Ladbroke Racing Pennsylvania and Subsidiaries
Consolidated Balance Sheet
As at April 4, 2001 Exhibit 99.1
(Unaudited)
Assets
Current assets:
Cash and cash equivalents 6,973,889
Short-term investments 267,806
Accounts and other receivables 461,678
Inventories 205,630
Prepaid expenses 388,360
-----------------
Total current assets 8,297,363
Goodwill, net 6,640,310
Racetrack properties:
Land 1,900,613
Buildings 10,053,695
Leasehold improvements 13,654,336
Furniture, fixtures and equipment 10,675,690
-----------------
36,284,334
Less: accumulated depreciation and amortization (18,544,475)
-----------------
Net racetrack properties 17,739,859
-----------------
Total assets 32,677,532
=================
Liabilities and stockholder's equity
Current liabilities:
Accounts payable and accrued liabilities 7,414,904
Outstanding pari-mutuel tickets payable 213,458
State income taxes payable 87,219
-----------------
Total current liabilities 7,715,581
Long-term deferred revenue 406,406
Deferred income taxes 381,134
Stockholder's equity:
Common stock - 5,000 shares authorized,
issued and outstanding, $1 par value 5,000
Additional paid-in capital 11,776,893
Retained earnings 12,392,518
-----------------
Total stockholder's equity 24,174,411
-----------------
Total liabilities and stockholder's equity 32,677,532
=================
Ladbroke Racing Pennsylvania and Subsidiaries
Consolidated Statement of Operations and Stockholder's Equity
For the period from January 1, 2001 to April 4, 2001
(Unaudited)
Revenues from operations:
Pari-mutuel commissions and breakage 16,759,183
Admissions 32,670
Food and beverage 806,415
Program sales 188,718
Oher operating income 441,652
------------------------
Total operating revenues 18,228,638
Operating expenses:
Purse payments 4,088,261
Salaries and wages 2,834,596
Operating expenses 6,236,593
Advertising and publicity 307,111
Equipment rental and other contractual services 309,165
Establishment 1,264,082
Depreciation and amortization 494,484
Loss on the sale of OTB site 1,315
General and administrative 566,265
------------------------
Total operating expenses 16,101,872
------------------------
Income from operations 2,126,766
Income taxes:
Current:
Federal 1,039,236
State 348,295
------------------------
Total current income taxes 1,387,531
Deferred (503,321)
------------------------
Total income taxes 884,210
------------------------
Net income 1,242,556
Stockholder's equity, beginning of period 31,993,713
Dividend paid (9,645,003)
Additional paid in capital 583,145
------------------------
Stockholder's equity, end of period 24,174,411
========================
Ladbroke Racing Pennsylvania and Subsidiaries
Consolidated Statement of Cash Flows
For the period from January 1, 2001 to April 4, 2001
(Unaudited)
Operating activities
Net income 1,242,556
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 494,484
Deferred income taxes (91,397)
Changes in operating assets and liabilities:
Accounts and other receivables 4,737,615
Inventories (23,141)
Prepaid expenses (3,269)
Accounts payable and accrued liabilities (3,285,302)
Outstanding pari-mutuel tickets payable (491,414)
State income taxes payable (299,725)
Deferred revenue 406,406
Due to affiliate, net (1,952,735)
------------------------
Net cash provided by operating activities 734,078
------------------------
Investing activities
Purchase of racetrack properties, net of disposals (231,870)
Increase in short-term investments (26,650)
------------------------
Net cash used by investing activities (258,520)
------------------------
Financing activities
Additional paid in capital 583,145
Dividend paid (9,645,003)
------------------------
(9,061,858)
------------------------
Decrease in cash and cash equivalents
and equity in pooled cash and cash equivalents (8,586,300)
Cash and cash equivalents and equity in pooled
cash and cash equivalents at beginning of period 15,560,189
------------------------
Cash and cash equivalents at end of period 6,973,889
========================
Ladbroke Racing Pennsylvania and Subsidiaries
Notes to Consolidated Financial Statements
April 4, 2001
(Unaudited)
1. Corporate Organization and Basis of Presentation
Ladbroke Racing Pennsylvania (LRP) and its wholly owned subsidiaries, Washington
Trotting Association, Inc. (WTA) and Mountain Laurel Racing, Inc. (MLR), are
engaged in racetrack and related operations involving harness racing events.
Through October 16, 2000, LRP (the Company) was a wholly owned subsidiary of
Ladbroke Racing Corporation (LRC). On October 17, 2000, Ladbroke Racing Wyoming,
Inc. (LRW), a wholly owned subsidiary of LRC, issued 400 shares of stock to LRC
for its wholly owned investment in LRP. LRP and LRW are under common control of
LRC; therefore, the historic basis of accounting was maintained for LRP. The
ultimate parent corporation of LRC and its subsidiaries is Hilton Group PLC
(formerly Ladbroke Group PLC), a United Kingdom corporation. Also included in
these financial statements is Ladbroke Food Service (LFS), a wholly owned
subsidiary of LRP, and Ladbroke Racing Management Pennsylvania (LRMP), a
partnership owned equally by WTA and MLR which currently operates four off-track
wagering locations in Western Pennsylvania.
WTA and MLR are licensed and regulated by the Commonwealth of Pennsylvania in
order to engage in racetrack and related operations involving harness racing
events. The nature of these operations is highly dependent on regulations and
statutes enacted by the Commonwealth of Pennsylvania.
2. Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of the Company and
its subsidiaries. All significant intercompany accounts and transactions are
eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist principally of cash on hand and demand
deposits with a financial institution. The Company considers all highly liquid
investments with a maturity of three months or less when purchased to be cash
equivalents. Cash and cash equivalents include $2,772,310 at April 4, 2001, that
represents cash deposits made by the Company's customers for telephone wagering
accounts. The liability for these deposits is included in accounts payable and
accrued expenses.
Short-Term Investments
Short-term investments are carried at cost (which approximates market). At April
4, 2001, these investments have been pledged as collateral for purse payments.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
-1-
Ladbroke Racing Pennsylvania and Subsidiaries
Notes to Consolidated Financial Statements (continued)
April 4, 2001
(Unaudited)
2. Significant Accounting Policies (continued)
Goodwill
Goodwill, which represents the excess cost of the racing entities (WTA and MLR)
over the fair value of their assets and liabilities at the acquisition date, is
being amortized over forty years.
Racetrack Properties
Racetrack properties are stated on the basis of cost. Depreciation is computed
by the straight-line method over the useful lives of the assets. Useful lives
for buildings, leasehold improvements, and furniture, fixtures and equipment are
twenty-five years, twenty years and five to ten years, respectively.
Advertising Expense
The cost of advertising is expensed as incurred.
Income Taxes
The Company does not file a separate federal income tax return, but is included
in a consolidated federal income tax return filed by its United States parent
(Ladbroke Hotels USA Corporation) and other affiliated companies. Under a tax
allocation agreement dated December 23, 1999 with Hilton International Company
(HIC), the Company records no federal income tax provisions and resulting
liabilities. All federal income tax liabilities are borne by HIC, commencing
with the 1999 income tax year. For purposes of preparing these stand-alone
financial statements, a federal tax provision has been calculated and included
in amounts due to affiliates. Deferred income taxes relating to timing
differences associated with the recognition of certain income and expense items
for income tax purposes are recognized under this tax sharing arrangement.
Separate state income tax returns are filed for the Company and its
subsidiaries.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. Related Parties
During the period, through a series of intercompany dividend payments, the
majority of inter-company balances were settled. Any remaining balances were
reclassified to additional paid in capital.
-2-
Ladbroke Racing Pennsylvania and Subsidiaries
Notes to Consolidated Financial Statements (continued)
April 4, 2001
(Unaudited)
4. Lease Commitments
The Company leases space for its off-track betting facilities under long-term
noncancelable leases with initial lease terms of ten years. Several leases
include options to extend the initial lease term by five or ten years.
Additional amounts are payable based on provisions for contingent rentals based
upon operating expenses and gross sales. These additional payments are charged
to operations as rental expense in the year incurred. Rent expense relating to
these properties for the period from January 1, 2001 to April 4, 2001 was
approximately $141,000. Minimum future rental payments relating to these leases
are as follows:
2001 $ 463,111
2002 578,278
2003 432,953
2004 209,394
2005 49,980
Thereafter 20,825
----------
$1,754,541
==========
5. Income Taxes
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The noncurrent deferred
tax liabilities as of April 4, 2001 consisted of tax over book depreciation of
$381,000.
Income taxes paid during the period from January 1, 2001 to April 4, 2001
amounted to approximately $229,000.
6. Retirement Plans
The Company participates in multiemployer defined benefit and contribution plans
for substantially all union employees. Expenses under these plans are based on
stipulated rates per employee and totaled approximately $28,000 for the period
from January 1, 2001 to April 4, 2001. Accumulated plan benefit information for
the multiemployer plans is not readily available.
The Company also participates in a 401(k) retirement savings plan for salaried
and certain hourly employees sponsored by LRC. Company contributions are made
based on a percentage of employees' contributions up to a specified maximum.
Costs charged to operations were approximately $26,000 in the period from
January 1, 2001 to April 4, 2001.
7. Subsequent Event
On April 5, 2001, LRW and LRC completed a stock purchase agreement (the
Agreement) with Magna Entertainment Corp. (Magna) which included the sale
of all issued and outstanding shares of common stock of LRP and another LRC
holding. The purchase price is $53,509,000 and was settled with cash, stock, and
promissory notes. The accompanying financial statements do not reflect any
purchase accounting adjustments relating to Magna's acquisition.