ClubCorp Holdings, Inc. - FORM 10-Q - October 13, 2016

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-Q
 
x        Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the quarterly period ended September 6, 2016.
 
or
 
o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from             to           
 
Commission File Number 001-36074
 
ClubCorp Holdings, Inc.
(Exact name of registrant as specified in its charter)
Nevada
 
20-5818205
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3030 LBJ Freeway, Suite 600
 
 
Dallas, Texas
 
75234
(Address of principal executive offices)
 
(Zip Code)
(972) 243-6191
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  x No o  
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x  No o 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer x
 
Accelerated filer o
 
 
 
Non-accelerated filer o
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x 

As of October 7, 2016, the registrant had 65,514,580 shares of common stock outstanding, with a par value of $0.01.
 



TABLE OF CONTENTS
 
 
 
Page
 
 
 
 
 
 

 
 
 

 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



PART I

ITEM 1. FINANCIAL STATEMENTS

CLUBCORP HOLDINGS, INC. 

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

For the Twelve and Thirty-Six Weeks Ended September 6, 2016 and September 8, 2015

(In thousands, except per share amounts)
 
Twelve Weeks Ended
 
Thirty-Six Weeks Ended
 
September 6, 2016
 
September 8, 2015
 
September 6, 2016
 
September 8, 2015
REVENUES:
 


 

 
 
 
 
Club operations
$
192,142

 
$
189,705

 
$
542,034

 
$
526,966

Food and beverage
66,397

 
65,102

 
198,194

 
191,785

Other revenues
793

 
553

 
2,951

 
2,428

Total revenues
259,332

 
255,360

 
743,179

 
721,179







 
 
 
 
DIRECT AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
 


 

 
 
 
 
Club operating costs exclusive of depreciation
169,555

 
168,542

 
482,066

 
474,774

Cost of food and beverage sales exclusive of depreciation
23,478

 
23,191

 
67,816

 
65,317

Depreciation and amortization
25,169

 
24,562

 
73,738

 
71,616

Provision for doubtful accounts
1,303

 
1,373

 
2,387

 
1,876

Loss on disposals of assets
1,071

 
3,587

 
6,726

 
13,309

Impairment of assets
1,798

 
1,044

 
2,298

 
2,114

Equity in (earnings) loss from unconsolidated ventures
(1,193
)
 
479

 
(3,296
)
 
934

Selling, general and administrative
15,375

 
15,348

 
52,585

 
49,969

OPERATING INCOME
22,776

 
17,234

 
58,859

 
41,270







 
 
 
 
Interest and investment income
161

 
2,139

 
414

 
3,816

Interest expense
(20,172
)
 
(16,170
)
 
(60,530
)
 
(48,587
)
INCOME (LOSS) BEFORE INCOME TAXES
2,765

 
3,203

 
(1,257
)
 
(3,501
)
INCOME TAX (EXPENSE) BENEFIT
(1,583
)
 
(2,018
)
 
(124
)
 
187

NET INCOME (LOSS)
1,182

 
1,185

 
(1,381
)
 
(3,314
)
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
6

 
67

 
(266
)
 
148

NET INCOME (LOSS) ATTRIBUTABLE TO CLUBCORP
$
1,188

 
$
1,252

 
$
(1,647
)
 
$
(3,166
)






 
 
 
 
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC
64,530

 
64,621

 
64,507

 
64,350

WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED
64,656

 
64,903

 
64,507

 
64,350





 
 
 
 
INCOME (LOSS) PER COMMON SHARE:



 
 
 
 
Net income (loss) attributable to ClubCorp, Basic
$
0.02

 
$
0.02

 
$
(0.03
)
 
$
(0.05
)
Net income (loss) attributable to ClubCorp, Diluted
$
0.02

 
$
0.02

 
$
(0.03
)
 
$
(0.05
)
 
 
 
 
 
 
 
 
Cash dividends declared per common share
$
—

 
$
0.26

 
$
0.26

 
$
0.39

 

See accompanying notes to unaudited consolidated condensed financial statements

3


CLUBCORP HOLDINGS, INC. 

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

For the Twelve and Thirty-Six Weeks Ended September 6, 2016 and September 8, 2015

(In thousands of dollars)
 
Twelve Weeks Ended
 
Thirty-Six Weeks Ended
 
September 6, 2016
 
September 8, 2015
 
September 6, 2016
 
September 8, 2015
NET INCOME (LOSS)
$
1,182

 
$
1,185

 
$
(1,381
)
 
$
(3,314
)
Foreign currency translation
(325
)
 
(2,196
)
 
(1,185
)
 
(3,463
)
OTHER COMPREHENSIVE LOSS
(325
)
 
(2,196
)
 
(1,185
)
 
(3,463
)
COMPREHENSIVE INCOME (LOSS)
857

 
(1,011
)
 
(2,566
)
 
(6,777
)
COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
6

 
67

 
(266
)
 
148

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLUBCORP
$
863

 
$
(944
)
 
$
(2,832
)
 
$
(6,629
)
 

See accompanying notes to unaudited consolidated condensed financial statements


4


CLUBCORP HOLDINGS, INC.

UNAUDITED CONSOLIDATED CONDENSED BALANCE SHEETS

As of September 6, 2016 and December 29, 2015

(In thousands of dollars, except share and per share amounts)
 
September 6, 2016
 
December 29, 2015
ASSETS
 

 
 

CURRENT ASSETS:
 

 
 

Cash and cash equivalents
$
92,087

 
$
116,347

Receivables, net of allowances of $5,936 and $5,509 at September 6, 2016 and December 29, 2015, respectively
109,198

 
68,671

Inventories
24,156

 
20,929

Prepaids and other assets
19,926

 
19,907

Total current assets
245,367

 
225,854

Investments
1,839

 
3,005

Property and equipment, net (includes $9,418 and $9,245 related to VIEs at September 6, 2016 and December 29, 2015, respectively)
1,555,100

 
1,534,520

Notes receivable, net of allowances of $663 and $805 at September 6, 2016 and December 29, 2015, respectively
7,888

 
7,448

Goodwill
312,811

 
312,811

Intangibles, net
29,733

 
31,252

Other assets
15,980

 
16,634

Long-term deferred tax asset
3,727

 
3,727

TOTAL ASSETS
$
2,172,445

 
$
2,135,251

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Current maturities of long-term debt
$
18,725

 
$
20,414

Membership initiation deposits - current portion
164,880

 
152,996

Accounts payable
29,277

 
39,487

Accrued expenses
43,164

 
37,441

Accrued taxes
15,684

 
15,473

Other liabilities
98,907

 
69,192

Total current liabilities
370,637

 
335,003

Long-term debt (includes $13,128 and $13,026 related to VIEs at September 6, 2016 and December 29, 2015, respectively)
1,090,735

 
1,079,320

Membership initiation deposits
204,870

 
204,305

Deferred tax liability, net
211,655

 
214,184

Other liabilities (includes $24,030 and $23,312 related to VIEs at September 6, 2016 and December 29, 2015, respectively)
130,780

 
123,657

Total liabilities
2,008,677

 
1,956,469

Commitments and contingencies (See Note 15)


 


 
 
 
 
EQUITY
 

 
 

Common stock, $0.01 par value, 200,000,000 shares authorized; 65,541,269 and 64,740,736 issued and outstanding at September 6, 2016 and December 29, 2015, respectively
655

 
647

Additional paid-in capital
250,733

 
263,921

Accumulated other comprehensive loss
(8,434
)
 
(7,249
)
Accumulated deficit
(87,484
)
 
(88,955
)
Treasury stock, at cost (129,445 shares at September 6, 2016)
(1,537
)
 
—

Total stockholders’ equity
153,933

 
168,364

Noncontrolling interests in consolidated subsidiaries and variable interest entities
9,835

 
10,418

Total equity
163,768

 
178,782

TOTAL LIABILITIES AND EQUITY
$
2,172,445

 
$
2,135,251


See accompanying notes to unaudited consolidated condensed financial statements

5


CLUBCORP HOLDINGS, INC.

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

For the Thirty-Six Weeks Ended September 6, 2016 and September 8, 2015

(In thousands of dollars)
 
Thirty-Six Weeks Ended
 
September 6, 2016
 
September 8, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

Net loss
$
(1,381
)
 
$
(3,314
)
Adjustments to reconcile net loss to cash flows from operating activities:
 

 
 

Depreciation
72,360

 
69,577

Amortization
1,378

 
2,040

Asset impairments
2,298

 
2,114

Bad debt expense
2,387

 
1,937

Equity in (earnings) loss from unconsolidated ventures
(3,296
)
 
934

Gain on investment in unconsolidated ventures
—

 
(3,507
)
Distribution from investment in unconsolidated ventures
3,962

 
4,035

Loss on disposals of assets
6,726

 
13,309

Debt issuance costs and term loan discount
3,448

 
3,284

Accretion of discount on member deposits
13,863

 
14,063

Equity-based compensation
4,877

 
3,510

Net change in deferred tax assets and liabilities
(214
)
 
(4,738
)
Net change in prepaid expenses and other assets
(3,700
)
 
(3,451
)
Net change in receivables and membership notes
(34,071
)
 
(29,269
)
Net change in accounts payable and accrued liabilities
(5,169
)
 
(1,967
)
Net change in other current liabilities
36,267

 
34,555

Net change in other long-term liabilities
(1,864
)
 
(4,498
)
Net cash provided by operating activities
97,871

 
98,614

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

Purchase of property and equipment
(73,528
)
 
(76,110
)
Acquisition of clubs
(9,793
)
 
(55,877
)
Proceeds from dispositions
36

 
578

Proceeds from insurance
4,434

 
—

Net change in restricted cash and capital reserve funds
474

 
(63
)
Net cash used in investing activities
(78,377
)
 
(131,472
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

Repayments of long-term debt
(49,343
)
 
(12,046
)
Proceeds from new debt borrowings
37,000

 
—

Repayments of revolving credit facility borrowings
—

 
(10,000
)
Proceeds from revolving credit facility borrowings
—

 
57,000

Debt issuance and modification costs
(2,295
)
 
(1,493
)
Dividends to owners
(25,477
)
 
(25,183
)
Repurchases of common stock
(1,537
)
 
—

Share repurchases for tax withholdings related to certain equity-based awards
(226
)
 
(1,443
)
Distributions to noncontrolling interest
(849
)
 
(1,071
)
Proceeds from new membership initiation deposits
115

 
520

Repayments of membership initiation deposits
(1,550
)
 
(1,078
)
Net cash (used in) provided by financing activities
(44,162
)
 
5,206

EFFECT OF EXCHANGE RATE CHANGES ON CASH
408

 
(262
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
(24,260
)
 
(27,914
)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
116,347

 
75,047

CASH AND CASH EQUIVALENTS - END OF PERIOD
$
92,087

 
$
47,133

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
Cash paid for interest
$
33,530

 
$
31,432

Cash paid for income taxes
$
3,363

 
$
4,515

Non-cash investing and financing activities are as follows:
 
 
 
Capital lease
$
21,434

 
$
20,881


See accompanying notes to unaudited consolidated condensed financial statements

6


CLUBCORP HOLDINGS, INC.

UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN EQUITY

For the Thirty-Six Weeks Ended September 6, 2016 and September 8, 2015

(In thousands of dollars, except share amounts)
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Accumulated Deficit
 
Treasury Stock
 
Noncontrolling
Interests in
Consolidated
Subsidiaries
 
Total
 
Shares
 
Amount
 
 
 
 
Shares
 
Amount
 
 
BALANCE - December 30, 2014
64,443,332

 
$
644

 
$
293,006

 
$
(4,290
)
 
$
(79,443
)
 
—

 
$
—

 
$
10,942

 
$
220,859

Issuance of shares related to equity-based compensation, net of forfeitures and shares withheld for taxes
301,215

 
3

 
(1,446
)
 
—

 
—

 
—

 
—

 
—

 
(1,443
)
Dividends to owners declared
—

 
—

 
(25,247
)
 
—

 
—

 
—

 
—

 
—

 
(25,247
)
Equity-based compensation expense
—

 
—

 
3,510

 
—

 
—

 
—

 
—

 
—

 
3,510

Net loss
—

 
—

 
—

 
—

 
(3,166
)
 
—

 
—

 
(148
)
 
(3,314
)
Other comprehensive loss
—

 
—

 
—

 
(3,463
)
 
—

 
—

 
—

 
—

 
(3,463
)
Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(1,071
)
 
(1,071
)
BALANCE - September 8, 2015
64,744,547

 
$
647

 
$
269,823

 
$
(7,753
)
 
$
(82,609
)
 
—

 
$
—

 
$
9,723

 
$
189,831

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
BALANCE - December 29, 2015
64,740,736

 
$
647

 
$
263,921

 
$
(7,249
)
 
$
(88,955
)
 
—

 
$
—

 
$
10,418

 
$
178,782

Cumulative effect adjustment from adoption of accounting guidance
—

 
—

 
(803
)
 
—

 
3,118

 
—

 
—

 
—

 
2,315

Issuance of shares related to equity-based compensation, net of forfeitures and shares withheld for taxes
800,533

 
8

 
(234
)
 
—

 
—

 
—

 
—

 
—

 
(226
)
Dividends to owners declared
—

 
—

 
(17,028
)
 
—

 
—

 
—

 
—

 
—

 
(17,028
)
Equity-based compensation expense
—

 
—

 
4,877

 
—

 
—

 
—

 
—

 
—

 
4,877

Net (loss) income
—

 
—

 
—

 
—

 
(1,647
)
 
—

 
—

 
266

 
(1,381
)
Other comprehensive loss
—

 
—

 
—

 
(1,185
)
 
—

 
—

 
—

 
—

 
(1,185
)
Repurchase of common stock
—

 
—

 
—

 
—

 
—

 
(129,445
)
 
(1,537
)
 
—

 
(1,537
)
Distributions to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(849
)
 
(849
)
BALANCE - September 6, 2016
65,541,269

 
$
655

 
$
250,733

 
$
(8,434
)
 
$
(87,484
)
 
(129,445
)
 
$
(1,537
)
 
$
9,835

 
$
163,768



See accompanying notes to unaudited consolidated condensed financial statements



7


NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
 
(dollar amounts in thousands, except per share amounts or unless otherwise indicated)
 
1. ORGANIZATION AND DESCRIPTION OF THE BUSINESS
 
ClubCorp Holdings, Inc. (“Holdings”) and its wholly owned subsidiaries CCA Club Operations Holdings, LLC (“Operations’ Parent”) and ClubCorp Club Operations, Inc. (“Operations” and, together with Holdings and Operations’ Parent, “ClubCorp”) were formed on November 10, 2010, as part of a reorganization of ClubCorp, Inc. (“CCI”), which was effective as of November 30, 2010, for the purpose of operating and managing golf and country clubs and business, sports and alumni clubs. ClubCorp, together with its subsidiaries, may be referred to as “we”, “us”, “our” or the “Company”.

As of September 6, 2016, we own, lease or operate through joint ventures 151 golf and country clubs and manage nine golf and country clubs. Likewise, we own, lease or operate through a joint venture 45 business, sports and alumni clubs and manage three business, sports and alumni clubs. Our facilities are located in 26 states, the District of Columbia and two foreign countries.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation—The consolidated condensed financial statements reflect the consolidated operations of ClubCorp, its wholly and majority owned subsidiaries and certain variable interest entities (“VIEs”) for which we are deemed to be the primary beneficiary. The consolidated condensed financial statements presented herein reflect our financial position, results of operations, cash flows and changes in equity in conformity with accounting principles generally accepted in the United States, or “GAAP”. All intercompany accounts have been eliminated. Immaterial amounts relating to Loss from discontinued operations have been reclassified to Interest and investment income for the prior year.

Investments in certain unconsolidated affiliates are accounted for by the equity method. See Note 4.
We have entered into agreements with third-party owners of clubs to act as a managing agent and provide certain services to the third party club owner in exchange for a management fee. The operations of managed clubs are not consolidated. We recognize the contractual management fees as revenue when earned. Additionally, we recognize reimbursements for certain costs of operations at certain managed clubs as revenue.
The accompanying consolidated condensed financial statements are unaudited. Certain information and footnote disclosures normally included in financial statements presented in accordance with GAAP have been omitted from the accompanying financial statements. We believe the disclosures made are adequate to make the information presented not misleading. However, the financial statements should be read in conjunction with the consolidated condensed financial statements and notes thereto for the year ended December 29, 2015.

We believe that the accompanying consolidated condensed financial statements reflect all adjustments, including normal recurring items, considered necessary for a fair presentation of the interim periods. Interim results are not necessarily indicative of fiscal year performance because of the impact of seasonal and short-term variations and other factors such as timing of acquisitions and dispositions of facilities.

We have two reportable segments: (1) golf and country clubs and (2) business, sports and alumni clubs. These segments are managed separately and discrete financial information, including Adjusted EBITDA (“Adjusted EBITDA”), a key financial measurement of segment profit and loss, is reviewed regularly by our chief operating decision maker to evaluate performance and allocate resources. See Note 12.

Use of Estimates—The preparation of financial statements in conformity with GAAP requires us to make estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes. Actual results could differ materially from such estimated amounts.

Revenue Recognition—Revenues from club operations, food and beverage and merchandise sales are recognized at the time of sale or when the service is provided and are reported net of sales taxes. Revenues from membership dues are generally billed monthly and recognized in the period earned.
 

8


At a majority of our private clubs, members are expected to pay an initiation fee or deposit upon their acceptance as a member to the club. In general, initiation fees are not refundable, whereas initiation deposits are not refundable until a fixed number of years (generally 30) after the date of acceptance of a member. We recognize revenue related to membership initiation fees and deposits over the expected life of an active membership.

For membership initiation deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized within club operations revenue over the expected life of an active membership. The present value of the refund obligation is recorded as a membership initiation deposit liability and accretes over the non-refundable term using the effective interest method with an interest rate defined as our incremental borrowing rate adjusted to reflect a 30-year time frame. The accretion is included in interest expense.

The majority of membership initiation fees received are not refundable and are deferred and recognized within club operations revenue on the consolidated condensed statements of operations over the expected life of an active membership.

The expected lives of active memberships are calculated annually using historical attrition rates. Periods in which attrition rates differ significantly from enrollment rates could have a material effect on our consolidated condensed financial statements by decreasing or increasing the expected lives of active memberships, which in turn would affect the length of time over which we recognize initiation fee and deposit revenues. During the thirty-six weeks ended September 6, 2016 and September 8, 2015, our estimated expected lives ranged from one to 20 years; the weighted-average expected life of a golf and country club membership was approximately seven years and the expected life of a business, sports and alumni club membership was approximately three years.

Membership initiation payments recognized within club operations revenue on the consolidated condensed statements of operations were $3.3 million and $3.3 million for the twelve weeks ended September 6, 2016 and September 8, 2015, respectively, and $9.8 million and $9.5 million for the thirty-six weeks ended September 6, 2016 and September 8, 2015, respectively.

Recently Issued Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-9 (“ASU 2014-9”), Revenue from Contracts with Customers. ASU 2014-9 requires revenue recognition to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for some costs to obtain or fulfill a contract with a customer, as well as enhanced disclosure requirements. In August 2015, the FASB issued Accounting Standards Update No. 2015-14 which deferred the effective date of ASU 2014-9 to fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2017. In March 2016, the FASB issued Accounting Standards Update No. 2016-8 (“ASU 2016-8”) which clarified the revenue recognition implementation guidance on principal versus agent considerations and is effective during the same period as ASU 2014-9. In April 2016, the FASB issued Accounting Standards Update No. 2016-10 (“ASU 2016-10”) which clarified the revenue recognition guidance regarding the identification of performance obligations and the licensing implementation and is effective during the same period as ASU 2014-9. In May 2016, the FASB issued Accounting Standards Update No. 2016-12 (“ASU 2016-12”) which narrowly amended the revenue recognition guidance regarding collectability, noncash consideration, presentation of sales tax and transition. ASU 2016-12 is effective during the same period as ASU 2014-9. We are still evaluating the impact that our adoption of ASU 2014-9, ASU 2016-8, ASU 2016-10 and ASU 2016-12 will have on our consolidated financial position and results of operations.

In August 2014, the FASB issued Accounting Standards Update No. 2014-15 (“ASU 2014-15”), Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. ASU 2014-15 provides guidance on management’s responsibility to perform interim and annual assessments of an entity’s ability to continue as a going concern and to provide related disclosure requirements. We adopted ASU 2014-15 during the twelve weeks ended March 22, 2016. Our adoption did not have a material impact on our consolidated condensed financial statements.

In February 2015, the FASB issued Accounting Standards Update No. 2015-2 (“ASU 2015-2”), Consolidation (Topic 810)–Amendments to the Consolidation Analysis. ASU 2015-2 applies to entities in all industries and provides a new scope exception to registered money market funds and similar unregistered money market funds. It makes targeted amendments
to existing consolidation guidance and ends the deferral granted to investment companies from applying the VIE guidance. The targeted changes are designed to address most of the concerns of the asset management industry. However, entities across all industries will be impacted, particularly those that use limited partnerships. We adopted ASU 2015-2 during the twelve weeks

9


ended March 22, 2016. Our adoption did not have a material impact on our consolidated financial position or results of operations.

In April 2015, the FASB issued Accounting Standards Update No. 2015-3 (“ASU 2015-3”), Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. ASU 2015-3 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. We adopted ASU 2015-3 during the twelve weeks ended March 22, 2016 and applied it retrospectively. As a result, we have recast the December 29, 2015 consolidated condensed balance sheet to conform to the current period presentation. In August 2015, the FASB issued Accounting Standards Update No. 2015-15 (“ASU 2015-15”), Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements, confirming that fees related to revolving credit facility arrangements are not addressed in ASU 2015-03. The adoption of this standard reduced previously-presented Other Assets and Long-term Debt by $13.0 million each. Debt issuance costs associated with our revolving credit facility are recorded within Other Assets for all periods presented.

In September 2015, the FASB issued Accounting Standards Update No. 2015-16 (“ASU 2015-16”), Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. We adopted ASU 2015-16 during the twelve weeks ended March 22, 2016. Our adoption did not have a material impact on our consolidated financial position or results of operations.

In November 2015, the FASB issued Accounting Standards Update No. 2015-17 (“ASU 2015-17”), Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes. ASU 2015-17 requires that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. We adopted ASU 2015-17 during the twelve weeks ended March 22, 2016 and applied it retrospectively. As a result, we have recast the December 29, 2015 consolidated condensed balance sheet to conform to the current period presentation. The adoption of this standard decreased previously-presented Deferred tax assets, net and decreased Deferred tax liabilities, net by $22.6 million each. Additionally, Deferred tax assets, net are now classified as non-current.

In February 2016, the FASB issued Accounting Standards Update No. 2016-2 (“ASU 2016-2”), Leases (Topic 842). ASU 2016-2 requires the recognition of lease assets and lease liabilities by lessees for leases classified as operating leases under previous GAAP; however, ASU 2016-2 retains a distinction between finance leases and operating leases. The classification criteria for distinguishing between finance leases and operating leases are substantially similar to the classification criteria for distinguishing between capital leases and operating leases in the previous leases guidance. The result of retaining a distinction between finance leases and operating leases is that the effect of leases in the statement of comprehensive income and the statement of cash flows is largely unchanged from previous GAAP. ASU 2016-2 is effective for fiscal years, and interim reporting periods within those fiscal years, beginning after December 15, 2018. We are still evaluating the impact that our adoption of ASU 2016-2 will have on our consolidated financial position and results of operations.

In March 2016, the FASB issued Accounting Standards Update No. 2016-9 (“ASU 2016-9”), Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. ASU 2016-9 simplifies the accounting for several aspects of the accounting for equity-based compensation, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. We adopted ASU 2016-9 in the twelve weeks ended March 22, 2016. In accordance with the ASU, all excess tax benefits and tax deficiencies are recognized as income tax expense or benefit in the income statement and we have made a policy election to account for forfeitures in the period they occur, rather than estimating a forfeiture rate. Applying this guidance on a modified retrospective basis resulted in a decrease to Accumulated deficit of $3.1 million, a decrease to Additional paid-in-capital of $0.8 million and a decrease to Deferred tax liabilities of $2.3 million.

In June 2016, the FASB issued Accounting Standards Update No. 2016-13 (“ASU 2016-13”), Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires that financial assets measured at amortized cost be presented at the net amount expected to be collected. The allowance for credit losses is a valuation account that is deducted from the amortized cost basis. The income statement reflects the measurement of credit losses for newly recognized financial assets, as well as the expected credit losses during the period. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. ASU 2016-13 will become effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years. The Company is currently evaluating the impact of the guidance on its consolidated financial position and results of operations.


10


3. VARIABLE INTEREST ENTITIES
 
Consolidated VIEs include three managed golf course properties and certain realty interests which we define as “Non-Core Development Entities”. We have determined we are the primary beneficiary of these VIEs as we have the obligation to absorb the majority of losses from and direct activities of these operations. One of these managed golf course property VIEs is financed through a loan payable of $0.7 million collateralized by assets of the entity totaling $3.9 million as of September 6, 2016. The other managed golf course property VIEs are financed through advances from us. Outstanding advances as of September 6, 2016 total $4.7 million compared to recorded assets of $7.1 million. The VIE related to the Non-Core Development Entities is financed through notes which are payable through cash proceeds related to the sale of certain real estate held by the Non-Core Development Entities. Recourse of creditors to these VIEs is limited to the assets of the VIE entities, which total $11.8 million and $11.3 million at September 6, 2016 and December 29, 2015, respectively.

The following summarizes the carrying amount and classification of the VIEs’ assets and liabilities in the consolidated balance sheets as of September 6, 2016 and December 29, 2015, net of intercompany amounts:
 
 
September 6, 2016
 
December 29, 2015
Current assets
$
1,538

 
$
1,201

Fixed assets, net
9,418

 
9,245

Other assets
844

 
839

Total assets
$
11,800

 
$
11,285

 
 
 
 
Current liabilities
$
1,465

 
$
1,228

Long-term debt
13,128

 
13,026

Other long-term liabilities
24,568

 
23,817

Noncontrolling interest
5,459

 
5,619

Company capital
(32,820
)
 
(32,405
)
Total liabilities and equity
$
11,800

 
$
11,285

  
4. INVESTMENTS
 
We have an equity method investment in one active golf and country club joint venture with a carrying value of $0.4 million and $0.5 million at September 6, 2016 and December 29, 2015, respectively. Our share of earnings in the equity investment is included in equity in (earnings) loss from unconsolidated ventures in the consolidated condensed statements of operations.

We also have an equity method investment of 10.2% in Avendra, LLC, a purchasing cooperative of hospitality companies. The carrying value of the investment was $1.4 million and $2.0 million at September 6, 2016 and December 29, 2015, respectively. Our share of earnings in the equity investment is included in equity in (earnings) loss from unconsolidated ventures in the consolidated condensed statements of operations. Additionally, we recognized $2.0 million and $3.5 million of return on our equity investment in Avendra within interest and investment income during the twelve and thirty-six weeks ended September 8, 2015, respectively. No return on our equity investment in Avendra was recorded during the twelve and thirty-six weeks ended September 6, 2016. All cash distributions from our equity investment are reported as distribution from investment in unconsolidated ventures within the operating section of our consolidated condensed statements of cash flows.

We also have contractual agreements with the Avendra joint venture to provide procurement services for our clubs for which we received net volume rebates and allowances totaling $0.0 million and $2.9 million during the twelve and thirty-six weeks ended September 6, 2016, respectively, and $0.0 million and $2.5 million during the twelve and thirty-six weeks ended September 8, 2015, respectively.


11


5. FAIR VALUE
 
GAAP establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The three levels of inputs are defined as follows:
 
Level 1—unadjusted quoted prices for identical assets or liabilities in active markets accessible by the Company;
 
Level 2—inputs that are observable in the marketplace other than those inputs classified as Level 1; and
 
Level 3—inputs that are unobservable in the marketplace and significant to the valuation.
 
We maximize the use of observable inputs and minimize the use of unobservable inputs. If a financial instrument uses inputs that fall in different levels of the hierarchy, the instrument is categorized based upon the lowest level of input that is significant to the fair value calculation. We recognize transfers between levels of the fair value hierarchy on the date of the change in circumstances that caused the transfer.

Fair Value of Financial Instruments
Debt—We estimate the fair value of our debt obligations, excluding capital lease obligations and loan origination fees, as follows, as of September 6, 2016 and December 29, 2015:
 
 
September 6, 2016
 
December 29, 2015
 
Recorded Value
 
Fair Value
 
Recorded Value
 
Fair Value
Level 2 (1)
$
1,019,983

 
$
1,048,500

 
$
1,019,511

 
$
1,020,625

Level 3
50,540

 
41,550

 
49,952

 
40,794

Total
$
1,070,523

 
$
1,090,050

 
$
1,069,463

 
$
1,061,419

______________________

(1)
The recorded value for Level 2 debt obligations is presented net of the $5.0 million and $5.5 million discount as of September 6, 2016 and December 29, 2015, respectively, on the Secured Credit Facilities, as defined in Note 9.

The 2015 Senior Notes and borrowings under the Secured Credit Facilities, as both are defined in Note 9, are considered Level 2. We use quoted prices for identical or similar liabilities to value debt obligations classified as Level 2. All other debt obligations are considered Level 3. We use adjusted quoted prices for similar liabilities to value debt obligations classified as Level 3. Key inputs include: (1) the determination that certain other debt obligations are similar, (2) nonperformance risk, and (3) interest rates. Changes or fluctuations in these assumptions and valuations will result in different estimates of value. The use of different techniques to determine the fair value of these debt obligations could result in different estimates of fair value at the reporting date.

The carrying value of financial instruments including cash, cash equivalents, receivables, notes receivable, accounts payable and other short-term and long-term assets and liabilities approximate their fair values as of September 6, 2016 and December 29, 2015.

Assets and Liabilities Measured at Fair Value on a Non-recurring Basis

Our assets and liabilities measured at fair value on a non-recurring basis include equity method investments, property and equipment, mineral rights, goodwill, trade names, liquor licenses, management contracts and other assets and liabilities recorded during business combinations. Assets and liabilities from business combinations were recorded on our consolidated condensed balance sheets at fair value at the date of acquisition. The key assumptions used in determining these values are considered Level 3 measurements.


12


Property and Equipment—We recognized impairment losses to property and equipment of $0.9 million during the twelve and thirty-six weeks ended September 6, 2016 and $0.8 million and $1.8 million during the twelve and thirty-six weeks ended September 8, 2015, respectively, to adjust the carrying amount of certain property and equipment to its fair value of zero, due to continued and projected lower operating results as well as changes in the expected holding period of certain fixed assets. The valuation methods used to determine fair value included an evaluation of the sales price of comparable real estate properties, a sales comparison approach, an analysis of discounted future cash flows using a risk-adjusted discount rate, an income approach, and consideration of historical cost adjusted for economic obsolescence, a cost approach. The fair value calculations associated with these valuations are classified as Level 3 measurements.

Investments and Other Assets—We evaluate our investments and other assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through future cash flows. We recognized impairment losses to investments and other assets of $0.7 million and $1.2 million during the twelve and thirty-six weeks ended September 6, 2016, respectively, to adjust the carrying amount of certain assets to their fair value of zero. There were no impairments recorded to these assets during the twelve and thirty-six weeks ended September 8, 2015.

6. PROPERTY AND EQUIPMENT
 
Property and equipment, including capital lease assets, at cost consists of the following at September 6, 2016 and December 29, 2015:

 
September 6, 2016
 
December 29, 2015
Land and non-depreciable land improvements
$
602,914

 
$
600,819

Depreciable land improvements
490,420

 
478,352

Buildings and recreational facilities
530,274

 
511,124

Machinery and equipment
291,086

 
264,129

Leasehold improvements
114,509

 
111,184

Furniture and fixtures
104,891

 
97,459

Construction in progress
18,417

 
13,413

 
2,152,511

 
2,076,480

Accumulated depreciation
(597,411
)
 
(541,960
)
Total
$
1,555,100

 
$
1,534,520


We evaluate property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through future cash flows. See Note 5.

We received insurance proceeds of $4.4 million related to rain and flooding events that occurred during the thirty-six weeks ended September 6, 2016, damaging certain property and equipment. These proceeds were recognized within Loss on disposals of assets.


13


7. GOODWILL AND INTANGIBLE ASSETS
 
Goodwill and other intangible assets consist of the following at September 6, 2016 and December 29, 2015:
 
 
 
 
September 6, 2016
 
December 29, 2015
Asset
Useful
Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Intangible assets with indefinite lives:
 
 
 

 
 

 
 

 
 

 
 

 
 

Trade names
 
 
$
24,790

 


 
$
24,790

 
$
24,790

 


 
$
24,790

Liquor Licenses
 
 
2,152

 


 
2,152

 
2,068

 


 
2,068

Intangible assets with finite lives:
 
 
 

 
 

 
 

 
 

 
 

 
 

Member Relationships
3-7 years
 
2,866

 
$
(2,354
)
 
512

 
2,866

 
$
(1,907
)
 
959

Management Contracts
1-10 years
 
3,580

 
(1,301
)
 
2,279

 
3,959

 
(988
)
 
2,971

Trade names
2 years
 
$
—

 
$
—

 
$
—

 
$
1,100

 
$
(636
)
 
$
464

Total
 
 
$
33,388

 
$
(3,655
)
 
$
29,733

 
$
34,783

 
$
(3,531
)
 
$
31,252

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
 
$
312,811

 
 
 
$
312,811

 
$
312,811

 
 
 
$
312,811

 
Intangible Assets—Intangible asset amortization expense was $0.3 million and $0.7 million for the twelve weeks ended September 6, 2016 and September 8, 2015, respectively, and $1.4 million and $2.0 million for the thirty-six weeks ended September 6, 2016 and September 8, 2015, respectively. We recognized impairment losses to intangible assets of $0.2 million and $0.3 million during the twelve and thirty-six weeks ended September 6, 2016 and September 8, 2015, respectively. We retired fully amortized trade name intangible assets and the related amortization of $0.0 million and $1.1 million during the twelve and thirty-six weeks ended September 6, 2016.

For each of the five years subsequent to 2015 and thereafter the amortization expense is expected to be as follows:
Year
Amount
Remainder of 2016
$
385

2017
699

2018
582

2019
347

2020
212

Thereafter
566

Total
$
2,791

        
Goodwill—The following table shows goodwill activity by reporting unit. No impairments have been recorded for either reporting unit.
 
Golf & Country Clubs
 
Business, Sports & Alumni Clubs
 
Total
December 29, 2015
$
167,460

 
$
145,351

 
$
312,811

September 6, 2016
$
167,460

 
$
145,351

 
$
312,811



14


8. CURRENT AND LONG-TERM LIABILITIES
 
Current liabilities consist of the following at September 6, 2016 and December 29, 2015:

 
September 6, 2016
 
December 29, 2015
Accrued compensation
$
22,345

 
$
27,247

Accrued interest
12,468

 
2,618

Other accrued expenses
8,351

 
7,576

Total accrued expenses
$
43,164

 
$
37,441

 
 
 
 
Taxes payable other than federal income taxes (1)
$
15,684

 
$
15,473

Total accrued taxes
$
15,684

 
$
15,473

 
 
 
 
Advance event and other deposits
$
34,720

 
$
18,708

Unearned dues
36,521

 
14,225

Deferred membership revenues
12,300

 
12,175

Insurance reserves
11,267

 
11,317

Dividends to owners declared, but unpaid
85

 
8,467

Other current liabilities
4,014

 
4,300

Total other current liabilities
$
98,907

 
$
69,192

______________________

(1)
We had no federal income taxes payable as of September 6, 2016 and December 29, 2015.

Other long-term liabilities consist of the following at September 6, 2016 and December 29, 2015:

 
September 6, 2016
 
December 29, 2015
Uncertain tax positions
$
7,663

 
$
7,343

Deferred membership revenues
46,233

 
45,960

Casualty insurance loss reserves - long-term portion
16,431

 
14,659

Above market lease intangibles
282

 
352

Deferred rent
32,994

 
29,250

Accrued interest on notes payable related to Non-Core Development Entities
23,971

 
23,236

Other
3,206

 
2,857

Total other long-term liabilities
$
130,780

 
$
123,657



15


9. DEBT AND CAPITAL LEASES

Secured Credit Facilities

Secured Credit Facilities—In 2010, Operations entered into the credit agreement governing the secured credit facilities (the “Secured Credit Facilities”). The credit agreement governing the Secured Credit Facilities was subsequently amended in 2012, 2013, 2014 and 2015. On January 25, 2016, Operations entered into a ninth amendment to the credit agreement to replace the existing revolving credit facility with a new revolving credit facility, with a capacity of $175.0 million, maturing on January 25, 2021. As of September 6, 2016, the Secured Credit Facilities are comprised of (i) a $675.0 million term loan facility, and (ii) a revolving credit facility with capacity of $175.0 million and $145.0 million available for borrowing, after deducting $30.0 million of standby letters of credit outstanding. In addition, the credit agreement governing the Secured Credit Facilities includes capacity which provides, subject to lender participation, for additional borrowings in revolving or term loan commitments of $125.0 million, and additional borrowings thereafter so long as a senior secured leverage ratio (the “Senior Secured Leverage Ratio”) does not exceed 3.50:1.00.
    
As of September 6, 2016, the interest rate on the term loan facility is a variable rate calculated as the higher of (i) 4.25% or (ii) an elected LIBOR plus a margin of 3.25% and the maturity date of the term loan facility is December 15, 2022. Refer also to Note 17.

As of September 6, 2016, the revolving credit commitments mature on January 25, 2021 and borrowings thereunder bear interest at a rate of LIBOR plus a margin of 3.0% per annum. We are required to pay a commitment fee on all undrawn amounts under the revolving credit facility and a fee on all outstanding letters of credit, payable quarterly in arrears.

As long as commitments are outstanding under the revolving credit facility, we are subject to limitations on the Senior Secured Leverage Ratio and a total leverage ratio (the “Total Leverage Ratio”). The Senior Secured Leverage Ratio is defined as the ratio of Operations’ Consolidated Senior Secured Debt (exclusive of the Senior Notes) to Consolidated EBITDA (disclosed as Adjusted EBITDA and defined in Note 12) and is calculated on a pro forma basis, giving effect to current period acquisitions as though they had been consummated on the first day of the period presented. The Total Leverage Ratio is defined as the ratio of Operations’ Consolidated Total Debt (including the Senior Notes) to Consolidated EBITDA and is also calculated on a pro forma basis. The credit agreement governing the Secured Credit Facilities requires us to maintain a Senior Secured Leverage Ratio no greater than 4.50:1.00 and a Total Leverage Ratio of no greater than 5.75:1.00 as of the end of each fiscal quarter. As of September 6, 2016, Operations’ Senior Secured Leverage Ratio was 2.93:1.00 and the Total Leverage ratio was 4.36:1.00.
 
All obligations under the Secured Credit Facilities are guaranteed by Operations’ Parent and each existing and all subsequently acquired or organized direct and indirect restricted subsidiaries of Operations, other than certain excluded subsidiaries (collectively, the “Guarantors”). The Secured Credit Facilities are secured, subject to permitted liens and other exceptions, by a first-priority perfected security interest in substantially all the assets of Operations, and the Guarantors, including, but not limited to (1) a perfected pledge of all the domestic capital stock owned by Operations and the Guarantors, and (2) perfected security interests in and mortgages on substantially all tangible and intangible personal property and material fee-owned property of Operations and the Guarantors, subject to certain exclusions.
    
2015 Senior Notes

On December 15, 2015, Operations issued $350.0 million of senior notes (the “2015 Senior Notes”), maturing December 15, 2023. The net proceeds from the offering of the 2015 Senior Notes were used in part to repay amounts outstanding under the Secured Credit Facilities in connection with the eighth amendment to the credit agreement on December 15, 2015. Interest on the 2015 Senior Notes accrues at a fixed rate of 8.25% per annum. The 2015 Senior Notes are also guaranteed by the Guarantors (other than Operations’ Parent) on a full and unconditional basis.
    
Notes payable related to certain Non-Core Development Entities

In 1994 and 1995, we issued notes payable to finance a VIE related to our Non-Core Development Entities. The notes and accrued interest are payable through the cash proceeds related to the sale of certain real estate held by these Non-Core Development Entities.

16



Mortgage Loans

On August 9, 2016, we entered into a new secured mortgage loan which was guaranteed by ClubCorp USA, Inc., a wholly owned subsidiary of Operations, (the “Wells Fargo Mortgage Loan”) with a maturity date of May 31, 2019. The note has a principal amount of $37.0 million and accrues interest at a variable rate calculated as 2.90% plus the greater of (i) one month LIBOR or (ii) 0.25%. The proceeds of the Wells Fargo Mortgage Loan were primarily used to repay outstanding balances on the Stonebriar / Monarch Loan and the existing mortgage loan agreements with Atlantic Capital Bank and BancFirst. There is an option to extend the maturity through August 9, 2020 and a second option to extend the maturity through August 9, 2021 upon satisfaction of certain conditions in the loan agreement.

Stonebriar / Monarch Loan—In July 2008, we entered into a secured mortgage loan with General Electric Capital Corporation for $32.0 million (the “Stonebriar / Monarch Loan”). Effective November 30, 2015, the maturity date was November 2016. On August 9, 2016, we repaid this loan using the proceeds from the Wells Fargo Mortgage Loan.

Atlantic Capital Bank—In October 2010, we entered into a new mortgage loan with Atlantic Capital Bank for $4.0 million of debt maturing in 2015 with 25 year amortization. Effective May 6, 2015, we amended the loan agreement with Atlantic Capital Bank to extend the maturity date to April 2020. On August 9, 2016, we repaid this loan using the proceeds from the Wells Fargo Mortgage Loan.

BancFirst—In May 2013, in connection with the acquisition of Oak Tree Country Club, we assumed a mortgage loan with BancFirst for $5.0 million with an original maturity of October 2014 and two twelve-month options to extend the maturity through October 2016 upon satisfaction of certain conditions in the loan agreement. Effective October 1, 2015, we extended the term of the loan to October 1, 2016. On August 9, 2016, we repaid this loan using the proceeds from the Wells Fargo Mortgage Loan.


17



Long-term borrowings and lease commitments as of September 6, 2016 and December 29, 2015, are summarized below: 
 
September 6, 2016
 
December 29, 2015
 
 
 
 
 
Carrying Value
Interest Rate
 
Carrying Value
Interest Rate
 
Interest Rate Calculation
 
Maturity
 
 
 
 
 
 
 
 
 
 
2015 Senior Notes
$
350,000

8.25
%
 
$
350,000

8.25
%
 
Fixed
 
2023
Secured Credit Facilities
 

 
 
 

 
 
 
 
 
Term Loan, gross of discount
675,000

4.25
%
 
675,000

4.25
%
 
Greater of (i) 4.25% or (ii) an elected LIBOR + 3.25% (1)
 
2022
Revolving Credit Borrowings - ($175,000 capacity) (2)
—

3.52
%
 
—

3.42
%
 
LIBOR plus a margin of 3.0%
 
2021
Notes payable related to certain Non-Core Development Entities
11,837

9.00
%
 
11,837

9.00
%
 
Fixed
 
(3)
Mortgage Loans
 

 
 
 

 
 
 
 
 
Wells Fargo Mortgage Loan
37,000

3.42
%
 
—

—

 
2.90% plus the greater of (i) one month LIBOR or (ii) 0.25%
 
2019
Stonebriar / Monarch Loan
—

—

 
29,112

6.00
%
 
5.00% plus the greater of (i) three month LIBOR or (ii) 1%
 
2017
Atlantic Capital Bank
—

—

 
3,173

4.50
%
 
Greater of (i) 3.0% + 30 day LIBOR or (ii) 4.5%
 
2020
BancFirst
—

—

 
3,842

4.50
%
 
Greater of (i) 4.5% or (ii) prime rate
 
2016
Other indebtedness
1,703

4.75% - 6.00%

 
1,988

4.75% - 6.00%

 
Fixed
 
Various
 
1,075,540

 
 
1,074,952

 
 
 
 
 
Capital leases
51,643

 
 
43,271

 
 
 
 
 
Total obligation
1,127,183

 
 
1,118,223

 
 
 
 
 
Less net loan origination fees included in long-term debt
(12,706
)
 
 
(13,000
)
 
 
 
 
 
Less current portion
(18,725
)
 
 
(20,414
)
 
 
 
 
 
Less discount on the Secured Credit Facilities’ Term Loan
(5,017
)
 
 
(5,489
)
 
 
 
 
 
Long-term debt
$
1,090,735

 
 
$
1,079,320

 
 
 
 
 
______________________

(1)
Refer also to Note 17.

(2)
As of September 6, 2016, the revolving credit facility had capacity of $175.0 million, which was reduced by the $30.0 million of standby letters of credit outstanding, leaving $145.0 million available for borrowing.

(3)
Notes payable and accrued interest related to certain Non-Core Development Entities are payable through the cash proceeds related to the sale of certain real estate held by these Non-Core Development Entities.


18


The amount of long-term debt maturing in each of the five years subsequent to 2015 and thereafter is as follows. This table reflects the contractual maturity dates as of September 6, 2016.
Year
Debt
 
Capital Leases
 
Total
Remainder of 2016
$
265

 
$
5,746

 
$
6,011

2017
1,068

 
17,136

 
18,204

2018
1,086

 
13,844

 
14,930

2019
35,565

 
9,115

 
44,680

2020
96

 
4,420

 
4,516

Thereafter
1,037,460

 
1,382

 
1,038,842

Total
$
1,075,540

 
$
51,643

 
$
1,127,183


10. INCOME TAXES

Holdings files income tax returns in the U.S. federal jurisdiction, numerous state jurisdictions and in three foreign jurisdictions. Income taxes recorded are adjusted to the extent losses or other deductions cannot be utilized in the consolidated federal income tax return. We file state tax returns on a separate company basis or unitary basis as required by law. Additionally, certain subsidiaries of Holdings, owned through lower tier joint ventures, file separate tax returns for federal and state purposes.

Our annual effective income tax rate is determined by the level and composition of pre-tax income and the mix of income subject to varying foreign, state and local taxes. Our tax expense or benefit recognized in our interim financial statements is determined by multiplying the year-to-date income or loss by the annual effective tax rate, which is an estimate of the expected relationship between tax expense or benefit for the full year to the pre-tax income or loss for the full year (pre-tax income or loss excluding unusual or infrequently occurring discrete items). Our effective income tax rate for the twelve and thirty-six weeks ended September 6, 2016 was 57.3% and (9.9)%, respectively, compared to 63.0% and 5.4% for the twelve and thirty-six weeks ended September 8, 2015, respectively. For the twelve and thirty-six weeks ended September 6, 2016 and September 8, 2015, the effective tax rate differed from the statutory federal rate of 35.0% primarily due to state taxes and certain other permanent differences. The relative impact these items have on the effective tax rate varies based on the forecasted amount of pre-tax income or loss for the year.

We are currently under audit by state income tax authorities. We have received multiple assessments related to such audits and have an immaterial amount recorded within our state income tax payable as of September 6, 2016.

As of September 6, 2016, tax years 2010 - 2015 remain open under statute for U.S. federal and most state tax jurisdictions. In Mexico, the statute of limitations is generally five years from the date of the filing of the tax return for any particular year, including amended returns. Accordingly, in general, tax years 2009 through 2015 remain open under statute; although certain prior years are also open as a result of the tax proceedings described below.

Certain of our Mexican subsidiaries are under audit by the Mexican taxing authorities for the 2008 and 2009 tax years. In 2013, we received two assessments, for approximately $3.0 million each, exclusive of penalties and interest, for two of our Mexican subsidiaries under audit for the 2008 tax year. We have taken the appropriate procedural steps to contest these assessments through the appropriate Mexican judicial channels. We have not recorded a liability related to these uncertain tax positions as we believe it is more likely than not that we will prevail based on the merits of our positions. In 2014, we received an audit assessment for the 2009 tax year for another Mexican subsidiary. We have taken the appropriate procedural steps to contest the assessment through the appropriate Mexican judicial channels. We have recorded a liability related to an unrecognized tax benefit for $4.4 million, exclusive of penalties and interest, related to this audit. The unrecognized tax benefit has been recorded due to the technical nature of the tax filing position taken by our Mexican subsidiary and uncertainty around the ultimate outcome of this assessment, which we intend to continue to contest.

As of September 6, 2016 and December 29, 2015, we have recorded a total of $7.7 million and $7.3 million, respectively, of unrecognized tax benefits related to uncertain tax positions, including interest and penalties of $2.9 million and $2.3 million, respectively, which are included in other liabilities in the consolidated condensed balance sheets. If we were to prevail on all uncertain tax positions recorded as of September 6, 2016, the net effect would be an income tax benefit of approximately $4.8 million, exclusive of any benefits related to interest and penalties.


19


Management believes it is unlikely that our unrecognized tax benefits will significantly change within the next 12 months given the current status in particular of the matters currently under examination by the Mexican tax authorities. However, as audit outcomes and the timing of related resolutions are subject to significant uncertainties, we will continue to evaluate the tax issues related to these assessments in future periods. In summary, we believe we are adequately reserved for our uncertain tax positions as of September 6, 2016.

11. NEW AND ACQUIRED CLUBS AND CLUB DIVESTITURES

New and Acquired Clubs

Assets and liabilities from business combinations were recorded on our consolidated condensed balance sheets at fair value at the date of acquisition. The results of operations of such businesses have been included in the consolidated condensed statements of operations since their date of acquisition.

Heritage Golf Club—On August 30, 2016, we purchased Heritage Golf Club, a private golf club in Hilliard, Ohio, for a purchase price and net cash consideration of $3.2 million. We recorded the following major categories of assets and liabilities, which are subject to change until our information is finalized, no later than twelve months from the acquisition date:
 
August 30, 2016

Land, depreciable land improvements and property and equipment
$
3,407

Receivables, net of allowances of $6
202

Inventory and prepaid assets
156

Other current liabilities and accrued taxes
(271
)
Long-term debt (obligation related to capital leases)
(301
)
Total
$
3,193


Santa Rosa Golf and Country Club—On March 15, 2016, we purchased Santa Rosa Golf and Country Club, a private golf club in Santa Rosa, California, for a purchase price and net cash consideration of $2.5 million. We recorded the following major categories of assets and liabilities, which are subject to change until our information is finalized, no later than twelve months from the acquisition date:
 
March 15, 2016

Land, depreciable land improvements and property and equipment
$
2,558

Inventory and prepaid assets
267

Other current liabilities
(153
)
Long-term debt (obligation related to capital leases)
(178
)
Total
$
2,494


Marsh Creek Country Club—On February 2, 2016, we purchased Marsh Creek Country Club, a private golf club in St. Augustine, Florida, for a purchase price of $4.5 million and net cash consideration of $4.1 million. We recorded the following major categories of assets and liabilities, which are subject to change until our information is finalized, no later than twelve months from the acquisition date:
 
February 2, 2016

Land, depreciable land improvements and property and equipment
$
4,491

Receivables and inventory
92

Other current liabilities and accrued taxes
(477
)
Total
$
4,106



20


Bernardo Heights Country Club—On December 17, 2015, we purchased Bernardo Heights, a private golf club in San Diego, California, for a purchase price and net cash consideration of $2.7 million. We recorded the following major categories of assets and liabilities, which are subject to change until our information is finalized, no later than twelve months from the acquisition date:
 
December 17, 2015

Land, depreciable land improvements and property and equipment
$
2,840

Inventory and prepaid assets
102

Other current liabilities and accrued taxes
(104
)
Long-term debt (obligation related to capital leases)
(134
)
Total
$
2,704


Southeast Portfolio—On April 7, 2015, we acquired a multi-club portfolio of six golf and country clubs for a combined purchase price of $43.8 million and net cash consideration of $43.6 million.

Golf and Country Clubs
Type of Club
Market
State
Golf Holes
Bermuda Run Country Club
Private Country Club
Charlotte
NC
36

Brookfield Country Club
Private Country Club
Atlanta
GA
18

Firethorne Country Club
Private Country Club
Charlotte
NC
18

Temple Hills Country Club
Private Country Club
Nashville
TN
27

Ford’s Colony Country Club
Semi-Private Golf Club
Richmond
VA
54

Legacy Golf Club at Lakewood Ranch (subsequently divested)
Public Golf
Bradenton
FL
18


We recorded the following major categories of assets and liabilities:

 
April 7, 2015
Receivables, net of allowances of $228
$
1,757

Inventories and notes receivable
646

Land
9,920

Depreciable land improvements
17,321

Buildings and recreational facilities
13,113

Machinery and equipment and furniture and fixtures
4,959

Current liabilities
(2,063
)
Long-term debt (obligation related to capital leases) and other liabilities
(2,020
)
Total
$
43,633


Rolling Green Country Club—On January 20, 2015, we purchased Rolling Green Country Club, a private golf club in Arlington Heights, Illinois, for a purchase price of $6.5 million and net cash consideration of $6.4 million. We recorded the following major categories of assets and liabilities:

 
January 20, 2015

Land, depreciable land improvements and property and equipment
$
6,554

Inventory
125

Other current liabilities and accrued taxes
(110
)
Long-term debt (obligation related to capital leases)
(193
)
Total
$
6,376



21


Ravinia Green Country Club—On January 13, 2015, we acquired Ravinia Green Country Club, a private golf club in Riverwoods, Illinois, for a purchase price and net cash consideration of $5.9 million. We recorded the following major categories of assets and liabilities:

 
January 13, 2015

Land, depreciable land improvements and property and equipment
$
6,034

Inventory and prepaid assets
30

Other current liabilities and accrued taxes
(186
)
Long-term debt (obligation related to capital leases)
(11
)
Total
$
5,867


Club Dispositions and Management Agreement Terminations

Clubs may be divested when we determine 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 non-strategic holdings. Gains from divestitures are recognized in the period in which operations cease and losses are recognized when we determine that the carrying value is not recoverable and exceeds fair value.

During the thirty-six weeks ended September 6, 2016, two management agreements were terminated, including a management agreement with Jefferson Lakeside Country Club, a private country club located in Richmond, Virginia and a management agreement with Mill Creek Country Club, a private country club located in Mill Creek, Washington. Additionally, we closed Greenspoint Club, a business and sports club we owned which was located in Houston, Texas. No material gain or loss on divestiture was recorded. These divestitures did not qualify as discontinued operations.

During the fiscal year ended December 29, 2015, ten management agreements were terminated, including a management agreement with Shoreby Club, a business and sports club located in Bratenahl, Ohio, a multi-course management agreement for Klein Creek Golf Club, a public golf course located in Winfield, Illinois, The Grove Country Club, a private country club located in Long Grove, Illinois, The Royal Fox Country Club and The Royal Hawk Country Club, private country clubs both located in St. Charles, Illinois, a management agreement with Smoke Rise Country Club, a private country club located in Stone Mountain, Georgia, a management agreement with Stone Creek Golf Club, a semi-private country club located in Ocala, Florida, a management agreement with Regatta Bay Golf and Country Club, a private country club located in Destin, Florida, a management agreement with University of Massachusetts Club, an alumni club located in Boston, Massachusetts and a management agreement with Rancho Vista Golf Club, a public golf club in Rancho Vista, California. No gain or loss on divestiture was recorded. These divestitures did not qualify as discontinued operations. On November 4, 2015, we sold Legacy Golf Club at Lakewood Ranch, a public golf course in Bradenton, Florida. We recognized a gain of $0.6 million on the sale which is included in loss on disposals of assets in the consolidated condensed statements of operations.

12. SEGMENT INFORMATION
 
We currently have two reportable segments: (1) golf and country clubs and (2) business, sports and alumni clubs. These segments are managed separately and discrete financial information, including Adjusted EBITDA, our financial measure of segment profit and loss, is reviewed regularly by our chief operating decision maker to evaluate performance and allocate resources. Our chief operating decision maker is our Chief Executive Officer. We also use Adjusted EBITDA, on a consolidated basis, to assess our ability to service our debt, incur additional debt and meet our capital expenditure requirements. We believe that the presentation of Adjusted EBITDA is appropriate as it provides additional information to investors about our performance and investors and lenders have historically used EBITDA-related measures.

EBITDA is defined as net income before interest expense, income taxes, interest and investment income, and depreciation and amortization. Adjusted EBITDA is defined as EBITDA plus or minus impairments, gain or loss on disposition and acquisition of assets, losses from discontinued operations, loss on extinguishment of debt, non-cash and other adjustments, equity-based compensation expense and a deferred revenue adjustment. The deferred revenue adjustment to revenues and Adjusted EBITDA within each segment represents estimated deferred revenue using current membership life estimates related to initiation payments that would have been recognized in the applicable period but for the application of purchase accounting. Adjusted EBITDA is based on the definition of Consolidated EBITDA as defined in the credit agreement governing the Secured Credit Facilities and may not be comparable to similarly titled measures reported by other companies. The credit agreement governing the Secured Credit Facilities and the indenture governing the 2015 Senior Notes contain certain covenants which are based upon specified financial ratios in reference to Adjusted EBITDA, after giving effect to the pro forma impact of

22


acquisitions. Adjusted EBITDA as reported is identical to the computation of Consolidated EBITDA as defined in the credit agreement governing our Secured Credit Facilities, except that for purposes of certain covenants in the credit agreement, a pro forma adjustment is made to Consolidated EBITDA in order to give effect to current period acquisitions as though they had been consummated on the first day of the four quarter period presented. The pro forma impact gives effect to all acquisitions in the four quarters ended September 6, 2016 as though they had been consummated on the first day of the fourth quarter of fiscal year 2015.

Golf and country club 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 to members and their guests. Golf clubs provide both private and public golf play and usually offer fewer recreational amenities than private country clubs. Public golf facilities are open to the public and generally provide the same amenities as golf clubs.

Business, sports and alumni club operations consist of business clubs, business/sports clubs, sports clubs and alumni 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. Alumni clubs provide the same amenities as business clubs while targeting alumni and staff of universities.

We also disclose corporate expenses and other operations, which consists of other business activities including ancillary revenues related to alliance arrangements, a portion of the revenue associated with upgrade offerings, reimbursements for certain costs of operations at managed clubs, corporate overhead expenses and shared services. Other operations also includes corporate assets such as cash, goodwill, intangible assets, and loan origination fees. While corporate expenses and other operations is not a segment, disclosing corporate expenses and other operations facilitates the reconciliation from segment results to consolidated results.

The table below shows summarized financial information by segment for the twelve and thirty-six weeks ended September 6, 2016 and September 8, 2015:
 
 
Twelve Weeks Ended
 
Thirty-Six Weeks Ended
 
September 6, 2016
 
September 8, 2015
 
September 6, 2016
 
September 8, 2015
Revenues
 
 
 
 
 

 
 

Golf and Country Clubs (1)
$
215,480

 
$
210,624

 
$
608,078

 
$
582,610

Business, Sports and Alumni Clubs (1)
40,347

 
40,156

 
128,201

 
126,214

Other operations
6,218

 
5,087

 
15,058

 
13,141

Elimination of intersegment revenues and segment reporting adjustments
(2,959
)
 
(3,317
)
 
(9,127
)
 
(10,118
)
Revenues relating to divested clubs (2)
246

 
2,810

 
969

 
9,332

Total consolidated revenues
$
259,332

 
$
255,360

 
$
743,179

 
$
721,179

 
 
 
 
 
 
 
 
Golf and Country Clubs Adjusted EBITDA
$
59,949

 
$
58,172

 
$
176,164

 
$
164,651

Business, Sports and Alumni Clubs Adjusted EBITDA
$
6,790

 
$
5,954

 
$
24,662

 
$
22,657

______________________

(1)
Includes segment reporting adjustments representing estimated deferred revenue, calculated using current membership life estimates, related to initiation payments that would have been recognized in the applicable period but for the application of purchase accounting in connection with the acquisition of CCI in 2006 and the acquisition of Sequoia Golf on September 30, 2014.

(2)
When clubs are divested, the associated revenues are excluded from segment results for all periods presented.


23


 
As of
Total Assets
September 6, 2016
 
December 29, 2015
Golf and Country Clubs
$
1,601,564

 
$
1,554,448

Business, Sports and Alumni Clubs
96,067

 
89,823

Other operations
474,814

 
490,980

Consolidated
$
2,172,445

 
$
2,135,251


    
The following table presents revenue by product type:
 
Twelve Weeks Ended
 
Thirty-Six Weeks Ended
 
September 6, 2016
 
September 8, 2015
 
September 6, 2016
 
September 8, 2015
Revenues by Type
 
 
 
 
 
 
 
Dues
$
121,068

 
$
116,435

 
$
357,239

 
$
338,037

Food and beverage
66,397

 
65,102

 
198,194

 
191,785

Golf
48,139

 
49,118

 
123,063

 
123,217

Other
23,728

 
24,705

 
64,683

 
68,140

Total
$
259,332

 
$
255,360

 
$
743,179

 
$
721,179


The table below provides a reconciliation of Golf and Country Clubs Adjusted EBITDA and Business, Sports and Alumni Adjusted EBITDA to income (loss) before income taxes for the twelve and thirty-six weeks ended September 6, 2016 and September 8, 2015:
 
 
Twelve Weeks Ended
 
Thirty-Six Weeks Ended
 
September 6, 2016
 
September 8, 2015
 
September 6, 2016
 
September 8, 2015
Golf and Country Clubs Adjusted EBITDA
$
59,949

 
$
58,172

 
$
176,164

 
$
164,651

Business, Sports and Alumni Clubs Adjusted EBITDA
6,790

 
5,954

 
24,662

 
22,657

Interest expense
(20,172
)
 
(16,170
)
 
(60,530
)
 
(48,587
)
Interest and investment income
161

 
2,139

 
414

 
3,816

Depreciation and amortization
(25,169
)
 
(24,562
)
 
(73,738
)
 
(71,616
)
Impairments and disposition of assets (1)
(2,869
)
 
(4,631
)
 
(9,024
)
 
(15,423
)
Income (loss) from divested clubs (2)
36

 
18

 
(476
)
 
(54
)
Non-cash adjustments (3)
(272
)
 
(463
)
 
107

 
(1,389
)
Acquisition related costs (4)
(156
)
 
(838
)
 
(1,099
)
 
(3,697
)
Capital structure costs (5)
(100
)
 
(500
)
 
(1,050
)
 
(1,851
)
Centralization and transformation costs (6)
(2,648
)
 
(1,487
)
 
(7,127
)
 
(4,790
)
Other adjustments (7)
(1,960
)
 
(2,337
)
 
(4,231
)
 
(5,089
)
Equity-based compensation expense (8)
(1,880
)
 
(1,295
)
 
(4,877
)
 
(3,510
)
Deferred revenue adjustment (9)
(1,212
)
 
(1,584
)
 
(3,910
)
 
(5,144
)
Corporate expenses and other operations (10)
(7,733
)
 
(9,213
)
 
(36,542
)
 
(33,475
)
Income (loss) before income taxes
$
2,765

 
$
3,203

 
$
(1,257
)
 
$
(3,501
)
______________________

(1)
Includes non-cash impairment charges related to property and equipment and intangible assets and loss on disposals of assets (including property and equipment disposed of in connection with renovations).

(2)
Net income or loss from divested clubs that do not qualify as discontinued operations in accordance with GAAP.


24


(3)
Includes non-cash items related to purchase accounting associated with the acquisition of CCI in 2006 by affiliates of KSL Capital Partners, LLC (“KSL”).

(4)
Represents legal and professional fees related to the acquisition of clubs.

(5)
Represents legal and professional fees related to our capital structure, including debt issuance and amendment costs and equity offering costs.

(6)
Includes fees and expenses associated with initial compliance with Section 404(b) of the Sarbanes-Oxley Act, which were primarily incurred in fiscal year 2015 and the twelve weeks ended March 22, 2016, and related centralization and transformation of administrative processes, finance processes and related IT systems.

(7)
Represents adjustments permitted by the credit agreement governing the Secured Credit Facilities including cash distributions from equity method investments less equity in earnings recognized for said investments, income or loss attributable to non-controlling equity interests of continuing operations and management fees, termination fee and expenses paid to an affiliate of KSL.

(8)
Includes equity-based compensation expense, calculated in accordance with GAAP, related to awards held by certain employees, executives and directors.

(9)
Represents estimated deferred revenue, calculated using current membership life estimates, related to initiation payments that would have been recognized in the applicable period but for the application of purchase accounting in connection with the acquisition of CCI in 2006 and the acquisition of Sequoia Golf (“Sequoia Golf”) on September 30, 2014.

(10)
Includes other business activities including ancillary revenues related to alliance arrangements, a portion of the revenue associated with upgrade offerings, costs of operations at managed clubs, corporate overhead expenses and shared services expenses.

13. EARNINGS PER SHARE
GAAP requires that earnings per share (“EPS”) calculations treat unvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents as a separate class of securities (participating securities) and that basic EPS be calculated using the two-class method. We have granted RSAs (as defined below) that contain non-forfeitable rights to dividends. Such awards are considered participating securities. The two-class method of computing EPS is an earnings allocation formula that determines EPS for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. We have also granted RSAs that contain forfeitable rights to dividends. These awards are not considered participating securities and are excluded from the basic weighted-average shares outstanding calculation.
Basic EPS is computed utilizing the two-class method and is calculated on weighted-average number of common shares outstanding during the periods presented.
Diluted EPS reflects the dilutive effect of equity based awards (potential common shares) that may share in the earnings of ClubCorp when such shares are either issued or vesting restrictions lapse. Diluted EPS is computed using the weighted-average number of common shares and potential common shares outstanding during the periods presented, utilizing the two-class method for unvested equity-based awards.
Presented below is basic and diluted EPS for the twelve and thirty-six weeks ended September 6, 2016 and September 8, 2015 (in thousands, except per share amounts):

25


 
Twelve Weeks Ended
 
Thirty-Six Weeks Ended
 
September 6, 2016
 
September 8, 2015
 
September 6, 2016
 
September 8, 2015
 
Basic
 
Diluted
 
Basic
 
Diluted
 
Basic
 
Diluted
 
Basic
 
Diluted
Numerator for earnings per share
$
1,170

 
$
1,170

 
$
1,252

 
$
1,252

 
$
(1,894
)
 
$
(1,894
)
 
$
(3,166
)
 
$
(3,166
)
Weighted-average shares outstanding
64,530

 
64,530

 
64,621

 
64,621

 
64,507

 
64,507

 
64,350

 
64,350

Effect of dilutive equity-based awards
—

 
126

 
—

 
282

 
—

 
—

 
—

 
—

Total Shares
64,530

 
64,656

 
64,621

 
64,903

 
64,507

 
64,507

 
64,350

 
64,350

Net income (loss) attributable to ClubCorp per share
$
0.02