USA SWIMMING, INC AND AFFILIATES

Transcription

1 USA SWIMMING, INC AND AFFILIATES Consolidated Financial Statements And Supplemental Information For the Years Ended December 31, 2016 and 2015 And Independent Auditors' Report

2 USA SWIMMING, INC. TABLE OF CONTENTS Page INDEPENDENT AUDITORS' REPORT 1 CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 Consolidated Statements of Financial Position 3 Consolidated Statements of Activities 4 Consolidated Statements of Cash Flows 6 Notes to Consolidated Financial Statements 7 SUPPLEMENTAL INFORMATION Consolidating Statement of Financial Position 19 Consolidating Statement of Activities 21 Consolidated Statement of Functional Expenses 23

3 INDEPENDENT AUDITORS' REPORT Board of Directors USA Swimming, Inc. We have audited the accompanying consolidated financial statements of USA Swimming, Inc. and Affiliates (collectively, the Organization), which comprise the consolidated statements of financial position as of December 31, 2016 and 2015, 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 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. Auditors' Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of United States Sports Insurance Company, LLC, an affiliate, which statements reflect total assets of $0 and $25,911,729 as of December 31, 2016 and 2015, respectively, and total revenues of $414,481 and $3,162,223, respectively, and comprehensive income of $917,221 and $972,162, respectively for the years then ended. Those statements were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for United States Sports Insurance Company, LLC, is based solely on the report of the other auditors. 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 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 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.

4 Opinion In our opinion, based on our audit and the report of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of USA Swimming, Inc. and Affiliates as of December 31, 2016 and 2015, 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. Report on Supplemental Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The supplemental information on pages 19 through 24 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. Stockman Kast Ryan & Co., LLP June 29,

5 USA SWIMMING, INC. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2016 AND 2015 ASSETS CURRENT ASSETS Cash and cash equivalents $ 12,031,813 $ 10,738,918 Accounts receivable, net 1,416,814 1,730,731 Pledges receivable, net 825, ,000 Prepaid expenses 1,845,580 1,634,788 Assets of operations held for disposal 25,911,729 Total current assets 16,119,207 40,891,166 PROPERTY AND EQUIPMENT, NET 3,968,387 3,694,501 LONG-TERM INVESTMENTS 45,637,091 22,870,078 LONG-TERM PLEDGES AND OTHER RECEIVABLES, NET 2,864,395 3,364,688 OTHER ASSETS Prepaid rent 2,487,647 2,624,456 Swim-a-Thon 120, ,000 Total other assets 2,607,647 2,744,456 TOTAL $ 71,196,727 $ 73,564,889 LIABILITIES AND NET ASSETS LIABILITIES Accounts payable $ 1,393,196 $ 1,813,148 Accrued liabilities 2,999,339 2,150,745 Deferred revenue 14,241,279 14,308,350 Liabilities of operations held for disposal 3,582,026 Total liabilities 18,633,814 21,854,269 NET ASSETS Unrestricted: Available for operations 35,039,492 20,242,261 Available for operations held for disposal 17,197,931 Board designated 11,190,508 5,707,755 Temporarily restricted 1,282,913 3,566,451 Permanently restricted 5,050,000 4,996,222 Total net assets 52,562,913 51,710,620 TOTAL $ 71,196,727 $ 73,564,889 See notes to the consolidated financial statements

6 USA SWIMMING, INC. CONSOLIDATED STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 UNRESTRICTED ACTIVITIES REVENUE Membership $ 20,745,938 $ 20,073,278 Sponsorships 7,273,933 6,057,187 USOC grants 6,050,189 4,951,486 Events and registration 5,496,409 2,145,940 Investment income 1,499,674 2,878 Contributions 795, ,671 Swim-a-Thon 372, ,557 Trials VIP income 237,706 Publications and fulfillment 164, ,175 Other income 339, ,076 Net assets released from restriction 2,866, ,687 Total unrestricted revenue 45,840,998 35,454,935 EXPENSES Program services: National team 9,645,902 8,201,338 Promotion 8,098,803 5,571,401 Club development 4,099,984 4,129,033 Member services 3,544,236 3,339,615 Insurance 3,295,323 3,534,338 Events 2,535,573 3,518,046 Foundation programs 1,605,563 1,314,161 Athlete protection and safety 345, ,869 Organizational relations 285, ,733 Total program services 33,456,044 30,151,534 Supporting services: Executive division 2,739,326 2,415,451 Fundraising 1,325,763 1,248,906 Financial affairs 1,157,746 1,135,057 Committees and governance 683, ,070 Sponsor relations and fulfillment 673, ,981 Total supporting services 6,579,308 5,563,465 Total unrestricted expenses 40,035,352 35,714,999 Change in unrestricted net assets 5,805,646 (260,064) (Continued)

7 USA SWIMMING, INC. CONSOLIDATED STATEMENTS OF ACTIVITIES FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 TEMPORARILY RESTRICTED ACTIVITIES Contributions 345, ,979 Investment income (loss) 236,979 (48,008) Net assets released from restrictions (2,866,446) (792,687) Change in temporarily restricted net assets (2,283,538) (709,716) PERMANENTLY RESTRICTED ACTIVITIES Contributions 53,778 3,294 Change in permanently restricted assets 53,778 3,294 CHANGE IN NET ASSETS, FROM CONTINUING OPERATIONS 3,575,886 (972,242) INCOME (LOSS) FROM DISCONTINUED OPERATIONS (INCLUDING LOSS ON SALE OF $3,640,814 IN 2016) (2,723,593) 746,866 CHANGE IN NET ASSETS 852,293 (225,376) NET ASSETS, Beginning of year 51,710,620 51,935,996 NET ASSETS, End of year $ 52,562,913 $ 51,710,620 See notes to the consolidated financial statements. (Concluded) - 5 -

8 USA SWIMMING, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 OPERATING ACTIVITIES Change in net assets $ 852,293 $ (225,376) Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 707, ,852 Net realized and unrealized investment (gains) losses (1,718,305) 1,297,436 Loss on sale of assets 1,216,671 11,620 Loss on sale of affiliate 3,640,814 Changes in operating assets and liabilities: Accounts receivable 440,608 (458,624) Pledges receivable 300, ,728 Prepaid expenses and other receivables (136,046) (4,666) Accounts payable and accrued liabilities 290, ,268 Reserves for losses and loss adjustment expense (169,808) (2,349,991) Deferred revenue (67,071) 2,165,748 Net cash provided by operating activities: 5,357,953 2,567,995 INVESTING ACTIVITIES Decrease in prepaid rent 136, ,970 Purchases of investments (95,229,152) (32,622,232) Proceeds from sales of investments 90,186,250 33,452,208 Change in restricted cash equivalents 93,618 (43,711) Purchases of property and equipment (2,198,142) (1,623,396) Proceeds from sale of affiliate, net 1,954,914 Net cash used in investing activities (5,055,703) (715,161) FINANCING ACTIVITIES Cash provided by financing activities Collection of pledges receivable restricted for endowment 250, ,000 INCREASE IN CASH AND CASH EQUIVALENTS 552,250 2,102,834 CASH AND CASH EQUIVALENTS, Beginning of year 11,479,563 9,376,729 CASH AND CASH EQUIVALENTS, End of year $ 12,031,813 $ 11,479,563 See notes to the consolidated financial statements

9 USA SWIMMING, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Operations USA Swimming, Inc. (USA Swimming) is a Colorado non-profit corporation. USA Swimming is the national governing body for amateur swimming, making it responsible for the conduct and administration of amateur swimming in the United States. USA Swimming Foundation, Inc. (the Foundation) is a Colorado non-profit corporation established as a supporting organization of USA Swimming. The Foundation was organized to operate for charitable and educational purposes by raising funds to support programs that save lives and build champions. United States Sports Insurance Company, LLC (USSIC) was a wholly-owned captive insurer of USA Swimming. USSIC provided insurance protection on a run-off basis to USA Swimming and its committees and clubs located throughout the United States of America. Effective September 22, 2016, USA Swimming entered into an Equity Purchase Agreement, selling all of the issued and outstanding equity membership interest in USSIC. (See Note 15) Principles of Consolidation The consolidated financial statements include the accounts of USA Swimming, the Foundation and USSIC (collectively, the Organization). All significant intercompany transactions and balances have been eliminated in consolidation. Basis of Presentation The accompanying consolidated financial statements have been prepared using the accrual basis of accounting in accordance with generally accepted accounting principles of the United States of America (GAAP) and are presented on the basis of unrestricted, temporarily restricted and permanently restricted net assets. Unrestricted net assets represent the expendable resources that are available for operations at management's discretion and include funds functioning as endowment through designation by the Board. Temporarily restricted net assets are those whose use by the Organization has been limited by donors to a specific time period or purpose. Permanently restricted net assets have been restricted by donors to be maintained by the Organization in perpetuity. Cash and Cash Equivalents The Organization considers all liquid investments with original maturities of three months or less, and which are not held for long-term investment purposes, to be cash equivalents. Cash and highly liquid financial instruments held for long-term investment purposes, regardless of original length to maturity, are reported as investments and excluded from this definition. Accounts Receivable Accounts receivable are stated at unpaid balances and are comprised of amounts due under contracts with sponsors, amounts due from donors, clubs and others, and accrued interest and dividends. The Organization maintains an allowance for doubtful accounts based on expected collectability of accounts receivable. As of December 31, 2016 and 2015, the Organization considers its accounts receivable to be fully collectible, accordingly, no allowance for doubtful accounts is considered necessary

10 Pledges Receivable Pledges receivable consist of unconditional promises to give that are expected to be collected in current and future periods. Pledges expected to be collected within one year are recorded at their estimated net realizable values. Pledges to give expected to be collected in more than one year are recorded at the present value of their estimated future cash flows, computed using riskadjusted interest rates. Amortization of the discount is included in contribution revenue. Pledges receivable are reported as either temporarily restricted or permanently restricted support unless the donor stipulations or circumstances surrounding the pledge make clear the donor intended it to be used to support activities in the current period. Pledges receivable are considered by management to be fully collectible and, accordingly, no allowance for doubtful accounts is considered necessary. Investments and Investment Return Investments are carried at fair value in the statement of financial position. Net investment return consists of interest and dividend income, and the realized and unrealized gains and losses on the investments, less investment management and custodial fees. Investment returns on investments held by USSIC, are included in the income and loss from discontinued operations. See Note 3 for additional information on fair value measurements. Concentrations of Credit Risk The Organization manages deposit concentration risk by placing its accounts with various local, regional and national financial institutions. As of December 31, 2016 and 2015, the Organization's cash and cash equivalents were in excess of the federal depository insurance limits. Prepaid Expenses Prepaid expenses consist primarily of expenses paid related to membership expenses for the subsequent membership year. Property and Equipment Property and equipment are recorded at cost. Acquisitions in excess of $1,000 are capitalized. Depreciation is provided on a straight-line basis over the estimated useful lives of the assets, which range from 3 10 years. Costs of repairs and maintenance, which do not materially prolong the useful lives of the assets, are charged to expense when incurred. Revenue Recognition Contributions are recognized when received or when an unconditional promise to give is received. The Organization reports such gifts as restricted support and revenues if they are subject to time or donor-imposed restrictions. Temporarily restricted net assets are reclassified to unrestricted net assets and reported in the consolidated statement of activities and changes in net assets as net assets released from restrictions when a stipulated time restriction ends, purpose restriction is accomplished, or both. However, temporarily restricted contributions and grants are reported as unrestricted support and revenues if the restriction is met in the same calendar year that the gift is received. Sponsorships, dues, publications, and other period related revenues are recognized in the period in which they relate. Recognition of Earned Premiums and Policy Acquisition Costs Premiums written and earned and policy acquisition costs are expensed evenly over the terms of the policy. Donated Materials Donated materials are recorded as both a revenue and expenditure in the accompanying statements of activities at their estimated values. Functional Allocation of Expense The costs of providing various program and supporting services have been summarized on a functional basis in the consolidated statements of activities. Accordingly, certain costs have been allocated among the programs and supporting services benefited

11 Reserve for Unpaid Losses and Loss Adjustment Expenses The liability for unpaid losses and loss adjustment expenses, which is included in liabilities of operations held for disposal at December 31, 2015, includes estimates for reported losses and allocated loss adjustment expenses, plus supplemental amounts (incurred but not reported claims) calculated based upon loss projections utilizing USSIC s and the USA Swimming s historical data. In establishing the reserve, USSIC utilizes the findings of an independent consulting actuary. There is no such reserve as of December 31, Use of 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 that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues, expenses, gains, losses and other changes in net assets during the reporting period. Actual results could differ from those estimates. Income Taxes USA Swimming and the Foundation are exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. In addition, these entities qualify for the charitable contribution deduction and have been classified as organizations that are not private foundations. USSIC was organized as a limited liability company (LLC). Federal tax law provides an election for single member LLCs to be taxed as either associations or disregarded entities. USSIC intends to be treated as a disregarded entity. As such, USSIC's revenues and expenses will be reported as part of USA Swimming. The Organization believes that it does not have any uncertain tax positions that are material to the financial statements. Tax years that remain subject to examination include 2013 through the current period. Reclassifications Certain reclassifications have been made to prior year amounts to conform to the current year presentation. Subsequent Events The Organization has evaluated subsequent events for recognition or disclosure through the date of the Independent Auditors' Report, which is the date the financial statements were available for issuance. 2. PLEDGES RECEIVABLE As of December 31, 2016 and 2015, the Organization had pledges receivable of $3,689,395 and $4,239,688, respectively, representing unconditional promises to give made during the current and prior years. The pledges will be received by the Organization in future years and have been discounted using the risk-adjusted interest rate for the year in which they were received. The interest rates used range from.11% to 2.69%. Management considers these pledges to be fully collectible; accordingly, no allowance for doubtful accounts is recorded

12 Unconditional pledges receivable consist of the following at December 31: Receivable in one year $ 825,000 $ 875,000 Receivable in two to five years 2,875,000 3,400,000 Total 3,700,000 4,275,000 Less discount to net present value 10,605 35,312 Total 3,689,395 4,239,688 Less current portion 825, ,000 Long term portion $ 2,864,395 $ 3,364,688 As of December 31, 2016 and 2015, two donors account for 89% and 92.4% of pledges receivable, respectively. 3. INVESTMENTS AND FAIR VALUE MEASUREMENTS The Organization is required to use a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Level 2: Prices determined using significant other observable inputs. Inputs to the valuation methodology include: Quoted prices for similar assets or liabilities in active markets; Quoted prices for identical or similar assets or liabilities in inactive markets; Inputs other than quoted prices that are observable for the asset or liability; Inputs that are derived principally from or corroborated by observable market data by correlation or other means. If the asset or liability has a specified (contractual) term, the Level 2 input must be observable for substantially the full term of the asset or liability. Level 3: Prices determined using significant unobservable inputs. The investment's fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs. These classifications (Level 1, 2 and 3) are intended to reflect the observability of inputs used in the valuation of investments and are not necessarily an indication of risk or liquidity. The Organization's investments in exchange traded funds and mutual funds are based on quoted market prices in active markets and are considered a Level 1 asset. Fixed income securities are considered Level 2 assets based on quoted prices for similar instruments in active markets and quoted prices for identical or similar instruments in markets that are not active, particularly dealer market prices for comparable investments as of the valuation date

13 The following table sets forth by level, within the fair value hierarchy, the Organization's financial instruments at fair value as of December 31: Quoted Significant Prices in Active Other Significant Markets for Observable Unobservable Identical Assets Inputs Inputs Fair Value (Level 1) (Level 2) (Level 3) 2016: Cash and money market funds $ 1,217,169 $ 1,217,169 Exchange traded funds 15,377,296 15,377,296 Mutual funds: Domestic equity 2,423,132 2,423,132 International equity 8,328,735 8,328,735 Fixed income 1,130,348 1,130,348 Fixed income securities: U.S. Treasury notes 1,606,849 $ 1,606,849 Corporate and other notes 15,553,560 15,553,560 Total $ 45,637,089 $ 28,476,680 $ 17,160,409 $ 2015: Cash and money market funds $ 220,789 $ 220,789 Exchange traded funds 5,427,513 5,427,513 Mutual funds: Domestic equity 6,589,763 6,589,763 International equity 9,371,282 9,371,282 Fixed income 3,784,878 3,784,878 Fixed income securities: U.S. Treasury notes 7,793,745 $ 7,793,745 Corporate and other notes 14,555,485 14,555,485 Total $ 47,743,455 $ 25,394,225 $ 22,349,230 $ Investments are included in the statement of financial position in the following categories as of December 31: Long-term investments $ 45,637,091 $ 22,870,078 Assets of operations held for disposal 24,873,377 Total $ 45,637,091 $ 47,743,455 Investment income (loss) consists of the following for the years ended December 31: Interest and dividend income $ 1,011,865 $ 1,089,777 Realized and unrealized investment gains (losses) 1,718,305 (1,297,436) Imputed bond interest income 183, ,520 Investment management and custodial fees (123,544) (124,872) Net investment income (loss) $ 2,790,598 $ (140,011)

14 Investment income (loss) is included in the following statement of activities categories for the years ended December 31: Unrestricted activities: Investment income $ 1,499,674 $ 2,878 Temporarily restricted investment income (loss) 236,979 (48,008) Investment income (loss) included in discontinued operations 1,053,945 (94,881) Total $ 2,790,598 $ (140,011) 4. PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31: Software and websites $ 7,294,141 $ 6,199,585 Building and leasehold improvements 2,334,855 2,173,639 Furniture and equipment 1,666,582 1,639,500 Vehicles 27,693 27,693 Capitalized projects 952,388 Total 11,323,271 10,992,805 Less accumulated depreciation (7,354,884) (7,298,304) Property and equipment, net $ 3,968,387 $ 3,694, PREPAID RENT In 1996 and 1997 USA Swimming paid approximately $3,400,000 to construct a headquarters office building at the Olympic Training Center. The building is owned by the United States Olympic Committee (USOC). In consideration for USA Swimming's payment of the construction costs, the USOC agreed that USA Swimming would be allowed to occupy the building free of any further obligation to pay rent or operating costs for a 30-year period commencing March 1, The building construction costs were recorded as prepaid rent, which are being amortized over the 30- year life of the agreement. USA Swimming has recorded rent at estimated fair market rates and interest income to reflect the discount received from the prepayment. Rent expense recorded in 2016 and 2015 was $320,781 and $314,491, respectively. Interest income recorded in 2016 and 2015 was $183,972 and $192,522, respectively. 6. RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES Reserves for losses and loss adjustment expenses consist of the following as of December 31, 2015: General liability and misconduct $ 1,912,210 Additional reserve for unreported claims 1,500,000 Total reserves for losses and loss adjustment expenses $ 3,412,

15 The ultimate reserves were established by USSIC's independent actuary using actuarial techniques which took into account the past loss experience of the insured. The provision was based on estimates and accordingly, the ultimate liability may be significantly greater or less than the amounts provided. The methods of making such estimates and for establishing the resulting provision were continually reviewed and adjustments resulting were recognized in current earnings. The additional reserve was established using a best estimate approach based on the limited available information and perceived trends and is therefore highly subjective. USSIC incurred losses (gains) of $10,692 and $(1,088,765) for the years ended December 31, 2016 and 2015, respectively. Activity in liability for unpaid losses and loss adjustment expenses are as follows for the years ended December 31: Reserves, beginning of year $ 3,412,210 $ 5,762,201 Incurred related to losses (gains) occurring in: Current year Prior years 10,692 (1,088,765) Total incurred 10,692 (1,088,765) Paid related to losses occurring in: Current year Prior years (180,500) (1,261,226) Total paid (180,500) (1,261,226) Reserves 3,242,402 3,412,210 Transfer of liability due to sale (3,242,402) Reserves, end of year $ $ 3,412, STATUTORY SOLVENCY REQUIREMENT USSIC is required, pursuant to the laws of the District of Columbia, to maintain a minimum unimpaired capital of $100,000 and surplus of $150,000. USSIC's member equity as of December 31, 2015, calculated in accordance with the District of Columbia Department of Insurance, Securities and Banking (the Department) was $22,329,703. The Department must approve any distribution prior to distributions being paid by USSIC. USSIC paid a dividend of $17,651,196 to USA Swimming during 2016, which was approved by the Department. No distributions were approved or paid in

16 8. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following purposes at December 31: Purpose restrictions $ 707,913 $ 2,866,451 Time restrictions 575, ,000 Total $ 1,282,913 $ 3,566,451 Net assets are released from donor restriction by incurring expenses that satisfy the restricted purpose. During the years ended December 31, 2016 and 2015 net assets were released from temporary restrictions by satisfying the following restricted purposes: National team $ 2,263,646 $ 205,087 Time restrictions 350, ,000 Make a Splash 202, ,600 Golden Googles 50,000 50,000 Other 175,000 Total $ 2,866,446 $ 792, PERMANENTLY RESTRICTED NET ASSETS During the year ended December 31, 2008, the Foundation received a permanently restricted pledge of $5,000,000. This pledge was recorded at the present value of $4,967,466, net of a discount in the amount of $32,534. Funds collected under the pledge are recognized as endowment funds. During the year ended December 31, 2016, the Foundation received a permanently restricted contribution of $50,000, which was recognized as endowment funds. Permanently restricted net assets comprise the following at December 31: Endowment funds $ 2,550,000 $ 2,250,000 Pledge receivable 2,500,000 2,750,000 Discount on pledge receivable (3,778) Total $ 5,050,000 $ 4,996, ENDOWMENT FUNDS The Organization's endowment funds consist of unrestricted funds functioning as endowment through designations by the Board of the Foundation and donor restricted endowment funds. The earnings of board-designated endowment funds are restricted for athlete support. The earnings of permanently restricted endowment funds support Make a Splash and the USA Swimming Dirks/Gould Coaches Incentive Program

17 The Organization has adopted investment and spending policies based on the Uniform Prudent Management of Institutional Funds Act (UPMIFA). The Organization has interpreted UPMIFA as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Organization classifies as permanently restricted net assets (a) the original value of gifts donated to the permanent endowment, and (b) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor-restricted endowment fund that is not classified in permanently restricted net assets is classified as temporarily restricted net assets until those amounts are appropriated for expenditure by the Organization in a manner consistent with the standard of prudence prescribed by UPMIFA. Each year the Organization is required, by the donor, to spend no less than 3% and no more than 5% of the donor restricted endowment funds. The Foundation does not include uncollected pledges receivable, that are permanently restricted, as part of endowment net assets. Amounts are included with endowment net assets as the pledges receivable are collected. As of December 31, 2016 and 2015 permanently restricted uncollected pledge were $2,500,000 and $2,746,222, respectively. Endowment Net Asset Composition by Type of Fund as of December 31, 2016 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted funds $ 2,550,000 $ 2,550,000 Board designated funds $ 9,988,958 9,988,958 Total $ 9,988,958 $ $ 2,550,000 $ 12,538,958 Changes in Endowment Net Assets for the year ended December 31, 2016 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 5,655,342 $ $ 2,250,000 $ 7,905,342 Investment return: Investment income 191,349 28, ,775 Net appreciation (realized and unrealized) 330,176 90, ,351 Total investment return 521, , ,126 Contributions and receipt of pledge 4,112, ,000 4,412,091 Expenditures (300,000) (118,601) (418,601) Endowment net assets, end of year $ 9,988,958 $ $ 2,550,000 $ 12,538,958 Endowment Net Asset Composition by Type of Fund as of December 31, 2015 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Donor restricted funds $ (52,413) $ 2,250,000 $ 2,197,587 Board designated funds 5,707,755 5,707,755 Total $ 5,655,342 $ $ 2,250,000 $ 7,905,

18 Changes in Endowment Net Assets for the year ended December 31, 2015 is as follows: Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, beginning of year $ 5,926,338 $ 87,017 $ 2,000,000 $ 8,013,355 Investment return: Investment income 117,786 50, ,209 Net depreciation (realized and unrealized) (182,749) (77,353) (260,102) Total investment return (64,963) (26,930) (91,893) Contributions and receipt of pledge 156, , ,380 Expenditures (362,413) (60,087) (422,500) Endowment net assets, end of year $ 5,655,342 $ $ 2,250,000 $ 7,905,342 From time to time, the fair value of assets associated with individual donor-restricted endowment funds may fall below the level that the donor or UPMIFA requires the Foundation to retain as a fund of perpetual duration. In accordance with GAAP, a deficiency of this nature is reported in unrestricted net assets of $52,413 as of December 31, No such deficiencies existed as of December 31, The Organization has adopted investment and spending policies for endowment assets that attempt to provide a predictable stream of funding to programs supported by its endowment while seeking to maintain the purchasing power of the endowment assets. Endowment assets include those assets of donor-restricted funds that the Foundation must hold in perpetuity or for a donor-specified period as well as board-designated funds. Under this policy the endowment assets are invested in a manner that is intended to produce maximum results while assuming a moderate level of investment risk. The Foundation expects its endowment funds, over time, to provide a rate of return sufficient to keep pace with the rate of inflation. Actual returns in any given year may vary from this amount. To satisfy its long-term rate-of-return objectives, the Organization relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Organization targets a diversified asset allocation that places a great emphasis on equity-based investments to achieve its long-term return objectives within prudent risk constraints. 11. SUPPORT FROM THE UNITED STATES OLYMPIC COMMITTEE The USOC provides support to USA Swimming for sports development, international competition and team preparation. In addition, the USOC designates a portion of their funding for athlete support and this amount is paid directly to eligible athletes. Support provided consisted of the following for the years ended December 31: General funding $ 2,832,624 $ 2,881,986 Direct athlete support 1,997,500 1,997,500 Other 1,220,065 72,000 Total $ 6,050,189 $ 4,951,

19 During the years ended December 31, 2016 and 2015, $60,424 and $59,786, respectively, of the USOC funding was provided as value-in-kind. As of December 31, 2016 and 2015 the Organization owed the USOC $1,172,106 and $63,437, respectively. 12. RETIREMENT PLAN USA Swimming and the Foundation's 401(k) retirement plan covers all employees over 18 years of age with one year of service. During the years ended December 31, 2016 and 2015 contributions to the plan were $688,851 and $564,075, respectively. USA Swimming entered into a deferred compensation agreement under Section 457 of the Internal Revenue Code with its executive director. The purpose of the plan is to provide retirement benefits for this individual. This plan contained two components: a qualified deferred compensation account and a non-qualified account. In January 2013, all funds held in the non-qualified account were distributed to the executive director. All amounts credited to the qualified deferred compensation account were fully vested upon contribution. As of December 31, 2012, the deferred compensation plan was fully funded and no additional contributions have been made. However, earnings of 8% are added to the plan annually. At December 31, 2016 and 2015, the vested balance in the qualified account was $339,914 and $314,735, respectively. 13. INVESTMENT IN JOINT VENTURE USA Swimming is a party to a joint venture agreement with Omaha Sports Commission (OSC) for the purpose of operating, promoting and managing the U.S. Olympic Team Trials (the Trials). The two parties agree to share equally the difference between the Trials revenues and expenses. The joint venture agreement provides that any amounts received from the USOC and certain sponsors will accrue solely to the benefit of USA Swimming and amounts paid to OSC from various Nebraska municipalities will accrue to the benefit of OSC. The following is an unaudited condensed balance sheet of the joint venture as of December 31: ASSETS Cash $ 404,837 $ 19,118 Accounts receivable 9,156 28,350 Prepaid expense 20,500 Property and equipment, net 327,091 45,914 Total assets $ 741,084 $ 113,882 LIABILITIES AND EQUITY Liabilities $ 432,028 Equity $ 741,084 (318,146) Total liabilities and equity $ 741,084 $ 113,

20 14. CONCENTRATIONS OF REVENUE SOURCES The Organization received grants from one source totaling 13% of total revenues for the years ended December 31, 2016 and DISCONTINUED OPERATIONS On September 7, 2016, USA Swimming entered into an equity purchase agreement (the Agreement) to sell all of the issued and outstanding equity membership interests of USSIC, effective September 22, 2016, for $2,075,000. In connection with the sale, USA Swimming recognized a loss of $3,640,814. In accordance with the Equity Purchase Agreement, USA Swimming obtained a letter of credit (the LOC) for benefit of the buyer in the amount of $5,000,000. The LOC collateralizes indemnity reserves and allows the buyer to draw against the LOC once per quarter for the payment of claims that exceed $3,265,599, which is the referenced loss reserves as defined in the agreement. If on the fifth anniversary of the date of sale the estimated ultimate losses of USSIC are equal to or greater than $5,000,000 USA Swimming may, but is not obligated to, release the entire LOC to the buyer. If on the fifth anniversary of the date of sale the estimated ultimate losses of USSIC are less the $5,000,000 USA Swimming may release a portion of the LOC to the buyer or reduce the LOC amount. The LOC will be terminated on the 10 th anniversary of the date of sale. Following are summarized assets, liabilities and activities of USSIC for the years ended December 31: ASSETS AND LIABILITIES OF OPERATIONS HELD FOR DISPOSAL ASSETS Cash $ 834,263 Investments 24,873,377 Other assets 204,089 Total assets $ $ 25,911,729 LIABILITIES Revenue for losses and loss adjustments $ 3,412,210 Other liabilities 169,816 Total $ $ 3,582,026 ACTIVITIES OF OPERATIONS HELD FOR DISPOSAL REVENUE AND OTHER CHANGES $ 1,078,831 $ (89,125) EXPENSES (RECOVERIES) 161,610 (835,991) Change in net assets from discontinued operations $ 917,221 $ 746,

21 USA SWIMMING, INC. SUPPLEMENTAL INFORMATION

22 USA SWIMMING, INC. CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2016 (with comparative consolidated totals for 2015) 2016 United States USA Sports USA Swimming Insurance 2015 Swimming Foundation Company Eliminations Totals Totals ASSETS CURRENT ASSETS Cash and cash equivalents $ 10,024,139 $ 2,007,674 $ 12,031,813 $ 10,738,918 Accounts receivable, net 1,284, ,114 1,416,814 1,730,731 Pledges receivable, net 825, , ,000 Prepaid expenses 1,836,817 8,763 1,845,580 1,634,788 Assets of operations held for disposal 25,911,729 Due to/from related party 67,912 (67,912) Total current assets 13,213,568 2,905,639 $ - $ - 16,119,207 40,891,166 PROPERTY AND EQUIPMENT, NET 3,869,238 99,149 3,968,387 3,694,501 LONG-TERM INVESTMENTS 33,185,141 12,451,950 45,637,091 22,870,078 LONG-TERM PLEDGES AND OTHER RECEIVABLES, NET 2,864,395 2,864,395 3,364,688 OTHER ASSETS Prepaid rent 2,487,647 2,487,647 2,624,456 Swim-a-Thon 120, , ,000 Total other assets 2,487, , ,607,647 2,744,456 TOTAL $ 52,755,594 $ 18,441,133 $ - $ - $ 71,196,727 $ 73,564,889 (Continued)

23 USA SWIMMING, INC. CONSOLIDATING STATEMENT OF FINANCIAL POSITION DECEMBER 31, 2016 (with comparative consolidated totals for 2015) 2016 United States USA Sports USA Swimming Insurance 2015 Swimming Foundation Company Eliminations Totals Totals LIABILITIES AND NET ASSETS LIABILITIES Accounts payable $ 1,330,000 $ 63,196 $ 1,393,196 $ 1,813,148 Accrued liabilities 2,946,075 53,264 2,999,339 2,150,745 Deferred revenue 14,238,779 2,500 14,241,279 14,308,350 Liabilities of operations held for disposal 3,582,026 Total liabilities 18,514, ,960 $ - $ - 18,633,814 21,854,269 NET ASSETS Unrestricted: Available for operations 34,240, ,752 35,039,492 20,242,261 Available for operations held for disposal 17,197,931 Board designated 11,190,508 11,190,508 5,707,755 Temporarily restricted 1,282,913 1,282,913 3,566,451 Permanently restricted 5,050,000 5,050,000 4,996,222 Total net assets 34,240,740 18,322, ,562,913 51,710,620 TOTAL $ 52,755,594 $ 18,441,133 $ - $ - $ 71,196,727 $ 73,564,889 (Concluded)

24 USA SWIMMING, INC. CONSOLIDATING STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2016 (with comparative consolidated totals for 2015) United States USA Sports USA Swimming Insurance 2015 Swimming Foundation Company Eliminations Totals Totals UNRESTRICTED ACTIVITIES REVENUE Membership $ 20,745,938 $ 20,745,938 $ 20,073,278 Sponsorships 6,777,522 $ 496,411 7,273,933 6,057,187 USOC grants 6,050,189 6,050,189 4,951,486 Events and registration 5,496,409 5,496,409 2,145,940 Investment income 1,028, ,050 1,499,674 2,878 Contributions 2,713, ,793 $ (2,704,550) 795, ,671 Swim-a-Thon 372, , ,557 Trials VIP income 237, ,706 Publications and fulfillment 164, , ,175 Other income 314, ,245 (310,000) 339, ,076 USA Swimming support 3,879,435 (3,879,435) Net assets released from restriction 2,866,446 2,866, ,687 Total unrestricted revenue 43,291,574 9,443,409 $ - (6,893,985) 45,840,998 35,454,935 EXPENSES Program services: National team 9,645,902 9,645,902 8,201,338 Promotion 8,098,803 8,098,803 5,571,401 Club development 4,099,984 4,099,984 4,129,033 Member services 3,544,236 3,544,236 3,339,615 Insurance 3,295,323 3,295,323 3,534,338 Events 2,785,573 (250,000) 2,535,573 3,518,046 Foundation programs 3,879,435 4,310,113 (6,583,985) 1,605,563 1,314,161 Athlete protection and safety 345, , ,869 Organizational relations 285, , ,733 Total program services 35,979,916 4,310,113 - (6,833,985) 33,456,044 30,151,534 Supporting services: Executive division 2,739,326 2,739,326 2,415,451 Fundraising 1,385,763 (60,000) 1,325,763 1,248,906 Financial affairs 1,157,746 1,157,746 1,135,057 Committees and governance 683, , ,070 Sponsor relations 673, , ,981 Total supporting services 5,253,545 1,385,763 - (60,000) 6,579,308 5,563,465 Total unrestricted expenses 41,233,461 5,695,876 - (6,893,985) 40,035,352 35,714,999 Change in unrestricted net assets 2,058,113 3,747, ,805,646 (260,064) (Continued)

25 USA SWIMMING, INC. CONSOLIDATING STATEMENT OF ACTIVITIES FOR THE YEAR ENDED DECEMBER 31, 2016 (with comparative consolidated totals for 2015) 2016 United States USA Sports USA Swimming Insurance 2015 Swimming Foundation Company Eliminations Totals Totals TEMPORARILY RESTRICTED ACTIVITIES Contributions $ 345,929 $ 345,929 $ 130,979 Investment income (loss) 236, ,979 (48,008) Net assets released from restrictions (2,866,446) (2,866,446) (792,687) Change in temporarily restricted net assets $ - (2,283,538) $ - $ - (2,283,538) (709,716) PERMANENTLY RESTRICTED ACTIVITIES Contributions 53,778 53,778 3, Change in permanently restricted net assets - 53, ,778 3,294 CHANGE IN NET ASSETS, FROM CONTINUING OPERATIONS 2,058,113 1,517,773-3,575,886 (972,242) INCOME (LOSS) FROM DISCONTINUED OPERATIONS (INCLUDING LOSS ON SALE OF $3,640,814) 14,474, ,221 (18,115,152) (2,723,593) 746,866 SALE OF USSIC ASSETS (23,246,924) 23,246,924 CHANGE IN NET ASSETS 16,532,451 1,517,773 (22,329,703) 5,131, ,293 (225,376) NET ASSETS, Beginning of year 17,708,289 16,804,400 22,329,703 (5,131,772) 51,710,620 51,935,996 NET ASSETS, End of year $ 34,240,740 $ 18,322,173 $ - $ - $ 52,562,913 $ 51,710,620 (Concluded)

26 USA SWIMMING, INC. CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2016 (with comparative consolidated totals for 2015) Program Services Athlete National Club Member Foundation Protection Organizational Team Promotion Development Services Insurance Events Programs and Safety Relations Total Salaries $ 1,435,924 $ 1,360,237 $ 1,417,899 $ 1,557,869 $ 218,312 $ 583,727 $ 6,573,968 Travel and hospitality 2,435, , , ,555 25,417 $ 686, ,344 $ 36,275 $ 65,003 5,228,592 Professional fees and honoraria 226,577 2,616, ,279 94,738 70, , , ,835 6,000 4,655,328 Direct athlete support 3,619,215 70,500 36,000 3,725,715 Insurance 47,250 3,550 2,894,582 18,575 2,963,957 Employee benefits 301, , , ,615 41,210 1,481,108 Grants 299, ,865 50, , ,000 1,344,247 Dues, fees and tickets 68, ,135 61,407 25,171 4, ,300 5,642 58,946 1,165,964 Office supplies and expenses 106, ,422 72,249 68,362 5,359 36,296 5,077 3,763 1, ,362 Television and production 13, ,838 21,501 1,590 17, ,245 Printing and duplication 8, ,327 23, ,835 5,694 10,878 4,065 3, ,154 Depreciation and amortization 72,475 92, , ,581 3,928 10, ,549 Awards and gifts 411,600 7,062 45,335 5,650 76,265 34, ,848 Software, gear and equipment 54, ,454 47,028 98, ,514 5, ,073 Rent and lease expense 113, , ,992 78,523 3,455 25,674 5, ,058 Payroll taxes 95,788 97, , ,993 10, ,329 Apparel 290,839 33,671 42,904 5,721 7,690 46,157 4,619 2, ,742 Advertising 225, , ,373 Telephone and internet 33,380 24,067 27, ,433 2, , , ,849 Protocol 9,202 27,569 15,772 11,859 1,687 28,080 6,087 28, ,805 Repairs and mainentance , , ,179 Venue and production 15,091 15,091 Miscellaneous 1,471 9,138 2,953 1, ,702 40,508 TOTAL $ 9,645,902 $ 8,098,803 $ 4,099,984 $ 3,544,236 $ 3,295,323 $ 2,535,573 $ 1,605,563 $ 345,470 $ 285,190 $ 33,456,044 PERCENTAGE 24.1% 20.2% 10.3% 8.9% 8.2% 6.3% 4.0% 0.9% 0.7% 83.6% TOTAL $ 8,201,338 $ 5,571,401 $ 4,129,033 $ 3,339,615 $ 3,534,338 $ 3,518,046 $ 1,314,161 $ 293,869 $ 249,733 $ 30,151,534 PERCENTAGE % 15.6% 11.6% 9.3% 9.9% 9.8% 3.7% 0.8% 0.7% 84.4% (Continued)

27 USA SWIMMING, INC. CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES FOR THE YEAR ENDED DECEMBER 31, 2016 (with comparative consolidated totals for 2015) Supporting Services Committees Sponsor Executive Financial and Relations and Total Total Division Fundraising Affairs Governance Fulfillment Total Expenses Expenses Salaries $ 1,417,194 $ 642,755 $ 685,345 $ 2,745,294 $ 9,319,262 $ 8,590,426 Travel and hospitality 189, ,106 13,158 $ 521,538 $ 69, ,466 6,214,058 5,464,103 Professional fees and honoraria 563, ,207 49,589 48, , ,735 5,606,063 3,760,568 Direct athlete support 123, ,000 3,848,844 2,719,202 Insurance 2,963,957 3,164,565 Employee benefits 236, , ,700 1,917,808 1,709,871 Grants 1,344,247 1,345,531 Dues, fees and tickets 52,489 9,722 17,668 51, ,099 1,297,063 1,145,040 Office supplies and expenses 12,703 10,096 16,311 18,747 18,751 76, , ,325 Television and production 4, , , ,672 1,318,783 Printing and duplication 48,650 58,132 4,580 11, , , ,334 Depreciation and amortization 39,275 46,639 53, , , ,852 Awards and gifts 84, ,621 89, , ,041 Software, gear and equipment 582 5,152 1,119 6, , ,298 Rent and lease expense 34,056 35,847 51,643 1, , , ,301 Payroll taxes 66,813 47, , , ,496 Apparel 48,880 32, ,986 87, , ,798 Advertising 4,751 4,225 1,838 10, , ,286 Telephone and internet 9,193 5,803 4,278 4, , , ,637 Protocol 14, ,544 11,758 29, , ,832 Repairs and mainentance 183 3,742 2,557 6, , ,225 Venue and production 13,150 13,150 28,241 14,471 Miscellaneous 5, ,738 25, , , , ,014 TOTAL $ 2,739,326 $ 1,325,763 $ 1,157,746 $ 683,086 $ 673,387 $ 6,579,308 $ 40,035,352 PERCENTAGE 6.8% 3.3% 2.9% 1.7% 1.7% 16.4% 100.0% TOTAL $ 2,415,451 $ 1,248,906 $ 1,135,057 $ 611,070 $ 152,981 $ 5,563,465 $ 35,714,999 PERCENTAGE % 3.5% 3.2% 1.7% 0.4% 15.6% 100.0% (Concluded)