December 1999 Bulletin

From the Treasurer

This year's treasurer's report covers the 12-month period from Jan. 1, 1998 through Dec. 31, 1998. This was the first full year since inaugurating a change in the fiscal calendar to match the chronological year. Your organization completed another successful financial year due in large part to sound financial planning by the Board of Directors and its Finance Committee.

In December 1997, the Board of Directors of the Academy created a parallel member organization known as the American Association of Orthopaedic Surgeons. The Association was formed to carry on the orthopaedic community's advocacy activities on health care issues on behalf of patients and the profession. In February 1999, the Academy membership voted to transfer the membership and health policy functions to the Association. Current and future Fellows enjoy unified membership in both organizations.

Member education continues to be the predominant endeavor of this organization. The graphs accompanying this report show that 58 percent of the combined expenses of the Academy and the Association support the education of its Fellows. James D. Heckman, MD, 1998 AAOS President, informed the membership at the 1999 Annual Meeting that the volunteer members contributed more than 45,000 hours of time to educational activities.

The Academy/Association continues to invest in its electronic support systems. New membership and accounting software are nearly ready for implementation, and technological time saving devices such as e-mail and voice mail are already in place. The Academy's entire product line and Annual Meeting registration is now available via the Internet. A content rich Internet presence is being developed.

In last year's report, it was noted that the Hyatt Hotel Corporation would be building a hotel on the property adjacent to the Orthopaedic Learning Center (OLC) in Rosemont, Ill. Today, that hotel is a reality. The ribbon cutting ceremonial opening occurred in October providing services in close proximity for OLC registrants. The construction of the hotel and a parking garage servicing the Academy, the hotel and the Rosemont Village Hall did not require any Academy funds.

The Academy has been a defendant in a number of pedicle screw-related lawsuits filed in federal courts throughout the country since October 1995. These lawsuits allege that the Academy unlawfully promoted the use of pedicle screws for certain spine surgeries. The Academy has been dismissed as a defendant (granted summary judgment) from virtually all the trials litigated to date. In October 1999, the Third Circuit Court of Appeals upheld a dismissal of an earlier ruling by Judge Louis Bechtle, U.S. District Court for the Eastern District of Pennsylvania as to the conspiracy claims against the Academy (and other medical society-defendants) which, if not appealed further, will bring this litigation to a close. Insurance coverage substantially reduced the legal fees associated with defending ourselves.

Statement of Assets, Liabilities, and Unrestricted Net Assets

Increased deposits for the 1999 Annual Meeting, unpaid liabilities at year-end and a $1.5 million operating income all contributed to cash increasing $3.6 million, compared to the December 1997 balance. Investments increased almost $3.5 million due to continued stock market growth. The increase in assets was partially offset by a $2.6 million increase in liabilities. Unrestricted net assets, historically referred to as the fund balance, increased almost $4.5 million.


The Finance Committee has continued to closely monitor compliance of investments with the Academy investment policy. Equity funds were transferred from a managed to an index fund reducing fees and increasing performance. Total investment return was a strong 12.9 percent. The Board of Directors also approved the creation of the Surgical Skills Education Fund. Income from the Surgical Skills Fund of up to $325,000 will be used to defray the costs of skills courses at the OLC in order to prevent current registration fees from increasing.

Statement of Activities

Total revenues for the fiscal year 1998 were $33.1 million vs. $14.7 million for the eight-month year ending December 1997, and $32.1 million for the fiscal year ending April 1997. Revenues rose in 1998 due to strong attendance at Annual Meeting in New Orleans, growth in Specialty Society services and international membership.

Total operating expenses were $32.4 million, including approximately $750,000 in contributions to support the Musculoskeletal Education and Research Institute. The Academy board will complete its funding commitments to this endeavor in December 1999. Expenses in 1998 increased $1 million, over the last comparable 12-month period.

1999 Budget

The Board of Directors approved an expense budget of $34.3 million with projected revenues of $35.1 million. Estimated investment income was budgeted at $1.2 million. Products in development and expected for release in 1999 include Orthopaedic Knowledge Update 6, several Orthopaedic Knowledge Update specialty books and discs, Essentials of Musculoskeletal Care on CD-ROM, 30 new videotapes on various surgeries, several new self-assessment exams, Orthopaedic Grand Rounds-series 2, clinical guidelines and Orthopaedic Basic Science (second edition).

Two of the many budgeted items worth highlighting are the Academy participation in the Special Olympics and the creation of a Political Action Committee affiliated with the AAOS/ Association. Academy members manned an education booth at the 1999 World Summer Games for the 7,000 Special Olympic athletes and their coaches. Coverage of this successful event can be found in the August Bulletin. In 1999, a Political Action Committee was formed and has had two donation appeals this year. A benefit of the Academy/Association organizational structure is the ability to be more active in the support of health policy issues.


The Strategic Plan, annually updated by the Board of Directors, drives your Academy/Association's activities and expenditures. The accompanying charts illustrate the derivation and expenditure of monies for the fiscal year 1998. The AAOS's most valuable assets are the continued dedication of its Fellowship, the commitment of its board and the sustained hard work of its staff.

Stuart A. Hirsch, MD


Combined statements of Assets, Liabilities and Unrestricted Net Assets

Dec. 31, 1998Dec. 31, 1997
AssetsCash and temporary cash investments $7,821,314$4,245,193

Accounts receivable (net of an allowance for doubtful accounts of $60,000 and $52,000, respectively) 1,589,0711,265,960

Publication and electronic media inventories 514,025638,429

Investments-at market

Permanent fund 13,894,98815,455,000

Operating Reserve Fund 2,000,0002,000,000

Surgical Skills Education fund 6,500,000-

Project fund 5,081,8585,639,636

Due to (from) Operating Fund 1,502,4902,429,865

Total investments 28,979,33625,524,501

Prepaid Annual Meeting, course and other expenses 1,700,8061,953,460

Deferred product costs 1,107,529835,026

Land, building, furniture and equipment, at cost:

Land and land improvements 1,160,6441,140,011

Building and building improvements 16,076,03314,737,928

Furniture andequipment 5,045,7345,092,710

Total cost 22,282,41120,970,649

Accumulated depreciation 7,367,2465,872,799

Property and equipment net 14,915,16515,097,850

Total assets $56,627,246$49,560,419
Liabilities and Unrestricted Net Assets Liabilities

Accounts payable and accrued liabilities $4,040,748$2,581,902

Deferred subscription revenue 33,90342,370

Future course fees 446,380632,943

Deferred dues 3,187,6332,737,964

Deferred annual meeting revenue 6,938,0135,580,300

Deferred product revenue 524,078983,280

Total liabilities 15,170,75512,558,759

Unrestricted net assets: 41,456,49137,001,660

Total liabilities and unrestricted net assets $56,627,246$49,560,419

Combined statements of activities

12 mos. ended
Dec. 31, 1998
8 mos. ended
Dec. 31, 1997
Revenues relating to member service program activities and real estate Program revenues

Membership $8,572,454$5,653,418

Annual Meeting 9,786,215-

Electronic media and evaluation products 2,404,1171,333,898

Publications 5,961,1833,386,627

Continuing education 3,804,2052,887,679

Specialty society management 1,627,535839,228

Facility management revenues 988,701567,824

Total revenues 33,144,41014,668,674
Expenses relating to member service program activities and real estate Program expenses

Membership 1,489,070716,384

Annual Meeting 5,650,829224,090

Electronic media and evaluation products 2,278,4561,279,955

Publications 4,325,0542,586,433

Continuing education 4,165,4592,645,131

Specialty society management 1,626,519884,861

Facility management expenses 2,092,8581,464,709

Total expenses 21,628,2459,801,563
Expenses relating supporting services Supporting services

Governance 2,413,2131,581,884

Health policy 2,527,333929,475

Research and scientific affairs 1,239,900606,526

Education, communications and marketing programs 1,806,2441,188,381

General and administrative 2,047,4351,652,979

Total expenses for supporting services 10,034,1255,959,245

Increase (decrease) in unrestricted net assets before investment activities and MODEMS activity 1,482,040(1,092,134)
Investment activitiesDividend and interest income on investment funds, net of fees of $126,125 and $64,741, respectively 1,072,629749,608

Gain on investment funds 2,652,7392,556,705

Total investment activities 3,725,3683,306,313

MODEMS expenses, net of revenues of $61,200 for the year ended December 31,1997 (752,577)(574,424)

Increase in unrestricted net assets 4,454,8311,639,755
Unrestricted net assetsUnrestricted net assets at beginning of period 37,001,66035,361,905

Unrestricted net assets at end of period $41,456,491$37,001,660

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