Society of Professional Engineering Employees in Aerospace

and SPEEA Properties, Inc.

Notes to Financial Statements

Years Ended March 31, 2001 and 2000

Note 1 - Summary of Significant Accounting Policies:

          General:

Society of Professional Engineering Employees in Aerospace is a labor union representing the professional and technical employees of the Boeing Company primarily at facilities in the Puget Sound region with members at other Boeing facilities in the states of California, Florida, Kansas, Oregon, Texas, Utah and Washington.  During the year ended March 31, 2000 the members of the Society elected to change the legal name of the Society.

SPEEA Properties, Inc. is a C type corporation formed in 1978 to own and operate the Society's headquarters in Seattle, Washington.  The Society initially invested $140,000 to purchase property on which the building was constructed.  A further surcharge to SPEEA members and a sale of a portion of the property financed the construction of the building.

          Fund accounting:

To ensure observance of limitations and restrictions placed on the use of resources available to the Society, the accounts of the Society are maintained in accordance with the principles of fund accounting.  This is the procedure by which resources for various purposes are classified for accounting and reporting purposes into funds established according to their nature and purposes.  Separate accounts are maintained for each fund and, accordingly all financial transactions have been recorded and reported by fund.

The assets, liabilities and net asset balances of the Society are reported in two self-balancing fund groups as follows:

1)  The General fund, which includes undesignated resources, represents the portion of expendable funds that are available for support of operations.

2)  Board designated funds, which represent funds designated by the Executive Board for; negotiation of future contracts for the Society's members ($78,627), the general good of the Union ($18,341), the strike fund ($-0-), and the replacement of the Society's building and equipment ($518,807).  Funds can be moved from these accounts only by board actions.  Contributions to the general good of the Union fund and the strike fund come from sources other than dues income.

The assets, liabilities and net assets balances of SPEEA Properties, Inc. are owned by the Corporation as a separate entity.  The Corporation has not issued any capital stock and is owned by the members in good standing of the Society.

          Basis of presentation:

Financial statement presentation follows the recommendations of the Financial Accounting Standards Board in its Statement of Financial Accounting Standards (SFAS) No. 117, "Financial Statements of Not-for Profit Organizations" and Statement of Position (SOP) No. 94-3 "Reporting of Related Entities by Not-for-Profit Organizations."

Under SFAS No. 117, the Society is required to report information regarding its financial position and activities according to the following three classes of net assets:  unrestricted, temporarily restricted and permanently restricted.  At March 31, 2001 the Society had no assets which had donor imposed restrictions.

Under SOP No. 94-3, not-for-profit organizations with a controlling financial interest in a for-profit entity must include the financial position, results of operations and cash flows of the for-profit entity in the not-for-profit organization's financial statements.

Additionally, the financial statements adhere to SFAS No. 95, "Statement of Cash Flows" which establishes standards for cash flow reporting.  The statements of cash flows classifies cash receipts and payments according to whether they stem from operating, investing or financing activities.  The first page of the statement shows the cash flows from operating activities using the "direct method" which shows the major classes of operating cash receipts and payments.  The second page of the statement uses the "indirect method" to reconcile the increase or decrease in net assets from current endeavors to the net cash flows from operating activities by removing the effects of all deferrals, accruals and other items that do not affect operating cash receipts and payments.

          Dues income:

    Dues income represents funds received from members either through a payroll deduction by the Boeing Co. or a direct payment by individual members.  As part of its contract agreement with the Society, the Boeing Company withholds monthly membership dues from the pay of the Society's members.  During February 2000 the Society's members went on strike and no dues were withheld.  Upon conclusion of the strike in March 2000 the withholding of membership dues was resumed by the Boeing Company.  No part of dues income was paid directly to support any political parties or candidates.

 

          Investment securities:

The Society has adopted SFAS No. 124,  "Accounting for Certain Investments Held by Not-for-Profit Organizations".  Under SFAS No. 124, investments in marketable securities with readily determinable fair values and all investments in debt securities are valued at their fair values in the statement of financial position.  Unrealized gains and losses are included in the change in net assets.

          Prepaid expenses:

Prepaid expenses represent advance payments for products and services, which will be used in operations during the next 12 months.  Prepaid expenses totaled $32,717 at March 31, 2001 and $32,059 at March 31, 2000 and consisted primarily of postage and insurance.

          Accounts payable:

Accounts payable represent costs and expenses that are obligations of the Society at the year-end, which are billed by the vendor after the close of the year.  In the normal course of operations the Society receives, approves and pays these obligations after the close of year.  Accounts payable totaled $133,750 at March 31, 2001 and $337,988 at March 31, 2000 and consisted primarily of billings for payroll taxes, utilities, leave with pay and other operating expenses of the Society.  At March 31, 2000 accounts payable included $29,288 of overpaid membership dues collected by the Society, which were refunded after the close of the year.

          Use of estimates:

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures.  Actual results could differ from those estimates.

Note 2 - Cash and Cash Equivalents:

At March 31, 2001 the Company had cash and cash equivalents of $508,913.  Financial instruments that potentially subject the Society to a concentration of credit risk consist of cash in bank and brokerage deposit accounts which, at times, may exceed federally insured limits.  The Society has not experienced any losses in such accounts.

At March 31, 2001 and 2000 temporary cash investments consisted of the following:

                                                                                                                                 

 
2001
2000
SB Money Funds, Inc. Cash Portfolio Class A
$ 79,779
$ 57,982

                                                                    

Note 3 - Land, Building, Furniture and Equipment:

Land, building, furniture and equipment are stated at cost.  Depreciation is computed by the straight-line method of depreciation using the following estimated useful lives:

                                                                                                                               Lives in Years

Building and building improvements 15 - 30

Furniture and office equipment 5 - 10

Depreciation expense on the building was $24,321 for 2001 and 2000.  Depreciation expense on the furniture and office equipment was $64,586 for 2001 and $56,194 for 2000.

At March 31, 2001 the land and building held by SPEEA Properties, Inc. had an assessed market value of $1,054,700 by the King County Department of Assessments for property tax purposes.  They are shown on the statement of financial position at a historical cost of $878,312 and a net book value after accumulated depreciation of $299,068.

 

Note 4 - Federal Income Tax:

The Society is exempt from Federal income tax under the provisions of Internal Revenue Code Section 501(c)(5).

SPEEA Properties, Inc. is a corporation, which reports for income tax purposes on the cash basis of accounting whereby income is reported when cash is received and expenses are recorded when paid.  At March 31, 2001 the Corporation has a net operating loss carry-forward of $405,582, which is available to reduce taxable income in succeeding years. 

If not used the carry-forwards will expire as follows:

Year ended March 31,             

2007                   $   28,859

2008                       31,869

2009                       32,704

2010                       32,264

2011                       29,372

2012                       26,926

2013                       25,763

2014                       26,299

2015                       25,935

2016                       27,492

2017                       26,028

2018                       24,732

2019                       23,416

2020                       23,433

2021                       20,490

                         $ 405,582

A provision for deferred income tax benefit has been made using the statutory U.S. federal income tax rate on the net operating loss carry-forwards.  The deferred income tax benefit asset was $63,879 at March 31, 2001 and $60,764 at March 31, 2000.

Note 5 - Other Investments:

The Society invests some of its funds in publicly traded common stocks, U.S. corporate bonds and U.S. Treasury securities which, by their very nature, are exposed to credit and market risks.  At March 31, 2001 and 2000 the Society's other investments are as follows:

 
2001
2000
 
Cost
Market
Cost
Market
General fund
$ 481,371
$ 497,960
$ 516,380
$ 706,912
Negotiation fund        
Building fund
496,206
517,838
470,720
644,920
977,577
$ 1,015,798
$ 987,100
$ 1,351,832
Investments consist of the following:  
Publicly traded common stocks
$ 521,562
$ 537,548
$ 495,939
$ 864,150
Publicly traded U.S. corporate bonds
82,189
81,756
142,088
137,896
U.S. Treasury notes
349,073
349,786
373,826
396,494
 
977,577
1,015,798
987,100
1,351,832

The following summarizes the relationship between cost and market values of other investments.

 
Cost
Market
Increase (Decrease)
Other investments at March 31, 2001
$ 977,577
$ 1,015,798
$ 38,221
Other investments at March 31, 2000
$ 987,100
$ 1,351,832
$ 364,732
Net decrease in market value in excess of cost of other investments during the year
$ (326,511)

Net realized gains on sales of other investments during the year

18,993

Net losses on other investments during the year

$ (307,518)

 

The Society has contracted to pay a management fees based on the value of the securities being invested.  These fees totaled $19,007 for 2001 and $20,558 for 2000.

Note 6 - SPEEA Staff Pension Plans:

The Society contributes to a money purchase pension plan and a 401(k) plan that will provide benefits for substantially all full time SPEEA staff.  Both plans are defined contribution plans so that there are no past service costs and vested benefits cannot exceed the assets of the plan.  The provision for the money purchase pension plan is computed at 7.5% of the employee's eligible compensation.  Contributions totaled $148,958 for 2001 and $129,905 for 2000.  The provision for the 401(k) plan is computed by matching half of the employee's elective contributions (up to 4% of the employee's eligible compensation) to the plan.  Contributions totaled $53,552 for 2001 and $54,436 for 2000.  The liability for future pension costs for both plans is based solely on future compensation of the SPEEA staff.

Note 7 - Interfund Transfers:

During the year ended March 31, 2000 the Executive Board of the Society authorized the transfer of $75,000 to the Board Designated Negotiation Fund from the Unrestricted General Fund.  During the year ended March 31, 2000 the Executive Board of the Society authorized the transfer of $357,000 to the Unrestricted General Fund from the Board Designated Negotiation Fund, a transfer of $189,000 from the Board Designated Building Fund to the Unrestricted General Fund and a transfer of $45,000 from the Unrestricted General Fund to the Strike Fund (see Notes 12 & 13).

Note 8 - Negotiation Expenses:

Included in negotiation expenses are the direct, non-payroll expenditures for providing contract administration services to the Boeing Company facilities outside of the Puget Sound region.  These outplant expenses totaled $110,351 for 2001 and $90,913 for 2000.

During the year ended March 31, 2001 the Society negotiated a new contract for its members within the Puget Sound bargaining unit of the Boeing Company.  Negotiation expense was $665,906 for the year ended March 31, 2001 versus $252,439 for the year ended March 31, 1996, the most recent time the Society negotiated a contract.  The Society received $24,296 from an affiliated labor organization to help pay for advertising costs during the negotiations.

Also included in negotiation expense for the year ended March 31, 2001 are $218,952 of costs (signs, printing, vehicle rentals, fuel communication costs, etc.) directly associated with the strike by the Societys' members against the Boeing Company.

 

Note 9 - Ed Wells Initiative Reimbursements:

The Ed Wells Initiative is an institute, which is operated as a part of the contract negotiated between the Society and the Boeing Company.  The Institute seeks to help further the education and training of SPEEA represented employees at Boeing.  Three members of the Society's staff have been placed in the Institute's office to help further its goals.  The Society received reimbursements from the Ed Wells Initiative totaling $221,632 in 2001 and $301,871 in 2000 for the payroll, pension, employee benefit and other expenses paid by SPEEA on the Institute's behalf.  Reimbursement receivable represent $21,035 of reimbursements received from the Ed Wells Initiative the Society after March 31, 2000.

Note 10 - Operating Lease Commitments:

The Society leases space for its Everett, Washington and Wichita, Kansas offices under terms of two noncancelable operating leases.  The Everett lease runs until March 31, 2003 and the Wichita lease runs until December 31, 2001.  Additionally the Society leases an automobile under terms of a noncancelable operating lease which runs until May 14, 2001.  At March 31, 2001 the future minimum lease obligations were as follows:

Year ended March 31,                                                                        

2002   $ 48,710

2003    24,432

$ 73,142

Rents paid on noncancelable operating leases totaled $47,687 for 2001 and $32,047 for 2000.

Note 11 - Eliminations:

When combining the financial information of the Society and its subsidiary there are items, which appear in both entities.  An elimination is made to remove items appearing twice.  For the year ended March 31, 2001 the $140,000 initial investment made by the Society in its subsidiary and the $18,000 rent paid by the Society to its subsidiary were eliminated.  For the year ended March 31, 2000 the $140,000 initial investment made by the Society in its subsidiary and the $16,000 rent paid by the Society to its subsidiary were eliminated.

Note 12 – Strike Fund:

The Society's members were on strike from February 8, 2000 to March 26, 2000.  During the year ended March 3, 2000 the Society collected $392,653 of donations from outside sources to help pay for necessary expenses of its striking members.  The Society's Executive Board authorized the transfer of $45,000 from the Unrestricted General Fund to the Strike Fund (see Note 13).  The Strike Fund paid $37,055 directly for the benefit of the Society's members and a further $86,500 to a charitable 501(c)(3) organization set up to pay strike expenses on members' behalf.  Additionally $5,667 was collected from attendees of an Society meeting, which was paid to a strike fund to support members of another unrelated union.  During the year ended March 3, 2001 the Society collected an additional $17,121 of outside funds for the strike fund.  At March 31, 2001 all funds had been disbursed from the strike fund.

Note 13 -Reimbursed Legal Costs:

During the year ended March 31, 2000 the Society received $45,018 to offset of legal costs pertaining to a legal judgment against the Boeing Company.  The Society's Executive Board authorized the transfer of $45,000 of these funds to the Strike Fund (see Note 12).

Note 14 Chargeable Expenses:

The Society is required to make an annual calculation of the chargeable portion of its total expenses (the Beck Calculation).  Chargeable expenses are those expenses that are considered necessarily and reasonably incurred for the purpose of performing the Society's duty for its represented activities.  During the year ended March 31, 2001 the Society determined that 84.89% of its total expenses were chargeable.  A separate report regarding these expenses is available from the Society.