USCF Executive Director Frank Niro has released the financial statement and balance sheet for the first half of the 2002-3 fiscal year, completed November 30.  While an operating loss of $145,300 was incurred, this was some $90,000 less than was lost during the same period a year ago, and $43,000 ahead of budget.  

The federation is a seasonal business.  The first half of the fiscal year, June through November, includes the slow summer months as well as comparatively few profitable national tournaments. The US Open often results in good sales but little tournament profit, while the National Open, being held in March 2002 and June 2003, will miss the 2002-3 fiscal year entirely.  

The second half, December through May, includes the peak holiday month of December, a usually above average membership and sales period from January to May, and the most profitable national tournaments: the National High School, Junior High and Elementary Championships, National K-12 Scholastic Grade Championships, and U.S. Amateur Team East.  For 2002-3, second half revenues will also reflect a dues increase.

Niro is very hopeful that after the second half results are in, USCF's string of losses in six consecutive fiscal years will finally be ended.  He also expects the long delayed audited report for 2001-2 to be issued very soon, saying that the report was held up because the last four months was a very busy period for the auditor.   

Following is Niro's report. 

During the month of November, the USCF experienced an operating loss of $45,100 compared to a loss of $43,800 last year and a budgeted loss of $31,800. The year-to-date (six months) loss is $145,300 compared to $235,700 for the same period last year. The budgeted loss for the first six months of the fiscal year was $188,700, resulting in a favorable year-to-date variance on the bottom line of $43,400.

Total revenues for the month were $526,200, which was $153,900 more than last year and $42,500 ahead of budget. The biggest reason for the improvement in revenues was sales of books and equipment, which more than doubled last year’s volume (136,200 increase from November 2001, and $20,700 favorable variance from budget). On a year-to-date basis, Total Revenues are $586,200 ahead of last year ($406,300 from Sales) and $114,900 ahead of budget.

Net Sales for the first six months of the fiscal year were $96,700 (8.6%) above budget. In general, this can be accounted for by our strategic partnership with Classic Games, which was $110,600 (9.0% of net sales). In order to be conservative in the budgeting process, none of the revenue from this partnership was included in the original budget. Following is a summary of the sales under this agreement during the first five months of the fiscal year:

June 2002 $5,600 $5,600

July 2002 6,600 12,200

August 2002 8,200 20,400

September 2002 8,200 28,600

October 2002 36,700 65,300

November 2002 $45,300 $110,600

Total operating expenses for the month of October were $390,300 compared to $359,000 last year and $351,700 as budgeted.

The principal causes of the unfavorable aggregate variance of $38,600 in operating expenses during November were as follows:

1. Schoolmates mailing - $17,300. Schoolmates magazine was mailed in November instead of October as originally planned. Additionally, it included the 100-page B+E Catalog causing higher mailing cost per unit than budgeted. The y-t-d unfavorable variance in Schoolmates mailing is $9,300.
2. Catalog printing - $12,400. None of the partnership expenses with Classic Games were included in the original budget, including the expanded B+E Catalog. In general, printing costs of the catalog were allocated 50% to October, 30% to November, and 20% to December. Catalog mailing costs were expensed in the month incurred. The y-t-d variance in catalog printing is unfavorable by $21,900.
3. Salaries & Wages - $6,700. This represents additional staff and overtime to accommodate the increase in B+E sales volume. The year-to-date variance in Salaries & Wages is unfavorable by $40,500 (10.7%). Please note that a management position was eliminated as of November 30, 2002. After settlement of severance and benefits to the individual, it is expected that this change will result in monthly savings of approximately $4,000 beginning in January.
4. Health benefits - $6,700. This is a timing issue related to receipt of the invoices from the insurance carrier. The y-t-d unfavorable variance is $2,500, which is consistent with the increase in staff during the period.
5. Chess Life mailing - $4,400. This is primarily a timing difference due to fluctuations in the size of the magazine from month to month. The y-t-d variance is favorable by $1,800.
6. Membership Forms & Supplies - $4,400. New forms were printed in anticipation of the changes in member dues effective January 1, 2003.
7. Postage - $4,300. This is related to fluctuating activity of various mailings and is within $2,300 of budget (unfavorable) on a year-to-date basis.

Total year-to-date operating expenses through November 30 are $1,925,000 compared to $1,806,800 last year ($118,100 increase) and $1,911,600 as budgeted ($13,300 unfavorable variance).

There are two other areas on that are worthy of special note: (a) Cost of Sales, and (b) Tournament Expenses.

(a) As noted in previous months’ financial reviews, a change from last year has occurred in the calculation of Cost of Sales. It was determined during the fiscal 2002 audit that the percentages used to estimate cost of sales in the prior year resulted in a significant understatement on an interim basis. Additionally, as expected, the cost of sales of items sold under our strategic partnership with Classic Games is substantially higher than our own inventory items. As a consequence, Cost of Sales for the month of November was $181,000, or 67.0%, compared to $57,100 (42.6%) last year and a budget of $163,760 (65.6%).

Based on the above, Management believes that the loss last year was understated by approximately $25,000 for the month of November and $125,000 in the first six months of fiscal 2001-02. It is important for the user of these financial statements to keep this factor in mind when reviewing the USCF’s performance on a year-to-year comparative basis.

(b) Tournament Expenses. The National Youth Action tournament was held in Rockford, IL in November. As of the date of preparation of these financial statements, this tournament was not closed out for accounting purposes. None of the entry fees or expenses associated with the tournament are reflected in the November 2002 income statement. This was a relatively small tournament and it is not believed that the impact is material. However, the concession sales from the tournament store were recorded in November. This tournament will be closed out completely in December, along with the National K-12 in Atlanta which had over 2,000 entries and more than $70,000 in gross concession sales during the weekend of December 14-15, 2002.

As noted previously, not all of the line items in the approved 2003 USCF Operating Budget were spread on a straight-line basis. Some categories of revenues and expenses follow seasonal patterns such as Memberships, Sales, Catalog Printing & Mailing, Cost of Sales, etc. Management utilized its best efforts to spread the monthly budgeted numbers on a consistent basis with prior year activity. Following is an updated summary of the current year budget by major category comparing the six month data already reflected within the year-to-date budget with the amount remaining over the second half of the fiscal year:

STATEMENT OF REVENUES

2003 Approved Budget first six months 6 mos. remaining

MEMBERSHIPS

Regular One Year $780,000 $386,050 $393,950

Senior One Year 73,000 37,750 35,250

Youth One Year 185,000 83,000 102,000

Scholastic One Year 455,000 166,000 289,000

All Multi Year 268,000 147,606 120,394

Life & Sustaining Recognition 175,000 87,500 87,500

All Other Categories 142,000 58,100 83,900

Total-Memberships 2,078,000 966,006 1,111,994

BOOKS & EQUIPMENT

Net Sales Revenue 2,400,000 1,128,000 1,272,000 Strategic Partnerships 0 0 0

Total – Sales 2,400,000 1,128,000 1,272,000

MAGAZINE REVENUE 255,000 127,500 127,500

OTHER SERVICES REVENUE 102,000 51,000 51,000

TOURNAMENT REVENUE 497,000 99,380 397,620

OTHER REVENUE 88,000 37,600 50,400

TOTAL REVENUES 5,420,000 2,409,486 3,010,514

COST OF SALES 1,440,000 686,614 753,386

GROSS MARGIN (Rev. less COS) 3,980,000 1,722,872 2,257,128

STATEMENT OF EXPENSES

MAGAZINE EXPENSES 705,000 364,850 340,150

BOOKS & EQUIPMENT COSTS 322,000 163,542 158,458

ELECTRONIC (WEB) SERVICES 27,000 22.025 4,975

PROMOTIONS & OTHER 124,000 62,000 62,000

TOURNAMENT EXPENSES 428,000 80,972 347,028

PERSONNEL EXPENSES 1,450,000 778,759 671,241

GEN’L & ADMIN. EXPENSES 357,000 165,000 192,000

OVERHEAD EXPENSES 524,000 254,464 269,536

GOVERNANCE EXPENSES 35,000 20,000 15,000

TOTAL EXPENSES (excl. COS) 3,972,000 1,911,612 2,060,388

NET INCOME (LOSS)

(Gross Margin less Expenses) $8,000 ($188,740) $196,740

Membership revenues for the month were 4.9% ahead of last year and 3.4% over budget. For the six months ended November 30, membership revenues are 8.8% ahead of last year and 1.0% over budget. The number of Total Paid Memberships, not including Affiliates, as of 11/30/02, is 93,677. For the second month in a row, it is a new record. The previous record was 91,817 at 10/31/02. The Total Members, which includes Affiliates, is 97,350. Once again, it is also a new record, topping 95,367 last month.

A comparison November membership statistics by category compared to last month and last year follows:

Life 10,629 10,644 10,552 + 92 +1%

Regular Adult 25,011 24,986 25,982 - 996 (4%)

Senior 3,232 3,224 3,295 - 71 (2%)

Sustaining 410 403 481 - 78 (16%)

Youth 11,941 12,329 12,354 - 25 (1%)

Scholastic 39,734 41,221 36,653 +4,568 +12%

Family 466 484 621 - 137 (22%)

Blind 49 50 39 + 11 +28%

Trial 54 45 70 - 25 (36%)

Internet & Computer 291 291 204 + 87 +43%

Total Paid Memberships 91,817 93,677 90,251 +3,426 +4%

Regular Affiliate 708 713 690 + 23 +1%

College Affiliate 58 58 63 - 5 (16%)

High School Affiliate 1,311 1,307 1,301 + 6 +1%

Prison Affiliate 36 36 34 + 2 +6%

State Affiliate 52 52 48 + 4 +8%

Tournament 123 121 117 + 4 +3%

Junior Tournament 5 88 56 + 32 +57%

Chess Life Subscriber 1,117 1,163 1,064 + 99 +9%

School Mates Subscriber 93 87 104 - 17 (16%)

Exchange 45 46 42 + 4 +10%

Non-member 2 2 1 + 1 +100% ---

Total All Categories 95,367 97,350 93,771 +3,579 +4%

A seven year comparison of key membership categories as of 11/30 each year follows:

Life 10,198 10,352 10,526 10,489 10,517 10,552 10,644 +446 +4%

Regular Adult 31,315 29,698 28,790 28,373 27,097 25,982 24,986 -6,329 -20%

Scholastic 27,357 28,094 28,709 29,492 33,226 36,653 41,221 +13864 +51%

Total Paid 84,061 84,077 85,180 86,645 87,788 80,251 93.677 +9,616 +11%

Total All 87,767 87,839 88,997 90,530 91,049 93,771 97,350 +9,583 +10%

November 2002 Internet Sales were $37,200, or 14%, compared to $22,800 and 17%, respectively, for November 2001. On a year-to-date basis, Internet Sales in fiscal 2002-03 are $207,400 (18% excluding concession sales) compared to $154,900 (20% excluding concession sales) last year.

Following are ‘Orders Processed’ by week through the middle of December:

June 3- 6, 2002 637 385 +252 + 65%

June 10-14, 2002 756 577 +179 + 31%

June 17-21, 2002 550 450 +100 + 22%

June 24-28, 2002 486 433 + 53 + 12%

July 1- 5, 2002 370 348 + 22 + 6%

July 8-12, 2002 483 402 + 81 + 20%

July 15-19, 2002 453 429 + 24 + 6%

July 22-26, 2002 386 408 - 22 - 5%

July 29-August 2, 2002 458 371 + 87 + 23%

August 5-10, 2002 329 408 - 81 - 20%

August 12-17, 2002 456 402 + 54 + 13%

August 19-24, 2002 538 392 +146 + 37%

August 26-31, 2002 433 372 + 61 + 16%

September 2- 7, 2002 614 424 +190 + 45%

September 8-14, 2002 345 309 + 36 + 12%

September 15-21, 2002 557 313 +244 + 78%

September 22-28, 2002 528 367 +161 + 44%

Sept. 30-October 4, 2002 482 379 +103 + 27%

October 7-12, 2002 478 442 + 36 + 8%

October 14-19, 2002 524 486 + 38 + 8%

<New Catalog Arrived Here>

October 21-26, 2002 894 518 +376 + 73%

Oct. 28-November 2, 2002 701 523 +178 + 34%

November 4- 9, 2002 827 472 +355 + 75%

November 11-16, 2002 657 564 +93 + 16%

November 18-23, 2002 875 343 +532 +155%

November 25-30, 2002 851 869 -18 - 2%

December 2- 7, 2002 976 712 +264 + 37%

December 9-16, 2002 1,346 829 +517 + 62%

Operating Cash as of November 30, 2002 was $50,300 representing a decrease of $54,200 from last month. The Line of Credit increased by $1,085 to $300,000. Accounts Payable increased by $8,700 in November to $295,000. Net Inventory increased by $6,300 to $376,400. The net balance in Accounts Receivable as of 11/30/02 is $110,300. As reported in previous months, some beginning balances will be restated as of June 1, 2002 to reflect the final audited numbers for fiscal 2002. These changes could affect the November 30 balances, particularly the Operating Fund Balance and Net Assets.

Respectfully submitted,

Frank A. Niro,

Executive Director