CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL INFORMATION Community Arena Management, Ltd. and Subsidiaries Years Ended June 30, 2013 and 2012 With Report of Independent Auditors Ernst 8. Young LLP ill YOUNG Community Arena Management, Ltd. and Subsidiaries Consolidated Financial Statements and Supplemental Information Years Ended June 30, 2013 and 2012 Contents Report of Independent Auditors ..1 Consolidated Financial Statements Consolidated Balance Sheets ..3 Consolidated Statements of Comprehensive Loss ..4 Consolidated Statements of Members? De?cit ..5 Consolidated Statements of Cash Flows ..6 Notes to Consolidated Financial Statements ..7 Supplemental Information Report of Independent Auditors on Supplemental Information ..l3 Reconciliation of Net Loss as De?ned in Bexar County Operating Agreement .. 14 l308-l 124950 Frost Bank Tower Suite 1800 100 West Houston Street San Antonio, TX 78205 Tel: +1 210 228 9696 Fax: +1 210 242 7252 YOUNG Report of Independent Auditors The Members Community Arena Management, Ltd. and Subsidiaries Report on the Financial Statements We have audited the accompanying consolidated ?nancial statements of Community Arena Management, Ltd. and Subsidiaries (collectively, the Partnership), which comprise the consolidated balance sheets as of June 30, 2013 and 2012, and the related consolidated statements of comprehensive loss, members? de?cit, and cash ?ows for the years then ended, and the related notes to the consolidated ?nancial statements. Management?s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated ?nancial statements in conformity with US generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of ?nancial statements that are free of material misstatement, whether due to fraud or error. Auditor?s ReSponsibility Our responsibility is to express an opinion on these consolidated ?nancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated ?nancial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ?nancial statements. The procedures selected depend on the auditor?s judgment, including the assessment of the risks of material misstatement of the ?nancial 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 ?nancial 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 signi?cant accounting estimates made by management, as well as evaluating the overall presentation of the ?nancial statements. 1303-1 t24950 YOUNG We believe that the audit evidence we have obtained is suf?cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the ?nancial statements referred to above present fairly, in all material respects, the consolidated ?nancial position of Community Arena Management, Ltd. and Subsidiaries at June 30, 2013 and 2012, and the consolidated results of their Operations and their cash ?ows for the years then ended, in conformity with US. generally accepted accounting principles. 5W 1' Mn? October 16, 2013 Id 1308-] 124950 Community Arena Management, Ltd. and Subsidiaries Consolidated Balance Sheets June30 2013 2012 Assets Current assets: Cash and cash equivalents 755,109 1,847,293 Trade accounts receivable (net of allowance for doubtful accounts of $65,352 in 2013 and 2012) 615,929 280,935 Accounts receivable related parties 8,098,717 6,035,090 Cash held for event promoters 2,379,539 5,370,994 Restricted cash 2,611,458 1,296,561 Prepaid expenses and other current assets 287,969 229,327 Total current assets 14,748,721 15,060,200 Furniture, equipment, and building improvements, net 152,793 307,232 Total assets 8 14,901,514 15,367,432 Liabilities and members? de?cit Current liabilities: Trade accounts payable and other accrued expenses 2,574,929 2,370,466 Promoter payable 2,379,539 5,3 70,994 Accounts payable related parties 89,924,396 80,443,665 Uneamed other revenues 826,844 381,986 Renewal and replacement fund 2,154,801 1,257,898 Total current liabilities 97,860,509 89,825,009 Members? de?cit (82,958,995) (74,457,577) Total liabilities and members" de?cit 8 14,901,514 15,367,432 See accompanying notes. 1308-1 124950 3 Community Arena Management, Ltd. and Subsidiaries Consolidated Statements of Comprehensive Loss Year Ended June 30 2013 2012 Revenues: Franchise-related income 1,710,767 813,802 Non-?anchise-related income 2,701,696 2,137,022 Facility fee 1,563,541 1,496,076 Local broadcasting and advertising 250,650 44,000 Other 741,088 1,563,920 6,967,742 6,054,820 Costs and expenses: Salaries 4,063,137 3,684,141 Building services 7,724,093 6,163,144 Insurance 652,843 683,733 Travel 23,140 29,604 Of?ce rent and expenses 1,782,561 1,968,561 Legal 54,036 78,866 Renewal and replacement expense 1,000,000 1,000,000 15,299,810 13,608,049 Loss before depreciation (8,332,068) (7,553,229) Depreciation of furniture, equipment, and building improvements 169,350 166,1 15 Net loss (8,501,418) (7,719,344) Comprehensive loss 8 (8,501,418) (7,719,344) See accompanying notes. 1308-] 124950 4 Community Arena Management, Ltd. and Subsidiaries Consolidated Statements of Members? De?cit Balance at June 30, 2011 (66,738,233) Net loss (7,719,344) Balance at June 30, 2012 (74,457,577) Net loss (8,501,418! Balance at June 30, 2013 5 $2,958,995! See accompanying notes. 1303-1124950 5 Community Arena Management, Ltd. and Subsidiaries Consolidated Statements of Cash Flows Operating activities Net loss Adjustments to reconcile net loss to net cash used in Operating activities: Depreciation Changes in assets and liabilities: Trade accounts receivable Accounts receivable related parties Cash held for event promoters Prepaid expenses and other current assets Trade accounts payable and other accrued expenses Promoter payable Renewal and replacement fund Restricted cash Unearned other revenue Net cash used in operating activities Investing activities Purchases of ?Jrniture, equipment, and building improvements Net cash used in investing activities Financing activities Advances from general partners Net cash provided by ?nancing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year See accompanying notes. l308-l l24950 Year Ended June 30 2013 2012 5 (8,501,418) (7,719,344) 169,350 166,1 15 (334,994) 458,330 (2,063,627) (1,977,430) 2,991,455 (1,899,851) (58,642) (62,382) 204,463 (625,900) (2,991,455) 1,899,851 896,903 1,048,076 (1,314,897) (1,231,144) 444,858 63,004 (10,558,004) (9,880,675) (14,911) (16,828) (14,911) (16,828) 9,480,731 6,753,275 9,480,731 6,753,275 (1,092,184) (3,144,228) 1,847,293 4,991,521 755,109 1,847,293 Community Arena Management, Ltd. and Subsidiaries Notes to Consolidated Financial Statements June 30, 2013 1. Summary of Signi?cant Accounting Policies and Practices Principles of Consolidation The consolidated ?nancial statements for Community Arena Management, Ltd. and Subsidiaries (the Partnership) include the ?nancial statements of Community Arena Management, Ltd. (CAM) and its wholly owned subsidiaries, Community Facility Management, L.L.C. (CFM) and Community Arena Security, L.L.C. (CAS). The Partnership is wholly owned by its general partners, 99%-owner San Antonio Spurs, L.L.C. (Spurs) and l%-owner SA Manager, L.L.C. (SA Manager). All signi?cant intercompany balances and transactions have been eliminated in consolidation. Description of Business Community Arena Management, Ltd., a Texas limited partnership, was formed in January 2000 for the purpose of managing and operating the Center in San Antonio, Texas, including booking events, performing building maintenance and repairs, and making capital improvements to the Center. CFM was formed in January 2003 for the purpose of managing, operating, and maintaining the Northwoods Ice Center. CAS was formed in October 2003 for the purpose of administering certain security and traf?c services at the Center. Use of Estimates Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these consolidated ?nancial statements in conformity with US. generally accepted accounting principles. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include all cash balances and highly liquid investments with a maturity of three months or less from the purchase date. 1308-] 124950 Community Arena Management, Ltd. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. Summary of Signi?cant Accounting Policies and Practices (continued) Cash Held for Event Promoters Cash held for event promoters is cash received from ticket sales for Center events that is payable to third-party event promoters. The corresponding liability is recorded in promoter payable on the consolidated balance sheets. Accounts Receivable The Partnership provides an allowance for doubtful receivables after considering factors that might affect the collection of accounts receivable and the ability of the party to meet its obligation. Furniture, Equipment, and Building Improvements Furniture, equipment, and building improvements are stated at cost. Depreciation of furniture and equipment is calculated using the straight-line method over ?ve years. Depreciation of building improvements is calculated using the straight-line method over the estimated useful life of the asset or lease term, whichever is shorter. Revenue Recognition The principal sources of revenue earned by the Partnership are related to franchise and non- franchise income and the facility fee. Franchise-related income is related to amounts paid, net of expenses incurred, to CAM from the Spurs, San Antonio WNBA Basketball, L.L.C. (Silver Stars), and San Antonio Hockey, L.L.C. (SA Hockey) for use of the Center for games. Non-franchise-related income is related to concerts and other events held at the Center when it is not being utilized by the franchises. The facility fee is a $1 fee added to every ticket sold and car parked at the Center, up to $1,000,000, based upon an agreement with Bexar County. The facility fee also includes income related to traf?c services. Revenue is recognized as income at the time services/events occur. The Partnership receives advance payments from sales and deposits. These advance payments are not recognized as income until the time services/events occur. 1308-1124950 3 Community Arena Management, Ltd. and Subsidiaries Notes to Consolidated Financial Statements (continued) 1. Summary of Signi?cant Accounting Policies and Practices (continued) Advertising Costs Advertising costs are expensed as incurred. For the years ended June 30, 2013 and 2012, CAM expensed $216,710 and $184,541, respectively, in advertising costs. Income Taxes No provision for federal income taxes has been made in the accompanying consolidated ?nancial statements as such taxes are the liability of the individual members of the general partners. 2. Center In accordance with the Operating Agreement between CAM and Bexar County dated August 22, 2000, CAM will pay the county an annual license fee of $1.3 million for a term of 25 years, which is payable in semiannual installments that began January 15, 2003. During 2013 and 2012, CAM recorded $1.3 million in annual license fees in of?ce rent and expenses in the consolidated statements of operations. In addition, CAM contributes $1 million per year toward a renewal and replacement fund for the Center, which is re?ected as renewal and replacement expense in the consolidated statements of comprehensive loss. Funding of the renewal and replacement fund commenced 1 year and 90 days from the operations start date of the Center, which was October 18, 2002, and is payable in quarterly installments of $250,000. The San Antonio Livestock Exposition contributed $300,000 per the terms of the agreement for a grand total of $1.3 million contributed to the renewal and replacement ?md for each of the years ended June 30, 2013 and 2012. Amounts contributed toward the renewal and replacement ?md are re?ected as restricted cash, with a corresponding liability on the consolidated balance sheets, until such amounts are expended. There was a restricted cash balance related to the renewal and replacement fund of $2,611,458 and $1,296,561 at June 30, 2013 and 2012, respectively. Expenditures in excess of cumulative amounts contributed to the renewal and replacement fund are re?ected as prepaid expenses and other current assets on the consolidated balance sheets. 1308-! 124950 9 Community Arena Management, Ltd. and Subsidiaries Notes to Consolidated Financial Statements (continued) 3. Furniture, Equipment, and Building Improvements Furniture, equipment, and building improvements consist of the following at June 30: 2013 2012 Furniture 276,319 286,653 Equipment 496,921 615,805 Building improvements 1,385,189 1,3 85,189 2,158,429 2,287,647 Less accumulated depreciation 2,005,636 1,980,415 Net fumiture, equipment, and building improvements 8 152,793 307,232 4. Employee Bene?t Plans The Partnership?s employees are covered under the San Antonio Spurs 401(k) Savings Plan (the Plan). Employees are eligible to participate in the Plan after 6 months of employment and must have 1,000 hours of service within 12 consecutive months. A plan participant may elect to defer up to 20% of his or her compensation for the plan year. Each plan year, the Partnership will determine whether to make a discretionary matching contribution. Participants are 100% vested in their election deferrals and vest in the Partnership?s matching contribution over three years of service. Contributions made by the Partnership for the years ended June 30, 2013 and 2012, were $88,086 and $92,948, reSpectively. 5. Related-Party Transactions On October 12, 2001, CAM executed an agreement with Aramark Sports and Entertainment Services of Texas, Inc. (Aramark), a 10.6% owner of the Spurs and a third party, to operate the food and beverage business, including concessions, souvenirs, clubs, restaurants, and catering services in the Center. The contract term is 20 years beginning on the date of the ?rst public event held in the Center. In accordance with the agreement, Aramark pays commissions and a maintenance fee to CAM based on gross receipts from concessions and souvenir sales. Concession and souvenir revenue described above and parking revenue are then allocated by CAM to the Spurs, Silver Stars, and SA Hockey based on the Spurs License Agreement dated August 22, 2000, between CAM, the Spurs, and Bexar County. For the years ended June 30, 2013 and 2012, CAM recorded net concession and souvenir revenue of $1,131,750 and $977,091, respectively, and such amounts are included in non-franchise-related income in the accompanying consolidated statements of comprehensive loss. 1303-1 124950 10 Community Arena Management, Ltd. and Subsidiaries Notes to Consolidated Financial Statements (continued) 5. Related-Party Transactions (continued) For the years ended June 30, 2013 and 2012, CAM recorded $1,000,000 of revenue collected by the Spurs, Silver Stars, and SA Hockey, which represents $1 for each paid parked car and paid ticket per the Operating Agreement between CAM and Bexar County dated August 22, 2000, which states that CAM is entitled to up to $1,000,000 of the revenue generated from the $1 surcharge and any amount over $1,000,000 is paid to the Spurs. These amounts are re?ected in facility fee revenue in the accompanying consolidated statements of comprehensive loss. Also included in the facility fee revenue is $563,541 and $496,076 in 2013 and 2012, respectively, collected by the Spurs, Silver Stars, and SA Hockey for traf?c services, which represents $0.35 for each paid ticket. For the years ended June 30, 2013 and 2012, CAM recorded $781,690 and $771,318, respectively, of franchise-related income as a result of an allocation of suite revenue from the Spurs. The net reimbursement for direct costs from the Spurs, Silver Stars, and SA Hockey resulted in losses of $876,982 and $42,484 for the years ended June 30, 2013 and 2012, respectively. Accounts receivable? related parties include $679,620 and $396,777 in 2013 and 2012, respectively, from Aramark for concession and souvenir commissions. The related-party balances for 2013 and 2012 also include $2,880,263 and $2,567,980, respectively, net of payables, from SA Hockey for game reimbursements; $1,723,157 and $1,567,962, respectively, net of payables, from the Silver Stars for game reimbursements; and $12,793 and $12,793, respectively, net of payables, from the Austin Toros for game reimbursements. Interest is not charged on the intercompany receivable balances. The related-party balances also includes operating advances, game-day parking, ticket revenue, and concession and souvenir commissions payable to the Spurs of $87,121,542 and $78,953,941 in 2013 and 2012, respectively. Interest is not charged on the intercompany payable balance. 6. Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. The Partnership is a defendant in various matters of litigation that have arisen in the ordinary course of managing and operating the Center. In the Opinion of management, the disposition of such pending litigation will not have a material effect on the Partnership?s ?nancial position. 1303-1124950 1 Community Arena Management, Ltd. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. Operating Leases CAM entered into an operating lease agreement for equipment, which commenced on May 22, 2008. The lease term is ?ve years at a rate of $55,764 per year. The lease was extended on May 22, 2013, for an additional ?ve years. The payment of the lease is $4,647. The lease requires CAM to pay for all taxes, insurance, and general maintenance, and includes an option to purchase the equipment at fair market value at the end of the lease term. Rent expense for both years ended June 30, 2013 and 2012, was $55,764. 8. Subsequent Events The Partnership has determined that there are no subsequent events that would require disclosure or adjustments to the accompanying consolidated ?nancial statements through October 16, 2013, the date the accompanying consolidated ?nancial statements were available to be issued. 1303-1124950 1 1 Supplemental Information l308-l l24950 ll Ernst 8. Young LLP Frost Bank Tower Suite 1800 100 West Houston Street San Antonio. TX 78205 Tel: +1 210 228 9696 Fax: +1 210 242 7252 Report of Independent Auditors on Supplemental Information The Members Community Arena Management, Ltd. and Subsidiaries Our audits were conducted for the purpose of forming an Opinion on the consolidated ?nancial statements taken as a whole. The supplemental information is presented for purposes of additional analysis and is not a required part of the consolidated ?nancial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated ?nancial statements. The information has been subjected to the auditing procedures applied in our audits of the consolidated ?nancial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated ?nancial statements or the consolidated ?nancial statements themselves, and other procedures in accordance with auditing standards generally accepted in the United States. In our opinion, the information is fairly stated in all material respects in relation to the consolidated ?nancial statements as a whole. Mu? October 16, 2013 1308-1124950 I 3 Community Arena Management, Ltd. and Subsidiaries Reconciliation of Net Loss as De?ned in Bexar County Operating Agreement June 30, 2013 Net loss 33 (8,501,418) Adjustments per county agreement Revenue adjustments: Facility fee 1? (1,000,000) Expense adjustments: License fee 1,300,000 Renewal and replacement expense 1,000,000 Depreciation (4) 169,350 Adjusted net loss (7,032,068) (1) One dollar per paid ticket and parked car is not allowed per county agreement. License fee to county speci?cally is not included per county agreement. (3) Contribution to renewal and replacement ?nd is not allowed per county agreement. (4) Depreciation expense is not included per county agreement. 1308-1l24950 14