Audited Consolidated Financial Statements and Consolidating Information THE ESOP ASSOCIATION & AFFILIATE. December 31, 2014

Transcription

1 Audited Consolidated Financial Statements and Consolidating Information THE ESOP ASSOCIATION & AFFILIATE December 31, 2014

2 Contents Independent Auditor s Report on the Consolidated Financial Statements 1 Consolidated Financial Statements Consolidated statements of financial position 2 Consolidated statements of activities 3 Consolidated statements of cash flows 4 Notes to the consolidated financial statements 5-8 Consolidating Information Independent auditor s report on the consolidating information 9 Consolidating statement of financial position 10 Consolidating statement of activities 11

3 Independent Auditor s Report on the Consolidated Financial Statements To the Board of Directors The ESOP Association & Affiliate We have audited the accompanying consolidated financial statements of The ESOP Association & Affiliate (the Organization), which comprise the consolidated statements of financial position as of December 31, 2014 and 2013, and the related consolidated statements of activities and cash flows for the years then ended, and the related notes to the consolidated financial statements. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated 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 consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility L S t r e e t, N W S u i t e Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Organization s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Organization s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of The ESOP Association & Affiliate as of December 31, 2014 and 2013, 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 April 9,

4 Consolidated Statements of Financial Position December 31, Assets Cash and cash equivalents $ 1,329,379 $ 725,170 Investments 3,100,926 2,984,999 Accounts receivable 182, ,243 Pledges receivable 11,725 11,500 Inventory 65,601 63,262 Prepaid expenses & other assets 279, ,765 Furniture and equipment 55,199 70,954 Total assets $ 5,024,640 $ 4,287,893 Liabilities and Net Assets Liabilities Accounts payable $ 589,800 $ 206,787 Deferred revenue 1,217,261 1,064,964 Total liabilities 1,807,061 1,271,751 Net assets Unrestricted Undesignated 1,170,782 1,092,409 Board designated reserves 2,020,797 1,922,733 Total unrestricted net assets 3,191,579 3,015,142 Temporarily restricted 25,000 - Permanently restricted 1,000 1,000 Total net assets 3,217,579 3,016,142 Commitment and contingencies - - Total liabilities and net assets $ 5,024,640 $ 4,287,893 See notes to the consolidated financial statements. 2

5 Consolidated Statements of Activities Year Ended December 31, Unrestricted activities Revenue and support Seminars and conferences $ 2,554,521 $ 2,214,866 Membership dues 1,939,992 1,831,417 Sponsorships 412, ,365 Contributions 332, ,971 Other income 182, ,456 Publications 120, ,044 Interest and dividends 67,951 73,657 Expense Total unrestricted revenue and support 5,610,699 5,092,776 Program services Seminars and conferences 2,441,091 2,260,554 Membership 442, ,965 Government relations 423, ,461 Research / scholarships 170, ,147 Publications 64,087 56,356 Total program services 3,542,232 3,490,483 Supporting services Management and general 1,913,250 1,725,505 Public relations / development 130,672 94,720 Total supporting services 2,043,922 1,820,225 Total expense 5,586,154 5,310,708 Change in unrestricted net assets before net gain on investments 24,545 (217,932) Net gain on investments 151, ,394 Change in unrestricted net assets 176, ,462 Temporarily restricted activities Contributions 25,000 - Change in net assets 201, ,462 Net assets, beginning of year 3,016,142 2,902,680 Net assets, end of year $ 3,217,579 $ 3,016,142 See notes to the consolidated financial statements. 3

6 Consolidated Statements of Cash Flows Year Ended December 31, Cash flows from operating activities Change in net assets $ 201,437 $ 113,462 Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities: Depreciation and amortization 19,089 17,843 Net gain on investments (151,892) (331,394) Change in assets and liabilities: Accounts receivable 36,930 (80) Pledges receivable (225) 7,600 Inventory (2,339) 12,934 Prepaid expenses & other assets (66,732) (39,950) Accounts payable 383,013 8,288 Deferred revenue 152,297 8,535 Total adjustments 370,141 (316,224) Net cash provided by (used in) operating activities 571,578 (202,762) Cash flows from investing activities Sales of investments 323,639 1,122,320 Purchases of investments (287,674) (1,030,180) Purchases of furniture and equipment (3,334) (27,979) Net cash provided by investing activities 32,631 64,161 Net increase (decrease) in cash and cash equivalents 604,209 (138,601) Cash and cash equivalents, beginning of year 725, ,771 Cash and cash equivalents, end of year $ 1,329,379 $ 725,170 Supplementary disclosure of cash flow information Cash paid during the year for income taxes $ - $ 4,740 See notes to the consolidated financial statements. 4

7 Notes to the Consolidated Financial Statements A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization: The ESOP Association (the Association) was created in January The primary purposes of the Association are to foster and promote the concept, development and advancement of employee stock ownership plans and to provide assistance to the organizations that have active employee stock ownership plans. The Employee Ownership Foundation, Inc. (the Foundation) was created in March The Foundation operates exclusively to carry out the charitable and educational activities and purposes of the Association. ESOP Association PAC (the PAC) exists to conduct political activities on behalf of the Association's members. The PAC's unaudited assets totaled $10,625 and $3,678 as of December 31, 2014 and 2013, respectively, and the PAC's unaudited revenue totaled $107,377 and $125,509 for the years ended December 31, 2014 and 2013, respectively. While the Association has control and economic interest in the PAC, its financial information has not been included in the accompanying consolidated financial statements given its immateriality to the consolidated financial statements as a whole. Principles of consolidation: The consolidated financial statements include the accounts of the Association and the Foundation (collectively referred to as the Organization). All significant intraentity transactions have been eliminated in consolidation. Income taxes: The Association is exempt from income taxes under Section 501(c)(6) of the Internal Revenue Code (IRC) except on net income derived from unrelated business activities. The Foundation is exempt from income taxes under Section 501(c)(3) of the IRC. The Foundation qualifies for the charitable contribution deduction and has been classified as an organization that is not a private foundation under Section 509(a)(3) of the IRC. The PAC is a separate segregated fund as defined under Section 527(f) of the IRC. The Organization believes that it has appropriate support for any tax positions taken, and therefore, does not have any uncertain tax positions that are material to the consolidated financial statements. The Organization s income tax returns are subject to examination by taxing authorities generally for three years after they were filed. Basis of accounting: The consolidated financial statements are prepared on the accrual basis of accounting. Revenue is recognized when earned and expense when the obligation is incurred. Use of estimates: Preparation of consolidated financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Actual results could differ from estimates. Cash and cash equivalents: For consolidated financial statement purposes, cash equivalents consist of demand and money market accounts. Accounts receivable: Accounts receivable consists of amounts owed from members as a result of meeting registrations and dues. The Organization s management periodically reviews the status of these receivables for collectibility, which is assessed based on management s knowledge of and relationship with the customer and the age of the receivable. As a result of these reviews, all receivables deemed uncollectible are written off directly to bad debt expense. Management believes that the use of the direct write-off method approximates the results that would be presented if an allowance for bad debts had been recorded. 5

8 Notes to the Consolidated Financial Statements A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Pledges receivable: The Organization received pledges that are both unrestricted and unconditional in nature. All pledges were expected to be received within one year of the consolidated statement of financial position date. Pledges receivable for the years ended December 31, 2014 and 2013 were $11,725 and $11,500, respectively. Inventory: Inventory consists primarily of publications held for resale and is stated at the lower of cost (average cost method) or market. Deferred revenue: Deferred revenue consists primarily of deferred membership dues. Membership dues are recognized as revenue in equal monthly installments over the term of the membership. Deferred membership dues represent that portion of membership dues which apply to future periods. Net assets: For consolidated financial statement purposes, net assets consist of the following: Unrestricted: Unrestricted net assets include those net assets whose use is not restricted by donors, even though their use may be limited in other respects, such as reserves designated by the Board of Directors for use in future periods. Temporarily restricted: Temporarily restricted net assets include those net assets whose use by the Organization has been donor restricted by specified time or purpose limitations. At December 31, 2014, the Organization had temporarily restricted net assets of $25,000 which were restricted for purpose. Permanently restricted: Permanently restricted net assets must be maintained in perpetuity by the Organization. Generally, the donors permit the Organization to use all or part of the income earned on related investments for general or specific purposes. At December 31, 2014, the Organization had permanently restricted net assets of $1,000. Contributions: Contributions are recorded as unrestricted or restricted support depending upon the existence and/or nature of any donor restrictions. Support that is restricted by the donor is reported as an increase in unrestricted net assets if the restriction expires in the reporting period in which the revenue is recognized. Allocation of expenses: The costs of the Organization s various programs and supporting services are summarized on a functional basis in the consolidated statements of activities. Accordingly, certain management and general costs have been allocated among the programs and supporting services benefited. Reclassification: Certain 2013 expenses have been reclassified to conform to 2014 s presentation. Management believes the 2014 presentation is more reflective of the composition of the Organization s expenses. Subsequent events: Subsequent events have been evaluated through April 9, 2015, which is the date the consolidated financial statements were available to be issued. 6

9 Notes to the Consolidated Financial Statements B. CREDIT AND MARKET RISK Credit risk: The Organization maintains demand deposits with commercial banks and money market funds with financial institutions. At times, certain balances held within these accounts may not be fully guaranteed or insured by the U.S. federal government. The uninsured portions of cash and money market accounts are backed solely by the assets of the underlying institution. Therefore, the failure of an underlying institution could result in financial loss to the Organization. Market risk: The Organization invests funds in professionally managed mutual funds. Such investments are exposed to market and credit risks. Thus, the Organization s investments may be subject to significant fluctuations in fair value. As a result, the investment balances reported in the accompanying consolidated financial statements may not be reflective of the portfolio's value during subsequent periods. C. INVESTMENTS In accordance with generally accepted accounting principles, the Organization uses the following prioritized input levels to measure fair value. The input levels used for valuing investments are not necessarily an indication of risk. Level 1 Observable inputs that reflect quoted prices for identical assets or liabilities in active markets such as stock quotes; Level 2 Includes inputs other than level 1 inputs that are directly or indirectly observable in the marketplace such as yield curves or other market data; Level 3 Unobservable inputs which reflect the reporting entity s assessment of the assumptions that market participants would use in pricing the asset or liability including assumptions about risk such as bid/ask spreads and liquidity discounts. Investments, recorded at fair value using Level 1 inputs, consisted of the following at December 31,: Fixed income mutual funds $ 1,404,426 $ 1,252,206 Equity mutual funds 1,632,822 1,686,283 Funds held for deferred compensation: Equity mutual funds 63,073 46,405 Investments carried at fair value 3,100,321 2,984,894 Money market funds held for deferred compensation * Total investments $ 3,100,926 $ 2,984,999 * Money market funds included in the investment portfolio are not subject to the provisions of fair value measurements as they are recorded at cost. 7

10 Notes to the Consolidated Financial Statements D. FURNITURE AND EQUIPMENT Acquisitions of property and equipment greater than $500 are capitalized at cost. Depreciation and amortization are provided for using the straight-line basis over the estimated useful lives of the respective assets (3-5 years). Furniture and equipment consisted of the following at December 31,: Computer software $ 108,254 $ 107,919 Computer equipment 45,370 42,933 Office furniture 32,739 32, , ,029 Less: accumulated depreciation and amortization (131,164) (112,075) $ 55,199 $ 70,954 E. RETIREMENT PLANS 401(k) plan: The Organization has a 401(k) plan which covers all employees upon their completion of minimum requirements as to age and length of service. The Organization matches up to 100% of an employee s contribution, limited to $3,000. Pension expense for the years ended December 31, 2014 and 2013 was $27,100 and $21,825, respectively. Deferred compensation: The Organization has a deferred compensation plan under Section 457(b) of the Internal Revenue Code for a key employee. The liability and related assets totaled $63,678 and $46,511 at December 31, 2014 and 2013, respectively, and are classified in accounts payable and investments. F. COMMITMENT AND CONTINGENCY Operating lease: The Organization is obligated under an operating lease for its office space in Washington, DC. The lease term is eight years expiring December 31, Generally accepted accounting principles (GAAP) require that scheduled rent increases resulting from the escalation of base rentals, as well as rent abatements be recorded as a liability and amortized ratably over the term of the lease. Therefore, the Organization has accrued a deferred rent lease liability of $16,448 and $29,314 as of December 31, 2014 and 2013, respectively. Rental expense under the office lease for the years ended December 31, 2014 and 2013 was $131,211 and $132,021, respectively. Under the terms of the lease, the Organization has a minimum lease payment of $146,846 for the year ended December 31, Hotel contracts: The Organization has contracts with various hotels and convention centers for future conferences. In the event that the Organization cancels, it can be held liable for liquidated damages incurred by the hotels and convention centers as calculated in accordance with the terms of the agreements. Employment agreement: The Organization has entered into an employment agreement with its President that runs through June Under certain circumstances, the agreement stipulates that the Organization will be liable for severance and other payments. 8

11 Independent Auditor s Report on the Consolidating Information To the Board of Directors The ESOP Association & Affiliate L S t r e e t, N W We have audited the consolidated financial statements of The ESOP Association & Affiliate as of and for the year ended December 31, 2014, and have issued our report thereon dated April 9, 2015, which contained an unmodified opinion on those consolidated financial statements. Our audit was performed for the purpose of forming an opinion on the consolidated financial statements as a whole. The consolidating information is presented for purposes of additional analysis and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidated financial statements as a whole. S u i t e Washington, DC April 9,

12 Consolidating Statement of Financial Position December 31, 2014 Assets Association Foundation Eliminations Total Cash and cash equivalents $ 812,137 $ 517,242 $ - $ 1,329,379 Investments 1,537,371 1,563,555 3,100,926 Accounts receivable 197,900 (15,587) 182,313 Pledges receivable 11,725 11,725 Inventory 65,601-65,601 Prepaid expenses & other assets 239,497 40, ,497 Furniture and equipment 55,199 55,199 Total assets $ 2,907,705 $ 2,132,522 $ (15,587) $ 5,024,640 Liabilities and Net Assets Liabilities Accounts payable $ 585,961 $ 19,426 $ (15,587) $ 589,800 Deferred revenue 1,217,261-1,217,261 Total liabilities 1,803,222 19,426 (15,587) 1,807,061 Net assets Unrestricted Undesignated 1,104,483 66,299 1,170,782 Board designated reserves 2,020,797 2,020,797 Total unrestricted net assets 1,104,483 2,087,096-3,191,579 Temporarily restricted 25,000 25,000 Permanently restricted 1,000 1,000 Total net assets 1,104,483 2,113,096-3,217,579 Total liabilities and net assets $ 2,907,705 $ 2,132,522 $ (15,587) $ 5,024,640 10

13 Consolidating Statement of Activities Year Ended December 31, 2014 Unrestricted activities Revenue Association Foundation Eliminations Total Seminars and conferences $ 2,461,961 $ 92,560 $ - $ 2,554,521 Membership dues 1,939,992-1,939,992 Sponsorships 412, ,670 Contributions 332, ,619 Other income 212,027 - (30,000) 182,027 Publications 120, ,919 Interest and dividends 35,140 32,811 67,951 Expense Total unrestricted revenue and support 5,182, ,990 (30,000) 5,610,699 Program services Seminars and conferences 2,388,740 52,351 2,441,091 Membership 442, ,493 Government relations 423, ,581 Research / scholarships - 170, ,980 Publications 64,087-64,087 Total program services 3,318, ,331-3,542,232 Supporting services Management and general 1,797, ,692 (30,000) 1,913,250 Public relations / development 89,296 41, ,672 Total supporting services 1,886, ,068 (30,000) 2,043,922 Total expense 5,205, ,399 (30,000) 5,586,154 Change in unrestricted net assets before net gain on investments (23,046) 47,591-24,545 Net gain on investments 83,672 68, ,892 Change in unrestricted net assets 60, , ,437 Temporarily restricted activities Contributions 25,000 25,000 Change in net assets 60, , ,437 Net assets, beginning of year 1,043,857 1,972,285 3,016,142 Net assets, end of year $ 1,104,483 $ 2,113,096 $ - $ 3,217,579 11