HomeMy WebLinkAboutReceive-File PDRFC Audited Financial Reports FYE 06/30/06IX5
CITY OF PALM DESERT
FINANCE DEPARTMENT
Staff Report
REQUEST: RECEIVE AND FILE THE PALM DESERT RECREATIONAL FACILITIES
CORPORATION AUDITED FINANCIAL REPORTS FOR THE FISCAL
YEAR ENDED JUNE 30, 2006
DATE: FEBRUARY 8, 2007
CONTENTS: PALM DESERT RECREATIONAL FACILITIES CORPORATION AUDITED
FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE 30, 2006
Recommendation:
By Minute Motion, that the City Council receive and file the audited financial
statements of the Palm Desert Recreational Facilities Corporation for the fiscal year
ending June 30, 2006.
Background:
The Palm Desert Recreational Facilities Corporation (PDRFC) is a corporation that provides food
and beverage services exclusively to the Desert Willow Golf Resort.
Lance, Soli & Lunghard, LLP, performed and completed the annual independent audit for the fiscal
year ended June 30, 2006, for the PDRFC in September 2006, in accordance with generally
accepted auditing standards. In the auditor's opinion, the basic financial statements present fairly,
in all material respects, the financial position of the PDRFC as of June 30, 2006, and the results of
its operations of the year then ended are in conformity with accounting principles generally
accepted in the United States of America.
In conducting the audit, the auditors are also required to test the PDRFC's internal controls. For
the year ended June 30, 2006, the auditors did not issue a management letter, indicating that its
current internal controls are adequate.
The Audit, Investment and Finance Committee received the audited financial statements for the
PDRFC at their January 23, 2007 meeting, and it was recommended that the statements for the
fiscal year ended June 30, 2006 be received and filed by the City Council.
Submitted by:
CITY COUNCIL ACTION:
APPROVED, DENIED
RECEIVED 4.- pc /c' OTHER
Paul S. Gibson, Director of Finance/City Treasurer MS:BTING DATE c,/_R-p `l
AYES: ,P 1Suor Ferguson, Pher-}-yi Spimei K4/y
NOES: Nonce
ABSENT: tt one_.
ABSTAIN: Nor\,
VERIFIED BY: kriU�
Original on File wit City Clerk's OfficE
Carlos L. Ortega, Ci
anager
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' PALM DESERT
RECREATIONAL FACILITIES CORPORATION
PALM DESERT, CALIFORNIA
' FINANCIAL STATEMENTS
JUNE 30, 2006
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' PALM DESERT RECREATIONAL FACILITIES CORPORATION
' TABLE OF CONTENTS
JUNE 30, 2006 '
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' Num r
Independent Auditors' Report 1
' ManagemenYs Discussion and Analysis 3
Basic Financial Statements:
' Exhibit A — Statement of Net Assets 8
Exhibit B — Statement of Revenues, Expe�ses and Changes in Net Assets 9
' Exhibit C — Statement of Cash Flows 10
Notes to Basic Financial Statements 11
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,� � sra,�aoo .Bui,�oWs
'' Lance Doaald L.Parker
� Lun� hard ����u
�.ro�.r c«�.u.�.
9 Dooald G.Slater
LLP Rjchard K.xiku�n�
' Certified Public Accountants Ra�+
Robert C.Lwna
19141f91
�C�IiI'd C..SO��
� Fred J.Lunghard,Jr.
INDEPENDENT AUDITORS' REPORT ���� �
, Board of Directors
Palm Desert Recreational Facilities Corporation
City of Palm Desert, Califomia
' We have audlted the component unit flnancial statements of the Palm Desert Recreational Facilities
Corporation, a component unit of the City of Palm Desert, Califomia, as of and for the year ended
June 30, 2006, as listed in the accompanying table of contents. Thsse component unit fnancial
' statements are the responsibility of the Palm Desert Recreational Facilfties Corporation's management.
Our responsibility is to express an opinion on these component unit flnancial statements based on our
audit.
� We conducted our audit in accordance with auditing standards generally accepted in the United States of
America and the standards appiicable to flnancial audlts contained in Gou�ernment Auditing Standards,
issued by the Comptroller General of the United States. Those standards require that we plan and perform
' the audlt to obtain reasonable assurance about whether the componertt unit financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and d(sdosures in the component unit flnancial statements. An audit also includes assessing the
acc:ounting principles used and significant estimates made by management, as wel! as evaluating the
' overall financial statement p�esentatbn. We believe that our audit provides a reasonable basis for our
opinion.
The component unit financial statements refeRed to above include only the financial activities of the Palm
' Desert Recreational Facilities Corporation. Financial activities of other component units that form the
reporting entitty are not induded.
' The management's discussbn and analysis is not a required part of the basic financial statements but is
suppiementary information required by the Govemmental Accountlng Standards Board. We have applfed
certain Ilmfted procedures, which cansisted p�inc(paly of inqui�ies of management regarding the methods
of ineasurement and presentation of the required supplementary informatio�. However, we did not audit •
' the informatlon and express no opinion on it.
In ou� opinion, the component unit financial statements referred to above present fairiy, in all material
� respecta, the flnancial posftion of the Pa{m Desert Recreational Facilities Corporation as of June 30, 2008,
and the results ot its operations and cash flows for the year then ended in coMormity with accounting
principles general{y accepted in the United States of America.
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' 75 YEARS
1929 2004
1 Q� F 203 N.Brea Blvd.,Suite 203 •Brea,CA 92821-4b56 •(714)6?2-0022 •Fax(714)672-0331 �vv�v�1_Cp�.com
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Board of Directors
Palm Desert Recreational Facilities Corporation
In accordance with Gouernment Auditing Standards, we have also issued our report dated '
September 8, 2006 on our consideration of the City of Palm Dese�t's intemal control over financial
reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant '
agreements and other matters. '
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September 8,2006 '
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' MANAGEMENT'S DISCUSSION AND ANALYSIS �
Our discussion and analysis of the financial pe�fonnance of the Paim Desert Recreational Facilities
Corporation (the Corporation), a component unit of the City of Palm Desert, provides an overview of the
� City's financial activities for the fisca! year ended June 30, 2006. Please read it in conjunction with the
Palm Desert Recreation Facilities Corporation's financial statements.
' F{NANCtAL HIGHLIGHTS
• Palm Desert Recreational Facilities Corporation's net assets deficit decreased by $ 3,719 from
, $a07,700 to $403,981.
• Palm Desert Recreational Facilities Corporation's gross income of$2,209,800 was an increase of
$307,402(16%)over last year.
� • Palm Desert Recreational Facilities Corporation's gross profit increased by $212,070 (16°!0)from
last year. The gross profd margin' remained constant at 69%.
• Palm Desert Recreational Facilities overhead (Maintenance & Operations and General &
� Administrative}increased by$202,511 (15�0).
• Palm Dese�t Recreational Facilities Corporation's cost of goods sold increased by$95,332,which
represents a 16 percent increase from the previous year. .
• Patm Desert Recreational Facilities Corporation's Se/linq and Administrative Expense
, PercenfageT remained steady at 69%.
USING THIS ANNUAL REPORT
' This annual report consists of a series of financial statements. The Statement of Net Assets and
Statement of Revenues, Expenses and Changes in Net Assets (on pages 8 and 9) provide information
, about the activities of the Palm Desert Recreationai Facilities Corporation as a whole, and present a long-
term view of the Corpo�ation's operatio�s.
REPORTING THE COMPONENT UNIT AS A WHOLE
tThe Statement of Net Assets and the Statement of Revenues, Expenses and Changes in Net
Assets:
' Our analysis of the Palm Desert Facilities Corporation as a whole begins on page 8. The Corporation
plays a vital role in completing the overall projecl known as Desert Witlow Golf Resort (a municipal golf
course owned by the City of Palm Desert). The Corpo�ation's main function is providing the Food and
, Beverage operations at the Desert Willow Clubhouse. 7he restaurant operation within the environment of
the golf industry is a necessary complement to a round of golf. The main focus of our analysis of the Palm
Desert Recreational Facifities Corporation's operations is the profitability of the food and beverage
' activities and tailoring the�estaurant to meet the expectation of all gotf enthusiasts alike.
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' ' The gross profit maryin is ca4culated by dividinfl gross profit by gross sales.The gross profit margin indiptes how well sales are
performinq when compared to expectations and ths industry. The cro�poraGan expected an industry prosa proflt margin of
approximately 68%.
' � The selllnp and administradve expense percentage is ca�ulated by dividinp the sum of the Maintenanoe 3 Operatlona and the
General d�Administradve oosts by the pross sales. This percentage indicates how well the corpordtion's overt�ead is maintained in
relation to sales.The goal is to derive at overhead cost of approximately 64%or lower.
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�� What is the outcome for the food & beverage operations for this fiscal year?The Statement of Net Assets
and the Statement of Revenues, and the Expenses and Changes in Net Assets report information about '
the Component Unit as a whole and about its activities. This report along with the flnancial highlights,
noted above, illustrates the operations and the profitability of the food and beverage activities. These
statements include all assets and liabilities of the Corporation using the accrual basls of accounting. With '
the accruai basis of accounting, ail of the current year's revenues are recognized when eamed instead of
received, and all expenses are recorded when incurred instead of when paid.
These two statements report the Palm Desert Recreational Facilities Corporation's net assets and
changes in net assets. Net assets are the difference between assets and liabilities, which is one way to �,
measure the Corporation's financial health, or frnancial position. Over time, increases or decreases in the
Corporation's net assets ere an indication of whether its financial health is improving or deteriorating. To ,
deteRnine the profitability of the Corporation, consideration should also be given to other non-financial
factors such as the changes in consumer spending as a direct result of the overall economic indicators,
as well as changes in the sign�cant industry factors such as price per golf round and level of tourism.
THE COMPONENT UNIT AS A WHOLE ,
The Palm Desert Recreational Facilities Corporation's combined net assets deficit dec.�eased by $3,719 ,
from $407,700 to$403,981. For the first three years of operations (1997-2000), the Corporation operated
out of a temporary facility; beginning in April 2000 the Corporation moved into and began operating f�om
its peRnanent restaurant located within the Desert Willow Golf Course Clubhouse. Although the
Corporation has continued to recognize a deficit net asset, our analysis indicates an uptum in operations ,
and predicts an eventual tumaround within a few years. Our analysis below focuses on the net assets
(Table 1)and changes in net assets (Table 2)of the Corporation.
The fiscal year end profit of$3,719 decreased the deficit in net assets by less than 1%. The major factor '
in contributing to the fiscal year profit was the increase banquet and outing reservations. Although the
� Corporation continues to experience a deficit in net assets, we expect the Corporation will began to
recognize net profit and eventually eliminate the deficit; resulting in a positive net assets. '
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� TABLE 1
' NE7 ASSETS
(IN THOUSANDS)
' As of June 30,2006 and 2005
' Component Unit
Activities �
2006 2005
� Current and resUicted assets S 192,534 $ 350,894
TOjAL ASSETS 192,534 350,894 .
' Other liabilities 596,515 758,594
' TOTAL LIABILITIES 596,515 758,594
Net assets(deficit):
' Invested in capital
Unrestricted (403,981) (407,700)
TOTAL NET
' ASSETS(DEFICIT) S (403,981) $ (407,700)
The fiscal year end profit of$3,719 decreased the deficit in net assets by less than 1%. The major factor
, in contributing to the fiscal year profit was the increase banquet and outing reservations. Although the
Corporation continues to sxperiance a deficit in net assets, we expect the Corporation wiil began to
recognize net profit and eventuatly eliminate the de�cit; resulting in a positive net assets.
' TABLE 2
CHANGES 1N NET ASSETS
' As of June 30,2006 and 2005
Component
' Activities .
20Q6 2005
REVENUES:
Program Revenues:
' Food 3 Beverage $ 2,209,800 S 1,902,398
TOTAL REVENUES 2,209,800 S 1,902,398
' EXPENSES:
Cost of Goods Sold $ 686,224 S 590,892
' Maintenance 8 Operations S 1,268,619 S 1,090,015
General 8 Administrative S 251,238 S 227,331
' TOTAL EXPENSES � 2,206,081 $ 1,908,238
INCREASE (DECREASE)
{N NET ASSETS 3,719 $ (5,840
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Component Activitles
Total revenue increased from $1,902,398 to $2,209,800, a 16% increase. The mafn factor involved with '
this increase is the fact that Palm Desert Recreation Facilities has continuaNy become more efficient with
operations. This fiscal year was the sixth full year of operations at the Desert Wiliow Clubhouse. During '
this fiscal year the CorporaGon was able to martcet their banquets and outings based on the previous
years' history. Factors that contributed to the increase are as follows:
• Efficiency in marketing and attracting new business. , ,
• Continued patronage of customers and corporate groups.
• Increased Banquet and outing operations.
• Consistency in golf rounds played. �
• Changes in the menu which allowed for more efficiency in service.
As Table 2 above indicates, total expenses increased from $1,908,238 to $2,206,081, a 16% increase.
The major factor in the increase in expenditures was the increase industry costs. The remaining increase '
was a normal response to the additional business activities recognized during the fiscal year. The Gross
Profit Margin and the Selling and Adminisfrative Expense Percentage were consistent with previous
years, indicating that the increase in overall expenses correlate with the increase in business. '
CAPITAL ASSET AND DEBT ADMINISTRATION .
Capital Assets/Debt Administration ,
The Palm Desert Recreational Facilities Corporation does not own or lease any capital assets;
subsequently, there is no debt related to capital assets presented on their financial statement. More detail '
is presented in the notes to the Financial Statements.
ECONOMIC FACTORS AND NEXT YEAR'S BUDGETS '
In preparing the budget for 2006, management looked at the following economic factors:
• Energy and fuel cost; Although California appears to be past the energy crisis, the repercussions '
of increased energy and fuel costs remain. The Palm Desert Rec�eational Facilities Corporation
has taken measures to reduce energy usage in the high peak period without impacting the
quantity or quality of service. ,
• Prices: The prices for goods and services in the golf industry have remained constant for the last
three years. Many public golf facilities have maintained their ma�lceting strategies and held prices
constant in response to consumer choices. Unlike previous years where the consumer paid the �
established prices, with the introduction of several new golf courses and the refurbishing of older
ones, the consumer has many choices. At this point, it appears that the pricing for golf and
amenities has met the current demand; hence, prices are held constant. Nonetheless, the Palm
Desert Recreational Facilities Corporation continues to aggressively market and advertise to '
secure their market share in the local golf industry.
• National Economy: The golf and hospitality industries rely heavily on a strong national and local
'economy. With a strong national economy, the market demand for leisure activities such as golf '
and dining is increased; however, in an economic downtum or a slowing of the economy, the
typica! trend is for the consumer to reduce their consumption of leisure activities. The current
incxeases in fuel costs will increase the cost of food and beverage inventory, causing upward
pressure on the prices at the restaurant, resulting in a reduction in sales. The Palm Desert '
Recreational Facilities Corporation does not know the extent of the impact that the rising fuel
costs would have on tourism to the Coachella Valley, but since the golf industry relies heavily on
the local tourism industry for their revenue, a downturn in tourism would affect the Corporation's '
revenue.
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� • The high worker's compensation costs to employers throughout the State of Califomia will
' continue to place upward pressure on the cost of providing services and supplies. Although the
Corporation recognized a reduction in the overall costs of worker's compensation, it still
represents over 11°k of the total labor costs. There is still some uncertainty on the State's
' administrative impact on the overall costs of worker's compensation and how it would affect the
overall costs of services and supplies. The Palm Desert Recreational Facilities Corporation will
continue to observe the effects on their costs and will adjust prices accordingly, if appropriate.
' A copy of the City's 2006-2007 financial plan can be obtained by contacting the City of Palm Desert's �
Finance Department(See be{ow}.
' CONTACTING THE CITY'S FINANCIAL MANAGEMENT
This financial report is designed to provide the users with a general overview of the Palm Desert
Recreational Facilities Corporation, a component unit of the City of Palm Desert. If you have questions �
' about this report or need additional financial information, contact the City of Palm Desert's Finance
Department, at the City of Palm Dese�t, 73-510 Fred Waring Drive, Palm Desert, Califomia 92260-2578,
or(760)346-0611.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION Exhibit A ,
STATEMENT OF NET ASSETS
JUNE 30,2006 '
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Assets:
Cash and cash equivalents $ 118,596
Accounts receivable 39,319 ,
Inventory 30,543
Prepaid expenses 4,076
Total Assets S 182,534 '
Liabilities: �
Curren�
Accounts payabie $ 48,242 •
Accrued liabilities 24,351 ,
Advance from related party 489,672
Uneamed revenue 34,250
Total Liabilkies 586�515 '
Net Assets(Deficit):
Unrestricted (Deficit) (403,981) �
Total Net Assets (Deflcit) i (403,981)
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inde endent auditora' re o�t and notes to flnancial statements. ,
See p P
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' PALM DESERT RECREATIONAL FACILITIES CORPORATION Exhibit B
� STATEMENT OF REVENUES� EXPENSES AND CHANGESIN NET ASSETS
FOR THE YEAR ENDEO JUNE 30�2006 ,
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� Operating Revenues:
Food and beverage sales $ 2,209,800
, Operating Expenses:
Cost of goods sold 686,224
Maintenance and operations 1,268,619
Generai and administrative 251,238
' Total Operating Expenses 2,206�081
' Operating tncome(Loss) 3,719
Change in Net Assets 3,719
' Net Assets(Deficit) -Beginning of the year (407,700)
Net Assets(Deflcit)-End of the year S (403,981)
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' See independent auditors' report and notes to flnancial statements.
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PALM DESERT RECREATIONAL FACILITIES CORPORATION Exhibit C ,
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30, 2006 �
Cash Flows From Operating Activlties: ',
Receipts from customers $ 2,196,017
Payments to suppliers (2,372,396) ,
Net Caah Provided(Used) by Operating Activities (176�379)
Net Increase in Cash and Cash Equivalents (176,379) '
Cash and Cash Equivalents- Beginning of the Year 294,975 '
Cash and Cash Equivalents -End of the Year S 118,596
Reconciliation of Operating Income(Loss)to Net Cash ,
Provided(Used)by Operating Activitles:
Operating income(loss) $ 3,719 ,
Adjustments to reconcile operating income(loss)to net cash
provided(used) by operating activities:
Change in assets and liabilities: [
Receivables (12,433)
Prepaid (1,339) �
Inventories (4,247)
Accounts and other payables (32,941)
Accounts payable related parties (127,788)
Uneamed revenue (1,350) �
Net Cash Provided (Used� by Operating Acttvitfes S (176,379j
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See independent auditors' report and notes to financial statements. '
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' PALM DESERT RECREATIONAL FACILITIES CORPORATION
� NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED JUNE 30�2006
INote 1: Summary of Significant Accounting Policies
a. General 1
� The Palm Desert Recreational Facilities Corporation (the Corporation) is a Corporation
that provides food and beverage services exclusively to the Desert Willow Golf ResoR
(the Golf Resort).The Co�poration is a dlscrete component unit of the City of Palm Desert .
' (the City) and is reported as an Enterprise Fund in the Citys basic financial statements.
The Corporation was incorporated on February 25, 1997.
' b. Basis of Accounting
On July 1, 2000, the Corporation adopted the provisions of GASB Statement No. 34
("Statement 34") of the Governmental Accounting Standards Boa�d, Basic FYnancial
' Statements - and Management's Discussion and Analysis - for State and Local
Governments. Statement 34 established standards for external financial reporting for all
state and Iocal govemment entities, which inGudes a balance sheet, a statement of
� revenues, expenses and changes in net assets and a statement of cash flows. It requires
the ciassification of net assets into three components - invested in capital assets, net of
related debt; resVicted; and unrestricted. These classifications are defined as follows:
� • Invested in capital assets, net of related debt - This component of net assets
consists of capital assets, including restricted capital assets, net of accumulated
depreciation and reduced by the outstanding balances of any bonds, mortgages,
, notes, or other borrowings that are attributable to the acquisition, construction, or
imp�ovement of those assets. lf there are significant unspent related debt
proceeds at year-end, the portion of the debt attributable to the unspent proceeds
are not included in the calculation of invested in capital assets, net of related
1 debt. Rather, that portion of the debt is included in the same net assets
component as the unspent proceeds.
, • Restricted - This component of net assets consists of constraints placed on net •
asset used through extemal constraints imposed by creditors (such as through
debt covenants), grantors, contributors or laws or regulations of other
governments or constraints imposed by law through constitutional provisions or
' enabling legisiation.
• Unrestricted net assets-This component of net assets consists of net assets that
� do not meet the definition of "restricted" or "invested in capital assets, net of
related debt."
The adoption of Statement No. 34 had no effect on the basic financial statements except
' for the classification of net assets in accordance with the statement and the reflection of
capital contributions as a change in net assets.
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' See Independent Auditors'Report
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Palm Desert Recreational Facilities Corporation ,
Notes to Financial Statements(Continued)
Note 1: Summary of Sipnificant Accountin�Pol(cles(Continusd) � '
The Corporation repoKs its activitles as an ente�ise fund, which is used to a000unt for
operations that are financed and operated in a manner similar to a private business '
enterprise, where the intent of the Corporation is that the costs (including deprecia�on)of
providing goods or services to the general public on a candnuing basis be financed or
recovered primarily through user charges. Revenues and expenses are rec�gnized on the
accrual basis. Revenues are recognized in the accounting perfod in which they are eamed �
and expenses are recognized in the period incurred, regardless of when ihe related cash
flow takes place.
Operating revenues, such as food and beverage sales, result from exchange transactions ' ,
associated with the principal activity of the Corporation. Exchange transactions are those
in which each party receives and gives up essentially equal values.
The Corporation has elected under GASB Statement No. 20, Aocvunting and F�nunciul �
Reportin9 for Proprietary Ft�nds and Other Gov�emmenial Adivities that Use
Proprietary Fl.�nd Acoounting, to apply all GASB pronouncements as well as any '
applicable pronouncements of the Financlal Acxounting Standards Board (FASB), the
Accounting Principals Board (APB), or any Accounting Research Bulletins (ARB) issued
on or before November 30, 1989, unless they cantradict or co�Nct with GASB '
pronouncements.
c. Cap(tal Assets and Depreciation
Capital assets are defined by the Corporation as assets with an initial oost of more than '
a500 and an estimated life in excess of one year. Such assets are recorded at historical
oost or estimated historical cost if purchased or constructed. Donated cap)tal assets are �
recorded at estimated fair market value at the date of donation.
The cost of normal maintenance and repairs that do not add to the value of the asset or
materially extend asset lives are not capitalized. ,
Machinery and equipment are depreciated using the straight-line method over the
following estimated useful lives: �
Assets Years
Machinery and equipment 3-7 '
As of June 30, 2006, the Corporation did not have any capital assets or related
depreciation expense.
d. Bud�oRs '
' Kemper Sports Management, Inc., is required to submit to the City an operating budget ,
containing estimates of all the Corporation expenses for the next operating year, including
expenditures for: a) property operation and maintenance, b) repairs, replacements and
alterations which do not constitute capftal improvements, c) fumishings and equipment
and operating inventory, and d) advertising, sale and business promotbn. The budget is '
required to be reviewed and approved by the City prior to Juy 1 of each year.
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See Independent Audltors' Repo�t '
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� Palm Desert Recreational Facilitles Cor oratton
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Notes to Financial Statements(Continued)
te. Cash� Cash Equlvalenta and Credit Risk
� For purpose of the statement of cash flows, the Corporation considers all unrestricted
highly liquid investments with an initial maturity of three months or less to be cash
equivalents. The carrying value was $118,596 and the deposit value was $126,010.
' The City has implemented GASB Statement No. 40, Deposit and Investmeni Risk
Disclosures. This pronouncement is an amendment to GASB Statement No. 3. GASB
No. 40 establishes and mod�es disclosure requirements related to deposit and
� investment risks. The information required by GASB Statement No. 40 related to
authorized investments,credit risk,etc., is available in the annual report of the City.
f. Inventories
' Inventories are stated at the lower cost or market (no adjustments were made to reduce
inventory betow cost)with cost determined using the Weighted Average Cost Method. At
' June 30, 2006, inventory consisted of $30,543 in merchandise for sales of food and
beverages.
g. Leases
' Leases, which in substance transfer all of the benefits and risks equivalent to ownership
of the property are classified as capital leases. The related assets and liabilities are
� recorded at amounts equal to the lesse� of the present value of the minimum lease
payments or the fair value of the leased property at the beginning of the respective leased
tenns. Generally, such assets are amortized over their economic lives. Interest expense
relating to the lease liabilities is recorded to effect constant rates of interest over the terms
' of the leases. All other leases are classified as operating leases and related rentals are
charged to expense as incurred.
' Note 2: Related Party Transactions
Advances From Related Party
' As of June 30, 2006, the Corporation owed the following amounts to related parties:
Desart W iNow Golf Course $ 204,672
� Ciry of Palm Desert $ 285,000
$ 489,672
' The Corporation has an operating lease with the City of Palm Desert for use of the
faciiities (see Note 3).
� Note 3: Commitments and Contingencies
Operating Leases
' Obligations under operating leases are as follows:
The Corporation has an operating lease with the City of Pa{m Desert for use of the
' facilities. The terms of the lease are $8,000 per month beginning June 4, 1997. 7he lease
is a month-to-month lease with no expiration date. On May 18, 2004, the Corporation
approved an increase in the lease payment to begin on July 1, 2004. The new lease
payment is $15,000 per month. Total rent expense incurred for the year ended
' June 30, 2006, under this lease was $180,000.
' See Independent Auditors' Report
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Palm Desert Recreational Facilities Corporation ,
� , Notes to Financial Statements (Continued)
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Note 3: Commitments and Conttngencies(Continued) �
Management Agreement
The Corporation is managed by Kemper Sports Management, Inc., under an agreement to ,
manage and operate Dese�t Willow Golf Course, a component unit of the City of Palm Desert.
This agreement commenced on April 10, 2003 and will expire on June 30, 2006.
Note 4: Risk Management �,
The Golf Resort (s covered by insurance purchased by Kemper Sports Management Inc., �
general managers, which includes commercial liability, automobile, workers compensation
and overall umbrella excess liability insurance through Aon Risk Services, Inc. of Illinois.
Note 5: Other Disclosures '
The Palm Desert Recreational Facilities Corporation has a net asset deficit of $403,981,
which will be eliminated by increasing revenues through banquet reservations. ,
Note 6: Subsequent Event
On July 1, 2006, the Palm Desert Recreational Facilities Corporation renewed their '
management agreement with Kemper Sports Management, Inc. This new agreement will
expire on June 30, 2008. The new management agreement also includes two one-year
options to extend at the City of Palm Desert's discretion. �
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See Independent Auditors' Report
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