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Audit - 2015/2016 1 1 SALINA BICENTENNIAL CENTER FINANCIAL STATEMENTS ' Years Ended December 31, 2016 and 2015 with Independent Auditors' Report I 1 1 I 1 1 1 I i SALINA BICENTENNIAL CENTER IFINANCIAL STATEMENTS IDecember 31, 2016 and 2015 ICONTENTS IPage IIndependent Auditors' Report 1 — 2 Financial Statements: IStatements of Assets and Liabilities 3 Statements of Revenues and Expenses and Changes Iin Excess of Assets (Liabilities) 4 Statements of Cash Flows 5 INotes to Financial Statements 6 — 9 I i 1 I I I I I I 1 Keller & Owens, ac Certified Public Accountants 1 INDEPENDENT AUDITORS' REPORT To Management Salina Bicentennial Center Salina, Kansas We have audited the accompanying financial statements of the operations of the Salina Bicentennial Center(the "Center"), owned by the City of Salina, Kansas and managed by Global Spectrum, L.P., which comprise the statements of assets and liabilities of the operations of the Center as of December 31, 2016 and 2015, the related statements of revenues and expenses and I changes in excess of assets (liabilities) and cash flows for the years then ended, and the related notes to the financial statements. Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors' Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of 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 auditors'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 auditors consider 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. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant 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. I 10955 Lowell Avenue,Suite 800 • Overland Park,Kansas 66210 1 (913)338-3500 • FAX(913)338-0416 • e-mail ko@kellerowens.com • www.kellerowens.com 1 Opinion 1 In our opinion, the financial statements referred to above present fairly, in all material respects, the assets and liabilities of the operations of the Salina Bicentennial Center as of December 31, 2016 and 2015, and its revenues and expenses and changes in excess of assets (liabilities) and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Matter As discussed in Note 1, the financial statements present only the operating accounts of Salina Bicentennial Center and are not intended to present fairly the financial position of the City of Salina, Kansas, or the results of its operations and cash flows in conformity with accounting 1 principles generally accepted in the United States of America. azetA., ELe Overland Park, Kansas April 25, 2017 I I 1 I 1 1 I 1 -2- I I SALINA BICENTENNIAL CENTER ISTATEMENTS OF ASSETS AND LIABILITIES December 31, 2016 and 2015 ASSETS I2016 2015 I Cash and Cash Equivalents $ 250,523 97,545 Event Receivables 195,069 102,321 Inventory 32,137 16,781 I Prepaid Expenses 27,743 22,569 Equipment, net of accumulated depreciation of$2,079 for 2016 and $1,300 for 2015 1,820 2,599 ITotal Assets $ 507.292 $ 241.815 ILIABILITIES I Accounts Payable $ 101,141 $ 65,026 Accrued Expenses 99,382 26,972 Event Liabilities - 5,836 I Deposits 43,005 24,005 Deferred Revenue 140,005 19,968 ITotal Liabilities 383,533 141,807 Excess of Assets 123,759 100,008 I Total Liabilities $ 507,292 $241_,8.15 I I I I I See accompanying notes I -3- I 1 SALINA BICENTENNIAL CENTER 1 STATEMENTS OF REVENUES AND EXPENSES AND CHANGES IN EXCESS OF ASSETS (LIABILITIES) For the Years Ended December 31, 2016 and 2015 2016 2015 I Rental Revenue $ 235,987 $ 147,709 I Service Revenue 170,219 186,008 Sponsorship Revenue 3,058 3,500 Facility and Convenience Fee Revenue, I net of expenses of$66,717 in 2016 and $25,672 in 2015 109,622 90,660 Food and Beverage Revenue 846,525 722,153 I Novelty Revenue 113,445 110,731 Other Revenue 71,799 44,890 ITotal Revenues 1,550,655 1,305,651 Event Related Expenses 452,624 289,285 I Ancillary Expenses 432,634 367,913 Operating Overhead 1,353,566 1,241,944 ITotal Expenses 2,238,824 1,899,142 Excess of Expenses over Revenues (688,169) (593,491) IExcess of Assets as of Beginning of Year 100,008 55,785 Operating Funds Committed by the ICity of Salina, Kansas 711,920 637,714 Excess of Assets as of End of Year $ 123,159 100,008 I I I I See accompanying notes I -4- 1 1 SALINA BICENTENNIAL CENTER ISTATEMENTS OF CASH FLOWS Years Ended December 31, 2016 and 2015 1 2016 2015 ICash Flows from Operating Activities: Excess of Expenses over Revenues $ (688,169) $ (593,491) I Adjustments to reconcile excess of expenses over revenues to net cash used by operating activities: I Depreciation 779 780 Changes in operating assets and liabilities: Event receivables (92,748) (63,565) I Inventory (15,356) (221) Prepaid expenses (5,174) 1,048 Accounts payable and accrued expenses 108,525 (9,843) I Event liabilities (5,836) 1,772 Deposits 19,000 5,176 Deferred revenue 120,037 (44,162) INet cash used by operating activities (558,942) (702,506) I Cash Flows from Financing Activities: Funding capital from the City of Salina, Kansas 711,920 637,714 INet cash provided by financing activities 711,920 637,714 INet Increase (Decrease) in Cash and Cash Equivalents 152,978 (64,792) Cash and Cash Equivalents, Beginning of Year 97,545 162,337 ICash and Cash Equivalents, End of Year250.513 $ 97,545 I I I I See accompanying notes I -5- 1 SALINA BICENTENNIAL CENTER NOTES TO FINANCIAL STATEMENTS December 31, 2016 and 2015 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization —Salina Bicentennial Center in operation since 1979 is owned by the City of Salina, Kansas (the City). The City engaged Global Spectrum, L.P. ("Global 1 Spectrum") on March 1, 2012 to manage the activities and operations including rental of space, advertising, promotions, marketing, events management, box office, public relations, procurement, and all custodial and support services of the facilities. Accounts Receivable and Allowance for Doubtful Accounts - Accounts receivable are customer obligations due under normal trade terms. Management rents the Salina Bicentennial Center facilities to customers for entertainment, sporting events and meetings. Management performs credit evaluations of their new customer's financial condition, and customers must sign a contract which details the agreed terms and conditions. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the valuation allowance and a credit to trade accounts receivable. No allowance has been recorded at December 31, 2016 and 2015 because management believes all amounts are collectible. No collateral is required on accounts receivable. Advertising — Advertising costs consist of event marketing costs. These costs are expensed when incurred. During 2016 and 2015, advertising costs expensed were$74,336 and $55,599, respectively. Basis of Financial Statement Presentation - The accompanying financial statements include only the operating accounts of Salina Bicentennial Center. They do not include the building, furniture and equipment of the Salina Bicentennial Center, the related depreciation of such assets, or the accounts of the City. The accompanying financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Cash Equivalents - The Salina Bicentennial Center considers highly-liquid investments with maturities of 90 days or less when purchased to be cash equivalents. Cash and cash equivalents consist of amounts on deposit in banks. 1 1 -6- e SALINA BICENTENNIAL CENTER NOTES TO FINANCIAL STATEMENTS December 31, 2016 and 2015 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) Capital Expenditures - The City is solely responsible for all capital expenditures at Salina Bicentennial Center. Capital expenditures are any items for building additions, alterations, repairs or improvements and for purchases of additional or replacement furniture, machinery, or equipment, where the cost of such expenditure is greater than a nominal amount with a depreciable life in excess of five years. Any capital expenditures made directly by Salina Bicentennial Center are normally reimbursed by the City. However, during 2014 the Center purchased equipment at a cost of$3,899 that will not be reimbursed. Concentration of Credit Risk - Financial instruments that potentially expose the Salina Bicentennial Center to concentrations of credit risk consist principally of cash and cash equivalents and accounts receivable. Four customers comprise 75% of the accounts receivable balance. A substantial portion of customers' ability to honor their accounts is dependent on economic conditions in Salina, Kansas and surrounding areas. Salina Bicentennial Center maintains its cash balances with financial institutions located in the greater Salina, Kansas metropolitan area. These interest-bearing accounts are insured with the Federal Deposit Insurance Corporation up to $250,000. At December 31, 2016 and 2015, there were no uninsured balances. Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to 1 make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent 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 those estimates. Fair Value of Financial Instruments — The carrying amounts of financial instruments including cash and equivalents, event receivables, accounts payable, accrued expenses and event liabilities approximated fair values as of December 31, 2016 and 2015 due to their short-term nature. Income Taxes — Salina Bicentennial Center is not a taxpaying entity for federal income tax purposes, and thus no income tax expense has been recorded in the statements. Inventory — Inventory consists of food and drink products valued at cost (determined on the first-in, first-out basis). Revenue Recognition — Rent revenue is recognized after the facility has been used for its intended purposes by customers and after related event expenses and promoter fees have been deducted from the collection of ticket sales. -7- I 1 SALINA BICENTENNIAL CENTER INOTES TO FINANCIAL STATEMENTS December 31, 2016 and 2015 1 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (continued) ISubsequent Events — Management has evaluated events and transactions that have occurred since December 31, 2016 and reflected their effects, if any, in these financial statements through April 25, 2017, the date the financial statements were available to be Iissued. I2. MANAGEMENT AGREEMENT I The City and Global Spectrum entered into an agreement (the "Agreement") for professional management services for the Salina Bicentennial Center on March 1, 2012. The agreement requires that Salina Bicentennial Center prepare an annual operating I budget (excluding any capital expenditures) and that the operation not exceed amounts in the budget. Each annual budget shall be subject to review and approval by the City. Management shall use all reasonable efforts to manage and operate the facility in I accordance with the operating budget, but shall have no liability for failing to achieve estimated amounts. I As consideration for the performance of its obligation, Global Spectrum was paid a fixed fee of$10,000 per month during the first operation year (March 1, 2012 — December 31, 2012). The second and each succeeding year's fixed fee will be increased in accordance I with the percentage increase in the Consumer Price Index over the previous twelve-month period or by 3%, whichever is less. The management fee paid to Global Spectrum during the periods ending December 31, 2016 and 2015 was $125,065 and $125,065, Irespectively. In addition to the fixed management fee, Global Spectrum, L.P. shall be entitled to receive I an incentive fee based on achieving certain contractual operating benchmarks generated during such operating year. The incentive fee earned by Global Spectrum during the period ending December 31, 2016 and 2015, was $82,907 and $67,339 respectively. 1 These amounts are paid directly to Global Spectrum by the City and are therefore not included in these operating statements. I Global Spectrum's obligation under the management contract began March 1, 2012, for a term of thirty-six months. The City may elect to extend the contract on the same terms and conditions for two additional twelve-month periods by giving not less than one- I hundred twenty days prior written notice of such extension to Global Spectrum. The contract was extended for an additional twelve months expiring February 28, 2017. The activities are funded through the operations of the facilities, or funds otherwise made Iavailable by the City. I -8- 1 1 SALINA BICENTENNIAL CENTER 1 NOTES TO FINANCIAL STATEMENTS December 31, 2016 and 2015 3. RELATED PARTY TRANSACTIONS 1 Accounts payable includes $58,990 and $17,643 due to Global Spectrum at December 31, 2016 and 2015, respectively. Events receivable includes $1,887 and $4,116 due from the City of Salina, Kansas at December 31, 2016 and 2015, respectively. Salina Bicentennial Center donated use of the facility to the City of Salina, Kansas. The fair value of the donated use totaled $15,525 and $10,225 for the years ended December 31, 2016 and 2015, respectively. 4. CONTINGENCY The Center has entered into a contract that renews automatically for ticketing hardware, 1 software and services. These are billed on a per ticket basis. 5. RETIREMENT PLAN Salina Bicentennial Center sponsors a 401(k) retirement plan covering substantially all of 1 its salaried employees. In accordance with the plan, the Center matched 100% of the first 5% of gross compensation contributed to the plan by the employee. During 2016 and 2015, employment matching costs expensed were $16,181 and $13,993, respectively. 1 6. SUBSEQUENT EVENT On February 14, 2017 a naming rights contract was signed between Global Spectrum, 1 L.P. as agent on behalf of the City of Salina and Schwan's Shared Services, LLC. The term of the contract is from February 1, 2017 through January 31, 2032. The contract calls for one payment of$1,200,000 to be paid no later than March 1, 2017. 1 The City of Salina and Global Spectrum renewed their management agreement on March 1, 2017 for a term of five years. 1 1 1 -9-