Report of the Treasurer for the Year Ended December 31, 2012 (2013) / Chapter Skim
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III. Financial Condition
III. Financial Condition
Pages 41-66
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From page 41... ...
III. Financial Condition 41
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From page 42... ...
Cicerone President National Academy of Sciences Dear Dr. Cicerone: In accordance with paragraph 11 of section II of the Bylaws of the National Academy of Sciences, the firm of KPMG LLP was retained by the Auditing Committee on behalf of the Council to conduct an audit of the accounts of the Treasurer for the year ended December 31, 2012, and to report to the Auditing Committee.
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From page 43... ...
Management's Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with U.S. generally accepted accounting principles; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.
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Opinion In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of NAS as of December 31, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in accordance with U.S. generally accepted accounting principles.
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Total liabilities and net assets $ 788,425 $ 769,096 See accompanying notes to financial statements.
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3,632 (32,861) Net assets at beginning of year 83,259 235,004 122,001 440,264 89,054 265,702 118,369 473,125 Net assets at end of year $ 90,167 247,348 125,684 463,199 $ 83,259 235,004 122,001 440,264 See accompanying notes to financial statements.
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From page 47... ...
in cash and cash equivalents 996 (89) Cash and cash equivalents, beginning of year 1,433 1,522 Cash and cash equivalents, end of year $ 2,429 $ 1,433 Supplemental disclosure of cash flow information: Interest paid $ 5,303 $ 5,429 See accompanying notes to financial statements.
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, established in 1970, conducts studies of policy issues related to health and Permanently restricted – Net assets subject to do medicine. IOM issues position statements on these nor-imposed stipulations that they be maintained in policies, cooperates with the major scientific and perpetuity by NAS.
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recognized as the related costs are incurred. Funds received in advance of being earned for these grants are Gifts of land, buildings, or equipment are reported as recorded as deferred revenue in the statements of financial unrestricted net assets unless explicit donor stipulations position.
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Long-term investments: Investment pool, including endowment assets: (k) Risks and Uncertainties Cash equivalents $ 5,413 $ 28,429 NAS invests in various investment securities.
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Fair value estimates are made at a specific point in time, The NAS obligation to TNAC for these funds held in based on available market information and judgments trust, which totaled approximately $10.0 million and about the financial asset, including estimates of timing, $9.2 million as of December 31, 2012 and 2011, respec- amount of expected future cash flows and the credit tively, is reported as funds held on behalf of others in the standing of the issuer. In some cases, the fair value statements of financial position.
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are determined using pricing models based on observable market data such as prices of instruments with similar Fair value of alternative investments including private maturities and characteristics, interest rate yield curves, equity securities and hedge funds is based on the alterna- and measures of interest rate volatility. The value was tive investment fund managers' net asset value (NAV)
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equity (developed) 231 231 - Total deferred compensation assets 1,772 1,772 - Total financial assets $ 478,137 $ 305,323 $ 131,123 $ 41,691 Financial Liabilities: Funds held on behalf of others $ 10,006 $ 6,535 $ 2,361 $ 1,110 Deferred compensation liability 1,806 1,806 - Interest rate swaps 13,589 - 13,589 Total financial liabilities $ 25,401 $ 8,341 $ 15,950 $ 1,110 The following table presents NAS' fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis at December 31, 2011 (in thousands)
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equity (emerging) 47,794 44,653 3,141 Real estate 11,716 11,716 - Hedge funds Fund of fund – multi-strategies 26,540 - 26,540 Multi-strategies/multi-vehicle 23,063 - 11,840 11,223 Fixed income single strategy 2,448 - 2,448 Private equity Asia 20,450 - - 20,450 Global 3,560 - - 3,560 Domestic 1,545 - - 1,545 Total short-term and long-term investments 446,337 304,204 97,630 44,503 Deposit with trustee: Bonds and notes U.S treasuries/government bonds 22,512 22,512 - Total deposit with trustee 22,512 22,512 - Charitable gift annuity assets: Cash equivalents 74 74 - Bonds and notes U.S treasuries/government bonds 75 75 - Mortgage-backed securities 397 397 - Corporate bonds 93 93 - Equity U.S.
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This category relates to long-short equity hedge funds contracts. The fair values of the investments in this comprised of equity investments in U.S.
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investments are focused on several industries including, Asset classes include domestic and international marketa- but not limited to, insurance, financial services, consum ble equity securities, hedged equity, real estate, natural er-related, and communications. The fair values of these resource, fixed income, and private equity and absolute investments have been estimated using the NAV of NAS' return strategies, primarily focused in the United States.
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Under the new lines of Sponsored research and advisory programs $ 84,505 $ 80,972 credit, NAS is party to a $35 million line of credit from Wells Fargo, which bears interest at LIBOR plus 0.55% General Endowment 32,524 32,374 and expires on December 3, 2013, and a $15 million line Prizes and awards 5,116 5,116 of credit from TD Bank, which bears interest at LIBOR Woods Hole facility 3,539 3,539 plus 0.65% and expires on August 31, 2013. NAS has Total permanently restricted net assets $125,684 $122,001 57
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The remaining Total fixed 14 portion of donor-restricted endowment funds that are not classified as permanently restricted are classified as Multi-strategy and private equity funds 20 temporarily restricted net assets until those amounts are appropriated for expenditure by NAS. In making a Total 100% determination to appropriate or accumulate, NAS adheres to the standard of prudence prescribed by the Act and considers the following factors: NAS has adopted a spending policy that limits the annual spending to 5% of the three-year average fair value of the (1)
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At December 31, of the endowment fund to the required level are 2012, there was one endowment fund with a fair value classified as an increase in unrestricted net assets. below the original value of the gift.
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NAS receives indirect cost recovery on its federal In April 2009, the District of Columbia issued Se ries 2009A tax-exempt revenue bonds in the amount of contracts and grants. An overhead assessment is applied $57,500,000 on behalf of NAS.
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If measured at fair value in the statement of financial position, the bonds Plus unamortized premium 967 1,108 payable would be categorized as Level 2 in the fair value hierarchy. Total bonds payable 178,962 181,203 Less current portion (included in other Interest expense on the bonds payable for 2012 and current liabilities)
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With regard to the fixed-to-variable interest rate swap, NAS recorded a gain on the change in the fair value of In addition, NAS has a voluntary employee contribution its swap agreement of $163,000 and $20,000, for the retirement plan that is funded solely by employee years ended December 31, 2012 and 2011, respectively, contributions made on a pretax salary-reduction basis which is included in other income in the accompanying under Section 403(b) of the Internal Revenue Code.
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All Net actuarial loss $ 6,964 $ 7,441 benefit-eligible employees may become eligible for Prior service cost 512 722 service retiree benefits if they reach age 60 while Unrecognized net initial obligation 39 64 working for NAS and complete 5 years of service in a Total $ 7,515 $ 8,227 benefit-eligible status for medical and life insurance benefits. In addition, certain health and life insurance benefits are provided for employees retired due to The estimated amounts, measured at year-end, that are disability.
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(205) The assumptions used to determine net periodic benefit cost for years ended December 31, 2012 and 2011 are as NAS postretirement benefit plan asset allocations at follows: December 31, 2012 and 2011, by asset class are as follows: 2012 2011 Discount rate 4.50% 5.25% 2012 2011 Expected long-term return on plan assets 7.50 7.50 Cash 7% 4% Rate of increase in healthcare costs Bonds and notes 36 34 Under age 65 7.50 8.00 Equity 57 62 Over age 65 5.50 6.00 100% 100% The assumptions used to calculate the accumulated The investment objective of the Plan is to produce a rate postretirement benefit obligation for the years ended of return over the long term that will provide for fund December 31, 2012 and 2011 are as follows: growth, protect against the effect of inflation, and provide for some stability in different market environ 2012 2011 ments.
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CONDITIONAL ASSET (emerging) 248 248 - RETIREMENT OBLIGATION Total investments $ 23,668 $20,906 $ 2,762 NAS recorded an asset retirement obligation for which fair value of the liability could be reasonably estimated relating to the regulatory remediation of asbestos and The following table presents the fair value hierarchy for other hazardous materials in one of its office buildings.
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From page 66... ...
NAS' obligation under the lease ment of financial position date through May 17, 2013, terminated on that date. the date at which the financial statements were available to be issued, and determined that there are no other (b)
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