Heaton 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:
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• 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
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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
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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