CIRCUIT PLAYHOUSE, INC. FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2017

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1 FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION YEAR ENDED JUNE 30, 2017

2 FINANCIAL STATEMENTS

3 CONTENTS Page FINANCIAL STATEMENTS Independent Auditor's Report Statement of Financial Position Statement of Activities Statement of Changes in Net Assets Statement of Cash Flows Notes to Financial Statements SUPPLEMENTARY INFORMATION Schedule of Functional Expenses

4 Whitehorn Tankersley & ~ Davis, PLLC CERTIFIED PUBLIC ACCOUNTANTS 670 Oakleaf Office Lane Memphis, TN ( ) ( ) FA X INDEPENDENT AUDITOR'S REPORT To the Board of Directors Circuit Playhouse, Inc. Memphis, Tennessee We have audited the accompanying financial statements of Circuit Playhouse, Inc. (a nonprofit organization) which comprise the Statement offinancial Position as of June 3 0, 2017 and the related Statements of Activities, Changes in Net Assets and Cash Flows for the year 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 audit. 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 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. AMERICAN INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS AICPA DIVISION OF FIRMS: PRIVATE COMPANIES PRACTICE SECTION TENNESSEE SOCIETY OF CERTIFIED PUBLIC ACCOUNTANTS

5 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 Circuit Playhouse, Inc. as of June 30,2017 and the changes in its net assets and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the financial statements as a whole. The Schedule of Functional Expenses on page 20 is presented for purposes of additional analysis and is not a required part of the financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the financial statements as a whole. 2 November 17,2017 Memphis, Tennessee

6 3 STATEMENT OF FINANCIAL POSITION JUNE 30,2017 ASSETS CURRENT ASSETS Cash $ 1,113,610 Accounts receivable, net of allowance ,104 Unconditional promises to give - current portion, net of allowance.... Prepaid expenses.... TOTAL CURRENT ASSETS , , ,437 PROPERTY AND EQUIPMENT, net of accumulated depreciation ,184 OTHER ASSETS Unconditional promises to give, less current portion above.... Beneficial interest in assets held by Community Foundation of Greater Memphis.... Investments.... Deposits ,487 3,128, , ,519,674 TOTAL ASSETS $ 15, LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable and accrued expenses.... Deferred revenue.... TOTAL CURRENT LIABILITIES.... DEFERRED COMPENSATION.... TOTAL LIABILITIES.... NET ASSETS Unrestricted Temporarily restricted.... Permanently restricted.... TOTAL NET ASSETS.... TOTAL LIABILITIES AND NET ASSETS $ 65, , , ,511 14,000, , , ,784 $ 15,923,295 See notes to financial statements

7 4 STATEMENT OF ACTIVITIES YEAR ENDED JUNE 30, 2017 SUPPORT AND REVENUE Box office $ Subscriptions.... Underwriting.... Acting classes.... Special events.... Federal and state grants.... Private grants and gifts.... Other contributions- Jeniam.... Investment income.... Gain (loss) on investments.... Income from beneficial interest in assets held by the Community Foundation of Greater Memphis... Change in beneficial interest in assets held by the Community Foundation of Greater Memphis.... Facilities income.... UPTA income.... Other revenue.... Change in discount of long-term unconditional promises to give.... In-kind revenue TOTAL SUPPORT AND REVENUE.... RECLASSIFICATIONS Net assets released from restrictions.. TOTAL SUPPORT, REVENUE AND RECLASSIFICATIONS EXPENSES Performance.... Administrative.... Fundraising.... TOTAL EXPENSES.... CHANGE IN NET ASSETS BEFORE DEPRECIATION.... DEPRECIATION EXPENSE Performance ,408 Administrative ,490 Fundraising... TOTAL DEPRECIATION EXPENSE TEMPORARILY PERMANENTLY UNRESTRICTED RESTRICTED RESTRICTED TOTAL 492, , , ,148 75,130 75, , ,664 5,775 15,012 43, , ,540 76,561 67,681 11, , ,617, , $ $ 128,511 90,728 53, ,912 ( ) CHANGE IN NET ASSETS $ ) $ ==$ === $ 492, , , ,148 75,130 75, , ,664 5,775 15,012 43, , ,540 76,561 67,681 12, ,617, , ,408 37, $ (4,517) See notes to financial statements

8 5 STATEMENT OF CHANGES IN NET ASSETS YEAR ENDED JUNE 30,2017 TEMPORARILY PERMANENTLY UNRESTRICTED RESTRICTED RESTRICTED BALANCE, JUNE 30, $ 14,117,195 $ 188,106 $ 1,033,000 Change in net assets... (1 17,016) 112,499 BALANCE, JUNE 30, ~ 14 ~ 000)79 ~ 300 ~ 605 ~ 1 ~ 033 l 000 TOTAL $ 15,338,301 (4.517) $ 15 ~ See notes to financial statements

9 6 STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 2017 CASH FLOWS FROM OPERATING ACTIVITIES Cash received from contributors and grantors.... Cash received from customers and others.... Cash paid to suppliers and employees Interest and dividends received NET CASH PROVIDED BY OPERATING ACTIVITIES CASH FLOWS FROM INV~STING ACTIVITIES Payments for purchase of furniture and equipment 0 Net transfer to/from investments Net transfer to/from beneficial interest in assets held by the Community Foundation of Greater Memphis... 0 NET CASH PROVIDED BY INVESTING ACTIVITIES.... NET CHANGE IN CASH... o o o CASH AT BEGINNING OF YEAR... o CASHATENDOFYEAR.. o. o o o. o o o o $ 1,125,873 1,322,319 {2,411,595) (15,557) 35, , , ,051 $ 1, See notes to financial statements

10 7 STATEMENT OF CASH FLOWS- CONTINUED YEAR ENDED JUNE 30,2017 RECONCILIATION OF CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES CHANGE IN NET ASSETS $ ADJUSTMENTS TO RECONCILE CHANGE IN NET ASSETS TO NET CASH PROVIDED BY OPERATING ACTIVITIES Depreciation.... Bad debt provision.... Change in fair value of deferred compensation liability.... Investment income reinvested.... Unrealized gain on investments.... Direct contributions to beneficial interest in assets held by Community Foundation of Greater Memphis.... Change in value of beneficial interest in assets held by the Community Foundation of Greater Memphis.... Increase (decrease) in discount to present value of unconditional promises to give.... In-kind assets donated.... (Increase) decrease in assets: Accounts receivable.... Grants receivable.... Unconditional promises to give.... Prepaid expenses.... Increase (decrease) in liabilities: Accounts payable and accrued expenses.... Deferred. revenue.... Deferred compensation.... NET CASH PROVIDED BY OPERATING ACTIVITIES.... $ (4,517) 374,898 18,600 19,564 (4,867) (14,697) (149,723) (279,938) (12,159) (8,000) 8,347 73, ;320 (55,732) (74,405) 35,629 (35,000) 37 ~ 820 See notes to financial statements

11 8 NOTES TO FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 2017 NOTE 1 - DESCRIPTION OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES DESCRIPTION OF ACTIVITIES- Circuit Playhouse, Inc. ("Playhouse"), founded in 1969, operates four performing arts theatres and a theatre education program in Memphis, Tennessee. Revenues from ticket sales, subscriptions and donations fund these operations. ACCOUNTING BASIS- The accompanying financial statements have been prepared on the accrual basis of an accounting. Under this basis, support and revenue are recognized in the period earned and expenses are recognized when incurred. Cash contributions are recognized as revenue when received. BASIS OF PRESENTATION- Playhouse follows Financial Accounting Standards Board Accounting Standards Codification ("FASB ASC") , Not-for-Profit Organizations - Presentation of Financial Statements, for the presentation of its financial statements. Under FASB ASC , Playhouse reports information regarding its financial position according to three classes of net assets: unrestricted, temporarily restricted and permanently restricted. Playhouse's permanently restricted net assets comprise contributions from individuals with the provision that only earnings on the contributions may be spent. Temporarily restricted net assets at year end are generally available for use during the next fiscal year. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles 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. CASH AND CASH EQUIVALENTS - For purposes of the Statement of Cash Flows, Playhouse considers all highly liquid investments available for current use with an initial maturity of three months or less to be cash equivalents. There were no cash equivalents at June 30, ACCOUNTS RECEIVABLE AND PROMISES TO GIVE - Accounts receivable are stated at the amount management expects to collect from outstanding balances. Unconditional promises to give are recognized as revenues or gains in the period received and as assets, decreases of liabilities or expenses depending on the form of benefits received. Any conditional promises to give are recognized when the conditions on which they depend are substantially met. These promises to give are subject to credit risk, since the donor's ability to meet the obligation may be affected by economic developments in a specific geographic region or industry. Playhouse uses the allowance method to determine uncollectible accounts receivable and unconditional promises to give. Management provides for any probable uncollectible amounts through a charge to earnings and a credit to the allowance for doubtful accounts based on their

12 9 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30, 2017 NOTE 1 - DESCRIPTION OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED ACCOUNTS RECEIVABLE AND PROMISES TO GIVE - continued- assessment of the current status of individual accounts. Balances still outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for doubtful accounts and a credit to accounts receivable. Playhouse does not assess finance charges on past-due amounts of accounts receivable. Past due accounts receivable are determined based upon contractual. terms as defined on customer invoices. The allowances represent estimates by management based upon prior years' experience and management's analysis of specific receivables or promises made, and it is at least reasonably possible that a change in the estimate will occur in the near term. The allowance for accounts receivable was $3,500 at June 30, There was no allowance for uncollected promises to give at June 30, Bad debt expense totaled $18,600. INVESTMENTS- Playhouse follows the provisions off ASB ASC , Investments, Debt and Equity Securities. In accordance with FASB ASC , investments in marketable securities with readily determinable fair values and all investments in debt securities are carried at their fair values in the Statement of Financial Position. Investments received as contributions are recorded at fair value at the date of gift. Realized and unrealized gains or losses on investments are presented in Support and Revenue in the accompanying Statement of Activities as increases or decreases in unrestricted net assets. Although Playhouse has a policy to maintain a diversified investment portfolio, these investments are subject to market and credit risk, including the issuer's ability to meet their obligations, which inay be affected by economic developments in a specific geographic region or industry. ENDOWMENT- Playhouse's Endowment Fund was established to support Playhouse and its mission over the long-term. Playhouse follows the Uniform Prudent Management of Institutional Funds Act of 1972 ("UPMIF A") and its own governing documents. UPMIF A requires the historical dollar amount of a donor-restricted endowment fund to be preserved. In the absence of donor restrictions, the net appreciation on a donor-restricted endowment fund is spendable under UPMIF A. Playhouse's donor has placed restrictions on the use of the original contribution. Also the investment income and net appreciation resulting from the endowment fund is to be used to pay for certain staff salaries. Certain contributions may be received subject to gift instruments or other specific agreements. The Board of Directors and Management Staff have the ability to distribute so much of the original principal of any trust or separate gift, devise, bequest, or fund as they in their sole discretion shall determine, assuming no other restriction. As a result of the ability to distribute the original principal, all contributions not classified as temporarily restricted or permanently restricted are classified as unrestricted net assets for financial statement purposes.

13 10 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30,2017 NOTE 1 - DESCRIPTION OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED ENDOWMENT- continued Playhouse has adopted investment and spending policies, approved by the Board of Directors for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of these endowment assets over the long-term. All endowment assets have been transferred to the Community Foundation of Greater Memphis (the "Community Foundation") under the policies and procedures and investment practices of the Community Foundation. Playhouse's spending and investment policies work together to achieve this objective. The spending policy calculates the amount of money annually distributed from Playhouse's endowment fund for operations. The current spending policy is to allow distributions of 5% or less of the average fund balance of the previous 20 calendar quarters as long as the distribution does not cause the balance of the fund to go below the original contribution. The percentage of the distribution may be increased by a Board Resolution. Accordingly, over the long-term, Playhouse expects its current spending policy to allow its endowment assets to grow. This is consistent with Playhouse's objective to maintain the purchasing power of endowment assets as well as to provide additional real growth through investment return. All endowment assets are considered permanently restricted and are included in the total of beneficial interest in assets held by the Community Foundation with earnings on the account presented as "change in value ofbeneficial interest." Undistributed earnings of the endowment fund are considered temporarily restricted revenue. FAIR VALUE MEASUREMENT- The fair value of investments is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date~ Playhouse's investment evaluation policy utilizes information provided by investment advisors and custodians. See Note 6 for discussion of fair value measurements. PROPERTY AND EQUIPMENT - Effective July 1, 2016, Circuit Playhouse put in place a capitalization policy whereby only property and equipment purchased or donated with a value greater than or equal to $2,000 per item and expected useful life of greater than one year are recorded at cost, or estimated fair value at the date of the gift, plus the cost of additions and those improvements greater than or equal to $2,000 per item which materially increase the useful lives of the assets. The estimates used for donations are based on information obtained by management from donors or other sources. Repair and maintenance costs are expensed as incurred. Depreciation for furniture and equipment is computed on the straight-line method with estimated useful lives of 5-10 years. Depreciation for buildings and improvements is computed on the straight-line method with estimated useful lives of years.

14 11 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30, 2017 NOTE 1 -DESCRIPTION OF ACTIVITIES AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED DEFERRED REVENUE - Revenues collected in advance of the period earned are recorded as deferred revenue and recognized as revenue in the period to which they relate. Deferred revenue included on the Statement of Financial Position includes revenues collected in advance for season subscriptions, sponsorships, acting classes, box office and facilities income. REVENUE RECOGNITION- Support received or receivable is recorded as unrestricted, temporarily restricted or permanently restricted, depending on the existence and/or nature of any donor restrictions. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the support is recognized. All other donor-restricted support is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. 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. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. AD VERT/SING - Playhouse expenses advertising costs as incurred. Advertising expense was $123,264 including $28,354 of in-kind advertising. IN-KIND DONATIONS- In-kind donations of materials or assets are recorded at their estimated fair market value at date of contribution. $8,000 in significant donated materials were received in Donated services are recognized as contributions in accordance with F ASB ASC , Contributions Received, if the services create or enhance nonfinancial assets or require specialized skills, are performed by people with those skills and would otherwise be purchased by the organization. Donated services in 2017 totaled $89,990. Numerous volunteers have donated significant amounts of time to Playhouse that did not meet the criteria for recognition under GAAP. Although no amounts have been reflected in the financial statements, management estimates the fair value of those services to be approximately $72,000. FUNCTIONAL EXPENSES- Indirect expenses of Playhouse are allocated among its three primary functions based upon estimates of time incurred in performing such functions. These estimates are based upon management's review of current functions and past experience in performing such functions. These allocations represent estimates; it is at least reasonably possible that a change in the estimate will occur in the near term. SUBSEQUENT EVENTS- Playhouse's policy is to evaluate subsequent events through the auditor's report date, which is the date the financial statements are available for issuance.

15 12 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30, 2017 NOTE 2 - UNCONDITIONAL PROMISES TO GIVE Unconditional promises to give comprised the following: Temporarily restricted promises - time or purpose.... Unrestricted promises- capital campaign.... Less unamortized discount.... $ 118, ,490 (6,663) $ 419,827 Unrestricted promises -capital campaign above represent amounts for capital campaign renovations which restrictions were met in prior years. At June 30, 2017, gross unconditional promises to give before unamortized discounts and allowances are due as follows: FISCAL YEAR Thereafter.... AMOUNT $ 214, , ,050 1,500 1, $ 426,490 Promises to give with due dates extending beyond one year are discounted using rates between 2% and2.5%. NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consists of the following major classifications: Land.... Buildings and improvements.... Equipment.... Less accumulated depreciation.... $ 528,667 13,672, ,963 14,808,304 (3, ) $ 10,888,184 Depreciation expense totaled $374,898.

16 13 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30, 2017 NOTE 3 - PROPERTY AND EQUIPMENT - CONTINUED A parking lot owned by Playhouse is leased to an unrelated party under an operating lease agreement that automatically renews each year. This lease expires June 30,2018 and allows for an adjustment to the monthly rent every three years based upon increases or decreases in the Consumer Price Index. As of April1, 2013, the monthly rent was adjusted to $1,128 per month. There was no adjustment to the rent at April 1, Included in facilities income on the accompanying Statement of Activities is $13,569 from this lease. Future minimum rental receipts on this noncancellable operating lease total $13,531 for NOTE 4 - BENEFICIAL INTEREST IN ASSETS In prior years and during 2017, Playhouse transferred, without variance power, funds to the Community Foundation to establish funds for the benefit ofplayhouse. The funds, which are valued at fair value, consist of pooled investments with the Community Foundation. Playhouse may request advances from the Community Foundation. During the year ended June 30,2017, advances totaling $136,296 were requested and received in accordance with Playhouse's investment policy as presented in Note 1. The following is included in change in beneficial interest in assets held by the Community Foundation: Interest and dividends... $ 56,816 Realized gain on investments.... 7,201 Unrealized (loss) on investments ,519 Management fees.... (20,598) Distributions (136,296) $ NOTE 5 - INVESTMENTS Investments at fair values are summarized as follows: Mutual funds - equities $ 102,173 Mutual funds - bonds $ 184,702

17 14 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30,2017 NOTE 5 - INVESTMENTS - CONTINUED Endowment Endowment net asset composition by type of fund as of June 30, 2017 is as follows: Temporarily Unrestricted Donor-restricted endowment funds $ 56,629 Permanently Restricted $ 1.000,000 Total Net Endowment Fund $ Changes in endowment fund net assets as of June 30, 2017 are as follows: Temporarily Unrestricted Permanently Restricted Total Net Endowment Fund Endowment net assets, beginning of year... $ 3,579 $ 1,000,000 Contributions received... Net appreciation (depreciation) ,261 Amounts appropriated for expenditure... (51.211) Endowment net assets, end of year... $ 56 ~ 629 $ ~ 000 $ 1,003, ,261 (51,211) $ 1~056~629 NOTE 6- FAIR VALUE MEASUREMENTS FASB ASC , Fair Value Measurements, establishes 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) and the lowest priority to unobservable inputs (Level 3 ). The three levels of the fair value hierarchy under generally accepted accounting principles are as follows: Levell - Quoted prices for identical assets or liabilities in active markets to which Playhouse has the ability to access at the measurement date.

18 15 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30, 2017 NOTE 6- FAIR VALUE MEASUREMENTS- CONTINUED Level 2 - Inputs other than quoted prices included in Levell that are observable for the asset or liability, either directly or indirectly. Level2 inputs include quoted prices for similar assets or liabilities in active markets; quoted market prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted market prices that are observable for the asset or liability; and inputs that are derived from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level2 input must be observable for substantially the full term of the asset or liability. Level 3 - Unobservable inputs for the asset or liability and significant to the fair value measurement. The asset 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 maximize the use of relevant observable inputs and minimize the use of unobservable inputs. Following is a brief description of the valuation methodologies used for investment securities measured at fair value.. All methodologies discussed below use a market approach in that prices and other relevant information generated by market transactions involving identical or comparable assets are utilized. There have been no changes in the methodologies used at June 30,2017. Mutual funds: Valued at the daily closing price as reported by the fund. Mutual funds held by Playhouse are open-end mutual funds that are registered with the SEC. These funds are required to publish their daily net asset value ("NAV") and to transact at that price. The mutual funds are deemed to be actively traded. Beneficial Interest: Valued by the Community Foundation based primarily on the NA V or its equivalent provided by the fund managers of the underlying investment pools in which Playhouse has its investments. Unconditional Promises to Give: Valued by calculating the present value of the future payments expected to be received, applying applicable discount rates to multi-year promises. The following table sets forth by level, within the fair value hierarchy, the fair values of assets measured on a recurring basis as of June 30, 2017.

19 16 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30, 2017 NOTE 6- FAIR VALUE MEASUREMENTS- CONTINUED Assets at Fair Value Quoted Prices InActive Significant Markets for Other Identical Observable Assets Inputs Fair Value (Levell) (Levell) Significant Unobservable Inputs <Level3) Mutual funds - bonds... $ 82,529 $ 82,529 $ Mutual funds - equities.. 102, ,173 Beneficial interest ,128,440 Unconditional promises to give $ 3,128, Total... $ 3 ~ 732 ~ 969 $ 184 ~ 702 $ $ 3 ~ 548 ~267 Playhouse recognizes transfers of assets into and out of levels as of the date an event or change in circumstances causes the transfer. There were no transfers between levels in the year ended June 30, The reconciliations of the changes in the beneficial interests and unconditional promises to give measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows: Fair Value Measurements Using Significant Unobservable Inputs (Level3) Unconditional Beneficial Interests Promises to Give Total June 30, $ 2,835,075 Contributions and collections (net) ,723 Change in unamortized discount and allowance for uncollectible promises (included in unrestricted and temporarily restricted support and revenue).... Change in value of beneficial interests.... Payments from beneficial interest ,938 ( ) $ 572,588 (132,602) (20,159) $ 3,407,663 17,121 (20,159) 279,938 ( ) June 30, 2017 $ $ 419,827 $

20 17 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30, 2017 NOTE 7- RETIREMENT PLAN AND DEFERRED COMPENSATION In 2013, Playhouse implemented a tax-qualified 401(k) profit sharing plan (the "Plan") for the benefit of eligible employees. Under the Plan, eligible employees may elect to defer a portion of their compensation subject to limitations of the Internal Revenue Code. The amount of the Playhouse profit sharing contribution, if any, is determined annually by Playhouse's Board Finance Committee. The Plan's year end is December 31. For Plan years 2013 and 2014, the profit sharing contribution was to be allocated on a pro-rata basis to each eligible participant's account in the allocation group receiving profit sharing contributions. The Plan was amended effective January 1, 2015 and provides four different allocation groups for the profit sharing contribution. Under this allocation formula, Playhouse contributes a different amount for each group, which is allocated on a pro rata basis among qualifying participants in each group. Employer contributions totaled $67,307 for the year ended June 30,2017 and relate to the Plan year ended December 31,2016. The Statement of Activities includes $32,307 in retirement expense. Playhouse had an employment agreement with an employee to provide deferred compensation payments to him at the time of his retirement. Such amounts were accrued over his years of service until normal retirement age of65. Effective July 1, 2014, Playhouse entered into anew agreement with the employee which replaces the previous agreement. Under the new agreement, Playhouse established an account equal to $256,202. The account is to be adjusted for earnings (losses) or interest. In addition, the account is to be charged with the aggregate amount of the employee's employer contributions to the 401(k) Plan after July 1, This account is included on the Statement of Financial Position as investments along with a corresponding liability in the amount of $184,702 at June 30, The account was charged $35,000 during 2017 for employer contributions for the employee. NOTE 8 - PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets of$1,033,000 at June 30,2017 consist of contributions permanently restricted by donors with varying restrictions placed on the earnings of the contribution by the donor. Earnings on the endowment fund of $1,000,000 are restricted for certain staff salaries. Income earned on the remaining balance of $33,000 is to be used for general operations. NOTE 9 - GRANT J eniam II, a local private foundation, has provided for a quarterly contribution to be made from a fund maintained through ArtsMemphis. The fund is to distribute the higher of 5% of the principal or the percentage payout approved by the Board of ArtsMemphis on its overall endowment fund to Playhouse annually for use in operations. Playhouse received $123,664 during 2017 from this grant.

21 18 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30, 2017 NOTE 10- TAX STATUS Playhouse is classified by the Internal Revenue Service as exempt from federal income taxes on its related income under Section 501 ( c )(3) of the Internal Revenue Code. It has been classified as an organization that is not a private foundation under Section 509(a)(2) of the Internal Revenue Code. Playhouse is similarly exempted from Tennessee taxes on its related exempt income under provisions of the Tennessee Tax Code. Playhouse files its tax returns in the United States federal jurisdiction and is currently not under tax examination. Playhouse is subject to tax examinations by taxing authorities for years ending after June 30, Playhouse operates under the provisions of F ASB ASC , Accounting for Uncertainty in Income Taxes, which requires that computations of any tax assets or liabilities only consider tax positions that are more likely than not (defined as greater than 50% chance) to be sustained if the taxing authority examined the positions. Based on the evaluation of Playhouse's tax positions, management believes that all positions taken would more likely than not be upheld under examination. Therefore, no provisions for the effects of uncertain tax positions has been recorded for the year ended June 30,2017. NOTE 11 -RELATED PARTY TRANSACTIONS Playhouse normally receives contributions from members of its Board of Directors and employees. Included in support and revenue on the accompanying Statement of Activities are board member and employee contributions of$91,707 for the year ended June 30,2017. Included in promises to give on the accompanying Statement of Financial Position are promises from board members of$5, 760. NOTE 12 - SIGNIFICANT ACCOUNTING CHANGES In February 2016, the Financial Accounting Standards Board ("F ASB") issued Accounting Standards Update ("ASU") Leases, which requires changes to the accounting for leases. Under the ASU, the recognition, measurement and presentation of expenses and cash flows arising from a lease will depend primarily on whether the lessee is expected to consume more than an insignificant portion of the economic benefits embedded in the underlying asset. A right-of-use asset and liability to inake lease payments will be recognized on the balance sheet for substantially all leases (except short-term leases.) The enactment of this A~U may have an impact on the Playhouse's accounting and financial reporting. Management has not yet determined the effect on its financial statements of this ASU when implemented. For non-public business entities, the pronouncement is effective for annual periods beginning after December 15, 2019 with early adoption permitted.

22 19 NOTES TO FINANCIAL STATEMENTS- CONTINUED YEAR ENDED JUNE 30,2017 NOTE 12 - SIGNIFICANT ACCOUNTING CHANGES - CONTINUED The FASB has also issued ASU Presentation of Financial Statements ofnot-for-profit Entities. Under this ASU, net asset classes will be revised, all nonprofits will be required to present expenses on a functional basis, and new liquidity and availability disclosilres are required, among other items. The ASU is effective for fiscal years beginning after December 15, 2017 and early implementation is allowed, but only if all aspects of the ASU are adopted. Management has not yet considered the effects of implementation of this ASU.

23 SUPPLEMENTARY INFORMATION

24 20 SCHEDULE OF FUNCTIONAL EXPENSES YEAR ENDED JUNE 30,2017 PERFORMANCE ADMINISTRATIVE FUNDRAISING --=-TO=.;T=-=-AL=--- EXPENSES Auto and travel $ Bad debt expense o o 0 Concession supplies and fees Costumes o o o o o 0 0 Credit card fees o o o Dues and subscriptions. 0 Small equipment In-kind expenses Insurance.... Lights and sound Miscellaneous... o o o o o Mortgage. o o o o o. o. o. o o o Office expense Payroll taxes o o Postage PR/Marketing.... Professional fees. o o o o o o o Props Repairs and maintenance... Retirement Salaries and artistic fees..... Scripts and royalties.. o o o o o Sets o o o o. o o. o. o o o o o Special events... o o o Telephone... 0 Theatre Education.... Unified Professional Theatre Audition expenses.... Utilities Total expenses before depreciation... o Depreciation ,798 16,850 36,157 27,667 42,529 54, ,131 22,206 3,191 34,359 14,796 88,479 6,806 99, , ,818 61,815 16,841 46, ,617, ,408 $ 1,750 22, ,521 26,116 24,236 1,127 35,335 19,374 2,536 15,690 11,031 26, ,638 25, ,501 37,490 $ 313 9,060 4,129 5,864 2,489 6,431 5,390 76,643 16, ,147 $ 14,798 18,600 36,157 27,667 22,454 1,121 59,050 89, ,496 22,206 1,127 3,191 35,335 59,597 19,821 94,910 15,690 6, ,311 32,307 1,182, ,818 61,815 16,828 25,454 16,841 46, ,374, ,898 TOTAL EXPENSES 0 o 0 0 o $ 1,955,372 $ $ 127,147 $