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III. Financial Condition
Pages 45-80

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From page 45...
... III. Financial Condition
From page 46...
... McNutt: In accordance with paragraph 11 of section II of the Bylaws of the National Academy of Sciences, the firm of Grant Thornton 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, 2019, and to report to the Auditing Committee. The independent accountants have completed their audit and submitted their report.
From page 47...
... , which comprise the statements of financial position as of December 31, 2019 and 2018, and the related statements of activities and cash flows for the years then ended, and the related notes to the financial statements. Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of these 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 financial statements that are free from material misstatement, whether due to fraud or error.
From page 48...
... Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the National Academy of Sciences as of December 31, 2019 and 2018, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Washington, DC June 12, 2020 48
From page 49...
... NET ASSETS Without donor restrictions 125,774 111,097 With donor restrictions (Notes 8 and 9) 1,034,867 950,822 Total net assets 1,160,641 1,061,919 Total liabilities and net assets $ 1,421,374 $ 1,313,044 The accompanying notes are an integral part of these financial statements.
From page 50...
... (54,376) Net assets at beginning of year 111,097 950,822 1,061,919 113,108 1,003,187 1,116,295 Net assets at end of year $ 125,774 $ 1,034,867 $ 1,160,641 $ 111,097 $ 950,822 $ 1,061,919 The accompanying notes are an integral part of these financial statements.
From page 51...
... increase in cash, cash equivalents, and restricted cash (9,093) 16,446 Cash, cash equivalents, and restricted cash, beginning of year 19,471 3,025 Cash, cash equivalents, and restricted cash, end of year $ 10,378 $ 19,471 Supplemental disclosure of cash flow information: Interest paid $ 5,139 $ 4,497 The accompanying notes are an integral part of these financial statements.
From page 52...
... To respond effectively to both the disciplinary concerns of the research community and the complex interdisciplinary problems facing American society, NRC performs its studies and workshops through the following major divisions: Behavioral and Social Sciences and Education; Earth and Life Studies; Engineering and Physical Sciences; Gulf Research Program; Health and Medicine; Policy and Global Affairs; and Transportation Research Board. NRC activities are under the control of the NAS governance structure and, therefore, are included in the NAS financial statements.
From page 53...
... . In addition, net assets with donor restrictions also include net assets whereby the respective donors have stipulated that the principal contributed be invested and maintained in perpetuity (Note 9)
From page 54...
... Upon termination of an annuity agreement, the remainder interest in the assets, if any, is available for use by NAS as net assets with or without donor restrictions in accordance with the respective donor's stipulation. At December 31, 2019 and 2018, NAS had charitable gift annuity assets of approximately $4.4 million and $3.3 million, respectively, which is included in other assets in the accompanying statements of financial position.
From page 55...
... Gifts of land, buildings, or equipment are reported as net assets without donor restrictions unless explicit donor stipulations specify how the donated assets must be used. Donor restrictions on gifts that must be used to acquire or construct long-lived assets are released in the period in which the assets are acquired and placed in service.
From page 56...
... government sponsors 9,260 6,879 Meetings and publication subscriptions 8,723 8,508 Total deferred revenue and advances $ 47,238 $ 41,840 Income Taxes NAS follows guidance that clarifies the accounting for uncertainty in tax positions taken or expected to be taken in a tax return, including issues relating to financial statement recognition and measurement. This guidance provides that the tax effects from an uncertain tax position can only be recognized in the financial statements if the position is "more-likelythan-not" to be sustained if the position were to be challenged by a taxing authority.
From page 57...
... NAS has determined that there are no material unrelated business activities or uncertain tax positions that require recognition or disclosure in the accompanying financial statements. Functional Allocation of Expenses NAS' primary program service is conducting scientific research, convening meetings, and administering grant and fellowship programs.
From page 58...
... Care should be exercised in deriving conclusions about NAS' business, its value or financial position based on the fair value information of financial assets presented.
From page 59...
... Accordingly, such futures contracts are disclosed in Level 1 of the fair value hierarchy. The reported fair value of alternative investments, including private equity securities and hedge funds, is based on the alternative investment fund managers' net asset value ("NAV")
From page 60...
... 211 211 - Index futures contracts 339 339 - Long/short equity hedge funds 104,415 - - 104,415 Hedge fund investments 256,672 - - 256,672 Private equity funds 34,419 - - 34,419 Total 1,148,051 $ 751,994 $ 551 $ 395,506 Cash held for investment 621 Total investments $ 1,148,672 Other assets: Charitable gift annuity assets $ 4,360 $ 3,411 $ 949 $ Deferred compensation assets (Note 13) 1,217 1,199 18 Total other assets $ 5,577 $ 4,610 $ 967 $ 60
From page 61...
... The NAS obligation to TNAC for these funds held in trust, which totaled $13.3 million and $12.3 million as of December 31, 2019 and 2018, respectively, is reported as funds held on behalf of others in the accompanying statements of financial position. The funds held on behalf of others liability equals the investments held in NAS' investment pool on behalf of TNAC.
From page 62...
... (e) This class includes several domestic private equity funds, which invest in domestic equity securities, warrants, or other securities that are generally not actively traded at the time of investment.
From page 63...
... in the accompanying statements of financial position, and mature as follows (in thousands) : 2019 2018 Less than one year $ 13,631 $ 14,348 One to five years 7,088 8,267 Thereafter 600 1,200 21,319 23,815 Less: Discount at rates ranging from 2.00% to 3.35% (401)
From page 64...
... (994,855) Financial assets available to meet cash needs for general expenditures within one year $ 163,555 $ 142,606 NAS is substantially supported by cost reimbursable contracts and grants from federal and private sponsors, which includes indirect cost recovery (as further discussed in Note 11)
From page 65...
... which, once appropriated, are expendable to support: Other sponsored research and advisory programs 220,594 196,183 Prizes and awards 71,587 61,932 Woods Hole facility 7,875 7,183 General operations 138,193 126,190 438,249 391,488 Total net assets with donor restrictions $ 1,034,867 $ 950,822 Net assets were released from donor-imposed restrictions in satisfaction of the following purposes during the years ended December 31, 2019 and 2018 (in thousands) : 2019 2018 Purpose-restricted releases: Gulf Research Program $ 30,174 $ 18,223 Other sponsored research and advisory programs 46,431 47,091 Prizes and awards 1,440 1,935 Woods Hole facility 333 328 78,378 67,577 Time-restricted releases 5,603 5,488 Net assets released from restrictions $ 83,981 $ 73,065 NOTE 9 - ENDOWMENT Endowment Assets The NAS endowment consists of 131 individual funds established to support general operations, sponsored research and advisory programs, prizes and awards, and the operations of the Woods Hole facility.
From page 66...
... Appreciation on donor-restricted endowment funds is classified in net assets with donor restrictions until such amounts are appropriated for spending by the NAS Council in a manner consistent with the standard of prudence prescribed by the Act. In accordance with the Act, NAS considers the following factors in making a determination to appropriate investment funds attributable to donor-restricted endowments: (1)
From page 67...
... The over-recovery is included in the deferred revenue and advances balance and the under-recovery is included in the contracts receivable, net balance in the accompanying statements of financial position. NOTE 12 - BUILDING PROJECT AND FINANCING Building Project Revenue Bonds In January 1999, the District of Columbia issued Series 1999A, Series 1999B, and Series 1999C tax-exempt revenue bonds in the amount of $130,960,000 on behalf of NAS.
From page 68...
... In May 2010, the District of Columbia issued Series 2010A tax-exempt revenue bonds in the amount of $59,550,000 on behalf of NAS. These bonds were sold to finance the cost to restore the NAS headquarters building on Constitution Avenue in Washington, DC and to pay for certain costs of issuance.
From page 69...
... With regard to the fixed-to-variable interest rate swap, NAS recorded a loss on the change in the fair value of its swap agreement of approximately $19,000 and $13,000 for the years ended December 31, 2019 and 2018, respectively, which is included in other income in the accompanying statements of activities. The fair value of the interest rate swap was recorded as an asset of $3,000 and $22,000 as of December 31, 2019 and 2018, respectively, and is included in other assets in the accompanying statements of financial position.
From page 70...
... The fair value of investments held for the two plans totaled $1.2 million and $862,000 as of December 31, 2019 and 2018, respectively, which is reported within other assets in the accompanying statements of financial position. The related obligation is included in accrued employee benefits in the accompanying statements of financial position.
From page 71...
... The accrued postretirement benefit obligation is reported within other assets in the accompanying statements of financial position. Postretirement changes other than net periodic benefit cost are as follows (in thousands)
From page 72...
... (56) Recognized actuarial loss 684 848 Net periodic benefit cost $ 892 $ 1,064 The assumptions used to determine net periodic benefit cost for the years ended December 31, 2019 and 2018 are as follows: 2019 2018 Discount rate 4.25% 3.50 % Expected long-term return on plan assets 6.75% 6.75 % Rate of increase in healthcare costs: Under age 65 5.99% 6.21 % Over age 65 5.43% 5.54 % The assumptions used to calculate the accumulated postretirement benefit obligation for the years ended December 31, 2019 and 2018 are as follows: 2019 2018 Discount rate 3.27% 4.25% Rate of increase in healthcare costs for next year: Under age 65 5.77% 5.99% Over age 65 5.30% 5.43% The trend rate for growth in healthcare costs was assumed to decline gradually beginning in 2019 to 4.5% in the year 2038.
From page 73...
... : 2019 2018 Postretirement benefit obligation $ 8,216 $ 6,289 Benefit expense 620 691 The effect of a 1% decrease in the assumed healthcare cost trend rate would have resulted in the following effects (in thousands) : 2019 2018 Postretirement benefit obligation $ (6,516)
From page 74...
... equity (developed) 10,701 10,701 Total 52,345 $ 47,877 $ 4,468 Cash held for investment 250 Total investments $ 52,595 The following table presents the fair value hierarchy for the postretirement benefit plan assets at December 31, 2018 (in thousands)
From page 75...
... This facility, the Arnold and Mabel Beckman Center, located in Irvine, California, operates to expand and support the general activities of NAS, NRC, NAM, and NAE. The financial position and results of TNAC are not consolidated in the NAS financial statements.
From page 76...
... The amount recognized as a right-of-use asset is included in other assets in the accompanying 2019 statement of financial position, while the related lease liability is included in other current liabilities and other long-term liabilities in the accompanying 2019 statement of financial position. NAS has elected the practical expedient to forgo applying the recognition requirements in ASC 842 to short-term leases.
From page 77...
... These developments are expected to decrease contract and grant revenues in 2020, accompanied by a reduction in travel and meeting expenditures. NAS has evaluated subsequent events from the statement of financial position date through June 12, 2020, the date at which the financial statements were issued, and determined that there are no additional items to disclose or adjustments to record.
From page 79...
... Parkinson William W Stead FINANCIAL MANAGEMENT STAFF Didi Salmon, Chief Financial Officer Laura Douglas, Controller 79


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