10-K 1 cc-20121225x10k.htm 10-K CC-2012.12.25-10K
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549
 
FORM 10-K
 
ý      Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the fiscal year ended December 25, 2012.
 
or
 
o         Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from             to            
 
Commission File Number 333-173127
 
ClubCorp Club Operations, Inc.
(Exact name of registrant as specified in its charter)
Delaware
 
27-3894784
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
3030 LBJ Freeway, Suite 600
 
 
Dallas, Texas
 
75234
(Address of principal executive offices)
 
(Zip Code)
(972) 243-6191
(Registrant’s telephone number, including area code)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No ý 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No ý 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes ý No ¨ 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý  No o 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  ý 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filer o
 
Accelerated filer o
 
 
 
Non-accelerated filer x
 
Smaller reporting company o
(Do not check if a smaller reporting company)
 
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No ý 
The registrant’s shares of common stock are not traded on an exchange or in any public market.  As of December 25, 2012, the number of the shares outstanding of the registrant’s common stock was 1,000.
 


TABLE OF CONTENTS
 
 
 
Page

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


PART I — BUSINESS FACTORS


ITEM 1.    BUSINESS

Throughout this annual report on Form 10-K ("Form 10-K"), we refer to ClubCorp Club Operations, Inc., together with its subsidiaries (ClubCorp, Inc. and subsidiaries prior to November 30, 2010), as “we,” “us,” “our”, “ClubCorp" or the "Company". Our fiscal year consists of a 52/53 week period ending on the last Tuesday of December. References to 2012, 2011 and 2010 relate to the 52-week fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively.

The business section and other parts of this report may contain certain statements which may be considered forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks, uncertainties and other factors, which without limitation, are set forth in Item 1A. Risk Factors section of this Form 10-K. These forward-looking words include “expects,”“intends,”“anticipates,” “plans,” “believes,” “estimates,” “projects,” “predicts,” and other similar expressions. Our actual results could differ materially from the results anticipated by the forward-looking statements as a result of various factors, including, but not limited to, those identified in Item 1A.“Risk Factors” or in other sections of this report. The Company assumes no obligation to update these forward looking statements.

General

We are one of the largest owners and managers of private golf, country, business, sports and alumni clubs in North America, with a network of clubs that includes approximately 145,000 memberships and 350,000 individual members. As of December 25, 2012, we owned or operated 102 golf and country clubs and 49 business, sports and alumni clubs in 23 states, the District of Columbia and two foreign countries. We believe our expansive network of clubs and focus on facilities, recreation and social programming enhances our ability to attract members across a number of demographic groups. Our clubs' offerings are designed to appeal to the entire family, resulting in member loyalty that we believe translates financially into a more economically resilient leisure product and allows us a greater ability to capture discretionary leisure spending than traditional clubs. In addition, we offer a network of products, services and amenities that provide access to our extensive network of clubs and leverage alliances with other clubs, facilities and properties. A significant percentage of our revenues are derived from membership dues which provides a stable recurring revenue base, and we believe the geographic diversity of our clubs limits the impact of adverse regional weather patterns and or economic conditions.

Founded in 1957 with one country club in Dallas, Texas, we were one of the first companies to enter into the professional ownership and operation of golf and country club businesses. In 1966, we established our first business club on the belief that we could profitably expand our operations by delivering quality service and focusing on member satisfaction in a related line of business. In 1999, having reached a critical mass, we began selling various upgrade programs that offer participating members reciprocal access to our network of clubs, other clubs, properties and facilities with which we have alliances, providing our members with a wide variety of products, services and amenities. We remained family owned until December 2006, when we were acquired by affiliates of KSL Capital Partners, LLC (“KSL” or “Sponsor”), a private equity firm specializing in travel and leisure businesses.

Our operations are organized into two principal business segments: (1) golf and country clubs and (2) business, sports and alumni clubs. Our golf and country club segment includes a broad offering of clubs designed to appeal to a diverse membership base with a specific focus on the mass affluent market segment, which we define as households with annual income of $75,000 or greater. Our business clubs are generally located in office towers or business complexes and cater to business executives, professionals and entrepreneurs with a need to meet, network and socialize in a private, upscale location. Our sports clubs include a variety of fitness and racquet facilities. Our alumni clubs are associated with universities with significant alumni networks, and are designed to provide a connection between the university and its alumni and faculty.
    
For the fiscal year ended December 25, 2012, golf and country clubs, accounted for 77% of consolidated operating revenues and business, sports and alumni clubs accounted for 23% of consolidated operating revenues. The following charts provide a breakdown of consolidated operating revenues for the fiscal year ended December 25, 2012 by type and by geography:







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Consolidated Revenue by Type
Consolidated Revenue by Geography
 
Our Business Segments

Golf and Country Clubs Segment

Our portfolio of 102 golf and country club facilities is comprised of 80 private golf and country clubs and 16 semi-private golf clubs with a total of approximately 83,000 memberships as of December 25, 2012, and 6 public golf facilities. Our 80 private golf and country clubs provide one or more golf courses and a number of the following: driving ranges, practice facilities, dining rooms, lounge areas, meeting rooms, grills, ballrooms, fitness centers, tennis courts, swimming pools and pro shops. Examples include, but are not limited to, Firestone Country Club in Akron, Ohio, Mission Hills Country Club in Rancho Mirage, California, Indian Wells Country Clubs in Indian Wells, California and Gleneagles Country Club in Plano, Texas. Our 22 other golf clubs (16 semi-private and 6 public) offer both private and public play, driving ranges and food and beverage outlets. Many of our semi-private clubs also provide some or all of the additional amenities provided by our private clubs. Examples include, but are not limited to, Nags Head Golf Links in North Carolina, Golden Bear Golf Club at Indigo Run in South Carolina and two “Bear's Best” public courses in Nevada and Georgia, which feature replicas of many of the most famous Jack Nicklaus-designed golf holes from golf courses around the world.

Golf and Country Clubs
Revenue by Type
Operating revenues for our golf and country clubs segment consist primarily of membership dues revenues, golf revenues (comprised mainly of cart rental fees and green fees, public play and outings (e.g., tournaments and charity fundraisers)) and food and beverage sales (comprised of a la carte dining and private events). For this segment, we generally

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focus our operations on private and semi-private clubs because of our expertise in managing membership-based facilities, where we experience recurring revenues through year-round dues compared to transactional or daily fee revenues generated at public courses. For the fiscal year ended December 25, 2012, our golf and country clubs segment generated operating revenues of $583.5 million, representing approximately 77% of our total consolidated operating revenues.

Business, Sports and Alumni Clubs Segment

Our portfolio of 49 business, sports and alumni clubs is comprised of 30 business clubs, 13 business and sports clubs and 6 alumni clubs, with a total of approximately 62,000 memberships as of December 25, 2012. Our 30 business clubs include dining rooms, bar areas, private meeting rooms, and media and telecommunications equipment designed to meet the varying needs of four distinct member personas: the “Power Host,” the “Active Connector,” the “Office Away Member” and the “Comfort Seeker.” The Power Host is primarily serviced by our fine dining rooms and private event spaces; the Active Connector is primarily serviced by our business networking and charitable programs; the Office Away Member is primarily serviced by our business services, flexible work areas, and small conference rooms; and the Comfort Seeking Member is primarily serviced by our anytime lounge, creative casual cuisine, and fun elements such as media rooms. In addition, our 13 business and sports clubs seek to combine the ambiance and amenities of our business clubs with the facilities of premier sports clubs, providing an array of facilities which may include racquetball, squash, tennis and basketball courts, jogging tracks, exercise areas, free-weights, weight machines, aerobic studios or swimming pools. Finally, we have agreements with 6 leading universities to offer alumni clubs in a variety of on-campus, in-stadium or city center locations. The clubs in this segment are strategically located in 17 of the top 25 Metropolitan Statistical Areas, including, but not limited to, University Club atop Symphony Towers in San Diego, Bunker Hill in Los Angeles, The Metropolitan Club in Chicago, the Columbia Tower Club in Seattle, the City Club of Washington D.C., the Buckhead Club in Atlanta and the Boston College Club in Boston.

Business, Sports and Alumni Clubs
Revenue by Type
Operating revenues for our business, sports and alumni clubs segment consist primarily of membership dues and food and beverage sales. For the fiscal year ended December 25, 2012, our business, sports and alumni clubs segment generated operating revenues of $174.3 million, representing approximately 23% of our total consolidated operating revenues.
     
(For additional information on our business segments, see Note 15 of the notes to the audited consolidated financial statements in Item 8 of this Form 10-K.)

Competitive Strengths

We believe we became a leader in the private club industry by following our commitment to quality of service and focus on member satisfaction, as well as by taking advantage of a variety of organic growth opportunities, including the implementation of network offerings of products, services and amenities, and external growth opportunities, such as through the acquisition and rehabilitation of underperforming clubs. We intend to maintain our leadership position by continuing to capitalize on the following competitive strengths:


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Strong and Diverse Network and Alliances of Clubs. Our expansive network of clubs allows us to provide members with product diversity by offering a range of entry-level to high-end clubs. Product diversity and the ability for members to access our clubs on a national level by participating in one of our membership upgrade programs, make the club experience available to and affordable for a variety of individuals within the mass affluent market that we target.
    
As of December 25, 2012, we had 151 clubs located in 23 states, the District of Columbia and two foreign countries, with strategic concentrations in strong golf markets and major metropolitan areas. As a result of our size and geographic diversity, our operating revenues and cash flows are not reliant on any one property. Our most significant country club facility, Firestone Country Club, accounted for 3.2% of our consolidated operating revenues and our 10 largest clubs accounted for 22.5% of our consolidated operating revenues for the fiscal year ended December 25, 2012.
    
We believe the breadth and broad geographic distribution of our network of clubs limits the impact of adverse regional weather patterns and fluctuations in regional economic conditions. To further mitigate adverse weather patterns, we employ strong agronomic practices that help enable golf play throughout all climate zones with strategic concentrations in Texas, California and Florida where climates are typically conducive to year-round play. We are the fee simple real estate owners for 80 of our 102 golf and country clubs, which we believe enhances our ability to maximize the value of our clubs and business. By owning the real estate underlying our clubs, we have been able to implement capital plans as we see fit and generate positive returns on our investments. Additionally, many of our country clubs are located in densely populated areas where land use and other regulatory limitations or the ability to acquire land of sufficient size to develop a new country club or golf facility makes creating a new club impractical or prohibitively expensive.

Reciprocal Privileges and Additional Products and Services. Our extensive network of clubs and alliances with other clubs, facilities and properties, allow us to provide numerous services and amenities to our members, that extend beyond our clubs, a feature which may not be available in member-owned and individual privately-owned clubs. Our membership upgrade offering is a key differentiator that we believe would be difficult for our competitors to replicate. For incremental monthly dues, our reciprocal access program gives our members access to our network in other geographical areas, both domestically and internationally, as well as to locations outside our network through various usage arrangements we have with other property owners. As of December 25, 2012, approximately 40% of our members took advantage of one or more of our upgrade programs, a 2% increase, over the 38% of members who took advantage of upgrade offerings for the fiscal year ended December 27, 2011.

Established alliance arrangements include restaurants, such as Emeril Lagasse and The Capital Grille, resorts such as Barton Creek Resort & Spa and The Homestead, ski resorts such as Squaw Valley and Alpine Meadows ski areas, and hotels such as The Ritz-Carlton, Mandarin Oriental, and numerous other alliances that provide additional benefits, including discounts, upgrades and complimentary items or services. We make reservations convenient for our members by providing an in-house travel concierge (ClubLine), and by offering access to an inventory of VIP tickets through our own web portal (TicketLine).

Marquee Collection of Assets. We believe that we have assembled a portfolio of some of the best known golf and business clubs across the United States that help distinguish us from our competitors. Examples of our iconic assets include:

•
Firestone Country Club in Akron, Ohio (site of the World Golf Championships-Bridgestone Invitational)
•
Mission Hills Country Club in Rancho Mirage, California (site of the Kraft Nabisco Championship)
•
Gleneagles Country Club in Plano, Texas (U.S. site of the International Final Qualifying for the Open Championship)
•
Las Colinas Country Club in Dallas, Texas (site of the 2013 North Texas LPGA Shootout)
•
The Metropolitan Club in Chicago, Illinois
•
The Commerce Club in Atlanta, Georgia
•
University Club atop Symphony Towers in San Diego, California
•
University of Texas Club in Austin, Texas

Furthermore, we believe our clubs are among the top private golf clubs within our respective sub-markets based on the quality of our facilities, breadth of amenities and number of high quality programs and events.

Large Membership Base with Attractive Member Demographics. Our large base of memberships creates a significant and typically stable recurring revenue stream. As of December 25, 2012, our membership count totaled approximately 145,000, including members for all owned and managed private clubs. For the fiscal year ended December 25, 2012, membership dues totaled $347.1 million, representing 46.0% of our consolidated operating revenues. During the same time period, our membership retention was 83.5% in golf and country clubs and 77.1% in business, sports and alumni clubs for a blended retention rate of 80.7%.


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The following chart presents our membership count and retention rate for the past ten years of continuing operations:

    
We believe the strength and resiliency of our membership base is driven by the integral role our clubs play in the social lives and community of our members. The financial commitments made by our members through initiation payments and recurring dues bolstered by our no capital assessment policy, which provides our members with greater certainty as to the financial commitment to our clubs, also plays a role in our members' loyalty.

Additionally, we believe the presence of our clubs in our members' communities creates a sense of belonging, which is further fostered by our focus on member satisfaction, and as a result drives loyalty and frequent usage of our clubs, lessening our sensitivity to adverse economic conditions. According to our 2012 fiscal year end data, an average member visits one of our clubs 30 times per year with an average spend of $4,100 per year, including dues. More specifically, an average golf member visits one of our clubs 57 times per year with an average spend of $7,200 per year, including dues.
    
Host of High Profile Golf Events and Winner of National Accolades. Each year, we host a number of high-profile events and win numerous local and national awards which generate substantial publicity and help drive new membership and club utilization. In 2012, we hosted four nationally recognized golf tournaments affiliated with the PGA Tour, the LPGA Tour, Web.com Tour and the R&A Group, which organizes and stages The Open Championship, golf's oldest major. We believe we have established a strong working relationship with these golf organizations. Tournaments hosted by us during 2012 include the World Golf Championships - Bridgestone Invitational at Firestone Country Club, the LPGA Kraft Nabisco Championship at Mission Hills Country Club, the Web.com Midwest Classic Presented by Cadillac at Nicklaus Golf Club at LionsGate and the British Open qualifier at Gleneagles Country Club.

Our clubs perennially appear on national and local “best of” lists for golf, tennis and dining. In 2012, Firestone Country Club ranked No. 43 on Golf Digest’s “America’s 50 Toughest Golf Courses” list, and Aspen Glen Club, Southern Trace Country Club, the Hills Country Club at Lakeway, Firestone Country Club and Diamante Golf Club were each named in their respective states to the Golf Digest “Best-in-State” rankings.

Experienced Management Team. We believe we have some of the most experienced and dedicated professional managers and executives in the private club industry. As of December 25, 2012, our eight executive officers had a combined 206 years of related career experience, including 164 years of hospitality and club specific experience. In addition, we have attracted and retained qualified, dedicated managers for our clubs. As of December 25, 2012, our club general managers had an average of 12 years of service with us, collectively operated an aggregate of 2,367 holes of golf and approximately 1.5 million square feet of business clubs, which combined hosted over 89,000 corporate and social banquet and catering events as well as over 6,200 organized golf outings in 2012. We believe that we have the experience and management skills necessary to continue to increase the utilization of our facilities while maintaining member satisfaction levels.

Business Strategy

Our principal objective is to maximize our revenues and profitability by providing superior delivery of high quality club and golf experiences to our members and guests. To achieve this objective, we intend to continue to:


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Grow Membership Enrollment and Increase Facility Usage. We believe that providing our members and their guests with a high-quality and personalized experience will increase demand for our facilities and services and allow us to add new memberships. As of December 25, 2012, our golf and country club memberships were at 70.0% of golf member capacity across our portfolio of properties, which means that we have significant capacity to add additional golf memberships at most of our facilities. Given the breadth of our network in many areas, we are able to offer memberships that provide access to multiple facilities and accordingly can operate at capacity while still providing superior service. In addition, most of our golf and country clubs offer social memberships with access to our dining facilities, member programming, social events, and fitness facilities which are not typically impacted by golf course capacity constraints. Finally, in our business, sports and alumni club segment, we do not generally have strict capacity constraints, and believe that we have the ability to add a significant number of additional members to many of these facilities.

Leverage our Existing Customer Base by Cross-Selling Products and Services. We believe there are significant opportunities to increase operating revenues by marketing our interrelated products and innovative programs to our existing members. In 2010, we strategically introduced our Optimal Network Experiences (“O.N.E.”) product and have continued to market it across our network of clubs; O.N.E. is an upgrade offering that combines comprehensive club, community and world benefits. With this offering, members receive 50 percent off a la carte dining at their home club, access to ClubCorp's network of clubs and alliances in the local community, and golf and dining privileges when traveling to more than 200 private clubs with additional access to more than 700 renowned hotels, resorts, restaurants and entertainment venues. These programs are designed to increase our recurring monthly revenues while providing a value proposition to our members that helps drive increased usage of our facilities. As of December 25, 2012, approximately 40% of our members participated in at least one of our membership upgrade offerings. We continue to evaluate opportunities for further expansion of O.N.E. into additional geographic areas.

Distinguish and Market Our Properties and Company Brand Names. We believe that many of our country clubs, offer members an experience that combines world class golf facilities and dining opportunities, in an attractive and desirable setting. We seek to develop and accentuate the desirable aspects of our country clubs in order to attract new members and retain existing members, encourage group guests to return individually and consider joining the country club, and increase rates charged for our services and amenities. Key elements of our strategy include making our properties more family friendly through the addition of family water recreation facilities, fitness centers, contemporary and casual dining venues and youth programming. Additionally, our extensive network of business, sports and alumni clubs provides our members access to a network of other civic and business leaders, and our clubs endeavor to host high profile social and civic events in order to become central to the business and civic life of the community in which they operate.

Profit From Previous Significant Capital Expenditure Projects. Since the beginning of fiscal year 2007, we have invested over $349.6 million, or 7.9% of our total consolidated operating revenues, to complete significant expansion and replacement projects at many of our facilities. We believe there are additional opportunities to increase revenues and generate a positive return on investment through additional expansion and renovation projects at a number of our other facilities.

In 2011 and 2012, significant expansion and replacement projects include but are not limited to:

•
Las Colinas Country Club, in Irving Texas
•
The Hills of Lakeway in Austin, Texas
•
The Clubs of Kingwood in Kingwood, Texas
•
Silicon Valley Capital Club in San Jose, California
•
Center Club Costa Mesa in Costa Mesa, California
•
The City Club of Washington in Washington, DC

The recent renovation at Las Colinas Country Club in Irving, Texas is an example of how we profit from capital expenditure projects. From 2011 to early 2012, we invested approximately $2.0 million to renovate the clubhouse, and as a result, fiscal year ended December 25, 2012 revenues increased by 36.5%, compared to pre-construction revenues for the fiscal year ended December 28, 2010.

The capital investments made at the Silicon Valley Capital Club in San Jose, California further demonstrate how we are profiting from capital expenditure projects. From mid 2011 through early 2012, we invested approximately $2.8 million, of which, $0.8 million was funded by the landlord as tenant improvement contributions. As a result, fiscal year ended December 25, 2012 revenues increased by 32.0% compared to pre-construction revenues for the fiscal year ended December 28, 2010.


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Focus on Selected Acquisitions and Opportunities to Expand our Business. We continually evaluate opportunities to expand our business through select acquisitions of attractive properties. Additionally, we evaluate joint ventures and management opportunities that allow us to expand our operations and increase our recurring revenue base without substantial capital outlay. When we do make strategic acquisitions, we do so only after a rigorous evaluation to satisfy ourselves that we can add value given our external growth experience, facility assessment capabilities, operational expertise and economies of scale. We believe that the fragmented nature of the private club industry that includes member-owned private clubs, individual privately-owned clubs and developer-owned clubs presents significant opportunities for us to grow our operations by leveraging our operational expertise. In 2011 and 2012, we took advantage of market conditions to expand into areas where we had a limited presence. These expansion opportunities included the acquisition of Hartefeld National Golf Club, a bank held private country club in Avondale, Pennsylvania, the acquisition of three golf and country club properties in the Long Island area of New York, and the acquisition of Canterwood Golf and Country Club, a previously member-owned club in the Seattle, Washington area. During 2012, we also entered into new agreements to manage and operate LPGA International, a semi-private golf and country club in Daytona Beach, Florida and Hollytree Country Club, a private country club in Tyler, Texas. (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations—Club Acquisitions and Dispositions.") Additionally, we believe there is an attractive market to extend our private club expertise through international management arrangements. As of March 11, 2013, we have two management agreements for business clubs being developed in Tianjin, China and Hefei, China.

Our Business Model

Membership Initiation Payments and Dues. The private club industry generally requires members to pay an upfront fee to join and then pay recurring dues on a periodic (generally monthly) basis. In private clubs that are not member-owned, these payments typically come in two forms: initiation fees and initiation deposits. Initiation deposits, which are typically limited to our more prestigious golf clubs, are generally refundable after a specified period of years. Initiation fees, which are typical in our business clubs and mid-market golf clubs, are generally nonrefundable. However, golf memberships associated with these initiation payments may be transferable. Transferable memberships typically allow a resigning member to essentially sell his or her membership through the club and receive a portion of the initiation payment received by the club from the new member, but not to exceed his or her original initiation payment. Membership initiation payments depend both on the type of club, its location and its competition, and can range from a few hundred dollars to tens of thousands of dollars. Membership dues payments are typically paid on a monthly basis, which provides a relatively stable and recurring source of revenue for us. For the fiscal year ended December 25, 2012, approximately 46.0% of our revenues came in the form of membership dues and 2.2% of our revenues came in the form of the amortization of upfront membership initiation payments.

Discretionary Spending. We believe our clubs' offerings are appealing to the entire family of our members, resulting in member loyalty which translates into a greater ability to capture discretionary leisure spending than traditional clubs. Certain of our clubs offer tennis facilities in which we may earn court fees, spa and food and beverage outlets where we earn ancillary revenues as well as extensive programming such as kids camps, swim teams, golf or tennis lessons, where members further utilize our facilities. Additionally, our extensive network of clubs allows us to provide numerous value-added services and amenities to our members that may not be available from individual privately-owned clubs, such as the O.N.E. upgrade offering that combines comprehensive club, community and world benefits.

Reciprocal Privileges and Additional Products and Services. We offer a variety of products, services and amenities through membership upgrades that provide access to our extensive network of clubs and leverage our alliances with other clubs, facilities and properties. We believe these offerings serve as a point of differentiation from our competitors. We believe a greater product offering, when appropriate for the marketplace, enhances the members' ability to utilize the club and appeals to broader family members and therefore creates greater value to the membership. For example, for incremental monthly dues, our reciprocal access program allows our members complimentary access to clubs in certain other geographical areas. These programs are not limited to clubs owned and operated by us, and include our usage arrangements with other clubs, both domestically and internationally.
We have also established arrangements with restaurants, such as Emeril Lagasse and The Capital Grille, resorts such as Barton Creek Resort & Spa and The Homestead, ski resorts such as Squaw Valley and Alpine Meadows ski areas, and hotels such as The Ritz-Carlton, Mandarin Oriental, and numerous other alliances that provide additional benefits, including discounts, upgrades and complimentary items or services to our members. We make reservations within our network of clubs and other properties convenient for members by providing an in-house travel concierge (ClubLine), and by offering access to an inventory of VIP tickets through our own web portal (TicketLine).

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Economies of Scale. As one of the largest owners of private clubs in the United States, we enjoy substantial economies of scale in management, sales and marketing and purchasing over member-owned and individual privately-owned clubs. In March 2001, we participated in the formation of a purchasing cooperative of hospitality companies, which allows us to better control costs associated with operating our clubs. We also provide capital expenditure oversight at our facilities, including, a national agronomist who assists in the maintenance of our golf courses and provides expertise in chemical usage and water management and a national golf cart leasing program. As we take advantage of these economies of scale, our members receive benefits in the form of professional management, lower costs and access to multiple clubs and greater amenities, which we believe helps further drive membership retention and growth.

Our Industry

We primarily operate private golf and country clubs, for which we believe demand is generally more resilient to economic cycles than public golf facilities and other hospitality assets. We expect that positive long-term recreational, travel and tourism spending trends and demographic shifts will increase the demand at our clubs.

Golf Industry Trends. The golf industry is characterized by varied ownership structures, including properties owned by corporations, member equity holders, developers, municipalities and others. Reports prepared by the National Golf Foundation ("NGF") show that during the 1990's, the industry suffered an overbuilding of public golf facilities, with over 3,160 public golf facilities openings, increasing the supply of public golf by 39%. Not coincidentally, during the same time period, their reports show that the influx of public golf caused the closure or conversion of 520 private clubs, or 11% of the private club supply. Throughout the 2000's, growth slowed as the industry struggled to absorb the new supply generated in the 1990's. Further, it is reported that 2012 represented the seventh consecutive year in which total facility closures outnumbered openings, with 141 net 18-hole equivalent golf facility closures. Private golf facilities only represented 12, or 8.5%, of the 141 net closures in 2012, a significant improvement over calendar year 2011. Based on a count by NGF, 2012 year-end U.S. golf supply totaled 15,619 facilities comprised of 11,683 public facilities and 3,936 private golf clubs.
Net Change in Total Golf Facilities
 
Net Change in Private Golf Facilities
 
Source: National Golf Foundation
 
Source: National Golf Foundation

Golf Facilities in the U.S.
Source: National Golf Foundation

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Attractive Demographic Trends. According to NGF, core and avid golfers represent 56.0% of total golfers and represented approximately 94.0% of the $26.3 billion spent on golf in 2012. We believe core and avid golfers are the most likely golf user to become private club members and according to private club trends provided by NGF, private golf clubs have an average golf member spend of $2,057 per year versus public clubs that have an average golf member spend of $634 per year. Further they report the typical private club member is 55 years old with a $124,000 annual household income; whereas, the typical public golfer is 47 years old with a $94,600 annual household income.

Additionally, we believe the golf industry overall will benefit as baby boomers (individuals born between 1946 and 1964) enter the peak leisure phase of their lives. According to publications by NGF, the private golf club industry captures a more affluent segment of baby boomers than the industry as a whole. Members of the baby boomer generation are currently in transition from their professional peak earning years and will soon begin retiring at an unprecedented rate, with 2011 marking the first wave who reached the age of 65. According to the U.S. Census Bureau, there will be a projected 18.6% increase in the U.S. population aged 55 to 64 from 2010 through 2020 and prior year data from the Congressional Budget Office and Federal Reserve indicate that baby boomer households own more than 50 percent of the value of all outstanding financial assets in the U.S. financial market.

Although baby boomers will play a significant roll in the future of the golf industry, NGF believes there is a pipeline of qualified member prospects that looks much like current members, but who are somewhat younger and more affluent. As of December 31, 2012, NGF reports that 46% of total golfers are under the age of 40.

Spend per Golfer
 
Golfers by Age
 
Source: National Golf Foundation
 
Source: National Golf Foundation

Competition

The golf industry is a highly fragmented competitive landscape with approximately 3,900 private golf clubs in the United States, 14.5% of which were under corporate management according to NGF's 2012 year-end data. The data further concludes that the top 12 golf management companies, including ClubCorp, owned or managed 296 golf clubs, or 7.5%, of total private golf club market at the end of calendar year 2012. The data confirms that ClubCorp owns or operates the largest amount of private golf clubs in the industry with more than twice as many private golf clubs as the closest competitor. In fact only five other companies report owning or operating more than 25 private golf clubs in the United States. The U.S. Air Force Services Agency reports a total of 30 private clubs, Canongate and Troon Golf, LLC each report to own or operate 27 private clubs, while Century Golf Partners and American Golf Corporation each report a total of 26 private clubs as of December 31, 2012.

We believe most of our competition is regionally or locally based and the level of competition for any one of our clubs depends on its location and proximity to other golf facilities relative to the location of our members. In several of our strategically concentrated markets, such as California, Texas and Florida, our ownership of multiple facilities allows us to offer access to multiple clubs both locally and beyond. While others have attempted to create their own access and benefit programs, we believe our product offerings would be difficult to replicate on a similar scale, given the size and geographic diversity of our network of clubs and alliances with other clubs, facilities and properties.

Competition for our business, sports and alumni clubs is very dependent on the individual market, and the needs of the individual member. For members looking for a private dining experience, nearby restaurants are our primary competition. For members looking for places to conduct business, our competition includes other facilities that provide meeting space such as

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hotels and convention centers as well as places such as fast casual restaurants and coffee bars, where people can conveniently meet and conduct informal meetings and access the internet. For people looking for a place to hold a private party such as a wedding, our competition includes other catering facilities such as hotels and resort facilities.

Seasonality

Golf club operations are seasonal in nature, with peak golf season beginning in mid-May and running through mid-September in most regions. Usage at our country club and golf facilities decline significantly during the first and fourth quarters, when colder temperatures and shorter days reduce the demand for golf and golf-related activities. However, the seasonality of revenues for many of our golf and country clubs is partially mitigated by our strategic concentration in regions with traditionally warmer climates such as California, Texas and Florida. While nearly all of our golf and country clubs experience at least some seasonality, due to the recurring nature of our year round membership dues income, seasonality has a muted impact on our overall performance as compared to daily fee and public golf facilities. Many of our golf and country clubs also offer other amenities such as dining, indoor tennis and fitness facilities, which provide revenue streams that are typically less affected by seasonality, than our golf operations revenues. We consider the year-round recurring revenue stream to be one of the primary advantages of private club ownership. Our business clubs are less seasonal in nature but typically generate a greater share of their annual revenues in the fourth quarter, due to the holiday and year-end party season. In addition, the first, second and third fiscal quarters each consist of twelve weeks, whereas, the fourth quarter consists of sixteen or seventeen weeks of operations. As a result of these factors, we usually generate a disproportionate share of our revenues and cash flows in the second, third and fourth quarters of each year and have lower revenues and profits in the first quarter.

Sales and Marketing

We promote our clubs through extensive marketing and sales programs that are designed to appeal to either our existing members, prospective members or underrepresented demographic groups. For example, we responded to the younger age of prospective members in the industry with targeted membership programs for young executives. We have targeted similar programs for women and invest in family amenities, like water parks, that broaden the appeal of our clubs. Additionally, we use social media and print advertising, including our award-winning quarterly lifestyle magazine, Private Clubs, to showcase our facilities, products and services and other content relevant to our members. Recent technology advancements include the mobile edition of our Private Clubs magazine, mobile tee times and electronic billing.

Additionally, we enter into strategic alliances with leading brands to enhance our members’ lives both inside and outside the club. A few of the select brands we have strategic alliances with include, but are not limited to, Omni Hotels and Resorts, Fiji Water, Avis and Dell. Further, we create and co-host events with premier brands, most notably our test drive programs with Ferrari, Porsche, Jaguar, BMW, Audi and Acura.

In 2012 we received TV coverage related to the four nationally recognized golf tournaments we hosted, affiliated with the PGA Tour, the LPGA Tour, Web.com Tour and the R&A Group, which organizes and stages The Open Championship, golf's oldest major. Additionally, Firestone Country Club was ranked No. 43 on Golf Digest’s “America’s 50 Toughest Golf Courses” list, and Aspen Glen Club, Southern Trace Country Club, the Hills Country Club at Lakeway, Firestone Country Club and Diamante Golf Club were each named in their respective states to the Golf Digest “Best-in-State” rankings for 2012.

Regulation

Environmental, Health and Safety. Our properties and operations are subject to a number of environmental laws. As a result, we may be required to incur costs to comply with the requirements of these laws, such as those relating to water resources, discharges to air, water and land, the handling and disposal of solid and hazardous waste, and the cleanup of properties affected by regulated materials. Under these and other environmental requirements we may be required to investigate and clean up hazardous or toxic substances or chemical releases from current or formerly owned or operated facilities. Environmental laws typically impose cleanup responsibility and liability without regard to whether the relevant entity knew of or caused the presence of the contaminants. We use certain substances and generate certain wastes that may be deemed hazardous or toxic under such laws, and from time to time have incurred, and in the future may incur, costs related to cleaning up contamination resulting from historic uses of certain of our current or former properties or our treatment, storage or disposal of wastes at facilities owned by others. Our club facilities are also subject to risks associated with mold, asbestos and other indoor building contaminants. The costs of investigation, remediation or removal of regulated materials may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use, transfer or obtain financing for our property. We may be required to incur costs to remediate potential environmental hazards, mitigate environmental risks in the future, or comply with other environmental requirements.


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In addition, in order to improve, upgrade or expand some of our golf clubs, we may be subject to environmental review under the National Environmental Policy Act and, for projects in California, the California Environmental Quality Act. Both acts require that a specified government agency study any proposal for potential environmental impacts and include in its analysis various alternatives. Our improvement proposals may not be approved or may be approved with modifications that substantially increase the cost or decrease the desirability of implementing the project.

We are also subject to regulation by the United States Occupational Safety and Health Administration and similar health and safety laws in other jurisdictions. These regulations impact a number of aspects of operations, including golf course maintenance and food handling and preparation.

Zoning and Land Use. The ownership and management of our properties and facilities, as well as our re-development and expansion of clubs, subjects us to federal, state and local laws regulating zoning, land development, land use, building design and construction, and other real estate-related laws and regulations.

Access. Our facilities and operations are subject to the Americans with Disabilities Act of 1990, as amended (the “ADA”). The rules implementing the ADA have been further revised by the ADA Amendments Act of 2008, which included additional compliance requirements for golf facilities and recreational areas. The ADA generally requires that we remove architectural barriers when readily achievable so that our facilities be made accessible to people with disabilities. Noncompliance could result in imposition of fines or an award of damages to private litigants. Further, federal legislation or regulations may further amend the ADA to impose more stringent requirements with which we would have to comply.

Other. We are also subject to various local, state, and federal laws, regulations and administrative practices affecting our business. We must comply with provisions regulating health and safety standards, equal employment, minimum wages, and licensing requirements and regulations for the sale of food and alcoholic beverages.

Employees. As of March 11, 2013, we had approximately 12,900 employees, of which 9,700 are located at our golf and country clubs, 2,900 are located at our business, sports and alumni clubs and 300 are part of our corporate and regional staff. Other than a small group of golf course maintenance staff at one of our clubs, all of our employees are non-union. We believe we have a good working relationship with our employees and have yet to experience an interruption of business as a result of labor disputes.

Insurance

We believe that our properties are covered by adequate property, casualty and commercial liability insurance with what we believe are commercially reasonable deductibles and limits for our industry. We also carry other insurance, including directors and officers liability insurance, fiduciary coverage and workers' compensation. Changes in the insurance market over the past few years have increased the risk that affordable insurance may not be available to us in the future. While our management believes that our insurance coverage is adequate, if we were held liable for amounts and claims exceeding the limits of our insurance coverage or outside the scope of our insurance coverage, our business, results of operations and financial condition could be materially and adversely affected.

Intellectual Property

We have registered or claim ownership of a variety of trade names, service marks, copyrights and trademarks for use in our business, including, but not limited to: Associate Club; Associate Clubs; Benefits Finder; Building Relationships and Enriching Lives; ClubCater; ClubCorp; ClubCorp Charity Classic; ClubCorp Resorts; Club Corporation of America; ClubLine; Club Resorts; Club Without Walls; Fastee Course; HotelLine; Membercard; My Club. My Community. My World; Private Clubs; The Society; The World Leader in Private Clubs; and Warm Welcomes, Magic Moments and Fond Farewells. While there can be no assurance that we can maintain registration or ownership for the marks, we are not currently aware of any facts that would negatively impact our continuing use of any of the above trade names, service marks or trademarks. We consider our intellectual property rights to be important to our business and actively defend and enforce them.


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Available Information

We file with or furnish to the Securities and Exchange Commission (“SEC”) reports, including our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934. These reports are available free of charge on our corporate website (www.clubcorp.com) as soon as reasonably practicable after such materials are electronically filed with or furnished to the SEC. Information provided on our website is not part of this Form 10-K or our other filings. Copies of any materials we file with the SEC can be obtained at www.sec.gov or at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the public reference room is available by calling the SEC at 1-800-SEC-0330.


ITEM 1A.    RISK FACTORS

Economic recessions or downturns could harm our business, financial condition and results of operations, and the recent economic downturn has negatively affected and may continue to negatively affect our business, financial condition and results of operations.

A substantial portion of our revenue is derived from discretionary or leisure spending by our members and guests and such spending can be particularly sensitive to changes in general economic conditions. The recent global recession has led to slower economic activity, increased unemployment, concerns about inflation and energy costs, decreased business and consumer confidence, reduced corporate profits and capital spending, adverse business conditions and lower levels of liquidity in many financial markets, which has negatively affected our business, financial condition and results of operations. For example, for the fiscal years ended December 25, 2012 and December 27, 2011, we experienced attrition in member count of 16.5% and 15.5% in our golf and country clubs and 22.9% and 23.1% in our business, sports and alumni clubs, respectively, as consumers and businesses cut back on discretionary spending. The continuation of the recent economic downturn we experienced in the United States may lead to further increases in unemployment and loss of consumer confidence which would likely translate into additional resignations of existing members, a decrease in the rate of new memberships and reduced spending by our members. As a result, our business, financial condition and results of operations may continue to be materially adversely affected by economic downturns.

Our businesses will remain susceptible to future economic recessions or downturns, and any significant adverse shift in general economic conditions, whether local, regional or national, would likely have a material adverse effect on our business, financial condition and results of operations. During such periods of adverse economic conditions, we may be unable to increase membership dues or the price of our products and services and experience resignations of existing members, a decrease in the rate of new memberships or reduced spending by our members, any of which may result in, among other things, decreased revenues and financial losses. In addition, during periods of adverse economic conditions, we may have difficulty accessing financial markets or face increased funding costs, which could make it more difficult or impossible for us to obtain funding for additional investments and harm our results of operations.

We may not be able to attract and retain club members, which could harm our business, financial condition and results of operations.

Our success depends on our ability to attract and retain members at our clubs and maintain or increase usage of our facilities. Changes in consumer tastes and preferences, particularly those affecting the popularity of golf and private dining, and other social and demographic trends could adversely affect our business. Historically, we have experienced varying levels of membership enrollment and attrition rates and, in certain areas, decreased levels of usage of our facilities. Significant periods where attrition rates exceed enrollment rates or where facilities usage is below historical levels would have a material adverse effect on our business, results of operations and financial condition. For the fiscal year ended December 25, 2012, 46.0% of our total operating revenues came from monthly membership dues. During the same period, 22.9% of our business, sports and alumni club memberships (approximately 14,500 memberships), and 16.5% of our private country club and semi-private golf memberships (approximately 13,200 memberships) were resigned, resulting in a net (loss) gain in memberships of (1.4)% and 0.3%, respectively, after the addition of new memberships. If we cannot attract new members or retain our existing members, our business, financial condition and results of operations could be harmed.

Competition in the industry in which we compete could have a material adverse effect on our business and results of operations.

We operate in a highly competitive industry, and compete primarily on the basis of management expertise, reputation, featured facilities, location, quality and breadth of member product offerings and price. As a result, competition for market share in the industry in which we compete is significant. In order to succeed, we must take market share from local and regional

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competitors and sustain our membership base in the face of increasing recreational alternatives available to our existing and potential members.

Our business clubs compete on a local and regional level with restaurants and other business and social clubs. The number and variety of competitors in this business varies based on the location and setting of each facility, with some situated in intensely competitive upscale urban areas characterized by frequent innovations in the products and services offered by competing restaurants and other business, dining and social clubs. In addition, in most regions, these businesses are in constant flux as new restaurants and other social and meeting venues open or expand their amenities. As a result of these characteristics, the supply in a given region often exceeds the demand for such facilities, and any increase in the number or quality of restaurants and other social and meeting venues, or the products and services they provide, in a given region could significantly impact the ability of our clubs to attract and retain members, which could harm our business and results of operations.

Our country clubs and golf facilities compete on a local and regional level with other country clubs and golf facilities. The level of competition in the country club and golf facility business varies from region to region and is subject to change as existing facilities are renovated or new facilities are developed. An increase in the number or quality of similar clubs and other facilities in a particular region could significantly increase competition, which could have a negative impact on our business and results of operations.

Our results of operations also could be affected by a number of additional competitive factors, including the availability of, and demand for, alternative venues for recreational pursuits, such as multi-use sports and athletic centers. In addition, member owned and individual privately owned clubs may be able to create a perception of exclusivity that we have difficulty replicating given the diversity of our network of clubs and the scope of our holdings. To the extent these alternatives succeed in diverting actual or potential members away from our facilities or affect our membership rates, our business and results of operations could be harmed.

Changes in consumer spending patterns, particularly discretionary expenditures for leisure, travel and recreation, are susceptible to factors beyond our control that may reduce demand for our products and services.

Consumer spending patterns, particularly discretionary expenditures for leisure, travel and recreation, are particularly susceptible to factors beyond our control that may reduce demand for our products and services, including demand for memberships, golf, vacation and business travel and food and beverage sales. These factors include:

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low consumer confidence;

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depressed housing prices;

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changes in the desirability of particular locations, residential neighborhoods, office space, or travel patterns of members;

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decreased corporate budgets and spending and cancellations, deferrals or renegotiations of group business (e.g., industry conventions);

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natural disasters, such as earthquakes, tornadoes, hurricanes and floods;

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outbreaks of pandemic or contagious diseases, such as avian or swine flu, and severe acute respiratory syndrome (SARS);

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war, terrorist activities or threats and heightened travel security measures instituted in response to these events; and

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the financial condition of the airline, automotive and other transportation-related industries and its impact on travel.

These factors and other global and national conditions can adversely affect, and from time to time have adversely affected, individual properties, particular regions or our business as a whole. For example, during the recent recession, many businesses dramatically decreased the number of corporate events and meetings hosted at facilities such as convention centers, hotels, resorts and retreats in an effort to cut costs and in response to public opinion relating to excess corporate spending, which negatively impacted the amount of business for such facilities, including certain of our facilities. Any one or more of these factors could limit or reduce demand or the rates our clubs are able to charge for memberships or services, which could harm our business and results of operations.

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Our ability to attract and retain members depends heavily on successfully locating our clubs in suitable locations, and any impairment of a club location, including any decrease in member or customer traffic, could impact our results of operations.

Our approach to identifying locations for our clubs typically favors locations where our facilities can become a part of the community. As a result, our clubs are typically located near urban and residential centers that we believe are consistent with our members' lifestyle choices. Memberships and sales at these locations are derived, in part, from proximity to key local landmarks, business centers, facilities and residential areas. We may be forced to close clubs or club locations may become unsuitable due to, and such locations' results of operations may be harmed by, among other things:

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economic downturns in a particular area;

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competition from nearby entertainment venues;

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changing demographics in a particular market or area;

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changing lifestyle choices of consumers in a particular market; and

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the closing or declining of popularity of other businesses and entertainment venues located near our clubs.

For example, in December 2010, we terminated our lease agreement and discontinued operations of the Renaissance Club, a business club in Detroit, Michigan, a city particularly hard hit by the recent recession. Changes in areas around our club locations could render such locations unsuitable and cause memberships at such clubs to decline, which would harm our results of operations.

We have significant operations concentrated in certain geographic areas, and any disruption in the operations of our clubs in any of these areas could harm our results of operations.

We currently operate multiple clubs in several metropolitan areas, including fifteen in and around Dallas, Texas, thirteen near Houston, Texas, eight in the greater Los Angeles, California region, four near Sacramento, California, four in and around Phoenix, Arizona, eight in the greater Atlanta, Georgia region and four near Tampa, Florida. As a result, any prolonged disruption in the operations of our clubs in any of these markets, whether due to technical difficulties, power failures or destruction or damage to the clubs as a result of a natural disaster, fire or any other reason, could harm our results of operations or may result in club closures. In addition, many of the metropolitan areas where we operate clubs have been disproportionately affected, and may continue to be disproportionately affected by the economic downturn and the decline in home prices and increase in foreclosure rates. Concentration in these markets increases our exposure to adverse developments related to competition, as well as economic and demographic changes in these areas.

Unusual weather patterns and extreme weather events, as well as periodic and quasi-periodic weather patterns, such as those commonly associated with the El Niño/La Niña-Southern Oscillation, could adversely affect the value of our golf courses or negatively impact our business and results of operations.

Our operations and results are susceptible to non-seasonal and severe weather patterns. Extreme weather events or patterns in a given region, such as heavy rains, prolonged snow accumulations, extended heat waves and high winds, could reduce our revenues for that region by interrupting activities at affected properties which could negatively impact our business and results of operations.

One factor that specifically affects our real estate investments in golf courses is the availability of water. Turf grass conditions must be satisfactory to attract play on our golf courses, which requires significant amounts of water. Our ability to irrigate a golf course could be adversely impacted by a drought or other cause of water shortage, such as the recent drought affecting the southern United States. A severe drought of extensive duration experienced in regard to a large number of properties could adversely affect our business and results of operations.

We also have a high concentration of golf clubs in California, Florida and Texas, which can experience periods of unusually hot, cold, dry or rainy weather due to a variety of periodic and quasi-periodic global climate phenomenon, such as the El Niño/La Niña-Southern Oscillation. For example, during 2011, we incurred 7.2% higher golf course maintenance utility expenses for the fiscal period starting on June 15, 2011 and ending on September 6, 2011 compared to the corresponding fiscal period in 2010, due to unusually hot and severe drought conditions in certain portions of the southern United States. If these phenomenon and their impacts on weather patterns persist for extended periods of time, our business and results of operations could be harmed.

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Seasonality may adversely affect our business and results of operations.

Our quarterly results fluctuate as a result of a number of factors. Usage of our country club and golf facilities declines significantly during the first and fourth quarters, when colder temperatures and shorter days reduce the demand for golf and golf-related activities. Our business clubs typically generate a greater share of their yearly revenues in the fourth quarter, which includes the holiday and year-end party season. In addition, the fourth quarter consists of 16 or 17 weeks of operations and the first, second and third fiscal quarters each consist of 12 weeks. As a result of these factors, we usually generate a disproportionate share of our revenues and cash flows in the second, third and fourth quarters of each year and have lower revenues and profits in the first quarter. This seasonality makes our business and results of operations more vulnerable to other risks during the periods of increased member usage due to the larger percentage of revenues we generate during such times.

Our future success is substantially dependent on the continued service of our senior management and key employees.

The loss of the services of our senior management could make it more difficult to successfully operate our business and achieve our business goals. We also may be unable to retain existing management and key employees, including club managers, membership sales and support personnel, which could result in harm to our member and employee relationships, loss of expertise or know-how and unanticipated recruitment and training costs. In addition, we have not obtained key man life insurance policies for any of our senior management team. As a result, it may be difficult to cover the financial loss if we were to lose the services of any members of our senior management team. The loss of members of our senior management team or key employees or any financial impact resulting therefrom could have an adverse affect on our business and results of operations.

Our large workforce subjects us to risks associated with increases in the cost of labor as a result of increased competition for employees, higher employee turnover rates and required wage increases and health benefit coverage, lawsuits or labor union activity.

Labor is our primary property-level operating expense. As of December 25, 2012, we employed approximately 12,900 hourly-wage and salaried employees at our clubs and corporate offices. For the fiscal year ended December 25, 2012, labor-related expense accounted for 48.6% of our total operating expense. We may face labor shortages or increased labor costs because of increased competition for employees, higher employee turnover rates, or increases in the federal or state minimum wage or other employee benefit costs. For example, we are continuing to assess the impact of federal health care reform law and regulations on our health care benefit costs, which will likely increase the amount of healthcare expenses paid by us. If labor-related expenses increase, our operating expense could increase and our business, financial condition and results of operations could be harmed.

We are subject to the Fair Labor Standards Act, or FLSA, and various federal and state laws governing such matters as minimum wage requirements, overtime compensation and other working conditions, citizenship requirements, discrimination and family and medical leave. In recent years, a number of companies have been subject to lawsuits, including class action lawsuits, alleging violations of federal and state law regarding workplace and employment matters, overtime wage policies, discrimination and similar matters. A number of these lawsuits have resulted in the payment of substantial damages by the defendants. Similar lawsuits may be threatened or instituted against us from time to time, and we may incur substantial damages and expenses resulting from lawsuits of this type, which could have a material adverse effect on our business, financial condition or results of operations.

From time to time, we have also experienced attempts to unionize certain of our non-union employees. While these efforts have achieved only limited success to date, we cannot provide any assurance that we will not experience additional and more successful union activity in the future. In addition, future legislation could amend the National Labor Relations Act to make it easier for unions to organize and obtain collectively bargained benefits, which could increase our operating expenses and negatively affect our financial condition and results of operations.

Increases in our cost of goods, rent, utilities and taxes could reduce our operating margins and harm our business, financial condition and results of operations.

Increases in operating costs due to inflation and other factors may not be directly offset by increased revenue. Our most significant operating costs, other than labor, are our cost of goods, utilities, rent and property taxes. Many, and in some cases all, of the factors affecting these costs are beyond our control.

Our cost of goods such as food and beverage costs account for a significant portion of our total property-level operating expense. Cost of goods represented 15.2% of our total operating expense for the fiscal year ended December 25,

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2012. If our cost of goods increases significantly and we are not able to pass along those increased costs to our members in the form of higher prices or otherwise, our operating margins could suffer, which would have an adverse effect on our business, financial condition and results of operations.

In addition, rent, which represented 4.9% of our total operating expense for the fiscal year ended December 25, 2012, also accounts for a significant portion of our property-level operating expense. Significant increases in our rent costs would increase our operating expense and our business, financial condition and results of operations may suffer.

Utility costs, including water, represented 5.7% of our total operating expense for the fiscal year ended December 25, 2012. The prices of utilities are volatile, and shortages sometimes occur. In particular, municipalities are increasingly placing restrictions on the use of water for golf course irrigation and increasing the cost of water. Significant increases in the cost of our utilities, or any shortages, could interrupt or curtail our operations and lower our operating margins, which could have a negative impact on our business, financial condition and results of operations.

Each of our properties is subject to real and personal property taxes. During the fiscal year ended December 25, 2012, we paid approximately $10.7 million in property taxes. The real and personal property taxes on our properties may increase or decrease as tax rates change and as our clubs are assessed or reassessed by taxing authorities. If real and personal property taxes increase, our financial condition and results of operations may suffer.

We could be required to make material cash outlays in future periods if the number of initiation deposit refund requests we receive materially increases or if we are required to surrender unclaimed initiation deposits to state authorities under applicable escheatment laws.

In contrast to initiation fees which are generally non-refundable, initiation deposits paid by members upon joining one of our clubs are fully refundable after a fixed number of years, typically 30 years, and upon the occurrence of other contract-specific conditions. Historically, only a small percentage of initiation deposits eligible to be refunded have been requested by members. As of December 25, 2012, the amount of initiation deposits that are eligible to be refunded currently or within the next twelve months is $91.4 million on a gross basis. When refunds are requested, we must fund the payment of such amounts from our available cash. If the number of refunds dramatically increases in the future, our financial condition could suffer and the funding requirement for such refunds could strain our cash on hand or otherwise force us to reduce or delay capital expenditures, sell assets or operations or seek additional capital in order to raise the cash necessary to make such refunds. The discounted value of initiation deposits that may be refunded in future years (not including the next twelve months) is $202.6 million. For more information on our initiation deposit amounts, see Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”

While we will make a refund to any member whose initiation deposit is eligible to be refunded, we may be subject to various states' escheatment laws with respect to initiation deposits that have not been refunded to members. All states have escheatment laws and generally require companies to remit to the state cash in an amount equal to unclaimed and abandoned property after a specified period of dormancy, which is typically 3 to 5 years. We currently do not remit to states any amounts relating to initiation deposits that are eligible to be refunded to members based upon our interpretation of the applicability of such laws to initiation deposits. The analysis of the potential application of escheatment laws to our initiation deposits is complex, involving an analysis of constitutional and statutory provisions and contractual and factual issues. While we do not believe that initiation deposits must be escheated, we may be forced to remit such amounts if we are challenged and fail to prevail in our position.

In addition, most of the states in which we conduct business have hired independent agents to conduct unclaimed and abandoned property audits of our operations. Certain categories of property, such as uncashed payroll checks or uncashed vendor payments are escheatable in the ordinary course of business and we have entered into closing agreements with the majority of the states regarding the escheatment of cash amounts for such categories and have remitted these amounts to the respective states. If any state asserts that any or all of the initiation deposits eligible to be refunded to members that have not been refunded to members during the applicable dormancy period, depending on the state in which a club is located, are to be remitted to such state under applicable escheatment laws, we expect to vigorously defend our position on the matter. However, if we are ultimately unsuccessful in arguing our right to continue holding such amounts, we may be forced to pay such amounts to the claiming states. While we believe we have strong arguments against any potential claims for the escheatment of unclaimed initiation deposits made under state escheatment laws, if a material portion of the initiation deposits otherwise eligible to be refunded were awarded to any states, our financial condition could be materially and adversely affected and we may be required to reduce or delay capital expenditures, sell assets or operations or seek additional capital in order to raise the corresponding cash required to satisfy such awards. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet such obligations or that these actions would be permitted under the terms of our existing or future debt agreements.

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We have concentrated our investments in golf-related and business real estate and facilities, which are subject to numerous risks, including the risk that the values of our investments may decline if there is a prolonged downturn in real estate values.

Our operations consist almost entirely of golf-related and business club facilities that encompass a large amount of real estate holdings. Accordingly, we are subject to the risks associated with holding real estate investments. A prolonged decline in the popularity of golf-related or business club services, such as private dining, could adversely affect the value of our real estate holdings and could make it difficult to sell facilities or businesses.

Our real estate holdings (including our long-term leaseholds) are subject to risks typically associated with investments in real estate. The investment returns available from equity investments in real estate depend in large part on the amount of income earned, expenses incurred and capital appreciation generated by the related properties. In addition, a variety of other factors affect income from properties and real estate values, including governmental regulations, real estate, insurance, zoning, tax and eminent domain laws, interest rate levels and the availability of financing. For example, new or existing real estate zoning or tax laws can make it more expensive and time-consuming to expand, modify or renovate older properties. Under eminent domain laws, governments can take real property. Sometimes this taking is for less compensation than the owner believes the property is worth. Any of these factors could have an adverse impact on our business, financial condition or results of operations.

The illiquidity of real estate may make it difficult for us to dispose of one or more of our properties or negatively affect our ability to profitably sell such properties.

We may from time to time decide to dispose of one or more of our real estate assets. Because real estate holdings generally, and clubs like ours in particular, are relatively illiquid, we may not be able to dispose of one or more real estate assets on a timely basis. In some circumstances, sales may result in investment losses which could adversely affect our financial condition. The illiquidity of our real estate assets could mean that we continue to operate a facility that management has identified for disposition. Failure to dispose of a real estate asset in a timely fashion, or at all, could adversely affect our business, financial condition and results of operations.

Our level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to plan for and react to changes in the economy, our industry or our business and prevent us from meeting our indebtedness obligations.

As of December 25, 2012, we were significantly leveraged and our total indebtedness was approximately $781.5 million. Our substantial degree of leverage could have important consequences for our investors, including the following:

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it may limit our ability to obtain additional debt or equity financing for working capital, capital expenditures, product development, debt service requirements, acquisitions or general corporate or other purposes;

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a substantial portion of our cash flows from operations is dedicated to the payment of principal and interest on our indebtedness and will not be available for other purposes, including our operations, capital expenditures, and other business opportunities;

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the debt service requirements of our indebtedness could make it more difficult for us to satisfy our financial obligations;

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certain of our borrowings, including borrowings under our secured credit facilities, are at variable rates of interest, exposing us to the risk of increased interest rates;

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it may limit our flexibility in planning for, or our ability to adjust to, changes in our business or the industry in which we operate, and place us at a competitive disadvantage compared to our competitors that have less debt; and

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we may be vulnerable to a downturn in general economic conditions or in our business, or we may be unable to carry out capital spending that is important to our growth.

Although our total indebtedness decreased as a result of the ClubCorp Formation (see Notes 1 and 2 to Item 8. "Financial Statements and Supplementary Data"), our interest expense is substantially higher after giving effect to the ClubCorp Formation, as compared to our interest expense for prior periods, as a result of higher aggregate interest rates on our debt.

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We may not be able to generate sufficient cash to service all of our indebtedness and be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot guarantee that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. (See “Cautionary Statement Regarding Forward-Looking Statements” and Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”) If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional capital or restructure or refinance our indebtedness. We cannot guarantee that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. Our Secured Credit Facilities and the indenture that governs our senior unsecured notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or to obtain the proceeds which we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:

•
our debt holders could declare all outstanding principal and interest to be due and payable;

•
the lenders under our Secured Credit Facilities could terminate their commitments to lend us money and foreclose against the assets securing their borrowings; and

•
we could be forced into bankruptcy or liquidation.

Despite current indebtedness levels, we may still be able to incur substantially more debt. This could further exacerbate the risks described above.

We and our subsidiaries may be able to incur substantial additional indebtedness in the future. The terms of the indenture governing our senior unsecured notes do not fully prohibit us or our subsidiaries from doing so. On November 30, 2010, we entered into the Secured Credit Facilities comprised of (i) a $310.0 million term loan facility and (ii) a revolving credit facility with a maximum borrowing limit of $50.0 million, which includes letter of credit and swing line facilities. As of December 25, 2012, $33.6 million was available for borrowing under the revolving credit facility. Additionally, we have the option to increase the term loan facility by up to $50.0 million and the revolving credit facility by up to an additional $25.0 million, both subject to conditions and restrictions in our Secured Credit Facilities. If new debt is added to our current debt levels, the related risks that we now face could intensify.

Restrictive covenants may adversely affect our operations.

Our Secured Credit Facilities and the indenture governing our senior unsecured notes contain various covenants that limit our ability to, among other things:

•
incur or guarantee additional indebtedness;

•
pay dividends or distributions on capital stock or redeem or repurchase capital stock;

•
make investments;

•
create restrictions on the payment of dividends or other amounts to us;

•
sell stock of our subsidiaries;

•
transfer or sell assets;

•
create liens;


18

•
enter into transactions with affiliates; and

•
enter into mergers or consolidations.

In addition, the restrictive covenants in our Secured Credit Facilities require us to maintain specified financial ratios and satisfy other financial condition tests. Our ability to meet those financial ratios and tests can be affected by events beyond our control, and we cannot guarantee that we will meet them. A breach of any of these covenants could result in a default under our Secured Credit Facilities. Upon the occurrence of an event of default under our Secured Credit Facilities, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable and terminate all commitments to extend further credit. If we were unable to repay those amounts, the lenders under our Secured Credit Facilities could proceed against the collateral granted to them to secure that indebtedness. We have pledged a significant portion of our assets as collateral under our Secured Credit Facilities. If the lenders under our Secured Credit Facilities accelerate the repayment of borrowings, the holders of our senior unsecured notes could declare a cross-default, and we cannot guarantee that we will have sufficient assets to repay our Secured Credit Facilities, the senior unsecured notes, and our other indebtedness, or borrow sufficient funds to refinance such indebtedness. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, or terms that are acceptable to us.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

Certain of our borrowings, primarily borrowings under our Secured Credit Facilities, are subject to variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on our variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income would decrease. The interest rate on our term loan facility is the higher of (i) 5.0% (“Floor”) and (ii) an elected LIBOR plus a margin of 3.75% (less the impact of the interest rate cap agreement that limits our exposure on the elected LIBOR to 2.0% on a notional amount of $155.0 million). Our term loan facility will be effectively subject to the Floor until LIBOR exceeds 1.25%. As of December 25, 2012, LIBOR was below the Floor, such that a hypothetical 0.50% increase in LIBOR applicable to borrowings under our Secured Credit Facilities would not result in an increase in interest expense.

Timing, budgeting and other risks could delay our efforts to develop, redevelop or renovate the properties that we own, or make these activities more expensive, which could reduce our profits or impair our ability to compete effectively.

We must regularly expend capital to construct, maintain and renovate the properties that we own in order to remain competitive, maintain the value and brand standards of our properties and comply with applicable laws and regulations. In addition, we must periodically upgrade or replace the furniture, fixtures and equipment necessary to operate our business. These efforts are subject to a number of risks, including:

•
construction delays or cost overruns (including labor and materials) that may increase project costs;

•
obtaining zoning, occupancy and other required permits or authorizations;

•
governmental restrictions on the size or kind of development;

•
force majeure events, including earthquakes, tornadoes, hurricanes or floods;

•
design defects that could increase costs; and

•
environmental concerns which may create delays or increase costs.

These projects create an ongoing need for cash, which if not generated by operations or otherwise obtained is subject to the availability of credit in the capital markets. Our ability to spend the money necessary to maintain the quality of our properties is significantly impacted by the cost and availability of capital, over which we have little control.

The timing of capital improvements can affect property performance, including membership retention and usage, particularly if we need to close golf courses or a significant number of other facilities, such as ballrooms, meeting spaces or dining areas. Moreover, the investments that we make may fail to improve the performance of the properties in the manner that we expect.


19

If we are not able to begin operating properties as scheduled, or if investments harm or fail to improve our performance, our ability to compete effectively would be diminished and our business and results of operations could be adversely affected.

We may seek to expand through acquisitions of and investments in other businesses and properties, or through alliances; and we may also seek to divest some of our properties and other assets, any of which may be unsuccessful or divert our management's attention.

We intend to consider strategic and complementary acquisitions of and investments in other businesses, properties or other assets. In many cases, we will be competing for these opportunities with third parties that may have substantially greater financial resources than we do. Acquisitions or investments in businesses, properties or assets as well as these alliances are subject to risks that could affect our business, including risks related to:

•
spending cash and incurring debt;

•
assuming contingent liabilities;

•
creating additional expenses; or

•
use of management's time and attention.

We cannot assure you that we will be able to identify opportunities or complete transactions on commercially reasonable terms or at all, or that we will actually realize any anticipated benefits from such acquisitions, investments or alliances. Similarly, we cannot assure you that we will be able to obtain financing for acquisitions or investments on attractive terms or at all, or that the ability to obtain financing will not be restricted by the terms of our Secured Credit Facilities or other indebtedness we may incur.

The success of any such acquisitions or investments will also depend, in part, on our ability to integrate the acquisition or investment with our existing operations. We may experience difficulty with integrating acquired businesses, properties or other assets, including difficulties relating to:

•
geographic diversity;

•
integrating information technology systems; and

•
retaining members.

We depend on third parties in our joint ventures and collaborative arrangements, which may limit our ability to manage risk.

As of December 25, 2012, we owned seven properties in partnership with other entities, including joint ventures relating to six of our golf facilities and one of our business clubs, and may in the future enter into further joint venture or other collaborative arrangements related to additional properties. Our investments in these joint ventures may, under certain circumstances, involve risks not otherwise present in our business, including the risk that our partner may become bankrupt, the risk that we may not be able to sell or dispose of our interest as a result of buy/sell rights that may be imposed by the joint venture agreement, the risk that our partner may have economic or other interests or goals that are inconsistent with our interests and goals and the risk that our partner may be able to veto actions which may be in our best interests. Consequently, actions by a co-venturer might subject clubs owned by the joint venture to additional risk. Additionally, we may be unable to take action without the approval of our joint venture partners, or our joint venture partners could take actions binding on the joint venture without our consent. Any of the foregoing could have a negative impact on the joint venture or its results of operations, and subsequently on our business or results of operations.

Our insurance policies may not provide adequate levels of coverage against all claims and we may incur losses that are not covered by our insurance.

We maintain insurance of the type and in amounts that we believe is commercially reasonable and that is available to businesses in our industry. We carry commercial liability, fire, flood, earthquake, catastrophic wind and extended insurance coverage, as applicable, from solvent insurance carriers on all of our properties. We believe that the policy specifications and insured limits are adequate for foreseeable losses with terms and conditions that are reasonable and customary for similar properties and all of our existing golf and business clubs are insured within industry standards. Nevertheless, market forces beyond our control could limit the scope of the insurance coverage that we can obtain in the future or restrict our ability to buy

20

insurance coverage at reasonable rates. We cannot predict the level of the premiums that we may be required to pay for subsequent insurance coverage, the level of any deductible and/or self-insurance retention applicable thereto, the level of aggregate coverage available or the availability of coverage for specific risks.

In the event of a substantial loss, the insurance coverage that we carry may not be sufficient to pay the full value of our financial obligations or the replacement cost of any lost investment. As a result, we could lose some or all of the capital we have invested in a property, as well as the anticipated future revenues from the property. Additionally, we could remain obligated for performance guarantees in favor of third-party property owners or for their debt or other financial obligations and we may not have sufficient insurance to cover awards of damages resulting from our liabilities. If the insurance that we carry does not sufficiently cover damages or other losses, our business, financial condition and results of operations could be harmed.

In addition, there are types of losses we may incur that cannot be insured against or that we believe are not commercially reasonable to insure. For example, we maintain business interruption insurance, but there can be no assurance that the coverage for a severe or prolonged business interruption at one or more of our clubs would be adequate. Moreover, we believe that insurance covering liability for violations of wage and hour laws is generally not available. These losses, if they occur, could have a material adverse effect on our business, financial condition and results of operations.

Accidents or injuries in our clubs or in connection with our operations may subject us to liability, and accidents or injuries could negatively impact our reputation and attendance, which would harm our business, financial condition and results of operations.

There are inherent risks of accidents or injuries at our properties or in connection with our operations, including injuries from premises liabilities such as slips, trips and falls. If accidents or injuries occur at any of our properties, we may be held liable for costs related to the injuries. We maintain insurance of the type and in the amounts that we believe are commercially reasonable and that are available to businesses in our industry, but there can be no assurance that our liability insurance will be adequate or available at all times and in all circumstances. There can also be no assurance that the liability insurance we have carried in the past was adequate or available to cover any liability related to previous incidents. Our business, financial condition and results of operations could be harmed to the extent claims and associated expenses resulting from accidents or injuries exceed our insurance recoveries.

Adverse litigation judgments or settlements could impair our financial condition and results of operations or limit our ability to operate our business.

In the normal course of our business, we are often involved in various legal proceedings. The outcome of these proceedings cannot be predicted. If any of these proceedings were to be determined adversely to us or a settlement involving a payment of a material sum of money were to occur, there could be a material adverse effect on our financial condition and results of operations. Additionally, we could become the subject of future claims by third parties, including current or former members, guests who use our properties, our employees or regulators. Any significant adverse litigation judgments or settlements could limit our ability to operate our business and negatively impact our financial condition and results of operations.

We are jointly and severally liable for the pension liabilities of a former affiliate.

We are jointly and severally liable for pension funding liabilities associated with the Homestead Retirement Plan, relating to one of the resorts we sold in connection with the ClubCorp Formation. (See Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations—Commercial Commitments.”) As of December 25, 2012, the underfunded amount of the projected benefit obligation for such plan was approximately $10.7 million. Significant adverse changes in the capital markets could cause the actual amount of underfunding to be higher than projected. If we are found liable for any amounts with respect to this plan, the payment of such liability, if material, could adversely affect our financial condition and results of operations.

The failure to comply with regulations relating to public facilities, or the failure to retain licenses relating to our properties may harm our business and results of operations.

Our business is subject to extensive federal, state and local government regulation in the various jurisdictions in which our clubs are located, including regulations relating to alcoholic beverage control, public health and safety, environmental hazards and food safety. Alcoholic beverage control regulations require each of our clubs to obtain licenses and permits to sell alcoholic beverages on the premises. The failure of a club to obtain or retain its licenses would adversely affect that club's operations and profitability. We may also be subject to dram shop statutes in certain states, which generally provide a person injured by an intoxicated person the right to recover damages from an establishment that wrongfully served alcoholic beverages

21

to the intoxicated person. Even though we are covered by general liability insurance, a settlement or judgment against us under a dram shop lawsuit in excess of liability coverage could have a material adverse effect on our operations.

We are also subject to the Americans with Disabilities Act of 1990, as amended by the ADA Amendments Act of 2008 (the “ADA”), which, among other things, may require certain renovations to our facilities to comply with access and use requirements. A determination that we are not in compliance with the ADA or any other similar law or regulation could result in the imposition of fines or an award of damages to private litigants. While we believe we are operating in substantial compliance, and will continue to remove architectural barriers in our facilities when readily achievable, in accordance with current applicable laws and regulations, there can be no assurance that our expenses for compliance with these laws and regulations will not increase significantly and harm our business, financial condition and results of operations.

Businesses operating in the private club industry are also subject to numerous other federal, state and local governmental regulations related to building and zoning requirements and the use and operation of clubs, including changes to building codes and fire and life safety codes, which can affect our ability to obtain and maintain licenses relating to our business and properties. If we were required to make substantial modifications at our clubs to comply with these regulations, our business, financial condition and results of operations could be negatively impacted.

Our operations and our ownership of property subject us to environmental regulation, which creates uncertainty regarding future environmental expenditures and liabilities.

Our properties and operations are subject to a number of environmental laws. As a result, we may be required to incur costs to comply with the requirements of these laws, such as those relating to water resources, discharges to air, water and land; the handling and disposal of solid and hazardous waste; and the cleanup of properties affected by regulated materials. Under these and other environmental requirements we may be required to investigate and clean up hazardous or toxic substances or chemical releases from current or formerly owned or operated facilities. Environmental laws typically impose cleanup responsibility and liability without regard to whether the relevant entity knew of or caused the presence of the contaminants. We use certain substances and generate certain wastes that may be deemed hazardous or toxic under such laws, and we from time to time have incurred, and in the future may incur, costs related to cleaning up contamination resulting from historic uses of certain of our current or former properties or our treatment, storage or disposal of wastes at facilities owned by others. Our club facilities are also subject to risks associated with mold, asbestos and other indoor building contaminants. The costs of investigation, remediation or removal of regulated materials may be substantial, and the presence of those substances, or the failure to remediate a property properly, may impair our ability to use, transfer or obtain financing regarding our property. We may be required to incur costs to remediate potential environmental hazards, mitigate environmental risks in the future, or comply with other environmental requirements.

In addition, some projects to improve, upgrade or expand our golf clubs may be subject to environmental review under the National Environmental Policy Act and, for projects in California, the California Environmental Quality Act. Both acts require that a specified government agency study any proposal for potential environmental impacts and include in its analysis various alternatives. Our improvement proposals may not be approved or may be approved with modifications that substantially increase the cost or decrease the desirability of implementing the project.

Changes in laws or regulations, or a failure to comply with any laws and regulations, may harm our business, investments and results of operations.

We are subject to laws and regulations enacted by national, state and local governments. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have an adverse affect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, by any of the persons referred to above could have a material adverse effect on our business, investments and results of operations.

Failure to comply with privacy regulations or maintain the integrity of internal or customer data could result in faulty business decisions, harm to our reputation or subject us to costs, fines or lawsuits.

We collect and maintain information relating to our members and guests, including personally identifiable information, for various business purposes, including maintaining records of member preferences to enhance our customer service and for billing, marketing and promotional purposes. We also maintain personally identifiable information about our employees. The integrity and protection of our customer, employee and company data is critical to our business. Our members expect that we will adequately protect their personal information, and the regulations applicable to security and privacy are increasingly demanding, both in the United States and in other jurisdictions where we operate. Privacy regulation is an evolving area in

22

which different jurisdictions (within or outside the United States) may subject us to inconsistent compliance requirements. Compliance with applicable privacy regulations may increase our operating costs or adversely impact our ability to service our members and guests and market our properties and services to our members and guests. A theft, loss, fraudulent or unlawful use of customer, employee or company data, including cyber attacks, could harm our reputation or result in remedial and other costs, fines or lawsuits. In addition, non-compliance with applicable privacy regulations by us (or in some circumstances non-compliance by third parties engaged by us) could result in fines or restrictions on our use or transfer of data. Any of these matters could adversely affect our business, financial condition or results of operations.

The operation of our business relies on technology, and operational risks may disrupt our businesses, result in losses or limit our growth.

We invest in and license technology and systems for property management, procurement, membership records and specialty programs. We believe that we have designed, purchased and installed appropriate information systems to support our business. There can be no assurance, however, that our information systems and technology will continue to be able to accommodate our growth, or that the cost of maintaining such systems will not increase from its current level. Such a failure to accommodate growth, or an increase in costs related to such information systems, could have a material adverse effect on us. Further, there can be no assurance that as various systems and technologies become outdated or new technology is required we will be able to replace or introduce them as quickly as our competitors or within budgeted costs and timeframes. In addition, we rely on third-party service providers for certain aspects of our business. Additionally, while we have cyber security procedures in place, a security breach could disrupt our business and have a material adverse effect on us. Any interruption or deterioration in the performance of our information systems could impair the quality of our operations and could impact our reputation and hence adversely affect our business and limit our ability to grow.

We may be required to write-off a portion of our goodwill and/or indefinite lived intangible asset balances as a result of a prolonged and severe economic recession.

Under accounting principles generally accepted in the United States of America (“GAAP”), we are required to test goodwill and indefinite lived intangible assets for impairment annually as well as on an interim basis to the extent factors or indicators become apparent that could reduce the fair value of our goodwill or indefinite lived intangible assets below book value. We evaluate the recoverability of goodwill by estimating the future discounted cash flows of our reporting units and terminal values of the businesses using projected future levels of income as well as business trends and market and economic conditions. We evaluate the recoverability of indefinite lived intangible assets using the income approach based upon estimated future revenue streams (see Item 7. “Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies”). If a severe prolonged economic downturn were to occur, it could cause less than expected growth or a reduction in terminal values of our reporting units and could result in a goodwill or indefinite lived intangible asset impairment charge attributable to certain goodwill or indefinite lived intangible assets, negatively impacting our results of operations and stockholders' equity.

We are subject to tax examinations of our tax returns by the Internal Revenue Service ("IRS") and other tax authorities. An adverse outcome of any such audit or examination by the IRS or other tax authority could have a material adverse effect on our results of operations, financial condition and liquidity.

We are subject to ongoing tax examinations of our tax returns by the IRS and other tax authorities in various jurisdictions and may be subject to similar examinations in the future. We regularly assess the likelihood of adverse outcomes resulting from ongoing tax examinations to determine the adequacy of our provision for income taxes. These assessments can require considerable estimates and judgments. Intercompany transactions associated with provision of services and cost sharing arrangements, as well as those associated with the ClubCorp Formation, are complex and affect our tax liabilities. On February 14, 2013, we were notified that the IRS will examine certain components of the 2010 tax return, which includes the ClubCorp Formation. The calculation of our tax liabilities involves dealing with uncertainties in the application of complex tax laws and regulations in a multitude of jurisdictions. There can be no assurance that the outcomes from ongoing tax examinations will not have an adverse effect on our operating results and financial condition. A difference in the ultimate resolution of tax uncertainties from what is currently estimated could have an adverse effect on our operating results and financial condition.

The cancellation of certain indebtedness in connection with the ClubCorp Formation resulted in cancellation of indebtedness income to us. Should the estimates and judgments used in our calculation of such cancellation of indebtedness income prove to be inaccurate, our financial results could be materially affected.

Cancellation of debt income occurred for U.S. federal income tax purposes in connection with the consummation of the ClubCorp Formation due to the forgiveness of $342.3 million of debt owed under the then existing Secured Credit Facilities. The cancellation of indebtedness income not otherwise excluded will be deferred as further provided by Section 108

23

of the Internal Revenue Code of 1986, as amended (the “Code”). The calculation of the amount of cancellation of indebtedness income recognized in connection with the ClubCorp Formation is complex and involves significant judgments and interpretations on our part. Should the estimates and judgments used in our calculation of cancellation of indebtedness income prove to be inaccurate, our financial results could be materially affected.

We are controlled by affiliates of KSL, whose interests may be different than the interests of other investors.

By reason of their majority ownership interest in our parent company, affiliates of KSL have the ability to designate a majority of the members of our board of directors. KSL's affiliates are able to control actions to be taken by us, including amendments to our certificate of incorporation and bylaws and the approval of significant corporate transactions, including mergers, sales of substantially all of our assets, distributions of our assets, the incurrence of indebtedness and any incurrence of liens on our assets. The interests of KSL's affiliates may be materially different from the interests of our other stakeholders. For example, KSL's affiliates may cause us to take actions or pursue strategies that could impact our ability to make payments under our debt agreements or that cause a change in control. In addition, to the extent permitted by our debt agreements, affiliates of KSL may cause us to pay dividends rather than make capital expenditures.

Cautionary Statement Regarding Forward-Looking Statements

All statements (other than statements of historical facts) in this annual report on Form 10-K regarding the prospects of the industry and our prospects, plans, financial position and business strategy may constitute forward-looking statements. In addition, forward-looking statements generally can be identified by the use of forward-looking terminology such as “may,” “should,” “expect,” “intend,” “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 that may cause actual results to differ materially from the forward-looking statements:

Some of the key factors that could cause actual results to differ from our expectations include:

•
adverse conditions affecting the United States economy;

•
our ability to attract and retain club members;

•
increases in the level of competition we face;

•
changes in consumer spending patterns, particularly with respect to demand for products and services;

•
impairments to the suitability of our club locations;

•
regional disruptions such as power failures, natural disasters or technical difficulties in any of the major areas in which we operate;

•
unusual weather patterns, extreme weather events and periodic and quasi periodic weather patterns, such as the El Nino/La Nina Southern Oscillation;

•
seasonality of demand for our services and facilities usage;

•
the loss of members of our management team or key employees;

•
increases in the cost of labor;

•
increases in other costs, including costs of goods, rent, utilities and taxes;

•
material cash outlays required in connection with refunds of membership initiation deposits;

•
decreasing values of our investments;

•
illiquidity of real estate holdings;

•
timely, costly and unsuccessful development and redevelopment activities at our properties;

24


•
unsuccessful or burdensome acquisitions or divestitures;

•
restrictions placed on our ability to limit risk due to joint ventures and collaborative arrangements;

•
insufficient insurance coverage and uninsured losses;

•
accidents or injuries which occur at our properties;

•
adverse judgments or settlements;

•
pension plan liabilities;

•
our failure to comply with regulations relating to public facilities or our failure to retain the licenses relating to our properties;

•
future environmental regulation, expenditures and liabilities;

•
changes in or failure to comply with laws and regulations relating to our business and properties;

•
failure to comply with privacy regulations or maintain the integrity of internal customer data;

•
sufficiency and performance of the technology we own or license;

•
write-offs of goodwill;

•
cancellation of certain indebtedness will result in cancellation of indebtedness income;

•
risks related to tax examinations by the Internal Revenue Service;

•
the ownership of a majority of our equity by affiliates of our Sponsor;

•
our substantial indebtedness, which may adversely affect our financial condition, our ability to operate our business, react to changes in the economy or our industry and pay our debts and could divert our cash flows from operations for debt payments;

•
our need to generate cash to service our indebtedness;

•
the incurrence by us of substantially more debt, which could further exacerbate the risks associated with our substantial leverage;

•
restrictions in our debt agreements that limit our flexibility in operating our business; and

•
other factors detailed herein, including under “Item 1A. Risk Factors,” “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” and “Item 7A. Quantitative and Qualitative Disclosures About Market Risk.”

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 Form 10-K. These forward-looking statements speak only as of the date of this Form 10-K. We do not intend to update or revise these forward-looking statements, whether as a result of new information, future events or otherwise, unless the securities laws require us to do so.


ITEM 1B.    UNRESOLVED STAFF COMMENTS

None.



25

ITEM 2.    PROPERTIES

As of March 11, 2013, our network consists of 151 clubs located in 23 states, the District of Columbia and two foreign countries. We own 81 clubs in fee simple, lease 43 business, sports and alumni clubs on long-term space leases, hold the leasehold interest in 13 golf and country clubs, hold joint venture interests in 7 clubs, and hold management contracts for 7 clubs.

We believe our leased corporate office space in Dallas, Texas, and all the clubs in our network are well maintained and occupy sufficient space to meet our operating needs. During the normal course of business we evaluate lease terms and club locations and may elect to relocate or combine locations as we see fit.

The following tables illustrate our clubs by segment, location, type of club, and size either in terms of golf holes or approximate square footage, respectively, for golf and country clubs or business, sports and alumni clubs.
Golf and Country Clubs Segment by Region
 
Type of Club
 
Market
 
State
 
Golf
Holes
California Region
 
 
 
 
 
 
 
 
Aliso Viejo Golf Club
 
Private Country Club
 
Los Angeles
 
CA
 
18
Braemar Country Club
 
Private Country Club
 
Los Angeles
 
CA
 
27
Canyon Crest Country Club
 
Private Country Club
 
Los Angeles
 
CA
 
18
Coto De Caza Golf & Racquet Club
 
Private Country Club
 
Los Angeles
 
CA
 
36
Crow Canyon Country Club
 
Private Country Club
 
San Francisco
 
CA
 
18
Desert Falls Country Club
 
Private Country Club
 
Palm Springs
 
CA
 
18
Morgan Run Club & Resort
 
Private Country Club
 
San Diego
 
CA
 
27
Porter Valley Country Club
 
Private Country Club
 
Los Angeles
 
CA
 
18
Shadowridge Country Club
 
Private Country Club
 
San Diego
 
CA
 
18
Spring Valley Lake Country Club
 
Private Country Club
 
Los Angeles
 
CA
 
18
Airways Golf Club
 
Public Golf
 
Fresno
 
CA
 
18
Empire Ranch Golf Club
 
Public Golf
 
Sacramento
 
CA
 
18
Indian Wells Country Club
 
Private Country Club
 
Palm Springs
 
CA
 
36
Mission Hills Country Club
 
Private Country Club
 
Palm Springs
 
CA
 
54
Teal Bend Golf Club
 
Public Golf
 
Sacramento
 
CA
 
18
Turkey Creek Golf Club
 
Public Golf
 
Sacramento
 
CA
 
18
Granite Bay Golf Club
 
Private Country Club
 
Sacramento
 
CA
 
18
Texas Region
 
 
 
 
 
 
 
 
April Sound Country Club
 
Private Country Club
 
Houston
 
TX
 
27
Bay Oaks Country Club
 
Private Country Club
 
Houston
 
TX
 
18
Brookhaven Country Club
 
Private Country Club
 
Dallas
 
TX
 
54
Canyon Creek Country Club
 
Private Country Club
 
Dallas
 
TX
 
18
The Club at Cimarron
 
Private Country Club
 
Mission
 
TX
 
18
Fair Oaks Ranch Golf & Country Club
 
Private Country Club
 
San Antonio
 
TX
 
36
The Club at Falcon Point
 
Private Country Club
 
Houston
 
TX
 
18
Gleneagles Country Club
 
Private Country Club
 
Dallas
 
TX
 
36
Hackberry Creek Country Club
 
Private Country Club
 
Dallas
 
TX
 
18
Hearthstone Country Club
 
Private Country Club
 
Houston
 
TX
 
27
Hollytree Country Club
 
Private Country Club
 
Tyler
 
TX
 
18
The Clubs of Kingwood at Deerwood
 
Private Country Club
 
Houston
 
TX
 
18
The Clubs of Kingwood at Kingwood
 
Private Country Club
 
Houston
 
TX
 
72
Las Colinas Country Club
 
Private Country Club
 
Dallas
 
TX
 
18
Lost Creek Country Club
 
Private Country Club
 
Austin
 
TX
 
18
Oakmont Country Club
 
Private Country Club
 
Dallas
 
TX
 
18
Shady Valley Golf Club
 
Private Country Club
 
Dallas
 
TX
 
18
Stonebriar Country Club (1)
 
Private Country Club
 
Dallas
 
TX
 
36
Stonebridge Country Club
 
Private Country Club
 
Dallas
 
TX
 
18

26

Golf and Country Clubs Segment by Region
 
Type of Club
 
Market
 
State
 
Golf
Holes
The Ranch Country Club at Stonebridge
 
Private Country Club
 
Dallas
 
TX
 
27
Lakeway Country Club
 
Semi-Private Golf Club
 
Austin
 
TX
 
36
Flintrock Golf Club at Lakeway
 
Private Country Club
 
Austin
 
TX
 
18
The Hills Country Club at Lakeway
 
Private Country Club
 
Austin
 
TX
 
18
Timarron Country Club
 
Private Country Club
 
Dallas
 
TX
 
18
Trophy Club Country Club
 
Private Country Club
 
Dallas
 
TX
 
36
Walnut Creek Country Club
 
Private Country Club
 
Dallas
 
TX
 
36
Wildflower Country Club
 
Private Country Club
 
Waco
 
TX
 
18
Willow Creek Golf Club
 
Private Country Club
 
Houston
 
TX
 
18
West Region
 
 
 
 
 
 
 
 
Anthem Golf & Country Club
 
Private Country Club
 
Phoenix
 
AZ
 
18
Ironwood Club at Anthem
 
Private Country Club
 
Phoenix
 
AZ
 
18
Gainey Ranch Golf Club
 
Private Country Club
 
Phoenix
 
AZ
 
27
Seville Golf & Country Club
 
Private Country Club
 
Phoenix
 
AZ
 
18
Aspen Glen Club
 
Private Country Club
 
Rocky Mountain
 
CO
 
18
Canyon Gate Country Club
 
Private Country Club
 
Las Vegas
 
NV
 
18
Bear's Best Las Vegas
 
Public Golf
 
Las Vegas
 
NV
 
18
Canterwood Golf & Country Club
 
Private Country Club
 
Seattle
 
WA
 
18
Midwest Region
 
 
 
 
 
 
 
 
Knollwood Country Club
 
Private Country Club
 
South Bend
 
IN
 
36
Nicklaus Golf Club at LionsGate
 
Private Country Club
 
Kansas City
 
KS
 
18
Oak Pointe Country Club
 
Private Country Club
 
Detroit
 
MI
 
36
Firestone Country Club
 
Private Country Club
 
Akron
 
OH
 
63
Quail Hollow Country Club
 
Private Country Club
 
Cleveland
 
OH
 
36
Silver Lake Country Club
 
Private Country Club
 
Akron
 
OH
 
18
Mid-Atlantic Region
 
 
 
 
 
 
 
 
Devils Ridge Golf Club
 
Private Country Club
 
Raleigh/Durham
 
NC
 
18
Lochmere Golf Club
 
Semi-Private Golf Club
 
Raleigh/Durham
 
NC
 
18
Nags Head Golf Club
 
Semi-Private Golf Club
 
Outer Banks
 
NC
 
18
Neuse Golf Club
 
Semi-Private Golf Club
 
Raleigh/Durham
 
NC
 
18
The Currituck Golf Club
 
Semi-Private Golf Club
 
Outer Banks
 
NC
 
18
Bluegrass Yacht & Country Club (1)
 
Private Country Club
 
Nashville
 
TN
 
18
Greenbrier Country Club
 
Private Country Club
 
Norfolk
 
VA
 
18
Piedmont Club
 
Private Country Club
 
Washington, D.C.
 
VA
 
18
River Creek Club
 
Private Country Club
 
Washington, D.C.
 
VA
 
18
Stonehenge Golf & Country Club
 
Private Country Club
 
Richmond
 
VA
 
18
Northeast Region
 
 
 
 
 
 
 
 
Ipswich Country Club
 
Private Country Club
 
Boston
 
MA
 
18
Hartefeld National Golf Club
 
Private Country Club
 
Avondale
 
PA
 
18
Diamond Run Golf Club
 
Private Country Club
 
Pittsburgh
 
PA
 
18
Treesdale Golf & Country Club
 
Private Country Club
 
Pittsburgh
 
PA
 
27
Hamlet Golf & Country Club
 
Semi-Private Golf Club
 
Long Island
 
NY
 
18
Willow Creek Golf & Country Club
 
Semi-Private Golf Club
 
Long Island
 
NY
 
18
Wind Watch Golf & Country Club
 
Private Country Club
 
Long Island
 
NY
 
18
Southeast Region
 
 
 
 
 
 
 
 
Diamante Golf Club
 
Private Country Club
 
Hot Springs Village
 
AR
 
18
Countryside Country Club
 
Private Country Club
 
Tampa
 
FL
 
27
Debary Golf & Country Club
 
Semi-Private Golf Club
 
Orlando
 
FL
 
18
Deercreek Country Club
 
Private Country Club
 
Jacksonville
 
FL
 
18

27

Golf and Country Clubs Segment by Region
 
Type of Club
 
Market
 
State
 
Golf
Holes
East Lake Woodlands Country Club
 
Private Country Club
 
Clearwater
 
FL
 
36
Haile Plantation Golf & Country Club
 
Private Country Club
 
Gainesville
 
FL
 
18
Hunter's Green Country Club
 
Private Country Club
 
Tampa
 
FL
 
18
Monarch Country Club (1)
 
Private Country Club
 
Palm Beaches
 
FL
 
18
Queens Harbour Yacht & Country Club
 
Semi-Private Golf Club
 
Jacksonville
 
FL
 
18
Tampa Palms Golf & Country Club
 
Private Country Club
 
Tampa
 
FL
 
18
Stone Creek Golf Club
 
Semi-Private Golf Club
 
Gainesville
 
FL
 
18
LPGA International
 
Semi-Private Golf Club
 
Daytona Beach
 
FL
 
36
Country Club of Gwinnett
 
Semi-Private Golf Club
 
Atlanta
 
GA
 
18
Country Club of the South (1)
 
Private Country Club
 
Atlanta
 
GA
 
18
Eagles Landing Country Club
 
Private Country Club
 
Atlanta
 
GA
 
27
Northwood Country Club
 
Private Country Club
 
Atlanta
 
GA
 
18
Bear's Best Atlanta
 
Public Golf
 
Atlanta
 
GA
 
18
Laurel Springs Golf Club
 
Private Country Club
 
Atlanta
 
GA
 
18
Southern Trace Country Club
 
Private Country Club
 
Shreveport
 
LA
 
18
Country Club of Hilton Head
 
Private Country Club
 
Hilton Head
 
SC
 
18
Golden Bear Golf Club at Indigo Run
 
Semi-Private Golf Club
 
Hilton Head
 
SC
 
18
The Golf Club at Indigo Run
 
Private Country Club
 
Hilton Head
 
SC
 
18
Woodside Plantation Country Club
 
Private Country Club
 
Augusta, GA
 
SC
 
45
International Region
 
 
 
 
 
 
 
 
Cozumel Country Club
 
Semi-Private Golf Club
 
International
 
Mexico
 
18
Vista Vallarta
 
Semi-Private Golf Club
 
International
 
Mexico
 
36
Marina Vallarta Club de Golf
 
Semi-Private Golf Club
 
International
 
Mexico
 
18
Total Golf & Country Clubs
 
 
 
 
 
 
 
2,367


Business, sports and alumni Clubs Segment by Region
 
Business Type
 
Market
 
State
 
Square
Footage (2)
California Region
 
 
 
 
 
 
 
 
City Club on Bunker Hill
 
Business Club
 
Los Angeles
 
CA
 
27,000
Center Club
 
Business Club
 
Los Angeles
 
CA
 
22,000
Silicon Valley Capital Club
 
Business/Sports Club
 
San Jose
 
CA
 
14,000
University Club atop Symphony Towers
 
Business Club
 
San Diego
 
CA
 
18,000
Texas Region
 
 
 
 
 
 
 
 
Greenspoint Club
 
Business/Sports Club
 
Houston
 
TX
 
40,000
Houston City Club
 
Business/Sports Club
 
Houston
 
TX
 
130,000
The Downtown Club at Met
 
Business/Sports Club
 
Houston
 
TX
 
110,000
The Downtown Club at Houston Center
 
Business/Sports Club
 
Houston
 
TX
 
55,000
The Downtown Club at Plaza n/k/a The Houston Club
 
Business Club
 
Houston
 
TX
 
16,000
La Cima Club
 
Business Club
 
Dallas
 
TX
 
15,000
Plaza Club
 
Business Club
 
San Antonio
 
TX
 
19,000
Texas Tech University Club
 
Alumni Club
 
Lubbock
 
TX
 
20,000
Tower Club
 
Business Club
 
Dallas
 
TX
 
29,000
The University of Texas Club
 
Alumni Club
 
Austin
 
TX
 
34,000
West Region
 
 
 
 
 
 
 
 
Columbia Tower Club
 
Business Club
 
Seattle
 
WA
 
29,000
Midwest Region
 
 
 
 
 
 
 
 
Metropolitan Club
 
Business/Sports Club
 
Chicago
 
IL
 
60,000
Mid-America Club
 
Business Club
 
Chicago
 
IL
 
34,000
Skyline Club
 
Business Club
 
Indianapolis
 
IN
 
16,000

28

Business, sports and alumni Clubs Segment by Region
 
Business Type
 
Market
 
State
 
Square
Footage (2)
Skyline Club
 
Business Club
 
Detroit
 
MI
 
20,000
Shoreby Club
 
Business/Sports Club
 
Cleveland
 
OH
 
21,000
Dayton Racquet Club
 
Business/Sports Club
 
Dayton
 
OH
 
28,000
The Club at Key Center
 
Business/Sports Club
 
Cleveland
 
OH
 
34,000
Mid-Atlantic Region
 
 
 
 
 
 
 
 
City Club of Washington at Columbia Square
 
Business Club
 
Washington, D.C.
 
DC
 
17,000
Carolina Club
 
Alumni Club
 
Chapel Hill
 
NC
 
15,000
Capital City Club
 
Business Club
 
Raleigh/Durham
 
NC
 
18,000
Cardinal Club
 
Business Club
 
Raleigh/Durham
 
NC
 
22,000
Piedmont Club
 
Business Club
 
Winston-Salem
 
NC
 
14,000
Club LeConte
 
Business Club
 
Knoxville
 
TN
 
18,000
Crescent Club
 
Business Club
 
Memphis
 
TN
 
14,000
Tower Club Tysons Corner
 
Business Club
 
Vienna
 
VA
 
23,000
Town Point Club
 
Business Club
 
Norfolk
 
VA
 
18,000
Northeast Region
 
 
 
 
 
 
 
 
University of Massachusetts Club
 
Alumni Club
 
Boston
 
MA
 
26,000
Boston College Club
 
Alumni Club
 
Boston
 
MA
 
17,000
The Athletic & Swim Club at Equitable Center
 
Sports Club
 
New York City
 
NY
 
25,000
Pyramid Club
 
Business Club
 
Philadelphia
 
PA
 
21,000
Rivers Club
 
Business/Sports Club
 
Pittsburgh
 
PA
 
69,000
Southeast Region
 
 
 
 
 
 
 
 
Capital City Club
 
Business Club
 
Montgomery
 
AL
 
24,000
The Summit Club
 
Business Club
 
Birmingham
 
AL
 
19,000
University Center Club at Florida State
 
Alumni Club
 
Tallahassee
 
FL
 
64,000
Centre Club
 
Business Club
 
Tampa
 
FL
 
14,000
Citrus Club
 
Business/Sports Club
 
Orlando
 
FL
 
27,000
Tower Club
 
Business Club
 
Ft. Lauderdale
 
FL
 
12,000
University Club
 
Business/Sports Club
 
Jacksonville
 
FL
 
28,000
Buckhead Club
 
Business Club
 
Atlanta
 
GA
 
25,000
The Commerce Club
 
Business Club
 
Atlanta
 
GA
 
26,000
Capital City Club
 
Business Club
 
Columbia
 
SC
 
21,000
Commerce Club
 
Business Club
 
Greenville
 
SC
 
16,000
Harbour Club
 
Business Club
 
Charleston
 
SC
 
18,000
International Region
 
 
 
 
 
 
 
 
Capital Club
 
Business Club
 
International
 
China
 
60,000
Total Business, Sports and Alumni Clubs
 
 
 
 
 
 
 
1,462,000


(1)
Golf and country clubs subject to a mortgage.

(2) Business, sports and alumni clubs size is represented in approximate square footage.


ITEM 3.    LEGAL PROCEEDINGS

From time to time, we are involved in litigation that we believe is of the type common to companies engaged in our line of business, including commercial disputes, disputes with members regarding their membership agreements, employment issues and claims relating to personal injury and property damage. As of the date of this filing, we are not involved in any pending legal proceedings that we believe would likely have a material adverse effect on our financial condition, results of operations or cash flows.




29

ITEM 4.  MINE SAFETY DISCLOSURES
 
Not applicable.



30

PART II — FINANCIAL INFORMATION

ITEM 5.    MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF COMMON EQUITY

Market Information

Our common stock is privately held and there is no established public trading market for our stock.

Holders

As of March 11, 2013, there was 1 holder of record of our common stock.

Dividends

We did not declare or pay any cash dividends on our common stock in the fiscal years ended December 25, 2012 and December 27, 2011. While our Secured Credit Facilities and the indenture that governs our senior unsecured notes limit our ability to pay cash dividends, on December 26, 2012, in accordance with these limitations, we declared a cash dividend of $35.0 million to the owners of our common stock. This dividend was paid on December 27, 2012. We do not currently anticipate paying any additional cash dividends in the near future.


ITEM 6.    SELECTED FINANCIAL DATA

The following table sets forth our selected financial data for the periods presented. Our fiscal year consists of a 52/53 week period ending on the last Tuesday of December. For 2008, our fiscal year was comprised of the 53 weeks ended December 30, 2008. For 2009, 2010, 2011 and 2012, our fiscal years were comprised of the 52 weeks ended December 29, 2009, December 28, 2010, December 27, 2011 and December 25, 2012, respectively.

The statements of operations data set forth below for the fiscal years ended December 28, 2010, December 27, 2011 and December 25, 2012 and the balance sheet data as of December 27, 2011 and December 25, 2012, are derived from our audited consolidated financial statements that are included elsewhere herein. The statements of operations data set forth below for the fiscal years ended December 30, 2008 and December 29, 2009 and the balance sheet data as of December 29, 2009, are derived from our consolidated financial statements that are not included elsewhere herein. The consolidated balance sheet data as of December 30, 2008 is derived from our unaudited consolidated financial statements not included elsewhere herein. The unaudited consolidated financial statements were prepared on a basis consistent with our audited consolidated financial statements.


31

This selected financial data should be read in conjunction with “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and the related notes included elsewhere herein.
 
Fiscal Years Ended (1)
 
December 25, 2012
 
December 27, 2011
 
December 28, 2010 (3)
 
December 29, 2009
 
December 30, 2008
Statements of Operations Data:
 
 
 
 
 
 
 
 
 
Revenues:
 

 
 

 
 

 
 
 
 
Club operations
$
535,274

 
$
513,282

 
$
495,424

 
$
506,324

 
$
550,290

Food and beverage
216,269

 
203,508

 
189,391

 
188,612

 
215,372

Other revenues
3,401

 
3,172

 
2,882

 
2,467

 
3,637

Total revenues
754,944

 
719,962

 
687,697

 
697,403

 
769,299

Club operating costs exclusive of depreciation
483,626

 
468,509

 
451,220

 
451,742

 
519,194

Cost of food and beverage sales exclusive of
depreciation
68,735

 
64,256

 
59,671

 
60,145

 
62,037

Depreciation and amortization
78,286

 
93,035

 
91,700

 
97,539

 
100,916

Provision for doubtful accounts
2,765

 
3,350

 
3,194

 
4,769

 
4,490

Loss (gain) on disposals and acquisitions of assets
10,904

 
9,599

 
(5,380
)
 
6,379

 
3,818

Impairment of assets
4,783

 
1,173

 
8,936

 
11,808

 
2,397

Equity in earnings from unconsolidated ventures
(1,947
)
 
(1,487
)
 
(1,309
)
 
(706
)
 
(1,514
)
Selling, general and administrative
45,343

 
52,382

 
38,946

 
39,266

 
45,136

Operating income
62,449

 
29,145

 
40,719

 
26,461

 
32,825

Interest and investment income
1,212

 
138

 
714

 
2,684

 
4,290

Interest expense
(88,263
)
 
(83,547
)
 
(56,645
)
 
(57,801
)
 
(93,067
)
Change in fair value of interest rate cap
agreements
(43
)
 
(137
)
 
(3,529
)
 
2,624

 
(10,454
)
Gain on extinguishment of debt
—

 
—

 
334,423

 
—

 
—

Other income
2,132

 
3,746

 
3,929

 
6,006

 
7,387

(Loss) income from continuing operations before taxes
(22,513
)
 
(50,655
)
 
319,611

 
(20,026
)
 
(59,019
)
Income tax benefit (expense)
7,137

 
16,015

 
(57,512
)
 
823

 
17,415

(Loss) income from continuing operations
(15,376
)
 
(34,640
)
 
262,099

 
(19,203
)
 
(41,604
)
Loss from discontinued Non-Core Entities, net
of tax
—

 
—

 
(8,779
)
 
(11,487
)
 
(4,134
)
Loss from discontinued clubs, net of tax
(10,917
)
 
(258
)
 
(443
)
 
(814
)
 
(23,774
)
Net (loss) income
$
(26,293
)
 
$
(34,898
)
 
$
252,877

 
$
(31,504
)
 
$
(69,512
)
Balance Sheet Data:
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
81,851

 
$
50,317

 
$
56,531

 
$
73,568

 
$
213,289

Restricted cash
—

 
—

 
525

 
14,100

 
9,324

Total assets
1,719,596

 
1,732,474

 
1,772,998

 
2,155,584

 
2,421,732

Membership initiation deposits-current portion(2)
91,398

 
69,870

 
53,646

 
38,161

 
31,240

Long-term debt (net of current portion)
756,532

 
772,272

 
772,079

 
1,391,367

 
1,512,994

Membership initiation deposits(2)
202,630

 
203,542

 
201,910

 
197,486

 
184,854

Total equity (deficit)
$
173,064

 
$
198,409

 
$
231,157

 
$
(244,229
)
 
$
(115,946
)
__________________________
(1)
Our fiscal year consists of a 52/53 week period ending on the last Tuesday of December. For 2008, our fiscal year was comprised of the 53 weeks ended December 30, 2008. For 2009, 2010, 2011 and 2012, our fiscal years were comprised of the 52 weeks ended December 29, 2009, December 28, 2010, December 27, 2011 and December 25, 2012, respectively.

(2)
The liability for membership initiation deposits is the present value of the refund obligation. The present value of the refund obligation of the membership initiation deposit liability accretes over the nonrefundable term using the effective interest method with an interest rate defined as our incremental borrowing rate adjusted to reflect the life of the maturity which is generally a 30-year time frame.

(3)
The statements of operations and balance sheet data reflect the ClubCorp Formation from November 30, 2010, which was treated as a reorganization of entities under common control. The gain on extinguishment of debt was recognized as lenders under certain facilities forgave debt in conjunction with the ClubCorp Formation.



32

ITEM 7.    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 audited consolidated financial statements and related notes included in Item 8 "Financial Statements and Supplementary Data" of this report. This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under Item 1A. "Risk Factors” or in other sections of this report.

ClubCorp Formation

ClubCorp is a holding company that was formed on November 30, 2010, as part of a reorganization of ClubCorp, Inc. (“CCI”) for the purpose of operating and managing golf, country, business, sports and alumni clubs. (A full description of the ClubCorp Formation is included in Notes 1 and 2 of the audited consolidated financial statements in Item 8 of this Form 10-K.)

Discontinued Non-Core Entities

In connection with the ClubCorp Formation, ClubCorp sold its Non-Core Entities to affiliates of KSL on November 30, 2010. The financial results of such entities prior to November 30, 2010 are presented as discontinued Non-Core Entities.

Overview

We are one of the largest owners and operators of private golf, country, business, sports and alumni clubs in North America, with a network of clubs that includes approximately 145,000 memberships and 350,000 individual members. Our operations are organized into two business segments: (1) golf and country clubs and (2) business, sports and alumni clubs. We operate our properties through sole ownership, partial ownership (including joint venture interests), operating leases and management agreements. As of December 25, 2012, we owned or operated 102 golf and country clubs and 49 business, sports and alumni clubs in 23 states, the District of Columbia and two foreign countries. We believe that our expansive network of clubs and our focus on facilities, recreation and social programming enhances our ability to attract members across a number of demographic groups.

Factors Affecting our Business

A significant percentage of our revenues are 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. The economic environment had a negative impact on our business and the private club industry in general during 2010 and 2011 and to a lesser extent in 2012, resulting in member attrition. For different reasons, we have closed certain business, sports and alumni clubs that were underperforming and terminated certain golf and country club management agreements. (See "Club Acquisitions and Dispositions")

Despite the impact of the recent economic environment and club closings, we believe our efforts to position our clubs as focal points in communities with offerings that can appeal to the entire family of our members, has enhanced member loyalty and mitigated attrition rates in our membership base compared to the industry as a whole. We believe the strength of our network of clubs combined with the stability of our membership base will enable us to maintain our position as an industry leader in the future.

As one of the largest operators of private clubs in the world, we enjoy economies of scale and a leadership position. We expect to strategically expand and upgrade our portfolio through acquisitions and targeted capital investments. Our targeted capital investment program is expected to yield positive financial results, focus on facility upgrades to improve our members' experience and the utilization of our private club products.



33

Club Acquisitions and Dispositions
 
The table below summarizes the number and type of club acquisitions and dispositions during the periods indicated:
 
Golf & Country Clubs
 
Business, Sports & Alumni Clubs
 
Owned
Clubs
 
Leased
Clubs
 
Managed
 
Joint
Venture
 
Total
 
Owned
Clubs
 
Leased
Clubs
 
Managed
 
Joint
Venture
 
Total
December 28, 2010
76

 
12

 
4

 
6

 
98

 
2

 
48

 
4

 
1

 
55

Clubs added during 2011 (1)
4

 
—

 
—

 
—

 
4

 
—

 
—

 
—

 
—

 
—

Clubs divested during 2011 (2)
—

 
—

 
(1
)
 
—

 
(1
)
 
—

 
(4
)
 
—

 
—

 
(4
)
December 27, 2011
80

 
12

 
3

 
6

 
101

 
2

 
44

 
4

 
1

 
51

Clubs added during 2012 (3)
—

 
1

 
2

 
—

 
3

 
—

 
—

 
—

 
—

 
—

Clubs divested during 2012 (4)
—

 
—

 
(2
)
 
—

 
(2
)
 
(1
)
 
(1
)
 
—

 
—

 
(2
)
December 25, 2012
80

 
13

 
3

 
6

 
102

 
1

 
43

 
4

 
1

 
49

 _______________________
    
(1)   In June 2011, we acquired three golf and country club properties in the Long Island area of New York. In August 2011, we acquired Canterwood Golf and Country Club in the Seattle, Washington area.

(2)   In February 2011, we ceased operating First City Club in Savannah, Georgia. In August 2011, we ceased operating the Franklin Square location of City Club of Washington in Washington, D.C. The City Club had two locations, Columbia Square and Franklin Square. The members remain members of the City Club of Washington at Columbia Square. In December 2011, we ceased operating the University Club of Jackson in Jackson, Mississippi. Additionally, the management agreement for The Club at Viniterra in our Golf and Country Club segment terminated in December 2011 as a result of the owners’ sale of the underlying real property.

(3)   In January 2012, we entered into a new agreement to manage and operate LPGA International, a semi-private golf and country club located in Daytona Beach, Florida. In March 2012, we entered into an agreement to manage and operate Hollytree Country Club, a private country club in Tyler, Texas, and, in April 2012, we acquired Hartefeld National Golf Club, a private country club in Avondale, Pennsylvania.

(4)   Our management agreement with the owner of Eagle Ridge Golf Club and the Preserve Golf Club was amended to remove the Preserve Golf Club in January 2012 and then terminated with respect to Eagle Ridge in December 2012 as a result of the owner’s sale of the underlying properties. In August 2012, we ceased operating the Westlake Club in Houston, Texas, and we sold Le Club in September 2012, an owned sports club in Milwaukee, Wisconsin.

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. Periods where attrition rates exceed enrollment rates or where facility usage is below historical levels could have a material adverse effect on our business, operating results and financial position.

We offer various programs at our clubs designed to minimize future attrition rates by increasing member satisfaction and usage. One such offering is our Optimal Network Experiences (“O.N.E.”) product, which is a type of membership upgrade offering that combines comprehensive club, community and world benefits. With this offering, members receive 50 percent off a la carte dining at their home club, access to ClubCorp’s network of clubs in the local community, and golf and dining privileges when traveling to more than 200 private clubs with additional access to more than 700 renowned hotels, resorts, restaurants and entertainment venues. As of December 25, 2012, approximately 40% of our members took advantage of an upgrade offering, a 2% increase, over the 38% of members who took advantage of upgrade offerings in the fiscal year ended December 27, 2011.
 

34

The following table presents our membership counts for continuing operations at the end of the periods indicated:

 
 
Fiscal Year Ended
 
 
 
Fiscal Year Ended
 
 
Total memberships at end of period:
 
Dec. 25, 2012
 
Dec. 27, 2011
 
# Change
 
% Change
 
Dec. 27, 2011
 
Dec. 28, 2010
 
# Change
 
% Change
Golf and Country Clubs
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Same Store Clubs (1)
 
79,814

 
79,540

 
274

 
0.3
 %
 
78,905

 
79,092

 
(187
)
 
(0.2
)%
New or Acquired Clubs
 
2,905

 
1,079

 
1,826

 
169.2
 %
 
1,714

 
564

 
1,150

 
203.9
 %
Total Golf and Country Clubs
 
82,719

 
80,619

 
2,100

 
2.6
 %
 
80,619

 
79,656

 
963

 
1.2
 %
Business, Sports and Alumni Clubs
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Same Store Clubs (1)
 
62,046

 
62,953

 
(907
)
 
(1.4
)%
 
61,415

 
63,108

 
(1,693
)
 
(2.7
)%
New or Acquired Clubs
 
—

 
—

 
—

 
—

 
1,538

 
859

 
679

 
79.0
 %
Total Business, Sports and Alumni Clubs
 
62,046

 
62,953

 
(907
)
 
(1.4
)%
 
62,953

 
63,967

 
(1,014
)
 
(1.6
)%
Total
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Same Store Clubs (1)
 
141,860

 
142,493

 
(633
)
 
(0.4
)%
 
140,320

 
142,200

 
(1,880
)
 
(1.3
)%
New or Acquired Clubs
 
2,905

 
1,079

 
1,826

 
169.2
 %
 
3,252

 
1,423

 
1,829

 
128.5
 %
Total memberships at end of period
 
144,765

 
143,572

 
1,193

 
0.8
 %
 
143,572

 
143,623

 
(51
)
 
—
 %
 
(1)  See “Basis of Presentation—Same Store Analysis” for further definition of same store clubs. Same store clubs must be open for the entire year during both years of comparison, therefore, same store membership counts may vary for a given year depending on the years of comparison.

Seasonality of Demand and Fluctuations in Quarterly Results
 
Our quarterly results fluctuate as a result of a number of factors. Usage of our country club and golf facilities decline significantly during the first and fourth quarters, when colder temperatures and shorter days reduce the demand for golf and golf-related activities. Our business clubs typically generate a greater share of their yearly revenues in the fourth quarter, which includes the holiday and year-end party season.

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. A severe drought affecting a large number of properties could have a material adverse affect on our business and results of operations.

In addition, the first, second and third fiscal quarters each consist of twelve weeks, whereas, the fourth quarter consists of sixteen or seventeen weeks of operations. As a result of these factors, we usually generate a disproportionate share of our revenues and cash flows in the second, third and fourth quarters of each year and have lower revenues and profits in the first quarter. The timing of purchases, sales, leasing of facilities or divestitures, has also 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".)

Implications of the ClubCorp Formation

Our operating results and financial condition have been and will continue to be impacted by the ClubCorp Formation. As a result of the ClubCorp Formation in November 2010, we began incurring increased interest expense as a result of higher aggregate interest rates on our outstanding indebtedness. In addition, our taxpayer status has changed due to taxable gains and certain tax reductions triggered by the ClubCorp Formation that utilized our net operating loss carryforwards.




35

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 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 average expected life of an active membership used to amortize initiation fees and deposits, our weighted average borrowing rate used to accrete membership initiation deposit liability, and inputs for impairment testing of goodwill, intangibles and long-lived assets. The following is a discussion of our critical accounting policies and the related management estimates and assumptions used in determining the value of related assets and liabilities. (A full description of all our significant accounting policies is included in Note 3 of the audited consolidated financial statements included in Item 8 of this Form 10-K.)

Revenue Recognition

Revenues from club operations, food and beverage and merchandise sales are recognized when the service is provided and are reported net of sales taxes. Revenues from membership dues are billed monthly and recognized in the period earned. Service charges in excess of amounts paid to employees are recognized in revenue. The monthly dues are expected to cover the cost of providing membership services and are generally adjusted annually depending on national, regional or local economic conditions, which could limit our ability to increase revenues from membership dues.

At a majority of our private clubs, members are expected to pay an initiation fee or deposit upon their acceptance as a member to the club. These initiation fees and deposits vary in amount based on a variety of factors such as the supply and demand for our services in each particular market, number of golf courses or breadth of amenities available to the members and the prestige of the club. In general, initiation fees are not refundable, whereas initiation deposits are not refundable until after a fixed number of years (generally 30). We recognize revenue related to initiation fees over the average expected life of an active membership. For initiation deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized as revenue on a straight-line basis over the average expected life of an active membership. We determined the average expected life of an active membership to be approximately six years for golf and country club memberships and approximately four years for business, sports and alumni club memberships effective December 29, 2010.

The present value of the refund obligation is recorded as an initiation deposit liability in our consolidated balance sheet and accretes over the nonrefundable term using the effective interest method with an interest rate defined as our incremental borrowing rate at the time the initiation deposit was paid adjusted to reflect the life of the maturity which is generally a 30-year time frame.

Average Expected Life of an Active Membership

The calculation of the average expected life of an active membership is a critical estimate in the recognition of revenues associated with initiation fees and deposits and is used for the amortization associated with our member relationship intangibles. Average expected life of an active membership is calculated separately for business, sports and alumni clubs and golf and country clubs by taking the inverse of the total number of members lost in a particular period divided by the total number of members at the end of the prior period. This base-level calculation is performed at the end of each fiscal year, using a 10-year rolling average of each year's data to determine the average expected life of an active membership. Periods in which attrition rates differ significantly from enrollment rates could have a material effect on our consolidated financial statements by decreasing or increasing the average expected life of an active membership, which in turn would affect the length of time over which we recognize initiation fee and deposit revenues. Because initiation fees and deposits generally have minimal direct incremental costs associated with them, a change in our average expected life of an active membership would likely materially affect our results of operations.

For the fiscal years ended December 25, 2012 and December 27, 2011, the average expected life of an active membership was approximately six years for golf and country club memberships and approximately four years for business, sports and alumni club memberships. For the fiscal year ended December 28, 2010, the average expected life of an active membership was approximately seven years for golf and country club memberships and approximately five years for business, sports and alumni club memberships.


36

Impairment of Long-Lived Assets

Long-lived assets to be held and used and to be disposed of are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We perform a recoverability test to determine if the future undiscounted cash flows over our expected holding period for the property exceed the carrying amount of the assets of the property in question. If the recoverability test is not met, the impairment is determined by comparing the carrying value of the property to its fair value which may be approximated by using future discounted cash flows using a risk-adjusted discount rate. Future cash flows of each property are determined using management's projections of the performance of a given property based on its past performance and expected future performance given changes in marketplace, local operations and other factors both within our control and out of our control. Additionally, we review current property appraisals when available to assess recoverability. Actual results that differ from these estimates can generate material differences in impairment charges recorded, and ultimately, net income or loss in our consolidated statements of operations and the carrying value of properties on our consolidated balance sheet. Impairment charges are recorded as a component of operating income or loss in our consolidated statements of operations.

Impairment of Goodwill and Intangible Assets

We classify intangible assets into three categories: (1) intangible assets with finite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives and are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indefinite lived intangibles are also evaluated upon the occurrence of such events, but not less than annually. We utilize a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. We test our trade name intangible assets, which are indefinite lived, utilizing the relief from royalty method to determine the estimated fair value for each trade name which is classified as a Level 3 measurement. The relief from royalty method estimates our theoretical royalty savings from ownership of the intangible asset. Key assumptions used in this model include discount rates, royalty rates, growth rates, sales projections and terminal value rates.

We test our liquor licenses annually for impairment. We use quoted prices in active markets when they are available (“Market Approach”), which are considered Level 2 measurements. When quoted prices in active markets are not available, methods used to determine fair value include analysis of the discounted future free cash flows that sales under a liquor license generate (“Income Approach”), and a comparison to liquor licenses sold in an active market in other jurisdictions (“Market Approach”). These valuations are considered Level 3 measurements. Key assumptions include future cash flows, discount rates and projected margins, among other factors.

We evaluate goodwill for impairment at the reporting unit level (golf and country clubs and business, sports and alumni clubs), which are the same as our operating segments. When testing for impairment, we first compare the fair value of our reporting units to the recorded values. Valuation methods used to determine fair value include analysis of the discounted future free cash flows that a reporting unit is expected to generate (“Income Approach”) and an analysis, which is based upon a comparison of reporting units to similar companies utilizing a purchase multiple of earnings before interest, taxes, depreciation and amortization (“Market Approach”). These valuations are considered Level 3 measurements. Key assumptions used in this model include future cash flows, growth rates, discount rates, capital needs and projected margins, among other factors.

If the carrying amount of the reporting units exceeds its fair value, goodwill is considered potentially impaired and a second step is performed to measure the amount of impairment loss. In the second step of the goodwill impairment test, we compare the implied value of the reporting unit's goodwill with the carrying value of that unit's goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. Accordingly, the fair value of a reporting unit is allocated to all the assets and liabilities of that unit, including intangible assets, and any excess of the value of the reporting unit over the amounts assigned to its assets and liabilities is the implied value of its goodwill.

We test goodwill for impairment as of the first day of our last fiscal quarter. Based on this analysis, no impairment of goodwill was recorded for all years presented and we are not currently aware of any material events that would cause us to reassess the fair value of our goodwill and trade name intangible assets. Estimates utilized in the future evaluations of goodwill for impairment could differ from estimates used in the current period calculations. Unfavorable future estimates could result in an impairment of goodwill.

The most significant assumptions used in the Income Approach to determine the fair value of our reporting units in connection with impairment testing include: (i) the discount rate, (ii) the expected long-term growth rate and (iii) future cash

37

flows projections. If we used a discount rate that was 50 basis points higher or used an expected long-term growth rate that was 50 basis points lower or used future cash flow projections that were 50 basis points lower in our impairment analysis of goodwill for the fiscal year ended December 25, 2012, it would not have resulted in either reporting unit's carrying value exceeding its fair value. In addition, future changes in market conditions will impact estimates used in the Market Approach and could result in an impairment of goodwill. The estimated fair values of our golf and country clubs and business, sports and alumni clubs reporting units both exceeded their carrying values by approximately 10%.

As of December 25, 2012 and December 27, 2011, ClubCorp had $113.1 million and $113.1 million, respectively, of goodwill allocated to the golf and country club segment and $145.4 million and $151.9 million, respectively, of goodwill allocated to the business, sports and alumni club segment.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recognized. Judgment is required in addressing the future tax consequences of events that have been recognized in our financial statements or tax returns (e.g., realization of deferred tax assets, changes in tax laws or interpretations thereof). A change in the assessment of the outcomes of such matters could materially impact our consolidated financial statements. We may be liable for proposed tax liabilities and the final amount of taxes paid may exceed the amount of applicable reserves, which could reduce our profits. In addition, we may be subject to examination of our income tax returns by the Internal Revenue Service and other tax authorities. On February 14, 2013, we were notified that the Internal Revenue Service will audit certain components of the tax return for the year ended December 28, 2010, which includes the consummation of the ClubCorp Formation. Should the estimates and judgments used in the ClubCorp Formation prove to be inaccurate, our financial results could be materially affected.

We recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. If the position drops below the “more likely than not” standard, the benefit can no longer be recognized. Assumptions, judgment and the use of estimates are required in determining if the “more likely than not” standard has been met when developing the provision for income taxes. We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense.

As of December 25, 2012 and December 27, 2011, $52.7 million and $49.0 million, respectively, of unrecognized tax benefits are included in other liabilities in the audited consolidated financial statements in Item 8 of this Form 10-K. Currently, unrecognized tax benefits are not expected to change significantly over the next twelve months.
 
Basis of Presentation
 
Total revenues recorded in our two principle 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 for in network products), food and beverage operations and golf operations. Operating expenses recorded in our two principle business segments primarily consist of labor expenses, food and beverage costs, golf course maintenance costs and general and administrative costs.
 
Other operations not allocated to our two principle business segments are comprised primarily of income from arrangements with third parties for access privileges, corporate overhead expenses, shared services and intercompany eliminations made in the consolidation between other operations and our two principle business segments. Membership upgrade revenues associated with access privileges to third party clubs, facilities and properties are also recorded in other operations.

EBITDA and Adjusted EBITDA

EBITDA is calculated as net income plus interest, taxes, depreciation and amortization less interest and investment income. Adjusted EBITDA (“Adjusted EBITDA”) is based on the definition of Consolidated EBITDA as defined in the credit agreement governing our Secured Credit Facilities and may not be comparable to other companies. Adjusted EBITDA differs from Segment EBITDA and is included because the credit agreement governing our Secured Credit Facilities contains certain financial and non-financial covenants which require ClubCorp and its restricted subsidiaries to maintain specified financial ratios on a rolling four quarter basis and utilize this measure of Adjusted EBITDA.


38

Adjusted EBITDA is not a measure determined in accordance with GAAP and should not be considered as an alternative to, or more meaningful than, net income (as determined in accordance with GAAP) as a measure of our operating results or net cash provided by operating activities (as determined in accordance with GAAP) as a measure of our liquidity. (See "Liquidity and Capital Resources" for a reconciliation of net income (loss) to Adjusted EBITDA.)

Segment EBITDA

We evaluate segment performance and allocate resources based on Segment EBITDA. We consider Segment EBITDA an important indicator of the operational strength and performance of our business. We include Segment EBITDA because it is a key financial measure used by our management to (1) internally measure our operating performance and (2) assess our ability to service our debt, incur additional debt and meet our capital expenditure requirements.

We define Segment EBITDA as net income before discontinued operations, interest and investment income, interest expense and the change in fair value of interest rate cap agreements, income taxes, gain or loss on disposal, acquisition and impairment of assets, gain on extinguishment of debt and depreciation and amortization. Segment EBITDA differs from Adjusted EBITDA, although, Segment EBITDA may be adjusted for items similar to those defined in the credit agreement governing our Secured Credit Facilities. Segment EBITDA has been calculated using this definition for all periods presented. (For more information see Note 15 of the audited consolidated financial statements in Item 8 of this Form 10-K.)

Segment EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on GAAP and is not necessarily a measure of our cash flows or ability to fund our cash needs. Our measurements of Segment EBITDA may not be comparable to similar titled measures reported by other companies.

The following table below provides a reconciliation of our Segment EBITDA to net (loss) income before income taxes and discontinued operations for the periods indicated:
 
Fiscal Years Ended
 
December 25, 2012
 
December 27, 2011
 
December 28, 2010
 
(dollars in thousands)
Total Segment EBITDA
$
165,516

 
$
154,102

 
$
144,490

Interest and investment income
1,212

 
138

 
714

Interest expense and change in fair value of interest rate cap agreements
(88,306
)
 
(83,684
)
 
(60,174
)
Loss on disposals and impairment of assets
(15,687
)
 
(10,772
)
 
(3,556
)
Gain on extinguishment of debt
—

 
—

 
334,423

Depreciation and amortization
(78,286
)
 
(93,035
)
 
(91,700
)
Translation loss
(126
)
 
(554
)
 
(146
)
Business interruption insurance
309

 
—

 
—

Severance payments
(360
)
 
(431
)
 
(515
)
Management fees and expenses paid to an affiliate of KSL
(1,141
)
 
(1,255
)
 
(1,150
)
Acquisition costs
(837
)
 
(1,629
)
 
—

Amortization of step-up in certain equity method investments
(2,027
)
 
(2,048
)
 
(2,048
)
ClubCorp Formation costs
(51
)
 
(2,087
)
 
(752
)
Environmental compliance costs
(27
)
 
(454
)
 
—

Property tax increases prior to 2011
—

 
(2,655
)
 
—

Arbitration award
—

 
(3,968
)
 
—

Long term incentive plan
(1,661
)
 
(1,661
)
 
—

Other
(1,041
)
 
(662
)
 
25

Net (loss) income before income taxes and discontinued operations
$
(22,513
)
 
$
(50,655
)
 
$
319,611


    
 

39

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 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 and included in discontinued operations. 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 in-comparability caused by the inclusion of 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 quarters each consist of twelve weeks while our fourth quarter consists of sixteen or seventeen weeks. For 2010, 2011, and 2012, the fiscal years were comprised of the 52 weeks ended December 28, 2010, December 27, 2011 and December 25, 2012, respectively.
 

40

Results of Operations

The following table presents our consolidated statements of operations as a percent of total revenues for the periods indicated:

 
Fiscal Years Ended

 
December 25, 2012
 
% of Revenue
 
December 27, 2011
 
% of Revenue
 
December 28, 2010
 
% of Revenue
 
(dollars in thousands)
REVENUES:
 
Club operations
 
$
535,274

 
70.9
 %
 
$
513,282

 
71.3
 %
 
$
495,424

 
72.0
 %
Food and beverage
 
216,269

 
28.6
 %
 
203,508

 
28.3
 %
 
189,391

 
27.5
 %
Other revenues
 
3,401

 
0.5
 %
 
3,172

 
0.4
 %
 
2,882

 
0.4
 %
Total revenues
 
754,944

 
 

 
719,962

 
 

 
687,697

 
 

DIRECT AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
Club operating costs exclusive of depreciation
 
483,626

 
64.1
 %
 
468,509

 
65.1
 %
 
451,220

 
65.6
 %
Cost of food and beverage sales exclusive of depreciation
 
68,735

 
9.1
 %
 
64,256

 
8.9
 %
 
59,671

 
8.7
 %
Depreciation and amortization
 
78,286

 
10.4
 %
 
93,035

 
12.9
 %
 
91,700

 
13.3
 %
Provision for doubtful accounts
 
2,765

 
0.4
 %
 
3,350

 
0.5
 %
 
3,194

 
0.5
 %
Loss (gain) on disposals and acquisitions of assets
 
10,904

 
1.4
 %
 
9,599

 
1.3
 %
 
(5,380
)
 
(0.8
)%
Impairment of assets
 
4,783

 
0.6
 %
 
1,173

 
0.2
 %
 
8,936

 
1.3
 %
Equity in earnings from unconsolidated ventures
 
(1,947
)
 
(0.3
)%
 
(1,487
)
 
(0.2
)%
 
(1,309
)
 
(0.2
)%
Selling, general and administrative
 
45,343

 
6.0
 %
 
52,382

 
7.3
 %
 
38,946

 
5.7
 %
OPERATING INCOME
 
62,449

 
8.3
 %
 
29,145

 
4.0
 %
 
40,719

 
5.9
 %
Interest and investment income
 
1,212

 
0.2
 %
 
138

 
—
 %
 
714

 
0.1
 %
Interest expense
 
(88,263
)
 
(11.7
)%
 
(83,547
)
 
(11.6
)%
 
(56,645
)
 
(8.2
)%
Change in fair value of interest rate cap agreements
 
(43
)
 
—
 %
 
(137
)
 
—
 %
 
(3,529
)
 
(0.5
)%
Gain on extinguishment of debt
 
—

 
—
 %
 
—

 
—
 %
 
334,423

 
48.6
 %
Other income
 
2,132

 
0.3
 %
 
3,746

 
0.5
 %
 
3,929

 
0.6
 %
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
 
(22,513
)
 
(3.0
)%
 
(50,655
)
 
(7.0
)%
 
319,611

 
46.5
 %
INCOME TAX BENEFIT (EXPENSE)
 
7,137

 
0.9
 %
 
16,015

 
2.2
 %
 
(57,512
)
 
(8.4
)%
(LOSS) INCOME FROM CONTINUING OPERATIONS
 
(15,376
)
 
(2.0
)%
 
(34,640
)
 
(4.8
)%
 
262,099

 
38.1
 %
Loss from discontinued Non-Core Entities, net of income tax expense of $(6,748) in 2010
 
—

 
—
 %
 
—

 
—
 %
 
(8,779
)
 
(1.3
)%
Loss from discontinued clubs, net of income tax benefit (expense) of $2,669, $(152) and $398 in 2012, 2011 and 2010, respectively
 
(10,917
)
 
(1.4
)%
 
(258
)
 
—
 %
 
(443
)
 
(0.1
)%
NET (LOSS) INCOME
 
(26,293
)
 
(3.5
)%
 
(34,898
)
 
(4.8
)%
 
252,877

 
36.8
 %
NET LOSS ATTRIBUTABLE TO DISCONTINUED NON-CORE ENTITIES' NONCONTROLLING INTERESTS
 
—

 
—
 %
 
—

 
—
 %
 
1,966

 
0.3
 %
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
 
(283
)
 
—
 %
 
(575
)
 
(0.1
)%
 
(346
)
 
(0.1
)%
NET (LOSS) INCOME ATTRIBUTABLE TO CLUBCORP
 
$
(26,576
)
 
(3.5
)%
 
$
(35,473
)
 
(4.9
)%
 
$
254,497

 
37.0
 %


41



Comparison of the Fiscal Years Ended December 25, 2012 and December 27, 2011
 
The following table presents key financial information derived from our consolidated statements of operations for the fiscal years ended December 25, 2012 and December 27, 2011:
 
 
Fiscal Years Ended
 
 
 
 
 
December 25,
2012
 
December 27,
2011
 
Change
 
%
Change
 
(dollars in thousands)
Total revenues
$
754,944

 
$
719,962

 
$
34,982

 
4.9
 %
Club operating costs and expenses exclusive of depreciation (1)
555,126

 
536,115

 
19,011

 
3.5
 %
Depreciation and amortization
78,286

 
93,035

 
(14,749
)
 
(15.9
)%
Loss on disposals and acquisitions of assets
10,904

 
9,599

 
1,305

 
13.6
 %
Impairment of assets
4,783

 
1,173

 
3,610

 
307.8
 %
Equity in earnings from unconsolidated ventures
(1,947
)
 
(1,487
)
 
(460
)
 
(30.9
)%
Selling, general and administrative
45,343

 
52,382

 
(7,039
)
 
(13.4
)%
OPERATING INCOME
62,449

 
29,145

 
33,304

 
114.3
 %
Interest and investment income
1,212

 
138

 
1,074

 
778.3
 %
Interest expense
(88,263
)
 
(83,547
)
 
4,716

 
5.6
 %
Change in fair value of interest rate cap agreements
(43
)
 
(137
)
 
94

 
68.6
 %
Other income
2,132

 
3,746

 
(1,614
)
 
(43.1
)%
(LOSS) FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(22,513
)
 
(50,655
)
 
28,142

 
55.6
 %
INCOME TAX BENEFIT
7,137

 
16,015

 
(8,878
)
 
(55.4
)%
LOSS FROM CONTINUING OPERATIONS
$
(15,376
)
 
$
(34,640
)
 
$
19,264

 
55.6
 %
__________________________
 
(1)                                  Comprised of club operating costs, cost of food and beverage sales and provision for doubtful accounts.
 
Total revenues of $754.9 million for the fiscal year ended December 25, 2012 increased $35.0 million, or 4.9%, over the fiscal year ended December 27, 2011, primarily due to increased golf and country club revenues. Golf and country club revenues increased $32.6 million, or 5.9%, of which $12.4 million is attributable to golf and country club properties added in 2011 and 2012. The remaining $20.2 million increase is primarily due to increases in membership, food and beverage and golf operations revenues. In addition, business, sports and alumni clubs revenues increased $3.0 million, or 1.8%, largely due to a $2.8 million increase in food and beverage sales, driven by increased spend in corporate and social private party events.
 
Club operating costs and expenses of $555.1 million for the fiscal year ended December 25, 2012 increased $19.0 million, or 3.5%, compared to the fiscal year ended December 27, 2011, of which $10.4 million is attributable to club properties added in 2011 and 2012. The remaining $8.6 million increase is primarily due to increased variable labor and employee costs and an increase in cost of goods sold associated with increased revenues from food and beverage and retail sales.
 
Depreciation and amortization decreased $14.7 million, or 15.9%, for the fiscal year ended December 25, 2012 compared to the fiscal year ended December 27, 2011 due to a decrease in amortization expense related to member relationship intangibles that were fully amortized during the fiscal year ended December 27, 2011 for our business, sports and alumni clubs segment.
 
Loss on disposal of assets of $10.9 million for the fiscal year ended December 25, 2012 largely consisted of losses on asset retirements, but was partially offset by insurance proceeds related to Hurricane Irene, a property settlement and eminent domain proceeds of $2.0 million, $1.2 million and $0.3 million, respectively. Loss on disposal of assets of $9.6 million for the fiscal year ended December 27, 2011 primarily consisted of losses on asset retirements.


42

Impairment of assets for the fiscal year ended December 25, 2012 of $4.8 million was largely due to the impairment of unproven mineral interests on certain golf properties where we had third party mineral lease agreements. Impairment of assets for the fiscal year ended December 27, 2011 of $1.2 million was primarily comprised of liquor license impairments.

Selling, general and administrative expenses of $45.3 million for the fiscal year ended December 25, 2012 decreased $7.0 million, or 13.4%, compared to the fiscal year ended December 27, 2011. The decrease is primarily due to one-time expenses that occurred during the fiscal year ended December 27, 2011, including a $4.0 million arbitration award arising out of a dispute related to a series of agreements first entered into in 1999 relating to the acquisition and development of a golf course property, $2.1 million of professional fees incurred in connection with becoming a public filer with the SEC and higher legal, professional and other costs incurred in connection with the acquisition of three golf and country club properties in the Long Island area of New York and one property in Seattle, Washington.

Interest expense totaled $88.3 million and $83.5 million for the fiscal years ended December 25, 2012 and December 27, 2011, respectively.  The $4.7 million increase is largely due to the accretion of initiation deposit liabilities. There was minimal fluctuation related to our indebtedness as a significant portion is at a fixed rate and variable interest rates remained consistent for the majority of the year. (See "Liquidity and Capital Resources—Debt" for the recent amendment to our term loan facility.)

Other income decreased $1.6 million, or 43.1%, for the fiscal year ended December 25, 2012 compared to the fiscal year ended December 27, 2011, largely due to proceeds from certain mineral lease and surface right agreements that have become fully amortized.

Income tax benefit of $7.1 million for the fiscal year ended December 25, 2012 decreased $8.9 million, or 55.4%, compared to $16.0 million for the fiscal year ended December 27, 2011.  The decrease was driven primarily by a $28.1 million decrease in pre-tax loss. The effective tax rates were 31.7% and 31.6% for the fiscal years ended December 25, 2012 and December 27, 2011, respectively. For the fiscal year ended December 25, 2012, the effective tax rate differed from the statutory federal tax rate of 35.0% primarily due to changes in uncertain tax positions, state and foreign taxes. For the fiscal year ended December 27, 2011, the effective tax rate differed from the statutory federal tax rate of 35.0% primarily due to state taxes.
 
Segment Operations
 
Golf and Country Clubs
 
The following tables present key financial information for our golf and country clubs for the fiscal years ended December 25, 2012 and December 27, 2011:
 
 
 
Fiscal Years Ended
 
 
 
 
Same Store Golf and Country Clubs
 
December 25,
2012
 
December 27,
2011
 
Change
 
%
Change
 
 
(dollars in thousands)
Number of facilities at end of period in continuing operations
 
95

 
95

 
 

 
 

Total revenues
 
$
561,015

 
$
540,821

 
$
20,194

 
3.7
%
Segment EBITDA
 
162,396

 
150,291

 
12,105

 
8.1
%
Segment EBITDA %
 
28.9
%
 
27.8
%
 
1.1
%
 
 
 
 
 
Fiscal Years Ended
 
 
 
 
Total Golf and Country Clubs
 
December 25,
2012
 
December 27,
2011
 
Change
 
%
Change
 
 
(dollars in thousands)
Number of facilities at end of period in continuing operations
 
102

 
99

 
 

 
 

Total revenues
 
$
583,523

 
$
550,898

 
$
32,625

 
5.9
%
Segment EBITDA
 
166,327

 
151,554

 
14,773

 
9.7
%
Segment EBITDA %
 
28.5
%
 
27.5
%
 
1.0
%
 
 
 

43

Total revenues for same store golf and country clubs increased $20.2 million, or 3.7%, for the fiscal year ended December 25, 2012 compared to the fiscal year ended December 27, 2011, primarily due to increases in membership, food and beverage and golf operation revenues. Membership revenues increased $10.3 million or 3.9%, largely due to an increase in average dues per membership and partially due to upgrade revenues from the O.N.E. offering. Food and beverage revenues increased $5.3 million, or 4.5%, due to increases in a la carte volume and private party revenues, driven by the O.N.E. offering and increased spend in social private party events. Golf operations revenues increased $3.2 million, or 2.6%, over the fiscal year ended December 27, 2011, largely due to a 5.9% and 3.2% increase in merchandise sales and cart rental revenues, respectively. The increase in merchandise sales and cart rental revenues was driven by a 2.5% increase in retail revenue per round and 3.0% increase in member golf rounds.

Segment EBITDA for same store golf and country clubs increased $12.1 million, or 8.1%, for the fiscal year ended December 25, 2012 compared to the fiscal year ended December 27, 2011 due to increases in higher margin membership revenues. As a result, same store Segment EBITDA margin for the fiscal year ended December 25, 2012 increased 1.1% over the fiscal year ended December 27, 2011.

Business, Sports and Alumni Clubs
 
The following table presents key financial information for our business, sports and alumni clubs for the fiscal years ended December 25, 2012 and December 27, 2011:
 
 
 
Fiscal Years Ended
 
 
 
 
Same Store & Total Business, Sports and Alumni Clubs
 
December 25,
2012
 
December 27,
2011
 
Change
 
%
Change
 
 
(dollars in thousands)
Number of facilities at end of period in continuing operations
 
49

 
49

 
 

 
 

Total revenues
 
$
174,344

 
$
171,328

 
$
3,016

 
1.8
%
Segment EBITDA
 
34,373

 
32,606

 
1,767

 
5.4
%
Segment EBITDA %
 
19.7
%
 
19.0
%
 
0.7
%
 
 
 
Total revenues for business, sports and alumni clubs increased $3.0 million, or 1.8%, for the fiscal year ended December 25, 2012 compared to the fiscal year ended December 27, 2011 primarily due to increases in food and beverage revenues of $2.8 million, or 3.4%. The increase was largely driven by a $2.0 million, or 3.7%, improvement in private party revenues.
 
Segment EBITDA for business, sports and alumni clubs increased $1.8 million, or 5.4%, for the fiscal year ended December 25, 2012 compared to the fiscal year ended December 27, 2011 partially due to increased revenues but primarily attributable to our continued focus on cost controls and expense management. Segment EBITDA margin of 19.7% for fiscal year ended December 25, 2012 increased 0.7% over 19.0% for the fiscal year ended December 27, 2011.


44

Comparison of the Fiscal Years Ended December 27, 2011 and December 28, 2010

The following table presents key financial information derived from our consolidated statements of operations for the fiscal years ended December 27, 2011 and December 28, 2010:
 
 
Fiscal Years Ended
 
 
 
 
 
December 27,
2011
 
December 28,
2010
 
Change
 
%
Change
 
(dollars in thousands)
Total revenues
$
719,962

 
$
687,697

 
$
32,265

 
4.7
 %
Club operating costs and expenses exclusive of depreciation(1)
536,115

 
514,085

 
22,030

 
4.3
 %
Depreciation and amortization
93,035

 
91,700

 
1,335

 
1.5
 %
Loss (gain) on disposals and acquisitions of assets
9,599

 
(5,380
)
 
14,979

 
(278.4
)%
Impairment of assets
1,173

 
8,936

 
(7,763
)
 
(86.9
)%
Equity in earnings from unconsolidated ventures
(1,487
)
 
(1,309
)
 
(178
)
 
13.6
 %
Selling, general and administrative
52,382

 
38,946

 
13,436

 
34.5
 %
OPERATING INCOME
29,145

 
40,719

 
(11,574
)
 
(28.4
)%
Interest and investment income
138

 
714

 
(576
)
 
(80.7
)%
Interest expense
(83,547
)
 
(56,645
)
 
(26,902
)
 
47.5
 %
Change in fair value of interest rate cap agreements
(137
)
 
(3,529
)
 
3,392

 
(96.1
)%
Gain on extinguishment of debt
—

 
334,423

 
(334,423
)
 
(100.0
)%
Other income
3,746

 
3,929

 
(183
)
 
(4.7
)%
(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(50,655
)
 
319,611

 
(370,266
)
 
(115.8
)%
INCOME TAX BENEFIT (EXPENSE)
16,015

 
(57,512
)
 
73,527

 
(127.8
)%
(LOSS) INCOME FROM CONTINUING OPERATIONS
$
(34,640
)
 
$
262,099

 
$
(296,739
)
 
(113.2
)%
 ______________________________

(1)                                  Comprised of club operating costs, cost of food and beverage sales and provision for doubtful accounts.
 
Total revenues of $720.0 million increased $32.3 million, or 4.7%, for the fiscal year ended December 27, 2011 compared to the fiscal year ended December 28, 2010 primarily due to an increase in golf and country club revenues. Golf and country club revenues increased $27.5 million, or 5.3%, of which $14.8 million is attributable to golf and country club properties added in 2010 and 2011. The remaining increase of $12.7 million is due to increases in membership, golf operations and food and beverage revenues.  Additionally, business, sports and alumni club revenues increased $4.0 million, or 2.4% , of which $1.9 million is attributable to a new alumni club opened in 2010. The remaining $2.1 million is due to an increase in food and beverage revenues driven by corporate and social private party events partially offset by a decrease in membership dues.

Club operating costs and expenses increased $22.0 million, or 4.3%, for the fiscal year ended December 27, 2011 compared to the fiscal year ended December 28, 2010, of which $15.0 million is attributable to club properties acquired or opened in 2010 and 2011. The remaining $7.0 million increase is primarily due to increases in labor and cost of goods sold associated with increased revenue, variable compensation expense due to improved company performance, operating supplies due to price increases in oil and gas, golf course maintenance utility expenses due to the summer heat and drought conditions in certain portions of the southern United States and expenses related to member prospecting and retention. These increases were partially offset by a decrease in insurance and risk expenses.
 
Depreciation and amortization increased $1.3 million, or 1.5%, for the fiscal year ended December 27, 2011 compared to the fiscal year ended December 28, 2010 due to an increase in depreciation expense of $2.7 million partially offset by a $1.4 million decrease in amortization expense from member relationship intangibles in the business, sports and alumni club segment that have become fully amortized.
 

45

Loss on disposal of assets of $9.6 million for the fiscal year ended December 27, 2011 was comprised primarily of asset retirements. Gains on disposal of assets of $5.4 million for the fiscal year ended December 28, 2010 were comprised primarily of insurance proceeds of $2.5 million, eminent domain proceeds of $2.2 million, bargain purchase gain on the purchase of a country club of $1.2 million, gain on the disposition of certain property owned by one of our foreign subsidiaries in Mexico in exchange for the equity interest of the noncontrolling shareholder of $3.0 million and $0.7 million gain on the leasing of mineral rights offset by a $4.2 million loss from other transactions that were realized in the normal course of business.
 
Impairment of assets for the fiscal year ended December 27, 2011 of $1.2 million was primarily comprised of liquor license impairments. Impairment of assets of $8.9 million for the fiscal year ended December 28, 2010 primarily consisted of trade name impairments of $8.6 million.
 
Selling, general and administrative expenses increased $13.4 million, or 34.5%, for the fiscal year ended December 27, 2011, due primarily to a $4.0 million arbitration award arising out of a dispute related to a series of agreements first entered into in 1999 relating to the acquisition and development of a golf course property, increased professional fees in connection with becoming a public filer with the Securities and Exchange Commission, and legal, professional and other costs incurred in connection with the acquisition of four new golf and country club properties in 2011. Additionally, there were increased labor costs related to the transition and centralization of club accounting and related functions to a corporate function, which resulted in an increase in selling, general and administrative expenses and offsetting decreases in club labor costs included in club operating costs and expenses.
 
Interest expense increased $26.9 million, or 47.5%, for the fiscal year ended December 27, 2011 due to higher interest rates on our senior unsecured notes issued, and the loans under our Secured Credit Facilities entered into in November 2010, compared to the interest rates applicable to the loans under our prior credit facility partially offset by lower principal amounts.
 
Income tax benefit for the fiscal year ended December 27, 2011 increased $73.5 million, or 127.8%, compared to the fiscal year ended December 28, 2010. The increase was driven primarily by a $370.3 million decrease in pre-tax income. The effective tax rates were 31.6% and 18.0% for the fiscal year ended December 27, 2011 and the fiscal year ended December 28, 2010, respectively. For the fiscal year ended December 28, 2010, the effective tax rate differed from the statutory federal tax rate of 35% primarily due to the forgiveness of debt, state taxes and a one-time benefit recognized for foreign income taxes.
 
Segment Operations
 
Golf and Country Clubs
 
The following tables present key financial information for our golf and country clubs for the fiscal years ended December 27, 2011 and December 28, 2010:
 
 
 
Fiscal Years Ended
 
 
 
 
Same Store Golf and Country Clubs
 
December 27,
2011
 
December 28,
2010
 
Change
 
%
Change
 
 
(dollars in thousands)
Number of facilities at end of period in continuing operations
 
94

 
94

 
 

 
 

Total revenues
 
$
533,042

 
$
520,349

 
$
12,693

 
2.4
%
Segment EBITDA
 
149,107

 
142,397

 
6,710

 
4.7
%
Segment EBITDA %
 
28.0
%
 
27.4
%
 
0.6
%
 
 
 
 
 
Fiscal Years Ended
 
 
 
 
Total Golf and Country Clubs
 
December 27,
2011
 
December 28,
2010
 
Change
 
%
Change
 
 
(dollars in thousands)
Number of facilities at end of period in continuing operations
 
99

 
95

 
 

 
 

Total revenues
 
$
550,898

 
$
523,360

 
$
27,538

 
5.3
%
Segment EBITDA
 
151,554

 
142,561

 
8,993

 
6.3
%
Segment EBITDA %
 
27.5
%
 
27.2
%
 
0.3
%
 
 


46

Total revenues for same store golf and country clubs increased $12.7 million, or 2.4%, for the fiscal year ended December 27, 2011 compared to the fiscal year ended December 28, 2010 due to increases in membership, food and beverage and golf operations revenues. Membership revenues increased $5.2 million, or 2.0%, due to an increase in dues per membership driven in part by the O.N.E. offering, partially offset by a 0.6% decline in average memberships during the period. Food and beverage revenues increased $3.9 million, or 3.5%, due to an increase in a la carte volume, which was also driven by the O.N.E. offering and an increase in private event revenues. Golf operations revenues increased $3.5 million, or 2.9%, largely due to increases in merchandise sales and cart rental revenues. Merchandise sales revenues increased $1.9 million, or 7.8%, compared to the same period in 2010. The increase in cart rental revenues is due to an increase in the average cart rental price and a 1.1% increase in member golf rounds. Revenues were slightly impacted by Hurricane Irene which affected the East Coast of the United States in August 2011, causing certain clubs' operations to be interrupted for a period of time.
 
Segment EBITDA for same store golf and country clubs increased $6.7 million, or 4.7%, for the fiscal year ended December 27, 2011 compared to the fiscal year ended December 28, 2010 primarily due to the increase in revenues, partially offset by increases in variable compensation expense associated with higher revenues, operating supplies due largely to price increases in oil and gas, golf course maintenance utility expenses primarily due to higher water costs resulting from summer heat and drought conditions in certain portions of the southern United States and expenses related to member prospecting and retention. Additionally, in the fiscal year ended December 27, 2011, we received property tax refunds from prior years related to certain clubs for which we disputed the property tax values. Segment EBITDA margin for same store golf and country clubs increased 0.6% from 27.4% for the fiscal year ended December 28, 2010 to 28.0% for the fiscal year ended December 27, 2011. The margin increase was driven by the increase in membership and golf operations revenues, which are higher margin revenue streams and property tax refunds received relating to prior years.
 
Business, Sports and Alumni Clubs
 
The following tables present key financial information for our business, sports and alumni clubs for the fiscal years ended December 27, 2011 and December 28, 2010:
 
 
 
Fiscal Years Ended
 
 
 
 
Same Store Business, Sports and Alumni Clubs
 
December 27,
2011
 
December 28,
2010
 
Change
 
%
Change
 
 
(dollars in thousands)
Number of facilities at end of period in continuing operations
 
48

 
48

 
 

 
 

Total revenues
 
$
167,785

 
$
165,659

 
$
2,126

 
1.3
%
Segment EBITDA
 
32,438

 
29,958

 
2,480

 
8.3
%
Segment EBITDA %
 
19.3
%
 
18.1
%
 
1.2
%
 
 
 
 
 
Fiscal Years Ended
 
 
 
 
Total Business, Sports and Alumni Clubs
 
December 27,
2011
 
December 28,
2010
 
Change
 
%
Change
 
 
(dollars in thousands)
Number of facilities at end of period in continuing operations
 
49

 
49

 
 

 
 

Total revenues
 
$
171,328

 
$
167,283

 
$
4,045

 
2.4
%
Segment EBITDA
 
32,606

 
29,572

 
3,034

 
10.3
%
Segment EBITDA %
 
19.0
%
 
17.7
%
 
1.3
%
 
 

Total revenues for same store business, sports and alumni clubs increased $2.1 million, or 1.3%, for the fiscal year ended December 27, 2011 compared to the fiscal year ended December 28, 2010, primarily due to an increase in food and beverage revenues offset by a decrease in membership dues. Food and beverage revenues increased $2.8 million, or 3.6%, primarily as a result of private party revenues, which increased $2.7 million, or 5.3%, primarily due to an increase in revenues from corporate private party events. Membership dues decreased $0.7 million, or 0.9%, as the 4.6% decline in average memberships for the period was partially offset by higher average monthly dues per membership. Dues discounts associated with member referral programs initiated during the second half of 2009 began expiring during the second half of 2010, and contributed to the increase in average dues per membership. Although memberships declined, we experienced a 3.1% improvement in the rate of decline of memberships in the fiscal year ended December 27, 2011 compared to the fiscal year ended December 28, 2010.


47

Segment EBITDA for same store business, sports and alumni clubs increased $2.5 million, or 8.3%, for the fiscal year ended December 27, 2011 compared to the fiscal year ended December 28, 2010. Segment EBITDA margin for same store business, sports and alumni clubs increased 1.2% from 18.1% for the fiscal year ended December 28, 2010 to 19.3% for the fiscal year ended December 27, 2011 due to reductions in operating costs and expenses as well as favorable rent adjustments resulting from the renegotiation of certain leases offset partially by a change in revenue mix. There was an increase in food and beverage revenues, which is typically a lower margin revenue stream offset by a decrease in dues revenues, which is a higher margin revenue stream.

Liquidity and Capital Resources
 
Our primary goal as it relates to liquidity and capital resources is to attain and retain the right level of debt and cash to maintain and fund expansions at our properties, be poised for external growth in the marketplace and make distributions to our equity holders. Historically, we have financed our business through cash flows from operations and debt.

Over the next twelve months, we anticipate cash flows from operations to be the principal source of cash and believe current assets and cash generated from operations will be sufficient to meet anticipated working capital needs, planned capital expenditures, debt service obligations and fund limited dividend distributions to equity holders, as permitted by the credit agreement that governs our Secured Credit Facilities and the indenture that governs our senior unsecured notes. Subsequent to year end, on December 26, 2012, the Company declared a cash dividend of $35.0 million and the dividend was paid to the owners of our common stock on December 27, 2012. In fiscal year 2013, we are required under the terms of the Secured Credit Facilities to make an excess cash flow prepayment on our term loan facility, otherwise we plan to use excess cash reserves to expand the business through capital improvement and expansion projects and strategically selected club acquisitions.

Key indicators of our extended financial flexibility is our access to an unused $33.6 million revolving credit facility, which includes a borrowing limit of $50.0 million less outstanding standby letters of credit and swing line loans. We also have the option to increase the term loan facility up to $50.0 million and the revolving credit facility up to $25.0 million, subject to conditions and restrictions governing the Secured Credit Facilities.

Our cash position increased $31.5 million from $50.3 million as of December 27, 2011 to $81.9 million as of December 25, 2012. For the fiscal years ended December 27, 2011 and December 28, 2010, cash and cash equivalents decreased by $6.2 million, and $17.4 million, respectively.
 
Cash Flows from Operating Activities
 
Cash flows from operations totaled $96.9 million and $74.7 million for the fiscal years ended December 25, 2012 and December 27, 2011, respectively. The increase is due to the improvement in operations and a $10.0 million reduction in cash paid for income taxes. During the fiscal year ended December 27, 2011, the Company had one-time payments related to a $4.0 million arbitration award and $2.9 million in property taxes related to the state of California's Proposition 13 with no such payments in the fiscal year ended December 25, 2012.

Cash flows from operations decreased $73.7 million to $74.7 million for the fiscal year ended December 27, 2011 compared to $148.4 million for the fiscal year ended December 28, 2010. Interest payments for the fiscal year ended December 27, 2011 were $24.3 million higher than interest payments for the comparable period in 2010 as a result of higher interest rates on our senior unsecured notes issued and the loans under our Secured Credit Facilities entered into in November 2010 compared to the interest rates applicable to the loans under our prior credit facility. In addition, income tax payments for the fiscal year ended December 27, 2011 were $8.0 million higher than income tax payments in the fiscal year ended December 28, 2010 due to taxable income in 2010 related to the ClubCorp Formation.

Cash Flows used in Investing Activities
 
Cash flows used in investing activities totaled $47.3 million and $69.9 million for the fiscal years ended December 25, 2012 and December 27, 2011, respectively. The decrease in cash flows used in investing activities is largely due to the $19.2 million decrease in cash expended for acquisitions. The remaining decrease is due to cash proceeds from dispositions and insurance payouts, partially offset by an increase in maintenance and expansion capital expenditures.

Cash flows used in investing activities totaled $16.8 million for the fiscal year ended December 28, 2010. During the fiscal year ended December 28, 2010, we used $42.9 million to improve and expand existing properties and $7.4 million for the acquisition of Country Club of the South and development of Texas Tech University Club. Additionally, we collected $14.0 million on a note receivable from an affiliate of KSL and had $13.6 million in cash released from previously restricted funds. The release of previously restricted funds was largely due to $8.2 million of funds that were escrowed for payment of property

48

taxes and insurance which are no longer required to be escrowed by our debt agreements and $4.4 million of restricted funds released from a Mexican government order in connection with a litigation settlement in 2010.

Cash Flows used in Financing Activities
 
Cash flows used in financing activities totaled $18.9 million and $11.9 million for the fiscal years ended December 25, 2012 and December 27, 2011, respectively. During the fiscal year ended December 25, 2012, we made debt repayments of $14.8 million, a $1.9 million increase over the fiscal year ended December 27, 2011.

Cash flows used in financing activities totaled $74.3 million for the fiscal year ended December 28, 2010. During 2010, we repaid our 2006 debt facility with Citigroup, entered into a new credit agreement with Citigroup, including a $310.0 million term loan facility, and issued $415.0 million in senior unsecured notes. These transactions resulted in a net cash payment of $298.8 million. In addition, the Company received a contribution from it's owners of $260.5 and distributed a net $37.0 million to affiliates of KSL as a part of the ClubCorp Formation.
 
Capital Spending
 
The nature of our business requires us to invest a significant amount of capital to maintain our existing properties. For the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, we spent approximately $16.7 million, $25.1 million and $24.9 million, respectively, in capitalized costs to maintain our existing properties. In fiscal year 2013, we expect to spend approximately $23.0 million of capital to maintain our existing facilities.
 
In addition to maintaining properties, we also elect to spend discretionary capital to expand and improve existing properties and enter into new business opportunities through acquisitions. Capital expansion funding totaled approximately $41.1 million, $45.6 million and $25.4 million for the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively. Before acquisitions, in fiscal year 2013, we anticipate to spend approximately $30.0 million on expansion and improvement projects that we believe have a high potential for return. This amount is subject to change if acquisitions or expansion opportunities are identified that fit our strategy to expand the business or as a result of many known and unknown factors, but not limited to those described in Item 1A. "Risk Factors" section of this report.

Debt

2006 Citigroup Debt Facility—In 2006, an affiliate of CCI (“Borrower”) entered into a credit agreement with Citigroup which resulted in a mortgage loan, a senior mezzanine loan, a junior mezzanine loan, and a revolving loan facility (collectively the “2006 Citigroup Debt Facility”), which was initially to mature in January 2010. In July 2008, the Borrower amended the 2006 Citigroup Debt Facility extending the maturity date to July 2012. The loans were collateralized by the majority of our owned golf and country clubs, the two full-service resorts that were sold in connection with the ClubCorp Formation, and the operations of the business, sports and alumni clubs. Payments on the notes were interest only during the term of the loans with principal due at maturity; interest rates were variable based on 30 day LIBOR rates.
 
On November 30, 2010, in connection with the ClubCorp Formation, we repaid $826.9 million in principal on the long term debt facility and $105.3 million on the revolving loan facility and Citigroup forgave the remaining $342.3 million of debt under the 2006 Citigroup Debt Facility thereby terminating such facility. The resulting gain of $342.3 million was recorded in gain on extinguishment of debt in the consolidated statements of operations. We expensed the remaining $4.8 million of loan origination fees related to the 2006 Citigroup Debt Facility and the $3.1 million in fees paid related to the 2010 Secured Credit Facilities against the gain on extinguishment of debt.

2010 Secured Credit Facility — On November 30, 2010, we entered into secured credit facilities (“Secured Credit Facilities”). These facilities are comprised of (i) a $310.0 million term loan facility and (ii) a revolving credit facility with a maximum borrowing limit of $50.0 million, which includes letter of credit and swing line facilities. The term loan facility matures November 30, 2016 and the revolving credit facility expires on November 30, 2015. As of December 25, 2012, we had $16.4 million of standby letters of credit outstanding and $33.6 million remaining available for borrowing under the revolving credit facility governing our Secured Credit Facilities.


49

All obligations under the Secured Credit Facilities are guaranteed by CCA Club Operations Holdings, LLC and each existing and all subsequently acquired or organized direct and indirect restricted subsidiaries of ClubCorp, other than certain excluded subsidiaries (collectively, the “guarantors”). The Secured Credit Facilities are secured, subject to permitted liens and other exceptions, by a first-priority perfected security interest in substantially all the assets of ClubCorp, and the guarantors, including, but not limited to (1) a perfected pledge of all the domestic capital stock owned by ClubCorp and the guarantors, and (2) perfected security interests in and mortgages on substantially all tangible and intangible personal property and material fee-owned property of ClubCorp and the guarantors, subject to certain exclusions.

We are required to make principal payments equal to 0.25% of the $310.0 million original term loan facility on the last business day of each of March, June, September and December beginning in March 2011. Beginning with the fiscal year ended December 27, 2011, we are required to prepay the outstanding term loan, subject to certain exceptions, by an amount equal to 50% of our excess cash flows, as defined by the Secured Credit Facilities, each fiscal year end after our annual consolidated financial statements are delivered. This percentage may decrease if certain leverage ratios are achieved. Additionally, we are required to prepay the term loan facility with proceeds from certain asset sales, borrowings and certain insurance claims as defined by the credit agreement. We may voluntarily repay 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 repaying, refinancing, substituting or replacing the existing term loans with new indebtedness.

On November 16, 2012, we entered into an amendment to the term loan facility, which reduced the interest rate to the higher of (i) 5.0% or (ii) an elected LIBOR plus a margin of 3.75%. This amendment does not extend to the revolving credit facility or any incremental facilities.

We are also 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 in arrears on the last business day of each March, June, September and December.

The credit agreement governing the Secured Credit Facilities limits ClubCorp's (and most or all of ClubCorp subsidiaries') ability to:

•
create, incur, assume or suffer to exist any liens on any of their assets;

•
make or hold any investments (including loans and advances);

•
incur or guarantee additional indebtedness;

•
enter into mergers or consolidations;

•
conduct sales and other dispositions of property or assets;

•
pay dividends or distributions on capital stock or redeem or repurchase capital stock;

•
change the nature of the business;

•
enter into transactions with affiliates; and

•
enter into burdensome agreements.

The credit agreement governing our Secured Credit Facilities contains certain financial and non-financial covenants. The financial covenants require ClubCorp and its restricted subsidiaries to maintain specified financial ratios on a rolling four quarter basis as shown in the following table:
 
2012
 
2013
 
2014
 
2015
 
2016 and
Thereafter
Financial ratios:
 
 
 
 
 
 
 
 
 
Total adjusted debt to Adjusted EBITDA
(“Total Leverage Ratio”)
 
 
 
 
 
 
 
 
 
Less than:
6.15x
 
5.35x
 
4.75x
 
4.50x
 
4.00x
Adjusted EBITDA to total adjusted interest expense(“Interest Coverage Ratio”)
 
 
 
 
 
 
 
 
 
Greater than:
1.95x
 
2.15x
 
2.30x
 
2.50x
 
2.75x

50

     As of December 25, 2012, we were in compliance with all covenant restrictions under our Secured Credit Facilities. The following table shows the financial ratios as of December 25, 2012 for continuing operations:
 
Fiscal Year Ended
 
December 25, 2012
 
(dollars in thousands)
Adjusted EBITDA (1)
$
166,189

Total adjusted debt (2)
$
763,608

Total adjusted interest expense (3)
$
63,892

Financial ratios:
 

Total Leverage Ratio
4.59
x
Interest Coverage Ratio
2.60
x
_______________________________

(1)                                  The reconciliation of net (loss) income to EBITDA and Adjusted EBITDA is as follows: (See "Basis of Presentation" for definition of EBITDA and Adjusted EBITDA.)
 
 
 
Fiscal Years Ended
 
 
 
December 25, 2012
 
December 27, 2011
 
December 28, 2010
 
(dollars in thousands)
Net (loss) income
$
(26,293
)
 
$
(34,898
)
 
$
252,877

Interest expense
88,263

 
83,547

 
56,645

Income tax (benefit) expense
(7,137
)
 
(16,015
)
 
57,512

Interest and investment income
(1,212
)
 
(138
)
 
(714
)
Depreciation and amortization
78,286

 
93,035

 
91,700

EBITDA
131,907

 
125,531

 
458,020

Management fees (a)
1,141

 
1,255

 
1,150

Impairments and write-offs (b)
4,783

 
1,173

 
8,936

Employee termination costs (c)
360

 
431

 
515

Foreign currency loss (d)
126

 
554

 
146

Noncontrolling interest—income (e)
(283
)
 
(575
)
 
(346
)
Acquisition transaction adjustment—revenue (f)
2,560

 
5,006

 
9,274

Acquisition transaction adjustment—equity investment basis (g)
2,027

 
2,048

 
2,048

Acquisition transaction adjustment—rent expense (h)
340

 
233

 
(15
)
Discontinued and divested operations loss (i)
10,917

 
258

 
9,222

Equity investment expense net of cash distributions (j)
(215
)
 
1,667

 
354

Loss (gain) on disposals and acquisitions of assets (k)
10,904

 
9,599

 
(5,380
)
Franchise taxes (l)
405

 
652

 
270

Non-cash gains related to mineral rights (m)
(1,823
)
 
(3,746
)
 
(3,927
)
Acquisition transaction costs (n)
837

 
1,629

 
—

Change in fair value of interest rate cap agreements (o)
43

 
137

 
3,529

Costs of surety bonds (p)
32

 
30

 
26

One-time arbitration award (q)
—

 
3,968

 
—

Other charges—non-recurring (r)
776

 
3,007

 
752

Long-term incentive plan expense (s)
1,661

 
1,661

 
—

Property tax increases prior to 2011 (t)
—

 
2,655

 
—

Business interruption insurance (u)
(309
)
 
—

 
—

Gain on extinguishment of debt (v)
—

 
—

 
(334,423
)
Adjusted EBITDA
$
166,189

 
$
157,173

 
$
150,151

 
_____________________________

51


(a)                                  Represents management fees and expenses paid to an affiliate of KSL.
 
(b)                                 Represents impairment charges related to impairment of liquor licenses, impairment of carrying value of assets and
impairment of an equity method investment.
 
(c)                                  Represents employee termination costs.
 
(d)                                 Represents currency translation gains and losses.
 
(e)                                  Represents income or loss attributable to noncontrolling equity interests of continuing operations.
 
(f)                                    Represents revenues relating to initiation deposits and fees that would have been recognized in the applicable period
had such deferred revenue not been written off in connection with the purchase of ClubCorp, Inc. by affiliates of KSL
on December 26, 2006.

(g)                                 Represents amortization of step-up in basis of joint venture investments recorded in connection with the purchase of
      ClubCorp, Inc. by affiliates of KSL on December 26, 2006.

(h)                                 Represents amortization of a net favorable operating lease liability recorded in connection with the purchase of
 ClubCorp, Inc. by affiliates of KSL on December 26, 2006.

(i)                                     Represents income or loss from discontinued operations.
 
(j)                                     Represents equity investment income or expense less an amount equal to the actual cash distributions from said
investments.

(k)                                 Represents gain or loss on disposals and write-offs or acquisitions of fixed assets and businesses in ordinary course of
business.

(l)                                   Represents franchise and commercial activity taxes for certain states that are based on equity, net assets or gross
revenues.

(m)                              Represents amortization of deferred revenue related to proceeds received from third parties in connection with certain
mineral lease and surface right agreements that allow them to explore for and produce oil and natural gas on certain
properties.

(n)                                 Represents legal and professional fees related to the acquisition of golf and country clubs and new agreements to
manage golf and country clubs.
 
(o)                                 Represents change in the fair value of our interest cap agreements.
 
(p)                                 Represents costs of our surety bonds relating to financing activities.
 
(q)                                 Represents one-time charge in connection with an arbitration award arising out of a dispute related to a series of
agreements first entered into in 1999 relating to the acquisition and development of a golf course property.

(r)                                   Represents non-recurring charges in connection with the ClubCorp Formation, certain environmental compliance
costs and other non-recurring charges defined in the credit agreement governing our Secured Credit Facilities.

(s)                                  Represents expense recognized for our long-term incentive plan.
 
(t)                                    Represents estimated property taxes related to the state of California’s Proposition 13 resulting from the acquisition of
ClubCorp, Inc. by affiliates of KSL on December 26, 2006.

(u)                                    Represents business interruption insurance proceeds received from insurance carriers for damages to two golf and
country clubs impacted by Hurricane Irene.

(v)                                    Represents the gain on extinguishment of debt in connection with the ClubCorp Formation.


52

(2)                                  The reconciliation of our long-term debt to adjusted debt is as follows:
 
Fiscal Year Ended
 
December 25, 2012
 
(dollars in thousands)
Long-term debt (net of current portion)
$
756,532

Current maturities of long-term debt
24,988

Outstanding letters of credit (a)
16,350

Uncollateralized surety bonds (b)
738

Adjustment per credit agreement (c)
(35,000
)
Total adjusted debt
$
763,608

  _______________________________

(a)                                  Represents total outstanding letters of credit.
 
(b)                                 Represents surety bonds not collateralized by letters of credit.
 
(c)                                  Represents adjustment per our Secured Credit Facilities. Long-term debt is reduced by the lesser of
(i) $35.0 million or (ii) total unrestricted cash and cash equivalents.

 
(3)                                  The reconciliation of our interest expense to adjusted interest expense is as follows:
 
Fiscal Year Ended
 
December 25, 2012
 
(dollars in thousands)
Interest expense
$
88,263

Less: Interest expense related to initiation deposit liabilities (a)
(22,358
)
Less: Loan origination fee amortization (b)
(2,033
)
Less: Revolver commitment fees (c)
(176
)
Add: Capitalized interest (d)
233

Add: Interest income
(37
)
Total adjusted interest expense
$
63,892

 _______________________________

(a)                                  Represents amortization of discount on initiation deposit liabilities.

(b)                                 Represents amortization of loan origination fees on long-term debt.
 
(c)                                  Represents commitment fees on the revolving credit facility.
 
(d)                                 Represents capitalized interest.
 

Senior Unsecured Notes—On November 30, 2010, we issued $415.0 million in senior unsecured notes with registration rights, bearing interest at 10.0% and maturing December 1, 2018. The interest is payable semiannually in arrears on June 1 and December 1 each year, beginning June 1, 2011. These notes are fully and unconditionally guaranteed on a joint and several basis by most of ClubCorp's subsidiaries (“Guarantor Subsidiaries”), each of which is one hundred percent owned by ClubCorp. These notes are not guaranteed by certain of ClubCorp's subsidiaries (“Non-Guarantor Subsidiaries”). The indenture governing the senior unsecured notes limits our (and most or all of our subsidiaries') ability to:

•
incur, assume or guarantee additional indebtedness;

•
pay dividends or distributions on capital stock or redeem or repurchase capital stock;

•
make investments;

53


•
enter into agreements that restrict the payment of dividends or other amounts by subsidiaries to us;

•
sell stock of our subsidiaries;

•
transfer or sell assets;

•
create liens;

•
enter into transactions with affiliates; and

•
enter into mergers or consolidations.

Subject to certain exceptions, the indenture governing the senior unsecured notes permits us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

General Electric Capital Corporation—In July 2008, we entered into a secured mortgage loan with GECC for $32.0 million with an original maturity of July 2011. During the fiscal year ended December 27, 2011, we extended the term of the loan to July 2012.  Effective August 1, 2012, under the First Amendment to our loan agreement with GECC, the maturity extended to November 2015 with two additional twelve month options to extend through November 2017 upon satisfaction of certain conditions of the loan agreement. As of December 25, 2012, we expect to meet the required conditions and currently intend to extend the loan with GECC to November 2017. The loan is collateralized by the assets of two golf and country clubs. As part of the August 1, 2012 amendment, the interest rate was changed from 3.25% plus 30 day LIBOR to 5% plus the greater of three month LIBOR or 1%.

Atlantic Capital Bank—In October 2010, we entered into a new mortgage loan with Atlantic Capital Bank for $4.0 million of debt maturing in 2015 with 25-year amortization. The loan is collateralized by the assets of one golf and country club with variable interest rates based on 30 day LIBOR.

As of December 25, 2012, other debt and capital leases totaled $27.3 million.
 

Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments
 
We are not aware of any off-balance sheet arrangements as of December 25, 2012. The following tables summarize our total contractual obligations and other commercial commitments and their respective payment or commitment expiration dates by year as of December 25, 2012:

Contractual Obligations
 
 
Payments due by Period
 
 
Total
 
Less than
one year
 
1 - 3 years
 
3 - 5 years
 
More than
five years
 
 
(dollars in thousands)
Long-term debt (1)
 
$
757,365
 
 
$
16,325
 
 
$
10,712
 
 
$
313,790
 
 
$
416,538
 
Interest on long-term debt (2)
 
316,531
 
 
60,652
 
 
118,504
 
 
97,656
 
 
39,719
 
Capital lease obligations
 
24,155
 
 
8,663
 
 
12,533
 
 
2,959
 
 
—
 
Initiation deposits (3)
 
294,028
 
 
91,398
 
 
37,799
 
 
25,797
 
 
139,034
 
Other long-term obligations (4)
 
17,895
 
 
6,959
 
 
5,330
 
 
2,464
 
 
3,142
 
Operating leases
 
189,296
 
 
19,175
 
 
35,794
 
 
29,380
 
 
104,947
 
Total contractual cash obligations (5)
 
$
1,599,270
 
 
$
203,172
 
 
$
220,672
 
 
$
472,046
 
 
$
703,380
 
 _______________________________

(1)
Long term debt consists of $304.6 million million under our Secured Credit Facilities, $415.0 million outstanding senior unsecured notes and $37.8 million million of other debt. Our revolving credit facility of $50.0 million under our Secured Credit Facilities is not included in long-term debt.


54

(2)
Interest on long-term debt includes interest of 10.0% on our $415.0 million outstanding senior unsecured notes, interest on our $304.6 million term loan facility equal to the higher of (i) 5.0% or (ii) an elected LIBOR plus a margin of 3.75%. For purposes of this table, we have assumed an interest rate of 5.0% on the term loan facility for all future periods, which is the rate as of December 25, 2012.

(3)
Represents initiation deposits based on the discounted value of future maturities using our weighted average cost of capital. The initiation deposits are refundable at maturity upon written notice by the member. We have redeemed approximately 1.6% of total initiation deposits received as of December 25, 2012. The present value of the initiation deposit obligation is recorded as a liability on our consolidated balance sheets and accretes over the nonrefundable term using the effective interest method. At December 25, 2012, the gross amount of the initiation deposit obligation was $691.2 million.

(4)
Consists of insurance reserves for general liability and workers' compensation of $17.9 million, of which $7.0 million is classified as current.

(5)
Excludes obligations for uncertain income tax positions of $52.7 million. Currently, unrecognized tax benefits are not expected to change significantly over the next twelve months, however, we are unable to predict when, and if, cash payments on any of this accrual will be required. On February 14, 2013, ClubCorp Holdings, Inc. was notified that the Internal Revenue Service will audit certain components of the tax return for the year ended December 28, 2010, which includes the consummation of the ClubCorp Formation. Should the estimates and judgments used in the ClubCorp Formation prove to be inaccurate, our financial results could be materially affected.

Commercial Commitments
 
 
Total
 
Less than
one year
 
1 - 3 years
 
3 - 5 years
 
More than
five years
 
 
(dollars in thousands)
Standby letters of credit (1)
 
$
16,350
 
 
$
16,350
 
 
$
 
$
 
$
Capital commitments (2)
 
4,611
 
 
4,611
 
 
—
 
 
—
 
 
—
 
Total commercial commitments
 
$
20,961
 
 
$
20,961
 
 
—
 
 
—
 
 
—
 
 _______________________________

(1)                                  Standby letters of credit are primarily related to security for future estimated claims for workers' compensation and
general liability insurance and collateral for our surety bond program. Our commitment amount for insurance-related
standby letters of credit is gradually reduced as obligations under the policies are paid. See "Contractual Obligations"
regarding reserves for workers' compensation and general liability insurance.

(2)
Includes capital commitments at certain clubs to procure assets related to future construction for capital projects.

We are joint and severally liable for certain pension funding liabilities associated with one of the resorts we sold in connection with the ClubCorp Formation. We have not accrued a liability, as we do not believe it is probable that claims will be made against ClubCorp. As of December 25, 2012, the unfunded obligation for such plan was approximately $10.7 million and no claims have been made against ClubCorp for funding.

Inflation

To date inflation has not had a significant impact on the Company. As operating costs and expenses increase, we generally attempt to offset the adverse effect through price adjustments that we believe to be in line with industry standards. However, we are subject to the risk operating costs will increase to a point in which we would be unable to offset such increases with raised dues, fees and/or prices without negatively affecting demand. In addition to inflation, factors that could cause operating costs to rise include, among other things, increased labor costs, lease payments at our leased facilities, energy costs and property taxes.

Recently Issued Accounting Pronouncements

See "Recently Issued Accounting Pronouncements” included in Note 3 of the audited consolidated financial statements in Item 8 of this report.




55


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 
 
Interest rate risk

Our indebtedness consists of both fixed and variable rate debt facilities. On November 16, 2012, we entered into an amendment to the term loan facility, which reduced the interest rate to the higher of (i) 5.0% "Floor" or (ii) an elected LIBOR plus a margin of 3.75%. Therefore, our term loan facility is effectively subject to the 5.0% Floor until LIBOR exceeds 1.25%. In December 2012, we entered into a new interest rate cap agreement which matures in December 2014 and limits our exposure on the elected LIBOR rate to 2.0% on a notional amount of $155 million. As of December 25, 2012, LIBOR was 0.21%, which is below the Floor and a hypothetical 0.50% increase in LIBOR would not result in an increase in interest expense per year.

Foreign currency exchange risk

Our investments in foreign economies include three golf properties in Mexico and one business club in China. We translate foreign currency denominated amounts into U.S. dollars and we report our consolidated financial results of operations in U.S. dollars. Because the value of the U.S. dollar fluctuates relative to other currencies, revenues that we generate or expenses that we incur in other currencies could increase or decrease our revenues or expenses as reported in U.S. dollars. Total foreign currency denominated revenues and expenses comprised approximately 0.9% and 0.8% of our consolidated revenues and expenses, respectively, for fiscal year ended December 25, 2012.

Fluctuations in the value of the U.S. dollar relative to other currencies could also increase or decrease foreign currency transaction gains and losses which are reflected as a component of club operating costs. Total foreign currency transaction losses for the fiscal year ended December 25, 2012 were $0.1 million.



 

56

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





57


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of
ClubCorp Club Operations, Inc.
Dallas, Texas

We have audited the accompanying consolidated balance sheets of ClubCorp Club Operations, Inc. and subsidiaries (the "Company") as of December 25, 2012 and December 27, 2011, and the related consolidated statements of operations and comprehensive income (loss), changes in equity, and cash flows for each of the three years in the period ended December 25, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of ClubCorp Club Operations, Inc. and subsidiaries as of December 25, 2012 and December 27, 2011, and the results of their operations and their cash flows for each of the three years in the period ended December 25, 2012, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3, the Company has changed its method of presenting comprehensive income in 2012, due to the adoption of Financial Accounting Standards Update No. 2011-5, Presentation of Comprehensive Income”. This change in presentation has been applied retrospectively to all periods presented.

As disclosed in Note 20, the Company declared a cash dividend on December 26, 2012 in the amount of $35.0 million to the owners of their Common Stock. This dividend was paid on December 27, 2012.


/S/ DELOITTE & TOUCHE LLP

Dallas, Texas
March 22, 2013



58


CLUBCORP CLUB OPERATIONS, INC. 

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Fiscal Years Ended December 25, 2012, December 27, 2011 and December 28, 2010

(In thousands of dollars)
 
2012
 
2011
 
2010
REVENUES:
 

 
 

 
 
Club operations
$
535,274

 
$
513,282

 
$
495,424

Food and beverage
216,269

 
203,508

 
189,391

Other revenues
3,401

 
3,172

 
2,882

Total revenues
754,944

 
719,962

 
687,697

 
 
 
 
 
 
DIRECT AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
 

 
 

 
 
Club operating costs exclusive of depreciation
483,626

 
468,509

 
451,220

Cost of food and beverage sales exclusive of depreciation
68,735

 
64,256

 
59,671

Depreciation and amortization
78,286

 
93,035

 
91,700

Provision for doubtful accounts
2,765

 
3,350

 
3,194

Loss (gain) on disposals and acquisitions of assets
10,904

 
9,599

 
(5,380
)
Impairment of assets
4,783

 
1,173

 
8,936

Equity in earnings from unconsolidated ventures
(1,947
)
 
(1,487
)
 
(1,309
)
Selling, general and administrative
45,343

 
52,382

 
38,946

OPERATING INCOME
62,449

 
29,145

 
40,719

 
 
 
 
 
 
Interest and investment income
1,212

 
138

 
714

Interest expense
(88,263
)
 
(83,547
)
 
(56,645
)
Change in fair value of interest rate cap agreements
(43
)
 
(137
)
 
(3,529
)
Gain on extinguishment of debt
—

 
—

 
334,423

Other income
2,132

 
3,746

 
3,929

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(22,513
)
 
(50,655
)
 
319,611

INCOME TAX BENEFIT (EXPENSE)
7,137

 
16,015

 
(57,512
)
(LOSS) INCOME FROM CONTINUING OPERATIONS
(15,376
)
 
(34,640
)
 
262,099

Loss from discontinued Non-Core Entities, net of income tax expense of $(6,748) in 2010
—

 
—

 
(8,779
)
Loss from discontinued clubs, net of income tax benefit (expense) of $2,669, $(152) and $398 in 2012, 2011 and 2010, respectively
(10,917
)
 
(258
)
 
(443
)
NET (LOSS) INCOME
(26,293
)
 
(34,898
)
 
252,877

NET LOSS ATTRIBUTABLE TO DISCONTINUED NON-CORE ENTITIES' NONCONTROLLING INTERESTS
—

 
—

 
1,966

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(283
)
 
(575
)
 
(346
)
NET (LOSS) INCOME ATTRIBUTABLE TO CLUBCORP
$
(26,576
)
 
$
(35,473
)
 
$
254,497

 
 
 
 
 
 
NET (LOSS) INCOME
(26,293
)
 
(34,898
)
 
252,877

Foreign currency translation, net of tax
1,890

 
(2,105
)
 
189

Change in fair value of net pension plan assets, net of tax
—

 
—

 
(746
)
OTHER COMPREHENSIVE INCOME (LOSS)
1,890

 
(2,105
)
 
(557
)
COMPREHENSIVE (LOSS) INCOME
(24,403
)
 
(37,003
)
 
252,320

COMPREHENSIVE (INCOME) LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
(283
)
 
(575
)
 
1,485

COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO CLUBCORP
$
(24,686
)
 
$
(37,578
)
 
$
253,805

 
See accompanying notes to consolidated financial statements

59

CLUBCORP CLUB OPERATIONS, INC.

CONSOLIDATED BALANCE SHEETS

As of December 25, 2012 and December 27, 2011

(In thousands of dollars, except share and per share amounts)

 
2012
 
2011
ASSETS
 

 
 

CURRENT ASSETS:
 

 
 

Cash and cash equivalents
$
81,851

 
$
50,317

Receivables, net of allowances of $2,626 and $3,586 at December 25, 2012 and December 27, 2011, respectively
51,580

 
52,707

Inventories
14,361

 
14,663

Prepaids and other assets
12,199

 
11,329

Deferred tax assets
8,076

 
7,201

Total current assets
168,067

 
136,217

Investments
11,166

 
13,816

Property and equipment, net (includes $9,870 and $10,167 related to VIEs at December 25, 2012 and December 27, 2011, respectively)
1,223,539

 
1,244,806

Notes receivable, net of allowances of $563 and $373 at December 25, 2012 and December 27, 2011, respectively
3,183

 
981

Goodwill
258,459

 
264,959

Intangibles, net
31,958

 
42,275

Other assets
23,224

 
29,420

TOTAL ASSETS
$
1,719,596

 
$
1,732,474

 
 
 
 
LIABILITIES AND EQUITY
 

 
 

CURRENT LIABILITIES:
 

 
 

Current maturities of long-term debt
24,988

 
13,290

Membership initiation deposits - current portion
91,398

 
69,870

Accounts payable
27,441

 
24,026

Accrued expenses
35,989

 
35,079

Accrued taxes
16,637

 
14,706

Other liabilities
52,915

 
52,799

Total current liabilities
249,368

 
209,770

Long-term debt (includes $1,571 and $1,671 related to VIEs at December 25, 2012 and December 27, 2011, respectively)
756,532

 
772,272

Membership initiation deposits
202,630

 
203,542

Deferred tax liability
208,993

 
222,113

Other liabilities
129,009

 
126,368

Total liabilities
1,546,532

 
1,534,065

Commitments and contingencies (See Note 16)


 


 
 
 
 
EQUITY
 

 
 

Common stock of ClubCorp Club Operations, Inc., $1.00 par value, 1,000 shares authorized, issued and outstanding at December 25, 2012 and December 27, 2011
1

 
1

Additional paid-in capital
213,310

 
213,310

Accumulated other comprehensive loss
(672
)
 
(2,562
)
Retained deficit
(50,140
)
 
(23,564
)
Total stockholders’ equity
162,499

 
187,185

Noncontrolling interests in consolidated subsidiaries and variable interest entities
10,565

 
11,224

Total equity
173,064

 
198,409

TOTAL LIABILITIES AND EQUITY
$
1,719,596

 
$
1,732,474

  
See accompanying notes to consolidated financial statements

60

CLUBCORP CLUB OPERATIONS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Fiscal Years Ended December 25, 2012, December 27, 2011 and December 28, 2010

 (In thousands of dollars) 
 
2012
 
2011
 
2010
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 
Net (loss) income
$
(26,293
)
 
$
(34,898
)
 
$
252,877

Loss from discontinued Non-Core Entities
—

 
—

 
8,779

Adjustments to reconcile net loss to cash flows from operating activities:
 

 
 

 
 
Depreciation
68,780

 
68,941

 
66,267

Amortization and depletion
9,829

 
24,973

 
26,406

Asset impairments
4,926

 
1,273

 
9,243

Bad debt expense
2,793

 
3,435

 
3,561

Equity in earnings from unconsolidated ventures
(1,947
)
 
(1,487
)
 
(1,309
)
Distribution from investment in unconsolidated ventures
3,882

 
4,872

 
3,712

Loss (gain) on disposals and acquisitions of assets
22,208

 
9,627

 
(5,325
)
Gain on extinguishment of debt
—

 
—

 
(334,412
)
Amortization of debt issuance costs
2,033

 
1,915

 
3,374

Accretion of discount on member deposits
24,596

 
18,281

 
20,114

Amortization of surface rights bonus revenue
(1,823
)
 
(3,750
)
 
(3,750
)
Amortization of above and below market rent intangibles
281

 
233

 
(15
)
Net change in deferred tax assets and liabilities
(13,815
)
 
(20,073
)
 
79,987

Net change in fair value of interest rate cap agreements
43

 
137

 
3,529

Net change in prepaid expenses and other assets
(575
)
 
470

 
(5,513
)
Net change in receivables and membership notes
1,859

 
2,874

 
1,161

Net change in accounts payable and accrued liabilities
4,262

 
9,085

 
4,504

Net change in other current liabilities
1,953

 
(12,708
)
 
12,818

Net change in other long-term liabilities
(6,055
)
 
1,474

 
2,400

Net cash provided by operating activities
96,937

 
74,674

 
148,408

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 
Purchase of property and equipment
(54,208
)
 
(47,940
)
 
(42,859
)
Acquisitions of clubs
(3,570
)
 
(22,756
)
 
(7,443
)
Proceeds from dispositions
8,002

 
551

 
3,357

Proceeds from insurance
2,228

 
—

 
2,530

Net change in restricted cash and capital reserve funds
230

 
(282
)
 
13,616

Proceeds from notes receivable
—

 
—

 
14,000

Return of capital in equity investments
—

 
486

 
—

Net cash used in investing activities
(47,318
)
 
(69,941
)
 
(16,799
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 
Repayments of long-term debt
(14,830
)
 
(12,884
)
 
(906,770
)
Proceeds from new debt borrowings
—

 
—

 
730,071

Repayments of Revolver
—

 
—

 
(105,305
)
Purchase of interest rate cap agreement
(57
)
 
—

 
(208
)
Sale of interest rate cap agreement
—

 
—

 
150

Debt issuance and modification costs
(917
)
 
(2,276
)
 
(16,819
)
Contribution from owners
—

 
3,197

 
260,528

Distribution to noncontrolling interests
(942
)
 
—

 
(416
)
Distribution to KSL affiliates attributable to the ClubCorp Formation
—

 
—

 
(37,047
)
Change in membership initiation deposits
—

 
—

 
1,480

Proceeds from new membership initiation deposits
851

 
423

 
—

Repayments of membership initiation deposits
(3,016
)
 
(358
)
 
—

Net cash used in financing activities
(18,911
)
 
(11,898
)
 
(74,336
)
CASH FLOWS FROM DISCONTINUED NON-CORE ENTITIES:
 
 
 
 
 
Net cash used in operating activities of discontinued Non-Core Entities
—

 
—

 
(7,951
)
Net cash used in investing activities of discontinued Non-Core Entities
—

 
—

 
(6,614
)
Net cash used in financing activities of discontinued Non-Core Entities
—

 
—

 
(59,321
)
Net cash used in discontinued Non-Core Entities
—

 
—

 
(73,886
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
826

 
951

 
(820
)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
31,534

 
(6,214
)
 
(17,433
)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
50,317

 
56,531

 
73,964

CASH AND CASH EQUIVALENTS - END OF PERIOD
$
81,851

 
$
50,317

 
$
56,531

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
 
 
 
 
 
Cash paid during the year for interest
$
66,932

 
$
61,007

 
$
36,679

Cash paid during the year for income taxes
$
4,089

 
$
14,080

 
$
6,091

Non-cash investing and financing activities are as follows:
 
 
 
 
 
Capital lease
$
10,799

 
$
14,942

 
$
6,534

Capital accruals
$
1,092

 
$
1,070

 
$
565

Leasehold improvements
$
442

 
$
370

 
$
3,996

Contributions from owners
$
—

 
$
1,058

 
$
—

See accompanying notes to consolidated financial statements

61

CLUBCORP CLUB OPERATIONS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

For the Fiscal Years Ended December 25, 2012, December 27, 2011 and December 28, 2010

(In thousands of dollars) 

 
Total
 
Common
Stock
 
Additional
Paid-in
Capital
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Retained 
Equity
(Deficit)
 
Noncontrolling
Interests in
Consolidated
Subsidiaries
BALANCE - December 29, 2009
$
(244,229
)
 
$
—

 
$
—

 
$
(2,709
)
 
$
(242,588
)
 
$
1,068

ClubCorp Formation
 
 
 
 
 
 
 
 
 
 
 
Issuance of Common Stock: ClubCorp
Club Operations, Inc. Formation
1

 
1

 
—

 
—

 
—

 
—

Contribution from owners attributable
to the ClubCorp Formation
260,528

 
—

 
260,528

 
—

 
—

 
—

Distributions to KSL affiliates
attributable to the ClubCorp
Formation
(37,047
)
 
—

 
(51,473
)
 
2,944

 
—

 
11,482

Net income (loss)
252,877

 
—

 
—

 
—

 
254,497

 
(1,620
)
Change in fair value of net pension
plan assets, net of taxes of $0.5
million
(746
)
 
—

 
—

 
(881
)
 
—

 
135

Foreign currency translation
adjustments, net of tax of $0.0
million
189

 
—

 
—

 
189

 
—

 
—

Distributions to noncontrolling interests
(416
)
 
—

 
—

 
—

 
—

 
(416
)
BALANCE - December 28, 2010
$
231,157

 
$
1

 
$
209,055

 
$
(457
)
 
$
11,909

 
$
10,649

Contribution from owners attributable
to the ClubCorp Formation
4,255

 
—

 
4,255

 
—

 
—

 
—

Net (loss) income
(34,898
)
 
—

 
—

 
—

 
(35,473
)
 
575

Foreign currency translation
adjustments, net of tax of $0.0
million
(2,105
)
 
—

 
—

 
(2,105
)
 
—

 
—

BALANCE - December 27, 2011
$
198,409

 
$
1

 
$
213,310

 
$
(2,562
)
 
$
(23,564
)
 
$
11,224

Net (loss) income
(26,293
)
 
—

 
—

 
—

 
(26,576
)
 
283

Foreign currency translation
adjustments, net of tax of $0.0
million
1,890

 
—

 
—

 
1,890

 
—

 
—

Distributions to noncontrolling interests
(942
)
 
—

 
—

 
—

 
—

 
(942
)
BALANCE - December 25, 2012
$
173,064

 
$
1

 
$
213,310

 
$
(672
)
 
$
(50,140
)
 
$
10,565


 See accompanying notes to consolidated financial statements


62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
(dollar amounts in thousands, unless otherwise indicated)
 
1. ORGANIZATION
 
ClubCorp Club Operations, Inc. (“ClubCorp”) is a holding company that was formed on November 30, 2010, as part of a reorganization of ClubCorp, Inc. (“CCI”) for the purpose of operating and managing golf, country, business, sports and alumni clubs. ClubCorp has two reportable segments (1) golf and country clubs and (2) business, sports and alumni clubs. ClubCorp is a wholly owned subsidiary of CCA Club Operations Holdings, LLC (“Parent”), which is a wholly owned subsidiary of ClubCorp Holdings, Inc. (“Holdings”), which is wholly owned by Fillmore CCA Investment, LLC ("Fillmore"). ClubCorp, together with its subsidiaries, may be referred to as “we,” “us,” “our,” or the “Company,” and is principally owned by Holdings which is owned by affiliates of KSL Capital Partners, LLC (“KSL”), a private equity fund that invests primarily in the hospitality and leisure business. For periods prior to November 30, 2010, references to “we,” “us,” “our,” or the “Company” refer to CCI.

Prior to November 30, 2010, CCI was a holding company that through its subsidiaries owned and operated golf, country, business, sports and alumni clubs, two full-service resorts and certain other equity and realty interests. The two full service resorts and such other equity, realty and future royalty interests are referred to as the “Non-Core Entities.”
 
2. CLUBCORP FORMATION

On November 30, 2010, the following transactions (“ClubCorp Formation”) occurred which were structured to complete the contribution of the golf, country, business, sports and alumni clubs into ClubCorp. A summary of the transactions relevant to ClubCorp are described below:

•
Fillmore CCA Holdings, Inc. (“Fillmore Inc.”), an affiliate of KSL, formed two wholly owned subsidiaries, ClubCorp and Parent, and transferred its interests through a contribution of 100% of the stock of CCI to ClubCorp.

•
Investment vehicles managed by affiliates of KSL contributed $260.5 million as equity capital to ClubCorp.

•
Fillmore Inc. reincorporated in Nevada through a merger into a newly formed Nevada corporation, Holdings, with Holdings as the surviving entity. CCI merged into ClubCorp USA, Inc. (“CCUSA”), with CCUSA surviving as a wholly-owned subsidiary of ClubCorp.

•
ClubCorp issued and sold $415.0 million of senior unsecured notes and borrowed $310.0 million of secured term loans under our new secured credit facilities.

•
ClubCorp sold its Non-Core Entities to affiliates of KSL.

•
ClubCorp repaid a portion of the loans under its then existing secured credit facilities. The lenders under such facilities forgave the remaining $342.3 million of debt owed under such facilities and such facilities were terminated.

•
ClubCorp settled certain balances owed to affiliates of KSL.

ClubCorp owns or leases and consolidates 98 golf and country clubs in the United States and Mexico and 44 business, sports and alumni clubs throughout the United States. We manage four golf and country clubs primarily in the South and South-central United States, and manage five business, sports and alumni clubs in the United States and China. We have joint venture ownership in certain of these managed clubs.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation—The consolidated financial statements reflect the consolidated operations of ClubCorp, its subsidiaries and certain variable interest entities ("VIEs"). The consolidated financial statements presented herein reflect our financial position, results of operations, cash flows and changes in equity in conformity with accounting principles generally accepted in the United States, or “GAAP”. All intercompany accounts have been eliminated.


63

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

Fiscal Year—Our fiscal year consists of a 52/53 week period ending on the last Tuesday of December. For 2012, 2011 and 2010, the fiscal years are comprised of the 52 weeks ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively.

Revenue Recognition—Revenues from club operations, food and beverage and merchandise sales are recognized at the time of sale or when the service is provided and are reported net of sales taxes.
 
Revenues from membership dues are billed monthly and recognized in the period earned. The monthly dues are expected to cover the cost of providing membership services.
 
The majority of membership initiation deposits sold are not refundable until a fixed number of years (generally 30) after the date of acceptance of a member. We recognize revenue related to membership initiation deposits over the average expected life of an active membership. For membership initiation deposits, the difference between the amount paid by the member and the present value of the refund obligation is deferred and recognized within club operations revenue on the consolidated statements of operations, on a straight-line basis over the average expected life of an active membership. The present value of the refund obligation is recorded as a membership initiation deposit liability in the consolidated balance sheets and accretes over the nonrefundable term using the effective interest method with an interest rate defined as our incremental borrowing rate adjusted to reflect a 30-year time frame. The accretion is included in interest expense.

The majority of membership initiation fees sold are not refundable and are deferred and recognized within club operations revenue on the consolidated statements of operations, on a straight line basis over the average expected life of an active membership.

The average expected life of an active membership was determined to be approximately seven years for golf and country club memberships and approximately five years for business, sports and alumni club memberships prior to December 28, 2010. The average expected life of an active membership decreased to approximately six years for golf and country club memberships and approximately four years for business, sports and alumni club memberships effective December 29, 2010.
    
Membership initiation fees and deposits recognized within club operations revenue on the consolidated statements of operations was $16.3 million, $13.1 million and $10.3 million, for the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively.
    
Cash Equivalents—We consider all investments with an original maturity of three months or less to be cash equivalents.

Allowance for Doubtful Accounts—The allowance for doubtful accounts is established and maintained based on our best estimate of accounts receivable collectability. Management estimates collectability by specifically analyzing known troubled accounts, accounts receivable aging and other historical factors that affect collections. Such factors include the historical trends of write-offs and recovery of previously written-off accounts, the financial strength of the member and projected economic and market conditions.

The evaluation of these factors involves subjective judgments and changes in these factors may significantly impact the consolidated financial statements. The table below shows the changes in our allowance for doubtful accounts balance:

 
2012
 
2011
 
2010
Beginning allowance
$
3,586

 
$
3,594

 
$
4,074

Bad debt expense, excluding portion related to notes receivable
2,907

 
3,052

 
3,488

Write offs
(3,867
)
 
(3,060
)
 
(3,968
)
     Ending allowance
$
2,626

 
$
3,586

 
$
3,594


Inventories—Inventories, which consist primarily of food and beverages and merchandise held for resale, are stated at the lower of cost (weighted average cost method) or market. Losses on obsolete or excess inventory are not material.


64

Variable Interest Entities—We consolidate any VIEs for which we are deemed to be the primary beneficiary. See Note 4.

Investments—Investments in unconsolidated affiliates over which we exercise significant influence, but do not control, are accounted for by the equity method. Investments in unconsolidated affiliates over which we are not able to exercise significant influence are accounted for under the cost method. See Note 5.

Property and Equipment, Net—Property and equipment is recorded at cost, including interest incurred during construction periods. We capitalize costs that both materially add value and appreciably extend the useful life of an asset. With respect to golf course improvements (included in land improvements), only costs associated with original construction, complete replacements, or the addition of new trees, sand traps, fairways or greens are capitalized. All other related costs are expensed as incurred. For building improvements, only costs that extend the useful life of the building are capitalized; repairs and maintenance are expensed as incurred. Internal use software development costs are capitalized and amortized on a straight-line basis over the expected benefit period. The unamortized balance of internal use software totaled $4.5 million and $4.5 million at December 25, 2012 and December 27, 2011, respectively. See Note 7.

Depreciation is calculated using the straight-line method based on the following estimated useful lives:
Depreciable land improvements
5
-
20 years
Building and recreational facilities
20
-
40 years
Machinery and equipment
3
-
10 years
Leasehold improvements
1
-
40 years
Furniture and fixtures
3
-
10 years

Leasehold improvements are amortized over the shorter of the term of the respective leases or their useful life using the straight-line method.
 
Notes Receivable, Net of Allowances—Notes receivable reflect amounts due from our financing of membership initiation fees and deposits and typically range from one to ten years in original maturity. We recognize interest income as earned and provide an allowance for doubtful accounts. This allowance is based on factors including the historical trends of write-offs and recoveries, the financial strength of the member and projected economic and market conditions.

Goodwill and Other Intangibles, Net—We classify intangible assets into three categories: (1) intangible assets with definite lives subject to amortization, (2) intangible assets with indefinite lives not subject to amortization and (3) goodwill. Intangibles specifically related to an individual property are recorded at the property level. Intangible assets with finite lives are amortized on a straight-line basis over their estimated useful lives as reflected in Note 8.

We assess the recoverability of the carrying value of goodwill and other indefinite lived intangibles annually on the first day of the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Goodwill impairment is determined by comparing the fair value of a reporting unit to its carrying amount with an impairment being recognized only where the fair value is less than carrying value. See Note 8.

Impairment of Long-Lived Assets—We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through future cash flows. For assets to be held and used, we perform a recoverability test to determine if the future undiscounted cash flows over the expected holding period for the property exceed the carrying amount of the assets of the property in question. If the recoverability test is not met, the impairment is determined by comparing the carrying value of the property to its fair value which may be approximated by using future discounted cash flows using a risk-adjusted discount rate. Future cash flows of each property are determined using management's projections of the performance of a given property based on its past performance and expected future performance given changes in marketplace, local operations and other factors both in the Company's control and out of the Company's control. Additionally, we review current property appraisals when available to ensure recoverability. If actual results differ from these estimates, additional impairment charges may be required. As discussed in Note 6, GAAP establishes a three-tiered fair value hierarchy that prioritizes inputs to valuation techniques used in fair value calculations. The fair value test for impairment of long-lived assets is classified as a Level 3 measurement under GAAP.

Insurance Reserves—We have established insurance programs to cover exposures above predetermined deductibles for certain insurable risks consisting primarily of physical loss to property, workers' compensation, employee healthcare, and comprehensive general and auto liability. Insurance reserves are developed by the Company, using the assistance of a third-party actuary and consideration of our past claims experience, including both the frequency and settlement of claims.

65

Derivative Instruments and Hedging Activities—We record all derivative instruments on the balance sheet at fair value. We do not use hedge accounting and therefore mark-to-market derivative instruments associated with the debt facility quarterly. The mark-to-market is based upon management's best estimate of fair value using information obtained from third party valuations of the derivatives. Any change in fair value is recognized in the consolidated statements of operations for the period. See Notes 6 and 11. Derivatives are recorded in other assets on the consolidated balance sheets.

Advertising Expense—We market our clubs through advertising and other promotional activities. Advertising expense is charged to income during the period incurred. Advertising expense totaled $5.5 million, $6.0 million and $8.1 million for the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively.

Foreign Currency—The functional currency of our entities located outside the United States of America is the local currency. Assets and liabilities denominated in foreign currencies are translated into U.S. dollars at the current exchange rate in effect at year-end. All foreign income and expenses are translated at the monthly weighted-average exchange rates during the year. Translation gains and losses are reported separately as a component of comprehensive loss. Realized foreign currency transaction gains and losses are reflected in the consolidated statements of operations and comprehensive income (loss) in club operating costs.

Income Taxes—Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recognized.

We recognize the tax benefit from an uncertain tax position only if it is “more likely than not” that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. If the position drops below the “more likely than not” standard, the benefit can no longer be recognized. Assumptions, judgment and the use of estimates are required in determining if the “more likely than not” standard has been met when developing the provision for income taxes. We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense.

Interest and Investment Income—Interest and investment income is comprised principally of interest on notes receivable and cash deposits held by financial institutions.

Leases—We lease operating facilities under agreements with terms up to 99 years. These agreements normally provide for minimum rentals plus executory costs. Some of the agreements provide for scheduled rent increases during the lease term, as well as provisions for renewal options. Rent expense is recognized on a straight-line basis over the term of the lease from the time at which we take control of the property. Renewal options determined to be reasonably assured are also included in the lease term. In some cases, we must pay contingent rent generally based on a percentage of gross receipts or positive cash flow as defined in the lease agreements.

Some of our lease agreements contain tenant allowances. Upon receipt of such allowances, we record a deferred rent liability in other liabilities on the consolidated balance sheets. The allowances are then amortized on a straight-line basis over the remaining terms of the corresponding leases as a reduction of rent expense.

Equity-Based Awards—Equity-based unit awards have been issued under a Management Profits Interest Program (“MPI”) which constitute grants of time-vesting non-voting profits interests in Fillmore, through which affiliates of KSL indirectly own all of our outstanding common stock. These awards entitle participants to participate in the appreciation of the value of Fillmore above an applicable threshold and thereby share in its future profits. Participants may receive a distribution upon the occurrence of a liquidity event or upon the declaration of a dividend payment, in each case in accordance with the terms of the distribution “waterfall” set forth in Fillmore's Second Amended and Restated LLC Agreement. Because the distributions are contingent on the value of our Company at the time of such liquidity event or dividend payment, no expense will be recognized relating to such awards until such an event occurs. Fillmore has granted 10,000.00 Class B units that were converted into Class A units in connection with the ClubCorp Formation, and 10,073.29 Class C units to participants under the MPI. As of December 25, 2012, 9,950.00 Class A units and 10,039.44 Class C units remain outstanding.

Restricted stock units ("RSUs") have been issued under the Holdings' 2012 Stock Award Plan (the "Holdings Stock Plan"). The RSUs vest based on satisfaction of both the passage of time and a liquidity condition and allow the participants to acquire and maintain an interest in us, which interest may be measured by the value of the common stock of Holdings. Because the vesting of RSUs is contingent on the satisfaction of a liquidity condition, no expense will be recognized relating to such awards until such an event occurs. Holdings has granted 12,552 RSUs, all of which remain outstanding as of December 25, 2012.

66


Recently Issued Accounting Pronouncements
 
In May 2011, the Financial Accounting Standards Board (“FASB”) released Accounting Standards Update No. 2011-04 (“ASU 2011-04”), Fair Value Measurement (Topic 820):  Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS’s. The update generally clarifies fair value measurement guidance and requires certain additional disclosures related to fair value.  The update also includes instances where a particular principle or requirement for measuring fair value has changed.  ASU 2011-04 is effective for interim and annual periods beginning after December 15, 2011.  We adopted this standard in the first quarter of 2012 by including additional fair value disclosures.
 
In June 2011, the FASB released Accounting Standards Update No. 2011-05 (“ASU 2011-05”), Presentation of Comprehensive Income.  The update enhances the presentation of comprehensive income by requiring presentation either in a single statement of comprehensive income or in two consecutive statements.  The update requires presentation of each component of net income and other comprehensive income, along with total net income, total other comprehensive income and total comprehensive income.  The FASB subsequently deferred the effective date of certain provisions of this standard pertaining to the reclassification of items out of accumulated other comprehensive income, pending the issuance of further guidance on that matter.  ASU 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011.  We adopted this standard in the first quarter of 2012 by including total comprehensive income (loss) in our consolidated statements of operations and comprehensive income (loss).

In February 2013, the FASB issued Accounting Standards Update No. 2013-02 (“ASU 2013-02”), Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. The update finalizes the requirements of ASU 2011-05 that were deferred, clarifying how to report the effect of significant reclassifications out of accumulated other comprehensive income. ASU 2013-02 is to be applied prospectively. The Company does not anticipate that the adoption of this ASU will materially change the presentation of its consolidated financial statements.

4. VARIABLE INTEREST ENTITIES
 
Consolidated VIEs include three managed golf course properties. We have determined we are the primary beneficiary of these VIEs as we have the obligation to absorb the majority of losses from and direct activities of these operations. One of these VIEs is financed through a loan payable of $1.2 million collateralized by assets of the entity totaling $4.0 million as of December 25, 2012. The other VIEs are financed through advances from us. Outstanding advances as of December 25, 2012 total $3.3 million compared to recorded assets of $6.7 million.
 
The following summarizes the carrying amount and classification of the VIEs’ assets and liabilities in the consolidated balance sheets as of December 25, 2012 and December 27, 2011, net of intercompany amounts:
 
 
2012
 
2011
Current assets
$
830

 
$
786

Fixed assets, net
9,870

 
10,167

Other assets
28

 
37

Total assets
$
10,728

 
$
10,990

 
 
 
 
Current liabilities
$
1,024

 
$
789

Long-term debt
1,571

 
1,671

Other liabilities
594

 
622

Noncontrolling interest
6,260

 
6,445

Company capital
1,279

 
1,463

Total liabilities and equity
$
10,728

 
$
10,990

 
Recourse of creditors to the three VIEs is limited to the assets of the managed golf operations and their management entities, which total $10.7 million and $11.0 million at December 25, 2012 and December 27, 2011, respectively.
 

67

5. INVESTMENTS
 
Equity method investments in golf and business club ventures total $1.3 million and $2.0 million at December 25, 2012 and December 27, 2011, respectively, and include two golf club joint ventures and one business club joint venture. Our share of earnings in the equity investments is included in equity in earnings from unconsolidated ventures in the consolidated statements of operations. The difference between the carrying value of the investments and our share of the equity reflected in the joint ventures’ financial statements at the time of the acquisition of the Company by affiliates of KSL was allocated to intangible assets of the joint ventures and was being amortized over approximately 20 years beginning in 2007. 

During the fiscal year ended December 25, 2012, we determined that one of our equity method investments had a decrease in value that was other than temporary. We recognized an impairment loss of $0.7 million during the fiscal year ended December 25, 2012 to adjust its carrying amount to its fair value. The valuation method used to determine fair value was based on a third party valuation unobservable in the marketplace. This valuation is considered a Level 3 measurement.
Additionally, we have one equity method investment of 10.2% of Avendra, LLC, a purchasing cooperative of hospitality companies. The carrying value of the investment was $9.4 million and $11.3 million at December 25, 2012 and December 27, 2011, respectively. Our share of earnings in the equity investment is included in equity in earnings from unconsolidated ventures in the consolidated statements of operations. We have contractual agreements with the joint venture to provide procurement services for our clubs for which we received volume rebates totaling $2.9 million, $2.8 million and $1.2 million during the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively. The difference between the carrying value of the investment and our share of the equity reflected in the joint venture’s financial statements at the time of the acquisition of the Company by affiliates of KSL was allocated to intangible assets of the joint venture and amortized over approximately 10 years beginning in 2007.  The carrying value of these intangible assets was $8.0 million and $10.0 million at December 25, 2012 and December 27, 2011, respectively.
 
Our equity in net income from the investment described in the preceding paragraph is shown below:
 
2012
 
2011
 
2010
ClubCorp's equity in net income, excluding amortization
$
3,819

 
$
3,487

 
$
3,302

Amortization
(2,008
)
 
(2,008
)
 
(2,008
)
ClubCorp's equity in net income
$
1,811

 
$
1,479

 
$
1,294

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

Fair Value of Financial Instruments
Derivative Financial Instruments—Derivative financial instruments, which consist of interest rate cap agreements, are measured at fair value on a recurring basis. These instruments are valued based on prevailing market data and values are derived from well recognized financial principles and reasonable estimates about relevant future market conditions and certain counter-party credit risk. These inputs are classified as Level 2 in the hierarchy. The balance of these derivatives is presented in Note 11.
 

68

Debt—We estimate the fair value of our debt obligations, excluding capital lease obligations, as follows, as of December 25, 2012 and December 27, 2011:
 
 
2012
 
2011
 
Recorded Value
 
Fair Value
 
Recorded Value
 
Fair Value
Level 2
$
719,575

 
$
765,744

 
$
722,675

 
$
701,692

Level 3
37,790

 
37,790

 
39,556

 
39,279

Total
$
757,365

 
$
803,534

 
$
762,231

 
$
740,971

 
We use quoted prices for identical or similar liabilities to value debt obligations classified as Level 2.  We use adjusted quoted prices for similar liabilities to value debt obligations classified as Level 3.  Key inputs include the determination that certain other debt obligations are similar, nonperformance risk, and interest rates. Changes or fluctuations in these assumptions and valuations will result in different estimates of value. The use of different techniques to determine the fair value of these debt obligations could result in different estimates of fair value at the reporting date.

The carrying value of other financial instruments including cash, cash equivalents, receivables, notes receivable, accounts payable and other short-term and long-term assets and liabilities approximate their fair values as of December 25, 2012 and December 27, 2011.

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

We value goodwill, trade names, and liquor licenses at fair value on a non-recurring basis, using Level 2 and 3 measurements. See Note 8. The fair value test for impairment of long-lived assets is classified as a Level 3 measurement. See Note 7. The valuation for unproven mineral rights is classified as a Level 3 measurement. See Note 9. We value assets and liabilities from business combinations at fair value at the date of acquisition, using Level 3 measurements. See Note 14.

7. PROPERTY AND EQUIPMENT
 
Property and equipment at cost consists of the following at December 25, 2012 and December 27, 2011:
 
 
2012
 
2011
Land and non-depreciable land improvements
$
531,265

 
$
512,260

Depreciable land improvements
325,688

 
337,921

Buildings and recreational facilities
401,607

 
405,812

Machinery and equipment
164,005

 
153,507

Leasehold improvements
84,444

 
77,503

Furniture and fixtures
64,960

 
56,769

Construction in progress
2,912

 
1,999

 
1,574,881

 
1,545,771

Accumulated depreciation
(351,342
)
 
(300,965
)
Total
$
1,223,539

 
$
1,244,806

 
Depreciation expense from continuing operations was $68.5 million, $68.2 million and $65.5 million for the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively. Interest capitalized as a cost of property and equipment totaled $0.2 million, $0.4 million and $0.1 million for the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively.

We evaluate property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through future cash flows. During the fiscal year ended December 25, 2012, we recognized impairment losses of $0.7 million to adjust the carrying amount of certain property and equipment to its fair value of $0.4 million due to continued and projected negative operating cash flows as well as changes in the expected holding period of certain fixed assets.  The valuation method used to determine fair value was based on an analysis of discounted future free cash flows using a risk-adjusted discount rate (“Income Approach”), and based on cost adjusted for economic obsolescence (“Cost Approach”).  These valuations are considered Level 3 measurements.


69

We recognized impairment losses to property and equipment of $0.0 million and $0.6 million in the fiscal years ended December 27, 2011 and December 28, 2010, respectively.

8. GOODWILL AND INTANGIBLE ASSETS
 
Intangible assets consist of the following at December 25, 2012 and December 27, 2011:
 
 
 
 
2012
 
2011
Asset
Useful
Life
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
 
Gross Carrying
Amount
 
Accumulated
Amortization
 
Net Carrying
Amount
Intangible assets with indefinite lives:
 
 
 

 
 

 
 

 
 

 
 

 
 

Trade names
 
 
$
24,850

 
$
—

 
$
24,850

 
$
25,210

 
$
—

 
$
25,210

Liquor Licenses
 
 
3,886

 
—

 
3,886

 
4,017

 
—

 
4,017

Intangible assets with finite lives:
 
 
 

 
 

 
 

 
 

 
 

 
 

Member Relationships
6-7 years
 
19,068

 
(16,084
)
 
2,984

 
59,260

 
(46,846
)
 
12,414

Management Contracts
6-9 years
 
598

 
(421
)
 
177

 
2,321

 
(1,809
)
 
512

Other
7 years
 
426

 
(365
)
 
61

 
426

 
(304
)
 
122

Total
 
 
$
48,828

 
$
(16,870
)
 
$
31,958

 
$
91,234

 
$
(48,959
)
 
$
42,275

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Goodwill
 
 
$
258,459

 
 
 
$
258,459

 
$
264,959

 
 
 
$
264,959

 
Intangible Assets—Intangible assets include trade names, liquor licenses and member relationships. Intangible asset amortization expense was $9.8 million, $25.0 million and $26.3 million for the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively.

We retired fully amortized intangible assets and the related accumulated amortization of $40.2 million and $72.9 million of member relationships, $1.7 million and $2.1 million of management contracts and $0.0 million and $6.6 million of other intangibles from the consolidated balance sheets as of December 25, 2012 and December 27, 2011, respectively.

For each of the five years subsequent to 2012 and thereafter the amortization expense will be as follows:  
Year
Amount
 
 

2013
$
2,857

2014
325

2015
40

2016
—

2017
—

Thereafter
—

Total
$
3,222


We test indefinite lived intangible assets for impairment annually. We test intangible assets with finite lives for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through future cash flows.

We test our trade name intangible assets annually for impairment, utilizing the relief from royalty method to determine the estimated fair value for each trade name which is classified as a Level 3 measurement. The relief from royalty method estimates our theoretical royalty savings from ownership of the intangible asset. Key assumptions used in this model include discount rates, royalty rates, growth rates, sales projections and terminal value rates.


70

We recorded impairment of trade names of $0.4 million, $0.1 million and $8.6 million in the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively, included in impairment of assets on the consolidated statements of operations.

We test our liquor licenses annually for impairment. We use quoted prices in active markets when they are available (“Market Approach”), which are considered Level 2 measurements. When quoted prices in active markets are not available, methods used to determine fair value include analysis of the discounted future free cash flows that sales under a liquor license generate (“Income Approach”), and a comparison to liquor licenses sold in an active market in other jurisdictions (“Market Approach”). These valuations are considered Level 3 measurements. Key assumptions include future cash flows, discount rates and projected margins, among other factors.

We recorded impairment of liquor licenses of $0.1 million, $1.2 million and $0.0 million in the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively, included in impairment of assets on the consolidated statements of operations. We recorded losses on disposal of liquor licenses of $0.0 million, $0.0 million, and $0.1 million in the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively. Liquor license activity is summarized below:

 
Adjusted Quoted Prices in Active Markets for Similar Assets (Level 2)
 
 Significant Unobservable Inputs (Level 3)
 
Total
 
 
 
 
 
 
December 29, 2009
$
—

 
5,290

 
5,290

Loss on disposals
—

 
(50
)
 
(50
)
December 28, 2010
$
—

 
$
5,240

 
$
5,240

Transfers out of Level 3
2,208

 
(2,208
)
 
—

Impairment of assets
(1,112
)
 
(111
)
 
(1,223
)
December 27, 2011
$
1,096

 
$
2,921

 
$
4,017

Transfers out of Level 3
275

 
(275
)
 
—

Purchases
—

 
9

 
9

Impairment of assets
(73
)
 
(67
)
 
(140
)
December 25, 2012
$
1,298

 
$
2,588

 
$
3,886


Goodwill—We evaluate goodwill for impairment at the reporting unit level (golf and country clubs and business, sports and alumni clubs), which are the same as our operating segments. When testing for impairment, we first compare the fair value of our reporting units to the recorded values. Valuation methods used to determine fair value include analysis of the discounted future free cash flows that a reporting unit is expected to generate (“Income Approach”) and an analysis which is based upon a comparison of reporting units to similar companies utilizing a purchase multiple of earnings before interest, taxes, depreciation and amortization (“Market Approach”). These valuations are considered Level 3 measurements. Key assumptions used in this model include future cash flows, growth rates, discount rates, capital needs and projected margins, among other factors.

If the carrying amount of the reporting units exceeds its fair value, goodwill is considered potentially impaired and a second step is performed to measure the amount of impairment loss. In the second step of the goodwill impairment test, we compare the implied value of the reporting unit's goodwill with the carrying value of that unit's goodwill. If the carrying value of the reporting unit's goodwill exceeds the implied value, an impairment loss is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount of goodwill recognized in a business combination. Accordingly, the fair value of a reporting unit is allocated to all the assets and liabilities of that unit, including intangible assets, and any excess of the value of the reporting unit over the amounts assigned to its assets and liabilities is the implied value of its goodwill.

We evaluate goodwill for impairment annually as of the first day of our last fiscal quarter or whenever events or circumstances indicate that the carrying amount may not be fully recoverable. Based on this analysis, no impairment of goodwill was recorded for the fiscal years ended December 27, 2011 and December 28, 2010. During the fiscal year ended December 25, 2012, we entered into an agreement to sell a business, sports and alumni club for proceeds of $5.9 million. See Note 14. We evaluated goodwill for impairment in conjunction with this agreement. Based on this analysis, no impairment of goodwill was required prior to entering into the sales agreement.

71


As a result of the sale, we allocated $6.5 million of goodwill to this property and recognized a loss on disposal of goodwill for this amount in the fiscal year ended December 25, 2012. This loss is presented in loss from discontinued operations in the consolidated statements of operations. Estimates utilized in the future evaluations of goodwill for impairment could differ from estimates used in the current period calculations. Unfavorable future estimates could result in an impairment of goodwill.

The following table shows goodwill activity by reporting unit. No impairments have been recorded for either reporting unit.
 
 
Golf & Country Clubs
 
Business, Sports & Alumni Clubs
 
Total
December 28, 2010
 
$
113,108

 
$
151,851

 
$
264,959

December 27, 2011
 
$
113,108

 
$
151,851

 
$
264,959

Loss on disposal - discontinued operations
 
—

 
(6,500
)
 
(6,500
)
December 25, 2012
 
$
113,108

 
$
145,351

 
$
258,459

 
9. OTHER ASSETS

Other assets includes debt issuance costs, assets related to unproven mineral interests, capital reserve funds, and interest rate swap derivatives.

Debt Issuance Costs—Debt issuance costs totaled $13.1 million and $14.2 million at December 25, 2012 and December 27, 2011, respectively. See Note 11.

Unproven Mineral Interests—Unproven mineral rights at various golf properties totaled $2.3 million and $5.3 million at December 25, 2012 and December 27, 2011, respectively. These assets will be depleted using the percentage depletion method based on actual production. We evaluate these assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through future cash flows. During the fiscal year ended December 25, 2012, we recognized an impairment of $3.0 million to adjust the carrying value of certain of these properties to their fair value. The valuation is considered a Level 3 measurement and is based upon quoted market prices for similar assets which are not observable in the marketplace. During 2008, we entered into certain mineral lease and surface right agreements with third parties to allow for exploration and production on these properties. We received $19.9 million which was classified as other current and long term liabilities in the consolidated balance sheets and was recognized in other income in the consolidated statements of operations on a straight line basis over the term of the agreements, which ranged from 6 months to four years.

Above and Below Market Leases—As a result of our acquisition by affiliates of KSL in 2006, we have recorded above and below market lease intangibles. The above market lease intangibles totaled $2.0 million and $2.9 million at December 25, 2012 and December 27, 2011, respectively, and are recorded in other liabilities; below market lease intangibles were $1.2 million and $2.3 million at December 25, 2012 and December 27, 2011, respectively, and are recorded in other assets. Amortization of the net above/below market lease intangibles is recorded as a net (increase) reduction in rent expense.

Related net amortization (accretion) over the next 5 years and thereafter is as follows:

Year
 
Amount
 
 
 
2013
 
$
(141
)
2014
 
365

2015
 
256

2016
 
101

2017
 
92

Thereafter
 
159

Total
 
$
832



72

10. CURRENT AND LONG-TERM LIABILITIES
 
Current liabilities consist of the following at December 25, 2012 and December 27, 2011:

 
2012
 
2011
Accrued compensation
$
24,060

 
$
19,303

Accrued interest
4,957

 
8,017

Other accrued expenses
6,972

 
7,759

Total accrued expenses
$
35,989

 
$
35,079

 
 
 
 
Taxes payable other than federal income taxes
$
16,170

 
$
14,242

Federal income taxes payable to Holdings
467

 
464

Total accrued taxes
$
16,637

 
$
14,706

 
 
 
 
Advance deposits from members
$
12,489

 
$
11,480

Prepaid dues
11,916

 
13,125

Deferred membership revenues
16,519

 
14,008

Insurance reserves
8,659

 
8,831

Advanced surface rights bonus payment
—

 
1,823

Other current liabilities
3,332

 
3,532

Total other current liabilities
$
52,915

 
$
52,799

 
Other long-term liabilities consist of the following at December 25, 2012 and December 27, 2011:

 
2012
 
2011
Uncertain tax positions
$
52,713

 
$
48,966

Deferred membership revenues
41,218

 
43,427

Casualty insurance loss reserves - long term portion
10,936

 
10,539

Above market lease intangibles
2,040

 
2,998

Deferred rent
19,127

 
17,069

Other
2,975

 
3,369

Total other long-term liabilities
$
129,009

 
$
126,368


11. DEBT AND CAPITAL LEASES
 
Senior Secured Credit Facilities

2006 Citigroup Debt Facility—In 2006, an affiliate of CCI (“Borrower”) entered into a credit agreement with Citigroup which resulted in a mortgage loan, a senior mezzanine loan, a junior mezzanine loan, and a revolving loan facility (collectively the “2006 Citigroup Debt Facility”), which was initially to mature in January 2010. In July 2008, the Borrower amended the 2006 Citigroup Debt Facility extending the maturity date to July 2012. The loans were collateralized by the majority of our owned golf and country clubs, the two full-service resorts that were sold in connection with the ClubCorp Formation, and the operations of the business, sports and alumni clubs. Payments on the notes were interest only during the term of the loans with principal due at maturity; interest rates were variable based on 30 day LIBOR rates.

For all periods presented prior to November 30, 2010, balances under the 2006 Citigroup Debt Facility, as well as related interest expense including loan amortization fees have been allocated between ClubCorp's continuing and Non-Core discontinued operations based on relative asset balances. We believe such allocations are reasonable.

In July 2008, we paid $8.0 million in principal on the long term debt facility in conjunction with the refinancing of two properties described below. In October 2008, we voluntarily paid $12.4 million in principal on the long term debt facility. In May 2009, we paid $0.7 million in principal on the long term debt facility in conjunction with the sale of one property. In June 2009 and November 2009, we voluntarily paid $98.8 million and $20.6 million, respectively, in principal on the long term

73

debt facility. In June 2010 and November 2010, we voluntarily paid $20.6 million and $50.4 million, respectively, in principal on the long term debt facility.

On November 30, 2010, in connection with the ClubCorp Formation, we repaid $826.9 million in principal on the long term debt facility and $105.3 million on the revolving loan facility and Citigroup forgave the remaining $342.3 million of debt under the 2006 Citigroup Debt Facility thereby terminating such facility. The resulting gain of $342.3 million was recorded in gain on extinguishment of debt in the consolidated statements of operations. We expensed the remaining $4.8 million of debt issuance costs related to the 2006 Citigroup Debt Facility and the $3.1 million in fees paid related to the 2010 Secured Credit Facilities against the gain on extinguishment of debt.

The debt allocated to the Non-Core discontinued operations of approximately $266.1 million was repaid as part of the 2010 net distribution to KSL affiliates attributable to the sale of Non-Core Entities and the ClubCorp Formation.

2010 Secured Credit Facilities—On November 30, 2010, we entered into secured credit facilities (“Secured Credit Facilities”). These facilities are comprised of (i) a $310.0 million term loan facility and (ii) a revolving credit facility with a maximum borrowing limit of $50.0 million, which includes letter of credit facilities. The Secured Credit Facilities also allow us to increase the term loan facility and revolving credit facility by up to $50.0 million and $25.0 million, respectively, subject to conditions and restrictions. The term loan facility matures November 30, 2016 and the revolving credit facility expires on November 30, 2015. As of December 25, 2012, we had $16.4 million of standby letters of credit outstanding and $33.6 million remaining available for borrowing under the revolving credit facility governing our Secured Credit Facilities.

All obligations under the Secured Credit Facilities are guaranteed by Parent and each existing and all subsequently acquired or organized direct and indirect restricted subsidiaries of ClubCorp, other than certain excluded subsidiaries (collectively, the “guarantors”). The Secured Credit Facilities are secured, subject to permitted liens and other exceptions, by a first-priority perfected security interest in substantially all the assets of ClubCorp, and the guarantors, including, but not limited to (1) a perfected pledge of all the domestic capital stock owned by ClubCorp and the guarantors, and (2) perfected security interests in and mortgages on substantially all tangible and intangible personal property and material fee-owned property of ClubCorp and the guarantors, subject to certain exclusions.

We are required to make principal payments equal to 0.25% of the original term loan facility on the last business day of each of March, June, September and December beginning in March 2011. Beginning with the fiscal year ended December 27, 2011, we are required to prepay the outstanding term loan, subject to certain exceptions, by an amount equal to 50% of our excess cash flows, as defined by the Secured Credit Facilities, each fiscal year end after our annual consolidated financial statements are delivered. This percentage may decrease if certain leverage ratios are achieved. Additionally, we are required to prepay the term loan facility with proceeds from certain asset sales, borrowings and certain insurance claims as defined by the Secured Credit Facilities.

We may voluntarily repay 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 repaying, refinancing, substituting or replacing the existing term loans with new indebtedness.

The interest rate on the Secured Credit Facilities was originally the higher of (i) 6.0% or (ii) an elected LIBOR plus a margin of 4.5%. On November 16, 2012, the Company entered into an amendment to the term loan facility under the Secured Credit Facilities which reduced the interest rate to the higher of (i) 5.0% or (ii) an elected LIBOR plus a margin of 3.75%. This amendment does not apply to the revolving credit facility or any incremental facilities. We may elect a one, two, three or six-month LIBOR. The interest payment is due on the last day of each elected LIBOR period.

We are also 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 in arrears on the last business day of each March, June, September and December.

The credit agreement governing the Secured Credit Facilities limits ClubCorp's (and most or all of ClubCorp subsidiaries') ability to:

•
create, incur, assume or suffer to exist any liens on any of their assets;

•
make or hold any investments (including loans and advances);

•
incur or guarantee additional indebtedness;

•
enter into mergers or consolidations;

74


•
conduct sales and other dispositions of property or assets;

•
pay dividends or distributions on capital stock or redeem or repurchase capital stock;

•
change the nature of the business;

•
enter into transactions with affiliates; and

•
enter into burdensome agreements.

In addition, the credit agreement governing the Secured Credit Facilities contains covenants that require ClubCorp and its restricted subsidiaries to maintain specified financial ratios, which include the following ratios:

•
consolidated total debt to an Adjusted EBITDA ("Adjusted EBITDA"), as defined by the Secured Credit Facilities; and

•
consolidated and Adjusted EBITDA, as defined by the Secured Credit Facilities, to consolidated interest expense.

We incurred debt issuance costs in conjunction with the issuance of the Secured Credit Facilities of $6.8 million. These have been capitalized and are being amortized over the term of the loan. We incurred additional debt issuance costs of $0.8 million in conjunction with the amendment entered into on November 16, 2012. These have also been capitalized and are being amortized over the remaining term of the loan.

Senior Unsecured Notes

On November 30, 2010, we issued $415.0 million in senior unsecured notes with registration rights, bearing interest at 10.0% and maturing December 1, 2018. The interest is payable semiannually in arrears on June 1 and December 1 each year, beginning June 1, 2011. These notes are fully and unconditionally guaranteed on a joint and several basis by most of ClubCorp's subsidiaries (“Guarantor Subsidiaries”), each of which is one hundred percent owned by ClubCorp. These notes are not guaranteed by certain of ClubCorp's subsidiaries (“Non-Guarantor Subsidiaries”). The indenture governing the senior unsecured notes limits our (and most or all of our subsidiaries') ability to:

•
incur, assume or guarantee additional indebtedness;

•
pay dividends or distributions on capital stock or redeem or repurchase capital stock;

•
make investments;

•
enter into agreements that restrict the payment of dividends or other amounts by subsidiaries to us;

•
sell stock of our subsidiaries;

•
transfer or sell assets;

•
create liens;

•
enter into transactions with affiliates; and

•
enter into mergers or consolidations.

Subject to certain exceptions, the indenture governing these notes permits us and our restricted subsidiaries to incur additional indebtedness, including secured indebtedness.

We incurred debt issuance costs in conjunction with the issuance of the senior unsecured notes of $9.1 million. These have been capitalized and are being amortized over the term of the senior unsecured notes.


75

Mortgage Loans

General Electric Capital Corporation—In July 2008, we entered into a secured mortgage loan with GECC for $32.0 million with an original maturity of July 2011. During the fiscal year ended December 27, 2011, we extended the term of the loan to July 2012.  Effective August 1, 2012, we amended our loan agreement with GECC which extended the maturity to November 2015 with two additional twelve month options to extend through November 2017 upon satisfaction of certain conditions of the loan agreement. As of December 25, 2012, we expect to meet the required conditions and currently intend to extend the loan with GECC to November 2017.

The loan is collateralized by the assets of two golf and country clubs with a book value of $37.1 million as of December 25, 2012. The proceeds from the loan were used to pay existing debt of $11.2 million to GECC and $2.7 million to Ameritas Life in addition to the payment of $8.0 million on the 2006 Citigroup Debt Facility. Interest rates are variable based on 30 day LIBOR rates. Payments on the loan were interest only through August 2009 with principal payments commencing in September 2010 based upon a twenty-five year amortization schedule. However, as the cash on cash return (defined as the percentage of underwritten net operating income for the previous twelve months divided by the outstanding principal balance of the loan as of such date) for the period September 1, 2008 through August 31, 2009, and September 1, 2009 through August 31, 2010, was greater than 14% and 15%, respectively, amortization did not commence until September 1, 2011. As part of the August 1, 2012 amendment, the interest rate was changed from 3.25% plus 30 day LIBOR to 5% plus the greater of three month LIBOR or 1%.

We incurred debt issuance costs in conjunction with the original loan of $0.9 million which have been capitalized and were amortized over the original term of the loan. During the fiscal year ended December 27, 2011, we incurred additional debt issuance costs in conjunction with the term extension of $0.1 million which have been capitalized and were amortized over the term of the extension. During the fiscal year ended December 25, 2012, we incurred additional debt issuance costs in conjunction with the amendment of $0.2 million which have been capitalized and are being amortized over the original term of the amended loan.

Atlantic Capital Bank—In October 2010, we entered into a new mortgage loan with Atlantic Capital Bank for $4.0 million of debt maturing in 2015 with 25-year amortization. The loan is collateralized by the assets of one golf and country club with a book value of $5.7 million as of December 25, 2012. The interest rate is the greater of 3% plus 30 day LIBOR or 4.5%. We incurred debt issuance costs in conjunction with the issuance of this mortgage loan of $0.1 million. These have been capitalized and are being amortized over the term of the loan.

Other Borrowings

On July 15, 2010, we settled certain litigation with a noncontrolling shareholder of a foreign subsidiary which, in exchange for certain real estate in Mexico owned by one of our foreign subsidiaries, extinguished $1.8 million of debt and $1.5 million of accrued interest and acquired the remaining equity interest of the noncontrolling shareholder. This transaction resulted in a gain of $3.0 million in the fiscal year ended December 28, 2010.

Interest Rate Cap Agreements

We regularly enter into interest rate cap agreements to limit our exposure to increases in interest rates over certain amounts. The aggregate fair value of our interest rate cap agreements, as described in Note 6, is included in other assets on the consolidated balance sheets.  The change in fair value of the interest rate cap agreements resulted in losses of $0.0 million, $0.1 million and $3.5 million in the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively. The fair value of these interest rate cap agreements was $0.0 million and $0.0 million as of December 25, 2012 and December 27, 2011, respectively.


76

Long-term borrowings and lease commitments of the Company as of December 25, 2012 and December 27, 2011, are summarized below: 
 
2012
 
2011
 
 
 
 
 
Carrying Value
Interest Rate
 
Carrying Value
Interest Rate
 
Interest Rate Calculation
 
Maturity
 
 
 
 
 
 
 
 
 
 
Senior Unsecured Notes
$
415,000

10.00
%
 
$
415,000

10.00
%
 
Fixed
 
2018
Secured Credit Facilities
 

 
 
 

 
 
 
 
 
Term Loan
304,575

5.00
%
 
307,675

6.00
%
 
As of December 25, 2012, greater of (i) 5.0% or (ii) an elected LIBOR + 3.75%; as of December 27, 2011, greater of (i) 6.0% or (ii) an elected LIBOR + 4.5%
 
2016
Revolving Notes ($50,000 capacity)
—

6.00
%
 
—

6.00
%
 
Greater of (i) 6.0% or (ii) an elected LIBOR + 4.5%
 
2015
Mortgage Loans
 

 
 
 

 
 
 
 
 
General Electric Capital Corporation
30,992

6.00
%
 
31,733

3.50
%
 
As of December 25, 2012, 5.00% plus the greater of three month LIBOR or 1%; as of December 27, 2011, 3.25% + 30 day LIBOR
 
2017
Atlantic Capital Bank
3,653

4.50
%
 
3,813

4.50
%
 
Greater of (i) 3.0% + 30 day LIBOR or (ii) 4.5%
 
2015
Other notes
3,145

5.75% - 8.00%

 
4,010

5.75% - 8.00%

 
Fixed
 
Various
 
 
 
 
 
 
 
 
 
 
 
757,365

 
 
762,231

 
 
 
 
 
Capital leases
24,155

 
 
23,331

 
 
 
 
 
 
781,520

 
 
785,562

 
 
 
 
 
Less current portion
(24,988
)
 
 
(13,290
)
 
 
 
 
 
 
$
756,532

 
 
$
772,272

 
 
 
 
 

The amount of long-term debt maturing in each of the five years subsequent to 2012 and thereafter is as follows:
 
Year
Debt
 
Capital Leases
 
Total
2013
$
16,325

 
$
8,663

 
$
24,988

2014
3,374

 
7,200

 
10,574

2015
7,338

 
5,333

 
12,671

2016
284,905

 
2,399

 
287,304

2017
28,885

 
560

 
29,445

Thereafter
416,538

 
—

 
416,538

Total
$
757,365

 
$
24,155

 
$
781,520

 
If we were to default on our Secured Credit Facilities and our lender was to accelerate the payment of all our principal and interest due, the holders of our senior unsecured notes could declare a cross-default.
 
12. LEASES

We lease operating facilities under agreements with terms up to 99 years. These agreements normally provide for minimum rentals plus executory costs. In some cases, we must pay contingent rent generally based on a percentage of gross

77

receipts or positive cash flows as defined in the lease agreements. As a result, future lease payments that are considered contingent on future results are not included in the table below.

Future minimum lease payments for each of the next five years and thereafter required at December 25, 2012 under operating leases for land, buildings and recreational facilities with initial non-cancelable lease terms in excess of one year are as follows:

Year
 
Capital Leases
 
Operating Leases
 
 
 
 
 
2013
 
$
10,340

 
$
19,175

2014
 
8,313

 
18,411

2015
 
5,945

 
17,383

2016
 
2,670

 
15,215

2017
 
689

 
14,165

Thereafter
 
—

 
104,947

Minimum lease payments
 
$
27,957

 
$
189,296

Less: imputed interest component
 
3,802

 
 
Present value of net minimum lease payments of which $8.7 million is included in
current liabilities
 
$
24,155

 
 

Total facility rental expense was $29.1 million, $29.2 million and $29.9 million in the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively; contingent rent was $8.4 million, $8.4 million and $8.6 million in the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively.

13. INCOME TAXES
 
The Company joins in the filing of a consolidated federal income tax return with Holdings, the Company’s ultimate parent. The Company records income taxes based on the separate return method determined as if the Company was not included in a consolidated return. Income taxes recorded by the Company are further adjusted to the extent losses or other deductions cannot be utilized in the consolidated federal income tax return. The Company files state tax returns on a separate company basis or unitary basis as required by law. Additionally, certain subsidiaries of the Company which are owned through lower tier joint ventures file separate tax returns for federal and state purposes.

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are calculated using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. Valuation allowances are provided against deferred income tax assets for amounts which are not considered “more likely than not” to be realized.

Income (loss) from continuing operations before income taxes and noncontrolling interest consists of the following:
 
2012
 
2011
 
2010
Domestic
$
(22,473
)
 
$
(52,138
)
 
$
316,477

Foreign
(40
)
 
1,483

 
3,134

 
$
(22,513
)
 
$
(50,655
)
 
$
319,611



78

The income tax (expense) benefit from continuing operations consists of the following:
 
2012
 
2011
 
2010
Current
 
 
 
 
 
Federal
$
(1,508
)
 
$
(2,840
)
 
$
(40,080
)
State
(1,185
)
 
(3,283
)
 
(8,803
)
Foreign
1,027

 
(494
)
 
3,229

Total Current
(1,666
)
 
(6,617
)
 
(45,654
)
Deferred
 
 
 
 
 
Federal
5,730

 
17,502

 
(12,005
)
State
3,073

 
5,130

 
147

Foreign
—

 
—

 
—

Total Deferred
8,803

 
22,632

 
(11,858
)
Total income tax benefit (expense)
$
7,137

 
$
16,015

 
$
(57,512
)

The differences between income taxes computed using the U.S. statutory Federal income tax rate of 35% and the actual income tax provision for continuing operations as reflected in the accompanying consolidated statements of operations are as follows:
 
2012
 
2011
 
2010
Expected Federal income tax benefit (expense)
$
7,879

 
$
17,609

 
$
(111,951
)
State taxes, net of Federal benefit
399

 
1,869

 
(4,827
)
Change in valuation allowance - State
828

 
(668
)
 
(799
)
Change in valuation allowance - Foreign
(707
)
 
445

 
(68
)
Foreign rate differential
2

 
74

 
157

IETU, Withholding and Other Permanent- Foreign
557

 
(494
)
 
3,229

Forgiveness of Debt
—

 
(290
)
 
55,747

Adjustments Related to Tax Contingencies
(3,273
)
 
(2,921
)
 
(606
)
Other, net
1,452

 
391

 
1,606

Actual income tax benefit (expense)
$
7,137

 
$
16,015

 
$
(57,512
)

We had the following net operating loss carryforwards at December 25, 2012, which are available to offset future taxable income:
Type of Carryforward
 
 
Gross Amount
 
Expiration Dates (in years)
Federal tax operating loss
 
 
$
22,895

 
 
 
2030
State tax operating loss
 
 
$
142,699

 
2013
-
2032
AMT net operating loss
 
 
$
23,858

 
 
 
2030
Mexico net operating loss
 
 
$
17,716

 
2013
-
2022


79

The components of the deferred tax assets and deferred tax liabilities at December 25, 2012 and December 27, 2011 are as follows:
 
 
 
2012
 
2011
Deferred tax assets:
 
 
 
 
 
Federal tax net operating loss carryforwards
 
 
$
8,013

 
7,578

State and foreign tax net operating loss carryforwards
 
 
11,099

 
10,779

Membership deferred revenue
 
 
48,041

 
38,895

Reserves and accruals
 
 
17,422

 
15,779

Texas tax credit
 
 
2,930

 
2,799

Suspended losses
 
 
11,272

 
11,343

Straight-line rent
 
 
7,321

 
6,613

Other
 
 
17,663

 
16,459

Total gross deferred tax assets
 
 
$
123,761

 
$
110,245

Valuation allowance
 
 
(10,474
)
 
(10,595
)
Deferred tax liabilities:
 
 
 
 
 
Discounts on membership initiation deposits and acquired notes
 
 
(151,538
)
 
(155,660
)
Property and equipment
 
 
(145,989
)
 
(136,407
)
Deferred revenue
 
 
(1,872
)
 
(1,885
)
Intangibles
 
 
(11,435
)
 
(16,466
)
Other
 
 
(3,550
)
 
(4,144
)
Total gross deferred tax liabilities
 
 
(314,384
)
 
(314,562
)
Net deferred tax liability
 
 
$
(201,097
)
 
$
(214,912
)

The allocation of deferred taxes between current and long-term as of December 25, 2012 and December 27, 2011 is as follows:
 
 
 
2012
 
2011
Current portion-deferred tax asset, net
 
 
$
7,896

 
$
7,201

Long-term deferred tax liability, net
 
 
(208,993
)
 
(222,113
)
Net deferred tax liability
 
 
$
(201,097
)
 
$
(214,912
)

Valuation allowances included above of $10.5 million and $10.6 million for 2012 and 2011, respectively, relate primarily to net operating loss carryforwards in certain states and in Mexico.

GAAP prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. Benefits from tax positions should be recognized in the financial statements only when it is more likely than not that the tax position will be sustained upon examination by the appropriate taxing authority that would have full knowledge of all relevant information.

A tax position that meets the more-likely-than-not recognition threshold is measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first subsequent financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the first subsequent financial reporting period in which that threshold is no longer met. GAAP also provides guidance on the accounting for and disclosure of unrecognized tax benefits, interest and penalties.

We recognize accrued interest and penalties related to uncertain tax positions as a component of income tax expense. Income tax expense for 2012, 2011 and 2010 includes interest expense and penalties net of tax of $3.7 million and $3.4 million and $0.5 million respectively.


80

A reconciliation of the change in our unrealized tax benefit for all periods presented is as follows:
 
2012
 
2011
 
2010
Balance at beginning of year
$
52,513

 
$
53,215

 
$
8,490

Increases in tax positions for current year
—

 
—

 
44,395

Increases in tax positions for prior years
17

 
52

 
1,432

Decreases in tax positions for prior years
(1,146
)
 
(754
)
 
(1,102
)
Balance at end of year
$
51,384

 
$
52,513

 
$
53,215


As of December 25, 2012 and December 27, 2011, $52.7 million and $49.0 million, respectively, of unrecognized tax benefits are included in other liabilities (Note 10) in the consolidated financial statements. If we were to prevail on all uncertain tax positions, the net effect would be a benefit to our effective tax rate of approximately $44.7 million, exclusive of any benefits related to interest and penalties. Currently, unrecognized tax benefits are not expected to change significantly over the next twelve months.

Holdings files income tax returns in the U.S. federal jurisdiction, numerous state jurisdictions and in two foreign jurisdictions. Under a previous settlement agreement related to an audit by the Internal Revenue Service we are no longer subject to U.S. federal income tax examinations by tax authorities for years before 1995.

On February 14, 2013, Holdings was notified that the Internal Revenue Service will audit certain components of the tax return for the year ended December 28, 2010. In addition, the Company is under audit in Mexico for the 2008 and 2009 tax years.

14. CLUB ACQUISITIONS, CLUB DISPOSITIONS AND DISCONTINUED OPERATIONS
 
Club Acquisitions
 
Assets and liabilities from business combinations were recorded on our consolidated balance sheets at fair value at the date of acquisition. The results of operations of such businesses have been included in the consolidated statements of operations since their date of acquisition.

Hartefeld National Golf Club—On April 18, 2012, ClubCorp acquired Hartefeld National Golf Club, a private golf club located in Avondale, Pennsylvania.  We are in process of finalizing our acquisition allocations, which are subject to change until our information is finalized, no later than twelve months from the acquisition date.  We recorded the following major categories of assets and liabilities in exchange for consideration of $3.6 million:
 
Land, property and equipment
$
3,999

Prepaid real estate taxes
31

Inventory
112

Deferred revenue and other liabilities
(572
)
Total
$
3,570

 
There was no goodwill recorded on this purchase transaction.
 

81

Long Island Clubs—On June 7, 2011, ClubCorp acquired three properties located in Long Island, New York. The properties include Hamlet Golf and Country Club which is a private golf club, and Wind Watch Golf and Country Club and Willow Creek Golf and Country Club which are semi-private golf clubs. We recorded the following major categories of assets and liabilities in exchange for consideration of $18.8 million:
 
Land, property and equipment
$
20,223

Prepaid real estate taxes
487

Inventory
197

Deferred revenue and other liabilities
(2,131
)
Total
$
18,776

 
There was no goodwill recorded on this purchase transaction.

Canterwood Golf & Country Club—On August 9, 2011, ClubCorp acquired Canterwood Golf and Country Club, a private golf club property located in Gig Harbor, Washington. We recorded the following major categories of assets and liabilities in exchange for consideration of $4.0 million:

Land, property and equipment
$
4,003

Inventory and other current assets
149

Deferred revenue and other liabilities
(171
)
Total
$
3,981

 
There was no goodwill recorded on this purchase transaction.

Country Club of the South—On June 23, 2010, ClubCorp acquired Country Club of the South, a private golf club located in Georgia. We purchased or assumed the following major categories of assets and liabilities in exchange for consideration of $7.4 million:

Property and equipment
$
8,800

Inventory
132

Liabilities assumed
(270
)
Total
$
8,662


A bargain purchase gain of $1.2 million was recognized on this transaction in the fiscal year ended December 28, 2010 because the property had been bank owned by virtue of foreclosure prior to our acquisition.

Revenues and operating income associated with acquired clubs were as follows for the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively.
 
2012
 
2011
 
2010
Revenues
$
30,699

 
$
17,858

 
$
3,011

Operating income (loss)
$
1,111

 
$
(769
)
 
$
772


The pro forma information related to these acquisitions is not material to our historical results of operations.

Club Dispositions

Subsidiaries may be divested when we determine they will be unable to provide a positive contribution to cash flows from operations in future periods and/or when they are determined to be non-strategic holdings for the Company. Gains from divestitures are recognized in the period in which operations cease and losses are recognized when we determine that the carrying value is not recoverable and exceeds fair value.


82

Glendale Racquet Club, Inc.—On September 27, 2012, we sold certain assets and liabilities of Glendale Racquet Club, Inc., a business, sports and alumni club located in Milwaukee, Wisconsin, to an unrelated third party for $5.9 million. The sale resulted in a pre-tax loss of $11.1 million including a $6.5 million loss recognized for goodwill allocated to this entity. See Note 8. These losses are included in loss from discontinued operations in the consolidated statements of operations.
 
We discontinued one additional business, sports and alumni club and one golf management contract in the fiscal year ended December 25, 2012 for a pre-tax gain of $0.1 million. In conjunction with the discontinued golf management contract, we recorded impairment of liquor licenses of $0.1 million. See Note 8. We discontinued two business, sports and alumni clubs and one golf management contract for a pre-tax loss of $0.0 million during the fiscal year ended December 27, 2011. We discontinued one business, sports and alumni club for no pre-tax gain or loss in the fiscal year ended December 28, 2010.

There were no assets held for sale at December 25, 2012 nor December 27, 2011.

Discontinued Club Operations
 
Operations of the clubs that have been disposed of were reclassified to discontinued operations on the consolidated statements of operations. Summarized financial information for these clubs is as follows:
 
 
2012
 
2011
 
2010
Revenues
$
3,759

 
$
7,387

 
$
9,085

Operating expenses, excluding loss on disposals and impairments of assets
(3,658
)
 
(7,152
)
 
(9,003
)
Loss on disposals and impairments of assets
(11,448
)
 
(126
)
 
(362
)
Interest expense
(2,239
)
 
(215
)
 
(561
)
Loss from discontinued club operations, before taxes
(13,586
)
 
(106
)
 
(841
)
Income tax benefit (expense)
2,669

 
(152
)
 
398

Net loss from discontinued clubs
$
(10,917
)
 
$
(258
)
 
$
(443
)

Discontinued Non-Core Entities

In connection with the ClubCorp Formation on November 30, 2010, CCI sold its Non-Core Entities to affiliates of KSL. No gain or loss was recognized as this was a transaction with entities under common control. The operations of the Non-Core Entities were reclassified to discontinued Non-Core operations on the consolidated statements of operations as follows for the fiscal year ended December 28, 2010:

 
2010
Revenues
$
93,124

Loss from discontinued Non-Core Entities, before taxes
$
(2,031
)

$10.7 million in depreciation expense related to Non-Core Entities has been included in income (loss) from discontinued Non-Core Entities in the statements of operations for the fiscal years ended December 28, 2010. 

15. SEGMENT INFORMATION
 
We currently have two reportable segments: (1) golf and country clubs and (2) business, sports and alumni clubs. These segments are managed separately and discrete financial information is reviewed regularly by the chief operating decision maker to evaluate performance and allocate resources. Our chief operating decision maker is our Chief Executive Officer.
 
Golf and country club operations consist of private country clubs, golf clubs and public golf facilities. Private country clubs provide at least one 18-hole golf course and various other recreational amenities that are open to members and their guests. Golf clubs provide both private and public golf play and usually offer fewer other recreational amenities. Public golf facilities are open to the public and generally provide the same services as golf clubs.

Business, sports and alumni club operations consist of business clubs, business/sports clubs, sports clubs and alumni clubs. Business clubs provide a setting for dining, business or social entertainment. Sports clubs provide a variety of

83

recreational facilities and business/sports clubs provide a combination of the amenities available at business clubs and sports clubs. Alumni clubs provide the same amenities as business clubs while targeting alumni and staff of universities.
 
Included within other are revenues from leasing of mineral rights and revenues and expenses on corporate overhead and shared services which are not material enough to warrant a separate segment.
 
In 2011 we changed the income measure used to evaluate segment performance and allocate resources to more closely align management reporting with the measure used for calculating the Company’s compliance with debt covenants.  Amounts for the fiscal year ended December 28, 2010 have been recast to conform to the current management view.
 
We evaluate segment performance and allocate resources based on Segment EBITDA. We define Segment EBITDA as net income before discontinued operations, interest and investment income, interest expense and the change in fair value of interest rate cap agreements, income taxes, gain or loss on disposal, acquisition and impairment of assets, gain on extinguishment of debt and depreciation and amortization.  Additionally, Segment EBITDA differs from Adjusted EBITDA which is used in calculating the Company’s compliance with debt covenants.  The additional items that are adjusted to determine Segment EBITDA are:
 
•
translation gains and losses are excluded;

•
proceeds from business interruption insurance are excluded;

•
severance payments are excluded;

•
expenses related to accruals for unclaimed property settlements are excluded;

•
management fees and expenses paid to an affiliate of KSL are excluded;

•
acquisition costs are excluded;

•
amortization of step-up in certain equity method investments is excluded;

•
expenses related to the ClubCorp Formation are excluded;

•
expenses related to adjustments in accruals for certain environmental compliance obligations incurred prior to 2011 are excluded;

•
expenses related to adjustments in accruals for certain property tax increases prior to 2011 are excluded;

•
expenses related to an arbitration award arising out of a dispute related to a series of agreements first entered into in 1999 related to the acquisition and development of a golf course property are excluded;

•
expenses accrued under our long-term incentive plan are excluded;

•
certain other incidental expenses are excluded.
    
Segment EBITDA for all periods presented has been calculated using this definition. Segment EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on GAAP and is not necessarily a measure of our cash flows or ability to fund our cash needs. Our measurements of Segment EBITDA may not be comparable to similar titled measures reported by other companies.


84

The table below shows summarized financial information by segment for continuing operations for the fiscal years ended December 25, 2012 , December 27, 2011 and December 28, 2010:
 
 
2012
 
2011
 
2010
Golf and Country Clubs
 

 
 

 
 
Revenues
$
583,523

 
$
550,898

 
$
523,360

Segment EBITDA
166,327

 
151,554

 
142,561

Total Assets
1,222,966

 
1,241,671

 
 
Capital Expenditures
47,283

 
48,326

 
28,372

 
 
 
 
 
 
Business, Sports and Alumni Clubs
 

 
 

 
 

Revenues
$
174,344

 
$
171,328

 
$
167,283

Segment EBITDA
34,373

 
32,606

 
29,572

Total Assets
79,678

 
90,339

 
 
Capital Expenditures
14,198

 
10,564

 
16,709

 
 
 
 
 
 
Other
 

 
 

 
 

Revenues
$
3,641

 
$
4,982

 
$
4,833

Segment EBITDA
(35,184
)
 
(30,058
)
 
(27,643
)
Total Assets
416,952

 
400,464

 
 
Capital Expenditures
3,766

 
4,253

 
6,329

 
 
 
 
 
 
Elimination of intersegment revenues
$
(6,564
)
 
$
(7,246
)
 
$
(7,779
)
 
 
 
 
 
 
Total
 

 
 

 
 
Revenues
$
754,944

 
$
719,962

 
$
687,697

Segment EBITDA
165,516

 
154,102

 
144,490

Total Assets
1,719,596

 
1,732,474

 


Capital Expenditures
65,247

 
63,143

 
51,410


The following table presents revenue and long-lived assets by geographical region, excluding financial instruments. Foreign operations are primarily located in Mexico.

 
2012
 
2011
 
2010
Revenues
 
 
 
 
 
United States
$
748,124

 
$
712,636

 
679,763

All Foreign
6,820

 
7,326

 
7,934

Total
$
754,944

 
$
719,962

 
$
687,697

 
 
 
 
 
 
 
2012
 
2011
 
 
Long-Lived Assets
 
 
 
 
 
United States
$
1,505,389

 
$
1,550,733

 
 
All Foreign
27,203

 
25,409

 
 
Total
$
1,532,592

 
$
1,576,142

 
 


85

The table below provides a reconciliation of our Segment EBITDA to net (loss) income before income taxes and discontinued operations for the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010:
 
 
2012
 
2011
 
2010
Total Segment EBITDA
$
165,516

 
$
154,102

 
$
144,490

Interest and investment income
1,212

 
138

 
714

Interest expense and change in fair value of interest rate cap agreements
(88,306
)
 
(83,684
)
 
(60,174
)
Loss on disposals and impairment of assets
(15,687
)
 
(10,772
)
 
(3,556
)
Gain on extinguishment of debt
—

 
—

 
334,423

Depreciation and amortization
(78,286
)
 
(93,035
)
 
(91,700
)
Translation loss
(126
)
 
(554
)
 
(146
)
Business interruption insurance
309

 
—

 
—

Severance payments
(360
)
 
(431
)
 
(515
)
Management fees and expenses paid to an affiliate of KSL
(1,141
)
 
(1,255
)
 
(1,150
)
Acquisition costs
(837
)
 
(1,629
)
 
—

Amortization of step-up in certain equity method investments
(2,027
)
 
(2,048
)
 
(2,048
)
ClubCorp Formation costs
(51
)
 
(2,087
)
 
(752
)
Environmental compliance costs
(27
)
 
(454
)
 
—

Property tax increases prior to 2011
—

 
(2,655
)
 
—

Arbitration award
—

 
(3,968
)
 
—

Long term incentive plan
(1,661
)
 
(1,661
)
 
—

Other
(1,041
)
 
(662
)
 
25

Net (loss) income before income taxes and discontinued operations
$
(22,513
)
 
$
(50,655
)
 
$
319,611


16. COMMITMENTS AND CONTINGENCIES
 
We routinely enter into contractual obligations to procure assets used in the day to day operations of our business. As of December 25, 2012, we had capital commitments of $4.6 million at certain of our clubs.
 
We currently have sales and use tax audits and a federal tax audit of certain foreign subsidiaries in progress. We believe the potential for a liability related to the outcome of these audits may exist. However, we believe that the outcome of these audits would not materially affect our consolidated financial statements.

On February 14, 2013, Holdings was notified that the Internal Revenue Service will audit certain components of the tax return for the year ended December 28, 2010, which includes the consummation of the ClubCorp Formation. Should the estimates and judgments used in the ClubCorp Formation prove to be inaccurate, our financial results could be materially affected.

We are currently undergoing audits related to unclaimed property. We believe the potential for a liability related to the outcome of these audits is probable and recorded a $3.0 million loss as an estimate of such liability in our 2009 consolidated statements of operations. During the fiscal year ended December 25, 2012, we paid $0.9 million related to these audits. The remaining $2.1 million estimate is included in accrued expenses on the consolidated balance sheet as of December 25, 2012.

Each of our properties is subject to real and personal property taxes. If local taxing authorities reassess the taxable value of certain properties in accordance with local and state regulations, we may be subject to additional property tax assessments, penalties and interest. At December 25, 2012, we have $2.2 million recorded in accrued taxes on the consolidated balance sheet related to certain of these properties. While the outcome of such reassessments cannot be predicted with certainty, we believe that any potential liability from these matters would not materially affect our consolidated financial statements.

We are subject to certain pending or threatened litigation and other claims that arise in the ordinary course of business. While the outcome of such legal proceedings and other claims cannot be predicted with certainty, after review and consultation with legal counsel, we believe that any potential liability from these matters would not materially affect our consolidated

86

financial statements. During the fiscal year ended December 27, 2011, the Company paid $4.0 million for an arbitration award arising out of a dispute related to a series of agreements first entered into in 1999 relating to the acquisition and development of a golf course property.
 
We guarantee principal amounts on loans made by a third party to purchasers of certain real estate interests in case of default. These loans have a remaining term averaging less than one year to two years. The total principal amount outstanding on these loans as of December 25, 2012 is $0.3 million. ClubCorp is indemnified by affiliates of KSL from losses on these guarantees in the event of default. The fair value of the guarantees is immaterial.
 
We are joint and severally liable for certain pension funding liabilities associated with one of the resorts we sold in connection with the ClubCorp Formation. We have not accrued a liability, as we do not believe it is probable that claims will be made against ClubCorp. As of December 25, 2012, the unfunded obligation for such plan was approximately $10.7 million and no claims have been made against ClubCorp for funding.
 
17. FINANCIAL STATEMENTS OF GUARANTORS
 
In November 2010, we issued $415.0 million of senior unsecured notes. The senior unsecured notes are fully and unconditionally guaranteed on a joint and several basis by certain of our subsidiaries (“Guarantor Subsidiaries”), each of which is one hundred percent owned by ClubCorp. The senior unsecured notes are not guaranteed by other subsidiaries (“Non-Guarantor Subsidiaries”).
 
Set forth below is the consolidating condensed financial information presenting the results of operations, financial position and cash flows of ClubCorp Club Operations, Inc., the Guarantor Subsidiaries on a consolidated basis and the Non-Guarantor Subsidiaries on a consolidated basis, along with the eliminations necessary to arrive at the information for ClubCorp on a consolidated basis.
 
Eliminations represent adjustments to eliminate investments in subsidiaries and intercompany balances and transactions between or among ClubCorp Club Operations, Inc., the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries. For this presentation, investments in subsidiaries are accounted for using the equity method of accounting.



87

Consolidating Statements of Operations and Comprehensive Income (Loss)
For the Fiscal Year Ended December 25, 2012
 
(In thousands of dollars)

 
ClubCorp
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
REVENUES:
 

 
 

 
 

 
 

 
 

Club operations
$
—

 
$
493,427

 
$
43,525

 
$
(1,678
)
 
$
535,274

Food and beverage
—

 
202,465

 
13,804

 
—

 
216,269

Other revenues
—

 
6,558

 
83

 
(3,240
)
 
3,401

Total revenues
—

 
702,450

 
57,412

 
(4,918
)
 
754,944

 
 
 
 
 
 
 
 
 
 
DIRECT AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
 

 
 

 
 

 
 

 
 

Club operating costs exclusive of depreciation
—

 
448,715

 
39,829

 
(4,918
)
 
483,626

Cost of food and beverage sales exclusive of depreciation
—

 
64,072

 
4,663

 
—

 
68,735

Depreciation and amortization
—

 
72,705

 
5,581

 
—

 
78,286

Provision for doubtful accounts
—

 
2,629

 
136

 
—

 
2,765

Loss on disposals and acquisitions of assets
—

 
9,914

 
990

 
—

 
10,904

Impairment of assets
—

 
4,780

 
3

 
—

 
4,783

Equity in earnings from unconsolidated ventures
—

 
(1,947
)
 
—

 
—

 
(1,947
)
Selling, general and administrative
—

 
45,343

 
—

 
—

 
45,343

OPERATING INCOME
—

 
56,239

 
6,210

 
—

 
62,449

 
 
 
 
 
 
 
 
 
 
Interest and investment income
55,611

 
1,757

 
361

 
(56,517
)
 
1,212

Interest expense
(62,432
)
 
(71,053
)
 
(11,295
)
 
56,517

 
(88,263
)
Change in fair value of interest rate cap agreements
(34
)
 
—

 
(9
)
 
—

 
(43
)
Other income
—

 
2,132

 
—

 
—

 
2,132

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(6,855
)
 
(10,925
)
 
(4,733
)
 
—

 
(22,513
)
INCOME TAX BENEFIT
2,452

 
1,663

 
3,022

 
—

 
7,137

LOSS FROM CONTINUING OPERATIONS
(4,403
)
 
(9,262
)
 
(1,711
)
 
—

 
(15,376
)
Loss from discontinued clubs, net of tax
—

 
(8,709
)
 
(2,208
)
 
—

 
(10,917
)
Equity in net loss of subsidiaries
(22,173
)
 
—

 
—

 
22,173

 
—

NET LOSS
(26,576
)
 
(17,971
)
 
(3,919
)
 
22,173

 
(26,293
)
NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
—

 
185

 
(468
)
 
—

 
(283
)
NET LOSS ATTRIBUTABLE TO CLUBCORP
$
(26,576
)
 
$
(17,786
)
 
$
(4,387
)
 
$
22,173

 
$
(26,576
)
 
 
 
 
 
 
 
 
 
 
NET LOSS
(26,576
)
 
(17,971
)
 
(3,919
)
 
22,173

 
(26,293
)
Foreign currency translation, net of tax
—

 
—

 
1,890

 
—

 
1,890

Equity in other comprehensive income of subsidiaries
1,890

 
—

 
—

 
(1,890
)
 
—

OTHER COMPREHENSIVE INCOME
1,890

 
—

 
1,890

 
(1,890
)
 
1,890

COMPREHENSIVE LOSS
(24,686
)
 
(17,971
)
 
(2,029
)
 
20,283

 
(24,403
)
COMPREHENSIVE LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
—

 
185

 
(468
)
 
—

 
(283
)
COMPREHENSIVE LOSS ATTRIBUTABLE TO CLUBCORP
$
(24,686
)
 
$
(17,786
)
 
$
(2,497
)
 
$
20,283

 
$
(24,686
)


88

Consolidating Statements of Operations and Comprehensive Income (Loss)
For the Fiscal Year Ended December 27, 2011
 
(In thousands of dollars) 

 
ClubCorp
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
REVENUES:
 

 
 

 
 

 
 

 
 

Club operations
$
—

 
$
473,070

 
$
41,930

 
$
(1,718
)
 
$
513,282

Food and beverage
—

 
190,303

 
13,205

 
—

 
203,508

Other revenues
—

 
4,354

 
76

 
(1,258
)
 
3,172

Total revenues
—

 
667,727

 
55,211

 
(2,976
)
 
719,962

 
 
 
 
 
 
 
 
 
 
DIRECT AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
 

 
 

 
 

 
 

 
 

Club operating costs exclusive of depreciation
—

 
433,692

 
37,793

 
(2,976
)
 
468,509

Cost of food and beverage sales exclusive of depreciation
—

 
59,986

 
4,270

 
—

 
64,256

Depreciation and amortization
—

 
87,200

 
5,835

 
—

 
93,035

Provision for doubtful accounts
—

 
3,109

 
241

 
—

 
3,350

Loss on disposals and acquisitions of assets
—

 
9,431

 
168

 
—

 
9,599

Impairment of assets
—

 
1,173

 
—

 
—

 
1,173

Equity in earnings from unconsolidated ventures
—

 
(1,487
)
 
—

 
—

 
(1,487
)
Selling, general and administrative
—

 
52,382

 
—

 
—

 
52,382

OPERATING INCOME
—

 
22,241

 
6,904

 
—

 
29,145

 
 
 
 
 
 
 
 
 
 
Interest and investment income
55,611

 
303

 
12

 
(55,788
)
 
138

Interest expense
(62,949
)
 
(69,205
)
 
(7,181
)
 
55,788

 
(83,547
)
Change in fair value of interest rate cap agreements
(137
)
 
—

 
—

 
—

 
(137
)
Other income
—

 
3,746

 
—

 
—

 
3,746

LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(7,475
)
 
(42,915
)
 
(265
)
 
—

 
(50,655
)
INCOME TAX BENEFIT
2,799

 
9,428

 
3,788

 
—

 
16,015

(LOSS) INCOME FROM CONTINUING OPERATIONS
(4,676
)
 
(33,487
)
 
3,523

 
—

 
(34,640
)
Income (loss) from discontinued clubs, net of tax
—

 
242

 
(500
)
 
—

 
(258
)
Equity in net loss of subsidiaries
(30,797
)
 
—

 
—

 
30,797

 
—

NET (LOSS) INCOME
(35,473
)
 
(33,245
)
 
3,023

 
30,797

 
(34,898
)
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
—

 
(259
)
 
(316
)
 
—

 
(575
)
NET (LOSS) INCOME ATTRIBUTABLE TO CLUBCORP
$
(35,473
)
 
$
(33,504
)
 
$
2,707

 
$
30,797

 
$
(35,473
)
 
 
 
 
 
 
 
 
 
 
NET (LOSS) INCOME
(35,473
)
 
(33,245
)
 
3,023

 
30,797

 
(34,898
)
Foreign currency translation, net of tax
—

 
—

 
(2,105
)
 
—

 
(2,105
)
Equity in other comprehensive loss of subsidiaries
(2,105
)
 
—

 
—

 
2,105

 
—

OTHER COMPREHENSIVE LOSS
(2,105
)
 
—

 
(2,105
)
 
2,105

 
(2,105
)
COMPREHENSIVE (LOSS) INCOME
(37,578
)
 
(33,245
)
 
918

 
32,902

 
(37,003
)
COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
—

 
(259
)
 
(316
)
 
—

 
(575
)
COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO CLUBCORP
$
(37,578
)
 
$
(33,504
)
 
$
602

 
$
32,902

 
$
(37,578
)

89

Consolidating Statements of Operations and Comprehensive Income (Loss)
For the Fiscal Year Ended December 28, 2010
 
(In thousands of dollars) 
 
ClubCorp
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
REVENUES:
 

 
 

 
 

 
 

 
 

Club operations
$
—

 
$
458,583

 
$
38,463

 
$
(1,622
)
 
$
495,424

Food and beverage
—

 
178,442

 
10,949

 
—

 
189,391

Other revenues
—

 
4,705

 
32

 
(1,855
)
 
2,882

Total revenues
—

 
641,730

 
49,444

 
(3,477
)
 
687,697

 
 
 
 
 
 
 
 
 
 
DIRECT AND SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
 

 
 

 
 

 
 

 
 

Club operating costs exclusive of depreciation
—

 
420,647

 
34,050

 
(3,477
)
 
451,220

Cost of food and beverage sales exclusive of depreciation
—

 
56,209

 
3,462

 
—

 
59,671

Depreciation and amortization
—

 
86,309

 
5,391

 
—

 
91,700

Provision for doubtful accounts
—

 
3,218

 
(24
)
 
—

 
3,194

Gain on disposals and acquisitions of assets
—

 
(1,060
)
 
(4,320
)
 
—

 
(5,380
)
Impairment of assets
—

 
8,936

 
—

 
—

 
8,936

Equity in earnings from unconsolidated ventures
—

 
(1,309
)
 
—

 
—

 
(1,309
)
Selling, general and administrative
—

 
38,946

 
—

 
—

 
38,946

OPERATING INCOME
—

 
29,834

 
10,885

 
—

 
40,719

 
 
 
 
 
 
 
 
 
 
Interest and investment income
4,278

 
2,177

 
28

 
(5,769
)
 
714

Interest expense
(4,969
)
 
(48,675
)
 
(8,770
)
 
5,769

 
(56,645
)
Change in fair value of interest rate cap agreements
(70
)
 
(3,459
)
 
—

 
—

 
(3,529
)
Gain on extinguishment of debt
—

 
334,423

 
—

 
—

 
334,423

Other income
—

 
3,929

 
—

 
—

 
3,929

(LOSS) INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
(761
)
 
318,229

 
2,143

 
—

 
319,611

INCOME TAX BENEFIT (EXPENSE)
267

 
(55,139
)
 
(2,640
)
 
—

 
(57,512
)
(LOSS) INCOME FROM CONTINUING OPERATIONS
(494
)
 
263,090

 
(497
)
 
—

 
262,099

Loss from discontinued Non-Core Entities, net of tax
—

 
—

 
(8,779
)
 
—

 
(8,779
)
Loss from discontinued clubs, net of tax
—

 
(396
)
 
(47
)
 
—

 
(443
)
Equity in net income of subsidiaries
254,991

 
—

 
—

 
(254,991
)
 
—

NET INCOME (LOSS)
254,497

 
262,694

 
(9,323
)
 
(254,991
)
 
252,877

NET LOSS ATTRIBUTABLE TO DISCONTINUED NON-CORE ENTITIES' NONCONTROLLING INTERESTS
—

 
—

 
1,966

 
—

 
1,966

NET LOSS (INCOME) ATTRIBUTABLE TO NONCONTROLLING INTERESTS
—

 
172

 
(518
)
 
—

 
(346
)
NET INCOME (LOSS) ATTRIBUTABLE TO CLUBCORP
$
254,497

 
$
262,866

 
$
(7,875
)
 
$
(254,991
)
 
$
254,497

 
 
 
 
 
 
 
 
 
 
NET INCOME (LOSS)
254,497

 
262,694

 
(9,323
)
 
(254,991
)
 
252,877

Foreign currency translation, net of tax
—

 
—

 
189

 
—

 
189

Change in fair value of net pension plan assets, net of tax
—

 
—

 
(746
)
 
—

 
(746
)
Equity in other comprehensive loss of subsidiaries
(692
)
 
—

 
—

 
692

 
—

OTHER COMPREHENSIVE LOSS
(692
)
 
—

 
(557
)
 
692

 
(557
)
COMPREHENSIVE INCOME (LOSS)
253,805

 
262,694

 
(9,880
)
 
(254,299
)
 
252,320

COMPREHENSIVE LOSS ATTRIBUTABLE TO NONCONTROLLING INTERESTS
—

 
172

 
1,313

 
—

 
1,485

COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO CLUBCORP
$
253,805

 
$
262,866

 
$
(8,567
)
 
$
(254,299
)
 
$
253,805


90

Consolidating Balance Sheet
As of December 25, 2012
 
(In thousands of dollars, except share and per share amounts)
 
ClubCorp
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

CURRENT ASSETS:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
—

 
$
77,844

 
$
4,007

 
$
—

 
$
81,851

Receivables, net of allowances
2,613

 
48,448

 
3,132

 
(2,613
)
 
51,580

Inventories
—

 
12,911

 
1,450

 
—

 
14,361

Prepaids and other assets
—

 
8,169

 
4,030

 
—

 
12,199

Deferred tax assets
—

 
8,031

 
45

 
—

 
8,076

Total current assets
2,613

 
155,403

 
12,664

 
(2,613
)
 
168,067

Investments
—

 
11,166

 
—

 
—

 
11,166

Property and equipment, net
—

 
1,097,558

 
125,981

 
—

 
1,223,539

Notes receivable, net of allowances
—

 
2,771

 
412

 
—

 
3,183

Goodwill
—

 
258,459

 
—

 
—

 
258,459

Intangibles, net
—

 
31,228

 
730

 
—

 
31,958

Investment in subsidiaries
201,218

 
—

 
—

 
(201,218
)
 
—

Intercompany receivables
669,772

 
—

 
56,192

 
(725,964
)
 
—

Other assets
12,917

 
9,903

 
404

 
—

 
23,224

Long-term deferred tax asset
480

 
—

 
7,384

 
(7,864
)
 
—

TOTAL ASSETS
$
887,000

 
$
1,566,488

 
$
203,767

 
$
(937,659
)
 
$
1,719,596

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 

 
 

 
 

 
 

 
 

CURRENT LIABILITIES:
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt
15,080

 
7,960

 
1,948

 
—

 
24,988

Membership initiation deposits - current portion
—

 
50,757

 
40,641

 
—

 
91,398

Accounts payable
—

 
26,394

 
1,047

 
—

 
27,441

Accrued expenses
4,786

 
30,594

 
609

 
—

 
35,989

Accrued taxes
—

 
13,901

 
5,349

 
(2,613
)
 
16,637

Other liabilities
140

 
48,656

 
4,119

 
—

 
52,915

Total current liabilities
20,006

 
178,262

 
53,713

 
(2,613
)
 
249,368

Intercompany payables
—

 
678,509

 
47,455

 
(725,964
)
 
—

Long-term debt
704,495

 
16,563

 
35,474

 
—

 
756,532

Membership initiation deposits
—

 
154,007

 
48,623

 
—

 
202,630

Deferred tax liability
—

 
216,857

 
—

 
(7,864
)
 
208,993

Other liabilities
—

 
123,287

 
5,722

 
—

 
129,009

Total liabilities
724,501

 
1,367,485

 
190,987

 
(736,441
)
 
1,546,532

Commitments and contingencies (See Note 16)


 


 


 


 


 
 
 
 
 
 
 
 
 
 
EQUITY
 

 
 

 
 

 
 

 
 

Common stock of ClubCorp Club Operations, Inc., $1.00 par value, 1,000 shares authorized, issued and outstanding
1

 
—

 
—

 
—

 
1

Additional paid-in capital
213,310

 
196,156

 
17,154

 
(213,310
)
 
213,310

Accumulated other comprehensive loss
(672
)
 
(21
)
 
(651
)
 
672

 
(672
)
Retained deficit
(50,140
)
 
(3,390
)
 
(8,030
)
 
11,420

 
(50,140
)
Total stockholders’ equity
162,499

 
192,745

 
8,473

 
(201,218
)
 
162,499

Noncontrolling interests in consolidated subsidiaries and variable interest entities
—

 
6,258

 
4,307

 
—

 
10,565

Total equity
162,499

 
199,003

 
12,780

 
(201,218
)
 
173,064

TOTAL LIABILITIES AND EQUITY
$
887,000

 
$
1,566,488

 
$
203,767

 
$
(937,659
)
 
$
1,719,596


91

Consolidating Balance Sheet
As of December 27, 2011
 
(In thousands of dollars, except share and per share amounts)
 
ClubCorp
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
ASSETS
 

 
 

 
 

 
 

 
 

CURRENT ASSETS:
 

 
 

 
 

 
 

 
 

Cash and cash equivalents
$
—

 
$
43,751

 
$
6,566

 
$
—

 
$
50,317

Receivables, net of allowances
—

 
50,072

 
2,635

 
—

 
52,707

Inventories
—

 
13,212

 
1,451

 
—

 
14,663

Prepaids and other assets
—

 
7,908

 
3,421

 
—

 
11,329

Deferred tax assets
—

 
7,146

 
55

 
—

 
7,201

Total current assets
—

 
122,089

 
14,128

 
—

 
136,217

Investments
—

 
13,816

 
—

 
—

 
13,816

Property and equipment, net
—

 
1,119,025

 
125,781

 
—

 
1,244,806

Notes receivable, net of allowances
—

 
746

 
235

 
—

 
981

Goodwill
—

 
264,959

 
—

 
—

 
264,959

Intangibles, net
—

 
41,141

 
1,134

 
—

 
42,275

Investment in subsidiaries
241,538

 
—

 
—

 
(241,538
)
 
—

Intercompany receivables
659,349

 
—

 
62,862

 
(722,211
)
 
—

Other assets
14,083

 
14,977

 
360

 
—

 
29,420

TOTAL ASSETS
$
914,970

 
$
1,576,753

 
$
204,500

 
$
(963,749
)
 
$
1,732,474

 
 
 
 
 
 
 
 
 
 
LIABILITIES AND EQUITY
 

 
 

 
 

 
 

 
 

CURRENT LIABILITIES:
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt
3,100

 
7,971

 
2,219

 
—

 
13,290

Membership initiation deposits - current portion
—

 
41,479

 
28,391

 
—

 
69,870

Accounts payable
36

 
23,174

 
816

 
—

 
24,026

Accrued expenses
7,874

 
26,741

 
464

 
—

 
35,079

Accrued taxes
(216
)
 
10,434

 
4,488

 
—

 
14,706

Other liabilities
—

 
49,343

 
3,456

 
—

 
52,799

Total current liabilities
10,794

 
159,142

 
39,834

 
—

 
209,770

Intercompany payables
—

 
653,162

 
69,049

 
(722,211
)
 
—

Long-term debt
719,575

 
15,935

 
36,762

 
—

 
772,272

Membership initiation deposits
—

 
152,116

 
51,426

 
—

 
203,542

Deferred tax liability
(2,584
)
 
221,105

 
3,592

 
—

 
222,113

Other liabilities
—

 
121,061

 
5,307

 
—

 
126,368

Total liabilities
727,785

 
1,322,521

 
205,970

 
(722,211
)
 
1,534,065

Commitments and contingencies (See Note 16)


 


 


 


 


 
 
 
 
 
 
 
 
 
 
EQUITY
 

 
 

 
 

 
 

 
 

Common stock of ClubCorp Club Operations, Inc., $1.00 par value, 1,000 shares authorized, issued and outstanding
1

 
—

 
—

 
—

 
1

Additional paid-in capital
213,310

 
233,347

 
—

 
(233,347
)
 
213,310

Accumulated other comprehensive loss
(2,562
)
 
(21
)
 
(2,541
)
 
2,562

 
(2,562
)
Retained (deficit) earnings
(23,564
)
 
14,463

 
(3,710
)
 
(10,753
)
 
(23,564
)
Total stockholders’ equity (deficit):
187,185

 
247,789

 
(6,251
)
 
(241,538
)
 
187,185

Noncontrolling interests in consolidated subsidiaries and variable interest entities
—

 
6,443

 
4,781

 
—

 
11,224

Total equity (deficit)
187,185

 
254,232

 
(1,470
)
 
(241,538
)
 
198,409

TOTAL LIABILITIES AND EQUITY
$
914,970

 
$
1,576,753

 
$
204,500

 
$
(963,749
)
 
$
1,732,474


92

Consolidating Condensed Statements of Cash Flows
For the Fiscal Year Ended December 25, 2012
 
(In thousands of dollars)
 
 
ClubCorp
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Condensed
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Net cash (used in) provided by operating activities
$
(5,718
)
 
100,391

 
$
2,264

 
$
—

 
96,937

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Purchase of property and equipment
—

 
(50,148
)
 
(4,060
)
 
—

 
(54,208
)
Acquisitions of clubs
—

 
(3,570
)
 
—

 
—

 
(3,570
)
Proceeds from dispositions
—

 
7,896

 
106

 
—

 
8,002

Proceeds from insurance
—

 
2,228

 
—

 
—

 
2,228

Net change in restricted cash and capital reserve funds
—

 
230

 
—

 
—

 
230

Net intercompany transactions
9,616

 
—

 
—

 
(9,616
)
 
—

Net cash provided by (used in) investing activities
9,616

 
(43,364
)
 
(3,954
)
 
(9,616
)
 
(47,318
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Repayments of long-term debt
(3,100
)
 
(9,449
)
 
(2,281
)
 
—

 
(14,830
)
Purchase of interest rate cap agreement
(48
)
 
—

 
(9
)
 
—

 
(57
)
Debt issuance and modification costs
(750
)
 
—

 
(167
)
 
—

 
(917
)
Distribution to noncontrolling interests
—

 
—

 
(942
)
 
—

 
(942
)
Proceeds from new membership initiation deposits
—

 
774

 
77

 
—

 
851

Repayments of membership initiation deposits
—

 
(2,347
)
 
(669
)
 
—

 
(3,016
)
Net intercompany transactions
—

 
(11,912
)
 
2,296

 
9,616

 
—

Net cash used in financing activities
(3,898
)
 
(22,934
)
 
(1,695
)
 
9,616

 
(18,911
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
—

 
—

 
826

 
—

 
826

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
—

 
34,093

 
(2,559
)
 
—

 
31,534

CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
—

 
43,751

 
6,566

 
—

 
50,317

CASH AND CASH EQUIVALENTS - END OF PERIOD
$
—

 
$
77,844

 
$
4,007

 
$
—

 
$
81,851



93

Consolidating Condensed Statements of Cash Flows
For the Fiscal Year Ended December 27, 2011
 
(In thousands of dollars)
 
 
ClubCorp
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Condensed
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Net cash (used in) provided by operating activities
$
(2,485
)
 
66,234

 
$
10,925

 
$
—

 
74,674

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Purchase of property and equipment
—

 
(45,375
)
 
(2,565
)
 
—

 
(47,940
)
Acquisitions of clubs
—

 
(22,756
)
 
—

 
—

 
(22,756
)
Proceeds from dispositions
—

 
339

 
212

 
—

 
551

Net change in restricted cash and capital reserve funds
—

 
(158
)
 
(124
)
 
—

 
(282
)
Return of capital in equity investments
—

 
486

 
—

 
—

 
486

Net intercompany transactions
6,977

 
—

 
—

 
(6,977
)
 
—

Net cash provided by (used in) investing activities
6,977

 
(67,464
)
 
(2,477
)
 
(6,977
)
 
(69,941
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Repayments of long-term debt
(2,325
)
 
(8,901
)
 
(1,658
)
 
—

 
(12,884
)
Debt issuance and modification costs
(2,167
)
 
—

 
(109
)
 
—

 
(2,276
)
Contribution from owners
—

 
3,197

 
—

 
—

 
3,197

Proceeds from new membership initiation deposits
—

 
383

 
40

 
—

 
423

Repayments of membership initiation deposits
—

 
(293
)
 
(65
)
 
—

 
(358
)
Net intercompany transactions
—

 
(1,399
)
 
(5,578
)
 
6,977

 
—

Net cash used in financing activities
(4,492
)
 
(7,013
)
 
(7,370
)
 
6,977

 
(11,898
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
—

 
—

 
951

 
—

 
951

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
—

 
(8,243
)
 
2,029

 
—

 
(6,214
)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
—

 
51,994

 
4,537

 
—

 
56,531

CASH AND CASH EQUIVALENTS - END OF PERIOD
$
—

 
$
43,751

 
$
6,566

 
$
—

 
$
50,317

 

94

Consolidating Condensed Statements of Cash Flows
For the Fiscal Year Ended December 28, 2010
 
(In thousands of dollars)
 
 
ClubCorp
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Consolidating
Eliminations
 
Consolidated
Condensed
CASH FLOWS FROM OPERATING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Net cash provided by operating activities
$
7,625

 
125,286

 
$
15,497

 
$
—

 
148,408

CASH FLOWS FROM INVESTING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Purchase of property and equipment
—

 
(41,302
)
 
(1,557
)
 
—

 
(42,859
)
Acquisitions of clubs
—

 
—

 
(7,443
)
 
—

 
(7,443
)
Proceeds from dispositions
—

 
3,346

 
11

 
—

 
3,357

Proceeds from insurance
—

 
2,530

 
—

 
—

 
2,530

Net change in restricted cash and capital reserve funds
—

 
9,200

 
4,416

 
—

 
13,616

Proceeds from notes receivable
—

 
14,000

 
—

 
—

 
14,000

Net intercompany transactions
(976,126
)
 
—

 
—

 
976,126

 
—

Net cash used in investing activities
(976,126
)
 
(12,226
)
 
(4,573
)
 
976,126

 
(16,799
)
CASH FLOWS FROM FINANCING ACTIVITIES:
 

 
 

 
 

 
 

 
 

Repayments of long-term debt
—

 
(905,602
)
 
(1,168
)
 
—

 
(906,770
)
Proceeds from new debt borrowings
725,000

 
1,071

 
4,000

 
—

 
730,071

Repayments of Revolver
—

 
(105,305
)
 
—

 
—

 
(105,305
)
Purchase of interest rate cap agreement
(208
)
 
—

 
—

 
—

 
(208
)
Sale of interest rate cap agreement
—

 
150

 
—

 
—

 
150

Debt issuance and modification costs
(16,819
)
 
—

 
—

 
—

 
(16,819
)
Contribution from owners
260,528

 
—

 
—

 
—

 
260,528

Distribution to noncontrolling interests
—

 
—

 
(416
)
 
—

 
(416
)
Distribution to KSL affiliates attributable to the ClubCorp Formation
—

 
(110,537
)
 
—

 
73,490

 
(37,047
)
Change in membership initiation deposits
—

 
1,325

 
155

 
—

 
1,480

Net intercompany transactions
—

 
990,987

 
(14,861
)
 
(976,126
)
 
—

Net cash provided by (used in) financing activities
968,501

 
(127,911
)
 
(12,290
)
 
(902,636
)
 
(74,336
)
CASH FLOWS FROM DISCONTINUED NON-CORE ENTITIES:
 
 
 
 
 
 
 
 
 
Net cash used in operating activities of discontinued Non-Core Entities
—

 
—

 
(7,951
)
 
—

 
(7,951
)
Net cash used in investing activities of discontinued Non-Core Entities
—

 
—

 
(6,614
)
 
—

 
(6,614
)
Net cash provided by (used in) financing activities of discontinued Non-Core Entities
—

 
—

 
14,169

 
(73,490
)
 
(59,321
)
Net cash used in discontinued Non-Core Entities
—

 
—

 
(396
)
 
(73,490
)
 
(73,886
)
EFFECT OF EXCHANGE RATE CHANGES ON CASH
—

 
—

 
(820
)
 
—

 
(820
)
NET DECREASE IN CASH AND CASH EQUIVALENTS
—

 
(14,851
)
 
(2,582
)
 
—

 
(17,433
)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD
—

 
66,845

 
7,119

 
—

 
73,964

CASH AND CASH EQUIVALENTS - END OF PERIOD
$
—

 
$
51,994

 
$
4,537

 
$
—

 
$
56,531



95

18. RELATED PARTY TRANSACTIONS
 
During 2009, we recorded a note receivable due in 2012 of $14.0 million from the sale of a business, sports and alumni club to an affiliate of KSL. The note was repaid in June 2010. We realized $0.5 million in interest related to this note in the fiscal year ended December 28, 2010.

We have entered into a management agreement with an affiliate of KSL, pursuant to which we are provided financial and management consulting services in exchange for an annual fee of $1.0 million. In the event of a future financing, refinancing or direct or indirect sale of all or substantially all of our equity or assets, the management company may also be entitled to receive a fee equal to 1% of the lenders’ maximum commitments, in the case of a financing or refinancing, or 1% of the total consideration paid, in the case of a sale. No such fee was required in connection with the ClubCorp Formation in 2010. In addition, we have agreed to reimburse the management company for all of its reasonable out-of-pocket costs and expenses incurred in providing management services to us and certain of our affiliates. During the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010 we paid the affiliate of KSL approximately $1.0 million, $1.0 million and $1.0 million, respectively, in management fees.

In 2010, investment vehicles managed by affiliates of KSL contributed $260.5 million as equity capital to ClubCorp.
 
During the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010 we paid $0.2 million, $0.3 million and $0.0 million, respectively, to affiliates of KSL for consulting services and private party events. During the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010 we paid $0.6 million, $0.9 million and $0.0 million to Non-Core Entities for private party events. In addition, during the fiscal year ended December 25, 2012 we received $0.2 million from an affiliate of KSL for taxes paid on their behalf.
 
As of December 25, 2012 we had receivables of $0.2 million and payables of $0.2 million and as of December 27, 2011, we had receivables of $0.2 million, for outstanding advances from golf and business club ventures in which we have an equity method investment.  We recorded $0.6 million, $0.6 million and $0.5 million in the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010 respectively, in management fees from these ventures. As of December 25, 2012 and December 27, 2011, we had a receivable of $1.9 million and $1.9 million, respectively, for volume rebates from the supplier firm in which we have an equity method investment. See Note 5.
 
We have entered into arrangements whereby members of certain resorts and clubs owned by affiliates of KSL can pay an upgrade charge to have access to our clubs and facilities. We have revenue sharing arrangements with such resorts and clubs whereby we agree to split the amount of the upgrade charges respectively with such entities. We recognized and collected $0.2 million, $0.2 million and $0.4 million during the fiscal years ended December 25, 2012, December 27, 2011 and December 28, 2010, respectively, in revenue associated with these arrangements.

We hold an equity method investment in Avendra, LLC, a purchasing cooperative of hospitality companies. Transactions with Avendra, LLC are described in Note 5.

The Company joins in the filing of a consolidated federal income tax return with Holdings, whereby we remit our federal income taxes through Holdings. See Notes 10 and 13.

Transactions with related parties prior to and during the ClubCorp Formation are described in Notes 1 and 2.


96

19. QUARTERLY RESULTS OF OPERATIONS (unaudited)

The following table sets forth the historical unaudited quarterly financial data for the periods indicated. The information for each of these periods has been prepared on the same basis as the audited consolidated financial statements and, in our opinion, reflects all adjustments necessary to present fairly our financial results. Operating results for previous periods do not necessarily indicate results that may be achieved in any future period.
 
 
For the sixteen weeks ended
 
For the twelve weeks ended
2012
 
December 25, 2012
 
September 4, 2012
 
June 12, 2012
 
March 20, 2012
Total revenues
 
$
239,185

 
$
179,997

 
$
186,056

 
$
149,706

Direct and selling, general and administrative expenses
 
221,472

 
163,555

 
164,549

 
142,919

Loss from continuing operations
 
(2,463
)
 
(1,687
)
 
(1,691
)
 
(9,535
)
Net loss
 
(2,804
)
 
(12,237
)
 
(1,670
)
 
(9,582
)
Net loss attributable to ClubCorp
 
(2,918
)
 
(12,252
)
 
(1,837
)
 
(9,569
)

 
 
For the sixteen weeks ended
 
For the twelve weeks ended
2011
 
December 27, 2011
 
September 6, 2011
 
June 14, 2011
 
March 22, 2011
Total revenues
 
$
226,967

 
$
173,370

 
$
176,438

 
$
143,187

Direct and selling, general and administrative expenses
 
220,591

 
167,318

 
161,924

 
140,984

Loss from continuing operations
 
(12,002
)
 
(9,296
)
 
(2,626
)
 
(10,716
)
Net loss
 
(12,383
)
 
(9,198
)
 
(2,461
)
 
(10,856
)
Net loss attributable to ClubCorp
 
(12,550
)
 
(9,345
)
 
(2,763
)
 
(10,815
)

20. SUBSEQUENT EVENTS
 
On December 26, 2012, we declared a cash dividend of $35.0 million to the owners of our common stock. This dividend was paid on December 27, 2012.


97

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.

ITEM 9A. CONTROLS AND PROCEDURES
 
Included in this Form 10-K are certifications of our Chief Executive Officer and our Chief Financial Officer, which are required in accordance with Rule 15d-14 of the Securities Exchange Act of 1934, as amended (“Exchange Act”).  This section includes information concerning the controls and controls evaluation referred to in the certifications.

Evaluation of Disclosure Controls and Procedures
 
Our Chief Executive Officer and Chief Financial Officer, with the assistance of senior management personnel, have conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 15d-15(e) of Exchange Act) as of December 25, 2012. We perform this evaluation on a quarterly basis so that the conclusions concerning the effectiveness of our disclosure controls and procedures can be reported in our annual and quarterly reports filed under the Exchange Act. Based on this evaluation, and subject to the limitations described below, our Chief Executive Officer and our Chief Financial Officer have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 25, 2012.
 
Management's Report on Internal Control over Financial Reporting
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework set forth in Internal Control - Integrated Framework, our management concluded that our internal control over financial reporting was effective as of December 25, 2012
 
Change in Internal Control over Financial Reporting
 
There were no changes in our internal control over financial reporting during the quarter ended December 25, 2012 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
Limitations on Effectiveness of Controls
 
Our management, including our Chief Executive Officer and the Chief Financial Officer, does not expect that our disclosure controls and procedures or internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can only provide reasonable, not absolute, assurances that the objectives of the control system are met. The design of a control system reflects resource constraints, and the benefits of controls must be considered relative to their costs. Because there are inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of error or fraud, if any, have been or will be detected.

ITEM 9B. OTHER INFORMATION

None.


98

PART III — OTHER INFORMATION

ITEM 10.   DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
Executive Officers and Directors
 
The following table sets forth information about our executive officers and directors as of March 11, 2013:

Name
 
Age
 
Position
Eric L. Affeldt
 
55

 
President, Chief Executive Officer and Director
Curtis D. McClellan
 
45

 
Chief Financial Officer and Treasurer
Mark A. Burnett
 
48

 
Executive Vice President of Golf & Country Clubs
David B. Woodyard
 
55

 
Executive Vice President of Business & Sports Clubs
James K. Walters
 
50

 
Executive Vice President of Sales & Revenue
Blake S. Walker
 
48

 
Chief Acquisitions and Development Officer
Daniel T. Tilley
 
50

 
Chief Information Officer and Executive Vice President
Ingrid J. Keiser
 
52

 
General Counsel, Secretary and Executive Vice President of People Strategy
Martin J. Newburger
 
40

 
Director
Eric C. Resnick
 
40

 
Director
Michael S. Shannon
 
54

 
Chairman of the Board and Director
Steven S. Siegel
 
50

 
Director
Bryan J. Traficanti
 
41

 
Director

Eric L. Affeldt has served as our Chief Executive Officer since December 2006 and as a director since 2006. Prior to joining us, he served as a principal of KSL Capital Partners, LLC. Mr. Affeldt also previously served as president and chief executive officer of KSL Fairways Golf Corporation from January 1995 to June 1998, vice president and general manager of Doral Golf Resort and Spa in Miami and the combined PGA West and La Quinta Resort and Club in California from June 1998 to June 2000 and was a founding partner of KSL Recreation Corporation. In addition, Mr. Affeldt was president of General Aviation Holdings, Inc. from January 2000 to March 2005. He is currently a national vice president of the Muscular Dystrophy Association, a member of the World Presidents' Organization, and also serves on the board of directors and as the non-executive chairman for Cedar Fair LP. He holds a B.A. in political science and religion from Claremont McKenna College. As a member of the Board of Directors, Mr. Affeldt contributes his knowledge of the resort and recreation industry, as well substantial experience developing corporate strategy and assessing emerging industry trends and business operations. Mr. Affeldt also brings his insight into the proper functioning and role of corporate boards of directors, gained through his years of service on various boards of directors.
 
Curtis D. McClellan has served as our Chief Financial Officer and Treasurer since November 2008. Prior to that he served as vice president of finance and controller for FedEx Office and Print Services, Inc. from March 2003 to November 2008. Mr. McClellan has worked in a number of retail-oriented, multi-store companies, including Digital Generation Systems, Inc. from January 2002 to March 2003, GroceryWorks.com, LLC from May 2000 to December 2001, and Randall's Food Markets, Inc. from March 1991 to May 2000. He currently serves on the board of managers for Avendra, LLC. Mr. McClellan holds a B.S in accounting from Abilene Christian University and is a Certified Public Accountant.
 
Mark A. Burnett has served as our Executive Vice President of Golf & Country Clubs since December 2006. Prior to that he served as chief operating officer for American Golf Corporation from January 2000 to December 2004. Mr. Burnett previously served as president and chief executive officer from June 1998 to December 1999 and chief operating officer from September 1996 to June 1998 for KSL Fairways Golf Corporation, and as vice president of operations for Golf Enterprises, Inc. from January 1993 to August 1996. Mr. Burnett holds a B.S. in business management from Indiana University.
 
David B. Woodyard has served as our Executive Vice President of Business and Sports Clubs since February 2011 having previously served in the same role from May 2003 until August 2009 when he became the Executive Vice President of New Business Development. Mr. Woodyard joined us in 1983 and as served as a general manager of various business and sports clubs, a regional vice president, and as a senior vice president. Mr. Woodyard attended Ohio State University.

James K. Walters has served as our Executive Vice President Sales & Revenue since January 2010 and previously as Executive Vice President of Sales and Marketing from July 2008 to January 2010. Prior to joining us, Mr. Walters served as group president of hospitality and real estate for Kohler Company from May 2006 to July 2008. Mr. Walters also served as

99

executive vice president of operations from August 2005 to January 2006, senior vice president of operations from March 2004 to August 2005, and senior vice president of sales from August 2000 to February 2004 for Wyndham International. Mr. Walters holds a B.S. in hotel administration from the University of New Hampshire, Whittemore School of Business.

Blake S. Walker has served as our Chief Acquisitions and Development Officer since January 2010. He previously served as a co-founder and partner of Pegasus Golf Partners, LLC from December 2002 to December 2009. Prior to that, he served as our vice president of new business from May 1999 to May 2000 and as our senior vice president of new business from June 2000 to November 2002. Mr. Walker’s past experience also includes serving as director of acquisitions at KSL Fairways Golf Corporation from October 1993 to May 1999. Mr. Walker holds a B.A. from Southern Methodist University and currently serves as an advisory board member at the Southern Methodist University Cox School of Business. Mr. Walker's employment with us will terminate on April 2, 2013.
 
Daniel T. Tilley has served as our Chief Information Officer and Executive Vice President since May 2007. Prior to joining us, he served at BrightStar Golf Group, LLC, where he was a founding member of the management team and his roles included both chief information officer and chief financial officer from December 2004 to May 2007, as well as serving as a consultant from November 2003 to December 2004. Mr. Tilley's past experience also includes serving as vice president of finance and chief information officer at Spectrum Clubs, Inc. from September 1999 to January 2003. He also served as chief information officer with both Cobblestone Golf Group, Inc. from April 1998 to June 1999 and KSL Fairways Golf Corporation from July 1993 to April 1998. Mr. Tilley holds a B.S. in computer science and mathematics from the University of Pittsburgh.
 
Ingrid J. Keiser has served as our General Counsel, Secretary, and Executive Vice President People Strategy since July 2008 and previously as chief legal officer from July 2007 to July 2008. Prior to that, Ms. Keiser served as an attorney at American Airlines from August 2004 to July 2007. She previously served as assistant general counsel and assistant secretary for Vail Resorts, Inc. from January 1997 to August 2004, and as senior counsel and secretary for Ralston Resorts, Inc. (formerly known as Keystone Resorts Management, Inc.) from May 1992 to January 1997 and as associate counsel from May 1989 to May 1992. She holds a J.D. from the University of Wisconsin Law School, and a B.A. in international relations from University of California at Davis.
 
Martin J. Newburger has served as a director since 2006. He became a partner of KSL Capital Partners, LLC in December 2012, having previously served as a principal since July, 2006. Prior to joining KSL, Mr. Newburger was a director at Citigroup, focusing on lodging and leisure investment banking clients, from 2005 to 2006. He was a director at Deutsche Bank, with a similar client focus, from 1998 to 2005. He holds a B.A. from the University of Pennsylvania. As a member of the Board of Directors, Mr. Newburger contributes his financial expertise gained from advising clients on various capital markets transactions. Mr. Newburger also brings his insight into the proper functioning of corporate boards of directors gained through his years with Western Athletic Clubs as well as his time advising corporate clients on mergers and acquisitions as an investment banker.

Eric C. Resnick has served as a director since 2006. He became a managing director of KSL Capital Partners, LLC upon its founding in 2005. Prior to that, he served as founder and chief financial officer of KSL Resorts from 2004 to 2005.  Mr. Resnick also previously served as chief financial officer of KSL Recreation Corporation from 2001 to 2004. His past career experience also includes serving at Vail Resorts, Inc. from 1996 to 2001, where his roles included vice president, strategic planning and investor relations and corporate treasurer, as well as serving as a consultant with McKinsey and Company. He currently serves on the board of directors of Whistler Blackcomb Holdings Inc. He holds a B.A. in mathematics and economics from Cornell University. As a member of the Board of Directors, Mr. Resnick contributes his financial expertise and draws on his years of experience in the resort and recreation industry. Mr. Resnick also brings his insight into the proper functioning and role of corporate boards of directors, gained through his years of service on various boards of directors.
 
Michael S. Shannon has served as a director since 2006. He has served as a managing director of KSL Capital Partners, LLC since its founding in 2005. He previously served as co-founder and chief executive officer of KSL Resorts from 2004 to 2005, and served as founder, president and chief executive officer of KSL Recreation Corporation from 1992 to 2004. Prior to establishing KSL Recreation, he served as president and chief executive officer of Vail Associates, Inc. from 1986 to 1992. He holds a Bachelor of Business Administration from the University of Wisconsin and a Master of Management in accounting and finance from Northwestern University's Kellogg School of Management. As a member of the Board of Directors, Mr. Shannon contributes his knowledge of the resort and recreation industry, as well substantial experience developing corporate strategy and assessing emerging industry trends and business operations. Mr. Shannon also brings his insight into the proper functioning and role of corporate boards of directors, gained through his years of service on various boards of directors.
 
Steven S. Siegel has served as a director since 2006. He has served as a partner at KSL Capital Partners, LLC since 2005. Prior to that, he was a partner of Brownstein Hyatt & Farber, P.C. from 1995 to 2005, where he served as chair of the Corporate and Securities Department and as a member of the executive committee. From 1990 through 1995, he was with

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Kirkland & Ellis LLP, becoming a partner in 1993. He previously served as an associate with Cravath, Swaine & Moore from 1987 to 1990. He holds a J.D. from the University of Chicago and a B.A. in Economics from the Wharton School of the University of Pennsylvania. As a member of the Board of Directors, Mr. Siegel contributes his legal expertise gained in his 18 years advising private equity and corporate clients on securities transactions and mergers and acquisitions. Mr. Siegel also brings his knowledge of travel and leisure companies from his years as a partner with KSL Capital Partners, LLC.
 
Bryan J. Traficanti has served as a director since 2012. Since 2006, he has served as a portfolio manager at KSL Capital Partners, LLC. Mr. Traficanti's portfolio companies have included the Company since its acquisition by affiliates of KSL. Prior to that, he served as Vice President of Asset Management at Destination Hotels & Resorts from 2004 to 2006. From 2001 to 2004, Mr. Traficanti served as a Director of Finance for KSL Resorts, and from 1998 to 2001, he worked in Strategic Planning and Investor Relations at Vail Resorts. Prior to that, he served in public accounting at KPMG Peat Marwick from 1994 to 1998. He holds a Bachelors Degree from the State University of New York at Albany and is a Certified Public Accountant. As a member of the Board of Directors, Mr. Traficanti contributes his financial and accounting expertise and draws on his years of experience in the resort and recreation industry. 

Our executive officers are appointed by our board of directors and serve until their successors have been duly elected and qualified. There are no family relationships among any of our directors or executive officers.
 
Board of Directors
 
Our Company's board of directors (the “Board”) currently consists of six members. Our bylaws permit our Board to establish by resolution the authorized number of directors, and six directors are currently authorized.
 
Committees of the Board of Directors
 
Our Board has established an audit committee. Our audit committee is currently comprised of Messrs. Newburger, Siegel and Traficanti, each of whom is a non-employee member of our board of directors. Mr. Traficanti was appointed as the chairperson of our audit committee in fiscal year 2012.
 
Compensation Committee Interlocks and Insider Participation
 
Our Board does not have a compensation committee. The Board has performed the functions of a typical compensation committee with input from our President and Chief Executive Officer, Mr. Affeldt, and our General Counsel, Secretary and Executive Vice President of People Strategy, Ms. Keiser. None of our executive officers has served as a member of a compensation committee (or other committee serving an equivalent function) of any other entity whose executive officers served as a director of our company.
 
Director Compensation
 
None of our directors, including our employee director, received any compensation from us for service on the Board.
 
Director Independence
 
Our Board has determined that none of our directors qualify as independent directors within the meaning of Nasdaq Marketplace Rule 5605(a), which is the definition used by our Board for determining the independence of our directors. Our Board is not comprised of a majority of independent directors, and its committees are not comprised solely of independent directors, because we are a privately held company and not subject to applicable listing standards.

Code of Business Conduct and Ethics
 
The Company has adopted a Code of Business Conduct and Ethics (the “Code of Ethics”) applicable to all employees, executive officers and directors that addresses legal and ethical issues that may be encountered in carrying out their duties and responsibilities, including the requirement to report any conduct they believe to be a violation of the Code of Ethics. The Code of Ethics is available on the Corporate Governance page of our internet website, www.clubcorp.com. If we ever were to amend or waive any provision of our Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or any person performing similar functions, we intend to satisfy our disclosure obligations with respect to any such waiver or amendment by posting such information on our internet website set forth above rather than by filing a Form 8-K.


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ITEM 11.  EXECUTIVE COMPENSATION

COMPENSATION DISCUSSION AND ANALYSIS
 
Named Executive Officers
 
For the fiscal year ended December 25, 2012, the following individuals were our Named Executive Officers (or NEOs):
 
•
Eric L. Affeldt, our President and Chief Executive Officer
 
•
Curtis D. McClellan, our Chief Financial Officer and Treasurer
 
•
Mark A. Burnett, our Executive Vice President of Golf & Country Clubs
 
•
Blake S. Walker, our Chief Acquisitions and Development Officer (employment will terminate on April 2, 2013)
 
•
James K. Walters, our Executive Vice President of Sales & Revenue
 
Overview of Compensation Policies and Objectives
 
As a privately-held company, we have not had a formal compensation committee and, instead, have been operating under the direction of our Board. The Board has performed the functions of a typical compensation committee, with input from Mr. Affeldt, our President and Chief Executive Officer (hereafter, “Chief Executive Officer”), and Ms. Keiser, our General Counsel, Secretary and Executive Vice President of People Strategy (hereafter, “EVP of People Strategy”). The Board has historically made and will continue to make compensation decisions in relation to the compensation of our NEOs, following consideration of recommendations from our Chief Executive Officer and EVP of People Strategy.
 
Our general compensation arrangements are guided by the following principles and business objectives:
 
•
align the interests of our executive officers with our interests by tying both annual and long-term incentive compensation to financial and operations performance and, ultimately, to the creation of enterprise value;
 
•
attract and retain high caliber executives and key personnel by offering total compensation that is competitive with that offered by similarly situated companies and rewards personal performance; and
 
•
support business growth, financial results and the expansion of our network of clubs and facilities.
 
Historically, we have generally not used, and have not had the need to use, many of the more formal compensation practices and policies employed by publicly traded companies subject to the executive compensation disclosure rules of the Securities and Exchange Commission and Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”).

Compensation Decision-Making
 
We have relied, and will continue to rely, on our judgment in making compensation decisions after reviewing our performance, including our short- and long-term strategies, current economic and market conditions, and carefully evaluating an executive's performance during the year against established goals, leadership qualities, operational performance, business responsibilities, the executive's career with us, current compensation arrangements and long-term potential to enhance enterprise value. Our main objective in establishing compensation arrangements has been and will be to set criteria that are consistent with our business strategies. Generally, in evaluating performance, we have and will continue to review the following criteria:
 
•
strategic goals and objectives;
 
•
individual management objectives that relate to our strategies;
 

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•
achievement of specific operational goals of the executive officers, including the acquisition of strategic properties; and

•
our overall financial performance.
 
Our executive compensation programs and policies have and will continue to depend on the position and responsibility of each NEO and will remain consistent with our objectives. However, we do not specifically weigh these goals and objectives in our assessment of executive compensation arrangements, and we may not rely on these goals exclusively in making compensation decisions.
 
Historically, we have offered a mix of guaranteed and performance-based compensation to our NEOs. We attempt to achieve an appropriate mix between these two types of compensation, as well as an appropriate balance between cash and equity-based compensation. We do not have formal policies relating to the allocation of total compensation among the various elements of compensation which we provide. Our current compensation structure is designed to be competitive with companies with whom we compete for executive talent and to be fair and equitable to us, our executives and our equity holders. We believe that our current compensation package matches the expectations of our executives, helps reward them for performance in the short-term and induces them to contribute to the creation of enterprise value over the long-term.
 
Role of our Chief Executive Officer in Compensation Decisions
 
All compensation decisions for our NEOs have been determined by our Board, with input from our Chief Executive Officer and our EVP of People Strategy. In this regard, our Chief Executive Officer will continue to consult with senior executives in all areas of our organization, review the performance of our NEOs and provide annual recommendations for individual management objectives and compensation levels for our NEOs to the Board. Our Chief Executive Officer's compensation package is reviewed and approved by the Board after receiving input from him on his own compensation.
 
Compensation Strategies and Use of Peer Groups
 
We do not utilize consultants or specific peer groups in developing the compensation packages for our NEOs. Instead, executive compensation is determined by our Board using its own judgment, following input from our Chief Executive Officer and our EVP of People Strategy, as well as the experience of the Board members with compensation structures and programs in other companies with which they have been associated or on whose boards of directors they have served. Going forward, we may establish a compensation committee that will have the discretion to utilize consultants and/or benchmarking and peer group analyses in determining and developing compensation packages for our NEOs; however, we do not currently have plans to establish such a committee.
 
Elements of Our Executive Compensation Program
 
Historically, and for fiscal year 2012, our executive compensation program consisted of the following elements:
 
(1)                                  base salary;
 
(2)                                  annual discretionary and long-term cash bonuses;
 
(3)                                  equity-based awards;
 
(4)                                  severance payments and change of control protections; and
 
(5)                                  health and retirement benefits and perquisites, including relocation benefits and life insurance benefits.
 
Base Salary
 
The annual base salaries of our NEOs are set with the objective of attracting and retaining highly-qualified individuals for the relevant positions and rewarding individual performance. When negotiating salary levels in connection with hiring an executive, and also when subsequently adjusting individual executive salary levels, we consider salary ranges for comparable positions at companies in our industry, the executive's responsibilities, experience, potential, individual performance and contribution to our business; however, none of these factors are subject to any specific performance targets, nor given a specific weighting in the compensation decision-making process. We also consider other factors such as the unique skills of our NEOs, demand in the labor market and succession planning. We do not engage consultants to conduct any salary surveys or undertake any formal peer group analysis for purposes of determining the compensation of our NEOs.

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As of December 25, 2012, the annual base salaries payable to our NEOs were as follows:
 
Eric L. Affeldt
$
500,000

Curtis D. McClellan
$
310,000

Mark A. Burnett
$
365,000

Blake S. Walker
$
300,000

James K. Walters
$
310,000

 
Based on a review of our NEOs' base salaries for fiscal year 2012, we decided to increase the annual base salaries for Mr. Burnett from $350,000 to $365,000 effective December 28, 2011, and Mr. Walters from $300,000 to $310,000 effective as of December 28, 2011, based on the level of their responsibilities with us and consideration of the general compensation levels for similar positions within our industry. None of the other NEOs received a salary adjustment in fiscal year 2012.
 
Annual Cash Bonuses
 
Each of our NEOs is eligible to earn an annual cash bonus up to an amount equal to a specified percentage of such NEO's salary (see “—Executive Employment Agreements,” below). Our overall financial performance generally determines what percentage, if any, of a NEO's annual target bonus will be paid out. For fiscal year 2012, the Board established a formal bonus program with a minimum Adjusted EBITDA threshold that must be attained before any bonuses may be paid. Even though the minimum pre-established Adjusted EBITDA threshold for fiscal year 2012 was attained, the Board determined in its sole discretion what bonus awards were to be paid under the program. Specifically, discretionary bonuses in respect of fiscal year 2012 bonus program were paid as follows:

Eric L. Affeldt
$
100,000

Curtis D. McClellan
$
90,000

Mark A. Burnett
$
135,000

James K. Walters
$
90,000


Mr. Walker was paid a discretionary bonus of $35,000 for his role in and contribution to the acquisition of the Hartefeld Golf Club in Avondale, Pennsylvania and an additional discretionary bonus of $90,000 due to the first year performance of the three Long Island, New York area properties (as Mr. Walker played a key role in our acquisition of such properties), resulting in a total bonus of $125,000 for fiscal year 2012.
 
The bonus potential for our NEOs for fiscal year 2013 remains unchanged from their bonus potential for fiscal year 2012. Although the Board intends to establish a minimum Adjusted EBITDA threshold that must be attained before any bonuses may be paid, our bonus program for our NEOs for fiscal year 2013 remains discretionary. Assuming the minimum pre-established Adjusted EBITDA threshold for fiscal year 2013 is established and attained, the Board will determine, in its sole discretion, what bonus awards, if any, will be paid under the program.

For purposes of the fiscal year 2012 and 2013 bonus programs, “Adjusted EBITDA” means earnings before interest, taxes, depreciation and amortization, but excluding certain items such as impairments and write-offs, changes in interest rate cap agreements, gains or losses due to discontinued or divested operations and non-recurring or other similar events. The Adjusted EBITDA threshold may be adjusted by the Board from time to time for unusual or non-recurring events.
 
Long-Term Incentive Plan
 
In fiscal year 2011, we adopted a long-term cash incentive plan (“LTIP”) pursuant to which participants, including our NEOs, are eligible to earn a cash award at the end of a three-year period, based on our achieving or exceeding a threshold Adjusted EBITDA performance goal for fiscal year 2013. The Adjusted EBITDA performance goal for fiscal year 2013 is defined in a substantially similar manner as for our fiscal year 2012 and 2013 bonus programs, as discussed above, and will be measured following the completion of fiscal year 2013.


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Our NEOs are eligible to receive a maximum cash payment under the LTIP in the amounts set forth below based upon their position and base salary, subject to each executive's continued employment with us on the date of payment of the cash award: 
Named Executive Officer
 
Maximum Payout in FY 2014
Eric L. Affeldt
 
$
700,000

Curtis D. McClellan
 
$
310,000

Mark A. Burnett
 
$
400,000

Blake S. Walker
 
$
300,000

James K. Walters
 
$
300,000

 
The actual payout, if any, will be determined by the Board in its sole discretion. Mr. Walker will forfeit his eligibility to receive any payment under the LTIP when his employment terminates on April 2, 2013.
 
Equity-Based Awards
 
We believe that successful performance over the long term is aided by the use of equity-based awards which create an ownership culture among our employees that provides an incentive to contribute to the continued growth and development of our business.  Equity-based awards also allow for a portion of our executive compensation to be "at-risk" and directly tied to the performance of our business.

Converted Units of Fillmore

In 2007, the Management Profits Interest Program (“MPI”) was established under the terms of the Amended and Restated Limited Liability Company Agreement of Fillmore (as amended, the “LLC Agreement”), to provide our employees, including our executives, as well as our directors and consultants, with incentives to align their interests with the interests of our Sponsor, whose affiliates' hold a majority interest in us.

Our NEOs were granted awards of Class B units under the MPI, which constituted grants of time-vesting non-voting profits interests in Fillmore that entitled them to participate in the appreciation in the value of Fillmore above an applicable threshold and to thereby share in our future profits. The grant of equity-based awards to our NEOs in the form of Class B units was intended to encourage the creation of long-term value for our equity holders by helping to align the interests of our NEOs with those of our indirect equity holders and promote employee retention and ownership, all of which serve our overall compensation objectives. The amount of the equity-based awards granted to an NEO was determined by taking into consideration each NEO's position and responsibilities, overall individual performance, and our strategic goals, financial condition and performance, although none of these factors were given any specific weighting. The grants of time-vesting Class B unit awards were intended to incentivize our NEOs to drive long-term growth and value appreciation. Assuming an NEO remained employed on each applicable vesting date, all of the Class B units were scheduled to vest as to 40% on the second anniversary of the grant date, with the remainder of the award vesting in 20% increments on the following three anniversaries of the grant date.

In connection with the ClubCorp Formation (as defined in Note 2 of Item 8 "Financial Statements and Supplementary Data" included in this Form 10-K), Fillmore converted all of the outstanding Class B unit awards, including the Class B units held by our NEOs, into Class A units (the “Converted Units”) on the basis of an exchange ratio that took into account the number of Class B units granted, the applicable threshold value applicable to such units and the value of the distributions that the participant would have been entitled to receive had Fillmore been liquidated on November 30, 2010 in accordance with the terms of the distribution “waterfall” set forth in the LLC Agreement. Any Converted Units that were not vested at the time of the conversion will continue to vest in accordance with the original vesting schedule applicable to such units. All Converted Units also continue to be subject to the terms and conditions of the LLC Agreement, as further amended and restated as of November 30, 2010 (the “Second Amended LLC Agreement”). No Class B units were awarded to our NEOs in fiscal year 2012.


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 Class C Units of Fillmore

In connection with the ClubCorp Formation, Fillmore adopted a new management profits interest program under the Second Amended LLC Agreement for our executives, employees, directors and consultants that is structured in a similar manner as the MPI described above and is designed to achieve the same objectives as the MPI. In fiscal year 2011, Fillmore issued awards of Class C units, under the terms of the Second Amended LLC Agreement. Class C units are time-vesting, non-voting profits interests in Fillmore that entitle our NEOs to participate in the appreciation in the value of Fillmore above an applicable threshold and to thereby share in Fillmore's future profits. The number of Class C units issued to our NEOs in fiscal year 2011 is listed in the table below:
 
Named Executive Officer
 
Number of
Class C Units
Eric L. Affeldt
 
1,300

Curtis D. McClellan
 
675

Mark A. Burnett
 
800

Blake S. Walker
 
750

James K. Walters
 
675

 
The Class C unit awards vest in four equal annual installments, with the first 25% vesting on December 31, 2011, and each additional 25% vesting on each of the following three anniversaries of December 31, 2011. No Class C units were awarded to our NEOs in fiscal year 2012. Mr. Walker will forfeit his Class C units when his employment terminates on April 2, 2013.

Restricted Stock Units Awarded under Holding's 2012 Stock Award Plan
 
On March 15, 2012, ClubCorp Holdings, Inc. (“Holdings”), one of our indirect parent companies, adopted the ClubCorp Holdings, Inc. 2012 Stock Award Plan (the “Holdings Stock Plan”) to serve our objective to attract and retain key personnel and to provide a means for our employees, including our NEOs, as well as our directors and consultants, to acquire and maintain an interest in us, which interest may be measured by reference to the value of the common stock of Holdings.
 
The Holdings Stock Plan has a term of ten years after which no further awards may be granted, and provides for an aggregate amount of no more than 50,000 shares of Holdings common stock to be available for awards. Holdings' board of directors, or its delegate, will be authorized to award restricted stock unit awards, non-qualified stock options, incentive (qualified) stock options, stock appreciation rights, restricted stock awards, stock bonus awards, dividend equivalents, performance compensation awards (including cash bonus awards) or any combination of the foregoing. Holdings' board of directors, or its delegate, will have the authority to determine the terms and conditions of any agreements evidencing any awards granted under the Holdings Stock Plan, including the time or times at which the awards may be exercised or become vested and whether and under what circumstances an award may be exercised or become vested. Unless provided otherwise in the award agreement, restricted stock units will vest in four equal installments on each of the first four anniversaries of the grant date and Holdings' board of directors, or its delegate, may provide for the acceleration of the unvested units in the event of a Change of Control (as such term is defined in the Holdings Stock Plan). Unless provided otherwise in the award agreement, unvested units will be forfeited if the participant terminates employment or service prior to the applicable anniversary vesting date.

On April 1, 2012, Holdings' board of directors granted awards of restricted stock units (“RSUs”) to our NEOs under the terms of the Holdings Stock Plan, as listed in the table below:
 
Named Executive Officer
 
Number of
Restricted Stock Units
Eric L. Affeldt
 
5,601

Curtis D. McClellan
 
617

Mark A. Burnett
 
3,361

Blake S. Walker
 
617

James K. Walters
 
617


The RSUs awarded to our NEOs vest based upon the satisfaction of both the passage of time and a liquidity condition. The initial vesting event is a liquidity condition that is satisfied upon the first to occur of the following dates: (i) the date of a

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Change of Control, (ii) the date that is six months following the effective date of an initial public offering of Holdings or any of its direct or indirect parent companies (an “IPO”) or (iii) March 15th of the year following the year in which an IPO occurs. Whether or not a NEO is still employed with us on the date of an initial vesting event, the number of RSUs that vest on such initial vesting event is determined by the product obtained by multiplying the total number of RSUs granted to such NEO by a fraction, the numerator of which is the number of anniversaries that have elapsed from the vesting commencement date set forth in the RSU award agreement to the date the NEO is no longer employed by us and the denominator of which is three. If the NEO is employed by us on the date of an initial vesting event, then with respect to the RSUs that have not vested as of such initial vesting date, such RSUs will continue to vest at the rate of one-third per year on each anniversary of the vesting commencement date. Holding's board of directors granted larger RSU awards to each of Messrs. Affeldt and Burnett in recognition of their level of responsibility for our entire business and in order to make a larger portion of their annual compensation both be "at risk" and directly tied to the performance of our business. Mr. Walker will forfeit his unvested RSUs when his employment terminates on April 2, 2013.

Severance and Change in Control Benefits
 
We do not have a formal severance policy and, as a general matter, do not provide contractual severance protections to our NEOs. However, we have from time to time agreed to provide contractual severance protections pursuant to arm's-length negotiations of an executive officer's employment arrangement with us. In general, severance payments and benefits are intended to ease the consequences of an unexpected or involuntary termination of employment within the first two years of employment and to give an executive an opportunity to find new employment. Typically, the severance benefit ranges from six months to two years of base salary if the executive is terminated by us without cause within the first two years of employment. Rights to severance expire following two years of employment as we expect that the executive will have fully transitioned into his or her new role such that severance protection will no longer be appropriate after the expiration of the two-year severance protection period.
 
In addition, we may also enter into severance agreements with a terminating executive from time to time which agreements have in the past provided for severance benefits consisting of continued payment of base salary and continued club membership privileges for a period of time following termination of employment.
 
We do not generally provide change of control benefits to our executives and none of our NEOs currently have a right to receive severance upon termination for any reason; however, if Mr. Walters' Converted Units have not fully vested at the time of an “Approved Sale” or "Total Disposition” (as such terms are defined in the Second Amended LLC Agreement) of KSL's affiliates' investment in us, other than by means of an initial public offering, then Mr. Walters will be entitled to severance equal to one year of his base salary and any earned bonus (net of the value of his vested Converted Units at such time); provided that no such severance shall be payable if the value of his vested Converted Units at such time is equal to or greater than the value of such severance.
 
Health Benefits
 
We offer group health insurance coverage to all of our full-time employees. Because our employees, including our executive officers, are not eligible to participate in our group health plans for the first six months of their employment, we generally provide any executive who commences employment with us with a lump sum payment (plus a tax gross-up) equal to the difference between what the executive would have paid for health benefits under our plans and the executives' out-of-pocket costs for COBRA coverage under such executive's former employer's plan for a period of six months.
 
Retirement Benefits
 
We maintain a defined contribution pension plan, or the 401(k) Plan, for all full time employees with at least six months of service, including our NEOs. The 401(k) Plan provides that each participant may make pre-tax and post-tax contributions pursuant to certain restrictions; however, we do not provide any type of discretionary contribution or matching contribution.
 
We do not provide any non-qualified deferred compensation or defined benefit pension plans to any of our executive officers.
 
Perquisites
 
We typically compensate our executive officers in cash and equity rather than with perquisites, and do not view perquisites as a significant element of our total compensation structure. However, pursuant to our executive relocation policy, we typically reimburse executive officers who are required to relocate in connection with the commencement of their

107

employment with us. We also reimbursed expenses incurred by Mr. Walters for commuting in fiscal year 2012 from his primary residence in Wisconsin to our office in Dallas, Texas, including a tax gross-up on the amount of such expenses. In addition, we pay premiums pursuant to a life insurance policy on the life of Mr. Affeldt, which provides a death benefit to Mr. Affeldt's beneficiaries in the amount of $2 million.
 
All of our employees, including our executive officers, are entitled to complimentary use of our club facilities and other company-owned properties, as well as discounts on various products and services sold or provided at our facilities. In addition, our executives may elect to activate a membership without payment of an initiation fee or monthly dues at a company-owned club of their choosing. Because we do not incur any additional expense in connection with the provision of membership privileges to our executives and because such membership privileges are not substantially different than the general use privileges extended to our employees, we do not consider either club membership or club use privileges to be a company-provided perquisite.
 
Summary Compensation Table
 
The following table provides summary information concerning compensation paid or accrued by us to or on behalf of our NEOs for services provided to us during fiscal years 2011 and 2012:
 
Name and Position
 
Year
 
Salary
 
Bonus
 
Stock
Awards(3)
 
All Other
Compensation
 
Total
Eric L. Affeldt
 
2012
 
$
500,000

 
$
100,000

(1)
$
2,500,269

 
$
6,445

(4)
$
3,106,714

Chief Executive Officer and President
 
2011
 
$
490,865

 
$
70,000

 
$
—

 
$
6,445

 
$
567,310

 
 
 
 
 
 
 
 
 
 
 
 


Curtis D. McClellan
 
2012
 
$
310,000

 
$
90,000

(1)
$
275,427

 
$
—

 
$
675,427

Chief Financial Officer and Treasurer
 
2011
 
$
301,731

 
$
70,000

 
$
—

 
$
16,976

 
$
388,707

 
 
 
 
 
 
 
 
 
 
 
 
 
Mark A. Burnett
 
2012
 
$
365,000

 
$
135,000

(1)
$
1,500,340

 
$
—

 
$
2,000,340

Executive Vice President, Operations
   Golf & Country Club
 
2011
 
$
342,308

 
$
70,000

 
$
—

 
$
—

 
$
412,308

 
 
 
 
 
 
 
 
 
 
 
 
 
Blake S. Walker
 
2012
 
$
300,000

 
$
125,000

(2)
$
275,427

 
$
—

 
$
700,427

Chief Acquisitions and
   Development Officer (6)
 
2011
 
$
294,231

 
$
175,000

 
$
—

 
$
—

 
$
469,231

 
 
 
 
 
 
 
 
 
 
 
 
 
James K. Walters
 
2012
 
$
300,000

 
$
90,000

(1)
$
275,427

 
$
10,000

(5)
$
675,427

Executive Vice President, Sales &
   Revenue
 
2011
 
$
294,231

 
$
70,000

 
$
—

 
$
25,676

 
$
389,907

_________________________
(1)
Represents the discretionary bonus paid to each of Messrs. Affeldt, McClellan, Burnett and Walters in respect of fiscal year 2012.
                                  
(2)
Represents a discretionary bonus paid to Mr. Walker in connection with his role in and contribution to our acquisition of Hartefeld Golf Club in Avondale, Pennsylvania, and an additional discretionary bonus in connection with the first year performance of the three country club properties in the Long Island area of New York, which were acquired with Mr. Walker's assistance in fiscal year 2011.
                   
(3)
Represents the grant date fair value of RSUs granted under the Holdings Stock Plan as of April 1, 2012 to each of Messrs. Affeldt, McClellan, Burnett, Walker and Walters, as determined in accordance with GAAP. See Note of the notes to our consolidated financial statements for fiscal year 2012 included in this Form 10-K for our accounting policy concerning equity-based awards. The unvested RSUs held by Mr. Walker will be forfeited when his employment terminates on April 2, 2013.

(4)
Represents a payment of (i) $4,740 as reimbursement for a premium paid by Mr. Affeldt pursuant to his life insurance policy; (ii) $1,705 as a tax gross-up on the amount of the premium.
      

108

 (5)
Represents a reimbursement of Mr. Walters' expenses incurred in commuting from his primary residence in Wisconsin to our office in Dallas, Texas.

(6)
Mr. Walker's employment with us will terminate on April 2, 2013.

Grants of Plan-Based Awards in Fiscal Year 2012
 
The following table provides supplemental information relating to awards of RSUs made to our NEOs during fiscal year 2012. No Class B units or Class C units were granted to NEOs in fiscal year 2012.

 
 
 
 
All Other Stock Awards:
Name
 
Grant Date
 
Number of Restricted Stock Units #(1)
 
Grant date fair
value of  Restricted Stock Units awards ($)(2)
Eric L. Affeldt
 
April 1, 2012
 
5,601

 
$
2,500,269

Curtis D. McClellan
 
April 1, 2012
 
617

 
$
275,427

Mark A. Burnett
 
April 1, 2012
 
3,361

 
$
1,500,340

Blake S. Walker
 
April 1, 2012
 
617

 
$
275,427

James K. Walters
 
April 1, 2012
 
617

 
$
275,427

_________________________
(1)
No RSUs will vest until the first to occur of the following dates: (i) the date of a Change of Control, (ii) the date that is six months following the effective date of an IPO or (iii) March 15th of the year following the year in which an IPO occurs. Whether or not a NEO is still employed with us on the date of an initial vesting event, the number of RSUs that vest on such initial vesting event is determined by the product obtained by multiplying the total number of RSUs granted to such NEO by a fraction, the numerator of which is the number of anniversaries that have elapsed from the vesting commencement date to the date the NEO is no longer employed by us and the denominator of which is three. If the NEO is employed by us on the date of an initial vesting event, then with respect to the RSUs that have not vested as of such initial vesting date, such RSUs will continue to vest at the rate of one-third per year on each anniversary of the vesting commencement date. The unvested RSUs held by Mr. Walker will be forfeited when his employment terminates on April 2, 2013.
 
(2)
The amount shown represents the grant date fair value of restricted stock units granted under the Holdings Stock Plan as of April 1, 2012, as determined in accordance with GAAP. See Note of the notes to our consolidated financial statements for fiscal year 2012 included in this Form 10-K for our accounting policy concerning equity-based awards.

Outstanding Equity Awards at December 25, 2012
 
The following table provides information regarding outstanding equity awards held by our NEOs as of December 25, 2012:

 
 
All Other Stock Awards 
Name
 
Number of
 Converted Units that have
 not vested (#)(1)
 
Fair value of 
Converted Units that have 
not vested ($)(2)
 
Number of 
Class C units that have 
not vested (#)(3)
 
Fair value of 
Class C units that have
 not vested ($)(4)
 
Number of RSUs that have not vested (#)(5) 
 
Fair value of RSUs that have not vested ($)(6)
Eric L. Affeldt
 
—

 
$
—

 
975.00

 
$
326,549.58

 
5,601

 
$
2,784,858.33

Curtis D. McClellan
 
25.45

 
$
28,736.42

 
506.25

 
$
169,554.59

 
617

 
$
306,776.93

Mark A. Burnett
 
—

 
$
—

 
600.00

 
$
200,953.59

 
3,361

 
$
1,671,113.88

Blake S. Walker
 
—

 
$
—

 
562.50

 
$
188,393.99

 
617

 
$
306,776.93

James K. Walters
 
25.45

 
$
28,736.42

 
506.25

 
$
169,554.59

 
617

 
$
306,776.93

_________________________
(1)
Converted Units vest over a five year period commencing on November 15, 2008 for Mr. McClellan and July 9, 2008 for Mr. Walters.
 
(2)
Reflects the fair market value of a Class A unit as of December 25, 2012, which was determined by the board of directors of Fillmore to be $1,129.04.

109

 
(3)
Class C unit awards vest in four equal annual installments, with the first 25% vesting on December 31, 2011, and each additional 25% vesting on each of the following three anniversaries of December 31, 2011. The Class C units held by Mr. Walker will be forfeited when his employment terminates on April 2, 2013.
 
(4)
Reflects the fair market value of a Class C unit as of December 25, 2012, which was determined by the board of directors of Fillmore to be $334.92.

(5)
The RSUs will vest as is described in footnote (1) under Grants of Plan-Based Awards in Fiscal Year 2012. The unvested RSUs held by Mr. Walker will be forfeited when his employment terminates on April 2, 2013.

(6)
Reflects the fair market value of a share of Holdings common stock as of December 25, 2012, which was determined by the board of directors of Holdings to be $497.21.

Equity Awards Vested in Fiscal Year 2012
 
No RSUs vested in fiscal year 2012. The following table provides information regarding the vesting of Converted Units and Class C units during fiscal year 2012:
 
 
 
Stock Awards
Name
 
Number of Converted Units
acquired on vesting (#)
 
Value realized ($)(1)
 
 Number of Class C units acquired on vesting (#)
 
Value realized ($)(2)
Eric L. Affeldt
 
—

 
$
—

 
325.00

 
$
25,499.52

Curtis D. McClellan
 
25.45

 
$
28,474.99

 
168.75

 
$
13,240.13

Mark A. Burnett
 
—

 
$
—

 
200.00

 
$
15,692.01

Blake S. Walker
 
—

 
$
—

 
187.50

 
$
14,711.26

James K. Walters
 
25.45

 
$
27,644.04

 
168.75

 
$
13,240.13

_________________________
(1)
Reflects the fair market value of a Class A unit as of November 17, 2012 for Mr. McClellan and July 9, 2012 for Mr. Walters, which was determined by the board of directors of Fillmore to be $1,118.86 and $1,086.21, respectively, multiplied by the number of Converted Units vesting on such dates.

(2)
Reflects the fair market value of a Class C unit as of December 31, 2011, which was determined by the board of directors of Fillmore to be $78.46, multiplied by the number of Class C units vesting on such date.
 
Executive Employment Agreements
 
Eric L. Affeldt
 
We entered into a new employment agreement with Mr. Affeldt, effective as of March 1, 2011, pursuant to which he continues to serve as our President and Chief Executive Officer, and as a member of our Board. Mr. Affeldt's initial base salary was set at $500,000. Mr. Affeldt is eligible to earn a discretionary annual bonus of up to 100% of his current base salary.
 
On April 11, 2011, Mr. Affeldt was awarded 1,300 Class C units under the terms of the Second Amended LLC Agreement, which vest in four equal annual installments, with the first 25% installment having vested as of December 31, 2011.

On April 1, 2012, Mr. Affeldt was awarded 5,601 RSUs under the terms of the Holdings Stock Plan. No RSUs will vest until the first to occur of the following dates: (i) the date of a Change of Control, (ii) the date that is six months following the effective date of an IPO, or (iii) March 15th of the year following the year in which an IPO occurs. Whether or not Mr. Affeldt is still employed with us on the date of an initial vesting event, the number of RSUs that vest on such initial vesting event is determined by the product obtained by multiplying 5,601 by a fraction, the numerator of which is the number of anniversaries that have elapsed from the vesting commencement date to the date Mr. Affeldt is no longer employed by us and the denominator of which is three. If Mr. Affeldt is employed by us on the date of an initial vesting event, then with respect to the RSUs that have not vested as of such initial vesting date, such RSUs will continue to vest at the rate of one-third per year on each anniversary of the vesting commencement date.

Prior to joining us as President and Chief Executive Officer, Mr. Affeldt was a principal in KSL Capital Partners, LLC. Previously, Mr. Affeldt was compensated solely by a KSL affiliate, which compensation package included a pro-rata share in

110

the carried interest payable to certain KSL affiliates on account of profits earned by the Sponsor from its affiliates' investments in us, among other companies. Mr. Affeldt retained a portion of such total carried interest from such KSL's affiliates' investment, which interest remains subject to the same terms and conditions as if Mr. Affeldt had remained a principal in our Sponsor, except that continued vesting of the carried interest is subject to Mr. Affeldt's continued employment with us.
 
Curtis D. McClellan
 
We entered into an employment agreement with Mr. McClellan, effective as of November 24, 2008, pursuant to which he commenced serving as our Chief Financial Officer and Treasurer. Mr. McClellan's initial base salary was set at $280,000. Mr. McClellan was initially eligible to earn a discretionary annual bonus of up to 50% of his base salary, which percentage was increased to 70% in 2011.
 
Pursuant to the terms of the MPI, Mr. McClellan had received 500 Class B unit awards which vest over a five year period (commencing on November 15, 2008). In connection with the ClubCorp Formation, we converted Mr. McClellan's Class B units into Class A units. As of December 25, 2012, Mr. McClellan held a total of 226.03 Class A units (including 25.45 unvested units).
 
On April 11, 2011, Mr. McClellan was awarded 675 Class C units under the terms of the Second Amended LLC Agreement, which vest in four equal annual installments, with the first 25% installment having vested as of December 31, 2011.
 
On April 1, 2012, Mr. McClellan was awarded 617 RSUs under the terms of the Holdings Stock Plan, which vest upon the same terms and conditions as the RSUs granted to Mr. Affeldt.

Mark A. Burnett
 
We entered into an employment agreement with Mr. Burnett, effective as of December 1, 2006, pursuant to which he commenced serving as our Executive Vice President of Golf and Country Club Operations. Mr. Burnett's initial base salary was set at $300,000. Mr. Burnett is eligible to earn a discretionary annual bonus of up to 100% of his current base salary.
 
On April 11, 2011, Mr. Burnett was awarded 800 Class C units under the terms of the Second Amended LLC Agreement, which vest in four equal annual installments, with the first 25% installment having vested as of December 31, 2011.

 On April 1, 2012, Mr. Burnett was awarded 3,361 RSUs under the terms of the Holdings Stock Plan, which vest upon the same terms and conditions as the RSUs granted to Mr. Affeldt.

Blake S. Walker
 
We entered into an employment agreement with Mr. Walker, effective as of December 21, 2009, pursuant to which he commenced serving as our Chief Acquisitions and Development Officer. Mr. Walker's initial base salary was set at $300,000 per year. Mr. Walker is eligible to earn a discretionary performance bonus based on his overall performance and on the successful acquisition of golf and country clubs and other assets. Mr. Walker's employment will terminate on April 2, 2013.
 
On April 11, 2011, Mr. Walker was awarded 750 Class C units under the terms of the Second Amended LLC Agreement, which vest in four equal annual installments, with the first 25% installment having vested as of December 31, 2011. The Class C units will be forfeited when Mr. Walker's employment terminates.

On April 1, 2012, Mr. Walker was awarded 617 RSUs under the terms of the Holdings Stock Plan, which would have vested upon the same terms and conditions as the RSUs granted to Mr. Affeldt. The unvested RSUs will be forfeited when Mr. Walker's employment terminates.

James K. Walters
 
We entered into an employment agreement with Mr. Walters, effective as of May 6, 2008, pursuant to which he commenced serving as our Executive Vice President of Sales & Marketing. Since January 2010, Mr. Walters has served as our Executive Vice President of Sales & Revenue. Mr. Walters' initial base salary was set at $300,000. Mr. Walters is eligible to earn a discretionary annual bonus of up to 75% of his current base salary.
 
Pursuant to the terms of the MPI, Mr. Walters had received 500 Class B unit awards which vest over a five year period (commencing on July 9, 2008). In connection with the ClubCorp Formation, we converted Mr. Walters' Class B units into Class A units. As of December 25, 2012, Mr. Walters held a total of 226.03 Class A units (including 24.45 unvested units).

111

 
On April 11, 2011, Mr. Walters was awarded 675 Class C units under the terms of the Second Amended LLC Agreement, which vest in four equal annual installments, with the first 25% installment having vested as of December 31, 2011.

 On April 1, 2012, Mr. Walters was awarded 617 RSUs under the terms of the Holdings Stock Plan, which vest upon the same terms and conditions as the RSUs granted to Mr. Affeldt.

Each of our NEOs has executed our standard Confidentiality and Non-Solicitation Agreement, pursuant to which each NEO has agreed, among other things, to refrain, for a period of one year after termination of his employment, from recruiting or soliciting for hire any employee employed by us during the sixty-day period preceding his termination of employment.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
PRINCIPAL STOCKHOLDERS
 
We are a wholly-owned subsidiary of Fillmore CCA Investment, LLC (“Fillmore”), which indirectly owns all of our issued and outstanding capital stock. All of Fillmore's issued and outstanding equity interests are owned by Fillmore CCA Holdings I, LLC (“Fillmore LLC”) and certain members of our management. Fillmore LLC is owned by investment funds affiliated with KSL Capital Partners, LLC (“KSL”). KSL is able to control all actions by the board of directors of Fillmore by virtue of their being able to appoint a majority of such directors.
 
All of our issued and outstanding shares of capital stock have been pledged as collateral to the lenders under our Secured Credit Facilities described in Note 11 of the notes to the audited consolidated financial statements included elsewhere herein. If we were to default on our Secured Credit Facilities, the lenders could foreclose on these shares of our common stock, which would result in a change of control.
 
Beneficial ownership is determined in accordance with the rules of the SEC. Under these rules, a person is deemed to be a beneficial owner of a security if that person has or shares voting power, which includes the power to vote or to direct the voting of such security, or investment power, which includes the power to dispose of or to direct the disposition of such security. A person is also deemed to be a beneficial owner of any securities of which that person has a right to acquire beneficial ownership within 60 days. Under these rules, more than one person may be deemed to be a beneficial owner of the same securities.


112

The following table sets forth as of March 11, 2013 certain information regarding the beneficial ownership of the equity securities of Fillmore by each person who beneficially owns more than five percent of Fillmore's equity interests, and by the directors and executive officers of us and Fillmore, individually, and by the directors and executive officers of us and Fillmore as a group. Unless otherwise specified, each beneficial owner has sole voting power and sole investment power over the LLC units indicated. Unless otherwise specified, the address of each beneficial owner is c/o ClubCorp Club Operations, Inc., 3030 LBJ Freeway, Suite 600, Dallas, Texas 75234.

 
 
LLC Units Beneficially
Owned
Name and Address of Beneficial Owner
 
Number
 
Percent
5% Unitholders
 
 

 
 

Affiliates of KSL(1)
 
425,756.01

 
97.34
%
Directors and Executive Officers
 
 

 
 
Eric L. Affeldt
 
4,076.22

 
*

Curtis D. McClellan
 
200.58

 
*

Mark A. Burnett
 
1,510.08

 
*

David B. Woodyard
 
628.17

 
*

James K. Walters
 
200.58

 
*

Blake S. Walker
 
—

 
—

Daniel T. Tilley
 
314.09

 
*

Ingrid J. Keiser
 
274.79

 
*

Martin J. Newburger(1)
 
—

 
—

Eric C. Resnick(1)
 
425,756.01

 
97.34
%
Michael S. Shannon(1)
 
425,756.01

 
97.34
%
Steven S. Siegel(1)
 
—

 
—

Bryan J. Traficanti (1)
 
—

 
—

All directors and officers as a group (11 individuals)
 
432,960.52

 
98.99
%
 _________________________
*    less than 1%
(1)
100% of such units are owned by Fillmore CCA Holdings I, LLC. Fillmore CCA Holdings I, LLC is 5.066% owned by Fillmore CCA (Alternative), L.P., 9.234% owned by Fillmore CCA Supplemental TE (Alternative), L.P., 12.580% owned by Fillmore CCA TE (Alternative), L.P., 12.735% owned by Fillmore CCA TE-A (Alternative), L.P., 1.219% owned by KSL Capital Partners II FF, L.P., 6.688% owned by KSL Capital Partners Supplemental II, L.P., 5.914% owned by KSL CCA 2010 Co-Invest 2, L.P., 36.723% owned by KSL CCA 2010 Co-Invest, L.P., 3.690% owned by KSL CCA Co-Invest 2, L.P. and 6.151% owned by KSL CCA Co-Invest, L.P (collectively, the “KSL Investors”). KSL Capital Partners II GP, LLC is the sole general partner of Fillmore CCA (Alternative), L.P., Fillmore CCA TE (Alternative), L.P., Fillmore CCA TE-A (Alternative), L.P. and KSL Capital Partners II FF, L.P. KSL Capital Partners Supplemental II GP, LLC is the sole general partner of Fillmore CCA Supplemental TE (Alternative), L.P. and KSL Capital Partners Supplemental II, L.P. KSL Capital Partners II Co-Invest GP, LLC is the sole general partner of KSL CCA 2010 Co-Invest 2, L.P., KSL CCA 2010 Co-Invest, L.P., KSL CCA Co-Invest 2, L.P. and KSL CCA Co-Invest, L.P. The investment decisions of each of KSL Capital Partners II GP, LLC, KSL Capital Partners Supplemental II GP, LLC and KSL Capital Partners II Co-Invest GP, LLC (collectively, the “KSL General Partners,” and together with the KSL Investors, the “KSL Funds”) are made by its respective investment committee, which exercises voting and dispositive power over the units indirectly owned by the KSL General Partners. The investment committee of each of the KSL General Partners consists of Craig W. Henrich, Peter R. McDermott, Martin J. Newburger, Eric C. Resnick, Michael S. Shannon, Bernard N. Siegel, Steven S. Siegel and Richard A. Weissman, John A. Ege and Coley J. Brenan. A decision of each investment committee is determined by the affirmative vote of a majority of the members of such committee, which majority must include Messrs. Shannon and Resnick. Messrs. Henrich, McDermott, Newburger, Resnick, Shannon, B. Siegel, S. Siegel, Weissman, Ege and Brenan disclaim beneficial ownership of these units except to the extent of their individual pecuniary interest in these entities. The address for each KSL Fund and Messrs. Henrich, McDermott, Newburger, Resnick, Shannon, Siegel, Siegel, Weissman, Ege and Brenan is c/o KSL Capital Partners, LLC, 100 Fillmore Street, Suite 600, Denver, Colorado 80206.


113

ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
Management Agreement
 
We have entered into a management agreement with an affiliate of KSL, pursuant to which we are provided financial and management consulting services in exchange for an annual fee of $1 million. In the event of a future financing, refinancing or direct or indirect sale of all or substantially all of our equity or assets, the management company may also be entitled to receive a fee equal to 1% of the lenders' maximum commitments, in the case of a financing or refinancing, or 1% of the total consideration paid, in the case of a sale. No such fee was required in connection with the ClubCorp Formation in 2010. In addition, we have agreed to reimburse the management company for all of its reasonable out-of-pocket costs and expenses incurred in providing management services to us and certain of our affiliates. As of December 25, 2012, we have paid aggregate fees of $7.8 million pursuant to the management agreement since it was entered into.
 
Reciprocal Arrangements
 
We have entered into reciprocal arrangements whereby members of Barton Creek Resort & Spa, The Homestead, The Owners Club at Barton Creek, The Owners Club at The Homestead and Western Athletic Clubs, owned by affiliates of KSL, can pay an upgrade charge to have access to our clubs and facilities. We have revenue sharing arrangements with these resorts and clubs whereby we agree to split the amount of the upgrade charges among such entities.
 
Offer Letters
 
We have entered into offer letters and other agreements containing compensation, termination and change of control provisions, among others, with certain of our executive officers.
 
Policies and Procedures for Review and Approval of Related Party Transactions
 
We have written policies governing conflicts of interest with our employees. In addition, we circulate director and executive officer questionnaires on an annual basis to identify potential conflicts of interest and related party transactions with such directors and officers. Although we do not have a formal process for approving related party transactions, our board of directors as a matter of practice has reviewed all of the transactions described under “Certain Relationships and Related Party Transactions.”
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Independent Registered Public Accounting Firm's Fees
 
The following table presents fees for professional audit services rendered by Deloitte & Touche LLP for the audit of ClubCorp's annual financial statements for each of fiscal 2012 and 2011, and fees billed for other services rendered by Deloitte & Touche LLP.

 
 
2012
 
2011
 
 
 
(in thousands)
 
Audit Fees
 
$
1,490

 
$
1,800

(1)
Tax Fees (2)
 
292

 
960

 
 
 
 
 
 
 

(1) Audit Fees in fiscal 2011 consists principally of fees for the audit of our 2011 annual financial statements and review of our financial statements included in our quarterly reports on Form 10-Q for 2011 and audit services provided in connection with the filing of our Form S-4 in 2011.
(2) Tax Fees consist principally of tax compliance and tax planning fees.


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ITEM 15.    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

A. 1. Financial Statements

The following consolidated financial statements of the Company, the notes thereto and the related Report of Independent Registered Public Accounting Firm are filed under Item 8 of this 10-K:


A. 2. Financial Statement Schedules

The information required by Schedule II - Valuation and Qualifying Accounts is provided in Notes 3 and 13 to the consolidated financial statements included elsewhere herein.

Other schedules are omitted because they are not required.

A. 3. Exhibits

The exhibits listed below are incorporated herein by reference to prior SEC filings by Registrant or are included as exhibits in this Form 10-K.

EXHIBIT INDEX

Exhibit No.
 
Description of Exhibit
3.1(a)

 
Certificate of Incorporation of ClubCorp Club Operations, Inc. (Incorporated by reference to Exhibit 3.1(a) on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011)
3.1(b)

 
Bylaws of ClubCorp Club Operations, Inc. (Incorporated by reference to Exhibit 3.1(b) on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011)
4.1

 
Indenture, dated as of November 30, 2010, among ClubCorp Club Operations, Inc., the subsidiary guarantors named therein, and Wilmington Trust FSB, as trustee (Incorporated by reference to Exhibit 4.1 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011)
4.2

 
Form of 10% Senior Note due 2018 (Incorporated by reference to Exhibit 4.2 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011)
4.3

 
First Supplemental Indenture, dated as of September 22, 2011, among ClubCorp CGCC, Inc., ClubCorp Hartefeld, Inc., ClubCorp Ridge Club, Inc. and Wilmington Trust, National Association (successor by merger to Wilmington Trust FSB), as trustee (Incorporated by reference to Exhibit 4.1 on Form 8-K filed by ClubCorp Club Operations, Inc. on September 23, 2011)
4.4

 
Second Supplemental Indenture, dated as of January 5, 2012, among CCFL, Inc., CCCA, Inc. and Wilmington Trust, National Association (successor by merger to Wilmington Trust FSB), as trustee (Incorporated by reference to Exhibit 4.1 on Form 8-K filed by ClubCorp Club Operations, Inc. on January 9, 2012)

115

4.5

 
Third Supplemental Indenture, dated as of January 16, 2013, among ClubCorp NV I, LLC, a Nevada limited liability company; ClubCorp NV II, LLC, a Nevada limited liability company; ClubCorp NV III, LLC, a Nevada limited liability company; ClubCorp NV IV, LLC, a Nevada limited liability company; and ClubCorp NV V, LLC, a Nevada limited liability company and Wilmington Trust, National Association (successor by merger to Wilmington Trust FSB), as trustee (Incorporated by reference to Exhibit 4.1 on Form 8-K filed by ClubCorp Club Operations, Inc. on January 22, 2013)
10.1

 
Offer letter dated as of March 1, 2011 between ClubCorp USA, Inc. and Eric L. Affeldt (Incorporated by reference to Exhibit 10.1 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011) †
10.2

 
Offer letter dated as of October 30, 2008 between ClubCorp USA, Inc. and Curtis D. McClellan (Incorporated by reference to Exhibit 10.2 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011) †
10.3

 
Offer letter dated as of December 4, 2006 between ClubCorp USA, Inc. and Mark A. Burnett (Incorporated by reference to Exhibit 10.3 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011) †
10.4

 
Offer letter dated as of December 21, 2009 between ClubCorp USA, Inc. and Blake S. Walker (Incorporated by reference to Exhibit 10.4 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011) †
10.5

 
Offer letter dated as of May 6, 2008 between ClubCorp USA, Inc. and James K. Walters (Incorporated by reference to Exhibit 10.5 on Form 10-K filed by ClubCorp Club Operations, Inc. on March 26, 2012)
10.6

 
2011 Incentive Plan (Incorporated by reference to Exhibit 10.6 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011) †
10.7

 
Long Term Incentive Plan (Incorporated by reference to Exhibit 10.7 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011) †
10.8

 
Credit Agreement dated as of November 30, 2010 among CCA Club Operations Holdings, LLC, ClubCorp Club Operations, Inc. as Borrower, Citicorp North America, Inc. as Administrative Agent, Swing Line Lender and L/C Issuer, the other lenders party thereto and Citigroup Global Markets Inc. as Sole Arranger and Sole Bookrunner (Incorporated by reference to Exhibit 10.8 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011)
10.9

 
Guaranty and Security Agreement dated as of November 30, 2010 among ClubCorp Club Operations, Inc., each other Grantor from time to time party thereto and Citicorp North America, Inc., as Administrative Agent (Incorporated by reference to Exhibit 10.9 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011)
10.10

 
Form of Indemnification Agreement between ClubCorp Holdings, Inc. and its directors and officers (Incorporated by reference to Exhibit 10.10 on Form S-4 filed by ClubCorp Club Operations, Inc. on March 28, 2011)
10.11

 
ClubCorp Holdings, Inc. 2012 Stock Award Plan (Incorporated by reference to Exhibit 10.11 on Form 10-K filed by ClubCorp Club Operations, Inc. on March 26, 2012)
10.12

 
Form of Restricted Stock Unit Agreement under ClubCorp Holdings, Inc. 2012 Stock Award Plan (Incorporated by reference to Exhibit 10.12 on Form 10-K filed by ClubCorp Club Operations, Inc. on March 26, 2012)
10.13

 
2012 Incentive Plan (Incorporated by reference to Exhibit 10.1 on Form 10-Q filed by ClubCorp Club Operations, Inc. on October 15, 2012) †
10.14

 
Amendment No. 1, dated as of November 16, 2012, to the Credit Agreement dated as of November 30, 2010 among CCA Club Operations Holdings, LLC, ClubCorp Club Operations, Inc. as Borrower, Citicorp North America, Inc. as Administrative Agent, Swing Line Lender and L/C Issuer, the other lenders party thereto and Citigroup Global Markets Inc. as Sole Arranger and Sole Bookrunner. (Incorporated by reference to Exhibit 10.1 on Form 8-K filed by ClubCorp Club Operations, Inc. on November 16, 2012)
10.15

 
Joinder Agreement, dated as of January 16, 2013, by and between ClubCorp NV I, LLC, a Nevada limited liability company; ClubCorp NV II, LLC, a Nevada limited liability company; ClubCorp NV III, LLC, a Nevada limited liability company; ClubCorp NV IV, LLC, a Nevada limited liability company; and ClubCorp NV V, LLC, a Nevada limited liability company and Citicorp North America, Inc., as administrative agent and collateral agent (Incorporated by reference to Exhibit 10.1 on Form 8-K filed by ClubCorp Club Operations, Inc. on January 22, 2013)
10.16

 
Pledge Amendment, dated as of January 16, 2013, by and between ClubCorp USA, Inc. and Citicorp North America, Inc., as administrative agent and collateral agent (Incorporated by reference to Exhibit 10.2 on Form 8-K filed by ClubCorp Club Operations, Inc. on January 22, 2013)
12

 
Statement of Computation of Ratio of Earnings to Fixed Charges
21

 
Subsidiaries of the Registrant
31.1

 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002
31.2

 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934, as adopted pursuant to §302 of the Sarbanes-Oxley Act of 2002

116

32.1

 
Certifications of Chief Executive Officer pursuant to 18 U.S.C. §1350*
32.2

 
Certifications of Chief Financial Officer pursuant to 18 U.S.C. §1350*
101

 
The following information from the Company's Year End Report on Form 10-K for the fiscal year ended December 25, 2012 formatted in eXtensible Business Reporting Language: (i) Consolidated statements of operations and comprehensive income (loss) as of December 25, 2012, December 27, 2011 and December 28, 2010; (ii) Consolidated balance sheets as of December 25, 2012 and December 27, 2011; (iii) Consolidated statements of cash flows as of December 25, 2012, December 27, 2011 and December 28, 2010; (iv) Consolidated statements of changes in equity as of December 25, 2012, December 27, 2011 and December 28, 2010 and (v) Notes to the consolidated financial statements.**
 ______________________________

*
Exhibit is furnished rather than filed, and shall not be deemed incorporated by reference into any filing, in accordance with Item 601 of Regulation S-K.

**
Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.

†
Indicates management contract or compensatory plan or arrangement.


117

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 
 
 
 
CLUBCORP CLUB OPERATIONS, INC.
 
 
 
Date: March 22, 2013
 
/s/ Curtis D. McClellan
 
 
Curtis D. McClellan
 
 
Chief Financial Officer and Treasurer (principal financial officer and principal accounting officer)


118