Back to GetFilings.com

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended September 7, 2004

Commission file numbers 33-89818, 33-96568, 333-08041, 333-57107, 333-52612 and 333-110521

CLUBCORP, INC.

(Exact name of registrant as specified in its charter)

3030 LBJ Freeway, Suite 600

Dallas, Texas 75234

(Address of principal executive offices, including Zip Code)

Registrant’s telephone number, including area code: (972) 243-6191

Former name, former address and former fiscal year,

if changed since last report: NONE

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨    No  x.

The number of shares of the Registrant’s Common Stock outstanding as of October 21, 2004 was 93,597,392.

Table of Contents

CLUBCORP, INC.

INDEX

Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ClubCorp, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

1

Table of Contents

ClubCorp, Inc.

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

2

Table of Contents

ClubCorp, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)

See accompanying notes to condensed consolidated financial statements.

3

Table of Contents

ClubCorp, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Summary of significant accounting policies

Consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of ClubCorp, Inc. and its majority-owned subsidiaries that are not considered variable interest entities (VIEs) and VIEs for which the Company is the primary beneficiary (collectively, ClubCorp). All material intercompany balances and transactions have been eliminated.

Interim presentation

The accompanying Condensed Consolidated Financial Statements have been prepared by ClubCorp and are unaudited. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been omitted from the accompanying statements. We believe the disclosures made are adequate to make the information presented not misleading. However, the financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto of ClubCorp for the year ended December 30, 2003, which are a part of ClubCorp’s 2003 Form 10-K.

In our opinion, the accompanying Condensed Consolidated Financial Statements reflect all adjustments necessary to present fairly the consolidated financial position of ClubCorp as of September 7, 2004, the consolidated results of operations for the twelve weeks and thirty-six weeks ended September 9, 2003 and September 7, 2004, and cash flows for the thirty-six weeks ended September 9, 2003 and September 7, 2004. Interim results are not necessarily indicative of fiscal year performance because of the impact of seasonal and short-term variations and other factors such as timing of acquisitions and dispositions of facilities.

Cash and cash equivalents

For purposes of the Condensed Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand and interest bearing deposits in financial institutions, all of which have maturities of 90 days or less. Cash and cash equivalents also contains restricted cash which serves as collateral for letters of credit of $22.3 million as of December 30, 2003 and $27.0 million as of September 7, 2004. The 2004 balance is comprised of $23.3 million representing collateral related to insurance policies and $3.7 million related to debt covenants (See Note 9). These letters of credit have one-year terms and therefore, the related restricted cash is included in current assets.

Recent Pronouncements

In January 2003, the FASB issued and then revised in December 2003, FASB Interpretation No. 46, (FIN 46R) “Consolidation of Variable Interest Entities” which changes the criteria by which one company includes another entity in its consolidated financial statements. FIN 46R requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The assets, liabilities and noncontrolling interests of the newly consolidated variable interest entities were initially recorded at the amounts at which they would have been carried in the consolidated financial statements if FIN 46R had been effective when we first met the conditions to be the primary beneficiary of the variable interest entity. The difference between the net amount added to our Condensed Consolidated Statement of Operations and the amount of any previously recognized interest in the newly consolidated entity was not material and therefore was not recognized as a cumulative effect of an accounting change when adopted. The adoption of FIN 46R in the first quarter of 2004 resulted in an initial increase in net assets of $1.1 million, including debt of $13.7 million, to our Condensed Consolidated Balance Sheet. Prior periods were not restated. (See Note 2)

In December 2003, the FASB issued SFAS No. 132R (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This statement improves financial statement disclosures for defined benefit plans. We have not included these expanded disclosures as our pension plan is not a material component of our Condensed Consolidated Financial Statements.

4

Table of Contents

ClubCorp, Inc.

Reclassifications

Certain amounts previously reported have been reclassified to conform with the current period presentation.

Stock-based compensation

Stock-based compensation is accounted for using APB 25 and related interpretations. 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. We have also adopted the disclosure-only provisions of SFAS 123, “Accounting for Stock-based Compensation” for options issued, as amended by SFAS 148.

There were 1,225,000 and 210,000 options granted for the thirty-six weeks ended September 9, 2003 and September 7, 2004, respectively. There were 60,000 options granted for the twelve weeks ended September 7, 2004. No options were granted for the twelve weeks ended September 9, 2003. Stock compensation expense related to options has not been recorded for any of the periods presented. Had compensation cost for the option plans been determined based on the fair value at the grant dates for the options, our net income (loss) and diluted earnings (loss) per share would have been changed to the following pro forma amounts (dollars in thousands, except per share amounts):

Note 2. Variable Interest Entities

During 1994, ClubCorp formed a joint venture with a real estate developer to acquire and develop real estate around a country club.

Prior to the adoption of FIN 46R, ClubCorp accounted for its investment in the joint venture under the equity method, recording a majority of the venture’s operating results. ClubCorp is the general partner of the joint venture, however, ClubCorp does not control a majority ownership percentage; therefore, operating decisions would have to go to arbitration in the event of a split in voting. ClubCorp recorded 100% of all losses and then participated in earnings proportionally with the other partners.

The joint venture purchases virtually all the support services it requires from both ClubCorp and from the real estate developer under management service agreements, which expire at the completion of the development.

With the adoption of FIN 46R, ClubCorp consolidated the joint venture beginning with its March 23, 2004 Condensed Consolidated Balance Sheet, as the joint venture was determined to be a variable interest entity with ClubCorp as its primary beneficiary. Due to the historical net operating losses of the joint venture in excess of the partners’ equity interests of the joint venture not owned by ClubCorp, no noncontrolling interests are reported in ClubCorp’s September 7, 2004 Condensed Consolidated Balance Sheet. The investment was previously carried as a $19.8 million negative investment liability prior to consolidation.

5

Table of Contents

ClubCorp, Inc.

The joint venture was financed by the assumption of debt of which $13.1 million is currently outstanding and is included in long-term debt, along with accrued interest of approximately $10.5 million. The majority of the joint venture’s debt is payable only out of distributable cash flow, as defined by the agreements. The notes are subordinated and junior to other liens and are collateralized by the real estate owned by the joint venture. The creditors of the joint venture do not have recourse to other assets of ClubCorp.

Other variable interest entries consolidated by ClubCorp in conjunction with the implementation of FIN 46R include liquor pool entities associated with certain properties. The balance sheet and income statement impact of consolidating these entities is minimal.

Note 3. Operating revenues

We recognize revenues from the following sources (dollars in thousands):

Note 4. Income tax (provision) benefit

The income tax (provision) benefit for the twelve weeks and thirty-six weeks ended September 9, 2003 and September 7, 2004 differs from amounts computed by applying the U.S. Federal tax rate of 35% to income (loss) from operations before income taxes and minority interest due to foreign and state income taxes and the effect of consolidated operations of foreign and other entities not consolidated for Federal income tax purposes. In addition, for the twelve and thirty-six weeks ended September 7, 2004, we fully reserved all additional tax benefits from available carryforwards of net operating losses generated during the periods and therefore, recorded no income tax (provision) benefit related to federal income taxes. Therefore, the provisions for 2004 contain only foreign and state income taxes on the Condensed Consolidated Statements of Operations.

6

Table of Contents

ClubCorp, Inc.

Note 5. Weighted average shares

The following table summarizes the weighted average number of shares used to calculate basic and diluted earnings (loss) per share:

The diluted weighted average shares exclude the assumed conversion of 52,331 and 26,165 options for the twelve and thirty-six weeks ended September 9, 2003, respectively, and 621,036 for the thirty-six weeks ended September 7, 2004 due to our net loss in those periods.

Note 6. Property and equipment

Property and equipment consists of the following (dollars in thousands):

Note 7. Disposal and Impairment of Long- Lived Assets

In conjunction with Statement of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets”, for all periods presented, certain assets and liabilities expected to be sold with the held-for-sale entities have been reclassified to Other Current Assets and Other Current Liabilities, and all income and expense items have been reclassified as Discontinued Operations.

As of September 7, 2004, we had two properties classified as held for sale. In addition, the balance sheet as of December 30, 2003, includes another property that was divested in the second quarter of 2004. The balance sheet amounts related to these properties include $2.0 million and $0.9 million classified in Other Current Assets and $3.5 million and $2.5 million classified as Other Current Liabilities as of December 30, 2003 and September 7, 2004, respectively. The properties were reclassified to Discontinued Operations on the Condensed Consolidated Statement of Operations for all periods presented. See Note 10 for detail of the Statement of Operations impact of Discontinued Operations by segment and in total.

We recorded impairment of $1.7 million for the thirty-six weeks ended September 7, 2004. There was no impairment recorded during the thirty-six weeks ended September 9, 2003.

7

Table of Contents

ClubCorp, Inc.

Note 8. Comprehensive Loss

The following summarizes the components of comprehensive income (loss) (dollars in thousands):

Note 9. Long term debt

Under the provisions of our debt agreement with Textron Financial Corporation (Textron), we are required to maintain certain debt service ratios at both the portfolio and individual property level. Each of the individual loans has cross-default provisions; therefore, a default on an individual loan triggers a default on the portfolio. Effective as of June 30, 2004, we obtained an amendment to the debt agreement clarifying a component of how we calculate the debt service ratio. We may now cure a default by obtaining a letter of credit or prepaying the loan.

As of September 7, 2004, the debt service ratio (as defined in the amended agreement) was below the minimum level for three individual properties participating in the loan, thereby causing the entire loan ($56 million) to be in technical default. We cured the noncompliance through a combination of obtaining letters of credit totaling $3.7 million and a waiver letter. We have reclassified $5.1 million to the current portion of long-term debt in the Condensed Consolidated Balance Sheet related to this waiver representing the paydown amount required to bring the property not covered by letters of credit into compliance.

8

Table of Contents

ClubCorp, Inc.

Note 10. Segment reporting

Our operations are organized into three principal business segments according to the type of facility or service provided: country club and golf facilities, business and sports clubs and resorts. We have determined that the operations of these three segments have similar economic characteristics and meet the criteria that permit the operations to be aggregated into these reportable segments. The primary sources of revenue for all segments are membership revenues, consisting of dues, fees and deposits, and food and beverage sales. Additionally, country club and golf facilities and resorts have significant golf operations revenue and resorts have significant lodging revenue.

Country club and golf facilities operations consist of private country clubs, golf clubs and public golf facilities. Private country clubs provide at least one 18-hole golf course and various other recreational amenities that are open only to members and their guests. Golf clubs provide both private and public golf play and usually offer fewer other recreational amenities. Public golf facilities are open to the public and generally provide the same services as golf clubs.

Business and sports club operations consist of business clubs, business/sports clubs and sports clubs. Business clubs provide a setting for dining, business or social entertainment. Sports clubs provide a variety of recreational facilities and business/sports clubs provide a combination of the amenities available at business clubs and sports clubs. All amenities offered above are available only to members and their guests.

Resorts offer a wide variety of amenities including golf courses, lodging and conference facilities, dining areas and other recreational facilities. Resorts are open to the public and offer optional membership.

Other operations and services consist of real estate operations, corporate overhead and intercompany eliminations made in the consolidation between corporate services and other operating segments. Real estate operations are comprised of residential real estate development and sales, primarily in areas adjacent to golf facilities. A majority of operating revenues is provided from real estate sales.

We use EBITDA to monitor our property-level and overall performances. EBITDA is defined as earnings before interest, taxes, depreciation and amortization, extraordinary items and gains and losses on disposals and impairment of assets and includes both continued and discontinued operations. EBITDA for all periods presented has been adjusted to reflect this definition. EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on accounting principles generally accepted in the United States of America, and is not necessarily a measure of our cash flow or ability to fund our cash needs. Our measurements of EBITDA may not be comparable to similar titled measures reported by other companies.

9

Table of Contents

ClubCorp, Inc.

Financial information for the segments is as follows (dollars in thousands):

Consolidated Statement of Operations:

10

Table of Contents

ClubCorp, Inc.

Consolidated Statement of Operations: