AMERICAN FEDERATION OF TEACHERS, AFL-CIO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013

Transcription

1 AMERICAN FEDERATION OF TEACHERS, AFL-CIO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013

2 AMERICAN FEDERATION OF TEACHERS, AFL-CIO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 CONTENTS Report of Independent Auditors 1 Consolidated Statements of Financial Position 3 Consolidated Statements of Activities 4 Consolidated Statements of Expenses 5 Consolidated Statements of Changes in Net Assets 6 Consolidated Statements of Cash Flows 7 Notes to Consolidated Financial Statements 8 Consolidating Schedules Building Fund 24 PAGE

3 REPORT OF INDEPENDENT AUDITORS The Secretary-Treasurer American Federation of Teachers, AFL-CIO We have audited the accompanying consolidated financial statements of the American Federation of Teachers, AFL-CIO and related controlled entities (the Federation) which comprise the consolidated statements of financial position as of June 30, 2013 and 2012, and the related consolidated statements of activities, expenses, changes in net assets, 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 financial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these 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 of 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 auditor s 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 opinion.

4 Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the American Federation of Teachers, AFL-CIO and related controlled entities as of June 30, 2013 and 2012, and the changes in its net assets and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Other Matter Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. The accompanying consolidating schedules on pages 24 and 25 and the supplemental fund information on pages 3 through 7 are presented for purposes of additional analysis of the basic consolidated financial statements rather than to present the financial position and changes in net assets of the individual entities and funds. 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 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. Bethesda, MD January 13,

5 American Federation of Teachers, AFL-CIO Consolidated Statements of Financial Position June 30, 2013 and 2012 (With Supplemental Fund Information at June 30, 2013) Militancy/ Postretirement Committee June 30, June 30, General Defense Solidarity Building Benefits on Political Fund Fund Funds Fund Fund Education Total Total Assets Current assets Cash and cash equivalents $ 846,956 $ 515,978 $ 5,121 $ 1,370,206 $ - $ 4,894,456 $ 7,632,717 $ 23,936,417 Due from (to) other funds (12,464,237) (11,888,028) 28,826,386 (4,474,121) Investments 574,464 25,170,272-20,520, ,265,647 45,003,293 Receivables - Per capita taxes, net of allowances 35,201, ,201,636 16,378,325 Other 3,089, ,047-1,035, ,550,709 3,245,715 Prepaid expenses 469, , ,328 1,159,748 Total current assets 27,717,921 14,224,269 28,831,507 18,570,884-4,894,456 94,239,037 89,723,498 Net property and equipment 3,050, ,986, ,036,599 22,780,821 Other assets Loans receivable, net of allowances 3,398,994 2,441, ,840,414 5,248,875 Deferred charges , , ,696 Total assets $ 34,167,421 $ 16,665,689 $ 28,831,507 $ 37,692,750 $ - $ 4,894,456 $ 122,251,823 $ 117,960,890 Liabilities and net assets Current liabilities Accounts payable $ 7,139,277 $ 7,871,999 $ - $ 355,961 $ - $ - $ 15,367,237 $ 11,796,025 Current maturities of mortgage note payable , ,548 2,147,078 Accrued vacation and severance pay 9,814, ,814,648 9,421,397 Accrued expenses and other liabilities 6,557, ,557,818 6,101,612 Advance per capita taxes 264, , ,804 Bank overdraft 1,276, ,276,852 - Deferred revenue 148, , , ,169 Line of credit 3,729, ,729, ,650 Estimated self-insurance reserve - members' liability insurance - 1,000, ,000,000 1,000,000 Postretirement benefits - current portion ,191,177-1,191, ,749 Total current liabilities 28,931,394 8,871, ,427 1,191,177-39,727,997 32,501,484 Interest rate swap , ,918 - Mortgage note payable, excluding current maturities ,984, ,984,033 9,355,990 Accrued postretirement healthcare costs - long term ,096,346-20,096,346 19,745,331 Accrued pension liability - long term ,268,339-11,268,339 10,556,057 Total liabilities 28,931,394 8,871,999-10,089,378 32,555,862-80,448,633 72,158,862 Commitments and contingencies Unrestricted net assets (deficit) Designated - 3,066,979 5,488, ,555,280 8,273,907 Undesignated 5,236,027 4,726,711 23,343,206 27,603,372 (32,555,862) - 28,353,454 30,410,682 Total unrestricted net assets (deficit) 5,236,027 7,793,690 28,831,507 27,603,372 (32,555,862) - 36,908,734 38,684,589 Temporarily restricted net assets ,894,456 4,894,456 7,117,439 Total liabilities and net assets $ 34,167,421 $ 16,665,689 $ 28,831,507 $ 37,692,750 $ - $ 4,894,456 $ 122,251,823 $ 117,960,890 See accompanying notes to consolidated financial statements.

6 American Federation of Teachers, AFL-CIO Consolidated Statements of Activities Years Ended June 30, 2013 and 2012 (With Supplemental Fund Information for the Year Ended June 30, 2013) Militancy/ Postretirement Committee General Defense Solidarity Building Benefits on Political Fund Fund Funds Fund Fund Education Total Total Revenue Per capita taxes (net of agency fee rebates of $1,246,840 in 2013 and $1,586,295 in 2012) $ 146,645,845 $ 2,598,484 $ 17,986,593 $ 962,401 $ - $ - $ 168,193,323 $ 168,630,748 Members' liability insurance - 1,873, ,873,796 1,840,958 Investment revenue (net of investment expenses of $120,463 in 2013 and $110,853 in 2012) - 1,124, , ,914,112 1,772,984 Net appreciation (depreciation) in fair value of investments (85,378) 561,975-1,117, ,594,567 (20,392) Publication revenue 301, , ,323 Program administration and royalties 3,509, ,509,700 2,819,074 Reimbursements from related entities 792, , ,094 Rental revenue on subleased office space , , ,294 Net rental income ,314, ,314,435 1,472,671 State AFL-CIO collection rebate 1,360, ,360,256 1,507,487 Contributions ,482,494 6,482,494 6,121,658 Other revenue 1,995,024 12,023-93, ,100, ,139 Total revenue 154,519,457 6,171,052 17,986,593 5,585,215-6,482, ,744, ,527,038 Expenses 155,805,435 8,545,503 15,345,595 4,981,914 1,359,725 8,705, ,743, ,458,268 Excess (deficiency) of revenue over expenses $ (1,285,978) $ (2,374,451) $ 2,640,998 $ 603,301 $ (1,359,725) $ (2,222,983) $ (3,998,838) $ (3,931,230) See accompanying notes to consolidated financial statements.

7 American Federation of Teachers, AFL-CIO Consolidated Statements of Expenses Years Ended June 30, 2013 and 2012 (With Supplemental Fund Information for the Year Ended June 30, 2013) Militancy/ Postretirement Committee General Defense Solidarity Building Benefits on Political Fund Fund Funds Fund Fund Education Total Total Expenses Communications $ 12,688,723 $ - $ - $ - $ - $ - $ 12,688,723 $ 12,802,741 National Officers/Governance 9,375, ,375,801 9,353,950 Mobilization and organizing 36,065, ,065,846 35,396,840 Political 15,451, ,451,978 12,877,566 Professional Issues 16,070, ,070,492 16,092,639 Strategic Support 13,027, ,027,323 12,581,856 Funding Our Priorities 11,189, ,189,033 14,924,920 Legal fees - 6,419, ,419,738 7,341,120 Occupational liability insurance - 1,124, ,124,211 1,062,978 Other insurance - 947, , ,214 Capitol Place I operating expenses ,096, ,096,419 3,255,693 Interest 67, , , ,815 State federations' solidarity funds - - 6,903, ,903,677 6,527,145 National solidarity fund - - 7,446, ,446,716 3,669, solidarity fund , , ,265 Postretirement expenses ,359,725-1,359,725 6,871,337 Committee on Political Education ,705,477 8,705,477 4,500,109 Other - 53,889-1,886, ,940,008 1,571,935 Total program expense 113,936,567 8,545,503 15,345,595 5,368,136 1,359,725 8,705, ,261, ,566,507 Administration 41,868, (386,222) ,482,646 39,891,761 Total expenses $ 155,805,435 $ 8,545,503 $ 15,345,595 $ 4,981,914 $ 1,359,725 $ 8,705,477 $ 194,743,649 $ 190,458,268 See accompanying notes to consolidated financial statements.

8 American Federation of Teachers, AFL-CIO Consolidated Statements of Changes in Net Assets Years Ended June 30, 2013 and 2012 (With Supplemental Fund Information for the Year Ended) Militancy/ Militancy/ State National 527 Defense Defense Solidarity Solidarity Solidarity Postretirement Committee General Fund - Fund - Fund Fund Fund Building Benefits on Political Fund Designated Undesignated Designated Undesignated Designated Fund Fund Education Total Net assets, July 1, 2011 Unrestricted $ 9,428,736 $ 5,066,979 $ 8,571,971 $ 4,517,375 $ 14,311,438 $ 23,031 $ 26,642,638 $ (24,324,800) $ - $ 44,237,368 Temporarily restricted ,495,890 5,495,890 Total net assets 9,428,736 5,066,979 8,571,971 4,517,375 14,311,438 23,031 26,642,638 (24,324,800) 5,495,890 49,733,258 Changes in net assets, year ended June 30, 2012 (2,906,731) 1,274,949 (4,745,758) 686,787 6,672,143 (20,265) 357,433 (6,871,337) 1,621,549 (3,931,230) Board approved transfer of designated funds - (3,274,949) 3,274, Net assets, June 30, 2012 Unrestricted 6,522,005 3,066,979 7,101,162 5,204,162 20,983,581 2,766 27,000,071 (31,196,137) - 38,684,589 Temporarily restricted ,117,439 7,117,439 Total net assets 6,522,005 3,066,979 7,101,162 5,204,162 20,983,581 2,766 27,000,071 (31,196,137) 7,117,439 45,802,028 Change in net assets, year ended June 30, 2013 (1,285,978) 951,061 (3,325,512) 279,018 2,359,625 2, ,301 (1,359,725) (2,222,983) (3,998,838) Board approved transfer of designated funds - (951,061) 951, Net assets, June 30, 2013 Unrestricted 5,236,027 3,066,979 4,726,711 5,483,180 23,343,206 5,121 27,603,372 (32,555,862) - 36,908,734 Temporarily restricted ,894,456 4,894,456 Total net assets $ 5,236,027 $ 3,066,979 $ 4,726,711 $ 5,483,180 $ 23,343,206 $ 5,121 $ 27,603,372 $ (32,555,862) $ 4,894,456 $ 41,803,190 See accompanying notes to consolidated financial statements.

9 American Federation of Teachers, AFL-CIO Consolidated Statements of Cash Flows Years Ended June 30, 2013 and 2012 (With Supplemental Fund Information for the Year Ended June 30, 2013) Militancy/ Postretirement Committee General Defense Solidarity Building Benefits on Political Fund Fund Fund Fund Fund Education Total Total Cash flows from operating activities Change in net assets $ (1,285,978) $ (2,374,451) $ 2,640,998 $ 603,301 $ (1,359,725) $ (2,222,983) $ (3,998,838) $ (3,931,230) Adjustments to reconcile change in net assets to net cash provided by (used in) operating activities Depreciation and amortization 1,305, ,442, ,748,217 3,181,277 Loss on disposal of property and equipment 10, ,253 20,794 Net depreciation (appreciation) in fair value of investments 85,378 (561,975) - (1,117,970) - - (1,594,567) 20,392 Decrease in fair value of swap agreement , ,918 - Decrease (increase) in assets Due from (to) other funds 1,849,473 71,248 (2,638,643) 717, Per capita taxes receivable (18,823,311) (18,823,311) 11,846,460 Loans receivable (624,613) 33, (591,539) 37,910 Other receivables (488,574) (30,055) - (787,765) - 1,400 (1,306,394) 572,455 Prepaid expenses 531, , , ,027 Deferred charges , ,923 - Increase (decrease) in liabilities Accounts payable 992,099 2,647,709 - (68,596) - - 3,571,212 (2,783,245) Accrued vacation and severance pay 393, ,251 (365,751) Accrued expenses and other liabilities 550, (94,213) ,206 (1,346,036) Advance per capita taxes 154, ,613 (5,040) Accrued postretirement health care costs , ,015 5,378,010 Accrued pension liability , ,710 1,493,327 Deferred revenue 34, , ,474 (191,788) Net cash provided by (used in) operating activities (15,314,866) (214,450) 2,355 1,185,507 - (2,221,583) (16,564,437) 14,264,562 Cash flows from investing activities Purchases of property and equipment (1,002,375) - - (1,011,873) - - (2,014,248) (1,106,559) Purchases of investments (300,000) (10,013,414) - (10,184,677) - - (20,498,091) (29,676,250) Proceeds from the sale of investments - 9,637,281-11,193, ,830,304 20,493,808 Net cash provided by (used in) investing activities (1,302,375) (376,133) - (3,527) - - (1,682,035) (10,289,001) Cash flows from financing activities Change in line of credit, net 2,813, ,813, ,650 Principal payments on mortgage note payable (2,148,487) - - (2,148,487) (2,006,641) Proceeds from mortgage loan ,000,000 Bank overdraft 1,276, ,276,852 - Net cash provided by (used in) financing activities 4,089, (2,148,487) - - 1,941,372 8,910,009 Net increase (decrease) in cash and cash equivalents (12,527,382) (590,583) 2,355 (966,507) - (2,221,583) (16,303,700) 12,885,570 Cash and cash equivalents Beginning of year 13,374,338 1,106,561 2,766 2,336,713-7,116,039 23,936,417 11,050,847 End of year $ 846,956 $ 515,978 $ 5,121 $ 1,370,206 $ - $ 4,894,456 $ 7,632,717 $ 23,936,417 Supplemental Disclosure AFT paid $452,969 and $443,421 in interest during 2013 and 2012, respectively. See accompanying notes to consolidated financial statements

10 AMERICAN FEDERATION OF TEACHERS, AFL-CIO NOTES TO CONSOLIDATED FINANCIAL STATEMENTS JUNE 30, 2013 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Organization - The American Federation of Teachers, AFL-CIO (the Federation) is committed to advancing an agenda that provides educational opportunity, lifts the disadvantaged, rebuilds the middle class, improves the American economy and public infrastructure, and fosters the democratic principles of respect, dignity and economic security for all those who call America home and seek the American dream. The Federation, working with local and state affiliates, seeks to ensure that the educators, healthcare providers and public employees who make up our membership have the tools and resources they need to make this vision a reality. The major source of revenue to the Federation is per capita taxes paid by locals. Fund Accounting and Principles of Consolidation - To ensure observance of limitations and restrictions placed on the use of resources available to the Federation, the accounts of the Federation are maintained in accordance with the principles of fund accounting. This is the procedure by which resources for various purposes are classified for accounting and reporting purposes into funds established according to their nature and purposes. Separate accounts are maintained for each fund. The Building Fund also includes the consolidated accounts of 555 New Jersey Avenue, N.W., Inc. (555 New Jersey), and a controlled limited partnership - Capitol Place I Associates Limited Partnership (Capitol Place I Associates) (see Note 2). All significant intercompany transactions have been eliminated in consolidation. The assets, liabilities and net assets of the Federation are reported in six self-balancing, unrestricted net asset fund groups, as follows: General Fund Militancy/Defense Fund Undesignated Designated Building Fund - records all activity not accounted for in the other funds. - the undesignated portion of net assets is to financially support members and locals involved in strikes and in legal matters concerning job security and other issues. - established to account for the net activity of the Federation s Occupational Liability Insurance Plan for members. - established to account for the Federation's sub-leasing activities and its consolidated investment in 555 New Jersey Avenue, N.W., Inc., and in a limited partnership, Capitol Place I Associates Limited Partnership

11 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Solidarity Funds Postretirement Benefit Fund Committee on Political Education - established to assist the Federation and its affiliates in participating in legislative and political activities with significant potential impact on members and the institutions where they work. The State Solidarity Fund net assets are amounts designated for state affiliates with similar funds. The 527 Solidarity Fund net assets are amounts designated for electoral activities. - established to record the unfunded liabilities and expenses associated with providing healthcare and life insurance benefits to the Federation s retirees and pension benefits to the retired officers of the Federation. - established to improve public education through involvement in political activities. The Committee on Political Education is financed by contributions. Funds are disbursed via procedures established by the Executive Committee. Financial Statement Presentation - The consolidated financial statements of the Federation report the amounts for each of three distinct classes of net assets and changes therein - permanently restricted net assets, temporarily restricted net assets and unrestricted net assets - based on the existence or absence of donor-imposed restrictions. The Federation has no permanently restricted net assets for the years ended June 30, 2013 and Per Capita Taxes - The Federation assesses each local a monthly per capita tax for each member. Annual per capita tax assessments and the allocation to the various funds are determined by the Federation's Executive Council pursuant to the Federation's constitution. Per capita taxes are recognized monthly as assessments become due from the various local organizations; taxes received in advance are deferred. The General Fund initially records all per capita tax receipts and receivables, and allocates the portion due to other funds on a monthly basis. Effective September 1, 2011, the monthly per capita tax was $17.10, per member. Since September 1, 1998, $.27 of monthly per capita has been allocated to the Militancy/Defense Fund, $.10 has been allocated to the Building Fund, and $.05 has been allocated to the Albert Shanker Institute as a contribution from the Federation. Effective September 1, 2011, $1.90 of monthly per capita has been allocated to the Solidarity Fund of which $.76 has been designated for state affiliates with similar funds. Also pursuant to the Federation's constitution, a rebate of per capita taxes of 20 cents per month is provided to each chartered state federation based on the number of dues paying members

12 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Cash Equivalents - For the purposes of the statement of cash flows, the Federation considers all money market and highly liquid monetary instruments purchased with a maturity of three months or less to be cash equivalents. Investments - Common stock, mutual funds, preferred stock, unit investment trusts and closed end funds are stated at fair value which represents publicly quoted market prices as of the last business day of the year. Corporate bonds, asset backed securities, municipal bonds and U.S. Government and government agency obligations are valued based on quoted market prices when significant inputs are observable either directly or indirectly. Foreign bonds and certain equity securities are valued as estimated by the investment manager. Accounts Receivable - Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probably uncollectable amounts through a provision for bad debt expense based on its assessment of the current status of individual accounts. Rental Income, Net - Net rental income represents the rental income of Capitol Place I Associates, less rental income received from the Federation for all space leased by the Federation. Net rental income is recognized on a straight-line basis over the term of the respective leases, shown net of concessions. Property and Equipment - Property and equipment are carried at cost less accumulated depreciation and amortization. Major additions are capitalized while replacements, maintenance, and repairs which do not improve or extend the lives of respective assets are expensed. Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows: Building Building renovations and improvements Furniture and equipment 40 years 15 years 5 to 10 years Deferred Charges - Deferred charges consist of mortgage loan costs, which are being amortized on a straight-line basis over the term of the mortgage loan. Severance Pay, Accumulated Vacation, and Welfare Benefits - The Federation recognizes accumulated severance and vacation expense and employees' welfare benefits as earned by its employees under various contracts and agreements. Estimated Self-Insurance Reserves - Self-insurance reserves represent amounts provided for estimated claims to be submitted under the Federation's Occupational Liability Plan for members and Group Health Insurance Plan for employees. Premiums paid by the Federation's members to the Occupational Liability Plan are used primarily to pay premiums for a liability insurance policy; the remaining premiums are used to pay certain benefits or provide a reserve for benefits not covered under the insurance policy. The Federation provides its employees with health insurance coverage under a self-insured plan. Reserves have been established for amounts attributable to the Occupational Liability Plan which are to be used only for the payment of benefits, and for estimated health insurance claims to be submitted based on estimated claims incurred but not reported at June 30, 2013 and

13 NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Income Taxes - The Federation is exempt from Federal income taxes, except on net income, if any, from unrelated business activities, under Section 501(c)(5) of the Internal Revenue Code. The Federation has approximately $1,600,000 of net operating losses (NOL s) to offset any future taxable income. These NOL s expire over a year period that generally ends in New Jersey is exempt from Federal income taxes, except on net income, if any, from unrelated business activities, under Section 501(c)(2) of the Internal Revenue Code. Capitol Place I Associates, as a partnership, passes all net income (loss) tax amounts through to the individual partners in accordance with the Partnership agreement and the Internal Revenue Code. For state tax purposes, the District of Columbia imposes unincorporated business taxes on any net income of the partnership. The Federation accounts for income taxes in accordance with the Accounting Standards Codification (ASC) Topic Income Taxes. These provisions provide consistent guidance for the accounting for uncertainty in income taxes recognized in an entity s financial statements and prescribe a threshold of more likely than not for recognition and derecognition of tax positions taken or expected to be taken in a tax return. The Federation performed an evaluation of uncertain tax positions for the year ended June 30, 2013, and determined that there were no matters that would require recognition in the financial statements. As of June 30, 2013, the statue of limitations for the tax years 2010 through 2012 remains open with the U.S. Federal jurisdiction and the various states and local jurisdictions in which the Federation files returns. Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Subsequent Events Review - Subsequent events have been evaluated through January 13, 2014, which is the date the financial statements were available to be issued. This review and evaluation revealed no new material event or transaction which would require an additional adjustment to or disclosure in the accompanying financial statements. NOTE 2. INVESTMENT IN CAPITOL PLACE I ASSOCIATES LIMITED PARTNERSHIP The Federation is a limited partner in Capitol Place I Associates Limited Partnership, a partnership established in 1982, for the purpose of building and owning an office building that was completed in From 1984 to October 29, 1992, the Federation had a non-controlling 66 percent interest in Capitol Place I Associates, and in distribution of profits and losses and cash flow of the office building. During 1992 and 1994, the Federation purchased the remaining interests in the partnership and established 555 New Jersey as the managing general partner with a 1% interest in the partnership. The purchase price or cost of assets exchanged in acquiring the remaining interests, plus the deficit balances in the former remaining partners' capital accounts, have been allocated to the cost of the land and building. These amounts are being amortized on a straight-line basis over the remaining useful life of the building, from the date of acquisition

14 NOTE 3. INVESTMENTS Investments by fund at June 30, 2013 and 2012 consisted of: Cost Fair Value Cost Fair Value General Fund $ 574,464 $ 574,464 $ 359,842 $ 359,842 Militancy/Defense Fund 24,402,582 25,170,272 23,743,025 24,232,164 Building Fund 19,526,031 20,520,911 19,866,442 20,411,287 $ 44,503,077 $ 46,265,647 $ 43,969,309 $ 45,003,293 Investments at June 30, 2013 and 2012 are comprised of the following: Cost Fair Value Cost Fair Value Stocks and mutual funds $ 7,926,242 $ 9,553,386 $ 13,362,618 $ 13,660,848 Preferred stocks 5,486,453 5,358,845 2,529,676 2,682,116 ETF and closed end funds 6,389,538 6,217, Unit Investment Trusts 1,981,771 1,888, , ,211 Corporate bonds and asset backed securities 17,330,427 17,699,838 21,946,696 22,095,205 U.S. Government and agency securities 4,263,048 4,476,420 5,130,369 5,552,913 Municipal bonds 610, , Foreign bond 300, , , ,000 Investment in joint venture 214, , $ 44,503,077 $ 46,265,647 $ 43,969,309 $ 45,003,293 Realized net gains on investments for the years ended June 30, 2013 and 2012 totaled $951,358 and $225,667, respectively. The Federation reports fair value using a hierarchy for observable independent market inputs and unobservable market assumptions about fair value measurements. Observable inputs are inputs that market participants operating within the same marketplace as the Federation would use in pricing the Federation s asset or liability based on independently derived and observable market data. Unobservable inputs are inputs that cannot be sourced from a broad active market in which assets or liabilities identical or similar to those of the Federation are traded. Level 1 Inputs that reflect unadjusted quoted prices in active markets for identical assets or liabilities that the Federation has the ability to access at the measurement date; Level 2 Inputs other than quoted prices that are observable for the asset or liability either directly or indirectly, including inputs in markets that are not considered to be active; Level 3 Inputs that are unobservable (including the Federation s own assumptions in the determining the fair value of investments)

15 NOTE 3. INVESTMENTS (CONTINUED) The following table sets forth the Federation s investments that were measured at fair value on a recurring basis as of June 30, 2013 and 2012 by level within the fair value hierarchy: 2013 Quoted Market Significant Significant Price for Other Unobservable Assets Observable Inputs Inputs Description Total (Level 1) (Level 2) (Level 3) Stock and mutual funds Common stock $ 8,711,840 $ 8,711,840 $ - $ - Mutual funds 252, , Corporate stock 589, ,038 Preferred stock 5,358,845 5,358, ETF and closed end funds 6,217,230 6,217, Unit Investment Trust 1,888,530 1,888, Corporate bonds and asset backed securities Corporate bonds - domestic 14,187,508-14,187,508 - Corporate bonds - foreign 1,297,552-1,297,552 - Fixed rate capital securities 1,906,868-1,906,868 - Mortgage backed securities 307, ,910 - US Government and agency securities US Treasury obligations 296, ,148 - US Government agency obligations 4,180,272-4,180,272 - Foreign bond 300, ,000 Municipal bonds 556, ,776 - Investment in joint venture 214, ,622 Total $ 46,265,647 $ 22,428,953 $ 22,733,034 $ 1,103,660 Changes in Level 3 Other Other Joint Category Stocks Bonds Venture Beginning balance 7/1/2012 $ 589,038 $ 300,000 $ - Purchases ,000 Net realized loss - - (85,378) Ending balance 6/30/2013 $ 589,038 $ 300,000 $ 214,

16 NOTE 3. INVESTMENTS (CONTINUED) 2012 Quoted Market Significant Significant Price for Other Unobservable Assets Observable Inputs Inputs Description Total (Level 1) (Level 2) (Level 3) Stock and mutual funds Common stock $ 11,061,981 $ 11,061,981 $ - $ - Mutual funds 2,009,829 2,009, Corporate stock 589, ,038 Preferred stock 2,682,116 2,682, Unit Investment Trust 712, , Corporate bonds and asset backed securities Corporate bonds - domestic 18,835,802-18,835,802 - Corporate bonds - foreign 1,721,592-1,721,592 - Fixed rate capital securities 1,118,600-1,118,600 - Mortgage backed securities 419, ,211 - US Government and agency securities US Treasury obligations 310, ,299 - US Government agency obligations 5,242,614-5,242,614 - Foreign bond 300, ,000 Total $ 45,003,293 $ 16,466,137 $ 27,648,118 $ 889,038 Changes in Level 3 Other Other Category Stocks Bonds Beginning balance 7/1/2011 $ 589,038 $ 300,000 Purchases - - Net losses - - Ending balance 6/30/2012 $ 589,038 $ 300,000 The fair value of investments in U.S. Government agency securities, U.S. Treasury obligations, municipal bonds, and corporate bonds and asset backed securities were estimated based upon yields currently available on comparable securities of issuers with similar credit ratings. The fair value of foreign bonds and corporate stocks were estimated to be cost due to their limited salability The fair value of the investment in a joint venture is based on the Federation s original investment adjusted for its share of the current year s net loss

17 NOTE 4. LOANS RECEIVABLE The Federation has entered into signed loan agreements with various locals which are carried at cost, plus interest, less an estimate made for uncollectible amounts. As of June 30, 2013 and 2012, the Federation had total loans receivable, including interest, of $8,623,083 and $8,031,544, respectively. Of this amount, management has estimated an allowance of $2,782,669 for both years. This estimate is based on management s analysis of historical data. NOTE 5. RELATED PARTY TRANSACTIONS The Federation established the American Federation of Teachers Benefit Trust (the Trust), as a separate organization which is exempt from federal income taxes under Section 501(c)(5) of the Internal Revenue Code. The Trust has been formed as a welfare benefit plan for members and is fully subject to the various requirements and fiduciary provisions of the Employee Retirement Income Security Act. The purpose of the Trust is to provide various medical, life and disability insurance benefits to participating Federation members as an enhancement to collectively bargained benefits. Certain Federation Executive Council members and officers serve as trustees of the Trust. In addition, the Federation provides facilities and administration assistance for which the Trust reimburses the Federation. The Federation recognized $13,249 and $83,338 of reimbursements for services provided to the Trust for the years ended June 30, 2013 and 2012, respectively. Also, during the year ended June 30, 2013, the Federation recognized $835,129 for services previously paid by the Federation and forgiven. As of June 30, 2013 and 2012, the Trust owed the Federation $121,731 and $26,155, respectively, which is included in other receivables in the statement of financial position. The Federation established the AFT Education Foundation (AFTEF) as a separate organization which is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. AFTEF is principally financed by the research grants from the U.S. Government and related agencies. The officers and directors of AFTEF are comprised of the Federation s officers and Executive Council. The Federation provides accounting and administrative services to the Foundation without charge, the value of which has not been separately identified in these financial statements. For the years ended June 30, 2013 and 2012, the Federation was reimbursed $1,303,045 and $1,740,655, respectively, for salaries, fringe benefits and other expenses incurred on behalf of AFTEF. The Federation also advances funds for payment of AFTEF expenses until AFTEF receives reimbursements under the grants. At June 30, 2013 and 2012, the Federation was owed $67,439 and $388,871, respectively, from the AFTEF. These amounts are included in other receivables on the statement of financial position. The Federation established the AFT Disaster Relief Fund (the Fund) during the year ended June 30, 2006 as a separate organization which is exempt from federal income taxes under Section 501(c)(3) of the Internal Revenue Code. The Fund was formed to provide assistance to persons adversely affected by natural or man-made disasters. The officers and directors of the Fund are comprised of the Federation s officers and several Executive Council members. The Federation provided accounting and administrative services to the Fund without charge, the value of which has not been separately identified in these financial statements

18 NOTE 5. RELATED PARTY TRANSACTIONS (CONTINUED) The Albert Shanker Institute reimbursed all administrative costs for the years ended June 30, 2013 and As discussed in Note 1, the Federation allocates a portion of per capita taxes to the Institute. The amount allocated for the years ended June 30, 2013 and 2012 was $508,500 and $523,407, respectively. NOTE 6. PROPERTY AND EQUIPMENT Property and equipment consisted of the following at June 30, 2013 and 2012: Land $ 5,084,148 $ 5,084,148 Office building and improvements 42,220,452 41,214,526 Furniture and equipment 16,025,247 15,500,197 63,329,847 61,798,871 Less accumulated depreciation and amortization (41,293,248) (39,018,050) $ 22,036,599 $ 22,780,821 NOTE 7. MORTGAGE NOTE PAYABLE, SWAP AGREEMENT AND GUARANTEE Capitol Place I Associates refinanced its property with a $15,000,000 mortgage loan in July The loan is payable over 10 years with interest accruing at a per annum rate equal to LIBOR plus 0.75%. Capitol Place I Associates has entered into an interest rate hedge agreement with the lender to provide for a fixed rate hedge against increases in LIBOR. The notional amount of the hedge agreement is $15,000,000 amortizing as principal payments are made on the mortgage loan. This agreement effectively changes Capitol Place I Associates interest rate exposure on its floating rate mortgage loan to a fixed 4.09%. The interest rate hedge agreement matures at the time the mortgage loan matures. The loan matured and was paid off during the year ended June 30, In August 2011, Capitol Place I Associates refinanced its property with a $10,000,000 mortgage loan. The mortgage loan is payable over 5 years with interest accruing at a per annum rate equal to LIBOR plus 1.52%. Capitol Place I Associates has entered into an interest rate hedge agreement with the lender to provide for a fixed rate hedge against increases in LIBOR effectively fixing the Partnership s interest rate exposure on its floating rate mortgage loan at 3.63%. The interest rate swap agreement matures at the time the mortgage loan matures. In the event of default by the counterparty Capital Place I may be exposed to increased interest rates. Capital Place I Associates does not anticipate default by the counterparty. In the event that Capitol Place I Associates pays off the mortgage loan before the full term, it could be liable for a yield differential payment to the lender based on the remaining term of the loan. At June 30, 2013, the fair value of this swap agreement was $(371,918)

19 NOTE 7. MORTGAGE NOTE PAYABLE AND GUARANTEE (CONTINUED) The details of the Interest rate swap agreement maturing August 24, 2016 are as follows: Fixed rate 3.63% Variable rate LIBOR Remaining term of contract in years 3 Original note payable balance covered by agreement (notional amount) $10,000,000 Notional amount outstanding at June 30, 2013 $ 9,354,581 The loan is secured by a deed of trust, assignment and security agreement, creating a first lien on the property and all related improvements, fixtures and equipment, all leases and rents with respect thereto, and all contracts and intangible property related thereto. In addition, the lender has required that all amounts payable to the partnership under the interest rate hedge agreement be assigned as additional security under the loan. The Federation has also guaranteed the full amount of the loan for its entire term. In addition, the Federation will make contributions to Capitol Place I Associates sufficient to cover the debt service payments. The fair value of the swap agreement is estimated using Level 3 inputs. The fair value is based on Capitol Place I Associates floating interest rate on the mortgage note payable compared to the hedged fixed rate of 3.63% as reported by the lender. Future minimum principal obligations under the agreement are as follows: Year Ending June 30, 2014 $ 370, , , ,201,401 $ 9,354,581 NOTE 8. ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities consisted of the following at June 30, 2013 and 2012: Assistance payable to state and local federations $ 2,884,044 $ 2,033,644 State federation per capita taxes 1,971,548 1,908,046 Affiliation fees payable 803, ,421 Accrued employees' welfare benefits - 56,900 Estimated self-insurance reserve - employees' health insurance 190, ,000 Other accrued expenses 708, ,601 $ 6,557,818 $ 6,101,

20 NOTE 9. OTHER REVENUE Other revenue consisted of the following at June 30, 2013 and 2012: Conference and meeting registration $ 413,431 $ 381,276 Locals insurance reimbursements 89, ,984 AFT Benefit Trust reimbursements 826,520 - Income from Affiliates 319,433 - Parking garage revenue 51,303 72,605 Miscellaneous income 400, ,274 $2,100,058 $ 950,139 NOTE 10. AFFINITY CARD AGREEMENT The Federation has entered into a multi-year License Agreement and a List Use Agreement with the AFL-CIO, under which the AFL-CIO has obtained rights to use certain intangible property belonging to the Federation, including the right to use the name, logo, trademarks, and membership lists of the Federation, in exchange for specified royalty payments to be paid to the Federation by the AFL-CIO. In turn the AFL-CIO has sub-licensed the rights to use the Federation s intangible property to a financial institution, for use by the institution in connection with its marketing of credit card and certain other financial products to members of the Federation. The current agreement which was effective on March 1, 1997, extends the term from March 2009 to February For the years ended June 30, 2013 and 2012, the Federation received affinity card royalties from the AFL-CIO which totaled $1,779,326 and $1,677,205, respectively. These amounts are included in program administration and royalties in the statement of activities. NOTE 11. RETIREMENT PLANS The Federation contributed 23 percent of eligible employees salaries to defined contribution retirement plans during the years ended June 30, 2013 and Total retirement plan expense was $8,415,190 and $8,427,143 for the years ended June 30, 2013 and 2012, respectively. The Federation adopted a defined benefit plan for officers of the Federation who have completed 5 years of service in the capacity of President, Executive Vice President, or Secretary-Treasury, and have served the Federation or any of its state or local affiliates for a period of at least 20 years. The benefit, payable upon retirement, is equal to 60% of final annual compensation and is adjusted annually for an amount equal to Social Security cost of living increases. The surviving

21 NOTE 11. RETIREMENT PLANS (CONTINUED) spouse of an eligible officer will receive a benefit of 50% of the officer s benefit. Normal retirement age is 62, with a reduction of 6% per year for retirement benefits beginning prior to age 62. Additionally, the monthly benefit is offset by 1/60 th of the amount contributed by the Federation on behalf of each eligible officer under the AFT Management Retirement Plan, one of the defined contribution plans maintained by the Federation for its employees. The annual measurement date is June 30. The net periodic pension cost for the plan for the years ended June 30, 2013 and 2012 is summarized as follows: Interest cost $ 458,332 $ 511,342 Service cost 1,510, ,101 Net amortization and deferral 711, ,633 Net periodic pension cost $ 2,680,506 $ 1,332,076 The net periodic pension cost is based on the following weighted-average assumptions at the end of the year: Discount rate 4.25% 5.50% Average rate of compensation increase 3.00% 3.00% The plan s obligations and funded status as of June 30, 2013 and 2012 is summarized as follows: Fair value of plan assets $ - $ - Projected benefit obligation 11,978,516 11,007,806 Excess (deficiency) of plan assets over projected benefit obligation (11,978,516) (11,007,806) Net accrued pension liability $ (11,978,516) $(11,007,806) The net accrued pension liability is based on the following weighted average assumptions at the end of the year: Discount rate 4.75% 4.25% Average rate of compensation increase 3.00% 3.00% Employer contributions and benefit payments for the years ended June 30, 2013 and 2012 were as follows: Employer contributions $ 457,354 $ 402,997 Benefit payments $ 457,354 $ 402,997

22 NOTE 11. RETIREMENT PLANS (CONTINUED) Estimated future benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five years thereafter are as follows: Year Ending June 30, 2014 $ 710, , , , , ,545,784 Total $9,492,048 The Plan is unfunded and benefits will be paid from the General Fund of the Federation. NOTE 12. POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS In addition to providing pension benefits, the Federation also provides certain medical and life insurance benefits for retired employees meeting certain minimum age and years of service requirements, based on benefits negotiated in various collective bargaining agreements. Generally, medical and dental benefits are provided until age 65, prescription drugs are provided until death, and life insurance is provided until 70. Substantially all of the Federation s employees may become eligible for certain of these benefits if they retire while working for the Federation. Postretirement benefit costs for the years ended June 30, 2013 and 2012 include the following components: Service cost $ 1,168,849 $ 763,444 Interest cost 898, ,250 Amortization of losses 289, ,771 Amortization of prior service cost 113,771 75,537 Amortization of transition obligation 193, ,622 Total postretirement benefit costs $ 2,664,684 $ 2,023,624 The accumulated postretirement benefit obligation at June 30, 2013 and 2012 is as follows: Fair value of plan assets $ - $ - Postretirement benefit obligation 20,577,346 20,188,331 Excess (deficiency) of plan assets over postretirement benefit obligation (20,577,346) (20,188,331) Unrecognized net actuarial losses - - Net accrued healthcare liability $ (20,577,346) $ (20,188,331)

23 NOTE 12. POSTRETIREMENT MEDICAL AND LIFE INSURANCE BENEFITS (CONTINUED) Weighted-average assumptions used to determine benefit obligations at end of year: Discount rate 5.00% 4.50% The assumed health care cost trend rates used to measure the expected cost of benefits for the year ended June 30, 2013 were assumed to increase by 9.0%. Thereafter, rate increases were assumed to gradually decrease until they reached 4.5% in The assumed prescription drug cost trend rates used to measure the expected cost of benefits for the year ended June 30, 2013 were assumed to increase by 7.0%. Thereafter, rate increases were assumed to gradually decrease until they reached 4.5% in Previously, prescription drug trend rates were assumed to be in line with the medical trend rates. Estimated future benefits expected to be paid in each of the next five fiscal years and in the aggregate for the five years thereafter are as follows: Year Ending June 30, 2014 $ 481, , , , ,000 4,428,000 Total $7,424,000 The plan is unfunded and benefits will be paid from the General Fund of the Federation. The amounts expected to be recognized as net periodic costs in fiscal year 2013 is $443,079. NOTE 13. BORROWINGS AND CONTINGENT LIABILITIES The Federation has lines of credit with one financial institution at June 30, 2013 for a total amount of $10,000,000. Interest is payable monthly at the financial institutions prime interest rate. The lines of credit are secured by cash and investments held by the institutions. The Federation had borrowed $3,729,657 and $916,650 at June 30, 2013, and 2012, respectively. At June 30, 2013, the Federation has guaranteed a loan obtained by an affiliate not to exceed $160,

24 NOTE 14. COMMITMENTS AND CONTINGENCIES The Federation has several non-cancelable operating leases, primarily for office equipment. Future minimum lease payments, under non-cancelable operating leases for office equipment are: Year Ending June 30, 2014 $ 74, , , , ,450 Total $ 245,275 Rental expense for office equipment leases totaled approximately $192,128 and $259,913 for the years ended June 30, 2013 and 2012, respectively. The Federation also has several office space subleases. Future minimum receipts under these non-cancelable office space subleases, excluding executory costs are: Year Ending June 30, 2014 $ 56, , ,393 Total $ 127,849 The Federation has been named as a defendant in a number of actions, none of which, based on currently available information, appear to present significant potential liability in relation to the Federation s total net assets. The Federation intends to defend itself vigorously against pending litigation and maintains that it has no liability. NOTE 15. CAPITOL PLACE I ASSOCIATES LEASE RENTAL INCOME COMMITMENTS Leases of space in the office building owned by Capitol Place I Associates provide for base rentals plus provisions for escalation in the event of increased operating expenses, real estate taxes, and changes in the Consumer Price Index. Effective March 2013, the Partnership entered into a lease agreement for one year. Subsequent to year end, the Partnership renegotiated a five year extension. This lease provides for monthly payments of $298,096. The minimum annual future rental income on non-cancelable leases, excluding any lease payments from the Federation, are: Year Ending June 30, 2014 $ 2,561, ,131 Total $ 2,591,