HomeMy WebLinkAboutAudited Financial Rprts - PDRFC - FY Ending 06/30/08 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, 2008
DATE: FEBRUARY 12, 2009
CONTENTS: PALM DESERT RECREATIONAL FACILITIES CORPORATION
AUDITED FINANCIAL REPORT FOR FISCAL YEAR ENDED JUNE
30, 2008
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, 2008.
Back_qround:
The Palm Desert Recreational Facilities Corporation (PDRFC) is a corporation that
provides food and beverage services exclusively to the Desert Willow Golf Resort.
Diehl, Evans & Associates, LLP, performed and completed the annual independent audit
for the fiscal year ended June 30, 2008, for the PDRFC in November 2008, 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, 2008, 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, 2008, 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 27, 2009 meeting, and it was recommended that the
statements for the fiscal year ended June 30, 2008 be received and filed by the City
Council. In prior years this report would have come to the Council for review in January
following review by the Audit, Investment and Finance Committee. However, due to the
timing of the Council meeting, the January meeting of the Audit, Investment and Finance
Committee took place after the last Council meeting in January.
G:\Finance\Niamh Ortega\Staff ReportsWudit Staff Reports 2008\audit 2008 PDRFC statements.docx
Staff Report
Receive and file CAFR for Fiscal Year ended June 30, 2008
February 12, 2009
Page2of2
Staff requests that the Council receive and file the Palm Desert Recreational Facilities
Corporation's audited financial reports for the fiscal year ending June 30, 2008.
Submi by�
,
� �
Paul S. Gibson, Director of Finance/City Treasurer Jo ohlmuth, City �age
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ABSTAIN:
VF.RIFIED BY:
Original on File with City Clerk's U fice
G:\Finance\Niamh Ortega\Staff ReportsWudit Staff Reports 2008\audit 2008 PDRFC statements.docx
PALM DESERT RECREATIQNAL
FACILITIE5 CORPORA.TION
ANNUAL FINANCIAL REPORT
WITH REPORT ON AliDIT
BY INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
FOR THE YEAR ENDED JUNE 30,2008
PALM DESERT RECREATIONAL FACILITIES C4RPORATION
TABLE OF CONTENTS
7une 30, 2008
Page
Number
Independent Auditors'Report I
Management's Discussion and Analysis 3
Basic Financial Statements:
Exhibit A- Statement of Net Assets 9
Exhibit B - Statement of Revenues, Expenses and Changes in Net Assets 1 U
Exhibit C- Statement of Cash Flows 11
Notes ta Basic Financial Statements 12
DIEHL, EVANS S� COMPANY, LLP
; CERTIFIED PUBLIC ACGOUNTANTS 6r CONSUZTAI�€7S
��� MICHA6L R,LLiDi!�,CPA
�. A PARiN6RSHIp INCLUDING ACCOLSN7ANCY C.ORPOFtAT10N5 f.RAIG W.SPRAKF.R,CPA
. N1TEN P,PATEL,CPA �
� � ROBERT J.CALLANAN,Cl'A
S CORP9R.ATE PARK,SUITE 3 00 °PHILIP H.TIOLTKAMP,CPA
iRVII�E,CALIFORNIA 92606-5165 'TFIOMAS M.PERI..OWSKJ,CPA
"HARVEY,LSCHROEDER,CPA
(949)399-0600•FAX(949}399-0610 KEIv�N&THR AMES,CPA
www.diehleVanS.c01n *u'ILLIAM C.PF:N7'z,CpA
OL•l�b�2 t� 2o0g "A PRO}Y.SSIONqL(10RPOR4TIOh
INDEPENDENT AUDITORS'REPORT
Board of Directors
Palm Desert Recreational Facilities Corporation
Palm Desert,California
We have audited the component unit basic financial statements of the Palm Desert Recreational
Facilities Corporation (the Carporation}, a component unit of the City af Palm Descrt, California, as of
and for the ye�r ended June 30, 2008, as listed in the table of contents. These component unit basic
financial statements are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these component unit basic financial statements based on our audit.
We conducted our audit in aceordance with auditing standards generally aceepted in the United States
of America and the standaxds applicable to financial audits contained in Government Auditin
Standards, issued by the Compfiroller General of the United States. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the component unit financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the component unit financial statements. An audit also
includes assessing the accounting principles used and significant estimates rnade by management, as
we11 as evaluating the overall financial statement presentarion. We believe that our audit provides a
reasonable basis for our apinion.
The component unit financial statements referred to above include only the financial activities of the
Corporation. Financial activities of other coz�nponent uniis that farm the reporting entity are nat
included.
In our opinion, the component unit basic financial statements referred to above present fairly, in all
material respects, the financial position of Paim Desert Recreational Facilities Corporatian as of
June 30, 2008 and the results of its aperations and cash flows for the year then ended in conformity
with accaunting principles generally accepted in the United States of America.
- 1 -
OT}iER OFFICES AT: 29G5 AOOSEVELT STRFE'f 613 W.VALI,EY PARKWAY,SUI'fI;330
CARLSBAD,CAURORNIA 42008-2389 ; ESCONUIDO,CALIFORNIA 92025-2598
(760)729-2343•FAX(760)729-2234 (760)741-3141.FAX(76U)741-98y0
In accordance with Government Auditing 5tandards, we have also issued our report dated
October 21, 2008 on our consideration of the Corporation's'internal control over financial reporting
and our tests nf its compliance with certain provisions of laws, regulations, contracts, and grant
agreements and other znatters. The purpose of that report is to describe the scope of our testing of
internal control over financial reporting and compliance and the results of that testing, and not to
provide an opinion on the internal control over financial zeporting or on compliance. That report is an
integral part nf an audit performed in accardance with Government Auditing Standards and should be
considered in assessing the results of our audit
The management's discussion and analysis identified in the accompanying table of contents is not a
required pa.rt of the basic financial statements but is supplementary information required by accounting
principles generally accepted in the United States of Annerica. We have applied certain limited
procedures to the management's discussion and anaIysis, which consisted principally of inquiries of
management regarding the metkzods of ineasurement and presentation of this required supplementary
inforn�ation. However, we did not audit the management's discussion and analysis and express no
opinion on it.
-Z- �
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
= June 34, 2008
Our discussion and analysis of the financial perforrnance of the Pa1m Desert Recreational Faci.lities
Corporation (tha Corporation), a component unit of the City of Palm Desert, provides an overvievv of
the Corporatian's fina.ncial activities for the fiscal year ended June 30, 200$. Please read it in
conjunetion with the Palm Desert Recreation Facilities Corporation's fina.r�cial statements.
FINANCIAL ffiGHLIGHTS
+ Palm Desert Recreational Facilities Corporation's net assets deficit decreased by $4b2 from
$452,509 to$452,047.
• Palm Desert Recreational Facilities Corporation's gross income of$2,642,504 was an inerease
of$176,885 (7%) over last year.
• Palm Desert Recreational Facilities Corporation's gross profit increased by $127,182 (7%)
from last year. The gross profit marginl remained constant with the industry average of 68%
� Palm Desert Recrcational Facilities Corporation's overhead (Maintenance & Operations and
General &Administrative) increased by$78,192 (4%).
• Palm Dcsert Recreationai Facilitaes Corporation's cost of goods sold 'zncreased by $49,703,
which represents a 6 percent increase from the previous year.
• Palm Desert Recreational Facilities Corporation's Selling und Administrative Fxpense
Percentage2 decreased from 70%to 68%.
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 9 and 10) provide information
about the activities of the Palm Desert Recreationai Facilities Corporation as a whole, and present a
long-term view of the Corporatian's operations.
' The gross profit margin Es calculated by dividing gross profit by gross sales. The gross profit margin indicates how well sa(es are
performing when compared ta expectations and the industry. The corporation expected an industry gross profit margin of approximately
68%.
2 The seiling and administrative expense percentage is calculated by dividing the sum of the Maintenance&Operations and the General&
Administrative costs by Yhe gross sales.This percentage indicates how weE!the corporation's overhead is maintained in relation to sales.
The goa!is ta derive at overhead cost of approximately 64°/a or lower.
See independent auditors' report.
Y3 _ .
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTINUED)
June 30,2408
REPORTING THE COMPONENT UIVIT AS A WHOLE
The Statement of Net Assets and the State�nent of Revenues, Expenses an� Changes in Net
Assets:
Uur analysis of the Palm Desert Recreational Facilities Carporation as a whole begins on page 9. The
Corporation plays a vital role in completing the overall project known as Desert Willow Galf Resort (a
municipal golf course owned by the City of Pa1m Desert). The Corporation's main function is
providing the Food and Beverage operations at the Desert Willow Clubhouse. The restaurant operation
within the environment of the golf industry is a necessary camplement to a raund of golf. The znain
focus of our analysis of the Palm Desert Recreational �acilities Corporation's operations is the
profitability of the food and beverage activities and tailoring the restaurant to meet the expectation of
all golf enthusiasts alike.
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 financial
highlights, noted above, illustrates the operations and the profitability of the food and beverage
activities. These statements include all assets and iiabilities of the Corporation using the accYual basis
of accaunting. With the acerual basis of aecounting, all of the current year's revenues are reeognized
when earned instead of received, and a1l expenses are recarded when incurred instead of when paid.
These two statements report the Palm Desert Recreationat Facilities Corporarion'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 financial position. Over time, increases nr decreases in
the Corporation's net assets are an indication of whether its financial health is improving or
' deteriorating. To determine the profitability of the Carporation, 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 chan�es in the significant industry factors such as price per golf round
and level of tourism.
THE COMPONEl�T Ui�1IT AS A WH�LE
The Palm Desert Recreational Facilities Corporation's comhined net assets deficit decreased by $462
from $452,SQ9 to $452,047. 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 from its permanent restaurant located within the Desert Willow Galf Course Clubhouse.
Aithough the Corporation has continued t� mostly recognize a defici�net asset, our analysis continues
to indicate an upturn in operations and predicts an eventual turnaround. Our analysis below focuses on
the net assets (Table 1} and changes in net assets {Table 2) of the Corporation.
See independent auditors' report.
-4- 4
PALM DESERT RECREATIONAL FACILITIES CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
(CONTTNUED)
- June 30,2008
THE COMPONENT UNIT AS A WHOLE (C�NTINUED)
Table 1
Condensed Statements of Net Assets
Fiscal Fiscal
�'��' Year
2008 2Q07
Assets:
Current and restricted assets $ 497,626 $ 252333
Total Assets 497,626 252.333
LiabiIities: �
�ther liabilities ��,9 67� 70� 842
Total Liabilzties 949,673 704,842
Net Assets:
Unrestricted (452,047) ��452,509)
Total Net Assets � 452.047) ���)
The major change in the current assets is a transfEr of $360,000 from Desert Willow to the
Corporation. AII other changes in the assets rernained consistent with the prior yeaxs. Conseyuently,
the Iiabilities increased by the same amount. No other rnajor changes in the liabilities was noted.
During the fiscal year the Palm Desert Recreational Facilities Corporation experienced a second
increase, in as many years, in the Ca�ifornia Mznimum Hourly Wage Rate which increased from $7.50
to $8.00 an hour. With the inerease of labor costs the corporation was still able to recognize a net profit
for the fiscal year of$462. Although the Corporati�n 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. Nonetheless, the Restaurant is a necessary ingredient in the overall golf resort
experience and will continue to operate.
See independent auditors' report.
- 5 - ,
', PALM DESE�T RECREATIONAL FACILITIES CORPORATION
' MANAGENIENT'S DISCUSSION AND ANALYSIS
(C4NTINUED)
', June 30, 2008
THE C0IVIPONENT UNIT AS A WHOLE(CONTINUED)
Tab1e 2
Condensed Statements of Revenues, Expenses
and Changes in Net Assets
Fiscal Fiscal
Year Year
2008 2007
Operating Revenues:
Food and beverage sales $ 2,642,504 $ 2,4b5,619
Total Revenues 2,b42,504 2,465,619
Operating Expenses:
Cost of goods soId 835,524 785,821
Maintenance and operations 1,560,339 1,479,$89
General and administrative 24b,179 248,437
TotaI Expenses 2,642,042 2,514 147
Change in Net Assets �__ _ 462 �.�4g S28)
Component Activities
Total revenue increased from $2,465,619 to $2,642,544, a'7% inc.�rease. The main factor involved with
this increase is the fact that Palm Desert Recreation Faciiities Corporation has continually become
more effective in xnark�ting and soIiciting corparate golf events, banquet events an.d weddings. This
fiscal year was the eighth full year of operation at the Desert Willow Clubhouse. During this fiscal year
the Palm Desert Recreation Facilities Corparatian was able to market their banquets and outings based
� on the previaus years' history. Factors that contributed to the increase are as follows:
• Efficiency in marketing and attracting new and repeat business.
• Continued patronage of customers and corp�rate groups.
• Increased Banquet and outing operafiions.
• Consistency in golf rounds played.
• Aggressive marketing to golfers an the galf course.
As Table 2 above indicates, total expenses increased from $2,514,147 to $2,642,042, a 5% increase.
The major factor in the in.crease in expenditures was the increase in Iahor costs. During the fiscal year
the California Minimum Wage Rate increased from $7.50 to $8.00 per hour, a 6% increase. The
remaining increase was a narmal response to the additional business activities recognized during the
fiscal year. The Gross Prof t Margin and the Selling and Administrative Expense Percentage were
consistent with previous years, indicating that the increase in averall expenses correlates with the
increase in business.
See independent auditors' report.
-6 - '
PALM DESERT RECREATTONAL FACILITIES CORPORATION
' MANAGEMENT'S DISCUSSI4N AND ANALYSIS
(CONTINUED)
June 3Q, 2008
CAPITAL ASSET AND DEBT ADMINISTRATIUN
Capital Assets/Debt Administration
The Palm Desert RecreationaI Facilities Corporation does not own ar lease any capital assets;
subsequently, there is no d.ebt related to capital assets presented on their financial statement. More
detail is presented in the notes to the Fznancial Statements.
ECONQMIC FACT4RS AND NEXT YEAR'S BUDGETS
In prcparing the budget for 2009, management looked at the follawing economic factors:
• Energy and fuel cast: Uncertainty lingers regarding the cost of fi►el and energy in California
and the repercussions of increased energy and fuel costs remain. The Palm Desert Recreational
Pacilities Corporation has taken measures to redt►ce energy usage in the high pcalc period
without irnpacting the quantity or quality of service.
• Frices: The prices for goods and services in the golf industry have remained constant for the
last four years. Many public golf facilities have maintained their marketing strategies and held
prices constant in response to consumez� choices. At this point, it appears that the pricing for
golf and amenities has met the cunent demand; hence, prices are held constant. Nonetheless,
the Palm Desert Recreatianal Facili�ies Corporation cantinues to aggressively market and
advertise to secure their market share in the local and regional golf industry.
• NationaI 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 downturn or a slowing of the
econozny, the typical trend is for tl�e consumer to reduce their consumption of leisure activities,
The current inereases in fuei costs will increase the cost of food and beverage inventory,
causzng 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
erratic fuel costs would have on tourism to the Coachella Valley, hut since the golf industry
relies heavily on the local tourism industry far their revenue, a downturn in tourism would
affect the Corporation's revenue.
� Housing Market: The housing foreclosures in thE Coachella Valley as well as in Southern
California, has dirEctly affected the financial and banking markets as well as the local econorny
as a whole. Because, the goIf industry relies heavily on a strong ecanomy, the fiscal impact of
the current honsing market on the overall economy may reduce play and reduction of the usa�e
of the restaurant causing a downward trend on revenues. A mid-year anaiysis will be
perfarmed and budget adjustment will be rnade accordingly.
See independent auditors' report.
-7 - °
, PALM DESERT RECREATIONAL FACILITIES CORPOR.ATION
; MANAGEMENT'S DISCUSSION AND ANALYSIS
' (CONTINUED)
June 30,2008
�CONOMIC FACTORS AND NEXT YEAR'S BUDGETS (CONTINUED)
• During the 2U07-20Q8 fiscal year the State of California raised the minimum wage rate from
$7.50 to $8.00 (6%) per krour. Management will continue to analyze the impact of the increased
minimum wage rate and deteimine how ta best maximize profits without over pricing the food
and beverage praducts. A mid-year analysis will be performed and budget adjustments will be
�nade accordingly.
A copy of the Carporation's 200&-2009 financial plan can be obtained by contacting the Pa�n Desert
Recreational Facilities Corporation (see below}.
CONTACTING THE CORPORATION'S FINANCIAL MANAGEMENT
This financial report is designed to provide the users with a general overview of the Palm Desert
Recreational Facilities Corporation, a componen.t unit of the City of Palm Desert. If you have questions
about this report or need addition�l financial information, contact the Controller at Palm Desert
Recreational Facilities Corporation at 38-995 Desert Willow Drive, Palm Desert,California 92260.
See independent auditors' repart.
- 8 -
Exhibit A
PAL1Vl DESERT RECREATIONAL FACILITIES CORP4RATION
STATEMENT OP NET ASSETS
June 30, 2008
ASSETS:
Cash and cash equivalents $ 404,029
Accounts receivable 40,485
Inventories 50,917
Prepaid expenses 2,195
TOTAL ASSETS 49�,626
LIABTLITIES:
Accounts payable 17,064
Accnted liabilities 35,521
Advances from related party 855,428
linearned revenues 41,660
TOTAL LIABILITIES 949,673
NET ASSETS (DEFICIT):
Unrestricted(deficit) (452,047)
TOTAL NET ASSETS (DEFICIT) $ (452,047)
See independent auditors'report and notes to basic financial statements.
_9 _
Exhibit B
PALM DESERT RECREATIONAL FACILiTTES CORPORATION
STATEMENT OF REVENUES, EXPENSES AND CHANGES IN NET ASSETS
For the year ended June 30, 200$
OPERATING REVENUES:
Food and beverage sales $ 2,642,504
TOTAL QPERATING REVENUES 2,642,504
OPERATTNG EXPENSES:
Cost of goods sold 835,524
Maintenance and opexations 1,Sb0,339
General and administrative 246,179
TOTAL QPERATTNG EXPENSES 2,642,042
OPERATING INCOME 462
CHANGE IN NET ASSETS 4b2
NET ASSETS (DEPICIT} -BEGINNTNG OF YEAR (452,509)
1�TET ASSETS (DEFTCIT) - END OF YEAR $ (452,047}
See independent auditors'report and notes to basic financial statements.
- 10-
Exhibit C
PALM DESERT RECREATIONAL FACILITIES CORPORATTON
STATEMENT OF CASH FL,OWS
For the year ended June 30,2008
CA5H FLOWS FROM OPERATTNG ACTNITIES:
Receipts from customers $ 2,650,719
Payments to suppliers (2,412,704)
NET CASH PR�VIDED BY OPERATiNG ACTNITIES 238,015
NET 1NCREASE IN CASH AND CASH EQLTIVALENTS 238,015
CASH AND CASH EQUIVALEI�7TS -BEGINNING OF YEAR 166,014
CASH AND CASH EQUNALENTS - END OF YEAR $ 404,Q29
RECONCTLIATION OF OPERATING INCOME TO
NET CASH PROVIDED BY OPERATING ACTNITIES:
Operating income $ 462
Adjustments to reconcile operating income
to net cash provided by operating activities:
Changes in assets and liabili.ties:
(Inerease) decrease in accounts receivables 8,215
{.Increase}decrease in inventory (19,278)
(Increase) decrease in prepaid expenses 3,785
Increase(decrease) in accounts payable and accrued liabilities (8,495)
Increase(decrease)in advarice from related party 253,666
Increase (decrease)in unearned revenues (340)
NET CASH PROVIDED BY OPERATI�iG ACTNITIES $ 238,015
5ee independent auditors'report and notes to basic financial statements.
- 11 -
PALM DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FINANCIAL STATEMENTS
June 30,2008
1. ORGANIZATION AND DESCRIPTION OF THE REPORTING ENTITY:
The Palm Desert Recreational Facilities Corporation (the Corporation) is a Corporation that
provides food and beverage services exclusively to the Desert Willow Golf Resort (the Galf
Resort). The Corporation is a component unit of the City of Palm Desert (the City} and is reported
as an Enterprise Fund in the City's basic financial statements. The Corporation was incorporated
on February 25, 1997. The Baard of Directors of the Cvrporation consists of two members of the
City Council and two members of the public at large. The annual Board af Director's meetings is
held the second Mnnday of June at 11:00 a.m. at the principal office of the Corporation.
2. StJMMARY OF SIGNIFICANT ACCOUNTTNG POLICIES:
a. Basic Financial Statements:
The basic financial statements are comprised of the Statement of Net Assets, the Statement of
Revenues, Expenses and Changes in Net Assets, the Statement of Cash Flows and the notes to
the basic financial statements.
b. Basis of Presentation:
The accounts of the Corporation are an enterprise fund. An enterprise fund is a Proprietary
type fund used to account for operations (a) that are financed and operated in a manner simitar
to private business enterprises - where the intent of the governing body is that the casts
(expenses, including depreciation) of providing goods or services to the general public on a
continuing basis be financed or recovered primarily through user charges; or (b) where the
gnveming body has decided that periodic determination of revenues earned, expenses incurred,
and/or net income is appropriate for capital maintenance, public policy, management control,
accountability or other purposes. The Corporation has elected under Governmental Accounting
Standards F3oard (GASB) Statement 20, "Accounting and Financial Reporting for Proprietary
Funds and Other Governmental Entities That Use Proprietary Fund Accounting", to apply all
GASB pronouncements as well as any applicable pronouncements of the Financial Accounting
Standards Board{FASB), the Accounting Principles Board (A.PB), or any Accaunting Research
Bulletins (ARB) issued on or before November 3Q, 1989, unless they contradict or conflict
with GASB pronouncements.
See independent auditors' report.
- 12-
PALM DESERT RECREATIONAL.FACILITIES CORPORATION
NOTES TO BASTC FINANCIAL STATEMENTS
(CONTINUED)
3une 30, 2008
2. SUMMARY OF SIGNIFTCANT ACCOUNTING POLICIES (CONTINUED):
c. Measurement Focus and Basis of Accounting:
Measurement focus is a term u.sed to describe "which" transactions are recorded within the
various financial statements. Basis of accounting refers to "when" transactions are recorded
regardless of the measurement focus applied. The accompanying �nancial statements are
reported using the "economic resources measurement focus", and the "acerual basis of
accounting". Revenues are recorded when earned and expenses are recorded when a liability is
incurred,regardless of the timing of related cash flows.
d. Net Assets:
In the Statement of Net Assets,net assets are classified in.the following categories:
• Invested in capital assets, net of related debt - This amount consists of capital asse�s net of
accumulated depreciation and reduced by outstanding debt that is attributed to the
acquisition, construction, or improvement of the assets.
• Restricted net assets -This amount is restricted by external creditors, grantors, contributors,
or laws or regulations of other governments.
• Unrestricted net assets - 'This amount is a11 net assets that do not nneet the definition of
"invested in capital assets,net of related debt"or"restricted net assets".
When both restricted and unrestricted resources are available for use, the Corporation may use
restricted resources or unrestricted resources based on the Board's discretion.
e. Operating Revenues:
Operating revenues, such as food and beverage sales, resulting from exchange transactions
associated with the principal activity of the Corporation. Exchange transactions are those in
w€uch each party receives and gives up essentially equal valnes.
f. Cash and Cash Equivalents:
For purposes of the Statement of Cash Flows, the Carporation considers all unrestricted hi�hly
liquid investments with an initial maturity of three months or less to be cash equivalents. The
carrying value was$404,029 and the deposit value was�414,456.
See independent auditors' report.
- 13 -
PALM DESERT RECREATIONAL FACILITIES CORPORATION .
NOTES TO BASIC FINANCIAL STATEMENTS
{CONTINUED)
June 30, 2008
2. SUMMARY OF STGNTFICANT ACCOUNTING POLICIES (CONTINUED};
£ Cash and Cash Equivalents (Continued):
The City has impiemented GASB Statement No.40, "Deposit and Inveshnent Risk
Disclosures". This pronouncement is an amendment to GASB Statement Na. 3. GASB No. 40
estabiishes and modifies disclosure requirements related to deposit and investmemt risks. The
information required by GASB Sta.tement No. 40 related to authorized investments, credit risk,
ete., is available in the annual report of the City.
g. Inventories:
Inventories are stated at the lower of cost or market (no adjustments were made to reduce
inventory below cost} with cost determined using the Weighted Average Cost Method. At
June 30, 2008, inventory consisted of$50,917 in merchandise far sales of food and beverages.
h. Leases:
Leases, which in substance transfer all of the benefits and risks equivalent to ownership af the
property are cIassified as capital teases. The related assets and liabilities are recorded at
amounts equal to the lesser of the present value of the minimum lease payments ar the fair
value of the leaseci property at the beginning of the respective leased terms. Generally, such
assets are amortized over their economic lives. Interest expense relating to the lease Iiabilities
is recorded to efFect constant rates of interest over the terms of the l�ases. All �ther leases are
classified as operating leases and related rentals are charged to expense as incurred.
i. Budgetary Policies:
Kemper Sports Management, Inc., is required to submit to the Czty an operating budget
containing estimates of aIl the Corparation �xpenses for the next operating year, including
expenditures for: (a)property operation and maintenance, (b)repairs, replacements a.nd
alterations which do not eonstitute capitat improvements, (c) furnishings and equipment and
operating inventory, and (d} advertising, sale and business promotion. The budget is required.
to be reviewed and approved by the City prior to July 1 each year.
See independent auditors' report.
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PALNI DESERT RECREATIONAL FACILITIES CORPORATION
NOTES TO BASIC FIlVANCIAL STATEMENTS
(C4NTINUED)
June 30, 2Q08
3. RELATED PARTY TRANSACTIONS:
Advances from Related Party:
As of June 30, 200$, the Corporation owed the following amounts to re2ated parties:
Desert Willow Golf Course $ 570,428
City of Palm Desert 285,000
$ $55.428
The Corporation has an operating lease with the City far use of the facilities (see Note 4).
4. COMMI'FMENTS AND CONTTNGENCIES:
Operating Leases:
The Corporation has an operating lease with the City for use of the facilities. The terms of the
lease are $8,000 per month beginning June 4, 1947. The lease is a month-to-month lease with no
expirarion date. On May I8,2004, the Corporation approved an in.crease in the lease payment to
begin on JuIy 1, 2004. The new lease payment is $15,000 per month. Total rent expense incurred
for the year ended June 30, 2008,under this lease was $180,000.
Management Agreement:
The Corporation is managed by Kemper Sports Management, Inc., under an agreement to manage
and operate Desert Willow Golf Course. The agreement commenced on July 1, 2007, and was to
expire on June 3Q, 2008. On May 13, 2008, the Palm Desert Recreational Facilities Corporation
renewed their management agreement with Kemper Sparts Management, Inc. This new agreement
will expire on June 30,2011. The new management agreement also includes two one-year options
to extend at the City of Palrn Desert's discretion. Subsequently, on May 22, 2008, the City of Palm
Desert renewed their agreement with Kemper Sports Management, Inc. for three years
commencing on July 1, 2008.
S. R.ISK MANAGEMENT:
The Golf Resort is 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, Ine. of Illinois. The Corporation is
named as additional insured.
See independent auditors' report.
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PALM DESERT RECREATIONAL FACILITIES COR.PORATION
NOTES TO BASIC FINANCIAL STATEMENTS
(CONTINUED}
June 30, 2008
6. OTHER DISCLOSURES:
The Corporatian has a rtet asset deficit of $452;047, which will be eliminated by increasing
revenues through banquet reservations.
See independent auditors' report.
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