SAE International Core Business Operations

Transcription

1 SAE International Core Business Operations Consolidated Financial Statements December 31, 2015 and 2014 The report accompanying these financial statements was issued by BDO USA, LLP, a Delaware limited liability partnership and the U.S. member of BDO International Limited, a UK company limited by guarantee.

2 Contents Independent Auditor s Report 3-4 Consolidated Financial Statements Consolidated Statements of Financial Position 5-6 Consolidated Statements of Activities and Changes in Net Assets 7-8 Consolidated Statements of Cash Flows 9-10 Notes to the Consolidated Financial Statements

3 Tel: Fax: Sixth Avenue, 8th Floor Pittsburgh, PA Independent Auditor s Report To the Board of Directors SAE International Warrendale, Pennsylvania We have audited the accompanying consolidated financial statements of SAE International Core Business Operations, which comprise the consolidated statements of financial position of SAE International and its subsidiaries, SAE Global, LLC, ABP International, Inc. and Effective Training, Inc., as of December 31, 2015 and 2014, and the related consolidated statements of activities and changes in net assets, and cash flows for the years then ended, and the related notes to the consolidated financial statements. As discussed in Note 2, these financial statements do not include the accounts of all of SAE International s subsidiaries. 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 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 audit to obtain reasonable assurance about whether the consolidated financial statements are free from 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 misstatements of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the consolidated 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 entity 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 consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms. BDO is the brand name for the BDO network and for each of the BDO Member Firms. 3

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of SAE International Core Business Operations as of December 31, 2015 and 2014, and the changes in their net assets and their cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America. Other Matter Report on the Consolidated Financial Statements We have audited, in accordance with auditing standards generally accepted in the United States of America, the consolidated financial statements of SAE International and Subsidiaries as of and for the years ended December 31, 2015 and 2014, and our report thereon dated April 7, 2016, expressed an unmodified opinion on those financial statements. Pittsburgh, Pennsylvania April 7,

5 Consolidated Statements of Financial Position December 31, Assets Current Assets Cash and cash equivalents $ 5,897 $ 4,567 Accounts receivable - net 4,456 4,405 Pledges receivable - current portion - Note Inventories and supplies Prepaid expenses and other current assets - Note 15 3,749 3,124 Other receivables 3,347 3,531 Total Current Assets 18,490 16,302 Investments - Note 4 43,928 45,057 Pledges Receivable - Long Term - Note Property and Equipment - Note 6 10,802 12,064 Goodwill 7,556 7,556 Intangible Assets - Note 7 2,182 2,816 Deferred Tax Asset - Long Term - Note Note Receivable - Long Term - Note Total Assets $ 84,190 $ 84,860 5

6 Consolidated Statements of Financial Position December 31, Liabilities and Net Assets Current Liabilities Accounts payable $ 5,422 $ 5,334 Accrued expenses - Note 15 4,249 3,461 Deferred revenue 9,039 8,636 Line of credit - Note 8-1,213 Current portion of notes payable - Note 8 1,100 1,100 Total Current Liabilities 19,810 19,744 Long-term Portion of Notes Payable - Note ,375 Accrued Pension Costs - Note 9 35,008 32,528 Charitable Gift Annuity Total Liabilities 55,271 53,742 Net Assets - Note 10 Unrestricted 18,403 21,251 Temporarily restricted 7,452 6,829 Permanently restricted 3,064 3,038 Total Net Assets 28,919 31,118 Total Liabilities and Net Assets $ 84,190 $ 84,860 See accompanying independent auditor's report and notes to the consolidated financial statements. 6

7 Consolidated Statement of Activities and Changes in Net Assets For the Year Ended December 31, 2015 Temporarily Permanently (With Comparative Totals for 2014) Unrestricted Restricted Restricted Total Total Operating Activities Revenues and Public Support Magazines and publications $ 43,047 $ - $ - $ 43,047 $ 40,134 Meetings and conferences 10, ,939 10,900 Educational activities 9, ,003 7,601 Technical standards 5, ,119 5,216 Contributed services - Note 13 4, ,473 3,932 Membership and sections 3, ,093 3,082 Other products and services 2, ,042 2,057 Contributions and pledges 750 2, ,798 2,157 Net assets released from restrictions 1,634 (1,634) Total Revenues and Public Support 80, ,514 75,079 Expenses - Note 11 Magazines and publications 17, ,231 16,856 Administrative services 15, ,358 13,667 Meetings and conferences 11, ,224 10,727 Educational activities 10, ,940 9,770 Other products and services 8, ,903 7,561 Technical standards 7, ,790 7,424 Contributed services - Note 13 4, ,473 3,932 Membership and sections 2, ,209 2,077 Total Expenses 78, ,128 72,014 Increase in Net Assets From Operations 1, ,386 3,065 Nonoperating Activities Investment activities - Note 4 (1,380) (1,145) 2,349 Interest expense - Note 8 (28) - - (28) (84) Acquisition related expenses (110) - - (110) (201) Income taxes - Note 15 (474) - - (474) (243) Pension adjustment - Note 9 (2,828) - - (2,828) (10,295) Total Nonoperating Activities (4,820) (4,585) (8,474) Increase (Decrease) in Net Assets (2,848) (2,199) (5,409) Net Assets - beginning of year 21,251 6,829 3,038 31,118 36,527 Net Assets - end of year $ 18,403 $ 7,452 $ 3,064 $ 28,919 $ 31,118 See accompanying independent auditor's report and notes to the consolidated financial statements. 7

8 Consolidated Statement of Activities and Changes in Net Assets Temporarily Permanently 2014 For the Year Ended December 31, 2014 Unrestricted Restricted Restricted Total Operating Activities Revenues and Public Support Magazines and publications $ 40,134 $ - $ - $ 40,134 Meetings and conferences 10, ,900 Educational activities 7, ,601 Technical standards 5, ,216 Contributed services - Note 13 3, ,932 Membership and sections 3, ,082 Other products and services 2, ,057 Contributions and pledges 652 1, ,157 Net assets released from restrictions 2,066 (2,066) - - Total Revenues and Public Support 75,640 (769) ,079 Expenses - Note 11 Magazines and publications 16, ,856 Administrative services 13, ,667 Meetings and conferences 10, ,727 Educational activities 9, ,770 Other products and services 7, ,561 Technical standards 7, ,424 Contributed services - Note 13 3, ,932 Membership and sections 2, ,077 Total Expenses 72, ,014 Increase (Decrease) in Net Assets From Operations 3,626 (769) 208 3,065 Nonoperating Activities Investment activities - Note 4 1, ,349 Interest expense - Note 8 (84) - - (84) Acquisition related expenses (201) - - (201) Income taxes - Note 15 (243) - - (243) Pension adjustment - Note 9 (10,295) - - (10,295) Total Nonoperating Activities (8,985) (8,474) Increase (Decrease) in Net Assets (5,359) (258) 208 (5,409) Net Assets - beginning of year 26,610 7,087 2,830 36,527 Net Assets - end of year $ 21,251 $ 6,829 $ 3,038 $ 31,118 See accompanying independent auditor's report and notes to the consolidated financial statements. 8

9 Consolidated Statements of Cash Flows For the Years Ended December 31, Cash Provided by (Used for) Operating Activities Decrease in net assets $ (2,199) $ (5,409) Adjustments to reconcile change in net assets to net cash provided by operating activities Depreciation and amortization 2,900 3,059 Net (appreciation) depreciation in fair value of investments 1,792 (1,808) Deferred income tax benefit (19) (2) Changes in Accounts receivable (51) (1,670) Pledges receivable (701) 387 Accounts payable 88 (270) Accrued pension costs 2,480 9,788 Deferred revenue 403 1,717 Other current assets and liabilities 396 (553) Net Cash Provided by Operating Activities 5,089 5,239 Cash Provided by (Used for) Investing Activities Purchase of equipment (1,004) (2,420) Purchase of investments (881) (821) Proceeds from sale of investments 218 1,270 Notes receivable Acquisition of ETI - net of cash received - (1,520) Net Cash Used for Investing Activities (1,538) (3,434) Cash Provided by (Used for) Financing Activities Net proceeds from (payments on) line of credit (1,213) 1,213 Payments on long-term debt (1,008) (4,314) Net Cash Used for Financing Activities (2,221) (3,101) Increase (Decrease) in Cash and Cash Equivalents 1,330 (1,296) Cash and Cash Equivalents - beginning of year 4,567 5,863 Cash and Cash Equivalents - end of year $ 5,897 $ 4,567 See accompanying independent auditor's report and notes to the consolidated financial statements. 9

10 Consolidated Statements of Cash Flows (Continued) For the Years Ended December 31, Supplemental Disclosure of Cash Flow Information Cash paid during the year for interest $ 34 $ 68 See accompanying independent auditor's report and notes to the consolidated financial statements. 10

11 Notes to the Consolidated Financial Statements 1. Organization Nature of Organization SAE International Core Business Operations consist of SAE International (SAE) and its wholly owned subsidiaries, SAE Global, LLC, ABP International, Inc. and Effective Training, Inc. SAE is a not-for-profit corporation originally organized in 1905 and incorporated in 1909 under the laws of New York and re-incorporated in 1985 under the laws of Pennsylvania. SAE is a technical society aimed at developing, collecting and disseminating, on a worldwide basis, the knowledge of mobility technologies in order to advance these fields and their practitioners in a manner which serves humanity. ABP International, Inc. d/b/a Tech Briefs Media Group (TBMG) is a for-profit S Corporation that was incorporated in 1988 under the laws of New York. TBMG is a media company specializing in print and electronic information products and events for engineers, scientists and technical managers. Effective Training, Inc. (ETI) is a Michigan for-profit C Corporation that provides geometric dimensioning and tolerancing learning training, products and services. SAE Global, LLC (SAE Global) is a Pennsylvania limited liability company, of which SAE is the sole member. The purpose of SAE Global is to engage in activities that further the purpose of SAE as an exempt organization in areas of the world other than the United States. In January 2012, SAE Global obtained the appropriate business licenses to operate a Wholly Owned Foreign Subsidiary (WOFE) in the Republic of China. The WOFE engages in and provides industrial technology consulting services, business and commercial consulting services, and marketing planning services. The financial statements presented here represent only the activity of the entities noted above. In addition, consolidated financial statements of SAE International and Subsidiaries have been prepared, which include the entities noted above and two other affiliated not-for-profit entities of SAE, Performance Review Institute, Inc. (PRI) and SAE Industries Technology Consortia (SAE ITC). PRI and SAE ITC are excluded from these financial statements as they are not considered to be a part of SAE s core business operations. Accordingly, these statements of SAE International Core Business Operations are not intended to be a complete presentation, under accounting principles generally accepted in the United States of America (U.S. GAAP), of the financial position and results of operations of SAE International and Subsidiaries. 2. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements of SAE International Core Business Operations include only the assets, liabilities, net assets and financial activities of SAE and the accounts of its wholly owned subsidiaries, SAE Global, TBMG and ETI. All significant intercompany transactions have been eliminated. Collectively, the consolidated group is referred to as the Organization. 11

12 2. Summary of Significant Accounting Policies (Continued) Basis of Accounting The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Net asset classifications and changes in each of those classes are reported in the financial statements, and detailed information regarding the purpose of temporarily and permanently restricted net assets are disclosed in Note 10. Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Cash and Cash Equivalents For purposes of the statement of cash flows, the Organization considers all highly liquid investments with an initial maturity of three months or less to be cash equivalents. The Organization s cash balances are allocated to numerous banking institutions. From time to time, the balance may be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. The Organization has not experienced any losses in such accounts and management believes that it is not exposed to any significant credit risk related to its cash and cash equivalents. Accounts Receivable Accounts receivable are stated at the amount management expects to collect from balances outstanding at year end. Management provides for probable uncollectible amounts through a charge to earnings and a credit to a valuation allowance based on its assessment of the current status of individual accounts. Any balance that is still outstanding after management has used reasonable collection efforts is written off through a charge to the valuation allowance and a credit to trade accounts receivable. The allowance for uncollectible accounts was approximately $365,000 at December 31, 2015 and $449,000 at December 31, Pledges Receivable Unconditional promises to give are recognized as revenues or gains in the period received as assets, decreases of liabilities, or expenses depending on the form of the benefits received. Conditional promises to give are recognized when the conditions on which they depend are substantially met. Pledges receivable are stated at the amount management expects to collect from outstanding balances. Management has established an allowance for uncollectible pledges based on its evaluation of the individual pledge. 12

13 2. Summary of Significant Accounting Policies (Continued) Investments Investments are presented at fair value as measured by quoted market prices. Those investments received as gifts or donations are recorded at their fair value on the date received. Investment activity includes unrealized and realized gains and losses on investments (net appreciation/depreciation), interest and dividends. The Organization s investments are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with these investments and the level of uncertainty related to changes in the value of these investments, it is at least reasonably possible that changes in the near term could materially affect the amounts reported in the financial statements. SAE has received contributions that are permanently restricted by the donors, for the purpose of granting scholarships and awards. The income from certain permanently restricted contributions is required to be spent in predetermined amounts as specified by the donor. The income from other permanently restricted donations does not have specified spending amounts. SAE s Board of Directors has elected to follow a total return policy with respect to its permanently restricted funds, where no specified spending amount has been stipulated by the donor, in accordance with Pennsylvania law. As such, SAE has adopted a total return investment policy seeking to achieve for the investments held in SAE s restricted accounts a reasonable long-term total return, consistent with acceptable investment risk, derived both from appreciation of capital and from earnings and distributions with respect to capital. The Board of Directors has documented an investment spending policy consistent with state law. Under this policy, where there is no stipulated spending amount from the donor, SAE may annually transfer up to 5.5% of the three-year rolling average market value of total invested funds to operating funds. The original contributions are maintained in permanently restricted net assets. Net appreciation or depreciation in the fair value of investments is reflected in temporarily restricted investment income (loss). Unrealized gains and losses on permanently restricted investments are reflected in temporarily restricted revenues and gains as described above. In years when the income transfer is greater than the actual earnings, or when there is a loss, the excess is charged to temporarily restricted net assets to the extent of accumulated prior year earnings. Any excess is charged to unrestricted net assets. Inventories Inventories and supplies are stated at the lower of cost (determined on the first-in, first-out or average cost method) or market. Property and Equipment Property and equipment acquired is recorded at cost. Depreciation is provided by the straightline method over the estimated useful lives of the assets ranging from 3-10 years for furniture and equipment, years for building improvements and years for buildings. 13

14 2. Summary of Significant Accounting Policies (Continued) Property and Equipment (Continued) Maintenance and repairs which are not considered to extend the useful lives of assets are charged to operations as incurred. Expenditures exceeding $5,000 for additions and improvements are capitalized. Upon sale or retirement, the cost of assets and related allowances are removed from the accounts and any resulting gains or losses are included in income (expense) for the year. Intangible Assets Intangible assets that are subject to amortization are reviewed for potential impairment whenever events or circumstances indicate that carrying amounts may not be recoverable. Indefinite-lived intangible assets not subject to amortization are tested for impairment at least annually. The Organization first assesses qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that the indefinite-lived intangible asset is impaired. If based on its qualitative assessment the Organization concludes that it is more likely than not that the fair value of an indefinite-lived intangible asset is less than its carrying amount, quantitative impairment testing is required. However, if the Organization concludes otherwise, quantitative impairment testing is not required. Amortization is calculated on the straight-line basis over the estimated life of the intangible assets with finite lives. The estimated lives are 6-10 years for customer relationships, 5 years for subscription lists, and 10 years for both domain names and copyrights. Goodwill Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more frequently if impairment indicators arise. In conducting its impairment testing, the Organization determines if qualitative or quantitative factors are to be used to evaluate the potential impairment in the carrying value of the Organization s goodwill. The Organization has the option to first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that goodwill is impaired. If, based on its qualitative assessment, the Organization concludes that it is more likely than not that goodwill is impaired, quantitative impairment testing is required. However, if the Organization concludes otherwise, quantitative impairment testing is not required. The Organization measures the amount of any goodwill impairment based upon the estimated fair value of the underlying assets and liabilities of the reporting unit, including any unrecognized intangible assets, and estimates the implied fair value of goodwill. An impairment charge is recognized to the extent the recorded goodwill exceeds the implied fair value of goodwill. The Organization chose to perform a qualitative impairment test for goodwill at December 31, 2015 and At December 31, 2015 and 2014, the Organization determined that the recorded value for goodwill was not impaired. Revenue Recognition Revenue is recognized when earned. Revenues received in advance of the year to which they relate, such as membership dues and meeting and conference attendance fees, are deferred and recognized over the periods to which the income relates. 14

15 2. Summary of Significant Accounting Policies (Continued) Revenue Recognition (Continued) Magazines and publications revenue includes print advertising revenue; book, CD-ROM and print sales; royalty revenue; and subscription revenue. Print advertising revenue is recognized when the advertisement is run. Book, CD-ROM and print sales are recognized when the products ship to the customer. Royalty revenues received under contract from a third party that sells SAE s standards and related documents are recognized at the point of sale. Subscription revenue is recognized ratably over the term of the subscription. Contractual revenue, included in technical standards on the statement of activities, is recognized when earned under the terms of the contracts. Advance receipts from grants and contracts are reflected as deferred revenue until earned. Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence or nature of any donor restrictions. Support that is restricted by the donor is reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a restriction expires (that is, when a stipulated time restriction ends or purpose restriction is accomplished), temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities as net assets released from restrictions. In-kind Donations Donated materials and services meeting the requirements of accounting principles generally accepted in the United States of America are reflected as contributions at fair value at date of receipt. Derivative Financial Instruments The Organization uses derivatives to manage risk related to interest rate movements. The Organization s interest rate risk management strategy is to stabilize cash flow requirements by maintaining interest rate contracts to convert variable-rate debt to a fixed rate. The Organization is exposed to credit losses from counterparty (its lending bank) non-performance, but does not anticipate any losses from its agreements, which are with a major financial institution. Derivative financial instruments are to be recognized in the financial statements and measured at fair value regardless of the purpose or intent for holding them. Changes in the fair value of derivative financial instruments used for hedging purposes by non-profit organizations are recognized periodically in income. Changes in the fair value of the Organization s interest rate swap are included in interest expense on the consolidated statement of activities. 15

16 2. Summary of Significant Accounting Policies (Continued) Fair Value Measurements The Organization defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities, which are required to be recorded at fair value, the Organization considers the principal or most advantageous market in which the Organization would transact and the market-based risk measurements or assumptions that market participants would use in pricing the asset or liability, such as inherent risk, transfer restrictions and credit risk. The Organization applies the following fair value hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement: Level 1 - Quoted prices in active markets for identical assets or liabilities. Level 2 - Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 - Inputs that are generally unobservable and typically reflect management s estimates of assumptions that market participants would use in pricing the asset or liability. The fair value measurements of the Organization s investments are disclosed in Note 17. Income Taxes SAE is exempt from federal and state income tax under Section 501(c)(3) of the IRC. However, certain activities, primarily consisting of advertising income and income from a pass-through entity, are considered unrelated business income and are subject to federal income taxes. SAE Global is a limited liability company and, as such, considered a disregarded entity for tax purposes. TBMG has elected, under the applicable provisions of the IRC and various state tax laws, to be treated as an S Corporation. Under this election, any federal or state income taxes due on TBMG s income are the responsibility of SAE as the stockholder. New York City does not permit this treatment and, accordingly, TBMG is subject to the New York City Corporation Tax. ETI is treated as a C Corporation under the applicable provisions of the IRC and various state tax laws. ETI provides for income taxes in accordance with the asset and liability method. 16

17 2. Summary of Significant Accounting Policies (Continued) Income Taxes (Continued) Deferred tax assets and liabilities are recognized for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Accounting principles generally accepted in the United States of America require the Organization s management to evaluate tax positions taken by the Organization and recognize a tax liability (or asset) if the Organization has taken a position that is uncertain. An uncertain position is defined as one in which there is a 50% or greater likelihood that the position will not be sustained upon examination by a taxing authority. Management has analyzed the tax positions taken by the Organization and has concluded that, as of December 31, 2015, there are no uncertain tax positions taken or expected to be taken. The Organization has recognized no interest or penalties related to uncertain tax positions. The Organization is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. Management believes the Organization is no longer subject to income tax examinations for years prior to Recently Issued Accounting Pronouncements In May 2015, the Financial Accounting Standards Board (FASB) issued updated guidance to remove the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value (NAV) per share practical expedient. The practical expedient criteria differ from the criteria used to categorize other fair value measurements within the hierarchy. Currently, investments valued using the practical expedient are categorized within the fair value hierarchy on the basis of whether the investment is redeemable with the investee at NAV on the measurement date, never redeemable with the investee at NAV, or redeemable with the investee at NAV at a future date. Under this updated guidance, investments for which fair value is measured at NAV per share (or its equivalent) using the practical expedient should not be categorized in the fair value hierarchy. A reporting entity should continue to disclose information on investments for which fair value is measured at NAV (or its equivalent) as a practical expedient to help users understand the nature and risks of the investments and whether the investments, if sold, are probable of being sold at amounts different from NAV. The guidance is effective for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years, and should be applied retrospectively. The retrospective approach requires that an investment for which fair value is measured using the NAV per share practical expedient be removed from the fair value hierarchy in all periods presented in an entity s financial statements. Earlier application is permitted. 17

18 2. Summary of Significant Accounting Policies (Continued) Recently Issued Accounting Pronouncements (Continued) In May 2014, the FASB issued a comprehensive new revenue recognition standard, Accounting Standards Update (ASU) , Revenue from Contracts with Customers, that will supersede existing revenue recognition guidance. The guidance was implemented to: remove inconsistencies and weaknesses in revenue recognition requirements, provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets, provide more useful information to users of financial statements through improved disclosure requirements, and simplify the preparation of financial statements. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: 1) Identify the contracts with the customer; 2) Identify the performance obligations in the contract; 3) Determine the contract price; 4) Allocate the transaction price to the performance obligations in the contract; and 5) Recognize revenue when (or as) the entity satisfies a performance obligation. As a result of a vote by the FASB, the amendments in this update are effective for nonpublic entities for annual reporting periods beginning after December 15, 2018 (formerly December 15, 2017). Earlier adoption is permitted for nonpublic entities, subject to certain limitations. The amendments in this update are required to be applied retrospectively to each prior reporting period presented or with the cumulative effect being recognized at the date of initial application. In February 2016, the FASB issued guidance to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The new standard applies a right-of-use (ROU) model that requires a lessee to record, for all leases with a lease term of more than 12 months, an asset representing its right to use the underlying asset for the lease term and a liability to make lease payments. For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. Lessees and lessors are required to provide certain qualitative and quantitative disclosures to enable users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. The amendments are effective for fiscal years beginning after December 15, Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. Management is currently evaluating the impact of these ASUs on its financial statements. Consideration of Subsequent Events The Financial Audit Committee of the Board of Directors evaluated subsequent events and transactions for potential recognition or disclosure in the consolidated financial statements through April 7, 2016, the day the consolidated financial statements were approved and authorized for issue. 18

19 3. Acquisition Effective Training, Inc. On January 1, 2014, SAE entered into a Stock Purchase Agreement with Effective Training, Inc. (ETI), a Michigan corporation, in an effort to enhance its engineering fundamentals portfolio of geometric dimensioning and tolerancing learning products. The aggregate purchase price for the shares was approximately $1,524,000 of which $924,000 was paid to the seller in cash and $600,000 was placed in escrow to be paid within 3 days of the one-year anniversary date. The purchase price was allocated as follows: Assets Acquired Cash $ 4 Other tangible assets 54 Intangibles, other than goodwill 416 Goodwill 1,057 Assets acquired 1,531 Less: Liabilities assumed (7) Purchase Price $ 1,524 19

20 4. Investments Investments at fair value consist of the following at: December 31, Cash $ 832 $ 163 Equity Large value 4,262 4,241 Large core 7,658 6,524 Large growth 4,293 4,242 Mid value 1,268 1,391 Mid growth 1,399 1,520 Small value 1,184 1,321 Small growth 1,243 1,249 Developed international 2,627 2,545 Emerging markets 3,707 4,037 Total equity 27,641 27,070 Fixed income - domestic 10,238 12,876 Alternatives Managed futures 3,104 3,544 Special onshore feeder fund 1, Real estate income fund Total alternatives 5,217 4,948 Investments $ 43,928 $ 45,057 20

21 4. Investments (Continued) The following schedules summarize the investment return and its classification in the consolidated statements of activities at: December 31, 2015 Unrestricted Temporarily Restricted Total Nonoperating activities Interest and dividend income $ 680 $ 189 $ 869 Net appreciation (depreciation) in fair values (1,890) 98 (1,792) Subtotal investment return (loss) (1,210) 287 (923) Less: Investment expenses (170) (52) (222) Investment Return (Loss) From Nonoperating Activities $ (1,380) $ 235 $ (1,145) December 31, 2014 Unrestricted Temporarily Restricted Total Nonoperating activities Interest and dividend income $ 617 $ 151 $ 768 Net appreciation in fair values 1, ,808 Subtotal investment return 2, ,576 Less: Investment expenses (182) (45) (227) Investment Return From Nonoperating Activities $ 1,838 $ 511 $ 2,349 21

22 5. Pledges Receivable Pledges receivable consist of the following at: December 31, Unrestricted pledges $ 221 $ 237 Temporarily restricted pledges 1, Permanently restricted Gross pledges receivable 1, Less: Unamortized discount (17) (6) Less: Allowance for doubtful accounts (40) (75) Pledges Receivable $ 1,213 $ 512 Amounts due in Less than one year $ 784 $ 370 One to five years $ 1,213 $ 512 Unconditional promises to give due in more than one year are reflected at the present value of estimated future cash flows using discount rates ranging from 1.7% to 4%. At December 31, 2015, 63% of pledges receivable were from one donor. Pledges receivable from this donor represents 93% of total pledge income in At December 31, 2014, 58% of pledges receivable were due from three donors. Pledges receivable from two of these donors represent 66% of total pledge income in Conditional pledges receivable consist of the following at: December 31, Conditioned upon Matching funds $ - $ 20 Subject to annual review and approval $ 47 $ 93 22

23 6. Property and Equipment Property and equipment consists of the following at December 31: December 31, Land $ 686 $ 686 Buildings and building improvements 20,621 20,427 Leasehold improvements Furniture and equipment 19,614 19,042 41,467 40,463 Less: Accumulated depreciation (30,665) (28,399) Property and Equipment $ 10,802 $ 12, Intangible Assets December 31, Intangible assets with finite lives Customer relationships $ 2,246 $ 2,246 Subscription list 1,310 1,310 Domain names Copyrights ,706 3,706 Less: Accumulated amortization (2,304) (1,670) Net intangible assets with finite lives 1,402 2,036 Intangible assets with indefinite lives Trademarks and trade name Intangible Assets $ 2,182 $ 2,816 Amortization expense was approximately $634,000 and $675,000 in 2015 and 2014, respectively. 23

24 7. Intangible Assets (Continued) Estimated amortization expense for each of the next five years is: Year Ending December 31, Amount 2016 $ $ $ $ $ Notes Payable In 2012, SAE entered into a $5,500,000 term note with PNC Bank to finance the acquisition of TBMG. The term note requires monthly payments of $91,667 including interest and matures on March 30, The loan is collateralized by marketable securities held in custody at PNC Bank, which are valued at approximately $8,600,000 at December 31, 2015 and are included in investments on the consolidated statement of financial position. In connection with the term note agreement, SAE also entered into an interest rate swap contract with PNC Bank. Under the swap, the Organization pays a fixed rate of interest of 1.61% and receives a variable rate based upon LIBOR plus an applicable margin (1.14% at December 31, 2015) on approximately $1,375,000 notional amount of indebtedness. The contract matures on March 31, SAE entered into a line of credit with Morgan Stanley in December Outstanding borrowings bear interest at 30-day LIBOR plus 0.75% (0.99% at December 31, 2015). The line of credit is collateralized by certain investments held with the lender. The maximum borrowings cannot exceed the value of the eligible securities held in SAE s Morgan Stanley accounts. There were no outstanding borrowings at December 31, Outstanding borrowings were $1,213,000 at December 31, The future annual principal payments on long-term debt are approximately: Year Ending December 31, Amount 2016 $ 1, Total $ 1,467 24

25 9. Employee Benefit Plans Defined Benefit Pension Plan The Organization maintains a noncontributory defined benefit pension plan covering certain employees of SAE and PRI. The Organization s policy is to fund the pension costs as determined by actuarial valuation. Effective January 1, 2008, the Organization froze its defined benefit pension plan. Employees hired prior to January 1, 2008 will continue to earn benefits under the plan. Employees hired on or after January 1, 2008 will not be eligible to participate in the plan. The following table sets forth the funded status and obligations of the plan at December 31: Projected benefit obligation $ (83,063) $ (82,080) Fair value of pension plan assets 48,055 49,552 Underfunded Pension Liability $ (35,008) $ (32,528) The funded status of the plan was measured as of December 31. The increase in the underfunded pension liability is primarily a result of actuarial losses. The following are the weighted-average assumptions used to determine benefit obligations at: December 31, Discount rate 4.50% 4.00% Rate of increase in compensation levels 4.00% 4.00% Other required disclosures consisted of the following: December 31, Net periodic pension costs $ 3,644 $ 2,780 Benefits paid $ 2,170 $ 2,069 Contributions $ 2,000 $ 2,000 25

26 9. Employee Benefit Plans (Continued) Defined Benefit Pension Plan (Continued) Components of pension adjustment recognized in nonoperating activities in the consolidated statements of activities consisted of the following: December 31, Net loss $ (2,845) $ (10,209) Amortization of net loss 2,008 1,201 Pension expense in excess of 8.5% of salaries (1,991) (1,287) Pension Adjustment $ (2,828) $ (10,295) The Organization considers pension expense of 8.5% of salaries a normal expenditure and includes this amount in operating activities. Pension expense in excess of this percentage is included in nonoperating activities. The following are the weighted-average assumptions used to determine net periodic pension cost for the years ended: December 31, Discount rate 4.00% 4.75% Expected long-term rate of return on assets 8.00% 8.00% The plan s investment assets are held at various financial institutions and brokers. The Finance Committee has established a formal investment policy. The policy was amended in September Under the current policy and investment guidelines, the Organization uses a liability-driven investment strategy to maximize returns and minimize risk of the portfolio relative to the liabilities that the portfolio is intended to cover. As the funding ratio of the retirement plan improves, the asset allocation will move away from equities and toward longer duration fixed income. 26

27 9. Employee Benefit Plans (Continued) Defined Benefit Pension Plan (Continued) The following table sets forth the fair value of the plan assets at December 31: Cash $ 1,129 $ 798 Equity Large value 5,785 5,922 Large core 4,933 4,831 Large growth 6,229 5,967 Mid value 1,579 1,666 Mid growth 1,747 1,711 Small value 1,410 1,607 Small growth 1,427 1,471 Developed international 2,933 2,702 Emerging markets 4,132 4,332 Total equity 30,175 30,209 Fixed income Domestic 11,299 13,742 Alternatives Managed futures 3,334 3,686 Special onshore feeder fund 2,118 1,117 Total alternatives 5,452 4,803 Investments $ 48,055 $ 49,552 27

28 9. Employee Benefit Plans (Continued) Defined Benefit Pension Plan (Continued) The fair value of plan assets within the fair value hierarchy is as follows at: December 31, 2015 Level 1 Level 2 Level 3 Total Cash $ 1,129 $ - $ - $ 1,129 Equity investments 30, ,175 Fixed income investments Domestic 9,879 1, ,299 Alternative investments Managed futures - 3,334-3,334 Special onshore feeder fund - - 2,118 2,118 Total $ 41,183 $ 4,737 $ 2,135 $ 48,055 December 31, 2014 Level 1 Level 2 Level 3 Total Cash $ 1,359 $ - $ - $ 1,359 Equity investments 27, ,454 Fixed income investments Domestic 14, ,936 Alternative investments Managed futures - 3,686-3,686 Special onshore feeder fund - - 1,117 1,117 Total $ 43,664 $ 4,683 $ 1,205 $ 49,552 The fair value of cash and equivalents and equities is determined on the basis of quoted prices in an active market (Level 1 inputs). Fixed income investments for which a quoted price in an active market is available are valued based on their quoted fair value by independent pricing vendors (Level 1 inputs). Other fixed income investments that are not actively traded are valued using quotes from independent pricing vendors based on recent trading activity and other relevant information, including market interest rate curves, referenced credit spreads, and estimated prepayment rates for similar instruments (Level 2 inputs). The investment in managed futures is valued using the partnership s net asset per unit value at the balance sheet date (Level 2 inputs.) The investment in real estate income fund is valued using the net asset value per share. Because of redemption restrictions on the investment in the income fund, the inputs are considered to be Level 3 inputs. 28

29 9. Employee Benefit Plans (Continued) Defined Benefit Pension Plan (Continued) The changes in the fair value of Level 3 plan assets are summarized as follows: 2015 Fixed Income - Domestic Special Onshore Feeder Fund Total Changes in Level 3 assets Net realized and unrealized gains (losses) $ (71) $ 101 $ 30 Purchases Less: Sales Net increase (decrease) in Level 3 assets (71) 1, Balance - January 1, ,117 1,205 Balance - December 31, 2015 $ 17 $ 2,118 $ 2, Fixed Income - Domestic Special Onshore Feeder Fund Total Changes in Level 3 assets Net realized and unrealized gains (losses) $ (10) $ 97 $ 87 Purchases 98 1,020 1,118 Less: Sales Net increase in Level 3 assets 88 1,117 1,205 Balance - January 1, Balance - December 31, 2014 $ 88 $ 1,117 $ 1,205 Contributions of $2,000,000 were made to the plan in March

30 9. Employee Benefit Plans (Continued) Defined Benefit Pension Plan (Continued) The following estimated future benefit payments, which reflect expected future service, as appropriate, are expected to be paid in the years indicated: Year Ending December 31, Amount 2016 $ 2, $ 2, $ 2, $ 3, $ 3, $ 21,150 Defined Contribution Plans The Organization has a group tax-deferred annuity plan under Section 403(b) of the IRC which covers eligible SAE employees. Covered employees may make voluntary pre-tax or Roth matched contributions in a range of 1% to 6% (subject to maximums allowed by the Internal Revenue Code (IRC)) and the Organization will match up to 100% of those contributions, subject to vesting provisions. For eligible employees hired after January 1, 2008 (those not eligible to participate in the defined benefit plan), SAE provides a profit sharing contribution in the amount of 6.5% based on a separate definition of compensation, and subject to vesting provisions. The Organization has a 401(k) plan that covers eligible employees of TBMG. Covered employees may make pre-tax voluntary matched contributions in a range of 1% to 6% (subject to maximums allowed by the Internal Revenue Code (IRC)) and TBMG will match up to 100% of the contributions, subject to vesting provisions. In addition, TBMG may make a discretionary profit sharing contribution to eligible participants in the TBMG plan, subject to vesting provisions. The Organization s benefit plan expense for contributions to these plans was approximately $1,520,000 in 2015 and $1,242,000 in Supplemental Executive Retirement Plan The Organization has a 457(b) and 457(f) supplemental executive retirement plan which allows eligible participants to defer a percentage of compensation until an eligible distribution event. In certain circumstances, detailed in the plan, SAE will make contributions into this plan. Contributions approximated $65,000 for December 31, 2015 and $62,000 for December 31,

31 10. Net Assets Temporarily restricted net assets are available for the following purposes as of: December 31, Program support funds $ 3,983 $ 3,172 Award funds 2,400 2,509 Scholarship funds 1,043 1,118 Engineering activity support Total $ 7,452 $ 6,829 Permanently restricted net assets are available for the following purposes as of: December 31, Program support funds $ 81 $ 80 Award funds 1,690 1,665 Scholarship funds 1,189 1,189 Engineering activity support Total $ 3,064 $ 3, Expenses Expenses by functional classifications were as follows: December 31, Program service $ 59,847 $ 53,976 General and administrative 18,101 17,903 Fundraising Expenses $ 78,128 $ 72,014 31