Permanently restricted – Net assets subject to donor-imposed stipulations that they be maintained in perpetuity by NAS. Generally, the donors of these assets permit NAS to use all or part of the income earned on related investments for general or specific purposes.

Temporarily restricted – Net assets subject to donor-imposed stipulations that may or will be met either by actions of NAS and/or the passage of time. When a donor restriction expires, temporarily restricted net assets are reclassified to unrestricted net assets.

Unrestricted – Net assets arising from exchange transactions and contributions not subject to donor-imposed stipulations.

(b) Cash Equivalents

NAS reports liquid, temporary investments purchased with original maturities of three months or less as cash equivalents.

(c) Investments

Equity and debt securities are reported at fair value, based on quoted market prices. Investments in real estate mortgages are recorded at cost and consist of mortgages on certain administrative facilities that NAS occupies.

NAS holds certain short-term investments for program and operational liquidity requirements.

Changes in the fair value of investments are reported within investment income in the statements of activities.

Certain investments are pooled for long-term investment purposes. Investments in the pool are administered as an open-end investment trust, with shares of the pool funds expressed in terms of participating capital units (PCUs). PCU values are used to determine equity in the allocation of investment income among funds in the pool whenever additional funds are contributed or withdrawn.

(d) Contributions

Contributions, including unconditional promises to give, are recognized as revenues in the period received. Conditional promises to give are not recognized until any conditions on which receipt depends are substantially met.

Gifts of land, buildings, or equipment are reported as unrestricted net assets unless explicit donor stipulations specify how the donated assets must be used. Temporary restrictions on gifts that must be used to acquire long-lived assets are released in the period in which the assets are acquired or placed in service.

NAS performs certain fundraising activities on behalf of NAEF. A total of approximately $2,924,000 and $4,002,000 in 2003 and 2002, respectively, was collected by NAS on behalf of NAEF. NAS disbursed approximately $2,810,000 and $3,479,000 to NAEF from these collected amounts in 2003 and 2002, respectively. Amounts collected but not yet remitted to NAEF are reported as assets and liabilities on NAS financial statements.

(e) Contracts and Grants

The majority of NAS activities are performed under cost-reimbursable contracts with the U.S. government. Federal sponsors individually accounting for more than 10% of NAS revenues are summarized below:

Federal agency sponsor

Percentage of NAS revenues

2003

2002

Department of Transportation

25%

25%

National Aeronautics and Space Administration

11%

11%

Department of Health and Human Services

12%

13%

NAS records federal contracts as exchange transactions, recognizing revenue as recoverable costs are incurred.

Revenues from nonfederal grants qualifying as contributions are recorded by NAS upon notification by NAS of the grant award. Such grants are classified as temporarily restricted when use of the grant funds are limited to specific areas of study or to be used in future periods.

(f) Deferred Revenue

For both federal and nonfederal grants and contracts that are determined to be exchange transactions, revenue is recognized as the related costs are incurred. Funds received in advance of being earned for these grants are recorded as deferred revenue in the statements of financial position.

(g) Fair Value of Financial Instruments

The carrying value of bonds payable in the financial statements was less than their fair value by approximately $3,303,000 and $3,059,000 on December 31, 2003 and 2002, respectively.



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