Enclosed for your information are the audited financial statements of the ARRL for the years ended December 31, 2008 and 2007, including the auditors' unqualified opinion on the statements. As always, if you have any questions, please don't hesitate to ask. I do want to draw your attention to two items on the Statement of Activities for 2008 (commonly known as an income statement in for-profit companies) as they present a picture that, for the uninformed, might result in assumptions about the League's financial position that are incorrect. I want to apologize up front for the length of this note, but trying to explain generally accepted accounting principles (especially those relating to pension accounting) can be confusing, even to those who have to deal with the subjects regularly. Each year the unrealized gains and losses on the League's investment portfolio are recorded in the Statement of Activities. In 2008, because of all the turmoil in the financial markets, we recorded unrealized losses in our portfolio of over $3 million. Since 2000, this adjustment has fluctuated ranging from the loss this year to a gain of almost $1.2 million. These fluctuations in our investment portfolio have always been "absorbed" by our net asset position (retained earnings in the for-profit world). It has always been the position of the ARRL that our investment portfolio is a cushion and not used for on-going operations. Unlike many not-for-profit organizations, we do not rely on the value of our portfolio to fund current operations. It also supports our Life Member program and our other restricted funds. It should be pointed out, that at the end of 2008, there was still $12.5 million of cash and investments in our portfolio. The second, and larger, adjustment involves the League's defined benefit pension plan. In 2007, all companies were required to implement a new accounting pronouncement that, in effect, recorded the entire pension plan liability (the difference between the accrued benefits and the value of the assets) in the financial statements of the corporation sponsoring the plan. In not-for-profit companies, the adjustment must flow through the statement of activities and net assets. With the steep drop in the plan assets in the second half of 2008 and the sharp increase in the accrued benefits, this gap increased by $4.3 million in 2008. This is also shown as a charge in the 2008 Statement of Activities. In combination and from an accounting perspective, these non-cash charges have "wiped out" our total net assets and we are reporting total net assets of a negative $409,378 at 12/31/08. However, this does not affect our day-to-day operations. We have sufficient cash and investments to meet our current obligations and have generated positive cash flow so far this year. In addition, as a result of the Board's prompt action, the large liability to the pension plan will be reduced in 2009. By freezing the defined benefit pension plan as of May 31st, we will record a "gain from curtailment" (the accountants' terminology) of approximately $2 million in 2009 and it may be more depending on the performance of the assets in the portfolio this year. This will be recorded as a gain in our Statement of Activities for 2009. I should also add that the League's auditors, Haggette Longobardi, a division of J.H. Cohn, issued an unqualified opinion on our recent financial statements. If they had any concerns about the League's ability to continue its operations, this would have been noted in their opinion. In fact, the rules of their profession would require them to note that concern if it existed. So, if asked about the League's financial position (negative net assets) by a member you should emphasize: 1. The League is an on-going entity and its operations are reasonably well funded. 2. The total investment portfolio of the organization was $12.5 million at year-end which is more than sufficient and even that has improved somewhat as the markets have begun to recover. 3. The Board has dealt with the pension issue by freezing the defined benefit plan and creating a defined contribution plan which will reduce the overall liability in 2009. Barring a further market calamity, this should bring our net assets back into positive territory. 4. The auditors issued an unqualified opinion on the ARRL's 12/31/08 financial statements and if they were concerned about the League's operations, they would have included a qualification regarding the ARRL as a going concern. Again, if anyone has questions about the audited financial statements, please let me know. 73, Barry J. Shelley, N1VXY Chief Financial Officer ARRL, Inc-The National Association for Amateur Radio 225 Main St. Newington, CT 06111 www.arrl.org <http://www.arrl.org> Phone: (860) 594-0212 E-mail: bshelley@arrl.org <mailto:bshelley@arrl.org>