USC Radio Combined Financial Statements for KUSC-FM, KDSC-FM, KDB-FM, KPSC-FM, KESC-FM, KDFC-FM, KOSC-FM and KXSC-FM June 30, 2016 and 2015
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USC Radio Combined Financial Statements For KUSC-FM, KDSC-FM, KDB-FM, KPSC-FM, KESC-FM, KDFC-FM, KOSC-FM and KXSC-FM June 30, 2016 and 2015 USC Radio Index to Combined Financial Statements June 30, 2016 and 2015 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 ............................................................................................. 5-15 Report of Independent Auditors To the Board of Trustees of the University of Southern California We have audited the accompanying combined financial statements of the KUSC-FM, KDSC-FM, KDB-FM, KPSC-FM, KESC- FM, KDFC-FM, KOSC-FM and KXSC-FM radio stations operated by the University of Southern California (“USC Radio”), which comprise the combined statements of financial position as of June 30, 2016 and 2015, 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. Auditor's Responsibility Our responsibility is to express an opinion on the combined financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to the financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 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 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 the KUSC-FM, KDSC-FM, KDB-FM, KPSC-FM, KESC-FM, KDFC-FM, KOSC-FM and KXSC-FM radio stations operated by the University of Southern California as of June 30, 2016 and 2015, and the changes in their net assets and 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 2015 financial statements, and in our report dated November 24, 2015, 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. November 22, 2016 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, 2016 and 2015 2016 2015 Assets Cash$ 3,793,198 $ 3,425,523 Accounts receivable 82,188 83,680 Pledges receivable 851,536 735,007 Investments 4,872,458 4,210,478 Due from the University of Southern California, net 4,176,379 3,611,186 Prepaid expenses 53,670 22,943 Intangible assets 16,547,718 16,647,718 Property and equipment, net 522,450 358,191 Total assets$ 30,899,597 $ 29,094,726 Liabilities and Net Assets Liabilities Accounts payable and accrued expenses$ 576,994 $ 384,536 Deferred revenue 675,507 837,558 Note payable to University of Southern California, net 5,080,454 6,207,976 Actuarial liability for annuities payable 766,396 649,500 Total liabilities 7,099,351 8,079,570 Net assets Unrestricted 20,266,608 18,357,490 Temporarily restricted 746,544 518,846 Permanently restricted 2,787,094 2,138,820 Total net assets 23,800,246 21,015,156 Total liabilities and net assets$ 30,899,597 $ 29,094,726 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, 2016, with summarized comparative information for the year ended June 30, 2015 Temporarily Permanently 2016 2015 Unrestricted Restricted Restricted Total Total Revenue and Support Subscription, associate and individual contributions$ 10,384,129 $ 95,622 $ 648,274 $ 11,128,025 $ 10,469,003 Corporation and foundation contributions 2,274,706 200,000 - 2,474,706 2,062,692 Corporation for Public Broadcasting grants 878,259 - - 878,259 460,284 Contribution from the University of Southern California 75,301 - - 75,301 68,616 Net depreciation in fair value of investments (214,359) (128,485) - (342,844) (51,313) Present value adjustment to annuities payable - 80,953 - 80,953 26,975 Other 161,910 - - 161,910 258,245 Loss on impairment (100,000) - - (100,000) - Gain on nonmonetary exchange - - - - 1,400,000 Net assets released from redesignation 20,392 (20,392) - - - Total revenue and support 13,480,338 227,698 648,274 14,356,310 14,694,502 Expenses Programming and production 3,326,725 - - 3,326,725 3,353,284 Broadcast operations 3,362,336 - - 3,362,336 2,866,148 Fundraising 2,993,099 - - 2,993,099 2,886,967 Underwriting and grant solicitation 808,710 - - 808,710 691,791 General and administrative 930,450 - - 930,450 751,243 Web development 149,900 - - 149,900 160,485 Total expenses 11,571,220 - - 11,571,220 10,709,918 Change in net assets 1,909,118 227,698 648,274 2,785,090 3,984,584 Net assets at beginning of year 18,357,490 518,846 2,138,820 21,015,156 17,030,572 Net assets at end of year$ 20,266,608 $ 746,544 $ 2,787,094 $ 23,800,246 $ 21,015,156 The accompanying notes are an integral part of these financial statements. 3 USC Radio Combined Statements of Cash Flows June 30, 2016 and 2015 2016 2015 Cash flows from operating activities Change in net assets$ 2,785,090 $ 3,984,584 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 86,736 109,315 Net depreciation in fair value of investments 342,844 51,313 Actuarial adjustment to annuities payable (80,953) (26,975) Loss on impairment 100,000 - Gain on nonmonetary exchange - (1,400,000) Changes in operating assets and liabilities: Increase in accounts receivable 1,492 103,633 Increase in pledges receivable (843,722) (629,452) Due from the University of Southern California (565,193) (1,052,003) Increase in prepaid expenses (30,727) (5,404) Increase (decrease) in accounts payable and accrued expenses 192,458 (10,957) (Decrease) increase in deposits and deferred revenue (162,051) 356,643 Net cash provided by operating activities 1,825,974 1,480,697 Ca sh flow s from inve sting a ctivitie s Proceeds from sale of investments 93,622 61,392 Purchase of investments (1,098,446) (1,087,029) Purchases of property and equipment (250,995) (37,679) Net cash used in investing activities (1,255,819) (1,063,316) Cash flows from financing activities Increase in annuities payable due to new gifts 124,827 74,327 Contributions restricted for permanent endowment 727,193 824,955 Payments on note payable with University of Southern California (1,127,522) (780,681) Investment gain on annuities payable 146,252 135,589 Payments on annuities payable (73,230) (61,392) Net cash (used) provided in financing activities (202,480) 192,798 Net change in cash 367,675 610,179 Cash at beginning of year 3,425,523 2,815,344 Cash at end of year$ 3,793,198 $ 3,425,523 The accompanying notes are an integral part of these financial statements. 4 USC Radio Notes to the Combined Financial Statements June 30, 2016 and 2015 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, KNDL-FM, located in Angwin, KDFC-FM, located in San Francisco and KESC-FM, located in Morro Bay (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.