Fiscal year 1997 was both a challenging and productive year financially for the American Academy of Orthopaedic Surgeons. The major challenge to the Academy's fiscal integrity continues to be legal actions in which the Academy is named as defendant. While the copyright infringement suit was settled in fiscal year 1996, the series of suits involving the use of the pedicle screw continues to plague the Academy, both financially and with respect to the utilization of key personnel resources.
Fiscal year 1997 was one of positive change for the Academy. The Academy's strategic plan continues to be the road map for all Academy endeavors. Councils of the Academy have begun planning their activities consistent with and directed by the Academy's strategic plan. During fiscal year 1997, the Academy had an increase in membership of 534 over the previous year. The Journal of the American Academy of Orthopaedic Surgeons continued growing and increased its advertisement base. The Academy's website, AAOS On-Line, continues to grow and has become an integral part of the Academy's overall communications program with the fellowship, other medical associations and the public.
At the May Board of Directors meeting, the Board approved a proposal to change the Academy's fiscal year from May 1-April 30 to a calendar fiscal year (Jan. 1-Dec. 31). The Board took this action to align the Academy's fiscal planning and projection with its annual year of activities and strategic planning. This will become effective as of Jan. 1, 1998. The transition will take place through the remainder of 1997.
Assets. For fiscal year 1997, the total Academy assets decreased 10 percent ($4,726,860) to $42,003,633. This decrease occurred as a result of the following two significant financial transactions:
Academy staff now has a defined contribution pension plan. This approach enables the Academy to better project and predict its obligations to staff as they relate to pension and retirement benefits.
Land, building, furniture and equipment net of depreciation amounts to $14,545,595 (35 percent of total assets).
The Academy's investments totaled $22,197,307 (53 percent of total assets).
Liabilities. The Academy's
liabilities decreased $6.3 million compared to
fiscal year 1996. This was due primarily to the payoff of the industrial revenue bonds, partially offset by an increase in accrued liabilities for the termination of the Employees Defined Benefit Pension Plan. Liabilities at April 30 are 15.8 percent of total assets for fiscal year-end 1997, compared to 27.6 percent for fiscal year-end 1996.
Unrestricted net assets. The remainder - $35.4 million - is unrestricted net assets, which in prior years had been referred to as the fund balance. The increase in unrestricted net assets from fiscal year 1996 to 1997 totaled $1,535,575.
Net gains from investments for fiscal year 1997 totaled
$2,101,745. Of that amount, $1,756,596 came from gains
on the Academy's investment portfolio. An additional $916,325 was received as dividends and interest income on the investment funds. This investment income was partially reduced by interest expense and write off of unamortized bond issuance costs.
The Academy's Finance Committee reviewed and updated the Academy's investment policy and asset allocation approach.
The largest revenue-producing area, Annual Meeting, increased nearly 18 percent to $8.7 million for fiscal year 1997. The second largest revenue-generating activity, Membership, increased 2 percent to $8 million. Annual Meeting expenses increased 1.9 percent from fiscal year 1996.
Publications, the third largest revenue producer, decreased revenues by $601,000 in fiscal year 1997 vs. 1996. This was due primarily to disappointing sales of the "Orange Book" and the late publication of several productions. It is expected that revenues from the latter will be realized in fiscal year 1998.
Total operating revenues were $32.1 million, up 5.9 percent from the previous year. Total expenses for the same period increased to $31.4 million, or 3.6 percent over fiscal year 1996. Therefore, from operations there was an increase in unrestricted net assets (revenues over expenses) of nearly $683,000. Overall, actual revenues received were $1.3 million less than budget, while actual expenses were $1.4 million less than budget. Resulting income from operations was $184,000 over budget.
In May 1997, the Board of Directors approved an expense budget of $30.9 million for the period of May 1, 1997, through April 30, 1998. Projected revenues for this same period are $32 million. Increases in revenue are projected for Membership ($200,000), Annual Meeting ($600,000), Facilities Management ($80,000) and Specialty Management ($130,000). Revenue decreases are projected for Publications ($1.1 million) and Course Operations ($600,000).
For the overall projected fiscal year 1998 expense budget:
Organizational spending - which includes Executive Services, Organizational Services, and a portion of Governance (Board of Directors, Board of Councilors, COMSS) - will account for 26 percent of the projected fiscal year 1998 budget. This represents almost a 1 percent increase over fiscal year 1997. Recent spending on organizational matters has declined from 32 percent reported in fiscal year 1995.
The projected budget revenue over expenses from operations for fiscal year 1998 is $1,057,000. This excess will support new programs, initiatives and unanticipated expenses during the budget year.
Because of the change in the Academy's fiscal year, there will be a second budgeting cycle in 1997. This will be a one-time activity intended to create and approve a budget for the period of May 1, 1998 to Dec. 31, 1998.
For fiscal year 1999 and thereafter, the budgeting cycle will begin in August of the prior year and conclude in December, when the Board approves the budget for the next 12 months.
With the change of the fiscal year, the Academy's strategic plan and budget are now chronologically aligned. Further, these two processes now coincide with the Academy year. The result is that the Board of Directors' efforts to meet its fiscal responsibilities and to more accurately project financial requirements will be enhanced.
Stuart A. Hirsch, MD
|As of April 30||1997||1996|
|Assets||Cash and temporary cash investments||$1,681,793||$2,405|
|Accounts receivable (net of an allowance for doubtful accounts of $40,000 in 1997 and $45,000 in 1996)||1,055,057||1,326,192|
|Publication and electronic media inventories||947,758||1,187,164|
|R & D fund||2,794,985||2,813,505|
|Due to (from) operating fund||(51,191)||1,551,157|
|Prepaid course and other expenses||846,246||608,329|
|Deferred product cost||729,877||1,246,811|
|Land, building, furniture and equipment, at cost:|
|Land and land improvements||1,122,929||1,104,861|
|Building and building improvements||14,331,839||14,361,693|
|Furniture and equipment||5,144,004||6,310,035|
|Net land, building, furniture and equipment||14,545,595||14,871,737|
|Unrestricted||Accounts payable and accrued liabilities||5,209,152||$4,406,955|
|Net Assets||Deferred subscription revenue||81,918||56,278|
|Future course fees||939,272||1,093,717|
|Deferred product revenue||411,386||647,213|
|Unrestricted net assets:||35,361,905||33,826,330|
|Total liabilities and unrestricted net assets||42,003,633||$46,730,493|
|As of April 30||1997||1996|
|member service||Annual Meeting||8,681,365||7,379,006|
|program activities||Electronic media and evaluation products||3,028,808||2,138,482|
|and real estate||Publications||6,433,046||7,034,150|
|Specialty society management||1,027,677||982,941|
|Facility management revenues||778,466||905,868|
|member service||Annual Meeting||4,735,411||4,646,803|
|program activities||Electronic media and evaluation products||2,465,450||2,152,810|
|and real estate||Publications||5,343,178||5,361,920|
|Specialty society management||1,120,366||1,132,506|
|Facility management expenses||1,523,125||1,386,621|
|relating to||Health policy||1,921,814||2,178,023|
|supporting services||Research and scientific affairs||1,762,043||1,565,519|
|Education, communications and marketing programs||1,890,637||642,454|
|General and administrative||3,078,002||3,711,271|
|Total expenses for supporting services||10,737,059||10,068,513|
|Increase (decrease) in unrestricted net assets
before investment activities, contributions received,
litigation/settlement expenses, and pension termination costs
|Dividend and interest income on
investment funds, net of fees of
$183,484 in 1997 and $136,884 in 1996
|Gain (loss) on investment funds||1,756,596||3,769,143|
|Write-off of bond issuance costs||(191,618)|
|Interest expense, net of interest earned on escrow fund
of $20,149 in 1997 and $21,424 in 1996
|Total investment activities||2,101,745||4,154,316|
|Contributions to AAOS for learning center||------||60,000|
|Pension termination costs||(1,248,916)||------|
|Increase in unrestricted net assets||1,535,575||3,177,225|
|Unrestricted||Beginning of year||33,826,330||30,649,105|
|net assets||End of year||$35,361,905||$33,826,330|