Committee meeting called to order by committee chair Jed Kalkstein at 3:00 PM via conference call.
Committee members in attendance: – Roy Liu, Eric Schoenholz, Jeff Paduch, Andy Dulik, Deb Steines, Leigh Michl, Jed Kalkstein, Chair.
Shareholders in attendance:Andrew Snow
MRG Staff: Jamey Wimble
DISCUSSION:
Review of 2003/2004 Draft Audit
The committee reviewed the draft audit and a discussed the Auditors’ letter detailing areas where internal controls should be tightened as well as additional adjusting accounting entries proposed by the auditors.
With respect to adjusting entries, the Committee noted that the final operating income was within $1,000 of management’s projection at the April Annual Meeting of Shareholders.There were questions regarding adjusting entries within the Co-op’s equity accounts (not involving the income statement, assets, or liabilities).These adjustments have persisted for many years principally related to the complexity of Co-op accounting.With respect to the FY 2004 adjustments, it appears that a software update had not properly accounted for inactive shareholder accounts.
With respect to internal controls, it was the opinion of the Committee that most of the items identified in the audit did not pose material issues for the Co-op.Specific findings are discussed below:
<![if !supportLists]>1.<![endif]>Cash accounts are not insured, ie, the Co-op’s cash balances exceed FDIC insurance level.This finding has been pointed out in past years.Previous solutions, such as moving some cash to other banks, would have impacted the relationship with our bank and were not deemed to be in the Co-op’s best overall interests.Management indicated that there may be methods of insuring our entire balance.
<![if !supportLists]>3.<![endif]>Unclaimed paychecks.One employee paycheck had not been collected by the employee and the Co-op failed to turn the cash over the State as an unclaimed asset.This was the first such incident for the Co-op and management is now aware of the proper procedure.
<![if !supportLists]>4.<![endif]>Expired Visa.One foreign employee had an expired visa during the prior season.Management will devote additional attention to the matter.
<![if !supportLists]>5.<![endif]>Timecard approval.Management had changed the timecard approval process during the prior year.Although employee time cards were approved indirectly at an aggregate level before they were submitted for payment, individual employee time cards were not approved.Management has instituted corrective action.
<![if !supportLists]>6.<![endif]>Cash out process.Management stated that the auditors found the Co-op’s Tally Sheet confusing.Management indicated that the auditors suggested a more simple Tally Sheet layout, which management is adopting.
The committee recommends adoption of the audit as presented, pending the auditors’ meeting with the Coop Chairman and the Treasurer to review their findings.
Review of October Financials and Pre-season Sales
The Committeed noted that pre-season pass sale revenue was about 1% below 2003, but unit volume was down by a larger percent.Factoring in other pre-season sales (i.e., Mad Cards, SkiSchool, and Kids Programs), overall pre-season revenues were well in advance of 2003 and were in line with budget.In particular, Mad Card revenues were up dramatically – from last year’s $143,000 to $190,000.Reflecting a shift in product mix.
It was noted that it remains unclear whether the unit drop on season passes was a function of (1) the absolute cost of the season passes (including the elimination of the second pass discount) (2) the extreme relative value of the Mad Card or (3) the impact of competitive discounting, particularly at Sugarbush North.Management felt that there was anecdotal evidence that the elimination of the second pass pushed infrequent spouse skiers into Mad Cards because of the relative bargain.Management also is considering a selected customer survey to try to understand the mix question for future decision making purposes.Mr. Wimble noted the need to withhold judgment on the overall strategy until the season was complete.
With respect to the October income statement,October revenue results appear to lag the budget substantially, principally because the large increase in Mad Card sales is not reflected in that income statement, but is held on the balance sheet as deferred revenue until those cards are either redeemed during the season or they expire at the end of the season.Including Mad Card revenue, the Coop is close to budget.
The significantly under-budget expenses were noted as being largely a function of timing.
It was also noted that while the October financials ran through that month, the detailed exhibits for seasons passes and children’s programs were as of November 2, which explains why they did not tie out to the October P&L.
Patronage Rebate
The Committee considered the question of whether to recommend to the Board that it declare a Rebate for the fiscal year just ended.The Committee evaluated the rebate question in detail and concluded that it would not recommend a rebate due to several factors, including:
<![if !supportLists]>·<![endif]>First, although we had a positive year in terms of cash flow, after factoring in depreciation and amortization, we posted a net loss.The committee did not believe that a rebate would be appropriate under such circumstances.
<![if !supportLists]>·<![endif]>Second, it was noted that the Co-op needs to husband its resources particularly given the large capital expenditure anticipated to begin shortly to refurbish our Single Chair.
<![if !supportLists]>·<![endif]>Lastly, our retained earnings more generally are still in the red.
Share Redemptions
Following up on a discussion regarding share redemptions that occurred at the last Board meeting, Management is prepared to recommend to the Board that the current policy be amended to include an annual cap on redemptions.Management’s proposal is to cap the number of shares redeemable to 20 per year, which given our current budget for 40 new shares sold per year, would provide us with a net of 20 new shares annually.However, it was noted that, at the present level of share sales, 20 redemptions would result in minimal “net” new shares sold.
The Committee recommended that the subject of Share Redemptions needs to be further discussed by the entire board because the implications of a change in policy were not strictly financial in nature.The Committee suggested that the matter be taken up at the Strategic Planning session.
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The committee chair will call the next meeting as needed, but not likely until after the Christmas week financials are available for review.
