USC Radio Combined Financial Statements for KUSC-FM, KDSC-FM, KDB-FM, KPSC-FM, KESC-FM, KDFC-FM, KOSC-FM, KDFG-FM, and KXSC-FM June 30, 2017 and 2016
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USC Radio Combined Financial Statements For KUSC-FM, KDSC-FM, KDB-FM, KPSC-FM, KESC-FM, KDFC-FM, KOSC-FM, KDFG-FM, and KXSC-FM June 30, 2017 and 2016 USC Radio Index to Combined Financial Statements June 30, 2017 and 2016 Page (s) Independent Auditor’s Report ..................................................................................................................... 1 Combined Financial Statements Combined Statements of Financial Position ............................................................................................... 2 Combined Statements of Activities and Changes in Net Assets ................................................................ 3 Combined Statements of Cash Flows ......................................................................................................... 4 Notes to Combined Financial Statements ............................................................................................. 5-16 Report of Independent Auditors To the Board of Trustees of the University of Southern California We have audited the accompanying combined financial statements of KUSC-FM, KDSC-FM, KDB-FM, KPSC-FM, KESC-FM, KDFC-FM, KOSC-FM, KDFG-FM, and KXSC-FM radio stations operated by the University of Southern California (“USC Radio”), which comprise the combined balance sheets as of June 30, 2017 and 2016, and the related combined statements of activities and changes in net assets and cash flows for the years then ended. Management's Responsibility for the Combined Financial Statements Management is responsible for the preparation and fair presentation of the combined 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 combined financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on the combined 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 combined financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the combined financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the combined financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the USC Radio’s preparation and fair presentation of the combined 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 USC Radio’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 combined 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 combined financial statements referred to above present fairly, in all material respects, the financial position of KUSC-FM, KDSC-FM, KDB-FM, KPSC-FM, KESC-FM, KDFC-FM, KOSC-FM, KDFG-FM, and KXSC-FM radio stations operated by the University of Southern California as of June 30, 2017 and 2016, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matters The prior year summarized comparative information has been derived from USC Radio’s 2016 financial statements, and in our report dated November 22, 2016, we expressed an unqualified opinion on those financial statements. USC Radio is a department of the University of Southern California. As described in Note 2, due to the nature and significance of the transactions between USC Radio and the University of Southern California, the financial position, changes in net assets and cash flows may not be indicative of the results, which would have been attained if USC Radio had operated independently of the University of Southern California. Los Angeles, California December 8, 2017 PricewaterhouseCoopers LLP, 601 South Figueroa Street, Los Angeles, CA 90017 T: (213) 356 6000, F: (813) 637 4444, www.pwc.com/us USC Radio Combined Statements of Financial Position June 30, 2017 and 2016 2017 2016 Assets Cash $ 207,954 $ 3,793,198 Accounts receivable 131,888 82,188 Pledges receivable 757,295 851,536 Investments 5,968,185 4,872,458 Due from the University of Southern California 8,868,586 4,176,379 Prepaid expenses 5,110 53,670 Intangible assets 17,107,718 16,547,718 Property and equipment, net 547,097 522,450 Total assets $ 33,593,833 $ 30,899,597 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses $ 400,391 $ 576,994 Deferred revenue 723,726 675,507 Note payable to University of Southern California 4,385,282 5,080,454 Actuarial liability for annuities payable 721,821 766,396 Total liabilities 6,231,220 7,099,351 Net assets Without donor restrictions 23,257,197 20,266,608 With donor restrictions 4,105,416 3,533,638 Total net assets 27,362,613 23,800,246 Total liabilities and net assets $ 33,593,833 $ 30,899,597 The accompanying notes are an integral part of these financial statements. 2 USC Radio Combined Statement of Activities and Changes in Net Assets for the year ended June 30, 2017, with summarized comparative information for the year ended June 30, 2016 2017 2016 Without Donor With Donor Total Total Restrictions Restrictions Revenue and Support Subscription, associate and individual contributions $ 11,199,858 $ 610,379 $ 11,810,237 $ 11,128,025 Corporation and foundation contributions 3,164,217 - 3,164,217 2,474,706 Corporation for Public Broadcasting grants 703,346 - 703,346 878,259 Contribution from the University of - Southern California 85,713 - 85,713 75,301 Net appreciation in fair value of investments 292,162 46,840 339,002 (342,844) Present value adjustment to annuities payable - 4,007 4,007 80,953 Other 179,876 - 179,876 161,910 Loss on impairment (440,000) - (440,000) (100,000) Net assets released from redesignation 89,448 (89,448) - - Total revenue and support 15,274,620 571,778 15,846,398 14,356,310 Expenses Programming and production 3,493,716 - 3,493,716 3,326,725 Broadcast operations 3,358,848 - 3,358,848 3,362,336 Fundraising 3,127,598 - 3,127,598 2,993,099 Underwriting and grant solicitation 1,073,507 - 1,073,507 808,710 General and administrative 1,070,588 - 1,070,588 930,450 Web development 159,774 - 159,774 149,900 Total expenses 12,284,031 - 12,284,031 11,571,220 Change in net assets 2,990,589 571,778 3,562,367 2,785,090 Net assets at beginning of year 20,266,608 3,533,638 23,800,246 21,015,156 Net assets at end of year $ 23,257,197 $ 4,105,416 $ 27,362,613 $ 23,800,246 The accompanying notes are an integral part of these financial statements. 3 USC Radio Combined Statements of Cash Flows June 30, 2017 and 2016 2017 2016 Cash flows from operating activities Change in net assets $ 3,562,367 $ 2,785,090 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 116,781 86,736 Net (appreciation) depreciation in fair value of investments (339,002) 342,844 Actuarial adjustment to annuities payable (4,009) (80,953) Loss on impairment 440,000 100,000 Gain on the sale of investments (64,298) - Contribution of corporate sponsor (525,000) - Contributions with donor restrictions for long-term investments (615,172) (727,193) Changes in operating assets and liabilities: (Increase) decrease in accounts receivable (49,700) 1,492 Decrease (increase) in pledges receivable 94,241 (116,529) Due from the University of Southern California (4,692,207) (565,193) Decrease (increase) in prepaid expenses 48,560 (30,727) (Decrease) increase in accounts payable and accrued expenses (176,600) 192,458 Increase (decrease) in deposits and deferred revenue 48,219 (162,051) Net cash provided by operating activities (2,155,820) 1,825,974 Cash flows from investing activities Proceeds from sale of investments 89,438 93,622 Purchase of intangibles (475,000) - Purchase of investments (846,164) (1,098,446) Purchases of property and equipment (77,129) (250,995) Net cash used in investing activities (1,308,855) (1,255,819) Cash flows from financing activities Increase in annuities payable due to new gifts - 124,827 Endowment contributions with donor restrictions 615,172 727,193 Decrease in note payable with University of Southern California (695,173) (1,127,522) Investment gain on annuities payable 48,870 146,252 Payments on annuities payable (89,438) (73,230) Net cash (used) provided in financing activities (120,569) (202,480) Net change in cash (3,585,244) 367,675 Cash at beginning of year 3,793,198 3,425,523 Cash at end of year $ 207,954 $ 3,793,198 The accompanying notes are an integral part of these financial statements. 4 USC Radio Notes to the Combined Financial Statements June 30, 2017 and 2016 1. General KUSC-FM, located in Los Angeles, and affiliated stations KDSC-FM, located in Thousand Oaks, KDB-FM, located in Santa Barbara, KPSC-FM, located in Palm Springs, KXSC-FM, located in Sunnyvale, KOSC-FM, located in Angwin, KDFC-FM, located in San Francisco, KESC-FM, located in Morro Bay, and KDFG-FM located in Seaside, (collectively referred to as “USC Radio”) are noncommercial, not-for-profit, educational radio stations which are owned and operated by the University of Southern California (the “University”). USC Radio entered into asset purchase agreements on: May 1, 2009, acquiring the FCC license of KXTY, a radio station in Morro Bay, CA (now referred to as KESC-FM), also a noncommercial, not-for-profit, educational radio station.