1. Nepenthe Update on Finances Board of Directors Meeting Nov. 30, 2009

2. Items Operating budget Reserves budgets Financial planning Painting and Siding

3. Just Like at Home Checking Account Saving Account Paycheck Day to Day Living Costs Utilities Landscape Paper Allowance Savings for the Rainy Day: Siding Painting Roofing Machines break

4. Just Like at Home – At Nepenthe… DUES Day to Day Living Costs Utilities Landscape Office supplies Salaries Savings for the Rainy Day: Siding Painting Roofing Machines break Operating Account Reserves Accounts

5. Operating Budget Easy to plan Routine costs Projections of increases fairly reliable Checking Account SMUD Water Etc… CHECKS BILLS

6. Monthly Routine Costs SMUD Pool maintenance Landscape service Phone lines Etc

7. Operating Budget Savings Board worked hard last year to find efficiencies created last year: –E-mailing newsletter –End copier lease –Not sending copying to southern California but doing it in house Taking hard look at landscape maintenance contract –Significant savings Fall planting Irrigation work

8. Dues for Operating Expenses Finance committee recommended an Operating Expense budget to the Board that called for a $4.00 a month increase. The Board sent the budget back to the FC to redo with no more than a $2.00 a month increase. The Board voted to increase the Operating dues by $2.00 effective January 1, 2010.

9. Reserve Account Landscape Buildings Paving Common Areas

10. Landscape Reserve Account We have improved but still Need to address watering the Streets.

11. Reserve Account Common Areas BEFORE

12. Reserve Account Common Areas AFTER

13. Paving Reserve Account BEFORE

14. Buildings Reserve Account BEFORE

15. Buildings Reserve Account AFTER

16. Funding the Reserves Good financial planning Avoids special assessment –Other HOAs have had assessments of $32,000 in ONE year! Looked at by lenders before they will approve an HOA loan for purchase

17. Reserves Are The Planning Process

18. RESERVES = ESTIMATES Projects –What –When –Cost

19. Schedule 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040 Finish Painting & Siding Finish Painting & Siding Remodel Clubhouse Remodel Clubhouse Painting & Siding Painting & Siding Painting & Siding Water! Roof

20. Schedule 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040 Finish Painting & Siding Finish Painting & Siding Remodel Clubhouse Remodel Clubhouse Painting & Siding Painting & Siding Painting & Siding Water! Roof

21. Reserves Are The Planning Process VERY HIGH Short Tem ROOFING

22. Funding Targets Reserve study projects our funding levels in the thirty year bar chart. Fully funded means we have enough money to pay for everything if everything failed in any year. Target Is 70% funded.

23. Dues for Reserves The Board is increasing the monthly dues contribution to the reserves by $2.00.

24. TOTAL INCREASE $2.00 to Operating Expenses $2.00 to Reserves Account $4.00 Overall Increase to Monthly Dues This equates to a one percent increase.

25. 2006 – 2007 – 2008 - 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040 Finish Painting & Siding Finish Painting & Siding Remodel Clubhouse Remodel Clubhouse Painting & Siding Painting & Siding Roof Painting & Siding Water! Estimate ! How Do You Figure The Costs of Items in the Reserve Study? Start talking to contractors Estimate!

26. 2006 – 2007 – 2008 - 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040 ….. Finish Painting & Siding Finish Painting & Siding Remodel Clubhouse Remodel Clubhouse Painting & Siding Painting & Siding Roof Painting & Siding Water! Follow actual costs Conversations with architects How Do You Figure The Costs of Items in the Reserve Study? Estimate!

27. 2006 – 2007 – 2008 - 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040 ….. Finish Painting & Siding Finish Painting & Siding Remodel Clubhouse Remodel Clubhouse Painting & Siding Painting & Siding Roof Painting & Siding Water! Follow actual costs Guessimate ! Conversations with architects How Do You Figure The Costs of Items in the Reserve Study? Preliminary discussions. Homeowner meetings in January/February over use of space. Estimates include Pool Patio concrete replacement which was left out of earlier studies. Estimate !

28. The closer you get to spending the money, the more accurate your estimate will be.

29. But then… life happens!

30. For example, WATER

31. 2006 – 2007 – 2008 - 2009 – 2010 – 2011 – 2012 …. 2020 …… 2030 ……… 2040 ….. Finish Painting & Siding Finish Painting & Siding Remodel Clubhouse Remodel Clubhouse Painting & Siding Painting & Siding Roof Painting & Siding Water! Follow actual costs Conversations with architects Painting & Siding Water! How Do You Figure The Costs of Items in the Reserve Study? May not be able to afford everything identified in reserve. Estimate!

32. A Reserve Study is simply an estimate of future potential costs. And every year the estimates change. And every three years the estimates are reviewed in detail and may change even more.

33. PAINTING & SIDING Is it over budget?

34. What was the budget… Finance Committee estimates Board president estimates (O. Turner) Bids Reserve amounts from 06 to 09 Project manager estimates

35. Lesson: Have One Number Separate From Reserves For Any and Every Project Confusion ensued from too many numbers discussed for Paint/Siding.

36. Current Painting and Siding Project In 2006 Finance Committee recommended to the board that they start to consider an assessment. In 2007 the FC recommended an assessment of $5,000 for each owner. This was voted on by the membership and passed.

37. Cost of Painting and Siding In 2006 the FC told owners cost of P&S etimated to be $3.4 million. $3,400,000

38. Finance Committee Presentation to Homeowners Oct 2006 FROM POWERPOINT PRESENTED TO HOA OCT 06 $3,400,000

39. Cost Estimates In 2007 the Finance Committee increased that estimate to be $5.5 million. $5,500,000

40. Key Reserve Expenses Finance Committee Sept 07 Painting/Siding –$5.5 million over three years –These are reasonable estimates –Can this be put off? Siding is deteriorating faster than anticipated –$298,000 needed last fall for emergency repairs –Additional funds will be needed this year for problems recently identified. Painting/Siding –$5.5 million over three years –These are reasonable estimates –Can this be put off? Siding is deteriorating faster than anticipated –$298,000 needed last fall for emergency repairs –Additional funds will be needed this year for problems recently identified. FROM POWERPOINT PRESENTED TO HOA SEPT 07 $5,500,000

41. Finance Committee Presentation to Homeowners Sept 2007 FROM POWERPOINT PRESENTED TO HOA SEPT 07 $5,500,000

42. Crib Notes From Board President Source: Sept 4, 2007 Word Document $4,673,500 paint and siding 2008-2010 $ 290,206 for additional siding for failures – this has been included in the project TOTAL = $4,963,716 $4,673,500

43. Bid From Draeger 2007 $2,145,301 estimate A Chart of unit charges were included Everyone expected the costs to be higher than the bids due to problems that would be uncovered as siding was removed. Draeger was selected for low bid, low unit cost, and ability to use the new ceramic paint. $2,145,301+

44. Ceramic Paint Painting Cycles –Nepenthe has not maintained a paint cycle consistently. –This is what caused many of our problems. Paint lasts 5 years. Ceramic paint has potential to last 7 to 10 years. If this holds true, we will have saved a lot of money!

45. DanMark Estimates February 2007 - $4,129,129 September 2007 - $4,098,290

46. Looking at Reserves for P&S

49. Including Fence Gutters, over by 16% Over estimate by 9% These estimates did not include inflation factors!

50. Projected Final Costs Paint, Siding, and Project Management Fees are 9% or $348,889 more than estimated in 2007. Total Project including above and gutters, fences, and project yard were 16% or $644,817 more than estimated in 2007. However, funds were reserved separately for gutters and fences during this time. WITHOUT INFLATION FACTORS!

51. Oversight Draeger - well respected firm –Checked references DanMark – well respected firm –Selected from 3 proposals –Previously good experience with them Board – frequent reports from DanMark Owners – few complaints Board inspections –

52. Oversight Draeger - well respected firm –Checked references DanMark – well respected firm –Selected from 3 proposals –Previously good experience with them Board – frequent reports from DanMark Owners – few complaints Board inspections – not qualified to inspect this type of workBoard inspections – not qualified to inspect this type of work XXX

53. So What Happened? Damage to homes was much more severe –Example A Estimate was for 4 Sheet replacement Work required 24 Sheet replacement Estimated cost would have been $908.00 Actual cost was $6,407.00 –Example B Estimate was for 12 Sheet replacement Work required 62.5 Sheet replacement Estimated cost would have been $2,724.00 Actual cost was $16,054.64

54. Example “A” When “belly band” was removed

55. Example “B” When “belly band” was removed

56. Why did “belly bands” fail? T-111 siding is prone to damage if not maintained. Original Nepenthe construction did not have eaves/gutters More exposure to rain/moisture Prior painting projects DID NOT CAULK BELLY BANDS!!! Painting/siding maintenance ignored Created “perfect storm”

57. What Have We Learned? Projects like the Siding are full of variables. –Until you start removing siding, you never know how bad it will be Nepenthe should NEVER put off routine Painting and Siding –Rest assured if it is put off, it will simply cost more later.

58. What Have We Learned? Set an overall project number and monitor to that number, not to annual reserves Overestimate the cost as it is better to come in under budget than over PROJECT MANAGEMENT IS A MUST –Past Nepente work was very sub-par Example of belly bands not being caulked We are starting a notebook of these learnings for future board

59. Are Finances Done Now? NO! Operating - Continue to review monthly –Even if Operating Budget allows, we want lowest cost possible –Still looking at ways to be more efficient

60. Are Finances Done Now? NO! Reserves – Continue to review –If something fails, must we fix now? –Do we postpone something else? –Are all investments beneficial to the overall property values?

61. We Are A Community Some people never use the Tennis Courts Some people never use the pools Some people never use the gym Some people never use the clubhouse

62. But all those parts add up to the community that is Nepenthe. And they add up to maintaining our property values.

63. If You Have Questions… Call or Email the Office.