Reports of Independent Auditors
and Financial Statementswith Additional Information for

American Council on Exercise
June 30, 2012 and 2011

C O N T E N T SPage
REPORT OF INDEPENDENT AUDITORSON THE FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Statements of Financial Position
Statements of Activities
Statements of Cash Flows
Notes to Financial Statements1
2
3
4
5 – 10REPORT OF INDEPENDENT AUDITORSON THE ADDITIONAL INFORMATION11

ADDITIONAL INFORMATIONStatement of Functional Expenses

12

REPORT OF INDEPENDENT AUDITORS

Board of Directors
American Council on Exercise
We have audited the accompanying statements of financial position of American Council on Exercise(“ACE”) as of June 30, 2012 and 2011, and the related statements of activities and cash flows for theyears then ended. These financial statements are the responsibility of ACE’s management. 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 Statesof 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 includes
consideration of internal control over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of ACE’s internal control over financial reporting. Accordingly, we express no such opinion.
An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of American Council on Exercise as of June 30, 2012 and 2011, and the changes in its
net assets and cash flows for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

San Diego, California
September 18, 2012

AMERICAN COUNCIL ON EXERCISE
STATEMENTS OF FINANCIAL POSITIONJUNE 30, 2012 AND 2011

2012

2011

ASSETS
Current Assets
Cash and cash equivalents
Investments$

Accounts receivable
Inventory
Deferred and prepaid expenses, current portion
Total current assets
Fixed Assets
Deferred and Prepaid Expenses, long‐term portion$

Total assets

4,308,454
952,931$3,983,706
1,839,262

156,057
470,455
375,997

88,966
479,725
458,583

6,263,894

6,850,242

3,254,208

3,263,541

566,187

434,438

10,084,289$

10,548,221

945,066
1,690,511‐$

1,263,733
1,261,616
933,786

LIABILITIES AND NET ASSETS
Current Liabilities
Accounts payable and accrued expenses
Deferred revenue
Current portion of note payable$

Total current liabilities

2,635,577

3,459,135

7,448,712
10,084,289

7,089,086
10,548,221

Commitments and Contingencies (Note 7)
Unrestricted Net Assets
Total liabilities and net assets

See accompanying notes.

$

$

2

AMERICAN COUNCIL ON EXERCISE
STATEMENTS OF ACTIVITIESYEARS ENDED JUNE 30, 2012 AND 20112012
REVENUE AND SUPPORT
Educational materials and training manuals
Certification fees
Instructor renewal fees
Continuing education fees
Shipping and handling
Mailing list rentals
Royalties
Interest and dividends
Membership fees
Contributions
Total revenue and support$

EXPENSES
ProgramGeneral and administrative
Total expenses

4,829,258
3,075,225
2,529,691
1,942,742
404,494
138,747
118,189
42,173
12,508245
13,093,272

2011$

4,970,802
2,713,130
2,158,087
1,813,392
419,207
119,210
132,593
40,272
13,510112
12,380,315

10,187,900
2,518,774

9,788,828
2,321,320

12,706,674

12,110,148

386,598

270,167

NET REALIZED/UNREALIZED (LOSSES) GAINSON INVESTMENTS(26,972)

204,530

INCREASE IN UNRESTRICTED NET ASSETS

359,626474,697

7,089,086
7,448,712

6,614,389
7,089,086

Excess of revenue and support over expenses

UNRESTRICTED NET ASSETS
Beginning of year
End of year

See accompanying notes.

$

$

3

AMERICAN COUNCIL ON EXERCISE
STATEMENTS OF CASH FLOWSYEARS ENDED JUNE 30, 2012 AND 20112012
OPERATING ACTIVITIES
Change in net assets
Adjustments to reconcile change in net assets
to net cash provided by operating activities:
Depreciation and amortization
Net realized/unrealized losses (gains) on investments(Increase) decrease in operating assets:
Accounts receivable
Inventory$

Deferred and prepaid expenses(Decrease) increase in operating liabilities:
Accounts payable and accrued expenses
Deferred revenue

359,6262011$

474,697

308,864
26,972

285,385(204,530)(67,091)
9,270(53,899)(59,031)(49,163)(66,632)(318,667)
428,895

Net cash provided by operating activities

698,706

394,159
469,843
1,239,992

INVESTING ACTIVITIES
Purchases of fixed assets
Proceeds from sales of investments
Purchases of investments
Net cash provided by investing activities(299,531)
1,425,000(565,641)
559,828(146,169)
525,869(354,863)
24,837

FINANCING ACTIVITIESPayments on note payable
Net cash (used in) financing activities(933,786)(933,786)(60,112)(60,112)INCREASE IN CASH AND CASH EQUIVALENTS

324,748

1,204,717

3,983,706
4,308,454$

2,778,989
3,983,706$

62,883

CASH AND CASH EQUIVALENTS
Beginning of year
End of year$

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATIONCash payments for interest

See accompanying notes.

$

36,6594

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS

Note 1 – Nature of Organization and Significant Accounting Policies
Organization: American Council on Exercise (“ACE”), incorporated under the laws of the state ofCalifornia in 1985, is a not‐for‐profit organization committed to enriching the quality of life
through safe and effective physical activity. ACE protects all segments of society against ineffective
fitness products, programs, and trends through its ongoing public education, outreach, andresearch. ACE further protects the public by setting certification and continuing education
standards for fitness professionals.
Income Tax Status: ACE is exempt from income taxes under section 501(c)(3) of the Internal
Revenue Code (“IRC”) and section 23701(d) of the California Revenue and Taxation Code, except
to the extent of unrelated business taxable income as defined under IRC sections 511 through 515.
ACE had no unrecognized tax benefits or liabilities as of June 30, 2012 and 2011. ACE files an
exempt organization return in the United States federal jurisdiction and with the Franchise Tax
Board in the state of California. ACE is no longer subject to income tax examinations by taxing
authorities for years before 2009 for its federal filings and for years before 2008 for its state
filings.
Method of Accounting: The financial statements of ACE are prepared under the accrual basis ofaccounting.
Financial Statement Presentation: Net assets, and changes therein, are classified as
unrestricted, temporarily restricted, and permanently restricted as follows:

Unrestricted net assets represent expendable funds available for operations that are nototherwise limited by donor restrictions.



Temporarily restricted net assets consist of contributed funds, subject to specific donor‐
imposed restrictions, contingent upon a specific performance of a future event or a
specific passage of time before ACE may spend the funds. At June 30, 2012 and 2011, ACE
did not have any temporarily restricted net assets.



Permanently restricted net assets are subject to irrevocable donor restrictions, requiringthat the assets be maintained in perpetuity, usually for the purpose of generating
investment income to fund current operations. At June 30, 2012 and 2011, ACE did nothave any permanently restricted net assets.

Revenue Recognition
Revenue: ACE derives revenue from the following:

Publishing and selling various educational and training manuals for exercise
professionals, and related shipping and handling (recognized as manuals are sold);Fees charged for taking certification examinations (recognized as exams areadministered);Instructor renewal fees (recognized as renewal forms are processed);Processing fees for continuing education quizzes (recognized as quizzes are processed);Royalties (recognized as earned);

Mailing list rentals (recognized when lists are rented); andMemberships (recognized as memberships are renewed)
5

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS

Note 1 – Nature of Organization and Significant Accounting Policies (Continued)
Contributions: Contributions are recognized as support when received or unconditionallypledged. Contributions subject to donor‐imposed restrictions for use in a future period or for a
specific purpose are reported as either temporarily or permanently restricted, depending on
the nature of the donor’s restriction. When a donor restriction expires, temporarily restricted
net assets are reclassified to unrestricted net assets and reported in the statements ofactivities as net assets released from restrictions. Donor‐restricted contributions, whose
restrictions are met in the same reporting period, are reported as unrestricted contributions.
Cash and Cash Equivalents: Cash and cash equivalents include highly liquid investments with an
original maturity of three months or less.
Investments: The fair value of the certificates of deposit is determined by discounting the related
cash flows based on current yields of similar instruments with comparable durations considering
the creditworthiness of the issuer. Investments in marketable securities with readily determinable
fair values are reported at their fair value based on quoted prices in active markets. Unrealized
gains and losses are included in the change in net assets in the statements of activities.
Accounts Receivable: Credit terms for payment of products and services purchased are extended
to customers in the normal course of business, and no collateral is required. The allowance for
estimated uncollectible accounts is based on past experience and on analysis of current accounts
receivable. Accounts are considered delinquent after 30 days. Accounts deemed uncollectible are
written off against the allowance in the year deemed uncollectible. At June 30, 2012 and 2011,
management determined an allowance is not required.
Inventory: Inventory, which consists principally of training manuals and merchandise, is valued
at lower‐of‐cost or market value using the first‐in‐first‐out method.
Deferred Expenses: Deferred expenses are costs associated with content development,
preproduction, typesetting, artwork, and design of manuals. Accumulated costs are expensed overthe estimated marketable life of the manuals ranging from one to five years.
Fixed Assets: ACE capitalizes fixed assets with a cost greater than $500. Furniture, equipment,
computer software, website and database development, and leasehold improvements arerecorded at cost and are depreciated on a straight‐line basis over the estimated useful lives of theassets, generally three to five years. The building is recorded at cost and is being depreciated over
30 years.
Impairment of Long­lived Assets: ACE evaluates long‐lived assets for impairment whenever
events or changes in circumstances indicate that the carrying value of an asset may not berecoverable. If the estimated future cash flows (undiscounted and without interest charges) fromthe use of an asset is less than the carrying value, a write‐down would be recorded to reduce therelated asset to its estimated fair value. To date, no such write‐downs have occurred.
Deferred Revenue: Deferred revenue represents fees received in advance for exams and training.
Advertising: Advertising costs are expensed as incurred.
Shipping and Handling: Shipping and handling costs are expensed as incurred and are primarily
included in program expenses.

6

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS

Note 1 – Nature of Organization and Significant Accounting Policies (Continued)
Functional Allocation of Expenses: The costs of providing ACE’s program and other activities
have been summarized on a functional basis in the statements of activities. Accordingly, certain
costs have been allocated among the program and supporting services benefited.
Use of Estimates: The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets and liabilities, disclosure ofcontingent assets and liabilities at the date of the financial statements, and the reported amountsof revenues and expenses during the reporting period. Actual results could differ from thoseestimates.
Subsequent Events: Subsequent events are events or transactions that occur after the statementsof financial position date, but before the financial statements are issued. ACE recognizes in thefinancial statements the effects of all subsequent events that provide additional evidence about
conditions that existed at the date of the statements of financial position, including the estimates
inherent in the process of preparing the financial statements. ACE’s financial statements do notrecognize subsequent events that provide evidence about conditions that did not exist at the dateof the statements of financial position, but arose after the statements of financial position date andbefore the financial statements are available to be issued. ACE has evaluated subsequent events
through September 18, 2012, which is the date the financial statements were available to beissued.
Note 2 – Concentration of Credit Risk
Investments are exposed to various risks, such as interest rate, market, and credit risks. It is atleast reasonably possible, given the level of risk associated with investments, that changes in thenear‐term could materially affect the amounts reported in the financial statements.
Note 3 – Investments
Fair value is the price that would be received to sell an asset or paid to transfer a liability in anorderly transaction between market participants at the measurement date. The fair value
hierarchy requires an entity to maximize the use of observable inputs and minimize the use ofunobservable inputs when measuring fair value. There are three levels of inputs that may be used
to measure fair value:
Level 1:

Quoted prices in active markets for identical assets or liabilities;

Level 2:

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 for
substantially the full term of the assets or liabilities; andLevel 3:

Unobservable inputs that are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.

7

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS

Note 3 – Investments (Continued)
Transfers of assets and liabilities between levels is done as of the beginning of the year.
See Note 1 for the valuation methodologies used for assets measured at fair value on a recurring
basis and recognized in the accompanying statements of financial position.
The following fair value hierarchy tables present information about ACE’s assets measured at fairvalue on a recurring basis as of June 30:

Level 1
Certificates of deposit$‐

Mutual funds:
Domestic equity
Fixed income
International equity
Precious metals
Total

Level 2$$

Mutual funds:
Domestic equity
Fixed income
International equity
Precious metals
Total

$

‐

$

‐

$

‐

‐
‐

‐
‐

409,039
367,136

107,193
69,563‐‐‐‐

107,193
69,563952,931$

Level 3409,039
367,136$

Level 1
Certificates of deposit

Total
2012

‐

$

Level 2
‐

$

‐

$

Total
2011

Level 3

798,826$

952,931‐$

798,826

455,023
323,536‐‐‐‐455,023
323,536

195,187
66,690‐‐‐‐

195,187
66,6901,040,436$

798,826$‐$

1,839,262

Note 4 – Deferred and Prepaid Expenses
Deferred and prepaid expenses are summarized as follows at June 30:
2012
Deferred expenses
Prepaid expenses$

812,407
129,777

Less current portion

942,184(375,997)$

566,1872011$

675,206
217,815
893,021(458,583)$

434,4388

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS

Note 5 ­ Fixed Assets
At June 30, fixed assets consist of:
2012
Land
Building$

1,286,883
3,113,744

2011$

1,286,883
3,113,744

Equipment
Website and database development
Computer software

833,338
780,787
426,353

697,860
664,060
418,625

Furniture
Leasehold improvements
Vehicle341,464
140,6698,475

332,585
109,950
8,475

6,931,713(3,677,505)
3,254,208

6,632,182(3,368,641)
3,263,541

Less accumulated depreciation$$

Note 6 – Note Payable
As of June 30, 2011, ACE had a note payable to a bank of $933,786. The note was due in January
2012 at which time it was paid in full.
Total interest expense was approximately $37,000 and $63,000 for the years ended June 30, 2012
and 2011, respectively.
Note 7 – Commitments and Contingencies
Operating Leases: ACE leases copiers under non‐cancelable operating lease agreements which
extend through May 2016 and require monthly lease payments of $1,233. Rent expense for theyears ended June 30, 2012 and 2011 was approximately $15,000.
Future minimum rental payments required under non‐cancelable operating lease agreements aredue as follows:Year ending June 30,
2013

$

2014
2015

14,796
14,796
14,796
8,580

2016
$

52,968Retirement Plans: ACE has a 401(k) plan (the “401(k) Plan”) which covers all full‐time
employees after 90 days of employment. Employees also receive a 50 percent employer match forthe first 6 percent of salary deferral, which vests evenly over five years. For the years ended June30, 2012 and 2011, ACE contributed approximately $81,000 and $69,000, respectively, to the401(k) Plan. During 2012, ACE established a 457(b) deferred compensation plan for qualified
employees and approved a $68,000 contribution to the plan for the year ended June 30, 2012. The
plan account had not been funded as of June 30, 2012.

9

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS

Note 7 – Commitments and Contingencies (Continued)
Trademark Matters: ACE operates under a trademark and, at times, must defend its rights byfiling for an administrative proceeding before the Trademark Trial and Appeals Board, a unit of
the United States Patent and Trademark office.
Legal Matters: ACE is a party to certain legal actions arising in the ordinary course of business. In
the opinion of management, additional liabilities, if any, under these actions will not result inmaterial charges against net assets.
Note 8 – Certification Examinations
ACE charges fees for certification examinations that are recognized as revenue as examinations
are administered. ACE has an agreement with an organization that administers the personaltrainer, group fitness instructor, clinical exercise specialist, and life weight management
consultant certification tests. The agreement expires in July 2015 and may be terminated by either
party. Expenses for fees paid to this organization under this agreement for the years ended June30, 2012 and 2011 were approximately $926,000 and $1,024,000, respectively.

10ADDITIONAL INFORMATIONREPORT OF INDEPENDENT AUDITORSON THE ADDITIONAL INFORMATION

Board of Directors
American Council on Exercise
We have audited the financial statements of American Council on Exercise (“ACE”) as of and for the year
ended June 30, 2012, and our report thereon dated September 18, 2012, which expressed an unqualified
opinion on those financial statements, appears on page 1. Our audit was conducted for the purpose offorming an opinion on the financial statements taken as a whole. The statement of functional expenses ispresented for purposes of additional analysis and is not a required part of the financial statements. Suchinformation is the responsibility of management and was derived from and relates directly to theunderlying 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 financial statements and certain
additional procedures, including comparing and reconciling such information directly to the underlying
accounting and other records used to prepare the financial statements or to the financial statements
themselves, and other additional procedures in accordance with auditing standards generally acceptedin the United States of America. In our opinion, the information is fairly stated in all material respects inrelation to the financial statements as a whole.

San Diego, California
September 18, 2012

AMERICAN COUNCIL ON EXERCISE
ADDITIONAL INFORMATIONSTATEMENT OF FUNCTIONAL EXPENSESYEAR ENDED JUNE 30, 2012
(WITH SUMMARIZED FINANCIAL INFORMATION FOR THE YEAR ENDED JUNE 30, 2011)2012

Program
Salaries and wages
Educational materials and training manuals$

Testing services
Printing, photography, and production
MarketingAdvertising and promotion
Insurance
Postage, shipping, and handling
Payroll taxes
Depreciation and amortization
Events and trade shows
Meetings
Merchant fees
Professional development and dues
TravelLegal and accounting
Repairs, maintenance, and janitorial services
401(k) contributions

3,065,838

Generaland
Administrative$

1,549,535

2011
Total

Total
$

4,615,373

1,342,331
925,946‐‐

1,342,331
925,946

920,604
806,353671
15,617921,275
821,970

504,406
247,767

7,170
154,573

511,576402,340

373,359
287,456

6,613
38,465379,972
325,921

169,875
289,214138,989‐

308,864
289,214

134,659
261,178

137,688‐272,347
261,178

169,043
153,395

87,01330,562

256,056
183,957

140,906
59,88334,03530,948

174,941
90,831$

4,229,567
1,509,812
1,024,028
943,215795,765
294,324
322,067
411,275
293,273285,384
317,305
314,115
257,633
227,952
167,318
115,224

56,772

24,331

81,103

94,04768,609

Office and computer supplies
Miscellaneous

49,69255,07526,375
15,22676,06770,301

84,07074,234457 (b) contributions
Fulfillment

850
55,692

67,150‐68,00055,692‐
32,680Utilities
Telephone

37,10433,231

15,902
14,24253,00647,47352,926
48,383

Recruitment
Entertainment

‐
3,598

44,58936,08344,58939,681

10,19953,443

Interest
Temporary wages‐
28,46036,6591,379

36,65929,83962,883
1,582

Copying and duplication
Bad debt

11,570
3,643

4,959
‐

16,5293,643

17,160
1,675$

10,187,900$

2,518,774$

12,706,674$

9,788,828$

2,321,320$

12,110,148$

12,110,148

Total expenses for the year ended
June 30, 201112