ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations should be read together with the consolidated condensed financial statements and related notes included in
“
Item 1. Financial Statements
”
of this quarterly report and in conjunction with the audited consolidated financial statements, related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations for the year ended
December 27, 2016
contained in our annual report on Form 10-K, as amended by the Form 10-K/A filed on March 27, 2017 and the Form 10-K/A filed on April 26, 2017 (“2016 Annual Report
”)
.
Forward-Looking Statements
All statements (other than statements of historical facts) in this quarterly report on Form 10-Q regarding the prospects of the industry and our prospects, plans, financial position and business strategy may constitute forward-looking statements. These forward-looking statements generally can be identified by the use of forward-looking terminology such as “may”, “should”, “expect”, “intend”, “will”, “estimate”, “anticipate”, “believe”, “predict”, “potential” or “continue” or the negatives of these terms or variations of them or similar terminology. Although we believe that the expectations reflected in these forward-looking statements are reasonable, we cannot assure you that these expectations will prove to be correct. Such statements reflect the current views of our management with respect to our operations, results of operations and future financial performance. The following factors are among those, but are not only those, that may cause actual results to differ materially from the forward-looking statements:
|
|
•
|
our ability to attract and retain club members;
|
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|
•
|
changes in consumer spending patterns, particularly with respect to demand for products and services;
|
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|
•
|
adverse conditions affecting the United States economy;
|
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|
•
|
unusual weather patterns, extreme weather events and periodic and quasi-periodic weather patterns, such as the El Niño/La Niña Southern Oscillation;
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•
|
material cash outlays required in connection with refunds or escheatment of membership initiation deposits;
|
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•
|
impairments to the suitability of our club locations;
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•
|
regional disruptions such as power failures, natural disasters or technical difficulties in any of the major areas in which we operate;
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•
|
seasonality of demand for our services and facilities usage;
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•
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increases in the level of competition we face;
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•
|
the loss of members of our management team or key employees;
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•
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increases in the cost of labor;
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•
|
increases in other costs, including costs of goods, rent, water, utilities and taxes;
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•
|
decreasing values of our investments;
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•
|
illiquidity of real estate holdings;
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•
|
timely, costly and unsuccessful development and redevelopment activities at our properties;
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•
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unsuccessful or burdensome acquisitions, including complications in integrating acquired businesses and properties into our operations;
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•
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restrictions placed on our ability to limit risk due to joint ventures and collaborative arrangements;
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•
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insufficient insurance coverage and uninsured losses;
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•
|
accidents or injuries which occur at our properties;
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•
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adverse judgments or settlements;
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•
|
our failure to comply with regulations relating to public facilities or our failure to retain the licenses relating to our properties;
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•
|
future environmental regulation, expenditures and liabilities;
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•
|
changes in or failure to comply with laws and regulations relating to our business and properties;
|
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•
|
failure in systems or infrastructure which maintain our internal and customer data, including as a result of cyber attacks;
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•
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sufficiency and performance of the technology we own or license;
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•
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write-offs of goodwill or other assets;
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•
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risks related to tax examinations by the IRS and other tax authorities in jurisdictions in which we operate;
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•
|
significant changes in our stock price, including those caused by future sales of our common stock;
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•
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our ability to declare and pay dividends;
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•
|
information published by securities analysts or other market participants that negatively impacts our stock price and trading volume;
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•
|
certain provisions of our amended and restated articles of incorporation limit our stockholders’ ability to choose a forum for disputes with us or our directors, officers, employees or agents;
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•
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anti-takeover provisions could delay or prevent a change of control;
|
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•
|
the actions of activist stockholders could negatively impact our business and such activism could impact the trading value and volatility of our securities;
|
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•
|
increased costs and substantial increased time of our management team required as a result of operating as a public company;
|
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•
|
our substantial indebtedness, which may adversely affect our financial condition and our ability to operate our business, react to changes in the economy or our industry and pay our debts, and which could divert our cash flows from operations for debt payments;
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•
|
our need to generate cash to service our indebtedness;
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•
|
the incurrence by us of substantially more debt, which could further exacerbate the risks associated with our substantial leverage;
|
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•
|
restrictions in our debt agreements that limit our flexibility in operating our business;
|
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•
|
our variable rate indebtedness could cause our debt service obligations to increase significantly;
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•
|
the occurrence of any event, change or other circumstances that could give rise to the termination of the Merger Agreement, the inability to complete the Merger due to the failure to obtain stockholder approval for the Merger or the failure to satisfy other conditions to completion of the Merger, including that a governmental entity may prohibit, delay or refuse to grant approval for the consummation of the transaction;
|
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•
|
risks related to disruption of management’s attention from our ongoing business operations due to the Merger;
|
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•
|
the effect of the announcement of the Merger on our relationships with our members, operating results and business generally;
|
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•
|
the risk that certain approvals or consents will not be received in a timely manner or that the Merger will not be consummated in a timely manner; and
|
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•
|
other factors described herein and in our 2016 Annual Report filed with the Securities and Exchange Commission (“SEC”).
|
All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements included in this quarterly report on Form 10-Q. These forward-looking statements speak only as of the date of this quarterly report on Form 10-Q. Except as required by law, we do not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise.
Overview
We are a leading owner-operator of private golf and country clubs and business, sports and alumni clubs in North America. As of
June 13, 2017
, our portfolio of
204
owned or operated clubs, with
over
184,000
memberships, served over
430,000
individual members. Our operations are organized into two principal business segments: (1) golf and country clubs and (2) business, sports and alumni clubs. We own, lease or operate through joint ventures
152
golf and country clubs and manage
eight
golf and country clubs. Likewise, we lease or operate through a joint venture
41
business, sports and alumni clubs and manage
three
business, sports and alumni clubs. We are the largest owner of private golf and country clubs in the United States and own the underlying real estate for
129
of our
160
golf and country clubs. Our golf and country clubs include
137
private country clubs,
16
semi-private clubs and
seven
public golf courses. Our business, sports and alumni clubs include
29
business clubs,
7
business and sports clubs,
six
alumni clubs, and
two
sports clubs. Our facilities are located in
27
states, the District of Columbia and
two
foreign countries.
Our golf and country clubs are designed to appeal to the entire family, fostering member loyalty which we believe allows us to capture a greater share of our member households’ discretionary leisure spending. Our business, sports and alumni clubs are designed to provide our members with private upscale locations where they can work, network and socialize. We offer our members privileges throughout our entire collection of clubs, and we believe that our diverse facilities, recreational offerings and social programming enhance our ability to attract and retain members across a number of demographic groups. We also have alliances with other clubs, resorts and facilities located worldwide through which our members can enjoy additional access, discounts, special offerings and privileges outside of our owned and operated clubs. Given the breadth of our products, services and amenities, we believe we offer a compelling value proposition to our members.
Recent Developments
On July 9, 2017, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with affiliates of certain funds (the “Apollo Funds”) managed by affiliates of Apollo Global Management, LLC pursuant to which affiliates of the Apollo Funds will acquire us for $17.12 per share in an all-cash transaction. The transaction has been unanimously approved by our board of directors. Closing of the transaction is subject to the approval of our stockholders, regulatory approvals and customary conditions and is expected to close in the fourth quarter of 2017. As a result of the transaction, we will become a wholly-owned subsidiary of affiliates of the Apollo Funds and our shares of common stock will be delisted from the New York Stock Exchange and deregistered under the Securities Exchange Act of 1934, as amended.
For additional information regarding this transaction, see Note
17
to the consolidated condensed financial statements within Item 1 of this report on Form 10-Q.
Factors Affecting our Business
A significant percentage of our revenue is derived from membership dues, and we believe these dues together with the geographic diversity of our clubs help to provide us with a recurring revenue base that limits the impact of fluctuations in regional economic conditions. We believe our efforts to position our clubs as focal points in communities with offerings that can appeal to the entire family has enhanced member loyalty and mitigated attrition rates in our membership base compared to the industry as a whole.
We believe the strength and size of our portfolio of clubs combined with the stability of our mass affluent membership base will enable us to maintain our position as an industry leader in the future. As the largest owner-operator of private golf and country clubs in the United States, we enjoy economies of scale and a leadership position. We expect to strategically expand and upgrade our portfolio through acquisitions and targeted capital investments. As part of our targeted capital investment program, we plan to focus on facility changes and upgrades to improve our members’ experience and the utilization of our facilities and amenities, which we believe will yield positive financial results.
Enrollment and Retention of Members
Our success depends on our ability to attract and retain members at our clubs and maintain or increase usage of our facilities. Historically, we have experienced varying levels of membership enrollment and attrition rates and, in certain areas, decreased levels of usage of our facilities. We devote substantial efforts to maintaining member and guest satisfaction, although many of the factors affecting club membership and facility usage are beyond our control.
We offer various programs at our clubs designed to minimize future attrition rates by increasing member satisfaction and usage. These include programs that are designed to engage current and newly enrolled members in activities and groups that go beyond their home club. Additionally, these programs may grant our members discounts on meals and other items in order to increase their familiarity with and usage of their club’s amenities. One such program is our Optimal Network Experiences program (“O.N.E.”), an upgrade product that combines what we refer to as “comprehensive club, community and world benefits”. With this offering, members typically receive
50%
off a la carte dining at their home club; preferential offerings to clubs in their community (including those owned by us), as well as at local spas, restaurants and other venues; and complimentary privileges currently to more than
300
golf and country, business, sporting and athletic clubs when traveling outside of their community with additional offerings and discounts to more than
1,000
renowned hotels, resorts, restaurants and entertainment venues. As of
June 13, 2017
and
December 27, 2016
, approximately
56%
and
54%
of our memberships were enrolled in one or more of our upgrade programs, respectively. As of
June 13, 2017
,
156
of our clubs offered O.N.E., compared to
153
as of
December 27, 2016
.
The following table presents our membership counts for clubs which we own, lease or operate through a joint venture, excluding managed clubs, at the end of the periods indicated.
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|
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|
|
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|
|
|
|
|
|
|
|
June 13,
2017
|
|
December 27,
2016
|
|
Change
|
|
% Change
|
Golf and Country Clubs (1)
|
|
124,028
|
|
|
120,076
|
|
|
3,952
|
|
|
3.3
|
%
|
Business, Sports and Alumni Clubs (1)
|
|
50,320
|
|
|
50,149
|
|
|
171
|
|
|
0.3
|
%
|
Total memberships at end of period (1)
|
|
174,348
|
|
|
170,225
|
|
|
4,123
|
|
|
2.4
|
%
|
_______________________
|
|
(1)
|
Membership counts exclude memberships at managed clubs. As of
June 13, 2017
, we had
9,692
memberships at managed clubs, including
4,314
memberships at golf and country clubs and
5,378
memberships at business, sports and alumni clubs, excluding certain international club memberships.
|
Seasonality of Demand and Fluctuations in Quarterly Results
The first, second and third fiscal quarters each consist of twelve weeks, whereas, the fourth quarter consists of sixteen or seventeen weeks of operations. Our business clubs typically generate a greater share of their yearly revenues in the fourth fiscal quarter, which includes the holiday and year-end party season. Usage of our golf and country club facilities typically declines significantly during the first and fourth fiscal quarters, when colder temperatures and shorter days reduce the demand for golf and golf-related activities. As a result of these factors, we usually generate a disproportionate share of our revenues and cash flows in the second, third and fourth fiscal quarters of each year and have lower revenues and cash flows in the first quarter. In addition, the timing of purchases, sales, leasing of facilities or divestitures, has caused and may cause our results of operations to vary significantly in otherwise comparable periods. To clarify variations caused by newly acquired or divested operations, we employ a same store analysis for year-over-year comparability purposes. See “Basis of Presentation—Same Store Analysis”.
Our results can also be affected by non-seasonal and severe weather patterns. Periods of extremely hot, dry, cold or rainy weather in a given region can be expected to impact our golf-related revenue for that region. Similarly, extended periods of low rainfall can affect the cost and availability of water needed to irrigate our golf courses and can adversely affect results for facilities in the impacted region. Keeping turf grass conditions at a satisfactory level to attract play on our golf courses requires significant amounts of water. Our ability to irrigate a course could be adversely impacted by a drought or other water
shortage, which we have experienced from time to time. A severe drought affecting a large number of properties could have a material adverse effect on our business and results of operations.
Further, the timing of distributions from our equity method investments, including Avendra, LLC, a purchasing cooperative of hospitality companies, varies due to factors outside of our control. Adjusted EBITDA, as defined in Note
12
of our consolidated condensed financial statements included elsewhere herein, is impacted when cash distributions from equity method investments vary from the equity in earnings recognized for the related investments.
Reinvention Capital Investments
We continue to identify and prioritize capital projects and believe the reinvention of our clubs through strategic capital investments help drive membership sales, facility usage and member retention. A significant portion of our invested capital is used to add reinvention elements to “major reinvention” clubs, defined as clubs receiving
$750,000
or more gross capital spend on a project basis, as we believe these discretionary club enhancements represent opportunities to increase revenues and generate a positive return on our investment, although we cannot guarantee such returns. Elements of reinvention capital expenditures include “Touchdown Rooms”, which are small private meeting rooms allowing members to hold impromptu private meetings while leveraging the other services of their club. “Anytime Lounges” provide a contemporary and casual atmosphere to work and network, while “Media Rooms” provide state-of-the-art facilities to enjoy various forms of entertainment. Additional reinvention elements include refitted fitness centers, enhanced pool area amenities such as shade cabanas, pool slides and splash pads, redesigned golf practice areas for use by beginners to avid golfers, and newly created or updated indoor and outdoor dining and social gathering areas designed to take advantage of the expansive views and natural beauty of our clubs.
Club Acquisitions and Dispositions
We continually explore opportunities to expand our business through select acquisitions of attractive properties. We also evaluate joint ventures and management opportunities that allow us to expand our operations and increase our recurring revenue base without substantial capital outlay. We believe that the fragmented nature of the private club industry presents significant opportunities for us to expand our portfolio by leveraging our operational expertise and by taking advantage of market conditions.
The table below summarizes the number and type of club acquisitions and dispositions during the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Golf & Country Clubs
|
|
Business, Sports & Alumni Clubs
|
Acquisitions / (Dispositions)
|
Owned
Clubs
|
|
Leased
Clubs
|
|
Managed
|
|
Joint
Venture
|
|
Total
|
|
Owned
Clubs
|
|
Leased
Clubs
|
|
Managed
|
|
Joint
Venture
|
|
Total
|
December 29, 2015
|
124
|
|
|
18
|
|
|
10
|
|
|
6
|
|
|
158
|
|
|
1
|
|
|
44
|
|
|
3
|
|
|
1
|
|
|
49
|
|
First Quarter 2016 (1)
|
2
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
1
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Second Quarter 2016 (2)
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Third Quarter 2016 (3)
|
1
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Fourth Quarter 2016 (4)
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
December 27, 2016
|
127
|
|
|
17
|
|
|
9
|
|
|
6
|
|
|
159
|
|
|
—
|
|
|
43
|
|
|
3
|
|
|
1
|
|
|
47
|
|
First Quarter 2017 (5)
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
Second Quarter 2017 (6)
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
June 13, 2017
|
129
|
|
|
17
|
|
|
8
|
|
|
6
|
|
|
160
|
|
|
—
|
|
|
40
|
|
|
3
|
|
|
1
|
|
|
44
|
|
_______________________
|
|
(1)
|
In December 2015, during the twelve weeks ended March 22, 2016, the management agreement with Jefferson
|
Lakeside Country Club, a private country club located in Richmond, Virginia was terminated. Additionally, in
December 2015, during the twelve weeks ended March 22, 2016, we closed Greenspoint Club, an owned business and sports club located in Houston, Texas. In February 2016, we purchased Marsh Creek Country Club, a private country club in St. Augustine, Florida. In March 2016, we purchased Santa Rosa Golf and Country Club, a private country club in Santa Rosa, California.
|
|
(2)
|
In June 2016, we entered into a management agreement with Country Club of Columbus, a private country club located in Columbus, Georgia.
|
|
|
(3)
|
In July 2016, the management agreement with Mill Creek Country Club, a private country club located in Mill Creek,
|
Washington was terminated. In August 2016, we purchased Heritage Golf Club, a private country club in Hilliard,
Ohio.
(4) In September 2016, the lease of Airways Golf Club, a leased public golf course in Fresno, California, was terminated.
Additionally, in December 2016, we closed University Club, a leased business and sports club located in Jacksonville,
Florida.
|
|
(5)
|
In January 2017, we ceased operating The Club at Key Center, a leased business club in Cleveland, Ohio. In February 2017, we purchased Eagle’s Nest Country Club, a private country club in Phoenix, Maryland, and North Hills Country Club, a private country club in Glenside, Pennsylvania. In March 2017, we purchased Norbeck Country Club, a private country club in Rockville, Maryland. Additionally, in March 2017, we ceased operating Piedmont Club, a leased business and sports club in Winston-Salem, North Carolina.
|
|
|
(6)
|
In April 2017, we purchased Oakhurst Golf and Country Club, a private country club in Clarkston, Michigan, and terminated the management agreement with Cateechee Golf Club, a public golf facility located in Hartwell, Georgia. In June 2017, we ceased operating Houston City Club, a leased business and sports club in Houston, Texas. Additionally, in June 2017, we sold Heron Bay Golf Club, a private country club in Locust Grove, Georgia, and Georgia National Golf Club, a private country club in McDonough, Georgia.
|
Subsequent to
June 13, 2017
, on
June 20, 2017
, we purchased Medina Golf and Country Club, a private country club in Medina, Minnesota.
Critical Accounting Policies and Estimates
The process of preparing financial statements in conformity with GAAP requires us to use estimates and assumptions that affect the amounts reported in the consolidated condensed financial statements and accompanying notes included elsewhere in this report. We base these estimates and assumptions upon the best information available to us at the time the estimates or assumptions are made. Accordingly, our actual results could differ materially from our estimates. The most significant estimates made by management include the expected life of an active membership over which we amortize initiation fees and deposits, our incremental borrowing rate which is used to accrete membership initiation deposit liabilities, assumptions and judgments used in estimating unrecognized tax benefits relating to uncertain tax positions and inputs for impairment testing of goodwill, intangible assets and long-lived assets.
For additional information about our critical accounting policies and estimates, see the disclosure included in our 2016 Annual Report.
Basis of Presentation
Total revenues recorded in our two principal business segments: (1) golf and country clubs and (2) business, sports and alumni clubs, are comprised mainly of revenues from membership dues (including upgrade dues), food and beverage operations and golf operations. Operating expenses recorded in our two principal business segments primarily consist of labor expenses, food and beverage costs, golf course maintenance costs and general and administrative costs.
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. Corporate expenses and other operations also includes corporate assets such as cash, goodwill, intangible assets, and loan origination fees.
EBITDA and Adjusted EBITDA
Adjusted EBITDA is a key financial measure used by our management to (1) internally measure our operating performance, (2) evaluate segment performance and allocate resources and support certain valuation analyses and (3) assess our ability to service our debt, incur additional debt, make acquisitions, pay dividends and make capital expenditures. We believe that Adjusted EBITDA is useful to investors and lenders as a performance measure because it adjusts our operating results to be reflective of our core, ongoing, operating performance. As such, Adjusted EBITDA provides relevant information about trends for the periods presented and adjusts for the impact of certain items on a consistent basis from period to period. We believe this measure allows investors and lenders to evaluate performance using the same metrics that management uses to evaluate performance and plan annual budgets. We also believe Adjusted EBITDA is useful
as a liquidity measure because it demonstrates our ability to service our debt, incur additional debt, make acquisitions, pay dividends and make capital expenditures. See Note
12
of our consolidated condensed financial statements included elsewhere herein for the definition of Adjusted EBITDA.
The following table provides a reconciliation of net income (loss) to EBITDA and Adjusted EBITDA for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Twenty-Four Weeks Ended
|
|
Four Quarters Ended
|
|
June 13, 2017
|
|
June 14, 2016
|
|
June 13, 2017
|
|
June 14, 2016
|
|
June 13, 2017
|
|
(in thousands)
|
Net income (loss)
|
$
|
791
|
|
|
$
|
5,750
|
|
|
$
|
(6,715
|
)
|
|
$
|
(2,563
|
)
|
|
$
|
(127
|
)
|
Interest expense
|
19,234
|
|
|
19,938
|
|
|
38,784
|
|
|
40,358
|
|
|
85,614
|
|
Income tax (benefit) expense
|
(1,499
|
)
|
|
4,078
|
|
|
(6,012
|
)
|
|
(1,459
|
)
|
|
(3,205
|
)
|
Interest and investment income
|
(155
|
)
|
|
(127
|
)
|
|
(320
|
)
|
|
(253
|
)
|
|
(675
|
)
|
Depreciation and amortization
|
25,384
|
|
|
24,355
|
|
|
50,380
|
|
|
48,569
|
|
|
109,011
|
|
EBITDA
|
$
|
43,755
|
|
|
$
|
53,994
|
|
|
$
|
76,117
|
|
|
$
|
84,652
|
|
|
$
|
190,618
|
|
Impairments and disposition of assets (1)
|
6,133
|
|
|
3,238
|
|
|
9,067
|
|
|
6,155
|
|
|
19,886
|
|
Income from divested clubs (2)
|
(71
|
)
|
|
(373
|
)
|
|
(166
|
)
|
|
(342
|
)
|
|
(694
|
)
|
Non-cash adjustments (3)
|
—
|
|
|
(842
|
)
|
|
—
|
|
|
(379
|
)
|
|
634
|
|
Acquisition related costs (4)
|
1,213
|
|
|
257
|
|
|
1,808
|
|
|
943
|
|
|
2,274
|
|
Capital structure costs (5)
|
770
|
|
|
208
|
|
|
770
|
|
|
950
|
|
|
1,660
|
|
Centralization and transformation costs (6)
|
6,646
|
|
|
2,061
|
|
|
9,044
|
|
|
4,479
|
|
|
14,371
|
|
Other adjustments (7)
|
1,308
|
|
|
1,184
|
|
|
3,538
|
|
|
2,270
|
|
|
6,343
|
|
Equity-based compensation expense (8)
|
2,138
|
|
|
1,830
|
|
|
4,077
|
|
|
3,000
|
|
|
8,082
|
|
Deferred revenue adjustment (9)
|
1,000
|
|
|
1,302
|
|
|
2,066
|
|
|
2,690
|
|
|
4,780
|
|
Adjusted EBITDA
|
$
|
62,892
|
|
|
$
|
62,859
|
|
|
$
|
106,321
|
|
|
$
|
104,418
|
|
|
$
|
247,954
|
|
The following table provides a reconciliation of net cash provided by operating activities to Adjusted EBITDA for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Twenty-Four Weeks Ended
|
|
Four Quarters Ended
|
|
June 13, 2017
|
|
June 14, 2016
|
|
June 13, 2017
|
|
June 14, 2016
|
|
June 13, 2017
|
|
(in thousands)
|
Net cash provided by operating activities
|
$
|
44,679
|
|
|
$
|
47,925
|
|
|
$
|
62,386
|
|
|
$
|
70,236
|
|
|
$
|
149,804
|
|
Interest expense
|
19,234
|
|
|
19,938
|
|
|
38,784
|
|
|
40,358
|
|
|
85,614
|
|
Income tax (benefit) expense
|
(1,499
|
)
|
|
4,078
|
|
|
(6,012
|
)
|
|
(1,459
|
)
|
|
(3,205
|
)
|
Interest and investment income
|
(155
|
)
|
|
(127
|
)
|
|
(320
|
)
|
|
(253
|
)
|
|
(675
|
)
|
Income from divested clubs (2)
|
(71
|
)
|
|
(373
|
)
|
|
(166
|
)
|
|
(342
|
)
|
|
(694
|
)
|
Non-cash adjustments (3)
|
—
|
|
|
(842
|
)
|
|
—
|
|
|
(379
|
)
|
|
634
|
|
Acquisition related costs (4)
|
1,213
|
|
|
257
|
|
|
1,808
|
|
|
943
|
|
|
2,274
|
|
Capital structure costs (5)
|
770
|
|
|
208
|
|
|
770
|
|
|
950
|
|
|
1,660
|
|
Centralization and transformation costs (6)
|
6,646
|
|
|
2,061
|
|
|
9,044
|
|
|
4,479
|
|
|
14,371
|
|
Other adjustments (7)
|
1,308
|
|
|
1,184
|
|
|
3,538
|
|
|
2,270
|
|
|
6,343
|
|
Deferred revenue adjustment (9)
|
1,000
|
|
|
1,302
|
|
|
2,066
|
|
|
2,690
|
|
|
4,780
|
|
Certain adjustments to reconcile net income (loss) to operating cash flows (10)
|
(10,233
|
)
|
|
(12,752
|
)
|
|
(5,577
|
)
|
|
(15,075
|
)
|
|
(12,952
|
)
|
Adjusted EBITDA
|
$
|
62,892
|
|
|
$
|
62,859
|
|
|
$
|
106,321
|
|
|
$
|
104,418
|
|
|
$
|
247,954
|
|
______________________
The following footnotes relate to the two preceding tables.
|
|
(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 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.
|
|
|
(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 SOX 404(b), 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, professional and legal fees associated with our strategic alternatives review, income or loss attributable to non-controlling equity interests, expenses paid to an affiliate of KSL and legal settlements.
|
|
|
(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 on
September 30, 2014
.
|
|
|
(10)
|
Includes the following adjustments to reconcile net income (loss) to net cash provided by operating activities from our consolidated condensed statements of cash flows: Net change in prepaid expenses and other assets, net change in receivables and membership notes, net change in accounts payable and accrued liabilities, net change in other current liabilities, bad debt expense, equity in loss (earnings) from unconsolidated ventures, gain on investment in unconsolidated ventures, distribution from investment in unconsolidated ventures, debt issuance costs and term loan discount, accretion of discount on member deposits, net change in deferred tax assets and liabilities and net change in other long-term liabilities. Certain other adjustments to reconcile net income (loss) to net cash provided by operating activities are not included as they are excluded from both net cash provided by operating activities and Adjusted EBITDA.
|
Same Store Analysis
We employ “same store” analysis techniques for a variety of management purposes. By our definition, clubs are evaluated at the beginning of each year and considered same store once they have been fully operational for one fiscal year. Newly acquired or opened clubs, clubs added under management agreements and divested clubs are not classified as same store; however, clubs held for sale are considered same store until they are divested. Once a club has been divested, it is removed from the same store classification for all periods presented. See summarized financial information by segment in Note
12
of our consolidated condensed financial statements included elsewhere herein. For same store year-over-year comparisons, clubs must be open the entire year for both years in the comparison to be considered same store, therefore, same store facility counts and operating results may vary depending on the years of comparison. We believe this approach provides for a more effective analysis tool because it allows us to assess the results of our core operating strategies by tracking the performance of our established same store clubs without the inclusion of divested clubs and newly acquired or opened clubs.
Our fiscal year consists of a 52/53 week period ending on the last Tuesday of December. Our first, second and third fiscal quarters each consist of twelve weeks while our fourth fiscal quarter consists of sixteen or seventeen weeks.
Results of Operations
The following table presents our consolidated condensed statements of operations as a percent of total revenues for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Twenty-Four Weeks Ended
|
|
June 13, 2017
|
|
% of Revenue
|
|
June 14, 2016
|
|
% of Revenue
|
|
June 13, 2017
|
|
% of Revenue
|
|
June 14, 2016
|
|
% of Revenue
|
|
(in thousands, except per share amounts)
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Club operations
|
$
|
194,780
|
|
|
70.5
|
%
|
|
$
|
189,203
|
|
|
70.3
|
%
|
|
$
|
360,941
|
|
|
72.5
|
%
|
|
$
|
349,892
|
|
|
72.3
|
%
|
Food and beverage
|
80,366
|
|
|
29.1
|
%
|
|
78,941
|
|
|
29.3
|
%
|
|
134,427
|
|
|
27.0
|
%
|
|
131,797
|
|
|
27.2
|
%
|
Other revenues
|
1,207
|
|
|
0.4
|
%
|
|
830
|
|
|
0.3
|
%
|
|
2,263
|
|
|
0.5
|
%
|
|
2,158
|
|
|
0.4
|
%
|
Total revenues
|
276,353
|
|
|
|
|
|
268,974
|
|
|
|
|
|
497,631
|
|
|
|
|
|
483,847
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct and selling, general and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Club operating costs exclusive of depreciation
|
175,953
|
|
|
63.7
|
%
|
|
170,157
|
|
|
63.3
|
%
|
|
322,250
|
|
|
64.8
|
%
|
|
312,511
|
|
|
64.6
|
%
|
Cost of food and beverage sales exclusive of depreciation
|
26,480
|
|
|
9.6
|
%
|
|
25,498
|
|
|
9.5
|
%
|
|
46,141
|
|
|
9.3
|
%
|
|
44,338
|
|
|
9.2
|
%
|
Depreciation and amortization
|
25,384
|
|
|
9.2
|
%
|
|
24,355
|
|
|
9.1
|
%
|
|
50,380
|
|
|
10.1
|
%
|
|
48,569
|
|
|
10.0
|
%
|
Provision for doubtful accounts
|
806
|
|
|
0.3
|
%
|
|
704
|
|
|
0.3
|
%
|
|
1,715
|
|
|
0.3
|
%
|
|
1,084
|
|
|
0.2
|
%
|
Loss on disposals of assets
|
1,957
|
|
|
0.7
|
%
|
|
2,738
|
|
|
1.0
|
%
|
|
4,891
|
|
|
1.0
|
%
|
|
5,655
|
|
|
1.2
|
%
|
Impairment of assets
|
4,176
|
|
|
1.5
|
%
|
|
500
|
|
|
0.2
|
%
|
|
4,176
|
|
|
0.8
|
%
|
|
500
|
|
|
0.1
|
%
|
Equity in earnings from unconsolidated ventures
|
(1,448
|
)
|
|
(0.5
|
)%
|
|
(2,118
|
)
|
|
(0.8
|
)%
|
|
(3,629
|
)
|
|
(0.7
|
)%
|
|
(2,103
|
)
|
|
(0.4
|
)%
|
Selling, general and administrative
|
24,674
|
|
|
8.9
|
%
|
|
17,501
|
|
|
6.5
|
%
|
|
45,970
|
|
|
9.2
|
%
|
|
37,210
|
|
|
7.7
|
%
|
Operating income
|
18,371
|
|
|
6.6
|
%
|
|
29,639
|
|
|
11.0
|
%
|
|
25,737
|
|
|
5.2
|
%
|
|
36,083
|
|
|
7.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and investment income
|
155
|
|
|
0.1
|
%
|
|
127
|
|
|
—
|
%
|
|
320
|
|
|
0.1
|
%
|
|
253
|
|
|
0.1
|
%
|
Interest expense
|
(19,234
|
)
|
|
(7.0
|
)%
|
|
(19,938
|
)
|
|
(7.4
|
)%
|
|
(38,784
|
)
|
|
(7.8
|
)%
|
|
(40,358
|
)
|
|
(8.3
|
)%
|
(Loss) income before income taxes
|
(708
|
)
|
|
(0.3
|
)%
|
|
9,828
|
|
|
3.7
|
%
|
|
(12,727
|
)
|
|
(2.6
|
)%
|
|
(4,022
|
)
|
|
(0.8
|
)%
|
Income tax benefit (expense)
|
1,499
|
|
|
0.5
|
%
|
|
(4,078
|
)
|
|
(1.5
|
)%
|
|
6,012
|
|
|
1.2
|
%
|
|
1,459
|
|
|
0.3
|
%
|
NET INCOME (LOSS)
|
791
|
|
|
0.3
|
%
|
|
5,750
|
|
|
2.1
|
%
|
|
(6,715
|
)
|
|
(1.3
|
)%
|
|
(2,563
|
)
|
|
(0.5
|
)%
|
Net income attributable to noncontrolling interests
|
(123
|
)
|
|
—
|
%
|
|
(171
|
)
|
|
(0.1
|
)%
|
|
(140
|
)
|
|
—
|
%
|
|
(272
|
)
|
|
(0.1
|
)%
|
Net income (loss) attributable to ClubCorp
|
$
|
668
|
|
|
0.2
|
%
|
|
$
|
5,579
|
|
|
2.1
|
%
|
|
$
|
(6,855
|
)
|
|
(1.4
|
)%
|
|
$
|
(2,835
|
)
|
|
(0.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING, BASIC
|
64,555
|
|
|
|
|
64,518
|
|
|
|
|
64,498
|
|
|
|
|
64,496
|
|
|
|
WEIGHTED AVERAGE SHARES OUTSTANDING, DILUTED
|
64,555
|
|
|
|
|
64,556
|
|
|
|
|
64,498
|
|
|
|
|
64,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EARNINGS PER COMMON SHARE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to ClubCorp, Basic
|
$
|
0.01
|
|
|
|
|
$
|
0.08
|
|
|
|
|
$
|
(0.11
|
)
|
|
|
|
$
|
(0.05
|
)
|
|
|
Net income (loss) attributable to ClubCorp, Diluted
|
$
|
0.01
|
|
|
|
|
$
|
0.08
|
|
|
|
|
$
|
(0.11
|
)
|
|
|
|
$
|
(0.05
|
)
|
|
|
Comparison of the
Twelve Weeks Ended
June 13, 2017
and
June 14, 2016
The following table presents key financial information derived from our consolidated condensed statements of operations for the
twelve weeks ended
June 13, 2017
and
June 14, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
|
|
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
% Change
|
|
|
(dollars in thousands)
|
Total revenues
|
|
$
|
276,353
|
|
|
$
|
268,974
|
|
|
$
|
7,379
|
|
|
2.7
|
%
|
Club operating costs and expenses exclusive of depreciation (1)
|
|
203,239
|
|
|
196,359
|
|
|
6,880
|
|
|
3.5
|
%
|
Depreciation and amortization
|
|
25,384
|
|
|
24,355
|
|
|
1,029
|
|
|
4.2
|
%
|
Loss on disposals of assets
|
|
1,957
|
|
|
2,738
|
|
|
(781
|
)
|
|
(28.5
|
)%
|
Impairment of assets
|
|
4,176
|
|
|
500
|
|
|
3,676
|
|
|
735.2
|
%
|
Equity in earnings from unconsolidated ventures
|
|
(1,448
|
)
|
|
(2,118
|
)
|
|
670
|
|
|
31.6
|
%
|
Selling, general and administrative
|
|
24,674
|
|
|
17,501
|
|
|
7,173
|
|
|
41.0
|
%
|
Operating income
|
|
18,371
|
|
|
29,639
|
|
|
(11,268
|
)
|
|
(38.0
|
)%
|
Interest and investment income
|
|
155
|
|
|
127
|
|
|
28
|
|
|
22.0
|
%
|
Interest expense
|
|
(19,234
|
)
|
|
(19,938
|
)
|
|
704
|
|
|
3.5
|
%
|
(Loss) income before income taxes
|
|
(708
|
)
|
|
9,828
|
|
|
(10,536
|
)
|
|
(107.2
|
)%
|
Income tax benefit (expense)
|
|
1,499
|
|
|
(4,078
|
)
|
|
5,577
|
|
|
136.8
|
%
|
Net income
|
|
$
|
791
|
|
|
$
|
5,750
|
|
|
$
|
(4,959
|
)
|
|
(86.2
|
)%
|
__________________________
|
|
(1)
|
Comprised of club operating costs, cost of food and beverage sales and provision for doubtful accounts.
|
Total revenues of
$276.4 million
for the
twelve weeks ended
June 13, 2017
increased
$7.4 million
, or
2.7%
, over the
twelve weeks ended
June 14, 2016
. Same store golf and country club revenue increased by
$3.8 million
driven primarily by increases in same store dues, food and beverage revenue and golf operations revenue. These factors are discussed below under “Segment Operations—Golf and Country Clubs”. In addition, our same store business, sports and alumni club segment revenue decreased
$0.3 million
primarily due to decreases in food and beverage revenue offset by increases in other revenue and same store dues. These factors are discussed below under “Segment Operations—Business, Sports and Alumni Clubs”. Additionally, total revenue attributable to golf and country club properties added in 2016 and 2017 increased
$5.1 million
. Revenue from other operations increased
$1.5 million
, including
$0.7 million
in reimbursements for certain operating costs at same store managed clubs. Revenue related to divested clubs decreased
$3.0 million
, including
$0.6 million
in reimbursements for certain operating costs at divested managed clubs. The reimbursements for operating costs at managed clubs do not include a markup and have no net impact on operating income, as such costs are included within club operating costs and expenses.
Club operating costs and expenses totaling
$203.2 million
for the
twelve weeks ended
June 13, 2017
increased
$6.9 million
, or
3.5%
, compared to the
twelve weeks ended
June 14, 2016
. The increase is largely due to
$5.6 million
of club operating costs and expenses from club properties added in 2016 and 2017, a
$1.4 million
increase in variable labor costs, food and beverage cost of goods sold and retail cost of goods sold associated with higher revenues, a
$0.8 million
increase in service fees and a
$0.5 million
increase in rent offset by a
$2.1 million
decrease in costs related to divested clubs. Additionally, certain operating costs increased
$0.7 million
at same store managed clubs and decreased
$0.6 million
at divested managed clubs. These operating costs at managed clubs are offset by reimbursements recorded within revenue, resulting in no net impact on operating income. The remaining change is primarily comprised of an increase in other expenses.
Depreciation and amortization expense increased
$1.0 million
, or
4.2%
, during the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
. Depreciation expense increased
$1.4 million
due to our increased fixed asset balances primarily related to club acquisitions, along with the related impact of reinvention and expansion capital spend. Amortization expense decreased
$0.4 million
largely due to trade names and member relationships that were fully amortized during fiscal year 2016. During the
twelve weeks ended
June 13, 2017
, depreciation and amortization for Golf and Country Clubs and Business, Sports and Alumni Clubs was
$20.7 million
and
$2.4 million
, respectively. During the
twelve weeks ended
June 14, 2016
, depreciation and amortization for Golf and Country Clubs and Business, Sports and Alumni clubs was
$19.9 million
and
$2.7 million
, respectively. These expenses were primarily comprised of depreciation on our property and equipment and amortization of intangibles related to management contracts.
Loss on disposal of assets for the
twelve weeks ended
June 13, 2017
and
June 14, 2016
of
$2.0 million
and
$2.7 million
, respectively, were largely comprised of losses on asset retirements during the normal course of business, including property and equipment disposed of in connection with our increased capital spend on reinventions and renovations. Our losses for the
twelve weeks ended
June 13, 2017
and
June 14, 2016
were offset by
$2.8 million
and
$0.5 million
, respectively, of insurance proceeds received primarily related to rain and flooding events, that occurred during fiscal year 2016. During the
twelve weeks ended
June 13, 2017
, loss on disposal of assets for Golf and Country Clubs and Business, Sports and Alumni Clubs was
$1.7 million
and
$0.2 million
, respectively. During the
twelve weeks ended
June 14, 2016
, loss on disposal of assets for Golf and Country Clubs and Business, Sports and Alumni clubs was
$2.7 million
and
$0.1 million
, respectively. These expenses related primarily to asset retirements associated with our club reinventions and in the ordinary course of business offset by insurance proceeds received primarily related to rain and flooding events, that occurred during fiscal year 2016.
Impairment of assets of
$4.2 million
and
$0.5 million
for the
twelve weeks ended
June 13, 2017
and
June 14, 2016
, respectively, were largely comprised of impairment losses to property and equipment at certain of our clubs to adjust the carrying amount of certain property and equipment to its fair value, including assets at two golf and country clubs which were divested during the twelve weeks ended
June 13, 2017
, and impairment losses to management contract intangible assets. During the
twelve weeks ended
June 13, 2017
and
June 14, 2016
, impairment of assets for Golf and Country Clubs was
$3.5 million
and
zero
, respectively. During the
twelve weeks ended
June 13, 2017
and
June 14, 2016
, impairment of assets for Business, Sports and Alumni Clubs was
$0.7 million
and
$0.5 million
, respectively.
We recognize the earnings of one of our unconsolidated ventures, Avendra, LLC, within equity in earnings or within interest and investment income, depending on the timing of cash distributions and the investment balance. Equity in earnings from unconsolidated ventures was
$1.4 million
and
$2.1 million
for the
twelve weeks ended
June 13, 2017
and
June 14, 2016
, respectively.
Selling, general and administrative expenses of
$24.7 million
for the
twelve weeks ended
June 13, 2017
increased
$7.2 million
, or
41.0%
, compared to the
twelve weeks ended
June 14, 2016
. The major components of selling, general and administrative expenses are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
|
|
Components of selling, general and administrative expense (1)
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
% Change
|
|
|
(dollars in thousands)
|
Selling, general and administrative expense, excluding equity-based compensation and capital structure costs
|
|
$
|
22,715
|
|
|
$
|
16,361
|
|
|
$
|
6,354
|
|
|
38.8
|
%
|
Capital structure costs
|
|
770
|
|
|
207
|
|
|
563
|
|
|
272.0
|
%
|
Equity-based compensation
|
|
1,189
|
|
|
933
|
|
|
256
|
|
|
27.4
|
%
|
Selling, general and administrative
|
|
$
|
24,674
|
|
|
$
|
17,501
|
|
|
$
|
7,173
|
|
|
41.0
|
%
|
______________________
|
|
(1)
|
Selling, general and administrative expense, excluding equity-based compensation and capital structure costs, is a non-GAAP financial measure. We believe this measure is informative to investors because excluding capital structure costs and equity-based compensation will allow investors to more meaningfully compare our results between periods.
|
Selling, general and administrative expenses, excluding equity-based compensation and capital structure costs, were
$22.7 million
for the
twelve weeks ended
June 13, 2017
, an increase of
$6.4 million
, or
38.8%
, compared to the
twelve weeks ended
June 14, 2016
. This included increased costs of
$4.4 million
related to the design and implementation phase of our centralization and transformation of administrative processes, finance processes and related IT systems, an increase of
$1.0 million
in professional and legal fees associated with our strategic alternatives review and an increase of
$0.5 million
in acquisition costs. The remaining change is comprised of an increase in general and administrative expenses.
Capital structure costs included within selling, general and administrative expenses of
$0.8 million
and
$0.2 million
during the
twelve weeks ended
June 13, 2017
and
June 14, 2016
, respectively, were comprised of costs related to amendments to the credit agreement governing the Secured Credit Facilities.
Interest expense totaled
$19.2 million
and
$19.9 million
for the
twelve weeks ended
June 13, 2017
and
June 14, 2016
, respectively. The
$0.7 million
decrease in interest expense is primarily comprised of a
$0.7 million
decrease in interest on the term loan facility due primarily to a lower principal balance outstanding and a lower interest rate during the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
. During the
twelve weeks ended
June 13, 2017
, interest expense for Golf and Country Clubs and Business, Sports and Alumni Clubs was
$4.4 million
and
$0.9 million
, respectively. During the
twelve weeks ended
June 14, 2016
, interest expense for Golf and Country Clubs and Business, Sports and Alumni clubs was
$4.7 million
and
$1.0 million
, respectively. The interest expense for Golf and Country Clubs was primarily driven by accretion expense related to membership initiation payments along with interest expense related to capital leases. The interest expense for Business, Sports and Alumni Clubs was primarily driven by accretion expense related to membership initiation payments.
Income tax benefit for the
twelve weeks ended
June 13, 2017
increased
$5.6 million
compared to the
twelve weeks ended
June 14, 2016
, and the effective tax rates were
211.7%
and
41.5%
for the
twelve weeks ended
June 13, 2017
and
June 14, 2016
, respectively. The amount of tax expense or benefit recognized in interim financial statements is determined by multiplying the year-to-date pre-tax 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). For the
twelve weeks ended
June 13, 2017
and
June 14, 2016
, 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.
Segment Operations
The following table presents key financial information for our segments and Adjusted EBITDA for the
twelve weeks ended
June 13, 2017
and
June 14, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
|
|
Consolidated Summary
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
% Change
|
|
|
(dollars in thousands)
|
Total Revenue
|
|
$
|
276,353
|
|
|
$
|
268,974
|
|
|
$
|
7,379
|
|
|
2.7
|
%
|
|
|
|
|
|
|
|
|
|
Golf and Country Clubs Adjusted EBITDA (1)
|
|
$
|
66,062
|
|
|
$
|
66,067
|
|
|
$
|
(5
|
)
|
|
—
|
%
|
Business, Sports and Alumni Clubs Adjusted EBITDA (1)
|
|
9,723
|
|
|
10,194
|
|
|
(471
|
)
|
|
(4.6
|
)%
|
Corporate expenses and other operations
|
|
(12,893
|
)
|
|
(13,402
|
)
|
|
509
|
|
|
3.8
|
%
|
Adjusted EBITDA
|
|
$
|
62,892
|
|
|
$
|
62,859
|
|
|
$
|
33
|
|
|
0.1
|
%
|
_______________________________
|
|
(1)
|
See Note
12
of our consolidated condensed financial statements included elsewhere herein for the definition of Adjusted EBITDA and for a reconciliation of Golf and Country Clubs Adjusted EBITDA and Business, Sports and Alumni Clubs Adjusted EBITDA to (loss) income before income taxes.
|
Golf and Country Clubs
The following table presents key financial information for our golf and country clubs for the
twelve weeks ended
June 13, 2017
and the
twelve weeks ended
June 14, 2016
. Divested clubs are excluded from segment reporting for all periods presented. References to percentage changes that are not meaningful, as new or acquired clubs include different clubs for each period, are denoted by ‘‘NM’’.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
|
|
Golf and Country Club Segment
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Same Store Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Dues
|
|
$
|
100,750
|
|
|
$
|
98,468
|
|
|
$
|
2,282
|
|
|
2.3
|
%
|
Food and Beverage
|
|
54,563
|
|
|
53,479
|
|
|
$
|
1,084
|
|
|
2.0
|
%
|
Golf Operations
|
|
51,612
|
|
|
51,146
|
|
|
$
|
466
|
|
|
0.9
|
%
|
Other
|
|
13,623
|
|
|
13,639
|
|
|
$
|
(16
|
)
|
|
(0.1
|
)%
|
Revenue
|
|
$
|
220,548
|
|
|
$
|
216,732
|
|
|
$
|
3,816
|
|
|
1.8
|
%
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
154,770
|
|
|
$
|
150,995
|
|
|
$
|
3,775
|
|
|
2.5
|
%
|
Adjusted EBITDA
|
|
$
|
65,778
|
|
|
$
|
65,737
|
|
|
$
|
41
|
|
|
0.1
|
%
|
Adjusted EBITDA Margin
|
|
29.8
|
%
|
|
30.3
|
%
|
|
(50) bps
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
New or Acquired Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
7,311
|
|
|
$
|
2,187
|
|
|
$
|
5,124
|
|
|
NM
|
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
7,027
|
|
|
$
|
1,857
|
|
|
$
|
5,170
|
|
|
NM
|
|
Adjusted EBITDA
|
|
$
|
284
|
|
|
$
|
330
|
|
|
$
|
(46
|
)
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
Total Golf and Country Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
227,859
|
|
|
$
|
218,919
|
|
|
$
|
8,940
|
|
|
4.1
|
%
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
161,797
|
|
|
$
|
152,852
|
|
|
$
|
8,945
|
|
|
5.9
|
%
|
Adjusted EBITDA
|
|
$
|
66,062
|
|
|
$
|
66,067
|
|
|
$
|
(5
|
)
|
|
—
|
%
|
Adjusted EBITDA Margin
|
|
29.0
|
%
|
|
30.2
|
%
|
|
(120) bps
|
|
(4.0
|
)%
|
|
|
|
|
|
|
|
|
|
Total memberships, excluding managed club memberships
|
|
124,028
|
|
|
119,703
|
|
|
4,325
|
|
|
3.6
|
%
|
Total revenue for same store golf and country clubs increased
$3.8 million
, or
1.8%
, for the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
due primarily to increases in same store dues, food and beverage revenue and golf operations revenue. Same store dues revenue increased
$2.3 million
, or
2.3%
, due primarily to an increase in same store memberships and greater club participation in the O.N.E. program. Food and beverage revenue increased
$1.1 million
, or
2.0%
, due primarily to a
2.3%
increase in a la carte revenue. Golf operations revenue increased
$0.5 million
, or
0.9%
, due largely to higher cart fee and greens fee revenue as a result of favorable weather leading to more golf rounds and an increase in retail sales.
Club operating costs and expenses include costs such as payroll and payroll related expenses, costs of food and beverage sales, costs of retail sales, golf operations and golf course maintenance expenses, utilities and property taxes. Club operating costs and expenses, excluding costs of food and beverage sales, for same store golf and country clubs increased
$3.2 million
, or
2.5%
, for the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
. The increase is primarily related to higher payroll expense, higher administrative expenses and higher retail cost of sales due primarily to increases in retail sales. These operating costs, as a percentage of total same store club revenue, were
61.5%
and
61.1%
for the same periods, respectively.
Costs of food and beverage sales for same store golf and country clubs increased
$0.5 million
, or
2.8%
, for the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
, due primarily to increases in food and beverage sales primarily driven by increased usage of the O.N.E. program. These costs, as a percentage of food and beverage revenues, were
35.1%
and
34.8%
for the same periods, respectively.
Adjusted EBITDA for same store golf and country clubs remained flat for the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
, largely due to an increase in higher margin dues revenue primarily driven by an increase in same store membership, offset by an increase in club operating costs. As a result, same store Adjusted EBITDA margin for the
twelve weeks ended
June 13, 2017
decreased
50
basis points over the
twelve weeks ended
June 14, 2016
.
Business, Sports and Alumni Clubs
The following table presents key financial information for our business, sports and alumni clubs for the
twelve weeks ended
June 13, 2017
and the
twelve weeks ended
June 14, 2016
. Divested clubs are excluded from segment reporting for all periods presented. References to percentage changes that are not meaningful, as new or acquired clubs include different clubs for each period, are denoted by ‘‘NM’’.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
|
|
Business, Sports and Alumni Club Segment
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Same Store Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Dues
|
|
$
|
17,469
|
|
|
$
|
17,342
|
|
|
$
|
127
|
|
|
0.7
|
%
|
Food and Beverage
|
|
23,142
|
|
|
23,792
|
|
|
(650
|
)
|
|
(2.7
|
)%
|
Other
|
|
2,272
|
|
|
2,024
|
|
|
248
|
|
|
12.3
|
%
|
Revenue
|
|
$
|
42,883
|
|
|
$
|
43,158
|
|
|
$
|
(275
|
)
|
|
(0.6
|
)%
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
33,156
|
|
|
$
|
32,953
|
|
|
$
|
203
|
|
|
0.6
|
%
|
Adjusted EBITDA
|
|
$
|
9,727
|
|
|
$
|
10,205
|
|
|
$
|
(478
|
)
|
|
(4.7
|
)%
|
Adjusted EBITDA Margin
|
|
22.7
|
%
|
|
23.6
|
%
|
|
(90) bps
|
|
(3.8
|
)%
|
|
|
|
|
|
|
|
|
|
New or Acquired Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
NM
|
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
4
|
|
|
$
|
11
|
|
|
$
|
(7
|
)
|
|
NM
|
|
Adjusted EBITDA
|
|
$
|
(4
|
)
|
|
$
|
(11
|
)
|
|
$
|
7
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
Total Business, Sports and Alumni Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
42,883
|
|
|
$
|
43,158
|
|
|
$
|
(275
|
)
|
|
(0.6
|
)%
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
33,160
|
|
|
$
|
32,964
|
|
|
$
|
196
|
|
|
0.6
|
%
|
Adjusted EBITDA
|
|
$
|
9,723
|
|
|
$
|
10,194
|
|
|
$
|
(471
|
)
|
|
(4.6
|
)%
|
Adjusted EBITDA Margin
|
|
22.7
|
%
|
|
23.6
|
%
|
|
(90) bps
|
|
(3.8
|
)%
|
|
|
|
|
|
|
|
|
|
Total memberships, excluding managed club memberships
|
|
50,320
|
|
|
50,335
|
|
|
(15
|
)
|
|
—
|
%
|
Total revenues for same store business, sports and alumni clubs decreased
$0.3 million
, or
0.6%
, for the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
primarily due to a decrease in food and beverage revenue, partially offset by an increase in other revenue and same store dues. Food and beverage revenue decreased
$0.7 million
, or
2.7%
, due primarily to a decrease in private party revenue and a la carte revenue. Dues revenue increased
$0.1 million
, or
0.7%
, due to an increase in upgrade dues related to the O.N.E program partially offset by a decline in same store social memberships.
Club operating costs and expenses include costs such as payroll and payroll related expenses, costs of food and beverage sales and rent. Club operating costs and expenses, excluding costs of food and beverage sales, for same store business, sports and alumni clubs increased
$0.2 million
, or
0.6%
, for the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
. The increase is largely due to an increase in rent expense. These operating costs, as a percentage of total same store club revenue, were
62.8%
and
62.0%
for the same periods, respectively.
Costs of food and beverage sales for same store business, sports and alumni clubs remained flat for the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
. These costs, as a percentage of food and beverage revenues, were
26.9%
and
26.0%
for the same periods, respectively.
Adjusted EBITDA for same store business, sports and alumni clubs decreased
$0.5 million
, or
4.7%
, for the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
, largely due to an increase in club operating costs and a decline in same store social memberships. Same store Adjusted EBITDA margin for the
twelve weeks ended
June 13, 2017
decreased
90
basis points compared to the
twelve weeks ended
June 14, 2016
.
Corporate expenses and other operations
The following table presents financial information for corporate expenses and other operations, which is comprised primarily of activities not related to our two business segments, for the
twelve weeks ended
June 13, 2017
and
June 14, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
|
|
|
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Corporate expenses and other operations
|
|
$
|
(12,893
|
)
|
|
$
|
(13,402
|
)
|
|
$
|
509
|
|
|
3.8
|
%
|
Corporate expenses and other operations decreased
$0.5 million
, or
3.8%
, for the
twelve weeks ended
June 13, 2017
compared to the
twelve weeks ended
June 14, 2016
largely due to a
$0.6 million
decrease in insurance expense. This decrease was partially offset by an increase of
$0.1 million
in other corporate expenses.
Comparison of the
Twenty-Four Weeks Ended
June 13, 2017
and
June 14, 2016
The following table presents key financial information derived from our consolidated condensed statements of operations for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
|
|
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
% Change
|
|
|
(dollars in thousands)
|
Total revenues
|
|
$
|
497,631
|
|
|
$
|
483,847
|
|
|
$
|
13,784
|
|
|
2.8
|
%
|
Club operating costs and expenses exclusive of depreciation (1)
|
|
370,106
|
|
|
357,933
|
|
|
12,173
|
|
|
3.4
|
%
|
Depreciation and amortization
|
|
50,380
|
|
|
48,569
|
|
|
1,811
|
|
|
3.7
|
%
|
Loss on disposals of assets
|
|
4,891
|
|
|
5,655
|
|
|
(764
|
)
|
|
(13.5
|
)%
|
Impairment of assets
|
|
4,176
|
|
|
500
|
|
|
3,676
|
|
|
735.2
|
%
|
Equity in earnings from unconsolidated ventures
|
|
(3,629
|
)
|
|
(2,103
|
)
|
|
(1,526
|
)
|
|
(72.6
|
)%
|
Selling, general and administrative
|
|
45,970
|
|
|
37,210
|
|
|
8,760
|
|
|
23.5
|
%
|
Operating income
|
|
25,737
|
|
|
36,083
|
|
|
(10,346
|
)
|
|
(28.7
|
)%
|
Interest and investment income
|
|
320
|
|
|
253
|
|
|
67
|
|
|
26.5
|
%
|
Interest expense
|
|
(38,784
|
)
|
|
(40,358
|
)
|
|
1,574
|
|
|
3.9
|
%
|
Loss before income taxes
|
|
(12,727
|
)
|
|
(4,022
|
)
|
|
(8,705
|
)
|
|
(216.4
|
)%
|
Income tax benefit
|
|
6,012
|
|
|
1,459
|
|
|
4,553
|
|
|
312.1
|
%
|
Net loss
|
|
$
|
(6,715
|
)
|
|
$
|
(2,563
|
)
|
|
$
|
(4,152
|
)
|
|
(162.0
|
)%
|
__________________________
|
|
(1)
|
Comprised of club operating costs, cost of food and beverage sales and provision for doubtful accounts.
|
Total revenues of
$497.6 million
for the
twenty-four weeks ended
June 13, 2017
increased
$13.8 million
, or
2.8%
, over the
twenty-four weeks ended
June 14, 2016
. Same store golf and country club revenue increased by
$9.0 million
driven primarily by increases in same store dues, golf operations revenue and food and beverage revenue. These factors are discussed below under “Segment Operations—Golf and Country Clubs”. In addition, our same store business, sports and alumni club segment revenue remained flat primarily due to a decrease in food and beverage revenue offset by increases in other revenue and same store dues. These factors are discussed below under “Segment Operations—Business, Sports and Alumni Clubs”. Additionally, total revenue attributable to golf and country club properties added in 2016 and 2017 increased
$7.2 million
. Revenue from other operations increased
$2.0 million
, including
$1.1 million
in reimbursements for certain operating costs at same store managed clubs. Revenue related to divested clubs decreased
$4.7 million
, including
$0.9 million
in reimbursements for certain operating costs at divested managed clubs. The reimbursements for operating costs at managed clubs do not include a markup and have no net impact on operating income, as such costs are included within club operating costs and expenses.
Club operating costs and expenses totaling
$370.1 million
for the
twenty-four weeks ended
June 13, 2017
increased
$12.2 million
, or
3.4%
, compared to the
twenty-four weeks ended
June 14, 2016
. The increase is largely due to
$8.2 million
of club operating costs and expenses from club properties added in 2016 and 2017, a
$2.8 million
increase in variable labor costs, food and beverage cost of goods sold and retail cost of goods sold associated with higher revenues, a
$1.9 million
increase in insurance expense related to higher claims, a
$1.5 million
increase in service fees, a
$0.6 million
increase in rent, a
$0.5 million
increase in equity-based compensation offset by a
$3.7 million
decrease in costs related to divested clubs. Additionally, certain operating costs at managed clubs increased
$1.1 million
at same store clubs and decreased
$0.9 million
at divested clubs. These operating costs at managed clubs are offset by reimbursements recorded within revenue, resulting in no net impact on operating income. The remaining change is primarily comprised of an increase in other expenses.
Depreciation and amortization expense increased
$1.8 million
, or
3.7%
, during the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
. Depreciation expense increased
$2.6 million
due to our increased fixed asset balances primarily related to club acquisitions, along with the related impact of reinvention and expansion capital spend. Amortization expense decreased
$0.8 million
largely due to trade names and member relationships that were fully amortized during fiscal year 2016. During the
twenty-four weeks ended
June 13, 2017
, depreciation and amortization for Golf and Country Clubs and Business, Sports and Alumni Clubs was
$41.1 million
and
$4.9 million
, respectively. During the
twenty-four weeks ended
June 14, 2016
, depreciation and amortization for Golf and Country Clubs and Business, Sports and Alumni
clubs was
$39.7 million
and
$5.4 million
, respectively. These expenses were primarily comprised of depreciation on our property and equipment and amortization of intangibles related to management contracts.
Loss on disposal of assets for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
of
$4.9 million
and
$5.7 million
, respectively, were largely comprised of losses on asset retirements during the normal course of business, including property and equipment disposed of in connection with our increased capital spend on reinventions and renovations. Our losses for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
were offset by
$2.9 million
and
$0.5 million
, respectively, of insurance proceeds received primarily related to rain and flooding events, that occurred during fiscal year 2016. During the
twenty-four weeks ended
June 13, 2017
, loss on disposal of assets for Golf and Country Clubs and Business, Sports and Alumni Clubs was
$4.6 million
and
$0.3 million
, respectively. During the
twenty-four weeks ended
June 14, 2016
, loss on disposal of assets for Golf and Country Clubs and Business, Sports and Alumni clubs was
$5.2 million
and
$0.3 million
, respectively. These expenses related primarily to asset retirements associated with our club reinventions and in the ordinary course of business offset by insurance proceeds received primarily related to rain and flooding events, that occurred during fiscal year 2016.
Impairment of assets of
$4.2 million
and
$0.5 million
for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, respectively, were largely comprised of impairment losses to property and equipment at certain of our clubs to adjust the carrying amount of certain property and equipment to its fair value, including assets at two golf and country clubs which were divested during the twelve weeks ended
June 13, 2017
and impairment losses to management contract intangible assets. During the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, impairment of assets for Golf and Country Clubs was
$3.5 million
and
zero
, respectively. During the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, impairment of assets for Business, Sports and Alumni Clubs was
$0.7 million
and
$0.5 million
, respectively.
We recognize the earnings of one of our unconsolidated ventures, Avendra, LLC, within equity in earnings or within interest and investment income, depending on the timing of cash distributions and the investment balance. Equity in earnings from unconsolidated ventures was
$3.6 million
and
$2.1 million
for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, respectively.
Selling, general and administrative expenses of
$46.0 million
for the
twenty-four weeks ended
June 13, 2017
increased
$8.8 million
, or
23.5%
, compared to the
twenty-four weeks ended
June 14, 2016
. The major components of selling, general and administrative expenses are shown in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
|
|
Components of selling, general and administrative expense (1)
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
% Change
|
|
|
(dollars in thousands)
|
Selling, general and administrative expense, excluding equity-based compensation and capital structure costs
|
|
$
|
42,833
|
|
|
$
|
34,527
|
|
|
$
|
8,306
|
|
|
24.1
|
%
|
Capital structure costs
|
|
772
|
|
|
950
|
|
|
(178
|
)
|
|
(18.7
|
)%
|
Equity-based compensation
|
|
2,365
|
|
|
1,733
|
|
|
632
|
|
|
36.5
|
%
|
Selling, general and administrative
|
|
$
|
45,970
|
|
|
$
|
37,210
|
|
|
$
|
8,760
|
|
|
23.5
|
%
|
______________________
|
|
(1)
|
Selling, general and administrative expense, excluding equity-based compensation and capital structure costs, is a non-GAAP financial measure. We believe this measure is informative to investors because excluding capital structure costs and equity-based compensation will allow investors to more meaningfully compare our results between periods.
|
Selling, general and administrative expenses, excluding equity-based compensation and capital structure costs, were
$42.8 million
for the
twenty-four weeks ended
June 13, 2017
, an increase of
$8.3 million
, or
24.1%
, compared to the
twenty-four weeks ended
June 14, 2016
. This included increased costs of
$6.2 million
related to the design and implementation phase of our centralization and transformation of administrative processes, finance processes and related IT systems, an increase of
$3.0 million
in legal settlement expenses and an increase of
$1.3 million
in professional and legal fees associated with our strategic alternatives review. These increases were offset by
$1.9 million
of lower costs related to our initial compliance with SOX 404(b) and a
$0.7 million
decrease in severance expense. We also had a
$0.4 million
decrease in ongoing support costs, including payroll, costs related to software agreements and service fees as part of our centralization and transformation of administrative processes, finance processes and related IT systems. The remaining change is comprised of an increase in general and administrative expenses.
Capital structure costs included within selling, general and administrative expenses of
$0.8 million
and
$1.0 million
during the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, respectively, were comprised of costs related to amendments to the credit agreement governing the Secured Credit Facilities.
Interest expense totaled
$38.8 million
and
$40.4 million
for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, respectively. The
$1.6 million
decrease in interest expense is primarily comprised of a
$1.3 million
decrease in interest on the term loan facility due primarily to a lower principal balance outstanding and a lower interest rate during the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
and a
$0.3 million
decrease in interest on our mortgage loans due primarily to a lower interest rate during the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
. During the
twenty-four weeks ended
June 13, 2017
, interest expense for Golf and Country Clubs and Business, Sports and Alumni Clubs was
$8.8 million
and
$1.7 million
, respectively. During the
twenty-four weeks ended
June 14, 2016
, interest expense for Golf and Country Clubs and Business, Sports and Alumni clubs was
$9.3 million
and
$2.1 million
, respectively. The interest expense for Golf and Country Clubs was primarily driven by accretion expense related to membership initiation payments along with interest expense related to capital leases. The interest expense for Business, Sports and Alumni Clubs was primarily driven by accretion expense related to membership initiation payments.
Income tax benefit for the
twenty-four weeks ended
June 13, 2017
increased
$4.6 million
compared to the
twenty-four weeks ended
June 14, 2016
, and the effective tax rates were
47.2%
and
36.3%
for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, respectively. The amount of tax expense or benefit recognized in interim financial statements is determined by multiplying the year-to-date pre-tax 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). For the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, 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.
Segment Operations
The following table presents key financial information for our segments and Adjusted EBITDA for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
|
|
Consolidated Summary
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
% Change
|
|
|
(dollars in thousands)
|
Total Revenue
|
|
$
|
497,631
|
|
|
$
|
483,847
|
|
|
$
|
13,784
|
|
|
2.8
|
%
|
|
|
|
|
|
|
|
|
|
Golf and Country Clubs Adjusted EBITDA (1)
|
|
$
|
118,752
|
|
|
$
|
116,112
|
|
|
$
|
2,640
|
|
|
2.3
|
%
|
Business, Sports and Alumni Clubs Adjusted EBITDA (1)
|
|
16,207
|
|
|
17,115
|
|
|
(908
|
)
|
|
(5.3
|
)%
|
Corporate expenses and other operations
|
|
(28,638
|
)
|
|
(28,809
|
)
|
|
171
|
|
|
0.6
|
%
|
Adjusted EBITDA
|
|
$
|
106,321
|
|
|
$
|
104,418
|
|
|
$
|
1,903
|
|
|
1.8
|
%
|
_______________________________
|
|
(1)
|
See Note
12
of our consolidated condensed financial statements included elsewhere herein for the definition of Adjusted EBITDA and for a reconciliation of Golf and Country Clubs Adjusted EBITDA and Business, Sports and Alumni Clubs Adjusted EBITDA to income (loss) before income taxes.
|
Golf and Country Clubs
The following table presents key financial information for our golf and country clubs for the
twenty-four weeks ended
June 13, 2017
and the
twenty-four weeks ended
June 14, 2016
. Divested clubs are excluded from segment reporting for all periods presented. References to percentage changes that are not meaningful, as new or acquired clubs include different clubs for each period, are denoted by ‘‘NM’’.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
|
|
Golf and Country Club Segment
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Same Store Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Dues
|
|
$
|
198,941
|
|
|
$
|
193,413
|
|
|
$
|
5,528
|
|
|
2.9
|
%
|
Food and Beverage
|
|
88,926
|
|
|
87,216
|
|
|
$
|
1,710
|
|
|
2.0
|
%
|
Golf Operations
|
|
82,939
|
|
|
81,086
|
|
|
$
|
1,853
|
|
|
2.3
|
%
|
Other
|
|
26,353
|
|
|
26,489
|
|
|
$
|
(136
|
)
|
|
(0.5
|
)%
|
Revenue
|
|
$
|
397,159
|
|
|
$
|
388,204
|
|
|
$
|
8,955
|
|
|
2.3
|
%
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
278,933
|
|
|
$
|
272,496
|
|
|
$
|
6,437
|
|
|
2.4
|
%
|
Adjusted EBITDA
|
|
$
|
118,226
|
|
|
$
|
115,708
|
|
|
$
|
2,518
|
|
|
2.2
|
%
|
Adjusted EBITDA Margin
|
|
29.8
|
%
|
|
29.8
|
%
|
|
0 bps
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
New or Acquired Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
10,013
|
|
|
$
|
2,816
|
|
|
$
|
7,197
|
|
|
NM
|
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
9,487
|
|
|
$
|
2,412
|
|
|
$
|
7,075
|
|
|
NM
|
|
Adjusted EBITDA
|
|
$
|
526
|
|
|
$
|
404
|
|
|
$
|
122
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
Total Golf and Country Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
407,172
|
|
|
$
|
391,020
|
|
|
$
|
16,152
|
|
|
4.1
|
%
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
288,420
|
|
|
$
|
274,908
|
|
|
$
|
13,512
|
|
|
4.9
|
%
|
Adjusted EBITDA
|
|
$
|
118,752
|
|
|
$
|
116,112
|
|
|
$
|
2,640
|
|
|
2.3
|
%
|
Adjusted EBITDA Margin
|
|
29.2
|
%
|
|
29.7
|
%
|
|
(50) bps
|
|
(1.7
|
)%
|
|
|
|
|
|
|
|
|
|
Total memberships, excluding managed club memberships
|
|
124,028
|
|
|
119,703
|
|
|
4,325
|
|
|
3.6
|
%
|
Total revenue for same store golf and country clubs increased
$9.0 million
, or
2.3%
, for the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
due primarily to increases in same store dues, golf operations revenue and food and beverage revenue. Same store dues revenue increased
$5.5 million
, or
2.9%
, due primarily to an increase in same store memberships and greater club participation in the O.N.E. program. Golf operations revenue increased
$1.9 million
, or
2.3%
, due largely to higher cart fee and greens fee revenue as a result of favorable weather leading to more golf rounds and an increase in retail sales. Food and beverage revenue increased
$1.7 million
, or
2.0%
, due primarily to a
2.4%
increase in a la carte revenue.
Club operating costs and expenses include costs such as payroll and payroll related expenses, costs of food and beverage sales, costs of retail sales, golf operations and golf course maintenance expenses, utilities and property taxes. Club operating costs and expenses, excluding costs of food and beverage sales, for same store golf and country clubs increased
$5.2 million
, or
2.2%
, for the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
. The increase is primarily related to higher payroll expense, higher administrative expenses and higher retail cost of sales due primarily to increases in retail sales. These operating costs, as a percentage of total same store club revenue, were
61.9%
and
62.0%
for the same periods, respectively.
Costs of food and beverage sales for same store golf and country clubs increased
$1.2 million
, or
3.8%
, for the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
, due primarily to increases in food and beverage sales primarily driven by increased usage of the O.N.E. program. These costs, as a percentage of food and beverage revenues, were
37.1%
and
36.4%
for the same periods, respectively.
Adjusted EBITDA for same store golf and country clubs increased
$2.5 million
, or
2.2%
, for the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
, largely due to an increase in higher margin dues revenue primarily driven by an increase in same store memberships and an increase in golf operations revenue combined with well controlled variable operating costs and expenses. As a result, same store Adjusted EBITDA margin for the
twenty-four weeks ended
June 13, 2017
remained flat compared to the
twenty-four weeks ended
June 14, 2016
.
Business, Sports and Alumni Clubs
The following table presents key financial information for our business, sports and alumni clubs for the
twenty-four weeks ended
June 13, 2017
and the
twenty-four weeks ended
June 14, 2016
. Divested clubs are excluded from segment reporting for all periods presented. References to percentage changes that are not meaningful, as new or acquired clubs include different clubs for each period, are denoted by ‘‘NM’’.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
|
|
Business, Sports and Alumni Club Segment
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Same Store Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
|
|
Dues
|
|
$
|
34,995
|
|
|
$
|
34,886
|
|
|
$
|
109
|
|
|
0.3
|
%
|
Food and Beverage
|
|
41,641
|
|
|
41,923
|
|
|
(282
|
)
|
|
(0.7
|
)%
|
Other
|
|
4,487
|
|
|
4,331
|
|
|
156
|
|
|
3.6
|
%
|
Revenue
|
|
$
|
81,123
|
|
|
$
|
81,140
|
|
|
$
|
(17
|
)
|
|
—
|
%
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
64,912
|
|
|
$
|
64,011
|
|
|
$
|
901
|
|
|
1.4
|
%
|
Adjusted EBITDA
|
|
$
|
16,211
|
|
|
$
|
17,129
|
|
|
$
|
(918
|
)
|
|
(5.4
|
)%
|
Adjusted EBITDA Margin
|
|
20.0
|
%
|
|
21.1
|
%
|
|
(110) bps
|
|
(5.2
|
)%
|
|
|
|
|
|
|
|
|
|
New or Acquired Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
NM
|
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
4
|
|
|
$
|
14
|
|
|
$
|
(10
|
)
|
|
NM
|
|
Adjusted EBITDA
|
|
$
|
(4
|
)
|
|
$
|
(14
|
)
|
|
$
|
10
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
Total Business, Sports and Alumni Clubs
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
81,123
|
|
|
$
|
81,140
|
|
|
$
|
(17
|
)
|
|
—
|
%
|
Club operating costs and expenses exclusive of depreciation
|
|
$
|
64,916
|
|
|
$
|
64,025
|
|
|
$
|
891
|
|
|
1.4
|
%
|
Adjusted EBITDA
|
|
$
|
16,207
|
|
|
$
|
17,115
|
|
|
$
|
(908
|
)
|
|
(5.3
|
)%
|
Adjusted EBITDA Margin
|
|
20.0
|
%
|
|
21.1
|
%
|
|
(110) bps
|
|
(5.2
|
)%
|
|
|
|
|
|
|
|
|
|
Total memberships, excluding managed club memberships
|
|
50,320
|
|
|
50,335
|
|
|
(15
|
)
|
|
—
|
%
|
Total revenues for same store business, sports and alumni clubs remained flat, for the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
primarily due to a decrease in food and beverage revenue, partially offset by an increase in other revenue and same store dues. Food and beverage revenue decreased
$0.3 million
, or
0.7%
, due primarily to a decrease in private party and a la carte revenue. Dues revenue increased
$0.1 million
, or
0.3%
, due to an increase in upgrade dues related to the O.N.E program partially offset by a decline in same store social memberships.
Club operating costs and expenses include costs such as payroll and payroll related expenses, costs of food and beverage sales and rent. Club operating costs and expenses, excluding costs of food and beverage sales, for same store business, sports and alumni clubs increased
$0.7 million
, or
1.4%
, for the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
. The increase is largely due to an increase in rent expense. These operating costs, as a percentage of total same store club revenue, were
65.7%
and
64.8%
for the same periods, respectively.
Costs of food and beverage sales for same store business, sports and alumni clubs increased
$0.2 million
, or
1.5%
, for the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
. These costs, as a percentage of food and beverage revenues, were
27.8%
and
27.3%
for the same periods, respectively.
Adjusted EBITDA for same store business, sports and alumni clubs decreased
$0.9 million
, or
5.4%
, for the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
, largely due to an increase in club operating costs and a decline in same store social memberships. Same store Adjusted EBITDA margin for the
twenty-four weeks ended
June 13, 2017
decreased
110
basis points compared to the
twenty-four weeks ended
June 14, 2016
.
Corporate expenses and other operations
The following table presents financial information for corporate expenses and other operations, which is comprised primarily of activities not related to our two business segments, for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Twenty-Four Weeks Ended
|
|
|
|
|
|
|
June 13,
2017
|
|
June 14,
2016
|
|
Change
|
|
%
Change
|
|
|
(dollars in thousands)
|
Corporate expenses and other operations
|
|
$
|
(28,638
|
)
|
|
$
|
(28,809
|
)
|
|
$
|
171
|
|
|
0.6
|
%
|
Corporate expenses and other operations decreased
$0.2 million
, or
0.6%
, for the
twenty-four weeks ended
June 13, 2017
compared to the
twenty-four weeks ended
June 14, 2016
largely due to a
$0.5 million
increase in insurance expense related to higher claims, a decrease of
$0.4 million
in ongoing support costs, including payroll, costs related to software agreements and service fees as part of our centralization and transformation of administrative processes, finance processes and related IT systems and a
$0.2 million
decrease in other corporate expenses.
Liquidity and Capital Resources
We operate through our subsidiaries and have no material assets other than the stock of our subsidiaries. Our ability to pay dividends is dependent on our receipt of dividends or other distributions from our subsidiaries and borrowings under the Secured Credit Facilities, the 2015 Senior Notes and other debt instruments.
Our primary goal as it relates to liquidity and capital resources is to attain and retain the right level of debt and cash to execute strategic objectives, maintain and fund expansions, replacement projects and other capital investments at our clubs, be poised for external growth and pay declared dividends to our stockholders. Historically, we have financed our business through cash flows from operations and debt.
We anticipate that cash flows from operations will be our primary source of cash over the next twelve months. We believe current assets and cash generated from operations will be sufficient to meet anticipated working capital needs, capital expenditures and debt service obligations. Prior to our entry into the Merger Agreement, our board declared the payment of quarterly dividends pursuant to our dividend policy. In the first quarter of fiscal year 2016, our Board of Directors authorized a repurchase of up to $50 million of our common stock with an expiration date of December 31, 2017. Prior to our entry into the Merger Agreement, the repurchase program was 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. We may also, from time to time in our sole discretion, purchase, redeem or retire our 2015 Senior Notes, through tender offers, in privately negotiated or open market transactions or otherwise. We plan to use excess cash reserves, our revolving credit facility, proceeds from the issuance of debt or equity, or a combination thereof to expand the business through capital improvement and expansion projects and strategically selected club acquisitions.
Pursuant to the terms of the Merger Agreement, as of July 9, 2017 we are prohibited from, among other things, issuing equity securities to raise capital, declaring and paying dividends on our common stock (other than the one-time quarterly dividend of $0.13 per share declared on July 9, 2017) and repurchasing shares of our common stock under our share repurchase program. In addition, the Merger Agreement limits, among other things, our ability to incur additional indebtedness.
As of
June 13, 2017
, cash and cash equivalents totaled
$52.0 million
and we had
$144.2 million
available for borrowing under the revolving credit facility of the Secured Credit Facilities for total liquidity of
$196.2 million
. Subsequent to
the
twenty-four weeks ended
June 13, 2017
, on June 20, 2017, we borrowed
$20.0 million
on the revolving credit facility.
As of
July 12, 2017
, we had
$124.2 million
available for borrowing under the revolving credit facility.
Cash Flows from Operating Activities
Cash flows from operations totaled
$62.4 million
and
$70.2 million
for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, respectively. The
$7.8 million
decrease in operating cash flows is due largely to a
$7.6 million
decrease due to changes in working capital primarily driven by timing of certain trade payables and member billing cycles, a
$2.5 million
increase due to the change in other long-term liabilities and a
$3.1 million
decrease due to the change in deferred tax assets and liabilities.
Cash Flows used in Investing Activities
Cash flows used in investing activities totaled
$64.9 million
and
$53.3 million
for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, respectively. The
$11.6 million
increase in cash used in investing activities is primarily due to the
$8.7 million
increase in cash used for the acquisition of clubs and a
$5.5 million
increase in capital spent to maintain, renovate and reinvent our existing properties offset by a
$2.4 million
increase of insurance proceeds received during the
twenty-four weeks ended
June 13, 2017
, primarily related to rain and flooding events, that occurred during fiscal year 2016.
Cash Flows used in Financing Activities
Cash flows used in financing activities totaled
$29.2 million
and
$29.2 million
for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, respectively. Cash used in financing activities remained constant primarily due to a
$1.0 million
increase in share repurchases for tax withholdings related to certain equity-based awards, a
$0.4 million
increase due to distribution to one our noncontrolling interests and a
$0.2 million
increase in scheduled debt repayments offset by a
$1.2 million
decrease due to the repurchase of
104,325
shares of common stock during the
twenty-four weeks ended
June 14, 2016
and a decrease in debt issuance and modification costs of
$0.3 million
related to amendments to the credit agreement governing the Secured Credit Facilities.
Capital Spending
The nature of our business requires us to invest capital to maintain our existing properties and invest in our information technology systems. For the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, we spent approximately
$36.1 million
(net of insurance proceeds of
$2.9 million
) and
$24.8 million
(net of insurance proceeds of
$0.5 million
), respectively, in capitalized costs to maintain our existing properties and invest in our information technology systems. During the
twenty-four weeks ended
June 13, 2017
, this spending included
$21.1 million
, net of insurance proceeds, to maintain our existing properties and
$1.6 million
to maintain our existing information technology systems. Additionally, we invested
$13.4 million
on information technology projects related to the centralization of administrative processes.
In addition to maintaining our properties, we also spend discretionary capital to expand and improve existing properties, including major reinventions, and expand our business through acquisitions. Capital expansion funding totaled approximately
$28.8 million
and
$28.4 million
for the
twenty-four weeks ended
June 13, 2017
and
June 14, 2016
, respectively, including acquisitions of
$15.3 million
and
$6.6 million
, respectively.
Subsequent to
June 13, 2017
, on
June 20, 2017
, we purchased Medina Golf and Country Club, a private country club in Medina, Minnesota, for a purchase price of
$4.7 million
. We anticipate spending approximately
$2.5 million
in reinvention project capital at this property.
The Merger Agreement limits our ability to, among other things, invest capital for other than maintenance purposes after July 9, 2017 and our ability to invest capital on reinventions which did not commence prior to July 9, 2017. As a result, for the remainder of fiscal year 2017 we anticipate spending approximately
$20.9 million
in maintenance capital, net of insurance proceeds, to maintain our existing facilities,
$1.4 million
to maintain our existing information technology systems, $1.9 million on information technology projects related to the centralization and transformation of administrative processes and $35.3 million on reinvention projects which commenced prior to July 9, 2017, including the reinvention project capital at Medina Golf and Country Club.
Debt
Secured Credit Facilities
—In 2010, Operations entered into the credit agreement governing the Secured Credit Facilities. The credit agreement governing the Secured Credit Facilities was subsequently amended in 2012, 2013, 2014, 2015, 2016 and 2017. On
May 19, 2017
, Operations entered into an eleventh amendment to the credit agreement governing the Secured Credit Facilities to decrease the interest rate on the term loan facility to a variable rate calculated as the higher of (i)
3.75%
or (ii) an elected LIBOR plus a margin of
2.75%
. As of
July 12, 2017
, the Secured Credit Facilities are comprised of (i) a
$651.0 million
term loan facility and (ii) a revolving credit facility with capacity of
$175.0 million
with
$124.2 million
available for borrowing after deducting
$30.8 million
of standby letters of credit and
$20.0 million
of borrowings 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 the Senior Secured Leverage Ratio does not exceed
3.50
:1.00.
As of
July 12, 2017
, the interest rate on the term loan facility is a variable rate calculated as the higher of (i)
3.75%
or (ii) an elected LIBOR plus a margin of
2.75%
and the maturity date of the term loan facility is
December 15, 2022
.
As of
July 12, 2017
, 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 the Senior Secured Leverage Ratio and the Total Leverage Ratio. The Senior Secured Leverage Ratio is defined as the ratio of Operations’ Consolidated Senior Secured Debt (exclusive of the 2015 Senior Notes) to Consolidated EBITDA (disclosed as Adjusted EBITDA and defined in Note
12
of our consolidated condensed financial statements included elsewhere herein) 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 2015 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 the Total Leverage Ratio of no greater than
5.75
:1.00 and the Senior Secured Leverage Ratio no greater than
4.50
:1.00 as of the end of each fiscal quarter.
We may be required to prepay the outstanding term loan facility by a percentage of excess cash flows, as defined by the credit agreement governing the Secured Credit Facilities, each fiscal year end after our annual consolidated financial statements are delivered, which percentage may decrease or be eliminated depending on the results of the Senior Secured Leverage Ratio test at the end of each fiscal year. No such prepayment was required with respect to fiscal year 2016. We may voluntarily prepay outstanding loans under the Secured Credit Facilities in whole or in part upon prior notice without premium or penalty, other than certain fees incurred in connection with a repricing transaction.
As of
June 13, 2017
, Operations was in compliance with all covenant restrictions under the credit agreement governing the Secured Credit Facilities. The following tables present the Total Leverage Ratio and the Senior Secured Leverage Ratio on a rolling four quarter basis through
June 13, 2017
:
|
|
|
|
|
|
Four Quarters Ended
|
|
June 13, 2017
|
|
(dollars in thousands)
|
Pro Forma Adjusted EBITDA (1)
|
$
|
251,003
|
|
Pro Forma Consolidated Total Debt (2)
|
1,074,608
|
|
Pro Forma Consolidated Senior Secured Debt (2)
|
724,608
|
|
|
|
Total Leverage Ratio
|
4.28
|
x
|
Senior Secured Leverage Ratio
|
2.89
|
x
|
_______________________
|
|
(1)
|
The following table presents a reconciliation of Adjusted EBITDA to Pro Forma Adjusted EBITDA for the four quarters ended
June 13, 2017
:
|
|
|
|
|
|
|
Four Quarters Ended
|
|
June 13, 2017
|
|
(dollars in thousands)
|
Adjusted EBITDA (a)
|
$
|
247,954
|
|
Pro forma adjustment - acquisitions (b)
|
3,049
|
|
Pro Forma Adjusted EBITDA
|
$
|
251,003
|
|
|
|
(a)
|
See Note
12
of our consolidated condensed financial statements included elsewhere herein for the definition of Adjusted EBITDA and “Basis of Presentation—EBITDA and Adjusted EBITDA” for a reconciliation of net income (loss) to Adjusted EBITDA.
|
|
|
(b)
|
The pro forma adjustment gives effect to all acquisitions in the four quarters ended
June 13, 2017
as though they had been consummated on the first day of the
third
quarter of fiscal year
2016
.
|
|
|
(2)
|
The reconciliation of total debt to Pro Forma Consolidated Total Debt and Pro Forma Consolidated Senior Secured Debt is as follows:
|
|
|
|
|
|
|
As of June 13, 2017
|
|
(dollars in thousands)
|
Total debt (excluding loan discount and loan origination fees)
|
$
|
1,103,952
|
|
Outstanding letters of credit
|
30,842
|
|
Uncollateralized surety bonds
|
3,665
|
|
Less:
|
|
Notes payable related to Non-Core Development Entities
|
(11,837
|
)
|
Adjustment per credit agreement (a)
|
(52,014
|
)
|
Pro Forma Consolidated Total Debt
|
$
|
1,074,608
|
|
|
|
Unsecured 2015 Senior Notes (excluding loan origination fees)
|
(350,000
|
)
|
Pro Forma Consolidated Senior Secured Debt
|
$
|
724,608
|
|
_______________________
|
|
(a)
|
Represents an adjustment reducing total debt by the lesser of Operations’ unrestricted cash or
$85.0 million
.
|
2015 Senior Notes
—On
December 15, 2015
, Operations issued
$350.0 million
of 2015 Senior Notes, maturing
December 15, 2023
. Interest on the 2015 Senior Notes accrues at the rate of
8.25%
per annum and is payable semiannually in arrears on June 15 and December 15.
The 2015 Senior Notes are guaranteed on a full and unconditional basis by each Guarantor (other than Operations’ Parent) that guarantees our obligations under the credit agreement governing the Secured Credit Facilities. As of
June 13, 2017
, Operations and the Guarantors accounted for approximately
93%
of Holdings’ combined total assets, excluding intercompany items, and accounted for approximately
90%
of outstanding total liabilities, including trade payables, all of which are structurally senior to the 2015 Senior Notes. For the
twenty-four weeks ended
June 13, 2017
, Operations and the Guarantors accounted for approximately
93%
of Holdings’ revenues and approximately
89%
of Holdings’ operating income, excluding selling, general and administrative expenses.
Mortgage Loan
—On
August 9, 2016
, we entered into the Wells Fargo Mortgage Loan for
$37.0 million
with a maturity date of
May 31, 2019
with two options to extend through
August 9, 2021
. As of
June 13, 2017
, the note has a principal amount of
$36.4 million
and accrues interest at a variable interest 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 previously existing mortgage loan agreements.
Other Debt
—As of
June 13, 2017
, other debt and capital leases totaled
$66.5 million
, including
$11.8 million
of notes payable related to certain Non-Core Development Entities and
$51.5 million
in capital leases.
The following table summarizes the components of our interest expense for the
twelve and twenty-four weeks ended
June 13, 2017
:
|
|
|
|
|
|
|
|
|
|
Twelve Weeks Ended
|
|
Twenty-Four Weeks Ended
|
|
June 13, 2017
|
|
June 13, 2017
|
|
(dollars in thousands)
|
Interest expense related to:
|
|
|
|
Interest related to funded debt (1)
|
$
|
13,319
|
|
|
$
|
26,715
|
|
Capital leases and other indebtedness (2)
|
305
|
|
|
747
|
|
Amortization of debt issuance costs and term loan discount
|
723
|
|
|
1,624
|
|
Notes payable related to certain Non-Core Development Entities
|
245
|
|
|
490
|
|
Accretion of discount on member deposits
|
4,642
|
|
|
9,208
|
|
Total interest expense
|
$
|
19,234
|
|
|
$
|
38,784
|
|
_______________________
|
|
(1)
|
Interest expense related to funded debt includes interest on the facilities and borrowings under the Secured Credit Facilities, the 2015 Senior Notes and the Wells Fargo Mortgage Loan.
|
|
|
(2)
|
Includes interest expense on capital leases and other indebtedness, offset by capitalized interest.
|
Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments
We are not aware of any off-balance sheet arrangements as of
June 13, 2017
. There have been no material changes outside the normal course of business to our contractual obligations or commercial commitments from those previously disclosed in our 2016 Annual Report.