year ended june 30, 2017 - pr

CORPORACION DEL CENTRO DE BELLAS ARTES DE PUERTO RICO

(A Component Unit of the Commonwealth of Puerto Rico)

FINANCIAL STATEMENTS WITH

INDEPENDENT AUDITOR'S REPORT

YEAR ENDED JUNE 30, 2017




CONTENTS

Independent Auditor's Report

Required Supplementary Information

Management's Discussion and Analysis (Unaudited)

Basic Financial Statements

Statement of Net Position

Statement of Revenues, Expenses, and Changes in NetPosition

Statement of Cash Flows

Notes to Financial Statements

Required Supplemental Schedules

Schedule of the Corporation's Proportionate Share of the Net Pension Liability

Schedule of the Corporation's Contributions

Notes to Required Supplemental Schedules

Page

1-2

3-12

13

14

15-16

17-39

40

41

42

A Crowe Crowe PR PSC^nn n-.ww icc c100 Carries, Suite410Guaynabo, PR 00968-8051

+1 787 625 1800

www.crowe.pr

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of

Corporacion del Centro de Bellas Artes de Puerto RicoSan Juan, Puerto Rico

Report on the Financial Statements

We have audited the accompanying financial statements of the business-type activities of the Corporacion delCentro de Bellas Artes de Puerto Rico (hereinafter "the Corporation"), a component unit of the Government ofPuerto Rico, as of and for the year ended June 30, 2017, and the related notes to the financial statements, whichcollectively comprise the Corporation's basic financial statements as listed in the table of contents.

Management's Responsibility for the Financial Sfafemenfs

Management is responsible for the preparation and fair presentation of these financial statements in accordancewith accounting principles generally accepted in the United States of America; this includes the design,implementation, and maintenance of internal control relevant to the preparation and fair presentation of financialstatements that are free from material misstatement, whether due to error or fraud.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted ouraudit in accordance with auditing standards generally accepted in the United States of America. Those standardsrequire that we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financialstatements. The procedures selected depend on the auditor's judgment, including the assessment of the risks ofmaterial 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 financialstatements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing 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 ofsignificant accounting estimates made by management, as well as evaluating the overall presentation of thefinancial statements

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our auditopinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positionof the Corporation as of June 30, 2017, and the respective changes in its financial position, and cash flows thereoffor the year then ended in conformity with accounting principles generally accepted in the United States of America.

Emphasis of Matter

Uncertainty about Ability to Continue as a Going Concern

The accompanying financial statements have been prepared assuming that the Corporation will continue as a goingconcern. As discussed in Note 13 to the financial statements, the Corporation is highly dependent on theCommonwealth of Puerto Rico (the Commonwealth) appropriations to finance its operations. The financialdifficulties experienced by the Commonwealth, including the uncertainty as to its ability to fully satisfy its obligations,raises substantial doubt the Corporation's ability to continue as a going concern. Management's plans in regard tothese matters are also described in Note 13. The financial statements do not include any adjustments that mightresult from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.

Adoption of GASB Statement No. 68, Accounting and Financial Reporting for Pensions and GASB Statement No.71. Pension Transition for Contributions Made Subsequent to the Measurement Date

As discussed in Notes 2 and 14 to the basic financial statements the Corporation adopted the provisions of GASBStatement No. 68 and GASB Statement No. 71 as of July 1. 2016. Our opinion is not modified with respect to thesematters.

Other Matters

Required Supplementary Information

Accounting principles generally accepted in the United States of America require that the Management's Discussionand Analysis on pages 3 through 12 and the Schedule of the Corporation's Proportionate Share of the Net PensionLiability and Schedule of the Corporation's Contributions (see Required Supplementary Information) on page 40through 42 be presented to supplement the basic financial Statements. Such information, although not a part of thebasic financial statements, is required by the Governmental Accounting Standards Board, who considers it to be anessential part of financial reporting for placing the basic financial statements in an appropriate operational,economic, or historical context. We have applied certain limited procedures to the required supplementaryinformation in accordance with auditing standards generally accepted in the United States of America, whichconsisted of inquiries of management about the methods of preparing the information and comparing theinformation for consistency with management's responses to our inquiries, the basic financial statements, and otherknowledge we obtained during our audit of the basic financial statements. We do not express an opinion or provideany assurance on the information because the limited procedures do not provide us with sufficient evidence toexpress an opinion or provide any assurance.

February 26, 2019

Stamp number E369773 wasaffixed to the original of thisreport.

Ckm. P/!

CORPORAClbN DEL CENTRO DE BELLAS ARTES DE PUERTO R!CO(A Component Unit of the Commonwealth of Puerto Rico)

MANAGEMENTS DISCUSSION AND ANALYSIS

(Unaudited)

The following discussion and analysis presents an overview of the financial activities of Corporaclon del Centro deBellas Artes de Puerto Rico (the "Corporation") for the year ended June 30, 2017. The intent of this discussionand analysis Is to look at the Corporation's performance as a whole. Readers are encouraged to review the financialstatements and the notes to the financial statements to enhance their understanding of the Corporation's financialperformance.

FINANCIAL HIGHLIGHTS

Following are some of the highlights from the fiscal year 2017:

1) The Corporation's net position decreased by $513,741, or 11% for the fiscal year 2017 compared to theprior fiscal year,

2) The unrestricted net deficit decreased by $(216,532), or (2)% compared to the prior fiscal year,

3) Operating revenues in form of charges and services decreased by $29,930, or 1% compared to the priorfiscal year.

4) The Corporation's operating expenses increased by $46,188, or 1% compared to the prior fiscal year,

5) Total net operating loss increased by $76,118, or 2% compared to the prior fiscal year.

6) Capital assets decreased by $868,581, or 6% compared to the prior fiscal year.

OVERVIEW OF THE BASIC FINANCIAL STATEMENTS

Management's Discussion and Analysis serves as an introduction to the Corporation's basic financial statements,which include: 1) Statement of Net Position, 2) Statement of Revenues, Expenses, and Change In Net Position, 3)Statement of Cash Flows, and 4) Notes to Financial Statements. This report also contains required supplementaryinformation.

1) Statement of Net Position - This statement presents information of all the Corporation's assets,liabilities, and deferred outflows and Inflows of resources. Net position (deficit) is the difference between(a) assets and deferred outflows of resources, and (b) liabilities and deferred inflows of resources. Overtime. Increases or decreases In the Corporation's net position may serve as a useful Indicator of whetherits financial position is improving or deteriorating.

2) Statement of Revenues, Expenses, and Changes In Net Position - This statement presentsinformation showing how the Corporation's net position changed during the most recent fiscal year. Allchanges in net position are reported as soon as the underlying event giving rise to the change occurs,regardless of the timing of related cash flows. Thus, revenues and expenses are reported in thisstatement for some items that will only result in cash flows in future fiscal periods.

3) Statement of Cash Flows - This statement present information related to cash flows of the Corporationby the following categories: operating activities, noncapital financing activities, capital and relatedfinancing activities and investing activities. This statement also portrays the health of the Corporation inthat current cash flows are sufficient to pay current liabilities.



MANAGEMENrS DISCUSSION AND ANALYSIS (CONTINUED)(Unaudited)

OVERVIEW OF THE BASIC FINANCIAL STATEMENTS (CONTINUED)

4) Notes to Financial Statements • The notes to financial statements are an integral part of the basicfinancial statements and describe the significant accounting policies, related-party transactions,deposits, capital assets, long-term liabilities, defined-benefit pension plans, commitments, andcontingencies.

FINANCIAL ANALYSIS OF THE CORPORATION'S BUSINESS-TYPE ACTIVITIES

The following table presents a summary of the Corporation's net position on June 30. 2017, and 2016:

CONDENSED STATEMENTS OF NET POSITION

2017

As Restated

2016

Total %

Change

Assets

Current assets

Capital assetsOther assets

$ 2,887,93914,519,023

571 372

$ 2,914,18715,387,604

571 377

$({

26,248) (868,581) (

1)%6)%%

Total assets 17 978.334 18 873 163 f 894.829) ( 5)%

Deferred outflows of resources ? 350 568 1 310 578 1.040.040 79%

Liabilities

Current liabilities

Non-current liabilities

713,52813 813 195

851,17217..719 7.57

( 137,644) (1.093.438

16)%9 %

Total liabilities 14.526.723 13.570.929 955.794 7 %

Deferred inflows of resources 1.662.333 1.959.175 ( 296.847) ( 15)%

Net position (deficit)Net investment in capital assetsUnrestricted deficiency

15,090,395

( 10.950.549)

15,387,604

( 10.734.017)((

297,209) (216.5.3?)

2)%2 %

Total net position S 4.139.846 $ 4.653.587 $f 513.7411 111%

Current assets - the Corporation's current assets decreased by 1% from $2,914,187 on June 30, 2016, to$2,887,939 on June 30, 2017.

Capital assets - the Corporation's current capital assets decreased by $297,209 or 2% from $15,387,604 at June30, 2016, to $14,519,023 at June 30, 2017. Capital assets are funded with the proceeds from operations and capitalgrants from the Commonwealth of Puerto Rico (the Commonwealth). The decrease during the year was mainly dueto depreciation and amortization expense of $918,546, offset by capital additions of $49,965.

Deferred outflows of resources - the Corporation's deferred outflows related to pensions increased by $1.040,040or 79% compared to the prior year mostly due to the changes in actuarial assumptions and the Corporationcontributions made subsequent to the measurement date.

Current liabilities - Current liabilities consist primarily of accounts payable and accrued liabilities. The currentliabilities decreased by $137,644 or 16% from $851,172 at June 30, 2016 to $713,528 at June 30, 2017,



MANAGEMENTS DISCUSSION AND ANALYSIS (CONTINUED)(Unaudited)

FINANCIAL ANALYSIS OF THE CORPORATION (CONTINUED)

Non-current liabilities • Non-current liabilities comprise the accrual for compensated absences, terminationbenefits and net pension liability. The Corporation's non-current liabilities increased by $1,093,438 or 9% mostly dueto the changes in the net pension liability. Refer to Note 7, Net Pension Liability.

Deferred inflows of resources - the Corporation's deferred inflows related to pensions decreased by $296,842 or15% compared to prior year mostly due to the changes in proportion and differences between actual contributionsand proportionate share.

Net position (deficit) - Net position presents the Corporation's assets and deferred outflows of resources reducedby related liabilities and deferred inflows of resources. The Corporation's net position decreased by $513,741 or11% compared to the prior fiscal year. The unrestricted net position can be used to finance day to day operationswithout constraints established by debt covenants, legislation, or other legal requirements when funds are available.These changes are explained in the section entitled "Condensed Statements of Revenues, Expenses, and Changesin Fund Net Position (Deficit)".

During fiscal year 2017, the Corporation adopted the provisions of GASB Statement No. 68, Accounting andFinancial Reporting for Pensions (GASB Statement No. 68}. The impact of adopting GASB Statement No. 68consisted of recognizing the net effects of the Corporation's proportionate share of Employees' Retirement Systemof the Commonwealth (ERS) beginning net pension liability and deferred outflows of resources for pensioncontributions made after the beginning net pension liability measurement date and the elimination of the beginningnet pension obligation under GASB Statement No. 27, against beginning net position. The audited Schedule ofEmployer Allocations and Schedules of Pension Amounts by Employer was issued and available on November 2,2018. For further information on the adoption of GASB Statement No. 68, refer to Note 6 and Note 7.

THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK

CORPORACION DEL CENTRO DE BELLAS ARTES DE PUERTO RJCO


MANAGEMENT'S DISCUSSION AND ANALYSIS (CONTINUED)(Unaudited)


CONDENSED STATEMENTS OF REVENUES, EXPENSES, AND CHANGES IN NET POSITION (DEFICIT)

2017

As Restated

2016

Total %

Change

Operating revenuesRental of fadlities $ 792,463 $ 800,536 $( 8,073) ( 1)%Food and beverage 180,306 179,350 956 1 %

Parking 554,958 572,307 { 17.349) ( 3)%Box office 588,753 580,441 8,312 1 %

Sen/ices to produoers 153,001 168,923 ( 15,922) ( 9)%Other 61.484 59 338 2 146 4 %

Total operating revenues ? 330.965 2 360 895 f 29.9301 1 11%

Operating expensesSalaries, payroll taxes and fringebenefits 2,809,934 2,760,203 49,731 2 %

Termination benefits 201,259 99,404 101,855 102 %

Professional and consulting services 684,926 583,994 100,932 17 %

Utilities 1,117,065 1,071,851 45,214 4 %

Repairs and maintenance 213,382 183,935 29,447 16%

Food and beverage 47,605 53,703 ( 6,098) ( 11)%Security 189,456 185,823 3,633 2 %

Insurance 138,996 149,177 ( 10,181) ( 7)%Depreciation and amortization 918,546 908,576 9,970 1 %

Cultural contributions to producers 68,357 37,700 30,657 81 %

Bad debt 16,823 186,119 ( 169,296) ( 91)%Bank charges 51,599 54,086 ( 2,487) ( 5)%Equipment rental 32,715 32,742 ( 27) %

Administrative supplies 143,606 134,993 8,613 6 %

Other 9.000 154.775 ( 145.7751 ( 941%

Total operating expenses 6643.269 6.597.081 46.188 1 %

Operating loss f 4 312.3041 ( 4.236.1861 f 76.1181 2 %

Other nonoperating revenuesGovernmental grants 2,309,033 2,456,000 ( 146,967) ( 6)%Special assignments 1,486,564 1,329,000 157,564 12 %

Interest income 2 966 3 761 f 7951 ( 211%

Total nonoperating revenues 3.798.563 3.788.761 9.802 %

Changes in net position $( 513.7411 $( 447 4251 $f 66.3161 15 %

Total net deficit, beginning of year,as restated 4 653.587 5.101.012 ( 447.4251 1 91%

Total net deficit, end of year $ 4 139 846 $ 4.653.587 5( 513.7411 ( 111%



MANAGEMENrS DISCUSSION AND ANALYSIS (CONTINUED)(Unaudited)


Operating Revenues - The Corporation's operating revenues (excluding nonoperating items) decreased by$29,930 or 1 %. compared to the prior fiscal year. The operating revenues amounted to $2,330,965 and $2,360,895for the years ended June 30, 2017, and 2016, respectively.

Operating expenses - The total expenses increased by $46,188 or 1 % during the present year compared to prioryear. The most significant variances are as follows:

1. Termination benefits - Act No. 70 of July 2, 2010, provided for the early retirement benefits as an economicincentive for voluntary employment termination. For 2017 termination benefits increased by $101,855compared to prior fiscal year due to changes in the employer's contributions from 14.275% to 15.525%, andthe effect of unpaid termination benefits discounted at present value.

2. Professional and consulting services - The professional and consulting services increased by $100,932 or17% during the present fiscal year compared to prior fiscal year due to the effect of a new window openedto employees to retire. New retirements caused the Corporation to fulfill the services performed by formeremployees with professional services.

3. Cultural contributions to producers - Increased by $30,657 or 81 % compared to prior year mostly due toprojects performed under the Residency Program. This program was developed with the idea to help newand young producers to evolve in the performing arts industry. Also, the Corporation receives lower fees forthe use of the facilities from other governmental agencies, and cultural and educational organizations.

4. Bad debt - Decreased by $169,296 or 91% compared to prior year due to a write-off made during 2016 ofthose accounts receivables over 90 days due for which management understood no collection will be made.

5. Other - Decreased by $145,775 or 94% compared to prior year due to the return of a contribution of$100,000 received during 2015-2016 for the "Portico de las Artes".

Nonoperating revenues- The nonoperating revenues increased by $9,802 compared to the prior fiscal year.Government grants decreased by $146,967 and the Special Assignments under Government Grants to operate the"Sala Sinfonica" increased by $157,564 compared to the prior fiscal year.

2017 2016

Government Grant

Special assignments:Sala Sinfonica

Special assignment for Act No. 70Interest Income

Other

2,309,033 $

1,256,667209,897

2,96620,000

2,456,000

1,329,000

3,761

$ 3.798.563 $ 3.788.761






The following chart presents revenues comparison by sources of the Corporation for the years ended June 30,2017, and 2016:

Corporacion del Centre de Bellas Artesde Puerto Rico

800.000-

700,000-

600.000-

500,000-

S 400,000-

I 300000-&

200 000-

100 000-

2017

2016

Revenues by source






The following chart presents operating expenses by function incurred by the Corporation during the fiscal yearsended June 30, 2017, and 2016;

Corporacion del Centre de Bellas Artesde Puerto Rico

2,500.000

I 2,000,000"o

1 1,500,000Vt

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I 1,000,000Q.X

^ 500.000

2017

2016

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Expenses by function




BUDGETARY HIGHLIGHTS

The consolidated budget for the fiscal year 2017-2016 was 35,686,000. The resources include: $2,386,000 comingfrom Joint Resolutions No. 59 and No. 60 from the General Budget; $1,300,000 from Special Assignments; and$2,000,000 from operating revenues. Refer to Note 15 for the Government of Puerto Rico 2018-2019 Fiscal Plananalysis.

The following table summarizes the budget for the fiscal years ended June 30, 2017, and 2016:

BUDGET COMPARISON

Revenues 2017 2016 Change

Governmental grants $ 2,386,000 $ 1,363,000 $ 1,023,000Special assignments 1,300,000 2,422,000 ( 1,122,000)Operating revenues 2.000.000 2.000.000 :

Total revenues ^^^^686^00^ |__5j785j000,

GOING CONCERN, LIQUIDITY RISK AND FISCAL PLAN

Going Concern and Liquidity Risk

The Commonwealth and most of its public corporations are in the midst of a profound fiscal, economic and liquiditycrisis, the culmination of many years of significant governmental deficits, a prolonged economic recession (whichcommenced in 2006), high unemployment, population decline, and high levels of debt and pension obligations. Asthe Commonwealth's tax base has shrunk and its revenues affected by prevailing economic conditions, health care,pension and debt service costs have become an increasing portion of the General Fund budget, which has resultedin reduced funding available for other essential services, The Commonwealth's very high level of debt and unfundedpension liabilities and the resulting required allocation of revenues to service debt and pension obligations havecontributed to significant budget deficits during the past several years, which deficits the Commonwealth hasfinanced, further increasing the amount of its debt. In fiscal year 2017, the principal rating agencies lowered theirrating on the general obligation bonds of the Commonwealth to a default rating of D. These matters and theCommonwealth's liquidity constraints, among other factors, have adversely affected its credit ratings and its ability toobtain financing at reasonable interest rates.

Fiscal Plan

Pursuant to PROMESA and the requirements imposed by the Oversight Board, on June 29, 2018 (previouslycertifted on April 19, 2018, re-certified on May 30, 2018, and subsequently amended on October 23, 2018), theOversight Board certified the new version of the Fiscal Plan (defined below) for the Commonwealth. The BoardFiscal Plan commits to fiscal responsibility and implements specific revenue enhancements and targetedexpenditure reductions to return Puerto Rico to fiscal stability and economic growth. For additional informationregarding the Board Fiscal Plan, refer to Note 12.

10




GOING CONCERN, LIQUIDITY RISK AND FISCAL PLAN (CONTINUED)

New Plan for Defined Contributions for Public Servants

On August 23,2017, Act No. 106 (Act No. 106) was signed into law to guarantee the payment to pensioners andestablish a new plan for defined contributions for public servants, reformed the Commonwealth's pensions byreplacing the governing boards of the Retirement Systems with a single Retirement Board of the Commonwealth ofPuerto Rico (Retirement Board) and established a separate "account for the payment of accrued pensions" toimplement a "pay-as-you-go" (PayGo) method for the Retirement Systems. Act No. 106 created the legal frameworkso that the Commonwealth can guarantee payments to pensioners through the PayGo system. For additionalinformation regarding the Board Fiscal Plan, refer to Note 12.

Government of Puerto Rico 2018-2019 Budget

For the fiscal year 2018-2019, the Recommended Consolidated Budget amounts to $5,227,000. Of these,$3,094,000 come from the Joint Resolution of the General Fund of the Commonwealth and $2,133,000 fromoperating revenues. The Recommended Consolidated Budget includes $1,536,000 for operating expenses;$1,272,000 for payment of payroll and related costs.

Operating revenues come mainly from the lease of the facilities of the Corporation. These resources are used tocover part of the administrative and operational expenses not covered by the allocation assigned from the JointResolution of the General Fund.

The Recommended 2018/2019 Consolidated Budget shows a combined reduction of $669,365 compared to fiscalyear 2016/2017. Said reduction represents mostly the elimination of approximately $1,300,000 in funds to operatethe Sala Sinfdnica, offset by increases in other budget lines. The Recommended Consolidated Budget increases thebudget items related to: the payment to employees under Act 70 of 2010; the payment for services to the PuertoRico Electric Power Authority; the payment for services from the Puerto Rico Water and Sewage Authority, and thepayments to the "PayGo" pension obligation.

The Recommended Consolidated Budget includes $356,000 for the payment of "PayGo" pension benefits;$286,000 from the Joint Resolution of the General Fund and $70,000 from operating revenues.

Hurricane Maria

On September 6, 2017, hurricane irma hit Puerto Rico causing electrical outages and damages to the Corporation'selectric 1500 KVA transformer. The electric sen/ice was reinstated on September 13. 2017, but, the Corporationwas unable to resume operations until September 18, 2017. In November 2017, the Corporation received $75,204from the insurance company to cover the rent of a temporary transformer and six days of business interruption.

On September 20, 2017, hurricane Maria hit Puerto Rico, causing significant structural and economic damage tothe Island as a whole. The Corporation suffered property losses of approximately $1 million. Then, in March 2018,the Corporation received $348,957 from the Federal Emergency Management Agency (FEMA) to cover for variousservices that made the Corporation able to resume operations (See Note 15).

11




GOING CONCERN, LIQUIDITY RISK AND FISCAL PLAN (CONTINUED)

Reorganization Plan No. 13

The Governor prepared the Reorganization Plan No. 13, Institute de Cultura Puertorriquena (ICP) to consolidate the"Corporacidn de las Artes Musicales" (CAM) and the "Corporacion de las Artes Esc6nico Musicales de Puerto Rico"(CAEM) within the ICP. The Reorganization Plan No. 13 did not take place and instead, a Collaborative Agreementwas made on October 10, 2018, between the Corporation and the ICP, which at the date of the issuance of thesefinancial statements the CAM and CAEM were consolidated to the ICP. The Reorganization Plan No. 13 wasprepared in order to comply with Act No. 122, New Government of Puerto Rico Act of December 18, 2017, to reducethe public expense and to create a more efficient government.

CONTACTING THE CORPORATION'S FINANCIAL MANAGEMENT

This financial report is designed to provide a general overview of the Corporation's finances for all those with aninterest in the government's finances. Questions concerning any of the information provided in this report orrequests for additional financial information should be addressed to the Office of the Finance Director, "Corporacidndel Centro de Bellas Artes de Puerto Rico", PC Box 41287 Minillas Station, San Juan, Puerto Rico 00940-1287.

12

CORPORACION DEL CENTRO DE BELLAS ARTES DE PUERTO RtCO

(A Component Unit of the Commonwealth of Puerto Rtco)

STATEMENT OF NET POSITION - JUNE 30, 2017

ASSETS

Current assets

Cash and cash equivalentsAccounts receivable, netOther assets, principally prepaid insurance

Total current assets

Non-current assets

Capital assets, net of accumulated depreciationArtwork

Total non-current assets

Total assets

Deferred outflows of resources, pension related

Total assets and deferred outflows of resources

LIABILITIES

Current liabilities

Accounts payableAccrued expensesDeposits from clientsCollections on behalf of producersCompensated absences, current portionVoluntary termination benefits payable, current portion

Total current liabilities

Non-current liabilities

Compensated absencesTermination benefits payableNet pension liability

Total non-current liabilities

Total liabilities

Deferred inflows of resources, pension related

Total liabilities and deferred inflows of resources

NET POSITION

Net investment in capital assetsUnrestricted

Total net position

2,722,25867,699

97.982

2,887,939

14,519,023

571.372

15.090.395

17,978,334

2.350.568

S 20.328.902

113,362

10,567

190,785

35,401

102,807

260.606

713.528

405,409

1,937,73311.470.053

13.813.195

14,526,723

1.862.333

S 16.189.056

$ 15,090,395( 10.950.5491

S 4.139.846

See accompanying notes to financial statements.13



STATEMENT OF REVENUES, EXPENSES, ANDCHANGES IN NET POSITION

YEAR ENDED JUNE 30,2017

Operating revenuesRental of facilities

Food and beverageParkingBox office

Services to producersOther

Total operating revenues

Operating expensesSalaries, payroll taxes and fringe benefitsPension

Termination benefits

Professional and consulting servicesUtilities

Repairs and maintenanceFood and beverageSecurityInsurance

Depreciation and amortizationCultural contributions to not-for-profit producersBad debt

Bank chargesEquipment rentalAdministrative suppliesOther

Total operating expenses

Operating loss

Non-operating revenuesGovernmental grantSpecial assignments;

Sala Sinfonica

Special assignment for Act No. 70Interest income

Other

Total non-operating revenues

Change In net position

Net Position

At beginning of year, as previously reportedAdoption of new accounting pronouncement (Notes 2 and 14)

Total net position, beginning of year, as restated

Total net position, end of year

792,463

180,306

554,958

588,753

153,001

61.484

2.330.965

2,368,186

441,748

201,259

684,926

1,117,065

213,382

47,605

189,456

138,996

918,546

68,357

16,823

51,599

32,715

143,606

9.000

6.643.269

( 4.312.3041

2,309,033

1,256,667

209,897

2,96620.000

3.798.563

( 513,741)

15,496,321

( 10.842.7341

4.653.587

5 4.139.846




STATEMENT OF CASH FLOWS


Cash flows from operating activitiesReceipts from customersPayments to suppliersPayments to employeesTermination benefits paymentsPension paymentsOther paymentsOther receipts

Net cash used in operating activities

Cash flows from noncapital financing activitiesGovernmental grantsSpecial assignmentsOther

Net cash provided by non-capital financing activities

Cash flows used in capital and related financing activities;capital expenditures

Cash fiows provided by investing activities; interestreceived

Net increase in cash

Cash, at beginning of year

Cash, at end of year

2,295,766

2,770,837)2,412,498)335,569)502,663)67,230)67.155

3.725.8761

2,309,033

1,466,56420.000

3.795.597

( 49.9661

2.966

22,721

2.699.537

$ 2.722.258

Continues.

15



STATEMENT OF CASH FLOWS (CONTINUED)


Reconciliation of operating loss to net cash used inoperating activities

Operating lossAdjustments to reconcile operating loss to netcash used in operating activities;

Depreciation and amortizationBad debt

Change in assets and liabilities:Decrease (increase) in;

Accounts receivable

Other assets

Deferred outflows of resources - pension relatedIncrease (decrease) in:

Accounts payable, including excess of outstandingchecks over bank balance

Accrued expensesDeposits from clientsCollections on behalf of producersCompensated absencesTermination benefits payableNet pension liabilityDeferred inflows of resources - pension related

Total adjustments

Net cash used In operating activities

S( 4.312.304)

918,546

16,823

26.4765,671

( 1,040,040)

( 74,128)( 67,231)

10,597

( 10,789)

( 44,312)( 134,310)

1,275,967

( 296.842)

586.428

Sf 3.725.876)




NOTES TO FINANCIAL STATEMENTS


1. ORGANIZATION

The "Corporacion del Centre de Bellas Antes de Puerto Rico" (the Corporation) was created by Law No. 43 ofMay 12, 1980, of the Commonwealth of Puerto Rico to manage the "Centro de Bellas Antes". The Corporationis a public corporation and an instrumentality of the Commonwealth of Puerto Rico (the Commonwealth orPuerto Rico). The Corporation commenced operations in April 1981, as part of the Arts and CulturalDevelopment Administration. On July 1,1985, the Corporation was transferred to the "Institute de CulturePuertorriquefta" under Law No. 1 of July 31, 1985, which amended Law No. 43 of May 12, 1980.

Financial Reporting Entity

The Corporation is a component unit of the Commonwealth of Puerto Rico.

Financial Independence

As originally created, the Corporation is responsible for its debts and has the right to its surplus, Nogovernmental agency could receive the benefits nor may impose financial strains on the Corporation.However, with the enactment of the Puerto Rico Oversight, Management, and Economic Stability Act(PROMESA) on June 30, 2016, the rights and obligations of the Corporation will create a direct oversight ofthe Corporation, See Note 12 for more information.

Board of Directors

The Board of Directors is appointed by the Governor of the Commonwealth of Puerto Rico, with the adviceand consent of the Senate of Puerto Rico. The Board has the power to make decisions and is responsible forthem.

Designation of Management

The Board of Directors appoints a General Manager. The General Manager selects the other members ofmanagement. The powers and functions of management reside within the legal limits of the Corporation, andthey are responsible to the Board of Directors.

Capacity to Manage Operations

The Corporation has the legal capacity to make significant decisions in the management of its operations.This legal capacity includes, but not limited, to the control of the assets, which include facilities andproperties, make short-term loans, and contract and develop programs.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Measurement Focus and Basis of Accounting and Financial Statements Presentation

The Corporation uses enterprise fund accounting. Revenues and expenses are recognized on the accrualbasis of accounting in conformity with accounting principles generally accepted in the United Statesapplicable to proprietary fund. Revenues are recorded when earned and expenses are recorded when aliability is incurred, regardless of the timing of related cash flows. Legislative grants and similar items arerecognized as revenue as soon as all eligibility requirements imposed by the provider have been met. Thelegislative grants and donations for permanent betterments or for any specific activity not used in the fiscalyear are credited to a deferred income account and income when used.

17



NOTES TO FINANCIAL STATEMENTS (CONTINUED)


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Measurement Focus and Basis of Accounting and Financial Statements Presentation (Continued)

The Corporation distinguishes between operating and non-operating revenues and expenses in theStatements of Revenues, Expenses, and Changes in Fund Net Position. Operating revenues result fromexchange transactions associated with the Corporation's principal activity. The principal operating revenuesof the Corporation are rental of facilities, parking, and sales of tickets. Non-exchange revenues includecontributions received from the Commonwealth of Puerto Rico for purposes other than capital acquisition, arereported as non-operating revenues. Operating expenses for the Corporation include salaries, utilities,depreciation on capital assets, among others.

Use of Estimates in the Preparation of Financial Statements

The Corporation has made certain estimates and assumptions that affect the reported amounts of assets,deferred outflows of resources, liabilities, deferred inflows of resources and related disclosures at the date ofthe financial statements, and the reported amounts of revenues and expenses during the reporting period.Significant items subject to such estimate and assumptions included the deferred outflows/inflows ofresources related to pensions, net pension liability, termination benefits, and compensated absences. Actualresults could differ from those estimates.

Cash and Cash Equivalents

Represent petty cash, checking and savings accounts, and certificates of deposit with original maturities ofless than three months.

The Puerto Rico Commissioner of Financial Institutions requires that Puerto Rico's private financialinstitutions deposit collateral securities to secure the deposits of the Commonwealth and all othergovernmental entities in each of these institutions. The number of collateral securities to be pledged for thesecurity of public deposits must be established by the rules and regulations promulgated by theCommissioner of Financial Institutions.

Custodial Credit Risk

For deposits, custodial credit risk is the risk that in the event of bank failure, the Corporation's deposit maynot be recovered. Under Puerto Rico statutes, public funds deposited in commercial banks must be fullycollateralized for the amount deposited in excess of federal depository insurance generally provided by theFederal Deposit Insurance Corporation (FDIC), and such deposits are required to be kept in separateaccounts in the name of the Corporation. At times cash balances in commercial banks may exceed federallyinsured limits, however, the management does not foresee any custodial credit risk. All securities pledged ascollateral are held by the Secretary of the Treasury of the Commonwealth, but not in the Corporation's name.

Allowance for Doubtful Accounts

The allowance for doubtful accounts is an amount that management believes will be adequate to absoitpossible losses on existing accounts receivable that may become uncollectible based on evaluations of thecollectibility of the receivable and prior credit loss experience. Because of uncertainties inherent in theexisting accounts receivable, the related allowance may change in the future.

18






Capital assets

Capital assets, which include land, building, betterments, and equipment donated to the Corporation byagencies of the Commonwealth are stated at estimated fair market value at the date those assets weredonated; other purchased assets are stated at historical cost.

The costs of normal maintenance and repairs that do not add to the value of the asset or materially extendassets lives are not capitalized. Major outlays for capital assets, renewals, and betterments are capitalized.Depreciation is computed on a straight-line basis over the following estimated useful lives:

Assets Years

Building and betterments 50

Furniture and equipment 10

Sound system equipment 15

Musical instruments 20

Recording equipment 5

Motor vehicles 5

Computer equipment 5

Telephone equipment 5

Artwork

The Corporation records donated artwork at its fair market value at donation date or at cost when it ispurchased and is a non-depreciable capital asset.

Impairment of Long-Llved Assets

The Corporation follows the provision of GASB No. 42, Accounting and Financial Reporting for Impairmentsof Capital Assets and For Insurance Recoveries. A capita! asset is considered impaired when its service utilityhas declined significantly and unexpectedly. This statement also establishes accounting requirements forinsurance recoveries. A capital asset generally should be considered impaired if both (a) the decline inservice utility of the capital asset is large in magnitude and (b) the event or change in circumstance is outsidethe normal life cycle of the capital asset. During the year ended June 30, 2017, the Company evaluated itscapital assets for impairment amount, if any, would not have a material impact In the Corporation's financialstatements.

Deferred Outflows/Inflows of Resources

In addition to assets, the statement of net position will sometimes report a separate section for deferredoutflow of resources, which represents consumption of net position that applies to a future period(s) and sowill not be recognized as an outflow of resources (expense/expenditures) until then.

Pension related items (further disclosed in Note 2. Accounting for Pension Costs, and Note 6), representchanges in the proportional share of contributions and differences between expected and actual experience,are capitalized and recognized over a period equal to the expected remaining working lifetime of active andinactive participants. Net difference between projected and actual earnings on pension plan investments isdeferred and recognized as a reduction of the net pension liability after the next measurement date.

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Deferred Outflows/Inflows of Resources (Continued)

In addition to liabilities, the statement of net position will sometimes report a separate section for deferredinflows of resources, which represents an acquisition of net position and resources (revenue) until that time-

Pension related items (further disclosed in Note 2, Accounting for Pension Costs, and Note 6), representchanges in the proportional share of contributions, differences between expected and actual experience andchanges in actuarial assumptions, are deferred and recognized over a period equal to the expectedremaining working lifetime of active and inactive participants. Net difference between projected and actualearnings on pension plan investments is deferred and recognized over a five-year period.

Accounting for Pension Costs (See Note 14)

The Corporation accounts pension costs under the provisions of Statement No. 68 of the GovernmentalAccounting Standard Board, Accounting and Financial Reporting for Pensions - an amendment of GASBStatement No. 27 (GASB Statement No. 68), that became effective for the year ended June 30, 2015, ThisStatement replaces the requirements of Statement No. 27, Accounting for Pensions by State and LocalGovernmental Employers, as well as the requirements of Statement No. 50, Pension Disclosures, as theyrelate to pensions that are provided through pension plans administered as trusts or equivalent arrangementsthat meet certain criteria as is the case of the Employees Retirement System of the Commonwealth of PuertoRico (ERS).

The Corporation is considered "cost-sharing employer" of ERS; therefore, they report their allocated share ofERS's net pension liability and the related pension amounts taking in consideration the following;

• The individual proportion to the collective net pension liability of all the governments participating.

• Each participating government employer's proportionate share is consistent with the manner in whichcontributions are determined and should reflect that participating government employer's projected

long-term contribution effort relative to that of all the participating government employer earlyretirement incentives are not included in determining the proportionate share of the overall projected

long-term contribution effort.

• The contributions that each participating government employer's projected long-term contributionseffort are the Act No. 116 of 2011 statutory payroll-based contribution, the Act No. 3 of 2013supplemental contribution, other special contributions, and the Act No. 32 of 2013, Additional Uniform

Contribution (AUC).

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Compensated Absences

On April 29, 2017, Act No. 26, Compliance with the Fiscal Plan Act. was enacted to establish, among othermatters, a uniform system of fringe benefits for public employees, with certain exceptions. Under Act No, 26the major fringe benefits were changed to:

• Vacations - 1 V* days per month, up to sixty days

• Sickness - 1 Vi days per month, up to ninety days

• Christmas Bonus - $600

• Elimination of the payment for all accumulated unpaid sick leave. The Corporation had until December31, 2017, to establish a plan to liquidate all accumulated unpaid sick leave permitted before Act No. 26.

Previously to the enactment of Act No. 26, the employees of the Corporation were granted thirty days ofvacation and eighteen days of sick leave annually. Vacation and sick leave may be accumulated in excess ofthe maximum permitted of sixty and ninety days, respectively. Upon retirement, an employee receivescompensation for all accumulated unpaid vacation leave at the current rate regardless of years of service;and for all accumulated unpaid sick leave if the employee has a least 10 years of service with theCorporation. The accumulated vacations and sick leave amounts to $508,216 as of June 30, 2017.

Cultural Contributions to Not-for-Profit Producers

As part of the commitment of the Corporation for the development of the arts, the Corporation grants culturalcontributions- During the year ended June 30, 2017, the Corporation granted to producers contributions in theamount of $68,357.

Risks Management

The Corporation is exposed to various risks of loss from torts: theft of, damage to, and destruction of assets;business Interruption, errors, and omissions, natural disaster, among others. Commercial insurance coverageis purchased for claims arising from such matters. Settled claims have not exceeded this commercialinsurance coverage in any of the three preceding years.

Net Position

In financial statements, the Net Position represents the difference between assets, deferred outflows ofresources, liabilities, and deferred Inflows of resources in the Statement of Net Position. The Net Position is

reported in three categories:

• Net Investment in Capital Assets — These consist of capital assets, net of accumulated depreciation

and amortization and, if applicable, reduced by the outstanding balances of any borrowings that areattributed to the acquisition, construction, or improvement of those assets.

• Restricted Net Position — These result when constraints placed on the net position's use Is eitherexternally imposed by creditors, grantors, contributors, and the like, or imposed by law throughconstitutional provisions or enabling legislation.

21






Net Position (Continued)

• Unrestricted Net Position — These consist of the net position that does not meet the definition of the

two preceding categories. Unrestricted net position often is designated to indicate that management

does not consider them to be available for general operations. Unrestricted net position often has

constraints on resources that are imposed by management but can be removed or modified.

When both restricted and unrestricted resources are available for use, generally, it is the Corporation's policyto use restricted resources first, then the unrestricted resources as they are needed.

Voluntary Termination Benefits

The Corporation accounts for termination benefits in accordance with GASB Statement No. 47, Accountingfor Termination Benefits. Pursuant to the provisions of GASB Statement No. 47, in financial statementsprepared on the accrual basis of accounting, employers should recognize a liability and expense for voluntarytermination benefits (for example, early-retirement incentives) when the offer is accepted and the amount canbe estimated. A liability and expense for involuntary termination benefits (for example, severance benefits)should be recognized when a plan of termination has been approved by those with the authority to commit thegovernment to the plan, the plan has been communicated to the employees, and the amount can beestimated.

Reclasslfications

Certain reclassifications have been made to the 2016 financial statements to conform them to the 2017

financial statements presentation.

New Accounting Standards Adopted

GASB Statement No. 68 and GASB Statement No. 71. GASB Statement No. 68 required that employers andnonemployer contributing entities report a net pension liability and related pension expenses as determinedby the plans under the requirements contained in GASB Statement No. 67 (GASB Statement No. 67).Previously, GASB Statement No. 27 required employers to report a net pension obligation as determinedunder the requirements of GASB Statement No. 25, Financial Reporting for Defined Benefit Plans and NoteDisclosures for Defined Contnbution Plans (GASB Statements No. 25). GASB Statement No. 67 replaced therequirements of GASB Statement No. 25 and specified the required approach to measuring the pensionliability of employers and nonemployees contributing entities for benefits provided through the pension plan.

GASB Statement No. 67 required plans to calculate a net pension liability to be measured as the total pensionIrability less the amount of the pension plan's fiduciary net position. During the year ended June 30, 2016, theCorporation also implement GASB Statement No. 71 requiring that upon implementation of GASB StatementNo. 68, the Corporation recognizes a beginning deferred outflow of resources for its pension contributionsmade subsequent to the measurement date of the beginning net pension liability.

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New Accounting Standards Adopted (Continued)

Implementation of these new financial reporting standards required that the Corporation restates its beginningnet position as of July 1, 2015, reflecting the cumulative effects of applying these statements. In addition, inaccordance with the provisions of these statements, beginning balances of deferred pension outflows ofresources and deferred pension inflows of resources have not been reported, except for recognizing thebeginning balance for deferred outflows of resources for pension contributions made subsequent to themeasurement date of the beginning pension liability but before the start to the Corporation's fiscal year.Disclosures required under GASB Statement No. 68 only apply to the defined benefit plans under theRetirement Systems for which the Corporation Is required to fund the net pension liability.

The beginning net position has been restated. The restatement eliminated the previously reported netpension obligations or assets and recognized the newly required net pension liability and deferredoutflow/inflows of resources.

GASB Statement No. 82, Pension Issues - an amendment of GASB Statement No. 67, 68. and No. 73. Theprimary objective of Statement No. 82 is to address certain issues that have been raised with respect toStatement No. 67, No. 68, No. 73, and amendments to certain provisions of GASB Statements No. 67 andNo. 68. Statement No. 82 addresses issues regarding (1} the presentation of payroll-related measures inrequired supplementary information, (2) the selection of assumptions and the treatment of deviations from theguidance in an Actuarial Standard of Practice for financial reporting purposes, and (3) the classification ofpayments made by employers to satisfy employee (plan member) contribution requirements.

New Accounting Standards Issued but Not Yet Adopted

GASB has issued the following standards that have not been adopted by the Corporation, and are currentlyunder evaluation for their impact on future financial statements:

GASB Statement No. 83, Certain Asset Retirement Obligations was issued in November 2016. Therequirements of this Statement are effective for reporting periods beginning after June 15, 2018. TheCorporation is currently reviewing this statement and plans on adoption, as required.

GASB Statement No. 85, Omnibus 2017. The objective of this Statement is to address practice issues thathave been identified during implementation and application of certain GASB Statements. This Statementaddresses a variety of topics including issues related to blending component units, goodwill, fair valuemeasurement and application, and postemployment benefits (pensions and other postemployment benefits[OPEB]). The requirements of this Statement are effective for reporting periods beginning after June 15, 2017(June 30. 2019).

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New Accounting Standards Issued but Not Yet Adopted (Continued)

GASB Statement No. 87, Leases. The objective of this Statement is to better meet the information needs offinancial statement users by improving accounting and financiai reporting for leases by governments. ThisStatement increases the usefulness of governments' financial statements by requiring recognition of certainlease assets and liabilities for leases that previously were classified as operating leases and recognized asinflows of resources or outflows of resources based on the payment provisions of the contract- It establishesa single model for lease accounting based on the foundational principle that leases are financings of the rightto use an underlying asset. Under this Statement, a lessee is required to recognize a lease liability and anintangible right-to-use lease asset, and a lessor is required to recognize a lease receivable and a deferredinflow of resources, thereby enhancing the relevance and consistency of information about governments'leasing activities. The requirements of this Statement are effective for reporting periods beginning afterDecember 15, 2019 (June 30, 2021). Earlier application is encouraged. Leases should be recognized andmeasured using the circumstances that exist at the beginning of the period of implementation (or. if applied toearlier periods, the beginning of the earliest period restated). However, lessors should not restate the assetsunderlying their existing sales-type or direct financing leases. Any residual value for those leases become thecarrying values of the underlying assets.

Subsequent Events

The Corporation evaluated subsequent events through February 26, 2019, the date the financial statementswere issued. There were no significant events that should have been recorded or disclosed in the financialstatements, except as the events disclosed in Note 15.

3. ACCOUNTS RECEIVABLE

Trade $ 125,881Governmental entities

Less allowance for doubtful accounts

130,181

( fi? 4821

s 67 699


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CAPITAL ASSETS

Capital assets, not beingdepreciated:Land

Construction in progress

Capital assets, being depreciated:Building and bettermentsFurniture and equipmentMusical Instruments

Sound system equipmentRecording equipmentIllumination equipmentMotor vehicles

Total capital assets, beingdepreciated

Less accumulated depreciation for:Building and bettermentsFurniture and equipmentMusical instruments

Sound system equipmentRecording equipmentIllumination equipmentMotor vehicles

Total accumulated depreciation

Total capital assets, net

COMPENSATED ABSENCES

BeginningBalance Increases Decreases

EndingBalance

s 2,693,000 $ $ $ 2,593,000

4.812 7.367 . 12.179

2.597.812 7.367 2.605.179

28,757,702 28.757,7021,529,457 38,848 - 1,568,305

323,375 - - 323,375

2,755,119 3,750 - 2,758,869

213,621 - - 213,621

604,413 - - 604,413

30.316 _ 30-316

34.214.003 42.598 34.256.601

18,618,892 633,336 19,252,228

1,055,555 89,030 - 1,144,585

294,266 3,291 - 297,557

646,996 187,646 834,642

213,621 - - 213,621564,565 5,243 - 569,80830.316 . • 30 316

21.424.211 918.546 22.342.757

$ 15.387.604 $( 868.5811 $ S 14.519.023

The activity of compensated absences liability balance for the year ended on June 30, 2017, follows:

Additions Deductions

Beginningbalance

Endingbalance

Due within

one year

Compensated absences $ 552.528 S 58.495 S 102.807 $ 508.216 S 102.807

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6. PENSION PLAN

Plan Description - The Plan is a cost-sharing, multi-employer defined benefit pension plan administered bythe Employees Retirement System of the Commonwealth of Puerto Rico (ERS). It is a trust created by ActNo. 447 on May 15,1951 (Act No. 447), as amended, to provide pension and other benefits to retiredemployees of the Commonwealth, its public corporations, and municipalities of Puerto Rico. ERS beganoperations on January 1,1952, at which date, contributions by employers and participating employeescommenced. ERS is a pension trust fund of the Commonwealth. Until repealed by Act No. 106 of August 23.2017, (see Note 15, Subsequent Events) the Corporation's employees participated in the ERS.

The ERS administered different benefit structures pursuant to Act No. 447, as amended, including a cost-sharing, multi-employer defined-benefit program (employees hired prior to April 1,1190). Under Act No. 447of 1951 and No. 1 of 1990), a defined-contribution program (System 2000 program), under Act No. 26 of1999 (System 2000), for employees hired between January 1, 2000 and June 30, 2013 and a contributoryhybrid program. Under Act No. 3 of 2013, for all active employees as of June 30, 2013 and new hires).Benefit provisions vary depending on member's date of hire. Substantially, all full-time employees of theCorporation were covered by the ERS. Membership is mandatory for all regular, appointed, and temporaryemployees of the Corporation at the date of employment.

Employees under Act No. 447 and Act No. 1 are participants of a cost-sharing multiple employer definedbenefit plan. Act 305 members are participants under a pension program known as System 2000, a hybriddefined contribution plan. Under System 2000, there was a pool of pension assets invested by the System,together with those of the current defined benefit plan. Benefits at retirement age were not guaranteed by theCommonwealth and were subjected to the total accumulated balance of the savings account.

Effective on July 1, 2013, Act No. 3 of 2013 ("Act 3") amends the provisions of the different benefitsstructures under the ERS. Act 3 moves all participants (employees) under the defined benefit pension plans(Act 447 and Act 1) and the defined contribution plan (System 2000) to a new defined contribution hybridplan. Contributions are maintained by each participant in individual accounts. Credits to the individualaccounts include: (1) retirement benefits accrued and savings account balances under the provisions of Act447, Act 1 and System 2000 as of June 30, 2013; (2) contributions made by all members of ERS after June30, 2013; and, (3) the investment yield for each semester of the fiscal year.

This summary of ERS plan provisions is intended to describe the essential features of the plan. All eligibilityrequirements and benefit amounts should be determined in strict accordance with the plan document itself.Benefits Provided

Eligibility for retirement: Act No. 3 establishes the following retirement eligibility requirements: (1) Act No. 447regular employees upon attaining a range between 59 to 61 years (depending of date of birth) and 10 years ofcreditable service, (2) Act No. 1 employees upon attaining 55 years with 30 years of creditable service, (3)System 2000 regular employees upon attaining a range between 61 to 65 years (depending of date of birth)and, (4) Act No. 3 employees hired after July 1, 2013 upon reaching 67 years. High risk employees (state andmunicipal police, firefighters and custody officials) under Act No. 447 and Act No.1 will be eligible at 55 yearswith 30 years of creditable service, for System 2000 employees at 55 years of service and for Act No. 1employees hired after July 1, 2013 upon reaching 58 years.

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6. PENSION PLAN (CONTINUED)

Benefits Provided (Continued)

Accrued benefits: All members are entitled to a lifetime annuity based on the balance of the deferredcontribution individual account at the time of the retirement calculated based on a factor that will incorporatethe individual's life expectancy and a rate of return. For Act No. 447 and Act No. 1 active participants, allretirement benefits accrued through June 30, 2013 were frozen, and thereafter, all future benefits accrueunder Act No. 3 plan provisions.

These participants will receive a pension at retirement age equivalent to what they have accrued under ActNo. 447 and Act No. 1 up to June 30, 2013 plus the lifetime annuity corresponding to contributions made tothe individual account after July 1, 2013 as described above. Act No. 447 participants, except police andmayors, may elect to coordinate coverage with Social Security benefits ("Coordinated plan"). Under thisoption, participants are subject to a benefit recalculation upon attainment of the Social Security RetirementAge.

For all members, if the balance of the defined contribution individual account is less than $10,000 the amountshall be paid as a lump sum instead of an annuity. Effective July 1, 2013, the minimum monthly pensionamount for members who retired or were disabled before July 1, 2013 is $500.

Termination benefit: Members are eligible to a lump sum payment of the defined contribution individualaccount as of the date of the permanent separation of service upon termination of service prior to 5 years ofservice or if the balance of the defined contribution individual account is less than $10,000.

Death benefits: For non-retired members, their designated beneficiaries will receive a refund of the balance ofthe deferred contribution individual account plus the accrued benefit as of June 30, 2013 (for Act No. 447 andAct No. 1 members). For pensioned members retired prior to June 30, 2013, the annual income to a widow orwidower or dependent children is equal to 60% of the retirement benefit payable for life for a surviving spouseor disabled children and payable until age 18 or age 25 if pursuing studies for non-disabled children. Forpensioned members retired after June 30, 2013, payments to beneficiaries will be the excess, if any, of thebalance of the deferred contribution individual account plus the accrued benefit as of June 30, 2013 (for ActNo. 447 and Act No. 1 members) over the total annuity payments paid to the member and any beneficiaries.

Disability benefits: Members who are permanently separated from service due to total and permanentdisability, due to disability pursuant to Act No. 127 of June 27,1958, as amended, or due to terminal illness,as determined by the Administrator, shall be entitled to the balance of the deferred contribution individualaccount in a lump sum, or through the grant of an annuity, or any other optional form of payment pursuant toSection 5-110 of Act No. 447, at the option of the participant, plus the accrued benefit as of June 30, 2013(for Act No. 447 and Act No. 1 members) at the applicable retirement eligibility age. Beginning on June 30,2013, no disability pensions shall be awarded pursuant to Sections 2-107 thru 2-111 of Act No. 447. Adisability benefits program was established which shall provide a temporary annuity in the event of total andpermanent disability. Disability benefits may be provided through one or more disability insurance contractswith one or more insurance companies authorized by the Office of the Commissioner of Insurance of PuertoRico to conduct business in Puerto Rico. The determination as to whether a person is partially or totally andpermanently disabled shall be made by the insurance company that issues the insurance policy covering theparticipant.

27







Deferred retirement: Members are eligible at the applicable retirement eligibility age to a lifetime annuitybased on the balance of the deferred contribution individual account plus the accrued benefit as of June 30,2013 (for Act No. 447 and Act No. 1 members) upon termination of service with 5 or more years of service(10 years of creditable service for Act No. 447 and Act No. 1 members) but prior to the applicable retirementeligibility, provided the member has not taken a lump sum withdrawal from the defined contribution individualaccount.

Special laws and pensioner additional benefits: The Corporation is required to cover other retirement benefitsof its retired employees (If retired prior to July 1, 2013) as required by Commonwealth's laws, including; (1)various special laws - ad-hoc cost of living allowance adjustments (COLA) provided in prior years; (2) variousspecial laws -additional minimum pension benefits and, (3) Act 3 retired pensioners "Additional BenefitsProgram". All of these other retirement benefits are applicable only to employees who retired prior to July 1,2013 under Act No. 447 and Act No. 1. The "Additional Benefits Program" includes: (1) a medication bonus of$100 per member which shall be paid no later than July 15 of each year; (2) a Christmas bonus of $200 permember which shall be paid no later than December 20 of each year and, (3) a matching share of $1,200 forhealthcare Insurance plan. These healthcare benefits are provided through insurance companies whosepremiums are paid by the retired employees with the matching share financed by the Corporation.

Contributions

The Act No. 3 is the authority under which obligations to contribute to the Plan by the Plan members,employers and other contributing entitles are established or may be amended. Contribution rates are notactuarially determined.

Members: All participants are required to contribute 10% of gross salary. Members may voluntarily makeadditional contributions to their defined contribution individual account.

Payroll-based emolover contribution: The Corporation contributed 14.275% of gross salary for fiscal year2015-2016. Act 3 requires an additional 1.25% annually for each of the following four years, reaching anaggregate contribution rate of 20.525% effective July 1, 2020. The Corporation contributed $502,664 duringfiscal year 2016-2017. These amounts represented the 100% of the required contribution for thecorresponding year.

Additional Uniform Contribution: To improve the liquidity and solvency of the ERS, the Commonwealthenacted Act No. 32 of 2013, which amended Act No. 447 to provide for an Additional Uniform Contribution("AUC"). The AUC will be financed by all participating employers (including the Corporation) of the ERS.Beginning with the 2014-2015 until the 2032-2033 fiscal year, the AUC will be the uniform contributioncertified by the extemal actuary of the ERS at least 120 days prior to the start of each fiscal year, asnecessary to avoid having the projected gross assets of the ERS, during any subsequent fiscal year, to fallbelow $1,000,000,000. The ERS will determine the amount of AUC to be billed and paid by each employerduring each fiscal year. Commonwealth laws provide for a subsidy of the AUC obligation, applicable to allparticipating employers (including the Corporation) of the ERS that the Puerto Rico Office of Managementand Budget ("OMB") determines do not have financial capability to pay the AUC obligation. For fiscal year2016-2017, the Corporation recorded $243,556 as expenditure in the general fund.

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Disabilitv insurance. As described above, a disability benefits program is established which shall provide atemporary annuity in the event of total and permanent disabi%. All members shall mandatorily contribute to adisability insurance established by Act 3 for which participants shall have to contribute such sums, fixed indollars or a percent of the salary determined by the ERS. The contribution required is equal to or less than.25% of the participant's salary. This contribution shall not be credited to the participant's deferredcontribution individual account.

Special laws and pensioner additional benefits: These other retirement benefits are funded on a pay-as-you-go basis and billed by ERS to the Corporation at the beginning of each fiscal year. As required by Act 3, theinvoice includes a supplemental contribution of $2,000 per pensioner to finance the Additional BenefitsProgram. Commonwealth laws provide for a subsidy of this obligation, applicable to ail participatingemployers (including the Corporation) of the ERS that the Puerto Rico Office of Management and Budget("0MB") determines do not have financial capability to pay these other retirement benefits obligation. For thefiscal year 2016-2017, the Corporation recorded $24,000 as expenditure in the general fund,

7. NET PENSION LIABILITY

The Corporation net pension liability is measured as the proportionate share of the net pension liability. Thenet pension liability was measured as of June 30, 2016, and the Total Pension Liability used to calculate thenet pension liability was determined by an actuarial valuation as of June 30, 2015, rolled forward to June 30,2016 using standard update procedures. The Corporation's proportion of the net pension liability was basedon a projection of the Corporation's long-term share of contributions to the pension plan relative to theprojected contributions of all participating employers, actuarially determined. As June 30, 2017, theCorporation's proportional share was 0,030430%, according to the audited report issued by the ERS at June30, 2016, The Corporation's proportionate share of the net pension liability used was as follows:

Proportion as of June 30, 2015 0,030580 %Proportion as of June 30, 2016 0.030430 %

Change - Increase (Decrease) 0.000150 %

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7. NET PENSION LIABILITY (CONTINUED)

As June 30, 2017, the Corporation reported $11,470,053 as net pension liability for its proportionate share ofthe net pension liability of ERS.

ProportionalShare

Net Pension Liability Total

$ 36,432,873,000

f 1.265.885.0001

$

f

11,086,523

385.209)

S 37 698 758 000 ? 11.470.053

1 3.47)% ( 3 471%

S 3.344.382.000 $ 1.448.645

1.127.23 % 791.78 %

Total Pension LiabilityFiduciary Net Pension (Deficit)

Net Pension Liability

Plan's Fiduciary Net Position(Deficit) of Total Pension Liability

Covered Payroll

Net Pension Liability as a % of Covered Payroll

Pension Expense

For the fiscal year ended June 30, 2017, the Corporation recognized pension expense of $441,748. Pensionexpense represents the change in the net pension liability during the measurement period, adjusted for actualcontributions and the deferred recognition of changes in investment gain/loss, actuarial gain/loss, actuarialassumptions or method, and plan benefits.

Deferred Outflows of Resources and Deferred Inflows of Resources from Pension Activities

As of June 30, 2017, the Corporation reported deferred outflows of resources and deferred inflows ofresources related to pensions from the following sources:

Deferred Deferred

Outflows Inflows

Of Resources Of Resources

Differences between expected andactual experience in measuringtotal pension liability $ 9,378 $ 157,466Changes in assumptions 1,749,537Net difference between projected andactual earnings on pension planinvestments - 62,063Changes in proportion and differencesbetween actual contributions and

proportionate share ■ 1,442,804Employer contributions madesubsequent to the measurement date 591.653 :

$ 2.350.568 $ 1.662.333

30






Deferred Outflows of Resources and Deferred Inflows of Resources from Pension Activities

(Continued)

Deferred outflows of resources and deferred inflows of resources above represent the unamortized portion ofchanges to net pension liability to be recognized in future periods in a systematic and rational manner. The$2,350,568 reported as deferred outflows of resources related to pensions resulting from the Corporation'scontributions after the measurement date will be recognized as a reduction of the net pension liability in theyear ended June 30, 2017.

Actuarial Methods and Assumptions

The total pension liability in the June 30, 2016 actuarial valuation was determined using the following actuarialmethods and assumptions, applied to all periods included in the measurement:

Actuarial cost method

Asset-valuation method

Inflation

Municipal bond index

Entry age normal

Market value of assets

2.5%

2,85%, as per Bond Buyer General Obligation 20-Bond Municipal BondIndex

Projected salary increasesper year

Mortality

3.00% per year. No compensation increases are assumed until July 1,2021 as a result of Act No. 3-2017 and the current general economy

Pre-retirement Mortality: For general employees not covered under ActNo. 127, RP-2014 Employee Mortality Rates for males and femalesadjusted to reflect Mortality Improvement Scale MP-2016 ongenerational basis. For members covered under Act No. 127, RP-2014Employee Mortality Rates with blue collar adjustments for males andfemales adjusted to reflect Mortality Improvement Scale MP-2016 from2016 base year, and projected forward using MP-2016 on generationalbasis. As generational tables, they reflect mortality improvements bothbefore and after the measurement date.

100% of deaths while in active service are assumed to be occupationalfor members covered under Act No. 127.

Post-retirement Healthy Mortality: Rates which vary by gender areassumed for healthy retirees and beneficiaries based on a study ofplan's experience from 2007 to 2012 and updated expectationsregarding future mortality improvement. The 2010 base rates are equalto 92% of the rates from UP-1994 Mortality Table for Males and 95'% ofthe rates from the UP-1994 to 2010 using Scale AA. The base rates areprojected using mortality Improvement Scale MP-2016 on agenerational basis. As a generational table, it reflects mortalityimprovements both before and after the measurement date.

31






Actuarial Methods and Assumptions (Continued)

Actuarial Assumptions (Continued)

Mortality Post-Retirement Disabled Mortality; Rates which vary by gender areassumed for disabled retirees based on a study of the plan'sexperience from 2007 to 2012 and updated expectations regardingfuture mortality improvement. The 2010 base rates are equal to 105%of the rates from the UP-1994 Mortality Table for Males and 115% ofthe rates from the UP-1994 Mortality Table for Females. The base ratesare projected using Mortality Improvement Scale MP-2016 on agenerational basis. As a generational table, it reflects mortalityimprovements both before and after the measurement date.

Most other demographic assumptions used in the June 30, 2016 valuation were based on the results of anactuarial experience 2009 study using data as of June 30, 2013, June 30, 2015, and June 30, 2017,

Long-term Rate of Return on Investments

The long-term expected rate of return on pension benefit investments was determined in accordance with theportfolio asset allocation adopted by the Retirement System's Board of Trustees during December 2013 andthe actuary's capital market assumption as of June 30, 2016. In addition, the assumption reflects that loans tomembers comprise approximately 20% of the portfolio and. have an approximate return of 9.1% with novolatility. The long-term expected rate of return on pension benefit investments of 6.55% as of June 30, 2016,equal to the highest debt service of the senior pension funding bonds payable with a range from 5.85% peryear to 6.55% per year.

The pension plan's policy in regard to allocation of invested assets is established and may be amended bythe ERS's Board. Plan assets are managed on a total return basis with a long-term objective of achieving andmaintaining a positive impact on the ERS's financial condition for the benefits provided through the pensionprograms.

The following asset allocation policy as of June 30, 2016, was adopted by the Retirement System's Board ofTrustees:

Long-termTarget expected rate

Allocation of return

Asset class:

Domestic equity 25% 6.4%International equity 10% 6.7%Fixed income 64% 6.3%

Cash 1_% 3.0 %

100 %

32

C0RP0RACI6N del CENTRO DE BELLAS ARTES DE PUERTO RICO(A Component Unit of the Commonwealth of Puerto Rico)




Long-term Rate of Return on Investments (Continued)

The long-term expected rates of return on pension benefit investments were determined using a building-block method in which best-estimates ranges of expected future real rates of return (expected returns, net ofpension plan investment expense and inflation) are developed for each major asset class. These ranges arecombined to produce the long-term expected rate of return by weighting the expected future real rates ofreturn by the target asset allocation and by adding expected inflation.

Discount Rate

The asset basis for the date of depletion projection is the ERS's fiduciary net position (the gross assets plusdeferred outflows of resources less the gross liabilities, including the senior pension funding bonds payable,less deferred inflows of resources). On this basis, the ERS's fiduciary net position was exhausted in the fiscalyear 2015.

The ERS's fiduciary net position was not projected to be available to make all projected future benefitpayments of current active and inactive employees. Therefore, the tax-free municipal bond index (Bond BuyerGeneral Obligation 20-Bond Municipal Bond Index) was applied to all periods of projected benefits paymentsto determine the Total Pension Liability the discount rate was 2.85% as of June 30, 2016.

The date of depletion projection of the actuarial report does not include any amounts from the AUC requiredby Act No. 32 because of actual fiscal and budgetary financial difficulties, continued budget deficits andliquidity risks of the Commonwealth and the municipalities, and in the event that their financial condition doesnot improve in the near term.

The June 30, 2016, actuarial valuation reflects an increase of $4,361 million in the net pension liability as aresult of the changes in assumptions of $3,854 million, mainly related to the decrease in the discount rate asrequired by GASB Statement No. 67 from 3.80% in fiscal year 2015 to 2.85% in fiscal year 2016 and the PlanFiduciary Net Deficit Position of approximately $1,266 million as of June 30, 2016, which effects were offsetby a decrease of $252 million in the total pension liability as a result of differences between expected andactual experience.

The discount rate on June 30, 2015 and 2016 was as follow:

Discount rate 2.85%

Long-term expected rate of return net ofinvestment expense 6.55 %

Municipal bond rate * 2.85 %

* Bond Buyer General Obligation 20- Bond Municipal Bond Index

Pension Plan Fiduciary Net Position

As per June 30, 2016 Actuarial Valuation Report issued on November 7, 2017, the Actuaries state: "PRGERSnet assets became negative in the 2014-2015 fiscal year. If the increasing Act 116-2011 employercontributions, the Supplementary Contribution under Act 3-2013, and the Additional Uniform Contributionunder Act 32-2013 (as amended by Act 2442014) are not paid in full on an annual basis, PRGERS willcontinue being rapidly disfunded and gross assets will be exhausted."

33






Pension Plan Fiduciary Net Position (Continued)

The Employee's Retirement System of the Government of the Commonwealth of Puerto Rico providesadditional Information of the Defined Benefit Program and Hybrid Program. They issue a publicly availablefinancial report that Includes financial statements and required supplementary information for ERS, as acomponent unit of the Commonwealth. That report may be obtained by writing to the Administration at POBox 42003, Minillas Station, San Juan, PR 00940-200l

Medical insurance Plan for Retired Employees

There are no member or employer contributions on behalf of the Medical Insurance Plan Contribution. Thisbenefit is financed on a pay-as-you-go basis from the General Fund of the Commonwealth of Puerto Rico.Since this benefit is not funded in advance, the Annual Required Contribution (ARC) for this benefit has beencalculated based on an assumed Investment return rate of 3.10% based on the asset allocation on the

Commonwealth's general assets that are used to pay this benefit. As a cost-sharing multiple employer plan,ERS Is not required to report a Net OPEB Liability. In accordance with paragraph 23 of GASB Statement No.45, Accounting and Financial Reporting by Employers for Postemployment Benefits Other Than Pensions",the employers that participate In the plan should recognize annual OPEB expense equal to their contractuallyrequired contributions to the plan. The employers do not have an ARC or a Net OPEB Liability.

8. "SALA SINFONICA"

In March 2004, the Corporation entered into an agreement with "Autoridad para el FInanciamiento de laInfraestructura de Puerto Rico" (API) for the construction of the "Sala SInfonIca del Centro de Bellas Artes dePuerto Rico". Under this agreement, the facilities will be owned by API and operated by the Corporation forthe benefit of the Symphonic Orchestra. Operations of these facilities began in 2009. During the fiscal periodpresented herein, the Corporation received an annual legislative appropriation of $1,256,667, to subsidizethese operations.

9. VOLUNTARY TERMINATION BENEFITS

On July 2010, the Commonwealth enacted Act No. 70 to establish a program that provides early retirementbenefits or economic incentives for voluntary employment termination to eligible employees, as defined,Including employees of the Corporation. Act No. 70's implementation period ended on December 31, 2012,however, an amendment extending the original option period was issued until March 31, 2013. Voluntarytermination benefits are funded in whole by the General Fund. Act No. 70 established that early retirementbenefits will be provided to eligible employees that have completed between 15 to 29 years of creditedservice in the Retirement System and will consist of biweekly benefits ranging from 37.5% and 50% of eachemployee' salary, as defined. The Corporation assumes the corresponding payments until the employeemeets with the age and 30 years of credited sen/ice requirements in the Retirement System. The following isthe voluntary termination liability for the year ended June 30, 2017:

Beginning Additions Ending Due withinbalance fAccretionI Deductions balance one year

Termination benefits S 2.332.649 S 129.649 $ 263.959 |_^J98,3^ 2—

34




YEAR ENDED JUNE 30. 2017

9. VOLUNTARY TERMINATION BENEFITS (CONTINUED)

At June 30, 2017, the Corporation's unpaid long-term benefits granted by Act No. 70 were discounted atinterest rates that ranged from 1% to 2.5%.

10. RELATED PARTY TRANSACTIONS

For the purpose of these financial statements, all Commonwealth of Puerto Rico's agencies,instrumentalities, and public companies are considered related parties of the Corporation. The accountsreceivable and payable of the Corporation include, on June 30, 2017, the following balances consideredrelated parties:

Balance due from other governmental entities |__31j6^

Balance due to other governmental entities |^^J5j37^

11. CONTINGENCIES

Litigation and Claims

The Commonwealth's Act No. 4 of June 30, 1955, as amended, known as Claims and Lawsuits against theState provides that lawsuits against an agency or instrumentality of the Commonwealth, present and formeremployees, directors and other may be represented by the Department of Justice of the Commonwealth. Anyadverse claims to the defendants are to be paid by the Commonwealth's General Fund. However, theSecretary of the Treasury of the Commonwealth has the discretion of requesting reimbursement of the fundsexpended for these purposes from the public corporations, governmental institutions and municipalities of thedefendants.

The Corporation is involved in litigation arising in the normal course of business. The management of theCorporation believes that the ultimate liability, if any, in connection with these matters will not have a materialeffect on the Corporation's financial position and results of operations.

12. REORGANIZATION OF THE COMMONWEALTH OF PUERTO RICO GOVERNMENT

Puerto Rico Oversight, Management, and Economic Stability Act

On June 30, 2016, the President of the United States signed PROMESA into law (as codified under 48 U.S.C.§§ 2101-2241). In general terms, PROMESA seeks to provide the Commonwealth and its coveredinstrumentalities with fiscal and economic discipline through, among other things: (i) the establishment of theOversight Board, whose responsibilities include the certification of fiscal plans and budgets for theCommonwealth and its related entities; (ii) a temporary stay of all creditor lawsuits under Title IV ofPROMESA, which expired on May 1, 2017; and (iii) two alternative methods to adjust unsustainable debt: (1)a voluntary debt modification process under Title VI of PROMESA, which establishes a largely out-of-courtdebt restructuring process through which modifications to financial debt can be accepted by a supermajorltyof creditors; and (b) a quasi-bankruptcy proceeding under Title III of PROMESA, which establishes an in-court debt restructuring process substantially based upon incorporated provisions of the US Bankruptcy Code(11 U.S.C. §§101, et see?,).

35





12. REORGANIZATION OF THE COMMONWEALTH OF PUERTO RICO GOVERNMENT (CONTINUED)

Puerto Rico Oversight, Management, and Economic Stability Act (Continued)

Title III of PROMESA establishes an in-court process for restructuring the debts of Puerto Rico and otherUnited States territories that is modeled after the process under Chapter 9 of the U.S. Bankruptcy Code. Inorder to be a debtor under Title III, the territory and/or its instrumentalities must: (i) have an Oversight Boardestablished for it or be designated a "covered entity" (ii) have the Oversight Board issue a restructuringcertification under PROMESA section 206(b); and (iii) "desire to effect a plan to adjust its debt." PROMESA §302. The Oversight Board has sole authority to file a voluntary petition seeking under Title III of PROMESA.See PROMESA § 304(a).

In a Title III case, the Oversight Board acts as the debtor's representative and is authorized to take anyactions necessary to prosecute the Title III case. See PROMESA § 315. Immediately upon filing the Title IIIpetition, Bankruptcy Code section 362 (which is incorporated into Title III cases under PROMESA) applies toautomatically stay substantially all litigation against the debtor (the Title III Stay). After the Title III case iscommenced, the Chief Justice of the United States Supreme Court must designate a district court judge to sitby designation and preside over the Title III proceedings. PROMESA also provides that the commencementof Title III case "does not limit or impair the powers of a covered territory to control by legislation or otherwisethe exercise of the political or governmental powers of the territory or territorial instrumentality." PROMESA §303.

The core component of the Title III case Is the confirmation of a plan of adjustment of the debts of the debtor.The Oversight Board has the exclusive authority to file and modify a plan of adjustment prior to confirmation.See PROMESA § 312. In order to be confirmed, a proposed plan of adjustment must meet the requirementsset forth under PROMESA section 314.

Fiscal Plan Compliance Act

On April 29, 2017, Act No. 26 of 2017, known as the Fiscal Plan Compliance Act, introduced a series ofchanges and freezes to existing public employees' labor bargaining agreements, reductions and eliminationsto previously granted public employee benefits, and other fiscal control measures geared toward compliancewith the government expenditures cuts and savings.

Puerto Rico is currently undergoing a serious, historically unprecedented fiscal and social crisis. Said crisiswas caused, in part, by a lack of expenditure controls, sustainable development measures, as well asmanagement Information systems that promote clarity and transparency in government affairs.

PayGo Pension Reform

On June 27, 2017, the Treasury Department issued Circular Letter No. 1300-46-17, In order to convey to thecentral government agencies, public corporations and municipalities the new implementation procedures toadopt, effective July 1, 2017, a new "pay-as-you-go" (PayGo) mechanism for the Pension System. See Note15 for Subsequent Events.

36





13. GOING CONCERN, UNCERTAINTIES AND LIQUIDITY RISK

Management believes that there is substantial doubt about the Commonwealth's ability to continue as a goingconcern.

The Commonwealth currently faces a severe fiscal, economic and liquidity crisis, the culmination of manyyears of significant governmental deficits, a prolonged economic recession (which commenced in 2006), highunemployment population decline, and high levels of debt and pension obligations. Further stressing theCommonwealth's liquidity is the vulnerability of revenue streams during times of major economic downturnsand large health care, pension, and debt service costs. As the Commonwealth's tax base, has shrunk and itsrevenues affected by prevailing economic conditions, health care, pension, and debt service costs havebecome an increasingly larger portion of the General Fund budget, which has resulted in reduced fundingavailable for other essential or non-essential services, like the Corporation, which is part of theCommonwealth,

There is no certainty that the Certified Commonwealth Fiscal Plan (as revised and amended) will be fullyimplemented, or if implemented will ultimately provide the intended results. All these plans and measures,and the Commonwealth's ability to reduce its deficit and to achieve a balanced budget in future fiscal yearsdepends on a number of factors and risks, some of which are not wholly within its control.

Considering that the Corporation is significantly dependent on the funds received from the Commonwealth,the limitation of the Commonwealth to meet its obligations on a timely manner, may have an effect in theCorporation's operations in the near term.

14. RESTATEMENT DUE TO ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT

During 2017, the Corporation implemented GASB Statement No. 68 and GASB Statement No. 71, whichresulted in restatements of the beginning net position of the Corporation's financial statements. The impact ofadopting GASB Statement No. 68 and No. 71 in the Corporation consisted of recognizing its proportionateshare of ERS' beginning net pension liability, deferred outflows of resources and deferred inflows ofresources for pension contributions made after the beginning net pension liability measurement date (July 1,2015), the elimination of the beginning net pension obligation under GASB Statement No. 27, againstbeginning net position, and the reduction of contributions payables to the ERS that were accounted as part ofthe voluntary termination benefit payable.

15. SUBSEQUENT EVENTS

Retirement System of the Central Government

On August 23, 2017, Act No. 106, Act to Guarantee the Payment to Our Pensioners and Establish a NewPlan for Defined Contributions for Public Servants, was enacted for the General Fund of the Commonwealthto assume the benefit obligations of the three Retirement Systems of the Central Government, effective infiscal year 2018/2019. Under Act No. 106, the General Fund, through the system of PayGo, assumes thepayments of the three Retirement Systems. However, the Corporation will assume the proportional share ofthe pension benefits of the Corporation's retirees. Previously, on June 27, 2017, the Treasury Departmentissued Circular Letter No. 1300-46-17, to convey to the central government agencies, public corporations andmunicipalities the implementation, effective July 1, 2017 of the new "pay-as-you-go" (PayGo) mechanism forthe ERS.

37



NOTES TO FINANCIAL STATEMENTS {CONTINUED)


15. SUBSEQUENT EVENTS (CONTINUED)

Retirement System of the Central Government (Continued)

Under Act No. 106, active empioyees wiii be required to contribute a minimum of 8.5% of their compensation,into a defined contribution pian. Contributions wiii be deposited in a separate account for each empioyee andinvested in accordance with certain guidelines. Upon retirement, empioyees wiii receive retirement benefitsaccumulated until the enactment of Act No. 106, with certain limitations, plus benefits accumulated under thedefined contribution plan established by said Act.

For the year ended June 30, 2018, the Corporation's PayGo expense is $345,250. The PayGo expensebudgeted by the Commonwealth for the year ending June 30, 2019, was estimated in $356,000 of which$286,000 wiii be covered by the General Fund and $70,000 by operating revenues.

Hurricanes Irma and Maria

On September 6, 2017, hurricane irma hit Puerto Rico causing electrical outages and damages to theCorporation's electric 1500 KVA transformer. The electric service was reinstated on September 13, 2017. but.the Corporation was unable to resume operations until September 18, 2017. In November 2017, theCorporation received $75,204 from the insurance company to cover the rent of a temporary transformer andsix days of business interruption.

On September 20, 2017. hurricane Maria hit Puerto Rico, causing significant structural and economicdamage to the island as a whole. The Corporation suffered property losses of approximately $1 million. Thedamaged facilities include the symphony hail and the Corporation's main buildings. A corrugated metal roil-updoor blew out creating a security breach at the symphony hall building and multiple rooftop ventilation hatchesblew open causing water intrusion and the growth of moid inside the interior areas of the main building.

On March 22, 2018, the Corporation received $348,957 from the Federal Emergency Management Agency(FEMA) to cover for security services, the use of a rented 2000 KW back-up generator on September 22,2017 through December 12, 2017, and for the moid remediation from ail the buildings.

Government of Puerto Rico 2018-2019 Fiscal Plan

On October 23, 2018, the Oversight Board for Puerto Rico certified a revised the central government budgetfor 2018/2019 fiscal year.

The Recommended 2018/2019 Consolidated Budget shows a combined reduction of $669,365 compared tofiscal year 2016/2017. Said reduction represents mostly the elimination of approximately $1,300,000 in fundsto operate the Saia Sinfonica, offset by increases in other budget lines. The Recommended ConsolidatedBudget increases the budget items related to: the payment to empioyees under Act 70 of 2010; the paymentfor services to the Puerto Rico Electric Power Authority; the payment for services from the Puerto Rico Waterand Sewage Authority, and the payments to the "PayGo" pension obligation.

The Recommended Consolidated Budget includes $356,000 for the payment of "PayGo" pension benefits;$286,000 from the Joint Resolution of the General Fund and $70,000 from operating revenues.

38





IS. SUBSEQUENT EVENTS (CONTINUED)

Reorganization Plan No. 13

On the Governor signed Reorganization Plan No. 13. Instituto de Cuitura Puertorriquena (ICP) to consolidatethe "Corporacidn de las Artes Muslcales" (CAM) and the "Corporacidn de las Artes Escenico Musicales dePuerto Rico" (CAEM) within the ICP. However, the Reorganization Plan No. 13 was not implemented.Instead, on October 10, 2018, a Collaborative Agreement was reached between the Corporation and the ICP,under which, to the date of the issuance of these financial statements, the CAM and CAEM wereconsolidated to the ICP. The purpose of the Reorganization Plan No. 13 and the Collaborative Agreementwas to comply with Act No. 122-2017, New Government of Puerto Rico Act of December 18, 2017, whichseeks to reduce public spending and, at the same time, create a more efficient government.

39



SCHEDULE OF THE CORPORATION'S PROPORTIONATE SHARE OF THE NET PENSION LIABILITY

(UNAUDITED)

LAST THREE YEARS

2017 2016 2015

Corporation's proportion of the net pension liability (asset) 0.03043 % 0.03058 % 0.02938 %

Corporation's proportionate share of the net pensionliability (asset) S 11.470.053 S 10.194.086 S 8.854.878

Corporation's covered-employee payroll |__Jj448j64£__ 2_J^483j6^ §^,_Ji468j8^

Corporation's proportionate share of the net pensionliability (asset) as a percentage of itscovered-employee payroll 791.78 % 687.11 % 602.84%

Plan fiduciary net position as a percentageof the total pension liability 3.36 % 2.00 % 0.27 %

The amounts presented for the fiscal year ended June 30, 2016 were determined by an actuarial valuation.

The Schedule of Proportionate Share for 2015 through 2016 are audited

40


SCHEDULE OF THE CORPORATION'S CONTRIBUTIONS (UNAUDITED)

LAST THREE YEARS

2017 2016

Contractually required contributionContributions in relation to the contractually

required contribution

Contribution deficiency (excess)

Corporation's covered-employee payroll

Corporation's contribution as a percentage ofcovered payroll

2015

$ 279,664 $ 274,956 $ 191,315

279.664 274.956 191.315

$ _ $ $

$ 1.448.645 $ 1.483.617 $ 1.468.853

19.31 % 18.53 % 13.02 %

The amounts presented for the fiscal year 2016-2017 were determined by an actuarial valuation.

" Fiscal year 2015 was the first year of implementation; therefore only three years are shown.

41



NOTES TO REQUIRED SUPPLEMENTARY INFORMATION


1. CHANGES OF BENEFIT TERMS

In 2015, benefit terms were modified to base public safety employee pensions on a final three-year averagesalary instead of a final five-year average salary. Beginning July 1, 2017 the pension benefits was paidthrough pay-as-you-go method.

2. CHANGES OF ASSUMPTIONS

In 2015, amounts reported as changes in assumptions resulted primarily from adjustments to expectedretirement ages of general employees.

The first measurement date used was June 30, 2014.

Data Reference: Employees' Retirement System of the Government of the Commonwealth of Puerto Rico;Actuarial Valuation Report.

3. ADDITIONAL INFORMATION

The information presented relates solely to the Corporation and not the Employee's Retirement System of theGovernment of Puerto Rico and its Instrumentalities as a whole.

1. The Corporation implemented GASB Statement No. 68,:Accounting and Financial Reporting forPensions—an amendment of GASB Statement No. 27. during fiscal year 2015, and these schedules are nowrequired.

2. This information is intended to help users assess the Corporation's pension plan's status on a goingconcern basis, assess progress made in accumulating assets to pay benefits when due, and makecomparisons with other public employers.

3. The information presented relates solely to the Corporation and not Employee's Retirement System of theGovernment of the Commonwealth of Puerto Rico as a whole.

42

year ended june 30, 2017 - pr

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