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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 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file numbers 33-89818, 33-96568 and 333-08041
CLUB CORPORATION INTERNATIONAL
(Exact name of registrant as specified in its charter)
NEVADA 75-1311242
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) Identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-6191
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at December 31, 1997 (the most recent date on
which an appraisal was performed), based on the most recent appraised price of
the Registrant's Common Stock, was $56,292,929.
The number of shares of the Registrant's Common Stock outstanding as of
February 28, 1998 was 85,003,839.
TABLE OF CONTENTS
PART I
Item 1 Business 3
Item 2 Properties 11
Item 3 Legal Proceedings 12
Item 4 Submission of Matters to a Vote of Security Holders 13
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 14
Item 6 Selected Financial Data 15
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 16
Item 8 Financial Statements and Supplementary Data 26
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 26
PART III
Item 10 Directors and Executive Officers of the Registrant 27
Item 11 Executive Compensation 29
Item 12 Security Ownership of Certain Beneficial Owners and Management 33
Item 13 Certain Relationships and Related Transactions 35
PART IV
Item 14 Exhibits, Financial Statement Schedule, and Reports on Form 8-K 36
PART I
ITEM 1. BUSINESS
GENERAL
Club Corporation International ("ClubCorp" or the "Company") is a holding
company incorporated under the laws of the State of Nevada that, through its
subsidiaries, owns, operates, and/or manages country clubs, city clubs,
city/athletic clubs, athletic clubs, resorts, certain related real estate,
golf clubs, and public golf courses through sole ownership, partial ownership
(including joint venture interests) and management agreements. The Company's
primary sources of revenue include membership dues, fees, and deposits, food
and beverage sales, revenues from golf operations and lodging facilities. The
Company also receives management fees with respect to facilities that it
manages for third parties. See "Operations-Management Services".
Historically, the Company also operated in the financial services segment
through Franklin Federal Bancorp, a Federal Savings Bank ("Franklin"). On
August 7, 1996, Franklin entered into an agreement to sell certain assets and
transfer certain liabilities of Franklin to Norwest Corporation pending
regulatory approval. The sale was consummated on January 2, 1997 for $90.0
million. ClubCorp's gain on the sale, net of taxes and minority interest, was
$25.1 million.
The predecessor corporation to ClubCorp was organized in 1957 under the
name Country Clubs, Inc. All references herein to ClubCorp shall also include
Country Clubs, Inc. and its successor corporations. For purposes of this
document, references to the "Company" include ClubCorp's various subsidiaries.
However, each of ClubCorp and its subsidiaries is careful to maintain its
separate legal existence, and general references to the Company should not be
interpreted in any way to reduce the legal distinctions between subsidiaries
or between ClubCorp and its subsidiaries.
STOCK INVESTMENT PLAN
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, pursuant to Section 15(d) thereof, because
the Company has filed a registration statement on Form S-1, which became
effective October 24, 1994 pursuant to the Securities Act of 1933 (the
"Registration Statement"). The Registration Statement registered participation
interests in the ClubCorp Stock Investment Plan (the "Plan"), which became
effective on January 1, 1993, and the Company's common stock, $.01 par value
per share (the "Common Stock"), to be sold to the Plan. Employees eligible to
participate in the Plan may invest in participation interests in the Common
Stock through payroll deductions of 1% to 6% of their pre-tax compensation,
subject to certain limitations. Prior to July 1, 1995, eligible employees
invested through payroll deductions of 1% to 6% of their after-tax
compensation, subject to certain limitations. The Company contributes an
amount on such employee's behalf of at least 20% and up to an additional 30%,
for a maximum potential total of 50%, of the eligible employee's contributions
to the Plan, and Company contributions vest over time. Any contributions by
the Company over the 20% minimum are within the discretion of the Board of
Directors of ClubCorp, and are based on improvement in the value of the Common
Stock during the 12-month period ending on September 30 of each year in
accordance with a schedule approved by the Board of Directors, which is
subject to change.
All contributions to the Plan are invested in Common Stock (except for
contributions temporarily invested pending investment in Common Stock). The
Plan purchases Common Stock from ClubCorp and certain of its stockholders at
fair market value, which is determined quarterly by the Company using a
formula based on certain financial measures (the "Formula Price") and
confirmed as within the range of fair market value by Houlihan, Lokey, Howard
and Zukin, an independent financial advisory firm (the "Financial Advisor").
See Item 5, "Market for Registrant's Common Equity and Related Stockholder
Matters". Because the Plan invests primarily in Common Stock, the value of
each eligible employee's participation interests in the Plan depends on the
value of the Common Stock from time to time, which in turn is dependent on the
financial success of the Company. No employee participating in the Plan,
however, has any right to vote the Common Stock or to receive a distribution
of Common Stock from the Plan.
OPERATIONS
Background and Philosophy
- ---------------------------
Robert H. Dedman, Sr. founded the Company in 1957 under the name Country
Clubs, Inc. to develop Brookhaven Country Club in the north Dallas area.
During the succeeding 15 years, the Company expanded its country club
operations and began to develop city, city/athletic and athletic clubs. In the
early 1980s, the Company further expanded its operations by entering the
resort industry, and in 1986 the Company began operating public golf
facilities.
The Company conducts its business through various subsidiaries of
ClubCorp, including the following:
Club Corporation of America ("CCA"), which conducts the Company's
private club, golf club, and public golf operations; and
Club Resorts Holding, Inc. ("Club Resorts"), which conducts the
Company's resort operations.
Mr. Dedman founded the Company based upon his belief that an opportunity
existed for any company that could provide quality services and professional
management to private clubs. Management believes that the Company's
opportunities have grown as a result of a general trend in the private club
industry toward professionally managed clubs and that this trend will continue
in the future.
In directing the Company's growth since its formation, Mr. Dedman has
emphasized quality service and facilities, endeavoring to exceed the
expectations of the Company's members and guests. Senior management believes
that the Company's success depends greatly upon the motivation, training and
experience of its employees. See "-Employees".
From the beginning of the Company, Mr. Dedman focused on assembling an
experienced management team to lead the Company. ClubCorp's 11 executive
officers possess an average of 23 years of experience with the Company. The
Company has also attempted to attract and retain qualified, dedicated managers
for its clubs, resorts, golf clubs, and public golf facilities, and these
managers possess an average of nine years of experience with the Company. The
Company provides an extensive, proprietary system of in-house training and
education for all of its employees that is designed to improve the quality of
services provided to members and guests.
The Company's commitment to value is also reflected in its policy of
monitoring satisfaction levels through frequent surveys of members and guests.
In addition, employees are regularly surveyed to help management develop
appropriate training and education programs, increase job satisfaction levels
and improve the quality of service.
ClubCorp has invested over 40 years seeking to perfect its development,
management, operations, and membership skills, with results evident in some of
the world's foremost private clubs.
Nature of Operations
- ----------------------
The Company operates private clubs, resorts, golf clubs, and public golf
facilities through sole ownership, partial ownership and management
agreements. In addition, the Company performs various corporate services
internally and for third parties and develops and sells real estate. See
"-Corporate Services and Other". With respect to its wholly-owned operations,
in some cases the Company owns the real property where the private club,
resort, golf club, or public golf facility is operated, and in other cases the
Company leases the real property from third parties.
The Company operated 220 private club, resort, golf club, and public golf
facilities at December 31, 1997, serving approximately 220,000 members.
Management believes that the Company's existing club, resort and other
property locations, and its base of club members, represent a significant
value to the Company. For example, certain of the Company's country clubs that
were developed many years ago are now located in highly populated areas where
development of a new facility would be prohibitively expensive.
The Company's primary sources of revenue include membership dues, fees,
and deposits, food and beverage sales, revenues from golf operations, and
lodging facilities. The Company also receives management fees with respect to
facilities that it manages for third parties.
The Company receives membership deposits that constitute an important
source of cash flows. Membership deposits represent advance initiation
deposits paid by members and are generally refundable in 30 years from the
date of acceptance as a member. The difference between the amount of the
membership deposit paid and the present value of the obligation is recognized
as revenue upon acceptance.
The success of the Company's private club and golf club business is
dependent on the Company's ability to attract new members, retain existing
members and maintain or increase levels of club usage. For a tabular
presentation of certain statistical information relating to memberships in the
Company's private clubs, see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations-General-Regional Information;
Other Operating Information". The success of the Company's resort, golf club,
and public golf operations is also dependent on levels of usage by the
Company's guests and customers. For a tabular presentation of certain
statistical information relating to the Company's resorts, golf clubs, and
public golf operations, see Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations-General-Regional Information;
Other Operating Information". Although the Company devotes a large amount of
resources to promote its facilities and services, many of the factors
affecting club membership and usage are beyond the control of the Company.
Local and federal government laws, including income tax regulations applicable
to the Company and its club members and guests, can adversely influence
membership activity. See "-Government Regulation". Changes in consumer tastes
and preferences, local, regional and national economic conditions, including
levels of disposable income, weather, and demographic trends can also have an
adverse impact on club membership and usage. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations-Seasonality".
Private Clubs
- --------------
The Company's private clubs generally fall into one of four categories:
city, athletic, country and city/athletic clubs. The Company's city,
city/athletic and athletic clubs are primarily located in city business
centers or downtown areas.
City clubs typically include dining rooms and lounge areas and meeting
and board room facilities. With private settings in the best metropolitan
locations, city clubs provide superior food, service, and a sophisticated
atmosphere in which members can entertain business associates, family, and
friends, host special events, or simply relax in comfort. Some of the notable
city clubs operated by the Company include The Metropolitan Club in Illinois,
The Columbia Tower Club in Washington, and The City Club of San Francisco in
California.
The Company's athletic clubs generally include a combination of the
following facilities: racquetball and squash courts, jogging tracks, exercise
areas, weight machines, aerobic studios, swimming pools, wellness programs,
saunas and whirlpools, eating facilities and, occasionally, tennis and
basketball courts. Many athletic clubs also offer personalized training and
massage services. Some of the notable athletic clubs operated by the Company
include The Athletic and Swim Club at Equitable Center in New York and The San
Francisco Tennis Club in California.
The country clubs operated by the Company span a broad range of size,
price, prestige and facilities. Generally, the Company's country clubs include
a combination of one or more of the following facilities: dining rooms and
lounge areas, meeting and board room facilities, grills and ballrooms, golf,
tennis, swimming and fitness facilities and pro shops. Some of the notable
country clubs operated by the Company include Gleneagles Country Club and
Kingwood Country Club in Texas, Mission Hills Country Club and Indian Wells
Country Club in California, and Firestone Country Club in Ohio.
City/athletic clubs combine all the ambiance and amenities of a city club
with the facilities of the best athletic clubs. Offering members convenient
locations, these clubs provide a variety of athletic activities, including
racquet sports, exercise and fitness programs, and wellness programs. Some of
the notable city/athletic clubs operated by the Company include The Rivers
Club in Pittsburgh and The University Club in Texas.
The private club industry is highly competitive, but management believes
that the Company's size and substantial experience allow it to compete
effectively. The Company's private clubs compete primarily on the basis of
featured facilities, memberships, quality and comprehensiveness of services,
management experience, geographic breadth and financial resources. The number
and quality of private clubs and other facilities with similar types of
recreation in a particular area could have a material effect on the revenue of
a private club. In addition, revenue will be affected by a number of factors,
including the demand for golf and the availability of other forms of
recreation.
Golf Clubs
- -----------
The Company's golf clubs generally include a combination of the following
facilities: golf courses, driving ranges, and food and beverage concessions.
Generally, these clubs offer both private and public play. Some of the notable
golf clubs operated by the Company include Timarron Golf Club in Texas and
Queen's Harbour in Florida.
The private and public golf industries are highly fragmented. The Company
competes with a number of regional and national golf management companies.
With the rising popularity of golf, the Company expects the number of
competitors in the industry to increase over the next few years. The Company's
golf clubs compete on the basis of price, quality and comprehensiveness of
service, memberships, management experience, geographic breadth, featured
facilities and financial strength. The Company believes that its substantial
experience in operating golf facilities will enable it to compete effectively
in this area.
Public Golf
- ------------
The Company's public golf facilities generally include a combination of
the following facilities: golf courses, driving ranges, and food and beverage
concessions. Some of the public golf courses operated by the Company include
Kingwood Cove in Texas and Cook's Creek Golf Course in Ohio.
The public golf industry is highly fragmented. The Company competes with
a number of regional and national golf management companies. With the rising
popularity of golf, the Company expects the number of competitors in this
industry to increase over the next few years. The Company's public golf
operations compete on the basis of price, quality and comprehensiveness of
service, management experience, featured facilities and financial strength.
The Company believes that its substantial experience in operating golf
facilities will enable it to compete effectively in the public golf market.
Resorts
- -------
The Company's resorts typically offer lodging facilities, dining and
lounge areas, meeting rooms and golf, tennis and other recreational activities
associated with resorts. The Company seeks to create and maintain a
significant golf component at its resorts. In some cases, memberships in a
resort's country club facilities are offered primarily to those living in the
surrounding community. Some of the notable resorts operated by the Company
include the Pinehurst Resort and Country Club (Pinehurst) in North Carolina,
the Homestead Resort (Homestead) in Virginia, and the Barton Creek Country
Club and Conference Resort in Texas. Pinehurst is the largest and oldest
"golf" resort in the world. Homestead is the oldest resort in the country.
Both of these properties have received the distinction of being listed on the
National Register of Historic Cities. In addition, Pinehurst will host the
1999 United States Open.
The resort industry is highly competitive, and the Company competes with
numerous hotel and resort companies engaged in the lodging, travel and resort
businesses, some of which have substantially greater financial and other
resources than the Company. The principal competitive factors in the resort
industry include featured facilities, quality of services, geographic breadth
and financial resources. The Company believes that its substantial experience
in providing quality services to both members and guests allow it to compete
effectively in the resort industry.
Management Services
- --------------------
In addition to operations that are solely or partially owned by the
Company, the Company provides professional management and consulting services
to third parties who own private clubs and public golf facilities. Fees for
the Company's management and consulting services accounted for $9.4 million of
operating revenues (1.1% of the Company's total operating revenues) during
1997, $8.2 million of operating revenues (1.0% of the Company's total
operating revenues) during 1996 and $10.3 million of operating revenues (1.4%
of the Company's total operating revenues) during 1995. In calculating
revenues from management and consulting services, the Company includes only
the fees received by the Company for such services and does not include
revenues of the facilities under management.
For its services, the Company generally receives a monthly base
management fee, as well as one or more performance-related fees based upon
such factors as the property's net operating income or operating cash flows,
gross receipts, membership sales or new member deposits. Generally, the owner
is responsible for all operating and other expenses.
Other terms of the Company's management agreements vary depending on the
nature and extent of the services provided. Management agreements generally
provide for an initial term of two to four years, with renewal options for
successive one to five year terms. In addition, most of the management
agreements may be terminated without cause upon advance written notice,
provided the terminating party pays a specified termination fee. The
agreements may be terminated for cause upon the occurrence of certain events,
including nonperformance of the obligations specified under such management
agreements.
Corporate Services and Other
- -------------------------------
Additional subsidiaries of ClubCorp provide operating and support
services within the organization and to third parties. These subsidiaries
include:
Associate Clubs International, Inc., which is responsible for the
Company's Associate Clubs Program, a program that provides club members with
access to other clubs operated by the Company;
ClubCorp Realty, which conducts real estate development and sales
operations and offers real estate marketing and brokerage services, zoning,
subdivision and platting services and other real estate consulting services;
Associate Clubs Publications Inc., which publishes the Company's
Private Clubs magazine; and
ClubCorp Financial Management Company, which provides primarily
accounting and information technology services related to facility management.
During 1997, 1996 and 1995, these corporate services generated
approximately $35.6 million, $38.8 million and $34.0 million, respectively, in
operating revenues for the Company.
Expansion and Development
- ---------------------------
The Company is pursuing a strategy to increase the number of private
clubs, resorts, golf clubs and public golf facilities that it operates both
domestically and internationally. The Company evaluates specific growth
opportunities based upon existing market conditions and economic factors, and
intends to pursue opportunities that it perceives to be favorable as they
arise.
The success of the Company's growth strategy will depend upon the
availability of suitable properties on acceptable terms, the availability of
adequate financing, and other factors beyond the Company's control. The
Company has a committed staff to constantly evaluate development and
acquisition opportunities. The Company seeks to finance each project
separately and anticipates that sources of capital for new developments and
acquisitions will include cash flows from operations, equity participations,
and owner/developer and third party financing.
The Company also intends to continue to pursue growth opportunities
related to city and city/athletic clubs through acquisitions, mergers between
the Company's clubs and those owned by third parties, management contracts
with ownership options, relocations of existing clubs, and development of new
clubs.
Sales and Marketing
- ---------------------
The Company advertises and markets its clubs, resorts, golf clubs, and
public golf facilities through diverse media. Among other things, the Company
sponsors the Associate Clubs Program, which provides members of clubs owned,
leased or managed by the Company with access to other clubs. In addition, the
Company publishes Private Clubs magazine, which reaches over 188,000 members
at the majority of the Company's clubs and resorts, and which advertises the
Company's other facilities. Regular features include unusual destinations and
travel tips, profiles of members who are business leaders, investment advice,
club profiles, wine reviews, recipes from club chefs, golf and tennis tips,
solutions to health and fitness concerns, and humor. Private Clubs magazine
has won numerous awards including several 1997 Maggie Awards.
The Company also hosts a number of professional golf tournaments, which
are intended to provide community and charitable involvement and publicity for
the Company's facilities. Some of the most notable tournaments the Company
hosted during 1997 were the National Equipment Corporation ("NEC") World
Series of Golf at Firestone Country Club, the Bob Hope Chrysler Classic at
Indian Wells Country Club, the Nabisco Dinah Shore Classic at Mission Hills
Country Club, and the J.C. Penney's Ladies Professional Golf Association Skins
Game at Stonebriar Country Club. In addition, Pinehurst Resort and Country
Club will host the 1999 United States Open.
The Company has established a strong rapport with numerous professional
organizations including the following:
- - United States Golf Association;
- - Professional Golf Association and Ladies Professional Golf Association Tours;
- - American Junior Golf Association;
- - Golf Course Owners Association;
- - Club Managers Association of America;
- - National Club Association;
- - International Health, Racquet & Sports Club Association; and
- - National Restaurant Association.
These special relationships enable the Company to bring distinctive
tournaments and events, such as the United States Open and the PGA Tour
Championship, as well as numerous other prestigious events, to the Company's
clubs and resorts throughout the world. The Company hosts many United States
Tennis Association events along with other athletic activities such as
swimming, diving, lawn bowling, and croquet. In addition, the Company's clubs
have been recognized for their culinary artistry. Many have earned
distinctive awards from the American Culinary Federation.
Government Regulation
- ----------------------
The Company's operations are subject to numerous laws and government
regulations, including environmental, occupational health and safety, labor
and alcoholic beverage control laws and laws relating to access for disabled
persons. Changes to these laws or regulations could adversely affect the
Company. The Company has in place policies designed to bring or keep its
properties in compliance with all current federal, state and local
environmental laws.
Operations at the Company's golf courses involve the use and storage of
various hazardous materials such as herbicides, pesticides, fertilizers, motor
oil and gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removing such hazardous substances that are released on or in its
property and for remediation of its property. Such laws often impose liability
regardless of whether a property owner or operator knew of, or was responsible
for, the release of hazardous materials. In addition, the presence of such
hazardous substances, or the failure to remediate the surrounding soil when
such substances are released, may adversely affect the ability of a property
owner to sell such real estate or to pledge such property as collateral for a
loan. The Company has not been informed by the Environmental Protection Agency
or any state or local governmental authority of any non-compliance or
violation of any environmental laws, ordinances or regulations likely to be
material to the Company, and the Company believes that it is in substantial
compliance with all such laws, ordinances and regulations applicable to its
properties and operations. See Item 7, "Management's Discussion and Analysis
of Financial Condition and Results of Operations-Factors That May Affect
Future Operating Results".
The Company is also subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. A significant number of
the Company's personnel receive the federal minimum wage, and recently adopted
increases in the minimum wage have increased the Company's labor costs. In
addition, the Company is subject to certain state "dram-shop"laws, which
provide a person injured by an intoxicated individual the right to recover
damages from an establishment that wrongfully served alcoholic beverages to
the intoxicated individual. The Company is also subject to the Americans with
Disabilities Act of 1990, which, among other things, may require certain minor
renovations to various of the Company's properties to meet federally mandated
access and use requirements. The cost of these renovations is expected to be
approximately $3.0 million over the next five years. The Company believes it
is operating in substantial compliance with applicable laws and regulations
governing its operations.
Competition
- -----------
The Company competes with local fine dining establishments and other city
clubs in its city club business. The competition in the city club business is
largely fragmented, and no competitor is dominant in a material portion of the
Company's markets. The number and quality of city clubs and/or fine dining
establishments in a particular area can affect the revenue of a particular
city club.
The Company competes with other country clubs, golf clubs, public golf
courses and resorts in its country club, golf club, public golf and resort
business. Similarly, competition is fragmented and no competitor is dominant
in a significant portion of the markets where the Company maintains these
facilities. The number and quality of competing facilities in a particular
market can affect the revenue of a particular facility.
The Company also competes for the purchase, lease, and/or management of
golf courses with American Golf Corporation, a national golf course management
company. In addition, the Company competes for the purchase of golf courses
with national and regional golf course management companies and real estate
investment trusts that each own several golf courses and, less frequently,
with individuals and small ventures that typically own one or more golf
courses. In the acquisition of golf courses, companies compete primarily on
the basis of price and their reputation for operating golf courses.
In the operation of its facilities, the Company competes on the basis of
its reputation to deliver value through the quality of the facility and
quality of services provided to its members and guests. The Company believes
it competes favorably with respect to these factors. The Company has a
program, known as "Associate Clubs", that allows members of a club in one
market to utilize Company clubs in different markets, thus enhancing the value
of the membership. Because of the large number of facilities maintained by the
Company, a member is provided access to a wide number of facilities. The
Company believes this program affords it a competitive advantage over
competitors that do not maintain similar programs and over other competitors
that have similar programs, but fewer facilities.
EMPLOYEES
As of December 31, 1997, the Company employed approximately 14,000
full-time, 5,000 part-time and 1,000 seasonal employees in its operations.
The success of the Company's business is dependent in part on the
Company's ability to attract and retain experienced management and other
employees on economical terms. Management believes that the Company's
employees represent an important asset; however, the Company is not dependent
upon any single employee, or a few employees, whose loss would have a material
adverse effect on the Company. Although the Company believes that its labor
relations are good, increased labor and benefit costs or a deterioration in
the Company's labor relations could adversely affect the Company's operating
results. As of December 31, 1997, approximately 600 of the employees engaged
in the Company's operations were covered by three collective bargaining
agreements, which will expire March 31, 1999, December 31, 1999 and June 1,
2002.
CUSTOMERS
The Company is not dependent upon a single customer, or a few customers,
whose loss would have a material adverse effect on the Company. In addition,
as of December 31, 1997, there is no customer to which the Company has sales
equal to 10.0% or more of the Company's consolidated revenues and whose loss
would have a material adverse effect on the Company as a whole.
INTELLECTUAL PROPERTY
The Company has registered various service marks, including the names
CLUBCORP, CCA, CLUB RESORTS and ASSOCIATE CLUBS, with the United States Patent
and Trademark Office, and has applied with the United States Patent and
Trademark Office for the registration of various other service marks. In
addition, the Company has registered certain of its service marks in a number
of foreign countries. The Company regards its service marks as valuable assets
and intends to protect such service marks vigorously against infringement.
ITEM 2. PROPERTIES
The Company operated 220 club, resort, golf club, and public golf
facilities as of December 31, 1997. The ownership of these facilities is
described under Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations-General". The Company leases its executive
offices in Dallas, Texas and an office in Singapore in connection with its
operations in Southeast Asia.
With respect to leased properties, 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 10 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 1997, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
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), 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.
The table below sets forth the quarterly Formula Price for the Common
Stock during the years ended December 31, 1996 and 1997, respectively.
FORMULA
1996 PRICE
- -------------- --------
First Quarter $ 10.46
Second Quarter 11.12
Third Quarter 11.64
Fourth Quarter 12.04
1997
- --------------
First Quarter $ 11.94
Second Quarter 13.27
Third Quarter 13.64
Fourth Quarter 14.21
The Financial Advisor has been engaged by the trustees of the Plan to
confirm the fairness of the Formula Price for purposes of the Plan. The
Financial Advisor performs an independent appraisal of the Company four times
each year, following delivery of the Company's financial statements after the
end of each quarter. Based upon such appraisals, the Financial Advisor
confirms that the Formula Price falls within the range of fair market value of
the Common Stock on the date of each appraisal and on each December 31. All
purchases of Common Stock by the Plan are made on or shortly after an
appraisal date at the Formula Price as confirmed by the Financial Advisor. 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 will adjust the Formula Price so that it falls within the range of
fair market value as determined by the Financial Advisor. See Item 1,
"Business-Stock Investment Plan".
As of February 28, 1998, there were approximately 320 holders of record
of the Common Stock.
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 financial and operating
data for each of the years in the five-year period ended December 31, 1997.
The table presented below should be read in conjunction with Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", as well as Item 8, "Financial Statements and Supplementary Data"
(dollars in thousands, except per share data).
AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------------------------------------------
1997 (1) 1996 1995 (2) 1994 (3) 1993 (4)
----------- ---------- ----------- ----------- -----------
INCOME STATEMENT DATA:
Operating revenues (5) $ 840,263 $ 784,213 $ 760,851 $ 705,962 $ 626,761
Income (loss) from continuing operations (5) $ 96,842 $ 29,297 $ (11,311) $ 28,032 $ 20,292
Income (loss) from continuing operations per share (5) $ 1.14 $ 0.34 $ (0.13) $ 0.32 $ 0.23
Net income (loss) $ 121,988 $ 17,660 $ (11,128) $ 19,931 $ 55,628
Net income (loss) per share assuming dilution $ 1.42 $ 0.21 $ (0.13) $ 0.23 $ 0.64
BALANCE SHEET DATA:
Total assets $1,011,552 $1,554,010 $1,825,292 $2,039,556 $2,341,542
Capitalization:
Financial services liabilities $ - $ 549,246 $ 877,345 $1,118,937 $1,552,257
Long-term debt 255,857 343,917 313,461 285,128 194,398
Membership deposits 83,066 74,202 68,729 56,971 45,222
Redemption value of common
stock held by benefit plan (6) 53,652 43,233 35,414 37,112 41,165
Stockholders' equity 458,838 351,797 333,245 356,320 338,953
----------- ---------- ----------- ----------- -----------
Total capitalization $ 851,413 $1,362,395 $1,628,194 $1,854,468 $2,171,995
=========== ========== =========== =========== ===========
__________________
(1) The sale of Franklin Federal Bancorp was consummated on January 2,
1997 for $90.0 million. ClubCorp's gain on the sale, net of taxes and
minority interest, was $25.1 million. In addition, the Company decreased the
valuation allowance on its deferred tax asset. See Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations".
(2) The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121 for the year ended December 31, 1995. In adopting SFAS 121, the
Company recorded an impairment loss of $23.0 million on long-lived assets
which is reported separately as a component of income (loss) from continuing
operations.
(3) The Company acquired Mission Hills Country Club and the Homestead
Resort in the last quarter of 1993. These properties significantly impacted
the Company's operating revenues in 1994, generating $13.7 and $30.8 million,
respectively, in operating revenues in 1994. Franklin had a net loss of $12.7
million in 1994 due to rising interest rates and lower of cost or market
adjustments on whole loan adjustable rate mortgages. In order to maintain
compliance with capital ratios, Franklin effected shrinkage chiefly through
the liquidation of assets designated as available for sale and the retirement
of short-term liabilities, primarily FHLB advances. Hospitality properties
acquired in 1994 accounted for the increase in long-term debt.
(4) The Company adopted SFAS 109 on January 1, 1993. In adopting SFAS 109,
the Company recorded a cumulative effect of the change in accounting for
income taxes, included in income, and a deferred tax asset, included in other
assets, equal to $27.0 million
(5) The Company disposed of its financial services segment on January 2,
1997; therefore, the segment is presented as discontinued operations.
(6) As a means of providing liquidity to the trustees of the Plan, which
became effective January 1, 1993, to meet their fiduciary obligations to
distribute cash to Plan participants requesting withdrawals, ClubCorp has
provided a redemption right to the trustees to cause the Company to redeem
Common Stock at the most recent appraised price. The value (Redemption Value)
of this redemption right has been accounted for as a reduction of
stockholders' equity. The Redemption Value is calculated as the product of the
most recent appraised price multiplied by the number of shares of Common Stock
held by the benefit plan.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Item 6, "Selected Financial Data" as well as Item 8, "Financial Statements and
Supplementary Data".
GENERAL
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year, with the first three quarters consisting of 12 weeks
each and the fourth quarter consisting of 16 weeks. The financial statements
included in Item 8 for the year ended December 31, 1997 are comprised of 53
weeks with the first three quarters consisting of 12 weeks each and the fourth
quarter consisting of 17 weeks.
The Company operates its business activities through sole ownership
(including lease arrangements), partial ownership (including joint venture
arrangements) and management agreements. The Company seeks to achieve growth
in revenues, earnings, and cash flows through effective management of existing
facilities and through the acquisition of new facilities via purchase, joint
venture, lease and management agreement.
During the past few years, the Company has pursued a growth strategy
resulting in an emphasis on the expansion of its golf related operations,
including country clubs, resorts, golf clubs, and public golf facilities. The
Company's access to adequate capital sources in addition to its own internally
generated cash flows has provided it an opportunity to compete effectively
with other hospitality related management companies in the acquisition of new
facilities.
The Company also intends to continue to pursue growth opportunities
related to city and city/athletic clubs through acquisitions, mergers between
the Company's clubs and those owned by third parties, management contracts
with ownership options, relocations of existing clubs, and development of new
clubs. The Company has a committed staff to constantly evaluate development
and acquisition opportunities.
The Company continually seeks to improve financial performance of
existing facilities by determining an optimum business plan allowing for the
highest possible return to the Company. Management attempts to create
operating efficiencies and maximize operating revenues and cash inflows
through member enhancement and utilization programs.
If efforts to improve the facility performance to acceptable financial
partners' and Company standards are not successful or financial partners' and
Company goals are not being achieved, then restructuring its ownership
position, leasing agreements, and borrowing arrangements are considered.
Properties are divested when management determines they will be unable to
provide a positive contribution to profitability, when they no longer
represent a strategic facility in the Company's network of affiliated clubs
and resorts, when members and financial partners no longer support the
property, or, in the case of leases, joint ventures and management agreements,
when their contractual terms expire without being renewed or are terminated.
Properties by Contract Type
- ------------------------------
The following table summarizes the number and changes in the Company's
properties operated for the periods indicated:
WHOLLY
OWNED OPERATIONS
--------------------
PARTIALLY
OWNED LEASED OWNED MANAGED UNDER
PROPERTY PROPERTY OPERATIONS (1) OPERATIONS CONSTRUCTION TOTAL
--------- --------- -------------- ----------- ------------- ------
At December 27, 1995 78 109 6 43 - 236
Properties added during 1996 4 - - 1 8 13
Properties divested during 1996 (1) (7) - (14) - (22)
Changes during 1996 2 (1) 1 (2) - -
--------- --------- -------------- ----------- ------------- ------
At December 25, 1996 83 101 7 28 8 227
========= ========= ============== =========== ============= ======
Properties added during 1997 1 - 1 1 2 5
Properties divested during 1997 (4) (4) (1) (3) - (12)
Changes during 1997 1 1 4 - (6) -
--------- --------- -------------- ----------- ------------- ------
At December 31, 1997 81 98 11 26 4 220
========= ========= ============== =========== ============= ======
_________________
(1) The Company also serves as the manager of each of these properties.
Properties divested include expired or terminated lease arrangements or
management agreements which have shorter terms than leases, joint venture
agreements or other forms of ownership. The Company generally includes a
termination clause in its management agreements which imposes a financial
penalty, paid to the Company by the managed owner, to discourage early
termination of management agreements.
Properties by Property Type
- ------------------------------
The Company's private clubs generally fall into one of four categories:
city, city/athletic, athletic and country clubs. The following tables
summarize the number and changes in the type of private club, resort, golf
club, and public golf properties operated during the periods indicated:
TOTAL
PRIVATE GOLF PUBLIC
CITY CITY/ATHLETIC ATHLETIC COUNTRY CLUBS RESORTS CLUBS GOLF TOTAL
----- -------------- --------- -------- -------- -------- ------ ------- ------
At December 27, 1995 77 20 7 83 187 9 10 30 236
Properties added during 1996 4 1 - 7 12 1 3 1 17
Properties divested during 1996 (7) (1) (2) (13) (23) - - (3) (26)
----- -------------- --------- -------- -------- -------- ------ ------- ------
At December 25, 1996 74 20 5 77 176 10 13 28 227
===== ============== ========= ======== ======== ======== ====== ======= ======
Properties added during 1997 2 1 - 2 5 - - - 5
Properties divested during 1997 (2) - (1) (3) (6) (3) (1) (2) (12)
----- -------------- --------- -------- -------- -------- ------ ------- ------
At December 31, 1997 74 21 4 76 175 7 12 26 220
===== ============== ========= ======== ======== ======== ====== ======= ======
Facilities are leased or purchased at varying times throughout the year.
Depending on the length of the partial year for which a facility is operated
and the seasonality of operations, the results of operations of a facility for
a portion of a year may not be indicative of the results of operations at the
facility for an entire year. During 1996, the operations of one private
country club were transferred to golf clubs and the operations of one city
club were transferred to city/athletic clubs.
Regional Information; Other Operating Information
- -----------------------------------------------------
The success of the Company's operations in each region of the country is
dependent in part on economic and weather conditions in these areas. The
Company's largest concentrations of operations are in the states of Texas,
California, and Florida.
The Company operated twelve foreign facilities at December 31, 1997 of
which one is located in Canada, two are in Mexico, two are in South Africa,
one is in Panama, one is in the United Kingdom, one is in Ecuador, two are in
Singapore, one is in China, and one is located in Indonesia.
The following table presents certain information with respect to
membership in the Company's mature private clubs and golf clubs (i.e., those
properties for which a comparable period of activity exists, generally those
owned for at least eighteen months to two years) for fiscal years ended
December 31, 1997, December 25, 1996 and December 27, 1995. The table reflects
memberships at private clubs and golf clubs which were classified as mature as
of the end of the period indicated. Memberships at beginning of period do not
equal prior period memberships at end of period primarily due to the inclusion
of new properties added as mature, and deletions of properties sold or
divested. Management adjusts memberships at beginning of period to provide an
accurate mechanism for comparison and analysis of identical mature clubs
(i.e., same clubs compared to same clubs).
MEMBERSHIPS AT MATURE PROPERTIES
FISCAL YEAR ENDED
-------------------------------------------
DECEMBER 31, DECEMBER 25, DECEMBER 27,
1997 1996 1995
------------- ------------- -------------
Memberships at beginning of period 189,210 188,818 183,780
Memberships added during period 38,501 32,771 30,368
Memberships lost during period (attrition) (35,330) (33,897) (33,045)
------------- ------------- -------------
Memberships at end of period 192,381 187,692 181,103
============= ============= =============
The following table presents certain information regarding room nights
available, occupancy rate, average daily room rate per occupied room and
average daily revenue per available room at the Company's mature resorts
(i.e., those resorts for which a comparable period of activity exists,
generally those owned for at least eighteen months to two years). This
information for the Company's mature resorts owned as of December 31, 1997,
was as follows for the fiscal years ended December 31, 1997 and December 23,
1996:
MATURE 1997 RESORT PROPERTIES
FISCAL YEAR ENDED
------------------------------
DECEMBER 31, DECEMBER 23,
1997 1996
-------------- --------------
Room nights available 467,822 484,131
Occupancy rate 53.73% 48.50%
Average daily room rate per occupied room $ 149.24 $ 139.81
Average daily revenue per available room $ 319.14 $ 268.84
The room nights available, occupancy rate, average daily room rate per
occupied room and average daily revenue per available room at the Company's
mature resort properties owned as of December 23, 1996, were as follows for
the fiscal years ended December 23, 1996 and December 25, 1995:
MATURE 1996 RESORT PROPERTIES
FISCAL YEAR ENDED
------------------------------
DECEMBER 23, DECEMBER 25,
1996 1995
-------------- --------------
Room nights available 622,352 616,676
Occupancy rate 45.63% 48.00%
Average daily room rate per occupied room $ 127.38 $ 117.46
Average daily revenue per available room $ 227.24 $ 220.68
The rounds played and average revenues per round played at the Company's
mature public golf and golf club properties (i.e., those properties for which
a comparable period of activity exists, generally those owned for at least
eighteen months to two years) owned as of December 31, 1997, were as follows
for the fiscal years ended December 31, 1997 and December 25, 1996:
MATURE 1997 GOLF PROPERTIES
FISCAL YEAR ENDED
----------------------------
DECEMBER 31, DECEMBER 25,
1997 1996
------------- -------------
Rounds 1,423,259 1,309,660
Average revenue per round $ 36.17 $ 35.20
The rounds played and average revenues per round played at the Company's
mature public golf properties owned as of December 25, 1996, were as follows
for the fiscal years ended December 25, 1996 and December 27, 1995:
MATURE 1996 GOLF PROPERTIES
FISCAL YEAR ENDED
----------------------------
DECEMBER 25, DECEMBER 27,
1996 1995
------------- -------------
Rounds 1,379,756 1,342,507
Average revenue per round $ 35.72 $ 34.54
RESULTS OF OPERATIONS
FISCAL YEAR ENDED DECEMBER 31, 1997 COMPARED TO FISCAL YEAR ENDED DECEMBER 25,
1996
Operating revenues increased 7.2% to $840.3 million in 1997 from $784.2
million during 1996 due primarily to volume increases at mature resorts,
improvement in net enrollment at mature private clubs, and an additional week
of operations. The subsidiaries of the Company operate primarily on a 52/53
week fiscal year. 1997 includes 53 weeks. Operating revenues of mature
properties (i.e., those for which a comparable period of activity exists,
generally those owned for at least eighteen months to two years) increased
from $672.9 million to $731.7 million, an increase of 8.7% due to improving
membership trends, volume increases, an additional week of operations, and
inflationary price increases.
Operating revenues from mature private club properties increased 6.9% to
$523.0 million in 1997 from $489.4 million in 1996 due to improvement in net
enrollment rates, volume increases, an additional week of operations, and
inflationary price increases. Membership enrollment (i.e., members added) was
20.3% and membership attrition (i.e., members lost) was 18.7% for a net
increase of 3,171 members in 1997 (1.7% of year-end 1996 membership). Mature
private clubs membership dues and food and beverage revenues increased 6.0%
and 4.4%, respectively, to $254.3 and $179.6 million from $239.9 and $172.0
million, respectively, also due primarily to improving membership trends,
volume increases, an additional week of operations, and inflationary price
increases as profit margins on food and beverage remained flat.
Golf clubs' operating revenues increased from $26.7 million to $30.7
million or 15.0% resulting primarily from improved usage at golf clubs,
including one property which recently opened its clubhouse, and 1996
acquisitions. Mature golf clubs' operating revenues increased 4.2% to $24.6
million in 1997 from $23.6 million in 1996, reflecting an increase of 4.1% in
rounds played combined with an increase of 7.4% in revenue per round.
Public golf operating revenues increased to $33.3 million for 1997, or
13.7%, from $29.3 million for 1996 due primarily to the opening of a new
course in California. Mature public golf operating revenues increased from
$23.3 million in 1996 to $26.0 million in 1997 or 11.6% as rounds played
increased by 11.2% and revenue per round increased by 0.4%.
Resorts' operating revenues increased 13.3% to $170.2 million from $150.2
million in 1996 primarily due to the acquisition of one resort late in 1996
and volume increases at mature properties. Mature resorts' operating revenues
increased to $157.7 million from $138.2 million or 14.1%, reflecting increases
of 5.2% in the occupancy rate, 18.7% in the average daily revenue per
available room, and 6.7% in the average daily revenue per occupied room.
Pinehurst, which will host the 1999 United States Open, experienced
significant increases in operating revenues in anticipation of this event.
Realty operating revenues decreased to $25.1 million from $30.3 million
or 17.2% primarily due to decreased sales of real estate held for resale in
Ohio and South Carolina.
International operating revenues increased 32.4% from $6.8 million in
1996 to $9.0 million in 1997 due to 1997 and 1996 acquisitions.
Golf and other recreation income increased 12.8% from $157.9 million in
1996 to $178.1 million in 1997, primarily due to acquisitions in 1996, volume
increases at mature properties including the opening of new golf courses at
certain properties, and an additional week of operations.
Operating costs and expenses, representing direct operating costs,
facility rentals, operations, and maintenance, and depreciation and
amortization, increased from $659.5 million for 1996 to $694.5 million for
1997 or 5.3%. The increase relates to increased direct operating costs.
Direct operating costs increased from $496.0 million for 1996 to $536.1
million for 1997 or 8.1%. The increase relates to increased variable costs at
mature properties. Direct operating costs at mature properties increased to
$522.2 million in 1997 from $482.7 million in 1996. The increase in direct
operating costs for mature properties is mainly due to volume increases in
food and beverage and golf, inflationary payroll cost increases, and incentive
bonus accruals.
Selling, general and administrative expenses increased to $68.0 million
from $61.3 million or 10.9% due primarily to increased costs for international
new business and development.
Interest expense (net) decreased 10.3% to $24.4 million for 1997 from
$27.2 million in 1996 due to an increase of $2.8 million in interest income
from higher levels of cash invested on a short-term basis. Total interest
expense remained flat at $34.0 million. Mature properties' interest expense
increased from $26.1 million in 1996 to $28.0 million in 1997.
Income tax (provision) benefit increased from $(4.5) million in 1996 to
$39.3 million in 1997 due to decrease in the valuation allowance of $66.6
million allocated to income tax expense. See "--Factors That May Affect Future
Operating Results".
Income from continuing operations increased from $29.3 million in 1996 to
$96.8 million in 1997 due to the Company's success in controlling costs and
growing revenues and volume increases at mature properties and a decrease in
the valuation allowance on the Company's deferred tax asset. See "- Factors
That May Affect Future Operating Results".
Other income of $1.1 million in 1997 is due to the partial reversal of an
accrual for pending litigation in the ordinary course of business.
FISCAL YEAR ENDED DECEMBER 25, 1996 COMPARED TO FISCAL YEAR ENDED DECEMBER 27,
1995
Operating revenues increased 3.1% to $784.2 million in 1996 from $760.9
million during 1995. Operating revenues of mature properties (i.e., those for
which a comparable period of activity exists, generally those owned for at
least eighteen months to two years) increased from $654.5 million to $670.4
million, an increase of 2.4% due to improving membership trends and
inflationary price increases. Revenues from properties acquired, net of
revenues lost from properties divested, in 1996 and 1995, represent a decrease
of $0.8 million in operating revenues.
Operating revenues from mature private club properties increased 1.9% to
$479.4 million in 1996 from $470.5 million in 1995 due primarily to
inflationary price increases. Membership enrollment (i.e., members added) was
17.4% and membership attrition (i.e., members lost) was 18.0% for a net
decrease of 1,126 members in 1996 (0.6% of year-end 1995 membership). Mature
private clubs membership dues and usage revenues (i.e., food and beverage,
golf, lodging, and other recreation) increased 2.0% and 2.4%, respectively, to
$238.0 and $237.5 million from $233.3 and $232.0 million, respectively, also
due primarily to inflationary price increases.
Golf clubs' operating revenues increased from $23.4 million to $26.7
million or 14.1% resulting primarily from improved usage at golf clubs
including one property which recently opened its clubhouse and 1996
acquisitions. Mature golf clubs' operating revenues increased 4.8% to $23.8
million in 1996 from $22.7 million in 1995, reflecting an increase of 4.0% in
rounds played combined with an increase of 0.7% in revenue per round.
International operating revenues increased 277.8% from $1.8 million in
1995 to $6.8 million in 1996 primarily due to equity earnings from a recently
opened city club in Singapore and 1996 acquisitions.
Golf and other recreation income increased 9.6% from $144.1 million in
1995 to $157.9 million in 1996, primarily due to acquisitions in 1995 and 1996
and the opening of new golf courses at certain mature properties.
Selling, general and administrative expense decreased 7.4% from $66.2
million to $61.3 million in 1996 due to lower levels of relocation costs,
severance, professional fees, rent, and international new business and
development costs.
Impairment loss on assets to be held and used was $2.8 million in 1996
representing an estimate of impairment on long-lived assets in accordance with
SFAS 121.
Income (loss) from continuing operations increased from $(11.3) million
in 1995 to $29.3 million in 1996 primarily due to the impairment loss on
assets to be held and used of $23.0 million in 1995 which decreased to $2.8
million in 1996. Also, during 1996 the Company was successful in its efforts
to control expenses and increase revenues. While operating revenues increased
3.1%, operating costs and expenses increased only 1.0%.
Interest expense (net) increased 9.2% to $27.2 million for 1996 from
$24.9 million in 1995, due in part to higher leveraged acquisition activity.
Interest expense related to properties added in 1995 and 1996 was $0.7
million. Mature properties' interest expense increased from $22.6 million in
1995 to $23.8 million in 1996.
Other expense of $3.0 million in 1996 is primarily due to an accrual for
pending litigation in the ordinary course of business.
SEASONALITY
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year. In general, the first three quarters consist of 12
weeks each and the fourth quarter includes 16 weeks. The financial statements
included in Item 8 for the year ended December 31, 1997 are comprised of 53
weeks with the first three quarters consisting of 12 weeks each and the fourth
quarter consisting of 17 weeks. The timing of fiscal quarter ends, seasonal
weather conditions and other short-term variations cause financial performance
to vary by quarter. The Company has historically generated a disproportionate
share of its operating revenue in the second, third and fourth quarters of
each year. The timing of purchases or leases of new operating properties and
investment gains and losses also cause the Company's results of operations to
vary significantly from quarter to quarter.
INFLATION
Inflation has not had a significant impact on the Company. As operating
expenses increase, the Company, to the extent the value of services rendered
to members is not adversely impacted and as industry standards dictate,
recovers increased costs by increasing prices.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its operations and capital expenditures primarily
through cash flows from operations and long-term debt. Membership deposits
collected by a subsidiary are used to finance such subsidiary's operations and
capital expenditures. Most capital expenditures other than capital
replacements are considered discretionary and could be curtailed in periods of
low liquidity. Capital replacements are planned expenditures made each year to
maintain high quality standards of facilities for the purpose of meeting
existing members' expectations and to attract new members. Capital
replacements have ranged from 3.8% to 5.2% of operating revenues during the
last three years. The Company distinguishes capital expenditures made to
refurbish and replace existing property and equipment (i.e., capital
replacements) from other discretionary capital expenditures such as the
expansion of existing facilities (i.e., capital expansions) and acquisition or
development of new facilities.
The Company has committed to provide updated technology to all of its
properties over the next two years. This technology will include installation
of point-of-sale hardware and software, replacement of computer hardware and
software to provide network capabilities, the purchase of new accounting
software and hardware, and the installation of electronic time management
systems which will interface with accounting software. In January of 1998,
the Company signed an agreement with Oracle Corporation to purchase new
software for its accounting, purchasing, and human resources applications.
The decision to acquire Oracle's software was made primarily to better enable
management to improve operating efficiencies, exceed member expectations, grow
the people, performance, profits, and markets by re-engineering processes
using enterprise resource planning software. Executive management has pledged
to allocate the necessary resources to develop additional technology
applications and tools that will allow the properties to operate more
effectively and efficiently and to increase the value of membership in
conjunction with service excellence. Completion of the technology upgrade,
including conversion of the existing software, is expected to require
approximately $39.0 to $44.0 million in expenditures, of which $35.0 to $40.0
million will be capitalized, to be funded through a capital lease with a bank
over a four to five year period and through cash flows from operations.
Computer programs were historically written using two digits rather than
four digits to identify the year. The computer might then recognize the two
digits "00" as year 1900 rather than year 2000 resulting in possible system
failures, miscalculations, and/or loss of data. This is referred to as the
"Year 2000" issue. Implementation of Oracle software addresses the Year 2000
issue and is expected to be completed prior to the year 2000. If the
conversion is not completed in a timely manner, Year 2000 issues may have a
significant impact on the Company's operations. The Company does not believe
that the Year 2000 problem will have a material adverse effect on the business
operations or the financial performance of the Company. There can be no
assurance, however, that the Year 2000 problem will not adversely affect the
Company and its business.
Long-term debt is generally incurred on a property specific basis and is
non-recourse to any corporations other than the subsidiary incurring the debt.
Membership deposits represent non-interest-bearing advance initiation deposits
paid by members when they join a club and are refundable 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 material. Due to the
utilization of long-term operating leases and membership deposits, the
Company's leverage ratio (i.e., long-term debt to total capital) has been
maintained at manageable levels which allow for adequate capability to finance
future growth with long-term debt.
The Company relies on its low leverage position and maintenance of
positive relationships with existing and potential lenders to arrange
financing as needed for general corporate purposes or for specific projects.
Consequently, the Company maintained no committed lines of credit at December
31, 1997. At December 31, 1997, certain hospitality subsidiaries of the
Company were not in compliance with outstanding loan agreements relating to
long-term debt totaling $6.7 million. Such noncompliance relates both to
financial ratio covenants and to nonpayment of amounts due under the terms of
such agreements.
The provisions of certain subsidiary lending and other agreements limit
the amount of dividends that may be paid to the parent. At December 31, 1997,
cash balances of $11.0 million were not available for dividends by
subsidiaries due to those restrictions.
At December 31, 1997, the Company's subsidiaries maintained $14.4 million
of unused letters of credit primarily to guarantee payment of potential
insurance claims paid under workers' compensation and general liability
programs.
All of the assets of the ClubCorp Stock Investment Plan (the "Plan") are
invested in shares of ClubCorp's common stock, $.01 par value per share (the
"Common Stock"), except for temporary investments of cash pending investment
in Common Stock. All distributions from the Plan are made in cash. As a means
of providing liquidity to the trustees of the Plan to meet their fiduciary
obligations to distribute cash to participants requesting withdrawals,
ClubCorp has provided the trustees the right (the "Redemption Right") to cause
the Company to redeem Common Stock, held in trust on behalf of the Plan, at
the most recent appraised price as necessary to meet certain requirements.
Withdrawals by participants and terminations by and/or resignations from the
Company of participants in excess of anticipated levels could give rise to the
exercise of withdrawal rights in substantial amounts and place significant
demands on the liquidity of the Company. In such an event, the resources
available to meet business expansion or other working capital needs could be
adversely affected. As of December 31, 1997, the value of the Redemption Right
was $53.7 million. The most recent appraised price of the Common Stock is
$14.21 as of December 31, 1997. The aggregate market value of the Common Stock
at December 31, 1997 is $1,207.9 million. The Redemption Right has never been
exercised by the Plan, although the Company has repurchased Common Stock into
treasury from certain stockholders. The Company does not believe that the
Redemption Right will be exercised to any material extent by the Plan to meet
any of its fiduciary obligations.
The Company maintains a first right of refusal with the majority of its
stockholders and, accordingly, it has historically purchased shares from
stockholders when offered for sale back to the Company. During the fiscal
years 1997, 1996 and 1995, treasury stock purchases of ClubCorp from
stockholders, sales of stock (which were primarily to the Plan), and other
shares issued were as follows (dollars in millions):
YEARS ENDED
DECEMBER 31,
----------------------
1997 1996 1995
------ ------ ------
Treasury stock purchases $(5.6) $(4.4) $(6.5)
Reissuance of treasury stock - 0.3 0.3
Stock issued in connection with bonus plans 0.7 1.1 1.9
------ ------ ------
$(4.9) $(3.0) $(4.3)
====== ====== ======
See the Consolidated Statement of Stockholders' Equity located elsewhere
herein for a summary of stockholder equity transactions.
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
Certain information in this Annual Report on Form 10-K may contain
"forward-looking statements" within the meaning of Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical fact are "forward-looking statements" for purposes of
these provisions, including any projections of earnings, revenues or other
financial items, any statements of the plans and objectives of management for
future operations, any statements concerning proposed new products or
services, any statements regarding future economic conditions or performance
and any statement of assumptions underlying any of the foregoing. In some
cases, forward-looking statements can be identified by the use of terminology
such as "may," "will," "expects," "plans," "anticipates," "estimates,"
"potential" or "continue," or the negative thereof or other comparable
terminology. Although the Company believes that the expectations reflected in
its forward-looking statements are reasonable, it can give no assurance that
such expectations or any of its forward-looking statements will prove to be
correct, and actual results could differ materially from those projected or
assumed in the Company's forward-looking statements. Forward-looking
statements are subject to inherent risks and uncertainties, some of which are
summarized in this section.
Over the last three years, quarterly attrition rates among members of the
Company's mature clubs have ranged from approximately 17.5% to 19.9%.
Membership enrollment at mature clubs during 1997 was 20.3%, which is higher
than attrition rates of 18.7% during the same period. The Company continues
to focus its efforts on membership enrollment programs to increase membership
levels and quality service to reduce attrition as its top priorities for 1998.
For the last several years, the Company has focused on efforts to retain
existing members, attract new members and increase club usage through various
programs and membership activities, including increasing member participation
by implementing member survey suggestions, increasing the involvement of
member boards of governors in planning club activities, and the alignment of
club activities with member needs. It is uncertain how trends in membership
and club usage will develop in the future, or whether any of the Company's
efforts in this area will be successful.
During 1996 and 1997, the Company was successful in its efforts to
control expenses and increase operating revenues. While operating revenues
increased 3.1% and 7.2% in 1996 and 1997, respectively, operating costs and
expenses increased only 1.0% and 5.3%, in 1996 and 1997, respectively. It is
uncertain if the Company can continue to create operating efficiencies and
thus decrease costs in 1998 to the extent cost reductions were achieved in
1996 and 1997.
The Company has policies in place designed to bring its properties in
substantial compliance with all current federal, state and local environmental
laws and laws relating to access for disabled persons. The Company estimates
that capital expenditures in connection with certain environmental matters
will be approximately $1.0 million to $2.0 million in the aggregate over the
next five years and that capital expenditures in connection with compliance
with the Americans with Disabilities Act of 1990 will be approximately $3.0
million over the next five years. The Company is not subject to any recurring
costs associated with managing hazardous materials or pollution. In addition,
management does not believe that the Company will incur expenses for
infrequent or non-recurring cleanup, based upon the Company's due diligence
inspection, employee training, standards of operations and on-site assessments
performed and maintained for each property. However, the Company is in the
process of replacing approximately 27 underground storage tanks with
aboveground contained storage systems. It is unlikely that any of those tanks
will be found to require remediation. The Company is permitted under various
state laws to recover a portion of its costs of remediation through various
state superfunds created to address environmental cleanups. The Company is not
subject to any remediation mandates related to previously contaminated sites.
See Item 1, "Business-Operations-Government Regulation".
As of March 27, 1998, the Company was in the final stages of negotiations
to acquire six properties. The Company is considering several ownership
structures for the properties including lease arrangements, sole ownership,
and partial ownership (including joint venture interests). The consummation of
the acquisition of these properties is expected to require approximately $17.0
to $21.0 million in capital expenditures, to be funded primarily with external
bridge financing of Club Corporation of America (CCA) and cash flows from
operations. The bridge financing arrangement is a "guidance line", styled as a
promissory note, with a bank and is due on a short-term basis up to a maximum
of $75.0 million. Borrowings are generally renewed as they become due;
therefore, CCA does not expect to be required to repay the outstanding
borrowings within the next twelve months. As of December 31, 1997 and March
27, 1998, $11.8 and $50.1 million, respectively, was outstanding under this
financing arrangement. Due to its short-term nature, the amount outstanding,
excluding letters of credit and loan guarantees, at December 31, 1997 is
considered current for financial reporting purposes. The eventual outcome of
the negotiations cannot be accurately predicted at this time.
ClubCorp files a consolidated federal income tax return. See Note 12 of the
Notes to the Consolidated Financial Statements for additional disclosures
related to ClubCorp's income taxes. ClubCorp's federal and state income taxes
are as follows (dollars in millions):
Years ended December 31,
------------------------
1997 1996 1995
------ ------ ------
Income tax benefit (provision):
Federal
Current (0.7) 0.1 0.9
Deferred 42.1 (2.8) (3.9)
------ ------ ------
41.4 (2.7) (3.0)
State (2.1) (1.5) (1.8)
------ ------ ------
$39.3 $(4.2) $(4.8)
====== ====== ======
The Company operates in 32 states and its operations are subject to tax
by various state and local taxing authorities. The Company generates
substantial taxable income in various states including Texas, Illinois, North
Carolina and Florida. As state and local taxing authorities raise tax rates
and change tax codes to increase tax revenues (in order to compensate for
lower federal assistance and increased responsibility for administration of
social programs), the Company is increasingly experiencing more exposure to
state and local income taxes.
Since the acquisition of Franklin in 1988, ClubCorp has reduced or
eliminated its current federal tax liability (to 2% of alternative minimum
taxable income) by using net operating loss carryforwards that resulted from
Franklin's operations. ClubCorp has estimated net operating loss
carryforwards at the end of 1997 of $556.1 million and $136.2 million for
regular and alternative minimum taxes, respectively. As a result, the Company
will be able to continue to reduce its estimated tax liability to 2% of
alternative minimum taxable income until such alternative minimum tax net
operating losses are fully utilized or expire. The net operating losses
expire from 2004 to 2010. These estimates are based upon certain assumptions
concerning the Company's 1997 operations from an alternative minimum tax
perspective and may be revised at the time the Company prepares its federal
income tax return.
The Company has substantial regular net operating loss carryforwards
available. To realize the deferred tax asset fully the Company will need to
generate future taxable income of approximately $353.0 million by 2012. Based
on the Company's historical pretax earnings, adjusted for significant
nonrecurring items such as gains (losses) on divestitures, management believes
it is more likely than not the Company will realize the benefit of the
deferred tax assets, net of the valuation allowance, existing at December 31,
1997. The Company has experienced a trend of increasing taxable income from
its continuing operations which in turn has increased estimates of future
taxable income. Based on these new estimates, the Company decreased its
valuation allowance by $66.6 million for the year ended December 31, 1997.
The assumptions used to estimate the realizability of the deferred tax assets
are subjective in nature and involve uncertainties and matters with
significant judgment. There can be no assurance that the Company will generate
any specific level of continuing earnings. The Company will receive benefits
in the form of tax credits in the future to the extent of alternative minimum
taxes paid.
The Company's federal income tax returns for 1991 through 1994 are under
examination by the Internal Revenue Service. Because many types of
transactions are susceptible to varying interpretations under federal income
tax laws and regulations, the net operating loss carryforwards and net
deferred tax asset reported in the Consolidated Financial Statements could
change at a later date upon final determination by the taxing authorities.
Management believes the Company will prevail on any significant interpretation
issues.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements and related notes begin
on Page F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
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 ClubCorp:
Name Age Position
- ----------------------------------- --- ------------------------------------------------------------------
Robert H. Dedman, Sr. 72 Chairman of the Board and Chief Executive Officer
James E. Maser (1) (2) (3) (4) 60 Vice Chairman of the Board
Robert H. Dedman, Jr. (1) (2) (3) 40 President, Chief Operating Officer and Director; Chairman of the
Board and Chief Executive Officer of CCA; Chairman of the Board
and Chief Executive Officer of Club Resorts
James P. McCoy, Jr. (1) (2) (3) (4) 52 Chief Financial Officer, Senior Vice President and Director
James M. Hinckley (1) (2) 42 Director; President and Chief Operating Officer of CCA
and Club Resorts
Terry A. Taylor (1) (2) (3) (4) 42 Senior Vice President, Secretary, Chief Legal Officer and Director
Mark W. Dietz 44 Executive Vice President and Director
Albert E. Chew, III (2) 44 Executive Vice President and Director
Richard S. Poole (2) 72 Executive Vice President and Director
Jerry W. Dickenson 57 Director
Nancy M. Dedman 70 Director
Patricia Dedman Dietz 42 Director
Robert H. Johnson (2) 51 Director
(1) Member of Investment Committee
(2) Member of Executive Committee
(3) Member of Audit Committee
(4) Member of Treasury Stock Committee
The Board of Directors of ClubCorp is currently comprised of 13
directors. All directors of ClubCorp hold office until the next annual meeting
of stockholders and until their successors have been duly elected and
qualified. Officers for 1998 will be appointed by ClubCorp's Board of
Directors during 1998, effective January 1, 1998.
Robert H. Dedman, Sr. has been Chairman of the Board and Chief Executive
Officer of ClubCorp since its inception in 1957. Mr. Dedman is a director of
United Meridian Corporation and an advisory director of Stewart Information
Services, Inc. The following members of Mr. Dedman's family are also
directors and/or officers of the Company: Nancy M. Dedman (wife), Robert H.
Dedman, Jr. (son), Patricia Dedman Dietz (daughter) and Mark W. Dietz
(son-in-law).
James E. Maser has been associated with the Company since 1965 and has
been a director since 1971, serving as Vice Chairman of the Board since 1989.
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, Chief
Operating Officer and director of ClubCorp and as Chairman of the Board and
Chief Executive Officer of CCA. Mr. Dedman also serves as Chairman of the
Board of Club Resorts.
James P. McCoy, Jr. joined the Company in 1973, and served as Vice
President and Treasurer during 1983. He has been a director of ClubCorp since
1994. From 1983 to 1986, Mr. McCoy was the Manager of Corporate Financial
Services for Merrill Lynch. Mr. McCoy returned in 1986 as the Treasurer of
ClubCorp and has been the Chief Financial Officer of ClubCorp since 1988.
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 President of
Club Resorts and Chief Operating Officer since February 1992. On January 1,
1995, Mr. Hinckley became President and Chief Operating Officer of all of
ClubCorp's domestic operating subsidiaries.
Terry A. Taylor has been Senior Vice President, Secretary and Chief
Legal Officer of ClubCorp since 1990, and has been a director of ClubCorp
since January 1994.
Mark W. Dietz has been a director of ClubCorp since 1986 and an
Executive Vice President of ClubCorp since January 1995. Mr. Dietz is married
to Patricia Dedman Dietz.
Albert E. Chew, III joined the Company in 1988 as Director of Human
Resources for Club Resorts. In 1992, Mr. Chew was elected as a Vice President
of ClubCorp. Mr. Chew has served as a director of ClubCorp since January 1994
and became Senior Vice President of ClubCorp in 1995. In 1997, Mr. Chew became
Executive Vice President of ClubCorp.
Richard S. Poole joined the Company in 1960 and has been a director of
ClubCorp since 1969. Mr. Poole served as Executive Vice President of ClubCorp
from 1987 through 1989. Since 1989, Mr. Poole has served in various executive
capacities with the Company and, beginning in 1995, has resumed serving as
Executive Vice President of ClubCorp.
Jerry W. Dickenson joined the Company in 1969 and has been a director of
ClubCorp since 1972. Mr. Dickenson served as Executive Vice President of
ClubCorp from 1987 through 1989 and in 1995. Mr. Dickenson was the Chairman
of the Board of Club Resorts from 1987 through 1994.
Nancy M. Dedman has been a director of ClubCorp since its inception in
1957.
Patricia Dedman Dietz has been a director of ClubCorp since 1982. Ms.
Dietz has been a psychotherapist in private practice for the last 14 years.
Robert H. Johnson joined the Company in 1975 and has been a director of
ClubCorp since 1988. Mr. Johnson served as President and Chief Operating
Officer of CCA from 1986 through 1994. On January 1, 1995, Mr. Johnson became
President and Chief Operating Officer of The International Group of ClubCorp.
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, 1996 and 1995:
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------------- ----------------------------------
AWARDS PAYOUTS
----------------- ------------
OTHER ANNUAL RESTRICTED LTIP
NAME AND PRINCIPAL POSITION YEAR SALARY (1) BONUS COMPENSATION (2) STOCK AWARDS (3) PAYOUTS (4)
- ----------------------------------- ---- ----------- -------- ----------------- ----------------- ------------
Robert H. Dedman, Sr. 1997 $ 347,831 $ - $ - $ - $ -
Chairman of the Board and 1996 302,820 - - - 94,244
Chief Executive Officer 1995 302,820 - - - - 95,468
Robert H. Dedman, Jr. 1997 349,297 108,800 - - -
President, Chief Operating 1996 288,400 118,441 - - 75,015
Officer and Director 1995 280,000 - - - 75,989
James M. Hinckley 1997 297,359 112,686 - - -
President of Club Resorts, 1996 283,250 100,044 - - 66,246
President of CCA and Director 1995 275,000 - - - 67,117
James E. Maser 1997 221,187 69,161 - - -
Vice Chairman of the Board 1996 213,590 77,778 - - 68,468
1995 213,590 - - - 69,358
Robert H. Johnson 1997 245,023 43,711 - - -
President and Chief Operating 1996 240,400 47,687 (5) - - 62,883
Officer (foreign operating 1995 233,398 - - - 63,699
subsidiaries) and Director
ALL OTHER
NAME AND PRINCIPAL POSITION COMPENSATION
- ----------------------------------- --------------
Robert H. Dedman, Sr. $ -
Chairman of the Board and 7,000 (6)
Chief Executive Officer 8,400 (6)
Robert H. Dedman, Jr. 705 (7)
President, Chief Operating 8,946 (7)
Officer and Director 14,340 (7)
James M. Hinckley 4,750 (8)
President of Club Resorts, 2,662 (8)
President of CCA and Director 1,062 (8)
James E. Maser 4,000 (8)
Vice Chairman of the Board 4,216 (8)
1,373 (8)
Robert H. Johnson 2,572 (8)
President and Chief Operating 3,750 (8)
Officer (foreign operating 1,267 (8)
subsidiaries) and Director
_______________________________
(1) The Company's subsidiaries operate primarily on a 52/53 week fiscal
year. For 1997, the fiscal year was comprised of 53 weeks. Salary for 1997,
1996, and 1995 includes 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, 1996, or 1995.
(3) No restricted stock was awarded for 1997, 1996 or 1995 and there were
no unvested restricted stock awards as of December 31, 1997 with the exception
of the bonus mentioned in (5) below for 1996.
(4) Reflects the dollar value of payouts in 1996 and 1995 (based upon the
Formula Price at the date of the payout) relating to restricted stock awarded
for periods prior to 1995, as follows: Robert H. Dedman, Sr. - 9,415 shares
in 1995 and 1996; Robert H. Dedman, Jr. - 7,494 shares in 1995 and 1996;
James M. Hinckley - 6,619 shares in 1995 and 6,618 shares in 1996; James E.
Maser - 6,840 shares in 1995 and 1996, and Robert H. Johnson - 6,282 shares in
1995 and 1996.
(5) In 1996, Mr. Johnson elected to be paid 80% of his bonus in cash and
20% in restricted stock. The portion of Mr. Johnson's bonus paid in stock is
reported at the fair market value (based upon the Formula Price at the date of
the payout) of $9,533.
(6) Represents amounts paid to Mr. Dedman for services rendered as a
director of Franklin.
(7) Consists of $705 in 1997, $676 in 1996, and $840 in 1995 in Basic
Matching Contributions and Discretionary Matching Contributions made by
ClubCorp on Mr. Dedman's behalf pursuant to the Plan and $8,300 in 1996 and
$13,500 in 1995 paid to Mr. Dedman for services rendered as a director of
Franklin.
(8) Represents Basic Matching Contributions and Discretionary Matching
Contributions made by ClubCorp on Mr. Hinckley's, Mr. Maser's, and Mr.
Johnson's behalf, respectively, pursuant to the Plan.
SAR Exercise and Value Table
- --------------------------------
The following table summarizes for each Named Executive Officer the
aggregated SAR exercises during the fiscal year ended December 31, 1997 and
the value of all SARs for each Named Executive Officer as of December 31,
1997:
AGGREGATED SAR EXERCISES AND YEAR-END SAR VALUES
NUMBER OF SHARES VALUE OF
OF COMMON STOCK UNEXERCISED IN-THE
UNDERLYING UNEXERCISED MONEY SARS
SARS AT YEAR-END AT YEAR-END (1)
-------------------------- ----------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------- ----------- --------- ----------- ------------- ------------ --------------
Robert H. Dedman, Sr. - $ - - - $ - $ -
Robert H. Dedman, Jr. - - - - - -
James M. Hinckley (2)
Grant of January 1, 1987 6,000 42,840 - - - -
Grant of January 1, 1988 - - - 6,000 - 48,240
Grant of January 1, 1989 - - - 6,000 - 46,260
Grant of January 1, 1990 - - - 6,000 - 41,820
James E. Maser - - - - - -
Robert H. Johnson (2)
Grant of January 1, 1987 8,000 57,120 - - - -
Grant of January 1, 1988 - - - 8,000 - 64,320
Grant of January 1, 1989 - - - 8,000 - 61,680
Grant of January 1, 1990 - - - 8,000 - 55,760
___________________________
(1) Based upon the difference between the fair market value of the Common
Stock on the date of grant and on December 31, 1997. The Formula Price as of
December 31, 1997 was $14.21 per share. The fair market value per share of the
Common Stock as of January 1, 1988, 1989 and 1990 was $6.17, $6.50 and $7.24,
respectively.
(2) These SARs were awarded under the Club Corporation of America Stock
Appreciation Rights Program. They vest over a 10-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., 10 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 Company did not grant any stock options or SARs to any of the Named
Executive Officers during 1997. The following table summarizes for each Named
Executive Officer, each exercise of stock options during the fiscal year ended
December 31, 1997 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 IN-THE
UNDERLYING UNEXERCISED MONEY OPTIONS
OPTIONS AT YEAR-END AT YEAR-END
------------------------------ --------------------------------
SHARES
ACQUIRED VALUE
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE (1) EXERCISABLE UNEXERCISABLE (2)
- --------------------- ----------- --------- ----------- ----------------- ------------ ------------------
Robert H. Dedman, Sr. - $ - - - $ - $ -
Robert H. Dedman, Jr. - - 76,000 304,000 309,320 1,237,280
James M. Hinckley - - 76,000 304,000 309,320 1,237,280
James E. Maser - - - - - -
Robert H. Johnson - - 25,000 100,000 101,750 407,000
_________________________
(1) The Club Corporation International Executive Stock Option Plan (the
"Option Plan") was adopted August 31, 1995. The Option Plan provides for
granting of 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 120 days prior to their expiration date. The Option
Plan provides for accelerated vesting, not to exceed 10% per year, if the
employee maintains a certain performance level as defined in the Option Plan.
Each of the named executive officers met the required performance level
defined in the Option Plan for 1996 and 1997. Thus, 20% of the shares granted
are vested and exercisable.
(2) Based upon the difference between the fair market value of the
underlying securities and the exercise price of the option. The Formula Price
as of December 31, 1997 was $14.21 per share. The exercise price of the option
was $10.14.
COMPENSATION OF DIRECTORS
Directors who are not officers of the Company receive $200 for each
ClubCorp board meeting attended.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, 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.
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 noncompetition
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 CCA and Club Resorts,
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 FFFC and Franklin). 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
ERISA; (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, 1998.
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 December 31, 1997, 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:
SHARE OF COMMON STOCK
BENEFICIALLY OWNED(1)
---------------------
NAME NUMBER PERCENT
- ------------------------------------------------------------ ---------- ---------
Robert H. Dedman, Sr. (2) 45,770,958 53.8%
James E. Maser (3) (4) 288,825 *
Robert H. Dedman, Jr. (5) 15,319,039 18.0
James P. McCoy, Jr. 8,590 *
Jerry W. Dickenson (3) 242,000 *
James M. Hinckley 29,444 *
Robert H. Johnson 54,107 *
Terry A. Taylor 21,194 *
Albert E. Chew, III (4) 2,344 *
Mark W. Dietz (6) 15,353,850 18.1
Nancy M. Dedman (2) (7) 45,770,958 53.8
Patricia Dedman Dietz (8) 15,353,850 18.1
Richard S. Poole 176,314 *
All directors and executive officers as a group (13 persons) 77,266,665 90.9
____________________
* less than 1.0%
(1) Except as otherwise indicated, the persons named in the table have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws where
applicable. All beneficial owners of more than 5.0% of the Common Stock can be
contacted at 3030 LBJ Freeway, Suite 700, Dallas, Texas 75234. Percentages
are based on 85,003,839 shares of Common Stock outstanding as of December 31,
1997.
(2) Includes 128,864 shares pledged to a not-for-profit institution.
(3) Excludes 14,568,096 shares owned by trusts for the benefit of Robert
H. Dedman, Jr. and 14,662,396 shares owned by trusts for the benefit of
Patricia Dedman Dietz, for which James E. Maser, and Jerry W. Dickenson,
among others, serve as trustees and share voting and investment power.
(4) Excludes 3,775,673 shares owned by the Plan for the benefit of the
participants in the Plan, for which James E. Maser and Albert E. Chew, III
serve as the Trustees and share voting and investment power.
(5) Includes 14,568,096 shares owned by trusts for the benefit of Robert
H. Dedman, Jr. (see note (3) above), and 9,246 shares owned by Robert H.
Dedman, Jr.'s wife, Rachael Dedman. Excludes 14,662,396 shares owned by trusts
for the benefit of Patricia Dedman Dietz and 60,410 shares 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
(6) Includes 619,533 shares owned by Mark W. Dietz's wife, Patricia
Dedman Dietz, 14,662,396 shares owned by trusts for the benefit of Mrs. Dietz
(see note (3) above) and 60,410 shares owned by trusts for the benefit of the
Dietz's minor children, Christina Dedman, Jonathan Dedman, and Jeffrey Patrick
Dedman, for which Mr. Dietz is a trustee and shares voting and investment
power.
(7) Consists of shares owned by Nancy M. Dedman's husband, Robert H.
Dedman, Sr.
(8) Includes 11,511 shares owned by Patricia Dedman Dietz's husband, Mark
W. Dietz, 14,662,396 shares owned by trusts for Mrs. Dietz's benefit (see
note (3) above), and 60,410 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 14,568,096 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.
Robert H. Dedman, Sr. and his family currently own approximately 90.3%
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. 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, 1997 to March 13, 1998, Robert H.
Dedman, Jr., the President, Chief Operating Officer and a director of
ClubCorp, sold 18,328 shares of Common Stock, and a trust for his benefit sold
149,931 shares of Common Stock, for consideration of approximately $250,000
and $1,875,000, respectively. A trust for the benefit of Patricia Dedman
Dietz, a director of ClubCorp, sold 133,019 shares of Common Stock for
consideration of approximately $1,673,000. James P. McCoy, Jr., Chief
Financial Officer, Senior Vice President, and director of ClubCorp, sold 6,300
shares of Common Stock for consideration of approximately $75,000. Jerry W.
Dickenson, a director of ClubCorp, sold 7,128 shares of Common Stock for
consideration of approximately $85,000. A trust for the benefit of James E.
Maser, Vice Chairman of the Board, sold 10,841 shares of Common Stock for
consideration of approximately $129,000. Linda Dedman Scarborough, sister of
Robert H. Dedman, Sr., sold 4,680 shares of Common Stock for consideration of
approximately $62,000. All of such sales were made at the then-current Formula
Price and were purchased by either the Plan or the Company. See Item 5,
"Market for Registrant's Common Equity and Related Stockholder Matters".
During 1997, the Company incurred approximately $62,000 in expenses for
the benefit of Robert H. Dedman, Sr. which were reimbursed by Mr. Dedman.
On June 15, 1995, Robert H. Dedman, Chairman of the Board and Chief
Executive Officer, made loans of $3.0 million and $5.0 million, respectively,
to two subsidiaries. The promissory notes bear interest at a variable rate
which is a bank's prime rate. Payments of principal and interest are due in
monthly installments based on a five year amortization of the original note
balances. The notes are due in full on June 15, 2000. One note is unsecured.
The second is secured by a deed of trust on the property. For 1997, payments
were made of approximately $1,966,000 representing principal repayments of
approximately $1,524,000 and interest of approximately $442,000.
On July 28, 1997, Robert H. Dedman, Chairman of the Board and Chief
Executive Officer, made an additional loan of approximately $2.6 million to
one of the above subsidiaries. The note bears interest at a variable rate
which is a bank's prime rate. Payments of principal and interest are due in
monthly installments based on a five year amortization of the original note
balance. The note is due in full on June 30, 2002 and is secured by a deed of
trust on the property. For 1997, payments were made of approximately $266,000
representing principal repayments of approximately $177,000 and interest of
approximately $89,000.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
(a)(1) The following audited Consolidated Financial Statements of ClubCorp
and its subsidiaries as of December 31, 1997 and 1996, and for the years ended
December 31, 1997, 1996 and 1995 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
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:
Independent auditors' report on financial statement schedule
Schedule II Valuation and qualifying accounts
All other schedules are omitted as the required information is
inapplicable or the information is presented in the Consolidated Financial
Statements or the notes thereto.
(a)(3) See Index to Exhibits on page 40. Exhibits 10.4 through 10.7 and
Exhibits 10.19 and 10.20 are compensatory plans.
(b) Reports on Form 8-K
Form 8-K was filed on April 3, 1997 relating to a change in fiscal
year.
(c) Exhibits
See Index to Exhibits on page 40.
(d) Financial Statement Schedule
The financial statement schedule required by paragraph (d) of Item
14 is presented on page S-2.
SUPPLEMENTAL INFORMATION
The Registrant has not furnished to its security holders an annual report
covering the Registrant's last fiscal year or any proxy statement, form of
proxy or other proxy soliciting material with respect to any annual or other
meeting of security holders other than a proxy for the election of officers
and directors at the annual shareholders meeting if the security holder did
not plan to attend.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CLUB CORPORATION INTERNATIONAL
By: *
------------------------------------
Robert H. Dedman, Sr.
Chairman of the Board and Chief
Executive Officer
By: *
------------------------------------
James P. McCoy, Jr.
Chief Financial Officer/
Chief Accounting Officer
Date: March 27, 1998
----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- ---------------------------- ------------------------------------------------ --------------
* Chairman of the Board and Chief Executive March 27, 1998
- ---------------------------- Officer (Principal Executive Officer)
Robert H. Dedman, Sr.
* Vice Chairman of the Board March 27, 1998
- ----------------------------
James E. Maser
* President, Chief Operating Officer and Director March 27, 1998
- ----------------------------
Robert H. Dedman, Jr.
/s/ James P. McCoy, Jr. Senior Vice President, Chief Financial Officer March 27, 1998
- ---------------------------- and Director (Principal Financial Officer)
James P. McCoy, Jr.
* Director March 27, 1998
- ----------------------------
Jerry W. Dickenson
* Director March 27, 1998
- ----------------------------
James M. Hinckley
* Director March 27, 1998
- ----------------------------
Robert H. Johnson
* Senior Vice President, Secretary, Chief Legal March 27, 1998
- ---------------------------- Officer and Director
Terry A. Taylor
* Executive Vice President and Director March 27, 1998
- ----------------------------
Mark W. Dietz
* Senior Vice President and Director March 27, 1998
- ----------------------------
Albert E. Chew, III
* Director March 27, 1998
- ----------------------------
Nancy M. Dedman
* Director March 27, 1998
- ----------------------------
Patricia Dedman Dietz
* Executive Vice President and Director March 27, 1998
- ----------------------------
Richard S. Poole
By: /s/ James P. McCoy, Jr.
- ----------------------------
James P. McCoy, Jr.
Attorney-in-Fact
____________________
* Power of Attorney and Unanimous Written Consent of the Board of
Directors authorizing James P. McCoy, Jr. to sign this annual report on Form
10-K on behalf of the directors and certain officers of the Company are being
filed with the Securities and Exchange Commission.
INDEX TO EXHIBITS
Exhibit Sequentially
Number Exhibit Number Page
- ------- -------------------------------------------------------------------------------------------- ------------
3.1* - Articles of Incorporation, as amended, of Club Corporation International
3.2* - Bylaws, as amended, of Club Corporation International
4.1* - Specimen Certificate evidencing Common Stock of Club Corporation International
10.1** - ClubCorp Stock Investment Plan, as amended
10.2~ - Agreement among Club Corporation International, First Federal Financial Corporation,
Franklin Federal Bancorp, a Federal Savings Bank, and Norwest Corporation regarding
the sale of certain assets and assumption of certain liabilities of Franklin Federal Bancorp
10.3 - Executive Liability and Indemnification Policy, effective October 19, 1997
10.4* - CCA Executive Bonus Plan for 1993 - 1994
10.5* - Club Corporation International Executive Bonus Plan for 1992 - 1994
10.6^^ - ClubCorp Comprehensive Compensation Plan
10.7* - Club Corporation of America Stock Appreciation Rights Program
10.8* - Form of Stockholder Agreement for Club Corporation International
10.9+ - ClubCorp Stock Trust, effective January 1, 1995
10.10++ - First Amendment to the ClubCorp Stock Investment Plan
10.11# - Second Amendment to the ClubCorp Stock Investment Plan
10.12# - Third Amendment to the ClubCorp Stock Investment Plan
10.13# - Fourth Amendment to the ClubCorp Stock Investment Plan
10.14# - Fifth Amendment to the ClubCorp Stock Investment Plan
10.15## - Second Fifth Amendment to the ClubCorp Stock Investment Plan
10.16## - Sixth Amendment to the ClubCorp Stock Investment Plan
10.17 - Seventh Amendment to the ClubCorp Stock Investment Plan
10.18 - Eighth Amendment to the ClubCorp Stock Investment Plan
10.19^ - Club Corporation International Executive Stock Option Plan
10.20++ - First Amendment to the Club Corporation International Executive Stock Option Plan
21.1 - Subsidiaries of Club Corporation International
23.1 - Consent of KPMG Peat Marwick LLP
23.3 - Consent of Houlihan, Lokey, Howard and Zukin
24.1 - Power of Attorney
24.2 - Unanimous Written Consent of the Board of Directors
99.1 - Opinion of Houlihan, Lokey, Howard and Zukin related to December 31, 1997 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 Registration Statement on
Form S-8 (Registration No. 33-89818).
+ Incorporated by reference to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1994.
++ 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 Quarterly Report on Form 10-Q
for the fiscal period ended June 30, 1996.
# Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the fiscal period ended June 11, 1997.
## Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the fiscal period ended September 3, 1997.
INDEPENDENT AUDITORS' REPORT
- ------------------------------
The Board of Directors
Club Corporation International
We have audited the accompanying consolidated balance sheet of Club
Corporation International and subsidiaries (ClubCorp) as of December 31, 1997
and 1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997. These consolidated financial statements are the
responsibility of ClubCorp's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ClubCorp
as of December 31, 1997 and 1996, and the results of their operations and
their cash flows for each of the years in the three-year period ended December
31, 1997 in conformity with generally accepted accounting principles.
As discussed in note 1, ClubCorp changed its method of accounting for the
impairment of long-lived assets in 1995 to adopt the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of."
KPMG Peat Marwick LLP
Dallas, Texas
February 27, 1998
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED BALANCE SHEET
December 31, 1997 and 1996
(Dollars in thousands, except share amounts)
Assets 1997 1996
------ ----------- -----------
Current assets:
Cash and cash equivalents $ 101,419 $ 74,454
Membership and other receivables, net 76,522 73,139
Inventories 18,492 13,886
Other assets 14,546 14,501
----------- -----------
Total current assets 210,979 175,980
Property and equipment, net 673,689 663,387
Other assets 126,884 125,161
Financial services assets - 589,482
----------- -----------
$1,011,552 $1,554,010
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable and accrued liabilities $ 57,996 $ 54,933
Long-term debt - current portion 74,621 120,694
Other liabilities 53,974 54,257
----------- -----------
Total current liabilities 186,591 229,884
Long-term debt 181,236 223,223
Other liabilities 48,169 82,425
Membership deposits 83,066 74,202
Financial services liabilities - 549,246
Redemption value of common stock held by benefit plan 53,652 43,233
Stockholders' equity:
Common stock, $.01 par value, 100,000,000 shares authorized, 90,219,408
issued in 1997 and 1996, 85,003,839 and 85,393,241 outstanding
in 1997 and 1996, respectively 902 902
Additional paid-in capital 10,607 10,380
Foreign currency translation adjustment 260 (54)
Unrealized gains or losses on investments in debt and equity securities - (46)
Retained earnings 542,936 420,948
Treasury stock (42,215) (37,100)
Redemption value of common stock held by benefit plan (53,652) (43,233)
----------- -----------
Total stockholders' equity 458,838 351,797
----------- -----------
$1,011,552 $1,554,010
=========== ===========
See accompanying notes to consolidated financial statements.
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF OPERATIONS
Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands, except per share amounts)
1997 1996 1995
--------- ------------- ---------
Operating revenues $840,263 $ 784,213 $760,851
Operating costs and expenses 694,484 659,454 652,976
Selling, general and administrative expenses 67,988 61,344 66,174
Impairment loss from assets to be held and used (Note 1) - 2,800 23,000
--------- ------------- ---------
Income from operations 77,791 60,615 18,701
Gain (loss) on divestitures 4,299 (2,131) (1,153)
Interest and investment income 9,643 11,092 9,399
Interest expense (34,044) (34,044) (32,460)
Other income (expense) 1,118 (2,974) 19
--------- ------------- ---------
Income (loss) from continuing operations before
income taxes and minority interest 58,807 32,558 (5,494)
Income tax (provision) benefit 39,254 (4,150) (4,800)
Minority interest (1,219) 889 (1,017)
--------- ------------- ---------
Income (loss) from continuing operations 96,842 29,297 (11,311)
Discontinued operations:
Income from operations of discontinued financial
services segment, net of income taxes of $95
and $(1,563) in 1996 and 1995, respectively - 1,446 183
Income (loss) on disposal of financial services segment,
net of income taxes of $(15,221) and $8,425
in 1997 and 1996, respectively 25,146 (13,083) -
--------- ------------- ---------
25,146 (11,637) 183
--------- ------------- ---------
Net income (loss) $121,988 $ 17,660 $(11,128)
========= ============= =========
Basic earnings per share:
Income (loss) from continuing operations $ 1.14 $ .34 $ (.13)
Discontinued operations .29 (.13) -
--------- ------------- ---------
Net income (loss) $ 1.43 $ .21 $ (.13)
========= ============= =========
Diluted earnings per share:
Income (loss) from continuing operations $ 1.13 $ .34 $ (.13)
Discontinued operations .29 (.13) -
--------- ------------- ---------
Net income (loss) $ 1.42 $ .21 $ (.13)
========= ============= =========
See accompanying notes to consolidated financial statements.
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands, except share amounts)
Common stock (100,000,000 shares
authorized, par value $0.01 per share)
--------------------------------------------
Foreign
Treasury Additional Currency
Shares Stock Shares Par Paid-in Translation
Issued Shares Outstanding Value Capital Adjustment
---------- ---------- ------------ ------ ----------- -------------
Balances at December 31, 1994 90,219,408 4,096,353 86,123,055 $ 902 $ 9,383 $ 172
Net loss - - - - - -
Purchase of treasury stock - 653,689 (653,689) - - -
Reissuance of treasury stock - (25,399) 25,399 - 72 -
Stock issued in connection with bonus plans - (172,267) 172,267 - 620 -
Foreign currency translation adjustment - - - - - (223)
Change in unrealized gains and losses - - - - - -
Change in redemption value - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at December 31, 1995 90,219,408 4,552,376 85,667,032 $ 902 $ 10,075 $ (51)
Net income - - - - - -
Purchase of treasury stock - 408,487 (408,487) - - -
Reissuance of treasury stock - (24,258) 24,258 - 71 -
Stock issued in connection with bonus plans - (110,438) 110,438 - 234 -
Foreign currency translation adjustment - - - - - (3)
Change in unrealized gains and losses - - - - - -
Change in redemption value - - - - - -
---------- ---------- ------------ ------ ----------- -------------
Balances at December 31, 1996 90,219,408 4,826,167 85,393,241 $ 902 $ 10,380 $ (54)
NET INCOME - - - - - -
PURCHASE OF TREASURY STOCK - 447,850 (447,850) - - -
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - (58,448) 58,448 - 227 -
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - - 314
CHANGE IN UNREALIZED GAINS AND LOSSES - - - - - -
CHANGE IN REDEMPTION VALUE - - - - - -
---------- ---------- ------------ ------ ----------- -------------
BALANCES AT DECEMBER 31, 1997 90,219,408 5,215,569 85,003,839 $ 902 $ 10,607 $ 260
========== ========== ============ ====== =========== =============
Unrealized Redemption
Gains or Losses Value of
on Investments Common
in Debt and Stock Total
Equity Retained Treasury Held by Stockholders'
Securities Earnings Stock Benefit Plan Equity
----------------- ---------- ---------- -------------- ---------------
Balances at December 31, 1994 $ (2,766) $ 414,416 $ (28,675) $ (37,112) $ 356,320
Net loss - (11,128) - - (11,128)
Purchase of treasury stock - - (6,487) - (6,487)
Reissuance of treasury stock - - 184 - 256
Stock issued in connection with bonus plans - - 1,235 - 1,855
Foreign currency translation adjustment - - - - (223)
Change in unrealized gains and losses (9,046) - - - (9,046)
Change in redemption value - - - 1,698 1,698
----------------- ---------- ---------- -------------- ---------------
Balances at December 31, 1995 $ (11,812) $ 403,288 $ (33,743) $ (35,414) $ 333,245
Net income - 17,660 - - 17,660
Purchase of treasury stock - - (4,356) - (4,356)
Reissuance of treasury stock - - 183 - 254
Stock issued in connection with bonus plans - - 816 - 1,050
Foreign currency translation adjustment - - - - (3)
Change in unrealized gains and losses 11,766 - - - 11,766
Change in redemption value - - - (7,819) (7,819)
----------------- ---------- ---------- -------------- ---------------
Balances at December 31, 1996 $ (46) $ 420,948 $ (37,100) $ (43,233) $ 351,797
NET INCOME - 121,988 - - 121,988
PURCHASE OF TREASURY STOCK - - (5,568) - (5,568)
STOCK ISSUED IN CONNECTION WITH BONUS PLANS - - 453 - 680
FOREIGN CURRENCY TRANSLATION ADJUSTMENT - - - - 314
CHANGE IN UNREALIZED GAINS AND LOSSES 46 - - - 46
CHANGE IN REDEMPTION VALUE - - - (10,419) (10,419)
----------------- ---------- ---------- -------------- ---------------
BALANCES AT DECEMBER 31, 1997 $ - $ 542,936 $ (42,215) $ (53,652) $ 458,838
================= ========== ========== ============== ===============
See accompanying notes to consolidated financial statements.
CLUB CORPORATION INTERNATIONAL
CONSOLIDATED STATEMENT OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
(Dollars in thousands)
1997 1996 1995
---------- ---------- ----------
Cash flows from operations:
Net income (loss) $ 121,988 $ 17,660 $ (11,128)
Adjustments to reconcile net income (loss) to cash flows
provided from operations:
Depreciation and amortization 47,314 48,948 49,335
Impairment loss from assets to be held and used - 2,800 23,000
Gain (loss) on divestitures (4,299) 2,131 1,153
Minority interest in net income (loss) of subsidiary 1,219 (889) 1,017
Gain on disposal of financial services segment (25,146) - -
Amortization of discount on membership deposits 5,777 5,029 4,555
Equity in earnings of joint ventures (4,566) (3,392) (2,663)
Deferred income taxes (42,035) 2,776 3,866
Decrease in real estate held for sale 14,828 16,919 15,380
Net change in membership and other receivables, net (3,033) (7,986) 928
Net change in accounts payable and accrued liabilities 2,017 6,055 10,635
Net change in deferred membership dues (7,779) (2,496) (10,177)
Other 746 982 (10,203)
Net change in operating assets of discontinued operations - 17,067 387
---------- ---------- ----------
Cash flows provided from operations 107,031 105,604 76,085
Cash flows from investing activities:
Additions to property and equipment (58,768) (47,982) (65,307)
Development of new facilities (5,775) (4,306) (5,693)
Development costs for real estate held for sale (9,563) (17,329) (12,509)
Acquisition of facilities (6,436) (39,685) (25,529)
Investment in joint ventures (6,123) (747) (1,000)
Proceeds from disposition of assets and subsidiaries, net 13,026 1,216 2,443
Proceeds from disposal of financial services segment 89,968 - -
Other 7,371 6,685 11,896
Investing activities of discontinued operations - 305,772 247,085
---------- ---------- ----------
Cash flows provided from investing activities 23,700 203,624 151,386
Cash flows from financing activities:
Borrowings of long-term debt 19,441 57,606 78,626
Repayments of long-term debt (103,730) (33,336) (56,213)
Membership deposits received, net 1,744 350 2,745
Treasury stock transactions, net (5,568) (4,102) (6,231)
Repayment of Federal Home Loan Bank advances (3,153) - -
Dividends paid to minority shareholders of financial services segment (12,500) - -
Financing activities of discontinued operations - (324,834) (232,452)
---------- ---------- ----------
Cash flows used by financing activities (103,766) (304,316) (213,525)
---------- ---------- ----------
Total net cash flows 26,965 4,912 13,946
---------- ---------- ----------
Net cash flows from discontinued operations - (13,632) 15,203
---------- ---------- ----------
Net cash flows from continuing operations $ 26,965 $ 18,544 $ (1,257)
========== ========== ==========
See accompanying Notes 2, 3, 4, 11 and 12 for supplemental disclosure of
non-cash activities.
See accompanying notes to consolidated financial statements.
CLUB CORPORATION INTERNATIONAL
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------
Consolidation
- -------------
The consolidated financial statements include the accounts of Club Corporation
International (Parent) and its subsidiaries (collectively ClubCorp) except for
certain subsidiaries of Franklin Federal Bancorp, a Federal Savings Bank
(Franklin). On January 2, 1997, Franklin sold certain assets and transferred
certain liabilities to Norwest Corporation. Thus, Franklin is classified as a
discontinued operation (Note 2) and Franklin's assets, liabilities, income
(loss) from operations and cash flow activity are segregated in the
accompanying financial statements. Unless otherwise indicated, all financial
information in the Notes to the Consolidated Financial Statements excludes the
discontinued operation.
Investments in affiliates are accounted for on the equity method. Under the
equity method, original investments are recorded at cost and are adjusted by
the ClubCorp's share of the undistributed earnings or losses of these
affiliates (Note 4). All material intercompany balances and transactions have
been eliminated.
No minority interest is recorded for minority stockholders of two city clubs,
two resort subsidiaries and two real estate development subsidiaries because
of deficit capital positions and a joint venture partner's deficit capital
position. The deficit capital position of the joint venture partner is
included as a reduction of other liabilities. Minority stockholders' share of
these entities' cumulative and 1997 losses which approximate $7,409,000 and
$1,177,000, respectively, have been charged to ClubCorp. Future earnings of
these subsidiaries will be credited to ClubCorp to the extent of minority
interest losses previously absorbed.
Nature of operations
- ----------------------
Club Corporation International is a holding company incorporated under the
laws of the State of Nevada that, through its subsidiaries, has operated in
two distinct business segments, hospitality and financial services. The
hospitality segment involves the operation of private clubs (including city,
city/athletic, athletic and country clubs), resorts, golf clubs and public
golf facilities through sole ownership, partial ownership (including joint
venture interests) and management agreements. ClubCorp's primary sources of
revenue in its hospitality segment include membership dues and fees,
membership deposits, food and beverage sales and revenues from golf operations
and lodging facilities. The Company also receives management fees with respect
to facilities that it manages for third parties.
The financial services segment is presented as discontinued operations for
financial reporting purposes.
Fiscal year
- ------------
Effective January 1, 1997, ClubCorp changed its fiscal year from a calendar
year ending December 31 to a 52/53 week fiscal year ending on the last
Wednesday of December. The hospitality segment subsidiaries were previously
reported on a 52/53 week fiscal year with acquisitions, divestitures and other
material transactions of the hospitality segment during the period from
December 25, 1996 to December 31, 1996 and December 27, 1995 to December 31,
1995 recorded in these statements. The current year is comprised of the 53
weeks ended December 31, 1997. The accounts of Franklin are included for all
of calendar years 1996 and 1995.
Estimates
- ---------
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and cash equivalents
- ----------------------------
ClubCorp's policy is to invest cash in excess of operating requirements in
income producing investments. For purposes of the consolidated statement of
cash flows, cash and cash equivalents include cash on hand and
interest-bearing deposits in financial institutions, substantially all of
which have maturities of three months or less.
Impairment of long-lived assets and intangible assets
- -----------------------------------------------------------
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of". SFAS 121 requires, among other things, that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable.
ClubCorp adopted SFAS 121 for the year ended December 31, 1995 which resulted
in an impairment loss of $23,000,000 from assets to be held and used. An
additional impairment loss of $2,800,000 was recorded for the year ended
December 31, 1996. The impairment losses are reported separately in the
consolidated statement of operations.
ClubCorp assessed the recoverability of long-lived assets by determining
whether the fixed asset balance plus any intangibles for each property could
be recovered over its remaining life through undiscounted future operating
cash flows. Fair value, for purposes of calculating impairment, was measured
based on discounted future operating cash flows using a risk-adjusted discount
rate. Events or changes in circumstances identified indicating that the
carrying amount of certain long-lived assets may not be recoverable were
primarily decreases in the market values of assets and current period cash
flow deficits combined with historical cash flow deficits and forecasts of
continuing deficits. In 1996 and 1995, impaired assets identified were
property and equipment including land and land improvements, buildings,
leasehold improvements, and furniture and equipment for certain properties. No
intangible assets were associated with these properties. ClubCorp believes
that no impairment has occurred related to any of its intangible assets.
Identifiable intangibles represent primarily the excess cost over fair value
of net assets of businesses acquired and public golf leasehold interests which
are amortized using the straight-line method over 5 to 40 years.
Property and equipment
- ------------------------
Property and equipment is stated at cost. Land and land improvements include
nondepreciable golf course improvements including fairways, roughs and trees.
ClubCorp capitalizes costs which both materially add value and appreciably
extend the useful life of an asset. With respect to golf course improvements,
only costs associated with original construction, complete replacements, or
the addition of new trees, sandtraps, fairways or greens are capitalized. All
other related costs are expensed as incurred.
Depreciation is provided primarily using the straight-line method based on the
following estimated useful lives:
Depreciable land improvements 20 years
Building and recreational facilities 40 years
Furniture and fixtures 3 - 10 years
Machinery and equipment 3 - 10 years
Leasehold improvements and assets under capital leases are amortized over the
period of the respective leases using the straight-line method.
Inventories
- -----------
Inventories, which consist primarily of food and beverage and merchandise held
for resale, are stated at the lower of cost (first-in, first-out method) or
market value.
Real estate held for sale
- -----------------------------
Real estate held for sale consists primarily of land, land development costs
and related amenities if they are to be left with the project upon completion.
Costs are allocated to project components based on the specific identification
method whenever possible. Otherwise, costs are allocated based on their
relative sales value. At December 31, 1997 and December 31, 1996, real estate
held for sale was $28,180,000 and $34,869,000, respectively, and is included
in other non-current assets in the accompanying financial statements.
Sales of real estate generally are accounted for under the full accrual
method. Under that method, gain is not recognized until the collectibility of
the sales price is reasonably assured and the earnings process is virtually
complete. One real estate subsidiary has a project that is accounted for under
the percentage-of-completion method since the subsidiary has material
obligations under sales contracts to provide improvements after the property
is sold. Under the percentage-of-completion method, the gain on the sale is
recognized as the related obligations are fulfilled.
Income taxes
- -------------
Income taxes are accounted for using the asset and liability method. Under
this method deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled.
Deferred membership dues
- --------------------------
Deferred membership dues represents lifetime membership dues and prepaid dues.
Deferred membership dues are recognized as income using the straight-line
method over 20 years, the estimated average life of a lifetime membership.
Prepaid dues are recognized as income over the prepayment period.
Foreign currency translation
- ------------------------------
Assets and liabilities denominated in foreign currencies are translated into
U.S. dollars at the current exchange rate in effect at year-end. All foreign
income and expenses are translated at the weighted average exchange rates
during the year.
Translation gains and losses are reported separately as a component of
stockholders' equity. Realized foreign currency transaction gains and losses
are reflected in the statement of operations.
Treasury stock
- ---------------
Purchases of treasury stock are recorded at the cost of the shares acquired.
When treasury stock is subsequently issued, the difference between the cost of
shares issued, using the average cost method, and the sales price is charged
or credited to additional paid-in capital.
Stock-based compensation
- -------------------------
Stock-based compensation is accounted for using Accounting Principles Board
Opinion (APB) No. 25, "Accounting for Stock Issued to Employees". Under APB 25
if the exercise price of the options is greater than or equal to the market
price at the date of grant, no compensation expense is recorded. Effective
fiscal year-end 1996, ClubCorp adopted the disclosure-only provisions of SFAS
123, "Accounting for Stock-based Compensation" (Note 9).
Revenue recognition
- --------------------
Revenue from green fees, lodging, cart rentals, food and beverage sales and
merchandise sales are generally recognized at the time of sale or when the
service is provided.
Revenues from membership dues are generally billed monthly and recognized in
the period earned. The monthly dues are expected to cover the cost of
providing future membership services. Membership deposits represent advance
initiation deposits paid by members and are generally refundable in 30 years
from the date of acceptance as a member. The difference between the amount of
the membership deposit paid and the present value of the obligation is
recognized as revenue upon acceptance. The membership deposit liability
accretes over 30 years using the interest method. The accretion is recorded
to interest expense in the accompanying statement of operations. At year-end
1997, the amount of membership deposits contractually due and payable during
the next 5 years is not significant.
Divestiture of subsidiaries
- -----------------------------
Gain (loss) on divestitures includes gains and losses from the disposition of
assets and subsidiaries. Subsidiaries are divested when management determines
they will be unable to provide a positive contribution to cash flows in future
periods. Gains from divestitures are generally recognized in the period in
which operations cease and losses are recognized when they become apparent.
Earnings per share
- --------------------
In February 1997, FASB issued SFAS No. 128, "Earnings per Share", which
establishes new standards for computing and presenting basic and diluted
earnings per share. ClubCorp implemented these standards at year-end 1997 with
no impact on the earnings per share calculation for the periods presented in
the accompanying statement of operations.
Earnings per share is computed using the weighted average number of common
shares outstanding of 85,283,231, 85,601,163, and 86,141,082 for basic and
85,946,231, 85,854,088 and 86,141,082 for diluted for 1997, 1996 and 1995,
respectively. The weighted average shares outstanding used in the calculation
of diluted earnings per share includes options to purchase common stock
(Note 9).
Segment disclosures
- --------------------
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS 131 establishes standards for
reporting information about operating segments in interim and annual financial
statements. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The disclosures
required by SFAS 131 will be reflected in ClubCorp's 1998 consolidated
financial statements.
Reclassifications
- -----------------
Certain amounts previously reported have been reclassified to conform with the
current year presentation.
NOTE 2. DISCONTINUED OPERATIONS
- ----------------------------------
On August 7, 1996, Franklin entered into an agreement to sell certain assets
and transfer certain liabilities of Franklin to Norwest Corporation pending
regulatory approval. The sale was consummated on January 2, 1997 for
$89,968,000. ClubCorp's gain on the sale, net of income taxes and minority
interest, is $25,146,000 for the year ended December 31, 1997.
In January 1997, Franklin paid $62,500,000 in dividends to its shareholders.
ClubCorp used a majority of its dividend to repay long-term debt.
The financial services assets, financial services liabilities and income
(loss) from discontinued operations are segregated in the accompanying
financial statements, net of minority interest. The condensed balance sheet
and statement of operations of the discontinued segment are as follows
(dollars in thousands):
Balance Sheet
--------------
1996
--------
Assets
------
Cash and cash equivalents $ 37,852
Mortgage-backed securities 67,088
Loans receivable, net 419,106
Other assets 65,436
--------
$589,482
========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposits $516,292
Federal Home Loan Bank advances 3,153
Other liabilities 19,742
Stockholders' equity 50,295
--------
$589,482
========
Statement of Operations
-------------------------
1996 1995
--------- --------
Net interest income $ 20,308 $17,607
Other income (loss) (16,902) 5,080
Other expenses 26,472 20,895
Income tax (provision) benefit 8,520 (1,563)
--------- --------
Net income (loss) (14,546) 229
--------- --------
Minority interest (2,909) 46
--------- --------
ClubCorp's interest $(11,637) $ 183
========= ========
In 1996, in conjunction with the sale, Franklin's Board of Directors made a
decision to sell the fixed-rate mortgage-backed securities and use the funds
to prepay the Federal Home Loan Bank (FHLB) advances. A write down of the
portfolio was recognized due to the decision to sell the fixed-rate
mortgage-backed securities and the decline in their value deemed other than
temporary. Losses recognized as of December 31, 1996 on the sale of fixed-rate
mortgage-backed securities and write down on the remaining securities to be
sold totaled $21,500,000. The proceeds on the sale of these investments
allowed Franklin to prepay a majority of the FHLB advances.
NOTE 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 of the Parent.
During 1996, ClubCorp purchased substantially all the assets of three golf
clubs, two country clubs and two resorts. ClubCorp previously leased one of
the resorts.
During 1995, ClubCorp purchased substantially all of the assets of four
country clubs, a fitness and tennis center and the remaining 49% minority
interest of stock in a corporation which operates eight public golf
facilities. ClubCorp previously consolidated the public golf subsidiary.
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 1996 1995
------- -------- -------
Inventories and other assets $ 39 $ 1,227 $ 2,584
Property and equipment 9,587 46,439 21,256
Excess of cost over net assets
acquired, net 732 7,754 14,659
Deposit on purchase - (5,000) 5,000
------- -------- -------
Total assets acquired $10,358 $50,420 $43,499
======= ======== =======
Accounts payable and
accrued liabilities $ 1,003 $ 591 $ 371
Long-term debt 2,919 8,310 1,474
Membership deposits - - 15,479
Other liabilities - 1,834 646
------- -------- -------
Total liabilities assumed $ 3,922 $10,735 $17,970
======= ======== =======
Cash paid $ 6,436 $39,685 $25,529
======= ======== =======
The deposit on purchase is an advance payment made in 1995 on the purchase of
a golf club. The purchase was finalized during 1996.
The following unaudited proforma financial information for ClubCorp assumes
the acquisitions in 1997 and 1996 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):
1997 1996
-------- --------
Operating revenues $841,468 $801,435
======== ========
Net income $122,176 $ 16,815
======== ========
Net income per share
assuming dilution $ 1.42 $ .20
======== ========
NOTE 4. INVESTMENTS IN AFFILIATES
- -------------------------------------
During 1997, ClubCorp entered into joint venture agreements to build and
operate a golf course and a hotel and to operate a country club. In addition,
ClubCorp sold the interest in a resort joint venture for cash and a note
receivable.
ClubCorp's other investments in affiliates include joint ventures for the
operation of four real estate developments, three country clubs, two golf
clubs and two city clubs.
ClubCorp does not have operational or financial control over these
entities; therefore the entities are accounted for using the equity method and
the investment balances are included in other non-current assets in the
accompanying financial statements.
A summary of the significant financial information of affiliated companies
accounted for on the equity method is as follows (dollars in thousands):
1997 1996
------- -------
Cash $13,259 $ 5,488
Fixed assets, net 47,287 42,709
Land held for resale 3,877 7,923
Other assets 15,631 18,325
------- -------
Total assets $80,054 $74,445
======= =======
Long-term debt $19,878 $15,296
Membership deposits 5,063 5,784
Other liabilities 9,736 14,776
Venturers' capital 45,377 38,589
------- -------
Total liabilities and venturers'capital $80,054 $74,445
======= =======
Operating revenues $37,209 $53,203
Gross profit $12,819 $19,935
Net income $ 9,854 $ 8,210
ClubCorp's equity in:
Net assets $24,212 $19,737
Net income $ 4,566 $ 3,392
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 31, 1997 and 1996, ClubCorp's
estimate of fair value approximates the carrying value of its financial
instruments.
The following methods and assumptions were used to estimate the fair value of
each class of financial instrument for which it is practicable to estimate
that value:
Cash and cash equivalents
- ----------------------------
The carrying amount of cash and cash equivalents approximates fair value due
to the short maturity of these instruments.
Long-term debt
- ---------------
Fair values for fixed rate and other obligations are based on the discounted
value of contractual cash flows using ClubCorp's incremental borrowing rates
for similar types of debt arrangements. The fair value calculated at December
31, 1997 and 1996 approximates the carrying value. ClubCorp's fluctuating rate
and capital lease obligations' carrying amounts approximate fair value.
Membership deposits
- --------------------
The carrying amount of membership deposits is the present value of the future
obligations and therefore approximates fair value.
NOTE 6. PROPERTY AND EQUIPMENT
- ----------------------------------
Property and equipment consists of the following at year-end (dollars in
thousands):
1997 1996
---------- ----------
Land and land improvements $ 298,571 $ 283,260
Buildings and recreational facilities 280,692 295,114
Leasehold improvements 102,866 98,416
Furniture and fixtures 99,483 92,883
Machinery and equipment 165,741 151,986
Construction in progress 24,110 18,824
---------- ----------
971,463 940,483
Accumulated depreciation and amortization (297,774) (277,096)
---------- ----------
$ 673,689 $ 663,387
========== ==========
NOTE 7. CURRENT LIABILITIES
- ------------------------------
Current liabilities consist of the following at year-end (dollars in
thousands):
1997 1996
-------- --------
Accounts payable $ 27,527 $ 29,040
Accrued compensation and employee benefits 18,689 13,764
Other accrued liabilities 11,780 12,129
-------- --------
Accounts payable and accrued liabilities 57,996 54,933
Long-term debt - current portion 74,621 120,694
Deferred membership dues 5,419 10,936
Other deferred revenue 20,772 17,131
Property taxes payable 11,070 12,337
Other current liabilities 16,713 13,853
-------- --------
Other liabilities 53,974 54,257
-------- --------
Total current liabilities $186,591 $229,884
======== ========
NOTE 8. LONG-TERM DEBT AND OPERATING LEASES
- -------------------------------------------------
Long-term borrowings are summarized below with weighted average interest rates
of 8.4% and 8.5% at year-end 1997 and 1996, respectively, and the range of
maturity dates in parentheses (dollars in thousands):
1997 1996
-------- --------
Notes payable to financial institutions:
Fixed rate (1997-2016) $ 64,077 $ 74,514
Fluctuating rate (1997-2010) 128,501 206,064
Notes payable to developers and landlords
Fixed rate (1997-2007) 8,857 10,745
Capital lease obligations (1997-2068) 15,972 12,673
Other obligations (1997-2006) 38,450 39,921
-------- --------
255,857 343,917
Less current portion 74,621 120,694
-------- --------
$181,236 $223,223
======== ========
Certain real and personal property and equipment of the Parent's subsidiaries
are pledged as collateral on their long-term debt.
As the result of operating performance of certain subsidiaries, at December
31, 1997 and subsequently, certain subsidiaries were not in compliance with
debt covenants due to non-payment of principal due and covenants relating to
financial ratios on long-term debt totaling $3,996,000 and $2,730,000,
respectively.
A subsidiary of Parent maintains an external bridge financing agreement with a
financial institution. The bridge financing arrangement is a "guidance line",
styled as a promissory note, and is due on a short-term basis up to a maximum
of $75,000,000. Borrowings are generally renewed as they become due;
therefore, the subsidiary does not expect to be required to repay the
outstanding borrowings within the next twelve months. As of December 31, 1997
and 1996, $7,080,000 and $65,799,000, respectively, is outstanding and
included in the current portion of long-term debt in the accompanying
financial statements. An additional $4,703,000 and $8,653,000 in 1997 and
1996, respectively, is considered outstanding under this agreement for loan
guarantees and unused letters of credit. ClubCorp repaid $49,475,000 in
January 1997 with the proceeds from the sale of Franklin (Note 2).
The amounts of long-term debt maturing in each of the 4 years subsequent to
1998 are as follows (dollars in thousands):
Year
- ----
1999 $44,265
2000 53,436
2001 27,738
2002 16,978
The provisions of certain subsidiary lending agreements limit the amount of
dividends that may be paid to Parent. Under the most restrictive of these
limitations, at December 31, 1997, approximately $85,000,000 of retained
earnings was available for the declaration of dividends to Parent.
The amount of cash paid for interest in 1997, 1996 and 1995 was approximately
$24,700,000, $26,000,000 and $24,700,000, respectively.
ClubCorp leases operating facilities under agreements ranging from 1 to 45
years. These agreements normally provide for minimum rentals plus executory
costs. In some cases, ClubCorp must pay contingent rent generally based on a
percentage of gross receipts or positive cash flow as defined in the lease
agreements. Future minimum lease payments required at December 31, 1997 under
operating leases for buildings and recreational facilities with initial
noncancelable lease terms in excess of one year are as follows (dollars in
thousands):
Year
- ----
1998 $ 23,391
1999 22,675
2000 22,140
2001 21,826
2002 19,895
Thereafter 113,627
--------
Total future minimum
payments required $223,554
========
Total facility rental expense (including contingent rent) during 1997, 1996
and 1995 was $32,018,000, $35,816,000 and $39,647,000, respectively.
Contingent rent during 1997, 1996 and 1995 was $7,840,000, $7,565,000 and
$11,727,000, respectively.
NOTE 9. BENEFIT PLANS
- ------------------------
ClubCorp maintains a qualified contributory profit sharing plan covering
substantially all eligible employees of its various domestic subsidiaries that
elect to participate. The profit sharing plan allows participants to
contribute a maximum of 6% of their annual compensation. Participant
contributions are matched by the participating subsidiary ranging from 20% of
the participant's contributions to 50% based on improvements in the value of
ClubCorp's common stock.
All of the assets of the plan are invested in ClubCorp common stock, except
for temporary investments of cash. Since ClubCorp's common stock is not
publicly traded, ClubCorp has granted the trustees of the plan the right to
require ClubCorp to purchase ClubCorp common stock held by the plan (3,775,673
and 3,590,793 shares at December 31, 1997 and 1996, respectively) at the
current appraised value ($14.21 and $12.04 at December 31, 1997 and 1996,
respectively) as necessary in order to meet the requirements of the Employee
Retirement Income Security Act and the plan. Accordingly, the redemption value
of ClubCorp's common stock held by the benefit plan has been reclassified out
of stockholders' equity in the accompanying consolidated balance sheet. This
redemption right has never been exercised by the trustees, and management does
not believe that the trustees have any intention to exercise the redemption
right in the foreseeable future.
ClubCorp maintains a second qualified contributory profit sharing plan for all
eligible employees of certain domestic subsidiaries. The plan allows
participants to invest their contributions among five investment fund options.
The Club Corporation International Executive Stock Option Plan was adopted
August 31, 1995. Under the plan, 4,000,000 options to purchase shares of
common stock may be granted to key management personnel at a price not less
than fair market value at the date of grant. The options fully vest 120 days
prior to their expiration date. The plan provides for accelerated vesting, not
to exceed 10% per year, if the employee maintains a certain performance level
as defined in the plan. Employees are required to maintain a minimum ownership
level of company stock holdings, as set forth in the plan, to sell stock
acquired from exercised options. In August 1995, 2,945,000 options were
granted at $10.14 per share with an expiration date of December 31, 2009. In
January 1996, 190,000 options were granted at $10.01 per share with an
expiration date of December 31, 2010 and in January 1997, an additional
150,000 options were granted at $12.04 per share with an expiration date of
December 31, 2011.
ClubCorp applies APB 25 in accounting for the plan, therefore no compensation
expense has been recognized for the options. In accordance with the
requirements of SFAS 123, the fair value of the options granted was estimated
using the Black-Scholes option-pricing model with the following assumptions
for the 1997, 1996 and 1995 grants: risk-free interest rates of 5.8%, 5.6%
and 6.6%, respectively, an expected volatility of 25%, an expected life of 10
years and zero dividend yield. A summary of the status of the options
outstanding as of December 31, 1997, 1996 and 1995 and changes during the
years ending on those dates is as follows:
Average
Exercise
Shares Price
---------- ---------
Outstanding at January 1, 1995 - -
Granted 2,945,000 $ 10.14
Forfeited - -
----------
Outstanding at December 31, 1995 2,945,000 10.14
Granted 190,000 10.01
Forfeited (125,000) 10.14
----------
Outstanding at December 31, 1996 3,010,000 10.13
GRANTED 150,000 12.04
FORFEITED (50,000) 10.14
----------
OUTSTANDING AT DECEMBER 31, 1997 3,110,000 10.22
==========
1997 1996 1995
-------- -------- -----
Options exercisable at year-end 573,000 282,000 -
Fair value of options
granted during the year $ 6.14 $ 5.05 $5.33
If compensation cost for the plan had been determined based on the fair value
at the grant dates for the options consistent with the method of SFAS 123,
ClubCorp's net income (loss) and net income (loss) per share would have been
reduced to the following pro forma amounts (dollars in thousands, except per
share amounts):
1997 1996 1995
-------- ------- ---------
Net income (loss) $120,377 $16,128 $(12,698)
Net income (loss) per share
assuming dilution $ 1.40 $ .19 $ (.15)
NOTE 10. COMMITMENTS AND CONTINGENCIES
- ------------------------------------------
ClubCorp is subject to certain pending or threatened litigation and other
claims. Management, after review and consultation with legal counsel, believes
ClubCorp has meritorious defenses to these matters and that any potential
liability from these matters would not materially affect ClubCorp's
consolidated financial statements.
NOTE 11. INTEREST AND INVESTMENT INCOME
- --------------------------------------------
Interest and investment income consists of the following (dollars in
thousands):
1997 1996 1995
------- ------- ------
Interest income $9,663 $ 6,815 $7,595
Gain on sale of investments - 3,392 1,098
Other (20) 885 706
------- ------- ------
$9,643 $11,092 $9,399
======= ======= ======
NOTE 12. INCOME TAXES
- ------------------------
Income (loss) from continuing operations before income taxes and minority
interest consists of the following (dollars in thousands):
1997 1996 1995
-------- ------- --------
Domestic $62,042 $30,237 $(4,534)
Foreign (3,235) 2,321 (960)
-------- ------- --------
$58,807 $32,558 $(5,494)
======== ======= ========
The income tax (provision) benefit consists of the following (dollars in
thousands):
1997 1996 1995
-------- -------- --------
Federal
Current $ (674) $ 95 $ 818
Deferred 42,035 (2,776) (3,866)
-------- -------- --------
41,361 (2,681) (3,048)
State (2,107) (1,469) (1,752)
-------- -------- --------
$39,254 $(4,150) $(4,800)
======== ======== ========
The differences between income taxes computed using the U.S. statutory Federal
income tax rate of 35% and actual income tax provision as reflected in the
accompanying consolidated statement of operations are (dollars in thousands):
1997 1996 1995
--------- --------- --------
Expected Federal income tax (provision) benefit $(20,582) $(11,395) $ 1,923
Effect of consolidated operations and income
taxes of foreign and other entities not
consolidated for Federal tax purposes 1,348 (548) (288)
State taxes, net of Federal benefit (1,370) (955) (1,139)
Change in valuation allowance
allocated to income tax expense 66,566 10,725 (5,185)
Other, net (6,708) (1,977) (111)
--------- --------- --------
$ 39,254 $ (4,150) $(4,800)
========= ========= ========
To fully realize the deferred tax asset ClubCorp will need to generate future
taxable income of approximately $353,000,000 by 2012. Based on the Company's
historical pre-tax earnings, adjusted for significant nonrecurring items such
as gains (losses) on divestitures, management believes it is more likely than
not ClubCorp will realize the benefit of the deferred tax assets, net of the
valuation allowance, existing at December 31, 1997. The Company has
experienced a trend of increasing taxable income from its continuing
operations which in turn has increased estimates of future taxable income.
Based on these new estimates, the Company decreased its valuation allowance by
$66,566,000 for the year ended December 31, 1997. The assumptions used to
estimate the realizability of the deferred tax assets are subjective in nature
and involve uncertainties and matters with significant judgment. There can be
no assurance that ClubCorp will generate any specific level of continuing
earnings. ClubCorp also has approximately $6,600,000 of tax credits available
to offset regular taxes payable which expire in varying amounts from 1998 to
2003.
ClubCorp's net operating loss carryforwards at December 31, 1997, after
current year utilization of net operating loss carryforwards, were
approximately $556,092,000 and $136,174,000 for regular tax and alternative
minimum tax, respectively. These net operating loss carryforwards are
available to offset future taxable income and will expire from 2004 to 2010.
The Company's federal income tax returns for 1991 through 1994 are under
examination by the Internal Revenue Service. Because many types of
transactions are susceptible to varying interpretations under Federal income
tax laws and regulations, the net operating loss carryforwards and net
deferred tax asset reported in the Consolidated Financial Statements could
change at a later date upon final determination by the taxing authorities.
Management believes the Company will prevail on any significant interpretation
issues.
The components of the deferred tax assets and deferred tax liabilities at
December 31, 1997 and 1996 are as follows (dollars in thousands):
1997 1996
-------- ---------
Deferred tax assets:
Regular tax operating loss carryforwards $194,632 $199,133
Other 15,129 18,201
-------- ---------
Total gross deferred tax assets 209,761 217,334
Valuation allowance 48,880 115,446
-------- ---------
160,881 101,888
Deferred tax liabilities:
Property and equipment 15,634 6,344
Discounts on membership deposits
and acquired notes 119,898 114,196
Other 17,406 15,440
-------- ---------
Total gross deferred tax liabilities 152,938 135,980
-------- ---------
Net deferred tax asset (liability) $ 7,943 $(34,092)
======== =========
NOTE 13. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
- ------------------------------------------------------------
The hospitality segment's operations for the first three quarters consist of
12 weeks each and the fourth quarter includes 16 weeks in 1996 and 17 weeks in
1997.
Interim results are not necessarily indicative of fiscal year performance
because of the impact of seasonal and short-term variations. Selected
quarterly financial data are summarized as follows (dollars in thousands,
except per share data):
QUARTERS
-----------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- --------
FISCAL YEAR 1997
- ----------------
OPERATING REVENUES $159,123 $201,767 $193,695 $285,678
INCOME (LOSS) FROM CONTINUING
OPERATIONS (2,514) 26,960 3,378 69,018
INCOME FROM DISCONTINUED
OPERATIONS, NET OF INCOME TAXES 25,146 - - -
--------- --------- --------- --------
NET INCOME $ 22,632 $ 26,960 $ 3,378 $ 69,018
========= ========= ========= ========
PER COMMON SHARE:
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ (.03) $ .32 $ .04 $ .81
DISCONTINUED OPERATIONS .29 - - -
--------- --------- --------- --------
NET INCOME $ .26 $ .32 $ .04 $ .81
========= ========= ========= ========
PER COMMON SHARE
ASSUMING DILUTION:
INCOME (LOSS) FROM
CONTINUING OPERATIONS $ (.03) $ .32 $ .04 $ .80
DISCONTINUED OPERATIONS .29 - - -
--------- --------- --------- --------
NET INCOME $ .26 $ .32 $ .04 $ .80
========= ========= ========= ========
Fiscal year 1996
- ----------------
Operating revenues $151,790 $193,508 $182,895 $256,020
Income (loss) from continuing
operations (4,308) 13,216 4,956 15,433
Income (loss) from discontinued
operations, net of income taxes 533 (12,391) (1,375) 1,596
--------- --------- --------- --------
Net income (loss) $ (3,775) $ 825 $ 3,581 $ 17,029
========= ========= ========= ========
Per common share:
Income (loss) from
continuing operations $ (.05) $ .15 $ .06 $ .18
Discontinued operations .01 (.14) (.02) .02
--------- --------- --------- --------
Net income (loss) $ (.04) $ .01 $ .04 $ .20
========= ========= ========= ========
Per common share
assuming dilution:
Income (loss) from
continuing operations $ (.05) $ .15 $ .06 $ .18
Discontinued operations .01 (.14) (.02) .02
--------- --------- --------- --------
Net income $ (.04) $ .01 $ .04 $ .20
========= ========= ========= ========
As discussed in Note 12, ClubCorp recorded a significant tax adjustment in the
fourth quarter of 1997.
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors
Club Corporation International:
Under date of February 27, 1998, we reported on the consolidated balance sheet
of Club Corporation International and subsidiaries as of December 31, 1997 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1997, which are included in the annual report on Form 10-K for
the fiscal year ended December 31, 1997. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule in the annual report on Form 10-K.
This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audit.
In our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Dallas, Texas
February 27, 1998
CLUB CORPORATION INTERNATIONAL
Schedule II - Valuation and Qualifying Accounts
For the Years Ended December 31, 1997, 1996 and 1995
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 $ 3,899,663 $ 3,602,747 $ 0 $ 999,175 (A) $ 6,503,235
Tax Valuation Allowance 115,446,000 0 0 66,566,000 (B) 48,880,000
Year Ended December 31, 1996:
Allowance for Doubtful Accounts $ 3,648,816 $ 2,985,125 $ 0 $ 2,734,278 (A) $ 3,899,663
Tax Valuation Allowance 126,171,000 0 0 10,725,000 (B) 115,446,000
Year Ended December 31, 1995:
Allowance for Doubtful Accounts $ 2,505,326 $ 6,169,857 $ 0 $ 5,026,367 (A) $ 3,648,816
Tax Valuation Allowance 120,986,000 0 5,185,000 (C) 0 126,171,000
(A) Accounts receivable charged off.
(B) Utilization and disallowance of net operating loss carryforward.
(C) Generation of net operating loss.