The Joffrey Ballet - FY20 Financial Report by The Joffrey Ballet

The Joffrey Ballet Financial Report June 30, 2020

Contents Independent auditor's report

Financial statements Statements of financial position

Statements of activities

3-4

Statements of functional expenses

5-6

Statements of cash flows Notes to financial statements

7 8-20

Independent Auditor's Report Board of Directors The Joffrey Ballet Report on the Financial Statements We have audited the accompanying financial statements of The Joffrey Ballet, which comprise the statements of financial position as of June 30, 2020 and 2019, and the related statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits 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 from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Joffrey Ballet as of June 30, 2020 and 2019, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.

Chicago, Illinois December 10, 2020

The Joffrey Ballet Statements of Financial Position June 30, 2020 and 2019 2019

2020 Assets Cash and cash equivalents Operating pledges receivable Other receivables Endowment cash and cash equivalents Endowment investment Endowment pledges receivable Prepaid expenses Other assets

Property and equipment

4,355,836 2,934,655 704,637 2,077,480 6,921,629 2,272,055 743,026 172,977 20,182,295

3,017,098 1,525,872 704,711 15,311 4,700,667 2,512,000 522,053 166,916 13,164,628 18,097,603

17,508,103 $

37,690,398

31,262,231

81,888 386,904 1,586,488 2,019,225 4,074,505

122,281 354,937 2,434,976 2,912,194

Liabilities and Net Assets Liabilities: Accounts payable Accrued expenses and other liabilities Deferred revenue PPP loan

Net assets: Without donor restrictions With donor restrictions

17,630,451 10,719,586 28,350,037

17,481,507 16,134,386 33,615,893 $

See notes to financial statements.

37,690,398

31,262,231

The Joffrey Ballet Statement of Activities Year Ended June 30, 2020 Without Donor Restrictions

Revenue: Contributions Contributions released from restriction Special events In-kind contributions Performance Academy Community engagement Endowment draw Other income

Expenses: Program services: Performance Academy Community engagement Supporting services: Management and general Fundraising: General Costs and direct benefits to donors related to special events Change in net assets before other items Other items: Endowment investment gain, net Transfers Loss on uncollectable pledges Depreciation Change in net assets Net assets: Beginning of year End of year

Operations

Board Designated

6,705,663 1,701,064 995,663 105,010 6,454,125 2,194,745 173,188 149,315 192,463 18,671,236

316,668 7,500 324,168

With Donor Restrictions

Total $

7,022,331 1,701,064 995,663 105,010 6,454,125 2,194,745 173,188 149,315 199,963 18,995,404

7,532,826 (1,701,064) (149,315) 5,682,447

Total $

14,555,157 995,663 105,010 6,454,125 2,194,745 173,188 199,963 24,677,851

12,759,071 1,990,112 757,264

1,561,147

1,254,886

40,559 18,363,039

308,197

324,168

632,365

5,682,447

6,314,812

156,332 (781,309) (316,780)

(156,332) 167,836

(781,309) (148,944)

220,962 (488,609) 5,414,800

220,962 (488,609) (781,309) 5,265,856

15,127,509 $ 14,810,729

2,502,942 $

2,670,778

See notes to financial statements.

17,630,451 $

17,481,507

10,719,586 $

16,134,386

28,350,037 $

33,615,893

The Joffrey Ballet Statement of Activities Year Ended June 30, 2019 Without Donor Restrictions

Revenue: Contributions Contributions released from restriction Special events In-kind contributions Performance Academy Community engagement Other income

Operations

Board Designated

5,079,919 1,454,790 1,501,129 77,616 9,186,632 2,454,288 280,434 1,017,324 21,052,132

14,562 12,182 26,744

With Donor Restrictions

Total $

5,094,481 1,454,790 1,501,129 77,616 9,186,632 2,454,288 280,434 1,029,506 21,078,876

2,131,048 (1,454,790) 48,225 724,483

Total $

7,225,529 1,549,354 77,616 9,186,632 2,454,288 280,434 1,029,506 21,803,359

16,380,022 2,208,516 803,717

1,449,681

1,180,150

424,011 22,446,097

(1,393,965)

26,744

(1,367,221)

724,483

(642,738)

Other items: Endowment investment gain, net Transfers Depreciation Change in net assets

270,735 (794,957) (1,918,187)

(270,735) (243,991)

(794,957) (2,162,178)

255,233 979,716

255,233 (794,957) (1,182,462)

Net assets: Beginning of year

17,045,696

End of year

$ 15,127,509

2,746,933 $

2,502,942

See notes to financial statements.

19,792,629 $

17,630,451

9,739,870 $

10,719,586

29,532,499 $

28,350,037

The Joffrey Ballet Statements of Cash Flows Years Ended June 30, 2020 and 2019 2019

2020 Cash flows from operating activities: Increase (decrease) in net assets Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation Loss on uncollectable pledges Net gains from investment Donor-restricted contributions to the endowment Changes in: Pledges receivable Other receivables Prepaid expenses Other assets Accounts payable Accrued expenses and other liabilities Deferred revenue Net cash used in operating activities

Cash flows from investing activities: Purchases of investments Proceeds from sale of investment Additions to property and equipment Net cash used in investing activities Cash flows from financing activities: Cash received from donors to be held in perpetuity Proceeds from PPP Loan Net cash provided by financing activities Increase (decrease) in cash and cash equivalents

5,265,856

781,309 488,609 (220,962) (3,922,055)

794,957 (255,233) (197,354)

(1,897,392) 74 (220,973) (6,061) (40,393) 31,967 (848,488) (588,509)

(159,811) 225,735 192,212 (5,673) (84,415) (126,814) 319,909 (478,949)

(2,000,000) (191,809) (2,191,809)

(2,700,438) 55,606 (153,367) (2,798,199)

4,162,000 2,019,225 6,181,225

2,606,200 2,606,200 (670,948)

3,400,907

Cash and cash equivalents: Beginning of year

3,703,357

3,032,409

End of year Cash and cash equivalents: Operating cash and cash equivalents Endowment cash and cash equivalents

6,433,316

3,032,409

4,355,836 2,077,480 6,433,316

3,017,098 15,311 3,032,409

$ See notes to financial statements. 7

(1,182,462)

The Joffrey Ballet Notes to Financial Statements Note 1.

Nature of Activities and Significant Accounting Policies

The Joffrey Ballet (the Organization) is a nonprofit corporation incorporated in the state of Illinois which commenced operations on May 1, 1995. The Organization is a classically-based dance company whose signature elements include the incorporation of popular culture, modern technology and contemporary ideas into its ballets. The repertoire emphasizes works by contemporary American and international artists and revivals of the 20th-century masterworks. The Organization’s operations include the Joffrey Academy of Dance (the Academy) and community engagement programs. Classes and programs are for various age groups at varying levels of dance instruction. The Organization conducts its activities from the Joffrey Tower, its building located in Chicago, Illinois, and throughout the Chicago Public Schools system. The Organization is supported primarily through ticket sales, Academy revenue and contributions (cash and in-kind). The Organization has qualified as a charitable organization exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code and applicable state law. Accounting policies: The Organization follows accounting standards established by the Financial Accounting Standards Board (the FASB) to ensure consistent reporting of financial position, results of activities and cash flows. References to Generally Accepted Accounting Principles (U.S. GAAP) in these footnotes are to the FASB Accounting Standards Codification, sometimes referred to as the “Codification” or “ASC.” Basis of presentation: In accordance with limitations, designations and restrictions placed on the use of resources available to the Organization, the following two classifications are utilized according to the nature and purpose of the resources: Without Donor Restrictions—Net assets that are not subject to donor-imposed stipulations or the donor-imposed stipulations have expired. Included are amounts designated by the board for operating reserves and other purposes. The board designates certain unrestricted contributions for specific future use when received. Contributions are considered to be available for use in operations unless specifically restricted by the donor. With Donor Restrictions—Net assets whose use by the Organization is subject to donor-imposed restrictions. Some restrictions may or will be satisfied by actions of the Organization or by the passage of time. When a restriction is satisfied, these net assets are transferred to net assets without donor restrictions and are reported in the statement of activities as net assets released from restrictions. Restricted amounts received in the same period in which the restrictions are satisfied are recorded as net assets without donor restrictions. Other restrictions do not terminate but instead require that funds be held in perpetuity, while the income is available for general use. Operating and endowment cash and cash equivalents: The Organization maintains its deposits in bank accounts which, at times, may exceed federally insured limits. The Organization has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash. Pledges receivable: Pledges receivable intended by donors to fund the endowment and the Organization’s operations are stated at the present value of the expected future cash flows; discounts are amortized to contribution revenue over the duration of the pledge. An allowance for uncollectible pledges receivable is provided based upon management's judgment including such factors as prior collection history, type of contribution and nature of the fundraising activity.

The Joffrey Ballet Notes to Financial Statements Note 1.

Nature of Activities and Significant Accounting Policies (Continued)

Other receivables: Other receivables generally include tuition payments for the Academy and Community Engagement activities. Additionally, the balance at June 30, 2020 and 2019 included a significant receivable from the Australian Ballet related to a joint work. An allowance for doubtful accounts is based on specific identification of uncollectible accounts and the Organization's historical collection experience. No allowance was deemed necessary at June 30, 2020 and 2019. Endowment investments: The Organizationâ&#x20AC;&#x2122;s endowment assets, other than cash, are invested in the JFMC Pooled Endowment Portfolio, LLC (the PEP) which is maintained by the Jewish Federation of Metropolitan Chicago (the Federation). The investment in the PEP is recorded at fair value. Investments are presented in the financial statements at fair value in accordance with U.S. GAAP. The fair value of investments is determined based on the estimated fair value as reported by the PEP. The investment income, realized gains (losses) and the change in unrealized gains (losses) are reflected in the statements of activities, net of related fees and costs. Property and equipment: Property and equipment are recorded at cost. Donated property and equipment are recorded as assets and support at their estimated fair value at date of contribution. In general, the Organization capitalizes all property and equipment purchases over $1,000, while general maintenance and repairs are charged to expense. Depreciation of property and equipment is provided over the estimated useful lives of the respective assets on a straight-line basis, 3 to 20 years for sets, costumes and props and 4 to 10 years for furniture and fixtures, equipment and other property. The Joffrey Tower is being depreciated over a period of 40 years. Other assets: Other assets primarily represents the cash surrender value of a life insurance policy held by the Organization. Revenue recognition: Program and Academy revenues are recognized in the year to which they apply. Cash received from ticket sales for the next fiscal year's programs and tuition payments received in advance for classes that take place after the fiscal year-end are recorded as deferred revenue. Revenue earned in connection with special events are recognized in the year in which the event occurs. Contributions: Contributions, including donors' unconditional promises to give, that are expected to be collected within one year are recognized as revenue at net realizable value when the donor's commitment is received. Unconditional promises to give that are expected to be collected in future years are recognized at their discounted contractual future cash flows, net of allowances. The discounts on these amounts are computed using risk-adjusted interest rates applicable to the years in which the promises are expected to be received. Amortization of the discount is included in contribution revenue. Conditional promises are not recognized as revenue until the donor conditions on which they depend have been substantially met. Program, management and general, and fundraising expenses: In accordance with the Organization's mission to raise contributions to develop and manage a world-class ballet company, the Organization incurs program, management and general, and fundraising expenses which have been summarized on a functional basis in the statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefitted, based on estimates made by management. Costs related to occupancy as well as certain insurance and technology costs are allocated to programs based on square footage usage. Personnel costs are allocated on the basis of estimates of time and effort.

The Joffrey Ballet Notes to Financial Statements Note 1.

Nature of Activities and Significant Accounting Policies (Continued)

Donated materials, goods and services: Donated materials, goods and other noncash donations are recorded as contributions at their estimated fair values on the date received. The Organization recorded in-kind contribution revenue with corresponding expenses in the statements of activities primarily for donated professional services, transportation, event services and lodging. Volunteers have contributed their time to various programs, performances and other activities which do not meet the criteria for financial statement recognition. Accordingly, the value of this donated time is not reflected in the financial statements. Contributions of services are recognized if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills, are provided by individuals possessing those skills, and would typically need to be purchased if not provided by donation. Other income: Other income includes net revenue generated by merchandise sales, special event rentals and dues. In addition, in 2019, the Organization was paid a fee for a contract with the Australian Ballet related to the joint production of the ballet Anna Karenina. Income taxes: The Organization follows the accounting standard on accounting for uncertainty in income taxes, which addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under this guidance, the Organization may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities, based on the technical merits of the position. Examples of tax positions include the tax-exempt status of the Organization and various positions related to the potential sources of unrelated business taxable income. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. There were no unrecognized tax benefits identified or recorded as liabilities for the reporting periods presented herein. The Organization files Form 990 in the U.S. federal jurisdiction and the state of Illinois. Newly adopted accounting pronouncement: In 2020, the Organization adopted Accounting Standards Update (ASU) 2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. This ASU provides guidance surrounding the categorization of certain transactions as contributions or exchange transactions. It further clarifies when contributions should be deemed conditional. This new standard did not have a significant effect on the Organizationâ&#x20AC;&#x2122;s financial statements. Recent accounting pronouncements: In 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606), requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either a full retrospective or retrospective with cumulative effect transition method. The updated standard will be effective for the Organizationâ&#x20AC;&#x2122;s 2021 financial statements. In 2016, the FASB issued ASU 2016-02, Leases (Topic 842). The guidance in this ASU supersedes the leasing guidance in Topic 840, Leases. Under the new ASU, lessees are required to recognize lease assets and lease liabilities on the statement of financial position for all leases with terms longer than twelve months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of activities. The new standard will be effective for the Organizationâ&#x20AC;&#x2122;s 2023 financial statements. The Organization is currently evaluating the effect that these new standards will have on the financial statements.

The Joffrey Ballet Notes to Financial Statements Note 1.

Nature of Activities and Significant Accounting Policies (Continued)

Estimates: In preparing financial statements in conformity with accounting principles generally accepted in the United States of America, management makes estimates and assumptions affecting the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Subsequent events: The Organization has evaluated subsequent events for potential recognition and/or disclosure through December 10, 2020, the date the financial statements were available to be issued. Note 2.

Pledges Receivable

Pledges receivable expected to be received in future years are as follows: 2020 Up to one year One to two years More than two years

Discount to present value (4 percent) Allowance for uncollectible pledges $

2,752,812 1,005,500 1,650,000 5,408,312 (191,602) (10,000) 5,206,710

2019 $

3,428,843 454,700 200,500 4,084,043 (36,171) (10,000) 4,037,872

In July 2013, a donor made a signed commitment to support the Bridge Community Engagement program in the amount of $1 million payable over 10 years. The donor made payments for the first 5 years but has subsequently become delinquent in payments and has not responded to repeated requests over the last 12 months. Upon review, it was determined that the donor defaulted on the remainder of the $500,000 pledge, and consequently the pledge was written off effective June 2020. Pledges receivable, net of discount and allowance, are restricted as follows for the years ended June 30: 2020 Time restricted pledges for operations Time restricted pledges for endowment

$ $

Note 3.

2,934,655 2,272,055 5,206,710

2019 $ $

1,525,872 2,512,000 4,037,872

Investments and Fair Value Measurements

The accounting standard on fair value measurements provides a framework for measuring fair value under U.S. GAAP. The accounting standard defines fair value, establishes a framework for measuring fair value, sets out a fair value hierarchy, and expands disclosures about fair value measurements. The standard defines fair value as 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. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to quoted prices to unobservable inputs (Level 3). Inputs are broadly defined under the accounting standard as assumptions market participants would use in pricing an asset or liability.

The Joffrey Ballet Notes to Financial Statements Note 3.

Investments and Fair Value Measurements (Continued)

The three levels of the fair value hierarchy under the accounting standard are described below: Level 1. Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Organization has the ability to access. 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. Level 3. Inputs to the valuation methodology are unobservable and significant to the fair value measurement. 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 measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The Organization assesses the levels of its investments at each measurement date, and transfers between levels are recognized on the actual date of the event or change in circumstances that caused the transfer. For the years ended June 30, 2020 and 2019, there were no such transfers. The Organization’s investments represent their allocable share in the PEP and are measured at fair value using the net asset value per share practical expedient as provided by the fund manager and have not been categorized in the fair value hierarchy. The Organization, through its investment in the PEP, enters into transactions with a variety of securities and derivative financial instruments. These derivative financial instruments may have market and/or credit risk in excess of the amounts recorded in the statements of financial position. Market risk of investment in the PEP: Market risk arises primarily from changes in the market value of financial instruments. Exposure to market risk is influenced by a number of factors, including the relationships between financial instruments, and the volatility and liquidity in the markets in which the financial instruments are traded. In many cases, the use of financial instruments serves to modify or offset market risk associated with other transactions and, accordingly, serves to decrease the overall exposure to market risk. The Federation attempts to control the PEP’s exposure to market risk through various analytical monitoring techniques. Credit risk: Credit risk arises primarily from the potential inability of counterparties to perform in accordance with the terms of a contract. Exposure to credit risk associated with counterparty nonperformance is limited to the current cost to replace all contracts in which there is gain. Exchangetraded financial instruments generally do not give rise to significant counterparty exposure due to the cash settlement procedures for daily market movements and the margin requirements of individual exchanges.

The Joffrey Ballet Notes to Financial Statements Note 3.

Investments and Fair Value Measurements (Continued)

Concentration of credit risk: In the event the PEP does not fulfill its obligations, the Organization’s endowment may be exposed to risk. This risk of default depends on the creditworthiness of the counterparty to these transactions. The PEP attempts to minimize this credit risk by monitoring the creditworthiness of its counterparties. Investment in funds: The managers of underlying investment funds in which the PEP invests may utilize derivative instruments with off-balance-sheet risk. The Organization’s exposure of risk is limited to their allocable share of the PEP’s investment. The PEP invests in various types of investments, including mutual funds, equity and debt securities, alternative investments and other investment vehicles. The Organization does not own or have any interest in the underlying investments held by the PEP. The Organization has the ability to contribute funds or withdraw funds from its account on the first day of each month. Withdrawal requests are required to be submitted to the PEP in writing at least 15 days prior to the beginning of each month and withdrawals representing more than 80 percent of an investor’s assets are paid within 60 days. The PEP’s investments in U.S. Treasury bills, common stock, registered investment companies, and investments in various equity and credit assets are stated at the last reported sales price on the day of valuation. Options are valued at the mid between the highest bid and lowest ask price on the day of valuation across all listed exchanges. Commodities, such as precious metals, are valued based on the closing spot price, derived from the over-the-counter precious metals trading market. These financial instruments are classified as Level 1 in the fair value hierarchy. Investments in non-registered investment companies consisting of certain equity funds, hedged credit funds, private credit funds, opportunistic funds and also real asset and real estate funds, are valued at fair value, as determined by the PEP based on net asset information (practical expedient) provided by the underlying investment managers. In determining fair value, the PEP utilizes the valuation reflected on the financial statements and other financial reports of the underlying investment entities. The underlying investment entities value securities and other financial instruments at fair value based upon market price, when possible, or at fair value determined by the respective entities' investment managers when no market price is determinable. Although the PEP and the underlying investment managers use their best judgment in estimating the fair value of investments in funds, there are inherent limitations in any estimation technique. The estimated fair values of certain investments of the underlying investment entities, which may include derivatives, securities and other designated or side pocketed investments for which prices are not readily available, may not reflect amounts that could be realized upon immediate sale, nor amounts that may be ultimately realized. Accordingly, the estimated fair values may differ significantly from the values that would have been used had a ready market existed for these investments, and differences could be material.

The Joffrey Ballet Notes to Financial Statements Note 4.

Property and Equipment

Property and equipment are as follows: June 30, 2020 Cost Building and improvements Furniture, fixtures and equipment Leasehold improvements Sets, costumes and props Nutcracker sets, costumes and props Website Redesign

21,448,082 1,997,588 9,466 526,607 2,203,254 128,766 26,313,763

Accumulated Depreciation $ (6,166,324) (1,671,225) (8,739) (400,357) (558,625) (390) $ (8,805,660)

Net Book Value $

15,281,758 326,363 727 126,250 1,644,629 128,376 17,508,103

June 30, 2019 Cost Building and improvements Furniture, fixtures and equipment Leasehold improvements Sets, costumes and props Nutcracker sets, costumes and props

$ Note 5.

21,448,082 1,963,392 9,466 497,760 2,203,254 26,121,954

Accumulated Depreciation $ (5,630,122) (1,600,202) (7,994) (383,558) (402,475) $ (8,024,351)

Net Book Value $

15,817,960 363,190 1,472 114,202 1,800,779 18,097,603

Deferred Revenue

The Organization recorded deferred revenue from the following sources as of June 30: 2020 Ticket revenues Tuition and other revenues

$ $

Note 6.

1,426,364 160,124 1,586,488

2019 $ $

1,552,246 882,730 2,434,976

Line of Credit

The Organization has a $1,500,000 revolving line of credit agreement with The Northern Trust Company maturing on November 30, 2020, with interest at prime rate less 0.5 percent (2.75 percent at June 30, 2020 and 5 percent at June 30, 2019). The Organization had no outstanding balance on the line of credit at June 30, 2020 and 2019, and no borrowings on the line of credit during the years ended June 30, 2020 and 2019. The Organization intends to negotiate a renewal of the line of credit. The line of credit contains certain non-financial covenants including the requirement to file audited financial statements within 120 days of fiscal year-end with The Northern Trust Company. While the Organization is not currently in compliance with this requirement, the bank has provided a waiver.

The Joffrey Ballet Notes to Financial Statements Note 7.

PPP Loan

In April 2020, the Organization applied for and received a loan in the amount of $2,019,225 from Chase Bank as part of the Paycheck Protection Program (PPP), a loan program administered by the Small Business Administration (SBA), in conjunction with the Coronavirus Aid, Relief, and Economic Security (CARES) Act. The Organization determined it was eligible for the loan as the coronavirus pandemic caused financial uncertainty and anticipated decreases in normal cash inflows. The outstanding principal accrues interest at an annual rate of 1 percent. All outstanding principal and accrued interest is due when the loan matures in April 2022. Under the terms of the loan program, all or a portion of the loan may be forgiven if the Organization uses the proceeds for eligible costs and maintains certain employee and wage rate thresholds. The Organization intends to apply for loan forgiveness when it becomes available to do so. Note 8.

Net Assets

Board-Designated Net Assets The Organization has designated a portion of its unrestricted funds for the specific uses detailed below as of June 30: 2020 Future Projects Fund Building Improvements Fund Eric B. Eatherly Scholarships Women's Board Tribute Fund Innovation Fund

Operating cash reserve $

1,006,000 275,000 70,838 14,560 300,000 1,666,398 1,004,380 2,670,778

2019 $

1,139,000 275,000 66,638 15,092 1,495,730 1,007,212 2,502,942

Transfers from board designated funds in fiscal year 2020 represented amounts spent on boarddesignated purposes, offset by the refund of amounts transferred from board-designated funds to cover operating losses in a previous year. Transfers from board designated funds in fiscal 2019 represent amounts spent on board-designated purposes in addition to amounts transferred by the board to fund operating losses.

The Joffrey Ballet Notes to Financial Statements Note 8.

Net Assets (Continued)

Net Assets With Donor Restrictions The Organization had net assets with donor restrictions consisting of the following at June 30, 2020 and 2019: 2020 Subject to expenditure for a specific purpose: Nutcracker Performances Community Engagement Academy

861,211 1,106,355 155,900 1,027,500

2019 $

850,833 1,647,141 796,000 -

Subject to the passage of time: Contributions related to future events Pledges receivable

56,400 1,655,856

63,225 134,409

Endowment: subject to endowment spending policy and appropriation: Rudolph Nureyev Fund and the Joffrey Ballet The Mary B. Galvin Artistic Director Fund Scholarships Abbott Academy Director

2,798,764 5,267,334 333,011 2,872,055

1,719,248 5,192,636 316,094 -

$ 16,134,386

$ 10,719,586

Endowment Net Assets The Organization maintains endowment funds which are restricted in perpetuity by donor stipulation. Net assets associated with the Organizationâ&#x20AC;&#x2122;s endowment funds are classified and reported based on the existence of donor-imposed restrictions. In addition to the amounts invested below, at June 30, 2020, the Organization was holding an additional $572,413 in its operating cash account which was restricted by donors to be invested in the endowment. The Organizationâ&#x20AC;&#x2122;s endowment was invested as follows at June 30: 2020 Cash and cash equivalents PEP investment

$ $

2,077,480 6,921,629 8,999,109

2019 $ $

15,311 4,700,667 4,715,978

The Uniform Prudent Management of Institutional Funds Act (UPMIFA) governs endowment funds in the state of Illinois. UPMIFA eliminates the historic dollar value rule with respect to endowment fund spending, updates the prudence standards for the management and investment of charitable funds, and amends the provisions governing the release and modification of restrictions on charitable funds.

The Joffrey Ballet Notes to Financial Statements Note 8.

Net Assets (Continued)

The Organizationâ&#x20AC;&#x2122;s management has interpreted the UPMIFA as not requiring the preservation of the purchasing power of the original gift amounts contributed to an endowment fund, unless there are donor stipulations to the contrary. As a result of this interpretation, the Organization classified as net assets with donor restrictions (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) 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. The Organization considers a fund to be underwater if its fair value is less than the amount required to be maintained in perpetuity as previously described. The Organization has interpreted UPMIFA to permit spending from underwater funds in accordance with the standards of prudence prescribed by UPMIFA. Endowment funds are reclassified to net assets without donor restrictions when they are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, the Organization will consider the following factors in making a determination to appropriate or accumulate earnings on donor-restricted endowment funds: (1) The duration and preservation of the fund; (2) the purposes of the Organization and the donorrestricted endowment fund; (3) general economic conditions; (4) the possible effect of inflation and deflation; (5) the expected total return from income and the appreciation of investments; (6) other resources of the Organization; and (7) the investment policies of the Organization. The Organizationâ&#x20AC;&#x2122;s investment and spending policies for endowment assets attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. As of June 30, 2020 and 2019, endowment assets include only those assets of donor-restricted funds that the Organization must hold in perpetuity. As approved by the Organizationâ&#x20AC;&#x2122;s Board of Directors, the endowment assets are invested in a manner that is intended to provide adequate liquidity, maximizing returns on all funds invested and achieving full employment of all available funds as earning assets. Funds with Deficiencies: From time to time, the fair value of assets associated with the donor-restricted endowment fund may fall below the level that the donor or Illinois UPMIFA requires the Organization to retain as a fund of perpetual duration. There were no deficiencies at June 30, 2020 and 2019. Withdrawal Policy: The Organization established a withdrawal policy in fiscal year 2019 which allows for the appropriation of 3 percent of the average market value of the endowment over the preceding 12 quarters. Appropriated earnings are to be used for Joffrey operations and expenses in accordance with donor restrictions, if any. For the years ended June 30, 2020 and 2019, appropriations amounted to $93,709 and $55,606, respectively. The endowment draw on the 2020 statement of activities includes the appropriations for fiscal years 2020 and 2019.

The Joffrey Ballet Notes to Financial Statements Note 8.

Net Assets (Continued)

The following are changes in endowment net assets for the years ended June 30, 2020 and 2019: With Donor Restrictions Endowment net assets at June 30, 2018 Cash contributions received Net appreciation Appropriations Endowment net assets at June 30, 2019 Cash contributions received Net appreciation Appropriations Endowment net assets at June 30, 2020 Note 9.

1,910,040 2,606,200 255,233 (55,495) 4,715,978 4,155,989 220,962 (93,820) 8,999,109

Lease Commitments

The Organization occupies warehouse space for its sets, costumes and props and related office space under a lease agreement that was renewed in 2018, with terms through June 2024. The lease provides for monthly base rents plus operating costs. The Organization has two five-year renewal options. Base rents required under the lease are recognized as rent expense on a straight-line basis over the lease term. The cumulative difference between the recognized rent expense and the amount paid is recorded as an imputed rent liability included in other liabilities on the statements of financial position. The value was $59,826 and $57,674 at June 30, 2020 and 2019, respectively. Total rent expense for the warehouse was $151,833 and $142,867 for 2020 and 2019, respectively. Future minimum rental commitments, exclusive of operating costs, are as follows: Years ending June 30: 2021 2022 2023 2024

153,423 157,258 161,190 165,219 637,090

The Joffrey Ballet Notes to Financial Statements Note 10.

Commitments and Contingencies

The Organization is occasionally party to lawsuits and claims arising out of the conduct of its business. The Organization is of the opinion that the liabilities, if any, will not have a material effect on these financial statements or on the Organization's ability to continue operations. The Organization has committed to using the Auditorium Theatre in Chicago for its performances under an agreement which extends through 2020. Total theater rental expenses were $572,000 and $675,000 for fiscal years 2020 and 2019, respectively. Beginning in July 2020, the Organization has a 7-year commitment with the Lyric Opera for all its subscription series and holiday performances. Note 11.

Employee Benefit Plan

The Organization administers The Joffrey Ballet Tax Deferred Annuity Plan, a 403(b) defined contribution benefit plan. Employees are eligible to participate in this plan upon hiring. The plan allows for discretionary matching contributions in an amount equal to the lesser of the participantâ&#x20AC;&#x2122;s actual contributions or 3 percent of the participantâ&#x20AC;&#x2122;s salary. The Organization made contributions of $78,504 and $74,161 to the plan in the years ended June 30, 2020 and 2019, respectively. Note 12.

Liquidity and Availability

As of June 30, 2020 and 2019, the Organization had the following financial assets available to cover general operations within the next year: 2020 Financial assets: Cash and cash equivalents Endowment cash and cash equivalents Endowment investment Operating pledges receivable Endowment pledges receivable Other receivables

Less amounts not available for general operations within the next year: Endowment cash and cash equivalents Endowment investment Endowment pledges receivable Board designated net assets Operating pledges not expected to be received within one year Financial assets available for general operations within one year

4,355,836 2,077,480 6,921,629 2,934,655 2,272,055 704,637 19,266,292

2019 $

3,017,098 15,311 4,700,667 1,525,872 2,512,000 704,711 12,475,659

2,077,480 6,921,629 2,272,055 2,670,778

15,311 4,700,667 2,512,000 2,502,942

2,655,500 16,597,442

655,200 10,386,120

2,668,850

2,089,539

The Joffrey Ballet Notes to Financial Statements Note 12.

Liquidity and Availability (Continued)

The Organization regularly monitors its liquidity in order to meet financial obligations. As part of its boarddesignated net assets, the Organization has a reserve fund that acts as an internal line of credit. Any spending from this account that brings the balance below $1,000,000 must be approved by the board and eventually refunded. As of June 30, 2020 and 2019, the balance in this account was $1,004,380 and $1,007,212, respectively. The remaining board-designated net assets could be released by action of the board in order to cover any cash deficits, should such an event occur. In addition, the Organization has a commercial line of credit with available credit of $1,500,000. Note 13.

Impacts of Coronavirus Pandemic

In March 2020, the World Health Organization declared the coronavirus (Covid-19) outbreak to be a pandemic. The coronavirus and actions taken to mitigate the spread of it have had and are expected to continue to have an adverse impact on the national and local economies. The Organization has been severely impacted by the coronavirus pandemic. Due to bans on large public gatherings by the City of Chicago and the State of Illinois, the spring production of Don Quixote was cancelled, resulting in an estimated loss of $1 million in ticket revenue. Additionally, the spring Center Stage fundraising event was cancelled; the event had been expected to raise approximately $1 million. With the stay at home order, the Joffrey Tower temporarily closed, and the Academy transitioned the remainder of its spring classes to a virtual format. Academy summer intensive classes were cancelled, the impact of which was approximately a $900,000 reduction in revenues. Community Engagement has suspended all in-person classes with the closure of Chicago Public Schools and has been providing video instruction and workbooks for its students. With the ongoing restrictions on public gatherings, the Organization has cancelled all productions for the 2020/2021 fiscal year, including the Nutcracker production, which annually brings in over $7 million in ticket sales. Given the actual and anticipated lost revenue, the Organization has reduced its fiscal 2021 operating budget from $22 million to $11 million. Cost containment efforts have included reductions in salaries and staff headcount. Patrons who have purchased tickets for cancelled performances have been given the options to contribute the value of their purchase as a donation, to receive a refund, or to apply their ticket value to a future period when live performances once again take place. Re-occupancy guidelines have been developed to allow the dancer artists to return to Joffrey Tower effective in September 2020 for classes and rehearsal. The Organization has developed a digital program for the 2020/2021 season in order provide engagement and content for its audiences. The Academy is providing online classes for junior students and is providing a hybrid program for more senior and professional level students. The board directors has launched a Crisis Stabilization Fund that will raise a minimum of $12 million dollars in order to sustain the Joffrey during a season of uncertainty. Additionally, the Organization obtained a PPP loan of approximately $2 million to cover payroll for its artists and staff through the end of fiscal year 2020.