Attached files
| file | filename |
|---|---|
| EX-99.2 - EXHIBIT 99.2 - ClubCorp Holdings, Inc. | a20132014avendrafs.htm |
| EX-32.2 - EXHIBIT 32.2 - ClubCorp Holdings, Inc. | cch-20161227x10kaxex322.htm |
| EX-32.1 - EXHIBIT 32.1 - ClubCorp Holdings, Inc. | cch-20161227x10kaxex321.htm |
| EX-31.2 - EXHIBIT 31.2 - ClubCorp Holdings, Inc. | cch-20161227x10kaxex312.htm |
| EX-31.1 - EXHIBIT 31.1 - ClubCorp Holdings, Inc. | cch-20161227x10kaxex311.htm |
| EX-23.2 - EXHIBIT 23.2 - ClubCorp Holdings, Inc. | cch-20161227x10kaxex232.htm |
| EX-10.43 - EXHIBIT 10.43 - ClubCorp Holdings, Inc. | cch-20161227x10kaxex1043.htm |
| 10-K/A - 10-K/A - ClubCorp Holdings, Inc. | holdings-20161227x10ka.htm |
AVENDRA, LLC AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 2016 and 2015
(With Independent Auditors’ Report Thereon)
KPMG LLP is a Delaware limited liability partnership and the U.S. member
firm of the KPMG network of independent member firms affiliated with
KPMG International Cooperative (“KPMG International”), a Swiss entity.
KPMG LLP
1676 International Drive
McLean, VA 22102
Independent Auditors’ Report
The Board of Managers
Avendra, LLC:
We have audited the accompanying consolidated financial statements of Avendra, LLC and its subsidiaries,
which comprise the consolidated balance sheets as of December 31, 2016 and 2015, and the related
consolidated statements of operations and comprehensive income, members’ deficit, and cash flows for the
years then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements
in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and
maintenance of internal control relevant to the preparation and fair presentation of consolidated 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 consolidated 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 audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditors’ judgment, including the
assessment of the risks of material misstatement of the consolidated 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 consolidated 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 consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,
the financial position of Avendra, LLC and its subsidiaries as of December 31, 2016 and 2015, and the results
of their operations and their cash flows for the years then ended in accordance with U.S. generally accepted
accounting principles.
McLean, Virginia
March 24, 2017
AVENDRA, LLC AND SUBSIDIARIES
Consolidated Balance Sheets
December 31, 2016 and 2015
Assets 2016 2015
Current assets:
Cash and cash equivalents $ 14,266,468 12,992,527
Accounts receivable, net 58,120,417 58,250,648
Restricted investments 1,050,954 1,760,492
Prepaid expenses and other current assets 2,732,524 1,988,723
Total current assets 76,170,363 74,992,390
Restricted investments, net of current portion 22,627,766 20,159,581
Property and equipment, net 6,902,637 8,189,672
Goodwill and intangible assets, net 20,160,887 20,761,799
Other assets 310,942 182,147
Total assets $ 126,172,595 124,285,589
Liabilities and Members’ Deficit
Current liabilities:
Note payable $ 6,861,111 4,750,000
Accounts payable and accrued expenses 4,801,607 6,048,221
Accrued compensation 8,673,606 8,231,503
Due to customers 35,651,809 38,323,612
Accrued incentive compensation 34,747,762 28,698,489
Total current liabilities 90,735,895 86,051,825
Note payable, net of current portion 17,416,667 23,750,000
Other long-term liabilities 30,186,994 29,275,018
Total liabilities 138,339,556 139,076,843
Commitments and contingencies
Members’ deficit (12,166,961) (14,791,254)
Total liabilities and members’ deficit $ 126,172,595 124,285,589
See accompanying notes to consolidated financial statements.
2
AVENDRA, LLC AND SUBSIDIARIES
Consolidated Statements of Operations and Comprehensive Income
Years ended December 31, 2016 and 2015
2016 2015
Revenue $ 127,318,110 114,425,772
Operating expenses:
General and administrative 64,174,129 57,106,145
Depreciation and amortization 2,859,780 1,346,655
Total operating expenses 67,033,909 58,452,800
Income from operations 60,284,201 55,972,972
Other gain/(loss), net 937,709 (351,817)
Income before income taxes 61,221,910 55,621,155
Provision for income taxes 552,006 95,559
Net income $ 60,669,904 55,525,596
Comprehensive income:
Net income $ 60,669,904 55,525,596
Other comprehensive loss:
Foreign currency translation adjustment (45,611) (412,464)
Comprehensive income $ 60,624,293 55,113,132
See accompanying notes to consolidated financial statements.
3
AVENDRA, LLC AND SUBSIDIARIES
Consolidated Statements of Members’ Deficit
Years ended December 31, 2016 and 2015
Accumulated
other
Members’ Accumulated comprehensive
capital deficit Sub-total income (loss) Total
Balance at December 31, 2014 $ 6,974,743 (25,564,810) (18,590,067) (255,927) (18,845,994)
Member distributions - (51,000,000) (51,000,000) - (51,000,000)
Interest on loan due to AHI - (58,392) (58,392) - (58,392)
Other comprehensive income (loss):
Foreign currency translation adjustment - - - (412,464) (412,464)
Net income - 55,525,596 55,525,596 - 55,525,596
Balance at December 31, 2015 6,974,743 (21,097,606) (14,122,863) (668,391) (14,791,254)
Member distributions (58,000,000) (58,000,000) (58,000,000)
Other comprehensive loss:
Foreign currency translation adjustment - (45,611) (45,611)
Net income 60,669,904 60,669,904 60,669,904
Balance at December 31, 2016 $ 6,974,743 (18,427,702) (11,452,959) (714,002) (12,166,961)
See accompanying notes to consolidated financial statements.
4
AVENDRA, LLC AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Years ended December 31, 2016 and 2015
2016 2015
Cash flows from operating activities:
Net income $ 60,669,904 55,525,596
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 2,859,780 1,346,655
Other, net 48,549 19,086
Adjustments to provision for doubtful accounts 44,359 140,871
Unrealized (gain)/loss from investment in the deferred
compensation plan (542,300) 1,532,263
Changes in assets and liabilities:
Accounts receivable 85,514 (10,130,582)
Restricted investments, prepaid expenses and other
assets (2,088,944) (3,458,197)
Accounts payable, accrued expenses, and accrued
incentive compensation 5,199,510 (2,861,230)
Other liabilities 911,976 3,285,400
Due to customers (2,671,803) 6,191,123
Net cash provided by operating activities 64,516,545 51,590,985
Cash flows from investing activities:
Purchase of short-term held-to-maturity investments - (2,501,625)
Maturities of short-term held-to-maturity investments - 12,003,500
Investment in BuyEfficient, less cash acquired - (25,452,910)
Purchase of property and equipment (1,020,382) (919,331)
Net cash used in investing activities (1,020,382) (16,870,366)
Cash flows from financing activities:
Payment on note to AHI - (2,513,700)
Note payable (4,222,222) 28,500,000
Distributions to members (58,000,000) (51,000,000)
Net cash used in financing activities (62,222,222) (25,013,700)
Net increase in cash and cash equivalents 1,273,941 9,706,919
Cash and cash equivalents at beginning of year 12,992,527 3,285,608
Cash and cash equivalents at end of year $ 14,266,468 12,992,527
Supplemental cash flow information:
Income taxes paid $ 544,088 214,217
Interest paid on loan to AHI - 63,700
See accompanying notes to consolidated financial statements.
5
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
6
(1) Summary of Significant Accounting Policies
(a) Description of Business
Avendra, LLC (Avendra or the Company) is a Delaware limited liability company under the terms of the
Limited Liability Company Agreement of Avendra, LLC, as amended (the LLC Agreement). The
Company is an independent hospitality procurement and supply chain organization that provides its
customers with supply chain efficiencies and savings through aggregating purchasing volume, utilizing
hospitality industry knowledge, and providing supply chain assurance services. The Company is 99.92%
owned by a group of hotel and golf course management companies (the Founders) with the remaining
0.08% owned by current and former employees (collectively with the Founders referred to as Members).
Avendra provides procurement services primarily for the hospitality industry throughout North America,
Latin America, and the Caribbean. A large portion of the Company’s business is conducted with the
Founders and their managed hotels and clubs (the Founder Properties). The Company has contracts and
agreements with distributors and manufacturers covering the procurement of a broad range of
merchandise and services. The Company’s customers are provided access to the pricing negotiated with
the suppliers as part of these contracts.
Except for the Company’s Avendra Replenishment, LLC subsidiary (Avendra Replenishment), the
majority of the purchasing activities resulting from the Company’s contracts are conducted directly
between the Company’s customers and the suppliers under terms negotiated by Avendra with those
suppliers. The Company is not a direct party to these purchasing transactions and the Company does not
maintain or purchase inventory.
Avendra Replenishment was established to serve as an intermediary between the Company’s customers
and certain suppliers for the procurement of operating equipment. Typically, these transactions are
replacement equipment orders for individual hotels.
In 2015, Avendra acquired BuyEfficient, LLC (BuyEfficient), a procurement service and eCommerce
solution provider serving the hospitality industry, from Sunstone Hotel Investors, Inc. The acquisition
allows the Company’s customers to leverage the purchasing power and service offerings of Avendra and
BuyEfficient’s eCommerce technology platform.
(b) Formation of the Company and Limitation on Liability
Pursuant to the terms of the LLC agreement, no member is personally liable for any debt, obligation, or
liability of the Company. The LLC Agreement is perpetual in term, subject to the dissolution provisions
provided in the LLC Agreement. The LLC Agreement provides certain preferences to the members in the
event of dissolution, certain distributions of Company property, the incorporation of the Company, or an
initial public offering, among other events.
(c) Equity Transaction
On November 30, 2010, Avendra Holdings, Inc. (AHI) redeemed its ownership in Avendra, LLC. AHI is
owned by the Founders in proportions substantially equivalent to the Founders’ ownership in Avendra.
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
7
The sale of AHI’s ownership interest, for a total aggregate redemption price of $12,250,000, was payable
in five equal installments on each anniversary of the agreement date commencing November 30, 2011
and ending November 30, 2015. In addition, interest on the principal amount accrued from the agreement
date and was payable annually, in arrears, to AHI on each anniversary of the agreement date
commencing November 30, 2011 at a fixed rate of 2.6% per annum. Due to the related party nature of
the ownership of AHI and Avendra, the redemption amount and all interest associated with the note are
reflected as a charge to equity. As of December 31, 2015, the note and interest were paid in full. In 2016,
AHI’s Board of Directors and its Stockholders approved to dissolve AHI as the entity had not engaged in
any meaningful business activity since the redemption. The Company filed a certificate of dissolution
with the Delaware Secretary of State, satisfied any outstanding obligations, and distributed AHI’s
remaining assets.
(d) Principles of Consolidation
The consolidated financial statements include the financial statements of Avendra, LLC and its three
wholly owned subsidiaries, Avendra Canada, Inc., Avendra Replenishment, and BuyEfficient. All
significant intercompany balances and transactions have been eliminated in consolidation.
(e) Revenue Recognition
The Company derives revenue from customers primarily in three forms: (1) service fees as a percentage
of purchases made by the Company’s customers (Spend), with any supplier allowances in excess of
negotiated fee amounts being returned to customers; or, (2) the retention of supplier allowances in lieu of
a procurement fee, or (3) subsequent to the BuyEfficient acquisition, the Company derives an additional
form of revenue from eCommerce fees as a percentage of customers’ Spend.
The applicable form of revenue is delineated in the customer contracts. Revenue calculations are based
on Spend. Revenue from service and eCommerce fees are recognized at the rate specified per customer
contract in the period that Spend occurs. Revenue from allowances is recognized at the rate specified per
product or service in each applicable supplier contract in the period that the associated Spend occurs.
Spend information is based on reporting from suppliers. When Spend reports are not yet received, the
Company estimates the Spend, allowances, and related revenue based on historical data or information
provided by the supplier.
The Company’s Avendra Replenishment subsidiary places orders on behalf of its customers, pays the
supplier and assumes customer credit risk; however, the Company does not take title or possession of the
related inventory, nor are any applicable product warranties the responsibility of Avendra. The Company
applies a markup to the wholesale cost for each order and recognizes that markup as replenishment
revenue when the related product is shipped to the customer from the vendor. Replenishment revenue is
recognized net based on the mark-up.
Certain suppliers prepay allowances in advance of completion of the related procurement process from
which the allowances are derived. These prepayments are recorded as unearned allowances and
recognized as revenue in the period in which the related purchases are made. The Company records these
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
8
amounts as unearned allowances in due to customers and other long-term liabilities in the accompanying
consolidated balance sheets. Unearned allowances were approximately $657,000 and $650,000 for the
years ended December 31, 2016 and 2015, respectively.
(f) Cash and Cash Equivalents and Short-Term Investments
The Company considers short-term, highly liquid investments with original maturities of three months or
less to be cash equivalents.
The Company’s internal investment policy is to maintain a weighted average maturity of U.S. Treasuries
and GSE’s (Government-Sponsored Entities) of not more than 7.5 months. These short-term investments
are classified as held-to-maturity securities and are reflected as current assets on the balance sheet. The
purchases and maturities of these investments are presented gross in cash flow from investing activities.
As of December 31, 2016 and 2015, the Company did not have any short-term investments.
(g) Accounts Receivable
Allowances are recognized and billed at the rate specified per product or service in each applicable
supplier contract. Accounts receivable primarily represent billed and unbilled allowances due. Billed
receivables are recorded at the invoiced amount. The majority of unbilled receivables represent amounts
that were earned, but not invoiced at year end. Accounts receivable include certain amounts billed on
behalf of customers whose service fees are based on a percentage of Spend. These amounts are excluded
from revenue and a corresponding amount is reflected as a component of the due to customers’ liability.
Accounts receivable from BuyEfficient consist primarily of eCommerce fees billed to customers based
on a percentage of Spend through supplier contracts.
The allowance for doubtful accounts is the Company’s best estimate of the amount of probable credit
losses in the Company’s existing accounts receivable. The Company determines the allowance based on
historical and expected write-offs and based on customer and supplier specific circumstances. The
Company reviews its allowance for doubtful accounts quarterly. Past due balances meeting certain
criteria are reviewed individually for collectability. All other balances are reviewed on a pooled basis.
Account balances are charged against the allowance after all means of collection have been exhausted
and the potential for recovery is considered remote. The Company does not have any off-balance-sheet
credit exposure related to its customers.
The Company also records a rebate realization reserve, which is the Company’s best estimate of the
amount of probable adjustments based upon differences in allowance calculations between the Company
and the supplier in the Company’s existing accounts receivable. Due to inherent complexities in the data
accumulation, billing, and subsequent reconciliation processes, this reserve account adjusts aggregate
receivables to the best estimate of net realizable value.
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
9
(h) Restricted Cash
The Company records as restricted cash any cash that is restricted in its use by the Company’s executed
contracts and is not immediately available for use. The Company did not have any restricted cash
recorded on its balance sheet for the years ended December 31, 2016 and 2015.
(i) Restricted Investments
Total restricted investments were approximately $23,679,000 and $21,920,000 at December 31, 2016
and 2015, respectively. The restricted investments represent deferred compensation associated with the
Unit Appreciation Right (UAR) program related to the Company’s cash dividends, in addition to salary
and bonus deferrals by highly compensated employees (see note 6(b) and 6(c)).
These amounts are invested in a range of funds including money market, bond, and equity mutual funds
based on the employees’ elections. These investments are considered trading securities and are
marked-to-market each month based on the change in the funds’ quoted market value. Any realized or
unrealized gain/loss and any interest income are recognized in other gains/(losses) with an offsetting
entry to employee costs, on the Company’s consolidated statements of operations and comprehensive
income. These amounts are also recorded in restricted investments with an offsetting entry to accrued
incentive compensation and other long-term liabilities on the Company’s consolidated balance sheets.
For the year ended December 31, 2016, the Company recorded a net gain of approximately $1,118,000
and interest income of approximately $312,000, resulting in a net increase to employee cost of
$1,430,000. For the year ended December 31, 2015, the Company recorded a net loss of approximately
$588,000 and interest income of approximately $313,000, resulting in a net decrease to employee costs
of approximately $275,000.
(j) Property and Equipment
Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation
and amortization are calculated using the straight-line method over the following useful lives:
Furniture and fixtures 5 years
Computer equipment 3–5 years
Computer software 5 years
Leasehold improvements Shorter of useful
life or remaining
lease term
(k) Goodwill
The Company was formed in connection with the contribution of certain assets, which were recorded at
fair value. As part of the transaction, the Company recorded goodwill representing the future economic
benefits arising from other assets acquired in a business combination that were not individually identified
and separately recognized. The Company also recorded goodwill as part of its acquisition of
BuyEfficient (see notes (7) and (8)).
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
10
The Company does not amortize goodwill; instead, it evaluates goodwill for impairment annually. In
addition to the annual impairment evaluation, on an ongoing basis, the Company evaluates whether
events or circumstances have occurred in the period subsequent to the annual impairment testing which
indicate that it is more likely than not (i.e., more than 50%) an impairment loss has occurred. The
Company has only one reporting unit; therefore, all goodwill is allocated to that one reporting unit. The
Company performs its annual impairment testing as of December 31st by completing an assessment of
qualitative factors to determine whether it is more likely than not that the fair value of the reporting unit
is less than its carrying value. As of December 31, 2016, there have been no events up to the completion
of the analysis or subsequent to the analysis that would indicate that it is more likely than not that the fair
value of the reporting unit is less than its carrying value.
Total goodwill for the years ended December 31, 2016 and 2015 was $12,617,000 and $12,421,000,
respectively, and is included in goodwill and intangible assets, net in the consolidated balance sheets.
(l) Income Taxes
The Company has elected limited liability company status and, as such, is not directly subject to
U.S. federal and most state income taxes. Instead, the members are responsible for income taxes on their
proportionate share of Avendra’s taxable income. Members are also entitled to a proportionate share of
tax deductions and credits. Certain states do not recognize the limited liability company status, and
accordingly, the Company is responsible for state income taxes in these states. Avendra Canada, Inc. is
incorporated in Canada and is subject to taxes under Canadian tax regulations.
The Company recognizes the effect of income tax positions only if those positions are more likely than
not of being sustained. Recognized income tax positions are measured at the largest amount that is
greater than 50% likely of being realized. Changes in recognition or measurement are reflected in the
period in which the change in judgment occurs. The Company records interest and penalties related to
uncertain tax positions in the provision for income taxes on the consolidated statements of operations and
comprehensive income. The Company has assessed its tax positions as of December 31, 2016 and 2015.
As of December 31, 2016 and 2015, the total amount accrued for uncertain tax positions including
interest and penalties is approximately $191,000 and $177,000, respectively, and is included in accounts
payable and accrued expenses in the consolidated balance sheets.
The provision for income taxes of approximately $552,000 and $95,600 for the years ended
December 31, 2016 and 2015, respectively, relates primarily to those states which do not recognize the
limited liability company status as well as amounts released for the Canadian deferred tax valuation
allowance. There were no material deferred taxes as a result of these state income taxes; however, the
Company has net operating loss carryforwards for Avendra Canada Inc. for the years ended
December 31, 2016 and 2015, of approximately $227,000 and $930,000, respectively, in
U.S. equivalents, which creates a deferred tax asset that expires on December 31, 2030. In the year
ending December 31, 2015, the Company reversed part of its valuation allowance and recorded a
matching reduction to its provision for income taxes of $55,000 to reflect the belief that results of
operations in the future would only generate taxable income to realize part of the deferred tax asset. Due
to increased revenue associated with a Member’s acquisition of a Canadian hotel chain, the Company
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
11
believes that results of future operations will generate sufficient taxable income to realize the full
deferred tax asset. Accordingly, the Company reversed the remaining valuation allowance of $214,000
at December 31, 2016 and recorded the offsetting estimated utilization of the net operating loss.
(m) Equity-Based Compensation Plans
The Company has a unit appreciation rights (UAR) plan (see note 6(b)). The Company has elected to
continue to apply the intrinsic-value-based method of measuring periodic compensation expense related
to the UAR plan. Compensation expense is measured by the amount of appreciation of the rights in
excess of the base price as determined by the enterprise value of the Company at year end, as approved
by the Board of Managers.
(n) Use of Estimates
The preparation of the Company’s consolidated financial statements in conformity with U.S. 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.
The estimates involve judgment with respect to, among other things, various future factors, which are
difficult to predict and are beyond the control of the Company. Significant estimates include the
allowance for doubtful accounts, enterprise value from equity-based compensation under the UAR Plan,
and the amount of certain allowances to be received from suppliers for purchases made during the year.
Accordingly, actual amounts could differ from these estimates.
(o) Impairment of Long-Lived Assets
The Company did not have any impairment of long-lived assets during the years ended December 31,
2016 and 2015. Long-lived assets, such as property and equipment are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amounts of an asset may not be
recoverable.
(p) Fair Value of Financial Instruments
Management believes that the carrying values of cash and cash equivalents, short-term investments,
accounts receivable, accounts payable and accrued expenses, and other liabilities approximate fair values
because of the short maturity of these financial instruments. In 2016 and 2015, Avendra entered into a
credit agreement for a term loan for which the carrying value is reflected on the accompanying financial
statements (see note (9)).
(q) Foreign Currency Translation
The functional currency of the Company’s Canadian subsidiary is the Canadian dollar. Accordingly, all
assets and liabilities of the subsidiary are translated using exchange rates in effect at the end of the
period, and revenue and costs are translated using average exchange rates for the period. The related
translation adjustments are reported in accumulated other comprehensive income (loss), included in the
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
12
consolidated statements of operations and comprehensive income and as a component of members’
deficit.
Translation gains and losses arising from transactions denominated in a currency other than the
functional currency of the entity involved are included in net income reported on the consolidated
statements of operations and comprehensive income.
(r) Recently Issued Accounting Standards
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, which requires
an entity to recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those
goods or service. An entity also should disclose sufficient quantitative and qualitative information to
enable users of financial statements to understand the nature, amount, timing and uncertainty of revenue
and cash flows arising from contracts with customers. The new standard is effective for the Company on
January 1, 2018. The Company has not yet determined the effect of the new standard on its current
policies for revenue recognition.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which supersedes FASB ASC
Topic 840, Leases, and makes other conforming amendments to U.S. GAAP. ASU 2016-02 requires,
among other changes to the lease accounting guidance, lessees to recognize most leases on-balance sheet
via a right-of-use asset and lease liability, and additional qualitative and quantitative disclosures. ASU
2016-02 is effective for the Company for annual periods in fiscal years beginning after December 15,
2018, permits early adoption, and mandates a modified retrospective transition method. The Company is
required to adopt ASU 2016-02 on January 1, 2019. While the Company expects ASU 2016-02 to add
significant right-of-use assets and lease liabilities to the consolidated balances sheets, it is evaluating
other effects that the new standard will have on the consolidated financial statements and whether to
early adopt.
(2) Related Party Transactions
The Founder Procurement Services Agreements (PSAs) are the contracts with each Founder that is a
customer outlining the terms of the procurement and supply chain services provided to the Founders and
their managed hotels and clubs. The initial PSAs became effective in 2001 and have been renewed for
multiple terms most recently on December 31, 2014 for a 4-year term expiring December 31, 2018.
The Company had $23,058,000 due to the Founders and $1,700,000 due from the Founders at December 31,
2016. The Company had $24,446,000 due to the Founders and $2,100,000 due from the Founders at
December 31, 2015. The due from amounts are included as a component of accounts receivable, net in the
accompanying consolidated balance sheets. The due to amounts are included as a component of the due to
customers’ liability in the accompanying consolidated balance sheets.
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
13
(3) Accounts Receivable
The components of accounts receivable, net at December 31, 2016 and 2015 were as follows:
Management believes that all unbilled accounts receivable, net of the realization reserve, will be collected
within one year.
(4) Property and Equipment
The components of property and equipment, net at December 31, 2016 and 2015 were as follows:
2016
2015
Computer equipment $ 6,081,300
6,070,786
Computer software
15,354,346
14,885,513
Leasehold improvements
717,996
676,398
Furniture and fixtures
1,111,769
1,106,873
Total
23,265,411
22,739,570
Less accumulated depreciation and amortization
(16,362,774)
(14,549,898)
$ 6,902,637
8,189,672
(5) Leases
The Company is obligated under several noncancelable operating leases, primarily for office space and
equipment, with original terms from three to eight years. These leases generally contain renewal options for
periods ranging from three to five years, and require the Company to pay certain operating costs such as
maintenance and insurance. Rental expense for operating leases during the years ended December 31, 2016
and 2015 was approximately $2,036,000 and $1,798,000, respectively.
Effective December 2007, the Company renewed its headquarters lease for a 10-year term. The lease
includes an improvement allowance of $1,048,950, which is reflected as a reduction to the total rent
payments due under the lease and recognized on a straight-line basis over the term of the lease. In 2016, the
Company entered into a new headquarters lease commencing on January 1, 2018 for a 97-month term. The
lease is noncancelable and as such, is included in the future minimum lease payments, net of incentives.
2016 2015
Billed accounts receivable $ 12,614,557 14,009,799
Unbilled accounts receivable 42,540,553 39,980,632
Replenishment accounts receivable 3,575,221 4,912,890
Less: allowance for doubtful accounts/realization reserve (609,913) (652,673)
$ 58,120,417 58,250,648
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
14
Future minimum lease payments under noncancelable operating leases with initial or remaining lease terms
in excess of one year as of December 31, 2016 are:
(6) Employee Benefit Plans
(a) Unit Appreciation Rights (UAR) Plan
In 2004, the Company approved the “2004 UAR Plan” to provide for the annual issuance of UAR’s to
senior-level employees. In 2007, the Company, as approved by Avendra’s Compensation Committee,
modified the 2004 UAR Plan to compensate UAR holders for the impact on the Company’s valuation of
the periodic cash distributions that are made to its Members. In 2012, the Company approved a new
“2012 UAR Plan,” which modified the methodology for valuing future grants to be based on growth in
the year-end enterprise valuation only. Therefore, the compensation for the impact of the periodic cash
distributions will no longer apply to grants under the 2012 plan. The actual fair value of the Company, as
determined by a third party equity sale transaction or market valuation, might differ significantly from
management’s internal December 31, 2016 and 2015 estimate of enterprise valuation.
In 2016, under the 2012 UAR Plan, the Company issued 636,541 UAR’s with a base price of $10.49 and
an effective date of June 30, 2016 for vesting purposes. In 2015, under the 2012 UAR Plan, the Company
issued 733,357 UAR’s with a base price of $9.04 and an effective date of June 30, 2015 for vesting
purposes. The rights vest over four years from the respective effective date. The rights issued prior to
2012, have an expiration date of 10 years after the grant date, and the rights issued in 2012 and thereafter
have an expiration date of five years after the grant date.
Compensation cost of approximately $13,073,000 and $13,994,000, respectively, has been recognized
for outstanding UAR’s in the accompanying consolidated financial statements for the years ended
December 31, 2016 and 2015. The compensation cost was based on an estimated fair value of the vested
UAR’s, as determined by the Board of Managers, of the appreciation rights in excess of the base price of
the right granted. As of December 31, 2016 and 2015, a short-term liability of approximately
$34,748,000 and $28,698,000, and a long-term liability of approximately $5,531,000 and $6,653,000
respectively, have been recognized for the UAR plan under accrued incentive compensation current
liabilities and other long-term liabilities in the consolidated balance sheets.
2017 $ 1,942,093
2018 1,209,116
2019 1,249,740
2020 1,300,341
2021 1,343,519
Thereafter 5,960,433
Total minimum lease payments $ 13,005,242
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
15
UAR activity during the periods indicated is as follows:
(b) Deferred Compensation Plan
Effective December 16, 2003, the Company established a plan for the purpose of allowing highly
compensated employees to defer certain compensation (Employee Contributions). The Company’s
obligations to the participants are unsecured, and therefore, the participants are treated as general
unsecured creditors. Participants are fully vested in the amounts in their respective deferred
compensation accounts. Payments typically become payable upon separation from the Company in either
a lump sum or equal installments over a 5-year period. The Deferred Compensation Plan (the Plan),
Weighted
Number of average
2004 UAR Plan: options base price
Balance, December 31, 2014 5,649,443 $ 3.78
Granted - -
Forfeited/canceled - -
xercised (1,573,761) 3.23
Balance, December 31, 2015 4,075,682 $ 4.00
Granted - -
Forfeited/canceled - -
Exercised (605,542) 2.90
Balance, December 31, 2016 3,470,140 $ 4.19
Weighted
Number of average
2012 UAR Plan: UAR's base price
Balance, December 31, 2014 2,703,012 $ 7.12
733,357 9.04
(3,996) 9.04
(61 750 6 31
5 3 623 7 55
Granted 636,541 $10.49
Forfeited/canceled - -
Exercised - -
Balance, December 31, 2016 4,007,164 $ 8.01
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
16
under the 2004 UAR Plan, also provides UAR grantees with deferred compensation in respect to the cash
distributions made to the Company’s Members (Employer Contributions). The 2004 UAR Plan provides
a credit to UAR grantees for member cash distributions for outstanding grants issued prior to 2012. The
UAR credit is determined by the amount of the cash distribution divided by the total units outstanding at
the time of the distribution multiplied by the number of UAR’s outstanding. The cash contribution is
made for vested UAR’s and is included in restricted investments on the Company’s consolidated
financial statements. Upon separation from the Company, the vested amounts are payable to the UAR
grantee within 90 days.
In the Company’s consolidated financial statements, both the Employer and Employee Contributions to
the Plan, as well as the related investment earnings, are recorded in assets as a restricted investment with
an offsetting liability for the obligations to the Plan participants. For the years ended December 31, 2016
and 2015, the restricted investment and the liability each totaled approximately $23,679,000 and
$21,920,000, of which approximately $1,051,000 and $1,760,000, respectively, were recorded as
short-term for 2016 and 2015.
The Employee Contributions and the vested portion of the Employer Contributions from its 2004 UAR
Plan are in participant-directed brokerage accounts, and consist of money market, bond, and equity
funds. The quoted market value of bond and equity funds is the unit of account used by the Company to
measure these investments.
Markets for Other Significant
identical observable unobservable
December 31, assets inputs inputs
2016 (Level 1) (Level 2) (Level 3)
Financial assets investments:
Fixed income and equities $ 23,678,720 23,678,720 — —
Total $ 23,678,720 23,678,720 — —
Markets for Other Significant
identical observable unobservable
December 31, assets inputs inputs
2015 (Level 1) (Level 2) (Level 3)
Financial assets investments:
Fixed income and equities $ 21,920,072 21,920,072 — —
Total $ 21,920,072 21,920,072 — —
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
17
(c) 401(k) Plan
The Company contributes to a 401(k) plan covering substantially all of its employees. Employer
contributions are computed based on the employees’ qualifying compensation and totaled approximately
$1,670,000 and $816,000 for the years ended December 31, 2016 and 2015, respectively.
(d) Profit Sharing Program
In 2015, the Company discontinued its Profit Sharing Incentive Program and replaced it with a
401(k) employer match effective January 1, 2016. Consequently, the Company did not recognize any
expense for the years ended December 31, 2016 and 2015. The Company has an accrued liability for
amounts awarded under this plan prior to 2015, but not yet vested and paid. For the years ended
December 31, 2016 and 2015, the accrued liability was approximately $1,601,000 and $2,649,000,
respectively, and is included in accrued compensation for the related short-term liability and in other
long-term liabilities for the related long-term liability in the consolidated balance sheets. For the years
ended December 31, 2016 and 2015, the short-term liability was $774,000 and $991,000, and the
long-term liability was $827,000 and $1,658,000, respectively.
(7) Acquisition
On September 30, 2015, the Company acquired 100% of the membership interests and voting rights in
BuyEfficient. The results of BuyEfficient’s operations have been included in the consolidated financial
statements since that date. BuyEfficient is a procurement services and eCommerce solutions provider
servicing the hospitality industry. The combined entity provides new opportunities whereby customers will
now be able to leverage the purchasing power and service offerings of Avendra and the eCommerce
technology platform provided by BuyEfficient. The goodwill of $12,284,000 arising from the acquisition
relates to the increased customer base and purchasing volume. The purchase price was $26,500,000 and was
paid in cash.
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
18
The following table summarizes the purchase price paid for BuyEfficient and the amounts of estimated fair
value of assets assumed at the acquisition date.
An adjustment was made in 2016 during the measurement period based on information obtained subsequent
to the purchase price allocation which resulted in a reduction of $196,000 to the Property and equipment
assets acquired. A corresponding entry was recorded to increase to Goodwill as noted in note (8) (b).
The fair value of the acquired intangible assets of $8,540,000 as of September 30, 2015 is based on the final
valuation report for those assets from a third party valuation expert. The acquired intangible assets of which
are being amortized, have a weighted average useful life of 10 years. The intangible assets that make up that
amount include customer relationships of $7,970,000 (10-year useful life) and the BuyEfficient trademark of
$570,000 (indefinite useful life).
As of
Purchase Price: 9/30/2015
Cash $ 26,500,000
Less: Net working capital adjustment (521,802)
Net Purchase Price $ 25,978,198
Acquisition related costs included in SG&A 634,413
Recognized amounts of indentifiable assets acquired:
Cash and cash equivalents $ 525,288
Accounts receivable, net 1,333,725
Prepaid expenses 47,863
Other assets 1,100
Accounts payable and accrued expenses (1,627,172)
Accrued payroll and employee benefits (777,027)
Other current liabilities (25,579)
Property and equipment 576,000
Int rnally Developed Software 5,100,000
Intangible assets 8,540,000
Total indentifiable net assets assumed 13,694,198
Goodwill 12,284,000
Total $ 25,978,198
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
19
(8) Goodwill and Other Intangible Assets
(a) Acquired Intangible Assets
In 2016, three strategic BuyEfficient customer agreements were terminated, which created a triggering event
requiring a recoverability test to determine if the carrying amount of the Customer Relationship asset was
recoverable. The Company completed an analysis using updated financial projections and determined that
the sum of the undiscounted net cash flows estimated to be received over the remaining life of the customer
relationship asset significantly exceed the asset’s carrying value of $6,974,000 and therefore, the value of the
asset has not been impaired.
December 31, 2016
Weighted
average Gross Net
amortization carrying Accumulated carrying
period amount amortization amount
Intangibl ssets
Amortizing intangible assets:
Customer Relationships 10 yrs $ 7,970,000 (996,250) 6,973,750
Indefinite-lived intangible assets:
Trademark - 570,000 - 570,000
Total intangible assets $ 8,540,000 (996,250) 7,543,750
December 31, 2015
Weighted
average Gross Net
amortization carrying Accumulated carrying
period amount amortization amount
Intangible assets
Amortizing :
Customer Relationships 10 yrs $ 7,970,000 (199,250) 7,770,750
Indefinite-lived intangible assets:
Trademark - 570,000 - 570,000
Total intangible assets $ 8,540,000 (199,250) 8,340,750
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
20
Aggregate amortization expense for amortizing intangible assets was $797,000 and $199,250 for
December 31, 2016 and 2015, respectively. Estimated annual amortization expense for the next five
years is estimated to be $797,000.
(b) Goodwill
In 2015, the Company recorded $12,284,000 in goodwill as part of the BuyEfficient acquisition
including $300,000 for the value of the assembled and trained workforce acquired as part of the
transaction. In 2016, the Company did not record any additions to goodwill. The Company recorded an
adjustment of $196,000 to assets recorded as part of the purchase price allocation based on information
obtained subsequent to the acquisition. A change to the amounts recorded for assets acquired, identifiable
intangible assets, and liabilities assumed during the measurement period affects the amount of the
purchase price allocated to goodwill. The Company has not recognized any goodwill impairments as of
December 31, 2016 and 2015.
(9) Long-term Debt
Long-term debt at December 31, 2016 and 2015 consists of the following:
In 2015, the Company entered into a five-year term loan for $28,500,000, bearing interest at LIBOR plus
1.20%. The loan repayment terms include interest only for the first six months, followed by 54 consecutive
monthly installments of $528,000 principal plus interest beginning on May 1, 2016. The loan is secured by
substantially all of the Company’s material assets. The Company will have annual maturities of its debt in
years 2017 through 2019 of $6,861,000 and $3,694,000 in 2020.
2016 2015
Ba nce a f January 1
Gross goodwill $ 12,421,049 137,049
Goodwill acquired during the year - 12,284,000
Adjustment 196,088 -
Impairment expense - -
Net Goodwill as of December 31 $ 12,617,137 12,421,049
2016 2015
Fiv -year term loan, interest at LIBOR plus 1.20%, interest only
for first six months, with final payment due October 1, 2020, secured
by Company's material assets $ 24,277,778 28,500,000
Less: current installments (6,861,111) (4,750,000)
Long-term debt, excluding current installments $ 17,416,667 23,750,000
AVENDRA, LLC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016 and 2015
21
The loan agreement contains covenants requiring the Company to maintain its assets and financial condition
at levels and in accordance with standards acceptable to the bank, to provide financial reporting or notices of
default, and to restrict changes in ownership control, additional indebtedness, and material investments in
fixed assets, leases or guarantees. The Company was in compliance with the covenants at December 31, 2016
and 2015.
(10) Legal Proceedings
The Company is involved in various claims and legal actions arising in the ordinary course of business. In
the opinion of management, the ultimate disposition of these matters will not have a material adverse effect
on the Company’s consolidated financial position, results of operations, or liquidity.
(11) Business and Credit Concentrations
The Company operates primarily in the hospitality industry, and accordingly, a change in the overall demand
for hotel rooms will lead to a corresponding change in the procurement needs of hotels, which could directly
impact the amount of revenue earned by the Company. Lack of demand for hotel rooms and other events
affecting the hospitality industry may significantly impact the Company’s future revenue streams.
Alternatively, increased demand for hotel rooms may significantly positively impact the Company’s future
revenue streams. For the years ended December 31, 2016 and 2015, approximately 23.0% and 24.0%,
respectively, of the Company’s revenue was attributable to three major customers. Any significant decrease
or increase in the amount of Spend for these customers may significantly impact the Company’s future
revenue streams.
The Company contracts with several hundred suppliers and is generally not dependent upon any one supplier
to provide products or services to its customers. However, a limited number of the Company’s suppliers
provide services that would be difficult to replace in the short term, should those suppliers cease to do
business with the Company or cease to operate.
Financial instruments that potentially subject the Company to credit risk include accounts receivable and
cash and cash equivalents. The Company extends credit to customers for purchases through Avendra
Replenishment on an unsecured basis in the normal course of business, and to date has not experienced
significant losses on accounts receivable. The Company’s cash deposits often exceed federally insured limits.
The Company has not experienced any losses in its depository accounts and management believes that the
Company is not exposed to any significant credit risks involving depository relationships.
(12) Subsequent Events
The Company has evaluated events subsequent to the balance sheet date through March 24, 2017, the date
the financial statements were available to be issued, and determined there have not been any events that have
occurred that would require adjustments to or disclosure in the consolidated financial statements.