THE CHARLOTTE-MECKLENBURG PUBLIC BROADCASTING AUTHORITY (WTVI)

Transcription

1 THE CHARLOTTE-MECKLENBURG PUBLIC BROADCASTING AUTHORITY Financial Statements and Accompanying Information For the Years Ended

2 Table of Contents Report of Independent Auditors... 1 Management s Discussion and Analysis Statements of Net Assets Statements of Revenues, Expenses and Changes in Net Assets... 8 Page Statements of Cash Flows Notes to Financial Statements Accompanying Information Supplemental Schedules of Functional Expenses

3 Report of Independent Auditors Charlotte-Mecklenburg Public Broadcasting Authority Charlotte, North Carolina We have audited the accompanying statements of net assets of The Charlotte-Mecklenburg Public Broadcasting Authority as of, and the related statements of revenues, expenses and changes in net assets and cash flows for the years then ended. These financial statements are the responsibility of WTVI s management. 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 of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of WTVI as of, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Management s Discussion and Analysis contained on pages 2-6 is not a required part of the basic financial statements but is supplementary information required by accounting principles generally accepted in the United States of America. We have applied certain limited procedures, which consisted principally of inquiries of management regarding the methods of measurement and presentation of the required supplementary information. However, we did not audit the information and accordingly, express no opinion on it. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules of functional expenses are presented for purposes of additional analysis and are not a required part of the basic financial statements. These schedules are the responsibility of WTVI s management. The schedules have been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, are fairly stated, in all material respects, when considered in relation to the basic financial statements taken as a whole. Charlotte, North Carolina October 31, 2011

4 2 Management s Discussion and Analysis (Unaudited) The following discussion and analysis of the Charlotte-Mecklenburg Public Broadcasting Authority s (hereinafter referred to as WTVI ) financial performance provides an overview of the financial activities of the organization for the fiscal years ended. This discussion and analysis was prepared by the WTVI Finance Department. Please read it in conjunction with WTVI s financial statements, which begin on page 7. WTVI HIGHLIGHTS Financial Highlights - The assets of WTVI exceeded its liabilities at by approximately $6,100,000 and $6,291,000, respectively. Cash and cash equivalents balance at June 30, 2011 was approximately $177,000, representing a decrease of approximately $39,000 from June 30, Cash and cash equivalents balance at June 30, 2010 was approximately $216,000, representing a decrease of approximately $10,000 from June 30, Net capital assets decreased by approximately $431,000 from June 30, 2010 to June 30, 2011 primarily as a result of depreciation expense. Net capital assets increased by approximately $1,800,000 from June 30, 2009 to June 30, 2010 primarily as a result of capital contribution from Mecklenburg County, which totaled approximately $2,100,000.Capital assets additions were approximately $37,000. Total liabilities decreased by approximately $587,000 from June 30, 2010 to June 30, The majority of the decrease related to a reduction in the capital lease obligation of approximately $650,000 and an increase in deferred revenue for program underwriting of approximately $104,000 and a decrease in accounts payables of $19,000. Total liabilities decreased by approximately $1,136,000 from June 30, 2009 to June 30, The majority of the decrease related to a reduction in the capital lease obligation of approximately $1,144,000 and a decrease in deferred revenue for program underwriting of approximately $100,000 due to the economic climate. These decreases also consisted of accounts payable of approximately $60,000 due to timing of invoices received. Operating revenues for 2011 decreased by approximately $12,000 compared to 2010 due to decrease in underwriting revenue. Operating expenses decreased approximately $372,000 compared to 2010 as general cost savings strategies across the board in operations primarily in salaries and benefits for the year ended June 30, This resulted in a $360,000 decrease in operating losses for 2011 as compared to Operating revenues for 2010 decreased by approximately $153,000 compared to 2009 due to decrease in trade out and underwriting revenue. Operating expenses decreased approximately $1,251,000 compared to 2009 as general cost savings strategies across the board in operations primarily in salaries and benefits, videotape supplies and electricity for the year ended June 30, This resulted in a $1,099,000 decrease in operating losses for 2010 as compared to 2009.

5 3 Management s Discussion and Analysis (Unaudited) WTVI HIGHLIGHTS Financial Highlights - continued Non-operating revenues decreased by approximately $3,517,000 for the year ended June 30, 2011, as compared to Primarily, the decrease is due to the digital transmission contribution in the amount of approximately from Mecklenburg County in Non-operating revenues increased by approximately $1,723,000 for the year ended June 30, 2010, as compared to Primarily, the increase is due to the digital transmission contribution in the amount of approximately $1,550,000 from Mecklenburg County and an increase in the amount of other grant revenues of approximately $119,000 received in 2010 were more than WTVI experienced a decrease in net assets of approximately $191,000 for the year ended June 30, 2011 as compared to an increase in net assets of approximately $2,916,000 in Financial Summary Below, a condensed summary of WTVI s statement of net assets at June 30, 2011, 2010, and 2009 is shown in Table 1 and a condensed summary of the changes in net assets for the year ended June 30, 2011, 2010, and 2009 is shown in Table 2. Table 1 Net Assets at June 30, 2011, 2010, and Assets: Current assets $ 848,075 $ 1,190,663 $ 1,273,473 Other investments 34,602 38,513 44,001 Capital assets net of accumulated depreciation 5,764,853 6,196,166 4,397,414 Total assets $ 6,647,530 $ 7,425,342 $ 5,714,888 Liabilities and net assets: Liabilities: Current liabilities $ 530,645 $ 1,109,143 $ 1,586,617 Long-term liabilities 16,675 24, ,027 Total liabilities 547,320 1,134,011 2,269,644 Net assets: Invested in capital assets net of related debt 5,739,985 5,513,139 2,570,422 Unrestricted (500,925) (52,545) 138,659 Unrestricted designated 861, , ,163 Total net assets 6,101,205 6,291,331 3,445,244 Total liabilities and net assets $ 6,647,530 $ 7,425,342 $ 5,714,888

6 4 Management s Discussion and Analysis (Unaudited) Financial Summary continued Table 2 Changes in Net Assets for the Years Ended June 30, 2011, 2010, and Operating revenues $ 1,350,708 $ 1,362,860 $ 1,515,659 Operating expenses 4,392,989 4,765,343 6,016,737 Operating loss (3,042,281) (3,402,483) (4,501,078) Non-operating revenues, net 2,870,712 6,387,570 4,664,937 Income tax expense (19,557) (69,000) -. Increase (decrease) in net assets $ (191,126) $ 2,916,087 $ 163,859 Summary of Cash Flow Activities - The following shows a summary of the major sources and uses of cash and cash equivalents for the years ended June 30, 2011, 2010, and Cash equivalents are considered highly liquid investments with a maturity of three months or less: Cash used in operating activities $ (1,952,323) $ (2,539,423) $ (2,776,611) Cash provided by capital and related financing activities 1,653,582 2,528,798 2,634,134 Cash provided by (used in) investing activities 259,079 1,289 (47,396) Net increase (decrease) in cash and cash equivalents (39,662) (9,547) (189,873) Cash and cash equivalents: Beginning of year 216, , ,888 End of year $ 176,806 $ 216,468 $ 226,015 Financial Statements - The organization s financial statements are prepared on an accrual basis in accordance with accounting principles generally accepted in the United States of America promulgated by the Governmental Accounting Standards Board (the GASB ). The organization is structured as a single enterprise fund with revenues recognized when earned, not when received. Expenses are recognized when incurred, not when they are paid. See the notes to the financial statements for a summary of the organization s significant accounting policies.

7 5 Management s Discussion and Analysis (Unaudited) Financing Arrangement - In 2002, Mecklenburg County funded WTVI s conversion to a digital signal, totaling approximately $10 million. The assets associated with the digital conversion are leased to WTVI by Mecklenburg County under capital lease. The assets and correlating capital lease obligation were recorded by WTVI. The assets capitalized, which are now fully depreciated, were being depreciated over an estimated useful life of seven years using the straight-line method. The cost was funded by the County using debt that matures in Payments by the County on the debt are recorded as revenue by WTVI. Thus, although the total revenues recognized related to this transaction will equal total expenses, there are timing differences between depreciation on the assets capitalized when compared to the amortization of the capital lease obligation. The following illustrates the timing difference attributed to the years ended June 30, 2011, 2010, and 2009and their impact to the change in net assets: Revenue: Donated debt payments $ 667,404 $ 1,176,528 $ 1,194,728 Expenses: Interest expense associated with the capital lease obligation (16,858) (42,314) (68,665) Depreciation expense on assets under capital lease - - (1,071,431) Revenues/(expenses) in excess of revenues related to the capital lease with the County $ 650,546 $ 1,134,214 $ (54,632) Future Events Expected to Significantly Affect the Financial Position and Operations of the Organization WTVI has indeed felt many financial pressures. The main cause was the lack of funding from Mecklenburg County, but also the soft economy has been felt in business support and individual contributions. In spite of a government funding loss of approximately $800,000, staff has managed to come up with $600,000 in a combination of new projects and expense cuts no mean feat to end the fiscal year only $200,000 in the red. It will be impossible for the station to sustain another year of loss at that rate, however, and financials are being watched on a daily basis. It should be noted that most public television stations around the country are in similar situations, if not worse, and a couple of stations have shut down altogether. The station is in a reasonable position this year for capital infrastructure and is keeping an eye on rumored FCC spectrum reallocations within the next five years for both possible capital needs and possible opportunity to monetize some spectrum assets. On the service side, WTVI has been extremely successful in attracting the work of talented local producers who are happy to partner with WTVI in getting their work out via broadcast. The station has also reviewed the community needs identified by the United Way and plans to address the needs in a targeted and measurable fashion. A major gift of new logo design is also expected to draw new attention to the station. Major donor giving at the $1,000 and up level has been steadily increasing.

8 6 Management s Discussion and Analysis (Unaudited) Contacting the Organization s Financial Management The financial report is designed to provide a general overview of the organization s finances. Questions concerning any of the information provided in the report or requests for additional financial information should be addressed to the President, WTVI, 3242 Commonwealth Avenue, Charlotte, NC or call

9 7 Statements of Net Assets June 30, Assets Current assets Cash and cash equivalents $ 176,806 $ 216,468 Temporary investments 450, ,956 Receivables: Trade 36,056 48,598 Program underwriting 40,235 60,738 Inventories 29,569 30,052 Cost incurred for programs not yet broadcast 69,542 94,559 Other current assets 45,613 50,292 Total current assets 848,075 1,190,663 Other investments 34,602 38,513 Capital assets 23,393,180 23,342,051 Less accumulated depreciation (17,628,327) (17,145,885) 5,764,853 6,196,166 Total assets 6,647,530 7,425,342 Liabilities Current liabilities Accounts payable, trade 85, ,074 Accrued expenses and other liabilities 98, ,750 Current portion of capital lease obligations 8, ,159 Deferred revenue: Trade accounts 20,551 20,550 Program underwriting 186,222 82,410 Liability for unrecognized tax benefit 131, ,200 Total current liabilities 530,650 1,109,143 Long-term portion of capital lease obligations 16,675 24,868 Total liabilities 547,325 1,134,011 Net assets Invested in capital assets net of related debt 5,739,985 5,513,139 Unrestricted (500,925) (52,545) Unrestricted - designated 861, ,737 Total net assets $ 6,100,205 $ 6,291,331 The accompanying notes are an integral part of the financial statements.

10 8 Statements of Revenues, Expenses, and Changes in Net Assets For the Year Ended June 30, Operating revenues Program underwriting $ 327,209 $ 405,053 Production 383, ,269 Trade-out contracts 143, ,858 Rental income 368, ,798 Other 126, ,882 Total operating revenues 1,350,708 1,362,860 Operating expenses Salaries and employee benefits 1,345,115 1,659,044 Professional services 781, ,027 Program acquisitions 412, ,934 Supplies, postage, and shipping 149, ,290 Telephone, utilities, and general insurance 206, ,067 Advertising, general printing, and graphics 35,541 31,858 Equipment rental and maintenance 132, ,842 Travel, conferences, and meetings 15,613 25,243 Dues and fees 119, ,284 Trade-outs 143, ,858 Miscellaneous 87,916 60,615 Interest expense 18,995 42,314 Depreciation 482, ,967 Donated supplies and facilities 462, ,000 Total operating expenses 4,392,989 4,765,343 Operating loss (3,042,281) (3,402,483) Non-operating revenues Mecklenburg County appropriations 42,634 2,961,598 Community Service and other grants 905, ,197 Contributions 777, ,601 Donated facilities and debt payments 1,129,404 1,638,528 Investment income 15,466 6,646 Total nonoperating revenues 2,870,712 6,387,570 Income tax expense 19,557 69,000 Change in net assets (191,126) 2,916,087 Net assets, beginning of the year 6,291,331 3,445,244 Unrecognized tax benefit - (70,000) Net assets, end of the year $ 6,100,205 $ 6,291,331 The accompanying notes are an integral part of the financial statements.

11 9 Statements of Cash Flows For the Year Ended June 30, Cash flows from operating activities Cash received from customers $ 1,216,812 $ 981,340 Other operating cash receipts 126, ,882 Cash paid to employees (1,347,293) (1,629,564) Cash paid to suppliers for goods and services (1,948,787) (2,028,081) Net cash used in operating activities (1,952,323) (2,539,423) Cash flows from capital and related financing activities Purchase of property and equipment (14,177) (35,136) Payments on capital lease obligations (21,131) (7,075) Contributions and grants 1,688,890 2,570,798 Net cash provided by capital and related financing activities 1,653,582 2,528,587 Cash flows from investing activities Investment income 19,377 12,134 Net increase (decrease) in temporary investments 239,702 (10,845) Net cash provided by investing activities 259,079 1,289 Net decrease in cash and cash equivalents (39,662) (9,547) Cash and cash equivalents Beginning of year 216, ,015 End of year $ 176,806 $ 216,468 The accompanying notes are an integral part of the financial statements.

12 10 Statements of Cash Flows (continued) For the Year Ended June 30, Reconciliation of operating loss to net cash used in operating activities: Operating loss $ (3,042,281) $ (3,402,483) Cash payments for income taxes (5,375) - Adjustments to reconcile operating loss to net cash used in operating activities: Depreciation 482, ,967 Gain on disposal of assets - (1,661) Non-cash, non-operating contributions charged to expense 480, ,314 Changes in operating assets and liabilities: Increase (decrease) in receivables 33,045 (421) Decrease in inventories ,741 Decrease in costs incurred for programs not yet broadcast 25,017 10,602 Decrease in other current assets 4,679 54,186 Decrease in accounts payable (19,164) (54,851) (Decrease) increase in accrued expenses and other liabilities (15,976) 29,542 Increase (decrease) in deferred revenues 103,813 (105,359) Net cash used in operating activities $ (1,952,323) $ (2,539,423) Non-cash financing and investing transactions: Contribution from Mecklenburg County to reduce capital lease obligation $ 637,028 $ 1,136,890 Contribution from Mecklenburg County to acquire digital equipment $ 36,952 $ 2,171,598 The accompanying notes are an integral part of the financial statements.

13 11 Notes to Financial Statements Note 1 Summary of significant accounting policies Organization and purpose - The Charlotte-Mecklenburg Public Broadcasting Authority (hereinafter referred to as WTVI ) was originally established by a joint undertaking of the Board of Commissioners of Mecklenburg County and the Charlotte-Mecklenburg Board of Education. The Authority operates a noncommercial public television station. The Authority is comprised of an eighteen member Board of Directors, which oversees WTVI. WTVI s broadcasting operations are subject to Federal Communications Commission (FCC) jurisdiction under the Communications Act of 1934, as amended. FCC rules, among other things, govern the term, renewal and transfer of television broadcasting licenses, and limit concentrations of broadcasting control inconsistent with public interest. Federal law also regulates the quantity of underwriting within children s programs. Television broadcasting licenses are subject to renewal by the FCC. The FCC approved technical standards and channel assignments for digital television (DTV) service. DTV permits broadcasters to transmit video images with higher resolution than existing analog signals. WTVI completed conversion and began broadcasting a digital signal in April As required by law, WTVI broadcasted simultaneously with the old and new signal until June WTVI s conversion, which cost approximately $10 million dollars, was funded by Mecklenburg County. From time to time, the FCC revises existing regulations and policies in ways that could affect WTVI s broadcasting operations. In addition, Congress periodically considers and adopts amendments to the governing communications legislation. WTVI cannot predict what regulations or legislation may be proposed or finally enacted, or what effect, if any, such regulations or legislation could have on its operations. Reporting entity - In fiscal year 2006, WTVI created a separate 501(c)(3) entity called Friends of WTVI. The purpose of this entity will be to provide support and fundraising for WTVI. However in fiscal year 2006, the Board approved a $20,000 transfer of funds to establish a separate checking account in the new entity s name for future use. The new entity is included in WTVI s financials. WTVI has no other component units (legally separate entities for which it is financially accountable) required to be included in the accompanying financial statements. Basis of presentation - In the year ended June 30, 2004, WTVI adopted Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments, as amended by GASB Statement No. 37, Basic Financial Statements - and Management s Discussion and Analysis - for State and Local Governments: Omnibus, and modified by GASB Statement No. 38, Certain Financial Statement Disclosures. Formerly, WTVI s financial statements had been prepared in accordance with GASB Statement No. 20, Accounting and Financial Reporting for Proprietary Funds and Other Governmental Entities That Use Proprietary Fund Accounting, as amended by GASB 29, The Use of Not-for-Profit Accounting and Financial Reporting Principles by Governmental Entities. Thus upon adoption of GASB 34, WTVI has elected to apply enterprise fund accounting and financial reporting.

14 12 Notes to Financial Statements Note 1 Summary of significant accounting policies (continued) Basis of presentation (continued) - WTVI accounts for its operations in one enterprise fund. An enterprise fund is used to account for operations (a) that are financed and operated in a manner similar to private business enterprises, where the intent of the governing body is that the costs of providing goods or services to the general public on a continuing basis be financed or recovered primarily through user charges; or (b) where the governing body has decided that periodic determination of revenues earned, expenses incurred, and/or net income is appropriate for capital maintenance, public policy, management control, accountability, or other purposes. Basis of accounting - WTVI follows the accrual basis of accounting. Under this method, revenues are recognized in the accounting period in which they are earned and become measurable. Expenses are recognized when the liability is incurred, if measurable. The Financial Accounting Standards Board and its predecessor organizations have issued accounting and reporting standards for activities in the private sector. WTVI has elected to apply the standards issued by those organizations after November 30, 1989, except to the extent those standards conflict with standards issued by the Government Accounting Standards Board. Revenue recognition - Underwriting revenue is recognized in the accounting period in which the program supported by the underwriting is broadcast. Contributions are recorded as revenue when received. Revenue from grants is recognized when substantially all the conditions stipulated by the grantor have been met. All of WTVI s revenues and expenses, except for those receipts and payments listed under the section titled non-operating revenues, are classified as operating activities in the statement of revenues, expenses and changes in net assets. Non-operating revenues primarily include activities related to funding received from Mecklenburg County, the Corporation for Public Broadcasting, and other agencies/contributors. Cash and cash equivalents - WTVI considers all highly liquid investments with a fixed maturity of three months or less when purchased to be cash equivalents except certificates of deposits, which are included in temporary investments. Temporary investments - Temporary investments consist of certificates of deposit that have varying maturity dates. Temporary investments are recorded at cost, which approximates market value. Receivables - Receivables include trade and underwriting receivables and are stated less an allowance for doubtful accounts. Management s determination of the allowance for doubtful accounts is based on an analysis of historical collection trends, current relations with customers, and current and anticipated economic conditions. Accounts receivable are written-off when, in the opinion of management, such receivables are deemed to be uncollectible. At, receivables are net of an allowance of $58,000 and $10,000, respectively. While management uses the best information available to make such evaluations, future adjustments to the allowance may be necessary if conditions differ substantially from the assumptions used in making the evaluations.

15 13 Notes to Financial Statements Note 1 Summary of significant accounting policies (continued) Inventories - Inventories consist primarily of replacement parts and supplies and are stated at the lower of first-in, first-out (FIFO) cost or market. Property and equipment - Fixed assets are recorded at cost or estimated fair value at the date of purchase or gift. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from four to forty years. Expenditures for repairs and maintenance are charged to operating expense as incurred. Gains and losses on sales and retirements of fixed assets are included in operating revenues and expenses. During 1988, title to the land and building ( 1988 transfer ) utilized by WTVI at that point in time was transferred to Mecklenburg County (the County ) from the Charlotte-Mecklenburg County Board of Education. Such property is leased to WTVI for $1 annually until For financial reporting purposes, however, the rental expense of the facilities is recorded at its estimated fair value, offset by an equal amount of support from the County (see in-kind contributions). Subsequent to the 1988 transfer, the Station expanded and enhanced its facilities and these improvements are reflected on the statement of net assets of WTVI. As previously discussed in Note 1, the County funded WTVI s conversion to a digital signal at a total cost of approximately $10 million dollars. The related equipment is leased to WTVI for $1 annually until the County s related debt incurred to fund the conversion is paid in full. The debt associated with the conversion to digital was paid off in June For WTVI s financial statement reporting purposes, the equipment, which is collateral on the County s debt, has been recorded as assets under capital lease (see Note 5) and the County s debt payments from the date the equipment was placed in service are recorded as support from the County (see in-kind contributions). The conversion to digital caused approximately $3.9 million of WTVI s broadcasting and production equipment to become idle or obsolete. WTVI has disposed of the majority of the equipment in prior years. Costs incurred for programs not yet broadcast - Costs incurred for programs not yet broadcast are related to programs produced by WTVI that will be broadcast in subsequent periods. Grants and contributions related to such programs are included in deferred revenue. Revenue and costs are recognized in the statement of revenue, expenses and changes in net assets as the programs are broadcast. In-kind contributions - In-kind contributions are recorded as both revenue and expense in the accompanying statement of revenues, expenses and changes in net assets. In-kind contributions consist principally of donated facilities and debt payments related to the digital equipment from Mecklenburg County. The combined total of these donations are recorded at estimated fair value, which was $1,129,404 and $1,638,528 for 2011 and 2010, respectively. Income taxes - WTVI is exempt from federal and state income taxes on revenue earned from its taxexempt purpose under Section 501(c)(3) of the U.S. Internal Revenue Code. WTVI is liable for federal and state income tax on unrelated business income. Income taxes incurred or paid during 2011 and 2010 were $19,557 and $139,000, respectively.

16 14 Notes to Financial Statements Note 1 Summary of significant accounting policies (continued) Income taxes (continued) - WTVI follows the Financial Accounting Standards Board ( FASB ) guidance on accounting for uncertainty in income taxes. The guidance clarifies the accounting for uncertainty in income taxes recognized in an entity s financial statements by prescribing a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. WTVI s policy is to record a liability for any tax position taken that is beneficial to WTVI, including any related interest and penalties, when it is more likely than not the position taken by management with respect to a transaction or class of transactions will be overturned by a taxing authority upon examination. The amount recognized is subject to estimate and management judgment with respect to the likely outcome of each uncertain tax position. The amount that is ultimately sustained for an individual uncertain tax position or for all uncertain tax positions in the aggregate could differ from the amount recognized. A reconciliation of the beginning and ending amount of unrecognized tax obligation is as follows: Balance at July 1, 2010 $ 128,200 Additions based on tax positions related to current year - Additions for tax positions of prior years 2,800 Reductions for tax positions of prior years - Settlements - Lapse of statute of limitations - Balance at June 30, 2011 $ 131,000 WTVI recognizes interest and penalties related to unrecognized tax obligations in tax expense. During the year ended June 30, 2011, WTVI recognized $6,000 in interest and penalties. WTVI s federal Tax Returns for 2008, 2009, and 2010 are subject to examination by the IRS, generally for three years after they were filed. Advertising costs - Advertising costs are expensed as incurred. These costs totaled $17,836 in 2011 and $22,890 in Compensated absences - Employees earn vacation leave at the rate of ten to twenty-five days per year depending on length of service and can accrue a maximum of twenty unused days to be carried forward to the following year. Unused vacation days are payable upon termination at the rates of pay then in effect only up to the 20 day maximum. Employees accumulate sick leave at the rate of one day per month and can accrue an unlimited number of days. Sick leave can be taken for personal illness or illness of a member of the immediate family. Sick leave is lost upon termination or resignation. Because WTVI has no obligation for the accumulated sick leave, no accrual for sick leave is made. Estimates - The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of any contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Reclassifications - Certain reclassifications have been made to the prior year totals in order to comply with the current year financial statement presentation. These reclassifications had no effect on total net assets.

17 15 Notes to Financial Statements Note 2 Deposits and investments All of WTVI s deposits are insured or collateralized by using the Pooling Method. Under the Pooling Method, which is a collateral pool, all uninsured deposits are collateralized with securities held by the State Treasurer's agent in the name of the State Treasurer. Since the State Treasurer is acting in a fiduciary capacity for WTVI, these deposits are considered to be held by the agent in the entity s name. The amount of the pledged collateral is based on an approved averaging method for non-interest bearing deposits and the actual current balance for interest-bearing deposits. Depositories using the Pooling Method report to the State Treasurer the adequacy of their pooled collateral covering uninsured deposits. The State Treasurer does not confirm this information with WTVI or with the escrow agent. Because of the inability to measure the exact amount of collateral pledged for WTVI under the Pooling Method, the potential exists for under-collateralization, and this risk may increase in periods of high cash flows. However, the State Treasurer of North Carolina enforces strict standards of financial stability for each depository that collateralizes public deposits under the Pooling Method. WTVI has no policy regarding custodial credit risk for deposits. At, WTVI s deposits had a carrying amount of $627,060 and $905,924 and a bank balance of $669,277 and $976,700, respectively. At, WTVI s petty cash fund totaled $1,000. Certificates of deposits totaling $428,266 for 2011 and $641,768 for 2010 are included in the amounts above but are included in temporary investments instead of cash and cash equivalents as discussed in Note 1. Included in the above amounts are money market accounts totaling $208,415 in 2011 and $231,400 in The money market accounts are held at Wachovia Bank and Bank of Commerce, which are unrated. WTVI has no policy for managing interest rate risk or credit risk. At, WTVI also has interest in two partnerships totaling $34,602 and $38,513, respectively, which are separately shown as other investments on the statement of net assets. These investments are uncollateralized and unrated. Note 3 Capital assets Capital asset activity for the years ended was as follows: Beginning Additions and Disposals and Ending Balance Reclassifications Retirements Balance June 30, 2011 Non-depreciable assets Land $ 410,215 $ - $ - $ 410,215 Depreciable assets Buildings 4,705, ,705,935 Broadcasting equipment 17,811,494 49,446-17,860,940 Furniture, fixtures, and office equipment 414,407 1, ,090 Total historical cost $ 23,342,051 $ 51,129 $ - $ 23,393,180

18 16 Notes to Financial Statements Note 3 Capital assets (continued) Capital asset activity for the years ended was as follows: Beginning Additions and Disposals and Ending Balance Reclassifications Retirements Balance June 30, 2011 Total historical cost $ 23,342,051 $ 51,129 $ - $ 23,393,180 Less accumulated depreciation Buildings (2,307,879) (122,850) - (2,430,729) Broadcasting equipment (14,491,460) (337,851) - (14,829,311) Furniture, fixtures, and office equipment (346,546) (21,741) - (368,287) Total accumulated depreciation (17,145,885) (482,441) - (17,628,327) Capital assets, net $ 6,196,166 $ (431,313) $ - $ 5,764,853 June 30, 2010 Non-depreciable assets Land $ 410,215 $ - $ - $ 410,215 Depreciable assets Buildings 4,705, ,705,935 Broadcasting equipment 15,615,788 2,195,706-17,811,494 Furniture, fixtures, and office equipment 404,706 11,028 (1,327) 414,407 Total historical cost 21,136,644 2,206,734 (1,327) 23,342,051 Less accumulated depreciation Buildings (2,185,029) (122,850) - (2,307,879) Broadcasting equipment (14,235,787) (255,673) - (14,491,460) Furniture, fixtures, and office equipment (318,414) (28,444) 312 (346,546) Total accumulated depreciation (16,739,230) (406,967) 312 (17,145,885) Capital assets, net $ 4,397,414 $ 1,799,767 $ (1,015) $ 6,196,166 Included in broadcasting equipment are assets under capital lease (see Note 5).

19 17 Notes to Financial Statements Note 4 Long-term obligations Long-term liability activity for the years ended was as follows: Beginning Ending Due Within Balance Additions Retirements Balance One Year June 30, 2011 Compensated absences $ 73,694 $ 62,397 $ (73,694) $ 62,397 $ 62,397 Capital lease obligations 683,027 - (658,159) 24,868 8,193 $ 756,721 $ 62,397 $ (731,853) $ 87,265 $ 70,590 June 30, 2010 Compensated absences $ 59,052 $ 73,694 $ (59,052) $ 73,694 $ 73,694 Capital lease obligations 1,826,992 - (1,143,965) 683, ,159 $ 1,886,044 $ 73,694 $(1,203,017) $ 756,721 $ 731,853 WTVI has an open and revolving line of credit with a financial institution with a $500,000 maximum available. The line is secured by assets and any borrowings bear interest at current bank rates at the time of the draws. As of, there were no amounts were outstanding on the line. Note 5 Capital lease obligations As previously discussed, WTVI acquired digital equipment through a capital lease obligation with Mecklenburg County. The debt is broken into two $5 million notes, one payable in annual installments of $667,404 until June 2011 and the other payable in bi-annual installments ranging from $9,075 to $554,748 until December All interest on these obligations is imputed at a rate of 2.6%. Imputed interest expense totaled $16,858 in 2011 and $42,314 in 2010 although there were no actual interest payments made. The digital equipment fully depreciated during the prior year. The capitalized cost related to these assets is $10,000,000 at, which is included in broadcasting equipment. The equipment was fully depreciated during 2010 and the depreciation expense was $6,823 for the year ending June 30, The County is the obligor under the debt agreement and accordingly, such lease payments are expected to be made by the County. WTVI will recognize an annual amount representing the beneficial payment made on its behalf as revenue as the underlying debt payments are made. The debt was paid off during the year ended June 30, 2011 while the payoff of the debt held by the County was approximately $641,000 at June 30, The future minimum lease payments under these capital leases and the net present value of the future minimum lease payments are as follows: Principal Interest Total Year ended June $ 8,193 $ 1,558 $ 9, , , , ,126 Total lease payments 24,868 $ 2,760 $ 27,628 Less: current portion 8,193 Long-term portion $ 16,675

20 18 Notes to Financial Statements Note 6 Changes in program underwriting deferred revenue Following is a summary of activity related to programs not yet broadcast for the years ended June 30, 2011 and 2010: Deferred revenue, July 1 $ 102,960 $ 208,319 Program underwriting revenue deferred, current year 336, ,056 Program underwriting revenue recognized, current year (327,209) (311,415) Deferred revenue, June 30 $ 206,773 $ 102,960 Note 7 Grants During the years ended, WTVI received and recognized unrestricted community service grants in the amount of $861,145 and $830,737, respectively, from the Corporation for Public Broadcasting. The current year grant was designated by the Board to support activities for the year ended June 30, Note 8 Retirement plan WTVI contributes to the statewide Local Governmental Employees Retirement System ( LGERS ), a cost-sharing multiple-employer defined benefit pension plan administered by the State of North Carolina, covering substantially all of WTVI s permanent employees. LGERS provides retirement and disability benefits to plan members and beneficiaries. The benefits are based on minimum age and service requirements. Article 3 of G.S. Chapter 138 assigns the authority to establish and amend benefit provisions to the North Carolina General Assembly. The LGERS is included in the Comprehensive Annual Financial Report ( CAFR ) for the State of North Carolina. The State s CAFR includes financial statements and required supplementary information for LGERS. That report may be obtained by writing to the Office of the State Controller, 1410 Mail Service Center, Raleigh, NC , or by calling (919) WTVI s total payroll for the year ended June 30, 2011 was $1,067,759 of which $914,783 was covered under this plan. WTVI s total payroll for the year ended June 30, 2010 was $1,320,645 of which $1,229,565 was covered under this plan. Plan members (covered employees) are required to contribute 6% of their annual covered salary. Plan members contributions to LGERS for the years ended June 30, 2011 and 2010 totaled $54,887 and $78,990, respectively, which equaled the Plan members required contributions for the year. WTVI is required to contribute an actuarially determined rate. For WTVI, the current rate for employees is 10.62% of annual covered payroll (9.07% for 2010). WTVI s contributions to LGERS for the years ended June 30, 2011, 2010, and 2009 were approximately $97,000, $112,000, and $127,000, respectively, which equaled WTVI s required contributions in each year. The contribution requirements of plan members and of WTVI are established and may be amended by the North Carolina General Assembly.

21 19 Notes to Financial Statements Note 9 Lease revenue WTVI is the lessor of tower space and excess ITFS airtime under various operating leases expiring through Rental income totaled $368,788 and $384,798 in 2011 and 2010, respectively. Under the terms of the agreements future minimum rental income is as follows: Year ended June $ 322, , , ,703 $ 845,103 Note 10 Assets transferred to and held by others WTVI has irrevocably transferred title to certain resources, which had been donated with a requirement that they be maintained in perpetuity, to the Foundation For The Carolinas (the Foundation ) pursuant to an agreement by which WTVI receives the annual investment earnings. The annual distribution may be used to support operations or it may be added to the amount held by the Foundation at WTVI s discretion. In the event that WTVI ceases operations, the Foundation will select a substitute beneficiary. WTVI records the investment earnings upon receipt as unrestricted support. No other amounts are recorded by WTVI with respect to these assets. Note 11 Risk management WTVI is exposed to various risks of loss related to torts; theft of, damage to, and destruction of assets; errors and omissions; injuries to employees; and natural disasters. WTVI acquires risk management services through the County s Risk Management Division. WTVI purchases automobile liability of $2 million per accident, commercial general liability of $2 million per occurrence, and public officials liability of $2 million each wrongful act and crime coverage of $250,000 per occurrence. Worker s compensation insurance is provided for all employees at statutory limits and employers liability of $2 million aggregate. In addition, WTVI purchases broadcast liability insurance of $2 million per claim independent of coverage purchased through the County. There have been no significant reductions in insurance coverage from coverage levels in the prior year and no claims have been presented that exceeded insurance coverage in any of the past three fiscal years. Note 12 Subsequent events WTVI has evaluated subsequent events through October 31, 2011, in connection with the preparation of these financial statements which is the date the financial statements were available to be issued.

22 ACCOMPANYING INFORMATION

23 20 Supplemental Schedules of Functional Expenses For the Year Ended June 30, 2011 Total Supporting Services Total Totals Program Services Program Fund- Management Supporting June 30, Programming Production Broadcasting Promotion Services Raising and General Services 2011 Salaries $ 89,441 $ 229,372 $ 209,124 $ 2,312 $ 530,249 $ 224,699 $ 312,811 $ 537,510 $ 1,067,759 Payroll taxes and employee benefits 24,853 63,762 71, ,501 54,879 61, , ,356 Professional services 54, ,475 9,342 29, ,809 88, , , ,630 Program acquisitions 412, , ,017 Supplies 578 6,155 1, , , , ,642 Postage and shipping 1,861 3,143 1, ,890 27, ,663 35,553 Telephone 2,570 8,727 7,819 1,229 20,345 14,124 8,697 22,821 43,166 Utilities 4,872 50,061 30,162 1,901 86,996 7,405 13,168 20, ,569 General insurance 1,777 9,735 28,614 2,523 42,649 3,084 10,487 13,571 56,220 Advertising , ,079 3, ,102 19,181 General printing and graphics (1,156) (1,009) 17, ,369 16,360 Equipment rental and maintenance 8,003 17,678 74, ,176 27,809 4,378 32, ,363 Travel, conferences, and meetings 1,642 2, ,140 6,624 4,849 11,473 15,613 Dues and fees 85,969 1, , ,559 31, ,399 Trade-outs 7,653 31, ,938 62,823 42, , ,809 Miscellaneous 2,739 51, ,204 16,128 16,584 32,712 87,916 Interest expense 2,137 2,137 8,310 2,137 14,721 2,137 2,137 4,274 18,995 Other depreciation 19, , , , ,441 Subtotal 718,819 1,050, ,652 41,319 2,583, , ,716 1,347,075 3,930,989 Donated supplies and facilities 24, ,644 70,871 8, ,103 32,710 65,187 97, ,000 Total functional expenses $ 743,444 $ 1,309,768 $ 844,523 $ 50,282 $ 2,948,017 $ 695,069 $ 749,903 $ 1,444,972 $ 4,392,989

24 21 Supplemental Schedules of Functional Expenses For the Year Ended June 30, 2010 Total Supporting Services Total Totals Program Services Program Fund- Management Supporting June 30, Programming Production Broadcasting Promotion Services Raising and General Services 2010 Salaries $ 148,208 $ 388,126 $ 223,344 $ 2,789 $ 762,467 $ 237,652 $ 330,472 $ 568,124 $ 1,330,591 Payroll taxes and employee benefits 39, ,246 66, ,852 41,067 64, , ,453 Professional services 71, ,789 6,883 25, , , , , ,027 Program acquisitions 402, , ,934 Supplies 36,110 7, ,091 45, ,013 3, , ,636 Postage and shipping 4,846 2,907 1,196-8,949 25,433 1,272 26,705 35,654 Telephone 2,456 9,269 6, ,343 10,296 4,992 15,288 34,631 Utilities 5,166 52,651 38,872 1,921 98,610 7,063 13,630 20, ,303 General insurance 2,690 12,280 36,125 1,961 53,056 4,149 14,928 19,077 72,133 Advertising 2,415 1,419-17,248 21,082 2, ,195 24,277 General printing and graphics 2, ,030 4,510 2, ,071 7,581 Inside WTVI Equipment rental and maintenance 10,161 16,528 98, ,685 24,675 8,482 33, ,842 Travel, conferences, and meetings 2,291 5, ,091 11,775 5,377 17,152 25,243 Dues and fees 99,562 2, ,793 2,468 16,023 18, ,284 Trade-outs - 5,334-60,998 66,332 15,637 56,889 72, ,858 Miscellaneous 12,803 8, ,735 27,563 11,317 38,880 60,615 Interest expense ,314-42, ,314 Depreciation on assets held under capital leases - - 2,295-2, ,295 Other depreciation 26, , , , ,672 Subtotal 869,244 1,057, , ,058 2,811, , ,803 1,492,198 4,303,343 Donated supplies and facilities 24, ,644 70,871 8, ,103 32,710 65,187 97, ,000 Total functional expenses $ 893,869 $ 1,317,257 $ 839,101 $ 125,021 $ 3,175,248 $ 780,105 $ 809,990 $ 1,590,095 $ 4,765,343