NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION Financial Statements For the Years Ended June 30, 2010 and 2009
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION
TABLE OF CONTENTS
PAGE NO.
Independent Auditors’ Report.........................................................................................
1
Statements of Financial Position ....................................................................................
2
Statements of Activities ..................................................................................................
3
Statements of Cash Flows .............................................................................................
5
Notes to Financial Statements .......................................................................................
6
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of North Carolina Performing Arts Center At Charlotte Foundation
We have audited the accompanying statement of financial position of North Carolina Performing Arts Center at Charlotte Foundation (the "Foundation") as of June 30, 2010, and the related statements of activities and cash flows for the year then ended. These financial statements are the responsibility of the Foundation's management. Our responsibility is to express an opinion on these financial statements based on our audit. The 2009 financial statements were audited by other auditors whose report dated February 2, 2010, expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes 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 Foundation’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, 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 2010 financial statements referred to above present fairly, in all material respects, the financial position of North Carolina Performing Arts Center at Charlotte Foundation as of June 30, 2010, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Charlotte, North Carolina October 29, 2010
Page 1
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION STATEMENTS OF FINANCIAL POSITION June 30, 2010 and 2009
2010
2009
ASSETS Current Assets Cash and cash equivalents Receivables: Pledges, net Operations accounts receivable, net Prepaid and other current assets
$
6,295,752
$
5,294,697
9,025 1,237,913 758,668
85,515 1,087,452 570,730
8,301,358
7,038,394
261,365 2,535,871 252,334 1,946,904
303,431 2,446,686 287,423 1,732,941
4,996,474
4,770,481
9,926,572 6,533,667 5,786,392
188,166 5,508,969 4,968,363
TOTAL RESTRICTED ASSETS
22,246,631
10,665,498
TOTAL ASSETS
$ 35,544,463
$ 22,474,373
TOTAL CURRENT ASSETS Non-current Assets Investments in performances Long-term investments Nonqualified deferred compensation plan assets Property and equipment, net TOTAL NON-CURRENT ASSETS Restricted Assets Present value of future lease contributions Endowment investments Beneficial interest in assets held in trust
The accompanying notes are an integral part of these financial statements.
Page 2
2010
2009
LIABILITIES Current Liabilities Accounts payable Accrued expenses Capital lease obligations, current Deferred revenues
$
TOTAL CURRENT LIABILITIES
1,014,787 891,543 25,265 6,749,025
$
149,533 728,730 7,090,322
8,680,620
7,968,585
80,007 418,319
440,183
9,178,946
8,408,768
3,649,189 11,146,228 11,570,100
2,844,803 436,520 10,784,282
TOTAL NET ASSETS
26,365,517
14,065,605
TOTAL LIABILITIES AND NET ASSETS
$ 35,544,463
$ 22,474,373
Capital lease obligations, net of current portion Nonqualified deferred compensation liability TOTAL LIABILITIES Net Assets Unrestricted Temporarily restricted Permanently restricted
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION STATEMENTS OF ACTIVITIES Years Ended June 30, 2010 and 2009
2010
2009
CHANGES IN UNRESTRICTED NET ASSETS Operating Activities Operating revenues and other support Theater event collections Contributions and grant revenues Building maintenance support Present value adjustments of future lease contributions Return on investments available for operations Other revenues Allocation of allowable endowment balance for spending Net assets released from restriction
24,196,177 2,101,959 1,262,795
$ 16,133,659 2,119,976 1,527,039
706,325 112,479 40,483
430,273 122,806 6,432
990,273
200,000 725,447
TOTAL OPERATING REVENUES AND OTHER SUPPORT
29,410,491
21,265,632
Operating expenses Program expenses: Events Operations Donated rental expense Total program expenses Development Management and general TOTAL OPERATING EXPENSES
18,820,418 7,692,568 1,384,000 27,896,986 324,252 691,817 28,913,055
12,848,428 6,435,718 1,154,000 20,438,146 368,353 418,423 21,224,922
NET RESULTS FROM OPERATIONS
497,436
40,710
Nonoperating Activities Return on investments Cumulative effect of accounting change CHANGE IN UNRESTRICTED NET ASSETS
$
306,950 -
(383,657) (1,079,262)
804,386
(1,422,209)
The accompanying notes are an integral part of these financial statements.
Page 3
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION STATEMENTS OF ACTIVITIES (Continued) Years Ended June 30, 2010 and 2009
2010 Changes in Temporarily Restricted Net Assets Contributions Allocation of allowable endowment balance for spending Return on investments Change in beneficial interest of assets held in trust Cumulative effect of accounting change Net assets released from restriction
11,273,391
CHANGE IN TEMPORARILY RESTRICTED NET ASSETS
-
391,338
(200,000) (879,262)
35,252 (990,273)
1,079,262 (725,447)
10,709,708
Changes in Permanently Restricted Net Assets Contributions Change in beneficial interest of assets held in trust
2009
3,041
(725,447)
-
782,777
(286,611)
CHANGE IN PERMANENTLY RESTRICTED NET ASSETS
785,818
(286,611)
CHANGE IN NET ASSETS
12,299,912
(2,434,267)
14,065,605
16,499,872
26,365,517
$ 14,065,605
NET ASSETS, beginning of year NET ASSETS, end of year
$
The accompanying notes are an integral part of these financial statements.
Page 4
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION STATEMENTS OF CASH FLOWS Years Ended June 30, 2010 and 2009 2010
2009
$ 12,299,912
$ (2,434,267)
CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets Adjustments to reconcile change in net assets to net cash flows provided by operating activities Depreciation Realized and unrealized (gains) losses Net change in beneficial interest in assets held in trust Change in present value of future lease contributions Change in allowance for doubtful accounts Change in operating assets and liabilities Pledges receivable Operations accounts receivable Prepaid and other current assets Accounts payable Accrued expenses Deferred revenues NET CASH PROVIDED BY OPERATING ACTIVITIES
NET CASH USED IN INVESTING ACTIVITIES CASH FLOWS FROM FINANCING ACTIVITIES Principal payments on capital lease obligations
107,396 (160,461) (187,938) 865,254 162,813 (341,297)
63,172 (325,477) (158,899) (226,730) 138,139 2,101,514 1,821,796
(226,198) (326,410)
(93,699) -
42,066
(1,338)
35,089
159,827
(21,864) (467,528)
(87,517) (763,891)
(964,845)
(786,618)
(21,056)
NET CHANGE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS, Beginning of year
NONCASH INVESTING AND FINANCING ACTIVITIES Purchases of property and equipment under capital lease
268,805 1,396,301 286,611 723,727 (11,100)
1,986,956
CASH FLOWS FROM INVESTING ACTIVITIES Purchase of long-term investments, net of sales of long-term investments Purchases of endowment investments Advances for future performances, net of royalties received Net change in nonqualified deferred compensation plan assets Net change in nonqualified deferred compensation plan liability Purchases of property and equipment
CASH AND CASH EQUIVALENTS, End of year
379,893 (561,275) (818,029) (9,738,406) (20,906)
-
1,001,055
1,035,178
5,294,697
4,259,519
$
6,295,752
$
$
126,328
$
The accompanying notes are an integral part of these financial statements.
5,294,697
-
Page 5
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES North Carolina Performing Arts Center at Charlotte Foundation, a nonprofit organization incorporated on May 8, 1987, operates as the North Carolina Blumenthal Performing Arts Center (“NCBPAC”) to present the best in the performing arts, and in partnership with others, share and employ the arts as a major catalyst to strengthen education, build community cohesiveness, and advance economic growth. NCBPAC manages the operation of three performance spaces located in the Blumenthal Performing Arts Center (the “Center”): the 2,097-seat Belk Theater, the 444-seat Booth Playhouse, and the Stage Door Theater which seats 170. A fourth performance space, the 1,193-seat Knight Theater, was completed in the Fall of 2009. NCBPAC also manages the operation of Spirit Square Center for Arts and Education (“Spirit Square”), a community center focusing on arts education and community theater, which includes the 730-seat McGlohon Theater and the Duke Energy Theater which seats 182. NCBPAC presents national touring Broadway productions and a wide range of special attractions. Additionally, NCBPAC’s Education Institute and its Community Programs Division develop innovative partnerships with schools and community organizations to bring the performing arts to life for people throughout the region. NCBPAC is home to six resident arts organizations including Charlotte Symphony Orchestra, Opera Carolina, North Carolina Dance Theater, Community School of the Arts, The Light Factory, and Queen City Theater Company. The Center and the Knight Theaters are owned by the City of Charlotte, North Carolina (the “City”) and Spirit Square Center is owned by Mecklenburg County, North Carolina (the “County”) (see Note J). Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows: Unrestricted net assets – Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets – Net assets subject to donor-imposed stipulations that may or will be met, either by specific actions of NCBPAC and/or the passage of time. When a restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions. Permanently restricted net assets – Net assets subject to donor-imposed stipulations that they be maintained permanently by NCBPAC. Generally, the donors of these assets permit NCBPAC to use all or part of the income earned on any related investments for general or specific purposes. Cash and Cash Equivalents For the Statement of Financial Position and Statement of Cash Flows, NCBPAC considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents unless held by investment managers as part of the investment portfolio.
Page 6
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable Accounts receivable are stated at unpaid balances, less an allowance for doubtful accounts of $23,000 and $13,000 at June 30, 2010 and 2009, respectively. NCBPAC provides for losses on accounts receivable using the allowance method. The allowance is based on experience and other circumstances which may affect the ability of customers to meet their obligations. Receivables are considered impaired if full principal payments are not received in accordance with the contractual terms. It is NCBPAC’s policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. Investments Investments are valued at their fair value. Fair value is determined by reference to exchange or dealerquoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar investment securities. Changes in the fair value of securities are reflected in return on investments in the accompanying Statement of Activities. See Note D for discussion of fair value measurements. Investments in Performances NCBPAC is a limited partner in several limited liability partnerships that invest in theatrical stage productions. NCBPAC’s ownership percentage in each limited liability partnership is less than 5%. The investment in these limited liability partnerships is accounted for using the cost method, and income recognized is limited to distributions received from the partnerships in excess of NCBPAC’s original investment. Property and Equipment All acquisitions of property and equipment in excess of $2,500 and all expenditures for repairs, maintenance, renewals, and betterments in excess of $2,500 that materially prolong the useful lives of assets are capitalized. Property and equipment is stated at cost when purchased, and at estimated market value when donated. NCBPAC records depreciation of its property and equipment using the straight-line method over the estimated useful life of the asset. The estimated useful lives of NCBPAC’s assets are twenty years for the organ façade and building improvements and three to ten years for all other assets. Beneficial Interest of Assets Held in Trust NCBPAC recognizes contribution revenue from assets donated to a recipient organization for the sole benefit of NCBPAC.
Page 7
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Donated Services NCBPAC records the value of donated services and equipment in its financial statements if a basis is available to measure the value of such services and equipment. Donated services are generally recognized if such services enhance nonfinancial assets and require a specialized skill. The amounts are included in contributions and grant revenues on the accompanying Statement of Activities. No amounts have been reflected in the financial statements for donated services. NCBPAC generally pays for services requiring specific expertise. Community members volunteer as ushers, tour guides, administrative assistants, and advisors. A dollar valuation of their efforts is not reflected in the financial statements, however the estimated volunteer hours for the years ended June 30, 2010 and 2009 were as follows: 2010 Total volunteer hours (unaudited)
56,000
2009 54,000
Revenue Recognition In the absence of donor restrictions, contributions are considered to be available for unrestricted use. All income is recognized in the period when the contribution, pledge, or unconditional promise to give is received. Government funding and grants are recorded as unrestricted revenue as funds are reimbursements for expenditures made by NCBPAC. Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are recorded at the present value of their net realizable value, using risk-free interest rates applicable to the years in which the pledges are received. Amortization of the resulting discount is taken into income as a contribution in subsequent years. Deferred revenue represents cash received from advance ticket sales and season sponsorships. Ticket sale revenue is recorded after the related performances are completed and associated cost settlements are calculated. Sponsorship revenue is recognized in the fiscal year specified in the sponsorship contract. Advertising Costs Advertising costs related to specific events are deferred and amortized in the period of the event. NCBPAC charges advertising costs to events as incurred on the accompanying Statement of Activities. Advertising expense for the years ended June 30, 2010 and June 30, 2009 was approximately $1,715,000 and $1,087,000, respectively. Tax Status In the United States Treasury Department determination letter dated October 15, 1992, NCBPAC was determined to be tax exempt under Section 501(c)(3) of the Internal Revenue Code. Accordingly, there are no income taxes provided for in the accompanying financial statements. NCBPAC has determined that it does not have any material unrecognized tax benefits or obligations as of June 30, 2010. Page 8
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent Events NCBPAC evaluated the effect subsequent events would have on the financial statements through October 29, 2010, which is the date the financial statements were available to be issued. Reclassifications Certain reclassifications have been made to the 2009 financial statements to conform to the current year presentation.
NOTE B – RECLASSIFICATION OF FUNDS In accordance with GAAP for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (“UPMIFA”), NCBPAC reclassified certain donor restricted endowment funds from unrestricted net assets to temporarily restricted net assets during the year ended June 30, 2009. The net effect of these reclassifications is a decrease in unrestricted net assets and an increase in temporarily restricted net assets of $1,079,262.
NOTE C – PLEDGES RECEIVABLE Pledges receivable represent all outstanding commitments for contributions to NCBPAC. Pledges are recorded as a receivable at the time a written pledge is received. Pledges receivable are expected to be realized in the following periods at June 30: 2010 Receivable in less than one year Less: Allowance for uncollectible pledges Total pledges receivable, net
$ $
38,996 (29,971) 9,025
2009 $ $
146,392 (60,877) 85,515
Page 9
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE D – FAIR VALUE MEASUREMENTS The Financial Accounting Standards Board (“FASB”) issued a statement that defines fair value and establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices 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 are described as follows: Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets. The types of financial instruments which would generally be included in Level 1 are listed equity securities. Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived 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. The types of financial instruments which would generally be included in Level 2 are governmental and corporate bonds. Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement. The types of financial instruments which would generally be included in Level 3 are units in common investment trust funds, hedge funds, general and limited liability partnership interests in corporate and private equity and real estate funds, and interests in pooled investments held by a third party. The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The valuation methodologies applied by the NCBPAC may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although NCBPAC believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. There have been no changes in the methodologies used at June 30, 2010 and 2009.
Page 10
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE D – FAIR VALUE MEASUREMENTS (Continued) The following tables set forth by level, within the fair value hierarchy, NCBPAC investments at fair value as of June 30, 2010 and 2009: June 30, 2010 Level 2 Level 3
Level 1
Fair Value
Long-term investments: Cash and cash equivalents $ Fixed income
---
$
111,651 2,424,220
$
---
$
111,651 2,424,220
Total long-term investments$
--
$
2,535,871
$
--
$
2,535,871
--
$
--
$
6,533,667
$
6,533,667
Restricted investments: Endowment investments $ Beneficial interest in assets held in trust
--
Total restricted investments $
--
$
--
5,786,392
5,786,392
--
$ 12,320,059
$ 12,320,059
June 30, 2009 Level 2 Level 3
Level 1
Fair Value
Long-term investments: Cash and cash equivalents $ Fixed income
---
$
43,116 2,403,570
$
---
$
43,116 2,403,570
Total long-term investments$
--
$
2,446,686
$
--
$
2,446,686
--
$
--
$
5,508,969
$
5,508,969
Restricted investments: Endowment investments $ Beneficial interest in assets held in trust
--
Total restricted investments $
--
$
--
4,968,363
4,968,363
--
$ 10,477,332
$ 10,477,332
The investment portion of the beneficial interest in assets held in trust and endowment investments are considered by NCBPAC to be Level 3 assets because they represent interests held in pooled investment funds, which include private investment funds. As discussed in Notes E and F, the Foundation For The Carolinas (“FFTC”) manages the administration of these investments.
Page 11
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE D – FAIR VALUE MEASUREMENTS (Continued) For the assets measured at fair value on a recurring basis using Level 3 valuations during the period, the following tables provide a reconciliation of beginning and ending balances for the years ended June 30, 2010 and 2009: Beneficial Interest in Assets Held In Trust
Endowment Investments Balance, July 1, 2009
$
Investment return: Investment income, net of expenses Realized and unrealized gains
Contributions Change in beneficial interest of assets held in trust Balance, June 30, 2010
$
5,508,969
$
85,888 612,400 698,288
----
326,410
--
--
818,029
6,533,667
$
$
Investment return: Investment income, net of expenses Realized and unrealized losses
Withdrawals Change in beneficial interest of assets held in trust Balance, June 30, 2009
6,917,839
$
5,254,974
84,946 (1,293,816) (1,208,870)
----
(200,000)
--
-$
5,786,392
Beneficial Interest in Assets Held In Trust
Endowment Investments Balance, July 1, 2008
4,968,363
5,508,969
(286,611) $
4,968,363
Page 12
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE E – ENDOWMENT INVESTMENTS AND LONG-TERM INVESTMENTS Investments are carried at fair value and realized and unrealized gains and losses are reflected in the Statement of Activities. The fair value of investments at June 30, 2010 and 2009 is summarized below: 2010 Endowment investments Cash/Fixed Income Hedge Funds Alternative investments Equities Total Endowment
$
$
2,187,149 1,069,685 516,892 2,759,941 6,533,667
2009 $
$
2010 Long-term investments Cash and cash equivalents Bonds Total long-term investments
$ $
111,651 2,424,220 2,535,871
1,631,947 826,345 426,244 2,624,433 5,508,969
2009 $ $
43,116 2,403,570 2,446,686
NCBPAC’s endowment investments are held by the Greater Charlotte Cultural Trust (the “Trust”). The Trust, which is a supporting foundation of the FFTC, is a separate legal entity with its own board of directors which oversees endowment administration, evaluates planned giving opportunities, and makes investment decisions. FFTC, a nonprofit organization that serves donors, communities, and a broad range of charitable purposes in North and South Carolina, provides investment and administrative services for the Trust. The Trust invests in a variety of investments, which are subject to fluctuations in market values and expose the Trust to a certain degree of interest and credit risk. The Trust has investments with fund managers who invest in private investment funds as part of the Trust’s asset allocation. The investment in the private investment funds is an alternative investment strategy with the purpose of increasing the diversity of the Trust’s holdings and is consistent with the Trust’s overall investment objectives. The private investment funds are not traded on an exchange, and accordingly, investments in such funds may not be as liquid as investments in marketable equity or debt securities. The private investment funds may invest in other private investment funds, equity or debt securities, which may or may not have readily available fair values, and foreign exchange or commodity forward contracts. Management of the Trust relies on various factors to estimate the fair value of these investments and believes its processes and procedures for valuing investments are effective and that its estimate of value is reasonable. However, the factors used are subject to change in the near term, and, accordingly, investment values and performance can be affected. The effect of these changes could be material to the financial statements.
Page 13
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE E – ENDOWMENT INVESTMENTS AND LONG-TERM INVESTMENTS (Continued) The following summarizes the investment return and classification in the Statement of Activities for the years ended June 30: 2010 Interest and dividend income Realized and unrealized gains (losses) on investments Return on investments Less: Return on investments available for operations Return on investments, net of return on investments available for operations
2009
$
249,492 561,275 810,767 (112,479)
$
256,188 (1,396,301) (1,140,113) (122,806)
$
698,288
$
(1,262,919)
NOTE F – BENEFICIAL INTEREST IN THE CAMPAIGN FOR CULTURAL FACILITIES NCBPAC has a beneficial interest in assets held in trust by the Trust. In 2004, the Trust completed the Cultural Organizations Endowment Agreement related to the Campaign for Cultural Facilities. The agreement outlines the approximately $82.3 million campaign to fund facility endowments to support the operation of new or remodeled facilities as well as other endowment and capital needs in the cultural community. In support of the campaign, corporations and individuals have pledged approximately $70 million as of June 30, 2010. The campaign ended in April 2010. NCBPAC is party to this agreement and is budgeted to be allocated $8 million since the campaign reached its fundraising goal. In accordance with the agreement, the funds will be used to create an endowment, with the earnings to be distributed annually to fund operating costs of the facilities. Although NCBPAC has no control over the disbursement of these funds, NCBPAC is a named beneficiary of a portion of these funds. Accordingly, a beneficial interest has been included in the NCBPAC’s assets totaling $5,786,392 and $4,968,363 as of June 30, 2010 and 2009, respectively, representing NCBPAC’s interest in funds raised to date.
NOTE G – ENDOWMENT FUNDS NCBPAC’s endowment consists of six individual funds established for a variety of purposes that are invested at the Trust (see Note E). The endowment consists of donor-restricted endowment funds. As required by GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. GAAP also provides guidance on the net asset classification of donor restricted endowment funds for a not-for-profit organization that is subject to an enacted version of UPMIFA.
Page 14
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE G – ENDOWMENT FUNDS (Continued) Endowment net asset composition by type of fund for the investment portion of the endowment as of June 30, 2010 and 2009 is listed below: Temporarily Restricted
Unrestricted June 30, 2010: Donor-restricted endowment funds
$
June 30, 2009: Donor-restricted endowment funds
$
--
(306,950)
Permanently Restricted
Total
$
753,000
$ 11,567,059
$ 12,320,059
$
--
$ 10,784,282
$ 10,477,332
The Board of Directors of NCBPAC has interpreted UPMIFA as requiring, absent explicit donor stipulations to the contrary, that the following amounts included in the endowment be classified as permanently restricted: (a) the original value of gifts donated to the permanent endowment and (b) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund be classified as permanently restricted. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by NCBPAC in a manner consistent with the standard of prudence prescribed by UPMIFA or spent in accordance with the purpose restrictions established by the donor. In accordance with UPMIFA, NCBPAC considered the following factors in making a determination to appropriate or accumulate donor-restricted endowments funds: 1. 2. 3. 4. 5. 6. 7.
The duration and preservation of the fund The purposes of NCBPAC and the donor-restricted endowment fund General economic conditions The possible effect of inflation and deflation The expected total return from income and the appreciation of investments Other resources of NCBPAC The investment policies of NCBPAC
Page 15
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE G – ENDOWMENT FUNDS (Continued) FFTC administers the endowed funds of the Trust. The Board of Directors of the Trust and ultimately NCBPAC have adopted investment and spending policies for endowment assets that attempt to provide for a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, the endowment assets are invested in a manner that is intended to produce results that provide an average annual real rate of return, net of fees, equal to or greater than spending, administrative fees, and inflation (Consumer Price Index). Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the Trust relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). Accordingly, the Trust has adopted the following investment allocation guidelines: Equities – large cap Equities – small cap Equities – emerging market Equities – international Fixed income Private investment funds
40% - 80% 10% - 30% 7.5% - 22.5% 2.5% - 7.5% 20% - 30% 8% - 32%
The Trust had a policy of appropriating for distribution each year 5% of the endowment funds’ average fair value using the prior 3 years’ value at the calendar year-end preceding the fiscal year in which the distribution is planned. For the year ending June 30, 2010, the spending policy was amended to spend up to a maximum of 4% of the average fair value over the prior twelve quarters through the calendar year preceding the fiscal year in which the distribution is planned. The amended policy will be evaluated on an annual basis for prudence. In establishing the spending policy, the expected return on the endowment was taken into consideration. Accordingly, the spending policy is expected to allow the endowment to maintain its purchasing power by growing at a rate equal to planned payouts. Additional real growth will be provided through new gifts and any excess investment return.
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NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE G – ENDOWMENT FUNDS (Continued) Changes in the investment portion of the endowment net assets for the years ended June 30, 2010 and 2009 are as follows: Temporarily Restricted
Permanently Restricted
Total
--
$ 10,784,282
$ 10,477,332
--
85,888
--
85,888
306,950 306,950
305,450 391,338
---
612,400 698,288
Contributions
--
326,410
--
326,410
Change in beneficial interest of assets held in trust
--
35,252
782,777
818,029
753,000
$ 11,567,059
$ 12,320,059
Unrestricted Endowment net assets, July 1, 2009
$
Investment return (loss): Investment income, net of expenses Realized and unrealized gains Total investment gains
Endowment net assets, July 30, 2010
$
(306,950)
--
$
$
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NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE G – ENDOWMENT FUNDS (Continued) Temporarily Restricted
Unrestricted Endowment net assets, July 1, 2008
$
Net asset reclassification based on cumulative effect of accounting change Investment return (loss): Investment income, net of expenses Realized and unrealized losses Total investment loss
1,101,920
(1,101,920)
-(306,950) (306,950)
Amounts appropriated for expenditure
--
Change in beneficial interest of assets held in trust
--
Endowment net assets, July 30, 2009
$
$
(306,950)
Permanently Restricted
Total
--
$ 11,070,893
$ 12,172,813
1,101,920
--
--
84,946
--
84,946
(986,866) (901,920)
---
(1,293,816) (1,208,870)
(200,000)
--
(200,000)
--
$
--
(286,611)
$ 10,784,282
(286,611)
$ 10,477,332
From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the amount recorded by NCBPAC as permanently restricted net assets (corpus). The amount by which fair value was below corpus at June 30, 2009 was $306,950. This resulted from unfavorable market fluctuations during the fiscal year 2009 and continued appropriation for certain programs that was deemed prudent by the Board of Directors. Subsequent gains during fiscal year 2010 restored the fair value of the assets of the endowment fund to the required level and the gains of $306,950 were classified as an increase in unrestricted net assets. At June 30, 2010, the fair value of each individual fund exceeded corpus.
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NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE H – PROPERTY AND EQUIPMENT At June 30, 2010 and 2009, property and equipment consisted of the following: 2010 Leasehold improvements Computer equipment Building equipment Organ façade Furniture and office equipment Construction in process Total property and equipment Less: accumulated depreciation Net property and equipment
$
$
1,843,992 1,977,966 1,091,213 182,601 632,805 -5,728,577 (3,781,673) 1,946,904
2009 $
$
1,821,352 1,802,161 749,192 182,601 471,149 108,266 5,134,721 (3,401,780) 1,732,941
NCBPAC leases its facilities from the City of Charlotte, North Carolina and Mecklenburg County, North Carolina. See Note J. NOTE I – CAPITAL LEASE
NCBPAC leases certain office equipment which is recorded as a capital lease in accordance with GAAP, with related assets and liabilities recorded. Cost of equipment of $126,328 and accumulated amortization of $19,986, are included in property and equipment and accumulated depreciation as of and for the year ended June 30, 2010. Future minimum lease payments under the capital lease is as follows: Year Ending June 30, 2011 2012 2013 2014 2015
$
$
25,265 25,265 25,265 25,265 4,212 105,272
NOTE J – RELATIONSHIP TO CITY OF CHARLOTTE AND MECKLENBURG COUNTY During the year ended June 30 2010, NCBPAC entered into agreements with the City to lease and operate the Center and Knight Theater. NCBPAC also has an agreement with the County to lease and operate Spirit Square. NCBPAC leases each facility for $1 per year. The agreement to lease the Center expires on October 2, 2019, the agreement to lease the Knight Theater expires on June 30, 2039, and the agreement to lease Spirit Square expired on June 30, 2007 at which time it converted to a month to month agreement.
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NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE J – RELATIONSHIP TO CITY OF CHARLOTTE AND MECKLENBURG COUNTY (Continued) In accordance with GAAP, NCBPAC records the fair market value of the leases each year. In addition, NCBPAC records the present value of the future leasehold benefits of the City leases for the remaining life of the current lease obligations. The present value of these benefits has been computed using discount rates of 3.2% and 4.3%. NCBPAC recorded the fair value of the leases of $1,384,000 and $1,154,000 as donated rental expense and a corresponding release from restricted net assets, net of amortization of the discount, in the accompanying Statements of Activities for the years ended June 30, 2010 and 2009, respectively.
NOTE K – DEFERRED REVENUES AND PREPAID EVENT EXPENSES NCBPAC recognizes revenues and expenses related to an event at the time of the performance. At June 30, 2010 and 2009, the Center had received approximately $6.8 million and $7 million, respectively, in advance ticket sales and advertising revenue which have been deferred to the succeeding fiscal year. Related prepaid event expenses were approximately $504,000 and $289,000 at June 30, 2010 and 2009, respectively. In addition, NCBPAC has deferred advertising revenue of approximately $76,000 and $24,000 at June 30, 2010 and 2009, respectively, related to performances that occur in the succeeding fiscal year.
NOTE L – EMPLOYEE BENEFIT PLANS NCBPAC sponsors a 403(b) defined contribution pension plan for full-time employees with a minimum of one year of service who are not covered by a collective bargaining agreement. NBPAC contributes 2% of each participant’s compensation to the plan, and matches up to 3% of employee contributions. For the years ended June 30, 2010 and 2009, NCBPAC’s contribution to the plan was approximately $90,000 and $110,000, respectively. NCBPAC provides separate supplemental employee retirement plans for its president and former president. The former president is covered under an annuity contract which, beginning in fiscal 1998, was partially funded by investing in a trust which NCBPAC is the owner of the trust assets. The current president is covered under a defined contribution plan. NCBPAC recorded expenses related to the plans of $13,225 and $15,500 for the years ended June 30, 2010 and 2009, respectively. The trust assets are recorded as an asset in NCBPAC’s financial statements and the corresponding liability has also been recorded.
NOTE M – CONCENTRATION OF SOURCE OF SUPPLY OF LABOR Some of NCBPAC’s employees (representing approximately 18% and 19% of payroll expense for the years ended June 30, 2010 and 2009, respectively) are members of the International Alliance of Theatrical Stage Employees Local #322. NCBPAC’s contract with the union is subject to renegotiation for the fiscal year ended June 30, 2013. NCBPAC’s other employees are not represented by a union.
Page 20
NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009
NOTE N – TEMPORARILY/PERMANENTLY RESTRICTED NET ASSETS NCBPAC’s temporarily restricted net assets released from restriction were as follows: 2010 Donated rental expense, net of amortization of discount Donor designated gifts released Total Temporarily Restricted Net Assets Released From Restriction
2009
$
677,675 312,598
$
723,797 1,650
$
990,273
$
725,447
NCBPAC’s temporarily restricted net assets are for the following purposes: 2010 Gross value of leaseholds with City and County Less: net rental expense recognized to date Present value of leaseholds with City and County Knight Theater contingency fund Booth Playhouse endowment Performing arts scholarship fund Expanding Horizons: Broadway experience program Duke Energy 2011 sponsorship Investment gains: Endowment funds Organ fund Beneficial interest in assets held in trust Other temporarily restricted net assets Total temporarily restricted net assets
$ 10,416,081 (489,509) 9,926,572 60,000 226,410 100,000 100,000 110,000 391,338 139,152 35,252 57,504 $ 11,146,228
2009 $
$
7,353,243 (7,165,077) 188,166 ------139,152 -109,202 436,520
NCBPAC’s permanently restricted net assets are for the following purposes: 2010 Operating endowment for the Center Beneficial interest in assets held in trust Education institute endowment Seats endowment Total permanently restricted net assets
$
5,564,662 5,751,140 253,041 1,257 $ 11,570,100
2009 $
5,564,662 4,968,363 250,000 1,257 $ 10,784,282
NOTE O – CONCENTRATIONS NCBPAC places its cash and cash equivalents on deposit with financial institutions in the United States. During the year, NCBPAC typically has amounts on deposit in excess of the federally insured limits of $250,000 per financial institution.
Page 21