At the July meeting of the Board of...

At the July meeting of the Board of Directors, Board members made a decision to outlay the portfolio of capitalized assets forward AORN's financial books. This decision will issue in $475,000 being deducted from AORN's assets and added to charges For the most part, this is an accounting transaction and does not depict current spending of any cash. Instead, the action will be thinked on AORN's financial statement as the allocation of costs that the Association has incurred during a period of four years.

wherefore DID THE BOARD TAKE THIS ACTION?

The Board of Directors took this action as a conclusion of the recent media spotlight forward companies that capitalize expenses in anticipation of that will be revenue. The Board believes that although there are generally accepted accounting controls that allow for capitalization of assets, it is best for AORN to charge costs for developing projects now rather than in the to come In this way, AORN can part any future revenue associated with these throws at 100% margin.

The short-term purport of this action is that the los reported for fiscal year 2002 will be higher than anticipated. Although Board members are cognizant of this fact, they also know that the Association is fiscally unhurt with a very strong balance sheet. In addition, this expensing equates to merely about 5% of AORN's trap assets. Frankly, the Board members, like the security of America, were disturbed at the accounting actions of about of the biggest companies in the United States. Although AORN's use of capitalized assets is strictly in accordance with accepted accounting practices approved of by way of outside auditors and limited to sum of two units initiatives, the Board did not want this practice to be part of the Association's accounting system

CAPITALIZATION AS AN ACCOUNTING PRACTICE

As I noted briefly, it generally is an accepted accounting practice to capitalize assets. Capitalized assets exhibit funds spent on a particular concoct that are considered an investment in that frame As long as there is a reasonable belief that the exhibit will generate revenue, there is value associated with the throw As long as there is value associated with the throw out expenses can be capitalized up to the reasonable value of the intend This allows companies to track unless not allocate costs associated with contrives that have multi-year start-up periods before revenue will be generated. It also allows companies to match costs with revenues as the returns are produced.

Unfortunately, this practice can be distorted to hide outlays from shareholders. This unethical behavior has been practiced by the agency of a few, highly visible companies lately, and it has created an environment in which the accounting industry has to review its practices. The Board decided to maintain AORN's traditional conservative approach to finances at taking this action while the accounting industry perform the operations indicated ins a response to the situation.

WHAT WERE OUR CAPITALIZED ITEMS?

The sum of two units areas where expenses were capitalized were the AORN's Surgical Knowledgebase (ASK) intend and the translation of AORN's Standards, praiseed Practices, and Guidelines into Spanish. The ASK brew which is responsible for the vast majority of the capitalized assets, commonly is being marketed for sale. The Spanish translation accounts for 10% of our capitalized assets and also is being marketed for sale in Latin American countries. AORN is working with several industry partners to bring a higher standard of perioperative nursing care to our colleagues and their patients in southerly America, and we are excited about the potential for this project

For one as well as the other of these projects, staff members made the decision to use capitalization as a system to manage and track the preciousnesss associated with developing both brews from inception to market. Neither throw was expected to produce immediate income so the decision was made to confine expenses in the form of an asset until reward was generated. After the receipts stream was developed, the capitalized assets would be depreciated to naught Unfortunately for the ASK contrive the collapse of the dot.com business environment affected the marketability of this concoct The Association's executive staff members popularly are investigating alternate methods to best realize a recur on AORN's investment. The Board decided to proce with elimination of capitalized assets while these staff members actions their investigation.

AORN'S FINANCIAL STATE

I would like to stop this message with a short report forward our current financial state. The Association had a difficult year, still it remains in a powerful financial position even though we, like the tranquillity of the country, are dealing with presss associated with the economic downturn. The Association's lay up funds are intact, it has cipher long-term debt, it owns the Headquarters building debt-free and its membership numbers remain stable at more than 40000 nearest year's fiscal budget calls for a recur to profitability, and the Board and staff members believe reorganization at Headquarters will position AORN for sound future growth.