October 2000 Bulletin

From the Treasurer

This year’s Treasurer’s report covers the calendar year 1999. Your Academy continues to operate on a prudent financial basis with revenues exceeding expenses accompanied by good investment returns. Our scope of activities also increased during the year, which strengthened our efforts to clarify and enhance the image of orthopaedics and orthopaedic surgeons to the general public.

The Academy conducted a foot and ankle research project at the Special Olympics 1999 World Summer Games. An estimated 2,600 of the 7,000 athletes participated in the research project. During this week-long event, the Academy also staffed an orthopaedic education booth and held a CME course. State societies have been encouraged to continue this volunteer-driven activity at their local level.

The Public Relations Task Force formed during the fall of 1998 completed its work in 1999 and reported to the Board of Directors. The task force’s recommendations led to the formation of a new department on public and media relations focused on public relations and the creation of a new Council on Communications that oversees the activities in public relations, patient education, injury prevention and Internet communications.

The Public and Media Relations Department was staffed and operational by September 1999. Many topics of public interest were developed. More than 700 press kits were distributed in conjunction with the Orthopaedics Update media event in October. These kits sparked print and television news media coverage of a variety of topics, including musculoskeletal conditions in the U.S., boomeritis, backpacks, shoes, safe sledding and osteoporosis. Many volunteer members of the Academy and Board of Councilors participated as orthopaedic spokespersons.

As you are probably aware, the Internet has given rise to hundreds of health-related web sites. Your board discussed various alternatives to make our content accessible. One possibility was partnering with several other medical societies forming a joint venture with its own operating staff. Because this arrangement would have resulted in transferring editorial control of the content to the new entity, the board ultimately did not endorse this approach. Instead, the board chose to expand the Academy’s web site, developing our content internally and controlling its presentation on the Internet. Funds were approved for spending in 1999 and incorporated in the 2000 budget for online development. Benefits of these actions were evident in early 2000 with the Academy offering members the ability to create their own personalized web sites that allow their patients to access information from the Academy’s web site. Additional CME hours were added to online courses and by March 2000, a new Self-Assessment Examination was available online.

In response to a meeting in 1998 with then Academy President James D. Heckman, MD, the director of the National Institutes of Health (NIH), Harold Varmus, MD, PhD, challenged the Academy to measure the cost to society of the burden of musculoskeletal disease. The Academy hosted a conference attended by representatives of 34 medical organizations, and federal agencies. The October 1999 meeting was called "Measuring Burden of Disease, Musculoskeletal Conditions and Injuries: Current Status and Future Goals." The primary goal of the conference was to build a consensus about how best to measure the burden. Future efforts will address the present provision of care, the attendant costs and priorities for change in the care of patients with musculoskeletal conditions. These studies will become part of the Bone and Joint Decade activities.

Balance Sheet Statement of Assets, Liabilities and Net Assets

During 1999, funds were invested in maintaining the building’s operating systems, renovation work of space vacated by tenants and information systems. Liabilities declined due primarily to the Annual Meeting being held later than the prior year, which resulted in less revenue collected and deferred at year-end.

The Academy incurred a significant increase in the amount of designated contributions it received during 1999. These contributions flow from a number of sources: Political Action Committee (PAC) donations from you the membership; corporate grants toward educational product development; and corporate sponsorships of Academy events, such as guest speakers and building accessible playgrounds. Contributions such as these are designated for a specific purpose. When that purpose has not been fulfilled by the end of the year, accounting rules require that the recipient aggregate these funds in a separate class of net assets identified as "Temporarily Restricted" net asset contributions, until their purpose has been fulfilled. Accordingly, the Balance Sheet at Dec. 31, 1999 reflects a balance of $554,664 as Temporarily Restricted Net Assets. In prior years these contributions, which were substantially less, were included in liabilities as deferred revenues.

Investments

The investment climate continued its favorable setting providing a return of 11.6 percent on the Academy’s portfolio. The Finance Committee, together with the independent investment advisory firm retained by the Academy, monitors the results of each of the funds under investment management. Approximately $238,000 of investment income was used to subsidize Course Operations.

Statement of Activities

Revenues increased by $1 million from the prior year, due primarily to robust membership growth. Increased product sales led by the Orthopaedic Knowledge Update (OKU) product line and continued strong demand for the text, Essentials of Musculoskeletal Care, offset the decline in revenues from CME courses. Annual Meeting revenues declined as the attendance at Anaheim lagged that of New Orleans in 1998. A new revenue line has been added this year for the first time. These miscellaneous revenues consist of freight and handling charges on product sales, contributions and insurance reimbursement of legal expenses. In prior years these receipts were less significant and netted against expenses.

Total operating expenses increased only 2.7 percent from 1998. Annual Meeting expenses declined concomitantly with revenues that offset the start-up expenses associated with the new Public and Media Relations Department. The 1999 expense for the combination of communications and public relations also included expenses for publishing the bimonthly Bulletin and monthly AAOS Report. These publications were transferred to this new expense category from Membership Services. The net of operating revenues less operating expenses was $1.1 million. Last year, 1999, was the final year of AAOS’s pledge to support the MODEMS project under the direction of the Musculoskeletal Education and Research Institute.

2000 Budget

At its December 1999 meeting, the board approved a budget in which expenses exceeded revenues. Expansion of online medical content development for patients and consumers; a full year of public relations activity; the recognition of the growing importance of communications to the membership, patients and the public; and the support budgeted for a new national and international endeavor to promote the Bone and Joint Decade, combined to increase expenses at a higher rate than revenue growth. Upon deliberation, the board voted to fund the spending partially from Academy reserves of prior year’s income, and partially from a dues increase. The dues increase and funding from reserves will each provide approximately $1 million in funding expense growth.

Summary

The historical data for the accompanying graphs have been restated where applicable for the breakout of our communication activities. As you can see education continues to be the driving force of the Academy. Work has begun to leverage our educational resources to support the members and reach out to the public through the Internet and other communication media. Membership in the Academy/Association continues to grow, its financial position is sound and there is much to look forward to as we enter the next millennium.

Andrew J. Weiland, MD

Treasurer

Combined statements of Assets, Liabilities and Net Assets

As of December 31

1999

1998

Assets

Cash and temporary cash investments

$7,271,879

$7,821,314

Accounts receivable (net of an allowance for doubtful accounts of $83,000 and $60,000, respectively)

1,871,475

1,589,071

Publication and electronic media inventories

540,215

514,025

Investments-at market

Permanent fund

16,830,002

13,894,988

Operating Reserve Fund

2,000,000

2,000,000

Surgical Skills Education fund

6,500,000

6,500,000

Project fund

5,816,264

5,081,858

Due to Operating Fund

1,288,282

1,502,490

Total investments

32,434,548

28,979,336

Prepaid Annual Meeting, course and other expenses

1,446,880

1,700,806

Deferred product costs

1,045,684

1,107,529

Land, building, furniture and equipment, at cost:

Land and land improvements

 

1,169,300

 

1,160,644

Building and building improvements

17,110,009

16,076,033

Furniture and equipment

5,993,058

5,045,734

Total cost

24,272,367

22,282,411

Accumulated depreciation

8,921,570

7,367,246

Property and equipment net

15,350,797

14,915,165

Total assets

$59,961,478

$56,627,246

Liabilities and Net Assets

Liabilities:

Accounts payable and accrued liabilities

$3,959,291

$4,040,748

Deferred subscription revenue

33,903

Future course fees

315,232

446,380

Deferred dues,

2,953,170

3,187,633

Deferred annual meeting revenue

6, 016,588

6,938,013

Deferred product revenue

494,842

524,078

Total liabilities

13,739,123

15,170,755

Net assets:

Unrestricted

45,667,691

41,456,491

Temporarily restricted

554,664

Total net assets

46,222,355

41,456,491

Total liabilities and net assets

$59,961,478

$56,627,246

Combined statements of activities

For 12 months ended December 31

1999

1998

Revenues

Program revenues

relating to

Membership

$9,269,735

$8,572,454

member service

Annual Meeting

8,713,378

9,786,215

program activities and real estate

Electronic media and evaluation products

2,375,278

2,404,117

Publications

6,348,556

5,961,183

Continuing education

3,556,553

3,804,205

Specialty society management

2,004,774

1,627,535

Facility management revenues

929,238

988,701

Other revenues

917,214

Total revenues

34,114,726

33,144,410

Expense

Program expenses

relating to

Membership

978,949

1,489,070

member service

Annual Meeting

4, 928,993

5, 650,829

program activities
and real estate

Electronic media and evaluation products

2,340,459

2,278,456

Publications

4,462,548

4,325,054

Continuing education

3,974,541

4,165,459

Specialty society management

2,037,520

1,626,519

Facility management expenses

2,245,133

2,092,858

Total expenses

20,968,143

21,628,245

Expenses

Supporting services

relating to

Governance

3,143,390

2,413,213

supporting services

Health policy

1,718,426

2,527,333

Research and scientific affairs

1,365,096

1,239,900

Education, international services and marketing

2,014,131

1,440,169

Communications and public relations

1,313,481

366,075

General and administrative

2,483,866

2,047,435

Total expenses for supporting services

12,038,390

10,034,125

Increase in unrestricted net assets before investment activities and MODEMS activity

 

1,108,193

 

1,482,040

Investment
activities

Investment activities

Dividend and interest income on investment funds, net of fees of $143,976 and $126,125, respectively

 

 

976,536

 

 

1,072,629

Gain on investment funds

2,585,644

2,652,739

Total investment activities

3,562,180

3,725,368

Net assets

MODEMS expenses
Increase in unrestricted net assets

(459,173) 4,211,200

(752,577) 4,454,831

Change in temporarily restricted net assets
Contributions

 

554,664

 

Increase in net assets

4,765,864

4,454,831

Net assets at beginning of year

41,456,491

37,001,660

Net assets at end of year

$46,222,355

$41,456,491


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