AAOS Bulletin - October, 2005

FY 2004 was another very good year financially

From the Treasurer

By Edward A. Toriello, MD

Every October, the Treasurer is required to deliver a financial report to the membership on the previous fiscal year. This report covers the period Jan. 1–Dec. 31, 2004. Like 2003, 2004 was a very positive year financially.

Total revenue increased by more than $3.5 million over 2003, while total expenses increased by $3.4 million. In addition, the stock market stayed positive, resulting in a $3.8 million increase in our investments, compared to a $5.7 million increase in the previous year.

    Edward A. Toriello, MD

    AAOS Treasurer

Finally, industry grants and contributions increased from $2.8 million in 2003 to $4.9 million in 2004. Taken together, the total increase in our reserves in 2004 was more than $7.1 million, which compares favorably with the total increase of $7.9 million in 2003.

Combined Balance Sheet

Total assets of $74.4 million at year-end 2004 represented an increase of approximately $8.4 million from the 2003 year-end balances. The increase is due to both operational revenues and investment gains. Operationally, the gain is due to Annual Meeting revenue (mainly from exhibitors), publications (due to the release of Orthopaedic Knowledge Update 8), CME courses (due in great part to course sponsorship grants) and the Political Action Committee (PAC).

Our liabilities at year-end increased by $1.3 million over 2003, wholly attributable to the increase in deferred 2005 Annual Meeting revenue because the 2005 meeting was held one month earlier than the 2004 meeting.

Investments

For the second consecutive year, there were gains in long-term investments. More than $1 million in dividends and interest income, net of fees, was generated. In addition, the increase in market value at Dec. 31, 2004 resulted in $2.7 million of unrealized gains. Combined, the Academy experienced an 11.1 percent return on the portfolio compared to our benchmark of 10.6 percent.

Combined Statement of Activities

Combined revenues of the Academy and Association were $44.4 million, an increase of $3.5 million over 2003. The increase resulted from the Annual Meeting, publications, CME courses, and the PAC. Combined expenses of $43.1 million were $3.4 million more than in 2003. The increase in expenses is directly tied to the increase in revenue noted above.

Program highlights

I would like to comment briefly on two programmatic activities: 1) the AAOS PAC and 2) medical liability reform. The PAC had a tremendous year in 2004, with member contributions of more than $1.1 million spent on political activity, and another $333,000 from Association reserves.

Medical liability reform was also a key initiative with more than $500,000 from member contributions and $860,000 from Association reserves spent on this activity. Taken together, we spent almost $2.8 million dollars on public and political education on the medical liability crisis and got involved in the political process to an extent we never did before.

While we saw success in 2004, particularly in the November elections, there is more we need to accomplish not only on medical liability reform but on Medicare payment and pay-for-performance issues. Thus, it will be critical to continue our efforts, through member donations to both the PAC and medical liability reform in 2005 and 2006, and through the continuing use of Association reserves.

As you know, your Board has already voted to spend $717,000 in 2005 and up to $2 million in 2006 from Association reserves on medical liability reform. We need to continue this fight.

2005 Budget

Recent forecasts have projected another strong year financially from operations with investments see-sawing back and forth but expected to be slightly positive by the end of 2005.

Summary

Education continues to be the AAOS’s predominant activity under our Strategic Plan priorities. New products and programs are continually being developed, in both traditional and new, innovative formats. The Academy will be increasingly active in Washington, D.C., particularly with medical liability reform, the Medicare physician payment schedule, and the development and implementation of pay for performance initiatives.

As always, your involvement through participation in AAOS activities, programs and committees, along with your continuing donations to the PAC and medical liability reform will ensure a robust Academy for years to come.

In summary, the total financial picture for the Academy/Association continues to be strong. An emphasis on controlling expenses and developing new sources of revenues continues. In 2003, I began to track the financial performance of various activities to identify trends and we are using this information to identify areas that need our attention as we move forward. We continued these efforts through 2004 and have already begun to expand them slightly in 2005.

Also, the Leadership Review Group continues to critically look at each key program, committee and activity annually to ensure that each is within budget and that the program accomplishes what it is designed to do: create value for the fellowship.

Please contact Stuart L. Weinstein, MD, AAOS president, or me with any comments or concerns.

Edward A. Toriello, MD

Treasurer

   

2004

2003

ASSETS

Cash and temporary cash investments

$12,162,009

9,309,289

 

Accounts receivable (net of allowance for doubtful accounts of $41,000 and $27,000, respectively)

2,215,589

1,850,664

 

Pledges receivable

2,643,298

832,125

 

Publication and electronic media inventories (net of reserve of $50,000 in 2004 and 2003)

538,956

653,006

 

Investments - at market

   
 

    Permanent Fund

21,487,000

20,523,000

 

    Project Fund

18,183,852

13,566,788

 

    Operating Fund

1,658,607

128,489

 

    Net investments

38,012,245

34,218,277

 

Prepaid expenses

2,502,489

2,442,735

 

Land, building, furniture, and equipment, at cost
Land and land improvements

1,169,300

1,169,300

 

Building and building improvements

19,201,768

18,969,659

 

Furniture and equipment

8,284,744

7,966,286

 

Total cost

28,655,812

28,105,245

 

Accumulated depreciation

12,981,909

12,211,218

 

Net fixed assets

15,673,903

15,894,027

 

Deferred product costs

712,455

876,767

 

Total assets

$74,460,944

66,076,890

LIABILITIES AND NET ASSETS

Liabilities

Accounts payable and accrued liabilities

$4,443,246

$4,577,639

 

Future course fees

368,095

385,815

 

    Deferred dues

3,839,648

3,941,344

 

    Deferred annual meeting revenue

8,116,721

6,758,659

 

    Deferred product revenue

468,427

296,416

 

    Total liabilities

17,236,137

15,959,873

 

Net assets

   
 

    Unrestricted

53,376,976

48,216,652

 

    Temporarily restricted

3,847,831

1,900,365

 

    Total net assets

57,224,807

$74,460,944

50,117,017

$66,076,890

CONSOLIDATED STATEMENTS OF ACTIVITIES

For the years ended December 31, 2004 and 2003

 

2004

2003

Change in unrestricted net assets

Revenue

   

Membership dues

$14,242,147

14,398,488

Annual meeting

11,773,857

10,294,119

Products

8,894,304

8,120,972

Course education

3,623,932

3,150,344

Specialty society management

1,968,175

1,857,386

Communication, public education, and media relations

798,365

667,683

Facilities management

974,587

885,117

Medical liability reform

503,717

675,588

Other revenue

1,658,429

914,610

Total revenue

40,964,307

44,437,513

     

Expenses
Program expenses

   

Membership

2,518,944

2,529,159

Annual meeting

5,989,076

5,186,924

Products

8,395,342

8,103,807

Course education

3,674,107

3,193,091

Specialty society management

2,221,884

2,011,116

Communication, public education, and media relations

2,836,773

2,791,127

Academic affairs

794,895

777,477

Council on musculoskeletal specialty societies (COMSS)

156,675

208,847

Board of councilors

823,989

865,323

Health policy

2,856,984

2,216,632

Medical liability reform fund

1,379,817

799,488

Education programs

578,626

584,314

Organizational marketing

494,145

538,422

International activities

520,266

469,294

Research and scientific affairs

1,326,394

1,454,867

Total program expenses

34,567,917

31,729,888

Supporting services

   

Facilities management

1,921,955

2,029,884

Board of Directors

2,800,338

2,798,965

Total supporting services expenses

7,935,727

8,523,230

Total expenses

43,091,147

39,665,615

Increase in unrestricted net assets before investment activities

1,346,366

1,298,692

Investment activities

   

Dividend and interest income

1,064,793

762,261

Gain on investment funds

2,749,167

4,980,066

Total investment activities

3,813,960

5,742,327

Increase in unrestricted net assets

5,160,326

7,041,019

Change in temporarily restricted net assets

   

Contributions

4,903,644

2,766,532

Satisfaction of program restrictions

(2,956,178)

(1,920,684)

Increase in temporarily restricted net assets

1,947,466

845,848

Change in net assets

7,107,792

7,886,867

Beginning net assets

50,117,015

42,230,150

Ending net assets

57,224,807

50,117,017


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