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2009 Finance Committee Report

During the spring meeting of Council, the Finance Committee reported that the Society’s financial condition remains relatively strong through sound management and investment practices despite the poor state of the global economy.

APS and the Current Economy: Despite the poor performance of the Society’s investments in 2008, it remains in a relatively strong position because of its conservative fiscal approach. The Society follows a conservative budgeting philosophy, erring on the side of revenue understatement and overstatement of expenses. It has also avoided long-term debt, and it is not contemplating any long-term financing in the near future. Its long-term investments, while losing more than 23% in 2008, have been conservative as well. APS’ investment policy states “in general, APS decision making [with regard to investment decisions] will be guided by placing an emphasis on minimizing downward risk at the expense of upside returns.” With regard to the operating budget, other than the reduced support from its invested reserves, the economic downturn hasn’t greatly affected operations to date. Subscription revenue, which accounts for 53% of 2009 budgeted revenue, should only be down 2.5%. However, it is expected that as library budgets tighten, the decline in subscription revenue will be greater in 2010.

2008 Financial Results: The Society was approximately $630,000 over budget at year-end. Revenue for the year was $629,000 under budget, but was offset by expenses that were $1.26 million under budget. Revenue categories that were under budget included journal-related income from page charges ($240,000 under budget), reprints ($163,000 under budget), and color fees ($150,000 under budget). Grant income was $261,000 under budget. The largest revenue category, income from journal subscriptions was on budget. Several expense categories associated with producing the journals (e.g., printing, electronic publishing, professional services, editor expenses) were under budget by a combined $962,000.

2009 Budget: The Committee reported on proposed changes to the 2009 budget. Reductions in revenue of $420,000 and decreases in expenses of $510,000 resulted in a small increase in the 2009 budget surplus from $83,500 to $173,500. Budgeted revenue was decreased from $18.85 million to $18.43 million, and budgeted expenses were decreased from $18.77 million to $18.26 million. Through the first four months of 2009, both revenue and expenses were under budget and the result is a net surplus of approximately $369,000. This is in essence a timing or seasonal imbalance between actual and budgeted revenue and expenses, and the Society is expected to be close to budget by year end.

APS Awards Programs: The Committee reported on the affect of investment losses on the Society’s award programs that are supported by funds in its long term investment pool. As a result of investment losses in the award funds, the S.C. Wang and Lazaro Mandel awards will be reduced from $7,000 to $4,000. The Giles F. Filley awards will be reduced from $40,000 (two awards, $20,000 each) to $24,000 (two awards, $12,000 each), and the annual $5,000 Bowditch award, which is currently supported by the tum Suden Fund, will be moved to the general operations budget in order to reduce the tum Suden Fund’s costs for 2010.

Three Year Financial Forecast: The forecast model calculates an average growth rate for revenue and expenses based on historical income and costs by line item. The forecast projects surpluses of$140,000, $159,000, and $158,000 in 2010, 2011, and 2012, respectively. It was noted that, for the first time since 2002, when the forecast was first used, revenue and expenses are projected to increase at the same rate of 1.1 %. In all previous years, expenses were projected to grow at a rate faster than revenue.

2010 Subscription Prices: At its spring meeting, Council approved the Publication Committee’s recommendation for 2010 journal subscription price increases. Total publication costs are estimated, with consideration to the Publications program’s charge to generate income (from subscriptions and other sources) that is 10% more than expenses. Based on the calculation, an increase of 5% in subscription prices would be sufficient to meet the 10% margin requirement. Council approved the Finance Committee’s recommendation to increase the price of Physiology 10% because of deficits Physiology has been experiencing. In addition, the price of the Society’s Legacy product will be increased by 12.5%, from $2,000 to $2,250.

2008 Audit: The Society’s financial statements were audited 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, 2008 and 2007. The audit report noted no material internal control weaknesses or other areas of concern associated with respect to the Society’s financial processes.