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1. Buffalo Hills Golf Course Lease%`rite nf' Tl�li�Y.�►11 Vl�.,' Vl 11Q11�11JC11 Charles A. Harball Office of City Attorney City Attorney 312 First Avenue East P.O. Box 1997 Kalispell, MT 59903-1997 MEMORANDUM TO: Mayor Pamela B. Kennedy and Kalispell City Council FROM: Charles Harball, City Attorney Myrt Webb, Interim City Manager Tel 406.758.7708 Fax 406.758.7771 charball@kalispell.com SUBJECT: Buffalo Hills Golf Course — Renegotiation of Lease MEETING DATE: July 20, 2009 — Council Work Session The City of Kalispell negotiated- and signed- a 20 year lease with the Kalispell Golf Association [KGA1 for the Buffalo Hills Golf Course municipal property in 1997. Although there still remains 8 years on the lease, the KGA is interested in renewing the lease for at least another 20 years from this current year. The reason for this is that the KGA desires to make some substantial capital improvements to the course which will require financing. This financing will not be available to the KGA without considerably more than 8 years remaininp, on the lease. As some members of Council will recall, as in 1997, any lease of this property must be approved by 2/3 of the Council and then sent to the electors for a vote at the next regular or primary election. This is to meet the requirements of MCA 7-8-4201(b) for municipal property held in trust for a specific purpose, as this property is. August 20, 2009 happens to be the deadline for placing matters on the ballot this November. The City staff has been discussing the current lease and possible changes to that lease with the staff of KGA. The City staff is also in the process of reviewing the leases of other municipal golf courses to try to make some reasonable and prudent comparisons of specific terms and formulas utilized in the industry. The purpose of the workshop is to allow the KGA to present their project and the condition of their business to the Council. With this information, staff will be looking to Council for its direction in further negotiations of the lease agreement with KGA. Respectfully itted, Charles Harball, City Attorney Myrt Webb, Interim City Manager THIS LEASE, made and entered into as of the 18t day of April, 1997, by and between the City of Kalispell, Montana, a Municipal Corporation, hereinafter referred to as LESSOR, and the Kalispell Golf Association, a Montana Corporation, hereinafter referred to as LESSEE, W I T N E S S E T H: For and in consideration of the mutual covenants and promises hereinafter set forth, the parties hereto agree as follows: 1. PROPERTY: LESSOR hereby leases to LESSEE and LESSEE hereby leases and hires from LESSOR those certain premises and all appurtenances thereto situated in Kalispell, Flathead County, Montana, as follows: All of that property owned by LESSOR and commonly known, referred to and utilized as the Kalispell City Golf Course. Attached as Exhibit "All is a map with the subject premises outlined. Attached is Exhibit "g" which identifies the boundary and fence line between the golf course and the north portion of the old Lawrence Park. The total area consists of approximately 240 acres. j:\wp\golf.lee 1 THIS LEASE, made and entered into as of the ist day of April, 1997, by and between the City of Kalispell, Montana, a Municipal Corporation, hereinafter referred to as LESSOR, and the Kalispell Golf Association, a Montana Corporation, hereinafter referred to as LESSEE, W I T N E S S E T H: For and in consideration of the mutual covenants and promises hereinafter set forth, the parties hereto agree as follows: 1. PROPERTY: LESSOR hereby leases to LESSEE and LESSEE hereby leases and hires from LESSOR those certain premises and all appurtenances thereto situated in Kalispell, Flathead County, Montana, as follows: All of that property owned by LESSOR and commonly known, referred to and utilized as the Kalispell City Golf Course. Attached as Exhibit "A" is a map with the subject premises outlined. Attached is Exhibit "B" which identifies the boundary and -fence line between the golf course and the north portion of the old Lawrence Park. The total area consists of approximately 240 acres. J:\wp\go1f.1se 1 2. TERM: TO HAVE AND TO HOLD the above rented premises during the full term of twenty (20) years, which term shall begin upon the date of approval of this lease as required by section 7-8- 4201 (2)(b) MCA, retroactive to April 1, 1997, and shall terminate upon the expiration of said full twenty year term, unless terminated sooner as hereinafter provided. 3. GROSS _______RECEIPTS: For purposes of this Lease "Gross Receipts" shall be defined as all gross receipts obtained by LESSEE from the operation of the driving range (golf ball rentals), membership fees (season passes), the sale of green fee punch cards and other green fees. All other receipts shall not be defined as gross receipts under the provisions of this lease and shall be and remain the sole income of LESSEE. 4. RENT: LESSEE shall pay to LESSOR, as rent, a sum to be determined annually as herein provided, payable for the preceding year, on or before the 30th day of June, commencing with June 30, 1998...and continuing on the 30th day of June throughout the term of this Lease. The annual rent for the full term of this lease shall be based upon Gross Receipts, as defined in § 3, hereof, and be calculated as set forth in Exhibit "C", attached hereto and for purposes of this Agreement made a part hereof. j:\wp\go1f.1se 2 Said rent payment shall be mailed or delivered to LESSOR at the Kalispell City Hall. All prior rents due by LESSEE to LESSOR under that certain Lease dated July 1, 1988 are hereby deemed and agreed to be paid in full and let it be known and agreed that upon approval of this agreement as provided in § 2, hereof, this lease shall supersede any and all Leases between the Kalispell Golf Association and the City of Kalispell. 5. USE --- oT-_LEASED—PREMISES: LESSEE shall use the leased premises for the primary purpose of operating a municipal golf course; however, LESSEE shall also encourage members of the general public to utilize said premises for such other purposes as cross- country skiing, sledding and jogging, subject however, to reasonable rules and regulations regarding the conduct of such activities as may be promulgated from time to time by LESSEE. LESSEE agrees to observe all Federal, State and municipal laws and regulations including those related to human and equal, rights and in particular Bureau of Outdoor Recreation, or its successors, regulations. maintain the above described premises in as good a condition as the same are in at this time, or as good as they may be put by LESSOR during the term hereof in case of a casualty loss causing repair or j:\WP\g01f.1Se 3 reconstruction by LESSOR; and to return said property to LESSOR at the expiration of said lease in said condition, reasonable wear and tear and damage by the elements alone excepted. In the event LESSEE refuses or neglects to keep the above -mentioned premises in such order and condition hereinabove mentioned, LESSOR shall have, after first giving ninety (90) days written notice to repair, the right to declare this lease null and void and of no further force and effect. In this case the annual payments of rent shall terminate and LESSEE shall not in any way be responsible for any future rent payments. LESSEE agrees to maintain and keep in repair all water lines and pumps on said golf course, and to attend to the shutting off of the water supply and draining of all pipe lines in the fall, and to turn the water in to said system in the spring. 7. ALTERATIONS —AND _: LESSEE shall not make any alterations or improvements to the premises or the appurtenances located thereon in excess of twenty-five Thousand Dollars ($25,000.00) at any one time without having first received approval from the LESSOR of the intended alteration or improvement. LESSEE shall report to LESSOR annually on alterations and improvements costing less than $25,000.00. 8. UT.1LITIES: During the entire term of this lease LESSEE shall pay when due for required utilities serving the leased js\WPlJ01f.1se 4 premises, including but not limited to, electrical, gas, telephone, water, sewer and garbage services. LESSEE shall also be entitled to continue use of LESSOR's appropriated water right of the Stillwater River adjacent to the golf course premises without charge. LESSEE in using the water from the Stillwater River under said water rights shall operate and maintain the system and pump for such purposes. 9. P_ERS.ONAL—PROPERTYu._AND__FIXT MFS : All personal property hereinbefore or hereinafter obtained in connection with the operation and maintenance of the Kalispell City Golf Course shall be the property of LESSEE; provided, however, that all fixtures that have been or may be installed on the premises and attached thereto have or will become part of the premises and are the property of LESSOR. 10. C4ST 4.FOERATS-)N: All costs of operation including the cost or providing supplies, equipment, tools, labor and other such items and the entire cost of maintaining and operating the golf course, the club house and other appurtenances shall be the sole responsibility of LESSEE. 11. USE QF___CLUBH0.USE-�.__.LFS3-QR: Although LESSEE shall have the exclusive use and supervision of all buildings on said premises I ncluding that structure known as the clubhouse, it is agreed that j:\wp\go1f.1se 5 LESSOR shall be entitled to use of the clubhouse at any convenient time to LESSEE upon adequate notice with LESSOR reimbursing LESSEE for all actual expenses incurred by LESSEE for the reason of any such use by LESSOR. 12. OO.LF__OOIRSE--- FEES: A schedule of membership fees (season passes), green fees punch cards and other green fees shall be presented by LESSEE to LESSOR prior to the first day of April of each year of this Lease. The schedule for such fees for the 1997 golfing season is attached hereto as Exhibit ..D", and by this reference made a part hereof. LESSEE, at its discretion, may from year to year, during the term of this Lease, increase or decrease its Schedule of Fees, then in effect, up to ten percent (lot) without prior approval of such an increase from LESSOR. LESSOR shall not unreasonably withhold its approval of any proposed Fee Schedule for which its approval may be required under this Lease. 13. LESSEE._'-S__F-INNAUCIAL__REPORTS : Annually, on or before the 30th day of June, in conjunction with the payment of the annual rent, LESSEE shall present to LESSOR for review a copy of LESSEE's annual financial report completed in accordance with generally accepted accounting principles. The Association's financial records will be subject to an audit conducted by, and at the option of, j:\WP\901f.1Se 6 the City (internal staff or contract auditor). The cost of such audit shall be paid by the City. 14. LESSEE' S LIA.BI7-LITy.._INSURANCE: LESSEE shall obtain and keep in full force and effect during the term of this lease, full general liability insurance in the amount of one Million, Five Hundred Thousand Dollars ($1,500,000.00) with a company licensed to do business in the State of Montana; and said policy of insurance shall. name LESSOR as additional named insured. In the event the Montana legislature increases the limitations on government liability for damages in tort LESSEE agrees to increase its liability coverage appropriately. LESSOR shall be furnished with a certificate that such insurance is in force and the same shall provide for reasonable notification to LESSOR prior to the same being canceled. LESSEE agrees to hold LESSOR harmless from any and all liability of any nature, whatsoever, arising from or out of LESSEE's possession, use, maintenance, improvement or occupancy of the property herein described; LESSEE further agrees to defend, at LESSEE's expense, any action brought against LESSOR arising out of LESSEE's possession, use, maintenance, improvement or occupancy of said property. 15. EIRE__INSURANCE: During the full term of this lease, LESSOR shall maintain its own fire insurance adequate to cover J:\wplgo1f.1se 7 replacement costs on the improvements on said premises. Should the premises during the term of this lease suffer damages which are covered by said fire insurance policy, LESSOR agrees to utilize all insurance reimbursements therefore, toward rebuilding or repairing the damaged premises, or toward providing adequate replacement facilities. The contents of buildings and fixtures located on the premises shall be insured by LESSEE and shall be in such amounts as to assure replacement. The parties mutually agree as to waiver of subrogation rights each with the other. 16. DEFAULT ANDA�ANFfRLTP-= : In the event that: (a) LESSEE shall default in the payment of any installment of rent or other sum herein specified and such default shall continue for thirty (30) days after written notice thereof; or (b) LESSEE shall default in the observance or performance of any other of LESSEE's covenants, agreements, or obligations hereunder and such default shall not be corrected within ninety (90) days after written notice thereof; or (c) LESSEE shall be declared bankrupt or insolvent according to law, or, if any assignment shall be made of LESSEE's property for the benefit of creditors; j:\wp\goif.Ise 8 LESSOR shall have the right thereafter, when such default continues, to re-enter and take complete possession of the leased premises, according to law, and to declare the term of this lease ended, and to remove LESSEE's effects, without prejudice. 1n doing so no additional rent payments may be collected from LESSEE; however, if LESSEE shall default, after reasonable notice thereof, in observance or performance of any conditions or covenants on LESSEE's part to be observed or performed by virtue of any of the provisions in any article of this lease, LESSOR, without being under any obligation to do so and without thereby waiving such default, may remedy such default for the account and at the expense of LESSEE. 17. NaTICE: No notice from LESSOR to LESSEE relating to the leased premises or the occupancy thereof, shall be deemed duly served unless personally served upon or mailed to LESSEE, registered or certified mail, return receipt requested, postage prepaid, and addressed to LESSEE at its address as follows: Manager, Kalispell City Golf Course Post Office Box 1116 Kalispell, Montana 59903 Any notice from LESSEE to LESSOR relating to the leased premises or the occupancy thereof, shall be deemed duly served, if personally j:\wp\golf.lse 9 served upon or if mailed to LESSOR by registered or certified mail, return receipt requested, postage prepaid, and addressed to LESSOR at the address as follows: Manager City of Kalispell Drawer 1997 Kalispell, Montana 59903-1997 18. EXISTING LEASE: It is mutually understood and agreed between the parties hereto that no actions taken or not taken by either party in the negotiation or execution of this agreement shall constitute a waiver of any rights that either party may now have or hereafter have relating to or arising out of the existing Lease between the City of Kalispell and the Kalispell Golf Association dated July 1, 1988; and, and each party specifically reserves the right to present any claim or defense to any claim relating to or arising out of said Lease. 19. TIME OF .ESSENCE .AND..B_INDING_..EFFECT: It is mutually agreed by and between the parties hereto that the time of payment shall be an essential part of this lease agreement, and that all of the covenants and agreements herein contained shall extend to and be binding upon the parties hereto, and their successors and assigns. ] : \WP\901f .1$e 10 IN WITNESS WHEREOF, the parties have executed this lease as of the date first above written. ATTEST . _ '4 'Clerk 4'7f� ATTEST: Association Secretary j:\wp\qo1f.1se 11 CITY OF KALISPELL Manager KALISPELL GOLF ASSOCIATION President ' F L i k s , I a• ; - ! +�•• I ►i>tJ. '1t Oct is L 27 tf GALLON RESERW#R t •. I9 •e +, ;( t WATER LEVEL NpN TShI(y'► ! •�aI1120•b j ADD • Ne I to t8trle4 bi •+t+Srrt C.ai .' 4 4h I --- i -, n#rrt AL o $tiCL 5 f _• r7tLL 20 0 OPA 1 r f•,•i ,.. = e. �.. � M fiALLON RESERVOIR # i WATER LEVEL TED tW WAs E q�.•% • s LtV[€ V9 . r % ti +s 'ALVFR t+ff #Ml2AtOKr#Cfi Lk ns p( I L> Low Water Line Of Point Of Beginning. Of Fence Line Relocation FENCE LINE RELOCATIr...t KALISPELL MUNICIPAL GOLF COURSE LAWRENCB PARK Commencing at the WE career of the hater Dept. Naintananca Building is Lawrence Park, thence N 44' 8, 56 feet to the NZ fence corner of the stater Dept. Site in Lawrence Park, thence M 68' W, on and along the existing fence line SO feet to a point. thence D 20' a on and along the existing fence line 243 test to the point of beginning of the f4oce line relocation. thence along the following course*. N 20' 8, 290 feet. N 3' W, 190 foot, N 88' V. 47 feet. N 29' V. 10) foot to a point on the Lov Water Lin# of the Stillwater ?Avar, said point on the Low stater Line of the Stillwater lover being the end of the fence Tins relocation. N4Y . All bearings were obtained through the use of a hand compass. All information Stereos was obtained on November 18, 1987. This Section Of Fence to be Removed N 68' W- N.E. Fence Corner Water S � Dept. Site In Lawrence Park Point On Fence Line ��`_ _ N.C. Corner Water Dept. Maintenance building Its Lawrence Park EXHIBIT "C" Formula for Calculating Annual Lease Payments 1. in determining lease payments the parties shall utilize a rolling average of "Gross Receipts" over the previous three years in calculating the lease payment for a particular year. 2. A minimum base lease payment $13,000 shall be payable so long as the rolling average of "Gross Receipts" as defined under 3 of the Agreement do not exceed $750,000.00. 3. In the event the rolling average of "Gross Receipts" exceed $750,000.00 but do not exceed $80,000.00, the Lease Payment shall be two percent (2t) of said "Gross Receipts". 4. In the event the rolling average of "Gross Receipts" exceed $850,000.00 the Lease Payment shall be two and one-half percent (2 %-) of said "Gross Receipts". Example: Rolling Average Level 1 Level 2 Level 3 Gross Revenue Base Lease $0-750,000 $13,000 $750,001-850,000 2%- $850,000 + 2.5$ is\wp\average.wpd Exhibit "D" Buffalo Hill Golf Course 1997 Schedule of Fees Membership (Season Pass) * 1997 1996 Adult $325 $300 Student (Full -Time College) $150 $150 Junior $100 $100 *$300 if paid by January 31, 1997 Green Fees 18 Hole Championship Course $ 28 $ 28 9 Hole Cameron Course $ 13 $ 13 To increase local daily fee activity and promote early tourism a value season rate of $22 on the Championship Course and $10 on the Cameron 9 will be in effect during early spring and fall. June 24, 2009 City of Kalispell Mr. Myrt Webb, Interim City Manager P.O. Box 1997 Kalispell, MT 59903 RE: City Lease Payment Dear Mr. Webb, On behalf of the Kalispell Golf Association, (KGA) we would like to thank the City of Kalispell for allowing the KGA the opportunity to manage and operate Buffalo Hill Golf Course. The Kalispell Golf Association invests all available resources back into Buffalo Hill Golf Course. For fiscal year ended 12-31-2008, KGA invested $415,000 into course related equipment and golf course improvements. These improvements enhance the playing conditions and enjoyment for thousands of local residents and guests that visit the Flathead Valley. Buffalo Hill Golf Course is a major economic draw to Kalispell and is vital to the local tourism industry, which benefits hundreds of businesses and individuals in the Flathead Valley. Attached is the audited financial statement and related lease check in the amount of $25,471. 1 have also included an audited financial statement and a summary report of capital expenditures for your review. As always, we appreciate your efforts in passing on this information to the City Council. I am happy to provide additional information or answer questions regarding the golf course operation upon your request. Please feel free to give me a call at your convenience. Sincerely, Stephen C. Dunfe General Manager Enclosures 1176 N. MAIN ST. ® P.O. Box 1116 . KALISPELL, MT 59903-1116 ® (406) 756-4545 ® Fax (406) 756-4550 M O o 0 O O O O O O o 0 0 0 0 0 0 0 0 0 0 m co co r (0 co M N N j 00 OOOOOOOOOOOd: d' �fi h t- COO V'"F O� O' O 7000000 W Oi O U i- c`') LO O O O O 0 0 0 0 0� O O d• O LC) 00 0 Cl) W W 03 co N C M N N I t� C '.. !. LO r- rl_ t- (fl d;r lam: t- M I OM Ni N O c)LO O V' M c) O M 00 0 W M N I- r t- N O (0 (0 CO I (O OLO r- "I 'IL LO LO O(fl d: r000 N O � 00r 001, OI r Cc R '.. NMd dt It COI M rr M N N OD cM LO N O to CO LO d'Nr V O(fl(fl r nO Ca (OI M OO CO�MM V' V'MMMM� (O OOOO Oj LO N N � C NC N N .i M I--00O c) O O o 00000000000 o N O 000 cl) 0 N 00 C r (oC O M ICON V O OI O C:) O OOOOOO00000`00 (000 OON COO V', Oi C) O O O O O(fl tO OLO OHO CO t` 00(6 LO 00 LO Nt� 7 . 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(6 M f6 Cl) L6 M (6 � CD O LO O LO O Lo O — M LO m mmmm co0mmm mmm ° r t- m O H FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2008 AND 2007 KALISPELL GOLF ASSOCIATION TABLE OF CONTENTS PAGE INDEPENDENT AUDITORS' REPORT.......................................................................................... 1 FINANCIAL STATEMENTS Statements of Financial Position................................................................................................... 2 Statementsof Activities................................................................................................................ 3 Statements of Cash Flows.............................................................................................................. 4-5 Notes to Financial Statements....................................................................................................... 6-9 SUPPLEMENTARY INFORMATION Statements of Activities by Department........................................................................................ 10-11 r ;a x'+ QUt Junkermier • Clark Campanella • Stevens • P.C. Certified Public Accountants and Business Advisors INDEPENDENT AUDITORS' REPORT To the Board of Directors Kalispell Golf Association Kalispell, Montana 44 2nd Ave. P.O. Bo Kalispell, Montana ph: (406) 755. fx: (406) 755. www.jccscpa We have audited the accompanying statements of financial position of Kalispell Golf Association, Montana nonprofit corporation, as of December 31, 2008 and 2007, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Association's management. Our responsibility is to express an opinion on these financial statement,, based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United State,, of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audil also includes assessing the accounting principles used and significant estimates made by management, a,� well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Kalispell Golf Association as of December 31, 2008 and 2007, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were performed for the purpose of forming an opinion on the basic financial statements of Kalispell Golf Association taken as a whole. The statements of activities by department are presented as supplementary information for the purpose of additional analysis and are not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects to the basic financial statements taken as a whole. Junkermier, Clark, Campanella, Stevens, P.C. March 30, 2009 Bozeman • Great Falls • Helena • Kalispell • Missoula 9 Whitefish KALISPELL GOLF ASSOCIATION STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2008 AND 2007 ASSETS 2008 2007 CURRENT ASSETS Cash $ 268,241 $ 407,940 Accounts receivable 94,404 95,821 Inventories 53,149 52,822 Prepaid expenses 2,040 5,291 417,834 561,874 PROPERTY AND EQUIPMENT Furniture and fixtures 96,659 91,879 Machinery and equipment 1,393,329 1,334,162 Leasehold improvements - building 514,781 457,991 Leasehold improvements - golf course 2,863,000 2,770,577 4,867,769 4,654,609 Less: Accumulated depreciation (3,003,701) (2,978,829) 1,864,068 1,675,780 OTHER ASSETS Deferred compensation account 9,000 91000 TOTAL ASSETS $ 2,290,902 $ 2,246,654 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Current maturities of long-term debt $ 58,773 $ - Accounts payable - trade 18,644 19,373 Accrued expenses: Property taxes 2,564 3,857 Other 723 350 City lease 25,471 23,946 Salaries and wages 2,939 17,616 Deferred compensation payable 9,000 9,000 Gift certificates 37,824 37,057 Deferred revenue 181,435 178,683 337,373 289,882 LONG-TERM DEBT, LESS CURRENT MATURITIES 86,313 NET ASSETS 1,867,216 1,956,772 TOTAL LIABILITIES AND NET ASSETS $ 2,290,902 $ 2,246,654 See Notes to Financial Statements 2 KALISPELL GOLF ASSOCIATION STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 REVENUE, GAINS, AND OTHER SUPPORT Revenue Interest income COST OF SALES GROSS PROFIT EXPENSES Association Pro shop Restaurant Bar Driving range Grounds CHANGE IN NET ASSETS NET ASSETS - BEGINNING NET ASSETS - ENDING 2008 2007 $ 2,074,307 $ 2,026,111 9,871 16,634 2,084,178 2,042,745 332,891 315,076 1,751,287 1,727,669 689,879 633,931 61,970 59,004 198,986 195,882 111,172 105,556 95206 7,309 769,630 670,724 1,840,843 1,672,406 (89,556) 55,263 1,956,772 1,901,509 $ 1,867,216 $ 1,956,772 See Notes to Financial Statements 3 KALISPELL GOLF ASSOCIATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 2008 2007 CASH FLOWS FROM OPERATING ACTIVITIES Receipts from members, customers, others, and all sales, income, and support $ 2,089,113 $ 1,997,046 Merchandise purchased (333,219) (323,647) Interest (9,219) (57) Labor costs (876,871) (827,457) Operating expenses (738,626) _(601,894) NET CASH PROVIDED BY OPERATING ACTIVITIES 131,178 243,991 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (415,963) (144,148) Transfer (to)/from Board restricted funds - 11,250 NET CASH (USED) BY INVESTING ACTIVITIES (415,963) (132,898) CASH FLOWS FROM FINANCING ACTIVITIES Principal debt payments (35,914) - Proceeds from borrowing 181,000 NET CASH PROVIDED BY FINANCING ACTIVITIES 145,086 - NET INCREASE (DECREASE) IN CASH (139,699) 111,093 CASH - BEGINNING OF PERIOD 407,940 296,847 CASH - END OF PERIOD $ 268,241 $ 407,940 See Notes to Financial Statements 4 KALISPELL GOLF ASSOCIATION STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash provided (used) by operating activities: Depreciation (Increase) or decrease in: Accounts receivable Inventories Prepaid expenses Increase or(decrease)in: Accounts payable Accrued expenses Gift certificates Deferred revenue NET CASH PROVIDED BY OPERATING ACTIVITIES 2008 2007 $ (89,556) $ 55,263 227,678 1,416 (328) 3,252 (729) (14,074) 767 2,752 $ 131,178 See Notes to Financial Statements 5 221,004 (18,186) (8,571) (3,342) 7,145 18,191 3,962 (31,475) $ 243,991 KALISPELL GOLF ASSOCIATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization The Kalispell Golf Association (the Association or KGA) is a Montana nonprofit corporation formed to operate and manage the Buffalo Hill Golf Course in the City of Kalispell, Montana. The Association is governed by a board of directors elected by the members. It is recognized by the IRS as a Section 501(c)(4) organization. The Association is supported by member dues and fees paid by approximately 1,000 members and their guests. Revenue is also derived from the operation of a restaurant and bar, golf pro shop, rental of carts, and green fees paid by non-member players. Basis of Accounting The financial statements are prepared using the accrual basis of accounting. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that effect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. Cash Equivalents For purposes of reporting cash flows, the Association considers all highly liquid instruments with original maturities of three months or less, not subject to withdrawal restrictions or early redemption penalties to be cash equivalents. As of December 31, 2008 and 2007, the Association had no cash equivalents. Accounts Receivable All accounts receivable are considered fully collectable as of December 31, 2008 and 2007. Therefore, there is no allowance for doubtful accounts. Tnventori ee Restaurant and bar inventories are stated at cost utilizing the first -in, first -out method. Pro Shop inventory is valued at the average cost of each item on hand. Deferred Revenue The Kalispell Golf Association provides discounts for prepayment of annual membership fees. Prepaid membership and cart fees collected for the future year are recorded as deferred revenues. Uninsured Cash Balances The Kalispell Golf Association maintains cash balances at Glacier Bank FSB, Kalispell, which are federally insured up to $250,000. At certain times of the year, the insurance limits may be exceeded. n KALISPELL GOLF ASSOCIATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007 NOTE 1 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Tnn.nmP TaxPc Kalispell Golf Association has been approved as a tax exempt organization under Internal Revenue Code Section 501(c)(4). Accordingly, no provision for income taxes is made in the financial statements. However, the Association can be taxed on certain unrelated business income. The Association has net operating loss carryforwards totaling approximately $130,071 and $19,370 to offset future federal and state taxable income, respectively. Portions of these carryforwards will expire annually through the year 2028 for federal purposes and 2015 for state purposes. Federal net operating loss carryforwards of $162,202 expired during the current period. Realization of deferred tax assets is dependent on future earnings, if any, the timing and amount of which is uncertain. Accordingly, a valuation allowance, in an amount equal to the net deferred tax assets as of December 31. 2009_ has been estahlished to reflect these uncertainties_ The deferred t»x asset before valuation allowance is approximately $19,511 for federal purposes and $1,307 for state purposes. Property and Equipment The cost of property and equipment is depreciated over the estimated useful life of the related asset. Depreciation is computed by the straight-line method. Maintenance and repairs are charged to operations when incurred. Betterments and renewals are capitalized. NOTE 2 -- LONG-TERM DEBT On May 13, 2003, KGA executed a note with Glacier Bank for a loan in the amount of $350,000. KGA may draw on the note, which expires October 1, 2014, as needed for operating requirements. In accordance with the terms of the note, the available borrowing capacity is reduced by $30,000 annually through the maturity date of the note. The borrowing capacity at December 31, 2008, was $200,000. The note is due upon demand. If no demand is made, monthly principal and interest payments at 6.37% are required if an outstanding balance exists. The note is secured by an assignment of the lease from the City of Kalispell. At December 31, 2008 and 2007, no outstanding balance existed. N KALISPELL GOLF ASSOCIATION NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 AND 2007 NOTE 2 -- LONG-TERM DEBT (CONTINUED) On March 15, 2008, KGA executed a note with West One Bank for the purchase of a new fleet of golf carts in the amount of $181,000. The note is due upon demand. If no demand is made, annual payments of $67,111.87, including interest at 7%, are to be made beginning October 15, 2008, with a maturity date of October 15, 2010. The note is secured by the 2008 Yamaha golf fleet consisting of 70 carts. On October 29, 2008, the note was modified to monthly payments beginning November 15, 2008, in the amount of $5,588.75, including interest at 7%, and a maturity date of May 15, 2011. Future principal payments on the note are as follows: 2009 $ 58,773 2010 63,021 2011 23,292 Total $ 145,086 NOTE 3 -- PROPERTY AND EQUIPMENT The additions and disposals of property and equipment during the years ended December 31, 2008 and 2007, are as follows: Balance Balance l/l/2008 Additions Disposals 12/31/2008 Furniture and fixtures $ 91,879 $ 4,780 $ - $ 96,659 Machinery and equipment 1,334,162 261,973 (202,806) 1,393,329 Leasehold improvements: Buildings 457,991 56,790 - 514,781 Golf course 2,770,577 92,423 - 2,863,000 Total Assets 4,654,609 415,966 (202,806) 4,867,769 Accumulated depreciation (2,978,829) (227,678) 202,806 (1003,701) Net Assets $ 1,675,780 $ 1,864,068 Balance Balance l/l/2007 Additions Disposals 12/31/2007 Furniture and fixtures $ 89,611 $ 2,268 $ - $ 91,879 Machinery and equipment 1,300,246 60,678 (26,762) 1,334,162 Leasehold improvements: Buildings 415,691 42,300 - 457,991 Golf course 2,731,672 38,905 - 2,770,577 Total Assets 4,537,220 144,151 (26,762) 4,654,609 Accumulated depreciation (2,784,587) (221,004) 26,762 (2,978,829) Net Assets $ 1,752,633 $ 1,675,780 SUPPLEMENTARY INFORMATION l—^ 00 h 10 10 m m'IT Cl ct 00 O, w2 h V' "'l wct O\O N V UMM w O, M 'D CD SO Moo ^w oo N �[�h It�t O�O'c1'C) hV ID d\�00 N'T V'V hO^00 �0^3.0 �O 00 N'n Opt cl w V'�a cl hcl ' �O 'O V'n �D 'nh Cl^M MO O�w'ci' O Ow 'n vi ct a N ct rG CO N U 'O �t �O ct h N �D U M Q\ N N m Q\ D\ O to .-. h o l4 h V 0 U [� w M 00 'h n 10 h N N ^� O N N M N N M M^ N m m w ^ N �t w m � N N F- 64 69 t 1 O V �b M M' O O ' M O ' 10 M O ' ' ' 'n rn � V ' CD 4 c, ' ' o rn O O O M MHO �O �O o0 N 'n .--. 00 CD V O M^ N O OOM N 'n 'n CD �w 'n cl N ct -+'t O O 7 lO cl� D\O 'n O, M lO M IO h M N w h O ty' N ^ Q\ w 'n h h O h M Ic D 43 C ^w M N [� �O --� rn M" N ^-� rO h �D h O 69 FA w 00 00 .-. 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