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III. Financial Condition
Pages 39-70

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From page 39...
... III. Financial Condition
From page 40...
... 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 Audit Committee on behalf of the Council to conduct an audit of the accounts of the Treasurer for the year ended December 31, 2021, and to report to the Audit Committee. The independent accountants have completed their audit and submitted their report.
From page 41...
... In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of NAS as of December 31, 2021 and 2020, 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. Basis for opinion We conducted our audits of the financial statements in accordance with auditing standards generally accepted in the United States of America (US GAAS)
From page 42...
... Accordingly, no such opinion is expressed. • Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluate the overall presentation of the financial statements.
From page 43...
... 1,265,694 1,141,594 Total net assets 1,433,319 1,287,582 Total liabilities and net assets $ 1,716,497 $ 1,553,804 The accompanying notes are an integral part of these financial statements.
From page 44...
... - (6,015) Change in net assets 21,637 124,100 145,737 20,214 106,727 126,941 Net assets at beginning of year 145,988 1,141,594 1,287,582 125,774 1,034,867 1,160,641 Net assets at end of year $ 167,625 $ 1,265,694 $ 1,433,319 $ 145,988 $ 1,141,594 $ 1,287,582 The accompanying notes are an integral part of these financial statements.
From page 45...
... in liabilities: Accounts payable and accrued expenses 84 2,840 Deferred revenue and advances 22,596 4,124 Other current liabilities 887 159 Funds held on behalf of others 1,193 630 Accrued employee benefits 634 450 Other long-term liabilities (2,410) 1,214 Net cash provided by operating activities 6,896 17,538 CASH FLOWS FROM INVESTING ACTIVITIES Additions to property and equipment (1,385)
From page 46...
... 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 47...
... . 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 48...
... 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, 2021 and 2020, NAS had charitable gift annuity assets of approximately $6.4 million and $5.4 million, respectively, which is included in other assets in the accompanying statements of financial position.
From page 49...
... Deferred Revenue and Advances For both federal and non-federal grants and contracts that are determined to be exchange transactions, revenue is recognized in the amount to which NAS has the right to invoice. Funds received in advance of being earned for these grants are recorded as deferred revenue and advances in the accompanying statements of financial position.
From page 50...
... government sponsors 30,625 14,280 Meetings and publication subscriptions 7,549 4,893 Total deferred revenue and advances $ 73,958 $ 51,362 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 51...
... Functional Allocation of Expenses NAS' primary program service is conducting scientific research, convening meetings, and administering grant and fellowship programs. Natural expenses attributable to more than one functional expense category are allocated using a variety of cost allocation techniques, such as square footage and time and effort.
From page 52...
... 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. Fair value estimates are made at a specific point in time, based on available market information and judgments about the financial asset, including estimates of timing, amount of expected future cash flows, and the credit standing of the issuer.
From page 53...
... 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") per ownership interest.
From page 54...
... 12,703 12,703 Index futures contracts 70 70 Long/short equity hedge funds 84,359 - 84,359 Hedge fund investments 361,866 - 361,866 Private equity funds 123,095 - 123,095 Total $ 1,360,569 $ 791,249 $ 569,320 Cash held for investment and receivables 17,575 Total investments $ 1,378,144 The following table presents NAS' fair value hierarchy for those assets measured at fair value on a recurring basis at December 31, 2020 (in thousands) : Investments Measured at Total Level 1 NAV Investments: Cash equivalents $ 118,401 $ 118,401 $ Bonds and notes: U.S.
From page 55...
... TNAC investments participate in the investment pools proportionally with all other funds in the pools. The NAS obligation to TNAC for these funds held in trust, which totaled $15.1 million and $13.9 million as of December 31, 2021 and 2020, respectively, is reported as funds held on behalf of others in the accompanying statements of financial position.
From page 56...
... in the accompanying statements of financial position, and mature as follows (in thousands) : 2021 2020 Less than one year $ 12,055 $ 13,807 One to five years 9,773 6,638 Thereafter 240 22,068 20,445 Less: Discount at rates ranging from 0.43% to 3.35% (216)
From page 57...
... NOTE 7 - FINANCIAL ASSETS AND LIQUIDITY Financial assets available for general expenditure, that is, without donor or contractual restrictions limiting their use, within one year of the date of the statements of financial position, are comprised of the following as of December 31, 2021 and 2020 (in thousands) : 2021 2020 Financial assets: Cash and cash equivalents $ 89,257 $ 59,017 Contracts receivable, net 52,463 47,422 Contributions and other receivables, net, current 16,389 20,581 Investments 1,378,144 1,253,415 1,536,253 1,380,435 Plus endowment fund appropriation for the following year 5,082 4,890 Less those unavailable for general expenditures within one year, due to: Contractual or donor-imposed restrictions: Endowment funds (537,467)
From page 58...
... which, once appropriated, are expendable to support: Other sponsored research and advisory programs 275,574 242,750 Prizes and awards 87,499 76,844 Woods Hole facility 9,351 8,359 General operations 165,100 146,990 537,524 474,943 Total net assets with donor restrictions $ 1,265,694 $ 1,141,594 Net assets were released from donor-imposed restrictions in satisfaction of the following purposes during the years ended December 31, 2021 and 2020 (in thousands) : 2021 2020 Purpose-restricted releases: Gulf Research Program $ 23,367 $ 22,816 Other sponsored research and advisory programs 42,709 34,537 Prizes and awards 1,495 2,262 Woods Hole facility 310 344 67,881 59,959 Time-restricted releases 5,239 5,834 Net assets released from restrictions $ 73,120 $ 65,793 The Gulf Research Program net assets relate to two agreements between NAS and BP Exploration and Production, Inc.
From page 59...
... 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 60...
... The over-recovery is included in the deferred revenue and advances 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 aggregate amount of $130,960,000 on behalf of NAS.
From page 61...
... The bonds held by Eastern Bank mature April 1, 2040 and do not have a mandatory repurchase date. NAS is obligated under the revenue bonds as follows (in thousands)
From page 62...
... The fair value of the swap is recorded as a liability of approximately $3.3 million and $4.9 million as of December 31, 2021 and 2020, respectively, and is included in other current liabilities and other long-term liabilities in the accompanying statements of financial position. The fair value of the swap is determined using pricing models based on observable market data such as prices of instruments with similar maturities and characteristics, interest rate yield curves, and measures of interest rate volatility.
From page 63...
... 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 64...
... During the year ended December 31, 2020, NAS recognized an actuarial loss of $1.2 million primarily due in the 85 basis point decrease in the discount rate used to measure the Plan benefit obligation at December 31, 2020 as compared to December 31, 2019 offset by updates to the claims costs, trend rates, and mortality assumptions. The assumptions used to determine net periodic benefit cost for the years ended December 31, 2021 and 2020 are as follows: 2021 2020 Discount rate 2.42% 3.27% Expected long-term return on plan assets 6.25% 6.50% Rate of increase in healthcare costs: Under age 65 5.56% 5.77% Over age 65 5.16% 5.30% 64
From page 65...
... This estimate was developed by evaluating the history of investments with similar asset allocations. The following table presents the fair value hierarchy for the postretirement benefit plan assets at December 31, 2021 (in thousands)
From page 66...
... NAS disbursed $4.5 million and $3.7 million to NAEF from these collected amounts in 2021 and 2020, respectively. Amounts collected but not yet remitted to NAEF are included in other current liabilities in the accompanying statements of financial position.
From page 67...
... The lease contains no variable lease payments or residual value guarantees. The amount recognized as a right-of-use asset is included in other assets in the accompanying statements of financial position, while the related lease liability is included in other current liabilities and other long-term liabilities.
From page 68...
... In the opinion of management, there are no lawsuits outstanding that would have a material adverse effect on the financial statements of NAS. The COVID-19 pandemic continues to have a broad impact on commerce and financial markets around the world.  The extent to which COVID-19 may impact NAS' future financial position, changes in net assets, and cash flows is uncertain.
From page 69...
... Stead FINANCIAL MANAGEMENT STAFF Didi Salmon, Chief Financial Officer Laura Douglas, Controller 69


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