EX-99.2 23 y51336exv99w2.htm EX-99.2: CONSOLIDATED FINANCIAL STATEMENTS OF SC LONDON LIMITED EX-99.2
 

Exhibit 99.2
Registered No. 3811362
SC London Limited
Annual report
For the year ended 31 December 2007

 

 

SC London Limited
Annual report
for the year ended 31 December 2007
     
    Pages
 
    
Directors and advisers
  1 
 
    
Independent auditors’ report
  2 
 
    
Profit and loss account
  3 
 
    
Balance sheet
  4 
 
    
Cash flow statement
  5 
 
    
Reconciliation of net cash flow to movement in net funds
  5 
 
    
Notes to the financial statements
  7 - 14

 

SC London Limited
Directors and advisers
Directors
F Kleisner
J Chodorow
Secretary and registered office
Bibi Ali
MacFarlanes
10 Norwich Street
London
EC4A 1BD
Solicitors
MacFarlanes
10 Norwich Street
London
EC4A 1BD
Registered auditors
BDO Stoy Hayward LLP
55 Baker Street
London
W1U 7EU
Bankers
National Westminster Bank PLC
135 Bishopsgate
London
EC2M 3UR

1

 

SC London Limited
Report of the Independent Registered Public Accounting Firm To the Board of Directors
of SC London Limited
We have audited the financial statements of SC London Limited which comprise the balance sheet as of December 31, 2007 and December 31, 2006 and the related profit and loss account, cash flow statement and related notes for the year ended December 31, 2007 and December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SC London Limited as at December 31, 2007 and December 31, 2006, and the results of its operations and its cash flows for the year ended December 31, 2007 and December 31, 2006 in conformity with generally accepted accounting principles in the United Kingdom. Accounting principles generally accepted in the United Kingdom vary in certain significant respects from accounting principles generally accepted in the United States of America. Information relating to the nature and effect of such differences is presented in note 19 to the financial statements.
BDO Stoy Hayward LLP
Chartered Accountants and Registered Auditors
London, UK
March 12, 2008

2

 

SC London Limited
Profit and loss account
for the year ended 31 December 2007
                                 
    Notes                     Unaudited  
          2007     2006     2005  
          £000     £000     £000  
 
                                
Turnover
             15,375       15,793       14,458  
Cost of sales
             (3,768 )     (3,825 )     (3,731 )
 
                          
Gross profit
     3       11,607       11,968       10,727  
 
                                
Administrative expenses
             (11,689 )     (11,135 )     (10,675 )
 
                          
 
                                
Operating (loss) / profit
     4       (82 )     833       52  
Interest receivable
             47       62       59  
 
                          
 
                                
(Loss) / profit on ordinary activities before taxation
             (35 )     895       111  
Tax on (loss) / profit on ordinary activities
     5       (222 )     (275 )     (21 )
 
                          
 
                                
(Loss) / Profit for the financial year
     13       (257 )     620       90  
 
                          
All profits arise from continuing operations.
The company has no recognised gains or losses other than the loss for the period.
There is no difference between the historical cost (loss) / profit and that stated above.

3

 

SC London Limited
Balance sheet
At 31 December 2007
                         
    Notes     2007     2006  
          £000     £000  
 
                        
Tangible fixed assets
     7       950       385  
 
                        
Current assets
                        
Stock
     8       232       276  
Debtors
     9       1,748       2,068  
Cash at bank and in hand
             1,375       3,300  
 
                    
 
             3,355       5,644  
 
                        
Creditors: amounts falling due within one year
     10       (2,039 )     (2,676 )
 
                    
 
                        
Net current assets
             1,316       2,968  
 
                    
 
                        
Net assets
             2,266       3,353  
 
                    
 
                        
Capital and reserves
                        
Called up share capital
     12       —       —  
Capital redemption reserve
     13       2,521       2,521  
Profit and loss account
     13       (255 )     832  
 
                    
 
                        
Shareholders’ funds
     14       2,266       3,353  
 
                    
The financial statements on pages 5 to 16 were approved by the board of directors and authorised for issue on March 12, 2008.
F Kleisner
Director

4

 

SC London Limited
Cash flow statement
for the year ended 31 December 2007
                                 
    Notes                     Unaudited  
          2007     2006     2005  
          £000     £000     £000  
 
                                
Net cash (outflow)/inflow from operating activities
     17       (65 )     1,310       132  
 
                                
Returns on investments and servicing of finance
     18       47       62       59  
 
                                
Taxation
             (294 )     (206 )     —  
 
                                
Capital expenditure
     18       (783 )     (219 )     (75 )
 
                                
Equity Dividend paid to shareholders
             (830 )     —       —  
 
                          
 
                                
(Decrease)/Increase in cash
             (1,925 )     947       116  
 
                          
Reconciliation of net cash flow to movement in
net funds for the year ended 31 December 2007
                                 
    Notes                     Unaudited  
          2007     2006     2005  
          £000     £000     £000  
 
                                
(Decrease)/Increase in cash in the year
             (1,925 )     947       116  
 
                                
 
                          
 
                                
Movements in net funds in the year
             (1,925 )     947       116  
Net funds at the start of the year
             3,300       2,353       2,237  
 
                          
 
                                
Net funds at the end of the year
     19       1,375       3,300       2,353  
 
                          

 

5

 

SC London Limited
Notes to the financial statements
for the year ended 31 December 2007
1 Principal accounting policies
The financial statements have been prepared under the historical cost convention and in accordance with applicable Accounting Standards in the United Kingdom. A summary of the more important accounting policies are set out below.
Turnover
Turnover represents food and beverage sales, stated net of value added tax. Turnover is wholly generated in the United Kingdom.
Fixed assets
Tangible fixed assets are stated at cost less depreciation and any provision for impairment. Assets are depreciated to their residual values on a straight line basis over their estimated useful lives as follows:
Fixtures, fittings and equipment 5 - 10 years
Stocks
Stocks are stated at the lower of cost and net realisable value.
Deferred taxation
Deferred taxation is provided in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events have occurred which result in an obligation to pay more or less tax in the future.
Deferred tax is measured at the average tax rates which apply in the period in which the timing differences are expected to reverse. Deferred tax is measured on a non-discounted basis.
Deferred tax assets are regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it is more likely than not that there will be adequate future taxable profits against which to recover carried forward tax losses.
Pension scheme
The company operates a defined contribution pension scheme. Contributions are charged to the profit and loss account in the period in which they are incurred.
Foreign currency transactions
Translations into sterling are made at the average of rates ruling throughout the period for profit and loss items and at the rate ruling at 31 December 2007 for assets and liabilities. Exchange differences arising in the ordinary course of trading are reflected in the profit and loss account.

6

 

SC London Limited
Dividends
Equity dividends are recognised when they become legally payable. Interim equity dividends are recognised when paid. Final equity dividends are recognised when approved by the shareholders at an annual general meeting.
2 Staff costs and employees
None of the directors received any remuneration in the year.
                         
    Unaudited  
    2007     2006     2005  
    £000     £000     £000  
Wages and salaries
     4,184       3,853       3,774  
Social security costs
     347       308       285  
Pension costs
     32       22       26  
 
                  
 
     4,563       4,183       4,085  
 
                  
                         
    Unaudited  
    2007     2006     2005  
The average number of employees in the year was:
                        
Operating staff
     310       303       317  
Management/administration
     13       10       10  
 
                  
 
     323       313       327  
 
                  
Funded defined contribution scheme for employees (group scheme)
Pension costs of £32,000 (2006: £22,000) were charged to the profit and loss account of which £nil (2006: £nil) was outstanding at the balance sheet date.
The pension scheme is held with Standard Life and is administered by Origen.
3 Gross profit
                         
    Unaudited  
    2007     2006     2005  
    £000     £000     £000  
Gross profit is stated after charging:
                        
Exceptional cost of sales
     —       —       321  
 
                  
Included within profit on ordinary activities before taxation is an exceptional cost of sales of £321,000, which related to a settlement with Her Majesty’s Revenue and Customs for National Insurance Contributions on certain staff for the period from April 1999 to April 2007. Applicable to this exceptional item is a tax credit of 30% of the charge.

7

 

SC London Limited
4 Operating profit
                         
    Unaudited  
    2007     2006     2005  
    £000     £000     £000  
This is arrived at after charging:
                        
Depreciation of tangible fixed assets
     104       226       277  
Loss on Disposal of Fixed Assets
     114       —       —  
 
                        
Auditors’ remuneration:
                        
Audit
     10       8       12  
 
                  
5 Tax on profit on ordinary activities
(a) Analysis of charge in the year
                         
    Unaudited  
    2007     2006     2005  
    £000     £000     £000  
United Kingdom corporation tax at 30%
     5       264       44  
Adjustments in respect of prior years
     169       7       (14 )
 
                  
Total tax charge (note 5 (b))
     174       271       30  
 
                        
Deferred taxation (note 11)
     48       4       (9 )
 
                  
 
                        
Tax on profit on ordinary activities
     222       275       21  
 
                  
(b) Factors affecting tax charge for the year
                         
    Unaudited  
    2007     2006     2005  
    £000     £000     £000  
Profit on ordinary activities before tax
     (35 )     895       111  
 
                  
Profit on ordinary activities multiplied by standard rate of corporation tax in the UK of 30% (2006: 30%)
     (5 )     268       33  
 
                        
Effects of:
                        
Expenses not deductible for tax purposes
     57       —       2  
Capital allowances (in excess of)/less than depreciation
     (14 )     (4 )     9  
Utilisation of tax losses
     (33 )     —       —  
Adjustments in respect of prior years
     169       7       (14 )
 
                  
Tax charge for the period (note 5(a))
     174       271       30  
 
                  
(c) Factors affecting future tax charges
No significant differences are envisaged for future periods.

8

 

SC London Limited
6 Dividends
                         
    Unaudited  
    2007     2006     2005  
    £000     £000     £000  
Amounts recognised as distributions to equity holders during the year
                        
The dividend payment recognised during 2007 was for the final dividend declared in respect of the period ended 31 December 2006 of £830,000
     830       —       —  
 
                
7 Fixed assets
         
    Fixtures,  
    fittings and  
    equipment  
    £000  
Cost
        
At 1 January 2007
     1,862  
Additions
     783  
Disposals
     (203 )
 
      
At 31 December 2007
     2,442  
 
      
 
        
Depreciation
        
At 1 January 2007
     1,477  
Charge for the year
     104  
Disposals
     (89 )
 
      
 
        
At 31 December 2007
     1,492  
 
      
 
        
Net book value
        
At 31 December 2007
     950  
 
      
 
        
At 31 December 2006
     385  
 
      
8 Stocks
                 
    2007     2006  
    £000     £000  
Consumables
     232       276  
 
          

9

 

SC London Limited
9 Debtors: amounts falling due within one year
                 
    2007     2006  
    £000     £000  
Trade debtors
     234       328  
Amounts due from related party undertaking (note 15)
     1,421       1,587  
Other debtors
     9       18  
Prepayments and accrued income
     31       34  
Deferred taxation (note 11)
     53       101  
 
            
 
     1,748       2,068  
 
            
The above amounts are due within one year with the exception of deferred tax.
10 Creditors: amounts falling due within one year
                 
    2007     2006  
    £000     £000  
Trade creditors
     386       616  
Amounts due to related party undertakings (note 15)
     —       232  
Taxation and social security
     618       644  
Accruals and deferred income
     891       920  
Corporation tax
     144       264  
 
            
 
     2,039       2,676  
 
            
11 Deferred taxation
                 
    2007     2006  
    £000     £000  
Depreciation in excess of capital allowances            
Balance at 1 January
     101       105  
Charged to the profit and loss account
     (48 )     (4 )
 
            
 
                
Balance at 31 December
     53       101  
 
            
12 Called up share capital
                 
    2007     2006  
    £000     £000  
Authorised
                
100,000 ordinary shares of £1 each
     100       100  
 
            
 
                
Allotted, called up and fully paid
                
1 ordinary shares of £1 each
     —       —  
 
            

10

 

SC London Limited
13 Reserves
                         
    Capital              
    redemption     Profit and loss        
    reserve     account     Total  
    £000     £000     £000  
Balance at 1 January 2007
     2,521       832       3,353  
Loss for the financial year
     —       (257 )     (257 )
Dividend Distribution
     —       (830 )     (830 )
 
                  
Balance at 31 December 2007
     2,521       (255 )     2,266  
 
                  
14 Reconciliation of movements in shareholders’ funds
                 
    2007     2006  
    £000     £000  
(Loss)/Profit for the financial year
     (257 )     620  
Dividend Distribution
     (830 )     —  
 
            
Opening shareholders’ funds
     3,353       2,733  
 
            
Closing shareholders’ funds
     2,266       3,353  
 
            
15 Related party transactions
Morgans Hotel Group London Limited
Morgans Hotel Group London Limited is a wholly owned subsidiary of Morgans Hotel Group Europe Limited, which is 50% owned by Morgans Hotel Group Co. SC London pays rent and recharged expenditure to Morgans Hotel Group London Limited, which totalled £3,699,000 (2006: £3,729,000).
Chodorow Ventures LLC
SC London pays a management fee to Euro Management Group Inc., an affiliate of Chodorow Ventures LLC, a company in which one of the directors has an interest. Amounts paid in the period totalled £463,000 (2006: £478,000).
The directors confirm that there were no related party transactions other than those disclosed in these financial statements and that all transactions were undertaken on an arms length basis.

11

 

SC London Limited
                 
    2007     2006  
    £000     £000  
Debtors
                
Clift Holdings LLC
     1       3  
SC London LLC
     1,105       1,474  
Morgans Hotel Group London Limited
     215       —  
Morgans Hotel Group Co
     50       54  
Chodorow Ventures LLC
     50       56  
 
            
 
     1,421       1,587  
 
            
The debtor balance with SC London LLC, the company’s immediate parent undertaking, relates to an unsecured loan with interest charged at a notional rate totalling £1,105,000 (2006: £1,474,000). The amount is repayable on demand.
The debtor balances with Morgans Hotel Group Co and Chodorow Ventures LLC both relate to $100,000 unsecured loans with interest charged at a notional rate. This amounts to £50,000 translated into sterling at the year end exchange rate (2006: £54,000). The loans are repayable on demand. In 2006 there was an additional £2,000 trading debtor with Chodorow Ventures LLC, this has now been repaid.
                 
    2007     2006  
    £000     £000  
Creditors: amounts falling within one year
                
Morgans Hotel Group London Limited
     —       231  
Henry Hudson Holdings LLC
     —       1  
 
            
 
     —       232  
 
            
16 Ultimate parent company
The company is a subsidiary of SC London LLC. Morgans Hotel Group Co owns 50% of SC London LLC, the remaining 50% being owned by Chodorow Ventures LLC. All the above companies are registered in the U.S.A. The principle place of business of Morgans Hotel Group Co is 475 10th Avenue, New York, NY 10018, USA. The principle place of business of Chodorow Ventures LLC is 16400 NW Second Avenue, Suite 200, Miami, FL 33169, USA.

12

 

SC London Limited
17 Reconciliation of operating profit to net cash (outflow)/inflow from operating activities
                         
    Unaudited  
    2007     2006     2005  
    £000     £000     £000  
Operating (loss)/profit
     (82 )     833       52  
Depreciation and loss on disposal
     218       226       277  
(Increase) / decrease in stock
     44       (77 )     24  
(Increase) / decrease in debtors
     272       (125 )     (104 )
Increase / (decrease) in creditors
     (517 )     453       (117 )
 
                  
Net cash (outflow)/inflow from operating activities
     (65 )     1,310       132  
 
                  
18 Analysis of cash flows
                         
    Unaudited  
    2007     2006     2005  
    £000     £000     £000  
Return on investment and servicing of finance
                        
Interest received
     47       62       59  
 
                  
Capital expenditure
                        
Purchase of tangible fixed assets
     (783 )     (219 )     (75 )
 
                  
19 Analysis of changes in net debt
                         
    At 1 January             At 31  
    2007     Cash flows     December 2007  
    £000     £000     £000  
Cash at bank and in hand
     3,300       (1,925 )     1,375  
 
                  
Net funds
     3,300       (1,925 )     1,375  
 
                  

13

 

SC London Limited
20 Summary of differences between United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) and United States Generally Accepted Accounting Principles (“US GAAP”)
There are no material differences between profit for the financial year as reported under UK GAAP and that reported under US GAAP. In addition there are no material differences between shareholders’ funds at either 31 December 2007 or 31 December 2006 as reported under UK GAAP and that reported under US GAAP.
Financial statement presentation
The balance sheet prepared in accordance with UK GAAP differs in certain respects from US GAAP. Under UK GAAP, current assets are netted against current liabilities in the balance sheet whereas US GAAP requires the separate presentation of total assets and total liabilities. UK GAAP requires assets to be presented in ascending order of their liquidity, whereas under US GAAP assets are presented in descending order of liquidity.
Cash flow statement
The cash flow statement presented under UK GAAP has been prepared in accordance with FRS 1 (revised), “Cash Flow Statements”. There are certain differences from UK GAAP to US GAAP with regard to the classification of items within the cash flow statement and with regard to the definition of cash and cash equivalents. In accordance with FRS 1, cash flows are prepared separately for operating activities, returns on investment and servicing of finance, taxation, capital expenditure and financial investment, acquisitions and disposals, equity dividends paid, management of liquid resources and financing.
US GAAP, however, requires only three categories of cash flow activity to be reported. Under SFAS No. 95, “Statement of Cash Flows”, cash flows are classified under operating activities (including cash flows from taxation and returns on investment and servicing of finance), investing activities and financing activities.
A summary of the Company’s operating, investing and financing activities classified in accordance with US GAAP is presented below:
                         
    Unaudited  
    2007     2006     2005  
    £000     £000     £000  
Net cash provided by operating activities
     (312 )     1,166       191  
Net cash used in investing activities
     (1,613 )     (219 )     (75 )
 
                  
Net increase/(decrease) in cash
     (1,925 )     947       116  
Cash and cash equivalents at beginning of period
     3,300       2,353       2,237  
 
                  
Cash and cash equivalents at end of period
     1,375       3,300       2,353  
 
                  

 

14