PASADENA CENTER OPERATING COMPANY
(A COMPONENT UNIT OF THE
CITY OF PASADENA, CALIFORNIA)
FOR THE YEAR ENDED JUNE 30, 2025
FINANCIAL STATEMENTS WITH
INDEPENDENT AUDITORS’ REPORT
Attachment C
PASADENA CENTER OPERATING COMPANY
(A COMPONENT UNIT OF THE
CITY OF PASADENA, CALIFORNIA)
Financial Statements With
Independent Auditors’ Report
For the Year Ended June 30, 2025
PASADENA CENTER OPERATING COMPANY
(A COMPONENT UNIT OF THE CITY OF PASADENA, CALIFORNIA)
Financial Statements with Independent Auditors’ Report
For the Year Ended June 30, 2025
Table of Contents
Page
INDEPENDENT AUDITORS’ REPORT ................................................................................................................... 1
MANAGEMENT’S DISCUSSION AND ANALYSIS ........................................................................................................ 4
BASIC FINANCIAL STATEMENTS
Statements of Net Position ....................................................................................................................................... 9
Statements of Revenues, Expenses, and Changes in Net Position ................................................................ 1 0
Statements of Cash Flows ............................................................................................................................... 11
Notes to the Basic Financial Statements ......................................................................................................... 12
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........................................................................................................ 28
LSLCPAS.COM
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors
Pasadena Center Operating Company
Pasadena, California
Report on the Audit of the Financial Statements
Opinion
We have audited the accompanying financial statements of the Pa sadena Center Operating Company (the “Company”),
a component unit of the City of Pasadena, California, as of and for the year ended June 30, 2025, and the related notes to the financial statements, which collec tively comprise the Company’s basic financial statements as listed in the table of contents.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company, as of June 30, 2025, and the changes in financial position, and cash flows thereof, as listed in the table of contents, for the year then ended in accordance with a ccounting principles generally accepted in the United States of America.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards , issued by the Comptroller General of the United States. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial State ments section of our report. We are required to be independent of the Company and to meet our other ethical responsibilities, in accordance with the relevant ethical requirements relating to our audit. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Emphasis of Matter
As discussed in Note 1, the financial statements present only the Pasadena Center Operating Company and do not purport to, and do not, present fairly the financial position of the City as of June 30, 2025, the changes in its financial position, or, where applicable, its cash flows for the year the n ended in accordance with accounting principles generally accepted in the United States of America. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States of America, and for 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.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for twelve months beyond the financial statement date, includin g any currently known information that may raise substantial doubt shortly thereafter.
To the Board of Directors
Pasadena Center Operating Company
Pasadena, California
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to is sue an auditors’ report that includes our opinions.
Reasonable assurance is a high level of assurance but is not absolute assurance and therefore is not a guarantee that an audit conducted in accordance with generally accepted a uditing standards and Government Auditing Standards will always detect a material m isstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a reasonable user based on the financial statements.
In performing an audit in accordance with generally accepted au diting standards and Government Auditing Standards, we:
• Exercise professional judgment and maintain professional skept icism throughout the audit.
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and perform audit procedures responsive to th ose risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
• Obtain an understanding of inter nal control relevant to the audit 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 Company’s internal control. Accordingly, no such opinion is expressed.
• Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
• Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
Required Supplementary Information
Accounting principles generally accepted in the United States of America require that the management’s discussion and analysis as listed on the table of contents be presented to supplement the basic financial statements. Such information is the responsibility of management and, 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 operat ional, 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 preparing the information 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 assuran ce on the information because the limited procedures do not provide us with sufficient evidence to express an opinion or provide any assurance.
2 To the Board of Directors
Pasadena Center Operating Company
Pasadena, California
Other Reporting Required by Government Auditing Standards
In accordance with Government Auditing Standards, we have also issued our report dated December 23, 2025, on our consideration of the Company’s internal control over fin ancial reporting and on our tests of its compliance with certain provisions of law s, regulations, contracts, and gr ant agreements and other matters. The purpose of that report is solely 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. Tha t 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.
Irvine, California
December 23, 2025
3 PASADENA CENTER OPERATING COMPANY
(A Component Unit of the City of Pasadena)
Management’s Discussions and Analysis
As 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, 2025. The PCOC's financial statements consist of manag ement's discussion and analysis (MD&A), statement of net position; statement of revenues, expen ses, 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 accomp anying basic financial statements and the accompanying notes.
BACKGROUND
The PCOC 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 PCOC is funded by revenue from its facilities, proceeds fro m 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 in fiscal year 2025 is (4.89 percent) with 2% allocated to the Rose Bowl Stadium for Sales and Marketing to secure additional major events and room night generation.
ABOUT OUR BUSINESS
The PCOC operates 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 foot Exhibitio n Hall, 25,000 square foot Ballroom, 18 meeting rooms of varying sizes, the Historic Civic Auditorium that seats 3,000, the Gold Room, and a 17,000 square foot Exhibit Hall. The PCOC also manages a regulation-sized ice-skating rink onsite.
The Pasadena Convention and Visitor's Bureau (PCVB) attracts hundreds of thousands of people to the City annually, enriching the local economy with hotel and retai l spending and other direct spending on goods and services.
PCVB 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.
MANAGEMENT OBJECTIVE AND STRATEGY
The Company'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 contr actors to achieve its priority and remain competitive in the meeting industry.
4 PASADENA CENTER OPERATING COMPANY
(A Component Unit of the City of Pasadena)
Management’s Discussions and Analysis
OVERVIEW 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, 2025. 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 Statement of Revenues, Expenses, and Changes in Net Positio n 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 Statement 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.
SUMMARY OF FINANCIAL PERFORMANCE
In fiscal year 2025, the PCOC core business continued to be strong. The major increase in revenue was mainly due to the one-time payment associated with housing the community during the Eaton fire.
During fiscal year 2025, the company's cash and cash equivalent s rose by $3 million due to operational activities. However, capital assets declined by $2.3 million, primarily due to depreciation expense of $4.1 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. Defe rred outflows of resources increased $1.4 million from 2024 to 2025, 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 increased by $1.1 million compared to the fiscal year 2024.
Deferred inflows of resources for PCOC are related to the defer red refunding charges and an upfront amount received as part of a ser vice concession agreement with Sodexo Live! Deferred inflows of resources decreased by $508,000 from 2024 to 2025.
5 PASADENA CENTER OPERATING COMPANY
(A Component Unit of the City of Pasadena)
Management’s Discussions and Analysis
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 ded ucted. PCOC's net position at the end of FY 2025 totaling $25,355,877 increased by $10,864,280 during th e year. Net position is reported in three major categories: net investment in capital assets, restricted, and unrestricted. A full explanation is in Note 8 to the basic financial statements.
The portion of net position classified as net investment in capital assets, representing capital assets net of accumulated depreciation and net of related outstanding liabilities is $17.8 million at year end. Although PCOC's net investment in capital assets is net 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 increased to $2.3 million in fiscal year 2025. $867,000 of this amount represents funds restricted to public art.
2025 2024
Cash and investments $ 36,819,188 $ 33,424,217
Receivables and other assets 118,352,029 118,754,193 Total assets 155,171,217 152,178,410
Deferred outflows of resources 4,721,080 3,288,799
Current liabilities 13,278,126 12,158,119 Noncurrent liabilities 118,497,057 125,548,254
Total liabilities 131,775,183 137,706,373
Deferred inflows of resources 2,761,237 3,269,239
Net position (deficit)
Net Investments in Capital Assets
17,834,305
12,908,481
Restricted 2,362,438 870,240
Unrestricted 5,159,134 712,876
Net position (deficit) $ 25,355,877 $ 14,491,59 7
RESULTS OF OPERATIONS
Operating Revenues
Fiscal year 2025 operating revenue equaled $14.4 million, representing a 12% increase from the previous fiscal year. R evenues for PCOC were recognized through space rental and all a ncillary services (such as food & beverage, parking, etc.). The major increase in revenue was mainly due to fire related revenues associated with housing the community from January 7 th, 2025 through February 17 th, 2025 during the Eaton Fire. Key revenue drivers were:
• Television production, Award shows, Conferences, and Conventions • Pasadena Ice Skating Center skating classes and hockey league games • Parking from events at the facility and short-term leases • One-time payment for housing fire victims during the Eaton Fire
6 PASADENA CENTER OPERATING COMPANY
(A Component Unit of the City of Pasadena)
Management’s Discussions and Analysis
Operating Expenses
In fiscal year 2025, total operating expenses increased to $19 million from $17.5 million, an increase of 8%.
The increase was driven by events, an increase in occupancy-related expenses, and one-time Eaton Fire expenses. Depreciation/amortization expense, primarily for the convention center building, amounted to $4.1 million.
PCVB contracted and direct expenses in the fiscal year 2025 tot aled $4.1 million, an increase of 12% compared to $3.7 million in 2024. The increase in PCVB spending is a direct effort to refocus on maximizing the return of the tourism, meeting and conventions industry.
Non-operating Revenues (Expenses), Net
Non-operating revenues, mainly from the Transient Occupancy Tax and the Tourism Business Improvement Tax, reached $17 million, which is an increase of 8%. Interest and other operating expenses rose by $820,000 compared to FY24.
Capital Contributions
Capital contributions include $42,276, which is recognized as revenue from the $1.6 million contribution paid by SodexoLive!. The remainder of the $5,347 unamortized am ount paid by SodexoLive! will be recognized in equal monthly installments over the life of the agreement with PCOC.
2025 2024
Operating revenues $ 14,405,928 $ 12,877,474
Operating expenses 19,056,880 17,562,552
Operating loss (4,650,952) (4,685,078)
Nonoperating revenues, net 15,472,506 14,999,303
Income before capital contributions 10,821,554 10,314,225 Capital Contributions 42,276 69,390
Change in net position 10,864,280 10,383,615
Net position, beginning of year 14,491,597 4,107,982 Net position, end of year $ 25,355,877 $ 14,491,597
CAPITAL ASSETS
PCOC's investment in capital assets as of June 30, 2025 and 2024, amounts to $114,394,138 and $116,662,066, respectively (net of accumulated depreciation). This investment in capital assets includes building and improvements, machinery and equipment, furniture a nd fixtures, land, and construction in progress. The net decrease in PCOC's investment in capital asse ts, net of depreciation, for the current fiscal year was $2.3 million. Additional information on PCOC's capital assets can be found in Note 4 of the financial statements.
7 PASADENA CENTER OPERATING COMPANY
(A Component Unit of the City of Pasadena)
Management’s Discussions and Analysis
CAPITAL ASSETS (CONTINUED)
June 30, 2025 June 30, 2024
Buildings and improvements $ 108,210,378 $ 111,966,630 Machinery and equipment 613,780 666,535
Furniture and fixtures 84,675 104,735
Lease assets 142,751 14,742
Subscription assets 312,910 502,304
Land 2,423,473 2,423,473
Construction in progress 2,606,171 983,648
Total $ 114,394,138 $ 116,662,066
DEBT ADMINISTRATION
As of June 30, 2025, PCOC’s long-term debt outstanding balance amounted to $123,167,381, a decrease of $7.7 million from 2024 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, 2025 June 30, 2024
COP 2008 Series A Capital Appreciation Bonds $ 120,465,000 $ 127,945,000 COP Capital Improvement Loan 2,281,924 2,500,000
Lease Payable 144,488 14,476
Subscriptions Payable 275,969 437,976
Total $ 123,167,381 $ 130,897,452
REQUEST FOR INFORMATION
This 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.
8 PASADENA CENTER OPERATING COMPANY
Statement of Net Position
June 30, 2025
Assets
Current:
Cash and investments 4,161,495$
Investments 23,709,175
Accounts receivable (net of allowance of $203,744) 3,481,951 Due from the City of Pasadena 342,821
Prepaid assets 133,119
Restricted:
Cash and investments with fiscal agent 8,948,518
Total Current Assets 40,777,079
Noncurrent:
Capital assets not being depreciated 5,029,644
Capital assets, net of accumulated depreciation/amortization 109,364,494 Total Noncurrent Assets 114,394,138
Total Assets 155,171,217
Deferred Outflows of Resources
Accumulated decrease in fair value of hedging derivatives 4,042,429 Deferred charge on refunding 678,651
Total Deferred Outflows of Resources 4,721,080
Liabilities
Current:
Accounts payable and other liabilities 1,451,657
Interest payable 454,718
Accrued salaries and benefits 1,039,147
Advance deposits payable 1,619,851
Leases payable 77,041
Subscriptions payable 151,093
Long-term debt - due within one year 8,484,619
Total Current Liabilities 13,278,126
Noncurrent:
Leases payable 67,447
Subscriptions payable 124,876
Derivative instrument liability 4,042,429
Long-term debt 114,262,305
Total Noncurrent Liabilities 118,497,057
Total Liabilities 131,775,183
Deferred Inflows of Resources
Deferred charge on refunding 2,755,890
Service concession arrangement 5,347
Total Deferred Inflows of Resources 2,761,237
Net Position
Net investment in capital assets 17,834,305
Restricted 2,362,438
Unrestricted 5,159,134
Total Net Position 25,355,877$
See Notes to Financial Statements.
9 PASADENA CENTER OPERATING COMPANY
Statement of Revenues, Expenses,
And Changes in Net Position
For the Year Ended June 30, 2025
Operating Revenues
Occupancy fees 6,785,328 $
Ice skating center 3,131,475
Parking 2,070,551
Commissions 2,418,574
Total Operating Revenues 14,405,928
Operating Expenses
Pasadena center 8,754,015
Ice skating center 2,084,382
Pasadena convention and visitors bureau 4,103,680
Depreciation/amortization expense 4,114,803
Total Operating Expenses 19,056,880
Operating Loss (4,650,952)
Nonoperating Revenues (Expenses)
Transient occupancy taxes 12,348,046
Tourism business improvement district tax 4,700,123
Facility restoration fee 122,580
Investment income 2,792,728
Interest expense (4,160,791)
Loss on disposal of capital assets (57,600)
Miscellaneous (272,580)
Total Nonoperating Revenues (Expenses) 15,472,506
Income before Capital Contributions 10,821,554
Capital contributions 42,726
Changes in Net Position 10,864,280
Net Position, Beginning of Year 14,491,597
Net Position, End of Year 25,355,877$
See Notes to Financial Statements.
10 PASADENA CENTER OPERATING COMPANY
Statement of Cash Flows
For the Year Ended June 30, 2025
Cash Flows from Operating Activities
Cash received from customers 12,375,220$
Cash paid to suppliers of goods and services (6,599,926) Cash paid to employees for services (8,641,277)
Net Cash Used in Operating Activities (2,865,983)
Cash Flows from Non-Capital Financing Activities
Contributions from the City of Pasadena (Transient Occupancy Taxes) 12,973,946 Receipt of Tourism Business Improvement District Taxes 4,683,546 Miscellaneous nonoperating (272,580)
Net Cash Provided by Non-Capital Financing Activities 17,384,912 Cash Flows from Capital and Related Financing Activities Acquisition and construction of capital assets (1,439,558) Principal paid on long-term debt (8,012,184)
Interest paid on long-term debt (4,509,533)
Facility restoration fee for capital improvements 122,580 Net Cash Used in Capital and Related Financing Activities (13,838,695) Cash Flows from Investing Activities
Investment income received (4,863,192)
Change in fair value of cash equivalents 7,577,929
Net Cash Provided by Investing Activities 2,714,737
Net Increase in Cash and Cash Equivalents 3,394,971
Cash and Cash Equivalents at Beginning of Year 33,424,217 Cash and Cash Equivalents at End of Year 36,819,188$
RECONCILIATION OF CASH AND CASH EQUIVALENTS
TO THE STATEMENT OF NET POSITION
Cash and cash equivalents 4,161,495$
Investments 23,709,175
Restricted cash and investments with fiscal agent 8,948,518 Total cash and cash equivalents 36,819,188$
Operating Loss (4,650,952)$
Adjustments to Reconcile Operating Loss to
Net Cash Used in Operating Activities
Depreciation and amortization 4,114,803
(Increase) decrease in accounts receivable (2,367,078)
Increase (decrease) in prepaid assets (30,019)
Increase (decrease) in accounts payable and other liabilities (381,845) Increase (decrease) in salaries and benefits 112,738
Increase (decrease) in advance deposits payable 336,370 Total Adjustments 1,784,969
Net Cash Used in Operating Activities (2,865,983)$
Non-Cash Investing, Capital, and Financing Activities:
Amortization of deferred refunding charges 387,716$
Amortization of service concession arrangement 42,726
Purchase of capital assets on account (182,965)
Acquisition of subscription and lease assets (281,952)
Gain/(Loss) on disposal of capital assets (57,600)
Reconciliation of Operating Loss to Net Cash
Used in Operating Activities
See Notes to Financial Statements.
11 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A. Reporting Entity
The Pasadena Center Operating Company (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 comprised of the Civic Auditorium, which includes the auditorium and adjacent land, and the Conference C enter, which includes the Conference Center, Exhibition Hall, and related parking facilities.
The Company operates under an agreement with the City of Pasadena (the City) whereby the Company maintains and operates the Pasadena Center and the Pasadena Con vention 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 a ccounted for as a discretely presented component unit in the City’s Comprehensive Annual Financial Report consistent with accounting principles generally accepted in the United States of America.
B. Basis of Presentation
The Company’s basic financial 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.
C. Basis of Accounting
The Company is accounted for as an enterprise fund (proprietary fund type). A fund is an accounting entity with a self-balancing set of accounts established to record the financ ial position and results of operations of a specific governmental activity. The activities of enterprise funds close ly resemble those 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 o n a continuous basis and are substantially financed by revenues derived from user char ges. The Company utilizes the accrual basis of accounting. Revenues are recognized when earned and expenses are recognized as they are incurred.
D. 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.
Operating revenues consist of charges to customers for sales an d use of the facilities, with the relating costs considered operating expenses. Nonoperating revenues consist of transient occupancy taxes and tourism business improvement district taxes received from the City, investment income, and other nonoperating income. Capital contributions consist of contributed capital assets.
E. Cash and Cash Equivalents
For the purpose of the statement of cash flows, cash equivalent s 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 in terest rates and have an original maturity date of 3 months or less.
F. 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 interest rates. Changes in fa ir value that occur during the fiscal year are recognized as investment earnings reported for that fiscal year. 12 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment earnings includes interest earnings, changes in fair value, and any gain s or losses realized upon the liquidation or sale of investments.
G. Prepaid Assets
Certain payments to vendors, which reflect costs applicable to future accounting periods are recorded as prepaid assets.
H. Lease/Subscription Assets
Lease/subscription assets are assets are recorded at the present value of the lease/subscription liability, including expenses to place the asset into service, and are amortized over the lesser of the lease/subscription term or the asset’s useful life.
I. Capital Assets
Capital assets are valued at cost where historical records are available and at an estimated historical cost where no historical records exist. Donated assets are valued at their estimated fair value on the date received. The Company capitalizes all assets with a historical cost of at lea st $10,000 consistent with City practice. The cost of normal maintenance and repairs that do not add to the value of the assets or materially extend asset lives are not capitalized. Interest incurred during the construction phase of capital assets is included as part of the capitalized value of the assets constructed.
Depreciation/amortization is computed utilizing the straight-line method over the following estimated useful lives:
Buildings 50 years
Buildings improvements 3-30 years
Machinery and equipment 3-30 years
Furniture and fixtures 10 years
Lease and subscription assets 2-5 years
J. Compensated Absences
The Company has a paid time off (PTO) policy in effect. It is t he Company’s policy to permit employees to accumulate earned but unused PTO benefits. PTO hours can accrue up to a maximum of one and one-half times the annual allowable amount (maximum of 27 to 42 days, 216 to 3 36 hours). The Company pays all earned PTO benefits upon termination. All accumulated PTO is recorded as a n 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.
K. 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 capital assets, restricted, and unrestricted.
Net investment in capital assets consists of the cost of capital assets, net of accumulated depreciation/amortization, 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 limitatio ns imposed on the use either through the enabling legislation adopted by the Company’s Board of Directors, or thr ough external restrictions imposed by creditors, grantors, or laws or regulations of other governments. All other net position is reported as unrestricted.
When both restricted and unrestricted resources are available for use, it is the Company’s policy to use unrestricted resources first, and then restricted resources as they are needed. 13 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
L. Use of Estimates
The preparation of financial st atements in conformity with acco unting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
M. Deferred Outflows/Inflows of Resources
In addition to assets, the statement of financial position will sometimes report a separate section for deferred outflows of resources. This separate financial statement elemen t, deferred outflows of resources, represents a consumption of net assets that applies to a future period(s) and so will not be recognized as an outflow of resources (expense/ expenditure) until then. The Company has two items that qualify for reporting in this category:
The deferred accumulated decreas e in fair value of hedging deri vatives represents the negative fair value of the Company’s hedging interest rate swap.
The deferred charge on refunding results in the difference in the carrying value of refunded debt and its reacquisition price. The amount is deferred and amortized over the life of the refunded or refunding debt.
In addition to liabilities, the statement of financial position will sometimes report a separate section for deferred inflows of resources. This separate financial statement element, deferred inflows of resources, represents an acquisition of net assets that applies to a future period(s) an d so will not be recognized as an inflow of resources (revenue) until that time. The Company has three items that qualify for reporting in this category. These items relate to leases, the deferred inflows for deferred charge on the refunding of debt, and service concession arrangements, and are reported in the statement of net position for business-type activities.
N. New GASB Pronouncements Eff ective during Fiscal Year
The following Government Accounting Standards Board (GASB) pronouncement was effective for and implemented for the fiscal year ended June 30, 2025:
1. GASB Statement No. 101, Compensated Absences
The requirements of this Statement will improve financial reporting by implementing a unified recognition and measurement model that will result in a liability for compensated absences that more appropriately reflects when a government incurs an obligation. Establishing the unified model will result in consistent application to any type of compensated absence and will e liminate potential comparability issues between governments that offer different types of leave. This Statement will also result in a more robus t estimate of the amount of compensated absences that a government will pay or settle, which will enhance the relevance and reliability of information about the liability for compensated absences.
2. GASB Statement No. 102, Certain Risk Disclosures
The requirements of this Statement will improve financial reporting by providing users of financial statements with essential information that currently is not often provided. The disclosures will provide users with timely information regarding certain concentrations or constraints and related events that have occurred or have begun to occur that make a government vulnerable to a substantial impact. As a result, users will have better information with which to understand and anticipate certain risks to a government’s financial condition.
Management has assessed the impact of this Statement on the Company's financial statements and determined that it did not have a material impact.
14 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 2: CASH AND INVESTMENTS
A. Summary of Cash and Investments
Cash and investments as of June 30, 2025, are classified in the accompanying financial statements as follows:
Cash and investments as of June 30, 2025, consist of the following:
B. Deposits
At June 30, 2025, the carrying amount of the Company’s deposits were $4,147,595 and the bank balance was $4,374,607. The $227,012 difference represents outstanding checks and other reconciling items. All the Company’s cash and cash equivalents as of June 30, 2025, were collaterali zed or insured with securities held by pledging financial institutions in the Company’s name.
C. Custodial Credit Risk
Custodial credit risk for deposits is the risk that, in the eve nt of the failure of a depository financial institution, a government will not be able to recover its deposits or will not be able to recover collateral securities that are in the possession of an outside party. The custodial credit risk for investments is the risk that, in the event of the failure of the counterparty (e.g., broker- dealer) to a transaction, a gove rnment will not be able to recover the value of its investment or collateral securities that are in the possession of another party. The California Government Code does not contain legal or policy requirements that would limit the e xposure to custodial credit risk for deposits or investments, other than the following provision for deposits: The California Government Code requires that a financial institution secure deposits made by state or local governmental units by pledging securities in an undivided collateral pool held by a depository regulated under state law (unless so waived by the governmental unit). The fair value of the pledged securities in the collateral pool must equal at least 110% of the total amount deposited by the public agencies. California law also allows financial institutions to secure the Company’s deposits by pledging first trust deed mortgage notes having a value of 150% of the secured public deposits.
Cash and cash equivalents 4,161,495$
Investments 23,709,175
Cash and investments with fiscal agent 8,948,518
Total cash and inv estments 36,819,188$
Cash on hand 13,900$
Deposits with financial institutions 4,147,595
City of Pasadena Investment Pool 23,709,175
Cash and inv estments with fiscal agent:
Federal agency securities 7,812,815
Money market mutual funds 1,023,924
Cash held for investments 111,779
Total cash and inv estments 36,819,188$
15 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 2: CASH AND INVESTMENTS (CONTINUED)
D. Investments Authorized by th e California Government Code
The table below identifies the investment types 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.
* Based on state law requirements or investment policy requirements, whichever is more restrictive.
E. 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 Code or the Company’s investment policy. The table below identifies the investment types that are authorized for investm ents held by the bond trustee. The table also identifies certain provisions of these debt agreements that address interest rate risk and concentration of credit risk.
F. Disclosures Relating to Interest Rate Risk
Interest rate risk is the risk that changes in market interest rates will adversely 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 ex posure 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 is maturing or coming close to maturity evenly ov er time as necessary to provide the cash flow and liquidity needed for operations.
by Maximum Maximum Maximum
Inves tment Maximum Percentage Inves tment Inves tment
Authorized Investment Type Policy Maturity of Portfolio* in One Iss uer in One Issuer Local Agency Bonds Yes 5 years None None None
United States (U.S.) Treasury Obligations Yes 5 years None None None U.S. Government Agency Securities Yes 5 years None None None Bankers Acceptance Yes 180 days 40% 30% 30%
Commercial Paper Yes 270 days 25% 10% 10%
Negotiable Certificates of Deposit Yes 5 years 30% None None Repurchase Agreements Yes 1 years None None None
Reverse Repurchase Agreements Yes 92 days 20% of base value None None Medium Term Notes Yes 5 years 30% None None
Mutual Fund Yes None 20% 10% 10%
Money Market Mutual Fund Yes None 20% 10% 10%
Mortgage Pass-Through Securities Yes 5 years 20% None None County Pooled Investment Funds Yes None None None None
Local Agency Investment Fund (LAIF) Yes None None None None Joint Powers Agency (JPA) Pools Yes None None None None Maximum Minimum
Authorized Investment Type Maturity Rating
United States (U.S.) Treasury Obligations None N/A
U.S. Government Agency Securities None N/A
State and Local Agency Bonds None Aa
Bankers Acceptance 360 days Aa
Commercial Paper 270 days Aa
Negotiable Certificates of Deposit None Aa
Repurchase Agreements None Aa
Money Market Mutual Fund N/A Aaa
Inv estment Contracts None Aa
16 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 2: CASH AND INVESTMENTS (CONTINUED)
Information about the sensitivity of the fair values of the Com pany’s investments (including investments held by bond trustee) to market interest rate fluctuations is provided by the following table that shows the distribution of the Company’s investments by maturity:
G. Disclosures Relating to Credit Risk
Generally, credit risk is the risk that an issuer of an investment 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 Government Code, the Company’s investment policy, or debt agreements, and the ac tual rating as of year-end for each investment type.
H. Concentration of Credit Risk
The investment policy of the Company contains no limitations on the amount that can be invested in anyone issuer beyond that stipulat ed by the California Governme nt Code. Investments in any one issuer (other than U.S. Treasury Securities, mutual funds, and externa l investment pools) that represent 5% or more of total Company investments are as follows:
I. Fair Value Hierarchy
The Company categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs. 12 Months 12 Months to More than Concentration
Investment Type or Less 60 Months 60 Months Total of Credit Ri sk City of Pasadena Investment Pool 23,709,175$ -$ -$ 23, 709,175$ 72.85% Fiscal Agent:
Federal Agency Securities - - 7, 812,815 7,812,815 24.01% Money Market Mutual Fund 1,023,924 - - 1, 023,924 3.15% Total Investments 24,733,099$ -$ 7, 812,815$ 32,545,914$ 100.00% Remaining Maturity (in Months)
Minimum
Investment Type Total Legal Rating Aaa Not Rated
City of Pasadena Investment Pool 23,709,175$ N/A - $ 23, 709,175$ Fiscal Agent:
Federal Agency Securities 7,812,815 N/A 7, 812,815 - Money Market Mutual Fund 1,023,924 Aaa - 1, 023,924 Total Investments 32,545,914 $ 7,812,815 $ 24, 733,099$ Ratings at End of Year
Issue r
Federal National Mortgage Association Federal Agency Securities 7,812,815 $ Investment Type Reported Amount
17 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 2: CASH AND INVESTMENTS (CONTINUED)
Investments in the City investment pool are valued by the underlying assets in the investment pool. The underlying assets include Local Agency Investment Funds, money market funds, municipal bonds, federal agency issues, treasury securities, corporate bonds and supranationals, all of which are Level 2 or better.
NOTE 3: TRANSIENT OCCUPANCY TAXES AND TOURISM BUSINESS IMPROVEMENT DISTRICT TAXES
A. Transient Occupancy Taxes (TOT)
The Company receives support from the City equal to the sum of the annual debt service payments on the 2008A expansion project bonds and an allowance of $500,000 to be used by the Company for maintenance, repairs, capital improvements and or debt service. Annual capital impro vements to the Convention Center, Civic Auditorium, and Ice Skating Center are approved by the City. F or the year ended June 30, 2025, net TOT revenue was $12,348,046 of which $192,815 was due to the City a t June 30, 2025.
B. Tourism Business Improvement District (TBID)
The TBID was established in March 2003. The TBID is an assessme nt levied against each hotel and motel business in the City. The assessment is calculated as a percent age of each day's Gross Occ upancy Revenue and is passed through to guests. The rate of assessment is set annually by resolution of the City Council but cannot exceed 4.89%. For the fiscal year ended June 30, 2025, the rate was set at 4.89%. The purpose of the TBID is to fund activities, programs, expenses, and services to mark et the City as a destination. Marketing activities of the Pasadena Convention and Visitors Bureau and the Pasadena Conference Center can be financed by the TBID.
For the year ended June 30, 2025, TBID revenue was $4,700,123 o f which $402,299 was due from the City at June 30, 2025.
18 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 4: CAPITAL ASSETS
Capital asset activity for the year ended June 30, 2025, is as follows:
NOTE 5: LONG-TERM DEBT
Long-term debt for the year ended June 30, 2025, is as follows:
A. 2008 Certificates of Participation
On April 15, 2008, the City issued the 2008 Refunding Certifica tes of Participation, 2008 Series A in the amount of $127,945,000. These certificates of participation were issue d 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 participation were repaid in April 2008 and the liability has been removed from the statement of net position. Interest on 2008 Series A Certificates of Participation were issued Balance at
June 30, 2024 Transfers Additions Deletions
Balance at
June 30, 2025
Capital Assets, Not Depreciated/Amortized:
Land 2,423,473 $ - $ -$ -$ 2,423,473 Construction in Progress 983,648 - 1,622,523 - 2,606,171 Total Capital Assets, Not Depreciated/Amortized 3,407,121 1,622,523 - 5,029,644 Capital Assets Being Depreciated/Amortized:
Buildings and improvements 185,066,677 944 - - 185,067,621 Machinery and equipment 1,956,809 - - - 1,956,809 Furniture and fixtures 443,911 - - - 443,911 Subscription assets-software 746,428 - 76,469 (168,035) 654,862 Lease assets-machinery and equipment 125,129 (944) 205,483 (101,015) 228,653 Total Capital Assets Being
Depreciated/Amortized 188,338,954 - 281,952 (269,050) 188,351,856 Less Accumulated Depreciation/Amortization:
Buildings and improvements (73,100,992) - (3,756,251) - (76,857,243) Machinery and equipment (1,290,274) - (52,754) - (1,343,028) Furniture and fixtures (339,176) - (20,060) - (359,236) Subscription assets-software (244,124) - (208,264) 110,435 (341,953) Lease assets-machinery and equipment (109,443) - (77,474) 101,015 (85,902) Total Accumulated Depreciation/Amortization (75,084,009) - (4,114,803) 211,450 (78,987,362) Net Depreciable/Amortizable Assets 113,254,945 - (3,832,851) (57,600) 109,364,494 Capital Assets, Net 116,662,066$ -$ (2,210,328)$ (57,600)$ 114,394,138$ Balance at
June 30, 2024
Additions /
Accretion
Principal
Payments/
Prepayments
Balance at
June 30, 2025
Due in One
Year
Certificates of Participation
2008 Series A 127,945,000 $ - $ (7, 480,000)$ 120,465,000$ 8,260,000$ DI - Deferred charge on refunding 3,221,166 - ( 465,276) 2,755,890 - DO - Deferred charge on refunding (756,211) - 77,560 (678,651) - COP Capital Improvement Loan 2,500,000 - ( 218,076) 2,281,924 224,619 Subscriptions payable 437,976 76,469 (238,476) 275,969 151,093 Leases Payable 14,476 205,644 (75,632) 144,488 77,041 Total Long-Term Liabilities 130,897,452$ 282,113$ (8,399,900)$ 125,244,620$ 8,712,753$ 19 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 5: LONG-TERM DEBT (CONTINUED)
at a variable rate with the reassignment of the synthetic fixed rate swap of 3.536%. Principal is payable in annual installments ranging from $7,480,000 to $11,445,000 commencing February 1, 2025, and ending February 1, 2035.
The City has a line of credit that is used to satisfy the reserve requirement.
The annual requirements to repay the outstanding Certificates of Participation 2008 Series A at June 30, 2025, are as follows:
The above table incorporates the net receipts/payments of the h edging derivative instrument associated with this debt issue. These amounts assume t hat current interest rates on variable rate bonds and the current reference rates of hedging derivative instruments will remain the same for their term. As these rates vary, interest payments on variable-rate bonds and net receipts/payments on the hedging derivative instruments will vary. Refer to Note 6 for additional information regarding the derivative instruments associated with the debt of the Company.
B. Capital Improvement Loan
On August 8, 2023, the City issued a Capital Improvement Loan in the amount of $2,500,000. This loan was issued to help fund major capital improvement project needs including waterproofing and painting of the Civic Auditorium. The loan will be structured as a 10-year borrowing and bear an interest rate equal to the current ten-year treasury yield, which is 3% as of July 21, 2022. Principal is payable in annual installments commencing June 5, 2025, and ending June 5, 2034.
The annual requirements to repay the outstanding CoP Capital Improvement Loan at June 30, 2025, are as follows:
NOTE 6: DERIVATIVE INSTRUMENT LIABILITY
The Company has entered into a floating to fixed interest rate swap in order to hedge the change in cash flows with respect to certain variable debt as described below. This struc ture results in a lower borrowing cost by accessing interest rate markets more attractive than traditional fixed ra te debt structures of the time. The greater liquidity and flexibility of the swap market has offered the Company sign ificant cost savings opportunities in the swap the Company has engaged in.
June 30
Principal
Payment
Interest
Payment
Hedging
Deriv ativ e, Net Total
2026 8,260,000$ 4,077,450$ 448,428$ 12,785,878$ 2027 9,045,000 3,774,312 426,955 13,246,267 2028 9,900,000 3,442,664 400,522 13,743,186 2029 10,810,000 3,080,224 368,568 14,258,792 2030 11,790,000 2,741,726 317,433 14,849,159 2031-2036 70,660,000 6,040,195 793,984 77,494,179 120,465,000$ 23,156,571$ 2,755,890$ 146,377,461$ June 30
Principal
Payment
Interest
Payment Total
2026 224,619$ 68,458 $ 293,077 $
2027 231,357 61,719 293,076
2028 238,298 54,778 293,076
2029 245,447 47,630 293,077
2030 252,810 40,266 293,076
2031-2036 1,089,393 82,912 1,172,305 2,281,924$ 355,763 $ 2,637,687 $
20 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 6: DERIVATIVE INSTRUMENT LIABILITY (CONTINUED)
Conference Center Variable Rate Demand Refunding Certificates of Participation (COP)
On September 18, 2006, the Company entered into an interest rate swap agreement with DEPFA Bank related to the $135,500,000 Conference Center Auction Rate Certificates Series 2006B. The objective was to effectively change the Company’s variable interest rate to a synthetic fixed rate of 3.536%. Under the terms of the swap, the Company pays the counterparty the fixed rate of 3.536% and rece ives a floating rate equal to 64% of the one-month LIBOR rate. The swap has a notional amount of $133,00 0,000 representing a hedge ratio of 98.7% and declines according to the schedule set forth in the contract until the final principal payment on the certificates in 2034.
A. Objective and Terms
The following table displays the objective and terms of PCOC’s hedging derivative instruments outstanding at June 30, 2025, along with the credit rating of the associated counterparty:
In 2011, due to its declining credit ratings, DEPFA Bank was re placed by RBC as the counterparty for the swap.
Pursuant to GASB Statement No. 64, the replacement did not requ ire 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 certificates were issued to refund the Company’s Certific ates 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 reserve requirement and consequently, reduce the size of th e 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 ending June 30, 2011, the Company entere d into a new agreement to take advantage of an more advantageous interest rate adjustment mode than the 200 8 Series Bonds previously had. As a result, the former derivative instrument terminated, and the new instru ment has off-market terms. As a result, an up-front payment was received. The up-front payment is reported as a borrowing. The borrowing is amortized over the life of the swap and amortizes using the effective interest method for the life of the swap with adjustments to interest expense during each fiscal year. The original balance of the borrowing was $8,935,613. As of the year ended June 30, 2025, the balance was $2,755,890.
The Company categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. The hierarchy is based on the valuation inputs used to measure the fair value of the asset or liability. Level 1 inputs are quoted prices in active markets for identical assets; Level 2 inputs are significant other observable inputs. Level 3 inputs are sig nificant unobservable inputs.
Objective National Effective Maturity Counterparty
Type Amount Date Date Term Credit Rating
Pay fixed interest Hedge of changes 126,225,000$ 4/1/2011 2/1/2034 Pay 3.536% A1/AA- rate swap in cash flows on receves 64%
the 2008A COPs LIBOR index
21 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 6: DERIVATIVE INSTRUMENT LIABILITY (CONTINUED)
The deferred amount is amortized over the life of the swap usin g the effective interest method for the life of the swap with adjustments to interest expense during each fiscal year as follows:
The Company categorizes its fair value measurements within the fair value hierarchy established by generally accepted accounting principles. 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 act ive markets for identical assets; Level 2 inputs are significant other observable inputs; Level 3 inputs are significant unobservable inputs.
The Company has the following recurring fair value measurements as of June 30, 2025:
The fair value balance and notional amount of the derivative instrument outstanding at June 30, 2025, classified by type, and the changes in fair value of such derivative instrume nts for the year then ended are as follows:
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, assumi ng that the current forward rates implied by the yield curve correctly anticipate future spot interest rates. These payments are then discounted using the spot rates implied by the current yield curve for hypothetical zero-coupon bonds due on the date of each future net settlement on the swaps.
Credit risk: The Company is exposed to credit risk on hedging derivative in struments to the extent the value of the swap is positive from the Company’s perspective. The aggreg ate fair value of hedging derivative instruments was negative as of June 30, 2025, and therefore the Company had no credit risk exposure.
Interest rate risk: The purpose of the swap is to e liminate 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.
June 30
Beginning
Balance
Accrued
Interest Payment
Ending
Balance
2026 2,755,890$ 115,332 $ (563,760) $ 2,307,462 $ 2027 2,307,462 95,455 (522,410) 1,880,507 2028 1,880,507 76,649 (477,171) 1,479,985 2029 1,479,985 59,153 (427,720) 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 17,259 (251,141) 261,136 2033 261,136 7,876 (181,804) 87,208 2034 87,208 1,487 (88,695) - Total 11,159,494$ 445,594 $ (3,201,484) $ 8,403,604 $ Total 2
Deriv ativ e instrument liability 4,042,429$ 4,042,429$ Level
Measurements by fair value level
Classification Amount Classification Amount Notional
Cash flow hedge:
Pay-fixed interest
rate swaps Deferred outflow 1,509,840$ Liability (4,042,429) $ 118,750,000 $ Changes in Fair Value Fair Value at June 30, 2025
22 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 6: DERIVATIVE INSTRUMENT LIABILITY (CONTINUED)
Basis risk: The Company is exposed to basis risk on its pay-fixed interest rate swap because the variable-rate payments received by the Company on these hedging derivative in struments are based on a rate or index other than interest rates the Company pays on its hedged variable-rate debt, which is typically remarketed every 7 days.
As of June 30, 2025, the weighted-average interest rate on the Company’s hedged variable-rate debt is 2.89100%, while 64% of LIBOR is 3.4876%.
Termination risk: The Company or its counterparty may terminate a derivative instrument if the other party fails to perform under the terms of the contract. The derivative contrac t 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 payment to its counterparty. If the Company had to terminate the Swap for any reason on June 30, 2025, the maximum exposure/loss would have been $7,002,827.
Rollover risk: The Company is exposed to rollover risk on hedging derivative instruments that are hedges of debt that mature or may be terminated prior to the maturity of the h edged debt. When these hedging derivative instruments 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.
NOTE 7: NET POSITION
Net position at June 30, 2025, consisted of the following:
Net position restrictions and designations are as follows:
Public Art – The $1.2 million capital public art project was originally appropriated for the development of onsite public art. The funds, less monies spent on artist selection, w ere reallocated for permanent public art in the Civic Center area through the 2013 Public Art Master Plan, which also established the Civic Center Public Art Advisory Group comprised of arts and historic preservation professional.
Organ Repair and Maintenance – This is the remaining balance of a $15,000 grant which was received for the repair and maintenance of the Moller organ located in the Pasadena Civic Auditorium.
Net inv estment in capital assets:
Capital assets, net of accumulated
depreciation/amortization 114,394,138 $
Plus:
Bond reserve account - cash held with fiscal agent 7,382,447 Less:
Accounts payable related to capital assets (182,965)
Leases and subscriptions payable (420,457)
Outstanding debt issued to construct capital assets (103,338,858 ) Total net inv estment in capital assets 17,834,305
Restriced net position:
Public art 2,359,575
Organ repair and maintenance 2,863
Total restricted net position 2,362,438
Unrestriced net position 5,159,134
Total net position 25,355,877 $
23 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 8: SERVICE CONCESSION ARRANGEMENTS
Sodexo Live!
In the fiscal year ended June 30, 2009, the Company entered int o an agreement with Boston Culinary Group, which then changed to Distinctive Gourmet Services, then called Centerplate, and now Sodexo Live! (“Sodexo”) that allows Sodexo the exclusiv e right to operate the food serv ices concession for the Company. The agreement covered the period March 1, 2009, through June 30, 2014. In exc hange for this exclusive right, Sodexo 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 entered int o on January 6, 2012, to extend the term of the agreement for five years, expiring on June 30, 2025, with a n additional five-year extension that is eligible, contingent upon mutual agreement between Sodexo and the Company.
With the amended agreement, Sodexo was additionally granted the exclusive right to operate a Starbucks Café at the Pasadena Center in the space formerly leased by Lovebirds C afé & Bakery. Sodexo’s ability to operate the Starbucks Café runs concurrently with the initial agreement entered into on March 1, 2009, and covers the period through June 30, 2025. Prior to July 1, 2015, Sodexo provided capital improvements to the café space totaling $975,000. For the year ended June 30, 2016, Sodexo provided capital improvements to the café space in the amount of $399,960.
As of June 30, 2025, Sodexo has contributed a total of $1,580,1 84. This has been recorded as advances on contracts and is being amortized over 120 months starting March 1, 2009. The sum of $1,574,834 has been recognized as capital contributions to date. The remaining $5,3 47 is recorded as a deferred inflow of resources.
NOTE 9: DEFINED CONTRI BUTION 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 contribution retirement plan covering all employees except those whose employment is governed by a collective bargaining agreement. To be eligibl e to participate in the Plan, an employee must have completed 90 days of employment. To be eligible for the employer’s match, an employee must have completed one full year of employment and must have 1,000 hours of service in a twelve-month period.
Funding Policy
The employee may defer up to 100% of compensation into the Plan , subject to certain limitations. The Company makes contributions each payroll period equal to 5% of eligible employees’ compensation. Employee contributions are vested immediately. Employer contributions pr ior 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 contributions after July 1, 2004, are vested immediately. The C ompany paid $346,519 for the fiscal year ended June 30, 2025.
NOTE 10: RELATED PARTY TRANSACTIONS
During the current year, the Company incurred charges for the use of the City’s building maintenance, electricians, plumbers, locksmiths, printing, and mail services. These noneve nt expenses totaled $2, 588,677 and are included within general and administrative expenses. During the current year, the Company also paid the City for police, fire, and public works services, primarily for events, amounting to $121,142, for a grand total of related party expenses of $2,709,819. At June 30, 2025, amounts payable to the City totaled $166,638.
In addition to the revenues and receivables described in Note 3 , the Company has $133,337 due from the City related to interest earned on cash and investments pooled with the City at June 30, 2025.
24 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 11: RISK MANAGEMENT
The Company is entitled to indemnity from the City; however, the Company purchases a Special Liability Insurance Program (SLIP) for general liab ility and employment practice co verage. The City manages the Company’s claims and tenders to the insurance carrier third party administrator. The Company carries statutory workers’ compensation insurance with no retention. The company requires licensees to provide insurance or purchase Special Events Liability Insurance 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.
NOTE 12: INCOME TAXES
The Company is exempt from federal income taxes under Section 501(c)(4) of the Internal Revenue Code and applicable state law.
The accounting standard on accounting for uncertainty in income taxes addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under that guidance, the Company may recognize the tax benefit from a n uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by taxing authorities based on the technical merits of the position. Examples of tax positions include the tax-exempt status of the Company and various positions related to the potential sources of unrelated business taxable income. The tax benefits recognized in the financial statements from such a position are measured based on the large st benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement. There we re no unrecognized tax benefits identified or recorded as liabilities for the fiscal year ending June 30, 2025.
The Company files Form 990 in the U.S. federal jurisdiction and Form 199 in the State of California.
NOTE 13: LEASES
Leases Payable
The Company entered into lease agreements as lessee for the use of various equipment. As of June 30, 2025, the value of the lease liability was $144,488. The leases have an interest rate ranging from 0.185% to 2.024%.
The value of the lease assets as of June 30, 2025, of $228,653 with accumulated amortization of $85,902 is included on the Capital Assets activities table found in note 4.
Fiscal Year Principal Payments Interest Payments Total Payments 2026 77,041$ 2,814 $ 79,855 $ 2027 33,047 1,360 34,407 2028 16,938 813 17,751 2029 17,462 290 17,752 Total 144,488$ 5,277$ 149,765$ 25 PASADENA CENTER OPERATING COMPANY
Notes to the Basic Financial Statements
For the Year Ended June 30, 2025
NOTE 14: SUBSCRIPTION-BASED INFORMATION TECHNOLOGY ARRANGEMENTS
The Company entered into subscription agreements for the use of various information technology systems and program. As of June 30, 2025, the value of the subscription liability was $275,969. The subscriptions have interest rates ranging from 0.000% to 2.656%.
The value of the subscription assets as of June 30, 2025, of $654,862 with accumulated amortization of $341,953 is included on the Capital Assets activities table found in note 4.
Fiscal Year Principal Payments Interest Payments Total Payments 2026 151,093$ 7,151 $ 158,244$ 2027 77,047 3,241 80,288 2028 47,829 1,270 49,100 Total 275,969$ 11,662 $ 287,632 $ 26 LSLCPAS.COM
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
To the Board of Directors
Pasadena Center Operating Company
Pasadena, California
We have audited, in accordance with the auditing standards gene rally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States, the financial stateme nts of the Pasadena Center Operating Company (the “Company”), a component unit of the City of Pasadena, California, as of and for the year ended June 30, 2025, and the related notes to the financial statements, which collec tively comprise the Company’s basic financial statements, and have issued our report thereon dated December 23, 2025.
Report on 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) as a basis for designing audit procedures that are appropriate in the circumstances for the purpose of expressing our opinions on the financial statements, but not for the purpose of expressing an opinion on the effectiveness of the Company’s int ernal control. Accordingly, we do not express an opinion on the effectiveness of the Company’s internal control.
A deficiency in internal control exists when the design or operation of a control does not allo w management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct, misstatements, on a timely basis. A material weakness is a deficiency, or a combination of deficiencies, in internal control, such that there is a reasonable possibility that a material misstatement of the entity’s financial statements will not be prevented, or detected and corrected, on a timely b asis. A significant deficiency is a deficiency, or a combination of deficiencies, in internal control that is less s evere than a material weakness, yet 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 contr ol that might 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. However, material weaknesses or significant deficiencies may exist that were not identified.
Report on Compliance and Other Matters
As part of obtaining reasonable assurance about whether Company ’s financial statements are free from material misstatement, we performed tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, noncompliance with which could have a direct and ma terial effect on the financial statements.
However, providing an opinion on compliance with those provisio ns was not an objective of our audit, and accordingly, we do not express such an opinion. The results of our tests disclosed no instances of noncompliance or other matters that are required to be reported under Government Auditing Standards.
To the Board of Directors
Pasadena Center Operating Company
Pasadena, California
Purpose of This Report
The purpose of this report is solely to describe the scope of our testing of internal control and compliance and the results of that testing, and not t o provide an opinion on the e ffectiveness of the Company’s internal control or on compliance. This report is an integral part of an audit performed in accordance with Government Auditing Standards in considering the Company’s internal control and compliance. A ccordingly, this communication is not suitable for any other purpose.
Irvine, California
December 23, 2025
28