is derived
from discretionary or leisure spending by the Company's members and guests and
such spending can be particularly sensitive to changes in general economic
conditions or changes in the federal tax laws. A significant adverse shift in
general economic conditions, whether regional or national, would likely have a
material adverse effect on the Company's business, operating results and
financial condition. Changes in consumer tastes and preferences, particularly
those affecting the popularity of golf and private dining, and other social and
demographic trends, could also have an adverse effect on the Company.
The Financial Accounting Standards Board (FASB) issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" in 1995 which requires, among other things, that long-lived
assets 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. The Company routinely reviews all long-lived assets for
potential impairment by determining whether they could be recovered over their
remaining life through estimated future cash flows. Fair value, for purposes of
calculating any impairment, was measured based on discounted estimated future
cash flows using a risk-adjusted discount rate. For the year ended December 28,
1999, an impairment loss of $13.5 million relating to the long-lived assets at
Daufuskie was recognized. This impairment loss is reported separately as a
component of operating income in the Company's Consolidated Financial
Statements. If events or circumstances change in the future, additional
impairment losses could be recognized.
Legislative proposals have been enacted which could increase the Company's
direct operating costs. The proposal increases the minimum wage by $1.00 per
hour to $6.15 per hour to be phased in over two years. Management has not yet
determined the financial impact for 2000 or 2001 when these requirements could
become effective.
25
The Company has policies in place designed to bring its facilities in
substantial compliance with current federal, state and local environmental laws
and laws relating to access for disabled persons. 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 facility. However, the Company is in the
process of replacing four underground storage tanks with above ground contained
storage systems. It is unlikely that any remediation will be required. The
Company is permitted under various state laws to recover a portion of its costs
of remediation through various state superfunds created to address environmental
cleanups. The Company is not subject to any remediation mandates related to
previously contaminated sites. See Item 1, -"Business-Operations-Government
Regulation."
ClubCorp files a consolidated federal income tax return. See Note 16 of the
Notes to the Consolidated Financial Statements. ClubCorp's income taxes are as
follows (dollars in millions):
December 31, December 29, December 28,
1997 1998 1999
-------------- -------------- --------------
Income tax (provision) benefit:
Federal
Current $ (0.7) $ (0.2) $ -
Deferred 44.1 (2.9) (7.9)
-------------- -------------- --------------
43.4 (3.1) (7.9)
State and Foreign (2.1) (2.1) (3.9)
-------------- -------------- --------------
$ 41.3 $ (5.2) $ (11.8)
============== ============== ==============
The Company operates in 30 states, and as a result, its operations are
subject to tax by many state and local taxing authorities. The Company generates
substantial taxable income in various states including Ohio, North Carolina and
Florida. As state and local taxing authorities raise tax rates and change tax
codes to increase tax revenues, the Company has experienced increased exposure
to state and local income taxes over the past few years.
Since the acquisition of Franklin in 1988, ClubCorp has reduced or
eliminated its current federal tax liability (to 2% of alternative minimum
taxable income) by using net operating loss carryforwards that resulted from
Franklin's operations. ClubCorp has estimated net operating loss carryforwards
at the end of 1999 of $499.3 million and $108.5 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. These net regular and alternative minimum tax operating
losses expire from 2004 to 2010 and 2007 to 2010, respectively. These estimates
are based upon certain assumptions concerning the Company's 1999 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. Based on the Company's historical pretax earnings, adjusted for
significant nonrecurring items such as gains (losses) on divestitures and sales
of assets, 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 28, 1999. Based on revised estimates of taxable income,
ClubCorp decreased its valuation allowance on its deferred tax assets by
approximately $14.2 million and $66.2 million at December 29, 1998 and December
31, 1997, respectively. 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.
In addition to the regular and alternative minimum tax NOLs, the Company
has approximately $161.7 million regular and $142.9 million alternative minimum
tax Separate Return Limitation Year (referred to as SRLY) NOLs which expire in
2003. The Company's December 28, 1999 and December 29, 1998 net deferred tax
assets do not include any value for its SRLY NOLs.
26
The Company's federal income tax returns for 1993 and 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 that
any potential liability arising from resolution of these matters will not
materially affect ClubCorp's financial results.
On January 1, 1999, 11 of the 15 member countries of the European Union
adopted the euro as their common legal currency and established fixed conversion
rates between their existing sovereign currencies and the euro. Conversion to
the euro is not expected to have a material impact on the Company's business,
operations or financial position.
YEAR 2000 DISCLOSURE
The Company successfully completed its Year 2000 remediation plan in the
fourth quarter of 1999. The plan included assessment of business critical
systems and the upgrade or replacement of those systems which were determined to
be Year 2000 affected. Also completed was an assessment of the Year 2000
readiness of key vendors and the development of a contingency plan. While the
Company did not experience any significant Year 2000 disruptions during the
transition into the Year 2000, the Company will continue to monitor its
operations and systems and address any date-related problems that may arise as
the year progresses. The Company expensed approximately $2.0 million during
1999 on Year 2000 compliance efforts of upgrading current systems and purchased
software, remediating internally developed software, testing non-IT systems,
contingency planning and the hiring of attorneys and consultants.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
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 for hedging activities. It requires
that all derivatives be recognized as either assets or liabilities and such
instruments be measured at their fair value. The Statement, as amended, is
effective for quarters of years beginning after June 15, 2000. Based on the
Company's current operations, the effect of implementation of this new statement
is not expected to have a significant effect on the Company's financial position
or results of operations.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to interest rate changes and foreign currency
fluctuations. In 1999, the interest rate exposure was principally attributable
to the Company's combined $650.0 million senior credit facility which was
finalized on September 24, 1999, in which interest was typically determined
using a LIBOR-based pricing matrix as defined in the agreement and was comprised
of a $350.0 million revolving credit facility, the Facility A Term Loan and the
Facility B Term Loan ($152.2 million, $100.0 million and $200.0 million,
respectively, outstanding on March 9, 2000). Prior to this, the Company
experienced exposure to interest rate changes under a now retired senior
revolving credit facility and other long-term debt used to maintain liquidity
and fund capital replacements and discretionary capital expenditures. During
1998 and 1999, the Company used financial instruments, principally interest rate
swaps, to manage its interest rate exposure on portions of the borrowings under
these credit facilities. The Company does not enter into derivative or interest
rate transactions for speculative or trading purposes.
The Company's objective in managing the exposure to foreign currency
fluctuations is to reduce earnings and cash flow volatility associated with
foreign exchange rate changes to allow management to focus its attention on its
core business. The Company has historically managed this risk through the
diversity of the foreign economies in which it operates and the relatively
limited amount of its investments in these foreign economies.
27
The Company's interest rate exposure is determined by a variety of factors,
with the primary being the current LIBOR rate. The majority of the Company's
variable interest rate debt is based on LIBOR plus an incremental margin as
determined by the agreements in place under these credit facilities. For the
credit facility in effect prior to September 24, 1999, this incremental margin,
including facility fee, was 0.625%. For the period from September 24, 1999, to
December 28, 1999, the incremental margin was based upon a mix of 1.50% for
borrowings under the $350.0 million revolving credit facility and 2.00% and
3.00% on the borrowings under the Facility A and Facility B term loans,
respectively. This incremental margin is subject to change based on certain
financial ratios of the Company as specified in the agreement. During 1999, the
variable LIBOR interest rate related to these facilities, excluding the
incremental margin, had a monthly average high of 5.62% in January 1999, a
monthly average low of 4.90% in April 1999 and an annual average of 5.18%.
The table below presents the principal amounts, weighted average interest
rates as of December 28, 1999 and fair values required by year of expected
maturity to evaluate the expected cash flows and sensitivity to interest rate
changes (dollars in thousands).
2000 2001 2002 2003 2004 Thereafter Total Fair Value
------- ------- ------- ------ -------- ----------- --------- -----------
Fixed rate debt $19,216 $23,040 $12,571 $6,029 $ 1,261 $ 5,065 $ 67,182 $ 58,185
Weighted average interest rate
at December 28, 1999 7.84%
Variable rate debt (primarily LIBOR) 31,526 81 89 96 211,105 202,046 444,943 444,943
Weighted average interest rate
at December 28, 1999 8.74%
Totals $50,742 $23,121 $12,660 $6,125 $212,366 $ 207,111 $512,125 $ 503,128
======= ======= ======= ====== ======== =========== ========= ===========
The table below presents the notional amounts, pay rates, receive rates,
maturity dates, and mark-to-market value of the Company's interest rate swap
agreements outstanding as of December 29, 1998 and December 28, 1999 (dollars in
thousands).
Notional Amount $ 10,000 $ 4,316 $ 100,000 $ 5,000 $ 5,000 $ 10,000
Pay Rate 7.865% 5.980% 5.790% 5.630% 5.530% 5.250%
Receive Rate 90 day LIBOR 30 day LIBOR 30 day LIBOR 30 day LIBOR 30 day LIBOR 30 day LIBOR
Maturity Date 01/18/00 08/01/01 06/30/03 09/02/03 09/02/03 09/02/03
Mark-to-Market Value
December 29, 1998 $ (334) $ (90) $ (2,284) $ (81) $ (60) --
December 28, 1999 $ (43) $ 33 $ 3,040 $ 206 $ 222 $ 506
Notional Amount $ 5,000
Pay Rate 5.430%
Receive Rate 30 day LIBOR
Maturity Date 09/02/03
Mark-to-Market Value
December 29, 1998 $ (39)
December 28, 1999 $ 189
As the tables incorporate only those exposures that existed as of December
28, 1999, they do not consider those exposures or positions which could arise
after that date. The change in the mark-to-market value of the interest swaps
is a direct result of the change in the 30 day and 90 day LIBOR rates as of
December 29, 1998 and December 28, 1999. Moreover, because firm commitments are
not presented in the tables above, the information presented herein has limited
predictive value. As a result, the Company's ultimate realized gain or loss
with respect to interest rate fluctuations will depend on the exposures that
arise during the period, the Company's hedging strategies at that time and
interest rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and related notes begin on
Page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
28
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the directors
and executive officers of the Company as of March 9, 2000:
NAME AGE POSITION
- --------------------------------- --- -------------------------------------------------------
Robert H. Dedman 74 Chairman of the Board
Robert H. Dedman, Jr. (1) (2) (3) 42 Chief Executive Officer, President and Director
James M. Hinckley (1) (2) (3) 44 Chief Operating Officer and Director
Patricia Dedman Dietz 44 Director
James L. Singleton (2) (3) 44 Director
Bahram Shirazi (1) (2) (3) 36 Director
Terry A. Taylor (1) 44 Executive Vice President, Secretary and General Counsel
James E. Maser (1) 62 Executive Vice President
Mark W. Dietz 46 Executive Vice President
Albert E. Chew, III 46 Executive Vice President
Gerard P. Smith (1) 57 Executive Vice President
Michael L. Dillard 52 Executive Vice President
____________________
(1) Member of the Investment Committee (formerly the "Executive Committee")
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
The Company Board is currently comprised of the Chairman of the Board and
five directors. Three of the current directors and the Chairman were initially
elected as directors in May 1999 and each such person was a director of
ClubCorp's predecessor. In connection with the Stockholders Agreement dated
October 26, 1999, between The Cypress Group and certain Dedman Stockholders,
three additional non-employee director positions were added to the Board. Two
were determined by The Cypress Group, James L. Singleton and Bahram Shirazi and
one non-employee director will be appointed by the Dedman Stockholders in the
near future. Mr. Singleton and Mr. Shirazi were initially elected as directors
October 1999 and will serve for a minimum of one year or until The Cypress Group
no longer has its affiliation with the Company, as specified in the Stockholders
Agreement. All employee directors and the Chairman of the Board hold office
until the next annual meeting of stockholders and until their successors have
been duly elected and qualified. Executive officers of the Company are elected
by the Company Board and serve until their successors are duly elected and
qualified.
Committees of the Board of Directors
During 1999, the Investment Committee (formerly referred to as the
"Executive Committee") was comprised of two members of the Company Board and
three of the Company's executive officers. Effective February 2000, the
Investment Committee consists of one non-employee director and six senior
executives of the Company. The Investment Committee has been delegated the
authority by the Company Board for a variety of matters, including the authority
to approve certain acquisitions and dispositions. Where the Company Board
desires to delegate certain authority to the Investment Committee and applicable
law prevents the delegation of such authority to a committee that includes
persons in addition to directors, the authority is exclusively delegated to the
directors who are members of the Investment Committee.
During 1999 the Audit Committee was comprised of two members of the Company
Board and one officer. Effective February 2000, the Audit Committee consists of
two employee directors and two non-employee directors.
Directors
Robert H. Dedman has been Chairman of the Board of the Company since its
inception in 1957 and Chief Executive Officer from 1957 through 1997. Mr. Dedman
is an advisory director of Stewart Information Services Corporation.
29
Robert H. Dedman, Jr. joined the Company in 1980 and served as Director of
Corporate Planning from 1980 until 1984. From 1984 until 1987, Mr. Dedman was an
associate at Salomon Brothers Inc., specializing in mergers and acquisitions.
Mr. Dedman returned to the Company in 1987 as Chief Financial Officer of
ClubCorp. Since 1989, Mr. Dedman has served as President and director of
ClubCorp. Mr. Dedman served as Chief Operating Officer of ClubCorp from 1989
through 1997. Effective January 1, 1998, Mr. Dedman became Chief Executive
Officer of ClubCorp. Mr. Dedman is a director of Home Interiors and Gifts, Inc.
James M. Hinckley joined the Company in 1970 and since that time he has
held various positions and offices with the Company. Mr. Hinckley has been a
director of ClubCorp since 1989. Mr. Hinckley has also been the Chief Operating
Officer of the Company since February 1992. Mr. Hinckley is President of
ClubCorp USA, Inc., ClubCorp Resorts, Inc. and ClubCorp International, Inc.
Patricia Dedman Dietz has been a director of ClubCorp since 1982. Ms. Dietz
has been a psychotherapist in private practice for the last 15 years.
James L. Singleton was initially elected as a director of ClubCorp in
October 1999 and has been a Vice Chairman of The Cypress Group since its
formation in April 1994. Prior to joining The Cypress Group, he was a Managing
Director in the Merchant Banking Group at Lehman Brothers Inc. He is also a
director of Cinemark USA, Inc., Danka Business Systems PLC, Genesis Health
Ventures, Inc., HomeRuns.com, Inc., L.P. Thebault Company, WESCO International,
Inc. and Williams Scotsman, Inc.
Bahram Shirazi was initially elected as a director of ClubCorp in October
1999, and is currently a Managing Director of The Cypress Group and has been
with The Cypress Group since its formation in April 1994. Prior to joining The
Cypress Group, he was a Vice President in the Merchant Banking Group at Lehman
Brothers Inc. He is also a director of FNC Holdings, Inc., parent of Frank's
Nursery & Crafts, Inc. and HomeRuns.com, Inc.
Executive Officers
Terry A. Taylor has been Secretary and General Counsel of ClubCorp since
1990. Effective August 1998, Mr. Taylor became an Executive Vice President of
the Company. Mr. Taylor was a director of ClubCorp from January 1994 to July
1998.
James E. Maser has been associated with the Company since 1965 and was a
director from 1971 to July 1998.
Mark W. Dietz has been an Executive Vice President of ClubCorp since
January 1995. Mr. Dietz was a director of the Company from 1986 to July 1998.
Albert E. Chew, III joined the Company in 1988 as Director of Human
Resources for resorts. In 1992, Mr. Chew was elected as a Vice President of
ClubCorp. Mr. Chew served as a director of ClubCorp from January 1994 to July
1998. In 1997, Mr. Chew became Executive Vice President of ClubCorp.
Gerard P. Smith joined the Company in 1998 as Executive Vice President of
Marketing and Communications. Prior to 1998, Mr. Smith was Chief Executive
Officer of ErgoBilt, Inc. and owned a marketing consultant company, Smith &
Associates. From 1995 until 1997, Mr. Smith served as Executive Director and
Chief Executive Officer of WTA Tour Players Association (the women's
professional tennis tour).
Michael L. Dillard joined the Company in 1998 as Executive Vice President
and Chief Information Officer. Mr. Dillard served as Senior Vice President of
BigiSoft, Inc. from late 1997 until joining ClubCorp in 1998. In 1997, Mr.
Dillard was Vice President of Sterling Software's Laboratories (following the
sale of Texas Instruments Software to Sterling Software's Laboratories) and from
1995 to 1997 Mr. Dillard served as a Vice President of Worldwide Research and
Development at Texas Instruments Software.
Robert H. Dedman, Jr. and Patricia Dedman Dietz are siblings and are the
children of Robert H. Dedman. Mark W. Dietz is the spouse of Patricia Dedman
Dietz and the son-in-law and brother-in-law of Robert H. Dedman and Robert H.
Dedman, Jr. respectively.
30
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
Summary Compensation Table
The following table sets forth the compensation paid by ClubCorp to its
chief executive officer and its four other most highly compensated executive
officers (collectively, the "Named Executive Officers") during the years ended
December 31, 1997, December 29, 1998 and December 28, 1999:
SUMMARY COMPENSATION TABLE (3) (4)
Annual Compensation
---------------------------
Other Annual All Other
Name and Principal Position Year Salary (1) Bonus Compensation (2) Compensation (5)
- --------------------------- ---- ----------- -------- ----------------- -----------------
Robert H. Dedman, Jr. 1997 $ 349,297 $108,800 $ -- $ 705 (6)
Chief Executive Officer, 1998 498,077 350,165 -- 4,800 (6)
President and Director 1999 515,000 191,374 -- 2,899 (6)
James M. Hinckley 1997 297,359 112,686 -- 4,750 (6)
Chief Operating Officer 1998 330,574 247,590 -- 4,513 (6)
and Director 1999 341,806 142,442 -- 2,898 (6)
Patrick A. Corso 1997 164,285 99,434 -- 13,835 (7)
Executive Vice President, 1998 180,000 131,183 -- 13,975 (7)
ClubCorp Resorts, Inc. 1999 200,000 149,290 -- 12,842 (7)
Robert H. Dedman 1997 347,831 -- -- --
Chairman of the Board 1998 341,371 1,318 -- --
and Founder 1999 342,689 -- -- --
Frank C. Gore 1997 186,341 57,925 -- 1,600 (6)
Executive Vice President, 1998 194,250 125,416 -- 1,600 (6)
ClubCorp USA, Inc. 1999 200,850 116,348 -- 2,825 (6)
_____________________
(1) The Company operates on a 52/53 week year. Salaries for 1997, 1998 and
1999 include 53, 52 and 52 weeks, respectively.
(2) There was no other annual compensation equal to the lesser of $50,000 or
10% of the total annual salary and bonus reported for each Named Executive
Officer in 1997, 1998 or 1999.
(3) There were no restricted stock awards for 1997, 1998 or 1999 and there
were no unvested restricted stock awards as of December 28, 1999.
(4) There were no payouts of long-term compensation for 1997, 1998 or 1999.
(5) The Company's Plan and Amended Plan, as discussed in Item I,
- -"Business", permits eligible employees to purchase participation interests
through payroll deductions. In addition, ClubCorp contributes an amount that
vests over time on each participant's behalf equal to 20% (the "Basic Matching
Contribution") and up to an additional 30% (the "Discretionary Matching
Contribution") of the participant's contribution. All contributions to the Plan
or Amended Plan are invested in Common Stock (except for contributions
temporarily invested in cash pending investment in Common Stock).
(6) Represents Basic Matching Contributions and Discretionary Matching
Contributions made by ClubCorp on the individual's behalf pursuant to the Plan
in 1997 and 1998 and the Amended Plan in 1999.
(7) Represents Basic Matching Contributions and Discretionary Matching
Contributions of $4,000 in 1997 and 1998 and $2,867 in 1999 made by ClubCorp on
Mr. Corso's behalf pursuant to the Plan in 1997 and 1998 and the Amended Plan in
1999. Also includes auto allowance of $9,455 in 1997 and 1998, and $9,975 in
1999 and miscellaneous expenses of $380 and $520 in 1997 and 1998, respectively,
made by ClubCorp on Mr. Corso's behalf.
31
SAR Exercise and Value Table
The following table summarizes for each Named Executive Officer the
aggregated SAR exercises during the fiscal year ended December 28, 1999 and the
value of all SARs for each Named Executive Officer as of December 28, 1999:
AGGREGATED SAR EXERCISES AND YEAR-END SAR VALUES
Number of Shares Value of
Of Common Stock Unexercised
Underlying Exercised In-the-Money SARs
SARs at Year-End At Year-End (1)
------------------------- -----------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- -------------------------- ----------- ----------- ----------- ------------- ------------ --------------
Robert H. Dedman, Jr. -- $ -- -- -- $ -- $ --
James M. Hinckley (2)
Grant of January 1, 1989 6,000 60,600 -- -- --
Grant of January 1, 1990 -- -- 6,000 -- 62,820
Patrick A. Corso -- -- -- -- -- --
Robert H. Dedman -- -- -- -- -- --
Frank C. Gore -- -- -- -- -- --
___________________________
(1) Based upon the difference between the fair market value of the Common
Stock on the date of grant and on December 28, 1999. The Formula Price as of
December 28, 1999 was $17.71 per share. The fair market value per share of the
Common Stock as of January 1, 1990, was $7.24.
(2) These SARs were awarded under the Club Corporation of America (renamed
ClubCorp USA, Inc.) Stock Appreciation Rights Program. They vest over a ten year
period with 10% of each SAR vesting on each anniversary of the date of grant.
Except under certain circumstances, such as termination of the executive's
employment, no payout may be made until a SAR is fully vested (i.e., ten years
after the date of grant). At the time of payout, the Company may pay the value
of the SAR in the form of cash or an equivalent number of shares of Common Stock
(based upon the fair market value of the Common Stock on the date of payment).
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table summarizes for each Named Executive Officer, each
exercise of stock options during the fiscal year ended December 28, 1999 and the
fiscal year-end value of unexercised options:
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES
Number of Shares Value of
Of Common Stock Unexercised
Underlying Exercised In-the-Money Options
Options at Year-End At Year-End (1) (2) (3)
-------------------------- ---------------------------
Shares
Acquired Value
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ----------- --------- ----------- ------------- ------------ --------------
Robert H. Dedman, Jr. -- $ -- 152,000 468,000 $ 1,150,640 $ 2,565,960
James M. Hinckley -- -- 152,000 338,000 1,150,640 2,110,960
Patrick A. Corso -- -- 37,500 95,500 284,850 590,900
Robert H. Dedman -- -- -- -- -- --
Frank C. Gore -- -- 40,000 93,000 302,800 569,700
____________________
(1) The ClubCorp Inc. Executive Stock Option Plan (the "Executive Option
Plan") was adopted on August 31, 1995. The Executive Option Plan provides for
granting options to purchase shares of Common Stock to key management personnel
at a price not less than the fair market value at the date of grant. The options
fully vest the end of ten years from the date the option is granted. The
Executive Option Plan provides for accelerated vesting, not to exceed 10% per
year, if the employee maintains a certain performance level as defined in the
Executive Option Plan. Each of the Named Executive Officers met the required
performance level defined in the Executive Option Plan for 1997, 1998 and 1999.
Thus, approximately 30% to 40% of the shares granted are vested and exercisable,
dependent upon the year of grant.
(2) The ClubCorp Inc. Omnibus Stock Plan (the "Omnibus Stock Plan") was
effective February 1998. The Omnibus Stock 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 is determined at the
time of grant and is five years with a ten year expiration date. None of these
options are currently exercisable.
(3) Based upon the Formula Price as of December 28, 1999, of $17.71 per
share.
32
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company receive $200 for each
ClubCorp board meeting attended and reimbursement of travel expenses to attend
such meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1999, ClubCorp had no Compensation Committee or other committee of the
Board of Directors performing similar functions. Decisions concerning
compensation of executive officers were made by the Chairman of the Board and
the President of ClubCorp. Effective February 2000 the Board of Directors
developed the Compensation Committee consisting of four directors, of which two
must be non-employee directors. The Compensation Committee currently consists
of Mr. Dedman, Jr., Mr. Hinckley, Mr. Singleton and Mr. Shirazi. The
Compensation Committee is responsible for establishing the compensation of the
Company's directors and executive officers.
EMPLOYMENT AGREEMENTS; KEY-MAN LIFE INSURANCE
The Company does not have any material employment agreements with its
officers or employees. The Company does have non-disclosure and non-competition
agreements with the majority of its salaried employees, excluding the Chairman
of the Board and Chief Operating Officer and certain other executive officers.
In addition, the Company does not maintain key-man life insurance policies on
any of its officers or employees.
INDEMNIFICATION
ClubCorp and many of its subsidiaries, including ClubCorp USA, Inc. and
ClubCorp Resorts, Inc., have adopted charter and/or bylaw provisions that
require such corporations to indemnify, to the maximum extent permissible under
applicable law, each of their directors, officers, employees and agents against
any liability that they may incur in connection with or resulting from any
threatened, pending or completed legal proceeding inquiry or investigation by
reason of the fact that any such person is or was a director, officer, employee
or agent of the corporation.
ClubCorp maintains an executive liability and indemnification insurance
policy with an annual limit of liability of $5,000,000. The insurance policy
generally covers the wrongful acts of the directors and officers of ClubCorp and
its subsidiaries (excluding First Federal Financial Corporation). The policy
coverage is subject to a number of exclusions, which include: (1) violations of
federal or state securities laws; (2) violations of federal or state antitrust
laws; (3) violations of federal or state environmental laws; (4) violations of
the Employee Retirement Income Security Act; (5) libel or slander; and (6)
stockholder derivative actions. The Company purchases such insurance policy on
an annual basis, with the current policy period expiring on October 19, 2000.
33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the
beneficial ownership of ClubCorp's Common Stock, as of March 9, 2000, by (i)
each Named Executive Officer, (ii) each person or group known by ClubCorp to be
the beneficial owner of more than 5.0% of the outstanding Common Stock, (iii)
each director of ClubCorp and (iv) all directors and executive officers of
ClubCorp as a group:
Shares of Common Stock
Beneficially Owned
----------------------
Name Number Percentage
- ------------------------------------------------- ---------- -----------
Robert H. Dedman (1) (3) 43,429,773 46.0 %
Cypress Merchant Banking Partners II L.P. (2) (5) 12,735,866 13.4
Cypress Merchant Banking Partners L.P. (2) (5) 1,592,882 1.7
Cypress Merchant Banking II C.V. (2) 505,051 *
55th Street Partners II L.P. (2) (5) 122,746 *
Cypress Offshore Partners L.P. (2) 76,943 *
Cypress Golf C.V. Ltd. (2) (5) 36,450 *
Cypress Golf Ltd. (2) (5) 5,062 *
Robert H. Dedman, Jr. (1) (7) 13,754,434 14.5
Patricia Dedman Dietz (1) (8) 13,640,282 14.4
Mark W. Dietz (1) (9) 13,640,282 14.4
James M. Hinckley (1) (11) 219,444 *
James E. Maser (1) (4) (6) 88,000 *
Patrick A. Corso (1) (11) 61,370 *
Frank C. Gore (1) (11) 59,825 *
Terry A. Taylor (1) (11) 56,932 *
Albert E. Chew, III (1) (6) (11) 44,344 *
Michael L. Dillard (1) 282 *
James L. Singleton (2) (10) -- *
Bahram Shirazi (2) (10) -- *
All directors and executive officers 71,233,491 75.1
as a group (12 persons) (12)
____________________
* less than 1.0%
(1) Such person's address is 3030 LBJ Freeway, Suite 700, Dallas, Texas
75234.
(2) Such entity's or person's address is 65 East 55th Street, New York, New
York 10022.
(3) Includes 116,300 shares pledged to a not-for-profit institution.
(4) Excludes 12,841,133 shares owned by trusts for the benefit of Robert H.
Dedman, Jr. and 12,935,433 shares owned by trusts for the benefit of Patricia
Dedman Dietz, for which James E. Maser, among others, serves as trustee and
shares voting and investment power.
(5) Includes 855,563, 107,325, 8,100, 36,450, and 5,062 shares of Common
Stock issuable upon exercise of stock warrants that may be exercised within 60
days of this report to Cypress Merchant Banking Partners II L.P., Cypress
Merchant Banking Partners L.P., 55th Street Partners II L.P., Cypress Golf C.V.
Ltd. and Cypress Golf Ltd., respectively.
(6) Excludes 4,112,659 shares owned by the Amended Plan for the benefit of
the participants in the Amended Plan, for which James E. Maser and Albert E.
Chew, III serve as trustees and share voting and investment power.
(7) Includes 12,841,133 shares owned by trusts for the benefit of Robert H.
Dedman, Jr. (see note (4) above), 10,425 shares owned by Robert H. Dedman,
Jr.'s wife, Rachael Dedman and 190,000 shares of Common Stock issuable upon
exercise of options that may be exercised within 60 days of this report.
Excludes 12,935,433 shares owned by trusts for the benefit of Patricia Dedman
Dietz and 63,947 owned by trusts for the benefit of the Dietz's minor children,
Christina Dedman, Jonathan Dedman, and Jeffrey Patrick Dedman, for which Robert
H. Dedman, Jr. serves as a trustee and shares voting and investment power.
(8) Includes 12,690 shares and 7,500 shares of Common Stock issuable upon
exercise of options that may be exercised within 60 days of this report owned by
Patricia Dedman Dietz's husband, Mark W. Dietz, 12,935,433 shares owned by
trusts for Mrs. Dietz's benefit (see note (4) above), 63,947 shares owned by
trusts for the benefit of the Dietz's minor children, Christina Dedman, Jonathan
Dedman, and Jeffrey Patrick Dedman, for which Mrs. Dietz is a trustee and shares
voting and investment power. Excludes 12,841,133 shares owned by trusts for the
benefit of Robert H. Dedman, Jr., for which Mrs. Dietz is a trustee and shares
voting and investment power.
(9) Includes 620,712 shares owned by Mark W. Dietz's wife, Patricia Dedman
Dietz, 12,935,435 shares owned by trusts for the benefit of Mrs. Dietz (see note
(4) above), 63,947 shares owned by trusts for the benefit of the Dietz's minor
children, Christina Dedman, Jonathan Dedman, and Jeffrey Patrick Dedman, for
which Mrs. Dietz is a trustee and shares voting and investment power and 7,500
shares of Common Stock issuable upon exercise of options that may be exercised
within 60 days of this report.
34
(10) Cypress Merchant Banking Partners II L.P., Cypress Merchant Banking
Partners L.P., Cypress Merchant Banking II C.V., 55th Street Partners II L.P.,
Cypress Offshore Partners L.P., Cypress Golf C.V. Ltd. and Cypress Golf Ltd. are
controlled by The Cypress Group L.L.C. or affiliates thereof. Certain
executives of The Cypress Group L.L.C., may be deemed to share beneficial
ownership of the shares shown as beneficially owned by these entities. Mr.
Singleton and Mr. Shirazi disclaim beneficial ownership of such shares.
(11) Includes 190,000, 47,500, 50,000, 33,000 and 42,000 shares of Common
Stock issuable upon exercise of options that may be exercised within 60 days of
this report for Mr. Hinckley, Mr. Corso, Mr. Gore, Mr. Taylor and Mr. Chew,
respectively.
(12) Includes 462,500 shares of Common Stock issuable upon exercise of
options that may be exercised within 60 days of this report for executive
officers and directors of ClubCorp, Inc.
Robert H. Dedman and his family currently own approximately 75% of the
Common Stock. The holders of a majority of the Common Stock can elect all of
ClubCorp's directors and approve or disapprove certain fundamental corporate
transactions, including a merger or sale of all of the Company's assets, subject
to the terms of the Shareholder Rights Agreement entered into with The Cypress
Group. The transfer of a substantial portion of Mr. Dedman's Common Stock,
including a transfer upon his death, could result in a change in control of the
Company and could affect the management or direction of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period from January 1, 1999, to March 9, 2000, Robert H. Dedman,
Jr., Chief Operating Officer, President and a director of ClubCorp sold 30,000
shares of Common Stock for consideration of approximately $500,000.
A trust for the benefit of Robert H. Dedman, Jr., the President, Chief
Executive Officer and a director of ClubCorp, sold 75,100 shares of Common
Stock, for consideration of approximately $1.3 million. A trust for the benefit
of Patricia Dedman Dietz, a director of ClubCorp, sold 75,100 shares of Common
Stock for consideration of approximately $1.3 million. A trust for the benefit
of James E. Maser, Executive Vice President, sold 88,000 shares of Common Stock
for consideration of approximately $1.5 million. All of such sales were made at
the then-current Formula Price and were purchased by either the Amended Plan or
the Company. See Item 5, -"Market for Registrant's Common Equity and Related
Stockholder Matters".
35
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 29, 1998 and December 28, 1999, and for the
years ended December 31, 1997, December 29, 1998 and December 28, 1999 are
included in this Annual Report on Form 10-K, beginning on Page F-1:
Independent auditors' report
Consolidated balance sheet
Consolidated statement of operations
Consolidated statement of stockholders' equity and comprehensive
income
Consolidated statement of cash flows
Notes to consolidated financial statements
(a)(2) The following financial statement schedule is included in this Annual
Report on Form 10-K, beginning on Page S-1:
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 on page 39. Exhibits 10.1, 10.3 through 10.5
and 10.8 through 10.14 are compensatory plans.
(b) Reports on Form 8-K
Form 8-K/A Amendment No. 2 was filed on September 9, 1999, reflecting
changes in proforma adjustments for the year ended December 29, 998.
Form 8-K was filed on November 1, 1999, relating to other events.
(c) Exhibits
See Index to Exhibits on page 39.
(d) Financial Statement Schedule
The financial statement schedule required by paragraph (d) of Item 14
is presented on page S-1.
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.
36
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CLUBCORP, INC.
By: *
----------------------------------
Robert H. Dedman, Jr.
Chief Executive Officer
and President
By: *
---------------------------------
Charles A. Little
Senior Vice President and
Chief Accounting Officer
Date: March 24, 2000
----------------
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:
37
SIGNATURE TITLE DATE
- ------------------------- ----------------------------------------------- --------------
*
- -------------------------
Robert H. Dedman, Sr. Chairman of the Board March 24, 2000
*
- -------------------------
Robert H. Dedman, Jr. Chief Executive Officer, President and Director March 24, 2000
*
- -------------------------
James M. Hinckley Chief Operating Officer and Director March 24, 2000
*
- -------------------------
Patricia Dedman Dietz Director March 24, 2000
*
- -------------------------
James L. Singleton Director March 24, 2000
*
- -------------------------
Bahram Shirazi Director March 24, 2000
By: /s/Charles A. Little
--------------------
Charles A. Little
Attorney-in-Fact
____________________
* Power of Attorney authorizing Charles A. Little to sign this annual report
on Form 10-K on behalf of the directors and certain officers of the Company is
being filed with the Securities and Exchange Commission.
38
INDEX TO EXHIBITS
Exhibit
Number Exhibit
- -------- ---------------------------------------------------------------------------------------------------
3.1* Articles of Incorporation, as amended, of ClubCorp, Inc.
3.2* Bylaws, as amended, of Club Corporation International
4.1* Specimen Certificate evidencing Common Stock of Club Corporation International
4.2~~ Certificate of Incorporation of ClubCorp, Inc.
4.3** Bylaws of ClubCorp, Inc.
10.1~ ClubCorp Employee Stock Ownership Plan
10.2~ Executive Liability and Indemnification Policy, effective October 19, 1998
10.3* Club Corporation International Executive Bonus Plan for 1992 - 1994
10.4^^ ClubCorp Comprehensive Compensation Plan
10.5* Club Corporation of America Stock Appreciation Rights Program
10.6* Form of Stockholder Agreement for Club Corporation International
10.7~ ClubCorp Employee Stock Ownership Trust
10.8^ Club Corporation International Executive Stock Option Plan
10.9*** First Amendment to the Club Corporation International Executive Stock Option Plan
10.10# Second Amendment to the Club Corporation International Executive Stock Option Plan
10.11~ Third Amendment to the Club Corporation International Executive Stock Option Plan
10.12^^^ Club Corporation International Omnibus Stock Plan
10.13~ First Amendment to the Club Corporation International Omnibus Stock Plan
10.14~ First Amendment to the ClubCorp Employee Stock Ownership Plan and ClubCorp Employee Stock
Ownership Trust
10.15~~ 200,000,000 Credit Agreement among ClubCorp, Inc. and Certain Lenders
dated March 29, 1999
10.16~ Form of Stock Purchase Agreement dated February 10, 1999 between Meditrust Corporation, Meditrust
Operating Company and Golf Acquisitions, L.L.C.
10.17~~~ Form of First Amendment and Restated Credit Agreement among ClubCorp, Inc. and certain lenders
for $650,000,000 dated September 24, 1999
10.18 Stock Purchase Agreement among ClubCorp, Inc., the Dedman Family and The Cypress Group, L.L.C.
dated October 26, 1999
10.19 Stockholders Agreement among ClubCorp, Inc., the Dedman Family and The Cypress Group, L.L.C.
dated October 26, 1999
10.20 Form of Warrant to Purchase Common Stock of ClubCorp, Inc.
21.1 Subsidiaries of ClubCorp, Inc.
23.1 Consent of KPMG LLP
23.2 Consent of Houlihan Lokey Howard and Zukin Financial Advisors, Inc.
24.1 Power of Attorney
99.1 Opinion of Houlihan Lokey Howard and Zukin Financial Advisors, Inc. related to December 28, 1999
valuation of the Common Stock
_____________________
* Incorporated by reference to the Company's Registration Statement on Form
S-1 (Registration No. 33-83496)
** Incorporated by reference to the Company's Post-Effective Amendment No. 1
to Form S-8 (Registration Nos. 33-89818, 33-96568, 333-08041 and
333-57107)
*** Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1995
^ Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 33-96568)
^^ Incorporated by reference to the Company's Registration Statement on Form
S-8 (Registration No. 333-08041)
^^^ Incorporated by reference to the Company's Registration Statement on
Form S-8 (Registration No. 333-57107)
# Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the fiscal period ended June 17, 1998
~ Incorporated by reference to the Company's Annual Report on Form 10-K for
the fiscal year ended December 29, 1998
~~ Incorporated by reference to the Company's Quarterly Report ended
on Form 10-Q for the fiscal period ended March 23, 1999
~~~ Incorporated by reference to the Company's Quarterly Report ended
on Form 10-Q for the fiscal period ended September 7, 1999
38
INDEPENDENT AUDITORS' REPORT
- ----------------------------
The Board of Directors
ClubCorp, Inc.
We have audited the accompanying consolidated financial statements of ClubCorp,
Inc. and subsidiaries ("ClubCorp") as listed in the accompanying index. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedule listed in the accompanying index.
These consolidated financial statements and financial statement schedule are the
responsibility of ClubCorp's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedule 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 29, 1998 and December 28, 1999, and the results of their operations and
their cash flows for each of the years in the three-year period ended December
28, 1999 in conformity with generally accepted accounting principles. Also in
our opinion, the related 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 LLP
Dallas, Texas
February 25, 2000
F - 1
CLUBCORP, INC.
CONSOLIDATED BALANCE SHEET
December 29, 1998 and December 28, 1999
(Dollars in thousands, except share amounts)
Assets 1998 1999
------ ----------- -----------
Current assets:
Cash and cash equivalents $ 75,342 $ 36,606
Membership and other receivables, net 84,915 109,391
Inventories 18,082 22,937
Other assets 14,668 16,213
----------- -----------
Total current assets 193,007 185,147
Property and equipment, net 751,070 1,122,369
Other assets 166,081 239,014
----------- -----------
$1,110,158 $1,546,530
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 58,826 $ 76,063
Long-term debt - current portion 18,633 50,742
Other liabilities 97,127 106,120
----------- -----------
Total current liabilities 174,586 232,925
Long-term debt 255,917 461,383
Other liabilities 109,880 118,069
Membership deposits 95,460 96,365
Redemption value of common stock held by benefit plan 65,279 72,835
Stockholders' equity:
Preferred stock, $.01 par value, 150,000,000 shares
authorized, none issued or outstanding - -
Common stock, $.01 par value, 250,000,000 shares
authorized, 90,219,408 and 99,594,408 issued
in 1998 and 1999, 84,629,809 and 94,436,903
outstanding in 1998 and 1999, respectively 902 996
Additional paid-in capital 11,205 160,408
Accumulated other comprehensive income (loss) (119) 841
Retained earnings 445,770 449,840
Treasury stock (48,722) (47,132)
----------- -----------
Total stockholders' equity 409,036 564,953
----------- -----------
$1,110,158 $1,546,530
=========== ===========
See accompanying notes to consolidated financial statements.
F - 2
CLUBCORP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended December 31, 1997, December 29, 1998 and December 28, 1999
(Dollars in thousands, except per share amounts)
1997 1998 1999
--------- --------- -----------
Operating revenues $830,740 $854,648 $1,027,549
Operating costs and expenses 697,568 716,481 873,865
Selling, general and administrative expenses 64,585 68,034 81,277
Impairment loss from assets to be held and used - - 13,483
--------- --------- -----------
Operating income 68,587 70,133 58,924
Gain (loss) on divestitures and sales of assets 4,729 (5,718) 3,048
Interest and investment income 6,500 8,780 4,278
Interest expense (34,044) (28,901) (43,279)
Other income 1,118 1,025 -
--------- --------- -----------
Income from continuing operations before income taxes,
minority interest and extraordinary item 46,890 45,319 22,971
Income tax (provision) benefit 41,264 (5,807) (11,756)
Minority interest (290) - 411
--------- --------- -----------
Income from continuing operations before extraordinary item 87,864 39,512 11,626
Discontinued operations - income on disposal of financial
services segment, net of income taxes of $(15,221) 25,146 - -
--------- --------- -----------
Income before extraordinary item 113,010 39,512 11,626
Extraordinary item - loss on extinguishment of debt, net of
income taxes of $634 - (1,176) -
--------- --------- -----------
Net income $113,010 $ 38,336 $ 11,626
========= ========= ===========
Basic earnings per share:
Income from continuing operations before extraordinary item $ 1.03 $ .46 $ .13
Discontinued operations .29 - -
Extraordinary item - loss on extinguishment of debt - (.01) -
--------- --------- -----------
Net income $ 1.32 $ .45 $ .13
========= ========= ===========
Diluted earnings per share:
Income from continuing operations before extraordinary item $ 1.02 $ .45 $ .13
Discontinued operations .29 - -
Extraordinary item - loss on extinguishment of debt - (.01) -
--------- --------- -----------
Net income $ 1.31 $ .44 $ .13
========= ========= ===========
See accompanying notes to consolidated financial statements.
F - 3
CLUBCORP, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
Years Ended December 31, 1997, December 29, 1998 and December 28, 1999
(Dollars in thousands, except share amounts)
Preferred stock
(150,000,000 shares
authorized, par Common stock (250,000,000 shares
value $.01 per share) authorized, par value $.01 per share)
--------------------- --------------------------------------------
Treasury Additional
Shares Shares Shares Stock Shares Par Paid-in
Issued Outstanding Issued Shares Outstanding Value Capital
------ ------------- ---------- ---------- ------------ ------ -----------
Balances at December 31, 1996 - - 90,219,408 4,826,167 85,393,241 $ 902 $ 10,380
Purchase of treasury stock - - - 447,850 (447,850) - -
Stock issued in connection with bonus plans - - - (58,448) 58,448 - 227
Comprehensive income:
Net income - - - - - - -
Foreign currency translation adjustment - - - - - - -
Market adjustment - - - - - - -
Total comprehensive income
Change in redemption value of common
stock held by benefit plan - - - - - - -
------ ----------- ---------- ---------- ------------ ------ -----------
Balances at December 31, 1997 - - 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607
Purchase of treasury stock - - - 506,549 (506,549) - -
Stock issued in connection with:
Purchases by benefit plan - - - (11,084) 11,084 - 78
Bonus plans - - - (71,935) 71,935 - 436
Exercise of stock options - - - (49,500) 49,500 - 84
Comprehensive income:
Net income - - - - - - -
Foreign currency translation adjustment - - - - - - -
Total comprehensive income
Change in redemption value of common
stock held by benefit plan - - - - - - -
------ ----------- ---------- ---------- ------------ ------ -----------
Balances at December 29, 1998 - - 90,219,408 5,589,599 84,629,809 $ 902 $ 11,205
PURCHASE OF TREASURY STOCK - - - 265,221 (265,221) - -
STOCK ISSUED IN CONNECTION WITH:
PURCHASE BY INVESTMENT GROUP, NET - - 9,375,000 - 9,375,000 94 143,895
ACQUISITION - - - (597,533) 597,533 - 4,717
BONUS PLANS - - - (84,782) 84,782 - 570
EXERCISE OF STOCK OPTIONS - - - (15,000) 15,000 - 21
COMPREHENSIVE INCOME:
NET INCOME - - - - - - -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - - -
TOTAL COMPREHENSIVE INCOME
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - - - - - - -
------ ----------- ---------- ---------- ------------ ------ -----------
BALANCES AT DECEMBER 28, 1999 - - 99,594,408 5,157,505 94,436,903 $ 996 $ 160,408
====== =========== ========== ========== ============ ====== ===========
Accumulated
Other Total
Comprehensive Retained Treasury Stockholders'
Income (Loss) Earnings Stock Equity
--------------- ---------- ---------- ---------------
Balances at December 31, 1996 $ (100) $ 316,470 $ (37,100) $ 290,552
Purchase of treasury stock - - (5,568) (5,568)
Stock issued in connection with bonus plans - - 453 680
Comprehensive income:
Net income - 113,010 - 113,010
Foreign currency translation adjustment 314 - - 314
Market adjustment 46 - - 46
---------------
Total comprehensive income 113,370
Change in redemption value of common
stock held by benefit plan - (10,419) - (10,419)
--------------- ---------- ---------- ---------------
Balances at December 31, 1997 $ 260 $ 419,061 $ (42,215) $ 388,615
Purchase of treasury stock - - (7,606) (7,606)
Stock issued in connection with:
Purchases by benefit plan - - 94 172
Bonus plans - - 584 1,020
Exercise of stock options - - 421 505
Comprehensive income:
Net income - 38,336 - 38,336
Foreign currency translation adjustment (379) - - (379)
---------------
Total comprehensive income 37,957
Change in redemption value of common
stock held by benefit plan - (11,627) - (11,627)
--------------- ---------- ---------- ---------------
Balances at December 29, 1998 $ (119) $ 445,770 $ (48,722) $ 409,036
PURCHASE OF TREASURY STOCK - - (4,514) (4,514)
STOCK ISSUED IN CONNECTION WITH:
PURCHASE BY INVESTMENT GROUP, NET - - - 143,989
ACQUISITION - - 5,202 9,919
BONUS PLANS - - 771 1,341
EXERCISE OF STOCK OPTIONS - - 131 152
COMPREHENSIVE INCOME:
NET INCOME - 11,626 - 11,626
FOREIGN CURRENCY TRANSLATION ADJUSTMENT 960 - - 960
---------------
TOTAL COMPREHENSIVE INCOME 12,586
CHANGE IN REDEMPTION VALUE OF COMMON
STOCK HELD BY BENEFIT PLAN - (7,556) - (7,556)
--------------- ---------- ---------- ---------------
BALANCES AT DECEMBER 28, 1999 $ 841 $ 449,840 $ (47,132) $ 564,953
=============== ========== ========== ===============
See accompanying notes to consolidated financial statements.
F-4
CLUBCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31, 1997, December 29, 1998 and December 28, 1999
(Dollars in thousands)
1997 1998 1999
---------- ---------- ----------
Cash flows from operations:
Net income $ 113,010 $ 38,336 $ 11,626
Adjustments to reconcile net income to cash flows provided from operations:
Depreciation and amortization 47,314 54,161 73,458
Impairment loss from assets to be held and used - - 13,483
Loss (gain) on divestitures and sales of assets (4,729) 5,718 (3,048)
Minority interest in net loss (income) of subsidiaries 290 - (411)
Income on disposal of financial services segment (25,146) - -
Extraordinary item - loss on extinguishment of debt - 1,810 -
Equity in earnings of joint ventures (852) (1,007) (1,991)
Amortization of discount on membership deposits 7,681 8,345 6,686
Deferred income taxes (44,045) 2,898 7,858
Decrease in real estate held for sale 14,828 9,265 10,512
Increase in membership and other receivables, net (3,033) (9,271) (13,245)
Increase in accounts payable and accrued liabilities 2,017 2,000 15,641
Increase (decrease) in deferred income 5,742 12,770 (15,503)
Increase in deferred membership revenues 2,823 8,057 10,366
Other (8,869) (16,649) (10,864)
---------- ---------- ----------
Cash flows provided from operations 107,031 116,433 104,568
Cash flows from investing activities:
Additions to property and equipment (58,768) (100,035) (129,624)
Development of new facilities (5,775) (19,120) (31,813)
Development of real estate ventures (9,563) (8,575) (18,442)
Acquisition of facilities (6,436) (9,038) (265,507)
Investment in affiliates (6,123) (21,930) (42,947)
Proceeds from disposition of subsidiaries and assets, net 13,026 10,768 11,368
Proceeds from disposal of financial services segment, net 89,968 - -
Other 7,371 6,429 (3,261)
---------- ---------- ----------
Cash flows provided from (used by) investing activities 23,700 (141,501) (480,226)
Cash flows from financing activities:
Borrowings of long-term debt 19,441 238,959 903,779
Repayments of long-term debt (103,730) (232,709) (712,407)
Membership deposits received, net 1,744 3,820 5,923
Treasury stock transactions, net (5,568) (6,929) (4,362)
Proceeds from sale of stock, net - - 143,989
Repayment of Federal Home Loan bank advances (3,153) - -
Dividend paid to minority shareholder of financial services segment (12,500) (4,150) -
---------- ---------- ----------
Cash flows provided from (used by) financing activities (103,766) (1,009) 336,922
---------- ---------- ----------
Total net cash flows 26,965 (26,077) (38,736)
---------- ---------- ----------
Cash and cash equivalents at beginning of period 74,454 101,419 75,342
---------- ---------- ----------
Cash and cash equivalents at end of period $ 101,419 $ 75,342 $ 36,606
========== ========== ==========
See accompanying Notes 1, 2, 3, 4, and 8 for supplemental disclosures of
non-cash activities.
See accompanying notes to consolidated financial statements.
F - 5
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------------
Consolidation
- -------------
The Consolidated Financial Statements include the accounts of ClubCorp, 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 (Note 2) and ClubCorp's gain on the sale is 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 for which ClubCorp does not have operational or
financial control are accounted for on the equity method. Under the equity
method, original investments are recorded at cost and adjusted by ClubCorp's
share of the undistributed earnings or losses of these affiliates (Note 4). The
investment balances are included in other non-current assets in the accompanying
financial statements.
All material intercompany balances and transactions have been eliminated.
No minority interest is recorded for minority stockholders of three country
clubs, two business clubs, five golf clubs in development, one resort subsidiary
and two real estate development subsidiaries because of deficit capital
positions. Minority stockholders' share of these entities' cumulative and 1999
losses which approximate $7,522,000 and $1,936,000, respectively, have been
recognized by ClubCorp. Future earnings of these subsidiaries will be recognized
by ClubCorp to the extent of minority interest losses previously absorbed.
Nature of operations
- --------------------
ClubCorp, Inc. is a holding company incorporated under the laws of the State of
Delaware that, through its subsidiaries, has historically operated in two
distinct business industries; hospitality and financial services. The disposal
of the financial services segment is presented as discontinued operations for
financial reporting purposes (Note 2). ClubCorp's operations in the hospitality
industry involve the operation of resorts, country club and golf facilities and
business and sports clubs through sole ownership, partial ownership (including
joint venture interests) and management agreements.
Fiscal year
- -----------
Effective January 1, 1997, ClubCorp changed its fiscal year from a calendar year
ending December 31 to a 52/53 week fiscal year ending on the last Wednesday of
December. Fiscal year 1997 is comprised of the 53 weeks ended December 31, 1997.
ClubCorp decided to modify its accounting periods effective in fiscal year 1998
from the fiscal year ending on the last Wednesday to the fiscal year ending on
the last Tuesday of December. ClubCorp's 1998 and 1999 fiscal years are
comprised of the 52 weeks ended December 29, 1998 and December 28, 1999,
respectively.
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 180 days or less. Cash equivalents at December 29, 1998 and December 28,
1999 were approximately $30,488,000 and $8,898,000, respectively.
Impairment of long-lived assets and intangible assets
- -----------------------------------------------------
Long-lived assets and certain identifiable intangibles to be held and used by an
entity are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
F - 6
CLUBCORP, INC.
(Note 1 continued)
ClubCorp assesses the recoverability of long-lived assets by determining whether
the fixed asset balance can be recovered over its remaining life through
estimated future cash flows. Fair value, for purposes of calculating
impairment, is measured based on discounted future operating cash flows using a
risk-adjusted discount rate. As a result of current and historical operating
losses, ClubCorp evaluated the recoverability of the long-lived assets at a
resort and recorded an impairment loss for the year ended December 28, 1999.
Impaired assets identified were property and equipment including land
improvements and buildings.
Intangible assets
- -----------------
Identifiable intangible assets 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 10 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 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 29, 1998 and December 28, 1999, real estate held for sale was
$26,591,000 and $52,950,000, respectively, and is included in other non-current
assets in the Consolidated Balance Sheet.
Sales of real estate generally are accounted for under the full accrual method.
Under that method, a 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 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.
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
comprehensive income. Realized foreign currency transaction gains and losses
are reflected in the statement of operations.
F - 7
CLUBCORP, INC.
(Note 1 continued)
Treasury stock
- --------------
Purchases of treasury stock are recorded at the cost of the shares acquired.
When treasury stock is subsequently issued, the difference between the cost of
shares issued, using the average cost method, and the sales price is charged or
credited to additional paid-in capital.
Stock-based compensation
- ------------------------
Stock-based compensation is accounted for using Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". Under APB 25,
if the exercise price of the options is greater than or equal to the market
price at the date of grant, no compensation expense is recorded. ClubCorp has
also adopted the disclosure-only provisions of SFAS 123, "Accounting for
Stock-based Compensation" (Note 13).
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. Lifetime 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.
Membership deposits represent advance initiation deposits paid by members and
are refundable a fixed number of years (generally 30) after the date of
acceptance as a member. The difference between the amount of the membership
deposit and the present value of the obligation is deferred and recognized as
revenue on a straight-line basis over the average expected life of an active
membership. Nonrefundable initiation fees and related incremental direct selling
costs of membership initiation deposits and fees (primarily commissions) are
recorded in the same manner. The membership deposit liability accretes over the
refundable term using the interest method. The accretion is included in
interest expense in the accompanying Consolidated Statement of Operations.
At December 28, 1999, the amount of membership deposits contractually due and
payable during the next five years is not significant.
Divestiture of subsidiaries
- ---------------------------
Gain (loss) on divestitures and sales of assets includes gains and losses from
the disposition and sales of assets and subsidiaries. Subsidiaries are divested
when management determines they will be unable to provide a positive
contribution to cash flows from operations in future periods. Gains from
divestitures are generally recognized in the period in which operations cease
and losses are recognized when they become apparent.
Interest rate swap agreements
- -----------------------------
ClubCorp enters into interest rate swap agreements to limit exposure to
fluctuations in interest rates related to long-term debt. ClubCorp accounts for
these swap agreements by recording the net interest to be paid or received as an
increase or reduction in interest expense in the period it is accrued.
Earnings per share
- ------------------
Earnings per share is computed using the weighted average number of common
shares outstanding of 85,283,231, 84,935,699 and 85,919,955 for basic and
85,946,231, 86,649,991 and 88,264,521 for diluted for 1997, 1998 and 1999,
respectively. The weighted average shares outstanding used in the calculation
of diluted earnings per share includes options and warrants to purchase common
stock (Notes 10 and 13).
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current year presentation.
F - 8
CLUBCORP, INC.
(Note 1 continued)
Recent pronouncements
- ---------------------
In June 1998, the FASB issued SFAS No. 133, "Accounting 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, as amended, is
effective for all quarters of years beginning after June 15, 2000. Based on
ClubCorp's current operations, the effect of implemen-tation 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 2001 Consolidated Financial Statements.
NOTE 2. DISCONTINUED OPERATIONS
- --------------------------------
On August 7, 1996, Franklin entered into an agreement to sell certain assets and
transfer certain liabilities to Norwest Corporation pending regulatory approval.
The sale was consummated on January 2, 1997 for $89,968,000. ClubCorp's total
cash investment in Franklin was $25,000,000. For the year ended December 31,
1997, ClubCorp's gain on the sale, net of income taxes and minority interest,
was $25,146,000.
In January 1997, Franklin paid $62,500,000 in dividends to its shareholders.
ClubCorp used a majority of its dividend to repay long-term debt.
NOTE 3. ACQUISITIONS
- ---------------------
During 1997, ClubCorp purchased the stock of a golf club and substantially all
the assets of a country club and a hotel. The hotel is an addition to an
existing resort subsidiary.
During 1998, ClubCorp purchased substantially all the assets of two country
clubs.
During 1999, ClubCorp purchased the minority interest in a previously
consolidated resort property, substantially all the assets of 29 golf
facilities, including 22 from The Cobblestone Golf Group, one business facility
and one real estate development subsidiary. The 29 golf facilities include 12
country clubs, 14 golf clubs and three public golf courses.
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):
1997 1998 1999
------- ------ --------
Inventories and other assets $ 39 $ 72 $ 16,937
Property and equipment 9,587 7,627 313,095
Excess of cost over net
assets acquired 732 1,530 1,804
------- ------ --------
Total assets acquired $10,358 $9,229 $331,836
======= ====== ========
Accounts payable and
accrued liabilities $ 1,003 $ 80 $ 4,963
Long-term debt 2,919 111 39,705
Other liabilities - - 11,742
------- ------ --------
Total liabilities assumed $ 3,922 $ 191 $ 56,410
======= ====== ========
Purchase price $ 6,436 $9,038 $275,426
======= ====== ========
The purchase price generally represents cash paid for the acquired assets and
liabilities. In 1999, the purchase price includes stock issued in connection
with an acquisition in the amount of $9,919,000.
The following unaudited proforma financial information for ClubCorp assumes the
acquisitions in 1998 and 1999 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):
1998 1999
-------- ----------
Operating revenues $925,705 $1,048,137
======== ==========
Net income $ 25,438 $ 8,279
======== ==========
Diluted earnings per share $ .29 $ .09
======== ==========
F - 9
CLUBCORP, INC.
NOTE 4. INVESTMENTS IN AFFILIATES
- ----------------------------------
ClubCorp's investments in affiliates include joint ventures for the operation of
four real estate developments, four country clubs, three golf clubs, two
business clubs and common stock interests in two golf operating companies,
ClubLink Corporation and PGA European Tour Courses, PLC. In addition, ClubCorp
entered into a joint venture for the sole purpose of acquiring the Cobblestone
properties (Note 3).
A summary of the significant financial information of affiliated companies
accounted for on the equity method is as follows (dollars in thousands):
1998 1999
-------- --------
Cash $ 11,303 $ 27,853
Property and equipment, net 270,071 331,066
Land held for resale 494 240
Other assets 106,123 96,322
-------- --------
Total assets $387,991 $455,481
======== ========
Long-term debt $ 63,539 $133,430
Membership deposits 4,800 5,250
Other liabilities 103,640 90,042
Venturers' capital 216,012 226,759
-------- --------
Total liabilities and
venturers' capital $387,991 $455,481
======== ========
Operating revenues $ 95,362 $116,660
Operating income $ 19,178 $ 20,994
Net income $ 10,668 $ 7,337
ClubCorp's equity in:
Venturers' capital $ 31,598 $ 70,835
Net income $ 1,007 $ 1,991
CLUBCORP, INC.
NOTE 5. FAIR VALUE OF FINANCIAL INSTRUMENTS
- --------------------------------------------
Fair value estimates are made at a specific point in time, based on
relevant information about the financial instrument. These estimates do not
reflect any premium or discount that could result from offering for sale at one
time ClubCorp's entire holdings of a particular financial instrument. Because no
market exists for certain financial instruments, fair value estimates are based
on management's judgment regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments and
other factors. These fair value estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be
determined with precision. Changes in assumptions could significantly affect
estimates.
At December 29, 1998 and December 28, 1999, ClubCorp's estimate of fair value
approximates the carrying value of its financial instruments except as noted
below.
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, capital lease and other obligations are based on the
discounted value of contractual cash flows using ClubCorp's incremental
borrowing rates for similar types of debt arrangements. The estimated fair
value of these obligations was $75,478,000 and $58,185,000 at December 29, 1998
and December 28, 1999, respectively. The carrying value of these obligations
was $79,397,000 and $67,182,000 at December 29, 1998 and December 28, 1999,
respectively. ClubCorp's fluctuating rate obligations' carrying amounts
approximate fair value.
Membership deposits
- -------------------
The estimated fair value of membership deposits was $115,589,000 and
$100,593,000 at December 29, 1998 and December 28, 1999, respectively. The
carrying value at December 29, 1998 and December 28, 1999 of membership deposits
was $95,460,000 and $96,365,000, respectively. The fair value of membership
deposits is based on the discounted value of future maturities using ClubCorp's
incremental borrowing rate.
Interest rate swaps
- -------------------
The estimated fair value of interest rate swaps was $(2,888,000) and $4,153,000
at December 29, 1998 and December 28, 1999, respectively. The notional amounts
were $139,539,000 and $139,316,000 at December 29, 1998 and December 28, 1999,
respectively. Fair value was based on quotes from a broker. The Company's
interest rate swaps are not recorded in the accompanying Consolidated Balance
Sheet.
F - 10
CLUBCORP, INC.
NOTE 6. PROPERTY AND EQUIPMENT
- -------------------------------
Property and equipment consists of the following at year-end (dollars in
thousands):
1998 1999
----------- -----------
Land and land improvements $ 318,865 $ 528,466
Buildings and recreational facilities 295,081 378,560
Leasehold improvements 96,781 112,570
Furniture and fixtures 96,257 118,107
Machinery and equipment 175,342 222,762
Construction in progress 52,263 104,050
----------- -----------
1,034,589 1,464,515
Accumulated depreciation
and amortization (283,519) (342,146)
----------- -----------
$ 751,070 $1,122,369
=========== ===========
NOTE 7. CURRENT LIABILITIES
- ----------------------------
Current liabilities consist of the following at year-end (dollars in thousands):
1998 1999
-------- --------
Accounts payable $ 24,139 $ 35,610
Accrued compensation
and employee benefits 22,546 23,793
Other accrued liabilities 12,141 16,660
-------- --------
Accounts payable
and accrued liabilities 58,826 76,063
Long-term debt - current portion 18,633 50,742
Deferred membership revenue 39,746 54,932
Other deferred revenue 33,993 20,715
Property taxes payable 11,561 17,569
Other current liabilities 11,827 12,904
-------- --------
Other liabilities 97,127 106,120
-------- --------
Total current liabilities $174,586 $232,925
======== ========
NOTE 8. LONG-TERM DEBT AND LEASES
- ----------------------------------
Long-term borrowings are summarized below with weighted average interest rates
of 6.6% and 8.7% at year-end 1998 and 1999, respectively, and the range of
maturity dates for debt outstanding at December 28, 1999 in parentheses (dollars
in thousands):
1998 1999
-------- --------
Notes payable to
financial institutions:
Fixed rate (2000-2017) $ 26,736 $ 13,892
Fluctuating rate (2000-2007) 195,153 444,943
Notes payable to developers and
landlords - Fixed rate (2002-2013) 2,818 2,254
Capital lease obligations (2000-2004) 24,431 26,264
Other obligations (2000-2006) 25,412 24,772
-------- --------
274,550 512,125
Less current portion 18,633 50,742
-------- --------
$255,917 $461,383
======== ========
Certain real and personal property and equipment of Parent's subsidiaries are
pledged as collateral on their long-term debt.
On September 24, 1999, ClubCorp finalized a comprehensive refinancing agreement
with a group of banks. The combined $650,000,000 refinancing agreement consists
of a $350,000,000 revolving credit facility which matures in September 2004, a
$100,000,000 term loan which matures in September 2004 and a $200,000,000 term
loan which matures in March 2007. The interest rate is typically determined
using a LIBOR-based pricing matrix as defined in the agreement. ClubCorp
borrowed $519,113,000 under these new facilities to refinance debt, including
$481,500,000 outstanding under the existing credit facilities. In addition,
ClubCorp intends to use the facility to finance future acquisitions, capital
expansions and working capital needs. As of December 28, 1999, the amount
outstanding under this agreement, including letters of credit of $10,345,000, is
$421,345,000; $200,000,000 at an interest rate of LIBOR plus 3%, $100,000,000 at
an interest rate of LIBOR plus 2% and the remaining balance at an interest rate
of LIBOR plus 1.5%.
F - 11
CLUBCORP, INC.
(Note 8 continued)
The amounts of long-term debt maturing in each of the four years subsequent to
2000 are as follows (dollars in thousands):
Year
- ----
2001 $ 23,121
2002 12,660
2003 6,125
2004 212,366
The provisions of certain subsidiary lending and lease agreements limit the
amount of dividends that may be paid to Parent. Under the most restrictive of
these limitations, at December 28, 1999, approximately $184,800,000 of retained
earnings was available for the declaration of dividends to Parent.
The amount of cash paid for interest in 1997, 1998 and 1999 was approximately
$24,700,000 $21,400,000 and $32,400,000, respectively.
ClubCorp has entered into interest rate swap agreements with a total notional
amount of approximately $139,000,000. Under these agreements which mature from
2000 to 2003, ClubCorp will receive interest at the 30 to 90 day LIBOR rate and
pay interest at rates ranging from 5.25% to 7.865%.
ClubCorp leases operating facilities under agreements ranging from 1 to 43
years. These agreements normally provide for minimum rentals plus executory
costs. In some cases, ClubCorp must pay contingent rent generally based on a
percentage of gross receipts or positive cash flow as defined in the lease
agreements. Future minimum lease payments required at December 28, 1999 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
- ----
2000 $ 24,820
2001 24,763
2002 22,485
2003 21,270
2004 19,142
Thereafter 108,100
--------
Total future minimum
payments required $220,580
========
Total facility rental expense (including contingent rent) during 1997, 1998 and
1999 was $34,165,000, $32,978,000 and $40,487,000, respectively. Contingent rent
during 1997, 1998 and 1999 was $6,750,000, $5,931,000 and $6,387,000,
respectively.
NOTE 9. OTHER LIABILITIES
- --------------------------
Other liabilities consist of the following at year-end (dollars in thousands):
1998 1999
-------- --------
Deferred membership revenue $ 89,902 $ 97,640
Insurance reserves 14,160 9,870
Other 5,818 10,559
-------- --------
Total other liabilities $109,880 $118,069
======== ========
NOTE 10. STOCKHOLDERS' EQUITY
- ------------------------------
On December 1, 1999, ClubCorp sold 9,375,000 shares of common stock and
1,012,500 common stock purchase warrants for a price of $16 per share. The sale
resulted in total proceeds of $150,000,000, net of issuance costs of $6,011,000.
Each common stock purchase warrant allows the holder to purchase one share of
common stock at $17 per share and is exercisable immediately through 2009.
During the year ended December 28, 1999, no common stock purchase warrants were
redeemed. The stock purchase agreement includes a repurchase clause whereby
ClubCorp could be required to repurchase a portion of the outstanding shares of
common stock and common stock purchase warrants should certain events that are
under ClubCorp's control not occur.
F - 12
CLUBCORP, INC.
NOTE 11. 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 clubs and Resorts.
Management has determined that the operations of these three segments have
similar economic characteristics and meet the criteria which permit the
operations to be aggregated into these reportable segments. Management of
ClubCorp relies primarily on Adjusted EBITDA generated from its properties
within the three reportable segments for purposes of making decisions about
allocating resources and assessing segment performance.
The primary sources of revenue for all segments are membership revenue and food
and beverage sales. Additionally, country club and golf facilities and resorts
have significant golf operations revenue and resorts have significant lodging
revenue.
Country club and golf facilities operations consist of domestic private country
clubs, semi-private golf clubs and public golf facilities. Private country
clubs provide at least one 18-hole golf course and various other recreational
amenities that are open only to members and their guests. Semi-private golf
clubs provide both private and public golf play and usually offer fewer other
recreational amenities. Public golf facilities are open to the public and
generally provide the same services as semi-private golf clubs. Business and
sports club operations consist of domestic business clubs, business/sports clubs
and sports clubs. Business clubs provide a setting for dining, business or
social entertainment that is available only to members and their guests. Sports
clubs provide a variety of recreational facilities available only to members and
their guests. Business/sports clubs provide a combination of the amenities
available at business clubs and sports clubs and are available only to members
and their guests.
Resorts offer a wide variety of amenities including golf courses, lodging and
conference facilities, dining areas and other recreational facilities. Resorts
are open to the public and offer optional membership.
Other operations consist of international and real estate businesses.
International operations include golf and business clubs located outside the
United States. The primary sources of operating revenues are consistent with
those of domestic golf and business clubs. Realty operations are comprised of
residential real estate development and sales, primarily in areas adjacent to
golf facilities. Operating revenues are provided almost entirely from real
estate sales.
ClubCorp management monitors operational performance using an Adjusted EBITDA
calculation. Adjusted EBITDA consists of operating income plus depreciation and
amortization from wholly owned entities, impairment loss, net membership
deposits and fees from wholly owned entities and a joint venture adjustment.
The joint venture adjustment is comprised of depreciation, amortization,
interest, income taxes and net membership deposits and fees for joint venture
entities at ClubCorp's ownership percentage. Net membership deposits and fees
represent the difference between current period sales of deposits and fees and
revenue recognized from deposits and fees (Note 1).
Acquisitions and development of new facilities consist of the fair value of
property and equipment for acquisitions at the date of purchase (Note 3) and
cash paid for property and equipment related to the development of new
facilities.
Additions to property and equipment consist of capital replacements and
improvements at existing clubs.
F - 13
CLUBCORP, INC.
(Note 11 continued)
Financial information for the segments is as follows (dollars in thousands):
1997 1998 1999
----------- ----------- -----------
Operating revenues:
Country club and golf facilities $ 356,324 $ 376,125 $ 459,967
Business and sports clubs 251,668 257,810 263,366
Resorts 168,099 172,624 238,626
----------- ----------- -----------
Total operating revenues for reportable segments 776,091 806,559 961,959
Other operations 38,610 29,707 47,306
Corporate services and eliminations 16,039 18,382 18,284
----------- ----------- -----------
Consolidated operating revenues 830,740 854,648 1,027,549
=========== =========== ===========
Depreciation and amortization:
Country club and golf facilities 26,838 29,152 42,829
Business and sports clubs 7,992 10,966 12,788
Resorts 9,628 9,675 10,486
----------- ----------- -----------
Total depreciation and amortization for reportable segments 44,458 49,793 66,103
Other operations 1,219 1,552 1,289
Corporate services and eliminations 1,637 2,816 6,066
----------- ----------- -----------
Consolidated depreciation and amortization 47,314 54,161 73,458
=========== =========== ===========
Adjusted EBITDA:
Country club and golf facilities 90,743 96,262 119,430
Business and sports clubs 28,855 36,596 29,797
Resorts 22,873 30,572 48,729
----------- ----------- -----------
Total Adjusted EBITDA for reportable segments 142,471 163,430 197,956
Other operations 10,075 (3,603) (5,950)
Corporate services and eliminations (20,183) (21,935) (25,791)
----------- ----------- -----------
Consolidated Adjusted EBITDA 132,363 137,892 166,215
Depreciation and amortization (47,314) (54,161) (73,458)
Impairment loss from assets to be held and used - - (13,483)
Net membership deposits and fees (8,684) (10,267) (18,223)
Joint venture adjustment (7,778) (3,331) (2,127)
----------- ----------- -----------
Consolidated Operating Income 68,587 70,133 58,924
=========== =========== ===========
Acquisitions and development of new facilities:
Country club and golf facilities 4,096 19,688 289,124
Business and sports clubs 172 2,552 366
Resorts 3,529 - 15,345
----------- ----------- -----------
Total acquisitions and development for reportable segments 7,797 22,240 304,835
Other operations 7,565 4,507 61,768
Corporate services and eliminations - - -
----------- ----------- -----------
Acquisitions and development of new facilities for reportable segments 15,362 26,747 366,603
=========== =========== ===========
Additions to property and equipment:
Country club and golf facilities 36,860 36,767 49,079
Business and sports clubs 10,585 13,515 14,028
Resorts 16,210 38,338 57,761
----------- ----------- -----------
Additions to property and equipment for reportable segments 63,655 88,620 120,868
Other operations 1,879 78 586
Corporate services and eliminations 3,602 27,656 22,482
----------- ----------- -----------
Consolidated additions to property and equipment 69,136 116,354 143,936
=========== =========== ===========
Total assets:
Country club and golf facilities 591,148 647,435 975,241
Business and sports clubs 183,942 187,589 189,340
Resorts 168,353 203,424 248,563
----------- ----------- -----------
Total assets for reportable segments 943,443 1,038,448 1,413,144
Other operations 125,427 152,399 168,166
Corporate services and eliminations (40,196) (80,689) (34,780)
----------- ----------- -----------
Consolidated total assets $1,028,674 $1,110,158 $1,546,530
=========== =========== ===========
F - 14
CLUBCORP, INC.
NOTE 12. INTERNATIONAL OPERATIONS
- ----------------------------------
ClubCorp's international operations consist of the following (dollars in
thousands):
1997 1998 1999
-------- -------- --------
Identifiable assets $25,738 $35,493 $63,416
======== ======== ========
Operating revenues $11,983 $13,449 $15,433
======== ======== ========
Loss from continuing
operations before
income taxes $(2,329) $(6,290) $(5,044)
======== ======== ========
Net loss $(2,622) $(6,350) $(5,828)
======== ======== ========
International operations are included in the Other operations category for
segment reporting (Note 11) except for one resort property which is included in
the Resorts segment.
NOTE 13. BENEFIT PLANS
- -----------------------
ClubCorp maintains a qualified contributory profit sharing plan (the "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. The matching contribution vests over time.
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 (3,932,459 and
4,112,659 shares at December 29, 1998 and December 28, 1999, respectively) at
the current appraised value ($16.60 and $17.71 at December 29, 1998 and December
28, 1999, respectively) as necessary in order to meet the requirements of the
Employee Retirement Income Security Act and the Plan. Accordingly, the
redemption value of ClubCorp's common stock held by the Plan has been
reclassified out of stockholders' equity in the accompanying Consolidated
Balance Sheet and changes in the redemption value are charged to retained
earnings. 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.
The Plan was amended and restated into an employee stock ownership plan
effective as of January 1, 1999, known as the ClubCorp Employee Stock Ownership
Plan (the "Amended Plan"). Eligible employees continue to have the opportunity
to invest 1% to 6% of their pretax compensation, subject to certain limitations.
The participating subsidiaries' matching contributions and vesting schedule
remained the same.
Funds that were in the Plan before January 1, 1999, remain in the Amended Plan.
Generally, contributions to the Amended Plan will be invested in ClubCorp stock.
Participants may elect to diversify a portion of their account assets upon
meeting certain age and participation requirements. In addition, upon
termination, retirement or permanent disability, a participant or beneficiary
may demand distribution of ClubCorp common stock in lieu of cash.
ClubCorp maintains a second qualified contributory profit sharing plan for all
eligible employees of certain domestic subsidiaries. Assets in the Amended Plan
may be transferred to this plan which allows participants to invest their
contributions among five investment fund options.
F - 15
CLUBCORP, INC.
(Note 13 continued)
The ClubCorp, Inc. 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 January 1997, 150,000 options were granted at $12.04 per share with
an expiration date of December 31, 2007. No options were granted under this
plan in 1998 or 1999.
The ClubCorp, Inc. Omnibus Stock Plan was adopted, effective February 1998. The
Omnibus Stock 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 the grant and
will generally be three to five years. In fiscal year 1998, 1,860,000 options
were granted at a weighted average of $14.30 per share with a five year vesting
and a ten year expiration date. In fiscal year 1999, 344,500 options were
granted at a weighted average of $16.70 per share with a five year vesting and a
ten year expiration date. None of these options are currently exercisable.
ClubCorp applies APB 25 in accounting for the option plans; 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 1997, 1998 and 1999 grants: risk-free interest rates of 5.8%, 5.5% and
5.2%, respectively, an expected volatility of 25%, 25% and 40%, respectively, an
expected life of ten years and zero dividend yield. A summary of the status of
the options outstanding as of year-end 1997, 1998 and 1999 and changes during
the fiscal years are as follows:
Average
Exercise
Shares Price
---------- ---------
Outstanding at December 31, 1996 3,010,000 $ 10.13
Granted 150,000 12.04
Forfeited (50,000) 10.14
----------
Outstanding at December 31, 1997 3,110,000 10.22
Granted 1,860,000 14.30
Forfeited (406,500) 10.14
Exercised (49,500) 10.14
----------
Outstanding at December 29, 1998 4,514,000 11.87
GRANTED 344,500 16.70
FORFEITED (73,000) 14.21
EXERCISED (15,000) 10.14
----------
OUTSTANDING AT DECEMBER 28, 1999 4,770,500 12.18
==========
1997 1998 1999
-------- -------- ----------
Options exercisable
at year end:
Number of options 573,000 761,000 1,030,000
Weighted average
exercise price $ 10.14 $ 10.17 $ 10.18
Fair value of options
granted during the year $ 6.14 $ 7.21 $ 10.09
The range of exercise prices for options outstanding at December 28, 1999 is
$10.01 to $17.20.
F - 16
CLUBCORP, INC.
(Note 13 continued)
If compensation cost for the option plans 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 and net income per share would have been reduced to the
following pro forma amounts (dollars in thousands, except per share amounts):
1997 1998 1999
-------- ------- ------
Net income $111,399 $37,553 $8,686
Net income per share
assuming dilution $ 1.30 $ .43 $ .10
NOTE 14. 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 arising from resolution of these matters will not materially affect
ClubCorp's Consolidated Financial Statements.
NOTE 15. INTEREST AND INVESTMENT INCOME
- ----------------------------------------
Interest and investment income consists of the following (dollars in thousands):
1997 1998 1999
------- ------- -------
Interest income $6,520 $4,806 $4,298
Investment income - 4,101 -
Other (20) (127) (20)
------- ------- -------
$6,500 $8,780 $4,278
======= ======= =======
NOTE 16. INCOME TAXES
- ----------------------
Income from continuing operations before income taxes, minority interest and
extraordinary item consists of the following (dollars in thousands):
1997 1998 1999
-------- -------- -------
Domestic $50,710 $53,493 $21,712
Foreign (3,820) (8,174) 1,259
-------- -------- -------
$46,890 $45,319 $22,971
======== ======== =======
The income tax (provision) benefit consists of the following (dollars in
thousands):
1997 1998 1999
-------- -------- ---------
Federal
Current $ (674) $ (228) $ (10)
Deferred 44,045 (2,898) (7,858)
-------- -------- ---------
43,371 (3,126) (7,868)
State and Foreign (2,107) (2,047) (3,888)
-------- -------- ---------
$41,264 $(5,173) $(11,756)
======== ======== =========
The differences between income taxes computed using the U.S. statutory Federal
income tax rate of 35% and actual income tax (provision) benefit as reflected in
the accompanying Consolidated Statement of Operations are as follows (dollars in
thousands):
1997 1998 1999
--------- --------- ---------
Expected Federal income
tax provision $(16,412) $(15,862) $ (8,040)
Effect of consolidated
operations and income
taxes of foreign and
other entities not
consolidated for
Federal tax purposes (3,508) (2,664) 46
State and foreign taxes,
net of Federal benefit (1,370) (1,331) (2,527)
Change in valuation
allowance allocated to
income tax expense 66,566 14,233 -
Other, net (4,012) 451 (1,235)
--------- --------- ---------
$ 41,264 $ (5,173) $(11,756)
========= ========= =========
F - 17
CLUBCORP, INC.
(Note 16 continued)
Based on ClubCorp's historical pretax earnings, adjusted for significant
nonrecurring items such as gains (losses) on divestitures and sales of assets,
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
28, 1999. Based on revised estimates of taxable income, ClubCorp decreased its
valuation allowance on its deferred tax assets by approximately $66.6 million
and $14.2 million at December 31, 1997 and December 29, 1998, respectively. 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 has approximately $2,771,000 of tax credits available to offset regular
taxes payable which expire in varying amounts from 2000 to 2003.
ClubCorp's net operating loss carryforwards at December 28, 1999, after current
year utilization of net operating loss carryforwards, were approximately
$499,263,000 and $108,471,000 for regular tax and alternative minimum tax,
respectively. These regular tax and alternative minimum tax net operating loss
carryforwards are available to offset future taxable income and will expire from
2004 to 2010 and 2007 to 2010, respectively.
In addition to the regular tax and alternative minimum tax net operating loss
carryforwards, the Company has approximately $161,748,000 regular and
$142,887,000 alternative minimum tax Separate Return Limitation Year net
operating loss carryforwards which expire in 2003. The Company's December 29,
1998 and December 28, 1999 net deferred tax asset does not include any value for
these net operating loss carryforwards.
ClubCorp's Federal income tax returns for 1993 and 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 that any potential
liability arising from resolution of these matters will not materially affect
ClubCorp's Consolidated Financial Statements.
The components of the deferred tax assets and deferred tax liabilities at
December 29, 1998 and December 28, 1999 are as follows (dollars in thousands):
1998 1999
-------- --------
Deferred tax assets:
Regular tax operating
loss carryforwards $238,008 $231,354
Other 18,769 15,226
-------- --------
Total gross deferred tax assets 256,777 246,580
Valuation allowance 97,803 97,803
-------- --------
158,974 148,777
Deferred tax liabilities:
Property and equipment 17,557 15,529
Discounts on membership
deposits and acquired notes 106,592 102,730
Other 14,022 17,573
-------- --------
Total gross deferred
tax liabilities 138,171 135,832
-------- --------
Net deferred tax asset $ 20,803 $ 12,945
======== ========
F - 18
CLUBCORP, INC.
NOTE 17. SELECTED QUARTERLY FINANCIAL DATA, (UNAUDITED)
- --------------------------------------------------------
Operations for the first three quarters consist of 12 weeks each and the fourth
quarter includes 16 weeks in 1998 and 1999.
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 1998
- ----------------
Operating revenues $ 172,694 $212,194 $197,636 $272,124
Income (loss) from continuing
operations before extraordinary item (662) 12,980 2,128 25,066
---------- -------- -------- --------
Net income (loss) $ (662) $ 11,804 $ 2,128 $ 25,066
========== ======== ======== ========
Basic earnings per share:
Income (loss) from continuing
operations before extraordinary item $ (.01) $ .15 $ .03 $ .29
---------- -------- -------- --------
Net income (loss) $ (.01) $ .14 $ .03 $ .29
========== ======== ======== ========
Diluted earnings per share:
Income (loss) from continuing
operations before extraordinary item $ (.01) $ .15 $ .03 $ .28
---------- -------- -------- --------
Net income (loss) $ (.01) $ .14 $ .03 $ .28
========== ======== ======== ========
FISCAL YEAR 1999
- ----------------
OPERATING REVENUES $ 182,251 $254,394 $265,193 $325,711
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY ITEM (2,382) 1,783 6,705 5,520
---------- -------- -------- --------
NET INCOME (LOSS) $ (2,382) $ 1,783 $ 6,705 $ 5,520
========== ======== ======== ========
BASIC EARNINGS PER SHARE:
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY ITEM $ (.03) $ .02 $ .08 $ .06
---------- -------- -------- --------
NET INCOME (LOSS) $ (.03) $ .02 $ .08 $ .06
========== ======== ======== ========
DILUTED EARNINGS PER SHARE:
INCOME (LOSS) FROM CONTINUING
OPERATIONS BEFORE EXTRAORDINARY ITEM $ (.03) $ .02 $ .08 $ .06
---------- -------- -------- --------
NET INCOME (LOSS) $ (.03) $ .02 $ .08 $ .06
========== ======== ======== ========
ClubCorp recorded significant tax adjustments in the fourth quarter of 1998
(Note 16).
F - 19
CLUBCORP, INC.
Schedule II - Valuation and Qualifying Accounts
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, 1997:
Allowance for Doubtful Accounts $ 6,455,005 $ 3,602,747 $ - $ 244,422 (A) $ 9,813,330
Tax Valuation Allowance 194,357,000 - 66,566,000 (B) - 127,791,000
Year Ended December 29, 1998:
Allowance for Doubtful Accounts $ 9,813,330 $ 3,459,832 $ - $ 5,736,374 (A) $ 7,536,788
Tax Valuation Allowance 127,791,000 - 14,233,000 (B) 15,755,000 (B) 97,803,000
Year Ended December 28, 1999:
Allowance for Doubtful Accounts $ 7,536,788 $ 4,747,986 $ - $ 6,222,286 (A) $ 6,062,488
Tax Valuation Allowance 97,803,000 - - - 97,803,000
(A) Accounts receivable charged off.
(B) Utilization and disallowance of net operating loss carryforwards or
decrease in tax valuation allowance due to change in estimates of future taxable
income.
S-1