IMA Educational Case Journal: Case Study.

Dalton Convention Center: A Beacon Or White Elephant? Case Study Questions Using Word or Excel or a combination of both, please answer the following questions regarding the case study.

1. Identify the costs that are fixed, variable, and semivariable. State your rationale for the categorization.

2. Prepare a contribution margin income statement.

3. Estimate the current continuing funding requirements to the city and county for operating the center. How does that compare to the funding requirements if the center was shut down or closed? Why are they different?

4. Consider the centers economic impact on the community. Discuss the advantages and disadvantages of relying on economic impact to justify operating the center. Is the centers economic benefit enough to justify the centers continued operation from a financial standpoint?

5. Can you think of strategies for generating additional revenue or reducing costs for the center?

IMA EDUCATIONAL Case Case Journal Study ima The Association of Accountants and Financial Professionals in Business ISSN 1940-204X Dalton Convention Center: A Beacon Or White Elephant? Douglas L. Smith, PhD, CMA, CGMA, CPA Associate Professor of Accounting University of Montevallo James D. Byrd, Jr., PhD, CGMA, CPA, CHFP Assistant Professor of Accounting University of Alabama at Birmingham Marilyn M. Helms, D.B.A., CFPIM, CIRM Dean and Sesquicentennial Chair Professor of Supply Chain Management Dalton State College INTRODUCTION Brett Huske, director of tourism for the Dalton, Ga., Convention and Visitor's Bureau, sits at his desk poring over several documents. Recalling his more than 30 years of experience in the tourism-related industry, he is aware of the rewards and challenges of holding positions in top resorts and event cities like Aspen, Colo.; Hawaii; Key West, Fla.; and Austin, Texas. Brett came to Dalton in 2010 and was promoted to his current position in 2013. He found managing the Dalton Convention Center to be especially demanding, given the changes experienced by the center's major customer, the area's floor-covering industry. The Dalton Convention Center is visibly perched on a hillside overlooking downtown Dalton, the seat of Whitfield County. Although Brett is not a Dalton native, he is aware that much of the population is made up of long-term residents who are familiar with the area's background and that the center was built to support the needs of the floor- covering manufacturers and their supply chain partners (see www.visitdaltonga.com/convention-center). The center was built in 1991 with the expectation that it would be heavily used by the carpet industry to serve the industry's customers and vendors, as well as provide a facility for the local carpet industry and company training events. Since a convention center has the potential to be a valuable asset for any area, Dalton and Whitfield County decided a joint venture to build the center would be a sound investment and that it could help support Dalton, Whitfield County, and surrounding communities. City and county officials expected the center to generate business activity in the area and repay the investment through increased tax revenues. Yet, given the joint city and county funding model, one of the challenges was finding a way to communicate the center's strengths so that the local governments and residents could see it as a good investment, rather than the white elephant on the hill." As the carpet industry consolidated and matured, the center's purpose changed. With fewer manufacturers, there was no longer a need for large industry trade shows. The stalling economy during the 2007-2009 recession severely hurt the carpet industry, and, as a result, the center's usage has not met expectations. While it is operating full-time, not all of its capacity is used. Although the center hosts company-specific events, academic and political forums, annual meetings of the local electric utility, weekend cat shows, bird shows, Civil War shows, and even weddings and other private events, the community believes it is poorly utilized and a drain on the taxpayers and businesses who funded it. Private events are not published on the center's website, and the community does not know about many of them. This makes Brett wonder, "What is to be the Dalton Convention Center's future?" IMA EDUCATIONAL CASE JOURNAL VOL. 13, NO. 2, ART. 3, JUNE 2020 2020 IMA OWNERSHIP STRUCTURE Dalton and Whitfield County each contribute 50% annually to cover the operating income shortfall. In addition, they each contribute 50% of all capital improvements or debt service, if any. The center was formed by an act of the Georgia legislature and is tax-exempt. Accordingly, the legislature must approve any modifications to the agreement. mere shifts in employment and resources from one activity to another because no incremental benefit to the community is derived from people simply changing jobs. For example, an increase in hotel occupancy indicates new money entering a community, whereas catering a local event merely shifts the income from the event from one local facility to another. DALTON CONVENTION CENTER OWNERSHIP STRUCTURE Dalton and Whitfield County each contribute 50% annually to cover the operating income shortfall. In addition, they each contribute 50% of all capital improvements or debt service, if any. The center was formed by an act of the Georgia legislature and is tax-exempt. Accordingly, the legislature must approve any modifications to the agreement. mere shifts in employment and resources from one activity to another because no incremental benefit to the community is derived from people simply changing jobs. For example, an increase in hotel occupancy indicates new money entering a community, whereas catering a local event merely shifts the income from the event from one local facility to another. DALTON CONVENTION CENTER TAX REVENUES The center is home to the Georgia Athletic High School Coaches' Hall of Fame, has an arena with a maximum seating capacity of 2,100, is home to the Georgia Rampage of the Xtreme Indoor Football League, and is the home court for the Dalton State College Roadrunners basketball team. Georgia law allows Dalton and Whitfield County to increase the hotel and motel tax from 6% to 7%, with 50% of the amount in excess of 5% to be used for tourism, conventions, and trade shows. The city and county determine the amount used for the center. Eighteen hotels are located within Dalton, and two hotels are elsewhere in Whitfield County. The hotel and motel tax revenues expected for 2017 by Dalton and Whitfield County are $1.3 million and $244,246, respectively. Some county leaders see the tax revenue allocation as a sore spot because the cost of the convention center must be shared equally. CONVENTION CENTERS The Dalton Convention Center The center also contains numerous rooms and banquet halls. The high-demand months (called the "blue months") are March, April, November, and December. The "J months" (January, June, and July) are the low-demand months. Demand in the other five months falls in the middle. Market segment revenue by percentage is summarized in Table 1. Table 1. Market Segment Revenue by Percent A convention center is built to provide a facility that can serve a variety of uses for large groups, most notably to bring together businesses of a single industry or related industries for product exhibitions and other promotional activities. Many cities have convention centers. More than 500 operate the United States, and several are in Georgia, most notably the World Conference Center in Atlanta. Typically, the centers have one or more large auditoriums, with several smaller rooms designed as concert halls and meeting rooms. Total square footage limits the size and type of events that can be accommodated. Several U.S. convention centers offer more than 2 million square feet and can attract exceptionally large events and international participants. Convention centers provide benefits to communities, but their primary purpose is usually economic development. Attracting people to conferences and other events can bring new funding into a community. Conference attendees often spend money on hotels, restaurants, and tourism, which stimulates the local economy. The economic benefits include the financial effects on a community that an event or a facility may provide. The financial benefits include an increase in sales throughout the community that are not directly from the facility, improved property values, higher employment, and increased wages. When multipliers are applied to estimate the economic effects on a community, care must be taken to omit 25% 23% 22% Corporate (Shaw, US Foods, Alliant, Healthe Care One, Service Electric, etc.) Consumer shows gun shows Civil War shows, circuses, basket- ball games, etc.) Social (weddings, proms, graduations, etc.) Associations (North Georgia Electric, North Georgia Health Care, North Georgia Pest Control, Turkey Federation, etc.) Religious (St. Joesph's Church, Jehovah's Witnesses, Church of God, etc.) Total 20% 10% 100% IMA EDUCATIONAL CASE JOURNAL 2 VOL. 13, NO. 2, ART. 3, JUNE 2020 BRETT'S PREDICAMENT The center does not have standard prices. Instead, Brett or the marketing director negotiates the charges for all customers and events, taking into account space requirements, demand at that time of year, and an event's direct costs. At a minimum, an event's sponsor will be charged more than an event's variable and direct costs; however, the center cannot always charge enough to cover fixed facility costs and overhead in the low-demand months. Brett has explained, "We are better off financially if we can cover some of the fixed costs as long as we cover all of the variable costs. Brett believes he needs to take definitive actions to better address how the city and county perceive the center. After considering all the forces in play, he begins listing his options, realizing that some would be mutually exclusive and have to be eliminated. Further complicating the decision process, he knows that community leaders want actions with quick results. Brett needs your help to develop a BRETT'S PREDICAMENT Brett believes he needs to take definitive actions to better address how the city and county perceive the center. After considering all the forces in play, he begins listing his options, realizing that some would be mutually exclusive and have to be eliminated. Further complicating the decision process, he knows that community leaders want actions with quick results. Brett needs your help to develop a recommendation to present to the city and county. Table 2. Key Components of Operating Revenue and Expenses For the Calendar Year Ended December 31, 2017 The center does not have standard prices. Instead, Brett or the marketing director negotiates the charges for all customers and events, taking into account space requirements, demand at that time of year, and an event's direct costs. At a minimum, an , event's sponsor will be charged more than an event's variable and direct costs; however, the center cannot always charge enough to cover fixed facility costs and overhead in the low-demand months. Brett has explained, "We are better off financially if we can cover some of the fixed costs as long as we cover all of the variable costs. In addition, the community benefits from the economic impact of attendees staying in the hotels and eating in area restaurants business these proprietors would not have if the convention center did not attract people to the community with our events." Measuring economic impact is more subjective than measuring operating revenue and cost. Yet convention and trade centers and special events that bring visitors to an area are widely considered to have an economic benefit on a community. The Dalton Chamber of Commerce published an article about the center's economic impact in 2014. At the beginning of 2017, Brett commissioned an economic impact study to convince the city and county of the facility's value. The study indicated the community received an economic benefit from operating the center of approximately $5 million for 2017. The estimate was based on the following formula: number of event nights at $140.50 per night, multiplied by the total number of event guests staying overnight at hotels in the area, plus the number of event nights at $55 per night, multiplied by total event guests that were not staying overnight. Revenues Food and Beverage Catering Concessions $528,198 162,304 690,502 567 411 11,747 1,269,660 Room Rental and Fees Other Total Revenue Cost of Goods Sold (COGS) 134,328 Operating Expenses for 2017 Salaries and Wages Full-Time Salaries (Fixed Part-Time Wages (Variable) Total Salaries and Wages $746,923 254,438 1,001,361 FINANCIAL SUMMARY OF CURRENT OPERATIONS Benefits (related to salaries and wages) Insurance - Workers' Compensation Payroll Taxes Total Payroll Expenses 121,676 5,850 67,105 1,195,992 40,105 18.102 The primary sources of revenue are related to the center's events. Total revenue for the 2017 calendar year was $1,269,660, according to the center's budget tracking reports. Of that total, $690,501, or 54.4%, came from the sale of food and beverages. Most of the food and beverage revenue came from catering (76.5%), and the rest (23.5%) was from concessions. The remaining 45.1% of the center's revenue total came from room rental and related fees associated with events. A breakdown of the revenue and expenses is presented in Table 2. Salaries are noted as fixed costs, while wages are variable. Other payroll-related costs should be classified as fixed or variable based on the ratio of salaries to wages. Event costs are generally variable, and other costs could be fixed or variable. According to the Dalton financial manager, even if the convention center operations were discontinued, the city and county would continue to spend approximately $240,000 per year to maintain the building until it could be sold or repurposed. These expenses are classified as unavoidable costs. The full financial statements for years 2016 and 2017 are presented in Table 3. Building Operation Building Supplies Data Processing Equipment Maintenance (Elevator, HVAC, Other) Insurance-excluding Workers' Compensation Electricity Gas Water and Waste Depreciation Miscellaneous Event Costs Equipment Rental (for Events) Linens for Events Other General and Administrative Expenses 24,035 34,792 29,661 18,777 16,145 561,805 4,371 13,978 99,236 Total Expenses, excluding COGS $2,156,999 Operating Loss ($1,021,667) Notes: Costs estimated to be unavoidable in the future are about $240,000 per year. All monetary values are represented in U.S. dollars. IMA EDUCATIONAL CASE JOURNAL 3 VOL. 13, NO. 2, ART. 3, JUNE 2020 Table 3. Dalton Convention Center Financial Statements Panel A: Balance Sheets Statements of Net Position December 31, 2017 and December 31, 2016 ASSETS Current Assets 2017 2016 $522,957 $624,463 Cash and Cash Equivalents Aeroute Receivable 140 722 120 PRO Table 3. Dalton Convention Center Financial Statements Panel A: Balance Sheets Statements of Net Position December 31, 2017 and December 31, 2016 2016 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable Intergovernmental Receivable - Local Inventory Prepaid Expense Total Current Assets 2017 $522,957 148,723 17,617 $624,463 139,868 171,765 23,019 20,942 25,123 737,439 24,145 981,183 Noncurrent Assets Nondepreciable Capital Assets Depreciable Capital Assets, Net Total Noncurrent Assets Total Assets 2.896,295 7,251,452 3,019,187 6,962,139 9,981,326 $10,962,509 10,147,747 $10,885,186 LIABILITIES AND NET POSITION Current Liabilities Accounts Payable Due to City of Dalton 3B6,044 179,179 Accrued Salaries and Bonuses 172,398 89,302 56,117 86,693 9,926 54,931 80.213 15,142 B1,059 79,877 $494,313 $796,568 Accrued Compensated Absences Accrued Expenses Customer Deposits Total Current Liabilities Net Position Investment in Capital Assets Unrestricted Total Net Position 10,147,747 9,981,326 184,615 243,126 $10,390,873 $10,165,941 Total Liabilities and Net Position $10,885,186 $10,962,509 IMA EDUCATIONAL CASE JOURNAL VOL. 13, NO. 2, ART. 3, JUNE 2020 Table 3. Dalton Convention Center Financial Statements Panel B: Income Statements Statements of Revenues, Expenses, and Changes in Fund Net Position For the Years Ended December 31, 2017 and December 31, 2016 2017 2016 Operating Revenues Event and Rental Revenue $1,269,660 $1,442,274 Table 3. Dalton Convention Center Financial Statements Panel C: Statements of Cash Flows For the Years Ended December 31, 2017 and December 31, 2016 2017 2016 $1,469,957 (963090) $1,259,623 (996,400) (1,037.250 1774,027) (811,953) (305.0861 692.797 692.797 450,900 450,900 Cash Flows from Operating Activities Cash Received from Customers Cash Paid to Employees Cash Paid to Suppliers Net Cash Used by Operating Activities Cash Flows from Non-capital Financing Activities Cash Received from Other Governments Net Cash Provided by Noncapital Financing Activities Cash Flows from Capital and Related Financing Activities Acquisition and Construction of Capital Assets Cash Received from Other Governments for Capital Acquisition Proceeds from the sale of Assets Net Cash Provided (Used) by Capital and Related Financing Activities Cash Flows from Investing Activities Interest on Investments Net Cash Provided by Noncapital Financing Activities Net Increase Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year (408,3531 (728,226) 699,732 638,000 6,685 (21,809) 14,407 244,054 1,533 573 1,533 (101,506) 624,463 $ 522,957 573 390,441 234,022 $ 624,463 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income (loss) 2017 $11,021,667) 2016 $1923,6571 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities Depreciation 561,805 515,165 (8,855) (2,077) 21,267 13,3071 3,440 Changes in Assets and Liabilities (Increase) Decrease in Accounts Receivable Inventory Prepaid Expenses Accounts Payable Due to City of Dalton Accrued Salaries Accrued Compensated Absences Accrued Expenses Customer Deposits (978) (213,646) (89,877) 1,186 50,842 18,304) 21,364 14,354 12.6661 6.416 6,480 (5,216) (1,182) 247,640 618,571 Total Adjustments Net Cash Provided (Used) by Operating Activities $1774,027) $(305,086) Note: All monetary values are represented in U.S. dollars. IMA EDUCATIONAL CASE JOURNAL VOL. 13, NO. 2, ART. 3, JUNE 2020 ABOUT IMA (INSTITUTE OF MANAGEMENT ACCOUNTANTS) IMA, the association of accountants and financial professionals in business, is one of the largest and most respected associations focused exclusively on advancing the management accounting profession. Globally, IMA supports the profession through research, the CMA (Certified Management Accountant) program, continuing education, networking and advocacy of the highest ethical business practices. IMA has a global network of more than 100,000 members in 140 countries and 300 professional and student chapters. Headquartered in Montvale, N.J., USA, IMA provides localized services through its four global regions: The Americas, Asia/Pacific, Europe, and Middle East/India. For more information about IMA, IMA EDUCATIONAL Case Case Journal Study ima The Association of Accountants and Financial Professionals in Business ISSN 1940-204X Dalton Convention Center: A Beacon Or White Elephant? Douglas L. Smith, PhD, CMA, CGMA, CPA Associate Professor of Accounting University of Montevallo James D. Byrd, Jr., PhD, CGMA, CPA, CHFP Assistant Professor of Accounting University of Alabama at Birmingham Marilyn M. Helms, D.B.A., CFPIM, CIRM Dean and Sesquicentennial Chair Professor of Supply Chain Management Dalton State College INTRODUCTION Brett Huske, director of tourism for the Dalton, Ga., Convention and Visitor's Bureau, sits at his desk poring over several documents. Recalling his more than 30 years of experience in the tourism-related industry, he is aware of the rewards and challenges of holding positions in top resorts and event cities like Aspen, Colo.; Hawaii; Key West, Fla.; and Austin, Texas. Brett came to Dalton in 2010 and was promoted to his current position in 2013. He found managing the Dalton Convention Center to be especially demanding, given the changes experienced by the center's major customer, the area's floor-covering industry. The Dalton Convention Center is visibly perched on a hillside overlooking downtown Dalton, the seat of Whitfield County. Although Brett is not a Dalton native, he is aware that much of the population is made up of long-term residents who are familiar with the area's background and that the center was built to support the needs of the floor- covering manufacturers and their supply chain partners (see www.visitdaltonga.com/convention-center). The center was built in 1991 with the expectation that it would be heavily used by the carpet industry to serve the industry's customers and vendors, as well as provide a facility for the local carpet industry and company training events. Since a convention center has the potential to be a valuable asset for any area, Dalton and Whitfield County decided a joint venture to build the center would be a sound investment and that it could help support Dalton, Whitfield County, and surrounding communities. City and county officials expected the center to generate business activity in the area and repay the investment through increased tax revenues. Yet, given the joint city and county funding model, one of the challenges was finding a way to communicate the center's strengths so that the local governments and residents could see it as a good investment, rather than the white elephant on the hill." As the carpet industry consolidated and matured, the center's purpose changed. With fewer manufacturers, there was no longer a need for large industry trade shows. The stalling economy during the 2007-2009 recession severely hurt the carpet industry, and, as a result, the center's usage has not met expectations. While it is operating full-time, not all of its capacity is used. Although the center hosts company-specific events, academic and political forums, annual meetings of the local electric utility, weekend cat shows, bird shows, Civil War shows, and even weddings and other private events, the community believes it is poorly utilized and a drain on the taxpayers and businesses who funded it. Private events are not published on the center's website, and the community does not know about many of them. This makes Brett wonder, "What is to be the Dalton Convention Center's future?" IMA EDUCATIONAL CASE JOURNAL VOL. 13, NO. 2, ART. 3, JUNE 2020 2020 IMA OWNERSHIP STRUCTURE Dalton and Whitfield County each contribute 50% annually to cover the operating income shortfall. In addition, they each contribute 50% of all capital improvements or debt service, if any. The center was formed by an act of the Georgia legislature and is tax-exempt. Accordingly, the legislature must approve any modifications to the agreement. mere shifts in employment and resources from one activity to another because no incremental benefit to the community is derived from people simply changing jobs. For example, an increase in hotel occupancy indicates new money entering a community, whereas catering a local event merely shifts the income from the event from one local facility to another. DALTON CONVENTION CENTER OWNERSHIP STRUCTURE Dalton and Whitfield County each contribute 50% annually to cover the operating income shortfall. In addition, they each contribute 50% of all capital improvements or debt service, if any. The center was formed by an act of the Georgia legislature and is tax-exempt. Accordingly, the legislature must approve any modifications to the agreement. mere shifts in employment and resources from one activity to another because no incremental benefit to the community is derived from people simply changing jobs. For example, an increase in hotel occupancy indicates new money entering a community, whereas catering a local event merely shifts the income from the event from one local facility to another. DALTON CONVENTION CENTER TAX REVENUES The center is home to the Georgia Athletic High School Coaches' Hall of Fame, has an arena with a maximum seating capacity of 2,100, is home to the Georgia Rampage of the Xtreme Indoor Football League, and is the home court for the Dalton State College Roadrunners basketball team. Georgia law allows Dalton and Whitfield County to increase the hotel and motel tax from 6% to 7%, with 50% of the amount in excess of 5% to be used for tourism, conventions, and trade shows. The city and county determine the amount used for the center. Eighteen hotels are located within Dalton, and two hotels are elsewhere in Whitfield County. The hotel and motel tax revenues expected for 2017 by Dalton and Whitfield County are $1.3 million and $244,246, respectively. Some county leaders see the tax revenue allocation as a sore spot because the cost of the convention center must be shared equally. CONVENTION CENTERS The Dalton Convention Center The center also contains numerous rooms and banquet halls. The high-demand months (called the "blue months") are March, April, November, and December. The "J months" (January, June, and July) are the low-demand months. Demand in the other five months falls in the middle. Market segment revenue by percentage is summarized in Table 1. Table 1. Market Segment Revenue by Percent A convention center is built to provide a facility that can serve a variety of uses for large groups, most notably to bring together businesses of a single industry or related industries for product exhibitions and other promotional activities. Many cities have convention centers. More than 500 operate the United States, and several are in Georgia, most notably the World Conference Center in Atlanta. Typically, the centers have one or more large auditoriums, with several smaller rooms designed as concert halls and meeting rooms. Total square footage limits the size and type of events that can be accommodated. Several U.S. convention centers offer more than 2 million square feet and can attract exceptionally large events and international participants. Convention centers provide benefits to communities, but their primary purpose is usually economic development. Attracting people to conferences and other events can bring new funding into a community. Conference attendees often spend money on hotels, restaurants, and tourism, which stimulates the local economy. The economic benefits include the financial effects on a community that an event or a facility may provide. The financial benefits include an increase in sales throughout the community that are not directly from the facility, improved property values, higher employment, and increased wages. When multipliers are applied to estimate the economic effects on a community, care must be taken to omit 25% 23% 22% Corporate (Shaw, US Foods, Alliant, Healthe Care One, Service Electric, etc.) Consumer shows gun shows Civil War shows, circuses, basket- ball games, etc.) Social (weddings, proms, graduations, etc.) Associations (North Georgia Electric, North Georgia Health Care, North Georgia Pest Control, Turkey Federation, etc.) Religious (St. Joesph's Church, Jehovah's Witnesses, Church of God, etc.) Total 20% 10% 100% IMA EDUCATIONAL CASE JOURNAL 2 VOL. 13, NO. 2, ART. 3, JUNE 2020 BRETT'S PREDICAMENT The center does not have standard prices. Instead, Brett or the marketing director negotiates the charges for all customers and events, taking into account space requirements, demand at that time of year, and an event's direct costs. At a minimum, an event's sponsor will be charged more than an event's variable and direct costs; however, the center cannot always charge enough to cover fixed facility costs and overhead in the low-demand months. Brett has explained, "We are better off financially if we can cover some of the fixed costs as long as we cover all of the variable costs. Brett believes he needs to take definitive actions to better address how the city and county perceive the center. After considering all the forces in play, he begins listing his options, realizing that some would be mutually exclusive and have to be eliminated. Further complicating the decision process, he knows that community leaders want actions with quick results. Brett needs your help to develop a BRETT'S PREDICAMENT Brett believes he needs to take definitive actions to better address how the city and county perceive the center. After considering all the forces in play, he begins listing his options, realizing that some would be mutually exclusive and have to be eliminated. Further complicating the decision process, he knows that community leaders want actions with quick results. Brett needs your help to develop a recommendation to present to the city and county. Table 2. Key Components of Operating Revenue and Expenses For the Calendar Year Ended December 31, 2017 The center does not have standard prices. Instead, Brett or the marketing director negotiates the charges for all customers and events, taking into account space requirements, demand at that time of year, and an event's direct costs. At a minimum, an , event's sponsor will be charged more than an event's variable and direct costs; however, the center cannot always charge enough to cover fixed facility costs and overhead in the low-demand months. Brett has explained, "We are better off financially if we can cover some of the fixed costs as long as we cover all of the variable costs. In addition, the community benefits from the economic impact of attendees staying in the hotels and eating in area restaurants business these proprietors would not have if the convention center did not attract people to the community with our events." Measuring economic impact is more subjective than measuring operating revenue and cost. Yet convention and trade centers and special events that bring visitors to an area are widely considered to have an economic benefit on a community. The Dalton Chamber of Commerce published an article about the center's economic impact in 2014. At the beginning of 2017, Brett commissioned an economic impact study to convince the city and county of the facility's value. The study indicated the community received an economic benefit from operating the center of approximately $5 million for 2017. The estimate was based on the following formula: number of event nights at $140.50 per night, multiplied by the total number of event guests staying overnight at hotels in the area, plus the number of event nights at $55 per night, multiplied by total event guests that were not staying overnight. Revenues Food and Beverage Catering Concessions $528,198 162,304 690,502 567 411 11,747 1,269,660 Room Rental and Fees Other Total Revenue Cost of Goods Sold (COGS) 134,328 Operating Expenses for 2017 Salaries and Wages Full-Time Salaries (Fixed Part-Time Wages (Variable) Total Salaries and Wages $746,923 254,438 1,001,361 FINANCIAL SUMMARY OF CURRENT OPERATIONS Benefits (related to salaries and wages) Insurance - Workers' Compensation Payroll Taxes Total Payroll Expenses 121,676 5,850 67,105 1,195,992 40,105 18.102 The primary sources of revenue are related to the center's events. Total revenue for the 2017 calendar year was $1,269,660, according to the center's budget tracking reports. Of that total, $690,501, or 54.4%, came from the sale of food and beverages. Most of the food and beverage revenue came from catering (76.5%), and the rest (23.5%) was from concessions. The remaining 45.1% of the center's revenue total came from room rental and related fees associated with events. A breakdown of the revenue and expenses is presented in Table 2. Salaries are noted as fixed costs, while wages are variable. Other payroll-related costs should be classified as fixed or variable based on the ratio of salaries to wages. Event costs are generally variable, and other costs could be fixed or variable. According to the Dalton financial manager, even if the convention center operations were discontinued, the city and county would continue to spend approximately $240,000 per year to maintain the building until it could be sold or repurposed. These expenses are classified as unavoidable costs. The full financial statements for years 2016 and 2017 are presented in Table 3. Building Operation Building Supplies Data Processing Equipment Maintenance (Elevator, HVAC, Other) Insurance-excluding Workers' Compensation Electricity Gas Water and Waste Depreciation Miscellaneous Event Costs Equipment Rental (for Events) Linens for Events Other General and Administrative Expenses 24,035 34,792 29,661 18,777 16,145 561,805 4,371 13,978 99,236 Total Expenses, excluding COGS $2,156,999 Operating Loss ($1,021,667) Notes: Costs estimated to be unavoidable in the future are about $240,000 per year. All monetary values are represented in U.S. dollars. IMA EDUCATIONAL CASE JOURNAL 3 VOL. 13, NO. 2, ART. 3, JUNE 2020 Table 3. Dalton Convention Center Financial Statements Panel A: Balance Sheets Statements of Net Position December 31, 2017 and December 31, 2016 ASSETS Current Assets 2017 2016 $522,957 $624,463 Cash and Cash Equivalents Aeroute Receivable 140 722 120 PRO Table 3. Dalton Convention Center Financial Statements Panel A: Balance Sheets Statements of Net Position December 31, 2017 and December 31, 2016 2016 ASSETS Current Assets Cash and Cash Equivalents Accounts Receivable Intergovernmental Receivable - Local Inventory Prepaid Expense Total Current Assets 2017 $522,957 148,723 17,617 $624,463 139,868 171,765 23,019 20,942 25,123 737,439 24,145 981,183 Noncurrent Assets Nondepreciable Capital Assets Depreciable Capital Assets, Net Total Noncurrent Assets Total Assets 2.896,295 7,251,452 3,019,187 6,962,139 9,981,326 $10,962,509 10,147,747 $10,885,186 LIABILITIES AND NET POSITION Current Liabilities Accounts Payable Due to City of Dalton 3B6,044 179,179 Accrued Salaries and Bonuses 172,398 89,302 56,117 86,693 9,926 54,931 80.213 15,142 B1,059 79,877 $494,313 $796,568 Accrued Compensated Absences Accrued Expenses Customer Deposits Total Current Liabilities Net Position Investment in Capital Assets Unrestricted Total Net Position 10,147,747 9,981,326 184,615 243,126 $10,390,873 $10,165,941 Total Liabilities and Net Position $10,885,186 $10,962,509 IMA EDUCATIONAL CASE JOURNAL VOL. 13, NO. 2, ART. 3, JUNE 2020 Table 3. Dalton Convention Center Financial Statements Panel B: Income Statements Statements of Revenues, Expenses, and Changes in Fund Net Position For the Years Ended December 31, 2017 and December 31, 2016 2017 2016 Operating Revenues Event and Rental Revenue $1,269,660 $1,442,274 Table 3. Dalton Convention Center Financial Statements Panel C: Statements of Cash Flows For the Years Ended December 31, 2017 and December 31, 2016 2017 2016 $1,469,957 (963090) $1,259,623 (996,400) (1,037.250 1774,027) (811,953) (305.0861 692.797 692.797 450,900 450,900 Cash Flows from Operating Activities Cash Received from Customers Cash Paid to Employees Cash Paid to Suppliers Net Cash Used by Operating Activities Cash Flows from Non-capital Financing Activities Cash Received from Other Governments Net Cash Provided by Noncapital Financing Activities Cash Flows from Capital and Related Financing Activities Acquisition and Construction of Capital Assets Cash Received from Other Governments for Capital Acquisition Proceeds from the sale of Assets Net Cash Provided (Used) by Capital and Related Financing Activities Cash Flows from Investing Activities Interest on Investments Net Cash Provided by Noncapital Financing Activities Net Increase Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents at Beginning of Year Cash and Cash Equivalents at End of Year (408,3531 (728,226) 699,732 638,000 6,685 (21,809) 14,407 244,054 1,533 573 1,533 (101,506) 624,463 $ 522,957 573 390,441 234,022 $ 624,463 Reconciliation of Operating Income to Net Cash Provided by Operating Activities Operating Income (loss) 2017 $11,021,667) 2016 $1923,6571 Adjustments to Reconcile Operating Income to Net Cash Provided by Operating Activities Depreciation 561,805 515,165 (8,855) (2,077) 21,267 13,3071 3,440 Changes in Assets and Liabilities (Increase) Decrease in Accounts Receivable Inventory Prepaid Expenses Accounts Payable Due to City of Dalton Accrued Salaries Accrued Compensated Absences Accrued Expenses Customer Deposits (978) (213,646) (89,877) 1,186 50,842 18,304) 21,364 14,354 12.6661 6.416 6,480 (5,216) (1,182) 247,640 618,571 Total Adjustments Net Cash Provided (Used) by Operating Activities $1774,027) $(305,086) Note: All monetary values are represented in U.S. dollars. IMA EDUCATIONAL CASE JOURNAL VOL. 13, NO. 2, ART. 3, JUNE 2020 ABOUT IMA (INSTITUTE OF MANAGEMENT ACCOUNTANTS) IMA, the association of accountants and financial professionals in business, is one of the largest and most respected associations focused exclusively on advancing the management accounting profession. Globally, IMA supports the profession through research, the CMA (Certified Management Accountant) program, continuing education, networking and advocacy of the highest ethical business practices. IMA has a global network of more than 100,000 members in 140 countries and 300 professional and student chapters. Headquartered in Montvale, N.J., USA, IMA provides localized services through its four global regions: The Americas, Asia/Pacific, Europe, and Middle East/India. For more information about IMA