Sigma Chi Fraternity and Affiliates. Consolidating Financial Report June 30, 2011 and 2010

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1 Sigma Chi Fraternity and Affiliates Consolidating Financial Report June 30, 2011 and 2010

2 Contents Independent Auditor's Report 1 Financial Statements Consolidating Statements of Financial Position 2 3 Consolidating Statements of Activities 4 Consolidating Statements of Cash Flows 5 Notes to Consolidating Financial Statements 6 15 Supplementary Information Consolidating Statement of Financial Position Sigma Chi Consolidating Statement of Activities Sigma Chi 18 Consolidating Statement of Cash Flows Sigma Chi 19

3 Independent Auditor's Report To the Executive Committee Sigma Chi Fraternity and Affiliates Evanston, Illinois We have audited the accompanying consolidating statements of financial position of Sigma Chi Fraternity and Affiliates (the Organization) as of June 30, 2011 and 2010, and the related consolidating statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Organization 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 consolidating financial statements referred to above present fairly, in all material respects, the financial position of Sigma Chi Fraternity and Affiliates as of June 30, 2011 and 2010, and the changes in their net assets and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic consolidating financial statements taken as a whole. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic consolidating financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic consolidating financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic consolidating financial statements taken as a whole. Chicago, Illinois September 30,

4 Consolidating Statements of Financial Position June 30, 2011 and 2010 Assets Sigma Chi Blue & Gold Blue & Gold Sigma Leadership Constantine Travel Services, Sigma Constantine Travel Services, Chi Institute Capital, Inc. Inc. Eliminations Consolidated Chi Capital, Inc. Inc. Eliminations Consolidated Current Assets Cash and cash equivalents $ 287,000 $ 7,000 $ 284,000 $ 12,000 $ - $ 590,000 $ 331,000 $ 574,000 $ 2,000 $ - $ 907,000 Accounts receivable 1,002,000 1,000 39,000 - (334,000) 708,000 1,138,000 47,000 - (124,000) 1,061,000 Allowance for doubtful accounts (88,000) (88,000) (92,000) - - (92,000) Mortgages and other chapter house loan receivable - - 1,681, ,681,000-1,624, ,624,000 Student aid loans receivable 15, ,000 15, ,000 Allowance for losses on mortgages and student aid loans receivable (15,000) - (120,000) - - (135,000) (15,000) (120,000) - - (135,000) Investments 4,754, , ,501,000 3,890, , ,388,000 Investments in subsidiaries: Constantine Capital, Inc. 2,630, (2,630,000) - 2,626, (2,626,000) - Blue & Gold Travel Services, Inc. (215,000) ,000 - (121,000) ,000 - Inventory of merchandise and supplies, at lower of FIFO cost or market 50, ,000 81, ,000 Furniture, equipment and software, net , ,000 Prepaid income taxes - - 4, ,000-4, ,000 Deposits and prepaid expenses 119, , , , ,000 $ 8,539,000 $ 130,000 $ 2,635,000 $ 12,000 $ (2,749,000) $ 8,567,000 $ 8,131,000 $ 2,627,000 $ 2,000 $ (2,629,000) $ 8,131,000 See Notes to Consolidating Financial Statements. 2

5 Consolidating Statements of Financial Position (Continued) June 30, 2011 and 2010 Liabilities, Stockholders' Equity and Net Assets Sigma Chi Blue & Gold Blue & Gold Sigma Leadership Constantine Travel Services, Sigma Constantine Travel Services, Chi Institute Capital, Inc. Inc. Eliminations Consolidated Chi Capital, Inc. Inc. Eliminations Consolidated Current Liabilities Accounts payable and accrued expenses: Publications and other $ 833,000 $ 108,000 $ 5,000 $ 227,000 $ (334,000) $ 839,000 $ 814,000 $ 1,000 $ 123,000 $ (124,000) $ 814,000 Vacations 32, ,000 32, ,000 Retirement plan contribution 91, ,000 11, ,000 Borrowings under line of credit agreement , ,000 Deferred revenue for member fees 232, , , ,000 1,188, ,000 5, ,000 (334,000) 1,194,000 1,494,000 1, ,000 (124,000) 1,494,000 Stockholders' Equity Common stock, voting, authorized, issued and outstanding, 210 shares Preferred stock - - 2,059,000 10,000 (2,069,000) - - 2,059,000 10,000 (2,069,000) - Retained earnings (accumulated deficit) ,000 (225,000) (346,000) ,000 (131,000) (436,000) ,630,000 (215,000) (2,415,000) - - 2,626,000 (121,000) (2,505,000) - Net Assets Unrestricted Undesignated (149,000) 22, (127,000) (326,000) (326,000) Designated 7,500, ,500,000 6,625, ,625,000 7,351,000 22, ,373,000 6,299, ,299,000 Temporarily restricted , ,000 7,351,000 22, ,373,000 6,637, ,637,000 $ 8,539,000 $ 130,000 $ 2,635,000 $ 12,000 $ (2,749,000) $ 8,567,000 $ 8,131,000 $ 2,627,000 $ 2,000 $ (2,629,000) $ 8,131,000 See Notes to Consolidating Financial Statements. 3

6 Consolidating Statements of Activities Years Ended June 30, 2011 and Sigma Chi Blue & Gold Blue & Gold Sigma Leadership Constantine Travel Services, Sigma Constantine Travel Services, Chi Institute Capital, Inc. Inc. Eliminations Consolidated Chi Capital, Inc. Inc. Eliminations Consolidated Unrestricted net assets: Revenue and contributions: Revenue: Dues and fees $ 2,738,000 $ - $ - $ - $ - $ 2,738,000 $ 2,902,000 $ - $ - $ - $ 2,902,000 Registration fees 205, , , , ,000 Investment return: Designated for current education 64, ,000 94, ,000 Other 807, , , ,000 Royalties, chapter supplies, and other 295,000-7, , ,000 1, ,000 Ticket sales and commissions - 32,000-32,000-27,000-27,000 Interest and dividends , , , ,000 Contributions - Sigma Chi Foundation and Risk Management Foundation - 799, , , ,000 Contributions - Constantine Capital, Inc. - 15, (15,000) Administrative fee - Constantine Capital, Inc. 68, (68,000) - 65, (65,000) - Administrative fee - Blue & Gold Travel Services, Inc. 115, (115,000) - 91, (91,000) - Administrative fee - Risk Management Foundation 69, ,000 66, ,000 Transfer from temporarily restricted net assets 338, , , ,000 Total revenue and gains 4,699,000 1,279, ,000 32,000 (198,000) 5,921,000 5,222, ,000 27,000 (156,000) 5,216,000 Operating expenses: Fraternity services 407,000 22, , , ,000 Educational training 108, ,000 95, ,000 Meetings, including education training 292,000 1,018, ,310,000 1,349, ,349,000 Volunteer leadership travel 381, , , , ,000 Publications 504, , , ,000 General and administrative 1,821,000 6, , ,000 (198,000) 1,860,000 1,720, , ,000 (156,000) 1,780,000 Marketing 44,000 12, ,000 57, ,000 3,557,000 1,257, , ,000 (198,000) 4,847,000 4,701, , ,000 (156,000) 4,761,000 Revenue and contributions over (under) operating expenses 1,142,000 22,000 4,000 (94,000) - 1,074, ,000 7,000 (73,000) - 455,000 Net income - Constantine Capital, Inc. 4, (4,000) - 7, (7,000) - Net loss - Blue & Gold Travel Services, Inc. (94,000) ,000 - (73,000) ,000 - Change in unrestricted net assets/ net income 1,052,000 22,000 4,000 (94,000) 90,000 1,074, ,000 7,000 (73,000) 66, ,000 Temporarily restricted net assets: Reimbursements - Sigma Chi Foundation , ,000 Net assets released from restrictions (338,000) (338,000) (446,000) (446,000) Change in temporarily restricted net assets (338,000) (338,000) (54,000) (54,000) Change in net assets/ net income (loss) 714,000 22,000 4,000 (94,000) 90, , ,000 7,000 (73,000) 66, ,000 Net assets/retained earnings (accumulated deficit): Beginning of year 6,637, ,000 (131,000) (436,000) 6,637,000 6,236, ,000 (58,000) (502,000) 6,236,000 End of year $ 7,351,000 $ 22,000 $ 571,000 $ (225,000) $ (346,000) $ 7,373,000 $ 6,637,000 $ 567,000 $ (131,000) $ (436,000) $ 6,637,000 See Notes to Consolidating Financial Statements. 4

7 Consolidating Statements of Cash Flows Years Ended June 30, 2011 and Sigma Chi Blue & Gold Blue & Gold Sigma Leadership Constantine Travel Services, Sigma Constantine Travel Services, Chi Institute Capital, Inc. Inc. Eliminations Consolidated Chi Capital, Inc. Inc. Eliminations Consolidated Cash Flows from Operating Activities Change in net assets/net income (loss) $ 714,000 $ 22,000 $ 4,000 $ (94,000) $ 90,000 $ 736,000 $ 401,000 $ 7,000 $ (73,000) $ 66,000 $ 401,000 Decrease in allowance for doubtful accounts (4,000) (4,000) (69,000) (69,000) Depreciation and amortization 82, , , ,000 Investment return (871,000) (871,000) (335,000) (335,000) Net income - Constantine Capital, Inc. (4,000) ,000 - (7,000) - - 7,000 - Net loss - Blue & Gold Travel Services, Inc. 94, (94,000) - 73, (73,000) - Changes in: Accounts receivable 136,000 (1,000) 8, , ,000 (25,000) 8,000-56,000 39,000 Inventories 31, ,000 18, ,000 Deposits and prepaid expenses 77,000 (122,000) (45,000) 1,000 5, ,000 Accounts payable and accrued expenses 99, ,000 4, ,000 (210,000) 105, ,000 (3,000) 59,000 (56,000) 146,000 Deferred revenue for member fees (205,000) (205,000) (11,000) (11,000) Life memberships (30,000) (30,000) Net cash provided by (used in) operating activities 149,000 7,000 16,000 10, , ,000 17,000 (14,000) - 285,000 Cash Flows from Investing Activities Purchase of marketable securities - - (249,000) - - (249,000) (1,187,000) (1,187,000) Proceeds from sale or maturity of securities 7, , , ,000 Mortgage loans issued - - (350,000) - - (350,000) - (174,000) - - (174,000) Mortgage loans repaid , , , ,000 Net cash provided by (used in) investing activities 7,000 - (306,000) - - (299,000) (1,187,000) 213, (974,000) Cash Flows from Financing Activities Repayments of line of credit (200,000) (200,000) (280,000) (280,000) Net cash used in financing activities (200,000) (200,000) (280,000) (280,000) Net increase (decrease) in cash and cash equivalents (44,000) 7,000 (290,000) 10,000 - (317,000) (1,185,000) 230,000 (14,000) - (969,000) Cash and cash equivalents: Beginning of year 331, ,000 2, ,000 1,516, ,000 16,000-1,876,000 End of year $ 287,000 $ 7,000 $ 284,000 $ 12,000 $ - $ 590,000 $ 331,000 $ 574,000 $ 2,000 $ - $ 907,000 Supplemental Disclosure of Cash Flow Information Interest paid $ 18,000 $ - $ - $ - $ - $ 18,000 $ 22,000 $ - $ - $ - $ 22,000 See Notes to Consolidating Financial Statements. 5

8 Notes to Consolidating Financial Statements Note 1. Nature of Activities and Significant Accounting Policies Organization and nature of activities: Sigma Chi Fraternity, an unincorporated association (the Fraternity), was founded at Miami University, Oxford, Ohio on June 28, 1855, under the name Sigma Phi, for the purpose of supplying the social and intellectual wants of its members. The name was changed to Sigma Chi in January The Fraternity has chartered chapters at most principal universities and colleges in the United States and Canada. The Fraternity is a nonprofit corporation. The statutes of Sigma Chi Fraternity provide that all property acquired by various chapters be held in trust by the chapters for Sigma Chi Fraternity, unless a chapter is otherwise legally obligated or such requirement is waived in writing by the Executive Committee of the Board of Directors. The accompanying consolidating statements of financial position include no value attributable to any equity in property held by the various chapters. The Fraternity conducts its activities through various entities, as described below, which are included in the consolidating financial statements. These entities, along with the Fraternity, are collectively referred to in these financial statements as the Organization. Sigma Chi Corporation (SCC), a nonprofit corporation, was incorporated under Illinois law on March 24, 1898, for the principal purposes of doing business on behalf of the Fraternity and holding title in trust to certain properties of the Fraternity and its chapters, and to funds of the Fraternity. The combined activities of the Fraternity and SCC are presented in the consolidating financial statements under (and are referred to collectively as) "Sigma Chi." Constantine Capital, Inc. (CCI), a subsidiary of SCC, was incorporated on May 16, 1989 as a for-profit corporation for the primary purpose of assisting in the development of housing for chapters of the Fraternity. Blue & Gold Travel Services of Illinois, Inc. (BGTS), a subsidiary of SCC, was incorporated in Illinois on October 14, 2008 as a for-profit corporation, with its primary purpose of providing travel solutions for Sigma Chi s events. Sigma Chi Leadership Institute (SCLI) is a nonprofit corporation established in 2007 and charged with the administration of all leadership programs via Fraternity staff and volunteers. Substantial activities started in fiscal year 2011, when the Fraternity essentially transferred various leadership programs to SCLI. With the growth of educational leadership programs, the Fraternity felt it to be more informative to separately report the activities of these programs in SCLI. Moneys to support a large portion of these programs are received from the Foundation. Consolidation: The Fraternity includes the accounts of SCC and SCLI in its consolidated financial statements because there is a close affiliation and they meet the control and economic interest criteria requiring consolidations. CCI and BGTS are also included because SCC has controlling financial interests in them. All significant intercompany balances and transactions have been eliminated in consolidation. The accounts of Sigma Chi Foundation (the Foundation) and Risk Management Foundation, which are affiliated entities, are not included in the consolidating financial statements because they do not meet the criteria for consolidation. Use of estimates: The preparation of financial statements in conformity with generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the reported amounts in the assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the period. Actual results could differ from those estimates. 6

9 Notes to Consolidating Financial Statements Note 1. Nature of Activities and Significant Accounting Policies (Continued) Fund accounting: The Organization s accounts are maintained in accordance with the principles of fund accounting in order to ensure the observance of donor restrictions and Board designations placed on the use of resources available to Sigma Chi and SCLI. This is the procedure by which resources for various purposes are classified for accounting and reporting purposes into funds for specific activities and objectives. The fund balances are reported as follows: Unrestricted Net Assets Undesignated: Operating funds that are used in any of the Organization s programs or supporting services at the discretion of the Executive Committee and management. Designated: Within the unrestricted net assets there are two types of Board designated net assets for 1) funds received for life memberships that the Board has designated to fund future costs of publishing the magazine and 2) for the purpose of giving student aid assistance to members of active chapters. Temporarily Restricted Net Assets Temporarily restricted net assets arise from contributions restricted as to time or purpose, primarily for educational purposes, and are released from restrictions when received and/or utilized for their restricted purposes. Such amounts are reported as net assets released from restrictions, which represents a reclassification from temporarily restricted net assets to unrestricted net assets, when previously included in temporarily restricted net assets at the prior year-end. Cash and cash equivalents: Cash equivalents are all highly liquid investments with a maturity of three months or less at date of purchase. The Organization maintains cash in bank deposit accounts that, at times, may exceed federally insured (FDIC) limits. The Organization has not experienced any losses in such accounts. Management believes that the Organization is not exposed to significant credit risk on cash. Receivables: Accounts receivable include uncollateralized chapter and member obligations due under normal trade terms and include amounts receivable for dues and fees and from affiliates. Mortgages and other chapter house loans receivable are generally collateralized by the related chapter houses and student loans receivable are generally uncollateralized. Uncollectible amounts are written off to bad debt expense at the time the individual receivable is determined to be uncollectible. The allowances for doubtful accounts and losses are based primarily on historical collection experience. Investments: Marketable securities consists of investments in equity mutual funds and exchange traded funds that are recorded at fair value based on quoted prices in active markets. Realized gains and losses are determined on a specific identification basis and are recorded as net realized gain. The difference between the cost and the fair value of open investments is reflected as the net change in unrealized appreciation (depreciation). Interest income is recognized under the accrual basis. Dividend income is recognized on the ex-dividend date. Certificates of deposit with maturities greater than three months at the date of purchase consist of investments held at a bank and are recorded at amortized cost. Investment transactions are recorded on a trade-date basis. Furniture, equipment and software: Furniture, equipment and software are carried at cost and are depreciated or amortized using estimated service lives, which range from 3 to 7 years. Depreciation and amortization is computed using the straight-line method. 7

10 Notes to Consolidating Financial Statements Note 1. Nature of Activities and Significant Accounting Policies (Continued) Contributions: 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, temporarily restricted net assets are reclassified to unrestricted net assets. Deferred revenue for member fees: Member fees collected in advance are deferred until the period earned (generally 3 years), which is estimated based on when services are provided. Life memberships: Sigma Chi encourages alumni to subscribe to life memberships. Total life membership revenue was $192,000 and $222,000 for the years ended June 30, 2011 and 2010, respectively. A portion of the payments have been deposited in a board designated fund to offset future costs of publishing the magazine furnished to life members. Board designated fund revenue is based, in part, on the remaining life expectancies of the subscribers, and amounted to $149,000 and $141,000 for the years ended June 30, 2011 and 2010, respectively. Related expenses are based on publication costs which were $341,000 and $328,000 for the years ended June 30, 2011 and 2010, respectively. Advertising: Advertising costs are expensed as they are incurred. Legal fees: Legal fees are expensed as they are incurred. Functional allocation of expenses: The costs of providing the various programs and other activities have been summarized on a functional basis and, accordingly, certain costs have been allocated among the programs and supporting services benefited, based on estimates made by management. Income taxes: As a tax-exempt organization under Section 501(c)(7) of the Internal Revenue Code, income from most Sigma Chi's activities is not subject to income taxes. Its unrelated business income, which primarily derives from its net investment activities, may be offset by expenses incurred in connection with loans to students, scholarships, educational expenses and other items. Management funds an educational set aside account for educational purposes including scholarships and student loans to substantially offset any income tax liability; therefore, no provision for income taxes has been provided. SCLI is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code. CCI and BGTS are corporations subject to federal income taxes. The Organization may recognize a 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 Sigma Chi and SCLI and various positions related to the potential sources of unrelated business income tax (UBIT). 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. At June 30, 2011, there were no unrecognized tax benefits identified or recorded as liabilities. The Organization files information and income tax returns in the U.S. federal jurisdiction and the State of Illinois. The Organization is generally no longer subject to examination by the Internal Revenue Service for fiscal years before Subsequent events: Management of the Organization has evaluated subsequent events for potential recognition and/or disclosure through September 30, 2011, the date these financial statements were available to be issued. 8

11 Notes to Consolidating Financial Statements Note 2. Accounts Receivable Accounts receivable at June 30, 2011 and 2010 consist of: Chapter fees $ 436,000 $ 563,000 CCI interest receivable 29,000 37,000 Other 36,000 10, , ,000 Due from affiliates: Foundation workshop grant - 250,000 Sigma Chi Foundation 171, ,000 Risk Management Foundation 36,000 25, , ,000 $ 708,000 $ 1,061,000 At June 30, 2011 and 2010, the Organization had an allowance for doubtful accounts of $88,000 and $92,000, respectively, relating primarily to chapter fees. Note 3. Investments The Organization s investments at June 30, 2011 and 2010 consist of: Investments: Mutual funds $ 3,032,000 $ 2,297,000 Certificates of deposit 2,027,000 1,771,000 Exchange traded funds 442, ,000 $ 5,501,000 $ 4,388,000 The certificates of deposit, which are included in investments, have various maturity dates and rates at June 30, 2011 and 2010 as follows: October 18, 2010, 1.13% $ - $ 249,000 December, 14, 2010, 1.26% - 249,000 January 18, 2011, 0.425% - 1,273,000 September 7, 2011, 0.63% 1,280,000 - October 21, 2011, 1.35% 249,000 - November 16, 2011, 0.44% 249,000 - March 12, 2012, 0.51% 249,000 - $ 2,027,000 $ 1,771,000 9

12 Notes to Consolidating Financial Statements Note 3. Investments (Continued) The following schedule summarizes the investment return (loss) of the Designated Fund of Sigma Chi and its classification in the statements of activities for the years ended June 30, 2011 and 2010: Dividends $ 64,000 $ 60,000 Net realized gains - 34,000 Net change in unrealized gains and losses 807, , , ,000 Investment return designated for current educational operations 64,000 94,000 $ 807,000 $ 241,000 The Board of Directors designates investment return to current educational operations based on leadership training and chapter visitation program expenses. Note 4. Fair Value Measurement Fair value 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. Fair value establishes a framework and hierarchy which prioritizes the inputs to valuation techniques. Under the fair value hierarchy, the inputs to valuation techniques are prioritized into the following levels: Level 1. Inputs are quoted prices (unadjusted) for identical assets or liabilities in active markets Sigma Chi has the ability to access at the measurement date. Level 2. Inputs (other than quoted prices included within Level 1) that are observable for the asset or liability, either directly or indirectly; and fair value is determined through the use of models or other valuation methodologies. Level 3. Inputs are unobservable for the asset or liability and rely on management s own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs would be developed based on the best information available in the circumstances and may include the entity s own data. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence of a principal market, the most advantageous market. A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The Organization invests in various investments. Such investments are exposed to various risks such as interest rate, market, and credit risk. Due to the level of risk associated with certain investments, it is at least reasonably possible that changes in the values of investments will occur in the near term and that such changes could materially affect the amounts reported in the statements of financial position. The Organization s investments in mutual funds and exchange traded funds are Level 1 instruments. 10

13 Notes to Consolidating Financial Statements Note 5. Mortgages and Other Chapter House Loans and Student Aid Loans Receivable Mortgages and other chapter house loans bear interest at prevailing market rates at the time the loan is made and mature at various dates through July At June 30, 2011 and 2010, outstanding loans provide for interest rates that range from 5.0 to 9.5 percent per annum. Student aid loans bear interest at rates determined annually and accrue interest commencing the first day of the month following the date of completion or termination of study. Principal and interest are payable in equal installments over 36 months or such other period as determined by Sigma Chi, beginning on the date interest commences. Note 6. Furniture, Equipment and Software Furniture, equipment and software at June 30, 2011 and 2010 consist of: Computer and other equipment $ 1,331,000 $ 1,331,000 Software 472, ,000 Furniture and fixtures 161, ,000 1,964,000 1,964,000 Accumulated depreciation and amortization 1,964,000 1,882,000 $ - $ 82,000 The Organization leases equipment and software used in its operations that are required to be capitalized in accordance with lease accounting principles. Lease accounting principles require the capitalization of leases meeting certain criteria, with the related asset being recorded in furniture, equipment and software and an offsetting amount recorded as a liability. Computer and other equipment and software include capitalized leases of $631,000 and accumulated amortization of $631,000 and $629,000 as of June 30, 2011 and 2010, respectively. The Organization has no remaining minimum payments under capital leases at June 30, Note 7. Borrowings Under Line of Credit Agreement Collateralized loans are borrowings from a bank, payable on demand, and collateralized by a certificate of deposit. Sigma Chi has an available line of credit during the year of $1,000,000 of which no balance was outstanding at June 30, 2011 and $200,000 was outstanding at June 30, The interest rate charged on borrowings under the line was 4.00 and 4.75 percent at June 30, 2011 and 2010, respectively. The line of credit matured on August 30, 2011 and was renewed for a period of one year. As of September 30, 2011, the outstanding balance was $700,

14 Notes to Consolidating Financial Statements Note 8. Capital Stock On April 1, 1990, in exchange for 790 shares of no par value preferred stock, SCC transferred to CCI all of its chapter house loans receivable at their book value of $1,999,000 plus accrued interest. Ultimately, all titles to related owned real estate properties will be transferred to CCI. CCI also has 210 shares of no par value common stock, with a total stated cost of $10, held in the name of the Fraternity's international president, the Grand Consul. An agreement requires each Grand Consul to transfer this stock to his successor. As of June 30, 2011 and 2010, 790 shares of preferred stock and 210 shares of common stock were authorized, issued and outstanding. The payment of dividends by CCI and the distribution of CCI assets upon liquidation shall be to the preferred stockholder only. All common stock shall be subject to recall by SCC at any time without payment of any kind to the common stockholder. On October 14, 2008, SCC transferred $10,000 to BGTS in exchange for 790 shares of no par value preferred stock. BGTS also has 210 shares of no par value common stock, with a stated cost of $10, held in the name of the Fraternity s international president, the Grand Consul. An agreement requires each Grand Consul to transfer this stock to his successor. As of June 30, 2011 and 2010, 790 shares of preferred stock and 210 shares of common stock were authorized, issued and outstanding. The payment of dividends by BGTS and the distribution of BGTS s assets upon liquidation shall be to the preferred stockholder only. All common stock shall be subject to recall by SCC at any time without payment of any kind to the common stockholder. Note 9. Dues and Fees Dues and fees for the years ended June 30, 2011 and 2010, consist of: Member fees $ 1,038,000 $ 1,109,000 Pledge fees 540, ,000 Initiation fees 920, ,000 Life memberships 192, ,000 Alumni dues - 1,000 Chapters petitioning or installed 24,000 33,000 Alumni chapter dues 24,000 21,000 $ 2,738,000 $ 2,902,000 Note 10. Employee Retirement Plan Sigma Chi sponsors a defined contribution employee benefit plan, covering substantially all employees, which provides for discretionary contributions equal to a percentage of qualified compensation including a mandatory 3 percent contribution for the 401(k) provisions of the plan. Plan contributions, net of forfeitures, were approximately $79,000 and $90,000 for the years ended June 30, 2011 and 2010, respectively. 12

15 Notes to Consolidating Financial Statements Note 11. Guarantees and Contingencies CCI has guaranteed payment of certain mortgage loans made by banks and others to the fraternity chapters. These guarantees are secured by deeds of trust conveying the property of these chapters in the event of default. The total of such guarantees and related loan balances totaled approximately $570,000 and $903,000, respectively, at June 30, 2011, and $578,000 and $1,234,000, respectively, at June 30, Managements of Sigma Chi and CCI have not recorded any contingent liability in the consolidating financial statements for these guarantees as they believe that the probability of the CCI being required to make payments under these agreements beyond the proceeds from sale of the related properties is remote. The Risk Management Foundation, an affiliated, unconsolidated entity, provides risk management and related services and pays for legal services at no cost to Sigma Chi and CCI. Sigma Chi and CCI, from time to time, are subject to litigation resulting primarily from activities of its chapters. In management's opinion, based upon advice of counsel, the resolution of current litigation matters would not have a material adverse affect upon Sigma Chi's financial position as of June 30, During fiscal year 2007, certain technology and service agreements with two vendors were executed on behalf of the Foundation by an employee without authority to do so. Upon discovery, management advised these vendors that these agreements were not authorized and that equipment delivered pursuant to these agreements should be picked up. The equipment was returned and the services were not used. The vendors provided notice to the Foundation seeking payments arising from these disputed leases. As a result of these events, Sigma Chi fully indemnified the Foundation for any potential obligations resulting from these disputed leases and Sigma Chi and the Foundation settled with one of the vendors in Management of Sigma Chi and the Foundation are pursuing all available defenses and possible insurance coverage in response to litigation filed by the other vendor. Sigma Chi may incur financial loss, the amount of which cannot be estimated, from the indemnification to the Foundation, however it is management s opinion that Sigma Chi will prevail in this dispute but not without incurring legal fees. 13

16 Notes to Consolidating Financial Statements Note 12. Transactions with Affiliated Entities During the years ended June 30, 2011 and 2010, the Organization engaged in various transactions with the Foundation and Risk Management Foundation. Below is a summary of these transactions: Transactions between the Foundation and Sigma Chi: Reimbursements to Sigma Chi of expenses for joint services, which includes shared salaries and general and administrative expenses $ 63,000 $ 70,000 Reimbursements from Sigma Chi Fraternity of expenses for joint services, which includes shared salaries and general and administrative expenses 6,000 59,000 Occupancy costs reimbursed to the Foundation 76,000 76,000 Accounts receivable from the Foundation arising from the above activities 171, ,000 Accounts payable to the Foundation 9,000 13,000 Contributions to the Fraternity for certain programs and related travel expenses - 566,000 Additional funds paid out of the Bud Adam's fund for life membership for Balfour awardees - 40,000 Grants from Foundation related to workshops for educational purposes: Grants to Sigma Chi - 392,000 Receivable due from Foundation to Sigma Chi for these grants - 250,000 Transactions between the Foundation and SCLI: Contributions to SCLI for certain programs and related travel expenses 616,000 - Additional funds paid out of the Bud Adam's fund to SCLI for life membership for Balfour awardees 41,000 - Accounts receivable from SCLI arising from the above activities 2,000 - Grants from the Foundation to SCLI related to workshops for educational purposes 142,000 - Transactions between Risk Management Foundation and Sigma Chi: Reimbursements of expenses associated with operations of Risk Management Foundation 69,000 66,000 Accounts receivable from Risk Management Foundation arising from the above activities 36,000 25,000 Insurance premium expenses 32,000 30,000 14

17 Notes to Consolidating Financial Statements Note 13. Operating Expenses The consolidated operating expenses by natural classification for the years ended June 30, 2011 and 2010 are as follows: Percent Change Travel, meals, meetings and lodging $ 1,675,000 $ 1,632,000 3% Salaries 1,202,000 1,143,000 5% Legal and other professional fees 380, ,000 (18)% Staff retirement, payroll taxes and group insurance 370, ,000 17% Pledge and initiation supplies, awards and supplies 304, ,000 9% Office supplies, postage and telephone 201, ,000 (13)% The Magazine of Sigma Chi 195, ,000 4% Rental expense 225, ,000 72% Depreciation and amortization of furniture, equipment and software 82, ,000 (32)% Other 213, ,000 (18)% $ 4,847,000 $ 4,761,000 2% The consolidated operating expenses of the Organization by functional category for the years ended June 30, 2011 and 2010 are as follows: Percent Change Programs $ 2,931,000 $ 2,924,000 0% General and administrative 1,860,000 1,780,000 4% Marketing 56,000 57,000 (2)% $ 4,847,000 $ 4,761,000 2% 15

18 Supplementary Information

19 Consolidating Statement of Financial Position - Sigma Chi June 30, 2011 (With Consolidated Information for June 30, 2010) Assets 2011 Operating Designated 2010 Fund Funds Eliminations Consolidated Consolidated Current Assets Cash and cash equivalents $ 15,000 $ 272,000 $ - $ 287,000 $ 331,000 Accounts receivable 1,158,000 - (156,000) 1,002,000 1,138,000 Allowance for doubtful accounts (88,000) - - (88,000) (92,000) Mortgages and other chapter house loan receivable Student aid loans receivable - 15,000-15,000 15,000 Allowance for losses on mortgages and - - student aid loans receivable - (15,000) - (15,000) (15,000) Investments: Marketable securities - 4,754,000-4,754,000 3,890,000 Constantine Capital, Inc. - 2,630,000 2,630,000 2,626,000 Blue & Gold Travel Services, Inc. (215,000) - - (215,000) (121,000) Inventory of merchandise and supplies, at lower of FIFO cost or market 50, ,000 81,000 Furniture, equipment and software, net ,000 Deposits and prepaid expenses 119, , ,000 $ 1,039,000 $ 7,656,000 $ (156,000) $ 8,539,000 $ 8,131,000 16

20 Consolidating Statement of Financial Position - Sigma Chi June 30, 2011 (With Consolidated Information for June 30, 2010) Liabilities and Net Assets 2011 Operating Designated 2010 Fund Funds Eliminations Consolidated Consolidated Current Liabilities Accounts payable and accrued expenses: Publications and other $ 833,000 $ 156,000 $ (156,000) $ 833,000 $ 814,000 Vacations 32, ,000 32,000 Retirement plan contribution 91, ,000 11,000 Borrowings under line of credit agreement ,000 Deferred revenue for member fees 232, , ,000 1,188, ,000 (156,000) 1,188,000 1,494,000 Net Assets Unrestricted Undesignated (149,000) - - (149,000) (326,000) Designated - 7,500,000-7,500,000 6,625,000 (149,000) 7,500,000-7,351,000 6,299,000 Temporarily restricted ,000 (149,000) 7,500,000-7,351,000 6,637,000 $ 1,039,000 $ 7,656,000 $ (156,000) $ 8,539,000 $ 8,131,000 17

21 Consolidating Statement of Activities - Sigma Chi Year Ended June 30, 2011 (With Consolidated Information for the Year Ended June 30, 2010) 2011 Operating Designated 2010 Fund Funds Eliminations Consolidated Consolidated Unrestricted net assets: Revenue and contributions: Revenue: Dues and fees $ 2,589,000 $ 149,000 $ - $ 2,738,000 $ 2,902,000 Registration fees 205, , ,000 Investment return: Designated for current education - 64,000-64,000 94,000 Other - 807, , ,000 Royalties, chapter supplies, and other 295, , ,000 Contributions - Sigma Chi Foundation and Risk Management Foundation ,000 Administrative fee - Constantine Capital, Inc. 68, ,000 65,000 Administrative fee - Blue & Gold Travel Services, Inc. 115, ,000 91,000 Administrative fee - Risk Management Foundation 69, ,000 66,000 Transfer from temporarily restricted net assets 338, , ,000 3,679,000 1,020,000-4,699,000 5,222,000 Operating expenses: Fraternity services 407, , ,000 Educational training 108, ,000 95,000 Meetings, including education training 292, ,000 1,349,000 Volunteer leadership travel 381, , ,000 Publications 163, , , ,000 General and administrative 1,811,000 10,000-1,821,000 1,720,000 Marketing 44, ,000 57,000 3,206, ,000-3,557,000 4,701,000 Revenue and contributions over (under) operating expenses 473, ,000-1,142, ,000 Net income - Constantine Capital, Inc. - 4,000-4,000 7,000 Net loss - Blue & Gold Travel Services, Inc. (94,000) - - (94,000) (73,000) Change in unrestricted net assets 379, ,000-1,052, ,000 Temporarily restricted net assets: Reimbursements - Sigma Chi Foundation ,000 Transfer to unrestricted net assets (338,000) - - (338,000) (446,000) Change in temporarily restricted net assets (338,000) - - (338,000) (54,000) Change in net assets 41, , , ,000 Net assets: Beginning of year 12,000 6,625,000-6,637,000 6,236,000 Interfund transfer (202,000) 202, End of year $ (149,000) $ 7,500,000 $ - $ 7,351,000 $ 6,637,000 18

22 Consolidating Statement of Cash Flows - Sigma Chi Year Ended June 30, 2011 (With Consolidated Information for the Year Ended June 30, 2010) 2011 Operating Designated 2010 Fund Fund Eliminations Consolidated Consolidated Cash Flows from Operating Activities Changes in net assets/net income(loss) $ 41,000 $ 673,000 $ - $ 714,000 $ 401,000 Decrease in allowance for doubtful accounts (4,000) - - (4,000) (69,000) Depreciation and amortization 82, , ,000 Investment return - (871,000) - (871,000) (335,000) Net income - Constantine Capital, Inc. - (4,000) - (4,000) (7,000) Net loss - Blue & Gold Travel Services, Inc. 94,000-94,000 73,000 Interfund transfers (202,000) 202, Changes in: Accounts receivable 136, ,000 (25,000) Inventories 31, ,000 18,000 Deposits and prepaid expenses 77, ,000 1,000 Accounts payable and accrued expenses 99, , ,000 Deferred revenue for member fees (205,000) - - (205,000) (11,000) Life memberships (30,000) Net cash provided by operating activities 149, , ,000 Cash Flows from Investing Activities Purchase of marketable securities (1,187,000) Proceeds from sale or maturity of securities - 7,000-7,000 - Net cash provided by (used in) investing activities - 7,000-7,000 (1,187,000) Cash Flows from Financing Activities Repayments of line of credit (200,000) - - (200,000) (280,000) Net cash used in investing activities (200,000) - - (200,000) (280,000) Net increase (decrease) in cash and cash equivalents (51,000) 7,000 - (44,000) (1,185,000) Cash and cash equivalents: Beginning of year 66, , ,000 1,516,000 End of year $ 15,000 $ 272,000 $ - $ 287,000 $ 331,000 19