THE LOS ANGELES CHAMBER ORCHESTRA SOCIETY, INC. AND AFFILIATE AUDITED COMBINED FINANCIAL STATEMENTS TABLE OF CONTENTS June 30, 2009

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1 AUDITED COMBINED FINANCIAL STATEMENTS TABLE OF CONTENTS June 30, 2009 Page Number INDEPENDENT AUDITOR S REPORT... 1 AUDITED FINANCIAL STATEMENTS Combined Statement of Financial Position... 2 Combined Statement of Activities... 3 Combined Statement of Functional Expenses... 4 Combined Statement of Cash Flows... 5 Notes to Combined Financial Statements... 6

2 INDEPENDENT AUDITOR S REPORT Board of Directors The Los Angeles Chamber Orchestra Society, Inc. and Affiliate Los Angeles, California We have audited the accompanying combined statement of financial position of the Los Angeles Chamber Orchestra Society, Inc. and Affiliate (LACO), a nonprofit organization, as of June 30, 2009, and the related combined statements of activities, functional expenses and cash flows for the year then ended. These financial statements are the responsibility of LACO's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of the Los Angeles Chamber Orchestra Society, Inc. and Affiliate as of June 30, 2009, and the combined 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. Los Angeles, California October 7, 2009

3 COMBINED STATEMENT OF FINANCIAL POSITION June 30, 2009 (with comparative totals for 2008) ASSETS Temporarily Permanently Unrestricted Restricted Restricted Total Total CURRENT ASSETS Cash Cash and cash equivalents $ (20,350) $ 106,500 $ 13,949 $ 100,099 $ 245,531 Reserve-restricted 125, , ,000 Reserve-ticket trust/operating 953, ,510 1,025,177 TOTAL CASH 933, , ,949 1,178,609 1,395,708 Investments 267,884 1,598,683 1,866,567 2,337,815 Grants and contributions receivable 201, , , ,750 Prepaid and other assets 71,628 71, ,445 TOTAL CURRENT ASSETS 1,473, ,500 1,737,632 3,932,856 4,110,718 CONTRIBUTIONS RECEIVABLE, NET 402, , ,090 PROPERTY, NET 23,881 23,881 18,515 TOTAL ASSETS $ 1,497,605 $ 1,124,050 $ 1,737,632 $ 4,359,287 $ 4,320,323 LIABILITIES AND NET ASSETS CURRENT LIABILITIES Accounts payable $ 209,901 $ $ $ 209,901 $ 64,692 Advance ticket sales 528, , ,177 Accrued expenses 24,288 24,288 20,088 TOTAL CURRENT LIABILITIES 762, , ,957 NET ASSETS Unrestricted Undesignated 42,022 42,022 74,567 Designated operating reserve 425, , ,000 Designated endowment 267, , ,046 TOTAL UNRESTRICTED 734, ,906 1,136,613 Temporarily restricted 1,124,050 1,124, ,263 Permanently restricted 1,737,632 1,737,632 1,851,490 TOTAL NET ASSETS 734,906 1,124,050 1,737,632 3,596,588 3,635,366 TOTAL LIABILITIES AND NET ASSETS $ 1,497,605 $ 1,124,050 $ 1,737,632 $ 4,359,287 $ 4,320,323 See notes to combined financial statements. 2

4 COMBINED STATEMENT OF ACTIVITIES Year Ended June 30, 2009 (with comparative totals for 2008) Temporarily Permanently Unrestricted Restricted Restricted Total Total OPERATING REVENUE Musical performance: Outside concertscontracted services $ 88,982 $ $ $ 88,982 $ 558,766 LACO concerts-ticket sales 819, , ,328 Interest and dividend income 78,726 78, ,526 Gift shop sales, ticket handling and other revenue 38,291 38,291 32,296 Realized investment gains (losses) (239,297) (239,297) 25,892 Unrealized investment losses (171,647) (113,858) (285,505) (395,710) TOTAL OPERATING REVENUE 614,802 (113,858) 500,944 1,102,098 OPERATING EXPENSES Program services 2,760,535 2,760,535 3,470,893 Management and general 359, , ,204 TOTAL OPERATING EXPENSES 3,120,112 3,120,112 3,865,097 CHANGE IN NET ASSETS FROM OPERATING ACTIVITIES (2,505,310) (113,858) (2,619,168) (2,762,999) NON-OPERATING ACTIVITIES Grants and contributions 1,373, ,960 2,283,433 2,089,232 Donated materials, services and facilities 83,189 83,189 43,593 Fundraising events, net 604, , ,312 Development costs (390,653) (390,653) (314,819) Net assets released from restrictions 433,173 (433,173) CHANGE IN NET ASSETS FROM NON-OPERATING ACTIVITIES 2,103, ,787 2,580,390 2,231,318 CHANGE IN NET ASSETS (401,707) 476,787 (113,858) (38,778) (531,681) NET ASSETS AT BEGINNING OF YEAR 1,136, ,263 1,851,490 3,635,366 4,167,047 NET ASSETS AT END OF YEAR $ 734,906 $ 1,124,050 $ 1,737,632 $ 3,596,588 $ 3,635,366 See notes to combined financial statements. 3

5 COMBINED STATEMENT OF FUNCTIONAL EXPENSES Year Ended June 30, 2009 (with comparative totals for 2008) Program Services Supporting Services Concerts and Management Total Total Recordings Promotion Total and General Development Total All Funds All Funds Salaries and related expenses Staff $ 115,011 $ 233,270 $ 348,281 $ 135,648 $ 248,710 $ 384,358 $ 732,639 $ 722,397 Musicians 886, , ,156 1,132,447 Guest artists 205, , , ,587 Payroll taxes 68,195 17,347 85,542 9,632 18,964 28, , ,606 Employee benefits 156,759 22, ,318 12,614 21,425 34, , ,865 TOTAL SALARIES AND RELATED EXPENSES 1,431, ,176 1,704, , , ,993 2,151,527 2,453,902 Accounting and auditing 14,200 14,200 14,200 12,500 Advertising 252, , , ,846 Bad debts 6,750 6,750 6,750 Bank charges 9,940 9,940 9,940 8,869 Board Expenses 9,241 9,241 9,241 24,378 Conferences and seminars 1,569 1,977 3,546 3,664 3,664 7,210 10,024 Credit card and ticket sale fees 27,498 27,498 27,498 25,940 Depreciation 5,848 5,848 5,848 6,043 Donor benefits 35,522 35,522 35,522 18,426 Dues and subscriptions 9,702 2,595 12,297 12,297 7,272 Equipment repairs and maintenance 38,401 38,401 38,401 13,246 Hall rental/stage hands 273, , , ,302 Instrument rental and cartage 20,614 20,614 20,614 65,063 Insurance (other than employee benefits) 21,132 21,132 21,132 20,325 Miscellaneous 9,426 6,605 16,031 4,012 4,012 20,043 13,587 Music--composer commissions 35,966 35,966 1,799 1,799 37,765 18,021 Music--rental and reproduction 45,937 45,937 45,937 46,613 Occupancy 29,949 29,950 59,899 28,459 19,967 48, ,325 69,797 Payroll service charges 2,586 2,586 2,264 2,264 4,850 5,028 Postage and shipping 1,794 31,858 33,652 2,807 5,223 8,030 41,682 47,407 Pre-concert lectures/host ,220 Printing 41,017 89, ,870 19,936 29,235 49, , ,814 Outside services 80,204 80,204 3,663 3,663 83, ,075 Supplies 7, ,971 5,493 5,493 13,464 14,945 Royalties, licenses and fees 31,747 31, ,206 69,595 Telephone 2,249 5,623 7,872 3,374 2,810 6,184 14,056 10,412 Travel and parking 24,342 24,342 13,136 13,136 37, ,158 Meals and entertainment , ,316 3, ,108 TOTALS $ 1,961,059 $ 799,476 $ 2,760,535 $ 359,577 $ 390,653 $ 750,230 $ 3,510,765 $ 4,179,916 See notes to combined financial statements. 4

6 COMBINED STATEMENT OF CASH FLOWS Year Ended June 30, 2009 (with comparative totals for 2008) OPERATING ACTIVITIES Change in net assets $ (38,778) $ (531,681) Adjustments to reconcile change in net assets to net cash used in operating activities: Depreciation 5,848 6,043 Investment losses 524, ,818 Changes in operating assets and liabilities: Grants and contributions receivable (776,762) (213,590) Prepaid expenses and other assets 54,817 (29,587) Accounts payable 145,209 (20,897) Advance ticket sales (71,667) 80,852 Accrued expenses 4,200 (2,207) NET CASH USED IN OPERATING ACTIVITIES (152,331) (341,249) INVESTING ACTIVITIES Purchase of property (11,214) Purchase of investments (921,997) (882,000) Proceeds from sale/maturities of investments 868, ,021 NET CASH USED IN INVESTING ACTIVITIES (64,768) (404,979) DECREASE IN CASH AND CASH EQUIVALENTS (217,099) (746,228) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 1,395,708 2,141,936 CASH AND CASH EQUIVALENTS AT END OF YEAR $ 1,178,609 $ 1,395,708 SUPPLEMENTARY DISCLOSURES Income taxes paid Interest paid $ $ $ $ See notes to combined financial statements. 5

7 NOTES TO COMBINED FINANCIAL STATEMENTS June 30, 2009 (with comparative totals for 2008) NOTE 1--ORGANIZATION The Los Angeles Chamber Orchestra Society, Inc. and Affiliate (LACO) consists of the Los Angeles Chamber Orchestra and the Los Angeles Chamber Orchestra Foundation (Founders Endowment). LACO, which receives a significant amount of its revenue from contracts and grants awarded by foundations and corporations (and a minor share from local and federal government agencies), is a professional orchestra dedicated to performing concerts of music from the chamber orchestra repertoire. Performances include various self-presented series and events in greater Los Angeles, as well as appearances contracted by presenting organizations throughout Southern California and in conjunction with national and international tours. LACO also provides free and low-cost programs that educate and engage the multi-cultural, multi-generational greater Los Angeles community. The orchestra s local and national broadcasts (also available internationally through internet streaming and selected podcasts) make its concerts accessible to millions worldwide. The Los Angeles Chamber Orchestra Founders Endowment was created in 1992 for the purpose of investing two grants and their matching contributions totaling $400,000. Distributions can only be made from the investment earnings, subject to certain limitations as prescribed in the endowment s investment policy. Other endowments exist within LACO as described in Note 8. LACO and its Affiliate were organized pursuant to the General Nonprofit Corporation laws of the State of California and are exempt from federal income tax, California franchise tax, federal unemployment tax, and various other federal, state, and local taxes under Section 501(c)(3) of the Internal Revenue Code and similar federal and state provisions. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Combination--The combined financial statements for 2008 include the accounts of LACO and its Affiliate. All significant intercompany transactions are eliminated. Basis of Presentation--LACO recognizes contributions as revenue in the period committed. Contributions and net assets are classified on the existence or absence of donor-imposed restrictions. The net assets of LACO and changes therein are classified and reported as follows: Unrestricted net assets--net assets that are not subject to donorimposed stipulations and that may be expendable for any purpose in performing the primary objectives of LACO. 6

8 NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued Temporarily restricted net assets--net assets subject to donorimposed stipulations that may or will be met either by actions of LACO and/or passage of time. As the restrictions are satisfied, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the accompanying financial statements as net assets released from restrictions. Permanently restricted net assets--net assets that are restricted by the donors for investment in perpetuity. The investment income generated from these funds is available for general support of LACO s programs and operations, or for restricted purposes, as directed by the donor. Operating activities reflect transactions related to the performance of concerts by the orchestra. Non-operating activities reflect contributed revenue and the related expenses. Comparative Totals for The accompanying financial statements include certain prior-year summarized comparative financial information in total but not by net asset class. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with LACO's audited financial statements for the year ended June 30, 2008, from which the summarized information was derived. Income Taxes--LACO is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code (Code) and exempt from California franchise tax under Section 23701(d) of the California Revenue and Taxation Code. Accordingly, no provision for federal or state income taxes is included in the financial statements. In addition, LACO has been determined by the Internal Revenue Service not to be a private foundation within the meaning of Section 509(a) of the Code. Property--Property is recorded at cost or, if donated, at the fair market value on the date of donation. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets (five years). Costs of additions, renewals, and betterments are capitalized; maintenance and repairs are charged to expense when incurred. Individual property items valued at less than $1,000 are expensed when purchased or donated. 7

9 NOTES TO COMBINED FINANCIAL STATEMENTS--Continued NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--Continued Concentration of Credit Risk--Financial instruments which potentially subject LACO to concentrations of credit risk consist of cash, investments and grants and contributions receivable. LACO places a portion of its cash with a high credit quality financial institution where the funds are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per institution. In the normal course of operations, such cash balances exceed the FDIC insurance limits. LACO places the balance of its cash and its investments with a large broker-dealer where the cash and investments are fully insured by a private insurer. The grants and contributions receivable at June 30, 2009 and 2008 are due from well-known charitable foundations with substantial assets and a government entity through fiscal agents. Management of LACO has assessed the credit risk associated with the cash, investments and grants and contributions receivable and determined that an allowance for potential uncollectible amounts at June 30, 2008 is adequate to cover any potential uncollected grants and contributions receivable. Cash and Cash Equivalents--LACO considers highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Investments--Investments are stated at fair market value. Use of Estimates--Management uses estimates and assumptions in preparing its financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported public support, revenues and expenses. Actual results could differ from those estimates and assumptions. NOTE 3--INVESTMENTS Investments at June 30, 2009 and 2008 consist of the following: Unrealized Appreciation Cost Market Value (Depreciation) 2009: Mutual funds $ 2,338,536 $ 1,795,240 $ (543,296) Fixed Income 70,933 71, TOTALS $ 2,409,469 $ 1,866,567 $ (542,902) 2008: Mutual funds $ 2,708,771 $ 2,337,815 $ (370,956) TOTALS $ 2,708,771 $ 2,337,815 $ (370,956) 8

10 NOTES TO COMBINED FINANCIAL STATEMENTS--Continued NOTE 3--INVESTMENTS--Continued The investment return and its classification in the statement of activities can be summarized as follows: Permanently Unrestricted Restricted Total 2009: Interest and dividend income Net investment losses $ 78,726 $ (410,944) $ (113,858) 78,726 (524,802) TOTAL INVESTMENT RETURN $ (332,218) $ (113,858) $ (446,076) 2008: Interest and dividend income Net investment losses $ 105,620 $ (276,251) 7,906 $ (93,567) 113,526 (369,818) TOTAL INVESTMENT RETURN $ (170,631) $ (85,661) $ (256,292) NOTE 4--FAIR VALUE MEASUREMENTS LACO adopted Financial Accounting Standards Board Statement (SFAS) 157 on July 1, 2008 for fair value measurements that are recognized and disclosed at fair value in the financial statements on a recurring basis. SFAS 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The three levels of the fair value hierarchy are as follows: Level 1 inputs are quoted prices (unadjusted) in active markets for identical investments that LACO has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the investments, either directly or indirectly. Level 3 inputs are unobservable inputs for the investments. The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety. 9

11 NOTES TO COMBINED FINANCIAL STATEMENTS--Continued NOTE 4--FAIR VALUE MEASUREMENTS--Continued Fair values of assets and liabilities measured on a recurring basis at June 30, 2009 are as follows: Fair Value Level 1 Level 2 Level 3 Investments Mutual funds Fixed income $ 1,795,240 $ 1,795,240 $ 71,327 71,327 $ TOTALS $ 1,866,567 $ 1,866,567 $ $ NOTE 5--GRANTS AND CONTRIBUTIONS RECEIVABLE, NET Net grants and contributions receivable at June 30, 2009 and 2008 consist of the following: Individuals $ 86,052 $ 30,250 Foundations and corporations 1,130, ,000 Government grants 15,000 5,000 GROSS 1,231, ,250 Less discount at 3% (12,450) (8,910) Less allowance for doubtful accounts (9,500) NET $ 1,218,602 $ 441,840 Gross grants and contributions receivable at June 30, 2009 and 2008 are due as follows: Receivable due in less than one year $ 816,052 $ 260,250 Receivable due in one to five years 415, ,000 GROSS $ 1,231,052 $ 460,250 10

12 NOTES TO COMBINED FINANCIAL STATEMENTS NOTE 6--PROPERTY, NET Net property at June 30, 2009 and 2008, consists of the following: Equipment and furnishings $ 122,255 $ 111,041 Music library 1,020 1, , ,061 Less accumulated depreciation (99,394) (93,546) NET $ 23,881 $ 18,515 NOTE 7--DESIGNATED UNRESTRICTED NET ASSETS During the current year, LACO s Board of Directors has designated an operating reserve in the amount of $425,000, and an endowment in the amount of $267,884. NOTE 8--TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets at June 30, 2009 and 2008 are restricted for the following purposes: Activities: Artist sponsorships, banners, radio broadcasts and Baroque Challenge $ 83,500 $ 215,626 Mural completion 23,000 23, , ,626 General operations 1,017, ,637 TOTALS $ 1,124,050 $ 647,263 Temporarily restricted net assets were released from donor restrictions during the years ended June 30, 2009 and 2008 as follows: Concerts, education and outreach $ 228,623 $ 448,520 General operations 204, ,232 TOTALS $ 433,173 $ 708,752 11

13 NOTES TO COMBINED FINANCIAL STATEMENTS--Continued NOTE 9--PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets at June 30, 2009 and 2008 are restricted for the following purposes: 12 Founders Endowment $ 400,000 $ 511,878 Colburn Endowment 25,000 26,980 Dolan Library Endowment 9,024 9,024 General Endowment 124, ,530 Hearst Education Endowment 200, ,000 Troy Endowment 41,425 41,425 Zimmer Endowment 812, ,653 TOTAL ENDOWMENTS 1,612,632 1,726,490 Irvine Foundation--cash reserves 125, ,000 TOTALS $ 1,737,632 $ 1,851,490 LACO s endowments consist of the funds listed above. The Founders and Colburn Endowments are required to increase by the CPI index before earnings are available for unrestricted purposes. The Hearst Endowment earnings are restricted for educational expenses and the Dolan Endowment earnings are restricted for library expenses. All of the other Endowment earnings are unrestricted. The Board of Directors of LACO has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) adopted by the State of California as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, LACO classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) 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. 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 LACO with the standard of prudence prescribed by UPMIFA. In accordance with UPMIFA, LACO considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: (1) The duration and preservation of the fund (2) The purposes of the organization 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 the organization (7) The investment policies of the organization.

14 NOTES TO COMBINED FINANCIAL STATEMENTS--Continued NOTE 9--PERMANENTLY RESTRICTED NET ASSETS--Continued The donor-restricted endowment funds are invested in mutual funds. There were no earnings from the donor-restricted endowment fund during the year ended June 30, 2009, and, as a result, no amounts have been appropriated for operating expenditures. The losses applied against permanently restricted net assets represent accumulated prior CPI earnings in the Founders and Colburn Endowments. Changes in Endowment Assets for the Year Ended June 30, 2009: Unre- Temporarily Permanently stricted Restricted Restricted Total Endowment net assets, June 30, ,046 1,851,490 2,488,536 Investment return (369,162) (113,858) (483,020) Contributions Appropriated for expenditure TOTALS $ 267,884 $ $ 1,737,632 $ 2,005,516 NOTE 10--FUNDRAISING EVENTS, NET Net fundraising events conducted during the years ended June 30, 2009 and 2008 can be summarized as follows: Revenues: Special event ticket sales $ 324,999 $ 103,349 Contributions 827, ,168 1,152, ,517 Less direct expenses (548,423) (271,205) NET $ 604,421 $ 413,312 13

15 NOTES TO COMBINED FINANCIAL STATEMENTS--Continued NOTE 11--COMMITMENTS LACO leases office space and equipment under noncancellable operating leases. Minimum future annual rental payments required under these leases at June 30, 2009 can be summarized as follows: Year Ending June 30, 2010 $ 64,905 TOTAL $ 64,905 Grants require the fulfillment of certain conditions as set forth in the instrument of the grant. Failure to fulfill the conditions could result in the return of the funds to the grantors. Although that is a possibility, the Board deems the contingency remote, since by accepting the gifts and their terms, the Board is acknowledging the requirements of the grantor at the time of receipt of the grant. NOTE 12--RETIREMENT PLAN Effective January 1, 2007, LACO adopted a 401(k) Safe Harbor Plan in which employees who completed one year of employment with at least 1,000 hours of service were eligible to participate. Under the 401(k) Safe Harbor Plan, LACO makes a 3% safe harbor contribution of eligible employees income. Employer contributions to the plan during the years ended June 30, 2009 and 2008 were $17,993 and $19,180, respectively. 14