March Financial Results

[michael h schneider]

The following is the Treasurer's report to Council on the financial situation:

Duplicated below are the narratives from two reports just released in Hq: the March financial report, and a separate analysis of
budget and projection variances for the full fiscal year 2001. The full reports will be sent to you separately as usual.

The audited financials are in process of being prepared, and it will be about another month before they are available. As we've
noted before, the audited financials are prepared on an accounting basis ("Generally Accepted Accounting Principles", or GAAP)
which differs in significant respects from the cash flow basis of our monthly reports. Consequently many of the numbers will
differ from the reports we've been seeing during the year. I'll explain the differences again when we present the actual audited
report at Council. Meanwhile, I think you will find the current reports sufficient to evaluate the year's results and our present
financial condition.



March Report:

Attached are the usual financial exhibits for March, the closing month of our fiscal year. As usual, these
exclude Willard House. For the next fiscal year, I?ll be adopting a different monthly reporting format that
parallels the format of the fiscal 2002 budget. To introduce that format, I?m attaching an extra exhibit that
resummarizes FY2000 and FY2001 results.

For the month of March by itself, the current net operating result was a negative $41 thousand. Cash in
and cash out were both the highest of any month in the year. Dues, student charges, and Mart receipts
were all strong for the month. On the expense side, it was one of two 3-payday months in the year and a
month in which we paid for a Bulletin and Mart. Secondarily, there was a bulge in advertising and
supplies costs. No transfers were made from the investment portfolio to support operations during the
month. Subject to audit, trade accounts payable were down to $131 thousand, somewhat below "normal"
and a major improvement over prior year.

The full year?s net current operational result was a negative $67 thousand. Although a huge
improvement over the prior year?s negative $328 thousand, it was very far off the strongly positive result
originally budgeted. It was closer to, but $10 thousand worse than, the projection done as part of the
FY2002 budget process. I?m providing a separate report on the detailed variances from budget and from
the projection. For the remainder of this report, I want to comment on absolute results and trend.

The monthly financial reports are designed to track cash. A refinement has been to track only that cash
income which can be used to pay current bills; this excludes donations which go into restricted funds
such as the endowments. The implicit objective is that current operational cash income be at least
sufficient to pay current bills when due. That objective was not met in FY 2001 nor in the prior two fiscal
years. We have been funding negative cash flows by withdrawing money from limited investment
resources.

In FY 2001 NAWCC spent $2,147 thousand on current operations, $67 thousand more than the cash
inflow from operations. In addition, $193 thousand in cash was used to pay down the unusually high
accounts payable at the end of prior year. The total cash drain was therefore $260 thousand. Where did we
get the $260 thousand? The two primary sources were direct investment portfolio withdrawals ($152
thousand) and the year-over-year decrease ($58 thousand) in checking account balances. The remaining
$50 thousand came from reductions in inventory and receivables, plus use of current year accounts
payable.

What is our remaining ability to support operational cash deficits? The gross liquidity reserve
(investments less loan balance) ended FY 2001 at $1.217 million (of which $730 thousand is restricted for
emergency). This was an actual improvement of $256 thousand over prior year. The main reason for the
improvement is that we were invested entirely in CD?s and bonds instead of stocks. Our investments not
only supplied $332 thousand of income, their value appreciated another $285 thousand in the declining
interest environment.

FY 2001 was the first year of resumed "normal operations" in the new building. The new exhibit in
"budget presentation" format indicates that financial performance improved over prior year in most
respects. The subsidy needs of the Museum and Publications declined somewhat, and central costs
declined considerably. Only the School?s results moved seriously in the wrong direction.

The problem is that overall financial performance didn?t improve enough, even with a dues increase, to
achieve positive cash flow. That challenge will increase going forward because dues in particular will
likely trend downward while operational expenses will want to trend upward. Given the nature of our
investments (fixed income with short maturities, many callable), further appreciation to help fund cash
deficits is unlikely, and in fact a decline in income and values is possible.

The FY2002 budget discussion recently published in the Mart remains a basically accurate picture of our
situation, with one important update. Actual FY 2001 member dues came in below both 2001 expectations
and FY 2002 budget. Realistically, that means the FY 2002 dues budget is too high by as much as $50
thousand, enough to cause negative cash flow if all else happens according to budget. The budget will
need to be revised and brought back into balance.

David Wood

Treasurer



Variances Report:

An attached exhibit compares actual FY 2001 results against the original budget with its relatively minor
modifications made at the July 2000 Council meeting. The line item format is in the same detail as the
original budget. The Operating Net at the bottom of the page is on the same (cash) basis as the monthly
financial reports.

A second attached exhibit compares the actual FY 2001 results with the projection made at the time the
FY 2002 budget was prepared. The line item format is that of the FY 2002 budget.

Following is what these numbers seem to say to me. Others may have different or additional insights.

Budget Variances

Overall net results are shown as $338 thousand worse than budget. Two-thirds of that lay with the
School. The Museum operation also had a significantly adverse result vs. budget. The remaining
components of the net?Headquarters operations including dues and Publications?were favorable in
total relative to budget. All of these components merit further comment.

The School revenue budget could be seen to be unrealistic from early in the year, and the situation
resisted rational projection during the year. Expenses came in well below budget, but that partly just
reflects staff instability during the year. Overall results did not resemble budget.

FY 2001 was the reopened Museum?s first full year of operation. People costs and store sales were in line
with budget, but other key items developed adverse variances. Museum admissions fell about 1/3 short
of budget, while advertising expenditures exceeded budget by over half. Together, these two items caused
a $68 thousand adverse variance. The rest of a $142 thousand Museum net variance was caused largely by
increased costs of operating the physical plant?fuel, maintenance, and utilities.

From what can be seen, Publications had a favorable net budget variance. Mart receipts, including extra
postage income, fell $28 thousand short of budget. However, printing and postage costs were about twice
that below budget. People costs aren?t split out within Headquarters.

As to the rest of Headquarters expenses, paid staff and their operations cost somewhat more than budget
while Council and Committees cost considerably less. Salaries were 16% over budget, partly offset by
Professional Services being well under, and several other items like supplies were over budget. Officer
(Council) and Committee expenses were in total $45 thousand (40%) below budget.

Last but not least, dues income was $57 thousand (4%) below budget. Dues ran pretty close to budget for
most of the year, falling off primarily in weak months of December and February. The dues shortfall was
partly offset by donations (which are historically not budgeted).



Projection Variances

FY 2001 results were reprojected in fall 2000 as part of FY 2002 budget development. The process included
participation by managers on the paid staff in order to improve input, ownership, and accountability.
With practice, this should result in more realistic and better achieved budgets.

Actual results were $10 thousand worse than the projected net result. Expenses were pretty consistently
better than projected, with a few surprises in the wrong direction. Of relatively more concern is the
continuing apparent difficulty of forecasting revenues confidently. Had we made any of the admissions,
store sales, student charges, or dues forecasts, the actual net would have been better than forecast.





Looking ahead, we need to build on our start at improving effectiveness in constructing budgets and
using them to manage results. We begin FY 2002 with useful data from actual experience in "normal"
operations, as well as a new Executive Director who can bring needed stability to the management team.
Clearly we need to improve both actual revenues and our ability to predict them realistically in order to
meet our first financial priority of restoring positive net cash flow from operations. Getting expenses
within revenues will also require work, but is likely a more straightforward task. Our next step will need
to be reforecasting both dues and school revenues in FY 2002, as these budget items appear vulnerable.



David Wood

Treasurer
davhalwood@prodigy.net

[michael h schneider]

The following is the Treasurer's report to Council on the financial situation:

Duplicated below are the narratives from two reports just released in Hq: the March financial report, and a separate analysis of
budget and projection variances for the full fiscal year 2001. The full reports will be sent to you separately as usual.

The audited financials are in process of being prepared, and it will be about another month before they are available. As we've
noted before, the audited financials are prepared on an accounting basis ("Generally Accepted Accounting Principles", or GAAP)
which differs in significant respects from the cash flow basis of our monthly reports. Consequently many of the numbers will
differ from the reports we've been seeing during the year. I'll explain the differences again when we present the actual audited
report at Council. Meanwhile, I think you will find the current reports sufficient to evaluate the year's results and our present
financial condition.



March Report:

Attached are the usual financial exhibits for March, the closing month of our fiscal year. As usual, these
exclude Willard House. For the next fiscal year, I?ll be adopting a different monthly reporting format that
parallels the format of the fiscal 2002 budget. To introduce that format, I?m attaching an extra exhibit that
resummarizes FY2000 and FY2001 results.

For the month of March by itself, the current net operating result was a negative $41 thousand. Cash in
and cash out were both the highest of any month in the year. Dues, student charges, and Mart receipts
were all strong for the month. On the expense side, it was one of two 3-payday months in the year and a
month in which we paid for a Bulletin and Mart. Secondarily, there was a bulge in advertising and
supplies costs. No transfers were made from the investment portfolio to support operations during the
month. Subject to audit, trade accounts payable were down to $131 thousand, somewhat below "normal"
and a major improvement over prior year.

The full year?s net current operational result was a negative $67 thousand. Although a huge
improvement over the prior year?s negative $328 thousand, it was very far off the strongly positive result
originally budgeted. It was closer to, but $10 thousand worse than, the projection done as part of the
FY2002 budget process. I?m providing a separate report on the detailed variances from budget and from
the projection. For the remainder of this report, I want to comment on absolute results and trend.

The monthly financial reports are designed to track cash. A refinement has been to track only that cash
income which can be used to pay current bills; this excludes donations which go into restricted funds
such as the endowments. The implicit objective is that current operational cash income be at least
sufficient to pay current bills when due. That objective was not met in FY 2001 nor in the prior two fiscal
years. We have been funding negative cash flows by withdrawing money from limited investment
resources.

In FY 2001 NAWCC spent $2,147 thousand on current operations, $67 thousand more than the cash
inflow from operations. In addition, $193 thousand in cash was used to pay down the unusually high
accounts payable at the end of prior year. The total cash drain was therefore $260 thousand. Where did we
get the $260 thousand? The two primary sources were direct investment portfolio withdrawals ($152
thousand) and the year-over-year decrease ($58 thousand) in checking account balances. The remaining
$50 thousand came from reductions in inventory and receivables, plus use of current year accounts
payable.

What is our remaining ability to support operational cash deficits? The gross liquidity reserve
(investments less loan balance) ended FY 2001 at $1.217 million (of which $730 thousand is restricted for
emergency). This was an actual improvement of $256 thousand over prior year. The main reason for the
improvement is that we were invested entirely in CD?s and bonds instead of stocks. Our investments not
only supplied $332 thousand of income, their value appreciated another $285 thousand in the declining
interest environment.

FY 2001 was the first year of resumed "normal operations" in the new building. The new exhibit in
"budget presentation" format indicates that financial performance improved over prior year in most
respects. The subsidy needs of the Museum and Publications declined somewhat, and central costs
declined considerably. Only the School?s results moved seriously in the wrong direction.

The problem is that overall financial performance didn?t improve enough, even with a dues increase, to
achieve positive cash flow. That challenge will increase going forward because dues in particular will
likely trend downward while operational expenses will want to trend upward. Given the nature of our
investments (fixed income with short maturities, many callable), further appreciation to help fund cash
deficits is unlikely, and in fact a decline in income and values is possible.

The FY2002 budget discussion recently published in the Mart remains a basically accurate picture of our
situation, with one important update. Actual FY 2001 member dues came in below both 2001 expectations
and FY 2002 budget. Realistically, that means the FY 2002 dues budget is too high by as much as $50
thousand, enough to cause negative cash flow if all else happens according to budget. The budget will
need to be revised and brought back into balance.

David Wood

Treasurer



Variances Report:

An attached exhibit compares actual FY 2001 results against the original budget with its relatively minor
modifications made at the July 2000 Council meeting. The line item format is in the same detail as the
original budget. The Operating Net at the bottom of the page is on the same (cash) basis as the monthly
financial reports.

A second attached exhibit compares the actual FY 2001 results with the projection made at the time the
FY 2002 budget was prepared. The line item format is that of the FY 2002 budget.

Following is what these numbers seem to say to me. Others may have different or additional insights.

Budget Variances

Overall net results are shown as $338 thousand worse than budget. Two-thirds of that lay with the
School. The Museum operation also had a significantly adverse result vs. budget. The remaining
components of the net?Headquarters operations including dues and Publications?were favorable in
total relative to budget. All of these components merit further comment.

The School revenue budget could be seen to be unrealistic from early in the year, and the situation
resisted rational projection during the year. Expenses came in well below budget, but that partly just
reflects staff instability during the year. Overall results did not resemble budget.

FY 2001 was the reopened Museum?s first full year of operation. People costs and store sales were in line
with budget, but other key items developed adverse variances. Museum admissions fell about 1/3 short
of budget, while advertising expenditures exceeded budget by over half. Together, these two items caused
a $68 thousand adverse variance. The rest of a $142 thousand Museum net variance was caused largely by
increased costs of operating the physical plant?fuel, maintenance, and utilities.

From what can be seen, Publications had a favorable net budget variance. Mart receipts, including extra
postage income, fell $28 thousand short of budget. However, printing and postage costs were about twice
that below budget. People costs aren?t split out within Headquarters.

As to the rest of Headquarters expenses, paid staff and their operations cost somewhat more than budget
while Council and Committees cost considerably less. Salaries were 16% over budget, partly offset by
Professional Services being well under, and several other items like supplies were over budget. Officer
(Council) and Committee expenses were in total $45 thousand (40%) below budget.

Last but not least, dues income was $57 thousand (4%) below budget. Dues ran pretty close to budget for
most of the year, falling off primarily in weak months of December and February. The dues shortfall was
partly offset by donations (which are historically not budgeted).



Projection Variances

FY 2001 results were reprojected in fall 2000 as part of FY 2002 budget development. The process included
participation by managers on the paid staff in order to improve input, ownership, and accountability.
With practice, this should result in more realistic and better achieved budgets.

Actual results were $10 thousand worse than the projected net result. Expenses were pretty consistently
better than projected, with a few surprises in the wrong direction. Of relatively more concern is the
continuing apparent difficulty of forecasting revenues confidently. Had we made any of the admissions,
store sales, student charges, or dues forecasts, the actual net would have been better than forecast.





Looking ahead, we need to build on our start at improving effectiveness in constructing budgets and
using them to manage results. We begin FY 2002 with useful data from actual experience in "normal"
operations, as well as a new Executive Director who can bring needed stability to the management team.
Clearly we need to improve both actual revenues and our ability to predict them realistically in order to
meet our first financial priority of restoring positive net cash flow from operations. Getting expenses
within revenues will also require work, but is likely a more straightforward task. Our next step will need
to be reforecasting both dues and school revenues in FY 2002, as these budget items appear vulnerable.



David Wood

Treasurer
davhalwood@prodigy.net