Rusimovic, Carole

From:

Sent:

To:

Debbie Bauman [debbie.Bauman@NWEA.org] Monday, April 19, 2010 4:06 PM

Brenda Tanner; Darlene Hooley; Jeff Strickler; Jim Angermeyr; Joseph Wise; Lynn Fielding; Goodloe-Johnson, Maria; Matt Chapman; Ronald Blocker

April 23, 2010: NWEA Board of Directors Information

CEO-Summary. pdf; Agenda-Board Mtg 20100423 final.pdf; Minutes-Board Mtg 2010-02-05 for Board Approval. pdf; Finance-Board-Apr1 O.pptx; QuarterlyStatement-of-Activities-

MariO. pdf; Finance-combined-comparatives-Mar20 10. pdf

Subject:

Attachments:

Dear Board of Directors,

Documentation for this Friday's board meeting conference call is attached. Including the:

• CEO Summary

• Meeting agenda for April 23rd

• Meeting minutes from February 5th

• Financial PowerPoint

• Quarterly statement of activities MarlO

• YTD comparative financial statements for the month ending MarlO (see highlights below)

Statement of Financial Position (balance sheet)

• Net of project financing (Long-Term Debt), cash and investments have declined by 12% since last year.

• The increase to Unearned Service Contract Revenue at 26% is tracking ahead of revenue growth vs. last year, due to early renewals for FYll.

• On a net basis Long-Term Debt has been reduced slightly vs. last month due to normal amortization; we have completed the refinance of our higher-rate notes.

• Intangible assets continue to grow as we near completion of the IBM development contract for Theta.

Statement of Activities (income statement)

• Revenue growth is holding above the 18% level, with projections indicating that it will remain at that level at year-end.

• YTD net income is building and is now at $3.3MM; March contributed positively to net income, largely attributed to deferral of contractor expense associated with state and custom alignments, plus stronger than expected workshop billings for the month.

• Depreciation has increased again since last month with new equipment purchases but remains substantially lower than last year.

Statement of Cash Flows

• Intangible asset purchases (Theta) continue.

• Investments liquidated to cash as they mature

Best ~

Debbie Bauman

Executive Assistant to {ile President i NWE/\

PHONE S03.624. f95'~ ! DIRECT 87'1 .222.H)79 . FAX 503.f)38 "("873 NvVE!-\. ORG ~ F\Htnering to Help AH Kids Loarn

1

Transcript of Evidence Page 1640

To: NWEA Board of Directors

From: Matt Chapman

Re: Quarterly Goals Update

Date: April 19, 2010

Per our conversation from the last executive session, I have outlined below a fairly brief review of how I think things are proceeding with respect to the goals I had proposed to the Board earlier this fiscal year. As you recall, my task was to provide a review to the board prior to each meeting, which can form the basis of a conversation during executive sessions.

1. Financial. We had anticipated a loss this year in the range of $2 million, and it now clear that we will have a material profit that appears to be in the range of $1-2 million. As Geri will explain at our meeting Friday, the biggest factor is achieving about an 18% revenue increase compared to an anticipated 10% increase, along with delayed hiring and other cost controls. So I think this goal is in very good shape. That said, I also

stress that while I provide general oversight and do in fact dive into the details, this is clearly a function of the overall organization, including the leadership Jeff and Geri show in cost control by making sure there is very high awareness of where we are and the implications, and the remarkable success of Ginger and her team on revenue. It bears note that many of our competitors are actually laying off people, which actually has made hiring a bit easier and further illustrates our comparative success.

2. Theta. Theta will launch this fall, but as Jeff will cover in the meeting the August release will be more in the nature of an expanded beta leading to actual testing that is more likely in September. This project has been extremely expensive and frustrating, and we continue to struggle. However, it also is clearly moving to a very exciting conclusion this fall, we appear to be on budget (albeit a vastly expanded budget), and reactions from both internal and external reviewers of the product are extremely positive. (In several cases, people actually have been moved to tears, which of course could also be a review of our current technology.) So this goal is one of ongoing struggle, which I think reflects a project that was necessary to do but beyond the ability of NWEA when we started. We've been assembling our teams and adding to our expertise as we proceed, and I think we're in very good shape on a "go forward" basis, but clearly Theta overwhelmed the organization and to some extent is still doing so. As an aside, I've chatted with both Brenda and Lynn about the idea of doing a review of Theta for the board, which Lynn has requested be done in the September meeting since he has a schedule conflict in June. I think that would be a very helpful exercise.

3.

Transcript of Evidence Page 1641

This is a huge area of my personal

focus.

4. Expanding and improving our assessments. The necessary precursor to this effort is release of MAP 2.0, which as noted above is underway but will have limitations in its initial release. However, we are making very good progress on getting ready for new additions.

Of particular note is a project underway to partner with Plano ISO for higher end high school items that can be used to create much more comprehensive high school tests (both end of course and placement). Plano is an outstanding partner, and we have been able to create very strong relationships in support of this effort. This completes the "range" of our tests that we expanded with our earlier efforts on Map for Primary Grades, so that we will be truly K-12. (And, of course, given the level at which many kids graduate from high school, this also puts us at least into the community college arena.)

We also are making efforts to obtain a large item bank to support very short cycle, highly instructionally sensitive tests along the lines of what Rick Stiggins and others are advocating. We believe this will be a great complement to MAP, since we would be able to provide real calibration and alignment for items, along with much better quality items, that teachers could use as they finish units or otherwise need assessments beyond the simple end of chapter options. This is also an area of personal focus for me, and I am working with Ginger and Jeff on an effort to obtain some or all of the tests provided byRiverside, since it really doesn't fit into the strategic direction of HMH. We

are hoping to have a meeting with the key personnel of HMH and Riverside on that topic (which continues the very preliminary conversations we've already had) in the next month or so. This would be kind of a big deal, so there will be lots of board updates and information if it proceeds. For now, it's a long shot and likely not worth a whole lot of conversation. But I want the board to be aware, both in terms of what I'm up to and also in terms of the scope of efforts underway to assure our reach and stability in the market.

5. Board Development. At this point I have done little on this topic, other than so far unsuccessful efforts to fill out board positions with a second researcher (so Jim doesn't feel lonely) and a person with depth in business issues (so Lynn doesn't feel lonely). I am focused on each of those, and hope to sponsor a conversation on the topic at our June meeting to get ideas and guidance.

Transcript of Evidence Page 1642

As always, please let me know if you have any questions, or if any further information would be helpful.

Transcript of Evidence Page 1643

Northwest Evaluation Association

April 23, 2010

8:00 A.M. - 10:00 A.M. PST

Conference Call - Telephone: 1.888.813.8477 Participant Code: 613624 - Moderator Code: 6136245

MEETING AGENDA

Friday, April 23, 2010

8:00 AM

Audit Committee Meeting

Call to Order

Organizational Business (Jeff)

• Approval of Minutes of February 2010 Meeting

• Financial Report and Budget (Geri)

• Miscellaneous Updates (Jeff)

8:30 AM

Executive Session

• Executive Compensation (Matt, Bill Erdle and Toni)

• Incentive Plan (Toni and Bill Erdle)

10:00 AM

Adjourn

Next Meeting: Tuesday, June 29,2010 - 8:00 A.M. - 5:00 P.M. (Portland Marriott Downtown Waterfront Hotel)

Transcript of Evidence Page 1644

Northwest Evaluation Association

Portland, Oregon Friday, February 5, 2010

MEETING MINUTES

Friday, February 5, 2010

Audit Committee Meeting

Call to Order: The Audit Committee meeting of the Board of Directors of Northwest Evaluation Association ("NWEA" or "Organization") was called to order at approximately 12: 15 p.m. Eastern Time. The meeting was held at the Charlotte Ornni Hotel, Charlotte, North Carolina.

Audit Committee Members Present: Mr. Lynn Fielding, Dr. Jim Angermeyr, and Dr. Brenda Tanner (by teleconference)

Other Board Members Present: Ms. Darlene Hooley, Dr. Joseph Wise, and Mr. Ron Blocker

Others in Attendance:

Executive Officers: Mr. Matt Chapman, Mr. Jeff Strickler, Mr. Suketu Pandya,

Ms. Donna Schultz, Mrs. Ginger Hopkins,Mr. Karl Boekelheide, Dr. Steve Wise, and Dr. Raymond Yeagley

Report to Committee

Mr. Jeff Strickler reported that NWEA's independent auditor, Moss Adams, is in the planning stage now for the financial audit. The auditors will be on-site in May. The financial audit will also include an audit of NWEA's retirement plan in compliance with the Internal Revenue Service recent regulations.

Regular Board Meeting

Notice of the meeting having been given to all the Directors of the Organization, and a quorum being present, the regularly scheduled Board of Directors meeting was convened.

Call to Order: Dr. Jim Angermeyr, as acting Chair (Chairwomen Dr. Brenda Tanner participated by teleconference), called to order the regular meeting ofthe Board of Directors of NWEA at 12:30 p.m. Eastern Time. The meeting was held at the Charlotte Ornni Hotel, Charlotte, North Carolina.

Board Members Present: Ms. Darlene Hooley, Dr. Joseph Wise, Dr. Jim Angermeyr, Mr. Ron Blocker, and Mr. Lynn Fielding, and Dr. Brenda Tanner

Board Members Absent: Dr. Maria Goodloe-Johnson

Others in Attendance:

Executive Officers: Mr. Matt Chapman, Mr. Jeff Strickler, Mr. Suketu Pandya,

Ms. Donna Schultz, Mrs. Ginger Hopkins, Mr. Karl Boekelheide, Dr. Steve Wise, and Dr. Raymond Yeagley

NWEA CONFIDENTIAL

Transcript of Evidence Page 1645

Other NWEA Staff Present: Ms. Jean Fleming, Director of Marketing, (in person) and Ms. Toni Jaffe, Director of Human Resources (by teleconference for part of the meeting)

Others Present: Mr. William J. Erdle of William J. Erdle Compensation Consulting, LLC (by teleconference for part of the meeting)

Organizational Issues

Organizational Structure Changes

Mr. Jeff Strickler discussed the organizational chart and the current director level openings at NWEA.

Organizational Business

Approval of Minutes

The Board reviewed and approved the June 2009 and October 2009 meeting minutes.

Bylaws

Mr. Strickler informed the Board of a clarification that needs to be made to the Bylaws. The Bylaws require that notice for annual and regular Board Meetings be mailed to the Directors. Following a discussion, the Board agreed that email notice is acceptable and that a change to the Bylaws could be made in the future to clarify that distinction.

Miscellaneous Updates

• Fiscal Year End - Mr. Strickler updated the Board about prior discussions to move NWEA's fiscal year end to December 31. After consideration, the Board determined that there was little benefit to change the fiscal year end and agreed to continue NWEA's June 30 fiscal year end.

• Performance Bond - Mr. Strickler informed the Board that the specific performance bond required if NWEA had been awarded the Delaware DCAS was no longer needed; however, NWEA's management continues to work with surety and insurance brokers to develop a bonding solution. Mr. Chapman reported that NWEA has established a relationship with Edgewood Partners Insurance Center (EPIC) to pursue NWEA's surety bond and insurance needs.

• Additional Financing Project - Likewise, with the Delaware DCAS awarded to another assessment provider, coupled with improved revenues, Mr. Strickler reported that the need for additional outside capital is not critical at this time. Mr. Chapman conveyed to the Board that NWEA is continuing discussions with Capital Pacific to raise capital at a future time (previously reported). Mr. Strickler also reported that NWEA is in the process of moving to Capital Pacific as the organization's primary banking relationship.

Organizational Governance

Conflict of Interest Report

Mr. Strickler advised the Board that the disclosure statements have been collected from all but one of our executive officers and management leadership group.

Mr. Strickler then reported that he had a potential conflict of interest. Mr. Strickler explained to the Board that his brother-in-law owns Clackamas Insurance (NWEA' s broker of record for benefits coverage) and that his sister is

NWEA CONFIDENTIAL

Transcript of Evidence Page 1646

NWEA's agent. Mr. Strickler further explained that the agency's fees are set and paid by the carrier and he does not receive any remuneration from Clackamas Insurance.

Retirement Plan Committee

Mr. Strickler informed the Board that the IRS recently passed regulations that contained requirements for organizational oversight of all non-voluntary 403(b) retirement plans to improve transparency and accountability for non-profits. The regulations include requirements for an oversight committee and an annual audit. NWEA has formed the committee, which met during the 2009 calendar year to establish procedures in response to the new regulations. Mr. Strickler asked the Board to ratify the committee's formation and actions.

Following discussion and a motion made by Dr. Wise and seconded by Mr. Fielding, the following recitals were considered and resolutions were unanimously ratified and approved effective December 1,2009:

WHEREAS, NWEA sponsors and maintains a 403(b) plan called the NWEA Defined Contribution Plan (the "Plan"), for the benefit of its employees, and is the plan administrator and named fiduciary for the Plan; and

WHEREAS, the Board desires to appoint a committee to perform administrative functions related to the Plan on behalf of NWEA, and to delegate certain authority and to such committee; therefore it is

RESOLVED, that the following individuals are hereby appointed to serve as members of the Administrative Committee for the Plan:

The Chief Financial Officer/Chief Operating Officer The Human Resources Manager

The Payroll, HRIS Administrator

RESOLVED FURTHER, that the Administrative Committee shall have general authority to administer the Plan, to select vendors and enter into agreements (subject to internal controls regarding financial authority, including signature requirements) with service providers to the Plan, and to adopt and approve amendments to the Plan; provided, however, that the Administrative Committee shall not have authority to adopt or approve amendments to the Plan that increase the rate or amount of NWEA's contributions to the Plan, which authority the Board reserves to itself.

RESOLVED FURTHER, that any action or decision of the Administrative Committee may be taken with or without a formal meeting, and shall be evidenced by a writing signed by two or more members of the Administrative Committee.

Financial Report and Budget

Mr. Strickler then gave the Financial Report to the Board. Mr. Strickler reported that net income is exceeding expectations due to MAp® revenue expansion and delays in hiring, in spite of the Delaware DCAS being awarded to another assessment provider. Mr. Strickler

NWEA CONFIDENTIAL

Transcript of Evidence Page 1647

communicated that cash remained healthy at > $26,000,000, and second quarter and YTD collections had exceeded targets. Mr. Strickler indicated that the current forecast for the 2010 fiscal year end indicates profitability. Mr. Strickler then outlined the financial pressures NWEA expects for the 2011 fiscal year, including the cumulative impact of hiring and the dual operating environment.

Theta/MAP 2.0 Report

Ms. Donna Schultz updated the Board on the status and major milestones of Theta and MAP 2.0. Ms. Schultz informed the Board that NWEA had engaged Terremark as managed service provider for MAP 2.0 and started setting up the environments. Ms. Schultz reported that IBM-NWEA knowledge transfer was largely complete. Ms. Schultz further reported that the unit testing is complete and integration testing will begin immediately. The project is on track to go-live with initial partners on August 1,2010. Mr. Strickler then presented the financial report for Theta and informed the Board that the project is currently within budgeted amounts.

State Updates

Mr. Chapman informed the Board of the current developments with regard to state contracts.

Following a short break, the Board held an Executive Session.

The Board then reconvened the regular session.

Nominating Committee Report

Dr. Jim Angermeyr reported to the Board the outcome of the Nominating Committee meeting held on February 1, 2010. There is a vacancy on the Board due to the resignation of Ms. Barbara Smith. At the last Nominating Committee meeting, the committee considered the following candidates for the vacant position on NWEA's Board of Directors: Bob Linn, Michael C. Rodriquez, Scott McLeod, and Kenneth K. Wong. None of the candidates have been approached by NWEA. The Nominating Committee recommended that NWEA pursue discussions with its first choice candidate, Dr. Bob Linn.

Dr. Jim Angermeyr confirmed the schedule for the next Board meeting, which will be held via Conference Call on Friday, April 23, 2010 8:00 A.M.-IO:OO A.M. Pacific Time.

There being no further business to come before the Board, upon motion made and seconded, the meeting was adjourned at approximately 5:00 p.m., Eastern Time.

Respectfully submitted,

Jeff Strickler, Secretary

NWEA CONFIDENTIAL

Transcript of Evidence Page 1648

Northwest Evaluation Association

Portland, Oregon Friday, February 5, 2010

EXECUTIVE SESSION MINUTES

Friday, February 5, 2010

The Board held an Executive Session. Ms. Toni Jaffe and Mr. Bill Erdle joined the Executive Session of the Board Meeting, via telephone conference, at 3:20 - 4: 15p.m., ET.

Compensation and Incentive Plan

Ms. Toni Jaffe and Mr. Bill Erdle assisted in a discussion about executive compensation and about plans to develop an incentive compensation plan for the broader organization.

Dr. Joseph Wise gave a report to the Board regarding the last Compensation Committee meeting.

NWEA CONFIDENTIAL

Transcript of Evidence Page 1649

03 results and FY10 outlook

Net income continues to exceed expectations - YTO net income $3.3 million

- Resulting from accumulated small gains VS. small losses

Attributed to sustained revenue ($4MM over budget), deferral of contractors (particularly for state alignments)

Theta capitalization remains a factor

- $6.4MM this year, $1 LBMM to date; valuation still subject to audit

Year-end projected in $1.6MM range; and depending on expense timing decisions, could be a record $2.SMM

Cash & investments highlights

Refinanced long-term debt - Saving -$300K interest expense

Liquidating CD's to money market accounts - Average yield 0.9 % (relalively good}

- Interest income better than expected due to higher balances

Exceeded 03 collection targets; April on track - Received $57.3 million YTO

Today's topics

FY10 03 results (net income & cash positions) & year-end outlook

Renewal wrap-up and early reading Latest FY11 expectations

Theta cost summary

Audit report

Cumulative & projected net income ($OOO - aeluals through MarlO)

FY10 projected balances

(5000 monttv-end . forecast as of 04..08-10)

Transcript of Evidence Page 1650

8/24/2010

1

Distribution of cash and investments (snapshot as of 4116110)

f ... ,-, ~#~~",1.o"t_!i+~~ (0",,5((

FY11 budget and outlook

Early look at expenses (first rollup for FYI1 in progress)

Audit report - May10 interim events

Interim field work for FY10 close

- Head start on sales/revenue, fixed assets, payroll

- No federal funds sub-recipient audit this year

Confirm asset valuation - Theta platform

- Have capitalized -$12 million 10 date, expect about $12.5 million

- Capitalization approach was confirmed last year

403(b) audit

- Starting \'t'ith '09 plan year, 403{b) plans covered by Title I of ERISA required to file audited financials with Form 5500 (annual tax return)

- Moss Adams to perform an audit of 403(b) plan's financial statements for year ended 12131109: will submit opinion to Ihe Department of labor along with lax return for plan

Accounting treatment of bonus plan

- Performance measures, reserves

FY10 & FY11 renewal progress

(as 01 4/19/1O)

Current year - FYIO

Next year - FYll

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Theta external cost summary (actuaflprojecfionsas of 4119110)

Theta Incremental expenses

SoMioo OJdine MilICh 2008 /hroug/'! Beta Release August 20 10

IBM costs extend from original concept proposal through integralion test last report was $23,033,436: increase largely due to extended schedule Contains significant amount for corelnqencles; actively managing costs

Recap

Four years profitability assured with solidly positive net worth

Cash mixed; secure for this year & could retire debt now, but would leave us vulnerable next year

Engaged in challenging budget creation for FY11

Transcript of Evidence Page 1651

8/24/2010

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Transcript of Evidence
Page 1652 Northwest Evaluation Association Comparative Statement of Financial Position For the Nine Months Ending Mar 31st (unaudited)

ASSETS

Cash on Hand Accounts Receivable

Allowance for Doubtful Accounts Prepayments

Total Other Assets

14,193,397 9,270,224
1,129,058 1,583,865
(255,424 ) (262,704)
1,861,640 986,368
16,928,670 11,577,753
1,818,997 1,730,924
12,754,458 4,663,374
14,573,455 6,394,298
66,505 131,380
5,545,349 6,274,557
5,611,854 6,405,938

$ 37,113,980 $ 24,377,988 Total Current Assets

Equipment

MAP Development & Other Assets

Total Property & Equipment

Deposits Investments

TOTAL ASSETS

LIABILITIES & NET ASSETS

LIABILITIES Accounts Payable Accrued Liabilities

Unearned Service Contract Revenue Current Portion of Long-Term Debt

Total Current Liabilities

1,384,265 1,570,772
3,762,896 3,417,751
21,140,490 17,561,739
3,762,592 155,270
30,050,243 22,705,532
2,362,234 4,801
950,451
217,085 795,040
37,917 22,963
3,567,687 822,805

33,617,930 23,528,337

184,305 (294,331)
3,311,745 1,143,982
3,496,050 849,651

$ 37,113,980 $ 24,377,988
Transcript of Evidence
Page 1653 Long Term Debt

Long-Term Deferred Revenue Accrued Rent

Deferred Compensation

Total Long-Term Liabilities

TOTAL LIABILITIES

NET ASSETS Retained Earnings Net Income

Total Net Assets

TOTAL LIABILITIES & NET ASSETS

Northwest Evaluation Association
Comparative Statement of Activities
For the Nine Months Ending Mar 31st (unaudited)
2009-10 II 2008-09 % change

REVENUE $ 47,596,837 $ 40,215,435 18.4%
EXPENSES
Payroll Costs 25,832,269 54.3% 21,010,856 52.2% 22.9%
Contracted Staffing Costs 2,931,621 6.2% 2,935,835 7.3% -0.1%
Occupancy 2,406,984 5.1% 2,267,556 5.6% 6.1%
Depreciation 1,355,431 2.8% 2,706,882 6.7% -49.9%
Interest Expense . 408,952 0.9% 22,508 0.1% 1716.9%
Travel, Meals, Lodging 1,842,184 3.9% 1,559,961 3.9% 18.1%
Other Operating Expenses 9,511,083 20.0% 8,568,005 21.3% 11.0%
TOTAL EXPENSES 44,288,525 93.0% 39,071,603 97.2% 13.4%
Non-Operating Income 3,434 150
Net Income $ 3,311,745 7.0% $ 1,143,982 2.8% 189.5% Transcript of Evidence Page 1654

Northwest Evaluation Association Statement of Cash Flows

For the Nine Months Ending Mar 31st (unaudited)

OPERATING ACTIVITIES

Change in unrestricted net assets

Adj to reconcile change in NI to net cash provided by operating activities Depreciation and amortization

Expenses financed by lease

Gain/loss on sale of assets

Increase/decrease in allowance for doubtful accounts Non cash Contract services

Changes in operating assets and liabilities Accounts receivable

Other receivables

Prepaid expenses and deposits Accounts payable

Accrued expenses

Unearned service contract revenue

Net cash provided by operating activities

INVESTING ACTIVITIES Investments

Purchase of property and equipment Proceeds on sale of property and equipment

Net cash used by investing activities

FINANCING ACTIVITIES

Proceeds on long term borrowings Proceeds on line of credit

Payment on obligations under capital leases Principal payments on long term borrowings Payments on line of credit

Net cash used by financing activities

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS BEGINNING

CASH AND CASH EQUIVALENTS YEAR TO DATE

3,311,745

1,355,431

(33,245)

13,664,308

15,935 (902,028) 209,343 (592,727)

(5,340,279)

11,688,483

(1,265,948) (7,417,977)

(8,683,925)

5,430,115

(55,528) (4,257,859)

1,116,728

4,121,287

10,072,110

14,193,397

2008·09

1,143,982

2,706,882

(53,803)

10,009,596

14,388 (328,323) (312,204) (889,114)

(8,285,598)

4,005,806

(6,260,137) (3,973,758)

(10,233,895)

(370,940) (79,004)

(449,944)

(6,678,033)

15,948,257

9,270,224

Transcript of Evidence Page 1655