Statement of Financial Position
Statement of Financial Position As of March 31, (Unaudited) Assets Cash and Cash Equivalents Merchandise Inventory Pledges and Accounts Receivable Less: Discounts and Allowances for Uncollectible Prepaid Expenses Total Current Assets Investments Fixed Assets (including Construction in Progress) Less: Accumulated Depreciation and Amortization Other Assets Total Assets Liabilities: Accounts and Other Payables
2017 $ 655,125 128,684
2016 $ 545,773 108,955
322,325 122,587 1,228,721
305,792 115,488 1,076,008
46,790,000
41,502,803
5,154,973 363,302
4,382,551 301,955
$ 53,536,996
$ 47,263,317
$
$
346,440 (24,115)
12,440,629 (7,285,656)
181,276
198,673
Agency Deposits
1,161,450
997,857
Deferred Income and Unearned Life Memberships
9,087,102
8,730,964
363,302
301,955
10,793,130
10,229,449
2,000,000 1,215,000 9,423,911 10,738,086 23,376,997 15,238,337 4,128,532
2,012,185 4,412,876 7,053,766 13,478,827 18,946,743 4,608,298
42,743,866
37,033,868
$ 53,536,996
$ 47,263,317
Other Liabilities Total Liabilities Net Assets: Unrestricted – AOG Operating Reserve Unrestricted-designated – for Short-term Purposes Unrestricted-designated – for Endowments Unrestricted-undesignated Total Unrestricted Net Assets Temporarily Restricted Permanently Restricted Total Net Assets Total Liabilities and Net Assets
1
Operating Statement of Activities For the Fiscal Period Ended March 31, 2017 (Unaudited) YTD Actual Revenues Donations and Contributions Membership Dues Merchandising Member Services Advertising and Sponsorships Reunion Services Administration Fees Conferences Royalties Football Tickets and Tailgates Activities and Social Events Miscellaneous Income Subsidy from Endowment Transfers from/(to) Restricted Funds Total Revenues
Variance
223,570 625,500 356,878 11,245 459,500 177,010 34,300 220,000 125,900 33,900 104,545 38,178 664,013 3,074,539
Operating Expenses Salaries and Wages Payroll Taxes Benefits Grants from Unrestricted Funds Board Governance Costs Professional Services Professional Printing Postage and Shipping Merchandise Cost of Sales Insurance and Bonding Employee Travel and Meals Social Events and Meetings Office Supplies Advertising and Corporate Promotion Office Expenses Employee Training and Education Facilities Expenses Depreciation and Amortization Total Operating Expenses
1,528,104 115,618 190,896 3,474 92,946 185,553 207,654 79,306 264,521 26,078 77,272 194,807 19,130 100,083 87,629 17,360 199,698 432,336 3,822,465
1,570,519 125,060 171,227 2,500 114,348 171,951 175,755 77,400 219,246 26,423 85,878 185,573 21,670 116,756 34,033 11,765 204,650 318,150 3,632,904
(42,415) (9,442) 19,669 974 (21,402) 13,602 31,899 1,906 45,275 (345) (8,606) 9,234 (2,540) (16,673) 53,596 5,595 (4,952) 114,186 189,561
1,624,612 119,751 167,907 3,609 104,091 155,108 142,821 69,922 240,600 23,189 80,404 220,324 25,033 111,198 32,413 7,304 197,158 305,263 3,630,707
OPERATING SURPLUS/(DEFICIT)
(778,144)
(558,365)
(219,779)
(59,270)
Other Income and Deductions Investment Interest & Dividends Realized/Unrealized Gains/Losses (net) Total Other Income and Deductions
446,510 3,473,041 3,919,551
378,412 324,255 702,667
68,098 3,148,786 3,216,884
387,047 (2,644,605) (2,257,558)
2,997,105
$ (2,316,828)
$ 3,141,407
2
$
144,302
$
$
14,121 (10,405) 58,735 2,785 6,715 29,203 (686) 32,983 460 (14,009) 8,249 6,440 (164,669) (140) (30,218)
PY YTD
237,691 615,095 415,613 14,030 466,215 206,213 33,614 252,983 126,360 19,891 112,794 44,618 499,344 (140) 3,044,321
NET SURPLUS/(DEFICIT)
$
YTD Budget
$
226,457 612,914 370,321 12,128 501,134 190,883 32,309 220,637 122,250 62,451 92,331 40,975 489,525 597,122 3,571,437
Operating Statement of Cash Flows For the Fiscal Period Ended March 31, (Unaudited) 2017 CASH FLOWS FROM OPERATING ACTIVITIES Net surplus/(deficit) for the period
$ 3,141,407
Adjustments to reconcile net income to net cash provided (used) by operating activities: Non-cash (income) expenses: Depreciation Unrealized (gains) losses on investments Changes in operating assets and liabilities: Accounts receivable Contributions receivable, net Inventory and prepaid expenses Accounts payable and accrued expenses Construction-in-progress and other assets Deferred revenue Other liabilities Net cash (used in) provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments Proceeds from the sale of investments Purchases of property and equipment Net cash used in investing activities
Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of year $
3
(2,316,828)
432,336 (1,343,634)
305,263 4,025,780
30,236 (85,214) (27,756) (48,790) (34,266) 48,790 2,113,109
42,716 (768) (24,407) (47,196) (15,909) (14,917) 15,909 1,969,643
(17,902,644) (17,214,932) 13,579,360 12,454,914 (195,386) (156,165) (4,518,670) (4,916,183)
CASH FLOWS FROM FINANCING ACTIVITIES Net cash collected/(expended) for long-term purposes Net cash (used in) provided by financing activities
Cash and cash equivalents at March 31,
2016
1,004,960 1,004,960
2,928,067 2,928,067
(1,400,601)
(18,473)
2,055,726
564,246
655,125
$
545,773
Funds Held in Short-term Accounts For the Fiscal Period Ended March 31, 2017 (Unaudited) Actual 600
Percentage 0.09%
654,525
99.91%
$ 655,125
100.00%
$
Petty Cash Operating Funds in Bank TOTAL
Schedule of Investments For the Fiscal Period Ended March 31, (Unaudited) 2017 7,139,960
% 15.26%
Target 15.0%
Max 20.0%
U. S. Equities (value and growth)
13,248,016
33.41%
30.0%
50.0%
International Equities
13,135,451
33.13%
30.0%
50.0%
Emerging Markets
2,011,425
5.07%
5.0%
10.0%
Real Estate/REITs
973,330
2.46%
5.0%
15.0%
Fixed Income
4,018,121
10.13%
10.0%
30.0%
Alternatives
4,012,247
10.12%
15.0%
20.0%
Master Limited Partnerships
2,251,450
5.68%
5.0%
10.0%
Investable Cash and unsold stock
-
-
-
Total Long-term Investment Pool
39,650,040
100.00%
100.0%
46,790,000
100.00%
100.0%
Short-term Investment Pool
TOTAL
$
$
4
- 10.0%
Schedule of Capital Additions For the Fiscal Period Ended March 31, 2017 (Unaudited) Actual Paid with operating funds: Building and Grounds Landscaping Office Equipment Vehicles Furniture & Fixtures Computer Equipment Sabers Maintenance Equipment Other (incl. available IBM credits) Capitalized Lease-Furniture Capitalized Software Costs
$
Total for operating funds Paid with restricted funds: Air Conditioning Control System Heritage Trail Asphalt/Concrete Replace Fire Alarm Control Panel Office-area South Entrance Upgrade Total for restricted funds $
TOTAL
5
9,259 23,564 25,402 3,000 17,514
Budget $
15,000 11,300 30,400 3,650
78,739
60,350
99,402 12,360 4,885 -
103,000 -
116,647
103,000
195,386
$
163,350
Operating Statement of Activities - Cash Basis For the Fiscal Period Ended March 31, 2017 (Unaudited) YTD Actual Revenues Investment Income and Distributions Donations and Contributions Membership Dues Merchandising Member Services Advertising and Sponsorships Reunion Services Administration Fees Conferences Royalties Football Tickets and Tailgates Activities and Social Events Miscellaneous Income Subsidy from Endowment Transfers from/(to) Restricted Funds Total Revenues
$
464,957 195,613 458,090 415,572 14,030 433,949 220,688 33,614 252,983 126,360 19,891 113,778 44,214 570,495 (140) 3,364,094
YTD Budget $
650,000 223,570 468,000 356,878 11,245 459,500 177,010 34,300 220,000 125,900 33,900 104,545 38,178 664,013 3,567,039
Variance $
(185,043) (27,957) (9,910) 58,694 2,785 (25,551) 43,678 (686) 32,983 460 (14,009) 9,233 6,036 (93,518) (140) (202,945)
PY YTD $
65,161 203,616 455,830 363,506 12,128 491,959 190,882 32,309 220,637 117,960 62,451 84,981 40,806 573,929 597,122 3,513,277
Operating Expenses Salaries and Wages Payroll Taxes Benefits Grants from Unrestricted Funds Board Governance Costs Professional Services Professional Printing Postage and Shipping Merchandise Purchases Insurance and Bonding Employee Travel and Meals Social Events and Meetings Office Supplies Advertising and Corporate Promotion Office Expenses Employee Training and Education Facilities Expenses Total Operating Expenses
1,528,104 115,618 190,941 4,974 92,946 184,177 207,802 79,306 302,303 35,114 77,272 182,624 19,130 93,014 92,077 18,527 241,731 3,465,660
1,570,519 125,060 171,227 2,500 114,348 171,951 175,755 77,400 261,825 36,812 85,878 185,573 21,670 116,756 34,033 11,765 204,650 3,367,722
(42,415) (9,442) 19,714 2,474 (21,402) 12,226 32,047 1,906 40,478 (1,698) (8,606) (2,949) (2,540) (23,742) 58,044 6,762 37,081 97,938
1,624,612 119,751 167,907 3,609 101,591 166,926 142,821 69,917 218,744 34,728 80,404 232,864 25,033 102,696 44,155 8,346 239,941 3,384,045
OPERATING SURPLUS/(DEFICIT)
(101,566)
199,317
(300,883)
129,232
78,739
45,263
33,476
37,613
Operating Capital Purchases NET SURPLUS/(DEFICIT)
$
(180,305)
6
$
154,054
$
(334,359)
$
91,619
Unaudited Financial Statements For the Fiscal Period Ended March 31, 2017 Management Discussion and Analysis
Financial Results The enclosed preliminary financial results through the third quarter ended March 31, 2017 (pages 1 through 5) were prepared in accordance with generally accepted accounting principles (GAAP). Page 6 represents a Cash Basis Operating Statement as additional information. For comparability purposes the prior year-to-date information is shown as it was reported at the time. Page 1 shows the financial position of the AOG as of the end of the quarter compared to the previous year as reported at the time. The total assets of the organization were about $53.54 million, an increase of just over $6.27 million [13.27%] from $47.26 million at March 31 the previous year, primarily growth of the investment portfolio that began in July 2016. Fixed assets increased by the inclusion of the Plaza of Heroes Pavilion. Liabilities of the organization (primarily the unearned life membership funds) increased by about $564,000 year-over-year. Unrestricted net assets reflect funds that the Board has designated [$2.0 million] as the base reserve; designated funds to support restricted purposes, where the Board has discretion to modify the support in the future; as well as the balance of the funds remaining at March 31 to support the USAFA Endowment’s capital campaign and other Academy aviation training needs. Total net assets increased by just under $5.71 million year-over-year, again, largely resulting from the allocation of investment returns. The Operating Statement of Activities shows preliminary operating results through the third quarter with approximately $3.044 million in operating revenues, and operating expenses of about $3.822 million. The result is an operating deficit of about $778,100, versus a budgeted deficit of $558,400. Overall, while revenues fell short of the annual budget by only about $30,200 [0.98%], operating expenses were about 5.22% [about $189,600] higher than anticipated, the majority of it the (non-cash) depreciation expense for the Plaza of Heroes not being included in the budget. Compared to the previous year as reported, the operating results were off by about $718,900. Excluding the two Francis Bennett contributions to operations of $597,122 in FY 2016, total revenues would have been higher by about $70,000, while operating expenses were larger by about $191,800, or 5.3%. While there were plus and minus variances in most cost elements, those of note include: salaries and wages, reflecting an additional pay period in the prior year; office expenses, showing the effect of the restructured annual operating contract with the Endowment; and, the depreciation increase for addition of the Plaza of Heroes Pavilion. Investment income allocation to operations through March 31 was approximately $3.92 million. The remaining returns not reflected on the operating statement have
7
been allocated to temporarily restricted funds and the temporary portion of endowments in accordance with the Financial Management and Investment Policy (FMIP). For operations, there was a net GAAP-basis surplus of approximately $3.141 million in these preliminary statements through the third quarter. Revenues Donations and contributions reflect new direct gifts from donors (including the unexpected AOG share of the Robert Mazet estate distribution) and recognized gifts-in-kind, which resulted in a positive variance of about $14,100 to the year-to-date budget. While membership dues were right in line with the previous year, they were about 1.7% below expectations for the year in the Class Club membership. They were, however, offset by increases to budget in the other membership types – family, Husky, and annual. We continue campaigns to attract cadets, parents and non-member graduates to the Academy and their alma mater. Year-to-date, the revenue shown consisted of $157,500 of recognized life memberships and approximately $457,600 of new and continuing other memberships. Strong merchandising through the third quarter far exceeded the budget, by almost 16.5%, and represented a 12.2% increase from the previous year merchandise sales. Advertising and sponsorship revenue slightly surpassed the third quarter budget by approximately 1.5%. The results include the procurement of a number of new event sponsors, and renewals for tailgates and True Blue local community involvement. Reunion services revenue reflects administration fees and events for the reunions that took place through the cycle. Second quarter registrations were very strong, especially the 1966 and 1976 classes for their reunion weekends. Net event revenue from actual turnout was approximately 16.5% greater than the budget and more than 8% better than FY 2016. Administration fees for management of the investment portfolio that is apportioned to endowments, quasi-endowments and agency funds was slightly under expectations, but surpassed the previous year. Conference revenue shown is exclusively from the income allocated to the AOG from the Service Academy Career Conference (SACC) and exceeded expectations through March by about 15%. The royalty income received was right in line with budget expectations. Year-to-date tailgate registration income was $14,000 below what was anticipated primarily because of reduced registration fees charged for the tailgates at the Cotton Bowl and Arizona Bowl. Activities and social events revenue for fee-based special events grew strong during the third quarter and ended almost 8% over budget, but may
8
primarily be a timing variance of various chapter registrations received for Founders Day events that are to be paid back out in April. Miscellaneous income reflects higher than anticipated year-to-date service revenue from the event management software charges and unbudgeted affinity revenue from sources like USAA and AmazonSmile programs. The subsidy revenue from the USAFA Endowment was below year-to-date expectations by about $164,700 and reflects the recognized proportionate share of contributions between July 2016 and February 2017 for Air Force Academy Fund receipts and reversal of the year-end accrual for June 2016.
Expenses Salaries and wages through March were about $42,400 below the year-todate budget primarily reflecting the shift of a budgeted staff member to the USAFA Endowment with the restructure of the annual operating contract (AOC), effective July 1, 2016. All elements of payroll taxes, including Social Security, Colorado unemployment, and Medicare taxes were below budget expectations; they follow, proportionately, the lower salaries and wages. Though benefits paid reflect the better-than-expected negotiated renewal medical insurance premiums, the posted expenses for all insurance coverage reflect premium payments for April because payment must be received prior to the month of such coverage. AOG-paid contributions to the 401k retirement plan (safe harbor and matching contributions) were slightly lower than budgeted. Grants from unrestricted funds included a non-cash gift-in-kind of Bed-andBreakfast appointees for the Prep School, which was not forecast in the budget, as well as support to a local Boy Scout troop. Year-to-date board governance costs were well under the budget, primarily due to less allocated staff salaries and wages. The costs for professional services were about 7.9% higher than budget through the third quarter, primarily because of higher than anticipated contractor work for parent membership and non-budgeted contractor chapter support. Year-to-date professional printing charges include the earlier-than-budgeted costs for the March Checkpoints magazine edition. Total costs were 18% over budget. Actual expenditures for postage and shipping were close to the year-to-date expectations, approximately 2.5% higher than the anticipated third quarter budget. The merchandise cost of sales reflects the FIFO inventory valuation method and the higher volume of sales year-to-date .
9
Sales Cost of Sales Gross margin
Actuals $ 415,613 100.0% 264,521 63.6% $ 151,092 36.4%
Budget $ 356,878 100.0% 219,246 61.4% $ 137,632 38.6%
All elements of employee travel and meals, except slightly higher airfare, were below the year-to-date budget, largely due to good cost containment efforts. In total they were about 10% below expectations. Year-to-date social events and meeting expenses were about 5% higher than anticipated through March, largely due to more busing transportation expenses for the class reunions than expected. Office supplies through March for programs, as well as janitorial and kitchen supplies were about 11.7% below the year-to-date budget. Advertising and corporate promotion expenses through the quarter ended March 31 were more than 14% below the year-to-date budget though some expenses incurred using corporate credit cards for communications and general and administrative functions have not yet been posted. The costs captured in other office expenses are offset by the annual operating contract payment from the Endowment for rent and AOG support in Doolittle Hall. The restructure of that agreement, effective July 1, reduced that credit about in half, but is also reflected in lower salaries and wages. The approved budget did not anticipate the restructure of the agreement, so a negative variance to the budget results. The employee training and education expenditures reflect fees for CASE and Blackbaud conference attendance, with more IT staff participating at the Blackbaud seminar in anticipation of the conversion to the NXT platform for Raisers Edge and Financial Edge. Year-to-date facilities expenses were primarily lower for repair and maintenance expenditures year-to-date, delayed utilities billings from DFAS, as well as lower vehicle maintenance expenses than anticipated. Depreciation and amortization costs far exceeded the year-to-date budget primarily because the Plaza of Heroes Pavilion was not included when the budget was prepared.
Investment Income The investment results allocated to AOG operations reflected net market gains in all sectors except the small real estate fund. Excluding those sectors, the total fiscal year balanced portfolio through February registered a 15.19% year return and 6.26% return from inception in October 2003. Net allocated gains were approximately $3.919 million, consisting of investment interest and dividends received and reinvested of approximately $446,500 and net realized and unrealized (market) gains of about $3.476 million. There were also allocated advisor management fees of
10
about $3,000. For March about 60.49% of the entire portfolio investment results were allocated to AOG operations, based on the guidelines of the FMIP.
Operating Statement of Cash Flows The statement of cash flows on page 3 shows that there was a net decrease in cash and cash equivalent funds for the two quarters of about $1.40 million from the beginning of the fiscal year.
Funds Held in Short-term Accounts The supplemental information regarding cash and cash equivalent accounts showed operating funds of about $655,100, including petty cash at March 31. Short-term investable cash held at our custodian is reflected in investments report.
Schedule of Investments Investment sector values through March 31 were reflected in the supplemental schedule on page 4, and compares the actual allocation to the target percentage as provided for in the FMIP. There were market gains in every sector except the real estate holding. The portfolio was restructured in March to lower risk by adding several index funds in their respective sectors, and by segregating it into two duration oriented pools. All of the portfolio securities values through March, except the foreign managed real estate investment trust, had been received by the preparation time for these financial statements; that asset has been in liquidation since earlier 2010.
Schedule of Capital Additions The schedule on page 5 showed capital purchases through the end of the third quarter and reflects the expenditures by operations and restricted funds, in accordance with the approved fiscal year budget. There would be a transfer of funds to operations for those fixed assets supported by restricted funds – other than the Doolittle Hall building endowment – which will then be reflected on the Statement of Activities.
Cash Basis Operating Statement of Activities The final page of the presented financial statements (page 6) is the comparison of the cash flow activities to the year-to-date cash budget for operations only. The statement shows that the organization had a deficit of approximately $101,600 from operating functions and about an $180,300 net deficit after operating capital purchases. The deficits were temporary, as the CFO waited to transfer operating funds to the organization until April, when a significant request for restricted gifts (about $2.6 million) was anticipated from the Academy.
11
Revenues Investment income and distributions reflected several draws for operations during the second quarter, plus the operating account bank interest through the end of the March quarter. Total donations and contributions recognized were all one-time gifts received from various donors. Membership dues received and recognized included about $49,600 in annual memberships and about $408,500 of class club, parent, and family memberships. Because of the uncertainty as to timing, cash memberships are prorated evenly over four quarters for the fiscal year budget. Subsidy from the Endowment reflected actual receipts from June 2016 through February 2017 of allocated USAFA Endowment Air Force Academy Fund gifts transferred to the AOG. The allocated share received by the AOG through March 31 is about 14% below budget expectations. All other revenue receipts have been addressed in the GAAP-basis discussion and are relevant to the cash-basis reporting. Expenses Merchandise purchases on a cash basis, including corresponding shipping costs, represent non-inventory merchandise bought during the reporting period, as well as inventory stocking and restocking of new and longstanding items. Actual expenditures exceeded the expected (prorated) spending rate budget through March by about 15.5%. The insurance and bonding premium payments were made for all renewed lines of coverage in March, and were slightly below what was expected on a cash basis. Advertising and corporate promotion expenditures on a cash basis do not include the recognized value of give-away items that were not purchased during the fiscal year, reflecting the GAAP-basis reporting variance. The employee training and education difference to the GAAP-basis presentation reflects an annual subscription that is amortized over 12 months. Year-to-date facilities expenses paid were significantly higher [about 21%] than the GAAP-basis expenses largely due to the annual maintenance fees paid during the year for Blackbaud products (Raisers Edge, Financial Edge, Net Community) NXT versions, each of which were deferred and amortized over the succeeding 12 months after payment for GAAP accounting purposes. All other significant cost elements have been discussed in the previous accrual basis analysis and are relevant to cash basis reporting.
12
2017 $ 655,125 128,684
2016 $ 545,773 108,955
322,325 122,587 1,228,721
305,792 115,488 1,076,008
46,790,000
41,502,803
5,154,973 363,302
4,382,551 301,955
$ 53,536,996
$ 47,263,317
$
$
346,440 (24,115)
12,440,629 (7,285,656)
181,276
198,673
Agency Deposits
1,161,450
997,857
Deferred Income and Unearned Life Memberships
9,087,102
8,730,964
363,302
301,955
10,793,130
10,229,449
2,000,000 1,215,000 9,423,911 10,738,086 23,376,997 15,238,337 4,128,532
2,012,185 4,412,876 7,053,766 13,478,827 18,946,743 4,608,298
42,743,866
37,033,868
$ 53,536,996
$ 47,263,317
Other Liabilities Total Liabilities Net Assets: Unrestricted – AOG Operating Reserve Unrestricted-designated – for Short-term Purposes Unrestricted-designated – for Endowments Unrestricted-undesignated Total Unrestricted Net Assets Temporarily Restricted Permanently Restricted Total Net Assets Total Liabilities and Net Assets
1
Operating Statement of Activities For the Fiscal Period Ended March 31, 2017 (Unaudited) YTD Actual Revenues Donations and Contributions Membership Dues Merchandising Member Services Advertising and Sponsorships Reunion Services Administration Fees Conferences Royalties Football Tickets and Tailgates Activities and Social Events Miscellaneous Income Subsidy from Endowment Transfers from/(to) Restricted Funds Total Revenues
Variance
223,570 625,500 356,878 11,245 459,500 177,010 34,300 220,000 125,900 33,900 104,545 38,178 664,013 3,074,539
Operating Expenses Salaries and Wages Payroll Taxes Benefits Grants from Unrestricted Funds Board Governance Costs Professional Services Professional Printing Postage and Shipping Merchandise Cost of Sales Insurance and Bonding Employee Travel and Meals Social Events and Meetings Office Supplies Advertising and Corporate Promotion Office Expenses Employee Training and Education Facilities Expenses Depreciation and Amortization Total Operating Expenses
1,528,104 115,618 190,896 3,474 92,946 185,553 207,654 79,306 264,521 26,078 77,272 194,807 19,130 100,083 87,629 17,360 199,698 432,336 3,822,465
1,570,519 125,060 171,227 2,500 114,348 171,951 175,755 77,400 219,246 26,423 85,878 185,573 21,670 116,756 34,033 11,765 204,650 318,150 3,632,904
(42,415) (9,442) 19,669 974 (21,402) 13,602 31,899 1,906 45,275 (345) (8,606) 9,234 (2,540) (16,673) 53,596 5,595 (4,952) 114,186 189,561
1,624,612 119,751 167,907 3,609 104,091 155,108 142,821 69,922 240,600 23,189 80,404 220,324 25,033 111,198 32,413 7,304 197,158 305,263 3,630,707
OPERATING SURPLUS/(DEFICIT)
(778,144)
(558,365)
(219,779)
(59,270)
Other Income and Deductions Investment Interest & Dividends Realized/Unrealized Gains/Losses (net) Total Other Income and Deductions
446,510 3,473,041 3,919,551
378,412 324,255 702,667
68,098 3,148,786 3,216,884
387,047 (2,644,605) (2,257,558)
2,997,105
$ (2,316,828)
$ 3,141,407
2
$
144,302
$
$
14,121 (10,405) 58,735 2,785 6,715 29,203 (686) 32,983 460 (14,009) 8,249 6,440 (164,669) (140) (30,218)
PY YTD
237,691 615,095 415,613 14,030 466,215 206,213 33,614 252,983 126,360 19,891 112,794 44,618 499,344 (140) 3,044,321
NET SURPLUS/(DEFICIT)
$
YTD Budget
$
226,457 612,914 370,321 12,128 501,134 190,883 32,309 220,637 122,250 62,451 92,331 40,975 489,525 597,122 3,571,437
Operating Statement of Cash Flows For the Fiscal Period Ended March 31, (Unaudited) 2017 CASH FLOWS FROM OPERATING ACTIVITIES Net surplus/(deficit) for the period
$ 3,141,407
Adjustments to reconcile net income to net cash provided (used) by operating activities: Non-cash (income) expenses: Depreciation Unrealized (gains) losses on investments Changes in operating assets and liabilities: Accounts receivable Contributions receivable, net Inventory and prepaid expenses Accounts payable and accrued expenses Construction-in-progress and other assets Deferred revenue Other liabilities Net cash (used in) provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchases of investments Proceeds from the sale of investments Purchases of property and equipment Net cash used in investing activities
Net decrease in cash and cash equivalents Cash and cash equivalents, beginning of year $
3
(2,316,828)
432,336 (1,343,634)
305,263 4,025,780
30,236 (85,214) (27,756) (48,790) (34,266) 48,790 2,113,109
42,716 (768) (24,407) (47,196) (15,909) (14,917) 15,909 1,969,643
(17,902,644) (17,214,932) 13,579,360 12,454,914 (195,386) (156,165) (4,518,670) (4,916,183)
CASH FLOWS FROM FINANCING ACTIVITIES Net cash collected/(expended) for long-term purposes Net cash (used in) provided by financing activities
Cash and cash equivalents at March 31,
2016
1,004,960 1,004,960
2,928,067 2,928,067
(1,400,601)
(18,473)
2,055,726
564,246
655,125
$
545,773
Funds Held in Short-term Accounts For the Fiscal Period Ended March 31, 2017 (Unaudited) Actual 600
Percentage 0.09%
654,525
99.91%
$ 655,125
100.00%
$
Petty Cash Operating Funds in Bank TOTAL
Schedule of Investments For the Fiscal Period Ended March 31, (Unaudited) 2017 7,139,960
% 15.26%
Target 15.0%
Max 20.0%
U. S. Equities (value and growth)
13,248,016
33.41%
30.0%
50.0%
International Equities
13,135,451
33.13%
30.0%
50.0%
Emerging Markets
2,011,425
5.07%
5.0%
10.0%
Real Estate/REITs
973,330
2.46%
5.0%
15.0%
Fixed Income
4,018,121
10.13%
10.0%
30.0%
Alternatives
4,012,247
10.12%
15.0%
20.0%
Master Limited Partnerships
2,251,450
5.68%
5.0%
10.0%
Investable Cash and unsold stock
-
-
-
Total Long-term Investment Pool
39,650,040
100.00%
100.0%
46,790,000
100.00%
100.0%
Short-term Investment Pool
TOTAL
$
$
4
- 10.0%
Schedule of Capital Additions For the Fiscal Period Ended March 31, 2017 (Unaudited) Actual Paid with operating funds: Building and Grounds Landscaping Office Equipment Vehicles Furniture & Fixtures Computer Equipment Sabers Maintenance Equipment Other (incl. available IBM credits) Capitalized Lease-Furniture Capitalized Software Costs
$
Total for operating funds Paid with restricted funds: Air Conditioning Control System Heritage Trail Asphalt/Concrete Replace Fire Alarm Control Panel Office-area South Entrance Upgrade Total for restricted funds $
TOTAL
5
9,259 23,564 25,402 3,000 17,514
Budget $
15,000 11,300 30,400 3,650
78,739
60,350
99,402 12,360 4,885 -
103,000 -
116,647
103,000
195,386
$
163,350
Operating Statement of Activities - Cash Basis For the Fiscal Period Ended March 31, 2017 (Unaudited) YTD Actual Revenues Investment Income and Distributions Donations and Contributions Membership Dues Merchandising Member Services Advertising and Sponsorships Reunion Services Administration Fees Conferences Royalties Football Tickets and Tailgates Activities and Social Events Miscellaneous Income Subsidy from Endowment Transfers from/(to) Restricted Funds Total Revenues
$
464,957 195,613 458,090 415,572 14,030 433,949 220,688 33,614 252,983 126,360 19,891 113,778 44,214 570,495 (140) 3,364,094
YTD Budget $
650,000 223,570 468,000 356,878 11,245 459,500 177,010 34,300 220,000 125,900 33,900 104,545 38,178 664,013 3,567,039
Variance $
(185,043) (27,957) (9,910) 58,694 2,785 (25,551) 43,678 (686) 32,983 460 (14,009) 9,233 6,036 (93,518) (140) (202,945)
PY YTD $
65,161 203,616 455,830 363,506 12,128 491,959 190,882 32,309 220,637 117,960 62,451 84,981 40,806 573,929 597,122 3,513,277
Operating Expenses Salaries and Wages Payroll Taxes Benefits Grants from Unrestricted Funds Board Governance Costs Professional Services Professional Printing Postage and Shipping Merchandise Purchases Insurance and Bonding Employee Travel and Meals Social Events and Meetings Office Supplies Advertising and Corporate Promotion Office Expenses Employee Training and Education Facilities Expenses Total Operating Expenses
1,528,104 115,618 190,941 4,974 92,946 184,177 207,802 79,306 302,303 35,114 77,272 182,624 19,130 93,014 92,077 18,527 241,731 3,465,660
1,570,519 125,060 171,227 2,500 114,348 171,951 175,755 77,400 261,825 36,812 85,878 185,573 21,670 116,756 34,033 11,765 204,650 3,367,722
(42,415) (9,442) 19,714 2,474 (21,402) 12,226 32,047 1,906 40,478 (1,698) (8,606) (2,949) (2,540) (23,742) 58,044 6,762 37,081 97,938
1,624,612 119,751 167,907 3,609 101,591 166,926 142,821 69,917 218,744 34,728 80,404 232,864 25,033 102,696 44,155 8,346 239,941 3,384,045
OPERATING SURPLUS/(DEFICIT)
(101,566)
199,317
(300,883)
129,232
78,739
45,263
33,476
37,613
Operating Capital Purchases NET SURPLUS/(DEFICIT)
$
(180,305)
6
$
154,054
$
(334,359)
$
91,619
Unaudited Financial Statements For the Fiscal Period Ended March 31, 2017 Management Discussion and Analysis
Financial Results The enclosed preliminary financial results through the third quarter ended March 31, 2017 (pages 1 through 5) were prepared in accordance with generally accepted accounting principles (GAAP). Page 6 represents a Cash Basis Operating Statement as additional information. For comparability purposes the prior year-to-date information is shown as it was reported at the time. Page 1 shows the financial position of the AOG as of the end of the quarter compared to the previous year as reported at the time. The total assets of the organization were about $53.54 million, an increase of just over $6.27 million [13.27%] from $47.26 million at March 31 the previous year, primarily growth of the investment portfolio that began in July 2016. Fixed assets increased by the inclusion of the Plaza of Heroes Pavilion. Liabilities of the organization (primarily the unearned life membership funds) increased by about $564,000 year-over-year. Unrestricted net assets reflect funds that the Board has designated [$2.0 million] as the base reserve; designated funds to support restricted purposes, where the Board has discretion to modify the support in the future; as well as the balance of the funds remaining at March 31 to support the USAFA Endowment’s capital campaign and other Academy aviation training needs. Total net assets increased by just under $5.71 million year-over-year, again, largely resulting from the allocation of investment returns. The Operating Statement of Activities shows preliminary operating results through the third quarter with approximately $3.044 million in operating revenues, and operating expenses of about $3.822 million. The result is an operating deficit of about $778,100, versus a budgeted deficit of $558,400. Overall, while revenues fell short of the annual budget by only about $30,200 [0.98%], operating expenses were about 5.22% [about $189,600] higher than anticipated, the majority of it the (non-cash) depreciation expense for the Plaza of Heroes not being included in the budget. Compared to the previous year as reported, the operating results were off by about $718,900. Excluding the two Francis Bennett contributions to operations of $597,122 in FY 2016, total revenues would have been higher by about $70,000, while operating expenses were larger by about $191,800, or 5.3%. While there were plus and minus variances in most cost elements, those of note include: salaries and wages, reflecting an additional pay period in the prior year; office expenses, showing the effect of the restructured annual operating contract with the Endowment; and, the depreciation increase for addition of the Plaza of Heroes Pavilion. Investment income allocation to operations through March 31 was approximately $3.92 million. The remaining returns not reflected on the operating statement have
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been allocated to temporarily restricted funds and the temporary portion of endowments in accordance with the Financial Management and Investment Policy (FMIP). For operations, there was a net GAAP-basis surplus of approximately $3.141 million in these preliminary statements through the third quarter. Revenues Donations and contributions reflect new direct gifts from donors (including the unexpected AOG share of the Robert Mazet estate distribution) and recognized gifts-in-kind, which resulted in a positive variance of about $14,100 to the year-to-date budget. While membership dues were right in line with the previous year, they were about 1.7% below expectations for the year in the Class Club membership. They were, however, offset by increases to budget in the other membership types – family, Husky, and annual. We continue campaigns to attract cadets, parents and non-member graduates to the Academy and their alma mater. Year-to-date, the revenue shown consisted of $157,500 of recognized life memberships and approximately $457,600 of new and continuing other memberships. Strong merchandising through the third quarter far exceeded the budget, by almost 16.5%, and represented a 12.2% increase from the previous year merchandise sales. Advertising and sponsorship revenue slightly surpassed the third quarter budget by approximately 1.5%. The results include the procurement of a number of new event sponsors, and renewals for tailgates and True Blue local community involvement. Reunion services revenue reflects administration fees and events for the reunions that took place through the cycle. Second quarter registrations were very strong, especially the 1966 and 1976 classes for their reunion weekends. Net event revenue from actual turnout was approximately 16.5% greater than the budget and more than 8% better than FY 2016. Administration fees for management of the investment portfolio that is apportioned to endowments, quasi-endowments and agency funds was slightly under expectations, but surpassed the previous year. Conference revenue shown is exclusively from the income allocated to the AOG from the Service Academy Career Conference (SACC) and exceeded expectations through March by about 15%. The royalty income received was right in line with budget expectations. Year-to-date tailgate registration income was $14,000 below what was anticipated primarily because of reduced registration fees charged for the tailgates at the Cotton Bowl and Arizona Bowl. Activities and social events revenue for fee-based special events grew strong during the third quarter and ended almost 8% over budget, but may
8
primarily be a timing variance of various chapter registrations received for Founders Day events that are to be paid back out in April. Miscellaneous income reflects higher than anticipated year-to-date service revenue from the event management software charges and unbudgeted affinity revenue from sources like USAA and AmazonSmile programs. The subsidy revenue from the USAFA Endowment was below year-to-date expectations by about $164,700 and reflects the recognized proportionate share of contributions between July 2016 and February 2017 for Air Force Academy Fund receipts and reversal of the year-end accrual for June 2016.
Expenses Salaries and wages through March were about $42,400 below the year-todate budget primarily reflecting the shift of a budgeted staff member to the USAFA Endowment with the restructure of the annual operating contract (AOC), effective July 1, 2016. All elements of payroll taxes, including Social Security, Colorado unemployment, and Medicare taxes were below budget expectations; they follow, proportionately, the lower salaries and wages. Though benefits paid reflect the better-than-expected negotiated renewal medical insurance premiums, the posted expenses for all insurance coverage reflect premium payments for April because payment must be received prior to the month of such coverage. AOG-paid contributions to the 401k retirement plan (safe harbor and matching contributions) were slightly lower than budgeted. Grants from unrestricted funds included a non-cash gift-in-kind of Bed-andBreakfast appointees for the Prep School, which was not forecast in the budget, as well as support to a local Boy Scout troop. Year-to-date board governance costs were well under the budget, primarily due to less allocated staff salaries and wages. The costs for professional services were about 7.9% higher than budget through the third quarter, primarily because of higher than anticipated contractor work for parent membership and non-budgeted contractor chapter support. Year-to-date professional printing charges include the earlier-than-budgeted costs for the March Checkpoints magazine edition. Total costs were 18% over budget. Actual expenditures for postage and shipping were close to the year-to-date expectations, approximately 2.5% higher than the anticipated third quarter budget. The merchandise cost of sales reflects the FIFO inventory valuation method and the higher volume of sales year-to-date .
9
Sales Cost of Sales Gross margin
Actuals $ 415,613 100.0% 264,521 63.6% $ 151,092 36.4%
Budget $ 356,878 100.0% 219,246 61.4% $ 137,632 38.6%
All elements of employee travel and meals, except slightly higher airfare, were below the year-to-date budget, largely due to good cost containment efforts. In total they were about 10% below expectations. Year-to-date social events and meeting expenses were about 5% higher than anticipated through March, largely due to more busing transportation expenses for the class reunions than expected. Office supplies through March for programs, as well as janitorial and kitchen supplies were about 11.7% below the year-to-date budget. Advertising and corporate promotion expenses through the quarter ended March 31 were more than 14% below the year-to-date budget though some expenses incurred using corporate credit cards for communications and general and administrative functions have not yet been posted. The costs captured in other office expenses are offset by the annual operating contract payment from the Endowment for rent and AOG support in Doolittle Hall. The restructure of that agreement, effective July 1, reduced that credit about in half, but is also reflected in lower salaries and wages. The approved budget did not anticipate the restructure of the agreement, so a negative variance to the budget results. The employee training and education expenditures reflect fees for CASE and Blackbaud conference attendance, with more IT staff participating at the Blackbaud seminar in anticipation of the conversion to the NXT platform for Raisers Edge and Financial Edge. Year-to-date facilities expenses were primarily lower for repair and maintenance expenditures year-to-date, delayed utilities billings from DFAS, as well as lower vehicle maintenance expenses than anticipated. Depreciation and amortization costs far exceeded the year-to-date budget primarily because the Plaza of Heroes Pavilion was not included when the budget was prepared.
Investment Income The investment results allocated to AOG operations reflected net market gains in all sectors except the small real estate fund. Excluding those sectors, the total fiscal year balanced portfolio through February registered a 15.19% year return and 6.26% return from inception in October 2003. Net allocated gains were approximately $3.919 million, consisting of investment interest and dividends received and reinvested of approximately $446,500 and net realized and unrealized (market) gains of about $3.476 million. There were also allocated advisor management fees of
10
about $3,000. For March about 60.49% of the entire portfolio investment results were allocated to AOG operations, based on the guidelines of the FMIP.
Operating Statement of Cash Flows The statement of cash flows on page 3 shows that there was a net decrease in cash and cash equivalent funds for the two quarters of about $1.40 million from the beginning of the fiscal year.
Funds Held in Short-term Accounts The supplemental information regarding cash and cash equivalent accounts showed operating funds of about $655,100, including petty cash at March 31. Short-term investable cash held at our custodian is reflected in investments report.
Schedule of Investments Investment sector values through March 31 were reflected in the supplemental schedule on page 4, and compares the actual allocation to the target percentage as provided for in the FMIP. There were market gains in every sector except the real estate holding. The portfolio was restructured in March to lower risk by adding several index funds in their respective sectors, and by segregating it into two duration oriented pools. All of the portfolio securities values through March, except the foreign managed real estate investment trust, had been received by the preparation time for these financial statements; that asset has been in liquidation since earlier 2010.
Schedule of Capital Additions The schedule on page 5 showed capital purchases through the end of the third quarter and reflects the expenditures by operations and restricted funds, in accordance with the approved fiscal year budget. There would be a transfer of funds to operations for those fixed assets supported by restricted funds – other than the Doolittle Hall building endowment – which will then be reflected on the Statement of Activities.
Cash Basis Operating Statement of Activities The final page of the presented financial statements (page 6) is the comparison of the cash flow activities to the year-to-date cash budget for operations only. The statement shows that the organization had a deficit of approximately $101,600 from operating functions and about an $180,300 net deficit after operating capital purchases. The deficits were temporary, as the CFO waited to transfer operating funds to the organization until April, when a significant request for restricted gifts (about $2.6 million) was anticipated from the Academy.
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Revenues Investment income and distributions reflected several draws for operations during the second quarter, plus the operating account bank interest through the end of the March quarter. Total donations and contributions recognized were all one-time gifts received from various donors. Membership dues received and recognized included about $49,600 in annual memberships and about $408,500 of class club, parent, and family memberships. Because of the uncertainty as to timing, cash memberships are prorated evenly over four quarters for the fiscal year budget. Subsidy from the Endowment reflected actual receipts from June 2016 through February 2017 of allocated USAFA Endowment Air Force Academy Fund gifts transferred to the AOG. The allocated share received by the AOG through March 31 is about 14% below budget expectations. All other revenue receipts have been addressed in the GAAP-basis discussion and are relevant to the cash-basis reporting. Expenses Merchandise purchases on a cash basis, including corresponding shipping costs, represent non-inventory merchandise bought during the reporting period, as well as inventory stocking and restocking of new and longstanding items. Actual expenditures exceeded the expected (prorated) spending rate budget through March by about 15.5%. The insurance and bonding premium payments were made for all renewed lines of coverage in March, and were slightly below what was expected on a cash basis. Advertising and corporate promotion expenditures on a cash basis do not include the recognized value of give-away items that were not purchased during the fiscal year, reflecting the GAAP-basis reporting variance. The employee training and education difference to the GAAP-basis presentation reflects an annual subscription that is amortized over 12 months. Year-to-date facilities expenses paid were significantly higher [about 21%] than the GAAP-basis expenses largely due to the annual maintenance fees paid during the year for Blackbaud products (Raisers Edge, Financial Edge, Net Community) NXT versions, each of which were deferred and amortized over the succeeding 12 months after payment for GAAP accounting purposes. All other significant cost elements have been discussed in the previous accrual basis analysis and are relevant to cash basis reporting.
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