APS Treasurer’s Report

Board Meeting PresentationAugust 15, 2012

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Operational Spending Overview

• Operating Expense $4 million/year• Breakout: $3.6 Million APS & $375k APRL• Operating Within a Balanced Budget– We Provide Services Our Dues & Income Allow

• Funding Depreciation– Allowing for Future Repairs on Capital Plan

• Donor Dollars Pay For Capital Projects and Reducing Mortgage Debt

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Audit Results

• Clean audit record• Improved asset position• No needed changes• All tax filings are in order

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Investment Results

• Successfully changed investment advisors• New advisor has rebalanced our portfolio• Solid performance in tricky market• Loss in prior year – tracking market conditions• Plan to retain funds in account, no changes

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Where Operational Expenses Go

APS APRL Total $4.0 Million

• Staffing /Benefits APS $1.7 million• Printing/Postage/Credit Card/ COGS $750k• Mortgage (to principal) $120k• Shows/Meetings/Travel/Seminars $550k• Office/Committees/Dues Collection/Other $150k• Recruiting/Promotion $145k• Audit/Legal $ 90k• Library (Library Expense $200k, Staff $175k) $375k

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Our InvestmentsAPS Investments Total: $2.0 Million

Restricted Funds Comprised of:

– Insurance Fund – Circuit Sales, Internet Sales and Expertizing

– Tiffany Endowment Fund – Life Membership Fund– General Fund – Publications Fund

APRL Investments Total: $1.3 Million Restricted Funds Comprised of:

– Endowment Funds– Includes Endowment, Founder/Patron and Vooys Harrison Funds

– Building Fund– Life Membership Fund– Operating Fund– includes construction in progress 6

Business Risks & Financial Impact

• Mortgage Interest Rate Adjustment Up • It is about as low as it can go, until it goes lower

• Significant Loss of Donations• Membership Decline

• Constant job to keep our 34,000+ members• Working number of $60,000 gross dues loss/year

• Unexpected Litigation & Other Similar Risks• Insurance Rate Increases – Market Driven• Asset Related Risk

Tenant Loss, Building Capital Needs, Flood 7

Business Risk Quick Facts• Membership Loss

– $60,000 gross income loss , at 1,300 members per year – $26,000 net income loss, after costs of members services

• Legal Costs– Typical Year $15,000 for base legal services– Highest Year $65,000 for base services and litigation expense

• Insurance Cost Structure Change– Medical Increase $20,000 or more , Property Insurance Increase – Low Cost– Flood cost $6,000 Insurance Deductible, Building & Contents

• Mortgage Reset Interest Rate – a 2% bump would cost:– $120,000/yr operating expense additional estimated – Resets happen only once every five years

• Tenant Move or Non Payment– Larger tenants have longer term leases and high credit rating and good payment history8

Solutions Focused: Business Risk

Remedies to Cost Increases or Member Loss• Dues Increase• Service Cost Increase– Advertising, Circuit Sales, ISU, Expertizing

• Service Level Decrease – Technology Options• Shrink Our Space• Further Leasing of Unoccupied Space • Staffing and Operating Expense Reductions

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Philatelic Assets & Values

• APC Property $9.755m book value– Value of asset improved with our construction– Mortgage Liability $6.1m

• Philatelic Reference Collection $1.5 million• APRL Assets – Our Unique Holdings $1 million• All assets except the Reference Collection are

collateral for loans

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Match Factory Asset & Expenditure• Construction For New Tenants – Spending with Signed New Lease• Building 5, 2nd and 3rd floors for UCBH lease $1.2 million

– 7 year lease at $180k/year rent - Positive Cash Flow

• Spending for Asset Preservation• Roof & Windows 2011, 2012 Bathrooms, Floors & Halls

• Pay off the Mortgage - $6.1 Million Needed– Four separate bank loans at 3.3 to 5.2%– One internal loan at 3.8%

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Major Capital ProjectsAPRL

• New Library– $1.8 million Estimate to Completion, $300k in hand – $400k – Spent to Date on Library Shell & Assets

• Digitize Philatelic Materials– $150k - AP & APRL all issues– $10k Digitize Books in Library

• limited by copyright issues for material after 1923

– Other Library Materials (Belmont Faries) $10k• Other Technology Investments

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Rental Income and Mortgage

• Tenants Paid $388k in Rental Payments in 2011 – Covering our Mortgage Expense

• APS Pays $10k/month rent (goes to principal)• Practically Speaking:

APC Tenants Allow Us to Live Rent FreeOur Rent Income is Growing

• Current tenants have low risk of moving out

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Rental Prospects and Return

• Space We Can Market for $75k/year+– Building 5-1 – 4,000 sf for Office Use– Building 10 – 5,300 sf Flexible Space, Easy to Fit

• Maximum Rental of Unoccupied $250k/year+– 16,500 sf in total at rental rate of $16/sf market rate– Includes Existing Library – 7,500 sf– Capital Expenditure Required to Finish Space– Rental of Unoccupied Space Provides double digit returns

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Role of Treasurer

Bylaws Present: 6.5 The Treasurer.• (a) The Treasurer shall oversee the investments of the

Society subject to the supervision of the Board of Directors.

• (b) The Treasurer shall advise the Executive Director in all matters concerning the financial duties discharged at the National Headquarters.

• (c) The Treasurer shall in collaboration with the Executive Director present an annual financial report and a report of budgetary requirements.

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Treasurer Responsibilities

• Review Processes & Activities w Controller• Heads Up Committees:– Finance, Audit and Investments

• Signs Off on Spending Vouchers • Reviews Reporting Tools:– Audit Recommendations, Monthly Spending,

Budget Package, Investment Reports• Advises on Capital Spending & Real Estate

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Schedule of Financial Activities

• Calendar Year – January – December Tracking• Finance Committee Reviews - Quarterly• Budget Development – August & September• Budget to Treasurer & Finance Comm. – October• Budget Approved by Board – October End• Audit Preparation – January -March• Audit – April • Audit Results to Finance Committee - July

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Financial Management Thoughts

• Ended - Era of Crisis Financial Management• Continued Impact of Membership Loss• Maintained an Era of Responsible Financial

Management • Board Members Need Financial Understanding• We Need to Remain Future Focused & Careful• Avoid Complacency

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Looking Back: Financial Comments from April 2010 Board Presentation

• Leaving - Era of Crisis Financial Management– Managing Cash Flow– Month to Month, Year to Prior Year Focus

• Entered – Era of Responsible Financial Management – Financial Prudence Tone– Long Range Planning Tools– Focused & Involved Boards– Unity of Purpose

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What Changed to Stabilize Finances

• Phase I Savings 2008 – Staff & Board Cost Cuts• Phase II Savings 2009 – Operational Changes• Bauer Estate Funds • Rent Income – Graymont Lease Turned Corner• Stable Mortgage Cost – Low Interest Rates• Cleared Litigation Expense Volatility• Prudence - Discipline in Spending

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Financial Turn Around Summary

• Phase I Savings $1,080k 2009 $300k , 2010 $390k, 2011 $390k

• Phase IA & II Savings $490k 2009 $0k , 2010 $220k, 2011 $270k

• Bauer Estate Donation $815k to date• Graymont Rent for 2011 $85k• Mortgage Interest Rate Drop $100k

four years at $25k/year

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What Financial Stability Means

• Not Borrowing from Investments for Cash Flow– Investments or held Sales Division funds $1.3 million

• Putting Donor Dollars to Work – Long Term Projects vs. Operating Expense Use

• Responsibly Maintaining Our Assets– Backlog of Roof Replacement and Capital Projects

• Regaining a Future Focus instead of Cash Crisis

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