Current accounting standards require the Legion to disclose the amount of potential benefi t or obligation to be realized as a result of an examination performed by a taxing authority. For the years ended Dec. 31, 2011 and 2010, management has determined that the Legion does not have any tax positions that result in any uncertainties regarding a possible impact on the Legion’s fi nancial statements. The Legion is no longer subject to examination by taxing authorities for the years before 2008. The Legion does not expect the total amount of unrecognized tax benefi ts to signifi cantly change in the next 12 months. The Legion recognizes interest and/or penalties related to income-tax matters in income-tax expense. The Legion did not have any amounts accrued for interest and penalties at Dec. 31, 2011 and 2010.
Fair Value of Financial Instruments: The carrying amount of all fi nancial instruments of the Legion – which include cash and cash equivalents, accounts receivable, benefi cial interest in trust, investments, accounts payable and notes payable – approximate fair value.
Expense Allocation: Expenses have been classifi ed as program services, management and general, member development and fundraising, based on actual direct expenditures. Additionally, some expenses are allocated among departments based upon estimates of the amount of time spent by Legion employees performing services for these departments.
Reclassifi cations: Certain reclassifi cations have been made to present last year’s fi nancial statements on a basis comparable to the current year’s fi nancial statements. These reclassifi cations had no eff ect on the change in net assets or total net assets.
Subsequent Events: Management has performed an analysis of the activities and transactions subsequent to Dec. 31, 2011, to determine the need for any adjustments or disclosures to the audited fi nancial statements for the year ended Dec. 31, 2011. Management has performed its analysis through May 1, 2012, the date the fi nancial statements were available to be issued.
NOTE 2 – COLLECTIONS
The Legion owns many collectible military-related items and historical documents that were not recorded as they were acquired. It is often impracticable to determine a value for collections, and the Legion has accordingly concluded that they need not be capitalized. The following items have been appraised, or are in the process of being appraised, for insurance purposes:
World War I posters World War II posters Military unit histories Fine art collection
Firearms and uniforms collection Original GI Bill
Other collections NOTE 3 – INVESTMENT IN AFFILIATE
The Legion, in conjunction with approximately 120 other organizations, has created a nonprofi t corporation known as Citizens Flag Alliance, Inc. (CFA) for the purpose of aiding in the campaign to secure a constitutional amendment empowering Congress and the states to enact legislation to protect the fl ag of the United States of America from physicaldesecration.
CFA recognized a change in net assets of ($11,758) and $4,270 in 2011 and 2010, respectively. Accordingly, the Legion’s investment in CFA has been changed by these amounts and corresponding adjustments have been refl ected in unrestricted designated net assets for 2011 and 2010.
NOTE 4 – BENEFICIAL INTEREST IN CHARITABLE LEAD TRUST
ALEF has been named a benefi ciary of a charitable lead trust. Under the charitable trust, ALEF is to receive quarterly distributions in the amount of $9,919 until December 2020 or until the funds of the trust are exhausted. Based on the terms of the trust, and a 2.64-percent discount rate in 2011 and a 3.31-percent discount rate in 2010, the present value of future benefi ts expected to be received by ALEF was estimated to be $316,898 and $336,597 at Dec. 31, 2011 and 2010, respectively.
Appraisal date 2/10/2005
3/11/2005 3/18/2005 10/14/2005 3/24/2006
not applicable not applicable
Replacement value $ 461,769
472,919 112,410 695,600 99,950 - -
NOTE 5 – FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defi ned as the price that would be received for an asset, or paid to transfer a liability (an exit price), in the Legion’s principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. GAAP establishes a fair-value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. GAAP describe three levels of inputs that may be used to measure fair value:
Level 1: Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Signifi cant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.
Level 3: Signifi cant unobservable inputs that refl ect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
In many cases, a valuation technique used to measure fair value includes inputs from multiple levels of the fair-value hierarchy. The lowest level of signifi cant input determines the placement of the entire fair-value measurement in the hierarchy.
The fair value of money markets, U.S. government obligations and common stock is based on quoted prices in active markets (Level 1 inputs). The fair value of asset-backed securities, corporate and state bonds, and municipal bonds is based on quoted market prices of similar securities with similar due dates (Level 2 inputs). Common stock and asset-backed securities are not held by the Legion, but are held in the defi ned-benefi t-plan assets, disclosed in Note 17.
The fair value of benefi cial interest in trust assets is based on a valuation model that calculates the present value of estimated distributed income. The valuation model incorporates assumptions that market participants would use in estimating future distributed income. The Legion is able to compare the valuation model inputs and results to widely available published industry data for reasonableness; however, the Legion is unable to redeem the assets of the trust and only receives distributions (Level 3 inputs).
The FASB has issued Accounting Standards Update (ASU) 2010-12, which provides additional guidance on how companies should estimate the fair value of certain alternative investments. The fair value of such investments can now be determined using Net Asset Value (NAV), unless it is probable that the asset will be sold at something other than NAV. In addition, ASU 2010-12 has been interpreted to include other assets that use NAV, such as the benefi cial interest in assets or trusts. ASU 2010-12 requires disclosure of certain attributes of all investments within its scope, regardless of whether NAV is used to measure the fair value of these investments, and indicates that liquidity of the assets should be an input in determining the level classifi cation.
Assets and Liabilities Measured on a Recurring Basis: Assets and liabilities measured at fair value on a recurring basis are summarized below:
Fair-Value Measurements at Dec. 31, 2011, using Quoted Prices in
Active Markets for Identical Assets (Level 1)
Assets: Benefi cial interest in trust Money market accounts
U.S. government obligations Mutual funds
State and municipal bonds Corporate bonds
Signifi cant Other Observable Inputs
(Level 2) - $
Signifi cant Unobservable Inputs
$ 316,898 -
- - - -
$ 84,911,791 $ 27,532,900 $ 316,898
48 T e American Legion Annual Report | 2012
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