2011 Financial Results

American Red Cross FY 2011 Financial Results

A message from the Chief Financial Officer

The American Red Cross ended its fiscal year 2011 with net assets of $2.2 billion, posting total operating revenues of $3.5 billion and total operating expenses of $3.4 billion. Behind these indicators of size and activity are several key numbers that help explain the organization’s positive trajectory.

$71 million: Red Cross operating surplus.

Red Cross day-to-day operating revenues and expenses are captured by the $71 million surplus figure. Previously, facing an operating deficit in FY08 of $209 million, we improved to a $33.5 million deficit in FY09, and had ended FY10 with a modest operating surplus of $47 million. The $71 million operating surplus for our fiscal year ending June 30, 2011, reflects outstanding fundraising support toward the end of FY11 in response to spring tornadoes and floods; better than planned oversight of our management and health benefit expenses; a surplus of $69 million in revenues over expenses related to Biomedical Services, which will be applied toward revitalizing their IT systems; and an overall increase in efficiencies and centralization.

$31 million: Change in net assets from operations as reported on Red Cross audited financial statements.

The $71 million management calculation focuses on core ongoing revenues and expenses. It segregates daily operations from the spend-down of specific episodic disaster relief operations, one-time events and/or market value adjustments. These types of activities are part of an audited statement, but are managed separately.

Note: Financial statements for the Red Cross are reported according to GAAP accounting rules, which do not completely reflect the daily business operations of the organization. The difference between the $71 million operating surplus and $31 million operating surplus per financial statements are the one-time expenditures on international and domestic relief funded by contributions in the previous year and a onetime investment in a biomedical IT system called BioArch, offset by a positive pension/post-retirement benefits change.

$233 million: Change in net assets as reported on Red Cross audited financial statements.

The $233 million total change in net assets mostly reflects additional non-operating investment gains from our endowment and chapter reserves as of June 30, 2011.

$573 million: Red Cross debt.

In FY11, the Red Cross continued making strides toward reducing our total debt, which was $573 million, compared to $592 million in FY10. The Red Cross has also taken additional steps toward reducing the debt risk to the organization. We have restructured more of our debt to make it less vulnerable to shortterm volatility of interest rates. However, we must maintain a breakeven budget performance in order for the organization to prudently pay off this debt in future years. The Red Cross debt-to-net-asset ratio of 26 percent (debt: $573 million; net assets: $2,192 million) is a four percentage-point improvement over FY10 and falls well within the covenants we have negotiated with our bankers, who have encouraged our financial management strategy.

Our audited results show that the Red Cross is making progress toward financial stability. We are well on the way to institutionalizing a Red Cross-wide culture of financial efficiency that has significantly cut backoffice costs out of our chapters, biomedical units and national headquarters. Lasting financial stability will only come if we continue doing all of these things and sustainably grow our revenues. Looking ahead, we’re not managing a single fiscal year; we’re building a progression toward long-term financial sustainability, fueled by growing revenues supporting needed, cost-effective and lifesaving services.

Brian Rhoa

Chief Financial Officer