And Its Affiliates CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31
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FAMILY STATIONS, INC. (A California Not-For-Profit Corporation) And Its Affiliates CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2017 AND DECEMBER 31, 2016 FAMILY STATIONS, INC. And Its Affiliates TABLE OF CONTENTS DECEMBER 31, 2017 AND 2016 Independent auditors’ report 2 - 3 Consolidated statements of financial position 4 Consolidated statements of activities 5 Consolidated statements of cash flows 6 Notes to consolidated financial statements 7 - 17 Supplementary information: Schedule I - Consolidated support from contributions 19 - 21 Schedule II - Consolidated operating expenses – broadcasting stations and departments 22 - 23 1 RINA accountancy corporation 625 Market Street, 15th Floor San Francisco, CA 94105 phone: 415.777.4488 fax: 415.837.1260 1.800.RINA.CPA web: www.rina.com Independent Auditors’ Report The Board of Directors Family Stations, Inc. We have audited the accompanying consolidated financial statements of Family Stations, Inc. (a California not-for-profit Corporation) and its affiliates, which comprise the consolidated statements of financial position as of December 31, 2017 and December 31, 2016, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s Responsibility for the Financial Statements Family Stations Inc.'s management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the consolidated 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 consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Family Stations, Inc. and affiliates as of December 31, 2017 and December 31, 2016, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. 2 Report on Supplementary Information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying supplementary information in Schedule I and Schedule II starting on page 19 is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. Certified Public Accountants San Francisco, California May 13, 2018 3 FAMILY STATIONS, INC. And Its Affiliates CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ASSETS December 31, 2017 December 31, 2016 CURRENT: Cash and cash equivalents$ 25,127,544 $ 13,702,715 Investments 19,845 28,109 Funds held in trust 331,645 331,645 Receivables: Accounts receivable 21,007 65,041 Employee receivables 7,979 13,826 Inventory of equipment on hand 12,530 12,530 Prepaid expenses 238,133 198,600 TOTAL CURRENT ASSETS 25,758,683 14,352,466 PROPERTY AND EQUIPMENT, net 17,078,590 16,809,765 OTHER: Federal Communications Commission licenses, net 38,168,851 38,442,227 Charitable remainder trusts 107,753 99,939 Escrow deposits and prepaid expenses 58,781 58,781 Other assets held for sale, fair market value 7,500 - $ 81,180,158 $ 69,763,178 LIABILITIES CURRENT: Accounts payable$ 221,144 $ 252,838 Accrued liabilities 317,496 302,954 Tenant deposits 33,390 22,245 Listener and sponsor notes payable 331,645 331,645 Deferred revenue - 200,000 TOTAL CURRENT LIABILITIES 903,675 1,109,682 LONG-TERM: Term loan debt financing, net of debt financing fees of $0 and $599,269, respectively - 50,074,492 Revolving loan debt financing - 1,174,958 Accrued loan fees - 117,876 TOTAL LIABILITIES 903,675 52,477,008 NET ASSETS Unrestricted $ 80,276,483 $ 17,286,170 Temporarily restricted - - Permanently restricted - - 80,276,483 17,286,170 $ 81,180,158 $ 69,763,178 See notes to consolidated financial statements. 4 FAMILY STATIONS, INC. And Its Affiliates CONSOLIDATED STATEMENTS OF CASH FLOWS December 31, 2017 December 31, 2016 SUPPORT AND REVENUE: Contributions$ 4,812,670 $ 4,793,183 Program service fees 440,410 600,000 TOTAL SUPPORT AND REVENUE 5,253,080 5,393,183 OPERATING EXPENSES: Broadcasting stations 5,146,906 4,736,259 Departments 4,879,454 4,326,672 TOTAL OPERATING EXPENSES 10,026,360 9,062,931 EXCESS OF OPERATING EXPENSES OVER SUPPORT AND REVENUE (4,773,280) (3,669,748) OTHER REVENUE (EXPENSES): Gain on sale of station licenses, property and equipment 71,300,467 2,177,051 Interest expense -amortization of debt financing fees (599,300) (360,744) Lease income and air time revenue 498,609 497,726 Unrealized gain on charitable remainder trust 7,814 7,759 Miscellaneous revenue (expense) (25,948) 132,139 Dividend and interest income 1,427 684 Unrealized (loss) gain on securities (8,898) 237 Bad debt expense - (21,171) Income and sales tax expense (640) (9,142) Fees for sale of assets - (9,691) Interest expense (3,490,760) (5,919,507) Impairment loss (310,521) (5,746,290) INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS 62,598,970 (12,920,697) OTHER CHANGES IN NET ASSETS: Liquidation of net assets of Family Stations New Jersey 391,343 - INCREASE (DECREASE IN NET ASSETS) 62,990,313 (12,920,697) NET ASSETS, beginning of year 17,286,170 30,206,867 NET ASSETS, end of year$ 80,276,483 $ 17,286,170 See notes to consolidated financial statements. 5 FAMILY STATIONS, INC. And Its Affiliates CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended Year Ended December 31, 2017 December 31, 2016 CASH FLOWS FROM OPERATING ACTIVITIES: Increase (decrease) in net assets$ 62,598,970 $ (12,920,697) Adjustments to reconcile changes in net assets to net cash provide (used) by operating activities: Depreciation $ 685,811 $ 672,919 Interest expense - amortization of debt financing fees 599,268 360,744 Loss on impairment of assets held for sale- non-cash item 310,521 5,746,290 Funds held in trust for others - 34,109 Gain on sale of property, equipment and station licenses (71,300,467) (2,177,051) Unrealized loss (gain) on marketable securities 8,264 (237) Capitalized interest on loan proceeds - non-cash item 3,491,283 5,911,599 Unrealized gain on charitable remainder trusts (7,814) (7,759) Decrease (increase) in: Receivables 49,881 16,570 Prepaid expenses (39,533) (85,523) Assets held for sale (7,500) - Increase (decrease) in: Accounts payable (31,694) (323,507) Accrued liabilities 14,542 (7,697) Tenant deposits 11,145 2,633 Unearned revenue (200,000) (66,416,293) - 10,143,090 NET CASH USED BY OPERATING ACTIVITIES (3,817,323) (2,777,607) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of station licenses, property and equipment 72,162,079 2,428,025 Acquisition of property, equipment and station licenses (1,462,049) (1,995,175) Acquisition of marketable securities - (598) Note receivable - 17,000 Decrease (increase) in deposits and other prepaids - (19,750) NET CASH PROVIDED BY INVESTING ACTIVITIES 70,700,030 429,502 CASH FLOWS FROM FINANCING ACTIVITIES: Payments on notes payable (55,457,878) (34,109) NET CASH USED BY FINANCING ACTIVITIES (55,457,878) (34,109) NET INCREASE (DECREASE) IN CASH 11,424,829 (2,382,214) CASH AND CASH EQUIVALENTS, beginning of year 13,702,715 16,084,929 CASH AND CASH EQUIVALENTS, end of year$ 25,127,544 $ 13,702,715 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the year for: Interest $ - $ 1,942 Income taxes $ - $ - See notes to consolidated financial statements. 6 FAMILY STATIONS, INC. And Its Affiliates NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – DECEMBER 31, 2017 AND DECEMBER 31, 2016 Note 1.