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Incentives seem like small change for SRI

By KRIS HUNDLEY
Published January 4, 2007

SRI International Inc. of Menlo Park, Calif., opened its new branch in St. Petersburg this week, made possible by more than $30-million in government incentives.

But that package of public dollars was practically chump-change for the 60-year-old research organization, which pulls in hundreds of millions of dollars in government contracts and grants each year. The payoff to government agencies and industries that hire SRI? Innovations that have revolutionized everything from the way National Guard units train to the way doctors perform surgeries.

As a nonprofit entity, which started as a spin-off of Stanford University, SRI reports its finances each year to the Internal Revenue Service. The filing, called a Form 990, shows where SRI's money is coming from, where it is going and why it qualifies for tax-exempt status.

In 2005, the latest year for which data is available, SRI reported nearly $297-million in revenue, with a surplus at year-end of about $110-million. SRI officials estimate 2006 income will be about $310-million.

A closer look at the institute's 990 reveals the very business-like costs - for everything from high-priced legal talent to lobbyists - of running a high-powered, not-for-profit organization.

-SRI gets 95 percent of its revenue from the U.S. government, most of that in the form of contracts that allow for a percent of profit over project costs. SRI officials say about 50 percent of its work involves homeland- and national-security projects.

-SRI got 29 government grants in 2005, which, unlike contracts, generally do not include a profit margin. The institute's largest single grant that year, for $23.5-million, came from the National Science Foundation for an Arctic space weather system. Other multimillion-dollar grants came from the Department of Health and Human Services for research involving aging, cancer and the National Institutes of Health.

-SRI's management expenses average about 38 percent of total costs. Salaries, supplies and occupancy costs contributed most to overhead expenses.

-SRI owns a for-profit subsidiary, Sarnoff Corp. in Princeton, N.J. Sarnoff partners with private companies to bring products to market. Three SRI directors serve on Sarnoff's seven-member board. Sarnoff's revenue in 2005 were close to $100-million.

-In addition to its work for the government and other non-profit organizations, SRI does some commercial work, the proceeds of which are taxable. One such source of income: pre-clinical drug testing that SRI does for government agencies and biotech firms. In 2005, the institute reported about $14.2-million in business income but calculated a net taxable loss on these activities. Bottom line: no taxes paid.

-Royalties to SRI from the institute's patents range from $1.5-million to $3-million a year. SRI was granted 46 patents in 2005 and 81 the year in 2004.

-SRI made nearly $10-million in profits on securities in 2005. Most of that was from the sale of shares in Nuance Communications, an SRI spin-off that commercialized computer speech-recognition technology.

Kris Hundley can be reached at hundley@sptimes.com or 727 892-2996.

Source: SRI's IRS filing for 2005

BY THE NUMBERS

$296.6M SRI's revenue

$110M Surplus at year's end

95% Percentage of income from government sources

38% Management costs as percentage of total costs

$957,209 Salary for president/CEO Curtis Carlson

$2M Estimated legal, lobbying, and PR expenses

$5M Travel costs

[Last modified January 3, 2007, 23:16:30]