MSO Inc. and Subsidiary Audit 8.31.19

For the Years Ended August 31, 2019 and 2018

MILWAUKEE SYMPHONY ORCHESTRA, INC. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION

MILWAUKEE SYMPHONY ORCHESTRA, INC. AND SUBSIDIARIES TABLE OF CONTENTS

Page(s) INDEPENDENT AUDITOR’S REPORT ........................................................................ 1-2 CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statements of Financial Position ............................................................ 3-4 Consolidated Statements of Activities ......................................................................... 5-8 Consolidated Statement of Functional Expenses ......................................................... 9 Consolidated Statements of Cash Flows ...................................................................... 10-11 Notes to Consolidated Financial Statements ................................................................ 12-38 SUPPLEMENTARY INFORMATION Consolidated Schedules of Ticket Revenues – Schedule I .......................................... 39 Consolidated Schedules of Other Revenues – Schedule II .......................................... 40 Consolidated Schedules of Contributions Without Donor Restrictions, Other Revenues and Net Assets Released from Restrictions – Schedule III ....................... 41-42 Consolidated Schedules of Production Expenses – Schedule IV ................................. 43 Consolidating Schedule of Financial Position ............................................................. 44-45 Consolidating Schedule of Activities ........................................................................... 46-47 Consolidated Schedule of Operating Activities (unaudited) ........................................ 48-49

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INDEPENDENT AUDITOR’S REPORT To the Board of Directors Milwaukee Symphony Orchestra, Inc. and Subsidiaries We have audited the accompanying consolidated financial statements of Milwaukee Symphony Orchestra, Inc. and Subsidiaries (a nonprofit organization), which comprise the consolidated statements of financial position as of August 31, 2019 and 2018, and the related consolidated statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An 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 includes 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 consolidated financial statements.

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Milwaukee Symphony Orchestra, Inc. and Subsidiaries as of August 31, 2019 and 2018, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters Emphasis of Matter As discussed in Note 1 to the financial statements, the entity adopted the new accounting guidance as issued by the Financial Accounting Standards Board under Financial Accounting Standards Update (ASU) 2016-14, Not-for-Profit Entities (Topic 958) – Presentation of Financial Statements of Not-for-Profit Entities. Our opinion is not modified with respect to this matter. Report on Supplementary Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying supplementary information, as listed in the table of contents, is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and, except for that portion marked “unaudited”, was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. The information marked “unaudited” has not been subjected to the auditing procedures applied in the audit of the consolidated financial statements, accordingly, we do not express an opinion or provide any assurance on it.

Brookfield, Wisconsin November 21, 2019

CONSOLIDATED FINANCIAL STATEMENTS


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

As of August 31, 2019 and 2018

(This statement is continued on the following page.) - 3 -

2019 2018

Cash 4,236,987$ 1,773,279$ Cash - restricted for capital projects 1,828,257 5,747,883

Total cash 6,065,244 7,521,162

Receivables:Accounts and other receivable 70,422 126,180 Contributions receivable, net 30,606,679 38,255,931

Total receivables, net 30,677,101 38,382,111

Prepaid expenses related to future performances 416,685 444,652 Interest escrow 1,045,300 -

36,084,828 11,313,594 Beneficial interest in net assets in perpetual trust 19,373,926 19,212,814

TOTAL ASSETS 93,663,084$ 76,874,333$

ASSETS

Property and equipment, net


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Continued)

As of August 31, 2019 and 2018

See accompanying notes to consolidated financial statements. - 4 -

2019 2018

LIABILITIESAccounts payable and accrued expenses 9,235,598$ 1,729,274$ Line of credit - 600,000

1,811,349 1,768,917 Capital lease payable - 24,176 Notes payable, net 7,938,999 - Liability for pension benefits 5,335,303 3,906,584 Other 9,325 12,217

Total liabilities 24,330,574 8,041,168

NET ASSETS 17,485,975 9,144,907

Non-controlling interest in for profit entities 1,340,869 -

Total net assets without donor restrictions 18,826,844 9,144,907 50,505,666 59,688,258

Total net assets 69,332,510 68,833,165

TOTAL LIABILITIES AND NET ASSETS 93,663,084$ 76,874,333$

LIABILITIES AND NET ASSETS

Without donor restrictions

With donor restrictions

Deferred revenue , net of prepaid sales tax of $91,755 and $88,445 in 2019 and 2018, respectively


CONSOLIDATED STATEMENT OF ACTIVITIES

For the Year Ended August 31, 2019


Without Donor Restrictions

With Donor Restrictions Total

OPERATING REVENUES

3,689,712$ -$ 3,689,712$ 112,513 - 112,513

Contributions (Schedule III) 9,766,766 3,937,886 13,704,652

305,455 - 305,455 122,418 - 122,418 99,348 - 99,348

833,540 - 833,540

Total operating revenues 14,929,752 3,937,886 18,867,638

13,281,589 (13,281,589) -

Total operating revenues and net assets released from restriction 28,211,341 (9,343,703) 18,867,638

Program services:13,962,182 - 13,962,182

588,795 - 588,795

Total program expenses 14,550,977 - 14,550,977

EducationConcerts

EXPENSES

NET ASSETS RELEASED FROM RESTRICTION (SCHEDULE III)

Performance revenue, net of sales tax of $151,454 (Schedule I)

Special event revenues, net of costs of direct benefit to donors of $64,647 (Schedule III)

Other revenues (Schedule II)

Government support (Schedule III)Increase in the beneficial interest in net assets in perpetual trusts - distributions (Schedule III)

In-kind contributions (Schedule III)


CONSOLIDATED STATEMENT OF ACTIVITIES (Continued)





Management and general 1,419,144$ -$ 1,419,144$ Fundraising 2,144,951 - 2,144,951

18,115,072 - 18,115,072

10,096,269 (9,343,703) 752,566

- 161,111 161,111

(1,755,222) - (1,755,222)

8,341,047 (9,182,592) (841,545)

9,144,907 59,688,258 68,833,165

Contributions to Master Tenant 1,340,890 - 1,340,890

18,826,844$ 50,505,666$ 69,332,510$ NET ASSETS, END OF YEAR

NET ASSETS, BEGINNING OF YEAR

Operating revenues and net assets released from restriction in excess (deficit) of operating expenses

Increase in the beneficial interest in net assets in perpetual trusts

Pension-related items other than net periodic pension costs

OTHER CHANGES IN NET ASSETS

Change in net assets and member's equity

Total operating expenses


CONSOLIDATED STATEMENT OF ACTIVITIES





OPERATING REVENUES

3,962,686$ -$ 3,962,686$ 120,888 - 120,888

Contributions (Schedule III) 10,891,090 30,364,760 41,255,850

326,115 - 326,115 2,190,429 - 2,190,429

90,820 - 90,820 Rent income 42,559 - 42,559

748,971 - 748,971

Total operating revenues 18,373,558 30,364,760 48,738,318

9,363,567 (9,363,567) -

Total operating revenues and net assets released from restriction 27,737,125 21,001,193 48,738,318

Program services:8,146,141 - 8,146,141 4,033,084 - 4,033,084

Total program expenses 12,179,225 - 12,179,225

EXPENSES

Orchestra salaries and benefitsProduction expenses (Schedule IV)

NET ASSETS RELEASED FROM RESTRICTION (Schedule III)

Performance revenue, net of sales tax of $179,651 (Schedule I)Other revenues (Schedule II)

Special event revenues, net of costs of direct benefits to donors of $47,156 (Schedule III)

Government support (Schedule III)

Increase in the beneficial interest in net assets in perpetual trusts - distributions (Schedule III)



CONSOLIDATED STATEMENT OF ACTIVITIES (Continued)





General and administrative:Marketing 1,935,704$ -$ 1,935,704$ Other 1,727,521 - 1,727,521

3,663,225 - 3,663,225

Development expenses 2,292,362 - 2,292,362

18,134,812 - 18,134,812

9,602,313 21,001,193 30,603,506

- 814,261 814,261

2,506,210 (2,481,605) 24,605

937,857 - 937,857

13,046,380 19,333,849 32,380,229

(3,901,473) 40,354,409 36,452,936

9,144,907$ 59,688,258$ 68,833,165$ NET ASSETS, END OF YEAR

Operating revenues and net assets released from restriction in excess of operating expenses





Forgiveness of note payable and accrued interest payable to Milwaukee Symphony Orchestra

Change in net assets

NET ASSETS (DEFICIT), BEGINNING OF YEAR

Total general and administrative expenses


CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES

For the Year Ended August 31, 2019 and 2018


Concerts EducationTotal Program

ServicesManagement and General Fundraising

Cost of Direct Benefit to

Donors Total 2018 Total

Salaries and benefits 9,238,117$ 194,489$ 9,432,606$ 670,051$ 1,057,840$ -$ 11,160,497$ 10,575,064$ Payroll taxes 755,126 15,267 770,393 39,630 87,112 - 897,135 885,196 Contracted fees and services 1,463,058 168,640 1,631,698 325,466 409,464 - 2,366,628 2,705,150 Printing and postage 40,400 13,607 54,007 8,739 73,331 - 136,077 145,945 Office supplies 22,293 1,384 23,677 131,908 6,460 - 162,045 178,021 Travel 51,102 1,236 52,338 15,178 10,244 - 77,760 71,680 Telephone and internet 17,498 2,160 19,658 3,599 10,079 - 33,336 32,976 Meeting, meals and entertainment 8,228 2,765 10,993 32,441 22,040 - 65,474 55,140 Occupancy 61,274 9,339 70,613 19,825 43,771 - 134,209 173,004 Depreciation 32,060 3,300 35,360 5,501 15,402 - 56,263 72,898 Insurance 90,959 545 91,504 1,227 2,999 - 95,730 87,457 Theater rental and production equipment rental 1,052,660 124,243 1,176,903 - - - 1,176,903 1,251,804 Music and royalty fees 135,315 4,785 140,100 - - - 140,100 171,049 Credit card fees 62,507 - 62,507 - 14,455 - 76,962 88,598 Subscriber event catering and entertainment 9,715 - 9,715 - 227,433 64,647 301,795 307,757 Advertising, promotions and sales 875,910 - 875,910 - 600 - 876,510 968,131 Dues, subscriptions, publications 8,118 - 8,118 33,781 14,574 - 56,473 33,644 Interest expense - - - 52,990 - - 52,990 53,353 Miscellaneous 37,842 47,035 84,877 78,808 149,147 - 312,832 325,101

13,962,182$ 588,795$ 14,550,977$ 1,419,144$ 2,144,951$ 64,647$ 18,179,719$ 18,181,968$


CONSOLIDATED STATEMENTS OF CASH FLOWS



2019 2018

CASH FLOWS FROM OPERATING ACTIVITIESChange in net assets 499,345$ 32,380,229$

Depreciation 56,263 72,898 Non cash contribution of property - (1,970,000) Bad debt expense 51,025 62,014 Contributions restricted for long-term investment (3,515,792) (29,772,273)

(994,652) 918,373

- (1,950,000)

- (556,210) Change in liability for pension benefits 1,428,719 (1,083,337)

Decrease (increase) in:Prepaid expenses related to future performances 27,967 (14,594) Receivables other than notes 9,582,343 228,663 Interest escrow (1,045,300) -

Increase (decrease) in:Accounts payable and accrued expenses (1,087,537) (269,064)

42,432 (135,233)

Net cash from operating activities 5,044,813 (2,088,534)

CASH FLOWS FROM INVESTING ACTIVITIES

- 6,744

833,540 748,971 Purchase of fixed assets (8,294,637) (6,567,505)

Net cash from investing activities (7,461,097) (5,811,790)

Forgiveness of accrued interest payable to Milwaukee Symphony Orchestra Endowment Trust

Forgiveness of note payable to Milwaukee Symphony Orchestra Endowment Trust

Distributions from beneficial interest in net assets of perpetual trusts

Adjustments to reconcile change in net assets to net cash from operating activities:

Deferred revenue advanced season sales and fees, net of prepaid sales tax

Change in beneficial interest in net assets in perpetual trusts

Payments from musicians on instrument notes receivable


CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)



2019 2018

CASH FLOWS FROM FINANCING ACTIVITIES

1,587,434$ 13,553,502$

(2,892) (2,859)

- 24,605 Repayments of bank line of credit (2,875,000) (3,650,000) Proceeds from bank line of credit 2,275,000 4,250,000 Principal payments on capital leases (24,176) (24,383)

Net cash from financing activities 960,366 14,150,865

(1,455,918) 6,250,541

7,521,162 1,270,621

6,065,244$ 7,521,162$

16,532,860$ 1,169,554$

Cash 4,236,987$ 1,773,279$ Cash - restricted for capital projects 1,828,257 5,747,883

6,065,244$ 7,521,162$

Cash payments for interest 11,703$ 28,748$

Purchase of fixed assets with accounts and notes payable

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES

NET (DECREASE) INCREASE IN CASH AND RESTRICTED CASH

CASH AND RESTRICTED CASH, BEGINNING OF YEAR

CASH AND RESTRICTED CASH, END OF YEAR

Due to Milwaukee Symphony Orchestra Endowment Trust

Repayments to Milwaukee Symphony Orchestra Endowment Trust for instrument loans to musicians

Proceeds from contributions restricted for long term purposes


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations Milwaukee Symphony Orchestra, Inc. and Subsidiaries (collectively the Organization) consists of not-for-profit and for-profit entities organized to maintain a symphony orchestra and to present orchestral performances in the City of Milwaukee and elsewhere in order to further the cultivation and appreciation of the art of music. Principles of Consolidation The accompanying consolidated financial statements of the organization include the accounts of the Milwaukee Symphony Orchestra, Inc. (the Orchestra) and the Orchestra’s wholly owned subsidiary: TNSH Manager, LLC (Manager) and Manager’s subsidiaries: TNSH Landlord, LLC (Landlord) and TNSH Master Tenant, LLC (Tenant), which the Orchestra has both control and economic interest in. TNSH Manager, LLC, a Wisconsin limited liability company, is wholly owned by the Milwaukee Symphony Orchestra, Inc. and was formed to provide management services to Landlord and Tenant. TNSH Landlord, LLC, a Wisconsin limited liability company, is owned 1% by the Orchestra and 99% by Manager and was formed to acquire, own and develop the Grand Warner Theatre (the new symphony hall), which upon opening is intended to serve as the new performance venue and offices of the Orchestra. TNSH Master Tenant, LLC, a Wisconsin limited liability company, pursuant to the new amended and restated operating agreement dated December 31, 2018, is owned 1% by Manager, general partner, and 99% by a third party, limited partner, and was formed to serve as sub-landlord of the Grand Warner Theatre. The non-controlling interest represents the 99% limited-partner ownership by a third party in TNSH Master Tenant, LLC. This includes capital investment contributions, the proportionate share of income, gains and losses as well as distributions, if any. All significant inter-organizational transactions have been eliminated.

MILWAUKEE SYMPHONY ORCHESTRA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)

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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Method of Accounting The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (GAAP). The Organization maintains its accounts in accordance with the principles and practices of fund accounting. Fund accounting is the procedure by which resources for various purposes are classified for accounting purposes in accordance with activities or objectives specified by donors.

The financial statements focus on the Organization as a whole, and net assets, revenues, grants, expenses, gains, and losses are classified based on the existence or absence of donor-imposed restrictions. Accordingly, net assets of the Organization and changes therein are classified and reported as follows:

Without Donor Restrictions Net assets available for use in general operations and are not subject to donor-imposed restrictions or Board imposed stipulations. With Donor Restrictions Net assets subject to donor-imposed restrictions that either expire by passage of time, can be fulfilled and removed by actions of the Organization pursuant to those restrictions or are required to be held in perpetuity. Revenue that is restricted by the donor is reported as an increase in net assets without donor restrictions if the restriction expires in the reporting period in which the revenue is recognized. All other donor-restricted support is reported as an increase in net assets with donor restrictions. When a restriction expires, net assets with donor restrictions are reclassified to net assets without donor restrictions.

Revenues are reported as increases in net assets without donor restrictions unless the use of the related assets is limited by donor-imposed restrictions. Expenses are reported as decreases in net assets without donor restrictions. Gains and losses on investments and other assets or liabilities are reported as increases or decreases in net assets with donor restrictions. Expirations of net assets with donor restrictions (i.e., the donor-stipulated purpose has been fulfilled and/or the stipulated time period has elapsed) are reported as reclassifications from net assets with donor restrictions to net assets without donor restrictions in the period in which the restriction has been met.


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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect (1) the reported amounts of assets and liabilities, (2) disclosure of contingent assets and liabilities at the date of the financial statements and (3) the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Subsequent Events Subsequent events are events or transactions that occur after the statement of financial position, but before the financial statements are issued or are available to be issued. These events and transactions either provide additional evidence about conditions that existed at year end, including estimates inherent in the process of preparing financial statements (this is recognized subsequent events), or provide evidence about conditions that did not exist at year end but arose after that date (this is, non-recognized subsequent events). The Organization has evaluated subsequent events through November 21, 2019, the date on which the consolidated financial statements were available to be issued. Cash Cash includes bank depository account balances and money market funds not held by external investment managers. The Organization maintains its cash at two financial institutions which, at times, may exceed federally insured limits. At August 31, 2019 and 2018, the balance of deposits exceeded FDIC limits by approximately $4,284,100 and $7,190,300, respectively. The Organization has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk. During 2019 and 2018, the Organization received payments on donor-imposed restricted pledges. The cash received by the Organization, which is restricted by the donors for capital projects, is held in a separate account from operating cash. Accounts and Other Receivables Accounts and other receivables consist of ticket receivables, employee receivables, and related party receivables. Based on management’s judgment and analysis of the credit worthiness of the donors, past collection experience, and other relevant factors, management has determined an allowance is not necessary for August 31, 2019 and 2018. However, actual write-offs may occur.


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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Contributions Contributions, including unconditional promises to give, are recognized as revenues in the period pledged. Generally, contributions that impose restrictions that are met in the same fiscal year they are received are reported as revenues without donor restrictions. Conditional promises to give are not recognized until the conditions on which they depend are substantially met. Unconditional promises to give that are due in future periods and are not restricted in perpetuity generally increase net assets with donor restrictions. Unconditional promises to give related to the Organization's annual campaign that are available to support current period activities are reported as net assets without donor restrictions. Contributions of assets, other than cash, are recorded at their estimated fair value at the date of gift. Contributions to be received after one year are discounted at a rate commensurate with the risk involved. Amortization of the discount is recorded as additional contribution revenue and used in accordance with donor-imposed restrictions, if any, on the contributions. An allowance totaling $35,000 as of August 31, 2019 and 2018 was made for doubtful contributions receivable based upon management's judgment and analysis of the credit worthiness of the donors, past collection experience, and other relevant factors. After all attempts to collect the receivable have failed, the receivable is written off against the allowance. However, actual write-offs may exceed the recorded allowance. Furniture, Equipment, and Computer Hardware and Software Fixed assets are stated at cost. The Organization capitalizes all assets greater than $500. Depreciation is computed on a straight-line basis over the estimated useful lives of the fixed assets. Deferred Revenue Revenues from advanced ticket sales and from fee-for-service performances are deferred and recognized as operating revenues in the fiscal year in which the related performances have occurred. Prepaid Expenses Related to Future Performances Expenditures related to future performances, including direct response advertising costs and expenses related to telemarketing, are deferred and charged to expense in the fiscal year in which the related performances occur (which generally is the succeeding year). Prepaid advertising costs related to future performances were approximately $268,000 and $270,000 in 2019 and 2018, respectively.


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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) In-Kind Contributions and Contributed Services In-kind contributions are recorded as contribution revenue, at their estimated fair value at the date of donation and are reported as without donor restrictions unless explicit donor restrictions specify how contributed assets must be used. Contributed services are recorded at their estimated fair value if the services received create or enhance nonfinancial assets or the services require specialized skills, are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. In addition, the Organization receives services from a large number of volunteers who give significant time to the Organization for programs, fund-raising campaigns and management. No amount is reflected in the accompanying consolidated statements of activities for these types of donated services as they do not meet the recognition criteria described above. Concentration of Business Risks For the years ended August 31, 2019 and 2018, approximately 61% of the Orchestra's labor force is under collective bargaining agreements, whose contract ends on August 31, 2022. Advertising Cost Advertising expense for the years ended August 31, 2019 and 2018 was $789,487 and $881,591, respectively. Functional Allocation of Expenses The costs of providing various programs and other activities have been summarized on a functional basis in the consolidated statement of functional expense. Expenses that can be identified with a specific program or supporting service are charged to the program or supporting service. Accordingly, certain costs which apply to more than one functional category have been allocated based on estimates made by management. Payroll and related expenses are allocated to the programs based on time and effort. Indirect administrative expenses are charged to the programs according to a cost allocation plan based on a percentage of total expenses.


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1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income Taxes The Orchestra is a nonprofit corporation as described in Section 501(c)(3) of the Internal Revenue Code as other than a private foundation, and is exempt from federal and state income taxes on related income pursuant to Section 501(a) of the code. TNSH Landlord, LLC, TNSH Manager, LLC and TNSH Master Tenant, LLC were each formed as Limited Liability Companies (LLC). TNSH Landlord is treated as a partnership and TNSH Manager, LLC and TNSH Master Tenant, LLC are as corporations for income tax purposes. Under this election, profits and losses are passed directly to the members for inclusion in their income tax returns. The LLC’s do not pay corporate income taxes on their income, although they may be subject to certain local taxes and other state fees. Accordingly, no liability or provision for federal or state income taxes is included in the accompanying consolidated financial statements. Management has evaluated the LLC’s tax positions and concluded that no reserve for uncertain tax positions was considered necessary as any additional tax asset or liability is passed through to the members. The LLC’s each file income tax returns in federal and state jurisdictions.

New Accounting Pronouncements In August 2016, the FASB issued Accounting Standards Update (ASU) 2016-14, Presentation of Financial Statements of Not-for-Profit Entities (Topic 958). The ASU amends the current reporting model for nonprofit organizations and enhances their required disclosures. The major changes include: (a) requiring the presentation of only two classes of net assets now entitled “net assets without donor restrictions” and “net assets with donor restrictions”, (b) modifying the presentation of underwater endowment funds and related disclosures, (c) requiring the use of the placed-in-service approach to recognize the expirations or restrictions on gifts used to acquire or construct long-lived assets absent explicit donor stipulations otherwise, (d) requiring that all nonprofits present an analysis of expenses by function and nature in either the statement of activities, a separate statement, or in the notes and disclose a summary of the allocation methods used to allocate costs, (e) requiring the disclosure of quantitative and qualitative information regarding liquidity and availability of resources, (f) presenting investment return net of external and direct internal investment expenses, and (g) modifying other financial statement reporting requirements and disclosures intended to increase the usefulness of nonprofit financial statements. In 2019, the Organization has adopted ASU No. 2016-14, and has applied the changes retrospectively to all periods presented except for the disclosures around liquidity and availability of resources and the presentation of functional expenses. These disclosures have been presented for 2019 only, as allowed by ASU No. 2016-14.


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New Accounting Pronouncements (Continued)

In June 2018, FASB issued ASU No. 2018-08, Not-for-Profit Entities (Topic 958):

Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made. ASU No. 2018-08 is intended to assist entities in (a) evaluating whether transactions should be accounted for as contributions (nonreciprocal transactions) within the scope of the contribution accounting guidance, or as exchange (reciprocal) transactions subject to other guidance, and (b) determining whether a contribution is conditional. ASU No. 2018-08 is effective for fiscal years beginning after December 15, 2018, for transactions in which the entity serves as a resource recipient, and for fiscal years beginning after December 15, 2019, for transactions in which the entity serves as a resource provider. Early adoption is permitted. The Organization is currently assessing the impact of this standard.

In May 2014, the Financial Accounting Standards Board issued ASU 2014-09, “Revenue

from Contracts with Customers,” as amended by ASU 2015-14, which supersedes or replaces nearly all GAAP revenue recognition guidance. This standard establishes a new contract and control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. ASU 2014-09, as amended, is effective for non-public companies for annual reporting periods beginning after December 15, 2018 and interim periods within the annual period beginning after December 15, 2019. The Organization is currently assessing the impact of this new standard.

In February 2016, the Financial Accounting Standards Board issued ASU No. 2016-02,

"Leases (Topic 842)" ("ASU 2016-02"), to increase the transparency and comparability about leases among entities. The new guidance requires lessees to recognize a lease liability and a corresponding lease asset for virtually all lease contracts. It also requires additional disclosures about leasing arrangements. ASU 2016-02, as amended by ASU 2019-10 is effective for annual periods beginning after December 15, 2020 and interim periods within fiscal years beginning after December 15, 2021. ASU 2016-02 originally specified a modified retrospective transition method which requires the entity to initially apply the new leases standard at the beginning of the earliest period presented in the financial statements. In July 2018, FASB issued ASU 2018-11, “Leases (Topic 842): Targeted Improvements” providing a second, optional transition method which allows the entity to apply the new standard at the adoption date and recognize a cumulative-effect adjustment to the opening balance of net assets in the period of adoption. The Organization is currently assessing the impact of this new standard including the two optional transition methods.


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New Accounting Pronouncements (Continued)

In March 2017, FASB issued ASU 2017-07, Improving the Presentation of Net Periodic

Pension Cost and Net Periodic Postretirement Benefit Cost. The ASU requires that an employer disaggregate the service cost component from the other components of net benefit cost. The amendments also provide explicit guidance on how to present the service cost component and the other components of net benefit cost in the income statement and allow only the service cost component of net benefit cost to be eligible for capitalization. For non-profit organizations the amendments in the ASU are effective for periods beginning after December 31, 2018, early adoption is permitted. The Organization is currently assessing the impact of this new standard.

2. LIQUIDITY AND AVAILABILITY Financial assets available for general expenditure, that is without donor or other restrictions limiting their use, within one year of the balance sheet date, comprise the following:

2019

Cash and cash equivalents 6,065,244$ Accounts and other receivable 70,422 Contribution receivable 30,606,679 Beneficial interest in net assets in perpetual trust 19,373,926

Total financial assets and liquid resources 56,116,271

Less: Donor imposed restrictions (50,505,666)

FINANCIAL ASSETS AVAILABLE TO MEET CASH NEEDSFOR GENERAL EXPENDITURES WITHIN ONE YEAR 5,610,605$

The Organization maintains financial assets, consisting of cash and short-term investments, on hand to meet its normal operating expenses based on its annual budget. Operating expenses are compared to budgeted expenses on a monthly basis and financial assets on hand are adjusted as necessary. The Orchestra also has available a $1,500,000 line of credit for operating expenses. See Note 8.


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3. CONTRIBUTIONS RECEIVABLE Contributions receivable consist primarily of pledges from private foundations, corporations, and individual donors. Net contributions receivable are summarized as follows:

2019 2018

Total contributions receivable 33,893,481$ 41,887,342$ Less: Allowance for doubtful contributions receivable 35,000 35,000

Net contributions receivable 33,858,481 41,852,342

(3,251,802) (3,596,411)

PRESENT VALUE OF NET CONTRIBUTIONS RECEIVABLE 30,606,679$ 38,255,931$

Less: Adjustment to present value for future cash flows from contributions receivable

The discount rate used to determine the present value of contributions receivable is a risk adjusted rate between 3.40% and 4.70%. The Orchestra wrote off uncollectible contributions of approximately $13,000 and $62,000 in 2019 and 2018, respectively. Payments on contributions receivable as of August 31, 2019 are estimated to be received as follows:

9,405,798$ 7,369,200

13,572,283 1,091,200

335,000 2,120,000

TOTAL CONTRIBUTIONS RECEIVABLE 33,893,481$

2020

2024Thereafter

202120222023


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4. CONDITIONAL CONTRIBUTIONS RECEIVABLE The Orchestra has several pledges relating to the capital campaign that are conditional upon certain milestones being achieved. The goal of the campaign is to create a new performance center for the Orchestra. As of August 31, 2019, these conditional promises totaled approximately $1,650,000. These pledges will be recognized as revenue when the respective conditions are met.

5. PROPERTY AND EQUIPMENT

Major classes of fixed assets as of August 31 and estimated useful lives are as follows:

2019 2018 Years

Furniture and equipment 126,787$ 158,634$ 5Hardware and software 386,958 2,357,234 3-5Leasehold improvements 65,200 65,200 10Depreciable instruments 332,426 332,426 5-25Nondepreciable instruments 4,626 4,626 Construction in progress 35,959,440 11,144,858

Total property and equipment 36,875,437 14,062,978 (790,609) (2,749,384)

NET PROPERTY AND EQUIPMENT 36,084,828$ 11,313,594$

Less: Accumulated depreciation

Depreciation expense for 2019 and 2018 totaled approximately $56,000 and $73,000, respectively.

6. BENEFICIAL INTEREST IN NET ASSETS IN PERPETUAL TRUSTS Foundation Trust The Milwaukee Symphony Orchestra Foundation Trust (the Foundation) was established to hold and invest funds and to contribute the income for the benefit of the Orchestra while retaining the buying power of the principal. The board of trustees of the Foundation is independent of and separate from the board of directors of the Orchestra. The assets of the Foundation are invested in various securities. The amount distributed to the Orchestra is based on the total return concept. Using this concept, the Foundation makes distributions based on a three-year average investment balance determined on a market value basis.


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6. BENEFICIAL INTEREST IN NET ASSETS IN PERPETUAL TRUSTS (Continued) The specified distribution rate for 2019 and 2018 was 5% of this average. The amount distributed from the Foundation for 2019 and 2018 was $757,695 and $681,050, respectively, and is recorded as a component of contribution revenue in the accompanying consolidated statement of activities. Endowment Trust The Endowment was established for the sole purpose of providing support to the Orchestra. The board of trustees of Endowment is independent of and separate from the board of directors of the Orchestra. The assets of the Endowment are invested in various securities. In accordance with the Endowment Indenture, the net assets without donor restriction available for distribution to the Orchestra are at the sole and absolute discretion of the trustees of the Endowment. The Endowment made a discretionary distribution to the Orchestra of $75,845 and $67,921 during 2019 and 2018, respectively. The Foundation and Endowment hold financial instruments which are carried at fair value in accordance with GAAP, which establishes a hierarchy used to measure fair value (see Note 7). The Orchestra has recognized its interest in the Foundation and Endowment based on the underlying net assets with donor restrictions of the trusts, as follows:

2019 2018

Foundation net assets 17,510,904$ 17,132,491$ Endowment net assets 1,863,022 2,080,323

NET ASSETS RESTRICTED IN PERPETUITY 19,373,926$ 19,212,814$


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6. BENEFICIAL INTEREST IN NET ASSETS IN PERPETUAL TRUSTS (Continued) Greater Milwaukee Foundation The Orchestra is the sole income beneficiary of an agency endowment fund held by the Greater Milwaukee Foundation, a community foundation unrelated to the Orchestra. As of August 31, 2019 and 2018, the fair value of the net assets held by the Greater Milwaukee Foundation in the agency endowment fund has been reported by the Greater Milwaukee Foundation to be $6,287,480 and $6,463,178, respectively. Distribution of investment income to the Orchestra is made on a quarterly basis. The Orchestra's interest in the agency endowment fund at the Greater Milwaukee Foundation is not recognized on the Orchestra's financial statements because the board of directors of the Greater Milwaukee Foundation has variance power over substantially all of these assets. The amount distributed from the assets held by the Greater Milwaukee Foundation for which the Orchestra is the designated beneficiary for the years ended August 31, 2019 and 2018 was $228,254 and $196,280, respectively, and is reported as a component of contribution revenue in the accompanying consolidated statements of activities.

7. FAIR VALUE MEASUREMENTS GAAP establishes a framework for measuring fair value. That framework uses a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. GAAP requires the Organization to maximize the use of observable inputs when measuring fair value. The hierarchy describes three levels of inputs, which are as follows: Level 1: Quoted prices in active markets for identical assets or liabilities. Level 2: Quoted prices for similar assets or liabilities in active markets; quotes prices

for identical assets or liabilities in inactive markets; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3: Significant unobservable inputs In many cases, a valuation technique used to measure fair value includes inputs from more than one level of the fair value hierarchy. The lowest level of significant input determines the placement of the entire fair value measurement in the hierarchy. The categorization of an investment within the hierarchy reflects the relative ability to observe the fair value measure and does not necessarily correspond to the perceived risk of that investment. If an investment that is measured using net asset value (NAV) has a readily determinable fair value (that is, it can be traded at the measurement date at its published NAV), it is included in Level 1 of the hierarchy. Otherwise, investments without readily determined fair values measured using NAVs are not included in Level 1, 2, or 3, but are separately reported.


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7. FAIR VALUE MEASUREMENT (Continued) The Organization recognizes transfers into and out of levels within the fair value hierarchy at the end of the reporting period. There were no transfers between levels in the years ended August 31, 2019 and 2018. Valuation Techniques Following is a description of the valuation techniques used for assets measured at fair value on a recurring basis. There have been no changes to the techniques used during the years ended August 31, 2019 and 2018. Beneficial Interest in Perpetual Trusts: Valued using the fair value of the assets held in the trust reported by the trustee as of August 31, 2019 and 2018. The Organization considers the measurement of its beneficial interest in the perpetual charitable trusts to be Level 3 measurements within the hierarchy because even though that measurement is based on the unadjusted fair value of trust assets reported by the trustee, the Organization will never receive those assets or have the ability to direct the trustee to redeem them. Recurring Measurements Assets measured at fair value on a recurring basis as of August 31, are as follows:

Level 1 Level 2 Level 3 Total

ASSETSBeneficial interest in

perpetual trusts:Foundation trust -$ -$ 17,510,904$ 17,510,904$ Endowment trust - - 1,863,022 1,863,022

-$ -$ 19,373,926$ 19,373,926$

2019

TOTAL ASSETS AT FAIR VALUE


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7. FAIR VALUE MEASUREMENT (Continued) Recurring Measurements (Continued)

Level 1 Level 2 Level 3 Total

ASSETSBeneficial interest in

perpetual trusts:Foundation trust -$ -$ 17,132,491$ 17,132,491$ Endowment trust - - 2,080,323 2,080,323

-$ -$ 19,212,814$ 19,212,814$

2018

TOTAL ASSETS AT FAIR VALUE

Unobservable (Level 3) Inputs The activity for the beneficial interest in perpetual trusts, which is measured at fair value on a recurring basis using significant unobservable inputs (Level 3 inputs), is as follows:

2019 2018

BALANCE, BEGINNING OF YEAR 19,212,814$ 18,398,553$ Change in beneficial interest 161,112 814,261

BALANCE, END OF YEAR 19,373,926$ 19,212,814$

The change in value of the beneficial interest is included as a separate line in the consolidated statements of activities.

8. BANK LINE OF CREDIT The Orchestra has a line of credit with a bank for borrowings up to $1,500,000 secured by a general business security agreement. The agreement is due on demand. Interest is at the bank’s prime rate (5.25% at August 31, 2019) plus 0.25%. As of August 31, 2019 and 2018, the Orchestra has an outstanding balance of $0 and $600,000, respectively, under this line of credit. The agreement contains various reporting covenants. As of August 31, 2019, the Orchestra was in compliance with these covenants.


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9. CONSTRUCTION LINE OF CREDIT TNSH Landlord has entered into a Construction Loan Agreement in the original principal amount of $15,000,000 secured by the new symphony hall. Draws will be made on the agreement as construction is completed, with interest only payments due until the agreement is converted to a mortgage note at the completion of the project. As of August 31, 2019, there were no amounts drawn on the agreement.

10. NOTES PAYABLE

The Orchestra and TNSH Landlord have entered into Bridge Loan Agreements concerning a federal bridge loan in the amount of $6,838,540 for TNSH Landlord and a state bridge loan in the amount of $8,400,538 for the Orchestra. The proceeds of the agreement are to be used for the renovation and improvements to real estate for the new symphony hall. Draws on the bridge loans are to be made as construction is completed throughout the life of the project. Interest only payments on the notes at a rate of 5.85% are due until December 2020 at which point the historical tax credits will be received in full to offset the bridge loan funding. As of August 31, 2019, the outstanding loan balances on the federal and state bridge loan agreements were $5,840,718 and $2,060,182, respectively, net of unamortized loan acquisition costs of $126,992.

11. CAPITAL LEASE

The Orchestra has entered into a capital lease for recording equipment that expired July 2019. The agreement required monthly payments of $2,289, including principal and interest at 8.23%. The cost, accumulated depreciation and net book value of equipment under the capital lease were as follows at August 31:

2019 2018

Equipment 93,366$ 93,366$ Less: Accumulated depreciation (81,965) (58,354)

TOTAL 11,401$ 35,012$


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12. NET ASSETS As of August 31, 2019 and 2018 net assets with donor restrictions comprise contributions held for the following:

FundYears

Restricted 2019 2018

Restricted for time or purpose:Capital campaign 2019-2020 28,367,407$ 43,279,369$ Concert sponsorship 2020 30,000 15,000 Education 2020 30,000 30,000 General operating 2020 253,508 94,900 Government 2019 8,000 - Milwaukee Symphony Orchestra League 2020 3,640 18,000 Special projects 2019-2020 100,400 202,770 United Performing Arts Fund 2020 431,815 431,816 Restricted for time 5,158,772 - Less: Pledge receivable discount (3,251,802) (3,596,411)

Total restricted for time or purpose 31,131,740 40,475,444

Restricted in perpetuity 19,373,926 19,212,814

TOTAL 50,505,666$ 59,688,258$

13. IN-KIND CONTRIBUTIONS AND CONTRIBUTED SERVICES

In-kind contributions as of August 31, 2019 and 2018 consisted of the following:

2019 2018

Donated legal fees 82,891$ 154,643$ In-kind contributions 39,527 2,035,786

TOTAL IN-KIND CONTRIBUTIONS AND CONTRIBUTED SERVICES 122,418$ 2,190,429$


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14. COMMITMENTS Operating Lease Obligations The Organization leases its office space for a period of thirteen years expiring in 2025 with an option to extend the lease term for four additional periods of five years. The lease agreement also requires the Organization to pay its proportionate share of real estate taxes, utilities, normal maintenance, and general liability insurance. The Organization leases office equipment under two separate operating leases expiring through June 2020. The following is a summary of the future minimum lease payments for operating leases having initial non-cancelable lease terms in excess of one year:

408,260$ 409,530 412,921 416,379 419,607

80,000

TOTAL MINIMUM LEASE PAYMENTS 2,146,697$

2020

2023

Thereafter2024

20222021

The rent expense under the office lease was approximately $147,000 for 2019 and 2018, and rent expense under equipment leases was approximately $12,000 and $11,000 for 2019 and 2018, respectively. The Orchestra also incurs rent expense for concert hall and music rentals. The rent expense incurred as a result of these types of activities was approximately $498,000 and $558,000 for 2019 and 2018, respectively. Performance Commitment The Orchestra has made commitments for the 2019-2020 season through either informal arrangements or contracts with performers. As of August 31, 2019, such commitments aggregated approximately $800,000.


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14. COMMITMENTS (Continued)

Labor Agreement Commitment The Orchestra entered into a four-year agreement with the Milwaukee Musician's Association Local #8 for the period from September 1, 2018 to August 31, 2022. Under the terms of this agreement, the Orchestra is committed to pay base wages of approximately $4,850,000 for the 2019-2020 season.

Employment Agreements The Orchestra has executed an employment agreement for the executive director to perform services including management of personnel, fund raising, growth, performance and operations as well as all other duties assigned by the Chair of the Board of Directors. The term of the contract runs for 6 years ending in 2021 with an aggregated commitment of approximately $1,455,000 of which approximately $491,000 is outstanding as of August 31, 2019 with approximately $243,000 relating to the 2019-2020 season. The Orchestra has executed an employment agreement for the music director to perform services for the Orchestra. The term of the contract runs for 4 years ending in 2023 with an aggregated commitment of approximately $1,174,000 of which the entire amount is outstanding as of August 31, 2019, with approximately $210,000 relating to the 2019-2020 season. Construction Commitment TNSH Landlord entered into a guaranteed maximum price agreement for the construction and renovation of a new symphony hall for a total amount of approximately $65,700,000. As of August 31, 2019, the outstanding commitments on the construction agreement is approximately $46,446,000.


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15. RETIREMENT PLANS Pension Plans The Orchestra has separate noncontributory defined benefit pension plans for musicians and administrative staff (Pension Plans). Both plans provide for monthly pension benefits per participant of $52 for each year of service and 100% vesting after five years of service. The Orchestra's funding policy is to contribute annually the minimum amount required under the Employee Retirement Income Security Act of 1974 (ERISA). Plan assets are invested in a group annuity contract which invests primarily in U.S. government securities, money market funds, and marketable equity securities. The musicians' and administrative staff’s defined benefit pension plans are frozen; therefore, no new participants have been admitted to the plans, no additional years of service have been credited to any participant, no further benefits have been accrued, and each participant's accrued benefit is considered fully vested and non-forfeitable. All retirement benefits earned under the plan through August 31, 1996 for the musicians’ plan and August 31, 1999 for the administrative staff’s plan are payable to participants upon retirement.

The Orchestra is obligated to make additional contributions for both Defined Benefit Pension Plans in future years, if necessary, to meet ERISA funding requirements.


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15. RETIREMENT PLANS (Continued) Pension Plans (Continued) The following table sets forth the plans' funded status as of August 31, the actuarial valuation date:

Musicians Staff Total

Accumulated benefit obligation 11,925,791$ 2,338,297$ 14,264,088$

Change in projected benefit obligation:

11,236,931 2,057,993 13,294,924 Interest costs 442,415 82,638 525,053 Actuarial loss* 1,075,336 291,452 1,366,788 Benefits paid (828,891) (93,786) (922,677)

11,925,791 2,338,297 14,264,088

Change in plan assets:

7,981,185 1,407,155 9,388,340 Actual return on plan assets 41,746 (44,788) (3,042) Employer contributions 362,472 103,692 466,164 Benefits paid (828,891) (93,786) (922,677)

7,556,512 1,372,273 8,928,785

(4,369,279)$ (966,024)$ (5,335,303)$

Assumption used:Discount rate 2.90% 2.90%

LIABILITY FOR PENSION BENEFITS

Measurement date August 31, 2019

Actuarial present value of benefit obligations:

Projected benefit obligation at beginning of year

Projected benefit obligation at end of year

Fair value of plan assets at end of year

Fair value of plan assets at beginning of year

*The actuarial loss is a result of decreasing the discount rate from 4.15% to 2.90%


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15. RETIREMENT PLANS (Continued) Pension Plans (Continued)

Return on plan assetsAmortization of net loss

NET PERIODIC PENSION COST

Assumption used:Discount rate 2.90 % 2.90 %Expected long-term rate of return on assets 5.75 % 5.75 %

82,638$


StaffMusicians

26,314$

27,497 (83,821)

Net periodic pension cost comprised the following:Interest cost on projected benefit obligation

113,347$

113,466 (442,534) 442,415$


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Musicians Staff Total

Accumulated benefit obligation 11,236,931$ 2,057,993$ 13,294,924$

Change in projected benefit obligation:

12,116,864 2,198,389 14,315,253 Interest costs 430,654 78,846 509,500 Actuarial gain* (499,419) (124,808) (624,227) Benefits paid (811,168) (94,434) (905,602)

11,236,931 2,057,993 13,294,924

Change in plan assets:

7,967,043 1,358,289 9,325,332 Actual return on plan assets 576,641 87,063 663,704 Employer contributions 248,669 56,237 304,906 Benefits paid (811,168) (94,434) (905,602)

7,981,185 1,407,155 9,388,340

(3,255,746)$ (650,838)$ (3,906,584)$

Assumption used:Discount rate 4.15% 4.15%

*The actuarial gain is a result of increasing the discount rate from 3.64% to 4.15%

Actuarial present value of benefit obligations:

Projected benefit obligation at beginning of year

Projected benefit obligation at end of year

Fair value of plan assets at beginning of year

Fair value of plan assets at end of year

LIABILITY FOR PENSION BENEFITS



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Return on plan assetsAmortization of net loss

NET PERIODIC PENSION COST

Assumption used:Discount rate 4.15 % 4.15 %Expected long-term rate of return on assets 5.75 % 5.75 %

Musicians Staff

149,226 32,822

130,068$ 29,358$

Net periodic pension cost comprised the following:Interest cost on projected benefit obligation 430,654$ 78,846$

(449,812) (82,310)


There were no net transition assets/obligations and prior service costs to be amortized for the Pension Plans in the current year. The expected long-term rate of return on the Pension Plans' assets was 5.75% for the musician's plan and the staff's plan for 2019 and 2018. Current market factors such as inflation and interest rates, as well as peer data and historical returns, are considered when determining the long-term rate of return. All of the Pension Plans' assets, which consists of a group annuity contract, are considered to be Level 2 investments in accordance with the fair value hierarchy. Level 2 assets are traded in less active dealer or broker markets in which valuations are obtained from third party pricing services for identical or similar assets. The Orchestra employs a total return on investment approach whereby a mix of equities and fixed income investments are utilized to maximize the long-term rate of return on the Pension Plans' assets for a given level of risk. Risk tolerance is established through consideration of the Pension Plans' liabilities and funded status. The investment vehicle used is a group annuity contract, which has a portfolio containing a diversified blend of equity and fixed income investments. The Orchestra determines the asset allocation for the asset classes based upon periodic asset/liability reviews and capital market projections. The Orchestra expects to make a minimum contribution to the musicians' plan of approximately $296,000 and to the staff's plan of $84,000 during 2019.


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15. RETIREMENT PLANS (Continued) Pension Plans (Continued) The following table sets forth the Pension Plans' estimated future benefit payments expected to be paid in each of the next five fiscal years, and in the aggregate for the five fiscal years thereafter: Fiscal Year

116,000 131,000 128,000 646,000

118,000 859,000 854,000 843,000

3,868,000

20212022202320242025-2028

839,000$ 868,000

2020 111,000$

Musicians Staff

Defined Contribution Plan The Orchestra has a defined contribution plan for all full-time administrative employees. Employees are eligible to participate in the plan upon attaining age 21, having worked 1,000 hours, and having completed one full year of employment. The Orchestra matches 50% of employee contributions up to 6%. The Orchestra made contributions of $74,569 and $54,652 to the plan for the years ended August 31, 2019 and 2018, respectively. Multi-Employer Pension Plan The contract with the musicians' union also requires that contributions be made to the American Federation of Musicians and Employers' Pension Plan for services rendered by musicians after August 31, 1996. The Pension Plan is a multi-employer pension plan for musicians under union contracts. The plan is administered independently and contributions are determined in accordance with the provisions of the musicians' labor contract. The Orchestra contributes to the American Federation of Musicians and Employers' union sponsored multiemployer defined benefit pension plan under a collective bargaining agreement. The risk of participating in a multiemployer plan differs from those of single-employer plan in the following aspects:

Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers.

If a participating employer stops contributing to the plan, then the unfunded

obligations of the plan may be borne by the remaining participating employers.

If the Orchestra chooses to stop participating in the multiemployer plan, then it may be required to pay those plans an amount based on the underfunded status of the plan, referred to as a withdrawal liability.


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15. RETIREMENT PLANS (Continued) Multi-Employer Pension Plan (Continued) Contributions are determined in accordance with the provisions of negotiated labor contracts and are based upon the number of hours worked by each eligible employee. During the year ended August 31, 2019 and 2018, the Orchestra contributed 7.63% of the musicians' salaries. Information from the plans' administrators is not available to permit the Orchestra to determine its share of unfunded vested benefits, if any. Management does not intend to take any action which would subject it to such a liability. The Orchestra's participation in these plans for the years ended August 31, 2019 and 2018, is outlined in the table below. The EIN/Plan Number provides the EIN and the three-digit plan number, if applicable. Unless otherwise noted, the most recent Pension Protection Act (PPA) zone status available in 2019 and 2018 is for the plan's year beginning during 2018 and 2017. The zone status is based on information that the Company obtained from the plans. Among other factors, plans in the red zone are less than 65% funded, plans in the yellow zone are between 65-80% funded, and plans in the green zone are more than 80% funded. The FIP/RP Status Pending/Implemented indicates plans for which a financial improvement plan (FIP) or rehabilitation plan (RP) is either pending or has been implemented. The last line lists the expiration dates of the collective bargaining agreements to which the plans are subject. There have been no significant changes that affect the comparability of the 2019 and 2018 contributions.

EIN/Plan Number

American Federation ofMusicians & Employers'

Pension Fund EIN: 51-6120204Plan #001

Pension Protection Act Zone Status

March 31, 2019 Red

March 31, 2018 Red

FIP/RP Status Pending/Implemented Yes

Orchestra Contributions - 2019 $437,254

Orchestra Contributions - 2018 $419,194

Collective Bargaining Agreement Exp. Date 8/31/2022


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15. RETIREMENT PLANS (Continued) Multi-Employer Pension Plan (Continued) While the status is listed as red, meaning the funded status is less than 65%, the actual funded percentage is greater than 80%. However, the Plan is considered in critical status because the Plan's actuary determined that the Plan is projected to have an accumulated funding deficiency over the next five years. In an effort to improve the Plan's funding situation, the Plan's Board of Trustees adopted a rehabilitation plan on April 15, 2010, which was intended to help the Plan improve its funded status through various benefit reductions and employer contribution increases. In addition, on May 18, 2011, the Plan's Board of Trustees amended the rehabilitation plan to change the maximum term from four years to five years for which pension contributions may be established under any collective bargaining agreement entered into on or after May 1, 2010. The Plan’s Board of Trustees amended the rehabilitation plan again on February 12, 2015, to provide that if a collective bargaining agreement expires while the Plan is still in critical status and the bargaining parties fail to adopt a contribution schedule within 180 days of that expiration then the contribution schedule under the expired collective bargaining agreement is re-implemented. The duration of the rehabilitation plan is indefinite and the Plan is not expected to emerge from critical status during the 10 year rehabilitation plan period that began April 1, 2013. Under the rehabilitation plan, the Plan is not permitted to pay lump sum benefits while it is in critical status. The employer surcharge is equal to a percentage of the amount an employer is otherwise required to contribute to the Plan. For the Plan year beginning April 1, 2011, the surcharge was 10% and remains applicable for each year the Plan is in critical status. In June 2018, the rehabilitation plan was modified to require a 10% increase in the rate of contributions to the plan that must be included in any collective bargaining agreements starting August 1, 2018 or later.

16. RELATED PARTY TRANSACTIONS

The Orchestra provides accounting and administrative services to the Endowment and Foundation. The accounting and administrative services are provided at no charge. These services are not considered material and are therefore excluded from the accompanying consolidated financial statements. Members of the Orchestra's board of directors serve in management roles of corporations that provide goods and services to the Orchestra, causing these corporations to be related parties. The Orchestra received contributions of approximately $994,000 and $412,000 during 2019 and 2018, respectively, from these corporations and members of the board of directors. There were outstanding pledges receivable of approximately $443,000 and $502,000 as of August 31, 2019 and 2018, respectively, from board members of the Orchestra.


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16. RELATED PARTY TRANSACTIONS (Continued) Significant purchases of goods and services from related parties are reviewed to ensure such transactions are competitively priced as compared with other goods and services available in the market. There were no services received during 2019 and 2018. During 2019 and 2018, the Orchestra also received approximately $83,000 and $155,000, respectively, of legal services as in-kind donations from two members of the board. The Orchestra is a party Milwaukee Arts Partners (MAP), a joint venture with First Stage Children's Theater, Skylight Music Theater, Sharon Lynne Center for the Arts, and Milwaukee Repertory Theater. The primary focus of MAP is to manage and operate the ticketing software, Tessitura, used by all four entities. All revenue and expenses incurred during the years ended August 31, 2019 and 2018 by the Orchestra, which were directly attributable to MAP, were recorded in MAP's financial statements and not recorded within MSO's financial statements. Accounts receivable from the joint venture was approximately $28,000 as of August 31, 2019 and 2018.

17. SUBSCRIPTION RECEIVABLE

The Amended and Restated Operating Agreement of TNSH Master Tenant, LLC dated December 17, 2018 requires capital contributions of the investor member. The investor member is required to make total capital contributions equal to $8,939,268. $1,340,890 was received during 2019 with the remaining installments to be received as certain milestones are met during 2020 and 2021.

SUPPLEMENTARY INFORMATION


CONSOLIDATED SCHEDULES OF TICKET REVENUES


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Schedule I2019 2018

Classical concerts 1,331,799$ 1,458,986$ Pops concerts 1,153,203 1,509,855 High school/youth concerts 107,885 93,872 Opera 97,394 120,000 Tour concerts 228,750 184,815 Fee for service 422,500 305,000 Other concerts 499,635 469,809

Gross ticket revenues 3,841,166 4,142,337

Less: Sales tax (151,454) (179,651)

NET PERFORMANCE REVENUE 3,689,712$ 3,962,686$


CONSOLIDATED SCHEDULES OF OTHER REVENUES


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Schedule II2019 2018

Arts in Community Education (ACE) 83,565$ 87,188$ Media activities - 61 Other activities 24,410 9,638 Miscellaneous income 4,538 24,001

112,513$ 120,888$ TOTAL OTHER REVENUES


CONSOLIDATED SCHEDULES OF CONTRIBUTIONS WITHOUT DONOR

RESTRICTIONS, OTHER REVENUES, AND NET ASSETS RELEASED FROM RESTRICTIONS


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Schedule III

Operating Revenue

Net Assets Released from

Restriction Total

Annual campaign 7,679,874$ 239,900$ 7,919,774$ United Performing Arts Fund 1,750,957 431,817 2,182,774 Greater Milwaukee Foundation - operating support 228,254 - 228,254 League support 107,681 18,000 125,681

Total contributions 9,766,766 689,717 10,456,483 Special events revenue 305,455 - 305,455 In-kind contributions 122,418 2,770 125,188 Government support 99,348 - 99,348 Rent income - - -

833,540 - 833,540 Capital campaign support - 12,589,102 12,589,102 Performance revenue (Schedule I) 3,689,712 - 3,689,712

112,513 - 112,513

TOTAL OPERATING REVENUES AND NET ASSETS RELEASED FROM RESTRICTION 14,929,752$ 13,281,589$ 28,211,341$


Contributions without donor restrictions, including net assets released from restrictions for operations:

Increase in the beneficial interest in net assets in perpetual trusts - distributions


CONSOLIDATED SCHEDULES OF CONTRIBUTIONS WITHOUT DONOR

RESTRICTIONS, OTHER REVENUES, AND NET ASSETS RELEASED FROM RESTRICTIONS


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Schedule III

Operating Revenue

Net Assets Released from

Restriction Total

Annual campaign 8,771,384$ 257,300$ 9,028,684$ United Performing Arts Fund 1,815,512 450,000 2,265,512 Greater Milwaukee Foundation - operating support 196,280 - 196,280 League support 107,914 44,000 151,914

Total contributions 10,891,090 751,300 11,642,390 Special events revenue 326,115 - 326,115 In-kind contributions 2,190,429 - 2,190,429 Government support 90,820 7,000 97,820 Rent income 42,559 - 42,559

748,971 - 748,971 Capital campaign support - 8,605,267 8,605,267 Performance revenue (Schedule I) 3,962,686 - 3,962,686

120,888 - 120,888

TOTAL OPERATING REVENUES AND NET ASSETS RELEASED FROM RESTRICTION 18,373,558$ 9,363,567$ 27,737,125$

Increase in the beneficial interest in net assets in


Contributions without donor restrictions, including net assets released from restrictions for operations:


CONSOLIDATED SCHEDULES OF PRODUCTION EXPENSES


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Schedule IV2019 2018

Concert expenses:Classical concerts 1,175,001$ 1,275,508$ Pops concerts 723,254 954,017 Educational and outreach events 350,197 338,996 Tour concerts 118,556 81,605 Other events 124,505 134,950

2,491,513 2,785,076

Media activities 52,300 51,781 Other (including production staff wage) 1,509,990 1,196,227

4,053,803$ 4,033,084$ TOTAL PRODUCTION EXPENSES


CONSOLIDATING SCHEDULE OF FINANCIAL POSITION


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Milwaukee TNSHSymphony TNSH TNSH TNSH Master Manager, LLC 2019

Orchestra, Inc. Manager, LLC Landlord, LLC Tenant, LLC Eliminations Consolidated Eliminations ConsolidatedASSETS

Cash 2,672,034$ -$ 133,788$ 1,431,165$ -$ 1,564,953$ -$ 4,236,987$ Cash - restricted for capital projects 1,828,257 - - - - - - 1,828,257

Total cash 4,500,291 - 133,788 1,431,165 - 1,564,953 - 6,065,244

Receivables:Accounts and other receivable 70,422 - - - - - - 70,422 Contributions receivable, net 30,606,679 - - - - - - 30,606,679

Total receivables, net 30,677,101 - - - - - - 30,677,101

Prepaid expenses related to future performances 416,685 - - - - - - 416,685 224,389 - 35,860,439 - - 35,860,439 - 36,084,828

Interest escrow 515,515 - 529,785 - - 529,785 - 1,045,300 Beneficial interest in net assets in perpetual trust 19,373,926 - - - - - - 19,373,926 Investment in Subsidiary and Affiliates 26,192,913 25,381,262 - - (25,381,262) - (26,192,913) -

TOTAL ASSETS 81,900,820$ 25,381,262$ 36,524,012$ 1,431,165$ (25,381,262)$ 37,955,177$ (26,192,913)$ 93,663,084$

TNSH Manager, LLC - Consolidated

Property and equipment, net


CONSOLIDATING SCHEDULE OF FINANCIAL POSITION (Continued)


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Orchestra, Inc. Manager, LLC Landlord, LLC Tenant, LLC Eliminations Consolidated Eliminations ConsolidatedLIABILITIES AND NET ASSETS

LIABILITIESAccounts payable and accrued expenses 607,911$ -$ 8,627,687$ -$ -$ 8,627,687$ -$ 9,235,598$

1,811,349 - - - - - - 1,811,349 Notes payable, net 5,861,720 - 2,077,279 - - 2,077,279 - 7,938,999 Liability for pension benefits 5,335,303 - - - - - - 5,335,303 Other 9,325 - - - - - - 9,325

Total liabilities 13,625,608 - 10,704,966 - - 10,704,966 - 24,330,574

NET ASSETS 17,769,546 - - - - - (283,571) 17,485,975

Non-controlling interest in for profit entities - - - - 1,340,869 1,340,869 - 1,340,869

Total without donor restrictions 17,769,546 - - - 1,340,869 1,340,869 (283,571) 18,826,844 50,505,666 - - - - - - 50,505,666

- 25,381,262 25,819,046 1,431,165 (26,722,131) 25,909,342 (25,909,342) -

Total net assets 68,275,212 25,381,262 25,819,046 1,431,165 (25,381,262) 27,250,211 (26,192,913) 69,332,510

TOTAL LIABILITIES AND NET ASSETS 81,900,820$ 25,381,262$ 36,524,012$ 1,431,165$ (25,381,262)$ 37,955,177 (26,192,913)$ 93,663,084$

Member's equity

Deferred revenue, net of prepaid sales tax of $91,755 in 2019

With donor restrictions

Without donor restrictions


CONSOLIDATED SCHEDULE OF ACTIVITIES


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Orchestra, Inc. Manager, LLC Landlord, LLC Tenant, LLC Eliminations Consolidated Eliminations Consolidated

3,689,712$ -$ -$ -$ -$ -$ -$ 3,689,712$ 112,513 - - - - - - 112,513

Contributions (Schedule III) 9,766,766 - - - - - - 9,766,766

305,455 - - - - - - 305,455 122,418 - - - - - - 122,418

99,348 - - - - - - 99,348

833,540 - - - - - - 833,540

Total operating revenues 14,929,752 - - - - - - 14,929,752

13,281,589 - - - - - - 13,281,589

Total operating revenues and net assets released from restriction 28,211,341 - - - - - - 28,211,341

Program services:13,962,182 - - - - - - 13,962,182

588,795 - - - - - - 588,795

Total program expenses 14,550,977 - - - - - - 14,550,977


Government support (Schedule III)Increase in the beneficial interest in net assets in perpetual trusts - distributions (Schedule III)

NET ASSETS RELEASED FROM RESTRICTION (SCHEDULE III)

EXPENSES

ConcertsEducation

OPERATING REVENUES WITHOUT DONOR RESTRICTIONS


Performance revenue, net of sales tax of $151,454 (Schedule I)Other revenues (Schedule II)

Special event revenues, net of costs of direct benefit to donors of $64,647 (Schedule III)


CONSOLIDATED SCHEDULE OF ACTIVITIES (Continued)


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Orchestra, Inc. Manager, LLC Landlord, LLC Tenant, LLC Eliminations Consolidated Eliminations Consolidated

Management and general 1,277,646$ -$ 141,477$ 21$ -$ 141,498$ -$ 1,419,144$ Fundraising 2,144,098 - 853 - - 853 - 2,144,951

17,972,721 - 142,330 21 - 142,351 - 18,115,072

10,238,620 - (142,330) (21) - (142,351) - 10,096,269

(1,755,222) - - - - - - (1,755,222)

8,483,398 - (142,330) (21) - (142,351) - 8,341,047

NET ASSETS WITH DONOR RESTRICTIONS

Contributions (Schedule III) 3,937,886 - - - - - - 3,937,886 Net assets released from restrictions (13,281,589) - - - - - - (13,281,589)

161,111 - - - - - - 161,111

Change in net assets with donor restrictions (9,182,592) - - - - - - (9,182,592)

(699,194) - (142,330) (21) - (142,351) - (841,545)

68,974,406 4,177,800 4,078,759 - (4,177,800) 4,078,759 (4,220,000) 68,833,165

Contributions - 21,203,462 21,882,617 1,431,186 (21,203,462) 23,313,803 (21,972,913) 1,340,890

68,275,212$ 25,381,262$ 25,819,046$ 1,431,165$ (25,381,262)$ 27,250,211$ (26,192,913)$ 69,332,510$ NET ASSETS, END OF YEAR


Change in net assets without donor


NET ASSETS, BEGINNING OF YEAR


Operating revenues and net assets released from restriction in excess of operating expenses

CHANGE IN NET ASSETS




CONSOLIDATED SCHEDULES OF OPERATING ACTIVITIES (Unaudited)


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2019 2018OPERATING REVENUES

Performance revenue net of sales tax 3,689,712$ 3,962,686$ Other revenues 112,513 120,888 Contributions 11,395,020 10,891,090 In kind contributions 122,418 220,429 Special event revenues, net 305,455 326,115 Government support 99,348 90,820

833,540 748,971

Total operating revenues 16,558,006 16,360,999

Net assets released from restriction: For operations 692,487 758,300

Total revenues 17,250,493 17,119,299

EXPENSESProgram services:

Orchestra salaries and benefits 8,322,383 8,146,141 Production expenses 4,053,804 4,033,084

Total program expenses 12,376,187 12,179,225

General and administrative:Marketing 1,804,385 1,935,704 Other 1,728,950 1,727,521 Total general and administrative expenses 3,533,335 3,663,225

Development expenses 1,297,139 1,259,297 Total operating expenses 17,206,661 17,101,747

Operating revenues and net assets released from restriction in excess of operating expenses 43,832 17,552

OTHER CHANGES IN NET ASSETSPension related items (1,755,222) 937,857 Capital Campaign 15,353,560 9,584,761 Forgiveness of note payable and accrued interest to MSO Endowment Trust - 2,506,210

Change in net assets 13,642,170 13,046,380

NET ASSETS (DEFICIT), BEGINNING OF YEAR 9,144,907 (3,901,473)

NET ASSETS, END OF YEAR 22,787,077$ 9,144,907$

Increase in beneficial interest in net assets in perpetual trusts - distributions


CONSOLIDATED SCHEDULES OF OPERATING ACTIVITIES (Unaudited) (Continued)


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CAPITAL CAMPAIGN: 2019 2018

Rent income -$ 42,559$ In kind contributions - 1,970,000 Net assets released from restriction 16,119,621 8,605,267 Development expenses (766,061) (1,033,065)

15,353,560$ 9,584,761$

Documents

MSO Inc. and Subsidiary Audit 8.31.19