Here is the long version of my comments and analysis of our revenue streams and income statement. Attached is a PDF file of the 2013 audited Income Statement (called a "Statement of Activities" in the not-for-profit world). I look at the income statement in two parts: (1) normal recurring items and (2) other income/expense. Normal recurring items are all those revenue and expense items at the top of the income statement. They include normal revenue items such as dues, advertising and all the other revenue items (totaling $15,127,349 in 2013) as well as the normal operating expenses such as programs and services, publications and the other items in the Expenditures portion of the statement (total of $14,753,727 in 2013). All the items in the Revenues and Expenditures categories are the kinds of ins and outs that we can expect to recur from year to year and, perhaps more importantly, are the kinds of things that make up the "business" of the League. The bottom part of the income statement contains the Other Income. [in 2013 there was only Other Income. In many years, this section had expenses as well in which case it is called Other Income (Expense).] The items in this section are not part of the core business of the League. They may, or may not, occur from year to year. They also tend to be items which we have far less control over, either in existence or amount. So, while our 2013 net assets went up almost $3.6 million, almost $3.2 million of that is from these non-core "other" items. The "business" of the League earned $373,622, the difference between the recurring revenue and expense. As we evaluate our financial picture and revenue streams, it is my view that we should pay the most attention to the normal recurring items. The Excel attachment provides some historical information related to the League's income statement. Information comes from the audited financial statements. Information is provided for 2001 to 2013. 2001 is the first year because it is the year in which the last dues increase occurred. 2013 is the last year because that is the last year for which we have audited information. The top of the Excel sheet shows income statement information as dollars. The middle of the page converts the dollars to percentages. The bottom of the sheet provides information on the consumer price index over the 2001-2013 period. We have six major categories of revenue: dues, publications, advertising, contributions, investment income (interest, dividends, and realized gains/losses), and all other (exam fees and program/service fees for the most part). I added a calculation of margin in column N. This represents the net recurring income or loss (called "increase in net assets before other items" on the 2013 statement) divided by total revenue. It is the net income or loss from the "business" of the ARRL divided by revenue. I do not include the "other" items in this analysis. Here are some observations that I have related to the Excel document. You undoubtedly will have additional ones. * The net margin over the period is not particularly robust. I realize that our purpose in life is not to make a big profit and that we establish an expenditure budget based on our expected revenue, but we are perennially very close to breakeven. That means that small revenue/expense variations can push us into the red. * Over the 2001-2013 period, the accumulated net income/loss from the "business" of the League was a negative $117,121. So, over a 13 year period, we lost $117K. Our average margin was (0.1%) over that time. * The Consumer Price Index increased almost 32% over the 2001-2013 period. The three biggest categories of revenue (dues, publications, and advertising) all increased by materially less than inflation. Stated another way, our three biggest revenue drivers have not come close to keeping up with inflation. * Let's look at the six big categories of revenue and hypothesize as to what the future may bring for each. These are my opinions and you may have a different take. * Dues. We have some control over this number and its future level and trajectory is obviously the topic of discussion. * Publications. An 11% increase over 13 years and a smaller proportion of total revenue. While future modest revenue growth may occur, I suspect this category will continue to make up a smaller portion of the total revenue pie. Further, when publication margin in considered, this category will likely deteriorate further given the trend of increased sales through Amazon. * Advertising. Almost no growth over the 13 years and almost 3% drop in proportion of revenue. The trend on this revenue driver will likely be downward in the future. While we may be able to mitigate some of the downturn over time as we transition to non-print advertising, my sense is that our audience (members as well as advertisers) will not embrace electronic ads which may have an additional negative impact on revenue as well. Vice Director Lee may have some insights on this. * Contributions. This revenue stream has been pretty consistent over the last 10 years. I see no reason why this category should materially increase in the future. NOTE: if we did not include contributions in our "business" income, we would have significant negative net income every single year since 2001. That suggests that our fiscal viability has been dependent on the charity of others. Not very comforting to me. * Investment Income. The last two years have had some higher-than-normal realized gains as the portfolio has been restructured. The underlying interest and dividend income will likely increase in the future because we have more assets and because interest rates will rise over the next few years. However, the dollar increase will be modest overall. Maybe in the order of $200K-$400K per year over a five year horizon. * All other. Steady, modest increase in the past. Likely to continue modestly increasing but the net dollar increase will not be significant. As I mentioned in my earlier short email, the above tells me that two of our biggest revenue streams - publications and advertising - will be under increased downward pressure over time, one stream (contributions) is likely to be flat, and the two remaining non-dues categories cannot make up the difference. And that is in nominal dollars, not even inflation-adjusted dollars. Thus, revenue will decline and we will perennially have a loss from our business operations. For the reasons mentioned in my earlier email, I do not think the portfolio can absorb much additional withdrawal pressure and I do not think running a perennial business loss is prudent for the organization or the hobby. I realize there is a lot of info here. As I mentioned in my other email, I would be glad to discuss next week, tonight, or sometime in between. K7GM Dr. Frederick (Rick) Niswander, Ph.D., CPA, CGMA Vice Chancellor for Administration and Finance Spilman 106 East Carolina University Greenville, NC 27858 252-328-6975 252-328-4835 (FAX)