F INANCIAL S TATEMENTS A ND S UPPLEMENTAL I NFORMATION N ew York City Industrial Development Agency (A Component Unit of The City of New York) Years Ended June 30, 2010 and 2009 With Report of Independent Auditors Ernst & Young LLP This is trial version www.adultpdf.com New York City Industrial Development Agency (a component unit of The City of New York) Financial Statements and Supplemental Information Years Ended June 30, 2010 and 2009 Contents Report of Independent Auditors 1 Management’s Discussion and Analysis 3 Financial Statements Balance Sheets 7 Statements of Revenues, Expenses and Changes in Fund Net Assets 8 Statements of Cash Flows 9 Notes to Financial Statements 11 Supplemental Information Combining Balance Sheets 33 Report on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of the Financial Statements Performed in Accordance with Government Auditing Standards 34 This is trial version www.adultpdf.com 1 Report of Independent Auditors The Board of Directors New York City Industrial Development Agency We have audited the balance sheets of the New York City Industrial Development Agency (the Agency), a component unit of The City of New York, as of June 30, 2010 and 2009 and the related statements of revenues, expenses and changes in fund net assets and cash flows for the years then ended. These financial statements are the responsibility of the Agency’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Agency’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Agency’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of New York City Industrial Development Agency as of June 30, 2010 and 2009, and the changes in its financial position and its cash flows for the years then ended in conformity with US generally accepted accounting principles. As discussed in Note 2, the Agency adopted Governmental Accounting Standards Board Statement No. 53, Accounting and Financial Reporting for Derivative Instruments as of July 1, 2009. In accordance with Government Auditing Standards, we have also issued our report dated September 21, 2010 on our consideration of the Agency’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of that report is to describe the A member firm of Ernst & Young Global Limited Ernst & Young LLP Five Times Square New York, NY 10036-6530 Tel: +1 212 773 3000 Fax: +1 212 773 6350 www.ey.com This is trial version www.adultpdf.com 2 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 internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Management’s discussion and analysis on pages 3 through 6 is not a required part of the basic financial statements but is supplementary information required by the Governmental Accounting Standards Board. We have applied certain limited procedures, which consisted principally of inquiries of management regarding methods of measurement and presentation of this required supplementary information. However, we did not audit the information and express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as whole. EY September 21, 2010 A member firm of Ernst & Young Global Limited This is trial version www.adultpdf.com 3 New York City Industrial Development Agency (a component unit of The City of New York) Management’s Discussion and Analysis June 30, 2010 This section of the New York City Industrial Development Agency (IDA or the Agency) annual financial report presents our discussion and analysis of financial performance during the fiscal year that ended on June 30, 2010. Please read it in conjunction with the financial statements and accompanying notes, which follow this section. 2010 Financial Highlights • Cash and cash equivalents decreased $7,257,155 (or 63%) • Investments increased $8,074,347 (or 26%) • Current liabilities increased $7,933,020 (or 11%) • Unrestricted net assets increased $336,370 (or 1%) • Operating revenues increased $3,242,908 (or 68%) • Operating income increased $3,375,012 (or 202%) • Operating expenses decreased $132,104 (or 2%) • Nonoperating expenses decreased $3,649,128 (or 73%) Overview of the Financial Statements This annual financial report consists of three parts: Management’s discussion and analysis (this section), basic financial statements and supplemental information. IDA is considered a component unit of The City of New York (the City) for financial reporting purposes, and a public benefit agency of the State of New York (the State). IDA was established in 1974 to actively promote, retain, attract, encourage and develop an economically sound commerce and industry base to prevent unemployment and economic deterioration in the City. IDA is a self-supporting entity and follows enterprise fund reporting. Enterprise fund statements offer short-term and long-term financial information about the Agency’s activities. The Agency operates in a manner similar to a private business. This is trial version www.adultpdf.com 4 Financial Analysis of the Agency Net Assets. The following table summarizes IDA’s financial position at June 30, 2010, 2009, and 2008 ($ in thousands) and the percentage changes between June 30, 2010 and 2009: % Change 2010 2009 2008 2010 –2009 2009 –2008 Current and other assets $ 1,991,372 $ 2,003,341 $ 622,715 (1%) 221% Capital assets – – 984,597 – (100%) Total assets 1,991,372 2,003,341 1,607,312 (1%) 25% Current liabilities 79,254 71,322 30,410 11% 135% N oncurrent liabilities 1,872,619 1,892,858 1,531,053 (1%) 24% Total liabilities 1,951,874 1,964,180 1,561,463 (1%) 26% Total net assets $ 39,498 $ 39,161 $ 45,849 1% (15%) In fiscal year 2010, current and other assets decreased by $11,969,947 or 1% as a result of payments relating to the Yankee Stadium and Queens Ballpark Projects. In fiscal year 2009, current and other assets increased by $1,380,626 or 221%. These changes are due to completion of the Yankee Stadium and Queens Ballpark Projects. Upon completion of construction on the stadiums in Spring 2009, the asset was converted from construction in progress to PILOT Lease Receivable. See Note 9 for more information. The Agency’s net assets increased $336,370 or 1% and decreased by $6,687,770 or 15% in fiscal year 2010 and 2009, respectively, as a result of its normal operating activities. Operating Activities The Agency assists industrial, commercial and not-for-profit organizations in obtaining long- term, low-cost financing for fixed assets through a financing transaction (the Financing Transaction), which includes the issuance of double and triple tax-exempt bonds. In addition, the Agency also assists participants through a “straight lease” structure. Whether the Agency issues tax-exempt bonds on behalf of project companies or merely enters into a straight lease, the Agency may provide one or more of the following tax benefits: exemption from mortgage recording tax; payments in lieu of real property taxes that are less than full taxes; and exemption from City and State sales and use taxes as applied to construction materials and machinery and equipment. During the year ended June 30, 2010, IDA did not issue any tax exempt bonds. IDA issued approximately $5.0 million in tax exempt bonds in 2009. This is trial version www.adultpdf.com 5 During fiscal year 2007, in connection with the construction and financing of the Stadium Projects, the Agency issued Tax Exempt PILOT Revenue Bonds, Taxable Rental Revenue Bonds, Taxable Installment Purchase Bonds and Taxable Lease Revenue Bonds totaling $1,580,475,000. The Taxable Bonds are special limited obligations of the Agency and are payable solely from revenues derived from the Lease Agreement with Yankee Stadium, LLC and the Lease Agreement and Installment Sales Agreement with Queens Ballpark Company, LLC and for financial reporting purposes given no accounting recognition in the Agency’s financial statements. Since the Tax Exempt PILOT Bonds were issued to finance the construction of the stadiums and the Agency is the legal owner of the stadiums, the Tax Exempt PILOT Revenue Bonds have been recorded in the Agency’s books and records. The PILOT Bonds are special limited obligations of the Agency payable solely from Payment in lieu of Taxes (PILOT) Revenues derived from PILOTs made by Yankee Stadium, LLC and Queens Ballpark Company, LLC. The Agency charges various program fees that may include application fees, financing fees, legal fees and compliance fees. The Agency also charges servicing fees on any recapture of benefits from companies defaulting on their compliance requirements for IDA benefits. The following table summarizes IDA’s changes in net assets for fiscal years 2010, 2009, and 2008 ($ in thousands) and the percentage changes between June 30, 2010 and 2009: % Change 2010 2009 2008 2010 – 2009 2009 – 2008 Operating revenues: Fee income $ 3,208 $ 3,886 $ 6,297 (18%) (38%) Other income 4,801 880 5,189 446% (83%) Total operating revenues 8,009 4,766 11,486 68% (59%) Operating expenses: Management fees 6,052 6,052 6,052 0% 0% Other expenses 250 382 310 (34%) 23% Total operating expenses 6,302 6,434 6,362 (2%) 1% Operating (loss) income 1,707 (1,668) 5,124 202% (133%) N onoperating revenues (expenses): Earnings on investments 392 1,542 2,343 (75%) (34%) Special project costs (1,762) (6,562) (11,152) (73%) 41% PILOT lease income 103,111 17,379 – 493% 100% PILOT investment income 3,969 264 – 1,403% 100% Bond interest expense (107,080) (17,643) – (507%) (100%) Total nonoperating expenses (1,370) (5,020) (8,809) (73%) (43%) Change in net assets 337 (6,688) (3,685) 105% (82%) Beginning net assets 39,161 45,849 49,534 (15%) (7%) Ending net assets $ 39,498 $ 39,161 $ 45,849 1% (15%) In fiscal year 2010, revenues relating to other operating income increased by $3,921,471 or 446%. This is a result of recapture benefits for Pfizer Inc., AXA Equitable Variable Life Insurance, Reuters America and Mutual Life Insurance. This is trial version www.adultpdf.com 6 In fiscal year 2009, revenues relating to fee income decreased $2,410,438 or 38% due to the Agency’s inability to issue tax exempt financing to not-for-profits as a result of expired state authorizing legislation. A bill re-authorizing IDA financing of not-for-profit construction is stalled in the State Legislature. Earnings on Agency investments decreased $1,149,783 or 75% due to lower interest rates. Special project costs decreased by $4,798,911 or 73% in fiscal year 2010 due to the completion of several projects during the prior fiscal year. Special project costs decreased $4,590,774 or 41% in fiscal year 2009. This decrease was primarily the result of completing the New York City Business Development Study Project and other projects that are nearing completion. The Agency annually contracts with EDC for all administrative services which are necessary to administer the programs of the Agency. In fiscal years 2010 and 2009, management fees were $6,052,117. Capital Assets and Long-Term Debt Activity During 2009, the Agency incurred costs totaling $491,534,481, net of capitalized interest costs in connection with the Stadium Projects. These costs represented construction in progress reported as Capital Assets, not being depreciated in the Agency’s Balance Sheets. These costs were financed through the issuance of Tax Exempt PILOT Bonds in the amount of $1,489,910,000. As indicated above, upon completion of the stadiums in 2009, the asset was converted from construction in progress to PILOT lease receivable. Therefore the agency had no capital asset activity during the year ended June 30, 2010. Contacting the Agency’s Financial Management This financial report is designed to provide our customers, clients and creditors with a general overview of the Agency’s finances and to demonstrate the Agency’s accountability for the resources at its disposal. If you have any questions about this report or need additional financial information, contact the Public Information Officer, New York City Economic Development Corporation, 110 William Street, New York, NY 10038. This is trial version www.adultpdf.com 7 New York City Industrial Development Agency (a component unit of The City of New York) Balance Sheets June 30 2010 2009 Assets Current assets: Cash and cash equivalents (Note 3) $ 4,228,097 $ 11,485,252 Investments (Note 3) 36,613,294 30,921,686 Fees receivable, net of allowance for doubtful accounts of $91,718 and $107,114, respectively 198,347 313,891 PILOT lease receivable, net 18,993,558 25,790,000 Total current assets 60,033,296 68,510,829 N oncurrent assets: Restricted cash- stadium projects (Note 3) 22,900,410 – Restricted investments (Note 3) 2,382,739 – Restricted investments- stadium projects (Note 3) 102,216,131 323,881,716 PILOT lease receivable, net 1,701,402,421 1,506,549,757 Deferred bond issuance costs 82,601,213 86,045,984 Deferred outflow of resources 19,835,517 18,353,388 Total noncurrent assets 1,931,338,431 1,934,830,845 Total assets $ 1,991,371,727 $ 2,003,341,674 Liabilities and net assets Current liabilities: Accounts payable and accrued expenses $ 67,467 $ 62,048 Due to New York City Economic Development Corporation 945,083 2,901,662 Bonds payable – current 18,993,558 25,790,000 Interest payable on bonds 56,336,463 41,972,279 Deferred revenues (Note 5) 529,336 595,637 Other liabilities 2,382,739 – Total current liabilities 79,254,646 71,321,626 N oncurrent liabilities: Bonds payable, net (Note 6) 1,852,783,712 1,874,505,178 Derivative instrument- interest rate swap 19,835,517 18,353,388 Total noncurrent liabilities 1,872,619,229 1,892,858,566 Total liabilities 1,951,873,875 1,964,180,192 Unrestricted net assets 39,497,852 39,161,482 $ 1,991,371,727 $2,003,341,674 See accompanying notes. This is trial version www.adultpdf.com 8 New York City Industrial Development Agency (a component unit of The City of New York) Statements of Revenues, Expenses and Changes in Fund Net Assets Year Ended June 30 2010 2009 Operating revenues: Fee income (Note 2) $ 3,207,642 $ 3,886,205 Other income (Note 2) 4,801,151 879,680 Total operating revenues 8,008,793 4,765,885 Operating expenses: Management fees (Note 4) 6,052,117 6,052,117 Accounting fees 73,530 53,459 Consulting fees 54,671 25,000 Public hearing expenses 77,972 85,838 Marketing/advertising 37,812 – Provision for bad debt – 47,417 Legal fees – 168,605 Miscellaneous expenses 6,257 2,027 Total operating expenses 6,302,359 6,434,463 Operating income (loss) 1,706,434 (1,668,578) N onoperating revenues (expenses): Investment income 392,363 1,542,146 Special project costs (Note 10) (1,762,427) (6,561,338) PILOT lease income 103,111,155 17,379,199 PILOT investment income 3,968,500 264,094 Bond interest expense (107,079,655) (17,643,293) Total nonoperating revenues (expenses) (1,370,064) (5,019,192) Change in net assets 336,370 (6,687,770) Unrestricted net assets, beginning of year 39,161,482 45,849,252 Unrestricted net assets, end of year $ 39,497,852 $ 39,161,482 See accompanying notes. This is trial version www.adultpdf.com . version www.adultpdf.com New York City Industrial Development Agency (a component unit of The City of New York) Financial Statements and Supplemental Information Years Ended June 30, 2010 and 2009 Contents. 3 New York City Industrial Development Agency (a component unit of The City of New York) Management’s Discussion and Analysis June 30, 2010 This section of the New York City Industrial Development. of the New York City Industrial Development Agency (the Agency) , a component unit of The City of New York, as of June 30, 2010 and 2009 and the related statements of revenues, expenses and changes