Statement of Financial Position
Statement of Financial Position As of June 30, (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 $ 790,760 142,721
2016 $ 2,122,454 100,859
368,956 83,533 1,385,970
343,990 94,138 2,661,441
45,793,308
41,202,245
5,043,756 381,783
4,323,054 314,512
$ 52,604,817
$ 48,501,252
$
$
393,071 (24,115)
12,191,532 (7,147,776)
202,019
200,387
Agency Deposits
1,163,128
1,232,112
Deferred Income and Unearned Life Memberships
9,034,602
8,677,464
381,783
314,512
10,781,532
10,424,475
2,000,000 1,215,000 9,423,911 11,054,599 23,693,510 14,000,427 4,129,348
2,069,543 4,412,876 6,506,721 12,989,140 20,479,237 4,608,400
41,823,285
38,076,777
$ 52,604,817
$ 48,501,252
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 June 30, 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 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 OPERATING SURPLUS/(DEFICIT) Other Income and Deductions Investment Interest & Dividends Realized/Unrealized Gains/(Losses) Gains/(Losses) on Disposal of Assets Total Other Income and Deductions NET SURPLUS/(DEFICIT)
$
YTD Budget
Variance
269,380 822,085 640,219 20,825 523,000 204,250 33,614 291,114 132,545 24,593 138,229 46,339 756,175 (140) 3,902,228
277,210 854,500 545,269 18,845 534,000 181,010 69,300 265,000 130,950 33,900 154,745 38,304 886,000 11,000 4,000,033
2,142,207 159,480 245,349 25,674 121,804 248,871 269,070 116,349 354,971 34,857 96,736 259,572 25,756 105,950 108,018 20,042 261,397 579,798 5,175,901
2,094,026 166,746 228,303 30,200 157,566 224,683 285,590 105,726 334,394 35,252 115,191 287,740 27,732 134,404 44,622 13,145 272,645 425,250 4,983,215
48,181 (7,266) 17,046 (4,526) (35,762) 24,188 (16,520) 10,623 20,577 (395) (18,455) (28,168) (1,976) (28,454) 63,396 6,897 (11,248) 154,548 192,686
2,102,582 156,891 212,813 26,993 136,019 225,427 275,394 101,425 354,573 28,968 109,339 264,628 33,378 117,779 46,146 8,255 244,867 406,329 4,851,806
(1,273,673)
(983,182)
(290,491)
(602,433)
563,245 4,128,536 (3,424) 4,688,357
532,720 579,280 1,112,000
30,525 3,549,256 (3,424) 3,576,357
456,608 (2,682,526) (2,225,918)
3,285,866
$ (2,828,351)
$ 3,414,684
2
$
128,818
$
$
(7,830) (32,415) 94,950 1,980 (11,000) 23,240 (35,686) 26,114 1,595 (9,307) (16,516) 8,035 (129,825) (11,140) (97,805)
PY YTD $
253,217 820,621 593,357 20,565 529,552 216,379 32,309 266,255 130,926 62,451 128,575 41,928 756,116 397,122 4,249,373
Operating Statement of Cash Flows For the Fiscal Period Ended June 30, (Unaudited) 2017 CASH FLOWS FROM OPERATING ACTIVITIES Net surplus/(deficit) for the period
$
Adjustments to reconcile net income to net cash provided (used) by operating activities: Non-cash (income) expenses: Depreciation Unrealized (gains) losses on investments Unrealized (gains) losses on disposal of fixed assets 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 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) increase in cash and cash equivalents Cash and cash equivalents, beginning of year $
3
3,414,684
(2,828,351)
579,798 (1,147,584) 3,424
406,329 4,083,849 -
(20,486) (58,295) (6,251) (67,271) (34,266) 67,271 2,731,024
8,259 (768) 13,608 (44,811) (28,466) (15,917) 28,466 1,622,198
(27,892,880) (18,486,989) 24,370,240 13,804,951 (241,467) (197,733) (3,764,107) (4,879,771)
CASH FLOWS FROM FINANCING ACTIVITIES Net cash (expended)/collected for long-term purposes Net cash (used in) provided by financing activities
Cash and cash equivalents at June 30,
2016
(231,883) (231,883)
4,815,781 4,815,781
(1,264,966)
1,558,208
2,055,726
564,246
790,760
$ 2,122,454
Funds Held in Short-term Operating Accounts For the Fiscal Period Ended June 30, 2017 (Unaudited) Actual 1,700
Percentage 0.21%
789,060
99.79%
$ 790,760
100.00%
$
Petty Cash Operating Funds in Bank TOTAL
Schedule of Investments For the Fiscal Period Ended June 30, (Unaudited) 2017 9,770,055
% 21.34%
Target 15.0%
Max 20.0%
U. S. Equities (value and growth)
10,902,120
30.26%
30.0%
50.0%
International Equities
11,159,798
30.98%
30.0%
50.0%
Emerging Markets
2,144,232
5.95%
5.0%
10.0%
Real Estate/REITs
986,190
2.74%
5.0%
15.0%
Fixed Income
4,074,848
11.31%
10.0%
30.0%
Alternatives
3,957,944
10.99%
15.0%
20.0%
Master Limited Partnerships
2,098,112
5.82%
5.0%
10.0%
700,009
1.95%
36,023,253
100.00%
100.0%
45,793,308
100.00%
100.0%
Short-term Investment Pool
$
Investable Cash and unsold stock Total Long-term Investment Pool TOTAL
$
4
-
-
10.0%
Schedule of Capital Additions For the Fiscal Period Ended June 30, 2017 (Unaudited) Actual Paid with operating funds: Building and Grounds Landscaping Office Equipment Vehicles Furniture & Fixtures Computer Equipment Sabers 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 SEA High-Def Monitors Replacement Replace Fire Alarm Control Panel Re-glazed Windows (7 ea.) Maintenance Plow Blade Office-area South Entrance Upgrade Total for restricted funds $
TOTAL
5
10,426 12,299 24,173 25,402 18,980
Budget $
15,000 11,300 30,400 3,650
91,280
60,350
99,402 12,360 12,674 4,885 9,713 1,281 9,872
103,000 -
150,187
103,000
241,467
-
$
163,350
Operating Statement of Activities - Cash Basis For the Fiscal Period Ended June 30, 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
$
1,089,489 208,118 667,798 640,177 20,825 490,734 218,725 33,614 291,114 132,545 24,593 134,988 45,935 737,661 (12,500) 4,723,816
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
YTD Budget $
834,650 272,210 642,000 545,269 18,845 534,000 181,010 69,300 265,000 130,950 33,900 154,745 38,304 886,000 11,000 4,617,183
Variance $
PY YTD
254,839 (64,092) 25,798 94,908 1,980 (43,266) 37,715 (35,686) 26,114 1,595 (9,307) (19,757) 7,631 (148,339) (23,500) 106,633
$
48,181 (7,266) 16,384 1,674 (35,762) 22,386 (16,373) 10,623 57,296 (1,698) (18,455) (40,351) (1,976) (35,523) 66,578 5,488 4,473 75,679
415,304 213,891 610,253 585,189 20,565 520,377 216,379 32,309 266,256 126,636 62,451 119,425 41,759 769,369 397,122 4,397,285
2,142,207 159,480 244,687 14,474 121,804 247,069 269,217 116,349 406,396 35,114 96,736 247,389 25,756 98,881 111,200 18,633 277,118 4,632,510
2,094,026 166,746 228,303 12,800 157,566 224,683 285,590 105,726 349,100 36,812 115,191 287,740 27,732 134,404 44,622 13,145 272,645 4,556,831
OPERATING SURPLUS/(DEFICIT)
91,306
60,352
30,954
(78,502)
Operating Capital Purchases
91,280
60,350
30,930
79,181
NET SURPLUS/(DEFICIT)
$
26
6
$
2
$
24
2,119,632 156,891 212,813 13,093 133,519 236,928 275,394 101,420 323,592 34,728 109,339 277,168 33,378 107,663 60,810 8,880 270,539 4,475,787
$
(157,683)
Unaudited Financial Statements For the Fiscal Period Ended June 30, 2017 Management Discussion and Analysis
Financial Results The enclosed preliminary financial results for the fiscal year ended June 30, 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 fiscal year compared to the previous year as reported at the time. The total assets of the organization were about $52.60 million, an increase of just over $4.1 million [8.45%] from $48.50 million at June 30 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 $357,100 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 June 30 to support the USAFA Endowment’s capital campaign and other Academy aviation training needs. Total net assets increased by just under $3.75 million year-over-year, again, largely resulting from the positive investment returns. The Operating Statement of Activities shows preliminary operating results through the end of the year with approximately $3.902 million in operating revenues, and operating expenses of about $5.176 million. The result is an operating deficit of about $1.274 million, versus a budgeted deficit of about $983,200. Overall, revenues fell short of the annual budget by about $97.800, or 2.45%. Operating expenses were about 3.87% [about $192,700] higher than anticipated, and the majority of it was the (non-cash) depreciation expense for the Plaza of Heroes, which was not included when the budget was developed. Compared to the previous year as reported, the operating deficit increased by about $671,200. However, excluding the two Francis Bennett contributions to operations of $597,122 in FY 2016, total revenues would have been higher by about $50,000, while operating expenses were larger by about $324,100, or 6.7%. While there were plus and minus variances in all of the cost elements, overages of note include: salaries and wages; benefits paid; professional services; merchandise cost of sales; 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.
7
Investment income allocation to operations through June 30, on a total return basis, was approximately $4.692 million. The remaining returns not reflected on the operating statement have been allocated to temporarily restricted funds and the temporary portion of endowments in accordance with the Financial Management and Investment Policy (FMIP). An effort to reconcile the fixed assets of the organization resulted in a $3,400 [non-cash] loss on disposal or replacement of some of those assets. For operations, there was a net GAAP-basis surplus of approximately $3.415 million in these preliminary statements through the fiscal year. Revenues • Donations and contributions reflect new direct gifts from donors (including the AOG share of the unexpected Robert Mazet estate distribution) and recognized gifts-in-kind, such as the Academy and Prep School bed-nbreakfast program and donated gifts; there was a shortfall to the budget, however, as fewer appointees participated in the program. • While preliminary membership dues were right in line with the previous year, they were about 3.8% below expectations for the year. Revenue shown consisted of $210,000 of recognized life memberships and approximately $612,100 of new and continuing other memberships, but does not include the final year-end adjustments. • Strong merchandising marketing throughout the year resulted in revenues far exceeding the budget, by more than 17.4%, and a 7.9% increase from the previous year merchandise sales. • Advertising revenue fell short for the year by about $13,200, while sponsorship revenue slightly exceeded expectations by approximately $2,200. The results showed the impact of the loss of a national marketing staff member in the first quarter of the fiscal year. • Reunion services revenue reflects administration fees and events for the reunions that took place through the cycle. Registrations during the reunion season were very strong, especially the 1966 and 1976 classes for their respective weekends. Net event revenue from actual turnout was approximately 12.9% greater than the budget. • Administration fees for management of the investment portfolio that is apportioned to endowments, quasi-endowments and agency funds shows only the first semi-annual charges, but should approximate the budget after final closing of the fiscal year. • Conference revenue shown is exclusively from the income allocated to the AOG from the Service Academy Career Conference (SACC) and exceeded expectations for the year by almost 10%. • The royalty income received was right in line with budget expectations. • The annual tailgate registration income was approximately $9,300 below what was anticipated primarily because of reduced registration fees charged for the tailgates at the Cotton Bowl and Arizona Bowl. 8
• • •
Activities and social events revenue for fee-based special events ended the year almost 11% below budget, primarily because anticipated sports related events did not develop. Miscellaneous income reflects higher than anticipated annual 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 expectations by about $129,800 and reflects the recognized proportionate share of contributions for Air Force Academy Fund receipts and accrual for June 2017.
Expenses • Salaries and wages show an overage of about $48,200 but do not yet reflect the year-end adjustment for paid out annual leave, which will bring the total much closer to budget expectations. • All elements of payroll taxes, except Medicare, but including Social Security and Colorado unemployment, were below budget expectations. • Though benefits paid reflect the better-than-expected negotiated renewal medical insurance premiums, there were more employees participating in the plan than anticipated and resulted in an overage for the year of about $15,800. All other insurances ended the year below budget. • Grants from unrestricted funds included non-cash gift-in-kind of Bed-andBreakfast appointees for the Academy and Prep School, but were much lower than expected. • 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 10.8% higher than budget for the year, primarily because the contractor for parent membership and chapter support took on an expanded role above what was anticipated in the budget. • Professional printing charges do not yet include an accrual of the late-June printing of the Parent Handbook budget; which we show a small overage to the annual budget of around $4,000. • Actual expenditures for postage and shipping were 10% over the annual expectations, largely reflective of the Checkpoints magazine shipping. • The merchandise cost of sales reflects the FIFO inventory valuation method and the higher volume of sales year-to-date .
Sales Cost of Sales Gross margin •
Actuals $ 640,219 100.0% 354,971 55.4% $ 285,248 44.6%
Budget $ 545,269 100.0% 334,394 61.3% $ 210,875 38.7%
All elements of employee travel and meals, through this reporting, were below the budget, largely due to good cost containment efforts and the chapter
9
• • •
•
•
• •
support contract travel being paid in professional sevices. In total they were about 16% below expectations. Fiscal year social events and meeting expenses, were significantly under the budget, especially catering costs for golf tournaments and reunions, as well as the sports related events which didn’t take place. Office supplies, including janitorial and kitchen supplies were slightly below the approved budget. Advertising and corporate promotion expenses for the year were almost 10% below the budget, primarily for membership, events, Academy services, and communications. There are, however, 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, 2016, 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 resulted for the year. 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. There was also expenditure for staff to enhance marketing knowledge for merchandising. Reported facilities expenses were primarily lower for repair and maintenance expenditures for Doolittle Hall than were anticipated, delayed utilities billings from DFAS, as well as lower vehicle maintenance expenses than expected. Depreciation and amortization costs far exceeded the approved 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 overseas real estate fund. The total fiscal year balanced portfolio, excluding that fund, registered a 20.87% year return, and a 6.48% return from inception in October 2003. Net allocated gains to operations were approximately $4.692 million, consisting of investment interest and dividends received and reinvested of approximately $563,200, and net realized and unrealized (market) gains of about $4.133 million. There were also allocated advisor management fees of about $4,200. For June about 59.72% of the entire portfolio investment results were allocated to AOG operations, based on the guidelines of the FMIP.
10
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 year of about $1.265 million from the beginning of the fiscal year, with approximately $2.731 million provided from operations, $3.764 million used for growing the investment portfolio and fixed assets, and a net usage of about $231,900 for long-term purposes.
Funds Held in Short-term Operating Accounts The supplemental information regarding cash and cash equivalent accounts showed operating funds of about $790,760, including petty cash at June 30. Short-term investable cash held at our custodian is reflected in investments report.
Schedule of Investments Investment sector values through June 30 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 June, 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 for the fiscal year and reflects the expenditures by operations and restricted funds, in accordance with the approved fiscal year budget. There will 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 final Statement of Activities. Some expenditure was approved in previous year budgets.
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 surplus of approximately $91,300 from operating functions and about a minimal break-even net surplus after operating capital purchases. Important variances to GAAP-basis reporting are included below.
11
Revenues • Investment income and distributions reflected several draws for operations during the year, plus the operating account bank interest. Cash deficits from other revenue sources required a significantly higher [about $254,900] amount of investment funds to meet operating needs. • Total donations and contributions recognized were all one-time gifts received from various donors. There were no outstanding pledge payments received. • Membership dues received and recognized included about $74,200 in annual memberships and about $593,600 of class club, parent, and family memberships. • Subsidy from the Endowment reflected actual receipts from June 2016 through May 2017 of allocated USAFA Endowment Air Force Academy Fund gifts transferred to the AOG. The allocated share received by the AOG through June 30 is more than 16.7% 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 and handling 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 annual budget by about 16.4%. • 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 variance to GAAP-basis reporting. • The employee training and education difference to the GAAP-basis presentation reflects an annual subscription that is amortized over 12 months. • Annual facilities expenses paid were somewhat higher [about 6%] than the GAAP-basis expenses primarily 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 $ 790,760 142,721
2016 $ 2,122,454 100,859
368,956 83,533 1,385,970
343,990 94,138 2,661,441
45,793,308
41,202,245
5,043,756 381,783
4,323,054 314,512
$ 52,604,817
$ 48,501,252
$
$
393,071 (24,115)
12,191,532 (7,147,776)
202,019
200,387
Agency Deposits
1,163,128
1,232,112
Deferred Income and Unearned Life Memberships
9,034,602
8,677,464
381,783
314,512
10,781,532
10,424,475
2,000,000 1,215,000 9,423,911 11,054,599 23,693,510 14,000,427 4,129,348
2,069,543 4,412,876 6,506,721 12,989,140 20,479,237 4,608,400
41,823,285
38,076,777
$ 52,604,817
$ 48,501,252
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 June 30, 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 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 OPERATING SURPLUS/(DEFICIT) Other Income and Deductions Investment Interest & Dividends Realized/Unrealized Gains/(Losses) Gains/(Losses) on Disposal of Assets Total Other Income and Deductions NET SURPLUS/(DEFICIT)
$
YTD Budget
Variance
269,380 822,085 640,219 20,825 523,000 204,250 33,614 291,114 132,545 24,593 138,229 46,339 756,175 (140) 3,902,228
277,210 854,500 545,269 18,845 534,000 181,010 69,300 265,000 130,950 33,900 154,745 38,304 886,000 11,000 4,000,033
2,142,207 159,480 245,349 25,674 121,804 248,871 269,070 116,349 354,971 34,857 96,736 259,572 25,756 105,950 108,018 20,042 261,397 579,798 5,175,901
2,094,026 166,746 228,303 30,200 157,566 224,683 285,590 105,726 334,394 35,252 115,191 287,740 27,732 134,404 44,622 13,145 272,645 425,250 4,983,215
48,181 (7,266) 17,046 (4,526) (35,762) 24,188 (16,520) 10,623 20,577 (395) (18,455) (28,168) (1,976) (28,454) 63,396 6,897 (11,248) 154,548 192,686
2,102,582 156,891 212,813 26,993 136,019 225,427 275,394 101,425 354,573 28,968 109,339 264,628 33,378 117,779 46,146 8,255 244,867 406,329 4,851,806
(1,273,673)
(983,182)
(290,491)
(602,433)
563,245 4,128,536 (3,424) 4,688,357
532,720 579,280 1,112,000
30,525 3,549,256 (3,424) 3,576,357
456,608 (2,682,526) (2,225,918)
3,285,866
$ (2,828,351)
$ 3,414,684
2
$
128,818
$
$
(7,830) (32,415) 94,950 1,980 (11,000) 23,240 (35,686) 26,114 1,595 (9,307) (16,516) 8,035 (129,825) (11,140) (97,805)
PY YTD $
253,217 820,621 593,357 20,565 529,552 216,379 32,309 266,255 130,926 62,451 128,575 41,928 756,116 397,122 4,249,373
Operating Statement of Cash Flows For the Fiscal Period Ended June 30, (Unaudited) 2017 CASH FLOWS FROM OPERATING ACTIVITIES Net surplus/(deficit) for the period
$
Adjustments to reconcile net income to net cash provided (used) by operating activities: Non-cash (income) expenses: Depreciation Unrealized (gains) losses on investments Unrealized (gains) losses on disposal of fixed assets 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 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) increase in cash and cash equivalents Cash and cash equivalents, beginning of year $
3
3,414,684
(2,828,351)
579,798 (1,147,584) 3,424
406,329 4,083,849 -
(20,486) (58,295) (6,251) (67,271) (34,266) 67,271 2,731,024
8,259 (768) 13,608 (44,811) (28,466) (15,917) 28,466 1,622,198
(27,892,880) (18,486,989) 24,370,240 13,804,951 (241,467) (197,733) (3,764,107) (4,879,771)
CASH FLOWS FROM FINANCING ACTIVITIES Net cash (expended)/collected for long-term purposes Net cash (used in) provided by financing activities
Cash and cash equivalents at June 30,
2016
(231,883) (231,883)
4,815,781 4,815,781
(1,264,966)
1,558,208
2,055,726
564,246
790,760
$ 2,122,454
Funds Held in Short-term Operating Accounts For the Fiscal Period Ended June 30, 2017 (Unaudited) Actual 1,700
Percentage 0.21%
789,060
99.79%
$ 790,760
100.00%
$
Petty Cash Operating Funds in Bank TOTAL
Schedule of Investments For the Fiscal Period Ended June 30, (Unaudited) 2017 9,770,055
% 21.34%
Target 15.0%
Max 20.0%
U. S. Equities (value and growth)
10,902,120
30.26%
30.0%
50.0%
International Equities
11,159,798
30.98%
30.0%
50.0%
Emerging Markets
2,144,232
5.95%
5.0%
10.0%
Real Estate/REITs
986,190
2.74%
5.0%
15.0%
Fixed Income
4,074,848
11.31%
10.0%
30.0%
Alternatives
3,957,944
10.99%
15.0%
20.0%
Master Limited Partnerships
2,098,112
5.82%
5.0%
10.0%
700,009
1.95%
36,023,253
100.00%
100.0%
45,793,308
100.00%
100.0%
Short-term Investment Pool
$
Investable Cash and unsold stock Total Long-term Investment Pool TOTAL
$
4
-
-
10.0%
Schedule of Capital Additions For the Fiscal Period Ended June 30, 2017 (Unaudited) Actual Paid with operating funds: Building and Grounds Landscaping Office Equipment Vehicles Furniture & Fixtures Computer Equipment Sabers 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 SEA High-Def Monitors Replacement Replace Fire Alarm Control Panel Re-glazed Windows (7 ea.) Maintenance Plow Blade Office-area South Entrance Upgrade Total for restricted funds $
TOTAL
5
10,426 12,299 24,173 25,402 18,980
Budget $
15,000 11,300 30,400 3,650
91,280
60,350
99,402 12,360 12,674 4,885 9,713 1,281 9,872
103,000 -
150,187
103,000
241,467
-
$
163,350
Operating Statement of Activities - Cash Basis For the Fiscal Period Ended June 30, 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
$
1,089,489 208,118 667,798 640,177 20,825 490,734 218,725 33,614 291,114 132,545 24,593 134,988 45,935 737,661 (12,500) 4,723,816
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
YTD Budget $
834,650 272,210 642,000 545,269 18,845 534,000 181,010 69,300 265,000 130,950 33,900 154,745 38,304 886,000 11,000 4,617,183
Variance $
PY YTD
254,839 (64,092) 25,798 94,908 1,980 (43,266) 37,715 (35,686) 26,114 1,595 (9,307) (19,757) 7,631 (148,339) (23,500) 106,633
$
48,181 (7,266) 16,384 1,674 (35,762) 22,386 (16,373) 10,623 57,296 (1,698) (18,455) (40,351) (1,976) (35,523) 66,578 5,488 4,473 75,679
415,304 213,891 610,253 585,189 20,565 520,377 216,379 32,309 266,256 126,636 62,451 119,425 41,759 769,369 397,122 4,397,285
2,142,207 159,480 244,687 14,474 121,804 247,069 269,217 116,349 406,396 35,114 96,736 247,389 25,756 98,881 111,200 18,633 277,118 4,632,510
2,094,026 166,746 228,303 12,800 157,566 224,683 285,590 105,726 349,100 36,812 115,191 287,740 27,732 134,404 44,622 13,145 272,645 4,556,831
OPERATING SURPLUS/(DEFICIT)
91,306
60,352
30,954
(78,502)
Operating Capital Purchases
91,280
60,350
30,930
79,181
NET SURPLUS/(DEFICIT)
$
26
6
$
2
$
24
2,119,632 156,891 212,813 13,093 133,519 236,928 275,394 101,420 323,592 34,728 109,339 277,168 33,378 107,663 60,810 8,880 270,539 4,475,787
$
(157,683)
Unaudited Financial Statements For the Fiscal Period Ended June 30, 2017 Management Discussion and Analysis
Financial Results The enclosed preliminary financial results for the fiscal year ended June 30, 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 fiscal year compared to the previous year as reported at the time. The total assets of the organization were about $52.60 million, an increase of just over $4.1 million [8.45%] from $48.50 million at June 30 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 $357,100 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 June 30 to support the USAFA Endowment’s capital campaign and other Academy aviation training needs. Total net assets increased by just under $3.75 million year-over-year, again, largely resulting from the positive investment returns. The Operating Statement of Activities shows preliminary operating results through the end of the year with approximately $3.902 million in operating revenues, and operating expenses of about $5.176 million. The result is an operating deficit of about $1.274 million, versus a budgeted deficit of about $983,200. Overall, revenues fell short of the annual budget by about $97.800, or 2.45%. Operating expenses were about 3.87% [about $192,700] higher than anticipated, and the majority of it was the (non-cash) depreciation expense for the Plaza of Heroes, which was not included when the budget was developed. Compared to the previous year as reported, the operating deficit increased by about $671,200. However, excluding the two Francis Bennett contributions to operations of $597,122 in FY 2016, total revenues would have been higher by about $50,000, while operating expenses were larger by about $324,100, or 6.7%. While there were plus and minus variances in all of the cost elements, overages of note include: salaries and wages; benefits paid; professional services; merchandise cost of sales; 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.
7
Investment income allocation to operations through June 30, on a total return basis, was approximately $4.692 million. The remaining returns not reflected on the operating statement have been allocated to temporarily restricted funds and the temporary portion of endowments in accordance with the Financial Management and Investment Policy (FMIP). An effort to reconcile the fixed assets of the organization resulted in a $3,400 [non-cash] loss on disposal or replacement of some of those assets. For operations, there was a net GAAP-basis surplus of approximately $3.415 million in these preliminary statements through the fiscal year. Revenues • Donations and contributions reflect new direct gifts from donors (including the AOG share of the unexpected Robert Mazet estate distribution) and recognized gifts-in-kind, such as the Academy and Prep School bed-nbreakfast program and donated gifts; there was a shortfall to the budget, however, as fewer appointees participated in the program. • While preliminary membership dues were right in line with the previous year, they were about 3.8% below expectations for the year. Revenue shown consisted of $210,000 of recognized life memberships and approximately $612,100 of new and continuing other memberships, but does not include the final year-end adjustments. • Strong merchandising marketing throughout the year resulted in revenues far exceeding the budget, by more than 17.4%, and a 7.9% increase from the previous year merchandise sales. • Advertising revenue fell short for the year by about $13,200, while sponsorship revenue slightly exceeded expectations by approximately $2,200. The results showed the impact of the loss of a national marketing staff member in the first quarter of the fiscal year. • Reunion services revenue reflects administration fees and events for the reunions that took place through the cycle. Registrations during the reunion season were very strong, especially the 1966 and 1976 classes for their respective weekends. Net event revenue from actual turnout was approximately 12.9% greater than the budget. • Administration fees for management of the investment portfolio that is apportioned to endowments, quasi-endowments and agency funds shows only the first semi-annual charges, but should approximate the budget after final closing of the fiscal year. • Conference revenue shown is exclusively from the income allocated to the AOG from the Service Academy Career Conference (SACC) and exceeded expectations for the year by almost 10%. • The royalty income received was right in line with budget expectations. • The annual tailgate registration income was approximately $9,300 below what was anticipated primarily because of reduced registration fees charged for the tailgates at the Cotton Bowl and Arizona Bowl. 8
• • •
Activities and social events revenue for fee-based special events ended the year almost 11% below budget, primarily because anticipated sports related events did not develop. Miscellaneous income reflects higher than anticipated annual 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 expectations by about $129,800 and reflects the recognized proportionate share of contributions for Air Force Academy Fund receipts and accrual for June 2017.
Expenses • Salaries and wages show an overage of about $48,200 but do not yet reflect the year-end adjustment for paid out annual leave, which will bring the total much closer to budget expectations. • All elements of payroll taxes, except Medicare, but including Social Security and Colorado unemployment, were below budget expectations. • Though benefits paid reflect the better-than-expected negotiated renewal medical insurance premiums, there were more employees participating in the plan than anticipated and resulted in an overage for the year of about $15,800. All other insurances ended the year below budget. • Grants from unrestricted funds included non-cash gift-in-kind of Bed-andBreakfast appointees for the Academy and Prep School, but were much lower than expected. • 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 10.8% higher than budget for the year, primarily because the contractor for parent membership and chapter support took on an expanded role above what was anticipated in the budget. • Professional printing charges do not yet include an accrual of the late-June printing of the Parent Handbook budget; which we show a small overage to the annual budget of around $4,000. • Actual expenditures for postage and shipping were 10% over the annual expectations, largely reflective of the Checkpoints magazine shipping. • The merchandise cost of sales reflects the FIFO inventory valuation method and the higher volume of sales year-to-date .
Sales Cost of Sales Gross margin •
Actuals $ 640,219 100.0% 354,971 55.4% $ 285,248 44.6%
Budget $ 545,269 100.0% 334,394 61.3% $ 210,875 38.7%
All elements of employee travel and meals, through this reporting, were below the budget, largely due to good cost containment efforts and the chapter
9
• • •
•
•
• •
support contract travel being paid in professional sevices. In total they were about 16% below expectations. Fiscal year social events and meeting expenses, were significantly under the budget, especially catering costs for golf tournaments and reunions, as well as the sports related events which didn’t take place. Office supplies, including janitorial and kitchen supplies were slightly below the approved budget. Advertising and corporate promotion expenses for the year were almost 10% below the budget, primarily for membership, events, Academy services, and communications. There are, however, 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, 2016, 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 resulted for the year. 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. There was also expenditure for staff to enhance marketing knowledge for merchandising. Reported facilities expenses were primarily lower for repair and maintenance expenditures for Doolittle Hall than were anticipated, delayed utilities billings from DFAS, as well as lower vehicle maintenance expenses than expected. Depreciation and amortization costs far exceeded the approved 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 overseas real estate fund. The total fiscal year balanced portfolio, excluding that fund, registered a 20.87% year return, and a 6.48% return from inception in October 2003. Net allocated gains to operations were approximately $4.692 million, consisting of investment interest and dividends received and reinvested of approximately $563,200, and net realized and unrealized (market) gains of about $4.133 million. There were also allocated advisor management fees of about $4,200. For June about 59.72% of the entire portfolio investment results were allocated to AOG operations, based on the guidelines of the FMIP.
10
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 year of about $1.265 million from the beginning of the fiscal year, with approximately $2.731 million provided from operations, $3.764 million used for growing the investment portfolio and fixed assets, and a net usage of about $231,900 for long-term purposes.
Funds Held in Short-term Operating Accounts The supplemental information regarding cash and cash equivalent accounts showed operating funds of about $790,760, including petty cash at June 30. Short-term investable cash held at our custodian is reflected in investments report.
Schedule of Investments Investment sector values through June 30 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 June, 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 for the fiscal year and reflects the expenditures by operations and restricted funds, in accordance with the approved fiscal year budget. There will 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 final Statement of Activities. Some expenditure was approved in previous year budgets.
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 surplus of approximately $91,300 from operating functions and about a minimal break-even net surplus after operating capital purchases. Important variances to GAAP-basis reporting are included below.
11
Revenues • Investment income and distributions reflected several draws for operations during the year, plus the operating account bank interest. Cash deficits from other revenue sources required a significantly higher [about $254,900] amount of investment funds to meet operating needs. • Total donations and contributions recognized were all one-time gifts received from various donors. There were no outstanding pledge payments received. • Membership dues received and recognized included about $74,200 in annual memberships and about $593,600 of class club, parent, and family memberships. • Subsidy from the Endowment reflected actual receipts from June 2016 through May 2017 of allocated USAFA Endowment Air Force Academy Fund gifts transferred to the AOG. The allocated share received by the AOG through June 30 is more than 16.7% 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 and handling 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 annual budget by about 16.4%. • 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 variance to GAAP-basis reporting. • The employee training and education difference to the GAAP-basis presentation reflects an annual subscription that is amortized over 12 months. • Annual facilities expenses paid were somewhat higher [about 6%] than the GAAP-basis expenses primarily 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
