Appreciation boosts net assets.

The Salvation Army experienced a healthy increase in its net assets during 2006 of just more than $300 million over the previous fiscal year. While this puts the charity in third place in this year's NPT 100 in terms of the largest net change in net assets, the increase pales in comparison to the charity's Fiscal Year Ending 2005 growth of more than $2.5 billion.

According to The Salvation Army, the $300-million increase represents the standard for the organization during the past five years. The FYE 05 exception is due in large part to the remainder of the $1.5-billion bequest from the estate of McDonald's matriarch Joan Kroc made in 2004, and the massive influx of donations for Hurricane Katrina relief efforts in the Gulf region.

"While the level of contributions, both financial and in-kind, have stayed relatively stable, the variation tends to relate to the Salvation Army's investments and the state of the market," explained Melissa Temme, spokeswoman for the Alexandria, Va.-based charity, ranked fifth overall in the NPT 100 with a total FYE 06 revenue of $3.29 billion. "It is possible that the Kroc gift has contributed to the increase in interest, however ... the increase itself is consistent with the previous years based on the Army's investments put in place to ensure our long-term ability to serve Americans in need."

Throughout the sector, organizations experienced similarly healthy increases in total assets over the year prior, with several organizations in double digits. "A lot of that is investment appreciation more than anything else," said Frank Kurre, managing partner, national nonprofit practice, Grant Thornton in New York City.

"For the most part, we see some significant increases," added Kurre, "some of which are probably capital campaigns, with permanent endowments and scholarships. Certainly we see that in higher education, where colleges want endowed chairs. But among other nonprofits, it's more a focus on building unrestricted net assets and designating them."

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Investment gains were largely responsible for the more than $550 million increase in net assets for Shriners Hospitals for Children, which boasts the top spot in net change in net assets for FYE 06.

"Any year that the stock market is up, we will have investment gains that will drive those numbers way up," said Bill Fawcett, corporate controller at the Tampa, Fla.-based charity. With an endowment fund in excess of $8 billion, and an average return on investment of 12.5 percent during 2006, Fawcett said that's where the numbers originate. "When they produce 12 percent, that basically is 5 percent more than what we spend."

The Nature Conservancy (TNC) typically sees an increase in its net assets each year, due in large part to the nature of its mission. FYE 06 was no exception as the Arlington, Va. charity saw net assets increase by nearly $60 million, to reach total assets of $4.8 billion. The charity also broke $1 billion in revenue during FYE 06, a First for the 56-year-old organization.

"Because of our unique mission, in that we're protecting lands and waters, and that often involves acquiring them either by purchasing them or people actually giving them to us as a gift ... our commitment to donors is forever," said Stephen Howell, chief financial and administrative officer. Because of that, he said, growing its assets is key.

According to Howell, TNC made some really large land deals during 2006, resulting in a major addition to the charity's assets. "In addition ... we have a policy where we setup an endowment to create investment income that we can spend forever," said Howell. "And that investment income also contributes to the large surplus that you see at the bottom of our (financial) statement."

During FYE 06 the organization earned around 16 percent on its investments, and spent just under 5 percent, said Howell. "That 11 percent investment income ... becomes part of the net surplus for the year."

The Museum of Fine Arts, Houston, recorded $147 million from a bequest in its FYE 06 reports, boosting net assets by nearly $180 million over the previous year to reach a total of more than $1 billion in assets. "Normally, we don't see this type of a jump," said Marchell King, controller. The Caroline Weiss Law estate distributed the bequest to the museum over a three-year period, totaling more than $480 million.

Few organizations that qualified for this year's NPT 100 saw their net assets decrease. Of those that did, Gifts In Kind International attributed the decline to a case of bad timing. "We're required by the GAAP (Generally Accepted Accounting Principles) to record the donation when we're pledged it. So, a company may pledge us 100 computers, and yet we won't receive it until the following year, and it won't be distributed until the following year," explained Mary Ann Kibler, CFO. "It doesn't mean that we're actually in a cash-loss position."

FYE 06 net assets for Alexandria, Va. charity dropped by about $31 million compared to the previous year, with total assets of just over $40 million. "Our product donations actually went up between 2005 and 2006," said Kibler. "But ... when you have large decreases in the product inventory and the inventory receivable, it's just that distributions were higher in that year and then you don't have the high level of pledges the next year or as high a level of inventory the next year."

The biggest decline in net assets of NPT 100 organizations was experienced by the Stamford, Conn.-based AmeriCares Foundation, down $113 million in FYE 06 from the previous year. Lisa Slow, spokeswoman, described the decline as two-fold. "It's partly because there ... was a bit of an inflation from both the (South Asia) tsunami and (Hurricane) Katrina donations," said Slow, who said the charity had a surplus of inventory sitting in its warehouse during FYE 05 that went out during FYE 06. "The tsunami-Katrina bit was sector-wide. It boosted everyone (in FYE 05); it's not in everyone's financials (in FYE 06)."

AmeriCares also saw a significant drop in in-kind donations, particularly medicines from pharmaceutical companies via the patient assistance program (PAP). "Because of the changes in prescription drugs for Medicare Part D (plans), it changed a lot of the rules and pharmaceutical companies were not able to donate as much," said Slow. About a third of its in kind donations are from PAP.

Catholic Relief Services nearly $24-million reduction in net assets during FYE 06, following an increase during FYE 05 of $141.4 million, "had to do with part of a 10-year plan to reduce our unrestricted surplus that was once a level of about $100 million to around $50 million," said Jeffrey Baeuerlein, director of domestic finance at the Baltimore charity. Additionally, a reduction in FYE 06 of $5.3 million and the result of spending of $19.2 million in excess of currently received restricted revenue, largely for the South Asia tsunami in 2004, contributed to the decrease.

For FYE 06, Grant Thornton's Kurre said nonprofits had to put on their books any conditional asset retirement obligations, which meant taking into account the future cost of environmental problems, such as lead paint, asbestos and in ground liabilities. That could mean any buildings built before the mid-1970s.

"In most states, if asbestos was exposed, it had to be remediated in the '70s, but if it was within the walls, tiles or ceiling, as long as it was encapsulated, it did not have to be removed," added Kurre. "When it's removed, you have to deal with it. The change in net assets has caused some clients to have $60 million to $70 million added to liabilities. For any nonprofits with a physical plant, that was a big hit."