USTA National Tennis Center Incorporated

Transcription

1 USTA National Tennis Center Incorporated Financial Statements and Supplemental Schedule Years Ended December 31, 2010 and 2009 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

2 USTA National Tennis Center Incorporated Financial Statements and Supplemental Schedule Years Ended December 31, 2010 and 2009

3 Contents Independent Auditors Report 3 Financial Statements: Balance Sheets as of December 31, 2010 and Statements of Revenues, Expenses and Changes in Net Assets for the Years Ended December 31, 2010 and Statements of Cash Flows for the Years Ended December 31, 2010 and Supplemental Schedule: Schedule of Functional Expenses 19 2

4 Tel: Fax: Park Avenue New York, NY Independent Auditors Report Board of Directors USTA National Tennis Center Incorporated White Plains, New York We have audited the accompanying balance sheets of USTA National Tennis Center Incorporated ( NTC ) as of December 31, 2010 and 2009, and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of NTC 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 consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of NTC s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 USTA National Tennis Center Incorporated as of December 31, 2010 and 2009, and the changes in net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedule of functional expenses is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. March 23, 2011 BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 3

5 Balance Sheets December 31, Assets Current: Cash and cash equivalents $ 4,730 $ 3,827 Accounts receivable 1, Other current assets Total Current Assets 6,111 4,525 Restricted Cash on Deposit 1,040 10,808 Property, Building and Equipment, Net (Note 3) 255, ,880 Deferred Bond Finance Costs, Net of Accumulated Amortization of $5,888 and $5,095 at December 31, 2010 and 2009, Respectively (Note 4) 4,059 4,852 Other Assets Total Assets $266,919 $291,677 Liabilities and Net Assets Current Liabilities: Accounts payable and accrued expenses $ 4,864 $ 7,991 Accrued interest Due to affiliate (Note 5) 508 1,383 Deferred income 1,068 1,043 Current portion of bonds payable (Note 4) 14,523 13,870 Total Current Liabilities 21,607 24,953 Bonds Payable, Less Current Portion (Note 4) 98, ,495 Other Liabilities 1, Total Liabilities 120, ,967 Commitments and Contingencies (Note 8) Net Assets: Unrestricted 146, ,710 Total Liabilities and Net Assets $266,919 $291,677 See accompanying notes to financial statements. 4

6 Statements of Revenues, Expenses and Changes in Net Assets Year ended December 31, Operating Revenues: US Open ticket and other revenues $ 47,212 $ 44,790 NTC year-round programs and facility operations 3,543 3,655 Other 2,116 1,614 Total Operating Revenues 52,871 50,059 Operating Expenses: Program services: US Open (including depreciation and interest) 46,926 46,172 NTC year-round programs and facility operations (including depreciation) 10,362 10,317 Total Program Services 57,288 56,489 Administration costs of leased building (including depreciation) 1,698 1,504 Total Operating Expenses 58,986 57,993 Deficiency of Operating Revenues Over Operating Expenses (6,115) (7,934) Nonoperating Other Income and Deductions: Interest and dividends (net of interest expense of $102 in 2010 and 2009) (68) (12) Unrealized (loss) gain on interest rate swap (Note 4) (502) 95 Total Nonoperating Other Income and Deductions (570) 83 Change in Unrestricted Net Assets (6,685) (7,851) Net Assets: Beginning of year 152, ,561 End of year $146,025 $152,710 See accompanying notes to financial statements. 5

7 Statements of Cash Flows Year ended December 31, Cash Flows From Operating Activities: Change in net assets $ (6,685) $ (7,851) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 24,176 23,881 Amortization of deferred bond issuance costs Amortization of bond discount and premium, net (745) (884) Unrealized loss (gain) on interest rate swap 502 (95) Change in assets and liabilities: (Increase) decrease in accounts receivable (669) 424 Increase in other current assets (14) (52) Decrease (increase) in other assets 4 (57) (Decrease) increase in due to affiliate (875) 965 (Decrease) increase in accounts payable and accrued expenses and other liabilities (2,200) 1,458 Increase in deferred income Net Cash Provided By Operating Activities 14,312 19,285 Cash Flows From Investing Activities: Property, building and equipment (9,307) (15,380) Decrease (increase) in restricted cash on deposit with trustee 9,768 (8,782) Lending under short-term revolving credit note with affiliate (6,920) (3,240) Repayments under short-term revolving credit note with affiliate 6,920 3,240 Net Cash Provided By (Used In) Investing Activities 461 (24,162) Cash Flows From Financing Activities: Scheduled payment of bonds payable (13,870) (12,830) Issuance of Series 2009 Bonds, net of issuance costs - 10,106 Net Cash Used In Financing Activities (13,870) (2,724) Net Increase (Decrease) in Cash and Cash Equivalents 903 (7,601) Cash and Cash Equivalents, Beginning of Year 3,827 11,428 Cash and Cash Equivalents, End of Year $ 4,730 $ 3,827 Supplemental Cash Flow Information: Cash paid during the year for interest expense $ 5,373 $ 5,763 Supplemental Disclosure of Noncash Financing and Investing Activities: Property, building and equipment purchased through accounts payable/accrued expenses $ 78 $ 894 See accompanying notes to financial statements. 6

8 1. Organization USTA National Tennis Center Incorporated ( NTC ) is a New York State not-for-profit corporation organized by United States Tennis Association Incorporated ( USTA ). NTC s purpose is to: (a) (b) (c) (d) operate the USTA Billie Jean King National Tennis Center ( NTC Facility ), which is a complex of three tennis stadia (Arthur Ashe, Louis Armstrong, and Grandstand) as well as indoor and outdoor courts. These facilities and the land on which they are situated are leased from the City of New York; provide a venue for the holding of the United States Open Tennis Championship ( US Open ), the pre-eminent international tennis competition in the United States open to male and female professional and amateur tennis players; foster national and international sports competitions; establish, administer and promote programs devoted to the development of tennis as a means of healthful recreation and physical fitness; and, (e) in accordance with the terms of the ground lease with the City of New York, conduct special events, such as arts, theatrical, community and live athletic events at the NTC Facility. The NTC Facility, therefore, not only houses the NTC s current year-round tennis programs but also is available for additional tennis activities conducted by other organizations, as well as public recreational events, ethnic and community festivals, scholastic athletic events and other public spectator events. NTC is exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code ( IRC ). The sole member of NTC is USTA. The Board of Directors of USTA exercises the membership rights and obligations as the sole member. NTC operates with a substantially identical Board of Directors as USTA. (a) Basis of Presentation The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States and for the purpose of complying with certain reporting requirements arising as a result of the issuances by NTC and by the New York City Industrial Development Agency ( IDA ) of the bonds described in Note 4 as to which NTC is the conduit obligor. Management of NTC makes estimates and judgments in preparing the financial statements in accordance with such accounting principles. Those estimates and judgments affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses. The significant estimates made by management include the useful lives of depreciable fixed assets, allowances for doubtful accounts receivable and certain accrued liabilities, including deferred income and the interest rate swap. Actual results may vary from the reported results. 7

9 (b) US Open Agreement In conjunction with the financing of an expansion project, USTA and NTC entered into an agreement on July 1, 1993, which was amended in 2003 to clarify certain definitions and requirements, providing USTA with the exclusive right and obligation to use the NTC Facility for the holding of each annual US Open through the term of NTC s lease with the City of New York. The agreement specifies the duties of each party with respect to the US Open and requires each party to bear its own costs and expenses. NTC is granted the right to all ticket and parking revenue, except that USTA is entitled to receive annual US Open ticket revenues that exceed the greater of (i) $28,000 or (ii) the sum of: (a) the principal and interest payable in such year on bonds issued by the IDA, as to which NTC is the obligor, and any additional indebtedness ranking pari passu with such bonds (collectively, the Bonds ) and (b) NTC s operating expenses, other than depreciation, amortization and interest expense. Accordingly, under such agreement, NTC is entitled to retain only that portion of US Open ticket sales that is needed to pay principal and interest on the Bonds and to pay operating expenses as defined. Total US Open ticket revenues, net of admission taxes, approximated $87,142 and $82,650 in 2010 and 2009, respectively, of which $40,075 and $38,042 were excess US Open ticket revenues that were allocated to USTA. 2. Summary of Significant Accounting Policies (a) Cash and Cash Equivalents NTC considers money market accounts with financial institutions and security brokers, other than those that are restricted as to use, with maturities of less than 90 days when purchased to be cash equivalents. (b) Restricted Cash on Deposit The NTC has restricted cash on deposit with two major financial institutions acting as trustees for the bondholders in the amount of $1,040 at December 31, 2010 and $10,808 at December 31, 2009 as further discussed in Note 4. (c) Allowance for Doubtful Accounts NTC fully provides an allowance for doubtful accounts for accounts receivable specifically identified by management for which collectability is uncertain. No allowance for doubtful accounts was deemed necessary for 2010 and

10 (d) Fair Value Measurements The Financial Accounting Standards Board ( FASB ) Accounting Standards Codification ( ASC ) 820, Fair Value Measurements, establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that inputs that are most observable be used when available. Observable inputs are inputs that market participants operating within the same marketplace as NTC would use in pricing NTC s asset or liability based on independently derived and objectively determinable market data. Unobservable inputs are inputs that cannot be sourced from a broad active market in which assets or liabilities identical or similar to those of NTC are traded. NTC estimates the price of any assets for which there are only unobservable inputs by using assumptions that market participants that have investments in the same or similar assets would use. The input hierarchy is broken down into three levels based on the degree to which the exit price is independently observable or determinable as follows: Level 1 Valuation based on quoted market prices in active markets for identical assets or liabilities. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment. Examples include equity securities and publicly-traded mutual funds that are actively traded on a major exchange or over-the-counter market. Level 2 Valuation based on quoted market prices of investments that are not actively traded or for which certain significant inputs are not observable, either directly or indirectly, such as municipal bonds. The fair value of municipal bonds is estimated using recently executed transactions, bid/asked prices and pricing models that factor in, where applicable, interest rates, bond spreads and volatility. Level 3 Valuation based on inputs that are unobservable and reflect management s best estimate of what market participants would use as fair value. Examples include limited partnerships and private equity investments. None of NTC s assets or liabilities were valued using Level 3 inputs. (e) Interest Rate Exchange ( Swap ) Concurrent with the issuance and sale of the Series 2009 Bonds and in order to manage exposure to interest rate fluctuations, NTC entered into an interest rate exchange agreement (Swap) with a major financial institution as further described in Note 4. The Swap is valued separately from its underlying debt and is accounted for using a mark-to-market basis. As market fixed rates change over time, existing fixed rate swaps become more or less valuable than at inception, resulting in a mark-to-market value which includes either an unrealized gain or loss. The fair value of the Swap is estimated using Level 2 inputs, which are based on model derived valuations in which all significant inputs and significant value drivers are observable in active markets. The estimated market value of the Swap at December 31, 2010 and 2009 was computed by the counterparty and includes adjustments to reflect counterparty credit risk and NTC s nonperformance credit risk in estimating the fair value, in accordance with ASC 820. For the years ended December 31, 2010 and 2009, NTC has reported an unrealized loss of $502 and an unrealized gain of $95, respectively, under nonoperating other income and deductions in the accompanying statements of revenues, expenses and changes in net assets based on the changes in the fair value of the Swap. 9

11 (f) Property, Building and Equipment Property, building and equipment are reported at historical cost. NTC depreciates property, building and equipment using the straight-line method (half-year convention in the year the asset is placed in service) over the useful lives of the assets. The estimated useful lives of the assets are as follows: Life (Years) Building and improvements Furniture and fixtures 5 10 Machinery and equipment 5 10 Computer hardware 3 5 Leasehold improvements are amortized over the term of the lease or the life of the improvement, whichever is less. Additions and betterments are capitalized, and repairs and maintenance are charged to operations in the period incurred. (g) Deferred Bond Finance Costs Deferred bond finance costs are primarily amortized over the life of each bond issue using the effective interest rate method. (h) Revenue Recognition Revenue from fees received in advance for the use of tennis facilities is recorded as deferred income and is recognized as revenue in the period in which the fees are earned. Ticket revenue from events (e.g., the US Open) is recognized in the year that the event occurs. (i) Income Taxes NTC is a not-for-profit organization exempt from income taxes under Section 501(c)(3) of the IRC except for immaterial amounts of income considered by the Internal Revenue Service ( IRS ) to be unrelated business taxable income, for which income taxes have been provided. NTC has filed IRS Form 990, as required, and all other applicable returns in jurisdictions as required. For the years ended December 31, 2010 and 2009, there were no interest or penalties recorded or required in the financial statements. In addition, NTC has not taken an unsubstantiated tax position that would require provision of a liability under ASC 740, Income Taxes. (j) Contributed Services The Board of Directors and many other volunteers have contributed services involving significant amounts of time to NTC. These financial statements do not reflect a provision for contributed services, as such services do not meet the requirements for recognition as stated in ASC 958, Not-for-Profit Entities. There is no objective basis to determine the value of such contributed services. 10

12 In addition, USTA provides certain administrative support, including: (1) finance and accounting, (2) legal and (3) human resources services to NTC for which no amounts are charged to NTC. (k) Recently Issued Accounting Pronouncement In January 2010, the FASB issued Accounting Standards Update ( ASU ) , Improving Disclosures about Fair Value Measurements, which amends ASC 820. This ASU requires additional disclosures and clarifies some existing disclosure requirements about fair value measurement as set forth in ASC 820. The FASB s objective is to improve these disclosures and, thus, increase the transparency in financial reporting. ASU is effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in the roll forward of activity in Level 3 fair value measurements. Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. NTC does not expect the implementation of ASU to have a material impact on its financial statements. 3. Property, Building and Equipment Property, building and equipment - at cost: December 31, Land, building and improvements $ 11,712 $ 11,712 Leasehold improvements 466, ,191 Machinery and equipment 42,714 45,660 Furniture and fixtures 21,118 19,046 Construction-in-progress , ,192 Less: Accumulated depreciation and amortization 287, ,312 Net property, building and equipment $255,196 $270,880 Depreciation and amortization expense was $24,176 and $23,881 for the years ended December 31, 2010 and 2009, respectively. Construction-in-progress includes various construction projects at the USTA Billie Jean King National Tennis Center which are expected to be completed in 2011 with an estimated cost to complete of $6,300. Capitalized Interest Capital projects not financed with tax-exempt bonds were undertaken in 2009 and 2010 and interest has been capitalized in accordance with ASC 835, Interest. The amount of interest capitalized was calculated by applying the average borrowing rate of indebtedness associated with the additional capital projects to qualifying expenditures for the period the assets were under construction. For the years ended December 31, 2010 and 2009, NTC capitalized interest of $35 and $91, respectively. NTC incurred interest expense of $4,872 and $4,825 for the years ended December 31, 2010 and 2009 respectively, of which $35 and $91was capitalized as noted above. 11

13 4. Bond Financing At December 31, long-term bonds payable consisted of: December 31, Series 2003A tax-exempt serial bonds maturing November 15 each year through 2023, bearing interest rates from 3.125% to 5.0% (effective rates from 3.27% to 4.45%), net of unamortized original issue premium for 2010 and 2009 of $148 and $207, respectively, and discount for 2010 and 2009 of $149 and $169, respectively. $ 22,300 $ 23,658 Series 2003B federally taxable serial bonds maturing November 15 each year through 2013, bearing interest rates from 4.18% to 4.46%. 2,545 3,325 Series 2003B federally taxable term bond maturing November 15, 2023 (a), bearing interest at 5.38%. 11,810 11,810 Series 2004 tax-exempt serial bonds maturing November 15 each year through 2014, bearing interest at rates from 3.25% to 5% (effective rates from 3.30% to 3.71%), net of unamortized original issue premium for 2010 and 2009 of $1,183 and $1,702, respectively, and discount for 2010 and 2009 of $22 and $37, respectively. 46,961 57,800 Series 2007 tax-exempt serial bonds maturing November 15 each year through 2023, bearing interest at rates of 5% (effective rates from 3.22% to 4.24%), net of unamortized original issue premium for 2010 and 2009 of $930 and $1,132, respectively. 18,989 20,172 Series 2009 federally taxable term bonds maturing November 15, 2024 (b), bearing interest synthetically fixed at 3.70%. 10,145 10, , ,365 Less: Current portion of long-term bonds payable (14,523) (13,870) $ 98,227 $113,495 (a) Mandatory sinking fund installments required annually, beginning in 2014, through maturity. (b) Mandatory sinking fund installments required annually through maturity with option to apply each installment to the redemption and cancellation of an equivalent amount of principal as was exercised in Payment of principal and interest for each series of bonds ranks pari passu with the others. Based upon the borrowing rates currently available to NTC, the fair value of all long-term bonds payable at December 31, 2010 was $114,703. At December 31, 2009, the fair value of such bonds was $131,

14 The following table sets forth the scheduled annual principal and interest payments to be made on long-term debt during each of the next five years and all the years thereafter. The Series 2003 Bonds include mandatory sinking fund installments in the years 2014 to 2023 and the Series 2009 Bonds include mandatory sinking fund installments from 2011 to 2024: Years ending December 31, Payments Principal Interest 2011 $ 14,355 $ 5, ,045 4, ,745 3, ,455 3, ,390 2, ,670 10,130 $110,660 $28,814 With the exception of the Series 2009 Bonds, which were issued by NTC, all of the Bonds outstanding were issued and sold by the IDA (hereafter, also referred to as the Agency ). The proceeds from these Bonds have been made available to NTC to finance various capital projects at the NTC Facility. Pursuant to the indentures of trust for the Bonds, payment of principal and interest to the bondholders is solely the obligation of NTC and USTA; the IDA is not obligated for the repayment of any bonds. The indentures of trust have substantially the same provisions for each series of Bonds outstanding, including: (i) the method of funding the repayment of the principal and interest and other provisions relating to security interests, guarantees, earnings coverage of debt service, funding certain operating expenses, and the incurrence of additional indebtedness on the part of both NTC and USTA; (ii) the requirement by NTC to deposit receipts from US Open ticket sales up to annual amounts specified in the bond indentures and other bond documents with the trustees for payment of principal and interest; and (iii) USTA s pledge of its right to future US Open net broadcasting revenues as security in the form of deposits with the trustees in amounts based on formulae in the bond documents which are refunded to USTA once NTC meets its annual debt service and operating expense funding obligations with the trustees. The indentures of trust for each series of Bonds outstanding requires NTC to deposit into a Debt Service Reserve Fund qualified investments or, in lieu thereof, a Reserve Fund Insurance Policy or a Reserve Fund Letter of Credit, or a combination thereof, in order to satisfy the Debt Service Reserve Requirement described in such indentures. The Debt Service Reserve Requirement is currently equal to 50% of the maximum annual debt service on all outstanding Bonds. At December 31, 2010 and 2009, such requirement approximated $9,300 for the IDA Bonds outstanding, all of which was satisfied with a Reserve Fund Insurance Policy. For the Series 2009 Bonds, NTC has on deposit approximately $407 to satisfy the debt service reserve requirement for such bonds. 13

15 The following table provides information as of the date of issuance of the Series 2003, 2004, 2007 and 2009 Bonds: Series 2003 Series 2004 Series 2007 Series 2009 Date issued May 15, 2003 August 17, 2004 December 19, 2007 December 18, 2009 Principal amount (excludes original issue premium and/or discount) $50,000 $101,215 $20,810 $10,600 Net proceeds deposited with trustee 49, ,753 22,039 10,497 The Series 2003 Bonds are composed of two issues, tax-exempt bonds, Series 2003A, in the par amount of $30,645, and federally taxable bonds, Series 2003B, in the par amount of $19,355. The Series 2003A Bonds due on or after November 15, 2013 are subject to redemption at par value prior to maturity on or after May 15, 2013, at the option of NTC. The Series 2003B Bonds are subject to redemption prior to maturity on any date at the option of NTC at par value, plus a Make-Whole Premium calculated in accordance with the issue provisions. The Series 2004 Bonds are not subject to optional redemption prior to their scheduled maturities. These bonds were issued to refund the Series 1994 Bonds maturing after November 15, The Series 2007 Bonds due on or after November 15, 2018 are subject to redemption at par prior to maturity on or after May 15, 2017, at the option of NTC The original issue premium/discount on the Series 2003A, 2004 and 2007 Bonds is being amortized over the respective lives of the issues by the effective interest rate method. The Series 2003B Bonds and Series 2009 Bonds were issued and sold at their par or aggregate principal amounts; there was no original issue premium or discount. The Series 2009 Bonds are variable rate taxable obligations of NTC. During 2010 the interest rate ranged from a low of.2% to a high of.33%; with the rate being.28% at December 31, They have been issued bearing interest at a weekly rate which approximates the equivalent of onemonth LIBOR and are subject to redemption prior to maturity. Payment of principal and interest on the Series 2009 Bonds has been secured by a three-year irrevocable direct-pay letter of credit issued by a major financial institution (the Bank ) which is subject to renewal in Concurrent with the issuance and sale of the Series 2009 Bonds and in order to manage exposure to interest rate fluctuations, NTC entered into a variable to-fixed rate Swap with the Bank to, in effect, exchange payments with the Bank whereby NTC pays 3.70% to the Bank and receives a variable rate from the Bank for the life of the bonds. The Swap can be terminated before the maturity date with a termination payment to or from the counterparty based on the market value at the time of termination. For the years ended December 31, 2010 and 2009, the changes in market value of the Swap versus its market value at inception resulted in an unrealized loss of $502 and an unrealized gain of $95, respectively, which is included in the accompanying consolidated statements of revenues, expenses and changes in net assets. Included in other liabilities in the balance sheet is $407 representing the Swap s fair value at December 31, At December 31, 2009, the fair value of $95 was included in other assets. 14

16 The following are certain Swap attributes as of December 31, 2010: Effective date December 22, 2009 Maturity date November 15, 2024 Notional amount* $10,145 Fixed rate 3.7% Floating rate One month LIBOR * Decreases annually in accordance with the schedule of sinking fund payments toward the repayment of principal of the Series 2009 Bonds on which the notional amount is based. Costs of issuing each series of Bonds have been deferred and are being amortized over the life of each series. The amount of issuance costs amortized in 2010 and 2009 was $793 and $835, respectively. Unamortized deferred bond finance costs amounted to $4,059 and $4,852 at December 31, 2010 and 2009, respectively. 5. Related Party Transactions NTC is affiliated with USTA by virtue of USTA being NTC s sole member and a substantially identical Board of Directors. In addition to transactions between NTC and USTA involving the US Open Agreement and contributed services described in Note 1, NTC is party to other transactions with USTA as follows: (a) Revolving Credit Agreement During 2010, NTC renewed its short-term revolving credit arrangement to provide for advances to USTA of up to $25,000. Borrowings under this arrangement totaled $6,920 and $3,240 during 2010 and 2009, respectively, as to which principal and interest were repaid to NTC by December 31 of each year. The interest rate on the borrowing was LIBOR plus 1%, and accrued interest was payable monthly. Interest income received was $5 and $2 during 2010 and 2009, respectively. (b) Rental Income USTA entered into a lease agreement with NTC for a portion of the building owned by NTC in White Plains, New York. Net rental income recognized by NTC for the years ended December 31, 2010 and 2009 amounted to $1,580 and $1,501, respectively. (c) Due to/from Affiliates At December 31, 2010 and 2009, NTC owed $508 and $1,383, respectively, to USTA based on the US Open Agreement mentioned in Note 1. 15

17 6. Retirement Plan NTC participates in the same benefit plan as USTA. On January 1, 2009 the qualified defined contribution money purchase plan and the qualified 401(k) plan were merged into one plan: the United States Tennis Association Retirement Plan. The plan covers substantially all NTC employees and includes an employer match contribution. The plan also includes a discretionary employer contribution feature. Discretionary contributions are calculated on the basis of a fixed percentage of eligible salaries. Matching contributions are made to the plan on a current basis and amounted to $78 and $70 for the years ended December 31, 2010 and 2009, respectively. The Organization also made discretionary contributions to the plan of $119 and $121 for the years ended December 31, 2010 and 2009, respectively. 7. Fair Values of Financial Instruments The following methods and assumptions were used by NTC in estimating its fair value disclosures for financial instruments: (a) Cash and Cash Equivalents The carrying amounts reported in the accompanying balance sheets approximate fair value. The reported value of cash equivalents is based on market quotations. (b) Accounts Receivable The carrying amounts of accounts receivable approximate their fair values as they are expected to be collected in the near-term. There has been no imputation of interest income. (c) (d) Restricted Cash of Deposit With Trustee The carrying amounts reported in the accompanying balance sheets approximate fair value based on the quoted market price of the money market fund in which the remaining proceeds from the issuance and sale of the bonds are invested. Due to Affiliate The carrying amounts of the due to affiliate balances approximate their fair values as they are liquidated in cash within 12 months. (e) Bonds Payable The carrying values of NTC s bonds payable approximate fair value. NTC has determined the fair value of the bonds payable based on an independent valuation which used current market conditions and consistent underlying assumptions as to credit rating and, for the IDA Bonds, purchase of bond insurance. 16

18 (f) Interest Rate Exchange (Swap) The carrying value of the Swap is adjusted based on a fair value mark-to-market determination provided by the counterparty and includes adjustments to reflect counterparty credit risk and NTC s non-performance credit risk in estimating the fair value. The carrying values and fair values of NTC s financial instruments are as follows at December 31: Carrying Value Fair Value Carrying Value Fair Value Cash and cash equivalents $ 4,730 $ 4,730 $ 3,827 $ 3,827 Accounts receivable 1,243 1, Due to affiliate (508) (508) (1,383) (1,383) Restricted cash on deposit with trustee 1,040 1,040 10,808 10,808 Bonds payable 112, , , ,493 Swap (a) (407) (407) (a) Included in other liabilities at December 31, 2010 and in other assets at December 31, Commitments and Contingencies (a) New York City Lease The initial term of NTC s long-term lease with New York City is for twenty-five years from the start of construction of the facility expansion (1994). The lease grants NTC six ten-year renewal options and a final renewal option of up to fourteen years. NTC has covenanted to renew the lease as long as any of the IDA Bonds or Series 2009 Bonds are outstanding. During the initial lease term, the lease provides for annual rent of approximately $400 plus 1% of gross revenues from NTC Facility operations and USTA revenues derived from tennis events conducted at the NTC Facility, including broadcast and sponsorship revenues, in excess of $25,000 for each of the first 20 years and 1% of revenue in excess of $20,000 for each year thereafter. In addition, each renewal term includes a 10% increase on the base rent. Rent expense charged to operations for the years ended December 31, 2010 and 2009 amounted to $2,416 and $2,187, respectively. NTC accounts for the lease as an operating lease. Commitments for base annual rent at December 31, 2010 are as follows: Years ending December 31, 2011 $ and thereafter 10,810 $12,810 17

19 (b) Litigation NTC is involved in various routine litigation matters in the course of its normal operations. Although it is not possible to predict the outcome of such litigation with certainty, based on the facts known to NTC s management, and after consultation with counsel, management believes that such litigation will not have a material adverse effect on NTC s financial position. (c) Environmental Liabilities As part of NTC Facility expansion and improvement projects, certain environmental liabilities may be incurred. NTC believes that it is adequately insured against this potential exposure. 9. Subsequent Events In 2009, the FASB issued a new standard on subsequent events as codified in ASC 855, which was amended in February 2010 pursuant to ASU The new standard establishes general requirements for accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued with respect to companies that file financial statements with the Securities and Exchange Commission or are conduit obligors of publicly traded securities. More specifically, the new standard sets forth the period and circumstances after the balance sheet date which management of a reporting entity should evaluate to identify events or transactions that have occurred for potential recognition in the financial statements and the disclosures that should be made about those and other events or transactions that occur after the balance sheet date. The new standard is effective for fiscal years and interim periods ending after June 15, NTC adopted this standard during 2009 and it did not have a material impact on the 2009 financial statements. NTC has evaluated subsequent events through March 23, 2011, the date these financial statements were issued. No significant changes were necessary to the financial statements as a result of the subsequent events evaluation. 18

20 Schedule of Functional Expenses Year ended December 31, NTC Year- Round Programs and Facility Administration Costs of Leased Building Total Summarized Comparative Total US Open Salaries $ 3,883 $ 2,602 $ - $ 6,485 $ 6,323 Employee benefits Payroll taxes Professional services 3, ,437 3,434 Supplies Communication Rent, utilities and occupancy costs 8,163 2, ,602 10,945 Depreciation 20,633 3, ,176 23,881 Amortization Equipment rental and maintenance Printing and publications Travel and hospitality costs Dues and meetings Advertising Guard services 1, ,608 1,495 Insurance Tennis court time Service bureaus Interest 4, ,837 4,734 Other ,097 1,026 Total Functional Expenses $46,926 $10,362 $1,698 $58,986 $57,993 19