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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
__________________
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file numbers 33-89818, 33-96568, 333-08041 and 333-57107
CLUBCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2778488
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
3030 LBJ FREEWAY, SUITE 700 DALLAS, TEXAS 75234
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (972) 243-6191
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
-----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the Registrant's voting stock held by
non-affiliates of the Registrant at December 28, 1999 (the most recent date on
which an appraisal was performed), based on the most recent appraised price of
the Registrant's Common Stock, was $96,822,483.
The number of shares of the Registrant's Common Stock outstanding as of
March 9, 2000 was 94,436,903.
TABLE OF CONTENTS
PART I
Item 1 Business 3
Item 2 Properties 10
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security Holders 11
PART II
Item 5 Market for Registrant's Common Equity and Related Stockholder Matters 12
Item 6 Selected Financial Data 13
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 14
Item 7a Quantitative and Qualitative Disclosures about Market Risk 27
Item 8 Financial Statements and Supplementary Data 28
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosures 28
PART III
Item 10 Directors and Executive Officers of the Registrant 29
Item 11 Executive Compensation 31
Item 12 Security Ownership of Certain Beneficial Owners and Management 34
Item 13 Certain Relationships and Related Transactions 35
PART IV
Item 14 Exhibits, Financial Statement Schedule and Reports on Form 8-K 36
2
PART I
ITEM 1. BUSINESS
GENERAL
ClubCorp, Inc. (referred to as ClubCorp or the Company), is a holding
company incorporated under the laws of the State of Delaware that, through its
subsidiaries, owns, operates or manages country clubs, golf clubs, public golf
courses, business clubs, business/sports clubs, sports clubs, resorts and
certain related real estate through sole ownership, partial ownership (including
joint venture interests) and management agreements. The Company's operations are
organized into three principal business segments according to the type of
facility or service: country club and golf facilities, business and sports clubs
and resorts. The Company's primary sources of revenue include membership dues,
membership fees and deposits, food and beverage sales, revenues from golf
operations and lodging.
ClubCorp is the world's leader in delivering golf, private clubs and resort
experiences. As of December 28, 1999, the Company's operations and ventures
spanned 30 states and 10 countries. The Company's portfolio of 224 facilities
included (i) 137 country clubs, golf clubs, public golf facilities and resorts,
with a total of 187 golf courses and (ii) 87 business, sports and
business/sports clubs and its membership base exceeded 225,000 memberships.
Trophy resorts and clubs in the Company's portfolio include Pinehurst Resort
and Country Club in North Carolina, The Homestead Resort in Virginia, Barton
Creek Resort and Country Club in Austin, Texas, Firestone Country Club in
Akron, Ohio, Mission Hills Country Club near Palm Springs, California, The
Metropolitan Club in Chicago and the Lakelands Golf Club in Brisbane, Australia.
Golf Digest, Golf Travel and other golf industry publications consistently rank
golf courses at Pinehurst, Barton Creek and The Homestead among the best in the
United States.
The predecessor corporation to ClubCorp was organized in 1957 under the
name Country Clubs, Inc. All references herein to ClubCorp shall also include
Country Clubs, Inc. and its successor corporations. For purposes of this
document, references to the "Company" include ClubCorp's various subsidiaries.
However, ClubCorp and each of its subsidiaries is careful to maintain its
separate legal existence, and general references to the Company should not be
interpreted in any way to reduce the legal distinctions between subsidiaries or
between ClubCorp and its subsidiaries.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, pursuant to Section 15(d) thereof, because the
Company has filed a registration statement on Form S-1, which became effective
October 24, 1994 pursuant to the Securities Act of 1933 (the Registration
Statement). The Registration Statement registered participation interests in the
ClubCorp Stock Investment Plan (the "Plan") and the Company's common stock, $.01
par value per share (the Common Stock), to be sold to the Plan, which was
amended and restated on January 1, 1999, to become the ClubCorp Employee Stock
Ownership Plan (the Amended Plan). Employees eligible to participate in the Plan
and the Amended Plan were able to invest in participation interests in the
Common Stock through payroll deductions of 1% to 6% of their pretax
compensation, subject to certain limitations. The Company contributes an amount
on such employee's behalf of at least 20% and up to an additional 30%, for a
maximum potential total of 50%, of the eligible employee's contributions to the
Plan and the Amended Plan with the Company contributions vesting over time. Any
contributions by the Company over the 20% minimum are within the discretion of
the Board of Directors.
Funds that were in the Plan before January 1, 1999, remain in the Amended
Plan. Generally, contributions to the Amended Plan will be invested in Common
Stock. A participant may elect to diversify a portion of their account assets
into other investments upon meeting certain age and participation requirements.
The Amended Plan allows for the transfer of these assets to a Company sponsored
individual investment plan. In addition, upon termination, retirement or
permanent disability, a participant or beneficiary may demand distribution of
Common Stock in his account in lieu of cash. Pass-through voting rights for
Common Stock held on behalf of participants is only permitted for certain
events, not including annual Board of Director elections, but is required for
certain corporate transactions.
3
All contributions to the Amended Plan were invested in Common Stock (except
for contributions temporarily invested pending investment in Common Stock) at
December 28, 1999. The Amended Plan purchased Common Stock from ClubCorp and
certain of its stockholders at fair market value, which is determined quarterly
by the Company using a formula based on certain financial measures (the "Formula
Price") and confirmed as within the range of fair market value by Houlihan Lokey
Howard and Zukin Financial Advisors, Inc., an independent financial advisory
firm (the "Financial Advisor"). See Item 5-"Market for Registrant's Common
Equity and Related Stockholder Matters". Because the Amended Plan invests
primarily in Common Stock, the value of each eligible employee's participation
interests in the Amended Plan depends on the value of the Common Stock from time
to time, which in turn is dependent on the financial success of the Company.
However, in general, no employee participating in the Amended Plan has any right
to vote the Common Stock or to receive a distribution of Common Stock from the
Amended Plan, other than in the case of termination, disability or retirement.
OPERATIONS
Background and Philosophy
- -------------------------
ClubCorp was founded in 1957 to develop Brookhaven Country Club in the
north Dallas area. In the mid-1960s, the Company established its first business
club (formerly referred to as a city club) on the belief that it could
profitably expand its operations by applying its club management skills and
member-oriented philosophy to a related line of business. The Company commenced
international operations in 1980 and recently extended its international
presence by acquiring a 29.9% interest in the PGA European Tour Courses, PLC
(referred to as ETC) and by developing a 27 hole semi-private club in
Lipperswil, Switzerland. In the mid-1980s, the Company entered the resort
industry when it capitalized on a turn-around opportunity by acquiring Pinehurst
and further diversified its participation in the golf industry when it began
developing, owning and operating public golf facilities in 1986. On March 31,
1999, the Company completed its largest acquisition to date by acquiring 22
facilities of the Cobblestone Golf Group.
Mr. Robert H. Dedman, Sr. established ClubCorp on the belief that private
clubs represented a significant business opportunity for a company that could
combine professional development and management skills with the dedication to
personal service necessary to attract and retain members. This commitment to
professionalism and personal service is reflected in the Company's
member-oriented philosophy: create lasting value for members, guests, employees
and financial partners by providing facilities and services that exceed
expectations and engender pride in belonging. ClubCorp's management and
employees recognize that the Company is in a relationship business where member
and guest satisfaction are essential to long-term growth and profitability. The
Company is committed to maintaining its leadership position in the golf-related
and business club segments by creating an environment where members, guests and
employees are treated with respect, trust and honesty. ClubCorp's policy is not
to restrict membership in its facilities on the basis of race, religion, gender
or other immutable characteristics.
In directing the Company's growth since its formation, Mr. Dedman has
emphasized quality service and facilities, endeavoring to exceed the
expectations of the Company's members and guests. Senior management believes
that the Company's success depends greatly upon the motivation, training and
experience of its employees. See-"Employees".
From the beginning of the Company, Mr. Dedman focused on assembling an
experienced management team to lead the Company. ClubCorp's nine executive
officers, including the Chairman of the Board, possess an average of 17 years of
experience with the Company. The Company has also attempted to attract and
retain qualified, dedicated managers for its country club, golf club and public
facilities, business and sports clubs and resorts. These managers possess an
average of nine years of experience with the facilities of the Company. The
Company provides an extensive, proprietary system of in-house training and
education for all of its employees that is designed to improve the quality of
services provided to members and guests.
The Company believes that a factor in its attaining a leadership position
in the industry is the Company's member-oriented philosophy. Underlying this
philosophy are progressive human resource values and goals which the Company
believes have resulted in superior customer service. The Company's managers and
employees participate in extensive, internally developed and administered
training and educational programs. Management believes that the Company's
member-oriented philosophy and culture set it apart from many of its competitors
that focus on short-term returns which may jeopardize member satisfaction and
long-term profitability.
Nature of Operations
- --------------------
The Company operates country club and golf facilities, business and sports
clubs and resorts through sole ownership, partial ownership and management
agreements. In addition, the Company performs various corporate services
internally and for third parties and develops and sells real estate. See-"Other
Operations". With respect to its wholly-owned operations, in some cases the
Company owns the real property where the country club, golf club and public golf
facility, business and sports facility and resort is operated and in other cases
the Company leases the real property from third parties.
4
The Company owned and/or operated 224 country club, golf club and public
golf facilities, business and sports clubs and resorts at December 28, 1999,
serving approximately 225,000 memberships. Management believes that the
Company's existing club, resort and other facilities and its base of club
members represent a significant value to the Company. For example, certain of
the Company's country clubs that were developed many years ago are now located
in highly populated areas where development of a new facility would be
prohibitively expensive.
The success of the Company's private club and golf club business is
dependent on the Company's ability to attract new members, retain existing
members and maintain or increase levels of club usage. The success of the
Company's country club, golf club, public golf and resort operations is also
dependent on levels of usage by the Company's members and guests. Although the
Company devotes a large amount of resources to promote its facilities and
services, many of the factors affecting club membership and usage are beyond the
control of the Company. Local and federal government laws, including income tax
regulations applicable to the Company and its club members and guests, can
adversely influence membership activity. See-"Government Regulation". Changes in
consumer tastes and preferences, local, regional and national economic
conditions, including levels of disposable income, weather and demographic
trends can also have an adverse impact on club membership and usage. See Item 7-
"Management's Discussion and Analysis of Financial Condition and Results of
Operations-Seasonality of Demand; Fluctuations in Quarterly Results".
The Company's operations are organized into three principal business
segments according to the type of facility or service: country club and golf
facilities, business and sports clubs and resorts. Lines of business not
assigned to a principal business segment include international operations and
real estate.
Country Club and Golf Facilities
- --------------------------------
The Company's domestic portfolio includes 125 private country clubs, golf
clubs or public golf facilities. The Company's private country clubs generally
provide at least one golf course and a combination of one or more of the
following: dining rooms, lounge areas, meeting rooms, grills and ballrooms,
tennis courts, swimming pools and pro shops. The Company's private country clubs
include Firestone Country Club, host of one of the two U.S. stops on the 1999
World Golf Championship Tour - NEC Invitational, Mission Hills Country Club,
home of the Nabisco Championship, Indian Wells Country Club near Palm Springs,
California, home of the Bob Hope Chrysler Classic, Gleneagles Country Club near
Dallas and Kingwood Country Club near Houston. The Company's golf clubs
generally offer both private and public play, a driving range and food and
beverage concessions. Golf clubs include Inverrary Country Club in Florida and
Golden Bear Golf Club at Indigo Run in South Carolina. ClubCorp's public golf
facilities are daily fee facilities that offer a "member for the day" experience
and generally provide the same facilities and services as golf clubs. The
Company's public golf facilities include Kingwood Cove Golf Club near Houston
and Teal Bend Golf Club in Sacramento. In 1999, the Company's country club and
golf facilities segment had operating revenues of $460.0 million and segment
operating income of $60.9 million. See Note 11 to the Consolidated Financial
Statements of the Company included in Item 8.
Business and Sport Clubs (formerly City Clubs)
- ----------------------------------------------
The Company's 82 domestic business and sports clubs consist of business
clubs, sports clubs and business/sports clubs. In 1999, the Company
repositioned its business clubs as the "office away from the office" where
members and guests can conduct business and business entertaining. Business
clubs provide private and sophisticated settings in metropolitan locations to
fulfill the dining, business or social entertainment needs of the business
professional. Sports clubs provide an array of facilities, which generally
include racquetball and squash courts, jogging tracks, exercise areas, weight
machines, aerobic studios, swimming pools and, occasionally, tennis and
basketball courts. Business/sports clubs combine the ambiance and amenities of a
business club with the facilities of premier sports clubs. The Company's
business clubs include The Metropolitan Club in Chicago, The Columbia Tower Club
in Seattle, The City Club of San Francisco, The Athletic and Swim Club at
Equitable Center in New York City and The University Club in Houston. In 1999,
the Company's business clubs segment had operating revenues of $263.4 million
and segment operating income of $18.4 million. See Note 11 to the Consolidated
Financial Statements of the Company included in Item 8.
Resorts
- -------
The Company's five destination resorts typically offer lodging and
conference facilities, dining and lounge areas, golf, tennis, recreational
facilities, European style spas and other resort amenities. Golf Digest, Golf
Travel and other golf industry publications consistently rank golf courses at
Pinehurst, Barton Creek and The Homestead among the best in the United States.
Pinehurst, the largest golf resort in the world, with eight golf courses, hosted
the 1999 United States Golf Association Open Championship (the "U.S. Open"). It
was recently announced by the USGA that Pinehurst will once again host the U.S.
Open in 2005. In 1999, the Company's resort segment had operating revenues of
$238.6 million and segment operating income of $19.1 million. See Note 11 to
the Consolidated Financial Statements of the Company included in Item 8.
5
Other Operations
- ----------------
International Operations and Real Estate
- ----------------------------------------
The Company's international division operates seven golf facilities,
including one under construction, and five business and sports clubs outside the
United States. The Company's international operations include the Marina
Vallarta Club de Golf in Puerto Vallarta, Mexico, the Drift Golf Club in Surrey,
England and the Capital Club in Beijing, China.
ClubCorp develops and sells residential real estate adjacent to its golf
facilities and sells ownership shares at destination golf clubs through its
Owner's Club program. Owner's Club members now enjoy five locations including
the Telluride Club in Colorado and The Homestead in Virginia.
In 1999, the Company's international operations and real estate business
had combined operating revenues of $47.3 million and an operating loss of $2.9
million. See Notes 11 and 12 to the Consolidated Financial Statements of the
Company included in Item 8.
Other Services
- --------------
ClubCorp performs a number of services on a company-wide basis, including
certain centralized marketing, accounting, technology support, purchasing and
disbursement functions. The Company publishes Private Clubs , an award winning
bi-monthly magazine directed at club members and resort guests which showcases
ClubCorp's facilities. The Company is currently developing members-only web
sites for each of its private clubs worldwide. The web sites will deliver
club-related and lifestyle content for members.
Equity Investments
- ------------------
The Company owns a 29.9% interest in ETC, a publicly traded English company
which owns and operates golf facilities in England, Sweden, Spain and Portugal,
many of which have hosted premier golf tournaments, including the British
Masters. Robert H. Dedman, Jr., President, Chief Executive Officer and Director
and Terry A. Taylor, Executive Vice President, Secretary and General Counsel,
are members of the Board of Directors of ETC.
The Company also owns a 24.9% interest in ClubLink Corporation, the largest
owner and operator of high quality golf facilities in Canada. ClubLink is a
publicly traded company that owns and operates golf facilities and resorts.
Robert H. Dedman, Jr. and James M. Hinckley, Chief Operating Officer and
Director, are members of the Board of Directors of ClubLink.
ClubCorp's other investments include joint ventures for the operation of
four real estate developments, four country clubs, three golf clubs and two
business clubs. The results of operations of these other investments are
included in the operating segment to which they relate.
Expansion and Development
- -------------------------
The Company continually evaluates opportunities to increase the number of
golf facilities, business and sports clubs and resorts that it owns and operates
both domestically and internationally, through acquisitions, joint ventures and
development. ClubCorp's executive officers routinely participate in the
evaluation of strategic opportunities. An example of the Company's
implementation of its external growth strategy is its 1998 joint venture
agreement with Jack Nicklaus' Golden Bear International, Inc. The joint venture
was formed to build and operate a variety of private and public golf facilities,
including "The Bear's Best " concept, a series of courses that will feature
replicas of the best Nicklaus-designed golf holes. The Golden Bear joint
venture has resulted in two facilities which are currently under construction,
The Nicklaus Golf Clubs at BirchRiver near Atlanta, Georgia and at Lionsgate in
Overland, Kansas, which are expected to open in the fall of 2000 and 2001,
respectively.
On March 31, 1999, ClubCorp completed its largest acquisition to date when
it acquired 22 facilities of the Cobblestone Golf Group. Through this $213.0
million acquisition, the Company expanded its presence significantly in the
southeastern United States and Texas. Management believes that the integration
of all functions has been substantially completed, including, but not limited
to, club management, human resources, accounting and membership.
The success of the Company's external growth strategy will depend in part
upon the availability of suitable facilities on acceptable terms, the
availability of adequate financing, equity capital and other factors beyond the
Company's control. The Company has a committed staff to constantly evaluate
development and acquisition opportunities. The success of the Company's
external growth strategy also will depend on the Company's ability to
effectively integrate acquired facilities and development projects into existing
operations, including achieving synergies between new and existing operations
and instilling its member-oriented philosophy.
6
A core component of the growth strategy is the internal growth strategy
which involves the expansion of existing facilities in order to increase
profitability. Management believes that many of its facilities have unused
capacity and that the Company has the experience and management skills necessary
to increase the utilization of these facilities while maintaining member
satisfaction. Some of the Company's facilities are at, or near, capacity. For
some of these facilities, management believes it can grow revenues by adding
additional amenities, such as additional golf courses. During 1999, the Company
demonstrated the success of its internal growth strategy with the construction
of an additional Tom Fazio designed golf course and room expansion at Barton
Creek.
Sales and Marketing
- -------------------
The Company advertises and markets its golf facilities, business and sports
clubs and resorts through diverse media. Among other things, the Company
sponsors the Associate Clubs Program, which provides members of clubs owned,
leased or managed by the Company with access to other clubs outside a certain
radius of the members' club. In cities where multiple Associate Clubs are
located, membership in a Society is often available. Society membership
provides privileges in many clubs within the same city area without any radius
restrictions and also provides additional benefits such as VIP seating at events
and concierge services. In addition, the Company publishes Private Clubs
magazine, which reaches the majority of the members at the Company's clubs and
resorts plus the Company's affiliate clubs and resorts and which advertises the
Company's facilities. The magazine's focus is on golf, travel, food, wine and
spirits and other aspects of the "private club experience." Regular features
include unusual destinations and travel tips, profiles of members who are
business leaders, club profiles, wine reviews, recipes from club chefs, golf and
tennis tips, solutions to health and fitness concerns and humor.
The Company hosts a number of professional golf tournaments, which are
intended to provide community and charitable involvement and publicity for the
Company's facilities. Some of the most notable tournaments the Company hosted
during 1999 were the 1999 U.S. Open at Pinehurst, the 1999 World Golf
Championship - NEC Invitational at Firestone Country Club, the Bob Hope Chrysler
Classic at Indian Wells Country Club and the Nabisco Championship at Mission
Hills Country Club. In addition, Pinehurst Championship Management, the sports
marketing division of ClubCorp, was selected to manage the 2001 United States
Women's Open Championship at the Pine Needles Golf Resort in Southern Pines,
North Carolina and in 2005 Pinehurst will once again host the U.S. Open.
The Company believes it has established a strong rapport with numerous
professional organizations including the following:
* United States Golf Association;
* Professional Golf Association and Ladies Professional Golf Association
Tours;
* American Junior Golf Association;
* National Golf Course Owners Association;
* Club Managers Association of America;
* National Club Association;
* International Health, Racquet & Sports Club Association; and
* National Restaurant Association.
These special relationships have enabled the Company to bring distinctive
tournaments and events, such as the U. S. Open and the PGA Tour Championship, as
well as numerous other prestigious events, to the Company's clubs and resorts
throughout the world. The Company hosts many United States Tennis Association
events, including the Rolex Indoor Collegiate Tennis Tournament, along with
other athletic activities such as swimming, diving, lawn bowling and croquet.
In addition, the Company's clubs have been recognized for their culinary
artistry. Many have earned distinctive awards from the American Culinary
Federation. In March 2000 it was announced that Chief Executive Officer and
President of ClubCorp, Robert H. Dedman, Jr. will serve a three year term on the
Board of Directors of the National Golf Foundation which is a nonprofit
organization that provides information, consulting and research for the golf
industry.
7
Government Regulation
- ---------------------
The Company's operations are subject to numerous laws and government
regulations, including environmental, occupational health and safety, labor and
alcoholic beverage control laws and laws relating to access for disabled
persons. Changes to these laws or regulations could adversely affect the
Company. The Company has in place policies designed to bring or keep its
facilities in compliance, and audit procedures to inspect for compliance, with
all current federal, state and local environmental laws.
Operations at the Company's golf courses involve the use and storage of
various hazardous materials such as herbicides, pesticides, fertilizers, motor
oil and gasoline. Under various federal, state and local laws, ordinances and
regulations, an owner or operator of real property may become liable for the
costs of removing such hazardous substances that are released on, or in, its
property and for remediation of its property. Such laws often impose liability
regardless of whether a property owner or operator knew of, or was responsible
for, the release of hazardous materials. In addition, the presence of such
hazardous substances, or the failure to remediate the surrounding soil when such
substances are released, may adversely affect the ability of a property owner to
sell such real estate or to pledge such property as collateral for a loan. The
Company has not been informed by the Environmental Protection Agency or any
state or local governmental authority of any non-compliance or violation of any
environmental laws, ordinances or regulations likely to be material to the
Company, and the Company believes that it is in substantial compliance with all
such laws, ordinances and regulations applicable to its facilities and
operations. See Item 7-"Management's Discussion and Analysis of Financial
Condition and Results of Operations-Factors That May Affect Future Operating
Results".
The Company is also subject to the Fair Labor Standards Act and various
state laws governing such matters as minimum wage requirements, overtime and
other working conditions and citizenship requirements. The salaries of a
significant number of the Company's personnel are based on the federal minimum
wage and recently adopted increases in the minimum wage have increased the
Company's labor costs. In addition, the Company is subject to certain state
"dram-shop" laws, which provide a person injured by an intoxicated individual
the right to recover damages from an establishment that wrongfully served
alcoholic beverages to the intoxicated individual. The Company is also subject
to the Americans with Disabilities Act of 1990, which, among other things, may
require certain minor renovations to various of the Company's facilities to meet
federally mandated access and use requirements. The Company believes it is
operating in substantial compliance with applicable laws and regulations
governing its operations.
The Company has operations in a number of states which regulate the
licensing of restaurants and resorts, including liquor license grants, by
requiring registration, disclosure statements and compliance with specific
standards of conduct. While the Company believes that it is, and will continue
to be, in substantial compliance with these requirements, there can be no
assurance that these requirements will not change or that any such change will
not adversely affect the Company.
Competition
- -----------
The Company operates in a highly competitive industry. The Company's clubs
and resorts compete primarily on the basis of price, management expertise,
featured facilities and quality and breadth of services. With respect to
resorts, the Company competes on a national and international level with
numerous hotel and resort companies. Competition in this part of the industry is
intense and there can be no assurance that such competition will not adversely
affect revenues, costs or operating income of the Company's resorts. The
Company's country club and golf facilities compete on a local and regional level
with other country club and golf facilities and the Company's business and
sports clubs compete on a local and regional level with fine dining
establishments and other clubs. The level of competition in these lines of
business varies from region to region and is subject to change as existing
facilities are renovated or new facilities are developed. An increase in the
number or quality of similar clubs and other facilities in a particular region
could significantly increase competition, which could have a material adverse
effect on the Company's results from that region. The Company's results of
operations also could be affected by a number of additional competitive factors,
including the availability of, and demand for, alternative forms of recreation.
In addition, many of the Company's public golf and destination resort facility
competitors have substantially greater financial and other resources than the
Company.
The Company also competes for the purchase and lease of golf courses with
national and regional golf course management companies, including American Golf
Corporation, real estate investment trusts such as National Golf Properties,
and, less frequently, with individuals and small ventures that typically own one
or more golf courses. There are many opportunities for consolidation in the
highly fragmented golf course ownership industry in the United States and the
industry has seen a high level of consolidation in the last few years. As a
result of these consolidations the Company has and may continue to experience
increased competition in the acquisition of premier properties. In the
acquisition of golf courses, companies compete primarily on the basis of price
and their reputation for operating golf courses and many of these investors have
significant equity resources available to them, sometimes providing the ability
to pay substantially more for the type of facilities consistent with those in
the Company's portfolio.
8
Acquisitions are based not only upon the value of the facility, but on the
strategic positioning of the transaction, such as concentration in a
geographical area and in markets that represent the best investment opportunity.
Management believes that it is uniquely prepared to capitalize on consolidation
opportunities due to its external growth experience with large acquisitions such
as Cobblestone, and its ability to apply economies of scale and other advantages
associated with having a substantial portfolio of facilities. The Company is
focusing on "clustering" potential acquisitions in geographical proximity with
existing clubs in order to experience significant operating efficiencies,
thereby allowing the Company to compete more efficiently than its competitors in
the operation of these facilities.
Recently, there has been a substantial increase in the development of golf
facilities throughout the United States. Significant numbers of the new courses
being built are open to the public for a daily fee. Competition in this market
has intensified and the increase in availability of daily fee courses has
adversely affected demand in portions of the private club market. According to
the National Golf Foundation, the ratio of average number of golfers per course
(18-hole equivalent) has declined and new course development has outpaced demand
in growth in recent years. Continued substantial increases in the number of
available golf facilities and additional decreases in the ratio of average
number of golfers per course could adversely affect the Company's business and
results of operations.
In the operation of its facilities, the Company competes on the basis of
its reputation to deliver value through the quality of the facility and quality
of services provided to its members and guests. The Company believes it competes
favorably with respect to these factors. The Company has a program, known as
"Associate Clubs" with varying levels of membership, that allows members of a
club in one market to utilize Company clubs in different markets, thus enhancing
the value of club membership. Because of the large number of facilities
maintained by the Company, a member is provided access to a wide number of
facilities. The Company believes this program affords it a competitive advantage
over competitors that do not maintain similar programs and over other
competitors that have similar programs, but fewer facilities.
EMPLOYEES
As of December 28, 1999, the Company employed approximately 15,000
full-time, 7,000 part-time and 1,000 seasonal employees in its operations.
The success of the Company's business is dependent in part on the Company's
ability to attract and retain experienced management and other employees on
economical terms. Management believes that the Company's employees represent an
important asset; however, the Company is not dependent upon any single employee,
or a small group of employees, whose loss would have a material adverse effect
on the Company. Although the Company believes that its labor relations are good,
increased labor and benefit costs or a deterioration in the Company's labor
relations could adversely affect the Company's operating results. As of December
28, 1999, approximately 125 of the employees engaged in the Company's operations
were covered by two collective bargaining agreements, one of which expired on
December 31, 1999 and is currently being renegotiated and one that expires on
March 31, 2002.
CUSTOMERS
The Company is not dependent upon a single customer, or a few customers,
whose loss would have a material adverse effect on the Company. In addition, as
of December 28, 1999, there is no customer to which the Company has sales equal
to 10.0% or more of the Company's consolidated revenues and whose loss would
have a material adverse effect on the Company as a whole.
INTELLECTUAL PROPERTY
The Company has registered various service marks, including the names
CLUBCORP, CCA, CLUB RESORTS, ASSOCIATE CLUBS and PINEHURST with the United
States Patent and Trademark Office, and has applied with the United States
Patent and Trademark Office for the registration of various other service marks.
In addition, the Company has registered certain of its service marks in a number
of foreign countries. The Company regards its service marks as valuable assets
and intends to protect such service marks vigorously against infringement.
AVAILABLE INFORMATION
ClubCorp, Inc. files annual, quarterly and special reports and other
information with the Securities and Exchange Commission (the "SEC"). All
documents may be located at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549 or you may obtain information on the operation of
the Public Reference Room by calling 1-800-SEC-0330. ClubCorp's SEC filings are
also available to the public at ClubCorp's internet site www.clubcorp.com or at
the SEC's internet site www.sec.gov.
9
ITEM 2. PROPERTIES
The Company owned and/or operated 224 golf facilities, business and sports
clubs and resorts as of December 28, 1999. The following table provides a
profile of the composition of the Company's portfolio of facilities from
December 25, 1996 to December 28, 1999.
Additions, Divestitures and Reclassifications of Facilities
COUNTRY GOLF PUBLIC BUSINESS/
CLUBS CLUBS GOLF BUSINESS SPORTS SPORTS RESORTS INTERNATIONAL TOTAL
-------- ------ ------- --------- ---------- ------- -------- -------------- ------
AT DECEMBER 25, 1996 72 13 28 71 20 5 10 8 227
Facilities added during 1997 1 - - 1 - - - 3 5
Facilities divested during 1997 (3) (1) (2) (2) - (1) (3) - (12)
-------- ------ ------- --------- ---------- ------- -------- -------------- ------
AT DECEMBER 31, 1997 70 12 26 70 20 4 7 11 220
Facilities added during 1998 2 - 1 3 - - 1 2 9
Facilities divested during 1998 (2) - (2) (3) - (1) (1) (1) (10)
Reclassifications during 1998 5 (4) 1 (1) 1 - (2) - -
-------- ------ ------- --------- ---------- ------- -------- -------------- ------
AT DECEMBER 29, 1998 75 8 26 69 21 3 5 12 219
Facilities added during 1999 11 15 4 1 - - 1 3 35
Facilities divested during 1999 (4) (1) (9) (11) (1) - (1) (3) (30)
Reclassifications during 1999 (2) 3 (1) - (2) 2 - - -
-------- ------ ------- --------- ---------- ------- -------- -------------- ------
AT DECEMBER 28, 1999 80 25 20 59 18 5 5 12 224
======== ====== ======= ========= ========== ======= ======== ============== ======
_____________________________
(1) Facilities added includes acquisitions of owned, leased, partially owned
or managed facilities, joint ventures and other investments. Facilities
divested includes sales of owned or partially owned facilities and other
investments and terminated leases and management agreements that are not renewed
or replaced.
Facilities divested include expired or terminated lease arrangements or
management agreements which generally have shorter terms than leases, joint
venture agreements or other forms of ownership. The Company generally includes a
termination clause in its management agreements which imposes a financial
penalty, paid to the Company by the managed owner, to discourage early
termination of management agreements.
10
The Company owns, leases or manages the facilities in its portfolio. The
following table summarizes the number and reclassifications in the type of the
Company's facilities operated for the periods indicated:
PARTIALLY
WHOLLY OWNED OWNED
------------------------ OPERATIONS
OWNED LEASED AND MANAGED UNDER
FACILITIES FACILITIES MANAGED OPERATIONS CONSTRUCTION TOTAL
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 25, 1996 84 100 7 28 8 227
Facilities added during 1997 1 - 1 1 2 5
Facilities divested during 1997 (4) (4) (1) (3) - (12)
Reclassifications during 1997 1 1 4 - (6) -
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 31, 1997 82 97 11 26 4 220
Facilities added during 1998 1 2 - 1 5 9
Facilities divested during 1998 (1) (4) - (4) (1) (10)
Reclassifications during 1998 3 1 (1) - (3) -
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 29, 1998 85 96 10 23 5 219
Facilities added during 1999 22 4 3 2 4 35
Facilities divested during 1999 (3) (20) - (6) (1) (30)
Reclassifications during 1999 1 3 1 (1) (4) -
----------- ----------- ----------- ----------- ------------- ------
AT DECEMBER 28, 1999 105 83 14 18 4 224
=========== =========== =========== =========== ============= ======
The Company leases its executive offices in Dallas, Texas, an office in
Australia in connection with its operations in Australia and Southeast Asia and
an office in England in connection with its operations in England, Europe and
South Africa.
With respect to leased facilities, the Company generally pays a monthly
base rent, as well as charges for real estate taxes, common area maintenance and
various other items. In some cases, the Company must also pay a percentage of
gross receipts or positive net cash flow. In most instances, the Company has
full authority over the operation of the leased facilities, operating on a fully
net basis, except in some cases where the owner remains responsible for major
structural repairs or for property insurance or real estate taxes.
Certain real and personal property and equipment of ClubCorp's subsidiaries
are pledged as collateral on their long-term debt. See Note 8 of the Notes to
Consolidated Financial Statements included under Item 8.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to certain pending or threatened litigation and
other claims. Management, after review and consultation with legal counsel,
believes the Company has meritorious defenses to these legal matters and that
any potential liability from these matters would not materially affect the
Company's financial condition and results of operations. See Note 14 of the
Notes to Consolidated Financial Statements included under Item 8.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1999, no matter was submitted to a vote of
security holders through the solicitation of proxies or otherwise.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no public market for the Common Stock. In connection
with certain employee benefit plans (including the Plan and the Amended Plan),
the Board of Directors of ClubCorp has periodically established a formula price
for the Common Stock (the "Formula Price"). The Formula Price is based upon a
multiple of the Company's recurring cash flows from operations, with certain
exceptions for specific assets, including certain long-term investments valued
at the lower of cost or market. See Item 1, -"Business - Employee Stock
Ownership Plan".
On December 1, 1999, the Company sold 9.4 million shares of Common Stock at
a price of $16.00 per share and issued 1.0 million Common Stock purchase
warrants with an exercise price of $17.00 per share to Cypress Merchant Banking
Partners II L.P., Cypress Offshore Partners L.P., Cypress Merchant Banking
Partners L.P., 55th Street Partners L.P. and Cypress Merchant Banking II C.V.,
(collectively referred to as The Cypress Group) for total consideration of
$150.0 million. Along with this transaction, Robert H. Dedman, Sr., Robert H.
Dedman, Jr., Patricia Dedman Dietz, and the Dedman Foundation and related
trusts, collectively referred to as the Dedman Stockholders, sold a total of 4.7
million shares of Common Stock at a price of $16.00 to The Cypress Group for
$75.0 million. In connection with this sale, a Stockholders Agreement was
signed between the Company, the Dedman Stockholders and The Cypress Group. The
Stockholders Agreement includes (i) restrictions on transfers, (ii) a potential
repurchase obligation of the Company in respect to a portion of the shares of
Common Stock owned by The Cypress Group at fair market value that may not be
exercised prior to 2004 and (iii) customary tag along, drag along and
registration rights. The Agreement also provides The Cypress Group with consent
rights over significant operating and strategic actions of the Company. The
Stockholders Agreement provides for an increase in the Board of Directors from
four directors to seven directors, of which two are to be designees of The
Cypress Group and one an independent director to be appointed by the Dedman
Stockholders.
The table below sets forth the quarterly Formula Price for the Common Stock
during the years ended December 29, 1998 and December 28, 1999.
FORMULA
1998 PRICE
- ---- --------
First Quarter $ 14.44
Second Quarter 15.04
Third Quarter 15.56
Fourth Quarter 16.60
1999
- ----
First Quarter $ 16.72
Second Quarter 16.95
Third Quarter 17.20
Fourth Quarter 17.71
The Financial Advisor has been engaged by the trustees of the Plan and the
Amended Plan to confirm the fairness of the Formula Price for purposes of the
Plan and the Amended Plan by forming independent appraisals. Based upon
appraisals, the Financial Advisor confirms whether or not the Formula Price
falls within the range of fair market value of the Common Stock on the date of
each appraisal and at each fiscal year end. If there is any discrepancy between
the Formula Price and the range of fair market value of the Common Stock as
determined by the Financial Advisor, the Company expects that it would adjust
the Formula Price so that it falls within the range of fair market value as
determined by the Financial Advisor. All purchases of Common Stock by the Plan
and the Amended Plan were made on or shortly after an appraisal date at the
Formula Price as confirmed by the Financial Advisor. See Item 1, -"Business -
Employee Stock Ownership Plan".
As of March 9, 2000, there were approximately 360 holders of record of the
Common Stock.
12
ClubCorp has never paid cash dividends on the Common Stock. Management
expects to continue its policy of retaining earnings for use in the Company's
business, and accordingly, does not expect to pay cash dividends in the
foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below are the selected consolidated income statement and balance
sheet data for each of the years in the five year period ended December 28,
1999. The table presented below should be read in conjunction with Item 7-
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", Item 7a-"Quantitative and Qualitative Disclosures about Market
Risk" and Item 8-"Financial Statements and Supplementary Data" (dollars in
thousands, except per share data).
December 31, December 31, December 31, December 29, December 28,
1995 (1) (2) 1996 (1) (2) 1997 (1) (3) 1998 (1) (3) 1999 (1) (2)
-------------- -------------- -------------- -------------- --------------
INCOME STATEMENT DATA:
Continuing operations (4):
Operating revenues $ 755,468 $ 774,263 $ 830,740 $ 854,648 $ 1,027,549
Operating income $ 13,299 $ 50,227 $ 68,587 $ 70,133 $ 58,924
Income (loss) from continuing operations
before extraordinary item ($17,623) $ 16,867 $ 87,864 $ 39,512 $ 11,626
Income (loss) from continuing
operations before extraordinary
item per share (diluted) ($0.20) $ 0.20 $ 1.02 $ 0.45 $ 0.13
BALANCE SHEET DATA:
Continuing operations (4):
Total assets $ 908,236 $ 964,528 $ 1,028,674 $ 1,110,158 $ 1,546,530
Long-term debt (including current portion) $ 313,461 $ 343,917 $ 255,857 $ 274,550 $ 512,125
Membership deposits $ 68,729 $ 74,202 $ 83,066 $ 95,460 $ 96,365
Stockholders' equity $ 284,095 $ 290,552 $ 388,615 $ 409,036 $ 564,953
OTHER INFORMATION:
Continuing operations:
Adjusted EBITDA (5): $ 100,034 $ 122,550 $ 132,363 $ 137,892 $ 166,215
_____________
(1) The Company reports its financial results on a 52/53 week basis, with
the first three quarters consisting of 12 weeks each and the fourth quarter
consisting of either 16 weeks (1995, 1996, 1998 and 1999) or 17 weeks (1997).
Prior to 1997, the Company reported its year-end results at and as of December
31, with acquisitions, divestitures and other material transactions that
occurred between the last day of the 52/53 week period and December 31 being
recorded in that year. Effective January 1, 1997, the Company changed its
reporting year from December 31 to the last day of the 52/53 week period.
(2) The Company adopted Statement of Financial Accounting Standards No. 121
for the year ended December 31, 1995. The Company recorded impairment losses of
$23.0 million in 1995, $2.8 million in 1996, and $13.5 in 1999 on long-lived
assets, which are reported separately as components of operating income. If the
Company had not recorded such impairment losses, operating income, income from
continuing operations and diluted earnings per share from continuing operations
would have been approximately $36.3 million, $5.4 million and $0.06 for 1995,
$53.0 million, $20.0 million and $0.23 for 1996, and $72.4 million, $20.4
million and $0.23 for 1999.
(3) The Company has substantial net operating loss carryforwards ("NOLs")
for federal income tax purposes. Based on new estimates of taxable income, the
Company decreased its valuation allowance on its deferred tax assets by
approximately $14.2 million and $66.6 million at December 29, 1998 and December
31, 1997, respectively. The Company's estimated valuation allowance is based on
a number of assumptions, one or more of which may prove to be incorrect. There
can be no assurance that the actual value the Company realizes from its NOLs
will not differ materially from the Company's estimate. See-"Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Note 16 to the Consolidated Financial Statements of the Company.
(4) Continuing operations includes the Company's three principal business
segments (country club and golf facilities, business and sports clubs and
resorts). From 1988 through 1996, the Company operated in the financial services
industry through Franklin Federal Bancorp, a Federal Savings Bank ("Franklin").
The Company sold Franklin for $90.0 million in a transaction that was
consummated on January 2, 1997. The Company's gain on the sale, net of taxes and
minority interest, was $25.1 million. Because the Company has disposed of its
financial services operations, this segment is classified as discontinued
operations and balance sheet data for all years shown reflects this
classification. See Note 2 to the Consolidated Financial Statements of the
Company included in Item 8.
(5) Management uses Adjusted EBITDA to monitor the performance of the
Company and its facilities. Adjusted EBITDA consists of operating income,
depreciation and amortization from wholly owned entities, net membership
deposits and fees, and a joint venture adjustment and excludes impairment loss
from assets to be held and used. Net membership deposits and fees represent the
difference between current period sales of initiation deposits and fees and the
revenue recognized from initiation deposits and fees, less incremental direct
selling costs. The joint venture adjustment is comprised of depreciation,
amortization, interest, income taxes and net membership deposits and fees for
joint venture entities at the Company's ownership percentage. Revenues from
membership deposits are calculated as the difference between the amount of the
membership deposits sold and the present value of the obligation. Adjusted
EBITDA is not intended to represent cash flow in accordance with generally
accepted accounting principles and is not necessarily a measure of the Company's
ability to fund its cash needs. The Company's Adjusted EBITDA from continuing
operations may not be comparable to similarly titled measures reported by other
companies. See Note 11 to the Company's Consolidated Financial Statements
included under Item 8.
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with
Item 6-"Selected Financial Data," Item 7a- "Quantitative and Qualitative
Disclosure about Market Risk" as well as Item 8-"Financial Statements and
Supplementary Data".
General
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year, with the first three quarters consisting of 12 weeks
each and the fourth quarter consisting of 16 or 17 weeks. The financial
statements included in Item 8 for the year ended December 28, 1999 are comprised
of 52 weeks, with the first three quarters consisting of 12 weeks each and the
fourth quarter consisting of 16 weeks.
The Company operates its business activities through sole ownership
(including lease arrangements), partial ownership (including joint venture
arrangements and equity investments) and management agreements. The Company
seeks to achieve growth in revenues, earnings, and cash flows through effective
management of existing facilities and through the acquisition of new facilities
via purchases, joint ventures, leases, equity investments and strategic
management agreements.
The Company routinely evaluates opportunities to increase the number of
resorts, country club and golf facilities and business and sports clubs that it
owns and operates both domestically and internationally, through acquisitions,
joint ventures, equity investments and development. ClubCorp's executive
officers routinely participate in the evaluation of strategic opportunities.
The Company seeks to improve financial performance of existing facilities
by determining an optimal business plan. Management attempts to create operating
efficiencies and maximize operating revenues and cash inflows through member
enhancement and utilization programs. If efforts to improve the facility
performance to financial partners and Company standards are not successful or
the goals of financial partners and the Company are not being achieved, then
alternatives such as restructuring the ownership position or refinancing
existing borrowing arrangements are considered. Facilities generally are
divested when management determines they will be unable to provide a positive
contribution to profitability, when they no longer represent a strategic
facility in the Company's network of affiliated clubs and resorts, when members
and financial partners no longer support the facility or, in the case of leases,
joint ventures and management agreements, when their contractual terms expire
without being renewed or are terminated.
The Company employs "same store" analysis techniques for a variety of
management purposes. Each of the Company's facilities is classified in one of
two categories: developing or same store. Facilities are initially classified as
developing, except for management agreements which are considered same store. At
the beginning of each year, the Company reviews its developing facilities and
determines which facilities, if any, should be reclassified as same store.
Facilities are generally moved from developing to same store after they have
been operated for a full year by ClubCorp. Facilities divested during a period
are removed from the same store classification for all periods presented. The
Company does not reclassify same store facilities as developing facilities.
The distinction between developing and same store facilities allows
ClubCorp to separately analyze the operating results of its established and new
facilities. Management believes this ability provides an effective analysis
tool because it allows the Company to assess the results of its organic growth
strategies by tracking the performance of its same store facilities without the
distortions that would be caused by the inclusion of developing properties,
including distortions caused by initial operating losses at turn-around
facilities and new developments.
Management uses Adjusted EBITDA to monitor the performance of the Company
and its facilities. Adjusted EBITDA consists of operating income, depreciation
and amortization from wholly owned entities, net membership deposits and fees,
and a joint venture adjustment and excludes impairment loss from assets to be
held and used. Net membership deposits and fees represent the difference
between current period sales of initiation deposits and fees and the revenue
recognized from initiation deposits and fees, less incremental direct selling
costs. The joint venture adjustment is comprised of depreciation, amortization,
interest, income taxes and net membership deposits and fees for joint venture
entities at the Company's ownership percentage. Revenues from membership
deposits are calculated as the difference between the amount of the membership
deposits sold and the present value of the obligation. Adjusted EBITDA is not
intended to represent cash flow in accordance with generally accepted accounting
principles and is not necessarily a measure of the Company's ability to fund its
cash needs. The Company's Adjusted EBITDA from continuing operations may not be
comparable to similarly titled measures reported by other companies. See Note
11 to the Company's Consolidated Financial Statements included under Item 8.
14
Other Operating Information
The Company owned and/or operated 11 facilities in nine foreign countries
at December 28, 1999. Two facilities each are located in Mexico and Singapore
and the remainder are each located in Australia, South Africa, England,
Luxembourg, Germany, Panama and China. In addition, the Company owns a 29.9%
interest in ETC which owns and manages golf facilities, with courses in England,
Sweden, Spain and Portugal. The Company also owns 24.9% of ClubLink Corporation,
the largest owner and operator of high quality golf facilities in Canada.
ClubLink is a publicly traded company that owns and operates golf facilities and
resorts.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 28, 1999 COMPARED TO YEAR ENDED DECEMBER 29, 1998
Consolidated Operations
Operating revenues increased 20.2% to $1,027.5 million in 1999 from $854.6
million in 1998 primarily due to the acquisition of the Cobblestone properties,
increased revenues at Pinehurst related to the hosting of the 1999 U.S. Open and
increased golf operations and membership revenue at same store facilities. The
increase in membership revenue at same store facilities is partially
attributable to the addition and promotion of a new level of Associate Club
membership (see Item 1, -"Business-Sales and Marketing"). The golf operations
revenue increase is primarily attributable to merchandise sales from certain pro
shops the Company purchased during 1999 at same store facilities (formerly
referred to as mature facilities). Operating revenues of same store facilities
increased 15.0% to $860.2 million in 1999 from $748.3 million in 1998.
Operating costs and expenses, representing direct operating costs, facility
rentals, maintenance, and depreciation and amortization, increased 22.0% to
$873.9 million in 1999 from $716.5 million in 1998. This increase is primarily
due to the addition of the operating costs and expenses from the Cobblestone
facilities and costs incurred to prepare and produce the 1999 U.S. Open. In
addition, operating costs increased at same store country clubs, golf facilities
and resorts which were related to the increases in revenues at these facilities,
increased payroll costs due to a more competitive labor market and costs
associated with the cost of merchandise for the pro shops purchased during 1999.
Operating costs and expenses at same store facilities increased 16.2% to $746.2
million in 1999 from $642.4 million in 1998.
Selling, general and administrative expenses increased 19.6% to $81.3
million for the year ended December 28, 1999 from $68.0 million for the year
ended December 29, 1998 primarily due to increases in expenses for information
systems staffing, the company-wide upgrade of technology (including costs
associated with the Year 2000 remediation plan), severance costs and other
administrative costs.
Gain (loss) on divestitures and sales of assets increased $8.7 million in
1999 to a gain of $3.0 million from a loss of $5.7 in 1998 primarily related to
the divestiture and/or sale of wholly owned and leased facilities during 1999
consisting of 12 golf facilities, 10 business clubs and one resort.
Interest expense increased to $43.3 million in 1999 from $28.9 million in
1998, or 49.8%, primarily due to the increase in outstanding debt as a result of
the Cobblestone acquisition. This increase was partially offset by a lower
interest rate on the outstanding debt in 1999 than was experienced during the
first two quarters of 1998. The higher rate in the first two quarters of 1998
was before the consolidation and refinancing of debt from the facility level to
corporate, which was at a higher interest rate than the 1998 year end rate.
Income tax provision increased to $11.8 million in 1999 from $5.8 million
in 1998 mainly due to decrease of $14.2 million in 1998 in the Company's
valuation allowance on its deferred tax assets, which was partially offset by a
decrease in income from operations in 1999. See "- Factors That May Affect
Future Operating Results" and Note 16 to the Company's Consolidated Financial
Statements included under Item 8.
Income from continuing operations before extraordinary item decreased to
$11.6 million in 1999 from $39.5 million in 1998 due primarily to the 1998
decrease of $14.2 million in the Company's valuation allowance on its deferred
tax assets and the impairment loss of $13.5 million on long-lived assets
recognized in 1999.
15
Adjusted EBITDA increased $28.3 million to $166.2 million in 1999 from
$137.9 million in 1998, due primarily to the increases in operating income
resulting principally from the acquisition of the Cobblestone facilities,
increased operating income at resort facilities and an increase in net
membership deposits and fees. The increase in net membership deposits and fees
is primarily due to the increase in sales of initiation fees sold at developing
golf facilities acquired during 1999 and at a resort facility.
SEGMENT AND OTHER INFORMATION
Country Club and Golf Facilities
The following tables present certain summary financial and membership
information for the Company's country club and golf facilities segment for 1998
and 1999 (dollars in thousands, except facility and membership data):
Same Store Total
Country Club and Country Club and
Golf Facilities Golf Facilities
--------------------- ---------------------
1998 1999 1998 1999
-------- ----------- -------- -----------
Number of facilities 91 91 109 125
Operating revenues $353,579 $ 385,725 $376,125 $ 459,967
Operating costs and expenses 293,005 322,002 317,786 399,084
-------- ----------- -------- -----------
Segment operating income $ 60,574 $ 63,723 $ 58,339 $ 60,883
======== =========== ======== ===========
Adjusted EBITDA $ 97,869 $ 98,224 $ 96,262 $ 119,430
======== =========== ======== ===========
Membership information (67 clubs) (1):
Memberships at beginning of period 66,785 69,009
Memberships added during period 12,660 12,338
Memberships lost during period 10,436 10,451
-------- -----------
Memberships at end of period 69,009 70,896
======== ===========
__________
(1) Number of facilities includes owned same store country club and golf
facilities. Membership information is comprised of the same store clubs where
the Company received membership initiation deposits or fees and membership dues.
Total country club and golf facilities' operating revenues increased 22.3%
in 1999 compared to 1998 due primarily to the addition of the Cobblestone
properties and an increase in golf operations revenue at same store facilities.
Same store country club and golf facilities' operating revenues increased 9.1%
primarily due to merchandise sales from pro shops the Company purchased during
1999 and increased membership revenue. Total country club and golf facilities'
operating costs and expenses increased 25.6% due primarily to the addition of
the operating costs and expenses of the Cobblestone properties and increased
costs associated with pro shop operations the Company purchased during 1999 at
same store facilities together with increased payroll costs at total and same
store facilities due to a more competitive labor market. The slight increase in
segment operating income for total country clubs and golf facilities is
primarily due to lower margins at developing facilities and increases in general
and administrative costs at same store facilities.
The increase of 24.1% in Adjusted EBITDA at total country club and golf
facilities is predominantly a result of the factors discussed in the preceding
paragraph and sales of initiation fees at developing facilities acquired during
1999. The slight increase in Adjusted EBITDA at same store country club and
golf facilities is primarily due to increases in operating costs and expenses
related to increased revenues, the reacquiring of the pro shops, increased
payroll costs and increased general and administrative costs coupled with
greater sales of initiation fees in 1998 than was experienced during 1999 at a
joint venture facility during the initial opening of the club.
16
Business and Sports Clubs (formerly City Clubs)
The following tables present certain summary financial and membership
information for the Company's business and sports clubs segment for 1998 and
1999 (dollars in thousands, except facility and membership data):
Same Store Business Total Business
and Sports Clubs and Sports Clubs
---------------------- ----------------------
1998 1999 1998 1999
----------- --------- ----------- ---------
Number of facilities 78 78 93 82
Operating revenues $ 232,587 $ 242,592 $ 257,810 $ 263,366
Operating costs and expenses 204,974 223,374 231,351 244,996
----------- --------- ----------- ---------
Segment operating income $ 27,613 $ 19,218 $ 26,459 $ 18,370
=========== ========= =========== =========
Adjusted EBITDA $ 36,453 $ 29,732 $ 36,596 $ 29,797
=========== ========= =========== =========
Membership information (68 clubs) (1):
Memberships at beginning of period 103,462 107,663
Memberships added during period 24,690 22,268
Memberships lost during period 20,489 20,816
----------- ---------
Memberships at end of period 107,663 109,115
=========== =========
__________
(1) Number of facilities includes owned same store business and sports clubs
(business clubs, sports clubs and business/sports clubs). Membership information
is comprised of the same store clubs where the Company received membership
initiation deposits or fees and membership dues.
Segment operating income from same store business and sports clubs
decreased $8.4 million, primarily due to the write off of a liability of $6.2
million recorded during 1998 that did not occur in 1999. Excluding the effect
of this item, segment operating income from same store business and sports clubs
would have decreased $2.2 million. This decrease is primarily due to increased
labor costs as a result of a more competitive labor market and increased general
and administrative costs related to member support services. The difference
between segment operating income at same store facilities and total facilities
is current year divestitures and facilities in development.
Adjusted EBITDA from total business and sports clubs decreased 18.6%
primarily due to the write off of a liability as discussed above.
17
Resorts
The following tables present certain summary financial data and lodging
data for the Company's resorts segment for 1998 and 1999 (dollars in thousands,
except facility and lodging data):
Same Store Resorts Total Resorts
-------------------- ------------------
1998 1999 1998 1999
--------- --------- -------- --------
Number of facilities 5 5 5 5
Operating revenues $162,091 $231,844 $172,624 $238,626
Operating costs and expenses 144,392 200,787 155,835 205,996
Impairment loss from assets
to be held and used - 13,483 - 13,483
--------- --------- -------- --------
Segment operating income $ 17,699 $ 17,574 $ 16,789 $ 19,147
========= ========= ======== ========
Adjusted EBITDA $ 30,822 $ 46,932 $ 30,572 $ 48,729
========= ========= ======== ========
Lodging data (4 resorts) (1)
Room nights available 443,858 458,417
Occupancy rate 54.1% 59.5%
Average daily room rate per occupied room $ 175 $ 179
Average daily revenue per occupied room $ 675 $ 742
__________
(1) Lodging data is comprised of data from wholly owned resorts consisting
of Pinehurst, The Homestead, Barton Creek and Daufuskie.
Total resorts operating revenues increased 38.2% primarily due to the
increased revenues from Pinehurst principally due to merchandise sales, ticket
sales and rental of corporate hospitality tents during the hosting of the 1999
U.S. Open as well as improved pricing on golf and lodging in connection with the
hosting of the event. Same store resorts' operating revenues increased 43.0%,
reflecting increases of 5.4 percentage points in the occupancy rate, primarily
at The Homestead and an increase of 9.9% in the average daily revenue per
occupied room, primarily at Pinehurst.
Included in 1999 same store resorts' segment operating income is an
impairment of long-lived assets at Daufuskie Island Club and Resort. An
impairment loss of $13.5 million was recognized in 1999 related to these
long-lived assets. This loss is reported separately as a component of operating
income in the Company's Consolidated Financial Statements. In 1996, the Company
purchased Daufuskie for assumption of its liabilities of $4.5 million and had
invested an additional $18.4 million in capital expenditures as of December 28,
1999. Excluding the effect of this impairment loss, Daufuskie had operating
losses of approximately $6.7 million and $6.3 million in 1999 and 1998,
respectively. Management assessed the recoverability of the long-lived assets
by determining whether such assets could be recovered over their remaining
estimated life through estimated future cash flows. Fair value, for purposes of
calculating any impairment, was measured based on discounted estimated future
cash flows using a risk-adjusted discount rate. If events or circumstances
change in the future, additional impairment losses could be recognized.
The increase of 59.4% in Adjusted EBITDA at total resorts is primarily
attributable to the increased segment operating income at Pinehurst and
initiation fee sales at Barton Creek due to the opening of a new course.
Other Operations
Operating revenues for international operations increased to $8.5 million
in 1999 from $4.7 million in 1998 primarily due to acquisition of a facility in
Australia and increased earnings from facilities in Panama and Germany.
Operating costs and expenses for international operations increased to $12.1
million in 1999 from $8.1 million in 1998 primarily due to costs related to
acquired and developing facilities.
Realty operating revenues increased to $38.8 million in 1999 from $21.7
million in 1998, or 78.8%, primarily due to sales of units in the Owners Club
program (see Item 1, -"Business-Other Operations") at The Homestead, Barton
Creek and Hilton Head.
18
SEGMENT AND OTHER INFORMATION
YEAR ENDED DECEMBER 29, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997
Consolidated Operations
Operating revenues increased 2.9% to $854.6 million in 1998 from $830.7
million in 1997 primarily due to increased usage at same store resorts and
country club and golf facilities, acquisitions and increases at developing
facilities. Operating revenues at same store facilities increased 2.6% to
$768.3 million in 1998 from $748.5 million in 1997.
Operating costs and expenses, representing direct operating costs, facility
rentals, maintenance, and depreciation and amortization, increased 2.7% to
$716.5 million in 1998 from $697.6 million in 1997, reflecting an increase in
operating costs and expenses at same store and developing facilities. Operating
costs and expenses at same store facilities increased to $659.4 million in 1998
from $653.4 million in 1997 or 0.9% due primarily to increased costs of sales
for food and beverage and golf operations offset by the write off of a liability
at business and sports clubs and the Company's success in controlling expenses.
Interest expense decreased to $28.9 million in 1998 from $34.0 million in
1997, or 15.0%, primarily due to the refinancing of approximately $174.9 million
in existing debt and to a lesser extent, 1997 and 1998 divestitures, which
resulted in a decrease in the Company's weighted average interest rate from 8.5%
to 6.6%.
Income tax provision increased to $5.8 million in 1998 from a current year
benefit of $41.3 million in 1997 mainly due to decreases of $14.2 million and
$66.6 million in 1998 and 1997, respectively, in the Company's valuation
allowance on its deferred tax assets, primarily related to net operating loss
carryforwards. See "- Factors That May Affect Future Operating Results" and
Note 16 to the Company's Consolidated Financial Statements.
Income from continuing operations before extraordinary item decreased to
$39.5 million in 1998 from $87.9 million in 1997 due primarily to decreases of
$14.2 million and $66.6 million in the Company's valuation allowance on its
deferred tax assets. If the Company had not made these adjustments to the
valuation allowance on its deferred tax assets, income from continuing
operations before extraordinary item would have been $25.3 million in 1998 and
$21.3 million in 1997.
Adjusted EBITDA increased $5.5 million to $137.9 million in 1998 from
$132.4 million in 1997, due primarily to the increase in operating income at
same store facilities and acquisitions partially offset by a decrease in the
joint venture adjustment. The decrease in the joint venture adjustment is
primarily due to a decrease in the amount of membership fees sold at an
international business club after the initial year of operations.
19
Country Club and Golf Facilities
The following tables present certain summary financial and membership
information for the Company's country club and golf facilities segment for 1997
and 1998 (dollars in thousands, except facility and membership data):
Same Store Total
Country Club and Country Club and
Golf Facilities Golf Facilities
--------------------- ---------------------
1997 1998 1997 1998
-------- ----------- -------- -----------
Number of facilities 98 98 108 109
Operating revenues $343,066 $ 355,410 $356,324 $ 376,125
Operating costs and expenses 289,420 297,127 302,212 317,785
-------- ----------- -------- -----------
Segment operating income $ 53,646 $ 58,283 $ 54,112 $ 58,340
======== =========== ======== ===========
Adjusted EBITDA $ 88,879 $ 93,622 $ 90,743 $ 96,262
======== =========== ======== ===========
Membership information (65 clubs) (1):
Memberships at beginning of period 66,360 68,205
Memberships added during period 12,493 12,592
Memberships lost during period 10,648 10,903
-------- -----------
Memberships at end of period 68,205 69,894
======== ===========
__________
(1) Number of facilities includes owned same store country club and golf
facilities. Membership information is comprised of the same store clubs where
the Company received membership initiation deposits or fees and membership dues.
Total country club and golf facilities' operating revenues increased 5.6%
in 1998 compared to 1997 primarily due to increased usage at same store
facilities, acquisitions and increases at developing facilities. Same store
country club and golf facilities' operating revenues increased 3.6% due to the
reopening of several courses at existing facilities which were closed for
renovation during the prior year and the acquisition of golf pro shops
previously owned by golf professionals.
Total country club and golf facilities' operating costs and expenses
increased 5.2% due primarily to increased costs and expenses at same store
facilities, acquisitions and increases at developing facilities. Total same
store country and golf facilities' operating costs and expenses increased 2.7%
primarily due to increased costs of sales for food and beverage and golf
operations and payroll increases.
Adjusted EBITDA for total country club and golf facilities increased 6.1%
primarily due to increased segment operating income and sales of membership
deposits at same store facilities.
20
Business and Sports Clubs (formerly City Clubs)
The following tables present certain summary financial and membership
information for the Company's business and sports clubs segment for 1997 and
1998 (dollars in thousands, except facility and membership data):
Same Store Business Total Business
and Sports Clubs and Sports Clubs
---------------------- ----------------------
1997 1998 1997 1998
----------- --------- ----------- ---------
Number of facilities 89 89 94 93
Operating revenues $ 249,190 $ 249,309 $ 251,668 $ 257,810
Operating costs and expenses 227,221 221,733 229,920 231,351
----------- --------- ----------- ---------
Segment operating income $ 21,969 $ 27,576 $ 21,748 $ 26,459
=========== ========= =========== =========
Adjusted EBITDA $ 29,129 $ 36,925 $ 28,855 $ 36,596
=========== ========= =========== =========
Membership information (78 clubs) (1):
Memberships at beginning of period 108,753 110,729
Memberships added during period 23,660 25,186
Memberships lost during period 21,684 22,219
----------- ---------
Memberships at end of period 110,729 113,696
=========== =========
__________
(1) Number of facilities includes owned same store business and sports clubs
(business clubs, sports clubs and business/sports clubs). Membership information
is comprised of the same store clubs where the Company received membership
initiation deposits or fees and membership dues.
Total business and sports clubs' operating revenues increased 2.4% from
1997 to 1998 due primarily to acquisitions and increases at facilities in
development. Same store business and sports clubs' operating costs and expenses
decreased 2.4% from 1997 to 1998 due to the write off of a liability of $6.2
million recorded during the year ended December 29, 1998.
Adjusted EBITDA from total business and sports clubs increased 26.8%
primarily due to increases in segment operating income as discussed above.
Resorts
The following tables present certain summary financial data and lodging
data for the Company's resorts segment for 1997 and 1998 (dollars in thousands,
except facility and lodging data):
Same Store Resorts Total Resorts
-------------------- ------------------
1997 1998 1997 1998
--------- --------- -------- --------
Number of facilities 4 4 7 5
Operating revenues $156,217 $163,607 $168,099 $172,624
Operating costs and expenses 136,757 140,575 156,615 155,835
--------- --------- -------- --------
Segment operating income $ 19,460 $ 23,032 $ 11,484 $ 16,789
========= ========= ======== ========
Adjusted EBITDA $ 29,971 $ 36,086 $ 22,873 $ 30,572
========= ========= ======== ========
Lodging data (3 resorts) (1)
Room nights available 407,011 396,217
Occupancy rate 52.3% 54.3%
Average daily room rate per occupied room $ 173 $ 184
Average daily revenue per occupied room $ 643 $ 712
__________
(1) Lodging data is comprised of data from Pinehurst, The Homestead and
Barton Creek.
21
Total resorts' operating revenues increased 2.7% primarily due to increases
at same store properties offset by the effect of divestitures. Same store
resorts' operating revenues increased 4.7%, reflecting increases of 2.0
percentage points in the occupancy rate, 10.7% in the average daily revenue per
occupied room and 6.4% in the average daily room rate per occupied room.
Pinehurst, which hosted the 1999 U. S. Open, experienced significant increases
in operating revenues in anticipation of this event. Total resorts' operating
costs and expenses decreased slightly due to the effect of divestitures.
The difference in resorts' operating revenues, operating costs and expenses
and segment operating income between same store resorts and total resorts is
primarily attributable to the Company's operations at Daufuskie Island Club &
Resort. ClubCorp purchased Daufuskie at the end of 1996 for nominal
consideration as a turn-around opportunity. Daufuskie had operating losses of
approximately $6.3 and $6.8 million for 1998 and 1997, respectively.
Other Operations
Operating revenues for international operations increased to $7.4 million
in 1998 from $4.9 million in 1997 primarily due to acquisitions and increased
equity earnings from an investment in Singapore. Operating costs and expenses
for international operations increased to $13.0 million in 1998 from $8.2
million in 1997 primarily due to increased start up and pre-opening expenses at
developing facilities.
Realty operating revenues decreased to $22.3 million in 1998 from $33.7
million in 1997, or 33.8%, primarily due to decreased sales of real estate in
Colorado, Texas and California, the timing of certain sales at Owner's Clubs and
a divestiture.
SEASONALITY OF DEMAND; FLUCTUATIONS IN QUARTERLY RESULTS
The Consolidated Financial Statements of the Company are presented on a
52/53 week fiscal year. The first three quarters consist of 12 weeks each and
the fourth quarter includes 16 or 17 weeks. The financial statements included in
Item 8 for the year ended December 28, 1999 are comprised of 52 weeks, with the
first three quarters consisting of 12 weeks each and the fourth quarter
consisting of 16 weeks. The timing of fiscal quarter ends, seasonal weather
conditions and other short-term variations cause financial performance to vary
by quarter. The Company has historically generated a disproportionate share of
its operating revenue in the second, third and fourth quarters of each year. The
timing of purchases or leases of new operating properties and the timing of
operating gains and losses as a result of partial ownership (including joint
venture arrangements) agreements, management agreements and equity investments
in golf related facilities where the Company does not have operational or
financial control could also cause the Company's results of operations to vary
significantly from quarter to quarter.
The Company's results can also be affected by non-seasonal and severe
weather patterns. Periods of extremely hot, cold or rainy weather in a given
region can be expected to reduce the Company's golf-related revenue for that
region. Similarly, extended periods of low rainfall can affect the cost and
availability of water needed to irrigate the Company's golf courses and can
adversely affect results for facilities in the region affected.
INFLATION
Inflation has not had a significant impact on the Company. As operating
expenses increase, the Company, to the extent the value of services rendered to
members is not adversely impacted and as industry standards dictate, attempts to
offset the adverse effects of increased costs by increasing prices.
22
LIQUIDITY AND CAPITAL RESOURCES
Historically, the Company has financed its operations and capital
expenditures primarily through cash flows from operations and long-term debt.
The Company distinguishes capital expenditures to refurbish and replace existing
property and equipment (i.e., capital replacements) from discretionary capital
expenditures such as the expansion of existing facilities (i.e., capital
expansions) and acquisition or development of new facilities and investments in
joint ventures. Most capital expenditures other than capital replacements are
considered discretionary and could be curtailed in periods of low liquidity.
Capital replacements are planned expenditures made each year to maintain high
quality standards of facilities for the purpose of meeting existing members'
expectations and to attract new members. Capital replacements have ranged from
5.6% to 9.0% of operating revenues during the last three years. Capital
expansions are discretionary expenditures which create new amenities or enhance
existing amenities at facilities. Development of the Company's new facilities
and planned expansions at existing properties are expected to require capital
expenditures of approximately $75.7 and $78.5 million, respectively, over the
next two years and are expected to be financed with external financing of
ClubCorp, Inc. and cash flows from operations.
On September 24, 1999, the Company finalized a comprehensive refinancing
agreement with a group of banks to replace its $300.0 million revolving credit
facility and $200.0 million five year credit facility with a combined $650.0
million senior credit facility. The Company's obligations under this combined
facility are guaranteed by certain of its subsidiaries and secured by stock
pledges of certain of its subsidiaries. The interest rate is typically
determined using a LIBOR-based pricing matrix as defined in the agreement. The
Company used the combined facility to refinance approximately $519.1 million in
existing debt, consisting primarily of the amounts outstanding under the $300.0
million and $200.0 million credit facility agreements. The Company intends to
use the facility to finance future acquisitions, capital expansions at existing
facilities and working capital needs. This combined facility includes the
following: (i) a $350.0 million revolving credit facility which matures on
September 24, 2004, (ii) a $100.0 million Facility A Term Loan which matures on
September 24, 2004 and (iii) a $200.0 million Facility B Term Loan which matures
on March 24, 2007. The total amount outstanding under the revolving credit
facility, including letters of credit of $11.3 million, was $463.5 million as of
March 9, 2000. The amount outstanding is comprised of $163.5 million under the
revolving credit facility at an interest rate of LIBOR plus 150 basis points,
including letters of credit, $100.0 million under the Facility A Term Loan, and
$200.0 million under the Facility B Term Loan, at interest rates of LIBOR plus
200 basis points and LIBOR plus 300 basis points, respectively. The incremental
margin added to the LIBOR rate is subject to change based upon certain financial
ratios of the Company as specified in the agreement.
The Company has authorized 150.0 million shares of preferred stock and as
of March 9, 2000 there were no shares issued or outstanding. Shares of
preferred stock may be issued in one or more series from time to time by the
Board of Directors, and the Board of Directors is expressly authorized to fix by
resolution(s) the designations and the powers, preferences and rights, and the
qualifications, limitations and restrictions of the shares of each series of
Preferred Stock, including such items as dividend rate, the cumulative feature
of such dividends and the price of such shares in the series. Management has no
intention of issuing the preferred stock during 2000.
On December 1, 1999, the Company sold approximately 9.4 million shares of
Common Stock at a price of $16.00 per share and issued approximately 1.0 million
Common Stock purchase warrants with an exercise price of $17.00 per share, to
The Cypress Group for total consideration of $150.0 million. Each Common Stock
purchase warrant is exercisable immediately and expires in ten years from the
date of issuance. In connection with this sale, a Stockholders Agreement was
signed between the Company, the controlling stockholders of the Company and The
Cypress Group. The Stockholders Agreement includes (i) certain restrictions on
transfers, (ii) a potential repurchase obligation of the Company in respect to a
portion of the shares of Common Stock owned by The Cypress Group at fair market
value that may not be exercised prior to 2004 and (iii) customary tag-along
rights, drag-along rights and registration rights. See Item 5, -"Market for
Registrant's Common Equity and Related Stockholder Matters."
Net cash flows from continuing operations decreased $38.7 million for the
year ended December 28, 1999 due primarily to capital expenditures made during
1999, including the purchase of additional common stock of ClubLink and the
development of real estate. This was partially offset by the increase in
borrowings of long-term debt and proceeds from the sale of stock to The Cypress
Group.
23
Membership dues, which are generally billed monthly, are expected to cover
the costs of providing future membership services. Membership deposits
represent advance initiation deposits for the right to become a member and
generally are refundable a fixed number of years (generally 30 years) from the
date of acceptance as a member. Management does not consider maturities of
membership deposits over the next five years to be significant. The difference
between the amount of the membership deposit and the present value of the
obligation is deferred and recognized as revenue on a straight-line basis over
the expected average life of an active membership. The membership deposit
liability accretes to interest expense over the refundable term using the
interest method.
The provisions of certain subsidiary lending and lease agreements limit the
amount of dividends that may be paid to ClubCorp. Under the most restrictive of
these limitations, at December 28, 1999, approximately $184.8 million of
retained earnings was available for the declaration of dividends.
As a means of providing liquidity to the trustees of the Amended Plan to
meet their fiduciary obligations to distribute cash to participants requesting
withdrawals, ClubCorp has provided the trustees the right (the "Redemption
Right") to cause the Company to redeem Common Stock, held in trust on behalf of
the Amended Plan, at the most recent appraised price as necessary to meet
certain requirements. Withdrawals by participants and terminations by and/or
resignations from the Company of participants in excess of anticipated levels
could give rise to the exercise of withdrawal rights in substantial amounts and
place significant demands on the liquidity of the Company. In such an event, the
resources available to meet business expansion or other working capital needs
could be adversely affected. As of December 28, 1999, the value of the
Redemption Right was $72.8 million. The most recent appraised price of the
Common Stock was $17.71 as of December 28, 1999. The Redemption Right has never
been exercised by the Amended Plan, although the Company has repurchased Common
Stock into treasury from certain stockholders. The Company does not expect that
the Redemption Right will be exercised to a significant extent in 2000.
The Company maintains a first right of refusal with the majority of its
stockholders and, accordingly, it has historically purchased shares from
stockholders when offered for sale back to the Company. During fiscal years
1997, 1998 and 1999, treasury stock transactions, including purchases of stock
from stockholders, sales of stock (which were primarily to the Plan and Amended
Plan) and other shares issued were as follows (dollars in millions):
December 31, December 29, December 28,
1997 1998 1999
-------------- -------------- --------------
Purchase of treasury stock $ (5.6) $ (7.6) $ (4.5)
Stock issued in connection with purchases by benefit plan - 0.2 -
Stock issued in connection with acquisition - - 9.9
Stock issued in connection with bonus plans 0.7 1.0 1.3
Stock issued in connection with exercise of stock options - 0.5 0.2
-------------- -------------- --------------
$ (4.9) $ (5.9) $ 6.9
============== ============== ==============
See the Consolidated Statement of Stockholders' Equity included in Item 8
for a summary of stockholder equity transactions.
24
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
This Annual Report on Form 10-K contains "forward-looking statements"
within the meaning of Section 21E of the Securities Exchange Act of 1934, as
amended. All statements other than statements of historical fact should be
considered "forward-looking statements" for purposes of these provisions,
including statements that include projections of, or expectations about,
earnings, revenues or other financial items, statements about the plans and
objectives of management for future operations, statements concerning proposed
new products or services, statements regarding future economic conditions or
performance, statements regarding Year 2000 issues and statements of assumptions
underlying any of the foregoing. In some cases, forward-looking statements can
be identified by the use of terminology such as "may," "will," "expects,"
"plans," "anticipates," "estimates," "potential" or "continue," or the negative
thereof or other comparable terminology. Although the Company believes that the
expectations reflected in its forward-looking statements are reasonable, it can
give no assurance that such expectations or any of its forward-looking
statements will prove to be correct. Actual results and developments are likely
to be different from, and may be materially different from, those expressed or
implied by the Company's forward-looking statements. Forward-looking statements
are subject to inherent risks and uncertainties, some of which are summarized in
this section.
Enhanced enrollment and retention of members and increased utilization of
existing facilities by members and guests are core components of the Company's
organic growth strategy. The Company's success depends on its ability to
attract and retain members at its clubs and maintain or increase usage of its
facilities. The Company has experienced varying levels of membership enrollment
and attrition rates and, in certain areas, decreased levels of usage of its
facilities during its operating history. Although management devotes
substantial efforts to ensuring that members and guests are satisfied, many of
the factors affecting club membership and facility usage are beyond the
Company's control and there can be no assurance that the Company will be able to
maintain or increase membership or facility usage. Significant periods where
attrition rates exceed enrollment rates, or where facility usage is below
historical levels would have a material adverse effect on the Company's
business, operating results and financial condition.
Changes in membership levels and facilities' usage can be caused by a
number of factors. A substantial portion of the Company's revenue is derived
from discretionary or leisure spending by the Company's members and guests and
such spending can be particularly sensitive to changes in general economic
conditions or changes in the federal tax laws. A significant adverse shift in
general economic conditions, whether regional or national, would likely have a
material adverse effect on the Company's business, operating results and
financial condition. Changes in consumer tastes and preferences, particularly
those affecting the popularity of golf and private dining, and other social and
demographic trends, could also have an adverse effect on the Company.
The Financial Accounting Standards Board (FASB) issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of" in 1995 which requires, among other things, that long-lived
assets to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The Company routinely reviews all long-lived assets for
potential impairment by determining whether they could be recovered over their
remaining life through estimated future cash flows. Fair value, for purposes of
calculating any impairment, was measured based on discounted estimated future
cash flows using a risk-adjusted discount rate. For the year ended December 28,
1999, an impairment loss of $13.5 million relating to the long-lived assets at
Daufuskie was recognized. This impairment loss is reported separately as a
component of operating income in the Company's Consolidated Financial
Statements. If events or circumstances change in the future, additional
impairment losses could be recognized.
Legislative proposals have been enacted which could increase the Company's
direct operating costs. The proposal increases the minimum wage by $1.00 per
hour to $6.15 per hour to be phased in over two years. Management has not yet
determined the financial impact for 2000 or 2001 when these requirements could
become effective.
25
The Company has policies in place designed to bring its facilities in
substantial compliance with current federal, state and local environmental laws
and laws relating to access for disabled persons. The Company is not subject to
any recurring costs associated with managing hazardous materials or pollution.
In addition, management does not believe that the Company will incur expenses
for infrequent or non-recurring cleanup, based upon the Company's due diligence
inspection, employee training, standards of operations and on-site assessments
performed and maintained for each facility. However, the Company is in the
process of replacing four underground storage tanks with above ground contained
storage systems. It is unlikely that any remediation will be required. The
Company is permitted under various state laws to recover a portion of its costs
of remediation through various state superfunds created to address environmental
cleanups. The Company is not subject to any remediation mandates related to
previously contaminated sites. See Item 1, -"Business-Operations-Government
Regulation."
ClubCorp files a consolidated federal income tax return. See Note 16 of the
Notes to the Consolidated Financial Statements. ClubCorp's income taxes are as
follows (dollars in millions):
December 31, December 29, December 28,
1997 1998 1999
-------------- -------------- --------------
Income tax (provision) benefit:
Federal
Current $ (0.7) $ (0.2) $ -
Deferred 44.1 (2.9) (7.9)
-------------- -------------- --------------
43.4 (3.1) (7.9)
State and Foreign (2.1) (2.1) (3.9)
-------------- -------------- --------------
$ 41.3 $ (5.2) $ (11.8)
============== ============== ==============
The Company operates in 30 states, and as a result, its operations are
subject to tax by many state and local taxing authorities. The Company generates
substantial taxable income in various states including Ohio, North Carolina and
Florida. As state and local taxing authorities raise tax rates and change tax
codes to increase tax revenues, the Company has experienced increased exposure
to state and local income taxes over the past few years.
Since the acquisition of Franklin in 1988, ClubCorp has reduced or
eliminated its current federal tax liability (to 2% of alternative minimum
taxable income) by using net operating loss carryforwards that resulted from
Franklin's operations. ClubCorp has estimated net operating loss carryforwards
at the end of 1999 of $499.3 million and $108.5 million for regular and
alternative minimum taxes, respectively. As a result, the Company will be able
to continue to reduce its estimated tax liability to 2% of alternative minimum
taxable income until such alternative minimum tax net operating losses are fully
utilized or expire. These net regular and alternative minimum tax operating
losses expire from 2004 to 2010 and 2007 to 2010, respectively. These estimates
are based upon certain assumptions concerning the Company's 1999 operations from
an alternative minimum tax perspective and may be revised at the time the
Company prepares its federal income tax return.
The Company has substantial regular net operating loss carryforwards
available. Based on the Company's historical pretax earnings, adjusted for
significant nonrecurring items such as gains (losses) on divestitures and sales
of assets, management believes it is more likely than not the Company will
realize the benefit of the deferred tax assets, net of the valuation allowance,
existing at December 28, 1999. Based on revised estimates of taxable income,
ClubCorp decreased its valuation allowance on its deferred tax assets by
approximately $14.2 million and $66.2 million at December 29, 1998 and December
31, 1997, respectively. The assumptions used to estimate the realizability of
the deferred tax assets are subjective in nature and involve uncertainties and
matters with significant judgment. There can be no assurance that the Company
will generate any specific level of continuing earnings. The Company will
receive benefits in the form of tax credits in the future to the exte