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:
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
Phone: (860) 594-0212
E-mail: bshelley@arrl.org