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2005 Finance Committee Report
2004 Budget
The Society employs a consolidated operating budget to manage overall
operations. The consolidated budget is comprised of the individual budgets
for the various cost centers; these include Publications, Membership and
Meetings, Education, Public Affairs, Communications, Marketing, and the
Executive, Information Technology, and Business Offices. For 2004, the year
ended with income of $17.5 million (including $1.2 million allocated from
the Society’s reserves*) and direct expenses of $14.6 million, plus general
and administrative (G&A) costs of $1.8 million, for total expenses of $16.4
million. G&A costs (the sum of Executive, Information Technology, and
Business Office expenses) are allocated to other Society offices based on
each office’s share of total salary expenses. As a result, the Committee
reported to Council that the Society ended the 2004 year with a net surplus
of $1.1 million, which was $800,000 over the $313,000 budgeted surplus. This
was accomplished through both higher than budgeted revenue and lower than
budgeted expenses, despite incurring moving expenses associated with the
Society’s move into their new offices and $300,000 in support provided to
the 2005 IUPS Congress. The Committee reported that the three year financial
forecast is projecting that, barring any significant changes, expenses will
continue to grow faster than revenue, but at a slower rate than previously
projected, resulting in net surpluses of $410,000, and $321,000, and
$214,000 for the years of 2006, 2007, and 2008, respectively. This revised
projection is much more positive than two years ago, when a deficit had been
forecast over this period.
The Journals Program, by a 1995 Council mandate, is
structured to generate a return of 10% annually. In 2004 the return was 16%
($1,884,321 net revenue/$11,988,908 total expenses).
In the early 1990’s, the reserves, which the Society
depends on for approximately 7.5% of its operating revenue, almost doubled
due to favorable market conditions. However, the down market of 2000-2002
caused the Society’s reserves to decrease from $30 million at December 31,
1999, to $26 million at December 31, 2002. After the 2003 market turnaround
and a positive return in 2004, the Society’s reserves at December 31, 2004
were $32 million. This is an excellent result in a difficult economy.
2005 Budget
The Council approved a 2005 budget of $17,296,600 in expenses. With revenue
budgeted at $17,680,821 (including the 4% investment allocation of
$1,221,049 and net revenue from Publications of $1,913,500), the
budget shows a surplus of $384,221. This 2005 budget is very similar overall
to that of 2004. The publications component again comprises around 85% of
total income, structured to again generate a margin of 10%. The positive
surplus is projected in spite of increased costs to support the 2005 IUPS
meeting.
Journal Subscription Pricing
Council reviewed the Publications and Finance
Committees' recommendations for 2006 journal subscription prices. It should
again be pointed out that journal publication is the major (~85%) source of
revenue for the Society and is the key to its financial well-being. In
1995, the Council recommended that the journals’ prices be set so as to
generate a margin of approximately 10% to help defray the costs of the
various Society programs. The Finance Committee agrees with the
Publications Committee who recommended that 2006 subscription prices be
raised by an overall rate of 3%, with the exception of Physiology
(formerly NIPS), and Physiological Genomics, whose 2006 rates
will be increased 10% to help offset the higher costs incurred by those
journals. A rate this low (3%) is almost unheard of, still fulfills the
mandate of generating a 10% margin, and importantly will generate much good
will among subscribers who have been used to 8-10% annual increases in cost.
Long Term Investments
At its spring meeting, the Finance Committee reviewed
the performance of the Society’s investment managers. The Society’s
long-term investments are administered by four managers under the direction
of our investment consultant, Smith Barney. As of December 31, 2004, the
accounts had the following market values: APS Reserves $32,364,563, APS
Endowment Fund $3,256,426, Giles F. Filley Memorial Fund $816,849,
Rife/Guyton Fund $590,941, Caroline tum Suden Fund $573,193, IUPS Fund
$519,672, Perkins Memorial Fund $334,925, Shih-Chun Wang Fund $154,168, and
the Lazaro Mandel Fund $142,835. The return on the managed accounts was
7.43% for the year ended December 31, 2004. The market value of the managed
accounts at December 31, 2004 was $38,753,572.
2004 Audit
The Finance Committee received the annual audit from
Grant Thornton, LLP. Grant Thornton audited the Society’s financial
statements in accordance with general accepted auditing standards. Grant
Thornton rendered an unqualified opinion that the Society’s statements
presented fairly, in all material respects, the financial position of the
Society at December 31, 2004 and 2003. In addition, due to the amount of
Federal support received (in excess of $100,000) an audit of the Society is
required in accordance with Office of Management and Budget (OMB) Circular
A-133 Audits of States, Local Governments, and Non-Profit Organizations.
The A-133 audit includes certain tests in accordance with Government
Auditing Standards. Grant Thornton’s tests disclosed no instances of
noncompliance or other matters that are required to be reported under
Government Auditing Standards, and the audit report noted no material
internal control weaknesses. This is testimony to the excellence of the
Director of Finance, Bob Price, and his staff.
Member Dues Increase
At its November 2002 meeting, the Council recommended
that every two years the Finance Committee consider an increase in member
dues. As a result of this recommendation, dues were increased from $100 to
$110 in 2004. The Finance Committee has recommended and the Council at its
spring meeting approved a $10 dues increase, from $110 to $120, beginning
with the 2006 dues year. As can be seen, this is a nominal increase for a
Society that provides a large number of membership benefits.
Summary
Current and projected financial conditions are strong
and the Society continues to enjoy a large pool of reserves. While future
projections remain positive, it is important for the APS to diversify its
sources of revenue so as not to be so dependent on one
program—publications—for its operations.
Peter D. Wagner, Chair
Council Actions
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Council accepted the report of the Finance Committee.
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