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Home My WebLink AboutHeaton Eadie Financial Projections 200610/06/08 09:18 FAX 3175819200 HEATON & EADIE i- EATON::EADIE A COUNT \NT5 S CONSULTANTS October 6, 2006 -• PERSONAL AND CONFINDENTIAL Mr. Les Olds Director of Redevelopment Cannel Redevelopment Commission One Civic Square Carmel, Indiana 46032 Dear Les: 411002 DRAFT As you requested, we have assembled a five -year financial projection from information provided pursuant to paragraph 6.3 E of the Asset Purchase Agreement between Brookshire First Mortgage, LLC and Carmel Redevelopment Commission, The enclosed projections and this report were prepared to estimate the cash flows of Brookshire Golf Club for five years in consideration of a potential purchase by the Carmel Redevelopment 0 Commission and should not be used for any other purpose. • We relied on the following to assemble our projections: .5.-C./(2.,, • 2006 Forecast; • Profit and Loss Statement, year -to -date through July 31, 20M • 2005 Summary of Expenses; • List of Current Employees; • List of Current Members; • Current Rate Schedule; and • List of Fixed Assets and Depreciation. We have not compiled or examined the financial projections and express no assurance of any kind on it. Further, even if the assumptions become true, there will usually be differences between the projected and actual results, because events and circumstances frequently do not occur as expected, and that difference may be material. In accordance with the terms of our engagement, this report and the accompanying projection are restricted to internal use, and may not be shown to any third party for any purpose. The assembled projections for Brookshire Golf Club are for years 2007 through 2011. The projections assume the following: • Rounds of golf will increase by 1,000 for 2007; 3,000 for 2008; 2,000 for 2009; and 1,000 for 2010 and 2011; • Pricing will increase by 5% for 2007 then remain constant; • Cost. of Goods Sold will increase 2% per a year; • Indirect expenses will remain constant; • Depreciation expense is not considered; • Interest expense will be $165,000 per a year ($3,000,000 x 5.5 %); Sawn ParkvWC i".KI: asl 4rilb SI real For Internal Use OOIy SLSe 150 Irt rape16 IN 76240 main 317.581,90011 Fax 317.091,3700 www,h5alcnandeadle.crn 10/06/00 09:16 FAX 3175819200 HEATON & EADIE Z003 Mr. Les Olds October 3, 2006 Page 2 • Principal repayment is not considered in this projection; and • No real estate taxes will be incurred The assembled cash flows are presented in Exhibit 1. If you have any questions after reviewing the projections and this report please contact us. BT /eol Enclosures Very truly yours, Zt2.Q'io.u.yvL Bill Thomas For Internal use only 10/06/06 09:18 FAX 3175819200 Carmel Redevelopment Commission Brookshire Golf Course Projected Income and Expense Analysis Income t °1 Cost of Goods Sold N7 Gross Profit HEATON & EADIE V1004 n,i p 4i / 3? 2007 2008 S 940,737 S 1,025,247 81.864 83,501 2009 2010 2011 3 1,109,757 $ 1,137,927 85;171 86,874 88,612 996,416 1,022,883 1,049,315 indirect Expenses (c) 1' & B Related Expenses Fro Shop/Oolf Operations General and Administrative Club House Maintenance Course Maintenance - Payroll Course Maintenance - Supplies & Util Liability insurance Total Indirect Expenses Net Income Before Financing Costs Bond Interest Expense Surplus /(Deficit) Rounds of Cotf t°1 Income per Round 1`1 858,873 24,373 144,740 200,202 3,977 127,567 109,160 12,784 941,746 24,373 144,740 200,202 3,977 127,567 109,160 12,784 5 1,081,587 24,373 144,740 200,202 3,977 127,567 109,160 12,784 24,373 144,740 200,202 3,977 127,567 109,160 12,784 24,373 144,740 200,202 3,977 127,5G7 109,160 12,784 622,802 622,802 622,802 622,802 622,802 236,071 318,944 373,614 400,080 426,513 (165,000) (165,000) (165,000) (165,000) (165,000) 5 71,071 S 153,944 $ 208,614 $ 235,080 S 261,513 33,395 36,395 40,395 38,395 39,395 . $ 28.17 $ 28,17 $ 28.17 S 28.17 $ 28.17 t4 Income is calculated by multiplying rounds of golf and income per round. (t) Cost of Goods Sold is increased by 2% for inflationary purposes. (t) These amounts do not include depreciation expense. (d) Rounds of golf increase by 1,000 for 2007; 3,000 for 2008; 2,000 for 2009; and 1,000 for 2010 and 2011. t`t Income per Round increase by 5% for 2007 then remains constant. Exhibit 1 For Internal Use Only 10/08/08 09:18 FAX 3175819200 HEATON & EADIE HEATON ;;EADIE ACCOUNTANTS a :0115U1TANIS October 6, 2006 Mr. Les Olds Director of Redevelopment Cannel Redevelopment Commission One Civic Square Carmel, Indiana 46032 Dear Les: Rl005 We have been retained by you to provide a calculations and consulting analysis of the Cannel Redevelopment Commission's contemplated purchase of Brookshire Golf Club. Specifically, we have been engaged to determine if the Brookshire Golf Club can generate sufficient cash flows to service the interest on a S3,000,000 municipal bond. As such, we have analyzed the information provided pursuant to paragraph 6.3 E of the Asset Purchase Agreement Between Brookshire First Mortgage, LLC and Carmel Redevelopment Commission. Specifically we have received, reviewed and relied upon the following information related to Brookshire Golf Club: • 2006 Forecast; • Profit and Loss Statement, year -to -date through July 31, 2006; • 2005 Summary of Expenses; • List of Current Employees; • List of Current Members; • Current Rate Schedule; and • List of Fixed Assets and Depreciation. As indicated in our engagement letter dated August 31, 2006, the scope of our engagement did not include independently verifying the information provided to us. Accordingly, the information contained in this letter and exhibits hereto is based on discussions with and information provided by Brookshire Golf Club. Our procedures did not constitute an audit, review or compilation of the information provided and we do not express a conclusion or provide any other form of assurance on the completeness or accuracy of the information provided by Brookshire Golf Club. Analysis We utilized the information provided to us regarding the actual and expected financial results of Brookshire Golf Club and compiled an estimate of a single year's net income, excluding depreciation and interest expense, as shown on Exhibit 1. Based on this information, it appears approximately S149,000 would be available to service the interest on the $3,000,000 purchase price. Assuming an interest rate of 5.5 %, total interest would be $165,000. Therefore, the shortfall on servicing the interest on a S3,000,000 bond would be around S16,000. Based on current pricing at Brookshire Golf Club, it would take approximately 600 additional rounds of golf to break -even. For additional details of our calculation, see Exhibit 2. To determine the likelihood of achieving break even results, we have evaluated the revenue Brookshire. Sewn Parkwoca 290 East 96th Street Sole 160 Indianapnis. IN 46240 M:ir 317.581.9000 Fax 317.581 9200 twrechttalonarld ealie an 10/08/06 09:18 FAX 3175819200 HEATON & EADIE Mr. Les Olds September 14, 2006 Page 2 Ij006 The number of rounds of golf played year -to -date through August, 2006 was 22,391 compared to 14,369 for the same penod of 2005, Management attributes the increase in number of rounds to renovations and improvements during 2005, and the hiring of a new golf professional, who has enhanced the desirability of Brookshire Golf Club through his reputation and promotion efforts. Additionally, we understand that Mohawk Hills Golf Course will be closing in the near future. Based on the information supplied by the management of Mohawk Hills, the course has averaged 18,000 to 19,000 rounds of golf per a year for the past several years. Obviously, the closing of Mohawk Hills will constrict the supply golf courses available and will provide an opportunity for Brookshire Golf Club to grow as the displaced golfers seek substitute courses within close proximity. Given the short distance between the two courses, Brookshire Golf Club should earn a portion of those rounds. Given that our analysis was limited to contemplating a single year's cash flows, we must also evaluate the business risks of investing in a golf venture. Therefore, we next present some of the risks of the golf business that can have a significant impact on a course's financial results. Business Risks Although the informatior. provided by Brookshire indicated that it will nearly cash flow the interest on a $3;000,000 bond, please note that golf ventures are susceptible to the following business risks: • Weather • Management Expertise • Quality of Golf Pro • Quality of Grounds Crew • Cash Flow Management • Unexpected repair or improvement costs • Overall economic conditions • Competition from other golf facilities, including pricing Clearly, the golf business is weather - driven. Unusually wet or hot weather, especially at peak playing times, can greatly reduce the profitability of golf course. The next three business risk factors — management expertise, quality of golf pro and quality of grounds crew —can be summarised as the quality of the workforce. Experienced management is essential to contain costs, effectively hire and manage the workforce, and look after the overall health of the business. A good golf pro and a well maintained course are also very important factors in attracting customers to the course. Finally, cash flow management is also an important consideration in the golf business. As you know, many profitable ventures fail due to poor cash O.ow management. Obviously the seasonality of the golf business can create challenges in funding recurring obligations. In addition, unexpected repairs and improvement costs can also hinder a golf courses ability to meet financial expectations. 10/08/08 09:18 FAX 3175819200 Mr. Les Olds September 14, 2006 Page 3 HEATON & EADIE 2007 We believe it is important to consider these challenges and risks when evaluating the limited financial data we reviewed and restated in the attached Exhibits. Once you have had a chance to review the above information, please do not hesitate to contact me with any questions you might have. BT /tab Enclosures Very Truly yours, RLUZ V Bill Thomas 10/00/08 09:18 FAX 3175819200 Carmel Redevelopment Commission Brookshire Golf Course 2006 Income and Expense Analysis HEATON & EADIE t 008 �ce L`.,/ rt dr jZ y Amount Income Memberships S 93,858 Green Fees 550,978 Carts 23,805 Special Group Fccs 10,622 Pm Shop Income 90,380 Snack Bar/ Retail 97,350 Golf Outings 572 Other Income 1,600 Pool - Brookshire Swim Club - Total Income 869,165 Cost of Goods Sold Cost of Goods Sold Pro Shop 39,431 Cost of Goods Sold -F & B 40,033 Cost of Goods Sold -Golf Outings 795 Total COGS 80,258 Gross Profit 788,907 Indirect Expenses F & B Related Expenses 24,373 Pro Shop /Golf Operations 144,740 General and Administrative 200,202 Club House Maintenance 3,977 Course Maintenance - Payroll 127,567 Course Maintenance - Supplies & Utilities 109,160 Total Course Maintenance 236,726 Liability Insurance 12,784 Property Taxes 16,822 Total Indirect Expanses 639,625 Net Ordinary Income S 149,282 Rounds of Golf S 32.400 Income per Round S 26.83 "Note: The data presented is based on year to date information through July 2006 and forecasted information for the remainder of the year. The above amounts do not include interest or deprcication expense. UEAFONt:R4TSR Exhibit 1 10/06/08 09:18 FAX 3175819200 Carmel Redevelopment Commission Brookshire Golf Course 2006 Income and Expense Analysis HEATON & EADIE I 009 I 114-1111-41 Cost of Purchase S 3,000,000 Annual Debt Service trd, 5.5% (Interest only) 165,000 Projected One Year Nat Income 149,282 Estimated Annual Deficit (15,718) Additional Rounds to Break -Even 586 Approximate Total Rounds to Break -Even at Curren Pricing 33,000 HEATON:CADE Exhibit 2 HEATON : :EADIE CCOUNIANTS & CONSULTANTS December 19, 2006 Mr. Les Olds Director of Redevelopment Carmel Redevelopment Commission One Civic Square Carmel, Indiana 46032 Dear Mr. Olds: We previously provided you with a five year financial projection in connection with the possible acquisition of the Brookshire Golf Club. In our letter to you dated October 6, 2006, the financial projections based on the assumptions outlined, indicated the Brookshire Golf Club should generate a positive cash flow after debt service costs. As we discussed when reviewing the five year projection, a reasonable value of the Brookshire Golf Club would be in the range of $2,600,000 to 52,700,000. If you have any questions, please call me. Very Truly yours, /;it, t ULL& Bill Thomas, CPA 1 '?a : E as; ;ion $V4rF 150 Iarl.a,alJc IS, IN 40240 Mari 317 5h'• 40110 FE. 3, 56' 93;u ••Nah:ledIG08ndea e Cnn, Page 1 of 2 Cordray, Diana L From: Engelking, Steve C Sent: Thursday, March 29, 2007 11:48 AM To: Sheeks, Cindy L Cc: Mielke, Sherry S; Cordray, Diana L; kph @wshlaw.com Subject: RE: Golf Course Issues Cindy: I am reading your note while out of the office on Spring Break, and in this reply am including not only Sherry by Karl Haas as addressees, hoping that they can fill in the blanks on the contract question should my memory not be accurate as to dates, and assist on the matter of the Sales Tax issue, as I had previously asked that they assist in that answer as well. As for the Contract with Paul Blockoms, that was finalized and signed by the CRC and Paul in January, I believe, so that matter should be closed and allow for the Paychex thing to move forward. As for the payment of sales taxes, I do not yet have an answer about how that is facilitated, and had hoped some time ago that you and I would have heard from either Sherry or Karl on the matter. I hope that with this note, there will be the possibility of responses on this matter so that can also move forward. I did mention something to Paul Blockoms and asked him how it was handled by the former management, and I believe he told me that he took it to the County periodically and paid it. Maybe it is that simple, but I would bet not. Sorry the tax question is languishing. I will be back on Monday, and if it is still an open issue, I will follow up some more. Sherry and Karl: Any ideas on this questions, and /or confirmation of the matter of the contract that Cindy speaks of and I have elaborated upon above ?? Thanks. From: Sheeks, Cindy L Sent: Thu 3/29/2007 10:47 AM To: Engelking, Steve C Cc: Mielke, Sherry 5; Cordray, Diana L Subject: Golf Course Issues Steve, I just wanted to fill you in on a couple of issues involving the golf course. First, I am waiting for direction regarding the submission of sales tax and food & beverage taxes. We will be subject penalties if we are late. Secondly, has a contact for Blockums Golf Course management been prepared and presented to the CRC so we can set up payroll with PayChex? These items require attention as soon as possible. Thanks for your help. Cindy Sheeks Finance Manager, City of Carmel 317 - 571 -2428 3/29/2007