KOCE – TV FOUNDATION dba PBS SoCal (A NONPROFIT ORGANIZATION) FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2018 AND 2017 KOCE – TV FOUNDATION dba PBS SoCal (A NONPROFIT ORGANIZATION) CONTENTS June 30, 2018 and 2017 Page INDEPENDENT AUDITOR’S REPORT 1 – 2 FINANCIAL STATEMENTS Statements of Financial Position 3 Statements of Activities 4 Statements of Cash Flows 5 Notes to Financial Statements 6 – 25 INDEPENDENT AUDITOR’S REPORT To the Board of Trustees KOCE – TV Foundation dba PBS SoCal (A Nonprofit Organization) Report on the Financial Statements We have audited the accompanying financial statements of KOCE – TV Foundation dba PBS SoCal (“the Foundation”), which comprise the statements of financial position as of June 30, 2018 and 2017, the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these 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 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 these 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. To the Board of Trustees KOCE - TV Foundation dba PBS SoCal (A Nonprofit Organization) Page 2 Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Foundation as of June 30, 2018 and 2017, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. November 28, 2018 KOCE – TV FOUNDATION dba PBS SoCal (A NONPROFIT ORGANIZATION) STATEMENTS OF FINANCIAL POSITION June 30, ASSETS 2018 2017 Current assets Cash and cash equivalents$ 9,096,640 $ 3,974,229 Investments 33,381,831 2,085,380 Grants receivable 10,712 11,985 Accounts receivable 551,874 981,726 Spectrum sale receivable - 44,333,320 Prepaid expenses and other current assets 360,126 252,488 Total current assets 43,401,183 51,639,128 Investment in partnership 5,445 5,445 Investment in SoCal Facilities, LLC 238,855 4,000 Broadcast license, net of accumulated amortization 13,939,575 13,939,575 Property and equipment, net of accumulated depreciation 1,665,921 1,615,952 Deposits 59,369 133,182 Total assets $ 59,310,348 $ 67,337,282 LIABILITIES AND NET ASSETS Current liabilities Accounts payable and accrued expenses$ 1,982,093 $ 1,365,126 Notes payable – financial institutions, current portion - 3,189,002 Note payable – Coast Community College District, current portion 750,000 750,000 Subordinated notes payable – Public Broadcasting Service, current portion - 2,128,981 Advances 460,231 810,880 Total current liabilities 3,192,324 8,243,989 Note payable – Coast Community College District, net of current portion 7,682,915 8,014,853 Total liabilities 10,875,239 16,258,842 Commitments and contingencies (Note 13) Net assets Unrestricted 48,435,109 51,078,440 Total net assets 48,435,109 51,078,440 Total liabilities and net assets$ 59,310,348 $ 67,337,282 The accompanying notes are an integral part of these financial statements. 3 KOCE – TV FOUNDATION dba PBS SoCal (A NONPROFIT ORGANIZATION) STATEMENTS OF ACTIVITIES For the Years Ended June 30, 2018 2017 Temporarily Temporarily Unrestricted Restricted Total Unrestricted Restricted Total Support and revenue Contributions, grants and contracts$ 17,443,405 $ 793,911 $ 18,237,316 $ 18,580,560 $ 975,152 $ 19,555,712 Royalty revenue 8,534 - 8,534 22,709 - 22,709 Interest and dividends 466,507 - 466,507 39,902 - 39,902 Special events, net of expenses of $159,156 and $0, respectively 317,589 - 317,589 10,508 - 10,508 Educational programs 512,248 - 512,248 604,724 - 604,724 Miscellaneous 108,036 - 108,036 500,186 - 500,186 Spectrum sale - - - 44,334,570 - 44,334,570 Net assets released from restrictions 793,911 (793,911) - 1,010,014 (1,010,014) - Total support and revenue 19,650,230 - 19,650,230 65,103,173 (34,862) 65,068,311 Functional expenses Program services Programming and production 7,424,463 - 7,424,463 7,817,849 - 7,817,849 Broadcasting 6,164,573 - 6,164,573 4,804,313 - 4,804,313 Underwriting and grant solicitation 1,565,781 - 1,565,781 1,511,441 - 1,511,441 Total program services 15,154,817 - 15,154,817 14,133,603 - 14,133,603 Supporting services Fundraising and development 3,152,834 - 3,152,834 2,802,452 - 2,802,452 General and administrative 3,985,910 - 3,985,910 2,900,513 - 2,900,513 Total supporting services 7,138,744 - 7,138,744 5,702,965 - 5,702,965 Total functional expenses 22,293,561 - 22,293,561 19,836,568 - 19,836,568 Change in net assets (2,643,331) - (2,643,331) 45,266,605 (34,862) 45,231,743 Net assets, beginning of year 51,078,440 - 51,078,440 5,811,835 34,862 5,846,697 Net assets, end of year $ 48,435,109 $ -$ 48,435,109 $ 51,078,440 $ -$ 51,078,440 The accompanying notes are an integral part of these financial statements. 4 KOCE – TV FOUNDATION dba PBS SoCal (A NONPROFIT ORGANIZATION) STATEMENTS OF CASH FLOWS For the Years Ended June 30, 2018 2017 Cash flows from operating activities Change in net assets $ (2,643,331) $ 45,231,743 Adjustments to reconcile change in net assets to net cash flows provided by operating activities: Depreciation and amortization of property and equipment 502,651 504,882 Amortization of discount on note payable – CCCD 418,062 433,870 Unrealized loss (gain) on investments 75,702 (52,004) Loss on the disposal of equipment - 367,240 Loss on the disposal of asset not in use - 467,500 Contributions received in the form of investments (150,567) (1,579,222) (Increase) decrease in: Grants receivable 1,273 141,085 Accounts receivable 429,852 (527,493) Spectrum sale receivable 44,333,320 (44,333,320) Prepaid expenses and other current assets (107,638) (17,018) Deposits 73,813 (46,793) Increase (decrease) in: Accounts payable and accrued expenses 616,967 122,752 Advances (350,649) (322,759) Net cash flows provided by operating activities 43,199,455 390,463 Cash flows from investing activities Purchase of property and equipment (552,620) (770,153) Investment in SoCal Facilities, LLC (234,855) (4,000) Purchase of investment instruments (51,722,735) - Sales of investment instruments 20,501,149 - Decrease in restricted cash - 416 Net cash flows used in investing activities (32,009,061) (773,737) Cash flows from financing activities Principal payments on notes payable – financial institutions (3,189,002) (252,004) Principal payments on note payable – CCCD (750,000) (750,000) Principal payments on notes payable – Public Broadcasting Service (2,128,981) (2,500,000) Net cash flows used in financing activities (6,067,983) (3,502,004) Net change in cash and cash equivalents 5,122,411 (3,885,278) Cash and cash equivalents, beginning of year 3,974,229 7,859,507 Cash and cash equivalents, end of year $ 9,096,640 $ 3,974,229 Supplemental disclosure for cash flows information Interest paid $ 23,230 $ 231,394 The accompanying notes are an integral part of these financial statements. 5 KOCE – TV FOUNDATION dba PBS SoCal (A NONPROFIT ORGANIZATION) NOTES TO FINANCIAL STATEMENTS June 30, 2018 and 2017 NOTE 1 – GENERAL The KOCE-TV Foundation dba PBS SoCal (the “Foundation”) is an independent nonprofit organization that holds the broadcast license for KOCE (Channel 50) and serves as the flagship PBS station for Greater Los Angeles and Southern California. Founded in Huntington Beach, California in 1972, KOCE in 2011 became PBS SoCal, and stepped into the flagship role following KCET’s departure from PBS. PBS SoCal now serves 18 million people across six diverse counties – Los Angeles, Orange, Riverside, San Bernardino, Ventura and Santa Barbara – from locations in Century City, Costa Mesa, downtown Los Angeles and L.A.’s Sawtelle district. More than just a television station, PBS SoCal is an important cultural and educational institution for the community, whose mission is to foster a love of learning, culture and community using the power of public media.