P
ASADENA CENTER OPERATING COMPANY
(A COMPONENT UNIT OF THE
CITY OF PASADENA, CALIFORNIA)
F
INANCIAL STATEMENTS
YEA
R ENDED JUNE 30, 2021
PASADENA CENTER OPERATING COMPANY
TABLE OF CONTENTS
YEAR ENDED JUNE 30, 2021
INDEPENDENT AUDITORS’ REPORT 1
MANAGEMENT’S DISCUSSION AND ANALYSIS 3
BASIC FINANCIAL STATEMENTS
STATEMENT OF NET POSITION 9
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION 10 STATEMENT OF CASH FLOWS 11
NOTES TO FINANCIAL STATEMENTS 13
INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED IN
ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS 29
(1)
I
NDEPENDENT AUDITORS’ REPORT
Board of Directors
Pasadena Center Operating Company
Pasadena, California
Report on the Financial Statements
We have audited the accompanying financial statements of Pasadena Center Operating Com pany (the Company), a component unit of the City of Pasadena, C alifornia, as of and for the year ended June 30, 2021, and the related notes to the financial statements , which collectively comprise the Company’s basic financial statements as listed in the table of contents.
Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial 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 financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ Responsibility
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 St ates of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the f inancial statements are free of material misstatement.
A
n audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the 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 financial 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 inclu des evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.
W
e believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
CLA is an independent member of Nexia International, a leading, global network of independent accounting and consulting firms. See nexia.com/member-firm-disclaimer for details.
CliftonLarsonAllen LLP
CLAconnect.com
Board of Directors
Pasadena Center Operating Company
(2)
Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Pasadena Center Operating Company, as of June 30, 2021, and the changes in its financial position and its cash flows for the year then ended in accordance with accounting principles generally accepted in the United States of America.
Other Matters
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management's discussion and analysis be presented to supplement the basic financial statements.
Such information, although not a part of the basic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be an essential part of financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. We have applied certain limited procedures to the required supplementary information in accordance with auditing standards generally accepted in the United States of America, which consisted of inquiries of management about the methods of prepari ng the in formation and comparing the information for consistency with management’s responses to our inquiries, the basic financial statements, and other knowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provide any assurance on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards , we have also issued a report dated December 15, 2021 on our consideration of the Company’s internal control over financial reporting and on our tests of its compliance with certain pro visions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the effectiveness of the Company ’s internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Company’s internal control over financial reporting and compliance.
CliftonLarsonAllen LLP
Irvine, California
December 15, 2021
PASADENA CENTER OPERATING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED JUNE 30, 2021
(
3)
A
s the Pasadena Center Operating Company (the PCOC) management, we offer readers of the PCOC’s financial statements, this narrative overview, and an analysis of the financial activities for the year ended June 30, 2021 . The PCOC’s financial statements consist of management’s discussion and analysis (MD&A), statement of net position; statement of revenues, expenses, and changes in net position; statement of cash flows; and notes to the basic financial statements. We encourage readers to consider the information presented herein in conjunction with the accompanying basic financial statements and the accompanying notes.
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CKGROUND
The P
COC is a nonprofit 501(c) (4) corporation incorporated in 1973 to manage the Pasadena Convention Center, the Pasadena Civic Auditorium, the Pasadena Convention and Visitors Bureau, and the Pasadena Ice Skating Center. The PCOC was one of the first independent nonprofit organizations in the United States to combine its facility operations and destination marketing efforts.
The P
COC is funded by revenue from its facilities, proceeds from a Tourism Business Improvement District (2.9 percent), a self -imposed hotel assessment, and a 60 percent portion of the Transient Occupancy Tax (12.1 percent). In FY 2017, The City of Pasadena and the PCOC amended their operating agreement establishing a maximum amount of Transient Occupancy Tax revenue to be transferred to the PCOC annually. In FY 2018, the Pasadena Convention and Visitors Bureau converted the Pasadena TBID from the Parking and Business Area Law 1989 (’89 Law) to the Property and Business Improvement District Law of 1994 (’94 Law). The district assessment remained the same (2.89 percent) and was approved for a five-year term through June 30, 2023.
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BOUT OUR BUSINESS
The P
COC operates a world- class state of the art public assembly facilities that generate significant regional economic activity by attracting conventions, tradeshows, entertainment, and other events to Pasadena. Our facilities include a 55,000 square feet Exhibition Hall, 25,000 square feet Ballroom, 18 meeting rooms of varying sizes, the Historic Civic Auditorium that seats 3,000, the Gold Room, and a 17,000 square feet Exhibit Hall. The PCOC also manages a regulation-size skating rink onsite.
The P
asadena Convention and Visitor’s Bureau (PCVB) attracts hundreds of thousands of people to the City annually, enriching the local economy with hotel and retail spending and other direct spending on goods and services.
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CVB promotes economic development, provides marketing support to the City’s art, culture, innovation, and special events, including operating a Visitor Information Center opened year-round.
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ANAGEMENT OBJECTIVE AND STRATEGY
The C
ompany’s mission is to promote Pasadena as a meeting and travel destination by attracting conventions, tradeshows, entertainment events, and tourism to its professionally managed facilities and first-class service. The Company’s management operates the business consistent with strategic business principles for success in both the short term and over more extended periods. PCOC focuses on unifying
the management team, dedicated employees, and third -party contractors to achieve its priority and remain competitive in the meeting industry.
PASADENA CENTER OPERATING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED JUNE 30, 2021
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4)
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VERVIEW OF FINANCIAL STATEMENTS
This discussion and analysis are intended to serve as the introduction to PCOC’s basic financial statements. The annual financial report comprises three components: management’s discussion and analysis, the financial statements, and the notes to the financial statements.
The
Statement of Net Position presents all PCOC’s assets, deferred outflows of resources, liabilities, and deferred inflows of resources as of June 30, 2021. The difference between (a) assets and deferred outflows of resources and (b) liabilities and deferred inflows of resources is reported as net position.
Over time, increases and decreases in net position may serve as a useful indicator of whether the financial position of PCOC is improving or deteriorating.
The S
tatement of Revenues, Expenses, and Changes in Net Position presents information showing PCOC’s net position changes during the most recent fiscal year. All changes in net position are reported when the underlying event giving rise to the change occurs, regardless of the related cash flow timing. Thus, revenues and expenses are reported in this statement for some items that will only result in cash flows in future fiscal periods.
The S
tatement of Cash Flows presents information showing cash receipts and cash payments during the fiscal year, a reconciliation of operating income to net cash provided by operating activities, and detail of noncash investing, capital, and financing activities.
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UMMARY OF FINANCIAL PERFORMANCE
The COVID -19 pandemic impact on the Company's business resulted in a substantial reduction in operating revenues in the fiscal year 2021 compared to the previous year and recent trends. PCOC was closed for eleven of the twelve months in the year.
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n the fiscal year 2021 , the Company's cash and cash equivalents decreased by $10.0 million to support its operation and debt service payments. Capital assets also decreased by $3. 3 million, mostly from depreciation expense of $4.2 million.
Deferred outflows of resources for PCOC are related to the accumulated decrease in fair value of hedging derivatives and amortization of deferred refunding charge. Deferred outflows of resources decreased $8.3 million from 20 20 to 2021, mainly due to the change in the derivatives' fair value at year-end.
The
Company's current liabilities, including accounts payable, other accrued liabilities, accrued salaries and benefits, deposits decreased by $530,000 compared to the fiscal year 2020. The current portion of long-term debt increased by $190,000.
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eferred inflows of resources for PCOC are related to the deferred refunding charges and an upfront amount received as part of a service concession agreement with Centerplate. Deferred inflows of resources decreased by $12,676 from 20 20 to 2021 due to recognizing these revenues due to the passage of time. In the fiscal year 2021, the amortization of capital investments by Centerplate was suspended for ten months from September 2020 through June 2021.
PASADENA CENTER OPERATING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED JUNE 30, 2021
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5)
The net
position represents the residual interest in PCOC's assets, and deferred outflows of resources after all liabilities and deferred inflows of resources are deducted. PCOC's net position at the end of FY 2021 is a deficit totaling $7,024,616, decreased by $7,480,680 during the year. Net position is reported in three major categories: net investment in capital assets, restricted, and unrestricted. A full explanation is in Note 7 to the basic financial statements.
The po
rtion of net position classified as net investment in capital assets, represents capital assets net of accumulated depreciation and net of related outstanding liabilities is $5.1 million at year end.
Although PCOC's net investment in capital assets is ne t of related liabilities , the resources used to repay the debt must be from other sources; the capital assets cannot be used to liquidate these liabilities.
The
restricted net position remained the same at $870 thousand in the fiscal year 2021. $867 thousand of this amount represents funds restricted for public art. 2021 2020 Change
Cash and cash equivalents 18,365,214$ 28,405,322$ (10,040,108)$ Receivables and other assets 126,635,522 129,721,140 (3,085,618) Total assets 145,000,736 158,126,462 (13,125,726) Deferred outflows of resources 26,057,346 34,473,402 (8,416,056) Total assets and deferred outflows
of Resources 171,058,082 192,599,864 (21,541,782) Current liabilities 8,040,154 8,381,046 (340,892) Noncurrent liabilities 165,159,755 178,440,296 (13,280,541) Total liabilities 173,199,909 186,821,342 (13,621,433) Deferred inflows of resources 4,882,789 5,322,458 (439,669) Total liabilities and deferred inflows 178,082,698 192,143,800 (14,061,102) Net position (deficit) (7,024,616)$ 456,064$ (7,480,680)$ RE
SULTS OF OPERATIONS
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perating Revenues
The f
iscal year 2021 operating revenue equaled $1.35 million, representing an 84.2% decline compared to the previous fiscal year. During the forced building closure due to public health concerns, the PCOC’s primary mission was to protect employees and to mitigate revenue losses.
PASADENA CENTER OPERATING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED JUNE 30, 2021
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6)
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uring the months of July 2020 through June 2021, revenues for the PCOC were recognized through space rental and all ancillary services (such as food & beverage, parking, etc.). Key revenue drivers were:
• Te
levision production and Corporate Focus Groups
• F&
B operations for the City of Pasadena initiatives, preparing meals for senior citizens and people experiencing homelessness
• P
asadena Ice Skating Center skating classes and hockey league games • P
arking for short-term leases for nearby projects
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perating Expenses
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n the fiscal year 2021 , total operating expenses fell to $8.6 million from $1 4.1 million, a reduction of
39.0%. The decrease was driven by immediate cost control efforts taken by PCOC’s management to mitigate COVID related revenue shortfall. Personnel services decreased by $3.3 million or 52.7%. The decrease was due to realignment of labor requirements to match revenue generation in the fiscal year.
Contractual services costs decreased by $964,000 or 62.6% compared to the fiscal year 2020 . This was primarily due to management's renegotiating existing contracts, suspend some services during the period of closure, and reducing the operating budget to align with the revenue shortfall. Occupancy expense, which includes all utility -related costs such as electricity, telecommunications, water, and natural gas, totaled $798,000, a decrease of 35.3% from the fiscal year 2020. The decline resulted from the pandemic-related reduction of events related activities due to the cancellation and/or postponement of events. Depreciation expense, primarily for the convention center building, amounted to $4.2 million.
P
CVB contracted and direct expenses in the fiscal year 2021 totaled $78,000, a decrease of 91.5% compared to $916,000 million in 2020. The reduction in PCVB spending directly results from the decline in TBID revenue in the year.
No
noperating Revenues (Expenses), Net
No
noperating revenues, mainly Transient Occupancy Tax and Tourism Business Improvement Tax revenue, totaled $5.5 million and were substantially impacted by the COVID 19 pandemic, declining $6.1 million or 52.3% compared to the fiscal year 2020. Interest income also decreased by $218,000 or
45.5% compared to the fiscal year 2020.
PASADENA CENTER OPERATING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED JUNE 30, 2021
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7)
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apital Contributions
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apital contributions include $12,676, which is recognized as revenue from the $1.6 million contribution paid by Boston Culinary Group, now Centerplate. The remainder of the $269,574 unamortized amount paid by Centerplate will be recognized in equal monthly installments over the life of the agreement with PCOC.
2021 2020 Change
Operating revenues 1,347,177$ 8,506,912$ (7,159,735)$ O
perating expenses 8,594,402 14,083,681 5,489,279
Operating loss (7,247,225) (5,576,769) (1,670,456)
Nonoperating revenues, net (246,131) 6,433,441 (6,679,571) Income before capital contributions (7,493,356) 856,672 (8,350,027) Capital Contributions 12,676 58,025 (45,349)
Change in net position (7,480,680) 914,697 (8,395,377) Net position, beginning of year 456,064 (458,633) 914,697 Net position, end of year (7,024,616)$ 456,064$ (7,480,680)$ C
APITAL ASSETS
P
COC’s investment in capital assets as of June 30, 2021 , and 2020, amounts to $125,439,846 and $128,748,847, respectively (net of accumulated depreciation). This investment in capital assets includes building and improvements, machinery and equipment, furniture and fixtures, land, and construction in progress. The net decrease in PCOC’s investment in capital assets, net of depreciation, for the current fiscal year was $3. 3 million. Additional information on PCOC’s capital assets can be found in Note 4 of the financial statements.
June 30, 2021 June 30, 2020
Buildings and improvements 122,081,487$ 125,122,552$
Machinery and equipment 747,998 823,062
Furniture and fixtures 66,372 79,497
Land 2,423,473 2,423,473
Construction in progress 120,516 300,263
Total 125,439,846$ 128,748,847$
PASADENA CENTER OPERATING COMPANY
MANAGEMENT’S DISCUSSION AND ANALYSIS
YEAR ENDED JUNE 30, 2021
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8)
DE
BT ADMINISTRATION
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s of June 30, 2021 , PCOC had long- term debt outstanding balance is $145,756,910, a decrease of $4.9 million from 2020 due to current year principal payments. There were no major debt events during the current fiscal year. For additional information on PCOC’s long- term debt activity, refer to Note 5 of the financial statements' notes.
June 30, 2021 June 30, 2020
COP 2006 Series A Capital Appreciation Bonds 10,556,151$ 14,977,587$ COP 2008 Series A Capital Appreciation Bonds 134,720,000 134,720,000 Energy Conservation Loan 480,759 774,600
Ice Skating Loan 2012 - 167,208
Total 145,756,910$ 150,639,395$
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QUEST FOR INFORMATION
Thi
s financial report is designed to provide a general overview of PCOC’s finances. Questions concerning any of the information provided in this report or request for additional financial information should be addressed to the Director of Finance, Pasadena Center Operating Company, 300 E. Green Street, Pasadena, California 91101.
PASADENA CENTER OPERATING COMPANY
STATEMENT OF NET POSITION
JUNE 30, 2021
S
ee accompanying Notes to Financial Statements.
(9)
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents 7,246,445$
Investments
Accounts Receivables 125,433
Due from the City of Pasadena 966,742
Prepaid Items 103,501
Total Current Assets 8,442,121
RESTRICTED CASH AND CASH EQUIVALENTS 11,118,769
NONCURRENT ASSETS
Capital Assets, Not Depreciated 2,543,989
Capital Assets, Net of Accumulated Depreciation 122,895,857 Total Noncurrent Assets 125,439,846
Total Assets 145,000,736
DEFERRED OUTFLOWS OF RESOURCES
Accumulated Decrease in Fair Value of Hedging Derivatives 25,068,455 Deferred Charges on Refunding 988,891
Total Deferred Outflows of Resources 26,057,346
LIABILITIES
CURRENT LIABILITIES
Accounts Payable and Other Liabilities 295,512$
Interest Payable 520,358
Accrued Salaries and Benefits 350,761
Advance Deposits Payable 1,077,963
Long-Term Debt - Due Within One Year 5,795,560
Total Current Liabilities 8,040,154
NONCURRENT LIABILITIES
Derivative Instruments Liability 25,068,456
Accrued Salaries and Benefits 129,949
Long-Term Debt 139,961,350
Total Noncurrent Liabilities 165,159,755
Total Liabilities 173,199,909
DEFERRED INFLOWS OF RESOURCES
Deferred Charges on Refunding 4,613,215
Service Concession Arrangement 269,574
Total Deferred Inflows of Resources 4,882,789
NET POSITION
Net Investment in Capital Assets 5,108,608
Restricted for Public Art 867,377
Restricted for Organ Repairs and Maintenance Project 2,863 Unrestricted (13,003,464)
Total Net Position (7,024,616)$
PASADENA CENTER OPERATING COMPANY
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION YEAR ENDED JUNE 30, 2021
S
ee accompanying Notes to Financial Statements.
(10)
OPERATING REVENUES
Occupancy Fees 900,313$
Ice Skating Center 263,834
Commissions 183,030
Total Operating Revenues 1, 347,177
OPERATING EXPENSES
Pasadena Center 2,965,826
Ice Skating Center 354,496
Pasadena Convention and Visitors Bureau 1,079,594
Depreciation Expense 4, 194,486
Total Operating Expenses 8,594,402
OPERATING LOSS (7,247,225)
NONOPERATING REVENUES (EXPENSES)
Contributions from City of Pasadena (Transient Occupancy Taxes) 4,181,042 Tourism Business Improvement District Taxes 1,368,681
Facility Restoration Fee 5,000
Investment Income 260, 702
Interest Expense (6,061,556)
Total Nonoperating Revenues (Expenses) (246,131)
INCOME BEFORE CAPITAL CONTRIBUTIONS (7,493,356)
CAPITAL CONTRIBUTIONS 12,676
CHANGES IN NET POSITION (7,480,680)
Net Position - Beginning of Year 456,064
NET POSITION - END OF YEAR (7,024,616)$
PASADENA CENTER OPERATING COMPANY
STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 2021
S
ee accompanying Notes to Financial Statements.
(11)
CASH FLOWS FROM OPERATING ACTIVITIES
Cash Received from Customers 1,370,685$
Cash Payments to Suppliers for Goods and Services (2,202,808) Cash Payments to Employees for Services (2,376,231)
Net Cash Used by Operating Activities ( 3,208,354)
CASH FLOWS FROM NONCAPITAL FINANCING ACTIVITIES
Contributions from the City of Pasadena (Transient Occupancy Taxes) 3,845,380 Receipt of Tourism Business Improvement District Taxes 1,226,791 Net Cash Provided by Noncapital Financing Activities 5,072,171
CASH FLOWS FROM CAPITAL AND RELATED FINANCING ACTIVITIES Acquisition and Construction of Capital Assets (885,485) Principal Paid on Long-Term Debt (5,606,049)
Interest Paid on Long-Term Debt (5,265,915)
Facility Restoration Fee for Capital Improvements 5, 000 Net Cash Used by Capital and Related Financing Activities (11,752,449)
CASH FLOWS FROM INVESTING ACTIVITIES
Investment Income Received (151,476)
Net Cash Used by Investing Activities (151,476)
NET DECREASE IN CASH AND CASH EQUIVALENTS (10,040,108)
Cash and Cash Equivalents - Beginning of Year 28,405,322 CASH AND CASH EQUIVALENTS - END OF YEAR 18,365,214$
RECONCILIATION TO STATEMENT OF NET POSITION
Cash and Cash Equivalents 7,246,445$
Restricted Cash and Cash Equivalents 11,118,769
Total Reconciliation to Statement of Net Position 18,365,214$
PASADENA CENTER OPERATING COMPANY
STATEMENT OF CASH FLOWS (CONTINUED)
YEAR ENDED JUNE 30, 2021
S
ee accompanying Notes to Financial Statements.
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RECONCILIATION OF OPERATING INCOME (LOSS) TO
NET CASH USED BY OPERATING ACTIVITIES:
Operating Loss (7,247,225)$
Adjustments to Reconcile Operating Loss to Net Cash
Used by Operating Activities:
Depreciation 4,194,486
(Increase) Decrease in Assets:
Accounts Receivable 224,799
Prepaid Items 14,552
Increase (Decrease) in Liabilities:
Accounts Payable and Other Liabilities (147,054)
Accrued Salaries and Benefits (46,621)
Advance Deposits Payable (201,291)
Net Cash Used by Operating Activities (3,208,354)$
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING
AND FINANCING ACTIVITY
Amortization of Deferred Refunding Charges 349,432$
Accretion of Interest on Long-Term Debt 723,564$
Amortization of Service Concession Arrangement 12,676$
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(
13)
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OTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Reporting Entity
Pasadena Center Operating Comp any (the Company) was formed in 1973 as a nonprofit corporation under Section 501(c)(4) of the Internal Revenue Code for the purpose of managing and operating the Pasadena Center and the Pasadena Convention and Visitors Bureau. The Pasadena Center is co mprised of the Civic Auditorium, which includes the auditorium and adjacent land, and the Conference Center, which includes the Conference Center, Exhibition Hall, and related parking facilities.
The C
ompany operates under an agreement with the City of Pa sadena (the City) whereby the Company maintains and ope rates the Pasadena Center and the Pasadena Convention and Visitors Bureau. The Pasadena City Council appoints the members of the Company’ s board of directors. The Company’s operations constitute part of the overall financial reporting entity of the City and are accounted for as a discretely presented component unit in the City’s Comprehensive Annual Financial Report consistent with accounting p rinciples generally accepted in the United States of America (U.S. GAAP).
Basis of Presentation
The Company’s fina ncial statements are presented in conformance with Governmental Accounting Standards Board (GASB) Statement No. 34, which established standards for external financial reporting for all state and local governmental entities. The basic financial statements include the statement of net position, statement of revenues, expenses, and changes in net position, and statement of cash flows.
Basis of Accounting
The Company is accounted for as an enterprise fund (proprietary fund type). A fund is an accounting entit y w ith a self -balancing set of accounts established to record the financial position and results of operations of a specific governmental activity. The activities of enterprise funds closely resemble thos e of ongoing businesses in which the purpose is to conserve and add to basic resources while meeting operating expenses from current revenues. Enterprise funds account for operations that provide services on a continuous basis and are substantially finance d by revenues derived from user charges. The Company utilizes the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized as they are incurred.
Classification of Revenues and Expenses
The Company classifies its revenues and expenses into the following classifications:
operating revenues, operating expenses, nonoperating revenues, and nonoperating expenses.
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perating revenues consist of charges to customers for sales and use of the facilities, with the relating costs considered operating expenses. Nonoperating revenues c onsist of contributions from the City of Pasadena of their transient occupancy taxes, tourism business improvement district taxes, investment income, and other nonoperating income. Capital contributions consist of contributed capital assets.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(
14)
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OTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash and Cash Equivalents
For the purpose of the statement of cash flows , cash equivalents are defined as short -term, highly liquid investments that are both readily convertible to known amounts of cash or so near their maturity that they present insignificant risk of changes in value because of changes in interest rates and have an original maturity date of three months or less.
Investments
Investments are reported in the accompanying statements at fair value, except for certain certificates of deposit and investment contracts that are reported at cost because they are not transferable, and they have terms that are not affected by changes in market inter est rates. Changes in fair value that occur during the fiscal year are recognized as investment earnings reported for that fiscal year.
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nvestment earnings includes interest earnings, changes in fair value, and any gains or losses realized upon the liquidation or sale of investments.
Prepaid Assets
Certain payments to vendors, which reflect costs applicable to future accounting periods are recorded as prepaid assets.
Capital Assets
Capital assets are valued at cost where historical records are available and at an estimated historical cost where no historical r ecords exist. Donated assets are valued at their estimated acquisition value on the date received. The Company capitali zes all assets with a historical cost of at least $10,000 consistent with City p ractice. The cost of norm al maintenance and repairs tha t do not add to the value of the assets or materially extend asset lives are not capitalized.
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epreciation is computed utilizing the straight -line method over the following estimated useful lives:
B
uildings 50 Years
Building Improvements 3 to 30 Years
Machinery and Equipment 3 to 30 Years
Furniture and Fixtures 10 Years
Compensated Absences
The Company has a paid time off (PTO) policy in effect. It is the Company’s policy to permit employees to accumulate earned but unused PTO benefits. PTO hours c an accrue up to a maximum of one and one- half times the annual allowable amount (maximum of 27 to 42 days, 216 to 336 hour s). The Company pays all earned PTO benefits upon termination. All accumulated PTO is recorded as an expense and a liability at the time the benefit is earned.
This is included in accrued salaries and benefits on the statements of net position.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
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NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Net Position
Net position represents the difference between assets and liabilities on the statement of net position. Net positions were classified in the following categories: net investment in capita l assets, restricted, and unrestricted.
Net investment in capital assets consists of the cost of capital as sets, net of accumulated depreciation, reduced by the outstanding balances of any borrowings used for the acquisition, construction, or improvement of those assets, as applicable.
Net position is reported as restricted when there are limitations imposed on the use either through the enabling legislation adopt ed by the Company’s board of dir ectors, or through external restrictions imposed by creditors , g rantors, or laws or regulations of other governments. All other net position is reported as unrestricted.
When both restricted and unr estricted resources are available for use, it is the Company’s policy to use unrestricted resources first, and then restricted resources as they are needed.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclo sure of c ontingent assets and liabilities at the date of the financial statements, and the reported amounts of rev enues and expenses during the reporting period. Actual results could differ from those estimates.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
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16)
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OTE 2 CASH AND INVESTMENTS
Summary of Cash and Investments
Cash and investments as of June 30, 2021, are classified in t he accompanying financial statements as follows:
Cash and Cash Equivalents 7,246,445$
Restricted Cash and Cash Equivalents 11,118,769
Total Cash and Investments 18,365,214$
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ash and investments as of June 30, 2021, consist of the following:
Cash on Hand 11,100$
Deposits With Financial Institutions 4,262,835
City of Pasadena Investment Pool 2,972,510
Cash and Investments With Fiscal Agent:
Money Market Mutual Funds 11,118,769
Total Cash and Investments 18,365,214$
Deposits
At June 30, 2021, the carrying amount of the Company’s depos its was $4,262,835 and the bank balance was $4,283,421. The $20,586 difference represents outstanding checks and other reconciling items. All of the Company’s cash and cash equivalents as of June 30, 2021 were collateralized or insured with securities held by pledging financial institutions in t he Company’s name.
Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the event of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are i n the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker-dealer) to a transaction, a government will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code does not contain legal or policy requirements that would limit the exposure to custodial credit risk for deposits or investments, ot her than the following provision for deposits: The California Government Code requires that a financi al institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regula ted under state law (unless so waived by the governmental unit). The fair value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institution s to secure the Company’s deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(17)
NOTE 2 CASH AND INVESTMENTS (CONTINUED)
Investments Authorized by the California Government Code The table below ident ifies the investment type s that are authorized for the Company by the California Government Code. Other than what is in the Government Code, the Company has no other investment policy.
Investment Types Authorized by *Maximum *Maximum
Authorized by the Investment *Maximum Percentage Investment in California Government Code Policy Maturity of Portfolio One Issuer Local Agency Bonds Yes 5 Years None None
U.S. Treasury Obligations Yes 5 Years None None
U.S. Agency Securities Yes 5 Years None None
Bankers’ Acceptances Yes 180 Days 40% 30%
Commercial Paper Yes 270 Days 15% 10%
Negotiable Certificates of Deposit Yes 5 Years 30% None Repurchase Agreements Yes 1 Year None None
Reverse Repurchase Agreements Yes 92 Days 20% None
Medium-Term Notes Yes 5 Years 30% 5%
Mutual Funds Yes N/A 20% 10%
Money Market Mutual Funds Yes N/A 20% 10%
Mortgage Pass-Through Securities Yes 5 Years 20% None
County Pooled Investment Funds Yes N/A None None
Local Agency Investment Fund Yes N/A None None
Joint Power Agency Pools
(Other Investment Pools) Yes N/A None None
* Based on state law requirements or investment policy requirements, whichever is more restrictive.
Investments Authorized by Debt Agreements
Investments of debt proceeds held by bond trustee are governed by provisions of the debt agreements, rather than the general provisions of the California Government C ode or the Company’s investment policy. The table below identifies the investment types that are authorized for investments held by the bond trustee. The t able also identifies cert ain provisions of these debt agreements that address interest rate risk and concentration of credit risk.
Maximum Minimum
Authorized Investment Type Maturity Rating
U.S. Treasury Obligations None N/A
U.S. Agency Securities None N/A
State and Local Agency Bonds None Aa
Bankers’ Acceptances 360 days Aa
Commercial Paper 270 days Aa
Negotiable Certificates of Deposit None Aa
Repurchase Agreements None Aa
Money Market Mutual Funds N/A Aaa
Investments Contracts None Aa
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(18)
NOTE 2 CASH AND INVESTMENTS (CONTINUED)
Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adve rsely affect the fair value of an investment. Generally, the longer the maturity of an investment the greater the sensitivity of its fair value to changes in market interest rates. One of the ways that the Company manages its exposure to interest rate risk is by purchasing a combination of short- term and long-term investments and by timing cash flows from maturities so that a portion of the portfolio i s matu ring or coming close to m aturity evenly over time as necessary to provide the cash flow and liquidity needed for operations.
Information about the sensitivity of the fair values of the Company’s investments (including investments held by bond trustee) to market interest rate fluc tuations is provided by the following table that shows the distribution of the Company’s investments by maturity:
12 Months 12 to 60
Investment Type Fair Value or Less Months
City of Pasadena Investment Pool 2,972,510$ 2,972,510$ -$ Fiscal Agent:
Money Market Mutual Funds 11,118,769 11,118,769 - Total 14,091,279$ 14,091,279$ -$
Remaining Maturity
Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an invest ment will not fulfill its obligation to the holder of the investment. This is measured by the assignment of a rating by a nationally recognized statistical rating organization. Presented below is the minimum rating required by (where applicable) the California Gov ernment Code, the Company’s investment policy, or debt agreements, and the actual rating as of year-end for each investment type.
Minimum
Legal
Investment Type Fair Value Rating Aaa Not Rated
City of Pasadena Investment Pool 2,972,510$ N/A -$ 2,972,510$ Fiscal Agent:
Money Market Mutual Funds 11,118,769 Aaa 11,118,769 - Total 14,091,279$ 11,118,769$ 2,972,510$
Ratings at End of Year
Concentration of Credit Risk
The investment policy of the C ompany contains no limitation s on the amount that can be invested in anyone issuer beyond that stipulated by the California Government Code.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(19)
NOTE 2 CASH AND INVESTMENTS (CONTINUED)
Fair Value Hierarchy
The Company categorizes its fair value measurements within the fair value hierar chy established by U.S. GAAP. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 input s are quot ed prices in active markets for identical assets; Level 2 inputs are quoted prices for similar assets in active markets; Level 3 inputs are significant unobservable inputs.
The Company’s investments in the City investment pool and the fiscal agent money m arket mutual funds are not subject to the fair value hierarchy. Further details on the City’s investment pool f air value hierarchy can be found in the City’s Comprehensive Annual Financial Report for the year ended June 30, 2021.
NOTE 3 TOURISM BUSINESS IMPROVEMENT DISTRICT TAXES AND CONTRIBUTIONS OF
CITY TRANSIENT OCCUPANCY TAXES
Tourism Business Improvement District (TBID) Taxes
The TBID was established in March 2003. The TBID is an assessment levied against each hotel and motel business in the City. The assessment is calculated as a percentage of eac h day’s Gross Occupancy Revenue and is passed through to guests. The rate of assessment is set annually by resolution of the City Council but cannot exceed 2.89%. For the fiscal year ended June 30, 2021, the rate was set at 2.89%. The purpose of the TBID i s to market Pasadena as a destination by funding activities, programs, expenses, and services of the Pasadena Convention & Visitors Bureau. Marketing activities of the Pasadena Convention & Visitors Bureau and the Pasadena Conference Center are financed by the TBID. For the year ended June 30, 2021, TBID taxes were $1,368,681, of which $202,575 was due from the City at June 30, 2021.
Contributions of City Transient Occupancy Taxes (TOT)
The Company receives support from the City equal to the su m of the ann ual debt service payments on the 2006A and 2008A expansion project bonds and an allowance of $500,000 to be used by the Company for maint enance, repairs, capital improvements and or debt service. A portion of this support is retained by the Cit y to pay for the Company’s insurance.
Annual capital improvements to the Convention Center, Civic Auditor ium and Ice Skating Center are approved by t he City. For the year ended June 30, 2021, net TOT revenue was $4,181,042, of which $741,936 was due from the City at June 30, 2021.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(20)
NOTE 4 CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2021, is as follows:
Balance at Transfers Balance at
June 30, 2020 Additions and Deletions June 30, 2021
Capital Assets Being Depreciated:
Buildings and Improvements 183,162,666$ -$ 1,065,232$ 184,227,898$ Machinery and Equipment 1,881,441 - - 1,881,441 Furniture and Fixtures 366,934 - - 366,934 Total Depreciable Capital Assets 185,411,041 - 1,065,232 186,476,273 Less Accumulated Depreciation:
Buildings and Improvements (58,040,114) (4,106,297) - (62,146,411) Machinery and Equipment (1,058,379) (75,064) - (1,133,443) Furniture and Fixtures (287,437) (13,125) - (300,562) Total Accumulated Depreciation (59,385,930) (4,194,486) - (63,580,416) Net Depreciable Assets 126,025,111 (4,194,486) 1,065,232 122,895,857 Land 2,423,473 - - 2,423,473 Construction in Progress 300,263 885,485 (1,065,232) 120,516 Capital Assets, Net 128,748,847$ (3,309,001)$ -$ 125,439,846$
Depreciation expense for the year ended June 30, 2021, was $4,194,486.
NOTE 5 LONG-TERM DEBT
Long-term debt for the year ended June 30, 2021, is as follows:
Balance at Additions/ Payments/ Balance at Due in
June 30, 2020 Accretion Prepayments June 30, 2021 One Year Certificates of Participation
2006 Series A 16,485,000$ -$ (5,145,000)$ 11,340,000$ 5,490,000$ Accreted Interest (1,507,413) 723,564 - (783,849) - Certificates of Participation
2008 Series A 134,720,000 - - 134,720,000 - Energy Conservation Loan 774,600 - (293,841) 480,759 305,560 Ice Skating Loan 2012 167,208 - (167,208) - - Total 150,639,395$ 723,564$ (5,606,049)$ 145,756,910$ 5,795,560$
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
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NOTE 5 LONG-TERM DEBT (CONTINUED)
2006 Certificates of Participation
On August 23, 2006, the City issued the 2006 Certificates of Participation, 2006 Series A and B in the amount of $162,639,972. The Certifica tes of Participation were issued to finance the cost of improvements to the Pasadena Conference Center and related facilities, establish a reserve fund per the Trust Agreement, and finance the cost of ex ecution and delivery of the Certificates of Participation.
2006 Series A of the Certific ates of Participation were issued as Capital Appreciation Certificates. These certificates of participation appreciate in value based on annual accretion of the initia l amount at a rate of interest that will result in each such capital appreciation certificate of participation appreciating to its maturity value on its final maturity date.
Accretion will commence on August 23, 2006. Interest accretes at a yield ranging f rom
3.85% to 4.81%. By their nature, there are no regul ar interest payments associated wi th capital appreciation certificates of participation; interest on the debt res ults from the difference between the amounts paid by the investors when the debt was iss ued and the significantly larger value at maturity. Each year, the outstanding balance is increased by the accreted value associated with the certificates of participat ion. Principal on the 2006 Series A Certificates of Participation is payable in annual i nstallments ranging from $415,000 to $5,850,000 commencing February 2010 and ending February 2023.
2006 Series B of the Certificates of Participation was refunded by t he 2008 Series A Certificates of Participation (see note below).
The annual requirements to repay the outstanding Certificates of Participation 2006 Series A at June 30, 2021, are as follows:
Principal
Year Ending June 30, Payment Accretion
2022 5,490,000$ (512,288)$
2023 5,850,000 (271,561)
Total 11,340,000$ (783,849)$
2008 Certificates of Participation
On April 15, 2008, the Ci ty issued the 2008 Refunding Cert ificates of Participation, 2008 Series A in the amount of $134,720,000. These certificates of participation were issued to refund the City’s Certificates of Participation (Conference Center Project), 2006 Series B Certificates of Participation and finance the costs of execution of the 2008 Series A Certificates of Participation. The refunded certificates of par ticipation were repaid in April 2008 and the liability has been removed from the statement of net positi on. Interest on 2008 Series A Certificates of Participation were issued at a variable rate with the reassignment of the synthetic fixed rate swap of 3.536 %. Principal is payable in annual installments ranging from $6,775,000 to $11,445,000 commencing February 1, 2024, and ending February 1, 2035.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
(22)
NOTE 5 LONG-TERM DEBT (CONTINUED)
2008 Certificates of Participation (Continued)
The annual requirements to repay the outstanding Certificates of Participation 2008 Series A at June 30, 2021, are as follows:
Principal Interest Hedging
Year Ending June 30, Payment Payment Derivative, Net Total 2022 -$ 148,367$ 4,554,513$ 4,702,880$ 2023 - 148,367 4,554,513 4,702,880 2024 6,775,000 145,258 4,457,804 11,378,062 2025 7,480,000 137,473 4,215,711 11,833,184 2026 8,260,000 128,878 3,948,572 12,337,450 2027-2031 54,370,000 483,560 14,752,769 69,606,329 2032-2035 57,835,000 130,639 3,506,123 61,471,762 Total 134,720,000$ 1,322,542$ 39,990,005$ 176,032,547$
The above table incorporates the net receipts/payments of the hedging derivative instrument associated with this debt issue. These amounts assume that current interes t rat es on variable rate bonds and the current reference rates of hedging derivative i nstruments will remain the same for their term. As these rates vary, interest payments on v ariable-rate bonds and net receipts/payments on the hedging derivative instrume nts will vary. Refer to Note 6 for additional informat ion regarding the derivative ins truments associated with the debt of the Company.
Energy Conservation Loan
The Company rec eived approval from the City in June 2008 to commence a project designed to conserv e energy through use of more efficient air conditi oning systems and energy efficient lighting. The project budget cost was $4,581,071; $1,560,000 was pledged by Pasadena Wat er and Power (PWP) as a rebate based on energy savings and $3,000,000 was covered by a loan from the California Energy Commission wit h an interest rate of 3.95% for 13 years. The payments on this $3,000,000 loan are budgeted at approximately $320,000 for 13 years.
The annual requirements to repay the outstanding loan fr om the State of C alifornia Energy Conservation Commission at June 30, 2021, are as follows:
Principal Interest Total Debt
Year Ending June 30, Payment Payment Service
2022 305,562$ 16,011$ 321,573$
2023 175,197 3,822 179,019 Total 480,759$ 19,833$ 500,592$
Ice Skating Loan 2012
The Company borrowed $1,500,000 per City Council Act ion in August 2012 for construction of the new Ice Skating Center. The term of t he loan is ten years w ith a fixed interest rate of
2.5%. The principal and interest payment of $171,388 is due annually in March. The final payment on this loan was made during the fiscal year ended June 30, 2021.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
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NOTE 6 DERIVATIVE INSTRUMENT LIABILITY
The Company has entered into a floating to fixed interest rate swap in order to hedge the change in cash flows with respect to certain variable debt as described below. This structure results in a lower borrowing cost by accessing interest rate markets more attractive than traditional fixed rate debt struc tures of the time. The greater liquidity and flexibil ity of the swap market has offered the Company significant cost savings opportunities in the swap the Company has engaged in.
Conference Center Variable Rate Demand Refunding Certificates of Participation (COP)
On September 18, 2006, the Company entered i nto an interest rate swap agreement with DEPFA Bank related to the $135,500,000 Conference Center Auction Rate Certificates Series 2006B. The objective w as to effectively change the Company’s variable interest ra te to a synthetic fixed rate of 3.536%. Under the terms of the swap, the Company pays the counterparty the fixed rate of 3.5 36% and receives a floating rate equal to 64% of the one- month LIBOR rate. The swap has a notional amount of $133,000,000 r epresenting a hedge ratio of 98.7% and declines accor ding to the schedule set forth in the contract until the final principal payment on the certificates in 2034.
Objective and Terms
Notional Effective Maturity Counterparty
Type Objective Amount Date Date Terms Credit Rating
Pay Fixed Interest Hedge of Changes 133,000,000$ 4/1/2011 2/1/2034 Pay 3.536% A1/AA- Rate Swap in Cash Flows on Receives 64%
the 2008A COPs LIBOR Index
In 2011, due to its declining credit ratings, D EPFA Bank was r eplaced by RBC as the counterparty for the s wap. Pursuant to GASB Statement No. 64, the replacement did not require any change in accounting treatment.
On April 15, 2008, the Company issued the 2008 Refunding COPs, Series 2008A in the amount of $ 134,720,000. These certi ficates were issued to refund the Company’s Certificates of Participation (Conference Center Project), Series 2006B and finance the cost of execution of the 2008A Certificates of Participation backed by a letter of credit from Bank of America. The final maturity on the 2008A COPs was extended by one year to 2035 in order to reduce the res erve requirement and consequently, reduce the size of the issue by approximately $800,000. The refunded certificates are considered to be defeased, and the liability has been removed from the Company’s statement of net position and recorded as a deferred amount upon refunding. During the fiscal year ended June 30, 2011, the Company entered into a new agreement to take advantage of a more advantageous interest rate adjustment mode than the 2008 Series Bonds previously had. As a result, the former derivative instrument terminated, and the new instrument has off -market terms. As a result, an up-front payment was received. The up- front payment is reported as a borr owing. The borrowing is amortized over the l ife of the swap and amortizes using the effective inter est method for the life of the swap with adjustments to interest expense duri ng each fiscal year.
The original balance of the borrowing was $8 ,935,613. As of the year ended June 30, 2021, the balance was $4,613,215.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
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NOTE 6 DERIVATIVE INSTRUMENT LIABILITY (CONTINUED)
Objective and Terms (Continued)
The deferred amount is amortized over the life of the swap us ing the e ffective interest method for the life of the s wap with adjustments to interest expense during each fiscal year as follows:
Beginning Accrued Ending
Year Ending June 30, Balance Interest Payment Balance
2022 4,613,215$ 199,651$ (646,380)$ 4,166,486$ 2023 4,166,486 179,003 (646,380) 3,699,109 2024 3,699,109 157,461 (635,404) 3,221,166 2025 3,221,166 136,068 (601,344) 2,755,890 2026 2,755,890 115,332 (563,760) 2,307,462 2027 2,307,462 95,454 (522,409) 1,880,507 2028 1,880,507 76,649 (477,171) 1,479,985 2029 1,479,985 59,154 (427,721) 1,111,418 2030 1,111,418 43,226 (373,774) 780,870 2031 780,870 29,157 (315,009) 495,018 2032 495,018 17,258 (251,140) 261,136 2033 261,136 7,877 (181,805) 87,208 2034 87,208 1,487 (88,695) - Total 1,117,777$ (5,730,992)$
The Company categorizes its fair value measurements within the fair value hierarchy established by U.S. GAAP. The hierarchy is based on the valuation inputs used to measure the fair value of the asset or liability . Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are quoted prices in active markets for similar assets; Level 3 inputs are significant unobservable inputs.
The Company has the following recurring fair value measurements as of June 30, 2021:
Measurements by Fair Value Level Total Level 1 Level 2 Level 3 Derivative Instrument Liability 25,068,456$ -$ 25,068,456$ -$
The fair value balance and not ional amount of the derivative instrument outst anding at June 30, 2021, classified by type, and the changes in fair v alue of such derivative instruments for the year then ended are as follows:
Classification Amount Classification Amount Notional
Cash Flow Hedge:
Pay-Fixed Interest Rate Deferred
Swaps Outflow (8,338,494)$ Liability 25,068,456$ 133,000,000$ Changes in Fair Value Fair Value at June 30, 2021
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
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NOTE 6 DERIVATIVE INSTRUMENT LIABILITY (CONTINUED)
Objective and Terms (Continued)
The fair values of the interest rate swaps were estimated using the zero- coupon method.
This method calculates the future net settlement payments required by the swap, assuming that the current forward rates implied by the yiel d curve correctly anticipate future spot interest rates. These payments are t hen discounted using the spot rates im plied by the current yield curve for hypot hetical zero-coupon bonds due on the dat e of each future net settlement on the swaps.
Credit Risk
The Company is exposed to cr edit risk on hedging derivative instruments to the extent the value of the swap is positive from the Company’s perspective. The aggregate fair value of hedging derivativ e instruments was negative as of June 30, 2021, and therefore the Company had no credit risk exposure.
Interest Rate Risk
The purpose of the swap is to eliminate interest rate risk on the associated hedged bonds and therefore the swap, in combination with related bonds does not create interest rate risk for the Company.
Basis Risk
The Company is ex posed to basis risk on its pay -fixed i nterest rate swap because the variable-rate payments received by the Company on these hedging derivative instruments are based on a rate or i ndex other than interest rates the C ompany pays on its hedged variable-rate debt, which is typically remarketed every seven days. As of June 30, 2021, the weighted-average interest rate on the Company’s hedged variable -rate debt is 0.01433%, while 64% of LIBOR is 0.0594%.
Termination Risk
The Company or its counterparty may terminate a derivative instrument if the other party fails to perform under the terms o f the contract. The derivative contract uses the International Swap Dealers Association Master Agreement which includes standard termination events such as failure to pay and bankruptcy. In addition, the Company may optionally terminate the agreement on any date. If at the time of a termination, the Company may be required to make a termination paym ent to its counterparty. If the Company had to terminate the Swap for any reason on June 30, 2021, the maximum exposure/l oss would have been $30,683,055.
Rollover Risk
The Company is exposed to rollover risk on hedging derivative instruments that are hedges of debt that mature or may be te rminated prior to the maturity of the hedged debt. When these hedging derivative instr uments terminate prior to the maturity of the related debt, the Company will be re-exposed to the risks being hedged by the hedging derivative instrument.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
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NOTE 7 NET POSITION
Net position at June 30, 2021, consisted of the following:
Net Investment in Capital Assets:
Property, Plant, and Equipment, Net 125,439,846$
Less: Net Carrying Value of
Capital-Related Debt (120,331,238)
Total Net Investment in Capital Assets 5,108,608
Restricted Net Position:
Public Art 867,377
Organ Repair and Maintenance 2,863
Total Restricted Net Position 870,240
Unrestricted Net Position:
Undesignated (13,003,464)
Total Unrestricted Net Position (13,003,464)
Total Net Position (7,024,616)$
Net position restrictions are as follows:
Public Art – The $1.2 million capital public art project was original ly appropriated for the development of onsite public art. The funds, less m onies spent on artist selection, were reallocated for per manent public art in the Civic Center area through the 2013 Public A rt Master Plan, which also established the Civic Center Public Art Advisory Group comprised of arts and historic preservation professionals.
Organ Repair and Maintenance – This is the r emaining balance of a $15,000 grant whi ch was received for the repair and maintenance of the Moller organ located in the Pasadena Civic Auditorium.
NOTE 8 SERVICE CONCESSION ARRANGEMENTS
Centerplate
In the fiscal year ended June 30, 2009, the Company entered in to an agreement with Boston Culinary Gr oup, which then changed to Distinctive Gourmet Services, but is now called Centerplate (CP), that allows CP the exclusive right to operate the food services concession for the Company. The agreement covered the period March 1, 2009, through June 30, 2014. In exchange for this exclusive right, CP agreed to contribute up to $1,000,000 for capital asset purchases at the new kitchen in the Conference Center Expansion Project. An amendment to the agreement was made and enter ed into on January 6, 2012 to extend t he term of the agreem ent for five years, expiring on June 30, 2021 with an additional five-year extension that is eligible, contingent upon mutual agreement between CP and the Company.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
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NOTE 8 SERVICE CONCESSION ARRANGEMENTS (CONTINUED)
Centerplate (Continued)
With the amended agreement, CP was additionally granted the exclusive right to operate a Starbucks Café at the Pasadena Center in the space formerly leased by Lovebirds Café & Bakery. CP’s ability to operate the Starbucks Café runs concurrently with the initial agreement entered into on March 1, 2009 and cover s the period through June 30, 2021. A second amendment to the agreement was entered into on June 28, 2019 to extend the agreement an additional five years expiring on June 30, 2024.
Prior to July 1, 2019, CP provided $975,000 for Kitchen space and $399,960 for Café space.
As of June 30, 2021, CP has contri buted a total of $ 1,580,184. This has been recorded as advances on contracts and is being amortized over the lease period including extensions.
The sum of $1,310,610 has been recognized as capital contributions to date. The remaining $269,574 is recorded as a deferred inflow of resources.
NOTE 9 DEFINED CONTRIBUTION RETIREMENT PLAN
Plan Description
Eligible employees of the Company participate in the Pasadena Center Operating Company 401(k) Profit Sharing Plan (the Plan), which is a defined contr ibution retirem ent plan covering all employees except those whose employment is governed by a collect ive bargaining agreement. To be eligible to participate in the Plan, an employee must be age 21 and have completed 90 consecutive days of employment. To be eligible for the employer’s match, an employee must be age 21 and have complet ed one full year of em ployment and must have 1,000 hours of service in a twelve-month period.
Funding Policy
An employee may either defer an amount of their salary on a pre- tax basis, or con tribute after tax dollars to a Roth 401k account up to the maxim ums allowed by federal law. The Company will make a contribut ion equal to 5% of eligible employees’ pay regardless of whether an employee contributes to the Plan. Employee contr ibutions are ve sted immediately. Employer match contributions prior to July 1, 2004, are subject to vesting on a graduating basis, beginning at two years and becoming fully ves ted after five years of service. Employer match contributions after July 1, 2004, are vested im mediately. The Company matched $165,442 for the fiscal year ended June 30, 2021. The total c losing balance on the Plan’s assets are $7,399,359 for the fiscal year ended June 30, 2021.
PASADENA CENTER OPERATING COMPANY
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2021
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NOTE 10 RELATED PARTY TRANSACTIONS
During the current year , the Company incurred charges for the us e of the City’s buildi ng maintenance, electricians , plumbers, locksmiths, printing, and mail services. These nonevent expenses totaled $1, 060,004 and had a total of $2,620 in ev ents expenses for a grand total of $1,062,624 of related party expenses . The ex penses are included wi thin general and administrative expenses. At June 30, 2021, there were no amounts payable to the City.
In addition to the revenues and receiv ables described in Note 3, the Company has $22,121 due from the City related to interest earned on cash and investments pooled with the City at June 30, 2021.
NOTE 11 RISK MANAGEMENT
The Com pany is entitled to indemnity fr om the City; however, the Company purchases a Special Liability Insurance P rogram (SLIP) for general liability and employment practice coverage. The City manages the Company’s claims and tenders to the insurance carrier third party administrator. The Company carries statutory workers’ compensation insuran ce with no retention. The company requires licensees to provide insurance or purchase Special Events Liability Ins urance from the Company. The City buys liability insurance on the parking structures at the Convention Center. The Company buys separate liability insurance on the ic e rink. There are lawsuits pending that are being defended by an insurance company without a reservation of rights. During the past three fiscal years, no settlements or judgements exceeded insurance coverage.
NOTE 12 SUBSEQUENT EVENT
On September 22, 2021, the Company received federal financial assistance in the amount of $2,144,012 through the shuttered venue operators grant from the U.S . Small Business Administration. The purpose of this grant is to provide capital to help an organization survive the COVID-19 pandemic.
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INDEPENDENT AUDITORS’ REPORT ON INTERNAL CONTROL OVER
FINANCIAL REPORTING AND ON COMPLIANCE AND OTHER MATTERS
BASED ON AN AUDIT OF FINANCIAL STATEMENTS PERFORMED
IN ACCORDANCE WITH GOVERNMENT AUDITING STANDARDS
Board of Directors
Pasadena Center Operating Company
Pasadena, California
We have audited, in accordance with the auditing standards generally accepted in the United States of America and the standards applicable to fi nancial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial statements of Pasadena Center Operating Company (the Company),a component unit of the City of Pasadena, California, as of and for the year ended June 30, 2021, and the related notes to t he financial statem ents, which collectiv ely comprise the C ompany’s basic financial statem ents, and have issued our report thereon dated December 15, 2021.
Internal Control Over Financial Reporting
In planning and performing our audit of the financial statements, we considered the Company’s internal control over financial reporting (internal control) a s a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinion on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.
Accordingly, we do not express an opinion on the effectiveness of the Company’s internal control.
A deficiency in internal co ntrol exists when the design or operation of a control does not allow management or employees, in the normal course of perfor ming their assigned functions, to prevent or detect and correct misstatements on a timely basis. A material weakness is a deficienc y or a combination of deficiencies in internal control such that there i s a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented or detected and corrected on a timely basis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less severe than a material weakness, y et important enough to merit attention by those charged with governance.
Our consideration of internal control was for the limited purpose described in the first paragraph of this section and was not designed to identify all deficiencies in internal control tha t migh t be material weaknesses or significant deficiencies. Given these limitations, during our audit we did not identify any deficiencies in internal control that we consider to be material weaknesses. Howe ver, material weaknesses may exist that have not been identified.
CLA is an independent member of Nexia International, a leading, global network of independent accounting and consulting firms. See nexia.com/member-firm-disclaimer for details.
CliftonLarsonAllen LLP
CLAconnect.com
Board of Directors
Pasadena Center Operating Company
(30)
Compliance and Other Matters
As part of obtaining reasonable assurance about whether the Company’s financial statements are free from material misstatement, we performed tests of its c ompliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and material effect on the financial statements. However, providing an opinion on compliance with thos e provisions was not an objective of our audit, an d accordingly, we do not express such an opinion. The results of our tests disclosed no instances of non compliance or other mat ters that are required to be reported under Government Auditing Standards.
Pur
pose of this Report
The purpose of this re port is solely to descri be the scope of our testing of internal control and compliance and the results of tha t testing, and not to pr ovide an opinion on the effectiveness of the entity’s internal control or on com pliance. This report is an integral part of an audit pe rformed in accordance with Government Auditing Standards in considering the entity’s internal control and compliance. Accordingly, this communication is not suitable for any other purpose.
CliftonLarsonAllen LLP
Irvine, California
December 15, 2021