The AM Forum

The 2005 ARRL Annual Report is now available for review. There was interesting reading of the first section, with 2005 successes and on going activities in the amateur radio world that they are involved in. I would have hoped for some definite 5 year going forward strategy plan to be included but only saw some future generalities. The second part is for you financial gurus with financial statements, balance sheets, and all that good stuff. Even with the down turn in membership, they are still financially in good shape.

http://www.remote.arrl.org/announce/annualreport/2005/Annual-Report.pdf

After taking a quick look at their financial statements, here's what stands out to me:

Net assets:  $5.2 million

Accrued Pension Liability:  $ 7.1 million   (money owed to future retirees)

Stock Market investments:  $6.3 Million   (speculation)

Bond Market Investments:  $5.4 Million    (Interest income - with principal exposure in the short term)

My opinion?  A bad slam in the stock and/or bond markets and say good-bye to their net worth and ability to fund their pension plans...  They have over double their net worth invested in the markets.

They are also listing "unrealized" market losses from the past. Evidently, hope springs eternal to recover from some previous debacles.

Again, just my own opinion. It says they are using professional financial advisors, so guess they are well aware of the risks.

T

Mr. T said:
My opinion?  A bad slam in the stock and/or bond markets and say good bye to their net worth and pension plans...  They have over double their net worth invested in the markets.

Saw that. Would make me worry with periodic stock and bond volatility.

They are also listing "unrealized" market losses from the past. Evidently, hope springs eternal to get back and recover from some previous debacles.

You and me both.

Again, just my own opinion. It says they are using professional financial advisors, so guess they are well aware of the risks.

Yep, the market is always a risk. I almost strangled the first two "financial advisors" I had over the years.

Pete, maybe you and I can petition the Lord through prayer to make the stock market keep going up and interest rates going down forever.  HQ will get fat and hi hi FB, OM....

 ;D ;D ;D

T

So would I and I would welcome it.

"... petition the lord with prayer ......you can not petition the Lord with prayer!" --   Jimmie M.

I was hoping someone would catch that and reply exactly as you did!  heheheh   ;)

T

"Stock Market investments:  $6.3 Million   (speculation)

Bond Market Investments:  $5.4 Million    (Interest income - with principal exposure in the short term)

My opinion?  A bad slam in the stock and/or bond markets and say good-bye to their net worth and ability to fund their pension plans...  They have over double their net worth invested in the markets."

This is confusing. I think net worth should include investments. Unless, they are leveraging them. But unrealized losses imply direct ownership of the investment. So their net worth statement appears inaccurate in this context (my best Gomer Pyle . .  "surprise, surprise"). That being said, bonds and stocks often rally opposite each other. Actually, this aint a bad allocation model  . stock markets are a bit variable and the fed is pausing its short term interest rate hikes. . . later when the effect of the preceding rate hikes kicks in and the leading indicator (13 out of 16 times) of an inverted yield curve successfully predicts a downturn in business, the fed will be forced to drop rates. This causes the long bond value to go up. So, with this allocation model you are prepared if the stocks market rallies and prepared if the stock market dumps. You could realize significantly more gain or loss by putting all your eggs in one basket but this model moderates the impact of that one basket being dropped. I prefer 1/3 stocks with an emphasis on small and mid caps, 1/3 long bonds, and 1/3 real estate/commodity based investments. Then every 9 months or so, rebalance. Doing so (and buying carefully in the first place) you always buy low and sell high . . . something the big funds fail to do most of the time.
-ap

Well, I guess you could say that much of their owed $7.1 million pension liability is sitting in the stock market and bonds. And, some is their own capital. They have a fudiciary responsibility for that pension money and these days most people's pensions are handled this way. But if they get beat up like they did a few years ago when the stock market took a 30% hit, they might see problems again.  I believe their net worth was hovering around $3-4? million back then and they had lost a cool $2 million or so in the market... There was a thread here about that back then.

I don't know. For a "company" that has been around since the early 1900's it alarms me that they are still teetering and so vulnerable to market speculation like this. A national organization with this much history should be kissing at least 500m- $1 billion by now.  I'm not sure why they had such poor CFO's in the glory days of ham radio. Perhaps now they are trying to make up for lost time by being more agressive in the market, I dunno.

For example, just think what they would be worth now if they had prudently saved and simply invested excess funds in real estate, interest bearing corporate bonds or even stock mutual funds starting back in the 30's or 40's. In my opinion, something just isn't right, financially, in their past. Just think where they'd be today if they had a Warren Buffet type on their board or as CFO all these years. 

There's no doubt they are a frugal organization when it comes to operating expenses - ya gotta give em credit there.  I am told the salaries there have always been very low. I don't think you have to worry about improprieties. But what may have been the problem in the past is they have never paid enough to attract good financial talent. What good CFO is gonna work for beans?  But since external financial types like brokers, money managers and bankers work without a direct salary, maybe the leauge is taking advantage of this since they have some money to invest these days. I would love to sit down with the top dogs over there and hear a history of their investment strategies over the past 50 years.

T

You might get some insight if you keep back issues of QST. A quick search on the ARRL web site under "ARRL Periodicals Index Search", searching for "annual report", "yearly report", financial report, etc. turned up info for a number of years. I thought prior to web site posting, the "annual report", under whatever name,  was published each year in QST. A curious one when searching under the Index Search that popped out, was a Financial Report acticle in the Sept. 1923, page 19 QST.

How much you wanna bet their "owed $7.1 million pension liability" is sitting . . . nowhere? . . . except in their expectations of milking a diminishing membership?

So, the best case is they borrowed to invest and lost it (or are in the process of losing it . .  'unrealized'). The most probable, from this discussion, is the pension liability is unfunded and they are investing with borrowed funds. . . .  and this is a shocker . . . . . ?

All mimsy were the borogoves,
  And the mome raths outgrabe

-ap

Yes, it is confusing.

Well, it depends on how you view their $7.1M pension money. Technically, it's not company money and can never be considered an asset of the company. So it does not get listed as part of the company's net worth or leverage. It's really employee money - money that was paid in through payroll deductions and possibly some that was matched by the company as a perk. Either way, it's the company's custodial (fiduciary) responsibility to see that this money is invested in a prudent manner. Today, the stock market is considered prudent, depending on where it's placed.

In the unlikely event where they lost the pension money, it would have no effect on the company's net worth, though it would decimate the employees. But in essence, the company IS its employees and these people would be demoralized - and probably affect the company in other ways.

So, of the ~ $12 million they have in the stock and bond markets, I would guess most of the pension money is there and a good portion of their own company investments. But, I didn't see it broken down into categories, thus there is no way to tell the mix from the report.  Maybe I didn't look hard enuff.

At this point in time, most companies and people have a high percentage of their pensions plans in stocks and bonds. It is in vogue and nobody would fault this today. This attitude would change if the market took another big slide and finger pointing and lawsuits would start as usual. But for now it's clear sailing. Personally, I would like to see a more conservative investment strategy at the league.

We really need an accountant to further analyze this report. I was once a stockbroker, so have limited knowledge there.   But I DO know a lot about risk. (I'm a commodity futures broker, IB principal and CTA)  ;D

T