Louisiana Horsemen's Benevolent and Protective Association...

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LOUISIANA HORSEMEN^S BENEVOLENT AND PROTECTR^ ASSQCUTION 1993. INC.

AND SUBSroLlRIES NEW ORLEANS. LOUISIANA

CONSOLroATED FINANCIAL STATEMENTS

DECEMBER 31.2010 AND 2009

under provisions of state law th.s report'S a public KentAcopyofthereporthasbeensu^^^^^^^^^^^ the entity and other appropnate put lic offiaals 1 he report s available for public inspection at the Baton RougeoLeoftheLegislativeAuditorand^wher^^ appropriate, at the office of the parish clerk of court

K e , e a s e O a t e _ _ M A R 2 l 2 0 1 L

• r a l A i Postlethwaite ^4?H^i &Netterville A Profttsiignal Acco«nttng Coipoioi*or»

www pncpiT com

LOUISLVNA HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993, INC.

AND SUBSIDIARIES NEW ORLEANS, LOUISIANA

CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 3L 2010 AND 2009

LOUISLVNA HORSEMEN'S BEIVEVOLENT AND PROTECTIVE ASSOCIATION 1993, INC.

AND SUBSIDIARIES

TABLE OF CONTENTS

Page

INDEPENDENT AUDITORS' REPORT 1-2

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Fmancial Position 3

Consolidated Statements of Activities 4

Consolidated Statements of Cash Flows 5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6-21

SUPPLEMENTAL INFORMATION

Consolidatmg Statements of Position 22-23

Consolidatmg Statements of Activities 24-25

REPORT OK INTERNAL CONTROL OVER FINANCLVL REPORTING AND 26-27 ON COMPLIANCE AND OTHER MATTERS BASED ON AN AUDIT OF FINANCLVL STATEMENTS PERFORMED IN ACCORDANCE WITH GOVERNMENT A UDITING STANDARDS

SCHEDULE OF FINDINGS AND OUESTIONED COSTS 28-29

SCHEDULE OF PRIOR YEAR FINDINGS AND OUESTIONED COSTS 30-33

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INDEPENDENT AUDITORS' REPORT

The Board of Directors Louisiana Horsemen s Benevolent and Protective Association 1993. Fnc

We have audited the accompanying consohdated statements of financial position of Louisiana Horsemen's Benevolent and Protective Association 1993, Inc and Subsidiancs, a non-profit organization (LAHBPA 1993 Inc) as of December 31, 2010 mid 2009, and tlie related consolidated statements of activities and cash flows for the ye irs ihen ended These consolidated financial statements are die responsibilit}' of LAHBPA 1993 Inc '% management Our responsibility is to express an opinion on these cunsohdaled financial statements based on our audits We did not audit the financial t;tatements of Horsemen's Insurance Alliance, SPC (HIA). a wholly-owned subsidiary, which statements reflect lotal assets of $3,821 638 as of December 31, 2009 and total revenues of $2,397,473 for die year ended December 31, 2009 Those statements were audited by other auditors whose report has been furnished to vs and our opmion, msofar as it relates to the amounts mcluded for Horsemen's Insurance Alliance, SPC, 1$ based solely on ilie import of the oilier auditors

We conducted our audits in accordance with auditing standards generally accepted m the United States of America and the standards applicable to financial audits contained m Government Auditing Standards issued by tlie Comptroller General of the United States Those standards require that we plan and perform the audits to obtam reasonable assurance about whether tlie consolidated financial statements are free of matenal misstatement An audit mcludes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropnate in the circumstances, but not for the purpose of expressing an opmion on the efTectiveness ofLAHBPA 1993 Inc "s mtcnial control over fmancial reporting Accordingly, we express no such opinion An audit includes examining, on a lest basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting pnnciples used and significant estimates made b> management, as well as evaluatmg ihe overall financial statement presentation We believe that our audits provide a reasonable basis for our opinion

In our opinion, based on our audits and the rejxirt of the oilier auditors, the consolidated financial statements leferied to above present fairly, m all fnaterial respects, the financial position of Louisiana Horsemen's Benevolent and Protective -Association 1993, Inc and Subsidiaries as of Decemt>er 31 > 2010 and 2009, and the changes in net assets and cash flows for the \enrs then ended m conformity vviih accounting principles generally dccepied m the United Stales of America

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30th riocr-Energy Centre • 1100 Poyaras Street • MewOrlear^.LA 70163-3000 - Tel 5045532975

One Gsllena Blv i , Suite 2100 • Metaine. U\ 70001 • Tel 504 837 5990 • Fax 504 834 3609

In accordance with Government Auditing Standards, we have also issued our report dated October 17, 2011 on our consideration of the Louisiana Horsemen's Bene\olent and Protective Association 1993, Inc. and Subsidianes' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and other matters The purpose of that report is to descnbe the scope of our testing of internal control over financiaJ reporting and compliance and the results of that testing, and not to provide an opmion on the internal control over financial reportmg or on compliance That report is an integral part of an audit performed in accordance with Government AiidUmg Staridards and should be considered in assessing the results of our audit

Our audits were conducted for the purpose of forming an opinion on tlie financial statements as a whole. The Supplementary Infonnation included on pages 23 tlirough 25 is presented for purposes of additional analysis and is not a required part of the fmancial statements Such information is the respon5ibilit> of management and was denved from and relates directly lo the underlymg accountmg and other records used lo prepare the fmancial statements, Ihe information has been subjected to the auditmg procedures applied in the audits of the financial statements and certam additional procedures, mcludmg comparing and icconcilmg such infonnation diiectly to the underlymg accountmg and other records used to prepare the financial statements or to the financial statements themselves and other additional procedures in accordance with auditing standards generally accepted m the United States of Amcnca. In our opinion, the information is fairly slated ui all matenal respects in relation to the financial staterae?its taken as a whole

f & d M ^ ) ^ }-AliMiHM MetainCj Louisiana October 17,2011

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LOUISIANA HORSEMEN S BENEVOLENT AND PROTECTIVE 4SSOCTATyON 1993, TNC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FIN\NCIAL POSITION DECEMBER 31, 2010 AND 2009

ASSE'lb

2010 2009

LIABILITIES AND NET ASSETS

LiabihUei Accounts payable and accrued expenses Reserve for losses and loss adjustment expenses Losses payable Unearned premiums - workers' compcnsaUon Due to related parties

Total liabilities

Net assets. Unrestricted - workers' compensation program Unrestricted - LAHBPA 1993 Inc

Total net assets

Total liabdities and net assets

Sec accompanying notes to financial statements

Assets Cash and cash equivalents S 478,855 $ 92,748 Claims escrow funds 2,197.166 2,338,081 2% fees receivable - workers' compensation program 105.506 72,505 Accounts receivable * workers' compensation program 92,482 171,326 Prcmmm receivable 51,200 51,200 Prepaid expenses 365,723 338,299 Deferred ceding commission 220,733 220,678 Restricted cash - workers' compensation program 2,829 922 3,963,658 Due from related parties 179.641 95,385 Investments 129 301 176,578 Property and equipment, net 439 524 459,471

Total assets $ 7,090,053 $ 7.979.929

$ 156,584

3,243,287

135,677

410,824

1,143,799

5,090,17!

1,661,488

358.394

1,999 882

S 7,090,053 ::—..;: -ii..,.v :..La;!.;..:i'raLm=!iai =

$ 160.177

2,280,828

248,385

379,556

990,781

4,059 727

3,688,001

232,201

3,920,202

$ 7,979,929

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LOUISIANA HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993. TNC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF ACTIVITIES DECEMBER 3L 2010 AND 2009

2010 2009 Revenue and olher support

Workers' compensation premiums 2% workers' compensation revenue Investment income - Horsemen's Bookkeeper Investment return Pon> lead fees Management fee mcome Jocke> payroll and NSF fees Undenvriting mcome Other mcome

Total revenue and other support

$ 2.600,636

963,386

371,240

23,539

415,917

1,050.000

17,210

1,846,893

66,569

$ 7.355.390

$ 2,933.126

1,026,987

388,039

40,922

375,105

L050,000

16,164

1,822,718

2.593

S 7,655,654

Expenses Workers' compensation and underwriting program expenses Support services

Total expenses

Change in net assets

Net assets, beginning of year

Net assets, end of year

S 5,926,995 3,348 715

9.275,710

(1,920,320)

3.920.202

! 999,882

S 5 379,215

3,328,747

8,707,962

(1,052,308)

4,972,510

$ 3,920,202

Sec accompanying notes to financial statements.

LOUISIANA HORSEMEN S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993, INC.

AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS DECEMBER 31. 2010 AND 2009

Cash flows from operating activities Change in net assets Adjustments to reconcile change in net assets

to net cash provided by (used in) operating activities Depreciation Realized and unrealized gain on investments

>Jet change in operating assets and liabilities Decrease (increase) in 2% fees receivable Decrease in accounts receivable - workers' compensation Increase in premium receivable Increase m prepaid expenses Decrease (increase) in deterred ceding commission Decrease (increase) in claims cscrovN' funds Increase (decrease) in accounts payable and accrued expenses hicrease in leserve for losses and loss adjustment expenses Increase (decrease) in losses payable Increase (decrease) in unearned premiums Increase in due to related parties

Nei cash used in operating activities

Cash flows from (used m) invesung activities Capital expenditures Proceeds from sale of investments

Net cash piovided by (used in) investing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Cash and cash equivalents, end of year

See accompanying notes to financial statements.

2010 2009

S (1,920,320)

80,278

(1,420)

(33,001)

•78,844

-

(27 424)

(55)

140,915

(3.593)

962 459

(112.708)

31,268

68,762

(735,995)

(60.331)

48,697

(11.634)

(747 629)

4,056.406

$ 3,308 777

$ (1,052 308)

86,954

(2,245)

19,712

964.038

23,347

(27.200)

24,597

(279,533)

126,290

697,608

128,161

(1,201,476)

471,089

(20.966)

.

100,857

100,857

79,891

3 976.515

$ 4,056,406

LOUISIANA HORSEMEN'S BENEVOLENT ANI> PROTECTEVIE ASSOCIATION 1993, IISC.

AND SUBSIDIARIES

NOTES TO CONSOLIPATED FTNANCIAL STATEMENTS

DECEMBER 31,2010 AND 2009 1. Significant Accounting Policies

Organization

1 he Louisiana Horsemen's Benevolent and Protective Association 1993, Inc. (LAHBPA 1993 Inc ) was formed for the purpose of protecting the interest of the horse owners and trainers, particularly as it i"elates to their relationships with the owners and managers of race tracks More specifically, LAI IBPA 1993 Inc operates with the express purpose * to foster, protect, represent, and promote the welfare and common interest of thoroughbred and quarter horse owners and trainers, to improve conditions in the horse racing industry, to improve relationships between horsemen^ other members of the racing industr>', and the general public m the Stale of Louisiana " LAJIBPA 1993 Inc mediates on behalf of individual members when problems arise with Kntity management or the Stale Racing Commission, negotiates fair distributions at race tracks, and monitors state and federal legislative developments in the interest of horsemen

With amendments to Louisiana Revised Statutes (LRS) 4251 and 252, LvVHBPA 1993 Lie fonned a wholly owned subsidiary, Horsemen's Alliance Holdings, Inc (HAH) which sen'es as the parent holding company for HorsemenVs In.surance Alliance SPC (HIA), which was incorporated m the Ca>man Islands and holds an hisurer's license, through which a workers compensation insurance program is marketed to the members ofLAHBPA 1993 Inc

HAH, was incorporated on June 30, 2006 in the state of Louisiana, and is the parent holding company for the HJA HIA was incorporated on June 23, 2006 in the Cayman Islands, as an exempted segregated portfolio company with limited liability and holds an Unrestricted Class *B"' insurer's license, subject to the provision of the Lisurance Law (2008) of Ihe Ca>man Islands HIA IS comprised of a general portfolio which carries no risk and one 'legregated ponlblio (Louisiana SP)

The pnncipal busmess of l^uisiana SP is lo provide reinsurance of the workers' compensation, occupational disease and employer's liability coverage issued by National Union Fire Insurance Company of Pittsburgh and other member companies of Chartis (the Reinsured) to LAHBPA 1993 Inc The limit of liabihty is $300,000 per occurrence and $3,040,000 in aggregate for the pohcy period ofJuly l,2009toJul\ L 2010 and July l,2010toJuly 1,2011

As more fullv described in Note 10, a standby letter of credit has been pledged by LAHBPA 1993 Inc in lavor of HIA to cover the Louisiana SP's capital requirement.

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LOUISTANA HORSEMEN'S BEIVEVOLENT AND PROTECTrVTi ASSOCIATION 1993, INC.

A ? ^ SUBSmiARTES

NOTES TO CONSOLIDATED FLNANCIAL STATEMENTS

DECEMBER 3 L 2010 AND 2009 1. Significant Accounliag Pohcics (continued)

LAHBPA 1993 Inc also administers a non-qualitled Pension Plan and a Medical Benefit Plan with scheduled benefits for its members and their dependents Although LAJ4BPA 1993 Inc managev'admimsters both Plans and shares overhead expenses, each Trust is a separate legal entity with Its own funding sources and operating expenses, separate and apart from LAJIBPA 1993 Inc 's operations LAHBPA 1993 Inc also maintains and serves as the disbursing agent for the Horsemen'b Bookkeeper Account which is the recipient of all Louisiana horse race purses for disbursement for the owners

Principles of Consolidation

fhe accompanying consolidated financial statements of the Louisiana Horsemen's Benevolent and Protective AssociaUon 1993, Inc and Subsidiaries include the accounts of the Louisiana Horsemen's Benevolent and Protective Association 1993, Inc, and its wholly owned subsidiar>', ILAH Also mcluded are the accounts of the HLA, a wholly owned subsidiary of the HAH All intercompany activities and transactions have been eliminated upon consolidation

Basis of Accounting

The financial statements have been prepared utilizing the accrual basis of accountmg and accordmgl) reflect all significant receivables, payables, and other liabilities

Financial Statement Presentation

The accompanying consohdated financial statements have been prepared on the accrual basis of accouiUmg m accordance with generally accepted accounting principles Net assets and re\enucs, expenses, gains, and losses arc classified based on the existence or absence of donor-imposed restrictions Accordmglv, net as cts of IAHBPA 1993 Inc and changes therein are classified and reported as follovss

• Unrestricted Net Assets - Net assets that arc not subject lo donor-imposed stipulations.

• Temporarily Restricted Net Asset s- Nel assets subject lo donor-imposed stipulations that may or will be met, either by actions ofLAHBPA 1993 Inc and or the passage of time

• Permanently Restricted Is et Assets - Net assets are subject to donor-unposed stipulations that thev be maintained permanently by LAHBPA 1993 Inc Generally, the donors of these assets permit LAHBPA 1993 inc to use all or part of the income earned on any related investments lor general or specific purposes

LOUISIANA HOR$EM£N\S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993. INC.

AND SUBSIDL\RIES

NOTES TO CONSOLIDATED FLNANCIAL STATEMENTS

DECEMBER 31,2010 AND 2009 L Significant Accounting Policies (continued)

Financial Statement Presentation (continued)

The statement of activities presents expenses of the organization's operations functionally between program services, fiind raising activities, and management and general Those expenses which cannot be functionally categonzcd are allocated between fimctions based upon management's estimate of usage applicable to conducting those functions.

Seareaated Portfolio Accounts

Fhe assets, liabilities, and equit>' of the Louisiana Segregated Portfolio (SP) are kept separate from the general assets of HIA. further, the assets and liabilities of the SP are kept segregated, separate. and separately identifiable from any olher segregated portfolio In the case of insolvency with respect to HlA's general busmess activities, creditors may be entitled to recourse only lo the extent of the friA^s general assets In the case of insolvency with respect to or attributable to a parliculai segregated portfolio, creditors may be entitled to have recourse only to firstly, specific segregated portfolio assets attnbutable to such segregated portfolio and secondK, HL\'s general assets to the extent that they exceed tlie minimum required capital as specified by Ca>man Islands Monetary Autliorit>' Such a claim shall not extend to the assets ailribuiable to any other segregated portfolio

Cash and Cash Lquivalents

For purposes of the Statements of Cash Flows, LAHBPA 1993 Inc considers all highly liquid investments with an initial maturit>^ of three months or less to be cash equivalents

Investments

Investments consist of certificates of deposit and a mutual fund Certificates of deposit are recorded at historical cost, which approximates fair value Mumal funds are recorded at fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability* in an orderly transaction between market participants at the measurement date

Purchases and sales of secunties are recorded on a trade-date basis Interest income is recorded on the accrual basis Dividends are recorded on the ex-dividend date. Net realized and unrealized gains (losses) include LAHBPA 1993 Inc s gams and losses on investments bought and sold as well as held durma the vear

LOUISIANA HORSEMEN^S BENEVOLENT ANT> PROTECTTVK ASSOCIATION 1993. INC

AND SUBSU>IARrES

NOTES TO CONSOLIDATED FINANCIAL STATEMXNTS

DECEMBER 31.2010 AND 2009 1. Significant Accounting Policies (continued)

Propert\^and Equipment

Property and equipment arc earned at cost LAHBPA 1993 Inc ':> puhc> ij) to capitalize property and equipment over S500 Depreciation is computed using the straight-line method over the estimated useful lives (3-10 years) of the respectne assets When assets are retired or otherwise disposed ofj the cost and the related accumulated depreciation are removed from the accounts and any resulting gam or loss is reflected m income for the penod fhe cost of mamienance and repairs is chaiged to expense as incurred, significant renewals, and bettennent are capitalized

Unearned Pretnmms

Unearned premiums represent advance workers' compensation premiums paid excluding the non-refundable minimum deposit of $1,000 as of I>;cember 31, 2010 and 2009

Reinsurance premiums are recognized on a pro rata basis of the policy terras The portion of premiums and ceding commissions that relate to future periods are deferred and recorded as unearned premiums and defened ceding commissions

Reserve for Losses and Loss-Ad|ustmcnt Expenses

Tlie reserve for losses and loss-adjuitment expenses mcludes amounts determined from loss reports and individual cases and an amount, based on the insured's loss histoiy and relevant industry data, for losses incurred but not yet reported The reserve is based on the estimated ultimate settlement cost of ail unpaid losses and loss-adjuslmem expenses incurred through December 31, 2010, and estimated mcurred but not yet reported Josses as of December 3 J, 2010, on a discounted basis An independent actuarial evaluation, performed m accordance with generally accepted actuarial principles, supported the adequacy of the HIA^s loss reserves. Such reserve is necessarily based on estimates and, while management believes that the amounts are adequate, the ultimate liabilit>' may be materially m excess of or less than the amount recorded The methods for making such estimates and for establishing the rt;i,ulting liability is continualh reviewed and any adjustments are rcfiected m the current eaniings See Note 4 for further discussion

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LOUISIANA HORSEIVlEN*S BENEVOLENT AND P R O T E C T I V T : ASSOCIATION 1993, TNC.

AND SUBSmiARIES

NO I ES TO CONSOLtDATED FINANCIAL STATEMENTS

DECEMBER 31.2010 AND 2009 1. Significant Acc«unting Policies (continued)

Revenue and other support

LAHBPA 1993 Inc is funded by the statutoi lly dedicated funds described in the Louisiana Revised Statute (La R S) 4 251 through 252. relative to workers' compensation insurance coverage These ftmds aie referred to in the financial statement** as 2% Workers' Compensation Revenue Pursuant to La R S 4252 (c)(5), LAHBPA 1993 Inc receives 2% of all purses and purse supplements available for purses for any race meets m Louisiana These funds are placed m a Reserve Fund and the totid sum of such levenues used is limited by State Statute As of August 15, 2008. these ftinds shall be utilized without die limitation and conditions previouslv established which are related to limited and repayments of such fund to purses, however, same are specifically limited to no more than 2% of the total amount of purses and purse supplements available for purses for an> race meeU Use of monies from the reserve fund shall be solely for the purposes of establishing, operating, and administering the Woikcrs' compensation fund as detailed in La R S Title 4*25IB (1)(2)(3)(4)(5)(6)

The Workers' Compensation Insurance Program also generates premium revenue for LAHBPA 1993 Inc Members ofLAHBPA 1993 Inc are charged a piemmm based on either the number of race starls or per payroll level if tlie member is a non-racmg farm

LAHBPA 1993 Inc is also funded by the investment mcome earned on deposits mamtamed m the Horsemen's Bookkeeper Account, as more fully described m Note 9

Income Taxes

LAHBPA 1993 hic. is a nonprofit organization exempt from income taxe^ under provisionb of the Internal Revenue Service Code Sections 501(c)(3), respectively, and the La R S , therefore, no provision has been made for fedeial and slate mcome taxes

LAHBPA 1993 Inc applies a "morc-likely-than-nof recognition threshold for all tax uncertainties Thi^ approach only allows the recognition of those tax benefits that have a greater than 50% percent likelihood of being sustained upon examination by the taxing authorities As a result of implememmg this approach, LAHBPA 1993 Inc has reviewed its tax positions and determined there were no outstanding, or retroactive tax positions v\'ith less than a 50% hkchhood of being sustained upon exammation by the taxing authorities, therefore the implementatjon of this standard has not had a material effect on LAHBPA 1993 Inc LAHBPA 1993 Tnc *s tax retunis for the years ended 2010, 2009 and 2008 remain open and subject to examination by taxing authorities

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LOUISIAJSA HORSE^yEN^S BENEVOLENT AND rROTECTl^HE ASSOCIATION 1993, QsC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


L Significant Accounting Policies (continued)

Income Taxes (continued)

HIA IS not subject to taxes on income or gains under Section 6 of the Cayman Islands Tax Concessions Law (Revised) Therefore, no provision for taxes has been made in these financial statements HIA intends to conduct its activities so as not to be subject to taxation in any other jui isdiction As a result of the above matters, no tax liability or expense has been recognized in the financial statements

Contributed Services

\ portion of LAHBPA 1993 Inc.'s functions are conducted by unpaid volunteer officers and committee members. The value of this contnbuled lime is not reflected m the accompanying financial statements since it is not susceptible to obiective measurement or valuation

Use of Estimates

The preparation ol financial slatemcnls m confonnily witli accounting pnnciples generally accepted in the United Stales of America requues management to make estimates and assumptions that affect certain reported amounts and disclosures Accordingly, actual results could differ from tiiose estunates

Reclassifications

Certain reclassifjcdtions have been made to prior year balance to confonn to the current year presentation

LOUISLINA HORSEMEN^S BENEVOLENT AND PROTECTIVE ASSOCLATION 1993, INC,

AND SUBSIDLARJES


DECEMBER 3K 2010 AND 20Q9

Investments

Investments are stated at fair value and consist of the following at December 31, 2010 and 2009 U finalized

December 3 L 2010 Mutual tund Certificaies of DcpoMi

Decembers], 2009 Mutual rutid Ccrufjcuics of Deposit

S

$

%

%

Cost 73J13 50.000

I23ai3

Cost 73,113

100 000 173.113

Fair Vajuc $ 76 501

52,800 % 129 301

Fair Value $ 75,522

101 0=56 $ 176 578

%m S 3,3SH

2 800 S 6188

\ itiraali/jjd

gam S 2.409

I.tl56 S 3 465

Ihc unrealized gams for the years ended December 3L 2010 and 2009 are mcluded withm kivestraent return on the Consolidated Statements of Activities

Claims Escrow Funds

At December 31, 2010 and 2009, the clauns escrow funds were held by W'ells Fargo Bank, N A and Chartis The fundi held by Wells Fargo Bank, N A are used to pay out clauns

3. Property' and Equipment

The following is a summary of the major classes of propcrt>' and equipment and the related depjeciation at December 31

2010 Land Building Building Improvements Fumimre and fixtures Computers Equipment Field Office Trailers

Total Less' Accumulated Depreciation Propert)" and Equipment, nel

2009 s no,Q0O

685,760

363,302

185,487

101,696

136.942

218,880

1.802,067

(1 361543)

S 439,524

$ 110,000

685,760

363.302

185,487

94,612

87,035

215,540

1.741736

(1,282,265)

S 459,471

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LOUISIANA HQRSEMEN^S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993, INC.

AND SUBSIDIARIES



3. Property and Equintncnt (conlinaed) Depreciation expense totaled $80,278 and $86,954 for the years ended December 31, 2010 and 2009, respectively

4. Reserve for Losses and Loss-Adiustment Expenses

Reserve for losses consists of the following at December 31, 2010 and 2009

2010 2009 Reported claims S 1,328,085 $ 549 J33 Incurred but not reported 1,915,202 L731.095

5 3,243,287 S 2,280 828

hicurred losses resulting from claims relating to insured events for prior years were adjusted during the >cars ended December 3L 2010 and 2009* due to changes in estimates of the ultimate settlement costs of such losses.

A claims manager advises HIA as to the tequired level of provision for claims reported on monthly statements. The reserve for tosses and loss-adjustment expenses has been detennined by management based upon the results of an actuarial stud> performed by GPW Actuarial Services* Inc, dated April 19, 2011 The total reserve for looses and loss-adjustment expenses are S3,243,287 and $2,280,828. at December 31, 2010 and 2009, respectively

While management considers the reserve for losses and loss-adjustment expenses adequate to t-over the estimated ultimate liability of HIA at the balance sheet dates, these provisions are estimates Consistent with most companies with similar insurance operations, HlA's reserve for losses and loss-adjustment expenses is ultimately based on management's reasonable expectations of future events It is reasonably pos<iib!e Uiat the expectations associated with these amounts could change in Ihc near term and ihal the effort of such changes could be matcnal to the fmancial statements

5. Shai-e Capital

Fhe authorized share capital of HLA is $50,000 divided into 1,000 voting ordinarv' shares with a nominal or par value of SI 00 per share and 49,000 non-votmg redeemable segregated portfolio shares with a nominal or par value of SI 00 per "ihare These intercompany activities and transactions have been eliminated upon con«;ohdation

HIA issued 1,000 \oiing ordinary shares and 1,000 I ouisiana SP shares to HAH

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LOUISIANA HORSEMKN^S BENEVOLENT AND FROTECTIVE ASSOCIATION 1993, EVC.

AND SUBSIDIARIES


DECEMBER 3L 2010 AND 2D09 6- Additional Paid-in Capital

Additional paid-in capital consists of capital contnbutions received over and above the par value of shares issued. Dunng the years ended December 31, 2010 and 2009, HIA received $455,000 and SI20.000 respectively, of additional paid-m capital through HAH from LAHBPA 1993 Inc. These intercompany activities and transactions have been eliminated upon consolidation

7, Workers' Compensation Insurance

As discussed in Notes 1 and 4, LAHBPA 1993 hic has established a Workers' Compensation Program (the Program) to provide accessible and affordable workers* compensation coverage for the benefit of its members as mandated under Act No. 309 of Louisiana Revised Statutes

During 2010 and 2009 coverage was provided by Chartis or one of its affiliated companies. For Louisiana domiciled participants and participants who meet a Louisiana racing test, coverage is extended lo other states while lemporarilv participating in horse racing and/or Training opeiattons. For other participants, coverage is provided while operating at the Louisiana Race Tracks and Louisiana recognized Training Centers Participants must obtain coverage through the Progrmn unless LAHBPA 1993 Inc declines to provide coverage In such case, tlie trainer must provide evidence that other worker's compensation msurance is in place in order to race in Louisiana

Louisiana domiciled participants and participants who meet a Louisiana racing test will pay premiums on a per start fee. There is a $40 charge deducted from the participant's account for instate domiciled participants Other participants are charged a fee of $60 pei start Quailer Horse and Thoroughbred farms are charged at a rate of 10% of their estimated annual payroll LAHBPA 1993 Inc collected S2,631,904 and $1,758,986 in premiums, of which $410,824 and $379,556 was reported as deferred revenue at December 3 L 2010 and 2009, respectively.

LAHBPA 1993 Inc/s workers' compensation msurance evpense was $3,292,176 and $2,944,272 for the years ended December 31, 2010 and 2009, respectively.

The funds generated by the Program are segregated and restricted for the use of the Program

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LOUISIANA HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993. INC. AND SUBSIDU.RIES



8. Related Party Transactions

Li\HBPA 1993, Inc shares certain overhead costs with the Louisiana Horsemen's Medical Benefit Trust (Medical Benefit Trust) and the Louisiana Horsemen's Pension Trust (Pension), affiliates of LAiiBPA 1993 hic. During the >cars ended December 31, 2010 and 2009, die Medical Benefit Trust advanced funds to LAHBPA 1993 Inc This advance of funds by the Medical Benefit Trust to create a balance due from LAHBPA 1993 Inc mav be a violation of the Medical Benefit Tnist document Balances due to and from LAHBPA 1993 Inc. (including its subsidiaries) at December 3L 2010 and 2009 consist of the followmg:

Due from Louisiana Horsemen's Pension Trust Due from related party - 1993 Inc , net

%

s

2010

179 641

179,641

2010

%

$

U141,299

2,500

L143,799

S $

2009

95,385

95,385

2009

S

$

988,281

2.500

990,781

Due to Louisiana Horsemen's Medical Benefit Tiust Due to Worker's Compensation reserv c fund

The amount due to the affiliated entitle*; on l^haU of LAHBPA 1993 Inc was $1J43J99 and $990,781 at December 31, 2010 and 2009, respectively (See Note 15). I1ie balances due to Medical Benefit Trust are non-intcrest bearing and are unsecured

During the years ended December 31, 2010 and 2009, LAHBPA earned management fees totaling *KL0'50,000'rrom the Medical Benefit Trust and Pension

- 1 5 -

LOUISIANA HORSEMEN S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993, INC.

AND SUBSIDL\R1ES


DECEMBER 31.2010 AND 2009 8. Related Pairt\' Transactions fcontinued)

As a condition of HlA's insurance license, the Cayman Islands Monet^ Authont>' (CIMA) requires Louisiana SP to maintain a certain minimum net worth, including toe $300,000 standby irrevocable letter ot credit

9* Horsemen's Bookkeeper Account

At each mce meeting conducted in the State of Louisiana, there shall be a bookkeeper for the collection, disbursement, and investment gf monies belonging to horsemen licensed and racing at such a race meetmg, who shall be known as Ihe Horsemen's Bookkeeper The Horsemen''s Bookkeeper shall be bonded, selected, and employed by LAHBPA 1993 hic

Except for interest earned on the in\estment of monies m the Horsemen's Bookkeeper Account, and that portion of a pony lead fee as authorized and assessed by LAHBPA 1993 Inc to provide retirement benefits and lo pay the administrative and operating costs of LAHBPA 1993 Inc, withdrawals are limited to monies due horsemen with regard to daily purses, jockey fees, stakes, handicaps, rewards claim';, deposits, monies if any for horsemen's medical and hospital benefit programs, and pon> lead fees

10. C»mmitments and Contingencies

Insurance Management Agreement

HIA has an appointed insurance manager located in Grand CavTnan HlA's management agreement with the in' urance manager stipulates the terms and conditions under which the insurance manager is to conduct busmess on behalf ot HLA HIA is committed to pay the insurance manager an annual fee for services HIA pa>s the insurance manager a yearly management fee of $45,000.

Letters of Credit

At December 31, 2010 and 2009. letters of credit of $4,949,076 have been issued by HLA's banker m favor of the ceding insurer to secure HlA's liabilities under the reinsurance assumed The leilers of credit are secured by a guarantee from LAHBPA 1993 Inc.

A standby irrevocable letter of credit m the amount of $300,000 has been pledged by LAHBPA 1993 htc on behalf of HIA to cover HlA's capital reqtiuemeiit The lettei of ciedit expires in 201 L

16

LOUISIANA HORSEMEN^S BENEVOLENT AND PROT£CTI\X ASSOCLXTION 1993, INC. AND SLBSIDL\R1ES



11. Concentration of Credit Risk

LAHBPA 1993 Inc receives virtually all of its support as a result of the horse racmg industry HlA's premium revenue, representing approximately 98% of its total revenues, is earned from reinsuring the risks of busmess associated with LAl-LBPA 1993 Lnc Management does not foresee any unfavorable impact as a result of these concentrations.

Investments represent a significant portion of the assets ofLAHBPA 1993 Inc Such investments are subject to interest and other risks Future changes in the financial markets could affect the value of Ihc a sets and future earnings ofLAHBPA 1993 Inc

In the normal course of its business, HIA purchases various financial instruments which may result in ciedit risks, the amount of which is not apparent from the fmancial statements.

Credit risk is the nsk of counterparty default Financial assets which potentially expose LAHBPA and HL\ lo credit risk mainly consist of cash and cash equivalents and the claims escrow fund. Cash and cash equivalents are held at substantial financial institutions located in the United States and the Cayman Islands Management does not anticipate any material losses as a result ot these concentrations

12. Fair Value Measurements

Financial Accounting Standards Board (FASB) Accoimttng Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, provider the framework for measunng fan- value That framework provides a fair value hierarchy dial prioritizes the inputs to valuation techniques used to measure fair value The hierarchy gives the highest priorit>' to unadjusted quoted priced in active markets for identical assets or liabilities (Level 1 Measurements) and the lowest priority to unobservable inputs (Level 3 Measurements) The three levels of the fair value hierarchy under ASC 820 are descnbed as follows

Level 1 Inputs to the valuation inethodolog>' are unadjusted quoted prices for identical assets or habihtics m active markets that the Plan has tlie ability to access

Level 2 Inpuls to the valuation methodology include:

• Quoted pi ices for similar assets or liabilities in active markets,

• Quoted prices for identical or similar a.ssets or liabilities m inactive markets,

• Inputs other than quoted prices that are observable for the as«;et or liability';

-17

LOUISIANA HORSEMEN-S BENEVOLENT AND PROTECTIVE ASSOCLITION 1993. INC.

AND SUBSIDIARIES


DECEMBER 3L 2010 AND 2009 12v Fair Value Measurements (continued)

• Inputs that are deiived principally from or corroborated by observable market data by correlation or other means

If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability

Level 3 Inputs to the valuation methodology are unobservable and sigmficant to the fair value measurement.

The asset's oi liability's fair value measurement level withm the fair value hierarchy is based on tlte lowest level of any input that is significant lo the fan \aiue measurement Valuallon techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs

Following IS a description of the valuation methodologies used for assets measured at fair value

Mutual Funds (Level I) Valued at the closing price repQittd on the active market on which the individual securities are traded.

Certiflcaies of deposit (Level 2) Valued at historical cn U which approximates fair value

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of fiiture fair values. Furthennore, while LAHBPA 1993 Inc. believes its valuation methods aie appropriate and consistent wltli other market participants, the use of different methodologies or assumptions to determine the fair value of certain fmancial instruments could result in a different fair value measurement at the rejx>rt!ng date

The valuation ofLAHBPA 1993 Inc \ assets that are measured at fair value on a recurring basis at December 31, 2010 are as follows

Quoted Prices in Active Markets for Significant Other Significant

tdenUcal Assets Observable Inputs Unobservable jLevel !) (Level 2} Inputs (Level 3) Total

Mutual ftinds $ 76,501 $ . % . % 76,501 f^emficaies of deposit -___ 52,800 -__ 52 800

$ 76,501 $ 52,800 $ - $ 129,301

18-

LOmSlANA HQRSEMEN^S BENEVOLENT AJVP PROTECTn^E ASSOCIATION 1993, mC.

AND SUBSIDIARIES

NOTES TO CONSOHDATED FINANCIAL STATEMENTS

DECEMBER 3L 2010 AND 2009 11. Fair Value Measurements (continued^

The valuation ofLAHBPA 1993 lnc 's assets that are measured at fair value on a recurring basis at December 31,2009 are as follows:

Mutual funds Certificates of deposit

Federal Indictment

Quoted Pnces in Active Markets for

Identical Assets <Leve! \)

$ 7\522

$ 75,522

Signtficanl Other Observable Inputs

(Level 2) $

101,056 $ 101056

Significant Unobserv-able

hipuls (Level 3) $

%

$

$

Total 75,522

101,056 176,575

In November 2010 the United States indictoi tlie President and Executive Director of L,AHBPA I993» lnc m a 29-count indictment charging mail fraud, wire frauds identification mformation fraud and health care fraud in connection with the rigging of an election by which the President and Board of Directors ofLAHBPA were elected in March 2008 and financial inegulanties related to a Medical Benefit Trust operated b> LAHBPA Their positions with the Compan> v ere terminated shortly after their indictments. In July 2011, the fonner Executive Director of the Company pleaded guilty to one count of conspiracy lo commit mail fraud, wire fraud, and fraud m connection with identification documents, all in connection with the riggmg of the March 2008 election In September 2011, the former President of the Company pleaded guilty to one count of conspiracy to commit mail fraud, wire fi^tid, fraud in connection wiih identification documents and health care fraud, all m connection with the rigging of the March 2008 election and financial irregularities related to the Medical Benefit Trust As of the report date, sentencing of both individuals is pending

Followmg their indictments tn November 2010, the then-President and then-Executive Director rebi^ed their positions Effective Navemhcr 22, 2010, pursuant to the bylaws^ the Vice President assumed the position of President The Vice President was leplaced on the Board by the trainer candidate with the next highest number of votes m the March 2008 election On March 31, 2011, as prescribed by the bylaws ofLAHBPA 1993, lnc , an election was held to elect a new President and new Board of Directors, all to serve for a three-year tenu. The new President and Board of Diiectors weie sworn into office on April 8,2011

-19 -

LOUISIANA HORSEMEN^S BENEVOLENT AND PROTECTIVE ASSOCL\TION 1993, INC.

AND SUBSIDIARIES


DECEMBER 3L 2010 AND 20C9 14. Litigation

In 2007, the LAHPBA 1993, lnc filed suit against the pre- ent owner of the Louisiana Downs Race Track in order to resolve a dispute concerning the use of purse monies at that race track. In 2003, tlie present owner of the race track and tJie LAHBPA 1993, Inc entered into an agreement whereby, "subject to certain contingencies being met, the owner of the race track guaranteed to fund racing purses at a certam minimum level and to assume a liability of the prior owner resulting fiom a decision of the Louisiana Supreme Court concerning the use oi video poker revenues to fund racing purses The liinding of racmg purses at the guaranteed mmimum level vvas expected to exceed the amounts otiierwise required to be used for purses at least mitjl slots at ihe race track generated additional purse revenues that when combined with other purse revenues would exceed the guaranteed mmimum funding level Subject to certain contingencies being met. the LAHBPA 1993, Inc agreed that the owner of the race track could recover amounts ftmdcd by the owner in excess of the statutonly-required purse amounts, as well as amounts funded by the prior owner in excess of the statutonly-requiied purse amounts during the two previous race meets, all from the simulcast revenue stream There is a dispute as lo whether tiie contingencies were met and, if the contingencies were not met, whether the owner is entitled to recover the alleged overpayments under some other legal theory

The amount claimed by the present owner under the alleged agreement is approxmiately Sll 000.000. The LAHBPA 1993, lnc contends ihat the agreement is null because the contingencies were never met The LAHBPA 1993^ Inc further contends that, if it is determined that the present owner is entitled to recover amounts previously over paid, such recover)' must be limited to future simulcast revenue streams as provided for in the agreement The outcome of this litigation is uncertain as of the report date. No provision has been made in the financial statements relating to this litigation

In December 2009, certam members filed a derivative action agamst II tndiMduals, consisting of the President, the Executive Director and nine Directors, to recover for alleged wrongdoing Of the n mdividuah, only one is still associated with LAHBPA 1993, Inc as an officer or director. Another Board member elected in March 2011 has filed a similar lawsuit against the former Preiiident An> amounts recovered from the individual defendants in the derivative action would be recorded ir\ LAHBPA 1993, lnc when received

- 2 0 -

LOUISLVNA HORSEMEN^S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993, INC.

AND SUBSIDL^RIES


DECEMBER3L 2030 AND 2009 15, Su bseq ucn t E vents

Management has evaluated subsequent events through the date that the financial statements were available to be issued, October 17, 2011. and determined the items described below and Note 13 require disclosure.

Increase tn£onxLead_Fees

Effective February 1, 2011, the Board of LAHBPA 1993, Inc. approved an mcrease m the pony lead fees of $6 per i>tart with $2 dedicated to fund the repayment of the balance due from LAHBPA 1993. Inc to the Medical Benefit Trust In March 2011 through Septembei 2011, LAHBPA 1993, Inc made payments to the Medical Benefit Trust to reduce its liability to the Medical Benefit Trust (sec Note 8 ~ Related Party Transactions).

Changes m Workers Compensation Ijisj^'ancePrg^gm

Subsequent to year end. LAHBPA 1993^ lnc and its subsidiaries, HAH and HIA. entered into new business plans to change the workers compensation insurance program carried out by LAHBPA 1993, Inc. On July 13, 2011, a new Louisiana insurance trust was formed for the purpose of directly insuring a significant portion of the insurance nsks previously reinsured through HIA The new tnisT began providing msurance coverage on July 16, 201L IllA will continue to reinsure certain out-of-state workers compensation insurance risks insured through the program^ but using a different ceding insurer. HLA will continue lo reinsure claims incurred prior to the formation of the trust

21 -

SUPPLEMENTAL INFORMATION

LOUISIANA HORSEMEN'S BEÊVOLE>NT AND FROTECTIV E ASSOCIATION 1993. INC.

AND SUBSIDURIES

CONSOLIPATING STATEMENTS OF FINANCIAL POSITION DECEMBER 31.2010 AiND 2099

.sscts Cash and cash cqtiivaicnts Claims KCTOW funds ?,% fees receivable - workers' coniipensation pro-am Accoiinis receivable - workers" compensaiion premiums Preniium receivable Prepaid expenses I")e1erreti Lcdmg commission Rcstncicd cash - workers' compcnsatEOD program Doc from relmed panics Invîments Ifl'vcstnienl in sulr- irtmr ' Propertv and equipment, net

1993 Inc

S 301S5S

-105 506 92.482

-t,306.? 52

-2J7G.357

2^5. t97 \Z%20\ 412,003 4S9,524

HAH

S 175 000

------• • ---

HIA

S 2 197 166

-•

I S05 6SS 25.572

220 733 453 565

---'

I timmrfung Emnes

S

---

(t 754 48S) (966J0I)

--

(85.55G>

-(412.003)

-

2010

S nRS55 2197166

105 506 92.482 51200

365,723 220 733

2 829.922 179.641 129,301

-439.524

Total assels S 5 430 477 S 175 000 & 4 702 724 S (3 2iSJ48) S 7,090053

luhiiitics Accounts payable aiid a<.cmcdcxpciJS(3 Reserve for losses aiid toss adjuslnienv expenses Losses paj-adjle Uiieûdcd prcnuuins - worktrs' coitipcnsation Uite to relaied ponits

Total liabilutM

121 484

410,824 2,398 287 85 556

3.430,595 85 556

% 35 100 3,243 2S7

135,677 966 101

4,380 165

(966, i 01) <t 8'10 014)

(2,806,J45>

156,584 3.2^3,287

135.677 410,824

1,143,799

5.090,171

Net assets tffirestncied Retained earnings iloss) Addttinnat paid-in capital

Tola! net assets

Tola! liabilities aiid itel assets

Se& accompaii) mg notes to financial stafemente

l.9W.«82

1,999,882

S 5.430,477

(85 556) 175.000

89 444

175 000

(1 309 S75) 1,630,434

2.000

322 559

S 4.702 721

I 395,43] (1.80^434)

(2,000)

(412 003)

S (3 218 148)

i.*jqt*,S»2

l,999.8S2

7 090.053

(ConfBHied)

22-

LOUISIA^A HORSKMEN'S BEN'EVOI.r.NT AND PROTECTIVE AS&OCtAI ION 1993 I^C

\?SDSIJBS1D1\RIES

CONS OLtDATI>rr STATEMENTS OK FiJVAtN'ClAl. POSITION fCO^Tl^X'ED) UI-CEMBEH 31.2010 AM) 2009

AshcLs

C 3.<h smf trffeli e{|tiiv.il(,nli

Claiiria u>crmv iunds 2% ftxs rttcivabk - wtjrKers' compensation program Accounts leLLi^dblc - workers* compensation premiums Prejniuin leceivabie Prepaid expenses Ucfcrn-d ctding txirnmxssion Rcittiicted <^sh - workers' ujr'ipcnsdlwin program Due from related parties investmeiiis Inv^tmeiii m sutbidiaiy Propcnj and eqinpnienu iiel

fotal assets

Liafeilmes Accounts payable md accrued expenses Rccrvc for losses and loss adjiistmeiil expenses Losses payable I]ne,imetl premninv! - uorkcrs' compcasation Due io related panics

Total lialiditira

Net resets Unrestricted RcEaiiied cdnimgh (ItJ s) Additional paid-m cf^itnl C cMiioKin uick

ioialnelj-ssets

Totai liabiluieii and net dSAtts

Sec jtxompanymg ntnes to fitiancial statements

1993.Inc

92,748

72 505 171,326

1.177.246

3,662 782 17 i.790 ! 76,578 278.717 455,471

6,263,163

87 653

379 556 L8''5 752

2342,961

3,920 202

3 920.202

6.263.165

HAl i

76 405

76.405

(76,405)

(76 405)

HIA ElmMiioliiig

2009

s 2,338.081

--

916,171 25,832

22U.67y 300,876

----

S 3,821,638

S 72,'i24 2,280 828

248 385 864,779

-

3,466,516

S

$

s

-. -

(884,971) (864.779)

--

(76,405)

-(278 717)

-

(2,ICM,H72)

--

(864 779) (961.376)

f l 826,155)

S 92 748 2,338,081

72 505 171,526 51,200

338 299 220.678

3,963,658 9^385

176,578 -

459,471

S 7 979,979

S 160,177 2.280,328

24SJ85 379J56 990,781

4 059.727

3,920,202 (822,312)

1,175.434 2 000

355J22

S 3.821638

898,7! 7 (1,175,414)

(2,000)

(278.717)

S (2.104.872)

-

3,920,202

i 7 979 929

-23

T.OUISf ANA HORSbM£N'S BENEVOLENT AND I'RO VECIIVE ASSOCIATION 1993. INC.

AND SUBSIDIARIES

CONSOLIDATING STATEMENTS OF ACTIVITIES DECEMBER 3). 2010 AND 2009

1993 Inc Revenue a»d other support

Workei^' compensaiion premiuins 2% \H'ork(.rs' compensation revenue Interest - Horsemen's Bookkeepwr Interest income Pony lead fees Management fee Jockey payroll and NSF fees Underwriting income Other income Equity on loss ofsiibsidu^ry

1 otal revenue and other support

Expense i. Workers' compensation program Support scn'iccs

Total expenses

Change in net asseli

Net assets, beginning of year

Net assels, end of year

See iiccompdnying notes to financial statements.

6.060.281

4,641,098 3,^39.503

7 980,601

(1 920,320)

3 920,202

$ 1 999,X82

HAH

S 2,600,636 S

963,386

37i;240

22,037

415,917

2 100,000

17,210

66.569

(496,714)

--

--

-

-

.

-

9.151

9,151

(9,151)

(76,405)

S (85,556)

HIA

1,502

2.716,410

2,717,912

3,205,414

61

3,205.475

(487.563)

355,122

$ (132,441)

Elmundliuns

$ ---

-

(1,050,000)

-

(869.517)

-

496.714

2010

S 2,600,636

963,386

371,240

23,539

415,917

1,050,000

17,210

1.846.893

66.569 -

(1,422803)

(1,919,517)

(1,919517)

496 714

(278,717)

S 217.997

7.355 390

5,926,995 3 348 715

9.275 710

(1,920,320)

3.920,202

$ 1,999,882

(Continued)

- 2 4 -

LOUISIANA HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993, INC.

AND SUBSIDIARIES

CONSOLIDATING STAiEMEN IS OF ACTIVITIES DECEMBER 3L 2010 AND 2009 fCONTINUED)

1993Tnc IIAII Revenue and other suppuil

Workers' compensaiion premiums 2% workers' LOmpcnusation revenue Inteiest - Horsemen's Bookkeeper Intel e<;t income Pony lead fees Renlal mcome Jockey payroll ^nd NSF tees UndervvriLmg income Other income Fquity on loss of subsidiary

Total revenue and other support

Expenses Workers' compcn^tion prograni Support sKTices

Total expenses

Change m net assels

Kel dsicts, beginning of vear

Net assets, end of year

$ 2,933,126 1.026,987

388,039 37,596

375,105 2,100,000

16,164 -

2,593 (370338)

6,509,272

4,306,973 3,254,607

7 561,580

(1,052,308)

4,972,510

$ 3,920,202

74,080

74 080

(74,080)

(2,325)

HIA

$ --

3,326 ---

2,394,147 --

2,397,473

2,693,671 60

2,693,731

(296;258)

531.380

$ 235,122

Elimindlions

S ----

(1,050,000) -

(571,429) -

370,338

(1.251,091)

(1,621,429) -

(1,621,429)

370,338

(529,055)

S (158,717)

2009

$ 2,933,126 1,026,987

388,039 40,922

375,105 1,050,000

16,164 1.822.718

2,593 .

7.655,654

5,379^15 3,328,747

8,707,962

(1,052,308)

4,972.510

S 3.920,202

See acoompanying notes to financial statements.

- 2 5 -

• i J v l n l Posttethwaite iJ iaiJ&Nettervi l lc

wv,"^ pncpc ZOnt REPORT ON INTERNAL CONTROL OVER FUN ANCIAL REPORTING AND ON

COMPLIANCE AND OTHER MATTERS BASED ON AN AUBIT OF CONSOLrPATEP FIKANCUL STATEMENTS PREFORMED IN ACCORDANCE WTTIJ GOVERNMENT

A UDITING STANDARDS

Doard of Directors Louisiana Hoffmen's Benevolent and Protective A&bocialion 1993, Inc.

We have audited the consohdated fmancial statements of Louisiana Horsemen's Benevolent and Protective Association 1993. lnc and Subsidiaries as of and for tiie years ended December 31, 2010 and 2009j and have issued oui report thereon daled October 17, 2011 We conducled our audit m accordance with auditing standards generally accepted in tlae United Slates of Ainenca and tlie standard.s applicable to financial audits contained m Govenvneni Auditing Siandmd^, Ksued by the Comptroller General of tlie United States-

Inlema] Control Over Financial Reportmg

In plannmg and perfonning our audits, we considered Louisiana Horsemen's Benevolent and Proiective Association 1993, liic and Subsidiaries' mtemal control over financial reporang as a basis for designing our auditmg procedures for the purpose of expressing our opnnon on the consolidated financial statemeatts, but not for tlie purpose of expressing m\ opmion on the effectiveness of Louisiana Horsemen's Benevolent and Protective Association 1993, Inc. and Subsidiaries' internal control over fmancml reporting Accordingly, we do not express an opmion on tlie effectiveness of the Louisiana Horsemen's Benevolent and Protective Association 1993, Inc s internal control over financial reporting

A deficiency in miemal control exists when the design or operation of a control does not allow management or employees, m the normal course of performing their assigned fimctions, to prevent, or detect and coirect misstatements on a tnnely basis A matenal weakness is a deficiency^ or a combination of deficiencies, m mtemaJ control such that there is a reasonable possibility that a material misstatement of tlie entit>''5 consolidated financial statements will not be pre\'ented, or detected and corrected on a timely basis

Our consideration of internal control over financial reportmg was for the limited purpose descnbed m the first paragraph of tins section and was not designed to identify all deficiencies m internal control over rimuicial reportmg tliat miglit be deficiencies, sigiuficaiit deficicncie!), or mulerial weaknesses We did not idenufy any deficiencies in internal control o\er financial reportmg that wc consider to be matenal weaknesses, as defined above

3ath Floor Energy Centre • llOOPoyd'-asSiree: • New OHeans, U /J i6V3000 • fd 504'Sf^9 2g'' r

One Gailef a Blvd. Suite 2100 • Metaine, LA :"0001 • h^ 504 837 5990 • ^ax f">:j4g3^ 3609

Compliance and Other Matters

As part of obtammg reasonable assurance about whether Louisiana Horsemen's Benevolent and Protective Association 1993, Inc and Subsidianes' consolidated financial statements are fi-ee of matenal misstatements, we performed tests of its compliance with certam provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and matenal effect on the determmation of fmancial statement amounts However, providmg an opmion on compliance with those provisions was not an objective of our audit, and accordmgly, we do not express such an opmion The results of our tests disclosed mstances of noncompliance or other matters that are required to be reported under Government Auditing Standards and which are descnbed m the aecompanymg schedule of findings and questioned costs as items 2010-1 and 2010-2

Louisiana Horsemen's Benevolent and Protective Association 1993, Inc 's wntten responses to items 2010-1 and 2010-2 have not been subjected to the auditmg procedures applied m the audit of the financial statements, and, accordmgly, we express no opmion on them

This report is mtended solely for the mformation and use of the Legislative Auditor of the State of Louisiana, the Louisiana Horsemen's Benevolent and Protective Association 1993, Inc 's management and Board of Directors and is not intended to be and should not be used by anyone other than these specified parties However, under Louisiana Revised Statute 24 513, this report is distributed by the Legislative Auditor as a public document

PJMLiidk^^SiM Metame, Louisiana October 17, 2011

- 2 7 -

P&N

LOUISLANA HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993, INC. AND SUBSIDIARIES

SCHEDULE OF FINDINGS AND OUESTIONED COSTS

DECEMBER 3L 2010

Summary of Auditor's Results

Financial Statements

Type of auditors' report issued Qualified

A.

B.

• Matenal weakness(es) identified*^ • Significant deficiencies identified that are

not considered to be matenal weaknesses

Matenal noncompliance to fmancial statements'?

Basic Financial Statements, Findings, and Responses

2010-1 Timely Submission of Audit Report to Legislative Auditor

Yes

Yes

Yes

X

X

X

_ No

_ No

_ No

Cntena

Condition

Cause

Effect

Recommendation

Corrective Action Plan

Under Louisiana statute, LAHBPA 1993 Inc is required to have an annual audit of its financial statements prepared in accordance with US generally accepted accountmg pnnciples and to complete the audit and file it with the Legislative Auditor of the State of Louisiana by June 30 of each year

LAHBPA 1993 Inc did not meet the June 30, 2011 deadlme for reportmg to the State of Louisiana LAHBPA 1993 Inc did request and received an extension of time to file its fmancial statements

The Cayman Islands accountmg firm mitially engaged to audit the subsidiary, HIA, was unable to perform the audit in accordance v^th US Government Auditmg Standards

The inability to complete the audit of it subsidiary under Government Auditing Standards resulted m the audit completion date bemg delayed

LAHBPA 1993 Inc should miplement a plan to ensure subsidiary is audited under Government Auditing Standards timely to ensure future reports are complete and submitted to the legislative auditor's office by the required date

Durmg the 2010 Regular Session of the Louisiana Legislature, House Bill Number 1408 was mtroduced which required that our organization and affiliates annually submit our audits to the Louisiana Legislative Auditor and that those audits be performed m accordance with the standards of the Louisiana Governmental Audit Guide and of the Government Accountability Office

28

LOUISLVNA HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCIATION 1993, INC.

AND SUBSIDIARIES

SCHEDULE OF FINBINGS AND OUESTIONED COSTS

DECEMBER 3L 2010

B. Basic Financial Statements, Findings, and Responses (continued)

2010-1 Timely Submission of Audit Report to Legislative Auditor (continued)

Corrective Action Plan This bill passed both the house and senate and was signed mto law m

July 2010 Our consolidated fmancial statements mclude the financial statements of a subsidiary which operates an msurance enterpnse outside of fhe United States While that subsidiary is separately audited annually by an mtemational auditmg firm, the audit was not performed m accordance with the standards imposed by the Louisiana Governmental Audit Guide and the Goverrunent Accountability Office Upon discovery that our auditor could not complete the audit m accordance with these standards we immediately engaged a new firm acceptable to the Louisiana Legislative Auditor to agam audit the December 31, 2010 financial statements of our subsidiary

Realizmg that the additional audit would cause a late submission of our report, we became proactive and immediately began conversations with key personnel m the Legislative Auditor's Office to kept them abreast of the status of our audit We also submitted a formal extension request for tune to file our audit

This issue caused our December 31, 2010 audit to be submitted after the required due date We have engaged a firm qualified to perform future audits m accordance with applicable auditmg standards All of our future audits will be submitted to the Legislative Auditor on a timely basis m accordance with Louisiana law

201Q-2 Compliance Audit issued by the Louisiana Legislative Auditor

Cntena The State of Louisiana Legislative Auditor issued its Compliance Audit of the Louisiana Horsemen's Benevolent and Protective Association 1993 Inc and its related entities includmg HIA on May 4, 2011 The Compliance Audit consisted pnmanly of mquines and the exammation of selected financial records and other documentation

Condition The Executive Summary of the Compliance Audit describes the findmgs and recommendations mto three categones Improper Use of Dedicated Funds, International Travel, and Board Operations.

Cause Actions taken by former officers and durectors

29

LOUISLyVA HORSEMEN'S BENEVOLENT^ AND PROTECTIVE ASSOCIATION 1993, INC.

AND SUBSIDIARIES

SCHEDULE OF FINDINGS AND OUESTIONED COSTS

DECEMBER 31, 2010

B. Basic Financial Statements, Findings, and Responses (continued) 2010-2 Compliance Audit issued by the Louisiana Legislative Auditor (continued)

Effect

Recommendation'

(Corrective Action Plan

LAHBPA 1993 Inc may have violated Louisiana laws through unproper use of dedicated funds, mtemational travel and board operations

The recommendations as descnbed m the Compliance Audit performed by the Legislative Auditor are as follows We recommend that LAHBPA 1993 Inc, obtam wntten contracts with its related entities, mcludmg, but not limited to, contractual obhgations, services to be performed, expense reimbursements, and payment terms We recommend that each entity conduct regular meetmgs and operate m accordance wilh its bylaws or trust agreements and Louisiana law We recommend that LAHBPA 1993 Inc comply with Lomsiana law and establish a Louisiana corporation or tmst to receive statutonly dedicated fees and to provide worker's compensation msurance to Louisiana horsemen We recommend that each entity record, review and approval all mmutes and mamtam a smgle accessible location to store the approved mmutes and appropnate documentation concemmg each meetmg

LAHBPA 1993 Inc now has contracts with all related entities that pay monthly management fees to LAHBPA 1993 Inc The monthly management fees are reviewed at 6 month intervals based on the level of services actually incurred and are adjusted accordmgly for the followmg 6 month period LAHBPA 1993 Inc has also adopted wntten policies covermg meals, travel, entertainment, and credit card usage LAHBPA 1993 Inc and each of its affiliated organizations meet frequently on an as needed basis Wntten mmutes are kept and are signed by the appropnate mdividuals With respect to the workers compensation msurance program, LAHBPA 1993 Inc has estabhshed a Louisiana trust to admmister the Louisiana nsk portion of the program and, with respect to the out-of-state nsk portion of the program has obtained a zero-deductible msurance policy with NY Magic As a consequence of this arrangement, HIA, the Cayman Island subsidiary, is m a run-off position with respect to pnor claims and is not remsurmg losses mcurred after July 16, 2011

30

LOUISLVNA HORSEMEN'S BENEVOLENT AND PROTECTIVE ASSOCUTION 1993, INC.

AND SUBSIDIARIES

SCHEDULE OF PRIOR YEAR FINDINGS AND OUESTIONED COSTS

DECEMBER 31,2010 2009-1 Timely Submission of Audit Report to Legislative Auditor

Criteria. Under Louisiana statute, the LAHBPA 1993 Inc is required to have an annual audit of its financial statements prepared m accordance with US generally accepted accounting pnnciples and to complete the audit and file It with the Legislative Auditor of the State of Louisiana by June 30 of each year

Condition The LAHBPA 1993 Inc did not meet the June 30, 2010 deadlme for reportmg to the State of Louisiana The LAHBPA 1993 Inc did request and received an extension of time to file its financial statements

Cause Turnover m the accountmg staff and executive management lunited the available resources for LAHBPA 1993 Inc

Effect

Recommendation

The audit report was not submitted m a tunely manner

The LAHBPA 1993 Inc should implement a plan to ensure tunely financial reportmg to ensure future reports are complete and submitted to the legislative auditor's office by the requu-ed date

Corrective Action Plan Every year our organization undergoes an mdependent audit of our

consohdated financial statements

Durmg the 2010 Regular Session of the Louisiana Legislature, House Bill Number 1408 was mtroduced which required that our organization and affiliates armually submit our audits to the Louisiana Legislative Auditor and that those audits be performed in accordance with the standards of the Louisiana Governmental Audit Guide and of the Government Accountability Office This bill passed both the house and senate and was signed mto law m July 2010 and requned retroactive application to our December 31,2009 audit.

As a result of the law being enacted after the due date for the delivery of our audit report to the Legislative Auditor, we had no way to comply with the filmg deadlme Further, as more fully described in the notes to our financial statements, several key officers and employees of our organization were mdicted and subsequently pled guilty to varymg degrees of conspiracy to commit mail fraud, wire fraud, fi"aud m connection with identification documents and health care fi-aud Pnor to pleadmg guilty, these officers were termmated from the organization and we were unable to act on approvmg the audits until all mvestigations were completed and a new board and officers were elected m 2011

-31


AND SUBSIDIARIES

SCHEDULE OF PRIOR YEAR FINDINGS AND OUESTIONED COSTS

DECEMBER 31.2010 2009-1 Timely Submission of Audit Report to Legislative Auditor (continued)

Corrective Action Plan This issue as well as others also caused our December 31, 2010 audit to

be submitted after the required due date We do feel certam that smce these issues are now behmd us, all of our future audits will be submitted to the Legislative Auditor on a timely basis m accordance with Louisiana law

Current status Unresolved - see 2010-1

2009-2 Compliance Audit issued by the Louisiana Legislative Auditor

Cntena The State of Louisiana Legislative Auditor issued its Compliance Audit of the Louisiana Horsemen's Benevolent and Protective Association 1993 Inc and its related entities mcludmg HIA on May 4, 2011 The Compliance Audit consisted pnmanly of mquines and the exammation of selected financial records and other documentation

Condition

Cause

Effect

Recommendation

The Executive Summary of the Compliance Audit describes the findmgs and recommendations into three categones Improper Use of Dedicated Funds, International Travel, and Board Operations

Actions taken by former officers and directors

LAHBPA 1993 Inc may have violated Louisiana laws through improper use of dedicated fimds, international travel and board operations

The recommendations as descnbed m the Compliance Audit performed by the Legislative Auditor are as follows We recommend that LAHBPA 1993 Inc, obtam written contracts with its related entities, mcludmg, but not limited to, contractual obligations, services to be performed, expense reimbursements, and payment terms We recommend that each entity conduct regular meetmgs and operate m accordance with its bylaws or trust agreements and Louisiana law We recommend that LAHBPA 1993 Inc comply with Louisiana law and establish a Louisiana corporation or trust to receive statutonly dedicated fees and to provide worker's compensation msurance to Louisiana horsemen We recommend that each entity record, review and approval all mmutes and mamtam a smgle accessible location to store the approved mmutes and appropriate documentation concemmg each meeting

32-


AND SUBSIDIARIES

SCHEDULE OF PRIOR YEAK FINDINGS AND OUESTIONED COSTS

DECEMBER 31,2010

2009-2 Compliance Audit issued by the Louisiana Legislative Auditor (continued)

Corrective Action Plan

Current status'

LAHBPA 1993 lnc now has contracts with all related entities that pay monthly management fees to LAHBPA 1993 Inc The monthly management fees are reviewed at 6 month intervals based on the level of services actually mcurred and are adjusted accordmgly for the followmg 6 month period LAHBPA 1993 Inc has also adopted written policies covermg meals, travel, entertamment, and credit card usage LAHBPA 1993 Inc and each of its affiliated organizations meet firequently on an as needed basis Written mmutes are kept and are signed by the appropnate mdividuals With respect to the workers compensation msurance program, LAHBPA 1993 Inc has established a Louisiana trust to admmister the Louisiana risk portion of the program and, with respect to the out-of-state nsk portion of the program has obtamed a zero-deductible msurance policy with NY Magic. As a consequence of this arrangement, HIA, the Cayman Island subsidiary, is m a mn-off position with respect to prior claims and is not remsunng losses mcurred after July 16, 2011

Unresolved - see 2010-2

33

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