1. APS Treasurer’s Report Board Meeting Presentation August 15, 2012 1

2. Operational Spending Overview Operating Expense $4 million/year Breakout: $3.6 Million APS & $375k APRL Operating Within a Balanced Budget – We Provide Services Our Dues & Income Allow Funding Depreciation – Allowing for Future Repairs on Capital Plan Donor Dollars Pay For Capital Projects and Reducing Mortgage Debt 2

3. Audit Results Clean audit record Improved asset position No needed changes All tax filings are in order 3

4. Investment Results Successfully changed investment advisors New advisor has rebalanced our portfolio Solid performance in tricky market Loss in prior year – tracking market conditions Plan to retain funds in account, no changes 4

5. Where Operational Expenses Go APS APRL Total $4.0 Million Staffing /Benefits APS $1.7 million Printing/Postage/Credit Card/ COGS $750k Mortgage (to principal ) $120k Shows/Meetings/Travel/Seminars $550k Office/Committees/Dues Collection/Other$150k Recruiting/Promotion$145k Audit/Legal$ 90k Library (Library Expense $200k, Staff $175k) $375k 5

6. Our Investments APS Investments Total: $2.0 Million Restricted Funds Comprised of: – Insurance Fund – Circuit Sales, Internet Sales and Expertizing – Tiffany Endowment Fund – Life Membership Fund – General Fund – Publications Fund APRL Investments Total: $1.3 Million Restricted Funds Comprised of: – Endowment Funds – Includes Endowment, Founder/Patron and Vooys Harrison Funds – Building Fund – Life Membership Fund – Operating Fund– includes construction in progress 6

7. Business Risks & Financial Impact Mortgage Interest Rate Adjustment Up It is about as low as it can go, until it goes lower Significant Loss of Donations Membership Decline Constant job to keep our 34,000+ members Working number of $60,000 gross dues loss/year Unexpected Litigation & Other Similar Risks Insurance Rate Increases – Market Driven Asset Related Risk Tenant Loss, Building Capital Needs, Flood 7

8. Business Risk Quick Facts Membership Loss – $60,000 gross income loss, at 1,300 members per year – $26,000 net income loss, after costs of members services Legal Costs – Typical Year $15,000 for base legal services – Highest Year $65,000 for base services and litigation expense Insurance Cost Structure Change – Medical Increase $20,000 or more, Property Insurance Increase – Low Cost – Flood cost $6,000 Insurance Deductible, Building & Contents Mortgage Reset Interest Rate – a 2% bump would cost: – $120,000/yr operating expense additional estimated – Resets happen only once every five years Tenant Move or Non Payment – Larger tenants have longer term leases and high credit rating and good payment history 8

9. Solutions Focused: Business Risk Remedies to Cost Increases or Member Loss Dues Increase Service Cost Increase – Advertising, Circuit Sales, ISU, Expertizing Service Level Decrease – Technology Options Shrink Our Space Further Leasing of Unoccupied Space Staffing and Operating Expense Reductions 9

10. Philatelic Assets & Values APC Property $9.755m book value – Value of asset improved with our construction – Mortgage Liability $6.1m Philatelic Reference Collection $1.5 million APRL Assets – Our Unique Holdings $1 million All assets except the Reference Collection are collateral for loans 10

11. Match Factory Asset & Expenditure Construction For New Tenants – Spending with Signed New Lease Building 5, 2 nd and 3 rd floors for UCBH lease $1.2 million – 7 year lease at $180k/year rent - Positive Cash Flow Spending for Asset Preservation Roof & Windows 2011, 2012 Bathrooms, Floors & Halls Pay off the Mortgage - $6.1 Million Needed – Four separate bank loans at 3.3 to 5.2% – One internal loan at 3.8% 11

12. Major Capital Projects APRL New Library – $1.8 million Estimate to Completion, $300k in hand – $400k – Spent to Date on Library Shell & Assets Digitize Philatelic Materials – $150k - AP & APRL all issues – $10k Digitize Books in Library limited by copyright issues for material after 1923 – Other Library Materials (Belmont Faries) $10k Other Technology Investments 12

13. Rental Income and Mortgage Tenants Paid $388k in Rental Payments in 2011 – Covering our Mortgage Expense APS Pays $10k/month rent (goes to principal) Practically Speaking: APC Tenants Allow Us to Live Rent Free Our Rent Income is Growing Current tenants have low risk of moving out 13

14. Rental Prospects and Return Space We Can Market for $75k/year+ – Building 5-1 – 4,000 sf for Office Use – Building 10 – 5,300 sf Flexible Space, Easy to Fit Maximum Rental of Unoccupied $250k/year+ – 16,500 sf in total at rental rate of $16/sf market rate – Includes Existing Library – 7,500 sf – Capital Expenditure Required to Finish Space – Rental of Unoccupied Space Provides double digit returns 14

15. Role of Treasurer Bylaws Present: 6.5 The Treasurer. (a) The Treasurer shall oversee the investments of the Society subject to the supervision of the Board of Directors. (b) The Treasurer shall advise the Executive Director in all matters concerning the financial duties discharged at the National Headquarters. (c) The Treasurer shall in collaboration with the Executive Director present an annual financial report and a report of budgetary requirements. 15

16. Treasurer Responsibilities Review Processes & Activities w Controller Heads Up Committees: – Finance, Audit and Investments Signs Off on Spending Vouchers Reviews Reporting Tools: – Audit Recommendations, Monthly Spending, Budget Package, Investment Reports Advises on Capital Spending & Real Estate 16

17. Schedule of Financial Activities Calendar Year – January – December Tracking Finance Committee Reviews - Quarterly Budget Development – August & September Budget to Treasurer & Finance Comm. – October Budget Approved by Board – October End Audit Preparation – January -March Audit – April Audit Results to Finance Committee - July 17

18. Financial Management Thoughts Ended - Era of Crisis Financial Management Continued Impact of Membership Loss Maintained an Era of Responsible Financial Management Board Members Need Financial Understanding We Need to Remain Future Focused & Careful Avoid Complacency 18

19. Looking Back: Financial Comments from April 2010 Board Presentation Leaving - Era of Crisis Financial Management – Managing Cash Flow – Month to Month, Year to Prior Year Focus Entered – Era of Responsible Financial Management – Financial Prudence Tone – Long Range Planning Tools – Focused & Involved Boards – Unity of Purpose 19

20. What Changed to Stabilize Finances Phase I Savings 2008 – Staff & Board Cost Cuts Phase II Savings 2009 – Operational Changes Bauer Estate Funds Rent Income – Graymont Lease Turned Corner Stable Mortgage Cost – Low Interest Rates Cleared Litigation Expense Volatility Prudence - Discipline in Spending 20

21. Financial Turn Around Summary Phase I Savings$1,080k 2009 $300k, 2010 $390k, 2011 $390k Phase IA & II Savings$490k 2009 $0k, 2010 $220k, 2011 $270k Bauer Estate Donation$815k to date Graymont Rent for 2011$85k Mortgage Interest Rate Drop$100k four years at $25k/year 21

22. What Financial Stability Means Not Borrowing from Investments for Cash Flow – Investments or held Sales Division funds $1.3 million Putting Donor Dollars to Work – Long Term Projects vs. Operating Expense Use Responsibly Maintaining Our Assets – Backlog of Roof Replacement and Capital Projects Regaining a Future Focus instead of Cash Crisis 22