Clubcorp 10Q 2006 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 5, 2006

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file numbers 33-89818, 33-96568, 333-08041, 333-57107, 333-52612 and 333-110521

CLUBCORP, INC.

(Exact name of registrant as specified in its charter)

Delaware

75-2778488

(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, including zip code)

Registrant’s telephone number, including area code: (972) 243-6191

Former name, former address and former fiscal year, if changed since last report: None

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 (the “Act”) during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 under the Exchange Act.


Large accelerated filer ¨		Accelerated filer ¨		Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x

The number of shares of the registrant’s common stock outstanding as of October 3, 2006 was 92,791,912.

CLUBCORP, INC.

INDEX


Part I.	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited):
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Cash Flows	3
	Notes to Condensed Consolidated Financial Statements	4

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	27

Item 4.	Controls and Procedures	27

Part II.	OTHER INFORMATION

Item 1.	Legal Proceedings	28

Item 6.	Exhibits	28

ClubCorp, Inc.

Condensed Consolidated Balance Sheets

(Dollars in thousands)

(Unaudited)


	December 27, 2005			September 5, 2006
Assets
Current assets:
Cash and cash equivalents	$	188,675		$	138,487
Restricted cash		21,650			23,650
Membership and other receivables, net		72,616			82,083
Inventories		19,106			20,518
Assets held for sale		6,935			29,532
Prepaid expenses and other assets		22,126			21,203

Total current assets		331,108			315,473

Property and equipment, net		1,124,761			1,115,718
Notes receivable		33,256			27,956
Other assets		58,582			54,282

Total assets	$	1,547,707		$	1,513,429

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	87,274		$	76,597
Long-term debt - current portion		75,604			29,208
Membership deposits - current portion		18,341			19,358
Liabilities held for sale		3,264			9,151
Other liabilities		117,661			139,984

Total current liabilities		302,144			274,298
Long-term debt, net of current portion		596,014			581,338
Other liabilities		128,385			121,721
Membership deposits, net of current portion		151,273			159,830

Total liabilities		1,177,816			1,137,187

Redemption value of common stock held by benefit plan		53,026			56,682
Commitments and contingencies

Stockholders’ equity:
Preferred stock, $.01 par value, 150,000,000 shares authorized, none issued or outstanding		—			—
Common stock, $.01 par value, 250,000,000 shares authorized, 99,594,408 issued, 92,821,459 and 92,791,912 outstanding at December 27, 2005 and September 5, 2006, respectively		996			996
Additional paid-in capital		161,672			164,088
Accumulated other comprehensive loss		(7,895	)		(7,078	)
Retained earnings		233,490			233,403
Treasury stock, 6,772,949 and 6,802,496 shares at December 27, 2005 and September 5, 2006, respectively		(71,398	)		(71,849	)

Total stockholders’ equity		316,865			319,560

Total liabilities and stockholders’ equity	$	1,547,707		$	1,513,429

See accompanying notes to condensed consolidated financial statements.

ClubCorp, Inc.

Condensed Consolidated Statements of Operations

(Dollars in thousands, except per share amounts)

(Unaudited)


	Twelve Weeks Ended						Thirty-six Weeks Ended
	September 6, 2005			September 5, 2006			September 6, 2005			September 5, 2006
Continuing Operations:
Operating revenues	$	270,108		$	232,749		$	707,337		$	677,777

Operating costs and expenses		203,891			175,860			535,830			515,168
Depreciation and amortization		19,102			19,635			57,031			58,558
Selling, general and administrative expenses		15,658			19,143			49,070			56,348
Loss on disposals and impairment of assets		901			843			2,252			2,726

Operating income from continuing operations		30,556			17,268			63,154			44,977
Interest and investment income		906			1,993			2,525			5,289
Interest expense		(13,763	)		(13,479	)		(41,712	)		(40,743	)

Income from continuing operations before income taxes and minority interest		17,699			5,782			23,967			9,523

Income tax provision		(314	)		(623	)		(2,779	)		(1,382	)
Minority interest		(329	)		(115	)		(543	)		(215	)

Income from continuing operations		17,056			5,044			20,645			7,926

Discontinued operations:
Loss from discontinued operations before income taxes		(235	)		(286	)		(2,149	)		(4,200	)
Income tax provision		(36	)		(87	)		(122	)		(157	)

Loss from discontinued operations		(271	)		(373	)		(2,271	)		(4,357	)

Net income	$	16,785		$	4,671		$	18,374		$	3,569

Basic earnings (loss) per share from:
Continuing operations	$	0.18		$	0.05		$	0.22		$	0.09
Discontinued operations		0.00			0.00			(0.02	)		(0.05	)

Basic earnings per share	$	0.18		$	0.05		$	0.20		$	0.04

Diluted earnings (loss) per share from:
Continuing operations	$	0.18		$	0.05		$	0.22		$	0.08
Discontinued operations		0.00			0.00			(0.03	)		(0.04	)

Diluted earnings per share	$	0.18		$	0.05		$	0.19		$	0.04

See accompanying notes to condensed consolidated financial statements.

ClubCorp, Inc.

Condensed Consolidated Statements of Cash Flows

(Dollars in thousands)

(Unaudited)


	Thirty-six Weeks Ended
	September 6, 2005			September 5, 2006
Cash flows from operating activities:
Net income	$	18,374		$	3,569
Adjustments to reconcile net income to cash flows from operating activities:
Depreciation and amortization		58,294			58,898
Loss on disposals and impairment of assets		1,623			5,123
Stock-based compensation expense		—			2,403
Amortization of discount on membership deposits		8,933			9,669
Net change in real estate held for sale		2,099			847
Net change in membership and other receivables, net		(9,875	)		(8,769	)
Net change in prepaid expenses		4,275			(1,124	)
Net change in accounts payable and accrued liabilities		(6,591	)		(9,325	)
Net change in deferred income and other liabilities		(14,653	)		7,975
Net change in deferred membership revenues		11,087			13,279
Net change in deferred income taxes		—			(360	)
Other		8,499			4,955

Cash flows from operating activities		82,065			87,140

Cash flows from investing activities:
Additions to property and equipment		(46,906	)		(71,907	)
Acquisition of facilities		(1,974	)		—
Development of real estate held for sale		(5,981	)		(55	)
Net change in notes receivable		7,949			4,652
Net change in restricted cash		7,092			(2,000	)
Other		436			71

Cash flows from investing activities		(39,384	)		(69,239	)

Cash flows from financing activities:
Repayments of long-term debt		(41,801	)		(67,640	)
Net change in membership deposits		600			2
Treasury stock transactions		(3,301	)		(451	)

Cash flows from financing activities		(44,502	)		(68,089	)

Net change in cash and cash equivalents		(1,821	)		(50,188	)
Cash and cash equivalents at beginning of period		96,180			188,675

Cash and cash equivalents at end of period	$	94,359		$	138,487

See accompanying notes to condensed consolidated financial statements.

ClubCorp, Inc.

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Summary of significant accounting policies

Consolidation

The accompanying Condensed Consolidated Financial Statements include the accounts of ClubCorp, Inc. and its majority-owned subsidiaries that are not considered variable interest entities (VIEs) and VIEs for which the Company is the primary beneficiary (collectively, ClubCorp). All material intercompany balances and transactions have been eliminated.

Interim presentation

The accompanying Condensed Consolidated Financial Statements have been prepared by ClubCorp and are unaudited. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been omitted from the accompanying statements. We believe the disclosures made are adequate to make the information presented not misleading. However, the financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto of ClubCorp for the year ended December 27, 2005, which is a part of ClubCorp’s 2005 Form 10-K.

In our opinion, the accompanying Condensed Consolidated Financial Statements reflect all adjustments necessary to present fairly the consolidated financial position of ClubCorp as of December 27, 2005 and September 5, 2006, and the consolidated results of operations for the twelve weeks and thirty-six weeks ended September 6, 2005 and September 5, 2006, and the cash flows for the thirty-six weeks ended September 6, 2005 and September 5, 2006. Interim results are not necessarily indicative of fiscal year performance because of the impact of seasonal and short-term variations and other factors such as timing of acquisitions and dispositions of facilities.

Cash and cash equivalents

For purposes of the Condensed Consolidated Statements of Cash Flows, cash and cash equivalents include cash on hand and interest bearing deposits in financial institutions, all of which have maturities of 90 days or less.

Restricted Cash

We had $21.7 million and $23.7 million of restricted cash at December 27, 2005 and September 5, 2006, respectively. The balance at September 5, 2006 is comprised of $19.0 million in collateral related to insurance policies and $4.7 million in collateral related to letters of credit in connection with debt covenants. The letters of credit have one-year terms and, therefore, the related restricted cash is included in current assets.

Recent Pronouncements

In February 2006, the FASB issued Statement of Financial Accounting Standards No. 155, “Accounting for Certain Hybrid Financial Instruments – an amendment of FASB Statements No. 133 and 140” which is effective for fiscal years beginning after September 15, 2006. The statement was issued to clarify the application of FASB Statement No. 133 to beneficial interests in securitized financial assets and to improve the consistency of accounting for similar financial instruments, regardless of the form of the instruments. We have evaluated the new statement and have determined that it will not impact our financial results.

In March 2006, the FASB issued Statement of Financial Accounting Standards No. 156, “Accounting for Servicing of Financial Assets – an amendment of FASB Statement No. 140” which is effective for fiscal years beginning after September 15, 2006. This statement was issued to simplify the accounting for servicing rights and to reduce the volatility that results from using different measurement attributes. We have evaluated the new statement and have determined that it will not impact our financial results.

In July 2006, the FASB issued Financial Interpretation (FIN) No. 48, “Accounting for Uncertainty in Income Taxes, an Interpretation of FASB Statement No. 109” which is effective for fiscal years beginning after December 15, 2006. FIN No. 48 provides guidance regarding the recognition, measurement, presentation and disclosure in the financial statements of tax positions taken or expected to be taken on a tax return, including the decision whether to file or not file in a particular jurisdiction. The cumulative effect of the changes arising from the initial application of FIN 48 is required to be reported as an adjustment to the opening balance of retained earnings in the period of adoption. We are currently evaluating the impact, if any, of the adoption of FIN 48 on our financial statements.

ClubCorp, Inc.

In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” This statement clarifies the definition of fair value, establishes a framework for measuring fair value, and expands the disclosures on fair value measurements. SFAS No. 157 is effective for fiscal years beginning after November 15, 2007. We have not determined the effect, if any, the adoption of this statement will have on our results of operations or financial position.

In September 2006, the FASB adopted Statement of Financial Accounting Standards No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 106, and 132(R).” SFAS No. 158 requires companies to recognize a net liability or asset and an offsetting adjustment to accumulated other comprehensive income to report the funded status of defined benefit pension and other postretirement benefit plans. Additionally, SFAS No. 158 requires companies to measure plan assets and obligations at their year-end balance sheet date. SFAS No. 158 is effective for fiscal years ending after December 15, 2006. We are currently evaluating the impact of the adoption of SFAS No. 158 on our financial statements.

Reclassifications

Certain amounts previously reported have been reclassified to conform to current period presentation.

Note 2. Stock-based compensation

Prior to 2006, we accounted for stock-based compensation under the recognition and measurement provisions of APB Opinion No. 25, “Accounting for Stock Issued to Employees”. Under APB 25, the exercise price of the options was equal to the market price at the date of grant and no stock-based compensation cost was reflected in net income. We also adopted the disclosure-only provisions of SFAS No. 123, “Accounting for Stock-based Compensation”, as amended by SFAS No. 148, “Accounting for Stock Based Compensation – Transition and Disclosure.”

Effective December 28, 2005, we adopted SFAS No. 123(R), “Share-based Payment”, using the modified-prospective method, which requires the measurement and recognition of compensation cost at fair value for all share-based payments, including stock options. Stock-based compensation for the twelve weeks and thirty-six weeks ended September 5, 2006 includes expense, recognized over the applicable vesting periods for all new options granted and options granted prior to, but unvested, as of December 28, 2005. In accordance with the modified prospective method of adoption, results for prior periods have not been restated.

We granted options to purchase 671,410 and 655,600 shares of common stock during the thirty-six weeks ended September 6, 2005 and September 5, 2006, respectively. There were no options to purchase shares of common stock granted during the twelve weeks ended September 6, 2005 or during the twelve weeks ended September 5, 2006.

Effective June 26, 2006, we amended our stock option plan to include a change in control provision if the company is sold in connection with our current agreement and plan of merger. All outstanding options will become 100% vested upon closing and cash will be paid for the in-the-money value of these options. This provision is only effective if a sale occurs in connection with our current agreement and plan of merger. No expense has been recorded for this contingency.

ClubCorp, Inc.

The following summarizes compensation cost for the option plans based on the grant date fair value of the options consistent with the methodology prescribed by SFAS No. 123(R) (dollars in thousands, except per share amounts):


	Twelve Weeks Ended						Thirty-six Weeks Ended
	September 6, 2005			September 5, 2006			September 6, 2005			September 5, 2006
Net income as reported	$	16,785		$	4,671		$	18,374		$	3,569
Add: Total stock-based compensation expense included in reported net income, net of taxes		—			585			—			1,562
Less: Total stock-based compensation expense determined under fair value method, net of taxes		(705	)		(585	)		(2,727	)		(1,562	)

Pro forma net earnings	$	16,080		$	4,671		$	15,647		$	3,569

Basic earnings per share - Reported	$	0.18		$	0.05		$	0.20		$	0.04

Basic earnings per share - Pro Forma	$	0.17		$	0.05		$	0.17		$	0.04

Diluted earnings per share - Reported	$	0.18		$	0.05		$	0.19		$	0.04

Diluted earnings per share - Pro Forma	$	0.17		$	0.05		$	0.17		$	0.04

In accordance with the requirements of SFAS 123, the fair value of the options granted was estimated using the Black-Scholes option-pricing model with the following assumptions for the 2005 and 2006 grants: risk-free weighted average interest rates of 4.0% and 5.0% respectively, an expected volatility of 40%, an expected life of seven years, which includes a 3% forfeiture rate, and zero dividend yield. The summary of the status of the options outstanding for the year-ended December 27, 2005 and the changes during the thirty-six weeks ended September 5, 2006 is as follows:


	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (in years)	Aggregate Intrinsic Value (in thousands)
Summary of Option Activity:
Outstanding at December 27, 2005	7,652,493		$	10.51

Granted	655,600		$	13.80
Forfeited	(193,562	)	$	10.46
Exercised	(13,228	)	$	11.48

Outstanding at September 5, 2006	8,101,303		$	10.77	5.8	$	24,547

Exercisable at September 5, 2006	5,414,263		$	10.32	4.6	$	18,842

The weighted average grant date fair value of options granted during the year ended December 27, 2005 and the thirty-six weeks ended September 5, 2006 was $6.18 and $7.02, respectively.

ClubCorp, Inc.

A summary of the status of nonvested options as of December 27, 2005 and changes during the thirty-six weeks ended September 5, 2006 is as follows:


	Shares		Weighted Average Grant Date Fair Value
Summary of Nonvested Option Activity:
Nonvested at December 27, 2005	2,623,000		$	6.09

Granted	655,600		$	7.02
Forfeited	(25,734	)	$	6.56
Vested	(565,826	)	$	6.39

Nonvested at September 5, 2006	2,687,040		$	6.25

As of September 5, 2006, there was $9.6 million of total unrecognized compensation cost related to nonvested share-based compensation arrangements. That cost is expected to be recognized over a weighted average period of 3.1 years. The total fair value of shares vested during the thirty-six weeks ended September 5, 2006 was $7.8 million.

Note 3. Operating revenues

We recognized revenues from the following sources (dollars in thousands):


	Twelve Weeks Ended				Thirty-six Weeks Ended
	September 6, 2005		September 5, 2006		September 6, 2005		September 5, 2006
Revenues from continuing operations:
Membership dues	$	76,866	$	81,155	$	230,737	$	241,467
Food and beverage revenues		59,923		61,538		178,881		186,478
Golf operations revenues (1)		74,908		43,905		154,690		121,678
Lodging revenues		15,815		16,102		41,402		43,263
Membership fees and deposits		8,008		7,219		24,053		22,294
Other revenues (2)		34,588		22,830		77,574		62,597

Total operating revenues from continuing operations	$	270,108	$	232,749	$	707,337	$	677,777

Revenues from discontinued operations:
Membership dues	$	1,793	$	1,039	$	5,437	$	3,501
Food and beverage revenues		1,370		889		4,108		2,715
Golf operations revenues		2,493		1,208		7,184		3,325
Membership fees and deposits		312		341		928		1,013
Other revenues		686		558		2,038		1,694

Total operating revenues from discontinued operations	$	6,654	$	4,035	$	19,695	$	12,248

Total operating revenues	$	276,762	$	236,784	$	727,032	$	690,025

(1)	The amounts include the impact of ticket sales, rental of corporate hospitality tents and concessions of approximately $30.7 million and $36.0 million related to the 2005 U.S. Open for the twelve and thirty-six weeks ended September 6, 2005, respectively.

(2)	The twelve weeks and thirty-six weeks ended September 6, 2005 include the impact of merchandise sales of approximately $10.3 million and $14.5 million related to the 2005 U.S. Open, respectively.

ClubCorp, Inc.

Note 4. Income tax provision

The income tax provision for the twelve weeks and thirty-six weeks ended September 6, 2005 and September 5, 2006 differs from amounts computed by applying the U.S. Federal tax rate of 35% to income (loss) from operations before income taxes and minority interest primarily due to foreign and state income taxes, net of Federal provision, and the effect of consolidated operations of foreign and other entities not consolidated for Federal income tax purposes. Based on our estimate for the year, we recorded to current taxes payable an estimated income tax provision of $0.4 million related to Federal income taxes for the thirty-six weeks ended September 5, 2006.

Note 5. Weighted average shares

The following table summarizes the weighted average number of shares used to calculate basic and diluted income per share:


	Twelve Weeks Ended		Thirty-six Weeks Ended
	September 6, 2005	September 5, 2006	September 6, 2005	September 5, 2006
Weighted average shares outstanding	93,115,990	92,803,780	93,248,170	92,814,597
Incremental shares from assumed conversion of options	1,317,071	1,613,355	1,317,071	1,512,941

Diluted weighted average shares	94,433,061	94,417,135	94,565,241	94,327,538

Note 6. Property and equipment

Property and equipment consists of the following (dollars in thousands):


	December 27, 2005			September 5, 2006
Land and land improvements	$	738,558		$	728,627
Buildings and recreational facilities		509,211			520,095
Leasehold improvements		118,044			118,629
Furniture and fixtures		142,629			147,913
Machinery and equipment		313,279			321,280
Construction in progress		21,413			40,785

		1,843,134			1,877,329
Accumulated depreciation and amortization		(718,373	)		(761,611	)

	$	1,124,761		$	1,115,718

ClubCorp, Inc.

Note 7. Disposal and impairment of long-lived assets

In conjunction with Statement of Financial Accounting Standards No. 144 (SFAS No. 144), “Accounting for the Impairment or Disposal of Long-Lived Assets”, certain assets and liabilities expected to be sold with the held-for-sale entities have been reclassified to Other Current Assets and Other Current Liabilities, and all income and expense items have been reclassified as Discontinued Operations.

As of December 27, 2005 and September 5, 2006, we had one and five properties classified as held for sale, respectively. The balance sheet amounts related to the properties were reclassified to Other Current Assets and Other Current Liabilities on the Condensed Consolidated Balance Sheets and were comprised of the following (dollars in thousands):


	December 27, 2005		September 5, 2006
Membership and other receivables, net	$	273	$	976
Inventories		69		340
Other current assets		13		2,046
Property and equipment, net		6,538		25,306
Other assets		42		864

Total assets	$	6,935	$	29,532

Accounts payable and accrued liabilities	$	113	$	1,442
Other current liabilities		144		4,457
Long-term debt		2,811		—
Other liabilities		196		3,252

Total liabilities	$	3,264	$	9,151

The properties were reclassified to discontinued operations on the Condensed Consolidated Statements of Operations for all periods presented. See Note 10 for detail of the Statement of Operations impact of discontinued operations by segment and in total.

There was $0.8 million recorded for impairment of assets during the thirty-six weeks ended September 6, 2005, none of which was recorded during the twelve weeks ended September 6, 2005. We recorded no impairment for the twelve weeks ended September 5, 2006. We recorded $3.0 million for impairment of assets held for sale in loss from discontinued operations before income taxes on the Condensed Consolidated Statement of Operations for the thirty-six weeks ended September 5, 2006.

Note 8. Comprehensive Income

The following summarizes the components of comprehensive income (dollars in thousands):


	Twelve Weeks Ended				Thirty-six Weeks Ended
	September 6, 2005		September 5, 2006		September 6, 2005		September 5, 2006
Net income	$	16,785	$	4,671	$	18,374	$	3,569
Foreign currency translation adjustment		887		334		1,253		817

Total comprehensive income	$	17,672	$	5,005	$	19,627	$	4,386

ClubCorp, Inc.

Note 9. Long term debt

Under the provisions of certain of our debt agreements with Textron Financial Corporation (“Textron”), we are required to maintain debt service coverage ratios at both the portfolio and individual property level. Certain of these individual loans have cross-default provisions; therefore, a default on an individual loan triggers a default on the portfolio. As of September 5, 2006, the debt service coverage ratio was below the minimum level for three individual properties participating in the loan, thereby causing the entire loan ($52 million in principal amount) to be in technical default. Subsequent to September 5, 2006, we cured the noncompliance by obtaining letters of credit totaling $4.7 million.

In early 2006, we amended a loan agreement with Pacific Life representing approximately $37 million of debt maturing in 2006 and established a secured $50 million line of credit which will mature in 2010. As a result, we paid down approximately $32 million and transferred the remaining $5 million as an initial draw on the line of credit which remains outstanding as of September 5, 2006.

Note 10. Segment reporting

Our operations are organized into three principal business segments according to the type of facility or service provided: country club and golf facilities, business and sports clubs and resorts. We have determined that the operations of these three segments have similar economic characteristics and meet the criteria which permit the operations to be aggregated into these reportable segments. The primary sources of revenue for all segments are membership revenues, consisting of dues, fees and deposits, and food and beverage sales. Additionally, country club and golf facilities and resorts have significant golf operations revenue and resorts have significant lodging revenue.

Country club and golf facilities operations consist of private country clubs, golf clubs and public golf facilities. Private country clubs provide at least one 18-hole golf course and various other recreational amenities that are open only to members and their guests. Golf clubs provide both private and public golf play and usually offer fewer other recreational amenities. Public golf facilities are open to the public and generally provide the same services as golf clubs.

Resorts offer a wide variety of amenities including golf courses, lodging and conference facilities, dining areas and other recreational facilities. Resorts are open to the public and offer optional membership.

Business and sports club operations consist of business clubs, business/sports clubs and sports clubs. Business clubs provide a setting for dining, business or social entertainment. Sports clubs provide a variety of recreational facilities and business/sports clubs provide a combination of the amenities available at business clubs and sports clubs. All amenities offered above are available only to members and their guests.

Other operations and services consist of real estate operations, corporate overhead and intercompany eliminations made in the consolidation between corporate services and other operating segments. Real estate operations are comprised of residential real estate development and sales, primarily in areas adjacent to golf facilities. The majority of other operating revenues is provided from real estate sales.

We evaluate segment performance and allocate resources based on each segment’s EBITDA. We also use EBITDA to monitor our property-level and overall performance. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. EBITDA for all periods presented has been calculated using this definition. EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on accounting principles generally accepted in the United States of America, and is not necessarily a measure of our cash flow or ability to fund our cash needs. Our measurements of EBITDA may not be comparable to similar titled measures reported by other companies.

ClubCorp, Inc.

Financial information for the segments is as follows (dollars in thousands):


	Continuing Operations
	Twelve Weeks Ended						Thirty-six Weeks Ended
	September 6, 2005			September 5, 2006			September 6, 2005			September 5, 2006
Operating revenues
Country club and golf facilities	$	124,622		$	128,015		$	353,780		$	366,858
Resorts (1)		95,569			54,902			199,417			154,856
Business and sports clubs		44,767			46,206			143,633			148,039
Other operations and services		5,150			3,626			10,507			8,024

Total operating revenues	$	270,108		$	232,749		$	707,337		$	677,777

EBITDA
Country club and golf facilities	$	28,422		$	29,242		$	86,842		$	86,533
Resorts (1)		27,377			13,992			48,163			38,335
Business and sports clubs		5,229			6,565			21,651			24,805

Reportable segment EBITDA	$	61,028		$	49,799		$	156,656		$	149,673

Reconciliation to income before income taxes and minority interest:
Reportable segment EBITDA		61,028		$	49,799		$	156,656		$	149,673
Other operations and services operating revenues		5,150			3,626			10,507			8,024
Other operations and services operating costs and expenses		(15,619	)		(15,679	)		(44,726	)		(51,436	)
Depreciation and amortization		(19,102	)		(19,635	)		(57,031	)		(58,558	)
Loss on disposals and impairment of assets		(901	)		(843	)		(2,252	)		(2,726	)
Interest and investment income		906			1,993			2,525			5,289
Interest expense		(13,763	)		(13,479	)		(41,712	)		(40,743	)

Income from operations before income taxes and minority interest	$	17,699		$	5,782		$	23,967		$	9,523

(1)

The twelve weeks and thirty-six weeks ended September 6, 2005 include the impact of ticket sales, rental of corporate hospitality tents, concessions, and merchandise sales of approximately $41.0 million and $50.5 million, respectively, related to the 2005 U.S. Open. This resulted in an increase of approximately $13.8 million and $14.0 million in EBITDA for the twelve weeks and thirty-six weeks ended September 6, 2005, respectively.

ClubCorp, Inc.


	Discontinued Operations
	Twelve Weeks Ended						Thirty-six Weeks Ended
	September 6, 2005			September 5, 2006			September 6, 2005			September 5, 2006
Operating revenues
Country club and golf facilities	$	5,043		$	2,893		$	14,600		$	8,136
Resorts		—			—			—			—
Business and sports clubs		1,611			1,142			5,095			4,112
Other operations and services		—			—			—			—

Total operating revenues	$	6,654		$	4,035		$	19,695		$	12,248

EBITDA
Country club and golf facilities	$	31		$	115		$	(387	)	$	(209	)
Resorts		—			—			—			—
Business and sports clubs		198			159			666			538

Reportable segment EBITDA	$	229		$	274		$	279		$	329

Reconciliation to loss before income taxes and minority interest:
Reportable segment EBITDA	$	229		$	274		$	279		$	329
Other operations and services operating revenues		—			—			—			—
Other operations and services operating costs and expenses		(236	)		(177	)		(700	)		(523	)
Depreciation and amortization		(387	)		—			(1,263	)		(340	)
Gain (loss) on disposals and impairment of assets (1)		569			4			629			(2,397	)
Interest and investment income		21			14			61			47
Interest expense		(431	)		(401	)		(1,155	)		(1,316	)

Loss from operations before income taxes and minority interest	$	(235	)	$	(286	)	$	(2,149	)	$	(4,200	)

(1)	The thirty-six weeks ended September 5, 2006 amounts include an impairment of $3.0 million related to held for sale properties. There was no impairment recorded during the twelve weeks ended September 5, 2006.

ClubCorp, Inc.


	Total Company
	Twelve Weeks Ended						Thirty-six Weeks Ended
	September 6, 2005			September 5, 2006			September 6, 2005			September 5, 2006
Operating revenues
Country club and golf facilities	$	129,665		$	130,908		$	368,380		$	374,994
Resorts (1)		95,569			54,902			199,417			154,856
Business and sports clubs		46,378			47,348			148,728			152,151
Other operations and services		5,150			3,626			10,507			8,024

Total operating revenues	$	276,762		$	236,784		$	727,032		$	690,025

EBITDA
Country club and golf facilities	$	28,453		$	29,357		$	86,455		$	86,324
Resorts (1)		27,377			13,992			48,163			38,335
Business and sports clubs		5,427			6,724			22,317			25,343

Reportable segment EBITDA	$	61,257		$	50,073		$	156,935		$	150,002

Reconciliation to income before income taxes and minority interest:
Reportable segment EBITDA	$	61,257		$	50,073		$	156,935		$	150,002
Other operations and services operating revenues		5,150			3,626			10,507			8,024
Other operations and services operating costs and expenses		(15,855	)		(15,856	)		(45,426	)		(51,959	)
Depreciation and amortization		(19,489	)		(19,635	)		(58,294	)		(58,898	)
Loss on disposals and impairment of assets (2)		(332	)		(839	)		(1,623	)		(5,123	)
Interest and investment income		927			2,007			2,586			5,336
Interest expense		(14,194	)		(13,880	)		(42,867	)		(42,059	)

Income from operations before income taxes and minority interest	$	17,464		$	5,496		$	21,818		$	5,323

(1)

(2)	The thirty-six weeks ended September 5, 2006 amounts include an impairment of $3.0 million related to held for sale properties. There was no impairment recorded during the twelve weeks ended September 5, 2006.

ClubCorp, Inc.

Note11. Subsequent Events

On October 10, 2006, the Company announced that it entered into an Agreement and Plan of Merger, or Merger Agreement, with Fillmore CCA Holdings, Inc., a Delaware corporation, and ClubCorp Acquisition Corporation, a Delaware corporation and wholly-owned subsidiary of Fillmore CCA Holdings. Fillmore CCA Holdings is owned by affiliates of KSL Capital Partners. Consummation of the merger is not subject to a financing condition, but is subject to various closing conditions, including, among others, the sale of The Pinehurst Resort and Country Club described below, the termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and any other antitrust laws, and approval of the stockholders of the Company, including the approval of a majority of the minority stockholders of the Company. The Company expects the merger to be consummated on or prior to December 26, 2006.

In addition, pursuant to an Interest Purchase Agreement, dated September 12, 2006, as amended by that certain Amendment to Interest Purchase Agreement, dated October 9, 2006, or the Purchase Agreement, by and among the Company, Putterboy, Ltd., a Texas limited partnership, or Putterboy, and The Pinehurst Company, a Delaware corporation, the Company agreed to sell all of the outstanding equity interests of Pinehurst, Inc., a North Carolina corporation, Pinehurst Championship Management, Inc., a North Carolina corporation, Pinehurst Country Club, Inc., a North Carolina corporation, ClubCorp Realty East, Inc., a North Carolina corporation, PCC Realty Corp., a North Carolina corporation, Pinehurst Acquisition Corp., a North Carolina corporation, Pinehurst Realty Corp., a Nevada corporation and Pinehurst No. VII, Inc., a North Carolina corporation, or collectively, the Pinehurst Entities. Putterboy is an affiliate of each of Robert H. Dedman, Jr., the Company’s Chairman of the Board, Nancy M. Dedman, a director of the Company, and Patricia Dedman Dietz, a director of the Company. Collectively, Robert H. Dedman, Jr., Nancy M. Dedman and Patricia Dedman Deitz and their affiliates and associates beneficially own approximately 70% of the Company’s outstanding common stock. In addition to being conditioned on the consummation of the Merger, the sale of the Pinehurst Entities is subject to the approval of the stockholders of the Company and the satisfaction of other closing conditions.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

ClubCorp, Inc. (referred to as ClubCorp^®, the Company, we, us and our throughout this document) is a holding company incorporated under the laws of the State of Delaware that, through its subsidiaries, owns and operates premier golf and business clubs and destination golf resorts. As of September 5, 2006, we operated 97 country clubs, golf clubs and public golf facilities, four destination golf resorts and 64 business, sports and business/sports clubs in 27 states, Washington D.C. and three foreign countries. Marquee resorts and clubs in our portfolio include Pinehurst^® Resort and Country Club in Pinehurst, North Carolina, The Homestead^® Resort in Hot Springs, Virginia, Barton Creek Resort and Country Club in Austin, Texas, Firestone^® Country Club in Akron, Ohio, Mission Hills^® Country Club near Palm Springs, California, and The City Club on Bunker Hill in Los Angeles, California.Golf Digest,Golf Travel and other golf industry publications have consistently ranked several of our approximately 150 golf courses and destination golf resorts among the best in the United States.

Our operations are organized into three principal business segments: country club and golf facilities, resorts, and business and sports clubs. Other operations that are not assigned to a principal business segment include our real estate operations and our corporate services. Our primary sources of revenue include membership dues, membership fees and deposits, food and beverage operations, golf operations and lodging.

Our predecessor corporation was organized in 1957 under the name Country Clubs, Inc. All references to us also include Country Clubs, Inc. and its successor corporations. For purposes of this document, unless otherwise indicated, references to us also include our various subsidiaries. However, we and each of our subsidiaries are careful to maintain separate legal existence, and general references to us should not be interpreted in any way to reduce the legal distinctions and separateness between subsidiaries or between us and our subsidiaries.

There is currently no public market for our common stock. We are subject to the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, pursuant to Section 15(d) thereof, because we filed a registration statement on Form S-1, which became effective October 24, 1994, pursuant to the Securities Act of 1933, as amended (the “Registration Statement”). The Registration Statement registered participation interests in the ClubCorp Stock Investment Plan (the “Plan”) and our common stock, at $.01 par value per share (the “Common Stock”), to be sold to the Plan. The Plan was amended and restated on January 1, 1999, to become the ClubCorp Employee Stock Ownership Plan (the “Amended Plan”).

Our consolidated financial statements are presented on a 52/53 week fiscal year ending on the last Tuesday of December, with the first three quarters consisting of 12 weeks each and the fourth quarter consisting of 16 or 17 weeks. The following discussion of our financial condition and results of operations for the twelve and thirty-six weeks ended September 6, 2005 and September 5, 2006 should be read in conjunction with our Annual Report on Form 10-K for the year ended December 27, 2005, as filed with the Securities and Exchange Commission.

Recent Developments

Carolina corporation, Pinehurst Realty Corp., a Nevada corporation and Pinehurst No. VII, Inc., a North Carolina corporation, or collectively, the Pinehurst Entities. Putterboy is an affiliate of each of Robert H. Dedman, Jr., the Company’s Chairman of the Board, Nancy M. Dedman, a director of the Company, and Patricia Dedman Dietz, a director of the Company. Collectively, Robert H. Dedman, Jr., Nancy M. Dedman and Patricia Dedman Deitz and their affiliates and associates beneficially own approximately 70% of the Company’s outstanding common stock. In addition to being conditioned on the consummation of the Merger, the sale of the Pinehurst Entities is subject to the approval of the stockholders of the Company and the satisfaction of other closing conditions.

Critical Accounting Policies

For a discussion of our critical accounting policies refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Overview – Critical Accounting Policies and Estimates” in our Annual Report on Form 10-K for the year ended December 27, 2005. There have been no material changes to the critical accounting policies discussed in our Annual Report on Form 10-K for the year ended December 27, 2005.

Results of Operations

General

We analyze operating results and manage our business segments using the following concepts and definitions:

We employ “same store” analysis techniques for a variety of management purposes. By our definition, facilities are evaluated yearly and considered “same store” once they have been fully operational for one year. Developing facilities and divested facilities are not classified as same store; however, facilities held for sale and held and used are considered same store until they are divested. This distinction between developing and same store facilities allows us to separately analyze the operating results of our established and new facilities. We believe this approach provides an effective analysis tool because it allows us to assess the results of our core operating strategies by tracking the performance of our same store facilities without the distortions that would be caused by the inclusion of developing properties. Facilities divested during a period are removed from the same store classification for all periods presented. We analyze membership and lodging data on a same store basis as well, so that it is not distorted by divestitures. We believe this provides a clearer picture of trends in our continuing operations.

Operating revenues are comprised mainly of revenues from dues income, golf, food and beverage and lodging, as well as the revenues recognized from membership deposits and fees. All revenue sources are recognized in the period earned, which is generally at the time of sale or when the service is provided. Operating expenses include payroll and related expenses, other fees and expenses and rent. All operating costs are expensed as incurred.

We evaluate segment performance and allocate resources based on each segment’s EBITDA. We also use EBITDA to monitor our property-level and overall performance. EBITDA is defined as earnings before interest, taxes, depreciation and amortization. EBITDA should not be construed as an alternative to, or a better indicator of, operating income or loss, is not based on accounting principles generally accepted in the United States of America, and is not necessarily a measure of our cash flow or ability to fund our cash needs. Our measurement of EBITDA may not be comparable to similarly titled measures reported by other companies. See Note 10 of the Notes to Condensed Consolidated Financial Statements for a reconciliation of this measure to our consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America.

12 Weeks Ended September 6, 2005 Compared to 12 Weeks Ended September 5, 2006

Consolidated Operations – Continuing Operations

Results of operations in 2005 include a substantial portion of the revenues and expenses related to hosting the 2005 U.S. Open. The U.S. Open week was seven days long with the last five days falling in our third quarter. Excluding the impact of the U.S. Open, operating revenues increased in all three operating segments – country club and golf facilities, resorts and business and sports clubs – finishing the twelve weeks ended September 5, 2006 at a consolidated total of $233.0 million. The following narrative discussion excludes the impact of the 2005 U.S. Open from the twelve weeks ended September 6, 2005, unless otherwise indicated. Country club and golf facilities operating revenue increased 3% primarily due to increases in dues income. Resorts operating revenue increased slightly with increases in food and beverage and lodging revenues at The Homestead offset by decreased retail revenues at Pinehurst. Business and sports clubs operating revenue increased 3% primarily due to increased dues income and private party food and beverage revenue.

Operating costs and expenses for all segments increased primarily as a result of inflation. In addition to these expected increases, resorts operating costs and expenses decreased due to lower retail sales at Pinehurst. Country club and golf facilities operating costs and expenses increased due to increases in golf course maintenance costs. Business and sports clubs operating costs and expenses were consistent with prior year. Utilities costs increased by 6% for all three operating segments due primarily to higher prices.

Operating income improved in the country club and golf facilities and business and sports clubs segments and decreased slightly in the resorts segment. Country club and golf facilities reflected improved margins primarily due to controlling payroll and payroll related costs. Business and sports clubs had increased volume and improved margins due to lower payroll and payroll related as well as cost of sales. Resorts had a slight improvement in food and beverage margins offset by increased costs for golf course maintenance primarily related to payroll and payroll related costs.

Consolidated Operations - Discontinued Operations

The periods ended September 6, 2005 and September 5, 2006 include two properties divested in 2005, three properties divested in 2006 and five properties currently held for sale in discontinued operations. Operating revenues for these properties decreased from $6.7 million in 2005 to $4.0 million in 2006. Net loss from these properties increased $0.1 million. In accordance with SFAS 144, depreciation expense is not recorded beginning with the quarter a property is classified as held for sale.

Segment and Other Information – 12 Weeks

Country Club and Golf Facilities

The following tables present certain summary financial information for our country club and golf facilities segment for the twelve weeks ended September 6, 2005 and September 5, 2006 (dollars in thousands):


	Same Store Country Club and Golf Facilities				Total Country Club and Golf Facilities
	2005		2006		2005		2006
Number of facilities at end of period in continuing operations		90		90		93		93
Operating revenues	$	117,693	$	120,876	$	118,637	$	122,753
Recognition of membership fees and deposits		5,959		5,236		5,985		5,262

Total operating revenues	$	123,652	$	126,112	$	124,622	$	128,015

Operating costs and expenses (1)		95,575		97,493		96,200		98,773

Segment EBITDA from continuing operations (1)	$	28,077	$	28,619	$	28,422	$	29,242

Segment EBITDA from discontinued operations (1)	$	49	$	340	$	31	$	115

Total Segment EBITDA (1)	$	28,126	$	28,959	$	28,453	$	29,357

(1)	Excludes intercompany consulting and support fees of $6.1 million and $6.5 million for Same Store and $6.2 million and $6.7 million for Total in the twelve weeks ended September 6, 2005 and September 5, 2006, respectively.

Continuing Operations. Total operating revenues and EBITDA increased for same store country club and golf facilities primarily due to increased membership dues and food and beverage revenues.

Membership trends for golf and country clubs historically decline in colder months of the year with positive recovery in the spring as weather becomes more favorable for golf. During 2006, our membership had a positive recovery at a rate that was slightly higher than in 2005. This trend, coupled with an annual price increase that generally occurs at the beginning of the year, resulted in a 5% overall increase in membership dues.

Golf operations revenues decreased slightly comparing 2006 to 2005. Golf course maintenance expenses increased primarily due to inflation as well as higher oil and gas costs resulting in overall decreased net profit from golf operations in the current year. Our annual dues price increases, in part, are designed to cover these increased maintenance costs.

Food and beverage revenues increased as a result of increased a la carte spending as well as private party events primarily due to better economic conditions. An increase in a la carte covers partially offset by a decreased check average for the quarter resulted in a 2% increase in a la carte revenues. In addition, efforts to pre-book private parties were more successful. The outcome was an increase in the number of events held in 2006. Cost of sales and payroll and related expenses were slightly higher than the prior year quarter resulting in a decreased net profit in food and beverage operations.

Depreciation and amortization increased from $11.4 million in 2005 to $12.0 million in 2006 due to additions during the previous year.

Discontinued Operations. The periods ended September 6, 2005 and September 5, 2006 include two properties divested in 2005, two managed properties divested in 2006 and four properties currently held for sale in discontinued operations.

Resorts

The following tables present certain summary financial data and lodging data for our resort segment for the twelve weeks ended September 6, 2005 and September 5, 2006 (dollars in thousands, except lodging data):


	Same Store Resorts						Total Resorts
	2005			2006			2005		2006
Number of facilities at end of period in continuing operations (1)		3			3			3		4
Operating revenues	$	94,207		$	53,383		$	94,207	$	53,671
Recognition of membership fees and deposits		1,362			1,231			1,362		1,231

Total operating revenues	$	95,569		$	54,614		$	95,569	$	54,902

Operating costs and expenses (2)		68,192			40,910			68,192		40,910

Segment EBITDA from continuing operations (2)	$	27,377		$	13,704		$	27,377	$	13,992

Segment EBITDA from discontinued operations	$	—		$	—		$	—	$	—

Total Segment EBITDA (2)	$	27,377		$	13,704		$	27,377	$	13,992

Lodging data (3 resorts) (1)
Room nights available		99,204			99,204
Room nights sold		67,231			65,664
Paid occupancy rate		67.8	%		66.2	%
Average daily rate (3)	$	186		$	192
Revenue per occupied room (4)	$	732		$	747

(1)

Number of facilities and lodging data is comprised of data from wholly owned resorts consisting of Pinehurst, The Homestead and Barton Creek. In the first quarter of 2006, we signed an agreement to manage Ocean Edge Resort and Golf Club on Cape Cod. Management fee revenue for the twelve weeks ended September 5, 2006 is included in Total Resorts operating revenues.

(2)	Excludes intercompany consulting and support fees of $1.3 million for Same Store and Total in the twelve weeks ended September 6, 2005 and September 5, 2006, respectively.

(3)	Average daily rate is based on the average room rate per day for the quarter-to-date.

(4)	Revenue per occupied room is based on total operating revenues excluding membership dues, recognition of member initiation fees and net managed rooms commissions.

Results of operations in 2005 include a portion of the revenues and expenses related to hosting the 2005 U.S. Open. The U.S. Open week was seven days long with two of the days falling in our second quarter and the other five days falling in our third quarter. The following table presents certain summary financial data for the U.S. Open for the twelve weeks ended September 6, 2005 (dollars in thousands):


Operating revenues	$	40,956
Operating costs and expenses		27,116

EBITDA	$	13,840

Continuing Operations. Excluding the impact of the U.S. Open, total operating revenues and EBITDA increased for same store resorts primarily due to higher average daily rate and spending at The Homestead.

The Homestead revenues increased 6% due to an $18 increase in average daily rate and increased spending as well as a slight increase in occupancy. Pinehurst revenues decreased primarily due to decreased merchandise sales in 2006. The 2005 merchandise sales were higher due to the sale of U.S. Open merchandise that occurred before and after the actual week of the U.S. Open and thus were not included in the summarized U.S. Open results noted above. Barton Creek operating revenues were comparable with an increase in average daily rate and spending offset by decreased occupancy.

All three resorts were able to effectively manage their variable costs, particularly in payroll and related areas as well as golf course maintenance. The result was an improvement of 1% in EBITDA generated from these additional revenues.

Depreciation and amortization increased slightly from $3.8 million in 2005 to $4.0 million in 2006.

Business and Sports Clubs

The following tables present certain summary financial information for our business and sports clubs segment for the twelve weeks ended September 6, 2005 and September 5, 2006 (dollars in thousands):


	Same Store Business and Sports Clubs				Total Business and Sports Clubs
	2005		2006		2005		2006
Number of facilities at end of period in continuing operations		62		62		62		63
Operating revenues	$	44,292	$	45,673	$	44,292	$	45,708
Recognition of membership fees and deposits		475		498		475		498

Total operating revenues	$	44,767	$	46,171	$	44,767	$	46,206

Operating costs and expenses (1)		39,538		39,640		39,538		39,641

Segment EBITDA from continuing operations (1)	$	5,229	$	6,531	$	5,229	$	6,565

Segment EBITDA from discontinued operations (1)	$	154	$	159	$	198	$	159

Total Segment EBITDA (1)	$	5,383	$	6,690	$	5,427	$	6,724

(1)	Excludes intercompany consulting and support fees of $3.0 million and $3.0 million for Same Store and $3.0 and $3.1 million for Total, respectively in the twelve weeks ended September 6, 2005 and September 5, 2006.

Continuing Operations.Total operating revenues and EBITDA increased at same store business and sports clubs primarily due to increased membership dues and food and beverage private party revenues.

Membership trends for business and sports clubs historically decline in the early part of the year with positive recovery in the later part of the year and throughout the holiday season. Although we did see a typical trend of declining membership for the third quarter of 2006, it was lower than our decline for the third quarter of 2005. This trend, coupled with an annual price increase that generally occurs at the beginning of the year, resulted in a 4% overall increase in membership dues.

Food and beverage operations increased primarily due to more successful efforts in pre-booking private events resulting in a 4% increase in private party revenues. During the third quarter of 2006, cost of sales, payroll and other costs associated with the private events were well controlled resulting in a positive profit margin in overall food and beverage operations comparing 2005 to 2006.

Depreciation and amortization increased slightly from $2.0 million in 2005 to $2.1 million in 2006.

Discontinued Operations.The periods ended September 6, 2005 and September 5, 2006 include one property divested in 2006 and one property currently held for sale in discontinued operations.

Other Operations and Services – Continuing Operations

Other operations and services consist primarily of real estate operations and corporate services. Revenues primarily consist of fees we receive from third-party developers based on a percentage of their real estate sales. Revenues decreased from $5.2 million in 2005 to $3.9 million in 2006 primarily due to decreased lot sales in 2006.

Operating loss from other operations and services increased from $10.5 million in 2005 to $12.1 million in 2006 primarily due to the recognition of approximately $0.9 million in compensation expense related to the expensing of stock options and the expensing of costs related to our potential sale of the company of $0.6 million. Offsetting this were expenses of approximately $1 million incurred in 2005 in corporate services related to the hosting of the 2005 U.S. Open and decreased lot sales in 2006.

36 Weeks Ended September 6, 2005 Compared to 36 Weeks Ended September 5, 2006

Consolidated Operations – Continuing Operations

Results of operations in 2005 include the revenues and expenses related to hosting the 2005 U.S. Open. Excluding the impact of the U.S. Open, operating revenues increased in all three operating segments – country club and golf facilities, resorts and business and sports clubs – finishing the thirty-six weeks ended September 5, 2006 at a consolidated total of $678.1 million. The following narrative discussion excludes the impact of the 2005 U.S. Open from the thirty-six weeks ended September 6, 2005, unless otherwise indicated. Country club and golf facilities operating revenue increased 4% due to increases in dues income, food and beverage and golf operations revenues. Resorts operating revenue increased primarily related to increases in golf operations at Pinehurst, lodging and food and beverage revenues at all three resorts partially offset by decreases in retail sales at Pinehurst. Business and sports clubs operating revenue increased 3% primarily due to increased dues income and private party food and beverage revenue.

Operating costs and expenses for all segments increased primarily as a result of inflation. In addition to these expected increases, resorts operating costs and expenses decreased due to management of golf course maintenance costs as well as decreased retail sales. Country club and golf facilities operating costs and expenses increased due to increases in golf course maintenance and other golf expenses incurred to host a golf tournament that would normally have been covered by a sponsor. Business and sports clubs operating costs and expenses were negatively impacted by increased utilities costs. Utilities costs increased by $2.2 million or 8% for all three operating segments due primarily to higher pricing.

Operating income improved in the resorts and business and sports clubs segments and decreased in the country club and golf facilities segment. Resorts reflected improved margins primarily due to controlling payroll and payroll related costs. Business and sports clubs had increased volume and an improved food and beverage margin due to lower cost of sales and management of payroll costs. Country club and golf facilities had flat margins for cost of goods sold and payroll costs coupled with the increased costs for golf course maintenance and other golf expenses noted above.

Consolidated Operations - Discontinued Operations

The periods ended September 6, 2005 and September 5, 2006 include two properties divested in 2005, three properties divested in 2006 and five properties currently held for sale in discontinued operations. Operating revenues for these properties decreased from $19.7 million in 2005 to $12.2 million in 2006. Net loss from these properties increased $2.1 million primarily due to a $3.0 million impairment charge taken in 2006. In accordance with SFAS 144, depreciation expense is not recorded beginning with the quarter a property is classified as held for sale.

Segment and Other Information – 36 Weeks

Country Club and Golf Facilities

The following tables present certain summary financial information for our country club and golf facilities segment for the thirty-six weeks ended September 6, 2005 and September 5, 2006 (dollars in thousands):


	Same Store Country Club and Golf Facilities					Total Country Club and Golf Facilities
	2005			2006		2005			2006
Number of facilities at end of period in continuing operations		90			90		93			93
Operating revenues	$	333,220		$	345,267	$	335,807		$	350,476
Recognition of membership fees and deposits		17,889			16,307		17,973			16,382

Total operating revenues	$	351,109		$	361,574	$	353,780		$	366,858
Operating costs and expenses (1)		265,304			276,797		266,938			280,325


Segment EBITDA from continuing operations (1)	$	85,805		$	84,777	$	86,842		$	86,533

Segment EBITDA from discontinued operations (1)	$	(79	)	$	433	$	(387	)	$	(209	)

Total Segment EBITDA (1)	$	85,726		$	85,210	$	86,455		$	86,324

(1)	Excludes intercompany consulting and support fees of $18.4 million and $19.4 million for Same Store and $18.8 million and $19.8 million for Total in the thirty-six weeks ended September 6, 2005 and September 5, 2006, respectively.

Continuing Operations. Total operating revenues increased for same store country club and golf facilities primarily due to increased membership dues, golf operations and food and beverage revenues while EBITDA decreased primarily due to increased golf operations expenses.

Membership trends for golf and country clubs historically decline in colder months of the year with positive recovery in the spring as weather becomes more favorable for golf. Our year-to-date memberships trends have been more positive when comparing 2006 versus 2005. This trend, coupled with an annual price increase that generally occurs at the beginning of the year, resulted in a 5% overall increase in membership dues.

Golf operations revenue increased primarily due to increased rounds played due to more favorable weather in 2006 as compared to 2005 and increased merchandise sales. Abnormally heavy rains on the West coast in 2005 resulted in lower golf revenues for those clubs in peak season in 2005. Golf course maintenance expenses increased due to inflation as well as higher oil and gas costs resulting in overall decreased net profit from golf operations in the current year. Our annual dues price increases, in part, are designed to cover these increased maintenance costs. In addition, we incurred costs to host a tournament that would normally have been covered by a sponsor. We have received a partial reimbursement of these costs in 2006 and are negotiating an additional reimbursement of approximately $1.0 million before year-end.

Food and beverage revenues increased as a result of increased a la carte spending as well as private party events primarily due to better economic conditions. An increase in a la carte covers and increased check average resulted in a 4% increase in a la carte revenues. In addition, efforts to pre-book private parties were more successful. The outcome was an increase in the number of events held in 2006 resulting in a 4% increase in revenues. Cost of sales and payroll and related expenses were slightly higher during the current year resulting in a decreased net profit in food and beverage operations.

Depreciation and amortization increased from $33.8 million in 2005 to $35.5 million in 2006 due to additions during the previous year.

Resorts

The following tables present certain summary financial data and lodging data for our resort segment for the thirty-six weeks ended September 6, 2005 and September 5, 2006 (dollars in thousands, except lodging data):


	Same Store Resorts						Total Resorts
	2005			2006			2005			2006
Number of facilities at end of period in continuing operations (1)		3			3			3			4
Operating revenues	$	195,325		$	150,695		$	195,325		$	151,072
Recognition of membership fees and deposits		4,092			3,784			4,092			3,784

Total operating revenues	$	199,417		$	154,479		$	199,417		$	154,856
Operating costs and expenses (2)		151,254			116,521			151,254			116,521
									��
Segment EBITDA from continuing operations (2)	$	48,163		$	37,958		$	48,163		$	38,335

Segment EBITDA from discontinued operations	$	—		$	—		$	—		$	—

Total Segment EBITDA (2)	$	48,163		$	37,958		$	48,163		$	38,335

Lodging data (3 resorts) (1)
Room nights available		297,652			297,652
Room nights sold		179,810			180,704
Paid occupancy rate		60.4	%		60.7	%
Average daily rate (3)	$	189		$	196
Revenue per occupied room (4)	$	738		$	762

(1)

Number of facilities and lodging data is comprised of data from wholly owned resorts consisting of Pinehurst, The Homestead and Barton Creek. In the first quarter of 2006, we signed an agreement to manage Ocean Edge Resort and Golf Club on Cape Cod. Management fee revenue for the thirty-six weeks ended September 5, 2006 is included in Total Resorts operating revenues.

(2)	Excludes intercompany consulting and support fees of $3.9 million and $4.0 million for Same Store and Total in the thirty-six weeks ended September 6, 2005 and September 5, 2006, respectively.

(3)	Average daily rate is based on the average room rate per day for the year-to-date.

(4)	Revenue per occupied room is based on total operating revenues excluding membership dues, recognition of member initiation fees and net managed rooms commissions.

Results of operations in 2005 include a portion of the revenues and expenses related to hosting the 2005 U.S. Open. The U.S. Open week was seven days long with two of the days falling in our second quarter and the other five days falling in our third quarter. The following table presents certain summary financial data for the U.S. Open for the thirty-six weeks ended September 6, 2005 (dollars in thousands):


Operating revenues	$	50,467
Operating costs and expenses		36,517

EBITDA	$	13,950

Continuing Operations. Excluding the impact of the U.S. Open, total operating revenues and EBITDA increased for same store resorts primarily due to higher occupancy at Pinehurst and higher average daily rate and spending at Barton Creek and The Homestead.

Barton Creek revenues increased 7% due to a slight increase in occupancy, a $9 increase in average daily rate and increased spending as Barton Creek carried forward its momentum from 2005 due to strong economic conditions. Pinehurst revenues increased 3% primarily due to an increase in occupancy. In addition, Pinehurst increased the greens fee prices on several of its courses and increased the total number of rounds played resulting in higher revenue from golf operations. The Homestead revenues increased 3% due to a $15 increase in average daily rate and increased spending.

All three resorts were able to effectively manage their variable costs, particularly in payroll and related areas as well as golf course maintenance. The result was an improvement of 2% in EBITDA generated from these additional revenues.

Depreciation and amortization increased slightly from $11.3 million in 2005 to $11.7 million in 2006.

Business and Sports Clubs

The following tables present certain summary financial information for our business and sports clubs segment for the thirty-six weeks ended September 6, 2005 and September 5, 2006 (dollars in thousands):


	Same Store Business and Sports Clubs				Total Business and Sports Clubs
	2005		2006		2005		2006
Number of facilities at end of period in continuing operations		62		62		62		63
Operating revenues	$	142,180	$	146,455	$	142,180	$	146,559
Recognition of membership fees and deposits		1,453		1,480		1,453		1,480

Total operating revenues	$	143,633	$	147,935	$	143,633	$	148,039

Operating costs and expenses (1)		121,982		123,232		121,982		123,234

Segment EBITDA from continuing operations (1)	$	21,651	$	24,703	$	21,651	$	24,805

Segment EBITDA from discontinued operations (1)	$	549	$	473	$	666	$	538

Total Segment EBITDA (1)	$	22,200	$	25,176	$	22,317	$	25,343

(1)	Excludes intercompany consulting and support fees of $9.0 million and $9.2 million for Same Store and $9.1 and $9.3 million for Total, respectively in the thirty-six weeks ended September 6, 2005 and September 5, 2006.

Continuing Operations.Total operating revenues and EBITDA increased at same store business and sports clubs primarily due to increased membership dues and food and beverage private party revenues.

Membership trends for business and sports clubs historically decline in the early part of the year with positive recovery in the later part of the year and throughout the holiday season. Although we did see a typical trend of declining membership for the first three quarters of 2006, it was lower than our decline for the first three quarters of 2005. This trend, coupled with an annual price increase that generally occurs at the beginning of the year, resulted in a 3% overall increase in membership dues.

Food and beverage operations increased primarily due to more successful efforts in pre-booking private events resulting in a 5% increase in private party revenues. During the first three quarters of 2006, cost of sales, payroll and other costs associated with the private events were well controlled resulting in a positive profit margin in overall food and beverage operations comparing 2005 to 2006.

Depreciation and amortization increased from $6.0 million in 2005 to $6.2 million in 2006.

Discontinued Operations.The periods ended September 6, 2005 and September 5, 2006 include one property divested in 2006 and one property currently held for sale in discontinued operations.

Other Operations and Services – Continuing Operations

Other operations and services consist primarily of real estate operations and corporate services. Revenues primarily consist of fees we receive from third-party developers based on a percentage of their real estate sales. Revenues decreased from $10.5 million in 2005 to $8.3 million in 2006 primarily due to decreased lot sales in 2006.

Operating loss from other operations and services increased from $34.2 million in 2005 to $43.4 million in 2006 primarily due to the following: (a) recognition of approximately $2.4 million in compensation expense related to the expensing of stock options, (b) an increase in payroll and payroll related costs, (c) expensing of costs related to the potential sale of the company of $0.7 million and (d) decreased lot sales in 2006. The results in 2005 also include approximately $1 million of expenses in corporate services related to the hosting of the 2005 U.S. Open.

Seasonality of Demand; Fluctuations in Quarterly Results

Our quarterly results fluctuate due to a number of factors. Usage of our country club and golf facilities and resorts 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 facilities generate a disproportionately 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 quarters consist of 12 weeks. As a result of these factors, we usually generate a disproportionate share of our revenues 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 new facilities, or divestitures, has also caused and may cause our results of operations to vary significantly in otherwise comparable periods. In addition, our results can be and have been affected by the hosting of special events and non-seasonal and severe weather patterns.

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 our core properties, fund expansions at our current properties, and be poised for external growth in the marketplace. During the last few years, our focus has been on strengthening our cash position and refinancing and reducing our debt in order to support these goals.

Our cash position decreased to $138 million as of September 5, 2006 compared to $189 million as of December 27, 2005. The primary reason for the reduction was the paydown of $32 million related to a refinancing of a portion of our debt with Pacific Life as well as paying down more than $21 million of maturing debt during 2006. Our debt has been paid down to $611 million as of September 5, 2006 representing payments of approximately $68 million since December 27, 2005.

Historically, we have financed our operations and cash needs primarily through cash flows from operations, debt and, to a lesser extent, proceeds from divestitures. We anticipate using cash flow from operations in 2006 principally to fund planned capital replacement expenditures and repay debt and build cash reserves as well as grow and expand our business through a combination of improvements and expansions of existing facilities, on which we have spent approximately $72 million year-to-date. Based on our current projections, we believe our current assets and cash flow from operations are sufficient to meet our anticipated working capital and operating needs for the next twelve months as well as support our anticipated capital expenditures.

Debt

Cash and Cash Flow

Our cash flow from operations was $87 million for the thirty-six weeks ended September 5, 2006, an increase of $5 million compared to 2005. We utilize cash to fund operations, maintain our properties, pay down our debt and related interest, and, to a limited extent, buy back company stock. In 2006, we have reduced our debt by nearly $68 million while only decreasing our cash and cash equivalents by $50 million. For 2006, we are considering additional investments in improving and expanding our existing properties or acquiring new properties.

Capital Spending

The nature of our business requires us to invest a significant amount of capital in our existing properties to maintain them. For the thirty-six weeks ended September 5, 2006, we have expended approximately $55 million in maintenance capital, and we anticipate spending an additional $13 million for the remainder of fiscal 2006.

In addition to maintaining our properties, we also spend discretionary capital to expand or improve existing properties and to enter into new business opportunities. Capital expansion funding totaled approximately $17 million for the thirty-six weeks ended September 5, 2006, and we anticipate spending an additional $20 million for the remainder of fiscal 2006 for expansion and improvement projects on clubs and resorts we feel have a high potential for return on investment.

Risks

We believe that we have sufficient and stable funds to allow us to operate our business for the next twelve months as well as evaluate growth opportunities during 2006 and beyond. However, the occurrence of any of the following events might limit our ability to fund operations or provide adequate capital funding:

•

Lack of compliance with debt covenants – currently our defaults on the Textron note are cured by letters of credit. However, should operations cause adverse results at one or a group of properties, we could be put in a position of having to pay down debt or secure additional financing.

•

Exercise of the limited put right by our ESOP – As a means of providing liquidity to the trustees of the Amended Plan, we have provided the trustees a limited put right (the “Redemption Right”) to cause us to redeem Common Stock, held in trust on behalf of the Amended Plan, at the most recent appraised fair market value as necessary, in the event the trust does not have adequate resources, to meet the following requirements: (1) to fund a participant’s distribution in cash, (2) to diversify a participant’s account in accordance with Internal Revenue Code Section 401(a)(28), (3) to pay expenses incurred by the trustees, and (4) to comply with directions from the plan administrator. The Redemption Right has never been exercised by the Amended Plan. We do not expect that the Redemption Right will be exercised to a significant extent in 2006, but if it is, we could be required to repurchase shares of Common Stock.

•

Amendment to Omnibus Stock Plan – Effective June 26, 2006, we amended our stock option plan to include a change in control provision if the company is sold in connection with our current agreement and plan of merger. All outstanding options will become 100% vested upon closing and cash will be paid for the in-the-money value of the options. This provision is only effective if a sale occurs in connection with our current agreement and plan of merger. The aggregate intrinsic value of our outstanding options as of September 5, 2006 was approximately $25 million (See Note 2 of the Notes to Condensed Consolidated Financial Statements).

•

Exercise of certain rights by our third party investor – During 1999, we sold 9,375,000 shares of common stock and warrants to acquire 1,012,500 shares of common stock to The Cypress Group. Beginning in December 2004, we are obligated under certain defined conditions to offer to repurchase a portion of their outstanding shares if we are below a defined leverage ratio. This calculation is performed annually on December 1^st. Based on the 2005 calculation, we were above the stated leverage ratio and were not required to offer to repurchase any shares. If our actual future operating results differ materially from expectations, we could fall below the leverage ratio at the next annual calculation date and would be required to offer to repurchase a portion of their shares of Common Stock. We do not anticipate this occurring in 2006.

•

Natural disaster or catastrophic events - Events out of our control could cause significant operational implications and/or an inability to obtain financing.

With the exception of the possible sale of the company, we do not anticipate any of the above situations occurring. Additionally, these risks are somewhat mitigated due to the fact that a significant portion of our capital expansions and new growth spending is discretionary. However, we cannot assure you that these events will not occur.

Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments

During the thirty-six weeks ended September 5, 2006, there were no material changes outside of the normal course of business to the quantitative and qualitative disclosures about contractual obligations, commitments, contingent liabilities and off-balance sheet arrangements previously reported in the Annual Report on Form 10-K for the year ended December 27, 2005. See Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Off-Balance Sheet Arrangements, Contractual Obligations and Commercial Commitments” in the Form 10-K for the year ended December 27, 2005 for a detailed discussion.

Factors That May Affect Future Operating Results and the Accuracy of Our Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended. All statements other than statements of historical fact should be considered “forward-looking statements” for purposes of these provisions, including statements that include projections of, or expectations about, earnings, revenues or other financial items, statements about our plans and objectives for future operations, statements concerning proposed new products or services, statements regarding future economic conditions or performance, statements concerning our expectations regarding the attraction and retention of members and guests, statements about market risk and statements underlying any of the foregoing. In some cases, forward-looking statements can be identified by the use of terminology such as “may,” “will,” “expects,” “plans,” “anticipates,” “intends,” “believes,” “estimates,” “potential” or “continue,” or the negative thereof or other similar words. Although we believe that the expectations reflected in our forward-looking statements are reasonable, we can give no assurance that such expectations or any of our forward-looking statements will prove to be correct. Actual results and developments are likely to be different from, and may be materially different from, those expressed or implied by our forward-looking statements. Forward-looking statements are subject to inherent risks and uncertainties, some of which are summarized in this section and in our Form 10-K for the year ended December 27, 2005.

Our success depends on our ability to attract and retain members at our clubs and maintain or increase usage of our facilities. We have experienced varying levels of membership enrollment and attrition rates and, in certain areas, decreased levels of usage of our facilities during our operating history. Although management devotes substantial efforts to ensuring that members and guests are satisfied, many of the factors affecting club membership and facility usage are beyond our control, including weather conditions, general economic conditions, changes in demand for golf and private club services and changes in the Federal tax laws. There can be no assurance that we will be able to maintain or increase membership or facility usage. 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, operating results, and financial condition. Other factors that may affect our operating results include, but are not limited to, our ability to obtain external financing, the actions of our competitors, changes in labor costs, the timing and success of acquisitions and dispositions, changes in law, future terrorist attacks on U.S. targets, prolonged U.S. military efforts with Iraq and/or other nations, or other related international geopolitical uncertainties.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There were no material changes to the disclosure on this matter made in our Annual Report on Form 10-K for the year ended December 27, 2005.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this quarterly report. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our current disclosure controls and procedures were effective as of the end of the period covered by this report, in ensuring that all information required to be disclosed in reports we file or submit under the Securities Exchange Act of 1934 has been recorded, processed, summarized and reported within the time periods specified by the SEC.

Changes in Internal Controls

There has been no change in our internal control over financial reporting during the twelve weeks ended September 5, 2006 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

NONE.

Item 6. Exhibits

(a) Exhibits

31.1 - Certification by John A. Beckert pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2 - Certification by Jeffrey P. Mayer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1 - Certification by John A. Beckert pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2 - Certification by Jeffrey P. Mayer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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, Inc.

Date: October 19, 2006	By:	/s/ Jeffrey P. Mayer
		Jeffrey P. Mayer
		Chief Financial Officer

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Clubcorp Inactive 10-Q2006 Q3 Quarterly report

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