Commemorative Air Force 2011 Audit

AMERICAN AIRPOWER HERITAGE GROUP MIDLAND, TEXAS CONSOLIDATING FINANCIAL REPORT DECEMBER 31, 2011

C O N T E N T S

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INDEPENDENT AUDITORS REPORT ........................................................................................... 1 CONSOLIDATING FINANCIAL STATEMENTS

Consolidating Statement of Financial Position ........................................................................... 2 Consolidating Statement of Activities ......................................................................................... 4 Consolidating Statement of Cash Flows ..................................................................................... 6 Notes to Consolidating Financial Statements ............................................................................. 8

SUPPLEMENTAL INFORMATION INDEPENDENT AUDITORS REPORT ON SUPPLEMENTAL INFORMATION ......................... 32

Schedule of Consolidating Departmental Revenue ................................................................. 33 Schedule of Consolidating Costs and Expenses ...................................................................... 34

MIDLAND 400 W. ILLINOIS, SUITE 1550, MIDLAND, TX 79701 P: (432)683.5226 F: (432)683.9182

WEAVER AND TIDWELL LLP CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS WWW.WEAVERLLP.COM

LOCATIONS THROUGHOUT TEXAS: AUSTIN DALLAS FORT WORTH HOUSTON MIDLAND ODESSA SAN ANTONIO

INDEPENDENT AUDITORS REPORT General Staff American Airpower Heritage Group Midland, Texas We have audited the accompanying consolidating statements of financial position of the Commemorative Air Force Headquarters, Commemorative Air Force Units and Supporting Foundations, the American Airpower Heritage Foundation, Inc., the American Airpower Heritage Museum, Inc., the American Airpower Heritage Flying Museum, Inc. and consolidated totals which collectively comprise the American Airpower Heritage Group (the Group), as of December 31, 2011, and the related consolidating statement of activities and cash flows for the year then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an opinion on these financial statements based on our audit. The prior year summarized comparative consolidated information has been derived from the Groups 2010 consolidating financial statements, and in our report dated August 16, 2011, we expressed an unqualified opinion on those consolidating financial statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidating financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidating financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the consolidating financial statements referred to above present fairly, in all material respects, the financial position of the Commemorative Air Force Headquarters, Commemorative Air Force Units and Supporting Foundations, the American Airpower Heritage Foundation, Inc., the American Airpower Heritage Museum, Inc. , the American Airpower Heritage Flying Museum, Inc. and consolidated totals as of December 31, 2011, and the changes in their net assets and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

WEAVER AND TIDWELL, L.L.P. Midland, Texas August 3, 2012

CONSOLIDATING FINANCIAL STATEMENTS

AMERICAN AIRPOWER HERITAGE GROUP CONSOLIDATING STATEMENT OF FINANCIAL POSITION

DECEMBER 31, 2011 (with summarized comparative consolidated totals for December 31, 2010)

The Notes to Consolidating Financial Statements are an integral part of these statements.

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CAF HQ AAHFASSETS

Cash and cash equivalents 512,090$ 4,138,705$ 716,043$ Accounts receivable (net) 72,676 289,169 1,473 Pledges receivable - - 85,360 Inventories 163,975 523,789 - Prepaid expenses and other 95,968 333,498 - Investments - 731,047 4,552,585 Intragroup receivables 321,696 9,818 146,982 Intragroup notes receivable - - 1,207,145 Property and equipment (net of accumulated depreciation) 5,404,898 5,648,006 - Intangible assets (net of accumulated amortization) 9,693 - - Other assets 31,364 26,916 -

TOTAL ASSETS 6,612,360$ 11,700,948$ 6,709,588$

LIABILITIESAccounts payable 260,158$ 330,516$ 80,287$ Accrued liabilities 335,890 53,425 - Deferred revenue 44,178 - - Intragroup payable 18,299 362,478 - Intragroup notes payable - 1,207,145 - Notes payable - 859,534 - Capital lease payable - - -

TOTAL LIABILITIES 658,525 2,813,098 80,287

NET ASSETS Restricted

Temporarily restricted 430,083 220,457 3,156,404 Permanently restricted - 235,000 3,072,714

UnrestrictedUndesignated (deficit) 5,523,752 8,432,393 (591,382) Designated - - 991,565

TOTAL NET ASSETS 5,953,835 8,887,850 6,629,301

TOTAL LIABILITIES AND NET ASSETS 6,612,360$ 11,700,948$ 6,709,588$

LIABILITIES AND NET ASSETS

CAF Units and Supporting

Foundations

ASSETS

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EliminatingAAHM AAHFM Entries

368,275$ 102$ -$ 5,735,215$ 5,591,026$ 5,711 - - 369,029 216,935 8,500 - - 93,860 84,323

25,057 - - 712,821 568,398 25,255 - - 454,721 451,887

- - - 5,283,632 5,015,563 2,297 - (480,793) - -

- - (1,207,145) - -

3,764,729 - - 14,817,633 14,696,816

30,359 - - 40,052 48,225 - - - 58,280 43,314

4,230,183$ 102$ (1,687,938)$ 27,565,243$ 26,716,487$

27,325$ -$ -$ 698,286$ 599,809$ 3,516 - - 392,831 441,020

241,370 - - 285,548 120,773 100,016 - (480,793) - -

- - (1,207,145) - - - - - 859,534 1,195,672 - - - - 1,076

372,227 - (1,687,938) 2,236,199 2,358,350

1,545,334 - (141,618) 5,210,660 5,233,907 14,574 - - 3,322,288 3,136,772

2,298,048 102 141,618 15,804,531 15,048,934 . - - 991,565 938,524

3,857,956 102 - 25,329,044 24,358,137

4,230,183$ 102$ (1,687,938)$ 27,565,243$ 26,716,487$

Consolidated Totals 2010


AMERICAN AIRPOWER HERITAGE GROUP CONSOLIDATING STATEMENT OF ACTIVITIES

YEAR ENDED DECEMBER 31, 2011 (with summarized comparative consolidated totals for December 31, 2010)


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CAF HQ Foundations AAHFCHANGES IN UNRESTRICTED NET ASSETS

Departmental revenues 1,508,093$ 7,952,453$ -$ Donations 1,249,381 2,558,924 93,244 Memberships 947,601 219,664 - Donations from affiliates 1,113,514 262,043 - Investment income (loss) 8,992 14,002 98,218 Gain (loss) on disposal of assets 103 (9,045) - Grant or State fund revenue 6,000 47,542 - Other 67,874 - 120

Total unrestricted revenues and gains 4,901,558 11,045,583 191,582

Net assets released from restrictions throughsatisfaction of program requirements 687,390 1,017,785 2,283,841

Total unrestricted revenues, gains and other support 5,588,948 12,063,368 2,475,423

Costs and expenses (4,209,236) (11,046,305) (2,522,966) Fundraising - agency fees (47,012) (109,027) - Fundraising expenses (304,812) (996,345) -

(4,561,060) (12,151,677) (2,522,966)

Increase (decrease) in unrestricted net assets 1,027,888 (88,309) (47,543)

CHANGES IN TEMPORARILY RESTRICTED NET ASSETS RELATED TO COLLECTION ITEMS NOT CAPITALIZED

Proceeds from sale of collection items 10,000 - -

Increase in temporarily restricted net assets relatedto collection items not capitalized 10,000 - -

CHANGES IN TEMPORARILY RESTRICTED NET ASSETSDonations 604,543 1,195,076 2,413,555 Net assets released from restrictions (687,390) (1,017,785) (2,283,841)

Increase (decrease) in temporarily restricted net assets (72,847) 177,291 129,714

CHANGES IN PERMANENTLY RESTRICTED NET ASSETSDonations (net of expenses) - - 182,403 Investment return - - 1,895

Increase in permanently restricted net assets - - 184,298

CHANGE IN NET ASSETS 955,041 88,982 266,469

NET ASSETS, beginning of year 4,998,794 8,798,868 6,362,832

NET ASSETS, end of year 5,953,835$ 8,887,850$ 6,629,301$

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Eliminating Consolidated Consolidated AAHM AAHFM Entries Totals 2011 Totals 2010

74,356$ -$ (646,334)$ 8,888,568$ 7,841,871$ 20,386 - - 3,921,935 2,737,648 18,585 - - 1,185,850 1,028,690 72,657 - (1,448,214) - -

- - (73,032) 48,180 337,845 - - - (8,942) 57,808 - - - 53,542 37,369

75,400 - - 143,394 58,299 261,384 - (2,167,580) 14,232,527 12,099,530

391,337 - - 4,380,353 3,046,766

652,721 - (2,167,580) 18,612,880 15,146,296

(877,737) - 2,309,198 (16,347,046) (13,575,041) - - - (156,039) (146,018) - - - (1,301,157) (1,144,899)

(877,737) - 2,309,198 (17,804,242) (14,865,958)

(225,016) - 141,618 808,638 280,338

- - - 10,000 445,925

- - - 10,000 445,925

275,550 - (141,618) 4,347,106 2,664,276 (391,337) - - (4,380,353) (3,046,766)

(115,787) - (141,618) (23,247) 63,435

- - - 182,403 298,961 1,218 - - 3,113 2,940

1,218 - - 185,516 301,901

(339,585) - - 970,907 645,674

4,197,541 102 - 24,358,137 23,712,463

3,857,956$ 102$ -$ 25,329,044$ 24,358,137$

AMERICAN AIRPOWER HERITAGE GROUP CONSOLIDATING STATEMENT CASH FLOWS



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CAF Units and

CAF HQ Supporting Foundations AAHF

CASH FLOWS FROM OPERATING ACTIVITIESChange in net assets 955,041$ 88,982$ 266,469$ Adjustments to reconcile change in net assets to

net cash provided by (used in) operating activitiesDepreciation 251,947 255,213 - Amortization 303 - - (Gain) on sale of property and equipment (10,000) - - Unrealized (gain) from investments - (23,549) Accounts receivable 6,764 (166,980) (949) Intragroup receivable (2,555) (9,818) 44,810 Pledges receivable - - (15,900) Notes receivable - - - Inventories (39,480) (104,959) - Prepaid expenses and other (28,864) 9,334 - Accounts payable 89,710 14,227 21,752 Intragroup payable (331) (121,363) - Deferred revenue 44,178 - - Accrued liabilities (68,463) 17,988 (625)

Total adjustments 243,209 (106,358) 25,539

Net cash provided by (used in) operating activities 1,198,250 (17,376) 292,008

CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property and equipment (787,769) (130,426) - Sale of collection items 10,000 - - Purchase of investments - (168,212) (436,241) Sale of investments - 28,795 331,138

Net cash provided by (used in) investing activities (777,769) (269,843) (105,103)

CASH FLOWS FROM FINANCING ACTIVITIESReduction in principal of long-term debt (298,797) (37,341) - Reduction in principal of capital lease obligation - - - Proceeds from note payable - -

Net cash (used in) financing activities (298,797) (37,341) -

Net change in cash 121,684 (324,560) 186,905

CASH AND CASH EQUIVALENTS, beginning of year 390,406 4,463,265 529,138

CASH AND CASH EQUIVALENTS, end of year 512,090$ 4,138,705$ 716,043$

CASH PAID DURING YEAR FOR INTEREST -$ 39,890$ 59,436$

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AAHM AAHFM Eliminating EntriesConsolidated Totals 2011

(339,585)$ -$ -$ 970,907$ 645,674$

290,217 - - 797,377 782,976 7,870 - - 8,173 -

- - - (10,000) (509,044) - - - (23,549) (389,267)

9,071 - - (152,094) 540,523 21,702 - (54,139) - - 6,363 - - (9,537) 54,659

- - - - 7,410 16 - - (144,423) 34,541

1,730 - - (17,800) (79,537) (28,287) - - 97,402 (678,966) 67,555 - 54,139 - -

120,597 - - 164,775 (184,227) 2,911 - - (48,189) (5,413)

499,745 - - 662,135 (426,343)

160,160 - - 1,633,042 219,329

- - - (918,195) (179,386) - - - 10,000 445,925 - - - (604,453) (4,540,199) - - - 359,933 5,488,373

- - - (1,152,715) 1,214,713

- - - (336,138) (691,680) - - - - (3,226)

- - - 94,090

- - - (336,138) (600,816)

160,160 - - 144,189 833,226

208,115 102 - 5,591,026 4,757,800

368,275$ 102$ -$ 5,735,215$ 5,591,026$

3,314$ -$ -$ 102,640$ 187,832$


AMERICAN AIRPOWER HERITAGE GROUP NOTES TO CONSOLIDATING FINANCIAL STATEMENTS

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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

The American Airpower Heritage Group (the Group) was created by resolution approved by the general membership of the Confederate Air Force, Inc. (CAF) effective November 20, 1990. The resolution approved the reorganization of the corporate structure of the Commemorative Air Force, Inc. and the American Airpower Heritage Foundation, Inc. (AAHF) a separate entity, and included the formation of the American Airpower Heritage Museum, Inc. (AAHM) and the American Airpower Heritage Flying Museum, Inc. (AAHFM). Effective January 1, 2002, the organization adopted Commemorative Air Force as its new name. The organization and purpose of each of the four entities which comprise the group is set out as follows:

The Commemorative Air Force, Inc. (CAF) Headquarters

The financial statements presented include the Headquarters (HQ) division of the CAF and include the assets, liabilities and fund balances, and support, revenue, and expenses of the combined units. The Commemorative Air Force, Inc. is a nonprofit corporation established in 1961 for charitable and educational purposes. The primary objective of the organization was to acquire, restore, maintain and operate a collection of World War II and other historical aircraft. With the reorganization discussed above, the structure of the CAF remains essentially unchanged. It has primary responsibility for membership, maintenance of aircraft, educational programs and air show demonstrations. In addition, the CAF provides administrative and management assistance to the other members in the Group.

The Commemorative Air Force, Inc. (CAF) Units, Affiliate and Supporting Foundations

The CAF is comprised of 72 chartered Wings, Squadrons and Detachments throughout the nation, which is under the direction of the Headquarters Company (HQ). The majority of the aircraft operations is performed through these Wings and Squadrons and includes aircraft restoration and maintenance, aircraft display, air shows and PX operations. Ownership and operational control of all non-flying (static) museum artifacts and the PX facilities are in the AAHM. In addition, as further discussed below, ownership of life membership funds and aircraft sponsorship funds are in the AAHF and ownership of all or substantially all of the aircraft are in the AAHFM. The CAF has agreed by formal contract to maintain aircraft belonging to the AAHFM and fully control operation of those aircraft in accordance with the rules and regulations of the CAF. The CAF continues to conduct educational programs and air show demonstrations and provide training for aircraft operators.


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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED

The Commemorative Air Force, Inc. (CAF) Units, Affiliate and Supporting Foundations Continued

In February 2007, the General Staff voted to allow up to five units outside of Texas to establish 501(c)(3) corporations in their respective states. The purpose of the new entities would be to act as philanthropic organizations to raise funds for the restoration, maintenance and operations of CAF operated aircraft.

The General Staff specified the following conditions for formation of the corporations: Each unit must submit to CAFs Finance Committee their request to establish a separate 501 (c)(3) corporation; the CAF attorney must draw up the by-laws for each corporation; and the request must be reviewed and approved by the Executive Committee; and all control of the corporations must remain with the CAF. As of June 2009, five (5) entities have incorporated and are located in Arizona, Florida, Georgia, New Mexico and Minnesota. No financial activity had occurred as of 2011 year-end for Florida, Georgia and New Mexico. Arizona and Minnesota did have donations and expenses but the balances at 2011 year-end are immaterial to the financial statements. For reporting purposes, they will continue to be included in the Units totals until such time as they are materially significant to the financial statements. In 2010, Wings of Houston, Inc. was formed as an affiliate of the CAF. The purpose of this organization is to act as a philanthropic organization, to raise funds for restoration, maintenance and operation of CAF operated aircraft assigned to its states wings and squadrons.

American Airpower Heritage Foundation, Inc. (AAHF)

The American Airpower Heritage Foundation, Inc. (AAHF) is a nonprofit corporation, without voting members, established in 1983 to assist in the preservation of World War II and other historical aircraft and teaching the traditions, heritages and accomplishments of the military air services of the United States. The primary objective of the AAHF was to establish and manage an endowment fund for the benefit of the CAF. It was charged with the responsibility of investing life membership funds and endowment funds, which had been created from donations and gifts. The by-laws of the AAHF provide that the AAHF will be directed by a board of directors of which CAF general staff members will be a majority. In addition, ownership of life membership funds and aircraft funds are in the AAHF. The AAHF manages and retains sponsorship funds. The purpose of the AAHF as stated in its by-laws are set out as follows:

a. To assist the Commemorative Air Force, Inc. (CAF), the American Airpower Heritage

Flying Museum, Inc. (AAHFM) and the American Airpower Heritage Museum, Inc. (AAHM) in the preservation, operation, and exhibition of World War II and other historical aircraft and related paraphernalia.


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American Airpower Heritage Foundation, Inc. (AAHF) Continued

b. To foster and promote the American Airpower Heritage Program of the Commemorative Air Force and to teach the importance of air power in the history, heritage and national security of the United States.

c. To develop public understanding and appreciation of the traditions, heritage and

accomplishments of the military air services of the United States.

d. To serve as a philanthropic corporation in the development and expansion of the facilities and programs of the CAF, the flying museum and the static museum.

e. To distribute gifts received from persons, organizations, foundations and

philanthropies to the CAF, the flying museum and the static museum, and to establish and administer an endowment fund for the perpetuation of the aircraft, facilities and objectives of the CAF, the flying museum and the static museum.

American Airpower Heritage Museum, Inc. (AAHM)

The American Airpower Heritage Museum, Inc. (AAHM) has been established to house the non-flying (static) museum artifacts and the PX facilities. It was incorporated in 1989 as a nonprofit corporation without members. The AAHM is directed by a board of directors the majority of which are CAF general staff members. All museum assets belong to the AAHM. All static museum operations are conducted by and through the AAHM and ownership of all properties necessary for conducting the museum's operations rests with the AAHM.

American Airpower Heritage Flying Museum, Inc. (AAHFM)

The American Airpower Heritage Flying Museum, Inc. (AAHFM) was incorporated in 1989 as a nonprofit, nonmember organization. The AAHFM owns all or substantially all of the Group's aircraft. The aircrafts values, which are undeterminable, are not recorded on these financial statements. As mentioned above, by formal agreement, the CAF maintains aircraft belonging to the AAHFM and fully controls operation of those aircraft in accordance with CAF rules and regulations. The CAF also displays the aircraft owned by the AAHFM. The AAHFM does not conduct educational programs or air show demonstrations, nor does it have responsibility for the maintenance of aircraft or the training of aircraft operations. A majority of the board of directors of the AAHFM are general staff members of the CAF.


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Financial Statement Presentation For presentation of financial statements, net assets and revenue, gains, expenses, and losses are classified as unrestricted, temporarily restricted, and permanently restricted based upon the following criteria:

Unrestricted net assets represent expendable funds available for operations which are

not otherwise limited by donor restrictions. While these net assets do not have donor restrictions, they may be Board restricted for stated purposes and are classified as unrestricted designated.

Temporarily restricted net assets consist of contributed funds subject to specific donor-

imposed restrictions contingent upon specific performance of a future event or a specific passage of time before the Group may spend the funds.

Permanently restricted net assets are subject to irrevocable donor restrictions requiring

that the assets be maintained in perpetuity usually for the purpose of generating investment income to fund current operations. Permanently restricted endowment trust assets are those assets from which the corpus may never be withdrawn.

Comparative Summarized Consolidating Totals

The financial statements and supplemental information include certain prior-year summarized comparative consolidated information. Information in notes to the consolidating financial statement is not comparative. Such comparative consolidated information does not include sufficient information to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, these consolidating financial statements and supplemental information should be read in conjunction with the Groups financial statements and supplemental information as of and for the year ended December 31, 2010.


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Basis of Accounting and Principles

The financial statements of the Group have been prepared on the accrual basis of accounting. The financial statements are prepared on a consolidating basis since all members of the Group are commonly controlled. The consolidating financial statements include the accounts of the Group reported by entity and in aggregate. Intercompany transactions and balances have been eliminated in the consolidation. Members of the Group separately file their information reports with the Internal Revenue Service because the Internal Revenue Code does not provide for combined reports. All financial transactions have been summarized for accounting reporting purposes into funds established according to their nature and purpose as follows:

a. General Funds

General funds represent the portion of unrestricted expendable funds that are available for the general operations and support of the Group.

b. Aircraft Funds

Aircraft funds represent the unexpended contributions from aircraft sponsors, which are to be used for acquisition, restoration and maintenance of specific aircraft. Effective with the reorganization, the AAHF holds in a separate account each sponsorship fund established by a sponsor for the restoration and preservation of a designated aircraft owned by the AAHFM. The AAHF shall distribute so much of the income and principal of the particular sponsorship fund as may be required by the AAHFM or the CAF for purposes of restoring, maintaining and operating the designated aircraft. In the event a sponsor's aircraft shall be permanently retired and no longer in need of support, the sponsor shall be given an opportunity to designate another aircraft to sponsor, and upon failure to do so, such remaining funds shall be added to the general fund and administered in accordance with provisions in the by-laws.

c. Life Member Funds

Life member funds represent funds restricted in 1982 by the general staff requiring in perpetuity that the principal remain invested and only the investment income be available for the general operations and support of the CAF. Initially, life member funds were included and utilized by the CAF general fund until the membership was paid in full. At that time, the total amount paid for the life membership was transferred from the CAF general fund to the life member fund. The AAHF holds in a separate account the life member funds generated by the CAF, and such other funds as the CAF or the museums from time to time may transfer to the AAHF.

These funds are held separately from the general endowment funds.


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Basis of Accounting and Principles Continued

c. Life Member Funds Continued The principal of the life member funds remains intact with no expenditures other than for investment purposes or as required below. Upon the written request of the general staff, with the approval of the board of directors of the AAHF, which approval cannot be unreasonably withheld, the AAHF shall distribute to the CAF or the museums an amount of the principal of the life member funds as may be required for use in their charitable, educational or scientific activities within the meaning of Section 501(c)(3) of the Internal Revenue Code. The AAHF shall not approve any distribution of funds for purposes that do not meet such criteria. Net income earned from life member funds may be distributed to the CAF. The general staff may designate part or all of the distribution be made to the museum. Additional distributions may be made on request of the general staff. Any undistributed income at the end of the fiscal year is added to the principal. The General Staff requested a 5% market value distribution of income from the life member fund in 2011.

d. Temporarily Restricted Quasi Endowment Funds

The AAHF shall deposit all of its funds, except those funds necessary for its own administrative purposes, into a quasi-endowment fund for the support and benefit of the CAF, the AAHFM and the AAHM. Said funds shall be invested, held, and administered under the standards that apply to trusts and their trustees under the Texas Trust Act. A portion of the annual net income of the general endowment fund as the general staff of the CAF shall request, will be distributed to the CAF for its support and maintenance at the end of each fiscal year or at such other times as the general staff of the CAF shall reasonably request. In addition, with the approval of the general staff of the CAF, a portion of the net income may be distributed as necessary for the support and maintenance of the AAHFM and the AAHM. The CAF General Staff and the AAHM Board requested a 5% distribution of income from their respective endowment funds in 2011.

e. Permanently Restricted Endowment Funds

The CAF Missouri Wing/USO Endowment was established to provide the Missouri Wing with funds that would allow the unit to bring their assigned aircraft to pristine condition.


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e. Permanently Restricted Endowment Funds Continued The agreement and restrictions on the endowment are that they are pooled and invested in the same manner as other AAHF managed endowments and the endowment stays with CAF/AAHF until the Missouri Wing ceases to exist. Should the Missouri wing cease to exist at some point in the future, the endowment corpus would then go to benefit the USO at Lambert Field, St. Louis, Missouri. The USO at Lambert Field receives no benefit nor has any rights to any annual distributions as long as the Missouri Wing exists. The Missouri Wing may make annual distributions requests of up to 5% annually but no request was made in 2011.

f. Oral History Funds

Oral history funds represent restricted funds donated for the production of oral histories and educational materials and seminars in schools.

g. Building Funds

AAHM building funds represent donations for the construction of the American Airpower Heritage Group facilities in Midland. These facilities include the headquarters building, the hangar and the museum.

h. Museum Exhibit Fund

AAHM building funds represent funds donated by private individuals and foundations for the development of museum exhibits.

i. Symposium Funds

Symposium funds represent donor-restricted contributions for the purpose of development of the museum and for general educational programs.

j. Annuity Funds

Annuity funds represent funds received in the form of a charitable gift annuity, which have been restricted for payments to the annuitant.


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k. CAF Officers Club

CAF Officers Club funds represent donor-restricted contributions for the purpose of maintaining and improving the Gunfighter Pub located in the Commemorative Center.

l. Save the Girls

Save the Girls funds represent donor-restricted contributions for the purpose of Nose Art restoration.

m. Archives

Archive funds represent funds donated by private individuals, foundations and corporations for the development and installation of an automated retrieval system for proper documentation of archives.

n. Aircraft Acquisition Fund

This fund is set up to accumulate donations on behalf of the fund for acquisition and transportation of additional aircraft for the AAHFM and AAHM.

Cash and Cash Equivalents

Cash and cash equivalents held in the Life Members, Endowment, Aircraft Maintenance, Annuity Funds, and Museum Revocable Trust Accounts are included in cash for financial statement and statement of cash flow purposes. At year-end, cash balances were held with financial institutions in either deposit accounts or in trust. For purposes of the statement of cash flows, the Group considers all highly liquid investments purchased with a maturity of three months or less to be cash equivalents.


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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Receivables

a. Accounts Receivable

Annual membership dues are recorded as receivables in the period the membership will renew. Also included in receivables are insurance amounts charged to Wings but not yet collected.

b. Pledges Receivable

Pledges of aircraft sponsorships and life memberships are recorded as receivables in the year pledged.

Revenues are recorded as earned on the accrual basis.

Inventories

Inventories are valued at the lower of cost or market, with cost being determined using the first-in, first-out method.

Investments

The Groups investments are comprised of marketable equity securities, marketable debt securities, mutual funds, interests in common trust funds and certificates of deposits. The investments are carried at estimated fair value based on quoted market prices.

Property and Equipment

Property and equipment acquisitions have consistently been recorded at cost if purchased and at fair market value at date received if donated. In the case of capitalized leases, cost represents the present value of the future minimum lease payments including any bargain purchase option.

Major renewals and improvements that extend the life of an asset or benefit one or more subsequent periods are capitalized. Replacements, maintenance and repairs which do not extend or improve the life of existing assets are charged to expense in the period incurred. When properties or equipment are retired or otherwise disposed of, the property and related accumulated depreciation accounts are relieved of the applicable amounts. Gain or loss from retirements or sales are credited or charged to income currently.


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NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED Depreciation and amortization is provided on a straight-line basis over the following estimated useful lives:

Buildings 20 - 40 YearsLeasehold improvements 40 YearsFurniture, fixtures and equipment 5 -10 YearsMuseum exhibits 10 YearsVehicles 3 -15 Years

Intangible Assets

Intangible assets consist of trademarks and accumulated amortization. The life of these assets is 40 years. At December 31, 2011, Headquarters intangibles had a book value of $9,693, net of $2,399 amortization and Museum intangibles had a book value of $30,359, net of $48,336 amortization.

Accrued Employee Benefits

Employees are granted vacation in varying amounts. In the event of termination, an employee is paid for accumulated vacation days not exceeding 30 days. The accrued liability of approximately $75,463 has been recorded in these consolidating financial statements. Sick leave is also granted to the employees and may accrue to 30 days, but is not payable upon termination, and therefore has not been accrued.

Retirement Plan

The Group offers full-time, permanent, employees a 3% employer matching simple IRA (SRA) retirement plan.

Aircraft Collection, Museum and Library

In conformity with the practice followed by many museums, aircraft collection, museum objects and library objects, purchased or donated, are not included in the accompanying balance sheets. Insurance recoveries from non-recorded collection objects are recorded as revenue upon collection. Aircraft expenditures are recorded by HQ as an expense when funded by HQ on behalf of the Wings and Squadrons. Reimbursements, if any, of these expenses are recorded as revenue when received by HQ from the Wings and Squadrons indirectly through the AAHF, which has ownership of the aircraft sponsorship funds. Any insurance proceeds received on destroyed aircraft or income from the sale of an aircraft may only be used for the purchase of a new aircraft or repair of an existing aircraft.


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Federal Income Taxes

The Group is a qualified nonprofit organization and is exempt from federal income tax under Section 501(c) (3) of the Internal Revenue Code. The Group adopted new guidance which clarifies the accounting for uncertain tax positions effective October 1, 2008. The guidance requires that the Group recognize in its financial statements the financial effect of a tax position, if that position is more likely than not to be sustained upon examination, including resolution of any appeals or litigation processes, based upon the technical merits of the position. The guidance also provides guidance on measurement, classification, interest and penalties and disclosure. Tax positions taken related to the Groups tax exempt status for federal tax purposes and state filing requirements have been reviewed, and management is of the opinion that material positions taken by the Group would more likely than not be sustained by examination. Accordingly, the Group has not recorded an income tax liability for uncertain tax benefits. As December 31, 2011, the Groups tax years 2008 through 2010 remain subject to examination.

Concentrations

The Group maintains its cash balances at several financial institutions located throughout the United States. Cash balances may, at times, exceed federally insured limits. The Group has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

Use of Estimates

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Deferred Revenue

Income from membership dues not yet earned and insurance fees is deferred and recognized over the periods to which the dues and fees relate.

Reclassifications

Certain reclassifications have been made to December 31, 2010 consolidated totals to conform to the classification practices applied in the December 31, 2011 financial statements.


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Subsequent Events

The Group has evaluated events subsequent to the date of the statement of net assets (December 31, 2011) through August 3, 2012, the date the consolidating financial statements were available to be issued.

NOTE 2. TRANSACTIONS WITH UNITS

The CAF operates primarily through 72 chartered Wings, Squadrons and Detachments chartered and directed by HQ. The following is a summary of the significant transactions between the Units and HQ and the impact upon the accompanying financial statements.

a. Various Wings, Squadrons and Detachments sponsor air shows, which must be

approved in advance by HQ. The net profits from the air shows remain with the Wing or Squadron for specific aircraft restoration or maintenance projects.

b. Most aircraft are supported financially by a sponsor or group of sponsors. Revenues received by the Wings, Squadrons or Detachments for this purpose must be remitted to AAHF. AAHF records the sponsor funds as revenue by aircraft and general donations as gifts as cash is received.

c. Substantially all Units incur aircraft restoration and maintenance costs on the aircraft

assigned to them. To the extent that specific aircraft sponsor funds exist, AAHF will reimburse the Wing or Squadron for the expenditures or pay the charges directly. In certain cases, and by HQ approval only, these costs will be reimbursed or paid out of general funds if specific aircraft sponsor funds are not available.

AAHF records an operating expense as reimbursements or expenditures made.

Revenues are recorded when received from the AAHF where funds for sponsorships are retained and invested.

d. Some repairs and maintenance are performed at the HQ. Costs to repair the aircraft

are charged to operating expense as incurred.

e. Most insurance coverages are negotiated by HQ staff and charged to the individual aircraft (aircraft liability) or general and administrative expense as appropriate.

f. Various Units occasionally purchase items of inventory through the CAF HQ PX.

CAF HQ records both revenue and cost of sales for these sales.


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NOTE 2. TRANSACTIONS WITH UNITS CONTINUED

g. Most Units have been assigned at least one of the historic airplanes to operate and maintain in accordance with HQ policy. No compensation is received by HQ for this assignment; however, the aircraft can be recalled at any time.

h. All Units pay an Annual Unit Administration Charge (ANUAC). This charge is

necessary to provide additional revenue to support CAF HQ in meeting the various rules and regulations as set forth by the Federal Aviation Administration, which requires central record keeping and central responsibility to be maintained, to operate a unique business of flying 60-year-old aircraft. ANUAC revenues and expenses are part of the entitys financial statements but then are eliminated during the consolidating process.

i. Some donations are the result of direct mail fund raising programs administered by a

professional fund raising company. A 3rd party company processes donation deposits and vendor payments. The Unit then receives any net income from each project but is not held liable for project net losses.

NOTE 3. LEASE AGREEMENT BETWEEN THE CITY OF MIDLAND, TEXAS AND THE

COMMEMORATIVE AIR FORCE, INC.

By agreement made and entered into on the 4th day of July 1990 by and between the City of Midland, Texas, a home rule municipal corporation existing by and under the authority of the laws of the state of Texas, and the CAF, the City of Midland has agreed to lease to the CAF certain lots at the Midland International Airport together with the buildings and improvements located thereon and to be constructed thereon by CAF, all rights and easements appurtenant thereto, and all fixtures, apparatus, equipment and improvements to be provided by CAF and located thereon.

The purpose of the lease is to allow the CAF to operate and maintain a museum and ancillary facilities dedicated to the preservation and display of historic military aircraft and other military artifacts and the education of the public in the subject of aviation history generally. This agreement commenced on July 1, 1990 (the Commencement Date) and terminates on June 30, 2040, unless terminated earlier pursuant to provisions of the agreement.


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NOTE 3. LEASE AGREEMENT BETWEEN THE CITY OF MIDLAND, TEXAS AND THE COMMEMORATIVE AIR FORCE, INC. CONTINUED

Throughout the term of this agreement, CAF shall pay annually to the City rent in the amount of one dollar ($1), said rent to be due and payable on the commencement date and on each subsequent anniversary date of the commencement date during the lease term. In addition to the rent to be paid pursuant to the lease agreement, the CAF agreed as additional consideration for this agreement to substantially complete within 24 months after the commencement date the renovation of the existing improvements on the leased premises (the Windecker Facility) and construction of such additional square footage of maintenance, storage, and exhibit hangars as are necessary to achieve the CAF's purpose. The CAF agreed that it would expend not less than two million dollars ($2,000,000) on such renovations and improvements. Approximately $4,800,000 of renovations and improvements were completed by July 1992. Also, CAF must display at all times no less than 15 aircraft or 10% of the number owned, whichever is larger. Based on current market activity, the fair market value of rent on this land would be $784,000 per year. This in-kind donation is properly recorded in CAF Headquarters statement of activities as both an expense and donation. CAF has complied with all major provisions and covenants of the lease as set forth in the above paragraphs.

NOTE 4. FAIR VALUE OF INVESTMENTS

For assets and liabilities measured at fair value on a recurring basis, accounting principles generally accepted in the United States of America establish a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The three levels of inputs that may be used to measure fair value are described below:

Level 1: Quoted price 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.

Level 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.

Following is a description of the valuation methodologies used for assets and liabilities measured at fair value on a recurring basis and recognized in the accompanying statement of financial position, as well as the general classification of such assets and liabilities pursuant to the valuation hierarchy.


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NOTE 4. FAIR VALUE OF INVESTMENTS CONTINUED Investments

Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities include publicly traded stocks, mutual funds, and money market funds. If quoted market prices are not available, then fair values are estimated by using pricing models, quoted prices of securities with similar characteristics, or discounted cash flows. The following table presents the fair value measurements of assets and liabilities recognized in the combined statements of financial position measured at fair value on a recurring basis and the level within the fair value hierarchy in which the fair value measurements fall at December 31, 2011:

Level 1 Level 2 Level 3 Total

Fair value inputs as of December 31, 2011:

Assets:Investments 5,283,632$ -$ -$ 5,283,632$

Fair Value Measurements Using

Investments at December 31, 2011, consist of the following:

CAF UNITS AAHF

Securities / stock 281,835$ 3,195,142$ Bonds / fixed income 88,516 1,003,497 Cash and cash equivalents 360,696 353,946

Total investments 731,047$ 4,552,585$

Other Financial Instruments

The carrying amounts for cash and cash equivalents, accounts receivable, grants receivable, notes payable, and accounts payable approximate fair value due to their short-term nature.


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NOTE 5. ACCOUNTS RECEIVABLE

CAF HQ AAHF AAHMMember dues, net of allowance 7,420$ -$ -$ -$ Re-billed insurance, ANUAC and other 13,099 - - - Other, net of allowance 52,157 289,169 1,473 5,711

Total accounts receivable 72,676$ 289,169$ 1,473$ 5,711$

CAF Units

NOTE 6. PLEDGES RECEIVABLE

Pledges receivable at December 31, 2011 consist of the following:

AAHF AAHMLife members, net of allowance 41,230$ 5,000$ Aircraft sponsorship, net of allowance 44,130 - Save the girls - 3,500

Total pledges receivable 85,360$ 8,500$

NOTE 7. PROPERTY AND EQUIPMENT

A summary of property and equipment and the related accumulated depreciation and amortization at December 31, 2011 follows:

CAF HQ CAF Units AAHF AAHMBuilding 5,910$ 7,279,091$ -$ 3,278,601$ Leasehold improvements 5,076,235 611,024 - 2,651,164Furniture, fixtures and equipment 770,849 481,303 - 631,177Exhibits 981,339 - - 2,970,088Vehicles 61,776 323,626 - - Construction in progress 3,700 110,763 - - Land 1,500 15,000 - - Less accumulated depreciation (1,496,411) (3,172,801) - (5,766,271)

TOTAL 5,404,898$ 5,648,006$ -$ 3,764,759$

Depreciation expense for the year ended December 31, 2011 251,947$ 255,213$ -$ 290,217$


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NOTE 8. NOTES PAYABLE

Following is a summary of long-term notes payable for CAF Units at December 31, 2011: Note payable bearing interest at 7.00%, due on May 6, 2013, securedby a hangar. 517,897$

Note payable bearing interest at 8.75%, due on April 1, 2030, securedby a hangar. Interest only until April 1, 2010 then interest plus monthlyprincipal payments of $1,204 until maturity. 264,917

Unsecured non-interest bearing note payable to individuals payable inunspecified increments over an unspecified time period. Payments tobe made promptly as profits are generated through airshowappearances. Revenues are generated by future sponsorships. 11,953

Note payable to a finance group bearing interest at 6%, due on May30, 2016, secured by a hanger. 56,767

Unsecured non-interest bearing note payable to an individual payablein unspecified increments over an unspecified time period. Paymentsto be made promptly as revenues are generated by futuresponsorships or profits generated through air show appearances. 4,000

Unsecured non-interest bearing note payable to an individual payablein unspecified increments over an unspecified time period. Paymentsto be made promptly as revenues are generated by futuresponsorships or profits generated through air show appearances. 4,000

Total 859,534$


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NOTE 8. NOTES PAYABLE CONTINUED

Following are maturities of long-term payable for each of the next five years:

CAF UNITS2012 140,526$ 2013 482,991 2014 14,450 2015 14,450 2016 14,450 2017 and thereafter 192,667

859,534$ Total

NOTE 9. INTRAGROUP NOTE (PAYABLE)/RECEIVABLE Following is a summary of intragroup note payable/receivable:

AAHF UNITS

Unsecured note payable to an intergroup party bearing interest at prime plus 2.00%, due December 31, 2012. 950,163$ (950,163)$

Unsecured note payable to an intergroup party bearing interest at prime plus 2.00%, due September 30, 2012. 146,096 (146,096)

Unsecured note payable to an intergroup party bearing interest at prime plus 2.00%, due December 31, 2012. 90,000 (90,000)

Note payable to an intergroup party bearing interest at prime plus 1.00%, due April 23, 2018, secured by property. 20,886 (20,886)

Total 1,207,145$ (1,207,145)$

Following are maturities of long-term intercompany payables for each of the next five years:

2012 1,189,259$ 2013 3,000 2014 3,000 2015 3,000 2016 3,000 2017 and thereafter 5,886

1,207,145$ Total


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NOTE 10. INTRAGROUP TRANSACTIONS During the course of operations, the Group had certain transactions between entities. Individual entity intragroup receivable and payable balances at December 31, 2011 arising from these transactions were as follows:

Receivable Payable

CAF HQ 321,696$ 18,299$ Combined units 9,818 362,478 AAHF 146,982 - AAHM 2,297 100,016

480,793$ 480,793$

NOTE 11. OPERATING LEASES

CAF has entered into several non-cancelable operating leases for equipment. In addition, CAF Units have leases for real and personal property, which are accounted for as non-cancelable operating leases.

Future minimum lease payments as of December 31, 2011 are as follows:

CAFOperating Units

2012 1$ 151,549$ 2013 1 140,427 2014 1 140,427 2015 1 128,366 2016 1 122,900 2017 and thereafter 24 637,397

Total 29$ 1,321,066$

NOTE 12. NET ASSETS

Net asset classifications and balances at December 31, 2011 are properly shown on the consolidating statement of financial position. The schedule on the following page provides classification detail. See Note 1 for individual fund descriptions and imposed restrictions.


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NOTE 12. NET ASSETS CONTINUED

CAF HQ -Temporarily restricted

Various funds 502,930$ (72,847)$ 430,083$ Unrestricted - general fund - Undesignated 4,495,864 1,027,888 5,523,752

4,998,794$ 955,041$ 5,953,835$ CAF Units

Temporarily restricted CAF Units 43,166$ 125,516$ 168,682$ AAHF Arizona Foundation - 51,775 51,775

Permanently restricted CAF Missouri Wing/USO

General operation endowment 235,000 - 235,000 Unrestricted

General fund - undesignated 8,520,702 (88,309) 8,432,393

8,798,868$ 88,982$ 8,887,850$ AAHF

Temporarily restrictedAircraft fund 2,317,116$ 119,638$ 2,436,754$ Officers' Club 726 401 1,127 Endowment 81,315 9,675 90,990 Headquarters 627,533 - 627,533

Permanently restrictedEndowment fund 2,888,416 184,298 3,072,714

Unrestricted - designated Endowment fund (514) (3,433) (3,947) Life member fund 922,390 57,765 980,155 Annuity fund 16,648 (1,291) 15,357

Unrestricted - undesignated (490,798) (100,584) (591,382) 6,362,832$ 266,469$ 6,629,301$

AAHMTemporarily restricted

Building and museum exhibit fund 212,807$ (106,120)$ 106,687$ Preservation 244,868 (17,651) 227,217 State funds 900,911 520 901,431 Seminar (221,689) 57,907 (163,782) Save the Girls 524,224 (52,162) 472,062 Education - (4,234) (4,234) Visitor services - 5,953 5,953

Permanently restrictedEndowment fund 13,356 1,218 14,574

Unrestricted - undesignated 2,792,657 (187,867) 2,604,790 Unrestricted - undesignated State Funds (269,593) (37,149) (306,742)

4,197,541$ (339,585)$ 3,857,956$ AAHFM

Unrestricted - undesignated 102$ -$ 102$

Balances December 31,

2011

Increase (Decrease) in

Net Assets

Balances December 31,

2010


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NOTE 13. ENDOWMENT FUNDS

Board Designated Endowment Funds and Quasi-Endowment Fund

As required by generally accepted accounting principles, net assets associated with endowment funds, including funds designated by the Board of Directors to function as endowments, are classified and reported based on the existence or absence of donor-imposed restrictions. The Groups Board of Directors established a quasi-endowment fund for the support and benefit of the CAF, the AAHFM and the AHM. This fund is temporarily restricted and all Foundation funds, except those funds necessary for its own administrative purposes, are deposited into this fund and are invested, held and administered by the Board as needed.

Interpretation of the Law

The Group has interpreted the Uniform Prudent Management of Institutional Funds Act (UPMIFA) as requiring the preservation of the fair value of the original gift as of the gift date of the donor-restricted endowment funds absent explicit donor stipulations to the contrary. As a result of this interpretation, the Group classifies as permanently restricted net assets: (a) the original value of gifts donated to the permanent endowment, (b) the original value of subsequent gifts to the permanent endowment, and (c) accumulations to the permanent endowment made in accordance with the direction of the applicable donor gift instrument at the time the accumulation is added to the fund. The remaining portion of the donor restricted endowment fund that is not classified in permanently restricted net assets is classified as unrestricted-designated quasi-endowment until those amounts are appropriated for expenditure by the organization in a manner consistent with the standard of prudence prescribed by UPMIFA.

Endowment Spending and Investment Policies

The Group has adopted investment and spending policies for endowment assets that attempt to provide a fairly predictable stream of funding to programs supported by its endowment funds while seeking to maintain the purchasing power of the endowment assets. Most assets are invested and are administered by Western National Bank Private Client Services in a manner that is intended to produce results with a moderate level of investment risk. A small portion of the assets are in interest bearing money market accounts. The Group expects its endowment funds, over time, to provide an average rate of return of approximately 8% percent annually. While actual returns in any given year may vary from this amount, the CAF General Staff may request up to a 5% market value distribution of income from the endowments.


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NOTE 13. ENDOWMENT FUNDS CONTINUED

Temporarily Restricted Permanently RestrictedNet Assets Net Assets

Quazi-Endowments Endowments

Endowment net assets, beginning of year 43,166$ 235,000$ Contribution 1,195,076 - Appropriation of endowment assets for expenditure (1,017,785) -

Endowment net assets, end of year 220,457$ 235,000$

CAF Units

Permanently Restricted

Unrestricted - Designated Net AssetsQuasi-Endowments Endowments

Endowment net assets, beginning of year 938,524$ 2,888,416$ Interest and dividends 26,600 1,895

Total investment return 26,600 1,895 Contribution 93,244 182,403 Appropriation of endowment assets for expenditure (66,803) -

Endowment net assets, end of year 991,565$ 3,072,714$

Foundation

Permanently RestrictedNet Assets

Endowments

Endowment net assets, beginning of year 13,356$ Interest and dividends 1,218 Total investment return 1,218 Endowment net assets, end of year 14,574$

Museum


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NOTE 14. CONTRIBUTED SERVICES

Contributions are recognized at their fair value if the services received (a) create or enhance nonfinancial assets or (b) require specialized skills that are provided by individuals possessing those skills and would typically need to be purchased if not provided by donation. Management determined that the total contributed services that met this definition were $1,089,787 and were recorded as contributions and charged to flight operations in the consolidating financial statements.

A substantial number of unpaid volunteers have made significant contributions of their time to develop the Groups programs, principally its aircraft operations and restoration. These donated services are not reflected in the consolidating financial statements since the services do not require specialized skills.

NOTE 15. FUNCTIONAL EXPENSES

Expenses incurred during the year ended December 31, 2011 were as follows:

Headquarters

Units and Supporting

Foundations Foundation MuseumProgram Aircraft preservation and maintenance 2,003,550$ 7,622,429$ 2,505,378$ 678,402$ Air shows and special events 584,294 2,603,791 - 3,726

Supporting General and administrative 837,392 820,085 17,588 195,610 Fundraising 351,824 1,105,372 - -

3,777,060$ 12,151,677$ 2,522,966$ 877,737$

NOTE 16. RELATED PARTY TRANSACTIONS

The American Airpower Heritage Group (the Group) consists of four entities as discussed in Note 1. As part of their operations, there are various transactions between the entities for various purposes. The recording of these transactions depends upon the underlying intent. If the transfer is a temporary advance, other intragroup receivables and payables are recorded. These amounts are reversed when the advance is repaid.


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NOTE 16. RELATED PARTY TRANSACTIONS CONTINUED Transactions from one corporation to another in accordance with operating agreements or other donor designations for fulfilling the mission of the Group are recorded as revenues of the receiving entity and as expenditures of the provider entity and are included in donations to or from affiliates. For the purposes of consolidating financial statements, all intercompany transactions have been eliminated.

NOTE 17. CURRENT YEAR AIRCRAFT COLLECTION PROCEEDS AND RESTORATION GRANT

During 2008, CAF general staff set up an intergroup grant for the restoration of aircraft. Through the restoration grant program, aircraft not being utilized by the CAF are sold and proceeds used for repairs and maintenance expenses of current aircraft. These funds are put into a temporarily restricted account and are used only for restoration purposes. Units seeking use of these funds submit a request for the funds needed and explanation of how the funds will be used. The restoration committee reviews requests and awards monies to Units for use on specific aircrafts.

In 2011 a plane was sold for $10,000 and those funds applied to the restoration grant program along with $1,250 of donations received for this program. A total of $224,650 was awarded to various units for multiple restoration projects and the purchase of one plane.

SUPPLEMENTAL INFORMATION

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MIDLAND 400 W. ILLINOIS, SUITE 1550, MIDLAND, TX 79701 P: (432)683.5226 F: (432)683.9182

WEAVER AND TIDWELL LLP CERTIFIED PUBLIC ACCOUNTANTS AND CONSULTANTS WWW.WEAVERLLP.COM

LOCATIONS THROUGHOUT TEXAS: AUSTIN DALLAS FORT WORTH HOUSTON MIDLAND ODESSA SAN ANTONIO

INDEPENDENT AUDITORS REPORT ON ADDITIONAL INFORMATION

Board of Directors American Airpower Heritage Group Midland, Texas We have audited the consolidating financial statements of American Airpower Heritage Group as of and for the year ended December 31, 2011, and have issued our report thereon dated August 3, 2012, which contained an unqualified opinion on those financial statements. Our audit was performed for the purpose of forming an opinion on the consolidating financial statements as a whole. The Consolidating Schedule of Departmental Revenue and Consolidating Schedule of Costs and Expenses are presented for the purposes of additional analysis and are not a required part of the consolidating 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 consolidating financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidating financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidating financial statements or to the consolidating financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all material respects in relation to the consolidating financial statements as a whole.

WEAVER AND TIDWELL, L.L.P. Midland, Texas August 3, 2012

AMERICAN AIRPOWER HERITAGE GROUP CONSOLIDATING SCHEDULE OF DEPARTMENTAL REVENUE


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Departmental CAF Eliminating Consolidated Revenue: HQ AAHM Entries Totals 2011

Air show 508,763$ 4,997,595$ -$ -$ 5,506,358$ 4,662,058$ Operating 599,809 1,614,276 - (536,331) 1,677,754 1,648,382 Sales 344,154 - 74,356 (110,003) 308,507 332,175 Special events 55,367 1,340,582 - - 1,395,949 1,199,256

1,508,093$ 7,952,453$ 74,356$ (646,334)$ 8,888,568$ 7,841,871$

and Supporting

FoundationsConsolidated Totals 2010

AMERICAN AIRPOWER HERITAGE GROUP CONSOLIDATING SCHEDULE OF COSTS AND EXPENSES


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CAF HQ Foundations AAHFCOST AND EXPENSES

Advertising and promotion 6,738$ 340,458$ -$ Aircraft insurance and ANUAC 2,625 488,872 - Aircraft maintenance 75,000 1,986,467 1,017,282 Air show expense 492,417 1,647,528 - Amortization 302 - - Bad debt (5,619) 2,580 3,850 Contract services 41,258 79,077 30,572 Cost of merchandise sold 183,323 773,768 - Depreciation 251,947 255,213 - Designated expenses 31,972 - 4,099 Donations to affiliates 192,080 75,000 1,350,786 Dues and subscriptions 8,349 33,622 - Entertainment 4,839 23,108 - Equipment rental 25,118 45,809 - Exhibits expense - 20,194 - Fuel and oil - 1,016,527 - Fundraising - agency fees 47,012 109,027 - Fundraising expense 304,812 996,345 - Garden expense - - - Insurance 59,847 727,403 - Interest (17) 109,515 62,860 Miscellaneous and other 63,292 153,512 40,560 Operating expenses 16,867 417,715 (898) Other expense 9,918 - - Payroll and payroll related expenses 1,241,905 329,551 - Printing and production 101,752 75,311 - Professional fees 76,928 338,984 - Rent 784,000 496,107 - Rent - other 1 - - Repairs and maintenance 25,412 184,454 - Shipping and freight 70,315 29,305 - Special events 91,877 956,263 - Supplies 131,266 106,599 13,855 Taxes and licenses 23,205 - - Telephone and utilities 106,308 211,267 - Transportation expense 6,154 - - Travel and meetings 89,857 122,096 -

TOTAL COSTS AND EXPENSES 4,561,060$ 12,151,677$ 2,522,966$

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EliminatingAAHM AAHFM Entries

13,929$ -$ -$ 361,125$ 276,730$ - - (491,497) - 100,813 - - - 3,078,749 2,428,064 - - - 2,139,945 2,239,158

7,870 - - 8,172 8,172 139 - - 950 63,570

154,714 - - 305,621 304,833 13,232 - - 970,323 775,295

290,217 - - 797,377 774,804 - - - 36,071 58,021 - - (1,617,866) - -

21,905 - - 63,876 38,885 76 - - 28,023 6,418

706 - - 71,633 82,097 - - - 20,194 8,754 - - (110,003) 906,524 486,813 - - - 156,039 146,018 - - - 1,301,157 1,144,899

5,279 - - 5,279 1,268 29,613 - - 816,863 683,384 3,314 - (73,032) 102,640 87,464

33,816 - - 291,180 373,079 10,622 - - 444,306 129,587

- - - 9,918 117,263 90,145 - - 1,661,601 1,485,661

- - - 177,063 101,324 49,996 - - 465,908 454,293

- - (16,800) 1,263,307 481,628 - - - 1 1

16,801 - - 226,667 203,415 3,494 - - 103,114 112,468 3,726 - - 1,051,866 830,372

21,881 - - 273,601 248,053 - - - 23,205 10,379

94,164 - - 411,739 434,586 - - - 6,154 10,220

12,098 - - 224,051 158,169

877,737$ -$ (2,309,198)$ 17,804,242$ 14,865,958$



Commemorative Air Force 2011 Audit

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