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
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.
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, 1998||Dec. 31, 1997|
|Assets||Cash 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)||1,589,071||1,265,960|
||Publication and electronic media inventories||514,025||638,429|
||Operating Reserve Fund||2,000,000||2,000,000|
||Surgical Skills Education fund||6,500,000||-|
||Due to (from) Operating Fund||1,502,490||2,429,865|
||Prepaid Annual Meeting, course and other expenses||1,700,806||1,953,460|
||Deferred product costs||1,107,529||835,026|
||Land, building, furniture and equipment, at cost:||
|Land and land improvements||1,160,644||1,140,011|
||Building and building improvements||16,076,033||14,737,928|
||Property and equipment net||14,915,165||15,097,850|
|Liabilities and Unrestricted Net Assets||Liabilities||
|Accounts payable and accrued liabilities||$4,040,748||$2,581,902|
||Deferred subscription revenue||33,903||42,370|
||Future course fees||446,380||632,943|
||Deferred annual meeting revenue||6,938,013||5,580,300|
||Deferred product revenue||524,078||983,280|
||Unrestricted net assets:||41,456,491||37,001,660|
||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||
||Electronic media and evaluation products||2,404,117||1,333,898|
||Specialty society management||1,627,535||839,228|
||Facility management revenues||988,701||567,824|
|Expenses relating to member service program activities and real estate||Program expenses||
||Electronic media and evaluation products||2,278,456||1,279,955|
||Specialty society management||1,626,519||884,861|
||Facility management expenses||2,092,858||1,464,709|
|Expenses relating supporting services||Supporting services||
||Research and scientific affairs||1,239,900||606,526|
||Education, communications and marketing programs||1,806,244||1,188,381|
||General and administrative||2,047,435||1,652,979|
||Total expenses for supporting services||10,034,125||5,959,245|
||Increase (decrease) in unrestricted net assets before investment activities and MODEMS activity||1,482,040||(1,092,134)|
|Investment activities||Dividend and interest income on investment funds, net of fees of $126,125 and $64,741, respectively||1,072,629||749,608|
||Gain on investment funds||2,652,739||2,556,705|
||Total investment activities||3,725,368||3,306,313|
||MODEMS expenses, net of revenues of $61,200 for the year ended December 31,1997||(752,577)||(574,424)|
||Increase in unrestricted net assets||4,454,831||1,639,755|
|Unrestricted net assets||Unrestricted net assets at beginning of period||37,001,660||35,361,905|
||Unrestricted net assets at end of period||$41,456,491||$37,001,660|