Financial Reports/Financial Statements Ending June 30 2013 and 2012

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WIKIMEDIA FOUNDATION, INC.

Balance Sheets

June 30, 2013 and 2012

Assets 2013 2012
Current Assets:
Cash and cash equivalents $22,171,889 $21,796,626
Current portion of contributions receivable 1,550,000 3,084,000
Accounts receivable, net 47,000 494,487
Investments 17,579,068 3,600,401
Prepaid expenses and other current assets 1,391,447 1,257,352
Total current assets 42,739,404 30,232,866
Property, plant, and equipment, net 4,911,806 5,168,106
Noncurrent portion of contributions receivable 495,683 1,805,919
Total assets $48,149,893 $37,206,891
Liabilities and Net Assets
Current liabilities:
Accounts payable $1,092,313 745,372
Accrued expenses 1,456,735 1,033,879
Deferred revenue 37,311 293,606
Other liabilities 371,410 204,976
Total current liabilities 2,957,769 2,277,833
Total liabilities 2,957,769 2,277,833
Net assets:
Unrestricted 42,921,751 29,991,139
Temporarily restricted 2,267,373 4,937,919
Total net assets 45,189,124 34,929,058
Total liabilities and net assets $48,146,893 37,206,891

See accompanying notes to financial statements.


Statements of Activities

Years ended June 30, 2013 and 2012

2013 2012
Unrestricted net assets:
Support and revenue:
Donations and Contributions $44,666,470 35,066,855
In-kind equipment donation -- 964,628
In-kind service revenue 260,909 296,599
Other income, net 414,297 666,029
Investment income, net 17,422 44,436
Release of restrictions on temporarily restricted net assets 3,276,310 1,441,118
Total support and revenue 48,635,408 38,479,665
Expenses
Salaries and wages 15,983,542 11,749,500
Awards and grants 2,791,378 2,106,752
Internet hosting 2,549,992 2,486,903
In-kind service expenses 260,909 296,599
Other operating expenses 10,017,121 9,198,892
Travel and conferences 1,395,013 1,533,150
Depreciation 2,706,841 1,888,856
Total expenses 35,704,796 29,260,652
Increase in unrestricted net assets 12,930,612 9,219,013
Temporarily restricted net assets:
Contributions 605,764 2,959,019
Release of restrictions on temporarily restricted net assets (3,276,310) (1,441,118)
Increase (decrease) in temporarily restricted net assets (2,670,546) 1,517,901
Increase in net assets 10,260,066 10,736,914
Net assets at beginning of year 34,929,058 24,192,144
Net assets at end of year $ 45,189,124 34,929,058

See accompanying notes to financial statements.


Statements of Cash Flows

Years ended June 30, 2013 and 2012

2013 2012
Cash flows from operating activities:
Increase in net assets $ 10,260,066 10,736,914
Adjustments to reconcile increase in net assets to net cash provided by operating activities:
Depreciation 2,706,841 1,888,856
Donation of common stock (27,440) (29,671)
Proceeds from sale of donated common stock 26,211 29,693
Donation of equipment -- (964,628)
Loss on disposal of equipment 24,617 --
Unrealized and realized loss on investments 53,690 6,378
Changes in operating assets and liabilities:
Contributions receivable 2,844,236 (1,911,019)
Accounts receivable 447,487 200,517
Prepaid expenses and other current assets (134,095) (42,468)
Accounts payable 346,941 (26,734)
Accrued expenses 422,856 374,847
Deferred revenue (256,295) (81,273)
Other liabilities 166,434 37,570
Net cash provided by operating activities 16,881,549 10,218,982
Cash flows from investing activities:
Purchase of computer equipment and office furniture (2,475,158) (2,690,659)
Purchase of investments (24,977,929) (3,603,000)
Proceeds from sale and maturities of investments 10,946,801 5,845,000
Net cash used in investing activities (16,506,286) (448,659)
Net increase in cash and cash equivalents 375,263 9,770,323
Cash and cash equivalents at beginning of year 21,796,626 12,026,303
Cash and cash equivalents at end of year $ 22,171,889 21,796,626
Noncash:
In-kind equipment donation $ -- 964,628

See accompanying notes to financial statements.


WIKIMEDIA FOUNDATION, INC.

Notes to Financial Statements

June 30, 2013 and 2012

(1) Organization and Summary of Significant Accounting Policies


(a) Organization and Purpose


The Wikimedia Foundation, Inc. (the Foundation) is the nonprofit organization that operates Wikipedia, the free encyclopedia. According to comScore Media Metrix, Wikipedia, and the other projects operated by the Foundation receive more than 500 million unique visitors per month, making them the 5th most popular Web property worldwide (June 2013). Available in more than 285 languages, Wikipedia contains more than 28 million articles contributed by a global volunteer community of more than 80,000 people. Based in San Francisco, California, the Foundation is a 501(c)(3) charity that is funded primarily through donations and contributions.


(b) Income Taxes


The Foundation is exempt from federal income tax under Section 501(c)(3) of the Internal Revenue Code and from state income tax under Chapter 220.13 of the Florida Statutes and Sections 23701(d) of Revenue and Taxation Code of the State of California. The Internal Revenue Service has determined that the Foundation is not a private foundation and contributions to it qualify as charitable contribution deductions.


The Foundation has evaluated the financial statement impact of positions taken or expected to be taken in its tax returns. Management has determined that no tax liabilities need be recorded under applicable accounting guidance.


(c) Financial Statement Presentation


Net assets, revenues, expenses, gains, and loses are classified based on the existence or absence of donor-imposed restrictions in accordance with Accounting Standards Codification (ASC) Topic 958, Not-for-Profit Entities.


Unrestricted net assets represent unrestricted resources available to support operations and also include temporarily restricted resources, which have become available for use by the Foundation in accordance with the intentions of donors.


Temporarily restricted net assets represent contributions that are limited in use by the Foundation in accordance with temporary donor-imposed stipulations. The stipulations may expire with time or may be satisfied and removed by the actions of the Foundation according to the terms of the contribution by the donor. Once such stipulations are satisfied, the associated net assets are released from temporarily restricted net assets and recognized as unrestricted net assets.


Permanently restricted net assets represent contributions to be held in perpetuity as stipulated by the donor. The Foundation does not have any permanently restricted net assets.


(d) Restricted and Unrestricted Contributions


The Foundation accounts for contributions in accordance with ASC Topic 958. Accordingly, contributions received are recorded as unrestricted, temporarily restricted, or permanently restricted support depending on the existence and/or nature of any donor restrictions.


(e) Cash and Cash Equivalents


The Foundation considers all highly liquid investments with an original maturity of three months or less to be cash equivalents. Cash equivalents of $37,861 and $4,013,137 as of June 30, 2013 and 2012, respectively, are considered Level 1 under ASC Topic 820, Fair Value Measurements.


(f) Contributions Receivable


Contributions receivable represent gift amounts due from various entities, which are occasionally directed at specific activities. Contribution receivables due more than one year from the contribution date are discounted to present value using fair value rate of 0.58% under ASC Topic 820. Contribution receivables are subject to review and adjustment by management should amounts be deemed uncollectible.


(g) Accounts Receivable


Accounts receivable comprise primarily fees charged to Web sites for live-feed access to Wikipedia and licensing fees. All receivables are noninterest-bearing. Management periodically reviews receivables for past-due amounts based on payment history and adjusts for uncollectible amounts as necessary. As of June 30, 2013, the Foundation has a reserve balance of $153,991 for a doubtful account. There were no reserves as of June 30, 2012.


(h) Investments


The Foundation’s policy regarding investments is to invest surplus cash in short-term and intermediate-term fixed income instruments without assuming undue risk to principal. Preservation of principal and maintenance of liquidity are priorities over yield. Investments are reported at fair value with realized and unrealized gains and losses included as a component of the change in net assets. Additionally, the Foundation holds no shares of stock as of June 30, 2013 and 2012, consistent with its policy to sell stock received through donations as soon as possible.


ASC Topic 820 establishes a fair value hierarchy that prioritizes inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements).


The three levels of the fair value hierarchy are as follows:


* Level 1 inputs are quoted prices (unadjusted) in active markets for identical investments that the Foundation has the ability to access at the measurement date.
* Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the investment, either directly or indirectly.
* Level 3 inputs are unobservable inputs from investments.


As a policy, the Foundation recognizes transfers between levels at the end of the reporting period. During the years ended June 30, 2013 and 2012, there were no transfers of Level 2 assets.


(i) Property, Plant, and Equipment


Expenditures for property, plant, and equipment with useful lives of one year or more are capitalized and recorded at cost. Depreciation is calculated on a straight-line basis over the estimated useful lives of the assets. The estimated useful life of furniture is five years, while the estimated useful lives of computer equipment and software are three years. Leasehold improvements are amortized over the life of the lease. Donated computer equipment and software are recorded at the fair value of the items at the time of the donation and are deemed as unrestricted contributions in the year in which they are received. Repairs and maintenance of equipment are charged to operations. Upon retirement, sale, or other disposition of property, plant, and equipment, costs, and accumulated depreciation are eliminated from the accounts and any resulting gain or loss is included in operations.


(j) Deferred Revenue


Deferred revenue represents payments related to live-feed and licensing agreements that have been paid or billed in advance.


(k) Noncash Contributions


Contributed services are reported at fair value in the financial statements for voluntary donations of services when those services (1) create or enhance nonfinancial assets or (2) require specialized skills provided by individuals possessing those skills and are services that would be typically purchased if not provided by the donation, and (3) the services are professional in nature, and have been explicitly agreed to in advance.


A substantial number of volunteers make significant contributions of their time in the furtherance of the Foundation's projects. The value of this contributed time is not reflected in the accompanying financial statements as the criteria above is not met.


In-kind service revenue and expenses recorded on the statements of activities consist of contributed legal services and internet hosting. The amounts of specialized contributed legal services and other consulting services recognized as revenue and expenses are $32,691 and $95,101 for the years ended June 30, 2013 and 2012, respectively. The value of contributed internet hosting services for the years ended June 30, 2013 and 2012 are $228,218 and $201,498, respectively.


Included in the 2013 amount are donated hosting services and bandwidth from four companies:


(1) LeaseWeb, (2) Teliasonera, (3) Tele2, and (4) Datahop.


Included in the 2012 amount are donated hosting services and bandwidth from five companies:


(1) Kennisnet, (2) EvoSwitch, (3) LeaseWeb, (4) Teliasonera, and (5) Tele2.


Noncash contributions also include investments and equipment, which are recorded as contributions on the statement of activities at fair value at the date of donation.


(l) Use of Estimates


The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the allowance for doubtful accounts, investment valuations, useful lives of fixed assets, and the valuation of in-kind gifts. Accordingly, actual results could differ from those estimates.


(m) Reclassification


Certain reclassification have been made in the financial statements to conform 2012 information to the 2013 presentation.


(n) Recently Issued Accounting Standards


During 2012, the FASB issued Accounting Standards Update (ASU) No. 2012-05, Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flow. This guidance was retrospectively adopted by the Foundation in 2013, as permitted by the ASU, and did not have a significant effect on the financial statements.


(2) Contributions Receivable


Contributions receivable at June 30, 2013 and 2012 consist of the following:


2013 2012
Amounts due in:
One year $ 1,550,000 3,084,000
Two to three years 500,000 1,816,000
Less discount to net present value (4,317) (10,081)
Total 2,045,683 4,889,919
Less current portion 1,550,000 3,084,000
Noncurrent portion $ 495,683 1,805,919
As of June 30, 2013, three contributions comprised 15%, 36%, and 49% of contribution receivable. As of June 30, 2012, three contributions comprised 20%, 37%, and 41% of contribution receivable.


(3) Fair Value of Investments


The following tables present the fair value of the investments based on hierarchical level as of June 30, 2013 and 2012:


Description June 30, 2013 Fair value measurements at reporting date
using significant other observable inputs (Level 2)
Certificates of deposit $ 4,141,012 4,141,012
Municipal bonds 2,873,081 2,873,081
Treasury inflation-protected securities 2,010,093 2,010,093
U.S. Treasury securities 4,771,650 4,771,650
U.S. Corporate bonds 3,658,422 3,658,422
Other 124,810 124,810
Total $ 17,579,068 17,579,068
Description June 30, 2012 Fair value measurements at reporting date
using significant other observable inputs (Level 2)
Certificates of deposit $3,600,401 3,600,401
Total $ 3,600,401 3,600,401


The following table presents investment return for the years ended June 30, 2013 and 2012:


Description 2013 2012
Interest and dividends $71,112 50,814
Unrealized and realized loss on investments (53,690) (6,378)
Total $17,422 44,436


Fair Value of Financial Instruments


The fair values of the financial instruments as of June 30, 2013 and 2012 represent management’s best estimate of the amounts that would be received to sell those assets or that would be paid to transfer those liabilities in an orderly transaction between market participants at that date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value measurement reflects the Foundation’s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Foundation based on the best information available in the circumstances.


The following methods and assumptions were used to estimate the fair value of each class of financial instruments:


Cash and cash equivalents, current contributions receivable, accounts receivable, prepaid expenses, other current assets, accounts payable, accrued expenses, deferred revenue, and other liabilities: The carrying amounts approximate fair value because of the short maturity of these instruments.


Investments: Certificates of deposit, municipal bonds, treasury inflation-protected securities, US aggregate securities, and US corporate bonds are measured using significant other observable inputs, particularly dealer market prices for comparable investments as of the valuation date.


Noncurrent contributions receivable: The carrying amounts are discounted to present value using the fair value rate at the report date.


(4) Property, Plant, and Equipment, Net


Property, plant and equipment at June 30, 2013 and 2012 consist of the following:


2013 2012
Furniture $ 439,562 277,312
Computer equipment 9,504,243 8,338,207
Total 9,943,805 8,615,519
Less accumulated depreciation (5,031,999) (3,447,413)
Property, plant, and equipment, net $ 4,911,806 5,168,106


(5) Net Assets


Temporarily restricted net assets at June 30, 2013 and 2012 are available for the following purposes:


2013 2012
Restricted to future periods $ 811,683 1,903,804
Restricted by purpose:
Stanton Foundation – Making Wikipedia More User –Friendly 1,000,000 1,996,115
Sloan Foundation – Developing and Sustaining Educational Mission -- 1,800,000
Knight Foundation – Wikpedia Zero and Mobile Technology 450,000 --
Stanton Foundation – Wikipedian-in-Residence @ Belfer Center 5,690 48,000
Temporarily restricted net assets $ 2,267,373 4,937,919


(6) Functional Allocation of Expenses


Costs of providing the Foundation’s activities have been summarized below on a functional basis. Projects are comprised of various initiatives that focus on (1) building the technological and operating platform that enables the Foundation to function sustainably as a top global Internet organization, (2) strengthening, growing and increasing diversity of the editing community and (3) accelerating impact by investing in key geographic areas, mobile application development and bottom-up innovation, all of which, to support Wikipedia and eight other wiki-based projects. Accordingly, certain costs have been allocated among the projects benefited and supporting services for the years ended June 30, 2013 and 2012, as follows:


2013
Projects General and administrative Fund-raising Total
Salary and wages $ 11,744,168 2,700,060 1,539,314 15,983,542
Awards and grants 2,791,378 -- -- 2,791,378
Internet hosting 2,549,992 -- -- 2,549,992
In-kind service expenses 228,218 32,691 -- 260,909
Other operating expenses 2,859,197 5,012,142 2,145,782 10,017,121
Travel and conferences 1,125,114 147,835 122,064 1,395,013
Depreciation 2,441,148 265,693 -- 2,706,841
$ 23,739,215 8,158,421 3,807,160 35,704,796


2012
Projects General and administrative Fund-raising Total
Salary and wages $ 8,021,895 2,407,832 1,319,773 11,749,500
Awards and grants 2,106,752 -- -- 2,106,752
Internet hosting 2,486,903 -- -- 2,486,903
In-kind service expenses 201,498 95,101 -- 296,599
Other operating expenses 4,050,057 3,450,778 1,698,057 9,198,892
Travel and conferences 1,296,624 103,876 132,650 1,533,150
Depreciation 1,674,787 214,069 -- 1,888,856
$ 19,838,516 6,271,656 3,150,480 29,260,652
The Foundation has a program of awarding grants to support chapters in projects that further the mission of the Foundation. Chapters are independent organizations that share the goals of the Foundation and support them within a specified geographical region. In addition to this work, which is reflected above in the awards and grants line, an overwhelming majority of the Foundation’s project activities are carried out by an international network of volunteers, whose activity is not reflected in the table above.


For example (unaudited):
* For the year ended June 30, 2013, the educational content of the Foundation’s largest project, Wikipedia, grew by approximately 5 million articles to more than 28 million articles total.
* For the year ended June 30, 2013, volunteers added approximately 4.5 million images, movies, and sound files to the Foundation’s multimedia repository, making the total 17.8 million files.
* Volunteers also contribute in several ways to the Foundation’s wiki software: volunteer software developers add new functionality to the code base, and volunteer language specialists add to the code base by translating the wiki interface into different languages. By the year ended June 30, 2013, the source code hosted in the Foundation’s version control repository contained approximately 7 million lines of code through the effort of approximately 1,150 contributors, in which approximately 550 are active contributors.


(7) Operating Leases


The Foundation has a seven-year noncancelable operating lease for its San Francisco location. The lease expires on September 30, 2017.


Minimum rent payments under operating leases are recognized on a straight-line basis over the term of the lease including any periods of free rent. Rental expense for operating leases for the years ended June 30, 2013 and 2012 was $1,005,896 and $683,640, respectively.


Future minimum lease payments under noncancelable operating leases as of June 30, 2013 are as follows:
Lease payments
Year ending June 30:
2014 $ 1,205,715
2015 1,239,472
2016 1,273,229
2017 1,306,986
2018 329,565
Total minimum lease payments $ 5,354,967
On November 20, 2012, the Foundation entered into a sublease agreement to rent out its unoccupied space. The lease term is for two years from January 2013 through December 2014 with a monthly rent income of $46,285 in year 1 and $47,229 in year 2.


(8) Retirement Plan


The Foundation offers a 401(k) plan (the Plan) to all of its employees residing in the United States. Employees are eligible to participate in the Plan upon employment. Effective January 1, 2011, the Foundation matches employee contributions on a dollar-for-dollar basis up to 4% of the employee’s compensation. The Foundation contributed $360,586 and $206,596 to the Plan for the years ended June 30, 2013 and 2012, respectively.


(9) Contingencies


In the normal course of business, the Foundation receives various threats of litigation. In the opinion of management, the outcome of the pending lawsuits will not materially affect operations or the financial position of the Foundation.


(10) Subsequent Events


The Foundation has evaluated its subsequent events through September 19, 2013, the date at which the financial statements were available to be issued, and determined there are no items to disclose.