BALTIMORE ORCHESTRA, INC. AND AFFILIATES Consolidated Financial Statements Together with Independent Auditors? Report For the Years Ended August 31, 2018 and 2017 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Table of Contents For the Years Ended August 31, 2018 and 2017 Page Independent Auditors? Report 1-2 Financial Statements: Consolidated Statements of Financial Position 3 Consolidated Statements of Activities 4-5 Consolidated Statements of Cash Flows 6 Notes to the Consolidated Financial Statements 7~38 Supplemental Information: Independent Auditors? Report on Consolidating Information 39 Consolidating Statement of Financial Position as of August 31, 2018 40 Consolidating Statement of Financial Position as of August 3 1, 2017 41 Consolidating Statement of Activities for the Year Ended August 31, 2018 42 Consolidating Statement of Activities for the Year Ended August 31, 2017 43 INDEPENDENT REPORT To the Board of Directors of the Baltimore Orchestra, Inc. and Af?liates: We have audited the accompanying consolidated ?nancial statements of the Baltimore Orchestra, Inc. and Af?liates (collectively, the which comprise the consolidated statements of ?nancial position as of August 31, 2018 and 2017, the related consolidated statements of activities and cash ?ows for the years then ended, and the related notes to the consolidated ?nancial statements. Management?s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated ?nancial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of the ?nancial statements that are free from material misstatement, Whether due to fraud or error. Auditors? Responsibility Our responsibility is to express an opinion on these consolidated ?nancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated ?nancial statements are free from material misstatement. An audit invoives performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated ?nancial statements. The procedures selected depend on the auditors? judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. in making those risk assessments, the auditor considers internal control relevant to the entity?s preparation and fair presentation of the consolidated ?nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity?s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonabieness of signi?cant estimates made by management, as weli as evaluating the overall presentation of the consolidated ?nancial statements. We believe that the audit evidence we have obtained is suf?cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated ?nancial statements referred to above present fairly, in all material respects, the ?nancial position of the Baltimore Orchestra, Inc. and Af?liates as of August 3 i, 2018 and 2017, and the changes in their net assets and their cash ?ows for the years then ended in accordance with accounting principles generally accepted in the United States of America. - in (Tail Fm '__snn-saa_-anaa g: 'ii??tdsd?mme?sl? lids-a ii i I I Substantial Doubt about the Ability to Continue as a Going Concern The accompanying consolidated ?nancial statements have been prepared assuming that the will continue as a going concern. As discussed in Note 2 to the consolidated ?nancial statements, the has experienced, and continues to experience, signi?cant decreases in unrestricted net assets. These conditions raise substantial doubt regarding the ability to continue as a going concern. Management?s evaluation of these conditions and plans regarding these matters are also described in Note 2. The consolidated ?nancial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modi?ed with respect to this matter. ?g {a g; {giants gagza, 157%: July 15, 2019 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Consolidated Statements of Financial Position (In Thousands) As ofAugust 31, 2018 201 7 Assets Cash and cash equivalents - 1,878 1,111 Promises to give, net 6,097 5,629 Prepaid expenses and other assets 3,473 3,235 Investments 72,594 72,041 Property and equipment, net 22,276 22,756 Total Assets 106,318 104,772 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses 5,027 4,133 Annuities payabie 100 63 Deferred revenue 5,607 5,659 Accrued pension cost 6,631 6,461 Long-term debt 7,774 8,450 Interest rate swap agreement 34 236 Total Liabilities 25,223 25,002 Commitments (Notes 11 and 12) Net Assets (De?cit) Unrestricted (1,419) (140) Temporarily restricted 5,4 12 5 ,205 Permanently restricted 77,102 74,705 Total Net Assets 81,095 79,770 Total Liabilities and Net Assets 106,318 104,772 he accompanying notes are an integral part of these consolidated ?nancial statements. BALTIMORE ORCHESTRA, INC. AND AFFILIATES Consolidated Statement of Activities (In Thousands) For the Year Ended August 31, 2018 (With Comparative Totais for 2017) Temporarily Permanently Total Totai Unrestricted Restricted Restricted 2018 2017 Operating Revenue Concert income 3 8,897 - - 8,897 7,936 Hail income 491 491 485 Other operating income 1,505 - 1,505 1,533 Total Operating Revenue 10,893 - 10,893 9,954 Public and Private Support Grants for service 4,324 - - 4,324 3,412 Contributions 7,138 2,017 1,928 11,083 10,233 Special events 799 - - 799 829 Investment income 4,606 782 469 5,857 8,048 Total Public and Private Support 16,867 2,799 2,397 22,063 22,522 Net Assets Released from Restrictions 2,592 (2,592) - - - Total Revenue 30,352 207 2,397 32,956 32,476 Operating Expenses Concert activities: Artistic personnel 15,176 - 15,176 15,176 Production and operating 9,403 - 9,403 8,879 General and administrative 2,508 - 2,508 2,127 Marketing and public relations 3,173 - 3,173 3,312 Development 1,378 - 1,378 1,842 Total Operating Expenses 31,638 - 31,638 31,336 Change in Net Assets from Operations before Non Operating Expenses (1,286) 207 2,397 1,318 1,140 Non Operating Income (Expenses) Interest expense (261) - (261) (224) Pension related changes including non-cash pension cost 116 116 1,327 Gain on interest rate swap 152 - 152 147 Total Non Operating Expenses, net 7 - - 7 1,250 Change in Net Assets (De?cit) (1,279) 207 2,3 97 1,325 2,390 Net Assets, beginning of year (140) 5,205 74,705 79,770 77,380 Net Assets, end ofyear (1,419) 3 5,412 77,102 81,095 3 79,770 The accompanying notes are an integral part of these consolidated ?nancial statements. BALTIMORE ORCHESTRA, INC. AND AFFILIATES Consolidated Statement of Activities (In Thousands) For the Year Ended August 31, 2017 Temporarily Permanently Total Unrestricted Restricted Restricted 20 ?7 Operating Revenue Concert income 7,936 - - 7,936 Hall income 485 - - 485 Other operating income 1,533 - 1,533 Total Operating Revenue 9,954 - - 9,954 Public and Private Support Grants for service 3,412 - 3,412 Contributions 7,317 1,496 1,420 10,233 Special events 829 - - 829 Investment income 6,203 1,333 512 8,048 Total Public and Private Support 17,761 2,829 1,932 22,522 Net Assets Released from Restrictions 2,847 (2,847) - Total Revenue 30,562 (18) 1,932 32,476 Operating Expenses Concert activities: Artistic personnel 15,176 - 15,176 Production and operating 8,879 - 8,879 General and administrative 2,127 - - 2,127 Marketing and public relations 3,312 - - 3,312 Development 1,842 - - 1,842 Total Operating Expenses 31,336 - - 31,336 Change in Net Assets from Operations before Non Operating Expenses (774) (18) 1,932 1,140 Non Operating Income (Expenses) - Interest expense (224) - (224) Pension related changes including non-cash pension cost 1,3 27 - 1,327 Gain on interest rate swap 147 - - 147 Total Non Operating Expenses, net 1,250 - 1,250 Change in Net Assets (De?cit) 476 (l 8) 1,932 2,390 Net Assets, beginning of year (616) 5,223 72,773 77,380 Net Assets, end of year (140) 5,205 74,705 79,770 he accompanying notes are an integral part of these consolidated ?nancial statements. BALTIMORE ORCHESTRA, INC. AND AFFILIATES Consolidated Statements of Cash Flows (In Thousands) For the years ended August 31, 2018 201 7 Cash Flows from Operating Activities Change in net assets 3% 1,325 2,390 Adjustments to reconcile changes in net assets to net cash and cash equivalents used in Operating activities: Depreciation and amortization 1,443 1,435 Net realized and unrealized gains on investments (4,561) (6,799) Change in fair value of interest rate swap agreement (152) (147) Change in discount on promises to give (180) 364 Provision for (recovely of) uncollectible promises to give 23 (51) Contributions restricted for endowment (1,5 73) (3,640) Changes in assets and liabilities: Promises to give (311) 1,968 Prepaids, other assets, and prepaid pension (23 8) 580 Accounts payable and accrued expenses 894 (161) Annuities payable 37 (11) Deferred revenue (52) (1,93 6) Accrued pension costs 170 (757) Cash and Cash Equivalents Used in Operating Activities (3,175) (6,765) Cash Flows from Investing Activities Proceeds from sale of investments 4i,703 47,763 Purchases of investments (3 7,695) (44,739) Purchases of property and equipment (963) (415) Cash and Cash Equivalents Provided by Investing Activities 3,045 2,609 Cash Fiows from Financing Activities Contributions restricted for endowment 1,573 3,640 Principal borrowings under long-term debt - 2,160 Principal payments on long-term debt (676) (2,624) Cash and Cash Equivalents Provided by Financing Activities 897 3,176 Net Increase (Decrease) in Cash and Cash Equivalents 767 (980) Cash and Cash Equivalents, beginning of year 1,111 2,091 Cash and Cash equivalents, end of year 1,878 1,111 Supplemental Cash Flow Information Cash paid for interest it 261 223 The accompanying notes are an integral part of these consolidated ?nancial Statements. BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of Business The Baltimore Orchestra, Inc. (the Orchestra or Baltimore is a non-pro?t organization whose purpose is to maintain a for the State of Maryiand, present musical concerts and develop a widespread appreciation of ?ne music. On March 28, 2006, the Baltimore Endowment Trust (the Endowment Trust) was formed to protect and hold the permanently restricted endowment funds which had historicaily been contributed to the Baltimore Orchestra, Inc. as a permanent endowment, together with the Joseph Meyerhoff Hall and Cathedral Parking, Inc. The Endowment Trust was formed and instructed to dedicate the funds for such purposes, and subject to such restrictions, as are consistent with the original donor intent. The Board of Trustees of the Endowment Trust consists of nine trustees, three of whom serve by Virtue of their positions with the Baltimore (the Chairman of the Board, the President and the Chairman of the Budget and Finance Committee). The remaining six trustees, which constitute the majority, are appointed to staggered terms by the Baltimore Board and may not be officers, directors or employees of the Baltimore Furthermore, to ensure that the appointed trustees act with the appropriate levei of independence, once appointed they may not be removed except by a supermajority vote of the Baitimore Board. While the Endowment Trust is a separate legal entity with a Board of Trustees that is separate from the Orchestra?s Board of Directors, the ?nancial statements of the two organizations are consolidated in accordance with Accounting Standards Codi?cation 810, Consolidation (ASC 810) and Codi?cation 95 8-8 10, Noi- for-Pro?t Entities: Consolidation (ASC 958?810). On May 31, 2006, in conjunction with the establishment of the Endowment Trust, the Baltimore transferred a portion of its investment portfolio, the Joseph Meyerhoff Hall, other property and equipment and promises to give to the Endowment Trust. Cathedral Parking, Inc. (Cathedral Parking) owns and operates a parking garage adjacent to the Joseph Meyerhoff Hall. Collectively, the three organizations are referred to as the Organization or Basis of Accounting The accompanying consolidated financial statements are presented in accordance with the accrual basis of accounting, whereby revenue is recognized when earned and expenses are recognized when incurred. BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont?d. Basis of Presentation The consolidated ?nancial statement presentation follows the recommendations of the ASC 95 8-205, Not-for-Pro?t Entities: Presentation of Financial Statements (ASC 95 8w205). Under ASC 95 8-205, the is required to report information regarding its ?nancial position and activities according to three classes of net assets: unrestricted net assets, temporarily restricted net assets and permanentiy restricted net assets. Unrestricted net assets are the net assets that are neither permanently restricted nor temporarily restricted by donor-imposed stipulations. Temporarily restricted net assets result from contributions whose use is limited by donor?imposed stipulations that either expire by the passage of time or can be ful?lled and removed by actions of the pursuant to those stipulations. Net assets may be temporarily restricted for various purposes, such as use in future periods or use for Speci?ed purposes. Permanently restricted net assets result from contributions whose use is limited by donor?imposed stipulations that neither expire by passage of time nor can be ful?lled or otherwise removed by the actions. Revenues are reported as increases in unrestricted net assets unless the use of the related asset is limited by donor-imposed restrictions or by law. Expenses are reported as decreases in unrestricted net assets. Gains and losses on investments are reported as increases or decreases in unrestricted net assets, unless their use is restricted by explicit donor stipulations or by law. Expirations of temporary restrictions recognized on net assets, such as the ful?llment of donor?stipulated purpose and/or the passage of stipulated time period, are reported as reclassi?cations from temporarily restricted net assets to unrestricted net assets. Temporary restrictions on gifts to acquire long-lived assets are considered met in the period in which assets are acquired or placed in service. Principles of Consolidation The consolidated ?nancial statements include the accounts of the Orchestra, the Endowment Trust and Cathedral Parking. All intercompany activity has been eliminated in the consolidation. Cash and Cash Equivalents Cash equivalents consist primarily of bank overnight investment funds. Cash and cash equivalents include $324,000 and $339,000 that is restricted for the payment of unemployment claims as of August 3 i, 2018 and 2017, respectively. BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont?d. Receivables Receivables are carried at original invoice amount less an estimate made for doubtful receivables based on a review of ail outstanding amounts on a basis. Management determines the allowance for doubtful accounts by identifying troubled accounts and by using historical experience applied to an aging of accounts. Receivables are written off when deemed uncoilectible. Recoveries of receivables previously written off are recorded when received. No allowance has been recorded for the years ended August 31, 2018 and 2017 as management believes all receivables are collectible. Receivables, which totaled $804,000 and $732,000 as of August 31, 2018 and 2017, respectively, are included in prepaid expenses and other assets on the consolidated statements of financial position. Contributions and Promises to Give Contributions are recognized when the donor makes a promise to give to the that is, in substance, unconditional. Contributions that are restricted by the donor are reported as increases in unrestricted net assets if the restrictions expire in the ?scal year in which the contributions are recognized. All other donor?restricted contributions are reported as increases in temporarily or permanently restricted net assets depending on the nature of the restrictions. When a restriction expires, temporarily restricted net assets are reciassi?ed to unrestricted net assets. In accordance with ASC 958?605, Not-for-Pro?z? Entities: Revenue Recognition (ASC 958-605), promises to give in a future accounting period are discounted to their net present value at the time the revenue is recorded. The promises to give are discounted at a rate of 5% as of August 3 1, 2018 and 20i7. The uses the allowance method to determine uncoliectibie promises to give. The allowance is based on historical collection experience and management?s analysis of speci?c promises to give. Investments Investments are stated at fair value. For investment purposes, securities of endowment net assets are commingled. The Investment Committee, with general guidelines from the Board of Directors, has full discretionary authority for the purchase and sale of securities. Realized and unrealized gains or losses incurred on securities are charged or credited to current operations and are recorded in the consolidated statements of activities. BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont?d. Investment Risks and Uncertainties The invests in a professionally managed portfolio that contains shares of common stocks and bonds of publicly traded companies, US. Government obligations, mutual funds, money market funds, and alternative investments. Such investments are exposed to risks such as interest rate, market and credit. Due to the level of risk associated with such investments and the level of uncertainty related to changes in the value of such investments, it is at least reasonably possible that changes in risks in the near term would materially affect investment balances and the amounts reported in the consolidated ?nancial statements. Gift Annuities The operates a charitable gift annuity agreement program, whereby donors contribute a speci?c sum of money to the program in exchange for speci?ed payments to be made to a designated bene?ciary. Upon death of the beneficiary, the amount of the original gift reverts to the and can be released for general operations. An actuarially determined present value of expected future annuity payments is recorded as a liability. This amount is discounted at an expected rate of return over the remaining expected life of the bene?ciary. The excess of the gift amount over the liability is recorded as revenue by the Each subsequent year, the records revenue for the passing of the year, as the liability is incrementally decreased. The liability for these trusts is included in annuities payable on the consolidated statements of financial position. Property and Equipment Property and equipment are stated at cost, if purchased, or at fair value at date of gift, if donated. Additions or improvements that substantially increase the value of the assets are capitalized. The capitalizes property and equipment additions and improvements in excess of $1,000. The costs of maintenance and repairs are charged to operations as incurred. Depreciation is provided on the straight-line method based on the assets' estimated useful lives (50 years for buildings and building improvements and 3 to 10 years for equipment and furnishings). Interest Rate Swap Agreement The has entered into an interest rate swap agreement to protect against interest rate risks associated with certain variable rate debt (see Note 7). The fair value of the swap agreement is recorded in the consolidated statements of ?nancial position while the gain or loss resulting from the change in the fair value of the agreement is recorded in the consolidated statements of activities as a component of non-operating income or expense. It is management?s intention to hold the swap agreement until maturity, at which time the fair value will be zero and all previously recorded gains or losses will have been reversed. 10 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont?d. Valuation of Long-Lived Assets The accounts for the vaiuation of long-lived assets under ASC 360, Property, Plant and Equipment (ASC 360). ASC 360 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of the long-iived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash ?ows expected to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets. Assets to be disposed are reportable at the lower of the carrying amount or fair value, less costs to sell. As of August 31, 2018 and 2017, management does not believe any long?lived assets are impaired and has not identi?ed any assets as being held for disposal. Revenue Recognition Amounts received from ticket sales and Joseph Meyerhoff Hall rentals are recognized as revenue in the year service is provided. Amounts received in advance are reported as deferred revenue. Grant revenue is recognized in the year in which the stipulations of the grants are ful?lled. Amounts received from parking ticket sates for Cathedral Parking are recognized as revenue in the year the service is provided. Amounts received in advance are reported as deferred revenue. Fundraising Expenses Total fundraising expenses, which are included in development expenses on the consolidated statements of activities, totaled approximateiy $731,000 and $749,000 during the years ended August 31, 2018 and 2017, respectively. Income Taxes The Orchestra and the Endowment Trust are generaiiy exempt from Federal income taxes under the provisions of Section 501(c)(3) of the internal Revenue Code. In addition, the Orchestra and the Endowment Trust qualify for charitable contribution deductions under Section l70(b)(l)(A) and have been classified as organizations that are not private foundations under Section 509(a)(1). The Endowment Trust is a Type I supporting organization under Section income that is not related to exempt purposes, less applicable deductions, is subject to Federal and state corporate income taxes. The Orchestra and the Endowment Trust had no net unrelated business income for the years ended August 31, 2018 and 2017. ll BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont?d. Income Taxes cont?d. Cathedral Parking is a taxable entity subject to Federal and state income taxes and accounts for income taxes in accordance with ASC 740, Income Taxes (ASC 740). ASC 740 requires the recognition of deferred tax assets and liabilities for the expected future consequences of events that have been recognized in the consolidated ?nancial statements or tax returns. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss can?yforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more?likely?than not that some portion or all of the deferred tax assets wiil not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. No taxes were payable during the years ended August 31, 2018 and 2017 as a result of a net operating loss. The tax net operating loss carryforward at August 3 1, 2018 approximates $1,753,000. This amount is available to offset future taxable income, and is in excess of the book loss carryforward due to additional depreciation expense for tax purposes. These carryforwards will expire beginning in 2019 and ending in 2028. During the years ended August 31, 2018 and 2017, Cathedral Parking, Inc. recorded a valuation allowance of approximately $368,000 and $537,000, respectively, on the deferred tax assets to reduce the total net deferred tax asset to zero for both 2018 and 2017. Realization of deferred tax assets is dependent upon suf?cient future taxable income during the period that deductible temporary differences and carryforwards are expected to be available to reduce taxable income. The U.S. Federal tax rate was reduced from 34% to 21% effective January 1, 2018 thereby reducing the amount of the deferred tax asset and related valuation allowance. ASC 740 prescribes a recognition threshold and a measurement attribute for the consolidated financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return as well as guidance on de-recognitiou, classi?cation, interest and penalties and consolidated ?nancial statement reporting disclosures. For these benefits to be recognized, a tax position must be more-likely- than not to be sustained upon examination by taxing authorities. The amount recognized is measured as the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The continues to remain subject to examination by U.S. Federal authorities; however, there are currently no audits in progress. The recognizes interest and penalties accrued on any unrecognized tax exposure as a component of income tax expense. The does not have any amounts accrued relating to interest and penalties as of August 31, 2018 and 2017. 12 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont?d. Deferred Financing Costs In April 2015, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2015?03, Simplz?zing the Presentation of Debt Issuance Costs. This update requires that debt issuance costs be presented in the statement of ?nancial position as a reduction from the related debt liability rather than as an asset, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. ASU 2015-03 is effective for annual reporting periods beginning after December 15, 2015. The Endowment Trust adopted the provisions of this ASU during the year ended August 3 i 2017. As a result of the adoption of ASU 2015?03, long-term debt on the accompanying consolidated statements of ?nancial position has been reduced by net deferred ?nancing costs totaling $2,562 and $2,812 as of August 3 1, 2018 and 2017, respectively. The adoption of this ASU had no impact on the consolidated statements of activities or cash ?ows. Deferred ?nancing costs included the costs incurred in conjunction with the bond issuance (Note 7). These charges are being amortized over the life of the bonds (20 years) using the straight-line method. Accounting principles generally accepted in the United States of America require that the effective interest method be used to amortize ?nancing costs; however, the effect of using the straight~line method is not materially different from the results that would have been obtained under the effective interest method. Amortization expense for each of the years ended August 31, 2018 and 2017 was $250. Accumulated amortization as of August 3 i, 2018 and 2017 totaled $2,438 and $2,188, respectively. Credit Risk Accounts are guaranteed by the Federai Deposit Insurance Corporation (FDIC) up to $250,000 per depositor. At various times during the years ended August 3i, 2018 and 2017, the held amounts on deposit at various ?nancial institutions in excess of the maximum amount insured by the FDIC. The has not experienced any losses and believes it is not exposed to any signi?cant credit risk with respect to its cash. 13 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont?d. Advertising The expenses advertising costs when incurred. During the years ended August 31, 2018 and 2017, advertising expense, which is included in marketing and public relations on the consolidated statements of activities, totaled approximately $703,000 and $746,000, respectively. Recently Issued Accounting Pronouncements and Accounting Changes in May 2015, the FASB issued ASU 2015-07, Fair Value Measurement (Topic 820) Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or its Equivalent). ASU 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. ASU 2015?07 also removes certain disclosure requirements for investments that calculate net asset value per share and do not use the practical expedient. ASU 2015-07 is effective for interim and annual reporting periods in ?scal years beginning after December 15, 2016, with early adoption permitted, and should be retrospectively applied to all periods presented. Management has adopted ASU 2015-07 and as such has removed investments that calculate the net asset value per share practical expedient from the fair value hierarchy. In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which will be effective for fiscal years beginning after December 15, 2019. The distinction between ?nance leases (previously capital leases) and operating leases is substantially similar to the distinction between capital leases and operating leases in the previous leases guidance. Lessor accounting is also largely unchanged. For lessees, leases under both categories will be reported on the statement of ?nancial position as a depreciable right?to?use asset and a liability to make lease payments. The asset and liability should be initially measured at the present value of the lease payments, including payments to be made in optional periods only if the lessee is reasonably certain to exercise an option to extend the lease or not to exercise an option to terminate the lease. The asset will be depreciated and the liability will be reduced by lease payments. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election not to recognize lease assets and liabilities. Management has elected not to early adopt ASU 2016?02 and will assess the future impact on any leases. 14 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont?d. Recently Issued Accounting Pronouncements and Accounting Changes cont?d. In August 2016, the FASB issued ASU 2016-44, Not-for-Pro?t Entities (T opic 958): Presentation of Financial Statements for Notfor?Pro?t Entities which is effective for fiscal years beginning after December 15, 2017. The primary impacts of ASU 2016?14 are as follows: a) Net Asset Classi?cation: The three categories of net assets will be condensed to two categories: Without Donor Restrictions and With Donor Restrictions. Not?for-pro?ts may choose to disaggregate net assets further within the two categories. b) Board-Designated Net Assets: Notufor?profits wili need to disciose the amount, purpose, and type of board designations either on the face of the ?nancials or in the notes to the ?nancial statements. Board?designated net assets remain a subgroup of net assets without donor restrictions. c) Underwater Endowment Assets: Although the underwater calculation remains unchanged, instead of classifying the underwater portion against unrestricted net assets, it will go against the Net Assets With Donor Restrictions. There are also certain additional disclosures such as any board policy or actions taken regarding appropriation from such funds. d) Cash Flow Statement: Not?fornpro?ts will still have the option of presenting operating cash ?ows using the direct method or the indirect method. If the direct method is chosen, the indirect reconciliation is not required. 6) Expenses: Expenses Wili be required to be presented both by function and by nature, but it is ?exible as to how (in statement form vs. in the footnotes). A qualitative disciosure about how costs are allocated by function will also be required. External and internal direct investment expenses will be netted against investment return on the statement of activities. Disclosure of investment return components no longer be required. t) Liquidity and Availability: The ASU will require (1) quantitative disclosure about availability of financial assets to meet cash needs for general expenditures within one year of the statement of ?nancial position date, and (2) qualitative disclosure about liquidity, presented in the notes, including information about liquidity risk and how the liquid available resources are managed. Management has elected not to early adopt ASU 2016-14 but will assess the impact on future ?nancial statements. 15 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - eont?d. Fair Value Measurement ASC 820-10, Fair Value Measurements and Disclosures (ASC 820?10), 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 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy under ASC 820-10 are described below: Level 1 Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the has the ability to access. Level 2 Inputs to the valuation methodology include: 0 Quoted prices for similar assets or liabilities in active markets; 0 Quoted prices for identical or similar assets or liabilities in inactive markets; 0 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 speci?ed (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3 Inputs to the valuation methodology are unobservable and signi?cant to the fair value measurement. The asset?s or liability?s fair value measurement level within the fair value hierarchy is based upon the lowest level of any input that is signi?cant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. There have been no changes in the methodologies used at August 3 l, 2018 and 2017. The following is a description of the valuation methodologies used for assets measured at fair value: Cash and cash equivalents: Consisted primarily of money market funds, which are valued using quoted market values in an active market. Mutual funds: Valued at the closing price reported in the active market on which the funds are traded. Fixed income securities: Valued based upon sales of identical or similar assets in active markets. Common stock: Valued at the closing price reported on the active market on which the individuai securities are traded. All common stock held by the is traded in active markets to which the has access. 16 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont?d. Fair Value Measurement - cont?d. Interest rate swap agreement: Valued using pricing models developed based on the swap rate and other observable market data. The value is adjusted to re?ect nonperformance risk of both the counterparty and the The methods described above may produce a fair value calculation that is not indicative of net realizable value or re?ective of future fair values. Furthermore, while the 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 instruments could result in a different fair value measurement at the reporting date. The following table approximates by level, within the fair value hierarchy, the assets and liabilities at fair value as of August 31, 2018: Level I Level 2 Level 3 Total Cash and cash equivalents 2,961,000 - - 2,961,000 Mutual funds 38,610,000 - - 38,610,000 Fixed income securities - 5,907,000 - 5,907,000 Common stock 13,358,000 - 13,358,000 Interest rate swap agreement - (84,000) - (84,000) Total assets and liabilities measured at fair value 54,929,000 5,823,000 35 60,752,000 Fund of Funds* n/a n/a n/a 3,660,000 Limited partnership interests* n/a n/a n/a 1,450,000 Limited liability company lnterests* n/a n/a n/a 205,000 Limited interests* n/a n/a n/a 6,443,000 Total 54,929,000 5,823,000 - 3 72,510,000 l7 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIFTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - cont?d. Fair Value Measurement - eont?d. The following table approximates by level, within the fair value hierarchy, the assets and liabilities at fair value as of August 3 l, 20l7: Level 1 Level 2 Level 3 Total Cash and cash equivalents 6,161,000 - 6,161,000 Mutual funds 37,3 72,000 - 37,372,000 Fixed income securities 6,146,000 6,146,000 Common stock 12,934,000 - 12,934,000 Interest rate swap agreement - (236,000) (236,000) fair value 56,467,000 5,910,000 - 62,377,000 Fund of Funds* n/a n/a n/a 33 1,299,000 Limited partnership interests* n/a n/a n/a 1,631,000 Limited liability company interests* n/a n/a n/a 245,000 Limited interests* n/a n/a n/a 6,253,000 Total 56,467,000 5,910,000 - 71,805,000 In accordance with ASC 820?10, certain investments that were measured at net asset value per share (or its equivalent) using the practical expedient have not been classi?ed in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the consolidated statements of financial position. The invests in certain entities for which the net asset value per share, or its equivalent, has been used to estimate fair value. The table below summarized these investments as well as the strategies, redemptions, and unfunded commitments related to such investments at August 31, 2018: Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Alternative Investments: Fund of Funds 3,660,000 Upon liquidation Limited partnership interests 1,450,000 50,000 Limited liability company interests 205,000 58,000 Limited interests 6,443,000 - Upon liquidation 18 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont?d. Fair Value Measurement cont?d. The table below summarized these investments as weli as the strategies, redemptions, and unfunded commitments related to such investments at August 31, 2017: Unfunded Redemption Redemption Fair Value Commitments Frequency Notice Alternative Investments: Fund of Funds 1,299,000 - Upon liquidation Limited partnership interests 1,631,000 - Upon liquidation Limited liability company interests 245,000 58,000 Upon liquidation Limited interests 6,253,000 - Upon liquidation This category includes investments in fund of funds that invest primarily in private equity funds. These investments can only be redeemed through the liquidation of the underlying assets of the funds. This category includes limited partnerships that invest in venture capitai and corporate ?nance funds. These partnerships are scheduled to terminate on the tenth anniversary of their final ciosing date. Distributions are made to investors through the liquidation of the underlying assets. This category includes limited liability companies that invest in venture capital and private equity funds. These funds are scheduled to terminate in January 2017 and June 2019. Distributions are made to investors through the liquidation of the underlying assets. This category includes limited interests that invest in other corporations and investment vehicles, as well as indirectly through segregated portfolio companies or investment funds. Distributions are made to investors through the liquidation of the underlying assets. Use of Estimates The preparation of consolidated 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 disclosure of contingent assets and iiabilities at the date of the consolidated financial statements and the reported amounts of additions to net assets and deductions from net assets during the reporting period. Actual results could differ from those estimates. l9 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES cont?d. Reclassi?cation Certain amounts presented in the prior year?s consolidated ?nancial statements have been reclassi?ed to conform to the current year presentation. The reclassi?cation had no effect on previously reported change in net assets or net assets. Subsequent Events The evaluated for disclosure any subsequent events through July 15, 2019, the date the consolidated ?nancial statements were available to be issued and determined that there were no material events that require disclosure, except as disclosed in Note 14. FINANCIAL CONDITION As noted in the accompanying consolidated ?nancial statements, the incurred decreases in unrestricted net assets before non?operating expenses of $1,286,000 and $774,000 during the years ended August 31, 2018 and 2017, respectively. During the year ended August 31, 2017, management began the implementation of a transformation plan to stabilize the operations. The implementation of the transformation plan, together with improvements in controls and processes, resulted in a signi?cant improvement in the operating results of the during the years ended August 31, 2018 and 2017. Management also began a long-term strategic and ?nancial planning process during the year ended August 31, 2017 resulting in a strategic plan being adopted by the Board of Directors in June 2018. It is anticipated that the plan will be updated after agreement is reached on a new labor agreement. Although the ?nancial results for the years ended August 31, 2018 and 2017 have improved signi?cantly versus the loss incurred during the year ended August 31, 2016, the has experienced, and continues to experience, de?cits. These factors raise substantial doubt regarding the ability to continue as a going concern. To help support efforts to develop and implement improvements to controls and processes to improve in the operating results of the there have been ongoing, intensive efforts to assess and improve the current ?nancial situation. The efforts to strengthen the business model include elements such as revenue composition, revenue predictability and reliability, expense composition, and surplus size and reliability. Growing audiences, sustaining a thriving annual fund, and slowing the growth rate of expenses are components of the efforts to address longstanding ?nancial challenges while maintaining a robust schedule of classical and pops concerts, education programming, holiday concerts and special events. Management will continue to engage the necessary resources to help the BSO move toward a sustainable model that will help the B80 further its trajectory of artistic excellence, accessibility and community impact throughout the region. 20 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 2. FINANCIAL CONDITION - cont?d. Subsequent to year-end, the Maryland House of Delegates signed the ?John C. Merrill Act? (the Act), which provides for an additional $3.2 million of state support over the next two years. However, it has been confirmed that the funds for the State? 3 2020 budget will not be released and it is uncertain whether the funds for the 2021 budget will be made available or, if the funds expected to be received under the Act will meet the current cash needs of the Management proposed a revised collective bargaining agreement with the orchestra musicians that includes a reduced season of 40 weeks. Although the agreement is currently under negotiation with the musicians? union, a lookout went into effect on June 17, 2019. The Orchestra intends to open its 2019~20 season in September 2019 and plans to resume its schedule of rehearsal and performances beginning the week of Monday, September 9, 2019. Work will be provided for musicians beginning on that date, although musicians may choose not to return to work and strike. Management has evaluated cash ?ow and has contingency plans in place in the event of a prolonged work stoppage. Subsequent to year-?end, the Endowment Trust has approved an increase in the loan agreement from $5,000,000 to $7,300,000 and agreed to defer repayments of principal and interest until such time as cash ?ow improves, and at least until September 1, 2020. The increased line was approved to support the Orchestra in the restructuring of the season and to support BSO performances through June 16, 2019. Management believes that the restructuring of the season the will improve its operating results. However, there is no assurance that the Orchestra will be able to generate sufficient resources to fund its future operations. 3. INVESTMENTS The approximate cost and fair value of investments are as follows at August 31,: 2018 2017 Fair Fair Cost Value Cost Value Cash and cash equivalents 2,961,000 2,961,000 6,161,000 6,161,000 Mutual funds 3 5,276,000 3 8,610,000 33,942,000 37,3 72,000 Fixed income securities 6,034,000 5,907,000 6,100,000 6,146,000 Common stock 7,280,000 13,358,000 7,312,000 12,934,000 Alternative investments 11,250,000 11,758,000 9,175,000 9,428,000 Total investments 62,801,000 72,594,000 62,690,000 72,041,000 Investment management fees for the years ended August 31, 2018 and 2017 totaled approximately $212,000 and $200,000, respectively, and are included in investment income on the consolidated statements of activities. 21 3. BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 INVESTMENTS cont?d. Earnings (losses) on investments are as follows for the years ended August 31: 2018 2017 Net realized gain on sale of investments 8 4,119,000 4,976,000 Interest and dividends, net of fees 1,377,000 1,276,000 Net unrealized appreciation of investments 441,000 1,817,000 Total Earnings on Investments 5,93 7,000 8,069,000 ASC 958?205, Notwfoerro?t Entities.? Presentation of Financial Statements (ASC 958-205), establishes a framework on the net asset classi?cation of donor-restricted endowment funds for any not?for-pro?t organization that is subject to a state enacted version of the Uniform Prudent Management of Institutional Funds Act of 2006 (UPMIFA). ASC 958-205 requires expanded disclosures for all endowment funds. In the event the receives donor-restricted endowment funds, determination of the net asset classi?cation for the corpus and return on investments is based on the donor?s intentions. The has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding while seeking to maintain the purchasing power of the endowment assets. Under this policy, as approved by the Board of Trustees, the endowment assets are invested in a manner that is intended to produce results that provide an average rate of return of approximately eight percent annually. The current spending policy is to draw a fixed percentage of the average market value of the Endowment, calculated over the trailing twelve quarters. The draw is calculated on an annual basis, with the resulting draw amount to be applied over the next twelve months. The trustees are authorized to provide annual support in an amount up to a maximum of six percent Historically, however, the practice has been to distribute between ?ve and six percent annually. 22 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 3. INVESTMENTS cont?d. Changes in Endowed Net Assets are as follows for the year ended August 31, 2018 (in thousands): Temporariiy Permanently Unrestricted Restricted Restricted TotaE Endowment Net Assets (De?cit), September 1, 2017 (425) 2,498 70,027 72,100 Interest dividends, net of fees 1,369 8 - 1,3 77 Net appreciation 3,317 774 469 4,560 Draw (3,838) - (3,838) Contributions 3 7 1,673 1,710 Amounts appropriated for expenditure (2,571) (692) (3,263) Endowment Net Assets (De?cit), August 31, 2018 (2,111) 2,588 72,169 72,646 Composition of Endowed Net Assets by Fund Type is as follows as of August 31, 2018 (in thousands): Temporarily Permanently Unrestricted Restricted Restricted Total Donor Designated Endowment Funds 8 - 2,588 72,169 74,757 Board Designated Endowment Funds (2,1 l) - (2,1 11) Total Endowment Funds (2,111) 2,588 72,169 72,646 23 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 3. INVESTMENTS cont?d. Changes in Endowed Net Assets are as follows for the year ended August 31, 2017 (in thousands): Temporarily Permanently Unrestricted Restricted Restricted Total Endowment Net Assets, September 1, 2016 367 1,834 65,875 68,076 Interest dividends, net of fees 1,263 7 - 1,270 Net appreciation 4,961 1,326 512 6,799 Draw (3,575) - (3,575) Contributions 52 3,640 3,692 Amounts appropriated for expenditure (3,493) (669) - (4,162) Endowment Net Assets (De?cit), August 31, 2017 (425) 2,498 70,027 72,100 Composition of Endowed Net Assets by Fund Type is as follows as of August 3 1 2017 (in thousands): Temporarily Permanently Unrestricted Restricted Restricted Total Donor Designated Endowment Funds 55 - 2,498 70,027 72,525 Board Designated Endowment Funds (425) - (425) Total Endowment Funds 8 (425) 2,498 70,027 72,100 24 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 GIFT ANNUITY TRUSTS The receives gifts in the form of trusts and is required to pay bene?ts to bene?ciaries as speci?ed in the gift annuity agreement. Under these agreements, the pays a ?xed annuity amount for the life of the bene?ciaries and ful?lls its obligation upon the death of the bene?ciaries as set forth in the annuity agreements. As of August 31, 2018 and 2017, the liability associated with the remaining bene?t payments, recorded in annuities payable, totaled approximately $100,000 and $63,000, respectively. As of August 31, 2018 and 2017, the gift annuity payable was fully backed by investments totaling $195,000 and $137,000, respectively. The gift annuity liability was calculated using a discount rate of 3.25% applied to future bene?t payments and is included in annuities payable on the accompanying consolidated statements of ?nancial position. UN CONDITIONAL PROMISES TO GIVE As of August 31, 2018 and 2017, contributors to the fundraising campaign have made written unconditional promises to give totaling approximately $6,721,000 and $6,210,000, respectively, on which management has recorded a present value discount of approximately $217,000 and $397,000, respectively. Management has recorded an allowance for doubtful promises to give of approximately $207,000 and $184,000 as of August 3 1, 2018 and 2017, respectively. Promises to give are due as follows: 2018 2017 Trust Orchestra Trust Orchestra Less than one year 1,825,000 1,955,000 1,568,000 2,075,000 Years one through ?ve 2,003,000 738,000 2,128,000 439,000 Total 3,828,000 2,693,000 3,696,000 2,514,000 Allowance for doubtful accounts (105,000) (102,000) (94,000) (90,000) Present value discount (164,000) (53,000) (324,000) (73,000) Unconditional Promises to Give, net :3 3,559,000 2,538,000 3,278,000 2,351,000 PROPERTY AND EQUIPMENT Property and equipment is as follows as of August 3 2018 2017 Land 8 1,068,000 1,068,000 Buildings 44,442,000 43,776,000 Equipment and furnishings 6,838,000 6,541,000 52,348,000 51,385,000 Accumulated depreciation (3 0,072,000) (28,629,000) Property and Equipment, net 8 22,276,000 22,756,000 Depreciation expense totaled approximately $1,443,000 and $1,435,000 during the years ended August 3 l, 2018 and 2017, respectively. 25 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 7. LONG-TERM DEBT During 1999, the Baltimore City Off-Street Parking Commission amended and consolidated the ?rst and second mortgages of Cathedral Parking, Inc. into a single mortgage. Repayment terms consisted of semi-annuai principal payments of $5,000, plus interest. The entire indebtedness and all accrued interest and costs and charges due were paid in a balloon payment on April 15, 2017. Under the consolidated mortgage, interest accrued at 35% of the bank?s prime rate. The mortgage was collateralized by the land and garage. The outstanding principal balance as of August 31, 2017 totaled During the year ended August 31, 2017, the Endowment Trust obtained a $2,160,000 note from PNC Bank to re?nance the mortgage of Cathedral Parking, Inc. The note is fully secured by ?xed income securities of the Endowment Trust held at PNC Bank. The note matures on May 17, 2022 and bears interest at a weekly variable rate as determined by the remarketing agent. During the years ended August 31, 2018 and 2017, the rates ranged from 2.48% to 3.34% and from 2.25% to 2.48%, respectively. As of August 31, 2018 and 2017, the rate was 3.32% and 2.48%, respectively. The outstanding balance of the note payable as of August 31, 2018 and 2017 totaled $2,068,000 and $2,142,000, respectively. During February 2014, the Endowment Trust obtained a note from PNC Bank fully secured by ?xed income securities of the Endowment Trust held at PNC Bank. The amount of ?xed income securities pledged as collateral equals the outstanding principal plus the interest rate swap liability. The note proceeds re?nanced debt, which originally funded renovations to the Meyerhoff Hall. The note matures on February 1, 2024 and bears interest at a weekly variable rate as determined by the remarketing agent. During the years ended August 31, 2018 and 2017, the rates ranged from 2.23% to 3.09% and from 1.49% to 2.23%, respectively. As of August 31, 2018 and 2017, the rate was 3.08% and 2.23%, respectively. The outstanding balance of the note payable as of August 31, 2018 and 2017 totaled $3,119,000 and $3,351,000, respectively. During August 2015, the obtained a $3,700,000 loan through PNC Bank to increase the funding and reduce future minimum contributions of the musician?s pension plan liability (Note 9). The note matures on August 5, 2022 and bears interest at a rate per annum equal to the sum of LIBOR in effect on each Reset Date plus 100 basis points. The amount of mutual fund securities pledged as collateral equals the outstanding principal. As of August 31, 2018 and 2017, the rate was 3.09% and 2.22%, respectively. The outstanding balance of the note payable as of August 3 1, 2018 and 2017 totaled $2,590,000 and $2,960,000, respectively. 26 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 7. LONG-TERM DEBT - cont?d. Aggregate maturities required on long-term debt are as follows as of August 3 1, 2018: Years ending August 31,: 2019 3,564,000 2020 444,000 2021 444,000 2022 3,325,000 7,777,000 Less: net deferred ?nancing costs (3,000) Total long-term debt 7,774,000 To protect against the interest rate risk associated with the variable rate bonds issued during 2009 and repaid during 2014, the Endowment entered into an interest rate swap agreement with a ?nancial institution with an initial notional amount of $5,000,000 with a termination date of November 1, 2028. Under the agreement, the Endowment Trust pays a ?xed interest rate of 2.455% and receives variable interest rates based upon 71% of USD LIBOR BBA Bloomberg rates. The swap agreement was not terminated in conjunction with the full repayment of the bonds during 2014. As such, the Endowment Trust continues to pay a ?xed interest rate and receives variable interest rates per the agreement described above on the current outstanding notional amount. The outstanding notionaE amount as of August 31, 2018 and 2017 totaled $3,295,000 and $3,520,000, respectively. The aggregate fair value of the swap agreement at August 31, 2018 and 2017 was $(84,000) and respectively. During the years ended August 31, 2018 and 2017, the recognized gains of approximately $152,000 and $147,000, respectively. Interest expense on outstanding debt was approximately $261,000 and $246,000 for the years ended August 31, 2018 and 2017, respectively. 27 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 8. GRANTS Grants are as follows for the years ended August 31,: 2018 2017 State of Maryland Operating 2,907,000 2,041,000 Education 64,000 64,000 Baltimore City Operating 262,000 256,000 Counties Baltimore 680,000 680,000 Carroll - 1,000 Howard 47,000 35,000 Montgomery 364,000 335,000 Total Grants 33 4,324,000 3,412,000 9. EMPLOYEE BENEFIT PLANS De?ned Contribution Plan On April 17, 2008, the Orchestra established a contributory 403(b) Plan whereby employees upon commencement of service are eligible to make employee contributions and to receive contributions from the Orchestra. Eligible employees may elect to make pre-tax contributions to the 403(b) Plan subject to the annual maximum amount allowed by the Internal Revenue Code. Under the Plan, the Orchestra may make matching contributions not to exceed 4% of employee annual compensation. 403(b) Plan expense totaled $0 during the years ended August 31, 2018 and 2017. A participant becomes 100% vested in employer contributions after the completion of six years of service. 28 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 9. EMPLOYEE BENEFIT PLANS cont?d. Multi-Employer De?ned Contribution Plan In September 2000, the Orchestra members' pension plan was frozen. Concurrently, the began participating in the American Federation of Musicians and Employers' Pension Fund (the Fund). Contributions on behalf of each Orchestra member equal to 5% of minimum scale wages were made to the Fund during the years ended August 31, 2018 and 2017. The Fund covers every employee for whom the collective bargaining agreement requires contributions. Total contributions made by the Orchestra during each of the years ended August 31, 2018 and 20i7 were approximately $391,000 and $386,000, respectively. The Orchestra would incur signi?cant penalties upon withdrawal from the Fund. Noneontributory De?ned Bene?t Plans The has two noncontributory de?ned bene?t pension plans (the Pension Plans). The plan covering administrative personnel provides pension bene?ts that are based on the employee's compensation during ?ve consecutive years of the employee's last ten ?scal years before retirement and on the number of years of bene?t accrual service. Both plans provide for bene?ts that are based on the number of years of benefit accrual service. Pension plan funding is determined under the frozen entry age actuarial cost method in accordance with the Employee Retirement Income Security Act of 1974. As of August 31, 2018 and 2017, both plans were frozen, allowing no new participants to enter the plans. ASC 958-715, Not-?or?Pro?t Entities: Retirement Bene?ts (ASC 958-715), requires an employer to recognize the overfunded or underfunded status of a de?ned bene?t postretirement plan as an asset or iiability on the consolidated statement of ?nancial position and to recognize changes in that funded status in the year changes occur as a change in net assets in the consolidated statement of activities. Funded status is measured as the difference between plan assets at fair value and the projected bene?t obligation. ASC 958-715 also requires that plan assets and bene?t obligations be measured as of the date of the employer?s consolidated statement of ?nancial position. Previous guidance allowed the employer to measure the assets and obligations of the plan as of a date not more than three months prior to the consolidated statement of ?nanciai position. 29 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 9. EMPLOYEE BENEFIT PLANS cont?d. The funded status and amounts recognized on the accompanying consoiidated statements of ?nancial position and statements of activities relating to the Pension Plans, as of the measurement dates, are as follows: Orchestra Plan Administrative Plan August 31, August 31, 2018 20E7 20E8 2017 Change in bene?t obligation Bene?t obligation at beginning of year 23,565,000 24,160,000 3,032,000 3 3,107,000 Actuarial (gain)/loss 165,000 (268,000) 31,000 (105,000) Interest cost 844,000 834,000 113,000 105,000 Bene?ts paid (1,274,000) (93,000) (75,000) Bene?t Obligation at End of Year 23,300,000 23,565,000 3,083,000 3,032,000 Change in plan assets Fair value of plan assets at beginning of year 17,857,000 17,831,000 2,304,000 2,235,000 Actual return on plan assets 875,000 1,187,000 108,000 144,000 Bene?ts paid (1,274,000) (1,161,000) (93,000) (75,000) Fair Value of Plan Assets at End of Year 17,458,000 17,857,000 2,319,000 2,304,000 Accrued Pension Liability (5,842,000) (5,708,000) (764,000) (728,000) Accumuiated Bene?t Obligation 23,300,000 23,565,000 3,083,000 3,032,000 2018 2017 Change in accumulated losses included in unrestricted net assets related to a de?ned bene?t plan, not yet included in net periodic bene?t costs: Beginning ofyear 10,529,000 11,856,000 . Pension reiated activities other than net periodic pension cost (1 16,000) (1,327,000) End of year accumulated other comprehensive 1055 10,413,000 10,529,000 30 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 9. EMPLOYEE BENEFIT PLANS cont?d. Amounts inciuded in pension related changes including non-cash pension cost on the consolidated statement of activities consist of the following as of August 3 2018 2017 Pension related changes 170,000 (765,000) Net periodic pension expense (286,000) (562,000) Pension expense other than net periodic pension cost (116,000) (1,327,000) Assumptions Weighted average assumptions used to determine the net periodic pension cost and bene?t obligations are as follows: Orchestra Plan Administrative Pian 2018 2017 2018 2017 Bene?t obligation discount rate 4.00% 3.75% 4.00% 3.75% Net periodic pension cost discount rate 4.00% 3.75% 4.00% 3.75% Expected return on plan assets 7.50% 7.50% 7 .50% 7.50% Rate of increase in compensation levels The determines the long-term rate of return on Pension Plans? assets by taking into consideration the historical returns of various asset classes and the types of investments the Pension Plans are expected to hold. The chart below details ranges for the expected long-term returns for the asset classes in which the Pension Plans currently invest: Orchestra Plan Administrative Plan Asset Class 2018 2017 2018 2017 Equity Fixed income Cash cash equivalents 31 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 9. EMPLOYEE BENEFIT PLANS - cont?d. Plan Assets The Pension Plans? weighted?average asset allocations, by asset category, are as follows as of August 3 L: Orchestra Plan Administrative Plan Asset Class 2018 2017 2018 2017 Equity 56% 53% 62% 24% Fixed income 40% 40% 36% 28% Alternative Investments 0% 6% 0% 0% Guaranteed Fixed Fund 0% 0% 0% 48% Cash cash equivalents 4% 1% 2% 0% 100% 100% i00% 100% Assets of the Pension Plans are invested in a manner consistent with ?duciary standards of the Employee Retirement Income Security Act of 1974 namely, the safeguards and diversity to which a prudent investor would adhere must be present, and all transactions undertaken on behalf of the Pension Plans must be for the sole interest of Plan participants and bene?ciaries, to provide bene?ts in a prudent manner. Investment objectives of the Pension Plan also include: it Preserve the value of the Plans? assets Provide suf?cient liquidity to fund bene?t payments and meet the Plans? requirements Pian assets are valued at fair value in accordance with ASC 820 (Note 1). A description of the valuation methodclogies used for assets measured at fair value is listed below. 1 Interest bearing cash: Valued at cost plus accrued interest. Equity securities: Valued at the closing market price of shares held by the Plans at year-end. Shares are traded on an active market. Fixed income securities: Vaiued at the closing market price of shares held by the Plans at year-end. Shares are traded on an active market. Guaranteed ?xed fund: Empower Retirement (Empower) provides a guaranteed interest rate for a speci?ed period of time and invests the funds in a general account. Empower reports that fair value equals contract value. Contract value represents contributions and reinvested income, less any withdrawals, expenses and other changes. 32 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 9. EMPLOYEE BENEFIT PLANS cont?d. The following table sets forth by level, within the fair value hierarchy, the Orchestra Plan?s investments at fair value as of August 31, 2018: Level 1 Level 2 Level 3 Total Interest bearing cash 58 720,000 55 - 720,000 Interests in registered investment companies 9,848,000 - 9,848,000 US Government Securities 2,245,000 - 2,245,000 Corporate Debt 4,645,000 - 4,645,000 Total assets 33 17,458,000 - 17,458,000 Alternative investment* n/a n/a n/a - Total plan assets at fair value 17,458,000 - - 17,458,000 The following table sets forth by level, within the fair value hierarchy, the Orchestra Plan?s investments at fair value as of August 31, 2017: Level 1 Level 2 Level 3 Total Interest bearing cash 258,000 - 33 258,000 Interests in registered investment companies 9,41 1,000 - 9,411,000 US Govemment Securities 3,048,000 - 3,048,000 Corporate Debt 4,053,000 - 4,053,000 Total assets 13 16,770,000 16,770,000 Alternative investment* n/a n/a n/a 1,087,000 Total plan assets at fair value $16,770,000 I 99 I 17,857,000 In accordance with ASC 820?10, certain investments that were measured at net asset value per share (or its equivalent) using the practical expedient have not been classi?ed in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the tables above. 33 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 9. EMPLOYEE BENEFIT PLANS cont?d. The following table sets forth by level, within the fair value hierarchy, the Administrative Plan?s investments at fair value as of August 31, 2018: Level 1 level 2 Level 3 Total Interest bearing cash 54,000 .. - 54,000 Interests in registered investment companies: Equity 1,430,000 - 1,430,000 Fixed Income 835,000 - 835,000 Total plan assets at fair value 2,319,000 - - 2,319,000 The following table sets forth by level, within the fair value hierarchy, the Administrative Plan?s investments at fair value as of August 3 l, 2017: Level 1 Level 2 Levei 3 Total Guaranteed Fixed Fund - 1,098,000 31 53 1,098,000 Interests in registered investment companies: Equity 557,000 - 557,000 Fixed Income 649,000 - 649,000 Total plan assets at fair value 1,206,000 1,098,000 2,304,000 Contributions The does not expect to make a contribution to the Orchestra or Administrative plan during the year ending August 31, 2019. 34 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 9. EMPLOYEE BENEFIT PLANS cont?d. Expected Future Bene?t Payments The following bene?t payments, which re?ect expected future service are expected to be paid: Years ending August 31,: Orchestra Plan Administrative Pian 2019 1,683,000 118,000 2020 1,690,000 152,000 2021 1,730,000 165,000 2022 1,73 8,000 158,000 2023 1,716,000 155,000 2024-2028 8,255,000 871,000 10. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS The Joseph Meyerhoff Memorial Fund was established for the purpose of maintaining and, funding improvements to the Joseph Meyerhoff Hall. The Fund was established with an initial permanently restricted contribution in the amount of $5,000,000. A portion of the income earned on the corpus is temporarily restricted for the maintenance and improvement of the Joseph Meyerhoff Hall. The remaining portion of income earned is added to the corpus. The Joseph Meyerhoff Memorial Fund restricted fund balance is as follows as of August 31,: 2018 2017 Joseph Meyerhoff Memorial Fund: Permanently restricted Principal Account 33 9,655,000 9,545,000 Temporarily restricted Maintenance Account 447,000 465,000 Total Joseph Meyerhoff Memorial Fund 10,102,000 10,010,000 35 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 10. TEMPORARILY AND PERMANENTLY RESTRICTED NET ASSETS - cont?d. Temporarily restricted net assets are available for the following purposes or periods: 2018 2017 Joseph Meyerhoff Memorial Fund: Maintenance Account 447,000 465,000 Contributed income: Time restrictions operations 1,240,000 805,000 Purpose restrictions 3,725,000 3,935,000 Total temporarily restricted 5,412,000 5,205,000 Net assets released from restrictions consisted of the following for the years ended August 31,: 20 i 8 20 17 Joseph Meyerhoff Hall renovations 668,000 668,000 Time restrictions - operations 460,000 524,000 Purpose restrictions 1,464,000 1,655,000 Total net assets released from restriction 2,592,000 2,847,000 Permanently restricted net assets consist of investments to be heid in perpetuity, the income from which is available to fund the operating expenses of the as authorized by the Endowment Trust's Board of Trustees and renovations to the Joseph Meyerhoff Hall as approved by the Fund Committee of the Joseph Meyerhoff Memorial Fund. 11. RELATED PARTY TRANSACTIONS During the year ended August 31, 2016, the Endowment Trust entered into an agreement with the Orchestra under which the Endowment Trust agreed to lend up to $2,000,000 to the Orchestra. During the year ended August 31, 2017, the Endowment Trust increased this Eimit to $5,000,000. Advances under the line bear interest at the thirteen-week Treasury Bill rate as published by the Wall Street Journal. The total amount outstanding, inciuding accrued interest, totaled approximately $5,102,000 and $4,828,000 as of August 31, 2018 and 2017, respectively and is shown as loan receivable, related party on the Endowment Trust?s consolidated statements of ?nancial position. As discussed in Note 2, The Orchestra has experienced, and continues to experience, signi?cant decreases in unrestricted net assets. Based on the current ?nanciai status of the Orchestra, there is substantial doubt about the Orchestra?s ability to repay the loan balance due to the Endowment Trust. As such, the Endowment Trust has recorded an allowance for doubtful accounts totaling $5,102,000 as of August 3 1, 2018 in its consolidated ?nancial statements. The loan receivable has been eliminated in the preparation of the accompanying consolidated ?nancial statements. 36 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 11. RELATED PARTY TRANSACTIONS - cont?d. 12. As of August 31, 2018 and 2017, Cathedral Parking owed the Orchestra $3,424,000 and $3,186,000, reSpectively. There advances are non-interest bearing and payable on demand and recorded as due to af?liate in the Endowment Trust?s consolidated statements of ?nancial position. These advances have been eliminated in the preparation of the accompanying consolidated ?nancial statements. As of August 31, 2018 and 2017, the Orchestra owed the Endowment Trust approximately $572,000 and $219,000, respectively. These advances are non-interest bearing and payable on demand and recorded as due from af?liate in the Endowment Trust?s consolidated statements of ?nancial position. These advances have been eliminated in the preparation of the accompanying consolidated financial statements. CONTRACTS AND AGREEMENTS The operates under a collective bargaining agreement with the orchestra musicians. The agreement requires employment of a minimum number of musicians and establishes compensation and bene?ts, as well as revenue sharing agreements. The term of the agreement was for one year and four months and expired on January 15, 2019. Although, management continues to negotiate a collective bargaining agreement with the musicians? union, a lockout went into effect on June 17, 2019. The Orchestra intends to open its 2019-20 season in September 2019 and plans to resume its schedule of rehearsal and performances beginning Monday, September 9, 2019. Work will be provided for musicians beginning on that date aithough musicians may choose not to return to work and strike. The has a collective bargaining agreement with the stagehands. The agreement requires employment of a minimum number of stagehands and establishes compensation and bene?ts. The term of the agreement is for four years and ?ve months expiring on September 15, 2019. The has an employment agreement with its Music Director that extends through August 31, 2021 and its President and Chief Executive Of?cer that extends through January 31, 2022. These agreements contain provisions for compensation, reimbursable expenses, termination and renewal. 37 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Notes to the Consolidated Financial Statements For the Years Ended August 31, 2018 and 2017 13. 14. LEASES Operating Leases The leases a concert hall under a yearly operating lease agreement in Montgomery County, Maryland. The lease requires payments and is effective July 1, 2018 through June 30, 2019. In June 2015, the entered a lease for an education center and of?ce space. The lease requires payments and is effective July 1, 2015 through June 30, 2020. Rent expense totaled approximately $828,000 and $856,000 for the years ended August 31, 2018 and 2017, respectively. The entered into two operating leases for of?ce equipment that will expire November 2019 and June 2022. Rent expense totaled approximately $49,000 and $53,000 for the years ended August 31, 20i8 and 2017, respectively. The future minimum lease payments under operating teases as of August 3 1, 2018 are as follows: Years ending August 31,: 2019 53 1,000 2020 44,000 2021 22,000 2022 18,000 Total 615,000 SUBSEQUENT EVENTS As discussed in Note 2, the was granted $1.6 million during each of the state?s fiscai years ended June 30, 2020 and 2021. However, it has been confirmed that the funds for the 2020 budget will not be released and it is uncertain whether the funds for the 2021 budget will be made available. Since the year ended August 31, 2018, the Endowment Trust has approved an increase in the loan agreement from $5,000,000 to $7,300,000 and agreed to defer re-payments of principal and interest until such time as cash flow improves, and at least until September 1, 2020. The increased line was approved to support the Orchestra in the restructuring of the season. As discussed in Note 2, there is substantial doubt as to the Orchestra?s ability to repay the loan balances owed to the Endowment Trust. Although a collective bargaining agreement is currently under negotiation with the musicians? union, a lookout went into effect on June 17, 2019. The Orchestra intends to open its 2019-20 season in September 2019 and plans to resume its schedule of rehearsal and performances beginning the week of Monday, September 9, 2019. Work will be provided for musicians beginning on that date although musicians may choose not to return to work and strike. On April 24, 2019, the February 2014 note obtained by the Endowment Trust from PNC was amended to remove various covenants and extend the maturity date to February 2024. 38 INDEPENDENT REPORT ON CONSOLIDATING INFORMATION To the Board of Directors of the Baltimore Orchestra, Inc. and Af?liates: We have audited the consolidated financiai statements of the Baltimore Orchestra, Inc. and Af?liates (collectively, the as of and for the years ended August 31, 2018 and 2017, and our report thereon dated July 15, 2019, which appears on page i, expressed an unmodi?ed opinion on those consolidated ?nancial statements but included an emphasis of a matter paragraph that referred to factors that raise substantial doubt about the ability to continue as a going concern. Our audits were conducted for the purpose of forming an opinion on the consolidated ?nancial statements as a whole. The consolidating information, which follows, is presented for purposes of additional anaiysis of the consolidated ?nancial statements rather than to present the ?nancial position and results of operations of the individual entities and is not a required part of the consolidated ?nancial statements. Such information is the of management and was derived from and relates directiy to the underlying accounting and other records used to prepare the consolidated financial statements. The consolidating information has been subjected to the auditing procedures applied in the audit of the consolidated ?nanciai statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated ?nanciai statements or to the consolidated ?nancial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the consolidating information is fairly stated in all material respects in reiation to the consolidated ?nancial statements as a whoie. The consolidating information does not include any adjustments that might resuit from the outcome of the uncertainty regarding the to continue as a going concern. iri it ear 87?; Pi? July 15,2019 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Consolidating Statement of Financial Position (In Thousands) As ofAugust 31, 2018 Baltimore Baltimore Endowment Cathedrai Orchestra, Inc. Trust Parking, Inc. Eliminations Consolidated Assets Cash and cash equivalents {,378 472 28 - 1,878 Promises to give, net 2,538 3,559 - - 6,097 Due from af?liates 2,851 5,674 919 (9,444) - Prepaid expenses and other assets 1,855 552 1,566 (500) 3,473 Investments - 72,594 - 72,594 Preperty and equipment, net 527 20,391 1,358 - 22,276 Totai Assets 9,149 103,242 3,871 15 (9,944) 8 106,318 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses 8 4,718 3 192 117 - 5,027 Annuities payable 100 - - 100 Deferred revenue 6,005 - ?02 (500) 5,607 Due to af?liates 5,101 - 4,343 (9,444) - Accrued pension cost 6,631 - - - 6,631 Long-term debt 2,590 5,184 - 7,774 Interest rate swap agreement - 84 - 84 Total 25,045 5,560 4,562 (9,944) 25,223 Net Assets (De?cit) Unrestricted (18,194) 17,466 (691) - (1,419) Temporarily restricted 2,298 3,114 - - 5,412 Permanently restricted - 77,102 - - 77,102 Total Net Assets (De?cit) (15,896) 97,682 (691) 81,095 Total and Net Assets 9,149 103,242 3,871 (9,944) 106,318 See independent auditors? report on consolidating information. 40 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Consolidating Statement of Financial Position (In Thousands) As of August 31, 2017 Baltimore Baltimore Endowment Cathedral Orchestra, Inc. Trust Parking, Inc. Eliminations Consolidated Assets Cash and cash equivalents 961 146 4 - 1,111 Promises to give, net 2,351 3,278 - 5,629 Due from af?liates 2,967 5,047 919 (8,933) - Prepaid expenses and other assets 1,607 59 1,569 3,235 Investments 72,041 - 72,041 Property and equipment, net 355 21,175 1,226 - 22,756 Total Assets 8,241 101,746 3,718 (8,933) 8 104,772 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses 33 3,701 330 102 - 3 4,133 Annuities payable - 63 - 63 Deferred revenue 5,556 - 103 - 5,659 Due to affiliates 4,828 - 4,105 (8,933) - Accrued pension cost 6,461 - - - 6,461 Long-term debt 2,960 5,490 - 8,450 Interest rate swap agreement - 236 236 Total Liabilities 23,506 6,119 4,310 (8,933) 25,002 Net Assets (De?cit) Unrestricted (17,446) 17,898 (592) (140) Temporarily restricted 2,181 3,024 - 5,205 Permanently restricted - 74,705 - 74,705 Total Net Assets (De?cit) (15,265) 95,627 (592) 79,770 Total Liabilities and Net Assets 8,241 101,746 3,718 (8,933) 104,772 See independent auditors' report on consolidating information. 41 BALTIMORE ORCHESTRA, INC. AND AFFILIATES Consolidating Statement of Activities (In Thousands) For the Year Ended August 31, 2018 Unrestricted Temporarily Restricted Permanently Baltimore Baltimore Restricted? Baitimore Baltimore Baltimore En?owment Cathedral Endowment Orchestra, Inc. Trust 13arking, Inc. Totai Orchestra. Inc. Trust Total Endowment Trust Eliminations Consolidated Operating Revenue Concert income 51; 8,897 - - 8,897 - - - .. 8,897 HalI income 491 - 491 - - - - 491 Other operating income 914 - 591 1,505 - - - - - 1.505 Total Operating Revenue 10,302 - 591 10,893 - - - - - 10,893 Public and Private Support Grants for service 4,324 - - 4,324 - - - - - 4,324 Contributions 7,101 37 - 7,138 2,017 - 2,017 1,928 - 11,083 Speciai events 799 - - 799 - - 799 Investment income (loss) (1) 4,686 - 4,685 782 782 469 (79) 5,857 Operating endowment draw 3,838 (3,838Total Public and Private Support 16,061 885 - 16,946 2,017 782 2,799 2,397 (79) 22,063 Net Assets Released from Restrictions 1,900 692 - 2,592 (1.900) (692) (2.592) - - Totai Revenue 28,263 1,577 591 30,431 1 17 90 207 2,397 (79) 32,956 Operating Expenses Concert activities: Artistic personnel 15,176 - - 15,176 - - - - 15,176 Production and operating 7,418 1,296 689 9,403 - - - - 9,403 General and administrative 1,832 675 1 2,508 - - - - - 2,503 Marketing and public relations 3,173 - - 3,173 - - - - - 3,173 Development 1,378 - - 1,378 - - - 1.378 Total Operating Expenses 28,977 1,971 690 31,638 - .. - 31.638 Change in Net Assets from Operations before Non Operating Expenses (714) (394) (99) (1,207) 1 17 90 207 2,397 (79) 1,318 Non Operating Income (Expenses) interest expense (150) (190) Pension related changes including non-cash pension cost 116 - - 116 - - - - - 116 Gain on interest rate swap 152 - 152 - - - - 153 (340) - - 79 (261) Total Non Operating Expenses, net (34) (38) - (72Change in Net Assets (De?cit) (743) (432) (99) (1,279) 117 90 207 2,397 - 1,325 Net Assets (De?cit), beginning of year (17,446) 17,898 (592) (140) 2,181 3,024 5,205 74,705 - 79,770 Net Assets (De?cit), end ofyear (18,194) 17,466 3 (691) (1,419) 2,298 3,114 5,412 3 77,102 - 81,095 See independent auditors? report on consolidating information. BALTIMORE ORCHESTRA, INC. AND AFFILIATES Consolidating Statement of Activities (In Thousands) For the Year Ended August 31, 2017 Unrestricted Temporarily Restricted Permanently Baltimore Baltimore Restricted- Baltirnore Baltimore Baltimore Endowment Cathedral Endowment Orchestra, Inc. Trust Parking, inc. Total Orchestra, Inc. Trust Total Endowment Trust Eliminations Consolidated Operating Revenue Concert income 8 7,936 8 - - 8 7,936 8 - - - 8 7,936 Hall income 485 - - 485 - - - - - 485 Other operating income 981 - 552 1,533 - - - - - 1,533 Total Operating Revenue 9,402 - 552 9,954 - - - - 9,954 Public and Private Support Grants for service 3,412 - - 3,412 - - - - - 3.412 Contributions 7,098 219 - 7,317 1,496 1,496 1,420 - 10,233 Special events 829 - 829 - - - - 829 Investment income 1 6,224 6,225 - 1,3 33 1,333 512 (22) 8,048 Operating endowment draw 3,575 (3,575) - - - - - Total Public and Private Support 14,915 2,868 - 17,783 1,496 1,333 2,829 1,932 (22) 22,522 Net Assets Released from Restrictions 2.178 669 - 2,847 (2,178) (669) (2,847) - - - Total Revenue 26,495 3,537 552 30,584 (682) 664 (18) 1,932 (22) 32,476 Operating Expenses Concert activities: Artistic personnel 15,176 - 15,176 - - 15,176 Production and operating - 6,880 1,319 680 8,879 - - - - - 8,879 General and administrative 1,634 493 2,127 - - - - 2,127 Marketing and pubiic relations 3,312 .. 3,312 - - - - 3,312 Development 1,842 - 1,842 - - - - - 1 842 Total Operating Expenses 28,844 1,312 680 31,336 - - - 31.335 Change in Net Assets ?om Operations before Non Operating Expenses (2,349) 1,725 (128) (752) (682) 664 (18) 1,932 (22) 1,140 Non Operating Income (Expenses) Interest expense (55) (162) (29) (246) - - - 22 (224) Pension related changes including non-cash pension cost 1,327 - - 1,327 - - - - 1,327 Gain on interest rate swap - 147 - 147 - - - - - 147 Total Non Operating Expenses, net 1,272 (15) 29) 1,228 - - - - 22 1,250 Change in Net Assets (De?cit) (1,077) 1,710 (157) 476 (682) 664 (18) 1,932 - 2,390 Net Assets (De?cit), beginning of year (16,369) 16,188 (435) (616) 2,863 2,360 5,223 72,773 - 77,380 NetAssets (De?cit), end ofyear (17.446) 3; 17.898 ?3 (592) (140) 2.181 3 3,024 5,205 74,705 1: - 79,770 See independent auditors' report on consolidating information.