In 2002 the foundation budgeted an operating deficit of $27.1 million, which reflected pressures on ticket sales and hotel occupancy resulting from the slowing economy and travel concerns, increased expenses from new buildings coming on-line, and costs related to compensation and staffing. The actual deficit for the year was $35.5 million.
Although the foundation achieved almost $9 million in savings, primarily as a result of reduced staffing and lower interest costs, operating revenues were almost $17 million less than budget. Ticket sales were approximately $5.4 million short of budget. Lower visitation also affected hotel occupancy and retail sales.
In the aggregate, revenue from hospitality and products operations was more than $10 million short of budget. (Total revenues were close to budget during the first half of 2002; however, immediately after the Fourth of July holiday, visitation and occupancy levels declined significantly from a year earlier. Economic pressures, unusually high summer temperatures in Virginia and other states in the East, and the October sniper incident in metropolitan Washington contributed to the decline.)
This table provides additional information on 2002 operating results:
The level of deficit clearly is unacceptable. The foundation's goal is to reach a balanced budget in 2006, with operating deficits of no more than $25 million in 2003 and $15 million in 2004. There has been substantial progress in financial results in 2003, despite the pressures of the economy, inclement weather, and the war with Iraq. Through April, operating expense reductions of more than $7 million had been identified for calendar year 2003. The value of the endowment as of December 31, 2002, was $568.3 million, a decline of $105.5 million compared with the December 31, 2001, value. The foundation withdrew $52.8 million during the year to fund the annual draw for operations ($34.8 million) and a supplemental draw to fund educational activities ($18.0 million). A total of $10.7 million in gifts was transferred to the endowment during the year. Market value declines, principally in the domestic equity asset class, totaled $63.8 million. The endowment, including the foundation's holdings of Reader's Digest stock, generated a total return of negative 9.7 percent for the year. The total returns produced by the Standard & Poor's 500 and the SB Broad Investment Grade Bond Index were negative 22.1 percent and positive 10.1 percent, respectively.