Reports of Independent Auditors
and Financial Statementswith Additional Information for

American Council on Exercise
June 30, 2014 and 2013

CONTENTS
Page
REPORT OF INDEPENDENT AUDITORS

1 and 2

FINANCIAL STATEMENTS
Statements of Financial Position
Statements of Activities
Statements of Cash Flows
Notes to Financial Statements

3
4
5
6 – 11REPORT OF INDEPENDENT AUDITORSON THE ADDITIONAL INFORMATION

12ADDITIONAL INFORMATIONStatement of Functional Expenses

13

REPORT OF INDEPENDENT AUDITORSThe Board of Directors
American Council on Exercise
Report on Financial Statements
We have audited the accompanying financial statements of American Council on Exercise, which
comprise the statements of financial position as of June 30, 2014 and 2013, the related statements ofactivities 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 inaccordance 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 fairpresentation 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 ofAmerica. Those standards require that we plan and perform the audits 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 auditor’s judgment, including theassessment 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 thatare appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness 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 ofsignificant accounting estimates made by management, as well as evaluating the overall presentation of
the financial statements.
We believe that the audit evidence obtained is sufficient and appropriate to provide a basis for our audit
opinion.

1

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, 2014 and 2013, and the results of its
operations and its cash flows for the years then ended in accordance with accounting principles
generally accepted in the United States of America.

San Diego, California
September 16, 20142

AMERICAN COUNCIL ON EXERCISE
STATEMENTS OF FINANCIAL POSITIONJUNE 30, 2014 AND 2013
June 30,
2014

2013

ASSETS
Current Assets
Cash and cash equivalents
Investments
Deferred and prepaid expenses, current portion
Accounts receivable
Inventory$

Total current assets

5,485,192
1,375,351
677,254526,507404,387$

4,322,270
1,179,649
451,923532,606
391,585

8,468,691

6,878,033

3,162,151

3,403,150

Deferred and Prepaid Expenses, long‐term portion

913,708759,226

Deferred Compensation Plan Assets ‐ 457b

168,797

68,470

Fixed Assets

Total assets$

12,713,347$

11,108,879

2,132,633
1,513,172$

1,969,202
1,485,763

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

Total current liabilities

3,645,805

3,454,965

168,531

71,590Total liabilities

3,814,336

3,526,555

Unrestricted Net Assets

8,899,011

7,582,324

Deferred Compensation Payable ‐ 457b

Total liabilities and net assets

See accompanying notes.

$

12,713,347$

11,108,879

3

AMERICAN COUNCIL ON EXERCISE
STATEMENTS OF ACTIVITIESYEARS ENDED JUNE 30, 2014 AND 2013
Years Ended June 30,
2014
2013
REVENUE AND SUPPORT
Educational materials and training manuals
Certification fees
Continuing education fees
Instructor renewal fees
Shipping and handlingRoyalties
Mailing list rentals
Consumer ‐ outreachInterest and dividends
Contributions and other income
Membership fees
Total revenue and support$

EXPENSES
ProgramGeneral and administrative
Total expenses

6,880,467
5,061,274
2,912,552
2,659,417
547,651
123,630
94,28867,62435,692
18,404‐
18,400,999$

5,553,653
4,160,824
2,348,984
2,488,256
459,656
98,743110,312
149,375
32,345
155
30,515
15,432,818

13,958,968
3,320,988
17,279,956

12,184,983
3,173,334
15,358,317

1,121,043

74,501

195,644

59,111

INCREASE IN UNRESTRICTED NET ASSETS

1,316,687

133,612

UNRESTRICTED NET ASSETS
Beginning of year

7,582,324

7,448,712

Excess of revenue and support over expenses
NET REALIZED/UNREALIZED GAINS ON INVESTMENTS

End of year

4$8,899,011$

7,582,324

See accompanying notes.

AMERICAN COUNCIL ON EXERCISE
STATEMENTS OF CASH FLOWSYEARS ENDED JUNE 30, 2014 AND 2013
Years Ended June 30,
2014
2013
OPERATING ACTIVITIES
Change in net assets
Adjustments to reconcile change in net assets
to net cash provided by operating activities:
Depreciation and amortization
Change in allowance for bad debt
Net realized/unrealized (gains) on investments(Increase) decrease in operating assets:
Accounts receivable
Inventory
Deferred and prepaid expenses
Increase in operating liabilities:
Accounts payable and accrued expenses
Deferred revenue
Deferred compensation payable ‐ 457b
Net cash provided by operating activities$

1,316,687$

133,612399,587
45,109(195,644)

365,404‐(55,301)(39,010)(12,802)(379,813)(376,549)
78,870(268,965)

27,409163,431
96,941
1,421,895

540,697
278,691
71,590768,049

INVESTING ACTIVITIES
Proceeds from sales of investments
Purchases of deferred compensation plan assets ‐ 457b
Purchases of fixed assets
Purchases of investments
Net cash (used in) investing activities

450,430(70,000)(158,588)(480,815)(258,973)

385,178(68,470)(514,346)(556,595)(754,233)

INCREASE IN CASH AND CASH EQUIVALENTS

1,162,922

13,816

CASH AND CASH EQUIVALENTS
Beginning of year

4,322,270

4,308,454

End of year

See accompanying notes.

$

5,485,192$

4,322,270

5

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 safeand effective physical activity. ACE protects all segments of society against ineffective fitness products,
programs, and trends through its ongoing public education, outreach, and research. 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, 2014 and 2013. ACE files an exempt organization
return in the United States federal jurisdiction and with the Franchise Tax Board in the state ofCalifornia. ACE is no longer subject to income tax examinations by taxing authorities for years before
2011 for its federal filings and for years before 2010 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 not otherwise
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, 2014 and 2013, ACE did not have any temporarily
restricted net assets.



Permanently restricted net assets are subject to irrevocable donor restrictions, requiring that theassets be maintained in perpetuity, usually for the purpose of generating investment income to fundcurrent operations. At June 30, 2014 and 2013, ACE did not have any permanently restricted net
assets.

Revenue recognition
Revenue – ACE derives revenue from the following:6



Publishing and selling various educational and training manuals for exercise professionals, andrelated shipping and handling (recognized as manuals are sold);Fees charged for taking certification examinations (recognized as exams are administered);Processing fees for continuing education quizzes (recognized as quizzes are processed);

Instructor renewal fees (recognized as renewal forms are processed);Royalties (recognized as earned);

Mailing list rentals (recognized when lists are rented);

Selling various educational materials to consumers (recognized as products are sold); andMemberships (recognized as memberships are renewed).

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS
Note 1 – Nature of Organization and Significant Accounting Policies (continued)
Deferred revenue – Deferred revenue represents fees received in advance for exams and training.
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 thenature 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 of activities 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 and deferred compensation plan assets – 457b – 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 tocustomers in the normal course of business, and no collateral is required. The allowance for estimateduncollectible 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, 2014, management determined an allowanceof approximately $45,000 is required. At June 30, 2013, management determined an allowance is not
required.
Inventory – Inventory, which consists principally of training manuals and merchandise, is valued at thelower 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 over the estimatedmarketable 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 are recorded atcost and are depreciated on a straight‐line basis over the estimated useful lives of the assets, generally
three‐to‐five years. The building is recorded at cost and is being depreciated over 30 years.
Impairment of long‐lived assets – ACE evaluates long‐lived assets for impairment whenever events orchanges in circumstances indicate that the carrying value of an asset may not be recoverable. If theestimated future cash flow (undiscounted and without interest charges) from the use of an asset is lessthan the carrying value, a write‐down would be recorded to reduce the related asset to its estimated fairvalue. To date, no such write‐downs have occurred.

7

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS
Note 1 – Nature of Organization and Significant Accounting Policies (continued)
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.
Functional allocation of expenses – The costs of providing ACE’s program and other activities havebeen summarized on a functional basis in the statements of activities. Accordingly, certain costs havebeen 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 make estimates andassumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the financial statements, and the reported amounts of revenues andexpenses during the reporting period. Actual results could differ from those estimates.
Reclassifications – Certain amounts in the June 30, 2013 statement of activities have been reclassified
to conform to the June 30, 2014 presentation, with no effect on net assets.
Subsequent events – Subsequent events are events or transactions that occur after the statement offinancial position date, but before the financial statements are issued. ACE recognizes in the financial
statements the effects of all subsequent events that provide additional evidence about conditions thatexisted at the date of the statement of financial position, including the estimates inherent in the processof preparing the financial statements. ACE’s financial statements do not recognize subsequent events
that provide evidence about conditions that did not exist at the date of the statement of financial
position, but arose after the statement of financial position date and before the financial statements areavailable to be issued. ACE has evaluated subsequent events through September 16, 2014, which is thedate the financial statements were available to be issued.

Note 2 – Concentration of Credit Risk
ACE maintains cash in bank deposit accounts which at times exceed the federally‐insured deposit limits.
ACE has not experienced any losses in such accounts.
Investments are exposed to various risks such as interest rate, market, and credit risks. It is at least
reasonably possible, given the level of risk associated with investments, that changes in the near‐term
could materially affect the amounts reported in the financial statements.

8

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS
Note 3 – Investments and Deferred Compensation Plan Assets – 457b
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date. The fair value hierarchy requires anentity to maximize the use of observable inputs and minimize the use of unobservable inputs whenmeasuring 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 which are not actively
traded;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 observableor can be corroborated by observable market data for substantially the full term of theassets 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.

All investments and deferred compensation plan assets – 457b are considered Level 1 based on theexistence of quoted prices in an active market for the identical assets.
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.
Transfers of assets and liabilities between levels are done as of the beginning of the year.
At June 30, investments consist of:2014
Mutual funds:
Domestic equity
Fixed income
International equity
Precious metals
Total

2013

$

757,677444,746
146,604
26,324$543,109455,187
129,891
51,462$

1,375,351$

1,179,649$

146,728
7,652
7,248
7,169

$

58,745
3,368
3,032
3,325

$

168,797$

68,470At June 30, deferred compensation plan assets – 457b consist of:
Mutual funds:
Domestic equity
Balanced/asset allocation
International equity
Fixed income
Total

9

AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS
Note 4 – Deferred and Prepaid Expenses
Deferred and prepaid expenses are summarized as follows at June 30:
2014
Deferred expenses
Prepaid expenses

2013

$

1,279,613
311,349
1,590,962(677,254)$

1,069,154
141,995
1,211,149(451,923)$

913,708$759,226$

3,113,744
1,286,883
1,021,171
949,020534,282
379,151
298,500
8,475
7,591,226(4,429,075)$

3,113,744
1,286,883
959,593
949,020442,714374,831
297,4138,475
7,432,673(4,029,523)$

3,162,151$

3,403,150

Less current portion

Note 5 – Fixed Assets
At June 30, fixed assets consist of:
Building
Land
Equipment
Website and database development
Computer software
Furniture
Leasehold improvements
VehicleLess accumulated depreciation

Note 6 – Commitments and Contingencies
Operating leases – ACE leases copiers under non‐cancelable operating lease agreements which extend
through May 2016 and require total monthly lease payments of $1,233. Rent expense for both the years
ended June 30, 2014 and 2013 was approximately $15,000.

10AMERICAN COUNCIL ON EXERCISENOTES TO FINANCIAL STATEMENTS
Note 6 – Commitments and Contingencies (continued)
Future minimum rental payments required under non‐cancelable operating lease agreements are due asfollows:
Years ending June 30,
2015
2016

$

14,796
8,580$

23,376Retirement 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 for the first 6
percent of salary deferral, which vests evenly over five years. For the years ended June 30, 2014 and2013, ACE contributed approximately $124,000 and $105,000, respectively, to the 401(k) Plan.
ACE has a 457(b) deferred compensation plan for qualified employees. During both the years ended
June 30, 2014 and 2013, ACE approved contributions of approximately $70,000 to the plan.
Trademark matters – ACE operates under a trademark and, at times, must defend its rights by filing foran 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 theopinion of management, additional liabilities, if any, under these actions will not result in material
charges against net assets.

Note 7 – Certification Examinations
ACE charges fees for certification examinations that are recognized as revenue as examinations areadministered. ACE has an agreement with an organization that administers the personal trainer, 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 tothis organization under this agreement for the years ended June 30, 2014 and 2013 were approximately$1,433,000 and $1,001,000, respectively.

11

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, 2014, and have issued our report thereon dated September 16, 2014, which contained anunmodified opinion on those financial statements. Our audit was performed for the purpose of forming
an opinion on the financial statements as a whole. The statement of functional expenses is presented for
purposes of additional analysis and is not a required part of the financial statements. Such information is
the responsibility of management and was derived from and relates directly to the underlying
accounting and other records used to prepare the 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 16, 201412

AMERICAN COUNCIL ON EXERCISE
ADDITIONAL INFORMATIONSTATEMENT OF FUNCTIONAL EXPENSESYEAR ENDED JUNE 30, 2014
(WITH SUMMARIZED FINANCIAL INFORMATIONFOR THE YEAR ENDED JUNE 30, 2013)

Program
Salaries and wages
Testing services
Educational materials
MarketingPrinting, photography, and production
Advertising and promotion
Insurance
Payroll taxes
Postage, shipping, and handling
Professional development and dues
Events/trade shows
Depreciation
Meetings
Merchant fees
Travel
Bad debt
Repair and maintenance and janitorial
401(k) plan contribution
Legal and accounting
Miscellaneous
Temporary wages
TelephoneEntertainment457(b) plan contribution
Utilities
Office supplies and computer supplies
Recruitment
Fulfillment
Copying and duplication

2014
Generaland
Administrative

2013
Total

Total

$

4,833,036
1,433,495
1,321,404
974,503939,609788,684
408,101
417,265
443,518
266,322400,272
219,773
195,285
328,136
201,282
224,034
126,871
87,09752,47264,66079,25350,672
7,352‐
44,841
17,459‐23,637
9,935$

2,015,189‐‐
12,229‐25,460
194,653
75,035
11,864150,099‐
179,814173,366‐
28,693‐54,37337,327
97,072
16,878‐21,71764,80970,00019,21844,307
24,626‐
4,259$

6,848,225
1,433,495
1,321,404
986,732
939,609814,144602,754492,300
455,382
416,421400,272
399,587368,651
328,136
229,975
224,034
181,244
124,424
149,544
81,53879,25372,38972,16170,00064,05961,766
24,626
23,637
14,194$

6,012,585
1,001,222
1,243,488
1,147,576
1,084,949
651,185
509,372
423,807376,865
360,395
334,743
365,404
351,150
275,442
262,087
67,124
92,404
104,906
182,957
82,20824,47462,31062,27070,00056,62361,36643,35430,49917,552

Total expenses for the year ended June 30, 2014$

13,958,968$

3,320,988$

17,279,956$

15,358,317

Total expenses for the year ended June 30, 2013$12,184,983$

3,173,334$

15,358,317

See report of independent auditors on the additional information.

13