2004 Annual Reports for Boards and Committees

FINANCE COMMITTEE

During 2004, the Finance Committee (FC) continued to address the major financial issues of concern to the Association. These issues included: final budget review (including revenue recognition accounting change), audit subcommittee creation, and long-term investment portfolio performance.

Review of Draft 2005 Final Budget

After a thorough review of the 2004 year-end probable and the Proposed 2005 Final Budget, the FC unanimously voted to recommend approval of the budget to the Board of Directors and the Council of Representatives calling for a 2004 year-end probable surplus of $1,888,200 and a 2005 Final Budget surplus of $849,800.

During the discussion of the budget, the CFO briefed the FC on the evolution of the shift from print subscriptions to electronic licensing sales. Due to the dramatic increase in licensing sales over the past few years and given the payment patterns of our primary vendors, projecting licensing revenue has become a major management challenge. Conversations with our audit team have begun and it is likely that this process will result in a change in revenue recognition methodology whereby we recognize licensing sales on a rolling12-month basis. The FC supported the concept as well as the need for such a change, and authorized the CEO and CFO to proceed with a goal of making this change before we close 2004. (This change is not yet developed enough to incorporate into the 2004 year-end probable and the 2005 final projections.)

Audit Subcommittee Function

The FC spent a great deal of its time during 2004 focusing on the emerging issues stemming from the Sarbanes/Oxley legislation, many of which were included in PwC's 2003 management letter as recommendations to APA. To this end, the FC supported a variety of new policies (whistle-blowers, document destruction, contract review/approval, etc.). The most notable of these (approved by Council July 2004) led to the creation of the Audit Subcommittee effective January 2005 comprised of the Treasurer, the Vice Chair and three audit/finance community members and be charged with the responsibility to assist the full FC in fulfilling the following (Association Rule excerpt): (a) review audit scope and approach; (b) monitor issues raised during the audit and management letter; (c) understand the major components of the consolidated financial statements; (d) ensure compliance with legal and regulatory requirements; and, (e) monitor major financial risk exposures and steps taken to control such exposures.

Long-Term Investment Portfolio Performance

It is the responsibility of the FC, with the help of its investment community members, to oversee the performance and management of APA's long-term investments. Our long-term (LT) portfolio performed very well during 2004. More specifically, the value of our LT portfolio grew from $42,558k (December 31, 2003) to $50,241k (December 31, 2004) as outlined on next page:

December 31, 2003 value...................................................... $42,558k
Additional investment from working capital*............................ 2,900k
Net realized gains/losses (net of management fees)............... 464k
Dividends/interest............................................................................. 490k
Unrealized gain ............................................................................. 3,829k
December 31, 2004 value....................................................... $50,241k

* As directed by the Council as part of the Net Worth Allocation Plan, “treat all real estate cash flow in excess of $2.5M annually from building operations as an increase to net assets and not available for operations or capital equipment, but rather as a reserve for financial investment and/or debt extinguishment.”

During 2004, our investments with Europacific and Vanguard International Equity were liquidated and two new investment vehicles (Earnest Partners and Longleaf International Equity) were selected. These liquidations/purchases were done with the goal of re-balancing our portfolio to more closely align with our approved asset allocation and to maximize our return without significantly impacting our risk level.

The Committee's focus for 2005 will center on navigating our way through the post-Enron environment while maintaining a watchful eye over the Association's finances as a whole.