PLCB 2015 Financials - Trying to make the best of a bad situation

Accountants speak their own language. I don't mean like from a foreign country: from a different planet altogether. They make money appear and disappear based on perceived changes in procedures, making it extremely difficult for the average person to figure out what the heck they are looking at when going over financial statements.

That's by way of presenting the PLCB's long-awaited Financial Statement for FY2014-15. Apparently they just couldn't delay it any longer (one little upside to the ridiculous delay in the state budget process). Instead, they resorted to Accountantese to make it hard to figure out just what happened. Not only have they changed some of the layout of their statements, they changed some of the wording for the exact same line or item in the current report and between last year and this year.

A quick example of how the same thing is called different names is on page 4 of the report: the difference between Sales Net of Taxes (gross sales) and Cost Of Goods Sold (COGS) is called "Gross Revenue from Sales." On page 5, the exact same number is now "Gross Income from Sales." A minor point, but why?

The big change this year is that because of new state accounting rules, the PLCB finally had to list pension obligations. While that causes comparison problems of its own (since they don't include last year's numbers so you can see any changes), it does show that without paying off pension debt at a much greater rate, the PLCB will be in the hole for years to come (as we've been saying all along).

It would have been nice to see if the overall debt went down for this fiscal year compared to last but those figures aren't provided.  However, there have been numerous sources that have stated that overall pension debt went up last year without actually providing any numbers to back it up. My belief is that pension debt did go up, but we'll have to wait and see next year's numbers to find out if it really did continue to increase over this fiscal year too.

Medical Liability went up from $63.63 million to $76.65 million from last year or about 20.5%  and Workers Comp increased an astounding 62% from $25.9 to $42.1 million. So including all of that the PLCB now admits to being "only" $240 million in the hole from being $77 million to the good last year. Just so you understand: that is $77 million from last year plus whatever they thought they made this year (about $80 million) and they are still $240 million down.

I'm going to look at how the stores did overall --  not how investments or deferred inflows and outflow went or the non-operating costs -- and compare them with last year. Without further ado, here we go. (Remember, you can follow along with their report here.)

Sales: Sales went up 4.2% while COGS only went up 4.1% and the effective markup moved up slightly to 45.35% from 45.2%.  No big surprise there: the population went up, prices went up, and the economy is getting better. The surprise would be if sales hadn't gone up; it's a monopoly, after all.

Operating Expenses: Now we come to the heart of the matter: how efficient is the PLCB in turning all those sales into what they call "profit" (what I call an unspent use tax). These numbers DO NOT include Pension, OPEB, and Workers' Compensation Accounting Valuation Expenses from Net Income. It isn't pretty.

• Purchase, Storage & Transportation costs up 13.6% 
• Stores' Operation and Supervision costs up 17.4% 
• Central Administrative Support costs up 11.2%.
• Gross Operating Income down 24.6% 
• Net Operating Income down 32.4%
• Operating Margin down 38% 

All this even though the total number of stores and employees were about the same and this is with record sales!

A real business grows profit by doing one or all of these three things;

• Increasing sales by taking them away from their competitors, which will never happen under the current system. Border bleed is not going to decrease - period. 
• Becoming more efficient and controlling costs, which means not having Operating Costs increase 17% in one year. Also not likely. 
• Becoming more innovative...and we all know what happens when the PLCB tries that: wine kiosks, cost overruns, and trailers full of boiling wine. 

Increasing sales are good, but not when costs increase at a much faster rate. That's just not good business...but we are talking about the PLCB, which is not a business. It's a government agency.

Any honest accountant would despair. Maybe the PLCB's accountants do.

To be fair: the PLCB did increase funding to the Keystone Kops of Booze, the BLCE, by 3.1%. However, to make up for that, they decreased Drug and Alcohol education funding by 48%. Peter, meet Paul; here's his money.

There are some unanswered questions in the report, such as why inventory totals went up over 11% when the much-heralded bailment was supposed to reduce those costs. It went up last year too, and the year before that. In fact, it has gone up about 31% over the last 3 years.

This might just be me, but...the valuation of land as listed on the PLCB reports hasn't changed since at least 1999 (which is as far back as I can go), and building valuation, another line item, has been within 1%, up and down, since 2005. A minor but interesting question. I know my land and buildings have changed value over the past 16 years, yours probably did too. You'd think all those amazing offices, conference rooms and "wine tasting lounge" would increase the value of at least one headquarters property, right?

I realize that these are unaudited numbers, but they aren't going to change that much (if at all), if and when an audit is done, so what you see is what you get. Another year with record sales and another year of lower Operating Income. The real question is how long can this trend go on before it isn't sustainable: how deep will the hole be next year?

Hey PLCB - you down there?