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HomeMy WebLinkAboutFinancial Analysis Heaton Eadie - October and December, 2006 HEATON •eEADIE /LA/ if 47 Ii ACCOUNTANTS & CONSULTANTS October 6, 2006 Mr. Les Olds Director of Redevelopment Carmel Redevelopment Commission One Civic Square Carmel, Indiana 46032 Dear Les: We have been retained by you to provide a calculations and consulting analysis of the Carmel Redevelopment Commission's contemplated purchase of Brookshire Golf Club. Specifically, WC have been engaged to determine if the Brookshire Golf Club can generate sufficient cash flows to service the interest on a $3,000,000 municipal bond. As such, we have analyzed the informtion 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 $149,000 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 $3,000,000 bond would be around $16,000. 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. Seven Parkwood 280 East 96thStreet Suite 150 Indianapolis,IN 46240 Main 317.5819000 Fax 317.581.9200 vndashealonandeadiE Cem • Mr. Les Olds September 14, 2006 ''-Y/j j , Page 2 The number of rounds of golf played year-to-date through August, 2006 was 22,391 compared to 14,369 for the same period 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 information 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 summarized 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 flow 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. Mr. Les Olds r September 14, 2006 (� Page 3 iud U l 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 nie with any questions you might have. Very truly yours, Bill Thomas BT/rab Enclosures Carmel Redevelopment Commission Brookshire Golf Course 2006 Income and Expense Analysis Amount Income Memberships S 93,858 Green Fees 550,978 Carts 23,805 Special Group Fees 10,622 Pro Shop Income 90,380 Snack Bar/ Retail 97,350 Golf Outings 572 Other Income 1,600 Pool - Brookshire Swim Club - Tota l 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 Expenses 639,625 Net Ordinary Income $ 149,282 Rounds of Golf $ 32,400 Income per Round $ 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 depreication expense. HEATOT\::EADIE Exhibit 1 • • Carmel Redevelopment Commission Brookshire Golf Course 2006 Income and Expense Analysis Cost of Purchase S 3,000,000 Annual Debt Service @ 5.5% (Interest only) 165,000 Projected One Year Net Income 149,282 Estimated Annual Deficit (15,718) Additional Rounds to Break-Even 586 Approximate Total Rounds to Break-Even at Current Pricing 33,000 HEATON::EADIE Exhibit 2 HEAHEATON F T7��1i T ON ::LADE E ACCOUNTANTS & 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 $2,700,000. If you have any questions, please call me. Very truly yours, �� �� �� /Lek Ph Bill Thomas, CPA • Seven Parir.rood 280 East96in Siree1 Suite 150 Indianapolis.IN 46240 Main 317.581.9000 Fax 317.581.9200 venotthealonandeadle.com HEAT AS r-1 1 11.E 11 ON ••E DIE , J // , ACCOUNTANTS & CONSULTANTS '� October 6, 2006 PERSONAL AND CONFIND ENTIA L Mr. Les Olds Director of Redevelopment Carmel Redevelopment Commission One Civic Square Carmel, Indiana 46032 Dear Les: 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 Commission and should not be used for any other purpose. We relied on the following to assemble our projections: • 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. 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%); For Internal Use Only Seven Par'kv ood 280 East 96th Sreel Suite 150 Indianapolis,IN 462,10 Main 317.581 9000 Fax 317.581 9200 s sv.heatonandeadie corn Mr. Les Olds r— October 3, 2006 i- / i 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. Very truly yours, • '—r Bill Thomas BT/col Enclosures For Internal Use Only • O O CD M M CO CO O 0 M O O O O 7 CO 0 N 0 N- 0 C) to r r Nn @ M 0 to N C) 0 L CO CC) O N C) (tO Lo a) Nn O) N CO M N CO m CD CO- N - N co- >- O 00 7 M O N } -� O CO N CO CD CD CO 00 M y CO- N 69 S S 49 S y E9 S C9 S S _ G tr) o 0 0 a N - Ca o 0 0 m M N M O CO D V CO O CO Tr 0 W a al 0 O N 0 to cil M O } O CO 7 CD N r O) O CO C7 O N 0 = p S S S 69 9) S CF) 69 69 d 0 0 0 O O O O O O O 0 0 r N L. (6 0 rO • ` Y CO CP N: V n N M V CO CO CO N- N CO p •V m •7 CO C) } CO) N N- O } m C)) lLc Nn to In C) (D CO N. N C) (O CO 6 N E9 64 69 O 69 0 69 E9 69 6 69 O 0 0 00 O O O O O W N N O O O N a] I- V O e V m .1 t W CO CC)) CO N N- CO Q) Nn a) N . CJ N C .- _ CO >•• O0 N CIS CO N } p 7 U N W CO CO CO C ee O to to W O N N 69 S 69 O 69 r O OO 0 0 O O a) O O) O O O O D N O O O m o O Ti.a N o O O 0 M (`7 N - 0 O O O O CO N-NW N- 0 N - ft N a' N C)U N O 0 O 0 r o ) ) 0 v CO O a) r O CO- N D O V V O R O CO Nn N r £ N O 0 ›- A m W V O N N N D a) c.) tn.' 4 s 69 C9 W a) a) S 69 69 E9 69 E9 iii lb- al W 1p d a) W co c 0 G ..in U o o O a) ,E)N ft a) to ft C to a) ti a) w aoi Ct = )< a T C a O o w m a w w o a c Ca m d m Q N d ` h •- ft N N°m N O o CO N a O o vs O Z o a , ti ° o O Z O u C.) t Z. C0 O Z to 0) c C.970- Z Nn g a) a) o Ty a j a) 0 a) `m '5 c) -o U Co co w > t0 ti = - co N U. o CO > @ CD 1E Q? co Q O o oa o 0 > 0)) 0 m O a5 xS o > L C ,f u, = O d ry C C C ` C N C "' C M C ON C ° o ° y o ° o o ° a N j a s a) ° u) C o a) O N Z X a) a) a) a) h 2 a) Cl) ° X >- a) _ a) a) N 2 ;- 00 E r) w ` 2 2 2 Cr O a Z 0 Z w 1 2 0 2 a 0 a / S C- m C) C) U- N O N V O V co o co CO O CD a) • o n on 0 0 0 co co o co N CO M N EA 69 fA oN h Co C) o) CO CO 0 0 0 N E O a) U y d m ca a) C ca a a) Q U) o W a) m x U CL w d CL a) CO Q) 0 i Z O Z Carmel Redevelopment Commission ©R d ni Brookshire Golf Course Projected Income and Expense Analysis 2007 2008 2009 2010 2011 Income(a) $ 940,737 $ 1,025.247 $ 1,081,587 $ 1,109,757 $ 1,137,927 Cost of Goods Sold(b) 81,864 83,501 85,171 86,874 88,612 Gross Profit 858.873 941,746 996,416 1,022,883 1,049.315 Indirect Expenses t`1 F& 13 Related Expenses 24,373 24,373 24,373 24,373 24,373 Pro Shop/Golf Operations 144,740 144,740 144,740 144,740 144,740 General and Administrative 200,202 200.202 200,202 200,202 200,202 Club House Maintenance 3,977 3,977 3,977 3,977 3,977 Course Maintenance- Payroll 127,567 127,567 127,567 127,567 127,567 Course Maintenance-Supplies& Util 109,160 109,160 109,160 109,160 109,160 Liability Insurance 12,784 12,784 12,784 12,784 12,784 Total Indirect Expenses 622,802 622,802 622,802 622,802 622,802 Net Income Before Financing Costs 236,071 318.944 373,614 400,080 426,513 Bond Interest Expense (165,000) (165,000) (165,000) (165,000) (165,000) Surplus/(Deficit) $ 71,071 $ 153,944 $ 208,614 $ 235,080 $ 261,513 Rounds of Golf tat 33,395 36,395 38,395 39,395 40,395 Income per Round (e) $ 28.17 $ 28.17 $ 28.17 $ 28.17 $ 28.17 (a)Income is calculated by multiplying rounds of golf and income per round. (b)Cost of Goods Sold is increased by 2% for inflationary purposes. 1`I 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. (e) Income per Round increase by 5% for 2007 then remains constant. Exhibit 1 For Internal Use Only