Coral Ridge Ministries Media, Inc. dba Truth in Action Ministries. Financial Statements

Coral Ridge Ministries Media, Inc. dba Truth in Action Ministries Financial Statements For The Years Ended 2012 And 2011

INDEPENDENT AUDITORS REPORT The Board of Directors Coral Ridge Ministries Media, Inc. d/b/a Truth in Action Ministries Fort Lauderdale, Florida We have audited the accompanying statements of financial position of Coral Ridge Ministries Media, Inc. d/b/a Truth in Action Ministries ( the Ministry ) as of 2012 and 2011, and the related statements of activities and cash flows for the years then ended. These financial statements are the responsibility of the Ministry 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 audits 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 Coral Ridge Ministries Media, Inc. d/b/a Truth in Action Ministries as of 2012 and 2011, the changes in its net assets and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. B ATTS M ORRISON W ALES & L EE, P.A. Orlando, Florida March 28, 2013

STATEMENTS OF FINANCIAL POSITION ASSETS ASSETS Cash and cash equivalents $ 730,337 $ 615,665 Inventories 218,059 370,628 Restricted investments 2,078,933 2,224,826 Prepaid rent 355,908 384,431 Property and equipment, net 322,278 669,320 Intellectual property rights 1,895,472 1,895,472 Other assets 64,437 105,029 Total assets $ 5,665,424 $ 6,265,371 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable and accrued expenses $ 1,534,043 $ 2,597,070 Liabilities for annuities and trusts 1,663,776 1,666,693 Obligation under intellectual property rights agreement 762,316 924,185 Notes payable 705,431 909,156 Total liabilities 4,665,566 6,097,104 NET ASSETS Unrestricted 584,700 (389,864) Temporarily restricted 415,158 558,131 Total net assets 999,858 168,267 Total liabilities and net assets $ 5,665,424 $ 6,265,371 The Accompanying Notes are an Integral Part of These Financial Statements 1

STATEMENTS OF ACTIVITIES For The Years Ended CHANGE IN UNRESTRICTED NET ASSETS Public support and revenue: Contributions $ 9,487,613 $ 12,443,247 Other revenue 161,163 348,624 Gain on annuities and trusts 29,228 51,976 Total public support and revenue 9,678,004 12,843,847 Net assets released from restrictions: Release of assets from segregated gift annuity fund 290,000 Total public support and revenue and net assets released from restrictions 9,678,004 13,133,847 Expenses: Program activities: Cultural mandate activities 2,325,705 3,550,552 Television and radio production 1,816,437 3,115,541 Media broadcasting 1,456,513 2,489,117 Viewer/listener services 617,082 1,432,431 Constituency fulfillment 267,328 365,650 Total program activities 6,483,065 10,953,291 Supporting activities: General and administrative 1,196,115 2,228,771 Fund raising 1,024,260 2,192,780 Total supporting activities 2,220,375 4,421,551 Total expenses 8,703,440 15,374,842 Change in unrestricted net assets 974,564 (2,240,995) CHANGE IN TEMPORARILY RESTRICTED NET ASSETS Contributions 4,914 Release of assets from segregated gift annuity fund (290,000) Investment gains (losses), net (142,973) 195,648 Change in temporarily restricted net assets (142,973) (89,438) CHANGE IN NET ASSETS 831,591 (2,330,433) NET ASSETS - Beginning of year 168,267 2,498,700 NET ASSETS - End of year $ 999,858 $ 168,267 The Accompanying Notes are an Integral Part of These Financial Statements 2

STATEMENTS OF CASH FLOWS For The Years Ended OPERATING CASH FLOWS Cash received from contributors $ 9,406,543 $ 12,205,530 Cash paid for operating activities and costs (9,330,141) (13,515,198) Other income received 193,311 493,331 Interest paid (31,197) (30,400) Net operating cash flows 238,516 (846,737) INVESTING CASH FLOWS Proceeds from sales of marketable securities 81,070 144,854 Proceeds from sale of property 97,777 Purchases of and improvements to property and equipment (1,189) (151,036) Withdrawal of assets from segregated gift annuity fund 290,000 Net investing cash flows 79,881 381,595 FINANCING CASH FLOWS Proceeds from notes payable 401,164 79,028 Repayments of notes payable (604,889) (208,055) Net financing cash flows (203,725) (129,027) NET CHANGE IN CASH AND CASH EQUIVALENTS 114,672 (594,169) CASH AND CASH EQUIVALENTS - Beginning of year 615,665 1,209,834 CASH AND CASH EQUIVALENTS - End of year $ 730,337 $ 615,665 RECONCILIATION OF CHANGE IN NET ASSETS TO NET OPERATING CASH FLOWS Change in net assets $ 831,591 $ (2,330,433) Adjustments to reconcile change in net assets to net operating cash flows: Depreciation 348,231 578,144 Noncash lease termination expense 538,223 Noncash rent expense 28,523 28,523 Noncash contributions (81,070) (242,631) Change in bequest receivable 349,588 Change in inventories 152,569 301,560 Change in restricted investments 145,893 (102,917) Change in other assets 40,592 228,398 Change in accounts payable and accrued expenses (1,063,027) 49,908 Change in liabilities for annuities and trusts (2,917) (97,647) Change in obligation under intellectual property rights agreement (161,869) (147,453) Net operating cash flows $ 238,516 $ (846,737) SUPPLEMENTAL DISCLOSURES: During the year ended 2011, the Ministry incurred $538,223 of notes payable as the result of a lease termination financed by the landlord of the property. The Accompanying Notes are an Integral Part of These Financial Statements 3

NOTE A NATURE OF ACTIVITIES Coral Ridge Ministries Media, Inc. d/b/a Truth in Action Ministries ( the Ministry ) is a not-for-profit Florida corporation, with headquarters in Fort Lauderdale, Florida. The Ministry s purposes relate to disseminating the Christian gospel message. In so doing, the Ministry produces radio and television programs for broadcast in the United States and other countries. The Ministry is supported primarily by contributions from donors throughout the United States. The Ministry s primary program activities are as follows: Cultural mandate activities programs for cultural reform according to Biblical principles; Television and radio production production of audio and video programs; Media broadcasting television and radio broadcasts; Viewer/listener services activities related to communications with supporters; and Constituency fulfillment published materials provided to Ministry constituents. NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Restricted and unrestricted revenue and support Contributions received are recorded as unrestricted or temporarily restricted support, depending on the existence and/or nature of any donor restrictions. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. Contributed noncash assets are recorded at estimated fair value on the date of the gift. Split-interest gifts For irrevocable split-interest arrangements such as charitable gift annuities, charitable remainder trusts and charitable lead trusts in which the Ministry is trustee or custodian, the assets of such arrangements are reflected in the Ministry s statements of financial position as restricted investments. The carrying values of such investments conform to accounting principles generally accepted in the United States of America which generally require that investment securities be carried at estimated fair value at all times and that other assets be carried at the estimated fair value of the assets on the date the assets are contributed, unadjusted for subsequent changes in estimated fair value. Also, for such arrangements in which the Ministry is trustee or custodian, a liability is recognized related to the present value of benefits payable to other beneficiaries. For split-interest arrangements in which the Ministry is not the trustee or custodian, the Ministry recognizes an asset for the estimated present value of the Ministry s benefits under the arrangements. For all irrevocable split-interest arrangements, regardless of whether or not the Ministry acts as trustee or custodian, temporarily restricted contribution revenue is recognized for the estimated present value of the Ministry s benefits under the arrangements in the year the arrangements are established or in the year in which the Ministry is provided sufficient information about the existence and nature of the arrangements. Periodic adjustments are made for changes in estimated present values, using applicable mortality tables and discount rates of approximately 1%. Florida law imposes certain restrictions on the manner in which charitable gift annuity assets may be invested. Cash and cash equivalents The Ministry considers investment instruments purchased or donated with original maturities of three months or less to be cash equivalents. Inventories Inventories consist of audio, video and printed materials and are stated at cost, as determined using the firstin, first-out cost flow assumption. 4

NOTE B SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued) Restricted investments Restricted investments include cash account balances, government securities, marketable equity securities and debt securities which are carried at estimated fair value. These investments are restricted pursuant to the annuity and trust agreements to which they relate. Prepaid rent Prepaid rent is amortized using the straight-line method over the term of the related lease. Depreciation Property and equipment are stated at cost, if purchased, or estimated fair value on the date of donation, if donated. Depreciation is provided using the straight-line method over the estimated useful lives of the related assets. Intellectual property rights Certain intellectual property rights and the related obligation in the accompanying financial statements arose out of the agreement described in Note H. The intellectual property rights have an indefinite useful life, and accordingly, no amortization expense is recognized in the accompanying financial statements. Income taxes The Ministry is exempt from federal income tax as an organization described in Section 501(c)(3) of the Internal Revenue Code and from state income tax pursuant to Florida law. The Ministry is further classified as a public charity and not a private foundation for federal tax purposes. The Ministry engages in a certain unrelated business activity, the net income from which is subject to federal and state income taxes. Income taxes related to this activity are immaterial. The Ministry has not taken any material uncertain tax positions for which the associated tax benefits may not be recognized under accounting principles generally accepted in the United States. Federal and state tax authorities may generally examine the Ministry s income tax positions or (if applicable) returns for periods of approximately three to six years. Use of estimates Management uses estimates and assumptions in preparing the financial statements. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and reported revenues and expenses. Significant estimates used in preparing these financial statements include those related to the estimated fair value of investments, the useful lives of property and equipment, the liabilities for annuities and trusts, and the asset and liability related to intellectual property rights. Actual results could differ from the estimates. Reclassifications Certain amounts included in the financial statements for the year ended 2011 have been reclassified to conform to classifications adopted during the year ended 2012. The reclassifications had no material effect on the accompanying financial statements. Subsequent events The Ministry has evaluated for possible financial reporting and disclosure subsequent events through March 28, 2013, the date as of which the financial statements were available to be issued. NOTE C CONCENTRATIONS The Ministry maintains its cash and cash equivalents in deposit accounts and money market funds which may not be federally insured, may exceed federally insured limits, or may be insured by an entity other than an agency of the federal government. The Ministry has not experienced any losses in such accounts, and believes it is not exposed to any significant credit risk related to cash and cash equivalents. All of the Ministry s investments are held by a single custodian. 5

NOTE D RESTRICTED INVESTMENTS Restricted investments consisted of the following: Equity securities $ 1,006,844 $ 1,121,665 Government and agency securities 576,405 602,226 Corporate bonds 409,912 434,473 Cash held in investment accounts 85,772 66,462 Total restricted investments $ 2,078,933 $ 2,224,826 Restricted investments were held for the following purposes: Investments held to satisfy charitable gift annuity obligations $ 1,882,875 $ 1,992,495 Investments held as trustee for charitable remainder trusts 184,345 220,199 Investments held for revocable trusts 11,713 12,132 Total restricted investments $ 2,078,933 $ 2,224,826 NOTE E FAIR VALUE MEASUREMENTS Accounting principles generally accepted in the United States ( GAAP ) define fair value as the price the Ministry would receive upon selling an investment in an orderly transaction to an independent buyer in the principal or most advantageous market of the investment. GAAP also established a hierarchy to maximize the use of observable market data and minimize the use of unobservable inputs, and to establish classification of fair value measurements for disclosure purposes. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Following is a description of each of the three levels of input within the fair value hierarchy: Level 1 quoted prices in active markets for identical investments or liabilities Level 2 other significant observable inputs (such as quoted prices for similar investments) Level 3 significant unobservable inputs 6

NOTE E FAIR VALUE MEASUREMENTS (Continued) A financial instrument s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. The estimated fair value of certain assets and (liabilities) measured on a recurring basis at 2012 are as follows: Estimated Fair Value Measurements at Reporting Date Using Quoted Prices Other In Active Significant Significant Markets for Observable Unobservable Estimated Identical Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Equity securities $ 1,006,844 $ 1,006,844 $ $ Government and agency securities 576,405 576,405 Corporate bonds 409,912 409,912 Total assets $ 1,993,161 $ 1,006,844 $ 986,317 $ Liabilities for annuities and trusts $ (1,663,776) $ $ (1,663,776) $ The estimated fair value of certain assets and (liabilities) measured on a recurring basis at 2011 are as follows: Estimated Fair Value Measurements at Reporting Date Using Quoted Prices Other In Active Significant Significant Markets for Observable Unobservable Estimated Identical Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) Equity securities $ 1,121,665 $ 1,121,665 $ $ Government and agency securities 602,226 602,226 Corporate bonds 434,473 434,473 Total assets $ 2,158,364 $ 1,121,665 $ 1,036,699 $ Liabilities for annuities and trusts $ (1,666,693) $ $ (1,666,693) $ The estimated value of investments in equity securities (valued using Level 1 inputs) is based on unadjusted quoted market prices within active markets. The estimated value of investments in government and agency securities and corporate bonds (valued using Level 2 inputs) are based on information from independent industry pricing providers, and take into consideration factors such as coupon rate, maturity and quality rating of the related security. Liabilities for annuities and trusts (valued using Level 2 inputs) are based on estimated present value, applying certain assumptions regarding interest rates and life expectancies. NOTE F PREPAID RENT The Ministry leases studio facilities under a noncancellable lease agreement with Coral Ridge Presbyterian Church ( the Church ). Prepaid rent relating to this lease amounted to $355,908 and $384,431 as of 2012 and 2011, respectively. This prepaid rent arose from the transfer of building improvements made on the Church s property by the Ministry in exchange for a thirty-year lease (expiring on September 30, 2024) of such property for no additional consideration. Rent charged to expense under this lease was $28,523 during each of the years ended 2012 and 2011. 7

NOTE G PROPERTY AND EQUIPMENT Property and equipment consisted of the following: Category Equipment $ 10,594,338 $ 10,592,159 Office furniture and fixtures 809,257 809,257 Leasehold improvements 727,238 727,238 Total property and equipment 12,130,833 12,128,654 Less: Accumulated depreciation (11,808,555) (11,459,334) Net property and equipment $ 322,278 $ 669,320 Depreciation expense amounted to $348,231 and $578,144 for the years ended 2012 and 2011, respectively. NOTE H INTELLECTUAL PROPERTY RIGHTS Dr. D. James Kennedy, the Ministry s former president, passed away on September 5, 2007. Effective September 6, 2007, the Ministry entered into a purchase agreement with the estate of the former president which provides the Ministry with exclusive rights to certain intellectual property created by the former president. In addition, the agreement provides the Ministry with certain rights related to use of the former president s name and likeness. In connection with the agreement, the Ministry is required to make monthly payments to the estate of the former president which will total $2,000,000 upon completion. During the year ended 2011, the estate agreed to reduce the required monthly payments from $25,000 to $10,000 (resulting in a deferral of payments due under the agreement). Accordingly, during the years ended 2012 and 2011, the Ministry paid $120,000 and $165,000, respectively, to the estate of the former president in connection with this agreement. The Ministry has recognized an asset of $1,895,472 and an initial liability of $1,511,902 as of the date of the agreement. The remaining estimated present value of the liability as of 2012 and 2011 was $762,316 and $924,185, respectively. The estimated present value is based on certain assumptions regarding interest rates. The asset and liability are reported as intellectual property rights and obligation under intellectual property rights agreement in the accompanying statements of financial position, respectively. Management has evaluated the carrying value of intellectual property rights as of 2012, in the amount of $1,895,472 for impairment and has concluded that the carrying value is not impaired. Management s determination is based in large part on the Ministry s ability to generate revenue of various types in connection with the use of the name, likeness, and certain works of the late Dr. D. James Kennedy. The revenues considered in arriving at this conclusion include contributions made to the Ministry in connection with appeals or other content that includes the intellectual property, as well as direct sales of certain of the works. It is possible that the actual fair value of the intellectual property (as would be determined in a sale to an unrelated party) could be significantly different from (and possibly significantly less than) the carrying value of the intellectual property as reflected in the accompanying statements of financial position. 8

NOTE I NOTES PAYABLE Notes payable consisted of the following: Note payable to a bank, collateralized by substantially all assets of the Ministry; payable in monthly principal payments of $6,687 plus interest at the bank s prime rate plus 1.50% per annum (but no less than 5% per annum); matures April 2017 $ 387,790 $ Unsecured interest-free note payable to a corporation; payable in monthly principal payments of $10,000; matures November 2016 302,438 438,223 Note payable to a bank; collateralized by substantially all of the assets of the Ministry; payable in monthly principal payments of $5,833 plus interest at the bank s prime rate plus 1.50% per annum (but no less than 5% per annum); refinanced during the year ended 2012 326,667 Revolving line of credit with a bank; collateralized by substantially all of the assets of the Ministry; interest payable monthly at the bank s prime rate plus 1.50% per annum (but no less than 5% per annum); refinanced during the year ended June 30, 2012 93,736 Other 15,203 50,530 Total notes payable $ 705,431 $ 909,156 Interest expense amounted to approximately $31,000 and $30,000 during the years ended 2012 and 2011, respectively. The unsecured interest-free note payable described above relates to a lease termination which occurred during the year ended 2011, and which was financed by the landlord of the property. The total amount financed was $538,223, and the Ministry paid $100,000 toward the debt during the year ended 2011. General and administrative expense includes approximately $360,000 related to this transaction. The remaining expense (approximately $180,000) was allocated to various other expense lineitems in the accompanying statement of activities. Approximate future maturities of the notes payable are as follows: Year Ending 2013 $ 215,000 2014 200,000 2015 143,000 2016 80,000 2017 67,000 Total $ 705,000 9

NOTE J TEMPORARILY RESTRICTED NET ASSETS Net assets were temporarily restricted for the following purposes: Estimated future benefit of annuities and trusts $ 261,245 $ 408,038 Statutorily required annuity reserves 153,913 150,093 Total temporarily restricted net assets $ 415,158 $ 558,131 NOTE K RETIREMENT PLAN Certain full-time employees are covered by a Tax-Sheltered Annuity Plan sponsored by the Presbyterian Church in America ( the Plan ). For those full-time employees who are eligible and elect to participate, the Ministry matches up to 5% of gross salaries. Employees are fully vested after two years. The Ministry contributed approximately $36,000 and $54,000 to the Plan during the years ended 2012 and 2011, respectively. NOTE L FUND RAISING EXPENSES During the years ended 2012 and 2011, the Ministry incurred joint costs in the approximate amounts of $3,011,000 and $4,980,000, respectively, for informational materials and activities that included fund raising appeals in connection with the Ministry s exempt purposes. Of those costs, approximately $1,017,000 and $2,186,000 were allocated to fund raising expense and $1,994,000 and $2,794,000 were allocated to cultural mandate activities expense for the years ended 2012 and 2011, respectively. 10