Essential to Your Profession

Essential to Your CareerEssential to You

• A Focus on the Essentials

• Near-term Path Forward

• Essential Changes

• Longer-term Path Forward

• Recent History

• Options Considered

• Your Role

• Supplementary Financial Material (Net Asset Value and Annual Changes 1996-2002, Essential Scenario)

A Focus on the Essentials

• Providing the latest and most accurate technical information• Offering concise, targeted award-winning publications• Delivering meetings that set industry standards• Making available attractive/affordable insurance programs• Expanding networking opportunities

AIChE Path ForwardNear-Term

• Continue to implement new staff structure • Secure financing of up-front costs of office

sublease• Explore additional efficiencies through

outsourcing of administrative functions• Retain AIChE division and forum identities• Ensure profession of chemical engineering

remains strong

Essential Changes

• Broadened leadership and networking

• Alliances with sister societies and commercial partners could generate opportunities in- programming- training- publishing

Essential Changes

• Elimination of some services, such as career services and web support

• No individual staff liaisons—more reliance on operating council liaisons

• Reduced frequency of membership and accounting updates for AIChE groups

• Reduced support in logistics for reserving meeting rooms, conducting division elections, handling of awards, welcome letters, etc.

AIChE Path ForwardLonger-Term

AIChE’s Board of Directors will continue to explore possible acquisitions, mergers, alliances, and joint ventures with other societies, with the primary objectives of:

• Retaining AIChE’s independence

• Retaining AIChE’s identity

• Retaining AIChE’s essential benefits/services

Recent History

• AIChE experienced a serious decline in its Net Asset Value, which led the Board to take action to maintain the Institute’s sustainability

• Factors in Net Asset Decline Included:

- major investments in IT/Web- investment losses in permanent fund- investment losses in pension fund required transfer of

additional assets- facilities costs- funding for new ventures- erosion in business operations (e.g. advertising,

publication sales, number of members, ITA sponsorships, etc.)

- general economic downturn

Options Considered by AIChE Board

• Cooperation with sister society (joint venture)• Merger with/acquisition by sister society• Focus on essential values and services through

significant restructuring and staff reductions• Further opportunities for efficiencies through

outsourced services

While there was merit in each of these options, the Board concluded that AIChE’s immediate

course of action should

Focus on the Essentials

Retrenchment in the near term sets a

firm foundation for longer-term growth, focused on “Genesis” strategic plan

AIChE Needs YouFor nearly 100 years, AIChE has served the needs

of chemical engineers. AIChE members will continue to have a voice in planning the future of the Institute and a role in securing that future.

AIChE is essential to your career.

And you are essential to AIChE.

Financial Material

• Net Asset Value and Annual Changes from 1996-2002

• AIChE Pre-essential and Essential Budget Scenarios

($10)

($5)

$0

$5

$10

$15

$20

$25

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

E*

$ M

illio

n

Net Asset Value (Year-end) Annual Change

* 2003 excludes effect of asset write-downs due to potential HQ sublease

Operating with Negative Net Assets

• Negative net assets are partly due to long-term liabilities (e.g., pension obligation, medical benefits)

• Dues and meeting revenues received in advance of costs allows AIChE to continue to operate with negative net assets

•1996-98: AIChE experienced a period of growth–Net asset value (NAV) increased by $9.2 million

•1999-01: AIChE experienced a period of contraction–NAV declined by $11.9 million

• AIChE saw a shift from + $9.2 to $ (11.9), totaling $ (21.1) million

•What happened can be grouped in 3 categories–Financial: $ (13.0) million–Administrative: $ ( 2.8) million–Business: $ ( 4.6) million–Other Factors (Not Studied): $ ( 0.7) million–TOTAL $ (21.1) million

1996 - 98 GROWTH

1999 - 2001 CONTRACTION

CHANGE OVER 6 YEARS

SPECIAL ITEMS

- Sale of UEC

- Sale of Petro Expo

- Database Write-Off

$ 6.2

$ 0.4

$ (1.2)

$ (6.2)

$ (0.4)

$ (1.2)

INVESTMENT PERFORMANCE $ 4.6 $ 2.5 $ (2.1)

NET FOUNDATION REVENUES $ 2.4 $ (0.7) $ (3.1)

- Timing of Receipts versus Expenditures

TOTAL FINANCIAL CHANGES

$ (13.0)

Financial

1996 - 98 GROWTH

1999 - 2001 CONTRACTION

CHANGE OVER 6 YEARS

HEADQUARTERS LEASE

- Relocation to 3 Park Ave

- Offset by Proceeds from sale of United Engineering Building (see “Special Items”)

$ (3.5) $ (4.9) $ (1.4)

IT/WEB/DATABASE COSTS

- Addition of Web Development and Maintenance

$ (4.7) $ (5.5) $ (0.8)

INSTITUTE ADMINISTRATION $ (7.8) $ (8.4) $ (0.6)

TOTAL ADMIN CHANGES $ (2.8)

Administrative

1996 - 98 GROWTH

1999 - 2001 CONTRACTION

CHANGE OVER 6 YEARS

DUES

- Decline in Membership

- Returns to Historic Levels with 2003 Dues Increase

$ 15.6 $ 13.2 $ (2.4)

CEP ADVERTISING

- Shrinking Spending in Market

$ 3.5 $ 2.4 $ (1.1)

CONTINUING EDUCATION

- Continued Erosion of Business

$ (1.6) $ (2.3) $ (0.7)

MEETINGS $ 0.8 $ 0.3 $ (0.5)

TOTAL BUSINESS CHANGES

$ (4.6)

Business-Related

Details by Year6-YEAR

($ Million) 1996 1997 1998 1999 2000 2001 TOTAL

OPENING NET ASSET VALUE 11.8 10.2 14.3 20.9 18.7 14.7 11.8

MAJOR CHANGES TO NAVSpecial Items Sale of UEC - - 6.2 - - - 6.2 Sale of Petro Expo - - 0.4 - - - 0.4 Database Write-Off - - - - - (1.2) (1.2) Investment Gains / Losses 0.9 1.4 2.3 3.2 (0.2) (0.6) 7.1 Foundation Revenues (Net of Expenses) (0.2) 2.4 0.2 (1.0) (0.5) 0.9 1.7

Institute Administration (1) (2.6) (2.5) (2.6) (2.9) (2.8) (2.7) (16.2) IT / Web / Database (1.6) (1.7) (1.4) (1.5) (1.9) (2.2) (10.3) Continuing Education (0.6) (0.2) (0.8) (0.9) (0.7) (0.7) (3.9) CEP Advertising 1.1 1.3 1.0 0.9 0.8 0.7 5.8 Headquarters Lease (1.1) (1.1) (1.3) (1.6) (1.6) (1.6) (8.3) Meetings 0.3 0.3 0.2 (0.0) 0.3 0.0 1.1 Dues 5.2 5.2 5.2 4.4 4.4 4.4 28.8 CHANGES TO NAV FROM ITEMS LISTED 1.4 5.0 9.5 0.5 (2.2) (2.9) 11.3

CHANGES TO NAV FROM ALL ELSE (2) (2.3) (2.3) (2.3) (2.3) (2.3) (2.3) (14.0) CALCULATED TOTAL CHANGES TO NAV (0.9) 2.7 7.1 (1.8) (4.6) (5.3) (2.7)

ACTUAL CHANGE IN NAV (1.5) 4.0 6.7 (2.3) (4.0) (5.6) (2.7)

OTHER FACTORS (NOT STUDIED) (0.6) 1.3 (0.4) (0.5) 0.6 (0.4) 0.0

CLOSING NAV 10.2 14.3 20.9 18.7 14.7 9.0 9.0

(1) Includes Finance & Accounting, Office & Facility Services, General Administration, and Human Resources.(2) Includes Governance, Government Relations, Profession & Education, Federal Funding, Marketing & Communications, Customer Service, Purchasing & Production, Financial Services, Technical Publications and ITAs.

AIChE Results of Operations2002 versus 2001

($ Million)

2001 Total Operations (5.6)$

Changes: 2002 versus 2001Decrease in Net Foundation Receipts (1.2)$

Dues Revenues Down, Marketing Costs Up (0.5)$

Decrease in Financial Services Revenue (0.3)$ (First USA Advance Payment in 2001)

Introduction of Distance Learning & Improved Public Courses 0.3$

Decline in Investment Performance (0.2)$

Improved ITA Performance 0.2$

Special Item / Other 0.2$

Total Changes (1.5)$

2002 Total Operations (7.1)$

Pre-Essential Essential

Staff Level 79 40Revenue $17.5M $13.4MExpenses $20.5M $12.9MNet ($3.1M) $ 0.5M

AIChE’s Scenarios