j? CAPINCROUSEM AMERICANS FOR PROSPERITY (An Affiliate of Americans for Prosperity Foundation) Financial Statements With Independent Auditors? Report December 31, 2016 and 2015 AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Table of Contents Page Independent Auditors? Report 1 Financial Statements Statements of Financial Position 3 Statements of Activities 4 Statements of Cash Flows 5 Statements of Functional Expenses 6 Notes to Financial Statements 8 INDEPENDENT REPORT Board of Directors Americans for Prosperity Arlington, Virginia We have audited the accompanying ?nancial statements of Americans for Prosperity, which comprise the statements of ?nancial position as of December 31, 2016 and 2015, and the related statements of activities, cash flows, and functional expenses for the years then ended, and the related notes to the ?nancial statements. Management?s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these ?nancial 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 ?nancial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these ?nancial 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 audits to obtain reasonable assurance about whether the ?nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ?nancial statements. The procedures selected depend on the auditor?s judgment, including the assessment of the risks of material misstatement of the ?nancial 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 ?nancial 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 signi?cant accounting estimates made by management, as well as evaluating the overall presentation of the ?nancial statements. We believe that the audit evidence we have obtained is suf?cient and appropriate to provide a basis for our audit opinion. 1330 Avenue of the Americas, Suite 23A New York, NY 10019 212.653.0681 capincrouse.com Board of Directors Americans for Prosperity Arlington, Virginia Opinion In our opinion, the ?nancial statements referred to above present fairly, in all material respects, the ?nancial position of Americans for Prosperity as of December 31, 2016 and 2015, and the changes in its net assets and cash ?ows for the years then ended in accordance with accounting principles generally accepted in the United States of America. The accompanying ?nancial statements are those of Americans for Prosperity, under common control with Americans for Prosperity Foundation, and are not those of the primary reporting entity. Consolidated ?nancial statements of Americans for Prosperity Foundation and Af?liate for the years ended December 31, 2016 and 2015, have been issued separately with the independent auditors? report dated June 23, 2017. Ca/J?o?amlt/AAP New York, New York June 23, 2017 -2- AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Statements of Financial Position December 31, 2016 2015 ASSETS Current assets Cash and cash equivalents 9,772,364 4,949,047 Other receivable 2,507 40,244 Prepaid expenses and other assets 583,329 699,416 Due from af?liate 455,639 726,760 Total current assets 10,813,839 6,415,467 Property and equipment?net 262,725 472,073 Total Assets 1 1,076,564 6,887,540 LIABILITIES AND NET ASSETS Current liabilities Accounts payable and accrued liabilities 1,887,241 1,228,423 Due to af?liate 2,266,383 4,452,273 Total current liabilities 4,153,624 5,680,696 Net assets Unrestricted 6,799,234 1,083 ,13 8 Temporarily restricted 123,706 123,706 Total net assets 6,922,940 1,206,844 Total Liabilities and Net Assets 1 1,076,564 6,887,540 See notes to ?nancial statements SUPPORT AND REVENUE Contributions Contributed services and gift-in-kind Registration fees Miscellaneous income Total Support and Revenue RECLASSIFICATION Net assets released from restriction by satisfaction of program restrictions EXPENSES Program services National activities State chapter activities Supporting activities Management and general Fundraising and membership development Total Expenses Change in Net Assets Net Assets, Beginning of Year Net Assets, End of Year AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Unrestricted 63,675,304 9,502,934 97,572 179,775 73,455,585 Statements of Activities 20 6 Temporarily Restricted 69,625 69,625 Year Ended December 31, Total 63,744,929 9,502,934 97,572 179,775 73,525,210 Unrestricted 44,184,230 8,563,197 127,228 22,101 52,896,756 8 201 5 Temporarily Restricted 21,501 8,650 30,151 Total 44,205,731 8,571,847 127,228 22,101 52,926,907 69,625 21,874,679 33,3 86,286 55,260,965 5,628,792 6,919,357 12,548,149 (69,625) 21,874,679 33,386,286 55,260,965 5,628,792 6,919,357 12,548,149 30,151 19,165,151 23,145,227 42,310,378 5,564,091 6,397,786 11,961,877 (30,151) 19,165,] 51 23,145,227 42,310,378 5,564,091 6,397,786 11,961,877 67,809,114 67,809,114 54,272,255 54,272,255 5,716,096 1,083,138 6,799,234 123,706 123,706 See notes to ?nancial statements -4- 5,716,096 1,206,844 6,922,940 (1,345,348) 2,428,486 1,083,138 123,706 123,706 (1,345,348) 2,552,192 1,206,844 AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Statements of Cash Flows Year Ended December 31, 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Change in net assets 8 5,716,096 Adjustments to reconcile change in net assets to net cash provided (used) by operating activities 3 (1,345,348) Depreciation 214,848 245,894 Loss on disposal of property and equipment - 27,525 Change in Other receivable 37,737 (30,192) Prepaid expenses and other assets 116,087 (193,609) Accounts payable 658,818 (285,271) Due to af?liate, net (1,914,769) 833,634 Net Cash Provided (Used) by Operating Activities 4,828,817 (747,3 67) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property and equipment (5,500) (232,912) Net Cash Used for Investing Activities (5,500) (232,912) Net Change in Cash and Cash Equivalents 4,823,317 (980,279) Cash and Cash Equivalents, Beginning of Year 4,949,047 5,929,326 Cash and Cash Equivalents, End of Year 9,772,364 4,949,047 Noncash transactions excluded from statements of cash flows Fair market value of contributed securities 1,995,125 548,676 See notes to ?nancial statements -5- Communications, ads, media Salaries, bene?ts and payroll taxes Printing, duplication Professional fees, consulting Postage, courier, overnight Meetings, conferences and events Travel Computers/IT service Legal and audit fees Honoraria Contributions/sponsorship Taxes, licenses and fees Miscellaneous Telecommunications Bank and other fees Subscriptions and publications List rental Other payroll related expenses Of?ce and equipment maintenance Of?ce supplies and expense Occupancy Equipment leasing and other rental Membership Depreciation Gifts and grants Total Functional Expenses National Activities 1,751,009 4,023,493 1,755,629 7,105,954 3,188,194 1,191,413 1,215,903 105,797 11 1,690 29,600 13,000 30,341 20,663 151,1 10 1 1,711 44,762 29 2,649 44,753 99,356 901,375 3,714 4,336 60,496 7,702 21,874,679 AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Statement of Functional Expenses Year Ended December 31, 2016 Program Services State Chapter Activities 8 6,188,335 13,229,366 3,147,626 520,103 1,902,655 574,046 2,428,492 1 17,640 152,797 48,761 101,627 60,560 45,423 1,706,125 26,838 33,462 17,478 18,348 319,347 1,898,706 10,986 14,430 126,290 696,845 33,386,286 Total Program Services 5 7,939,344 17,252,859 4,903,255 7,626,057 5,090,849 1,765,459 3,644,395 223,437 264,487 78,361 114,627 90,901 66,086 1,857,235 38,549 78,224 29 20,127 63,101 418,703 2,800,081 14,700 18,766 186,786 704,547 55,260,965 Management and General 168,573 4,601,732 8,132 36,682 71,823 22,905 147,615 116,874 221,444 5,991 2,932 30,311 4,976 4,989 3,772 4,738 34,071 129,103 1,061 2,404 8,612 52 5,628,792 See notes to ?nancial statements -6- Supporting Services Fundraising and Membership Development 5 1,389,434 2,689,088 8,533 7,868 855,644 250,915 629,503 14,130 345,729 93,000 9,755 6,676 52,499 72,690 12,986 129,460 919 3,340 32,352 288,307 1,194 3,605 19,450 2,280 6,919,357 Total Supporting Services 55 1,558,007 7,290,820 16,665 44,550 927,467 273,820 777,118 131,004 567,173 93,000 15,746 9,608 82,810 77,666 17,975 129,460 4,691 8,078 66,423 417,410 2,255 6,009 28,062 2,332 12,548,149 Total Expense 9,497,351 24,543,679 4,919,920 7,670,607 6,018,316 2,039,279 4,421,513 354,441 831,660 171,361 114,627 106,647 75,694 1,940,045 116,215 96,199 129,489 24,818 71,179 485,126 3,217,491 16,955 24,775 214,848 706,879 67,809,1 14 Communications, ads, media Salaries, bene?ts and payroll taxes Printing, duplication Professional fees, consulting Postage, courier, overnight Meetings, conferences and events Travel Contractors Computers/1T service Legal and audit fees Honoraria Contribution s/sponsorship Taxes, licenses and fees Miscellaneous Telecommunications Bank and other fees Subscriptions and publications List rental Other payroll related expenses Of?ce and equipment maintenance Of?ce supplies and expense Occupancy Equipment leasing and other rental Membership Depreciation Gifts and grants Total Functional Expenses National Activities 3,343,192 3,602,1 1 1 194,831 7,228,654 120,352 1,247,324 1,554,695 289 94,174 271,005 54,875 10,862 8,242 5,922 194,811 15,956 34,796 24,300 40,258 44,063 13 1,174 81 1,392 32,099 6,343 93,392 39 19,165,151 AMERICANS FOR PROSPERITY (An Af?liate of Americans For Prosperity Foundation) Statement of Functional Expenses Year Ended December 31, 2015 Program Services State Chapter Activities 3 4,292,468 8,360,164 1,981,317 1,604,659 376,211 395,091 2,331,418 1,014 138,202 191,502 30,096 128,900 18,594 7,152 1,819,152 12,646 27,645 2,200 43,094 14,459 208,395 995,877 36,439 13,878 112,787 1,867 23,145,227 Total Program Services 7,635,660 11,962,275 2,176,148 8,833,313 496,563 1,642,415 3,886,113 1,303 232,376 462,507 84,971 139,762 26,836 13,074 2,013,963 28,602 62,441 26,500 83,352 58,522 339,569 1,807,269 68,538 20,221 206,179 1,906 42,310,378 Management and General ?3 63,009 3 ,4 4,3 96 32,930 12,525 12,673 192,700 67,420 461,660 804,308 12,253 934 29,897 4,727 2,747 5,538 7,999 29,123 386,930 6,451 1,014 14,598 259 5,564,091 See notes to ?nancial statements -7- Supporting Services Fundraising and Membership Development 8 1,402,202 2,078,589 54,492 5,037 729,003 375,409 743,467 16,599 328,878 88,000 2,217 1,593 60,791 87,649 1,789 11 1,724 7,829 2,490 35,693 215,793 7,016 2,458 25,117 13,951 6,397,786 Total Supporting Services 8 1,465,211 5,492,985 87,422 5,037 741,528 388,082 936,167 67,420 478,259 1,133,186 88,000 14,470 2,527 90,688 92,376 4,536 11 1,724 13,367 10,489 64,816 602,723 13,467 3,472 39,715 14,210 11,961,877 Total Expense 9,100,871 17,455,260 2,263,570 8,838,350 1,238,091 2,030,497 4,822,280 68,723 710,635 1,595,693 172,971 139,762 41,306 15,601 2,104,651 120,978 66,977 138,224 96,719 69,011 404,385 2,409,992 82,005 23,693 245,894 16,116 54,272,255 AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Notes to Financial Statements December 31, 2016 and 2015 1. NATURE OF ORGANIZATION Americans for Prosperity (AFP) was incorporated on March 10, 2004. AFP is a nationwide organization of citizen leaders committed to greater economic growth, opportunity, and prosperity through strong ethical foundations, government restraint and private sector productivity, economic freedom and competition. AFP mobilizes citizens to advance economic freedom. support comes primarily from individual and business donors. AFP is exempt from income taxes under Section 501(c)(4) of the Internal Revenue Code. AFP is an af?liate of Americans for Prosperity Foundation (AFPF) and is required to be consolidated with AFPF. Because of this, these ?nancial statements are included in separately issued consolidated ?nancial statements of Americans for Prosperity Foundation and Af?liate. 2. SIGNIFICANT ACCOUNTING POLICIES The ?nancial statements have been prepared on the accrual basis of accounting. The signi?cant accounting policies followed are described below to enhance the usefulness of the ?nancial statements to the reader. ESTIMATES The preparation of the ?nancial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures at the date of the ?nancial statements. Actual results could differ from those estimates. CASH AND CASH EQUIVALENTS For purposes of reporting cash ?ows, AFP considers all highly liquid instruments with a maturity of three months or less to be cash equivalents. Non-interest bearing accounts are fully insured by the FDIC. Interest bearing accounts are insured up to $250,000. From time to time, these accounts exceed federally insured limits. However, AFP has not experienced any losses on these accounts and does not believe it is exposed to any signi?cant risk. AFP maintained a segregated bank account as required by the Federal Elections Commission for its express advocacy and lobbying activity. This account had balances of $1,388,105 and $2,583,088 at December 31, 2016 and 2015, respectively, and is included in cash and cash equivalents on the statements of ?nancial position. PROPERTY, EQUIPMENT, AND DEPRECIATION Individual items over $1,000 and bulk purchases totaling over $5,000 are capitalized as property and equipment and are reported at cost, or if donated, at fair market value on the date of donation. AFP reports donations of property and equipment as unrestricted support unless explicit donor stipulations specify how the donated assets must be used. Assets reported as property and equipment are depreciated on a straight-line basis over the estimated useful lives of the assets, generally three to ten years. -8- AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Notes to Financial Statements December 31, 2016 and 2015 2. SIGNIFICANT ACCOUNTING POLICIES, continued SUPPORT, REVENUE, AND RECLASSIFICATIONS Contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support, depending on the existence and/or nature of any donor restrictions. All donor-restricted contributions are reported as an increase in temporarily or permanently restricted net assets, depending on the nature of the restriction. When a stipulated time restriction ends or a purpose restriction is satis?ed, temporarily restricted net assets are reclassi?ed to unrestricted net assets and reported in the statements of activities as net assets released from restrictions. CONTRIBUTED SERVICES AFP recognizes contributed support for services received at the fair value of those services and that meet generally accepted accounting principles reporting requirements. These contributed services consist of donated accounting services, human resources services, and media and technology services. For the years ended December 31, 2016 and 2015, AFP reported $9,502,934 and $8,571,847, respectively, of contributed services that met reporting standards and are reported in the statements of functional expenses as components of the following: December 31, 2016 2015 Communications, ads, media 53 170,500 801,735 Professional fees, consulting 7,002,799 7,475,108 Computers/IT service 180,351 80,553 Occupancy 1,001 214,45 1 Insurance 2,148,283 9,502,934 8,571,847 Many volunteers have contributed numerous hours of administrative, maintenance and fundraising services to AFP. However, these hours do not meet the requirements to be recorded as revenue and expense under the Contributions topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC). FUNCTIONAL ALLOCATION OF EXPENSES AFP allocates its expenses on a functional basis among its various programs, management and general, and fundraising and membership development. Expenses that can be identi?ed with a speci?c program, management and general, and fundraising and membership development are allocated directly according to their natural expenditure classi?cation. Other expenses that are common to both program functions and supporting services are based on time studies performed by management. Additionally, expenses charged to supporting service categories have been allocated to program categories based on time studies performed by management. -9- AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Notes to Financial Statements December 31, 2016 and 2015 2. SIGNIFICANT ACCOUNTING POLICIES. continued ADVERTISING AFP utilizes print, radio and television ads to increase their activist base and bring their mission to the public. These costs are expensed as incurred and totaled $9,497,351 and $9,100,871 for the years ended December 31, 2016 and 2015, respectively. These costs are charged directly to the program they bene?t. INCOME TAXES AFP is liable for income taxes on unrelated business income. There was no taxable net unrelated business income for the years ended December 31, 2016 and 2015. Accordingly, no provision for income taxes has been made in these ?nancial statements. UNCERTAIN TAX POSITIONS The ?nancial statement effects of a tax position taken or expected to be taken are recognized in the ?nancial Statements when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. Interest and penalties, if any, are included in expenses in the statements of activities. As of December 31, 2016 and 2015, AFP had no uncertain tax positions that qualify for recognition or disclosure in the ?nancial statements. AFP is generally no longer subject to US. federal and state income tax examinations by tax authorities for years before 2013. 3. PROPERTY AND EQUIPMENT Property and equipment consists of: December 31, 2016 2015 Software 8 444,250 444,250 Hardware 270,023 270,023 Of?ce furniture 96,147 96,147 Of?ce equipment 36,022 30,522 846,442 840,942 Accumulated depreciation (583,717) (368,869) 262,725 472,073 Depreciation expense for the years ended December 31, 2016 and 2015, was $214,848 and $245,894, reSpectively. -10- AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Notes to Financial Statements December 31, 2016 and 2015 4. TEMPORARILY RESTRICTED NET ASSETS Temporarily restricted net assets are available for the following state chapter activities: December 31, 2016 2015 Michigan 2,886 2,886 New York 35 35 Oregon 120,785 120,785 123,706 123,706 5. LINE OF CREDIT AFP has an available unsecured line of credit of up to $750,000 with variable interest rates at the Bank?s Prime Rate plus 1% (4.75% at December 31, 2016). There were no draws on the line as of or during the years ended December 31, 2016 and 2015. The line matures on October 14, 20 7. 6. AFFILIATED ORGANIZATION AFP operates under an af?liation agreement with Americans for Prosperity Foundation (AFPF). The agreement addresses shared personnel, shared of?ce space and facilities, and shared overhead costs. The shared expenses are allocated based on direct compensation and actual usage plus an appropriate markup. In accordance with the agreement, the balance due to or from AFPF is settled on a basis. If the balance is not settled, interest accrues on the outstanding balance at six-percent per month with a one-percent penalty. Occupancy, salaries, and administrative expenses allocated to AFP from AFPF totaled $27,723,533 and $21,455,274 for the years ended December 31, 2016 and 2015, respectively. The total due to AFPF from AFP as of December 31, 2016 and 2015, was $2,266,383 and $4,352,273, respectively. The total due from AFPF to AF as of December 31, 2016 and 2015, was $455,639 and $726,760, respectively. 7. DONOR CONCENTRATION During the years ended December 31, 2016 and 2015, AFP received 81% and 76% of its total support from ?ve donors, respectively. 8. DIRECT MAIL COSTS During the years ended December 31, 2016 and 2015, AFP incurred fundraising direct mail costs of $2,181,389 and $2,017,002, respectively. These costs have been reported as part of fundraising and membership development expenses. 9. DISREGARDED ENTITY AF is the sole owner of an LLC, which is a disregarded entity for tax purposes. As such, any activity in the LLC or assets owned by the LLC is recorded in the accompanying ?nancial statements. -11- AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Notes to Financial Statements December 31, 2016 and 2015 10. STATE CHAPTER ACTIVITES Expenses by state chapter are as follows: December 31, 2016 2015 Alaska 8 456,667 496,553 Arizona 683,714 436,401 Arkansas 832,648 378,441 California 113,210 227,3 73 Colorado 1,348,637 851,280 Florida 5,149,750 1,903,677 Georgia 361,982 208,147 Illinois 761,086 990,449 indiana 793,371 303,321 Iowa 862,3 73 895,803 Kansas 778,907 613,689 Kentucky 884,620 1,298,765 Louisiana 675,948 1,101,415 Maine 25,690 91,768 Michigan 985,084 707,819 Minnesota 280,482 112,151 Mississippi 189,842 307,558 Missouri 858,490 1,820,688 Montana 502,265 536,491 Nebraska 364,170 336,724 Nevada 856,503 595,917 New Hampshire 464,025 324,108 New Jersey 366,537 257,196 New Mexico - 1,016 North Carolina 2,048,262 1,174,350 North Dakota 59,872 - Ohio 1,051,610 696,907 Oklahoma 560,752 251,329 2,745 ,91 1 684,581 South Carolina 306,048 553,028 South Dakota 1,108,243 235,592 Tennessee 755,347 802,258 Texas 1,208,541 1,435,813 Utah 400,384 174,407 Virginia 1,507,160 1,135,126 Washington 5 2,450 West Virginia 370,925 144,433 Wisconsin 2,667,225 1,058,203 33,3 86,286 23,145,227 -12- 11. AMERICANS FOR PROSPERITY (An Af?liate of Americans for Prosperity Foundation) Notes to Financial Statements December 31, 2016 and 2015 RETIREMENT PLAN AFPF maintains a de?ned contribution 401(k) plan covering substantially all AFP full-time permanent employees. AFP matches 100% of the ?rst 3% an employee contributes and 50% of the next 2% an employee contributes. Employer contributions for the years ended December 31, 2016 and 2015, were $410,707 and $304,879, respectively. 12. CONTINGENCY l3. AFP is subject to claims, legal proceedings, and investigations of matters that arise in the ordinary course of operations. In the opinion of management, all such matters are adequately covered by insurance or by accruals and, if not so covered, are without merit and will be vigorously contested or are of such kind or involve such amounts as would not have a signi?cant effect on the ?nancial position or results of operations of AFP if disposed of unfavorably. SUB SEQUENT EVENTS Subsequent events have been evaluated through the report date, which represents the date the ?nancial statements were available to be issued. Subsequent events after that date have not been evaluated. Subsequent to year end, AFP and AFPF assumed operational control of the following organizations: Generation Opportunity, the Libre Initiative and Concerned Veterans for America. There were no assets received nor liabilities assumed as a result of this event. -13-