audited financial statements
AMERICAN BANKRUPTCY INSTITUTE FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2012 AND 2011
AMERICAN BANKRUPTCY INSTITUTE TABLE OF CONTENTS YEARS ENDED DECEMBER 31, 2012 AND 2011
INDEPENDENT AUDITORS’ REPORT
1
FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION
3
STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS
4
STATEMENTS OF CASH FLOWS
5
NOTES TO FINANCIAL STATEMENTS
6
CliftonLarsonAllen LLP www.cliftonlarsonallen.com
INDEPENDENT AUDITORS’ REPORT Board of Directors American Bankruptcy Institute Alexandria, Virginia
We have audited the accompanying financial statements of American Bankruptcy Institute, which comprise the statements of financial position as of December 31, 2012 and 2011, and the related statements of activities and changes in net assets and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
(1) An independent member of Nexia International
Board of Directors American Bankruptcy Institute
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Bankruptcy Institute as of December 31, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
CliftonLarsonAllen LLP Arlington, Virginia April 15, 2013
(2)
AMERICAN BANKRUPTCY INSTITUTE STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2012 AND 2011
2012
2011
ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Interest Receivable Contributions Receivable, Net Prepaid Expenses Property and Equipment, Net Deposits Deferred Compensation Plan Total Assets
$
165,448 11,606,440 123,853 10,186 115,472 446,792 152,089 39,492 36,308
$
726,998 10,854,884 224,565 7,955 129,605 286,573 198,174 39,596 15,342
$
12,696,080
$
12,483,692
$
810,504 65,571 2,681,797 36,308 3,594,180
$
769,981 37,783 2,824,869 15,342 3,647,975
LIABILITIES AND NET ASSETS LIABILITIES Accounts Payable and Other Obligations Capital Lease Payable Deferred Revenue Deferred Compensation Plan Total Liabilities NET ASSETS Unrestricted: Undesignated Board Designated Reserve Total Unrestricted Temporarily Restricted Total Net Assets
5,314,177 3,314,309 8,628,486 473,414 9,101,900
Total Liabilities and Net Assets
$
See accompanying Notes to Financial Statements. (3)
12,696,080
5,202,585 3,074,835 8,277,420 558,297 8,835,717 $
12,483,692
AMERICAN BANKRUPTCY INSTITUTE STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2012 AND 2011 2012 Temporarily Restricted
Unrestricted REVENUE Conferences and Meetings Membership Dues Publications and Other Income Investment Income Contributions CARE Program Contributions Net Assets Released from Restriction Total Revenue
$
5,314,236 2,923,974 1,446,887 165,789 277,296 149,388 10,277,570
$
Total
64,505 (149,388) (84,883)
$
5,314,236 2,923,974 1,446,887 165,789 341,801 10,192,687
2011 Temporarily Restricted
Unrestricted $
5,460,275 2,928,799 1,326,249 272,852 622,965 59,026 10,670,166
$
Total
85,905 374,000 (59,026) 400,879
$
5,460,275 2,928,799 1,326,249 272,852 708,870 374,000 11,071,045
EXPENSE Program Expense: Conferences and Meetings Publications and Other Sales Membership Services Research Projects and Grants CARE Program Total Program Expense
4,886,761 2,387,315 691,385 363,564 188,152 8,517,177
-
4,886,761 2,387,315 691,385 363,564 188,152 8,517,177
5,038,316 2,102,665 660,991 579,553 7,145 8,388,670
-
5,038,316 2,102,665 660,991 579,553 7,145 8,388,670
Supporting Expense: General and Administrative Membership Development Fundraising Total Supporting Expense
1,100,454 212,172 96,701 1,409,327
-
1,100,454 212,172 96,701 1,409,327
997,904 185,349 122,505 1,305,758
-
997,904 185,349 122,505 1,305,758
9,926,504
-
9,926,504
9,694,428
-
9,694,428
351,066
(84,883)
266,183
975,738
400,879
1,376,617
8,835,717
7,301,682
157,418
7,459,100
Total Expense CHANGE IN NET ASSETS Net Assets - Beginning of Year NET ASSETS - END OF YEAR
8,277,420 $
8,628,486
558,297 $
473,414
See accompanying Notes to Financial Statements. (4)
$
9,101,900
$
8,277,420
$
558,297
$
8,835,717
AMERICAN BANKRUPTCY INSTITUTE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
2012 CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation Provision for Bad Debt Discount of Contributions Receivable Realized Gain on Investments Unrealized Loss on Investments (Increase) Decrease in: Accounts Receivable Interest Receivable Contributions Receivable Prepaid Expenses Deposits Increase (Decrease) in: Accounts Payable and Other Obligations Capital Lease Payable Deferred Revenue Net Cash Provided by Operating Activities
$
CASH FLOWS FROM INVESTING ACTIVITIES Purchases of Property and Equipment Purchases of Investments Proceeds on Sales of Investments Net Cash Used in Investing Activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - Beginning of Year
266,183
2011 $
1,376,617
105,192 (15,739) (648) (19,160) 26,599
130,297 6,777 (719) (105,887) 45,569
116,451 (2,231) 14,781 (160,219) 104
(88,230) 2,223 (12,165) 211,670 7,036
40,523 27,788 (143,072) 256,552
(229,078) 7,141 (1,175) 1,350,076
(59,107) (7,268,345) 6,509,350 (818,102)
(29,916) (5,453,520) 4,663,601 (819,835)
(561,550)
530,241
726,998
196,757
CASH AND CASH EQUIVALENTS - END OF YEAR
$
165,448
$
726,998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid During the Period for Income Taxes
$
90,277
$
102,277
$
2,658
$
3,331
Cash Paid During the Period for Interest
See accompanying Notes to Financial Statements. (5)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization American Bankruptcy Institute (the Organization) was founded in 1982 as a non-profit and nonpartisan educational institution. The Organization provides a multi-disciplinary forum for the exchange of ideas and information on insolvency, reorganization, and bankruptcy issues. Through the Organization, accountants, attorneys, bankers, court clerks, consumer specialists, credit managers, finance and insurance executives, judges, legislators, professors, and others pursue mutual business, professional, and academic interests. In fulfillment of its mission to provide information to its members, journalists, Congress and the public, the Organization is engaged in numerous educational and research activities, as well as the production of a number of publications both for the insolvency practitioner and the public. The Organization’s major programs consist of the following: Conferences and Meetings The Organization holds two national membership meetings and many regional conferences throughout the year. These meetings offer a concentrated opportunity for the exchange of ideas, discussions of findings among colleagues, and continuing legal education. Publications and Other Sales The Organization produces various publications and journals that represent its commitment to the ongoing enhancement of quality education on insolvency topics. Additionally, the Organization maintains a comprehensive internet site covering insolvency issues and providing instant updates on legislation, new filings, Supreme Court cases, bankruptcy filing statistics, and daily bankruptcy news. Membership Services The Organization provides ongoing services to its members in order to provide a broad, indepth resource of insolvency issues and related services. Research Projects and Grants The Organization provides funding and scholarships to enhance bankruptcy research and education. CARE Program The Organization assumed the administration and management for CARE in October 2011. CARE is a free financial literacy program which makes bankruptcy professionals available to educators, students and the public to illuminate the dangers of credit abuse. CARE has a presence in all 50 states and the District of Columbia. Basis of Accounting The Organization prepares its financial statements on the accrual basis of accounting. Accordingly, revenue is recognized when earned and expenses when the obligation is incurred.
(6)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Presentation Net assets and revenue are classified based on the existence or absence of donor-imposed restrictions and reported as follows: Unrestricted Net Assets Net assets that are not subject to donor-imposed stipulations. Includes undesignated net assets available for general operations and the Board Designated Reserve, which consists of unrestricted net assets designated by the Board of Directors for research and educational activities. Temporarily Restricted Net Assets Net assets subject to donor-imposed stipulations that will be met either by actions of the Organization and/or the passage of time. Cash and Cash Equivalents For financial statement purposes, the Organization considers all highly liquid debt instruments with initial maturities of ninety days or less to be cash equivalents. From time to time the Organization maintains cash balances which may exceed Federally insured limits. Management does not believe that this results in any significant credit risk. Investments Investments are stated at fair value and consist of certificates of deposit, money market funds, mutual funds - bonds, exchange traded funds, and equities. Realized and unrealized gains or losses are included in investment income in the statements of activities and changes in net assets. Fair Value Measurements The Organization accounts for its financial instruments as well as certain assets and liabilities at fair value. Fair value is defined as the price that would be paid in an orderly transaction, or exit price, between market participants to sell the asset or transfer the liability in the principal or most advantageous market for the asset or liability. Fair value is a market based measurement, not an entity-specific measurement, and should therefore be determined based on the assumptions that market participants would use in pricing the asset or liability. The Organization is required by generally accepted accounting principles to categorize its financial instruments based on a three-level fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value of the instrument. Financial instruments recorded on the statements of financial position are categorized based on the inputs to the valuation techniques as follows:
(7)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Measurements (Continued) Level 1 Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Organization has the ability to access. Level 2 Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. The Organization has certificates of deposits classified at this level. Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. The Organization has no investments classified at this level. Accounts Receivable Accounts receivable consist of amounts due to the Organization from sponsorships and the sale of advertising space in the American Bankruptcy Institute Journal. The Organization’s management periodically reviews the status of these receivables for collectibility, which is assessed on management’s knowledge of the relationship with the customer and the age of the receivable. Based on these reviews and the nature of the receivables, management has estimated $6,664 and $20,402 may be uncollectible and has recorded an allowance accordingly for the years ended December 31, 2012 and 2011, respectively. Contributions Receivable Contributions receivable consist of pledges individuals or companies have made to the Organization. The face amount of the contributions receivable is reduced by an allowance for doubtful accounts. The allowance for doubtful accounts reflects the best estimate of probable losses determined principally on the basis of historical experience and specific allowances for known troubled accounts. All accounts or portions thereof that are deemed to be uncollectible or that require an excessive collection cost are written off to the allowance for doubtful accounts (see Note 4). Property and Equipment Property and equipment greater than $2,500 are recorded at the original cost and are being depreciated on a straight-line basis over estimated lives of three to five years. Leasehold improvements are amortized over the life of the assets or the remaining period of the lease, whichever is shorter.
(8)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred Revenue Deferred revenue represents members’ dues recognized over the applicable membership period or member dues received before the membership period, and income for conferences and meetings received in advance of the event. Revenue Recognition Conferences and Meetings Conferences and meetings revenue is recognized when the event takes place. Membership Dues Membership dues are recognized as revenue over the applicable membership period. Membership dues collected in advance are included in deferred revenue. Publications and Other Sales Publication and other sales consist of advertising, publication sales and sponsorship revenue and are recognized when the publication is issued. Contributions The Organization recognizes all unconditional contributions received as income in the period received or pledged. Unconditional contributions are reported as unrestricted, temporarily restricted or permanently restricted depending on the absence or existence of donor stipulations that limit the use of the contributions. When a donor 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 statements of activities and changes in net assets as net assets released from restrictions. Use of Accounting Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Accordingly, actual results could differ from those estimates. Income Tax Status The Organization is exempt from Federal income tax under Section 501(c)(3) of the Internal Revenue Code and is classified as an organization that is not a private foundation. However, the Organization is subject to tax on its unrelated business income activities (primarily advertising), and recorded expense for the years ended December 31, 2012 and 2011, of $90,277 and $105,145, respectively, for unrelated business income taxes.
(9)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Tax Status (Continued) The Organization’s income tax returns are subject to review and examination by federal and state authorities. The Organization is not aware of any activities that would jeopardize its tax-exempt status. The tax returns for the fiscal years ended 2009 through 2011 are open to examination by federal and state authorities. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities and changes in net assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Reclassifications Certain items in the fiscal year 2011 financial statements have been reclassified to conform to the 2012 presentation. Subsequent Events Management has evaluated subsequent events for disclosure in these financial statements through April 15, 2013, which is the date the financial statements are available to be issued.
NOTE 2
INVESTMENTS Investments are recorded at fair value and consisted of the following at December 31: 2012 Cost Undesignated: Money Market Funds Certificates of Deposit Mutual Funds - Bonds Sub Total
$
Board Designated Reserve: Money Market Certificates of Deposit Sub Total Total
810,402 4,527,000 3,049,755 8,387,157
$
450,564 2,753,414 3,203,978 $
11,591,135
(10)
2011 Fair Value 810,402 4,517,579 3,076,471 8,404,452
$
450,564 2,751,424 3,201,988 $
11,606,440
Fair Value
Cost 1,694,733 3,374,000 2,920,702 7,989,435
$
263,232 2,560,313 2,823,545 $
10,812,980
1,694,733 3,360,797 2,955,238 8,010,768
263,232 2,580,884 2,844,116 $
10,854,884
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 2
INVESTMENTS (CONTINUED) Investment income consisted of the following for the years ended December 31:
2012
Undesignated
Interest and Dividends Realized Gain Unrealized Loss Total
$
132,108 19,160 (4,038) 147,230
$
2011
$
$
148,925 60,808 (5,640) 204,093
$
41,120 (22,561) 18,559
$
Total $
173,228 19,160 (26,599) 165,789
$
Board Designated Reserve
Undesignated
Interest and Dividends Realized Gain Unrealized Loss Total
NOTE 3
Board Designated Reserve
$
63,609 45,079 (39,929) 68,759
$
Total $
212,534 105,887 (45,569) 272,852
$
FAIR VALUE MEASUREMENTS The Organization uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. For additional information on how the Organization measures fair value refer to Note 1 – Organization and Significant Accounting Policies. The following table presents the Organization’s fair value hierarchy for those assets measured at fair value on a recurring basis as of December 31: 2012 Level 1 Undesignated: Certificates of Deposit Mutual Funds - Bonds Sub Total
$
3,076,471 3,076,471
Board Designated Reserve: Certificates of Deposit Sub Total Total
Level 2 $
$
3,076,471
(11)
4,517,579 4,517,579
Level 3 $
2,588,010 2,588,010 $
7,105,589
$
Total -
$
4,517,579 3,076,471 7,594,050
-
2,588,010 2,588,010
-
$ 10,182,060
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 3
FAIR VALUE MEASUREMENTS (CONTINUED) 2011 Level 1 Undesignated: Certificates of Deposit Mutual Funds - Bonds Sub Total
$
2,955,238 2,955,238
Board Designated Reserve: Certificates of Deposit Total
Level 2 $
$
2,955,238
Level 3
3,360,797 3,360,797
$
-
2,420,571 $
5,781,368
Total $
$
-
3,360,797 2,955,238 6,316,035
2,420,571 $
8,736,606
*Money market funds and certain Certificates of Deposits are not included in the above tables because cost estimates fair value.
NOTE 4
CONTRIBUTIONS RECEIVABLE Contributions receivable relate to the Board Designated Reserve program. They are unconditional, are to be received over a period up to five years, and have been discounted to their present value at December 31, 2012 and 2011. The following amounts are to be received as of December 31: Receivable in Less Than One Year Receivable in One to Five Years Total
$
Present Value Discount Allowance for Doubtful Accounts Total
$
2012 57,044 76,548 133,592 (3,608) (14,512) 115,472
$
$
2011 66,336 84,038 150,374 (4,256) (16,513) 129,605
The contributions receivable due after one year have been discounted to their present value using a risk-adjusted discount rate of 3.37% in 2012 and 3.7% in 2011.
(12)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 5
PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31:
Furniture and Equipment Network and Database Leasehold Improvements
$
Total
2012 167,858 496,310 610,638
$
1,274,806
Less: Accumulated Depreciation and Amortization Net
$
2011 158,541 513,489 603,638 1,275,668
(1,122,717) 152,089
$
(1,077,494) 198,174
Depreciation expense for the years ended December 31, 2012 and 2011 was $105,192 and $130,297, respectively. NOTE 6
CAPITAL LEASES The Organization has entered into leases for copiers. These assets are included and reported in property and equipment in the statements of financial position. Amortization of the assets under the capital lease is included in depreciation expense for the years ended December 31, 2012 and 2011. The leases expire in 2015 and 2016. The future minimum lease payments at December 31, 2012 are as follows: Years Ending December 31, 2013 2014 2015 2016 Total Minimum Lease Payments Amount Representing Interest
$
Present Value of Net Minimum Lease Payments Current Portion of Capital Lease Obligation Long-term Portion of Capital Lease Obligation
21,995 21,995 15,945 11,546 71,481 5,910 65,571 (19,079)
$
46,492
The amount capitalized for lease arrangements and included in property and equipment in the statements of financial position as of December 31, 2012 and 2011 is as follows:
Furniture and Equipment Less: Accumulated Depreciation Furniture and Equipment, Net
$ $
(13)
2012 79,000 (12,317) 66,683
$ $
2011 68,000 (25,967) 42,033
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 7
DEFERRED REVENUE Deferred revenue consists of the following as of December 31:
Member Dues Meetings and Conferences Advertising Other
$
Total
NOTE 8
$
2012 2,152,558 522,571 623 6,045 2,681,797
$
$
2011 2,190,350 525,639 106,380 2,500 2,824,869
TEMPORARILY RESTRICTED NET ASSETS As of December 31, 2012 and 2011, temporarily restricted net assets consist of the following: 2012 Board Designated Reserve Contributions Receivable ABI Fundraising Event CARE Program National Conference on Bankruptcy Judges Grant West Grant
$
$
11,910 38,210
Total
NOTE 9
115,472 307,822
2011
$
473,414
129,605 11,099 366,855 12,528 38,210
$
558,297
RETIREMENT PLANS Defined Contribution Plan The Organization maintains a defined contribution retirement plan under the Internal Revenue Code Section 403(b). Employees are eligible to participate following six months of service. The Organization matches up to the first 6% of an eligible employee’s gross salary. For the years ended December 31, 2012 and 2011, the Organization incurred plan expenses of $120,022 and $120,687, respectively. Deferred Compensation Plan The Organization established deferred compensation plans under Sections 457(b) and 457(f) of the Internal Revenue Code (the IRC) during 2011 for the purpose of providing benefits to certain selected employees. The expense for benefits under this plan was $21,127 and $20,452 for 2012 and 2011, respectively. The assets in the 457(b) plan are held by the Organization, subject to the claims of its general creditors, until the employee becomes eligible for withdrawals as provided in the plan agreement. There were no distributions made from the plan in 2012 or 2011. The assets and the related liability have been reflected in the Organization’s statements of financial position at December 31, 2012 and 2011. The deferred compensation plan assets are cash money funds; therefore, cost estimates fair value. (14)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 10
COMMITMENTS The Organization is obligated, as lessee, under non-cancelable operating leases for spaces and equipment in Alexandria, Virginia. The office lease expires in 2013 and contains an option to extend for an additional five years to 2018. In accordance with the leases, the Organization receives partial space rent-free and leasehold concessions valued at $330,910, and is subject to a 3% escalation clause for part of the space. A portion of the office space is covered under a sublease which expired in 2011 and is also subject to a 3% escalation clause. The Organization has recorded rent expense for these spaces on a straight line basis and established a deferred rent liability to be charged to rent expense over the life of the lease. As of December 31, 2012 and 2011, this liability is $91,369 and $190,551, respectively, and is included in accounts payable and other obligations on the accompanying statements of financial position. In December 2012, the Organization entered into an agreement, as subtenant, for an operating lease for space in Alexandria, Virginia. The office lease expires in 2018 and is set to commence September 2013. In accordance with the lease, the Organization receives partial space rent-free and leasehold concessions valued at $166,928, and is subject to a 3% escalation clause for part of the space. The following is a schedule by years of future minimum rental payments required under the operating leases that have an initial or remaining non-cancelable lease term in excess of one year as of December 31, 2012:
Year Ending December 31: 2013 2014 2015 2016 2017 Thereafter Total
Office Lease $ 615,541 428,382 580,283 597,692 615,623 158,523
Other Equipment $ 7,981 2,660 -
$
$
2,996,044
10,641
$
$
Total 623,522 431,042 580,283 597,692 615,623 158,523 3,006,685
Total rent expense for the years ended December 31, 2012 and 2011 was $591,713 and $560,386, respectively. Employee Contract The Organization has an employment agreement with its Executive Director through 2015. The terms of the agreement stipulate that, if his employment is terminated without cause during his employment, the Organization will continue to pay his salary for a period of nine months subsequent to the effective date of such termination. Conference Facilities The Organization reserves spaces for its conferences several years in advance. The contracts contain various performance requirements including penalties for cancellation of the events. As of December 31, 2012, the maximum contingency for liquidated damages is approximately $4,138,000. (15)
AMERICAN BANKRUPTCY INSTITUTE TABLE OF CONTENTS YEARS ENDED DECEMBER 31, 2012 AND 2011
INDEPENDENT AUDITORS’ REPORT
1
FINANCIAL STATEMENTS STATEMENTS OF FINANCIAL POSITION
3
STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS
4
STATEMENTS OF CASH FLOWS
5
NOTES TO FINANCIAL STATEMENTS
6
CliftonLarsonAllen LLP www.cliftonlarsonallen.com
INDEPENDENT AUDITORS’ REPORT Board of Directors American Bankruptcy Institute Alexandria, Virginia
We have audited the accompanying financial statements of American Bankruptcy Institute, which comprise the statements of financial position as of December 31, 2012 and 2011, and the related statements of activities and changes in net assets and cash flows for the years then ended, and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these 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 financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgment, including the assessment of the risks of material misstatement of the 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 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 financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
(1) An independent member of Nexia International
Board of Directors American Bankruptcy Institute
Opinion In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Bankruptcy Institute as of December 31, 2012 and 2011, and the changes in its net assets and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
CliftonLarsonAllen LLP Arlington, Virginia April 15, 2013
(2)
AMERICAN BANKRUPTCY INSTITUTE STATEMENTS OF FINANCIAL POSITION DECEMBER 31, 2012 AND 2011
2012
2011
ASSETS Cash and Cash Equivalents Investments Accounts Receivable, Net Interest Receivable Contributions Receivable, Net Prepaid Expenses Property and Equipment, Net Deposits Deferred Compensation Plan Total Assets
$
165,448 11,606,440 123,853 10,186 115,472 446,792 152,089 39,492 36,308
$
726,998 10,854,884 224,565 7,955 129,605 286,573 198,174 39,596 15,342
$
12,696,080
$
12,483,692
$
810,504 65,571 2,681,797 36,308 3,594,180
$
769,981 37,783 2,824,869 15,342 3,647,975
LIABILITIES AND NET ASSETS LIABILITIES Accounts Payable and Other Obligations Capital Lease Payable Deferred Revenue Deferred Compensation Plan Total Liabilities NET ASSETS Unrestricted: Undesignated Board Designated Reserve Total Unrestricted Temporarily Restricted Total Net Assets
5,314,177 3,314,309 8,628,486 473,414 9,101,900
Total Liabilities and Net Assets
$
See accompanying Notes to Financial Statements. (3)
12,696,080
5,202,585 3,074,835 8,277,420 558,297 8,835,717 $
12,483,692
AMERICAN BANKRUPTCY INSTITUTE STATEMENTS OF ACTIVITIES AND CHANGES IN NET ASSETS YEARS ENDED DECEMBER 31, 2012 AND 2011 2012 Temporarily Restricted
Unrestricted REVENUE Conferences and Meetings Membership Dues Publications and Other Income Investment Income Contributions CARE Program Contributions Net Assets Released from Restriction Total Revenue
$
5,314,236 2,923,974 1,446,887 165,789 277,296 149,388 10,277,570
$
Total
64,505 (149,388) (84,883)
$
5,314,236 2,923,974 1,446,887 165,789 341,801 10,192,687
2011 Temporarily Restricted
Unrestricted $
5,460,275 2,928,799 1,326,249 272,852 622,965 59,026 10,670,166
$
Total
85,905 374,000 (59,026) 400,879
$
5,460,275 2,928,799 1,326,249 272,852 708,870 374,000 11,071,045
EXPENSE Program Expense: Conferences and Meetings Publications and Other Sales Membership Services Research Projects and Grants CARE Program Total Program Expense
4,886,761 2,387,315 691,385 363,564 188,152 8,517,177
-
4,886,761 2,387,315 691,385 363,564 188,152 8,517,177
5,038,316 2,102,665 660,991 579,553 7,145 8,388,670
-
5,038,316 2,102,665 660,991 579,553 7,145 8,388,670
Supporting Expense: General and Administrative Membership Development Fundraising Total Supporting Expense
1,100,454 212,172 96,701 1,409,327
-
1,100,454 212,172 96,701 1,409,327
997,904 185,349 122,505 1,305,758
-
997,904 185,349 122,505 1,305,758
9,926,504
-
9,926,504
9,694,428
-
9,694,428
351,066
(84,883)
266,183
975,738
400,879
1,376,617
8,835,717
7,301,682
157,418
7,459,100
Total Expense CHANGE IN NET ASSETS Net Assets - Beginning of Year NET ASSETS - END OF YEAR
8,277,420 $
8,628,486
558,297 $
473,414
See accompanying Notes to Financial Statements. (4)
$
9,101,900
$
8,277,420
$
558,297
$
8,835,717
AMERICAN BANKRUPTCY INSTITUTE STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011
2012 CASH FLOWS FROM OPERATING ACTIVITIES Change in Net Assets Adjustments to Reconcile Change in Net Assets to Net Cash Provided by Operating Activities: Depreciation Provision for Bad Debt Discount of Contributions Receivable Realized Gain on Investments Unrealized Loss on Investments (Increase) Decrease in: Accounts Receivable Interest Receivable Contributions Receivable Prepaid Expenses Deposits Increase (Decrease) in: Accounts Payable and Other Obligations Capital Lease Payable Deferred Revenue Net Cash Provided by Operating Activities
$
CASH FLOWS FROM INVESTING ACTIVITIES Purchases of Property and Equipment Purchases of Investments Proceeds on Sales of Investments Net Cash Used in Investing Activities NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS Cash and Cash Equivalents - Beginning of Year
266,183
2011 $
1,376,617
105,192 (15,739) (648) (19,160) 26,599
130,297 6,777 (719) (105,887) 45,569
116,451 (2,231) 14,781 (160,219) 104
(88,230) 2,223 (12,165) 211,670 7,036
40,523 27,788 (143,072) 256,552
(229,078) 7,141 (1,175) 1,350,076
(59,107) (7,268,345) 6,509,350 (818,102)
(29,916) (5,453,520) 4,663,601 (819,835)
(561,550)
530,241
726,998
196,757
CASH AND CASH EQUIVALENTS - END OF YEAR
$
165,448
$
726,998
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash Paid During the Period for Income Taxes
$
90,277
$
102,277
$
2,658
$
3,331
Cash Paid During the Period for Interest
See accompanying Notes to Financial Statements. (5)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES Organization American Bankruptcy Institute (the Organization) was founded in 1982 as a non-profit and nonpartisan educational institution. The Organization provides a multi-disciplinary forum for the exchange of ideas and information on insolvency, reorganization, and bankruptcy issues. Through the Organization, accountants, attorneys, bankers, court clerks, consumer specialists, credit managers, finance and insurance executives, judges, legislators, professors, and others pursue mutual business, professional, and academic interests. In fulfillment of its mission to provide information to its members, journalists, Congress and the public, the Organization is engaged in numerous educational and research activities, as well as the production of a number of publications both for the insolvency practitioner and the public. The Organization’s major programs consist of the following: Conferences and Meetings The Organization holds two national membership meetings and many regional conferences throughout the year. These meetings offer a concentrated opportunity for the exchange of ideas, discussions of findings among colleagues, and continuing legal education. Publications and Other Sales The Organization produces various publications and journals that represent its commitment to the ongoing enhancement of quality education on insolvency topics. Additionally, the Organization maintains a comprehensive internet site covering insolvency issues and providing instant updates on legislation, new filings, Supreme Court cases, bankruptcy filing statistics, and daily bankruptcy news. Membership Services The Organization provides ongoing services to its members in order to provide a broad, indepth resource of insolvency issues and related services. Research Projects and Grants The Organization provides funding and scholarships to enhance bankruptcy research and education. CARE Program The Organization assumed the administration and management for CARE in October 2011. CARE is a free financial literacy program which makes bankruptcy professionals available to educators, students and the public to illuminate the dangers of credit abuse. CARE has a presence in all 50 states and the District of Columbia. Basis of Accounting The Organization prepares its financial statements on the accrual basis of accounting. Accordingly, revenue is recognized when earned and expenses when the obligation is incurred.
(6)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Basis of Presentation Net assets and revenue are classified based on the existence or absence of donor-imposed restrictions and reported as follows: Unrestricted Net Assets Net assets that are not subject to donor-imposed stipulations. Includes undesignated net assets available for general operations and the Board Designated Reserve, which consists of unrestricted net assets designated by the Board of Directors for research and educational activities. Temporarily Restricted Net Assets Net assets subject to donor-imposed stipulations that will be met either by actions of the Organization and/or the passage of time. Cash and Cash Equivalents For financial statement purposes, the Organization considers all highly liquid debt instruments with initial maturities of ninety days or less to be cash equivalents. From time to time the Organization maintains cash balances which may exceed Federally insured limits. Management does not believe that this results in any significant credit risk. Investments Investments are stated at fair value and consist of certificates of deposit, money market funds, mutual funds - bonds, exchange traded funds, and equities. Realized and unrealized gains or losses are included in investment income in the statements of activities and changes in net assets. Fair Value Measurements The Organization accounts for its financial instruments as well as certain assets and liabilities at fair value. Fair value is defined as the price that would be paid in an orderly transaction, or exit price, between market participants to sell the asset or transfer the liability in the principal or most advantageous market for the asset or liability. Fair value is a market based measurement, not an entity-specific measurement, and should therefore be determined based on the assumptions that market participants would use in pricing the asset or liability. The Organization is required by generally accepted accounting principles to categorize its financial instruments based on a three-level fair value hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value of the instrument. Financial instruments recorded on the statements of financial position are categorized based on the inputs to the valuation techniques as follows:
(7)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Fair Value Measurements (Continued) Level 1 Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that the Organization has the ability to access. Level 2 Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. The Organization has certificates of deposits classified at this level. Level 3 Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management’s own assumptions about the assumptions a market participant would use in pricing the asset or liability. The Organization has no investments classified at this level. Accounts Receivable Accounts receivable consist of amounts due to the Organization from sponsorships and the sale of advertising space in the American Bankruptcy Institute Journal. The Organization’s management periodically reviews the status of these receivables for collectibility, which is assessed on management’s knowledge of the relationship with the customer and the age of the receivable. Based on these reviews and the nature of the receivables, management has estimated $6,664 and $20,402 may be uncollectible and has recorded an allowance accordingly for the years ended December 31, 2012 and 2011, respectively. Contributions Receivable Contributions receivable consist of pledges individuals or companies have made to the Organization. The face amount of the contributions receivable is reduced by an allowance for doubtful accounts. The allowance for doubtful accounts reflects the best estimate of probable losses determined principally on the basis of historical experience and specific allowances for known troubled accounts. All accounts or portions thereof that are deemed to be uncollectible or that require an excessive collection cost are written off to the allowance for doubtful accounts (see Note 4). Property and Equipment Property and equipment greater than $2,500 are recorded at the original cost and are being depreciated on a straight-line basis over estimated lives of three to five years. Leasehold improvements are amortized over the life of the assets or the remaining period of the lease, whichever is shorter.
(8)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Deferred Revenue Deferred revenue represents members’ dues recognized over the applicable membership period or member dues received before the membership period, and income for conferences and meetings received in advance of the event. Revenue Recognition Conferences and Meetings Conferences and meetings revenue is recognized when the event takes place. Membership Dues Membership dues are recognized as revenue over the applicable membership period. Membership dues collected in advance are included in deferred revenue. Publications and Other Sales Publication and other sales consist of advertising, publication sales and sponsorship revenue and are recognized when the publication is issued. Contributions The Organization recognizes all unconditional contributions received as income in the period received or pledged. Unconditional contributions are reported as unrestricted, temporarily restricted or permanently restricted depending on the absence or existence of donor stipulations that limit the use of the contributions. When a donor 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 statements of activities and changes in net assets as net assets released from restrictions. Use of Accounting Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Accordingly, actual results could differ from those estimates. Income Tax Status The Organization is exempt from Federal income tax under Section 501(c)(3) of the Internal Revenue Code and is classified as an organization that is not a private foundation. However, the Organization is subject to tax on its unrelated business income activities (primarily advertising), and recorded expense for the years ended December 31, 2012 and 2011, of $90,277 and $105,145, respectively, for unrelated business income taxes.
(9)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 1
ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Tax Status (Continued) The Organization’s income tax returns are subject to review and examination by federal and state authorities. The Organization is not aware of any activities that would jeopardize its tax-exempt status. The tax returns for the fiscal years ended 2009 through 2011 are open to examination by federal and state authorities. Functional Allocation of Expenses The costs of providing the various programs and other activities have been summarized on a functional basis in the statements of activities and changes in net assets. Accordingly, certain costs have been allocated among the programs and supporting services benefited. Reclassifications Certain items in the fiscal year 2011 financial statements have been reclassified to conform to the 2012 presentation. Subsequent Events Management has evaluated subsequent events for disclosure in these financial statements through April 15, 2013, which is the date the financial statements are available to be issued.
NOTE 2
INVESTMENTS Investments are recorded at fair value and consisted of the following at December 31: 2012 Cost Undesignated: Money Market Funds Certificates of Deposit Mutual Funds - Bonds Sub Total
$
Board Designated Reserve: Money Market Certificates of Deposit Sub Total Total
810,402 4,527,000 3,049,755 8,387,157
$
450,564 2,753,414 3,203,978 $
11,591,135
(10)
2011 Fair Value 810,402 4,517,579 3,076,471 8,404,452
$
450,564 2,751,424 3,201,988 $
11,606,440
Fair Value
Cost 1,694,733 3,374,000 2,920,702 7,989,435
$
263,232 2,560,313 2,823,545 $
10,812,980
1,694,733 3,360,797 2,955,238 8,010,768
263,232 2,580,884 2,844,116 $
10,854,884
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 2
INVESTMENTS (CONTINUED) Investment income consisted of the following for the years ended December 31:
2012
Undesignated
Interest and Dividends Realized Gain Unrealized Loss Total
$
132,108 19,160 (4,038) 147,230
$
2011
$
$
148,925 60,808 (5,640) 204,093
$
41,120 (22,561) 18,559
$
Total $
173,228 19,160 (26,599) 165,789
$
Board Designated Reserve
Undesignated
Interest and Dividends Realized Gain Unrealized Loss Total
NOTE 3
Board Designated Reserve
$
63,609 45,079 (39,929) 68,759
$
Total $
212,534 105,887 (45,569) 272,852
$
FAIR VALUE MEASUREMENTS The Organization uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. For additional information on how the Organization measures fair value refer to Note 1 – Organization and Significant Accounting Policies. The following table presents the Organization’s fair value hierarchy for those assets measured at fair value on a recurring basis as of December 31: 2012 Level 1 Undesignated: Certificates of Deposit Mutual Funds - Bonds Sub Total
$
3,076,471 3,076,471
Board Designated Reserve: Certificates of Deposit Sub Total Total
Level 2 $
$
3,076,471
(11)
4,517,579 4,517,579
Level 3 $
2,588,010 2,588,010 $
7,105,589
$
Total -
$
4,517,579 3,076,471 7,594,050
-
2,588,010 2,588,010
-
$ 10,182,060
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 3
FAIR VALUE MEASUREMENTS (CONTINUED) 2011 Level 1 Undesignated: Certificates of Deposit Mutual Funds - Bonds Sub Total
$
2,955,238 2,955,238
Board Designated Reserve: Certificates of Deposit Total
Level 2 $
$
2,955,238
Level 3
3,360,797 3,360,797
$
-
2,420,571 $
5,781,368
Total $
$
-
3,360,797 2,955,238 6,316,035
2,420,571 $
8,736,606
*Money market funds and certain Certificates of Deposits are not included in the above tables because cost estimates fair value.
NOTE 4
CONTRIBUTIONS RECEIVABLE Contributions receivable relate to the Board Designated Reserve program. They are unconditional, are to be received over a period up to five years, and have been discounted to their present value at December 31, 2012 and 2011. The following amounts are to be received as of December 31: Receivable in Less Than One Year Receivable in One to Five Years Total
$
Present Value Discount Allowance for Doubtful Accounts Total
$
2012 57,044 76,548 133,592 (3,608) (14,512) 115,472
$
$
2011 66,336 84,038 150,374 (4,256) (16,513) 129,605
The contributions receivable due after one year have been discounted to their present value using a risk-adjusted discount rate of 3.37% in 2012 and 3.7% in 2011.
(12)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 5
PROPERTY AND EQUIPMENT Property and equipment consists of the following at December 31:
Furniture and Equipment Network and Database Leasehold Improvements
$
Total
2012 167,858 496,310 610,638
$
1,274,806
Less: Accumulated Depreciation and Amortization Net
$
2011 158,541 513,489 603,638 1,275,668
(1,122,717) 152,089
$
(1,077,494) 198,174
Depreciation expense for the years ended December 31, 2012 and 2011 was $105,192 and $130,297, respectively. NOTE 6
CAPITAL LEASES The Organization has entered into leases for copiers. These assets are included and reported in property and equipment in the statements of financial position. Amortization of the assets under the capital lease is included in depreciation expense for the years ended December 31, 2012 and 2011. The leases expire in 2015 and 2016. The future minimum lease payments at December 31, 2012 are as follows: Years Ending December 31, 2013 2014 2015 2016 Total Minimum Lease Payments Amount Representing Interest
$
Present Value of Net Minimum Lease Payments Current Portion of Capital Lease Obligation Long-term Portion of Capital Lease Obligation
21,995 21,995 15,945 11,546 71,481 5,910 65,571 (19,079)
$
46,492
The amount capitalized for lease arrangements and included in property and equipment in the statements of financial position as of December 31, 2012 and 2011 is as follows:
Furniture and Equipment Less: Accumulated Depreciation Furniture and Equipment, Net
$ $
(13)
2012 79,000 (12,317) 66,683
$ $
2011 68,000 (25,967) 42,033
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 7
DEFERRED REVENUE Deferred revenue consists of the following as of December 31:
Member Dues Meetings and Conferences Advertising Other
$
Total
NOTE 8
$
2012 2,152,558 522,571 623 6,045 2,681,797
$
$
2011 2,190,350 525,639 106,380 2,500 2,824,869
TEMPORARILY RESTRICTED NET ASSETS As of December 31, 2012 and 2011, temporarily restricted net assets consist of the following: 2012 Board Designated Reserve Contributions Receivable ABI Fundraising Event CARE Program National Conference on Bankruptcy Judges Grant West Grant
$
$
11,910 38,210
Total
NOTE 9
115,472 307,822
2011
$
473,414
129,605 11,099 366,855 12,528 38,210
$
558,297
RETIREMENT PLANS Defined Contribution Plan The Organization maintains a defined contribution retirement plan under the Internal Revenue Code Section 403(b). Employees are eligible to participate following six months of service. The Organization matches up to the first 6% of an eligible employee’s gross salary. For the years ended December 31, 2012 and 2011, the Organization incurred plan expenses of $120,022 and $120,687, respectively. Deferred Compensation Plan The Organization established deferred compensation plans under Sections 457(b) and 457(f) of the Internal Revenue Code (the IRC) during 2011 for the purpose of providing benefits to certain selected employees. The expense for benefits under this plan was $21,127 and $20,452 for 2012 and 2011, respectively. The assets in the 457(b) plan are held by the Organization, subject to the claims of its general creditors, until the employee becomes eligible for withdrawals as provided in the plan agreement. There were no distributions made from the plan in 2012 or 2011. The assets and the related liability have been reflected in the Organization’s statements of financial position at December 31, 2012 and 2011. The deferred compensation plan assets are cash money funds; therefore, cost estimates fair value. (14)
AMERICAN BANKRUPTCY INSTITUTE NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2012 AND 2011 NOTE 10
COMMITMENTS The Organization is obligated, as lessee, under non-cancelable operating leases for spaces and equipment in Alexandria, Virginia. The office lease expires in 2013 and contains an option to extend for an additional five years to 2018. In accordance with the leases, the Organization receives partial space rent-free and leasehold concessions valued at $330,910, and is subject to a 3% escalation clause for part of the space. A portion of the office space is covered under a sublease which expired in 2011 and is also subject to a 3% escalation clause. The Organization has recorded rent expense for these spaces on a straight line basis and established a deferred rent liability to be charged to rent expense over the life of the lease. As of December 31, 2012 and 2011, this liability is $91,369 and $190,551, respectively, and is included in accounts payable and other obligations on the accompanying statements of financial position. In December 2012, the Organization entered into an agreement, as subtenant, for an operating lease for space in Alexandria, Virginia. The office lease expires in 2018 and is set to commence September 2013. In accordance with the lease, the Organization receives partial space rent-free and leasehold concessions valued at $166,928, and is subject to a 3% escalation clause for part of the space. The following is a schedule by years of future minimum rental payments required under the operating leases that have an initial or remaining non-cancelable lease term in excess of one year as of December 31, 2012:
Year Ending December 31: 2013 2014 2015 2016 2017 Thereafter Total
Office Lease $ 615,541 428,382 580,283 597,692 615,623 158,523
Other Equipment $ 7,981 2,660 -
$
$
2,996,044
10,641
$
$
Total 623,522 431,042 580,283 597,692 615,623 158,523 3,006,685
Total rent expense for the years ended December 31, 2012 and 2011 was $591,713 and $560,386, respectively. Employee Contract The Organization has an employment agreement with its Executive Director through 2015. The terms of the agreement stipulate that, if his employment is terminated without cause during his employment, the Organization will continue to pay his salary for a period of nine months subsequent to the effective date of such termination. Conference Facilities The Organization reserves spaces for its conferences several years in advance. The contracts contain various performance requirements including penalties for cancellation of the events. As of December 31, 2012, the maximum contingency for liquidated damages is approximately $4,138,000. (15)
