Chicago Symphony Orchestra

Transcription

1 Chicago Symphony Orchestra Financial Report June 30, 2008 and 2007 McGladrey & Pullen, LLP is a member firm of RSM International an affiliation of separate and independent legal entities.

2 TABLE OF CONTENTS Page Independent Auditor s Report 1 Financial Statements: Statements of Financial Position, June 30, 2008 and Statements of Activities for the years ended June 30, 2008 and Statements of Cash Flows for the years ended June 30, 2008 and

3 Independent Auditor's Report Board of Trustees of Chicago Symphony Orchestra We have audited the accompanying statements of financial position of Chicago Symphony Orchestra (the "Corporation") as of June 30, 2008 and 2007, and the related statements of activities and of cash flows for the years then ended. These financial statements are the responsibility of the Corporation's management. 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 of material misstatement. An audit 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 audits provide 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 Chicago Symphony Orchestra as of June 30, 2008 and 2007, and changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Chicago, Illinois September 29, 2008 McGladrey & Pullen, LLP is a member firm of RSM International 1 an affiliation of separate and independent legal entities.

4 Chicago Symphony Orchestra Statement of Financial Position June 30, 2008 (In 000's) 2008 Unrestricted Board Total Temporarily Permanently Grand Operating Property Designated Unrestricted Restricted Restricted Total 2 Assets Cash and cash equivalents $ 13,341 $ 829 $ 14,170 $ 14,170 Accounts and interest receivable - net $ Short-term contributions receivable 1, $ 1,129 3,226 $ 4, ,743 Prepaid expenses and other current assets 2, ,043 3,043 Long-term contributions receivable , ,354 Endowment investments 137, ,010 26,908 67, ,592 Other investments 78,127 78,127 78,127 Land, buildings, and property - net 116, , ,968 Total assets $ 17,422 $ 197,587 $ 138,595 $ 353,604 $ 33,423 $ 68,895 $ 455,922 Liabilities and net assets Liabilities: Accounts payable and other accrued expenses $ 24,994 $ (12,462) $ (5,174) $ 7,358 $ (3,181) $ 3 $ 4,180 Advance ticket sales and other deferred revenue 12,889 12, ,056 Bonds payable 146, , ,415 Pension benefits 2,356 2,356 2,356 Swap contracts 5,253 5,253 5,253 Other long-term liabilities ,371 Total liabilities 40, ,290 (5,174) 174,760 (3,144) 1, ,631 Net assets (deficit) (23,222) 58, , ,844 36,567 67, ,291 Total liabilities and net assets $ 17,422 $ 197,587 $ 138,595 $ 353,604 $ 33,423 $ 68,895 $ 455,922 See accompanying notes.

5 Chicago Symphony Orchestra Statement of Financial Position June 30, 2007 (In 000's) 2007 Unrestricted Board Total Temporarily Permanently Grand Operating Property Designated Unrestricted Restricted Restricted Total 3 Assets Cash and cash equivalents $ 9,724 $ 9,724 $ 9,724 Accounts and interest receivable - net 2,074 $ 168 2,242 $ 365 2,607 Short-term contributions receivable 1, $ 1,068 3,327 $ 4, ,416 Prepaid expenses and other current assets 2,280 2,095 4,375 4,375 Long-term contributions receivable 1,262 1,262 2, ,345 Endowment investments 137, ,897 27,888 67, ,070 Swap contracts 1,598 1,598 1,598 Other investments 82,542 82,542 82,542 Land, buildings, and property - net 119, , ,614 Total assets $ 15,461 $ 206,893 $ 140,227 $ 362,581 $ 34,865 $ 67,845 $ 465,291 Liabilities and net assets Liabilities: Accounts payable and other accrued expenses $ 21,106 $ (9,393) $ (3,697) $ 8,016 $ (3,233) $ 133 $ 4,916 Advance ticket sales and other deferred revenue 11,636 11,636 1,000 12,636 Bonds payable 144, , ,025 Pension benefits 6,429 6,429 6,429 Other long-term liabilities ,491 Total liabilities 39, ,749 (3,697) 170,791 (3,197) 1, ,497 Net assets (deficit) (24,278) 72, , ,790 38,062 65, ,794 Total liabilities and net assets $ 15,461 $ 206,893 $ 140,227 $ 362,581 $ 34,865 $ 67,845 $ 465,291 See accompanying notes.

6 Statement of Activities Year Ended June 30, 2008 (In 000's) Operating Revenues: Chicago Symphony Orchestra Concerts Media and Royalty SCP Concerts Civic Orchestra Education Concerts and Activities Symphony Center Rentals and Commissions Symphony Center Retail Operations Other Program Services Total Operating Revenues Operating Expenses: Program Services: Chicago Symphony Orchestra Concerts Media and Royalty SCP Concerts Civic Orchestra Education Concerts and Activities Symphony Center Rentals and Commissions Symphony Center Retail Operations Other Program Services Total Program Services Marketing, promotion and sales General and administrative Debt service expense Total Operating Expenses Net Operating Results Support: Contributions In-kind contributions Revenue from fundraising events Less direct fundraising event expenses Investment return, net of investment management fees Net assets released from restrictions: For endowment withdrawal For endowment fundraising expenses Through satisfaction of donor-imposed restrictions Total Support Less Fundraising Expenses Net Support Change in net assets before swap market value adjustment and changes in pension plan assets and benefit obligations. Swap market value adjustment Changes in pension plan assets and benefit obligations Change in Net Assets Net assets (deficit) at beginning of year Net assets (deficit) at end of year 2008 Unrestricted Board Total Temporarily Permanently Grand Operating Property Designated Unrestricted Restricted Restricted Total $ 22,264 $ 22,264 $ 22, ,916 3,916 3, ,156 2,156 2,156 1,282 1,282 1, , , ,543 38,739 $ 1,311 40,050 40,050 1, ,149 1,149 4, ,691 4,691 1, ,534 1,534 1, ,673 1,673 1, ,532 2,532 1,342 1,342 1, ,320 2,813-53, ,133 1,871 1,871 1,871 5,084 5,084 5, ,014 $ 10 9,577 9,577 57,828 11, , ,665 (27,285) (11,827) (10) (39,122) - - (39,122) 13,507 1,372 14,879 $ 4,634 $ 1,938 21, ,074 1,346 1,346 1,346 (962) (962) (962) 543 4,462 6,309 11,314 1,833 13,147 10,033 (7,682) 2,351 (2,351) (581) - - 5, ,120 (6,120) - 30,925 4,832 (144) 35,613 (1,495) 1,938 36,056 3, ,409 3,409 27,517 4,832 (145) 32,204 (1,495) 1,938 32, (6,995) (155) (6,918) (1,495) 1,938 (6,475) (6,852) (6,852) (6,852) ,056 (13,847) (155) (12,946) (1,495) 1,938 (12,503) (24,278) 72, , ,790 38,062 65, ,794 $ (23,222) $ 58,297 $ 143,769 $ 178,844 $ 36,567 $ 67,880 $ 283,291 See accompanying notes. 4

7 Statement of Activities Year Ended June 30, 2007 (In 000's) Operating Revenues: Chicago Symphony Orchestra Concerts Media and Royalty SCP Concerts Civic Orchestra Education Concerts and Activities Symphony Center Rentals and Commissions Symphony Center Retail Operations Other Program Services Total Operating Revenues Operating Expenses: Program Services: Chicago Symphony Orchestra Concerts Media and Royalty SCP Concerts Civic Orchestra Education Concerts and Activities Symphony Center Rentals and Commissions Symphony Center Retail Operations Other Program Services Total Program Services Marketing, promotion and sales General and administrative Debt service expense Total Operating Expenses Net Operating Results Support: Contributions In-kind contributions Revenue from fundraising events Less direct fundraising event expenses Investment return, net of investment management fees Net assets released from restrictions: For endowment withdrawal For endowment fundraising expenses Through satisfaction of donor-imposed restrictions Total Support Less Fundraising Expenses Net Support Change in net assets before swap market value adjustment and effect of adoption of FASB Statement No. 158 Swap market value adjustment Effect of initially adopting recognition provision of FASB Statement No. 158 Change in Net Assets Net assets (deficit) at beginning of year Net assets (deficit) at end of year 2007 Unrestricted Board Total Temporarily Permanently Grand Operating Property Designated Unrestricted Restricted Restricted Total $ 20,559 $ 20,559 $ 20, ,714 3,714 3, ,844 1,844 1,844 2,116 2,116 2, , , ,004 35,364 $ 1,389 36,753 36, , ,902 4,902 1, ,497 1,497 1, ,708 1,708 1, ,016 2,016 2, ,486 2, ,358 2,712-50, ,070 1,844 1,844 1,844 4,748 4,748 4, ,082 $ 10 6,696 6,696 54,554 8, , ,358 (25,550) (8,794) (10) (34,354) - - (34,354) 13, ,834 18,383 $ 8,490 $ 5,006 31, ,735 1,735 1,735 (1,253) (1,253) (1,253) 578 6,000 26,352 32,930 8,186 41,116 9, (6,386) 3,019 (3,019) (565) - - 4, ,262 (4,262) - 29,081 6,418 24,235 59,734 9,606 5,006 74,346 3,418 (121) 13 3,310 3,310 25,663 6,539 24,222 56,424 9,606 5,006 71, (2,255) 24,212 22,070 9,606 5,006 36,682 (109) (109) (109) (2,769) (2,769) (2,769) (2,656) (2,364) 24,212 19,192 9,606 5,006 33,804 (21,622) 74, , ,598 28,456 60, ,990 $ (24,278) $ 72,144 $ 143,924 $ 191,790 $ 38,062 $ 65,942 $ 295,794 See accompanying notes. 5

8 Statements of Cash Flows (In 000's) Cash flows from operating activities: Change in net assets $ (12,503) $ 33,804 Adjustments to reconcile change in net assets to net cash used by operating activities: Depreciation and amortization of capitalized bond interest 4,053 4,155 Amortization of bond issuance costs 2, Interest and dividends (7,821) (9,240) Realized and unrealized (gains)/losses on investments and swap market value adjustments 855 (32,083) Gain on sale of land, buildings, and equipment (2) (70) Initial adoption of FASB 158 2,769 Changes in pension plan assets and benefit obligations (824) Net periodic pension cost 892 1,539 Employer pension contribution (4,141) (1,910) Permanently restricted contributions (1,938) (5,006) Change in assets and liabilities: Accounts and interest receivable 1,682 (606) Short-term contributions receivable (87) (2,063) Prepaid expenses and other current assets (765) (188) Long-term contributions receivable 1,495 (1,545) Accounts payable and other accrued expenses (736) 373 Advance ticket sales and other deferred revenue 420 (415) Other long-term liabilities (120) (388) Net cash used by operating activities (17,443) (10,764) Cash flows from investing activities: Proceeds from sale of land, buildings, and equipment 2 80 Purchases of land, buildings, and equipment (1,407) (932) Proceeds from sale of investments 527, ,951 Purchases of investments (508,224) (475,129) Net cash provided by investing activities 18,305 9,970 Cash flows from financing activities: Proceeds from line of credit 81,364 3,000 Repayment of line of credit (81,364) (3,000) Proceeds from issuance of bonds payable 83,015 Redemption of bonds payable (80,625) Contributions restricted for investment in endowment 1,194 5,017 Net cash provided by financing activities 3,584 5,017 Net increase in cash and cash equivalents 4,446 4,223 Cash and cash equivalents at beginning of year 9,724 5,501 Cash and cash equivalents at end of year $ 14,170 $ 9,724 Supplemental disclosure of cash flows information: Cash paid during the fiscal year for: Interest payments on bonds payable $ 4,838 $ 5,184 Interest payments on lines of credit $ 478 $ 10 Interest payments on swap arrangement $ 696 $ 117 See accompanying notes. 6

9 1. Nature of Activities The Chicago Symphony Orchestra (the Corporation ) is a nonprofit corporation incorporated in the state of Illinois in Its central mission is to present classical music through the Chicago Symphony Orchestra to Chicago, national and international audiences. To accomplish this mission, the Corporation will sustain the very highest artistic quality in all its programs, develop and sustain a strong and diverse audience base, and increase the awareness and enjoyment of music in the life of the greater Chicago community. The Corporation s operations reflect the activities of the following different programs: Chicago Symphony Orchestra (the CSO ), Civic Orchestra of Chicago, the Chicago Symphony Chorus, and Symphony Center Presents ( SCP ). Concerts and related activities are performed year-round at Symphony Center (owned and operated by the Corporation), during the summer by the CSO at Ravinia Park, as contracted by the Ravinia Festival Association, and at various times at other local, national, and international venues. The Corporation is exempt from federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code unless it has income from unrelated business activities. Governance of the Corporation is vested in the Board of Trustees (the Board ), and its directives are implemented by the Corporation s officers. 2. Summary of Significant Accounting Policies Basis of Accounting The accounting records of the Corporation are maintained on the accrual basis of accounting. Basis of Presentation The financial statements are presented on the basis of unrestricted, temporarily restricted and permanently restricted net asset classes. Unrestricted net assets include all resources which are not subject to donor imposed restrictions. These include unrestricted resources available to support the Corporation s operations and net assets set aside by the Board for specific purposes, including accumulating investment assets for future benefit and for the acquisition of capital assets and related activities. Temporarily restricted net assets represent contributions and investment earnings with donor-imposed restrictions that have not yet been satisfied. Permanently restricted net assets are subject to donor-imposed restrictions and represent contributions invested in perpetuity, the earnings from which are available to support activities of the Corporation. Use of 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 asset and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Performance Revenue Performance revenue of the Corporation is recorded on a specific performance basis. Advance ticket sales are recorded as deferred revenue and are not recognized as revenue until the fiscal year in which the performance is given. Contributions Contributions are recorded as increases in unrestricted, temporarily restricted, or permanently restricted net assets, depending on the existence or nature of any donor restrictions. When a donor 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. Donor-restricted contributions whose restrictions are met in the same reporting period are recorded as unrestricted support. Contributed property and equipment is recorded at fair value at the date of donation. The Corporation reports gifts of long-lived assets as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Gifts of long-lived assets with explicit restrictions that specify how the assets are to be used and gifts of cash or other assets that must be used to acquire long-lived assets are reported as restricted support. Absent explicit donor stipulations to the contrary, the Corporation reports expirations of donor restrictions when the donated or acquired long-lived assets are placed in service. 7

10 In-kind Services and Materials Contributed services and materials have been reflected in the financial statements as in-kind contributions. 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. The Corporation reports such contributions at their estimated fair value when received. Included in temporarily restricted in-kind contributions are donated airline vouchers that have not yet been fully expended. Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statement of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Cash and Cash Equivalents The Corporation has a cash management program that provides for the investment of available unrestricted cash balances in short-term, highly liquid investments that are both (a) readily convertible to known amounts of cash, and (b) so near their maturity that they present insignificant risk of changes in value because of changes in interest rates. Cash and cash equivalents consist of the Corporation s various checking accounts and a short-term investment account for depositing temporary excess cash funds. At times, balances in these accounts may exceed federally insured limits. The Corporation has not experienced any losses in such accounts, and management believes that the Corporation is not exposed to any significant credit risk on cash. Contributions Receivable Unconditional promises to give are recognized as contribution revenue in the period received and as assets, decreases of liabilities, or expenses depending on the form of the benefits received. Unconditional promises to give that are expected to be collected over more than one year are recorded at their net realizable value using a discount rate equivalent to treasury yields of similar maturity. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Prepaid Expenses and Other Assets Expenses paid in the current fiscal year, which relate to events or activities that will occur in the subsequent fiscal year, are recorded as prepaid expenses. These prepaid expenses are recognized as expense in the year in which the related event or activity occurs. Other assets consist of store inventory, security deposits, and unamortized bond issuance costs. Derivative Instruments The Corporation accounts for derivative instruments under the provisions of Statement of Financial Accounting Standards No. 133 Accounting for Derivative Instruments and Hedging Activities ( SFAS 133 ). SFAS 133 required all derivatives to be recognized as assets or liabilities on the Statement of Financial Position and measured at fair value. Changes in the fair value of derivatives are recognized as other changes in net assets. Investments Publicly traded investments are carried at fair market value based on quoted market prices. Alternative investments represent interests held by the Corporation in funds that invest in public and private securities and whose terms and conditions, including liquidity provisions, vary by fund. Alternative investments are valued at fair value by the fund managers based on information provided by the underlying funds. In most situations, the fund managers determine fair value based on the underlying funds audited financial statements. Fair value approximates the Corporation s pro rata interest in the net assets of the underlying funds. The underlying investment funds value securities and other financial instruments at market value, when possible, or at fair value determined by the respective funds general partner or manager when no market value is determinable. The estimated fair values of certain of the investments of the underlying investment entities, which include securities for which prices are not readily available, may not reflect amounts that could be realized upon immediate sale, nor amounts that ultimately may be 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. The Corporation s investment portfolio is subject to various risks, such as interest rate, market, and credit risks. Because of these risks, it is possible that changes in the value of the investments may occur and that such changes could materially affect the Corporation s financial statements. Because investments include funds derived originally from permanently restricted contributions, the management of these funds is subject to Illinois state law. The Board has interpreted state law as requiring the preservation of the historical dollar value of these permanently restricted contributions. After maintaining this value, the Board interprets the law as allowing it to use any of the investment returns as is 8

11 prudent considering the Corporation s long- and short-term needs, donor restrictions, expected total return on its investments, price level trends, and general economic conditions. In accordance with this interpretation, the Endowment and Investment Committee of the Board, which oversees the Corporation s investments, has adopted an endowment investment policy that establishes the long-term objective of achieving an annualized total investment return of 5%, net of its spendable objective. The annual spendable objective, which is calculated as 5% of the average market value of assets over the 12-quarter period ending on the prior December 31, is to be met through the use of interest, dividends, and, to the extent appropriate, accumulated capital gains. The Board approves any adjustments to the spendable objective. Fair Value of Financial Instruments The carrying amounts of cash, accounts receivable and accounts payable approximate fair value due to the short maturity of those instruments. The carrying value of the Corporation s debt approximates fair value since the debt instruments contain variable interest rates. The fair value of the interest rate swaps is estimated by obtaining quotes from the related broker. Capital Expenditures and Depreciation Acquisitions of land, land improvements, buildings, building improvements, equipment, property acquired under capital lease, music, instruments, trademarks, and capitalized interest, in excess of $500 are capitalized. Depreciation and amortization is recorded using the straight-line method, based on the estimated useful lives of the related assets, which range from three to 40 years. Refundable Advances Funds received with matching fund requirements are recorded as refundable advances and subsequently will be recognized as contribution revenue when donor conditions are met (i.e., matching funds are received). Any refundable advances are reported under advance ticket sales and other deferred revenue. Recently Issued Accounting Prounouncements Financial Accounting Standards Board ( FASB ) Interpretation No. 48 ( FIN 48 ), Accounting for Uncertainty in Income Taxes an Interpretation of FASB Statement No. 109, clarifies the accounting for uncertainties (if any) in income taxes by prescribing the recognition threshold a tax position is required to meet before being recognized in the financial statements. FIN 48 will be effective for the Corporation beginning with their fiscal year 2009 financial statements. The Corporation will evaluate the effect, if any, that the adoption of FIN 48 will have on their financial statements. The FASB has issued Statement of Financial Accounting Standards No. 157 ( SFAS 157 ), Fair Value Measurements. SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. This statement amends the guidance on measuring fair value and is effective for the Corporation beginning in fiscal year Management does not believe that the issuance of SFAS 157 will require any new fair value measurements, but it is at least reasonably possible that certain additional disclosures will be required in the fiscal year 2009 financial statements. Statement of Financial Accounting Standards No. 159 ( SFAS 159 ), The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of Financial Accounting Standards Board Statement No SFAS 159 provides all entities with an option to report selected financial assets and financial liabilities at fair value, providing the opportunity to mitigate volatility in reported earnings caused by measuring related assets and liabilities differently without having to apply complex hedge accounting provisions. SFAS 159 is effective for the Corporation beginning in fiscal year In August 2008, the FASB issued FASB Staff Position (FSP) No. FAS 117-1, Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for all Endowment Funds. FSP No. FAS 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 the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). This FSP also improves disclosures about an organization s endowment funds (both donor-restricted endowments and board-designated endowment funds) whether or not the organization is subject to UPMIFA. The provisions of this FSP are effective for the Corporation for fiscal years ending after December 15, Management of the Corporation is currently evaluating the effects the FSP will have on their financial statements. Reclassifications Certain prior year amounts have been reclassified to conform to the current year presentation without affecting previously reported classes of net assets. 9

12 3. Contributions Receivable Unconditional promises to give as of June 30, 2008 and 2007, net of respective allowances of approximately $282,000 and $307,000, are summarized as follows (in 000 s): Temporarily Permanently 2008 Unrestricted Restricted Restricted Total Up to one year... $ 3,226 $ 4,264 $ 253 $ 7,743 Two to five years , ,562 Gross 3,713 6, ,305 Less present value discount (4.35% to % interest rates)... (31) (121 ) (56 ) (208) Net... $ 3,682 $ 6,515 $ 900 $ 11,097 Temporarily Permanently 2007 Unrestricted Restricted Restricted Total Up to one year... $ 3,327 $ 4,036 $ 53 $ 7,416 Two to five years... 1,395 3, ,672 Gross... 4,722 7, ,088 Less present value discount (4.05% to 4.82% interest rates)... (133) (181) (13 ) (327) Net... $ 4,589 $ 6,977 $ 195 $ 11, Endowment Investments Endowment investments at June 30, 2008 and 2007 consist of (in 000 s): Cash and cash equivalents... $ 2,527 $ 1,932 Global equities , ,005 Fixed income... 58,002 52,936 Alternative investments Absolute return... 17,585 17,664 Hedged equities... 19,254 14,665 Private equity/other... 11,964 9,118 Held in trust... 1,750 1,750 Total... $ 231,592 $ 233,070 The annualized rate of total return net of investment management fees on these investments, computed as the annualized cumulative performance including earnings, unrealized gains and losses, was 3.6% and 17.7% for the years ended June 30, 2008 and 2007, respectively. The summary of Endowment investment results, net of investment management fees, for the years ended June 30, 2008 and 2007 is as follows (in 000 s): Return on investments: Interest and dividends... $ 4,936 $ 4,879 Realized and unrealized gains... 4,184 30,546 Investment management fees... (1,098) (937 ) Total... $ 8,022 $ 34,488 10

13 Spendable Objective (in 000 s): Base spendable objective... $ 10,033 $ 9,405 Board approved spendable objective for endowment fundraising expenses Total... $ 10,614 $ 9,970 Total spendable objective as a percentage of beginning market value of investments % 5.0% 5. Other Investments Other investments at June 30, 2008 and 2007 consist of (in 000 s): Cash and cash equivalents... $ 21, Global equities... 15,657 8,629 Fixed income... 24,695 60,683 Alternative investments Absolute return... 6,053 4,890 Hedged equities... 9,152 9,106 Private equity/other Total... $ 78,127 $ 84,140 Investment results on other investments for the years ended June 30, 2008 and 2007 is summarized as follows (in 000 s): Interest and dividends... $ 2,879 $ 4,273 Realized and unrealized gains... 1,756 1,745 Investment management fees... (173 ) (18) Total... $ 4,462 $ 6,000 Excess operating cash is invested as available. The investment earnings for years ended June 30, 2008 and 2007, were $663,000 and $628,000, respectively. 6. Land, Buildings and Property Land, buildings, and property as of June 30, 2008 and 2007, are summarized as follows (in 000 s): Land... $ 25,475 $ 25,475 Buildings and improvements , ,039 Equipment... 10,986 12,022 Property acquired under capital lease Music and instruments... 4,708 4,327 Trademarks Capitalized interest (net)... 3,850 3, , ,351 Less: accumulated depreciation and amortization... (53,930) (51,737 ) Total... $ 116,968 $ 119,614 11

14 7. Line of Credit The Corporation has a $5 million working capital line of credit, which matures on June 29, Under the terms of the current agreement, the line can be drawn for a maximum of 11 months in any 12-month period. Interest expense for the years ended June 30, 2008 and 2007 was approximately $3,000 and $10,000, respectively. The line was not drawn during the year ended June 30, The outstanding balance on the line was zero at June 30, 2008 and June 30, During the year ended June 30, 2008, the Corporation obtained a secured line of credit of approximately $81.4 million to bridge the period from the redemption of the 2002 Bonds Series on March 19, 2008 to the issuance of the Series 2008 Bonds on May 29, Interest expense was $476,000 for the year ended June 30, There was no outstanding balance on the line at June 30, Pension Plans The Corporation has two non-contributory, defined benefit pension plans (the Plans ) covering most of its full-time employees. Members of the CSO participate in the Chicago Symphony Orchestra Pension Plan (the CSO Plan ), the terms of which are largely determined through labor negotiations. Other eligible Corporation employees, excluding certain union employees who participate in external pension plans, participate in The Orchestral Association Retirement Plan for Administrative Employees (the Admin Plan ). The Corporation s funding policy is to contribute annually at least the minimum amount required by law. The estimated required contribution for the year ending June 30, 2009 is $0 for the CSO Plan and $182,000 for the Admin Plan. The Plans use a June 30 measurement date. Certain financial disclosures follow (in 000 s): CSO Admin CSO Admin Plan Plan Plan Plan At June 30: Projected benefit obligation... $ (37,652) $ (6,960 ) $ (39,156) $ (7,435 ) Fair value of plan assets... 35,501 6,755 33,710 6,452 Funded status... $ (2,151) $ (205 ) $ (5,446) $ (983 ) Accumulated benefit obligation... $ (37,652) $ (6,749 ) $ (39,156) $ (7,165 ) For year ended June 30: Net periodic benefit cost... $ 861 $ 31 $ 1,420 $ 119 Employer contributions... 3, , Benefits paid... 2, , Amounts recognized in the statement of financial position consist of non-current liabilities... $ (2,151) $ (205 ) $ (5,446) $ (983 ) CSO Admin CSO Admin Plan Plan Plan Plan Other Changes in Plan Assets and Benefit Obligations Recognized in Changes in Unrestricted Net Assets FASB 158 transition adjustment... $ N/A $ N/A $ (8,420) $ (790 ) New transition obligation (asset)... (61) 184 New prior service cost (credit)... 1,368 4,348 New net loss (gain)... (1,461) (83 ) 7,508 Amortization of transition asset (obligation) Amortization of prior service credit (cost)... (558) (17 ) Amortization of net gain (loss)... (104) 1 Net loss (gain) recognized in unrestricted net assets... $ (725) $ (99 ) $ 3,375 $ (606 ) 12

15 The estimated transition obligation (asset), prior service cost (credit) and net loss (gain) of the Plans that will be amortized from unrestricted net assets into net periodic benefit cost over the next fiscal year are approximately ($30,000), $630,000 and $114,000 respectively, for the CSO Plan and approximately $0, $17,000 and ($17,000), respectively, for the Admin Plan. The following assumptions were used in accounting for the plan: CSO Admin CSO Admin Plan Plan Plan Plan Weighted-average assumptions used to determine benefit obligations for years beginning July 1: Discount rate % 7.25% 6.50% 6.50% Rate of compensation increase... N/A 4.00% N/A 4.00% Weighted-average assumptions used to determine net benefit cost for years ended June 30: Discount rate % 6.50% 6.50% 6.50% Rate of compensation increase... N/A 4.00% N/A 4.00% Expected long-term return on plan assets % 8.00% 8.00% 8.00% The expected rate of return on plan assets is determined by the plan assets historical long-term investment performance, current asset allocation, and estimates of future long-term returns by asset class. The percentage of the fair value of total plan assets held as of June 30 (the measurement date) by asset category is as follows: CSO Admin CSO Admin Plan Plan Plan Plan Global equities... 49% 61% 53% 66% Fixed income Alternative investments... Absolute return Hedged equities Other Short-term investments (cash) Total % 100% 100% 100% The Corporation s investment policies and target allocations are reviewed periodically and are designed to balance risk and achieve a longterm rate of return on assets consistent with actuarial assumptions. The benefits expected to be paid for the next 10 years are as follows (in 000 s): CSO Plan 2008 Admin Plan $ 2,916 $ , , , , ,797 2,166 Total... $ 29,390 $ 3,507 13

16 The Corporation adopted the recognition provisions of FASB Statement 158, Employers Accounting for Defined Benefit Pension and Other Postretirement Plans An Amendment of FASB Statements No. 87, 88, 106, and 132(R), as of June 30, 2007, which required that the funded status of the CSO Plan and Admin Plan be fully recognized in the statement of financial position. The incremental effects of applying FASB Statement 158 on individual line items in the statement of financial position as of that date are as follows (in 000 s): CSO Plan Before Application After Application of SFAS No. 158 Adjustments of SFAS No. 158 Pension liability... $ (5,446 ) $ $ (5,446) Intangible assets... 4,348 (4,348) Unrestricted net assets... 7,447 4,348 11,795 Admin Plan Before Application After Application of SFAS No. 158 Adjustments of SFAS No. 158 Pension liability... $ (1,589 ) $ 606 $ (983) Unrestricted net assets... (606) (606) On July 1, 2006, the Corporation froze the Admin Plan. Concurrently, the Corporation amended its existing 403(b) plan for full-time administrative staff to include a nondiscretionary 3% contribution of gross salaries for qualified employees to the 403(b) plan and a 50% employer match of up to 1% of gross salaries, based on qualified employee elective contributions of up to 2%. Total expenses for the years ended June 30, 2008 and June 30, 2007 were $249,000 and $223,000, respectively. 9. Bonds Payable Bonds payable at June 30, 2008 and 2007 consist of the following: Illinois Finance Authority Adjustable Rate Demand Revenue Bonds, Series 2008, due May 1, 2048 Illinois Educational Facilities Authority Revenue Refunding Bonds, Series 2002, sinking fund redemptions begin June 1, 2012 and conclude June 1, Redeemed March 19, 2008 Illinois Development Finance Authority Variable/Fixed Rate Demand Revenue Bonds, Series 1994, due December 1, 2028 Illinois Development Finance Authority Variable/Fixed Rate Demand Revenue Bonds, Series 1999, due December 1, 2033 $ 83,015,000 $ 80,625,000 50,000,000 50,000,000 13,400,000 13,400,000 Bonds Payable $ 146,415,000 $ 144,025,000 The Series 2002 Bonds were redeemed on March 19, Series 2008 bonds were issued on May 29, 2008, and are supported by a stand-by letter of credit. The Series 1994, 1999, and 2008 Bonds function in a floating rate mode, with interest being reset on a weekly basis. The Series 2002 Bonds functioned in a weekly auction rate mode. On June 30, 2008, the interest rates on the Series 1994, 1999, and 2008 Bonds were 1.50%, 1.55%, and 1.35%, respectively. On June 30, 2007, the interest rates for the Series 1994, 1999, and 2002 bonds were 3.76%, 3.78%, and 3.90%, respectively. Bond interest expense for the years ended June 30, 2008 and 2007 was approximately $4,778,000 and $5,189,000, respectively. The Series 1994, 1999, and 2008 Bonds are supported by stand-by letters of credit. To maintain this support, the Corporation agrees to certain covenants involving debt, net assets balances, and cash and marketable securities. The term for the stand-by letters of credit for the 1994, 1999, and 2008 Bonds expires June 30, Fees associated with the credit facilities, broker/dealers and remarketers of all bonds were approximately $795,000 and $669,000 for the years ended June 30, 2008 and 2007, respectively. 14

17 Bond issuance costs are amortized over the average life of the bonds, which is 39.9 years for the Series 2008 Bonds and was 23.5 years for the Series 2002 Bonds. Unamortized bond issuance costs were approximately $674,000 and $2,095,000, as of June 30, 2008 and 2007, respectively. The unamortized balance of the Series 2002 Bond issuance costs were expensed at the time of the bonds redemption. 10. Swap Contracts The Corporation has two interest rate swap contracts with Goldman Sachs Mitsui Marine Derivative Products, L.P. ( Goldman Sachs ) for notional amounts of $50 million and $40 million, respectively. The Corporation has agreed to pay Goldman Sachs a fixed rate of interest equal to 3.561% and 3.782%, respectively, with the counterparty paying a floating rate based on 67% of 1-month LIBOR. The $50 million notional amount declines, starting in 2028, and terminates in 2033, and the $40 million notional amount terminates in Both contracts are subject to early termination at the Corporation s option. $50 million swap contract Market value (liability)... $ (2,306,000) $ 1,552,000 Swap market value adjustment... (3,859,000) (60,000 ) $40 million swap contract... Market value (liability)... (2,947,000) 46,000 Swap market value adjustment... (2,993,000) (49,000 ) 11. Restricted Net Assets and Net Assets Released from Restrictions Temporarily restricted net assets were attributable to the following purposes as of June 30, 2008 and 2007 (in 000 s): Net Contributions Release from 2007 and Earnings Restrictions 2008 Archives... $ 502 $ 95 $ (37) $ 560 Audience development initiatives (419) 996 Brass solo concerts (45) 935 Carnegie Hall concerts (39) Civic orchestra stipends and operations... 15,825 1,003 (823) 16,005 Community engagement programs Education concerts Grainger ballroom Institute programs ,378 2,387 Main series concerts... 1, (397) 1,876 Media Initiatives... 2,199 (902) 1,297 Music commissioning funds... 1, (100) 1,492 Orchestra chairs... 3, (1,282) 2,483 Principal guest conductor... 2, (338) 2,035 Program notes (10) 112 SCP concerts... 1, (650) 731 Tour support... 3,169 (2,569) 600 Other purpose or time restrictions... 3,859 3,007 (2,238) 4,628 Total... $ 38,062 $ 6,976 $ (8,471 ) $ 36,567 15

18 Permanently restricted net assets were attributable to the following purposes as of June 30, 2008 and 2007 (in 000 s): 2007 Contributions Transfers 2008 Archives... $ 350 $ $ $ 350 Brass solo concerts Carnegie Hall concerts Civic orchestra stipends and operations... 5,659 5,659 Community engagement programs Education concerts Grainger ballroom Institute programs ,334 Main series concerts... 2, ,848 Music commissioning funds... 1,836 1,836 Orchestra chairs... 8, (550) 8,245 Principal guest conductor... 5,600 5,600 Program notes Tour support (500) General operating support... 38, ,840 Total... $ 65,942 $ 1,938 $ - $ 67, Operating Leases and Contingent Liabilities The Corporation has entered into operating leases for office, storage, and retail space for use by the Corporation. Total leased space rental expense for the years ended June 30, 2008 and 2007, was $250,000 and $276,000, respectively. Future fiscal year minimum lease rental obligations under these agreements as of June 30, 2008, are summarized as follows (in 000 s): $ Total... $ 189 The Corporation was guarantor for musical instrument loans, made by a bank to certain members of the CSO, totaling approximately $670,000 and $845,000, as of June 30, 2008 and 2007, respectively, and these loans are not reflected in the Corporation s financial statements. As of June 30, 2008, approximately 55% ( %) of the Corporation s full-time employees are covered by collective bargaining agreements, most of which will expire during the year ending June 30, Related-Party Transactions Certain business relationships are maintained by the Corporation that might reasonably be expected to give rise to a possible conflict between the business, financial or economic interests of the Corporation and those of Trustees, members of Trustee committees, members of the executive committees of the volunteer groups associated with the Corporation, senior management of the Corporation, or non-profit organizations on whose boards such individuals may serve. The Corporation has a policy that such individuals will not vote on, or use their personal influence in connection with, the resolution of any issue or matter in which those persons or their immediate family members have business, financial or economic interests. Management believes that the Corporation adhered to this policy for the years ended June 30, 2008 and 2007, and the Audit Committee of the Board of Trustees reviews these business relationships annually. 16