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