MINUTES FORTY-NINER SHIOPS, INC. FINANCE & INVESTMENT COMMITTEE. May 5, Dr. Keith Freesemann Dr. Lee Blecher

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1 MINUTES FORTY-NINER SHIOPS, INC. FINANCE & INVESTMENT COMMITTEE May 5, 2017 Members Present: Members Absent: Staff Present: Ms. Mary Stephens, Chair Dr. Keith Freesemann Dr. Lee Blecher Mr. Alvaro Castillo Mr. Giovanni Smith Mr. Joshua Cason Mr. Don Penrod, Secretary, General Manager/CEO Mr. Robert dewit, Controller Mr. Tom Collier, Accounting Manager Ms. Karen Kennedy, Executive Assistant A. Call to Order: The meeting was called to order at 8:25 a.m. by Chair, Mary Stephens. B. Approval of the Agenda: May 5, 2017 By acclamation the Agenda for the meeting May 5, 2017 was hereby approved. C. Approval of Minutes: April 21, 2017 Motion to accept the Minutes with proposed changes. M/S Dr. Freesemann / Dr. Blecher By acclamation the minutes of April 21, 2017 were hereby approved with proposed changes. E. Action Items FY 2017/2018 Budget Review Robert de Wit We are seeking approval of the following action items today: FY 2017/2018 Operating Budget: 1) Operating Contribution of $558,309 2) Net contribution of $1,008,309. Page 1 of 5

2 3) Individual corporate donations in excess of $2,500: Shops Student Employee Scholarships - $15,000 Presidents Scholars Cash Donation - $10,000 49er Shops Textbook Scholarship (Bowling for Books) - $10,000 Student Emergency Fund - $10,000 4) Capital Funding a) FY 2017/2018 Capital Request - $2,179,880 b) FY 2016/2017 Unbudgeted Expenditures - $30,000 c) $51,102 FY 2015/2016 budgeted carryover (information only) 5) Reserve Funding Schedule General Assumptions Enrollment is flat per campus forecast, and general price increases are projected in most areas. We estimate a 96% occupancy rate for Housing. We have projected (5-10%) escalation rate for health insurance and Workers Compensation insurance. Key Activities/Drivers The overall wage impact is projected to be $300K. We have a new Residential Dining Plan, the Starbucks contract renewal is pending and the Papa John s pizza concept is planned. Ongoing increased revenue producing activities include textbook sales, which are projected at a 4% increase over current year, the Amazon locker commissions and the campus print shop management. Labor Impact Out of the above $300K wage impact, the Shops is estimating $200K related to minimum wage increase starting January 1, 2018, which is mostly comprised of student wages. Given the mandated annual $1/hour increase for each year through the year 2022 up to $15/hour, there will be a compounded annual impact of $375K starting in FY2017/2018 with a projected $1.8M annual cost increase in 2022 over current cost. In addition to minimum wage impact, there is another $100K anticipated increase for full time employees. We also have 13 employees that fall below the California Exempt Minimum Wage categories, so there will be an additional $25K annual wage increase due to the requirement to raise their wages to the new minimum wage level. In addition, we estimated $80K for the usual yearly increase for the staff. Key Activities Other Financial 1) The interest expense for the Outpost bond is $148K. 2) PERS Unfunded Liability - We are on a 30-year mortgage schedule with PERS for the unfunded liability. The July 2017 payment will be $286,399, and the July 2018 payment will be $359,464. A discussion was held with regard to other options in paying the unfunded liability. To completely understand what our options are, we will review with PERS the 10/20/30 paydown schedule options and variations thereof. 3) Estimating a 5% investment return for the coming year. 4) The Incentive compensation placeholder has been placed in the G & A pool. Page 2 of 5

3 5) There is nothing projected for VEBA funding for this year. Operating Statements In summary, we are projecting an Operating Contribution of $558K. The key is Residential Dining. We need to make sure we have participation as anticipated. We also have to make sure we manage our inventory, as we expect cost of goods to go up. G & A Corporate donations are projected to be flat and similar to current year. There is a $400K placeholder for the Incentive Plan, and a $510K placeholder for medical retiree health benefit payments. Staffing is projected to be flat. Recent system upgrades will increase the depreciation expense next year. Corporate Donations Approval Required - We have four items of donations that are above $2,500 that need to be approved: Shops Student Employee Scholarships $15,000 Presidents Scholars Cash Donation $10,000 49er Shops Textbook Scholarship (Bowling for Books) $10,000 Student Emergency Fund $10,000 Bookstore/Computer Store Sales are projected to be flat at $16.2M. Historically yearover-year textbook sales have declined 5% in the past, but in working with faculty, we are expecting a turnaround in volume through higher requisition capture and are thus anticipating a 4% increase over FY16/17. We are seeing some growth in retail, and Mr. Vandygrift has turned around the Computer Store. Convenience Stores Sales are projected to be flat at $3,260,029, but we have planned for incremental price increases. The declining balance plan was eliminated, and possibly half of that volume went to the C-Stores and half to retail dining. We have upgraded the systems this past year, so we will start seeing the depreciation costs for hardware and the inventory system implementation. Our consultant who was originally helping us with our Open to Buy program for inventory control at the Bookstore will now be helping us at our Convenience Stores with inventory control, which will help with selling more trending items. Retail Dining We predict a 4% sales growth across the board. Unfortunately, there is a Campus saturation of offerings, and we are losing declining balance meal plan dollars. However, this may be offset by our new flex offering. We will be starting the Papa John s concept at the Outpost, and the Starbucks refresh as well. We do have a large percentage of minimum wage employees working in retail dining who will be affected by the minimum wage increase, and high credit card fees and facilities costs associated with retail dining. Residential Dining Planned occupancy is 2,550 residents. We have the new meal plan agreement in place. There is no increase in the base plans. We have eliminated the declining balance plan but instead have new offerings of flex dollars. As a result, we Page 3 of 5

4 have an additional opportunity of selling within other areas of the campus. ID Card Office The ID Card Office is a campus pass-through program. The Blackboard contract (the underlying software application) is renewed through the Chancellor s Office, and our off-campus vendor program has been minimal. However, with the new flex dollars in the residential dining plan, we may see a little more administrative activity. Capital Status Our current year expenditures of $798K are well below plan, and we anticipate $73K for the balance of the year. The major projects that were aborted or deferred were the $100K for the food truck due to health permit issues, and the $275K for the outpost patio/seating, which has been deferred to FY17/18. One action item for capital is $30,000 for the Starbucks license fee for the Library, which is considered to be a new contract. We are requesting Capital funds of $2,179,880, which is detailed on a separate handout. We had gone over this capital funds list at the previous F & I Committee meeting. Key projects that are planned: Starbucks renewal, Outpost patio, Papa John s, the Japanese Garden and the Server room. Cash Flow We are projecting a negative cash flow of $413K. However, $400K- $600K of planned Capital spending could be subject to delay, thereby swinging cash flow to the positive side. A 5% investment return is factored in. The VEBA trust funding is complete, and we have the ongoing PERS unfunded liability payments. The projected cash balance on June 30, 2017 is $12M. The projected cash/investment balance on June 30, 2018 is $11.5M, per slide 26. Long Term Liabilities Our long-term liabilities include bond debt, VEBA medical retiree unfunded liability (Present Value) and PERS unfunded liability, which totals approximately $11M. Reserve Planning We have adequate funds on hand for working capital and midterm support while VEBA funding is reported off balance sheet. PERS unfunded liability is still the largest outstanding liability for the Shops and a possible candidate for some funding designation. Strategically we do not have any funding set aside for future projects. We need to start designating funds for the long-term renovations such as the UDP. Reserve funding opportunities include major maintenance $2M, the UDP Replacement $30M, and Alumni Center/Catering $1M. Currently we have designated some funds for vacation pay and highlighted balance sheet debts such as SRB Funding (Outpost), AORMA UIT, VEBA/Post-Retirement Medical, Beach Club Deposits, and PERS Unfunded Liability. We also show a special project for SMIF Funding. Comments with regard to the reserve policy included: (1) Major Maintenance is extremely important and must stay, (2) change the Alumni Center amount to $1.5M per Page 4 of 5

5 Mr. Penrod s comment that we need to build a kitchen in the center for the Forty-Niner Shops use, and (3) the UDP Replacement should definitely stay on the Reserve Funding list. After further discussion, it was decided that the following items would come off the Reserve Funding Opportunities list: SRB Funding, VEBA, PERS, and the SMIF Funding. Mr. de Wit said that he would try to pull out a copy of the Reserve Policy for the next meeting so that the Committee could review it. After discussion, it was decided to make the following changes to the Capital Budget: Reduce both the Starbucks Library and Starbucks UDP renovation budgets from their initial $410,465 down to $150K for Starbucks Library renovation, and reducing the Starbucks at the UDP amount to $250K. The reduction in capital better aligns with the Starbucks contract and facility project scope that could be completed next fiscal year. As a result, the Capital Budget request was reduced from $2,179,880 down to $1,758,950. Motion that we approve all the items listed under Section D of the Agenda with the changes to the Capital Budget, where the Starbucks at the Library renovation is reduced to $150,000 and the Starbucks at the UDP renovation is reduced to $250,000. M/S: Dr. Freesemann / Dr. Blecher By acclamation the Motion with amendments was hereby approved. F. Adjournment By acclamation the meeting was adjourned at 10:32 a.m. Page 5 of 5