October 2002 Bulletin

From the Treasurer

This year’s Treasurer’s report covers the fiscal year ended December 31, 2001. Initiatives and activities designed to serve you, the membership, continued to expand.

Programmatic highlights

Upon discussion and review of the Academic Affairs Project Team’s report to the Board at its spring workshop, a new council–Academic Affairs–was formed. Among the activities of the six committees under its aegis are: the exploration of modern approaches to clinical practice; the development of strategies and programs to facilitate academic community relations; and providing information on practice opportunities unique to academics. The six committees working under its direction include Medical Education, Diversity, Academic Advocacy, Academic Business Practice, Clinician Scientist and Candidate Member Services. Four of the six committees are newly formed, expanding the Academy’s reach into this segment of our membership.

The education division was hard at work developing the medical resource Orthopaedic Knowledge Online (OKO). This physician information resource complements the online patient education material available in Your Orthopaedic Connection. This resource has been continually expanded since its March 2000 introduction and now hosts in excess of 390 educational programs that can be downloaded from the Web site.

Last October, the OKO cyberspace library was launched. This Web site, available any time, provides members with instant access to medical information in the form of video demonstrations of current surgical techniques and text information regarding diagnosis and treatment of musculoskeletal disorders. Twelve of our Fellows edit the material before it undergoes production, becoming Web-accessible. Additional material has been continuously added since its initial launch.

In an effort to increase the involvement of younger Academy members, the KEI database was created. KEI–an acronym for Knowledge, Experience and Interest–is the vehicle by which members can respond to open committee positions and participate in project teams. This selection process matches knowledge and interest with the expertise required for developing innovative programs for membership.

The expansion of our Washington office staff, coupled with assistance from Health Policy staff in Rosemont, had a strong impact during 2001 in addressing the advocacy goals of the Association/ Academy. It was gratifying to see more than 200 orthopaedists visiting the offices of legislators during the National Orthopaedic Leadership Conference in Washington during April.

In May, Alan Morris, MD, Chair of the AAOS Council on Health Policy Practice, spoke before the U.S. House Committee on Small Business. He discussed the bureaucratic inundation of paperwork that has become indigenous to the healthcare industry in this country and which detracts from patient care. In early July, President Bush met with a delegation of medical specialty society officials including Drs. Richard Gelberman and William W. Tipton, Jr. President Bush spoke of his support of the Fletcher Patient Rights Bill. In late July, Dr. Peter Mandell, Chair of the AAOS Occupational Health and Worker’s Compensation Committee, discussed workplace ergonomic injuries at an Occupational Safety and Public Health (OSHA) forum. He stressed that orthopaedic surgeons are the most experienced and best qualified health care providers to consult regarding ergonomic injuries and their causes.

Another new initiative by the Board in 2001 established the Leadership Fellows Program. The objective of this program is to identify and train future Academy volunteers for committee and leadership positions. Fifteen participants were selected from those members 45 years or younger who expressed an interest in the program.

The program of developing communication skills mentors in partnership with Bayer Institute was implemented during the year. At year-end, 11 Academy members were trained as mentors who would be conducting workshops throughout 2002 disseminating their communication knowledge among the membership. Additional fellows were interviewing this year to participate in the Bayer program expanding the number of mentors and subsequent workshops they will lead.

The Public Education and Media Relations (PEMR) Department, in its second full year of operations, had an extensive array of activities in which it pursued its strategic plan goal of educating the public, government agencies and professional organizations about the scope, impact and value of orthopaedists in the care of patients with musculoskeletal disorders. This year’s public service announcement (PSA) campaign "Getting You Back in the Game" was distributed nation-wide. The campaign featured orthopaedic patients who told their stories with the hope of inspiring others.

The March 2, 2001 edition of USA Today contained an AAOS insert "Orthopaedics in Motion: Getting you back in the game" with stories on sports and musculoskeletal health. Another initiative was partnering with the Professional Baseball Athletic Trainers Society for the "Prevent Injuries America" campaign featuring baseball star Cal Ripkin, Jr.

During 2001, the Academy built its second safe, accessible playground in San Francisco during the Annual Meeting under the guidance of the PEMR Department. San Francisco was also the kick-off of a series of art exhibits called e-Motion Pictures: An Exhibition of Orthopaedics in Art in cities around the country showcasing artwork of orthopaedic surgeons and their patients. These shows have instilled in the public at large a positive image of orthopaedists as caring and highly qualified physicians dedicated to their patients well being.

Combined Balance Sheet Statements of Assets, Liabilities and Net Assets

Cash balances in the operating accounts were $1.2 million higher than at the close of the 2000 year-end, as a result of reductions in accounts receivable, product inventory, prepaid assets and deferred product development costs. Investments, on the other hand, declined $1.2 million due to declining stock market valuations. Investments in building and office equipment were approximately $1.9 million. This amount was $0.6 million higher than depreciation expense for utilization of our asset base.

Liabilities increased $0.8 million due primarily to the receipt of deferred revenues associated with the 2002 Annual Meeting, which will be recognized in 2002. Net Assets declined $852,000 due to the excess of expenses and investment losses sustained during 2001 over revenues generated.

Investments

The Academy’s investment portfolio suffered declines in market value of approximately $1.7 million. This loss was partially offset by gains in securities sold during the year of $313,000 and interest and dividends received of $403,000. The total investment return for the year was a negative 3.7 percent. This compared to national indices of a negative 11.9 percent return for the S&P 500 and a positive return of 8.4 percent for the LB Fixed Income Aggregate.

Combined Statement of Activities

Combined revenues of the Academy and Association were $37.4 million, an increase of $1.3 million over the prior year. Increased membership provided about $400,000 more in dues revenue and the PEMR Department raised $800,000 in support of its projects. Combined expenses of $37.6 million increased $1.0 million over 2000. This was due primarily to the increase in PEMR project spending for which it received outside funding.

The operating loss of $207,000 was better than budgeted as funding of $580,000 for the development of OKO was approved from prior year’s earnings (net assets). Excluding the $580,000 development expense, operating revenues exceeded operating expenses by $373,000. Investment losses of $972,000 noted earlier, and an increase in restricted contribution revenue of $327,000, combined with the $207,000 operating loss, for a net decline in assets of $852,000 for 2001.

2002 Budget

The budget for 2002 benefits from the scheduled release of Orthopaedics Knowledge Update (OKU) #7 by the publications department. Also, the electronic media department has a number of new products planned for introduction during the year. Course operations have increased the number of offerings, budgeting increased revenues accordingly.

Expenses are increasing in publications and electronic media in tandem with increased product sales. The first full year of the new Academic Affairs Council will increase expenses as well. The continued development of OKO is expected to utilize another $400,000 from prior year’s reserves during 2002.

The resulting budget has an operating loss of $136,000 for the year, however, continued review of our financial position and a heightened awareness of fiscal responsibility has produced a recent forecast of an operating profit for 2002.

sSummary

As part of its strategic planning process, the Board approved an organizational review of the Academy staff and its functions by RSM McGladrey, Inc., a large consulting firm located in the Chicago area. The Board will be discussing the McGladrey recommendations during the year, as various project teams–comprised of Board members and senior staff–study the proposals.

This study is the last component of the Academy in 2005 Project the Board embarked upon in 2000. Earlier work undertaken by the Board examined the impact of a new generation of orthopaedic surgeons and the effects of the information age on the Academy’s mission and programs.

Two changes emanating from this effort were approved by the membership at the 2002 annual meeting. The Treasurer became Chair of the Finance Committee (for the three year term) replacing the second past president who served one year as Chair. Secondly, a new position of Treasurer Elect was created to provide a year of experience before assuming Chair of the Finance Committee upon becoming Treasurer. These changes will provide continuity of fiscal leadership in approving and implementing new programs.

The Finance Committee has worked hard this past year to contain budgeted spending to not exceed forecasted revenues. I’m confident the McGladrey recommendations adopted by the Board and implemented by Board and staff will make our organization even stronger in the years ahead.

Sincerely,

Andrew J. Weiland, MD
Treasurer

Assisted by Ron Kaye, CPA,
the Academy’s director of finance & planning

 

Combined statements of Assets, Liabilities and Net Assets

As of December 31

2001

2000

Assets

Cash and temporary cash investments

$8,280,211

$7,042,216

Accounts receivable (net of an allowance for doubtful accounts of $42,000 and $180,000, respectively

2,684,788

2,984,070

Publication and electronic media inventories (net of reserve of $50,000 in 2001)

594,769

710,932

Investments-at market

Permanent Fund

14,132,516

16,099,861

Operating Reserve Fund

2,000,000

2,000,000

Surgical Skills Education Fund

6,500,000

6,500,000

Project Fund

4,842,026

5,479,872

Due to Operating Fund

3,866,734

2,425,309

Total investments

31,341,276

32,505,042

Prepaid annual meeting, course and other expenses

1,850,866

1,976,848

Deferred product costs

981,647

1,133,307

Land, building, furniture and equipment, at cost:

Land and land improvements

1,169,300

1,169,300

Building and building improvements

17,828,237

17,828,237

Furniture and equipment

8,774,517

6,829,250

Total cost

27,772,054

25,826,787

Accumulated depreciation

11,855,207

10,492,322

Property and equipment net

15,916,847

15,334,465

Total assets

$61,650,404

$61,686,880

Liabilities and

Liabilities:

Net Assets

Accounts payable and accrued liabilities

$4,703,710

$5,118,580

Future course fees

306,829

302,275

Deferred dues

4,032,365

3,670,606

Deferred annual meeting revenue

6,536,711

5,684,854

Deferred product revenue

240,263

228,209

Total liabilities

15,819,878

15,004,524

Net assets:

Unrestricted

44,188,271

45,367,265

Temporarily restricted

1,642,255

1,315,091

Total net assets

45,830,526

46,682,356

Total liabilities and net assets

$61,650,404

$61,686,880

 

Combined statements of activities

For 12 months ended December 31

2001

2000

Program revenues

Membership

$10,685,355

$10,237,716

Annual meeting

10,374,434

9,894,285

Products

8,361,979

8,790,426

Continuing education

3,184,754

3,190,435

Specialty society management

2,167,545

2,065,600

Public education and communication

1,121,217

366,194

Facility management revenues

943,061

929,949

Other revenues

520,029

577,302

Total revenues

37,358,374

36,051,907

Program expenses

Education

19,114,422

18,964,677

Membership

1,006,413

1,073,597

Specialty society management

2,248,667

2,197,535

Public education and communications

3,664,687

2,630,254

Health policy & practice

2,048,676

2,225,126

Research and scientific affairs

1,419,360

1,772,324

Academic affairs

188,347

Total program expenses

29,690,572

28,863,513

Supporting services

Governance

3,276,927

3,167,035

Administration

2,638,659

2,626,985

Facilities management

1,959,340

1,984,471

Total supporting services expenses

7,874,926

7,778,491

Decrease in unrestricted net assets before investment activities

(207,124)

(590,097)

Investment activities

Dividend and interest income on investment funds, net of fees of ($19,167) and $115,567, respectively

402,822

772,904

Gain (loss) on investment funds

(1,374,692)

(483,233)

Total investment activities

(971,870)

289,671

Decrease in unrestricted net assets

(1,178,994)

(300,426)

Change in temporarily restricted net assets

Contributions

2,322,882

1,763,730

Recognition of temporarily restricted funds

(1,995,718)

(1,003,303)

Increase in temporarily restricted net assets

327,164

760,427

Combined increase (decrease) in net assets

(851,830)

460,001

Net assets at beginning of year

46,682,356

46,222,355

Net assets at end of year

$45,830,526

$46,682,356


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