MEMORANDUM

DATE: October ?????, 2007

TO: Ronald A. Pizzuti, Chairperson Julie T. Kunkel

Barbara S. Robinson, Vice Chairperson Harry J. Lehman
George R. Oberer, Sr., Secretary-Treasurer Cynthia B. Thompson
Adam K. Brandt Sen. David Goodman
Otto M. Budig, Jr. Julie S. Henahan
William A. Erdos Rep. Shawn N. Webster

FROM: Tony Capaci

SUBJECT: Financial Analysis of NURFC pro-forma

I appreciate the opportunity to assist the Commission Members in evaluating the financial
position of the National Underground Railroad Freedom Center. My analysis is based on year
to date actual 2007 numbers, forecasted 2007 year end numbers, and projected 2008 and 2009
numbers. My remarks will focus on the submitted pro-forma plan with the objective of
formulating a conclusion on the overall sustainability of the Freedom Center.

In assessing the sustainability of the organization I analyzed those financial components which
make up the pro-forma. The results of that analysis are as follows:

Base Operations Earned Revenue

This portion of the pro-forma deals with day to day operations of the facility and the revenue
reported is derived from admissions, membership, facility rental, and retail.
• Total earned revenue forecasted for 2007 is $1.81M as compared to 2006 actual earned
revenue of $1.83M. Forecasted earned revenue for 2008 and 2009 is $1.87M.
• Earned revenue as of 8/31/07 is $1.2M or 67% achieved with the last quarter remaining.
• The Freedom Center engaged Proctor and Gamble, GFK Custom Research North
America, and Northern Kentucky University to perform marketing research. The results
of the Northern Kentucky University Study rated the Freedom Center #1 in overall
satisfaction and #1 in value of the top ten entertainment attractions in the Greater
Cincinnati Area which indicates to management sweeping changes to programming are
not needed. Changes to increase repeat visitorship include adding a space dedicated to
changing exhibits and adding audio tours for children and adults.

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Earned revenue is fairly forecasted in the pro-forma for 2007 and the projections for 2008 and
2009 are reasonable.

Special Events (Government Funding)

This portion of the pro-forma deals with Management’s projection of funds estimated to be
received from Government Agencies.

• The Federal Deptartment of Education is forecasted at $1.4M for 2007 in comparison to

1.16 for 2006. Every year since 1999 the Freedom Center has received a DOE grant
ranging from $950K to $1.7M. The DOE has recently notified the Freedom Center the
grants will be limited to a maximum of $1M for 2007. Accordingly, the forecast of $1.5M
for 2008 and 2009 should be adjusted down to $1M thereby reducing the projected
surplus to zero.
• The City grant of $800K has been received for 2007. Management feels confident the
City will match the grant in 2008. Management conservatively estimates a drop to
$350K in 2009
• Government ‘Other’ is comprised of the State of Ohio Department of Education which
has paid the Freedom Center $1.5M for the 5th and 8th grade free admission program.
$1M is allocated in 2007 and $.5M for 2008 . 2009 State DOE funds are conservatively
estimated at $350,000.

Total Government funding for 2007 is fairly forecasted. However, the 2008 and 2009 forecasts
for government funding should be adjusted down by $.5M each year.

Private Support

This portion of the pro-forma deals with funds raised through the Annual Fund Drive, Major Gifts
from individuals, Corporations, and Foundations

• Total private support forecasted for 2007 is $3.9M, down from $8.8M actually earned in
2006 as a result of the successful Bridge to the Future Campaign. Actual year to date
private support at 8/31/07 is $3.6M or 92% of the annual projection with the final quarter
remaining. The balance to be achieved of $300,000 over the four remaining months in
2007 is a reasonable one.
• The 2008 and 2009 forecast of $2.8M is reasonable in relation to actual 2007 and 2006
performance. However, it is noteworthy that the Freedom Center has sought funds, from
often times the same pool of individuals and entities for the Bridge to the Future
Campaign, the Annual Fund Drive, and will seek additional funds for the soon to be
announced Operating Endowment Campaign.

Total private support for 2007 is fairly forecasted and the 2008 and 2009 projections are
reasonable.

Operating Expenses:

Operating expenses include wages and other expenses necessary for the facility to function.

• Operating expenses are forecast at $7.89M for 2007 as compared to $7.52M actual
2006 operating expenses.
• Year to date operating expenses at 8/31/07 is $5.81M or 74% of total at the point in time
75% of the total period has expired.

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 • Operating expenses are forecasted at $6.85M in 2008 and $6.95 in 2009. Decreases
are due to scheduled staff reductions.

Operating expenses are fairly forecasted for 2007 and the projections for 2008 and 2009 are
reasonable.

Net Interest Expense

Net interest expense is calculated by netting investment income against interest expense on
bond debt.

year 2006 actual 2007 forecast 2008 projected 2009 projected

Net interest
expense $1,144,786 $960,000 $646,000 $450,000

Cost of investment is $22,401,291 and market value at 6/30/07 is $21,684,715 creating an

unrealized loss at 6/30/07 of $(716,576).

The one year rate of return is 5.14%, the three year rate of return is 4.0% and the rate of return
since inception is 3.43%. The forecasted rate of return is 5.0%.

Other Programs

Other Program revenue and expenses in the pro-forma are funded by restricted gifts. Other
Program deficit for 2006 is ($470,000) and a deficit of ($30,000) is forecasted for 2007. A
$250,000 surplus is projected for 2008 and 2009 based on projected restricted revenues of $1M
each year. Restricted gifts achieved total $775,000 in each year and management estimates
the remaining $225,000 based on previous years experience.

Total Surplus

Total surplus is forecasted at $800,000 for 2007 and $500,000 for 2008 and 2009. As of August
31, 2007 the pre-depreciation deficit is ($466,000). A $1,000,000 gift was received in
September. Management anticipates reaching the $800,000 forecasted surplus for 2007 as
reported to the letter of credit bank group regarding the cumulative surplus requirement. The
2008 and 2009 surpluses must be reduced down to zero to account for the $500,000 decrease
in the Department of Education funding limit which management was notified about in early
October. Management expects to further cut wages and expenses in order to reach the
projected surplus of $500,000 in 2008 and 2009. However, management will propose possible
cost cuts in the October Executive Session to be voted on by the full board in December.

Bank Covenants

The letter of credit bank group holds three covenants regarding the Freedom Center. Cash and
Investments must maintain a level of---------------; Borrowing Base cannot fall below------------ and
the cumulative surplus of $800,000 must

Conclusion

The new management has effectively demonstrated an ability to incorporate meaningful

programming, as evidenced by the results of the market research, raise funds, as evidenced by
the results of the Bridge to the Future Campaign, manage operating costs, and negotiate an

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advantageous position whereby the banks will take a lesser position on the real property interest
for an additional nine years, allowing the Commission to retain a lessee’s position for the same
time period. However, while the Freedom Center has made some impressive financial strides,
their projections regarding, investment income, government funding and accordingly, the pre-
depreciation surplus may prove to be overstated. The decision not to address replacement of
depreciating assets may be a detrimental one. Yet, the prospect of the State extending a
lessee’s position on the real property interest for an additional nine years, thereby securing a
stronger position for the original $15M at the cost of an additional $2M, is an attractive one.

Recommendation

Staff will recommend the Commission approve the project to fund the Freedom Center the
appropriated $2M, extend the lease for an additional nine years, and gain a stronger position
safeguarding the original $15M investment.

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