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
June 14, 2016
, we own, lease or operate through joint ventures
150
golf and country clubs and manage
ten
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.
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
twenty-four weeks ended
June 14, 2016
and
June 16, 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
$3.2 million
and
$3.2 million
for the
twelve weeks ended
June 14, 2016
and
June 16, 2015
, respectively, and
$6.6 million
and
$6.2 million
for the
twenty-four weeks ended
June 14, 2016
and
June 16, 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 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.
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
$4.2 million
as of
June 14, 2016
. The other managed golf course property VIEs are financed through advances from us. Outstanding advances as of
June 14, 2016
total
$4.6 million
compared to recorded assets of
$7.0 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
$12.1 million
and
$11.3 million
at
June 14, 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
June 14, 2016
and
December 29, 2015
, net of intercompany amounts:
|
|
|
|
|
|
|
|
|
|
June 14, 2016
|
|
December 29, 2015
|
Current assets
|
$
|
1,972
|
|
|
$
|
1,201
|
|
Fixed assets, net
|
9,261
|
|
|
9,245
|
|
Other assets
|
841
|
|
|
839
|
|
Total assets
|
$
|
12,074
|
|
|
$
|
11,285
|
|
|
|
|
|
Current liabilities
|
$
|
1,588
|
|
|
$
|
1,228
|
|
Long-term debt
|
13,028
|
|
|
13,026
|
|
Other long-term liabilities
|
24,319
|
|
|
23,817
|
|
Noncontrolling interest
|
5,540
|
|
|
5,619
|
|
Company capital
|
(32,401
|
)
|
|
(32,405
|
)
|
Total liabilities and equity
|
$
|
12,074
|
|
|
$
|
11,285
|
|
4. INVESTMENTS
We have an equity method investment in one active golf and country club joint venture with a carrying value of
$0.5 million
and
$0.5 million
at
June 14, 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
$2.6 million
and
$2.0 million
at
June 14, 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
$1.5 million
of return on our equity investment in Avendra within
interest and investment income
during the
twelve and twenty-four weeks ended
June 16, 2015
.
No
return on our equity investment in Avendra was recorded during the
twelve and twenty-four weeks ended
June 14, 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
$2.9 million
during the
twelve and twenty-four weeks ended
June 14, 2016
and
$2.5 million
during the
twelve and twenty-four weeks ended
June 16, 2015
.
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
June 14, 2016
and
December 29, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 2016
|
|
December 29, 2015
|
|
Recorded Value
|
|
Fair Value
|
|
Recorded Value
|
|
Fair Value
|
Level 2 (1)
|
$
|
1,019,824
|
|
|
$
|
1,024,094
|
|
|
$
|
1,019,511
|
|
|
$
|
1,020,625
|
|
Level 3
|
49,121
|
|
|
39,987
|
|
|
49,952
|
|
|
40,794
|
|
Total
|
$
|
1,068,945
|
|
|
$
|
1,064,081
|
|
|
$
|
1,069,463
|
|
|
$
|
1,061,419
|
|
______________________
|
|
(1)
|
The recorded value for Level 2 Debt is presented net of the
$5.2 million
and
$5.5 million
discount as of
June 14, 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
June 14, 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.
Property and Equipment
—There were
no
impairments recorded during the
twelve and twenty-four weeks ended
June 14, 2016
. We recognized impairment losses of
$1.0 million
during the
twelve and twenty-four weeks ended
June 16, 2015
, to adjust the carrying amount of certain property and equipment to its fair value of
$0.7 million
due to continued and projected negative operating results at those clubs 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.
Other Assets
—We evaluate our 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 an impairment loss to a cost method investment of
$0.5 million
during the
twelve and twenty-four weeks ended
June 14, 2016
, to adjust the carrying amount of the investment to its fair value of
zero
.
6. PROPERTY AND EQUIPMENT
Property and equipment, including capital lease assets, at cost consists of the following at
June 14, 2016
and
December 29, 2015
:
|
|
|
|
|
|
|
|
|
|
June 14, 2016
|
|
December 29, 2015
|
Land and non-depreciable land improvements
|
$
|
602,520
|
|
|
$
|
600,819
|
|
Depreciable land improvements
|
486,689
|
|
|
478,352
|
|
Buildings and recreational facilities
|
522,282
|
|
|
511,124
|
|
Machinery and equipment
|
277,504
|
|
|
264,129
|
|
Leasehold improvements
|
112,910
|
|
|
111,184
|
|
Furniture and fixtures
|
102,713
|
|
|
97,459
|
|
Construction in progress
|
18,981
|
|
|
13,413
|
|
|
2,123,599
|
|
|
2,076,480
|
|
Accumulated depreciation
|
(579,029
|
)
|
|
(541,960
|
)
|
Total
|
$
|
1,544,570
|
|
|
$
|
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
.
7. GOODWILL AND INTANGIBLE ASSETS
Goodwill and other intangible assets consist of the following at
June 14, 2016
and
December 29, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 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
|
|
|
$
|
(2,205
|
)
|
|
661
|
|
|
2,866
|
|
|
$
|
(1,907
|
)
|
|
959
|
|
Management Contracts
|
1-10 years
|
|
3,959
|
|
|
(1,305
|
)
|
|
2,654
|
|
|
3,959
|
|
|
(988
|
)
|
|
2,971
|
|
Trade names
|
2 years
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1,100
|
|
|
$
|
(636
|
)
|
|
$
|
464
|
|
Total
|
|
|
$
|
33,767
|
|
|
$
|
(3,510
|
)
|
|
$
|
30,257
|
|
|
$
|
34,783
|
|
|
$
|
(3,531
|
)
|
|
$
|
31,252
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill
|
|
|
$
|
312,811
|
|
|
|
|
$
|
312,811
|
|
|
$
|
312,811
|
|
|
|
|
$
|
312,811
|
|
Intangible Assets
—Intangible asset amortization expense was
$0.5 million
and
$0.7 million
for the
twelve weeks ended
June 14, 2016
and
June 16, 2015
, respectively, and
$1.1 million
and
$1.4 million
for the
twenty-four weeks ended
June 14, 2016
and
June 16, 2015
, respectively. There were no material impairments recorded during the
twelve and twenty-four weeks ended
June 14, 2016
and
June 16, 2015
. We retired fully amortized trade name intangible assets and the related amortization of
$1.1 million
during the
twelve and twenty-four weeks ended
June 14, 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
|
$
|
718
|
|
2017
|
761
|
|
2018
|
629
|
|
2019
|
383
|
|
2020
|
239
|
|
Thereafter
|
585
|
|
Total
|
$
|
3,315
|
|
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
|
|
June 14, 2016
|
$
|
167,460
|
|
|
$
|
145,351
|
|
|
$
|
312,811
|
|
8. CURRENT AND LONG-TERM LIABILITIES
Current liabilities consist of the following at
June 14, 2016
and
December 29, 2015
:
|
|
|
|
|
|
|
|
|
|
June 14, 2016
|
|
December 29, 2015
|
Accrued compensation
|
$
|
24,500
|
|
|
$
|
27,247
|
|
Accrued interest
|
20,922
|
|
|
2,618
|
|
Other accrued expenses
|
7,297
|
|
|
7,576
|
|
Total accrued expenses
|
$
|
52,719
|
|
|
$
|
37,441
|
|
|
|
|
|
Taxes payable other than federal income taxes (1)
|
$
|
10,449
|
|
|
$
|
15,473
|
|
Total accrued taxes
|
$
|
10,449
|
|
|
$
|
15,473
|
|
|
|
|
|
Advance event and other deposits
|
$
|
33,632
|
|
|
$
|
18,708
|
|
Unearned dues
|
31,043
|
|
|
14,225
|
|
Deferred membership revenues
|
12,192
|
|
|
12,175
|
|
Insurance reserves
|
11,414
|
|
|
11,317
|
|
Dividends to owners declared, but unpaid
|
8,583
|
|
|
8,467
|
|
Other current liabilities
|
4,012
|
|
|
4,300
|
|
Total other current liabilities
|
$
|
100,876
|
|
|
$
|
69,192
|
|
______________________
|
|
(1)
|
We had
no
federal income taxes payable
as of
June 14, 2016
and
December 29, 2015
.
|
Other long-term liabilities consist of the following at
June 14, 2016
and
December 29, 2015
:
|
|
|
|
|
|
|
|
|
|
June 14, 2016
|
|
December 29, 2015
|
Uncertain tax positions
|
$
|
7,253
|
|
|
$
|
7,343
|
|
Deferred membership revenues
|
46,028
|
|
|
45,960
|
|
Casualty insurance loss reserves - long term portion
|
15,872
|
|
|
14,659
|
|
Above market lease intangibles
|
305
|
|
|
352
|
|
Deferred rent
|
33,614
|
|
|
29,250
|
|
Accrued interest on notes payable related to Non-Core Development Entities
|
23,726
|
|
|
23,236
|
|
Other
|
2,845
|
|
|
2,857
|
|
Total other long-term liabilities
|
$
|
129,643
|
|
|
$
|
123,657
|
|
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
June 14, 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
June 14, 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
.
As of
June 14, 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
June 14, 2016
, Operations’ Senior Secured Leverage Ratio was
2.95
:1.00 and the Total Leverage ratio was
4.41
: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.
Mortgage Loans
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 is
November 2016
with
one
twelve month option to extend the maturity date through
November 2017
, upon satisfaction of certain conditions of the loan agreement. On
June 11, 2015
, we were notified that the Stonebriar / Monarch Loan was assigned to an affiliate of Blackstone Mortgage Trust, Inc. As of
June 14, 2016
, we expected to meet the required conditions and currently intend to extend the maturity date to
November 2017
.
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
.
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
.
Long-term borrowings and lease commitments as of
June 14, 2016
and
December 29, 2015
, are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 14, 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%
|
|
2022
|
Revolving Credit Borrowings - ($175,000 capacity) (1)
|
—
|
|
3.44
|
%
|
|
—
|
|
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
|
|
(2)
|
Mortgage Loans
|
|
|
|
|
|
|
|
|
|
|
|
Stonebriar / Monarch Loan
|
28,798
|
|
6.00
|
%
|
|
29,112
|
|
6.00
|
%
|
|
5.00% plus the greater of (i) three month LIBOR or (ii) 1%
|
|
2017
|
Atlantic Capital Bank
|
3,093
|
|
4.50
|
%
|
|
3,173
|
|
4.50
|
%
|
|
Greater of (i) 3.0% + 30 day LIBOR or (ii) 4.5%
|
|
2020
|
BancFirst
|
3,599
|
|
4.50
|
%
|
|
3,842
|
|
4.50
|
%
|
|
Greater of (i) 4.5% or (ii) prime rate
|
|
2016
|
Other indebtedness
|
1,794
|
|
4.75% - 6.00%
|
|
|
1,988
|
|
4.75% - 6.00%
|
|
|
Fixed
|
|
Various
|
|
1,074,121
|
|
|
|
1,074,952
|
|
|
|
|
|
|
Capital leases
|
44,864
|
|
|
|
43,271
|
|
|
|
|
|
|
Total obligation
|
1,118,985
|
|
|
|
1,118,223
|
|
|
|
|
|
|
Less net loan origination fees included in long-term debt
|
(12,141
|
)
|
|
|
(13,000
|
)
|
|
|
|
|
|
Less current portion
|
(20,667
|
)
|
|
|
(20,414
|
)
|
|
|
|
|
|
Less discount on the Secured Credit Facilities’ Term Loan
|
(5,176
|
)
|
|
|
(5,489
|
)
|
|
|
|
|
|
Long-term debt
|
$
|
1,081,001
|
|
|
|
$
|
1,079,320
|
|
|
|
|
|
|
______________________
|
|
(1)
|
As of
June 14, 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.
|
|
|
(2)
|
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.
|
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
June 14, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
Year
|
Debt
|
|
Capital Leases
|
|
Total
|
Remainder of 2016
|
$
|
4,143
|
|
|
$
|
9,376
|
|
|
$
|
13,519
|
|
2017
|
28,957
|
|
|
14,901
|
|
|
43,858
|
|
2018
|
490
|
|
|
11,481
|
|
|
11,971
|
|
2019
|
426
|
|
|
6,671
|
|
|
7,097
|
|
2020
|
2,630
|
|
|
2,193
|
|
|
4,823
|
|
Thereafter
|
1,037,475
|
|
|
242
|
|
|
1,037,717
|
|
Total
|
$
|
1,074,121
|
|
|
$
|
44,864
|
|
|
$
|
1,118,985
|
|
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 twenty-four weeks ended
June 14, 2016
was
41.5%
and
36.3%
, respectively, compared to
108.9%
and
32.9%
for the
twelve and twenty-four weeks ended
June 16, 2015
, respectively. For the
twelve and twenty-four weeks ended
June 14, 2016
and
June 16, 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
June 14, 2016
.
As of
June 14, 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.
As of
June 14, 2016
and
December 29, 2015
, we have recorded
$7.3 million
and
$7.3 million
, respectively, of unrecognized tax benefits related to uncertain tax positions, including interest and penalties of
$2.6 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
June 14, 2016
, the net effect would be an income tax benefit of approximately
$4.6 million
, exclusive of any benefits related to interest and penalties.
In addition, certain of our Mexican subsidiaries are under audit by the Mexican taxing authorities for the
2008
and
2009
tax years. We have 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
$4.2 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.
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
June 14, 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.
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
|
|
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
|
|
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
twenty-four weeks ended
June 14, 2016
,
one
management agreement with Jefferson Lakeside Country Club, a private country club located in Richmond, Virginia, was terminated. 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 an acquisition adjustment. The acquisition 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 acquisitions. The pro forma impact gives effect to all acquisitions in the four quarters ended
June 14, 2016
as though they had been consummated on the first day of the
third
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 other (“Other”), 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 also includes corporate assets such as cash, goodwill, intangible assets, and loan origination fees.
The table below shows summarized financial information by segment for the
twelve and twenty-four weeks ended
June 14, 2016
and
June 16, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Twenty-Four Weeks Ended
|
|
June 14, 2016
|
|
June 16, 2015
|
|
June 14, 2016
|
|
June 16, 2015
|
Golf and Country Clubs
|
|
|
|
|
|
|
|
|
|
Revenues (1)
|
$
|
219,837
|
|
|
$
|
213,163
|
|
|
$
|
392,654
|
|
|
$
|
372,034
|
|
Adjusted EBITDA
|
66,121
|
|
|
61,618
|
|
|
116,261
|
|
|
106,527
|
|
|
|
|
|
|
|
|
|
Business, Sports and Alumni Clubs
|
|
|
|
|
|
|
|
|
|
Revenues (1)
|
$
|
46,513
|
|
|
$
|
45,527
|
|
|
$
|
87,854
|
|
|
$
|
86,058
|
|
Adjusted EBITDA
|
10,539
|
|
|
9,215
|
|
|
17,872
|
|
|
16,703
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
5,694
|
|
|
$
|
5,332
|
|
|
$
|
9,507
|
|
|
$
|
8,703
|
|
Adjusted EBITDA
|
(13,402
|
)
|
|
(10,732
|
)
|
|
(28,809
|
)
|
|
(24,262
|
)
|
|
|
|
|
|
|
|
|
Elimination of intersegment revenues and segment reporting adjustments
|
$
|
(3,070
|
)
|
|
$
|
(3,384
|
)
|
|
$
|
(6,168
|
)
|
|
$
|
(6,801
|
)
|
Revenues relating to divested clubs (2)
|
—
|
|
|
3,109
|
|
|
—
|
|
|
5,825
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
Revenues
|
$
|
268,974
|
|
|
$
|
263,747
|
|
|
$
|
483,847
|
|
|
$
|
465,819
|
|
Adjusted EBITDA
|
63,258
|
|
|
60,101
|
|
|
105,324
|
|
|
98,968
|
|
______________________
|
|
(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.
|
|
|
|
|
|
|
|
|
|
|
As of
|
Total Assets
|
June 14, 2016
|
|
December 29, 2015
|
Golf and Country Clubs
|
$
|
1,598,229
|
|
|
$
|
1,554,448
|
|
Business, Sports and Alumni Clubs
|
95,984
|
|
|
89,823
|
|
Other
|
477,578
|
|
|
490,980
|
|
Consolidated
|
$
|
2,171,791
|
|
|
$
|
2,135,251
|
|
The following table presents revenue by product type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Twenty-Four Weeks Ended
|
|
June 14, 2016
|
|
June 16, 2015
|
|
June 14, 2016
|
|
June 16, 2015
|
Revenues by Type
|
|
|
|
|
|
|
|
Dues
|
$
|
120,053
|
|
|
$
|
113,597
|
|
|
$
|
236,171
|
|
|
$
|
221,602
|
|
Food and beverage
|
78,941
|
|
|
77,934
|
|
|
131,797
|
|
|
126,683
|
|
Golf
|
48,650
|
|
|
49,225
|
|
|
74,924
|
|
|
74,099
|
|
Other
|
21,330
|
|
|
22,991
|
|
|
40,955
|
|
|
43,435
|
|
Total
|
$
|
268,974
|
|
|
$
|
263,747
|
|
|
$
|
483,847
|
|
|
$
|
465,819
|
|
The table below provides a reconciliation of our net loss to Adjusted EBITDA for the
twelve and twenty-four weeks ended
June 14, 2016
, and
June 16, 2015
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Twenty-Four Weeks Ended
|
|
June 14, 2016
|
|
June 16, 2015
|
|
June 14, 2016
|
|
June 16, 2015
|
Net income (loss)
|
$
|
5,750
|
|
|
$
|
(223
|
)
|
|
$
|
(2,563
|
)
|
|
$
|
(4,499
|
)
|
Interest expense
|
19,938
|
|
|
16,286
|
|
|
40,358
|
|
|
32,417
|
|
Income tax expense (benefit)
|
4,078
|
|
|
2,711
|
|
|
(1,459
|
)
|
|
(2,205
|
)
|
Interest and investment income
|
(127
|
)
|
|
(1,594
|
)
|
|
(253
|
)
|
|
(1,677
|
)
|
Depreciation and amortization
|
24,355
|
|
|
24,241
|
|
|
48,569
|
|
|
47,054
|
|
EBITDA
|
$
|
53,994
|
|
|
$
|
41,421
|
|
|
$
|
84,652
|
|
|
$
|
71,090
|
|
Impairments and disposition of assets (1)
|
3,238
|
|
|
7,516
|
|
|
6,155
|
|
|
10,792
|
|
Loss from divested clubs (2)
|
21
|
|
|
115
|
|
|
555
|
|
|
120
|
|
Non-cash adjustments (3)
|
(842
|
)
|
|
463
|
|
|
(379
|
)
|
|
926
|
|
Acquisition related costs (4)
|
257
|
|
|
1,869
|
|
|
943
|
|
|
2,859
|
|
Capital structure costs (5)
|
208
|
|
|
1,219
|
|
|
950
|
|
|
1,351
|
|
Centralization and transformation costs (6)
|
2,061
|
|
|
2,028
|
|
|
4,479
|
|
|
3,303
|
|
Other adjustments (7)
|
1,185
|
|
|
2,639
|
|
|
2,271
|
|
|
2,752
|
|
Equity-based compensation expense (8)
|
1,830
|
|
|
1,113
|
|
|
3,000
|
|
|
2,215
|
|
Acquisition adjustment (9)
|
1,306
|
|
|
1,718
|
|
|
2,698
|
|
|
3,560
|
|
Adjusted EBITDA
|
$
|
63,258
|
|
|
$
|
60,101
|
|
|
$
|
105,324
|
|
|
$
|
98,968
|
|
______________________
|
|
(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.
|
|
|
(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
.
|
Adjusted EBITDA is not determined in accordance with GAAP and should not be considered as an alternative to, or more meaningful than, operating income or net income (as determined in accordance with GAAP) as a measure of our operating results or net cash provided by operating activities (as determined in accordance with GAAP) as a measure of our cash flows or ability to fund our cash needs. Our measurement of Adjusted EBITDA may not be comparable to similarly titled measures reported by other companies.
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 calculate basic EPS 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 twenty-four weeks ended
June 14, 2016
and
June 16, 2015
(in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Twenty-Four Weeks Ended
|
|
June 14, 2016
|
|
June 16, 2015
|
|
June 14, 2016
|
|
June 16, 2015
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
|
Basic
|
|
Diluted
|
Numerator for earnings per share
|
$
|
5,450
|
|
|
$
|
5,450
|
|
|
$
|
(196
|
)
|
|
$
|
(196
|
)
|
|
$
|
(3,093
|
)
|
|
$
|
(3,093
|
)
|
|
$
|
(4,418
|
)
|
|
$
|
(4,418
|
)
|
Weighted-average shares outstanding
|
64,518
|
|
|
64,518
|
|
|
64,392
|
|
|
64,392
|
|
|
64,496
|
|
|
64,496
|
|
|
64,324
|
|
|
64,324
|
|
Effect of dilutive equity-based awards
|
—
|
|
|
38
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total Shares
|
64,518
|
|
|
64,556
|
|
|
64,392
|
|
|
64,392
|
|
|
64,496
|
|
|
64,496
|
|
|
64,324
|
|
|
64,324
|
|
Net income (loss) attributable to ClubCorp per share
|
$
|
0.08
|
|
|
$
|
0.08
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.05
|
)
|
|
$
|
(0.07
|
)
|
|
$
|
(0.07
|
)
|
The basis for the numerator for earnings per share is Net income (loss) attributable to ClubCorp. The numerator was adjusted by
$0.1 million
and
$0.3 million
for the dividends allocated to participating securities during the
twelve and twenty-four weeks ended
June 14, 2016
, respectively. There were no material dividends allocated to participating securities during the
twelve and twenty-four weeks ended
June 16, 2015
.
Potential common shares are excluded from the calculation of diluted EPS when the effect of their inclusion would reduce our net loss per share and would be anti-dilutive. For the twenty-four weeks ended
June 14, 2016
there are less than
0.1 million
potential common shares excluded from the calculation of diluted EPS. For the
twelve and twenty-four weeks ended
June 16, 2015
there are
0.2 million
and
0.3 million
potential common shares excluded from the calculation of diluted EPS, respectively.
14. EQUITY
Equity-Based Awards
—We have granted equity-based awards to employees and non-employee directors in the form of restricted stock awards (“RSAs”), which restrictions will be removed upon satisfaction of time-based vesting requirements, subject to the holder remaining in continued service with us. We have also granted performance restricted stock units (“PSUs”) and “Adjusted EBITDA-Based PSUs”, both of which will convert into shares of our common stock upon satisfaction of (i) time-based vesting requirements and (ii) the applicable performance-based requirements subject to the holder remaining in continued service with us. The number of awards under the PSU and Adjusted EBITDA-Based PSU grants represents the target number of such units that may be earned. The PSU awards performance-based requirements are measured based on Holdings’ total shareholder return over the applicable performance periods compared with a peer group. The Adjusted EBITDA-Based PSU awards vest upon the achievement by the 2017 Same Store Clubs (as defined in the form of award), on a consolidated basis, of a specified level of Adjusted EBITDA for fiscal year 2018. We measure the cost of services rendered in exchange for equity-based awards based upon the grant date fair market value of the respective equity-based awards. The value is recognized over the requisite service period, which is generally the vesting period. The Adjusted EBITDA-Based PSU awards include performance conditions and expense is accrued when achievement of the performance conditions is considered probable.
The fair market value of each RSA was estimated using Holdings’ closing share price on the date of grant. The fair market value of each PSU was estimated on the date of grant using a Monte Carlo simulation analysis which generates a distribution of possible future stock prices for Holdings and the peer group from the grant date to the end of the applicable performance period. The fair market value of each Adjusted EBITDA-Based PSU was estimated using Holdings’ closing share price on the date of grant.
The following table shows total equity-based compensation expense included in the consolidated condensed statements of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Twenty-Four Weeks Ended
|
|
June 14, 2016
|
|
June 16, 2015
|
|
June 14, 2016
|
|
June 16, 2015
|
Club operating costs exclusive of depreciation
|
$
|
897
|
|
|
$
|
336
|
|
|
$
|
1,267
|
|
|
$
|
662
|
|
Selling, general and administrative
|
933
|
|
|
777
|
|
|
1,733
|
|
|
1,553
|
|
Pre-tax equity-based compensation expense
|
1,830
|
|
|
1,113
|
|
|
3,000
|
|
|
2,215
|
|
Less: benefit for income taxes
|
(683
|
)
|
|
(423
|
)
|
|
(1,120
|
)
|
|
(810
|
)
|
Equity-based compensation expense, net of tax
|
$
|
1,147
|
|
|
$
|
690
|
|
|
$
|
1,880
|
|
|
$
|
1,405
|
|
As of
June 14, 2016
, there was approximately
$18.3 million
of unrecognized expense related to non-vested, equity-based awards granted to employees, which is expected to be recognized over a weighted average period of approximately
2.2 years
.
The Amended and Restated ClubCorp Holdings, Inc. 2012 Stock Award Plan (the “Stock Plan”) provides for an aggregate amount of no more than
4.0 million
shares of common stock to be available for awards. The Stock Plan provides for the grant of stock options, restricted stock awards, restricted stock units, performance-based awards and other equity-based incentive awards. To date, we have granted RSAs, PSUs, Adjusted EBITDA-Based PSUs and restricted stock units (“RSUs”) under the Stock Plan. As of
June 14, 2016
, approximately
1.2 million
shares of common stock were available for future issuance under the Stock Plan. Treasury stock may be used to settle awards under the Stock Plan.
The following table summarizes RSA, PSU and Adjusted EBITDA-Based PSU activity for the
twenty-four weeks ended
June 14, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock awards
|
|
Performance-based awards (1)
|
|
Shares
|
|
Weighted Average Grant Date Fair Value
|
|
Target shares
|
|
Weighted Average Grant Date Fair Value
|
Non-vested balance at December 29, 2015
|
330,470
|
|
|
$
|
18.37
|
|
|
227,410
|
|
|
$
|
18.49
|
|
Granted
|
876,418
|
|
|
$
|
11.80
|
|
|
741,030
|
|
|
$
|
9.87
|
|
Vested
|
(108,043)
|
|
|
$
|
18.11
|
|
|
—
|
|
|
$
|
—
|
|
Forfeited
|
(20,338)
|
|
|
$
|
14.01
|
|
|
(63,878
|
)
|
|
$
|
16.09
|
|
Canceled
|
(29,521
|
)
|
|
$
|
18.63
|
|
|
—
|
|
|
$
|
—
|
|
Non-vested balance at June 14, 2016
|
1,048,986
|
|
|
$
|
12.99
|
|
|
904,562
|
|
|
$
|
11.60
|
|
______________________
(1) Includes PSUs and Adjusted EBITDA-Based PSUs.
Dividends
—The following is a summary of dividends declared or paid during the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Declaration Date
|
|
Dividend Per Share
|
|
Record Date
|
|
Total Amount
(in thousands)
|
|
Payment Date
|
Fiscal Year 2015
|
|
|
|
|
|
|
March 20, 2015
|
|
$
|
0.13
|
|
|
April 2, 2015
|
|
$
|
8,399
|
|
|
April 15, 2015
|
June 25, 2015
|
|
$
|
0.13
|
|
|
July 6, 2015
|
|
$
|
8,417
|
|
|
July 15, 2015
|
September 3, 2015
|
|
$
|
0.13
|
|
|
October 1, 2015
|
|
$
|
8,416
|
|
|
October 15, 2015
|
December 9, 2015
|
|
$
|
0.13
|
|
|
January 4, 2016
|
|
$
|
8,416
|
|
|
January 15, 2016
|
|
|
|
|
|
|
|
|
|
Fiscal Year 2016
|
|
|
|
|
|
|
February 18, 2016
|
|
$
|
0.13
|
|
|
April 5, 2016
|
|
$
|
8,520
|
|
|
April 15, 2016
|
June 10, 2016
|
|
$
|
0.13
|
|
|
July 1, 2016
|
|
$
|
8,506
|
|
|
July 15, 2016
|
Share Repurchase Plan
—On February 24, 2016, we announced that our Board of Directors authorized a repurchase of up to
$50.0 million
of our common stock with an expiration date of December 31, 2017. The repurchase program may be executed from time to time, subject to general business and market conditions and other investment opportunities, through open market or privately negotiated transactions, including through plans designed under Rule 10b5-1 of the Securities Exchange Act of 1934. During the
twelve weeks ended
June 14, 2016
, we purchased
104,325
shares under the share repurchase plan. As of
June 14, 2016
, approximately
$48.8 million
remained authorized under the share repurchase plan.
15. COMMITMENTS AND CONTINGENCIES
We routinely enter into contractual obligations to procure assets used in the day to day operations of our business and to invest in our information technology systems. As of
June 14, 2016
, we had capital commitments of
$20.8 million
.
We currently have sales and use tax audits in progress. We believe the potential for a liability related to the outcome of these audits may exist. However, we believe that the outcome of these audits would not materially affect our consolidated condensed financial statements.
Certain of our Mexican subsidiaries are under audit by the Mexican taxing authorities for the
2008
and
2009
tax years. We have 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
$4.2 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.
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
June 14, 2016
.
We are subject to certain pending or threatened litigation and other claims that arise in the ordinary course of business. While the outcome of such legal proceedings and other claims cannot be predicted with certainty, after review and consultation with legal counsel, we believe that any potential liability from these matters would not materially affect our consolidated condensed financial statements.
16. RELATED PARTY TRANSACTIONS
We had receivables of
$0.2 million
and
$0.1 million
, as of
June 14, 2016
and
December 29, 2015
, respectively, for outstanding advances from a golf club venture in which we have an equity method investment. We recorded
$0.1 million
in the
twenty-four weeks ended
June 14, 2016
and
$0.1 million
in the
twenty-four weeks ended
June 16, 2015
, in management fees from this venture. There were no material management fees recorded for the
twelve weeks ended
June 14, 2016
and
June 16, 2015
. As of
June 14, 2016
and
December 29, 2015
, we had a receivable of
$2.3 million
and
$3.2 million
, respectively, for volume rebates from Avendra, LLC, the supplier firm in which we have an equity method investment. See Note
4
.
17. SUBSEQUENT EVENTS
On
June 10, 2016
, our Board of Directors declared a cash dividend of
$8.5 million
, or
$0.13
per share of common stock, to all common stockholders of record at the close of business on
July 1, 2016
. This dividend is expected to be paid on
July 15, 2016
.
Effective July 14, 2016, Mark A. Burnett, Chief Operating Officer, assumed the role of President from Eric Affeldt who will continue to serve as the Company’s Chief Executive Officer. Mr. Burnett will continue to also serve as the Company’s Chief Operating Officer.