1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Description of Business - Minnesota Public Radio (the Organization or MPR) is a not-for-profit corporation organized under the laws of the State of Minnesota. The mission of Minnesota Public Radio is to enrich the mind and nourish the spirit through radio, related technology, and services.

MPR is the parent organization of The Fitzgerald Theater Company (FTC), a not-for-profit corporation whose purpose is to renovate and operate the Fitzgerald Theater in Saint Paul, Minnesota. MPR has the ability to elect the Trustees of the FTC Board.

MPR has two wholly-owned, for-profit subsidiaries, 1400 Inc. and 1470 Inc., which own and operate commercial radio stations KLBB and KLBP, respectively. On May 17, 1999, MPR received as a donation all of the issued and outstanding shares of stock of 1400 Inc. and 1470 Inc. The stock was valued at $4,464,000 by a qualified independent appraiser. The fair market value of the stock was allocated to the assets received and liabilities assumed based upon their estimated fair market values at the time of the donation. The allocation was as follows: accounts receivable $84,000, property and equipment $282,000, other assets $200,000, broadcast license $4,845,000, the assumption of accounts payable $47,000, and the assumption of a $900,000 note payable (see note 5).

Minnesota Communications Group (MCG) is the not-for-profit parent support organization of MPR. MCG's primary purpose is to provide financial and management support services to MPR and FTC. MCG has the ability to elect or approve the election of a majority of the MPR Board of Trustees. MCG also owns all of the stock of Greenspring Company (Greenspring) (formerly Greenspring II Company), a for-profit holding company. Greenspring has two wholly-owned, for-profit subsidiaries which engage principally in commercial radio and news network (The MNN Radio Networks or MNN) and publishing (Minnesota Monthly Publications or MMP) activities.

On April 15, 1998, MCG sold all of its stock in a subsidiary, former Greenspring (Greenspring I), including all of the stock of Rivertown Trading Company (RTC), Greenspring I's wholly-owned for-profit subsidiary, to the Dayton Hudson Corporation. Immediately preceding the sale, Greenspring II was formed and all of the assets and liabilities of Greenspring I, save for the stock of RTC, were transferred to Greenspring II. RTC was engaged principally in the direct marketing of products to consumers through mail order catalogs. On August 20, 1999, Greenspring II Company changed its name to Greenspring Company.

The Organization and subsidiaries each maintain the following unrestricted funds:

• Operating Fund - To account for general purpose contributions, grants and other revenues and to account for expenses associated with the operations of the Organization and subsidiaries, respectively.
• Property Fund - To acquire and account for all land, buildings, building improvements, and equipment owned by the Organization and subsidiaries.
• Designated Fund - To account for funds intended to assure the long-term financial health of the Organization and subsidiaries. The MPR Designated Fund also receives grants and bequests related to MPR's Planned Giving efforts, disburses funds related to such grants and bequests, receives grants from sources designated from time-to-time by the MPR Board of Trustees, and until April 15, 1998, made payments to WGBH Educational Foundation under a licensing agreement related to the Signals catalog. Funds donated to MPR and designated for transfer to The MPR Endowment Funds of the Minnesota Foundation are recorded in the Designated Fund until the actual transfer has been made. Cash balances in the Designated Fund - Unrestricted are available to the Operating Fund to provide for cash flow needs.

Basis of Financial Statement Presentation - These consolidated financial statements include the accounts of the Organization, FTC, 1400 Inc., and 1470 Inc. All significant intercompany accounts and transactions have been eliminated upon consolidation.

The Organization and its subsidiaries are charged and reimbursed for certain estimated costs incurred by and benefits accrued by MCG. In addition, the Organization receives royalties from MNN on sales of certain advertising, and until April 15, 1998, received royalties from RTC based on sales through certain catalogs. The above charges, reimbursements, and receipts may not necessarily be indicative of the actual costs that would have been incurred nor of the actual benefits that would have been accrued had the Organization and its subsidiaries operated independently.

Net assets, revenues, and gains and losses are classified based on donor-imposed restrictions. Accordingly, net assets of the Organization and changes therein are classified and reported as follows:

Unrestricted - Unrestricted funds are those funds over which the Board of Trustees has discretionary control. Designated amounts represent those revenues which the Board has set aside for a particular purpose. All property, equipment, and related debt are considered unrestricted.

Temporarily Restricted - Temporarily restricted funds are those funds subject to donor-imposed restrictions which will be satisfied by actions of the Organization or passage of time. The Organization has elected to present temporarily restricted contributions, whose restrictions were fulfilled in the same time period, within the unrestricted net assets class.

Temporarily restricted net assets at June 30 were restricted for:

Permanently Restricted - Permanently restricted funds are those funds subject to donor-imposed restrictions. The restriction requires that the funds be maintained by the Organization in perpetuity. In the absence of donor specifications that income and gains on donated funds be restricted, such income and gains are reported as income of unrestricted net assets.

Donor-Restricted Gifts - Unconditional promises to give cash and other assets are reported at fair value at the date the promise is received. The gifts are reported as temporarily or permanently restricted support if they are received with donor stipulations that limit the use of the donated assets. When the donor restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified as unrestricted net assets and reported in the consolidated statement of activities as net assets released from restriction.

Pledges-Capital Campaign - Outstanding pledge contributions from various corporations, foundations, and individuals were as follows at June 30:

Cash and Cash Equivalents - Cash and cash equivalents represent cash on hand and cash invested in short-term certificates of deposit, with original maturities of three months or less, held by MCG on behalf of MPR. The funds held by MCG represent actual funds on hand at MCG and are available to MPR at any time.

Depreciation and Amortization - The cost of equipment is depreciated over the estimated useful lives (five to twenty years) of the related assets using the straight line method. The original cost and capital improvements of the building are depreciated, using the straight line method, over an estimated useful life of 31.5 to 40 years. Leasehold improvements are amortized over the shorter of the term of the related lease or the estimated useful life of the asset. Costs incurred in connection with the issuance of the Commercial Development Revenue Notes are amortized over the terms of the notes using a method which approximates the effective interest method. Costs incurred to acquire broadcast licenses and the estimated fair market value of donated licenses are amortized over a period of 40 years using the straight line method. Management periodically reviews the carrying value of long-term assets based upon undiscounted future cash flows expected to result from the use of those assets. Should the sum of the expected future cash flows be less than the carrying value, an impairment loss would be recognized. To date, management has determined no impairment exists.

Income Tax Status - Both MPR and FTC are organized as not-for-profit organizations under Chapter 317 of Minnesota Statutes. The Internal Revenue Service has determined that MPR is a tax-exempt organization under Section 501(c)(3) of the Internal Revenue Code (the Code) and is not a private foundation as it qualifies under Section 509(a)(1) as an organization defined under Section 170(b)(1)(A)(vi) of the Code. The Internal Revenue Service has also determined that FTC is a tax-exempt organization under Section 501(c)(3) of the Code and is not a private foundation as it qualifies under Section 509(a)(2) of the Code. The Minnesota Department of Revenue has determined that MPR and FTC are both tax-exempt from Minnesota income taxes under Section 290.05 Subdivision 9 of Minnesota Statutes. Both 1400 Inc. and 1470 Inc. are taxable entities with minimal activity during the current year.

MPR and FTC are engaged in certain activities which result in unrelated business income. For the years ended June 30, 1999 and 1998, MPR incurred tax expenses of $6,000 and $9,000, respectively.

Summarized Financial Information for the Year Ended June 30, 1998 - The financial information for the year ended June 30, 1998, presented for comparative purposes, is not intended to be a complete financial statement presentation.

Use of Estimates - Management uses estimates and assumptions in preparing financial statements in accordance with generally accepted accounting principles. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenue and expenses. Actual results could vary from the estimates that were used.

Reclassifications - Certain amounts reported in fiscal 1998 have been reclassified to conform with the fiscal 1999 presentation. These changes have no impact on previously reported net assets or on the change therein.

2. INVESTMENTS

The Commercial Development Revenue Note of 1991 was issued to finance MPR's acquisition of the 99.5 FM broadcast license and certain additional assets. The note bears interest at rates of 6.2% to 6.9% and provides a repayment schedule which, including interest, is essentially level over the ten-year repayment period. Interest on the note is payable semiannually on June 1 and December 1, and annual principal payments are due June 1. The note is secured by a letter of credit from a bank and a mortgage and security interest in various properties and assets of MPR, including the MPR building and the assets purchased in connection with the acquisition of the 99.5 FM broadcast license. The note agreement contains certain financial covenants that require MPR to maintain certain financial standards. The most significant of these requires MPR to maintain certain financial ratios and fund balances within MPR's Operating Fund and MPR's Designated Fund. In addition, the note agreement requires that The MPR Endowment Funds at the Minnesota Foundation maintain a certain minimum fund balance.

The City of St. Paul note was used to assist in funding the Fitzgerald Theater renovation project and is secured by a mortgage on the Fitzgerald Theater building. Repayment of the borrowings, with interest at 3%, is contingent upon the sale or conveyance of the Fitzgerald Theater. Interest is forgiven each year that the Theater continues to operate at a deficit.

The proceeds of the District Heating note payable to the Port Authority of the City of St. Paul were used to assist in funding the costs of new heating systems in the Fitzgerald Theater and MPR buildings. Repayment of the borrowing is made monthly, with interest at 6%. The note requires that certain reserve funds be maintained.

The proceeds of the St. Paul Foundation note were used to fund the additional operating costs of the heating systems until operating savings are realized or until the maximum disbursement amount of $218,000 was realized. At the point operating savings begin to be realized, interest at 6% will begin to accrue and repayments in the amount of 75% of operating savings will be due annually, credited first to interest and then to principal. Interest has not been accrued to date as savings have not been realized.

The proceeds of the St. Paul Progress Corporation note were used to make improvements to the Fitzgerald Theater. The note bears interest at 75% of the bank reference rate at the beginning of each calendar quarter and provides a repayment schedule of principal and interest over a period of seven years. The note is due immediately if, when and to the extent that FTC receives funds from the St. Paul Capital Cultural Improvement Fund for this project.

8. COMMITMENTS AND CONTINGENCIES
During the ten-year period to June 30, 1999, MPR was awarded grants of approximately $1,583,000 from the United States Department of Commerce, National Telecommunications and Information Administration, under the Public Telecommunications Facilities Program. The terms of such grants provide for a ten-year period of federal interest, during which equipment purchased with grant funds may be repossessed under certain conditions which generally relate to a change in ownership from not-for-profit to commercial or to changes in the utilization of assets acquired with grant funds. MPR is involved in various legal proceedings incidental to its business. Although it is difficult to predict the ultimate outcome of these cases, management believes that the resolution of such proceedings will not have a material adverse effect on the consolidated operations or the consolidated financial position of MPR.

9. RETIREMENT PLAN
MPR and FTC have a 403(b) tax deferred annuity plan which provides that qualified employees may contribute to the plan through payroll deductions, which are matched 100% by the respective employer up to 7.5% of their base compensation. Participation is voluntary after two years and is required after five years of employment or age 35, whichever is later. The employers' contributions totaled $511,000 and $467,000 for the years ended June 30, 1999 and 1998, respectively. 1400 Inc. and 1470 Inc. had no employees during this period.

10. AFFILIATED ORGANIZATIONS
The Organization is charged by MCG for its estimated share of various accounting services, financing charges, personnel costs, and insurance costs incurred on its behalf. For the years ended June 30, 1999 and 1998, these charges totaled $1,560,000 and $1,411,000, respectively, and are included in administrative expenses.

During the years ended June 30, 1999 and 1998, MPR charged MNN $120,000 and $65,000, respectively, for providing various operational services. These are reflected in other earned revenue for MPR.

MMP publishes a monthly magazine containing a programming guide, which is purchased by MPR and provided to individual members of MPR. MPR pays a specified amount to MMP for each month an MPR member receives a magazine. Included in operating expenses are $373,000 and $348,000 charged under this arrangement for the years ended June 30, 1999 and 1998, respectively.

On May 17, 1999, 1400 Inc. and 1470 Inc. entered into an agreement with MNN in which MNN provides certain programming for broadcast on the stations KLBB and KLBP and sells advertising on those stations in exchange for royalties based upon a minimum level of sales. For the year ended June 30, 1999, no royalties were received.

Under agreements with MNN, MPR receives royalties from MNN based on sales of certain advertising and MPR receives a payment from MMP based upon net proceeds for a trade show which MMP operates on MPR's behalf.

The Organization purchased various program-related products from RTC. Total purchases for the year ended June 30, 1998 were $47,000. These expenses are included in operating expenses. Until April 15, 1998, RTC was a related organization (see Note 1).

MPR received royalties from RTC based on sales through certain catalogs; until April 15, 1998, such royalties were limited by after tax performance of certain catalogs. Pursuant to the sale of Greenspring I on April 15, 1998, such royalties from RTC were renegotiated such that revised royalty payments continue to be based on product sales through certain catalogs but are now constrained by a minimum and maximum annual payment, and are no longer limited by after tax performance.

Included in earned revenue are $274,000 and $4,788,000 for the years ended June 30, 1999 and 1998, respectively, relating to royalties earned by MPR from affiliates. MPR, by agreement, accrued $1,816,000 in royalty expense to WGBH Educational Foundation related to the Signals catalog for the year ended June 30, 1998, resulting in net royalty revenue from affiliates of $274,000 and $2,972,000 for the years ended June 30, 1999 and 1998, respectively. The agreement with WGBH Educational Foundation was assumed directly by RTC pursuant to the sale of Greenspring I.

In connection with the sale of Greenspring I, MPR agreed to renegotiate the royalties paid by RTC to MPR in return for the assurance of early payment of the deferred royalty (see below), for the commitment by RTC to pay a continuing royalty (see above), and as an inducement to MCG to sell and Dayton Hudson Corporation to purchase Greenspring I. In order to avoid dispute as to the allocation of the proceeds of the sale as between MPR (in return for the royalty renegotiation) and MCG (in return for the sale of the stock), MPR and MCG agreed that MCG would receive all of the proceeds of the sale, would generally treat the proceeds consistent with its charter as a support organization of MPR, and would specifically set aside a portion of the proceeds as an endowment for the benefit of MPR. MCG therefore received the entire purchase price of Greenspring I of approximately $123 million. MCG received a fairness opinion from an investment bank which supports the reasonableness of this purchase price. The gain on the sale, after the basis in the stock sold and transaction costs, was approximately $94 million.

In October, 1998, the MCG Board of Trustees approved setting aside $85.6 million as a permanent endowment for the benefit of MPR. In April 1999, the MCG Board of Trustees adopted the Investment Policy for the Earned Endowment for MPR. The Investment Policy includes a spending policy designating an annual distribution of 4.5% of the five year average market value of the endowment's assets. Prior to the adoption of the Investment Policy, for fiscal 1999, MCG agreed to grant to MPR $3.9 million or approximately 4.5% of the $85.6 million endowment. The remaining funds available from the sale are reserved for future investments, as designated by the MCG Board of Trustees, in Greenspring, MPR, or MCG, all for the long-term benefit of MPR.

During fiscal 1996, RTC and MPR entered into an agreement to defer payment of certain fiscal 1996 and fiscal 1997 royalties until fiscal 2000. This deferred royalty of $5,620,000 in principal and interest was fully paid in April 1998.

At June 30, 1999 and 1998, the Organization had the following net amounts due from (due to) affiliated organizations:

The Minnesota Foundation:

MPR is party to an agreement with Minnesota Foundation which established an irrevocable endowment fund called "The Minnesota Public Radio Endowment Funds." The agreement with Minnesota Foundation requires a minimum annual distribution to MPR of 6% of the sixteen-quarter moving average market value of the fund's assets. Gifts to the fund are irrevocable; however, the fund could revert to MPR in the event Minnesota Foundation liquidates. The fund is managed at the discretion of Minnesota Foundation, except that MPR may direct Minnesota Foundation to replace any investment manager if the fund does not produce a reasonable return. The market value of the fund at June 30, 1999 and 1998 was approximately $18,873,000 and $18,467,000, respectively, and is not reported in the financial statements.

The Oakleaf Endowment Trust:

The Oakleaf Endowment Trust for Minnesota Public Radio (the Trust) was established by private donors on June 30, 1997 to maintain and enhance the quality of MPR. An annual distribution of funds is made to MPR based on a formula specified in the Trust which is intended to assure that payments to MPR from all of its permanent endowments do not exceed their earnings above inflation, but which may not be less than 1% of the fair market value of the Trust as of the end of the preceding year. Okabena Company manages the assets of the Trust. The market value of the Trust at June 30, 1999 and 1998 was approximately $2,241,000 and $2,211,000, respectively, and is not reported in the financial statements.

Statement of Financial Accounting Standards (SFAS) No. 136, "Transfers Of Assets To A Not-For-Profit Organization Or Charitable Trust That Raises Or Holds Contributions For Others," was issued in June 1999 and is expected to be adopted by the Organization in fiscal 2000. The effect of the adoption of SFAS No. 136 is expected to increase the net assets of MPR by the fair market value of the assets held within the above named external endowment funds.

12. INTERFUND TRANSFERS
Interfund transfers consisted of the following at June 30: