Item 1. Business
General
ClubCorp, Inc. (referred to as ClubCorp®, the Company, we, us and our throughout this document) is a holding company incorporated under the laws of the State of Delaware that, through its subsidiaries, owns and operates premier golf and business clubs and destination golf resorts. As of December 30, 2003, we had approximately 190,000 memberships and operated 98 country clubs, golf clubs and public golf facilities, three destination golf resorts and 69 business, sports and business/sports clubs in 29 states and three foreign countries. Marquee resorts and clubs in our 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, and The City Club on Bunker Hill in Los Angeles. Golf Digest, Golf Travel and other golf industry publications have consistently ranked several of our 169 golf courses and destination golf resorts among the best in the U.S.
Our operations are organized into three principal business segments: country club and golf facilities, resorts, and business and sports clubs. At the beginning of fiscal year 2003, we reclassified our international properties from other operations and services to their functional segments as either country club and golf facilities or business and sports clubs. Segment results for all periods presented have been restated to reflect this reclassification, which is consistent with changes in our internal management and organizational structure. Other operations that are not assigned to a principal business segment include our real estate operations and our corporate services. Our primary sources of revenue include membership dues, membership fees and deposits, food and beverage operations, golf operations and lodging.
Our predecessor corporation was organized in 1957 under the name Country Clubs, Inc. All references herein to us shall also include Country Clubs, Inc. and its successor corporations. For purposes of this document, unless otherwise indicated, these references to us also include our various subsidiaries. However, we and each of our subsidiaries are careful to maintain separate legal existence, and general references to us should not be interpreted in any way to reduce the legal distinctions between subsidiaries or between us and our subsidiaries.
There is currently no public market for our common stock. We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, pursuant to Section 15(d) thereof, because we filed a registration statement on Form S-1, which became effective October 24, 1994 pursuant to the Securities Act of 1933, as amended (the Registration Statement). The Registration Statement registered participation interests in the ClubCorp Stock Investment Plan (the Plan) and our common stock, at $.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).
Throughout Item 1 of this document, financial and property information reflect consolidated totals. Included in these figures are amounts attributable to properties held for sale that are classified as discontinued operations under accounting principles generally accepted in the United States of America. Details of these properties are available in Annex A - “List of Facilities.”
Operations
Background and Philosophy
We were founded in 1957 to develop Brookhaven Country Club in the north Dallas area. Since that time, we have expanded our operations to 170 facilities. In 1967, we established our first business club on the belief that we could profitably expand our operations by applying our club management skills and member-oriented philosophy to a related line of business. In 1984, we entered the destination resort industry when we capitalized on a turn-around opportunity by acquiring Pinehurst, and currently operate three destination resorts. We commenced international operations in 1980 and currently operate nine facilities primarily in Mexico and Australia. In directing our growth since our formation, our management has emphasized quality service and facilities, endeavoring to exceed the expectations of our members and guests.
Mr. Robert H. Dedman, Sr., our founder and former Chairman and CEO, who passed away in August 2002, 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 our member-oriented philosophy: create lasting value for members, guests,
employees and financial partners by delivering personalized service and experiences that facilitate life-enhancing relationships, achieve world class results and create pride in belonging.
Our management and employees recognize that we are in a relationship business where member and guest satisfaction is essential to long-term growth and profitability. Underlying this philosophy are progressive human resource values and goals which we believe have resulted in superior customer service. Management believes that our member-oriented philosophy and culture set us apart from many of our competitors that focus on short-term returns that may jeopardize member satisfaction and long-term profitability. We are committed to maintaining our 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. Our policy is to not restrict membership in our facilities on the basis of race, religion, gender or other immutable characteristics.
From ClubCorp’s beginning, we have focused on assembling and maintaining an experienced management team. Our nine executive officers, including the Chairman of the Board, possess a significant amount of industry experience. We have also attempted to attract and retain qualified, dedicated managers for our clubs and resorts. These managers possess an average of ten years of experience with our facilities. Senior management believes that our success depends greatly upon the motivation, training and experience of our employees. We provide an extensive, proprietary system of in-house training and education for all of our employees that is designed to improve the quality of services provided to members and guests. See-“Employees.”
Nature of Operations
We operate country club and golf facilities, business and sports clubs and resorts through sole ownership, partial ownership and management agreements. In addition, we perform various corporate services internally and for managed properties and develop and sell real estate adjacent to our facilities. See-“Other Operations and Services.” With respect to our wholly-owned operations, in some cases we own the real property where the facility is operated and in other cases we lease the real property from third parties. See Item 2
Item 2. Properties
We owned and/or operated 170 golf facilities, business and sports clubs and resorts as of December 30, 2003 one of which is classified as a discontinued operation as it is held for sale. The following table provides a profile of the composition of our portfolio of facilities from December 27, 2000 to December 30, 2003:
Additions, Divestitures and Reclassifications of Facilities (1)
(1) Facilities added include acquisitions of owned, leased, partially owned or managed facilities, joint ventures and other investments. Facilities divested include sales of owned or partially owned facilities and other investments, and terminated leases and management agreements that are not renewed or replaced.
We continually monitor the performance, composition and characteristics of our portfolio of facilities and actively manage our portfolio through expansions, additions (acquisitions and other investments) and dispositions. We divest a facility when it no longer has strategic value or the potential to contribute to our growth, and an appropriate opportunity for divestiture is available.
Facilities divested include expired or terminated lease arrangements or management agreements that generally have shorter terms than joint venture agreements or other forms of ownership. We generally include a termination clause in our management agreements which impose a financial penalty, paid to us by the managed owner, to discourage early termination of management agreements.
Our properties are located throughout the U.S. and primarily in Australia and Mexico internationally. In the U.S., a significant portion of our properties are located in Texas, California, Florida and the Southeastern U.S. Due to our concentration of golf facilities in these markets, our operating and financial performance is subject to the regional weather patterns and changes in economic conditions in these areas. See Item 7 - “Factors That May Affect Future Operating Results - Seasonality of Demand; Fluctuations in Quarterly Results.” For a complete list of our facilities, see Annex A - “List of Facilities.”
We own, lease or manage the facilities in our portfolio. The following table summarizes the number and reclassifications in the type of our facilities operated for the periods indicated:
At December 30, 2003, our portfolio included 170 facilities, of which we owned 79 facilities, leased 66 facilities, partially owned and managed 15 facilities, and managed 10 facilities. Our various ownership interests in, and other relationships with, the facilities in our portfolio reflect a number of strategic and management considerations. We own the majority of our country club and golf facilities while we lease substantially all of the real property where our business and sports clubs operate. This distinction reflects the fact that a particular piece of real property such as a golf course can be essential to the operation of a golf facility and, therefore, it is generally in our interest to own or have a long-term management or lease contract for such property. A business club facility, on the other hand, generally can be located in any one of a number of locations and moved from one location to another as long as it remains convenient to its members. Therefore, we believe it is generally not necessary for us to have a long-term interest in the properties where our business and sports clubs are located.
For our leased facilities, including our corporate offices in Dallas, Texas, we generally pay a monthly base rent, as well as charges for real estate taxes, common area maintenance and various other items. In some cases, we must also pay a percentage of gross receipts or positive net cash flow. In most instances, we have full authority over the operation of the leased facilities, except in some cases where the owner remains responsible for major structural repairs or for property insurance or real estate taxes.
Item 3.
Item 3. Legal Proceedings
We are subject to certain pending or threatened litigation and other claims. After review and consultation with legal counsel, we believe that any potential liability from these matters would not materially affect our consolidated financial position and results of operations. See Note 13 of the Notes to Consolidated Financial Statements.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
During the fourth quarter of fiscal year 2003, no matter was submitted to a vote of security holders through the solicitation of proxies or otherwise.
Part II
Item 5.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
There is currently no public market or publicly available quotations of value for our common stock. In connection with the Amended Plan, we have engaged an independent financial advisory firm, Houlihan Lokey Howard and Zukin Financial Advisors, Inc., to render a semi-annual opinion on the fair market value of our stock (at the end of our second quarter and year-end). This fair market value is based upon a multiple of our recurring cash flows from operations, with certain exceptions for specific assets, including certain long-term investments valued at the lower of cost or market. Under this arrangement, the stock valuation process is independent of our Board of Directors and management.
At our option, we have historically purchased stock from shareholders when offered for sale back to us on a limited basis. The Stockholder’s Agreement with The Cypress Group L.L.C. (see Item 7 - “Liquidity and Capital Resources - Equity”) limits our stock repurchases, without their prior authorization, to $2.5 million per year from the Dedman Stockholders (Nancy Dedman, Robert H. Dedman, Jr., Patricia Dedman Dietz, and the Dedman Foundation and related trusts), $5.0 million per year for certain charitable and non-profit organizations, and $2.5 million per year from all other shareholder groups. The Redemption Right of the Amended Plan is not limited by this agreement.
We have never paid cash dividends on our common stock and management expects to continue its policy of retaining earnings for use in our business, and accordingly, does not expect to pay cash dividends in the foreseeable future. As of March 29, 2004, there were approximately 350 holders of record of our common stock.
Item 6.
Item 6. Selected Financial Data
Set forth below are the selected consolidated statement of operations and balance sheet data for each of the fiscal years in the five year period ended December 30, 2003 (1). The table presented below should be read in conjunction with Item 7
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
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 our plans and objectives for future operations, statements concerning proposed new products or services, statements regarding future economic conditions or performance, statements concerning our expectations regarding the attraction and retention of members and guests, statements about market risk and statements 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,” “intends,” “believes,” “estimates,” “potential” or “continue,” or the negative thereof or other similar words. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations or any of our 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 our forward-looking statements. Forward-looking statements are subject to inherent risks and uncertainties, some of which are summarized in “Factors That May Affect Future Operating Results”.
The following discussion and analysis should be read in conjunction with Item 6 - “Selected Financial Data,” Item 7a
Item 7a. Quantitative and Qualitative Disclosures about Market Risk
We are exposed to interest rate changes and foreign currency fluctuations. Prior to our refinancing transactions on June 4, 2003, our interest rate exposure was principally attributable to our combined $650.0 million senior credit facility and our $30.0 million bridge note, on which interest was typically determined using a LIBOR-based pricing matrix as defined in the agreements. Interest rate exposure under this credit facility was managed using interest rate swaps which were highly effective. These swaps expired in our third fiscal quarter of 2003 and are no longer needed for our debt. We do not enter into derivative or interest rate transactions for speculative or trading purposes.
The majority our variable interest rate debt under our previous credit facility was based on the 30 day LIBOR rate plus an incremental margin (between 350 and 500 basis points in 2003) as determined by the agreements in place under this credit facility. The incremental margin was subject to change based on certain of our financial ratios as specified in the agreements. During 2003, the variable LIBOR interest rate related to this facility, excluding the incremental margin, had a monthly high of 1.42% in January 2003, a monthly low of 1.31% in April 2003 and a year-to-date average of 1.34%. At payoff, the 30 day LIBOR interest rate was approximately 1.32%.
Variable interest rates on our newly refinanced mortgage debt are based on the 30 day LIBOR rate plus an incremental margin (between 275 and 375 basis points) and the US Prime rate plus an incremental margin of 100 basis points. During 2003, the variable US Prime rate related to these facilities was approximately 4.00%. At March 29, 2004, the 30 Day LIBOR
and US Prime rates were approximately 1.09% and 4.00%, respectively. However, interest rate floors in place on these loans (4.25% and 5.75% for certain LIBOR-based loans and 5.00% for Prime-based loans, including applicable incremental margins) resulted in actual rates above these market rates throughout fiscal year 2003. Interest payments on approximately 72% of the floating portion of these notes are protected by interest rate cap agreements that limit our exposure to rises in interest rates over certain amounts.
The table below presents the principal amounts, weighted average interest rates as of December 30, 2003 and fair values required by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes of our outstanding debt (dollars in thousands):
The table below presents the notional amounts, fixed legs, floating legs, maturity dates, and mark-to-market values of our interest rate cap agreements outstanding as of December 30, 2003 (dollars in thousands):
Because the tables incorporate only those exposures that existed as of December 30, 2003, they do not consider those exposures or positions that could arise after that date. Moreover, because firm commitments are not presented in the tables above, the information presented herein has limited predictive value. As a result, our ultimate realized gain or loss with respect to interest rate fluctuations will depend on the exposures that arise during the period, our hedging strategies at that time and interest rates. During the year ended December 30, 2003, we recognized interest expense of $0.1 million to record the change in fair value of the interest rate caps.
Our objective in managing the exposure to foreign currency fluctuations is to reduce operating income and cash flow volatility associated with foreign exchange rate changes to allow management to focus its attention on our core businesses. We have historically managed this risk through the limited amount of our investments in these foreign economies.
Item 8.
Item 8. Financial Statements and Supplementary Data
Our Consolidated Financial Statements and related notes begin on Page of this Annual Report on Form 10-K.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9a.
Item 9a. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial Officer have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this annual report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures are effective and timely, providing them with material information relating to us required to be disclosed in the reports we file or submit under the Exchange Act.
Changes in Internal Controls
There have not been any significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation. We are not aware of any significant deficiencies or material weaknesses, therefore no corrective actions were taken.
Part III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The following table sets forth certain information regarding our directors and executive officers as of March 29, 2004:
(1) Member of the Investment Committee
(2) Member of the Audit Committee
(3) Member of the Compensation Committee
Our board of directors is currently comprised of the Chairman of the Board and five other directors. One of our current directors and the Chairman were initially elected as directors in May 1999 and each such person was a director of our predecessor corporation. In connection with the Stockholders Agreement, dated October 26, 1999 between The Cypress Group and certain stockholders affiliated with the Dedman family (the Dedman Stockholders), three additional non-employee director positions were added to the Board. Two representatives of The Cypress Group, James L. Singleton and Bahram Shirazi, were initially elected to these positions in October 1999 and were re-elected in May 2003. The Cypress Group has a right to designate two directors as long as it owns 50% or more of the common stock it purchased from the Dedman Stockholders, pursuant to a Stock Purchase Agreement, dated October 26, 1999, executed in connection with the Stockholders Agreement, and at least one director as long as it owns at least 25% of such common stock. The Dedman Stockholders retain the right to appoint one additional non-employee director, as specified in the Stockholders Agreement. All employee directors, the Chairman of the Board and Nancy Dedman hold office until the next annual meeting of stockholders and until their successors have been duly elected and qualified. Our executive officers are elected by the Board and serve until their successors are duly elected and qualified.
Committees of the Board of Directors
Investment: Our Investment Committee consists of three executive officers and has been delegated the authority by our Board for a variety of matters, including the authority to approve certain acquisitions, dispositions, and expansion and development projects. Where our Board desires to delegate certain authority to the Investment Committee and applicable law prevents the delegation of such authority to a committee that includes persons in addition to directors, the authority is exclusively delegated to the directors who are members of the Investment Committee.
Audit: Our Audit Committee consists of four directors, two of which are non-employees. We are not required to designate a financial expert on our audit committee according to the definition in Regulation S-K, Item 401(h). However, the Board has reviewed the qualifications of the members of the Audit Committee and believes that our Audit Committee members possess the necessary financial background and experience required to effectively perform all of their required duties.
Compensation: Our Compensation Committee consists of two employee directors and two non-employee directors
Under the terms of the Stockholders Agreement, as long as The Cypress Group is entitled to designate one director to our Board, each committee of the Board must include at least one representative of The Cypress Group.
Directors
Robert H. Dedman, Jr., age 46, joined us in 1980 and served as Director of Corporate Planning from 1980 until 1984. From 1984 until 1987, Mr. Dedman was an associate at Salomon Brothers Inc., specializing in mergers and acquisitions. Mr. Dedman returned to us in 1987 as Chief Financial Officer. Since 1989, Mr. Dedman has served as a director of ClubCorp and in August 2002 became our Chairman of the Board. Mr. Dedman served as our Chief Operating Officer from 1989 through 1997 and as our President from 1989 through August 2002. In 1998, Mr. Dedman became our Chief Executive Officer. Mr. Dedman is a director of Home Interiors and Gifts, Inc.
John A. Beckert, age 50, joined us in August 2002 as President and Chief Operating Officer. Mr. Beckert, who has 22 years of experience in the hospitality industry, has also joined our board of directors. From 2000 to 2002, Mr. Beckert was a partner in Seneca Advisors LLP, a consulting and private investment firm. Prior to 2000, Mr. Beckert served 19 years at Bristol Hotels and Resorts, most recently as President and Chief Operating Officer.
Nancy M. Dedman, age 76, was appointed to our board of directors in August 2002. Mrs. Dedman previously served as a director of our predecessor, ClubCorp International, Inc., from its inception until 1998.
Patricia Dedman Dietz, age 48, has been one of our directors since 1982. Mrs. Dietz spent 15 years in private practice as a psychologist.
James L. Singleton, age 48, was initially elected as one of our directors in 1999 and has been President of The Cypress Group, a private merchant banking firm, since early 2002. Prior to 2002, he was a Vice-Chairman of the Cypress Group since its formation in 1994. Prior to joining The Cypress Group, he was a Managing Director in the Merchant Banking Group at Lehman Brothers Inc. He is also a director of Danka Business Systems PLC and WESCO International, Inc.
Bahram Shirazi, age 40, was initially elected as one of our directors in 1999, and has been a Managing Director of The Cypress Group, a private merchant banking firm, since 1998. Prior to 1998, he was a Principal at The Cypress Group since its formation in 1994. Prior to joining the Cypress Group, he was a Vice President in the Merchant Banking Group at Lehman Brothers Inc.
Executive Officers
Jeffrey P. Mayer, age 47, joined us in 2000 as Chief Financial Officer. Previously, Mr. Mayer served in various senior management positions with Bristol Hotels and Resorts from 1996 to 2000, most recently as Executive Vice President and Chief Financial Officer. Prior to that time, Mr. Mayer served as Senior Vice President, Corporate Controller and Chief Accounting Officer of Host Marriott Corporation (formerly Marriott Corporation).
Thomas T. Henslee, age 44, has been our General Counsel, Executive Vice President and Secretary since 2003. Mr. Henslee has represented us since 1989, most recently as a Partner with the firm Henslee and Cassidy LLP.Which has represented our subsidiaries in daily operational matters since 1996.
Richard N. Beckert, age 47, was promoted to Executive Vice President, Resorts in 2003. Mr. Beckert joined ClubCorp in 2002 as senior vice president of human resources. Previously, Mr. Beckert served as CEO of Malibu Entertainment Worldwide and the Chief Administrative Officer for Bristol Hotels & Resorts.
Frank C. Gore, age 54, joined us in 1978 and since that time has held various positions and offices with us. Mr. Gore was promoted to Executive Vice President of ClubCorp USA, Inc. in 1987.
Douglas T. Howe, age 46, joined us in 1975 and has served in various positions and offices related to our operations and business development in that time. Mr. Howe was promoted to Executive Vice President of ClubCorp USA, Inc. in 1995. Mr. Howe is a director of the National Club Association.
Murray S. Siegel, age 58, joined us in 1978 and since that time has held various positions and offices with us. Mr. Siegel was promoted to Executive Vice President, Strategic Operations in 1999.
Mark W. Dietz, age 50, has been an Executive Vice President since 1995. Mr. Dietz served as one of our directors from 1986 to 1998.
Robert H. Dedman, Jr. and Patricia Dedman Dietz are siblings and are the children of Nancy M. Dedman. Mark Dietz is the spouse of Patricia Dedman Dietz. John Beckert and Richard Beckert are siblings.
Code of Ethical Conduct for Financial Managers
We have adopted a code of ethics for financial professionals, or code, as required by the SEC, under Section 406 of the Sarbanes-Oxley Act of 2002. The code sets forth written standards that are designed to deter wrongdoing and to promote honest and ethical conduct by the Company’s senior financial officers, including its chief executive officer, and is a supplement to our Code of Conduct and the other policies and procedures that govern the conduct of our employees. In addition to applying to our chief executive officer,chief operating officer and chief financial officer, this Code applies to all of the other persons employed by us who have significant responsibility for preparing or overseeing the preparation of the Company’s financial statements and the other financial data included in our periodic reports to the SEC and in other public communications made by us that are designated from time to time by the chief financial officer as senior financial professionals.
Item 11.
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth the compensation paid to our chief executive officer and our four other most highly compensated executive officers (collectively, the “Named Executive Officers”) during the years ended December 25, 2001, December 31, 2002, and December 30, 2003:
Summary Compensation Table
(1) There was no other annual compensation, perquisites and other personal benefits, securities or property greater than either $50,000 or 10% of the total annual salary and bonus or other annual compensation reported for each Named Executive Officer in 2001, 2002 or 2003.
(2) Reflects options to acquire our common stock granted pursuant to the ClubCorp Omnibus Stock Plan (the Omnibus Stock Plan).
(3) There were no restricted stock awards for 2001, 2002 or 2003 and there were no unvested restricted stock awards as of December 30, 2003.
(4) Represents Basic Matching Contributions made by us on the individual’s behalf pursuant to the Amended Plan.
(5) John Beckert joined us in August 2002 as President and Chief Operating Officer. As such, he did not earn any compensation from us in 2001 or prior to August 2002.
(6) Richard Beckert joined us in November 2002 as Senior Vice President of Human Resources. As such, he did not earn any compensation from us prior to his hiring in 2002.
Option Grants in Last Fiscal Year Table
The following table summarizes for each Named Executive Officer, each grant of stock options during the fiscal year ended December 30, 2003:
Option Grants in Last Fiscal Year
(1) The Omnibus Stock Plan was adopted in February 1998. The Omnibus Stock Plan provides for granting to key employees options to purchase shares of common stock at a price not less than fair market value at the date of grant. The vesting is determined at the time of grant and is generally 18 months to five years. During the year ended December 30, 2003, we allowed employees with options in the company granted before January 1, 2002, to forfeit those options and be issued the same number of options six months and several days later at then current stock price. On September 19, 2003, 3,153,086 options were granted related to this transaction. A total of 4,693,586 options were granted in 2003 of which 3,153,086 shares had a 18- month cliff vesting and a seven year expiration date while all other had a five year pro rata vesting and a ten year expiration date. None of these options are currently exercisable.
(2) Fair value was calculated using the Black-Scholes option pricing model. Use of this model should not be viewed in any way as a forecast of the future performance of our common stock, which will be determined by future events and unknown factors. The estimated values under the Black-Scholes model are based upon the following assumptions as to variables: risk free rate of return (varies depending on grant date), stock price volatility (40%), dividend yield (0) and term (10 years, except for options granted on 9/19/03 which had a seven year term).
Aggregated Option Exercises and Fiscal Year-End Option Value Table
The following table summarizes for each Named Executive Officer, each exercise of stock options during the fiscal year ended December 30, 2003 and the fiscal year-end value of unexercised options:
Aggregated Option Exercises in Last Fiscal Year and Year-End Option Values (4)
(1) The ClubCorp Inc. Executive Stock Option Plan (the Executive Option Plan) was adopted in August 1995 and was amended and restated effective January 2001. The Executive Option Plan provides for granting options to purchase shares of common stock to key employees at a price not less than the fair market value at the date of grant. The options vest evenly over a 10 year period from the date the option is granted, if the employee maintains a certain performance level as defined in the Executive Option Plan. Each of the Named Executive Officers met the required performance level defined in the Executive Option Plan for 2001, 2002, and 2003. Thus, approximately 80% of the shares granted are vested and exercisable, dependent upon the year of grant.
(2) The Omnibus Stock Plan was effective February 1998 and was amended and restated effective January 2001. The Omnibus Stock Plan provides for granting to key employees options to purchase shares of common stock at a price not less than fair market value at the date of grant. The vesting is determined at the time of grant and is generally three to five years with a ten year expiration date with one exception. During the year ended December 30, 2003, we allowed employees with options in the company granted before January 1, 2002, to forfeit those options and be issued the same number of options six months and several days later at then current stock price. On September 19, 2003, 3,153,086 options were granted related to this transaction. These options have an 18-month cliff vesting with a seven year expiration date.
(3) Based upon the most recent appraised value of $9.30 per share.
Compensation of Directors
Directors who are not officers of ClubCorp receive $200 and reimbursement of travel expenses for each of our board meetings attended.
Compensation Committee Interlocks and Insider Participation
Effective February 2000 the Board of Directors created the Compensation Committee consisting of five directors and executive officers, of which two must be non-employee directors. The Compensation Committee currently consists of Mr. Dedman, Jr., Mr. Beckert, Mr. Mayer, Mr. Singleton and Mr. Shirazi. For disclosure regarding certain relationships between such members and ClubCorp, see Item 13 “Certain Relationships and Related Transactions.” The Compensation Committee is responsible for establishing the compensation of our directors and executive officers. We generally hire an independent third party to provide our Compensation Committee information and recommendations on compensation for our executive officers. Our Compensation Committee uses that information to make recommendations to our board of directors.
Employment Agreements; Key-Man Life Insurance
We do have non-disclosure and non-competition agreements with the majority of our salaried employees, excluding the Chairman of the Board and Chief Executive Officer. In addition, we do not maintain key-man life insurance policies on any of our officers or employees.
With the exception of John A. Beckert, our President and Chief Operating Officer, we do not have any employment agreements with our named executive officers or employees. See Exhibit 10.27 and Exhibit 10.28 incorporated to our Annual Report on Form 10-K for the fiscal year ended December 30, 2003 for details of Mr. Beckert’s agreement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Equity Compensation Plan Information
The following table sets forth certain information regarding our equity compensation plans as of December 30, 2003:
Equity Compensation Plan Information
(1) Includes outstanding options under the Executive Stock Option Plan, which was adopted by our Board in August 1995 and was amended and restated effective January 2001. We do not intend to issue new grants under this plan.
(2) Includes outstanding options under the Omnibus Stock Plan, which was adopted by our Board in February 1998 and was amended and restated effective January 2001. We have reserved an additional 1.4 million shares of our common stock for granting awards under this plan in addition to those already granted.
(3) Based upon the weighted-average fair market value as determined by the most recent appraisal value available at the respective grant dates.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information concerning the beneficial ownership of our common stock, as of March 29, 2004, by (i) each Named Executive Officer, (ii) each person or group known by us to be the beneficial owner of more than 5.0% of the outstanding common stock, (iii) each of our directors and (iv) all of our directors and executive officers as a group:
* less than 1.0%
(1) Such person’s address is 3030 LBJ Freeway, Suite 700, Dallas, Texas 75234.
(2) Such entity’s or person’s address is 65 East 55th Street, New York, New York 10022.
(3) Includes 17,473,601 shares owned by the estate of Robert H. Dedman, Sr., of which 44,416 shares are pledged to a not-for-profit institution, and 1,264,761 shares owned by trusts for which Robert H. Dedman, Jr. and Nancy M. Dedman are trustees and share voting power. Pending administration and distribution of Mr. Dedman, Sr.’s estate, Robert H. Dedman, Jr. and Nancy M. Dedman, as the executors of the estate, may be deemed to have shared voting power with respect to the shares beneficially owned by the estate. Additionally, 44,415 shares of Mrs. Dedman’s personal shares are pledged to a not-for-profit institution.
(4) Includes 12,168,507 shares owned by trusts for the benefit of Robert H. Dedman, Jr., 14,809 shares owned by Robert H. Dedman, Jr.’s wife, Rachael Dedman, 13,413 shares owned by trusts for the benefit of Robert H. Dedman, Jr.’s minor children, Catherine Dedman and Nancy Dedman, for which Mr. Dedman, Jr. is a trustee and shares voting and investment power, and 754,400 shares of common stock issuable upon exercise of options that may be exercised within 60 days of this report. Excludes 12,262,807 shares owned by trusts for the benefit of Patricia Dedman Dietz and 78,971 shares owned by trusts for the benefit of the Dietz’s minor children, Christina Dietz, Jonathan Dietz, and Jeffrey Dietz, for which Robert H. Dedman, Jr. serves as a trustee and shares voting and investment power.
(5) Includes 11,880,303, 1,485,557, 114,646, 505,051, and 76,943 shares owned by Cypress Merchant Banking Partners II L.P., Cypress Merchant Banking Partners L.P., 55th Street Partners II L.P., Cypress Golf C.V. Ltd. and Cypress Golf Ltd., respectively. Includes 855,563, 107,325, 8,100, 36,450, and 5,062 shares of common stock issuable upon exercise of stock warrants that may be exercised within 60 days of this report to Cypress Merchant Banking Partners II L.P., Cypress Merchant Banking Partners L.P., 55th Street Partners II L.P., Cypress Golf C.V. Ltd. and Cypress Golf Ltd., respectively.
(6) Includes 17,698 shares and 2,000 shares of common stock issuable upon exercise of options that may be exercised within 60 days of this report owned by Patricia Dedman Dietz’s husband, Mark W. Dietz, 12,262,807 shares owned by trusts for Mrs. Dietz’s benefit, 78,971 shares owned by trusts for the benefit of the Dietz’s minor children, Christina Dietz, Jonathan Dietz, and Jeffrey Dietz, for which Mrs. Dietz is a trustee and shares voting and investment power. Excludes 12,168,507 shares owned by trusts for the benefit of Robert H. Dedman, Jr., for which Mrs. Dietz is a trustee and shares voting and investment power.
(7) Includes 624,581 shares owned by Mark W. Dietz’s wife, Patricia Dedman Dietz, 12,262,807 shares owned by trusts for the benefit of Mrs. Dietz, 78,971 shares owned by trusts for the benefit of the Dietz’s minor children, Christina Dietz, Jonathan Dietz, and Jeffrey Dietz, for which Mrs. Dietz is a trustee and shares voting and investment power and 2,000 shares of common stock issuable upon exercise of options that may be exercised within 60 days of this report.
(8) Includes 14,400 shares of common stock issuable upon exercise of options that may be exercised within 60 days of this report.
(9) Includes 2,063,000 shares of common stock issuable upon exercise of options that may be exercised within 60 days of this report for our executive officers and directors.
The estate of Robert H. Dedman, Sr. and his family currently own approximately 72% of our common stock. The holders of a majority of the common stock can elect all of our directors and approve or disapprove certain fundamental corporate transactions, including a merger or sale of all of our assets, subject to the terms of the Stockholders Agreement. The transfer of a substantial portion of the common stock owned by Nancy M. Dedman, or by her children could result in a change in our control and could affect our management or future direction.
Item 13.
Item 13. Certain Relationships and Related Transactions
In an agreement effective September 4, 2001, we sold the stock of a wholly owned subsidiary, The Owners Club at Telluride, Inc., which owned a majority interest in Telluride Club Mountain Village, LLC, (collectively referred to as Telluride), for nominal consideration to Telluride Holdings 2001 LLC, a limited liability company which is owned in approximate one-third interests by Jeffrey P. Mayer, our Chief Financial Officer, James M. Hinckley, our previous Chief Operating Officer, and Rudy Anderson, Senior Vice President of ClubCorp USA, Inc. The sale resulted in the transfer of ownership of Telluride, with assets of $23.7 million and liabilities of $22.2 million, and a net loss on divestiture of assets of approximately $3.8 million and it was anticipated that the ownership would subsequently be transferred to another third party. The effect of this transaction was to dispose of an underperforming property and to remove the non-recourse liability owed by Telluride to a third-party lender from our Consolidated Balance Sheet. When combined with other key asset sales completed in the third quarter of fiscal year 2001, this allowed us to meet the leverage ratio required by our senior credit facility, thus allowing us to comply with applicable debt covenants for the fiscal quarter ended September 4, 2001. Telluride was put under receivership in May of 2002 and was subsequently foreclosed on October 15, 2002, thereby transferring the assets of Telluride from Messrs. Mayer, Hinckley and Anderson to the lender.
Robert H. Dedman, Sr. passed away on August 20, 2002. At the time of his death, Mr. Dedman owned 43,113,993 shares of common stock (or approximately 46.0% of our outstanding common stock at that time) as community property with Mrs. Dedman. Pursuant to Texas law, Robert H. Dedman, Jr. and Mrs. Dedman were qualified as executors of Mr. Dedman’s estate upon issuance of Letters Testamentary. Pending administration and distribution of Mr. Dedman’s estate, Robert H. Dedman. Jr. and Mrs. Dedman, as the executors of Mr. Dedman’s estate, may be deemed to have shared voting power with respect to the shares beneficially owned by Mr. Dedman’s estate. Mrs. Dedman has sole voting and investment power over the shares of our common stock that comprise her community property interest in the shares owned by Mr. Dedman at his death. In his Last Will and Testament, Mr. Dedman gifted the remaining common stock (or approximately 22% of our common stock) to Nancy M. Dedman Trust and approximately 1% of our common stock to various other beneficiaries. Mrs. Dedman and Robert H. Dedman, Jr. will be trustees under the trust and will have shared voting power over the common stock held in the trust. At December 30, 2003, 17,473,601 shares remained in the Robert H. Dedman, Sr. estate trust of which 44,416 have been pledged to an education institution.
Item 14.
Item 14. Principal Accountant Fees and Services
The table below sets forth the aggregate fees billed by KPMG for audit, audit-related and tax services provided to the Company in each of the last two fiscal years.
(1) Audit related fees consist principally of fees for audits of financial statements of certain employee benefit plans.
The Audit Committee pre-approves all services performed by our independent auditor.
Part IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) The following audited Consolidated Financial Statements of ClubCorp and our subsidiaries as of December 31, 2002 and December 30, 2003, and for the years ended December 25, 2001, December 31, 2002, and December 30, 2003 are included in this Annual Report on Form 10-K, beginning on Page:
Independent Auditors’ Report
Consolidated Balance Sheet
Consolidated Statement of Operations
Consolidated Statement of Stockholders’ Equity and Comprehensive Loss
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
(a)(2) All schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or the Notes thereto.
(a)(3) Exhibits 10.1, 10.3 and 10.4, 10.8 through 10.18, are compensatory plans. See Index to Exhibits on page 40
(b) Reports on Form 8-K
None.
(c) Exhibits
See Index to Exhibits on page 40.
(d) Financial Statement Schedules
Not applicable.
Supplemental Information
We have not furnished to our security holders an annual report covering our last fiscal year or any proxy statement, form of proxy or other proxy soliciting material with respect to any annual or other meeting of security holders other than a proxy for the election of officers and directors at the annual shareholders meeting if the security holder did not plan to attend, which will be furnished to security holders subsequent to the filing of this annual report. This form of proxy will be supplementally provided to the SEC when sent to shareholders.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: March 29, 2004
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
* Power of Attorney authorizing Angela A. Stephens to sign this annual report on Form 10-K on behalf of the directors and certain officers of the Company is filed with the Securities and Exchange Commission. See the Power of Attorney on the Index to Exhibits, exhibit 24.1.
INDEX TO EXHIBITS
* Incorporated by reference to our Registration Statement on Form S-1 (Registration No. 33-83496)
** Incorporated by reference to our Post-Effective Amendment No. 1 to Form S-8 (Registration Nos. 33-89818, 33-96568, 333-08041, 333-57107 and 333-52612)
~ Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 29, 1998
~~ Incorporated by reference to our Quarterly Report on Form 10-Q for the fiscal period ended March 23, 1999
~~~ Incorporated by reference to our Quarterly Report on Form 10-Q for the fiscal period ended September 7, 1999
## Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 28, 1999
@@ Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 26, 2000
% Incorporated by reference to our Quarterly Report on Form 10-Q for the fiscal period ended September 4, 2001
a Incorporated by reference to our Quarterly Report on Form 10-Q for the fiscal period ended March 19, 2002
+ Incorporated by reference to our Annual Report on Form 10-K for the fiscal year ended December 31, 2002
++ Incorporated by reference to our Quarterly Report on Form 10-Q for the fiscal period ended June 17, 2003
+++ Incorporated by reference to our Quarterly Report on Form 10-Q for the fiscal period ended September 9, 2003
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders
ClubCorp, Inc.:
We have audited the consolidated financial statements of ClubCorp, Inc. and subsidiaries as listed in the accompanying index at Item 15. These consolidated financial statements are the responsibility of ClubCorp’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ClubCorp, Inc. and subsidiaries as of December 31, 2002 and December 30, 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended December 30, 2003, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the accompanying consolidated financial statements, ClubCorp changed its method of accounting for derivative instruments and hedging activities on December 27, 2000. Also, as discussed in Note 5 to the accompanying consolidated financial statements, effective December 26, 2001, ClubCorp changed its method of accounting for the impairment or disposal of long-lived assets.
KPMG LLP
Dallas, Texas
March 29, 2004
ClubCorp, Inc.
Consolidated Balance Sheet
December 31, 2002 and December 30, 2003
(Dollars in thousands)
See accompanying notes to consolidated financial statements.
ClubCorp, Inc.
Consolidated Statement of Operations
Years Ended December 25, 2001, December 31, 2002 and December 30, 2003
(Dollars in thousands, except per share amounts)
See accompanying notes to consolidated financial statements.
ClubCorp, Inc.
Consolidated Statement of Stockholders’ Equity and Comprehensive Loss
Years Ended December 25, 2001, December 31, 2002 and December 30, 2003
(Dollars in thousands)
See accompanying notes to consolidated financial statements.
ClubCorp, Inc.
ClubCorp, Inc.
Consolidated Statement of Cash Flows
Years Ended December 25, 2001, December 31, 2002 and December 30, 2003
(Dollars in thousands)
See accompanying Notes 1, 7, and 14 for supplemental disclosures of non-cash activities and cash paid for interest and income taxes.
See accompanying notes to consolidated financial statements.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
Note 1. Summary of significant accounting policies
Consolidation
The Consolidated Financial Statements include the accounts of ClubCorp, Inc. and its subsidiaries. All material intercompany balances and transactions have been eliminated.
Investments in affiliates for which we do not have operational or financial control are accounted for on the equity method. Under the equity method, original investments are recorded at cost and adjusted by dividends received and our share of the undistributed earnings or losses of these affiliates (Note 2). The investment balances are included in other non-current assets and liabilities in the accompanying Consolidated Balance Sheet.
There is no minority interest recorded for minority stockholders of five country clubs and three golf clubs because of deficit capital positions. We have recognized minority stockholders’ share of these entities’ cumulative and 2003 losses, which are approximately $7,039,000 and $1,166,000, respectively. We will recognize future positive earnings of these subsidiaries to the extent of minority interest losses previously absorbed.
Nature of operations
We are a holding company incorporated under the laws of the State of Delaware that, through our subsidiaries, have historically operated in one distinct business industry, hospitality services. Our operations in the hospitality industry involve the operation of country club and golf facilities, business and sports clubs and resorts through sole ownership, partial ownership (including joint venture interests), operating leases and management agreements. Other operations include sales of real estate.
Fiscal year
Our fiscal year consists of a 52/53 week fiscal year ending on the last Tuesday of December. Our 2001, 2002 and 2003 fiscal years are comprised of the 52 weeks ended December 25, 2001, the 53 weeks ended December 31, 2002 and the 52 weeks ended December 30, 2003.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
For purposes of the Consolidated Statement of Cash Flow, cash and cash equivalents include cash on hand and interest-bearing deposits in financial institutions, all of which have maturities of 180 days or less. Also contained in cash and cash equivalents is restricted cash as of December 30, 2003. These agreements were entered into in during 2003, and primarily consist of $22,275,000 used to collateralize lines of credit. These letters of credit have one-year terms and therefore, are included in current assets.
Membership, other receivables, and long-term receivables
Membership and other receivables as well as other long-term receivables are recorded net of an allowance for doubtful accounts of $8,903,000, $3,426,000 and $3,441,000 for the years ended December 25, 2001, December 31, 2002 and December 30, 2003, respectively, and amounts charged to bad debt expense were $5,111,000, $4,660,000 and $2,767,000, respectively. Amounts written off were $3,483,000, $10,137,000 and $2,752,000 for each of the years ended December 25, 2001, December 31, 2002 and December 30, 2003, respectively.
Inventories
Inventories, which consist primarily of food and beverage and merchandise held for resale, are stated at the lower of cost (weighted average cost) or market value.
Property and equipment
Property and equipment is stated at cost. Land and land improvements include non-depreciable golf course improvements including fairways, roughs and trees.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
We capitalize costs that both materially add value and appreciably extend the useful life of an asset. With respect to golf course improvements, only costs associated with original construction, complete replacements, or the addition of new trees, sand traps, fairways or greens are capitalized. All other related costs are expensed as incurred.
Depreciation is calculated primarily using the straight-line method based on the following estimated useful lives:
Leasehold improvements and assets under capital leases are amortized over the period of the respective leases using the straight-line method.
Real estate held for sale
Real estate held for sale consists primarily of land, land development costs and related amenities if they are to be left with the project upon completion. Costs are allocated to project components based on the specific identification method whenever possible. Otherwise, costs are allocated based on their relative sales value. At December 31, 2002 and December 30, 2003, real estate held for sale was $32,985,000, and $31,318,000, respectively, and is included in other non-current assets in the Consolidated Balance Sheet.
Sales of real estate generally are accounted for under the full accrual method. Under that method, a gain is not recognized until the collectibility of the sales price is reasonably assured and the earnings process is virtually complete.
Income taxes
Income taxes are accounted for using the asset and liability method. Under this method deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Foreign currency translation
Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the current exchange rate in effect at year-end. All foreign income and expenses are translated at the weighted average exchange rates during the year. Translation gains and losses are reported separately as a component of comprehensive loss. Realized foreign currency transaction gains and losses are reflected in the Consolidated Statement of Operations.
Treasury stock
Purchases of treasury stock are recorded at the cost of the shares acquired. When treasury stock is subsequently issued, the difference between the cost of shares issued, using the average cost method, and the sales price is charged or credited to additional paid-in capital.
Stock-based compensation
Stock-based compensation is accounted for using Accounting Principles Board Opinion (APB) No. 25, “Accounting for Stock Issued to Employees.” Under APB 25, if the exercise price of the options is greater than or equal to the market price at the date of grant, no compensation expense is recorded. We have also adopted the disclosure-only provisions of SFAS 123, “Accounting for Stock-based Compensation” for options issued, as amended by SFAS No. 148, “Accounting for Stock Based Compensation - Transition and Disclosure.”
ClubCorp, Inc.
Notes to Consolidated Financial Statements
If compensation cost for the option plans had been determined based on the fair value at the grant dates for the options consistent with the methodology of SFAS 123, our net loss and net loss per share would have been changed to the following pro forma amounts (dollars in thousands, except per share amounts):
During the year ended December 30, 2003, we allowed employees, excluding those functioning as members of the Board of Directors, with options issued prior to 2002 to forfeit those options and later be issued the same number of options six months and several days later with exercise prices at the then current stock price. This resulted in employees forfeiting approximately 3.6 million options in March 2003. On September 19, 2003, the Company granted approximately 3.1 million options to eligible employees with an exercise price of $9.30. In accordance with APB 25, we did not recognize any additional compensation cost associated with the options (Note 11).
The option repurchase transaction was considered a modification of the original option and, therefore, in accordance with SFAS 123, we recognized all remaining expense associated with the original options that were forfeited in the pro forma 2003 amounts above.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
Revenue recognition
We recognize revenues from the following sources:
Revenues from golf operations, lodging, food and beverage and merchandise sales are recognized at the time of sale or when the service is provided. Revenues from membership dues are billed monthly and recognized in the period earned. The monthly dues are expected to cover the cost of providing future membership services. Lifetime membership dues are recognized as income using the straight-line method over 20 years, the estimated average life of a lifetime membership. Prepaid dues are recognized as income over the prepayment period.
At the majority of our private clubs, members are expected to pay an advance initiation fee or deposit upon their acceptance as a member to the club. These initiation fees and deposits vary in amount based on a variety of factors such as the supply and demand for our services in each particular market, number of golf courses or breadth of amenities available to the members and the prestige of having the right to membership of the club. The majority of membership deposits sold are not refundable until a fixed number of years (generally 30) after the date of acceptance as a member, and are expected to cover our cost of providing services to the member over the course of the individual’s membership. Because of the refundable nature of our deposits and the fact that few of our clubs have membership caps, we believe that revenue related to deposits should be recognized over the average expected life of an active membership. This stance is supported by our prior correspondence with the SEC on this matter in 1998. For membership deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized as membership fees and deposits revenue on a straight-line basis over the average expected life of an active membership (currently six years for golf and resort memberships and five years for business and sports club memberships). The present value of the refund obligation is recorded as a membership deposit liability in our consolidated balance sheet and accretes over the nonrefundable term using the effective interest method with an interest rate defined as our weighted average borrowing rate adjusted to reflect a 30 year time frame. Our current discount rate is 9%. The accretion is included in interest expense. The majority of our membership fees are not refundable and are deferred and recognized over the average expected life of an active membership.
At December 30, 2003, the amount of membership deposits contractually due and payable during the next five years is approximately $9,000,000.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
Divestiture of subsidiaries
Subsidiaries are divested when management determines they will be unable to provide a positive contribution to cash flows from operations in future periods and/or when they are determined to be nonstategic holdings for the company. Gains from divestitures are recognized in the period in which operations cease and losses are recognized when they become apparent. These are reflected in the Consolidated Statement of Operations as loss on disposals and impairments of assets.
Interest rate swap and cap agreements
Effective December 27, 2000, we adopted SFAS 133, “Accounting for Derivative Instruments and Hedging Activities” which requires that all derivatives be recognized at fair value either as assets or liabilities on the balance sheet. The adoption of SFAS 133 resulted in recording approximately $2,119,000, net of $1,141,000 income tax benefit, in comprehensive loss for the cumulative effect of the accounting change.
We entered into interest rate swap agreements to limit our exposure to fluctuations in interest rates related to our prior bank facility. We accounted for these swap agreements by recording the net interest to be paid or received as an increase or reduction in interest. These swaps were not renewed under our new mortgage debt. As a result, at December 30, 2003, all swap agreements had matured.
Interest payments on approximately 72% of the floating portion of our new mortgage debt are protected by interest rate cap agreements that limit our exposure to rises in interest rates over certain amounts (Note 7).
Loss per share
The weighted average and diluted weighted average number of shares used to calculate basic and diluted loss per share were 93,966,962, 93,737,410 and 93,727,549 for the years ended December 25, 2001, December 31, 2002 and December 30, 2003, respectively.
The diluted weighted average shares exclude the assumed conversion of 864,622, 265,294 and 26,897 options and warrants due to our net loss for the years ended December 25, 2001, December 31, 2002, and December 30, 2003 respectively (Notes 9 and 11).
Reclassifications
Certain amounts previously reported have been reclassified to conform with the current year presentation.
Recent Pronouncements
In June 2002, the FASB issued SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities.” The main provisions of this statement address the recognition of liabilities associated with exit or disposal activities and is effective for exit or disposal activities initiated after December 31, 2002. Adoption of this statement had no impact on our consolidated financial statements.
In November 2002, the FASB issued Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees and Indebtedness of Others.” This interpretation elaborates on the disclosures to be made by the guarantor in its interim and annual financial statements about its obligations under certain guarantees issued. It also requires that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Adoption of this interpretation had no impact on our consolidated financial statements.
In January 2003, the FASB issued and then revised in December 2003, FASB Interpretation No. 46, (FIN 46R) “Consolidation of Variable Interest Entities”, which changes the criteria by which one company includes another entity in its consolidated financial statements. This interpretation requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The effective date for applying the provisions of FIN 46R have been deferred for interests held by public entities in variable interest entities or potential variable interest entities created before February 1, 2003. FIN 46R gives entities until the first interim or annual period beginning after December 15, 2003 to implement. This statement will cause us to consolidate, during the first quarter of 2004, a joint venture that will add net assets of approximately $1.3 million, including debt of $13.7 million to our Consolidated Balance Sheet. This investment is carried as an equity investment as December 30, 2003 (Note 2). We do not believe any of our other joint ventures will be affected by this statement.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
In December 2002, the FASB issued SFAS No. 148, “Accounting for Stock-Based Compensation - Transition and Disclosure” (SFAS 148), which amends SFAS No. 123, “Accounting for Stock-Based Compensation” (SFAS 123). SFAS 148 amends the disclosure requirements in SFAS 123 for stock-based compensation for annual periods ending after December 15, 2002 and for interim periods beginning after December 15, 2002. The disclosure requirements apply to all companies, including those that continue to recognize stock-based compensation under APB Opinion No. 25, “Accounting for Stock Issued to Employees.” Effective for financial statements for fiscal years ending after December 15, 2002, SFAS 148 also provides three alternative transition methods for companies that choose to adopt the fair value measurement provisions of SFAS 123. We have not chosen to adopt the fair value measurement provisions of SFAS 123; however, we are in compliance with the disclosure requirements as of December 30, 2003 (See “Stock-based compensation” above and Note 11).
In April 2003, the FASB issued SFAS No. 149 (SFAS 149), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities.” This statement amends and clarifies financial accounting and reporting for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities under FASB Statement No. 133. Adoption of this statement had no impact on our consolidated financial statements.
In May 2003, the FASB issued SFAS No. 150 (SFAS 150), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a financial instrument that is within its scope as a liability. Adoption of this statement had no impact on our consolidated financial statements.
In December 2003, the FASB issued SFAS No. 132R (revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement Benefits”. This statement improves financial statement disclosures for defined benefit plans. We have not adopted these expanded disclosures as our pension plan is not a material component of our overall consolidated financial statements (Note 11).
Note 2. Investments in affiliates
Our investments in affiliates at December 30, 2003 include joint ventures for the operation of two real estate developments, three golf clubs, and one business club. These investments are reflected in either other non-current assets or other long term liabilities on the Consolidated Balance Sheet and the equity gain or loss is included in operating revenues in the Consolidated Statement of Operations.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
A summary of the significant financial information of affiliated companies accounted for on the equity method is as follows (dollars in thousands):
The negative Venturers’ capital represents our general partner equity interest in a real estate joint venture that has a cumulative deficit. This deficit is anticipated to be temporary and, therefore, our investment has been taken below zero. This equity investment will be consolidated under the new guidelines set forth in FIN 46R as of the end of the twelve weeks ended March 22, 2004 (Note 1).
Note 3. Fair value of financial instruments
Fair value estimates are made at a specific point in time, based on relevant information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument. Since no market exists for certain financial instruments, fair value estimates are based on our judgment regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments and other factors. These fair value estimates are subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. Changes in assumptions could significantly affect estimates.
The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practicable to estimate that value:
Cash and cash equivalents
The carrying amount of cash and cash equivalents approximates fair value due to the short maturity of these instruments.
Long-term debt
Fair values for fixed rate, capital lease and other obligations are based on the discounted value of contractual cash flows using our incremental borrowing rates for similar types of debt arrangements. Under our new debt arrangements, we have a significant amount of fixed rate debt compared to the prior debt agreement. The estimated fair value of these obligations was $32,041,000 and $445,451,000 at December 31, 2002 and December 30, 2003, respectively. The carrying value of these obligations was $30,472,000 and $434,590,000 at December 31, 2002 and December 30, 2003, respectively (Note 7).
ClubCorp, Inc.
Notes to Consolidated Financial Statements
Interest rate swaps and caps
The estimated fair value of interest rate swaps was $5,949,000 at December 31, 2002 with a notional amount of $225,000,000. Fair value was based on quotes from the investment banks holding the swap agreements. Our interest rate swaps have been recorded in other current liabilities for the year ended December 31, 2002 in the accompanying Consolidated Balance Sheet at December 31, 2002. During 2003, all interest rate swap contracts related to old debt financing matured and we entered into interest rate cap agreements that limit exposure of the variable portion of our new debt mortgage to rises in interest rates over certain amounts. The fair market value of these interest rate cap agreements at the year ended December 30, 2003 was $286,000. For the year ended December 30, 2003, we recognized interest expense of $131,000 to record the change in fair value of these instruments (Note 7).
Membership deposits
The estimated fair value of membership deposits was $127,046,000 and $131,042,000 at December 31, 2002 and December 30, 2003, respectively. The carrying value at December 31, 2002 and December 30, 2003 of membership deposits was $120,339,000 and $133,693,000, respectively. Included in the carrying value are membership deposits that are related to properties that were considered held for sale as of December 30, 2003. The carrying value of membership deposits related to held for sale properties at December 31, 2002 and December 30, 2003 was $6,978,000 and $725,000, respectively (Note 5). The fair value of membership deposits is based on the discounted value of future maturities using our incremental borrowing rate.
Note 4. Property and equipment
Property and equipment consists of the following at year-end (dollars in thousands):
Note 5. Disposal and Impairment of Long- Lived Assets
On December 26, 2001, we adopted Statement of Financial Accounting Standards No. 144 (SFAS 144), “Accounting for the Impairment or Disposal of Long-Lived Assets.” SFAS 144 supercedes SFAS 121 and the portion of Accounting Principles Board Opinion No. 30 that deals with the disposal of a business segment. In conjunction with this statement, for all periods presented, certain assets and liabilities expected to be sold with the held-for-sale entities have been reclassified to Other Current Assets and Other Current Liabilities, and all income and expense items have been reclassified as Discontinued Operations.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
As of December 30, 2003, we had one property classified as held for sale. The balance sheet amounts related to this property were reclassified to Other Current Assets and Other Current Liabilities on the Consolidated Balance Sheet and were comprised of the following (dollars in thousands):
The property, as well as all properties that were divested during the year ended December 30, 2003, were also reclassified to Discontinued Operations on the Consolidated Statement of Operations. See Note 10 for detail of the Consolidated Statement of Operations impact of Discontinued Operations by segment and in total.
We reviewed all properties held for sale for impairment. We also evaluate properties for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through future cash flows. We use a discounted future operating cash flow with a risk-adjusted discount rate in determining the fair value of the asset and its related impairment. For the year ended December 31, 2002, we recorded impairment of $18,492,000 related to the thirteen properties recorded under SFAS 144, $5,059,000 related to the three properties recorded under SFAS 121 and $9,000,000 for three properties held for use. For the year December 30, 2003 we recorded impairment of $2,960,000 for four properties held for use and no impairment related to properties under SFAS 144 or SFAS 121.
For assets to be held and used, we perform a recoverability test to determine if the future undiscounted cash flows over our expected holding period for the property exceed the carrying amount of the assets of the property in question. If the recoverability test is not met, fair value is determined by comparing the carrying value of the property to its future discounted cash flows using a risk-adjusted discount rate. Future cash flows of each property are determined using management’s projections of the performance of a given property based on its past performance and expected future performance given changes in marketplace, local operations and other factors both in our control and out of our control. Additionally, we review current property appraisals when available to ensure recoverability. Actual results that differ from these estimates can generate material differences in impairment charges recorded, and ultimately, net income or loss in our Consolidated Statement of Operations and the carrying value of properties on our Consolidated Balance Sheet.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
Note 6. Current liabilities
Current liabilities consist of the following at year-end (dollars in thousands):
Note 7. Long-term debt and lease commitments
Long-term borrowings are summarized below (dollars in thousands):
As reflected above, on June 4, 2003, we completed a major refinancing of our outstanding bank debt. Through the simultaneous completion of three separate mortgage portfolio transactions with a combined notional amount of
ClubCorp, Inc.
Notes to Consolidated Financial Statements
$617,645,000, we retired the remaining outstanding balance of our $650,000,000 senior secured credit facility and a $30,000,000 bridge note. In the reporting period ended September 9, 2003, we closed on three additional mortgage loans totalling $40 million. As a result of these transactions, we wrote off $10,569,000 in unamortized financing costs related to our previous credit facility in the year ended December 30, 2003. We incurred approximately $13,000,000 in new financing costs related to the mortgage financing which are being amortized to expense over the life of the loan. Under our new mortgage portfolio, our debt covenants have become less restrictive.
At December 31, 2002 we had interest rate contracts to pay fixed rates of interest (ranging from 5.25% to 7.21%) and received variable rates of interest based on LIBOR on an aggregate of $225,000,000 notional amount of indebtedness that matured in 2003. The aggregate fair market value of all interest rate swap contracts was $5,949,000 at December 31, 2002 and is included in our current liabilities on the Consolidated Balance Sheet (Note 6). During the year ended December 30, 2003, these interest rate swap contracts that related to our bank financing matured. The impact of this hedge activity was recorded at the time the bank debt was refinanced. Interest payments on approximately 72% of the floating portion of our new debt mortgage are protected by interest rate cap agreements that limit our exposure to rises in interest rates over certain amounts. The aggregate fair market value of all interest rate cap agreements was $286,000 on December 30,2003 and is included in other assets on the Consolidated Balance Sheet. For the year ended December 30, 2003, we recognized interest expense of $131,000 to record the change in fair value of these instruments.
The amounts of our existing long-term debt maturing in each of the five years subsequent to 2003 are as follows (dollars in thousands):
The provisions of certain subsidiary lending and lease agreements limit the amount of dividends that may be paid to us. Under the most restrictive of these limitations at December 30, 2003, approximately $16,426,000 of retained earnings was restricted from the declaration of dividends to us.
The amount of cash paid for interest in 2001, 2002 and 2003 was approximately $66,776,000, $56,524,000 and $51,226,000, respectively.
We lease operating facilities under agreements ranging from 1 to 40 years. These agreements normally provide for minimum rentals plus executory costs. In some cases, we must pay contingent rent generally based on a percentage of gross receipts or positive cash flow as defined in the lease agreements. Future minimum lease payments required at December 30, 2003 under operating leases for buildings and recreational facilities with initial non-cancelable lease terms in excess of one year are as follows (dollars in thousands):
Total facility rental expense during 2001, 2002 and 2003 was $37,724,000, $35,268,000 and $33,160,000, respectively, including contingent rent of $4,208,000, $2,318,000 and $2,860,000, respectively.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
Note 8. Other liabilities
Other liabilities consist of the following at year-end (dollars in thousands):
In 2002, our deferred taxes resulted in a deferred tax asset in the amount of $25,512,000, which is included in other long-term assets in the Consolidated Balance Sheet as of December 31, 2002.
Note 9. Stockholders’ equity
On December 1, 1999, we sold 9,375,000 shares of common stock and 1,012,500 common stock purchase warrants for a price of $16 per share. The sale resulted in total proceeds of $150,000,000, net of issuance costs of $6,011,000. Each common stock purchase warrant allows the holder to purchase one share of common stock at $17 per share and is exercisable immediately through 2009. The value of these warrants is included in additional paid-in capital and is not significant to our Consolidated Balance Sheet. During the years ended December 31, 2002 and December 30, 2003, no common stock purchase warrants were redeemed. The stock purchase agreement specifies that if certain events under our control do not occur within five years of the date of the agreement, we could, if requested, be obligated to repurchase a portion of the outstanding shares. The amount to be repurchased, if any, is limited by our leverage ratio at that time.
Note 10. Segment reporting
Our operations are organized into three principal business segments according to the type of facility or service provided: country club and golf facilities, business and sports clubs and resorts. We have determined that the operations of these three segments have similar economic characteristics and meet the criteria which permit the operations to be aggregated into these reportable segments. As of January 1, 2003, we reclassified our international properties from other operations and services to their functional segments as either country club and golf facilities or business and sports clubs. Segment results for all periods presented have been restated to reflect this reclassification, which is consistent with changes in our internal management and organizational structure. The primary sources of revenue for all segments are membership revenues, consisting of dues, fees and deposits, and food and beverage sales. Additionally, country club and golf facilities and resorts have significant golf operations revenue and resorts have significant lodging revenue.
Country club and golf facilities operations consist of private country clubs, golf clubs and public golf facilities. Private country clubs provide at least one 18-hole golf course and various other recreational amenities that are open only to members and their guests. Golf clubs provide both private and public golf play and usually offer fewer other recreational amenities. Public golf facilities are open to the public and generally provide the same services as golf clubs.
Business and sports club operations consist of business clubs, business/sports clubs and sports clubs. Business clubs provide a setting for dining, business or social entertainment. Sports clubs provide a variety of recreational facilities and business/sports clubs provide a combination of the amenities available at business clubs and sports clubs. All amenities offered above are available only to members and their guests.
Resorts offer a wide variety of amenities including golf courses, lodging and conference facilities, dining areas and other recreational facilities. Resorts are open to the public and offer optional membership.
Other operations and services consist of real estate operations, corporate overhead and intercompany eliminations made in the consolidation between corporate services and other operating segments. Realty operations are comprised of residential real estate development and sales, primarily in areas adjacent to golf facilities. A majority of operating revenues is provided from real estate sales.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
EBITDA is defined as earnings before interest, taxes, depreciation and amortization, extraordinary items and gains and losses on disposals and impairment of assets and includes both continued and discontinued operations. EBITDA for all periods presented has been adjusted to reflect this definition. EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on accounting principles generally accepted in the United States of America, and is not necessarily a measure of our cash flow or ability to fund our cash needs. Our measurements of EBITDA may not be comparable to similar titled measures reported by other companies.
ClubCorp, Inc.
Notes to Consolidated Financial Statements
Financial information for the segments is as follows (dollars in thousands):
ClubCorp, Inc.
Notes to Consolidated Financial Statements
Continued Segment Information
(1) For purposes of this table, we have not pushed intercompany eliminations to all the segments. All of these eliminations will show in other operations and services. This then results in a negative asset balance.
Note 11. Benefit plans
We maintain an employee stock ownership plan, known as the ClubCorp Employee Stock Ownership Plan (the Plan). Eligible employees have the opportunity to invest 1% to 6% of their pretax compensation, subject to certain limitations. Participant contributions are matched 20% on a quarterly basis with an option at year end for an additional discretionary match by the company. The matching contribution vests over six years. Participants may elect to diversify a portion of their account assets upon meeting certain age and participation requirements. In addition, upon termination, retirement or permanent disability, a participant or beneficiary may demand distribution of our common stock in lieu of cash. All of the assets of the Plan are invested in our common stock, except for temporary investments of cash.
As a means of providing liquidity to the trustees of their fiduciary obligations, we have provided the trustees a limited put right (the “Redemption Right”) to cause us to redeem common stock, held in trust on behalf of the Plan, at the most recent fair market value as necessary to meet the following requirements: (1) to fund a participant’s distribution in cash, (2) to diversify a participant’s account in accordance with Internal Revenue Code Section 401(a)(28), (3) to pay expenses incurred by the trustees, and (4) to comply with directions from the plan administrator. The Redemption Right has never been exercised by the trustees, although we have repurchased common stock into treasury from certain stockholders. We do not expect that the Redemption Right will be exercised to a significant extent in 2004. Shares held by the Plan are 4,107,935 and 4,106,488 shares at December 31, 2002 and December 30, 2003, respectively and are valued at the most recent appraised value ($9.42 and $9.30 at December 31, 2002 and December 30, 2003, respectively) as necessary in order to meet the requirements of the Employee Retirement Income Security Act and the Plan. Accordingly, we have reclassified the redemption value of our common stock held by the Plan out of stockholders’ equity in the accompanying Consolidated Balance Sheet and changes in the redemption value have been charged to retained earnings.
We maintain a second qualified contributory plan for all eligible employees of certain domestic subsidiaries. This Plan allows participants to invest up to 50% of their pretax/post-tax compensation among eleven investment fund options, subject to certain limitations.
We also maintain a defined pension plan for one of our properties. At December 30, 2003, we have a liability recorded related to unfunded obligations of $3,601,000 and other comprehensive loss of $3,420,000. We have recorded pension expense related to the plan of $781,000 for the year ended December 30, 2003. We have not included the required disclosures under SFAS No. 132R, as the plan is not significant to our overall consolidated financial statements.
The ClubCorp, Inc. Executive Stock Option Plan was adopted August 31, 1995. In February 2000, we transferred substantially all of the remaining available shares in this plan to the Omnibus Stock Plan. In August 2003, we transferred the remaining available shares in this plan to the Omnibus Stock Plan, discussed below. The outstanding options previously granted under this plan remain outstanding and fully vest 120 days prior to their expiration date. The plan provides for accelerated vesting, not to exceed 10% per year, if the employee maintains a certain performance level as defined in the plan. Employees are required to maintain a minimum ownership level of company stock holdings, as set forth in the plan, to sell stock acquired from exercised options. At December 30, 2003, there were 565,000 options outstanding under this plan, of which 504,500 were exercisable.
We apply APB 25 in accounting for the option plans; therefore, no compensation expense has been recognized for options that have been granted to employees. In accordance with the requirements of SFAS 123, the fair value of the options granted was estimated using the Black-Scholes option-pricing model with the following assumptions for the 2001, 2002 and 2003
ClubCorp, Inc.
Notes to Consolidated Financial Statements
grants: risk-free weighted average interest rates of 4.9%, 4.9% and 4.1% respectively, an expected volatility of 25%, 40% and 40% respectively, an expected life of ten years and zero dividend yield. The summary of the status of the options outstanding at year-end 2001, 2002 and 2003 and changes during the fiscal years is as follows:
The range of exercise prices for options outstanding at December 30, 2003 is $8.60 to $17.71.
During the year ended December 30, 2003, we allowed employees with options issued prior to 2002 to forfeit those options and later be issued the same number of options six months and several days later at the then current stock price. This resulted in employees forfeiting approximately 3.6 million options in March 2003. On September 19, 2003, the Company granted approximately 3.1 million options to eligible employees with a stock option price of $9.30. In accordance with APB 25, we did not recognize any additional compensation cost associated with the options.
Note 12. Related Party Transactions
In an agreement effective September 4, 2001, we sold the stock of a wholly owned subsidiary, The Owners Club at Telluride, Inc., which owned a majority interest in Telluride Club Mountain Village, LLC, (collectively referred to as Telluride), for nominal consideration to Telluride Holdings 2001 LLC, a limited liability company which is owned in approximate one-third interests by Jeffrey P. Mayer, our Chief Financial Officer, James M. Hinckley, our previous Chief Operating Officer, and Rudy Anderson, Senior Vice President of ClubCorp USA, Inc. The sale resulted in the transfer of ownership of Telluride, with assets of $23.7 million and liabilities of $22.2 million, and a net loss on divestiture of assets of approximately $3.8 million and it was anticipated that the ownership would subsequently be transferred to another third party. The effect of this transaction was to dispose of an underperforming property and to remove the non-recourse liability owed by Telluride to a
ClubCorp, Inc.
Notes to Consolidated Financial Statements
third-party lender from our Consolidated Balance Sheet. When combined with other key asset sales completed in the third quarter of fiscal year 2001, this allowed us to meet the leverage ratio required by our senior credit facility, thus allowing us to comply with applicable debt covenants for the fiscal quarter ended September 4, 2001. Telluride was put under receivership in May of 2002 and was subsequently foreclosed on October 15, 2002, thereby transferring the assets of Telluride from Messrs. Mayer, Hinckley and Anderson to the lender.
Robert H. Dedman, Sr. passed away on August 20, 2002. At the time of his death, Mr. Dedman owned 43,113,993 shares of common stock (or approximately 46.0% of our outstanding common stock at that time) as community property with Mrs. Dedman. Pursuant to Texas law, Robert H. Dedman, Jr. and Mrs. Dedman were qualified as executors of Mr. Dedman’s estate upon issuance of Letters Testamentary. Pending administration and distribution of Mr. Dedman’s estate, Robert H. Dedman. Jr. and Mrs. Dedman, as the executors of Mr. Dedman’s estate, may be deemed to have shared voting power with respect to the shares beneficially owned by Mr. Dedman’s estate. Mrs. Dedman has sole voting and investment power over the shares of our common stock that comprise her community property interest in the shares owned by Mr. Dedman at his death. In his Last Will and Testament, Mr. Dedman gifted the remaining common stock (or approximately 22% of our common stock) to Nancy M. Dedman Trust and approximately 1% of our common stock to various other beneficiaries. Mrs. Dedman and Robert H. Dedman, Jr. will be trustees under the trust and will have shared voting power over the common stock held in the trust. At December 30, 2003, 17,473,601 shares remained in the Robert H. Dedman, Sr. estate trust of which 44,416 have been pledged to an education institution.
Note 13. Contingencies
During 2003, we have recorded charges totaling $4.1 million related to three lawsuits to cover incurred litigation fees and settlement charges. Two of the three lawsuits have settled as of January 2004 at amounts approximating our accrual. It is probable that we will incur additional charges related to the third lawsuit; however, at this time, we have not set up an additional accrual as we believe the actual settlement is not estimable at this time. An escrow of $4.5 million has been established pertaining to this matter until the lawsuit is resolved. Alleged claims in this suit relate to a disagreement with union employees and subsequent settlement for potential lost wages and benefits over a period of time from 1997 - 2002. The maximum damages alleged by the arbitration board total $5 million before penalty, interest and legal fees; however, we believe that there is still significant discovery to be done in this area.
Note 14. Income taxes
Loss before income taxes and minority interest consists of the following, including continuing and discontinued operations (dollars in thousands):
ClubCorp, Inc.
Notes to Consolidated Financial Statements
The income tax (provision) benefit consists of the following, including continuing and discontinued operations (dollars in thousands):
Cash paid for state and foreign income taxes was $2,890,000, $3,182,000 and $7,035,000 for the years ended December 25, 2001, December 31, 2002, and December 30, 2003, respectively.
The differences between income taxes computed using the U.S. statutory Federal income tax rate of 35% and actual income tax (provision) benefit as reflected in the accompanying Consolidated Statement of Operations are as follows (dollars in thousands):
We have the following loss carryforwards available at December 30, 2003, which are available to offset future taxable income (dollars in thousands):
In addition to the regular tax and alternative minimum tax net operating loss carryforwards, we had approximately $158,000,000 alternative minimum tax Separate Return Limitation Year (SRLY) net operating loss carryforwards with that were available for fiscal year 2002 and expired unused in 2003.
Since 1996, ClubCorp has recorded a deferred tax asset related to regular tax NOL carryforwards available for its use. The amount, calculated as 35% of the regular net operating loss carryforward above, is netted against deferred tax liabilities and classified as Other Assets or Other Liabilities in our Consolidated Balance Sheet. Each year, or when significant changes in our financial situation occur, we perform a valuation allowance analysis to determine the future recoverability of the asset. Historically,
ClubCorp, Inc.
Notes to Consolidated Financial Statements
our analysis has been based on a future taxable income forecast utilizing past trends as well as future plans and predictions about our business.
During 2003, we again recorded taxable losses. In accordance with guidance in SFAS No. 109 and industry practice, when a pattern of taxable losses presents itself over a period of time, it is hard to overcome that pattern and argue that future years will have taxable income. In addition, changes in the tax law prohibited us from utilizing certain tax planning strategies. Therefore, in 2003, we reverted to more objective evidence in our evaluation, basing our analysis solely on carrybacks and future reversals of existing taxable temporary differences, as well as certain tax planning strategies. We recorded a charge to income of $65 million to write down the value of our NOLs to a balance of $77 million. The total valuation allowance also includes approximately $4 million of current year additions to NOLs that were not taken to income due to our taxable loss position.
The components of the deferred tax assets and deferred tax liabilities at December 31, 2002 and December 30, 2003 are as follows (dollars in thousands):
ClubCorp, Inc.
Notes to Consolidated Financial Statements
Note 15. Selected quarterly financial data, (unaudited)
Operations for the first three quarters consist of 12 weeks each and the fourth quarter includes 17 weeks for fiscal year 2002, and 12 weeks and 16 weeks for fiscal year 2003.
Interim results are shown for consolidated totals (including discontinued operations) and are not necessarily indicative of fiscal year performance because of the impact of seasonal and short-term variations. A detail of continuing and discontinued operating revenues is provided as part of Revenue Recognition in Note 1. Selected quarterly financial data are summarized as follows (dollars in thousands, except per share data):
Included in the fourth quarter of 2003 is a tax charge of $65,000,000 related to an adjustment in our valuation allowance on deferred tax assets (Note 14).
Included in fourth quarter of fiscal year 2002 is impairment of approximately $22,745,000 related to held for use and held for sale properties.
ANNEX A
LIST OF FACILITIES
Property
Location
Business Type
Ownership
Country Club & Golf Facilities
Diamante Country Club
Hot Springs Village
AR.
Private Country Club
Joint Venture
Gainey Ranch Country Club
Scottsdale
AZ.
Private Country Club
Owned
Braemar Country Club
Tarzana
CA.
Private Country Club
Owned
Canyon Crest Country Club
Riverside
CA.
Private Country Club
Owned
Coto de Caza Golf & Racquet Club
Coto de Caza
CA.
Private Country Club
Owned
Crow Canyon Country Club
Danville
CA.
Private Country Club
Owned
Desert Falls Country Club
Palm Desert
CA.
Private Country Club
Owned
Granite Bay Golf Club
Granite Bay
CA.
Private Country Club
Joint Venture
Indian Wells Country Club
Indian Wells
CA.
Private Country Club
Owned
Mission Hills Country Club
Rancho Mirage
CA.
Private Country Club
Owned
Morgan Run Resort & Club
Rancho Santa Fe
CA.
Private Country Club
Joint Venture
Porter Valley Country Club
Northridge
CA.
Private Country Club
Owned
Shadowridge Country Club
Vista
CA.
Private Country Club
Owned
Spring Valley Lake Country Club
Victorville
CA.
Private Country Club
Owned
Stoneridge Country Club
Poway
CA.
Private Country Club
Managed
Aspen Glen Golf Company
Carbondale
CO.
Private Country Club
Owned
Countryside Country Club
Clearwater
FL.
Private Country Club
Owned
Deercreek Country Club
Jacksonville
FL.
Private Country Club
Owned
East Lake Woodlands Country Club
Oldsmar
FL.
Private Country Club
Owned
Hunter’s Green Country Club
Tampa
FL.
Private Country Club
Owned
Monarch Country Club
Palm City
FL.
Private Country Club
Joint Venture
Tampa Palms Golf & Country Club
Tampa
FL.
Private Country Club
Owned
Eagle’s Landing Country Club
Stockbridge
GA.
Private Country Club
Owned
Laurel Springs Golf Club
Suwanee
GA.
Private Country Club
Joint Venture
Northwood Country Club
Lawrenceville
GA.
Private Country Club
Owned
Knollwood Country Club
Granger
IN.
Private Country Club
Owned
Crestview Country Club
Wichita
KS.
Private Country Club
Managed
Nicklaus Golf Club at LionsGate
Overland
KS.
Private Country Club
Joint Venture
Southern Trace Country Club
Shreveport
LA.
Private Country Club
Owned
Ipswich Country Club
Ipswich
MA.
Private Country Club
Owned
Oak Pointe Country Club
Brighton
MI.
Private Country Club
Owned
Canyon Gate Country Club
Las Vegas
NV.
Private Country Club
Owned
Firestone Country Club
Akron
OH.
Private Country Club
Owned
Quail Hollow Country Club
Painesville
OH.
Private Country Club
Owned
Silver Lake Country Club
Silver Lake
OH.
Private Country Club
Managed
Greens Country Club
Oklahoma City
OK.
Private Country Club
Owned
Diamond Run Golf Club
Sewickley
PA.
Private Country Club
Owned
Treesdale Golf & Country Club
Gibsonia
PA.
Private Country Club
Owned
Country Club of Hilton Head
Hilton Head
SC.
Private Country Club
Owned
Woodside Plantation Country Club
Aiken
SC.
Private Country Club
Owned
April Sound Country Club
Montgomery
TX.
Private Country Club
Owned
Atascocita Country Club
Humble
TX.
Private Country Club
Owned
Bay Oaks Country Club
Houston
TX.
Private Country Club
Owned
Brookhaven Country Club
Dallas
TX.
Private Country Club
Owned
Canyon Creek Country Club
Richardson
TX.
Private Country Club
Owned
Club at Cimarron
Mission
TX.
Private Country Club
Owned
Fair Oaks Ranch & Country Club
Fair Oaks Ranch
TX.
Private Country Club
Owned
Falcon Point Club
Katy
TX.
Private Country Club
Owned
Gleneagles Country Club
Plano
TX.
Private Country Club
Owned
Hackberry Creek Country Club
Irving
TX.
Private Country Club
Owned
Hearthstone Country Club
Houston
TX.
Private Country Club
Owned
ANNEX A
LIST OF FACILITIES
Property
Location
Business Type
Ownership
The Hills Country Club at Lakeway
Austin
TX.
Private Country Club
Owned
Kingwood Country Club
Kingwood
TX.
Private Country Club
Owned
Las Colinas Country Club
Irving
TX.
Private Country Club
Owned
Lost Creek Country Club
Austin
TX.
Private Country Club
Owned
Oakmont Country Club
Corinth
TX.
Private Country Club
Owned
Ranch Country Club
McKinney
TX.
Private Country Club
Owned
Shady Valley Country Club
Arlington
TX.
Private Country Club
Owned
Stonebriar Country Club
Frisco
TX.
Private Country Club
Joint Venture
Stonebridge Country Club
McKinney
TX.
Private Country Club
Owned
Timarron Country Club
Southlake
TX.
Private Country Club
Owned
Trophy Club Country Club
Trophy Club
TX.
Private Country Club
Owned
Walnut Creek Country Club
Mansfield
TX.
Private Country Club
Owned
Wildflower Country Club
Temple
TX.
Private Country Club
Owned
Willow Creek Golf Club
Spring
TX.
Private Country Club
Leased
Greenbrier Country Club
Chesapeake
VA.
Private Country Club
Owned
Piedmont Golf Club
Haymarket
VA.
Private Country Club
Owned
River Creek Country Club
Leesburg
VA.
Private Country Club
Owned
Stonehenge Golf & Country Club
Richmond
VA.
Private Country Club
Owned
Vista Vallarta Club de Golf
Puerto Vallarta, Mexico
Private Country Club
Joint Venture
Marina Vallarta Club de Golf
Puerto Vallarta, Mexico
Private Country Club
Owned
Pok-ta-pok Club de Golf Cancun
Cancun, Mexico
Private Country Club
Managed
Macquarie Links International Golf Club
Sydney, Australia
Private Country Club
Owned
Debary Golf & Country Club
Debary
FL.
Semi-Private Golf Club
Owned
Haile Plantation Golf & Country Club
Gainesville
FL.
Semi-Private Golf Club
Joint Venture
Queens Harbour Country Club
Jacksonville
FL.
Semi-Private Golf Club
Owned
Nicklaus Golf Club at BirchRiver
Dahlonega
GA.
Semi-Private Golf Club
Joint Venture
Trophy Club of Gwinnett
Snellville
GA.
Semi-Private Golf Club
Owned
The Currituck Club
Corolla
NC.
Semi-Private Golf Club
Leased
Devil’s Ridge Golf Club
Holly Springs
NC.
Semi-Private Golf Club
Owned
Lochmere Golf Club
Cary
NC.
Semi-Private Golf Club
Owned
Nags Head Golf Links
Nags Head
NC.
Semi-Private Golf Club
Owned
The Neuse Golf Club
Clayton
NC.
Semi-Private Golf Club
Owned
Golden Bear Golf Club at Indigo Run
Hilton Head
SC.
Semi-Private Golf Club
Owned
Live Oak Golf Club
Austin
TX.
Semi-Private Golf Club
Owned
Yaupon Golf Club
Austin
TX.
Semi-Private Golf Club
Owned
Lakelands Golf Club
Gold Coast, Australia
Semi-Private Golf Club
Owned
Links at Port Douglas Golf Club
Port Douglas, Australia
Semi-Private Golf Club
Leased
North Lakes Golf Club
Brisbane, Australia
Semi-Private Golf Club
Owned
Isla Maya Golf Club
Cozumel, Mexico
Semi-Private Golf Club
Joint Venture
Airways Municipal Golf Course
Fresno
CA.
Public Golf
Leased
Aliso Viejo Golf Club
Fresno
CA.
Public Golf
Owned
Empire Ranch Golf Club
Folsom
CA.
Public Golf
Leased
Teal Bend Golf Club
Sacramento
CA.
Public Golf
Leased
Turkey Creek Golf Club
Lincoln
CA.
Public Golf
Leased
Bear’s Best Atlanta
Atlanta
GA.
Public Golf
Joint Venture
Bear’s Best Las Vegas
Las Vegas
NV.
Public Golf
Joint Venture
Bear Creek Golf Club
DFW Airport
TX.
Public Golf
Leased
Resorts
Pinehurst Resort & Country Club
Pinehurst
NC.
Resorts
Owned
Barton Creek Resort
Austin
TX.
Resorts
Owned
The Homestead
Hot Springs
VA.
Resorts
Owned
ANNEX A
LIST OF FACILITIES
Property
Location
Business Type
Ownership
Business & Sports Clubs
Capital City Club - Montgomery
Montgomery
AL.
Business
Leased
Heritage Club
Huntsville
AL.
Business
Leased
Summit Club
Birmingham
AL.
Business
Leased
Center Club - Costa Mesa
Costa Mesa
AZ
Business
Leased
City Club on Bunker Hill
Los Angeles
CA.
Business
Leased
University Club Atop Symphony Towers
San Diego
CA.
Business
Leased
Centre Club - Tampa
Tampa
FL.
Business
Leased
Governors Club
West Palm Beach
FL.
Business
Leased
Tower Club - Ft. Lauderdale
Ft. Lauderdale
FL.
Business
Leased
University Club at Florida State University
Tallahassee
FL.
Business
Joint Venture
Buckhead Club
Atlanta
GA.
Business
Leased
First City Club
Savannah
GA.
Business
Leased
One Ninety One Club
Atlanta
GA.
Business
Leased
Plaza Club - Hawaii
Honolulu
HI.
Business
Leased
410 Club & Conference Center
Chicago
IL.
Business
Managed
Chicago Mercantile Exchange Club
Chicago
IL.
Business
Managed
Metropolitan Club - Chicago
Chicago
IL.
Business
Leased
Plaza Club - Chicago
Chicago
IL.
Business
Leased
Skyline Club - Indianapolis
Indianapolis
IN.
Business
Leased
Jefferson Club - Louisville
Louisville
KY.
Business
Leased
Boston College Club
Boston
MA.
Business
Leased
Renaissance Club - Detroit
Detroit
MI.
Business
Leased
Skyline Club - Southfield
Southfield
MI.
Business
Leased
University Club of Jackson
Jackson
MS.
Business
Leased
Capital City Club - Raleigh
Raleigh
NC.
Business
Leased
Cardinal Club
Raleigh
NC.
Business
Leased
Carolina Club
Chapel Hill
NC.
Business
Managed
Piedmont Club
Winston-Salem
NC
Business
Leased
Bankers Club - Cincinnati
Cincinnati
OH.
Business
Leased
Shoreby Club
Bratenahl
OH.
Business
Managed
Pyramid Club
Philadelphia
PA.
Business
Leased
Capital City Club - Columbia
Columbia
SC.
Business
Leased
Commerce Club
Greenville
SC.
Business
Leased
Harbour Club
Charleston
SC.
Business
Leased
Club Le Conte
Knoxville
TN.
Business
Leased
Crescent Club
Memphis
TN.
Business
Leased
Nashville City Club
Nashville
TN.
Business
Managed
La Cima Club
Irving
TX.
Business
Leased
Plaza Club - Houston
Houston
TX.
Business
Leased
Plaza Club - San Antonio
San Antonio
TX.
Business
Leased
Tower Club - Dallas
Dallas
TX.
Business
Leased
University of Texas Club
Austin
TX.
Business
Leased
Tower Club - Tysons Corner
Vienna
VA.
Business
Leased
Town Point Club
Norfolk
VA.
Business
Leased
Columbia Tower Club
Seattle
WA.
Business
Leased
City Club of Washington
Washington
DC.
Business
Leased
Club at Franklin Square
Washington
DC.
Business
Leased
Capital Club
Beijing, China
Business
Joint Venture
Silicon Valley Capital Club
Fairfield
CA.
Business/Sports
Leased
Citrus Club
Orlando
FL.
Business/Sports
Leased
University Club of Jacksonville
Jacksonville
FL.
Business/Sports
Leased
Ravinia Club *
Atlanta
GA.
Business/Sports
Leased
ANNEX A
LIST OF FACILITIES
Property
Location
Business Type
Ownership
Fairlane Club
Dearborn
MI.
Business/Sports
Managed
Tower Club - Charlotte
Charlotte
NC.
Business/Sports
Leased
Capital Club - Columbus
Columbus
OH.
Business/Sports
Leased
Club at Society Center
Cleveland
OH.
Business/Sports
Leased
Dayton Racquet Club
Cleveland
OH.
Business/Sports
Leased
Rivers Club
Pittsburgh
PA.
Business/Sports
Leased
Greenspoint Club
Houston
TX.
Business/Sports
Owned
Houston Center Club
Houston
TX.
Business/Sports
Leased
Houston City Club
Houston
TX.
Business/Sports
Leased
Houston Metropolitan Racquet Club
Houston
TX.
Business/Sports
Leased
University Club of Houston
Houston
TX.
Business/Sports
Leased
Westlake Club
Houston
TX.
Business/Sports
Leased
Capital Club - Richmond
Richmond
VA.
Business/Sports
Leased
San Francisco Tennis Club
Fairfield
CA.
Sports Club
Owned
Cardio Fitness
Chicago
IL.
Sports Club
Leased
Athletic & Swim Club
New York
NY.
Sports Club
Leased
Le Club
Milwaukee
WI.
Sports Club
Owned