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The Operations of INTRUST Bank Arena, as Managed by SMG

Accountants Report and Special-Purpose Financial Statements


December 31, 2010

The Operations of INTRUST Bank Arena, as Managed by SMG


December 31, 2010 and 2009

Contents
Independent Accountants Report........................................................................................ 1 Special-Purpose Financial Statements Statement of Assets, Liabilities and Net Assets ................................................................................. 2 Statement of Operating Revenues and Operating Expenses............................................................... 3 Statement of Changes in Net Assets................................................................................................... 4 Statement of Cash Flows .................................................................................................................... 5 Notes to Financial Statements ............................................................................................................ 6

Independent Accountants Report

Management INTRUST Bank Arena Wichita, Kansas

We have audited the accompanying special-purpose statement of assets, liabilities and net assets arising from activities of the operations of INTRUST Bank Arena, as managed by SMG, as of December 31, 2010, and the related special-purpose statements of operating revenues and operating expenses, statement of changes in net assets and cash flows for the year then ended. These financial statements are the responsibility of the management of SMG. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. As discussed in Note 1, the accompanying special-purpose financial statements were prepared to present the assets, liabilities, net assets, operating revenues, operating expenses, changes in net assets and cash flows of the operations of INTRUST Bank Arena arising from activities managed by SMG and are not intended to be a complete presentation of INTRUST Bank Arenas financial position and results of operations and are not intended to be a presentation in conformity with accounting principles generally accepted in the United States of America. In our opinion, the special-purpose financial statements referred to above present fairly, in all material respects, the assets, liabilities and net assets of the operations of INTRUST Bank Arena, as managed by SMG as of December 31, 2010, and its operating revenues and operating expenses, changes in net assets and cash flows for the year then ended on the basis of accounting described in Note 1. The report is intended solely for the information and use of the management of SMG and Sedgwick County, and is not intended to be and should not be used by anyone other than these specified parties.

March 10, 2011

The Operations of INTRUST Bank Arena, as Managed by SMG


Special-Purpose Statement of Assets, Liabilities and Net Assets December 31, 2010

Assets
Current Assets Cash and cash equivalents Restricted cash Accounts receivable Inventories Prepaid expenses and other Total current assets $ 2,687,444 1,578,395 358,099 151,792 106,805 4,882,535

Liabilities and Net Assets


Current Liabilities Accounts payable Accrued expenses Deferred income Advance ticket sales/deposits Accrued distributions - Sedgwick County Accrued distributions - SMG Total current liabilities Net Assets Total liabilites and net assets $ $ 839,426 309,603 543,354 1,179,416 1,116,442 894,294 4,882,535 4,882,535

See Notes to Special-Purpose Financial Statements

The Operations of INTRUST Bank Arena, as Managed by SMG


Special-Purpose Statement of Operating Revenues and Operating Expenses Year Ended December 31, 2010

Event Income, Net Rental income Service revenues Service expenses Total direct event income, net Food and beverage concessions Food and beverage premium seating Novelty sales On-site parking Total ancillary income, net Box office income Suite and loge box ticket sales Total other event income Total event income, net Other Operating Income Select-A-Seat outside venues Suite and loge box agreements Club seat agreements Advertising and sponsorship Other income Total other operating income Total operating income Operating Expenses Net salaries and benefits Utilities General and administrative Operating Insurance Contracted services Repairs and maintenance Operational supplies Other Total operating expenses Increase in Net Assets Arising from Operating Activities Managed by SMG

1,787,869 1,854,180 (2,751,477) 890,572 1,468,530 342,828 207,065 8,401 2,026,824 2,090,840 660,997 2,751,837 5,669,233

194,758 774,229 107,291 246,051 13,662 1,335,991 7,005,224

2,929,143 745,037 582,068 237,322 140,037 191,506 145,201 22,746 1,428 4,994,488 $ 2,010,736

See Notes to Special-Purpose Financial Statements

The Operations of INTRUST Bank Arena, as Managed by SMG


Special-Purpose Statement of Changes in Net Assets Year Ended December 31, 2010

Net Assets, January 1, 2010 Increase in net assets arising from operating activites managed by SMG Accrued distributions to Sedgwick County Accrued distributions to SMG Net Assets, December 31, 2010

2,010,736 (1,116,442) (894,294) $ -

See Notes to Special-Purpose Financial Statements

The Operations of INTRUST Bank Arena, as Managed by SMG


Special-Purpose Statement of Cash Flows Year Ended December 31, 2010

Operating Activities Increase in net assets arising from operating activities managed by SMG Changes in Accounts and notes receivable Inventories Advance ticket sales Deferred income Accounts payable and accrued expenses Prepaid expenses Net cash provided by operating activities Financing Activities Payments on advance from SMG corporate Net cash used in financing activities Increase in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year

2,010,736 699,454 (39,126) (3,136,542) 13,657 841,650 8,568 398,397

(250,000) (250,000) 148,397 4,117,442 $ 4,265,839

Reconciliation of Cash and Cash Equivalents to the Special-Purpose Statement of Assets, Liabilities and Net Assets Cash and cash equivalents Restricted cash Total cash and cash equivalents Supplemental Cash Flow Information Distributions accrued to Sedgwick County Distributions accrued to SMG Total distributions

2,687,444 1,578,395 4,265,839

1,116,442 894,294 2,010,736

See Notes to Special-Purpose Financial Statements

The Operations of INTRUST Bank Arena, as Managed by SMG


Notes to Special-Purpose Financial Statements December 31, 2010

Note 1:

Nature of Operations and Summary of Significant Accounting Policies

Nature of Operations Sedgwick County, Kansas (the County) entered into a management agreement (the Agreement) with SMG to manage the operations of INTRUST Bank Arena (the Arena) in Wichita, Kansas through December 31, 2015. Basis of Presentation The accompanying special-purpose financial statements have been prepared on the accrual basis of accounting and include transactions managed by SMG in accordance with the Agreement, measured in conformity with accounting principles generally accepted in the United States of America. Accordingly, the special-purpose financial statements include the following: Property, plant and equipment and related equity associated with the Arena or certain activities of the County related to the Arena that are not part of the activities managed by SMG are excluded from the financial statements. The special-purpose statement of operating revenues and operating expenses includes revenue and expenses as defined in the Agreement and excludes allocation of net operating profits or losses to the County and SMG as discussed in Note 3. Gross food and beverage revenue totaling $2,898,000 are reported in the special-purpose statement of operating revenues and operating expenses net of related food and beverage expenses totaling $1,430,000. Accounting principles generally accepted in the United States of America would typically require gross revenue and expense presentation for food and beverage operations managed by SMG.

Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents The financial institution holding the Arenas cash accounts is participating in the FDICs Transaction Account Guarantee Program. Under that program, through December 31, 2010, all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Cash equivalents consist primarily of money market funds.

The Operations of INTRUST Bank Arena, as Managed by SMG


Notes to Special-Purpose Financial Statements December 31, 2010

Effective July 21, 2010, the FDICs insurance limits were permanently increased to $250,000. At December 31, 2010, the Companys interest-bearing cash accounts exceeded federally insured limits by approximately $1,027,000. Restricted Cash Cash received from advanced ticket sales are considered restricted until completion of an event. Accounts Receivable The majority of accounts receivable are due from promoters, sponsors, premium seating holders and other businesses which use the Arena. Accounts receivable are due within 30 days and are stated at amounts due from customers, net of an allowance for doubtful accounts. Accounts outstanding longer than the contractual payment terms are considered past due. The Arena determines its allowance for doubtful accounts by the length of time trade accounts receivable are past due and its analysis of the customers ability to pay. The Arena writes off accounts receivable when they are deemed uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. Inventory Inventory, which consists of food and beverage items and other supplies, is stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method. Advance Ticket Sales and Deposits A liability is recorded for cash received from ticket sales in advance of an event. These funds are deposited in an escrow account and remitted to the licensee upon completion of an event, net of applicable building expenses and fees. Deferred Income Deferred income is comprised primarily of unearned revenue related to premium seating and sponsorships. Revenue is recognized upon completion of an event or ratably over the contract term. Event Revenue Event revenues are recorded, net of direct event expenses, upon the completion of the event. Accordingly, amounts received for advance ticket sales or deposits by promoters are recorded as advanced ticket sales until that time. Costs incurred prior to an event are recorded as prepaid expenses and charged to expense upon completion of the event. Revenues are presented net of any sales taxes collected from customers and remitted to governmental authorities.

The Operations of INTRUST Bank Arena, as Managed by SMG


Notes to Special-Purpose Financial Statements December 31, 2010

Ancillary Revenues Ancillary revenues are recognized, net of direct expenses, when earned. Food and beverage and novelty revenues related to third-party vendors are based on contractually determined percentages of gross receipts collected by the vendors. Other Operating Revenue Other operating revenues include revenues associated with other miscellaneous items not included in event or ancillary revenues. Exchange of Goods and Services In the normal course of operations and in accordance with industry custom, the Arena trades tickets, advertising and other services for goods and services from some of its suppliers. These transactions are recorded at estimated fair values when the goods and services are received. Subsequent Events Subsequent events have been evaluated through March 10, 2011, which is the date the financial statements were available to be issued.

Note 2:

Sponsorship Contracts and Premium Seating Licenses

The Arena has entered into sponsorship agreements with various business entities. The businesses contribute funds in support of the Arena in return for recognition and acknowledgment through advertising at the Arena. These agreements range from one to ten years. Additionally, the Arena leases Suites, Loge Boxes, and Club Seats for multi-year periods, as follows: Suite holders have the option of a 5, 7, or 10-year term; Loge Box holders have the option of a 3, 5, or 7-year term; and Club Seat holders have the option of a 2 or 5-year term. Revenue remaining to be recognized by the Arena as a result of these agreements as of December 31, 2010, is as follows:
Sponsorship 2011 2012 2013 2014 2015 Thereafter $ 533,633 514,127 512,231 510,364 512,274 2,068,780 $ Suites 602,922 614,736 627,138 640,158 337,224 2,661,396 Loge Boxes $ 247,900 258,271 57,868 58,687 46,770 79,724 749,220 Club Seats $ 202,246 55,930 58,750 61,711 378,637 $ Total 1,586,701 1,443,064 1,255,987 1,270,920 896,268 4,809,900

$ 4,651,409

$ 5,483,574

$ 11,262,840

The Operations of INTRUST Bank Arena, as Managed by SMG


Notes to Special-Purpose Financial Statements December 31, 2010

Note 3:

Management Agreement

On August 1, 2007, SMG and the County entered into a long-term management agreement which allows SMG to manage the operations of INTRUST Bank Arena through December 31, 2015. Under the Agreement, any decrease in net assets arising from operating activities managed by SMG (defined as net operating losses in the Agreement) for any given year is absorbed entirely by SMG. Annual increases in net assets arising from operating activities managed by SMG (defined as net operating profit in the Agreement), are allocated between SMG and the County as follows: First, to the extent that SMG has funded any net operating losses in any prior fiscal years, net operating profits are distributed to SMG until such funded losses have been fully recouped; Second, the next $450,000 of net operating profit is allocated to SMG; Third, the next $450,000 is allocated to the County; Fourth, capital improvements projects or capital equipment expenditures, as defined in the Agreement, incurred by the County in excess of $250,000 are allocated to the County; Fifth, any remaining net operating profits are allocated 60% to the County and 40% to SMG.

The payment of the amounts as described above is due to the County and SMG within 30 days after the delivery of the audited financial statements to the County. The audited financial statements are due to the County within 90 days of the Arenas fiscal year-end.

Note 4:

Arena Use License Agreements

On March 12, 2009, SMG entered into an Extended Use License Agreement with WIHO, LLC (d/b/a Wichita Thunder Professional Hockey) (the Thunder). Under the agreement, the Thunder will have access to the Arena for games and practice sessions for the 2009-2010 season through the 2019-2020 season. The Thunder will pay a license fee for each home game plus certain event related expenses.

The Operations of INTRUST Bank Arena, as Managed by SMG


Notes to Special-Purpose Financial Statements December 31, 2010

Note 5:

Retirement Plan

Employees of SMG participate in the SMG Retirement and Savings Plan, a 401(k) defined contribution plan covering SMG employees who have completed one year of work and 1,000 hours of service. At SMGs discretion, the Arena may make matching contributions up to a maximum of 5% of eligible compensation. Additionally, the Arena may make profit sharing contributions of 1% of eligible compensation and, at SMGs discretion, may make additional annual discretionary contributions. Profit sharing contributions are made for eligible participants over the age of 21 who have completed 1,000 hours of service in the current plan year and who are employed as of the last day of the plan year. Matching contributions totaled $3,845 for 2010.

Note 6:

Related Party Transactions

During 2009, the Arena borrowed $250,000 from SMG corporate which was used to assist with funding of operations. The borrowed amount was paid in full in March 2010.

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