Penticton Golf & Country Club Financial Statements For the year ended September 30, 2012 Contents Independent Auditor's Report 2-3 Financial Statements Statement of Financial Position 4 Statement of Operations 5 Statement of Changes in Net Assets 6 Statement of Cash Flow Position 7 Notes to Financial Statements 8-16 Independent Auditor's Comments on Supplementary Financial Information 17 Schedule 1 - Greens and Golf Course Operations 18 Schedule 2 - Clubhouse Operations 19 Schedule 3 - Dining Room Operations 20 Schedule 4 - Snack Shack Operations 20 Schedule 5 - Lounge Operations 21 Schedule 6 - Pro Shop Operations 22
To the Members Independent Auditor's Report We have audited the accompanying financial statements of the, which comprise the statement of financial position as at September 30, 2012, and the statements of operations and change in net assets, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Canadian generally accepted accounting principles, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Canadian generally accepted auditing standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. 2
Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of the as at September 30, 2012 and the results of its operations and cash flows for the year then ended in accordance with Canadian generally accepted accounting principles. Chartered Accountants Penticton, British Columbia December 12, 2012 3
Statement of Financial Position September 30 2012 2011 Assets Current Cash $ - $ 14,457 Current portion of registration receivable (Note 4) 52,437 70,109 Accounts receivable, net 149,439 97,908 Inventory (Note 2) 183,057 198,953 Prepaid expenses and equipment lease 68,317 74,136 453,250 455,563 Investments (Note 3) 201,009 200,903 Long-term registration receivable (Note 4) 358,548 349,065 Capital assets (Note 5) 4,238,393 4,501,052 Liabilities and Net Assets $ 5,251,200 $ 5,506,583 Current Bank indebtedness $ 6,841 $ - Accounts payable and accrued liabilities 260,967 233,800 Travel assistance trust fund (Note 6) 584 494 Demand loan (Note 8) 3,113,101 3,264,122 Current portion of deferred revenue (Note 9) 96,744 103,774 Current portion of deferred capital contribution (Note 7) 11,572 11,572 3,489,809 3,613,762 Deferred capital contributions (Note 7) 138,716 150,288 Deferred revenue (Note 9) 361,698 349,065 500,414 499,353 3,990,223 4,113,115 Equity in net assets Net assets invested in capital assets 975,006 1,075,072 Net assets internally restricted (Note 13) 267,206 196,724 Unrestricted net assets 18,765 121,672 Approved on behalf of the Board 1,260,977 1,393,468 $ 5,251,200 $ 5,506,583 Director Director The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 4
Statement of Operations For the year ended September 30 2012 2011 Revenue Greens and golf course revenue (Schedule 1) $ 1,404,954 $ 1,468,467 Dining room revenue (Schedule 3) 407,364 439,565 Snack shack revenue (Schedule 4) 145,211 140,469 Lounge revenue (Schedule 5) 236,389 226,609 Pro shop revenue (Schedule 6) 536,134 526,591 Sundry income 9,422 19,856 2,739,474 2,821,557 Cost of sales 2,161,206 2,189,720 Gross margin 578,268 631,837 Expenses Advertising 6,698 5,732 Audit, accounting and legal 14,000 16,986 Bad debts 7,184 1,836 Bank charges and interest 64,456 65,105 Car allowances 5,000 5,000 Dues, fees and travel 5,005 4,680 Executive, travel, and miscellaneous 3,695 6,995 Interest on long-term debt 118,346 133,155 Office salaries and benefits 170,836 173,962 Office supplies and postage 18,445 17,530 Promotion and other 431 4,179 Taxes and insurance 29,995 32,496 444,091 467,656 Income from operations 134,177 164,181 Other revenue (expense) Amortization of deferred capital contributions 11,572 11,572 Amortization of capital assets (278,129) (284,307) Foreign exchange loss (111) (26) (266,668) (272,761) Excess of revenue over expenses (expenses over revenue) (132,491) (108,580) Equity in net assets, beginning of year 1,393,468 1,502,048 Equity in net assets, end of year $ 1,260,977 $ 1,393,468 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 5
Statement of Changes in Net Assets For the year ended September 30 2012 2011 Invested in Internally Capital Restricted Assets Assets Unrestricted Total Total Balance, beginning of year $ 1,075,072 $ 196,724 $ 121,672 $ 1,393,468 $ 1,502,048 Excess of revenue over expenses (expenses over revenue) - 70,482 (202,973) (132,491) (108,580) Investment in capital assets 15,470 - (15,470) - - Net repayment of long-term debt 151,021 - (151,021) - - Amortization of deferred capital contributions 11,572 - (11,572) - - Amortization of capital assets (278,129) - 278,129 - - Balance, end of year $ 975,006 $ 267,206 $ 18,765 $ 1,260,977 $ 1,393,468 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 6
Statement of Cash Flow Position For the year ended September 30 2012 2011 Cash flows from operating activities Cash receipts from customers and members $ 2,692,409 $ 2,859,709 Cash paid to employees and suppliers (2,365,334) (2,493,889) Interest paid (182,802) (198,261) Interest received 920 792 145,193 168,351 Cash flows from investing activities Purchase of capital assets (15,470) (51,065) Cash flows from financing activities Repayment of long-term debt (151,021) (136,211) Net decrease in cash and cash equivalents (21,298) (18,925) Cash, beginning of year 14,457 33,382 Cash (bank indebtedness), end of year $ (6,841) $ 14,457 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 7
September 30, 2012 1. Summary of Significant Accounting Policies Nature of Operations Financial Instruments Notes to Financial Statements (the "society") is a non-profit organization incorporated under the laws of the British Columbia Society Act. The mission of the society is to provide facilities in or near the Municipality of Penticton for the playing of the game of golf. The society is a non-profit organization under the Income Tax Act and as such is exempt from income tax. The society utilizes various forms of financial instruments and classifies its financial instruments into one of the following categories based on the purpose for which the asset was acquired. The society s accounting policy for each category is as follows: Held for Trading The society has classified cash and investments as held for trading. This financial instrument is recorded at fair value with changes in fair value recognized in the statement of revenue and expense as incurred. Transaction costs related to instruments classified as held-for trading are expensed as incurred. Loans and Receivables The society has classified accounts receivable as loans and receivables. These financial instruments are non-derivative financial assets resulting from the delivery of cash or other assets by a lender to a borrower in return for a promise to repay on a specified date or dates, or on demand. They are initially recognized at fair value and are subsequently measured at the amortized cost using the effective interest rate method. Gains and losses arising from changes in fair value are recognized as incurred. Other Financial Liabilities The society has classified accounts payable and accrued liabilities and longterm debt as other financial liabilities. These financial instruments are initially recognized at fair value and are subsequently measured at the amortized cost using the effective interest rate method. Gains and losses arising from changes in fair value are recognized as incurred. Measuring Fair Value The fair value of a financial instrument is the amount of consideration that would be agreed upon in an arm's-length transaction between knowledgeable, willing parties who are under no compulsion to act. Fair values are determined by reference to quoted bid or asking prices as appropriate, in the most advantageous active market for that instrument to which the society has immediate access. Fair values determined using valuation models require the use of assumptions concerning the amount and timing of estimated future cash flows and discounted rates. In determining those assumptions, external readily observable market inputs including interest rate yield curves, currency rates and price and rate volatilities are considered, as applicable. 8
September 30, 2012 1. Summary of Significant Accounting Policies (continued) Inventory Financial Instruments Risk Exposure Capital Assets Restricted Capital Funding Notes to Financial Statements Inventory is stated at the lower of cost and net realizable value. Cost is determined on a weighted average basis for Pro Shop inventory and on a First-In-First-Out (FIFO) basis for grounds, lounge, and kitchen inventory. The society, as part of its operations, carried a number of financial instruments. It is management s opinion that the society is not exposed to significant interest, currency or credit risk arising from these financial instruments except as otherwise disclosed. Credit risk Financial instruments that potentially subject the society to concentrations of credit risk consist primarily of cash and accounts receivable. The credit risk relating to cash is managed by holding the funds in a chartered bank, subject to risk based on deposit insurance. The credit risk relating to member accounts receivable is limited due to the active management and collection of these accounts, furthermore these amounts must be paid to prevent club privileges from being revoked. Liquidity risk Liquidity risk is the risk that the society will not be able to meet its financial obligations as they fall due. The society's approach to managing liquidity risk is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under normal and stressed conditions. The society manages liquidity by monitoring cash requirements to meet expected operational expenses. Interest rate risk The society is exposed to interest rate risk to the extent that its loans payable are at a floating rate interest. The fluctuations in these rates will impact the cost of financing incurred in the future. The society manages this risk by internally restricting funds specifically for the repayment of long term debt and managing the working capital in order to meet payment obligations. Purchased capital assets are recorded at cost less accumulated amortization. Assets purchased in 1993 or prior were recorded at appraised amounts. Amortization based on the estimated useful life of the asset is calculated on the straight-line basis as follows: Buildings Golf course land (leasehold interest) Furniture, fixtures, and office equipment Automotive and other course equipment Paving - 20 or 25 years - 25 years - 5 or 10 years - 5, 7, 8, 10, or 15 years - 10 years This relates to income received by the society that is allocated specifically for future capital expenditures. 9
September 30, 2012 1. Summary of Significant Accounting Policies Notes to Financial Statements Deferred Revenue Deferred revenue consists of registration fees for ages 19-29 ($2,500), 30-42 ($3,500), and 43+ ($4,500). They are payable upon joining the society and can be paid in cash or deferred equally over a ten year period. Revenue from deferred registration is recorded in the year the payment is received. Registration fees are to be applied to the purchase of capital assets or to the repayment of bank indebtedness or long-term debt. Any unexpended funds are to be transferred to a separate bank account and reserve account. Use of Estimates Revenue Recognition Accounting Framework Deferred revenue also includes annual dues paid in advance by members for the next fiscal year. These dues will be recognized as revenue in the year in which they are considered earned. The preparation of financial statements in accordance with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from management's best estimates as additional information becomes available in the future. The society follows the deferred method of accounting for contributions. Restricted contributions are recognized as revenue in the year in which the related expenses are incurred. Unrestricted contributions are recognized as revenue when received or receivable if the amount to be received can be reasonably estimated and collection is reasonably assured. Membership revenue is recognized when due. Green fees and clubhouse revenues are recognized when products change ownership or when services are provided. Registration fees are non-refundable and recognized when cash is received. Pro shop revenue is recognized when products change ownership or when services are provided. For year ends beginning on or after January 1, 2012, non-for-profit organizations ("NPO") will have the option of adopting IFRS or accounting standards for NPOs. The existing standards NPO standards in the CICA Handbook will continue to be available until 2012, at which time they will cease to be an authoritative source of Canadian GAAP. Accordingly, an NPO that wishes to adopt accounting standards for NPOs will be able to adopt the new standards early. The society is currently monitoring changes to the standards to determine the potential impact on its financial statements. 10
September 30, 2012 2. Inventory Notes to Financial Statements Inventory is recorded at the lower of cost and net realizable value. It is comprised of the following products: 2012 2011 Course fertilizer & supplies $ 30,955 $ 29,013 Alcohol 18,680 17,721 Food 12,281 12,733 Pro Shop 121,141 139,486 $ 183,057 $ 198,953 Inventory, beginning of year $ 198,953 $ 192,667 Plus: Purchases 552,276 562,261 Less: Inventory, end of year 183,057 198,953 Cost of inventory sold 568,172 555,975 Direct operating expenses 1,593,034 1,633,745 Total cost of sales $ 2,161,206 $ 2,189,720 3. Investments 2012 2011 Redeemable GIC $ 201,009 $ 200,903 The society has invested $200,000 into a redeemable GIC with the Bank of Montreal compounded annually at 1.30% and matures on May 11, 2015. The fair market value of the GIC approximates the carrying value. 11
September 30, 2012 4. Long-term registration receivable Notes to Financial Statements 2012 2011 Registration fees receivable $ 410,985 $ 419,174 Less: Current portion 52,437 70,109 $ 358,548 $ 349,065 The long-term registration receivable relates to initiation fees that will be received from members. The rate of payment is dependent on the type of payment option chosen by each new member. Expected collection of this balance over the next 5 years is as follows: 5. Capital Assets Year Amount 2013 52,437 2014 70,083 2015 58,023 2016 51,693 2017 45,253 Thereafter 133,496 $ 410,985 2012 2011 Cost Accumulated Cost Accumulated Amortization Amortization Buildings (leasehold interest) $ 4,462,603 $ 862,227 $ 4,462,603 $ 687,241 Golf course land (leasehold interest) 1,616,215 1,153,853 1,613,540 1,104,341 Furniture, fixtures and office equipment 419,871 313,421 416,371 280,883 Automotive and other course equipment 345,536 306,422 336,241 292,755 Paving 179,301 149,210 179,301 141,784 $ 7,023,526 $ 2,785,133 $ 7,008,056 $ 2,507,004 Net book value $ 4,238,393 $ 4,501,052 12
September 30, 2012 6. Travel Assistance Trust Fund Notes to Financial Statements 2012 2011 Balance, beginning of year $ 494 $ - Add: Donations and recoveries 90 820 Deduct: Travel assistance provided - 326 Balance, end of year $ 584 $ 494 7. Deferred Capital Contributions Deferred capital contributions relate to capital assets and represent the unamortized amount of grants and assessments received for the purchase of capital assets. The amortization of capital contributions is recorded as revenue in the statement of operations over the estimated useful life of the asset to which the grant relates to. 2012 2011 Balance, beginning of year $ 161,860 $ 173,432 Less: amount amortized to revenue 11,572 11,572 Balance, end of year $ 150,288 $ 161,860 13
September 30, 2012 8. Demand Loan Notes to Financial Statements 2012 2011 Bank of Montreal non-revolving demand loan repayable over a maximum of 20 years with blended monthly payments of $22,447 including interest at prime plus 0.65% per annum. In 2007 the society transferred ownership of the parking lot, club storage building and current clubhouse to the Corporation of the City of Penticton ("the City"). In return the City allows the society to use this property as security for the loan in the amount of $3,625,000. The loan is also secured by a general security agreement and assignment of fire insurance payable to the Bank of Montreal. $ 3,113,101 $ 3,264,122 Less: Current portion 3,113,101 3,264,122 $ - $ - The loan agreement contains a covenant requiring a debt service ratio of 1:1. As at September 30, 2012 the society was not in compliance with this covenant. Consequently, the ability of the society to continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities and commitments in the normal course of business, is dependent on continued availability of bank financing. The loan noted above is presented as a current liability due to its nature of being a demand loan. However, the loan is being amortized and paid out over a twenty year period with regular principal payments for the next five years and thereafter as follows: Year Amount 2013 $ 176,299 2014 181,786 2015 187,444 2016 193,063 2017 199,287 Thereafter 2,175,222 $ 3,113,101 14
September 30, 2012 9. Deferred Revenue Notes to Financial Statements 2012 2011 Dues $ 44,307 $ 29,833 Registration fees 414,135 423,006 458,442 452,839 Less: Current portion 96,744 103,774 10. Lease Obligations a) Corporation of the City of Penticton: $ 361,698 $ 349,065 The society has renegotiated a lease of the land and buildings from the Corporation of the City of Penticton ("the City") as of July 1, 2007 through October 31, 2033 and calls for a $1 lease fee for the term of the lease and an annual minimum lease fee of $1,200 or $60 per cart for the cart storage facility. As part of the lease agreement, the society transferred ownership of the clubhouse, pro shop, maintenance shop, land and improvements to the City as at July 1, 2007. The society may request an extension of the lease agreement on October 31, 2028, however, it shall be at the sole discretion of the City as to whether or not to consider the said lease extension request. b) The society has entered into lease agreements for the supply of course and office equipment. Annual lease rental commitments in effect at September 30, 2012 are as follows: Year Amount 2013 $ 130,569 2014 59,549 2015 59,549 2016 30,550 $ 280,217 15
September 30, 2012 11. Overdraft Lending Facility Notes to Financial Statements The society has an unused line of credit of $300,000 with an interest rate of prime plus 1.00%. 12. Capital Management The society's objectives when managing capital are: 1. To safeguard the society's ability to continue to operate as a going concern; and 2. To maintain a flexible capital structure. The society's credit facilities are reviewed annually to ensure sufficient funds are available to meet operational and business needs. 13. Restrictions on Net Assets During the year the society decided to allocate the interest savings of $70,482 (2011 - $62,115) to an internally restricted net asset account. The purpose of this internally restricted account is to address the variable interest rate risk relating to servicing the clubhouse's long-term debt. The savings obtained results from the difference arising between annual variable interest incurred and the budgeted interest expense for the year (which was determined at the time of refinancing the clubhouse debt at a fixed rate of 5.75%). This internally restricted amount is not available for other purposes without approval of the board of directors. 14. Related Party Transactions At the end of the year, the society had amounts owing from several employees of $3,638 (2011 - $4,030). These transactions are included in the society's account receivables balance and are part of the normal business activities for the society. 15. Change in Inventory Policy During the year the club changed the basis in which it accounts for its Pro Shop inventory from First- In-First-Out (FIFO) to the weighted average method. As a result of this change, the current year carrying value of pro shop inventory had increased to $121,141 from $111,074 for a net difference of $10,067. 16
To the Members Independent Auditor's Comments on Supplementary Financial Information We have audited the statements of the, which comprise the statement of financial position as at September 30, 2012, and the statements of operations, change in net assets and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, and have issued our report thereon dated December 12, 2012 which contained an unmodified opinion on those financial statements. The audit was performed to form an opinion on the financial statements as a whole. The financial information presented hereinafter is presented for the purposes of additional analysis and is not a required part of the financial statements. Such supplementary information is the responsibility of management and was derived from the underlying accounting and other records used to prepare the financial statements. The supplementary information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such supplementary information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves. The supplementary information is prepared to assist management of. As a result, the supplementary information may not be suitable for another purpose. Our report is intended solely for the and should not be distributed to or used by parties other than. Chartered Accountants Penticton, British Columbia December 12, 2012 17
Schedule 1 - Greens and Golf Course Operations (Unaudited) For the year ended September 30 2012 2011 Revenue Adult members - full play $ 603,303 $ 626,973 Registration income 86,332 99,917 Juniors 10,755 10,172 Students 5,338 7,731 Social reserve 23,841 25,060 Green fees 424,833 431,864 Cart trackage 35,796 37,352 Special events green fees Penticton Open 7,008 9,960 Other tournament events 372 2,034 Special assessment 207,376 217,404 1,404,954 1,468,467 General expenses B.C.G.A. fees 32,019 26,202 Fuel 20,360 22,889 Junior development - 1,963 Leases - course equipment 89,311 92,848 Other licences, dues and fees 8,313 7,061 Repairs and maintenance 71,110 86,266 Telephone 6,952 6,654 Utilities 8,725 10,992 Vehicle allowance 9,600 9,600 246,390 264,475 Course operations Wages and benefits 448,904 460,397 Supplies 76,847 98,792 525,751 559,189 Total greens and course expenses 772,141 823,664 Net revenue from greens and course operations $ 632,813 $ 644,803 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 18
Schedule 2 - Clubhouse Operations (Unaudited) For the year ended September 30 2012 2011 Income Net income on dining room operations (Schedule 3) $ 28,990 $ 54,706 Net income on snack shack operations (Schedule 4) 45,503 47,787 Net loss on lounge operations (Schedule 5) (9,400) (19,935) Locker rentals 7,535 8,240 72,628 90,798 Operating expenses Janitorial and maintenance 40,291 33,900 Repairs and maintenance 30,235 30,194 Supplies 8,378 12,594 Utilities 57,031 59,294 135,935 135,982 Net loss on clubhouse operations $ (63,307) $ (45,184) The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 19
Schedule 3 - Dining Room Operations (Unaudited) For the year ended September 30 2012 2011 Sales $ 407,364 $ 439,565 Cost of sales 172,075 173,414 Gross profit 235,289 266,151 Operating expenses Supplies and laundry 14,434 16,467 Wages and benefits 191,865 194,978 206,299 211,445 Net income on dining room operations $ 28,990 $ 54,706 Schedule 4 - Snack Shack Operations (Unaudited) For the year ended September 30 2012 2011 Sales $ 145,211 $ 140,469 Cost of sales 66,107 60,709 Gross profit 79,104 79,760 Operating expenses Supplies and maintenance 64 149 Wages and benefits 33,537 31,824 33,601 31,973 Net income on snack shack operations $ 45,503 $ 47,787 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 20
Schedule 5 - Lounge Operations (Unaudited) For the year ended September 30 2012 2011 Liquor and soft drinks Sales $ 58,881 $ 62,972 Cost of sales 22,686 25,713 Gross profit on liquor and soft drinks 36,195 37,259 Beer Sales 128,832 113,688 Cost of sales 52,009 47,464 Gross profit on beer 76,823 66,224 Wine Sales 48,676 49,949 Cost of sales 20,200 18,993 Gross profit on wine 28,476 30,956 Total gross profit 141,494 134,439 Operating expenses Laundry, maintenance and supplies 2,174 2,077 Lounge entertainment and sundry - 936 Miscellaneous 90 285 Wages and benefits 148,630 151,076 150,894 154,374 Net loss on lounge operations $ (9,400) $ (19,935) The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 21
Schedule 6 - Pro Shop Operations (Unaudited) For the year ended September 30 2012 2011 Sales $ 316,854 $ 314,359 Cost of sales 235,095 229,682 Gross profit 81,759 84,677 Other income Club repairs 9,003 6,843 Club storage 50,375 50,892 Driving range 20,299 21,393 Golf lessons 13,734 7,502 Power cart rentals 115,289 115,170 Rentals 10,580 10,432 219,280 212,232 301,039 296,909 Operating expenses Freight 2,783 3,948 Power carts lease 32,623 27,580 Repairs and maintenance 3,335 503 Supplies 1,186 6,536 Travel, promotion and miscellaneous 2,663 1,910 Wages and benefits 251,575 235,831 294,165 276,308 Net income on pro shop operations $ 6,874 $ 20,601 The accompanying summary of significant accounting policies and notes are an integral part of these financial statements. 22