blumenthal performing arts financial statements

NORTH CAROLINA PERFORMING ARTS CENTER

AT CHARLOTTE FOUNDATION

Financial Statements

For the Years Ended June 30, 2010 and 2009

NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION

TABLE OF CONTENTS PAGE NO. Independent Auditors’ Report ......................................................................................... 1 Statements of Financial Position .................................................................................... 2 Statements of Activities .................................................................................................. 3 Statements of Cash Flows ............................................................................................. 5 Notes to Financial Statements ....................................................................................... 6

INDEPENDENT AUDITORS' REPORT To the Board of Directors of North Carolina Performing Arts Center At Charlotte Foundation We have audited the accompanying statement of financial position of North Carolina Performing Arts Center at Charlotte Foundation (the "Foundation") as of June 30, 2010, and the related statements of activities and cash flows for the year then ended. These financial statements are the responsibility of the Foundation's management. Our responsibility is to express an opinion on these financial statements based on our audit. The 2009 financial statements were audited by other auditors whose report dated February 2, 2010, expressed an unqualified opinion on those 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 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 the Foundation’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 audit provides a reasonable basis for our opinion. In our opinion, the 2010 financial statements referred to above present fairly, in all material respects, the financial position of North Carolina Performing Arts Center at Charlotte Foundation as of June 30, 2010, 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.

Charlotte, North Carolina October 29, 2010

2010 2009

ASSETS

Current AssetsCash and cash equivalents 6,295,752$ 5,294,697$ Receivables:

Pledges, net 9,025 85,515 Operations accounts receivable, net 1,237,913 1,087,452

Prepaid and other current assets 758,668 570,730

TOTAL CURRENT ASSETS 8,301,358 7,038,394

Non-current AssetsInvestments in performances 261,365 303,431 Long-term investments 2,535,871 2,446,686 Nonqualified deferred compensation plan assets 252,334 287,423 Property and equipment, net 1,946,904 1,732,941

TOTAL NON-CURRENT ASSETS 4,996,474 4,770,481

Restricted AssetsPresent value of future lease contributions 9,926,572 188,166 Endowment investments 6,533,667 5,508,969 Beneficial interest in assets held in trust 5,786,392 4,968,363

TOTAL RESTRICTED ASSETS 22,246,631 10,665,498

TOTAL ASSETS 35,544,463$ 22,474,373$

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


June 30, 2010 and 2009STATEMENTS OF FINANCIAL POSITION

2010 2009

LIABILITIES

Current LiabilitiesAccounts payable 1,014,787$ 149,533$ Accrued expenses 891,543 728,730 Capital lease obligations, current 25,265 - Deferred revenues 6,749,025 7,090,322

TOTAL CURRENT LIABILITIES 8,680,620 7,968,585

Capital lease obligations, net of current portion 80,007 - Nonqualified deferred compensation liability 418,319 440,183

TOTAL LIABILITIES 9,178,946 8,408,768

Net AssetsUnrestricted 3,649,189 2,844,803 Temporarily restricted 11,146,228 436,520 Permanently restricted 11,570,100 10,784,282

TOTAL NET ASSETS 26,365,517 14,065,605

TOTAL LIABILITIES AND NET ASSETS 35,544,463$ 22,474,373$

2010 2009

CHANGES IN UNRESTRICTED NET ASSETS

Operating ActivitiesOperating revenues and other support

Theater event collections 24,196,177$ 16,133,659$ Contributions and grant revenues 2,101,959 2,119,976 Building maintenance support 1,262,795 1,527,039 Present value adjustments of future

lease contributions 706,325 430,273 Return on investments available for operations 112,479 122,806 Other revenues 40,483 6,432 Allocation of allowable endowment balance

for spending - 200,000 Net assets released from restriction 990,273 725,447

TOTAL OPERATING REVENUES AND OTHER SUPPORT 29,410,491 21,265,632

Operating expensesProgram expenses:

Events 18,820,418 12,848,428Operations 7,692,568 6,435,718 Donated rental expense 1,384,000 1,154,000

Total program expenses 27,896,986 20,438,146 Development 324,252 368,353 Management and general 691,817 418,423

TOTAL OPERATING EXPENSES 28,913,055 21,224,922

NET RESULTS FROM OPERATIONS 497,436 40,710

Nonoperating ActivitiesReturn on investments 306,950 (383,657) Cumulative effect of accounting change - (1,079,262)

CHANGE IN UNRESTRICTED NET ASSETS 804,386 (1,422,209)



Years Ended June 30, 2010 and 2009STATEMENTS OF ACTIVITIES

2010 2009

Changes in Temporarily Restricted Net AssetsContributions 11,273,391 - Allocation of allowable endowment balance for

spending - (200,000) Return on investments 391,338 (879,262) Change in beneficial interest of assets held in

trust 35,252 - Cumulative effect of accounting change - 1,079,262 Net assets released from restriction (990,273) (725,447)

CHANGE IN TEMPORARILY RESTRICTED NET ASSETS 10,709,708 (725,447)

Changes in Permanently Restricted Net AssetsContributions 3,041 - Change in beneficial interest of assets held in

trust 782,777 (286,611)

CHANGE IN PERMANENTLY RESTRICTED NET ASSETS 785,818 (286,611)

CHANGE IN NET ASSETS 12,299,912 (2,434,267)

NET ASSETS, beginning of year 14,065,605 16,499,872

NET ASSETS, end of year 26,365,517$ 14,065,605$



Years Ended June 30, 2010 and 2009STATEMENTS OF ACTIVITIES (Continued)

2010 2009

CASH FLOWS FROM OPERATING ACTIVITIES

Change in net assets 12,299,912$ (2,434,267)$ Adjustments to reconcile change in net assets to net cash flows provided by operating activities

Depreciation 379,893 268,805 Realized and unrealized (gains) losses (561,275) 1,396,301 Net change in beneficial interest in assets held in trust (818,029) 286,611 Change in present value of future lease contributions (9,738,406) 723,727 Change in allowance for doubtful accounts (20,906) (11,100) Change in operating assets and liabilities

Pledges receivable 107,396 63,172 Operations accounts receivable (160,461) (325,477) Prepaid and other current assets (187,938) (158,899) Accounts payable 865,254 (226,730) Accrued expenses 162,813 138,139 Deferred revenues (341,297) 2,101,514

NET CASH PROVIDED BY OPERATING ACTIVITIES 1,986,956 1,821,796

CASH FLOWS FROM INVESTING ACTIVITIESPurchase of long-term investments, net of sales of

long-term investments (226,198) (93,699) Purchases of endowment investments (326,410) - Advances for future performances, net of

royalties received 42,066 (1,338) Net change in nonqualified deferred compensation

plan assets 35,089 159,827 Net change in nonqualified deferred compensation

plan liability (21,864) (87,517) Purchases of property and equipment (467,528) (763,891)

NET CASH USED IN INVESTING ACTIVITIES (964,845) (786,618)

CASH FLOWS FROM FINANCING ACTIVITIESPrincipal payments on capital lease obligations (21,056) -

NET CHANGE IN CASHAND CASH EQUIVALENTS 1,001,055 1,035,178

CASH AND CASH EQUIVALENTS, Beginning of year 5,294,697 4,259,519

CASH AND CASH EQUIVALENTS, End of year 6,295,752$ 5,294,697$

NONCASH INVESTING AND FINANCING ACTIVITIESPurchases of property and equipment under capital lease 126,328$ -$



Years Ended June 30, 2010 and 2009STATEMENTS OF CASH FLOWS

NORTH CAROLINA PERFORMING ARTS CENTER AT CHARLOTTE FOUNDATION NOTES TO FINANCIAL STATEMENTS June 30, 2010 and 2009

NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES North Carolina Performing Arts Center at Charlotte Foundation, a nonprofit organization incorporated on May 8, 1987, operates as the North Carolina Blumenthal Performing Arts Center (“NCBPAC”) to present the best in the performing arts, and in partnership with others, share and employ the arts as a major catalyst to strengthen education, build community cohesiveness, and advance economic growth. NCBPAC manages the operation of three performance spaces located in the Blumenthal Performing Arts Center (the “Center”): the 2,097-seat Belk Theater, the 444-seat Booth Playhouse, and the Stage Door Theater which seats 170. A fourth performance space, the 1,193-seat Knight Theater, was completed in the Fall of 2009. NCBPAC also manages the operation of Spirit Square Center for Arts and Education (“Spirit Square”), a community center focusing on arts education and community theater, which includes the 730-seat McGlohon Theater and the Duke Energy Theater which seats 182. NCBPAC presents national touring Broadway productions and a wide range of special attractions. Additionally, NCBPAC’s Education Institute and its Community Programs Division develop innovative partnerships with schools and community organizations to bring the performing arts to life for people throughout the region. NCBPAC is home to six resident arts organizations including Charlotte Symphony Orchestra, Opera Carolina, North Carolina Dance Theater, Community School of the Arts, The Light Factory, and Queen City Theater Company. The Center and the Knight Theaters are owned by the City of Charlotte, North Carolina (the “City”) and Spirit Square Center is owned by Mecklenburg County, North Carolina (the “County”) (see Note J). 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 (“GAAP”). Net assets and revenues, expenses, gains and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets and changes therein are classified and reported as follows:

Unrestricted net assets – Net assets that are not subject to donor-imposed stipulations. Temporarily restricted net assets – Net assets subject to donor-imposed stipulations that may or will be met, either by specific actions of NCBPAC and/or the passage of time. When a restriction expires, that is, when a stipulated time restriction ends or purpose restriction is accomplished, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the Statement of Activities as net assets released from restrictions. Permanently restricted net assets – Net assets subject to donor-imposed stipulations that they be maintained permanently by NCBPAC. Generally, the donors of these assets permit NCBPAC to use all or part of the income earned on any related investments for general or specific purposes.

Cash and Cash Equivalents For the Statement of Financial Position and Statement of Cash Flows, NCBPAC considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents unless held by investment managers as part of the investment portfolio.


NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Accounts Receivable Accounts receivable are stated at unpaid balances, less an allowance for doubtful accounts of $23,000 and $13,000 at June 30, 2010 and 2009, respectively. NCBPAC provides for losses on accounts receivable using the allowance method. The allowance is based on experience and other circumstances which may affect the ability of customers to meet their obligations. Receivables are considered impaired if full principal payments are not received in accordance with the contractual terms. It is NCBPAC’s policy to charge off uncollectible accounts receivable when management determines the receivable will not be collected. Investments Investments are valued at their fair value. Fair value is determined by reference to exchange or dealer-quoted market prices. If a quoted market price is not available, fair value is estimated using quoted market prices for similar investment securities. Changes in the fair value of securities are reflected in return on investments in the accompanying Statement of Activities. See Note D for discussion of fair value measurements. Investments in Performances NCBPAC is a limited partner in several limited liability partnerships that invest in theatrical stage productions. NCBPAC’s ownership percentage in each limited liability partnership is less than 5%. The investment in these limited liability partnerships is accounted for using the cost method, and income recognized is limited to distributions received from the partnerships in excess of NCBPAC’s original investment. Property and Equipment All acquisitions of property and equipment in excess of $2,500 and all expenditures for repairs, maintenance, renewals, and betterments in excess of $2,500 that materially prolong the useful lives of assets are capitalized. Property and equipment is stated at cost when purchased, and at estimated market value when donated. NCBPAC records depreciation of its property and equipment using the straight-line method over the estimated useful life of the asset. The estimated useful lives of NCBPAC’s assets are twenty years for the organ façade and building improvements and three to ten years for all other assets. Beneficial Interest of Assets Held in Trust NCBPAC recognizes contribution revenue from assets donated to a recipient organization for the sole benefit of NCBPAC.


NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Donated Services NCBPAC records the value of donated services and equipment in its financial statements if a basis is available to measure the value of such services and equipment. Donated services are generally recognized if such services enhance nonfinancial assets and require a specialized skill. The amounts are included in contributions and grant revenues on the accompanying Statement of Activities. No amounts have been reflected in the financial statements for donated services. NCBPAC generally pays for services requiring specific expertise. Community members volunteer as ushers, tour guides, administrative assistants, and advisors. A dollar valuation of their efforts is not reflected in the financial statements, however the estimated volunteer hours for the years ended June 30, 2010 and 2009 were as follows:

2010 2009

Total volunteer hours (unaudited) 56,000 54,000 Revenue Recognition In the absence of donor restrictions, contributions are considered to be available for unrestricted use. All income is recognized in the period when the contribution, pledge, or unconditional promise to give is received. Government funding and grants are recorded as unrestricted revenue as funds are reimbursements for expenditures made by NCBPAC. Unconditional promises to give due in the next year are recorded at their net realizable value. Unconditional promises to give due in subsequent years are recorded at the present value of their net realizable value, using risk-free interest rates applicable to the years in which the pledges are received. Amortization of the resulting discount is taken into income as a contribution in subsequent years. Deferred revenue represents cash received from advance ticket sales and season sponsorships. Ticket sale revenue is recorded after the related performances are completed and associated cost settlements are calculated. Sponsorship revenue is recognized in the fiscal year specified in the sponsorship contract. Advertising Costs Advertising costs related to specific events are deferred and amortized in the period of the event. NCBPAC charges advertising costs to events as incurred on the accompanying Statement of Activities. Advertising expense for the years ended June 30, 2010 and June 30, 2009 was approximately $1,715,000 and $1,087,000, respectively. Tax Status In the United States Treasury Department determination letter dated October 15, 1992, NCBPAC was determined to be tax exempt under Section 501(c)(3) of the Internal Revenue Code. Accordingly, there are no income taxes provided for in the accompanying financial statements. NCBPAC has determined that it does not have any material unrecognized tax benefits or obligations as of June 30, 2010.


NOTE A – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Subsequent Events NCBPAC evaluated the effect subsequent events would have on the financial statements through October 29, 2010, which is the date the financial statements were available to be issued. Reclassifications Certain reclassifications have been made to the 2009 financial statements to conform to the current year presentation. NOTE B – RECLASSIFICATION OF FUNDS In accordance with GAAP for a not-for-profit organization that is subject to an enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (“UPMIFA”), NCBPAC reclassified certain donor restricted endowment funds from unrestricted net assets to temporarily restricted net assets during the year ended June 30, 2009. The net effect of these reclassifications is a decrease in unrestricted net assets and an increase in temporarily restricted net assets of $1,079,262. NOTE C – PLEDGES RECEIVABLE Pledges receivable represent all outstanding commitments for contributions to NCBPAC. Pledges are recorded as a receivable at the time a written pledge is received. Pledges receivable are expected to be realized in the following periods at June 30:

2010 2009 Receivable in less than one year $ 38,996 $ 146,392 Less: Allowance for uncollectible pledges (29,971) (60,877) Total pledges receivable, net $ 9,025 $ 85,515


NOTE D – FAIR VALUE MEASUREMENTS The Financial Accounting Standards Board (“FASB”) issued a statement that defines fair value and establishes a framework for measuring fair value. That framework provides a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described as follows:

Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical

assets or liabilities in active markets. The types of financial instruments which would generally be included in Level 1 are listed equity securities.

Level 2 – Inputs to the valuation methodology include

quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; inputs other than quoted prices that are observable for the asset or liability; inputs that are derived principally from or corroborated by observable market data

by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be

observable for substantially the full term of the asset or liability. The types of financial instruments which would generally be included in Level 2 are governmental and corporate bonds.

Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value

measurement. The types of financial instruments which would generally be included in Level 3 are units in common investment trust funds, hedge funds, general and limited liability partnership interests in corporate and private equity and real estate funds, and interests in pooled investments held by a third party.

The asset’s or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurements. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. The valuation methodologies applied by the NCBPAC may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, although NCBPAC 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. There have been no changes in the methodologies used at June 30, 2010 and 2009.


NOTE D – FAIR VALUE MEASUREMENTS (Continued) The following tables set forth by level, within the fair value hierarchy, NCBPAC investments at fair value as of June 30, 2010 and 2009: June 30, 2010

Level 1 Level 2 Level 3 Fair Value Long-term investments: Cash and cash equivalents $ -- $ 111,651 $ -- $ 111,651 Fixed income -- 2,424,220 -- 2,424,220 Total long-term investments$ -- $ 2,535,871 $ -- $ 2,535,871 Restricted investments: Endowment investments $ -- $ -- $ 6,533,667 $ 6,533,667 Beneficial interest in assets held in trust -- -- 5,786,392 5,786,392 Total restricted investments $ -- $ -- $ 12,320,059 $ 12,320,059 June 30, 2009

Level 1 Level 2 Level 3 Fair Value Long-term investments: Cash and cash equivalents $ -- $ 43,116 $ -- $ 43,116 Fixed income -- 2,403,570 -- 2,403,570 Total long-term investments$ -- $ 2,446,686 $ -- $ 2,446,686 Restricted investments: Endowment investments $ -- $ -- $ 5,508,969 $ 5,508,969 Beneficial interest in assets held in trust -- -- 4,968,363 4,968,363 Total restricted investments $ -- $ -- $ 10,477,332 $ 10,477,332 The investment portion of the beneficial interest in assets held in trust and endowment investments are considered by NCBPAC to be Level 3 assets because they represent interests held in pooled investment funds, which include private investment funds. As discussed in Notes E and F, the Foundation For The Carolinas (“FFTC”) manages the administration of these investments.


NOTE D – FAIR VALUE MEASUREMENTS (Continued) For the assets measured at fair value on a recurring basis using Level 3 valuations during the period, the following tables provide a reconciliation of beginning and ending balances for the years ended June 30, 2010 and 2009:

Endowment Investments

Beneficial Interest in

Assets Held In Trust

Balance, July 1, 2009 $ 5,508,969 $ 4,968,363 Investment return: Investment income, net of expenses 85,888 -- Realized and unrealized gains 612,400 -- 698,288 -- Contributions 326,410 -- Change in beneficial interest of assets held in trust -- 818,029 Balance, June 30, 2010 $ 6,533,667 $ 5,786,392

Endowment Investments

Beneficial Interest in

Assets Held In Trust

Balance, July 1, 2008 $ 6,917,839 $ 5,254,974 Investment return: Investment income, net of expenses 84,946 -- Realized and unrealized losses (1,293,816) -- (1,208,870) -- Withdrawals (200,000) -- Change in beneficial interest of assets held in trust -- (286,611) Balance, June 30, 2009 $ 5,508,969 $ 4,968,363


NOTE E – ENDOWMENT INVESTMENTS AND LONG-TERM INVESTMENTS Investments are carried at fair value and realized and unrealized gains and losses are reflected in the Statement of Activities. The fair value of investments at June 30, 2010 and 2009 is summarized below:

2010 2009 Endowment investments Cash/Fixed Income $ 2,187,149 $ 1,631,947 Hedge Funds 1,069,685 826,345 Alternative investments 516,892 426,244 Equities 2,759,941 2,624,433 Total Endowment $ 6,533,667 $ 5,508,969

2010 2009 Long-term investments Cash and cash equivalents $ 111,651 $ 43,116 Bonds 2,424,220 2,403,570 Total long-term investments $ 2,535,871 $ 2,446,686 NCBPAC’s endowment investments are held by the Greater Charlotte Cultural Trust (the “Trust”). The Trust, which is a supporting foundation of the FFTC, is a separate legal entity with its own board of directors which oversees endowment administration, evaluates planned giving opportunities, and makes investment decisions. FFTC, a nonprofit organization that serves donors, communities, and a broad range of charitable purposes in North and South Carolina, provides investment and administrative services for the Trust. The Trust invests in a variety of investments, which are subject to fluctuations in market values and expose the Trust to a certain degree of interest and credit risk. The Trust has investments with fund managers who invest in private investment funds as part of the Trust’s asset allocation. The investment in the private investment funds is an alternative investment strategy with the purpose of increasing the diversity of the Trust’s holdings and is consistent with the Trust’s overall investment objectives. The private investment funds are not traded on an exchange, and accordingly, investments in such funds may not be as liquid as investments in marketable equity or debt securities. The private investment funds may invest in other private investment funds, equity or debt securities, which may or may not have readily available fair values, and foreign exchange or commodity forward contracts. Management of the Trust relies on various factors to estimate the fair value of these investments and believes its processes and procedures for valuing investments are effective and that its estimate of value is reasonable. However, the factors used are subject to change in the near term, and, accordingly, investment values and performance can be affected. The effect of these changes could be material to the financial statements.


NOTE E – ENDOWMENT INVESTMENTS AND LONG-TERM INVESTMENTS (Continued) The following summarizes the investment return and classification in the Statement of Activities for the years ended June 30:

2010 2009 Interest and dividend income $ 249,492 $ 256,188 Realized and unrealized gains (losses) on investments 561,275 (1,396,301) Return on investments 810,767 (1,140,113) Less: Return on investments available for operations (112,479) (122,806) Return on investments, net of return on investments available for operations $ 698,288 $ (1,262,919) NOTE F – BENEFICIAL INTEREST IN THE CAMPAIGN FOR CULTURAL FACILITIES NCBPAC has a beneficial interest in assets held in trust by the Trust. In 2004, the Trust completed the Cultural Organizations Endowment Agreement related to the Campaign for Cultural Facilities. The agreement outlines the approximately $82.3 million campaign to fund facility endowments to support the operation of new or remodeled facilities as well as other endowment and capital needs in the cultural community. In support of the campaign, corporations and individuals have pledged approximately $70 million as of June 30, 2010. The campaign ended in April 2010. NCBPAC is party to this agreement and is budgeted to be allocated $8 million since the campaign reached its fundraising goal. In accordance with the agreement, the funds will be used to create an endowment, with the earnings to be distributed annually to fund operating costs of the facilities. Although NCBPAC has no control over the disbursement of these funds, NCBPAC is a named beneficiary of a portion of these funds. Accordingly, a beneficial interest has been included in the NCBPAC’s assets totaling $5,786,392 and $4,968,363 as of June 30, 2010 and 2009, respectively, representing NCBPAC’s interest in funds raised to date. NOTE G – ENDOWMENT FUNDS NCBPAC’s endowment consists of six individual funds established for a variety of purposes that are invested at the Trust (see Note E). The endowment consists of donor-restricted endowment funds. As required by GAAP, net assets associated with endowment funds are classified and reported based on the existence or absence of donor-imposed restrictions. GAAP also provides guidance on the net asset classification of donor restricted endowment funds for a not-for-profit organization that is subject to an enacted version of UPMIFA.


NOTE G – ENDOWMENT FUNDS (Continued) Endowment net asset composition by type of fund for the investment portion of the endowment as of June 30, 2010 and 2009 is listed below:

Unrestricted

Temporarily Restricted

Permanently Restricted

Total

June 30, 2010: Donor-restricted endowment funds $ -- $ 753,000 $ 11,567,059 $ 12,320,059 June 30, 2009: Donor-restricted endowment funds $ (306,950) $ -- $ 10,784,282 $ 10,477,332 The Board of Directors of NCBPAC has interpreted UPMIFA as requiring, absent explicit donor stipulations to the contrary, that the following amounts included in the endowment be classified as permanently restricted: (a) the original value of gifts donated to the permanent endowment and (b) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund be classified as permanently restricted. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by NCBPAC in a manner consistent with the standard of prudence prescribed by UPMIFA or spent in accordance with the purpose restrictions established by the donor. In accordance with UPMIFA, NCBPAC considered the following factors in making a determination to appropriate or accumulate donor-restricted endowments funds:

1. The duration and preservation of the fund 2. The purposes of NCBPAC and the donor-restricted endowment fund 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 NCBPAC 7. The investment policies of NCBPAC


NOTE G – ENDOWMENT FUNDS (Continued) FFTC administers the endowed funds of the Trust. The Board of Directors of the Trust and ultimately NCBPAC have adopted investment and spending policies for endowment assets that attempt to provide for a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Under this policy, the endowment assets are invested in a manner that is intended to produce results that provide an average annual real rate of return, net of fees, equal to or greater than spending, administrative fees, and inflation (Consumer Price Index). Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the Trust 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). Accordingly, the Trust has adopted the following investment allocation guidelines: Equities – large cap 40% - 80% Equities – small cap 10% - 30% Equities – emerging market 7.5% - 22.5% Equities – international 2.5% - 7.5% Fixed income 20% - 30% Private investment funds 8% - 32% The Trust had a policy of appropriating for distribution each year 5% of the endowment funds’ average fair value using the prior 3 years’ value at the calendar year-end preceding the fiscal year in which the distribution is planned. For the year ending June 30, 2010, the spending policy was amended to spend up to a maximum of 4% of the average fair value over the prior twelve quarters through the calendar year preceding the fiscal year in which the distribution is planned. The amended policy will be evaluated on an annual basis for prudence. In establishing the spending policy, the expected return on the endowment was taken into consideration. Accordingly, the spending policy is expected to allow the endowment to maintain its purchasing power by growing at a rate equal to planned payouts. Additional real growth will be provided through new gifts and any excess investment return.


NOTE G – ENDOWMENT FUNDS (Continued) Changes in the investment portion of the endowment net assets for the years ended June 30, 2010 and 2009 are as follows:

Unrestricted



Total

Endowment net assets, July 1, 2009 $ (306,950) $ -- $ 10,784,282 $ 10,477,332 Investment return (loss): Investment income, net of expenses -- 85,888 -- 85,888 Realized and unrealized gains 306,950 305,450 -- 612,400 Total investment gains 306,950 391,338 -- 698,288 Contributions -- 326,410 -- 326,410 Change in beneficial interest of assets held in trust -- 35,252 782,777 818,029 Endowment net assets, July 30, 2010 $ -- $ 753,000 $ 11,567,059 $ 12,320,059


NOTE G – ENDOWMENT FUNDS (Continued)

Unrestricted



Total

Endowment net assets, July 1, 2008 $ 1,101,920 $ -- $ 11,070,893 $ 12,172,813 Net asset reclassification based on cumulative effect of accounting change (1,101,920) 1,101,920 -- -- Investment return (loss): Investment income, net of expenses -- 84,946 -- 84,946 Realized and unrealized losses (306,950) (986,866) -- (1,293,816) Total investment loss (306,950) (901,920) -- (1,208,870) Amounts appropriated for expenditure -- (200,000) -- (200,000) Change in beneficial interest of assets held in trust -- -- (286,611) (286,611) Endowment net assets, July 30, 2009 $ (306,950) $ -- $ 10,784,282 $ 10,477,332 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the amount recorded by NCBPAC as permanently restricted net assets (corpus). The amount by which fair value was below corpus at June 30, 2009 was $306,950. This resulted from unfavorable market fluctuations during the fiscal year 2009 and continued appropriation for certain programs that was deemed prudent by the Board of Directors. Subsequent gains during fiscal year 2010 restored the fair value of the assets of the endowment fund to the required level and the gains of $306,950 were classified as an increase in unrestricted net assets. At June 30, 2010, the fair value of each individual fund exceeded corpus.


NOTE H – PROPERTY AND EQUIPMENT At June 30, 2010 and 2009, property and equipment consisted of the following:

2010 2009 Leasehold improvements $ 1,843,992 $ 1,821,352 Computer equipment 1,977,966 1,802,161 Building equipment 1,091,213 749,192 Organ façade 182,601 182,601 Furniture and office equipment 632,805 471,149 Construction in process -- 108,266 Total property and equipment 5,728,577 5,134,721 Less: accumulated depreciation (3,781,673) (3,401,780) Net property and equipment $ 1,946,904 $ 1,732,941 NCBPAC leases its facilities from the City of Charlotte, North Carolina and Mecklenburg County, North Carolina. See Note J. NOTE I – CAPITAL LEASE NCBPAC leases certain office equipment which is recorded as a capital lease in accordance with GAAP, with related assets and liabilities recorded. Cost of equipment of $126,328 and accumulated amortization of $19,986, are included in property and equipment and accumulated depreciation as of and for the year ended June 30, 2010. Future minimum lease payments under the capital lease is as follows: Year Ending June 30, 2011 $ 25,265 2012 25,265 2013 25,265 2014 25,265 2015 4,212 $ 105,272 NOTE J – RELATIONSHIP TO CITY OF CHARLOTTE AND MECKLENBURG COUNTY During the year ended June 30 2010, NCBPAC entered into agreements with the City to lease and operate the Center and Knight Theater. NCBPAC also has an agreement with the County to lease and operate Spirit Square. NCBPAC leases each facility for $1 per year. The agreement to lease the Center expires on October 2, 2019, the agreement to lease the Knight Theater expires on June 30, 2039, and the agreement to lease Spirit Square expired on June 30, 2007 at which time it converted to a month to month agreement.


NOTE J – RELATIONSHIP TO CITY OF CHARLOTTE AND MECKLENBURG COUNTY (Continued) In accordance with GAAP, NCBPAC records the fair market value of the leases each year. In addition, NCBPAC records the present value of the future leasehold benefits of the City leases for the remaining life of the current lease obligations. The present value of these benefits has been computed using discount rates of 3.2% and 4.3%. NCBPAC recorded the fair value of the leases of $1,384,000 and $1,154,000 as donated rental expense and a corresponding release from restricted net assets, net of amortization of the discount, in the accompanying Statements of Activities for the years ended June 30, 2010 and 2009, respectively. NOTE K – DEFERRED REVENUES AND PREPAID EVENT EXPENSES NCBPAC recognizes revenues and expenses related to an event at the time of the performance. At June 30, 2010 and 2009, the Center had received approximately $6.8 million and $7 million, respectively, in advance ticket sales and advertising revenue which have been deferred to the succeeding fiscal year. Related prepaid event expenses were approximately $504,000 and $289,000 at June 30, 2010 and 2009, respectively. In addition, NCBPAC has deferred advertising revenue of approximately $76,000 and $24,000 at June 30, 2010 and 2009, respectively, related to performances that occur in the succeeding fiscal year. NOTE L – EMPLOYEE BENEFIT PLANS NCBPAC sponsors a 403(b) defined contribution pension plan for full-time employees with a minimum of one year of service who are not covered by a collective bargaining agreement. NBPAC contributes 2% of each participant’s compensation to the plan, and matches up to 3% of employee contributions. For the years ended June 30, 2010 and 2009, NCBPAC’s contribution to the plan was approximately $90,000 and $110,000, respectively. NCBPAC provides separate supplemental employee retirement plans for its president and former president. The former president is covered under an annuity contract which, beginning in fiscal 1998, was partially funded by investing in a trust which NCBPAC is the owner of the trust assets. The current president is covered under a defined contribution plan. NCBPAC recorded expenses related to the plans of $13,225 and $15,500 for the years ended June 30, 2010 and 2009, respectively. The trust assets are recorded as an asset in NCBPAC’s financial statements and the corresponding liability has also been recorded. NOTE M – CONCENTRATION OF SOURCE OF SUPPLY OF LABOR Some of NCBPAC’s employees (representing approximately 18% and 19% of payroll expense for the years ended June 30, 2010 and 2009, respectively) are members of the International Alliance of Theatrical Stage Employees Local #322. NCBPAC’s contract with the union is subject to renegotiation for the fiscal year ended June 30, 2013. NCBPAC’s other employees are not represented by a union.


NOTE N – TEMPORARILY/PERMANENTLY RESTRICTED NET ASSETS NCBPAC’s temporarily restricted net assets released from restriction were as follows:

2010

2009 Donated rental expense, net of amortization of discount $ 677,675 $ 723,797 Donor designated gifts released 312,598 1,650 Total Temporarily Restricted Net Assets Released From Restriction $ 990,273 $ 725,447 NCBPAC’s temporarily restricted net assets are for the following purposes:

2010

2009

Gross value of leaseholds with City and County $ 10,416,081 $ 7,353,243 Less: net rental expense recognized to date (489,509) (7,165,077) Present value of leaseholds with City and County 9,926,572 188,166 Knight Theater contingency fund 60,000 -- Booth Playhouse endowment 226,410 -- Performing arts scholarship fund 100,000 -- Expanding Horizons: Broadway experience program 100,000 -- Duke Energy 2011 sponsorship 110,000 -- Investment gains: Endowment funds 391,338 -- Organ fund 139,152 139,152 Beneficial interest in assets held in trust 35,252 -- Other temporarily restricted net assets 57,504 109,202 Total temporarily restricted net assets $ 11,146,228 $ 436,520 NCBPAC’s permanently restricted net assets are for the following purposes:

2010

2009

Operating endowment for the Center $ 5,564,662 $ 5,564,662 Beneficial interest in assets held in trust 5,751,140 4,968,363 Education institute endowment 253,041 250,000 Seats endowment 1,257 1,257 Total permanently restricted net assets $ 11,570,100 $ 10,784,282 NOTE O – CONCENTRATIONS NCBPAC places its cash and cash equivalents on deposit with financial institutions in the United States. During the year, NCBPAC typically has amounts on deposit in excess of the federally insured limits of $250,000 per financial institution.

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