Report of the Treasurer for the Year Ended December 31, 2017 (2018) / Chapter Skim
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III. Financial Condition
III. Financial Condition
Pages 49-88
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From page 49... ...
III. Financial Condition
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From page 50... ...
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, 2017, and to report to the Auditing Committee. The independent accountants have completed their audit and submitted their report.
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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. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audits.
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From page 52... ...
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 financial statements referred to above present fairly, in all material respects, the financial position of the National Academy of Sciences as of December 31, 2017 and 2016, 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.
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From page 53... ...
171,346 162,915 Total net assets 1,116,295 1,049,467 Total liabilities and net assets $ 1,378,180 $ 1,313,515 The accompanying notes are an integral part of these financial statements.
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3,833 - - 3,833 - - - Change in net assets 8,934 49,463 8,431 66,828 2,193 27,420 16,290 45,903 Net assets at beginning of year 104,174 782,378 162,915 1,049,467 101,981 754,958 146,625 1,003,564 Net assets at end of year $ 113,108 $ 831,841 $ 171,346 $ 1,116,295 $ 104,174 $ 782,378 $ 162,915 $ 1,049,467 The accompanying notes are an integral part of these financial statements.
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From page 55... ...
increase in cash, cash equivalents, and restricted cash (1,008) 759 Cash, cash equivalents, and restricted cash, beginning of year 4,033 3,274 Cash, cash equivalents, and restricted cash, end of year $ 3,025 $ 4,033 Supplemental disclosure of cash flow information: Interest paid $ 5,568 $ 5,559 The accompanying notes are an integral part of these financial statements.
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From page 56... ...
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 Transportation Research Board NRC activities are under the control of the NAS governance structure and, therefore, are included in the NAS financial statements. National Academy of Medicine The Institute of Medicine ("IOM")
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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.
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Allowances are recorded for estimated uncollectible contracts and grants based upon management's judgment and analysis of the creditworthiness of the sponsoring organization, past collection experience, and other relevant factors. As of December 31, 2017 and 2016, NAS has an allowance for estimated uncollectible contracts and grants of $4.8 million and $4.7 million, respectively, which is reported net of contracts receivable in the accompanying statements of financial position.
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Deferred Revenue For both federal and non-federal 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 accompanying statements of financial position.
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There were no changes to total assets, liabilities, net assets, revenues, expenses or changes in net assets as previously reported in the fiscal 2016 financial statements.
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: 2017 2016 Investments: Program pool investments Cash and cash equivalents $ 2,022 $ 2,917 Bonds and notes 43,326 43,770 Equity 11,737 11,414 57,085 58,101 Gulf Research Program investments Cash and cash equivalents 5,194 560 Bonds and notes 189,918 110,698 Equity 188,981 111,554 384,093 222,812 Investment pool, including endowment assets Cash and cash equivalents 12,639 4,288 Bonds and notes 40,552 38,244 Equity 277,211 256,294 Hedge funds 152,729 120,597 Private equity 23,109 23,232 506,240 442,655 Other investments Cash and cash equivalents 2,609 854 Bonds and notes 23,867 19,432 Equity 14,566 16,034 41,042 36,320 Total investments $ 988,460 $ 759,888 The National Academies' Corporation (TNAC, see Note 15) , a related entity, invests certain of its assets in the NAS investment pool.
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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.
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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")
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29,994 29,994 - Real estate 8,277 8,277 - Long/short equity hedge funds 36,004 - - 36,004 Hedge fund investments 152,729 - - 152,729 Private equity funds 23,109 - - 23,109 Total 987,372 $ 761,139 $ 14,391 $ 211,842 Cash held for investment 1,088 Total investments $ 988,460 Other assets: Charitable gift annuity assets $ 3,022 $ 2,510 $ 512 $ Deferred compensation assets 963 963 - Total other assets $ 3,985 $ 3,473 $ 512 $ 64
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48,605 48,605 - Real estate 15,587 15,587 - Long/short equity hedge funds 53,784 - - 53,784 Hedge fund investments 120,597 - - 120,597 Private equity funds 23,232 - - 23,232 Total 758,388 $ 525,607 $ 35,168 $ 197,613 Cash held for investment 1,500 Total investments $ 759,888 Other assets: Charitable gift annuity assets $ 2,729 $ 2,204 $ 525 $ Deferred compensation assets 855 855 - Total other assets $ 3,584 $ 3,059 $ 525 $ 65
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(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.
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and contributions receivable, net (long-term) in the accompanying statements of financial position, and mature as follows (in thousands)
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NAS recognized revenue totaling approximately $7.1 million and $1.7 million for the years ended December 31, 2017 and 2016, respectively, the extent to which the conditions on the pledge have been met. During the year ended December 31, 2017, NAS entered into agreements for two additional conditional contributions totaling $1.7 million.
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: 2017 2016 Gulf Research Program $ 498,216 $ 485,449 Other sponsored research and advisory programs 199,971 182,057 General endowment 91,545 80,401 Prizes and awards 37,971 31,012 Woods Hole facility 4,138 3,459 Total temporarily restricted net assets $ 831,841 $ 782,378 Temporarily restricted net assets were released from restriction for the following purposes during the years ended December 31, 2017 and 2016 (in thousands) : 2017 2016 Purpose-restricted releases Gulf Research Program $ 21,600 $ 12,544 Other sponsored research and advisory programs 42,327 37,332 Prizes and awards 995 1,556 Woods Hole facility 327 326 Time-restricted releases General endowment 5,368 5,335 Total temporarily restricted net assets released from restriction $ 70,617 $ 57,093 10.
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accumulations to its permanent endowment required by the applicable donor gift instrument. The remaining portion of donor-restricted endowment funds that are not classified as permanently restricted are classified as temporarily restricted net assets until those amounts are appropriated for expenditure by NAS.
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$ 204,462 $ 149,351 $ 353,584 Funds with Deficiencies From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the original value of the gift donated to the permanent endowment. Deficiencies of this nature are reported as unrestricted net assets.
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The under recovery is included in the contracts receivable, net balance in the accompanying statements of financial position.
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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.
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maturing at various dates from January 1, 2017 through 2039 $ 59,500 $ 61,000 Series 2009A revenue bonds, term, at flexible rates (1.4% in 2017 and 0.9% in 2016) maturing at various dates from January 1, 2017 through 2028 46,770 47,945 Series 2010A revenue bonds, serial, with interest rates ranging from 3.0% to 5.0%, maturing at various dates from April 1, 2017 through 2030 4,330 24,620 Series 2010A revenue bonds, term: Interest rate 5%, maturing April 1, 2035 - 13,205 Interest rate 5%, maturing April 1, 2040 - 16,960 Series 2017A revenue bonds, term, with a fixed interest rate of 2.24% until 4/1/2020 and flexible rates thereafter, maturing at various dates from April 1, 2018 through 2040 52,760 Total bonds, at face value 163,360 163,730 Plus: unamortized premium 40 575 Less: debt issuance costs (2,093)
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Interest Rate Swaps In October 1999, NAS entered into an interest-rate swap agreement, with an effective date of February 1, 2000, relating to the $66 million face amount of its Series 1999A revenue bonds. The agreement provides for NAS to receive 4.97% in interest on a notional amount of $65 million and to pay interest at a floating rate option based on the weekly interest rate resets of tax-exempt variable-rate issues per the Securities Industry and Financial Markets Association ("SIFMA")
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The related obligation is included in accrued employee benefits in the accompanying statements of financial position. Deferred compensation investments are held in debt and equity mutual funds along 76
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The accrued postretirement benefit obligation is reported in accrued employee benefits in the accompanying statements of financial position. Postretirement changes other than net periodic benefit cost are as follows (in thousands)
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$ (49) Recognized actuarial loss 848 840 Total $ 792 $ 791 The following table presents the changes in benefit obligations, changes in plan assets, funded status, and the components of net periodic benefit cost for the years ended December 31, 2017 and 2016 (in thousands)
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The effect of a 1% increase in the assumed healthcare cost trend rate would have resulted in the following effects (in thousands) : 2017 2016 Postretirement benefit obligation $ 7,253 $ 5,963 Benefit expense 586 551 The effect of a 1% decrease in the assumed healthcare cost trend rate would have resulted in the following effects (in thousands)
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The following table presents the fair value hierarchy for the postretirement benefit plan assets at December 31, 2017 (in thousands) : Fair Value Measurements Using Total Level 1 Level 2 Financial assets: Retiree Welfare Benefit Plan investments: Cash equivalents $ 931 $ 931 $ Bonds and notes U.S.
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From page 81... ...
308 308 Total 37,212 $ 32,788 $ 4,424 Cash held for invesment 250 Total investments $ 37,462 The methods and assumptions used to estimate the fair value of each class of financial instrument are further discussed in Note 4. NAS expects to contribute to the Plan the actuarially determined net periodic cost for 2018, which is approximately $1.1 million.
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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.
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17. SUBSEQUENT EVENTS NAS has evaluated subsequent events from the statement of financial position date through June 12, 2018, the date at which the financial statements were issued, and determined that there are no other items to disclose.
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Ostriker FINANCIAL MANAGEMENT STAFF Didi Salmon, Chief Financial Officer Laura Douglas, Controller 85
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