THE PERFORMING ARTS CENTER OF LOS ANGELES COUNTY€¦ · Total net assets 41,820,80547,312,589...

THE PERFORMING ARTS CENTER OF LOS ANGELES COUNTY (A NONPROFIT ORGANIZATION)

FINANCIAL STATEMENTS FOR THE YEAR ENDED

JUNE 30, 2011 (WITH COMPARATIVE TOTALS FOR THE YEAR ENDED JUNE 30, 2010)


CONTENTS June 30, 2011

Page INDEPENDENT AUDITOR’S REPORT 1 FINANCIAL STATEMENTS Statement of Financial Position 2 – 3 Statement of Activities 4 – 5 Statement of Cash Flows 6 – 7 Notes to Financial Statements 8 – 42

INDEPENDENT AUDITOR’S REPORT To the Board of Directors The Performing Arts Center of Los Angeles County Los Angeles, California We have audited the accompanying statement of financial position of The Performing Arts Center of Los Angeles County (a nonprofit California organization) (the “Performing Arts Center”) as of June 30, 2011, and the related statements of activities and cash flows for the year then ended. These financial statements are the responsibility of the Performing Arts Center’s management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year’s summarized comparative information has been derived from the Performing Arts Center’s 2010 financial statements, and in our report dated September 29, 2010, we expressed an unqualified opinion on those financial statements. 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 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 audit provides a reasonable basis for our opinion. In our opinion, the accompanying financial statements referred to above present fairly, in all material respects, the financial position of The Performing Arts Center of Los Angeles County as of June 30, 2011, and the changes in its net assets and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. SingerLewak LLP Los Angeles, California September 28, 2011

THE PERFORMING ARTS CENTER OFLOS ANGELES COUNTY(A NONPROFIT ORGANIZATION)

STATEMENT OF FINANCIAL POSITIONJune 30, 2011

(with Comparative Totals for June 30, 2010)

2011 2010Current assets

Cash and cash equivalents 6,335,428$ 4,142,259$ Short-term investments 3,708,157 3,363,108 Current portion of contributions receivable, net 2,457,774 3,091,201

815,349 938,448142,479 157,912

Other receivables 863,750 1,196,336 750,847 459,970 37,000 -

Total current assets 15,110,784 13,349,234

Long-term investments 3,741,883 3,142,368 16,615,362 14,655,424

Contributions receivable, net of current portion 16,872,157 19,069,632 Long-term accounts and notes receivable, net 2,023,011 3,115,322 Contract acquisition costs, net of accumulated amortization

of $7,568,256 and $6,565,380, respectively 9,193,046 10,195,922 Property and equipment, net of accumulated depreciation

of $2,478,091 and $2,425,268, respectively 298,791 336,721 Beneficial interests 25,396,790 22,357,669

Total assets 89,251,824$ 86,222,292$

ASSETS

Accounts receivable from Resident Companies

Prepaid and other current assets

Current portion of facility fee receivable

Investments held for capital improvement project

Agency asset

The accompanying notes are an integral part of these financial statements.2


STATEMENT OF FINANCIAL POSITIONJune 30, 2011

(with Comparative Totals for June 30, 2010)

2011 2010Current liabilities

Accounts payable 1,464,177$ 1,236,458$ Agency liability 37,000 - Accrued expenses 1,529,507 1,480,487 Current portion of capital lease obligations 58,584 53,746 Payable to Resident Companies 944,554 786,285 Current portion of deferred facility fee revenue 1,949,221 1,878,699 Current portion of deferred revenue 1,130,996 1,035,527 Current portion of bond payable 380,000 365,000 Deposits and advances 134,848 298,112 Bond interest payable 108,007 109,224

Total current liabilities 7,736,894 7,243,538

Capital lease obligations, net of current portion 121,675 108,467 Liability for pension benefits 832,768 2,965,411 Deferred facility fee revenue, net of current portion 3,000,000 3,000,000 Deferred revenue, net of current portion 3,711,716 4,166,204 Bonds payable, net 26,536,182 26,917,867

Total liabilities 41,939,235 44,401,487

Commitment and contingencies (Note 22)

Net assetsUnrestricted (2,803,885) (6,906,668) Temporarily restricted 17,145,002 17,509,949 Permanently restricted 32,971,472 31,217,524

Total net assets 47,312,589 41,820,805

Total liabilities and net assets 89,251,824$ 86,222,292$

LIABILITIES AND NET ASSETS



STATEMENT OF ACTIVITIESFor the Year Ended June 30, 2011

(with Comparative Totals for the Year Ended June 30, 2010)

Temporarily PermanentlyUnrestricted Restricted Restricted 2011 2010

Earned revenues and public supportRevenues

Theater rents 2,797,693$ -$ -$ 2,797,693$ 2,601,095$ Office and other rents 440,440 - - 440,440 431,779 Facility fee ticket surcharges 2,227,136 - - 2,227,136 2,698,271 County reimbursements – operations 15,012,998 - - 15,012,998 14,755,089 County in-kind support of utilities 4,914,440 - - 4,914,440 5,170,898 Direct expense reimbursement 4,064,169 - - 4,064,169 4,003,090 Restaurant and catering 1,195,578 - - 1,195,578 1,312,063

Total revenues 30,652,454 - - 30,652,454 30,972,285

Capital improvements incomeMark Taper Forum 788,000 - - 788,000 785,754 Restaurant income 454,488 - - 454,488 441,792 Other capital improvement income 1,784,765 - - 1,784,765 4,237,795

Total capital improvements income 3,027,253 - - 3,027,253 5,465,341

Education and outreach revenueEducation division 759,328 - - 759,328 895,454 Presentations income 3,909,521 - - 3,909,521 2,699,272 Founders Rooms operations 897,690 - - 897,690 941,819

Total education and outreach revenue 5,566,539 - - 5,566,539 4,536,545

Other earned revenueChange in value of beneficial interests - - 2,219,478 2,219,478 918,852 Interest and other investment income (loss) 3,578,245 515,323 - 4,093,568 2,714,568

Total other earned revenue 3,578,245 515,323 2,219,478 6,313,046 3,633,420

Total earned revenue 42,824,491 515,323 2,219,478 45,559,292 44,607,591

Public support 7,064,968 2,153,412 984,470 10,202,850 9,517,831

Net assets released from restrictionsSatisfaction of program restrictions 1,369,262 (1,369,262) - - - Satisfaction of time restrictions 3,114,420 (3,114,420) - - - Satisfaction of donor restriction - 1,450,000 (1,450,000) - -

Total net assets released from restrictions 4,483,682 (3,033,682) (1,450,000) - -

Total public support after release from restrictions 11,548,650 (880,270) (465,530) 10,202,850 9,517,831

Total earned revenue and public support 54,373,141 (364,947) 1,753,948 55,762,142 54,125,422

Totals



STATEMENT OF ACTIVITIESFor the Year Ended June 30, 2011


Temporarily PermanentlyUnrestricted Restricted Restricted 2011 2010

Totals

ExpensesProgram expenses

Operations expensesFacility operations 15,342,897$ -$ -$ 15,342,897$ 15,471,455$ Stage operations 3,790,736 - - 3,790,736 3,731,088 Theater operations 3,236,141 - - 3,236,141 3,421,551 Other operating departments 1,225,176 - - 1,225,176 1,100,218 Facility improvements and maintenance - - - - 7,090 County in-kind support of utilities 4,914,440 - - 4,914,440 5,170,898

Total operations expenses 28,509,390 - - 28,509,390 28,902,300

Capital improvements expenseMark Taper Forum 1,311,335 - - 1,311,335 1,329,734 Restaurant construction 501,438 - - 501,438 501,416 Campus renewal 2,000,000 - - 2,000,000 1,751,018 Other capital improvements 1,417,076 - - 1,417,076 166,305

Total capital improvements expenses 5,229,849 - - 5,229,849 3,748,473

Education and outreach expensesEducation 2,848,963 - - 2,848,963 3,049,723 Presenting 6,775,311 - - 6,775,311 5,425,360 Public information and marketing 517,727 - - 517,727 317,390 Resident Companies allocation 944,556 - - 944,556 786,285 Founders Rooms operations 1,200,739 - - 1,200,739 1,337,187

Total education and outreach expenses 12,287,296 - - 12,287,296 10,915,945

Total program expenses 46,026,535 - - 46,026,535 43,566,718

Supporting servicesGeneral and administrative expenses 3,441,786 - - 3,441,786 3,382,687

Fundraising expensesAnnual fund 2,591,851 - - 2,591,851 2,166,259 Capital fund - - - - 127,279

Total fundraising expenses 2,591,851 - - 2,591,851 2,293,538

Total expenses 52,060,172 - - 52,060,172 49,242,943

Change in net assets before net periodic pension cost 2,312,969 (364,947) 1,753,948 3,701,970 4,882,479

Comprehensive income (loss) related to pension obligation 1,789,814 - - 1,789,814 (1,199,088)

Change in net assets after net periodic pension cost 4,102,783 (364,947) 1,753,948 5,491,784 3,683,391

Net assets, beginning of year (6,906,668) 17,509,949 31,217,524 41,820,805 38,137,414

Net assets, end of year (2,803,885)$ 17,145,002$ 32,971,472$ 47,312,589$ 41,820,805$



STATEMENT OF CASH FLOWSFor the Year Ended June 30, 2011


2011 2010Cash flows from operating activities

Change in net assets 5,491,784$ 3,683,391$ Adjustments to reconcile changes in net assets to cash

provided by operating activitiesDepreciation and amortization 191,197 232,070 Amortization of contract acquisition costs 1,002,876 990,196 Bad debt expense 993,658 225,094 Loss from disposal of property and equipment 8,546 8,130

(187,041) (145,555) (2,957,541) (1,351,055)

(35,797) (36,535) Distributions from (contributions to) permanently restricted fund

Distributions (contributions) 465,530 (658,466) Investment income (2,219,478) (918,852)

Contributions receivable, net 2,829,927 1,854,667 Accounts receivable from Resident Companies 123,099 802,429 Facility fee receivable, net of deferred

facility fee revenue 15,433 (37,867) Other receivables 139,403 (76,996) Other current assets (290,877) 212,077 Beneficial interests (3,039,121) (1,260,887) Accounts payable 227,719 (290,089) Accrued expenses 49,020 (152,109) Payable to Resident Companies 158,269 (28,808) Deferred revenue (288,497) 2,920,297 Deposits and advances (163,264) 100,334 Accrued pension plan obligation (2,132,643) (1,096,490) Bond interest payable (1,217) (1,166)

Net cash provided by operating activities 380,985 4,973,810

Contributed investment securitiesRealized and unrealized gain on sale of securities

Change in operating assets and liabilities

Discount/amortization of bond premium



STATEMENT OF CASH FLOWSFor the Year Ended June 30, 2011


2011 2010Cash flows from investing activities

(Increase) decrease inAssets held for capital improvement project (52,638)$ (4,696,970)$ Purchase of property and equipment (44,638) (27,638) Payments for contract acquisition costs - (199,670) Loan to Resident Company - (3,000,000) Repayments from notes 292,811 375,015 Net sale of investments 292,718 49,569

Net cash provided by (used in) investing activities 488,253 (7,499,694)

Cash flows from financing activitiesRepayment of capital leases (65,017) (69,197) Repayment of loan payable (365,000) (350,000) Permanently restricted fund donation (distribution) (465,530) 658,466 Permanently restricted fund investment income 2,219,478 918,852

Net cash provided by financing activities 1,323,931 1,158,121

Net increase (decrease) in cash and cash equivalents 2,193,169 (1,367,763)

Cash and cash equivalents, beginning of year 4,142,259 5,510,022

Cash and cash equivalents, end of year 6,335,428$ 4,142,259$

Supplemental disclosures of cash flow information

Cash paid during the year for interest 1,303,385$ 1,281,150$

Supplemental schedule of non-cash investing and financing activities

Property purchased under capital leases 83,063$ 120,400$



NOTES TO FINANCIAL STATEMENTS June 30, 2011

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NOTE 1 – DESCRIPTION OF OPERATIONS The Performing Arts Center of Los Angeles County (“PACLAC” or the “Performing Arts Center”) is a nonprofit public benefit corporation organized to encourage and foster the presentation of the arts at the Performing Arts Center complex. The complex includes the Dorothy Chandler Pavilion, the Mark Taper Forum, the Ahmanson Theatre and the Walt Disney Concert Hall (“WDCH”), and is home to the Los Angeles Philharmonic Association, the Center Theatre Group, the Los Angeles Opera Company and the Los Angeles Master Chorale (collectively, the “Resident Companies”). PACLAC manages the Performing Arts Center complex on behalf of the County of Los Angeles, which owns the facilities, presents performances at the complex consisting mainly of dance ensembles, and provides arts education services to school children throughout Los Angeles County. The Performing Arts Center also solicits contributions to support its cultural and educational programs, as well as to fund expansion of and improvements to the complex. Several community volunteer groups and the Board of Directors provide annual financial support to the Performing Arts Center.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation The accompanying financial statements have been prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. The accompanying financial statements include certain prior-year summarized comparative information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with accounting principles generally accepted in the United States of America. Accordingly, such information should be read in conjunction with PACLAC’s financial statements for the year ended June 30, 2010, from which the summarized information was derived.



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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Classes of Net Assets PACLAC reports information regarding its financial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanently restricted net assets.

• Unrestricted net assets are either not restricted by donors or the donor-imposed restrictions have expired.

• Temporarily restricted net assets contain donor-imposed restrictions that permit PACLAC to use or expend the assets as specified as the restrictions are satisfied either by the passage of time or by actions of PACLAC.

• Permanently restricted net assets (“endowment funds”) contain donor-imposed restrictions that stipulate the resources must be maintained in perpetuity. Income from permanently restricted investments is recorded as unrestricted, except where the instructions of the donor specify otherwise.

Revenue Recognition Earned revenue and public support are recorded using the accrual method of accounting. Unconditional promises to give are recorded as contributions in the period such contributions are made based on the present value of the estimated future cash flows. All gifts, bequests and other public support are included in unrestricted net assets unless they are specifically restricted by the donor’s terms of the gift or grant instrument, or require the passage of time. Contributions initially recorded as temporarily restricted net assets are reclassified to unrestricted net assets when restrictions have been met. In prior years, contributions whose restrictions are met in the same year as the contribution is made were initially classified as temporarily restricted net assets and were released from restriction during the same year. Beginning fiscal year 2011, contributions received during the year whose restrictions are met in the same year are recorded and classified as unrestricted net assets (see Note 3). Contributions that must be maintained in perpetuity as endowments are classified as permanently restricted net assets. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid investments purchased with a maturity of three months or less.



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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Investments Investments are initially recorded at cost if purchased or at fair value at the date of donation if contributed. Subsequent to acquisition, investments are reported at fair value based upon market quotations or, if managed by fund managers, the fair value information provided by them. Investment income and realized and unrealized gains and losses are recognized as unrestricted net assets, unless their use is temporarily or permanently restricted by donors to a specified purpose or future period. At June 30, 2011 and 2010, PACLAC’s investments mainly consisted of investments in Music Center Foundation (“MCF”) funds and money market funds. Investments Held for Capital Improvement Project Investments held for capital improvement project include money market funds held by a trustee under the provision of bond indenture agreements to secure payments of principal and interest on the Series 2007 Revenue Bond (see Note 14). The current portion of amounts held by the trustee includes amounts that will be used to pay current principal and interest on the Series 2007 Revenue Bond. The long-term portion is being held as a reserve for redemption of the Revenue Bonds maturing from 2022 to 2042. Contributions Receivable The Performing Arts Center records contributions receivable, net of allowances for uncollectible amounts, whenever there is sufficient evidence in the form of verifiable documentation that an unconditional promise was made and received. The Performing Arts Center discounts contributions receivable that are expected to be collected in future periods using a risk-adjusted rate of return based on the United States Treasury bill rate. The provision for allowances for uncollectible amounts is determined based on historical collection rates and specific identification of uncollectible accounts. Property and Equipment Under the terms of a sublease agreement with the County of Los Angeles, PACLAC transfers title of furniture and equipment upon purchase to the County of Los Angeles. PACLAC expenses these purchases as they are incurred. The aggregate expenditure of such items since the inception of PACLAC and its predecessors through June 30, 2011 and 2010 were $61,166,114 and $59,969,022, respectively, including $1,197,092 and $807,729 of purchases for the years ended June 30, 2011 and 2010, respectively. Property for which PACLAC retains title is recorded at cost and depreciated using the straight-line method over the estimated 3 to 10 year useful lives of the related assets.



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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Beneficial Interests Donors have established and funded trusts and endowments that are administered and controlled by organizations other than the Performing Arts Center. Under the terms of these trust/endowment agreements, the Performing Arts Center has the irrevocable right to receive all or a portion of the income earned on the trusts and endowments in perpetuity. The Performing Arts Center recognizes its beneficial interests and the changes in these trusts and endowments as permanently restricted net assets based on the fair value of the assets. Distributions of investment income from these trusts and endowments are included in interest and other investment income in the accompanying statement of activities and reflected as unrestricted net assets, unless their use is temporarily or permanently restricted by donors to a specified purpose or future period. Works of Art In conformity with the practice followed by many cultural institutions, art objects purchased by or donated to PACLAC are not included in the statements of financial position. PACLAC’s collection consists of art objects that are on exhibition. Each of the items is cataloged, preserved and cared for, and activities verifying their existence and assessing their condition are performed regularly. Purchased collection items are recorded as decreases in unrestricted net assets in the year in which the items are acquired or in temporarily restricted net assets if the assets used to purchase the items are restricted by donors; contributed collection items are excluded from the financial statements. Deferred Revenue Deferred revenue represents monies received in advance of services rendered and relates principally to restaurant construction and education division activities. Revenue is recognized as obligations are satisfied. Bonds Payable Bonds payable are reported net of the applicable bond premium or discount. Bond premiums and discounts are deferred and amortized over the life of the bonds. Bond issuance costs are reported as deferred charges and amortized over the life of the related debt using the effective interest rate method. Support to Resident Companies The Blue Ribbon and Fraternity of Friends, two of PACLAC’s community volunteer groups, provide annual support to the Resident Companies. The giving amount and distribution by Resident Company is at the discretion of the Board of Directors.



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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Donated Services A large number of volunteers provide fundraising, educational and clerical support to the Performing Arts Center’s various programs. Donated services are reported as contributions at their fair value if such services create or enhance non-financial assets, or would have been purchased if not provided by donation, require specialized skills and are provided by individuals possessing such skills. The County of Los Angeles provides utilities for the Performing Arts Center per the operating agreement. The accompanying statements of activities include the estimated fair value of the cost of these utilities as operations revenue with an equivalent amount reflected as operations expenses. Direct Reimbursement PACLAC undertakes specialty maintenance, construction, and production and event activities for the Resident Companies, other affiliated entities and the County of Los Angeles. PACLAC performs the activity and incurs the costs, then receives reimbursement for the costs. Income Taxes The Performing Arts Center is a California nonprofit public benefit corporation and is generally exempt from Federal and state income taxes under Section 501(c)(3) of the Internal Revenue Code and Section 23701(d) of the Revenue and Taxation Code of California. Accordingly, no provision for income taxes is included in the accompanying financial statements. PACLAC has adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic No. 740, Income Taxes (“ASC 740”), formerly FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109. ASC 740 clarifies the accounting for uncertainty in income taxes. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. ASC 740 requires that an organization recognize in the financial statements the impact of the tax position if that position will more likely than not be sustained on audit, based on the technical merits of the position. As of and for the year ended June 30, 2011, PACLAC had no material unrecognized/derecognized tax benefits or tax penalties or interest. The Federal income tax returns of PACLAC still open and subject to IRS examination are for the 2008 through 2011 tax years. The State of California income tax returns still open and subject to examination are also for the 2008 through 2011 tax years.



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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments The carrying amounts of accounts receivable, accounts payable and accrued expenses approximate their fair value due to the short-term nature of these financial instruments. The fair value of the long-term contributions receivable reflects the present value of payments to be received, discounted at risk-adjusted interest rates for equivalent periods at the time of the contribution plus the risk premium equivalent to 1% of the outstanding pledge amount. The fair value of the accounts receivable and notes receivable are discounted using the corresponding credit rate and maturity terms. The fair value of beneficial interests is either determined by quoted market price or by fair value information provided by money managers. The investments’ carrying values represent a reasonable estimate of fair values due to their short-term maturity. Investments are reflected at estimated fair value as described below. The Performing Arts Center applies the provisions of FASB Accounting Standards Codification Topic No. 820, Fair Value Measurements and Disclosures (“ASC 820”), formerly SFAS No. 157, Fair Value Measurements. ASC 820 defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 does not require any new fair value measurements, but provides guidance on how to measure fair value by providing a fair value hierarchy used to classify the source of the information. ASC 820 establishes a three-level valuation hierarchy of valuation techniques that is based on observable and unobservable inputs. Classification within the hierarchy is determined based on the lowest level of input that is significant to the fair value measurement. The first two inputs that may be used to measure fair value are considered observable and the last unobservable and include the following:

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.



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NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Fair Value of Financial Instruments (Continued) At June 30, 2011, PACLAC has financial assets that consist of cash and cash equivalents, which are measured at fair value using quoted prices for identical assets in an active market, and investments in equity, bonds and fixed income securities, which are measured at fair value using quoted prices for identical assets in an active market. The basis of fair value for PACLAC’s investments and investments held for capital improvement project differs depending on the investment type. For certain investments, market value is based on quoted market prices. These are classified within Level 1 of the valuation hierarchy. Some investments are based on unobservable inputs such as net asset value, cash flows, discount rates and alternative investments, which are supported by little or no market activity; these are classified within Level 3 of the fair value hierarchy. Concentration of Credit Risk Credit risk is the failure of another party to perform in accordance with the contract terms. Financial instruments that potentially subject PACLAC to concentrations of credit risk consist primarily of cash and cash equivalents, investments (including the beneficial interest held in the MCF), and pledges and receivables. PACLAC places its cash and cash equivalents with high-credit, quality financial institutions. These account balances usually exceed federally insured limits. However, PACLAC has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. With respect to investments, PACLAC holds significant investments in the form of debt and equity securities with third-party money managers and with the MCF. PACLAC has never sustained a loss on any investment due to non-performance by these third parties and does not anticipate any non-performance by these third parties in the future. With respect to pledges and receivables, PACLAC routinely assesses the financial strength of its debtors and believes that the pledges and receivables credit risk exposure is limited. Financial instruments that potentially subject PACLAC to concentrations of credit risk consist primarily of receivables. PACLAC’s ten largest donors accounted for 98% and 97% of contributions receivable at June 30, 2011 and 2010, respectively.



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NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS

As defined in ASC 820, 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. In determining fair value, PACLAC uses the market approach. Based on this approach, PACLAC utilizes certain assumptions about the risk or risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market-corroborated or generally unobservable inputs. Based on the observability of the inputs used in the valuation techniques, PACLAC is required to provide the following information according to the fair value hierarchy. The fair value hierarchy ranks the quality and the reliability of the information used to determine fair values.

In accordance with ASC 820, the following tables represent PACLAC’s fair value hierarchy for its financial assets measured at fair value on a recurring basis as of June 30: 2011

Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 6,335,428 $ - $ - $ 6,335,428 Investments 159,054 - 7,290,986 7,450,040 Investments held for capital improvement project 3,729,363 - 12,885,999 16,615,362 Beneficial interests - - 25,396,790 25,396,790 Total $ 10,223,845 $ - $ 45,573,775 $ 55,797,620

2010 Level 1 Level 2 Level 3 Total

Cash and cash equivalents $ 4,142,259 $ - $ - $ 4,142,259 Investments 556,960 - 5,948,516 6,505,476 Investments held for capital improvement project 3,676,724 - 10,978,700 14,655,424 Beneficial interests - - 22,357,669 22,357,669

Total $ 8,375,943 $ - $ 39,284,885 $ 47,660,828



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NOTE 3 – FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)

Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of June 30: 2011

Investments Harris Dance/ Held for Harris Capital Reserve/Blue Improvement Beneficial Ribbon Project Interest Total

Beginning balance, June 30, 2010 $ 5,948,516 $ 10,978,700 $ 22,357,669 $ 39,284,885

Purchases, net 294,275 - - 294,275 Contributions - - 819,643 819,643 Distributions - - (988,072) (988,072) Total gains or losses,

realized or unrealized 1,048,195 1,907,299 3,207,550 6,163,044 Ending balance,

June 30, 2011 $ 7,290,986 $ 12,885,999 $ 25,396,790 $ 45,573,775 2010

Investments Held for Harris Dance/ Capital Harris Improvement Beneficial Reserve Project Interest Total

Beginning balance, June 30, 2009 $ 1,872,406 $ 2,620,360 $ 21,096,782 $ 25,589,548

Reclassification from Level 2 3,606,209 4,333,033 - 7,939,242 Purchases, net - 3,145,170 - 3,145,170 Contributions - - 407,176 407,176 Distributions (173,058) - (1,043,044) (1,216,102) Total gains or losses,

realized or unrealized 642,959 880,137 1,896,755 3,419,851 Ending balance,

June 30, 2010 $ 5,948,516 $ 10,978,700 $ 22,357,669 $ 39,284,885



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NOTE 4 – NET CONTRIBUTIONS RECEIVABLE Contributions receivable consisted of the following at June 30:

2011 2010 Amounts due

In less than one year $ 2,569,175 $ 3,261,983 In one to five years 4,723,750 10,458,071 In more than five years 19,200,000 15,650,000

Total gross contributions receivable 26,492,925 29,370,054

Less Allowance for doubtful amounts 205,595 264,232 Present value discount 6,957,399 6,944,989

Total contributions receivable, net 19,329,931 22,160,833

Less current portion of contributions receivable, net 2,457,774 3,091,201

Contributions receivable, net of current portion $ 16,872,157 $ 19,069,632 NOTE 5 – INVESTMENTS AND INVESTMENTS HELD FOR CAPITAL IMPROVEMENT PROJECT

Investments consisted of the following as of June 30:

2011 2010 MCF investments $ 7,290,986 $ 5,948,516 Foreign bonds 4,000 5,699 Cash and money market 155,054 249,229 Certificates of deposit - 302,032

Total $ 7,450,040 $ 6,505,476 Investments held for capital improvement project consisted of the following as of June 30:

2011 2010 Money market funds $ 3,729,363 $ 3,676,724 MCF investments 12,885,999 10,978,700

Total $ 16,615,362 $ 14,655,424



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NOTE 5 – INVESTMENTS AND INVESTMENTS HELD FOR CAPITAL IMPROVEMENT PROJECT (Continued)

At June 30, 2011 and 2010, $1,711,527 and $1,711,506, respectively, of the investment held for capital improvement project were remaining proceeds from the California Infrastructure and Economic Development Bank Revenue Bond issuance. The balances were held in trust funds in accordance with the provision of the bond agreement (see Note 14). The following tables summarize PACLAC’s MCF investments at June 30, 2011, which are valued using the fair value practical expedient of net asset value in accordance with ASC 2009-12 Topic No. 820.

Fair Value

Investments $ 7,290,986 Investments held for capital

improvements 12,885,999

Total MCF investments $ 20,176,985 Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period

MCF investments daily to

MCF unitized fund (a) $ 18,583,669 $ - annually 90–120 days MCF Partnership interest when partner-

and other funds (b) 1,154,081 1,164,162 ship ceases n/a MCF cash 439,235 -

Total MCF investments $ 20,176,985 $ 1,164,162

Unfunded commitments are commitments by the MCF and are expected to be funded from PACLAC’s investment in the MCF unitized fund.



19


The following tables summarizes PACLAC’s MCF investments at June 30, 2010, which are valued using the fair value practical expedient of net asset value in accordance with ASC 2009-12 Topic 820.

Fair Value

Investments $ 5,948,516 Investments held for capital

improvements 10,978,700

Total MCF investments $ 16,927,216 Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Period

MCF investments daily to

MCF unitized fund (a) $ 15,996,436 $ - annually 90–120 days MCF Partnership interest when partner-

and other funds (b) 764,658 912,595 ship ceases n/a MCF cash 166,122 -

Total MCF investments $ 16,927,216 $ 912,595

(a) This is a unitized fund operated by Music Center Foundation (“MCF”). Under the terms of the agreement with MCF, PACLAC may withdraw funds upon 90 days’ notice, or longer since PACLAC’s withdrawal ability is subject to the redemption notice period and frequencies of the underlying funds in which MCF has invested. Accordingly, a brief summary of the underlying funds is included below. Approximately 18% of this fund includes investments in global equity funds. The fair value of the investments in this category has been estimated using the net asset value per share of the investments and can be redeemed daily with a redemption fee of 0.12%. Restrictions include a provision where the fund may suspend redemptions when it is impossible to determine the net asset value or in other emergency situations.



20


Approximately 8% of this fund includes investments in long-term and short-term equity funds mirroring S&P 500 sector weighting. The fair value of the investments in this category have been estimated using asset value per share of the investments and can be redeemed daily or quarterly starting January 1, 2011 with redemption fees up to 0.5% with one and/or 60 days’ notice. Investments representing 99% of the value of the investments in this category are subject to lock-ups or gates whereby the general partner retains the right to limit withdrawals from all limited partners to 10% of aggregated limited partner capital on any one withdrawal date. Further restrictions provide that 95% of the investment can be withdrawn at once with the remainder to be paid out 30 days after completion of the fund’s annual audit. Approximately 6% of this fund includes investments in international (non-U.S.) equity funds. The fair value of the investments in this category have been estimated using a combination of quoted prices in active markets and net asset value per share of the investments and can be redeemed monthly and quarterly with a 6 and 30 day notice period, respectively. Restrictions include a provision where the fund may suspend redemptions when it is impossible to determine the net asset value or in other emergency situations. Approximately 12% of this fund includes investments in emerging market equity funds. The fair value of the investments in this category has been estimated using net asset value per share of the investments and can be redeemed quarterly with a 60 day notice period. Restrictions include a provision where the fund may suspend redemptions when it is impossible to determine the net asset value or in other emergency situations. Approximately 16% of this fund includes investments in long-term and short-term equity focused fund of hedge funds. The fair value of the investments in this category has been estimated using net asset value per share of the investments and can be redeemed annually on January 1 or quarterly/annually depending on share class, with a 100- and 60-day notice period, respectively. Restrictions include a provision where 90% of the investment can be withdrawn at once with the remainder paid out 30 days after the completion of the fund’s annual audit, subject to withdrawal restrictions of underlying managers. Approximately 7% of this fund includes investments in a commodity index fund backed by inflation-indexed bonds and long-term and short-term global natural resources securities, commodities and real assets funds. The fair value of the investments in this category has been estimated using net asset value per share of the investments and can be redeemed annually on December 31, or daily, with a notice by November 1, and 1 day, respectively. Restrictions include a provision where 90% of the investment can be withdrawn at once with the remainder paid promptly upon the completion of the fund’s annual audit. The fund may elect to suspend distributions when it is impossible to determine net asset value or any other emergency situations.



21


Approximately 20% of this fund includes investments in absolute return funds and emerging market long- and short-term funds. The fair values of the investments in this category have been estimated using net asset value per share of the investments and can be redeemed upon various frequencies (September 30 and October 31 depending on share class, quarterly, annually, one-third on July 1, 2011, July 1, 2012, and July 1, 2013; with unredeemed amounts locked for 3 years, one-third on July 1, 2012, then rollover for another 3 years, at 0.5% redemption fee). Investments representing 87% of the value of the investments in this category are subject to lock-ups or gates whereby the general partner retains the right to limit withdrawals from all limited partners to 20–25% of aggregated limited partner capital on any one withdrawal date. Further restrictions provide that 90–95% of these same investments can be withdrawn at once with the remainder to be paid out 30 days after completion of the fund’s annual audit. Funds may elect to suspend distributions when it is impossible to determine net asset values or any other emergency situations. Approximately 3% of this fund includes investments in small and mid-cap value equity funds. The fair values of investments in this category are based on quoted market prices and can be redeemed daily with a one-day notice period, with no withdrawal restriction. Approximately 10% of this fund includes investments in high-quality fixed income funds. The fair values of investments in this category are based on quoted market prices and can be redeemed daily with a one-day notice period, with no withdrawal restriction. However, the fund may elect to distribute securities in lieu of cash.

(b) This category includes investments in private equity partnerships, venture capital

partnerships, real estate partnerships, distressed debt partnerships, early stage equity investments, and oil and gas partnerships. The fair values of the investments in this category have been estimated using the net asset value per share of the investments. All investments can never be redeemed other than by liquidation of partnerships over the estimated time period of 2011 through 2024. Restrictions are such that investments must be held until the partnership ends or interests are sold on secondary markets. Investments representing 1% of the total investments in this category can be redeemed when shares are distributed and restrictions lifted. Restrictions relating to these investments include a provision where there is no right to sell partnership interests until shares are distributed.



22

NOTE 6 – ACCOUNTS RECEIVABLE FROM RESIDENT COMPANIES Accounts receivable from Resident Companies consisted of the following at June 30:

2011 2010 Center Theatre Group $ 147,724 $ 331,907 Los Angeles Opera 629,485 576,790 Los Angeles Master Chorale Association 5,145 15,903 Los Angeles Philharmonic Association 32,995 13,848

Total $ 815,349 $ 938,448 NOTE 7 – OTHER RECEIVABLES

Other receivables consisted of the following at June 30:

2011 2010 Education Division $ 216,394 $ 204,121 Founders’ members 46,024 39,157 Patina Group 285,376 623,433 Music Center Foundation 10,204 15,447 Other 305,752 314,178

Total $ 863,750 $ 1,196,336



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NOTE 8 – LONG-TERM ACCOUNTS AND NOTES RECEIVABLE On September 16, 2009, PACLAC and Los Angeles Opera (a resident company), entered into a Promissory Note agreement whereby PACLAC agreed to lend $3,000,000 to Los Angeles Opera. The note has a maturity date of August 31, 2012, and bears interest at a per annum rate of 4.7%, payable quarterly and is collateralized by a pledge receivable of LA Opera. Interest earned on this note receivable for the year ended June 30, 2011 amounted to $141,000. As of September 28, 2011, PACLAC and Los Angeles Opera are negotiating a revised payment schedule for the Promissory Note. Due to the uncertainty surrounding the expected maturity date and payment schedule, PACLAC has recorded a reserve of $1,000,000 against the note receivable. As of June 30, 2011, the note receivable was recorded under long-term accounts and notes receivable, net on the statement of financial position and the reserve was recorded within campus renewal on the statement of activities. Long-term accounts and notes receivable consisted of the following at June 30:

2011 2010 Los Angeles Opera $ 3,000,000 $ 3,000,000 Patina Group - 90,790 Other 23,011 24,532

Total gross long-term accounts and notes receivable $ 3,023,011 $ 3,115,322

Less Allowance for uncollectible amounts 1,000,000 - Total long-term accounts and notes receivable, net $ 2,023,011 $ 3,115,322

NOTE 9 – FACILITY FEES

PACLAC, on behalf of Los Angeles County, collects a County Facility Fee charged on ticket sales at each of the Performing Arts Center venues pursuant to various arrangements, including Resident Companies Subleases. PACLAC also acts on behalf of the County in disbursing such fees for various improvements to or at those venues. New agreements were entered into in 2006 to continue with such arrangement retroactively. PACLAC defers facility fees at the time of ticket sales, and recognizes them as revenue only when improvement disbursement has incurred. At June 30, 2011, the County Facility Fee receivable and deferred revenue were $142,479 and $4,949,221, respectively, reflecting Resident Companies payments of County Facility Fees.



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NOTE 9 – FACILITY FEES (Continued) At June 30, 2010, the receivable and deferred revenue were $157,912 and $4,878,699, respectively. The deferred revenue amount at June 30, 2011 and 2010 includes $3,000,000 recorded as long-term. For the years ended June 30, 2011 and 2010, PACLAC recognized $2,227,136 and $2,698,271, respectively, in County Facility Fee income.

NOTE 10 – RESTAURANT, FOOD AND BEVERAGE SERVICE AND CATERING AGREEMENT

In fiscal year 2003, PACLAC executed an agreement that licensed RA Music, Inc. to operate and manage the Performing Arts Center’s restaurants, catering and other food service operations. Under the agreement, RA Music, Inc. pays PACLAC monthly license fees based upon a percentage of the gross receipts generated by the Food Service Operations. In addition, RA Music, Inc. agreed to pay PACLAC $7,330,000 principally to help fund leasehold improvements to the Food Service Operations premises. The agreement initially expired in 2010; however, RA Music, Inc. has the option to extend the agreement for two consecutive periods of five years each. The extension requires additional payments by RA Music, Inc. of $200,000 for the first renewal period and $1,000,000 for the second renewal period. During the fiscal year 2010, RA Music, Inc. exercised the first option and paid $200,000 to the Performing Arts Center to extend the length of the agreement for an additional 5 years. The agreement also provides various termination conditions, one of which allows either party to end the agreement without cause after the twelfth year. If RA Music, Inc. were to exercise that right, PACLAC would be required to repay RA Music, Inc. the unamortized portion of the construction contribution. The agreement stipulates that for such purposes the construction contribution should be amortized using the straight-line method over the 17-year life of the agreement. PACLAC initially reflected receipts of the construction contribution as deferred revenue. Beginning in fiscal year 2004, with the opening of the related food service facilities, these amounts are being recognized ratably as restaurant income over the 17-year life of the agreement. Deferred revenue related to the construction contribution at June 30 was as follows:

2011 2010 Deferred revenue, current portion $ 454,488 $ 454,488 Deferred revenue, long-term portion 3,711,716 4,166,204

Total $ 4,166,204 $ 4,620,692



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NOTE 10 – RESTAURANT, FOOD AND BEVERAGE SERVICE AND CATERING AGREEMENT (Continued) Leasehold improvement costs incurred for Food Service Operations premises have been capitalized and are reflected as contract acquisition costs in the accompanying statements of financial position, and are being amortized ratably over the 17-year life of the agreement beginning in fiscal year 2004. PACLAC recognized approximately $454,488 and $441,792, respectively, as restaurant income related to the construction contribution during fiscal years 2011 and 2010. Total contract acquisition costs and related amortization were as follows at June 30:

2011 2010 Contract acquisition costs $ 16,761,302 $ 16,761,302 Less accumulated amortization 7,568,256 6,565,380

Contract acquisition costs, net $ 9,193,046 $ 10,195,922 Such amortization expense was approximately $1,002,876 and $990,196, respectively, during fiscal years 2011 and 2010. PACLAC recognized $1,111,920 and $1,158,890 in license fees for food service operations from RA Music, Inc. for the years ended June 30, 2011 and 2010, respectively.

NOTE 11 – NET PROPERTY AND EQUIPMENT

Net property and equipment consisted of the following at June 30:

2011 2010 Furniture, phone and office equipment $ 1,163,903 $ 1,145,126 Computer equipment 1,568,793 1,572,677 Leasehold improvements 37,700 37,700 Automotive equipment 6,486 6,486 2,776,882 2,761,989 Less accumulated depreciation and amortization 2,478,091 2,425,268

Property and equipment, net $ 298,791 $ 336,721



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NOTE 11 – NET PROPERTY AND EQUIPMENT (Continued) Depreciation expense amounted to $157,085 and $197,583 for the years ended June 30, 2011 and 2010, respectively.

NOTE 12 – BENEFICIAL INTERESTS

All of PACLAC’s beneficial interests are administered and controlled by other organizations as follows at June 30:

2011 2010 Split-interest agreements – Harris Trust and

Maiorani Trust $ 3,586,494 $ 3,083,790 Music Center Foundation 21,810,296 19,273,879

Total $ 25,396,790 $ 22,357,669 The majority of the split-interests represent PACLAC’s 6.25% interest in the Harris Trust, the balance of which consists of marketable investments held by a trustee. The first 75% of the trust fund is being distributed to the beneficiaries at a rate of 5% per year in the ten-year period starting fiscal year 2006. The remaining 25% of the trust fund, to be allocated at the discretion of the Board of Directors of the Harris Trust, is expected to be distributed in the same manner as the first 75% of the fund.

NOTE 13 – ACCRUED EXPENSES

Accrued expenses consisted of the following at June 30:

2011 2010 Accrued compensation, vacation and benefit plans $ 1,478,029 $ 1,430,412 Other 51,478 50,075

Total accrued expenses $ 1,529,507 $ 1,480,487



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NOTE 14 – LONG-TERM DEBTS Bonds Payable In May 2007, the California Infrastructure and Economic Development Bank issued the California Infrastructure and Economic Development Bank Revenue Bonds (Performing Arts Center of Los Angeles County Series 2007) (the “Bonds”) with a total borrowing of $27,530,000 on behalf of PACLAC. The purpose of issuing the 2007 Revenue Bonds was to finance the Mark Taper Forum capital improvement project. The Bonds consist of serial and term bonds that mature from December 1, 2009 to December 1, 2042. The Bonds were issued at a net premium of $943,809. Bonds issuance costs incurred amounted to $834,021, which will be amortized over the term of the Bonds. The net Bonds payable at June 30, 2011 reflects the gross Bonds payable plus premium less bond issuance costs. The amortization of the Bonds’ premium costs were $35,797 and $36,535 during the years ended June 30, 2011 and 2010, respectively. The amortization of the Bonds’ issuance costs was $34,112 and $34,487 during the years ended June 30, 2011 and 2010, respectively. Interest rates on the Bonds are as follows:

Bonds Payable Interest Rate

$ 2,515,000 4.00% 480,000 4.13% 500,000 4.20% 525,000 4.25% 545,000 4.30% 570,000 4.38% 21,680,000 5.00% $ 26,815,000

Interest expense during the years ended June 30, 2011 and 2010 was $1,302,169 and $1,316,519, respectively. PACLAC is not subject to financial covenants nor was it required to pledge its assets. The proceeds received from the Bonds issuance are required to be deposited with a trustee in four funds: project fund, debt service reserve fund, capitalized interest fund and costs of issuance fund. PACLAC had the following assets held for capital improvement project at June 30:

2011 2010 Total cash and money market $ 1,711,527 $ 1,711,506



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NOTE 14 – LONG-TERM DEBTS (Continued) Capital Leases Obligation Property costs at June 30, 2011 include $307,083 of copier equipment under leases that have been capitalized and expire in fiscal year 2012, 2014, 2015 and 2016. Accumulated depreciation for such equipment was $139,662 at June 30, 2011. Future payments of the long-term debts are as follows:

Years Ending Capital Lease Bonds June 30, Obligation Payable 2012 $ 58,584 $ 380,000 2013 42,067 395,000 2014 45,661 410,000 2015 23,379 425,000 2016 – 2020 10,568 2,410,000 2021 – 2025 - 3,000,000 2026 – 2030 - 3,850,000 2031 – 2035 - 4,940,000 2036 – 2040 - 6,350,000 2041 – 2043 - 4,655,000

Total 180,259 26,815,000 Add unamortized bond premium, net - 793,538 Less unamortized bond issuance costs - (692,356) Less current maturities (58,584) (380,000)

Long-term $ 121,675 $ 26,536,182



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NOTE 15 – TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets were available for the following purposes at June 30:

2011 2010 Dance Fund $ 3,397,606 $ 3,081,267 Active Arts 255,000 255,000 Blue Ribbon 650,363 361,100 Other funds 1,075,676 93,568 Campus Renewal Fund 134,295 647,735 For periods after June 30 11,632,062 13,071,279

Total temporarily restricted net assets $ 17,145,002 $ 17,509,949

NOTE 16 – PERMANENTLY RESTRICTED NET ASSETS The permanently restricted net assets consist of the following:

2011 2010 Beneficial interests in perpetual trust at

Music Center Foundation $ 17,213,498 $ 15,540,005 Other institutions 3,586,494 3,083,790

Pledge receivable held by PACLAC 7,561,202 8,848,814 Investment in transit 13,480 11,041 Pledges receivable to be placed into perpetual trust

at the Music Center Foundation 4,596,798 3,733,874

Total $ 32,971,472 $ 31,217,524 PACLAC has been advised that beneficial interests in perpetual trusts are not subject to UPMIFA and are therefore not subject to the disclosure requirements of FSP 117-1. The following, however, is a description of the general investment and distribution policies currently being followed by the MCF. Return Objectives and Risk Parameters To satisfy its long-term rate-of objectives, the MCF relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The MCF targets a diversified asset allocation that places a greater emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints.



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NOTE 16 – PERMANENTLY RESTRICTED NET ASSETS (Continued) Spending Policy and How the Investment Objectives Relate to the Spending Policy The MCF has a policy of appropriating for distribution each year 5% of its endowment fund’s average fair value (excluding pledges receivable) over the prior twelve quarters through the preceding fiscal year in which the distribution is planned. In establishing this policy, the MCF considered the long-term expected return on its endowment and operating expenses. Accordingly, over the long term, the MCF expects the current spending policy to allow its endowment to grow at the rate of inflation. This is consistent with the MCF’s objective to maintain the purchasing power of the endowment assets held in perpetuity as well as to provide additional real growth through new gifts. The MCF considers the following factors in making a determination to appropriate funds for distribution:

1. The duration and preservation of the fund

2. The purposes of the MCF and the donor-restricted endowment funds

3. General economic conditions

4. The possible effect of inflation and deflation

5. The expected total return from income and the appreciation of investments

6. Other resources of the MCF

7. The investment policies of the MCF PACLAC’s permanently restricted net assets were available for the following purposes at June 30:

2011 2010 Education division $ 8,654,497 $ 7,918,496 Children’s festival 5,815,762 5,366,058 Spotlight program 1,026,811 883,966 Dance presentations 10,233,055 11,214,257 Other programs 7,241,347 5,834,747

Total permanently restricted net assets $ 32,971,472 $ 31,217,524



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NOTE 16 – PERMANENTLY RESTRICTED NET ASSETS (Continued) Spending Policy and How the Investment Objectives Relate to the Spending Policy (Continued) Changes in permanently restricted net assets for the year ended June 30, 2011 are as follows:

Permanently Restricted Balance, beginning of year $ 31,217,524 Investment income 3,207,550 Contributions 984,470 Distributions (988,072) Transfer due to satisfaction of donor restriction (1,450,000)

Balance, end of year $ 32,971,472



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NOTE 17 – CHANGES IN UNRESTRICTED NET ASSETS Changes in unrestricted net assets consisted of the following for the year ended June 30, 2011:

Total Total Revenue Expenses Net Education $ 3,248,764 $ 3,248,764 $ - Dance presenting 5,409,630 5,409,630 - Spotlight 1,021,209 1,021,209 - Active arts 882,920 882,920 - Resident Company allocations 1,238,731 1,238,731 - Center operations 30,613,735 30,600,416 13,319 Founders 1,312,151 1,312,151 - Administration and development 1,828,675 2,111,021 (282,346) Other 1,333,626 511,006 822,620

Total operating activities 46,889,441 46,335,848 553,593 Campus renewal - 294,475 (294,475) Los Angeles Opera 1,100,000 2,200,000 (1,100,000) Restaurant construction 454,488 501,438 (46,950) Mark Taper Forum renovation 4,477,900 1,311,335 3,166,565 Dorothy Chandler Pavilion renovation 635,525 558,143 77,382 Walt Disney Concert Hall 558,202 567,938 (9,736) Other capital projects 257,585 290,995 (33,410)

Total capital activities 7,483,700 5,724,324 1,759,376 Net periodic pension plan cost - (1,789,814) 1,789,814

Grand total $ 54,373,141 $ 50,270,358 $ 4,102,783



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NOTE 18 – RETIREMENT PLANS Defined Pension Plan The Performing Arts Center sponsors a defined benefit pension plan (the “Plan”). Effective on June 30, 2009, the Board decided to freeze the defined benefit plan. Benefits are based on years of service and employees’ annual compensation. The following sets forth the components of net periodic benefit cost and the obligations and funded status of the defined benefit plan. Valuations of assets and liabilities are determined using a measurement date of June 30, 2011.

Net periodic benefit cost consisted of the following for the years ended June 30:

2011 2010 Service cost $ 26,350 $ 15,938 Interest cost 850,856 839,381 Expected return on plan assets (902,383) (721,364) Recognized actuarial loss 79,245 111,238

Net periodic benefit cost $ 54,068 245,193 Obligation status was as follows at June 30:

2011 2010 Change in benefit obligation

Benefit obligation at beginning of year $ 16,110,401 $ 13,690,289 Service cost 26,350 15,938 Interest cost 850,856 839,381 Assumption change (gain) or loss (231,935) 2,117,726 Benefits paid (70,296) (398,539) Estimated administrative expense (25,000) (15,000) Actuarial (gain) loss (522,931) (139,394)

Benefit obligation, end of year $ 16,137,445 $ 16,110,401



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NOTE 18 – RETIREMENT PLANS (Continued) Defined Pension Plan (Continued) Funded status was as follows at June 30:

2011 2010 Change in plan assets

Fair value of plan assets at beginning of year $ 13,144,990 $ 9,628,388 Actual return on plan assets 2,415,946 1,508,930 Employer contributions 396,897 2,540,771 Actual administrative expenses and benefits paid (653,156) (533,099)

Fair value of plan assets, end of year $ 15,304,677 $ 13,144,990

Funded status $ (832,768) $ (2,965,411)

During the year ended June 30, 2011, PACLAC also recorded the actuarial loss as an adjustment to net assets. The following represents pension costs directly charged to net assets:

2011 2010 Accumulated net adjustment to net assets,

beginning of year $ (4,436,922) $ (3,237,834) Current year change

Actuarial gain (loss) during the year 1,710,569 (1,310,326) Amortization of net gain (loss) 79,245 111,238 Amortization of prior service cost - -

1,789,814 (1,199,088)

Accumulated net adjustment to net assets, end of year $ (2,647,108) $ (4,436,922)

Investment Policy PACLAC has established a Human Resources Committee (the “Committee”) to provide oversight to the Plan. To develop the expected long-term rate of return on asset assumptions, PACLAC considered the historical returns and the future expectations for returns for each asset class, as well as the target asset allocation of the pension portfolio. The Committee determined that the totality of the factors suggest that the Plan can tolerate moderate fluctuations in market value and rates of return in order to achieve long-term objectives.



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NOTE 18 – RETIREMENT PLANS (Continued) Defined Pension Plan (Continued) Investment Policy (Continued) The Plan assets will be managed to meet or exceed the target rate of return for the Plan. The target is presently at 6.5% which is equal to the Plan’s actuarial assumption. This target rate will be subject to adjustment. To satisfy its long-term rate of return objectives, the Plan assets will be managed on a total return basis recognizing the importance of the balance between risk and reward and the preservation of capital. The Committee targets a diversified asset allocation that places a greater emphasis on equity-based and fixed income investments to achieve its long-term return objectives within risk constraints. The Plan’s strategic allocation is based on the long-term perspective greater than five years. Short-term liquidity requirements should be maintained to the extent necessary to address net cash flows from contributions and Plan expenses and benefit payments. The Plan’s investment policy includes the following guidelines provided to the investment manager:

• Allowable types of investments • Asset allocation and rebalancing • Securities roles and guidelines • Risk tolerance • Actuarial policy • Periodic review and monitoring of investments

Assumptions The significant actuarial assumptions used in the valuations were (a) life expectancy of participants (the RP-2000 Healthy Combined Mortality Table was used), (b) retirement age assumptions (active participants below age 65 and vested terminated participants will retire at age 65; active participants age 65 and older will retire immediately), and (c) interest discount rate (5.5%). Weighted-average assumptions used to determine benefit obligations were as follows at June 30:

2011 2010 Discount rate 5.50% 5.40% Expected long-term rate of return on assets 6.50% 7.00%



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NOTE 18 – RETIREMENT PLANS (Continued) Defined Pension Plan (Continued) Assumptions (Continued) The discount rate is estimated based on the yield on a portfolio of high-quality debt instruments. It fluctuates according to the general level the interest rate rises or declines. PACLAC re-evaluates the discount rate on an annual basis. The foregoing actuarial assumptions are based on the presumption that the Plan will continue. Were the Plan to terminate, different actuarial assumptions and other factors might be applicable in determining the actuarial present value of accumulated Plan benefits. Plan Assets Investment Valuation and Income Recognition The Plan’s investments are reported at fair value. 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. Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends are recorded on the ex-dividend date. Management fees and operating expenses charged to the Plan for its investments are deducted from income earned on a daily basis and are separately reflected. Consequently, management fees and operating expenses are reflected as a reduction of investment return for applicable investments. Plan assets are invested in various asset classes that are expected to produce a sufficient level of diversification and investment return over the long-term. The investment goals are (1) to meet or exceed the assumed actuarial rate of return over the long-term within reasonable and prudent levels of risk, and (2) to preserve the real purchasing power of assets to meet future obligations. Risk targets are established and monitored against acceptable ranges. All investment policies and procedures are designed to ensure that the Plan’s investments are in compliance with the Employment Retirement Income Security Act (“ERISA”). Guidelines are established defining permitted investments within each asset class.



37

NOTE 18 – RETIREMENT PLANS (Continued) Defined Pension Plan (Continued) Plan Assets Investment Valuation and Income Recognition (Continued) Following are descriptions of the valuation methodologies used for assets measured at fair value.

Cash equivalents: Valued at carrying value, which approximates fair value due to the short-term nature of such investments.

U.S. government bonds: Valued at the closing price reported on the active market

on which the individual securities are traded. Mutual funds: Valued at the net asset value (“NAV”) of shares held by

the Plan at year-end. Common stocks: Valued at the closing price reported on the active market

on which the individual stocks are traded. Real estate investment trust: Valued at the closing price reported on the active market

on which the individual shares are traded.

The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Plan believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date. The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of June 30, 2011:

Assets at Fair Value as of June 30, 2011 Level 1 Level 2 Level 3 Total Cash equivalents $ - $ 233,603 $ - $ 233,603 Fixed income 8,952,862 - - 8,952,862 Common stocks 4,850,500 11,698 - 4,862,198 Real estate investment

trust - 487,962 - 487,962 Commodities 768,052 - - 768,052

Total $ 14,571,414 $ 733,263 $ - $ 15,304,677



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NOTE 18 – RETIREMENT PLANS (Continued) Defined Pension Plan (Continued) Plan Assets Investment Valuation and Income Recognition (Continued) The following table sets forth by level, within the fair value hierarchy, the Plan’s assets at fair value as of June 30, 2010:

Assets at Fair Value as of June 30, 2010 Level 1 Level 2 Level 3 Total Cash equivalents $ - $ 2,347,573 $ - $ 2,347,573 Fixed income 3,048,072 564,113 - 3,612,185 Common stocks 6,510,849 5,071 - 6,515,920 Real estate investment

trust - 330,215 - 330,215 Commodities 339,098 - - 339,098

Total $ 9,898,019 $ 3,246,972 $ - $ 13,144,991 Asset allocations by asset category were as follows at June 30:

2011 2010 Asset category

Cash equivalents 1.5% 17.9% Fixed income 58.5% 27.5% Common stocks 31.8% 49.5% Real estate 3.2% 2.5% Commodities 5.0% 2.6%

Total 100.0% 100.0% The Performing Arts Center contributed $396,897 to the defined benefit plan for the fiscal year ending June 30, 2011.



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NOTE 18 – RETIREMENT PLANS (Continued) Defined Pension Plan (Continued) Plan Assets Investment Valuation and Income Recognition (Continued) Benefit payments, which reflect expected future service, as appropriate, are expected to be paid as follows:

Years Ending June 30,

2012 $ 631,447 2013 647,925 2014 660,030 2015 717,478 2016 753,198 2017 – 2021 4,764,107

Total $ 8,174,185

Defined Contribution Plan The Performing Arts Center also sponsors a defined contribution plan covering eligible non-union employees. Participants can elect to contribute 3% to 25% of their pretax annual compensation, as defined in the Plan, subject to Internal Revenue Service withholding rules. Prior to January 1, 2011, the Performing Arts Center contributes 50% of the first 3% of the base compensation that a participant contributes to the plan. Effective January 1, 2011, the Performing Arts Center contributes 100% of the first 3%, and 50% of the next 2% of the base compensation that a participant contributes to the plan. Employer contributions to the plan amounted to $213,097 and $117,464 in 2011 and 2010, respectively. Pension Liability Certain employees of PACLAC are covered by union-sponsored, collectively bargained, multi-employer pension and welfare plans. The plans are “underwater” as of June 30, 2011; however the plans have not specified any amounts, and PACLAC is not able to determine its allocated portion of the unfunded vested liability, if any, under these plans. According to the accounting policies generally accepted in the United States of America, no liability is required to be recorded by a participant in an underwater multi-employer premium plan, except when a participant withdraws from such plan.



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NOTE 19 – PROPERTY MANAGEMENT

PACLAC leases office space to certain sub-licensees on a short-term basis under the operating sublease agreement with the County of Los Angeles. For the years ended June 30, 2011 and 2010, rental income from these leases was $408,640.

NOTE 20 – CAPITAL PROJECTS

During the years ended June 30, 2011 and 2010, PACLAC received $900,000 and $1,200,000, respectively, of additional funding from the County of Los Angeles for general operating and capital purposes.

NOTE 21 – FOUNDERS ROOMS OPERATIONS

Earned income from and expenses related to the operation of the Founders Rooms were $897,690 and $1,200,739, respectively, during fiscal year 2011, and are reflected as components of education and outreach revenue and education and outreach expenses, respectively, in the accompanying statement of activities. In addition, during fiscal year 2011 $886,606 of contributions received during the year (related to contributions from Founders members) was recorded as unrestricted contributions, as restrictions (through the operation of the Founders Rooms and the Music Center) are met in the same year the contributions are received.

NOTE 22 – COMMITMENTS AND CONTINGENCIES Operating Leases During fiscal year 2007, PACLAC entered into a five-year operating lease agreement for communication equipment. Future minimum lease payments under this operating lease are summarized below at June 30:

Fiscal Years Ending June 30, 2012 $ 123,065 2013 9,502 Total $ 132,567



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NOTE 22 – COMMITMENTS AND CONTINGENCIES (Continued) Employment Agreements PACLAC has employment agreements with key executives. The minimum payments under these agreements are summarized below:

Fiscal Years Ending June 30, 2012 $ 977,046 2013 793,653 2014 720,643 2015 373,519 Total $ 2,864,861

A key executive employee is entitled to an annual bonus of up to 20% of his base compensation, which is subject to the approval by the Chairman of the Board. He is also entitled to annual deferred compensation of $50,000 on January 31 of each year during his employment if he is employed on January 31. The last $50,000 deferred compensation for this executive employee was recorded during the year. The total deferred compensation for this executive as of January 31, 2011 of $250,000 plus interest was paid by PACLAC in February 2011. In addition, he is qualified as a participant in a Supplemental Savings Plan, the deferral amount of which is determined in accordance with section 457(e)(15) code of the Internal Revenue Service. At June 30, 2011, total deferred compensation related to the Supplemental Savings Plan was $137,444, of which $113,304 related to the key executive. The Supplemental Savings Plan was reflected as an accrued liability in this financial statement. Legal Proceedings The Performing Arts Center is, from time to time, the subject of litigation, claims and assessments arising out of matters occurring in its normal business operations. PACLAC has insurance coverage to provide protection against certain contingencies. In the opinion of management, resolution of these matters will not have a material adverse effect on the Performing Arts Center’s financial position or results of operations.



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NOTE 23 – RELATED PARTY TRANSACTIONS During fiscal year 2011, one of PACLAC’s executives provided management services to one of its Resident Companies and was paid $200,000. Contributions received from the Board of Directors for the fiscal year 2011 annual campaign and pledges totaled $1,183,317.

NOTE 24 – SUBSEQUENT EVENTS

Subsequent events have been evaluated through September 28, 2011, which is the date the financial statements were issued or available to be issued. On May 19, 2011, PACLAC obtained a line of credit of $620,000 from a financial institution for the purchase of phone equipment. On July 27, 2011, the line was increased to $700,000. The line of credit is payable monthly for five years at a monthly rate of $11,309, which includes interest of 3.6% per annum. From July 1 to September 28, 2011, PACLAC has drawn approximately $250,000 on the line of credit. PACLAC entered into a master purchase agreement for phone equipment with a vendor on August 9, 2011.

THE PERFORMING ARTS CENTER OF LOS ANGELES COUNTY€¦ · Total net assets 41,820,80547,312,589...

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