AORN completes reorganization year by addressing risks and improving operations - Treasurer's Report

AORN Journal, Feb, 2003 by William J. Duffy

Colleagues, it is my pleasure to present to you our fiscal year (FY) 2001-2002 financial results. As I noted in my October 2002 report, AORN and our subsidiaries finished the year with negative margins. Although these numbers are disappointing, they reflect efforts by both the AORN Board of Directors and Headquarters staff members to reorganize operations, address risks, and improve operating results.

Overall, AORN finished the year with a 5% loss, which can be attributed to discontinuing the practice of capitalizing certain expenses, the investment market, the print and copy market, the events of Sept 11, 2001, and the expected loss associated with our decision to postpone the dues increase. More importantly, despite the losses, our results show that AORN improved its financial performance from the previous year in the following areas.

* AORN increased its operating margins by 18%.

* AORN beat the performance of the stock market. The Association's investment income experienced a 1.6% loss, whereas the Standard & Poor's 500 index for the period of July 1, 2000, through June 30, 2001 decreased by 17%.

* AORN eliminated outstanding risks associated with deferred expenses.

In addition, Board members working with staff members and the Association's auditors were able to achieve a $190,000 tax refund on the value of AORN's HealthStream stock. Although the receipt of these funds improved our cash flow position, the refund will not show up in our fiscal year 2002 income statement because it dealt with the tax return from FY 2001; however, it was a very positive result for the Association.

FINANCIAL RESULTS BROKEN DOWN

As you know, AORN, Inc, is made up of four companies, including

* AORN, which focuses on the needs of AORN members;

* the AORN Foundation, which is a charitable entity dedicated to supporting perioperative nursing;

* the Highpoint Print and Copy Center, which is the for-profit corporation that remained after we sold Education Design, Inc, and which provides print and copy services to Headquarters and outside companies; and

* Association Technology Solutions (ATS), which is a for-profit subsidiary that resells association and accounting software.

AORN. AORN finished the year with a 3% net loss, which is somewhat more than was projected at last year's Congress. The majority of this loss resulted from the Board's decision to write off the capitalized expenses associated with two long-term projects (see the "Treasurer's Report" in the October 2002 AORN Journal) and from decreases in the Association's investment portfolio. The Board's decision to recognize the capitalized expenses resulted from the negative publicity surrounding this accounting practice in other companies. Even though our use of capitalized expenses was strictly in accordance with accepted accounting practices, the Board believed it was better to absorb this one-time adjustment and remove the practice from our system. Furthermore, at the Board's November 2002 meeting, the auditors commended the Board members for their proactive management of a complicated issue.

Despite the negative margin for AORN, there are several bright spots on which I would like to comment.

* AORN's normal operating margins improved by more than $100,000 despite the fact that we had to cancel one of the Multispecialty Conferences due to the events of Sept 11, 2001.

* The loss on AORN's investment portfolio was 1.6% compared to an overall market loss of 17% for the same time period.

* Membership numbers and revenue remain steady despite the tough economy.

* Several actions were implemented to address key revenue sources, including reorganizing advertising sales and the Opportunity program, which now is known as AORN Management Solutions.

* Congress and World Conference had strong attendance and excellent evaluations. As a result, AORN's revenues and gross margins significantly exceeded the previous year's results for these events.

AORN Foundation. The AORN Foundation finished the year with a slight loss; however, it also made significant progress in improving its operations. Revenues and scholarships both increased while expenses were reduced.

Highpoint Print and Copy Center. The Highpoint Print and Copy Center had a very difficult year. Competition from national print companies and a slowing of business from HealthStream contributed to a drop in revenue. Unfortunately, the majority of expenses in the center are fixed in capital equipment leases. The Board took the action of closing the print portion of the center in December 2001 as the business downturn became apparent. This allowed us to save on salary costs while continuing to provide copy services to AORN and our tenants. James Cousin, AORN's chief financial officer, is monitoring the center's performance and looking for the best financial action plan to move it forward.

Association Technology Solutions. Association Technology Solutions basically finished the year at a breakeven point in a very tough economy. This was a reorganization year for ATS as new senior leadership was hired to refocus ATS business plan. AORN Board members were not satisfied with the company's performance and looked to new leadership to prepare a fresh business plan. The initial assessment is encouraging. Sales are improving, and expenses are being held in check. The Board anticipates that the company will return to profitability at the end of FY 2003.