R130523AFS Short Formx 71358 Fy13auditedfinancialstatements
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Consolidated Financial Statements and Report of Independent Certified Public Accountants Alzheimer’s Association June 30, 2013 and 2012 Contents Page Report of Independent Certified Public Accountants 3 Consolidated Financial Statements Statements of financial position 5 Statements of activities 6 Statements of functional expenses 8 Statements of cash flows 10 Notes to consolidated financial statements 11 Supplementary information Consolidating statement of financial position 27 Consolidating statement of activities 28 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Board of Directors Alzheimer’s Association Grant Thornton LLP 175 W Jackson Boulevard, 20th Floor Chicago, IL 60604-2687 T 312.856.0200 F 312.565.4719 GrantThornton.com linkd.in/GrantThorntonUS twitter.com/GrantThorntonUS We have audited the accompanying consolidated financial statements of Alzheimer’s Association and affiliates (together, the Association), which comprise the consolidated statements of financial position as of June 30, 2013 and 2012, and the related consolidated statements of activities, functional expenses and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management’s responsibility for the financial statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated 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 consolidated 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 consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Association’s preparation and fair presentation of the consolidated 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 Association’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 consolidated financial statements. Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Alzheimer’s Association and affiliates as of June 30, 2013 and 2012, and the changes in their net assets and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Supplementary information Our audits were conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating statement of financial position as of June 30, 2013, and consolidating statement of activities for the year ended June 30, 2013, are presented for purposes of additional analysis, rather than to present the financial position, results of operations and cash flows of the individual entities, and are not a required part of the consolidated financial statements. Such supplementary information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and certain additional procedures. These additional procedures included comparing and reconciling the information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the supplementary information is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole. Chicago, Illinois October 18, 2013 Grant Thornton LLP U.S. member firm of Grant Thornton International Ltd Alzheimer’s Association CONSOLIDATED STATEMENTS OF FINANCIAL POSITION June 30, (In thousands) ASSETS 2013 Cash Pledges receivable, net Receivables - Chapters, net Other receivables Notes receivable Inventories of education materials, at cost Investments Prepaid expenses Assets held in trust Fixed assets, net Beneficial interest in split-interest agreements Beneficial interest in perpetual trusts $ TOTAL ASSETS 20,713 15,897 25,971 1,515 498 304 47,315 6,372 163 5,807 1,498 12,999 2012 $ 12,462 17,180 15,293 1,369 493 328 54,744 6,121 133 3,481 1,285 10,591 $ 139,052 $ 123,480 $ $ LIABILITIES AND NET ASSETS Liabilities Accounts payable Grants payable, net Deferred compensation payable Accrued expenses Self-insurance reserve Accounts payable - Chapters Gift annuity obligations Deferred revenue Deferred rent Total liabilities Net assets Unrestricted Temporarily restricted Permanently restricted Total net assets TOTAL LIABILITIES AND NET ASSETS The accompanying notes are an integral part of these statements. 5 723 23,357 163 6,496 277 13,769 4,351 2,795 1,968 1,149 22,526 1,417 5,783 12,201 4,478 2,480 2,088 53,899 52,122 35,430 24,811 24,912 27,311 21,876 22,171 85,153 71,358 $ 139,052 $ 123,480 Alzheimer’s Association CONSOLIDATED STATEMENT OF ACTIVITIES Year ended June 30, 2013, with comparative totals for 2012 (In thousands) Revenues, gains and other support Contributions Less contributions remitted to Chapters Add amounts received from Chapters under shared fundraising Unrestricted 2013 Temporarily Permanently restricted restricted $ $ 71,423 (33,121) 21,958 - $ Total 2012 total* 1,589 - $ 94,970 (33,121) $ 87,598 (32,442) 49,016 - - 49,016 38,868 87,318 21,958 1,589 110,865 94,024 10,469 1,593 20,409 748 (20,409) - 10,469 2,341 - 14,071 2,041 - 119,789 2,297 1,589 123,675 110,136 28,323 27,369 9,448 6,227 16,585 - - 28,323 27,369 9,448 6,227 16,585 29,029 24,130 10,833 5,811 10,941 87,952 - - 87,952 80,744 6,985 19,396 - - 6,985 19,396 6,181 18,836 26,381 - - 26,381 25,017 114,333 - - 114,333 105,761 5,456 2,297 1,589 9,342 4,375 2,195 (259) 1,373 (646) - 917 (318) 39 - 882 270 - 3,112 (577) 882 1,682 (646) - (912) (580) (208) 481 (1,011) 593 Total other changes in net assets 2,663 638 1,152 4,453 (1,637) CHANGE IN NET ASSETS 8,119 2,935 2,741 13,795 2,738 27,311 21,876 22,171 71,358 68,620 24,912 $ 85,153 $ 71,358 Net contribution revenues Book sales and other Dividends and interest Net assets released from restrictions Total revenues, gains and other support Expenses Program services Research Public awareness and education Chapter services Public policy Family and healthcare professional services Total program services Supporting services Management and general Fundraising Total supporting services Total expenses Excess from operations Other changes in net assets Net realized and unrealized gains (losses) in value of investments Change in value of split-interest agreements Change in value of perpetual trust Acquisition of dissolved chapters Bad debt expense Transfer in of net assets from AIM and AIMPAC Net assets at beginning of year Net assets at end of year $ 35,430 *See complete 2012 statement of activities on page 7. The accompanying notes are an integral part of this statement. 6 $ 24,811 $ Alzheimer’s Association CONSOLIDATED STATEMENT OF ACTIVITIES Year ended June 30, 2012 (In thousands) 2012 Revenues, gains and other support Contributions Less contributions remitted to Chapters Add amounts received from Chapters under shared fundraising Unrestricted Temporarily restricted Permanently restricted $ $ $ 63,964 (32,442) 23,310 - 324 - Total $ 87,598 (32,442) 38,868 - - 38,868 70,390 23,310 324 94,024 14,071 1,470 15,909 571 (15,909) - 14,071 2,041 - 101,840 7,972 324 110,136 29,029 24,130 10,833 5,811 10,941 - - 29,029 24,130 10,833 5,811 10,941 80,744 - - 80,744 6,181 18,836 - - 6,181 18,836 25,017 - - 25,017 105,761 - - 105,761 (3,921) 7,972 324 4,375 (809) (279) 45 (961) 593 (103) (301) 436 (50) - (208) - (912) (580) (208) 481 (1,011) 593 Total other changes in net assets (1,411) (18) (208) (1,637) CHANGE IN NET ASSETS (5,332) 7,954 116 2,738 32,643 13,922 22,055 68,620 Net contribution revenues Book sales and other Dividends and interest Net assets released from restrictions Total revenues, gains and other support Expenses Program services Research Public awareness and education Chapter services Public policy Family and healthcare professional services Total program services Supporting services Management and general Fundraising Total supporting services Total expenses (Deficiency) excess from operations Other changes in net assets Net realized and unrealized losses in value of investments Change in value of split-interest agreements Change in value of perpetual trust Acquisition of dissolved chapters Bad debt expense Transfer in of net assets from AIM and AIMPAC Net assets at beginning of year Net assets at end of year $ The accompanying notes are an integral part of this statement. 7 27,311 $ 21,876 $ 22,171 $ 71,358 Alzheimer’s Association CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year ended June 30, 2013 (In thousands) Program services Public awareness and education Research Salaries and related benefits Grants and funded research Professional fees and consultants Telephone, postage and supplies Occupancy Conferences and meetings Printing and promotions Miscellaneous $ Total expenses before depreciation Depreciation Total expenses $ The accompanying notes are an integral part of this statement. 8 3,675 15,069 1,724 398 775 1,943 1,294 3,401 $ Chapter services 4,475 1,859 3,992 635 431 15,855 62 $ 4,466 493 620 405 765 1,661 660 58 Supporting services Family and healthcare professional services Public policy $ 2,917 808 1,126 156 318 596 180 70 $ 10,283 367 1,507 512 1,737 810 507 656 Total $ 25,816 16,737 6,836 5,463 4,230 5,441 18,496 4,247 Management and general Fundraising $ $ 2,396 867 1,629 156 91 1,324 441 7,737 4,784 1,222 566 1,392 3,028 501 Total all expenses Total $ 10,133 5,651 2,851 722 1,483 4,352 942 $ 35,949 16,737 12,487 8,314 4,952 6,924 22,848 5,189 28,279 27,309 9,128 6,171 16,379 87,266 6,904 19,230 26,134 113,400 44 60 320 56 206 686 81 166 247 933 28,323 $ 27,369 $ 9,448 $ 6,227 $ 16,585 $ 87,952 $ 6,985 $ 19,396 $ 26,381 $ 114,333 Alzheimer’s Association CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year ended June 30, 2012 (In thousands) Program services Public awareness and education Research Salaries and related benefits Grants and funded research Professional fees and consultants Telephone, postage and supplies Occupancy Conferences and meetings Printing and promotions Miscellaneous $ Total expenses before depreciation Depreciation Total expenses $ The accompanying notes are an integral part of this statement. 9 3,615 12,055 1,809 385 1,453 2,823 1,375 5,468 $ Chapter services 3,618 12 766 3,625 580 455 14,950 50 $ 7,093 387 664 287 499 1,188 493 44 Supporting services Family and healthcare professional services Public policy $ 2,734 593 975 158 349 635 259 48 $ 6,431 447 1,040 370 1,465 549 332 128 Total $ 23,491 13,494 5,254 4,825 4,346 5,650 17,409 5,738 Management and general Fundraising $ $ 1,713 501 1,654 59 39 1,778 353 6,353 4,355 1,435 356 1,206 3,968 988 Total all expenses Total $ 8,066 4,856 3,089 415 1,245 5,746 1,341 $ 31,557 13,494 10,110 7,914 4,761 6,895 23,155 7,079 28,983 24,056 10,655 5,751 10,762 80,207 6,097 18,661 24,758 104,965 46 74 178 60 179 537 84 175 259 796 29,029 $ 24,130 $ 10,833 $ 5,811 $ 10,941 $ 80,744 $ 6,181 $ 18,836 $ 25,017 $ 105,761 Alzheimer’s Association CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended June 30, (In thousands) 2013 Reconciliation of change in net assets to net cash provided by operating activities Change in net assets Adjustments to reconcile change in net assets to net cash (used in) provided by operating activities Depreciation Net realized and unrealized (gains) losses in value of investments (Increase) decrease in pledges, chapter receivables, other receivables and notes receivable Increase in inventories and prepaid expenses Increase (decrease) in payables, accrued expenses and chapter obligations Increase (decrease) in deferred revenue Decrease in deferred rent (Increase) decrease in beneficial interest in split-interest agreements Change in value of perpetual trusts Decrease in gift annuity obligations Contributions restricted for long-term investment $ 13,795 2012 $ 2,738 933 (3,112) 796 912 (9,546) (227) 1,709 315 (120) (213) (2,408) (127) (1,589) 5,472 (2,176) (3,536) (1,516) (244) 155 208 (257) (324) (590) 2,228 (3,259) 23,296 (13,105) (1,035) 53,520 (53,648) 6,932 (1,163) 1,589 792 324 838 2,381 1,162 (472) (474) Net cash provided by financing activities 1,909 688 NET CHANGE IN CASH 8,251 1,753 12,462 10,709 Net cash (used in) provided by operating activities Cash flows from investing activities Purchase of fixed assets Proceeds from sale of investments Purchases of investments Net cash provided by (used in) investing activities Cash flows from financing activities Proceeds from contributions restricted for Long-term investment Investment subject to annuity agreement Other financing activities Payment of annuity obligations Cash at beginning of year Cash at end of year $ The accompanying notes are an integral part of these statements. 10 20,713 $ 12,462 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 2013 and 2012 NOTE A - ORGANIZATION AND BASIS OF CONSOLIDATION The accompanying consolidated financial statements include the accounts of the Alzheimer’s Association, Alzheimer’s Impact Movement (AIM) and Alzheimer’s Impact Movement Political Action Committee (AIMPAC) (together, the Association). AIM and AIMPAC became controlled entities in fiscal year 2012 and their activity is included in the fiscal year 2012 and 2013 results. All significant intercompany balances and transactions have been eliminated in consolidation. The Alzheimer’s Association, incorporated as the Alzheimer’s Disease and Related Disorders Association, Inc., is a not-for-profit, tax-exempt organization dedicated to achieving its mission: to eliminate Alzheimer’s disease through the advancement of research, to provide and enhance care and support for all affected, and to reduce the risk of dementia through the promotion of brain health. The Association’s mission is carried out through research, education, public awareness, advocacy, programs and services. The Association’s primary sources of revenue and support are contributions from the public, corporations and foundations. AIM is a nonpartisan, nonprofit advocacy organization working in strategic partnership with the Alzheimer’s Association to make Alzheimer’s disease a national priority. The organization’s mission is to advocate for the advancement of public policy, in order to eliminate Alzheimer’s disease through the advancement of research, to enhance care and support for all affected and to reduce the risk of dementia. AIMPAC is a voluntary, non-partisan political action committee to support and elect federal congressional candidates who are committed to ending Alzheimer’s disease in our lifetimes. AIMPAC, the political arm of AIM, is integral in educating members of Congress about critical Alzheimer’s issues in support of the policy priorities of the Alzheimer’s Association; to fight for a better life for the millions of Americans who live with Alzheimer’s; and to ensure the voice of the Alzheimer’s community is heard in the halls of Congress. In addition, the Association oversees the operations and activities for 18 National Chapters to facilitate strategic alignment, delivery on the overarching Association-wide strategic objectives and priority activities, and to ensure coverage for all geographic territories. Their activity is included in the consolidated financial statements and consists of incremental revenues of $10.8 million and expenses of $7.3 million as of June 30, 2013, and revenues of $3.2 million and expenses of $2.9 million as of June 30, 2012. There were 62 local chapters supported by the Association as of June 30, 2013. The accounts and operations of the local chapters are appropriately not included in the Association’s consolidated financial statements. Eight chapters dissolved and/or disaffiliated from the Association during the year ended June 30, 2013. Two chapters dissolved during the year ended June 30, 2012. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Contributions and Presentation All contributions are considered available for the general programs of the Association unless specifically restricted by the donor. The Association reports monetary gifts as temporarily restricted support if they are received with donor stipulations that limit the use of donated assets or are subject to time or legal restriction. A donor restriction expires when a stipulated time or legal restriction ends or when a purpose restriction is accomplished. Upon expiration, temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statements of activities as net assets released from restrictions. 11 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 For discounting purposes, pledges receivable are classified as either collectible in one year or less or collectible in multiple years. Those receivables deemed collectible in one year or less are stated at their full face value. Those classified as multi-year pledges are stated at their net present value, using a risk-adjusted discount rate. Permanently restricted net assets are those assets for which donors require the principal of the gift to be maintained in perpetuity. Under the Shared Fundraising (SFR) policy, the Association and chapters share all unrestricted contributed revenue received by either party from the chapter’s geographical area based on a predetermined sharing percentage. The amount due from the chapters under SFR is reported as Receivables - Chapters. The amount due to the chapters under SFR is reported as Accounts Payable - Chapters. Use of Estimates The preparation of consolidated 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 at the date of the consolidated financial statements. Estimates also affect the reported amounts of revenues and expenses during the reporting period. Although estimates are considered to be fairly stated at the time the estimates are made, actual results could differ from those estimates. Allowances for Uncollectible Amounts The Association evaluates the collectability of its chapter receivables and pledges receivable based on the length of time the receivable is outstanding, historical experience, and an assessment of business and economic conditions. The receivables are charged to the allowance for uncollectible amounts when they are deemed uncollectible. Fair Value of Financial Instruments Accounting principles generally accepted in the United States of America define fair value, establish a framework for measuring fair value, establish a fair value hierarchy based on the inputs used to measure fair value and specify disclosure requirements for fair value measurements. Furthermore, the Association maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs reflect assumptions that market participants would use in pricing the asset or liability based on the best information available in the circumstances. The fair value hierarchy is broken down into three levels based on the transparency of inputs as follows: Level 1 - Quoted prices are available in active markets for identical assets or liabilities as of the report date. A quoted price for an identical asset or liability in an active market provides the most reliable fair value measurement because it is directly observable to the market. Level 2 - Pricing inputs are other than quoted prices in active markets, which are either directly or indirectly observable as of the report date. The nature of these securities includes investments for which quoted prices 12 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 are available but that are traded less frequently and investments that are fairly valued using other securities, the parameters of which can be directly observed. Level 3 - Securities that have little to no pricing observability as of the report date. These securities are measured using management’s best estimate of fair value, where the inputs into the determination of fair value are not observable and require significant management judgment or estimation. Inputs are used in applying the various valuation techniques and broadly refer to the assumptions that market participants use to make valuation decisions, including assumptions about risk. Inputs may include price information, volatility statistics, specific and broad credit data, liquidity statistics, and other factors. 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. However, the determination of what constitutes “observable” requires significant judgment by the Association. The Association considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The categorization of a financial instrument within the fair value hierarchy is based upon the pricing transparency of the instrument and does not necessarily correspond to the Association’s perceived risk of that instrument. Valuation of Investments and Financial Instruments Investments with values that are based on quoted market prices in active markets and are, therefore, classified within Level 1, include active listed equities and fixed income funds. The Association does not adjust the quoted price for such instruments, even in situations where the Association holds a large position and a sale could reasonably impact the quoted price. Investments that trade in markets that are not considered to be active, but that are valued based on quoted market prices, dealer quotations or alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 investments include U.S. Government agency securities. Investments and financial instruments classified within Level 3 have significant unobservable inputs, as they trade infrequently or not at all. The valuation of the beneficial interest in the split-interest agreements and perpetual trusts falls under Level 3, as there are no significant observable inputs. The trust valuations are based on assumptions about the present value of distributions to be received from the trusts. The inputs used by the Association in estimating the Level 3 beneficial interests in split-interest agreements and perpetual trusts include mark-to-market adjustments, annuitant life expectancy and future asset growth. Assumptions used by the Association due to the lack of observable inputs may significantly impact the resulting fair value of the investments and beneficial interest in the split-interest agreements and beneficial trusts and, therefore, the Association’s results of operations. Assets Held in Trust Investments held in trust are carried at fair value. The investments represent contributions to 457(b) plans for key employees. See note G for additional information about the terms of these plans. Fixed Assets Building, furniture, equipment and leasehold improvements are stated at cost or, if donated, at fair market value at the date of donation. Depreciation on furniture and equipment is provided on a straight-line basis 13 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 over the estimated useful lives (three to seven years) of the assets. Depreciation on the building is provided on a straight-line basis over the estimated useful life (39 years). Amortization of leasehold improvements is provided on a straight-line basis over the remaining life of the lease (up to 15 years). Notes Receivable Credit is extended to chapters for loans receivable based on evaluation of the chapters’ financial condition and collateral is not required. Loans receivable are stated at amounts due. The Association evaluates the collectability of its loans receivable based on the length of time the receivable is outstanding and an assessment of business and economic conditions. Accounts outstanding longer than the contractual payment terms are considered past due. The Association maintained no past due loans receivable for the years ended June 30, 2013 and 2012. The Association did not record an allowance for doubtful accounts based on an assessment of the nature of the loans receivable. Grants Payable The Association awards research grants generally covering a period of one to three years. Grant expense is recorded as an unconditional promise to give upon approval of the grant. Deferred Revenue Registration fees received for conferences to be held in a subsequent period are recognized as deferred revenue. These fees are recorded as unrestricted revenues in the period in which the conference is held. Advertising Expense Advertising expense is recorded in the period in which the advertising first takes place. Advertising expense was approximately $10,382,000 and $10,355,000 for the years ended June 30, 2013 and 2012, respectively. Income Taxes The Association and AIM have received favorable determination letters from the Internal Revenue Service, stating that they are exempt from federal income taxes under the provisions of section 501(a) of the Internal Revenue Code of 1986 (IRC), as organizations described in sections 501(c)(3) and 501(c)(4), respectively, except for income taxes pertaining to unrelated business income. AIMPAC is a political action committee organization exempt from federal taxes under Section 527 of the IRC. The Financial Accounting Standards Board issued guidance that requires tax effects from uncertain tax positions to be recognized in the consolidated financial statements only if the position is more likely than not to be sustained if the position were to be challenged by a taxing authority. Management has determined there are no material uncertain positions that require recognition in the consolidated financial statements and as such, no provision for income taxes is reflected. Additionally, there is no interest or penalties recognized in the consolidated statements of activities or statements of position. Aside from the current year, the tax years ending 2009, 2010 and 2011 are still open to audit for both federal and state purposes. Reclassifications Certain reclassifications have been made to the 2012 consolidated financial statements to conform to the 2013 presentation. 14 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 NOTE C - PLEDGES RECEIVABLE Pledges receivable, net of estimated uncollectible amounts and discounted to present value, are due to be collected as follows at June 30 (in thousands): Less than one year One to five years Less Unamortized discount Allowance for uncollectible amounts Total 2013 2012 $12,443 4,362 $13,112 4,985 16,805 18,097 (324) (584) (429) (488) $15,897 $17,180 As of June 30, 2013, discount rates on pledges receivable ranged from 1.66% to 5.15%. NOTE D - INVESTMENTS The fair value of investments is as follows at June 30 (in thousands): 2013 Short-term reserves and cash Fixed income funds Equities funds U.S. government agency securities Total 2012 $ 219 19,139 27,560 397 $ 114 25,769 27,296 1,565 $47,315 $54,744 Investment fees incurred totaled approximately $112,000 and $97,000 at June 30, 2013 and 2012, respectively, which were netted with dividends and interest income. 15 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 NOTE E - FAIR VALUE OF FINANCIAL INSTRUMENTS The following tables summarize assets by fair value hierarchy levels as of June 30 (in thousands): 2013 Fixed income funds Equities funds U.S. government agency securities Beneficial interest in split-interest agreements Beneficial interest in perpetual trust Total Level 1 Level 2 Level 3 Total $19,139 27,560 - $ 397 - $ 1,498 12,999 $19,139 27,560 397 1,498 12,999 $46,699 $397 $14,497 $61,593 Level 3 Total 2012 Level 1 Fixed income funds Equities funds U.S. government agency securities Beneficial interest in split-interest agreements Beneficial interest in perpetual trust Total Level 2 $25,769 27,296 - $ 1,565 - $ 1,285 10,591 $25,769 27,296 1,565 1,285 10,591 $53,065 $1,565 $11,876 $66,506 The following table summarizes the changes in fair values associated with Level 3 assets (in thousands): Beneficial interest in split-interests agreements Balance, June 30, 2011 Additions Unrealized loss Payments received Balance, June 30, 2012 Additions Unrealized gain Payments received Balance, June 30, 2013 Beneficial interest in perpetual trust Total $1,440 $10,799 $12,239 32 (5) (182) (208) - 32 (213) (182) 1,285 10,591 11,876 356 90 (233) 1,526 882 - 1,882 972 (233) $1,498 $12,999 $14,497 All net realized and unrealized gains (losses) in the table above are reflected in the accompanying consolidated statements of activities. Net unrealized gains (losses) relate to those investments held by the Association at year-end. 16 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 NOTE F - NOTES RECEIVABLE The Association issued two loans receivable for $400,000 and $50,000 to the San Diego Alzheimer’s Chapter and Western and Central Washington State Alzheimer’s Chapter, respectively, during fiscal year 2012. Additional loans of $255,000 were issued to Western and Central Washington State Alzheimer’s Chapter during fiscal year 2013. The loans are interest free. Principal payments of $11,000 are due monthly through June 2015 from the San Diego Alzheimer’s Chapter. A principal payment of $22,500 is due July 15, 2013, and principal payments of $33,500 are due monthly August 2013 through December 2013 from the Western and Central Washington State Alzheimer’s Chapter. In addition, the Association received a note receivable from a donor during 2012. The note has a face value of $44,000. Using a discount rate of 3.16%, the note receivable is shown at a net value of $43,000 as of June 30, 2013 and 2012. Interest-only monthly payments of $200 are due from July 2012 through June 2014, with a final balloon payment of $38,000 due June 30, 2014. Proceeds from notes receivable are due as follows (in thousands): Years ending June 30, 2014 2015 $365 133 Total $498 NOTE G - DEFERRED COMPENSATION Effective September 2006, a 457(f) deferred compensation agreement was entered into with the Association’s current Chief Executive Officer. The contract was revised in September 2008. Under the current agreement, the Association provides for deferred compensation of $225,000 per year. The amount of $225,000 due under the agreement was accrued, and the total amount of the agreement of $1.5 million was paid in fiscal year 2013, thereby reducing the 457(f) deferred compensation payable to $0 at June 30, 2013. The Association maintains 457(b) deferred compensation plans for key employees, which provide that a certain percentage of the key employee’s salary be accrued for the benefit of the participant. These plans are provided for currently. The amounts of $163,000 and $133,000 due under the plans were accrued and included in deferred compensation payable at June 30, 2013 and 2012, respectively, and the related investments are included in assets held in trust on the consolidated statements of financial position. Deferred compensation payables at June 30, 2013 and 2012, are as follows (in thousands): 457(f) plan 457(b) plans Deferred compensation payable 17 2013 2012 $ 163 $1,284 133 $163 $1,417 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 NOTE H - FIXED ASSETS At June 30, 2013 and 2012, fixed assets, and the related accumulated depreciation, were as follows (in thousands): 2013 Land and building Leasehold improvements Equipment and software Furniture and fixtures $ 600 4,026 10,625 1,702 2012 $ 4,004 9,653 1,556 Total 16,953 15,213 Less accumulated depreciation Equipment not in service (13,009) 1,863 (12,089) 357 $ 5,807 $ 3,481 Fixed assets, net NOTE I - PERPETUAL TRUSTS AND SPLIT-INTEREST AGREEMENTS The Association is a beneficiary of perpetual trusts administered by independent organizations. Under the terms of the trusts, the Association has irrevocable rights to receive portions of the income earned on the trust assets in perpetuity. The Association’s beneficial interest in the trusts, at fair value, totaled approximately $12,999,000 and $10,591,000 at June 30, 2013 and 2012, respectively. The Association is the beneficiary of charitable lead and remainder trust agreements held by independent trustees. Under the terms of the agreements, the Association has an unconditional right to receive all or a portion of specified cash flows from the agreements. The agreements are valued at fair value based upon expected future cash flows and discounted present value at a risk-adjusted rate. As of June 30, 2013 and 2012, the Association applied a discount rate of 1.66% and 3.16%, respectively. The Association’s beneficial interest is $1,498,000 and $1,285,000 at June 30, 2013 and 2012, respectively. The Association also has charitable gift annuity arrangements in which donors have contributed assets to the Association in exchange for a promise to pay a fixed amount for a specified period of time back to the donor. Gift annuity obligations represent the present value of future cash flows expected to be paid by the Association to the donors under these arrangements. Funds of approximately $4,351,000 and $4,478,000 at June 30, 2013 and 2012, respectively, have been segregated in separate accounts, the use of which is limited to meeting the gift annuity obligations. 18 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 NOTE J - SELF-INSURANCE RESERVE The Association maintains a self-insured program for medical coverage as part of its employee benefits plan. Blue Cross Blue Shield of Illinois provides claims administration as well as both individual and aggregate stop-loss coverage. Funding for this program is obtained through both employee and employer contributions for medical coverage and through earnings on designated assets held to pay claims. Prior to July 1, 2012, this coverage was provided by Blue Cross Blue Shield of Illinois on a fully insured basis. Investments designated by the Association for the insurance program amounted to approximately $277,000 and $-0- as of June 30, 2013 and 2012, respectively, and were included in unrestricted net assets. As of June 30, 2013 and 2012, the actuarially determined liability associated with this program was approximately $277,000 and $-0-, respectively, and is determined as an estimated liability for self-insured claims in the accompanying consolidated statements of financial position. NOTE K - GRANTS PAYABLE Grants payable are discounted to present value. They are due to be disbursed as follows at June 30 (in thousands): Less than one year One to five years Less unamortized discount Grants payable, net 2013 2012 $17,560 5,932 $14,570 8,251 23,492 22,821 (135) (295) $23,357 $22,526 As of June 30, 2013 and 2012, discount rates on grants payable ranged from 1.66% to 3.16% and 2.96% to 3.16%, respectively. NOTE L - GIFTS-IN-KIND AND CONTRIBUTED SERVICES Gifts-in-kind and contributed services are reflected as expenses and contributions at their estimated fair value at date of the gift or service. During 2013, the Association received approximately $3,513,000 in gifts-in-kind and contributed services. Of these non-monetary transactions, the Association recorded services valued at approximately $3,137,000 as program expense for the medical science research grants review process and gifts-in-kind of approximately $376,000 as fundraising expenses. During 2012, the Association received approximately $5,570,000 in gifts-in-kind and contributed services. Of these non-monetary transactions, the Association recorded services valued at approximately $5,259,000 as program expense for the medical science research grants review process and gifts-in-kind of approximately $311,000 as fundraising expenses. 19 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 NOTE M - ALLOCATION OF JOINT COSTS For the years ended June 30, 2013 and 2012, the Association incurred expenses of approximately $15,083,000 and $15,414,000, respectively, related to the distribution of informational materials that included fundraising appeals. The Association allocated these costs as follows for the years ended June 30 (in thousands): 2013 2012 Public awareness and education Fundraising Management and general $ 8,832 3,776 2,475 $ 8,181 4,528 2,705 Total $15,083 $15,414 NOTE N - RETIREMENT PLANS The Association has a defined contribution retirement plan covering substantially all of its full-time employees. Effective May 1, 2001, the Association contributes, at a minimum, an amount equal to 6% of the annual compensation of the plan’s participants to the defined contribution plan. Also effective May 1, 2001, the Association matches 100% of an employee’s contribution up to 5% of the employee’s annual compensation. The Association’s policy is to fund retirement plan costs as they are accrued. Contribution expense related to the defined contribution plan totaled approximately $2,297,000 and $2,042,000 for the years ended June 30, 2013 and 2012, respectively. NOTE O - COMMITMENTS - OPERATING LEASE OBLIGATIONS The Association currently has a 15-year operating lease agreement for office space in Chicago, Illinois, that expires on March 31, 2018. This lease agreement includes inducements totaling approximately $3,166,000 for leasehold improvements. The lease inducements are reflected as deferred rent in the accompanying consolidated statements of financial position and are being amortized on a straight-line basis over the term of the lease agreement. The Association also has a 10-year operating lease agreement for office space in Washington, D.C., that has been accounted for as an operating lease in the accompanying consolidated financial statements. The current lease is effective September 1, 2010 through November 30, 2020. The Association has also entered into 18 short-term leases for the National Chapters. These offices replaced dissolved or disaffiliated chapters. The leases range in length from 12 to 90 months. Rental expense under the lease agreements totaled approximately $1,501,000 and $1,279,000 for the years ended June 30, 2013 and 2012, respectively. 20 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 Operating lease obligations for office equipment, including copiers and mailing systems, are also included in the obligations stated below. Subsequent to year-end, the Association entered into additional property rental lease agreements (see note V). Future rental commitments, as of June 30, 2013, for all non-cancelable operating leases are as follows (in thousands): Years ending June 30, 2014 2015 2016 2017 2018 Thereafter $1,978 1,751 1,666 1,573 1,316 1,164 Total $9,448 NOTE P - TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes at June 30 (in thousands): 2013 2012 Research Miscellaneous projects Time restricted $18,565 2,909 3,337 $18,420 1,427 2,029 Total $24,811 $21,876 21 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 NOTE Q - PERMANENTLY RESTRICTED NET ASSETS Permanently restricted net assets are restricted to investment in perpetuity. Permanently restricted net assets were as follows as of June 30 (in thousands): John P. Green, Jr. Charitable Foundation Trust Evelyn T. Stone Memorial Fund George Graff Perpetual Trust Samuel A. Blank Research Fund National Alzheimer’s Research Fund Endowment Stephanie Aschemeyer Endowment Fund John Lyman Bogert Memorial Research Fund Harold W. and Georgiana Spaght Memorial Fund Edward P. and Mary Klein Smith Foundation Sandra E. Lamb Charitable Trust Mary J. Wickstrom Estate Hindenburg Perpetual Trust Alburger Perpetual Trust George F. Berlinger Memorial Fund I.J. Berkson Research Fund Edna Curl Endowment Fund Ruth Templeton Henney Alzheimer’s Research Foundation Norman Gotlieb and Bertha Chrystall Gotlieb Fund Evelyn Schwartz Endowment Willis Trust William Edmonson Trust Mr. and Mrs. Neil Bluhm Pilot Research Grant Fund The Blum-Kovler Foundation Pilot Research Grant Fund Arthur and Josephine Lowell Charitable Foundation Trust Bertis Westfall Charitable Trust Donald R. McLennan Jr. Research Fund Ruth Bates Charitable Trust Sara & Soloman Hartman Family Charitable Trust David Finkle Pilot Research Grant Fund Sperry Charitable Trust Robert and Marie Leonard Omens/Normand Research Fund Marian Burke Research Scholarship Fund The Plotkin-Wollin Research Fund Helen and Philip Brody Pilot Research Grant Fund Plumsock Fund Individual funds less than $100 Total 22 2013 2012 $ 8,323 2,727 1,263 1,256 1,000 897 750 601 538 508 500 467 454 450 437 411 361 340 278 274 260 251 250 224 219 212 167 154 153 147 141 120 120 119 100 100 340 $ 7,657 2,580 1,210 1,255 1,000 897 750 601 500 388 433 450 437 411 361 330 244 236 251 250 223 212 157 143 153 144 120 120 119 100 100 339 $24,912 $22,171 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 NOTE R - NET ASSETS RELEASED FROM RESTRICTIONS Net assets were released from donor restrictions by incurring expenses satisfying the restricted purposes or by occurrence of other events specified by the donors as follows for the years ended June 30 (in thousands): Purpose restrictions accomplished Research Miscellaneous projects Time restricted Total net assets released from restrictions 2013 2012 $19,853 556 $14,024 1,821 - 64 $20,409 $15,909 NOTE S - ENDOWMENT NET ASSETS Permanently restricted net assets are restricted as investments in perpetuity. The Association’s endowment only consists of donor-restricted endowment funds. Net assets associated with the Association’s endowment funds are classified and reported based on the existence of donor-imposed restrictions. Donors restrict the earnings of some of the Association’s endowment funds to fund the Association’s research program. In accordance with donor stipulations, the income generated from these assets is restricted for research (approximately 47%) or not purpose restricted (approximately 53%). The Association accounts for endowment net assets by preserving the fair value of the original gift as of the gift date of the donor-restricted endowment fund absent explicit donor stipulations to the contrary. As a result, the Association classifies as permanently restricted net assets (1) the original value of gifts donated to the permanent endowment, (2) the original value of subsequent gifts to the permanent endowment and (3) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the endowment fund. The Association considers the following factors in making a determination to appropriate or accumulate donor-restricted endowment funds: · · · · · · · The duration and preservation of the fund. The purposes of the Association and the donor-restricted endowment fund. General economic conditions. The possible effects of inflation and deflation. The expected total return from income and the appreciation of investments. Other resources of the Association. The investment policies of the Association. The Association has adopted an investment policy that attempts to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. As of June 30, 2013, endowment assets only include those assets of donor-restricted funds that the Association must hold in perpetuity, as the Association does not have any Board-designated endowment funds. Under this policy, as approved by the Board of Directors, the endowment assets are invested in a manner that is intended to provide adequate liquidity, maximizing returns on all funds invested and achieving 23 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 full employment of all available funds as earning assets. The Association has an active Finance Committee and Investment Sub-Committee that meets regularly to ensure that the objectives of the investment policy are being met, and that the strategies used to meet the objectives are in accordance with the investment policy. The Association’s policy is to appropriate spending amounts deemed prudent for donor-restricted funds. Changes in endowment net assets for the fiscal years ended June 30, 2013 and 2012, are as follows (in thousands): Unrestricted Endowment net assets, June 30, 2011 $ - Temporarily restricted $ Permanently restricted Total - $11,256 $11,256 New gifts Dividends and interest Net depreciation (realized and unrealized) Appropriation - 379 (187) (160) 324 - 324 379 (187) (160) Endowment net assets, June 30, 2012 - 32 11,580 11,612 New gifts Dividends and interest Net appreciation (realized and unrealized) Appropriation - 459 889 (639) 334 - 334 459 889 (639) - $ 741 $11,914 $12,655 Endowment net assets, June 30, 2013 $ From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or state law requires the Association to retain as a fund of perpetual duration. Deficiencies of this nature are reported in unrestricted net assets. There was no deficiency as of June 30, 2013 and 2012. NOTE T - CONCENTRATION OF CREDIT RISK Certain financial instruments subject the Association to credit risk. Those financial instruments consist primarily of cash, accounts receivable, beneficial interest in split-interest agreements and investments. The Association maintains its cash balance in financial institutions which, at times, may exceed federally insured limits. The Association has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash. Concentration of credit risk with respect to receivables is limited due to the large number of accounts and low average cash balance. Concentration of credit risk with respect to the beneficial interest in split-interest agreements is limited through the diversification of the trust assets. The Association’s investment policy also stipulates appropriate diversification of investment balances. As of June 30, 2013 and 2012, the Association had no significant concentration of credit risk in investments. 24 Alzheimer’s Association NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED June 30, 2013 and 2012 NOTE U - ACQUIRED NET ASSETS The Association acquired seven chapters during the year as a result of chapter dissolution. No consideration was provided as a result of the transaction. The following table summarizes the estimated fair values of the assets and liabilities at the acquisition date (in thousands): Cash Accounts receivable Investments Prepaid expenses Other Land Building $ 616 124 431 30 274 160 440 Total identifiable assets acquired 2,075 Accounts payable Accrued expenses Notes payable (18) (77) (298) Net assets acquired $1,682 As a result, the net value is recorded as an acquisition of dissolved chapters during fiscal year 2013. NOTE V - SUBSEQUENT EVENTS The Association evaluated its June 30, 2013, consolidated financial statements for subsequent events through October 18, 2013, the date the consolidated financial statements were available to be issued. The Association is not aware of any subsequent events that would require recognition or disclosure in the consolidated financial statements with the exception of the following event: Effective July 1, 2013, the Association acquired four additional dissolved chapters for no consideration, which became National Chapters. The fair value estimate of the assets and liabilities acquired is not yet completed. In relation to the acquisitions, the Association entered into 15 property rental lease agreements for the four new National Chapters. The future additional rental commitments are as follows (in thousands): Years ending June 30, 2014 2015 2016 2017 2018 Thereafter $ 245 226 207 155 154 406 Total $1,393 25 SUPPLEMENTARY INFORMATION Alzheimer’s Association CONSOLIDATING STATEMENT OF FINANCIAL POSITION Year ended June 30, 2013 (In thousands) ASSETS Cash Pledges receivable, net Receivables - Chapters, net Other receivables Notes receivable Inventories of education materials, at cost Investments Prepaid expenses Assets held in trust Fixed assets, net Beneficial interest in split-interest agreements Beneficial interest in perpetual trusts TOTAL ASSETS Alzheimer's Association AIM AIMPAC Eliminations Consolidated 20,099 15,897 25,971 1,564 498 304 47,315 6,372 163 5,807 1,498 12,999 $ 426 1 - $ 188 - $ (50) - $ 20,713 15,897 25,971 1,515 498 304 47,315 6,372 163 5,807 1,498 12,999 $ 138,487 $ 427 $ 188 $ (50) $ 139,052 $ $ 51 - $ - $ (50) - $ 723 23,357 163 6,496 277 13,769 4,351 2,795 1,968 $ LIABILITIES AND NET ASSETS Liabilities Accounts payable Grants payable, net Deferred compensation payable Accrued expenses Self-insurance reserve Accounts payable - Chapters Gift annuity obligations Deferred revenue Deferred rent Total liabilities Net assets Unrestricted Temporarily restricted Permanently restricted Total net assets TOTAL LIABILITIES AND NET ASSETS 723 23,357 163 6,495 277 13,769 4,351 2,795 1,968 53,898 51 - (50) 53,899 34,866 24,811 24,912 376 - 188 - - 35,430 24,811 24,912 84,589 376 188 - 85,153 $ 138,487 27 $ 427 $ 188 $ (50) $ 139,052 Alzheimer’s Association CONSOLIDATING STATEMENT OF ACTIVITIES Year ended June 30, 2013 (In thousands) Unrestricted Revenues, gains and other support Contributions Less contributions remitted to Chapters Add amounts received from Chapters under shared fundraising $ Net contribution revenues Book sales and other Dividends and interest Net assets released from restrictions Total revenues, gains and other support Expenses Program services Research Public awareness and education Chapter services Public policy Family and healthcare professional services Total program services Supporting services Management and general Fundraising Total supporting services Total expenses Excess (deficiency) from operations Other changes in net assets Net realized and unrealized gains in value of investments Change in value of split-interest agreements Change in value of perpetual trust Acquisition of dissolved chapters Bad debt expense Total other changes in net assets CHANGE IN NET ASSETS Net assets at beginning of year Net assets at end of year $ 70,977 (33,121) Alzheimer's Association Temporarily Permanently restricted restricted $ 21,958 - $ 1,589 - Total $ 94,524 (33,121) AIM Unrestricted AIMPAC Unrestricted Eliminations Unrestricted $ $ $ 1,082 - 172 - (808) - Consolidated $ 94,970 (33,121) 49,016 - - 49,016 - - - 49,016 86,872 21,958 1,589 110,419 1,082 172 (808) 110,865 10,469 1,593 20,409 748 (20,409) - 10,469 2,341 - - - - 10,469 2,341 - 119,343 2,297 1,589 123,229 1,082 172 (808) 123,675 28,323 27,369 9,448 5,650 16,585 - - 28,323 27,369 9,448 5,650 16,585 1,254 - 131 - (808) - 28,323 27,369 9,448 6,227 16,585 87,375 - - 87,375 1,254 131 (808) 87,952 6,962 19,396 - - 6,962 19,396 23 - - - 6,985 19,396 26,358 - - 26,358 23 - - 26,381 113,733 - - 113,733 1,277 131 (808) 114,333 5,610 2,297 1,589 9,496 (195) 41 - 9,342 2,195 (259) 1,373 (646) 917 (318) 39 - 882 270 - 3,112 (577) 882 1,682 (646) - - - 3,112 (577) 882 1,682 (646) 2,663 638 1,152 4,453 - - - 4,453 8,273 2,935 2,741 13,949 (195) 41 - 13,795 26,593 21,876 22,171 70,640 571 147 - 71,358 34,866 $ 24,811 $ 24,912 28 $ 84,589 $ 376 $ 188 $ - $ 85,153
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