notes to financial statements18<strong>National</strong> <strong>Arts</strong> <strong>Centre</strong> Corporation 97-98 <strong>National</strong> <strong>Arts</strong> <strong>Centre</strong> Corporation 97-98August 31, <strong>1998</strong>Employee termination benefits> Employees of the Corporation are entitled to specified benefits on termination as providedfor under their respective contracts and conditions of employment. The liability forthese benefits is recorded as the benefits accrue to the employees.Operating expenses> Expenses relating to commercial operations and programming do not include costsrelating to building and equipment maintenance, utilities and administrative services.Pension plan> Employees of the Corporation participate in the Public Service Superannuation Plan,administered by the Government of Canada. Contributions to the Plan are required byboth the employees and the Corporation on an equal basis. The Corporation’s contributionsrepresent the total pension obligation of the Corporation. Contributions inrespect of current service are expensed during the year in which service is rendered.> The Corporation is not required under present legislation to make contributions withrespect to employees for actuarial deficiencies of the Public Service SuperannuationAccount.1. Authority, objectives and operations> The <strong>National</strong> <strong>Arts</strong> <strong>Centre</strong> Corporation (the “Corporation” or the “<strong>Centre</strong>”) was established in1969 pursuant to the <strong>National</strong> <strong>Arts</strong> <strong>Centre</strong> Act and is not subject to the provisions of the IncomeTax Act. Pursuant to Section 85 (1) of Part X of the Financial Administration Act, Divisions I toIV of Part X do not apply to the Corporation.> The objectives of the Corporation are to operate and maintain the <strong>National</strong> <strong>Arts</strong> <strong>Centre</strong>, todevelop the performing arts in the <strong>National</strong> Capital Region, and to assist the Canada Councilin the development of the performing arts elsewhere in Canada.> In furtherance of its objectives, the Corporation may arrange for, and sponsor performing artsactivities at the <strong>Centre</strong>; encourage and assist in the development of performing arts companiesresident at the <strong>Centre</strong>; arrange for, or sponsor radio, and television broadcasts and the showingof films in the <strong>Centre</strong>; provide accommodation at the <strong>Centre</strong>, on such terms and conditions asthe Corporation may fix, for national and local organizations whose objects include the developmentand encouragement of the performing arts in Canada; and, at the request of theGovernment of Canada or the Canada Council, arrange for performances elsewhere in Canadaby performing arts companies, whether resident or non-resident in Canada, and arrange for performancesoutside Canada by performing arts companies resident in Canada.> With a view to achieving the objectives, the Government of Canada has leased without chargethe <strong>National</strong> <strong>Arts</strong> <strong>Centre</strong> building complex to the Corporation. The lease is being renewed on ayearly basis. The Corporation is responsible for the operation and maintenance of the building.2. Significant accounting policiesShort-term investments> Short-term investments are valued at the lower of cost and market value.Parliamentary appropriation> The Government of Canada provides funding to the Corporation. The portion of theParliamentary appropriation used to purchase depreciable capital assets is recorded as deferredcapital funding and amortized on the same basis and over the same periods as the related capitalassets. The remaining portion of the appropriation is recorded on the statement of operations.> The parliamentary appropriation approved for the period from April 1 to August 31, is inrespect of the Government of Canada’s fiscal year ending on March 31 of the following year.Accordingly, the portion of the amount received to August 31, which is in excess of 5/12thsof the appropriation, is deferred to the following year. Similarly, the portion of the amountreceived to August 31, which is less that 5/12ths of the appropriation, is recorded as areceivable.> Differences in parliamentary appropriation received for payments in lieu of taxes tomunicipalities and other taxing authorities and the related expense for the year are recordedas either a deferred credit or an account receivable as appropriate.Inventories> Inventories are valued at cost for restaurant supplies, food and beverages.Programmes in progress> Direct costs, including advances to performing companies and artists related to programmes(shows) that will be held after year-end, are deferred, and are charged toexpenses in the year in which the programmes take place.Capital assets> Capital assets are recorded at cost net of accumulated amortization. Amortization iscalculated using the straight-line method, over the estimated useful lives of the assetsas follows:Equipment2 to 10 yearsComputer software and hardware3 to 5 yearsLeasehold improvements10 yearsDeferred revenue> Revenue from tickets sold related to programmes (shows) that will be held after yearendare deferred, and are recognized as revenue in the year in which the programmes takeplace.Contributions> The Corporation follows the deferral method of accounting for contributions.> Contributions externally restricted, and related investment income, are deferred and recognizedas revenue in the year in which the related expenses are incurred. Unrestrictedcontributions are recognized as revenue when received.3. Change in accounting policy> Prior to <strong>1998</strong>, the funding received from the Government of Canada was recorded asequity. Effective September 1, <strong>1997</strong>, the portion of the parliamentary appropriationused to purchase depreciable capital assets is now recorded as deferred capital fundingon the balance sheet, in order to conform to Canadian Institute of CharteredAccountants (CICA) Public Sector Accounting and Auditing Board recommendationson Accounting for Government Assistance, and are amortized on the same basis andover the same periods as the related capital assets. This change in accounting policy hasbeen applied retroactively and the financial statements of prior years have been restated.The effect of this change in accounting policy is a reduction in equity and an increasein deferred capital funding on the balance sheet of $7,664,998 (<strong>1997</strong> - $7,773,305), andan increase in results of operations after government funding for the year of $108,307(<strong>1997</strong> - $1,717,529).4. Cash and short-term investments> The Corporation’s policy is to invest temporary excess cash in short-term deposit certificates,bonds, and commercial paper with Canadian financial institutions. As at August31, <strong>1998</strong>, cash and short-term investments include bonds and commercial paper of$1,096,794 ($4,763,193 in <strong>1997</strong>). The average yield of the portfolio was 4.25% for the yearended August 31, <strong>1998</strong> (3.46% in <strong>1997</strong>). The fair value of short-term investments approximatesthe book value due to their impending maturity.5. Accounts Receivable> In the normal course of business, the Corporation sells its products to many customers. Oneaccount represents 29% of the year-end balance (49% in <strong>1997</strong>). The fair value of accountsreceivable approximates the book value due to their impending maturity.6. Restricted cash and investments> Restricted cash and investments arise from contributions received from individuals and corporateentities for a specified purpose.7. Contributions receivable> Contributions receivable represent the unpaid portion of the $1,000,000 pledge made by theAlexei Yashin Foundation in <strong>1997</strong>-98. Related to this pledge, an amount of $200,000 wasreceived during the year. The remaining balance of the pledge is to be received in equal paymentsof $200,000 per year in each of the next four years. The fair value of contributionsreceivable at year end is approximately $730,000.8. Capital assets<strong>1998</strong> <strong>1997</strong>Accumulated Net NetCost amortization book value book valueEquipment $ 5,525,235 4,238,709 1,286,526 $ 869,155Computer softwareand hardware 3,923,842 2,398,093 1,525,749 734,986Leaseholdimprovements 27,056,134 22,203,411 4,852,723 6,169,164> Volunteers contribute a significant number of hours per year. Because of the difficultyof determining their fair value, contributed services are not recognized in these financial$ 36,505,211 28,840,213 7,664,998 $ 7,773,305statements.19
20<strong>National</strong> <strong>Arts</strong> <strong>Centre</strong> Corporation <strong>National</strong> 97-98 <strong>Arts</strong> <strong>Centre</strong> Corporation 97-989. Deferred contributions<strong>1998</strong> <strong>1997</strong>Pledge from Alexei YashinFoundation $ 800,000 $ -<strong>NAC</strong>O Trust Fund 30,567 36,398<strong>NAC</strong>O Tour Fund 63,964 61,152Trudie LeCaine Fund 437 937$ 894,968 $ 98,487schedule 1schedule of revenue and expensesCommercial Operations for the year ended August 31, <strong>1998</strong><strong>1998</strong> <strong>1997</strong>> Changes in the deferred contributions balance are as follows:Excess ofExcess ofRevenue Expenses revenue revenueover expenses over expenses<strong>1998</strong> <strong>1997</strong>Balance at beginning of year $ 98,487 $ 89,734Interest income 6,454 7,156Donations 800,527 10,097Amount recognized as revenueon the statement of operations (10,500) (8,500)Balance at end of year $ 894,968 $ 98,48710. Deferred capital funding> Deferred capital funding represents the unamortized portion of parliamentary appropriationsused to purchase depreciable capital assets.> Changes in the deferred capital funding balance are as follows:<strong>1998</strong> <strong>1997</strong>Balance at beginning of yearas restated $ 7,773,305 $ 9,490,834Appropriations used to purchasedepreciable capital assets 2,036,464 1,156,752Amortization (2,144,771) (2,874,281)Balance at end of year $ 7,664,998 $ 7,773,30511. Endowment Fund> The initial capital of $33,275 for <strong>National</strong> <strong>Arts</strong> <strong>Centre</strong> Orchestra (<strong>NAC</strong>O) Trust Fund issubject to externally imposed restriction stipulating that the original capital be maintainedpermanently. Interest earned during the year of $1,664 (<strong>1997</strong> - $1,930) is included indeferred contributions.12. Related party transactions> In addition to those related party transactions disclosed elsewhere in these financialstatements , the Corporation is related in terms of common ownership to all Governmentof Canada created departments, agencies and Crown corporations.> During the year, in the normal course of business and on normal trade terms applicableto all individuals and enterprises, the Corporation incurred expenses totaling $593,533(<strong>1997</strong> - $620,440) for utility, facilities and telephone services provided by related partiesand earned revenue totaling $1,325,377 (<strong>1997</strong> - $833,818) from special grants from, andrestaurants’ sales to, other related parties.13. Contingencies> The Corporation is the claimant or defendant in certain pending claims and lawsuits. InManagement’s opinion, the outcome of these actions is not likely to result in any materialliabilities.14. Fair value of financial instruments> In addition to what was already described in Notes 4, 5 and 7, the fair value of parliamentaryappropriation receivable, restricted cash and investments, and accounts payable andaccrued liabilities approximate the book value due to their impending maturity.15. Commitments> The Corporation is in the process of signing a Strategic Alliance Agreement with a potentialsupplier for a period of sixty eight (68) months effective as of the 1st day of January<strong>1998</strong>. Under this agreement, the supplier will provide enterprise networked business solutions,common information technology infrastructure and operations management servicesto optimize enterprise business performance to further expand the <strong>NAC</strong>’s business objectives.The estimated fee for the agreement is approximately $5 million.16. Uncertainty due to the Year 2000> The Year 2000 Issue arises because many computerized systems use two digits ratherthan four to identify a year. Date-sensitive systems may recognize the year 2000 as 1900or some other date, resulting in errors when information using year 2000 dates isprocessed. In addition, similar problems may arise in some systems which use certain datesin 1999 to represent something other than a date. The effects of the Year 2000 Issue maybe experienced before, on or after 1 January 2000 and, if not addressed, the impact onoperations and financial reporting may range from minor errors to significant systems failurewhich could affect an entity’s ability to conduct normal business operations. It is notpossible to be certain that all aspects of the Year 2000 Issue affecting the Corporation,including those related to the efforts of customers, suppliers or other third parties, will befully resolved.17. Comparative figures> Certain figures for <strong>1997</strong> have been reclassified to conform to the presentation adopted this year.Restaurants $ 6,262,199 5,874,904 387,295 $ 306,162Rental of halls 2,265,373 1,267,020 998,353 1,109,921Garage 2,194,564 482,644 1,711,920 1,590,455Total $ 10,722,136 7,624,568 3,097,568 $ 3,006,53821
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